Commons Sitting of 11 May 1971

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]
PRIVATE BUSINESS

  NEW BROKEN HILL CONSOLIDATED LIMITED BILL [Lords]
  Amendment made,
  Bill read the Third time and passed, with an Amendment,

  STOCKPORT CORPORATION BILL
  As amended, considered,
  Bill to be read the Third time,

  KILLINGHOLME GENERATING STATION (ANCILLARY POWERS) BILL [Lords]
  Bill read a Second time and committed,

  CHICHESTER HARBOUR CONSERVANCY BILL (By Order)
  Order for consideration, as amended, read,
  Bill to be considered upon Monday next at Seven o'clock,

  ISLE OF WIGHT COUNTY COUNCIL BILL (By Order)
  Order for consideration, as amended, read,
  Bill to be considered upon Monday next at Seven o'clock,

  GREATER LONDON COUNCIL (MONEY) BILL (By Order)
  Order for Second Reading read,
  Bill to be read a Second time upon Tuesday next,

ORAL ANSWERS TO QUESTIONS
  AGRICULTURE, FISHERIES AND FOOD

    Decimalisation
    Mr. Eadieasked the Minister of Agriculture, Fisheries and Food if he will now make a definitive statement on the effect which decimalisation had on price changes.
    The Minister of Agriculture, Fisheries and Food (Mr. James Prior): The change-over to the new currency went very smoothly, and I would refer the hon. Member to the reply I gave on 2nd March to the hon. Members for Brent-ford and Chiswick (Mr. Barnes) and Portsmouth, West (Mr. Judd.)—[Vol. 812, c. 376,]
    Mr. Eadie: But how can the right hon. Gentleman know whether things went smoothly, particularly when last night he accepted a Motion moved by my hon. Friend the Member for Norwich, North (Mr. Wallace) calling upon the Government
    "…to set up an organisation for consumer protection with powers to scrutinise and check prices of essential goods and services."?
    When will that body be set up?
    Mr. Prior: That has nothing to do with the Question, which deals with decimalisation. As I have told the hon. Gentleman before in answer to a supplementary question, all the reports are that it has gone very smoothly.

    European Economic Community
    Mr. W. H. K. Bakerasked the Minister of Agriculture, Fisheries and Food how many officials of the Fisheries Department of his Department are permanently stationed in Brussels during the negotiations currently proceeding for Great Britain to attempt to join the European Economic Community.
    Mr. Prior: My Department is represented at Deputy Secretary level, with supporting staff, on the official negotiating delegation which divides its time between London and Brussels. Officials of my Fisheries Department are brought in whenever the need arises.
    Mr. Baker: Is not that a rather surprising answer? In view of the anxiety felt in the fishing industry, would not my right hon. Friend better be advised to have a permanent official there to see what effect the minimum price scheme, for example, is having on the fishing trade in the Common Market?
    Mr. Prior: No, Sir, I do not think so, because we can keep in much better touch with the industry here, which is the important thing, and Brussels is not very far away. But it is important that in our negotiations we should have at least one full-time member of the negotiating team who is a member of my Ministry, and that is what we have.
    Mr. James Johnson: As a Member for a fishing port, will the right hon. Gentleman say what is his sticking point in the negotiations? Is he prepared to tell the House that he believes that Article 2, with reservations about the size of vessel, the times of the year for fishing, size of gear and so on, is a sufficient safeguard for our inshore fishing fleet?
    Mr. Prior: The House would not expect me to disclose our negotiating position at this stage, but certainly conservation measures alone, which I think are adumbrated in Article 2, would not be sufficient.
    Sir F. Bennettasked the Minister of Agriculture, Fisheries and Food whether member States of the European Economic Community individually retain extensive powers to implement conservation measures as part of their individual fishery systems, and how these will apply to Great Britain if Great Britain joins the Community.
    Mr. Prior: Member States of the European Economic Community retain freedom to introduce conservation measures to protect fish stocks within their fisheries limits provided that they do not discriminate between members on grounds of nationality. So far as the United Kingdom is concerned, Her Majesty's Government has reserved its position on the common fisheries policy.
    Sir F. Bennett: Does my right hon. Friend agree that a great deal of the anxiety about the possible repercussions for the British fishing industry concerns over-fishing? Is he saying today, as I
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    hope he is, that control of this aspect of this difficult problem will be maintained fully in British hands?
    Mr. Prior: I am well aware of the problems, particularly in my hon. Friend's area. His local fishermen were able to put them to me at first hand when I went down to Torbay. What I said earlier in reply to the hon. Member for Kingston upon Hull, West (Mr. James Johnson) shows that I consider that Article 2 alone would not be sufficient protection for us.
    Mr. Milne: Does not the right hon. Gentleman consider it strange that the Community should delay application of a fisheries policy until the major fishing nations of Britain, Norway and Denmark have applied to join? Would not it have been much better for the negotiations if they had awaited the applications and discussed fisheries policy with those countries at the time?
    Mr. Prior: I think it is clear that what may or may not have been a suitable policy for six countries is not a suitable policy for 10. This number includes the countries the hon. Gentleman has named which are major fish-producing countries. Therefore, I think the answer is, yes.
    Sir R. Russell: What does my right hon. Friend mean by saying that the Government have reserved their position?
    Mr. Prior: I mean what is usually meant by that rather ambiguous expression.
    Mr. Edwin Wainwright: Does the Minister realise that many of us who are in favour of going into the Common Market, with certain reservations, are dissatisfied with the attitude which is being taken by the Minister and his right hon. Friend? May we be assured that there is some safeguard for our fishing industry if we go into the Common Market? Does he not realise that the answers which he has given, and indeed the answers given by the Government, give the impression that they are so keen to get in that they do not care a damn about the fishermen of this country?
    Mr. Prior: No. That is not a fair reflection of the view of the House. The House knows generally that the Government are well aware of the problems of the inshore fishing industry and some

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    of the other problems of the deep-sea fishing industry. We have made it plain on many occasions that the present common fisheries policy is not acceptable to us.
    Mr. Bryant Godman Irvineasked the Minister of Agriculture, Fisheries and Food who will have responsibility for fixing quality standards in Great Britain for milk and milk products if Great Britain joins the European Economic Community.
    The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mr. Anthony Stodart): The Council of Ministers of the European Economic Community has power to prescribe minimum standards for milk and milk products. It has not yet done so generally, though draft legislation is under consideration. If the United Kingdom were a member of the European Economic Community we should have to comply with any standards so prescribed.
    Mr. Godman Irvine: In view of the interest shown in Europe in the excellent work done by the Milk Marketing Board in this country, will my hon. Friend take the opportunity to explain to the Europeans the advantages of this type of organisation?
    Mr. Stodart: Yes, Sir.
    Sir D. Walker-Smith: Could my hon. Friend say whether, if these measures are taken by the Council of Ministers, they would be by way of regulations under Article 189 of the Treaty of Rome and thereby be directly enforceable in this country without the intervention of Parliament?
    Mr. Stodart: My information is that there is no reason why we should not require higher standards for our own products in the United Kingdom if we want to do so.
    Sir D. Walker-Smith: That was not my question.
    Mr. William Price: No, but that was the answer!
    Mr. Leslie Huckfieldasked the Minister of Agriculture, Fisheries and Food what recent representations he has received from the National Farmers' Union about the progress of negotiations
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    for British entry into the European Economic Community.
    Mr. Martenasked the Minister of Agriculture, Fisheries and Food whether he will make a statement on his further discussions with the National Farmers' Union about the system of agricultural support in the Common Market in the event of Great Britain joining.
    Mr. Anthony Stodart: My right hon. Friend has kept in close touch with the President of the National Farmers' Union and there have been regular meetings between my Department's officials and representatives of the Union on a variety of matters arising out of the negotiations on British entry into the European Economic Community.
    Mr. Marten: Does my hon. Friend recall that during the last Price Review in March in the Common Market one farmer was shot in the back, one policeman was stabbed in the throat and 140 went to hospital? Could be explain why Price Reviews happen like that in the Common Market when here they are quite peaceful?
    Mr. Stodart: There was a time not so long ago in this country when one right hon. Gentleman had to leave by the back stairs.
    Mr. Strang: Are the Government determined to make sure that, if we enter the E.E.C., production grants will still be possible for hill farmers?
    Mr. Stodart: These are matters for negotiation, but there is nothing in the Treaty of Rome to preclude them.
    Mr. Cledwyn Hughes: Is the hon. Gentleman aware that the little local difficulty to which he referred, and in which I was involved, was caused by a small number of reactionary Tory farmers who were more concerned about the General Election than about the prosperity of agriculture?
    Mr. Stodart: My recollection was that there were rather more members of the Special Branch surrounding the right hon. Gentleman than there were angry Tory farmers.
    Sir A. Meyerasked the Minister of Agriculture, Fisheries and Food what benefits hill livestock farmers will gain,

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    if the United Kingdom joins the European Economic Community, from the higher prices paid for cattle and sheep in the Community.
    Mr. Prior: The amount of benefit would depend on the prices ruling at the time of entry and on the extent to which prices for fatstock are reflected back to prices for stores. But the Community's guide price for fat cattle in 1971–72 is about a quarter more than our guaranteed price, and producer prices for mutton and lamb are also higher in the Community. This is evidence that our hill farmers would benefit from a much stronger market for their stock.
    Sir A. Meyer: Can my right hon. Friend give an assurance that this favourable factor, together with such other assistance as he is able to obtain, will ensure that farmers do not suffer adversely as a result of our entry into the E.E.C.?
    Mr. Prior: The problems of hill farmers, particularly the problem relating to the hill cow and hill sheep subsidies, are still matters which we have to discuss in the negotiations at Brussels before the House can come to a decision. I am well aware of these problems, and we will do our best to help hill farmers.
    Mr. Mackie: If we do not get a satisfactory arrangement on direct subsidies, such as the hill cow subsidy and so on, will the Minister consider raising the end price sufficiently to give a hill cow subsidy of£22 to£23?
    Mr. Prior: There are many ways in which we can help hill farmers besides the direct subsidy on hill cows or hill sheep.
    Mr. Marten: Is my right hon. Friend aware that the National Federation of Young Farmers has rejected any proposition to enter the Common Market?
    Mr. Prior: No, I am not. I very much doubt whether it is representative of young farmers as a whole.

    Beer (Alcoholic Content and Gravity)
    Mr. Ashtonasked the Minister of Agriculture, Fisheries and Food whether
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    he will introduce legislation to control the alcoholic content and gravity of beer.
    Mr. Anthony Stodart: I see no need for legislation. There is no evidence that the alcoholic content, or gravity, of beer has changed significantly since 1951. Nor is it evident that consumers are incapable of selecting a beer which meets their taste from the many on offer.
    Mr. Ashton: Has not the hon. Gentleman seen the Sunday Mirror report, which is quite contrary to what he just said? If it is possible to have the proof written on the label of a whisky bottle and the octane rating on a petrol pump so that the consumer can have a proper choice, why cannot the same be done for beer? If the gravity is declared to the Excise authorities, as it must be, why cannot it be put on the beer pump or the beer bottle label?
    Mr. Stodart: The hon. Gentleman has asked several questions. I have read the Sunday Mirror, but a comparison of its article with the article in Which? in 1960 shows no marked trend. If the House wishes, I will circulate the complete comparisons in the OFFICIAL REPORT. The average specific gravity has varied by only 0·2 in 20 years; it has gone up very slightly since 1951. As to the comparison with whisky and petrol, with great respect to the hon. Gentleman, I think that they are different. The hon. Gentleman will give just as good a performance on light ale as on heavy.
    Mr. Farr: Is my hon. Friend aware that the specific gravity and the alcohol content of beer bear no relation to the quality of the drink, and that the quality of British beer brewed today is higher than it has been at any time since the war?
    Mr. Stodart: My hon. Friend is entirely correct. There are other things that interest beer drinkers. There is colour and there is flavour, and alcohol content is not one that particularly interests me.
    Mr. Michael Cocks: Does the Minister agree that it is regrettable that the House must rely for information on a survey in 1960 and a more recent report in the Sunday Mirror? Will the hon. Gentleman consider cutting through all the

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    objections raised on both sides by publishing the tax the drinker pays on a pint, so that the drinker can make his own comparisons?
    Mr. Stodart: That is not the Question that was asked. The House does not have to rely on the Sunday Mirror, The Customs returns show that in 1951 the average gravity of all beers was 1036·51 and in 1970 it was 1036·78. Therefore, they show that it is higher.

    Agriculture Act, 1957 (Section 3(1)(b))
    Mr. Deakinsasked the Minister of Agriculture, Fisheries and Food why it took his Department over 13 years to discover that it had wrongly interpreted Section 3(1)(b) of the Agriculture Act, 1957, when calculating changes in farm costs from one year to another.
    Mr. Prior: Although I have no responsibility for what was done under previous Administrations, my understanding is that the provisions of the Act have in the past been correctly applied for cost changes generally. Feed and transport cost changes were allocated to the "guaranteed" and "non-guaranteed" sectors on the basis of fixed proportions, an arrangement that did not properly reflect later changes in standard quantities. The new method of calculation was accordingly adopted.
    Mr. Deakins: Is not that a very serious state of affairs? Is not the right hon. Gentleman saying that he is right in his interpretation of the phrase
    "relevant costs of production"
    in Section 3(1)(b) of the 1957 Act, and that all previous Ministers of Agriculture from 1958 to 1970 were wrong in their interpretation? This is a very serious state of affairs for the House, because it affects taxpayers' money.
    Mr. Prior: I shall not speculate on the activities of previous Administrations in this respect. The hon. Gentleman should realise that feed and transport costs were originally allocated between guaranteed products on an arbitrary basis. This was never revised, so as time went on it became increasingly incorrect.
    Mr. Cledwyn Hughes: Is the right hon. Gentleman aware that there is a great
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    deal of disquiet about the way in which he presented his calculations in this year's Price Review, and that he did not make clear in his statement to the House or in his White Paper that costs were£24 million less than they would have been if the previous year's methods of computation had been followed? While there may be valid legal reasons, as the right hon. Gentleman has described today and as he described to me in a letter, for making the change, why did not he say so plainly and explain the matter openly to the House and the country? The right hon. Gentleman has given credence to the belief that this method was contrived to make the Review look better than it was—namely,£3 million under-recoupment instead of£27 million under-recoupment.
    Mr. Prior: I can understand some of the right hon. Gentleman's anguish that a Price Review introduced by me should have had a much better reception than one introduced by him. I did my utmost to save the right hon. Gentleman embarrassment although he had done his calculations wrongly.
    Mr. Deakins: On a point of order. In view of the unsatisfactory nature of the reply, I beg to give notice that I shall seek to raise the matter on the Adjournment.

    Processing and Packaging (Costs)
    Mr. Roger Whiteasked the Minister of Agriculture, Fisheries and Food what proportion of the household food bill in the United Kingdom is represented by the cost of processing and packaging.
    Mr. Prior: It is not possible to give a precise figure, but I would estimate that the proportion would be in the region of a fifth to a quarter.
    Mr. White: I think my right hon. Friend would agree that these are essentially labour costs. Could we not hope in future to see some reduction as a result of the cut in selective employment tax?
    Mr. Prior: Food packaging and processing, including labour costs, in so far as they form part of the manufacturing process, already mostly qualify for S.E.T. refund. But I agree that the reduction of this iniquitous tax by half will lead to some reduction in prices.

    Livestock Production (Licensing Regulations)
    Mr. Strangasked the Minister of Agriculture, Fisheries and Food what representations he has received from breeding companies on the extent to which the present licensing regulations hinder the development of more productive strains of livestock.
    Mr. Anthony Stodart: My right hon. Friend has had representations in this sense from the Association of Pig Breeding Companies and from some of its members.
    Mr. Strang: Is the hon. Gentleman aware that an announcement on this subject was expected last year? Will he explain the reasons for the delay?
    Mr. Stodart: A Question which is to be answered a little later has a more direct bearing on that subject.

    Thames Flood Barrier
    Mr. Trewasked the Minister of Agriculture, Fisheries and Food what further progress has been reported to him by the Essex and Kent River Authorities in their investigations into the downstream flood defences associated with or arising from the Thames Floor Barrier; and whether he is now in a position to give an estimate of the cost of these works in Essex and in Kent, respectively.
    Mr. Anthony Stodart: As I told my hon. Friend on 9th February, the problems involved are complex. Both the Essex and Kent River Authorities are proceeding with investigational work in conjunction with soil mechanic experts of the Building Research Station. It will be some time before these investigations and subsequent design work reach a stage where reliable estimates of cost can be made.—[Vol. 811, c. 261–2.]
    Mr. Trew: In view of the complexity and extent of these works, is my hon. Friend satisfied that they can be completed at the same time as the barrier? Will he assure the House, first of all, that there is no question of the barrier being put into operation before the downstream flood defences are completed? Secondly, since some of the river frontages are privately owned and outside the jurisdiction of the river authorities, is he
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    satisfied that the authorities have adequate powers to co-ordinate the work on the defences and that there will be no gaps?
    Mr. Stodart: I should like to be quite sure about the second point my hon. Friend made and I will write to him about it, but I believe that all is in order in that respect. In regard to his first point, one of the matters which is exercising us is the need to co-ordinate work with the design of the barrier.
    Mr. Brian Harrison: In view of the fact that it is thought that the subsoil in parts of the Essex coast is not strong enough to hold the necessary barriers, will my hon. Friend give an undertaking that no work will be carried out upstream which will inundate parts of my constituency or Essex generally?
    Mr. Stodart: Work upstream has already started with the raising of the walls, but I can undertake that we shall see to it that the work is so co-ordinated that what my hon. Friend has suggested will not happen.

    Food Prices
    Mr. Ashleyasked the Minister of Agriculture, Fisheries and Food if he will list the Acts which give him power to influence food prices.
    Mr. Prior: I would refer the hon. Member to the reply I gave the hon. Member for Ealing, North (Mr. Molloy) on 20th April. I prescribe milk prices under the Emergency Laws (Re-enactments and Repeals) Act 1964.—[Vol. 815, c. 364–5,]
    Mr. Ashley: Is the right hon. Gentleman aware that I appreciate his embarrasment and his failure to prevent food prices from rocketing? Therefore, does he feel that his party were wise to make such extravagant promises when they knew that they had no power to prevent such rises? Does the right hon. Gentleman intend to take power to prevent prices rising, or does he intend to continue with his chief alibi about housewives shopping around?
    Mr. Prior: As I explained to the House yesterday, I do not believe that prices can be controlled in the way the hon. Gentleman suggests, but the important point is to bring down the level of wage

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    increases which lie at the root of our problems.
    Mr. Cledwyn Hughes: In view of the fact that the Motion proposed yesterday by my hon. Friend the Member for Norwich, North (Mr. Wallace) was agreed to by the House, will the Minister say when he will set up the organisation for consumer protection of which this House has approved?
    Mr. Prior: Although the House did not divide on the Motion, I listened carefully to the points raised in what was, after all, a Private Member's Motion.
    Mr. Barnes: Is the Minister aware that there is still some confusion after yesterday's debate about the different reasons which he gives for the difficulty in bringing down food prices? Which of these is the most important: to bring down wages increases, to have more competition, or to have a stronger British agriculture? The Minister has given all these reasons at different times, and it is not clear on which he is relying most.
    Mr. Prior: They are three parts of a very good policy.
    Dr. Summerskill: What advice does the right hon. Gentleman give to the housewife who has children, or who works outside the home, or who is disabled or retired—what can she do about shopping around?
    Mr. Prior: She can use all her influence on her husband and on the rest of the community to see that wage increases are not granted for no more work.
    Mr. Peter Millsasked the Minister of Agriculture, Fisheries and Food what were the respective contributions to the rise in the cost of food for the year 1970–71 of recent transport legislation, the cost of selective employment tax, the cost of increased fuel taxation, and increased wages.
    Mr. Prior: It is not possible to give precise figures but it is clear that wages were the largest single cause of the rise in the cost of food in 1970–71 over the previous year. Higher costs arising from recent transport legislation and from the 1969 increase in selective employment tax also contributed to the rise. Fuel costs have also risen but the last change in fuel taxation was in April, 1969.
    Mr. Mills: Does this not clearly show that the Labour Party is utterly condemned over the past four years, on the legislation it brought in and the increase in the cost of living? Would my right hon. Friend look carefully at the legislation to see what can be pruned and stop all of this Socialist nonsense that is no good for farming?
    Mr. Prior: I agree that a lot of the legislation passed by the previous Government and much of the taxation introduced by them added to the increases which we are now experiencing. That is why the Government have made a start in reducing it.
    Mr. Barnes rose—
    Mr. Speaker: Order. I think there is a tendency to move on from peaches to speeches.
    Mr. John Morris: Can the right hon. Gentleman tell the House whether the Government intend to strengthen their powers over prices in the private sector?
    Mr. Prior: No, we believe that competition is the right way.
    Mr. Barnes: Would the right hon. Gentleman agree that the reduction in food prices that will be possible by halving S.E.T. is less than half a new penny in the£?
    Mr. Prior: Naturally it is a small reduction which can be made in this way, but I am confident that at least it will stop some prices from going up.

    Farmholdings (Size)
    Mr. Douglasasked the Minister of Agriculture, Fisheries and Food what are the latest estimates of the average size of British farm-holding, and the most recent comparison with farmer-holdings in the European Economic Community countries.
    Mr. Anthony Stodart: The average area of crops and grass on holdings of 2½ acres or more in the United Kingdom is estimated to have been 79 acres in 1967, which is the latest year when comparable figures are available for European Economic Community countries. The average area was about 47 acres in France, 27 acres in Netherlands and in Belgium/Luxembourg, 26 acres

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    in Germany and 18 acres in Italy. The average size for the European Economic Community as a whole was about 28 acres.
    Mr. Douglas: Does not the hon. Gentleman concede that, in view of the figures he has given, the Community will experience extreme difficulty in reaching the Mansholt target plan for the 1980s?
    Mr. Stodart: There are great difficulties lying ahead for the Community in that sphere. One thing to be thankful for is that we start with a good lead.
    Mr. Deakins: Do not these figures show that British farming under the postwar Agriculture Acts of 1947 and 1957 has been able to grow in prosperity and confidence, based on investment, because of the guarantees in the 1947 and 1957 Acts which are now being removed?
    Mr. Stodart: British agriculture has indeed done a magnificent job since the war. It is an example to the nation. It will continue to do so.

    Vegetables (Contamination)
    Mr. David Clarkasked the Minister of Agriculture, Fisheries and Food what investigations his Department has undertaken into the nature and extent of contamination of vegetables grown in the proximity of main roads.
    Mr. Anthony Stodart: Joint investigations by the Ministry and the Agricultural Research Council over the period 1963–69 showed little or no risk of contamination of vegetables unless these were grown very close to busy roads, and then only surface contamination was found.
    Mr. Clark: Is the Minister aware that a senior official of the Department of Health recently told the Royal Society of Health's conference at Eastbourne that there was the likelihood of contamination by lead of vegetables grown alongside main roads? Has the Minister any advice to give to housewives and market gardeners who might be using these vegetables?
    Mr. Stodart: The Macaulay Research Institute did some research on this subject between 1963 and 1969. Some outer leaves of vegetables were very slightly contaminated within 50 yards of busy main roads, but not to anything like the
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    extent which is considered dangerous under the Food and Drugs Acts.

    Peaches
    Mr. Skinnerasked the Minister of Agriculture, Fisheries and Food what is the current cost of an average-sized peach.
    Mr. Prior: Retail prices of peaches are not collected officially.
    Mr. Skinner: Is the right hon. Gentleman aware that on one famous occasion last year he thought he had a success story because peaches were falling in price? Now he cannot even claim credit for that. Will he go a little further and confirm speculations that the figure for the cost-of-living index in April will be the highest since figures were compiled? Perhaps he will urge his right hon. Friend the Secretary of State for Employment to get these figures out before the local elections are concluded.
    Mr. Prior: The second part of the hon. Gentleman's supplementary question has nothing to do with his original Question, to which I would only say that he is so blinded by his prejudices that he would not recognise a good peach if he saw one.
    Mr. Heffer: Would the right hon. Gentleman return to the point made by my right hon. Friend the Member for Anglesey (Mr. Cledwyn Hughes) earlier about price increases? My right hon. Friend asked what the Government would do about the decision—
    Mr. Speaker: Order. I should point out that this Question relates to peaches.
    Mr. Heffer: I assume that the price of peaches can be dealt with by the body that would be set up if the right hon. Gentleman is prepared to carry out yesterday's decision of Parliament. Is he prepared to agree to the Motion and to put into operation the proposals passed by Parliament yesterday? If he is not prepared to do that, is it not obvious that it is this sort of situation that leads the people of this country to feel that Parliament is being brought into disrepute by the actions of the Government?
    Mr. Prior: The trouble with the hon. Gentleman is that he is nearly always as much out of order when he is on his feet as he is when he is sitting down.
    Mr. Charles Morrison: In view of the more auspicious climate for growing peaches inside the Common Market, is there not a likelihood that, once we are in, peaches will be cheaper?
    Mr. Prior: Under Conservative prosperity peaches will be eaten much more than before.

    Hypermarkets
    Mr. Kinseyasked the Minister of Agriculture, Fisheries and Food what is his policy with regard to Government assistance towards the provision of hypermarkets, in view of their contribution towards a lower cost of living.
    Mr. Prior: The provision of hypermarkets is largely a matter of commercial judgment for the firms concerned.
    Mr. Kinsey: While agreeing that that is so, may I ask my right hon. Friend whether he is aware that the promoters of the hypermarkets are of the opinion that they can save the housewife about 5 per cent. on food costs and 20 per cent. on non-durables? Would he not agree that that is a very high figure? Is he further aware that if he could persuade local authorities to support these promoters it would be a good thing for the housewife?
    Mr. Prior: I do not think that there is any unanimity on the point made by my hon. Friend. In so far as any development of increased competition will reduce prices, then it has my blessing.
    Mr. Buchan: Does the right hon. Gentleman remember that this was part of the problem we discussed yesterday when the House passed a Motion calling for an organisation to deal with prices? Is the right hon. Gentleman aware that by his answers today he is in grave danger of flouting the will of this House, not for the first time? Is he aware that he is putting himself in the position of Marie Antoinette and that I should not like to see him lose his head? Will he tell us when he will carry out the terms of the Motion and set up such an organisation?
    Mr. Prior: I cannot see the relevance of that supplementary question to the original Question.
    Mr. William Price: In view of the concern about meat prices and the Minister's advice to people yesterday to eat pork instead of beef, may I, as a vegetarian, sincerely ask him to suggest that the answer is to give up meat altogether and to rely on peaches?
    Mr. Prior: This is a Question about hypermarkets.

    Forestry Policy
    Mr. Farrasked the Minister of Agriculture, Fisheries and Food if he will make a statement of his policy towards private woodland owners.
    Mr. Charles Morrisonasked the Minister of Agriculture, Fisheries and Food when he expects to conclude his review of the work of the Forestry Commission.
    Mr. Anthony Stodart: As already announced, my right hon. Friend and his right hon. Friends the Secretary of State for Scotland and the Secretary of State for Wales are conducting a review of forestry policy. It is a wide-ranging one including cost-benefit studies, and I cannot yet say when it will be completed. Their conclusions, which will relate to both public and private sectors, will be announced in due course.
    Mr. Farr: While thanking my hon. Friend for that statement, may I ask whether he is aware that the costs for private woodland owners have been increasing very rapidly recently? Will he introduce an amended scheme for the owners of dedicated woodlands?
    Mr. Stodart: There has to be a mandatory review of such grants every three years and that is about to take place. I do not wish to anticipate the outcome of it.
    Mr. Charles Morrison: In view of the import-saving potential in forestry, can my hon. Friend say whether it is the Government's general intention to increase afforestation, by means of encouraging either the Forestry Commission or the private woodland owners?
    Mr. Stodart: That is one of the subjects that is being dealt with under the general review.

    Tractors
    Sir J. Langford-Holtasked the Minister of Agriculture, Fisheries and Food what progress he has now made in his consultations with all the interests concerned prior to his amendment of the Regulations on Tractor Safety Cabs; and when he proposes to lay the amended regulations.
    Mr. Anthony Stodart: My right hon. Friends cannot take the matter to completion until they have received and considered the views of the organisations consulted under the statutory procedure which I described to my hon. Friend on 20th April.—[Vol. 815, c. 364,]
    Sir J. Langford-Holt: Will my hon. Friend bear in mind that every week that these consultations go on, manufacturers are using the wording of the present regulations to hold the farming industry to ransom? Is he aware that this is causing a great deal of resentment and that the sooner it is brought to an end the better?
    Mr. Stodart: I cannot go beyond what I have said. A reasonable time for consultations must be given.

    Sows
    Mr. Burdenasked the Minister of Agriculture, Fisheries and Food if it is his intention that the Codes of Practice now awaiting ratification will permit the penning of sows in stalls in which they can neither walk nor turn around, and in which it will be legal for them to be incarcerated from the time of their first farrowing until their breeding life has ended.
    Mr. Anthony Stodart: I would refer my hon. Friend to the answers I gave on 25th November, 1970 and 9th February, 1971 to his Questions on this subject.—[Vol. 807, c. 165; Vol. 811, c. 266–7.]
    Mr. Burden: When will my hon. Friend stop stonewalling and give an undertaking to the House and to the country that he is not prepared to have animals incarcerated in diabolical conditions inside factory farms? If such conditions and practices obtained in zoos, the people responsible would be subjected to prosecution without delay.
    Mr. Stodart: I have clearly failed to convince my hon. Friend that neither he nor I are experts on whether these sow stalls are cruel. I told him before, and I repeat, that they eliminate certain other discomforts, such as cannibalism and fighting, and they have the support of the Welfare Committee and the State Veterinary Service—
    Mr. Burden: No.
    Mr. Stodart: —both of which bodies' recommendations were accepted by right hon. and hon. Gentlemen opposite, as they are by us.
    Mr. Rankin: Can the Minister assure us that these regulations have the undisputed majority support of the House of Commons? Have they ever faced that challenge?
    Mr. Stodart: These regulations are under discussion at the moment with various organisations, and they will be laid before the House of Commons for discussion in due course.
    Mr. Rankin: When?
    Mr. Peter Mills: Will my hon. Friend bear in mind that many animals are kept in far better conditions and provided with much better food and general climate than many elderly people?
    Mr. Burden: In view of the unsatisfactory nature of that reply, I beg leave to give notice that I intend to raise the matter on the Adjournment.

    Ponies (Quarantine)
    Mr. Brewisasked the Minister of Agriculture, Fisheries and Food how long ponies imported from abroad are kept in quarantine before being disposed of to private owners.
    Mr. Anthony Stodart: I would refer my hon. Friend to the reply which I gave to the right hon. Member for Orkney and Shetland (Mr. Grimond) on 4th May.—[Vol. 816, c. 313,]
    Mr. Brewis: Is my hon. Friend satisfied that this system of certification by foreign veterinary surgeons is working satisfactorily and that there is no fear of infectious diseases spreading among the equine population of this country?
    Mr. Stodart: No horses or ponies are allowed in from any country where African horse sickness exists, and a veterinary certificate is needed from an exporting country. Animals arriving without one are isolated and examined.

    International Waters (Dumping of Chemical and Industrial Waste)
    Mr. Milneasked the Minister of Agriculture, Fisheries and Food if he will arrange to have discussions with the North-East Atlantic Fisheries Convention on the proposals by the Scandinavian countries for the banning of the discharge and dumping of chemical and industrial waste in international waters.
    Mr. Prior: I should not consider these matters appropriate for the North-East Atlantic Fisheries Commission, but Her Majesty's Government is convening a meeting of North Sea states next month to discuss pollution and dumping in the North Sea. This will be followed by a wider inter-governmental meeting to discuss marine pollution generally.
    Mr. Milne: Is the right hon. Gentleman aware that while his answer gives some satisfaction, the fact that the Fisheries Commission will not be dealing with this matter gives cause for grave doubts about the seriousness of Her Majesty's Government in dealing with pollution in international waters?
    Mr. Prior: The hon. Gentleman need not be worried about this matter. We are very concerned about it. Marine pollution is already under consideration by other international bodies and we do not want to add to these. However, I have taken note of what the hon. Gentleman said.

  CEYLON PRIME MINISTER
  Mr. Dalyellasked the Prime Minister if he will invite the Ceylon Prime Minister to London for an official visit.
  The Prime Minister (Mr. Edward Heath): I had the pleasure of meeting Mrs. Bandaranaike in Singapore in January. She would be a welcome visitor in this country at any time.
  Mr. Dalyell: Does the Prime Minister accept that the troubles in Ceylon are
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  not just a matter of goodies versus baddies, but stem from real problems of sheer poverty and graduate unemployment? If that is accepted, may I ask what the Government's policy is towards the further supply of arms?
  The Prime Minister: There is undoubted poverty in Ceylon, and it has been the policy of successive Administrations to help Ceylon with the maximum aid possible. In this case, a democratically elected Government appealed to Her Majesty's Government for arms to support them in dealing with a small minority of extremists in revolt against that democratically elected Government. Her Majesty's Government came to the conclusion that it would be right to help the Government of Ceylon in these circumstances.
  Mr. Tapsell: Has any progress been made since January in the establishment of international arrangements, with which both Ceylon and the United States are associated, for the defence of the Indian Ocean?
  The Prime Minister: I know of no movement in international organisations to deal with that problem.

