ECONOMIC SITUATION

HC Deb 25 November 1968 vol 774 cc33-163

Mr. Speaker

I understand that it is the general wish of the House that the subject of the debate should be the economic situation and not that shown on the Order Paper.

3.32 p.m.

Mr. Edward Heath (Bexley)

Last week, some of us sensed an air of unreality about the debates on the House when outside in the world at large there was obviously a grave financial crisis, when the foreign exchanges were closed here and in the European capitals and we were devoting our time to debating electoral reform and the reform of the House of Lords. It is an unreality which has persisted in the House since the introduction of the last Queen's Speech which, as we said at the time, appeared to bear almost no relation to the real problems facing the country.

That air of unreality was perhaps dispersed when the Chancellor of the Exchequer rightly came to the House on Friday afternoon at a late hour and made his statement. Her Majesty's Opposition thought that it would be right, in these circumstances, to revert to the original proposal, announced by the Leader of the House last Thursday afternoon, to have a debate today on our economic affairs. It is, therefore, today that we have to deal with reality.

This debate on the Adjournment is the opportunity for the House to condemn Her Majesty's Government and the Chancellor of the Exchequer, in particular, for their handling of the country's economic affairs. How quickly the erstwhile admiring headlines have changed from "Roy's the Boy" to "Roy the Unready"! We condemn the Government's incompetence in their handling of our economic affairs; we condemn them for their failure to tell the country the true position; we condemn the Government for their deception.

The Prime Minister is not to take part in this debate. I do not complain of that; it is characteristic of him. He will explain his position tonight to his party meeting upstairs, where he feels very much more at home. He has deputed his charge to the Chief Secretary, who, on Thursday afternoon, displayed such an ignorance of the currency regulations which he has to enforce that he is quite unsuited to take part in any debate of this kind. If the Prime Minister had been able to take part, the explanation for these misadventures would have come from his own mouth. We would have been "turning the corner", "guided by an economic miracle", "got blown off course", giving a "touch on the tiller", said to be "steady as she goes", and finally capsized.

But the great merit of the Chancellor's statement on Friday was that he pre-empted all such excuses. It was honourable of him to do so and to take the full blame upon himself, and in so doing he prevented the Prime Minister from taking part in the debate. He announced that the measures were prepared before the international crisis and had nothing whatever to do with the Bonn meeting.

Of course, the timing of the measures is of great interest to the House. Perhaps the Chancellor would tell us exactly when they were prepared. Was it after pressure on sterling developed some 10 days ago and before the European crisis arose, or did the Chancellor want to bring in these measures some three weeks ago to deal with the situation, but was prevented from doing so by the statement of the Secretary of State for Employment and Productivity that there was not to be another economic freeze?

In any case, the Chancellor of the Exchequer endorsed her words. Perhaps he was accurate in saying that he had a blinding revelation at Bonn that the events of the past week have demonstrated dramatically the urgency of our achieving and maintaining a surplus in the balance of payments … "—[Official Report, 22nd November, 1968; Vol. 773, c. 1792.] It took the international crisis and the meeting at Bonn to persuade the Chancellor of the Exchequer that he had to take action when the situation was becoming critical. That in itself is a condemnation of the Chancellor of the Exchequer for his complacency and incompetence. The need for these measures if the Government's policy were to be effective was widely discussed in the Press and elsewhere and in the House three weeks ago, but he took no action and he himself said that there would be no freeze.

The Chancellor's forecasts have all been proved wrong. Now he has a new line. He says, "So many of my forecasts have been wrong because I make so many forecasts", and he has, therefore, invited the House to congratulate him on making so many forecasts even though they proved to be so wrong. His action has certainly shown this time that the forecasts he gave were wrong.

The Chancellor's policy was based on one fundamental—a reduction of consumer expenditure and that public expenditure could go on increasing. His strategy was that there must be a substantial reduction of consumer expenditure if, in his own words, devaluation was to be made to work. On the other hand, public expenditure could go on increasing. This policy was to be brought about by a brutal increase of taxation in the last Budget of £923 million, together with the prices and incomes policy. These were the two means by which he was to carry out his strategy. He required a drop of nearly 2 per cent. in consumer expenditure by this August. This was not just a forecast; this was a requirement.

But, instead of this requirement being brought about, exactly the reverse has occurred. Consumption is up between 2 and 3 per cent., and it makes a difference of nearly £500 million. That is the first thing that has gone wrong with the Chancellor's strategy. The second is that the Government's prices and incomes policy has not served their purpose. The Chancellor himself admitted this in that optimistic article in the People only eight days ago, the Sunday before last. He was optimistic about imports—yes, per- fectly all right—exports could go on increasing. He was perfectly optimistic about the level of consumer expenditure—yes, we could hold it there, and all was well.

The Chancellor went on to say that wage rates were up 5 per cent. and earnings by much more. This is true. Earnings are up by 8 per cent. and prices by 6 per cent. This is another condemnation of the failure of the Government's prices and incomes policy.

The Prime Minister has always been in a dilemma over the prices and incomes policy. The Chancellor wanted prices to go up so as to enable devaluation to work. Politically, the Prime Minister wanted to show that prices were not going up so that he could keep his word in his devaluation broadcast and he did not incur political odium. That is the dilemma which has always faced him. But today it is clear that consumer expenditure has not been kept down and that wages and earnings have risen faster than prices.

I doubt that the Prime Minister ever wanted the prices and incomes policy to succeed. The present Secretary of State for Employment and Productivity was put there to save the Prime Minister from the real rigours of the incomes policy as the Chancellor wanted it carried through. This has been the contradiction inside the Government all the time.

Now let us look at another aspect of the Government's failure, namely, in trade and the balance of payments.

Mr. Woodrow Wyatt (Bosworth)

As the right hon. Gentleman himself has bitterly opposed any attempt to establish an incomes policy, would not matters have been much worse if he had been in charge?

Mr. Heath

I can understand the hon. Gentleman's view. He said publicly this weekend, I understand, that what the Government are at present doing is extremely good for the Labour Party. If he holds that view, I respect it.

I now come—[Hon. Members: "Answer."] I wish now to deal with the question of exports and the balance of payments. [Hon. Members: "Answer."] The Prime Minister has spoken of a 25 per cent. increase—

Mr. Wyatt

On a point of order, Mr. Deputy Speaker. I asked the right hon. Gentleman a question—[Hon. Members: "Not a point of order."] How do hon. Members know that it is not?

Mr. Deputy Speaker (Mr. Sydney Irving)

Order. I hope that the House will allow me to hear the point of order.

Mr. Wyatt

It is a point of order, Mr. Deputy Speaker. The first part of my point of order is that everyone has a right to be heard. Second, I asked the right hon. Gentleman a question. He did not answer, but made an inaccurate observation about what I said on Saturday. May we not have him answer the question which was put?

Mr. Deputy Speaker

That is not a point of order.

Mr. Heath

I was about to deal with the question of exports and the balance of payments.

The Prime Minister has spoken of an increase of 25 per cent. in exports. What is the real position of exports from the standpoint of the balance of payments? Taking the second and third quarters of 1967 together—I take the two because of the problems over strikes—and comparing them with the third quarter of 1968. the improvement in exports in foreign currency terms is 3 per cent. That is the real export position which has to be taken into account into relation to our balance of payments, and it is misleading to speak of 25 per cent., a figure which bears no relation to the country's problems.

Next, the foreign currency cost of imports is 8 per cent. up. This is the problem confronting us, for, despite all the efforts of British Business and industry, the value of our exports has risen by 3 per cent. and the cost of imports has risen by 8 per cent.

Finally, on this aspect of the matter, in the context of an increase in world trade, we are only just holding our own, going slightly better than the increase in world trade. This means that we have gained nothing from devaluation in the proportion of world trade, unless, of course, the Government are now prepared to say that the situation before devaluation was even worse than they told the country it was. If the situation was becoming worse even more rapidly than they said, they could claim that devaluation has done something more than just enable us to hold our own in world trade; but if matters were as they declared, we have only just held our own. That is all.

Those are the main characteristics of our economic situation and the Government's policy. The attempt to deal with the post-devaluation period by forcing down consumer expenditure has failed. The attempt to hold the level of wage rises below that of prices has failed. The attempt to earn more in exports than the increase in our imports has failed. The attempt to secure a larger share of world trade so as to be able to repay our debts has failed. That is the condemnation of the Government's policy.

This situation has existed for some time. The spending spree has been going on ever since devaluation, because the right hon. Gentleman the present Home Secretary, either because of his own or the Government's judgment, was not prepared to take action which he ought to have taken immediately after devaluation. The spending spree slowed a bit after the Budget, but then regained momentum and is now faster than it has ever been.

The Chancellor of the Exchequer (Mr. Roy Jenkins)

No.

Mr. Heath

Yes, at this moment. The right hon. Gentleman has only to read the Press this weekend to see the impact which his own measures have had on the spending spree. It is there for all to see.

Mr. J. T. Price (Westhoughton) rose—

Mr. Heath

I am sorry, no. I usually give way a great deal, but there is much to be said.

The realities of the economic situation have been smothered by the Government in a rosy glow of optimism. Both the Prime Minister and the Chancellor of the Exchequer are to blame for this. The Prime Minister gave us, first, his devaluation speech, then talk of the economic miracle, then the optimism of his speech in Wales, then his speech on the Address—everything going fair—and finally, 10 days ago, his now famous interview with Mr. John Dickinson, when he gave his views on how splendidly everything was going.

I shall quote a short passage. Mr. Dickinson said: Certainly, he looked fitter and more relaxed than he had at the start of the year, and I told him so. After a couple of puffs on his pipe, the Prime Minister said 'If you feel that things are going to work out right, you are obviously more relaxed; and there is evidence that policies are beginning to work through'. Just a couple of puffs between the Prime Minister, the country, and disaster.

The Chancellor of the Exchequer, in his Mansion House speech, in his speech on the Amendment to the Address and in his interview published in the People only eight days ago, spoke to the same effect—all was going well.

Last Friday, we had the latest measures.

There was plenty of warning to the Government of what was happening. At the time of devaluation they were warned of the danger that they would fritter away time and the country's resources. Last summer they were warned about the debt which the country had incurred and what this was doing to our economy for the future. We warned them about the crisis which led to the Basle Agreement—and how the Prime Minister pooh-poohed that. The real crisis was revealed in the Chancellor's White Paper about the Basle Agreement. How right we were in all those warnings.

What lies behind the Government's failure in attempting to deal with the problem as they have? The consumer is not prepared to bear the full brunt of the Government's measures. That is now absolutely clear. It is the silent revolution of the consumer, and it is based on a philosophy which have grown up over these post-war years of rising expectations of life. They see it happening in every industrial country in the West. [An Hon. Member: "Like France?"]. That is the psychological background to what has been going on in this country since devaluation.

The people have been determined to maintain their standard of living even if it means pressures on wages, even if it means withdrawals of savings. They are endeavouring at all costs to maintain their standard of living. They do not understand the relevance of the Govern- ment's measures to their own activities, or to the prosperity of the country, or to its position in international affairs. Because of the repeated action of the Government, none of it satisfactory to produce the result which is required, they have now lost confidence in the Government's measures.

The people have allied with their determination to maintain their standard of living a determination to break compulsory wage control. That has been the reaction of people over the last year. They believe that they are unable to change it individually in their work or in any other way, and that is what has led to their frustration and their disillusionment. They see that it can only be done at their work by those who organise industry, whether management or unions, and by the policies which the Government themselves put forward. The Government must face this reality, because to go on with policies which are based on the assumption that they will work can lead only to increasing progress towards disaster.

In that context, let us look at the measures which the Government took last Friday. The regulator—another £250 million additional taxation, a total this year of £1,173 million, 30s. for every family in the country, a total since the Government came into power of £2,280 million, or £3 for every family per week. That is the burden. [Interruption.] Yes, per week—30s. per week this year in additional taxation, and during the Government's total period in office £3 a week.

We now have a credit squeeze which is more than a freeze. It is cutting back credit to a very considerable extent. It will mean damage to many firms, particularly the smaller and the family firms. [An Hon. Member: "Ah."] I do not understand why the hon. Gentleman opposite should say, "Ah". These small and family firms provide employment for the greater part of the workers of the country. The import deposits, too, will greatly damage the smaller firms because they are the ones who are without the liquid resources, of which the Government constantly talk, to enable them to deal with the additional 50 per cent. charge on imports.

On the question of import deposits, I would like to put some questions to the Chancellor of the Exchequer. We have sometimes asked him to examine this proposal and to tell the House what were the pros and cons of having the import deposits. Hitherto, he has always said that they were impracticable. We would like to know from the Chancellor what has now made them practicable.

I understand that firms will be allowed credit of some kind until March, 1969 but that after that the whole 50 per cent. will have to come out of their own resources by a reduction in the imports which they obtain. It means that the compulsory balances, or the balances paid compulsorily to the Government, under the two schemes of the import deposits and the Selective Employment Tax will amount at the end of the period to roughly £1,000 million. That is the amount which the Government are taking out of industry, obviously without paying any interest on it and using it for their own resources through these two devices.

Those are the measures which are being taken against the background I have described. What they will do is to push up the cost of living still further. They will push up industrial costs still further and decrease, therefore, the advantages which can be gained from devaluation which was carried through a year ago. This is the same approach as the Chancellor has had throughout his period in office. It has already failed for the reasons I have given, and all he can do is to go on pursuing the same policies.

The omissions are startling. There is nothing in these measures to induce savings. The Government themselves are constantly stating that people are withdrawing savings to cope with the present situation. If savings are to be dealt with, there must be a realistic scheme with a high inducement to people to break the vicious circle of personal expenditure and to persuade them to save once again. We have put forward our own schemes; they may not be the best. If the Chancellor has better ones, let him come forward with them. What is required urgently, however, are schemes to induce people to stop withdrawing savings and to make fresh savings.

There is nothing on the question of Government expenditure. The Chancel- lor must face the analysis which I have given him, whatever his views about Government expenditure, if he is to secure a response from the people. They are not prepared to see Government expenditure continue at the rate it has been going on, nor are they prepared to see it continue at the present level.

In 1963–64, Government expenditure —the total of public expenditure—was £12,067 million. In 1968–69, it is £19,386 million, an increase of 60 per cent. [An Hon. Member: "What about east of Suez?"] Let right hon. and hon. Members opposite first recognise that Government expenditure has increased by 60 per cent. over what we were spending in 1964. For that, the Government and the Chancellor are responsible.

Mr. E. Shinwell (Easington) rose—

Hon. Members

Give way.

Mr. Deputy Speaker

Order. The Leader of the Opposition is not giving way.

Mr. Heath

I have not done so, but I will give way to the right hon. Member for Easington (Mr. Shinwell).

Mr. Shinwell

This is a very important point. It is the substance of the Opposition case on public expenditure. Will the right hon. Gentleman be good enough to furnish details, perhaps, on defence, on health and on housing? May I remind him that almost every day, from his side of the House, demands are made for more schools, more roads and extra public expenditure?

Mr. Heath

Yes, I will do so. I ask the right hon. Gentleman to recognise that under the Administration he supports it has increased by 60 per cent. during this period of four years, and for that the Government are responsible. [An Hon. Member: "What would the right hon. Gentleman do?"] I will say where I believe that Government expenditure should be dealt with. The first place is in agriculture—[Hon. Members: "Oh."]—because I believe that it is right that the present agricultural support price system should be changed to bring in levies to the Chancellor, to save the subsidies to the Chancellor not the production grants—[Interruption.]

Mr. Deputy Speaker

Order. I am trying to hear the right hon. Gentleman.

Mr. Heath

It is quite clear that right hon. and hon. Members opposite do not want to hear the answer and are not prepared to hear it.

The advantage of this would have a direct impact on our balance of payments by reducing food imports. Why the Chancellor of the Exchequer has never insisted on this being brought about in this situation, I cannot imagine. It is one of the main places where food imports could be saved, where the British farmer could expand, where the Chancellor could save Government expenditure and gain income, and where it would be possible—

Mr. Bert Hazell (Norfolk, North) rose—

Mr. Deputy Speaker

Order. The hon. Gentleman must not persist. The right hon. Gentleman is not giving way.

Mr. Heath

I do not mind how much right hon. and hon. Members opposite shout. I shall put forward policies which should be carried through in the interests of the country. If the Prime Minister and the Chancellor of the Exchequer will not tell the people the truth, I am going to tell them.

Mr. R. T. Paget (Northampton)rose—

Mr. Heath

The hon. and learned Gentleman will have the opportunity to catch Mr. Speaker's eye.

I have reviewed our policies, and these are the right ones in present circumstances. If people on low incomes are particularly affected by any increase in the price of food, they can be helped through the social services—[Hon. Members: "Oh."]—but the saving will be substantial.

The right hon. Member for Easington asked about defence. I have proposed that there should be jointly maintained by the five Commonwealth countries a presence in Singapore, Malaysia and the Gulf. This is a specific proposal. Nothing could be further from the truth than the distortion of the Secretary of State for Defence about its cost. The cost would be less than the amount which the Government are still spending in the Far East. What is more, our Commonwealth partners want to see a small British presence maintained there, and so do the Rulers of the Gulf.

The next place where Government expenditure should be dealt with is in the general administration of government. Everybody knows, including hon. Members opposite, that the whole attitude to Government expenditure is wrong. There is not the desire to see the smallest resources used for any particular objective. There is not the desire to cut waste wherever it may be found. This will not only save money; it will give an example to the rest of the country, and the people would at least begin to feel that the Government have their own affairs under control.

The next place where money should be saved is in the reorganisation of the housing subsidies, so that those with large incomes living in local authority houses who are able to pay a fair rent do so and the subsidies go to the old people, the disabled, slum clearance and to those who cannot afford to pay a fair rent. This, too, would lead to a reduction in Government expenditure.

Let the right hon. Gentleman consider those, to begin with. Let him consider, too, the area in which the Prime Minister is so proud of pouring money into industry regardless of whether it produces results. It has become a shibboleth that for industrial development in the areas where there is unemployment one simply has to pour out Government money regardless of its effects; and I think that the Prime Minister will find that very soon the Hunt Committee says the same thing.

Let the Government judge, on a cost effectiveness basis, whether they are getting value for their money in these areas. I see right hon. and hon. Members opposite gloating over something which they think will be to their political advantage. I am suggesting this because it is essential for the economic health of the country—and the Chancellor of the Exchequer, if he is an honourable man, will recognise it.

This debate is being held against the international background of last week, which itself was the result of, in the beginning, the sterling devaluation, the gold crisis and then the sterling crisis of last July and the Basle settlement. I wish to say a few words about the outcome of Bonn. There was, I suppose, a temporary tiding over of that particular problem. It is much too early yet to say to what extent the cracks were papered over. But there was no permanent outcome from Bonn, and the House would be wise to recognise that. The problem about all such international crises is that in the heat of the crisis something can be done temporarily and that in between crises nothing is done permanently. It is this position with which the Chancellor of the Exchequer and his colleagues are confronted.

There are some who say that there should be a conference. It may be that a conference of the Ten, or even on a wider basis, can help to produce a longer term settlement. All I ask is that it should not be a repetition of the world economic conference of 1933. Nobody is looking for another Ramsay Macdonald to take the chair at a conference of this kind. Unless it is thoroughly and properly prepared, and the industrial powers know the solution to which they are working, any world conference will be disastrous for the stability of the countries concerned.

I ask the Government to take account of the national positions over currency. To judge from the Press, they seem to have taken singularly little notice of them so far. I believe that what people want above all—and people of all countries—is a stable economy [Laughter.] The hon. Gentleman may laugh, but if he talks to his constituents they will tell him that they want a stable currency. Throughout history it has been the desire of people to have a stable currency. The problem today is that they require a stable currency together with full employment and a rising standard of living at the same time. The problem which faces international financial statesmen is how they are to bring it about.

There is no point in saying that the Germans should revalue, that the French should devalue, or that the Americans should change the price of gold when the national position of those currencies supports the attitude which they are adopting. There is a long history behind the determination of the Germans not to change, even upwards, the value of their currency. There is a long history behind the French and the American positions. I should very much doubt whether the new American Congress would be prepared to change the price of gold.

Let the Chancellor of the Exchequer take these facts into consideration when he is looking at the international scene. It seems to me that the economic commentators are not doing so. They are discussing these matters purely in economic terms—as if a change in currency value was a purely technical matter, as if a floating exchange rate was purely a matter of agreement under the International Monetary Fund, as if any of these aims could be fulfilled with the full approval of people in different countries without considering the individual national backgrounds. I therefore suggest to the Chancellor that, if he is thinking in terms of an international gathering to deal with the long term problem, he must at least take these views into account.

The questions which I wish to pose to the Chancellor are these. Was he really so inept, or was the Prime Minister so inept, as we read, in handling the German situation at this conference? Did the Prime Minister really summon the German Ambassador after midnight and threaten to withdraw British forces from Europe in order to make them revalue? [Hon. Members: "Why not?"] How much reliance do hon. Members below the Gangway think other people will place in us as an ally if the Prime Minister adopted such tactics over the currency question? There is much too much truth in the reports from Bonn about the Chancellor's attitude of hectoring and lecturing to overlook them entirely. How inept are the Government to handle a critical situation in this way!

Is it really true that at the E.F.T.A. Ministerial meeting on Friday there was no discussion with them about the import deposits and their impact? [Hon. Members: "Oh."] If the President of the Board of Trade or the Chancellor discussed it with them, let them say so. It is reported in the Press that there was no discussion, and the Danish Finance Minister has said that there was no consultation. Was there, or was there not, consultation?

The President of the Board of Trade (Mr. Anthony Crosland)

If the right hon. Gentleman will read the E.F.T.A. communiqué, he will discover that we had a special session all Friday afternoon to discuss the import deposits.

Mr. Heath

The right hon. Gentleman knows that that was not consultation with E.F.T.A., because the Chancellor of the Exchequer told the House that he had already made up his mind about the package. That was not consultation with E.F.T.A.; that was informing E.F.T.A. what the Chancellor intended to do.

In overseas affairs, as in home affairs, we see that the Government are inept and incompetent. We have condemned the policies and we now condemn the Government for failing to carry through even their own avowed policies and for failing to deal with the real problems of the country. We condemn them, too, for their deception, which goes back to the General Election of 1966.

We have just heard the real truth about the present Home Secretary's Budget of May, 1966. In March, 1966 there was to be no general increase in taxation. Then, in May, 1966, what was it—£254 million. "Oh," said the Chancellor, "it was my advisers." Are we to believe that in March the advisers said no increase in taxation, and in May they said yes, more than £250 million increase in taxation? That is the deception of the Government. We have heard the deception of the Prime Minister, "The £ in the pocket will not be devalued."

The Prime Minister (Mr. Harold Wilson) rose—

Hon. Members

Resign.

The Prime Minister

The right hon. Gentleman, yet again, has deliberately falsified the words I used. [Hon. Members: "Oh."] I asked him a fortnight ago—[Interruption.] He can check the words he then used, the words he has now used and the words that I used. He knows that I did not use those words. He knows that I said prices would rise. I now ask him to withdraw.

Mr. Heath

The Prime Minister had better read his own broadcast again. Had he taken part in this debate he would have had the opportunity to explain everything. He just had not got the guts to do so. The people are disillusioned and disheartened, and have lost all confidence in the Government. There is only one thing they ask for and that is to bring the Government to an end.

4.16 p.m.

The Chancellor of the Exchequer (Mr. Roy Jenkins)

The right hon. Gentleman the Member for Bexley (Mr. Heath) has made one of his more virulent but not one of his more powerful speeches. As is usual, he has shown little regard either for consistency or proportion, and has accused us, all on exactly the same note, of every sin which he could think up. As a result, many of his charges are totally contradictory one with another, but there are a few which deserve very serious answers, and these I propose to give.

Early in his speech the right hon. Gentleman said that it was appropriate that the House, in present circumstances, should deal with reality. I believe that this is so, and I believe that the great majority of the House today will be more interested in the basic facts of the situation than in the routine exchanges on party politics. [Hon. Members: "Oh."] I may have misjudged a few hon. Members opposite, but I do not think that I have misjudged the majority of the House.

The main charge, as I understand it, is that the Government's measures, if necessary, should have been introduced long before; that our troubles are all of our own making and have nothing to do with the international monetary crisis. I want to meet this charge head-on in what I have to say.

What was the position before this crisis blew up? It was, as I told the House on 5th November, one in which our balance of payments was improving fairly steadily, but not as fast as we wanted Since then we have had the bad trade figures for October. This was a setback, but did not in itself alter the underlying trend. Quite big swings around a trend have always been a feature of these monthly figures. On the basis of a three-month running average taken at the end of every month from the preceding three, there is an improvement in the trade figures for each month since May, when the Budget began to bite.

The three-monthly running average figures are as follows: May, £88 million; June, £73 million; July, £72 million; August £53 million; September, £48 million; October, £42 million. They should all be considered, so far as the current account is concerned, in conjunction with a favourable invisible balance of something between £20 and £30 million a month. Over five months, therefore, allowing for invisibles, we have reduced the very high current account deficit, as it undoubtedly was, by nearly three-quarters. That remains the position today.

Why has the improvement not been quicker? For two reasons. First, that consumption, while in no way rocketing —the right hon. Gentleman was wrong to say it was much higher than ever before—was moving up too much for the full attainment of our objective. In the second quarter it was satisfactory. It was nearly 7 per cent. below the first quarter and 2½per cent below the second half of 1967. In the third quarter of this year, on very provisional figures, it was back to the level of the second half of last year. Second, imports remained stubbornly high and cancelled out a large part of the effect of the excellent performance of our exports.

In those circumstances, I thought it necessary, although by no means all the figures were then available, to tighten hire purchase three weeks ago. I also contemplated some tightening of bank credit about the end of this month, but it could not be considered independently of a possible scheme of import deposits, which, in calm circumstances, we could best have decided upon when the November trade figures put those for October in better perspective. The regulator I did not consider right at that stage. That was the position 10 days ago.

I want to deal directly with two points which I know are in the minds of many hon. Members. The first is, why change last week? The second is, if it was right to change last week, why not have used all these measures some time ago? This is the core of the argument about the rightness or otherwise of our timing, and it is precisely those two major points that I want to deal with at the beginning of my speech.

Why did we decide on a change? It became generally known eight or nine days ago that the French Government were contemplating an early alteration in the parity of their currency. Immediately, this created a new and dangerous situation, with a period of great instability ahead. In the event, that change in parity has not occurred, but the period of instability did.

The prospect of French devaluation meant great unheaval. I thought it essential, in those circumstances, that there should be no doubt about where we stood. We were determined to maintain our own parity and defend it by any necessary means. I would not have used measures which I believed wrong in themselves, but I was prepared to take unpleasant measures which otherwise might not have been necessary and certainly not at this stage. We had to accelerate the move into surplus and show the world that we were doing it.

Repeating something that appeared in the Sunday Press, the right hon. Gentleman said that it would have needed last week's crisis to concentrate my mind upon the need for the balance of payments surplus. He knows that he is taking the remarks totally out of context—[Hon. Members: "Oh."] He knows that in every speech that I have made during the past 12 months, in this House and outside—with boring reiteration—I have stressed this point as the central objective of our economic policy. Why else did he think that I introduced the Budget, or the credit squeeze in May or the hire-purchase restrictions, and why else did my right hon. Friend the First Secretary fight through the incomes policy, all of which measures have involved great political difficulty and sacrifice?

