HC Deb 24 January 1973 vol 849 cc469-604

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Pym.]

3.50 p.m.

The Prime Minister (Mr. Edward Heath)

I cannot open this debate without referring to the Foreign Secretary's statement this afternoon and joining with him, and, I think, all hon. Members, in expressing our satisfaction that a ceasefire should have been signed in Vietnam. Although the right hon. Gentleman the Leader of the Opposition and I may have differed in the ways by which we thought that it could be best brought about, we have both, in our respective ways, done our utmost to help in this respect.

When I announced to the House the standstill affecting pay, prices, rents and dividends on 6th November, I said that part of the purpose was to provide time to work out long-term measures to achieve the objectives agreed between the Government, the TUC and the CBI at the tripartite talks held in the summer and the autumn—the objectives of continued growth, steadier prices, and particular help for the lower-paid and the pensioners.

I should like briefly to give some of the economic background to the second and third stages of the policy which has been announced in the White Paper. First, the growth at which we have been aiming and which we discussed with the TUC and the CBI is being achieved and the steady downward trend of unemployment, which both employers and the TUC urged, is also being achieved.

On the question of incomes and prices, after the miners' and railwaymen's settlements last spring and summer the slowing down of price and wage rises achieved during the previous 12 months was reversed. May I briefly give the figures? In April 1972 the year-over-year rise in the wage rate index was 11 per cent., but by October it had moved up to over 18 per cent. It was inevitable that, after a lag, prices would follow. In April 1972 the year-over-year rise in the retail price index was 6.3 per cent. compared with 9.4 per cent. the year before—that is a measure of the improvement—but by October it was moving up again to 7.9 per cent. I give those figures because they are essential for those who wish to propose alternative solutions to those at which we have been aiming.

We aimed at a voluntary agreement, which I believe the whole country wanted to see achieved, but as this was not possible at that stage the Government had to take action through the standstill. We announced at the time that we wished to move out of the standstill as rapidly as possible, and this was urged upon us by both employers and unions. That is what we are now proposing.

The period up to Christmas was spent in working out options, which we then put to the TUC and the CBI in the New Year. As a result of this discussion, we received valuable advice from both of them. The TUC was not in a position to give unanimous advice about the particular options, which I quite understood, and the decisions, therefore, are the decisions of the Government. We were also able to have discussions with the representatives of the retail trade, including the chambers of trade and commerce and the co-operative societies, and they made frank and constructive suggestions on the operation of stage 2.

I emphasise that no area was excluded from the discussions. I make that point because this was widely mis-stated after the last round of talks at Chequers and No. 10. I mentioned at the last discussion at No. 10 the matters of policy on which the Government are responsible to Parliament. This is important in view of the misunderstandings about the nature of the talks with the TUC, the CBI and the retailers. The particular policies which I mentioned were entry to Europe, the fair rents system and the Industrial Relations Act. I continued with these words: In these discussions we can take account of the effect of these policies on the issues we are considering"— namely, prices and incomes— but they are matters of Government policy. I went on to discuss our detailed proposals for taking account of the European policy, the Industrial Relations Act and the fair rents Act. These were also discussed by the CBI. Therefore, there was no limitation on the discussion of any aspect affecting these matters.

In the second round of discussions, the TUC and the CBI again knew that we would prefer to proceed by voluntary agreement, and both the CBI and the TUC told us quite frankly that they also wished to proceed in this way. However, the TUC asked for a comprehensive control of all prices, including fresh and imported foodstuffs, while keeping a completely free wage negotiating system. When I asked each of the parties at the talks, individually as they were bilateral talks, how they proposed to operate a completely free system, without creating renewed inflation, leaving aside the question of prices and in the absence of agreement, no proposals to this end were forthcoming. There was no general agreement about it. Indeed, no individual proposals were made. It therefore falls to the Government to put forward their own proposals.

The process of discussion did not end with the talks prior to stage 2, nor will it end with stage 3. I hope and visualise that the talks will continue on either a bilateral or a tripartite basis, whichever the parties wish, and that we shall make further progress towards a system of free negotiation of pay and prices without inflationary pressures. That is absolutely essential. That was our objective when we started the talks at Chequers, and it remains our firm objective.

Mr. Norman Atkinson (Tottenham)

Will the Prime Minister recollect with some accuracy what the TUC was saying at that time? It was arguing for free wage bargaining within the confines of fixed prices. It was not saying that there should be completely free wage negotiations, because plainly the question of wages would be inhibited by the ceiling set for prices. It was arguing for free bargaining within the limits set for fixed prices.

The Prime Minister

That was not the proposal put to me during the discussions. What was asked for was completely free wage bargaining. However, when we discuss the rate of increase of prices and of earnings, it will be seen that the limitation on prices which was imposed by the CBI for 15 months did not have that effect on the trade unions which were negotiating with the employers as far as limitations on wages were concerned.

All those who have had to deal with these problems know that one of the foremost is how to move out of a standstill, especially one which has been imposed after the wage round has begun. On this occasion the situation has been helped by the fact that the standstill is comparatively short. But we have taken immense trouble in these discussions to decide how best to move to stage 2 and how to deal as fairly as we can with the anomalies and inequities caused by a standstill. At the same time, we are determined not to throw away the benefits of the break in the inflationary spiral which the standstill has achieved.

However, just as the standstill was for a comparatively short period, so stage 2, as it is set out in the White Paper, will be for a comparatively short period, extending to the autumn. We visualise that during it we can discuss ways of dealing in stage 3 with the remaining anomalies. I think that all the parties attach great importance to this aspect of the time used in stage 2.

In putting forward our proposals we have had to strike a balance between effectiveness, on the one hand—because the country wants them to be effective—and flexibility and simplicity of administration, on the other. We have also had to ensure that in the circumstances of strict price control sufficient profits are generated by the growth of output to make possible the investment on which the continued growth of the economy depends. On this matter there was no difference between the parties taking part in the discussions. The TUC fully accepted the importance of achieving investment from profitability in order to ensure continued growth after our existing resources have been fully used. Within these profits we have to strike a fair balance between the requirements of investment and shareholders.

We also have had to strike a balance between the improvement of local authority services and the impact of rates on the lower-paid. For these reasons we have accordingly increased the rate support grant to local authorities, and we are asking for powers to monitor the rates position with them to see that the changeover to revaluation is not in any way abused. We also wish to see that local authorities are not writing in an extravagant rate of anticipated inflation which is not justified by the circumstances.

Mr. Gerald Kaufman (Manchester, Ardwick)

Is the Prime Minister aware that the city of Manchester and other large cities are only too anxious themselves to monitor rate increases but that the inexorable tide of inflation will force rates up to disastrous levels unless the Government give additional financial help to the finances of the large cities? Will he meet Manchester Corporation and the corporations of other large cities to discuss this with them?

The Prime Minister

Yes, I have had a letter from the leader of Liverpool Corporation, and I am agreeing to meet representatives of the major cities to discuss this problem with them, but I think the hon. Member will realise that the problems of the great cities vary considerably.

We have also had to strike a balance between the interests of the lower-paid who may have genuine difficulty from the movement to fair rents and those with above average earnings who can afford to do so stage by stage. It is for this reason that we have increased the needs allowance by £3.50. The result is that a man with two children earning £35 a week, broadly average earnings, and paying an average local authority rent of £3.60 a week, will pay no more rent even after the increase in pay under the present second stage arrangements of £1 a week plus 4 per cent. as negotiated. This is a major step forward in achieving the objectives set by the TUC and CBI of helping particularly those who are lower-paid.

Above all, we need to ensure that the pensioner is not only protected from inflation but has his share in the nation's increasing prosperity. We have already given clear evidence of our determination to help in this respect, and under the new system of annual reviews pensions will be reviewed again in the spring and the necessary action taken in the autumn.

So I believe we can claim that our proposals strike a fair balance between freedom for collective bargaining within the limits laid down and the avoidance of inflation, between simplicity of administration and effectiveness, and between the needs of the various groups in our community.

I should like to put one point here in which we have accepted the advice of both the TUC and the CBI. This was that we should not follow the Chequers pattern of one amount right across the board for the whole of industry, but that there should be an amount available in the form of the total pay packet for the group. This allows, within that amount, pay to be negotiated by those concerned, but, at the same time, the formula of £1 plus 4 per cent. shows clearly that we want the lower-paid to be the beneficiaries of these negotiations. This is the policy the TUC formulated in our talks at Chequers.

Mr. Jeremy Thorpe (Devon, North)

Would the right hon. Gentleman tell us a little more about what the Government mean by "group"? Is it to be one group in an industry or a group in a concern? What is the criterion?

The Prime Minister

The criterion is the normal negotiating group of an industry. This is well known to those who carry on negotiations. I do not think this need produce any difficulty for this period of standstill extending to the autumn.

Mr. Alex Eadie (Midlothian)

The right hon. Gentleman has told the House about fairness. In all the statements he has made he has talked about fairness. He sometimes talks about a temporary phase—that it will be only temporary. Has he considered the effects on old people? Is he aware, for instance, that as a result of his standstill a civil servant on the eve of retirement will discover that his pension may be cut permanently for the rest of his life as a consequence of the standstill? Does the Prime Minister think this is fair?

The Prime Minister

I shall be dealing in detail with the position of civil servants later. I fully recognise the problem which the hon. Member has raised because of discussions I have had with the staff side. It was a problem for the previous Government as well, who were unable to find a solution. We shall try to find a solution of a very real problem.

Our proposals restrict the domestic prices within our control, and I want to deal with non-food supplies and other foods.

The provisional wholesale price index for December for home sales of manufactures shows that the prices of nonfood products rose by no more than one-tenth of one percentage point—0.1 per cent.—for manufactured goods. For retail prices, the index for all items except food rose by only one-sixth of one percentage point. In other words, manufacturers and retailers have been absorbing cost increases, and they have not on the whole been passed on to the consumer. Indeed, at the wholesaler and retailer levels the requirements of the standstill on profit margins have been fully carried out. In this, of course, retailers in particular, but also manufacturers, have been helped by increased turnover as a result of an expanding economy.

These price rises of just under 0.2 per cent. are due for the most part to increased costs of raw materials, and, of course, this 0.2 per cent. covers 75 per cent. of the average family budget.

I know the right hon. Gentleman opposite finds it difficult to listen to anybody else or even to concentrate, but perhaps he will make an effort.

Mr. Harold Wilson (Huyton)

All this might have been said last week in this House.

The Prime Minister

It is the increases in the remaining 25 per cent. of the household budget, the increase in the price of food, which understandably have caused so much concern. Again I wish to emphasise to the House that of the 25 per cent. for food in the family budget, half is on manufactured foodstuffs which come under controls in the standstill and remain so in stage 2. What is more, the margins of the distributors of fresh foods, the retailers, are also under control in the standstill and come under the margins and the profit arrangements in stage 2. The Government, therefore, have gone the fullest possible way in dealing with this aspect of the problem.

It is as a result of the increases in food prices during December that the retail price index rose not by one-sixth of 1 per cent.—which was the increase covering the other three-quarters of expenditure—but by half a percentage point.

I want to turn in more detail to the question of foodstuffs. During the tripartite talks which preceded the standstill the Government discussed this with the TUC and the CBI, and we had to tell both parties the same thing the right hon. Gentleman opposite had to tell the TUC in 1965 and 1968. He had to tell them that price controls could not be applied to a number of important commodities, mainly primary products, the prices of which are so largely influenced by short-term market factors". That was in the 1965 White Paper. We had to tell them exactly the same thing as the right hon. Gentleman the Leader of the Opposition, then Prime Minister, told the House on 20th July 1966, that there would be a standstill on prices except to the limited extent that increases are necessitated by increases in the cost of imported materials, by seasonal factors…".—[OFFICIAL REPORT, 20th July, 1966; Vol. 732, c. 636.] We had to tell them again, as the right hon. Gentleman had to tell them in the April 1968 White Paper, that increased prices due to changes in supply or other reasons are unavoidable". This is a fact which both Administrations have had to face. It is a fallacy to suppose that an island nation like ours—and we have never disputed the fact that the cost of raw materials imported and of food supplies imported are outside the control of this country—can be isolated from the effects of world food prices. This is why the right hon. Gentleman, quite properly and honestly, never tried to do so. I hope, therefore, that he will maintain the same honest position as he adopted when he was Prime Minister.

Mr. John Mendelson (Penistone)

Does not the Prime Minister realise that the lower the income of a family the higher the percentage that has to be spent on the kind of food that he has been talking about and, therefore, an average figure does not apply to those families? Secondly, during the negotiations with the TUC, which the right hon. Gentleman is mentioning so often now to make it appear almost as though the TUC agree with instead of fiercely oppose what he is doing now, did he not say that in 1973 there would be additional increases in food prices for particular reasons and he could not, therefore, accept the TUC proposals? Will the Prime Minister now admit to the House that he said that to the TUC during the negotiations?

The Prime Minister

No, Sir; I do not admit that at all. We have always discussed with the TUC and the CBI the problem of the increasing price of raw materials and foodstuffs imported from overseas. The difference has been on whether it was possible to impose detailed control on every type of fresh foodstuff in every shop in the country. We have always said that that is not possible, and the previous Government knew that it was not possible.

In reply to the first part of the hon. Gentleman's question about the proportions, it is precisely because we realise that that we have put the emphasis on helping the lower-paid and the pensioners and that is the basis of our whole policy. I shall be dealing with each of those points because of their importance.

One of the first steps that the Government took was to make this country less dependent on imported foodstuffs. We did so through the special farm review in 1970, the 1971 annual review and the 1972 annual review, in which the value of the guarantee was increased by 50 per cent. over and above the cost which farmers had to meet. This was the biggest over-recoupment of costs since 1948, in an attempt to make up the ground lost by the Labour Government when they were in power.

The House should know the results of doing this. Last year the total cereals acreage increased and we produced a record tonnage of cereals. The dairy herd is expanding and milk production continues to rise. The beef herd in June 1972 had increased 13½ per cent. since June 1970. The number of beef-type heifers in calf—[Interruption.] It is obvious that right hon. and hon. Gentlemen opposite are not interested in producing food for the people of this country. The number of beef-type heifers in calf in September 1971 in England and Wales was 85 per cent. up on the previous year. The pig breeding herds and the sheep breeding flocks are also in the process of further expansion. [Interruption.] If right hon. and hon. Gentlemen opposite were serious about the problem of food imports they would listen to the achievements of the Government.

It has been argued by the right hon. Gentleman the Leader of the Opposition that simply banning exports would have a considerable influence on prices. It has now been shown, both by the commentators and by the investigation into beef prices, that although that might result in some short-term gain the price benefits would quickly be lost as our overseas suppliers diverted their beef to more lucrative markets elsewhere.

The question is whether we could take further steps to hold down the price of fresh foods. In some cases in the past year where there has been a surplus and not a shortage, for example with milk and potatoes, we have been able to help through the boards concerned. But the House will understand two things about food subsidies on basic foods such as meat and cereals which are in short supply in the world. First, subsidies are indiscriminate, and I am not sure that right hon. and hon. Gentlemen opposite want everybody, however great their wealth, to benefit from food subsidies. Secondly, if we subsidise a product in short supply to keep down the price—I am speaking again particularly of beef and grain—demand will further increase and prices will rise still further. That is bound to entail a comprehensive system of marketing management which must be associated with rationing.

If the Leader of the Opposition really believes that he can enter into the meat markets of the world and reduce the price in this country with an open-ended commitment and without rationing, he should stand up and say so. No one will for one moment believe that he can organise a machine to buy meat in world markets, with an open-ended commitment, without increasing direct taxation, reducing take-home pay and having rationing. I do not think that is justified by the standard of living of the majority of people in this country today. The approach should be our approach, which is to help those with lower incomes and pensioners.

Mr. Douglas Jay (Battersea, North)

Is not this all sheer humbug, when the Government have deliberately adopted the common agricultural policy, which is not merely bound, but designed, to hold food prices up?

The Prime Minister

The right hon. Gentleman knows that that is completely untrue and that the price of beef has not been affected in any way by our entry into the Community, as has been clearly shown. [Interruption.]

Sir Harmar Nicholls (Peterborough)

On a point of order, Mr. Speaker. Last week there was a phoney outcry about a statement being made outside Parliament. Is it outside the power of the Chair, now that a statement is being made, to see that we can hear what is said?

Mr. Speaker

In answer to that point of order, both the Prime Minister and the Leader of the Opposition have important speeches to make. I hope that we shall have an orderly debate and reciprocated courtesy from both sides of the House.

The Prime Minister

The rise in money incomes has consistently far outstripped the rise in prices. In November the earnings index was l6½ per cent. up on a year earlier. The equivalent figure for the retail price index was 7½ per cent. In those circumstances I do not believe that we should go for a policy of national buying of meat, the payment of a subsidy on meat and the imposition of extra taxation on the people.

I recognise the special problems of the pensioners, who spend a higher proportion of their budget on food than do the average family. But the actions of the Government have ensured that pensioners and all those on social security benefit are not only protected from price increases but enjoy a real improvement in their standard of living.

Between June 1970 and last month retail prices rose by 22 per cent. But pensions have risen by 35 per cent.

Mr. Dennis Skinner (Bolsover)

They cannot eat percentages.

The Prime Minister

That shows the element of improvement in the position of the pensioner. We have repeated our pledge that the pensioners will benefit from the increased prosperity of the country when pensions are increased in the autumn.

I emphasise that the programme for controlling inflation is an attack on the cost of living and not an attack on the standard of living. Our aim is to achieve a higher standard of living with a lower increase in money incomes and in prices. Again, this was fully accepted in the talks that we have had with the CBI and the TUC. This is connected with the statement of policy on Stage 3, set out in paragraph 32 of the White Paper, which is to bring down the rate of increases of both prices and money incomes. That is now described as being a "tougher" policy than stage 2. That indicates that some people still judge the toughness of a policy by the amount of pay increases in money terms.

But what really matters is the increase in real value. It is the real value which the CBI, the TUC and the Government have concentrated on in all the discussions. I said at the beginning of the talks in the summer that average earnings had increased over the two years by almost 25 per cent. and prices by over 16 per cent. That increase could have been obtained if earnings had increased by 7 per cent. and prices by 3 per cent. If that had been the case, exports would have been more competitive, and conflict and hardship caused by inflation would have been avoided.

That statement was accepted by everybody at the discussions. It was accepted that we can achieve the same results, if not better results, from real earnings with a much lower rate in the increase of money earnings and a lower rate of price increases. That has been the objective of everybody who has taken part in the talks.

It is not justified to say that if there is a lower increase in prices and a lower increase in money incomes it is a tougher policy than a previous policy. I hope that that will be accepted by the House and everybody outside, as it has been accepted by the CBI and the TUC.

I am content that the proposals which have been put forward by the Government should be judged by two criteria: namely, whether they are fair and whether they are workable. I have dealt at some length with the matters which we have handled in order to achieve fairness. However, we recognise the difficulties in moving from a standstill to stage 2 and in conducting our policy. But, first and foremost, we are moving out of a standstill into increases in money incomes and real incomes. That gives us negotiating scope to help those who most need help. The proposals are a great deal fairer than a continuing high rate of inflation, which is cruelly unfair to the lower-paid, the pensioners, people who are dependent on fixed incomes, and others less able to protect themselves.

Our proposals for the second phase are also essentially fair. We have to make progress from the standstill into a situation in which we can deal with the anomalies. Everybody who has been concerned with these matters knows that there are some anomalies arising out of the standstill. However, there are many anomalies existing in the wage system of the United Kingdom which are a cause, and are acknowledged to be a cause, of inflationary pressures. We need to do that without losing the ground in the fight against inflation which we have already gained by the standstill.

We are starting on the long-term process of removing the anomalies in our system. We shall do so, with the help of the TUC and the CBI, in stage 3. This is in danger of being overlooked in the argument about whether higher or lower monetary wages are more or less tough when it is real incomes which matter.

I shall illustrate the problem by reference to the Civil Service. As Minister for the Civil Service, like my predecessor, I am much concerned with this. Indeed, before the issue of the White Paper I met the representatives of the staff side of the National Whitley Council. As has been said, the great majority of the Civil Service were due for a substantive pay review. That is done on the basis of pay research. Because of the standstill the increase will become due on 1st April, 1973. Under the stage 2 guidelines the increase will have to be within the limit of £1 a week plus 4 per cent. on the pay bill.

As employers, the Government wish to preserve the close relationship which has existed for over half a century with the Civil Service. But the Government have to deal with their employees as they require other employers to deal with theirs, in the interests of the community as a whole. That means treating the Civil Service in the same way in stage 2 as other employers are being asked under the proposals to deal with their employees.

Mr. Charles R. Morris (Manchester, Openshaw)

Is it not unfair that under the Priestley Report principles the Civil Service is obliged to wait two years for comparisons to become available so that the assessments can be made?

The Prime Minister

I shall deal with the whole question of the Priestley Report and its arrangements. It has been said that the arrangements under stage 2 involve a breach of faith. It is important for the relationship between the Civil Service and the Government and, indeed, this House, that the matter should be clarified. Our assurance to the national staff side contained a proviso covering exactly the present circumstances. The assurance said: … that the Government endorses the principles for determining the pay of the non-industrial Civil Service set out in the Priestley Report and accepted by the Official and Staff sides following its publication. Subject to any requirements of an overriding national policy of general application, the Government intends to continue to reach and implement settlements on the basis of surveys by the Civil Service Pay Research Unit in accordance with these principles and with the existing procedural agreements between the Official and Staff sides. The proviso is subject to any requirements of an overriding national policy of general application. The policy put forward in the White Paper, and which is being put forward in the legislation before the House, is obviously a policy of an overriding nature and of general application. That cannot be denied. That is the position as far as the Civil Service is concerned. As the hon. Member for Manchester, Openshaw (Mr. Charles R. Morris) has pointed out, Civil Service pay is based on a two-year cycle of fair comparisons. If these comparisons, which are now becoming available, show that after applying the stage 2 guidelines there are still anomalies and problems of relativities remaining—and that may well be so—these problems will be considered, as explained in the White Paper at paragraph 33, which says: The aim will be to find ways in which, within the overall pay limit for the subsequent stage, progress can be made in dealing with these problems. We believe that that is the right approach to the question of carrying out an overriding national policy and dealing with any results which may be shown by pay research for the Civil Service. It would not be fair to do less than that for the Civil Service. Equally, in fairness to the community as a whole its problems must be put alongside those of other groups in a similar position. Discussions were held with the staff side before the White Paper was produced. I told the staff side after that discussion that, as Minister for the Civil Service, I should be prepared to discuss these proposals, the White Paper and the legislation with it at any time it liked to ask me to do so after the publication of the White Paper.

Mr. John Grant (Islington, East)

Surely the fair thing to do would be to allow the Civil Service to catch up and then to apply the policy. However, as the right hon. Gentleman puts it, civil servants are being discriminated against twice.

The Prime Minister

They are not being discriminated against twice. In fact, they are not being discriminated against at all. They are coming up under stage 2 in exactly the same way as other employees of other employers. We are pointing out that under stage 3 it is very important that we should move to the position in which anomalies of this kind, which are not limited to the Civil Service, can be sorted out with the help of the Pay Board and, I hope, with the TUC, so that we can benefit from their advice.

Then there is the workability of the proposals. Of course, we were urged to have a comprehensive statutory price control on every item and in every shop in the country. That, as we pointed out, would have been unworkable. It would have meant introducing consumer rationing and Government purchasing arrangements over a wide range of commodities. We believe that the proposals are workable. We have taken a great deal of time and trouble, and we have received advice from all Parties in order to make them so. We have so designed them that they should interfere as little as possible with the smooth working of industry.

The purpose of the proposals is to set up machinery which can be used by any voluntary agreement which is later made between the TUC and the CBI, the Gov- ernment and the retailers if they are involved. Of course, some people will oppose these proposals, both on the pay side and on the prices side, for reasons which have nothing whatever to do with the merits of the proposals themselves. But those who oppose them—and if the Labour Party is to oppose them this must apply to it as well—should take the responsibility of putting forward an alternative policy, which is something the Opposition have never done. But the great majority of the people want the Government to deal with price inflation, and understand the part played in it by excessive increases in money wages.

The country has supported the standstill and it supports these proposals. It will not forgive any who, for whatever motives, try to put themselves outside the law as it is passed by Parliament. Inevitably, the two sides of the House approach these proposals with different philosophies. On this side, we have always expressed our desire to work a free and voluntary system with the CBI and the TUC. We have exerted ourselves constantly in this direction, and we have no intention of ceasing to work for that objective.

But today the choice is not between a system of controlling inflation by free negotiations agreed between the parties in industry on the one hand and statutory powers on the other. That, alas, is not the choice. The choice is between a policy backed by statutory powers until agreement can be reached and a renewed outburst of inflation which would destroy the prosperity from the growth of the economy, undermine our future and impose cruel burdens on those who are least able to bear them.

But right hon. and hon. Members opposite have different preoccupations. Whatever the Leader of the Opposition may now say, he understands the basic situation within the trade union movement because he had direct and painful experience of it as Prime Minister. There are those leaders within the movement, as we have seen in these talks, who are working hard for the betterment of their members in a national context and for the success of trade unionism as a democratic force in our society. There are others who are using their powers in a completely negative way. [HON. MEMBERS: "Name them."] I believe that one day the members of the trade union movement—and no one else can do it—will make a decisive move towards the first type of moderate, forward-looking leadership. They will want those leaders to work with the Government and with management to help solve in constructive discussion the very real problems of wage negotiations in the economy, and the fact that this is going to happen is becoming daily more and more clear. I believe that there are tens, if not hundreds, of thousands of trade union members who want to work a system of free negotiations with employers without creating inflation.

From the beginning and throughout the summer and autumn we have given the opportunity for this, and we gave it again this month. We shall go on offering the opportunity for consultation and for co-operation. So I make an appeal today, on behalf of the majority of the people of the country, to all those who are going to help to determine the success of the struggle against inflation as we move from the standstill into stage 2. During stage 1 there has been admirable co-operation from the employers, from the trade unions and from the retailers, big and small. Now, as we move into stage 2, I believe that we shall find the same degree of co-operation from all those who are responsible in industry, in the trade union movement and amongst the retailers.

But at the same time we hear threats of one-day strikes, demonstrations, political slogans, and so on. Fortunately, these have been sporadic and unevenly supported. I saw an example myself last week in Cornwall. A small minority and a group of outsiders were demonstrating at the gates. They got the publicity. Most of the people employed in that factory were working normally inside in a factory which has full order books, high productivity, excellent employers and good labour relations. But those inside the factory did not get the publicity.

I do not believe that such strikes and demonstrations really serve the interests of ordinary people. Nor do they improve our reputation abroad with those who buy from us and with those who invest in our industry and who more and more the TUC want to see investing in this country.

We as a Government have shown our readiness to listen to all points of view put forward, from whichever quarter they come. That readiness to listen still stands and will continue to stand. I believe that in due course it will be taken advantage of. I believe that all concerned should match our constructive effort in the spirit in which it was made in the talks we have been having, for it should be clear to all that the reward in steadier prices and sustained prosperity is very great. Above all, we have to get rid of the impression that a high rate of inflation is inevitable and that prices and wages must go on rising fast, whatever the efforts of the nation may be.

If there is one attitude which I believe this House would like to see changed it is the attitude which assumes without argument that the efforts of the British people will be to no avail. I listened to people, some in this House, who told us we would never succeed in entering the European Economic Community. There were those in this House who were quite categorical about it. They have been confounded. I listened to people who told us that we would never bring unemployment down and to those who said that we would never achieve a high rate of growth. They have been confounded as well.