  SECURITY
  Mr. William Hamiltonasked the Prime Minister what steps he is taking to improve security within all Departments.
  The Prime Minister: Security arrangements within all Departments are kept under continuous review, and a special review of arrangements for safeguarding confidential commercial information within those Departments concerned has been put in hand.
  Mr. Hamilton: Does the Prime Minister agree that if the information and allegations contained in the article on the front page of The Guardian today have any truth in them, they reveal an extremely disquieting situation of the gross inadequacy of Government security concerning both private individuals and affairs of State? Will the right hon. Gentleman undertake that the inquiry which has been initiated will be independent and will go into all matters ranging from the V. & G. scandal to the matters indicated in The Guardian article this morning?
  The Prime Minister: The affairs of the Vehicle & General Insurance Co. are being dealt with by the tribunal set up under the Tribunal of Inquiries Act, 1921.
  The allegations in The Guardian today are obviously extremely serious, and we are treating them as such. They go wider than Government. They include banks, insurance companies, private industrial companies, and the gaining of information from all these sources. We have been in touch with The Guardian, and I am glad to say that it has agreed to help as far as it possibly can, in the investigations which we are making, in following up the cases mentioned in the article. I am sure that the first thing for us to do is to pursue this information as speedily as we can and then to decide what action should be taken to remedy it.
  Mr. Harold Wilson: Does the right hon. Gentleman agree that some of the allegations in that article, referring to non-governmental organisations in particular, appear to fall within the remit of the Committee of inquiry into the privacy of the individual? Will he make sure that it is given all the information required to investigate these allegations? As some of the more serious allegations appear to refer to Government Departments, when he has completed his own inquiries—they must be for him—will he undertake to make a statement to the House.
  The Prime Minister: On the first part of the right hon. Gentleman's question, I believe that it is the case that these matters can be dealt with by that Committee. I have no doubt that it will take note of these points.
  I will, of course, make a statement to the House as soon as possible. The right hon. Gentleman knows that it is not always in the interests of maintaining security to divulge the particular methods by which we shall do it. Departments already have very specific rules, which existed under the right hon. Gentleman's Administration, for dealing with confidential information, whether of a personal or of a commercial kind. If it is found that these rules have been broken, action can be taken. If it is found that the rules themselves are inadequate, we can make fresh rules to deal with some of the circumstances with which the allegations in The Guardian are concerned.
  Mr. Thorpe: While obviously the right hon. Gentleman must have time to consider these matters, would he not agree that one of the serious allegations in The Guardian was about the ease with which commercial organisations can obtain information by telephoning Government Departments? Is there not a case for saying either that no information should be given by telephone or that the inquirer should leave his number and be telephoned back?
  The Prime Minister: Yes; that is a perfectly valid point, with which we are dealing immediately.
  Sir F. Bennett: In regard to the question of political security, do the same rules about security background apply to Ministers as to civil servants?
  The Prime Minister: I think that exactly the same rules apply as applied under the previous Administration.
  Mr. Leslie Huckfield: This is still a very unsatisfactory state of affairs. Is the Prime Minister aware that Minister after Minister on that Front Bench has assured me, in answer to questions, that there is nothing to worry about on the question of confidentiality of information? Would he not admit that there is, therefore, a need for my Control of Personal Information Bill, and would he also extend the terms of reference of the Younger Committee so that it can also consider the public sector?
  The Prime Minister: What I told the hon. Gentleman in answer to a Question was that it was not just a matter of confidentiality of information stored on computers, but that exactly the same high standards should apply to all information in Government Departments, both personal and commercial. This is the aim of this Administration, and if, as a result of the statements in The Guardian today, we find means by which the rules are either being broken or being evaded, we can take immediate action, and The Guardian will have performed a valuable public service.
  Mr. Onslovv: On the particular question of national security, would my right hon. Friend agree that this might be partly reinforced if some way could be found of reducing the number of Communist intelligence officers operating in London under diplomatic cover?
  The Prime Minister: That is a separate problem, but it is well known that it is under consideration by the Foreign Secretary.
  Mr. Hamling: Would the Prime Minister particularly consider the allegation about information being supplied to foreign embassies, bearing in mind what the hon. Member for Woking (Mr. Onslow) said?
  The Prime Minister: Yes, Sir; this is, of course, a major point of importance which is being examined.
  Mr. Harold Wilson: Although the Prime Minister must be free and have adequate time to conduct these inquiries, would he pay particular attention to the allegations that ex-officers of certain Departments, with knowledge of telephone numbers and the necessary procedures and the kind of questions to ask, are telephoning from outside? Would he try to cut down any private, secret or confidential information being given on the telephone, and require it, even at some delay and some cost, to be put in writing?
  The Prime Minister: Yes, Sir. As I have said, The Guardian has undertaken to help us in this matter so far as possible and has also agreed that I should make that fact public.

  TRADE (MINISTERIAL RESPONSIBILITY)
  Mr. Ashtonasked the Prime Minister whether he will now assume personal responsibility for the duties of the Minister responsible for trade.
  The Prime Minister: Unless and until I make a statement to the contrary, the House should assume that I have not taken over, and do not propose to take over, any of my right hon. Friends' departmental responsibilities in this or any other field.
  Mr. Ashton: Is the right hon. Gentleman not aware that, only yesterday, we had to have a personal statement from the Minister concerned because he had misled the House, and admitted misleading the House, two weeks ago? Does the right hon. Gentleman not think that, since it was reported in every newspaper
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  that he himself had not been told about the V. & G. affair until it appeared on the tapes, and that he does not know what is happening in this Department, he should take over personal responsibility for it?
  The Prime Minister: It has long been a tradition of the House that, once personal statements have been made, they are not referred to by hon. Gentlemen. The Vehicle & General affair is already being dealt with by the tribunal.
  Mr. Harold Wilson: Is the right hon. Gentleman aware that we are delighted to hear him say that, once personal statements are made, they are accepted by the House? Does he recall that, when the then Secretary of State for Defence made a personal statement about some reference to General de Gaulle, the right hon. Gentleman, then Leader of the Opposition, followed the most unusual practice of putting down a Private Notice Question in order to hound him further? We are delighted that he is now converted to the rules of the House.
  The Prime Minister: If the right hon. Gentleman will refresh his memory, he will find that the purpose was not in the least to hound the then Secretary of State for Defence: it was in order to obtain a statement which the House should have.

  EUROPEAN ECONOMIC COMMUNITY
  Mr. Laneasked the Prime Minister whether he will make a Ministerial broadcast this month on the progress of the Common Market negotiations.
  The Prime Minister: I have at present no plans to do so.
  Mr. Lane: If, as most of us hope, there is progress in Brussels this week and Paris next week, and fair terms eventually emerge, would my right hon. Friend continue to keep the debate on the inspiring level of his recent Royal Academy speech, so that the public can see this issue not just as an argument about butter and sugar—important though they are—but as a new and historical opportunity for the British people?
  The Prime Minister: I very much agree with my right hon. Friend that one

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  should deal with long-term political and defence questions concerning Europe as well as the detailed points on the Treaty of Rome which are being discussed in the negotiations in Brussels.
  Mr. Pentland: In regard to the safeguards which are involved for Britain and the Commonwealth in the present negotiations, can the right hon. Gentleman now explain which must be fully accepted by the Six before the negotiations are finalised? If he would do so, it would relieve a great deal of anxiety in the country.
  The Prime Minister: My right hon. Friend the Chancellor of the Duchy of Lancaster reports to the House each time he returns from negotiations in Brussels, and he will be doing so after he returns from the present meeting. At the end of negotiations, if they are successful, it will be possible to put before the House the complete picture. It is on that that the House will make its judgment.
  Mr. Kenneth Baker: Did my right hon. Friend see that the Leader of the Opposition said on "Panorama" last night that, if the terms were appropriate, he would unequivocally support Britain's entry into Europe? Could he elicit from the Leader of the Opposition whether, if he is satisfied that the terms are appropriate, he will lead his party to back him into Europe?
  The Prime Minister: I am sure that, if the Leader of the Opposition did make an unequivocal statement on "Panorama" last night, he will certainly stand by it.
  Mr. Healey: Can the right hon. Gentleman assure us that he will make a full statement on his talks with President Pompidou as soon as possible after his return? In view of the fact that he has just assured us that he has no intention of pre-empting the functions of any of his right hon. Friends, and since the talks with President Pompidou are, according to the Press briefing, to concern primarily political questions on the future of Europe, will the Foreign Secretary join him on this mission?
  The Prime Minister: I will certainly make a statement when I return, if that is what the House desires. That can
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  easily be arranged through the usual channels. The Foreign Secretary will not be accompanying me to Paris.

  IMMIGRATION BILL
  Mr. Bidwellasked the Prime Minister how many letters he has received expressing opposition to the Immigration Bill.
  The Prime Minister: I have received a small number of letters about particular aspects of the Bill, but they cannot be classified as simply for or against it.
  Mr. Bidwell: When the right hon. Gentleman replies to these letters, does he point out the nonsense of patriality and non-patriality as it applies to Commonwealth citizens? Does he explain also how he will need to adjust or to make a new law regarding Britain's immigration situation in relation to the Rome Treaty?
  The Prime Minister: The first point has been discussed in great detail in Committee, and the Government are now considering the conclusion to which the Committee came and will be able to advise the House on the Bill at a later stage. The arrangements under the Treaty of Rome in regard to movement of labour, and the relationship of this to immigratidn from other countries, have long been well known.
  Mr. Thorpe: May we at least have an assurance from the right hon. Gentleman that when replying to these letters he ensures that, apart from the requirement for them to report changes of address and occupation to the police, no other emergency wartime regulations will be reintroduced to control new immigrants to this country?
  The Prime Minister: The letters I have received about the Bill have been seeking information of various kinds. A small number have been protesting against the Bill, while a considerable number have been asking that the Bill should be more rigid than it is. I have replied explaining the provisions of the Bill, and this has not been done in terms of wartime regulations. Nor is the Bill conceived by those who write to me in such terms. They recognise that there is a problem in those areas which have large

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  numbers of immigrants. We said at the election that we should act on this matter, and that is what we are doing.
  Mr. John D. Grant: Does the right hon. Gentleman accept that he is in office only by courtesy of the right hon. Member for Wolverhampton, South-West (Mr. Powell) and his obnoxious views on immigration?
  The Prime Minister: Sufficient has been written and said about the last election for me not to hold an inquest on it.
  Mr. Clinton Davis: What representations have been made to the right hon. Gentleman on this issue? Would he agree that a large number of community relations councils, the British Council of Churches and the Board of Deputies of British Jews are among many organisations which have represented their feeling that the Bill is racialist and is likely to be very damaging to race relations in Britain?
  The Prime Minister: As I said, a small number of the letters I have received have been critical of the Bill, but not the great majority.
  Mr. Roy Jenkins: Does the right hon. Gentleman consider, in view of what has already happened in Committee, that this was a well-drafted Bill?
  The Prime Minister: To deal with a very difficult problem, this was a good Bill. What is more, it will go on to the Statute Book.

  BASIC FOOD PRICES
  Mr. Harold Wilson: On a point of order. Your predecessor has accepted this as a point of order in similar circumstances, Mr. Speaker.
  May I ask the Prime Minister or the Leader of the House, if not now then at any rate in connection with this week's business, to make a statement following the decision of the House yesterday in relation to the prices of food and related subjects and the acceptance by the Government of the need to reconstitute some watchdog over rising prices? May we have an assurance that either of the right hon. Gentlemen will tell us, either today or tomorrow, when a statement will be
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  made giving the Government's intentions in order to carry out the Motion which hon. Gentlemen opposite yesterday accepted unanimously?
  Hon. Members: Answer.
  Mr. Speaker: Order. Whatever my predecessor may or may not have ruled, in my view that is not a point of order, though it is a point which can be made and which, no doubt, will have been noted.

  QUESTIONS TO MINISTERS
  Mr. Mackie: On a point of order. During Question Time the Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food said in answer to a supplementary question from one of my hon. Friends that he would not answer the particular point that had been raised because he would be answering Question No. 27 later. In the event, Question No. 27 was not answered. Am I entitled to raise this as a point of order?
  Mr. Speaker: It is certainly not a point of order for me.

PAKISTAN
The Secretary of State for Foreign and Commonwealth Affairs (Sir Alec Douglas-Home): Last Thursday, during business questions, the Leader of the House was asked by the Leader of the Opposition whether I could make a statement about the situation in Pakistan which might assist hon. Members in the debate which is to take place on Friday. With your permission, Mr. Speaker, and that of the House, I should now like to do so.
In previous statements to the House I have expressed Her Majesty's Government's concern about the situation in East Pakistan and our wish to assist in alleviating the suffering and stress.
Within East Pakistan communications have been disrupted as a consequence of the recent strife and there may well be food shortages later this year, particularly in areas already affected by last year's cyclone. I repeat that Her Majesty's Government stand ready to play a part in any international relief effort, and that it is our view that this can best be organised through the United Nations.

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After consultation with the American Secretary of State, I recently sent an agreed message to the Secretary-General of the United Nations in which we suggested that he should approach the Government of Pakistan to renew his offer of international humanitarian assistance. U Thant is in touch with the Pakistan Government on the problems of relief.
I hope that they will be ready to allow a team of experts to make an objective appraisal of what is needed and that they will be prepared to accept assistance, if that is judged to be needed, on an international basis. Clearly, any relief effort must be made with the agreement and co-operation of the Government of Pakistan. We are, of course, ourselves in close touch with President Yahya Khan about the situation.
There is the separate problem of aid and assistance to the Pakistan economy in general. Pakistan faces serious economic difficulties, including shortage of foreign exchange. Consultations about these problems are proceeding within the framework of the aid consortium under the chairmanship of the World Bank, and decisions about future action must await the result of these consultations.
There is, finally, the problem of the very considerable number of refugees who have crossed from East Pakistan into India. Already a consortium of British charities had decided to offer assistance. They asked for Government assistance to transport supplies necessary for health and shelter. I decided that Her Majesty's Government should make an immediate contribution, and this has been done. Supplementary provision for approximately£18,000 will be sought in due course and, if necessary, an advance will be made in the meantime from the Civil Contingency Fund.
The Indian Government have since approached the United Nations for assistance over the refugees, and a United Nations team is now in India to assess the need for international help. As with the other two problems which I have mentioned, I consider that this matter is best handled by international organisations.
Mr. Healey: I thank the Foreign Secretary for that statement, which will be useful in our debate on Friday. I am
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sure that hon. Members on both sides of the House agree with the advantage of involving the United Nations in this problem. Indeed, some of the dangers in prospect might well justify the United Nations concerning itself with some of the political aspects of the problem, no less than with the relief aspects.
Does the right hon. Gentleman agree that the bald terms of his statement conceal a human tragedy which has few precedents in recent history? Is it not a fact that there are already 1½million refugees in West Bengal who, according to Indian Government estimates, will require£25 million per month to feed? Is it not a fact that even more people require assistance in East Pakistan itself?
Is the right hon. Gentleman satisfied that aid is now getting through to those in need in East Pakistan? Is he aware that a Red Cross aeroplane loaded with medical supplies was refused permission to land and that there are well authenticated reports that a large volume of stores is already stocked in Chittagong, but that permission has not yet been given for these goods to be distributed to those in need?
Does he agree that little can be achieved to relieve the suffering in this area or, indeed, to aid the economy of Pakistan unless there is a rapid movement towards a political settlement of the problem, in conformity with the wishes of the people of East Pakistan, as recently expressed in democratic elections?
As he promised when I last questioned him on this matter that he would make a statement, would the right hon. Gentlemen tell us whether Sheikh Mujibur Rahman is in prison in West Pakistan awaiting trial? Does he agree that if Pakistan is left without democratic leadership, other forces may take over and that this could be a disaster not only for Pakistan, but for the whole of the sub-continent.
Sir Alec Douglas-Home: As the right hon. Gentleman says, this is, of course, a very real human tragedy. The scale of it, considering the number of refugees in India and the possible problem of the relief that may be necessary later in the year, is very great and, therefore, it justifies bringing in the United Nations, which

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is perhaps the only body that can handle it, and that, I hope, will be done.
The answer to the right hon. Gentleman's question about a political settlement is that this must be for the people of Pakistan. Nobody from outside can dictate it. As I have said, we have been in constant touch with the President of Pakistan about the need for a political settlement. That is the only way, in the end, to solve the problem. But this must be for the President and the people of Pakistan.
Mr. Healey: Would the Foreign Secretary answer the specific question that I asked? Has he any information about the refusal by the authorities in Fast Pakistan to allow distribution of medical supplies and other assistance already available?
Sir Alec Douglas-Home: One consignment from the Red Cross was refused entry by the Government of Pakistan. The difficulty, so we understand, of distributing the food which is at present there in sufficient quantities is one of communications, and the distribution, according to our information, has to be done at present by the Pakistan Army, and this in itself presents difficulties. That is why I urge that the team should go in as quickly as possible to assess the need and to see how food can be got to the people. The other problem does not arise at the moment.
Mr. Woodhouse: Is my right hon. Friend aware that the Charity Commissioners in this country have ruled that money in the Pakistan Flood Relief Fund may not be used for relief in the present calamity? If the objection to that is purely of a technical character, would my right hon. Friend indicate whether it may be possible to remove it?
Sir Alec Douglas-Home: We have looked at this matter. It would be very difficult to remove it after the conditions applied. One of the areas worst affected is, in fact, the cyclone area, and if we can get the food moving, certainly the money subscribed for that purpose can be used.
Mr. Thorpe: Is the Foreign Secretary aware that we welcome his recognition of the importance of the United Nations as the appropriate agency for relief?
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Further, is he aware that reports of appalling atrocities are still coming out from East Pakistan? Can he say whether Her Majesty's Government can take some further initiative, either through the Commonwealth Secretariat or through the United Nations, for a team of observers either to establish or to disprove these disquieting allegations?
Sir Alec Douglas-Home: At present, I do not think that it would be helpful to ask that observers should be admitted to Pakistan. We have no reason to believe that they would be accepted. As the right hon. Gentleman probably knows, six international journalists are being let in this week, so more information will come from the country.
Sir F. Bennett: All other considerations apart, would the Foreign Secretary agree that the precedents show, without any doubt, that however well-meaning an attempt to interfere politically in the affairs of another Government may be, the result is counter-productive for the people themselves?
Sir Alec Douglas-Home: Without generalising, in this particular case that I am dealing with private representations are certainly better than any public statements.
Mr. Shore: Can the Foreign Secretary clear up this matter and say whether relief and aid personnel have free movement in East Pakistan at present? What response has he had from the Pakistan Government to the representations which we hope he has made about a political settlement and respect for democratic decencies in Pakistan?
Sir Alec Douglas-Home: The response that we have had is the desire and wish, as expressed by the President, that there should be a political settlement and that talks should be resumed between representatives of East Pakistan and the President. We must hope that this will take place. As for the introduction of aid into East Pakistan now, the great trouble is the lack of communications, which have been almost totally disrupted in the last three months. When they are restored, aid will begin to flow.
Mr. Marten: Would my right hon. Friend agree that one of the long-term problems will be the 3 million refugees

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who fled from East Pakistan to India, and their resettlement back in East Pakistan? If the situation in East Pakistan deteriorates rather badly, the situation will become similar to that which has arisen in Ceylon, where North Korea has been operating pretty sharply.
Sir Alec Douglas-Home: If the situation were to deteriorate further in East Pakistan, the consequences would be as my hon. Friend describes. The hope must be that some kind of political stability is restored, in which case I am sure that those who are now in India would wish to return and to resume the work which they were doing.
Mr. Douglas-Mann: Is the Foreign Secretary aware that the view of the majority of people who are very familiar with the situation—I cannot claim to be so, but I have visited the area—is that East Pakistan is embarking on what is likely to be a very long war and that the situation creates grave dangers of war between India and Pakistan? Does the Foreign Secretary accept that this is not a situation analogous to a civil war in one country but it is a matter of aggressive war by West Pakistan against East Pakistan? Does the Foreign Secretary accept that this is a situation in which two countries have voluntarily joined and one half has demonstrated overwhelmingly that it wishes to separate itself? The matter should be treated as an aggressive war between two countries rather than as a civil war in one country.
Sir Alec Douglas-Home: We must not be led into statements as to whether the results of the elections in East Pakistan favoured secession. There are different interpretations. It is not for me to make them. Political settlements must he arrived at by the people of Pakistan. We profoundly hope that this will happen. There is little that we can do to influence that. That is why I have concentrated today on the humanitarian aspects, in which we have a part to play.
Mr. Biggs-Davison: Is my right hon. Friend aware that General Chaudhuri, of the Indian Army, writing in the Hindustan Times, has expressed exactly the opposite view to that of the hon. Member for Kensington, North (Mr. Douglas-Mann)? May I ask my right
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hon. Friend whether it is not the case, in times past, when there have been difficulties and scarcities, that there has been a movement of refugees across the frontier and a movement back when normal conditions have been restored? Is not there ground for hope that this will occur again?
Sir Alec Douglas-Home: There is a hope; but it has not happened yet. The attitude of the Indian Government has been strictly correct in the matter of their relations with their neighbouring country.
Mr. Foley: Would the Foreign Secretary direct his attention to the plight of East Pakistan refugees in India? Has he no means of assessing the dimensions of the problem? Is he informing the House that the sum of the contribution made by Her Majesty's Government to the relief of the distress of East Pakistani refugees in India is£18,000? Is this the total contribution?
Sir Alec Douglas-Home: That is what we were asked for by the organisations concerned, to fly in the supplies which they had waiting but could not transport. So for this purpose, quite appropriately, as the House will agree, we supplied the money and they were, therefore, able to do so. The Indian Government have now asked the United Nations to take over the management of the problem of refugees. We think that is right.
Mr. Dalyell: Would the Foreign Secretary turn to the specific question put to him by my right hon. Friend the Member for Leeds, East (Mr. Healey, namely, the issue of the medical supplies that are held up in Chittagong? While we can understand that there are transport problems elsewhere, it seems inconceivable that, if they wanted to, the Pakistan Government could not move those supplies out of Chittagong to other places.
Sir Alec Douglas-Home: We are making inquiries on this matter to see whether medical supplies can be moved. The hon. Gentleman should not underestimate the dislocation of communications that has occurred. For example, our Deputy High Commissioner was unable to go from Dacca to Chittagong until quite lately, in the last day or two. This is a real problem.
Mrs. Hart: May I ask the Foreign Secretary about the attitude taken by the British representaives on the Pakistan aid consortium? Looking to the future, I ask whether he is instructing our representatives to concentrate, in the light of extreme economic inequalities between East and West Pakistan which have been part of the reason for the present difficulties, upon project aid specifically directed to East Pakistan rather than to West Pakistan?
Sir Alec Douglas-Home: The right hon. Lady will not underestimate the problem of solving the existing problem of development, let alone looking for new ones. This will be a very expensive project. But development projects for the future of East Pakistan are immensely important in the context of the whole country.
Several Hon. Members rose—
Mr. Speaker: Order. I am afraid we must get on.

PROTECTION FROM EVICTION (COUNCIL TENANTS)
3.50 p.m.
Mr. David Stoddart: I beg to move,
That leave be given to bring in a Bill to extend to council tenants similar protection against eviction as is given to tenants of priunfurnished rented accommodation by the Rent Act, 1968.
Hon. Members will be aware that it is possible at present under the Small Tenements Recovery Act, 1838, for a local authority to obtain an eviction from a magistrates' court without offering any reason. The same is true of people in housing associations and trust housing. As the law stands, therefore, it is possible for a local authority to evict tenants for the most spurious of reasons, although it must be added in fairness that only a small minority of authorities would act in this way.
However, there have been cases where local authorities have acted in an unreasonable fashion. The most recent example in my experience is that of a local authority which passed a resolution saying that, if a tenant or any member of his family was convicted of vandalism, the family would be evicted. In this case the local authority was not only proposing to punish the culprit twice for the same offence. It was also seeking to punish all the other innocent members of his family by making them homeless. While it is only fair to add that the council concerned is having second thoughts, the fact is that not only did it pass such a resolution but it would have been able to enforce it in the courts.
In my view, the time is long overdue for council tenants to have rather more protection in law than they have at present. My Bill seeks to provide such protection by specifying the grounds on which a court may make an order for recovery of possession of any dwelling. Briefly, the grounds are as follows: (a) that the rent has not been duly paid; (b) that the tenancy agreement has been broken; (c) that the tenant has created a nuisance in the neighbourhood or has used the premises for illegal or immoral purposes; (d) that there has been unauthorised sub-letting; and (e) that the local authority needs the dwelling to

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comply with its statutory duties under various Acts.
From what I have said, I hope that it will be understood that I realise full well that local authorities must be equipped to carry out their duties under the Housing Acts. I do not feel that the proposals contained in the Bill conflict with that in any way.
The Government may very well welcome a Bill of this sort, bearing in mind their intended legislation—which I hasten to add that I detest—to put the rents of council tenants on the same basis as private tenants.
I commend the Bill and hope that I shall be given leave to bring it in.
Question put and agreed to,
Bill ordered to be brought in by Mr. David Stoddart, Mr. Frank Allaun, Mr. Norman Atkinson, Mr. Michael Cocks, Mr. Neil Kinnock, Mr. Dick Leonard, Mr. William Molloy, Mr. Stanley Orme, and Mr. James Wellbeloved.

PROTECTION FROM EVICTION (COUNCIL TENANTS)
  PROTECTION FROM EVICTION (COUNCIL TENANTS)
  Bill to extend to council tenants similar protection against eviction as is given to tenants of private unfurnished rented accommodation by the Rent Act 1968; presented accordingly, and read the First time; to be read a Second time upon Friday, 21st May and to be printed. [Bill 168.]
ORDERS OF THE DAY

  FINANCE BILL
  (Clauses 6, 7, 8, 10, 22, 30 and 49 and any new Clause relating to Purchase Tax)
  Considered in Committee,
  [Sir ROBERT GRANT FERRIS in the Chair]

  FINANCE BILL
    Clause 6

      CONTINUATION OF POWERS UNDER SECTION 9 OF FINANCE ACT 1961
      Mr. Dick Taverne: I beg to move Amendment No. 1, in page 7, line 26, leave out 'August' and insert 'February'.
      The Chairman: Order. I have a short announcement to make to the Committee. Following upon representations which have been made to me by right hon. and hon. Members on both sides of the Committee, I have decided to vary my provisional selection of Amendments for this first debate. I think that it will be for the convenience of the Committee if, with Amendment No. 1, we discuss Amendment No. 13, in page 7, line 27, at end add—
      ( ) Section 9(2) of the Finance Act 1961 shall be amended by leaving out the words 'by the addition or deduction as may be prescribed, of such percentage, not exceeding ten per cent.' and inserting the words 'by the addition as may be prescribed of such percentage, not exceeding 10 per cent., or the deduction as may be prescribed of such percentage not exceeding fifteen per cent.'.
      Mr. Taverne: This is a debate on the regulator, and in the past this has been the occasion for a major debate on the economy. Today, it is right that we should begin the Committee stage of the Finance Bill on the Floor of the House with another such debate.
      The Amendment is not just a token one. Taken with Amendment No. 13, it is designed to deal with the situation in which we find ourselves. We tabled an

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      Amendment, Amendment No. 3, in page 7, line 27, at end add—
      ( ) In section 9(2) of the Finance Act 1961 for the words 'ten per cent.' there shall be substituted the words 'fifteen per cent.',
      which for technical reasons could not be part of this debate. However, the situation is covered by Amendment No. 13.
      The joint effect of the Amendments is this. We accept that in normal circumstances the regulator should be limited to the power to decrease or increase taxation by 10 per cent. without new legislation. However, in present circumstances, we feel that the power should be amended to enable the Government to decrease indirect taxes by 15 per cent., but only for a six-month period.
      I put forward three propositions in support of the Amendment. First, it has now become clear that the analysis of the situation at the time of the Budget was too optimistic. Information which has become available subsequently shows that the position was worse than it seemed at the time. Secondly, except for the developments of the last week on the foreign exchange market, the situation has worsened since the Budget. Thirdly, the present situation urgently demands a far greater degree of expansion than the Budget measures contain.
      I make it clear at the start that it gives me no pleasure to offer a somewhat gloomy analysis. I do so in no partisan spirit, but only because the facts lend themselves to no other interpretation.
      I ask right hon. and hon. Gentlemen opposite to study the facts carefully and to see how far the Government are in a position to contradict my points. I suggest to them that, if my analysis is right, the remedies that we propose follow logically. Even if hon. Gentlemen opposite are not inclined to follow us into the Lobby, which is understandable, at least they may bring pressure to bear in support of a change of course by the Government.
      Let me first turn to the position as it was on Budget day. It is now clear from figures published by the Government that the Budget judgment was wrong, partly because it was based on a wrong analysis of the situation. The analysis may have been justified by the information then available, but it is now shown that it was too optimistic.
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      I draw the attention of the Committee to the contrast between the figures in the Financial Statement and those in the April issue of Economic Trends, My sources therefore, are the Government's own. Table 1 of the Financial Statement showed that the estimated increase from the second half of 1969 to the second half of 1970 was some 3·3 per cent. for consumer expenditure, 1·8 per cent. for public expenditure on goods and services for public consumption, 2·1 per cent. for private fixed investment,£150 million for stock building, and altogether an increase in the gross domestic product of 1·8 per cent.
      4.0 p.m.
      Let me now turn to the estimated outcome as shown in the April issue of Economic Trends, This shows that for the same period a slightly greater increase in consumer expenditure was balanced by a slightly lower increase for public authorities' consumption, that fixed capital formation was considerably down, from 2·1 per cent. to 0·9 per cent., that stockbuilding was lower, by about£50 million, that imports were lower, and that gross domestic product, according to the expenditure figures, grew at 1·2 per cent. instead of 1·8 per cent., or, if one averaged out all the separate indicators for the growth of g.n.p. they show an average increase of 1·5 per cent., instead of 1·8 per cent. In addition, we have had the figures for consumption in the first quarter of 1971, which show that consumption declined somewhat.
      From those comparisons it emerges incontrovertibly that the economy was more sluggish during the fourth quarter of 1970 than was thought at the time of the Budget. That in itself suggests that corrective measures should have been introduced to take effect some time before the Budget, and certainly that the Budget measures should have been more expansionary. The Budget started from the wrong point.
      I now come to my second proposition, to the developments since the Budget. What has happened since then to investment, prices, unemployment, consumption, and the prospects for exports?
      Let me take the last first, because it is the one area in which there is at least some cheer. As an official spokesman I am, perhaps, under some inhibitions and

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      cannot entirely freely discuss the question of exchange rates, but my feeling has been for some time that, with our present level of unemployment and unused capacity, the need for expansion is such that if our expansion led to a danger, as it might, of a balance of payments crisis then, rather than avoid the expansion, we should not treat the rate as sacrosanct. Indeed, we should take all measures to see that the expansion is export-led.
      As a result of the events of the last week we have had a windfall on the export front because of developments with the mark and the dollar. The floating upwards of the German mark and the Dutch guilder, as well as the additional slight help from the revaluation of the Austrian and Swiss currencies, clearly improve the competitivenes of our exports and their prospects, and the total benefit to the balance of payments was estimated by Mr. Brittan in the Financial Times as being at least£100 million. At the worst that gives us a somewhat greater breathing space before present trends would once again lead to a balance of payments crisis, and it therefore removes to some extent some of the inhibitions which the Government may have felt, on balance of payments grounds, against expansion. There is the somewhat awful spectre that next winter we may have the appalling combination of high unemployment, stagnation, high inflation, and a balance of payments crisis, but that prospect has receded somewhat in relation to a balance of payments crisis.
      Mr. J. Bruce-Gardyne: The hon. Gentleman implied that we should seek what he described as export-led growth, and be prepared to take a more flexible attitude towards the exchange rate with that end of view. Would he concede that a more flexible attitude towards the exchange rate would mean that the exchange rate would go up, and not down?
      Mr. Taverne: Not if it was coupled with a policy of all-out expansion.
      On the domestic front, the situation is about as depressing as I can remember it at any time. I start with the prospects for investment. During the Budget debate I challenged the Chancellor on the forecast contained in the Financial Statement which seemed to predict a fall in manufac-
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      turing investment. The Financial Statement foresaw no rise in investment between the second half of 1970 and the second half of 1971, and a rise of only ½per cent. between the first half of 1971 and the first half of 1972. But, as there was a projected increase in shipbuilding and housebuilding, this seemed to suggest a fall in manufacturing investment. The Chancellor's answer was that the figure in the Financial Statement was a cautious one, and he went on to say:
      "I would certainly hope that in the outcome we shall have a better figure for investment than that. I think that there is a good chance that the impact which the Budget as a whole has made will produce a better figure."—[OFFICIAL REPORT, 5th April, 1971; Vol. 815, c. 164.]
      The Chancellor then seized, perhaps somewhat rashly, on a survey which had appeared on the front page of the Financial Times that morning showing that in the euphoria which followed immediately after the Budget, when many business men were rejoicing at the tax cuts they had been given, there was an upturn in confidence.
      But, unfortunately, every time the Government leap for joy at the sight of a speak of blue in the sky, thunder clouds immediately gather again more ominously than ever, and the last Financial Times monthly survey, published on 3rd May, showed a depressingly downward trend in capital spending intentions, even since the Budget. In the four-month moving total, which is a more significant indicator than any particular survey at any particular time, there was a 7 per cent. drop among those who expected capital investment to increase, and a 5 per cent. increase from those expected capital expenditure to decrease.
      That shows a marked drop in expectations and, while the four-month moving average conceals the exact nature of what is happening, it looks almost certainly as though, after the boost of confidence in early April, the downward revision of intentions during April must have been very substantial. It now looks as though the figures for investment in the Financial Statement, which were depressing enough, must be revised even further downwards.
      I now come to the problem of prices. The Government have expressed the hope that wage settlements would first level off and then gradually decline. It looks as though wage settlements may have

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      levelled off at about the 12 per cent. mark. This is an average figure, and it hides the monstrous disparity between settlements in the public sector and those in the private sector, but the nature of the settlements in the private sector give no grounds whatsoever for expecting a downturn in the future, because several of the higher settlements are being signed for two-year periods, and this is a pattern which may be followed generally. It offers little prospect of a significant diminution in the growth of prices in the next few years. I shall deal later with factors apart from wages which increase prices and which the Government neglect.
      As for the unemployment prospects, one can only say that the figures speak for themselves, and what utterly depressing reading they make!
      If one turns to consumption and takes the tax cuts and the National Insurance benefits together, it must be somewhat doubtful whether the increase in consumption predicted by the Government will, in fact, materialise. The increased child allowances will, perhaps, give the greatest boost to consumption with the high proportion of the tax remitted that will be reflected in consumption. The other direct tax cuts, particularly the cuts in corporation tax and in S.E.T., will affect consumption by much less than half the total amount remitted. It is doubtful whether the total combined effect will increase gross domestic product by more than ½per cent. during the second half of 1971 or by more than 1 per cent. throughout 1972.
      What, then, are the prospects? An objective analysis of the information available, on which I would appreciate the Chancellor's comments when he winds up and from which, I regret to say, hon. Members opposite will find it difficult to escape, points to a downturn in investment, a steady increase in unemployment, a continued rapid increase in prices, and in all probability a somewhat lower increase in consumption than the Budget projects. The only cheer lies in some better prospects for exports.
      I turn now to my third proposition—the need for a rapid expansion, with which these Amendments are concerned. It follows logically from the analysis which I have placed before the Committee.
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      Hon. Members opposite still talk from time to time as if the Budget measures when they finally take effect will reverse the unemployment trend. There are frequent references to Budget measures to reduce unemployment. There was nothing in the Budget actually to reduce unemployment. The Chancellor himself made this clear. During the Budget debate I challenged the Chancellor on the issue of unemployment and I pointed out that a boost to make demand grow at 3 per cent., if it was realised, would merely slow down and not even level out the rise in unemployment. There is an increasing amount of evidence that productivity in manufacturing industry is now rising faster than 3 per cent.
      The Chancellor did not deny my statement. Instead, he returned to the answer which has frequently been given—that in fact he would not deal with unemployment until inflation had first been cured. I quote from the Chancellor's final remarks in the debate on the Budget Resolutions:
      "I cannot make any promise that unemployment will fall until we get a substantial reduction in the level of pay settlements…
      I could have brought about a reduction in the level of unemployment by giving a still larger boost to consumer demand than I have. But everything that I have said supports the view that it would have been irresponsible in the circumstances to do so."—[OFFICIAL REPORT, 5th April, 1971; Vol. 815, c. 166–7.]
      It is clear that the core of the Government's economic strategy is that unemployment must be allowed to rise, or cannot be dealt with until inflation is beaten. It is implicit in this strategy that the way to beat inflation is to allow unemployment to rise. This strategy is based on a fundamental fallacy. It is a costly fallacy which will cause an enormous amount of suffering. The whole thesis which seems to underlie the Government's strategy that there is a relationship between a given level of unemployment and the rise in prices, has been totally exploded. The so-called Phillips' curve, to use the technical jargon, has been discredited.
      At what point is it now argued that unemployment will begin to affect prices? Is it at 1 million unemployed, 1½million unemployed, or 2 million unemployed? No doubt there is a point at which massive unemployment will begin to have an effect, but when? The Americans

