POUND STERLING

HC Deb 29 June 1972 vol 839 cc1700-814

Mr. Speaker

I have selected the Amendment in the name of the right hon. Gentleman, the Leader of the Opposition.

Before I call upon the Chancellor of the Exchequer, may I point out to the House that it is already a quarter to 5 o'clock, I have a very long list of Members who would like to speak. Many will be disappointed, but the shorter the speeches, the fewer will be disappointed.

4.46 p.m.

The Chancellor of the Exchequer (Mr. Anthony Barber)

I beg to move, That this House approves the decision of Her Majesty's Government temporarily to float the pound. I think it would be convenient to the House if I dealt first more or less chronologically with the events of recent months leading up to the massive movement of short-term capital last week and to the decision to allow the £ to float. I shall then come to the reasons for the decision and the consequences that flow from that action.

On 17th and 18th December last year in Washington the Finance Ministers of the leading industrialised countries of the free world sat round a table in the Smithsonian Institute and agreed on a new realignment of currencies. Looking back on that agreement and all that led up to it, I believe it was significant for four reasons. First, it brought to an end the period of acute uncertainty in currency matters which followed President Nixon's announcement of 15th August. Secondly, as part of that agreement—and a matter of great significance for the United Kingdom, as for the rest of the world—the United States import surcharge was removed. Thirdly, that agreement was a manifestation of the ability of the leading industrialised countries of the world to work together and to reach solutions to problems which are not only immensely complex in themselves but which involve important questions of national interest. Finally, the agreement was meant to give time for progress to be made towards the reform of the international monetary system.

There were some in this country at the time of that agreement who contended that despite the relief afforded to us by the ending of the United States surcharge, in the context of the overall realignment of currencies the fixing of the exchange rate of the £ in terms of the dollar at 2.60 compared with its earlier parity of 2.40 was probably too high. I did not take that view, for the reasons which I then gave. I was also satisfied that we were making a proper contribution to an agreed solution of a world problem. But neither I nor any of my colleagues assembled in the Smithsonian conceived of that agreement as setting a pattern for all time. That would obviously have been absurd.

After the Smithsonian realignment, it was generally expected that some of the ample inflow of funds which had come into this country since President Nixon's announcement of 15th August would be reversed, but that did not happen. There were several factors at work but among other things it had been too readily assumed in some quarters that the devaluation of the dollar would have an immediate instead of a gradual effect on the United States balance of payments. In fact, the continuing deficit tended to put more rather than fewer dollars into the hands of other countries, and certainly the funds which had moved into sterling during the period leading to the measures of 15th August and between then and the realignment in December largely remained in our reserves until the events of recent days.

Throughout the earlier months of this year, there was much discussion within the European Economic Community about a scheme of narrowing the margin of fluctuations between Community currencies, and I turn to this aspect. It is important to bear in mind because, I think, there is some misunderstanding on this point, that the special arrangements for maintaining a narrower margin of fluctuations between Community currencies did not affect the right of any country in the enlarged Community to alter its parity, and there is another point about the scheme of which I should remind the House. The scheme for a narrower margin within the Community was conceived as an experimental one and was subject to review after six months. Some aspects of the arrangements were entirely new—for example, the use of Community currencies as opposed to dollars for exchange market interventions.

Mr. Dennis Healey (Leeds, East)

Could the right hon. Gentleman clear up one point? Is it the case, as it is claimed in many newspapers, that the agreement on the so-called "snake in the tunnel", while it does not prevent adherents from changing their parities does prevent them from floating beyond the very narrow limits set in the agreement?

Mr. Barber

I thought it was self-evident that an arrangement for narrowing the margin of fluctuations between Community currencies obviously could not include a member whose currency was floating. Obviously, they are inconsistent. Surely that is self-evident.

At the same time, the scheme had as one of its aims the development of co-operation among Community central banks which will become increasingly necessary as progress is made towards economic and monetary integration. Whatever may be said about the merits of the Community scheme, one thing is beyond challenge—that the scheme in its present form was never meant to deal with an exceptional situation like the one we faced last week, and could not have been expected to do so.

I come now to the immediate cost of the outflow of funds which began a week ago last Friday, on 16th June. I shall have something to say later on about the balance of payments, so all I will say now is that, considering the current account as a whole, together with the level of our reserves, there was nothing in the objective facts of our present trade and payments position to have triggered off this sudden movement of funds. But the undoubted fact is that there is overseas, as there is at home—I shall have more to say about it—an underlying concern at the rate of inflation in Britain.

There had, of course, been a great deal of news about industrial unrest. Nevertheless, it is right that I should tell the House that throughout the many weeks prior to Friday, 16th June, the foreign exchange market had been calm. There was a comparatively small flurry in the market on Thursday, 15th June. That in itself was nothing to be particularly concerned about. But on the following day, 16th June, the outflow was substantial. Maybe it was sparked off by the threat of a national dock strike. As the House will remember, however, over the weekend it became clear that that would not take place, and, not surprisingly, on Monday, 19th June, the outflow had fallen to a figure of little significance and it seemed that the trouble was dying down. However, that was not to be.

On Tuesday, 20th June, there was another substantial outflow and, as so often happens, the movement, once well launched, fed on itself. The House knows that it is not customary to reveal details of transactions on the exchange equalisation account, but this is an unprecedented situation, and in this unprecedented situation it is right that I should tell the House that intervention to defend the rate was not only large but that it was accelerating when the decision was taken last Thursday.

The total over the period in dollar terms was of the order of 2,500 million dollars. It was clearly unacceptable to go on with losses on this scale. But we acted in time to safeguard our reserves. In accordance with the terms of the Community scheme, the intervention will in the normal course fall to be settled at the end of July. It will therefore affect the reserves in July and not in June. But if we were settling now we could cover the amount from the reserves and from funds swapped forward, and we would still have, without any borrowing at all, reserves of over 5½ billion dollars. That is about double what we had in June, 1970, and at that time our short-and medium-term official debt amounted to about 3½ billion dollars. In addition, there is the reserve position in the International Monetary Fund of 760 million dollars, which many countries count as part of their reserves. Therefore, our reserves are still ample.

The decision which was taken last Thursday evening was not an easy one. I was very conscious of the full implications of the advice which I gave to my right hon. Friend the Prime Minister that as a temporary measure sterling should be allowed to float. But equally, he and I both realised full well the consequences of failure to act that evening. If this action had not been taken, and taken promptly, we might well have found that our reserves would have been diminished to a wholly unacceptable extent in response to pressure on sterling. We were determined that we would not revert to that situation and we were equally determined that we would not allow ourselves to slide into a situation where we would have to borrow substantial sums, with all that that would involve. So, whatever differences of opinion there may be about events leading up to the decision last Thursday evening, I think it is not without significance that in the circumstances the action we took has been endorsed on both sides of the House and by both sides of industry.

One of the inevitable consequences of the decision to float the £ temporarily was the necessity at the same time to extend exchange control to transactions between United Kingdom residents and the sterling area, except for the Republic of Ireland. The basic reason why this was necessary is that many important sterling area countries no longer link their currencies to sterling, so that while we are floating, they are not. It follows that, with a floating £, and in the absence of exchange control, there could be a speculative outflow from the United Kingdom to these countries. It was necessary to make the change general, except for the Irish Republic, because, although many sterling area countries maintain a form of exchange control in respect of transactions with other sterling area countries, this is by no means general, nor is the control uniform. So if any channels had been left open, speculative funds would have been likely to flow through them.

There are a number of points concerning the extension of exchange control which I should make here. First, there is no restriction on current payments; secondly, there is no restriction on outward direct investment in sterling area countries; thirdly, there is no restriction on sterling borrowing by companies controlled by sterling area residents for direct investment in the United Kingdom. The House will therefore see that these arrangements reflect the long-standing links between the United Kingdom and sterling area countries, and in particular that trade and direct investment will not be restricted in any way.

The main changes concern personal capital transfers and portfolio investment which are obvious channels for short-term movements. For the reasons I have given the House will agree that once it was decided to float the £ it was essential to take the action I have described. As I said in my statement to the House on Friday: Pending consultation with the Governments concerned, we have taken immediate temporary measures applying exchange control to transactions with the sterling area."—[OFFICIAL REPORT, 23rd June, 1972; Vol. 839, c. 878.]

Mr. Harold Wilson (Huyton)

I think it is implied in what the right hon. Gentleman has said, but will he confirm that this means no access by the sterling area to the London capital market or that it can only have access as agreed by the authorities in London?

Mr. Barber

What it means is that there is no restriction on sterling borrowing by companies controlled by sterling area residents for direct investment in the United Kingdom. I am somewhat hesitant, for reasons which I know the right hon. Gentleman will understand, to answer off-the-cuff questions about details, important though they may be, concerning the exchange control regulations. [Interruption.] I do not want either the House or the country to be misled by this, because important consequences can flow from it. I will ensure that the right hon. Gentleman receives a reply in the wind-up this evening or, if he wishes it, I will make sure that he gets one before the wind-up.

Mr. Harold Lever (Manchester, Cheetham)

Will the right hon. Gentleman clear up one point? Did he really say a moment ago that direct investment into the sterling area will not be affected by these exchange controls? Could he tell us whether this is so?

Mr. Barber

What I said was that there is no restriction on outward direct investment in sterling area countries. That is the position. I was referring to what I said to the House on Friday. The fact is that the present situation is a temporary one and the exchange control measures we have taken are specifically designed to deal with that temporary situation. In the light of what happened last week and in particular the magnitude of the short-term capital movements involved, I must say to the House that this matter of massive short-term capital movements is one of the most serious world monetary problems which the discussions on reform must tackle.

Hon. and right hon. Members in all parts of the House will agree from the cumulative figure I have given that the importance of this problem was demonstrated last week in a spectacular fashion. It is an immensely difficult matter and I certainly cannot make any prophecy of what will come out of these discussions. They could well lead to a consensus that some use of exchange control could for many countries be part, I am sure it could only be part, of the solution of this international problem. This is why I cannot say what kind of arrangements will be appropriate for the future. What is now needed is to have the consultations with the sterling area Governments to which I have referred. There will also be the wider discussion of international monetary reform for which I have been working and for which the way is now clear.

The IMF Board will, I am sure, understand the reasons for our action. After all, sterling is not the first currency to be allowed to float as a temporary measure. For the IMF the important point is that I have made it clear that we intend to return to a fixed parity as soon as possible, when conditions permit. I recognise that there are some in this House who favour the permanent floating of the £. I would only add that I have spelled out my own views at some length on previous occasions. Whether I am right or wrong the reality of the present situation has to be faced, and that reality is that the overwhelming majority of Finance Ministers throughout the world agree that the best system is a system of fixed, but adjustable, parities.

Mr. John Hall (Wycombe)

Would my right hon. Friend confirm that this temporary floating rate would have to come to an end by 1st January next in any case?

Mr. Barber

I do not think that one can give any time-scale, but I hope it will come to an end by 1st January next and I have already said that in public.

On Monday I went to Luxembourg to discuss with the Finance Ministers of the 10 countries of the enlarged Community the problem which had arisen for the United Kingdom and the consequences of the action which we had taken. All the Finance Ministers of the enlarged Community at that meeting appreciated the problem with which we were faced and understood the necessity for the action we had taken. I reaffirmed our intention to return to a fixed parity as soon as possible and I told the Finance Ministers that our hope was, despite our difficulties, that the general realignment reached at the Smithsonian would be maintained.

I also assured that meeting that the British Government remained convinced that in the interests of the United Kingdom, no less than the enlarged Community, the movement towards economic and monetary integration in the enlarged Community must goon. The British Government take the view that this is of great political as well as economic significance.

Since then my right hon. Friend the Prime Minister has spoken of this aspect in relation to the forthcoming summit in October. In just over a fortnight, on 17th July, the Finance Ministers of the 10 countries of the enlarged Community will be coming to London at my invitation to consult together about our common objectives for the reform of the international monetary system. I made the point in Luxembourg, and I think this is now generally accepted, that recent events have made it all the more urgent to reach agreement on a world-wide solution and I am sure that the forthcoming meeting in London will help to prepare the way.

The question of the reform of the international monetary system is not just an esoteric, technical matter but a matter of immense importance in world trade, and so for the economic well-being of the developing world as well as for the industrialised countries. During the past two years since I became Chancellor it has become more and more apparent that the developing world, to which the reform of the system is also of great significance, means to play a full part in all this. It is absolutely right that this should have been reflected in the new Group of Twenty, on which agreement was reached earlier this week.

Many people have been asking during the past week why it is that over a period of only a few days there can develop quite suddenly such massive flows of short-term capital. In modern circumstances there is a huge volume of funds which can move very quickly from country to country and the size of the potential movement has grown rapidly in recent years. These movements take several forms of which one of the most important for a country heavily dependent on international trade like the United Kingdom is "leading and lagging" in payments and receipts. The volume of world trade has grown rapidly in recent years, partly because the volume of overseas trade as a proportion of national product has grown in nearly all countries and partly because prices have been rising. The potential effect of leading and lagging has therefore been greatly increased.

Short-term funds can also be more rapidly deployed about the world as a result of the development of the international banking system and of the international business corporations whose quick communications network fosters their opportunities to protect the funds for which they are responsible by moving them out of currencies whose value is expected to decline into currencies whose value is expected to rise. Movements of this kind tend to be self-reinforcing because sentiment is catching.

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

Before the right hon. Gentleman continues, will he say whether he really believes that leads and lags made any contribution to this two-day crisis and could he give us a breakdown of the 2,500 million dollars attributable to the multi-national company treasurer on the one hand and the pure speculator on the other?

Mr. Barber

I do not believe for one moment that that would be possible. I should like to add that those who are entrusted with the management of large funds naturally avail themselves of the existing opportunities for protecting those funds from loss.

It is not an easy matter to reduce the movements of funds which have unwelcome consequences without interfering with capital movements which are essential to the free exchange of goods and, indeed, to the beneficial development of the world's resources in the interests of all its peoples. The aim in seeking to reduce the damage caused by short-term flows must be to nullify what is bad without dispensing with what is good, and this most certainly must be an important part of the joint international studies about reform.

As the House knows, in the first five months of this year, we had a small surplus on current account, the deficit on our visible trade being more than offset by a continued surplus on invisible account. Imports are likely to go on risingas economic activity continues to pick up, but export volume should do better with the expected recovery in world trade. The visible trade balance will probably remain in deficit, but last year's visible trade surplus was quite exceptional. The normal pattern is for the United Kingdom to finance our trade deficit and our net overseas investment through the surplus from services and income on overseas investment. I explained in my statement last Friday that there is still room in the economy for considerable further development without straining either capacity or the labour force, and it is not therefore necessary, or indeed desirable, to accompany the decision to allow sterling to float with measures to restrict demand.

Having said that, there are two points of particular importance which I must make. The first concerns monetary policy. At the time of the Budget, I set out the principles which should govern this policy. It would be quite wrong to restrict the rate of growth of the money supply in a way which would hinder the rate of economic growth at which we are aiming and which we are determined to achieve. On the other hand, there is no doubt that an excessive rate of growth of the money supply can add to inflation. A week ago today I concluded that it was right to raise the Bank Rate by 1 per cent. That decision was taken in part for considerations of monetary policy. The most recent published figures for money supply and credit showed that they had been growing faster than appropriate to support the growing economic activity.

Last week's adjustment of Bank Rate in no way represented a change in monetary policy or in our more general aim of creating expansion while curbing inflation. On the contrary, the purpose was to keep the growth of money supply at a rate adequate to finance the 5 per cent. expansion of output at which I aimed in the Budget and which I believe we are at present achieving.

The House will be aware of the arrangements which were announced yesterday by the Bank of England to assist the banks to maintain their reserve asset ratio which has fallen as a result of the currency outflow. This action is consistent with our intention to keep money supply under control. It will not in fact fully offset the contractionary effect on the reserve base of the banks. It is a special, temporary measure of assistance to meet the unprecedented circumstances arising from the outflow.

Certain banks have today announced an increase of 1 per cent. in their base rates. The House should know that if the special relief had not been made available there is no doubt that much sharper increases in rates would have arisen in the markets.

Mr. Roy Jenkins (Birmingham, Stechford)

Can the right hon. Gentleman tell us what rate of growth of money supply he is now aiming at as opposed to the 20 per cent, at which it has recently been running?

Mr. Barber

In recent months it has been running at an annual rate of about 23 per cent. But I explained during the Budget debate—I think that it was in the Budget Statement—why I do not believe it is right to name a target. [HON. MEMBERS: "Oh."] The right hon. Gentleman himself did this with the best will in the world, but, as he knows, with the benefit of hindsight, it turned out at the end of the year to have been very different from the figure he set. I do not believe that this is the right way to deal with monetary policy. The correct way is to deal with it in the flexible manner we are adopting and to take action when it is necessary. I turn to the matter of prices and incomes. Whatever differences of opinion there may be on this matter, it is a fact that we have made massive cuts—indeed record cuts—in indirect taxation, both purchase tax and SET. Those reductions in taxation have had a direct effect in restraining the rise in prices.

Mr. Charles Loughlin (Gloucestershire, West)

Absolute rubbish.

Mr. Barber

The cuts in purchase tax and the effect on prices are no more rubbish than the effect on prices when the Labour Government increased purchase tax year after year.

It is also a fact that, despite the implications for the finances of the nationalised industries, the Government and the nationalised industries agreed to participate fully in the CBI price restraint initiative. That, too, has had amarked effect on the rate of price increases.

The result of the Government's determination has been that over the past year the rate of increase of retail prices has been almost halved. It is right that those overseas, as well as this House, should know the facts, and I will give them.

Over the past year the retail price index has increased by just over 6 per cent. compared with almost 10 per cent. a year ago. Over the past year the increase in wholesale prices of home sales of manufactured goods has been 4½ per cent. compared with 8½ per cent. a year ago. Over the past year food prices have risen by 6½ per cent. compared with nearly 11 per cent. a year ago.

I do not believe that there is anyone in this House who underestimates the hardship for certain sections of our society caused by the evil of inflation. But it should not be forgotten that over the past year average earnings have increased 5 per cent. more than the rise in the cost of living.

Again, if one is considering the purchasing power of the pay packet, it is relevant to recall that, as a result of the reductions in income tax in the last Budget, a few weeks ago more than 2 million people who would otherwise have been paying income tax have been relieved altogether and all therest—more than 20 million of them—now have a pound a week less income tax to pay.

In these circumstances, it is wholly reasonable for the Government to stress two facts. The first is that an increase in real wages—which is what matters—can be achieved without the ridiculously high increases in money wages which figure in some claims. The second is that a continuing increase in real wages in this country will be possible only if we maintain our competitive position and achieve moderation in money wage settlements. This past year has seen a significant fall in the average level of pay settlements. But we are seen abroad to have suffered a major setback in two recent highly publicised instances—in the settlements granted to the miners and to the railway men. The fear that these will tend to become the general run for the future was a major cause of the confidence movement of last week. But it also threatens us with a return to the dangerous situation which we faced a couple of years ago.

Let there be no misunderstanding about one particular aspect of the situation with which we are now faced. It is a delusion—and a dangerous delusion—to think that in some way floating the £ minimises the dangers of inflation. Indeed, what the present situation calls for is a redoubling of the efforts of all of us—the two sides of industry as well as the Government.

Last March the Prime Minister started a series of discussions with the TUC and the CBI. One outcome of those meetings has been the bilateral talks which are now taking place between the TUC and the CBI. The Prime Minister, together with some of his colleagues will be seeing the full General Council of the TUC, at its request, again next Tuesday.

Mr. R. T. Paget (Northampton)

Does the right hon. Gentleman realise that the rewards of ownership, whether of land equities or vacant office buildings, have been increasing at about three times the rate at which the rewards for labour have been increasing? While that situation continues, is it not difficult to plead for wage restraint?

Mr. Barber

I have already said that I, and I think my right hon. Friends, find some of the profits made in land dealings offensive, but there is a real difficulty. If action were taken to impose an additional form of taxation on those profits the consequence inevitably would be that the amount of land available for building would tend to be less than it otherwise would. The only answer to the problem to which the hon. and learned Gentleman has referred is to do what my right hon. Friend the Secretary of State for the Environment is doing, and that is to ensure that more land is available for housing.

I was saying that my right hon. Friend the Prime Minister will be meeting the General Council of the TUC next Tuesday. I believe that those members of the TUC, no less than my right hon. Friends and I, and no less than the CBI, know full well that if our country does not succeed in the battle against inflation we shall inevitably drift back again on to the same old dreary restrictive treadmill which we experienced a few years ago.

Before next Tuesdays meeting with the TUC, it is right to say this. Whatever may be the views of the TUC or of the CBI on any particular matter, this much can be said. The Government were asked to go for a faster rate of economic growth. We are doubling it. The Government were asked to provide a new and more effective regional policy. We have provided it. The Government were asked to cut purchase tax in order to slow down the rising cost of living. We made those cuts—twice. We backed the CBI price initiative with action on nationalised industry prices. The Government were asked to raise the threshhold of income tax. This spring we did just that—by a bigger amount than ever before.

In the Budget we set our nation on the course of a 5 per cent. rate of economic growth—twice the rate of growth that we have achieved over the past decade. Some doubts on our hope of reaching this target were recently cast by the National Institute of Economic and Social Research. It is therefore worth noting that unemployment, seasonally adjusted, is already down to the upper end of the range that the National Institute forecast for next winter.

During the past two months, unemployment has fallen sharply. Vacancies have been increasing and redundancies have been fewer. Indeed, in the past two months the actual number of people out of work has come down by 171,000. The massive action which we have taken is now producing the jobs. For the future the rising number of vacancies is a hopeful sign for a further reduction in unemployment.

So, with sharply falling unemployment, more vacancies, rising production, rising retail sales and car registrations, we are clearly set for a rapid rate of expansion. Our economy is strong. We are not encumbered with debt. The standard of living of the British people is rising far faster than in the past.

True, we still have a long way to go both in the fight against inflation and in the modernisation of our industry. But there will be no going back on the path on which we have set out. We mean to succeed, and we shall.

5.24 p.m.

Mr. Denis Healey (Leeds, East)

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof: 'regrets that owing to the failure of Her Majesty's Government to control the cost of living, it has devalued the pound only two years after inheriting a record balance of payments surplus; and calls on Her Majesty's Government to lay the basis for an effective attack on inflation by reversing its policies on food prices, council rents, the value-added tax and industrial relations'. The Chancellor of the Exchequer's lamentable apologia for the circumstances which lead to the act he took last Friday was extraordinary in two respects. He started with a long chronology of events leading up to the decision to float the £, but he did not at any point refer to the well known factors which are responsible for the general collapse of foreign confidence in the future of our economy which made it possible for those holders of large amounts of money to whom he referred to act in the way they did on 16th June, with the consequences we all know.

Secondly—and this disappointed his hon. Friends as much as it disappointed us—in dealing with the Government's plans for the future, he had absolutely nothing new to offer the House. He simply repeated the worn out platitudes which he has served up to the House for the last two years. Although he recognised the great increase in inflationary pressures to which the whole economy would be subjected by his decision to float, he made not one single suggestion for any change in a Government policy which has already, within two years, produced a devaluation of the £ sterling. Indeed, the speech, like the Motion, was one of stupefying complacency.

The act which the Chancellor of the Exchequer in his Motion asks us to approve represents the collapse of all the policies upon which the Government won the last election. It also represents the devaluation of the £. I do not think that the Chancellor was pretending this afternoon—

Mr. Peter Rost (Derbyshire, South East)

rose—

Mr. Healey

—that the decision to float is not a decision to devalue.

Mr. Rost

rose—

Mr. Deputy Speaker

Order. The right hon. Gentleman is not giving way, so the hon. Member must resume his seat.

Mr. Healey

It is devaluation—

Mr. Rost

rose—

Mr. Healey

We have all read the reports of what has been happening in the first three days since the foreign exchange market opened—

Mr. Rost

rose—

Mr. Healey

I propose to give way on occasion during my speech, but I think I have the right to the same degree of freedom from interruption as we accorded to the right hon. Gentleman the Chancellor of the Exchequer.