Now there are those who say that we cannot sustain growth and that we cannot escape from a crippling rate of inflation. That I completely repudiate, and I believe that they, too, will be confounded, for they ignore the unused resources that we still have, they ignore the opportunities which now exist for investment to increase our capacity, they ignore the determination of the Government, shown in the standstill and in the proposals which we are now putting forward, and, above all, they ignore the fundamental good sense of the British people.

4.38 p.m.

Mr. Harold Wilson (Huyton)

I join the Prime Minister and associate the Opposition in what was said about the welcome which the House will give to peace in Vietnam.

Listening to the right hon. Gentleman, it seemed a long time to me since his call to the TUC on the eve of its 1966 Congress to reject the Labour Government's prices and incomes policy, which had already been legislated by Parliament and was on the Statute Books. His message was crude. It was a call to knock some sense into the Government"— the Labour Government— by making the freeze voluntary. That was the right hon. Gentleman six years ago.

Five years ago he said: …if by an income and prices policy is meant Government control over all incomes and prices, disguised as a voluntary effort but in fact under threat of Order in Council"— Orders in Council are under the authority of this House, unlike the right hon. Gentleman's White Paper— and therefore compulsory, this is not only Impracticable, but unfair, undesirable, and an unjustifiable infringement on the freedom of the individual". That was the right hon. Gentleman five years ago, in 1967. We are opposed to the compulsory wage freeze all the way through and we have been proved right. We said that it would make relations—industrial relations with the unions—much worse. It has. We said that it would play into the hands of the extremists. It did. Two and a half years later the right hon. Gentleman's manifesto said this: We utterly reject the philosophy of wage control … His election forum broadcast condemned the whole concept at length.

In his 16th June 1970 statement—the "at a stroke" statement—the right hon. Gentleman launched into a philosophical panegyric on the moral evils and economic banality of statutory prices and wage policies, with doom-laden warnings that if Labour were elected a Labour Government would introduce a wage freeze—a freeze which he has now introduced.

The right hon. Gentleman carried his campaign to the country. He made a blatant appeal to the workers of the West Midlands, as meretricious as his appeal to the housewives of Leicester. I will remind him of what he said to the housewives of Leicester since this matter has become topical recently. When wooing them he said: Is it any wonder that housewives keep telling me, as they have done again and again in the last few months, that they are having to cut down on the family's weekly joint, getting cheaper meat, smaller cuts? Beef prices are now more than double what they were then. And people who could afford beef then are having scrag-ends of bacon for their Sunday dinner. And well the Prime Minister knows it—or perhaps he does not know it.

When wooing the West Midlands workers for their vote, this was what the right hon. Gentleman said: If you put a Labour Government back into office you will have your wages frozen for another lengthy period by Act of Parliament. We are opposed to a compulsory wage freeze. We never had it when we were in power. We opposed it through the last Parliament. On that claim at least he was telling the truth; he did not dupe the public on that occasion. His party, usually led by him, voted against every stage of every measure dealing with prices and incomes—Second Reading, Committee, Report and Third Reading—and against every order brought before the House on prices and incomes policy. Does he remember that they went through the Lobby 102 times on those measures? And now he has the nerve to make the sort of speech he made this afternoon.

I turn from Toryism in opposition to Toryism in government. The House must set the White Paper against the record of 2½ years of Conservatism in practice. The retail price index up 21.7 per cent. since June 1970. The purchasing power of the £ down 18 new pence compared with what the "£ in your pocket" would buy in June 1970. The food price index—as far as we can calculate from the Government's figures—is up 25 per cent. since June 1970. Then there are house prices—and here we have figures only up to last spring: new houses up by 42 per cent. in price, existing houses by 48 per cent., and in London and the South-East 90 per cent. in respect of new houses and 68 per cent. for older houses.

House building at the lowest level for nine years. Unemployment—even after the right hon. Gentleman's best efforts in juggling with the figures—is still over 830,000, though helped by the first effects of the higher school leaving age. More people are unemployed for long periods than at any time since the war; juvenile employment in many areas, including my own constituency, is higher than even a year ago.

The balance of payments surplus of £600 million which we bequeathed to the right hon. Gentleman—a surplus which he denied existed in the last week of the election but which he cannot deny now, and a surplus which rose of its own momentum to £1,000 million in 1971—has now been totally dissipated. It is no good the Prime Minister laughing this one off. In 1972 we had the highest visible trade deficit in Britain's long trading history. There was a turn-round of £1,000 million in a year on physical trade alone; exports up by just 3.8 per cent. by value and imports up by 15.8 per cent. What the Chancellor was trumpeting would be a jobs boom, an investment boom, became an imports boom. There have been authoritative forecasts of a balance of payments deficit of anything from £500 million to £1,000 million by 1973. Investment is at a dismal figure, still below 1969, even after all the Prime Minister used to say about it. The Government's 1972 forecasts published last year have been falsified and forecasts for 1973 are grim.

Let us look at investment, because the right hon. Gentleman identified himself with investment drive. For the right hon. Gentleman a fanfare is a substitute for a policy. When he was fanfaring in Guildhall in 1971, after the humiliating terms which he accepted for entry into the EEC—and we must remember what happened to the unfortunate Minister of Agriculture after midnight last night because the Prime Minister did not sew these things up before entry—he called on boards of directors …meeting this week to commission new buildings, to order new plan and equipment… He called for a major programme of investment in industrial expansion and modernisation". Those were his words. And the response to his call? Investment fell yet again.

It is against this record that we have to assess the White Paper—phase 2. How the right hon. Gentleman would like to forget phase 1 and his brave words when he introduced that phase. Phase 1 was a legally enforced standstill, a freeze on prices and wages. On wages certainly—but on prices? The cost of living index under any Government lags about a month behind the event, but that index rose in December in the very month after the right hon. Gentleman's freeze. The more up-to-date Financial Times grocery index—the right hon. Gentleman cannot complain about this index because the Home Secretary quoted it prematurely to show that the freeze was working—has risen by 2.7 per cent. from 11th November. Using the Home Secretary's method of extrapolating to an annual rate, that would, if sustained, be a rise of 16 per cent. a year.

I think we can all agree, putting it mildly, that phase 1 has not been an unqualified success in holding down prices. The House will recall the precise warning which we gave the Prime Minister before and at the time of the introduction of the freeze. We told him that he should have striven harder for a voluntary agreement with industry. We said that he should have taken action to deal with food prices, the Housing Acts' rents, rates, school meals and VAT, that he should have created a different economic climate by increasing pensions, suspending tax handouts to wealthy taxpayers legislated in last year's Budget and also that he should have introduced penal levies on land speculation.

But the Prime Minister refused to do any of those things. After his standstill statement announced on 6th November, he replied to my demand for action on rent and housing by saying Many of the other matters mentioned by the right hon. Gentleman, I must frankly say this to him, are political. What he meant—and this was the reality beneath the glittering chandeliers of Lancaster House—was that whilst he was prepared to demand the utmost sacrifices and restraint from average families, he stubbornly and wilfully refused to sacrifice anything political—Tory political. The political decisions have created this crisis—rents, food levies, VAT, the cost-inflationary terms of market entry and the Government's refusal of our demand that VAT be not imposed on children's clothing.

Even in phase 2 the right hon. Gentleman's one concession is to postpone the increase in school meals for the time being. That increase, announced not so long ago, was one of the grisly relics of the October 1970 package introduced by the Chancellor of the Exchequer. We welcome at least that concession. And he is meeting our demand that local weights and measures inspectors be employed for monitoring when, in November, he refused just that. I think it is very useful. The right hon. Gentleman is a slow learner and, even worse, is a blinkered learner. For the rest, we have a means-tested relief for a minority of council tenants from the worst effects of his rents policy, and a piece of meaningless window-dressing about land speculation. The Prime Minister at least had the decency not to refer to that matter in his speech today.

Had the right hon. Gentleman listened to us last autumn, before the freeze, he could well have secured a voluntary agreement. It was there, but he rejected it because he valued his political prejudices above the national interest. Now he perpetuates the prejudice by producing an utterly one-sided phase 2. On the one hand we have a rigid, Government-enforced, legally-enforced limit on wages, £1 plus 4 per cent.; on the other hand, prices. No one knows how the Prime Minister's proposed powers will be exercised. No one will know until we have got the code of conduct prescribed under the Bill, because we have not yet had that code. That code, as I understand it—the right hon. Gentleman will correct me if I am wrong—is unamendable by Parliament. The Stock Exchange clearly does not know how the system will work, nor does industry. All they know is that this bureaucratic nightmare creates the maximum uncertainty and also the maximum disincentive for investment.

Again, as is widely recognised in industry, the Prime Minister's peculiar approach to profits is an incentive to wasteful expenditure. Already men of ingenuity in the City and in industry are working out how to get round it. Who would have thought in the brave days of Selsdon Man and the lame duck school that the right hon. Gentleman would put himself forward as the architect of a cost-plus economy?

But even if the Government's proposals work as the Prime Minister intends, they will cover only the less vital part of household expenditure. This is what the right hon. Gentleman's ideological blinkers prevent him from seeing. That he refuses to extend his price controls to the basic necessities is why we regard his proposals as grotesquely unbalanced and unfair. And because they are unfair, they are unworkable.

Food and housing—and this at least should be common ground—are the principal constituents in household expenditure. Does not the right hon. Gentleman realise that? I go further by stressing the special case of the old and the special case of the young. The cost of food in relation to total family income is disproportionately high for most pensioners—and with them must be included the chronic sick and disabled.

For young families it is the cost of housing which pre-empts an undue proportion of income in terms of local authority and new town rents, private rents, in respect of property more and more being abstracted from the low-income housing market, and in furnished lettings, as I have seen on housing tours, an unprincipled racket. And perhaps most of all there is the problem which faces young people forced to buy houses at the soaring prices of last year. We see racketeering prices combined with anxieties about mortgage rates.

The right hon. Gentleman in answer to questions went out of his way to refuse my request that his freeze should be extended to interest rates because, as I argued, rising interest rates must lead to higher mortgage charges. Building society investment rates are already up again. And since then market interest rates have increased. The market interest rates in Britain are now the highest in any advanced industrial country in the world. Until last week they were—apart from a few precautionary days in August 1914—the highest since the Overend Gurney crisis in 1866. We all remember the Prime Minister's speech about interest rates when Labour was in power.

A figure of 9½ per cent. is now the rate on a new State-sponsored gilt-edged investment representing 9.77 per cent. to maturity. How long can the owner-occupier be protected from rising interest rates unless the Government undertake his protection? I believe that those people could be protected. Yesterday the Chairman of the Building Societies Association warned of the danger that fewer buyers would be able to obtain mortgages this year or that they would cost more. This envisaged rationing by quantity or by price. In our view the Government must act to deal with this.

Has the right hon. Gentleman no thought at all—in what Tories some time ago used to call a property-owning democracy—for newly married couples, for married couples living in furnished lodgings and now, with a family, seeking a home? There is nothing for them at all in the White Paper. There is nothing for them in next week's Bill. There has been nothing for them at all in 2½ years of the right hon. Gentleman's Administration. The whole of his policies—the free market economy of Right-wing nostalgic memory, the Government handouts to the property speculator in the last two years and the land scandal opened up by Tory freedom and financed by the money supply incontinence of the Chancellor of the Exchequer—has penalised the young marrieds. I believe that the right hon. Gentleman did not want to inflict this on the country. I recall those moving electoral appeals about housing. But that is what the country has got from the right hon. Gentleman. So I come to our indictment of his White Paper.

First, he deliberately excludes the main food items. He wrings his hands about world food problems. Yes, we know all about the failure of the Russian grain harvest, about China and about the development of carnivorous tendencies among the Japanese and the Argentinians. We know all about the effect on Peruvian anchovies of changing water temperatures and therefore on fish meal for farmers, the prices of which are going up, and no doubt there is the drought in Patagonia. Strangely the right hon. Gentleman had no thought at all for world food prices in June 1970 when he was complaining about prices which the housewife today would give almost all she had to go back to.

We know of the Government's determination to raise domestic food prices. It has been their policy since they came to office—the right hon. Gentleman did not disguise this from the people—by levies, by the restoration of the Corn Laws, by the catastrophic terms for food and agriculture which he fell over himself to accept on Common Market entry, and by his treatment of New Zealand. Does not the right hon. Gentleman agree that we could do now with the lamb? Lamb prices have risen even more than beef prices. Does not the right hon. Gentleman agree that we could do with the lamb which New Zealand is busy deliberately selling to other markets under her enforced diversion policies? In the years ahead we shall also miss her alienated butter and cheese.

We remember too how the then Minister of Agriculture, Fisheries and Food, the right hon. Member for Lowestoft (Mr. Prior), promised the House in early June in answer to us that beef prices would fall to normal levels when last summer's grass-fed cattle came on the market. We are still waiting for those belated bovines. The right hon. Gentleman has done nothing to tell us where they have got to. But we know. They have gone to Europe, and he has not even the power to stop them after 1st February.

The Prime Minister refuses even to consider any policy to bring down food prices. We get the same old claptrap about rationing. I shall return to that in a moment. We are told that subsidies or a negative value added tax are administratively impossible. Has the Prime Minister tried? Has he looked into this? The complicated price provisions of the White Paper are not short on administrative ingenuity. Hundreds and thousands of man hours of ingenuity have gone into it. What is lacking is political will. If the right hon. Gentleman had said "I want action on meat prices and other foods"—perhaps in one of his little tantrums—and had continued "Go away and produce a policy", he would have had one. If one-tenth of the ingenuity devoted to price and profit control had been directed to doing that, if one-twentieth of the energy directed to tying up the trade unions in unravellable knots in the Bill and one-hundredth of the administrative ingenuity devoted to VAT had gone, on a Prime Ministerial directive, to finding a means of relieving the burden of high-cost foods, we would have had detailed proposals in the White Paper. But the right hon. Gentleman's heart was not in it. His ideology forbade it. Let us hear no more of that disingenuous rationing bogey. We recall how right hon. and hon. Gentlemen on the Government side fought an election on "red meat"—

The Prime Minister

And got it.

Mr. Wilson

They got it, yes. But where is it now? It has gone with the wind. The consumption of beef in this country last spring was substantially below rationing levels, even before the soaring prices of this so-called standstill period. It is lower now than in 1954 when rationing ended.

The right hon. Gentleman must realise that there is rationing today. It is rationing by the purse—and this will be aggravated by the White Paper proposals on wages and by the absence of proposals on pensions. Bread prices are due to rise. We have heard it from Rank-Hovis, McDougall, Mother's Pride—the lot. Do not let the right hon. Gentleman tell us that it is administratively impossible to impose subsidies on Canadian hard wheat at ports of entry. It is simple to do. It was done for many years to keep down bread prices. The right hon. Gentleman refuses to consider that, or is it that President Pompidou will not let him do it? Then, on sugar, the right hon. Gentleman has boasted of his action last year in bringing down the price by administrative action. Let him repeat it—or is he tied by the dictates of European beet sugar producers? We are not clear after last night's all-night sitting.

I come secondly to housing, which is also rationed by the purse. The right hon. Gentleman refuses even to suspend the operation of the Housing Finance Acts which force up rents and drive more and more families into the tight mortgage market. Those acts were passed for reasons of Tory dogma. The right hon. Gentleman forced them through under the guillotine. He would lose face if he suspended, still more if he repealed, those Acts. Inflation has brought costly increases in prices, and the costliest of all to Britain is the cost of the Prime Minister's face on this matter.

What is more, the right hon. Gentleman's Price Commission will have no power to restrict rents. The Labour Government referred local authority rents to our National Board for Prices and Incomes. That board recommended a strict limit on increases which the Labour Government implemented. The right hon. Gentleman's commission will have no such powers.

I deal thirdly with rates. The right hon. Gentleman's threat to call in the councils is as pathetic as his appointment of the committee to deal with beef prices. Rates are going up because of the inflation which he set in hand. All that the right hon. Gentleman could achieve at his forthcoming meeting would be a cut in essential local services, above all in education and local authority health and welfare services.

Fourthly, I deal with manufacturing costs. The right hon. Gentleman must know that manufacturers all over the country face increasing raw material costs. I warned him in the autumn about the rise in world commodity prices, aggravated by his devaluation which he had to submit to despite the record balance of payments surplus that he inherited. At that time world commodity prices, in sterling terms, had risen by 34.8 per cent. over the previous year. In the three months since my warning they have risen by a further 20 per cent. Commodity prices are now not 34 but 48 per cent. higher than a year ago. For food they are 45 per cent. higher and for fibres 85 per cent. higher. Metal prices are 14 per cent. higher and now they are rising, thanks, not least, to Mr. Ian Smith and his copper supplies. In addition, the oil industry this week has laid claim to price increases when the standstill ends.

Fifthly I come to coal and steel, which are now to be exempt from the freeze and subject to Common Market rules. The right hon. Gentleman knows that the price of steel runs right through the costs of manufacturing industry, through the whole economy, and through the exports which he so sorely needs and has so sadly neglected. This morning the Financial Times reports a likely increase of between 5 and 6 per cent. in steel prices in May, though at least 10 per cent. will be needed to conform with EEC rules and regulations. Even the lower figure would add £90 million to general industrial costs.

I come, sixthly, to the charges of other public industries. So far the right hon. Gentleman has cushioned them with concealed subsidies and capital write-offs, though we should have preferred a policy relating Government payments to the degree of labour intensiveness and the costs of running the industries. However, the right hon. Gentleman has done it on a day-to-day, month-to-month basis at a cost of £280 million a year. These charges are to be on the same basis as private industry. Prices are to follow current costs, though with no increase to offset past deficits.

Fares are as much a deduction from take-home pay as PAYE and insurance stamps. They are deducted even before rent payments. Now they are to rise with costs, as are gas and electricity charges.

I come to VAT, which is my seventh point. The right hon. Gentleman rejected our demand that VAT should be at least postponed. Can we now have an assurance that children's clothing at least will be exempt as we demanded last year and which right hon. and hon. Gentlemen opposite trooped into the Division Lobby to resist? Some of them are now trying to get on to the Daily Mail bandwagon to support the campaign. However, the Daily Mail has not reported how we campaigned and how the Government voted against it last year. Are the Prime Minister, the Chancellor of the Exchequer and the Customs and Excise Department so stubborn that they will insist on taxing children's clothes for the first time in our history?

I come next to land. Pending a radical policy for public ownership of land, the Government should announce now that all speculative gains in land dealing will be offset by levies and the surrender of the gains to the public purse to be used for the community as a whole.

Ninth, we have taxation. The Chancellor of the Exchequer should announce that he intends to cancel the tax handouts given in last year's Budget which are due to take effect in April. These are mainly for wealthier taxpayers including those who live exclusively on unearned income. They will be handed out in April, in the standstill period and not even in phase 2.

Tenth, the Government are restraining dividends. But when restraint ends, dividends can be paid out while wages caught in the freeze do not accumulate for later payment. The Prime Minister should announce that the amount postponed should not be allowed for later distribution. It should be paid into industrial funds for welfare, industrial medical services, the care of disabled workers or even to buy shares for a trust held on behalf of the workers who make the profits possible. Why not?

The Prime Minister rejects all these proposals. His myopic attitude to inflation causes him to reject any attack on the basic constituents of the average family's cost of living. For him, it is all wages. That is what it is all about. His argument received its coup de grace when beef prices rose 40 per cent. and when lamb prices rose 50 per cent. during the standstill while basic farm wages were brutally frozen at £16.20 a week.

There can be no policy for wages if the right hon. Gentleman refuses to act on food, rents, rates and VAT. Had he shown any willingness to do so, I believe that a voluntary policy could have been possible last autumn, as we told him then.

The Prime Minister's policy fails to grip the problem of rising prices over the greater part of family expenditure. It is totally vague on what will be allowed on manufactured prices while at the same time it is fixing a statutory maximum on wages. If the right hon. Gentleman will deal with the cost of living he can get a policy for incomes which requires no statutory enforcement. His rigid wage formula will break down through anomalies.

I want now to come to a point which the Prime Minister himself raised. Last autumn before the breakdown of his TUC-CBI talks we set out in great detail what we felt would be the minimum policies necessary for a voluntary agreement. I quote just one sentence from it: There must be no discrimination against the public sector in wages and salaries. We listened carefully to what the right hon. Gentleman said. He reminded us that he was not only Prime Minister and First Lord of the Treasury, but also Minister for the Civil Service. For 17 years Civil Service pay has been regulated by the comparability principle, the Priestley doctrine. During that period no Government, however hard pressed, whatever the severity of their prices and incomes policy, have defaulted on that public service principle. The right hon. Gentleman is now in default, so far only by a few days.

My right hon. Friend the Member for Sowerby (Mr. Houghton) was Chairman of the Civil Service Whitley Council staff side which negotiated that. He will confirm all that I have said. During this period no Government have defaulted. Now we are in default. Despite all that the right hon. Gentleman has said, including his fair words about over-riding requirements and so on, this means that the Government are moving into default on the Priestley principle. I hope that before the debate ends the Chancellor of the Exchequer will say that at the outset of phase 2 he will honour the word of every Government of every party over the last 17 years and say that the Prime Minister's words today do not mean that his Government intend to "rat" even on that.

The Prime Minister

If the right hon. Gentleman is going to use language like that, with his past responsibilities, I must tell him that it is completely unjustified. I have read out the statement made by the Government on taking office, like other Governments, which was agreed with the staff side, that in the case of an over-riding general Government policy, that takes precedence. I do not think the right hon. Gentleman would deny that what we are putting forward is an overriding national general policy. Therefore, we are entitled to say to the staff side that this will take precedence, that of course the pay research can continue, and we can then see whether there are any differences between the allocation under stage 2 and those can be dealt with under stage 3.

As a former Prime Minister, the right hon. Gentleman is not helping relations between the Civil Service and the Government and the nation by saying that these matters are in default when it is so plainly on the record that that is not the case.

Mr. Wilson

I am grateful to the right hon. Gentleman. He has not advanced things very much. I am very touched by what he said about not helping. I have not sent a message to the Civil Service or the TUC telling them to knock sense into the head of the right hon. Gentleman.

So far as the right hon. Gentleman's circumlocutory phrases are concerned, we shall examine them. We shall read them carefully, examining the small print—as will the civil servants; they are good at small print. I have heard nothing from the right hon. Gentleman—even if he does not like the eloquence of my words—in his speech or interruptions to suggest that he is not ratting on the principles.

I have made clear what in our view phase 2 should mean. The right hon. Gentleman's version is totally unfair and unworkable. He ought to have used phase 1 while it was on to get agreement on phase 2. Instead of the posturings of last week outside the House, he should have been looking for a new and agreed policy. Even if phase 2 is carried by force majeure in the Division Lobby, without electoral authority—indeed, contrary to the pledges of those who will be in the Government Lobby, every one of them—we should be already, even today, thinking of phase 3.

Before I leave the phase 2 proposals, there is a vital constitutional issue that must be pointed out. This is a very important constitutional principle. The right hon. Gentleman's two operative agencies for pay and for prices are not to be subject to any form of public or parliamentary control. Indeed, the White Paper refers to them as having executive as well as advisory powers.

The National Board for Prices and Incomes had no executive powers. That board had powers to study, to report and to recommend. The Government of the day had the courage to take the decisions and to defend them here in Parliament, and to defend the individual orders in Parliament. The right hon. Gentleman and his colleagues voted against the lot, against all those decisions and orders. Now the right hon. Gentleman is setting up independent agencies with no effective control by the House whatsoever. They are law-making bodies. The White Paper says at paragraph 42: Offences under the Bill include the contravention of a notice or order forbidding an increase, or part of it, issued by an agency or by a Minister. So what these agencies pronounce, in a state of total irresponsibility as far as democratic control is concerned, can be the subject of enforcement in the courts.

I am not amazed because with the Government advised by the former Solicitor-General anything is possible. But surely the right hon. Gentleman, with his constitutional duties as Prime Minister, would agree that enforceable orders should be made by the Government and should be subject to the authority of the House, and in no other way.

I have read in newspapers of different political complexions in the past week, with other comments, the use of the phrase "corporate State". The words "corporate State" have been used. But the corporate States of modern times are characterised not only by locking in employers and unions as instruments of State policy; they are characterised still more by the creation of administrative tribunals, responsible to no elected authority but with the power to make laws enforceable in the courts.

There are, of course, commentators who choose to regard the machinery proposals as creeping Socialism in their present form. I cannot recognise them as being in any way related to what we regard as democratic Socialism. Their inspiration is in part Teutonic-bureaucratic, in part corporative; and just to compliment the right hon. Gentleman, enlivened perhaps by an admixture of trendy neo-Marxism adopted from time to time during brief tenures of office by military presidents of Latin American banana States. And the Conservative Party and the right hon. Gentlemen are proud of it.

We shall see all the Government Front Bench in the Lobby in support of the White Paper and the Bill. We shall see the Secretary of State for Social Services voting for it. He cannot agree with it. He has explained to me why he cannot be present. I told him that I might have an endearing reflection to make upon what he once said. On Third Reading of the Prices and Incomes Bill on 10th August 1966 he said: The political map of this country has changed in front of eyes in the last few weeks. The old certitudes have gone, the old delusions have gone, that the Labour Party"— as the right hon. Gentleman put it— could do no wrong, and this Bill is one of the permanent pieces of evidence of these shattering last few weeks. The Labour Government have got the country into a fearful mess and, for a solution, they seek to slide furtively through Parliament a new instrument of tyranny—this Bill. No one would have believed it possible a few months ago that this Government could, let alone would, produce a Bill like this. It would have outraged any party."—[OFFICIAL REPORT, 10th August, 1966; Vol. 733, c. 1731–32.] We shall see the right hon. Gentleman trooping through the Lobby for what is a much more lasting instrument of tyranny, on his own estimation.

Before I sit down, let me invite the House to address itself to the longer term, which could and should be a voluntary policy. The Prime Minister has said many times in the past week that that is what he would like to sec. But it must include all the terms I have set out on food, housing, rents, rates, VAT, school meals, taxation and the rest.

Proceeding from the levies on land speculation, if it is to be a lasting policy the Government should proceed to take out of land all prospects of private gain at the expense of the community by taking the land into public ownership. If, as the Prime Minister suggests, we face an unprecedented crisis—he has been talking in those terms, and that must be justification for the words he used about the Civil Service just now—even though this crisis occurs, after dissipating the surplus we left him, he should ensure that sacrifices are borne fairly in the country on the basis of "from each according to his means, to each according to his needs." That is not the inspiration of this White Paper because means are to be judged not only by incomes, but by capital—for the man with wealth can live through a crisis with no reduction in his standard of living while those whose only wealth is what is currently earned by their hands and their brains are denied that privilege. In our view a crisis of the dimension to which the right hon. Gentleman has brought us, and which he freely admits, calls for a levy on capital as a contribution to equity within this national community, a wealth tax on the highest concentrations of wealth, above a defined and high minimum, and excluding, of course the owner-occupier's house.

I have set out an alternative to phase 2 and the objectives we feel should be followed in the longer term. Had this debate taken place on a motion to take note of the White Paper rather than on the Adjournment, we should have tabled a reasoned amendment for its rejection. As it is on the Adjournment we shall vote against it for the reasons I have stated.

Thereafter, we are faced with a Bill already before the House. We shall move a reasoned amendment to it. If that is defeated, we shall vote against the main motion. We shall vote for its committal to a Committee of the whole House. We shall resist any proposal for a guillotine. Even this guillotine-happy Government could not propose a gag on the debate of measures so fundamental to our economic life and liberties, a measure designed by the Government, on their own admission, to relate not to a short-term crisis only but to endure for an illimitable period of years ahead.