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      pursued precisely the same policy that the Government are now pursuing and they then abandoned it and at the time when they abandoned it unemployment had risen to nearly 7 per cent.
      Why is it a fallacy? It is partly because it is clear that a high level of unemployment will not necessarily affect the willingness of individual firms to grant high increases. Part of the unemployment is caused by changes in structure and techniques, but these changes often have to be bought, new bargaining situations arise and there are pressures on both sides, not just on the union side, to increase pay.
      Partly it is a fallacy because it is wrong to suggest that inflation need cause unemployment. A high settlement may cause individual firms to lay off staff, but an increase in national unemployment depends on aggregate demand. The Government have the means to increase this demand, to create expansion and the extra investment, but they have abdicated from this responsibility.
      4.15 p.m.
      Indeed if one looks at the nature of our present inflation, which is cost inflation, it is clear that stagnation increases costs. A fuller use of capacity would decrease costs. A 15 per cent. wage increase in the motor industry can be more easily absorbed when production goes flat out than when it is restrained in a stagnating economy.
      Again, it seems clear that at present inflation is to a large extent a psychological phenomenon. Part of the reason for high wage claims is fear, a perfectly rational fear that workers will be left behind in the general scramble for wages, a fear that the cost of living will outstrip their earnings. Leaving aside the whole question of an incomes policy, to which the Government will in due course be driven for the whole economy and not just the public sector, expansion of production, and in particular a boost to expansion by direct action on prices through the use of the regulator, will increase earnings and lessen fear.
      The Government are totally wrong to place all the blame for inflation on the unions and on wage claims. They totally fail to recognise that stagnation and the existence of unused capacity are in themselves contributory factors to inflation.
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      The Chancellor said in his Budget speech, and the Prime Minister has repeated this at Question Time, that he would not hesitate to use what means were available if the situation worsened beyond his expectations. It has worsened. As I have shown, the economy was more sluggish during the fourth quarter of 1970 than was thought at the time of the Budget. What evidence is available for 1971 shows a continuing downturn which is almost certainly deeper than the Financial Statement envisaged. It shows that the Budget judgment was wrong and should have been more expansionary. It certainly shows that action should be taken now to correct the mistakes of the past.
      The Chancellor could take action either by increasing public spending or by using the regulator. As the situation requires early results, clearly it is the regulator which he should use. The Amendments are designed to enable him to use the regulator to a greater extent than was possible before. In the next six months this power will be needed. I commend the Amendments to the House.
      The Minister of State, Treasury (Mr. Terence Higgins): The debate which has been initiated by the hon. and learned Member for Lincoln (Mr. Taverne) follows a tradition which is now well established of discussing the general economic situation on the Clause of the Finance Bill which renews the regulator. This gives the Chancellor power to alter the rate of purchase tax plus or minus 10 per cent. to cope with variations in economic activity between one annual budget and another. I hope later to say rather more about the Amendments than did the hon. and learned Gentleman.
      I suspect that the Committee will expect me to follow the hon. and learned Gentleman to some extent in the points he has made. Similar regulator debates have taken place each year since 1963, with the exception of 1969, when we found it more convenient to do it in the form of a debate on corporation tax, and last year, when Finance Bill affairs were very curtailed because of the impending election.
      In 1968 and 1969 the debates took place in Standing Committee; but, whether they have taken place in Standing Committee or on the Floor of the

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      House, they have been analytical rather than party political. The hon. and learned Gentleman adopted the same approach this afternoon. I hope to follow that same approach.
      I have been glad to have participated in all the previous debates of this kind and to have had some part in establishing the tradition. I am now hoist slightly on my own petard. Having studied the debates I find also that these are largely occasions when Government back benchers and the Opposition put forward their ideas rather than opportunities for the Government Front Bench to put forward new policies. The reason is clear. These debates are very largely an extension of Budget debates and it would be very unusual indeed if the situation had changed very significantly in the meantime. The point which the hon. and learned Gentleman has made put too great a reliance on the short-term figures. I regard it as premature to make any significant change in my right hon. Friend's Budget judgment.
      As my right hon. Friend made clear on 30th March, we face a uniquely difficult situation of cost-push inflation combined with rising unemployment. It is worth pointing out that this is one of the reasons why hon. Members tend to suggest wrong solutions. Most economic text books would suggest that cost inflation is not a situation which can persist over a significant period in the absence of excess demand. Yet our experience since the latter part of 1969 has disproved this. We have had rampant cost inflation at the same time as we do not appear to have had any excess demand in the economy as a whole. It follows, in our view, that demand management alone cannot provide the solution to the problems we face, although the regulator of course remains a very valuable weapon in our economic armoury, and this year —I go this far with the hon. and learned Gentleman—is of particular importance because the situation is clearly very complex. But it is limited to demand management and its potential use should, I believe, be looked at in the context of our broader economic policies.
      Our objective in the Budget was to take measures which, in the fashionable phrase, will raise the level of employment so that it will grow in line with productive potential. This represents a
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      significantly faster rate of growth in output than in the recent past. One has only to look at the Financial Statement to see that this is so. It is a rate of growth of output of about 3 per cent., which is much bigger than the rate has been recently, and is also significantly greater than it would otherwise have been if we had not done anything about the situation in the Budget.
      There are those inside this House and outside it who have argued that the Budget judgment was wrong and that we should take steps in the Bill—and the hon. and learned Gentleman seemed to concertina the argument on the regulator —or in the regulator to deflate the economy or, alternatively, to raise demand much faster. Subject to points which may be made later in the debate, I think that it is true to say that the disagreement has been over our objective rather than with the measures which we propose as likely to achieve it. I think that the hon. and learned Gentleman raised the same point.
      In this situation, it would be worth while setting out why it does not seem to us that either deflation or much greater reflation would be right at present and why we do not, therefore, feel that the additional powers the hon. and learned Gentleman is suggesting are necessary. It is difficult to find anyone who, in the present unemployment situation, is now arguing for deflation or that we should expand demand less than we propose to do—except, perhaps, those who seem to have misunderstood our monetary policy completely and who, denying that their use of monetary policy would create a situation of higher unemployment, talk as though by magic cost inflation can be cured by monetary means. No one really advocates massive deflation at present.
      I want to take up the point which the hon. and learned Gentleman made with regard to unemployment and his assertion—as assertion it is—that the Government's policy is to try to cure cost inflation by massive unemployment. That is most certainly not the policy of the Government. The Phillips curve, which I have referred to in earlier discussion on the regulator, shows clearly, I agree, that the relationship between unemployment and prices has changed shape and has moved very substantially. So it probably is the case that, if we

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      were to adopt massive deflationary policies or even the deflationary policies which have been used in the past to cure demand inflation, we would find that they were completely inappropriate, for such policies would involve a massive increase in unemployment, which would be quite unacceptable, and would involve a complete slump in investment, which would endanger our policy for future growth. I cannot see that to be an alternative to the Budget judgment.
      On the other hand, there are those who argue that the right answer is a massive programme of expansion. The hon. Member for Ashton-under-Lyne (Mr. Sheldon) has perhaps been the most consistent in advocating this sort of policy, both under the last Government and since we took office. In that context, it is also true that the T.U.C. and many hon. Members have expressed the same view. I do not believe that a programme of massive expansion is the right answer. One cannot cure cost inflation by adding demand inflation to it. One cannot achieve a higher level of employment and economic growth which can be sustained—and I stress, "sustained"—by massive expansion of demand, because no conceivable increase in real output, which is what is important, could cover the kind of wage claims we are still getting, and even a temporary speeding up of a cyclical improvement in productivity would not close the very large gap which still exists between growth of earnings and productivity.
      Mr. Taverne: Could the hon. Gentleman make his position clear? If he allows demand to expand simply in line with the growth of potential capacity, how does he deal with the point that this will still leave the enormous margin of unused capacity which exists at present and which will continue to exist? Is it not a fact that, in a situation where this massive amount of unused capacity exists, one can, without adding demand inflation, use up that unused capacity?
      Mr. Higgins: The position was clearly stated by my right hon. Friend and quoted by the hon. and learned Gentleman himself. I do not believe that, if we were to go in for the kind of expansionist policy advocated, we could do so without endangering the present position,
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      and if we tried to do so we would rapidly get back to the dreary "stop-go" cycle. If we are to find the right solution, it is important, as was implicit in the hon. and learned Gentleman's intervention, that we should not confuse growth in output, which is one side of the equation, with growth of productive potential, which is the other side. If we want a sustainable rate of economic growth, it is the growth of productive potential—which is essential and decisive—that we must raise, otherwise it will only be a short run solution. What we have to achieve is not a temporary solution. If we are to succeed in controlling inflation and achieving a sustainable level of high employment and economic growth, then we need the kind of solution we have suggested and not a short-run rate of expansion which would jeopardise all our long term plans.
      Mr. Robert Sheldon: Is the hon. Gentleman defining productive potential as unemployment which arises from greater use of our available resources?
      Mr. Higgins: I must confess that I do not understand that intervention, but if the hon. Gentleman would care to spell it out in his speech we will pursue the matter then.
      Mr. Sheldon: Hitherto, very largely the level of productive potential has been defined as the amount of unemployment created by a greater utilisation of resources. This is a circulatory argument. The hon. Gentleman says that the extra unemployment is due to extra productivity and this leads him to welcome the unemployment instead of decrying it.
      Mr. Higgins: I do not welcome unemployment. I must confess that I think that the hon. Gentleman is rather confused in his analysis. But I will listen with interest to what he has to say later.
      I want now to take up two other points made by the hon. and learned Gentleman the Member for Lincoln. First, I think that he underestimates the danger which the kind of policy he is advocating would have in balance of payments terms. Secondly, and very significantly, he totally disregards the effect that such a policy of even more rapid inflation is likely to have on those living on fixed incomes.

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      That was a remarkable omission from his speech. The attitude is one of expansion at any cost and not to bother if we have demand inflation on top of cost inflation.
      Mr. Taverne: I must correct that misrepresentation. I argued that a more rapid expansion would slow down the rate of inflation and not increase it, because it would make a better use of unused capacity and therefore bring down unit costs.
      4.30 p.m.
      Mr. Higgins: I appreciate that the hon. and learned Gentleman mentioned that, but I do not believe, for the reasons I have given, that that would be the outcome. There is considerable confusion here in the hon. and learned Gentleman's mind over the relationship between an individual firm's pricing policies and unused capacity and marginal and average costs. I do not wish to take the question up in detail now, because it would take a while to spell it out. But I do not believe that the policy the hon. and learned Gentleman is advocating would do other than endanger both the balance of payments and those on fixed incomes, and it would endanger our long-run plans.
      There are those who argue that all would be well if we combined a policy of expansion with a prices and incomes policy. In this context it is important to note that the expression "incomes policy" has become virtually meaningless. It must be defined if we are to have any meaningful discussion about it. Therefore, I do not entirely follow what the hon. and learned Gentleman advocated. We have made it clear that we reject the concept of a statutory prices and incomes policy. The Labour Government demonstrated very clearly that the control of wages and prices by legislation would not work. We were subjected to a declaration of intent, seven White Papers, three Acts of Parliament, numerous statutory orders and over 150 Reports of the Prices and Incomes Board, but we ended up with the worst inflation ever. The hon. Member for Liverpool, Walton (Mr. Heffer) will agree that the policy was grossly unfair, and I do not believe that it is one which we should adopt.
      Nevertheless, I do not believe that demand management in itself is enough. It is for that reason that the Government are pursuing the policy of a progressive
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      and substantial reduction in the level of pay settlements to achieve steadier prices. If Labour hon. Members want to call that a prices and incomes policy, they can do so, though I prefer to look at it as part of a much broader anti-inflation policy.
      It is important to relate the position we have taken on de-escalation of wage claims to the use of the regulator. It is clear that the present cost inflation stems from the devaluation in November, 1967, which increased import prices, and the subsequent increase in indirect taxation and so on in the Budget in April, 1968, and the further political events, of which we are all aware, leading up to the General Election. But we have no doubt that the cause of the present inflation is inflationary wage settlements. We have only to look at the figures of increasing costs and prices to see very clearly that this is so. We believe that we have had some success in our de-escalation policy, but clearly we have further to go. It is only if we pursue that policy that we can hope to overcome the paradoxical situation with which we are confronted. Therefore, we would hope to have had the support of Labour hon. Members in achieving that aim. It is remarkable that they have not supported us in this policy, even though I believe that it is the only one that is likely to achieve success. We must combine the policy of de-escalation with a responsible demand management policy.
      Mr. John Pardoe: The hon. Gentleman has said several times in the last few minutes that the Government are pursuing a policy of de-escalation of wage increases, and he has implied that it is succeeding. Will he spell out clearly why he thinks that it has been successful? What evidence has he that it has achieved any particle of success? How does he intend to increase its success in the future?
      Mr. Higgins: The answer is fairly apparent. The hon. Gentleman has only to follow the trend of a succession of Settlements, particularly in the public sector. The hon. and learned Member for Lincoln referred to the massive disparities between the two sectors. There have been cases which have hit the headlines where the increase in the private sector has been very large. I am not sure whether the hon. and learned Gentleman

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      thought that that was a good or bad thing, but I do not believe that that is generally the case. We have seen a considerable decrease, if we take the generality of cases rather than those which hit the headlines. But I do not dispute that we have further to go, and it is very important that we should persist with the policy we have adopted so far. I believe that it will be successful.
      Mr. Norman Pentland: The hon. Gentleman repeats that the level of wage increases is coming down. The Prime Minister, the Chancellor and other members of the Government have said in recent weeks that because of high wage demands causing wage-cost problems, unemployment has increased to its highest level for over 30 years. Why is unemployment not coming down now, instead of increasing?
      Mr. Higgins: There are a very large number of reasons which my right hon. Friend the Chancellor has given. The first is that naturally if we have inflationary wage settlements we become less competitive in export markets. That means that we do not sell as much, and employment in exporting industries therefore tends to decline. Second, conversely, to the extent that there are inflationary increases in industries competing with imports, those industries become less competitive and again employment in them tends to decline. Third, as I think the hon. and learned Member for Lincoln actually said, if we have big increases in wage costs relative to other costs, firms tend to economise. This tends to reduce employment opportunities and squeeze companies' cash flow, and in the longer term to reduce the level of investment, and thereby reduce long-run employment opportunities as well. Therefore, I see no difficulty in answering the hon. Gentleman's question. It is a shame that Labour hon. Members are not supporting the view I have just put forward, because if we really want to solve the problems we are facing it is in everyone's interest—certainly if we want a higher level of sustainable economic growth and a higher level of employment —to get the level of inflationary settlements down so that real wages can be raised for the benefit of the community as a whole.
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      The Amendments should be rejected, though the reason for rejecting the first is very different from the reason for rejecting the second. The first suggests that instead of being renewed for the normal length of time the regulator should be renewed only until February. The second is concerned with altering the rate by which the regulator can be operated. We should reject the first Amendment because it would severely curtail the powers the Chancellor has had ever since 1961 to alter the purchase tax rates and carry them through if necessary thereafter to the following Budget. If we accepted the Amendment, it would not only mean that we could not take action after February, but, as I understand the position, it would also mean that if we took action between now and then it would be reversed between February and the Budget. That would be a very strange situation. It might enable us to make the next Budget look more attractive on the surface, but it would be a very odd situation. Therefore, it is right that the House should follow the practice it has followed since 1961, and give the Chancellor the powers which successive Chancellors have had as to the timing of the regulator.
      The second Amendment leaves the power to increase the regulator at 10 per cent. but increases the amount by which it may be reduced from 10 per cent. to 15 per cent. The precise reasons for this were perhaps implicit rather than explicit in which the hon. and learned Gentleman said. There is already probably some bias in the regulator in the direction sought by the hon. Member for Ashton-under-Lyne (Mr. Sheldon), who has moved similar Amendments on a previous occasion. The bias is in that direction anyway because it is estimated that a 10 per cent. surcharge would yield about£325 million additional revenue in a full year, whereas a 10 per cent. rebate would reduce the revenue by about£375 million in a full year, because of the expected differences in the elasticity of demand. Therefore, there is already some asymetrical effect in the operation of the regulator.
      The power given to the Government by the Clause is already very substantial. As I have said, it is between£325 million and£375 million. That being so, this is a reasonable request for the Chancellor to make. We think that it

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      would be excessive to increase that power further. It is essentially a question of not limiting the Government's freedom too much and on the other hand making the Government fully responsible to Parliament. It is perhaps paradoxical that I should suggest that if the Amendment is pressed to a Division we should reject it. But I believe that in these circumstances the powers for which we are asking in the Clause are adequate. If by any chance they should prove not to be so, I believe that the Committee will agree that it would be right and proper that we should make whatever proposals are necessary for more dramatic changes. But our present view is that the regulator powers for which we are asking in the Clause are adequate. They have been granted to successive Chancellors. Therefore, I hope that the Committee will feel able to renew the powers and will reject both Amendments—the Amendment on timing because it would curtail the powers too far, and the Amendment on the rate because it would extend them too far in the other direction.
      Mr. John Nott: On a point of order, Sir Robert. I felt rather strongly on the lack of opportunity for backbenchers to express their views about part of the Bill being divided and remaining on the Floor of the House and part going to Committee upstairs. That is history now, and I do not wish to raise the matter again, but what will be the position if we have four Front Bench speeches on each Amendment? Is it normal for there to be four Front Bench speeches on Amendments taken on the Floor? There will not be much opportunity for back benchers to have a say on the Bill if we proceed as we are proceeding this afternoon.
      The Chancellor of the Exchequer (Mr. Anthony Barber): May I help my hon. Friend and the Committee? In this debate it seemed to me right that I should be available to deal with any points which were not necessarily covered by what has just been said by my hon. Friend the Minister of State. It was not my intention to depart from the normal practice on these occasions, which is for one Minister to deal with a matter comprehensively and for another to be available if necessary, or in some cases for the same Minister to speak again and deal with
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      any points that have arisen. I take the point, and I know the views of the hon. and learned Member for Lincoln (Mr. Taverne) on time. A great deal of time can be taken up by Front Bench speakers, and sometimes it is sheer duplication.
      4.45 p.m.
      The Chairman: None of these is a point of order for me, but I can assure the Committee, following what has been said by the Chancellor of the Exchequer, that there will be an abundance of opportunity for everybody to make their speeches as we go along.
      Mr. Bruce-Gardyne: Further to that point of order, Sir Robert. Could you also give us guidance as to your intentions? Is it your intention that, having debated the Amendments, we should then have a further debate on the Question, That the Clause stand part of the Bill?
      The Chairman: That is a matter about which the Chair is always reluctant to commit itself in the early stages of a debate. I reserve judgment on that point until the time comes. The hon. Gentleman, with his experience, will know what is the usual procedure adopted by the Chair.
      Mr. Sheldon: The position of the regulator debate is now firmly established and it would not be irrelevant to point out how recent a tradition this is. I remember in the debates on the 1965 Finance Bill having difficulty with the Chair, as reported throughout a column and a half of HANSARD, when all I was trying to do was to point to alternatives to the regulator, so narrowly was the matter then interpreted. We have seen that this has subsequently been expanded to a whole debate on the economic matters which are before us. I do not quarrel with that situation, but welcome it.
      I also welcome the fact that we have another new tradition, namely, that of a wide-ranging debate on Third Reading, a tradition, which I hope likewise will become firmly established. Certainly the economic matters which have been before us over past decades have not diminished and the opportunities for discussing them need to be extended. That these traditions have been created is a tribute to the way in which we run our affairs.
      My Amendment deals with the problem of the regulator and how it can be used.

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      In fact, the regulator downwards has been surprisingly rarely used. It has always been increased to take into account the worsening economic situation as it develops in the months following the Budget and my Amendment seeks at least to draw attention to the way in which it ought to be used, particularly at present.
      My hon. Friend the Member for Heywood and Royton (Mr. Barnett) and I have put down Amendments of this kind over past years. The point is that we want to make it easier for the Chancellor of the Exchequer to inject some money into the economy when he thinks fit. The pity is that Chancellors have rarely thought of injecting such money, but instead have decided to pursue rather more restrictionist policies than I would have wished to see.
      We now have for the first time a real and widespread acceptance of the need for a rather greater expansion of demand than has been the case in previous years. As a result I hope that the Chancellor, even though the power to reduce purchase tax and Customs and Excise duties by 15 per cent. might not be accepted by the Committee, will use the powers he has more than in the past.
      The reason is that for the first time since the war the present Government are making use of the one economic weapon which Governments have forborne to use over the past 30 years. The great thing that has happened in the past year in economic terms is the decision by the Government to make use of one economic regulator which has been spurned by all post-war Governments: namely, the regulation of the economy through the increase in unemployment. For various reasons, largely historical and also because some Conservative Ministers remembered too well the problems which were associated with tying the Conservative Party to the spectre of unemployment, this has been a weapon which has not been used by Governments up until this year. What we have now seen is the full-blooded, professional use of unemployment as a new economic regulator which is a matter of massive economic and social importance. Its social importance is obvious to all.
      The way in which this new regulator has come to be used must be seen in
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      its social implications. I believe that there are few pure economic laws as such, but there are a great many more social laws upon which many of these economic laws depend. One of the strongest of the social laws is the law of fear. What we are trying to do is to base an economic assessment of the situation on an economic law which rests on the fear of people for their jobs. The whole economic argument for unemployment is that there can be a de-escalation of wages. This is possible if as a result of fear people are prepared to settle for a wage claim less than that which they require because they are frightened of their jobs; because they know full well that if as a result of an excessive wage claim they were to lose their job, another job would be much harder to find.
      In my advice bureau in my constituency this weekend I have seen, as no doubt have many other hon. Members, many people who have come to tell me about fear for their jobs. They have not been made redundant, but they are frightened of redundancy because they know that it is in their area. My area is not one with a particular problem of this kind. It is near to the steel closures, but we are not affected as greatly as were many other areas. Certainly one-fifth of the people who come to see me in my surgery feared for their employment. I have never experienced this before, and it made me realise what my predecessors in the constituency had to face when they had difficult employment problems during the 1930s.
      We are seeing this prime economic weapon used for the first time in a sophisticated way. In the past, there was the pre-Keynesian idea that extra wage demands led to inflation, but I thought that that had been pretty well demolished. Therefore, I am surprised at the Minister of State using an argument which would not have been very respectable in the context of the 1930s, and is far less respectable today. The hon. Gentleman said that wage demands led to unemployment. He well knows the opportunities given by the use of demand management, but many other factors are concerned and it is an over-simplification to say, as might have been said in the 1920s or 1930s, or much more likely in the 19th century, that our problems

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      are caused because workers are asking for too much money.
      Any economic theory which is based on this assessment, which is so hopelessly out of date, is doomed to failure. Those who try to blame the workers for being bloody-minded because they do not obey economic theories postulated by right hon. Gentlemen opposite fail to appreciate what is going on. These so-called "bloody-minded workers" are rather different from the workers in the 1930s and before.
      These are people who will not acquiesce in the same way as did some of their predecessors. They will want tighter and tighter trade unions and will insist on getting whatever is available. One prominent trade unionist said that if there is to be a free-for-all, his union wanted to be part of "the all". Those in the Tory Party who worked hard in the 1950s, and all credit to them, to break down rigid attitudes will see their efforts bitterly disappointed because of the steps taken by the present Administration in an attempt to revert to what for so long have been abandoned policies.
      [Mr. GEORGE WALLACE in the Chair]
      Captain Walter Elliot: I am following the hon. Gentleman's argument with interest. If he holds this view, why did his right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) when Chancellor of the Exchequer say that the most the country could afford was a maximum of 4 per cent. increase in wages—between ½and 4 per cent.?
      Mr. Sheldon: We were then facing balance of payments difficulties and a reluctance, which I did not share, to make adjustments to the exchange rate. In fairness to his present Administration, one prominent Minister has made this point and it is the only respectable point that can be made about wage demands leading to inflation. That Minister is the Secretary of State for Employment who, in the winding up speech on the unemployment debate recently, said that inflation would cause balance of payments difficulties and if one accepts that the exchange rate is fixed then that, in turn, will cause unemployment. But it depends on rigid exchange rates which he did not
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      spell out, but which the House will accept as an essential part of his argument. It is a respectable argument if one accepts the conditions which the right hon. Gentleman laid down. It is interesting to note that not once in that speech did he refer to what I would call the intellectually dishonest argument of wage demands being the natural cause of inflation.
      We have had what has been called the numbers game. In the past few weeks various hon. Members, including myself, have tried to assess at what moment the Government will intervene to reduce unemployment. What are the numbers concerned? Many of us have had suspicions that the figure might be allowed to reach the 1 million mark. It would be the first time that that figure has been reached since the early days of the war. However, we have asked this question to no avail since we have had no answer as to the number. The Government must know, and at some stage their nerve will crack. The interesting thing is to know when it will crack and what they will do about it.
      Whatever right hon. Gentlemen opposite, and indeed the Prime Minister, may say about unemployment being nothing to do with the Government and that they will merely sit back and watch the trade unions fight it out with the employers, while the Government stand idly by, nobody really believes that to be the case and certainly the electorate will not believe it. When it comes to the next election it will he no good pretending that unemployment is nothing to do with the Government. The electorate will know that it is to do with the Government, and will vote accordingly.
      What will the Government do? If they are to be held responsible, they must acquire the power. This is one of the cardinal lessons that was learned in the election of 1959, namely, that if it is claimed that the country has never had it so good and that that is the result of Government action, then when the country has it bad, the country knows whom to blame. The country will not praise the Government one moment and forget about them the next. If they are held to be worthy of praise, they will also be held to be worthy of blame. This is a political fact which we have all absorbed thoroughly.

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      It is interesting to see what the Economist said about wage demands on 24th April:
      "It has thus become impossible to say with honesty that the Government's anti-inflation policy is succeeding. When Ministers go on pretending that it is succeeding, they are trying to fool the public—and may be succeeding in fooling themselves. Sooner or later, an incomes policy is going to have to be brought into being. Ministers prefer not to believe that yet."
      5.0 p.m.
      An interesting point was in a comment from the Minister of State who said that there was some doubt as to what we mean by an incomes policy. I do not know whether that was the first cuckoo of doubt, the harbinger of the creation of this grey area, and perhaps it is out of this that a policy will emerge. It is not what right hon. Gentlemen opposite, speaking on behalf of the Government, were saying before. This change in attitude that will come from the Front Bench opposite will be studied word by word by many right hon. Gentlemen on this side of the Committee. The change will come. The interesting questions are, when and in what form?
      What are the Government doing about the levels of growth meanwhile? The intervention I made in the speech of the Minister of State was not perhaps a suitable method of putting an argument across, and I should like to expand on that now. At present we know that the policy of the Government is that the economy should grow at the rate of its productive potential. What does that mean? It means that if we assume certain productivity increases in industry of such and such a per cent., we can say that that is the underlying growth of the economy and we will match demand in accordance with the underlying real growth. One is a genuine growth, the improvement in the weighing of our productive processes, and the other is the way in which Government manages the economy to go roughly hand in hand.
      How do they define this productive potential? It is done by saying, "If there were no extra goods produced what would be the increase in unemployment?" Presumably people would not want labour; they would then fire their people and the increase in unemployment would be a measure of the underlying in-
      240
      crease in productivity. That is a measure, and, to be academic, it is very good. It sounds perfectly logical, and there is some case for it. The difficulty is that although it is much more easily calculated than any other method, it takes a static situation into account—it says that there will be no effort by Government to improve productivity, the Government will not be involved in increasing production.
      It is only when we consider the alternatives that we see how inadequate such a policy is. We can turn from the vicious cycle on which the Government are engaged to the virtuous one of increasing demand, bringing pressure of demand upon our factories, bringing pressure of demand to lead to an increase in inventiveness, a reduction in unit costs and the increase in sales that comes from this. This is the path being followed by most of the expanding economies of the world today but it is the one that the Government reject. Instead, they prefer to sit back with this vicious cycle of unemployment leading to a lack of productive increase as measured by the productive potential. This ought to be changed. One of the things that many of us hoped for when Iain Macleod came on the scene was that there would be a change because he accepted some of these arguments of growth. One great disappointment that what we had was a reversion to some of the static policies of the past.
      We know that the situation has changed fundamentally in the last few days by the mark revaluation and the revaluation of other currencies. This has been estimated as putting somewhere between£100 million and£140 million on our balance of payments. Taking the respectable argument used by the Secretary of State for Employment, that means that we can expand by a number of times the balance of payments surplus that will arise directly out of these currency revaluations. That means that we can expand not only by£130 million or£140 million but several times that. That is the new factor. If we take Sam Brittan's argument that the increase in retail prices may be only 0·1 per cent. or 0·2 per cent., that is not a figure that should inhibit us with our inflationary rates of retail price increases of 8 per cent. to 9 per cent.

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      There is the strongest possible case for using the regulator. If we do not, we must not be surprised if we see bankruptcies rising even higher. One of the interesting figures was that in the last quarter of 1970 insolvencies were at their highest level for ten years. If there are certain economic disadvantages with which we are associated, there is one thing with which the Tory Party has always been associated, and that is insolvency. With Rolls-Royce and these other matters no one will stick his neck out and say when the end is in sight.
      My hon. and learned Friend the Member for Lincoln (Mr. Taverne), mentioned capital investments. One item of great significance, and even more depressing than other figures, is the figure given by the Machine Tools Trade Association showing that the level of new orders in the United Kingdom for machine tools in the last quarter of 1970 was 42 per cent. less than it was in the first quarter of 1969. To me, machine tools represent the very heart of industrial progress. This the best indicator of the kind of industrial Britain that I hope to see. Instead of progress, there is this massive decline in the figures.
      No one opposite can look forward with any confidence after the kind of Budget that we have had and the kind of Finance Bill that has succeeded that Budget, coupled with the kind of policy still being pursued by the Government. The only thing we can say to the Government is: "You have the regulator, we are giving you greater powers to make use of it in a more expansionary way, and any restrictionist attitude cannot be blamed upon this side. For God's sake use the measures we have given you."
      Mr. Nott: Before dealing with the main burden of my speech may I assure the Chancellor that, in spite of my earlier point of order, I am delighted that he and the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) will be winding up the debate. It has been particularly difficult to speak on economic debates in this Parliament. The Budget debate was heavily over-subscribed and I could not get in on the Second Reading of the Finance Bill. In addition we have not had an opportunity as back benchers to discuss the division of the Finance Bill. Altogether it has been rather a frustrating time.
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      Since we have been passing through a rather stirring economic period, I hope my right hon. Friend will understand the points of order that I have been raising over the last week or so, particularly as my speech will be of a slightly candid nature and I know there is nothing worse than a candid friend.
      The debate on the regulator, while it is a rather and topic, has always given the Committee the opportunity of a fairly wide-ranging debate on the health of the nation. By pure coincidence and somewhat ironically, it takes place today while our nation's economic destiny is being discussed—one might almost say auctioned—in the corridors of Brussels. At the heart of this debate must lie the outcome of the next 10 days of British history which in my view will be decided not on economic, but strictly on political grounds, and rightly so. Nevertheless, the consequences of a positive or negative outcome or even worse, no outcome of any sort at all is likely to have such far-reaching economic consequences for the nation and the future of demand management that I cannot leave them entirely out of the debate.
      As I want to say some critical things about the Common Market—I shall relate this wholly to the regulator—I should make it clear that I always used to be a supporter of our entry on political, not economic grounds—grounds admirably expounded by the right hon. Member for Stechford in The Times yesterday If, however, the economic obligations are so great in the transitional period as seriously to restrict our growth in the intermediate term and the currency rules so rigid as to prevent us operating to secure our national survival from accelerating world inflation, I shall have to look very carefully indeed at the terms since they could involve serious political consequences for this country during the next few years.
      Since the war British economic policy has set itself four prime objectives, all of which taken together are believed to increase the real wealth of the British nation. Those objectives I could list as a full employment target, a balance of payments target, an incomes policy or an incomes growth target, and an economic growth target.