In the first three days in which the real strength of the £ was tested in the markets, the value has fallen against the dollar by 5 per cent. and, according to some newspapers—the Chancellor could no doubt tell us the facts—against the stronger European currencies it fell a good deal more. The Chancellor on Friday, and some of the Press following Friday, attempted to present his decision to float as a victory. The £ was floating free—

Mr. Rost

rose—

Mr. Deputy Speaker

Order. The hon. Gentleman has plenty of opportunity to learn that the right hon. Gentleman is not giving way to him.

Mr. Rost

On a point of order. May I have your protection, Mr. Deputy Speaker? My right hon. Friend the Chancellor of the Exchequer gave way on a number of occasions. Is there any way in which back benchers can be protected so that we also may make an intervention?

Mr. Deputy Speaker

That is not a point of order for the Chair. The hon. Member must know that he is cheating in making that point of order.

Mr. Healey

I cannot do better than read from the leading article in the Daily Telegraph on Monday of this week: It is not a victory: it is a defeat. Mr. Barber…decided to devalue the pound, in fact if not in name. And he acted in response to pressure on sterling which was a direct result of the inability of the Government—in which Mr. Barber is the chief economic Minister—to control inflation. If inflation is allowed to continue at its present rate, then the pound will continue to come under pressure in the foreign exchange markets. In other words, the floating pound will become the sinking pound. That is a view put forward by a newspaper which, over the last two years, has given more loyal support to the present Government than has any other newspaper in the country.

It is extraordinary that, even after the events of recent weeks, the Chancellor of the Exchequer should have demonstrated such complacency about the situation as he did this afternoon, particularly if we recall the words of the present Prime Minister three days before the General Election in 1970. He then said, and I ask the Chancellor to remember his words: The danger in complacency now is therefore that it will mean a further four years of austerity which in all probability will lead…to a further devaluation. The right hon. Member for Bexley (Mr. Heath) was speaking at a time when no doubt he expected the Labour Party to win the General Election. He was over-optimistic. In fact, we have had a devaluation within two years. And the main reason for it is the total failure by the Conservative Administration to carry out any of the major economic policies on which they fought and, in the end, won the General Election.

We all recall what the Prime Minister said in the same statement from which I quoted, namely, that he would …break into the price/wage spiral by acting directly to reduce prices. He went on: This would, at a stroke, reduce the rise in prices, increase production and reduce unemployment. It would have an immediate effect of moderating the wage/price spiral which would far outweigh any effect from a higher pressure of demand for labour. The Prime Minister then said: The wage explosion is the way in which, when all else fails, those who are able to do so protect their living standards. Those were wise words on analysis, and I shall return to them later, but they held out a dazzling prospect which in the event has far from been fulfilled.

What has been the reality in the first two years of the present Government's tour of office? I must refer to these matters, because they fill out the skeleton of the chronology presented by the Chancellor to the House. He appeared to believe, and perhaps does believe, that the pressure against sterling a fortnight ago came out of a blue sky and with no excuse for it whatever—in other words, that it was just an accident.

Mr. Rost

Will the right hon. Gentleman give way?

Mr. Healey

What are the realities? We have the highest unemployment since the 1930s, and unemployment after rising continuously for nearly two years has only just begun to show a welcome fall. Production, which the right hon. Member for Bexley said would increase, in the first three months of this year was 5 per cent. lower than in the first three months of the previous year. Investment, on which depends not only our standard of living but our competitive ability, was to have been one of the Government's main achievements. Indeed, for the sake of investment they provided massive giveaways of tax to the rich, new incentives to management and, they thought, to investors.

What in fact has happened? According to the Government's own statistics, manufacturing investment last year was 8 per cent. lower than in 1970, in the first three months of this year it was 3 per cent. lower than last year and half the firms consulted by the Department of Trade and Industry expected a further fall in investment in the remaining months of this year. We have faced an investors' strike, but there has been no Industrial Relations Bill to deal with that. What we have had is an Industrial Relations Bill to solve the problems of industrial relations; its result has been to produce four times as many days lost in strikes than occurred in the average year when the Labour Government were in power. Moreover, we have had a wage explosion—an inevitable wage explosion because, as the Prime Minister then explained, that is the only way, when all else fails, for those who are able to do so to protect their standards.

All these facts to which I have referred were visible to the world six months ago.

Mr. Rost

The right hon. Gentleman has missed out one fact.

Mr. Healey

I am coming to that other fact. They were hidden by £1,000 million surplus on balance of payments. That surplus was most misleading because the bulk of it was due to the stagnation of our economy. That enormous surplus was the one reward we got for the terrifying and tragic increase in unemployment during 1970. It was also in large part the result of an extraordinary improvement in the terms of trade for Britain which was reflected in the fact that our export prices last year rose by30 per cent., whereas our import prices rose by only 19 per cent. Indeed, probably £700 million of that £1,000 million surplus can be attributed to the change in the terms of trade alone.

Because these facts underlay that surplus on balance of payments, the Bank of England and the Treasury begged the Chancellor last December to devalue under cover of the general change in parities and to stick to 2.40 dollars when all the other European countries rates were going up. The Treasury was very wise to make this suggestion, not only because of the trends in our economy, but because the Treasury knew what is now generally accepted—namely, that the impact of entry into the Community in January, 1973, is beginning to inflict a new and insupportable burden on our balance of payments, unless by then we change the rate.

Mr. Barber

I wish to say quite simply that what the right hon. Gentleman has said about the Treasury and the Bank of England is wholly untrue.

Mr. Healey

If the Chancellor says that, I must accept what he says. I must also remind him that the Financial Times, the Observer, the Sunday Times, the Daily Telegraph and The Guardian in their City columns have all reported to the contrary. If the Chancellor is right in what he says, my respect for his official advisers is a good deal less than it has been until now.

Mr. Peter Hordern (Horsham)

If the Treasury and Bank of England advisers were right at that time in advising my right hon. Friend to keep the exchange rate of 2.40 dollars, why is the right hon. Gentleman criticising the Chancellor and the Government for devaluing the £, which is now worth 2.47 dollars?

Mr. Healey

I have come to know the hon. Member for Horsham (Mr. Hordern) very well in recent weeks in the Finance Bill proceedings upstairs. I am greatly surprised by the hon. Gentleman's comment, for he knows very well that I regard the decision taken by the Chancellor last Friday as right in the circumstances. I wish he had taken it sooner, but it was necessary and right only because of the total failure of Government policy over the last two years and the new foreign exchange burdens which the Government had deliberately chosen to inflict on themselves by entering the European Community on the terms which they negotiated.

The fact is, as we all know, that the Chancellor surrendered to pressure from the French and United States Governments last December and gave in again to the French Government on 1st May—gratuitously, with no obligation whatever, by deciding to accept the narrow band of fluctuation set by the Community for Britain, though there was still nine months to go before Britain joined the Community as a full member. What is more, the right hon. Gentleman admitted in that extraordinary apologia for this action that in this case the guns happened to be facing the wrong way, and that this protection against flotation and against devaluation was totally inappropriate for meeting any serious threat. But it was more than inappropriate, because, as the Chancellor of the Exchequer made clear in his opening remarks, by accepting the obligation to stay within this very narrow band he was forced to lose reserves on a scale which staggered the House when he gave it to us in a way which would not have been necessary if he had been free to act even within the limits set by the Smithsonian agreement and the IMF.

That is what he did in terms of foreign exchange. Domestically what he did was much more serious. This year the Government have not been able to do anything right. The right hon. Gentleman provoked a gladiatorial combat with the miners and the railway men in order to dramatise his defeat. He complained today about the publicity given to those settlements. But who was responsible for the publicity? Who made these bombastic weekend speeches showing how to crush the workers It is all very well Ajax defying the lighning as long as he is fireproof. But if he is the present Chancellor of the Exchequer he is reduced to a heap of cinders. That is what happened in this case. By incurring and encouraging a demonstrative defeat on these two occasions, as he admitted today, he added a great deal to the lack of confidence in his Government's ability to control the economic situation.

Meanwhile the balance of payments was worsening dramatically partly because the right hon. Gentleman had stimulated demand for consumer durables without making sure that the capacity existed in Britain to supply that demand. The result is that over recent months we have seen a very much greater rise in imports of consumer durables from foreign countries than the rise in our exports of those durables to those countries, especially of cars. If the right hon. Gentleman consults Lord Stokes on this matter or even reminds himself of the advice that he received from Lord Stokes on earlier occasions, he will realise to what I am referring.

The extraordinary fact is that the right hon. Gentleman chose the very moment when the balance of payments was seen to be deteriorating to make this statement during the Budget debate in March indicating that he would abandon parity rather than sacrifice growth. We on this side of the House applauded those sentiments thoroughly but it was and has proved to be a disaster to express them in that way and at that time, as my right hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) pointed out in that Budget debate. The result was that even before the May trade figures were published just over a fortnight ago everyone concerned in a direct way with the British economy was talking about devaluation.

It is important that the House and the country should realise how widespread the expectation of devaluation had become by that time and why it was that Mr. Graham Hutton was able to write in this morning's Daily Telegraph: Every qualified observer was awaiting last week's financial crisis"— everyone, it appears, except the Chancellor of the Exchequer.

The June number of Vision, a leading European management magazine, reported a poll of 200 leading European bankers, economists, finance directors and journalists which had been made in mid-April. It showed 52 per cent. believing that the present parity of the £ sterling was not realistic and 56 per cent. believing that the £ would be devalued by the end of the year. That was on the basis of a poll in which the questionnaires were sent out in April, and it was published at the beginning of June.

What was being written in this country was very similar. I begin with the trendiest Cassandra of them all, the Economist. In its report of 10th June it said: No one should jump to conclusions, but a run out of sterling in the late summer or early autumn cannot be ruled out. The Times wrote a long leading article recommending devaluation to 2.40 dollars this summer. It was followed a week later by the Spectator.

Then we got the trade figures on 13th June which showed that the average deficit over the first five months of this year was £42 million—

The Chief Secretary to the Treasury (Mr. Patrick Jenkin)

Visible trade.

Mr. Healey

The visible trade deficit, certainly. I shall come to the other point later. The Sunday Times pointed out that on visible trade our deficit was running at an annual rate similar to that before devaluation in 1967. As the Chief Secretary says, probably it is true that we have been getting some £50 million a month on our invisibles, though we do not know that for certain. So the overall gap on our balance of payments was running at a surplus of £100 million a year.

However this was before the long expected recovery in the economy began. This lamentable record on the balance of payments was at a time when we still had a million unemployed and before there had been any real shift in the trend of our economy. But in the last two months we have had a welcome change in the unemployment picture. It looks as though the various measures taken by the Chancellor of the Exchequer are beginning to bear fruit at last. But that is the very reason that all observers who were watching what was happening were expecting a deterioration in the trade figures to follow in future months.

On 16th June, as the Chancellor of the Exchequer pointed out, we had "Black Friday" with a tremendous run on the £ promoted by the expectation of a national docks strike because Sir John Donaldson had interpreted that appalling Act to mean that he was obligated to order the arrest of three dockers. It was that decision taken in all sincerity by Sir John, even though an appeal court later ruled that it was a mistaken decision, which sparked off the run on sterling. Who can blame Sir John for misinterpreting an Act of this nature?

We had tremendous losses on the Friday. They were reported in the newspapers on the Saturday and the Sunday. On Monday we had the Daily Telegraph coming out with the statement: Where there is no room for argument is in the European conviction that sterling is heading for another devaluation. We had Mr. Anthony Harris writing in The Guardian that same Monday morning: The foreign exchange market, by now, is nervous because it takes a devaluation, sooner or later for granted. 'Of course you will devalue—and more than once,' a German banker told me recently. The only question is timing; and if Mr. Heath wants to anticipate a crisis with what the French call a 'cold' devaluation, he has only a limited time left. That same Monday afternoon the leading French newspaper Le Monde published an article reporting opinion in the City of London, saying: For many bankers in the City, it is no longer a question of knowing 'if' the pound sterling will be devalued again in the near future, but 'when' this will happen. I cannot understand how the Chancellor of the Exchequer, who has had City opinion not only in Britain but in every financial city in the world available to him day by day and even hour by hour over the weeks and months, can pretend as he did today that the crisis blew out of nowhere for no reason, simply because of the expectation, later frustrated, of a national docks strike.

That was the situation in which the Standing Committee considering the Finance Bill met later that Monday afternoon for a debate on the economic situation. That was when I said: The fact that the Chancellor has given warning that he will devalue rather than deflate when he thinks he will be in trouble means that all foreigners will want to pre-empt a devaluation, and he may be compelled to devalue much earlier than would otherwise have been the case. I say this without pleasure and without great confidence, because what the Chancellor actually does, as against what he says he will do, are two different things. If he acts as he said he would in the Budget debate, I do not see a devaluation being delayed beyond the summer of this year. This is the expectation of a large number of foreign bankers."—[OFFICIAL REPORT, Standing Committee E; 19th June, 1972, c. 1080.] I know that there has been controversy about whether I should have uttered those remarks. There would be no controversy if everybody accepted the view expressed last night by the Leader of the House—and I am glad that he is to wind up the debate—that Parliament should not be more inhibited than the news media in discussing matters of national importance". I agree with the right hon. Gentleman. Perhaps I was wrong to say what all qualified observers had been saying for many weeks, but to claim that my statement produced the problem is like blaming one weather forecaster for the appalling summer that we have been having in recent weeks.

Mr. Peter Tapsell (Horncastle)

Now that the right hon. Gentleman has completed his long personal apologia for the unfortunate remarks that he made on that occasion, will he address himself to the problems facing the country and give some indication of how the Labour Party feels they should be dealt with?

Mr. Healey

I recognise that the hon. Gentleman is deeply disappointed at the Chancellor's failure to say anything about the future. I promise to offer what the Chancellor failed to offer, and I am coming to that now. As the Chancellor and so many of his hon. Friends regard his action last Friday as a great victory, I should have thought that they would have struck a victory medal for me. If I am responsible for bringing forward action which had been necessary for months, I am undoubtedly a public benefactor.

But I am neither the villian nor the hero of this piece. Praise or blame for what happened must fall on one man alone, and that is the Chancellor of the Exchequer, and if he will not take it from me let him take it from the Editor of the Financial Times, Sir Gordon Newton, who said on "The World this Weekend" last Sunday when he was asked why the British economy had got itself into this state: You've got to go back to the Budget Speech of Mr. Barber. He stated quite specifically there…that economic expansion would not be jeopardised in any way by an attempt to hold an unrealistic exchange rate. Now, shortly after that our trade returns started to deteriorate. Well, the world saw that, they saw the heavy settlement with the miners, they saw the railway settlement, they didn't like that. They saw our prices rising at the rate of about 6 to 7 per cent., they didn't like that. They remembered the Chancellor's statement, and what would have been I suppose a normal run on sterling turned…because of the Chancellor's statement…into a major crisis. If blame rather than praise should be attached to the Chancellor's action last Friday, there is no question whatever but that it lies with the Chancellor himself, and with nobody else.

I now come to the float itself and its consequences. It was smartly done even if it violated pledges made by the Chancellor to the IMF, guarantees made to the EEC only six weeks earlier, and a whole row of speeches against floating made by the right hon. Gentleman over the months and years, to which he referred this afternoon. To believe, in a situation like this, that all that is needed is to congratulate the Government on their tactical skill in manœuvre is like seeing the captain of an ocean liner run his ship on the rocks in a calm sea, with perfect visibility, and then giving him a medal simply because he launched the lifeboats quickly.

Of course the Chancellor was right to abandon the 2.60 rate, but he could have done it months earlier. He should never have accepted it last December. I believe that the right hon. Gentleman was also right to float rather than to peg sterling at a new rate because in this situation floating means less risk of competitive devaluation by others, it makes it somewhat easier, provided the float lasts long enough, to determine what the new rate should ultimately be when the right hon. Gentleman decides to peg sterling and also—and this is important—it is better to drift slowly down to the new rate than to jump suddenly.

But floating of itself solves nothing; it only puts off the evil day, and it will compound all our troubles unless two conditions are met. First, the Chancellor must stand up to foreign pressure for a premature pegging of the rate, and I hope that he meant what he implied in answer to a question at his Press conference in Luxembourg when he said that he hoped that he would be able to peg the rate before entry into the Community, but so far as I understand it he has given no commitment so to do.

I hope that I am right in interpreting the Chancellor's words this afternoon as meaning that. I hope, too, that the right hon. Gentleman will correct me if I am wrong in my understanding, because it is important that we should know the position. It is important to know whether the Chancellor has given a private commitment to peg the £ before we enter the Common Market. I shall readily give way to the right hon. Gentleman if he wants to intervene and settle the matter. It appears that the Chancellor does not intend to respond to my request. My right hon. Friend will undoubtedly return to this issue later. All I can say is that I am filled with the utmost misgiving if the Chancellor has privately given such a commitment, particularly if he is not prepared to say publicly whether he has or has not done so.

Mr. Harold Lever

The Chancellor could not have given any commitment consistent with the candour of any words that he has spoken. He said that he hoped to return to a fixed rate as soon as possible. I have the same hope. The right hon. Gentleman said that that may or may not be after 1st January.

Mr. Healey

I think that for once my right hon. Friend has misunderstood what I am saying. I am not asking the Chancellor to give a commitment.

Mr. Lever

He has not given one.

Mr. Healey

I am asking the Chancellor to assure the House that he has given no commitment that he will return to a fixed rate before January next year.

Mr. Lever

That is the point to which I was addressing my remarks.

Mr. Healey

This is a matter of legitimate public concern, and I am asking the right hon. Gentleman, not to give a commitment, but to assure us that he has not given one.

The other condition without which this float will prove to be as much of a disaster as everything else the Government have done over the last two years is that the Chancellor must halt inflation, and be seen to be halting it, because if he does not do so the £ will sink right down to the ocean bed and Britain will become the Brazil of Europe. What disappointed us and will have disappointed the country most about the right hon. Gentleman's speech was that he gave no hint that he has any ideas whatever for solving the problem.

Mr. Hugh Dykes (Harrow, East)

I wonder whether the right hon. Gentleman would tell us what he would do to halt inflation?

Mr. Healey

That is precisely what I am coming to. I want to spend a few moments on the international implications of the float and then come to the domestic issues and action to deal with inflation.

In the sterling area there has been an extraordinary reversal of the Government's position. In the Budget only three months ago the Chancellor ended voluntary restraint of capital movements to the sterling area, a restraint which had been wisely maintained until then. Now, apparently, he has imposed total control over all movements whatever, and officially. He did not explain why that was, if the situation is as rosy as he said. After all, the £ did float for four months last year, from August to December, and he did not impose those restrictions then. But he has imposed them now. Many people believe—perhaps we shall get some clue to this from the Leader of the House—that the reason was that he wanted to slough off the sterling area for good before entering the Common Market, and it was a clever and quick way to do it.

But I must ask some questions about this. First, what will be the effect of this decision on our sterling balances? The Chancellor will have seen that the Malaysian Finance Minister was quoted as saying that the United Kingdom has unilaterally dismantled the sterling area. I was rather encouraged when the Chancellor implied this afternoon that this was a temporary measure and that he would restore freedom of capital movement whenever we pegged the rate. But, again, he was rather obscure in what he said about that, and no doubt the Leader of the House will clear up this matter.

Is the Chancellor envisaging any incentives to members of the sterling area to keep their balances in London? It would be possible, for example, to offer to guarantee the value of their balances at existing rates in dollars when we return to fixed parity. Is the Chancellor planning to do anything like that? If not, what measures does he propose to discourage the very rapid withdrawal of sterling balances?

Finally, I think that the House was shocked to find that the Chancellor was quite incapable of answering a question from my right hon. Friend, because the House is very well aware that many countries in the Commonwealth, particularly some of the poorer ones like Jamaica, depend on access to the London capital market for the whole of their development planning. It was quite unfair to the House. After the Chancellor's speech and after his refusal to answer that question about whether this freedom of access is being maintained, I leave it to the House and the sterling area to judge the Chancellor's competence from his inability to answer the question. But we must insist that the Leader of the House, when he replies to the debate, gives us a clear and unequivocal answer.

Mr. Edward du Cann (Taunton)

On a point of order, Mr. Speaker. I apologise for interrupting the debate, but I hope that the House will think that this is a reasonable suggestion to make. It has just struck six o'clock and, as you, Mr. Speaker, pointed out, it is no one's fault that we did not begin the debate until a quarter to five. Would it be possible for the usual channels to consider, perhaps, an extension of this most significant and important debate by an additional hour?

Mr. Speaker

That is not a matter for the Chair.

Mr. Healey

I come to the Common Market. One would need a heart of stone not to feel some sympathy for the Prime Minister in his predicament, because he has now broken the first major agreement with the Common Market six weeks after it came into force. Not all of us will share the Prime Minister's feelings on this matter, because the certainty, or at least the very strong probability, of devaluation faced the present Government the moment they decided to accept entry on the existing terms. The speed with which they have had to devalue was caused very largely by too narrow a margin of fluctuation accepted in accordance with the Common Market agreement by the right hon. Gentleman.

As the right hon. Gentleman made very clear this afternoon, the support which this country got from the continental central banks was a very mixed blessing, because it delayed the devaluation and we have to pay it all back within a matter of weeks. I confess that though what the Chancellor had to say about the size of our remaining reserves was welcome news, nevertheless, if one faces the possibility of outflows on the scale he referred to this afternoon, even these reserves would not carry us very far.

I hope that the Government have, at least, learned two lessons from their experience of the Market. The first is that however much lip service they pay to the hopelessly unrealistic plans for an economic and monetary union, for God's sake they must not do anything about it. I hope that the Chancellor will recognise that it was a disastrous error to make that agreement six weeks ago and that he will not be seduced by the Foreign Office or attractions from any other direction into making the same mistake again.

Secondly, the Chancellor must accept a point that even The Timesnewspaper, with all its enthusiasm for entry, made a few days ago, that it is quite impossible for sterling and for Britain to survive inside the Common Market without radical changes in the common agricultural policy. Unless we can persuade the other countries to move over to some form of income support rather than the existing form of price support, it will not only make any sort of movement towards closer economic co-operation in the enlarged community impossible, but it will also carry the gravest dangers for sterling and, indeed, for any other currency which has a differential rate of inflation from the other members of the community.

I know that we have debated this interminably in the last few months, but the Government must have learned from their experience in the last month that we cannot subordinate our national and international interests to an institutional machinery the sole purpose of which is to compel foreigners to pay the cost of supporting French and Dutch agriculture.

Finally, a point which needs making about the Common Market is that we cannot survive inside it if in addition to the grossly unfair burdens imposed on us by the common agricultural policy and the budgetary contribution, we are also expected to continue to spend 50 per cent. more of our gross national product on defence than countries in the Market which are far richer than we are and at least as directly concerned with whatever problems may be responsible for defence expenditure.

As the Chancellor has raised the matter, I should like to refer briefly to the effects of our decision on the United States and Japan and on the world currency situation generally. All over the world now, the Smithsonian agreement is seen as simply a stop-gap; that we need a new approach to all the problems that affect economic relations between the wealthier countries; not just currency, to which the Chancellor referred, but to trade as well, and trade not only in industrial goods but also in agricultural goods; and not only currency and trade but also aid to the poorer countries, and defence.

As the Chancellor knows, I regard it as a tragedy that so much time has been lost this year through the American election and European pre-occupations with the problems of the Common Market. But I hope that the British Government at least will now take this problem more seriously. I hope that the Chancellor's remarks today indicated that he will, as Britain's bargaining position in this new situation is very much stronger because we can have a realistic parity. But he will have to accept that on many issues our interests in these matters are closer to those of the United States than to those of the Common Market. Above all, he must recognise that our influence in negotiations on these major international monetary and trading maters will depend above all on controlling inflation at home.