Whatever right hon. Gentlemen on the Government side have said in the past, whatever promises and philosophy and pledges they were elected on, their Bill, tearing up everything they have ever said before, represents their considered ideological doctrine for their party for as far ahead as anyone can see. For our part, we regard it as fundamentally ill-conceived, the product of a Government whose basic policies have broken down in humiliation and who now seek to place the burden on those whom they have failed at the last election. Because we reject it as unfair and unworkable, because the Government reject every alternative designed to make it equitable and effective, we shall go into the Lobby, today and on the main stages of the Bill, to reject their policy.

5.21 p.m.

Mr. Jeremy Thorpe (Devon, North)

I do not believe that the electorate of this country cares a damn which Government introduce a policy to cure inflation provided it is fair and workable; nor do I. My colleagues and I supported the Labour Government in 1968 in their attempts to bring in a prices and incomes policy whilst, as the right hon. Gentleman the Leader of the Opposition has rightly pointed out, it was vigorously opposed by the Tories; and, indeed, we had the prospect of Tory Shadow Ministers rushing round the country saying that the Liberal Party had kept the Labour Party in power —a criticism not without precedent, though usually in a different context. [Interruption.]

If the hon. Gentleman is alluding to matters which have been referred to in the national newspapers I will set his mind at rest. I would welcome an opportunity of referring to the whole question of mortgages in general and, if the House bears with me, in particular as it effects me personally. I would welcome that opportunity, but I hope the hon. Gentleman will allow me to do so slightly later in my speech.

Likewise, my colleagues and I, although we have grave reservations, on which I propose briefly to touch, will vote for this measure tonight, while the Labour Party will oppose it with as much vigour as the Tory Party opposed similar attempts by the Labour Government in 1968. I feel also that if the defection in the Tory ranks is as great as has appeared on the faces opposite, we may again have the cry going up that the Tory Government have been saved by the Liberal vote in the same way as the Tories said that we had saved the Labour Government in 1968.

There is no doubt that this represents a dramatic change for a Government who abolished the National Board for Prices and Incomes, got rid of the Consumer Council, and denounced Socialism when they were in opposition because they felt it undermined individual economic choice—an argument which is now granted to the Leader of the Opposition who says that it is undermining individual choice—and therefore we must realise that the Conservative Party deserves a kind of sympathy because while this may be the birth of a new policy, it is the burial of old philosophy.

I have always believed that in default of a voluntary agreement it is necessary to have a statutory prices and incomes policy as the price of full employment. I believed it when the Labour Government said it, and I believe it when the Tory Government say it. But the first criticism I make it that the bias on incomes must immediately make one sceptical of the fairness of the package. To succeed, the package has to be acceptable, and to be acceptable it has to be seen to be fair.

Her Majesty's Government—I welcome this—have recognised the need to reduce differentials in industry generally by their references to the low paid and their wish to help in that regard. But even £1 a week to the lowest paid cannot avoid and avert the poverty trap which is still with us, so that one has the situation that at one moment a man qualifies for rent rebate, supplementary benefit and family income supplement, and then finds that as a result of an increase of £1 a week he stands to lose all or part of those benefits.

The Government have gone so far towards guaranteeing statutory minimum earnings, which is what I have always wanted to see in this country, by recognising the need to reduce differentials, that I cannot see why they did not go the whole hog. This would have been an element of justice to 3,500,000 in this country who earn less than £20 a week. If we are going to see the allocation of wage increases—group by group—and the Prime Minister, in the answer that he gave me confirms that "group" means the present bargaining groups in each factory—experience has always been that the lion's share goes to the group at the top level, those who are usually the better paid, who have the greater bargaining power and the greater ability to get more. I do not believe that the machinery exists at the moment to ensure that when there is an allocation of a wage increase it will be the lower paid who get the lion's share. In my view, it is important that they should.

Mr. Eric S. Heffer (Liverpool, Walton)

Is the right hon. Gentleman not aware that those who use their strength to get higher wages are those who are working in firms which have the maximum profits? It is in the motor car industry and such industries where the workers are able to use their strength and get higher wages.

Mr. Thorpe

I am sorry to disabuse the hon. Gentleman. One cannot escape the fact that there are those who gain an increase which is sometimes almost as great as the total weekly take-home pay of the lowest paid in a particular plant. This can happen within one plant. In this country there are people who are able to demand and sometimes get a wage increase which is larger than the total income of the lower paid. [Interruption.] If that remark had to be made, I am not surprised that it has come from the hon. Member for West Ham, North (Mr. Arthur Lewis). I have not been given 10,000 shares.

Mr. Arthur Lewis

I did not say that the right hon. Gentleman had.

Mr. Thorpe

The hon. Gentleman implied it.

Mr. Lewis

I said that there are company directors who, in addition to getting large incomes, are also given as many as 10,00 shares, which is, in fact, income.

Mr. Thorpe

I accept, albeit expressing my passing surprise, that the hon. Gentleman had no intention of referring to anybody in this House. I would merely say in passing, because it might interest him to know it—since he is obviously not aware of the fact—that I happen to be a beneficiary of a Revenue-approved scheme for which I shall have to find the money to pay for every one of 10,000 shares which have been allocated to me.

Mr. Lewis

Will the right hon. Gentleman accept——

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

Order. The hon. Gentleman must resume his seat.

Mr. Lewis

—that there are company directors——

Mr. Deputy Speaker

Order. Mr. Thorpe.

Mr. Thorpe

I am sorry that I have been unable to convince the hon. Gentleman that I do not propose to give way again to him.

I also believe that in order to ensure that there is a fair distribution so that the lower paid—the 3,500,000 in particular—are brought up to a basic minimum, if the Government will not bring in guaranteed minimum earnings, such as exist in many countries in Western Europe at the moment, we must look at the whole method of plant bargaining and the machinery for the settlement of pay claims to see whether our present machinery is adequate. In my view, it is not. Through the normal pressures it will not be the low paid who will get as large a share of wage increases as will be available even under this freeze.

With regard to prices, the Labour Government opposed the concept of incomes restraint, whereas the present Government have opposed the possibility of a restraint in the price of food. I believe that we need control of both or neither. I prefer control of both in default of a voluntary settlement. It is true that there will be some control over manufactured goods, and that unavoidable cost increases alone will be passed on but excluded, as the Leader of the Opposition very properly pointed out, are imported food, fresh food and goods exported, and approval will be needed only by large firms worth over £50 million, which means, in fact, only 200 firms in this country.

The Government might well tell us whether they looked at the experiment which the Swedish Government are now introducing, which will have an effect upon food prices and imports with, I am told, a great likelihood of success. We should like to hear why they turned down the concept of negative VAT on certain categories of food. This would be better than a direct subsidy, which would be contrary to our obligations in the Common Market.

If food prices are to rise the Government must be prepared to compensate low-income families and pensioners. It is not without significance that, apart from Western Germany where both wage levels and social security levels are far higher, in five out of the six old Common Market countries family allowances are two or three times what they are in this country. I believe that if we could immediately increase family allowances, if the pension award could be moved forward to the spring, if the Government introduced guaranteed minimum earnings, and if credit income tax could be extended to pay housing allowances on both rent and rates, there would be a real chance of acceptability.

I turn now to the subject of mortgages. I shall first touch upon it in a general sense and then, if the House will bear with me, briefly deal with it in a personal context. Generally, I welcome the announcement of the right hon. and learned Gentleman the Minister for Trade and Consumer Affairs, in a Written Answer at col. 118 of yesterday's HANSARD, that there will be a major re- view by this Government of consumer credit, and that provision for minimum statutory rebates will be introduced.

I would add to that a ceiling on the total interest charges which may be made. I say that despite newspaper reports which have indicated to the contrary—I shall say a word about that in a moment—in the slight connection which I have with this particular sphere of activity, for which, of course, I accept full responsibility. It has been the practice since last October—a practice which I should like to see all mortgage companies in this country follow—that full capitalised interest should not be charged on defaulters but should be calculated only on the actual time basis.

I happen to support the campaign, to which the Leader of the Opposition referred, which has figured in the Daily Mail, and I only wish that that campaign had been backed up with rather greater accuracy in the reporting of facts. One of the features of this House which I believe to be valuable is that we do not pass judgment on a colleague on the basis of one newspaper report. Nor, indeed, do we do so when the person concerned has undertaken to carry out an urgent and deep probe. For that I am grateful to the House, and, if I may say so, with one or two exceptions, I am grateful to the rest of the Press of this country for following the same tradition of fairness.

I think it not inappropriate to ask the House for a little time on this matter, considering that the famous case which sparked off the first newspaper article on Tuesday last week about 280 per cent. interest having been paid—if an accurate report of the matter is wanted, it can be found in the Lancashire Evening Telegraph of 15th January, when that newspaper took the trouble to ascertain the facts—was a case in which the settlement was by consent, and the interest charged was 11¾ per cent. not 280 per cent. Moreover, because of the adjournment which had taken place between October and the later hearing, the company in question, having changed the whole of its policy, felt it right that the man's costs should be paid in full, as, in fact, they were.

Likewise, when one reads of one case of a man waiting for foreclosure of properties, which may or may not be right. if it happens that the foreclosure to be brought about by a mortgage company which has a first mortgage but has no connection whatever with the firm which has been mentioned, one can only say that unreasonable suppositions are reached.

I could go through each of the cases, but I shall not weary the House. I merely say that I believe that there should be a ceiling on interest charges. I believe that whenever cases come up they should be fully answered—in so far as I have any responsibility they will be—and if any cases have slipped through the net and there has been an extortionate charge, there should be compensation and immediate repayment. I do not believe that there have been such cases, but if there are any they will certainly be attended to.

I am grateful to the House for listening to me for a few minutes. I give my personal undertaking that the matter will not only be resolved but will be resolved satisfactorily.

I do not approve of the penal powers which the Government propose. I would far rather see a clawback in the sense of a fine, using the fiscal system—so to speak, a counter-inflation levy, a tax levy on those who have either by a price agreement or by a pay settlement exceeded the norm.

The trouble with the Government's plan is that it bears all the marks of a panic measure. It does nothing about the money supply, or, at least, there is no indication of what is intended, and this is just as much a cause of inflation as wage or price increases. One assumes that the Government have not spent 2½ years thinking out this policy but they have thought it up in recent months to compensate for the failure of everything else which they tried or passionately believed in, from lame ducks to outright nationalisation, all of which they have found will not work.

We shall support the White Paper because we believe that it is an attempt to counter inflation, but we hope that when the Bill goes to Committee or comes again to the House on Report we shall make it fairer and, by making it fairer, give it a slightly better chance of general acceptance.

5.36 p.m.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

I can wholeheartedly agree with the right hon. Member for Devon, North (Mr. Thorpe) when he points out how ridiculous we make ourselves look when the party forming the Government adopts a policy and the other party attacks it, irrespective of the side of the House on which we sit or of what we believe in. I suffered from this difficulty myself quite recently, when I went to address a Conservative meeting in the country. The chairman read out my biographical notes, which said that I had been a member of the Standing Committee who fought the prices and incomes policy in nineteen-sixty something or other. I had to ask him quickly to leave that bit out.

Difficulties of this kind in which we put ourselves do not help the reputation of politicians as a whole, but I think that there may be more lessons here for Oppositions than there are even for Governments. I hope that right hon. and hon. Members opposite, who must be fundamentally and psychologically more in tune with these proposals than even my hon. Friends are will reconsider their spurious and rather bogus grounds for opposing a measure which would not have been anathema to them were they forming the Government.

Much has been said about fairness. The debate so far has centred, as did the speech of the right hon. Member for Devon, North, on the issue of fairness. I find it difficult to know what is fair as between the incomes, the wealth or the profits of one group, one company or one lot of people and another. I believe that if we go along the line of trying to take political decisions for ever about what is fair for one group or another, we shall find ourselves in interminable arguments which will not be resolved on logical grounds.

For my part, I would rather consider whether the policy will work. That, surely, is the first thing that we must be certain of before proceeding with it. I firmly believe that the cause of our recent inflation has been the large Gov- ernment deficits. Not just this year but in previous years, the deficits have been very high, and the only person who tried to reduce the Government deficit was the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins).

It may well be that there are many other factors which contribute to inflation. Certainly, I would expect the foreign exchange account, monetary policy and interest rate policy to play a major part, but, thanks to the action taken by the Government in both floating the £ and in raising interest rates, there can be litle doubt that it is the deficit which is playing the major part in our inflationary situation.

In my view, there are two possible strategic policies which the Government could adopt. The first is that they could actively seek to reduce the deficit with all the discomfort of higher taxes, lower Government expenditure and the social evils which might result and about which we hear so much—unemployment, stagnation and bankruptcy. It could also be that with a legalistic, psychological policy such as we have here, they could persuade people so to moderate their behaviour that they do not collide with the facts of economic life.

Alternatively, they could let the deficit continue, let the money supply rip and accept the resulting inflation as an inevitable consequence. What I believe will not work and can never work is to allow deficits on the present scale to continue and to try to contain them by psychological, legislative measures of this sort. It is rather like James Watt watching the kettle boil. He could either turn off the heat or let the kettle boil on. But to leave the heat on and try to solder on the lid is likely to cause an explosion. It is only by the Government adjusting their economic policy so that the heat they are putting into the economy is commensurate with the inflation they wish to see that they will avoid an explosion. For this we must await the Budget to see the Chancellor's decisions and the extent to which he tunes in his monetary policy with the psychological and legislative policy which we are now being asked to adopt. It is difficult to pass judgment upon the effectiveness of this passage until we have lived through 6th March and seen how the monetary policy will back up the statutory policy.

I believe that I speak for a number of my hon. Friends when I refer to the philosophy involved in this policy. Many commentators and many Labour Members have been wont to say that this is a crisis for capitalism, that it is the end of the market economy and that it will never appear again. If my diagnosis is correct and the cause of our inflation is excessive deficit financing, I do not regard their view as an obvious conclusion to draw from the facts as I see them.

It is clear that excessive deficit financing has led to inflation where perhaps drastic, perhaps unorthodox methods are necessary to bring it under control. But those methods should be seen only as a temporary phase whereby the underlying economic effects can be so adjusted that the straitjacket is not necessary. I do not believe that in the end supply, demand and market forces can be controlled by bureaucratic methods, boards, norms and codes. I do not believe these forces can be destroyed. They can be temporarily obstructed, distorted and regulated but in the end it is the forces of the market which destroy the bureaucratic controls, and in the end all economic controls, even in Communist economic systems, are overwhelmed by the forces of the market. If there are to be attempts to control the forces of the market there must be an ever increasing effort which in the end will result in ever more draconian measures.

That is why I believe that the policy before us, necessary or not, can be only a temporary one. Let us therefore use the period which it will grant not only to get the economic situation right but to deal with these inequalities and distortions in the market economy which have led to the present difficulties. It is fair to say that the pressure of monopoly trade union wage demands has caused the Government to print more money, to inflate more in order to avoid the social hardship of unemployment which would have been the result had it not done so. We must ask why the monopoly pressures have proved so irresistible that the Government have had to resort to excessive deficit financing.

I believe that the majority of my hon. Friends would like to see the supplementary benefits position changed for strikers. I believe they would like to see a change in the law of picketing, or at least a more active enforcement of the existing law. I should like to go further, believing as I do in the free market and believing that rewards should be won in our society by the position of and the effort, the care and the trouble that is taken by the individual.

A large measure of redistribution of income is taking place often from the weak to the strong, but it is not only to the speculator, the lawyer and the accountant. It is taking place between certain groups of workers—from hospital nurses to dockers, from the clerks to the coal miners and from the farmworkers to the computer programmers. These are movements in the process of reward which we shall try to interrupt only to our disadvantage and confusion. I believe it is probably better to accept them. It is also ultimately the way that the monopolies of labour will be destroyed. If any group of workers gets to a level of remuneration which is so high as to make the others jealous, as to incite envy, the remedy is in the hands of other workers to join that group and to increase the supply of labour. That is what happens at a very slow pace and it is probably the only way that the monopolies in the labour market can eventually be diluted and challenged. Some people may say that legislation could be passed as we have done with business monopolies so that the State could control the labour monopolies. That is a tenable point of view but I find it difficult to see how it could be done.

All this becomes easier if we accept the effects of the changes in the patterns of remuneration in our society. If instead of trying to restrict we were to allow the changes to take place by concentrating on stopping inflation through our economic policies, we might have more peace and less conflict and trouble with strikes. Therefore the Government must think about the long-term future and stage 3 for me will be acceptable if it brings us back nearer to controlling inflation through the proper use of the monetary system, if it brings us back to a state where the bargaining position of the various groups in industry and society is more equal and if it brings us back to a position where we are not fighting for ever against the forces of the market but are accepting them and allowing them to fight for us.

5.50 p.m.

Mr. John Mendelson (Penistone)

The contributions of the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) to economic debates—particularly since his experience in Government—have the merit of attempting to provide some philosophical basis for the policies he wishes to support. It is our task in a debate of this kind, particularly in the run-up to the debate on the Bill next week, to concentrate to a considerable extent on the basic economic policies that form the background to the Government's White Paper.

The Prime Minister spent only a small part of his time discussing these basic economic policies. The rest of the time he spent on propaganda. He is his own Minister of Propaganda. It makes it much more difficult to have a debate with him, however much he may want to give the impression that he is interested in this basic debate. I want to comment on some of the points made by the hon. Member for Cirencester and Tewkesbury before turning to the Prime Minister's speech.

Our discussion on the causes of inflation has been bedevilled for several years by the anxiety of hon. Members to find one root cause and to over-stress the importance of that cause. I see the right hon. Member for Wolverhampton. South-West (Mr. Powell) in his place. He often stresses the importance of money supply in our inflationary situation. Equally, the hon. Member for Cirencester and Tewkesbury gravely over-stresses the importance of wage increases. It would be much more true to argue that there is a combination of powerful forces at work and that it is the sum total of these forces which produces inflation which has been racing ahead in recent months.

An example of these factors is the unit cost of production. During the period before the Government decided upon this policy there was a lower increase in the unit cost of production in the Federal Republic of Germany than in this country. I will not bore the House with the figures because we ought to have a rest from those. No doubt we will get enough statistics in the wind-up. Broadly speaking, there has been a greater increase in the level of wages in the Federal Republic of Germany than there has been in this country in a comparable period leading to the introduction of this legislation. There has also been in the Federal Republic a much greater increase in the total volume of production and in the growth of the economy. The effect of these two factors taken together has been a rate of inflation slower than in this country.

Here is a factor which I offer to the hon. Gentleman as one of the causes about which we should be concerned. We have been suffering from the under-utilisation of our resources. I know that I will carry some hon. Members opposite with me when I say that. If there is a high level of unemployment, with many advance factories standing empty, and many machines not properly and fully used, the result is that the unit cost increases when it ought to decrease, and we have inflation. This is also a hindrance to the further development of our export trade but I leave that to one side for the moment.

The temptation in such a situation is to increase the money supply. Here I come to one of the basic factors in a capitalist system. The hon. Gentleman tried to reassure his hon. and right hon. Friends who share his basic philosophy that there was nothing wrong basically with the capitalist system. He is blind if he believes that. One of the essential requirements of a modern capitalist economy is the continuous need for a certain degree of inflation. This is one of the few points on which most of the economists of the last 30 years have been in agreement. Unless the entrepreneur can see that at the end of the production line there will be not a declining rate but a rising rate of profit, he will not invest his capital.

This brings us to the second key malady in the economy, which is lack of investment. What we do know is that the entrepreneur can send a contribution of £2,500 to his political party and think nothing of it. He thinks that he has done his ideological duty to the capitalist sys- tem. But when it comes to risking the share capital of his company that is a different story. I do not say that in any derisory way. The personal integrity of many entrepreneurs is high, hence their reluctance to risk the capital of their company on an economic policy which their party is trying to implement but in which they have no confidence.

That is the real reason for the astounding refusal by so many entrepreneurs in the last 2½ years to risk their capital in new investment. They did not accept at its face value the pronouncements of the Prime Minister when he was running for office about what he would do for the economy. They did accept, I fear they may still accept, the remedy which the hon. Gentleman proposes this afternoon for destroying the monopoly power of the labour unions as he describes it—by the creation of additional unemployment. With that sort of philosophy it is not surprising that entrepreneurs are not prepared to risk the capital of their companies in new investment. It is a deep crisis in the capitalist system and we have to deal with the symptoms of that crisis if we are to understand our position.

Mr. Ridley

I do not think that the hon. Gentleman will find that I said that that would create large-scale unemployment. I said almost the reverse, and I would be grateful if the hon. Gentleman would cease to traduce me.

Mr. Mendelson

Not at all. I will quote the hon. Member's words almost verbatim. He said that those powerful monopoly labour unions who think that they can get away with this and have their own way would find that within a market system the remedy finds itself. That is what he said and he can read it in HANSARD tomorrow. The meaning of those words can be only as I interpret them, although the hon. Gentleman may not like that. The hon. Gentleman had another remedy, equally bad. He said that he hoped that the Government would want to deal with the supplementary benefit position. That is his second remedy for destroying the position and power of the trade unions—starving the families of those who are on strike.

The hon. Gentleman must stand by his reactionary policies when they are held up to his face for at least ten minutes after he has propounded them. He may try to move away from them tomorrow afternoon but he ought to have the common decency to stick to them for at least a quarter of an hour. Those are policies for disaster, not for new growth. It has been the Government's peculiar dilemma that they are saddled with a number of supporters who have this reactionary early-19th century attitude to our economic problems.

The Government dare not even begin to explain their thinking for fear of being caught out by some of their supporters who would say that they were betraying basic doctrine. That makes it difficult to have a serious debate with the Prime Minister about his policies because he spends most of his time on propaganda.

There is not time to quote many examples and I am sure that I will carry you, Mr. Speaker, with me in that. The Prime Minister is his own propagandist and wastes a lot of time on propaganda. From the beginning of his speech he was trying to bring in the Trades Union Congress. I stopped counting after the 17th time he said, "All the parties concerned". If one had not listened too carefully by the time one reached the 16th occasion one might have thought that this White Paper which we are asked to accept is the joint document produced by Mr. Vic Feather, Mr. Campbell Adamson and the Prime Minister. That was the impression he was trying to create but nothing could be further from the truth.

The Prime Minister talks in this way a few days after the official decision of the TUC Committee to offer fierce opposition to these proposals, expressed in terms even stronger than those used by the Leader of the Opposition. The decision of that Committee was quasi-unanimous, only one member being opposed to the resolution.

The first point which we must accept is that the talks broke down. The Prime Minister tries to get away from that in all the speeches he makes on this subject. He tries to lay up treasure in Heaven for the future. We must not let him get away with it. The talks were unsuccessful because a number of basic requirements put forward time and again by the leaders of the TUC were turned down flat by the Prime Minister.

I repeat what I put to the right hon. Gentleman in an intervention in his speech today. At one of the crucial points in the negotiations—and all the details of the discussions should be laid on the table one day so that we can follow them—the TUC representatives said to the Prime Minister, "We request you to tell us that you will take effective measures to control the price of food in the period over which this agreement is to last". The Prime Minister replied categorically, "I cannot give you any such guarantee or assurance because, among other reasons, of certain factors which will operate in the middle of next year". He was speaking in the autumn of 1972 and therefore he meant the middle of 1973.

It is obvious what the Prime Minister had in mind, although he did not spell it out. He was looking forward to Britain's entry to the Common Market and the Government's deliberate policy to increase the price of food in order to bring it up to the level obtaining in the Common Market. He had very good reason for saying that he could not commit himself to taking any such effective measures. He would have been untrue to his policy if he had said anything else. But he must accept the responsibility. It is not good enough travelling all over Europe and going to auctions of the London art market and having himself applauded as the great leader into the Common Market. If he fails, he must accept responsibility for the consequences of his policy and come clean with the House. All the right hon. Gentleman's talk about food prices is propaganda and dishonest, and he might as well be told to his face, as we have done today, that the Government are deliberately responsible for the recent increase in food prices.

It is no wonder that the other day a businessman, when interviewed on this subject, and particularly on the price of beef, said, "We were told by two Conservative Ministers of Agriculture, one succeeding the other, that there would be an increase of only 2½ per cent. per year over a period of eight years as we were moving into the Common Market arrangement. The price of beef has gone up by 40 per cent. in 14 days, not in eight years". That is the discovery which this gentleman has made. If that is the inevitable consequence of our going into the Common Market, the Government must expect us to call them to account.

I am not surprised that the Prime Minister said firmly in his interview with Mr. Robin Day that he would not call a General Election this year. I wish that he would. But, of course, he will not do so. He does not want an election to be held on all these subjects which are clear to the eye of housewives and many other people.

I come to my final points. The first concerns the general verdict to which many people are already coming. We are not considering a long-term plan. This is a short-term decision by the Government to keep down the level of wages and salaries and to allow the prices of food and of other commodities and essentials to increase and to reach Common Market levels. The Government are to introduce legislation next Monday to put a straitjacket on the trade union movement for a period and to enforce their policy on the nation.

This is not a long-term doctrinal decision which heralds a new philosophy. I cannot understand how some people in the newspapers and even among my hon. Friends can talk about a Socialist set of instruments or something which might be useful and which could be used later. We are discussing a short-term measure to keep down the level of wages and salaries while prices are allowed to rise.

The unfairness of the Government's policy is seen by people throughout the country and they will react in the way open to them. We must not accept the doctrine that a Government who do not come with clean hands to this situation and who have, for more than two years, ever since it came to office, deliberately encouraged prices to increase, should be allowed to shield behind the majesty of the law and attack anybody who tries to take economic action to remedy the position to some extent. Many people will be hard hit by the increase in prices and the standstill and even by phase 2. They have a right to say, "Unjust law does not deprive us of our historic right to take action in our own interests". When they do, they will have my support and, I am sure, that of many of my hon. Friends.

6.6 p.m.

Mr. Wyn Roberts (Conway)

I urged the need for statutory control of prices and incomes in our debate on industrial relations on 3rd July last year. My main reason for doing so was basically political in the sense that there was a feeling in the country at that time that the Government's de-escalation policy had been put into reverse by its opponents and that a new initiative was needed. That has been confirmed by my right hon. Friend the Prime Minister today. The initiative which commended itself to me was statutory control because it did not seem that even if a voluntary agreement could be obtained all the parties to it could abide by it.

The Government's subsequent indefatigable efforts in the tripartite talks to secure a voluntary agreement have confirmed my view and amply justified the statutory standstill which has since been imposed. The country as a whole undoubtedly wants the rate of inflation to be reduced; it is dangerously high. Many gain in an inflationary situation, but others lose and suffer, and it is consideration for the losers which inspires the national call which I believe exists for a halt to inflation.

If the powerful economic groups which profit by inflation will not agree on measures of self-restraint, the Government must express the national will in law and seek all the necessary powers to implement that will. There is no doubt in my mind or in the public's mind that the Government's objective, namely, to lower the rate of inflation, is absolutely right and is in the interests of all. But some hon. Members opposite wish to preserve the present rate of wage inflation, and that means the present rate of overall inflation, including price inflation. I can well understand that, because some of those whom hon. Members opposite represent—and we represent similar people—have done well out of inflation.

Last year wage rates and earnings rose by 15 to 16 per cent. above the year before, while prices rose at only half that rate. I ask hon Gentlemen opposite how long they think that such a rate of progress can be maintained. Have they considered the consequences of such wage inflation on exports and the balance of payments which in turn would undoubtedly lead to deflation and unemployment on possibly a massive scale?

Mr. Laurie Pavitt (Willesden, West)

Is the hon. Gentleman saying that the only contribution to the increase in prices is an increase of wages? If so, how does he account for the phenomenal rate of growth in the prices of commodities such as houses and land, for example?