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      I shall not, although I am tempted to do so, embark on the question of whether more rapid economic growth will enhance or detract from the quality of life. That is a subject on which the right hon. Member for Stechford talks fairly frequently. Suffice it to say that I find it interesting, when referring to economic growth, that more and more Americans, inhabitants of the richest country in the Western world, should want to come to live in this country which, according to certain statistics, is rapidly becoming the poorest. I also find it interesting that the British people, who apparently are aware that real wealth is increasing extremely faster than here in the Common Market countries apparently wish to stay outside. I should be foolish to seek the answer to this question, because it would require a judgment whether the British people were not rather more sophisticated than their politicians, and that might lead me into all kinds of trouble with the Committee of Privileges, my right hon. Friends, and others.
      Like Mr. Joe Rogaly of the Financial Times I sometimes wonder whether the economists are not a little misguided. Is the level of our growth, tuned here and there by the regulator, not increasingly becoming an exaggerated issue? Should we not be more interested, as was said the other day, in how many people are healthy, sane and active rather than how many hospitals we are building? Should we not be rather more interested in how many people are properly, not improperly, educated than in how many more schools we are constructing, and whether those who possess a home find it comfortable and nice to live in rather than whether we are building more homes?
      I cannot deal in this debate with economic growth and the growth target, but I have some scepticism on how we measure the real wealth of the nation. I recognise that steady economic growth is desirable for all the material benefits which it brings, but whether any so-called dynamic effects, assuming that we will achieve them if we enter the E.E.C., will materially improve the quality of life in Great Britain seems to me an open question and certainly it is not the issue which
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      should decide our entry into the Common Market.
      That was certainly in order, but perhaps not very closely related to the regulator. I come now perhaps more closely to the economics of the matter—namely, incomes policy, balance of payments and full employment, which are all very much related to the level of demand.
      I believe that the period of Labour Government, the so-called Socialist experiment of 1965 to 1969, was a total, abject failure because it relied, in order to reconcile the objectives which I have outlined, on internal demand management through fiscal methods, coupled with an incomes policy, which failed to work, and a fixed exchange rate which, by force of circumstances, the Socialist Government abandoned.
      Had we had a truly Socialist policy of demand management by fiscal means coupled with rigid import licences, or some variant of the same, and a fixed rate of exchange, all operating in a truly Socialist environment where there was a consensus on what constituted a fair system of pay differentials on a national scale, then the Socialist policy might have worked. As it is, I think that it showed up the total fallacy of an incomes policy, because even a Socialist Administration, financed by the trades unions and heavily represented in the House of Commons, was palpably unable to create a social consensus on what constituted a fair system of wage differentials on a national scale.
      5.15 p.m.
      I have noted the recent study by the Department of Employment. If one discounts its partiality and what I believe to be many erroneous facts, it is still admitted that the effects of an incomes policy can only be temporary and nothing more.
      If anyone wishes to read some really good arguments against an incomes policy he should pick up Professor Clegg's recent book and start at the end and work backwards. The last chapter is entitled, "Will the unions co-operate?" Professor Clegg lists a whole series of reasons why they will not. But then, by a great act of faith—he has great faith in incomes policy—he gives the answer: yes, they will. I thought that

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      the arguments led me to precisely the opposite conclusion.
      Looking back over the past 10 years, it is true that all Chancellors have given top priority to stimulating exports and private business investment. But since, in conditions of exceptionally buoyant world trade, our share of world exports, except for the odd hiccup or two immediately following devaluation, has consistently fallen, it is evident that every Chancellor has failed.
      Efforts have been made by every Government to restrain consumption and Government expenditure in order to release resources for private investment. But, despite all the efforts which have been made by Chancellors of every party, it is ironic that in every downturn of the trade cycle private investment has taken the biggest knock. At no time has it been more evident than now.
      I have complete confidence in the determination of the new Administration to tackle Great Britain's problems, and I think that they have started well. But nothing can remove the evidence—the hon. and learned Member for Lincoln (Mr. Taverne) listed many of the points—of very unsatisfactory export figures, buoyed up by the terms of trade, rising imports, static fixed investment, growing consumer spending and what looks to me like rising Government expenditure as well. I should be a liar, or anyhow a sycophant, if I were to say that I thought that the figures showed anything else.
      I should, in passing, mention Government expenditure. The Government were to be congratulated in the mini-Budget for financing many of their tax reductions by increasing charges. This was a welcome change which has increased the citizen's freedom of choice. I applaud the whole exercise. It was extremely well done. But if Government expenditure were to be defined in a meaningful way instead of by the so-called Treasury definition—namely, as that proportion of the national output which is devoted to collective rather than to private purchases —I believe that it must now be rising very fast. Indeed, in the last three months it has looked to me to be getting out of control in relation to the recently published White Paper.
      I must repeat that the items of Government expenditure which matter are
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      not transfer payments like family allowances, pensions and school milk and meals, which, however financed, are part of private purchases, but items like Rolls-Royce and Concorde and tribute to the Common Market's peasants. These are items which come out of the real resources of the British nation.
      Our predicament is clear. More than in any other European country, the level and growth of effective demand in Great Britain is decided by the share which exports take up out of our total productive capacity and the amount which imports represent of our total consumption. It seems clear that, in a capitalist economy, private investment—this is the problem which everyone mentions—is demand-induced, and it will remain so.
      The Secretary of State for Trade and Industry can pour money endlessly down the throats of private industry in tax allowances, grants and subsidies, but, in the last resort, private investment in industry is demand-induced, and allowances and grants and even interest rates are a marginal matter. They can be important, but they are not the critical determinant in private investment.
      Mr. Tam Dalyell: Is one right in understanding the hon. Gentleman to say that he would have left Rolls-Royce to stew in its own juice?
      Mr. Nott: I do not want to get drawn into a debate of the RB.211—
      Mr. Dalyell: That is exactly what the hon. Gentleman said.
      Mr. Nott: It is not what I said at all, but it is a different subject, which I am not debating now.
      The difficulty is—this is my critical point on the regulator and where I totally disagree with the Labour Amendments—that any release of consumer demand at present will create an immediate demand for imports, long before that demand works its way through, by higher investment, into greater capacity for our exports.
      Mr. Dick Douglas: The hon. Member is presenting, to me at least, a peculiar argument. He has argued that investment is demand induced. Now he is saying that, if we did something about the regulator, we should have a surge of imports. Is

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      he now saying that the demand induced in investment in the domestic economy should be going to exports, the potential for international markets, and that private industry in this country is deficient in that respect?
      Mr. Nott: That is what I am going to say, but I have not got there yet.
      Any release of consumer demand through the use of the regulator—the Labour Party are talking about moving it not upwards but downwards, because they are expansionists—will release an immediate demand in imports long before that demand creates higher investment in British industry to create additional capacity for exports. Here I confess my own failure. I arrived at the truth rather late and at the same wrong time as Professor Schiller. Until six months ago, I did not believe in floating rates of exchange. I came to advocate them as the only remedy to stop the appalling rate of domestic inflation in this country, which we will increasingly suffer from the dollar deficit.
      In my last speech on the economy, on 18th February, I concluded with a warnning which has come true in a way which I never anticipated—that, with the dollar deficit as it is, and the inflationary effects which would come upon our economy, we would run into serious difficulties. Now, as a result of the last weekend, the position is even worse for us, because the pressure now in terms of the dollar deficit is far more upon sterling than it was before the revaluation of the European currencies.
      I remember the smile on the face of the tiger—if I may refer to the Chancellor as a tiger—when I mentioned my conversation to him. It was hard to discern whether it was inspired by pity for the fact that a lamb had fallen prey to the ravishing intellect of my right hon. Friend the member for Wolverhampton, South West (Mr. Powell) or whether he really felt, paternalistically of course, that I did not know or realise how he was hemmed in by the negotiations for the Common Market.
      Of course I appreciate that no member of the Government or even of the Labour Party Front Bench can properly discuss exchange rate policy while the Common
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      Market negotiations are going on, but it is the prerogative of the backbenchers to discuss things which need to be discussed and leave it to the Front Benches to say, as the Chancellor does, that he will go "as far and as fast" on Werner as everybody else and give important assurances about the immutability of our parity in Copenhagen. I understand some of the facts of political life and I know that he cannot answer any of the points which I am making, but since he will not be able to resist the economic facts of life for ever on exchange rate policy, I must make these points just the same.
      If the regulator is used at present to lower taxes, it will lead to a rapid deterioration in the balance of payments, because the growth of imports will always tend to lead to growth of exports, and exports will follow the growth of productive capacity rather than lead it. This is our problem.
      I am convinced that Bretton Woods is wholly out of date. It may have made some sense and it has served us well for many years, but, with the growth of a truly international currency market—the Eurodollar market—it is palpably incapable of preventing huge currency flows, and the speculators—or, to be more accurate, the large multi-national companies which are conducting their business and increasing the real wealth of the Western world perfectly legitimately—can now bring national currencies down, and they will continue doing so. May we be preserved from Lord Balogh and all his ways, because he suggests that the only way to control this is by controls on the Eurodollar market, which would be disastrous.
      There are only two ways out of this predicament. The first is the "break or bust" school, of which the original mentor was my right hon. Friend the Member for Barnet (Mr. Maudling) who now has many followers on the Labour Party Front Bench; the hon. Member for Heywood and Royton (Mr. Barnett), the right hon. Member for Manchester, Cheetham (Mr. Harold Lever) and the hon. and learned Member for Lincoln (Mr. Taverne) all now follow that philosophy although they also complain about the balance of payments deficit which they inherited in 1964. I should have thought that, with a fixed exchange rate and even a balance of payments surplus of£600

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      million—our balance of payments surplus is not that strong—we would fail again, because the time lag before our capacity for greater exports was built up would be too great.
      So the only second way out of the predicament, I believe, is to float the pound. The weekend's devaluation of the pound and the dollar against the European currencies will flood us with as many dollars as flooded Frankfurt. It may not happen immediately, but we will have the same problem. It will have very damaging results on internal price levels in this country.
      Cost inflation is a serious problem. However, even if the Chancellor's policy of de-escalation—I am not sure what its correct name is in the current jargon, something "minus one" is the term I believe—is wholly successful—and it is to be hoped that he gets wage settlements down to the same level as the growth in production—the problem of internal domestic inflation will still not be solved while the dollar deficit continues at its present level.
      5.30 p.m.
      If the Chancellor and his Treasury colleagues can produce the outstanding tax reforms in this Budget and, more important, if they have the dedication and perseverance to get them through the Inland Revenue and Civil Service—which hon. Gentlemen opposite never had, although they shared many of the objectives which my right hon. Friend achieved in his Budget—then they will be equally capable of radical thinking in demand management.
      A reduction of taxes by use of the regulator will not overcome or solve the problem. There is no radicalism in the regulator. It is an old-fashioned and out-of-date weapon which I hope will never be used again to release personal consumption. We do not want consumption-led growth in Britain, but export-led growth coupled with an ending of inflation.
      I am convinced that our Common Market priorities are paramount now. I understand the problems completely, but these negotiations must be out of the way, one way or the other, by the end of June. [Interruption,] I have not said whether I am for or against the Common Market in these remarks; Werner is an economic nightmare
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      although the right hon. Member for Stechford thinks it is a happy dream.
      The right hon. Member for Stechford has a great European ideal, but I must not be led into a discussion of the Common Market, except to say that the right hon. Gentleman foresees a Europe rather as it was in the Middle Ages, with Norwich, Dijon, Lyons and Winchester as great, prosperous cities paying their tribute not to the Mother Church in Rome but to the bureaucracy in Brussels. It is indeed a high ideal. I do not share it, but I understand it.
      I believe in a Common Market of nation States. As we have had a traumatic weekend, with the common agricultural policy having, I hope, been knocked on the head once and for all, and the idea of a monetary union having been put back for ever, things look happier.
      I appreciate that the Chancellor cannot answer many of my questions. I hope, nevertheless, that he has noted my remarks and that I have not been too critical of the Government.
      Mr. Eric S. Heffer: When we discuss industrial relations I frequently see hon. Gentlemen opposite wander into the Chamber, sit down for a few moments, look around in a perplexed way and then wander out again. I feel like doing the same in this debate, for this is a complicated matter and there has been some learned and witty discourse.
      Previous speakers have given their views on what should be done to solve the financial problems that face Britain and Europe. I will not follow that path. I have always believed that one should concentrate on those things about which one knows most. However, there are certain matters on which the Government should be challenged.
      The Minister of State repeated the statement that is frequently made in the House from the Treasury Bench, particularly during Questions to the Prime Minister and the Chancellor of the Exchequer that wage inflation is leading to high levels of unemployment and that, at all costs, we must de-escalate wages. The de-escalating of wages has become the latest demand. I cannot call it the latest panacea, because it is not a new idea. The mill owners were probably the first in the field at the time of the Industrial Revolution to claim that all the problems of the

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      economy would vanish if only the dreadful workers would not insist on higher wages. That same argument is being used today, but in a modern context—that if only the workers would be happy and content with what they are getting, or perhaps a little less, all our problems would be solved.
      The hon. Member for St. Ives (Mr. Nott) pointed out the fallacy of this argument and the fact that other factors must be taken into account if our problems are to be solved, and these factors have nothing to do with workers' wages. Of course, the Government are hoping that if they use the descaltion argument often enough, sufficient people will eventually believe it. It is, in other words, a red herring which the Government hope will divert attention from their failure to deal with rising unemployment, the lack of investment and all the other ills.
      It is time that this de-escalation of wages argument was pinned once and for all. After all, we have never been given evidence to show that rising wage levels result in economic difficulties and unemployment. Indeed, hon. Gentlemen opposite are even using the de-escalation argument in connection with the balance of payments. When the Labour Party were in power we heard a lot about the balance of payments. But now hon. Gentlemen opposite are fusing the two arguments and are hoping thereby to have a red herring which will draw attention away from their failure in many respects.
      I recall that at Question Time the other day the Minister of State for Employment used the classic argument—if I can dignify it with the word "classic" —about the need for a satisfactory balance of payments, but he used it in a totally different context. Today the Minister of State said that higher wage levels would suck in imports. I would not worry too much about the balance of payments just now. We have a surplus and we need not retain a gigantic one. Perhaps it would not be a bad idea to lose some of this enormous surplus.
      Mr. Peter Rost: What about the overseas debt?
      Mr. Heffer: The arguments that hon. Gentlemen opposite use in this context are incredible.
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      I agree with the removal of purchase tax on some items. I also agree that we should increase the general demand to reflate the economy. I am not even about to give a list of purchase taxes which could be removed. But some should be removed. This is a serious proposition which ought to be examined.
      No one has satisfactorily answered the whole question of a wages policy. I have also been looking at Professor Clegg's book, but I have not yet finished reading it. It is regrettable that I did not start at the end and work through to the beginning.
      There are three ways in which the question of incomes can be tackled. First, there is a way which we have never tried but which the Labour Party, before 1964, actually advocated. That was known as the "planned growth in incomes". What began as a planned growth in incomes ended as a sort of freeze of incomes, and holding incomes down. But with a planned growth in incomes one also has to have a greater measure of control of the economy as a whole. I am glad to see that I am taking the hon. Member for Oswestry (Mr. Biffen) with me on this. He may totally disagree with it, but he sees the logic of my argument. We have to get back to the concept of a planned growth in incomes and to the logic of that, but at the same time we must have an extension of economic controls throughout the whole of our economy. If that is done, we can really begin to deal with the problem of incomes in this sense.
      Another way of dealing with incomes is the statutory incomes policy, which the Labour Government had, based upon the concept of the "norm". I can remember saying in the House that this was an absolutely fantastic argument. If a man earns£150 a week and receives an increase of 2½per cent., that is not bad. But for a man earning£8 10s. a week who has an increase of 2½per cent., that is terrible. We cannot have an incomes policy based upon this type of norm. It is not fair and it does not deal with the lower-paid worker. I have heard the argument that we should say to draughtsmen, for instance, who are amongst the higher-paid sections of engineering workers, "This year, do not ask for an increase because we intend to

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      give an increase to farm workers." That would be very laudable if it worked in practice. But the draughtsmen know that if they do not ask for an increase, that does not mean that there is less profit in engineering, or that the profits are being put into the farming industry to help raise the level of farm workers' wages. Under our system it does not work out. They do not gain anything by not asking for higher wages because the sums of money involved are not there. It is not done like that. I am not saying that it could not be done. It could be done with the planned growth in incomes of which I have spoken. It means also the extension of planning and controls in other directions.
      We did not do that in six years of Labour Government. Unfortunately, we did two things: we partially had an incomes policy based on the norm; and —I disagree with my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), although I do not think that he would disagree with me—we partially used unemployment also. There is no question about that. I remember very well the arguments in the House. I remember pointing out that I did not accept the theory that the development areas should have their unemployment lowered and that other areas, such as Birmingham, should allow unemployment to increase until we had a sort of overall acceptable limit of 500,000 unemployed. I did not believe it then and I do not believe it now. I know that my hon. Friend the Member for Ashton-under-Lyne did not believe that, and he was being kind to the Front Bench. I am not being kind to anybody. I want a policy and I want us to learn some lessons from that period.
      The Labour Party have to return to a policy which they always pursued, from 1945 onwards, when our first demand, always, was for full employment. We always argued for that. That was written large, in huge letters, in all our manifestoes, except the last one. It will be in the next one as far as I am concerned. We on this side of the House should be absolutely dedicated to full employment.
      5.45 p.m.
      Hon. Gentlemen opposite have taken a somewhat different view about full employment. The third way of dealing
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      with the problem—and trying to keep wages down—is to allow unemployment to rise. That is what they are doing at present. They are using unemployment as an economic regulator. They are trying to pretend that this is not so, but they know that it is so. If they are not using it as an economic regulator—and the hon. Gentleman shakes his head—what are they doing about the problem? If they do not believe in it as a regulator, let them do something positive. That is possible in modern society. Keynes existed. He was an economist whom all of us, at one stage in our lives, have read. The regulators can be used in a different way, and not for unemployment. The hon. Gentleman really cannot get away with it.
      In this situation we have to do two essential things. First, there must be a general upturn in the economy, as proposed by the trade union congress. There must be a reduction in the levels of purchase tax to help in that direction. There must be greater investment. I was terribly scared at one stage during the speech of the hon. Member for St. Ives when it seemed that he would have allowed Rolls-Royce to go. He did not want Government expenditure of any kind in that direction. I should like to tell him—I reiterate what I said recently—that Cammell Laird's shipyard would not exist now had the Labour Government not intervened; now it is beginning to make a profit once again. In modern society we have to have Government intervention in a positive direction.
      We cannot believe that we can go back 200 years. We can do that only with utterly disastrous results. So the first thing is to see a general upturn in the economy by the measures which I have proposed.
      Second, the House must state again and again its complete conviction that, whatever we do, we shall bring in measures which will reduce unemployment. We must recognise that this is not just a wastful use of people but that its long-term effect on our economy can be tremendously harmful.
      Ever since the end of the war, Liverpool has had a pool of unemployment, and it is the residue of the pre-1940 days. The men who make up that pool have never been trained. They have never

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      had jobs. They represent resources which have never been used, and it is a crime in our society that this should be so. For that reason, whatever else we may do in this House and whatever party is in power, we must be dedicated to the idea of removing unemployment, which is one of the biggest curses ever.
      Mr. John Biffen: Like other speakers in this debate, the hon. Member for Liverpool, Walton (Mr. Heffer) used the occasion for a kind of economic tour d'horizon, In saying that, I hope that I am not anticipating any constitutional changes which may imply that French will have parity with English at some future date. As the hon. Member for Ashton-under-Lyne (Mr. Sheldon) said, it has become characteristic of this debate for the Committee to discuss the economy in general. I hope that I shall not cramp the style if I revert to what I intended to say originally by relating my argument to the use of the regulator.
      Before doing so, however, perhaps I might comment on one or two of the points made by the hon. Member for Walton. In respect of an incomes policy, I say only this before we become caught up in another kind of vortex of debate on the subject. The hon. Gentleman spoke a lot of good sense and gave the Committee his sound analysis that, for the control of incomes to have any meaning, it will have to be pervasive and statutory. I hope that he will communicate his views to his right hon. Friend the Leader of the Opposition, who looks as though he will go for the illusory and easy option that, somehow or other, given a few nods and winks, it can be worked out on a voluntary basis with the C.B.I. and the T.U.C.
      Then I wish to comment on the hon. Gentleman's reference to unemployment. I do not wish to engage in a debate on unemployment. But I do not think that the hon. Gentleman is right in asserting that it was a deliberate policy of the Labour Government to increase unemployment, any more than I accept the assertion of the hon. Member for Ashton-under-Lyne that my right hon. and hon. Friends are
      "…engaged in the professional use of unemployment."
      The rise in unemployment that we are witnessing is probably much more pro-
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      found and much less capable of that kind of analysis. I suspect that the task of understanding the phenomenon and then producing the best remedies is hindered rather than encouraged by the way in which we conduct some of this debate—
      Mr. R. B. Cant Mr. R. B. Cant (Stoke-on-Trent, Central) indicated assent,
      Mr. Biffen: I am glad to see that I have the support of the hon. Member for Stoke-on-Trent, Central (Mr. Cant).
      I shall not dwell on this point, because I want to talk about the regulator. However, in view of the remarks of the hon. Member for Walton, I felt that it was a fair observation to make.
      I come, then, to the speech of my hon. Friend the Member for St. Ives (Mr. Nott). I fear that he is showing signs of political infection. The virus of Powell-ism is spreading. He sounded Gaullist in his views of Europe as well as championing monetary controls and a floating exchange rate. My hon. Friend is treading in dangerous territory. It is most encouraging. There was a totality and credibility about his arguments which made very convincing listening, and he has put forward a case of substance which ultimately will have to be met and answered.
      The hon. Member for Ashton-under-Lyne has a claim on some of our affections for this debate. As he rightly said, he became involved in an "up and downer" with the Chair some years back, trying to widen the terms in which we could discuss the regulator. I was greatly struck by the hon. Gentleman's remarks two years ago in a debate on the same topic, when he said:
      "We must remember that although the regulator in theory provides for regulation down as well as up, the downward movement has never been used."—[OFFICIAL REPORT, Standing Committee F, 11th June, 1969; c. 27.]
      I take that as an oblique compliment to my right hon. and hon. Friends that we are discussing the regulator and taxation in circumstances in which it is thought that there can be reductions in taxation. I suppose that we should be charitable, enough to welcome it.
      Even so, I was pleased to hear my hon. Friend the Minister of State indicate that he would resist these Amendments. I put his mind at rest by saying at once

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      that I shall be an enthusiastic supporter of his in the Lobby. The reason is that I believe that our economic management is delicately balanced and that that balance would be moved in an unfortunate way if the regulator were used in a downward direction.
      I believe that it is still not sufficiently appreciated that, during the course of last year, what was expected to be a public sector surplus of£244 million turned out at a deficit, setting aside the distorting effect of the Post Office strike, of£357 million. That was a turn-round of something like£600 million and, incidentally, almost double what would be the full effect of the use of the regulator. In other words, the impact of the regulator would be peripheral compared with many features in the management of the economy unknown or unplanned by the Government.
      In that situation, my right hon. Friend the Chancellor of the Exchequer has proposed in his Budget a deficit on public sector spending, again discounting the slight distortion created by the postal strike, of£1,469 million. That is an increase in the public sector deficit of over£1,100 million.
      Those who are concerned with the monetary rôle in Government policy must be slightly concerned about how that increase in the deficit is to be financed. I accept the indication being given by my right hon. Friend that it need not have an effect upon Government monetary policy. But we should have to be charitable almost to the point of fault if there were not just a suspicion at the back of our minds that such an enormous increase in the deficit might lead to more relaxed monetary controls than might otherwise be the case.
      I say that because, if inflation continues, as it shows every sign of doing, that deficit will be a good deal larger than the planned figure of£1,469 million. My reason for arguing that is that the public sector is a very substantial employer of labour. In those circumstances, rising wage costs normally increase public sector expenditure more greatly than they increase the buoyancy of the revenue. That being so, I am particularly anxious that the gap between Government revenue and Government expenditure is not further widened by the downward use of the regulator.
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      [Miss HARVIE ANDERSON in the Chair]
      6.0 p.m.
      I conclude by giving three other reasons why I hope the Government will resist these blandishments. The argument is that we need a boost to general activity in the economy. This was the point made by the hon. and learned Member for Lincoln (Mr. Taverne), and it echoed the powerful speech of my hon. Friend the Member for Leek (Mr. Knox) on the last day of the Budget debate.
      We have the opportunity of a fortuitous boost to activity in this country, derived from the floating of the mark and the guilder, and the revaluation of the Swiss franc and the Austrian Schilling. These are valuable export markets in which, presumably, we shall be able to trade that much more competitively. We should accept this as the occasion from which we can derive an impetus to further industrial activity and, above all, an export-led increase in activity, rather than a consumer expenditure-led increase.
      Second, there is a temptation, which I want my right hon. and hon. Friends to resist, to lower Excise duties as some preliminary to the implementation of a value added tax. I am not now going to rehearse my objections to such a tax. There are powerful advocates for it. I have in mind my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) who has indicated his expectation, and his hope, that a value-added tax will include those commodities now covered by Excise duties, and naturally enough there will then be the argument, "Let us narrow the differential while we can, let us try to do it through a partial use of the regulator". Indeed, my hon. Friend the Member for Worcestershire, South has put down Amendments and new Clauses which demonstrate that that is what he has in mind.
      I find it distasteful, on my sense of social priorities, that we should be thinking of redistributing our taxes so that they will fall less heavily upon wines, spirits and tobacco, and possibly be extended to cover such commodities as children's clothing and shoes. If the regulator were used in some way to reduce the impact of Excise duties, I should regard that as a foretaste of socially unacceptable changes in the pattern of our indirect taxation.

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      Third, I ask my right hon. and hon. Friends to resist the temptation to lower purchase tax on motor cars as a way of offering some additional boost to the motor trade. My hon. Friend the Member for Bedfordshire, South (Mr. Madel) made an extremely eloquent constituency speech—that is meant as a tribute, and not otherwise; we all have constituents—on the virtues of the use of the regulator to boost motor car production, and he talked about the substantial potential in increased output in the motor trade given the existing capacity.
      I accept my hon. Friend's argument, but I ask my right hon. and hon. Friends to reject his proposal, and rather to take advantage of the other weapon that is available. We have the Crowther Commission's Report on credit control, and it seems to me that we have here an excellent piece of advice. I hesitate to offer my own refined piece of fine tuning as to what ought to be the next move in hire-purchase relaxation, but if the Government, wishing to pursue prudent fiscal policies, nonetheless feel that they have a credible monetary policy which lies at the centre of their economic strategy, no Report could have been more welcome than that of Lord Crowther.
      It seems to me that the Crowther Report, although we may argue about the impact that it might have on the velocity of money supply, is an excellent document for the monetary school in economic management. By a happy coincidence it provides exactly the sort of boost that is sought for by my hon. Friend the Member for Bedfordshire, South, and would be sought for by my hon. Friend the Member for Worcestershire, South, another eloquent advocate of the motor trade, and I suspect that a revival in the motor trade, more than any other single aspect in the industrial field, would communicate itself to engineering generally, and the level of investment in engineering, reaching possibly even the machine tool trade, which was mentioned by the hon. Member for Ashton-under-Lyne.
      My right hon. and hon. Friends have the chance of taking a step towards the dismantling of selective controls which hitherto have been exercised through the hire purchase regulations, and relying upon broad monetary disciplines. That is a policy which would commend itself
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      to many on these benches, because we believe that to adopt such a policy would be to tread the paths of economic liberalism, and to avoid the inflationary financing by capricious tax changes. It would ensure that the gains of the last few months of imaginative tax reform would not be lost, at the prospect of continuing inflation.
      Mr. Pardoe: The hon. and learned Member for Lincoln (Mr. Taverne), in opening the debate for the Opposition, gave the impression that the Government had the power to determine both the level of demand and the level of investment. I think that that is a false premise, because I doubt very much whether the Government have anything like the power to control the level of investment which they have assumed, and which all Governments up to this time have assumed. I suggest that investment, if it follows anything, is more likely to follow demand, and business men's expectation of future demand for their products, than any incentives by way of tax, grants, or otherwise.
      I accept, in the light of experience of development policy, that it is possible by means of investment grants to change the pattern of investment. It is possible to persuade a business man to invest in Cornwall, rather than in Birmingham—I wish that business men would do so more frequently—but I do not believe that it is possible for the Government, through various stimuli, to encourage investment as a whole. I refer the hon. and learned Gentleman to the latest issue of the Moorgate and Wall Street Review in which the point is proved conclusively.
      The Opposition appear to believe that demand can be significantly managed by the regulator. I doubt whether it can be done in the way the Opposition expect. I think that the regulator is a useful tool of demand management. I am not convinced that it would be a useful tool today, anyway in the form in which it is in the 1961 Finance Act because, if there is no close connection between demand, as measured by the level of unemployment and cost inflation, the regulating demand is pretty useless if we wish to reduce unemployment.
      The Government—I took the Minister of State up on this point in the middle of his speech—seem to believe that the

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      solution to our present economic problems is the de-escalation of wage claims. Even if it were true—I think it extremely dubious; this is the third economic fallacy I have attempted to destroy—I do not believe that the attempt is succeeding. The Government are not de-escalating wage claims. It is not sufficient for the Minister of State to tell us that there are one or two highly publicised excessive wage claims going through. He obviously implied Ford and, I suppose, Vauxhall and others like that.
      It is not only on the front pages of the pop Press that one gathers information about the level of wage claims and wage increases. It is in extremely detailed documents such as those produced by the incomes research bodies and by the various Government Departments. The pages of such publications, which document wage claims day by day, week by week and month by month, show only too clearly that there is no de-escalation. In any case, even if we accepted that there had been some moderate de-escalation, are we to say that the economy can allow increases of 12 per cent.? Perhaps that is a de-escalation from 14 per cent. which was the figure one might have taken six months ago.
      So I do not think that that policy is working. I know very few people outside the ivory tower of Government who believe that it is working. Most independent commentators today—the Economist, the Financial Times—are stating clearly that the Government are in dire danger of falling into that most dangerous of all political traps—that of believing their own propaganda.
      I am sorry that I missed the earlier remarks of the hon. Member for St. Ives (Mr. Nott). The hon. Gentleman spoke in favour of a floating exchange rate. He implied that he had been somewhat converted to this view by the right hon. Member for Wolverhampton, South-West (Mr. Powell). I do not think that the right hon. Gentleman has converted many people to this view. I can assure the House that I was converted to the concept of a floating£some time ago and before the right hon. Gentleman called it a national totem pole. I personally have believed that the£was over-valued at least since 1962 and, indeed, am able to produce public records to show that I said so.
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      I thought that the contribution of the hon. Member for St. Ives was at any rate a more honest one than that made by the hon. and learned Member for Lincoln. When the hon. and learned Gentleman was confronted with the problem of the Opposition's desire for greater expansion—we all want greater expansion—he implied that at the end of the day they would be prepared to sacrifice the£to get that expansion. What I want to know from the Opposition is whether this is the line they are peddling. I am prepared to sacrifice the£for expansion. The hon. Member for St. Ives possibly would be prepared to do so. Are the Opposition saying categorically that they would either be prepared to float the£—completely or within limits—or that they would be prepared to devalue? The last time the Labour Party was faced with this choice it opted for squeeze; it opted for unemployment, as the hon. Member for Liverpool, Walton (Mr. Heffer) reminded us.
      I have great doubts whether the Opposition, if they were in power again, would opt for devaluation or for a floating exchange rate. I hope that they would. However, the enormous weight of orthodoxy which bears down on the shoulders of any Government—the great mass burden of the Treasury and of orthodox banking opinion—would ensure that they probably did not go along with what they may now be prepared to talk about.
      I do not believe that we can have expansion without being prepared to float. I should like to see some sort of stabilisation in the floating, because one never quite knows where floating will end, although, on the basis of the evidence of this weekend and, indeed, on previous evidence such as the Canadian experience, one tends to believe that if one floats it will not be very far from the base from which one started. In other words, all the pessimists—all the Jeremiahs—said that the Canadian floating would be disastrous and that there would be a terrible turmoil. In fact, there was no such turmoil.
      I believe that if we were to introduce the crawling peg whereby we had a sliding limit, this would introduce an element of stabilisation. If it is not necessary—I do not think that either I or the hon. Member for St. Ives thinks that it

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      is necessary—nevertheless it would go a long way to overcome the doubts and fears of orthodox financial opinion.
      Mr. Nott: I should not like the hon. Gentleman to think that I am in favour of letting the£float without supporting it. If the£were to be floated I should still want the Exchange Equalisation Account to be in the market.
      6.15 p.m.
      Mr. Pardoe: One can manage the float in various ways. So probably it is true that we are all in favour of management.
      I move now briefly to the essential point about the regulator which I wanted to make in the Amendment I have tabled but which has not been selected. The regulator is an essential tool of demand management and is, therefore, very orthodoxly Keynesian and, for that reason, was perhaps to be welcomed when it was introduced. It was introduced in the Finance Act, 1961. It is as well to remind ourselves of the purpose for which the regulator was introduced. Section 9(1) of the Finance Act, 1961 says:
      "If it appears to the Treasury that it is expedient, with a view to regulating the balance between demand and resources in the United Kingdom…"
      Does that apply today? Is that a sufficient reason for the regulator? Are, for instance, the connections between the total level of demand and unemployment accepted today as they were in 1961 when the regulator was introduced? The first thing to say about it, I suppose, is that it is undoubtedly a form a substantial intervention by Government in a free economy. For that reason, I doubt whether the Government would introduce this provision if it had not been introduced back in 1961. The Government of today are, so they say, against intervention of this detailed sort.
      However, I should like to widen it. The regulator seems to apply to too narrow a range of taxes. Indeed, the purposes spelled out in the first part of the Section seem to me to be far too narrow. I do not think that it is just a question of
      "regulating the balance between demand and resources"
      because we are no longer at all sure that that is the best method of ensuring full employment or indeed of stabilising prices.
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      Therefore, I should like to widen it to try to cover an incomes policy. I accept that in an incomes policy the Government's rôle is limited. The hon. Member for Walton suggested that when the Labour Party was last in Opposition it was in favour of a planned growth of incomes. I always thought that this was nonsense, because, as the hon. Gentleman admitted, it requires a degree of control over details of the economy which seems to be to be quite impossible and unacceptable. So I do not believe that Government can control incomes by means of a detailed day-to-day or week-by-week or month-by-month intervention.
      However, the Government ought to be able to erect bastions against outrageous increases, because it is after all the outrageous increases which, if any increased incomes are causing inflation, are undoubtedly doing so. I therefore suggest to the Government that they might widen the regulator so as to act specifically on outrageous increases.
      Mr. Heffer: Will the hon. Gentleman define what he means by "outrageous increases"?
      Mr. Pardoe: I accept that the hon. Gentleman believes that no level of wage increase causes inflation. I believe that this is an untenable position.
      Mr. Heffer: The hon. Gentleman must not say that he accepts that I think that there is no outrageous increase. I just want to know what he thinks is an outrageous increase. It is not what I think or do not think about it. What does the hon. Gentleman say is an outrageous increase?
      Mr. Pardoe: I do not think that there can be any argument but that any wage increase which is over and above the increase in the level of production within the industry concerned must be inflationary. This would mean that, as the national output will perhaps rise by 3 per cent., if we believe the Treasury, or by 2 per cent., if we believe the National Institute, any wage increase over 2 per cent. or 3 per cent. is bound to be inflationary. Obviously, I am not suggesting—although the Labour Government suggested it and tried to operate it—that we would be successful in keeping increases down to that level. It might even be that we should try to keep them down to the level of overall inflation,