I repudiate utterly the view which is sometimes suggested in the Press that our difficulties can be laid at my right hon. Friend's door. She has done everything humanly possible to make a success of that policy, which continues to be of central and crucial importance. If consumption is higher than it ought to be, it is my responsibility and not hers. That is why I have taken measures to deal with it. It needed no crisis to focus my mind on the over-riding need to correct our balance of payments. But the crisis made it still more necessary to increase our insurance premium to get things right quickly, no matter how high the cost.

Furthermore, the rumours associated with the crisis inevitably brought the use of the regulator into the centre of public discussion. Once there, it can be a menace. It can lead to considerable anticipatory buying. It can drive consumption higher than it might otherwise be. I decided not to let such a situation develop, but to pre-empt it at an early stage.

It has been suggested and it was again suggested by the right hon. Gentleman this afternoon that the regulator itself does this. That is nonsense. Of course, there is a rush to beat the tax. That is true of the introduction of any indirect taxation increase. But it does not begin to defeat its purpose. Hon. Gentlemen opposite must make up their minds on this issue. If this destroyed the purpose of the regulator, why did they invent and use it? After all, what was the burden of their complaint against us last winter? It was that my predecessor did not use the regulator in November, and that I did not use it in January. That is what they have said specifically when challenged. They cannot have it both ways. If the regulator last year was the chosen weapon, the key to the door between failure and success, they cannot this year reject it as half a useless weapon and half the end of everything.

Therefore, I prepared the proposals as to the regulator, bank credit and import deposits last Monday and Tuesday, although much contingency planning had already been done, particularly on import deposits. These measures did not arise out of any discussion or promises at the Bonn conference. But the immediate need for them arose directly out of the crisis and, for that reason, I was determined to announce them to the House the moment that I got back from Bonn and before any French announcement. They were right in the dangerous circumstances, whatever the French did—whether they decided to devalue or to deal with their problems in other ways. They have chosen the latter course, and I think that the House will admire their courage and wish them well.

I turn now to the second point. Why, if the measures were right on Friday, should they not have been introduced weeks or even months before? That leads straight to the central argument about the objectives of our economic policy.

The first priority must be that of getting the balance of payments right, but, so far as humanly possible, we must combine that with the highest compatible level of employment and growth at home. I do not believe that there is any hon. Member who dissents from those twin objectives. I know that my hon. Friends do not. The right hon. Member for Enfield, West (Mr. Iain Macleod) always devotes a great deal of attention and genuine concern to the unemployment figures. But it follows that, all the time, we have to walk a very narrow tightrope. If we allow home demand to be too high, it frustrates exports, sucks in imports and guarantees no real recovery in the balance of payments. If we depress it too much, we might get a good balance of payments, but we would also get a flat economy and a big waste of resources. Necessarily, this means that the situation has to be watched and judged from month to month, and that what is right at one time would not necessarily have been right earlier.

The idea that I could have done everything last winter and then sat back and put the economy on the automatic pilot for 18 months is nonsense. To have made room then for the build-up to the full balance of payments surplus in 1969 would have involved very heavy unemployment and no growth this year. As it is, with all its troubles, 1968 has been almost the only year in the past decade in which we have got 4 per cent. growth and an improvement in the balance of payments.

Let us consider further when the earlier use of the regulator would have been right. Certainly, there was no suggestion that I should have added it to everything else in the Budget. Let me remind the House again of what the right hon. Member for Enfield, West said on 13th May: My view is that, on the whole, the Chancellor has taken too much out of the economy …"—[Official Report, Standing Committee A, 13th May, 1968; c. 719.] Should I have used the regulator in July? That is the last date at which it could have made any real difference to our balance of payments position today. I do not believe that there is a single right hon. or hon. Member in the House who would not have thought that I was crazy if I had come here in July and announced the regulator. Consumption had fallen sharply—as much as we counted on it or expected it to do so—and unemployment had been rising somewhat.

Should I have used it in September? We still had little indication of a consumption upswing, and the employment level had only just begun to move. There was no case for using it before the crisis sprang up—and when there is a crisis there is a great deal to be said for having a powerful shot in your locker.

Now the employment trend is a great deal better. Between August and November there was a seasonally adjusted fall of 56,000 in unemployment—a faster fall then at any time in the past 15 years, save only for the three months from November, 1963 to February, 1964. Unfilled vacancies also rose unusually fast during this three-month period from August to November this year by 32,000, and half of this increase in unfilled vacancies has occurred in the last month. The level of unfilled vacancies today is compatible, on all past form, with an unemployment figure not of 2.3 per cent., but of 1.7 per cent. I do not think that we can ignore the possibility that redundancy payments and earnings related benefits have some effect on the speed with which people take up new jobs.

I turn now to the import deposit scheme, on which the right hon. Member for Bexley took up a rather typical attitude. He said, "We had suggested it to the Government." Indeed, they had. The right hon. Member for Barnet (Mr. Maudling) wrote a very interesting article some months ago, which I read, and the right hon. Member for Enfield, West mentioned it on his speech on the Address. The right hon. Member for Bexley said, We suggested it to the Government", and he immediately turned round and half-denounced it as the most iniquitious measure—[An Hon. Member: "The timing element of it"] The timing element of it, precisely. I am glad that that has been raised. I want to come immediately to the timing element and why this, too, should not have been introduced earlier.

First, I do not claim that it is a perfect scheme. Its effects will necessarily diminish as time goes on. It would have been better if imports had fallen without it. But, secondly, and more important, we are bound to have regard to the international repercussions of any measure against imports. If we save them only at the expense of other people frustrating our exports, we shall be no better off.

My right hon. Friend the President of the Board of Trade, as he told the House in an intervention just now, was able to take the opportunity of the meeting of E.F.T.A. Ministers in Vienna on Friday to inform his E.F.T.A. colleagues of our proposals—[Hon. Members: "Inform".] Right hon. and hon. Gentlemen opposite must be sensible about these matters. I assume that they have some regard—some of them at least—for the state of our balance of payments and their effect upon our position.

Do right hon. and hon. Members think that we can go all round Europe canvassing the scheme, taking weeks or months to do it, with all the anticipation which would necessarily be involved? It is absolutely inevitably the case and the right hon. Member for Bexley and the right hon. Member for Barnet, with their experience, know it perfectly well—that the only thing which can sensibly be done is to inform people a little time in advance what we are proposing—

Several Hon. Members rose—

Sir Arthur Vere Harvey (Macclesfield)

Does the Chancellor recall the impression made in Europe by the Government's method of introducing the 15 per cent. surcharge?

Mr. Jenkins

I will go on, because it is directly relevant to say what happened when my right hon. Friend called this special session of E.F.T.A. and informed the Ministers of our proposals. I am glad to say that they were received with understanding. Our E.F.T.A. colleagues recognised that the strength of sterling and the health of the British economy were interests which they shared with us and that in the circumstances in which we found ourselves some measures had to be taken. Of the courses open to us, it was generally recognised that the import deposit scheme was the least harmful that we could have chosen.

I do not believe—and my right hon. Friend does not believe, either—that we should have received this understanding had we gone to them in the summer. It needed both the monetary crisis and hard evidence that imports were not coming down sufficiently fast on their own to make it acceptable.

Sir Gerald Nabarro (Worcestershire, South)

Is the Chancellor aware that this morning the B.B.C. reported that the E.F.T.A. countries had stigmatised this arrangement as the second breach of faith?

Mr. Jenkins

No such view was expressed by E.F.T.A. as a whole.

Mr. Duncan Sandys (Streatham) rose—

Mr. Jenkins

I must try to deal with one Member at a time, even below the Gangway.

One Danish Minister expressed this view. Hon. Gentlemen opposite cannot have it both ways. It is no good the right hon. Member for Barnet and the right hon. Member for Enfield, West making suggestions and expecting that we should take no account of them, because somebody will say that they are not totally pleased with them. We have to decide—I did it as a result of this; I had been considering the scheme for long past—whether suggestions put forward from the Opposition Front Bench are to be taken seriously in this way.

Mr. Sandys

Does the Chancellor consider that he was entitled, under the E.F.T.A. Agreement, to take the action which he took without the consent of the other members? Did he get that consent? Did they agree?

Mr. Jenkins

The E.F.T.A. Agreement was drawn up before import deposits had been used by Italy or considered by anybody else. There was no question of E.F.T.A. joining together and saying, "What you are doing is intolerable and unacceptable"—

Mr. Sandys

Will the right hon. Gentleman answer the question? He has his legal advisers. I am asking whether they advised him that he was entitled to do what he has done without the consent of the other members of E.F.T.A. and, if not, whether they gave that consent?

Mr. Jenkins

There is no reason to assume that E.F.T.A. is taking any strong line against us—[Hon. Members: "Answer."] I hope that hon. Members opposite will consider carefully what their attitude is here. [Hon. Members: "Answer."] Our desire is to put our balance of payments right at the earliest possible time while maintaining the most liberal climate of interational trade. The plain fact is that if we take—

Sir Knox Cunningham (Antrim, South)

rose—

Mr. Jenkins

The hon. and learned Member always gets very excited at 9.30 at night, but I do not expect him to be quite so excited at this time of the afternoon.

Sir Knox Cunningham

Can the Chancellor of the Exchequer now answer the question which was put to him by my right hon. Friend the Member for Streatham (Mr. Sandys)?

Mr. Jenkins

If there is any point to be filled in, it will be given by the reply this evening—[Hon. Members: "Oh."]—but the plain fact of the matter is that this was put by my right hon. Friend the President of the Board of Trade to the E.F.T.A. trade Ministers on Friday afternoon and was received remarkably well by them.

Mr. Heath

The right hon. Gentleman was asked a very simple, straightforward question, which was: is the action which the Government are taking for import deposits legal under the E.F.T.A. Agreement or not? This was what he was asked. He does not know the answer. Would he ask the Chief Secretary to give the answer when he winds up the debate?

Mr. Jenkins

There is no reason to think that this is illegal under the E.F.T.A. Agreement. As the right hon. Gentleman will be aware, there are many points which are not clearly covered in an agreement one way or the other. If, as I said before the right hon. Gentleman interrupted me, there is anything further by way of clarification to be said, my right hon. Friend the Chief Secretary will gladly give it in the wind-up this evening.

Mr. Robert Maxwell (Buckingham) rose—

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

Mr. Deputy Speaker

There are two hon. Members seeking to ask a question. Would the Chancellor of the Exchequer indicate to whom he is giving way?

Mr. Jenkins

To my hon. Friend the Member for Buckingham (Mr. Maxwell).

Mr. Maxwell

Would my right hon. Friend not agree that the attitude of the Opposition is rather anti-British—[Hon. Members: "No."]—

Mr. Deputy Speaker

Order. There are a great number of hon. and right hon. Members wishing to speak in the debate. I hope that the House will not waste any more time.

Mr. Jenkins

I take the point of my hon. Friend, even though he was not able to complete his intervention, but I think, if I may say so, that I shall manage to get along with the Opposition without his help, grateful as I am.

Before I come to the present and future international scene, which is clearly a crucial factor at present, there are two further points which have been put forward by the right hon. Gentleman, one, as I understand it, in his speech at Derby on Saturday afternoon and one which occupied a considerable part of his speech here this afternoon.

First, the right hon. Gentleman implied at Derby that it was one of the faults of the Government that the crisis affecting the franc and the mark should have had a serious backlash against us. That, I must say, seemed to me to be a very narrow and partisan view, and also a most extraordinary statement coming from one who was a Minister in office in 1961. Then we had a crisis of speculation in favour of the Deutsch-mark before and after its small revaluation, but it was as nothing compared with last week's trouble. The franc was not at issue and the world monetary system was in much better shape. But what hap- pened? Did we sail through? On the contrary, we had a major British crisis, with all the restrictive measures associated with the right hon. and learned Gentleman the Member for Wirral (Mr. Selwyn Lloyd).

The second point, and it was made strongly by the right hon. Gentleman this afternoon, and was also made by the right hon. Gentleman the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) on Friday afternoon, is that it is public consumption, public expenditure, rather than private consumption, which should have been cut. I do not agree in present circumstances. Throughout this year I have taken a very tough attitude towards public expenditure, sometimes a little too much so for some of my hon. Friends—and for some hon. Members opposite. If necessary, I shall continue to do so. No doubt, also, the party opposite will continue to talk in general terms about public expenditure—and oppose every specific proposal for reduction.

What I can tell the House is that we are right on our January target, right on the figure laid down by the Prime Minister on 16th January. The figure in real terms for 1968–69 will be almost exactly what the January White Paper stated. For 1969–70, which is the only year we could affect at this time, we are also close to target, and we are working on an increase of only 1 per cent., substantially less than the likely growth of the national income.

I should add that this does not mean that there will be no Supplementary Estimates this year. [Laughter.] If the right hon. Gentleman will think before he laughs so much, he will realise that it is not possible to avoid these, partly for prices increases, and partly because, as is inevitable with a big total, we have some necessary increases, many of which he has advocated, offset, as we have done, by some savings and the savings do not show in the Supplementaries, but the increases are bound to show in the Supplementaries. But it is consumption and not public expenditure which is out of line, and I have attacked, and as I believe was right to do, in the right sector and not indiscriminately.

Let us get away from the senseless view that public expenditure, properly controlled, is a luxury, a sort of self-indulgence benefiting civil servants, Ministers, and noboby else. Public expenditure is essential to our national performance and welfare it means our schools, our roads, our defence, our protection for the worst off, our regional policy.

As I understand, the right hon. Gentleman had a good deal of rather curious things to say about defence. He certainly did not leave us clear whether he was advocating that defence expenditure should be put up or brought down, but I am perfectly sure, unless his plans are meaningless, that it will mean a substantial increase in expenditure indeed.

What was his main proposal in this connection? It was a recasting of agricultural subsidies. I am not saying that the agricultural subsidies position is always perfect. In the earlier part of his speech the right hon. Gentleman talked about the silent revolt of the consumer. The consumer, in his view—I do not agree with him—would not put up with price increases, and would defeat them. What does he think the advantage for the management of the economy will be if these hundreds of millions of pounds are put on to the consumers? How does he think that they will react?

The right hon. Gentleman said that what we need above all is a stable currency. What is his policy for public expenditure? It is higher rents and higher food prices. Moreover, it has been suggested that as General de Gaulle is proceeding by this method we should, also. There is a very different position in our respective countries. General de Gaulle is coping with a huge Budget deficit. Our position in this respect is incomparably better. Public expenditure in France—also on a broad view—is probably 6 per cent. higher in proportion to the national income than it is in this country.

I come back to the central problem. During the past few days we have seen the continuing fragile nature of the world monetary system—

Mr. Heath

Before the right hon. Gentleman comes to that point, perhaps I may complete the picture that I gave. It included savings on Government expenditure, which will prevent his having to tax our people so hard, and enable them to save.

Mr. Jenkins

I thought that during the past five minutes I had been dealing with the question of public expenditure and with the totally self-contradictory attitude which the right hon. Gentleman has constantly adopted.

During the past few days we have seen the continuing fragile nature of the world monetary system. In one sense we should not be too critical of its record. Over 25 years it has facilitated a remarkable growth of world trade and prosperity, at least for the richer countries. The structure founded upon Bretton Woods has probably served us better than anything previously known, but it is now wearing a little thin in places. We have had three major monetary crises in one year. The first of them arose out of our troubles, but the last two—the gold crisis and the present crisis—most emphatically did not, and I very much regret the right hon. Gentleman's attempt to suggest that they did.

But we have suffered from all three. I am sure that as soon as possible we should consider both the objectives of international monetary arrangements and the institutions for implementing them. A major reform has been agreed—the scheme for special drawing rights—and we are doing everything possible to accelerate the ratification and implementation of that scheme. But that is not necessarily enough. The Bonn conference, in the febrile atmosphere of last week, could not initiate any such discussions. But we must move as soon as we can. In the meantime, we have to make the best of the present arrangements, and that can be achieved only by means of international co-operation.

What has also emerged clearly this week has been the problem presented by persistent surplus as well as by deficit countries. There is nothing wrong in earning a balance of payments surplus. It is a considerable achievement, and one which I want this country to emulate. But a surplus can only mirror the deficits of others. Among advanced countries the sensible arrangement is that those with big debts should go for surpluses and those with big reserves should be willing to accept temporary deficits.

The fact that West Germany's recent surplus is too big for the health of the rest of the world does not mean that our own surplus objective is wrong. We need it to reduce our debts. But the Germans do not, and a generally recognised problem is to reduce the size of their surplus. I believe that the measures they have announced, relating both to trade and capital, should go a substantial way in that direction. They give us a further opportunity for stepping up our exports and we must seize it vigorously.

Their trading changes could be worth over £50 million on our current account in 1965. The measures that I have announced, especially the import deposit scheme, should also give us a much bigger further improvement, about what we would otherwise have achieved in 1969, especially in the early part of the year. when we need it most.

I hope that the clear statements which have emerged from Bonn and Paris during the past week will give us a period of great calm in which to tackle more fundamental international monetary problems. Our ability to play a constructive role will be increased by one thing, and one thing only—a rapidly strengthened balance of payments position.

This is a national interest, just as surmounting the acute crisis of the past week has been a national problem. I have been surprised by the fact that Opposition spokesmen, with the possible exception of the right hon. Member for Barnet. have played it in a very narrow party sense. I agree with my right hon. Friend the Secretary of State for Defence that not a single constructive suggestion has emerged from any of their speeches.

But it is not merely an absence of constructive thought; it is destruction and party advantage at any price upon which they are intent. I tell the right hon. Gentleman that if he tries to use an international monetary crisis to climb to power he will not succeed. Even if, by a remote chance, he did, he would long regret the irresponsibility of his action.

There is one other point on which I disagree with the right hon. Gentleman. He said that in his view our people would not accept the burdens which are necessary to cure our economic difficulties— [Hon. Members: "No."] I do not know what else his remarks about the consumers' revolt amounted to. Whatever he did about public expenditure, he could not allow consumer expenditure to run without limit and get our balance of payments right in the time that we have to do it. I believe that he is wrong in the judgment of our people. I believe that they want to cure this problem, which has bedevilled us for a long time. We intend to carry through the policies which will enable them to do it.

Mr. Deputy Speaker

As I have already stated, many hon. Members and right hon. Members wish to speak. I ask for the co-operation of all those hon. Members who are called in making their speeches short, so that the chair can call as many hon. Members as possible.

4.58 p.m.

Sir Arthur Vere Harvey (Macclesfield)

I shall be brief, Mr. Deputy Speaker. Anybody who has listened to the Chancellor's speech will have learned very little from it. I want to cast the minds of hon. Members back to November last year, when devaluation took place. In spite of his thoughts and failings, at the time when the Prime Minister made his well-known television broadcast to the British people he could have had them with him if he had been honest and straight. He was not. He misled them, and they will never forgive him for it.

When the Chancellor took office we had high expectations of him, but he has not faced his problems. He has told us this afternoon that he has brought in many things suggested by the Opposition. He has, but invariably at the wrong time. He just has not faced up to his problems. His biggest crime, if I may call it that, was, from last November until the Budget—a period of five months—allowing a spending spree, when companies were showing record profits and home consumption was running rife, when we should have been concentrating on exports. That was the worst period for the Chancellor, but he did nothing about it until the Budget of this spring.

Even then he got his priorities wrong. The first year of devaluation has been mainly frittered away. Exports could have been more. Manufacturers have found it much easier to sell on the home market. They always do, because profit margins are better than overseas, and they were encouraged to do so. For the last three years we have lived with many Budgets. I am not one who says that we have to live by an annual Budget alone. But we have had far too many Budgets and economic crises. Earlier this year the Chancellor said, "I have no intention of presiding over an economic slither." This is exactly what he has done in the intervening months.

Many of us have made suggestions to him which have gone unheeded. On 24th July I said on the Adjournment of the House debate: Many items and materials imported could be avoided. We are told it would be wrong to have import control. I myself think that it would be wrong and would not help. But are the Government considering deposits being called for when imports are ordered? I recognise that is a complicated matter and that other nations might introduce similar provisions. But these matters should be gone into because unless the import bill is reduced considerably, I cannot see an answer to our problems since, eight or nine months after devaluation, we are paying more for our imports than before."—[Official Report, 24th July, 1968; Vol. 769, c. 712.] The Chancellor has left it until the end of November to take action. No one welcomes his proposals. They will cause great suffering to many small industrial firms. They will undoubtedly lead to the slowing-down of trade, and will increase unemployment. Why did the Chancellor not bring in import deposits at an earlier date? We are entitled to have an answer. He has tried to justify bringing them in now, but some of us who were prepared to face up to this unpleasantness think that it ought to have happened months ago. Had he done this then some of the credit restrictions which have taken place could have been avoided.

When his party took office, in the autumn of 1964—and much has been said about the state in which they found our country—the larders in industry were full. Industry had stocked up with raw materials, anticipating that there probably would be a Labour Government. We heard very little about the stocks of industry. What has happened in the intervening years? These stocks have been liquidated. Almost every firm in Britain has aimed, quite rightly, not to be overstocked. The Government have had the advantage of these large stocks in that period. Today there is very little in the larder, and that frightens me. [Interruption.] I know a little bit about this. I do not know how close the hon. Gentleman is to industry, but I see with my own eyes that companies have to remain liquid and therefore keep their stocks to the absolute minimum with the higher-priced imports. It is a frightening situation.

Mr. James Tinn (Cleveland)

I wonder whether the hon. Gentleman recalls that when the Government came into office in 1964 the building industry was reduced to a few days' supply of hardboard and various other vital materials?

Sir A. V. Harvey

I am in the industry which competes with foreign imports of hardboard, and I have found it very difficult to compete because of imports coming in from Scandinavia.

I agreed with my right hon. Friend this afternoon when he referred to agriculture. The Prime Minister emphasised this topic in his television speech last November, and said what he intended to do for agriculture. Really he has done nothing. We had the statement from the Minister of Agriculture ten days ago, which reads reasonably well, but there is no urgency in the matter. How are the farmers to finance this expansion which we all want to see? Here is a quick and rapid method of balancing our payments, by getting more out of British agriculture—this great industry which has always done more or less what it has been asked of it by successive Governments.

In the past 12 months the industry has lost 23,000 workers. Unless something is done there soon will not be enough labour available to do the job. Farm workers have had a 17s. a week increase. This is pitiful, and it does not mean a thing to them. They ought to be paid more, but they cannot be because the majority of farmers do not have the income to do so. That increase will cost £17 million in a full year. Our monthly trading figures show a very big rise in food imports. A swing from a deficit of £500 million to a surplus of that amount will not be achieved by the export industries alone. Agriculture could and would play a large part in this.

A great many countries are selling their food below the price of production in their own countries. In Europe today there are 300,000 tons of surplus butter. They are feeding it back to the cattle. The Common Market countries are being forced to reappraise their support policies One reads today a very good summary in the Daily Mail of the imports of foodstuffs into Britain. There is Dutch cabbage and carrots, United States lettuce being flown to Britain, Spanish tomatoes, Danish bacon, butter from all over the world, subsidised cheese and milk powders, when our own dairy farmers are suffering enormously.

Dairy farmers today are getting less for their products than they did eight or nine years ago. The price of every single material cost involved in running a farm has increased, from detergents right through to electricity. All the expenses have gone up, yet the imported food bill is £1,600 million, With a crash programme, given the incentives to reach the targets, our agricultural industry could save £150 million to £200 million. This will not hurt anyone. If the price of food goes up in Britain we must look after those who are hurt, the pensioners and those on small fixed incomes.

While I am on this subject, what do the Government intend to do about the pensioners? They will have increases in the cost of living in the months ahead, right through what may be a very bad winter. Will they be taken care of? What about Armed Forces and public service pensioners? The country is entitled to know something about how these people are to live in the months ahead. I would say, cut dairy imports immediately. There is a surplus in this country and these could be cut. The House has been recently talking about saving £4 million on children's school meals. There is a far greater sum at issue than that.

We have been debating the future of the House of Lords when the country is in a desperate position. It is absolutely incredible the way in which the British people have taken knock after knock in the last year or two. What is the position about the Basle stand-by credits? I do not suppose we shall be told how much has been drawn on. A great deal of the future depends on this. Perhaps we could be given some indication. I hope that the Government resolve this problem, but my own feeling is that they are past the point of no return. They failed this country month after month over four years, and the only way that they can serve the country now is to get out.

5.10 p.m.

Mr. Norman Atkinson (Tottenham)

I am sorry that the right hon. Gentleman the Leader of the Opposition has left the Chamber, because I wanted to take up one or two points which he made this afternoon. It has been whispered loudly in the Chamber that his was a destructive speech, with nothing to contribute to the situation, but his speech has, in fact, made one contribution—it has convinced me, and I am sure many of my hon. Friends, to support the Government, irrespective of the disagreements which we may have about the policy being pursued.

It is remarkable, and possibly an anticlimax, but the Leader of the Opposition argued a case for increased food prices, increased rents and increased rates, and he then explained that some of our lower-paid workers in industry, who cannot afford these increases, should have recourse to social security and some other methods to offset the increases.

What an attitude and what a policy for the working people! It is a typical Tory attitude. One thing at least has happened this afternoon: the Opposition have separated themselves from all possible support in the country.

Mr. Peter Emery (Honiton)

Let the Government resign and find out.

Mr. Atkinson

The Opposition have relieved my despondency by showing as a result of what has happened this afternoon that there is possibly a chance of our survival.

May I take up a point made by the Leader of the Opposition in his speech over the weekend? If he is reported correctly, he said that this situation is the harvest of four years of Socialism. There was never a greater misuse of words. Either the right hon. Gentleman does not know the meaning of the word Socialism, or there is something lacking in my understanding of the word.

Colonel Sir Tufton Beamish (Lewes)

What is it?

Mr. Atkinson

The only explanation which could possibly support the right hon. Gentleman in his claim that this situation is the harvest of four years of Socialism is for him to say that the whole of the Government's advisers, Sir Leslie O'Brien and the whole of the Treasury are convinced Socialists and that they have been feeding the Government with the basis of a policy which would lead to the creation of a Socialist State. Our criticism of the policies being pursued lies in the fact that they are the result of 20 years' failure of capitalism to solve the problems suffered by the working-class people.

Sir T. Beamish

I do not know the hon. Member very well, but I understand now that he belongs to that part of his party which thinks that Socialism is synonymous with the destruction of the capitalist system.

Mr. Atkinson

It is part of our case and of our argument that as long as capitalism remains we can see no solution to these problems. We therefore argue the Socialist case. Unlike the Leader of the Opposition, who says that the situation is a result of four years of Socialism, we say that it is a result of 20 years of capitalism in this country and that capitalism can never solve the problem as long as it exists.

Mr. John Hall (Wycombe)

Is not the hon. Gentleman's argument an argument for the complete removal of his entire Front Bench?

Mr. Atkinson

This could well be so, but it is not for me to argue that this afternoon.

Mr. Hall

Why not?

Mr. Atkinson

It is not for me to argue why people have strayed from some original theories. It is for them to argue how they see the situation and to explain their interpretation of the Socialist society.

I welcome the Chancellor's introduction of import deposits, because that is a step in the direction in which we ought to be going. Having said that, however, I recognise, as he must recognise, that even though this policy is going in the right direction and is constructive in solving our balance-of-payments difficulties, it will never go far enough. If we can envisage a situation not very far in the distance when we are likely to have £8,000 million imports, obviously it will need much more than the system announced for us to come to terms with such a sizeable problem. He also recognised that there must be some further discussions not only with G.A.T.T. but also with the I.M.F. and with the E.F.T.A. countries, who must be brought into worldwide discussions to see how we are to face this problem which has been with us for so many years.