Mr. Roberts

No, I am certainly not saying that, but if one looks at the component parts of price rises one finds that increased wages are the biggest factor of all. The hon. Gentleman shakes his head, but if he looks at "Mechanics and Causes of Inflation" 1971 published by the TUC, or the Department of Employment's analysis of the period from 1951 to 1969, or at what the National Institute of Economic and Social Research has said on the point, he will find that what I say is true, that the biggest component in price rises is wage increases.

Mr. David Clark (Colne Valley)

If this is the case I wonder if the hon. Gentleman could explain why food prices have rocketed during the freeze on wages just prior to Christmas?

Mr. Roberts

Clearly, I am talking about prices as a whole; I am not talking about specific prices.

My point is that surely in these circumstances the wisest course for trade unionists is to consolidate the wage gains already achieved and to be content with lesser gains for the immediate future. In other words, I am appealing to the self-interest of trade unionists.

I would also appeal to their concern for others who have not profited as they have done. There is a growing awareness of the effects of inflation on those who get left behind in the wage race, and this growing concern is also present in the trade union movement. I attended a branch meeting of the Confederation of Health Service Employees in my constituency recently, and the major cause of concern of the members of that branch was the low level of pay of certain of their members, in particular, nursing assistants, who were drawing about £14 a week. I was impressed by the extent of their concern for their low-paid members.

In the Government's Bill there is an opportunity for trade unionists to prove the genuineness of their concern for the low paid, and I for one believe that they will. Logically, this concern should extend outside their own immediate union membership to pensioners and other State dependants, for there is no doubt that the biggest single component in price rises is wage increases. Hon Gentlemen opposite have seemed to doubt this, but, as I said, even the TUC agrees with it. Wage inflation means price inflation, or, in the words of the right hon. Gentleman the Leader of the Opposition, one man's wage increase is another man's price rise. Wage inflation is dictated by immediate self-interest, and what I am saying to trade unionists is that their real, long-term, best interest lies in restraint at this stage.

My argument to the business community is also based on their self-interest. They, too, are major promoters of inflation in that they raise prices to cover costs and to increase profits. It appears to me that the beneficial effects of the Government's proposals have been completely overlooked, judging by the recent behaviour of the Stock Exchange, which has dived as sharply as Wall Street did after the introduction of the American standstill in August 1971. The fact is that while profit margins may not be increased beyond the average of the two best years in the last five there is no limit on profit as such. Steadier and possibly lower prices could increase turnover and profit, and the Government's proposals should also stimulate productivity and investment.

We have not heard very much this afternoon about the American system. After all, the Americans have their price commission and their pay board and use the very same titles as we are using. Under the American system those companies which increase productivity do best. I hope our price commission system will not be different in this respect.

For those who have not already read it I would commend the article in last October's Fortune magazine by the Chairman of the American Price Commission as a statement of how the American price control system works, and in particular I would draw the attention of the House to Mr. Jackson Grayson's remarks on productivity, which he believes to be central to the inflation problem". He goes on to say that part of the fall-off in productivity in recent years has been due to the alienation of employees. I am sure that that is an opinion with which most of us here would concur. He says that future productivity gains will require a major redesign and enrichment of jobs. It is very interesting that the Americans should have reached this stage already, and that their Price Commission, in governing prices, has therefore embarked on an ambitious new project with the idea of showing how the alienation of employees can be overcome.

All this is very important indeed to us in this country as we face the prospect of modernisation and rationalisation of well-established industries such as the steel industry in the interests of greater productivity which, in turn, is vital in the battle to restrain inflation.

Faced with inflation one has three choices: first, there is what one might call the policy of "benign neglect", and that is certainly something we cannot afford with our present high rate of inflation: secondly, one can opt for controls, and these we are already imposing: and the third is to stimulate competition.

There is, obviously, a great deal more that can be done in this last sphere of promoting competition, as the Americans as well as ourselves are realising, but it is a long-term project to stimulate competition in this country, and it would certainly not now be as effective as the controls which we are about to impose in reducing the rate of price inflation.

I have listened carefully to the accusations of unfairness that have been levelled against the Bill. No one says that the objectives are unfair. It is the means that are under attack, and it is not so much what is in the Bill as what is left out that is attacked. What the Opposition are in fact saying is that the Bill does not go far enough. They want Government controlled price increases, VAT and rents, for example, and even prices which the Government do not control, for example, imported food prices, to be brought in. I believe the Government have acted on the good old journalistic adage, "When in doubt leave out," and many of the criticisms which have been made this afternoon could be covered later, in the light of experience. In talking about the third phase in America, President Nixon has laid far greater emphasis than in the past on what can be done to restrain the rise in food prices.

The imperfections of the Bill do not warrant the outright opposition that is accorded to it by hon. Gentlemen opposite, and I do not think that that outright opposition will be justified in the eyes of the country.

Many hon. Members blame the Government for the inflationary situation. There may be some truth in this, in that the Government's attempts to reduce unemployment and secure a higher rate of growth are indirectly conducive to inflation, but the fact remains that in this anti-inflationary battle, the Government are the public's best friend and, whatever may have happened in the past, the Government are now proving their determination to beat inflation. The public realise this and trust the Government to succeed.

Several Hon. Members rose——

Mr. Speaker

Order. There are about 160 minutes left. I know that there are at least 12 hon. Members anxious to speak whom I am anxious to call. The mathematics can be worked out.

6.22 p.m.

Mr. William Rodgers (Stockton-on-Tees)

A debate of this kind should be humbling to all of us because it shows how seldom any of us are right. No one here can claim accurately to have predicted the course of economic events in the last 10 years, and no one can produce a formula for the next 10 years. An Opposition can never judge what it may do in government, and a Government never know where circumstances may take them. We are all fallible, and it behoves us all for this reason to be cautious.

A simple explanation of recent events might be this. The Labour Government of 1964 put all their money on a prices and incomes policy and tried to preserve the parity of the £, and failed. The Tory Government of 1970 decided to let the £ float and to discard a prices and incomes policy, and they failed too. There is, of course, an important difference. Had the Labour Government devalued in October 1964 or July 1966, as I, amongst others, would have preferred, though I respect the views of those who saw it differently at the time, they would have faced massive abuse from the Opposition benches. There would have been no hint of bipartisanship but an intense effort to exploit Britain's crisis. But if the Tory Government in 1970 had declared the importance of working together with trade unions and management for an effective voluntary prices and incomes policy, the Opposition, even if sceptical, would have acquiesced.

I say that this debate should be humbling, but most of all it should be humbling to occupants of the Treasury Bench who showed such arrogant certainty only two years ago and when in opposition, as my right hon. Friend the Leader of the Opposition said this afternoon, had attitudes which were always hostile to steps which the Labour Government found it necessary to take. I am sorry about those two wasted years. They were a missed opportunity of tragic proportions.

I have not said, and I would not argue now, that at every stage Labour's prices and incomes policy worked to the desired degree, but from the beginning we set about the massive and inevitably long-term task of educating opinion to the relationship between prices, incomes and productivity and the relevance of both to jobs at home, competitiveness abroad and, therefore, to rising living standards. The present Government have turned their back on what was essentially an attempt to draw people into the solution of Britain's economic problems. They preferred the sword of unemployment to the dialogue of partnership. Now of course everything is changed, and the easy parallel is the middle period of Labour's policy.

On 16th December, 1964, in flashlight and to popping corks, the famous Statement of Intent was signed at Lancaster House. On 17th January, 1973, with equivalent fuss but much less joy, the Prime Minister unveiled his stage 2 package. But the distinction between the two is plain. One event was the result of a determined effort from the moment of winning the election to achieve a policy by consent. The other was a confession of failure, a unilateral edict instead of a tripartite declaration. I agree that the Government may now carry a frightened nation in support They should have led a confident nation in hope.

As my right hon. Friend the Leader of the Opposition said this afternoon, the overall signs are ominous. As we all know, the present reflation has got off to an extraordinarily bad start. We need not agree with the London and Cambridge Economic Bulletin which may be wrong. A current account deficit of £1,000 million can be very wide of the mark. But expansion has not been investment-led. On the contrary, the rapid growth of personal consumption has been matched by a huge growth in imports. The prospect is bleak.

In parenthesis, I nevertheless hope that the Chancellor of the Exchequer will stick to expansion. He will need tough nerves in the Budget Committee in which he will be spending an increasing proportion of his time. He will need courage—perhaps more than we are familiar with—in considering radical new solutions to the import/export syndrome. He does not deserve to succeed but, for the sake of the country and all our people. I hope that in expansion he will. Similarly, the Government do not deserve to succeed with their prices and incomes policy, but in so far as it is an essential element—although certainly not the only one—in our long-standing goal of growth with full employment, I hope that the Government get better than their deserts.

I do not like a statutory prices and incomes policy, although no Government can renounce one as an ultimate defence. The real question now is whether the Government can use the next year or so to produce a climate in which an effective voluntary policy again becomes a possibility. I understand entirely the reluctance of the TUC to play any part in stage 2 of the policy, given the whole conduct of the Government since June 1970, but I hope that it will seriously lend its vast experience to seeking a long-term voluntary policy.

In the end, it is not sufficient to be a critic of what even unpopular and incompetent Governments do. If inflation is a threat to democracy, democrats cannot abdicate all personal responsibility for moderating it. The terms may be tough and the bargain hard, but the alternative is either stagnation and relative decline or precisely the sort of policies we are debating today which win positive enthusiasm from no one on either side of the House or in the country.

What are the objectives, and how best can they be achieved? I was interested in the remarks of the hon. Member for Conway (Mr. Wyn Roberts) about the American experience. I hope that if they catch your eye, Mr. Speaker, my hon. Friends will find time to draw some further parallels. It is interesting to look back at the state of public opinion in the United States a year ago about phase 2 of President Nixon's stabilisation programme. In January 1972 a Gallup poll showed that 55 per cent. of the people interviewed were dissatisfied with the way in which the wage and price control programme was working and only 33 per cent. were satisfied. In March, however, the Harris survey showed that 47 per cent. of those questioned believed that incomes policies were doing more good than harm and only 28 per cent. believed that they were doing more harm than good. That difference cannot be explained by the passage of time. However, I do not think that such reactions are mutually inconsistent. Dissatisfaction with the direct personal consequences is not necessarily inconsistent with acknowledging success.

Nevertheless, in the long run of a voluntary policy, where there is no need to grin and bear it—or to take the medicine—there must be a much closer correlation between subjective personal experience and objective results. In other words, for a voluntary policy to succeed ordinary people must feel reasonably tolerant of the impact upon them.

That is precisely where the whole course of the Government, and in particular the rigid attitudes of the Prime Minister at virtually every stage, is singularly ill-suited to produce results. It is no good saying, as the hon. Member for Conway said and as I confess I have said from time to time, that the growth of incomes has outstripped the growth of prices and that the consumer boom is evidence of a new prosperity. In the short run it is not the relativity of wage and price increases as measured objectively that matters, but the absolute increases in prices.

There are obvious explanations which all of us know from our personal or constituency experience—for example, the husband who earns the money and his wife who pays many of the bills. If the housekeeping money lags behind, it is a source of anxiety to the wife and an irritation to the husband when he is nagged into paying it over. However, I do not want to indulge in unreasonable amateur social psychology. I ask only that when the hard men at the Treasury do their sums, and when the Department of Trade and Industry recoils in horror from any controls over the businesses with which they normally live in happy partnership, they will recognise that irrational behaviour in all of us is a fact of life.

That is why to act effectively on prices is disproportionately important. Of course, the whole policy is one of rough justice, but the justice must be rougher in dealing with prices than on the wages side. I say that out of no ill will. I do not despise the genuine problems of industry or believe that most firms, or any of them, will wish to buck the policy. I can see the relevance of profits to investment and, very often of investment to jobs. I am not seeking to hasten—I hope that my hon. Friends will hear out this sentence—the collapse of capitalism in the catastrophic sense. But success on prices is most critical to the policy and failure can be its undoing.

Traditionally, the United States Government and its agencies have been much tougher in administering federal regulations than successive Governments in the United Kingdom. I have in mind, simply because they are within my experience, aviation and shipping. Of course the range is a great deal wider. But once regulations are made they are rigidly enforced. By contrast, we live by good will, the benefit of the doubt and the period of grace. I hope that that will not be the case with price regulations.

The auguries are not hopeful. I recall my own experience as a junior Minister at the Department of Economic Affairs in dealing with the Board of Trade, in 1966, and in an ordinary constituency capacity in the last couple of months. I am only too familiar with the yellow slips of rather inferior paper used that answer a complaint. Perhaps I may be permitted this typical reconstruction: Dear Sir, We have looked into the complaint you made about an increase in the prices charged by the Swan Laundry for collar-attached shirts. They tell us that there was an error in their previous price lists which led to some customers being undercharged. They have now corrected this and apologise. In view of this explanation, the increase cannot be regarded as an increase within the terms of the legislation. Thank you for writing. That is a reconstruction, but I ask the House to believe that it is typical of similar yellow slips of paper sent out under the last Labour Government and which are being sent out now. Of course, many complaints are unjustified. Human error occurs. Of course, many firms honourably fulfil their obligations. But too great a willingness to accept explanations at their face value and a lack of either sophistication or a sceptical cutting edge brings the policy into contempt.

Clearly the Government had drawn substantially on United States experience, not only in deciding the policy but in determining the machinery. Perhaps it was thought that what Mr. Nixon can do, the Prime Minister can also do and that that approach would be attractive to Government back-bench Members. But the Government must follow through, administer their policy and enforce the regulations with equal determination. The Chairman of the Price Commission, Mr. Grayson, was prepared to challenge the Agricultural Minister, Mr. Butz, over meat prices. When the larger companies began to file their quarterly reports, half of them were sent back by the commission as incomplete or inaccurate. Compulsory price reductions and fines were threatened when 1,000 firms failed to file their reports.

I am not saying that the Price Commission escaped justified criticism, but at least it was tough. I have little faith in toughness in this area under the present Government, yet toughness on prices is a precondition of success. I also hope that there will be great toughness in dealing with executive salaries, and particularly fringe benefits, where there is room or evasion. If a senior company executive now drives a Rover 2000 and he finds that his new car in 1973 is a Rover V8 3½-litre, that must surely be an infringement of the policy. I do not say that out of meanness. I am not judging the rightness of executive rewards. But justice on wages must extend to the prerogatives of management if the less-privileged are to be expected to acquiesce in the policy.

The easiest part of a prices and incomes policy is the period of freeze. The Labour Government achieved a high degree of success in the five months from July 1966. I believed then and I believe now that the period could have lasted much longer. The second stage is very much more difficult because half the Government's energies should be devoted to preparing to move as soon as possible to a voluntary basis. I wish I could believe that there was adequate provision in the new machinery for help in that direction. I hope we shall hear tonight from the Chancellor of the Exchequer, and perhaps next Monday from Treasury spokesmen, that there is preparation to move forward in a thoughtful way to the evolution of a voluntary policy. It is difficult enough constituting the board and the commission with the quality of staff who served in the PIB and who were so unnecessarily dispersed two years ago. It may be impossible to develop the expertise which will enable the agencies to have a continuing influence, not always liked but generally respected, on the whole structure of pay and prices over the years. On the face of it, the long-term future may again he sacrificed to short-term exingencies.

For many years the Labour Party talked about a wages policy, but not in the sense in which the Labour Government implemented it and, least of all, in the terms of the present policy. We had in mind a wages system which involved socially justified differentials. In a very halting way, with many errors, the PIB was moving in that direction. I hope now that the Government, although I can hardly believe it, will seek to introduce in an objective manner a socially just wages policy with which to fight inflation.

6.40 p.m.

Mr. Peter Tapsell (Horncastle)

It seems to be my agreeable fate in economic debates almost invariably to be called upon immediately to follow the hon. Member for Stockton-on-Tees (Mr. William Rodgers). This has one disadvantage for both of us in that, in his serious economic passages, I find myself usually so much in agreement with him that I feel it must be as damaging to him in his party as it certainly is to me in mine. I therefore will not comment further on his speech but will turn rather to say how wrong I think the Leader of the Opposition was in condemning the standstill and saying that it had been a failure.

It seems to me that the standstill announced on 6th November has been a very considerable success on three counts. First3, undoubtedly the rate of inflation has been slowed down by it; secondly, there has been no major confrontation—as was feared in some quarters—with any of the major unions thirdly and perhaps most important of all, there has been a major psychological change of mood in the country which augurs well for the future. I fully supported the standstill when it was announced, and. indeed, had been advocating it for two years before it was announced, and I support with enthusiasm phase 2 as outlined in the White Paper.

Inflation is highly unpopular, but I doubt whether, even now the public fully appreciates the true dimensions of the inflationary crisis which had been building up in the country since the autumn of 1969, or the strength of the head of steam behind it. When one takes into account the cumulative effect of the rise in world food prices, plus the effect of the common agricultural policy, the 18 per cent. annual rate of wage awards which was being achieved last year, the uncontrolled explosion of the money supply in the first half of last year, the pressing need for a realistic pricing policy in the nationalised industries, and the effect of the devaluation resulting from the floating of the pound last year, it is clear that if the Government had not acted as they did in November the country would have been faced with a ruinously inflationary situation in 1973 which would not merely have caused great hardship at home but would. I believe, have brought the whole fabric of our society and constitution into question.

Therefore, the Government did what they had to do. If they had done any- thing else, they would have been shirking their responsibilities, and I believe that the Opposition in their hearts know that to be true. They know, too, that they share responsibility for the situation we are in, and I feel that they would be doing themselves far more long-term good in the country if they were honestly to accept that, and support these measures.

Nor do I agree with those—who may include some of my hon. Friends—who see the White Paper as the obituary notice of the capitalist system. Far from destroying capitalism and free enterprise, I believe that these policies are essential, in the present situation, to protect the system and ensure its continuance.

Mr. Neil Kinnock (Bedwellty)

It certainly is.

Mr. Tapsell

Perhaps that is one of the reasons why the Opposition are not so enthusiastic about these measures which are so essential.

Once inflation has been brought under control, I am as enthusiastic as anyone to move back towards a free market economy, at the earliest possible opportunity, but I do not believe that any Government of any party will ever again seriously attempt to govern this country without a formalised prices and incomes policy. So, if we have achieved anything in the last few months, I hope that we have made headway there. Ministers are to be congratulated on their courage and skill in formulating these proposals.

When a Government have done something which one very much wanted them to do it appears ungenerous and even carping if one says anything in criticism of them, and I am, as I have said, a strong supporter of the Government's policies. But I want to offer some suggestions to the Government about interest rates.

It does not seem to me that interest rates, during the standstill, have really moved in a way consistent with the rest of the Government's policies, and I hope that we can ensure during phase 2 and phase 3 that they work with the rest of our policies and not against them. In this context, I feel that the Bank of England's Green Paper on competition and credit control, published in September 1971, needs to be critically re-examined.

The recent sharp rise in interest rates has been inflationary and therefore inconsistent with the rest of the Government's economic policies. While I would not go so far as to say that the Green Paper should be sent to the same wastepaper basket as that speech about "lame ducks" in industry, it seems to me to be an anachronistic hangover from those heady days and one of the few bits of unnecessary baggage accumulated in that period which has not yet been abandoned. Certainly the Green Paper has increasingly few friends in commercial banking circles, or in the City generally. I understand that even in the Bank of England many voices are being raised privately in criticism of it.

Its first and most obvious effect, in practice, has been to do grave damage to the jobbing system on the London Stock Exchange and thus to Government credit, as expressed through the gilt-edged market both at home and abroad, and the Government are going to need all the credit they can get in the months ahead. I cannot believe that a policy that is wrecking the jobbing system is going to do us much good.

Nor do I believe that rising interest rates have made any significant contribution to the tightening of the money supply, which is the argument used in defence of them. While Government expenditure bounds ahead and vast sums are paid out in subsidies to nationalised industries, a rise of a point or two in the general rate of interest reminds one of the brave Dutch boy who put his finger in the dyke.

This is all the more true because interest payments have been made fully allowable against tax. At a time when we are trying to restrict the supply of money I do not see why millionaires and high surtax payers should be allowed to borrow at much lower effective rates of interest than ordinary people. It is not fair; nor does it lead to increased efficiency. Of course money borrowed for desirable social purposes, such as house purchase or orthodox business purposes, should continue to be allowed as it has been under all Governments, but I hope that my right hon. Friend the Chancellor of the Exchequer will take steps to limit the excessively wide scope of this concession in his next budget.

The retreat from the present tax approach to interest, and from the competition section of the Bank of England's Green Paper, began with the recent Bank of England instruction to banks to withhold credit from property speculators. I hope that this new development is a sign of a change of mind by the Bank of England and the Treasury on the way that these things should be handled. The retreat from the Green Paper will become a positive rout overnight if the present high rates of interest begin to make themselves felt in the field of house mortgage rates. Let us avoid that situation in advance by placing rather more emphasis on credit control than has been apparent since the Green Paper's doctrines were brought into operation.

Everyone agrees that what makes this freeze unique is that it is operating in a period of industrial expansion, and I agree with those who have expressed the hope that this expansion can be maintained. But it is hardly the best way to encourage the industrial investment on which the expansion must depend to tell the treasurers of major companies that if they want to issue an industrial debenture to raise money for investment it will have to carry a two-figure coupon. Since most treasurers in the country believes that interest rates are going to be lower six months from now—and perhaps three months from now—than they are at the moment, on one who values his professional reputation will advise his board to raise money now, so the present rates of interest operate directly against the most vital element in the Government's policy, because unless we can maintain expansion and increase investment the whole policy will fail.

The other threat to continuing expansion obviously comes from the danger of a serious deterioration in the balance of payments. Like the hon. Member for Stockton-on-Tees, I do not take quite as gloomy a view of the prospect as is contained in the recent London and Cambridge Bulletin, although there is no doubt that there will be a deterioration, and a fairly sharp one, and one has to hope that the substantial reserves that we have built up and the fact that we have paid off all our foreign debt will enable us to ride that storm. But it will be touch and go whether we do so.

In that context, I hope that the Treasury and the Bank of England will give consideration to two suggestions, bath of which are hardy annuals which, no doubt, have been considered by the Treasury and the Bank of England many times over the years—I know that they have been—but which seem to have more relevance now that we are moving out of a reserve currency situation.

The first thing I should like them seriously to reconsider is whether to introduce a two-tier interest rate structure. Clearly, what we need at home at present are relatively low rates of interest, but for foreign depositors we clearly need to offer a fairly high rate of interest. As in the 1961 crisis, it would be convenient if we were in a position to do that. The argument in the past was that we could not separate the rates because ours was a reserve currency. Now that it is not, and now that the sterling area is virtually a thing of the past, I hope that that proposal will be reconsidered. Secondly, we should look at the possibility of a two-tier exchange rate structure which would separate our capital and current accounts.

If both proposals were introduced now, the operation of re-pegging the pound would be made a great deal less difficult than it is otherwise likely to be. I have just returned from a fairly extensive overseas tour, during the recess, when I met four Finance Ministers in different countries. There is a widespread belief abroad that any attempt to peg the pound in April would almost immediately precipitate another run on sterling. These two proposals would help to make a re-pegging at a realistic and defensible rate, a much easier operation.

The comments that I have just made have been of a relatively minor and almost technical kind when set against the great breakthrough which I believe to have been made by the Government in their recent measures, both practically and psychologically, in the battle against inflation which is by far the most important task facing us. For the first time since the autumn of 1969, one can feel that resolute action is being taken to arrest a national drift towards disaster which had become all too apparent.

6.53 p.m.

Mr. Eric S. Heffer (Liverpool, Walton)

One of the most interesting and fascinating aspects of the debate has been the clear difference of opinion among hon. Members on the Government side, between those accepting the old concepts of laissez faire and uncontrolled capitalism and those who accept that if British capitalism is to be maintained there will have to be a certain measure of control; they are concerned primarily with wage control, although the argument has introduced some control of profits and dividends.

Basically, what the White Paper does is once again to raise the whole subject of the deep crisis of the British capitalist system. This is not a new crisis. Successive Governments since the war—Labour, Conservative, Labour and Conservative—have sought ways and means of solving this crisis on the basis of legislation to control wages, profits, dividends and so on. One can observe the historical development, beginning with the arguments of the late Sir Stafford Cripps and going through the arguments of Mr. Speaker when Chancellor of the Exchequer and their development by my right hon. Friends during the period of the Labour Government. The present Government are now reversing virtually the whole of their policy and again discussing the need to control wages and some elements of profits and dividends.

We have to solve this crisis in our society and I agree that we can do so only on the basis of interventionist policies. What matters is what sort of interventionist policies we are talking about. One answer is that greater profitability with greater investment must be based on wage control. That is what we are really talking about and that is what both Labour and Conservative Chancellors of the Exchequer have argued—wage control. Without profitability and without the incentive for profits, the capitalist system has no raison d'être, because there is no incentive to make the profits to reinvest.

I take the logical view: if we are to have interventionist policies, they must be Socialist interventionist policies. That means planning the economy on the basis of a Socialist plan, with the extension of public ownership and with the control of the economy in those directions. Only then can we seriously begin to discuss with the trade union movement any type of planned growth of wages. Without that we are talking not about a planned growth in wages, but about keeping wages down, about wage control. I make it clear that I am not against interventionist policies, but it depends on what those policies are and what the objective is.

It is interesting to note that over the years stage by stage the country has been moving increasingly, in theory and in practice, towards the concept of a corporate State. One may have the trimmings of democracy with the existence of this Parliament and issues may be debated here, but in the last analysis issues are being determined outside Parliament on the basis of the corporate State.

As hon Members will remember, I was critical of the type of statutory prices and incomes policy introduced by the Labour Government, but at that time Labour Ministers answered for every order and for every query and they were attacked and criticised, and the orders were subjected to debate and votes. That is not the proposal of the present White Paper. The two proposed agencies are very much agencies to determine.

Paragraph 6 of the White Paper says: It will then be applied by the agencies. Ministers will ensure that the agencies receive from firms and employers the necessary information about price and pay increases to enable them to apply the Price and Pay Code to particular cases". Their decision will be binding in law. If this measure goes through, the House will not be able to discuss the issues and decisions involved. Once the code is accepted, we shall find that the agencies will be the instruments of the law.

This is a step towards the corporate concept and it is one of the greatest arguments against the White Paper. Are those who are prepared to accept such a policy prepared to overthrow the idea of parliamentary control, which is what will happen when the White Paper comes into effect?

Once again we face the situation that if trade unionists take strike action or other industrial action, or if they even threaten to do so, they can be fined and, if they refuse to pay the fine, they can be imprisoned. This will remove workers' rights to strike for higher wages and conditions if they feel that they deserve more than the Government determine they shall have. If the Government expect workers on the shop floor, in shipyards and in the mines to accept such a concept, this will fly in the face of all historical experience.

This is not the first Government to bring in measures to prevent workers going on strike. It is not the first Government who have threatened the workers and been prepared to take action against them. There was legislation in the First World War which made strikes illegal. The very day after that legislation was passed the whole of the South Wales miners were on strike. Many of us remember the experience in the Second World War in the Betteshanger colliery when the employers had to visit imprisoned workers in an effort to get them to return to work. If the Government believe that workers will accept this type of repressive legislation to inhibit the right to strike, they do not understand the British working class. The workers will not accept it.

Mr. Joseph Ashton (Bassetlaw)

Does my hon. Friend agree that there is an unfair bias against wage increases which does not operate against price increases? Does he not agree that different treatment will be given by the board to the two forms of increase?