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      which is partly what the T.U.C. has suggested in its proposal to divide wage claims into their two component parts—first, productivity and a genuine increase in the standard of living and, secondly, that part which is required to compensate for rising prices.
      I would have thought that there is a level which most reasonable people would accept as being highly inflationary within a particular industry. Again, I am not asking that the Government should intervene in particular industries, because that brings them too far into the day-to-day running of the economy. But I suggest that we should state from year to year a level of, say, 7 or 8 per cent. or whatever it may be, and say that those who gather an increase in incomes per head, or those industries which pay an increase in incomes per head, over and above that level must pay for the damage they do to the rest of us by inflation. I see no reason against that. It does not seem to me to be monstrously interventionist; nor does it totally distort the balance of the economy, which is the argument against most forms of incomes policy which have been put forward.
      There are various ways in which one can act on the willingness of employers to grant outragous increases—or inflationary increases, if the hon. Member for Walton prefers that term—and on the willingness of organised employees to use their giant's strength to win them. One can do it in various ways—for example, by increasing the level of unemployment. But no one knows how far one has to increase unemployment to stop inflation. The Phillips curve is dead. The Minister of State said that it had shifted. I did not know that it had done that, and if he knows where it has shifted to, then he is a better man than I am. I do not think that anyone knows. One could use control of credit to ensure that the number of bankruptcies rose so that employers could not pay higher increases because they would go bankrupt if they did. That is all part of a similar policy.
      Again, one might use selective cuts in import duties so as to force employers who granted large increases to think again and toughen up their bargaining attitude. One could come to the policy enunciated by the T.U.C.—the division
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      of pay claims between the part needed to compensate for increased prices and the part needed to increase the real standard of living. I think that that is a very good short-term policy. I support it wholeheartedly in the short term. I think that it could be outrageously inflationary in the long term, but as an emergency measure it is an excellent idea. It would be a guarantee to the employer that he was not going to be overrun by inflation.
      But I believe that with all these things a tax on inflation is essential. Various methods have been proposed. There was the suggestion by Michael Fogarty, Director of the Social and Economic Research Institute in Ireland, in a lecture to Irish trade unionists in March last year. There was the suggestion by Professor Sydney Weintraub in the Lloyd's Bank Review for perhaps a tax on companies which would try to ensure that companies had a built-in resistance, bolstered by Government taxation, to stop granting excessive wage increases.
      A much more specific suggestion is that put forward by the Economist for using a kind of regulator on National Insurance contributions. It would be possible—and it would be even more possible if we did what I have often advocated, which is to have a percentage payroll tax instead of a lump-sum flat-rate National Insurance contribution—to ensure, by means of a regulator of National Insurance contributions, that, if an employee obtained an increase which was more than society reckoned to be cognisant with stemming inflation, the excessive increase would be paid back to the Government in increased taxation. That seems to me a perfectly legitimate means of Government intervention.
      All I am suggesting is that, if we are to go on enforcing the regulator, we need to widen its purpose from the terms set out in 1961 in order to ensure that we can use it to act directly upon inflation and the inflation of pay as a whole—and I use "pay" in its widest possible sense, applying it to all sorts of pay. It should be possible to use it not just under the 1961 Act, on Customs duties and purchase tax, but on the National Insurance contributions as well and on other direct taxes which apply to the individual. This could bolster the Government's defences against unnecessary cost inflation.
      Mr. Kenneth Baker (St. Marylebone): The Liberal Party has not been in control of our national economic affairs since 1914. If what we have just heard from the hon. Member for Cornwall, North (Mr. Pardoe) is an updating of Liberal economic thinking, it is as well that the Liberals have not had the opportunity since 1914 to get their hands on the levers of power. We have heard from him a definitive statement of Liberal economic policy which is confused and naïve. He wanted an incomes policy against outrageous increases without defining what outrageous increases were. He seemed to believe that, by floating the£, expansion would somehow follow. The argument for floating or not has little to do with expansion or contraction. The whole point about floating the£is that one lets the market determine the level of value of the currency.
      It is said that this would avoid situations in which, for example, politicians like Mr. Nixon would sit in the White House, as he did last week, refusing to devalue, while politicians like Herr Brandt would sit in Bonn, as he did last week, refusing to revalue. If the£had floated last week, the likely effect would have been that it would have floated upwards, which would have meant not expansion of the British economy but, if anything, a marginal contraction.
      The currency crisis, which is the background to the debate, adds a certain piquancy and a certain drama and excitement to the debate. Because it is inextricably involved with our negotiations with the Common Market, it means that we have not only an economic drama but also a high political drama. This will be a very exciting summer politically for us all. I cannot but recall the character in "The Importance of being Ernest" who said, "The suspense is terrible—I hope it will last".
      We should be grateful that, in the recent currency crisis, sterling was not playing a central rôle. I cannot help feeling that, if the right hon. Member for Huyton (Mr. Harold Wilson) had still been in No. 10 Downing Street last week, he would have felt deeply resentful of the fact that sterling was not playing its customary starring rôle in a currency crisis. The centre of the stage was an irresistible magnet to him. He could not resist the chance of being the bride at
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      every wedding and the corpse at every funeral.
      But I hope that no one in the House will think that what happened last week—the floating of the deutschemark and the guilder and the Swiss and Austrian revaluations—is a solution. It is merely a temporary stop-gap to the problems which beset the Western world. If President Nixon believes that he has got some measure of relief for the dollar, it is the sort of relief that a sick man gets when he turns over in bed. There is still no cure. He has eased the cramp. He has eased his comfortless position. But the same inherent troubles are there.
      I hope that the Government and the Bank of England will use the opportunity of not being involved in a major currency crisis to try to work out what they think is a long-term solution to the abiding currency problems of the Western world. No situation is static. Already a currency flow has begun and it will change course in the next few days and weeks across the frontiers. It may well be that within the next year or so the£will come under pressure from one source or another, and then we cannot sit aside and not make a decision.
      6.30 p.m.
      The Government last week resisted the temptation to float, in my opinion correctly. It must have been very tempting last Thursday or Friday to float the£with some of the other currencies. I hope that the Government, having resisted that temptation, will make clear to British industry the enormous opportunity the Government have given it by retaining the present parity with the dollar. The Government should lose no chance of stressing what an opportunity it is to increase our exports.
      I calculate from what the hon. and learned Member for Lincoln (Mr. Taverne) said that the net effect on consumer demand of Amendment No. 13, which I believe is to decrease the regulator by 15 per cent. for six months, is about£125 million to£150 million in injection—[An HON. MEMBER: "It is£500 million."]—In that case it would be a substantial boost to demand. But if the Opposition are arguing for a boost to consumer demand, a much more effective means would be to consider the recommendations of the

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      Crowther Committee, particularly on the effect of hire-purchase controls, which are a blunderbuss of an economic weapon, especially in relation to the car industry. I hope that if the Government are thinking of reflating later this year or early next year they may be considering doing it through substantially reducing or modifying, or perhaps eliminating, hire-purchase controls, rather than acting through purchase tax and the regulator.
      What is the Opposition's economic policy in the present state of the British economy? We have heard various suggestions, but no authoritative statement from the Opposition Front Bench. Some hon. Members opposite said in the Budget debate that they wanted a prices and incomes policy. There were others who said, "Never a price and incomes policy." Others said that there should be immediate and substantial reflation, with the implied risk on the balance of payments and upon sterling. The hon. and learned Member for Lincoln was courageous to say that the risk of devaluation of sterling was one that he personally was prepared to take—and, I imagine, the Opposition Front Bench. The former Chancellor, the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) said in the Budget debate that his main criticism of the Government's economic policy was that the reflation in the Budget should have been earlier. When the right hon. Gentleman complains that a Chancellor has acted too slowly, we should pay great attention to his words, because he has had great personal experience of acting too slowly. After the devaluation in November, 1967 four precious months were wasted while he did nothing. He threw away the first valuable advantages of devaluation. Whoever winds up this debate for the Oppositions should tell us clearly tonight exactly what is their economic policy.
      The Government's economic policy, as stated in the two Budgets, is crystal-clear. The two taken together are the most reflationary measures in this country since 1945, with tax cuts in the current financial year of about£950 million—and of that only about£30 million to the very rich, the surtax payers. I accept the argument that not all that£950 million is going straight into consumer demand, but about£300 million to£400 million is. One could argue that that figure would be
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      higher if one included some of the other taxes as going into consumer demand.
      This is coupled with a monetary policy, which some critics on this side think is far too loose, which amounts to allowing industry and private borrowers to have virtually as much money as they want. We are not having a credit squeeze or credit freeze. If businesses want to raise money, they are finding it quite easy to do so.
      The Government are to be congratulated on their measures of reflation. They have my support, though not the support of all my hon. Friends. There is scant regard for the Government's reflationary measures. I refute completely the argument used three times by Opposition hon. Members this afternoon that the Government are using unemployment as an instrument of economic policy. I could not support a Government that were deliberately doing that, and I do not believe that the Government are. The level of unemployment, which I find very regrettable, is explained very largely—not entirely—by substantial structural changes in the pattern and level of employment in our economy. Therefore, I do not accept the criticisms made by hon. Members opposite that we are using unemployment in a callous and indifferent way. That has never been the object of the Conservative Party. It is certainly not the object of this Government. If it were, I would cease to support them.
      Mr. Cant: I agree with those who argue that in our discussions of our present economic problems we place too little emphasis on the fact that the terrible phenomenon of the inter-war years—structural unemployment—is re-emerging, and that it is a consequence of serious technological change.
      In these circumstances, to some extent all our talk about macro-economic policies methods of demand management, is not irrelevant—quite—but is certainly of only a limited value.
      I support the Amendments, but not because I belong to the school of "expansion or bust". I do not. I hesitate to say this, but I have a certain amount of sympathy on this score with the hon. Member for Oswestry (Mr. Biffen). It is a source of embarrassment to me politically that we think alike on so many occasions. Some expansion is called for. I think that this should be undertaken

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      in the whole area of reducing indirect taxation because the fundamental flaw in the Government's policies was that on the one hand they were denouncing cost inflation as the problem in the economy and on the other doing everything possible to raise the cost of living through their tax policies. This will be proved to be a fundamental error. The hon. Member for St. Marylebone (Mr. Kenneth Baker) argued that the German revaluation should persuade us not to go in for any reflation of the economy. I would argue the reverse. This helps us considerably in moving the terms of trade in a limited area in our favour.
      I believe that, because it does this, it gives us that little extra room for manoeuvre which we on this side of the House feel is required and which could lead us to the argument for rather more demand in the economy. I agree that if we expand demand seriously we shall run into all the problems so eloquently described by Conservative hon. Members. But the argument that if we increase demand we increase the import bill, suffers from the wrong kind of emphasis. Analysis of what happens to the import bill under additional aggregate demand reveals that it is not a question of people in this country importing more foreign cars, taking more foreign holidays or increasing consumer demand for imported goods. The horrible fact about our import bill in the upward cycle of business activity is the increasing component of imported capital equipment. We would do well to remind ourselves that a lot of what we are saying about the consequences, in balance of payments terms, of an increase in demand, is a terrible criticism of British manufacturing industry.
      I shall not pursue that, because I do not want to embarrass any hon. Member opposite any further. We are always pointing an accusing finger at the trade unions, at the workers and their restrictive practices, their inordinate demand for wage increases. But the main accusing finger could be pointed at management in British industry. It is the relative inefficiency of British industry that should bring forth our major indictment.
      A lot has been said about cost inflation. I am sure that reasonable people,
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      like the Liberal spokesman on economic affairs, the hon. Member for Cornwall, North (Mr. Pardoe), are right when they say that we cannot live with 18 or 24 per cent. increases in wages on the one hand and an increase of only 3 per cent. in output on the other. That is perfectly true, but the situation is far more complicated than that.
      I admire the Prime Minister because he has an incredible capacity to stand at the Dispatch Box week after week enunciating what he believes is the supreme truth about our economic situation, using tedious repetition time and again. He has come to believe his own propaganda. People ask how long he will carry on with this policy, which is the Phillips curve removed endlessly to the right, and I would answer that he will carry on with it indefinitely. He is determined to break the will of the trade union leaders and he believes he can do it.
      Mr. Heffer: He is on a hiding to nothing.
      Mr. Cant: He believes he will win, but I would much rather lean on the experience of my hon. Friend the Member for Liverpool, Walton (Mr. Heffer). I am glad I have raised these points because my hon. Friend has reassured me.
      The Prime Minister, who is the nerveless wonder of British politics, dashes off the suggestion that he is using unemployment as a measure of policy with which he is going to win the battle with the working class. He has to allow unemployment to rise until the point is reached—and he may win this battle—when the spectre of unemployment will be severe enough to make trade union leaders think more than once about the sort of wage claim they will put in. But what a price we are paying. I wonder whether at night he ever turns over on his lonely couch and thinks about the problem of the people who are unemployed. If he ever does think of them, I have no doubt he can dismiss this spectre by saying to himself, "They are responsible because they have brought this on to themselves through wage-cost inflation."
      When one looks at these rather large wage claims and then thinks of the inflation with which trade unionists have

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      had to live over the past year—and with which they probably will have to live in the coming year—running at 8 per cent. per annum, all they are doing is seeking to maintain their very existence if they achieve around 16 per cent. increase.
      The Government are speaking with two voices. They are saying that the workers are responsible for the increase in cost inflation, when at the same time the Chancellor admits that he has not only financed inflation in the past year but is prepared to do so again in the current year. Where are the Government getting this money? How does money supply manage to increase by 12½per cent. per annum? Where has Friedman gone? He must be hiding somewhere underneath these benches.
      This is a serious issue and the answer is that the inflation which exists at the moment is not a consequence of greedy and grasping trade unionists but a consequence of the increase in money supply financed through the Euro-dollar market. How can we tolerate a situation when everything we seek to do to get our unemployment under control is undermined because the United States, in dealing with its balance of payments deficit, adopts an attitude of what is now technically called benign neglect? If we are prepared in one way or other to allow our money supply to be increased by the balance of payments deficit of the United States, and if we are prepared to allow our situation in this country to be responsive to the calls of international corporations, then let us not blame the trade unions. We must find some other solution to the problem.
      I have not seen any evidence in what has been said by the Chancellor of the Exchequer or by any of his right hon. Friends to give me very much hope for the future. If believe that there are other ways of tackling the problem. At this moment of time it would be appropriate to have a gentle measure of reflation. If we do not grasp some other alternative, then the Prime Minister, who is responsible for the total policy of this Government, will produce a society in which the bitterness and social divisions that is caused between the classes when we reach one million unemployed will not be easily erased in the next generation.
      Mr. Peter Hordern: I generally agree with the remarks of the hon. Member for Stoke-on-Trent, Central (Mr. Cant) in our economic debates. He is, as I recall, a staunch supporter of the Chicago school. He is not a member of the Freiburg school, nor is he a member of the boom-and-bust brigade to which many of his hon. Friends belong.
      It may seem odd that we should be discussing whether the Chancellor should have the power to alter the rate of purchase tax as a method of fine-tuning the economy, when we are in the middle of an economic blizzard blowing outside. This is certainly no weather for fine-tuning. Nevertheless, it is an important power to have. The question is whether the Chancellor should have the power and whether he should use it. In my opinion he should not use it. The reason is that there is a considerable degree of reflation proceeding at the moment, which is not readily obvious, but which will become obvious as the months go on.
      It is interesting to observe the Opposition's attitude which seems to form itself into three different schools of thought. There is the school of thought presented by the hon. Member for Liverpool, Walton (Mr. Heffer), who is an out-and-out expansionist, and many of his hon. Friends agree with him. There is the school of thought represented by the hon. and learned Member for Lincoln (Mr. Taverne) who told us today that he was in favour of expansion, which he coupled with a personal view that he was in favour of a floating exchange rate. When one of my hon. Friends suggested that the rate would probably float upwards, the hon. and learned Gentleman answered a little too quickly, "But not if the economy were to react in the way that it would by using the regulator." That was an admission that he would agree that the use of the regulator in a downward direction was a direct addition to our costs because the cost of imports would rise appreciably and at once.
      The third school of thought is represented by many right hon. and hon. Gentlemen opposite, mostly by the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) and by the right hon. Gentleman the Leader of the Opposition. It is refreshing these days to find those

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      two right hon. Gentlemen agreeing about anything, so we should not complain if they agree on at least one item of policy, namely, that of having a voluntary incomes policy in combination with an increase in reflation.
      This leads one to ask why the right hon. Member for Stechford and the Leader of the Opposition are now so keen on exerting a voluntary incomes policy when just a year ago they were concerned to drop it. What conditions now obtain which are so different from the situation a year ago? Certainly prices were rising every bit as fast then as they are now and nobody could say that the rate of unemployment was at all satisfactory in the first six months of 1970. It does not seem to me that the intransigence of Mr. Jones and Mr. Scanlon have altered very much. Although this is an entirely hypothetical question, one of the most regrettable parts of the Opposition's incomes policy is this specious idea that a voluntary incomes policy can be combined with deliberate reflation, as if the voluntary incomes policy would ever be sustainable by the Labour Party or by the trade unionists themselves.
      The fact is that there is no chance of operating any form of voluntary incomes policy after the experience of the last few years. At least it could be said that the Leader of the Opposition and the right hon. Gentleman recognise that it would be wrong to allow purchase tax to be cut as a measure just by itself. Even with the present level of unemployment, they think it would be wrong simply to stimulate demand. That surely is right. Nothing could be worse than to stimulate consumer demand when industry has not the capacity to meet it. Imports would rise rapidly and our balance of payments would quickly suffer. Even more to the point is the fact that, contrary to general belief, there is no discernible credit squeeze in operation at the moment. Indeed, the situation is very much the reverse. The clearing banks have plenty of money to lend and are actively seeking ways of lending it. The difficulty they have is to find creditworthy customers.
      There is a serious shortage of liquidity in companies, but the reason for this is very clear. It is that the return on industrial assets has fallen from an aver-
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      age of 15 per cent. in 1964 to 10 per cent. last year. This return is quite inadequate to cover the cost of new investment and that is why there is so little of it today. It is not that there is so little confidence in the outlook but simply that, after years of increasing corporation tax and the Labour Party's antipathy towards profits, there is no reserve for companies to use for investment.
      What my right hon. Friend has done about the situation is to reduce the cost of borrowing and to reduce sharply the rate of corporation tax. As a result the return on investment should allow a clear margin of profit, and it is this more than anything else that ultimately will increase the level of investment.
      If purchase tax were reduced, all that would happen would be that a fillip would be given to consumption at the time when the money supply was increasing as fast as wage increases themselves. I know that the 3 per cent. rate mentioned by my right hon. Friend in the Budget applied only to this particular quarter. But what concerns me is how much the Chancellor will be able to reduce the growth in money supply to any significant extent. In his Budget my right hon. Friend said that he does not intend that the growth of money supply should accommodate the going rate of inflation. But events have moved a very long way since the Budget.
      7.0 p.m.
      The mark has been floated, as has the guilder. The Swiss franc and the Austrian schilling have been revalued. Sterling at its fixed rate is definitely more attractive than it was. Meanwhile the flow of dollars, the prime cause of all this unrest, will continue. In this stage of uncertainty that alone is the most certain element. As long as the mark floats, there is nothing in it for those who hold dollars. The Swiss franc is not as attractive as it was. It is beginning, at last, to look like Cinderella's turn. It is a comparatively new experience for sterling to be in such demand that maybe we should not complain about it too much. It is no use pretending that the maintenance of a fixed rate of sterling in a period when sterling is in demand from overseas will not create considerable difficulties in controlling the money supply.
      No one can forecast with any precision how fast it will grow. It seems likely

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      that with a large borrowing requirement to which my hon. Friend the Member for Oswestry (Mr. Biffen) referred, as well as a considerable funding operation in the gilt-edged market, to be done this year, the Government will find it very difficult to keep growth in money supply to anything like the growth in output or productive potential. There is in process a considerable degree of reflation and it will not be long before this is noticed. It would have been much better had this process been carried out deliberately as a matter of policy by my right hon. Friends but I do not believe that this is the position. It is more that the power to control our economy is vitiated by the production of United States dollars. The solution is, of course, to float the£. The argument has so far been confined to economists and central bankers on a somewhat academic plane.
      Mr. Bruce-Gardyne: My hon. Friend said that the solution was to float the£. That was the solution to the problem created by the American Government's attitude towards the dollar. In a sense the more logical solution would be to achieve a change in the American Government's attitude towards the dollar.
      Mr. Hordern: It is better to change something over which we have control rather than attempt to change things over which we have no control. It would be surprising if this pressing matter did not become a matter for political decision, and sooner rather than later. We have to recognise that the production of dollars, and in particular the production of Euro-dollars, poses problems on a quite different scale from anything contemplated at the time of Bretton Woods. Only 11 years ago the Euro-dollar market was about 1,000 million dollars. Last year the size of it was 50,000 million dollars. Can exchange rates, narrowly drawn, provide a tolerable defence to this sort of expansion? I do not think they can.
      The stand that the Government have taken, over wage increases and price increases in the public sector should not be allowed to be undone because of Mr. Nixon's need to get himself re-elected. Therefore, we should float. I recognise the difficulties in which my right hon. Friend is placed. For one thing he said that he would not float some months ago.
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      For another thing it would not endear us to the French particularly during the negotiations over the Common Market. I do not want to press my right hon. Friend. I do not believe that there is a particular urgency to float at the moment, but when and if the issue of the Common Market is resolved—and I believe that it will have to be resolved one way or the ether in the coming months—the issue of floating the£will become an important issue for the Government.
      I hope that when the time comes the Government will take the right course which is—given all the technical factors and the ability of the American authorities to increase the supply of dollars and therefore vitiate the control of the economies of Western Europe, and of our economy—to float the£. In that context increasing or decreasing purchase tax may be a very small consideration. While advancing this power to my right hon. Friend, as I am sure the House will, I hope that he will consider very carefully the number of points that have been raised on the subject of floating the£.
      Mr. John Horam: I had not thought of making any remarks on this Clause because, as a graduate of June, 1970, I have not appreciated this traditional elephantias, whereby we look at the whole sweep of economic policy on two small Amendments which do not worry me too much either way. I hope that that does not put me out of order. The point I want to make is simple. The Government's Budget judgment was that they would expect to increase the gross domestic product by roughly 3½per cent, between the first part of this year and the first part of next. This was predicted on a growth of consumption of about 5½per cent.
      The Government will not get this growth. It is not happening at the moment and it will not happen in future, first, quite simply, because savings will prevent it. The rate of savings is already high and will increase. Inevitably, for psychological reasons—because people do not want to spend their money when they realise that the unemployment situation is worse and that they might be individually threatened by it—that will happen. Unemployment is at the root of this and it is caused by the Government's lack of an alternative policy to unemployment for coping with the problem of inflation.

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      We thus have a central dichotomy at the heart of the Government's policy. On the one hand they are trying to expand the economy, telling shareholders and bankers that their liquidity is good, asking why they do not invest, while on the other hand they are taking a tougher line with the unions, telling them that they do not want to hear too much from them, that they want to cure the problem of inflation and that the unions will have to do it for them. The contrast is quite clear. It is like trying to run when standing on one's tie, or for this Government the analogy might be better put by saying standing on one's beard, since this puts some kind of date on the economic policies which they are pursuing.
      Nothing very much will happen as a result of these policies. The situation may improve to a minor extent in one or two ways, but it will get worse in others. I do not think that the unemployment situation will improve. We shall get worse and will lose more growth. We shall fall further behind in the economic growth table. Equally, price inflation will not improve markedly.
      As my hon. and learned Friend the Member for Lincoln (Mr. Taverne) said, in the first place we have a two-year built-in effect, as a result of some of the wage agreements concluded this year. Secondly, the Government have placed great store on their hopes of an improvement in the wage situation as a result of the demands negotiated and agreed for the next time round. We are already beginning to see these new demands and they will not be at a lower level that those of the past 12 months.
      Thirdly, since price inflation is going up a rate of roughly 8¾per cent. per year, there is a circular effect. The existing high prices will affect wage demands, which will continue, maybe slightly moderating but still at a high level. Finally, even if some success is achieved by these means, it is bound to be slow. What is the good of a policy which comes down from 14 per cent. in one year to 12 per cent. the next, to 10 per cent. the year after and 8 per cent. the year after that? By that time we have lost the ball game.
      What is needed is something more decisive on two fronts. First, we need
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      an incomes policy. We have had my hon. Friend the Member for Liverpool, Walton (Mr. Heffer) talking about his version of an incomes policy; we have had the hon. Member for Oswestry (Mr. Biffen) talking about his non-version of an incomes policy; and we have had the hon. Member for Cornwall, North (Mr. Pardoe) talking about his version. I hope that I have squared my political pitch by mentioning all three parties. Obviously one can argue about it indefinitely, but the central solution is there.
      The Government argue mainly that an incomes policy cannot work because it flies in the face of their feelings about freedom. That argument is totally nonsensical. To an ordinary worker the market forces are just as anti-freedom as is any kind of planning.
      Secondly, the Government argue that the last prices and incomes policy was a manifest failure, because it became unpopular and therefore could not be sustained. It became unpopular because we had to make a net transfer of resources into the balance of payments as we had a large balance of payments problem. That is why the prices and incomes policy pursued by the last Government became unpopular. It did not fail or become unpopular because of the principle; it was because of the situation then facing the Government.
      The last Government had to keep down the standard of living to a small percentage increase for two consecutive years. Therefore, that policy became unpopular and, because of the feelings which that process engendered, one result was wage inflation. There were other factors, but that was one element. Therefore, the whole thing, if properly understood, is related to the balance of payments problem which the Government finally surmounted; not to the principle of a prices and incomes policy. I think, therefore, that the Government will inexorably return to this policy.
      By treating cost inflation as cost inflation and getting to the root of the problem and not, as in this peculiar argument of the Government, about not wanting to add demand inflation to cost inflation, ignoring that this leaves open how one deals with cost inflation, and in addition having a prices and incomes policy, we shall be able to go ahead at

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      a higher rate than we have so far achieved.
      Because there is such a large amount of unemployment, and because of the Government's policies towards inflation, any injection which they make into the economy will be less effective than it might otherwise be, because people will be less free in their spending and therefor the consumption and multiplier effect will be mitigated. If we cope with inflation by means of a prices and incomes policy it will not be totally successful, but the extent to which it succeeds leaves us that much freer to go ahead faster for growth.
      This whole notion of incomes policy is as important to the second half of the twentieth century as the Keynesian revolution was to the first half of the twentieth century. It is important to get this right with all the planning involved. The hon. Member for Oswestry looks at me in a rather forbidding manner. I accept that this is as important as pump priming and all the rest in the first half of the twentieth century, and I think that inexorably we shall proceed towards this solution to our problems. I think that this is as modern thinking as laissez faire economists and Marxists on both sides are out of date.
      [Mr. JOHN BREWIS in the Chair]
      Mr. Bruce-Gardyne: One thing which I always enjoy about the so-called regulator debate is that it seems to provoke a certain amount of mild anarchy on either side of the Committee. As a mild anarchist, I find this attractive.
      We all recall the formidable speeches by the hon. Member for Birmingham, All Saints (Mr. Brian Walden) in the regulator debate of 1968. This afternoon we have heard a number of speeches which have, shall I say, incorporated an element of mild dubiety towards our respective Front Benches. I shall try not to add too much to the totality of mild dubiety in my brief comments as I want to be rather eccentric and concentrate primarily on the Clause.
      First, I want to pick up one remark by the Minister of State in his opening speech when he said that no one on either side advocated massive deflation. He is absolutely right.
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      7.15 p.m.
      The question is where we place the balance of priorities at the margin between the dangers involved in the evils of unemployment and the dangers involved in the evils of inflation. I do not think that any hon. Member on either side believes that Governments of either party have conducted or are conducting a policy designed to achieve, and based upon the achievement of, higher levels of unemployment.
      What worries some of us still is where precisely the Government's priorities lie between the achievement of their growth objectives for the economy and the observance of their monetary balance. If the achievement of the growth objectives has priority, then some of us would have some anxiety about the inflationary implications of this priority.
      I want to concentrate on whether we should renew the regulator power. I was delighted that the hon. Member for Cornwall, North (Mr. Pardoe), on behalf of the Liberal Party, joined me in putting down an Amendment to question this very point. However, in his speech I discovered that I had harboured a cuckoo in the nest. His demand was not that we should not have the regulator, but that we should have something bigger, more impressive and all-pervasive.
      I think that in these debates we should indulge in a modest degree of self-criticism to the extent of occasionally rereading the speeches which we have made. It is always good for us to do this.
      Mr. Timothy Raison: Not aloud!
      Mr. Bruce-Gardyne: I said "reread", not "repeat".
      I notice that in the last regulator debate in which I participated I prophesied a good deal of doom and destruction. I am happy to say that my prophecies were somewhat exaggerated. This form of self-criticism is particularly desirable in terms of the regulator debate because it shows that our judgments can often be wrong.
      I understand that the regulator is designed as an instrument of instant economic management. My right hon. Friend the present Chancellor of the Exchequer put this quite clearly in the

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      debate when the regulator was first introduced on 1st June, 1961, when he said that it was designed
      "to provide a means of stimulating or discouraging consumption according to the general state of the economy."—[OFFICIAL REPORT, 1st June, 1961; Vol. 641, c. 520.]
      If we accept that this is what I should be inclined to describe as the fine tuner's tuning fork and if the short-term judgments on both sides can be somewhat fallible, I cannot help wondering whether this instrument can on occasion be dangerous. If we regard the history of the use of the regulator, this anxiety may be somewhat reinforced.
      The hon. Member for Cornwall, North pointed out that so far the regulator has been used on three occasions, and on each occasion in an upward direction. It has never been used in a downward direction and it has never been used alone. On each occasion, it has been used as part of a crisis package. What emerges is that it is hard to argue that, in any of those packages, the regulator was indispensable, and on at least one of those occasions—in 1966—and possibly more than one, it was one of several substitutes for an act of devaluation without which the other measures were most unlikely to be successful.
      We should also consider at least two occasions when the regulator was not used and when many people, with the advantages of hindsight, would feel that it should have been used. One was the occasion when, before the present Speaker left office as Chancellor in 1962—we have it on the authority of Mr. Samuel Brittan and it has never been challenged—he intended to use the regulator in a downward direction. It was never used, but I cannot help wondering whether, if it had been used at that time, it might have been a more sensible operation than some of the fairly massive reflationary steps taken over the following 12 months.
      Then there was the occasion when the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) took office, when, again, many commentators would feel that he would have been well advised to use the regulator in the immediate aftermath of devaluation, rather than waiting for his Budget at the end of March. All that one can say about this history is that neither the use nor the
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      failure to use the regulator has shown that it is at all times a particularly wisely-used instrument of short-term economic management.
      Clearly, everyone has agreed that, if the regulator is to be used during the coming 12 months, it is most likely to be used in a downward direction. In other words, in the words of the Chancellor in 1961, it will be to stimulate consumption. We have to remember that that is at a time when, according to the Treasury's own forecasts, the growth of consumption is already expected to be the largest element of expansion in total demand—even if one accepts, as I might be inclined to do, some of the reservations of the hon. Member for Gateshead, West (Mr. Horam) on the likelihood of fulfilment of the Treasury's forecasts in this respect.
      So the use of the regulator in a downward direction in the coming 12 months could be expected to add a further stimulus to consumption, at a time when the Treasury has already forecast that consumption is likely to be rising pretty substantially. Of course, I can see the case for the use of the regulator as an anti-inflationary device, because of its effect on prices, but I wonder whether that is how it is likely to be used.
      We should carefully consider the comments of Sir Douglas Allen to the Wilberforce Committee in this connection. The key phrase in his evidence was this:
      "Whatever I can say about demand management policy—and I cannot say a great amount—in 1971, I can assure the Court that, if the situation produced a tendency for unemployment to rise, there are plenty of means the Government could take to prevent it."
      No one would dispute that foremost among these different means would be the use of the regulator.
      What I dispute is whether the use of the regulator would have any of that sort of dramatic effect which seems to be expected of it on levels of unemployment. I have said before that I sometimes think that managing the British economy is like driving an armoured car backwards, where one's field of vision is very limited, one's access to controls is remote and sluggish and consequently there is an inevitable tendency to over-compensate.
      Much of the present level of unemployment reflects the monetary policies pursued by the right hon. Member for Stechford in his last year of office. I do

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      not complain about those policies, because it is a fallacy to imagine that one could hope to cure the sort of inflationary stampede which we were beginning to experience at that time and have experienced since without accepting some diminutions in levels of employment and investment.
      But if it is true that present levels of unemployment are closely related to those monetary policies 18 months ago, surely it must be pure wishful thinking to imagine that the use of the regulator later this summer or autumn could have any significant effect—indeed any effect at all—on levels of unemployment this winter or next spring.
      The kernel of my anxiety about the renewal of this power is that if we seek to use the regulator in the way that Sir Douglas Allen seems to have implied, we shall be placing exaggerated expectations upon it, and as those exaggerated expectations of its immediate effect on levels of unemployment turn out to be disappointed, there will be an endless impulsion, an inclination, to repeat the dose and repeat it, and thereby to add to the substantial demand pressures which we shall probably be adding to the economy at a later stage in 1972.
      I sometimes wish that those on the Labour Front Bench who have had fairly recent experience of Government and who must know from their own experiences that unemployment is not an economic factor which responds rapidly to sudden changes of direction would desist from clamouring for forms of instant action which, if taken by any Government, could lead only to disappointment with the lack of results which they would achieve.
      Mr. Dalyell: I do not think that the hon. Member for South Angus (Mr. Bruce-Gardyne) should be under any illusions about us. We have been reluctantly driven to the conclusion that the Government are using unemployment as an instrument of economic policy, if only in a negative sense, in the sense that they have not put full employment anything like at the top of their priorities. We genuinely believe this.
      I should like to endorse the speech of my hon. Friend the Member for Gateshead, West (Mr. Horam), particularly what he said about there being all the difference in the world between having
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      a prices and incomes policy from the springboard of a strong balance of payments and trying to do it from the basis of a weak balance of payments.
      My point is an abbreviated question to the Chancellor. Is the Treasury doing any serious work on the whole question of the use of the regulator as it affects the multi-national company? A great deal could be said about it, but, in shorthand, there is an enormous difference between using the regulator, really applying it to the traditional economy which we have known until the last 10 years, and doing it on the basis of an economy where the multi-national company, with its multi-national decision making, is providing more and more of the worthwhile jobs.
      What work is the Treasury doing on the use of the regulator and how that use can be altered by the existence of the increasing growth of the multinational company?
      7.30 p.m.
      Mr. Barber: The whole Committee will agree that this has been a useful and wide-ranging debate. Hon. Members on both sides will also accept, whether or not they agreed with the views he expressed, that my hon. Friend the Minister of State dealt comprehensively with the speech of the hon. and learned Member for Lincoln (Mr. Taverne).
      In the past six weeks we have had a succession of economic debates, and rightly so in present circumstances. My hon. Friend the Member for St. Ives (Mr. Nott) said that the Budget debate was over-subscribed and that he had not had an opportunity of getting in. I managed to get into the Budget debate twice. [Interruption,] I was also able to get into the Second Reading debate, which was followed by a debate on broad economic policy, principally on unemployment, on the day following the Second Reading debate. My hon. Friend the Member for Oswestry (Mr. Biffen) will, therefore, understand why on this occasion I can give him an assurance that I do not intend to indulge in a tour d'horizon,
      Mr. Biffen: I welcome my right hon. Friend's comment in this respect. He will appreciate, however, that hon. Members in all quarters of the Committee are anxious to have, at an early date, an

