HC Deb 06 December 1972 vol 847 cc1427-41

9.58 p.m.

Mr. Tam Dalyell (West Lothian)

The purpose of raising on the Consolidated Fund this rather daunting topic of Prime Ministerial, Central Policy Review Staff, Treasury and Government Departments' relations with the financial institutions of the City of London is to seek enlightenment.

There is no spirit of vituperation. Indeed, on Monday I took the unusual course of sending my full notes to the office of the Chief Secretary to the Treasury in the hope that the Treasury would be as forthcoming as possible, and it goes without saying that I am quite content that the Parliamentary Secretary to the Civil Service Department is to answer the debate.

I start from the basic premise that, like it or not, we find ourselves in the early stages of a new, major field of intervention in trying to run a mixed economy.

I refer to the intervention in the settling of relative incomes. Henceforth we shall be moving slowly but surely towards a position in which it is either the Government, or some other body to which they delegate their powers which will be the final arbiter in the awarding of different jobs, occupations and professions. This will not happen overnight, but in the long run, and doubtless after many economic squalls and political storms, it is as certain as night follows day that incomes policy should move in this direction.

When I sat through the debate on the Counter-Inflation (Temporary Provisions) Bill, I pitied some hon. Members on the Government side who fondly imagined that they would be told about some short-term anti-inflationary device. Of course it was nothing of the kind. What we are up to is something quite different—namely, starting along the road to an alternative to the present system for settling relativities. The present proposals may be put forward as temporary, but no one with the intelligence of Treasury Ministers or the Parliamentary Secretary can conceivably believe that in 1973–74 a British Government will gaily abandon the whole exercise and go back to free bargaining. If the pause were ended, we should be swept away by the flow waters of the melting ice.

As was brilliantly spelled out by my right hon. Friend the Member for Leeds, East (Mr. Healey) at a Lefta meeting in October, given the legitimate aspirations of British people and trade unions, reflecting the feelings and traditions of their members, the general demand management techniques which we have known since Keynes are no longer an adequate way of combating inflation, except perhaps at the price of a level of unemployment which is morally indefensible and politically impossible. Frank Chapple's power workers will not be deterred by threats of being thrown out of a job, and that is a fact of life with which all Governments will have to live from now on.

It follows from this, put in shorthand terms, that we must come to what might loosely be called the concept of fairness packages. At least by the fourth or fifth of those packages there will be a serious if imprecise demand that the Government of the day must do something about the City, because restraint will not be acceptable for wages and salaries if share prices and other things associated with the City soar indecently.

We need not go over that. It was covered very fully by my hon. Friend the Member for Heywood and Royton (Mr. Joel Barnett) during the passage of the Finance Bill. This is not the point of dispute. It is a fact of life and not worth arguing about, so I ask the general question: do the Government see a new era in relations between Westminster, Downing Street. Great George Street, Whitehall and the City of London and, if so, what are at least their interim reflections?

This may be a particularly opportune moment to ask the question, because one key committee appears to have reached the end of its work and another is just beginning. I refer to those under James Robertson and Jeremy Morse. What can we be told of the report of the Inter-Bank Research Organisation under the chairmanship of its director, James Robertson, to the Central Policy Review Staff? Has he recommended a task force to be composed of full-time members, drawn on secondment from the Government and the private agencies? If so, precisely what is to be the task of the task force? In particular would such a task force have a brief to interfere with profit rises and other activities in the City of London which might be prejudicing the Government's prices and incomes and industrial relations policies?

Although delicate, the question is so important that I repeat it. What should be the task of the task force? On this, because notice has been given, I hope we will have some enlightenment. There should be some comment, even if it is of a stalling nature, in the winding-up speech.

Secondly, is it true that Mr. Robertson suggested that the Treasury and the Bank of England should review the workings of monetary and fiscal policy so far as they affect the institutional structure and efficiency of the financial services industry? Thirdly, is there any significant movement in governmental circles which takes the view that, while monetary and fiscal day-to-day decisions should be left to the Treasury and the Bank of England, the political and socio-economic relations between Government and City, arising from the situation that I have tried to sketch, should be taken from Great George Street and, as it is put, to avoid confusion, be transferred to Downing Street?

When I asked the Prime Minister at Question Time a fortnight ago whether he would set up a Department of the Prime Minister, I was not the only one who thought that the operative words in his answer that he had no plans at present to do so were "at present".