It is my view and the view of many of my hon. Friends that we shall never solve the fundamental problems facing the country until we have a system of selectivity in the things which we import. In our opinion, that can be done only by physical means. It cannot be done by monetary manipulation. It must be done by physically planning the kind of things which we import. We hope that discussions on an international basis can take place whereby we can reach an arrangement of this kind with the countries concerned. It is as much in their interests as it is in ours that we should have such an arrangement. We therefore say that the basis of our alternative situation must be some selectivity in the imports which we allow into the country.

We also recognise that the problem of exports will become increasingly difficult. I will make only one or two comments about the problems likely to arise, one dealing with a point not often mentioned in the House—the expanding influence of United States investment in Europe. United States investment in this country, rising every year, stands at about £160 million a year. The United States is also responsible for about 64 per cent. of foreign investment throughout the world. A staggering fact recently revealed is that the total amount of United States investment in the world is equal to the third largest economy. Outside the Soviet Union and the United States, their overseas investment is the third largest gross product in the world.

How does that affect us and our exports? I will give on example only—one with which many hon. Members are familiar. I refer to the situation arising in the manufacture of typewriters. It is possibly only a small example, but it is relevant. There is no longer a British firm manufacturing typewriters. This manufacture is completely controlled by overseas investment, and it has led to a remarkable decline of that industry in terms of export from this country.

Mr. Cant

Private enterprise.

Mr. Atkinson

I will give the figures briefly. In 1960, the export of British-manufactured typewriters, excluding electrical machinery, totalled £4,369,000, and imports in 1960 were £3,059,000. In 1967, the export of typewriters from this country totalled £3,266,000 and imports were £3,623,000. In this small sector of industry alone, overseas investment has changed the whole of the export pattern of British industry. It is a small but significant sample. From having an export credit in 1960 of £1,310,000 on typewriters, we had in 1967 a deficit of £357,000 as a result of foreign investment in this country.

The pattern of export performance in typewriters is remarkably similar to the pattern occurring in other sections of industry. International firms are finding it increasingly difficult to compete against their own products manufactured in other parts of the world. When a conflict of interest of this kind occurs, manufacturers concentrate on the home market, and that is happening here. We are now seeing massive United States investment in British organisations, and this must mean that our exports will become increasingly difficult to promote as the pattern of international trade continues to develop in the way I have described, particularly when it spills over into Europe generally.

Mr. Emery

Is not the logic of the hon. Gentleman's argument that he does not want any foreign investment in Britain? If so, is not that exactly contrary to what the Government have been attempting to stimulate, in an effort to provide more employment—the provision of new factories and jobs—to solve our economic problems?

Mr. Atkinson

I was about to say that foreign investment must be planned. This is the crux of the problem. If overseas investors wish to participate in British industry, they must invest in an agreed British export plan and contribute to our economic health, like every sector of British industry, whether it be Vauxhalls, Fords or any other American-influenced company.

Mr. John Nott (St. Ives)

If the hon. Gentleman looks into the matter he will find the British subsidiaries of American corporations operating in this country are exporting a far higher proportion of their production than British firms.

Mr. Atkinson

I am grateful for that observation, but I will get on with my speech and not detain the House for too long. I suggest that a detailed analysis of the situation would prove the hon. Gentleman to be wrong. He is being selective in coming to that conclusion and I believe that, taking the situation across the board—in Germany and elsewhere—the opposite is the case.

Indeed, the Germans provide us with a good example of planned investment. Much of their advantage in Europe has been derived from their not being concerned with overseas investment and with making clear agreements with investors wishing to participate in German industry. If we are to have a planned, fast rate of growth, we must be concerned with the whole question of the rate of investment. That has been part of our case in presenting alternatives to the policies being adopted by the Government.

For some time the Government have maintained what many of my hon. Friends consider to be the totally unacceptable policy that we in this country are no longer able to have a high wage economy. Both my right hon. Friends and the Opposition have said that because of the import situation and the problem of the level of spending here, we cannot have a high wage economy and at the same time solve our balance of payments problem. This naturally involves our whole standard of living.

Every month there are fresh arguments for further restrictions on spending. The Chancellor said on Friday that the prices and incomes policy, coupled with various associated policies, had arisen because prices had not risen high and fast enough—which tends to the conclusion that a high wage policy is not feasible for us. We must accept that challenge. My right hon. Friend the Secretary of State for Employment and Productivity today said that the prices side of her policy had been remarkably effective. Yet we are faced with the other side of the coin —with the Government saying that further restrictions are necessary because prices have been held far too low.

Much of the Government's thinking on this issue is divorced from reality. This has arisen because they have been trying to analyse the living standards of ordinary people—what ordinary folk can do and stand—on the basis of fictitious price indices. This has been responsible for much of the erroneous thinking of the last 12 months. We have been listening to arguments about the rising cost of living which attempt to assess a situation which does not exist because the indices are all wrong. [Interruption.] I am talking about the failure of capitalism to solve problems which have long faced the wage earners.

The Government have been basing their theories on the Retail Prices Index. If we take a convenient period, from 1938 to 1968, we are told, according to the index, that the £ today is worth only 5s. 3d. That means that £4 in 1938 must today be worth £15 4s. I ask hon. Members to answer a simple question: would they rather have earned £4 in 1938 than £15 4s. today? I do not recall conditions in those days and my knowledge of the time comes from reading about it. I suggest, however, that most people with a knowledge of 1938 conditions and the purchasing power of money would opt for £4 then as against £15 4s. now.

The Government argue that because of this difference in the purchasing power of the £ we have an equivalent situation in terms of living standards. This is really no comparison whatever because the Retail Price Index is completely erroneous. A constituent of mine is extremely meticulous in his keeping of records. He showed me his budget for 1938. At that time he was working as a clerk earning £4 8s. a week. He still is a clerk with the same organisation, but now he earns £21 10s. By comparing his bills and other forms of expenditure with those of 1938, one sees that he is worse off today.

Sir G. Nabarro

Is not the hon. Gentleman quoting gross earnings before tax, remembering that direct taxation today is about twice as heavy for the income brackets with which he is concerned than it was in 1938?

Mr. Atkinson

Taking all the comparisons into account, my argument remains true.

While during the last 30 years our quality of life has improved immeasurably, it has not improved quantitatively for the below average wage earner. The bulk of manual workers have gained very little from the policies of the last 20 years. Of course, there were dreadful circumstances in 1938. There was much higher unemployment and tremendous poverty. Nevertheless, in comparing the situation of wage earners then and today, we see that we have not advanced in the way often claimed by hon. Members on both sides. The manual workers have had a rotten deal over the last 20 years, and again they are being clobbered—there is no other word for it—to carry the great burden of responsibility for the situation in which the country finds itself.

I do not want to exaggerate the position, but this point of view is not often put, because we tend to forget what has happened to these people and to underestimate the problems with which they are faced when that the Government can go on adding to taxation and restraining their income and living standards. It is becoming increasingly difficult for them to live.

I ask the Government whether they will not reconsider their whole attitude towards their policy as it affects those of below average earnings, because the living standard of those people are not among those often quoted on both sides of the House. If it were not for the married women at work who are augmenting the wages of their husbands, there would be a wages revolution. All the paraphernalia of cars and refrigerators, or the small luxuries in the average household, are only possible because the income of husbands is augmented by their wives going our to work. That is a reality of our present living standards and it is wrong to assume that any Government can go on clobbering our people in this way while hoping to maintain living standards over the years.

While we go on doing this, we gain little from our advances in industry and technology. We must find an alternative to the policies being pursued. We must say that, if we believe in a high wage society, there must be alternatives to this method of restraining consumer power.

I return to the question of the physical control of our imports. We must recognise that the problem can never be resolved by restricting incomes and pursuing a policy that means, of necessity, reducing the living standards of those we are here to protect. While recognising that some advances have been made and that the Government are coming to terms—slowly, but at least they are doing so—with the need to intervene on imports, I submit that they cannot go on continuing to pursue a deflationary policy which is aimed at lowering the living standards of our people. The Government cannot maintain support in that way in the country. I hope that, before long, they will recognise that the road along which they are travelling must come to an end.

Several hon. Members rose—

Mr. Deputy Speaker (Mr. Harry Gourlay)

Order. The Chair has already appealed for short speeches. I hope that its appeal will be listened to by hon. Members.

5.34 p.m.

Mr. Duncan Sandys (Streatham)

I will not follow the hon. Member for Tottenham (Mr. Atkinson) except to say that it is absurd of him to suggest that our people are no better off today than they were in 1938. During 13 years of successful Conservative government, living standards improved out of all recognition. It is, of course, true—and perhaps that was what he had in mind— that, during the last four years, the progress has been halted. To some extent, living standards have actually been going down.

The Chancellor of the Exchequer said that he intended in his speech to stick to hard facts and realities. Instead, he was very careful to concentrate upon generalities. I did not envy him. He was called upon to defend an indefensible record. His feeble and unconvincing case left the clear impression that he and the Government have lost faith in themselves. Is it surprising?

Once again, this disastrous Government have inflicted another round of punishment on the long-suffering British people. Once again, they can be seen to have miscalculated and to have misjudged the situation. Once again, they have been proved wrong. Once again, they have tardily imposed new taxes and restrictions which will probably be just as ineffective as those which have gone before.

Once again, poisoned by doctrinaire prejudice, they have penalised the private sector, which is the life blood of our export trade, while allowing public expenditure to go galloping on. Once again, they have shamelessly misled the electors with false promises and gross untruths. Once again, they have shown that they cannot be trusted. Once again, they have demonstrated that socialism does not work. Once again, they have proved that Labour cannot govern.

This new squeeze is the last straw. Enough is enough. This bunch of muddlers have no right to go on. They have failed to do almost everything they promised and they have done almost everything they promised not to do. The Government have totally forfeited their mandate to govern. Their duty is clear. I say to them: "Go, before you do any more harm, and give the people the chance to choose a competent Government whom they can trust and who will get them out of the mess which you have created".

5.38 p.m.

Mr. Frank Tomney (Hammersmith, North)

For the moment I shall not take up the speech of the right hon. Member for Streatham (Mr. Sandys). I begin with the two opening speeches, both of which were non-events. There is unease in the House. It is reflected in the newspapers and in the country. It is a feeling that neither political party knows the answers. The Prime Minister's dictum that a week in politics is a long time is one thing, but the weeks are getting longer and so are memories.

The people we represent, in the main. and the section of society to which they belong, are just as troubled and puzzled as any hon. Members who care to study the impact of the international economic and financial situation. We can only make progress if we learn from our recent past histories and if we try to apply to the future what we have learned from the obvious misjudgments of both Governments since the war. We have to recognise the change in the world economic situation with which national currencies cannot grapple.

I cannot speak for hon. Members opposite, but I have a responsibility with others for this side of the House. It is necessary for any hon. Member who wishes to think about these things and is not in possession of expert knowledge either by training or schooling to look at them as they appeal to him, and to look back on experience of the last few years. It was perfectly obvious to me, at least early in 1966, that Britain would have to devalue. We did so eventually. Events today are proving that it was too little and too late.

Devaluation brings its own penalties on the production side of industry and in the volume of products to be manufactured to pay for imports which bear a heavy weight on industry. What is puzzling everyone outside, and what we have to decide, is, in the first instance, why was the Department of Economic Affairs set up and what precisely did it do?

I think that it is an axiom of government that responsibility rests where money rests. The money rests with the Treasury. The Treasury has always been the principal Department in Britain's economic affairs. It was the Treasury over the last two or three years which saw the need to act and whose swordmanship finally put an effective end to the Department of Economic Affairs. It should be closed down tomorrow; for, whatever use it is today, it would not matter.

That is the first lesson. The second lesson is this. I have not had the honour or the responsibility, as politics have not favoured me, of being in close contact with the senior Civil Service of this country. I believe it to consist of highly expert persons, men of mature judgment who, in concert with colleagues, can bring to bear a judgment on the affairs of the day. The country is puzzled at this moment as to whether their judgment is right or wrong. If their judgment has been right, has it not been politically acceptable? That is very important for the future economic life of the country.

I have never trusted to any degree appointments from outside of those nominated for one reason or another to come inside the Government composition. Some have gone now; they have been tested by time and found to have failed. I am prepared to rest my judgment on the expertise of the Treasury at least to read the form and to provide the answers. If that advice has not been taken, any Government will have to look closely at its progress. Although the feeling in the House today that the Opposition did not want to commit itself to any firm policy or promises may disappoint backbenchers, who were not enthusiastic, the reason is that the Opposition could not do that.

The present crisis is a sad reflection on the state of Europe. In about 1949, Britain rationed bread in order to save the German economy. Now Germany has the strongest currency in Europe. A defeated nation has been put on its feet because it followed the precept, which our trade unions should follow, of mergers of industrial unions. Ernie Bevin was the architect of this. He presented the Germans with 16 great unions which were Dr. Schacht's great strength. This was why Dr. Schacht could present a strong currency to the world and why deliveries could be made on time. This added to the German strength.

We may rail against the Germans for not revaluing their currency, but the French were very unkind to us 12 months ago. The French have now decided not to devalue. By a curious quirk of circumstance, when de Gaulle rampaged in May this year and made strenuous assaults on the gold and dollar position, he nearly succeeded. It is a strange quirk of politics that it should take people like CohnBendit, who would not have been heard of in other circumstances, to put the wind up France, make the French Government disregard their advice and raise wage and subsidy levels to a standard which the economy could not stand. In doing so they helped the dollar and the deutschemark.

The Americans can see that it would not do to leave Germany as the dominant political and economic power in Europe. What our position will be we do not know; we cannot say with certainty that we have seen the last crisis and that there will not be another in two or three months' time. There is an uneasy feeling that the situation is getting beyond control. The £ at the moment is the weakest currency of the three and I think speculation will continue against the £.

There is amazing dual or treble thinking by politicians who cannot link events together. There has been a great upsurge today during the Chancellor's speech about cutting public expenditure, and on this side of the House about the need to continue public expenditure. In a modern civilisation like this, committed to processes of Government embracing every aspect of life, we cannot cut public expenditure very easily. Expenditure and plans go on, but what does this lead to? I have held the view not for the last five or 10 years, but for 20 years that industrial efficiency has to exist on the basis of mergers and bigger unions. It has to do that against international competition throughout the world. There is American capital in this country and British capital in America. There is also American investment in France.

If these mergers, at the behest of ever chasing profits and dividends, are to go on—and on the basis of efficiency I see nothing against them—one has resolutely to ask: are we able to place a charge, a heavy social charge, on industry which has to be met? One is driven to the conclusion that this country is and has been for a long time over-populated according to resources and according to future trends by no fewer than 20 million people. I am thinking now about the end of the century. Whatever else we do, this position must be resolutely considered from now on and many idealistic tenets wall have to go by the board, because it will not be possible to contain this situation.

Today, the Chancellor of the Exchequer gave us another economic lecture, but it was a very long way from the problems of the people upon whom the taxes and the imposts are levied. They do not understand these economic lectures which are passed across the Chamber. We understand them and we understood every word of the argument of the Leader of the Opposition. All I can say at this juncture is that, whichever party is in power, some constructive form of a new international monetary conference has to be held—and I know the difficulties of insufficient markets and credit—to decide once and for all how nations with competing interests but with allied philosophies can best decide these issues.

Another Bretton Woods conference, but this time with some sting in it, is urgently required, and to this end the Chancellor should devote his energies from now on.

5.51 p.m.

Sir Frederic Bennett (Torquay)

The fact that the hon. Member for Hammersmith, North (Mr. Tomney) has spoken so much good horse sense, not for the first time, makes it easy for me to resist the temptation to comment very fully on his speech. I will make only one remark about it which is not intended to be flippant. Until he reminded us, I had forgotten that the Department of Economic Affairs was still in being in its present form. I think that most of us have concluded that even if it ever served a useful purpose, it now no longer serves any purpose, useful or otherwise.

Perhaps the most nauseating feature of this crisis compared with previous crises has been the way in which there has been a positive rush in weekend speeches by both Ministers and Labour back benchers to find scapegoats for events which are so much of our own making, or lack of our own making. The Germans are heavily criticised for refusing to revalue and the French are blamed because they have not devalued, and last week there was the old familiar charge that the City of London and unspecified United Kingdom citizens were speculating against the £.

Unfortunately, although pressed to do so, last week the Chief Secretary did not deal with that. I am glad to say that my right hon. Friend the Leader of the Opposition made the point again today and, for the sake of brevity, I shall refer only to it in an effort to get some honest answer from someone who ought to know. I hope that the Minister of State will point out to the Chief Secretary, who is not now present, that he owes an obligation to many people not in the House to make the position perfectly clear after the way in which he left it in doubt last week.

Last week, the hon. Member for Lewisham, West (Mr. Dickens) asked: Can my right hon. Friend say, first, what estimate he has made of the outflow of currency from the £ sterling to Deutschemarks in recent days by private speculators for private gain? Second, is he aware that many of us on this side want the Government to bring back exchange controls to further speculation against the £ and transactions to those for normal purposes only? In this context, the hon. Member could have been speaking only of the City and of United Kingdom citizens, because, of course, no exchange controls could possibly prevent foreigners from dealing in £ sterling already abroad.

In an almost inconceivable answer the Chief Secretary said: It is not possible for me to make an estimate of the kind for which my hon. Friend asks. I take note of his second point and will see that his views are conveyed to my right hon. Friend. My hon. Friend the Member for the Cities of London and Westminster (Mr. John Smith) later took up the matter and asked: Since the suggestion has again been made —that is, about United Kingdom citizens speculating against the £— could the right hon. Gentleman confirm once and for all what he knows to be true, namely, that it is impossible, legally or illegally, for British residents to specuate in foreign currencies? The Chief Secretary replied: I regret that I am not sufficiently informed of the details to be able to give that assurance."—[Official Report, 20th November, 1968; Vol. 773, c. 1300–3.] There may be arguments for having a poacher turned gamekeeper in the Government, but at least he should be an experienced and knowledgeable gamekeeper. I want to take a couple of minutes telling the House the facts, and I ask the Minister of State to press his right hon. Friend to say tonight whether this brief explanation of how currency transaction exchange controls work in the City is right or wrong.

A limited number of corporate exchange dealers are allowed to operate. They are defined, approved and authorised by the Treasury, and no one other than these can operate in this way. Every Wednesday they have to submit precise details to the Bank of England for every transaction which is carried out. This is vetted by the Bank of England to see whether it has been in accordance with Government policy and has been the carrying out of genuine, normal, financial transactions.

These firms themselves have only a very small float each to give themselves a certain amount of elbow room in carrying out these transactions, which are for the good of our invisible exports and the balance of payments. These sums of money at their disposal are closely controlled and regulated by the Bank of England and have to be used for one purpose only and not for speculation. If these limited funds were used for speculation, the Bank of England would be made aware of it the following Wednesday and retribution would follow very quickly.

I make this point so strongly because in his speech today the Chancellor of the Exchequer said that the mess we are in would be much worse if it were not for the contribution made by invisible exports to the country's benefit.

Hence neither he nor any hon. Member opposite has any right to try to whip up venom among his colleagues and the less knowing outside by pretending that there is some sort of racket, that there is City speculation against the £, when he knows or ought to know that that is not only utterly untrue, but has no basis in fact and is physically and legally impossible.

That is the only point I want to make, but I make it because it is so serious. It would be utterly reprehensible if the Chief Secretary does not now have the knowledge to give the assurance for which he was asked, for he knows that his hon. Friend was talking complete nonsense on that occasion and I hope that at last this charge will be repudiated.

5.57 p.m.

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

Mr. Speaker—

Sir G. Nabarro

Another lecture.

Mr. Cant

I have already been told that I must not give a lecture.

Sir G. Nabarro

We shall get one all the same.

Mr. Cant

When I came to the House first, I was told to specialise. The problem is that my particular interest is the balance of payments.

When I talk about this theme, I am reminded of the story told by Dean Acheson facing an accusation by an hon. Member from this side of the House that the Americans were completely preoccupied with Communism. He told the story about the three young ladies who were interviewed by a psychiatrist. The psychiatrist pulled out a handkerchief and threw it into the air and asked the first young lady what it made her think of. She replied, "The leaves falling from the trees". The second told him that it made her think of paratroops falling from the skies. The third young lady was more of an extrovert and she said that it made her think of sex. He asked, "Why sex?". She replied, "I never think about anything else". I have reached the point that, whenever I come through those doors, I think of a balance of payments crisis. It makes me a little morbid, or makes me want to give a lecture. I apologise, but there it is.

I come now to the question of import controls. I attach great importance to what the Government propose for import control, and I begin by putting, in parenthesis, a point to my hon. and learned Friend the Minister of State at the Treasury, who is in loco parentis on the Front Bench at this moment. Over the past two years, I have put down several Questions, and I have discussed with a number of Ministers, albeit junior Ministers, the desirability of introducing tie type of import control now decided on by the Government. I mean not physical import controls such as certain of my hon. Friends advocate but the prior deposit scheme.

For my last Question, I adopted the strategy of indirect approach, addressing myself to that Department which has endeared itself to us all, the Department of Economic Affairs. I thought that I might get some come-back from that quarter, if only for the reason that, in a sense, I viewed that Department as a countervailing power vis-à-vis the Treasury. I asked whether the D.E.A. would make a study of this import control scheme. I received an abrupt negative answer—"No"—not even "No, Sir". I do not take affront at that sort of thing, but it seems a little remarkable that, once again, having been told that this or that is impossible or impracticable, one reads in the newspapers almost the next morning that that very solution is to be the answer to all our hopes and prayers. I suppose that Governments cannot bring back-benchers too much into their confidence, cannot even demean themselves to discuss particular points or possible policies with members of their own party.

In this case, while I welcome the prior deposit method as distinct from any other method of import control, I want to know whether the Government have thought it through. I see all the arguments against import controls of a physical quantitative nature, and I consider that some of my hon. Friends below the Gangway—they are not all Left-wingers—would have not only to decide on the actual way in which physical import controls would operate but would have to decide the question of principle. Are we as a nation to opt out of the international economy, are we prepared to use physical controls as part of the apparatus of, if not a siege economy, at least an economy which seeks to go it alone much more than this nation can afford to do? That is the basic principle involved.

Let us come back to the prior deposit scheme. I do not want to give a lecture, but I point out that it has the obvious advantage that not only does it check imports but it is at the same time deflationary. All import controls must be inflationary, but this particular type of import control will impose a measure of deflation on the economy which will more than cancel that out.

Take it a stage further. Let us accept that there is a quite powerful element of deflation. What will happen as the mechanism begins to operate? Can enough evasive action take place to prevent the scheme from becoming effective? We know that, immediately, a good many people, especially the small businessmen who, quite rightly, are very much in the hearts and minds of hon. Members opposite, may be faced with a fairly critical situation. We know also that private enterprise has great capacity for adaptation to difficult and changing circumstances. It may well be that businessmen will look around, will begin to raise money in the secondary money markets from friends, from here and from there. They may even withdraw some of the liquidity which they have transferred into Deutschemarks. [Hon. Members: "Oh."] I thought that that might awaken some hon. Members opposite. I was trailing my coat in that observation.

In so far as this new money is available to frustrate the intentions of the Chancellor, my right hon. Friend must take it into account. Not only will it increase the supply of money but it will increase the velocity of circulation of money and, therefore, potentially, the supply of money available to get round the difficulties.

But what about the situation when individuals and companies, small companies in particular, begin to liquidate their national savings? In so far as they insist on this particular procedure, they will create a state of affairs in which the Government will have to increase their net borrowing requirement, and they will increase their net borrowing requirement through the use of Treasury bills. If they do that, they will again offset the deflationary aspect of the prior deposit scheme.

Let us go a stage further and ask what will happen if the banks, in order to adjust their asset position, begin to sell off their holdings of gilt-edged securities. Here, I think that the Chancellor has not told us of all the likely implications of what he is doing in this context. If that takes place, the Government will face a dilemma. They face a dilemma not because someone is talking about the theory of the matter but because they have had already to act in terms of the emerging situation.

Will the Government offset the decline in the gilt-edged market by sending the broker in to buy up gilt-edged securities? Obviously, they have decided to do that. In other words, they have created a situation in which the deflationary effects which are likely to stem from what they do could be offset and will be offset by reintroducing further liquidity into the system.

In part, these are all academic points. But if the Government accept the logic of the situation in the sense of being prepared to face a continuous decline in the price of gilt-edged securities, and the concomitant, a continuous rise in the rate of interest, where do we go from there? Are we to see the rate of interest rising to 8 or 9 per cent., or will the Government opt out of the situation and keep the rate of interest at what they feel to be appropriate in the circumstances?

It does not even stop there. If the rate of interest rises in that way, we once again become a magnet for all that hot money which is the delight of hon. Members opposite but which is anathema to me. Like many of my hon. Friends, I like to see the reserves of this country growing, but we cannot finance our trade in this way. Not only are we crucifying ourselves by servicing this short-term external debt, but we are also increasing the sensitivity of sterling.

This, too, may create a situation in which the deflationary effects which the Chancellor hopes to introduce will be offset by a situation which he is allowing—the financing of at any rate part of these prior deposits with money from across the exchanges. Of course Germany, with her enormous liquidity, will be quite willing to make this sort of financing operation possible if we have an interest rate of 8 per cent. or 9 per cent. in this country.

What about the Euro-dollar market? I know that the Bank of England has been given certain instructions that its permission must be sought before there can be borrowing in the Euro-dollar market for conversion into sterling for bridging operations of one sort or another in this country. The dollars go into out reserves, but at critical moments, when there is a flow back across the Atlantic, they leave the reserves and create these problems. What will be the attitude of the Bank of England? Why did not the Chancellor say that we cannot borrow from the Euro-dollar market for these bridging purposes?

I re-emphasise the importance of the problem of imports to the country. This is the Achilles heel of the balance of payments. For a long time we should have been giving much more attention to it. Whatever the Brookings Institute say, we have this secular growth in our propensity to consume. We have, superimposed on the steady growth of our imports, a cyclical import curve which creates very great problems.

If this imposition, whether it works or not, has drawn to our attention more forcibly than ever before the significance of imports to our country, then it will have served its purpose.

6.13 p.m.

Sir Gerald Nabarro (Worcestershire, South)

In a short speech I want strongly to reinforce what was said this afternoon by my right hon. Friend the Leader of the Opposition about the crisis and the announcement made by the Chancellor last Friday afternoon. My right hon. Friend placed the blame fairly and squarely on the shoulders of the Government for being overtaken, albeit with a good deal of surprise on their part, by this worst-of-all monetary crises during the four years since 1964.

I should have thought that it was not difficult to foresee. On 5th November, the last day of the debate on the Address, the Chancellor painted a glowing picture of our exports position and the balance of payments. He left the Chamber shortly after he had made his speech, and I doubt whether he read what was said by back bench Members on both sides of the House.

It is perhaps worth repeating a caution which I then uttered about the condition of the balance of payments and notably about the level of imports, of which the hon. Member for Stoke-on-Trent, Central (Mr. Cant) has had a good deal to say. I said that during the first nine months of 1967 the deficit on our visible trade was £540 million and that during the first nine months of 1968, post-devaluation, the deficit on our visible trade had risen to £547 million.