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      indication from the Government of their reaction to the recent changes in monetary arrangements in Western Europe. Would my right hon. Friend care to use this opportunity to confirm that the House will be given a chance to hear the Government's view on this subject quite soon?
      Mr. Barber: I recognise that a few hon. Members have suggested that, now or later, we might allow the rate of sterling to float. I have always respected those who take this view, and it is useful in a wide-ranging debate of this kind that it should be expressed. However, I made my views clear on the arguments against floating rates as a general system in the speech I made to the I.M.F. meeting in Copenhagen last September.
      Mr. Biffen rose—
      Mr. Barber: I will answer my hon. Friend's question.
      I believe that the considerations which I then outlined remain valid. Those views about a general system of floating rates were, I believe, fully shared by the other Governments, but it was agreed that there should be further study of some improvements in the exchange rate system, and this included the possibility of temporary floating in particularly difficult circumstances.
      Inevitably, as was anticipated last September, these studies are bound to take some time, but the important point about what has happened this week in relation to what has been said in today's debate is that both the Governments who, for the time being, have ceased to maintain the normal margins, have explicitly stated their intention that this is to be temporary.
      A number of matters of great significance have been raised today, and as I indicated at the outset, after the remarks made by my hon. Friend the Minister of State I do not wish to detain the House for too long. As for the Official Opposition Amendment, I hope that, on reflection, after the explanation which was given by the Minister of State, it will not be pressed because it has become clear that it would not achieve the objective which the hon. and learned Member for Lincoln had in mind.
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      The hon. and learned Gentleman seemed to suggest in his opening remarks that the Government should now take steps to reduce the level of unemployment without regard to the pace of cost inflation and particularly without regard to the level of pay settlements. I believe that that is a most dangerous contention and that such a policy is a prescription for a return to the worst sequence of events which we experienced at times in the past, because the inevitable consequence would be a situation of excessive demand, and this would inevitably lead in due course, as we experienced in the past, to a slamming on of all the brakes.
      As some of my hon. Friends have rightly pointed out, it is entirely untrue to say that the Government are deliberately using unemployment as a means to combat inflation. The hon. and learned Member for Lincoln put forward what seemed the rather extraordinary idea that the answer to inflation was to put one's foot hard down on the accelerator and expand as fast as possible. This, he said, would lead to a fast rise in productivity and, therefore, as I understood his argument, to a slower rise in unit costs. I guess that if he and his colleagues were in government now they would not be putting forward such wild notions.
      I recognise, as has been said, that the relationship between the level of unemployment and the rate of wage inflation is not what it was sometimes thought to be. It is, I would have thought, incontrovertible to say that it is reasonable to expect that any significant increase in the pressure of demand would tend to add to cost inflation.
      The April unemployment figure was certainly higher than any of us in this Committee would have liked to have seen. I must say, in frankness to hon. Members, that it is possible that even though the absolute level of unemployment may fall, the seasonally adjusted underlying trend may go on rising for another month or two.
      Mr. Sheldon rose—
      Mr. Barber: I will give way in a moment.
      In my Budget speech I explained that, in the absence of any Budget changes, the prospect was for a rather slow increase in output during the present

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      financial year. This was why—I will not go into the details again—I proposed a number of tax changes designed to lift the rate of increase in output over the next year, but broadly in line with the increase in our productive capacity.
      In spite of assertions to the contrary during this debate, there is really very little reliable new evidence on which to base a revision of the Budget forecast of output. A few more economic indicators have become available, some of which have been mentioned today, but most of them deal with the first quarter, or the period before the Budget, and many of them are difficult to interpret. As I have said at Question Time, because of the postal strike some of them, like the Index of Industrial Production, relate to the period well before the Budget.
      Mr. Sheldon: The right hon. Gentleman has given some useful information about unemployment, particularly when he said that, seasonally adjusted, the figures would be rising in June and July. Can he say what is likely to happen in August, when a large number of school leavers come on to the labour market?
      Mr. Barber: I said, having chosen my words carefully, that the April unemployment figure was higher than any of us would have liked to have seen. I then said that it was possible that, even though the absolute level of unemployment might fall, the seasonally adjusted underlying trend might go on rising for another month or two. I thought that, as the question of the unemployment level had loomed large in this debate, it was right for me to tell the Committee frankly of this possibility.
      I wish to repeat a warning which I have given before about cost increases. If we are to see a rise in exports and a slowing down in the rate of imports, with a renewed willingness among businessmen to invest, we must remain competitive with other countries. It has been pointed out that many other countries have also had large increases in their labour costs in the last year. However, the fact is that they are making very determined efforts to redress the situation in their countries, and it would be very foolish and imprudent on our part if we were to assume that they will not succeed. This is why we, too, must succeed with our policy of de-escalation
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      of pay settlements. If we do, the prospect of rising output and demand is good. If we do not, a further boost to home demand would lead to trouble in the balance of payments and would also aggravate the difficulty of dealing with our major problem of cost inflation.
      My hon. Friend the Member for Oswestry referred to the extent to which the events of the last few days in the foreign exchange markets would be liable to affect our economic performance over the next year. At this stage, any judgment should be a somewhat cautious one. A great deal depends on the level at which the deutschemark floats and for how long it floats. But obviously, as I think my hon. Friend was implying, in so far as the exchange cross rate with sterling appreciates, our exporters will find the German market a more attractive one. Moreover, the appreciation of the Austrian schilling and the Swiss franc, the currencies of our two E.F.T.A. trading partners, is bound to be beneficial to our sales in those countries and should strengthen our position in other markets. While I repeat that a fairly cautious view is called for at this stage, my hon. Friend was absolutely right in saying that these developments create a new opportunity for British exporters. I hope that they will not be slow to seize it.
      In my Budget speech I explained why I came to the conclusion that some addition to demand was called for, and then I made a reference to the regulator, which we are now discussing, and I said:
      "If after the Measures I am about to announce have been allowed a reasonable time to have their effect, a further stimulus is needed, the usual instruments are always available."—[OFFICIAL REPORT, 30th March, 1971; Vol. 814, c. 1370.]
      One of the instruments to which I was referring was the regulator. Therefore, the question we have to ask ourselves is whether, in the intervening period between the Budget speech and today, a reasonable time has elapsed. That period is, to the day, precisely six weeks. It would be wholly unrealistic and, indeed, ludicrous to pretend that a reasonable time has been allowed for the measures to have their effect.
      One of the major mistakes that any Chancellor of the Exchequer can make is to chop and change from month to month, with the inevitable consequence that those who have to take decisions

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      in business have not the remotest idea of the course that the Government have set themselves. Obviously, we may and we do differ about individual proposals in the Budget. But I think that we are all agreed that one of the good points about the Budget as a whole is that it lays down a strategy not just for the immediate future, but for a considerable period ahead. Of course, if the situation changes, the regulator is there to be used. If I did not take that view, there would be no point in including Clause 6 in the Bill, the Clause which provides the power that we are discussing.
      I return to the question: has a reasonable time elapsed for the measures which I announced to have their effect? I ask the Committee to bear in mind—
      Mr. J. T. Price: I have been listening to the arguments for some two hours now. Does the Chancellor realise that whilst he may take this extremely cautious view of the future—naturally we do not condemn him for caution, because he has a great responsibility—the Stock Exchange has been far shrewder in assessing what is likely to happen? The Stock Exchange boom, which is not an artificial one, against an economic blizzard outside, is anticipating what will happen when the Government are forced in the autumn to take this reflationary measure. Every shrewd investor who operates on the Exchange, and is very often using the new money available for that purpose, has taken this view. It is not my view, but that of responsible opinion in the City.
      7.45 p.m.
      Mr. Barber: I believe that the interpretation which the hon. Gentleman has put upon what has been happening on the Stock Exchange is completely false. When one is considering whether a reasonable time has elapsed and whether the regulator is or is not likely to be used in the autumn, it is worth bearing in mind that a number of the tax changes which I proposed have not yet come into operation. For example, the cut in S.E.T. does not become operative until 5th July, and from then on, considering the cut in S.E.T. alone, for the following nine months there will be a cut in taxation of no less than£290 million. That will certainly have its effect, not only on non-
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      manufacturing industries, which ultimately bear the burden of S.E.T., but on the manufacturing sector, because it will mean a reduction in the forced loan to industry of about£100 million.
      Mr. J. T. Price: And on real property values, which have increased by 12½ per cent., since last—
      The Temporary Chairman: Order.
      Mr. Barber: There is another decrease in taxation which is bound to have a significant effect and that is the improvement in the child allowances, which I announced, because these are still to be reflected in the pay packets. Inevitably it was bound to take some time for the necessary recoding to take place, but it is expected that the improved child allowances will be reflected in the pay packets by July at the latest. This will involve a further cut in taxation this year, as from the time when they are reflected in the pay packets, of£163 million. In addition, there is the second cut in corporation tax of 2½per cent. This reduction is in respect of payments of corporation tax which become due, in general, on 1st January, 1972. I hope very much that that reduction will be—or, perhaps, even has been—to some extent anticipated. But, nevertheless, here again the cost in the financial year 1971–72 is£55 million.
      I do not say this in any party spirit, but so often, over the years, it seems that we have over-stimulated demand and acted precipitately, with the result that later on we have had to slam on the brakes, with all the consequences which we know only too well. As one of my hon. Friends has rightly said, this year taxation will be some£1,000 million less than it was when the right hon. Gentleman left office. Of course, when in Opposition, he wants us to make further cuts.
      When I wound up the Budget debate, I explained why I believed that it would have been irresponsible to boost consumer demand more than I am doing. The whole House wants the level of unemployment to fall. But as I said in that debate:
      "I cannot make any promise that unemployment will fall until we get a substantial reduction in the level of pay settlements."—[OFFICIAL REPORT, 5th April, 1971; Vol. 815, c. 166.]

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      The Budget was designed, after a time, to slow down the rise in unemployment and then to halt it. But its success in achieving this will depend, above all, on the progress of de-escalation of pay settlements.
      The right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins), during the Budget debate, said that
      "…a Chancellor should be judged much more by how he manages the whole economy…than by the tax changes…"—[OFFICIAL REPORT, 31st March, 1971; Vol. 814, c. 1529.]
      If it has to be one or the other, the Committee will fully sympathise with the right hon. Gentleman for wanting to draw a veil over his own tax changes. After all,£1,293 million in higher taxes over three years is a record which even a less sensitive historian than the right hon. Gentleman would probably want to forget.
      In this financial year, we have put forward proposals, many of which are embodied in the Bill, for reductions in tax rates to the extent of about£1,000 million. I have never under-rated the problems that we face, especially the cruel and difficult problem of inflation. I respect those whose views differ and those who put forward alternative policies. Throughout the period of this Government, we have been consistent in our approach. Under the leadership of my right hon. Friend the Prime Minister, we are resolute in our determination to deal with our short-term problems in such a way as not to be deflected from carrying through the long-term measures necessary to reform the structure of our economy. We intend to carry these policies through to their full fruition for the benefit of the whole nation.
      Our immediate aim is the de-escalation of pay settlements. As we succeed in that aim, the way will be clear to get unemployment down to a tolerable level and to slow down the rise in prices.
      Despite these two great problems which we face at present, there are other encouraging signs. Sterling is strong. Most of our overseas debt has been repaid. Personal savings are rising. The nation, if not the Opposition, welcomes both the Industrial Relations Bill and the Budget as evidence that at last we have a Government who are determined to carry through fundamental reforms in the interests of the nation as a whole.
      Mr. Roy Jenkins: I can agree with the Chancellor of the Exchequer at least in saying that we have had a wide-ranging and interesting debate. Even the hon. Member for St. Ives (Mr. Nott) will agree now that we had almost an adequate ration of backbench speeches and perhaps, after four hours, the hon. Gentleman will forgive two further brief interventions from the Front Benches.
      I enjoyed many of the contributions, especially some of those from the benches opposite. The hon. Member for Oswestry (Mr. Biffen) spoke with a certain air of messianic condescension to his own party, as one who has a unique grasp of revealed truth and who, from statements that we have had recently, has participated, although vicariously, in making the Prime Minister, Prime Minister and presumably in making the Chancellor of the Exchequer, Chancellor of the Exchequer.
      Then we had the hon. Member for South Angus (Mr. Bruce-Gardyne) and the hon. Member for St. Ives, to whom I have referred already. The hon. Member for South Angus began by saying that he "wanted to be eccentric". I thought that eccentricity was an act of spontaneity. Therefore, it did not altogether surprise me that his speech was a good deal less eccentric, certainly less engagingly so, than that of the hon. Member for St. Ives. The only eccentric feature in his speech was his description of his technique of Army driving. But that sounded more dangerous than eccentric.
      The hon. Member for St. Ives raised a number of interesting issues. He spoke with what he described as the freedom of the back benches about floating rates, future parity of sterling, and our attitude in a position where at least temporarily some people are floating. I make only two comments. I think that the Chancellor of the Exchequer, to deal with a little temporary difficulty, nailed his colours to a couple of masts too firmly in Copenhagen. We shall see what happens. On the other hand, while I have no dogmatic objection to floating, I thought that the hon. Member for St. Ives looked for two rather contradictory benefits. In a couple of sentences, he talked first of the value of our floating, presumably upwards, to repulse an inflow

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      of dollars which would be damaging to us from an inflationary point of view. Then he talked about the value of floating, presumably downwards, to give a stimulus to our exports. I think that he will agree that it is difficult for both to happen at the same time.
      It was also interesting, within a few minutes of the hon. Gentleman talking about the embarrassing inflow of dollars and its deleterious effects, to hear in the course of the speech of my hon. Friend the Member for Liverpool, Walton (Mr. Heffer), the parrot cry from the benches opposite, "What about our debts?" I hope that we can begin to bury that now. We cannot have it both ways. We cannot at the same time be deeply embarrassed by the present inflow of dollars. There is no doubt that the balance of payments surplus that the Government inherited, combined with the sustained strength of sterling, means not that the medium-term debts have all disappeared—though they are fairly limited in extent at present—but at least that the idea that there is a tremendous albatross hanging round the necks of the Government is nonsense. I hope that we shall hear no more about it, even from such a superficially partisan speaker as the Financial Secretary.
      The hon. Member for Horsham (Mr. Hordern) spoke about the Government's monetary policy, which to some extent impacted upon what the hon. Member for St. Ives said about the inflow of dollars and the possible effects of it. I do not suppose that the hon. Member for Horsham will wish to go on record as agreeing with me, but I am not sure that he disagrees with me basically too strongly.
      I am mystified about the Government's present monetary policy. I have no idea—I hope that the Chancellor has—whether it is neutral or passive or, if it is between the two, exactly at what point it is. I think that the Chancellor of the Exchequer said that it will be passive for the next three months and that after that he does not know. Presumably, we are half way through the three months, as it is six weeks since the Budget. In other words, it is not containing inflation, but he hopes, after three months, that if inflation needs to be further contained, he will use a monetary policy which might contain inflation rather later than it was necessary to use it to contain inflation. That is the
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      position which has been put forward on the monetary policy.
      The Minister of State was less lucid than usual. When he spoke in opposition, I remember thinking that he spoke responsibly and that he would be happier in government. I was not sure today that he would not have been happier speaking in opposition. Several times he said that he could not follow my hon. and learned Friend the Member for Lincoln (Mr. Taverne) and my hon. Friend the Member for Walton. I could not follow the hon. Gentleman a lot of the time. He is a lucid thinker and speaker. I believe that the reason why I could not follow him was that he was speaking to a very unhappy brief.
      There is a fundamental gap in the centre of the Government's logical thinking about the relationship of the expansion of the economy to the present level of wage settlements. We all agree that there is a severe cost inflation problem at present. The Government have often a little over-simplified the reasons to which they attribute it. It is there, and no one will dispute it. At the same time, it is clear that the economy is being worked well below capacity. If anything, as time goes on and as productivity increases, the gap between capacity and the level at which the economy is worked is increasing. That cannot be disputed. One result is the present totally unacceptable level of unemployment.
      I was not sure what the Chancellor of the Exchequer was saying today. He appeared to be telling us that the figures, seasonally adjusted, would get worse for a month or two. Was he telling us that they would not get worse for more than two months? If so, that is encouraging news. However, I notice that he does not confirm it. He would be rash to do so on the basis of the present policy.
      I fear that the seasonally adjusted figures are likely to continue to get worse for quite a bit longer. We have the economy operating well below capacity. Furthermore, what is clearly the case, six weeks after the Budget it is difficult to say that we have firm evidence about what has happened to the economy since the Budget. What we have increasing evidence about is that the base level on which the Budget was planned was falsely seen before the Budget. The level of

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      activity was believed to he higher when the right hon. Gentleman was drawing up his plans than apparently is now the case. Therefore, this is an important factor to be taken into account.
      8.0 p.m.
      What undoubtedly is the case is that there is substantial slack in the economy. I should not for a moment advocate piling demand inflation on top of cost inflation, but there is a good deal of room to expand the economy without getting near to doing that. How can it be otherwise, with unemployment at 800,000-plus, and still rising, and with that unemployment not now confined, though worst, to the weaker regions but growing rapidly in the hitherto prosperous areas of the country, such as the Midlands? How can it be pretended that there is not a considerable degree of slack?
      It is a false argument—and no doubt this is one reason why the Minister of State was unhappy—to say that additional expansion of the economy would pile demand inflation on top of cost inflation. If the Chancellor's argument—and this is the central, logical fallacy—is that it is not possible to give any stimulus to growth until cost inflation—which he attributes wholly to wage increases—has been brought under control, why did he make any concessions at all in his Budget? That is the logical gap in the Chancellor's argument. Why is it right to take measures which will prevent unemployment from rising still further at some time in the future, but not right, with this gap of unused capacity, to take measures which will bring it down?
      Our other objection to the Chancellor's measures is to some considerable extent based on the timing of them. I think that the right hon. Gentleman should have acted earlier. Every Chancellor should not tinker too much, and it certainly is the case that measures take a little time to work through in their effect on the employment situation, but there would have been a substantial case for acting last autumn, which I envisaged in my last Budget Statement, and there would have been a great case, given the present unemployment position, for acting in the Budget by means of
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      measures which would have bitten more quickly than those which the right hon. Gentleman chose to take.
      The Chancellor said that some of the measures would not come into effect for some time. It will be a long time before the effect of the cut in S.E.T. builds up, and the other changes will take some time to come into effect. We can debate this further on the new Clause dealing with purchase tax. The Chancellor could, and should, have acted more quickly, but he deliberately chose not to do so, and there is no question but that the prospect confronting the economy now is in almost all respects—except the external prospect, which is for the moment very good—dismal. It is one of rising unemployment. It is one of a dismal in vestment forecast. The level of projected increases put forward in the Financial Statement were themselves pretty derisory, and it is far from sure that those will be achieved.
      The indications are that the performance will be worse than even those dismal projections. The prices prospect is bad. Most of the internal factors are bad. Therefore, in this traditionally rather general debate on the regulator I think that we are justified in saying that we cannot feel confidence in the Government's handling of the situation. Because the Government have chosen the wrong inflationary measures because they have timed them wrongly, and because of the logical fallacy in believing that additional expansion would pile demand inflation on top of cost inflation, we believe that the adoption of our proposal—although we have no confidence that the Government would use it properly—would give them a little leeway to deal with the situation. Therefore, although we shall not press Amendment No. 1, because there are valid reasons for the Government's view, we propose to press Amendment No. 13 to a Division, and I ask my right hon. and hon. Friends to join me in the Lobby in due course.
      Amendment negatived,
      Amendment proposed: No. 13, in page 7, line 27, at end add:
      ( ) Section 9(2) of the Finance Act, 1961 shall be amended by leaving out the words 'by the addition or deduction as may be prescribed, of such percentage, not exceeding ten

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      per cent.' and inserting the words 'by the addition as may be prescribed of such percentage, not exceeding ten per cent., or the deduction as may be prescribed of such percentage not exceeding fifteen per cent.'—[Mr. Sheldon,]
      Question put, That the Amendment be made:—
      The Committee divided: Ayes 165, Noes 195.

      Division No. 360.]

      AYES

      [8.5 p.m.

      Allaun, Frank (Salford, E.)

      Hamilton, James (Bothwell)

      Pannell, Rt. Hn. Charles

      Archer, Peter (Rowley Regis)

      Hamilton, William (Fife, W.)

      Pardoe, John

      Ashton, Joe

      Hamling, Willam

      Pavitt, Laurie

      Bagier, Gordon A. T.

      Hannan, William (G'gow, Maryhill)

      Pendry, Tom

      Barnett, Joel

      Hardy, Peter

      Pentland, Norman

      Beaney, Alan

      Harrison, Walter (Wakefield)

      Perry, Ernest G.

      Bidwell, Sydney

      Hart, Rt. Hn. Judith

      Prentice, Rt. Hn. Reg.

      Bishop, E. S.

      Hattersley, Roy

      Price, J. T. (Westhoughton)

      Blenkinsop, Arthur

      Healey, Rt. Hn. Denis

      Price, William (Rugby)

      Boardman, H. (Leigh)

      Heffer, Eric S.

      Rankin, John

      Bottomley, Rt. Hn. Arthur

      Hooson, Emlyn

      Reed, D. (Sedgefield)

      Bradley, Tom

      Horam, John

      Rees, Merlyn (Leeds, S.)

      Brown, Hugh D. (C'gow, Provan)

      Houghton, Rt. Hn. Douglas

      Roberts, Albert (Normanton)

      Buchanan, Richard (G'gow, Sp'burn)

      Hughes, Rt. Hn. Cledwyn (Anglesey)

      Roderick, Caerwyn E.(Br'c'n&R'dnor)

      Campbell, I. (Dunbartonshire, W.)

      Hughes, Mark (Durham)

      Roper, John

      Carmichael, Neil

      Hughes, Robert (Aberdeen, N.)

      Ross, Rt. Hn. William (Kilmarnock)

      Carter-Jones, Lewis (Eccles)

      Hughes, Roy (Newport)

      Sheldon, Robert (Ashton-under-Lyne)

      Castle, Rt. Hn. Barbara

      Irvine (Rt. Hn. Sir Arthur(Edge Hill)

      Short, Rt. Hn. Edward (N'c'tle-u-Tyne)

      Clark, David (Colne Valley)

      Jenkins, Hugh (Putney)

      Silkin, Hn, S. C. (Dulwich)

      Cocks, Michael (Bristol, S.)

      Jenkins, Rt. Hn. Roy (Stechford)

      Sillars, James

      Cohen, Stanley

      Johnson, Carol (Lewisham, S.)

      Skinner, Dennis

      Concannon, J. D.

      Johnson, James (K'ston-on-Hull, W.)

      Small, William

      Conlan, Bernard

      Johnson Walter (Derby, S.)

      Smith, John (Lanarkshire, N.)

      Crawshaw, Richard

      Jones, Dan (Burnley)

      Spearing, Nigel

      Crosland, Rt. Hn. Anthony

      Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)

      Spriggs, Leslie

      Cunningham, G. (Islington, S.W.)

      Kaufman, Gerald

      Stoddart, David (Swindon)

      Dalyell, Tam

      Kerr, Russell

      Stonehouse, Rt. Hn. John

      Davies, Denzil (Lianelly)

      Kinnock, Neil

      Strang, Gavin

      Davies, Ifor (Gower)

      Lambie, David

      Summerskill, Hn. Dr. Shirley

      Deakins, Eric

      Lamond, James

      Swain, Thomas

      Delargy, H. J.

      Lawson, George

      Taverne, Dick

      Dell, Rt. Hn. Edmund

      Leadbitter, Ted

      Thomas, Rt. Hn. George (Cardiff, W.)

      Dempsey, James

      Lee, Rt. Hn. Frederick

      Thomas, Jeffrey (Abertillery)

      Douglas, Dick (Stirlingshire, E.)

      Leonard, Dick

      Thomson, Rt. Hn. G. (Dundee, E.)

      Douglas-Mann, Bruce

      Lestor, Miss Joan

      Tinn, James

      Duffy, A. E. P.

      Lewis, Ron (Carlisle)

      Torney, Tom

      Eadie, Alex

      Lipton, Marcus

      Urwin, T. W.

      Edwards, Robert (Bilston)

      Lomas, Kenneth

      Varley, Eric G.

      Edwards, William (Merioneth)

      Lyon, Alexander W. (York)

      Wainwright, Edwin

      Ellis, Tom

      Lyons, Edward (Bradford, E.)

      Walker, Harold (Doncaster)

      English Michael

      McBride, Neil

      Watkins, David

      Evans, Fred

      McGuire, Michael

      Weitzman, David

      Fisher, Mrs. Doris (B'ham, Ladywood)

      Mackenzie, Gregor

      Wellbeloved, James

      Fitch, Alan (Wigan)

      Mackintosh, John P.

      Wells, William (Walsall, N.)

      Fletcher, Raymond (Ilkeston)

      MacPherson, Malcolm

      Whitehead, Phillip

      Fletcher, Ted (Darlington)

      Marsden, F.

      Willey, Rt. Hn. Frederick

      Ford, Ben

      Mendelson, John

      Williams, Alan (Swansea, W.)

      Forrester, John

      Millan, Bruce

      Williams, Mrs. Shirley (Hitchin)

      Fraser, John (Norwood)

      Morris, Alfred (Wythenshawe)

      Williams, W. T. (Warrington)

      Galpern, Sir Myer

      Morris, Charles R. (Openshaw)

      Wilson, Alexander (Hamilton)

      Gilbert, Dr. John

      Morris, Rt. Hn. John (Aberavon)

      Wilson, Rt. Hn. Harold (Huyton)

      Ginsburg, David

      Murray, Ronald King

      Wilson, William (Coventry, S.)

      Golding, John

      O'Halloran, Michael

      Gourlay, Harry

      O'Malley, Brian

      TELLERS FOR THE AYES:

      Grant, George (Morpeth)

      Orbach, Maurice

      Mr. Joseph Harper and

      Grant, John D. (Islington, E.)

      Oswald, Thomas

      Mr. Ernest Armstrong.

      Griffiths, Eddie (Brightside)

      NOES

      Adley, Robert

      Blaker, Peter

      Carlisle, Mark

      Alison, Michael (Barkston Ash)

      Boardman, Tom (Leicester, S.W.)

      Chapman, Sydney

      Astor, John

      Boscawen, Robert

      Churchill, W. S.

      Atkins, Humphrey

      Bowden, Andrew

      Clarke, Kenneth (Rushcliffe)

      Baker, Kenneth (St. Marylebone)

      Bray, Ronald

      Cockeram, Eric

      Baker, W. H. K. (Banff)

      Brinton, Sir Tatton

      Cooke, Robert

      Barber, Rt. Hn. Anthony

      Brocklebank-Fowler, Christopher

      Coombs, Derek

      Batsford, Brian

      Bruce-Gardyne, J.

      Cooper, A. E.

      Bell, Ronald

      Buchanan-Smith, Alick (Angus, N&M)

      Cormack, Patrick

      Bennett, Dr. Reginald (Gosport)

      Buck, Antony

      Critchley, Julian

      Benyon, W.

      Bullus, Sir Eric

      Crouch, David

      Biffen, John

      Butler, Adam (Bosworth)

      Crowder, F. P.

      Biggs-Davison, John

      Campbell, Rt. Hn. G. (Moray & Nairn)

      Curran, Charles

      d'Avigdor-Goldsmid, Sir Henry

      King, Evelyn (Dorset, S.)

      Rees, Peter (Dover)

      d'Avigdor-Goldsmid, Maj.-Gen. James

      King, Tom (Bridgwater)

      Rees-Davies, W. R.

      Dean, Paul

      Kinsey, J. R.

      Renton, Rt. Hn. Sir David

      Deedes, Rt. Hn. w. F.

      Knox, David

      Ridsdale, Julian

      Dixon, Piers

      Legge-Bourke, Sir Harry

      Roberts, Michael (Cardiff, N.)

      du Cann, Rt. Hn. Edward

      Le Marchant, Spencer

      Roberts, Wyn (Conway)

      Edwards, Nicholas (Pembroke)

      Lewis, Kenneth (Rutland)

      Rossi, Hugh (Hornsey)

      Elliot, Capt. Walter (Carlshalton)

      Longden, Gilbert

      Rost, Peter

      Eyre Reginald

      Luce, R. N.

      Russell, Sir Ronald

      Fenner, Mrs. Peggy

      McAdden, Sir Stephen

      Sharples, Richard

      Fookes, Miss Janet

      MacArthur, Ian

      Shaw, Michael (Sc'b'gh & Whitby)

      Foster, Sir John

      McLaren, Martin

      Skeet, T. H. H.

      Fowler, Norman

      Maclean, Sir Fitzroy

      Soref, Harold

      Fox, Marcus

      McMaster, Stanley

      Speed, Keith

      Fry, Peter

      Macmillan, Maurice (Farnham)

      Spence, John

      Gardner, Edward

      McNair-Wilson Michael

      Sproat, Iain

      Gibson-Watt, David

      Made), David

      Stainton, Keith

      Gilmour, Sir John (Fife, E.)

      Mather, Carol

      Stanbrook, Ivor

      Clyn, Dr. Alan

      Mawby, Ray

      Stewart-Smith, D. G. (Belper)

      Goodhew, Victor

      Maxwell-Hyslop, R. J.

      Stodart, Anthony (Edinburgh, W.)

      Gorst, John

      Meyer, Sir Anthony

      Stoddart-Scott, Col. Sir M.

      Gower, Raymond

      Mills, Peter (Torrington)

      Stokes, John

      Grant, Anthony (Harrow, C.)

      Mills, Stratton (Belfast, N.)

      Stuttaford, Dr. Tom

      Gray, Hamish

      Miscampbell, Norman

      Sutcliffe, John

      Green, Alan

      Mitchell, Lt.-Col. C.(Aberdeenshire, W)

      Tapsell, Peter

      Gummer, Selwyn

      Mitchell, David (Basingstoke)

      Taylor, Sir Charles (Eastbourne)

      Gurden, Harold

      Moate, Roger

      Taylor, Frank (Moss Side)

      Hall, John (Wycombe)

      Molyneaux, James

      Taylor, Robert (Croydon, N.W.)

      Hall-Davis, A. G. F.

      Money, Ernie

      Tebbit, Norman

      Hamilton, Michael (Salisbury)

      Monks, Mrs. Connie

      Thatcher, Rt. Hn. Mrs. Margaret

      Hannam, John (Exeter)

      Monro, Hector

      Thompson, Sir Richard (Croydon, S.)

      Harrison, Brian (Maldon)

      Montgomery, Fergus

      Trew, Peter

      Harrison, Col. Sir Harwood (Eye)

      More, Jasper

      Tugendhat, Christopher

      Haselhurst, Alan

      Morrison, Charles (Devizes)

      Vaughan, Dr. Gerard

      Hay, John

      Mudd, David

      Waddington, David

      Heseltine, Michael

      Murton, Oscar

      Walder, David (Clitheroe)

      Hicks, Robert

      Neave, Airey

      Walker-Smith, Rt. Hn. Sir Derek

      Higgins, Terence L.

      Nicholls, Sir Harmar

      Ward, Dame Irene

      Hiley, Joseph

      Noble, Rt. Hn. Michael

      Warren, Kenneth

      Hill, James (Southampton, Test)

      Nott, John

      Weatherill, Bernard

      Holland Philip

      Onslow, Cranley

      Wells, John (Maidstone)

      Holt, Miss Mary

      Oppenheim, Mrs. Sally

      White, Roger (Gravesend)

      Hordern, Peter

      Owen, Idris (Stockport, N.)

      Whitelaw, Rt. Hn. William

      Hornsby-Smith, Rt. Hn. Dame Patricia

      Parkinson, Cecil (Enfield, W.)

      Wiggin, Jerry

      Howe, Hn. Sir Geoffrey (Reigate)

      Pike, Miss Mervyn

      Wolrige-Gordon, Patrick

      Hunt, John

      Pounder, Rafton

      Wood, Rt. Hn. Richard

      Iremonger, T. L.

      Powell, Rt. Hn. J. Enoch

      Woodhouse, Hn. Christopher

      James, David

      Price, David (Eastleigh)

      Woodnutt, Mark

      Jenkin, Patrick (Woodford)

      Proudfoot, Wilfred

      Wylie, Rt. Hn. N. R.

      Jennings, J. C. (Burton)

      Pym, Rt. Hn. Francis

      Jopling, Michael

      Raison, Timothy

      TELLERS FOR THE NOES:

      Kershaw, Anthony

      Redmond, Robert

      Mr. Paul Hawkins and

      Kilfedder, James

      Reed, Laurance (Bolton, E.)

      Mr. Tim Fortescue.

      Kimball, Marcus

      Clause 6 ordered to stand part of the Bill,

    Clause 7

      SURTAX RATES FOR 1970–71
      Question proposed, That the Clause stand part of the Bill.—[Mr. Maurice Macmillan,]
      8.15 p.m.
      The Chief Secretary to the Treasury (Mr. Maurice Macmillan): Partly at least owing to the nature of surtax, this is in some respects a standstill Clause repeating in its provisions the same scale of rates as the previous Administration suggested for the previous year, because it refers to earnings which were taxed at
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      those rates under the provisions of previous Finance Acts for income tax. Surtax is more or less a deferred instalment of income tax, payable in the year following the year of assessment for which it is chargeable. It is an extra instalment of the income tax for that year. The surtax which becomes payable on 1st January, 1972, although the rates are authorised in the Finance Act, 1971—that is, this Bill when enacted—relates to the income tax chargeable in the tax year 1970–71 which is subject to the income tax levels imposed by the Finance Act, 1970.
      We shall therefore have to consider the Clause in relation to the then standard rate of tax and to the provisions which were then obtaining rather than to the 1971 rates.