I can quite see that a persuasive reason for having a Department of the Prime Minister stems from the prospect of direct Prime Ministerial relations with the City. Can we be certain that before any plans for a Department of the Prime Minister are settled Parliament can at least have a Green Paper-type debate on the matter. I am not saying that I am against a Department of the Prime Minister. I know that some of my hon. Friends, including my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) who really looked at this matter in some detail, are not necessarily against it. But it means altering many of the so-called British traditions, and Parliament ought to have a debate on this if that is to be the plan contemplated, either in the light of Robertson or for other reasons.

What action will be taken on Mr. Robertson's suggestion that the Department of Trade and Industry should reexamine all the Government regulations affecting the City? We can all conjure up the enchanting picture of the new Secretary of State for Trade and Industry burning midnight oil and rising from his bed early in the morning to apply himself to such a task. Will this be the position in which the Secretary of State for Trade and Industry finds himself? When is Mr. Robertson's full report likely to be published, if it is likely to be published? At first sight, I do not see why it should not be published straight away, granted that the Government will want some time to think about it. But so will the City, so will Members of Parliament, and all the rest who will be concerned. If the promise is to be open government, I see no reason why Mr. Robertson's five volumes—if that is the number—should not be published and made available.

One central question concerns the basis on which the task force is to approach its job. Do the Government take the view that the City, or units of it, is the commanding heights of a corporatist economy, over which some sort of firm grip must be held if their Industrial Relations Act and prices and incomes policies are to work at all? Or do the Government see the City as basically a financial services industry, not much different from other industries, whose best contribution to Britain is secured by freedom from Government interference under minimal general laws on competition and honest dealing?

These questions were well put by The Times leader—or The Times leak—on St. Andrew's Day. I should like to know when the answer will be revealed. Without pressing it too much, I am a little curious to know how a newspaper found out quite so much about a supposedly currently confidential report. I know the job of the Press; so does the Parliamentary Secretary to the Civil Service Department. But without making too much fuss about it, it is worth asking how The Times got quite so much information.

Mr. Timothy Raison (Aylesbury)

I am also intrigued to know whether the hon. Gentleman is in favour of what I think he described as "the corporatist economy", which has the most shady history. Is he really as much in favour of it as he appears to be?

Mr. Dalyell

A long answer to that would incur the displeasure of Mr. Speaker. Perhaps "corporatist" is not the happiest of words. With that I agree. Some kind of collective, coherent power would satisfy the argument in the context in which I asked the question of the Government.

We go from Robertson to Morse. Although it may be denied with a watery smile, I assert that we would have had no Counter-Inflation (Temporary Provisions) Act, at any rate yet, had it not been for the great unmentionable, the run on sterling. Everyone knew it from the debate. The hon. Member for New Forest (Mr. Patrick McNair-Wilson) mentioned it specifically. Anyone who has had anything to do with Government knows only too well what it is like. Vividly I recollect the gloom of the then Minister for Housing, whose PPS I was, when he learnt that Jonkheer Emile Van Lennep, the chairman of Working Group No. 3, wanted to see my right hon. Friend the Member for Cardiff, South-East (Mr. Callaghan).

The simple reflection would be the ailment of the time. Be it raging inflation, stunted growth, or unemployment figures, we return to international monetary problems, delicate ground though it is.

Vividly it has been put in a nutshell by my right hon. Friend the Leader of the Opposition in his presidential address to the Royal Statistical Society, which he entitled "Bradshaw Revisited", on 15th November last. My right hon. Friend said: What the banks urged upon me was that no one could possibly foresee how many holders of sterling would seek to convert their sterling. They were in the position, they said, of cloakroom attendants. They knew how many cloakroom tickets had been issued; they could not know how many holders would rush to collect their raincoats on a sudden change of weather. It was like that in 1947, again in 1966 and again in 1972.

I want to know what general guidelines the British Government, among 20 or 30 others, want to put to Mr. Morse and his committee. I see the Minister shrinking into his cushions. I realise that this is delicate ground, but there is an issue here. I believe that the Morse Committee is, rightly or wrongly, in the long term the most important committee sitting at the present time. It affects all our constituents. Unless we get this right, we shall have the same troubles all over again—what we went through in 1966 and what the present Government went through in 1972. We look to the Morse Committee to do something about ending that kind of depressing sequence, and I ask again what action the British Government are taking to brief Mr. Morse and his colleagues in their international capacity. For the British people, there is no more important body of men sitting on any committee anywhere today. I do not suggest that most of them realise it, but in my view it is the fact of the situation.

I have kept my speech deliberately short for these and other reasons. Treasury Ministers and their advisers will doubtless content themselves with picking many holes in what I have said. But a hole-picking reply would perhaps just be a little bit too easy. I hope that they will resist the temptation and answer in a forthcoming manner, in the same spirit as the questions—of which they have had some notice—were put.