I come to the point raised by the hon. Member for Harrow, East (Mr. Dykes). In some respects devaluation will help us. It will stimulate our exports. It will discourage some imports while encouraging others. It will help to reduce unemployment and to encourage investment. But the trouble is that all of these good effects take time to show themselves. Our experience, and that of the United States, is that it is about 18 months after a change in the parity before the good effects begin to show. Unfortunately, the bad effects begin showing immediately—not only on the balance of payments but also on inflation at home. The worst effect is the inflationary effect, to which the Chancellor, in passing but with only one phrase, referred. Floating down or devaluing raises prices through dearer imports. The price of food will go up immediately by about half the amount of the drop in the parity. On 1st January, if we join the Community, it will go up immediaely by the whole of the amount of the drop in parity, because we shall have to charge the new prices for our own food as well as for imported food. Prices generally are likely to increase by about one-fifth of the final amount of the parity change.

Also—I thought that the Chancellor passed this off rather lightly—the additional stimulus to exports and investments will mean a great increase in demand on top of the stimulus he has already given in his budgetary measures. It is not impossible that we could find a demand inflation on top of the cost inflation by the end of the year, particularly if we continue the present size of deficit on public expenditure. I hope that the Chancellor is keeping an eye on this problem.

The one certain thing is that devaluation or floating will produce inflationary pressures which immediately affect the whole range of economic and industrial activities in Britain, unless some dramatic and rapid action is taken to contain them; and unless it is taken the £ will never stop floating down.

Prices are the key. On this at least I agree with what the Prime Minister said in the speech from which I quoted at the beginning of my remarks. [An HON. MEMBER: "A long time ago."] It was a long time ago and, if the Prime Minister had done what he said he would do in 1970, we would not be facing the problem we are facing today.

The House must accept this. Only if the Government are seen to be acting effectively on prices is there any chance of co-operation in the demand for wage increases. The Government must face the fact that ordinary people, as well as Members of Parliament and city editors, can see that some of the most damaging price increases in the last two years have had nothing whatever to do with wage increases. Instances are the increase in food prices, and the increase in the cost of housing. Food and housing are the top two components in the average family budget. Both these increases have been—in the case of housing almost entirely, in the case of food to some extent—a direct result of deliberate Government policy, or lack of it—cuts in subsidies, and permission for gross profiteering in land and housing.

We were told yesterday that the price of houses had been increasing by £10 a week since the Government came to power. There has already been an increase of nearly 30 per cent. in the cost of houses since the Government were elected. Nobody can claim that this is produced by enormous wage increases fought for successfully by the building workers. Indeed, I noticed the other day that a cowshed was sold for £7,600. The workers who built it got no wage increase, because they died 200 years ago.

The fact is that it is not only profiteering and cutting subsidies. It is also the fact that profits have been rising in the last two years 50 per cent. faster than earnings. This is true not only in the home market but also in exports. A most important and interesting article from the London and Cambridge Economic Bulletin, which was published in one of our newspapers recently, pointed out that the wage component in our export prices had not risen faster than that of most of our competitors but that, whereas they had trimmed their profit margins to keep their export prices down, our exporters had taken the opportunity of increasing their profit margins so that the export price had increased by exactly as much as wages had increased, although, as we all know, wages are only a small component, though sometimes a larger component, of the final cost.

If we recognise, as we do, and as the Prime Minister used to, that the key to income restraint is price control, I suggest, first, that the Government should drop those of their policies which are designed to raise the cost of living. That means dropping the Housing Finance Bill, renegotiating immediately the common agricultural policy, and dropping the appalling proposal for the value added tax.

The Government have the power to do these things at a stroke. The Leader of the House could tell us tonight that the Cabinet had met and had decided to do these things, and the whole country would know it in the morning.

The Government can also do something about the scandal of land and house prices. This would be at least a start. It would give people in the country and abroad confidence that the Government were taking the problem of inflation seriously.

Second—in any conceivable circumstances the Government will have to do this—they must re-establish the machinery of price control which they took care to abolish after coming into office. They must set up some body with the same sort of function as the National Board for Prices and Incomes had in this field. The Government must insist on an early warning system. They must give that body the power to permit or to refuse price increases. [Interruption.]

It is all very well the right hon. Gentleman saying, "Back to Methuselah", but when Methuselah, if the Chief Secretary is referring to my right hon. Friends and I, were in power the rate of inflation was only half what it is today. It would be serious progress if we could get it back to that level.

The Government must consider establishing some special control over key prices—over the prices of those commodities which bear particularly heavily on the cost of living; and it may be necessary in some cases to subsidise firms or enterprises to make this type of control compatible with their continued operation. The Government are doing it with the nationalised industries now. They agreed to do it when they forced the nationalised industries to accept the 5 per cent. price freeze. There is no good reason why they should not do it in any other relevant field.

I come now to incomes. I agree with what the Prime Minister said in 1970. If we can do something, and be seen to be doing something, effective about prices, this will have an immediate impact on wage claims. I believe that there is the need for some sort of incomes policy, but I have some sympathy with the Prime Minister when he complainingly asks, as he did the other day, "Why do people always ask me to introduce an incomes policy but never tell me what an incomes policy is or how it works?"

We know from our own experience and from the experience of other countries which have operated incomes policies that this is very difficult to operate for long with success. We on this side of the House learned very many lessons, and some of them very painfully, from our own experiments in incomes policies when we were last in power.

To those who recommend a freeze on wages and prices, as some hon. Members opposite do, though the Chancellor and the Prime Minister have repeatedly said in the past few days that they will not introduce one, I simply point out that there is no point in a freeze unless the time it gains is used to produce an effective voluntary policy. If it is possible to get an effective voluntary policy, it is better to do it without a freeze, because a freeze produces conditions in which it is more difficult to get the co-operation of the unions and the employers in a voluntary policy.

I believe that it is possible to learn some lessons from our own experience and that of others. The first is that there is a very strong case for some device by which wage increases can follow automatically increases in the cost of living—some form of indexation, as I believe it is called. Second, we must be very wary of percentage norms, because with percentage norms we cannot do justice to the low paid workers without inflationary effects on the higher paid workers and we cannot change the relativities between industries.

Third, I do not think that we can sensibly establish a general criterion by which increases are tied to productivity in specific industries and factories, because there are too many industries, particularly the service industries, where increases in productivity are either meaningless or incapable of being measured.

Whatever view we take on the details of an incomes policy, the real lesson of international experience in this sphere is that no incomes policy will work unless confidence is established and maintained between working people, employers and the Government. Where that confidence exists one does not need complex machinery or numerical norms. Where it does not exist, no policy will work.

The problem is not, as so often described, the problem of relations between the TUC General Council, the CBI and the Government. It is far wider than that. It is the problem of relations between working people, employers and politicians of all parties whether in Government or not. We can learn from the shambles of the Industrial Relations Act that trade union leaders, whether at national level or on the shop floor, are not power-hungry maniacs anxious to wreck the economy. Equally they are not generals commanding their armies. They are what they say they are, the elected representatives of ordinary people. They can act only as ordinary people want them to act. I hope that the Government have learnt that at least from their searing experience of the railway men's ballot and the judgments made by the Appeal Court in the case of the container strike.

Like all politicians in the House, I spend time, and I like spending time, in my constituency and other constituencies talking to people. I have not met anybody who wants a situation in which he has to ask for a 20 per cent. increase to have a chance of getting a 10 per cent. increase, and to find that 10 per cent. has shrivelled away to nothing in a few weeks either through inflation or the loss of means-tested benefits. Equally, no one will sit still under inflation.

The real failure of the Government, which lies behind everything we have been discussing this afternoon, is the total failure of the Ministers of the Government to understand how ordinary people think and feel. With respect to the Prime Minister, it was absurd to believe that one can unite the nation if one starts with abolishing school milk and meals, and taxing school clothes. It was absurd to believe that he could command understanding, confidence or consent if at the same time as he did these things he was giving away hundreds of millions of pounds to the rich. The Chancellor boasted three months ago that he had given away £300 million exclusively to people with incomes of over £5,000 a year or those living on unearned incomes.

The Prime Minister yesterday had the neck to talk about the overwhelming importance of differentials and the need to compress differentials. Of course, he was right about that. But how can one ask the trade union movement to agree to compress differentials when everything the Government are doing is openly intended to widen differentials? They cut surtax on the rich and at the same time impose surtax on the very poor through means-tested benefits. Only the other day in Committee we were discussing a Government plan for stock options which will give millions of pounds to a handful of the richest salary earners in the country. That is the background against which the Government are asking the trade unions to agree to compress differentials.

Then we had the classic case of lack of comprehension. Last Friday the Government announce, defeated by inflation in their first two years of office, a necessary measure which will add to the inflationary pressures. But on the very same day they announce 18 per cent. increases to the best paid people in public service. The only justification there can be for giving those increases is to maintain existing differentials.

I ask the House to use some imagination. What does a railway man with a wife and young family think, who has just obtained an increase, which brings his weekly wage to £20, and then sees 75 per cent. of that increase taken away by the withdrawal of benefits, when the Government, which told the Board Chair- man to fight that increase and asked the Industrial Relations Court to take legal action against his union, gives £2,500 to the Board Chairman and a fat increase to Sir John Donaldson? It beggars belief that a Government can behave in this way if they genuinely wish to get the co-operation of ordinary working people in the battle against inflation.

I appeal to the Government to think seriously about what Mr. Vic Feather is saying today, and to reflect on the fact that Mr. Campbell Adamson is now saying exactly the same things. If the Government are prepared to make a generous admission of error, that could work wonders. Mr. Ronald Butt expressed the view in a newspaper this morning that the Government could get through the present trouble by what he called "Playing it cool." What may appear to Mr. Butt as "playing it cool" appears to a million of our fellow citizens as the Government being frozen stiff in a posture of dogmatic inhumanity. The Government can win the confidence of the nation only by a radical reversal of their social and economic policies. If they will not make that reversal they must make way for those who will.

6.28 p.m.

Mr. Peter Hordern (Horsham)

I had thought that this was a censure debate, but I cannot possibly follow the remarks of the right hon. Member for Leeds, East (Mr. Healey) without incurring, Mr. Speaker, your deep displeasure and, I am sure, the displeasure of a great many of my hon. Friends and hon. Members opposite.

The right hon. Gentleman covered a great deal of ground in his speech with copious extracts from the Daily Telegraph, The Guardian, the Economist and the Spectator. Even the cowshed was brought into it. There was little ground which he did not cover. All I wish to say about the right hon. Gentleman's speech is that it was as if we had been bombarded by a thousand powder puffs. I am not quite clear of the point of the censure Motion which my right hon. Friend the Chancellor of the Exchequer and his colleagues are expected to answer.

By any standards the floating of the £ last week was a major event in our economic history. I confess to being somewhat surprised by the immediate reaction to the floating, which seemed to be somewhat euphoric, and especially that it could be a cure to many of our problems. I have never felt that floating was anything more than a realistic recognition of our position and, therefore, a most sensible step in all the circumstances. For that reason I see no point in getting worked up about what the right hon. Gentleman said about devaluation in Committee upstairs. He is entirely responsible for his own words and he can say what he likes about the prospects. I think that he made an exceedingly bad speech in Committee on the economy, but that is quite another matter. He showed a lamentable ignorance of the whole of our economic position, but he is perfectly entitled to make his own predictions, however unreasonable they may be.

The conclusion I draw is that if large sums of money are moved out of the United Kingdom for something the right hon. Gentleman said, then the sooner we float the better. If the rate reflects what the right hon. Gentleman says in future, we shall have a very exciting movement—it will be going up and down like a yo-yo.

What floating shows is not only the precariousness of the whole Smithsonian agreement, but, even more, the difficulty created by the "snake in the tunnel" concept. To say that sterling should be confined within a range of 2¼ per cent. altogether with other European currencies and that they should be similarly confined seems to me to be asking for trouble. When one European currency moves sharply against another it is not supported by the dollar, which every country has in great measure, but by the other European currencies which they are not so anxious to use in support of one which may be falling.

The fact that we have broken away, which we were always entitled to do, seems likely to provide a powerful precedent for other European countries in future and is likely to be used again and again. For that reason, I do not think that the European agreement will prove lasting. Though it may be inconvenient, and very much so, for the European agricultural policy, I think it is that policy, as well as the whole "snake in the tun- nel" concept, which will find itself under increasing strain as time passes.

I hope that at the meeting of European Finance Ministers, who are coming here next month at my right hon. Friend's invitation, we shall not find a number of new restrictions imposed on the free movement of capital both within the European Communities and between the Communities and the rest of the world. To do so would be to restrict the growth of trade and further to elevate fixed exchange rates to a set pattern which cannot in the long run be sustained.

Fixed exchange rates are certainly appropriate where the value of currencies does not change materially from one year to another, but surely they are less appropriate when inflation is becoming more of an international and world-wide phenomenen. No country will be able to beat inflation or even to reduce it by pretending that it does not exist and by keping a system of fixed exchange rates. Indeed, if anything, a fixed exchange rate, if accompanied by high interest rates, is likely to attract inflation by attracting funds from abroad. This is what dermonstrably happened in 1971 when the money stock increased by £2,200 million due largely to the plight of the dollar.

It is true that some people lay greater or lesser stress upon the importance of the money stock, but by any standards the increase during the whole of 1971 right up to the present, when it has been rising by 23 per cent., has surely far exceeded any possible increase in production or normal demand. Indeed, a good deal has not gone to normal demand. A lot of it has found its way into the building societies whose advances are almost double what they were three or four years ago. These advances, acting on a period of long stagnation in the building industry, have had an acutely damaging effect on house prices, particularly for young couples trying to buy houses for the first time. As others of my hon. Friends who represent constituencies in the South-East know, this is a particularly acute problem. It is a real example of the effect of the extravagant increase in the money supply acting on an acute shortage of houses. I hope, therefore, that the rate of increase of the money stock will now slow down materially.

This may already be happening if the banks' low liquidity ratio and the action of the Bank of England itself is any guide. It is almost certain—in fact, my right hon. Friend said so today—that, but for the recourse that the Bank of England has given and the extra availability of finance that it has given to the clearing banks, the clearing banks would have been well below their reserve ratios and real difficulties would have followed. Certainly one consequence would have been a very sharp increase in interest rates. With the £ floating, the authorities should now be able to control their monetary policy more easily than in the past.

Mr. Bruce-Gardyne (South Angus)

Will my hon. Friend give way?

Mr. Hordern

If my hon. Friend will forgive me, I must get on, as so many hon. Members wish to speak.

We tend to be influenced by spectacular movements in some prices and earnings awards and to regard them as normal. I have already referred to house prices, and I think there are special influences there. But I do not think it is possible to draw an entirely pessimistic conclusion, as so many people do, about what has been happening to both prices and earnings over the last year.

As my right hon. Friend pointed out, in the public sector over half the settlements since the miners' dispute have been contracted at less than 8per cent. The level of average earnings is also less than it was in 1970, though it is still very high.

Perhaps more significant is the marked slowing down in the rate of increase of wages and salaries per unit of output, rising by 8 per cent. now against12 per cent. a year ago. Of course, as the right hon. Member for Leeds, East said, prices are still rising very quickly, but they are rising at about half the rate of a year ago.

Nobody can predict with any certainty what will happen in the coming months, but I observe that those who have been most free with their predictions, both now and in the past, are the same people who got it so wrong a year ago. They did not forecast then that the rate of price increases would halve. At that time they were all—certainly many of the critics in the Press—for letting the money sup- ply rip. Now they are all unanimous in inviting us to impose a freeze. It seems to me that there are better ways of slowing down a train than by blowing it up. I hope my right hon. Friend will take as much notice of those people now as he did a year ago.

The Government have an incomes policy for the public sector for which they must be responsible which has, on the whole, been pretty successful. There have been two major upsets, although I think there will be fewer miners and railway men employed than there would otherwise have been but for the strike. However, that is for union leaders themselves to answer.

I cannot help wondering whether, when it comes to a direct confrontation, the Government are wise to enter the ring like Jack Bodell on a difficult night with both hands tied behind his back.

My right hon. Friend the Secretary of State for Social Services, replying to my hon. Friend the Member for Norfolk, North (Mr. Ralph Howell) on 13th June, gave some very interesting international comparisons. In Germany, Sweden, Holland and Belgium, strikers do not turn to the State for relief; they rely on union funds. There are virtually no union funds in France or Italy, but no provision for public relief in Italy is provided and only minimal relief in France. In the United States it is the unions that pay up.

Why should union funds in this country be totally exempt when their members are engaged in strike action? It is surely an extraordinary state of affairs that strikers can rely entirely on taxpayers to foot the bill throughout the period of a strike without having to turn to their own funds in any way.

Everybody knows that a difficult time lies ahead and that inflation is our most serious problem. But so it is in every country in the world. It was reported today that the retail price index in France is rising just as fast as ours. In the United States the wholesale price index rose by more than 10 per cent. in the last quarter. Anybody can point to the two major reverses that the Government have suffered in the public sector, but the real hard evidence suggests that the rate of increase in prices has been slackening. It also suggests that the economy is now growing at 5 per cent.—twice as fast as the average in recent years—and that unemployment is coming down. Anybody would think that we were running a serious balance of payments deficit instead of a comfortable surplus with record reserves.

I hope, therefore, that my right hon. Friend will look carefully now at his monetary policy and at the Government's total borrowing requirement. It seems to me that a higher level of interest rates is quite appropriate in these conditions, but, whatever my right hon. Friend does, I hope he will not jam on all the brakes in a total freeze. I think that would be disastrous for all concerned and would be an action of complete despair.

I have no idea how the trade returns will move in future months, and I make no predictions. If other people abroad want to back their opinions with their money, let them do so, but with a floating £. I am sure that my right hon. Friend was right to act as he did.

6.40 p.m.

Mr. Roy Jenkins (Birmingham, Stechford)

It is now almost exactly eight years since I last had the opportunity of addressing the House, as opposed to asking a Question, from such an elevated position as this. I find it a little strange. I suppose that I am not entitled to ask for the indulgence of the House, though I must say in passing that I notice certain differences, one of which is how very much longer Front Bench speeches sound when one has to listen to them instead of making them oneself.

I hope that we can clear away one point at the outset, and I trust that the Chancellor—I am sorry that he has just left, but he has had a long time on the bench—is not querying it today, that what we have had is a devaluation. Last Friday, the right hon. Gentleman tried to pretend otherwise though he was silent upon the point today.

Let there be no doubt about it. We have had a devaluation, though not a devaluation to a new fixed point, which, I think, was almost certainly correct, if only because, if we carried on with the policies which we have been pursuing for the last two years, it would be almost impossible to choose a new fixed point which would be acceptable now and could be held for any appreciable time in the future. That is the only difference between a straightforward devaluation and this, that we have not at the moment a new fixed point. What has happened to us is in no way comparable, for example, to what happened to the German Mark on two previous occasions. It is a float downwards, and it was, in my view, somewhat disingenuous of the Chancellor last Friday morning, and again, I thought, at Question time on Tuesday afternoon, to pretend otherwise and almost to suggest that we might equally well float up above 2.60 as down below 2.60. I hope that we shall hear no more of that from him. If we do, I suspect that he will encounter a pretty sour response from British tourists and British importers.

Nor is it valid to say, as has been said from the Conservative benches in recent days, "At least we are still at 2.46 dollars"—or 2.47, whatever the market closed at this evening—"which is quite a bit better than the 2.40 with which we started". It is not, and I hope and trust that the House fully realises that.

It is an important basic fact of the international monetary system—I shall return to this later—that we are living at the moment in the twilight of dollar hegemony. As a result, while the dollar remains the intervention currency in relation to most dealings, and while it is the dollar rate which we instinctively use, it is no longer a valid continuing measurement of the world value of any individual currency.

In world terms now, 2.47 today is not the same as it was a year ago. At the time of the Smithsonian agreement, we were told—I think that the Government were anxious to reassure us that it was not much—that on a weighted average basis we had gone up by about 1 per cent, as a result of the Smithsonian agreement. This afternoon, as I understand it—I do not predict the future—we are down by 5.3 per cent. from the post-Smithsonian position. So let there be no doubt; we are lower against the world as a whole than we were last autumn. We are lower, it is a devaluation, and there is no point in denying it.

The Government would, therefore, be fully open to the sort of hyperbolic reproaches which the Prime Minister, as Leader of the Opposition, saw fit to heap upon us in November, 1967. I shall not try to repeat them. I thought that they were sententious nonsense at the time, and I think that it would be sententious nonsense today. I do not believe in trying to erect questions of parity into moral imperatives. But I hope that, in present circumstances, the Prime Minister feels a little ashamed of the nonsense which he talked 4½ years ago. I am prepared to leave it at that, and provided that we have no more hypocrisy from the Government benches about this not being a devaluation, we shall spare them in return the self-righteousness which they inflicted upon us.

In my view—I think it right to say so—last Friday morning's operation was technically well carried out. But that is very different from saying that, because it was technically well carried out, it was a victory. Indeed, I was somewhat amused in the House last Friday morning to see the Chancellor performing a delicate balancing act and being unable at times, apparently, to decide whether to accept the plaudits of some of his own back benchers for his brilliant success or to complain that it was all the fault of my right hon. Friend the Member for Leeds, East (Mr. Healey) that he had had to carry it out. It was a slightly difficult combination of propositions to advance.

I say in passing that I regard it as highly fanciful to suggest that my right hon. Friend's speech was in any way a major cause of what happened last week. The slight suggestion in the Chancellor's speech that the sequence of events—Friday a bad day, Monday a quiet day, and Tuesday, a worse day—supported the notion that the speech made on Monday evening was influential is just not valid. When one has periods of severe pressure—I have some experience of such periods—it is normal to have a bad Friday and to have a quiet Monday before things begin again. I have no doubt that the Chancellor's own policies and hints in combination were incomparably more significant than anything which my right hon. Friend said.

Nor does the fact that it was, as I believe it was, a good technical operation in a difficult position mean that everything is remotely going well. My right hon. Friend the Member for Leeds, East used a rather striking nautical metaphor. When I became Chancellor in November, 1967, I decided that one of the restrictions which I would impose upon myself was never to use a nautical metaphor in relation to the development of the economy. It is an extremely difficult inhibition to stick to; they come popping into one's mind the whole time, and one has to push them firmly away and resort to other less attractive and sometimes less convincing metaphors.

On this occasion, I shall use a driving metaphor. Good driving skill means that if one gets into a bad skid it is better so to control it as to end up on the grass verge than to run into a telegraph pole, but that does not mean that it is comfortable for one's passengers or that one makes good progress along one's planned route in so doing. It is also rather dangerous for others on the road.

I cannot at this moment feel any complacency about the state or prospect of the international monetary system, and I think that we may be a little inclined in this debate to devote somewhat too much attention to our own affairs, important though they are, and not enough regard to the effect upon our own affairs of events resulting from what we have done which may repercuss back upon us.

We have had too many international monetary crises. We had a bad run between 1967 and 1969. They were not necessarily £ crises; some were, some were not. They were crises affecting the international monetary system. We then had a pause for nearly two years, until the summer of 1971. But, from then onwards, we have been back in the thick of a series of very difficult crises.

There is a certain danger in getting used to crises and believing that, because we have had so many, the next one will always sort itself out more or less all right. I think that we may find, if we are not careful, that we are in a position somewhat analogous to that of the pre-1914 diplomatic crises. We have had Algeciras. We have had Bosnia and Hersegovina. Perhaps we have had Agadir. I am not sure whether we have had the first or the second Balkan war, or both. But there is a danger that, as we go through these serious crises, we may find that the one which arrives next becomes August, 1914, and does so rather unexpectedly.

I do not therefore share the views of those who think that any outcome which shows that Britain is acting independently is necessarily satisfactory. It is terribly tempting to say, "Good. We have behaved rather like Secretary Connally last August. Good. We have shown the French where to get off." That is a tempting thing to do and it might even be right within a limited context. But no one should underestimate the risks which can be involved.

It is easy to assume that we could behave in a liberated way and that the rest of the world will go on as we want it to go on, not reacting in a particular way. Four times out of five this might be right. But we may be approaching the point at which the fifth chance will come up, not necessarily because of anything to do with action on our part in connection with the £ but because of some sparking-off action in a new international crisis. The fifth chance will come up, the system will crack and we shall move back into a world far more difficult from the monetary and, therefore, trading point of view than anything we have known over the whole generation since Bretton Woods. Let no one be in any doubt that if that occurs we in this country necessarily and inevitably will be one of the worse sufferers.