Mr. Heffer

I agree that the proposal is biassed against trade unionists. There will not be the rigid control of prices which there should be if we are to have any sort of fairness of treatment. The Prime Minister constantly talks about fairness. Indeed, every piece of legislation brought in by the Government to clobber the workers has been introduced with much use of the word "fair". The Industrial Relations Act was said to be fair to the trade unionist. It is strange that the trade union movement did not recognise its fairness. Furthermore, the Housing Finance Act was said to be fair to council house tenants. Was that why council house tenants were all up in arms against that measure and why some of the council representatives were prepared to make a stand by refusing to accept its provisions?

There is no doubt that this type of repressive legislation—legislation which we are now getting used to from a Conservative Government—will be resisted. I am not seeking to lead a great campaign to resist it, but I am trying to draw attention to what will happen when these measures are introduced. [Interruption.] I certainly say to hon. Members on the Government side that if workers seek to resist this type of class legislation, I shall support them in their resistance. I shall urge them to get rid of the Government at the earliest possible moment so that some sanity may be brought back to industrial relations.

The only real answer if we are to solve the problem of inflation, bring down the unemployment rate and end the present crisis is to have Socialist answers, based on Government intervention in a Socialist way with a planned economy.

7.5 p.m.

Mr. Timothy Raison (Aylesbury)

The hon. Member for Liverpool, Walton (Mr. Heller) spoke, as he always does, as a Socialist, and the latter part of his speech was couched in his usual extravagant terms. I suppose I speak as a democratic capitalist, but I at least share the hon. Gentleman's concern that these matters must be debated in and determined by Parliament. It is right that part of this discussion should take place here. I would remind the hon. Gentleman of a recent statement made by his right hon. Friend the Leader of the Opposition which seemed to be advocating the corporate concept perhaps more vehemently than anybody else has done. The right hon. Gentleman said that Government, industry and the unions should meet, should decide how much there was in the kitty and should then declare a national dividend. I have not the quotation with me, but the hon. Member for Walton is quite right to reject such a policy.

Mr. Joel Barnett (Heywood and Royton)

Will the hon. Gentleman describe the difference between what he is accusing my right hon. Friend the Leader of the Opposition of having said, without quoting the actual words, and what the Prime Minister was trying to achieve in what he described as a social contract in his discussions with the TUC?

Mr. Raison

The hon. Gentleman missed the point about what happened last autumn. One of the things made plain by my right hon. Friend the Prime Minister at the end of the Downing Street talks was that he was not prepared to trade away those things which are Parliament's. It may be thought that this was why the talks broke down, but certainly the Prime Minister was firm on that point and I have no doubt that he will continue to be firm.

My approach leans towards economic liberalism, though not towards the Liberalism of the Leader of the Liberal Party, which bears no relation to the Liberalism we used to know. This approach envisages the market being allowed to operate effectively.

In the Second Reading debate on phase 1 of the counter-inflation proposals, I argued the case for a return to a voluntary basis as soon as possible. I argued on a mixture of theoretical and practical grounds and I shall not repeat those arguments in this debate. The first point I made was that any kind of control of this sort inhibits dynamism. My second argument was that a compulsory policy cannot be guaranteed to deal with militancy or to redress the balance between management and labour. My third point was that even with a compulsory policy steps would still be needed to moderate money supply and perhaps to think about the nature of unemployment. These things still seem to me to be true. The essence of my remarks today will be to express the hope that the Bill will not entail a long-term commitment.

I believe that a detailed intervention in collective bargaining and in reasonable commercial freedom can do this country in the long term nothing but damage. But I recognise that during the latter part of last year we were subjected to a rate of wage increases of 15 per cent. to 17 per cent. and there can be no dispute that the situation had to be tackled with great urgency.

A difficult choice faced the Government. I do not agree with those who say that there was no choice. I believe that there was an alternative approach, but at least it can be said that the Government have made up their mind and have gone out wholeheartedly to achieve their objective. Given the principles on which the system in the Bill and in the White Paper is to operate, it will be, broadly speaking, a skilful and—if I may use the word, following the comments made about it by the hon. Member for Walton—fair approach. What matters primarily is that the policy should be made to work. It is also important so far as possible to avoid some of the snags, difficulties and drawbacks which seem to be inherent in this type of approach.

I want to talk briefly about one or two difficulties which face business when it comes to apply this policy. It will mean that a management can no longer control its prices, profits or salaries and will be greatly handicapped in its commercial strategies. Such a situation is tolerable for perhaps a short period of time, but it looks as though the legislation will not operate for only a short time. It will run for three years, with the possibility of extensions. Therefore, it is right to draw attention to the difficulties which will face industry. Such a policy may have its effects on innovation and growth in industry. The Government's policy is to go for growth and it is quite right that this should be the aim. However, growth is not ordained by Governments. Growth is won or not won by industry, and industry must know where it stands.

Paragraph 11 of the White Paper says that net profit margins as a percentage of sales will not be allowed to exceed the average level in the best two of the previous five years". This is an important part of the proposals, but we need to explore more fully what it means and to see what are its implications.

What, for example, is meant in that paragraph by the word "sales"? Does it mean the overall sales of a company or group of companies, or does it simply mean sales of one particular product? I have a business connection with a magazine publishing firm. What will "sales" in that context mean? Will it mean the totality of our magazine output or one particular magazine? This is the sort of problem which will face every company which at present produces a multiplicity of products. Therefore, we must know exactly where we stand. If we do not have this information, businesses will not be in a position to plan what they are to do.

Perhaps even more important is the effect of this policy on new products or new companies. What will happen to a brand-new product which in the early years may have only a low profitability but which in the next year or two is expected to improve its position? The freeze will bite firmly on such a product. If the activities of that kind of company are to be damped down, this will only do grave damage to the confidence of people in creating new companies in future. This is happening at a time when we so often hear demands for new investment and when any limitation in that respect will be dangerous.

Another matter which was raised by an hon. Member opposite when my right hon. Friend the Prime Minister was speaking concerned the difficult question of what is meant by the group within which the extra 4 per cent. is to be allocated. I accept that my right hon. Friend was clear in the broad sense in saying that the group is the normal negotiating group in an industry. But it is not quite as easy as that. Often the normal negotiating group in an industry fluctuates. Sometimes it takes in more than one union. At other times it is confined to one union. If it is decided to take the totality of an industry and treat that as a group, a difficult position may arise where one union argues against another or where both unions argue against the management. This will make the job of management much harder. If the view is taken that the negotiating group is simply one union, the other objective of the Government of trying to make sure that the bias is towards the low paid becomes difficult. If one union is taken, income levels within that union will probably approximate to each other and in that way the notion of redistribution will not be able to take effect.

Another matter which worries me is the clause about productivity. Productivity bargaining went from being something which was good sense in its early days to something which became a pretty good racket. One does not decry productivity bargaining. But it was greatly abused. However, do not we go too far to discourage productivity? Paragraph 10 makes it clear that there will be no benefit from productivity improvement. Again it may be that that is supportable in the short term. But if the Bill gives powers beyond the very short term this is one factor which we must look at again.

Individually, these points may seem relatively minor ones. But I am sure that they are not to those who are in industry and have to make the policy work. They affect investment and are the everyday actualities behind phrases like "the market economy". I hope that my right hon. Friend can give the House an assurance that these details will be looked at and ironed out. I also hope that when the code comes it will be possible to have it fully debated. I should like to see it in draft form so that the Government can consider the comments of this House about the code and incorporate changes as they seem to be desirable.

I accept this Bill as being a cruel necessity. By itself, I do not believe that it will solve all our problems. We shall still need to stamp down on intimidation, to scrutinise public spending and to deal with the problem of food costs possibly by increasing family allowances. I do not believe that we are at a stage where we can say that we shall all live happily ever after once the Bill is passed. But the Government have had the courage to plump for a firm policy, and it is now the job of Parliament to ensure that the policy is as effective as possible.

7.20 p.m.

Mr. A. E. P. Duffy (Sheffield, Attercliffe)

I hope that the hon. Member for Aylesbury (Mr. Raison) will forgive me if I do not take up any of the matters raised in his speech since I am more disposed to agree with my hon. Friend the Member for Stockton-on-Tees (Mr. William Rodgers) that the Government's phase 2 pay and prices measures are closely modelled on President Nixon's New Economic Policy of 1971, which in turn drew heavily on the last Labour Government's wage and price policy of 1966 onwards both in content and in mechanism.

It is interesting to recall that President Nixon's New Economic Policy began with a brief wage and price freeze but moved on in what, interestingly enough, became known as phase 2 to a pay-increase ceiling with exceptions for low-paid workers, for those whose pay had fallen behind the general movement before the freeze, and for certain other deserving groups. This discriminatory policy was combined with a selective form of price control. Even the Pay Board and the Prices Commission follow very much the form laid down in Labour's White Paper on the machinery for the prices and incomes policy.

So far, President Nixon's incomes policy can be said to have enjoyed a perceptible degree of success. Consumer prices are still rising but certainly at a lower rate than before the controls were put on in the United States and at a much slower rate than in the major European countries.

The American Pay Board has claimed that the average wage and salary increases approved under phase 2 have been well within the specified ceiling. Public opinion polls have shown on the whole a modestly continuing public acceptance of the need for controls. Even the experts, including economists, who were originally hostile, have swung round in favour.

Does this mean that the Prime Minister can be sanguine of success? Before we can answer that question we need to know why President Nixon's policy has worked so far. In the first place, Washington learned a lot from London's experience. The original wage and price freeze was kept to three months against the British year of freeze and severe restraint. In the second place the wage "standard" for phase 2 was less strict than Labour's "pay ceilings". In the third place exceptions to the ceiling were apparently sufficient to give room for the Pay Board to deal with special cases without their becoming major loopholes. In the fourth place the criteria for price controls were more precise than Labour's. Finally the administration of the policy has been largely independent of the Government. The Pay Board and the Prices Commission are operating separately.

Doubtless there are other factors that make the operation of an incomes policy easier in the United States. However, the Americans have also had to contend with a devaluation of the dollar as well as with certain policy changes which had the effect of pushing up prices. Thus the Nixon achievement should not be under-estimated. What is more, if rising prices and increased taxation deprived British workers of any possible benefit from Labour's prices and incomes policy, quite the reverse has happened in the United States. Not merely have wages been kept well ahead of prices but workers have gained still more from tax deductions.

President Nixon has been at pains to avoid any appearance of an attack on the trade unions and has not yielded to the pressure of traditional supporters like the American Chamber of Commerce which have pressed him for tougher legal controls of the unions. Nor did those same unions demonstrate any deep-felt grievance against the Administration at the polls last November. On the contrary, it was the first election since the 1930s at which the major unions did not support the Democratic candidate.

Above all, the record of phases 1 and 2 in the United States demonstrates two further factors. The first is that the issue is no longer whether Governments should have a prices and incomes policy. With the exception of Germany, every major country in the West has either flirted with the idea of such a policy or has actively employed one since the war. The question now is the kind of policy that democratic Governments should pursue in terms of content and machinery and whether it is to be voluntary or statutory. Personally I am opposed to a statutory policy.

The second factor is that in a democratic society such a policy—even a statutory policy—can be effective only if it commands an implicit consensus. Certainly that is true of a voluntary policy. This means that it cannot be isolated from other aspects of Government policy which affect popular living standards or major group interests. President Nixon appreciated this clearly. The price policy and the taxation policy have been used to make wage moderation acceptable, and the official industrial relations policy has deliberately avoided confrontations which might prejudice co-operation on wages. These are important points of difference between recent American practice and present British intention. They do not augur well for the success of the British Government.

These were the rocks on which Labour's incomes policy founded. Apparently they are also the major points which the Prime Minister refused to regard as being within the scope of his pre-freeze bargaining with the TUC. To exclude the consequences of major Government policies, the Budget and the Industrial Relations Act from negotiation was implicitly to reserve a right to offset the effect of any agreement with the unions by economic, legal or fiscal action. That is precisely what the Prime Minister has done. He has hampered and prejudiced unnecessarily the successful development of his policies at the outset. He made a statutory policy inevitable.

Dutch experience also shows that statutory wage and price control works only if the factors are balanced carefully. If the brakes are released too quickly after a price freeze or if careful preparation and control are not imposed when VAT is introduced, the machinery will overheat and irreparable damage may be done.

British post-war experience tells us that the machinery for curbing prices simply does not exist. Wages are easier to curb. Employers do the policing and then inform the Government. But how many department stores or high street shopkeepers will tell the Government about a price increase, whether they suffer it or initiate it? What is needed for the consumer is a new Department with the authority of the old Ministry of Food. Of course such a move would fly in the face of the Prime Minister's political philosophy. But so have all his recent policy reversals.

All the recent literature published in Britain on Labour's experience of incomes policy-making—and there has been quite a spate of books published in the last few months—demonstrates that such a policy, no matter how well conceived and presented, will succeed only if it has trade union co-operation. This in turn will be forthcoming only if the policy is seen to be fair and thus accompanied by other radical measures on pensions, housing, education, incomes and wealth taxation. In short, trade unionists will not support a policy which effectively freezes existing inequalities.

A week ago tonight, immediately after the Lancaster House statement, I spoke on this subject to my local management committee. The audience was composed largely of trade unionists and their wives. It included young, active, vigorous trade unionists, some of them shop stewards. I undertook to tell the House that I had been left in no doubt both by their temper and by their statement that they would not accept any policy which effectively froze existing inequalities. This may appear to my hon. Friend—for this I readily forgive them—to be nothing more than common sense. Of course it is. But it needs repeating again and again until it gets through not merely to the Prime Minister but also to his right hon. and hon. Friends.

7.30 p.m.

Mr. David Mitchell (Basingstoke)

I am reminded of the Irishman in the bog asking the way to Belfast and being told, "If I were you, I would not start from here". In the present situation, there muse be many "hear, hears" to that particular comment.

We are in a situation of immense potential danger. It is true that inflation helps the property speculator and militant trade unionist, but it certainly robs the rest of the community, particularly those on fixed incomes and the lower paid. Therefore, the Government have no alternative to the sort of action they have taken in the measures now proposed. I do not pretend for a moment that I like what we are doing. I do not believe that it is a cure. With great respect to my hon. Friends, it is a dose of morphia covering up the symptoms. It will be popular and soothing to the patient, but dangerous to the extent that it weakens our ability to tackle the real causes of the problem.

I should like briefly to look at the real causes, so far as they are within our control—as there is that element of imported inflation which simply reflects the fact that the cost of raw materials and food has been rising in the world market place and is therefore unavoidably reflected in the prices in our shops.

There seem to be two causes of inflation which are within our control: the excessive wage claims submitted by a militant minority of trade unionists, and the Government's policies designed to create jobs and to bring down the level of unemployment. I want to look at each of these in turn. First, on the question of excessive wage claims, it is generally accepted that in 1970 we saw a massive explosion in the level of wage claims following the sweeping away of the previous Government's controls over prices and incomes. Then the Conservative Government tackled that by a policy of what was known as "X minus one", of trying to de-escalate the level of wage claims—and it worked that is an important factor that we should not forget. The level of wage settlements came down. The increase in the cost of living steadied from a rise of over 10½ per cent. to 5½ per cent. 12 months later. Then the miners and railwaymen, egged on by irresponsible members of the Opposition, among others, made their successful victory against the country and the national interest, with disastrous consequences which followed. The Government may bear some share of the blame for being inadequately prepared. They were blown off course, and since then the level of wage settlements accelerated and, consequently and inevitably, the level of costs and prices followed.

My fear is that in the present situation the law on wages will be flouted. The hon. Member for Liverpool, Walton (Mr. Heifer) made it absolutely clear where he stood in relation to compliance with the law on wage control. He gave it as his clear opinion that trade unionists would take the same view. If the law is flouted, the Government will have to stand and fight. For we should not delude ourselves that by simply saying, "It is the law that you may not have more", everyone will bow down and accept it. But if the Government are prepared to stand and fight, that will be sufficient itself, and there is no need for the panopoly of law to enforce an incomes policy. If the Government are not prepared to stand and fight, the whole thing will become a farce.

I urge the Government to return as soon as possible to the pre-miners'-strike situation. If we do not, we shall ossify the existing situation in the labour market, with people in dying industries held there when they ought to be coming out of them and with modern growth industries needing manpower but unable to attract it because people are held back in dying industries.

I hope that before very long we shall have a policy containing national guidelines and that they will be backed by Ministers and Government explaining very clearly to the public exactly what is involved, and seeing that public opinion, which can exercise a measure of influence, is roused by Ministers giving a lead and ensuring that it plays an active part in influencing the level of wage claims and settlements.

In the longer term we ought now to be starting upon research into a system of national job evaluation and more massive retraining measures even than we have yet started to ensure that people can move from one job to another.

So much for the wage side; now the other side. The second major cause of our current inflation is the Government's activities—the massive increase in Government expenditure, the pumping of money into the economy from Upper Clyde Shipbuilders to the Industry Act, the ending of the credit squeeze, the introduction of the consumer boom and the astonishing increase in the money supply. To list them is not to criticise the basic decision. These policies were necessary if one was to bring down unemployment. I do not find myself in the camp of some of my hon. Friends who say that we should savagely cut the money supply, cause a deflation and so stop the cost of living rising. It would work; but at the price of soaring unemployment figures. I am sure my right hon. and hon. Friends are right to say that that is a price which they are not prepared to pay.

But it is desperately necessary to recognise the cause of the unemployment over which we have had to take such drastic action. My fear is that phase 2 and phase 3 of the Government's policy may lay the ground for renewed unemployment in a couple of years' time, and thus a repetition of the present situation. I say that because—I hope the hon. Member will not be embarassed—I find myself for the first time, perhaps in considerable agreement with the hon. Member for Penistone (Mr. John Mendelson), who said earlier that the two causes of our unemployment were under-investment and under-utilisation of capacity. That is true. Why is that so? It is because there is insufficient profit to make it worthwhile for industry to utilise its capacity or to invest in new plant and equipment. "Profit" is a dirty word, but it is the incentive which drives the economy, encourages investment and creates jobs. There is now so weak an incentive that it hardly has the power to drive a minibus. I should like to give some figures which illustrate what I mean. I take from the National Income "Blue Book", total company sector, the net trading profits, before tax and before payment of interest on debentures and loans, as a proportion of net capital stock at current replacement cost. In 1955 the return was 17.2 per cent. By 1960 it had sunk to 15.7 per cent. By 1965 it had sunk to 12.5 per cent., and by 1970 to 6.7 per cent. What an incentive! Who will invest for the prospects of making a yield of 6.7 per cent. before tax and before he has paid interest on his borrowing? But that is the position if one takes into account the net replacement cost.

Those figures rather overstate the position, because the advice coming from the Institute of Chartered Accountants, suggesting that one should redraw one's accounts, in the Institute's paper "Accounting for changes in purchasing power of money", shows that if one does that one reveals a situation in which profits are substantially overstated because profits in British industry today and British accounts are on a historical basis. If one bought goods and work in progress in a plant a year ago and had them for a year in the place and then sold them for a 10 per cent. profit, 7 per cent. of that is the decline in the value of money. What one has done is to sell at a 3 per cent. profit, but one also pays corporation tax on the 10 per cent.

The reality is that the level of profit in British industry today is so terribly low that it is one of the major causes of the Government continually having to pump money into the economy to encourage investment and to create the consumer boom. It is a sad fact that we are about to control prices and profits at a level which may well ensure the continuance of under-utilisation and under-investment. With a system of corporation tax and capital gains tax which is far too high we have a situation in which it is not worth while for business to expand sufficiently for United Kingdom industry to supply our consumer boom.

I shall support the Bill, but with considerable uneasiness, and only on the basis of its being a temporary measure.

7.40 p.m.

Mr. Neil McBride (Swansea, East)

Seldom if ever has one heard a more devastating indictment levelled at the Tory Party than that levelled by the hon. Member for Basingstoke (Mr. David Mitchell). We have a Government who are pledged not to take certain action reversing their policy, standing on their heads and voting for something that they do not believe in. One must make the charge that the Government face the nation having made a shambles of the economy. The twin architects of the maladministration of the economy are the Prime Minister and the Chancellor of the Exchequer. The best description that I can find of those two is that they are political heavenly twins of incompetency.

Britain today is in the grip of a totalitarian Government. They are staggering from one expediency to another, and the tragedy is that we have a Prime Minister whose tendency towards presidential trappings is equalled only by his scorn for this ancient House. One recalls words that he has uttered—"strong government", "instant government". He would welcome it if we had no Government. The British people are well aware of the price that the nation must pay for this incompetent Government.

Last week we had the Hollywood-style Press conference where the Prime Minister, before he had consulted us, as he should have done—for we are the elected representatives of the nation—insulted this House, the low wage earners, the housewives and the trade unions. His protestations, repeated time and again, reminded me of the words, "he protesteth far too much". The nation does not believe him.

I call in witness that institution which is not Labour-supported, the Stock Exchange. Monday's fall in the Financial Times index was clear proof of what I say. Indeed, industrialists are much concerned about profit margins. Christopher Marley, in an excellent article in The Times of 19th January, said that to control all the complexities of this situation would require a Price Commission larger than the headquarters staff of Imperial Chemical Industries. My principal contention of unfairness is that the rigidity of wage control emphasises the whole nature of this essay, this last essay in panic. Here we have economical gimmickry. The people in the constituency that I represent in South Wales, and, indeed, people throughout the country, expect rigid control of prices. The housewife can find no comfort in the fact that the prices of basic foods are not controlled. The prices are soaring. The low wage earner and the old-age pensioner recall the last time that they had a meat meal. It is something that they tell their children about—"We used to eat that." Food prices, which represent a quarter of the budget of the average family, have soared 25 per cent. tinder this Government. The Government can blame nobody for that——

Mr. David Mitchell rose——

Mr. McBride

Paragraph 11 of the White Paper entitled "Limit on profit margins", states that net profit margins as a percentage of sales will not be allowed to exceed the average level in the best two of the previous five years and that if the limit is exceeded there will be price reductions. The Prime Minister is not courteous. Several weeks ago I wrote to him about meat prices. I live on the edge of very beautiful country in South Wales—beef-raising country—and I thought that I should ask the right hon. Gentleman to suspend exports of beef to the Continent so that Welsh beef could reach Welsh tables at the cheapest possible price. But he has not replied to me yet.

We are exporting this desirable commodity to the Common Market where recently there was a policy of giving a subsidy of about £100 for every milk cow slaughtered. This is why the French and the Belgians are raiding our markets. The Prime Minister should recall that it is an incontrovertible biological fact that dead cows do not produce live calves. The Customs Union will cost us dearly, and this is the first side-effect of it.

The first sentence in paragraph 8 of the White Paper is nonsense. It says: The Government's policies are directed to attacking the rise in prices. In fact, the Tory Government's attack on prices has resulted in an increase in prices. It is worse than the "Grand old Duke of York". Not one hon. Member opposite can deny this. Yet they will vote for this measure tonight. How stupid can they be? Beef prices have reached Common Market levels within one month from the inception of the freeze instead of five years, as we were told. In the ensuing few months we in Britain will experience a rise in prices up to the Common Market level, where today a ton of wheat costs over £42 and in Britain it costs £29. They will blame that on bad harvests. The worst harvest that we have had was when we reaped this Government. The estimate of a 2½ per cent. increase in prices is fallacious. Nobody can deny that.

Coming to paragraph 25 which says that the total increases in pay should not exceed £1 a week per head plus 4 per cent. of the current pay bill, we see another Tory belief long held and sincerely expressed. Many times have I heard it expressed in this House that increased payment is exclusive of overtime. If this becomes law, the amount of money to be shared out will be very much reduced. The amount of money from which the 4 per cent. will be drawn is to be decreased.

Somebody once said that the Tory leopard never changes its spots. How right he was. The low-paid workers—the 3,500,000 earning less than £20 a week—will look askance at the difference between £1 flat rate and 4 per cent. They think of what it adds up to, compared with the maximum limit of £250 which is referred to in paragraph 26. How many members of the Government, with tax reliefs in April, will receive emoluments of £300 and more in excess of this maximum figure of £250?

The Prime Minister has said that this is fair. There is no essential sense of fairness. The British worker is more concerned with the total and the bottom line on the wage packet. His take-home pay is what matters to him and to his wife.

We never seem able to get into the Government's wooden skull that wage demands are not made by some trade union leaders who are ogres; they are made in the kitchens and the households of Britain. I come from the working class, and I am proud of it, but many hon. Members opposite do not know how we live, and neither do they care. That is the truth of the matter. I am not here to say nice words. The situation calls for bluntness. The British worker will reflect on these things and note the tax concessions which are about to be made.

The Minister presently on the Front Bench—the Financial Secretary to the Treasury—is a nice man, personally, but I warn him and his Government and their political friends that the British people cannot be fooled for long. The honeymoon period for the White Paper ended in the Stock Exchange last Monday.

On page 7 of the White Paper there is reference to rents, rates and land, and in paragraph 21 there is one of the most ambiguous statements one could ever read. For all the talk of a married tenant with two children and a weekly income of £35 living in a local authority house, nothing is said on the question whether that is the net or gross weekly income. The statement about lower-paid workers being assisted by the £3.50 increase in the needs allowance does not alter the fact that thousands of tenants of both local authority property and private property will be subject to another rent increase in April, and subsequently to triennial rent reviews.

The Government assert in paragraph 21 that their Housing Finance Act policy is right. If ever there was a fallacious statement, that is the supreme example. Rent is an important element in the cost of living for millions of our people. The Housing Finance Act is as inflationary as it was unnecessary, and it will continue to be so. That is an economic truth. There is no political dogma about it, and if there are any economists on the benches opposite I challenge them to refute it.

I greatly regret that no attention has been paid to the racket in house and land prices. In Wales this has become a national scandal. Wales, of course, is not a Tory country. The paucity of Tory representation there is evidence of that, and there will be even less next time. We shall probably have a Labour Member for Pembroke in place of the present hon. Member for Pembroke (Mr. Nicholas Edwards).

The Government should have done something about the soaring house and land prices in Wales. I am particularly concerned about young married couples who, because of the building society practice of relating mortgages to three times a person's salary as a maximum, are unable to get sufficient finance to buy a house.

It is only common sense that containment of the cost of housing in all its aspects should be a paramount consideration, and should be included in any proposals to combat inflation. Yet any such provision is deliberately excluded by this Government.

Now, a word about a group of people whom I know well and about whom hon. Members opposite shed crocodile tears—the old-age pensioners. The Government would do well to remember that there are 8 million of them, and each has a vote. The pension which they receive should give them a decent standard of life, and the omission of any action on that score from the White Paper is a blatant scandal. Inflation forbids their entry into the butcher's shops of Britain. This is a cruel state of affairs, yet the Government refuse any assistance to relieve the plight of this generation of old people, the ones who built our country, who built up our trade, who gave us our education and raised us up. What a poor reward they are given for 50 years of work in industry, now to suffer the indignity of hunting for scraps of scragend every week. The pensioner deserves better reward than that, and even at this late stage the Government should do something about it. These are the people whom we are supposed to represent. I shall not hesitate to emphasise their difficulties, though I do not see much courage in evidence on the benches opposite.

Pensioners need more money now, not in the autumn. In the nature of things, because of their age, the future for them is next week, not next autumn or next year. The Government can take little comfort from the plight of the old women and men now in dire need in our land. But sensitivity is scarcely a word which the Prime Minister would admit to hearing. He has the consistency of teak from the neck up, which perhaps explains why he does not know or seem to care about the way our deprived people live. The Government's action is an illustration of how not to use political power.