I discount absolutely what was said by the Chancellor this afternoon, generally to the effect that our export position is growing stronger and that our balance of payments will return shortly to surplus. I just do not believe it. The level of imports is so high and is being sustained at such a high level that in my judgment it is impossible in the foreseeable future for us to return to a surplus on our balance of payments.

The hon. Member for Tottenham (Mr. Atkinson)—I am sure that he must have looked it up carefully, and it is approximately right—used a figure of £8,000 million annually for the present level of our imports. One need not be very good at mental arithmetic to know that that means an imports bill, crude, each month of £666 million. That is about the level of post-devaluation imports into this country. I see no prospect of that figure diminishing unless urgent action is taken in a physical sense—not in the physical denial of imports but in the substitution of imports by home-produced materials.

I share the view of my hon. Friend the Member for Macclesfield (Sir A. V. Harvey), who made an admirable speech about agriculture. He was repeating, in much more succinct, much more powerful and much more telling terms, what I said about agriculture in the House on 5th November. We both know the validity of two important figures. The National Farmers' Union has said that it is possible by 1971 to replace £250 million of foreign food imports into this country by additional output from British farms. The National Economic Development Council gave a figure of £220 million for a comparable period of three years.

What have the Government done in their statement on agricultural objectives? During the week before last the Minister of Agriculture read a long statement on agricultural objectives. He endeavoured to quantify the import saving potential of his statement by saying that it amounted to £160 million annually, of foreign food imports by six years ahead, that is, 1974. He is estimating a rate of saving of food imports only about two-thirds of that at which the National Farmers' Union and the National Economic Development Council estimate that imports can be saved—but two-thirds in a period twice as long, and that means an effective saving rate of less than half of what the British farming industry is capable.

I sit for an agricultural constituency. I have sat for a Worcestershire agricultural constituency for most of 20 years. I say to Treasury Ministers that the farmers are utterly discontented and frustrated. I am glad to see my hon. Friend the Member for Worcester (Mr. Peter Walker nodding assent. He has a large agricultural area adjoining the City of Worcester, and he knows that I speak the truth completely and without exaggeration when I say that the farmers are utterly discontented with the present Government. Their costs have risen mightily during the last 12 months since devaluation, and vastly more than the £52 million awarded to them under the February Price Review. The farmers are suffering acute under-recoupment of additional costs.

Mr. J. T. Price

I know that the hon. Member is a great authority on agriculture and many other subjects, too. If the farmers are doing as badly as he suggets, why is it that the capital value of every farm which comes into the market reaches such a phenomenal sum that no young farmer can afford to buy a farm? If the farmers were doing badly, the capital values would fall, not rise.

Sir G. Nabarro

The hon. Gentleman must not put words into my mouth. One of the subjects about which I know a fair amount is taxation and the avoidance of death duties. It is the 45 per cent.—

Mr. Price

Answer the question.

Sir G. Nabarro

I will answer. It is the 45 per cent. reduction of death duties on agricultural land and woodlands which is the cause of agricultural land remaining at a high capital value. It does not remain at its present high level as a result of the profitability of farming, which is the least profitable form of industry or business in Britain today.

I say to the Treasury Ministers that we will never balance our payments, let alone achieve a surplus on overseas trade, without a mighty import substitution programme. The Prime Minister said all this on 16th January last, but he has done exactly nothing about it. The policy of my party is to promote an import substitution programme in the interests of the farming community, and an essential tenet of it is what the Leader of the Opposition said today—the substitution of the outworn system of agricultural subsidies by a system of import levies.

Of course, that means a slight increase in food prices—but why not? I am not afraid to stand on any political platform and advocate that it is far better that there should be an increase in the price of food than that we should have this vast increase in taxation clamped upon us, £1,173 million worth, of which £923 million worth was announced in the March Budget and £250 million worth was announced last Friday.

That taxation increase promotes vastly greater increases in retail prices of every commodity and manufacture and foodstuffs sold in our shops than the modest increase in food prices which would eventuate from the substitution of import levies for a system of agricultural subsidies.

That is my party's case. I have perhaps expressed it today in terms and tone slightly different from those employed in the measured delivery of my right hon. Friend the Leader of the Opposition. None the less, they were terms which the Treasury Bench should be capable of understanding.

Lieutenant-Colonel Sir Walter Bromley-Davenport (Knutsford)

I hesitate to interrupt my hon. Friend, because his speeches are second to none in the House, but I should like to make this further point. If the people are to be called upon to pay a fair price for their railway tickets, gas, electricity, coal, and so on, so as to give the workers in those industries a fair living, is it not fair that they should pay a fair price for their food so that the farmers can pay their agricultural labourers a fair wage, thus stopping the drift from the land?

Sir G. Nabarro

I am grateful to my hon. and gallant Friend. He reaffirms everything that I have endeavoured to say in my characteristically faltering and halting terms.

I summarise this section of my speech by saying that my right hon. Friend the Leader of the Opposition pointed to the fact that since devaluation our exports have increased by 3 per cent. ad valorem and our imports have increased by 8 per cent. ad valorem. I express it in slightly different terms, namely, that during the first nine months of this year, on the visible trade account alone, we have run a deficit of £54 million, a bigger deficit than during the equivalent nine months of 1967. This is a disastrous rate of deficit. The Chancellor of the Exchequer said that our imports were "stunningly high". What a confession a year after devaluation.

The Prime Minister leapt to his feet, white with anger—I had never seen him so angry in the House—to interrupt my right hon. Friend the Leader of the Opposition, because he said that my right hon. Friend had misquoted his immediate post-devaluation broadcast on 19th November, 1967. I have the text of what the Prime Minister said. I do not believe that my right hon. Friend misquoted him. My right hon. Friend made a splendid speech. I am not talking about my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod), who also made a splendid speech, but he was speaking at Falmouth. My right hon. Friend the Leader of the Opposition was speaking at Derby. I was speaking a few miles away at Lichfield, in Staffordshire. My right hon. Friend the Leader of the Opposition commanded the most space in the Sunday newspapers. The shadow Chancellor, my right hon. Friend the Member for Enfield, West, commanded the next most space. The Chairman of the Tory Party, my right hon. Friend the Member for Altrincham and Sale(Mr. Barber), also made a speech. He commanded the next most space. I had resort to the newspaper which sells nearly 7 million copies. I wrote my contribution in 1,000 words and got the most space of all.

Mr. Iain Macleod (Enfield, West)

And the most money.

Sir G. Nabarro

It is heavily taxed.

I headed my article, "Bitter Harvest of Squandermania". What pleased me most, however, was the fact that the editor of the "News of the World" quoted the Prime Minister's words on television on 19th November, 1967, the very words which the Prime Minister denied this afternoon. He had better sue the "News of the World" for libel. I bet that he does not. [Interruption.] Not the hon. Member for Buckingham (Mr. Maxwell); he has not bought it yet.

The "News of the World" quoted yesterday the Prime Minister's words accurately: It does not mean the pound in your pocket has been devalued '—Mr. Harold Wilson, on TV, Nov. 19, 1967. Those were the words which the Prime Minister denied today. Those were the words which he used, and I shall not allow him to forget them. I shall not deliver a political speech between now and the next General Election polling day without quoting them, because nothing is more disgraceful, nothing smacks more of political turpitude, than those miserable words uttered by the Prime Minister. [An Hon. Member: "The hon. Gentleman has rehearsed this."] I have not rehearsed anything. I am speaking spontaneously and utterly sincerely from the heart.

It is not only the British electorate which has been deceived by the Prime Minister. Our partners in E.F.T.A. have evidently been deceived, as well. I did not wish unduly to interrupt the Chancellor of the Exchequer today: it would not have been fair to do so. He was a sitting duck. He did not know the answer. He did not know whether the President of the Board of Trade had agreed in advance with our partners at the E.F.T.A. conference in Vienna last week that the import deposits scheme was valid, acceptable, and honourable within the terms of the E.F.T.A. Convention. The Chancellor of the Exchequer merely said that he "informed" our E.F.T.A. colleagues.

I distinctly heard it reported on the B.B.C. this morning—and I always remember what is said when I am shaving; it is the most receptive period of the day's work—that an E.F.T.A. spokesman had said that this was the second time that Britain had "broken faith" with her E.F.T.A. partners. The first time was the imposition of the import surcharge, or levy within a few days of the Labour Party being returned to power in 1964.

Therefore, I claim that this latest crisis, from which we are all suffering, was foreseeable by the Government had they acted with reasonable intelligence and prescience. The fact is that they have been surprised, as on the occasion of every earlier crisis, due to their own incompetence and lack of foresight. It is not the last crisis we shall see with a Labour Government in office. Nobody, anywhere in the world, trusts them any more, in exactly the same way as no elector anywhere in Britain trusts the Prime Minister.

6.30 p.m.

Mr. Russell Kerr (Feltham)

I hope that the hon. Member for Worcestershire, South (Sir G. Nabarro) will forgive me if I do not follow him down the exotic pathways of rural England in the faltering style which I share with him. I would like to turn the attention of the House, briefly, away from the extremely serious situation which has prompted this debate and towards the background of the present crisis.

The first thing that will strike hon. Members is that, whatever merits the present world monetary system may have had years ago, it has become today a major and dangerous liability in terms both of satisfactory economic relations between the nations and, most certainly, in being quite incompatible, at least for deficit countries, with policies of full employment and growth. This may not disturb hon. Members opposite, but for those of us on these benches who speak for the ordinary people of the country, and are proud to call ourselves Socialists, this is a matter of the greatest possible consequence.

In the nature of things, different countries have different levels of development and different resources of skill, capital and organisation. This means, obviously, that some countries, like Germany, for example, having a pronounced competitive advantage for reasons which are well understood but which need not be spelt out, will inevitably turn towards a regular surplus. So long as their competitive advantage remains, and there is no adequate mechanism for the adjustment of the deficits of other less-well-placed nations, this will remain the case.

Under the present "ground rules" of the world monetary system, any deficit country faces an unenviable choice; either to borrow, usually on highwayman's terms, or to deflate, or, not infrequently, a bit of both. For the unfortunate debtor or deficit nation it is "Buckley's choice", and neither course of action is likely to be conducive to economic health.

The kind of deflationary measures which Britain has come to know, if not to love, over recent years, and which my right hon. Friend the Prime Minister used to denounce with such eloquence are, in the longer run, both useless and self-defeating. They result in the failure to use adequately the economic resources of the nation; in a prolongation of our economic weakness; in submission to the antediluvian financial thinking of the international banking community, and in the Carthaginian terms imposed upon this Government following each successive crisis and particularly as a sequel to last year's forced devaluation. Under the present system surplus countries are not forced to do anything about their surpluses, whereas countries in deficit, for whatever reason, face the continuing prospect of deflationary measures, with all that means in terms of unemployment, erosion of welfare, educational services and all the rest.

Recognising that these evils are an intrinsic but avoidable part of the present international monetary system, many of us on these benches have laboured hard and long to make our colleagues on the Government Front Bench see just where a continuation of Tory economic policies of this kind would lead us. We spelt out our message in the pamplet "Beyond the Freeze", which was published in October, 1966. We have beaten the drum in a succession of Press statements, letters to the editors of newspapers, manifestos and in radio and television interviews.

We have underlined the seriousness of our criticisms by expressing our opposition in the Lobbies of this House. All these efforts, I regret to say, have achieved very little impact on the Government, who sometimes appear to believe that a pat on the head from Sir Leslie O'Brien or a smile from Mr. Schweitzer is an adequate substitute for the support of thier own supporters inside and outside the House.

While there is still time, I beg of them to remember that history records very few Socialist or even Labour Governments being sustained for long by international financiers, but many examples of progressive Governments being sabotaged by the bankers when it suited their book. A smile on the face of the tiger betokens a wetting of the lips, prior to eating rather than a spirit of genuine friendliness and co-operation.

In particular, I beg the Prime Minister to cast his mind back a quarter of a century, as was mentioned earlier in this debate, to Bretton Woods in 1944. As he well knows, the answer to this nagging problem of surpluses and deficits was spelt out cogently and clearly by the late Lord Keynes, who suggested a kind of international clearing house, including a system of penalties for nations which unbalanced world trade by retaining surpluses for any length of time. Though his ideas were defeated by American opposition, they were, I believe, essentially on the right track, and could be adapted for use in the present archaic situation. I was very pleased to hear the Chancellor say that he shared that point of view. I only hope that his action on this front will not be long delayed.

One aspect of this recent event which disturbs me very much is the extent to which political prejudice has entered into the attitude of the I.M.F. and the Group of Ten, as the financially better-off nations choose to call themselves. A year ago, the Labour Government were forced to sign a so-called Letter of Intent which meant, amongst other things, that it had to forswear exchange and capital controls, and also import quotas and the like, to ensure at all costs a free market in capital movements and trade. This, no doubt, suited the bankers, but prevented the Government doing the one thing which could have saved us from further serious trouble, namely, the proper planning and control of our resources in the interests of the whole nation rather than the bankers and their friends in this country.

Sir A. V. Harvey

Would the hon. Gentleman give way?

Mr. Kerr

I am sorry, I am not giving way. Hon. Members opposite have been noticeably reluctant to give way to hon. Members on this side. As a minor protest, I am refusing to give way to them.

Sir Douglas Glover (Ormskirk)

On a point of order. Is it not a long-standing tradition of the House that hon. Members do not read their speeches?

Mr. Deputy-Speaker

A Standing Order of the House provides that hon. Members may refresh their memories from notes.

Mr. Kerr

I am obliged, Mr. Deputy-Speaker. If I stick fairly closely to my notes, I am sure that the hon. Gentleman will understand.

Sir A. V. Harvey

Will the hon. Gentleman give way?

Mr. Kerr

I am not prepared to give way now. I am normally prepared to give way, particularly to the hon. Gentleman on subjects about which he knows a great deal, such as aircraft manufacture.

It is interesting to compare this tight little set of conditions imposed on a potentially Socialist British Government with the attitude displayed to securely "capitalist" or "free enterprise" countries like France and Germany. Following her major political crisis last May and June, France was happily allowed by the Group of Ten bankers to impose import quotas, even though she had at the time reserves in gold worth more than 7 billion dollars. What had been "against the rules" for us, in December, had become quite permissible for France, six months later.

The case of Germany, with its chronically swollen reserves and endemic foreign exchange surplus, is no less disturbing. To prevent speculation against the mark, Germany has also been allowed, quite happily, to impose capital controls, again as contrasted with the prohibition of such action placed on this country a year ago by the same people, and as acknowledged in the document of surrender, the Letter of Intent to the I.M.F. signed by the previous Chancellor.

I suggest that one, and only one, inference can be drawn from these facts. It is that the Group of Ten wants Britain, as a potentially Socialist country, to remain exposed to speculation and, thereby, forced to resort to deflationary measures whenever it suits the I.M.F. or the Group of Ten. I can think of no more efficacious way of hamstringing or destroying a progressive Government than by making it impossible for financial reasons for them to undertake those major measures of economic and social reform for which they were elected. From the point of view of this Government's enemies and their spokesmen opposite, this strategy has the one special advantage that the Labour Government appear to be committing suicide rather than being murdered—a handy bonus in politics.

I appeal to my right hon. and hon. Friends and colleagues in the Government to wake up to what is being done to them politically. The people here and abroad on whom they have come to place such reliance are no friends of a Labour Government and certainly not of the millions of ordinary Britons who, quite rightly, look to a Labour Government for their protection.

I have no time to spell out the alternative policies which we in the Tribune group have advocated for many months, all of which are designed to achieve an adequate measure of economic independence for Britain and get the bankers off our backs. In my opinion, the most important point that we advocate is our suggestion that use be made, with appropriate compensation in sterling securities, of the £4,200 million in overseas investments currently owned by private British citizens, half of which are in United States or Canadian dollar securities.

However, above all, the Government must understand that the pursuit of Conservative financial and economic policies can only be a rake's progress for a Labour Government. I beg them to recognise that there is another path available, even at this late stage. If they have the guts to take it, the appreciation of millions of ordinary Britons will be a lot more rewarding than the deceptive smiles of the international banking fraternity or the approval of right hon. and hon. Gentlemen opposite.

6.41 p.m.

Mr. Richard Wainwright (Colne Valley)

In his speech today, the Chancellor of the Exchequer made it sadly clear that the Government think it quite sufficient merely to react to events as they happen. To the obvious discomfiture of several speakers from the benches opposite, in this debate there has been no recognition from the Government of their duty to mobilise the consent, and even some enthusiasm, of the people for an economic strategy which they could understand and in which they could have some confidence.

Any who have had had sufficient faith left in recent months to try and follow the Government's pattern will have supposed, because the Chancellor chooses his phrases carefully, that the people were embarked upon two years' hard slog. That is the phrase that the Chancellor himself has used frequently. People have expected that, from time to time, someone would shout the step and that there might be a slight change of direction, but that, basically, it was to be two years' hard slog. It is with obvious bewilderment, therefore, that they find suddenly that they are meant to run at the double through a new and quite unexpected obstacle race, of which the outstanding example is the proposed import deposits scheme.

As hon. Members opposite have pointed out, observers could be forgiven for supposing in recent months that the Government were very cool about the practicability of a prior deposits scheme. Yet, suddenly, this House is asked to put through all its stages in one evening legislation to bring about just that.

When the Chief Secretary winds up the debate, my hon. Friends and I would like some indication from him of the proposed treatment under the import deposits scheme of capital goods for the re-equipment of industry. We understand that the scheme is to provide for the exemption of specific types of goods. We hope to hear that at least there will be spared from this burdensome scheme items which are desperately required from abroad, which cannot be provided from here because of differences in design and suitability, let alone delivery, for the urgent re-equipment of industry.

We hope that such goods will be spared from the new burden, not only for their own sake but because it is common ground that the possible upturn of industrial investment in the country is only a prospect at the moment. A few weeks ago, it looked a firm prospect, but it is not an established trend and could easily be nipped in the bud by harsh, blunt instruments of this kind.

We hope also to hear that, in order further to soften the blow to industrial investment, the reduction in the rate of investment grants proposed for the end of December will not now take place. We trust that the Government have had second thoughts about it.

I want now to turn to the main occasion for these measures, to which the Chancellor devoted such a short part of his speech. I mean the international currency crisis and the fact, which the Chancellor could not deny, that it may be only a matter of weeks before once again he is summoned hastily to Bonn. On that score, the Chancellor appeared to be discouraging on Friday. I hope that his words can be attributed to his having just emerged from long and exhausting sessions in Bonn. Discussing the possibility of conferences on currency reform, he said last Friday: I am not sure that I would want to spend too much time at international conferences."—[Official Report, 22nd November, 1968; Vol. 773, c. 1802.] That statement, coupled with the lack of ideas on the subject in his speech today, is profoundly dispiriting to Liberals and, I am sure, to others.

If the Chancellor were to be tepid about some of the very ambitious and sweeping proposals which have been ventilated in the Press in recent days, almost as counsels of despair, we would agree. There are hopes for the longterm realignment of currencies, the establishment of an international reserve currency, and so on, which are earnestly desired, but which are impracticable in the present turmoil. One proposal which is very much more modest and practicable is that first adumbrated by Professor Meade, in 1964, and refined in a paper by Dr. Williamson, in 1965. Dr. Williamson came to the Liberal Party conference in 1966 and convinced us that we should adopt it, and we did. It is the proposal known unfortunately, but understandably, by the odd term, "the crawling peg" for currencies.

The proposal is that those countries with convertible currencies accepting the obligations of Article VIII of the International Monetary Fund should undertake that any changes in par value needed to correct a fundamental disequilibrium would be carried out, gradually, at a maximum rate of 1/26th of 1 per cent. per week, rather than in a sudden jump, with the corollary that such countries should maintain interest rates at levels adequate to prevent such creeping changes in their exchange rates from giving rise to disturbing flows of capital.

The proposal has been canvassed among economists and currency experts throughout the free world for several years. It has received substantial endorsement and some indications of wider support during the turmoil of the last few days. It is essentially a means for bringing some desperately needed flexibility into our system of exchange rates without the disturbances of sudden jumps in parity that have unfortunate repercussions of which we are only too well aware.

It means that at any given time the exchange rates of all countries with convertible currencies would be fixed within a relatively narrow range, but in certain cases where there was disequilibrium that range would change to a very modest degree from week to week.

Mr. J. Bruce-Gardyne (South Angus)

I have much sympathy with the argument that is being advanced, but does the hon. Gentleman agree that before we can hope to make sense of the crawling peg we have to eliminate the considerable disparities in existing currencies?

Mr. Wainwright

I do not agree that we have to do this. It would be desirable, as with most reforms, if the crawling peg could be launched in an atmosphere of quietude on the international currency front. But it is, after all, a matter of argument—General de Gaulle would certainly say that it was a matter of argument—how far there is a very serious disequilibrium.

Here is a practical plan which is, at any rate, worth consideration, and in view of the Chancellor's silence this afternoon about any contribution which Britain might make to discussion of the present international currency problems, it is one on which we hope to hear something from the Government. In the meantime, in the absence of any appearance of a coherent economic strategy—indeed, without any suggestion from the Government that they have an obligation to produce one—and in the absence of any contribution to international thinking on the wider currency problems, we on this bench will feel bound to vote against the Government tonight

6.52 p.m.

Mr. Desmond Donnelly (Pembroke)

The hon. Member for Colne Valley (Mr. Richard Wainwright) has made one of the few constructive, coherent speeches in the debate. What struck me about the general level of discussion during the last 48 or 72 hours is the lack of constructive thinking which has been expressed on all sides in British politics. There has been far too much abuse and recrimination and far too little concentration on what must be done now.

For that reason I come to the speech of my hon. Friend the Member for Hammersmith, North (Mr. Tomney). He made a very perceptive observation when he said that there was a great deal of unreality about the debate today. As he rightly said, the reason is only too clear. It is that both major political parties are deeply involved in the creation of the situation which we face today.

For 22 years this country has been in a steady decline. Sometimes the decline has been steeper than at others. For 13 years right hon. and hon. Gentlemen opposite were responsible for the affairs of this country. Looking at the occupants of the Opposition Front Bench today, I think that very few of them would make me feel that they would do any better job if they were suddenly precipitated into office. Consider the records of individual hon. Gentlemen, right down to the right hon. Member for Barnet (Mr. Maudling), who was perhaps the most disastrous occupant of the Treasury in all their period of office.

The charge against the Government and the Prime Minister is not that they created the situation; it is that they inherited the situation, claimed that they could repair it, and completely failed to do so. The central charge against the Prime Minister is that persistently he has been in dereliction of his national duty to redress the position.

I wonder why this is so. The answer must be, looking at the record of the years since 1964, that, first, we had an election programme based upon a 4 per cent. growth rate per annum. The moment that that 4 per cent. growth rate was seen not to be sustainable, it became obvious that at some stage devaluation would be inevitable. It was merely a matter of how much money we would be able to borrow on the way. Therefore, we accumulated these enormous debts which now face any future British Government who come to office after the next General Election.

We had the devaluation debate just over a year ago. We are in this situation today, a year later, for what reason? For broadly the same reason. The programmes have gone on. The Government's expenditure has continued to increase and it has not been matched by comparable expansion in industrial production. There is a simple equation. If we expand Government expenditure by, for example, 10 per cent. per annum, and it is not matched by a comparable amount of goods, there are two alternatives: either that expansion of expenditure has to be cut back or we have to print more money.

The failing of this Government is that they have always reached for the printing press as the easiest way out of the difficulty. This is the real charge against right hon. Gentlemen on the Government Front Bench. Since devaluation Government spending has continued at a progressive rate which has made the present situation far worse than it need have been, because it has made it more vulnerable with the economic vicissitudes which have come to Europe today.

What are we to do about it? We must have a constructive approach. There has been little honest appraisal of what can and must be done in the national interest. The right hon. Member for Wolverhampton, South-West (Mr. Powell), in his somewhat bizarre budget speech at Morecambe, made an attempt to face the situation. We may agree or disagree with what he said, but at least he made an attempt. The right hon. Member for Leeds, North-East (Sir K. Joseph) has done a lot of constructive work on housing subsidies and finance. But little else by way of new thinking has gone on.

I should like to offer a contribution tonight. We should have certain central themes, all pointing to one specific end. We have to consider this not only in terms of the immediate situation. That, in my view, is far worse than the Chancellor of the Exchequer led the House to believe this afternoon. I believe that the next few days will be crucial. There is little prospect of stability in the world economic situation until a new Government is installed in the United States. Therefore, we are in for a very difficult period until Mr. Nixon takes office, because it is difficult to get any cohesive policy with any long-term prospect on the part of the leading Western country.

What are the central objectives? The first central objective of any Government should be—but it never is on the Cabinet agenda—the creation of wealth. Secondly, to aim at greater decentralisation of our communities so that the decisions and responsibilities are taken closer to the people. Thirdly, to encourage greater responsibility for the individual. Fourthly, we must always be generous to those in real need. There must be a sense of compassion as well as a sense of practicality. This is a challenge to our humanity as well as to our practicality. Finally, our aim should be efficiency leading to solvency and eventually to prosperity.

On this expression of aims, I say two things. First, in the promotion of public services to the community, I would far rather have a charge for the service than an indiscriminate tax, because this enables people more easily to see what value they are getting for their money. A tax is too nebulous and remote and does not confer on the individual the dignity of choice.

The second point is that earnings are better than gifts. It is far better to have earnings than to receive what is popularly called the "social wage". This "social wage" is a lot of hogwash. It is a question of standing up and sneezing to draw some benefit to which one has not contributed. Unless we are prepared to face the alternative, we will not get a viable Welfare State, because the present basis of the Welfare State is beyond the capacity of the nation to sustain. Indeed, the promotion and extension of the Welfare State, to the point where it is now costing us over £8,000 million a year, is largely responsible for our present situation and the general political malaise.

The linchpin of the unreality of all this is illustrated by the fact that it has been calculated by responsible economists that the family man with a wife and two children and earning £17 a week, which is about half the household incomes of the country, pays more now in total value of taxes than he receives in social benefits. This is the way in which the Welfare State is operating now. It is impinging even on the working man whose earnings are well below the national average.

What are the alternatives that can be put forward? Let us look first at cuts which can be made—and I emphasise that I shall have some counter-balancing redress at the end for those who are in need. Let us look at the question of the family doctor. Is there any reason why we should exempt those visiting their family doctors? It is calculated that the average person pays about 3½ visits per year to the doctor. If we exclude the young and the old, and leave about 30 million people in between, it would give us about 100 million visits a year. If we charged 5s. a visit, that would bring us a substantial sum of money. It would bring in at least £25 million.

Drugs: is there any reason for prescription charges being sacrosanct? The average cost of a prescription is about 12s. 10d. Is there any reason why people should not pay the first 5s.? That will bring in another £50 million. The right hon. Member for Sowerby (Mr. Houghton) has gone on record as advocating consideration of a charge for hospital beds at £10 a week. That is too little, in my view. I would make it £20 a week. If anybody says that is beyond the ability of people to pay, I answer that it has been costed that an insurance scheme of between 10d. and ls. 6d. per head per family per week would meet that charge. It is less than the price of a packet of cigarettes. It is not beyond the capacity of people to pay that much. It will bring in £200 million.

What about schools and the education bill, which is running at a very high rate indeed? And yet we have not now the money necessary to improve the standards of education in the long-term interests of this country. There is nothing sacrosanct about not asking people to pay something towards their children's schooling. Is there any reason why they should not pay 10s. per child per week, about one-quarter of the actual cost? That would bring in about £200 million.