It is also easy, particularly in recent circumstances, to mock at the perhaps over schematic, perhaps premature attempts at European monetary union. They have certainly received a setback. In my view a tight monetary framework will never hold unless it is based upon and marches alongside a high degree of economic integration. Otherwise it will always crack under strain.

I do not think that agreement to subscribe, if that is the word, to the "snake in the tunnel" has had much to do with the events of the last week. We would in any event have needed to get outside not merely the tunnel but the Smithsonian support points. But it appears to me that the danger is not that Europe in the future will imprison us too tightly but that we shall jointly accomplish too little. I cannot believe that independent policies for this country have much future in a world where vast sums of money, sums utterly undreamt of 10 or even five years ago, are subject to national control and are extremely difficult to subject to any national control, and held and moved mostly not by so-called speculators but by rather harassed corporation treasurers in big multi-national companies, sweeping across from country to country with an enormous wash behind them and, as we have seen, having devastating effects on all of us.

It is a world, too, in which the dollar for the first time in the living experience of almost any of us here, certainly in our adult experience, is both too weak and too self-absorbed to play its traditional rôle of monetary captaincy throughout the world. It is a new world from this point of view, and that latter aspect is a new factor, whether we like it or not, and a factor we have to take into account. I do not believe that it is a world in which we should fight shy of co-operative action in Europe and elsewhere. It is a world in which, with these new changes and these new circumstances, we need it more strongly than ever.

The restrictions on the international situation are somewhat longer-term considerations. The immediate issue today is how the Government can set right some of the errors of the past two years. When the time comes to peg again, and it should come in due course, but I hope it will not come too soon, the Government must fix a rate which our competitive position will allow us to hold. One of the major errors of the past two years has been postponing reflation until the balance of payments was deteriorating seriously. I do not see how that course, at any rate with the benefit of hindsight, can now possibly be justified. The argument put forward by the Chancellor and other economic spokesmen in late 1970 and 1971 was that inflation must first be got under control before there could be expansion. I believe then it was a mistaken approach.

Mr. Bruce-Gardyne

The right hon. Gentleman did not say so.

Mr. Jenkins

I did say so. I said it absolutely ad nauseam. If the hon. Gentleman cares to read my speeches he will see that I was boringly repetitive in almost every economic debate we had. It appears now, but too late, to be accepted by the Government. If they do not accept it, what are they reflating about? Inflation is certainly not under control today, but the Government now see great virtue in expansion. On Tuesday the Financial Secretary was pointing out that if production rose fast enough this might help to bring costs down. Why on earth was this not the case in 1971? Or is it possible that the Government see the validity of the argument on this occasion which they did not see before—or are they exercising their ingenuity for turning into a new direction?

It would clearly have been far better to have got expansion on the way while the balance of payments was still strong. We should have accepted as part of the price something substantially less than the massive £1,000 million surplus which we had in 1971 and avoided as I think we might then have done, a sudden and drastic deterioration such as we have had in the last five months. The danger to currencies is a sudden change of trend. We would have been a great deal better off not merely from the point of view of the production we would not have wasted but from the jobs we would have kept going to have had expansion in 1971. It would have been better to have had stable employment and a somewhat smaller balance of payments surplus so that we did not jerk into expansion with the balance of payments surplus slipping away almost overnight, creating the sudden effect such a change is bound to have.

Mr. Dennis Skinner (Bolsover)

My right hon. Friend could have spent it.

Mr. Jenkins

Yes I could, and with perfect foresight I would have expanded the economy faster in 1970. But that was very shortly after the time when, following many difficult years—my hon. Friend the Member for Bolsover (Mr. Skinner) was not here then but he will remember it—

Mr. Skinner

I can read.

Mr. Jenkins

Perhaps my hon. Friend will listen as well as read. After a great number of very difficult years the ballance of payments at last turned right and I was cautious in being anxious to see that this was not a flash in the pan but was a firm improvement of trend. By the time the present Government took over, by the time they had their autumn budget, and still more their Budget of 1971, they had the experience of 18 months of a solid balance of payments position to see and to build upon. It was a different position. But I give my hon. Friend his point, that with perfect foresight, knowing how the future would develop and knowing that the trend had changed, of course I would have been right to expand earlier.

The other major error has been for the Government to allow the steady decline in our competitive position that was still—I hope the Government will notice this—wholly intact in mid-1970. It has all gone since. Following the 1967 devaluation our export prices stood at an index number of 94.5 as against a base of 100 for all the OECD countries. By mid-1970 their export prices were at an average of 109.3 and we were at 103.6, almost exactly the same differential as in early 1968. But it then steadily and rapidly slipped away. By the third quarter of 1971 we went ahead into a worse export price position for the first time, 117.3 against 116.8. In the last quarter of 1971 the gap was 4 per cent. against us. In the first quarter of this year we had gone up another 6.4 points. That happened between one quarter and the other. The figures for the OECD countries are not available to me for that year, but I have no doubt that the gap has become still wider during that period. There must have been a still bigger disadvantage.

I am not saying, of course, that none of this deterioration was in the pipe line in June, 1970. Clearly some of it was, although I am always amazed by the extent to which Conservative Members apparently regard the repayment of the remaining debt as something which was not in the pipe line in mid-June, 1970, but regard anything remotely disagreeable as having been not merely in the pipe line but absolutely outside their control. The fact is that the deterioration in our competitive position has all occurred in the past two years. Until two years ago we held the post-1967 devaluation competitive advantage, and they had over 18 months before they finally slipped behind, before the 1967 advantage was all gone. They had over 18 months to hold it, to prevent it slipping. They failed. They made it worse, and they are still doing so.

One of the most unimpressive features of government I have ever seen is the constant attempt by the present Administration to shuffle off responsibility for inflation on to everybody but themselves. God knows, it is not an easy problem, but it does happen to be the central problem of politics, of governing the country today, and if one is not prepared to accept responsibility for dealing with the central problem of politics, one is not fit to be a Government. The Government were not elected because they convinced people that they would do more than any Government had ever done before to get rid of the blame for inflation. They were elected perhaps more than anything else because they pretended that they would deal with the problem itself.

British export prices are rising faster than those of any of our competitors; wage costs per unit of output faster than anywhere but Italy; consumer prices, I believe, faster than anywhere else; and retail prices faster still than consumer prices, especially, be it noted, in the Government-controlled sectors of the economy. Unless they can be slowed down, we shall slide as long as we float, and we shall find it very difficult to hold a rate at which we peg. That is the crux of the problem facing the Government, and facing the country, too.

I do not think anyone can claim to have a complete, guaranteed, readymade solution to this central problem. What I think can be guaranteed is that the present mixture of policies which the Government are pursuing is certain to perpetuate failure. The essence of the present mixture is to invite confrontation, not co-operation, with the unions, but to fall back in disarray when confronted by determined union action, and at the same time, until today at any rate, to have a money supply increasing by about 23 per cent. per year and a public sector borrowing requirement of £3,000 million a year. All these policies are not wrong, but in combination they are an absolutely certain recipe for failure on the central inflation front.

I hope that what can be achieved is a longer-term solution. What I fear is that the Government will go on bumbling, doing nothing when they should act and then being pushed into too drastic a short-term solution in the autumn or a little later which will solve absolutely nothing.

Neither side of the House can afford to be dogmatic about prices and incomes policy. None of us has achieved total success, though I am amazed that a Government so surrounded by disaster in this field should be quite so dogmatic in rejecting everything that was done, particularly in the early years of the 1964 Government, when the Prices and Incomes Board, voluntarily accepted, did a great deal of useful pioneering work. There is no room for dogmatism. It was not perfect in our day, but the present position is a disaster, and everyone knows it is a disaster and a menace to the future of the country.

We do not want just something which will try to get the Government out of a short-term difficulty. We want something which will set us on a better long-term course. In order to achieve that, the Government must seek more agreement, consent and co-operation. I do not think they quite realise the bitterness with which they are viewed by sections of the community whose co-operation they now desperately need. They will not assuage the bitterness unless they are prepared to make considerable sacrifices of their own pride, their own measures and their own face. The plain fact is that their central policy has failed. They have not curbed inflation, they have not contained unemployment, they have not stimulated investment or initiative, they have released no new energies. They have merely redistributed the national income in a more regressive way.

Unless they are prepared to make those changes, the failure will continue. They will be the Government of unprecedented inflation and a weakening £, and it will not help the Prime Minister at the end of the day to sit there pulling his cloak of self-righteousness about him and saying, "It was everyone's fault but mine."

7.9 p.m.

Mr. J. Enoch Powell (Wolverhampton, South-West)

The right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) suggested that his speech might be regarded as almost a maiden. So perhaps he will permit me, in accordance with custom, to extend to him almost a welcome—into the wilderness which I trust he, too, will not find entirely uncomfortable or unliveable.

The Government invite the House in the Motion to approve the decision to float the £. I am sure that my right hon. Friends are not surprised, and I hope they may be a little gratified, to learn that in that I can support them.

But there is just this difficulty. There is that extra word in the Motion. Alas, how often when one thinks that one's hopes have been fulfilled and rushes open-armed to embrace that fulfilment, one finds there is still something amiss, something not quite complete, less than perfect; and here, sure enough, it is—the word "temporarily". I will not take refuge in the consolation of the proverb that that which is temporary is normally permanent; for I fear that the word "temporarily" in the Motion is the mark of a profound incomprehension, and I believe that until we are free in this country of that incomprehension we cannot reap the benefits of the decision which the Government have taken and we cannot be freed from many of the inhibitions under which the country as a whole has laboured this past quarter of a century.

My right hon. Friend the Chancellor of the Exchequer looks forward to fixing the rate of the £ again as soon as possible. But there is no point of time and there is no point of parity at which the rate can be refixed where it will not be as vulnerable again to the causes which resulted in its being unfixed last week. By 1967, the fixed rate of 2.80 dollars was too high and could not be sustained; by August, 1971, the fixed rate of 2.40 dollars was too low and could not be sustained; last week the rate, fixed only last December, of 2.60 dollars was too high and could not be sustained.

In this I dissent from the right hon. Member for Leeds, East (Mr. Healey) when he said he hoped that the Government would not refix the parity "prematurely". A fixing of the parity is always premature, if it is supposed that it can be fixed at such a point as to be impervious to all the real changes of the economic world. One of the many illuminating points in the speech of the right hon. Member for Stechford, was when he reminded us that the pressures upon a parity, its lapse into unreality one way or the other, are not wholly domestic. It is not entirely what happens here in this country, the internal purchasing power of the £, which renders this or that parity unrealistic. It is also what happens in the rest of the world.

The market value of a currency in relation to other currencies, above all that of a currency such as sterling, is a reflection of the infinite complexity of interacting forces and economic and monetary changes throughout the world. If one were to point—and here again I am on the track of the right hon. Member—to the greatest single factor which has forced these changes in parities in the last five years, it would probably be the Vietnam war, with its effect upon the American economy, and thus upon the dollar, and through the dollar upon all other currencies and their values.

My right hon. Friend and so many others yearn to keep a fixed parity or to return to a fixed parity because it will give, they think, stability, security. Trade, it is stated, business, investment and the work of the world need assurance; they need to know what values are going to be in time to come. It is time to end this fond illusion that we can freeze the real and unforeseeable changes in the economic world by declaring that from now onwards such and such is to be the parity. Surely we have lived through enough not to fall for that again.

What sort of security was there for business before 1967? For how many months before 1967 could any sure calculation in terms of sterling at 2.80 dollars be made? What security was there in the months before August last year? What security has there been in these last six months since the Smithsonian agreement of 15th December last year? None whatever. There has been no stability, no assurance, no firm basis for the calculations of those in business and commerce. As soon as the realities move away from what the politicians are saying, it is the realities after which men at work, men in commerce, men in trade, have to attempt to chase—and it is very significant that during the period in which the £ floated in the closing months of last year the CBI was urging the Government not to refix the parity, and that it was amongst the first, after these six months, to welcome refloating when it happened at the end of last week.

My right hon. Friend referred to the vast masses of money which move across the exchanges and thus create an unsettling effect. "Speculation" is the term attached to them. The right hon. Member for Stechford, was right to remind the House that the element of pure speculation is relatively small in the total of monetary movements which take place at such times. However, it is not speculation, leads and lags, and the rest which cause the trouble. It is their impact against fixed exchange rates. With a floating exchange rate, speculation is not only harmless; it actually does its work, of moving the rate to correspond accurately with the net total of all anticipations. Speculation only becomes harmful, it can only do baleful work, when it is confronted with a blatantly false assertion made and attempted to be sustained by Governments in terms of a fixed parity.

Mr. Harold Lever

Why is it less baleful under a floating system, when speculation drives the rate down, than it is baleful under a fixed system, when it drives one off a particular rate to a new one?

Mr. Powell

Because as long as the rate is fixed the speculator is on a one-way option. As soon as the rate is determined by the market, speculation is equal and opposite at the market rate. One has only to imagine what would be the position—and it is not an entirely out-of-the-way analogy—if there were to be fixed rates on the Stock Exchange. Everyone would know when they were false and did not correspond with the realities. The consequence would be that from time to time we should have to unpeg the fixed rates, with catastrophic changes of value, instead of the market rates being determined by the judgments of all who participate in the market. The same happens with a floating rate for a currency.

Of course, we all want the nearest approach we can get to a reasonably stable environment in which to conduct our affairs. But in a world of economic change and in a world where the major monetary powers are likely for a long time to come to be pursuing their own different policies, the nearest approach to stability we can have is by allowing those changes to be reflected in rates which are free to move. We ought now, at last, to abandon the illusion that we can call change to a halt and live in a world of our own pretence, and instead to provide, by a sensitive and continuous recognition of changing reality, at least that stability which is available.

I referred at the outset to the loss and suffering which the attempt to impose and sustain fixed parities has brought with it over the last 25 years.

Mr. Dick Douglas (Clackmannan and East Stirlingshire)

Would the right hon. Gentleman not concede that what fixed parities have brought over the last 25 years is an enormous increase in world trade?

Mr. Powell

That is begging the question. Parities have not remained fixed over those years. They have often been altered at the last moment, in cataclysmic movements which have brought about avoidable interruptions to trade, while the periods of attempting to maintain them were characterised by interference with freedom of trade, controls upon the movement of capital, controls upon current account, controls interfering with freedom of choice and decision. Those are the things which always accompany the attempt to fix a reality which is constantly changing.

For the great public out of doors the business of exchange rates, the parity of the £, floating rates, is a technical matter, a closed book, or a book that they do not care to open, a page in the newspapers that they do not bother to read. It would be well if they were not affected by it; but unfortunately this technicality, as it is made to appear, is something which directly affects the well-being of millions of ordinary men and women. For when a fixed rate is fixed too high, the consequence is that deflationary policies, which deliberately reduce employment and output, which deliberately interfere with the freedom of the citizen to make his own choices, are imposed in the country concerned. In how many of the last 25 years has output and the progress of well-being in this country been held back under both Governments for the sake of the fetish of maintaining a fixed exchange rate?

The evil is equal and opposite when the rate is fixed too low. The consequence then is that which we have experienced recently—and my hon. Friend the Member for Horsham (Mr. Hordern) brought this out, not for the first time, earlier today. When the rate is fixed too low, the consequence is floods of money—the Germans have experienced this, and we have experienced it—which bring with them the evils of inflation, once again coming home to millions of people, who have no suspicion of the origin of what it is that affects their daily lives.

This is not an academic debate, and the interest in it is not academic. The question of fixed or floating parities, of a market price or an artificial price, is a question which deeply affects the well-being of the ordinary people of this country. The reasons why, over many years, I have advocated, not only with vigour but with passion, a market rate, a floating rate, for the £ sterling is because I am convinced that it would remove at any rate some of the avoidable burdens and evils from the backs of the people.

Of course, with a floating rate we should still have to cope with our own domestic inflation. Of course, with a floating rate we cannot guarantee this or that rate of increase in our domestic product. But, with a floating rate, of this we can be sure, that we shall not artificially, for the sake of a shibboleth and a fetish, impose upon this country alternately the evils of deflation and of inflation, that we shall not go on repeating the bad film seen so often during the last 25 years.

I know that in these debates, very properly, the only Amendment allowed to be debated is that moved by the official Opposition. Yet, there is another Amendment which I would gladly have seen moved and carried tonight. It is a very simple and I believe a very important one: "Leave out the word 'temporarily'."

7.26 p.m.

Mr. Emlyn Hooson (Montgomery)

The right hon. Member for Wolverhampton, South-West (Mr. Powell) is perhaps more accustomed to the diet of locusts and wild honey in the wilderness to which he welcomed the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins). I will not follow him in what he said about the advantages, as he advocated them, of the £ permanently floating. It seems that whether the £ floats, and there are obvious advantages and disadvantages in that, or whether the £ is at a fixed parity, and there are obvious advantages and disadvantages in that, the basic problem facing the country is that if we are to have a strong currency, whether floating or at a fixed parity, it depends on what we do internally.

It was therefore the latter part of the right hon. Gentleman's speech which attracted me in particular. Over the years in this House I have listened to successive Chancellors of the Exchequer, including the right hon. Member for Stechford and the present Chancellor, speaking of the great importance to this country of a successful anti-inflationary policy. No one can doubt the importance of this for a moment. Inflation is eating away steadily at the heart of this country. It is undermining its economic and its social stability. The truth is that this Government like their Labour predecessors have failed hopelessly to implement their anti-inflation policy successfully.

It has been said that inflation is almost endemic in the Western economies, and so it is or appears to be. But let us face reality, which is that it is much more rampant in this country at present than in any other Western country. It is showing no signs of abating. We should be making a grave error if, in congratulating the Chancellor on the success and skill with which he carried out the floating of the £, we were to allow this to mask the fact that it is an acknowledgment of defeat for the Government's economic policy generally. The circumstances in which the £ came to be floated were that we were driven to it. It was not a deliberate decision, taken in the cool atmosphere of a strong economic situation; it was a decision forced upon the Government by circumstances. It marks a serious defeat for the country as a whole and yet another step in her general economic decline.

Whether the decision be to float the £ or to devalue to a fixed parity does not matter for present purposes. It represents a recognition of the sharp loss of confidence by holders of sterling in this Government's ability to run the United Kingdom economy efficiently and well so as to maintain the value of the currency. The run on sterling would have been reflected whether we had fixed parity or whether we floated the £. Galloping inflation lies at the root of the general malaise of the country, which is a lack of confidence in the country's future. It is a cause of great discontent. Inflation is a cause of real hardship in sections of the community.

Reference has been made to two defeats which the Government have sustained on the economic front—in the coalminers' strike and in the railway settlement. People seem to ignore the defeat which is about to occur in the engineering industry where 2 million employees will surely have very substantial rises now that the unions have been called back to the national negotiating table during the past week. This will mark another twist in the wage spiral.

Outside observers would be forgiven if, in observing the state of this country, they thought that we were indulging in a massive exercise in self-destruction. There is an absence of common purpose. There is excessive emphasis on sectarian interests and there is a general feeling, which we may as well recognise, of the inevitability of decline. This tendency to self-destruction manifests itself in the growing differences which are expressed in this House. It is to a degree represented by the escape into mythology, in countries like Wales and Scotland, represented by nationalism. It manifests itself in excessive wage claims by the unions. It manifests itself in the Government's refusal to recognise the reasons why a voluntary prices and incomes policy is not possible.

When people talk of the need for a voluntary prices and incomes policy, they generally mean such a policy to apply to everyone else but not to themselves. The atmosphere of the country is all wrong for a voluntary prices and incomes policy to succeed. We are living in an age of paradise for the speculator. Too many people in this country have a vested interest in inflation.

Let me quote the Financial Times ordinary share index. In January, 1962, it stood at 306.4; in October, 1964, at 365.6; in March, 1966, at 344.9; in June, 1970, at 334.6; in May, 1972, at 537.6—a rise of 200 in the last two years. This has been accompanied by galloping inflation.

The truth is—and this is what makes it impossible to have a voluntary prices and incomes policy—that the gap between those with wealth and those with- out wealth is ever increasing. There is a general feeling of unfairness which politicians do not spell out to the country. The Labour Party as well as the Conservative Party did not spell it out. If I were a trade union leader, how could I possibly argue against massive demands for wage increases in the light of the general increase in the wealth of those who own property and shares?

The prevailing problem is illustrated by a quotation from an article by Mr. Michael Braham on stockbrokers' incomes in the Observer of 11th June. He said: While complaining bitterly about the level of wage claims being made by the unions, some brokers have collected as much in a year as a train driver can hope to make in a lifetime". The article points out that the commissions and volume of trade of stockbrokers have so increased that their incomes are enormous. The railway men do not want to pay any more for coal, but they want a massive wage increase. Lawyers do not want to pay any more in train fares, but they want larger fees. This is the situation throughout the country. Every section of the community seems to be following its own sectarian interest without regard to the true interests of the country.

Mr. Arthur Lewis (West Ham, North)

Perhaps the hon. and learned Gentleman would go a step further. The Tory philosophy makes the situation worse. The Tories say that, however much richer the rich become does not matter; that is good and is marvellous advancement. In fact, it is quite the reverse.

Mr. Hooson

I shall not take up the hon. Gentleman's intervention, although there is some truth in it.

Part of the blame lies fairly and squarely on the Government's shoulders who, when they took office, preached an old-fashioned version of laissez faire which no self-respecting Liberal had preached for at least half a century. They dismantled the whole apparatus for restraining price rises. They got rid of the apparatus for regional incentives and for helping development areas. There was an unnecessarily abrasive approach by the Prime Minister and his team.

People with property and capital invested—and I am a believer in the capitalist society, unlike the hon. Member for West Ham, North (Mr. Arthur Lewis)—are much more likely to co-operate in a voluntary prices and incomes policy than people without property and investment. The climate for a voluntary system is all wrong. It will not succeed because gross inequalities result from inflation and the lack of Government policy. The great tragedy is this: the more inflation affects us, the worse becomes the position of the lower paid. The more the unions pursue high wage claims, the greater the inflation and the greater the inequality. That is why union leaders are bound to be in a dilemma.

Take the position of man renting a council house and earning £30 a week at the beginning of this year and compare it with that of a man who owns his house, and has some capital in shares whether small or large, and was also earning £30 at the beginning of the year. The Government asks for restraint in prices and incomes. If they get it, what happens? With galloping inflation, the man who rents his house will be much worse off at the end of this year. The man who owns his house is much better off. The latter can afford to abide by a prices and incomes policy; the former cannot.

Mr. Neil Kinnock (Bedwellty)

The hon. and learned Gentleman says that he supports the capitalist system. Does he acknowledge that he has just pointed out a major weakness in the capitalist system? He is saying that the capitalist system favours those who own to the detriment of those who earn.

Mr. Hooson

As the hon. Gentleman knows, I am not a Socialist. I believe that the capitalist system is capable of great adaptation. I believe in the Keynesian theory that the Government owe a duty to intervene. They owe a duty to redress the balance. They owe a duty to the community to protect the economically weak against the economically strong and robust. But Government supporters must acknowledge that there is a widespread feeling that they are showing no realisation that they owe a duty to balance fairly and to intervene between the economically strong and the economically weak and vulnerable. Therefore, before we can make any progress, there is a great need to change the prevailing political climate in the country.

I believe firmly in the urgent need for a fair prices and incomes policy, not for a short time and not a price freeze, but a policy which will extend over a number of years. That can be achieved only by a statutory policy with a real bite to enforce it, and that is unacceptable to the country in the present climate. It could be accepted only if it were based on the clear recognition of the need for a new social contract which should result from it.

There is a great inequality of wealth as opposed to income. The only source of wealth for most people is income. I have a modest property, but I make more in the capital appreciation of that modest property than in income from the Bar or the House. That is not right. It is still too difficult to make capital out of income. The disparity in economic growth and economic wealth between the Birmingham-London complex and the rest of the country is still far too great. We must acknowledge a far greater right of workers to be consulted on major decisions and to have a share in the wealth of their companies and in the decisions that affect their future.

The capitalist system is capable of great modification and development. The Government came into power with preconceptions of returning to an idealistic, free trade, open competition economy. That no longer exists. We must believe in a mixed economy in which there is a place for private enterprise and a place for Government interference.