I turn now to the new agencies which are to be created, and for this purpose I refer to paragraphs 40, 41 and 42 of the White Paper, where we are told of the executive power of decision which will be accorded by law to the Pay Board and the Prices Commission. To whom will these bodies be accountable? In the nature of things, some anomalies and arguments arising out of legal decisions will come up. Shall we in this House be able to ask what the correct position is?

Paragraph 41 is significantly different from what is said in other respects. It tells us that The powers to control dividends and rents run for the same period as the powers to control prices and pay, but the Bill provides in these cases for control by Ministers. Why is there no control written into paragraphs 40 and 42? Are we now in a corporate State? Are we governed by totalitarians? Do the Government have leanings towards a Mussolini-type State? Let them say so if they have. The provisions dealing with the powers of the agencies for controlling prices and wages should include accountability to the House in all aspects of their transactions.

The rigidity of the controls envisaged for wages conceals a further attack by the Tory Government on the trade unions. I remind the House of the parallels in history which show that the first action of a corporate State Government is always to attack and seek to destroy the trade union movement. I am very ready to declare my interest as a lifelong member of the Amalgamated Union of Engineering Workers.

There is nothing in the White Paper about the repeal of the Housing Finance Act or the Industrial Relations Act. But the Government should certainly suspend the Industrial Relations Act. Industrial relations are an important aspect of inflation since they have a bearing on important constituents of everything that is made and consumed in this country. I would remind the Prime Minister—if he is capable of assimilating anything—that the Tories created the necessity for trade unions, and in spite of his personal dislike of the trade union and Labour movements they will both outlast him. The White Paper is a blatant attempt to end collective bargaining. That is the clear and unmistakable conclusion of paragraph 40. Paragraph 42 is dictatorial and prohibitive, and therefore, within the confines of the law—and I emphasise that—the trade unions will mobilise all the opposition they can muster to secure fairness and justice for all their members.

When the lights, the TV trappings and all the gimmickry of Lancaster House are forgotten, the White Paper will remain as a reminder of the vanity of a weak and arrogant man—the First Lord of the Treasury. One can draw no other conclusion. He has all the ability to be a No. 2 but none of the wisdom or ability to be a No. 1. In The Times on 18th January last Hugh Noyes, the newspaper's parliamentary correspondent, wrote: But, at the end of it all, the more sceptical began to wonder what had been achieved except to give Mr. Heath a far wider audience than he would have had by waiting to announce his Phase Two plans to Parliament next week. The White Paper contains no trace of justice or fairness. It shows that the panoply of the law will be concentrated on a rigid clamp on wages and the trade union movement, with slack control over prices. In Britain we say that justice must be seen to be done, but it is not seen to be done in the White Paper. I believe I voice the opinions of those I represent in the great Labour belt in South Wales when I say that the Government's contentions and arguments will be thrown aside. Even the hon. Member for Pembroke would not refute that statement. In the White Paper, as in the Bill, the Tory Government have besmirched the fair name of justice as it is understood by the citizens of this country.

8.4 p.m.

Mr. Norman Lamont (Kingston-upon-Thames)

There would be little point in denying that the measures announced by my right hon. Friend the Prime Minister are a substantial reversal for the Government. Moments when Governments take action contrary to their earlier convictions have been a depressingly familiar part of our economic landscape for some years, whether it be Mr. Macmillan's sudden conversion to indicative planning or the Labour Government's desperate attempt to cut public expenditure and reimpose prescription charges. It is little surprise that many ordinary people wonder whether the political institutions in this country are capable of finding a solution to our economic problems. But at least on the Tory side we can take consolation from the fact that even if we have turned around in our policies, at least we face only one way at a time.

Even if one feels some embarrassment in supporting these measures the reality is that prices and incomes policies are an integral part of a modern economy. I believe that even if my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) were to become Chancellor of the Exchequer tomorrow, just as Thomas Jefferson, the theoretical and academic defender of states' rights became the biggest interventionist of all time, he would find himself compelled to take similar measures to those which have been announced by the Government.

Some of my hon. Friends believe that the Government at one time had a particular policy which could have dealt with inflation but that it was not adequately pursued. I refer to the so-called n-1 policy, a policy which seemed to evolve rather than to be the result of a deliberate decision.

I have never believed that a simple policy of standing up to the trade unions in the public sector was an adequate way of coping with the problems of wage inflation. For a start, even if public sector wage claims were cut that would not necessarily influence the private sector. Obviously such a policy is thought to discriminate unfairly against the public sector and above all it is a precarious policy. Even if the Government are successful in one or two confrontations, the next union that faces the Government in its turn will be even more determined to break the policy. In addition a series of such confrontations in the public sector has a damaging effect upon both investment and production. One has only to look at British Leyland's first half profit figures last year to see the tremendous amount of damage that can be done to business confidence and investment by such confrontations.

Some of my hon. Friends believe that monetary policy alone can take care of inflation. I do not believe that, because the inflation from which we are suffering has social and political origins. It is at this point that one is always asked by the monetarists why inflation has increased suddenly in recent years. Surely, they say, one must look for a factor which has not remained constant such as, for example, the money supply. But many other things have changed also. There is an increased awareness of the bargaining power of trade unions. What happened with the miners' strike was something new and unprecedented. There is also the increased use of tax refunds and social security benefits. I should not want to over-emphasise that point because it is one made by a crusty old Tory—Lord Balogh in the Evening Standard.

Then there is the changing relationship, the changing trade-off between unemployment and inflation—the Phillips curve. That too has altered, perhaps because of social security benefits, perhaps because people do not care about unemployment as much as they did. Perhaps that is because those who make excessive wage claims which cause unemployment are not always the same people who experience the unemployment. The monetarists also talk about transitional unemployment. But how long is "transitional"? I suspect it might be years. It would take a considerable amount of unemployment to slow down the rate of wage increases which were coming forward in November at the rate of 16 per cent.

Deflation does not mean just slowing down inflation; it means deliberately creating unemployment. That is why my right hon. Friend the Member for Wolverhampton, South-West, in an article in the latest edition of International Currency Review, said that deflation was just as great an evil as inflation. We are told by the pseudo realists that one cannot reduce inflation without creating unemployment, but that is not the case. It was not the case in the United States where unemployment was greater at the beginning of President Nixon's adoption of his prices and incomes policy than at the end of phase 2.

Even if we make allowances for the time lags the relationship between money supply and inflation does not correspond with what some monetarists on this side of the House seem to believe. If it did, President Nixon really could not have maintained such a low rate of inflation.

Monetary policy by itself is too crude a weapon. The time lags are too long and uncertain. No one would deny that there is a long-term relationship between the rate of increase in money supply and the level of economic activity. And certainly over a longer period the rate of increase in money supply must correspond with the rate of increase in output. Certainly the rate of increase in money supply ought to be less than it was in the last quarter of last year. If it is not, the inflation that is to come will surpass the inflation which we have now. Monetary policy and prices and incomes policy should go together because the latter will help to lower inflationary expectations and lessen the impact of a tighter monetary policy.

While I am prepared to argue the case for a prices and incomes policy in general terms, I must confess that whenever I come down to discussing the details of any controls I always begin to feel considerable misgivings about prices and incomes policies.

One looks at some of the controls in the proposed legislation and has to ask oneself questions: what the effect of limiting profit margins will be upon cyclical industries that have been depressed for the last five years. There are such industries. How will one attribute costs between domestic turnover and export turnover? Why should exports be free from controls but invisible exports be subject to them? Why should the provisions for allowable costs differ between nationalised industries and the private sector? Will not the overall limitation of £250 on wage increases mean, especially among clerical and professional workers, that many people will change their jobs unnecessarily simply to get extra pay increases?

The truth is that such controls and regulations cannot be maintained for long in our type of society without creating nonsenses. I do not believe that such controls should exist, except for a fairly short period of time. I do not want to go down the slippery slope towards job evaluation, even if it was in a society where Joe Roigaly was king.

Some commentators have claimed that the Government have followed President Nixon too slavishly. I make the reverse criticism. I think that the Government have perhaps been too imaginative in their proposals. I refer not to the fact that the Government have thought up a new name for the Prices and Incomes Board but to the fact that they have chosen not to follow President Nixon on phase 2. It would have been much better if we could have had a longer phase 2, corresponding more closely to the length of the phase 2 which President Nixon introduced. President Nixon's policy succeeded because it held out the prospect that controls would gradually be relaxed. All experience with prices and incomes policy in this country surely demonstrates that one can hold the position initially for a few months but that thereafter public support goes away and it becomes more and more difficult.

I do not think we ought to move to a phase 3 when even the money rate of wage increases would be lower than in phase 2. I know the argument is that in real terms people will be better off in phase 3 than in phase 2. The point is that we are dealing with expectations and people will not look at it in that way. Why should they? How can people know that simply because they exercise restraint others will do the same and the prices part of the equation will work? We should move to a system in which there will be a diminishing level of controls from phase 2 into phase 3.

I support the Government's policy because it is designed to achieve two things. It is designed to achieve a higher rate of growth and, at the same time, to deal with the problem of inflation. I confess that I am increasingly worried about whether the growth target will be upset by the Government's determination to return to a fixed parity. The great blessing of our having floated is that we have managed to separate the current and capital accounts. All our crises in the past with the balance of payments have started on capital account. They will do so again. Even if the London and Cambridge Bulletin is wrong, there will still be the danger of a run on sterling starting with the capital account.

I know the arguments against floating and the dangers of adding to the inflationary process. But if we cannot float entirely, why cannot we do as my hon. Friend the hon. Member for Horncastle (Mr. Tapsell) suggested and have a two-tier exchange rate system, one rate floating on capital account and another rate for current account? Italy adopted such a system over the weekend, France and Belgium do it. I imagine that Luxembourg does it. If we did it I am sure that Ireland would follow. If this does not sound too much like something from Eartha Kitt, may I ask "Why don't we do it too?"

Mr. Arthur Lewis

May I ask the hon. Member whether he supported our entry into the Common Market? As I understand it, whether he likes it or not, President Pompidou has said that we must have a fixed parity.

Mr. Lamont

The precise point of the proposal I have been putting forward is that it is one which would enable us to get the benefits of floating and correspond with the requirements of the Common Market. I am sorry if that is not altogether clear to the hon. Member.

The one thing this country cannot afford to do is to return to stop-go. Each cycle of that has made industry less competitive. There are whole sectors of industry, particularly cyclical ones, that are now in a precarious position. If we return to stop-go we will end up, if we are not careful, in a situation where manufacturing industries will be progressively contracting. We will become a country manufacturing tweeds and bicycles, where the only internationally competitive companies will be Marks and Spencer and Mothercare.

Of course, if the Government had not gone for growth our problems with inflation would be easier. The Government could have decided simply to continue the policy they inherited on coming into office. I cannot believe that that would have been right. The Government have gone for growth and they must stick to that policy.

8.17 p.m.

Mr. John Grant (Islington, East)

I begin by saying something which may shock the House slightly because I want to congratulate the Prime Minister upon his public relations activities. He has obviously picked up quite a lot since he came raw to office. That must be so because I doubt whether any British Prime Minister has ever introduced a major piece of legislation of this kind with such brazen hypocrisy and sought to get away with it.

I sometimes think that some of the leaders of my party, particularly ex-Ministers, go a little too far with their acts of contrition. They have almost got to the stage of apologising for mistakes which they did not make between 1964 and 1970. Their overall record in that period was a good deal more substantial than some of them nowadays seem to be prepared to lay claim to. Let us look at the balance of payments situation, the situation which they inherited, which they left in 1970 and the situation today. The clear state of crisis for which we are now heading underlines the point.

Whatever is said about the Prime Minister, no one will ever pretend that he is in any sense an apologist. After all, he led the housewives up the garden path on prices and now he and his friends are saying quite openly that the era of cheap food is over. They have put it out that the housewife has been featherbedded for a long time. This is a curiously belated discovery. It seems to me that the British housewife is now on a bed of nails.

It is fair to ask who poured scorn on a statutory incomes policy and who for so long promised industrial peace, lower unemployment and full-hearted consent on European entry. All these pledges have been broken. The White Paper and the promised legislation take the biscuit for an incredible feat of political acrobatics.

Mr. Arthur Lewis

Is my hon. Friend aware that on the very day the Prime Minister says that the Government are out to control prices and keep them down, it is reported in the Press that they have agreed in Brussels to terms which will mean that the price of bacon, eggs and day-to-day necessities will shoot up by 15 per cent.?

Mr. Grant

I am grateful to my hon. Friend for giving the House that horrific news. We all know of his endearing interest about what is happening in Brussels. I was not aware of what he has just told us.

The danger is that people will be mesmerised by the Government and their public relations machine into believing that what they are getting is what they voted for in 1970. We had weeks of softening up by the Downing Street talks which took place in conditions which guaranteed that there would be a collapse. The public relations exercise was angled in order to persuade people that it was all the fault of the wicked trade unions; they had scuppered the whole policy. Now it seems that open government begins and ends at Lancaster House where we had the studied nonchalance of the Prime Minister in his presidential-style Press conference. There was not a word about the promises he made about the statutory incomes policy and freeze which he had vetoed before 1970. He made it all sound perfectly natural and desirable. These are not supposed to be panic measures, but the Government have been panicked into this situation. It has been forced on them in a crisis. That is the story which is rather skilfully hidden from the people.

I do not want to go into detail about the White Paper because many others have done so and several of my hon. Friends wish to speak, but it clearly fails to deal fairly with the questions of food prices, rents, the current grossly inadequate old-age pension, dividends and profit margins. There is also the sinister attack on the powers of the House over the rights which are to be given to the new boards for prices and pay, which will not be answerable to the House.

The hon. Member for Aylesbury (Mr. Raison) talked about the views of my right hon. Friend the Leader of the Opposition on a national dividend. It has never been suggested that if a national dividend was shared by agreement with the two sides of industry this House would be bypassed in having the last word. That is the essential difference.

I wish to say a few words on the wages question. I accept that any arbitrary freeze—and Governments of all hues have had to introduce a freeze at some stage—is bound to produce injustices and anomalies. But the present freeze is a shocker. I wish to deal with the position of what I regard as probably the worst hit group, namely, low-paid civil servants. As hon. Members know, I act as parliamentary consultant to the Civil and Public Services Association, which is the largest of the Civil Service trade unions and which represents the bulk of the lower-paid civil servants. The more I look at this case—and I have looked at it in some detail—the more I am convinced that these people are being scandalously treated.

The present resentment and bitterness among civil servants is quite unprecedented and it cannot be shrugged off in the way in which the Prime Minister tried to shrug it off today. It has already led to limited protest action. I am bound to warn the Government—I say this advisedly, and there is no secret about it—that there is the real probability of industrial action being taken in the Civil Service. Many Civil Service union leaders—I hope no one will suggest that they are "wild cats"; their record disproves that—reluctantly believe that some form of industrial action is becoming inevitable and will be justified. I do not pretend that that is other than a very grave development in an area with hitherto a totally unblemished record of industrial peace.

I should like at this stage to quote from a letter which I received today. It is typical of many letters which I have received from civil servants about this matter, and civil servants are waiting in the Lobby tonight to lobby hon. Members on it. The letter states: My fellow colleagues and I are fed up with being understaffed, underpaid and of being political toys. Only if the Government restore relativities within the Civil Service as an absolute minimum in their policy of restraint will they avert what seems like a most undesirable set of circumstances. I also resent most strongly the further restrictions of the freedom of the rights of the individual proposed in the aforementioned Bill, so please do inform Lt.-Colonel Heath that if he does not desist he ought to be court martialled and shot by the ordinary, low paid people of this fair land …". I would not concur with the latter remarks—[HON. MEMBERS: "Why not?"]—because I am a kindly soul, but that letter, which was written in anger—it is not a comic letter—is indicative of the feeling in the Civil Service.

Many people in the Civil Service are about 20 per cent. behind people in similar outside employment in their salary rates. They were due to receive catching-up payments on 1st January, but they have been stopped. It appears that they will be very lucky to get half of what is due to them simply to enable them to catch up. That is the price they are being asked to pay for keeping the industrial peace, for serving and for maintaining a system of pay rises by fair comparison which has been a sort of mini-incomes policy.

The Government face a crisis of confidence on their own doorstep. They must allow for exceptional cases of this kind, and doubtless there will be others. The Prime Minister was much too woolly to be convincing in what he said about the Civil Service. Anything could happen between now and phase 3, and it is baldly surprising that civil servants feel unable to trust the Government that far ahead. Why should they? All the while they are falling further behind. There is no suggestion of retrospection in phase 3.

The very rigidity of the policy will be its downfall because there is no adequate safety valve. Unless there is flexibility, industrial conflict is certain. Perhaps it will be not in the Civil Service but among workers we have not thought of. If it happens, it will happen where it is least expected and it will have crippling effects on the national well-being.

When we criticise its policies, the Conservative Party wants to know our alternatives. Today my right hon. Friend the Leader of the Opposition gave a clear picture of the direction in which we would want to go. The national executive of the Labour Party and the Trades Union Congress are producing a joint policy. I am categorically in favour of a prices and incomes policy, but not the Government's policy. Any policy which I support must result primarily from the consent of those principally affected, and that means the ordinary working people, their families and those who are no longer able to work.

The Labour Party and the TUC are on the right road. They have outlined the social and economic package—on growth, jobs, pensions, prices, land, homes and so on—which they regard as essential. But I accept that they must deal in much more detail with the wages situation. It is said that the rôle of wages in the inflationary spiral is exaggerated. I agree. But it is idle to pretend that they do not have any effect. I do not think there is or ever has been any call for the Labour Party to go into complete reverse and suggest that what the party and the unions agreed in 1964 was wrong. I believe that it was right then and that it is right now. But it was never properly tried; it was never given a proper chance.

The Government's package has no lessons for us. My right hon. Friend the Member for Leeds, East (Mr. Healey) has been quoted as referring to it as being in some sense an arsenal for Socialism. I am a Socialist, and the Arsenal is my constituency football team. I wish them both every success. But I cannot agree with my right hon. Friend that the Government's package is an arsenal for Socialism. If it is an arsenal, it is an arsenal of popguns. However, we on this side of the House cannot duck the pay issue.

I accept what my hon. Friend the Member for Liverpool, Walton (Mr. Heffer) said about the crisis of capitalism. However Socialist we seek to be, we do not expect the mixed economy to vanish overnight. Our job is to change the mix and to persuade the people that there should be a change. Meanwhile we need an incomes policy. Perhaps the Government are helping us a little in this respect.

I repeat that we can do this only by consent. I believe that the Labour Party can achieve that consent. It is perfectly understandable that the trade unions find it impossible to accept the unfair and unworkable package presented to it by the Government, which have bullied and bashed them ever since they came to office. Equally, it would be surprising if the trade unions refused to co-operate with a Government pledged to carry through so many of the changes which the unions seek and so many of the changes which have been worked out jointly, and I believe that they will cooperate in the best interests both of their own members and of the community as a whole.

8.30 p.m.

Mr. Nicholas Edwards (Pembroke)

One thing above all distinguished the statement made to the American people on 15th August 1971 by President Nixon when he outlined his new economic policy and the statement made to the British people by the Prime Minister at Lancaster House last Wednesday. The President announced a cut of 4.7 billion dollars in Federal spending. Tax cuts to stimulate employment must be matched by spending cuts to restrain inflation said President Nixon. The Prime Minister made no reference at all to Government expenditure. He made no reference to it this afternoon either.

In the same month of August 1971 President Nixon summed up the essence of the matter when in his foreward to "The Economy in Mid 1972", the testimony of the council of economic advisers, he said: The critical point at which the help and understanding of the American people is now needed is the Federal Budget. If we allow Federal expenditure to soar again to a point far exceeding the revenues even under conditions of full employment, as they did between 1965 and 1968, we will risk destroying the hard won gains we have already made. The result would be big increases in the cost of living or big new taxes, or the first followed by the second. He asked the American people to insist that Federal spending be held down to avoid reviving inflation.

While the President was talking in this way, recognising that the level of Government spending is one critical factor in the fight against inflation, the British Government were preparing an imitation package which includes not cuts in Government expenditure but an increase of 6.2 per cent. in this financial year and 5.3 per cent. in the next, rates well ahead of the increase in productive capacity.

Incidentally, how anyone can really expect, as the White Paper does that the rate of increase will fall to between 1.4 per cent. and 1.8 per cent. in the next three years I simply cannot imagine.

I accept the need for the Government's policies. I have little patience with what the Leader of the Opposition referred to as the basis of ideological doctrine. I accept necessary measures, as they are, even if I may find them distasteful, but I have two doubts about the British package as it has been presented by my right hon. Friend. The first is that in some respects I do not think it is severe enough. It provides for increases in wages and prices which still seem dangerously high. Although I accept what the Prime Minister said earlier about increases in real wages, none the less the proposals will leave inflation at too high a level. The second doubt is one which I have expressed already—whether the package can be made to work while Government and local government expenditure is running ahead at the rate at which it is at present.

I do not agree with those who believe that there is any one single cause of inflation. I do not share the views either of those who put it all down to excessive wage demands or those who preach the purest form of monetary doctrine. Both these factors are elements in the equasion. Because I do not put the blame on a single cause I do not look for a single solution. I quote the American economic advisers: It is the combination of the price-wage control system with other anti-inflationary policies which will lead to the fact and expectation of reasonable price stability. If I do not put the blame on a single cause it is because I find it hard to exclude from among many causes the pressure of excess Government expenditure. Certainly we need to engender a fast rate of growth in manufacturing industry and commerce. It may be that further fiscal stimulus will be needed, but that does not mean that we should create excessive aggregate demand, and it does not mean, as Samuel Brittan pointed out on 4th January in the Financial Times, that we can achieve the growth rate just by pumping money into the economy. As he said: It must imply a faster growth of productive capacity and the efficiency with which we use our resources. We are entitled to inquire whether increasing Government expenditure necessarily stimulates either productive capacity or efficiency. In so far as it does, I suppose it does not matter whether the demand comes in the public or private sector. At the moment when it is proving desperately difficult to stimulate investment in private industry it may be no bad thing that the Government in the public sector have an expanding programme.

Lack of investment has been another feature which distinguishes our situation from that of the United States, but no one can pretend that more than a small part of Government and local government expenditure falls into this category. Excessive Government expenditure in other fields must inhibit productive investment. That Government expendi- ture has been growing at an alarming rate cannot be challenged by anyone. It has been financed out of increased tax revenue, up by almost threefold, and by deficit financing on a huge scale. Since 1961 excessive taxes have inhibited growth and deficit budgeting has increased the money supply. Part at least of the excess demand has made no contribution to total production. Surely there is an urgent need to recognise that where public expenditure increases too far and too fast the result is bound to be chronic and increasing inflation.

We always seem to approach the matter of controlling demand by talking in terms of controlling the private sector. That is turned on and off like a tap. It is done by applying taxes which damp down investment. The public sector, like Frankenstein's monster, just grows.

Writing in the Sunday Express on 3rd December my right hon. Friend the Member for Barnet (Mr. Maudling) said: A drastic cut-back of Government expenditure would mean, inevitably, hardships falling on those least equipped to bear them, and a slowing down of social programmes in the field of health, education and the social services which cannot be justified. None of us can be under any illusions as to what a cut back would mean, but does that mean that we should allow Government and local government expenditure to roar ahead quite uncontrolled as it appears to have done in recent months? Can it be right, as my right hon. Friend implied, that such a programme would have no effect on inflation? On its own it might not, but on its own I do not believe that the present package will either. There is a tendency to run from one solution for inflation to another. The truth is that we need a whole range of weapons.

Can it be that the United States situation is so entirely different from our own that the words of the Council of Economic Advisers would not apply at all to our situation? The Council wrote in The Economy at mid-1972: Continued progress in the fight against inflation depends critically on moderation in the growth of demand. When demand is growing moderately controls can help move the inflation rate down to the pace consistent with the moderate growth of demand. When demand is rising excessively the controls will not prevent rapid inflation for long. That is why restraint of rising budget expenditures has now become the key requirement for success of the anti-inflation effort. We seem to have taken only one part of the American package.

I conclude by asking my right hon. Friend and the Government whether they are satisfied that Government expenditure will not rise faster than the real growth of the economy. I ask them why, if restraint of rising budget expenditure is a key requirement for the success of the anti-inflation effort in the United States, if in the United States the main force operating to restrain inflation today is the state of demand relative to capacity, why the circumstances are so different here that it apparently plays no part. Perhaps I am wrong. Perhaps it will play a part—a part which I must wait for the Budget to hear about.

Finally, if I am wrong in thinking that it plays no part, and if wage and price restraint is only a portion of a total anti-inflationary package, I must ask now what are the steps being taken by the Government to reconcile the need for budgetary restraint with the expenditure plans disclosed in the public expenditure White Paper?

8.40 p.m

Mr. Neil Kinnock (Bedwellty)

I shall not follow the hon. Member for Pembroke (Mr. Nicholas Edwards) too closely, except to say to him, and other hon. Members who have drawn analogies between the current situation in Britain and the problems which faced the United States until the beginning of President Nixon's freeze and squeeze in June 1971, that the nature and the scale of the problems were different and that many other technical differences existed between the two economies and the two periods.

It would be misleading to try to draw too close a parallel or to make too close a comparison between either the problem as it existed in the United States and as it exists here—or in the correct antidote, as President Nixon appears to have found it—and that which the Prime Minister proposes in the White Paper, and, indeed, in the Bill which we shall debate next week.

I have been in the political movement since I was 15 years of age. I have heard at regular intervals, and with varying degrees of seriousness since that time, that capitalism faces a crisis. The White Paper has been referred to as an obituary notice for capitalism. I have seen far too many of those notices in my short political experience of 15 years. I have heard about the crisis of capitalism too frequently to take seriously those who say that capitalism is on the verge of collapse. However, the system which the Prime Minister has proposed—his three-year Reich, with executive powers awarded to the new prices and pay bodies, is the latest exhaustion of the options of post-war capitalism in the Western world.

The right hon. Member for Barnet (Mr. Maudling) in a distinguished article, pointed out—accurately, in my opinion—as if he had discovered the nature of modern capitalism, that the nature of our problem has changed. He said that the relationship between classes and ideologies had changed, and that there was a requirement for capitalism to change its strategies. The right hon. Gentleman was pointing out, as I would try to point out, that the obvious options that have previously been open to capitalism, especially in democratic or near-democratic States, have been exhausted.

Capitalism has previously been able to buy off those who make economic demands, especially organisations of the working class, by generating spending power, maintaining nearly full employment, and generally flattering, in order to retain political power. Less frequently, it has attempted to starve those same workers' organisations into submission. We are less familiar with the latter strategy in the post-war period than was my father's generation in the pre-war period.

Whatever the answer that has been generally adopted, whether the option chosen has been one of trying to pay off workers through the creation of an affluent society, the generation of an inflationary society, or the other option—deflation—which is far more nasty, we are seeing a situation in which the options are running out.

The Government opted for a growth strategy. They did not have much choice. There appeared to be only one thing to do with the British economy in 1970, and that was to go for growth. But the growth strategy is confounded by the nature of the Government's attitude to the economy. The consumer-led boom which we have had—and it is not just consumerled—is entirely dependent upon and consists of expansion in consumer demand and consumer expenditure. That is all it is. It is inflation generating itself.

The consumer-led boom, which is the bid for growth, is import-generating. That, in turn, is further inflation-generating, especially when we consider that if we do achieve a 5 per cent. growth rate as the Chancellor requires it will incur at least 11 per cent. rise in imports, and the prospect of the next 12 months is that general commodity prices throughout the world will increase by about 9 per cent. So, without adding a great deal to our stock in Britain, without growing a great deal, we will be sustaining a very large extra bill in the process of trying to overcome inflation by growing out of it.