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      The provisions of the Clause cannot in any logical way be related to changes in income tax proposed for 1971–72, although surtax payers will benefit this year to the extent that they share in improvements either in current income relief or in the general benefit from the reduction in the standard rate. The provisions cannot be related to the proposals for 1971–72 and still less are they affected by Chapter III in Part II—Clauses 22 to 29—relating to changes in the method of charging income tax starting in 1973–74.
      The Clause simply imposes for 1970–71 the same scale of surtax rates on the same successive slices of surtaxable income above£2,000 as that imposed for 1969–70 by the Finance Act, 1970. In other words, surtaxable incomes not exceeding£2,500 will continue to be exempt, but where the surtaxable income exceeds£2,500 surtax is charged on the excess over£2,000. To avoid anomalies where the surtaxable income is only slightly above£2,500, the Clause provides a "marginal" relief.
      Section 11(1) of the Finance Act, 1970 provides as follows:
      "Income tax for the year 1970–71 shall be charged at the standard rate of 41.25 per cent. and, in the case of an individual whose total income exceeds£2,500, at such higher rates in respect of the excess over£2,000 as Parliament may hereafter determine."
      Parliament is in the process of hereafter determining.
      The proposed scale for 1970–71, on top of the standard rate of 41·25 per cent., goes from 10 per cent., making the combined income tax and surtax rate 51·25 per cent., for incomes between£2,000 and£2,500 through 37·5 per cent., making the combined income tax and surtax rate 78·75 per cent., for incomes between£8,000 and£10,000, up to the top level of 50 per cent., making the combined income tax and surtax rate 91·25 per cent., for incomes over£15,000 a year. For the sake of clarity, I should explain that this refers to surtaxable income which is derived from gross income by an abstruse calculation with which no doubt we are all familiar in detail.
      The details of the Clause are simple and familiar and there is no difference from last year's provision. I do not think that I need weary the Committee by going over them again. I hope that both sides
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      will find themselves able to support the Clause. No Amendments to it have been put down. Hon. Members on both sides can express a general view on surtax at this or any other rate, and I have no doubt that views will vary from those who think that it is too much of a bad thing to those who think that it is too little of a good thing. I have no doubt that hon. Members opposite will support the Clause because it contains the same rates and scale on the same standard rate of tax as they laid down. I hope that my hon. Friends will equally be able to support the Clause despite its, to them, perhaps slightly dubious origin in detail.
      Mr. David Marquand: Perhaps I can at once relieve any anxiety which the hon. Gentleman may feel about whether the Opposition are able to support the Clause by saying that of course he is right. It merely carries on for another year the provisions included in the 1970 Act, and we have no objection to it. But we do think it right that it should be debated on the Floor of the House. As the hon. Gentleman has said, surtax as such is to disappear and we do not mourn its passing. But the very fact that it is to disappear means, we feel, that the principle on which it is based, and which is embodied in this Clause and in equivalent Sections of previous Finance Acts, must be re-emphasised.
      A debate on the general principle of surtax gives us such opportunity. We feel it all the more necessary to have the debate because a good deal of the criticism which surtax has attracted, particularly from the Conservative Party, appears to have been directed not just at the nature of the tax but at the principle behind it. Therefore, we cannot help feeling a little worried in case the Government, in abandoning the tax in future years, will also surrender the principle.
      The principle embodied in the Clause is basically simple—that those with high incomes should make a larger than average contribution to community services. I do not think that anyone now explicitly challenges that principle, although it would be nice to have from the Minister a rather more firm affirmation that he accepts that principle than any member of the Government has yet

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      given. The real argument between the two parties comes over the question of what level of contribution those with high earnings should make.
      We believe that the level of contribution from those with high earnings should not in principle be reduced. This does not mean that the way in which the contribution is raised must necessarily remain inviolate. On the contrary, it is true that many of us on this side, as well as hon. Members opposite, feel that there is a considerable case for changing the way in which the wealthier members of the community make their contribution to community services.
      There is a powerful argument for believing that, at the moment, the way in which high incomes are taxed encourages avoidance and is in many cases ineffective. But although we are not saying that the existing method must remain inviolate, we are saying that a change in the method must not be used as a camouflage for lowering the level. In particular, we say that, if the burden of direct taxation on high incomes is to be reduced, that reduction must be compensated for by an increase in the burden of taxation of capital wealth. In our view, the Government have given far too little sign that they recognise this, and it is because of this that we are suspicious, to put it mildly, of their attitude.
      I have said that much of the criticism which surtax has attracted from the Conservative Party appears to be directed against the fundamental principle of progressive taxation. This is particularly true of what is sometimes called the "incentive argument" for reducing taxation on high incomes. As deployed by hon. Members opposite, the incentive argument is nothing more than gross hypocrisy. The argument itself can be advanced in three ways. One can listen to what rich people tell one and can take what they say at face value. Arguments of that sort are by far the most common for saying that high rates of taxation have a detrimental effect on incentives. But such arguments are clearly worthless because obviously rich people, like everyone else, would like to pay lower rates of taxation and they are good at finding arguments for proving why they should. Only the exceptionally naïve or credulous will accept at face value what the high
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      income earners themselves say about the disincentive effects of high taxation.
      The second way in which the incentive argument is frequently advanced is on the basis of a kind of a priori deductive reasoning from what is alleged to be, I suppose, human nature—that people are bound to suffer a disincentive if they have to pay high rates of taxation because that is what people are like. But if one examines the situation purely on an a priori ground, there is at least as good a case for thinking that high rates of taxation will act as an incentive as for thinking that they will act as a disincentive.
      Mr. Raymond Gower: But does not the hon. Gentleman agree that, in certain circumstances, he has probably found evidence of disincentive not only at surtax level but at factory level? Has he not heard from constituents—I have—who are earning perhaps above average factory wages and complaining bitterly about the disincentive effect of taxation at the level of, say,£40 or£45 a week?
      Mr. Marquand Mr. Marquand: Undoubtedly the incentive argument applies lower down the scale and not only to high income earners. But the nature of the argument, which is the point I am on, is as dubious for the£45-a-week man as for the£45,000-a-year man. It is just as unreasonable to believe what a person says, with no other evidence to go on, in the one case as it is in the other, because the person putting the argument has an obvious vested interest.
      [Miss HARVIE ANDERSON in the Chair]
      8.30 p.m.
      On the a priori argument for believing that high taxation acts as a disincentive, surely the only common-sense thing to say is that it is highly probable that high taxation will affect different people in different ways? Some people will respond to the income effect and will want to make up their income to what it would have been, in which case high taxation will have an incentive effect. Other people may engage—though it is a little unlikely—in all sorts of complicated economic and mathematical calculations and come to the conclusion that because the marginal rate is high it does not pay them to undertake extra effort. On

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      a priori grounds one cannot believe that the disincentive argument is compelling. The only way to find out is to see what happens and how people's behaviour is changed by differing levels of taxation.
      Some studies of this kind have been carried out. The conclusions are, as is so often the case with studies of this sort, extremely confusing and, on the whole, negative. No one has yet been able to demonstrate that high rates of taxation have a significant disincentive effect. The evidence was reviewed very well by Professor Brown in a P.E.P. broadsheet published in 1969. After reviewing all the studies carried out, he asked:
      "Can the studies reviewed above provide a clear-cut answer to the question, do direct taxes have a disincentive effect? The only intellectually honest answer is No."
      That seems to me to be absolutely right.
      I now come to the point of the hon. Member for Barry (Mr. Gower) about disincentive effects lower down the scale, though a little further lower down than he was thinking about. If it were true that high levels of taxation, and particularly high marginal rates, had a disincentive effect on those with high incomes, surely it would be equally true that high marginal rates of tax on those with low incomes would have at least as great a disincentive effect? If Conservative hon. Members were honest in saying that they wish to reduce taxation on high incomes because of its effect on incentives, they would be at least as keen to reduce the marginal rates on those with low incomes. But it is now established beyond doubt that effective marginal rate of tax, if we include not only tax but benefit forgone, is often a great deal higher for poor families than for the wealthiest surtax payer in the country.
      This week's New Society contains an excellent article by Mr. Tony Lynes summarising the results of a study of low-income families in Birmingham. He shows that if a family with two children on£13-£14 a week increases its income by an extra£1 a week, it loses 72p of that extra£1 in higher insurance contributions and lost benefits—in other words, there is a poverty surtax of 72 per cent. marginal rate. For a two-child family earning£18-£19 a week, the marginal poverty surtax rate was over 100
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      per cent. If such a family increases its income by£1 a week it would be 21p a week worse off as a result of the changes in contribution and benefit.
      Mr. Nott: If I understand the hon. Gentleman's argument correctly, that would be no disincentive to that family to earn more. Is that what he is saying?
      Mr. Marquand: What I am saying is that if hon. Members opposite are to convince us that their reason for wishing to reduce the taxation of high income earnings is not to be nice to their friends, but because they are concerned about incentives, the same argument applies equally to those on very low incomes, whose marginal rate of tax and benefit together is a good deal higher in many cases than the highest marginal rate suffered by the wealthiest surtax payer.
      The point the hon. Gentleman has not yet taken aboard is that the whole drift of the Government's social policy is to make the whole problem worse than it was before. To drift towards the means-test State is bound to accentuate the marginal rate problem for those with low incomes. The Government's attitude on social policy proves that their professed concern with incentives for the wealthy is humbug. Even if the incentive argument applied to high income earners it could not apply to those who inherit high incomes. That is why we on this side of the House think it is fundamental that if there are to be reductions of taxation on high incomes, they are only justifiable if accompanied by a new and more effective attack on the inequality of capital wealth. The distribution of capital wealth in this country is scandalously unequal at the moment. In 1968, the richest 1 per cent. of the adult population owned 32 per cent. of the personal wealth. The richest 5 per cent. owned 59 per cent. and the richest 10 per cent. owned approximately 75 per cent. This is a far more unequal distribution than is the case with income. It is also clear that the distribution of personal wealth is not sufficiently more egalitarian in this country today than it was 60 years ago.
      There is a profound article by Professor Atkinson in the Political Quarterly which goes into the matter in detail. He shows that although the share of the richest 1 per cent. is smaller now than it was in 1911, the share of the next richest

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      9 per cent. has actually gone up. What has taken place is not a redistribution of wealth from the rich to the poor, but a redistribution within wealthy families from father to children and from grandfathers to grandchildren. It is also clearly demonstrated by Professor Atkinson that the rôle of inheritance is as great today as it was in the 1920s, when the whole question was examined by Josiah Wedgwood.
      It is also clear that the concentration of personal capital wealth is far more unequal in this country than in the United States and probably it is more unequal than in any other Western country. Whatever may be true about the effect of taxation of incomes on incentives, clearly there can be no incentive argument for maintaining this incredible inegalitarian state of affairs in regard to personal capital wealth. The only possible justification for maintaining this is the argument that property rights are sacred. We on this side of the House reject that argument since we believe, both on grounds of social justice and of economic management, that that view is quite wrong.
      There has been a good deal of talk in this debate about the need for an incomes policy. In the face of this distribution of personal capital wealth, how can one possibly go down to a coal miner in my constituency, who is working hard for£25 to£30 a week, risking his life in the process, and ask him to hold back his selfish demands for more? If we are to have an effective, acceptable and workable incomes policy it can only be in the context of a radical assault on this inequality of wealth. It is because the Conservative Party give no sign of recognising the need for this that I believe that, when they talk about incentives, they really mean inequality for its own sake.
      Mr. A. E. P. Duffy: Some of the most common beliefs about British taxation are myths. One is the belief that the United Kingdom is one of the most heavily taxed nations in the world, whereas international comparisons in O.E.C.D. data show that we come about halfway down the list. Another belief is that as individuals we are taxed more greatly than in fact is the case. This is now put down to
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      peculiarities of the standard rate and earned income relief.
      A third myth is that the United Kingdom tax tystem is highly progressive. This would be true for incomes above the£4,000 range, but for the bulk of incomes below this range the tax system is proportional rather than progressive. National Insurance contributions, rates and tobacco duties are regressive, that is to say, they take up a larger proportion of small incomes than of high incomes. Purchase tax and drink duty are roughly proportional. Thus, income tax in Britain is not the progressive tax that most people usually think it is. Britain's tax structure was once reasonably progressive, but inflation has now altered its incidence out of all recognition. In trying to ease the position of selected groups I suggest that the Chancellor is merely distorting the situation still further.
      The replacement of the archaic income and surtax system with a simple, single, graduated, personal tax has been welcomed on both sides of the House, but the logic of that tax is that it should be progressive throughout the whole of the tax system, and not just at certain levels. It is the opportunity for moving in this direction afforded by the change foreshadowed in Clause 7 which I now wish to explore. For example, a married man with two children will pay no tax at all on roughly his first£950 of income. Between about£1,000 and£4,000 a year, his marginal tax rate is constant. For every extra£ he earns he will pay 30·14 per cent. in tax, but in countries like Sweden and the United States and Germany the marginal tax rate continues to rise between£2,000 and£4,000 a year. This would make for a much more progressive income tax structure as well as for a more equitable distribution of the income tax load, if it were adopted in Britain.
      Under the present British system the progressive element in the income and surtax ranges hits hardest not only at the surtax payers as we all know, but as my hon. Friend the Member for Ashfield (Mr. Marquand) has now demonstrated, it also hits at anybody on the threshold of income tax.
      8.45 p.m.
      A married man with two children will, next year, pay no tax at all on£900 a

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      year. At£1,000 a year his effective or average rate of tax is 1·7 per cent. As his income rises to£1,500 his average rate of tax rises sharply to 11·2 per cent. At£2,000 a year it is up to nearly 16 per cent. I am sorry that the hon. Member for Barry (Mr. Gower) has had to leave the Chamber because he thought that only a worker earning£45 a week had reason to grumble. If he were here he would see that workers well below that level have reason to grumble. It may be that they have much more ample grounds for doing so.
      Between£2,000 a year and£4,000 a year the effective tax rate increases from 16 per cent. to 23 per cent. In other words, for the broad band of Britain's middle-class, between£2,000 and£4,000 a year the tax rate is the same, whereas the working man moving into and up through£1,000 a year to£2,000 a year finds his average rate of tax increasing rapidly as he goes. The same is true of the man moving out of the middle and into the upper executive income level. We all know that that is why, in a sense, we are having this discussion. This is what the Clause is about. This is one of the features of the Chancellor's Budget—relief for this type of man.
      We hear less about the families of the working man on the threshold of income tax and those who are paying income tax in the£1,000 to£2,000-a-year bracket. That is why in place of the present income tax and surtax I would prefer to see a smoother progression. This would make it easier for people to understand how much tax they pay and would also reduce the disincentive effect present, not merely at the upper end of the existing progression, but also at the lower end. It would undoubtedly allow a change in the maximum cut-off rate, but this is not something I would find very objectionable.
      I share the concern of my hon. Friend the Member for Ashfield over the present inequalities. I am especially concerned about those inequalities of wealth rather than of income tax rates. Presumably the higher the cut-off point the greater the store that would be set by inherited capital, tax evasion and tax avoidance. Would it not be better therefore to accept a lower cut-off point, together with the wealth tax as has been suggested?
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      After all, inequality in the ownership of wealth is much more glaring than it is in income. I want to add some further authorities to those cited by my hon. Friend in support of his contention. Michael Lipton in his work "Assessing Economic Performance" shows that the top 1 per cent. of the population owned 42 per cent. of the personal capital in 1960 and collected 60 per cent. of the property income. The very top 10 per cent. owned 83 per cent. and collected 99 per cent. These figures contrast with their mere 8 and 28 per cent. respectively of total post-tax incomes from all sources. The inequality is even greater and, of course, cumulative since the top 1 or 10 per cent. can and do save much larger proportions of their incomes and hence much larger amounts than those with smaller incomes and capital and can thereby add still further to their capital.
      Perhaps the most blatant abuses come not from those who own wealth but from those who control it—our top directors, managers and executives. As Eric White shows in "Survey of Executive Salaries and Fringe Benefits in the United Kingdom", there is an almost infinite variety of means of improving the lot of the employee outside the tax system; that is, by increasing real incomes and avoiding tax. The value of fringe benefits has thus assumed major importance.
      Fully to appreciate their variety and possibilities one needs to consult Margot Naylor's "How to Reduce Your Tax Bill". One example is that of a company operating a pension scheme for its chosen top executives—92 per cent. of the White companies for all their executives and another 7 per cent. for some—to provide a pension based on one half or more, in 55 per cent. of the cases, of the gross salary. Where the scheme provides a capital sum on retirement, this represents three year's salary or£10,000 tax free. In some cases the sum on retirement goes much higher. The company's contribution, being a legitimate business expense, was tax free.
      On retirement the executive could take the capital sum and purchase an annuity. This gives him a larger net income than if he took all his retirement benefit in the form of a pension, because about two-thirds of the annuity is regarded as tax-free capital. Or he could borrow against the capital sum and get tax relief on the

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      interest on the loan set against his remaining tax liability. If the company had some discretion, however nominal, as to the dependant or relative who was to receive the lump-sum payment on the employee's death, there was not even any liability to estate duty. Clearly it is in this direction that the tax gatherers ought to focus their gaze with a view to imposing levies on some of the capital accumulations to which it is giving rise.
      Mr. Nott: I had not intended to speak in the debate, but as none of my hon. Friends rose a moment ago I thought that I should comment on the opening remarks of the hon. Member for Ashfield (Mr. Marquand). He called in aid more professors than I have yet heard listed in any debate from either Front Bench for some time.
      Mr. Marquand: Two only.
      Mr. Nott: In calling in aid his professors, the hon. Gentleman joined them with a remark, in answer to an intervention by my hon. Friend the Member for Barry (Mr. Gower), which I found rather distressing. The hon. Gentleman was asked whether he had met people in his constituency, chaps earning an ordinary wage in a factory—
      Mr. Gower: A high wage.
      Mr. Nott: The hon. Gentleman was asked whether he had met people earning a high wage who had said, "My P.A.Y.E. deductions are such that it is not worth working overtime". Surely the hon. Gentleman must have met people in his constituency who complained that it was not worth working overtime because of the P.A.Y.E. deductions which are made.
      Mr. Marquand: I have met a large number of people who think that the rate of tax which they pay is a good deal higher than it is. One thing which I welcome about the changes is that this misconception will be removed. I am sure that we are all glad about that. What I said was that it does not seem to me that, because a man on£45 a week or any other level says that he will not work any more for fear of paying a high rate of taxation, one should necessarily believe him, unless one can actually find out that he does not work any more. What counts is behaviour, not what people say.
      Mr. Nott: But who will know best—the man who says that he will not go to work tomorrow because of the large deduction which will be made from his pay packet or the professor who publishes a pamphlet saying that the man is wrong? The argument is carried to extremes by the theorists in the Labour Party. The hon. Member for Ashfield says that the man may say that he is not going to work overtime but he does work overtime. I do not believe that that is always so. Men in my constituency genuinely do not work overtime because they think that their tax deductions are too great.
      The hon. Member said that they misunderstand the tax system, that the standard rate on earned income is not 7s. 9d. but 6s., because of earned income relief. But whether the man understands it or not does not destroy the argument that taxation is a disincentive. If a man believes that he is paying surtax at 90 per cent. of his income, it does not matter whether he is right or wrong: if he does not change his job because of it, it is a disincentive. It seems commonsense to me, whatever the professors may say.
      The hon. Member for Sheffield, Attercliffe (Mr. Duffy) talked of a pamphlet written by another professor about all the dodges by which people lowered their tax rate, one of which, he said, was borrowing money and offsetting it against taxable income. The pamphlet is out of date. The hon. Gentleman's own party, when in power, cancelled that concession two Budgets ago. He must get the latest edition of the pamphlet published by another professor, because the one which he read was out of date.
      The hon. Gentleman then went on to say—I think rightly—that there is no theoretical evidence as to how incentives work either way, and he quoted Professor Brown. But if it is not a different man, Professor Brown was the co-author of a P.E.P. pamphlet on negative income tax. I do not know whether the hon. Member's quotation was from that pamphlet. The whole of the pamphlet set out the arguments, which the hon. Gentleman used about the low income earners, saying that some of the highest marginal rates of tax in the United Kingdom are paid by those on very low incomes.

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      If one takes National Insurance contributions into account and adds them to the tax system, we know that the jump in marginal rates is probably equally as high for a low income earner, a man on£14 to£15 a week, as it is for the man earning£8,000 a year. But Professor Brown advocates a negative income tax to remove this anomaly, so he cannot have it both ways. He cannot say that there is a lack of incentive to the man on a low income to get himself out of the£15 bracket because of the high marginal rates of income tax and National Insurance and also that there is not a lack of incentive for the man on surtax.
      The hon. Member said that the level of surtax should not be reduced. It is his view and that of a large proportion of hon. Members who share his political faith, but it is not the view, I understand, of the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) who was the Chancellor in the last Socialist Administration. In his Budget Statement he said quite clearly that he thought that the levels of tax on high income earners were too high. If the right hon. Member for Stechford were still the Chancellor, he might have done something about it because he said that he thought it should be tackled. Nor is it the view which is shared by the right hon. Member for Manchester, Cheetham (Mr. Harold Lever) because when he spoke on this subject from the Opposition Front Bench only a week ago he said that he believed that the levels should be reduced on high income earners.
      9.0 p.m.
      This brings me to the next argument adduced by the hon. Member for Ash-field, namely, that perhaps, in the last resort, he might accept that the tax levels should be reduced on high incomes, but only if one clobbered the chap with wealth. I have fortuitously obtained from the Library a copy of the official Labour Party document "Into the 'Seventies" which stated, on the subject of a capital tax:
      "and since any new capital taxes such as a wealth tax might be paid out of capital or at the expense of current savings, the extra revenue could clearly not be directly traded off for general cuts in income or purchase tax because of the effects on consumption."
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      That statement, from an official Labour Party document, seems to make the case against a wealth tax.
      I have no partisan or ideological feelings against a wealth tax. However, the simple fact is that it is not a very good tax. It damages the savings ratio, which in turn damages the economy of the country generally. Why, if the hon. Member for Ashfield thinks that wealth should be dealt with in this way, were his right hon. Friends not prepared to do it in the 25 or however many Budgets it was that we had in five or six years of Socialism? The answer is that they did not do it not for ideological reasons—because their ideology would support a wealth tax—but because it would have been damaging to savings.
      It is right to reduce the levels of taxation on high incomes because it so happens that people with very high incomes save a greater proportion of their money than do those with small incomes. This is not surprising. If one reduces taxation or pays extra benefits to a person earning, say,£14 a week, he is, of necessity, likely to spend it all. If, on the other hand, one reduces taxation—and it does not cost much to do this in terms of actual cash—on somebody earning£50,000 a year, a very large proportion, if not the whole, of the reduction goes in increased savings.
      One of the values of a distribution of wealth that is not equal—I do not necessarily hold to this, but all the professors the hon. Member for Ashfield cares to consult will assure him that this is the result of the maldistribution of wealth—is that the rich save more than the poor.
      I am, of course, talking in macroeconomic as opposed to micro-economic terms. I dealt with the matter in micro-economic terms by saying that I did not know in theory which way incentives really operate—whether they work for the poor in one respect or for the rich in another.
      In macro-economic terms, it pays hand over fist to reduce taxes on the man earning£20,000 because he helps to swell the savings ratio, which helps one generate the sort of economic development which enables one eventually to reduce taxes right through the scale.
      I conclude by saying that I have heard the argument so many times that what

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      was so disgraceful about 6d. of income tax was that it benefitted the rich more than the poor. Of course it did, because the rich happen to pay more tax. Presumably hon. Gentlemen opposite want to keep a progressive tax system. This was the burden of the speech of the hon. Member for Ashfield. He did not want the progressive taxation system to be tampered with. I appreciate that hon. Gentlement opposite never lower taxes, but the present Government lower taxes; they have knocked off half the tax, in two Budgets, which the Labour Party put on in their 25 Budgets in five years. Under a progressive tax system, if we knock 6d. off tax, the chap who is rich will benefit rather more than the chap who is poor. It is a statement of the obvious.
      On this issue, although I have heard the hon. Gentleman's speech many times before, as he has heard mine before, his speech was unsatisfactory, and I hope that he will not call in aid too many professors on the subject of incentives and that he will rather more tend to listen to and believe the man in the street who says, "I shall not work overtime tomorrow; it is not worth it because taxation knocks too much off my pay slip."
      Mr. John Roper: I have not heard a speech of the hon. Member for St. Ives (Mr. Nott) before, so the one he has just made came to me as a first hearing. I found it very stimulating and I should like to respond to one or two of the points he made.
      The final point that he was discussing was the question of reductions in taxation. On this side of the Committee none of us complains about the fact that taxes have been reduced, but we are concerned about the way they have been reduced and the people who have benefited from that reduction, and, in particular, the way that it has benefited those who pay a good deal of surtax. The hon. Gentleman referred earlier to a possible inconsistency in various of the writings of Professor Brown. I suspect that he was referring to a different Professor Brown in the case of the negative income tax pamphlet from the Professor Brown in the study of incentive effects, referred to by my hon. Friend the Member for Ashfield (Mr. Marquand). Even if it was the same professor—we will not quarrel about that—if Professor Brown is inconsistent and
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      says that incentive effects do not work at high levels but work at low levels, then the Government are inconsistent when they are concerned about incentive effects at high levels, but are not prepared to show the same concern when it comes to incentive effects at the level of the poverty line.
      The hon. Gentleman also referred to the question of a wealth tax. He pointed out, as the Labour Party had shown in the document "Into the Seventies", that there are considerable macro-economic problems about substituting a wealth tax for other forms of taxation which have a direct effect upon consumption. That is true. That is one of the macro-effects about such a tax. But the hon. Gentleman referred to the grounds on which one judges whether a tax is good or had. Its macro-economic effect upon the savings ratio is not the only ground on which to judge it. It is one of the grounds on which one would wish to judge a tax, but others are its revenue-raising effect and its equity effect. I very much note what my hon. Friend said about the place of taxation within the context of the introduction of an incomes policy. Here a wealth tax could play a most useful part. It would not only have equity advantages, but would, in the long run, have macroeconomic advantages far greater than anything that has been done in the Budget.
      As for the Clause, I know very little at first hand about surtax, and none of my constituents has yet consulted me about whether they should work a little harder to pay more surtax or work a little less hard to pay less surtax. Perhaps the constituents of the hon. Member for St. Ives consult him about it, but my constituents never come to see me about it. They are more likely to want to talk to me about the effects of the poverty surtax, the family income supplement and the other ways in which the Government are affecting those at the bottom of the scale.
      Reading the Clause, one gets the impression that there are no changes in surtax this year. It says:
      "…in the case of an individual whose total income exceeded£2,500, at the same higher rates in respect of the excess of that income over£2,000 as were charged for the year 1969–70."

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      However, the Budget has had substantial effects in benefiting the surtax payer. Let us take the case referred to earlier of the man with two children who earns£10,000 a year. First, he will get increased child relief, perhaps£80. He will pay a lower rate of income tax. He will get additional earned income relief. Then he will be able to contribute to a personal pension scheme a further£750 a year, raising his total contribution from£750 to£1,500—[Interruption,] If he is not involved in a superannuation scheme, he can contribute up to£1,500 to a personal pension scheme and get tax relief on that, perhaps another£300.
      It is sometimes said that the surtax reductions in the Budget are designed to encourage incentive among the employed and that the surtax concessions have been given to the employed. However, that is not the whole story. Again taking our man earning£10,000 a year, if he has a further£5,000 of investment income, he will benefit from the Budget in terms of the tax that he pays on that£5,000 of investment income in addition to the benefits that he obtains on the£10,000 of earned income. The floor at which he will begin to pay surtax on the investment income will have been lowered because of the increased earned income allowance. Therefore, he will not merely benefit on his earned income. He will pay tax at a lower rate on the top slice, and so on his unearned income he will benefit as well. In such a case, there is not only a reduction in the surtax that he pays on the earned income. There is also a considerable reduction in the tax that he pays on the unearned income.
      If his wife is also earning, he will get considerable advantages next year. If his wife is earning in the surtax bracket and he has all the investment income attributed to him, which I understand is the practice at present, the benefit will be even more staggering. No doubt that my hon. Friend the Member for Heywood and Royton (Mr. Barnett) will tell me whether I am right about that.
      The new tax system will be very favourable to the upper middle classes. We have here a very interesting opportunity in which to carry out the sort of scientific experiment that people have been discussing. Shall we see these people working harder? I have been
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      looking at people whom I see on the Tube as I travel to Westminster. Is the rush hour from the affluent suburbs half an hour earlier? Do people leave work half an hour later in the evenings? Have they a new jauntiness in their step? Are entrepreneurs that much more enterprising in their appearance? I have not noticed it on the trains on which I travel. Perhaps hon. Gentlemen opposite travel on different lines and notice different results—
      Mr. Kenneth Lewis: They do not travel on the Tube. They ride in Rolls-Royces.
      Mr. Roper: I have not noticed Rolls-Royces passing my front door half an hour earlier in the morning.
      We have a very interesting opportunity, effectively, surtax is being reduced. It would be a good idea if the Chief Secretary would tell us that he intends to commission at least half the professors to whom my hon. Friend the Member for Ashfield referred to undertake a study into the incentive effects that this substantial reduction in surtax is having on surtax payers. We should then be able to settle once and for all the argument which has continued for some time between the hon. Member for St. Ives and my hon. Friend the Member for Ashfield. It would be of great interest to the Committee and to the country if the Government would commission a study into the great stimulus to incentive which this reduction in surtax has given. One eminent authority that I have consulted is extremely sceptical about the results. I have noticed no significant results yet.
      I wish it were the fact that the economic reality was the same as the words in the Clause and that there were no effective change in surtax rates. The reality is that there will on this occasion be a very substantial reduction in surtax.
      9.15 p.m.
      Mr. Cecil Parkinson: Until I heard the speech of the hon. Member for Ashfield (Mr. Marquand) I had not intended to speak, because most of the things that I had wanted to say were said very ably by my hon. Friend the Member for St. Ives (Mr. Nott) in his very interesting speech.

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      The hon. Member for Ashfield said that we must not listen to those who pay tax and we must not discuss with surtax payers and taxpayers the question whether they find high rates of tax an incentive or a disincentive. The hon. Gentleman said that those people would be the last to know; in any case, they are biased; after all, they are the people paying the tax. The argument is that we should talk to people who have talked to those people and on the basis of having talked to such people we should arrive at the conclusion that taxpayers and surtax payers are not put off.
      I do not know from where one gets information about incentives or disincentives except from talking to those who are paying the tax. Presumably the professor who came to the conclusion that people were not put off came to that conclusion from talking to them.
      I am a practising accountant. I spend many hours of many days talking to surtax payers and discussing their problems with them. I know from personal experience that many people capable of generating a great deal more wealth for the nation and a great deal more income for themselves spend too much time talking to people like me about how to retain what they have been earning, instead of getting on with the job of earning more. Over the years an increasing number of people have come to me and have said, "The tax level is too high. I am no longer interested in building up my business, in working any harder, in earning any more money. All I want to work on is how to pay less tax on what I am getting and how to have a comfortable life, because there is no point in my generating any more income". But I am only a practising accountant and I admit that not many professors come to me with their surtax problems. However, many business people have come to me with their surtax problems over the years.
      The hon. Member for Heywood and Royton (Mr. Barnett), when he speaks in his own inimitably honest manner, will be forced to admit that what I am saying accords with his experience over the years as a practising accountant. I found it an extraordinary statement that marginal rates of tax are a big disincentive for the poor but that the rich, about whom hon. Members opposite when it suits them think nothing but the worst, are apparently
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      supposed to rise above themselves on these occasions and not take any notice: they are supposed to find no disincentive in the fact that they will be paying a rate of 87½per cent. whereas the poor man is supposed to be put off by a high marginal rate. We all know that such a rate is a disincentive for the poor—
      Mr. Joel Barnett: I am sure that the hon. Member will have had the experience which I have had, of clients saying that the rates of tax are terrible and that they would work much harder if they were lower, but he will know from his own experience that the very people who tell us that literally could not work any harder than they are already working.
      Mr. Parkinson: I have had that experience, but I have also found that these people are spending an inordinate amount of time with their tax advisers, which is probably why we get to know them so well. They are certainly working very hard, but part of the time they are working, totally unproductively, on how to retain more of what they are earning. Of course, the hon. Gentleman and I are grateful to them for having acquired that interest.
      I thought that I had heard the last of it at a candidate's course years ago, but I note that we are still getting that hoary old statistic about 1 per cent. of the population owning 90 per cent. of the wealth, which, we are told, are the same proportions as in 1911. The hon. Gentleman and I know that, although the percentage may have stayed the same, the people within it are a constantly shifting group. I could introduce him to half a dozen people who started life with nothing and are now millionaires. I could introduce him to members of families which were once wealthy and no longer are. The same proportion of wealth might be held by the same proportion of people but the consistent mistake of the Opposition is to assume that, because the proportions do not change, the people within them do not change. It is simply not true.
      If anything has been proved by the growth in the number of takeovers and in the number of new millionaires in the City, along with the gradual moving into or taking over of the establishment by new millionaires, it is the fact that

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      entrenched wealth is, in many cases, and certainly to the extent that they think it is, a figment of the imagination of hon. Members opposite. Time and again we have seen companies removed from the control of families which have held it for centuries. Because the new generation has not been capable of coping, along comes a new entrepreneur, picks up the business cheaply and builds it up. If, in turn, his son is not capable of keeping it up, it will become a cheap buy for someone else. Hon. Members opposite should stop assuming that because the percentages of wealth have not changed the people within them have not changed and do not change. No one knows better than the hon. Member for Heywood and Royton and I about the fall of families—the old "clogs to clogs" routine taking place over several generations. I hope that we need hear no more of these phoney statistics about the proportions of wealth in 1911 or 1901 being the same as today and held by the same people. The proportions may be about the same but the people holding the wealth have constantly been changing.
      Mr. Emlyn Hooson: I agree with the hon. Member for Enfield, West (Mr. Parkinson) that far too great a proportion of the ingenuity of this country goes on tax avoidance. Some of the best brains in my profession are employed in advising on taxation matters, and a complicated system of taxation always lends itself to that. Any step proposed in the Clause for simplification of the tax system and the establishment of a single graduated tax in place of our rather antiquated system is to be desired.
      Although I sympathise a great deal with the sentiments expressed by the hon. Member for Ashfield (Mr. Marquand), I could not follow his tortuous logic. He was right to attack the Government for their social policy. He pinpointed an area which must cause considerable doubt in the community as a whole.
      Mr. Maurice Macmillan: I am sure that the hon. and learned Gentleman does not intend to mislead the House, so I should point out to him that the Clause bears no relation to any future arrangement for surtax or income tax or the merging of the two but refers to the imposing of surtax for 1970–71.
      Mr. Hooson: I understand the point that this is a bridging Clause. It bridges over for the coming year, and I think that it is part of the scheme of rearrangement.
      Before the hon. Gentleman interrupted, I was referring to the argument of the hon. Member for Ashfield. He is right to say that there are serious disincentives to the low income earner to improve his lot, and that failure to remove them is a glaring omission from the Government's policy. It was to a certain degree, though not the same degree, a glaring omission from his own Government's policy. The serious disincentive caused by the incidence of national insurance and so on has existed for a considerable time. But I could not follow the hon. Gentleman's leap from that argument to the argument which he seemed to advance that there was no evidence that it was a disincentive for the higher wage and salary earners to be paying taxation at a high rate.
      Mr. Marquand: What I said was that the arguments about disincentives to high earners were inconclusive, and that there was no solid evidence to show that there were disincentives. I added that if hon. Members opposite were to convince us that their reason for wanting to reduce taxation on high earners was the disincentive effect, then in logic they should also do something about the disincentive effect of the poverty surtax, about which they have done nothing. This suggests that their attitude on disincentives for high earners is hypocritical.
      Mr. Hooson: I follow the hon. Gentleman's point, but the fact that the Government have failed to take the proper steps to provide incentives for the lower income group is no reason why they should not give proper incentives to the high income group. It would have been preferable if they had done both, but that they have not done the one is not a reason why they should not do the other.
      I have no doubt that we shall never find evidence from the academic sphere to prove the incentive or lack of incentive from the incidence of taxation. It is a matter of judgment and common sense. I happened recently in the United States to meet a man who is becoming the European director of an international concern. He was deciding where to live