The one sector which has had a successful prices and incomes policy for many years is agriculture. There was correlation between farmers' income, price to consumer, land values and wages paid to agricultural workers. By and large it was thought to be fair, and it worked. It resulted in our country having the cheapest food in the world. It was a most successful policy and I wish that it could be imported into the Common Market.

The Tory Government have failed, every bit as much as the Labour Government failed, to cure inflation. They have failed to create a sense of common purpose. They have failed to satisfy the country that they are proficient in managing the economy. The chief charge against the Government today is their incompetence in managing the economy.

The floating of the £ is merely a recognition of what already exists. The fixed exchange rate has to a considerable extent become an illusion. For it to have any impact it is necessary for all other currencies to remain fixed. There are considerable disadvantages in going for a permanent floating rate. But we must at least have flexible bands within which the £ can float.

I am sorry to be a Jeremiah, but it seems to me that the country is heading for further and greater trouble. We are about to join the Common Market, and the right hon. Member for Birmingham, Stechford said that a European monetary system was possible only with integrated economies. How can one integrate economies with the present common agricultural policy of the Common Market? The CAP is directly linked and dependent upon fixed parities within very narrow limits, and it is impossible to hope for the £ to float within flexible limits until that policy is modified. Therefore, we are heading for further inflation.

The Chancellor of the Exchequer was right to float the £ when he did, but he did so because he virtually had no option. It is a general acknowledgement of the failure of the Government's economic policies, and, above all, of their failure to create confidence in the country. Some of the Government's policies may have been good in themselves, but their combined result has been to make the rich richer and the poor poorer, and to make the country feel that we are driving towards economic disaster.

7.45 p.m.

Mr. John Hall (Wycombe)

I hope the hon. and learned Member for Montgomery (Mr. Hooson) will forgive me if I do not comment on his remarks. In view of the number of hon. Members who wish to speak I shall be brief. It is sufficient for me to say that I join him in his support for the capitalist system.

I want to concentrate not on the events that have led to the debate but rather on the action that we need to take to deal with the problems at home which themselves affect the rate of the £ abroad. The Chancellor of the Exchequer's back is broad enough to bear his mete of praise and blame—although it is sometimes more difficult to bear praise than blame. In his absence I am sure he will not flinch when I join those who have congratulated him on the speed and technical efficiency with which he operated on Friday. It was a remarkable operation, and he deserves the congratulations he has received from all quarters.

I join my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) in expressing regret at the use of the word "temporarily" in the Motion. Like him, although not perhaps for so long, I have long been an advocate of the floating rate—

Mr. Arthur Lewis

You will have to come out of the Market, John.

Mr. Hall

I was about to come to that point. However temporary this measure is, when we go into the Common Market we shall be bound to cease to allow the £ to float from 1st January next.

I was impressed by the speech of my right hon. Friend the Member for Wolverhampton, South-West. It took me back to a speech he made in my constituency some years ago when he spoke with the same passion and fervour about the £, to such effect that at the end the whole audience of about 1,200 rose and acclaimed him, although I hazard a guess that more than 99 per cent. understood not a word he was saying. He can speak with great passion on these matters, and I support much of what he said.

The Chancellor of the Exchequer has been given time, but very little time, by the recent measure. If during the next two or three months it can be seen that we are taking decisive and effective action to deal with the twin problems of inflation and industrial unrest from which we suffer I would guess that the £ will settle down after a month or two to somewhere about 2.45, roughly speaking a 6 per cent. devaluation on the unrealistic rate of 2.60 which was imposed by the Smithsonian agreement. If, however, we are not seen to take effective action and the problems from which we suffer appear to be increasing in intensity, I cannot say how far the £ will sink. It may well sink below the 2.40 to which it went in the 1967 devaluation. If it does, it is likely to affect many other currencies throughout the world and we shall be facing an international monetary crisis of considerable severity.

I suggest that one of the essential steps is to bring together all the countries of the world for the umpteenth time—I cannot remember how many times these conferences have already been held—to try to reform the international monetary system. In a speech last Tuesday my right hon. Friend the Prime Minister pointed out that all currencies, however sound, are at risk until this is done. I am not an expert in these matters and I do not wish to suggest the form of such an international currency reform. I merely expess the hope that in implementing such a reform we should not find ourselves back as a snake in the tunnel. I have never liked snakes and I am claustrophobic about tunnels, but I certainly do not regard this form of monetary manipulation as very good for us.

International monetary reform will not solve our domestic problems and it is domestic problems we should be talking about. We suffer from a disease which has been somewhat inelegantly but expressively described as stagflation. It began many years before the devaluation of November, 1967, and the treatment of Stagflation has varied according to the Government in power and the philosophy adopted. We have attempted to cure it either by blood-letting through high taxation or by dieting through controls. We have then had subsequent treatment in the form of blood transfusions by reducing taxation. That treatment seems to be beginning to work even though it is working much too slowly. Furthermore, despite the Conservative Party's denunciation of the use of drugs to keep dying ducks alive, we have made available massive doses of drugs for dying ducks of all levels.

Subsidising outdated and inefficient industry is inflationary in its effect and wasteful in its use of national resources. In the short term it can help to maintain employment and this may be reflected in the next few months but it is at very high cost. However, in the long term we shall be faced with exactly the same problem of redeploying labour in a more productive way.

I can say nothing harsher about the proposals put before the House in the Industry Bill than was said by my right hon. and hon. Friends about the more modest Labour Act which preceded it. When I intervened in the debate in the Industry Bill to point out that in our Bill we had gone further than Labour, that was not intended as praise, as the righthon. Member for Bristol, North-East (Mr. Benn) thought but was intended as a criticism—a criticism strictly in line with past Conservative Policies in this respect. I am reluctant to express this criticism because the Government have had a remarkable record of real achievement in many respects over the past two years, but I am expressing this view because I have the old-fashioned feeling that being stood on one's head is not very good for one. Old Father William expressed it rather well some time ago. If we are made to stand on our heads too much and too often, it can have slightly disturbing effects.

Despite the fact that we as a Government have a very good record in many respects—and when we examine the proposals put before the electorate at the last election we see that many of the things we said we would do we have succeeded in carrying out—I would agree with the hon. and learned Member for Montgomery shire that in common with our predecessors we have not succeeded in dealing with inflation. This has been our major failure and indeed has been a major failure on the part of all Governments over many years. This is a problem which has bedevilled our economic and social life. It is generally agreed that at the present time we are suffering from cost-pull inflation—and it is possible that if things go wrong we could add to that demand inflation. It is also agreed that the first victims of inflation are those who are least able to look after themselves, namely, the retired, the unfortunate and those living on social benefit, on savings and so on. It is also agreed that higher costs when they can be recovered only in part by increased prices tend to create unemployment.

There was an interesting article in the Economist last week in which there was a statistical study by two Cambridge economists, Mr. Barker and Mr. Woodward. In the latest National Institute Report it has been suggested that each time a group of trade union leaders push up the going rate of wage inflation by art extra 1 per cent. this means, in the absence of yet further demand, reflationary action by the Government, arranging for employment to drop by over 300,000. The fact is that employment has not dropped by that figure and that unemployment has been to some extent reversed—indeed, there has been a considerable drop in unemployment over recent months—shows the extent to which the Government have reflated to overcome the effect of excessive wage increases.

The trade unions must face these facts. Much as I understand their motivation and the reasons behind some of the very large wage demands which have been made in recent months they must understand that the effect of these demands will be to create unemployment. We have only to look at the way in which an employer reacts to a large wage demand which is not compensated by increased productivity. First, he looks to see how he can compensate for the increased wage bill in other directions. If he finds that he cannot increase his industrial efficiency he looks for ways and means of reducing his labour force. One sees examples of this in every industry.

Another effect of the higher wage bill caused by excessive pay demands lies in reduced company liquidity. This can have very undesirable effects. It affects a company's investment plans. If they have to decide whether to curtail their activities, to go out of some business or to defer their investment plans altogether, they often will decide to defer their investment plans and hope that things will improve So leaving cash available to meet the increased wage bill. This in turn further threatens employment in the capital goods industry. One of the undesirable and disquieting features of the present economic scene is the very slow rate of investment and the slow growth in the capital goods industry. The situation in the machine tool industry is becoming increasingly grave.

One or two of the other effects of inflation are less well known, but nevertheless very real. Members of the Opposition have on occasion referred to the increased profits which have been made in recent years, but when these profits are examined it can be seen that they are not as great as they appear to be. I have been looking at the accounts of several companies. They show steady increases in profits and their dividends have been up during the last two or three years. However, when we adjust those profits in line with the fall in the value of money and again express those profits in terms of diminished purchasing power, and when we also look at the increasing costs involved in replacing wasting assets, we find that many companies are not making such high profits and in some cases would be making a loss if account was taken of current money values.

Mr. Arthur Lewis

rose—

Mr. Hall

I am sure that the hon. Member is rising to say that the same thing affects the worker, but the rate at which wages have been increasing has been faster than is represented by increases in the cost of living.

Mr. Arthur Lewis

If the hon. Gentleman looks at this morning's newspapers he will see a report by the Department of Employment which disputes what he has just said. That report says that those in an average family earning £30 a week are finding, even with the so-called "inflated increases", that they are worse off when one takes into account the rise in prices. This was exactly the point the hon. Gentleman was making with regard to profits. The trade unions are claiming the same as he is claiming in regard to profits. However, profits are an isolated matter, but for a worker his wages are the only money on which he and his family have to live.

Mr. Hall

I fully understand what the hon. Gentleman says, but in many industries there have been demands in terms of wage increases of up to 15 per cent. and these have been a good deal in excess of any increase in the cost of living. I know that there are exceptions but they are by no means general. The point is, how do we deal with the situation—

Mr. Denis Howell (Birmingham, Small Heath)

Give examples.

Mr. Hall

Does the hon. Member for Birmingham, Small Heath (Mr. Denis Howell) wish to intervene?

Mr. Howell

Yes. If I catch your eye, Mr. Deputy Speaker, I shall take up this point, and it might be helpful if the hon. Member for Wycombe (Mr. John Hall) could give examples of trade unionists who have sought and obtained wage increases in excess of the cost of living in the last 12 months.

Sir Harmar Nicholls (Peterborough)

I hope that my hon. Friend the Member for Wycombe (Mr. John Hall) will bear in mind the figures which have been reported on that. They show that in manufacturing industries over the last 10 years wages have gone up 100 per cent. and price costs 59 per cent. Is that the answer that the hon. Member for Birmingham, Small Heath (Mr. Denis Howell) wants?

Mr. Hall

I think that we ought to to try to avoid a cross-exchange of interventions, because many hon. Members are still hoping to take part in the debate.

I was about to ask how we ought to deal with the problem. There are a great many points that I want to make but, in view of the time, I confine myself to one suggestion that I wish to put before the House.

There is no doubt that we have no need to restrict domestic growth in order to make room for an expansion of our economy in terms of exports. The right hon. Member for Leeds, East (Mr. Healey) suggested that our productive capacity was insufficient for us to increase our exports without reducing domestic production. However there is considerable slack in our productive capacity at present, certainly enough to allow us to stimulate an export drive without effecting our domestic production. Perhaps I shall be excused if I am guilty of using a platitude, once described as a truth that we are all tired of hearing, if I say that to be competitive in terms of exports we have to be able to sell at the right price and to give the right service and the right delivery. We do not seem able to keep down prices and to relate the wages and incomes that we take out of industry to the productivity of industry. Yet, as both sides of the House are reluctant to see the introduction of any kind of statutory prices and incomes restriction, we have to find another way.

Some time ago, I suggested that an attempt should be made to agree a national average increase in wages which the country could accept and which was related to the national productivity. It was my view that having once agreed that figure, which might be 5 or 6 per cent., an attempt should be made in co-operation with the TUC to see how it should be split between the various industries. As an hon. Member opposite pointed out, it is folly to have a fixed percentage increase for every industry regardless of conditions in that industry. In some cases it might be that workers ought to have 10 per cent., in others a very much smaller percentage, and perhaps in some cases no increase at all. However, having agreed a figure that the country as a whole could afford, it could be distributed in unequal proportions between the various industries. In that way it ought to be possible in theory to contain inflation. To deal with cases where wage settlements above the norm were arrived at, the excess could be taken away in taxation, the taxation being used to compensate those who were likely to be harmed by the inflation which followed.

When I made that suggestion originally, I was shot down in flames. After one or two timid attempts to resurrect it, I gave up. However, I bring it up again today because no less a journal than the Economist has also suggested it, although in rather more detail. Looking at the Economist for 17th June, I believe that there might be something in my suggestion after all.

I hope that my right hon. and hon. Friends will examine this possibility. It may mean introducing a form of prices and incomes policy against which I know they have set their minds. But even the absence of a policy is a policy in itself, so the Government should not reject it on these grounds alone. It is worth careful examination.

We have spent a great deal of time analysing the reasons why it was decided on Friday last to let the £ float. There have been accusations and counter-accusations about why the action had to be taken. We spend a lot of time criticising each other. Right hon. and hon. Gentlemen opposite criticise the present Government and my right hon. and hon. Friends criticise the Opposition for what they did when they were in power. However, I believe that the situation is getting too serious for this kind of across-the-Floor criticism. It is time that we as a House got down to finding a real solution to a problem which will damage us all if we do not solve it.

The main problem at present both here and in the country is psychological. We have to learn how to work with and not against each other. I admit that there seems to have been a greater division between management and the trade unions over the last 12 months than for some time past. There are many reasons for it, and I do not lay the blame entirely at the door of the Industrial Relations Act, the main provisions of which I support.

We have to find a way of rousing the British people from their apathy or inertia. Over many years both political parties have failed to get the right response from the people if the economy is to move. Above all, we ought to discover exactly what people want out of life. We always concentrate upon the improvement of the economy, and we always talk about increasing the gross national product. We are almost hypnotised by the need to strive after economic progress. If we attempted to discover what people really want out of life we might find that the leaders of both parties had been leading the people in a direction in which they did not want to go. That may be the reason for the apathy amongst the people as a whole.

8.7 p.m.

Mr. Douglas Jay (Battersea, North)

rose—

Mr. Arthur Lewis

On a point of order, Mr. Deputy Speaker. Will you draw attention to the long-standing custom and practice of this House that when an hon. Member has made a speech, he ought in courtesy to listen to at least the following speech if not the two following speeches before leaving the Chamber? It is becoming more and more frequent for an hon. Member to make a speech and to leave the Chamber immediately afterwards. That does not help any debate. What is more, the same hon. Members always seem to be called. They appear to know when they will be called. But my chief complaint is that they leave the Chamber immediately after they have made their speeches, and the debate has no chance of success.

Mr. Deputy Speaker (Mr. E. L. Mallalieu)

It is a well-known and honoured custom. I have not noticed that it is being breached.

Mr. Jay

My brief and modest speech will not contain the words "devaluation" and "inflation", and I hope that it will be the better for that.

The Chancellor of the Exchequer said that he could not see very much wrong with the economy at any point. But he did not explain why, in those circumstances, it was necessary suddenly to float the £ last Friday. To my mind there is no mystery about it. The Government floated the £ because they were forced to and not because they wanted to. It was a case of economic reality breaking through and shattering a lot of the complacent dogmatism that we have had from the Chancellor of the Exchequer and other Ministers in recent months.

In my view, one main reason why economic reality broke through was that the appalling burdens which entering the European Economic Community and accepting the common agricultural policy would force upon this country undermined confidence in the eyes of the financial world, which knows all too clearly that these burdens will be unsupportable if we join on the Government's terms.

I thought that the weakness of the speech of my right hon. Friend the Member for Birmingham, Stetchford (Mr. Roy Jenkins) was that it totally ignored 1st January, 1973. In this House a week ago, I was bold enough to say: …the immediate balance of payments outlook and the position of sterling are not strong enough to bear the extra burden of £1,000 million a year on our balance of payments, which everyone in Europe, except the Chancellor of the Duchy, knows will be the consequence of joining the EEC on these terms. Indeed, to rush into that situation and at the same time accept a régime of a more rigidly fixed exchange rate is a policy of economic madness."—[OFFICIAL REPORT, 21st June, 1972; Vol. 839, c. 488–9.] That was said to one Chancellor on 21st June and proved true by the other Chancellor on 23 June and the comment of a leading writer in the Financial Times on 27th June was: The fresh evidence of our economic weakness and the inability of our Government to do much about it, that has emerged in the past few weeks, must re-open the economic side of the argument on EEC entry.

That is the Financial Times. Yet now both the Chancellor and the Prime Minister, learning nothing and forgetting nothing, continue to ignore these realities and protest that we shall both accept all the burdens of EEC entry and soon return to a fixed parity and later to the monetary union which is proposed in the EEC. That, to my mind, is to defy all the economic lessons of the post-war world and to pursue a policy which is bound to lead to further crises.

Meanwhile, the Chancellor seems to me to have struck a new blow at the Commonwealth and the sterling area by his announcement about investment in the overseas sterling area. I think we must be told before the end of this debate whether the Chancellor means what he said, that direct investment from this country in the overseas sterling area is not to be controlled as a result of this new decision. If that is true, it is not what almost everybody, including the Malaysian Government, understood over the weekend. If, on the other hand, it is the truth, and there is to be the same control in the sterling area, as we have had for the outside world in recent years, this is a new blow to the Commonwealth and means the virtual extinction of the sterling area as we have known it.

I turn from some of the recent policies of the Government to examine what I believe are the real economic issues facing us. There are two broad policies which are necessary to achieve for this country full employment, growth, an overseas balance of payments and reasonably stable prices. The first is a comprehensive incomes policy at home. The second is an exchange régime which combines short-term stability with long-term flexibility. Both are perfectly practicable given the will to achieve them.

First, an incomes policy will mean recreating the Prices and Incomes Board in some form. It will have to cover everyone—judges and doctors as well as miners and railwaymen—and it will have to be lasting and not temporary. Secondly, what we need on the exchange control front is day-to-day control, with fairly wide margins round the peg and a peg which itself moves in the longer term not by Government decision and political upheaval, but under the influence of the real underlying economic forces. To return to fixed parities in a few months' time—and here I agree with the right hon. Member for Wolverhampton, South-West (Mr. Powell)—as the Government apparently intend will lead to another similar crisis thereafter, and so on, and so on.

But both those essential policies are impossible if we are bound by the Government's present settlement with the EEC. More flexible exchange rates are impossible if we gratuitously attach ourselves to the EEC's extraordinary policy of narrowly fixed margins to be followed later by complete monetary union, a policy which is based, not on any sort of economic sense, but simply on the obsession of the French with bolstering up the CAP at almost any cost to anybody but themselves. That way lies disaster for this country.

Similarly, it seems to me that there is no hope of the incomes policy which we so sorely need, by almost common consent now, as long as the Government follow their present course of deliberately raising food prices against the British consumer and the British worker. This is not merely unjust but is gratuitously forcing up our industrial costs and damaging our competitive competition throughout the world just when we ought to be bending every possible effort to improve it.

As CAP prices are fixed in dollars the latest depreciation of the £—and this has not been mentioned so far—means that if we join the EEC the rise in food prices will be even greater than those that were previously estimated and the whole balance of payments burden on this country that much heavier.

As long as the Government pursue this dear food policy the ordinary working population of this country are, in my considered judgement, fully justified in putting forward substantial wage claims, and until that policy is altered public opinion will, broadly, support those claims.

It is the Government's dear food policy, together with their rent proposals, which, by making any sort of national unity and consensus impossible, are doing most to undermine the British economy. No tinkering with these mistaken policies will be enough. Our present difficulties are likely to worsen and deepen unless we make a clean sweep of these policies and of all those who support them.

8.17 p.m.

Mr. Edward du Cann (Taunton)

At 3.30 this afternoon we had a business statement, followed by a statement from the Home Secretary, followed by a statement on Ulster, followed by a point of privilege, followed by a point of order. They were all significant matters, but it meant that we did not begin the debate until a quarter to five. I hope that my right hon. Friend the Leader of the House will consider the arrangement of our business, particularly on Thursdays. It seems wrong that we should have so little time for so important a debate as this.

First, may I echo some of the things that were said by my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) and my hon. Friend the Member for Wycombe (Mr. John Hall). Secondly, perhaps I may come to some of the points, and particularly the constructive points, made by the right hon. Member for Battersea, North (Mr. Jay), that is to say those points which are not part of the two rather well-worn records which he was playing, even though he plays them happily to his own great amusement.

I recall hearing a prophecy when I first came to the House that I should, in general loyalty, vote almost as often for matters of which I disapproved as for my own enthusiasms, and so it has been this week, last week, and I dare say it will be so next week, and today is a similar example.

The trigger for this debate was the Chancellor's decision to float the £ sterling. I think that that decision was correct. He was right, he was speedy, and I believe that he was wise in what he did. Indeed, this afternoon he proved his case beyond a peradventure. We are fortunate to have been able to float so early, for a revaluation of some kind sooner or later before we went into the EEC was inevitable, and we have now happily avoided a later and possibly damaging speculation.

There is advantage to us of kinds which right hon. and hon. Gentlemen opposite are even better aware of than I am. Yet the reality is shameful, as the right hon. Member for Leeds, East (Mr. Healey) and others have said. Irrespective of one's party, the pressure on sterling represents a failure on our part nationally, and I do not see how we can view the circumstance with any pride.

Incidentally, as the right hon. Member for Battersea, North said, the Chancellor's announcement last Friday included an obituary for the sterling area. This needs much wider comment than is possible today. I deeply regret this further, but by no means inevitable, decline in Britain's political and economic involvement with so many of our friends.

Like some of my right hon. and hon. Friends, I am anxious about the Chancellor's use of the word "temporary". None of us seems to know, and the Chancellor plainly cannot declare today, how temporary "temporary" is. I hope that we never return to the narrow bands we have been discussing, that is to say, any system which permits fluctuations only within narrow limits. As the restrictions are artificial, they are constraining and plainly dangerous. After all, fixed parities can become unrealistic very quickly and for perfectly innocent reasons. They are not viable.

I give one example of the danger. I believe that narrow bands can actually encourage the speculator, who may gain much if he is right, yet who can only lose little if he is wrong. I was so pleased that the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) and my right hon. Friend the Member for Wolverhampton, South-West spoke a little about speculators. Speculators should not be blamed as frequently as they are. I speak as the chairman of a merchant bank which deals in the foreign exchange markets. I do not deny that there is speculation, both inside and outside this country, on occasions, and perhaps too often. But the speculator is often merely the competent businessman dealing forward, as he needs to do and as he must if he is to do his job.

It was wise of the Chancellor to remind us of the scope of trade today. The total of payments for exports and imports in any one year, in United States dollars, in which we all have to calculate today, is now 62,500 million. Right hon. and hon. Members can calculate in a second for themselves what one week's transactions alone may be, or two weeks'—and two weeks', perhaps, is precisely the figure to which the Chancellor was referring earlier today. We have to get accustomed to new scales, and this is difficult for us to do. But it is a factor with which we have to cope.

I am highly suspicious of the cult of immutability of fixed parities. I would go further and say—not for the first time in the Houses—that it is for our most serious consideration whether we should not regard fixed parities in our case for the next several years as something to be altogether disregarded.

Let us look at some of the anti-floating points generally made. Surely some things are clear to us all. United Kingdom floating does not in any way injure the concept of European monetary union. Some say that that is light-years away in any case, especially when viewed in terms of national sovereignty, that is to say, the surrender of control over national resources that will be needed in the wider international interest. I cannot see the Germans, Italians or French tumbling over themselves to volunteer to do this very thing. Indeed, let us measure the progress to date. The mobilisable resources in the EEC are puny when compared alone, for instance, with the total size of the Eurodollar market, now no less than 65,000 million United States dollars. It will come, of course. It may well be right for it to come. But it will come by no means yet, and our floating today affects the issue not one iota.