10.12 p.m.

The Parliamentary Secretary to the Civil Service Department (Mr. Kenneth Baker)

I thank the hon. Member for West Lothian (Mr. Dalyell) for sending me a copy of his speech earlier this week. It enabled us to see the rather wider range of subjects he intended to cover than would be imagined by reading the title of the debate. Indeed, they ranged over such a wide area that we decided earlier it could not be left to a mere Treasury Minister to reply. Of course there are certain disadvantages in that, as the hon. Member has said, he expects a rather detailed reply. But he sent me abbreviated notes—the warp and weft—and he has embroidered a rich tapestry from them.

The hon. Gentleman has dealt with five major points—the "think tank" or Central Policy Review Staff; the Inter-Bank Research Organisation's report; the Prime Minister's Department, en passant; the counter-inflationary measures and whether these indicate a real change of direction in demand management; and the relationships between the Treasury and the City of London. I start with the think-tank, Lord Rothschild's CPRS.

I begin by reminding the House of the functions of the CPRS and explaining briefly how it comes to be taking an interest in the City and what: its connection is with the Inter-Bank Research Organisation. I would like to try to put some flesh on what I might term Lord Rothschild's bones. As hon. Members will probably remember, the CPRS was set up by the present Government in October 1970. Its role was clearly explained in the White Paper on the Reorganisation of Central Government. Briefly, its main task is to advise Ministers collectively—I stress "collectively"—on major issues of policy which are either interdepartmental or strategic—I emphasise "strategic"—as the difficulty with all Governments, of whatever party, is that the immediate crisis tends to divert one from one's long-term strategy.

The whole idea is that the think-tank should be thinking about the long-term strategy of the Government. Its work programme is approved by Ministers and it takes several forms. For example, there are the regular six-monthly reviews of Government strategy, attended by all Ministers. One took place this morning at Downing Street. It also reports on specific topics and in a few cases these reports may be published—for example Lord Rothschild's Green Paper on the organisation of Government research and development.

The House may like to know that in the course of a recent series of visits which I have been making to other countries in Europe to see how their central machinery of government is organised, I found that although arrangements in other countries are different, a number of Governments are looking at arrangements for think-tanks very similar to that of Lord Rothschild. The Dutch Government are in process of setting up something on very similar lines. This is a matter in which we are something of a pace setter and is something to be proud of.

The staff of the CPRS is small—only 28. It is located in the Cabinet Office. One of its main functions is to draw the ideas of outside individuals and organisations into policy consideration. Among the items in its current work programme is a study of the future of London as an international financial centre—a subject of great importance at any time but particularly in the context of our entry into Europe. This is a very good example of the kind of subject the think-tank can do. It is trans-departmental in nature; it needs to be looked at in a time-scale stretching several years ahead.

To help with its study, an arrangement was made for a report to be submitted to the CPRS by the Inter-Bank Research Organisation, which I should now like briefly to describe. This organisation is a research unit of high professional standing—it is a form of financial consultants—and it is financed by the London and Scottish clearing banks. Its basic job is to do research on problems of interest to the banking industry, and it has dealt with many problems. In no sense does it speak officially for the clearing banks, nor does it normally represent their interests in discussions with other interested parties.

The clearing banks generously agreed to make IBRO's services available to the CPRS. The proviso was written into IBRO's terms of reference that the report would reflect the views of its authors only and not those of the clearing banks or of the CPRS. The report was recently submitted to the think-tank. In the light of the publicity given to it in the Press, I do not think I am breaching any confidence when I say that its main theme was that the Government and the City should work together to ensure that the City developed in ways consistent with its own interests and with the wider national economic interest.

The hon. Member asked what were the Government's views on particular topics arising from the report. He also asked whether the report would be published. I shall be as frank as I can. In general there may well be good reasons for publishing reports of this kind to encourage informed public discussion. However, it would be premature for me to comit the Government tonight. The report covers a wide and very complex field. It is of interest to many Government Departments and Ministers. Its contents reflect a large number of confidential interviews. The clearing banks, as its authors' sponsors, plainly have views about it. I hope the House will agree that it is too soon for the Government to make a firm commitment to publish. However, I assure the hon. Member that I shall give most careful consideration to what he has said about publication.