In addition, we have had devaluation, formal or informal, and while there is a spin-off in the creation of demand for British exports, this lags behind the effect in terms of the rising price of imports and in the volume of imports.

Then, of course, ideally a bid for growth might have led to increased investment. Here is probably the Government's greatest failure, apart from the way in which they have treated the working class generally. I say that without looking at it in a cynical light as someone concerned with the economic problems of this generation. They have, as a Government—as the executive committee of capitalism—signally failed to create an atmosphere in which people want to invest either as individuals or as corporate institutions. The consequence has been felt in this mixed enterprise economy in higher unemployment, in inflation and in lower productivity records that might otherwise have been achieved.

So we have a situation in which a Government of capitalists for capitalists have failed to apply capitalist methods and, by failing to make those methods work, have further exhausted their options in doing so. After this counter-inflation package has worn thin, then, in the nature of the Government, they will be forced to resort to the only other answer which capitalism knows—not to tinker with the problem of inflation but to adopt the blunt instrument of decreasing the demand for labour, by increasing unemployment and trying to stabilise—their word—and bring into equilibrium demand and supply in the economy by consequent deflation.

I doubt whether the Government will be successful in the next election, but if they are—in other words, if the British people are as stupid as the people of the United States in endorsing the "will of iron" policy of President Nixon—and we have another Tory Government again, they will have to adopt the classic answer to the kind of inflation we have, and that is to take the heat out of the economy, to take the monopoly power, as the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) said, away from labour, and the only way in which that can be done is by making the supply of labour vastly exceed the demand—a formal policy of disemployment and unemployment.

The package we have is unfair, in the sense that there can be no equality of sacrifice between the various so-called partners in the bargain. No equality of sacrifice is possible between those who obtain either all or most of their income from profit sources and those who obtain all or most of their oncome from work by hand or brain. The circumstances last Monday proved this, if nothing else has. The people who panicked on Monday and liquidated their assets had that option as people who control inanimate capital. They could either take a short-term loss by selling or they could hang on to what they had in the hope or knowledge that things would turn up sooner or later. There was no need for them to have got a fit of the jitters. But this option does not exist for people whose only capital is the labour they have. Labour is the most perishable of commodities. A day lost at work is a day never regained, and a pound lost from the loss of work is a pound never regained.

People who derive their incomes by work cannot have fits of the jitters. They can resort only to even more strident calls for increased wages and an even greater degree of militancy. If people with investment incomes and with capital assets respond to a situation, wrongly, as I think, by a fit of the jitters—and that is almost an unavoidable fact of life in our situation—those who derive their income from work will respond to the same situation by exercising the only sanction they have against the system that has brought them to this situation.

The package is unfair in the sense that prices will be permitted to rise in the event of an unavoidable increase in costs. This is a gaping hole and any accountant with the slightest wit will already be planning ways in which to charge through this loophole.

It is unfair in the sense that in the event of price rises attributable to unavoidable cost increases being allowed, the increases will inevitably largely be attributable to trade union awards even within the framework of £1 and 4 per cent. That is an additional way in which, even inside the package, trade union demands will be legislated against and it is another way to bring further criticism of and animus towards and contempt of the trade unions. That is probably the direct intention. Even if it is not, it will be the direct effect.

Finally, in terms of their fairness about which we hear so much, what will this £1 and 4 per cent. mean to two different sets of people—to men earning £1,000 a year and men earning £10.000 a year? For the man earning £1,000 it will apparently mean a 9.2 per cent. increase over 12 months, but in fact, because of the adjustment in FIS and other entitlements, the actual increase in income will be 7.7 per cent. For the £10,000 man the theory of the £1 and 4 per cent. increase is a 2.5 per cent. increase in income, but the fact of the matter will be a 4.4 per cent. increase.

We return to the old business of those who are getting most continuing to receive most—one of the greatest generators of disenchantment and frustration and fury among wage bargainers who have traditionally bargained on the basis of a percentage award across the board. The effect of the £1 and 4 per cent. in real terms is almost the same as it has always been traditionally.

There is little hope that this package will resolve the crisis in our society in terms of the conflicts that we observe and in which we sometimes participate, or in terms of overcoming the economic problems of this generation. I believe that we must resort to a Socialist answer and I hope that in Committee we shall have the opportunity to explore in detail the Socialist alternatives. If we do not do that, the only other choice is eventually to resort to the classic capitalist answer—to increase unemployment in order to stabilise a capitalist economy.

8.53 p.m.

Mr. David Knox (Leek)

I hope that the hon. Member for Bedwellty (Mr. Kinnock) will not mind if I do not comment on his speech, but time is very short.

I want to make it clear that I have no wish to apologise for supporting the second phase of the programme for controlling inflation, first, because I believe that in present circumstances the measures are correct and, secondly, because I consider that in a modern industrial society a prices and incomes policy is essential. It is true that I much prefer a voluntary prices and incomes policy, but if that is not possible, we must have a statutory policy.

I confess that I am one of those who think that the Government's economic performance has improved since their first year of office. I thought at the time, and I still think, that the great turning point was in July 1971, when the reflationary package was introduced and the Government set on the course for growth. That, quite rightly, has been their main aim since. This afternoon the Prime Minister emphasised this part of his counterinflationary package.

Any Government in a modern society must place growth as their principal aim. Any Government's economic policy is hound to fail unless they do so. The reasons are simple. In the first place growth is what people want; and, secondly, growth is surely what economic policy should be mainly about.

I am told by some people that growth is no longer what people want. I shall believe that when people stop putting in for wage and salary increases. I shall believe it when people stop demanding better social and public services. Every application for a wage or salary increase is a vote for growth, every request for a dividend increase is a vote for growth, and every demand for better social and public services is a vote for growth. Any Government who fail to provide growth at a fast enough rate will be rejected by the electorate. Because the people did not think we were producing growth quickly enough in 1964, they got rid of us, and I believe that Labour were got rid of in 1970 because the public thought that they had not produced growth quickly enough.

I am sure that growth is very much more important to people than is inflation. People often articulate their disappointment with a Government's growth record not by complaining about lack of growth but by complaining about the inflation which has robbed them of the effects of growth. This is not to argue that the problem of inflation should be ignored. Since we need public good will and co-operation to reduce cost inflation, such good will and co-operation are much more likely to be forthcoming in an environment of growth with real incomes rising and with public expenditure increasing.

The second reason why I think growth is important is that I believe this is what economic policy is about. A few of us are lucky enough to have interesting jobs, and work is not just a matter of enabling us to earn a wage or salary which gives us a claim on material goods and services. But for many of our fellow-citizens work is boring and uninteresting, and probably cannot be otherwise. For them there is no virtue in work as such. It is a means to an end. The end is as big a wage or salary as possible and the means should be as pleasant as possible and should involve as little effort on their part as possible. Furthermore, each year it should be possible for them to get a little more for doing a little less. This is what growth is about.

Similarly with the economy in general, there is no virtue in having an economic system for the sake of it. Again, it is a means to an end. That end is not to stop inflation since one can easily stop inflation by getting rid of the whole economic system. And the end is not to get the balance of payments right. If it were, the easiest and most effective way of doing so would be to eliminate the economic system.

It is not I who is being absurd in making these points. The people who are absurd are those who argue that the balance of payments or getting rid of inflation are the principal aims of economic policy. In fact, our economic system is a means of providing the maximum quantity of goods and services for the minimum possible effort and of providing more each year for less effort. That is why we have an economic system. This is why the principal aim of economic policy should be to operate the economy at the highest possible level of activity and at the fastest rate of growth.

It is true that to do this effectively counter inflationary measures are required and also policies to deal with the balance of payments, but it is sheer lunacy to believe that these matters should be other than subsidiary aims of economic policy. What we should be after is high economic activity and fast growth.

The public, if not all politicians, sense this. The present Government, by putting economic growth first, have got their priorities right. This is why their tough counter-inflationary policies have been so well received and are more likely to meet with success.

To sum up, I believe that the basic aim of the Government's economic policy is right and I believe that the subsidiary aims, such as the curing of inflation, will meet with success.

I believe that the Government are right too, in their analysis of our problems. My hon. Friends have got the matter wrong if they believe that control of money supply is the cure to our problems. They make the mistake of assuming that our inflationary problem is one of demand inflation, whereas it is a cost inflationary problem. We have no demand inflationary problem at present. Unemployment is high and there are a number of people in our society who are not registered as unemployed but who are not in employment. Our industry is still not operating at full capacity. It is absurd to suggest that by tightening control of money supply we shall deal with our present inflationary problem. That would deal with a demand inflation but that is not the kind of inflation we have. The problem we have to deal with is that of cost inflation. Therefore, the Government are right in their analysis, and they are right to introduce this package of measures, because they will enable us to cope with the problem of cost inflation.

8.58 p.m.

Mr. Denis Healey (Leeds, East)

We can all agree on one thing about the speech which was made this afternoon by the Prime Minister, and that is that it was a speech of historic importance. The whole 45-minute speech was a carefully drafted treaty of surrender of the philosophy which has guided Conservative policy for most of its existence—although, as the Prime Minister will recall, the philosophy was drastically revised under Lord Butler for some years after the Second World War. It was the Prime Minister who, when Leader of the Opposition, revived the old Tory doctrine in its pristine simplicity, and it was a doctrine that was adopted by the Conservative Party at the Selsdon Park meeting.

Nobody who has watched the Prime Minister over the last 10 years can doubt that the right hon. Gentleman believed in that doctrine. We recall his responsibility for the document "Make Life Better", published in 1968 in which he said: Policies of restriction and control work not with the people but against them. They stifle the forces which our economy most needs. Reward and competition are still the greatest incentives to effort Many of the Prime Minister's hon. Friends who spoke during the debate, notably the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) and the hon. Member for Basingstoke (Mr. David Mitchell), recognised that every sentence which the Prime Minister uttered today was a direct contradiction of the philosophy to which he converted his party during its years in opposition and on which he fought and won the last General Election. Yet in the whole of his speech we had not one word of apology or even of explanation for this astonishing change of front.

The Prime Minister has carried out one of the most dramatic U-turns in political history, and he is now driving at full speed in the opposite direction with just the same stony rectitude as that with which he started and with the same petulant arrogance towards anyone who dares to suggest that he has changed course and might be just as wrong in his new posture as he was in the old one.

The Prime Minister has changed a great deal in the last few months. I suggest that he takes down from the hoardings those impressive images with which he plastered them not so long ago presenting him as a man of principle—unless, of course, when he put those posters up he meant people to understand that he would change those principles once a week.

My right hon. Friend the Leader of the Opposition quoted at length the promises which the Prime Minister made and the solemn pledges contained in his election manifesto, repeated in broadcast after broadcast and speech after speech in the 2½ years since then. After the Prime Minister's speech today, I see no reason why anyone in the world should ever again believe a word he says.

The nearest to an explanation that we have had from the Prime Minister for this unprecedented change, not just of front but of philosophy, is that the national interest requires it. The country now faces an economic crisis of unprecedented magnitude, we are told, which requires him, his party and all those who voted for him to claim that what was wrong is now right and that what was black is now white.

Why is the country facing this crisis? It is because the Prime Minister's attempts to apply the philosophy on which he was elected to office have led the country into the most frightening conjunction of catastrophes since 1931, with mass unemployment on a scale we have not known since before the war, with industrial stagnation, with soaring prices and, what is more, with a balance of payments crisis. It is not surprising that the trade unions and ordinary people have turned against him. After the way in which the right hon. Gentleman treated them in pursuit of his old philosophy which he has now changed, it is not surprising that we lost 25 million days in strikes last year, more than at any time since 1936.

What is important and significant is that the Prime Minister has had a vote of no confidence from the very people he purports to represent. He has given tax reliefs to the rich on an unprecedented scale in the last 2½ years. He has got British industry into the Common Market as it almost unanimously demanded. His reward has been a collapse of investment by the business community. Last year 1972, there was a fall in investment of 10 per cent. That followed a fall of 8 per cent. in 1971. I might remind the House that business profits last year were higher than at any time since 1964. The reward the Prime Minister got for his incentives was a further fall of 10 per cent. in business investment.

The right hon. Gentleman got another vote of no confidence in his new policy from those he purports to represent in the Stock Exchange only last week. I put it to right hon. and hon. Members on both sides of the House that the failure of Britain's business community to respond to the incentives which the Prime Minister and the Chancellor of the Exchequer have showered upon it in such abundance over the last 2½ years represents not just a crisis for the Conservative Party but means a crisis for the whole system of free enterprise under private ownership as we have it in Britain at present.

The Tories believe in free enterprise. They came to office to set it free. Now that we see business free, it has proved that it is not enterprising. This is the root cause of all the problems with which the Bill referred to in the White Paper is supposed to deal.

I stress that because, although for ordinary men and women rising prices and unemployment are what hurt most, the real failure of the present Government has been their failure to get the economy growing and the collapse of investment which has accompanied the Government's attempt to apply their own philosophies.

Many other countries have seen their earnings rise as fast as earnings have risen in Britain. But nowhere else in the world have we seen so great a rise in prices. The reason is that in almost every country with which we compete in trade, productivity and production have risen with rises in earnings. In this country they have failed to rise. The responsibility for productivity and production is one which rests with management and above all with those whose duty it is to invest their profits in improving productivity.

Even within the parameters of the system that the Chancellor of the Exchequer supports, his management of the economy has been so appalling that he has got himself into a box from which I doubt whether he can ever escape. He has got himself into a position where it will be almost impossible to combine continued growth at 5 per cent. for the two years during which the Prime Minister undertook to continue a 5 per cent. growth and to maintain stable prices and a healthy balance of payments. What the Chancellor has contrived is that worst of all forms of growth, the import-led boom. His management of the economy last year has enabled Japan, Germany and many of our other competitors in the world to establish a firm base for the expansion of their exports to Britain. Let us consider the motorcar industry. Imports of cars were up by £150 million last year and exports were down by £50 million. The same is true of colour television and of many other consumer durables on which the Chancellor concentrated so many of his tax reliefs in seeking to get the economy moving over the last 18 months.

Now let us look at the position as the Government propose it shall develop under the Bill during this year. In replying to the debate, I hope that the Chancellor will give us the Government estimates of the increase in consumption under the Bill and how that will relate to the increase in production to which he and the Prime Minister have pledged themselves. But in any calculation which I or any other observer have been able to make, it is difficult to see consumption in Britain rising by more than 2 per cent. in the next 12 months, although the Government are aiming at a 5 per cent. increase in production.

What the House and the country and. indeed, the world will want to know, and one of the reasons for the slump on the Stock Exchange—this new vote by the business community of no confidence in the Prime Minister—is the answer to this question. They want to know it as much as any hon. Member on this side of the House wants to know it. The central problem, which the Chancellor knows very well and which has been pointed out to him by the Oxford and Cambridge Review, by the National Institute for Economic and Social Research—

The Prime Minister

London and Cambridge.

Mr. Healey

London and Cambridge—I am glad to see that the Prime Minister at least gets the little things right occasionally.

What we want to know is how the Chancellor proposes to maintain growth at 5 per cent. if consumption is rising at only 2 per cent. If he achieves growth at 5 per cent., how will he avoid a colossal gap in our balance of payments by the end of this year, a gap varying from £500 million to £1,000 million according to independent analysts? How will he meet this balance of payments problem? If he tries to meet it by deflation, that will stop growth. If he tries to meet it by sinking the £ further or by further devaluation, he will wreck his whole policy against inflation.

A point which has been curiously ignored by the Government in the debate so far is that 2 per cent. of the increase in prices this year will come about as a direct result of the floating of the £, for which the Chancellor accepted responsibility last June. Indeed, the risk we face at present is that the so-called J-curve—we all know that the immediate result of a devaluation is to send our balance of payments down—will turn into a U-curve, and perhaps a double U-curve. But what the world wants to know is how the Chancellor will maintain growth without a collapse in the balance of payments and how he will deal with a balance of payments collapse without taking measures which will either wreck growth or wreck his counter-inflationary policy.

I confess that I find it difficult to see any way out of this dilemma without some form of encouragement to exports, which will wreck the Prime Minister's one great achievement, the only thing he promised at the General Election which he actually carried out, and that was taking Britain into the Common Market. I cannot see how the Chancellor—perImps he will answer this question—is to deal with the balance of payments problem this year without once again breaking the commitments that the Prime Minister has made to the Common Market, as he broke them when he floated the £ only six weeks after a promise by the Prime Minister last June. We shall be discussing these issues during the Budget debates also. But the resolution of these issues is absolutely vital to the success of the Government's policy for dealing with inflation, as are some of the tax matters with which we shall be dealing in the debates on the Budget.

Let us for a moment isolate the problem of inflation from the rest of the morass into which Government policy has led us. The Government are attempting to deal with the problem of inflation by limiting the freedom of the market economy. We on this side of the House believe that the Chancellor is absolutely right to do this, but in seeking to solve the problem in this way one presumes that he has spent some time looking at the lessons of experience—our own experience in the Labour Government, of which both the present Prime Minister and the Chancellor were so contemptuous at the time, the experiences of other European countries and, above all, the experience of the United States under President Nixon during the last two years.

If there is one lesson which stands out from this experience in so many countries, it is that no policy for wages and prices will work if it is opposed by the majority of trade unionists, whether it is statutory or not. If the Chancellor has talked to Mr. Jackson Grayson or to Mr. Arthur Burns or anybody else concerned with the Nixon policy, he will know that such people will make that the basis of everything they have to say, as indeed Mr. Grayson did in an interview which was shown twice on British television during the last week.

Under the Nixon policy the statutory sanctions provided for were never once used against the workers or the trade unions in the pursuit of the wages element in their policy. But the statutory powers were used 300 times a week on average in rolling back prices. I agree very much with what my hon. Friend the Member for Stockton-on-Tees (Mr. William Rodgers) said in a most thoughtful speech about the importance, if this side of the Government's policy is to work, of making the machinery as tough, ruthless and effective as the machinery under Mr. Jackson Grayson proved to be in the United States.

The lesson of the American experience, as indeed of our own experience, both of its successes and failures—we had both during our prices and incomes policy—is that effective action on the cost of living is the first condition of support from trade unionists and, indeed, from ordinary working people and their wives. Yet in the Government's policy the main elements in the cost of living are totally untouched. Food, housing and land are not covered in any way by the proposals that we are debating today. The Government still insist on the right to push up rents as a deliberate act of policy once again at the beginning of the freeze this spring and to introduce a value added tax which, if it is introduced at 10 per cent., will mean at least a 1 per cent. rise in the cost of living if there is no fiddling and even if it is reduced to 7½ per cent. will mean a rise in the cost of living for millions of people because, as the Government never seem to realise, what is important in these areas is not statistical averages but how precise changes in the prices of particular commodities could affect particular groups in this country.

This question of food is the issue which by itself can wreck the Government's attempt to control inflation. Even the Nixon policy in the United States is well nigh being wrecked by the rise in food prices, and this is one reason why the American Administration has decided to abandon statutory control at this moment. Indeed, in the month before phase 2 of the American policy ended prices were rising at 3.6 per cent., which was nearly 60 per cent. higher than the highest target which the American Government set themselves.

For the Americans, some control of food prices presents fewer problems than it does for this country because they produce most of their own food. They can act on food prices by pushing the agriculture Minister and the farmers around, as Mr. Grayson did. But we do no have the option open to us. Any improvement we can make in our own production is bound to be slow in coming and would have only a marginal effect on the actual price of food in this country.

The only way by which we can hope to act on food prices at large in this country is by some sort of financial support. We can do a certain amount, of course, by standing up to pressure from the European Community. The Ministry of Agriculture has had to admit today that the agreement made in the small hours of this morning by the Minister in Brussels will send up the price of bacon and pork later in the summer just when the new phase 2 policy is getting into its stride.

Moreover even the Prime Minister will not deny, when he talks hopefully about a fall in world food prices, that the common agricultural policy will prevent us from taking advantage of that fall. Indeed, his secret hope is that world food prices will continue rising so that in the end the common agricultural policy by itself does not lead to an increase in the cost of food for Britain.

I believe that there is no escape from this dilemma. If the Government want their counter-inflation policy to work, they must be prepared to subsidise certain key foodstuffs at certain levels. This will mean increases in taxation, and I shall come to that in a moment. It is no good the Prime Minister talking about rationing, since, if he has taken the trouble to look up the figures, he must know that food consumption per head in Britain is now 20 per cent. lower than it was in the last quarter when rationing was in force in 1954.

The Prime Minister has no objection in principle to subsidies, for he is subsidising coal and fares already. If I may help the right hon. Gentleman, who is in anxious consultation with the Chancellor of the Exchequer——

Mr. Tapsell rose——

Mr. Healey

May I help the Prime Minister before I give way? The figures are 13.81 ounces [HON. MEMBERS: "Where from?"] From the food survey published by the Ministry. It is 13.81 ounces per head—[HON. MEMBERS: "Of what?"] Of carcase meats generally. The figures for beef are much less favourable; I am taking carcase meats generally, and that is why I took them. [HON. MEMBERS: "The right hon. Gentleman said 'food'."] I referred to meat. [HON. MEMBERS: "No, food."] If I said "food", I apologise. It was a slip of the tongue. If the Chancellor or the Prime Minister can deny those figures, I invite them to do so in a moment.

I have pointed out that the Prime Minister is already subsidising fares and coal through the financial help being given by the Chancellor to the nationalised industries concerned. The plain truth is that, unless the Prime Minister and the Chancellor take action of this nature on food prices, and unless they take the sort of action on land prices and on housing suggested by my right hon. Friend, millions of people will be even worse off as a result of the Government's anti-inflationary policy than they are today.

When we turn to the incomes side of the policy, we find a very different picture. It is difficult to discuss the incomes side because so much will depend on the code which the Government have so far failed to produce to the House. We do not yet know the rules and regulations according to which the board supposed to control incomes and profits will be operating. But what we do know is that there will be gross injustice to the mass of the British people unless the Chancellor changes the rates and conditions of tax which he forced through the House in last year's Finance Bill and which are due to come into operation in April this year at the very beginning when phase 2 of the wages policy will come into effect if the Government get their way.

The Prime Minister, as he knows very well, will make £320 million out of this. [Laughter.] I am sorry. I should have said £320. The Prime Minister and his acolytes may laugh but at the very moment when he is imposing these retraints on the civil servants, contrary to the Priestley Commission's recommendations, he will gain to that extent. He will get more in tax relief than the largest amount allowed under the pay restrictions. The position on dividends is even worse. On the face of it they will be allowed to increase by only 5 per cent. next year but, because of the change in the taxation of dividends up to £2,000, that 5 per cent. increase will represent a 20 per cent. increase in take-home pay for dividend holders who are lucky enough to get it. The precise figure is 18.2 per cent. That, of course, does not take account of the innumerable fiddles on trust funds which have been made possible under the Chancellor's tax policy over the last three years. The Chancellor can still give away £50 million of this at the lower end of the scale. The whole benefit of his tax reforms this year should give £250 million in subsidies on food which would represent an across-the-board subsidy of about 3 or 4 per cent. It is no good the Prime Minister introducing a policy to compress the differentials for people earning up to £100 a week if the Chancellor's deliberate policy is to increase the differentials for those earning more.

We want an assurance from the Chancellor tonight that he will include expense accounts and fringe benefits in the code as being subject to the same controls as wages. There is no chance of the new policy working unless he clears away the wreckage of the old policy which is still infesting the area in which the new policy has to operate.

If I may now conclude—[HON. MEMBERS "Hear, hear."] I know that Conservative Members would like me to sit down. They cannot take it. [Laughter.]

The Prime Minister

Before the right hon. Gentleman concludes, will he deal with one point? He has spoken with such approval of the American experience and of the very few cases that it was necessary to bring in relation to incomes. Will he tell the House that the reason for this was that the American trade union movement, which is not allied to any one party, fully accepted the President's policy even though it disagreed with him violently on particular political issues? The reason why the President has been able to go back to a voluntary policy is that the trade unions have asked to do so and to work a voluntary agreement in accordance with the guidelines.

Mr. Healey

I am grateful to the Prime Minister because he enables me to conclude with perhaps the most important single issue raised in the White Paper. I said earlier, as every American spokesman has said, that it is impossible to make a policy against inflation work along those lines without at least the acquiescence and, hopefully, the support of the trade union movement. Whatever one may think about particular political attitudes and policies, it is a fact, as the Prime Minister knows, that the whole time that President Nixon has been in power he has concentrated his efforts on making friends with the American trade union movement. The whole time the right hon. Gentleman has been in power he has concentrated his efforts on dividing the nation and making an enemy of the trade union movement.

Unless the Prime Minister makes up his mind whether his policy is to reunite the nation, unless he is prepared to listen to the ordinary men and women who are represented on the General Council of the Trade Union Congress, unless he is prepared to bend his rigid dogmas in order to meet their natural aspirations, there is no chance of the policy succeeding. Let him not imagine that there is now any option left open to him to return to the old policy after another election fought on union-bashing.

The old policy failed not through lack of time or power but because it was bound to fail. The new policy will fail for the same reasons, because the Prime Minister has shown himself totally incapable of understanding the feelings and emotions of ordinary men and women in asking for wage increases. Everything that the Prime Minister said today reinforced mil, conviction that this is so. It is for this reason that his policy will fail and we will vote against it tonight. It is for this reason that we will vote against it on Second Reading on Monday.

9.30 p.m.

The Chancellor of the Exchequer (Mr. Anthony Barber)

As the House knows the Budget this year will be on 6th March, which is just under six weeks away. This will be the earliest Budget for more than 70 years. The reason is that in last year's Finance Act the standard rate of VAT was provisionally fixed at 10 per cent. and as the House knows it has always been made clear that the final decision would be announced sometime before 1st April when VAT becomes operative.

Opening the Budget on 6th March will enable that decision to be taken in the context of the Budget as a whole. As my predecessors who are still in the House will know from experience, with the Budget less than six weeks away I am necessarily speaking under some constraints. [HON. MEMBERS: "Oh."] But on the main theme of this debate there is certainly no call for reticence because the programme for controlling inflation which we have been debating today and which we shall continue when we come to continue the Bill is central to our economic policy, as I shall explain.

If the Leader of the Opposition and the right hon. Member for Leeds. East (Mr. Healey) were to express their true convictions they would agree with us and the nation that the action we are taking is both necessary and fair. Let the House be in no doubt on one point which has arisen on a number of occasions during the course of the debate. Many hon. and right hon. Members on both sides have expressed their distaste for the statutory control of prices and pay—

Mr. Stanley Orme (Salford, West)

Just as you used to.

Mr. Barber

They were right to do so. In this the Government and the Opposition are at one. It is almost universally accepted in the House that a voluntary agreement is better than a statutory arrangement. On this there are two points to be made.

The first is that the Leader of the Opposition this afternoon referred to the part played by the Prime Minister during the tripartite talks and the bilateral talks which we had with the TUC, the CBI and the retailers. He said that my right hon. Friend should have striven harder to attain a voluntary agreement. I have said it before, and I repeat it now no one could have tried harder than my right hon. Friend to reach a voluntary agreement with the TUC and the CBI.

In view of the observations of the Leader of the Opposition I will also say—and he will appreciate the significance of this—that there were others at the other side of the table who also tried hard and took a very different view on these matters from the view taken and expressed by some hon. and right hon. Gentlemen.

Mr. Orme

Name them.

Mr. Barber

One thing is quite certain. There has been from the trade union movement, unlike hon. Gentlemen opposite, very little recrimination as a result of the breakdown of those talks. [Interruption.] This leads me to the second point—would the hon. Gentleman like to intervene?