Let us be realistic about international monetary reform. I think that this is also years away and that we shall not, in our lifetime, have a perfect world system. The Chancellor was right at the latest IMF meeting to put forward his proposals. He is quite right in attempting to do so in July. He and I were colleagues in the Treasury in 1962, and I remember, as an Economic Secretary, going with the Chancellor to the IMF meeting in September of that year, at which Britain made a minor initiative. We were warmly attacked by all our friends. It is extraordinary that there are always arguments for not doing things in this world, especially in this country. Eventually we had the special drawing rights, but that was seven years later. By all means let us agitate while we wait. We might take a leaf from the writings of Voltaire and cultivate our garden and go about our own affairs. We have urgent problems to solve in this country which must have first priority. As the right hon. Member for Stechford said, it is true that we may run the risk of pro- voking other crises. Certainly we must not be selfish. But the truth is that within the 25 years about which my right hon. Friend the Member for Wolverhampton, South-West spoke so eloquently, we have brought about many of these crises through our own fault. It is high time that we put our house firmly in order.

The Government's strategy is to develop the economy for the Common Market. I am not a great supporter of that ideal, but I am a supporter of the strategy, and the whole House, I believe, is all for growth. If fixed parities inhibit us, away with fixed parities. In his Budget, my right hon. Friend the Chancellor presupposed a degree of flexibility. He was absolutely right to do so.

There is one question above all which the debate must attempt to answer. How did it happen? Why was it, as the right hon. Member for Leeds, East said, so unforeseen? Anyone who was watching the financial markets could see, I should have thought, certain indications a week or two beforehand. Why did it happen? How could it happen when our reserves are at record levels, when we have no debt, when we have substantial borrowings as of right which are quite untouched and which are still available to us, and when we have a surplus on our balance of payments? On the face of it, it was impossible. Certainly it was wholly unpredicted.

To take the most important reasons first, the Chancellor said today that he thought the value we fixed on the £ in the Smithsonian agreement was about right. I do not agree. It was very much too high. The narrow band system was bound to lead to trouble sooner or later. The right hon. Member for Leeds, East played his part with his careless remark, but I do not want to over-emphasise that. However, the length at which he excused himself was notable.

Let us come to economic reality, about which the right hon. Member for Battersea, North spoke. I happened to be not in Luxembourg on Monday but in Switzerland on Friday, talking to English and Swiss bankers. While the Chancellor presupposed a degree of flexi-House, I had a splendid opportunity to see ourselves as others see us, the way in which people living abroad see us.

I shall report to the House shortly what people told me. They said that they thought that our trade figures now were unimpressive. I believe that to be a fair comment. They said that our society was becoming unstable. I think that that is unfair, but one realises the reasons why people abroad think like that. They said that they believed that the exceptional wage increase in this country is now becoming the norm. That is fairer comment than it seems to be at first sight, because last year's exception usually becomes this year's norm. I have always agreed with the right hon. Gentleman the Leader of the Opposition, that one man's wage increase may be another man's price increase. But this point can be pushed much too far if one believes, as we all do, in a high-wage economy. At present, when incomes are being pressed very much too far, this point seems incontrovertible.

Thus, those who judge us think that the advantage that devaluation gave us, as the right hon. Member for Stechford said, is being eroded—thatis a matter of fact—that we are increasingly uncompetitive in world markets—that is fact again—and that the balance of payments will face new strains fairly shortly with our entry into the Common Market—that is a fact once more. I say that all this apart inflation at its present level is intolerable.

The lesson of it all is surely this: if this is the sort of thing that one's friends and sympathisers think of one, no currency can be held at a parity widely believed to be wrong and no currency can ever be held at a parity which people will shortly prove to be wrong.

Mr. Arthur Lewis

The right hon. Gentleman mentioned a whole category of things about which the Swiss bankers were worried—such things as the large wage applications put in by trade unions. Did they not mention high dividends and profits and payments to company directors and unit trust directors? Were they referring only to the poor workers?

Mr. du Cann

I am very glad to say that they kept the hon. Gentleman's affairs out of the picture.

They went on to ask—this was perhaps an unreasonable question; I told them that it was—whether the Government have lost control, and they asked what our policy was and what it should be. To that matter I finally direct myself.

I welcome again, as I am sure the whole House does, the present conversations between the CBI and the TUC and those between the TUC and the Government. I hope that they develop. I believe that there has already been too much misunderstanding.

I do not believe that the CBI and the TUC will succeed in producing a coherent, practical, enduring prices and incomes policy. I may be wrong. I hope that I am. I certainly think that they may well produce conciliation machinery. That would be useful. Indeed, it would be most valuable. However, I beg leave to doubt that they will provide a lasting rational structure for price restraint or for wages increases, covert and overt, linked only, let us say, to productivity.

Above all, I do not think that I wish to wait to see what will happen. Like the right hon. Member for Stechford, I say that we cannot wait and we dare not wait. The right hon. Gentleman made criticisms of present Ministers. At least I can claim to be consistent in having criticised the right hon. Gentleman and in making the same point now.

It is not surprising—I am surprised only that this matter has not been more mentioned in the debate—that people are talking about a temporary freeze on prices and incomes of all kinds. I am not sure that that may not be the right thing to do for a short period. The good will certainly exists for it in the country. If the situation is as out of control as it seems, may there not be something to be said for some shock treatment to bring about a temporary stability? Is there not much to be said for giving the Government an opportunity to resume their earlier strategy which, as my hon. Friend the Member for Wycombe said, it seems that they have temporarily abandoned?

Surely it is right to do everything that we can to get the Government back on that original course. It was a course of courage. It was a course of realism. "I have the ambition", said the Prime Minister, "to change the mood of this country". My right hon. Friend spoke also of "the quiet revolution".

I say that is for me, and that is for the whole Conservative Party; and I believe that it is a recipe that is right also for the country. It was taking many forms. I will not retail them all, but it was economically realistic. In a case or two it was pursued too far, as for instance in the lame duck analogy. It makes me sad that we hear from our leaders talk on this subject less often than we used to hear it, and I believe too rarely.

There is a danger that the Government are abandoning a policy just at a moment when it was being understood. I do not say that it was not opposed. I say that it was beginning to succeed. At least it was becoming clear. I do not argue for any alternative. I am a supporter of that policy, and I wish to see it brought back. I wish to see time bought whereby some machinery may be established—I do not know what it is; a jibe was heard from the other side about the rebirth of the National Board for Prices and Incomes—for the expression of public opinion, a public judgment on prices and incomes increases.

If it is right to trust people to use their own individual judgment, it is right to give them the disinterested information on which they can exercise that judgment. Frequently judgments to which they are exposed are those only of arbitrators, and usually too late and with settlements that are too high.

I also believe that it is high time that we afforded more protection to some parts of British industry. If it were right to talk about the scale of dealings in the international currency market, we should be realistic in Britain today and acknowledge that there are some industrialists abroad who would destroy whole sections of British industry. There is much to be said for protection in that defensive sense.

If we were to have for a short time a prices and incomes freeze, I do not think that there would necessarily be an explosion afterwards. What would happen would be that we should take the steam out of the present situation. I propose this not so much with enthusiasm as with reluctance. It is the Government's duty to govern and to lead, and even sometimes to put forward policies one does not like, if one believes it is right to do so, as was the case with the rationalisation of Rolls-Royce. Politics is not only doing the acceptable. It is doing what has to be done, what everybody knows in their heart of hearts must be done. The Chancellor said that in matters affecting exchange rates prompt action can be and usually is crucial to success. In coping with what comes after, promptness is no less vital.

8.35 p.m.

Mr. John Horam (Gateshead, West)

The central truth, which shines through all the comment here and in the Press and elsewhere of the last few days since the flotation of the £, is that it was a devaluation caused by the Government's failure to control inflation. It is this idea which is embodied in our Amendment to the Government's Motion.

Of course, the Government seek to deny that. They must do so. The Prime Minister says—I found it hard to understand what the Chancellor was saying as he sought to submerge us in a mass of boring detail—that the flotation of the £ was caused by speculation and hot money totally unrelated to the underlying realities. If that were true, we should eventually re-fix the £ sterling in relation to the dollar at the old exchange rate. We all know that this will not happen. It will be an exchange rate below 2.60 dollars. We have seen 2.80 dollars and 2.60 dollars go for good. The Government's explanation or purported explanation does not hold up in reality.

Therefore—several hon. Members opposite also made this point very strongly—the central feature of this last move is that it is a failure based on the Government's lack of ability to control the problem of inflation. Within that failure there are two clear points to which we should pay attention. First, this failure is based partly on the fact that the Government misread the lessons of the Labour Government's experience of prices and incomes.

The point was continually made from the benches opposite, in the Press and elsewhere that the Labour experiment in prices and incomes failed. That is highly debatable to say the least. People would be happy now with the rate of price inflation with which they had to put up during the years of the Labour Government. If there were an acceleration after the Statutory Instruments were withdrawn, that was far more to do with the devaluation which we had to effect than it was with any explosion resulting from pent-up frustrations and the rest of it. That is a far more complicated explanation than the one that is put forward by the Government, that there were pent-up feelings which, when the barriers were opened, burst forth inevitably and inexorably.

That is only a small part of the story. They totally misread the experience which we gained in a very hard manner. The hon. Member for Yarmouth (Mr. Fell) seems to disagree most violently, but there are some hon. Members opposite who acknowledge the truth in what I have said.

Mr. Anthony Fell (Yarmouth)

To write off, as the hon. Gentleman is doing, the pent-up frustrations that result from a wage freeze is nonsense, as he must know.

Mr. Horam

It is not nonsense. There were several factors. The major factor had more to do with our devaluation than with the consequences of our policy to achieve an element of stability with the statutory imposition of the prices and incomes policy.

Secondly, and more important, the Government are trying to put through a social policy which is far more provocative than any which we on this side of the House could envisage in our wildest dreams. I need not go into the details. We all know them.

The Government do not agree that their measures in social, economic and other spheres are divisive. We say they are. I am confident that any independent assessment of the situation would come down emphatically on our side of this crucial question.

We, as Socialists, argue that it is always wrong to pursue socially divisive policies. It is particularly and tragically wrong at this time in our social history. There are developing and accelerating trends to which we must pay close attention in looking at the whole phenomena of prices and wages and social life generally over the last few years.

As a result of television, greater mobility, cheaper holidays, affluence, education, and so on, people are more aware than at any time in our history of the real inequalities which exist and are far less prepared to tolerate them.

Mr. Douglas

Internationally.

Mr. Horam

Internationally as well. It is a credit to the younger generation that they are in many ways bringing this realisation home even to older people who have put with the old deferential ideas for far too long.

Mr. Douglas

Deferential or differential?

Mr. Horam

Deferential. Ironically enough, in fact both deferential and differential. People are beginning to look up and they do not like what they see. Fundamentally, they see a working man as a person doing a disagreeable job, on the whole, for a poor standard of living and with very little part in the decision-making processes of democracy. Only occasionally does he have a rôle in those processes. Then they see the elite doing agreeable jobs, on the whole, with a reasonable income and taking most of the major decisions. Since our pay rise in January, I feel that all Members of Parliament are on the wrong side of that barrier. On top of that they see certain businessmen involved in land and property speculation, and so on, making excessive amounts of money with very little social purpose—indeed, quite damaging in social terms. I refer to the Harry Hyams, and all the other speculators.

I agree that many Conservative commentators have condemned this kind of thing. Indeed, many of them are sincere in what they say. However, some of their supporters are less sincere. They see the greed of some as showing up too much the underlying realities for the truth to be wholly welcome. This is certainly an element in the motives behind some of the remarks which have been made, even if I confess the sincerity of others.

This obviously stokes up in people the bitterness about which my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) talked so eloquently in his speech, the social resentment and the militancy we have witnessed in wage claims. This is the basic factor underlying the present situation. In this situation, how can we be other than 100 per cent. behind any wage claim which is presented?

The real core of this matter, as working-class people see it, is a struggle over the distribution of income. Fundamentally, we on this side of the House can only be on their side of the question. At Question time today the Prime Minister repeated that that is not a responsible attitude. But the deeper irresponsibility, in my view, lies with the Government who create these socially divisive policies, dividing the nation so much that people can only see, desperately, their own sectional needs.

The hon. and learned Member for Montgomery (Mr. Emlyn Hooson) made that point, and he was entirely right. When one does not try to keep the people together, engaging their feeling that they are all together in one ship, of course they will be overwhelmed by the need to care for their own first interest, which is themselves. That is obviously true, and the extent to which the Government have departed from it is a plain cause of the problems which we now face.

To some extent, the truth of what I am saying is borne out by the rather surprising reaction to the Government's pet line of blaming the unions for inflation. One would have expected it to work to some extent, and so it has, but I am surprised by the degree to which it has not worked, by the way in which people say, "We can understand the unions putting forward the claims that they make, given the climate of events and the Government's policy in other spheres, and given what a wage claim adds up to when tax effects, price effects and the rest are taken into account". That is certainly an opinion widely expressed by my constituents, and I am sure that it is expressed also by the constituents of many hon. Members opposite.

What it boils down to is a question of fairness, and fairness is a problem of redistribution. I believe redistribution of income to be fundamental, to whatever degree one carries it, to the kind of successful attack upon inflation which the Government must attempt to mount. Curiously, this rather turns on its head the old argument which we have heard for so long, certainly in the last few years, about growth, redistribution, inflation and the rest. We have heard it from the Tories, we have heard it from independent people, and we have heard it even from this side of the House, that if we got growth all would be well because we could then achieve a certain amount of redistribution without punishing too much those who had to give up some of their income, those who would have to lose to some extent in the course of the redistribution.

Ironically, however, we see now that, in order to achieve growth we must do something about inflation, and in order to do that we have to do something about redistribution, engaging people's real feelings. Redistribution, therefore, is the central piece of our economic as well as our social edifice, and without it we shall be unlikely to have the degree of growth which we need to keep the economy moving along. It is an ironic comment on the way in which the argument on growth has gone in the last few years.

That raises another question: given that the question of redistribution is so much at the heart of things, can the present Government govern this country? Committed as they are to their social policies, can they master the inflation which they are committed to mastering? It is ironic that one should pose that question when one remembers that, before the 1964 election, it was often argued that it would be difficult for a Labour Government to manage the economy, that a Labour Government, in some way, because of their background, were debarred from understanding and managing the sort of economy which we have.

Now, however, because the need to engage the feelings of the people in a positive policy which would combat inflation is so central, we see that it is the present Government who have reneged upon their agreement, their commitment and their promise to the people and who are finding it so difficult to make any movement at all against inflation.

I doubt that the Government can get very far. Their attitude is reflected, fundamentally, in what the Prime Minister says about prices and incomes, and this is why he has been so cagey on the subject, not giving anything away. He knows in his heart that they would have to change too much. They would have to lose too much of what was distinctive about Toryism to make the fundamental changes necessary to engage people's feelings in a positive policy which would help towards curing inflation. Possibly a Tory Government could do it, though I doubt that it could be one led by the present Prime Minister. To be fair, I must say that the policies being pursued by the Secretary of State for Northern Ireland in that context, a crisis context of a different kind, are the kind of fair, honest and open policies which, I should have thought, would have similar success in the economic field. We find that the Prime Minister is conspicuously lacking in this open-handed and fair-minded approach.

I have always felt that there were sound reasons politically, culturally and geographically for this country to join the nations of Continental Europe. But there was always a question fundamental to the kind of constituency I represent—what price would we have to pay it and who would pay it? It is indisputable that the events of the last 12 months have shown that price to have escalated remarkably, and it is above all clear who will pay the price. It will be paid by the sort of people I represent. Therefore, while I voted against the Common Market with some reluctance last October, I none the less feel far more happy about my decision now in view of the events of the last six months.

The Government can get its way over the Common Market because it has to deal only in Parliamentary majorities and in getting legislation through. But to deal with inflation, they must also get the full-hearted consent of the people. They must engage the trade unions, the people they represent and the ordinary men and women of this country. I doubt very much whether they have their full-hearted consent for the policies they are following and I do not see any signs of change. I do not believe the Government will meet with any success until they dramatically reverse those policies.

8.53 p.m.

Sir Henry d'Avigdor-Goldsmid (Walsall, South)

I hope that the hon. Member for Gateshead, West (Mr. Horam) will forgive me if I do not take up the argument he was advancing, because I have a few points to make and only a few minutes in which to make them. I begin by quoting from the Economist of 10th June which says Earnings are now running six and a half per cent. above the level a year ago—a rate of increase nearly halved since the frenzied 1970 boom days. This refers not to this country but to Germany. Germany has had the sort of inflation which we have been having and the German reserves have remained absolutely intact. That is because the German people have known inflation. Twice in their lifetimes their currency has been wiped out. They do not want to go back to that again, and the people of the west understand that the Germans will go to any lengths to prevent this happening.

If our Government could give a similar sort of impression, I am quite certain the difficulties of inflation we are now facing could be eliminated. Our fault over the years was that we have been over-sanguine. In 1931 we thought we could maintain the international gold standard. In 1948 under Doctor Dalton we accepted premature convertibility. In 1967 we had the devaluation but we also had the very useful Basle Agreement, which was arranged by the right hon. Member for Manchester, Cheetham (Mr. Harold Lever), and now we are in the same situation again. Each time we have lost a bit of ground, and now we have very little ground left.

One point which has not been brought out in this debate is that we have in the Bank of England, according to the figures published by the International Monetary Fund, exactly one-third of the gold reserve—I stress gold reserve—that we had in 1965. We have a great many dollars, which we boast about, but those dollars, which we were worrying about until very recently have been very hard to get rid of, and, as the Financial Times suggests today, they may still be very hard to get rid of.

What we need is to show our determination to meet the problem. The useful steps my right hon. Friend the Chancellor took last week have been to some extent vitiated by a concession made by the Bank of England to the clearing banks to enable them to increase their reserves. I believe that the logical outcome of the steps my right hon. Friend rightly took, which he was praised for taking, was that the banking system should learn to adjust itself to the new situation. To throw it away and immediately make concessions to the banks casts serious doubt on the Government's willingness and intention to meet the threat of inflation, which every hon. Member who has spoken in the debate is conscious of.

No member of the Government can be unaware of the very grave unhappiness caused in this country by the continuous debauch of our currency over many Governments and many years. The currency has been consistently debauched. After we lose the sterling balances which are pegged to the 2.40 mark, we shall have no stop before we reach a Brazilian situation. Therefore I urge my righthon. Friend, who has behaved with great skill and coolness in this situation, to infuse the same coolness and skill into his colleagues, the banking system and British industry. Then I am certain we have the necessary reserves to pull us through what will be a difficult period, but one which will be worth while if we are getting things right.

When in 1931, in the absence of Mr. Montagu Norman, the Governor of the Bank of England, in Canada, the decision was taken to abandon the gold standard, he received a telegram from the Deputy Governor and one of his senior directors en clair saying, "Old lady goes off Monday." Mr. Norman, as he then was, interpreted that as the excessive solicitude of his colleagues about his mother's holiday plans. As I understand that the Governor of the Bank was not present when my right hon. Friend took his decision last Friday, I suppose my right hon. Friend sent him a telegram saying, "Anchors aweigh". I call that a good omen, and I hope he will take courage from it.

Mr. Deputy Speaker (Sir Robert Frant-Ferris)

Mr. Harold Wilson—

8.58 p.m.

Mr. Harold Wilson (Huyton)

rose—

Mr. R. J. Maxwell-Hyslop (Tiverton)

On a point of order, Mr. Deputy Speaker. You may not be aware that this debate did not come on to the back benches from the Front Benches until less than 2½ hours ago, at 6.30 p.m. It lies within your power to give some protection to back benchers by not having your eye caught by Front Bench speakers until, say, 9.25 p.m. There is little purpose in a debate of this kind, which is supposed to be a full-day and not a half-day debate, if you allow your eye to be caught by a Front Bench speaker after less than 2½ hours of debate on the back benches, before it is even 9 o'clock.

Mr. Deputy Speaker

I think that the hon. Gentleman will recollect, on reflection, that the immemorial custom of the House is that when a member of the Front Bench rises in his turn after a speaker on the other side of the Chamber, the Chair calls him.

Mr. Fell

Further to that point of order. I apologise to the right hon. Gentleman, the Leader of the Opposition. The fault lay not with your calling the right hon. Gentleman now, Mr. Deputy Speaker. It lay at the beginning of the debate when the two first speakers took—

Mr. Deputy Speaker

Order. That is not a point of order.

Mr. Wilson

I give notice that any further encroachments by hon. Members opposite on the time at my disposal will be taken out of the time available to the Leader of the House for his reply.

Mr. Fell

rose—

Mr. Wilson

No. I am sorry, but there is a great deal of ground to cover.

Mr. Fell

rose—

Mr. Wilson

No.

Mr. Fell

rose—

Mr. Deputy Speaker

Order. The hon. Member for Yarmouth (Mr. Fell) has spoken to his point of order, which I told him was in fact not a point of order. A good Parliamentarian will leave the matter where it is now.

Mr. Wilson

rose—

Mr. Fell

rose—

Mr. Wilson

I begin from the position that, in the situation in which the Government found themselves last Thursday evening, the action they announced on Friday was the least harmful course they could have taken. It was technically well executed. How they got themselves into that situation we can leave for a moment. The fact is that the Bank Rate was increased on the Thursday morning. It did not do the trick and the speculative run on sterling seems if anything to have increased following the rise in Bank Rate. The figures quoted today by the Chancellor of the Exchequer were horrifying.

The Government could not face an intensive run on sterling on Friday. They could not allow the speculators a free hand. To have gone for an open devaluation last Friday—the decision to float is, in effect, a decision to devalue—would have meant a hasty decision on what the rate should be. Too small a devaluation would have invited a further run on sterling, probably of the same virulence, within perhaps a short period. Playing safe by a more swingeing cut could have triggered off not only a state of total confusion in Europe, which we have so far avoided, but only so far, but would possibly have completely undermined the Washington Agreement of last December. Therefore, in that situation the Government took the right decision. But they must recognise that that difficult choice—the "Morton's fork" of too small a devaluation, or too large—has only been deferred. The decision has to be made when floating gives way to a return to a state of grace.

Last Friday, considering the situation they had got themselves into, the action which the Government took was the least damaging for that day, and it had the merit of giving them time to consult, which they had not done despite their obligations, and time to think—a painful process, as we all know, in the circumstances. So, in a world where floating has become respectable, they were in the circumstances—I emphasise "in the circumstances"—right to float.

Two other points should be made which will evoke echoes from the Treasury Bench. The first relates to the suddenness and virulence of the concentrated attack on sterling, whatever the cause. For two years, the Government have not had to face, as we had repeatedly to face, bear raids, many of them for totally irrational reasons, on sterling. They did not have to face them because of the record balance of payments surplus we bequeathed to them, combined for a time with the weakness of the dollar. Indeed, for a great part of the two years, what they had to contend with was the influx of "hot" money —embarrassing no doubt but in its way comforting as well. It is a question for further debate whether they did not render themselves vulnerable by taking in so much "hot" money, and in particular whether their over-confident attitude towards it did not lead to unwise outflows of portfolio investment, which could not be mobilised in a crisis. Borrowing short and lending long is a classic recipe for trouble.

What is clear is that the power, force, and suddenness of a bear attack on a major currency, almost out of the blue, has increased, is increasing and must be diminished. If there is a parallel in the world of nature, this latest attack can be likened to the hurricane which simultaneously and suddenly swept through Pennsylvania and other States a week ago. Ministers were right, following the weekend, to bring the attention of their overseas colleagues to the need for an analysis of last week's events and the need for safeguards against speculation.

To my mind the cost of the increased borrowings may well be the prodigious volume—and here I take a phrase from my right hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) speaking in Vienna this week—of footloose funds, mercurially mobilised funds, splashing about in the Euro-dollar market. Estimates have been published showing a total of some 85 billion dollars in the Euro-dollar market—the Chancellor can perhaps tell us the exact figure—restless, uncontrolled paper generating paper.

I warned a year ago that a breakdown of confidence in one of the major Eurodollar operators could sooner or later generate a crisis comparable with the Kredit Anstalt disaster which plunged the world into depression over 40 years ago. It has not been such a development which has provoked this crisis, but Euro-dollars clearly played their part last week. If it is the sinister speculator one seeks, then his masse de manoeuvre his fire power, is immensely increased by the growth of the Euro-dollar market. But speculation for speculation's sake apart—and it is only a part—custodians of the liquid reserves of multinational companies, treasurers and financial controllers on both sides of the Atlantic, seeking perhaps no more than the prudent disposal of their funds, are in this multinational age capable of decisions, individual decisions reasonable to them, which in the end become decisions of a Gadarene herd which can overthrow parities literally overnight.