What about housing subsidies? The whole atmosphere here of housing subsidies is a malaise. They are a drag on the local authorities, and there is not the money available for all the necessary expenditure on maintenance and for the provision of new buildings. I would abolish council house subsidies. That would save us £150 million. I would transfer from the central Government Budget to local government financing responsibility for council building finance. That would save us £350 million.

Then, school meals. Is there any reason why we should not ask people to pay for school meals and travel? That would save us £100 million.

Is there any reason why family allowances should not be abolished? That would save us £150 million. If sickness benefits were restricted to those people in need we would save £200 million.

Is there any reason why students should not as from, say, next year, be given loans instead of grants?

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

I am listening most interestedly to the hon. Gentleman. I hope that he will not finish before dealing with the problem of Members of Parliament and Ministers.

Mr. Donnelly

I think that there is a serious unemployment benefit problem there.

If all these measures were undertaken the savings would be about £1,600 million.

What is to be done for those in need? We have to treat them much more generously than they are being treated now. I would set aside at least one-quarter of the sum thus gained to give things to those people who are in need and not receiving now the benefits which they need to keep them above the borderline of poverty. That would cost £400 million. In other words, there would be a net saving of £1,200 million. By definition, there would be no hardship because the benefits would be related to need.

Mr. Peter Mahon (Preston, South)

I am grateful to my hon. Friend for giving way, but what is puzzling me is, is this the sort of thing which originally brought him into the Labour movement?

Mr. Donnelly

Yes, it was—

Mrs. Renée Short (Wolverhampton, North-East)

Which took him out of it.

Mr. Donnelly

—because I was really interested in seeing that people who were in need received benefits and not interested in promoting a nation of scrimshankers.

Mr. Roy Roebuck (Harrow, East)

I know what the hon. Member means by scrimshankers, but would it not be a good idea and a saving to the nation if those Members of Parliament who are never in their places except when they want to make speeches were to contribute their salaries?

Mr. Donnelly

I do not think that that calls for any answer. There are duties to be performed in the country, and it is one thing for hon. Members to be here as pieces of Lobby fodder voting for policies whether they think them right or not, and doing other things which Members of Pariament have to do.

Mr. Roebuck rose—

Mr. Donnelly

No. I can not give way at the moment. I have not finished my cuts. I am only half-way through.

The right hon. Member for Wolverhampton, South-West evaded all these issues which I have raised now, and I come to some of the proposals of the right hon. Gentleman. He said we should cut overseas aid altogether and save £200 million.

Then what about farm subsidies? I represent a farming constituency, and I think that we are coming round to the view that we would rather see the economic price paid for the food we produce. This is a view held on both sides of the House. If farm subsidies were abolished altogether, that would be a saving of £350 million.

Investment grants are a ridiculous idea, and I would abolish them altogether and save £350 million.

Mrs. Renee Short

Food prices would go up.

Mr. Donnelly

Of course food prices would go up, but we pay for our food either through taxes or through the till; we pay one way or another.

Now I come to nationalised industries, and to organisations such as the N.E.D.C. I would abolish all those various organisations like "Neddy" and that would save £50 million.

Then there are all those civil servants. There have been 62,000 more since the Government came into office. They have said that they want to reduce the number. I would like to cut it back by say, 75,000. That would save us £150 million.

So here I have savings of £2,100 million on one account and £1,200 million on another. What would I do with the money? First, I would recognise that the incidence of taxation, as operating today, is an inflationary and not deflationary factor. Instead of the proposals announced by the Chancellor on Friday on petrol tax, I would halve that tax. That would involve the sum of £500 million, and it would have an effect throughout the economy in reducing prices.

What about Income Tax? I would not go as far as the hon. Member for Wolverhampton, South-West, but a cut of 2s. in the £ would involve about £1,000 million. I would abolish S.E.T., running at £485 million last year and about £700 million now. That would mean that we would have given away £2,700 million, but we should still have over £500 million for contingencies—which the Government have failed to make ready for in the past—or to begin a modest contribution towards the repayment of our debts; because we must start to repay these debts. Unless we make cuts of this order we shall never be able to face the issue of having to pay our debts. That is the magnitude of the problem with which we are faced.

I would go further. I would reduce Corporation Tax, in due course, by 10 per cent., at a cost of about £350 million. I would abolish Capital Gains Tax altogether, because it brings in very little and is an inflationary factor. That would be about £50 million. I would then set out to halve Purchase Tax, which would cost £400 million.

These are steps in the direction in which this nation must go if it is to recover its solvency. The only alternative is to print money, and the more money we print the lower will be the value of existing money. Every extra £ note printed reduces the value of the £ in our pockets or Purses. That is the real charge against the present Government. Between the aspirations of my right hon. Friends and the practicalities of running the country there is an unbridgeable gulf. That is the tragedy of the situation. Until we face this challenge with humanity and practicality this nation will never restore itself or its currency.

Mr. James Tinn (Cleveland)

On a point of order. Does the speech just made by the hon. Member for Pembroke (Mr. Donnelly) really have to count as one made on this side of the House?

Mr. Deputy Speaker

That is not a point of order.

7.13 p.m.

Mr. David Howell (Guildford)

It is a great pleasure to follow the speech of robust good sense of the hon. Member for Pembroke (Mr. Donnelly). Within it there was more good sense than in the whole of the Parliamentary Labour Party. It is a particular pleasure for me to follow him because I, too, wish to speak on the question of public expenditure. I found it absolutely incredible that the Chancellor of the Exchequer should leave public expenditure untouched in the latest series of cuts. What a staggering contrast to the French example! The Chancellor's action, and the way in which he underlined it this afternoon, is an affront to common sense and to economic good sense.

Everyone recognises the inflated nature of the public sector in the United Kingdom and the uncontrolled nature of that sector, with the wrong distribution of public funds and, particularly, the way in which large sections of public funds are given out, in theory, to help the poorest members of the community without helping them at all.

Mr. Gwilym Roberts (Bedfordshire, South)

The hon. Gentleman is criticising the distribution of the expenditure of public money. Is it not the main argument of his party that the proportion of public money spent on the social services, health and housing should be decreased and the proportion spent on armaments increased?

Mr. Howell

That is not our main argument. If the hon. Gentleman had listened to our earlier speeches he would have known that it is not our main argument. The main argument is that the public sector in the United Kingdom is the largest, the least controlled and the most voracious of manpower resources of all in the Western world, including France.

I know the general argument of hon. Members opposite is that nothing can be cut; that all these programmes are sacrosanct, and that the needs are great in all sectors. Even if that were true in respect of roads, education and industrial investment it is not true of a large range of Government activities, some of which the hon. Member for Pembroke outlined but one of which he did not mention, namely, the whole of Government research expenditure.

At present £550 million goes on that. There is no doubt that if this expenditure were carefully examined it would be seen that large amounts are being spent in uneconomic ways. In my opinion, £100 million could be taken out of that programme with no difficulty and with a positive gain to our economic efficiency.

The hon. Member for Pembroke mentioned—indeed, it would be wrong not to mention—the administrative overheads of the Government. There is no doubt that in Ministry after Ministry and Department after Department wasteful practices, uneconomic operations and outdated procedures are inflating the cost of existing services and increasing public expenditure to unnecessarily high levels. Even if it were true that we could not cut public expenditure or reduce its reliance on general taxation, there are large areas in our economy which the Chancellor has ignored at his peril. We shall all have to pay the price of this later.

Mr. J. T. Price

The hon. Member is making a general charge that the Government are profligate in public expenditure. In order to establish that argument he knows that he cannot rely on a general statement. Will he be more specific and say in which Departments money is being wasted? We shall be interested to learn this, because some of us are critical of public expenditure. But we are not standing for general statements of this kind.

Mrs. Renée Short rose—

Mr. Howell

If the hon. Lady will control herself I shall be much more specific in respect of the areas that I have mentioned. First, the argument used by hon. Members opposite is that in respect of roads, education, industrial investment, and so on, there can be no cuts. The Lord President of the Council put forward that argument again over the weekend. He said that no more can be done in these areas because these programmes were planned long ago. That statement is based on the argument that the charges for all these services must be met out of general taxation and, therefore, out of the Exchequer so that the programmes cannot be cut.

This country is unique in the Western world in trying to meet all these charges out of taxation and in trying, as a result, to attain standards which many other countries are successful in attaining.

I believe that there is—and that there was last Friday—enormous scope for increased charges, which admittedly fall, in the form of taxation, on the private sector, in respect of a wide range of goods and services provided by the Government at subsidised rates. If hon. Members argue that that would fall hardly on the poorer sectors of the community I would remind them that in cases where charges are imposed we have machinery for remission, whereas in the case of Purchase Tax and in respect of increases in the prices of tobacco and food there is no provision for remission. The poorer sections, therefore, have to bear the heaviest burdens.

I go further, and say that the failure to combine housing subsidies with an attempt to control the rents of council houses, far from protecting and enhancing the position of the poorer people, has made it much worse. Studies have shown that it is not the poorer sections of the community that are in council houses, and that when council house rents are reduced the effect is to raise rates which, in turn, hits the poorer sections. If hon. Members opposite think that their policies are protecting the poorer sections of the community they need to think again.

Today there is no doubt that the housing subsidy programme is an area of enormous waste; there is no doubt that it fails to achieve the objectives which should be the objectives of Government, namely to house those most in need of a roof over their head. There is no better way to reinforce the claim of the Labour Government as a party of justice than to abandon this farce of a general provision of housing subsidy and go over to subsidies for individuals.

Mr. Thomas Swain (Derbyshire, North-East)

In abandoning the housing subsidy would the hon. Gentleman also agree that the Income Tax allowance claimed against mortgage repayments by private householders should be abandoned?

Mr. Howell

That is another point. I would need to think about it. No doubt, there may be room for it, and if the hon. Member likes to raise it with me afterwards I will be glad to discuss it with him.

I want to leave this question of increased charges and go to the second aspect of increased taxation, if such is necessary, and that would be reducing the subsidies paid by the Government to industry. This would be the same as increasing the tax burden on industry. I agree very strongly with what the hon. Member for Pembroke said about investment grants. It is incredible that we can run a programme of this size, involving hundreds of millions of £s of public money, without proper research by the Administration on the precise effects which this has on business behaviour or the benefits on productive investment. Many businessmen feel that it has very little effect; many others are not quite sure what effect it has. The net effect is that £250 million of public money is being poured out in tax allowances to industry without adequate assessment of whether it has the effect we need.

It is this kind of attack on the pattern of public expenditure which should have been started in the Chancellor's statement. The French pattern and the French decision to reorganise and look again at its subsidies to private and public industry is an example which we have sadly failed to follow, and that is a pity. There would be no difficulty at all in raising the £250 million which the Chancellor claims to have raised if we had gone about it in this way. In addition, it would have exposed, and given the opportunity for a reduction of a vast range of wasteful practices in Government.

That is the first argument, that it cannot be done. I would argue with hon. Members opposite and the Treasury Bench that it can be done and it should have been done on Friday. Until it is done we will not have the economic equilibrium we need.

There is the second argument, and here I may not carry all of my hon. Friends with me. This argument put to me on all sides is that no one has a right to talk in terms of controlling public expenditure unless they can speak very skilfully indeed about the effects of the Government's policies on defence and defence expenditure generally. If there are defence commitments which we must keep into the 1970s in the Far East, and they can be carried out at a cost far less than the present expenditure, which my right hon. Friend the Member for Bexley (Mr. Heath) claimed this afternoon—and I believe he is right—then we are in duty bound to have a very careful cost-benefit analysis of those proposals, and to put them quite clearly before the House and the country. Otherwise, general and vague assessments of commitments to the Far East undermine the claim of those who have the interests of public expenditure first in their minds.

A third argument put forward by the Lord President of the Council was that all the cuts that can be carried out have been carried out, and there are projected growth rates which must not be upset. This kind of argument, which we have heard before, completely fails to reflect the fundamental nature of the changes really needed in our organisation of government. It shows that men like the Lord President of the Council forget that the United Kingdom is the last country in the free world, and a very rapidly changing world, where the philosophy still prevails that the State must be the universal provider, that if a service cannot be provided for free by the State, then it cannot be had at all.

The whole trend of events in modern economies, in all the free economies, reinforced by very direct popular pressure, is for a new and more decentralised style of government, in which duties and responsibilities are devolved, and in which we get away from the absurd proposition that either a service is provided by the central government or is not provided at all. That is why, as the hon. Member for Pembroke said, not merely do we need to increase the whole range of charges and bring the private sector to the rescue of the public, but we need—and not only is it now possible, but it is something we shall see in the next few years—a vast programme for governments to divest themselves of activities, to denationalise, to off-load the activities of ownership, management and control which at present they have taken on to a level far beyond their capacities. That is the staring need in the face of a Government given to this degree of centralisation, resulting in chaos in decision-making.

That is the need. What is the fact? It is that hon. Members opposite argue that more nationalisation is needed—they want to nationalise docks and harbours. There is the need to involve the private sector in everything, from nursery education to contract building, from advisory services to Government—which are far too dominated by the Civil Service—and research to occupational pensions and to transport services which could be decentralised and handed to regional authorities and private enterprise. In all these areas, far from meeting the need for a more effective Government, far from meeting the need for a wider range of people in the decisions leading to public expenditure, the Government are taking on more and more commitments.

Every piece of legislation brought before the House demands that we raise public expenditure, increase administrative overheads, and involve a central Government which simply is not organised to cope with these things. There is no hope for a Government committed to this power-State philosophy and which is afraid, because that is what it comes down to, to bring public expenditure under control. The Government are locked in the past and have missed the last opportunity for a recovery. Until they face the issue of public expenditure they will have no hope of putting this country back on the right lines.

7.29 p.m.

Mr. David Marquand (Ashfield)

The speech made by the hon. Member for Guildford (Mr. David Howell) was about the most interesting speech made so far. I would like to take up where he left off. He is absolutely right that the system we have for controlling public expenditure is imperfect. Those of us on this side of the House who believe in a high level of public expenditure, who think that we do not spend a large enough proportion of the national income on public expenditure and that we ought, over the long term, to spend more, have an obligation to accept that our present system of controlling public expenditure, particularly our present system of scrutinising public expenditure in this House, is grossly inadequate and imperfect. We need to scrutinise priorities of public expenditure. We do not by any means have the right priorities at the moment. We spend too much on some things and too little on others.

But although some of the hon. Gentleman's ideas ought not to be rejected out of hand by this side of the House, I completely disagree with him in thinking that increasing charges for social services would have been an appropriate alternative to the increases in indirect taxation which the Chancellor introduced to deal with the present crisis this weekend. If one says that it would have been better to have put charges in health, schools or any of our social services than to increase direct taxation on liquor and cigarettes through the use of the regulator, what one is really saying is that it would be better to squeeze people's expenditure on social services rather than on these luxuries.

This is a very odd doctrine. Therefore, although there may well be scope for charges in the social services—a limited scope, not nearly as wide as the hon. Member suggested—it would be absurd to suggest that that would have been a satisfactory alternative to what my right hon. Friend has proposed to deal with the crisis.

Sir Harmar Nicholls (Peterborough)

Is the hon. Member suggesting that, in addition to the £250 million increase in taxes, we ought to have extra charges for social services—not instead of but in addition to?

Mr. Marquand

No. I am saying that there may be some scope for having charges as an alternative method of financing the social services.

This is an extremely complicated matter, not nearly as simple and straightforward as has been suggested by some of my hon. Friends and some hon. Gentlemen opposite. It raises great problems of equity and of administrative complexity. There is, however, a case which ought to be considered. But it would not have been a satisfactory alternative to rush in and put on charges rather than to increase indirect taxes in the way in which my right hon. Friend the Chancellor increased them this weekend.

The Government have been under attack, as always happens in economic debates, from two different wings—from the Conservative Party and, to a certain extent, from some of my hon. Friends below the Gangway. This has been a normal feature of economic debates since I have been in the House. I have said something about the suggestion that a sharp and savage reduction in public expenditure is a solution to our problems. I turn next to some of the attacks which have been made from within our party.

Mr. J. T. Price

I am not in fundamental disagreement with anything that my hon. Friend has said, but in case the impression gains currency that everybody who sits below the Gangway is automatically against the Government I should correct that impression. There are occasions on which I should like to support the Government, and this happens to be one of them.

Mr. Marquand

I said "some of my hon. Friends below the Gangway". If I did not make it clear that I was not referring to all my hon. Friends below the Gangway, then I offer those who support the Government an olive branch.

May I deal with some of the criticisms which have been made of the Government's economic policy from within the Labour Party. Some of my hon. Friends on the Left wing of the Labour Party have savagely attacked the cuts which were made last January by the Government in public expenditure. The logic of that can only be that, rather than cutting public expenditure at all, they would have preferred a greater squeeze on private consumption. But some of my hon. Friends have also bitterly attacked the Government's prices and incomes policy—and yet a severe prices and incomes policy is the only way in which we can squeeze private consumption without resorting to the crude method of so-called deflation which has been applied by so many Governments in the past. Yet when the Government have to have recourse to these crude methods, my hon. Friends attack those, too.

It is time for the Labour Party to accept that we cannot get out of the situation that we are in a deficit unless we are prepared for some unpleasantness at home. One cannot be against squeezing public expenditure and against squeezing private consumption by an incomes policy and against squeezing consumption by every other method, too.

Mr. Will Griffiths (Manchester, Exchange)

Some of us have different concepts of priorities. The hon. Member for Guildford (Mr. David Howell) talked about cutting expenditure in Government research. On examination, that might be acceptable to me. But some of us would totally reject charges on the National Health Service and proposals to make children pay more for school meals. It is the language of priorities.

Mr. Marquand

I accept the language of priorities, but where do our priorities lie? We must accept that if we say we believe in priorities but, at the same time, do our best to make it impossible for the Government to carry out any shift of resources from home consumption to exports, it is nonsense for us to talk about priorities. That is not the language of priorities. That is economic lunacy.

Mr. Arthur Lewis (West Ham, North)

My hon. Friend has been here for four or five years. I have been here for over 20 years, and each year without fail the Chancellor of whatever Government have been in power has said, "I have got it right. If only we put the screw on here and take it off there, it will be all right next year". But next year he says, "We have got it all wrong. We must do it the other way round". Now my hon. Friend says that the present proposals are the answer. If they have been right for the last 20 years, why are we in this situation?

Mr. Marquand

I did not altogether follow that intervention. If my hon. Friend is saying that this is the same policy as that which we had before devaluation, that it did not work then, why should it work now?—and that seemed to be the gist of his remarks—I would reply that this is not the same policy as that which we had before devaluation.

There is a fundamental difference which some elements of my party have not yet understood. Before devaluation, we were relying on deflating the economy and having a larger level of unemployment than we had been accustomed to since the war as the sole method of shifting resources into exports and getting the balance of payments right. Now, we also have a significant reduction in the price of our exports as a result of devaluation, and for the first time there is good reason to believe that we are getting a shift of resources into exports. As we have seen, that has been happening throughout the year.

As the months go by, I believe, an export-led boom will take up the slack in the economy which these measures have created. Indeed, the problem even now is not one of an excessively deflated economy, but one of an economy which is bounding ahead too fast.

Sir D. Glover rose—

Mr. Marquand

I have given way so often that it would be more courteous to other hon. Members if I tried to bring my remarks to a conclusion so that some other Members could take part in the debate.

In the circumstances which faced the Government last week, they had no alternative but to act as they did. But I must add that the international situation is a good deal more alarming than the Chancellor implied this afternoon. I think that the international situation is more frightening than it has ever been since I took the 11-plus examination, more frightening than at any time since the end of the Second World War. There is a real danger, if we are not careful, that the world will go back to the beggar-my-neighbour policies, the cut-throat-all-round, which existed in the 1930s.

Our Government have no alternative but to try to turn our £500 million deficit into a £500 million balance of payments surplus. Looking at the matter in isolation, they really have no alternative. But as long as the surplus countries are not prepared to run down their surpluses, the deficit countries cannot all get into surplus at the same time. What is so frightening about the present situation is that the German Government appear not to accept the logic of this argument. I do not believe that the taxation changes introduced by the German Government will be adequate. This is a frightening state of affairs.

The situation, from the point of view of monetary movements and speculation, is also more frightening than has been implied in most speeches made in this debate. I do not believe that the present relationship between the Deutschemark and the franc can hold up. I do not believe that the international financial community will believe that it will. Therefore, although it may be foolish for me to say this in public, I cannot see how we will for any length of time get through this difficulty without a repetition of the sort of speculation that has been going on on the exchanges of Europe in recent days.

The situation is extremely alarming and frightening. I have no novel solutions to offer and probably the solutions are not novel. It is absolutely clear that we must rapidly have international action to get away from the present rigid system of fixed parities. I do not agree with the view that we should have a system of completely free floating exchange rates. That would have dangers which would make the existing dangers look like chicken feed. We must, therefore, create a system whereby exchange rate adjustments can take place more smoothly. This may be a platitude, but it is a true one and there should be urgent international action to bring it about.

This crisis has proved that a reform of world liquidity is more urgent than most Governments behave as though they think it is. I do not believe that the special drawing rights scheme is enough. We must, therefore, go further and faster along the path I have suggested, although I appreciate that these are not novel thoughts. In any event, the time has come for the United States and Britain to put more pressure on some of the Continental countries to move in this direction. If co-operation is not forthcoming, we must then seriously even think about the possibility of deliberately discriminating against the exports of surplus countries—that is, if they are not prepared to take sensible action themselves.

Unless we act to reform world liquidity and create a more smooth system of exchange rate reduction, the prosperity of the Western world, on which the whole system of Parliamentary democracy throughout the Western world depends, will collapse, as it did in the 1930s. We have taken our present prosperity for granted since the war. The events of this week should show that we cannot take it for granted any longer.

Mr. Patrick McNair-Wilson (New Forest)

This, is my first opportunity of speaking in the House since my return earlier this month as the hon. Member for the New Forest. I wish, at the outset, to pay a short tribute to my predecessor, Sir Oliver Crosthwaite-Eyre, who served the constituency for 23 years and whose two Acts benefiting the New Forest will always serve as a permanent monument to his work for the constituency.

I understand that when one is returned in a by-election one is not subject to the precedent which governs the making of maiden speeches about their uncontroversial content. This is just as well, because I bring to the House, on behalf of nearly 29,000 people in the New Forest area, a plea for the Government to resign as quickly as possible.

Looking back to the time when I first made my maiden speech, in 1964, and at four years of Labour administration, it feels as if, having gone from one crisis to another, the Government have at last spent their force altogether. Like many others, I remember the lavish promises which were made in 1964 by the Labour Party when first elected to office, and the promises made subsequently.

I recall the high hopes which were held for the future of the people of Britain and the lavish good will which the Labour Party enjoyed, good will which extended not just to the Press, industry and commerce in Britain, but right across the world. People were prepared to give the Labour Administration every opportunity to prove their worth. Yet now, four years later, we are once again facing one of those terrible crises which seem to have bedevilled the Labour Party's performance since coming to power.

It is perhaps fair to say that the crisis we are facing today is the most serious yet. But how have all these hopes and promises gone astray? What has gone wrong with the economic balance of this country which has led us to this situation? Why, when we were promised an economic miracle only a few months ago, do we now find the Chancellor having to produce extremely savage curbs and freezes again?

The first thing to be understood by everybody is that the devaluation of sterling last year marked a terrible watershed over which we shall never pass again. The devaluation of sterling in 1967 marked the total collapse of an economic policy which had then lasted since 1964—not only the collapse of a policy, but the obvious evidence that the Labour Party, as a Government, would no longer enjoy the confidence of the world. Devaluation is like bankruptcy. One does not devalue. One is devalued. It is not a leisurely decision taken at a Cabinet meeting, but one taken, unfortunately, hastily, because the speculators have moved against one.

How did we find ourselves in the position of having to devalue? We have seen in the policies of Labour Administration since 1964 an untrammelled increase in Government expenditure. Hon. Members opposite, throughout the debate, have asked for examples of where this expenditure has gone wrong, and I will give them a few. There has been the nationalisation of the steel industry, the I.R.C.—with £150 million of taxpayers' money being thrown about left, right and centre—and the establishment of the Land Commission, which produces a few hundred thousand pounds and costs nearly £2 million to operate. That is where Government money has been spent and that money belongs to the taxpayer. In addition to this vast increase in Government expenditure, we have seen tremendous cost inflation as a result of Government action. Income Tax, increased petrol tax—whatever it may be, there is a mass of Government legislation directly attributable to the increasing cost of living.

Having said that about devaluation, I remind the House that something very much more important happened in 1967 when we devalued. The devaluation of sterling was not merely the collapse of an economic policy. It was the unhinging of the whole Western monetary structure. A currency which was doing 40 per cent. of the world's trade, which was, indeed, as good as gold, was suddenly changed in its parity with other currencies and that devaluation unhinged the balance of the Western monetary system and, therefore, again, a year later, we are paying a totally predictable price.

Pressure on other currencies developed immediately after devaluation and now we face the situation where the dollar is under pressure, the French franc is under heavy pressure and the Deutschemark is out of relationship with the rest. That situation has been brought about, in my estimation, largely by the devaluation of sterling, and we are far from out of the wood yet.

Nevertheless, we still have cost inflation a second time. The Chancellor introduced his measures on Friday and they will drive up once again the cost of living. Government expenditure continues. The I.R.C. is still to have its money to play about with on aluminium smelters in a country where I am not sure that aluminium should be smelted at all. We see the same picture as after devaluation. It is a picture clearly predictable so long as this Government remain in power—one of driving up costs and allowing Government expenditure to run away. We are the biggest debtor nation in the world. We need a balance of payments surplus of £50 million a month for five years and still our trade figures are far from satisfactory. Confidence is still at a low ebb.

I wonder whether the Chancellor and the Government realise how serious things are. My right hon. Friend the Leader of the Opposition referred to an article in the People of eight days ago. In that newspaper was an interview with the Chancellor. He was reported to have said: Now all the signs are that we are moving into a more expansionist phase than we have known for years … I see none of the features of freeze here. I don't want a freeze. A freeze means rigidity. The British economy does not want rigidity. Eight days later we have this package of crippling restrictions—in many cases so crippling that many firms will go out of business as a result.

We were told by the Secretary of State for Employment and Productivity that the hire-purchase restrictions were no more than a touch on the tiller. If we are to use maritime analogies, then I say that there is little point in touching the tiller if we have no rudder; and it is clear that Britain is like a ship without a rudder, circling aimlessly and dangerously on a sea sardined with broken promises.

The Government stand convicted of issuing to the people a bogus prospectus on two separate occasions. We are now paying the price for their incompetence and ineptitude. Yesterday, the Secretary of State for Defence said that, in the present situation, the Conservative Party had come up with no new solutions. When will right hon. Members opposite realise that they are in charge of our affairs? They are the Government. It is not for the Opposition to run Britain. The Government must do it. The Government represent an albatross around the neck of every man, woman and child and, to use the words they were once so fond of using, they have failed the nation. Let them go.

7.55 p.m.

Mr. Arthur Lewis (West Ham, North)

I am pleased to welcome back the hon. Member for New Forest (Mr. McNair-Wilson) on the occasion of his second maiden speech. But I wish that he had been here before 1964, because he would then have realised that we have heard such speeches and comments as his year in and year out for the last 23 years.