I should like to take this opportunity of reminding the House that the Government do not pay lip service to open government but practise it. We have published a large number of Green Papers, particularly, as the hon. Member for Heywood and Royton (Mr. Joel Barnett) will know, on taxation. There was a Green Paper on corporation tax. A very distinguished Select Committee did admirable and outstanding work on it. I was glad to be a member of the Committee. There was a Green Paper on value added tax, a Green Paper on research and development and one on inheritance tax. There is also the Green Paper on tax credits, for which another Select Committee has been set up. This is something of which we can be proud.

Mr. Dalyell

Shall we have a Green Paper on the Department of the Prime Minister before it is set up?

Mr. Baker

That is a very interesting question. Not only has the hon. Member been thinking about it, but the Leader of the Opposition has been thinking about it too. In a speech which the right hon. Gentleman made to the Royal Statistical Society, which I commend to the House—it was vintage stuff, a combination of the diary and Varoomshka—he said in assessing the think tank: It is my view"— he was talking about the position of the Prime Minister's office— we shall need not perhaps another DEA"— that was modest— though its creation has led to permanent and beneficial changes in Government forward planning but certainly a much strengthened Prime Minister's Department with staff involved at an early stage in departmental policy formation and the work of lower and medium level interdepartmental committees". I have noticed that the interest of former Prime Ministers when talking about a Prime Minister's department increases in inverse proportion to their chances of running one.

However, this is a very interesting area of central Government. I should not be prepared to commit the Government, if changes are made, to publishing a Green Paper. I do not read into the reply which the hon. Member for West Lothian received from my right hon. Friend the Prime Minister the other day the inference which he reads into it. My right hon. Friend said that he had no plans to do so at the moment. That is usually considered to be a polite but final way of saying that he is not going to Dundee, Heywood and Royton or West Lothian. Nothing should be read into what my right hon. Friend said. But, as I say, this is an interesting matter. It interests me in my responsibility for machinery of government. It is worthy of a fuller debate as it is an area in which changes occur. It depends to some extent on the personality and temperament of the Prime Minister. But the question of a fully fledged move to set up a Prime Minister's department was properly and adequately dealt with by my right hon. Friend in his reply to the hon. Member for West Lothian.

Mr. Dalyell

The hon. Gentleman is dealing with this matter very decently and I hesitate to interrupt him, but the important point to some of us is that, without reflecting on the merits or demerits of whoever is Prime Minister, there is some worry about a move towards the presidential system. If a department of the Prime Minister is set up, some power will go from other great Departments of State and I think that before the Treasury, in particular, loses any power the matter should be fully debated by Parliament. That is why the question of a Green Paper is a point of substance.

Mr. Baker

The Treasury would probably agree with the hon. Gentleman. If the Treasury ever thought that part of its powers might be taken away, it would be in the forefront of those wanting the matter to be fully debated.

The hon. Member raised the question of the wide implications which may be implicit in phase two of the Government's prices and incomes policy. This matter is a little to one side of the general debate. The hon. Gentleman claimed that we were moving to a situation in which the Government or some other body would be the final arbiter of how different jobs, occupations and professions were rewarded so that there would be somebody allocating job differentials in money terms and if the pause ended and if an organisation were not set up we would be swept away by the flood-water of melted ice. All Governments must take a view on incomes policy in a modern democratic society, and there can be no question of opening the floodgates to a complete free-for-all at the end of the standstill.

We have made it quite clear that the purpose of the standstill is to enable a viable policy to be developed for the period after the standstill. Obviously in phase two it will be necessary for the appropriate guidance to be given, but that is not the same as a rigid system in which the Government determine rates of pay for individual groups of workers.

We are very conscious of the problems involved in creating an effective and not over-rigid longer-term policy. We are therefore considering carefully what possible courses of action and institutions would enable the broad objectives of the tripartite talks to be pursued, so that the aim which we all desire—the real improvement of the living standards of the British people—can be achieved.

The last point to which the hon. Member for West Lothian referred was the relationship between the Government and the City of London. The Treasury's responsibilities for the Government's economic and financial policy give it a central interest in a good deal of the work of the City and the financial institutions generally. For example, the Treasury is responsible for monetary and credit policy, which obviously is of major importance to the banking system. It is also responsible for National Debt questions. A large proportion of that debt is held by banks, insurance companies and institutions in the City. On the international side, exchange rate policy and exchange control regulations are essential to what goes in the City.

Treasury Ministers are also responsible for the Government's relationship, for example, with building societies. These institutions are not always in the City. I have the largest one in my constituency. None the less, they are significant financial institutions.

The channel of communications between the Treasury and the banking community—the clearing banks, the accepting houses, the issuing houses and overseas and foreign banks—has traditionally been via the Bank of England, which is itself a banker and financial institution, and has always been in a unique position to represent the City's views to the Government and vice versa.