They had seen the Chancellor's statement in his Budget Speech de-throning parity—we understand why he made it and we did not criticise him for it—and they thought, however wrongly, that he was about to invoke it. I think they were wrong. They saw the shambles resulting from certain cases brought before the Industrial Relations Court; they feared, some of them feared, some of them saw a chance of profiting from it, a national dock strike. They could not foresee the benevolent influence which the Official Solicitor could exercise. Because of their inability to see that, £1,000 million and more of sterling was lost on the expectation of action by an ultimately grounded court official—the tipstaff who launched £1,000 million and never got his man! The danger—and I think the Chancellor recognises this—is that all this could happen again.

My second point is that on all the evidence—I agree with the Chancellor, although it may not be a popular view—there is nothing to suggest that the £ at this moment is over-valued. It is vulnerable, yes. The balance of payments surplus which the right hon. Gentleman inherited went on, as we forecast in the election—and the Prime Minister falsely denied—from strength to strength for 18 months thereafter. But that balance of payments surplus has gone and now we just see a tenuous statistical battle between a worsening visible trade deficit and an invisible payments surplus.

That is not all. We have all seen figures and charts showing that in terms of comparative costs, comparative export prices, the advantage accruing to our exports from the 1967 devaluation has been dissipated by rising costs in Britain. Having said that, none of it justifies the massive attack on sterling which took place. I am sure that I am carrying the Chancellor with me on this because we are tonight discussing a national crisis affecting us all. We may have differ- ences about how the causes develop. I hope that I am carrying the right hon. Gentleman with me, because I hope to carry him with me later when I refer to the lessons which have to be drawn from the crisis.

The fact is that confidence in the £ has been destroyed temporarily, not by comparative costs but by a realisation abroad as well as at home that the Government have failed, that they have no policy for countering inflation and have not a clue about how to set about getting one. The House must examine the price that has been paid for the events of the last week. For the period of the float—and the Chancellor as far as I know has set no time to it; I will put a question about that in a moment—British manufacturers and exporters are in a state of total uncertainty.

Let the House think of a plant manufacturer negotiating a £10 million contract—say, an export contract for an electrical or chemical plant, some kind of turnkey factory. How can he at this moment or as long as the float lasts form any idea of the rate he must quote either in sterling or in the foreign currency? For this reason, there will be a paralysis of new orders and in later years any gains from the 1972 devaluation will be diminished by the loss of orders due to the present uncertainty. We shall pay a heavy price in exports for this uncertainty and the inability to quote.

Secondly, with whatever maidenly delicacy the Government seek to present their action, this is devaluation. I do not think the Chancellor has used the word, but it is devaluation. If the Government do not admit this, the rest of the world knows it. The exchange markets know it, despite the easement—and there has been an easement, the Chancellor would agree—due to the technical position of sterling earlier this week—and the speculators were obviously very short of sterling earlier this week—and despite also the help, which we welcome, from the repayment of the New York swap. That was not aid from America, which I hope is realised abroad; it was repayment of a debt to us. The Stock Exchange knows it, and that is why we had the boom last Friday in the shares of export companies.

It may be a dainty devaluation—that is about the right phrase for the Chancellor —but it is a devaluation which will have to be admitted sooner or later. It is a dribbling devaluation, going on from day to day. But, because it is a devaluation, the Chancellor must admit that it will increase prices, especially food prices. He must admit, as I am sure he will sooner or later, that those with lowest incomes will suffer. In the 1967 devaluation announcement we at once announced immediate help for those in need—the large families through family allowances and increases in supplementary benefits. As soon as possible the Government must discard their cover story, admit the facts and announce the help to those who most need it.

Let the Government admit, too, that their action will sharply increase the already intolerable burdens which the Government accepted as the price of our contribution to the Common Market common agricultural policy. Devaluation means still higher food prices for the housewife as a result of the CAP deal, still higher payments across the exchanges.

Then there is the problem: how much devalution? The decision cannot be postponed for ever. Too small a devaluation and the whole grisly speculative process could start again, particularly if the Government remain paralytic over a policy for prices. Too big a devaluation and the right hon. Gentleman—I know that he realises this—could plunge the world into total monetary chaos, with our devaluation advantage eroded by the competititve devaluations of major currencies.

The Government have not entirely covered themselves in glory in their international transactions of last week. Europe? On 24th April the Chancellor blithely signed the Common Market Financial and Monetary Agreement, whether wisely or unwisely. We have formed a view about it now. This was the famous "snake in the tunnel" agreement. It can be no satisfaction to the Chancellor, or to any of us, that the soft underbelly of the snake proved to be sterling, just beating the lira to it. Another week and they might have been there first. The Prime Minister, after all he has said about Europe, cannot be proud that on the first of the many agreements which the Government signed with the Market—the first to come into effect—Britain defaulted within two months. The Press reports that the Chancellor intends to get back into the agreement. Why does he want to do that? I must press the right hon. Gentleman for an answer to the question which my right hon. Friend put to him but which he surprisingly refused to answer. Has he given any indication in private to the EEC or to anyone else setting a term to the float? Has he said to them privately that there is a definite time when the float will end and when he will return to the agreement? The House has a right to know the answer to that question. Perhaps the right hon. Gentleman will tell us the answer.

Mr. Barber

What I said quite unequivocally is that we intend to return to a fixed parity as soon as possible and that I hope this will be before 1st January. In answer to the right hon. Gentleman's question, I would certainly not have said that if I had given any other assurance whatsoever. In other words, what I said to the House represents the position, neither more nor less.

Mr. Wilson

Neither more nor less—the House will accept what the right hon. Gentleman has said. He must feel now that it was wrong for him to enter into the monetary agreement. According to the Financial Times, when it was suggested to him in Luxembourg that Britain might have adopted it somewhat prematurely, he smiled wryly. We know that wry smile; it usually bodes ill for somebody.

The Prime Minister cannot feel much satisfaction that he now has to meet the whole inordinate cost of entry into Europe, a cost escalated by devaluation, and that he has to meet it with the payments surplus he inherited gone. The man who was going to be the arbiter of Europe has, on his first European test, gone back to Europe as an erring suppliant.

What about the United States? Was there no consultation there either? Is it a fact, as stated in the Press, that the hot line was not even used? After the blatant use of Lord Cromer in the election, was the right hon. Gentleman too embarrassed to use Her Majesty's Ambassador? No consultation! We knew the Prime Minister was a loner, but not that lone. Perhaps he feared that President Nixon would point out that when he made his dollar announcement President Nixon announced a counter-inflationary policy as well. Our relations with the United States at the moment cannot be very affectionate.

It is election year and President Nixon was hoping that the currency situation was tucked up neatly in the Smithsonian blanket. Now the dollar is threatened again, not by American inflation but by British inflation. Whatever cosmetic may be used to save the right hon. Gentleman's face, it is a remarkable achievement in international diplomacy to have upset France and the United States at one go in a matter of two hours on a cold Midsummer's Eve.

We must ask ourselves about the sterling area. Is this the end of the sterling area? The right hon. Gentleman indicated that it might not be, but that is how it has been taken in some sterling area countries. What some of us fear by the action he has taken, having just liberalised capital exports to the sterling area, is that, having so disappointed Europe, he had to prove what a good European he was by kicking the sterling area in a rather painful place.

I have referred to the cost, in real terms, of this devaluation exercise. My right hon. Friend the Member for Leeds, East (Mr. Healey) and I both recognise that it is not enough to talk about the cost of what happened last week, and that the Opposition has an obligation to say what ought to be done, first, in the international sphere and, second, on the domestic front. Internationally, there must be a much greater sense of urgency both for international monetary reform and in the devising of safeguards against irresponsible speculation. For the reasons I have given, the international monetary system—even if an agreement can be reached on the provision of an acceptable currency relationship—is impossible to defend in the face of massive speculative attacks. Sterling one moment; other currencies the next. Part of this is associated with gold speculation, much more of it is due to the footloose funds of the Euro-currency markets. The City has shown great expertise in becoming the major market operator, but the greater our involvement the greater our vulnerability.

No modern country would tolerate the existence within its shores of a major, private enterprise, credit-creating system, bound by no rules requiring it to conform with national policy and monetary stability, but we accept it internationally. It is of the utmost urgency that Finance Ministers address themselves to this question and to the major measures needed to combat speculation.

National reserves are not enough. Swap arrangements are not enough; regional defensive pacts are not enough. The Luxembourg monetary agreement has a ridiculously inadequate defensive fund of 2 billion dollars. Nearly half this amount in dollars poured into Frankfurt in one hour last Friday. The Chancellor of the Exchequer said that more than this figure was lost in hours in the Bank Rate last Thursday. International Monetary Fund arrangements are too rigid, and on too small a scale. It is like equipping the London Fire Brigade with two small hand-pumps mounted on carts.

But, more generally, it is tragic that the impetus given to imaginative world monetary reform by the events of last autumn should be driven into the sands. An American Minister spoke last week about there being two years' worklying ahead. We have not got two years. We need action now.

Chancellors of the Exchequer in successive Governments—the right hon. Member for Barnet (Mr. Maudling) and my right hon. Friends the Members for Cardiff, South-East (Mr. Callaghan) and Birmingham, Stechford (Mr. Roy Jenkins), many of us—were involved in far-reaching proposals to ensure (that world currency expands commensurately with the needs of world trade—so that the trade mechanism of the world does not seize up like a car which runs out of engine oil. Special drawing rights were a step in the right direction, but only a step.

The problem will not be solved until there is a world currency independent of national treasuries and central banks. As long as there are vulnerable and unstable national currencies, to say nothing of reserve currencies, there can be no guarantee against the kind of hurricane we all felt last week. I think the Chancellor of the Exchequer agrees with this because he said almost as much to the IMF last year.

I have long advocated for nine years—and this owes a debt to the revolutionary proposal of Maxwell Stamp—that in addition to the creation of an adequate and freely acceptable world currency, there should be provision for the creation of additional currency to finance world development—for example, to finance payment for physical development capital without plunging either the receiving country or the exporter into payments difficulties. It was failure to rise to that degree of imagination which caused the depressing failure of UNCTAD III.

Whatever is done in international monetary reform, the specific British problems remain. Last week's crisis is a response not to over-valuation—this is my personal view—but to a world-wide realisation that the Government's economic policy has broken down—or, worse, that they have no idea at all where to turn. The realisation this week is that, unlike President Nixon's announcement last August, a crisis statement has not been accompanied by anti-crisis domestic measures.

The world realises that after two years' rule, the Goverment have failed to deal with inflation, still face intolerable unemployment and have converted a record payments surplus into a prospective deficit.

The Prime Minister referred to this point last week. He refuses to say why two years ago he hailed what proved to be a £19 million trade deficit for a single month as the harbinger of disaster, and is now so complacent with an average deficit in the last four months, not of £19 million, but of £52½ million a month. He sought an escape route last Friday by claiming that my right hon. Friend the Member for Stechford had pressed last year to use the surplus to reduce unemployment.

But the Government have not done it. They have pumped money into the economy on an almost unprecedented scale. Investment grants abolished in haste have been revived in repentance. Easement of tax on unearned incomes will not help. They have printed money—they have increased the money supply on a scale we have not seen before. But only a small fraction has gone into increased production. It has gone into speculative enrichment.

The Stock Exchange, in Harold Macmillan's phrase, has become a casino again. There is portfolio speculation abroad, land speculation and property speculation—to the point where this week five bungalows and a larger house, built at £6,000 each 12 years ago, have been sold for speculative development for a total of £½ million. Misled by the Prime Minister's election promises about house prices, young people today ask the Prime Minister for a home and he offers them an in sanitary cowshed for £7,500.

As we warned 15 months ago, the hire-purchase boom would be an import boom, not a jobs boom. With all the money they have poured out, investment remains stagnant; export prices have risen, but export volumes have not. The Government have failed because, so far from fighting inflation, they stoked up inflation from the moment that they took office. They scrapped the National Board for Prices and Incomes, controls over prices and controls over rents. They abdicated all responsibility and told the country to get on with it. They forced up prices by re-introducing the Corn Laws, the import levies. They forced up price expectations by the intolerable terms that they negotiated for Common Market entry, with VAT still to come. They introduced a policy for wages—wages, not prices—based on violent and costly monthly confrontations, the denial of conciliation, threats, warnings, norms, N-minus-ones, all rushed out to the Press and denied in Parliament. They introduced into our system of industrial relations a form of bogus law, law courts designed to be puppet courts, law which no one can understand, differing interpretations of the same words by different courts, because bad law was indecently rushed through a gagged Parliament. They deliberately forced up local authority and new town house rents. They are blackguarding the unions one moment and pathetically appealing to them the next to bail them out with a policy that they are unable to think out for themselves.

So the Government want a policy to beat inflation. Then let them first accept the TUC's proposals for threshold, price-related wage settlements. The Prime Minister has had it before him for 17 months. Does he accept it, reject it, or leave it in the pigeonhole? Second, let the Government apply restraint, where-ever they can exercise influence, on top people's remunerations and not those of the lowest paid. Third, let them reintroduce control over strategic prices, the main cost of living prices, and bring back the Consumer Council. Fourth, let them repeal the food levies—I might almost say keep British beef in Britain. Fifth, end the vendetta against the public sector. Deal with the problem that the right hon. Gentleman undertook four months ago to consider, that of labour-intensive public industries and services such as coal, the railways, education, the Post Office, the hospital service and local authority manual employment where today, if workers are to get a fair and comparable wage, as they are entitled to have, the resulting increases in charges go right through the economy in an inflationary way. This has to be dealt with. Sixth, repeal or render inoperable the Industrial Relations Act before it does more grave harm, and transfer Sir John Donaldson to more productive judicial employment. Seventh, take the Housing Finance Bill and the Housing (Financial Provisions) (Scotland) Bill and slit their dirty throats. Eighth, consign VAT to the morgue.

These are matters that the Government ought to consider, and perhaps if they accept them before the next crisis, there will not be one.

In voting for our Amendment, we are not unsympathetic with the Chancellor of the Exchequer in what he has suffered from those causes of these events which are outside his control. We know what the right hon. Gentleman has been through. We have been through it. I pass over his record in opposition and what he had to say when we were going through it, not to mention the Prime Minister, of course. Because we are sympathetic and compassionate, we understand. We faced speculative raids on sterling, some instituted from within this country, which is not what has happened to the Chancellor of the Exchequer.

What we are voting against—not with any lack of sympathy for the Chancellor—is the whole miserable record of failure of the Government's economic policy in the area in which events lie within their power to control.

9.29 p.m.

The Lord President of the Council and Leader of the House of Commons (Mr. Robert Carr)

rose—

Hon. Members

No.

Mr. Deputy Speaker (Sir Robert GrantFerris)

Order. I hope that the House will accord to the Lord President of the Council the same good hearing as it accorded to the right hon. Gentleman the Leader of the Opposition.

Mr. Carr

In summing up this import ant debate I think that perhaps the first thing that should be done—

Mr. Andrew Faulds (Smethwick)

Do not be so bashful, Ted. On your feet.

Mr. Carr

I wish that the House were being televised, because then the country would know that it had no alternative Government.

In summing up this important debate perhaps the first thing that needs to be done is to put on the table some of the basic facts about Britain's present economic state, because when one does that one sees a very different picture from that which is being so luridly painted in many of the Opposition speeches and in so much of the fevered comments of the pundits outside.

All this woe and disaster is simply not true. I invite the House to look at five basic facts of our economy—a balance of payments surplus, high reserves, no burden of short- and medium-term official debt, an economy growing faster than for many years and set on a 5 per cent. growth rate and unemployment falling sharply. When, if ever, for at least the last ten years has it been possible to claim that all those basic facts in our economy were at one and the same time so favourable and strong?

The woe and disaster brigade inside and outside the House have a heavy responsibility because, if they continue with their lurid and exaggerated talk, they could, indeed, talk our country into a wholly unnecessary state of affairs. Of course inflation remains serious. Of course it remains the central, most critical problem facing the country and threatening the standard of life of every one of us, but do not let us forget or underestimate the progress which has been made in tackling it.

Prices are now rising at only about half last year's figure. That goes for food prices as a whole and for the whole range of prices paid by the consumer. This rate of increase is, of course, still too high, but it is much better than it was, and let me tell the Leader of the Opposition and the Labour Party that prices are now rising less fast than they were in the last six months of the Labour Government.

In the last six months of the right hon. Gentleman's Government prices rose by 4½ per cent. In the last six months they have risen by only 3½ per cent. In the last six months of the right hon. Gentleman's Government food prices rose by 7 per cent. In the last six months under this Government they have risen by 4 per cent. Therefore, although the rate of increase is still serious, it is now at a slower rate both in relation to prices as a whole and to food prices than it was in the last six months of the right hon. Gentleman's Government prior to the election.

Those are the facts and they should be known and stated. It is not complacent to state them because they still represent a very serious problem.—[Interruption.] One hon. Member said, "Hypocrite", but they are the facts and I challenge anyone to examine the facts and to prove that they are different from those I have just given.

Mr. Harold Wilson

Will the right hon. Gentleman challenge the Financial Times index of food prices, which goes a month further on than the Government's figures, and find that what he is saying is wrong?

Mr. Carr

I seem to remember that the right hon. Gentleman, when he was Prime Minister, was always content with his Government's official statistics. As he was prepared to rest on the Government's statistics, so are we. I still believe that they are the most reliable, and they are the statistics which are always used.

The action we took has been notable for its substance, its purpose and its promptness. In taking it, we have avoided deflation. We have also avoided using up our precious reserves and resuming the harsh burden of short and medium-term debt which left us as a country in the straitjacket of stagnation under the previous Government. Even the right hon. Member for Leeds, East (Mr. Healey) and the Leader of the Opposition have acknowledged that my right hon. Friend has handled this skilfully and taken the right action in the circumstances. Of course no one would claim that the present difficulty in which the country finds itself is a victory. My right hon. Friend has certainly never done so. As so many people have said, it underlines the need for reform of the world monetary system. The right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) said that we have had too many monetary crises in recent years affecting too many currencies. Reform is urgent. The right hon. Gentleman the Leader of the Opposition made the same point. No one has been giving a stronger leader for international reform than my right hon. Friend the Chancellor over the last two years. What he said today indicated the next moves that he would be taking in this direction.

At this point it would be convenient to deal with a number of questions I was particularly asked to answer. First, the right hon. Member for Manchester, Cheetham (Mr. Harold Lever) wanted to know about direct investment. I am now referring of course to a number of questions about the sterling area. Outward direct investment in sterling area countries by United Kingdom companies is now subject to control, that is to say, approval is required from the Bank of England. But there will be no restrictions on bona fide direct investment projects and approval for these will be given freely.

The right hon. Member for Leeds, East asked what the effect would be on the sterling balances. We believe that there is no reason why the action announced should have an effect on the present level of the sterling balances. But the action taken should prevent a further increase in official sterling balances which might have resulted if there had been an outflow of United Kingdom residents' funds on private account of the kind which the exchange control measures are designed to prevent.

A number of right hon. and hon. Members asked about the meaning of the word "temporary" in relation to these measures in their concern with the sterling area. I can only repeat what my right hon. Friend the Chancellor explained earlier today, that the present measures are indeed intended to deal with a temporary situation. My right hon. Friend also indicated that, given the serious world problem of massive short-term capital movements, he could not say—no one could say—what arrangements would be appropriate for the future.

Mr. Roy Jenkins

Will the right hon. Gentleman clarify the sentence he used about the peg on official balances and the outflow on private account? I did not follow that.

Mr. Carr

I will do my best to do that. If there were not some exchange control on the outflow of United Kingdom residents' funds to other parts of the sterling area, there would be a corresponding increase in official sterling balances; because obviously, for example, an Australian citizen selling Australian dollars would acquire in return sterling, which presumably he might then deposit with his own Australian central bank and this would lead to an increase in the sterling balances held by Australia. That was the point I was trying to make.

Another question was asked about whether there would be incentives to keep funds in London and to prevent diversification. My right hon. Friend the Chancellor has already indicated that he is in consultation with the Governments of the countries with which there is a sterling agreement. Therefore, I do not think that it would be helpful for me to comment in detail today on particular suggestions which might be the subject of discussion by the Chancellor in the context I have just mentioned.

I return to what I believe is central to the action we have taken. It has become fashionable to accuse the Government of having lost their direction and purpose. It may have become fashionable, but nothing could be further from the truth. This is shown most clearly by the way in which we have reacted to the present problem, in the fact that we decided to float the exchange rate rather than to deflate the economy.

This Government are committed to a policy of sustained economic growth. Expansion is the central strategy of this Government. This is our direction and our purpose. We have not been diverted from it, and we shall not be diverted from it.

If we want a better Britain, we have got to have a wealthier Britain. We have got to have in Britain a rate of increase in national wealth higher than we have achieved since the War and much more comparable with that of most other advanced industrial countries.

That is not just a materialist philosophy, because if all the extra wealth, if we can achieve it, were to go simply to personal affluence it would turn sour in our hands. It is needed for many other purposes. Look round this country. Look at the old houses. Look at the old factories. Look at the old hospitals and the old schools. Look at the enormous programme of physical renewal which Britain must undertake. Look not only at the renewal but look at all the new things which are needed still. [HON. MEMBERS: "Hear, hear."] The fact is that when all those old things on the other side of the House were in power we had a stagnating economy; and in a stagnating economy it is impossible for Government to direct adequate resources towards the environmental improvement which we want.

Equally, let us turn away from the questions of our physical environment towards personal problems and economic problems and afflictions which affect our economy and our society; let us look at the problems of incomes policy and industrial strife and frustration. All of these problems will be very difficult to solve in any conditions. But all of these problems, difficult to solve as they may be in any conditions, are, in our view, impossible to solve except in the context of sustained expansion. If there is any lesson to be learnt from our recent past, particularly the five and a half years of Labour Government, it is that.

The Government have a strong commitment to economic expansion, and a strong determination to succeed in this their clearly chosen strategy. For that reason we believe that there are two central requirements: first, an absolute commitment to the persistent, unrelenting application of long-term policies chosen to produce a more dynamic and flexible country. That we are determined to achieve through our policies for the reform and reduction of taxation, the stimulation of new industry in the regions, the modernisation of our employment and training facilities, the reform of our system of industrial relations, and our membership of the European Economic Community.

In every one of these five major areas of policy we have undertaken and are undertaking radical long-term reforms, all of which will mutually reinforce one another, all of which are essential to the policy and the achievement of sustained and more rapid growth. That is the purpose of this country. That is our strategy and direction. The first requirement is to be committed to those policies, and we are and we shall remain so.

The second essential requirement is to get cost inflation under control. We can do this successfully only within the context of economic expansion. We are well aware that unless we succeed, expansion cannot be lasting and the prospects of millions of our fellow citizens would be put at risk.

No one denies for one moment how serious and difficult the problem remains. It is equally wrong, as I have already said, to exaggerate it and to be unnecessarily despondent as a result of one or two excessively over-large pay settlements. Since the Wilberforce settlement of the miners' claim, there have been about 50 major settlements covering nearly 2 million people. Of those settlements, 35 were made at a level of under 10 per cent., 27 were under 9 per cent. and 18 were under 8 per cent. It is totally unrealistic to suggest that the two settlements to which I have referred mean that the progress which we have achieved has been brought to an end and is being reversed.

That progress is not enough. While we have had considerable success in slowing the rate of inflation during the last year, it has to be slowed still further. Above all, it must not be allowed to go back the other way. The same determination which has produced the degree of success last year will be needed and forthcoming in the months ahead. It will be as effective as it has been before. If it is, we shall all have a great deal for which to be thankful.

Mr. Hooson

Will the right hon. Gentleman give way?

Mr. Carr

In a few moments. When the Government came to power, we found a relationship between the rate of in- crease of earnings and the rate of increase of national production of about twelve to two. Pay was going up about six times faster than output. Under those conditions the price explosion which followed was inevitable. Now we have reached a situation where it is more like two to one. That rate is still unhealthy, but it is a great deal better than six to one. This represents an enormous degree of progress in the last year.