I hope that my hon. Friend the Member for Ashfield (Mr. Marquand), who is just leaving the Chamber, will stay for a moment to listen to this point. I have rarely taken part in economic debates, but I have noticed that it seems an almost invariable rule in them that those who make speeches almost immediately leave the Chamber. I think that my hon. Friend the Member for Tottenham (Mr. Atkinson) is the only hon. Member who has spoken today and is still present. It sometimes makes it a little difficult for those who follow.

I was explaining to the hon. Member for New Forest that his speech has been made year in and year out for the last 23 years. Of course, different Governments and different personalities have been in power but, in lesser or greater degree, the theme has been the same throughout.

I remember that Sir Stafford Cripps used to say, "We have to work hard and put forward our best endeavour. Next year we are going to get out of the wood". Next year came and there was a squeeze, or a squeeze was further tightened or relaxed or was taken off altogether. Always there were the guarantees, "We shall be all right next year". It made no difference who was Chancellor.

My hon. Friend the Member for Pembroke (Mr. Donnelly) talked about cuts. He left out several, one in particular. He never mentioned the cut of £2,000 a year proposed for peers. I read that Lord Butler said that it is a little humiliating for him to draw four and a half guineas a day as tax-free expenses to attend the other place. Many old-age pensioners in my constituency would love to be so humiliated.

When Lord Butler was in this House as Chancellor of the Exchequer he, too, put on the squeeze, then took if off, and then put it back. With him also it was "stop go, stop go." Unfortunately, the present Government have been following out those Conservative policies. It is but a question of degree. Even today, the Leader of the Opposition castigated the Government not for having done something wrong but because they had not done it sooner and more severely. He did not tell them to adopt another policy.

But my hon. Friend the Member for Pembroke hit the highlights. He talked about cutting almost everyone and everything. I am surprised that he left out the old-age pensioners. After all, it is surely shocking how old-age pensioners on £4 a week are worsening our inflationary spiral and causing our economic difficulties.

According to the hon. Member for Pembroke, this is all due to ordinary people. I do not believe it. I do not agree that 5d. on a packet of cigarettes or the equivalent on pipe tobacco should be inflicted on the poorer sections of the population. It is not true to say that the same sort of penalty is borne by all and that everyone is treated alike. It is not the same hardship for anyone on £3,000 a year as for an old-age pensioner. Yet our Government have been carrying out exactly the same types of policy, although in a different degree.

The hon. Member for Torquay (Sir F. Bennett), another hon. Member who made a speech and then left the Chamber, tried to defend City financiers. He attacked my right hon. Friend the Chief Secretary to the Treasury and suggested that there was no question of any British financier or City man speculating against the £. Let the hon. Member come to see me. I will tell him privately how this is done every day of the week.

Mr. Paget

Is my hon. Friend pretty good at it?

Mr. Lewis

No, I do not do it. I could not afford to do it. There are hundreds of millions of pounds a year going out through a system which the hon. Member for Torquay said did not exist. If he likes to see me, he can be told how it is being done at this moment.

What annoys me is that by a credit squeeze the Government hit lower-paid workers when the Government could take action to put the balance of payments problem on a proper basis which almost everyone would accept, and they take no action in that direction. can hardly believe it, but £4½ million a year is being spent mainly in hard-earned dollars to import one-armed bandits, pin-tables, juke boxes and the like. Under the previous Government it was almost as bad. Then it was £3 million a year, but now it is £4½ million. I ask the Government to take some action to stop that. It might put some gambling and gaming shops into difficulty, but I would not worry about that. It would be far better to put a stop to importation of one-armed bandits than to stop importation of machines for building up industry.

Last Friday I had a request sent through the post to me to take out unrestricted credit. Curiously enough, I had already had one of these credit cards issued to me from the same company. Unsolicited requests are being made for which the taxpayers have to pay, because the Treasury allows this to be done, and for people to claim it as a legitimate business expense. On the same day that the Chancellor announced his credit squeeze I, and no doubt others, received this request to enter a credit card system. That is a matter that should be dealt with.

The Government should do something for the poorer sections of the community, particularly old-age pensioners. There may be an opinion—I do not subscribe to it—that these measures are right. if they are, let us cushion their effect on old-age pensioners. The few things on which they spend their money are not inflationary. They do not go on a shopping spree or squander their money. They may spend a few shillings on beer and tobacco. That probably is the maximum of their enjoyment. Surely there could be some system of relief for old-age pensioners from the tobacco tax such as there was some years ago.

The objective of the Labour Government 20 years ago was to produce a bigger cake. Then there could be more of the cake for all. Now in every action that is taken the objective is to reduce the size of the cake. It is said that if we could produce more and get a better output of goods to export we would not have this problem. The analogy here is that of a boy in a family. His mother finds that he has a touch of dysentery so she gives him a dose of castor oil. When she finds that his diarrhoea is worse, she gives him a bigger dose. After 12 months she finds that he has the same trouble so she adds a Beecham's Powder. The objective must be to get output and production going.

Let us assume that for once the Chancellor is right and that by next February or March there is not another crisis. It is a big assumption, but let us make it; let us assume that for another 12 months there is no crisis. Will the Chancellor then say that we shall make our way and get the balance of payments right and, if so, we shall have a surplus? What happens then? Will we become the same as Germany is now? Then the international bankers would be saying, as they are saying to Germany, "You must bring in measures to restrict your exports, to restrict output and to revalue the pound." Germany has a balance of payments and everybody is getting at Germany to revalue.

It is about time that this Government got back to fundamentals and tried to begin to implement the promises and election pledges they made so consistently for so many years. Then they would not only get the country out of economic difficulties, but would ensure that they again form a Government at Westminster.

8.8 p.m.

Mr. Ian Lloyd (Portsmouth, Langstone)

I hope that the hon. Member for West Ham, North (Mr. Arthur Lewis) will not mind if I merely follow him in one of the essential points he made. It is very tempting at the moment for all of us to air our pet prejudices about the sort of imports we would not like to see in this country, to discriminate against some and to hold a carrot out to others. This is precisely the difficulty. The moment we open the doors to trade discrimination we make the most appalling precedents for other countries to follow and break not only the rules of the G.A.T.T. but of every other organisation we have laboriously constructed since the war.

Mr. Arthur Lewis

Surely there are ways of encouraging the import of essential types of goods but not the completely inessential types?

Mr. Lloyd

I take the point made by the hon. Member, but when Governments try to construct apparatus for encouragement or discouragement without crossing the line of discrimination they find themselves in difficulties.

Mr. Arthur Lewis

We are in difficulties now.

Mr. Lloyd

Before turning to the main points of my speech, I extend a very warm welcome to my hon. Friend the Member for New Forest (Mr. McNair-Wilson). I wish to embroider the rather charming analogy he made of a ship with a tiller but without a rudder by a description I heard of the way a very poor yacht sailed. The description was that it sailed like a piece of real estate and that is precisely how our economy can be described as sailing.

Some years ago, Maynard Keynes warned us that practical men, a term which has always carried a robust air of purpose and implicit approval, were usually to be found when propounding their favourite economic theories to be the slaves of some defunct economist. Later, he warned us that he himself might be one of those economists, although at the time of his great controversy with the great central banks in the 1930s that seemed to be a most unlikely contingency.

Now, the House knows full well that although all professions are the butt of their critics, economists and statisticians bear more than their fair share of criticism, especially when the practical men are in a position to couple them, as they are at the moment, in one contemptuous gesture with financiers, bankers and all those who preside in one role or another over the economic destinies of nations.

As politicians, too, most hon. Members will be aware that any one who is rash enough to come here and bear one six hundred and thirtieth of the responsibility for the national decisions is exposed, like the lady in Oscar Wilde's play, to comment on the platform. I nearly said "decisions made here", but we all know that such a statement would merely provoke mirth, because we no longer make decisions. Indeed, we do not even make or unmake Governments, but, whether or not we make them, we carry responsibility for decisions and will continue to do so for some considerable time.

On this occasion, we shall collectively be asked to bear the responsibility for at least one-tenth of the economic decisions made last week by the Group of Ten, and I do not think for a moment that it would be wise either for the Opposition to disclaim responsibility, for the country now has a long perspective of economic crisis and failure stretching back through many Governments, many balance of payments gaps, many import sprees and export failures, many meetings of the I.M.F. and the Group of Ten, of Finance Ministers and central bank governors, or for the Government to endeavour, as they seem to have done today, to write into this situation the small print of party advantage, for the country is sick and tired of the stereotyped clichés of party economic analysis. The practical men might be slaves of some defunct economist, but the country and the peoples of Europe as a whole have come to feel themselves the slaves of defunct politicians, and that is a fate from which there is no ready-made escape.

There is a widespread mood, particularly among informed and serious commentators on economic affairs, though it is not by any means confined to them, that we are now witnessing a fundamental failure of the economic mechanism. It is not merely, to use this modern and popular analogy, that the clutch of the car is slipping, or that the driver has lost all sense of relationship between the road and the accelerator and the brake. It is the chassis which seems to have cracked, and the rescue vehicle is nowhere in sight. Indeed, to extend the analogy, there is but one rescue vehicle for every ten cracked chassis on the road, or so it would seem. The breakdown seems to be beyond the scope of running repairs, or, ultimately, of chassis replacement, for it is the ump- teenth time that the wretched frame has cracked, been repaired and cracked again.

The main technical charges, to revert to the proper idiom of our debate, are three. The first is that we have failed to control inflation. This is true, but it is a charge which can be levelled accurately against every Government in Western Europe and the Western world. The second is that we have failed to control speculation. The hon. Member for West Ham, North mentioned this, and I should like to deal with it in a moment. The third is that we have failed to carry forward the development of the mechanisms which we designed at Bretton Woods to deal with the consequences of 15 years of massive failure from 1930 to 1945, and after 20 years of only partial success there is a deep feeling that the whole mechanism must be seriously reviewed and reconstructed.

These charges cannot be seriously disputed, but it is right to say this in mitigation. Inflation is not easily controlled in any political system which permits and develops dispersed centres of economic power. Even within totalitarian systems it is not unknown, for all complex societies have reserves of wealth which can be taxed by a combination of weak government and the printing press. Speculation—that bugbear of the Left, which does not seek to understand the international monetary system, largely because it has no real sympathy with it—is absolutely unavoidable in the short term in any international community in which very large money flows are the uncontrollable consequence—and I use the word "uncontrollable" in no pejorative sense—of massive trade exchanges.

The normal trading pattern of Europe involves every month a couple of billion dollars worth of wholly legitimate trade and it seems utterly misleading to describe the acceleration or deceleration of trade payments, by far the most significant item being to attempt to ensure against currency losses, as speculation. For a company heavily involved in international trade not to try to obtain forward cover for its heavy foreign currency commitments would certainly be irresponsible and could prove disastrous in certain conditions.

On top of this, Europe has no particular right to insist that those abroad whom it asks and encourages to hold its currencies should contribute more than they feel is avoidable to the redistribution of wealth brought about domestically in Europe by inflation. Of course, in an ideal world their actions would invariably be guided by high-minded concepts of international public interest, and the gnomes of Zurich and the sheikhs of Arabia would vie with each other in switching their deposits in whatever directions the governors of the central banks thought would contribute most to monetary stability, but I need hardly remind the House that it is not an ideal world.

It is sometimes not even an intelligently selfish world, for there is no doubt that the unintelligently selfish frequently provide the energy and acceleration which convert relatively harmless adjustments into irrational massive monetary surges such as those which we are now witnessing. The Gadarene swine have no monopoly of self-destructive stupidity and in these matters it would seem that human behaviour is more susceptible to the fashion and infection of the mob than to the restraints of reason and objective analysis.

It is profitable to examine the charge that we have failed to develop the mechanisms of monetary readjustment. Different rates of growth, different rates of inflation, different rates of saving and investment, different prices and incomes policies, variations in the skill and success of investment, all combine to ensure that the one single bridge between two complex economies, the rate of exchange, should eventually become unable to carry the weight of traffic across it. Certainly, we can construct new and possibly better bridges, and, certainly, there is a large range of interesting and constructive proposals. Some hon. Members have mentioned them in the debate already and most of them would undoubtedly make a positive contribution to the cure of the malaise which we are suffering. The mobilisation of central bank credit swaps in recent years cannot be regarded as a wholly unsuccessful response to the surges of short-term capital across the exchanges.

But what is now clear is that in a world in which every advanced economy is part of the international trading economy, the attempt to combine the deep-seated and disrupted illusion of total national economic control with the reality of a large and growing economic interdependence has finally demonstrated its most basic and inherent contradiction. The choice, at least within the North Atlantic community, is not, as some people imagine, a choice between continuing the illusion of national economic independence and control and in some way reconciling this with the similar illusions of other people by a more sophisticated development of the I.M.F. or any other mechanism—any other mechanism, that is, which serves to perpetuate the major illusion by continuing the minor illusion of separate and different currencies.

The choice is more fundamental. It is between a major reform of the international monetary system so that the institution and control of currency conforms with the realities of international economic interdependence, coupled with whatever political restructuring proves necessary to give validity and effect to such a change, and continuing to tinker with the symptoms of failure, producing ever more elaborate and complex compensatory mechanisms behind which national Governments can continue to foster the illusions—and, my goodness, one does not have to be long in the House to realise how deep-seated these illusions are—of macro-economic control.

The price we shall pay for the former is not in dispute. We shall lose the illusion of total sovereignty over a part of the international economic system. We shall gain, perhaps, if we try hard enough, the reality of a shared sovereignty over a substantial part of the economic system of the developed world. This is the real choice facing the peoples of this country and Europe today.

The political restructuring is what is now profoundly necessary, not a mere tinkering with the symptoms of failure, producing, as I say, ever more elaborate compensatory mechanisms behind which national Governments can continue to foster their illusions. Of course, national Governments do not like sharing sovereignty. Prime Ministers do not like any form of change which might result in their appearing to be like chairmen of regional councils. But it is worth pointing out that the Governors of both New York and California preside over geographical areas which, in their total wealth—if one may call it national wealth in that sense—is now probably greater than that of any of the sovereign States of Europe.

The whole basis of political argument is wider, and the scope for national manoeuvre is more limited. To decide economic policy in the interests of the unemployed of Europe is obviously more complex and unfamiliar as a concept than deciding economic policy in the interests of the unemployed of Britain. The British unemployed have no votes in Bonn, and the German unemployed have no votes in Westminster.

I do not for a moment under-rate the difficulties. Nor am I prey to the illusion that Europe's monetary Rome will be built in a day. But built it must be. The foundations are political, not economic. There must now be recognition at the highest level, first in Europe and then within the North Atlantic community, that we are indeed one community with one economy, that the prime phenomenon of our time is economic interdependence, that we urgently need in Europe, and subsequently beyond Europe, federal monetary institutions, a unified European currency and a European central bank.

Those are the real choices lying before us. The institutions are there already. The Bank for International Settlements is familiar with the machine. What is lacking—if we are frank with ourselves, we all know this—is the political will. The political will is either absent or frustrated.

It will not be sufficient, even if we do recover from the present crisis, merely to improve the machinery of readjustment, to raise the price of gold, to introduce S.D.R.s, to improve the credit swap machinery between central banks or to arrange for Finance Ministers and the governors of the central banks to meet more frequently. That would be merely to substitute one illusion for another. For nothing would be more futile or more dangerous than to substitute the illusion of international economic control for what exists at present, since, if that were done, Governments would then be encouraged to "pass the buck", to wash their hands of responsibility, and those who argue that the difficult is impossible and unrealistic would immediately be swept to power on a profound and cynical mood of nationalistic reaction. This is the danger inherent in the next great move forward.

There is one argument which will be used against the proposal which I have put. Quite simply, it is that the crisis is too severe and too immediate to permit, or even remotely countenance, structural changes of that kind. Since no such machinery exists, it will be said, since there is no European monetary authority or central bank, since the major currencies of Europe have little enough in common except inflation, we shall have to climb out using once again the rope ladder which the I.M.F. and the governors of the central banks throw down to those intemporary difficulties.

I accept that that is so, in the very short run only. The dyke must be held. The stability of international trade cannot be allowed to founder merely because of what has happened. But more than the mere reputation of capitalism—or, if hon. Members opposite do not like the term "capitalism"—more than the mere reputation of the mixed society which Europe has created is at stake. If we take no more fundamental steps, we shall without doubt have not one but many recurrences of crisis, and if that happens the temptation to distort the diagnosis will become increasingly strong. Since the symptoms are economic, we shall look ever more desperately, but ever more fruitlessly, for purely economic solutions; and such solutions simply do not exist.

In my view, the answer is that that is a fundamental mistake. The crisis is not an economic crisis. It is a crisis which reflects profoundly and seriously a lack of political imagination and will. There is no balance of payments crisis between California and Maine. There is no such crisis between Scotland and England, or between British Columbia and Nova Scotia. There need be no balance of payments crisis between England and France or any other State of Europe. It is simple to show how within a unified economy one could readily create all the conditions, without exception, which are plaguing the economies of Europe today. We could do it within the major monetary units of Europe. But we seem incapable of reasoning in reverse, of learning the lessons of history in this context. Yet that is what we must do.

Only our obtuse respect for national sovereignty stands between the peoples of Europe and their real destiny. We have not a great deal of time in which to rediscover this basic fact and get on with the job.

8.28 p.m.

Mr. R. T. Paget (Northampton)

I hope that the hon. Member for Portsmouth, Langstone (Mr. Ian Lloyd) will not feel that I am being unkind if I urge him, with the best will in the world, not to read in the House at this point in a debate. A literary style is almost impossible to listen to. That must be my excuse for not giving his speech the answer which I feel that its thoughtfulness deserves. I will read it tomorrow, but it is difficult at this stage in the House. I hope that the hon. Member will feel that I am not being discourteous in saying so.

This debate has been valuable in showing what are the Conservative alternatives to the present proposals. They are much narrower than would appear from the kerfuffle in the Press. First, the Conservatives accept the monetary conventions of international finance. There is no difference between the Front Benches there. Again, they accept the primary importance of maintaining parity of the £. That, again, is common ground.

The Conservatives accept that cuts are necessary for that purpose. The difference between us is that they think that the cuts should be in public expenditure, whereas we think that they should be primarily in private expenditure. This needs a little analysis, however, because the cuts in public expenditure of which the Tory Party approve are not the lunatic excursion into journalese that we had from the hon. Member for Pembroke (Mr. Donnelly). They are very moderate cuts indeed.

The Leader of the Opposition suggested, quite rightly, that there should be no cuts in schools and that there should be no cuts in health services—again, I think, rightly. His proposals involve an increase in defence, an increase in police and an increase—again, quite rightly—in pensions. He suggested that the cuts should come in general administration. That is a common policy to all Governments. All Governments want a cut in general administration. If they succeeded in doing as well as the Red Queen in "Alice in Wonderland", they would be doing pretty well.

The main place, however, where the Leader of the Opposition wished to cut was agriculture. If we cut agriculture, it is not merely a question of adding the subsidies £350 million—to the cost of food. To effect a saving in imports by increasing agricultural production, it is necessary to do a good deal more than that. One has to add a good deal more than £350 million to the cost of food to call for the additional home production that would save imports.

Another sector where the Conservatives wish to transfer the cost is housing. I do not quite know what kind of saving this is. Do they feel that they would change the output of the building industry? Do they wish to change its direction? Do they want more or fewer houses for people? That is really the answer. Therefore, when one comes down to analyse the fundamental difference between the parties at this point, it is that we on this side believe that the cuts, which are generally accepted as necessary, had, on the whole, better be taken out of smokes, drinks and petrol and the Tory Opposition believe that, on the whole, they had better be taken out of food and rent. That is the difference between the parties.

For my part, I differ with both the parties. Nobody has touched on the real trouble with our economy. For over 20 years, successive Governments have tried one device after another to check consumption and one after another they have failed. This has been because there has been a factor working against them. That factor, so far not mentioned or recognised, is a progressive loss of confidence in the value of money. That is what we are suffering from.

Mr. Nigel Birch (Flint, West)

Hear, hear.

Mr. Paget

The right hon. Gentleman has not had the opportunity of catching your eye so far, Mr. Deputy Speaker.

This is the fundamental trouble which we are facing and it is a reasonable loss of confidence. No reasonable man can believe in money at 8 per cent. interest. Nobody can borrow money at 8 per cent. if he thinks that he is going to repay it. He does not think that he is going to repay it. He has been right in thinking that he will not repay it, because it is being written off by inflation all the time he borrows it. That is the trouble. If it was not written off by inflation, 8 per cent. would be intolerable to a community. It would be a charge levied by the possessors upon those who did not possess which would be quite unacceptable in any civilised community. An interest rate of 8 per cent. means inflation, and inflation means that one cannot get back consumption

What is the cause of this 8 per cent. interest? It is, quite simply, that we persist in continuing to act as banker with sterling as an international reserve currency—a currency not quite trusted, a currency which compels us to pay an extravagant rate of interest in order to retain the deposits. It is sometimes said that we are insolvent. Every bank is insolvent. No bank can meet its depositors entirely. It must keep its depositors happy arid ensure that they do not all claim at once. That is what should be done, but with an inferior currency it costs us 8 per cent. to do it, and that 8 per cent. makes our economy chronically inflationary because we could not handle 8 per cent. without inflation.

That is our problem. We are simply tinkering unless we try to tackle it. How do we start to tackle it? First, we should immediately stop the convertibility of sterling. This is the essential measure. We have done it twice: we did it in two wars. When production became the clear and right priority, we knew what we had to do. We stopped the convertibility of sterling. This throws the sterling balances and it is exactly what President de Gaulle has done. He has chosen the right alternative.

Secondly, we must realise that the rate of exchange is a price and not a prestige expression. It should be adjusted to our requirements as they arise. I would not exclude varying rates for varying currencies as and when we require them. The rate of exchange should be constantly managed to our interest and without regard to prestige. President de Gaulle has done the right thing by defying the speculators and by telling the con- vention of bankers where to put it. Here he was absolutely right. But I do not think that he will hang on to a rate of exchange which does not serve France. There is too much canniness in France. He will decide the right moment, in the interests of France, to value the franc at the level which suits France. When he does, we will be in the soup again.

Thirdly—and I say this with reservations—we require to do something about our balance of payments, but nothing like as much as the Government think. The world problem is not the French deficiency, but the German surplus. I entirely agree with Keynes that for a rich country to run a surplus is a crime against the world. The rich countries should he in deficit on their balance of payments, on average, year in and year out. I think that our deficit at the moment is too much, because we require increased internal investment. But to put ourselves in a position of running a £500 million surplus would injure the world and, through the world, it would injure us.

That being our objective, I cannot see how it is served by a new bout of deflation. It seems to me wholly irrelevant. This deflation is to meet an accident that did not happen. It is to meet the devaluation of the franc, and the devaluation of the franc did not happen. A month ago the Chancellor informed us that the trend was good; surely, it is better now. The Germans are to be taxed on their exports and receive a bonus on their imports, and that serves us well. The French action has pegged the £, which means that there is no danger for the time being of our currency being the weaker currency. Why do the Government now, in better circumstances, go in for a deflation that was not necessary in worse circumstances a week ago?

I can see the object in this somewhat fictitious community in which we live of making sacrifices to the rain god, but not after it has rained, and this time, thanks to de Gaulle, it has rained. Therefore, I say to the Chancellor, let us cancel these announcements and conclude our proceedings with three hearty cheers for General de Gaulle who has done what we require.

Mr. J. Bruce-Gardyne (South Angus)

I have listened with considerable interest to the remarks of the hon. and learned Member for Northampton (Mr. Paget). I comment on the latter part of his speech that the reason we have to sacrifice to the rain god after, as he put it, the rain has come, is wholly and exclusively to do with the activities of his right hon. Friend the First Secretary of State, and I will come to this in a moment.

The debate today has been most interesting. I particularly admire the contributions of the hon. Member for Pembroke (Mr. Donnelly) and my hon. Friend the Member for Guildford (Mr. David Howell). I felt only that they were putting forward propositions so wise that there was not the remotest chance of the Front Bench opposite taking any notice of them. I will try briefly to put forward more modest propositions on which I hope that the Front Bench may be prepared to take a positive view.

I find the prior deposit scheme announced by the Chancellor on Friday, wholly misguided and wholly objectionable. Very good reasons against it were advanced by the hon. Member for Stoke-on-Trent, Central (Mr. Cant), when he dealt with the monetary side-effects. Another good case against it was made by the Minister of State for the Board of Trade in another place on 6th November. He pointed out that, far from improving the balance of payments, prior deposits, in the short term, would actually lead to a deterioration in the balance of payments.

Above all, my objection is that we are trying to attack the symptoms and not the cause. We are acting as if there is something wrong and improper about imports as such. We should know by now that the continuing high level of imports since devaluation is attributable to the state of the internal economy; that is what we should be looking at, and this is where I come to the activities of the right hon. Lady the First Secretary.

I am sure that she imagines that she is laying her fiery red locks and her fiery red principles on the chopping-block, making a sacrifice of her great Socialist reputation on behalf of the prices and incomes policy. The reality, I suggest, is that she has totally failed to understand the whole basis of the Chancellor's post-devaluation strategy, and that week by week, day by day, she has been going out of her way to sabotage it on every possible occasion. Every time she restrains a manufacturer's price increase she is helping to build up pressures of internal demand which the Chancellor is anxious to damp down.

I said earlier that I would confine myself to suggestions in which I thought the Government might be prepared to take an interest. I am relieved to see in today's Evening Standard that Mr. Robert Carvel, that very well-informed political correspondent, announces that there are some Ministers who feel dissatisfied, especially with the work of the right hon. Lady the Secretary of State for Employment and Productivity, and that some reorganisation is necessary to avoid future trouble. I hope profoundly that those Ministers get their way. Unfortunately, before there was any chance of that, we were told on Friday that we should have to pay the price for her mindless meddling, all with the best of intentions and the worst of possible results.

I pass over the activities of the Prime Minister who, I suppose, will cease to be called "the Miracle Man". His only contribution to the latest crisis was his extraordinary interview in the middle of the night with the German Ambassador. Today, when my right hon. Friend the Leader of the Opposition referred to it, I noticed that the right hon. Gentleman shook his head at the suggestion that he had threatened to withdraw British troops. It will be interesting to hear whether the Chief Secretary can deny that report categorically. I have every reason to think that it is accurate.

I believe that, since devaluation, the Chancellor has been guilty of gross dilatoriness. Perhaps he spends too much of his time writing biographies. In the absence of any hon. Member on the Liberal benches, I hope that I may say without indiscretion that the right hon. Gentleman seems to have adopted the slogan of one of his subjects for biography. "Wait and see". His dilatoriness during the months immediately following devaluation results in his having to bear a great deal of the responsibility for what has happened since.

This is one of many crises that we have experienced under the present Government, but it is fair to say that they are not wholly and exclusively responsible for it. As the Chancellor remarked today, there is no doubt that the monetary system is wearing thin in places. The right hon. Gentleman appeared to suggest that it was the franc which set off the latest troubles. I cannot accept that for one moment. To my mind, all the evidence suggests that, when we talk about factors outside this country, the real responsibility lies with the Deutschemark.

My right hon. Friend the Leader of the Opposition said in his speech that the Government ought to take proper account of individual national attitudes to currency actions. I agree. Nevertheless, that should not inhibit us from criticising those national attitudes when they conflict with common sense and the interests of a rational economic system for the world.