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      and where his headquarters should be, and he had had the taxation systems and incidence of taxation of each country very carefully investigated. His decision on where to set up his headuarters and live was governed by which country's incidence of taxation was most favourable to to him. I have no doubt from my experience that at a certain level of taxation those who pay taxes at that level find it a serious disincentive, particularly if they have the option of working harder or of free-wheeling. I know from chatting with colleagues in different professions and in business that this occurs.
      I have considerable sympathy with the hon. Gentleman's argument that wealth is still very inequitably distributed in this country. This is because the various measures over the years have not been effective. The test of any tax is whether it is to be effective, whether it is to achieve certain economic and social ends, and whether it can be collected to bring in the revenue it is designed to bring in.
      Let us take, for example, the death duties which have been the main instrument for trying to achieve a more equitable distribution of wealth. The truth is that people with fairly small estates pay the death duty and those with the large estates generally do not because they have taken proper advice. The£30,000 estate almost always attracts the tax in full, whereas the owner of the£3 million estate has taken advice long before death intervenes. To that extent it is a voluntary tax. It has failed because no steps have been taken in the House to make it effective. All the talk about a wealth tax would have been unnecessary if the Labour Government or any other Government had ensured that the death duty and estate duty were effective taxes.
      9.30 p.m.
      That is one of the reasons why we have constant complaints. I share the feeling of hon. Members on this side of the matter, but they have always fallen into the trap of being unable to make up their minds whether they want to see capital more equitably distributed or to abolish private capital altogether. The result is that they have never introduced a taxation scheme which enables people to make capital out of income. Very often the
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      person who has not inherited wealth and who relies on his own abilities to earn income is taxed to the hilt and is unable to make capital out of his earnings. If there is anything that gives a man incentive, it is the ability to make capital out of his earnings. I should have thought that the Labour Opposition would be as concerned as the Conservative Government to enable people to make capital out of earnings.
      If we made up our minds that we wanted to see a more equitable distribution of capital, our whole taxation system would be re-arranged. The hon. Member for Ashfield must persuade his own party that what is to be aimed at is a taxation system which enables capital to be shared more fairly. He cited the example of the United States, where capital is more equitably distributed than it is here. It may not be equitably distributed, but the proportion is greater than it is here. That is partly because of the tax system there. The young executive in an American firm can be partially paid in shares, and he does not have to pay tax on them until they are realised, generally when he leaves the firm or retires. That is a system which enables people to make capital. There is a continuous turnover in the companies not only of executives but of capital. Capital is distributed much more often than it is in this country, where once capital is in bulk it tends to stay in bulk.
      Mr. Kenneth Lewis: Having heard the speech of the hon. and learned Member for Montgomery (Mr. Hooson), I feel that, not for the first time, the Liberal Party wishes to have it both ways. In the first part of his speech I thought he was saying that he did not feel there was justification for giving incentive at surtax level because the Government had provided inadequate incentive at the lower level.
      Mr. Hooson: The hon. Gentleman has misunderstood me. I was criticising the hon. Member for Ashfield (Mr. Marquand) since I said that the fact that the Government had not done enough for people at the lower level was no reason why they should not have done something for people earning at the higher rate.
      Mr. Lewis: I accept that the hon. and learned Member made that clear at the end of his speech, but I thought that at the beginning he was complaining that

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      the Government had not done that. For many years Governments have been told by Labour Party members, "You cannot give anything to the surtax payer because you have not given anything lower down the scale." This kind of situation under successive Governments led to the situation in which no Government could ever give anything at the top level. We have been in the situation year after year as Finance Bills have come forward that no Government, until the present one, have ever had the courage to give some incentive to those who are earning at the very top.
      Some of the very high salaries paid in industry today, which are as much as£50,000,£60,000 or even£70,000 a year, sound very high. If the Daily Mirror prints the news that that is the sort of salary being paid, it is very good propaganda for the left winger who asks, "Why should such-and-such a managing director receive such a large sum of money?" But these salaries have developed through increases over the years because those executives would have been left with only 6d. in the pound. If they had been left with more income at the top end of the scale, those salaries would not have needed to be so high and the criticism would not have arisen.
      One managing director once told me that his salary of£70,000 rose completely by accident. He was paid on an incentive basis on a certain proportion of the profits of the business, As the business went up and up in profitability, so his income rose higher and higher. He could not reduce his income because he had to pay surtax on last year's income. To get enough money to pay last year's surtax he had to pay himself about the same sum. He was an individual who had no great capital when he started his business. Obviously he had accumulated some capital through the growth of the company in the shareholdings he had acquired over the years.
      We have heard speeches by hon. Members opposite on the lines that we cannot give incentives by simply reducing surtax among people who already have got too much, and it has been asked how those people can be made to work harder. One of my hon. Friends said that they could not work harder because they work very hard already, but the fact is that
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      they take greater risks because they feel that it is worth while. It is the risk-taker who provides the development of industry which provides the jobs and gets the exports for the country and provides us with our prosperity.
      I am sure that if young people can look ahead and see that if they become high earners they will be able to keep more of their money, they will have the incentive to take the risks which are in their own interest as well as in the interests of the nation. I do not see how hon. Members opposite can argue against this being an advantage to industry since we have not tried it over the last 10 years. This is the first time that there has been a cut to enable those high flyers to earn more. Perhaps we ought to try it and see what happens. I estimate that in two or three years time we shall be in a better position to tell whether this policy has worked.
      Hon. Members opposite seem to be giving a considerable amount of notice in advance that, if there is another Labour Government, there will be a wealth tax. I suppose they feel that this will win them a lot of votes. There is, however, a danger that much of the wealth they will seek to secure through this tax will fly out of the country. Surely it is apparent that the country needs investment. Most of the savings come from people who are high earners. If we need such investment, whatever Government are in power, it can come only from people who are given encouragement. There is no encouragement given, and no investment to be gained, by imposing a wealth tax. What the Labour Party should be considering is some form of incentive tax. If they can improve on our incentive tax then good luck to them, but they have not shown any intention in doing this up to now.
      Mr. Dalyell: If I attempted to follow the remarks of the hon. Member for Rutland and Stamford (Mr. Kenneth Lewis), on what he said about risk, I should be out of order. I should like to address myself for a moment to the Minister of State who in an earlier debate taunted us on this side of the Committee and said it was a pity that we did not go out and try to do something to persuade those who support us to restrain their wage demands. He implied that we either did not have the courage, the will or the

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      patriotism to do it. I played some part, I do not claim an overwhelming part, in what I think is recognised as being almost a model agreement in the most difficult of all industries, the motor industry. There was an agreement at Bath-gate, together with an agreement at Cowley along rather different lines, which was regarded as being almost a model of restraint.
      To get such a longish-term agreement and persuade shop stewards to go along with it, it is necessary to be able to say that the Government are pursuing a fair economic policy in the crudest terms. My hon. Friend the Member for Ashfield (Mr. Marquand) talked about facing miners earning£30 a week and persuading them to restrain their claims. In the motor industry this problem is acute. When we discuss this kind of claim it must be against the background of the general economic situation. If it is desired that there should be wage restraint then we cannot do the kind of things, arising out of the Clause. The offhand dismissal of a tax on wealth is very unwise, whatever form the tax takes.
      In all of these discussions we have to come down to the realities of the situation and to recognise that part of what the hon. and learned Member for Montgomery (Mr. Hooson) said was only too true. Estate duty and other forms of taxation are often uncollected and the haggling goes on for a long time. This brings us to the basic issue and that is the state of the Inland Revenue. We can go on and on discussing pure economic arguments and desirable forms of taxation, but we have to face the fact that the Revenue at this level is in a creaky condition.
      It is hardly surprising, because being an income tax adviser to wealthy people is a far more lucrative job than being Her Majesty's Inspector of Taxes. Time and again I have given the figures for the Scottish Estates Duty Office. Over a ten-year period 32 graduates were trained, 13 of whom went off to private insurance and law firms, seven to banking, four were considered unsuitable for one reason or another, four went to get married and four remained. The problems of the Scottish Estates Duty Office are perhaps especially difficult, for reasons known to the Treasury.
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      Similarly, on several occasions I have raised this subject and been told "We are looking into the problem; we will come up with some kind of answer." This has not been done and as far as I know there is still no clear view about what should be done to deal with the shortage of key members of the Inland Revenue. Without them, without proper pay, any kind of meaningful operation of the taxes listed by the hon. and learned Member for Montgomery is impossible. The Minister of State is chatting away quite amiably. Perhaps he would like to interrupt me and tell we what he plans to do about this.
      Mr. Higgins: I hesitate to do that. Actually I was contemplating that perhaps the reason for the shortage is that the hon. Gentleman, myself and the hon. Member for St. Ives (Mr. Nott) were all at Cambridge together and all ended up here.
      Mr. Dalyell: Whatever kind of group we may or may not have been in, or whatever our merits or demerits, that is not a complete answer to the problem. The Minister's charm is all very fine, but it will not do, because the problem still exists.
      The Treasury says, "We shall do something about it. We shall publish the result of this, that, or the other study." It has not done so yet. Until these loopholes are properly tackled and until there is a feeling that the wealthy are paying what they ought to pay even under the present system, it will be very difficult to get the restraint for which the Minister was asking today.
      [Sir ROBERT GRANT-FERRIS in the Chair]
      9.45 p.m.
      Mr. Maurice Macmillan: The debate has shown one or two misconceptions about the nature of the Clause and the provisions in the Bill regarding surtax payers. I should make it clear at the outset that there are no new benefits for surtax payers other than those contained in the provisions about earned income. There a re no extra provisions for surtax payers concerning unearned income either for the year to which the Clause relates, 1970–71, or for this tax year 1971–72. This shows how right hon. Members on both sides

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      were to welcome the new methods, which have nothing to do with the Clause, for making a more comprehensible and sensible arrangement for collecting what would in the past have been surtax.
      One point which has been made in this connection is that our tax structure, income and surtax combined, is no longer progressive. This does not stand up to examination. It is still a very steep tax which the Clause puts into force for 1970–71 and, indeed, for future taxation as reflected by other provisions in the Bill.
      It is reasonable, although I should be out of order in expanding the argument too far, in examining the part of the Bill dealing with the future, to say that the provisions for the changes to operate after 1973 do not show any signs of not being a method of taxing earned and unearned income, but meet the point raised by the hon. Member for Ashfield (Mr. Marquand), with which many on both sides would agree, that on the whole those who have the largest income should pay higher rates of tax and contributions towards communal expenditure. That proposition in general terms has not been dissented from—not even by the more extreme laissez faire wing of the Liberal Party in the past. That is a very fair point which we can make. Apart from the misconception of what the Clause was doing, there has been a slight misconception of some of the motives which underlay our arguments.
      This debate ranged rather wide, from the nature of direct allowances through the possibilities of wealth and questions of capital and income accumulation, down to incentives. For a relatively limited Clause, it was a fairly wide-ranging debate.
      The hon. and learned Member for Montgomery (Mr. Hooson) wished to see more provision to enable people, including high earners, to create capital out of their income for savings and investment encouragement. I hope to be able to discuss these matters at a later stage; I have devoted some thought and argument to these matters myself in the past. But in this, he appeared to disagree almost completely with the hon. Member for Sheffield, Attercliffe (Mr. Duffy), who, in referring to the blatant abuses which managers and directors get up to, rather
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      than earners, referred to their capacity to accumulate capital. I understood the hon. and learned Member to wish managers and directors, rather than earners, to be able to do this, so there was a slight discrepancy there.
      The hon. Member for Sheffield, Attercliffe put a slightly different emphasis to that of his hon. Friend the Member for Ashfield on the whole question of the distribution of personal capital wealth. The hon. Member for Attercliffe appeared to mind about new people acquiring wealth more than about anything else, while the hon. Member for Ashfield clearly minded more about old people hanging on to wealth than new people acquiring. The dichotomy was exposed by my hon. Friend the Member for Enfield, West (Mr. Parkinson), in his admirable contribution on what he called entrenched wealth, pointing out that the percentage of the owners of capital who may hold the larger amounts does not necessarily imply that the people making up that percentage have stayed the same over the years.
      The hon. Members for Farnworth (Mr. Roper) and West Lothian (Mr. Dalyell) regarded the taxation of wealth more directly than through income tax and surtax as politically desirable rather than economically effective. My hon. Friend the Member for St. Ives (Mr. Nott) made it clear that, even from the most doctrinaire point of view, one would be misleading the Committee and the country if one were to suggest that even the most radical change in the taxation of wealth is likely to produce large sums in proportion to the total tax yield and that, therefore, the main arguments in its favour are those of social justice and political reason.
      One has to take considerable pains in what is after all, even in the minds of the Labour Party, still to be a mixed economy, with a large proportion of the national effort in the private sector, to avoid killing the goose which lays the golden eggs.
      Mr. Barnett: Would the hon. Gentleman develop the argument as to how he would achieve the target of social justice on his concept of a tax policy, bearing in mind that he has already accepted that a prices and incomes policy cannot achieve social justice either?
      Mr. Macmillan: Not on this Clause. The debate has already ranged rather wide.
      I hope that the hon. Member for West Lothian will forgive me if I do not even attempt to reply to his answer to my hon. Friend's contribution to another debate earlier today which I did not hear. His account of the difficulties of the Scottish Estate Duty Office was enough to wring the heart of any Treasury Minister.
      It will be appreciated that the difficulties of the Inland Revenue, which are considerable, have been sufficiently great in the past that taxation has been collected through other means. The Department has acted with great fortitude, courage and considerable effort and I am conscious that the changes proposed in the Budget will not exactly decrease its burden of work. However, we hope that the simplification and clarification of the tax structure will ultimately do so.
      Another large part of the argument turned on the question of incentives, and here, for once, I had to agree with the hon. and learned Member for Montgomery when he said that it was extremely doubtful whether one could have any degree of certainty about anything in this sphere, including taxation, in considering what was or was not an incentive.
      I agree that it is difficult to make any sort of assessment of motivation in the sphere of human endeavour. It is difficult for professors, tax consultants and anybody by observation, common sense or anything else to assess what makes human beings do various things. This is made even more complicated by the capacity for self-deception and what one might call the post hoc propter hoc syndrome which tends to arise on these occasions.
      The idea that high taxation, and particularly high marginal taxation, is a disincentive seems to have been a delusion from which Chancellors of both major political parties have suffered, though frequently they have taken a different view once in opposition.
      It has been pointed out that the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) made it perfectly clear, both in 1968 and 1969—I will not go into this in detail; his words are in HANSARD for all to read—that he re-
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      garded high marginal rates of taxation as a disincentive.
      He also made it plain that, in his view, some of our more successful competitors abroad were holding their positions because, at least in part, compared with them our rates of direct taxation on earned income were comparatively high. The right hon. Gentleman also made it clear that he would have liked to have done more to lower the rates of taxation on high earned incomes, and he went as far in 1969 as to say that he regarded an increase in one of the earned income allowances as a high priority for a later Budget.
      Some of the contributions to what one might call the incentive argument failed to appreciate that whether or not, at a given moment, people will work more or less hard if their marginal rates of taxation are reduced is only part of the question. The important part is the general climate of opinion that is created by different rates of marginal taxation, both for those who are paying them and for those who hope one day to pay them because, by so doing, their incomes will be increased.
      When one considers both the rates of taxation on earned income and the natural desire, which the hon. and learned Member for Montgomery mentioned, of high earners to create their income through savings and investment in the country, one must realise that it is the general incentive to success that is part of the capacity of any economy to keep going in difficult circumstances. Some of the speeches from hon. Gentlemen opposite, but not all, seemed to disparage the effort, and, by disparaging, the reward that that effort may regard itself as having earned. Perhaps that was particularly true where there was a lack of recognition that in many cases such abuses by high earners as may be detected are due to the fact that their marginal rate of taxation is, in their eyes, too high. The same applies whether the extra effort is being made inside or outside the surtax bracket.
      10.0 p.m.
      Mr. J. T. Price: Perhaps the right hon. Gentleman would round off his argument more convincingly if he referred to the fact that some of the higher incomes to

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      which my hon. Friends were referring were not earned incomes but unearned incomes. How does the question of incentive apply to those people in the very high income brackets, who are merely dealing with inherited property and what flows from it in the way of very high incomes? Surely this is germane to the argument.
      Mr. Macmillan: I am afraid that the hon. Gentleman must have misheard me when I was pointing out that this particular Clause and this Finance Bill do not contain any relief for unearned incomes, other than that which would naturally be enjoyed by the relief in the standard rate of taxation.
      Mr. J. T. Price: I do not accept that.
      Mr. Macmillan: The hon. Gentleman may not accept it, but it is true. First, we are talking about a Clause which applies to 1970–71. Second, we are talking about the surtax which will be paid in 1972, due on 1st January. Therefore, the taxation of unearned and earned income in the year 1971–72 may be held to be relevant. Other than the natural consequence of lowering the standard rate of tax, there is no particular relief for unearned income. Indeed, some of my hon. and right hon. Friends on this side of the Committee have been rather critical of my right hon. Friend the Chancellor for this omission. This must be taken into account. Therefore, this is not a suitable time for me to develop the arguments suggested.
      Both sides of the Committee have made the point about the disincentive effect at the low level of the very low threshold of income tax. This is one of the consequences. It is a difficulty which we all have to face. It grew primarily during the years of Labour Government, due partly to inflation, partly to the extent to which the right hon. Member for Stechford lowered the tax threshold, and partly to the fact that income tax under the arrangements made by the right hon. Gentleman starts being paid at the standard rate at so low a level. This is a function, to some extent, of the selective nature of social security benefits, in that the more one tries to help those whose need is the greatest, the more one produces, as does a system of negative income tax to some extent, the
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      disincentive problem of the margin. It is a problem of which we are very conscious.
      We have ranged wide in a general debate on the taxation of high earners and, to some extent, earners. I think that the Committee will agree that it has been a slightly disorganised debate, no doubt due to the fact that the Clause which we are discussing relates so narrowly to one aspect of the problem and deals only with the tax to be charged as surtax at the rate decided by the Labour Party for 1970–71, and is the surtax due on 1st January, 1972, calculated on the earnings in that year and set in the Finance Bill of this year.
      Question put and agreed to,
      Clause 7 ordered to stand part of the Bill,
      To report Progress and ask leave to sit again.—[Mr. Maurice Macmillan,]
      Committee report Progress; to sit again Tomorrow,

      SURTAX RATES FOR 1970–71

        MERCHANT SHIPPING (OIL POLLUTION) BILL [Lords]
        Order for Second Reading read,
        Motion made, and Question put forthwith pursuant to Standing Order No. 66, That the Bill be now read a Second time.
        Question agreed to,
        Bill accordingly read a Second time,
        Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills).

        RECOGNITION OF DIVORCES AND LEGAL SEPARATIONS BILL [Lords]
        Order for Second Reading read,
        Motion made, and Question put forthwith pursuant to Standing Order No. 66, That the Bill be now read a Second time.
        Question agreed to,
        Bill accordingly read a Second time,
        Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills).

      TRANSPORT (LONDON AND SOUTH-EAST REGION)
      Motion made and Question proposed, That this House do now adjourn.—[Mr. Speed,]
      10.7 p.m.
      Mr. Julian Ridsdale: I welcome this opportunity to discuss transport services in London and the South-East region, in view especially of the severe increases in fares which so many people have had to face recently on both buses and the railways. I am only sorry that we cannot have a longer debate, because I know that a great number of my colleagues, like my hon. Friend the Member for Essex, South-East (Mr. Braine), my hon. Friend the Member for Gillingham (Mr. Burden), my right hon. Friend the Member for Ashford (Mr. Deedes), my hon. Friend the Member for Sudbury and Woodbridge (Mr. Stainton), my hon. Friend the Member for Brighton, Kemptown (Mr. Bowden), and my hon. Friend the Member for Derbyshire, South-East (Mr. Rost), feel very strongly about the burden that the commuter has to bear in increased fares.
      The most recent rail fare increases of up to 25 per cent. came into force in London and the South-East on 25th March. We have been told that the increases were necessary to offset the Government's partial withdrawal of grant aid to rail services in London and the South-East Region.
      The increases were foreshadowed in a statement in the House by my right hon. Friend the Chancellor of the Exchequer on 27th October, 1970, when he reiterated the intention of the Labour Government's 1968 Transport Act that rail services in London and the South-East area should be made progressively less dependent on grant aid and that, by 1973, these services must be made to stand on their own feet and pay their way. Thus, as a first-stage reduction of the grant for 1971, fares have been increased substantially in London and the South-East Region.
      I cannot understand why the Government have a different policy for the withdrawal of subsidies in the London area compared with the rest of the country. I was disappointed, when my right hon. Friend withdrew the partial subsidy from London and the South-East Region, that
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      he did not have a consistent policy and see fit to withdraw the subsidy from the rest of the country. I asked that this should be done in November, at least partly to prevent the heavy burden that commuters in the London area had to face, only to be told that the Government were considering the matter.
      I hope that we shall get a clear statement today of the reasons why this withdrawal of subsidy applies only to the London and the South-East Region. The latest figures that I have show that the running costs of grant-aided passenger services in 1969 amounted to£163 million, of which£60 million consisted of Exchequer grants, made up of£15 million from the London commuter area.
      So far a total of only£10 million of grant aid has been withdrawn for 1971–72, yet we have been told that, because of this withdrawal, fares have been increased by 25 per cent. Can the Minister give us some later figures for grant aid, because, due to the inflation which has occurred since 1969, surely grant aid is running at a higher figure than£60 million for the country as a whole and higher than£15 million for the London area commuter network?
      What concerns me, though, is the burden commuters are having to face. If the withdrawal of£10 million of grant aid has led to a 25 per cent. increase in fares, will the Minister give his estimate of the amount by which fares will have increased by 1973 as a result of the total withdrawal of grant aid for London and the South-East Region; and will this estimate allow for the present unparalleled inflation which is facing the country? Further, how much are fares likely to increase as a result of the recent 9½ per cent. wage increase on the railways, which equals a 20 per cent. wage increase since May of last year?
      In addition to these increased wage costs, railway costs have risen due to the general unprecedented rise in prices that we have all had to face over the last few years. Therefore, unless productivity on the railways can be considerably increased, which seems most unlikely, especially if they are starved of capital, over the next three years commuters are likely to face fare increases which since 1969–70 will be almost equal to a doubling of fares. For commuters in North-East Essex this would mean an almost

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      £200 increase net, which is an even greater burden when we consider how much must be earned to make this net figure from gross income.
      Is it any wonder that I have had to send to the Minister a petition from 1,865 commuters protesting about what is happening? Of course they are in despair. If increases of this nature are to be made, it will mean that many will have to leave the North-East Essex coast and move nearer to London.
      Therefore, I ask the Government to make a comprehensive statement as soon as possible about future transport policy. I do not want a policy of subsidy, which disguises costs. In a recent debate on commuter services my hon. Friend the Under-Secretary of State for the Environment said this:
      "…we are taking a wide look at the whole problem of how to match investment in various forms of transport in the cities with one demand competing against another. It is a highly complicated situation…we are interested in seeing what can be done in the totality of the problem, and studies and consultations are going on to see whether any adjustment may be made in national policies."—[OFFICIAL REPORT, 10th March, 1971; Vol. 813, C. 553–4.]
      I hope that these studies are now complete and that we shall hear from my hon. Friend tonight that there have been some adjustments in national policies. I assure the Government that many people are in despair about the continuing rise, not only in rail fares but also in bus fares. I hope that an early indication will be given of policy changes to meet the situation so that many people who are being hit so hard can plan for the future which at present holds so many uncertainties for them.
      I hope that these studies and consultations will underline the necessity for more investment in rail as an effective and economical means of transport. Certainly more investment is needed in the railways, as travellers know only too well, because of overcrowded trains and deteriorating service due to lack of investment and cutting back of staff.
      Undoubtedly the railways still have an important part to play in transporting commuters daily. The railways make the least demand of any form of transport on the environment, avoiding air pollution and the increasing land use
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      associated with road transport. If commuters are to be forced on to the roads because of fares which they cannot afford, the road system will quickly become congested and we shall be faced with increasing financial problems against which the present railway request for more investment will seem most economical.
      I estimate that, over the next 10 years, the railways as a whole will need about£300 million capital, of which£220 million will be needed in London and the South-East Region. I do not believe that it is realistic to keep on fanning the flames of inflation by trying to get this capital by always increasing fares or prices in nationalised industries. Of course passengers and consumers must pay realistic fares and prices, but is it realistic to take away£60 million of grant aid, push up fares and fan the flames of inflation when we know that, in London and the South-East Region, the railways need that£220 million of capital over the next 10 years?
      If we are to be realistic in transport policy, why do not we make a charge on motorways, as the French and Italians do? Should we not do more to encourage traffic and passengers on to our railways? I know that the railways are big users of capital but surely at this time we cannot starve them of capital, despite what has happened in the past. If we are to prevent congestion from so many cars coming into city centres, we must encourage more use of the railways.
      All this, I know, is set against the background of wage demands which the railways will find it difficult to contain by increased productivity. There has been a 20 per cent. increase in wages since last year, but I hope that those negotiating for further increases will realise the vital need for further investment and that the Government will come forward with a plan. I hope that the trade union leaders will be able to moderate future demands knowing how vital investment over the next 10 years is for the railways.
      Not only rail fares but bus fares are causing concern to transport users. Cannot the Government do something to break the bus monopoly which is working so badly, especially in rural areas? Why cannot licences be given to mini-bus operators, who, I am sure, could fill in a lot of the services which the railways

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      are finding it more and more difficult to run economically and which the big bus companies are also finding it difficult to fulfil?
      I assure the Government that the travelling public are in despair at the ever-increasing demands they are having to face. I hope that the Government will very soon find a solution to these difficult problems.
      10.19 p.m.
      Mr. Andrew Bowden: There is a sense of grievance among commuters in the South-East because the system is clearly unfair. My hon. Friend the Member for Harwich (Mr. Ridsdale) has mentioned that, in some parts of the country, the system is not operated in the same way as it is to operate in the South-East. I want to take the point a stage further.
      Some lines in the South-East are obviously wholly economic and it is unreasonable that commuters living at the end of those lines—my constituency is an example—should be forced to subsidise other travellers in the region. This gives rise to one of the senses of grievance, judging from my post bag. I hope that the Government will think seriously about this problem.
      10.20 p.m.
      The Under-Secretary of State for the Environment (Mr. Eldon Griffiths): My hon. Friend the Member for Harwich (Mr. Ridsdale) who opened the debate has, as always, touched on a wide range of important matters to his constituents and indeed to the House and the country as a whole. He spoke of what he described, possibly somewhat extravagantly, as the despair of his constituents. He touched on the wide-ranging questions of pay policy. He dealt with rural buses. He spoke eloquently about the environmental advantages of the railways, and he carried me with him a great deal of the way in that respect.
      However, I am sure he will appreciate that in a short Adjournment debate of this kind it is not possible for me to touch on all the matters which he raised. He made a number of interesting points, and I assure him that I will be glad to follow up all that he has mentioned and to discuss them with him at some future time.
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      Before I deal with some of the specific railway points which he made, perhaps I could make two general points and then spend a few minutes setting out the background to the problems of the London commuter area. My first general point is that the withdrawal of operating subsidies for the London commuter network must be seen against the background of the Government's overall economic strategy. Control over public expenditure—and railway grants are a part of public expenditure—is central to the strategy of my right hon. Friend the Chancellor. His recent Budget proposals, which I know my hon. Friend welcomed as much as I did, were made possible only because of the Government's willingness to tackle difficult problems of public expenditure such as the one which have been raised this evening.
      My second general point concerns the onus of proof. This is not an esoteric point but a practical one. It is simply that the payment of subsidies, and not their withdraw, has to be justified. The general principle is that people normally should pay the cost of the services they use and there need to be compelling social reasons to depart from that principle. I can find no such compelling social reason that is peculiar to the London commuter. I have myself been a London commuter but, in the general context of the national economy, it is difficult to find a compelling social reason for the London commuter to be singled out to receive a measure of subsidy that is not available to many others.
      As a group, the London commuters have no conspicuous claim on the taxpayers' money. Many people in much less prosperous areas meet the full cost of their journey to work. I can give one precise example in the area which my hon. Friend knows as well as I do, namely those London commuters north of the river who travel by London Transport. They pay the full economic cost.
      Mr. Nigel Spearing: Does the hon. Gentleman realise that the whole Government strategy for London Transport and the commuters is one of mystification, because they have not announced any support for the Fleet Line; they have not committed themselves to a 75 per cent. comparable capital contribution as they have done for roads; and the Minister is not prepared to issue a Green Paper,

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      yet the Government have given a 75 per cent. grant to the Liverpool tube line.
      Mr. Griffiths: The hon. Gentleman must raise that matter on another occasion. We are here dealing with a subject raised by my hon. Friend and I want to answer it. I stress that there is no change of policy in the matter of grant aid. Treating the British Railways London commuter network as a single entity and aiming to make it viable as soon as possible was just as much the policy of the previous Administration as it is of the present one. The previous Administration in their White Paper "Transport in London", published in July, 1968, says clearly
      "The London commuter services will be treated as a network … the first overall objective will be to achieve viability for the network by the end of 1972."
      The previous Government went on to say:
      "Subject to their financial objectives, British Rail will themselves determine fares on the network."
      That means that not only was viability the aim of the previous Government, but this was to be achieved by a marketing approach to fares policy. I do not generally agree with our predecessors in this matter, but since they for once decided on economic viability and then on a marketing approach to fares as their policy, I hope that my hon. Friend will not object to the present Government, who are committed to those very principles, also applying them in practice.
      Mr. Ridsdale: Are we to apply them to the rest of the country, too?
      Mr. Griffiths: I hope to come to that, but I must put this general point.
      The logic of a marketing approach to fares is that the Board must base its charges not simply on the cost of providing an individual service but on what the market will bear. Suggestions that the Board has been unfair in increasing its charges on routes which pay, as well as on routes that do not, are misconceived. Services which fail even to cover their direct costs are prima facie candidates for examination by the statutory closure machinery. But, as with any large multi-product commercial organisation, provided loss-makers cover their direct costs and make some con-
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      tribution to overheads—even though that contribution is less than their proper allocation of overhead costs—the organisation may well be better off with them than without.
      The same applies to the individual traveller on the profitable service. If fares on loss-makers were increased beyond what the market will bear, then traffic and revenue would fall. But the costs of providing the service would not fall; and would therefore need to be recouped on the profitable services—which would mean even higher fares. So the idea that some passengers within the network are cross-subsidising others, or that some have been treated more harshly than others, is far too simple, and is broadly inaccurate.
      Even if it were desirable to relate fares to the cost of providing an individual service, on much of the network —perhaps particularly on Southern Region—it is not possible to calculate it on that basis. Many different services run over the same tracks and use the same stations, depots, rolling stock, signalling equipment and so on. Allocation of these fixed costs between the different services is therefore complicated and ends up being fairly arbitrary. So there is no alternative but to treat the whole commuter network as a single entity.
      Fares increases would have been needed even without the decision of my right hon. Friend the Chancellor to withdraw the operating subsidy. In 1970 the costs of the London commuter network were, in round figures,£100 million and receipts were£85 million. The unremunerative service grant, therefore, was£15 million. Costs are rising, particularly wage costs. Labour accounts for more than 60 per cent. of the Board's total costs on this network. On the railways, as anywhere else, if wages rise faster than productivity or cost savings, the inevitable result is higher charges. For every I per cent. that wage increases in the railways exceed increased productivity, the Board has to find£750,000 more revenue. The only alternative to higher fares to meet those higher costs is ever-increasing subsidies, which would in practice mean inflation financed by the Government. That is unacceptable to the present Administration.

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      I turn to the particular services in which my hon. Friend is interested. The Felixstow-Ipswich line is one of them. The costs of this line are£120,000 per year. Earnings are£16,000 per year and the grant, therefore, is£104,000 a year. It is very difficult, against a background of seeking to contain public expenditure, that that amount of money should be paid.
      I come to the Manningtree-Harwich service. The costs are£102,000, the earnings£26,000 a year, and the necessary grant to make up the difference£76,000 a year. My hon. Friend will recognise, for he is a considerable economist, that those figures cannot be continued unless there is an increase in subsidy as costs increase or there is an increase in fares. That is the kind of harsh choice confronting the Government.
      No doubt there are individual cases of hardship, particularly among those less-well-off inner London residents or those comparatively less-well-off families who have contracted out of the city to travel to places where there are comparatively fewer jobs. This is not the choice of the railways and it is certainly not the choice of the Government. It is the choice of the people themselves who, throughout the South-East, have elected to commute long distances to live in pleasant country or by the sea.
      I cannot deny that there will be some effect on road congestion, but I am advised that it is likely to be relatively small and that significant switching to car commuting is unlikely if only because of the difficulties in parking and the existing congestion on the roads. I remind my hon. Friend that motoring is not cheap. Season ticket fares on the railways, in spite of the increases, are still generally less than the cost of the petrol alone.
      On the more positive side, there can be little doubt that the end of the operating subsidy will have a beneficial effect on British Rail staff morale and management. The morale of the staff and management improves as they find that they are not the pensioners of the State.
      The Government will continue to provide infrastructure grants for certain types of capital expenditure and improvements to the commuter system. The initiative for
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      putting forward investment proposals lies with the Board, but I know that the Board is conscious, as are the Government, of the need to improve the quality of its London commuter services.
      My hon. Friend raised a number of specific questions which I should like to answer. He asked me—will grants be abolished elsewhere? I cannot give him a complete and comprehensive answer. I would say that we have to examine the arrangements within the other conurbations, particularly in the passenger transport authorities in the four great conurbations in the North.
      He asks by how much fares will be increased by 1973. I cannot answer that question. That must depend upon cost inflation, in particular on wage increases. It must depend, too, on the application of the Chancellor's policy of reductions of grants. He asks what will be the result of the latest 9 per cent. wage increase on the railways. I can only say that it will be substantial. I cannot, and will not, dissemble by suggesting to him that this rise in fares is the last. I wish that it were. It would be untrue for me to say that it is the last. He said that the railways are starved of capital and that more investment is justified, not only on transport grounds but on general planning, environmental and other grounds. I agree with that. He must however face the question: where is the investment to come from? The investment can either come directly from the taxpayer, which means increased Government expenditure, increased taxation, to provide it, or from higher revenues from the railways system; but the higher revenue can only be derived from those who use it, and the end of that line is higher fares.
      Therefore, I fear that my hon. Friend and the country, including our constituents, must face the fact that the railways, except for Government grants, are by no means able to cover their costs from their incomes, and the grants made available by the Government are paid for by all of us as taxpayers.
      Mr. Spearing: Like the roads.
      Mr. Griffiths: The Government are anxious to reduce the burden of tax in accordance with their election manifesto. I am sure that my hon. Friend

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      will agree that the Chancellor has made a useful start in his Budget by cutting taxation by close to£1,000 million a year. The Government intend to go on cutting taxes just as soon as the state of the economy will allow it, but this can only be done if the growth of public expenditure, including that in unremunerative railways grants, is contained. That means, as my hon. Friend knows perfectly well, that subsidies paid to a whole range of public activities, including
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      the railways, have to be contained in order that our policy shall succeed. Unless the rise in public expenditure is halted or contained, taxes cannot be cut.
      The Question having been proposed after Ten o'clock: and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order,
      Adjourned at twenty-three minutes to Eleven o'clock,