By and large I think that most people concerned, both in the City and in Whitehall, believe that the system has worked reasonably well over the years. But the Government are always conscious of the need to examine existing patterns and relationships in the light of changing circumstances, and particularly at the moment in view of our entry into Europe. The IBRO report will provide an interesting contribution in this particular field.

It is not only the Treasury which has relationships with the City. The Department of Trade and Industry has relations in the City—for example, with mergers and the policing of the insurance industry.

But to deal with the City geographically, it is a unit; it is the square mile. It is close together, but it is united only in its geography.

For example, there are a variety of different types of banks. There are clearing banks, merchant bankers, investment bankers, industrial bankers, overseas bankers and foreign bankers. Let us consider brokers. There are ship-brokers, insurance brokers, stockbrokers, money brokers, marriage brokers of the corporate kind and strippers and filleters. The activities of some of them are carried out by the same institution. There is usually fierce competition. and that is all good for business.

The City is not one city, but many cities, and the relationships between the various sectors of the City are complex and constantly changing. These relationships can be summed up in the phrase "the City".

But that gives too much of a monolithic impression of what in practice is a great variety of competing and different activities. The City's claim is that it is the world's leading financial centre. That claim is based on the fact that it can provide the whole range of financial services to which I have just referred. That has given the City a strong competitive advantage, the various services complementing and supplementing each other, producing a unity which is much greater than the sum of all the parts of it. It is very adaptable and constantly moving.

A few years ago a lot of the business now done in the City did not exist—for example, the Euro-currency market and the Euro-bond markets. The development of these markets was made possible by a well-developed banking and foreign exchange system. The growth of London's worldwide insurance business has been made possible only because there are outlets in the City for the enormously large-scale investment funds that insurance generates. New markets have been created in the last few years—the local authority market, the inter-bank market. certificates of deposits and so on.

It is not appropriate in this debate to dwell at length on the invisible earnings of the City, but one short statistic may be of interest to the House. Export earnings per head in manufacturing industry throughout the country are about £900 a year. The export earnings per head of the City are about £1,800 a year. This is something of which we as a Government, and as a country, are proud, and I know that the previous Government were equally proud of it.

Mr. Dalyell

Many of us have been bumped around by the Euro-dollar problem. May I now repeat the question which I asked, quite seriously, about the evidence that the Government are giving to the Morse Committee. Surely there must be such evidence, and I do not see why it should not be published and laid before the House. I do not expect the hon. Gentleman to go into detail now, but may I have an answer to my question?

Mr. Baker

That is a matter for my right hon. Friend the Chancellor of the Exchequer. The Morse Committee falls definitely and precisely within the responsibility of the Treasury and the Chancellor of the Exchequer.

Mr. Dalyell

That is why I sent my notes to the Chief Secretary to the Treasury.

Mr. Baker

I agree, but with respect, the question of the Morse Committee is not in order on the Consolidated Fund. I appreciate what the hon. Gentleman has said about it, and I share his concern. It is an important committee, and I shall make sure that the views which he has expressed are drawn to the attention of my right hon. Friend the Chancellor.

Mr. Dalyell

I am sorry to intervene again, but may I put one last point? The hon. Gentleman says that the Morse Committee does not arise on the Consolidated Fund. I was told by the Table Office that anything in home policy came within the debate on the Consolidated Fund. What the Morse Committee does or does not do is an absolutely jugular issue of home policy. It is far more important than many of the things which we discuss. To say that the Morse Committee does not come within the Consolidated Fund is like saying that one cannot raise the question of the Morse Committee in the House at all.

Mr. Baker

I would say no such thing; the hon. Gentleman misinterprets me to some extent. Indeed, if he had not done the nice thing and sent me a copy of his notes, I do not imagine that anyone would have foreseen that the question of the Morse Committee would come up in this debate. I do not want to stifle discussion of the Morse Committee and the work which Mr. Morse will be doing on behalf of the Government, and I shall make sure that the hon. Gentleman's views are drawn to the attention of my right hon. Friend.

It would he wrong for me, or any Treasury Minister, to be complacent about the role of the City of London. Let me hasten to add that I do not consider that London's present advantages entitle it to become automatically the financial centre of an enlarged European Community. Before London could lay claim to such a title we should have to be sure, and the City would have to be sure, that we were providing all the services which our new partners in the Community required, and that we were doing so more efficiently and more cheaply than anyone else. The City institutions are well aware of this, and so are the Government. That is one of the reasons why the CPRS commissioned IBRO to produce this report