The whole history of the Deutschemark, back to 1961 and beyond, is one of an undervalued currency. In 1965, in what was an act of irresponsibility almost paralleling the excesses of right hon. and hon. Gentlemen opposite, the German Government decided to deflate the German economy sharply at a time when the Germans had the largest proportionate payments reserve in the world. From that time on, the Deutschemark's parity was effectively out of control.

On Friday, the Chancellor referred to the proposals for an effective 4 per cent. back-door revaluation of the deutschemark. But at the beginning of this year, when the Germans went over to the value-added tax, eminent American authorities calculated that this represented a 3 per cent. devaluation of the Deutschemark in terms of German manufacture and exports. What they are doing, if they are doing that, is putting back what was done by the introduction of the value-added tax earlier this year.

The I.M.F. lay down certain rules and penalties, as well as assistance, for countries which run into chronic payments deficits, but it also lays down certain obligations on countries which run into continuous surplus positions. These are the so-called scarce currency sections of the I.M.F. rules—in effect, Article 7, Section 3. 1 will not delay the House by reading them now. The effect of the rules is clear. If a country so persistently maintains a payments surplus that the I.M.F. decides that its currency should be declared scarce under the rules, all other countries are entitled unilaterally to apply special restrictions and controls to that currency. To my mind, we cannot have an international payments system which has rules and penalties on the one side, but not on the other.

I believe that unless the German Government were prepared to accept a substantial revaluation of the Deutschemark, which will occur anyway before many months are past, we should have reminded them of the relevance to their position of the scarce currency sections of the I.M.F. rules.

Finally, one other solution, which has been consistently rejected by the Government, is to combine a raising of the price of gold with an adjustment between existing parities—raising the Deutschemark and probably the Swiss franc, and lowering the French franc and the £. These two hang together and offer us the prospect of a much firmer basis for our future monetary system. Professor Emmingger, an opponent of change in gold prices, has reminded us that such a raising of the gold price would lead to a much faster rate of growth in the advanced industrial economies. Yet it is rejected by the so-called growth men opposite.

My hon. Friend the Member for Portsmouth. Langstone (Mr. Ian Lloyd) has pointed out that we cannot go on tinkering with the system much longer. There must be fundamental changes, involving a change in the parity of the Deutschemark. I believe that this would be more easily combined with a rise in the price of gold. But let us stop tinkering and recognise that unless we are prepared to face the fundamentals of the situation we can have another monetary crisis dragging us straight back to the 1930s.

8.54 p.m.

Mr. Alfred Morris (Manchester, Wythenshawe)

The Chancellor rightly attacked the Leader of the Opposition for the contradictions of Conservative policy. My right hon. Friend the Member for Easington (Mr. Shinwell) is a most resourceful man and I congratulate him on shedding important light on the policy of the Opposition by his intervention this afternoon. What the right hon. Gentleman has said today about food prices and rents will help the country to understand the murkier recesses of Opposition policy.

There was naturally a great deal of revulsion on this side of the House against what was said by the Leader of the Opposition, who was in favour of increasing food prices and, by reducing housing subsidies, of generally increasing rents. Moreover, I noticed the very close relationship between what was said about housing subsidies by the right hon. Gentleman and what was said in a speech on the eve of the recent Conservative Party conference by the right hon. Member for Wolverhampton, South-West (Mr. Powell).

Certainly, in my constituency this aspect of Conservative policy will be followed very carefully indeed. The right hon. Gentleman has been compared on occasions with his right hon. Friend the Member for Kinross and West Perthshire (Sir Alec Douglas-Home). There have, of course, been many critics of the economic expertise of the right hon. Gentleman the Member for Kinross and West Perthshire. But is he really any worse than the right hon. Gentleman? For there would be no saving of public expenditure from the right hon. Gentleman's policy. He talked of reducing agricultural subsidies and of helping the poorer people against the rising prices which would result by increasing social expenditure. Thus what the right hon. Gentleman was advocating was merely a transfer of public expenditure from the Ministry of Agriculture to the Ministry of Social Services—

Mr. Joel Barnett (Heywood and Royton)

And more civil servants.

Mr. Morris

—and, as my hon. Friend says, perhaps more civil servants into the bargain. The policy of the Opposition on this subject is extremely confused and this has been an important day in shedding light on the contradictions of Opposition policy.

Before the right hon. Gentleman the Member for Bexley (Mr. Heath) came in and started his customary giggling, my hon. Friend the Member for Ashfield (Mr. Marquand) said he hoped that, in consequence of this monetary crisis, there would not be a return to the beggar my neighbour policies of the 'thirties. And the hon. Member for Peterborough (Sir Harmar Nicholls) interjected to say that it all depended on Nixon. I believe that it does not only depend upon Nixon. It should also depend upon this House.

We must emphasise and re-emphasise what was mentioned in the Sunday Times yesterday, that … world trade is permanently at the mercy of stubborn Governments and frightened speculators. Furthermore, I entirely agree that there must now be a major world conference, stimulated at last into agreement and action by the prospect of the recession looming all around. The conference should consider more than just rates of exchange and how to adjust them. It should set about rethinking the justification of institutions which were established on assumptions about world trade which no longer obtain. And Britain, as the most vulnerable trading nation, has the greatest interest in calling this meeting. While there is an international monetary crisis, beyond that there is also a world trading crisis and I believe that this country can now take a very important lead towards freeing and liberalising world trade.

It is not for those who support protectionism in Western Europe to lecture President Nixon against the dangers of increased protection in America. Naturally, there is great anxiety that America, under its new President, may move towards protectionism. But I would say that it is not for those who admire the protectionism of some of our neighbours to start lecturing the Americans about the benefits of free trade. In an American phrase, they would almost certainly be accused of speaking out of both sides of their mouths.

There have been in this debate speeches in which hon. Members have tried to blame the Labour Government for the international crisis. Right hon. Members opposite shake their heads—

Mr. Roebuck

And they rattle when they do.

Mr. Morris

—in support of the electioneering speech made over the weekend by the right hon. Gentleman the Member for Bexley. Their attempts to blame any one Government—whether it be that of Germany, France, Great Britain or any other—for an international crisis cuts no ice with the electorate.

Finally, I am glad to see my right hon. Friend the Minister for Overseas Development here, because in my opinion the relations between developed and developing countries are an extremely important factor in world trade. World economic development is not just a question of providing more aid. It also requires a willingness on the part of all industrial countries to allow freer trade in goods from the poorer countries.

9.0 p.m.

Mr. Iain Macleod (Enfield, West)

I start with two notes of congratulation, first to the hon. Member for Manchester, Wythenshawe (Mr. Alfred Morris) on the blinding revelation that, rather more than three years after it was published, he has discovered the Conservative Party's agricultural policy. We fought every by-election in this Parliament on it, but he treated today's speech made by my right hon. Friend the Leader of the Opposition as if it were the first announcement of policy.

Mr. Alfred Morris

The right hon. Gentleman was rather late, but earlier than some of his hon. Friends, in coming into the Chamber. My point is that that policy would not reduce public expenditure. It would transfer public expenditure from the Ministry of Agriculture to the Ministry of Health and Social Security.

Mr. Macleod

That is not worth going into. The hon. Member's real point was that he thought that a new discovery had been made this afternoon.

Secondly, I congratulate my hon. Friend the Member for the New Forest (Mr. McNair-Wilson). We welcome him back. I cannot congratulate him on a maiden speech and it would be wrong to call it a half-maiden. At any rate, he is very welcome back in our midst.

In winding up a debate that has ranged so widely over economic affairs I could start almost anywhere, but as good a place as any is the very first sentence in the White Paper, The Basle Facility and the Sterling Area, issued in October 1968. This is its description: The $2,000 million facility to offset fluctuations … and the related agreements which have been negotiated with sterling area countries, are a milestone in the evolution of the sterling area and a major contribution to world monetary stability. Some contribution! Some stability!

This is one more example of what, in the debate on the Queen's Speech, I called the lunatic optimism of the Government. They only have to glimpse a patch of blue sky and the heavens fall in upon them. They only have to murmur the words "economic miracle" and the next trade figures go for a Burton—every single time! Either they are unlucky beyond mortal understanding or they are just plain incompetent. I wish to make it clear that my case is the second.

I return to the Basle Agreement because in my opinion we have talked about it too little today. I repeat the question posed by my hon. Friend the Member for Macclesfield (Sir A. V. Harvey). How much has been drawn? When I first put this question we were told that $600 million has been made available. Subsequently, at Question Time the Chancellor seemed to indicate that rather less than that had been taken up. But he said not a word in his speech today. So I ask: did any Commonwealth countries switch or try to switch part of their holdings during this crisis and, in particular, what figure has been drawn now?

It is no good saying that this information is not normally given. The facts are that this information was invariably given in the years of Conservative rule, on the rare occasions when we had recourse to special help. I take the view that on the whole Basle was a bad bargain for Britain, and that there is only one case one can make for it. Under it we agreed to stop part of the sterling balances for heavier repayment obligations. But we draw during the first three years, and we repay between the six and tenth. It follows that the drawings may well be made largely, if not entirely, in the time of this Government, but, as so often, their debts will be left to be settled by those who succeed them.

The only excuse—and it is an important one—is that they may have been forced into this by the run-down of sterling balances. This has been the story ever since they first came into office. The Chancellor has said that I usually devote a portion of my speech to unemployment. I do not do so today because I regard the case as now proved. Professor Paish has won. It is no good hon. Members opposite deluding themselves that there is any difference at all between what the Governor of the Bank of England may say and what this Administration are planning.

It is incredible that some of these measures should be brought foward when, whatever explanations one may offer, unemployment in November is at 560,000. It is not only hon. Members opposite who think that they are dreaming when they see a Socialist Chancellor dashing into action to make certain that the rate of unemployment does not drop between 2¼ per cent. and 2½ per cent. We have been in a situation of crisis ever since November, not October, of 1964.

There is one important lesson to be learned from the crisis of confidence in which France has found herself. She had strong reserves, although we had not, but that did not save her. She is self-supporting, or very largely so, whereas we are not, but that did not save her. She had virtually no debts, and if one counts the sterling balance in this capital, we have very large short-term debts indeed, but that did not save her. The franc was a strong currency. What happened was that there was a lack of confidence in the Government, and there were inflationary wage settlements.

Such settlements—and I thought that we had learned this lesson by now—are usually far worse than a strike, and it is to this point that I wish to return. Our charge first about the Chancellor is that he has heedlessly misread the economic situation throughout this very difficult year. Let me repeat that we do not expect long-term forecasts to be accurate. In the very nature of things we know perfectly well that they cannot be so. We do not expect them to be much more accurate than long-term meteorological forecasts.

But we do expect him, if he looks out of the window and sees that it is raining, to know what the weather is. All through this year he has suffered from delusions, to which we have tried to draw his attention, about the level of consumer spending. Secondly, we believe that he has been neglecting the twin pillars, as we see them, of controlling public expenditure and boosting savings. Public expenditure is up by 60 per cent. since October, 1964.

It is no good simply saying that public expenditure in many—and, I would agree, most—fields is on thoroughly desirable objects which we all want to see go ahead. Of course it is. But in this, a nation is no different from a family, and basically the old phrase of Mr. Micawber is right— Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. There is waste, yes, but it is relatively small. Naturally one concentrates on it to some extent in speeches. But I acknowledge that if is relatively small. I have always acknowledged that if we want to make savings, we must make policy changes.

My right hon. Friend referred today to a number of changes. He said, for example, that we should renegotiate the housing subsidies. Hon. Members opposite cheered their heads off because they thought that they saw in that political profit for themselves. Let me tell them that they are wrong. It is the weight of taxation in this country which is intolerable. It is the sheer weight of government which is intolerable, because, quite apart from having inefficient government, we have too much government in this country, and there are far too many people minding other people's business. I advocate reductions, including the sort of policy reductions mentioned this afternoon, even in the most marginal seats.

The Chief Secretary has been the prophet on this, and no doubt he will say something about it when he replies to the debate. He has said that we are on target. When he says that over the year we are on target, does he mean the National Plan target? That is what I understood it to mean. If that is so, then of course it is one of the direct causes of extra taxation, because although the plan has gone, although the growth which the plan dreamed of has not been achieved, yet public expenditure rolls on at the rate which was envisaged in the National Plan.

I come to the question of savings. I cannot understand why the Chancellor is so little interested in this subject. Over and over again on the Finance Bill we had debates on savings, and ideas were put forward from this side of the House, from the Front Bench and other benches, from the Liberal Party and from the Labour Party. Now the right hon. Gentleman is studying some scheme because he has been forced to do so. But he said not a single word today about savings, and yet he had the impertinence to claim that my right hon. Friend, who concentrated on this point, had not a single constructive thought. Savings are the key to everything.

The savings ratio at present is disastrous. My right hon. Friend said something which echoed a phrase of Adlai Stevenson which we all remember— This is the century of rising expectation. I believe that it was Adlai Stevenson who said it, although I have not checked it.

The performance of the relative Governments is that in six years of post-war Labour Government there was no improvement in the standard of living. Prices rose faster than wages and faster than pensions. In the 13 Conservative years the standard of living rose by about 3 per cent. a year. The increase is about 1 per cent. a year under this Government—and that is why people are trying to maintain the standards to which they got used in earlier years.

I will say just a word about the prior deposits scheme. It is quite true that my right hon. Friend the Member for Barnet (Mr. Maudling) and I on more than one occasion have expressed some interest in this scheme.

Mr. Roebuck rose—

Mr. Macleod

I have all the quotations here and I am covering the point which the hon. Member is about to make.

I have said that I believe that if there is to be a move in this field, then this is the best of various schemes. I have always said that and I hold to that point now. But that is all. I do not like it, and I do not suppose the Chancellor likes it either—and the President of the Board of Trade certainly cannot like it. Nor do I see it as a substitute for real activity on the fronts which I have indicated. I suspect that the admission of this scheme and the overcoming of the difficulties which have been paraded so often before us is, in fact, an admission that the propensity of imports is far higher than the Government dreamed of, either at the time of the Budget or in the months since.

We must have an answer to the question which has been pressed today. The Law Officers—I see the Attorney-General in his place—have presumably advised on this matter and the question is clear and specific. Is the advice of Her Majesty's Government that this scheme is legal? If not, did they obtain or try to obtain any form of agreement from our E.F.T.A. partners? It is clear that there was no consultation. The President would have been well advised not to make the intervention which he did make in the speech of my right hon. Friend. It is clear that they were informed after the decision had been taken, but we would like a clear answer about the legality of the scheme.

I return to the question of the competence of Ministers. The hon. Member for Hammersmith, North (Mr. Tomney), in a speech which held the House, said that he would abolish the Department of Economic Affairs. My hon. Friend the Member for Torquay (Sir F. Bennett) said that he had almost forgotten that it was still there. How can we take seriously the claim of a Government to be in any way concerned with economy while the Department of Economic Affairs remains?

There are, of course, some excellent civil servants in that Department and they could no doubt do excellent work in the Treasury or Board of Trade. But what do the Ministers do? I remind the House that there is a Secretary of State, a Chancellor of the Duchy of Lancaster, who is of Cabinet rank, a Minister of State and a Parliamentary Secretary. Yet 70 per cent. of hon. Members have not the faintest idea who they are. The Secretary of State has, in effect, been pulled out of the firing line because he cannot face the rough and tumble of debate. We should do away with this farce of a Department. We really cannot afford a mink-lined basket even for the Prime Minister's favourite poodle.

I come to the First Secretary. I was rebuked by a distinguished political commentator this morning for being unchivalrous in saying that she does not know what she is doing. But that is the very flower of knightly courteous words because the alternative explanation—that she does know what she is doing—is really very offensive indeed.

I am not alone in this comment. The first time I heard it expressed was in a brilliant speech—those who heard it will remember it as probably the finest speech made during our debates on the Finance Bill—by the hon. Member for Birmingham, All Saints (Mr. Walden) when he pointed out that the activities of the right hon. Lady, however well meant—and that is not in dispute—were in direct conflict with the ideas and aims of the Chancellor of the Exchequer. My hon. Friend the Member for Oswestry (Mr. Biffen) returned to the point in the debate on the Loyal Address of thanks for the Queen's Speech. My hon. Friend the Member for South Angus (Mr. BruceGardyne) said it concisely and effectively today.

I quote briefly from The Economist of 9th November on the way in which the Chancellor of the Exchequer had referred to the right hon. Lady's activities. Having quoted what he had said, The Economist commented: This is tactfulness towards a colleague elevated to a stage of being a danger to the country, as well as sounding like a bewildering joke. It is important that the British people should realise that these new restrictions are being laid upon them as the direct result of Mrs. Castle's interventions in the railway and engineering disputes, when she asked employers please to agree to inflationary settlements rather than to risk strikes. That is why I say that every action, whether on prices or on incomes, by the right hon. Lady has been directed against the Budget strategy of the Chancellor of the Exchequer. Either the right hon. Lady is inside the Trojan Horse and plotting the fall of the city from within the walls, or she has no idea where Troy is, does not know what the horse is doing there and does not know why she has been locked up inside it. In all chivalry, I appeal to the House to take the kindly view.

There is an interesting question as a postscript to the events of a few weeks ago. Did the Chancellor have reason to impose a squeeze of the present size from about the time of Bassetlaw? I think that the evidence is clearly now, "Yes", and that it is clear that he was stymied in what he had hoped to do. His Budget judgment was that consumption had to be cut by 2 per cent.—£500 million—for devaluation to work. He now says that consumption in the second half of 1968 will be the same as in the second half of 1967 after allowing for the effect of the hire-purchase controls.

We know, of course, that productivity has risen somewhat since April but, if we make the most optimistic allowance for that—say, 1 per cent. of consumption, which is £250 million—we are still left, on the Chancellor's thinking, not on mine, with £250 million above the Budget judgment, and that has been known, in my view, to the right hon. Gentleman for some weeks past. I believe that this is proof, and conclusive proof, that this action not only had nothing to do with Bonn but was planned but not put into operation at least three weeks ago.

Now I turn to the Chancellor himself. Last Friday, he came back from what must have been an extremely gruelling conference and made a statement to the House. There was one piece of what I have called "blue sky" in it when he said: The immediate difficulties in the exchange markets are, I believe, thus disposed of, and the London market will be open on Monday. That was on Friday—true—but on Monday it sounds pretty optimistic, and I do not think that many people would believe that the immediate difficulties in the exchange markets have been disposed of for anything except a very short time indeed.

But the right hon. Gentleman, in that statement, went on immediately to a remarkable sentence which is difficult to excuse even on the grounds that he was, of course, extremely tired and had rushed back to give his news to the House: But the events of the last week have demonstrated dramatically the urgency of our achieving and maintaining a surplus in the balance of payments of the United Kingdom."—[Official Report, 22nd November, 1968; Vol. 773, c. 1792.] Did he really need that week and that crisis to bring this particular situation home to us? Ever since January we have challenged his judgment on the economic situation and we have been much nearer the out-turn than he has been. Yet he knows nothing because, in fact, he listens to nothing and he never under any circumstances admits that he was wrong. He makes speeches to the House, good speeches, but he has no dialogue with the House. The reason is, of course, that his disdain for his political opponents is only matched by his contempt for his political friends.

We have a Prime Minister so discredited that no one really cares whether he speaks or not in this debate and practically nobody bothers to refer to him. We have a Chancellor tripping from disaster to disaster and always doing too much because he always moves too late. They are supported, if that be not an extravagant word, by the largest, the most highly paid, and worst Administration in our history. Lord North would have scorned to join them.

The hon. Member for Liverpool, Walton (Mr. Heffer) told us some time ago that someone approached him, tapped him on the shoulder and said, "You are of Ministerial calibre". I cannot think of a deadlier insult. Yet, of course they will not go. The hon. Member for Tottenham (Mr. Atkinson) was absolutely frank, in one of the first back-bench speeches of the debate, in explaining why. The reason is that they may mutter, and they do mutter, about a point of no return, but they know that for most of them the General Election itself will be the point of no return. It may be that for the more acute among them the choice between defeat and rout will become plainer as the months roll on, but certainly there is an overwhelming case for bringing this sad chapter of our history to an end and seeing the back of this weak and discredited Government.

9.28 p.m.

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

The right hon. Member for Enfield, West (Mr. Iain Macleod) has made a good-humoured and entertaining speech on a matter which I am sure the whole House regards as one of considerable seriousness. I am here to answer as many as possible of the questions that have been put to me during the course of the debate, particularly as have responsibility for answering to the House on items of public expenditure, as it was anticipated that the debate would turn quite substantially on the level of public expenditure and particularly on the fact that, in comparison with France for example, we are not proposing to alter at this stage our public expenditure proposals.

In view of that, it was thought that perhaps it would be convenient for the House if I spoke and answered any questions put to me on this score. The right hon. Gentleman the Leader of the Opposition and the right hon. Member for Enfield, West and all members of the Conservative Government will know that it was because of the endless pressures on public expenditure in that Government that they found it necessary to create this post in order to control and restrain public expenditure. They created it because they found it impossible to maintain a reasonable balance within the Government. I am here to answer questions on that score, but I should like first to deal with some other questions.

The first is about the international situation, and it is that with which we are mainly concerned. The right hon. Member for Enfield, West referred to the position of the markets. I agree with him that we must not look too far forward, but I am glad to report that sterling has strengthened in the market today and that the reaction of world markets to the events of the last week has been encouraging. That is as far as we can go at the moment.

We shall follow with great interest the developments in West Germany and, in particular, the working out of the details of the scheme so as to make sure that the intention of the West German Government to give us an advantage of some 4 per cent. in exports, both to West Germany and to third countries, is not eroded as a result of the complexity of the stages of production, manufacture and distribution of any given article.

I think that we can take some comfort from the fact that the situation in France has resulted in our not having to face the deterioration in our own competitive position which would have resulted had the French dealt with their problems in alternative ways. We must note that both the Chancellor of Germany and the President of France have associated themselves in the clearest terms with the determination of their respective countries not to alter their parity rates. These decisions, taken after full discussion with all the other countries concerned and after considering a variety of alternatives at considerable length, should give the clearest of messages to those who wish to make a profit by speculating in the currencies of these two countries.

As I am dealing with the point, perhaps I may now answer a question, which the Leader of the Opposition put in less than his usual courteous terms, about a Question which I answered last week. I was asked about the possibility of speculation. In a supplementary question, the hon. Member for the Cities of London and Westminster (Mr. John Smith) asked: … could the right hon. Gentleman confirm once and for all what he knows to be true, namely, that it is physically impossible, legally, or illegally, for British residents to speculate in foreign currencies? I replied: I regret that I am not sufficiently informed of the details to be able to give that assurance."—[Official Report, 20th November, 1968; Vol. 773, c. 1303.] That was not an unwise reply to give at that time and I now give the fullest reply to the right hon. Gentleman and to the hon. Member for Torquay (Sir F. Bennett) who raised the matter again today.

Of course, it is illegal for United Kingdom residents to purchase foreign currencies other than in support of bona fide commercial transactions. On the other hand, it is not physically impossible to evade the law. That is why I hesitated in my answer. Evasion of the law has been made as difficult as possible—it is our responsibility to see to that—but offences are committed, and when they are committed they are liable to detection and prosecution, and several successful prosecutions have taken place. I do not want to overstate the situation. It is our responsibility to see that as far as possible no evasion on this score takes place and, broadly, we have achieved that.

Sir F. Bennett

In his selective quotation the right hon. Gentleman has not mentioned the question which was asked by his hon. Friend the Member for Lewisham, West (Mr. Dickens) to which he did not reply in those terms. He gave substance to the suggestion that there was widespread evasion by United Kingdom residents and that the necessary steps might have to be taken.

Mr. Diamond

No, there was nothing selective about it. I read the whole supplementary question put to me by the hon. Member for the Cities of London and Westminster, and gave the reason for my reply. I was not prepared to go further than that at the time, and I hope that the answer which I have now given will satisfy the House.

Mr. Heath

The Chief Secretary has said that it is not legally possible to speculate and that, so far as evasion is possible, the Government have achieved their objective of preventing it. [Hon. Members: "No."] Those were his concluding words. The right hon. Gentleman said, "Broadly speaking, we have achieved our objective of preventing it". Therefore, speculation within this country cannot have affected recent events, or even events during the lifetime of this Government.

Mr. Diamond

I am not referring to the familiar problem of leads and lags, with which the right hon. Gentleman will be familiar. That is a separate issue, and it is impossible to be precise about the extent of any deliberate lead and lag and whether it is speculative or not. I have given a full answer, I hope, on the situation as it arises in this country.

Again on the international scene, I was asked about the position regarding E.F.T.A. in relation to our import deposits proposal. As the House will recall, my right hon. Friend the President of the Board of Trade took the earliest opportunity to discuss our proposal with his E.F.T.A. colleagues in Vienna on Friday afternoon, at about the same time as my right hon. Friend the Chancellor was informing this House, or slightly ahead of it. I do not know whether hon. Members opposite would have wished us to inform other countries, even those in E.F.T.A., substantially before we informed the House.

The E.F.T.A. Ministers in Vienna, so far from criticising us for not having spoken earlier—there was no complaint on that score—expressed their gratitude for my right hon. Friend's statement and had a useful and businesslike discussion on the situation which was helpful to us all. As regards the question of legality, there are no explicit provisions in the E.F.T.A. Convention about import deposits, and the situation which has now arisen was not foreseen when the convention was drafted. We have taken the best advice available to us, and, on the basis of that advice, our view is that, since there is no specific prohibition in the Convention, we were entitled to take this action and that no question of illegality arises. I assume that this was the view also of both right hon. Gentlemen opposite when they put forward the scheme earlier.

In the communiqué issued after the Vienna meeting on Friday, no question of illegality was raised. The E.F.T.A. Ministers simply said that the E.F.T.A. Council at official level would examine our measures further. If questions of legality are raised—there has been reference to a Press report about an individual Finance Minister having raised such a question—they will, no doubt, be considered in that forum in the first instance.

I wish to make it perfectly clear that, in the discussions in Vienna on Friday afternoon, the E.F.T.A. Ministers were not greatly concerned with debating whether or not the deposit scheme was legal. When my right hon. Friend the President of the Board of Trade explained the reasons for our new economic measures, the general response from our E.F.T.A. partners was sympathetic and understanding. As the Austrian Minister of Trade and Industry, the chairman of the Ministerial Council, pointed out at his official Press conference, there was a general feeling in the Council that we had been obliged to take action and that of the various measures available to us we had chosen the one least likely to damage our E.F.T.A. partners' trade.

Without putting words into the right hon. Gentleman's mouth, I think that that is the view which he himself takes, that, if one is forced to it, this is the least damaging of the alternatives which one might adopt.

As to G.A.T.T. it is worth noting that other members of G.A.T.T. have on occasion used credit restriction schemes which are slanted against imports of a somewhat similar nature. In particular, the Japanese have had an import deposit scheme closely resembling ours in operation for a number of years without objection from the G.A.T.T.

Mr. Roebuck

Is my right hon. Friend aware that in this House, within the last year, the Japanese scheme of import deposits was praised by the right hon. Member for Barnet (Mr. Maudling), who advocated that we should go ahead with it? Therefore, are not the objections from the Opposition a little late if nothing else?

Mr. Diamond

My hon. Friend is helpful in his recollection. It underlines the point I have been endeavouring to make.

Sir Harmar Nicholls

In view of the warning that we had when we imposed the 15 per cent. surcharge, did the Government take the elementary precaution of consulting the Law Officers before imposing this import deposit formula on E.F.T.A.?