Mr. Eric S. Heffer (Liverpool, Walton)

Will the right hon. Gentleman give way?

Mr. Carr

I am afraid not. I have had a lot of interruption. I have given way and had a lot of other interruption, so it is fair that I should be allowed to complete what I have to say.

Mr. Heffer

rose—

Mr. Carr

The right hon. Member for Leeds, East said that if we were to succeed we must be seen to be acting effectively against prices. Of course; and we have been. I have already given figures to show that prices are now going up more slowly than when right hon. Gentlemen opposite left office.

One of our first steps as a Government was to slash the increases in Post Office charges which the Labour Government had secretly prepared before the election. We followed that with similar action to cut the proposed increases in coal, steel and power.

As a result of what we achieved, the CBI was able to give its price initiative, and we promised and gave support to the CBI price initiative in the nationalised industries and the public sector. We have also cut purchase tax and selective employment tax. Therefore, we have had a most important price initiative. We have had strong expansionary policies which are giving a big impetus in the regions.

All these are things for which the trade unions asked and did not get under the Labour Government. They have now been given them. What we need—not the Government, but the whole of the people of this country—is an initiative from the trade unions—

Mr. Heffer

rose—

Mr. Carr

—of restraint on pay claims—

Mr. Heffer

rose—

Mr. Deputy Speaker

Order. The hon. Gentleman must realise that the Minister does not intend to give way, so I must ask him to resume his seat.

Mr. Heffer

rose—

Mr. Deputy Speaker

Order. Mr. Carr.

Mr. Carr

What we need is an initiative from the trade unions of restraint on pay claims to match the initiative we have had from the CBI on price restraint.

Mr. A. W. Stallard (St. Pancras, North)

rose—

Mr. Carr

For most of the latter half of the 1960s the combination of rising prices, rising taxes and rising insurance contributions meant that real standards of living were bogged down and scarcely rose at all. But now increases in real standards have begun again. Pay increases are exceeding price increases, and reduced taxes are leaving more in people's pay packets. We now need the response which will give that virtuous circle a further spin. I now give way to the hon. and learned Member for Montgomery (Mr. Hooson).

Mr. Hooson

The right hon. Gentleman referred to the success of the Government on certain wage negotiations. Does he expect the same success with the present engineering negotiations which are of vital importance to the country?

Mr. Carr

Of course they are vital to the country and we are hoping that there will be the same success. I hope that both employers and unions will realise that and will respond to the opportunity as well as to the problem about which I have just been talking.

Mr. Stallard

Will the right hon. Gentleman give way?

Mr. Carr

No, I am afraid not.

What is it that the Opposition propose instead of the policies on which we have embarked? They suggest, among other things, that the Industrial Relations Act should be dropped. [HON. MEMBERS: "Hear, hear."] That is said to be the condition of trade union co-operation in achieving restraint on wage claims.

What is the evidence? Let us look back and see, because the Labour Government did just that. They dropped "In Place of Strife" to get such co-operation. What happened? In the year after dropping it, wage rates went up by almost 10 per cent. compared with only 5 per cent. the year before. Is that what we are to do?

It is also said that if we drop the Industrial Relations Act there will be better industrial relations. What is the evidence for that? Industrial relations—[An HON. MEMBER: "Could not be worse."] Could not be worse? The number of unofficial and wildcat strikes, which the Leader of the Opposition, when Prime Minister, said were doing such damage to the country, are now only about half the number they were then.

Mr. Stallard

rose—

Mr. Carr

We are told that the Industrial Relations Act was the cause of the threatened dock strike, which in turn is said to have caused the run on sterling. Let us cast our minds back to 1967, when there really was a dock strike. What did the Leader of the Opposition have to say about that? He said that it was a proximate cause of devaluation. Included in the proximate causes of the devaluation, he said, were the dock strikes in London and Liverpool…It seemed urgent to try to settle the Liverpool strike. It was not going to be easy. The Transport and General Workers' Union had virtually lost control of its members…the local strike leadership was in the hands of an unholy alliance of Communists, near-Communists and Trotskyites… There was no Industrial Relations Act then to cause that strike, which did take place, unlike the one last week, which did not.

As the right hon. Gentleman the Leader of the Opposition knew at the time, one of the causes of lack of confidence in Britain among people overseas was the failure to deal with the problem of industrial relations and the sort of situation which he described in his book. That is why the right hon. Gentleman himself came to believe that industrial relations legislation, as proposed in "In Place of Strife", was essential not just to the survival of his Government but to the health of the country. He knew it then, and, if he is honest, he knows it now.

The other great contribution which the Opposition ask us to make is to give up the Housing Finance Bill [HON. MEMBERS: "Hear, hear."] In other words, we are asked to deny help on a scale—[HON. MEMBERS: "Rubbish."]—that has never before been given in this country to the council and the private tenant with the lowest income. All such tenants with the lowest incomes will receive help on a scale which they have never had before. So my answer on that score, too, is, "Certainly not".

There is one answer, and one answer alone, and that is—[HON. MEMBERS: "Resign."]—to go forward with a Gov-

ernment determined on expansion as opposed to stagnation. This is the way to economic strength. This is the way to political influence in the world. It is the way, also, to provide the national resources without which we cannot provide the better environment for life which we all want, and without which we cannot provide the more compassionate society which is the ideal of us all.

Question put, That the Amendment be made:—

The House divided: Ayes, 266, Noes 294.

Division No. 255.]	AYES	[10.00 p.m.
Abse, Leo	Doig, Peter	Jenkins, Rt. Hn. Roy (Stechford)
Albu, Austen	Douglas, Dick (Stirlingshire, E.)	John, Brynmor
Allaun, Frank (Salford, E.)	Douglas-Mann, Bruce	Johnson, Carol (Lewisham, S.)
Allen, Scholefield	Duffy, A. E. P.	Johnson, James (K'ston-on-Hull, W.)
Archer, Peter (Rowley Regis)	Dunnett, Jack	Johnson, Walter (Derby, S.)
Armstrong, Ernest	Eadie, Alex	Jones, Dan (Burnley)
Ashley, Jack	Edelman, Maurice	Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)
Ashton, Joe	Edwards, Robert (Bilston)	Jones, Gwynoro (Carmarthen)
Atkinson, Norman	Edwards, William (Merioneth)	Jones, T. Alec (Rhondda, W.)
Bagier, Gordon A. T.	Ellis, Tom	Judd, Frank
Barnes, Michael	English, Michael	Kaufman, Gerald
Barnett, Guy (Greenwich)	Evans, Fred	Kelley, Richard
Barnett, Joel (Heywood and Royton)	Ewing, Henry	Kerr, Russell
Baxter, William	Faulds, Andrew	Kinnock, Neil
Benn, Rt. Hn. Anthony Wedgwood	Fisher, Mrs. Doris(B'ham,Ladywood)	Lambie, David
Bennett, James (Glasgow, Bridgeton)
Bidwell, Sydney	Fitch, Alan (Wigan)	Lamborn, Harry
Bishop, E. S.	Fletcher, Ted (Darlington)	Lamond, James
Blenkinsop, Arthur	Foley, Maurice	Latham, Arthur
Boardman, H. (Leigh)	Foot, Michael	Lawson, George
Booth, Albert	Ford, Ben	Leadbitter, Ted
Bottomley, Rt. Hn. Arthur	Forrester, John	Lee, Rt. Hn. Frederick
Bradley, Tom	Fraser, John (Norwood)	Leonard, Dick
Broughton, Sir Alfred	Freeson, Reginald	Lever, Rt. Hn. Harold
Brown, Bob (N'c'tle-upon-Tyne,W.)	Galpern, Sir Myer	Lewis, Arthur (W. Ham, N.)
Brown, Hugh D. (G'gow, Provan)	Garrett, W. E.	Lewis, Ron (Carlisle)
Brown, Ronald (Shoreditch & F'bury)	Gilbert, Dr. John	Lomas, Kenneth
Buchan, Norman	Ginsburg, David (Dewsbury)	Loughlin, Charles
Buchanan, Richard (G'gow, Sp'burn)	Golding, John	Lyon, Alexander W. (York)
Butler, Mrs. Joyce (Wood Green)	Gordon Walker, Rt. Hn. P. C.	Lyons, Edward (Bradford, E.)
Callaghan, Rt. Hn. James	Gourlay, Harry	Mabon, Dr. J. Dickson
Campbell, I. (Dunbartonshire, W.)	Grant, George (Morpeth)	McBride, Neil
Cant, R. B.	Grant, John D. (Islington, E.)	McCartney, Hugh
Carmichael, Neil	Griffiths, Eddie (Brightside)	McElhone, Frank
Carter, Ray (Birmingh'm, Northfield)	Griffiths, Will (Exchange)	McGuire, Michael
Carter-Jones, Lewis (Eccles)	Hamilton, James (Bothwell)	Mackenzie, Gregor
Castle, Rt. Hn. Barbara	Hamilton, William (Fife, W.)	Mackie, John
Clark, David (Colne Valley)	Hamling, William	Mackintosh, John P.
Cocks, Michael (Bristol, S.)	Hannan, William (G'gow, Maryhill)
Cohen, Stanley	Hardy, Peter	Maclennan, Robert
Concannon, J. D.	Harper, Joseph	McMillan, Tom (Glasgow, C.)
Conlan, Bernard	Harrison, Walter (Wakefield)	McNamara, J. Kevin
Corbet, Mrs. Freda	Hattersley, Roy	Mahon, Simon (Bootle)
Cox, Thomas (Wandsworth, C.)	Healey, Rt. Hn. Denis	Mallalieu, J. P. W. (Huddersfield, E.)
Crawshaw, Richard	Heffer, Eric S.	Marquand, David
Cronin, John	Hilton, W. S.	Marsden, F.
Crosland, Rt. Hn. Anthony	Horam, John	Marshall, Dr. Edmund
Crossman, Rt. Hn. Richard	Houghton, Rt. Hn. Douglas	Mason, Rt. Hn. Roy
Cunningham, G. (Islington, S.W.)	Howell, Denis (Small Heath)	Mayhew, Christopher
Cunningham, Dr. J. A. (Whitehaven)	Huckfield, Leslie	Meacher, Michael
Davidson, Arthur	Hughes, Rt. Hn. Cledwyn (Anglesey)	Mellish, Rt. Hn. Robert
Davies, Denzil (Llanelly)	Hughes, Mark (Durham)	Mendelson, John
Davies, Ifor (Gower)	Hughes, Robert (Aberdeen, N.)	Mikardo, Ian
Davis, Clinton (Hackney, C.)	Hughes, Roy (Newport)	Millan, Bruce
Davie, Terry (Bromsgrove)	Hunter, Adam	Miller, Dr. M. S.
Deakins, Eric	Irvine,Rt.Hn.SirArthur(Edge Hill)	Milne, Edward
de Freitas, Rt. Hn. Sir Geoffrey	Janner, Greville	Molloy, William
Delany, H. J.	Jay, Rt. Hn. Douglas	Morgan, Elystan (Cardiganshire)
Dell, Rt. Hn. Edmund	Jeger, Mrs. Lena	Morris, Alfred (Wythenshawe)
Dempsey, James	Jenkins, Hugh (Putney)	Morris, Charles R. (Openshaw)
Morris, Rt. Hn. John (Aberavon)	Roberts, Albert (Normanton)	Thomas,Rt.Hn.George (Cardiff,W.)
Moyle, Roland	Roberts,Rt.Hn.Goronwy (Caernarvon)	Thomas, Jeffrey (Abertillery)
Mulley, Rt. Hn. Frederick	Robertson, John (Paisley)	Thomson, Rt. Hn. G. (Dundee, E.)
Murray, Ronald King	Roderick, Caerwyn E.(Br'c'n&R'dnor)	Tinn, James
Oakes, Gordon	Rodgers, William (Stockton-on-Tees)	Torney, Tom
Ogden, Eric	Roper, John	Tuck, Raphael
O'Halloran, Michael	Rose, Paul B.	Urwin, T. W.
		Varley, Eric G.
O'Malley, Brian	Ross, Rt. Hn. William (Kilmarnock)	Wainwright, Edwin
Oram, Bert	Rowlands, Ted	Walden, Brian (B'm'ham, All Saints)
Orme, Stanley	Sandelson, Neville	Walker, Harold (Doncaster)
Oswald, Thomas	Sheldon, Robert (Ashton-under-Lyne)	Wallace, George
Owen, Dr. David (Plymouth, Sutton)	Shore, Rt. Hn. Peter (Stepney)	Watkins, David
Paget, R. T.	Short,Rt.Hn.Edward(N'c'tle-u-Tyne)	Weitzman, David
Palmer, Arthur	Silkin, Rt. Hn. John (Deptford)	Wellbeloved, James
Pannell, Rt. Hn. Charles	Silkin, Hn. S. C. (Dulwich)	Wells, William (Walsall, N.)
Parker, John (Dagenham)	Sillars, James	White, James (Glasgow, Pollok)
Parry, Robert (Liverpool, Exchange)	Silverman, Julius	Whitehead, Phillip
Pavitt, Laurie	Skinner, Dennis	Whitlock, William
Peart, Rt. Hn. Fred	Small, William	Willey, Rt. Hn. Frederick
Pentland, Norman	Smith, John (Lanarkshire, N.)	Williams, Alan (Swansea, W.)
Perry, Ernest G.	Spearing, Nigel	Williams, Mrs. Shirley (Hitchin)
Prentice, Rt. Hn. Reg.	Spriggs, Leslie	Williams, W. T. (Warrington)
Prescott, John	Stallard, A. W.	Wilson, Alexander (Hamilton)
Price, J. T. (Westhoughton)	Stewart, Rt. Hn. Michael (Fulham)	Wilson, Rt. Hn. Harold (Huyton)
Price, William (Rugby)	Stoddart, David (Swindon)	Wilson, William (Coventry, S.)
Probert, Arthur	Storehouse, Rt. Hn. John	Woof, Robert
Rankin, John	Strang, Gavin
Reed, D. (Sedgefield)	Strauss, Rt. Hn. G. R.	TELLERS FOR THE AYES:
Rees, Merlyn (Leeds, S.)	Summerskill, Hn. Dr. Shirley	Mr. James A. Dunn and
Rhodes, Geoffrey	Swain, Thomas	Mr. Tom Pendry.
Richard, Ivor	Taverne, Dick
NOES
Adley, Robert	Coombs, Derek	Green, Alan
Alison, Michael (Barkston Ash)	Cooper, A. E.	Grieve, Percy
Allason, James (Hemel Hempstead)	Cordle, John	Griffiths, Eldon (Bury St. Edmunds)
Archer, Jeffrey (Louth)	Corfield, Rt. Hn. Sir Frederick	Grylls, Michael
Astor, John	Cormack, Patrick	Gummer, J. Selwyn
Atkins, Humphrey	Costain, A. P.	Gurden, Harold
Awdry, Daniel	Critchley, Julian	Hall, Miss Joan (Keighley)
Baker, Kenneth (St. Marylebone)	Crouch, David	Hall, John (Wycombe)
Balniel, Rt. Hn. Lord	Crowder, F. P.	Hall-Davis, A. G. F.
Barber, Rt. Hn. Anthony	Dalkeith, Earl of	Hamilton, Michael (Salisbury)
Batsford, Brian	Davies, Rt. Hn. John (Knutsford	Hannam, John (Exeter)
Beamish, Col. Sir Tufton	d'Avigdor-Goldsmid, Sir Henry	Harrison, Brian (Maldon)
Bell, Ronald	d'Avigdor-Goldsmid,Maj.-Gen.James	Harrison, Col. Sir Harwood (Eye)
Bennett, Sir Frederic (Torquay)	Dean, Paul	Haselhurst, Alan
Bennett, Dr. Reginald (Gosport)	Deedes, Rt. Hn. W. F.	Hastings, Stephen
Benyon, W.	Dixon, Piers	Havers, Michael
Berry, Hn. Anthony	Dodds-Parker, Douglas	Hawkins, Paul
Biffen, John	Drayson, G. B.	Hayhoe, Barney
Biggs-Davison, John	du Cann, Rt. Hn. Edward	Heath, Rt. Hn. Edward
Blaker, Peter	Dykes, Hugh	Heseltine, Michael
Boardman, Tom (Leicester, S.W.)	Eden, Rt. Hn. Sir John	Hicks, Robert
Body, Richard	Edwards, Nicholas (Pembroke)	Higgins, Terence L.
Boscawen, Robert	Elliot, Capt. Walter (Carshalton)	Hiley, Joseph
Bossom, Sir Clive	Elliott, R. W. (N'c'tle-upon-Tyne,N.)	Holland, Philip
Bowden, Andrew	Emery, Peter	Holt, Miss Mary
Braine, Sir Bernard	Eyre, Reginald	Hordern, Peter
Bray, Ronald	Fell, Anthony	Hornby, Richard
Brewis, John	Fenner, Mrs. Peggy	Hornsby-Smith,Rt.Hn.Dame Patricia
Brinton, Sir Tatton	Fidler, Michael	Howe, Hn. Sir Geoffrey (Reigate)
Brocklebank-Fowler, Christopher	Finsberg, Geoffrey (Hampstead)
Brown, Sir Edward (Bath)	Fisher, Nigel (Surbiton)	Howell, David (Guildford)
Bruce-Gardyne, J.	Fletcher-Cooke, Charles	Howell, Ralph (Norfolk, N.)
Bryan, Sir Paul	Fookes, Miss Janet	Hunt, John
Buchanan-Smith, Alick(Angus,N&M)	Fortescue, Tim	Hutchison, Michael Clark
Buck, Anthony	Foster, Sir John	Iremonger, T. L.
Bullus, Sir Eric	Fowler, Norman	Irvine, Bryant Godman (Rye)
Burden, F. A.	Fox, Marcus	James, David
Butler, Adam (Bosworth)	Fraser,Rt.Hn.Hugh(St'fford & Stone)	Jenkin, Patrick (Woodford)
Campbell, Rt.Hn.G.(Moray&Nairn)	Fry, Peter	Jennings, J. C. (Burton)
Carlisle, Mark	Galbraith, Hn. T. G.	Jessel, Toby
Carr, Rt. Hn. Robert	Gibson-Watt, David	Johnson Smith, G. (E. Grinstead)
Chapman, Sydney	Gilmour, Ian (Norfolk, C.)	Jopling, Michael
Chataway, Rt. Hn. Christopher	Gilmour, Sir John (Fife, E.)	Joseph, Rt. Hn. Sir Keith
Chichester-Clark, R.	Glyn, Dr. Alan	Kaberry, Sir Donald
Churchill, W. S.	Godber, Rt. Hn. J. B.	Kellett-Bowman, Mrs. Elaine
Clark, William (Surrey, E.)	Goodhart, Philip	Kershaw, Anthony
Clarke, Kenneth (Rushcliffe)	Gorst, John	Kimball, Marcus
Clegg, Walter	Gower, Raymond	King, Evelyn (Dorset, S.)
Cockeram, Eric	Grant, Anthony (Harrow, C.)	King, Tom (Bridgwater)
Cooke, Robert	Gray, Hamish	Kinsey, J. R.

Kirk, Peter	Neave, Airey	Sproat, Iain
Kitson, Timothy	Nicholls, Sir Harmar	Stainton, Keith
Knight, Mrs. Jill	Noble, Rt. Hn. Michael	Stanbrook, Ivor
Knox, David	Normanton, Tom	Stewart-Smith, Geoffrey (Belper)
Lambton, Lord	Nott, John	Stodart, Anthony (Edinburgh, W.)
Lamont, Norman	Onslow, Cranley	Stoddart-Scott, Col. Sir M.
Lane, David	Oppenheim, Mrs. Sally	Stuttaford, Dr. Tom
Langford-Holt, Sir John	Orr, Capt. L. P. S.	Sutcliffe, John
Legge-Bourke, Sir Harry	Osborn, John	Tapsell, Peter
Le Marchant, Spencer	Owen, Idris (Stockport, N.)	Taylor, Sir Charles (Eastbourne)
Lewis, Kenneth (Rutland)	Page, Rt. Hn. Graham (Crosby)	Taylor,Edward M.(G'gow,Cathcart)
	Page, John (Harrow, W.)	Taylor, Frank (Moss Side)
Lloyd,Rt.Hn.Geoffrey(Sut'nC'dfield)	Parkinson, Cecil	Taylor, Robert (Croydon, N.W.)
Lloyd, Ian (P'tsm'th, Langstone)	Percival, Ian	Tebbit, Norman
Longden, Sir Gilbert	Peyton, Rt. Hn. John	Temple, John M.
Loveridge, John	Pike, Miss Mervyn	Thatcher, Rt. Hn. Mrs. Margaret
Luce, R. N.	Pink, R. Bonner	Thomas, John Stradling (Monmouth)
McAdden, Sir Stephen	Powell, Rt. Hn. J. Enoch	Thomas, Rt. Hn. Peter (Hendon, S.)
MacArthur, Ian	Price, David (Eastleigh)	Thompson, Sir Richard (Croydon, S.)
McCrindle, R. A.	Prior, Rt. Hn. J. M. L.	Tilney, John
McLaren, Martin	Proudfoot, Wilfred	Trafford, Dr. Anthony
Maclean, Sir Fitzroy	Pym, Rt. Hn. Francis	Trew, Peter
		Tugendhat, Christopher
McMaster, Stanley	Quennell, Miss J. M.	Turton, Rt. Hn. Sir Robin
Macmillan,Rt.Hn.Maurice (Farnham)	Raison, Timothy	van Straubenzee, W. R.
McNair-Wilson, Michael	Ramsden, Rt. Hn. James	Vaughan, Dr. Gerard
McNair-Wilson, Patrick (New Forest)	Rawlinson, Rt. Hn. Sir Peter	Vickers, Dame Joan
Maddan, Martin	Redmond, Robert	Waddington, David
Madel, David	Reed, Laurance (Bolton, E.)	Walder, David (Clitheroe)
Marples, Rt. Hn. Ernest	Rees, Peter (Dover)	Walker, Rt. Hn. Peter (Worcester)
Marten, Neil	Renton, Rt. Hn. Sir David	Walker-Smith, Rt. Hn. Sir Derek
Mather, Carol	Rhys Williams, Sir Brandon	Walters, Dennis
Maude, Angus	Ridley, Hn. Nicholas	Warren, Kenneth
Maudling, Rt. Hn. Reginald	Ridsdale, Julian	Wells, John (Maidstone)
Mawby, Ray	Rippon, Rt. Hn. Geoffrey	White, Roger (Gravesend)
Meyer, Sir Anthony	Roberts, Michael (Cardiff, N.)	Whitelaw, Rt. Hn. William
Mills, Peter (Torrington)	Roberts, Wyn (Conway)	Wiggin, Jerry
Miscampbell, Norman	Rodgers, Sir John (Sevenoaks)	Wilkinson, John
Mitchell,Lt.-Col.C.(Aberdeenshire,W)	Rost, Peter	Winterton, Nicholas
Mitchell, David (Basingstoke)	Russell, Sir Ronald	Wolrige-Gordon, Patrick
Moate, Roger	Scott, Nicholas	Wood, Rt. Hn. Richard
Money, Ernle	Sharples, Sir Richard	Woodhouse, Hn. Christopher
Monks, Mrs. Connie	Shaw, Michael (Sc'b'gh & Whitby)	Woodnutt, Mark
Monro, Hector	Shelton, William (Clapham)	Worsley, Marcus
Montgomery, Fergus	Simeons, Charles	Wylie, Rt. Hn. N. R.
More, Jasper	Sinclair, Sir George	Younger, Hn. George
Morgan, Geraint (Denbigh)	Skeet, T. H. H.
Morgan-Giles, Rear-Adm.	Smith, Dudley (W'wick & L'mington)	TELLERS FOR THE NOES:
Morrison, Charles	Soref, Harold	Mr. Bernard Weatherill and
Mudd, David	Speed, Keith	Mr. Victor Goodhew.
Murton, Oscar	Spence, John

Question accordingly negatived.

Main Question put and agreed to.

Resolved, That this House approves the decision of Her Majesty's Government temporarily to float the pound.