Mr. Diamond

I have given the hon. Member a very full answer. I hope that he will be good enough to read it. I have dealt specifically with that point.

Before I come on to public expenditure items, on which I want to spend a little time, I would like to refer to the question of savings, to which the right hon. Gentleman thought that my right hon. Friend should have referred more specifically. It is within the knowledge of the House, and it was mentioned by my right hon. Friend the Chancellor in the Report stage of the Finance Bill on 2nd July, that we are interested in ideas about contractual savings. My hon. Friend the Financial Secretary has been discussing ideas in this direction with the C.B.I. and the T.U.C. These things are not easy, but we are sympathetic with the purpose lying behind these ideas and I hope that we shall be able to reach conclusions and announce them to the House before too long. That consideration is going on. It is quite wrong to assume that my right hon. Friend is not, as ever, fully interested in promoting savings.

On the domestic scene, I would like to deal with the regulator first. I do not know whether the general feeling is that we are doing too much here. [Laughter.] Certainly, it is not the case—I have listened practically to every speech in the whole of the day, and those to which I have not listened I have had reported to me—that there has been any real criticism on the merits of the import deposit scheme. There has been no major criticism in that respect at all. The only line of criticism is on the timing.

My right hon. Friend the Chancellor could not have dealt more specifically and in a more detailed manner with the timing and he could not have been franker. I have never known a Chancellor since 1945 who has been franker with the House, both as to the material on which he bases his judgment and on the timing of the way in which his mind works and when he reaches his conclusions.

Whether it is wise to be so forthcoming and so frank—[An Hon. Member: "Ask the Prime Minister."]—only future events will decide. One would want, in a serious House of Commons, to take all Members of the House into one's confidence as far as one responsibly could. If that responsible attitude is met by irresponsibility one is bound to doubt whether the first step was right. If the suggestion is—and I know that one of my hon. Friends referred to the "clobbering" of the wage earner—that the proposal in the regulator will cause a heavy burden to rest on the shoulders of the wage earner, may I give some examples, which is the simplest way of understanding the effect.

The price of a suit costing £30 will, after the tax has been put on, be £30 4s. 6d. A carpet costing £50 will, after the tax increase, he £50 7s. 6d. The price of a box of chocolates costing 10s. will be 10s. 2d. The increase on a car costing £600 will be £13.

I apologise that I have not brought with me a note of the increase on a bottle of champagne, which would be of considerable interest to the Chairman of the Conservative Party and to the Leader of the Opposition, who made a speech about controlling consumption by increasing prices all round. I gather that the right hon. Gentleman is to honour the constituency of his right hon. Friend the Member for Altrincham and Sale (Mr. Barber) by visiting it and making a speech at what is described as a champagne reception. The tickets are 50s. each—well worth it to hear the right hon. Gentleman.

Mr. David Waddington (Nelson and Colne) rose—

Mr. Diamond

I am sure that the hon. Gentleman would wish me to finish what I have to say about the champagne reception.

The tickets are 50s. with champagne, but only 30s. without champagne. Therefore, I do not think that our proposal concerning the regulator will have a serious impact.

Mr. Waddington rose—

Mr. Diamond

I have given way several times. May I give way when I have finished this part of my speech?

As the House knows, it is expected that the measures in total—that is, the regulator and all the other measures—will add about 1 per cent. to the Retail Price Index immediately and that by the end of next year the increase will be about 1½ per cent.

I turn to the various questions which have been put to me on public expenditure. I hope that the hon. Member for Nelson and Colne (Mr. Waddington) will acquit me of discourtesy if I do so since many of his colleagues put questions to me and I am anxious to deal with them. I see that the hon. Gentleman is not rising to his feet. He has accepted my appeal, and I am grateful to him.

Mr. Waddington

Is the right hon. Gentleman aware that there is great resentment on this side of the House—as there will be throughout the country—at his time-wasting tactics?

Hon. Members

Oh.

Mr. Deputy Speaker

Order. I should like to hear the intervention.

Mr. Waddington

Will the right hon. Member please tell the House and the country what they want to hear, and that is, when the Government will get off our backs?

Mr. Diamond

Of all the time-wasting interventions, that is the worst I have heard. I specially appealed to the hon. Gentleman to allow me to answer the questions put to me by his hon. and right hon. Friends when he was not even in the House, and he insisted on relying on our good will.

In considering public expenditure, we deal, first, with the overall question of the amount, secondly, with whether it is under control, thirdly, with its relationship to growth in our economy and, lastly, with whether it should be cut back immediately. The right hon. Gentleman referred to my comment that we are broadly on target both this year, which I confirm, and next year, when the increase in public expenditure is expected to be of the order of 1 per cent. That is the year which we could influence; we certainly could not influence events in this year by immediate measures, as the right hon. Gentleman knows.

Public expenditure is under control. We are precisely on target with a figure of £15,000 million and upwards. Is this a figure which we should be justified in spending? Day after day right hon. and hon. Members on both sides of the House press on me and my colleagues items of substantial increase in public expenditure. I speak now after four years' hard labour, and that is the best way of gaining experience.

The reality of the situation is that one is continually pressed and criticised, day after day, week after week, month after month, for being unwilling to increase individual items of public expenditure. Then there is a form of routine overall statement which is made on suitable occasions, such as today, by those who wish to criticise the total and always deny the House serious consideration of the individual items.

A short time ago an hon. Member who was concerned with flood damage insisted to my right hon. Friend the Prime Minister that there should be no limit of any kind to public expenditure so long as he could get what he wanted. Hon. Gentlemen opposite have only to read their speeches to realise the truth of what I am saying. The rate of increase in public expenditure for the first years of our Government is broadly what it was during the last four years of the Tory Government.—[Interruption.] The Leader of the Opposition should not show his ignorance on this topic. His right hon. Friend tie Member for Enfield, West is trying to draw his attention to the fact that what I am saying is right.

Broadly, the growth of public expenditure is the same. Of course, within that total, there have been variations up and down. The right hon. Gentleman and his party want to increase public expenditure on defence. We want to bring it down, and we are doing so. That is the difference on that issue. The cost of our presence in the Far East and the Middle East is between £200 million and £300 million, the whole of which we shall be saving when the run-down has been completed. That is the kind of figure which the right hon. Gentleman and his party want to restore. If it is not, perhaps he will tell us what is the kind of figure that he wants to restore. But, no, we have had to do cur own calculation.

Certainly, public expenditure on the social services, and especially on social security, has gone up nearly twice as fast during our period of office as it did when right hon. and hon. Gentlemen opposite were in office. However, I do not suppose that a single hon. Member on this side of the House will ask me to apologise for that.

The right hon. Member for Enfield, West, deals with these problems with seriousness. If his argument is that, because the gross national product did not grow as fast as it might have done, we have to cut down on the social services and on social security, he is saying, in effect, that we should have told the old, "We are not growing as fast as we could. Do you mind waiting a few years and thanking us from the grave for being responsible by not increasing the amount of money you receive?"

In our view, there are certain matters which cannot wait. Social and welfare services to the needy are among them. The effect of what we have done is to transfer money from the pockets of those who can spare it to the pockets of those who need it. That is why we are here, and we make no apology for it.

Turning to public expenditure on education, it is true that the rate of increase is slightly less than it was under our Conservative predecessors. The right hon. Member for Birmingham, Handsworth (Sir E. Boyle) is the shadow Minister for Education. His responsible view is that we should be devoting more public expenditure to education than we are, having regard to the vast increase in the populations of our primary schools and universities from the two bulges, about which everyone knows. He maintains that the growth of expenditure on education should not be at a lower rate than 6 per cent. to maintain the level.

Those are the reasons why we do not apologise for running public expenditure in terms of the social wage and services to the community in the way in which we are determined it should be done; which is a controlled way according to our policy decisions. I think that that

is the right way to do it. In those circumstances, I hope that the House will give our proposals full approval. They have been defended in full by my right hon. Friend, and I have tried to deal in some detail with the matters raised in the debate.

Question put, That this House do now adjourn:—

The House divided: Ayes 251. Noes 328.

Division No. 9.]	AYES	[10.0 p.m.
Alison, Michael (Barkston Ash)	Eden, Sir John	Kirk, Peter
Allason, James (Hemel Hempstead)	Elliot, Capt. Walter (Carsholton)	Kitson, Timothy
Atkins, Humphrey (M't'n & M'd'n)	Emery, Peter	Knight, Mrs. Jill
Awdry, Daniel	Errington, Sir Eric	Lambton, Viscount
Baker, Kenneth (Acton)	Eyre, Reginald	Lancaster, Col. C. G.
Baker, W. H. K. (Banff)	Farr, John	Lane, David
Balniel, Lord	Fisher Nigel	Langford-Holt, Sir John
Barber, Rt. Hn. Anthony	Fletcher-Cooke Charles	Legge-Bourke, Sir Harry
Batsford, Brian	Fortescue, Tim	Lewis, Kenneth (Rutland)
Beamish, Col. Sir Tufton	Foster Sir John	Lloyd, Rt.Hn. Geoffrey (Sut'nC'dfield)
Bell, Ronald	Galbraith, Hn. T. G.	Lloyd, Ian (P'tsm'th, Langstone)
Bennett, Sir Frederic (Torquay)	Gibson-Watt, David	Longden, Gilbert
Bennett, Dr. Reginald (Gos. & Fhm.)	Giles, Rear-Adm. Morgan	Loveys, W. H.
Berry, Hn. Anthony	Gilmour, Ian (Norfolk, C.)	Lubbock, Eric
Bitten, John	Gilmour, Sir John (Fife, E.)	MacArthur, Ian
Biggs-Davison, John	Glover, Sir Douglas	Maclean, Sir Fitzroy
Birch, Rt. Hn. Nigel	Glyn, Sir Richard	Macleod, Rt. Hn. lain
Black, Sir Cyril	Godber, Rt. Hn. J. B.	McMaster, Stanley
Blaker, Peter	Goodhart, Philip	Macmillan, Maurice (Farnham)
Boardman, Tom (Leicester, S.W.)	Goodhew, Victor	McNair-Wilson, Patrick
Body, Richard	Gower, Raymond	Maginnis, John E.
Bossom, Sir Clive	Grant, Anthony	Marten, Neil
Boyd-Carpenter, Rt. Hn. John	Grant-Ferris R.	Maude, Angus
Boyle, Rt. Hn. Sir Edward	Gresham Cooke, R.	Maudling, Rt. Hn. Reginald
Braine, Bernard	Grieve, Percy	Mawby, Ray
Brewis, John	Griffiths, Eldon (Bury St. Edmunds)
Brinton, Sir Tatton	Gurden, Harold	Maxwell-Hyslop, R. J.
Bromley-Davenport, Lt.-Col. Sir Walter	Hall, John (Wycombe)	Mils, Peter (Torrington)
Brown, Sir Edward (Bath)	Hall-Davis A. G. F.	Mills, Stratton (Belfast, N.)
Bruce-Gardyne, J.	Hamilton, Michael (Salisbury)	Miscampbell, Norman
Bryan, Paul	Harris, Frederic (Croydon, N.W.)	Mitchell, David (Basingstoke)
Buchanan-Smith, Alick(Angus, N&M)	Harrison, Brian (Maldon)	Monro, Hector
Buck, Anthony (Colchester)	Harrison, Col. Sir Harwood (Eye)	Montgomery, Fergus
Bullus, Sir Eric	Harvey Sir Arthur Vere	Morgan, Ceraint (Denbigh)
Burden, F. A.	Hastings, Stephen	Morrison, Charles (Devizes)
Campbell, B. (Oldham, W.)	Hawkins, Paul	Mott-Radclyffe, Sir Charles
Campbell, Gordon (Moray & Nairn)	Hay, John	Munro-Lucas-Tooth, Sir Hugh
Carlisle, Mark	Heald, Rt. Hn. Sir Lionel	Murton, Oscar
Carr, Rt. Hn. Robert	Heath, Rt. Hn. Edward	Nabarro, Sir Gerald
Cary, Sir Robert	Heseltine, Michael	Neave, Airey
Channon, H. P. G.	Higgins, Terence L.	Nicholls, Sir Harmar
Chichester-Clark, R.	Hiley, Joseph	Noble, Rt. Hn. Michael
Clark, Henry	Hill, J. E. B.	Nott, John
Clegg, W alter	Hilton, W. S.	Onslow, Cranley
Cooke, Robert	Hirst, Geoffrey	Orr, Capt. L. P. S.
Cordle, John	Hogg, Rt. Hn. Quintin	Orr-Ewing, Sir Ian
Corfield, F. V.	Holland, Philip	Osborne, John (Hallam)
Costain, A. P.	Hordern, Peter	Osborne, Sir Cyril (Louth)
Craddock, Sir Beresford (Spelthorne)	Hornby, Richard	Page, Grab-m (Crosby)
Crouch, David	Howell, David (Guildford)	Page, John (Harrow, W.)
Crowder, F. P.	Hunt, John	Pardoe, John
Cunningham, Sir Knox	Hutchison, Michael Clark	Pearson, Sir Frank (Clitheroe)
Currie, G. B.	Iremonger, T. L.	Peel, John
Dalkeith, Earl of		Percival, Ian
Dance, James	Irvine, Bryant Godman (Rye)	Peyton, John
d'Avigdor-Goldsmid, Sir Henry	Jenkin, Patrick (Woodford)	Pike, Miss Mervyn
Dean, Paul	Johnson Smith, G. (E. Grinstead)	Pink, R. Bonner
Deedes, Rt. Hn. W. F. (Ashford)	Jones, Arthur (Northants, S.)	Pounder, Rafton
Digby, Simon Wingfield	Jopling, Michael	Powell, Rt. Hn. J. Enoch
Dodds-Parker Douglas	Joseph, Rt. Hn. Sir Keith	Price, David (Eastleigh)
Donnelly, Desmond	Kaberry, Sir Donald	Prior, J. M. L.
Doughty, Charles	Kerby, Capt. Henry	Pym, Francis
Douglas-Home, Rt. Hn. Sir Alec	Kershaw, Anthony	Quennell, Miss J. M.
Drayson, C. B.	Kimball, Marcus	Ramsden, Rt. Hn. James
du Cann, Rt. Hn. Edward	King, Evelyn (Dorset, S.)	Rawlinson, Rt. Hn. Sir Peter
Rees-Davies, W. R.	Speed, Keith	Walker-Smith, Rt. Hn. Sir Derek
Renton, Rt. Hot. Sir David	Stainton, Keith	Wall, Patrick
Rhys Williams, Sir Brandon	Steel, David (Roxburgh)	Walters, Dennis
Ridley, Hn. Nicholas	Stodart, Anthony	Ward, Dame Irene
Ridsdale, Julian	Stoddart-Scott, Col. Sir M.	Weatherill, Bernard
Rippon, RI. Hn. Geoffrey	Summers, Sir Spencer	Webster, David
Robson Brown, Sir William	Tapsell, Peter	Wells, John (Maidstone)
Rodgers, Sir John (Sevenoaks)	Taylor, Sir Charles (Eastbourne)	Whitelaw, Rt. Hn. William
Rossi, Hugh (Hornsey)	Taylor, Edward M.(G'gow,Cathcart)	Williams, Donald (Dudley)
Royle, Anthony	Taylor, Frank (Moss Side)	Wilson, Geoffrey (Truro)
Russell, Sir Ronald	Teeling, Sir William	Winstanley, Dr. M. P.
St. John-Stevas, Norman	Temple, John M.	Wolrige-Gordon, Patrick
Sandys, Rt. Hn. D.	Thatcher, Mrs. Margaret	Wood, Flt. Hn. Richard
Scott, Nicholas	Thorpe, Fit. Hn. Jeremy	Woodnutt, Mark
Scott-Hopkins, James	Tilney, John	Worsley, Marcus
Sharpies, Richard	van Straubenzee, W. R.	Wright, Esmond
Shaw, Michael (Sc'b'gh & Whitby)	Vaughan-Morgan, Rt. Hn. Sir John	Wylie, N. R.
Silvester, Frederick	Vickers, Dame Joan
Sinclair, Sir George	Waddington, David	TELLERS FOR THE AYES:
Smith, Dudley (W'wick & L'mington)	Wainwright, Richard (Colne Valley)	Mr. R. W. Elliott and
Smith, John (London & W'minster)	Walker, Peter (Worcester)	Mr. Jasper More.
NOES
Abse, Leo	Davies, Dr. Ernest (Stretford)	Harper Joseph
Allaun, Frank (Salford, E.)	Davies Harold (Leek)	Harrison, Walter (Wakefield)
Alldritt, Waiter	Davies, Ifor (Cower)	Hart, Rt. Hn. Judith
Allen, Scholefield	Davies, S. O. (Merthyr)	Haseldine, Norman
Anderson, Donald	de Freitas, Rt. Hn.Sir Geoffrey	Hattersley, Roy
Archer, Peter	Delargy Hugh	Hazell, Bert
Armstrong, Ernest	Dell, Edmund	Healey, Rt. Hn. Denis
Ashley, Jack	Dempsey, James	Heffer, Eric S.
Atkins, Ronald (Preston, N.)	Dewar, Donald	Herbison, Rt. Hn. Margaret
Atkinson, Norman (Tottenham)	Diamond, Rt. Hn. John	Hilton, W. S.
Ashton, Joe (Bassetlaw)	Dickens, James	Hobden, Dennis
Bacon, Rt. Hn. Alice	Dobson, Ray	Hooley, Frank
Bagier, Gordon A. T.	Doig, Peter	Horner, John
Barnes, Michael	Dunn James A.	Houghton, Rt. Hn. Douglas
Barnett, Joel	Dunnett, Jack	Howarth, Harry (Wellingborough)
Baxter, Wit Nam	Dunwoody, Mrs. Gwyneth (Exeter)	Howarth, Robert (Bolton, E.)
Beaney, Alan	Dunwoody, Dr. John (F'th & C'b'e)	Howell, Denis (Small Heath)
Bence, Cyril	Eadie, Elex	Howie, W.
Bents, Rt. Hn. Anthony Wedgwood	Edelman, Maurice	Hoy, James
Bennett, James (G'gow, Bridgeton)	Edwards, Robert (Bilston)	Huckfield, Leslie
Bidwell, Sydney	Edwards William (Merioneth)	Hughes, Rt. Hn. Cledwyn (Anglesey)
Binns, John	Ellis, John	Hughes, Emrys (Ayrshire, S.)
Bishop, E. S.	Ennals David	Hughes, Hector (Aberdeen, N.)
Blackburn, F.	Ensor, David	Hughes, Roy (Newport)
Blenkinsop, Arthur	Evans, Albert (Islington, S.W.)	Hunter, Adam
Boardman, H. (Leigh)	Evans, Fred (Caerphilly)	Hynd, John
Booth, Albert	Evans, loan L. (Birm'h'm Yardley)	Irvine, Sir Arthur (Edge Hill)
Boston, Terence	Faulds, Andrew	Jackson, Colin (B'h'se & Spenb'gh)
Bottomley, Rt. Hn. Arthur	Fernyhough, E.	Jackson, Peter M. (High Peak)
Boyden, James	Finch, Harold	Janner, Sir Barnett
Braddock, Mrs. E. M.	Fitch, Alan (Wigan)	Jay, Rt. Hn. Douglas
Bradley, Tom	Fletcher,Rt. Hn. Sir Eric(Islington, E.)
Bray, Dr. Jeremy	Fletcher, Raymond (Ilkeston)	Jeger, George (Goole)
Brooks, Edwin	Fletcher, Ted (Darlington)	Jeger, Mrs.Lena(H'b'n & St.P'cras,s.)
Broughton, Dr. A. D. D.	Foley, Maurice	Jenkins, Hugh (Putney)
Brown, Rt. Hn. George (Belper)	Foot, Rt. Hn. Sir Dingle (Ipswich)	Jenkins, Rt. Hn. Roy (Stechford)
Brown, Hugh D. (G'gow, Proven)	Foot, Michael (Ebbw Vale)	Johnson, Carol (Lewisham, S.)
Brown, Bob(N'c'tle-upon-Tyne, W.)	Ford, Ben	Johnson, James (K'ston-on-Hull, W.)
Brown, R. W. (Shoreditch & F'bury)	Forrester, John	Jones, Dan (Burnley)
Buchan, Norman	Fowler, Gerry	Jones, Rt.Hn.Sir Elwyn (W.Ham, S.)
Buchanan, Richard (G'gow, Sp'burn)	Fraser, John (Norwood)	Jones, J. Idwal (Wrexham)
Butler, Herbert (Hackney, C.)	Freeson, Reginald	Jones, T. Alec (Rhondda, West)
Butler, Mrs. Joyce (Wood Green)		Judd, Frank
Callaghan, Rt. Hn. James	Galpern, Sir Myer	Kelley, Richard
Cant, R. B.	Gardner, Tony	Kenyon, Clifford
Carmichael, Neil	Garrett W. E.	Kerr, Dr. David (W'worth, Central)
Carter-Jones, Lewis	Ginsburg, David	Kerr, Russell (Feltham)
Castle, Rt. Hn. Barbara	Gordon Walker, Rt. Hn. P. C.	Lawson, George
Coleman, Donald	Gray, Dr. Hugh (Yarmouth)	Leadbitter, Ted
Conlon, Bernard	Greenwood, Rt. Hn. Anthony	Lee, Rt. Hn. Frederick (Newton)
Corbet, Mrs. Freda	Gregory, Arnold	Lee, Rt. Hn. Jeanie (Cannock)
Craddock, George (Bradford, S.)	Grey, Charles (Durham)	Lee, John (Reading)
Crawshaw, Richard	Griffiths, David (Rother Valley)
Cronin, John	Griffiths Eddie (Brightside)	Lestor, Miss Joan
Crosland, Rt. Hn. Anthony	Griffiths, Rt. Hn. James (Llanelly)	Lever, Harold (Cheetham)
Cullen, Mrs. Alice	Griffiths, Will (Exchange)	Lever, L. M. (Ardwick)
Dalyelf, Tam	Canter, Rt. Hn. R. J.	Lewis, Arthur (W. Ham, N.)
Darling, Rt. Hn. George	Hamilton, James (Bothwell)	Lewis, Ron (Carlisle)
Davidson, Arthur (Accrington)	Hamilton, William (Fife, W.)	Lomas, Kenneth
Davies, Ednyfed Hudson (Conway)	Hamling, William	Loughlin, Charles
Davies, C. Elled (Rhondda E.)	Hannan, William	Lyon, Alexander W. (York)

Mahon, Dr. J. Dickson	Orme, Stanley	Silverman, Julius
McBride, Neil	Oswald, Thomas	Skeffington, Arthur
McCann, John	Owen, Dr. David (Plymouth, S'tn)	Slater, Joseph
MacColl, James	Owen, Will (Morpeth)	Small, William
MacDermot, Niall	Padley, Walter	Snow, Julian
Macdonald, A. H.	Page, Derek (King's Lynn)	Spriggs, Leslie
McGuire, Michael	Paget, R. T.	Steele, Thomas (Dunbartonshire, W.)
McKay, Mrs. Margaret	Palmer, Arthur	Stonehouse, Rt. Hn. John
Mackenzie, Gregor (Rutherglen)	Pannell, Rt. Hn. Charles	Strauss, Rt. Hn. G. R.
Mackie, John	Park, Trevor	Summerskill, Hn. Dr. Shirley
Mackintosh, John P.	Parker, John (Dagenham)	Swain, Thomas
Maclennan, Robert	Parkin, Ben (Paddington, N.)	Swingler, Stephen
MacMillan, Malcolm (Western Isles)	Parkyn, Brian (Bedford)	Symonds, J. B.
McMillan, Tom (Glasgow, C.)	Pavitt, Laurence	Taverne, Dick
McNamara, J. Kevin	Pearson, Arthur (Pontypridd)	Thomas, Rt. Hn. George
MacPherson, Malcolm	Peart, Rt. Hn. Fred	Thomson, Rt. Hn. George
Mahon, Peter (Preston, S.)	Pentland, Norman	Thornton, Ernest Tinn, James
Mahon, Simon (Bootle)	Perry, Ernest G. (Battersea, S.)	Tomney, Frank
Mallalieu, E. L. (Brigg)	Perry, George H. (Nottingham, S.)	Tuck, Raphael
Mallalieu, J.P.W. (Huddersfield, E.)	Prentice, Rt. Hn. R. E.	Unvin, T. W.
Manuel, Archle	Price, Christopher (Perry Barr)	Varley, Eric C.
Mapp, Charles	Price, Thomas (Westhouglitcn)	Wainwright, Edwin (Dearne Valley)
Marks, Kenneth	Price, William (Rugby)	Walden, Brian (All Saints)
Marquand, David	Probert, Arthur	Walker, Harold (Doncaster)
Marsh, Rt. Hn. Richard	Pursey, Cmdr. Harry	Wallace, George
Mason, Rt. Hn. Roy	Randall, Harry	Watkins, David (Consett)
Maxwell, Robert	Rankin, John	Watkins, Tudor (Brecon & Raeinor)
Mayhew, Christopher	Rees, Merlyn	Weitzman, David
Mellish, Rt. Hn. Robert	Reynolds, Rt. Hn. G. W.	Wellbeloved, James
Mendelson, John	Rhodes, Geoffrey	Wells, William (Walsall, N.)
Mikardo, Ian	Richard, Ivor	Whitaker, Ben
Miltan, Bruce	Roberts, Albert (Normanton)	White, Mrs. Eirene
Milne, Edward (Blyth)	Roberts, Rt. Hn. Goronwy	Whitlock, William
Mitchell, R. C. (S'th'pton, Test)	Roberts, Gwilym (Bedfordshire, S.)	Wilkins, W. A.
Molloy, William	Robertson, John (Paisley)	Willey, Rt. Hn. Frederick
Moonman, Eric	Robinson, Rt.Hn.Kenneth(St.P'c'as)	Williams, Alan (Swansea, W.)
Morgan, Elystan (Cardiganshire)	Rodgers, William (Stockton)	Williams, Alan Lee (Hornchurch)
Morris, Alfred (Wythenshawe)	Roebuck, Roy	Williams, Clifford (Abertillery)
Morris, Charles R. (Openshaw)	Rogers, George (Kensington, N.)	Williams, Mrs. Shirley (Hitchin)
Morris, John (Aberavon)	Rose, Paul	Willis, Rt. Hn. George
Mulley, Rt. Hn. Frederick	Ross, Rt. Hn. William	Wilson, Rt. Hn. Harold (Huyton)
Murray, Albert	Rowlands, E. Ryan, John	Wilson, William (Coventry, S.)
Neal, Harold	Shaw, Arnold (Ilford, S.)	Winnick, David
Newens, Stan	Sheldon, Robert	Woodburn, Rt. Hn. A.
Noel-Baker, Rt.Hn.Philip (Derby,S.)	Shinwell, Rt. Hn. E.	Woof, Robert
Oakes, Gordon	Shore, Rt. Hn. Peter (Stepney)	Wyatt, Woodrow
Ogden, Eric	Short, Rt.Hri.Edward(N'c'tle-u-Tyne)
O'Malley, Brian	Short, Mrs. flenee (whampton, N.E.)	TELLERS FOR THE NOES:
Oram, Albert E.	Silkin, Rt. Hn. John (Deptford)	Mr. J. D. Coneannon and
Orbach, Maurice	Silkin, Hn. S. C. (Dulwich)	Dr. M. S. Miller.