Mr. Orme

If the right hon. Gentleman is talking about divisions in the trade union movement when, with only one dissentient voice, the Economic Committee of the TUC expressed utter and complete opposition to this policy, he should name the people in favour of the Government's policy. Name the trade union leaders.

Mr. Barber

I am coming shortly—

Mr. Orme

Name them.

Mr. Barber

I propose very shortly to quote something from the TUC which will be of particular interest to the hon. Gentleman as a member of the Labour Party. What I can tell him is that those people who sat opposite my right hon. Friend and myself and other colleagues took a very different line of approach to these matters from the ones taken by many people in the Labour Party.

Mr. Harold Wilson

Seeing that the right hon. Gentleman needs a little help to get through his speech by inviting interruptions, and since he referred to me, may I ask him to produce the evidence for the assertion of the Prime Minister and himself that the people are behind phase 2?

Mr. Barber

Yes, indeed. It has been clear from the polls which have been taken and from certain newspapers, which do not always support the Conservative Party—for example, the Daily Mirror and the Sun—that they support the policy we are pursuing.

Mr. Wilson

Since the right hon. Gentleman has referred to polls, is he aware that the Daily Mail poll gave him a raspberry and that in the Sunday Times poll the question put was, "Do you agree with the Prime Minister's policy of a £5 a week increase?" The only people who will get £5 a week under the £1 plus 4 per cent. policy are those on £100 a week. Obviously they agree with it.

Mr. Barber

If the right hon. Gentleman wants to put the matter to the test he can do what one of my hon. Friends suggested and that is to enable a by-election to take place at Lincoln.

The arrangements we have been discussing today, including in particular the framework in the Bill which we are to debate next Monday, are consistent with a voluntary arrangement. In this respect the statutory framework is quite different from previous legislation on this subject. It is because the fight against inflation will continue for a long time to come that our proposals include continuing machinery which can be used for either voluntary control or statutory control; and even during the next stage we shall rely on voluntary co-operation to the maximum extent that is forthcoming.

But the crucial point which the House must recognise and which I believe the country accepts is this. Once the talks had broken down last November, and once it became clear that there could be no agreement on the policy which was to follow the standstill, it was inconceivable that, in the national interest, the Government should not carry out their responsibility and legislate. To have failed in this respect would have been the negation of government. What my hon. Friend the Member for Horncastle (Mr. Tapsell) said on this point was absolutely right. We are asking Parliament to give the Government and the agencies the power for a three-year period because this time there can be no question of abandoning the responsibilities of government, as did the right hon. Gentleman the Leader of the Opposition and the previous Administration.

However, it is in no way inconsistent with this determination——

Mr. Kevin McNamara (Kingston upon Hull, North) rose——

Mr. Barber

I cannot give way. The right hon. Member for Leeds, East spoke to a quiet House for half an hour. I have a great deal to say and I hope that I shall be given an equally fair hearing.

However, it is in no way inconsistent with this determination to say that the sooner we can return to some form of free collective bargaining which does not stimulate an unacceptable rate of inflation the better. We have throughout made this clear to the TUC. I say to my hon. Friend the Member for Aylesbury (Mr. Raison) that we have no wish to maintain the system of statutory controls a moment longer than is necessary, but let there be no misunderstanding: till we find a solution—and it should be worked out with the TUC and the employers—till we find a solution which reconciles free collective bargaining and the control of inflation the duty of the Government is clear and we shall discharge it.

I referred to the way in which the previous Government abandoned their responsibilities, but in fairness to the previous Government I should add this. I believe that the nation now has a much better understanding of the relationship between pay and prices. When the Leader of the Opposition said—I will quote him with approval—that one man's pay increase was another man's price increase, the man in the street thought that the right hon. Gentleman was telling him something rather novel. There is now a much greater awareness of the evils of inflation. There is widespread resentment at the spectre of excessive pay increases going to those who merely shout the loudest or who strike the longest. It is now well understood that inflation threatens employment. It is accepted that if our export prices rise faster than those of our international competitors the sterling exchange rate is threatened with inevitable consequences to the cost to our country of our imports of food and raw materials. For all these reasons the British people, and those newspapers which, as I said, are not normally the most vehement supporters of the Conservative Party, have applauded the action which we have taken.

There is another and more fundamental reason why the situation is now quite different from those previous occasions when the Labour Government tried and failed. It is this. The whole purpose of the Labour Government's legislation on prices and pay—and I do not at this stage argue whether it is the right policy or the wrong policy—was to bolster up an economic policy of restriction reinforced by the most swingeing increases in taxation which this country has ever known. The policy which the House is now asked to approve is being introduced for precisely the opposite reason, to sustain one of the fastest rates of economic growth this country has ever known, a rate of economic growth, I may say, which has been deliberately stimulated by a whole series of tax cuts on an unprecedented scale. The result was that under the previous Administration the lower income groups suffered most. The right hon. Gentleman say they did not, but I am quoting from the TUC, and I think the right hon. Gentleman should read the words and I will put them in context in a moment.

I said that under the previous Administration the lower income groups suffered most. Under our proposals the emphasis is on priority for the lower paid. I am, frankly, astonished that the right hon. Gentleman should query what I said about what happened under his Administration. He has the nerve to talk about social justice. The House may like to know that soon after the election, soon after I became Chancellor of the Exchequer, the TUC produced a report on its experience under the previous Labour Administration, and I studied it with care, and this is what it said: Real wages and real disposable incomes advanced slowly between 1965 and 1969. There was a rise in real weekly earnings for male manual workers of only 7 per cent. over the whole of the four years. This overstates the rise in disposable income because the proportionate burden of taxation falling on working class households increased significantly. When this is taken into account the rise in disposable average earnings for male manual workers can only have been at an average of just over 1 per cent. per annum over those four years. The fact that the Government's incomes policy norm was set in percentage terms also meant that the lower income groups suffered most in terms of their absolute spending power. This effect became more and more marked in 1968 and 1969. I understand that the Labour Party has been having some discussions with the TUC on how to combine pay restraint with its policy of high taxation. It is perhaps not very surprising that not much distance has been made in those discussions, because this is how the TUC summed up its experience of the Labour Government. I ask the right hon. Gentleman the Leader of the Opposition in particular to mark these words: It is clear therefore that the origins and continued severity of the present wage-price spiral… that is in 1970–71: …can be seen in the deflationary policies pursued by the Government. —the Labour Government. So the TUC has no doubt whatsoever where the responsibility lay.

In the longer term, as my hon. Friend the Member for Leek (Mr. Knox) said, there is only one way of raising the level of real wages and that is through the nation's economic performance. That means a faster rate of economic growth. There is no other road to prosperity. There is no short cut. It is precisely because of this hard economic fact that the Government have taken two fundamental decisions of policy.

The first was to gear all our actions to a rate of growth far higher than we had achieved over the previous decade, and we are now achieving it. The second was to take whatever action was necessary to ensure that a faster growth rate was not frustrated by inflation. That is the overriding purpose of the policy which my right hon. Friend put before the country last Wednesday and which we have been debating today—to sustain faster growth for real prosperity.—[HON. MEMBERS: "How long?"] One only has to look at the economic performance of our principal overseas competitors to realise that for far too long the quality of life in this country has been impaired by the inadequacy of real incomes and by the social problems which are in part the consequence of slow growth.

The solution to these problems is to be found primarily in improving our economic performance. Over the past 2½ years our policies have been designed to do just that. [HON. MEMBERS: "Oh."] I did not understand what the right hon. Member for Leeds, East meant when he said that we have failed to get the economy growing.

Mr. Healey


Mr. Barber

The right hon. Gentleman says, "Yes", but the latest indicators of demand and activity leave no room for doubt that we are achieving our objective.

Mr. Healey

The right hon. Gentleman produced one million unemployed and he is just beginning to take up the slack. He has reduced unemployment to a level which is still higher than it has been at any other time since the war and he calls that economic growth.

Mr. Barber

If the right hon. Gentleman, who predicted that there would be no improvements—[HON. MEMBERS: "Answer."]—does not think that two of the best indicators of growth are the level of employment and industrial production, all I can say is that he has not the slightest idea how these things work. There is no doubt that the information which we have, taken together—and this applies also to outside commentators—clearly indicates an expansion of the economy which is broadly consistent with the forecast I made in my Budget speech last year.

These are the results of our determination to pursue an economic policy of expansion and growth, but if faster growth is not to be a transitory affair, if real incomes and real living standards are to continue to rise at an acceptable rate, and if we are to maintain our efforts to improve social conditions, and to achieve better housing, hospitals and schools, inflation must be brought under control.

Inflation represents the biggest single threat to the progress which we have made in improving our economic performance. My right hon. Friend and I are not prepared to jettison the one hope the country has of sustaining a faster growth of prosperity. The alternatives are stark and unacceptable. Inflation generates uncertainty and unemployment. It destroys our international effectiveness. It reduces the willingness to invest and it eats away at our social fabric.

During our first year in government prices rose by over 10 per cent. and wages rose by about 14 per cent., for the reasons which the TUC gave. Under the impact of the CBI price restraint initiative, matched by the nationalised industries, cuts in SET and purchase tax, and also by a de-escalation in pay settlements, considerable success was achieved in moderating the rate of increase of prices and pay. A year later the rise in prices was down to under 6 per cent. from 10 per cent.—in what I may call the hangover year from Socialism—[Interruption]—and the rise in pay was down to about 11 per cent. Nobody would deny——

Mr. Healey

The right hon. Gentleman elegantly referred to the hangover year from Socialism. Does he agree that that hangover alone was responsible for the £1,000 million balance of payments surplus which the Government squandered?

Mr. Barber

I should have thought that the right hon. Gentleman would have known by now that the high balance of payments surplus was directly related to the rising unemployment which his party initiated, and also to the stagnating economy. However much the Opposition may try to disguise them, two things are beyond dispute. First——

An Hon. Member

Your incompetence.

Mr. Barber

I hope that hon. Members will listen. First, the Labour Party, in the words of the right hon. Member for Grimsby (Mr. Crosland): Still lack even the shimmering of an anti-inflationary policy. We have heard from the right hon. Gentleman the Leader of the Opposition and the right hon. Member for Leeds. East little more than a cornucopia of carping and quibbling complaints. We have heard nothing about a solution to the nation's economic prosperity. The second matter which is beyond dispute is that the policy presented by my right hon. Friend has been widely welcomed throughout the country. As I pointed out a moment ago to the right hon. Member for Leeds, East, the verdict of the Daily Mirror was: There is no other way. But in fact there was another way. We could, instead, have pursued a policy of deflation by abandoning our fast rate of growth, by cutting back all round and by piling on massive increases in taxation. That was precisely the policy which was pursued by the right hon. Gentleman and his Administration. To do the Opposition full justice, they had both deflation and a compulsory incomes policy.

Hon. Members

And you will have it.

Mr. Harold Wilson

£3 billion.

Mr. Barber

I will come to that figure. In a series of hammer blows the right hon. Gentleman and his Government raised the rate of purchase tax on petrol, tobacco and alcohol by a staggering £1,200 million a year. At today's rate—[Interruption.] The right hon. Gentleman should listen. At today's rate that is virtually equal to the whole of the yield on value added tax. If one adds vehicle licensing, gambling and selective employment tax, it is no wonder that the Labour Government's taxation increases alone put up the retail price index by 7 per cent. Their idea of tax reform was to increase high-yield taxes and reduce low-yield taxes. I think that the only thing they did not raise was dog licences. They raised a total of £3,000 million in extra taxation.

Now, however, the Opposition have the impertinence to urge the present Government to reduce the rate of value added tax. If we were to follow the example of the last Government and deal with inflation by putting up taxation by £3,000 million, does the right hon. Gentleman know what that would mean? It would mean imposing VAT at a rate not of 10 per cent. but of 25 per cent. That is the simple measure of the additional burden of taxation which the Opposition piled on the British people. So let us have no more of this nonsense of the right hon. Gentleman pleading for a lower rate of VAT. Coming from the Labour Party, it does not exactly have the ring of sincerity.

A number of right hon. and hon. Members have raised the question of the money supply. I want briefly to refer to this and I shall obviously deal with it at some length in my Budget speech, now only six weeks away. The growth of money supply shown in the latest figures is still too fast in relation to our objective of rapid economic growth and steadier prices, and this is why we have taken strong restraining action recently. The important point is that the effects of this action are not yet reflected in the published figures, but I can tell the House that the further special deposits paid in by the banks and the finance houses this month will, together with the call-in last November, reduce their reserve base by nearly £700 million, which is a very considerable amount.

Before I sit down, I would like to say this about the right hon. Member for Leeds, East. We always listen with attention to him but I do not think that people always take too seriously everything that he says. The trouble is that he will stick his neck out. He told us last year that we cannot look forward to any significant fall in unemployment over the coming year."—[OFFICIAL REPORT, 20th April, 1972; Vol. 835, c. 797.] In fact, there has been the biggest fall for 30 years. What today's debate has made crystal clear is that the Opposition have no coherent policy for tackling inflation. The right hon. Gentleman and his colleagues are more concerned to defeat the Government than to defeat inflation but they will be bitterly disappointed. Led by my right hon. Friend the Prime Minister and with the backing of public opinion, we shall succeed.

Mr. Kevin McNamara (Kingston upon Hull, North) rose——

Mr. Speaker

Order. There is only about one minute to go. Mr. McNamara.

Mr. McNamara rose——

The Parliamentary Secretary to the Treasury (Mr. Francis Pym) rose in his

place and claimed to move, That the Question be now put.

Question, That the Question be now put, put and agreed to.

Question put accordingly, That this House do now adjourn:—

The House divided: Ayes 252, Noes 290.

Division No. 36.] AYES [10.0 p.m.
Abse, Leo Ellis, Tom Lestor, Miss Joan
Albu, Austen English, Michael Lewis, Arthur (W. Ham, N.)
Allaun, Frank (Salford, E.) Evans, Fred Lewis, Ron (Carlisle)
Allen, Scholefield Ewing, Harry Lipton, Marcus
Archer, Peter (Rowley Regis) Faulds, Andrew Lomas, Kenneth
Armstrong, Ernest Fitt, Gerard (Belfast, W.) Loughlin, Charles
Ashley, Jack Fletcher, Ted (Darlington) Lyon, Alexander W. (York)
Ashton, Joe Foot, Michael Lyons, Edward (Bradford, E.)
Atkinson, Norman Ford, Ben Mabon, Dr. J. Dickson
Bagier, Gordon A. T. Forrester, John McBride, Neil
Barnes, Michael Fraser, John (Norwood) McCartney, Hugh
Barnett, Guy (Greenwich) Freeson, Reginald McElhone, Frank
Barnett, Joel (Heywood and Royton) Galpern, Sir Myer McGuire, Michael
Beaney, Alan Garrett, W. E. Mackenzie, Gregor
Benn, Rt. Hn. Anthony Wedgwood Gilbert, Dr. John Mackie, John
Benne[...], James (Glasgow, Bridgeton) Ginsburg, David (Dewsbury) Mackintosh, John P.
Bidwell, Sydney Golding, John McMillan, Tom (Glasgow, C.)
Bishop, E. S. Gourlay, Harry McNamara, J. Kevin
Blenkinsop, Arthur Grant, George (Morpeth) Mahon, Simon (Bootle)
Boardman, H. (Leigh) Grant, John D. (Islington, E.) Mallalieu, J. P. W. (Huddersfield, E.)
Booth, Albert Griffiths, Eddie (Brightside) Marks, Kenneth
Bottomley, Rt. Hn. Arthur Griffiths, Will (Exchange) Marsden, F.
Broughton, Sir Alfred Hamilton, James (Bothwell) Marshall, Dr. Edmund
Brown, Robert C. (N'c'tle-u-Tyne,W) Hamilton, William (Fife, W.) Mason, Rt. Hn. Roy
Brown, Hugh D. (G'gow, Provan) Hamling, William Mayhew, Christopher
Brown, Ronald (Shoreditch & F'bury) Hannan, William (G'gow, Maryhill) Meacher, Michael
Buchan, Norman Hardy, Peter Mendelson, John
Buchanan, Richard (G'gow, Sp'burn) Harper, Joseph Mikardo, Ian
Butler, Mrs. Joyce (Wood Green) Harrison, Walter (Wakefield) Millan, Bruce
Callaghan, Rt. Hn. James Hart, Rt. Hn. Judith Miller, Dr. M. S.
Campbell. I. (Dunbartonshire, W.) Hattersley, Roy Milne, Edward
Cant, R. B. Healey, Rt. Hn. Denis Mitchell, R. C. (S'hampton, Itchen)
Carmichael, Neil Heffer, Eric S. Morgan, Elystan (Cardiganshire)
Carter, Ray (Birmingh'm, Northfield) Hilton, W. S. Morris, Alfred (Wythenshawe)
Carter-Jones, Lewis (Eccles) Horam, John Morris, Charles R. (Openshawe)
Castle, Rt. Hn. Barbara Houghton, Rt. Hn. Douglas Morris, Rt. Hn. John (Aberavon)
Clark, David (Colne Valley) Howell, Denis (Small Heath) Moyle, Roland
Cohen, Stanley Huckfield, Leslie Mulley, Rt. Hn. Frederick
Concannon, J. D. Hughes, Rt. Hn. Cledwyn (Anglesey) Murray, Ronald King
Conlan, Bernard Hughes, Mark (Durham) Oakes, Gordon
Corbet, Mrs. Freda Hughes, Robert (Aberdeen, N.) Ogden, Eric
Crawshaw, Richard Hughes, Roy (Newport) O'Halloran, Michael
Crosland, Rt. Hn. Anthony Hunter, Adam O'Malley, Brian
Crossman, Rt. Hn. Richard Irvine, Rt. Hn. Sir Arthur (Edge Hill) Oram, Bert
Cunningham, G. (Islington, S.W.) Janner, Greville Orbach, Maurice
Cunningham, Dr. J. A. (Whitehaven) Jay, Rt. Hn. Douglas Orme, Stanley
Dalyell, Tam Jeger, Mrs. Lena Oswald, Thomas
Davidson, Arthur Jenkins, Hugh (Putney) Padley, Walter
Davies, G. Elfed (Rhondda, E.) John, Brynmor Paget, R. T.
Davies, Ifor (Gower) Johnson, Carol (Lewisham, S.) Palmer, Arthur
Davis, Clinton (Hackney, C.) Johnson, James (K'ston-on-Hull, W.) Pannell, Rt. Hn. Charles
Davis, Terry (Bromsgrove) Johnson, Walter (Derby, S.) Parker, John (Dagenham)
Deakins, Eric Jones, Rt. Hn. Sir Elwyn (W. Ham, S.) Parry, Robert (Liverpool, Exchange)
de Freitas, Rt. Hn. Sir Geoffrey Jones, Gwynoro (Carmarthen) Pavitt, Laurie
Delargy, Hugh Jones, T. Alec (Rhondda, W.) Pendry, Tom
Dell, Rt. Hn. Edmund Kaufman, Gerald Perry, Ernest G.
Dempsey, James Kelley, Richard Prentice, Rt. Hn. Reg.
Doig, Peter Kerr, Russell Prescott, John
Dormand, J. D. Kinnock, Neil Price, J. T. (Westhoughton)
Douglas, Dick (Stirlingshire, E.) Lambie, David Price, William (Rugby)
Douglas-Mann, Bruce Lamborn, Harry Probert, Arthur
Duffy, A. E. P. Lamond, James Reed, D. (Sedgefield)
Dunnett, Jack Latham, Arthur Rees, Merlyn (Leeds, S.)
Eadie, Alex Lawson, George Rhodes, Geoffrey
Edelman, Maurice Leadbitter, Ted Richard, Ivor
Edwards, Robert (Bilston) Lee, Rt. Hn. Frederick Roberts, Albert (Normanton)
Edwards, William (Merioneth) Leonard, Dick Roberts, Rt. Hn. Goronwy (Caernarvon)
Robertson, John (Paisley) Stallard, A. W. Wellbeloved, James
Roderick, Caerwyn E. (Brc'n&R'dnor) Stoddart, David (Swindon) Wells, William (Walsall, N.)
Rodgers, William (Stocklon-on-Tees) Slonehouse, Rt. Hn. John White, James (Glasgow, Pollok)
Roper, John Strang, Gavin Whitehead, Phillip
Ross, Rt. Hn. William (Kilmarnock) Strauss, Rt. Hn. G. R. Whitlock, William
Rowlands, Ted Summerskill, Hn. Dr. Shirley Willey, Rt. Hn. Frederick
Sandelson, Neville Swain, Thomas Williams, Alan (Swansea, W.)
Sheldon, Robert (Ashton-under-Lyne) Thomas, Rt. Hn. George (Cardiff, W.) Williams, Mrs. Shirley (Hitchin)
Shore, Rt. Hn. Peter (Stepney) Thomas, Jeffrey (Abertillery) Williams, W. T. (Warrington)
Short, Rt.Hn. Edward (N'c'tle-u-Tyne) Tinn, James Wilson, Alexander (Hamilton)
Short, Mrs. Renée (W'hampton, N. E.) Torney, Tom Wilson, Rt. Hn. Harold (Huyton)
Silkin, Rt. Hn. John (Deptford) Tuck, Raphael Wilson, William (Coventry, S.)
Silkin, Hn. S. C. (Dulwich) Urwin, T. W. Woof, Robert
Sillars, James Varley, Eric G.
Silverman, Julius Walden, Brian (B'm'ham, All Saints) TELLERS FOR THE AYES:
Skinner, Dennis Walker, Harold (Doncaster)
Smith, John (Lanarkshire, N.) Wallace, George Mr. James A. Dunn and
Spearing, Nigel Watkins, David Mr. Michael Clocks.
Spriggs, Leslie Weitzman, David
Adley, Robert Dodds-Parker, Sir Douglas Hordern, Peter
Alison, Michael (Barkston Ash) Douglas-Home, Rt. Hn. Sir Alec Hornby, Richard
Allason, James (Hemel Hempstead) Drayson, G. B. Hornsby-Smith, Rt. Hn. Dame Patricia
Amery, Rt. Hn. Julian du Cann Rt. Hn. Edward Howe, Rt. Hn. Sir Geoffrey
Archer, Jeffrey (Louth) Dykes, Hugh Howell, David (Guildford)
Astor, John Eden, Rt. Hn. Sir John Howell, Ralph (Norfolk, N.)
Atkins, Humphrey Edwards, Nicholas (Pembroke) Hutchison, Michael Clark
Awdry, Daniel Elliot, Capt. Walter (Carshalton) Iremonger, T. L.
Baker, Kenneth (St. Marylebone) Elliott, R. W. (N'c'tle-upon-Tyne,N.) Irvine, Bryant Godman (Rye)
Baker, W. H. K. (Banff) Emery, Peter James, David
Balniel, Rt. Hn. Lord Eyre, Reginald Jenkin, Patrick (Woodford)
Barber, Rt. Hn. Anthony Fell, Anthony Jennings, J. C. (Burton)
Batsford, Brian Fenner, Mrs. Peggy Jessel, Toby
Bell, Ronald Fidler, Michael Johnson Smith, G. (E. Grinstead)
Bennett, Dr. Reginald (Gosport) Finsberg, Geoffrey (Hampstead) Johnston, Russell (Inverness)
Benyon, W. Fisher, Nigel (Surbiton) Jones, Arthur (Northants, S.)
Berry, Hn. Anthony Fletcher-Cooke, Charles Jopling, Michael
Bitten, John Fookes, Miss Janet Joseph, Rt. Hn. Sir Keith
Biggs-Davison, John Fortescue, Tim Kaberry, Sir Donald
Blaker, Peter Foster, Sir John Kellett-Bowman, Mrs. Elaine
Boardman, Tom (Leicester, S.W.) Fowler, Norman Kershaw, Anthony
Body, Richard Fox, Marcus Kimball, Marcus
Boscawen, Hn. Robert Fraser, Rt. Hn. Hugh (St'fford & Stone) King, Evelyn (Dorset, S.)
Bossom, Sir Clive Fry, Peter King, Tom (Bridgwater)
Bowden, Andrew Galbrailh, Hn. T. G. D. Kinsey, J. R.
Braine, Sir Bernard Gardner, Edward Knight, Mrs. Jill
Brinton, Sir Tatton Gibson-Watt, David Knox, David
Brown, Sir Edward (Bath) Gilmour, Ian (Norfolk, C.) Lambton, Lord
Bruce-Gardyne, J. Gilmour, Sir John (Fife, E.) Lamont, Norman
Bryan, Paul Glyn, Dr. Alan Lane, David
Buchanan-Smith, Alick (Angus, N&M) Godber, Rt. Hn. J. B. Langford-Holt, Sir John
Buck, Antony Goodhart, Philip Le Merchant, Spencer
Bullus, Sir Eric Goodhew, Victor Lewis, Kenneth (Rutland)
Burden, F. A. Gorst, John Lloyd, Ian (P'tsm'th, Langstone)
Butler, Adam (Bosworth) Gower, Raymond Longden, Sir Gilbert
Campbell, Rt. Hn. G. (Moray&Nairn) Grant, Anthony (Harrow, C.) Loveridge, John
Carlisle, Mark Gray, Hamish Luce, R. N.
Carr, Rt. Hn. Robert Green, Alan McAdden, Sir Stephen
Cary, Sir Robert Griffiths, Eldon (Bury St. Edmunds) MacArthur, Ian
Channon, Paul Grylls, Michael McCrindle, R. A.
Chapman, Sydney Gummer, J. Selwyn McLaren, Martin
Chataway, Rt. Hn. Christopher Gurden, Harold McMaster, Stanley
Chichester-Clark, R. Hall, Miss Joan (Kelghley) Macmillan, Rt. Hn. Maurice (Farnham)
Churchill, W. S. Hall, John (Wycombe) McNair-Wilson, Michael
Clark, William (Surrey, E.) Hall-Davis, A. G. F. McNair-Wilson, Patrick (New Forest)
Clarke, Kenneth (Rushcliffe) Hamilton, Michael (Salisbury) Maddan, Martin
Cooke, Robert Hannam, John (Exeter) Madel, David
Coombs, Derek Harrison, Col. Sir Harwood (Eye) Maginnis, John E.
Cooper, A. E. Haselhurst, Alan Marples, Rt. Hn. Ernest
Cordle, John Hastings, Stephen Marten, Neil
Corfield, Rt. Hn. Sir Frederick Havers, Sir Michael Mather, Carol
Cormack, Patrick Hawkins, Paul Maude, Angus
Costain, A. P. Hay, John Maudling, Rt. Hn. Reginald
Crouch, David Hayhoe, Barney Mawby, Ray
Crowder, F. P. Heath, Rt. Hn. Edward Maxwell-Hyslop, R. J.
Dalkeith, Earl of Heseltine, Michael Meyer, Sir Anthony
Davies, Rt. Hn. John (Knutsford) Hicks, Robert Mills, Peter (Torrington)
d'Avigdor-Goldsmid, Sir Henry Higgins, Terence L. Mills, Stratton (Belfast, N.)
d'Avigdor-Goldsmid, Maj-Gen. Jack Hiley, Joseph Miscampbell, Norman
Dean, Paul Hill, John E. B. (Norfolk, S.) Mitchell. Lt. -Col. C. (Aberdeenshire,W)
Deedes, Rt. Hn. W. F. Hill, James (Southampton, Test) Mitchell, David (Basingstoke)
Dixon, Piers Holland, Philip Moate. Roger
Molyneaux, James Reed, Laurance (Bolton, E.) Taylor, Frank (Moss Side)
Money, Ernle Rees-Davies, W. R. Taylor, Robert (Croydon, N.W.)
Monks, Mrs. Connie Renton, Rt. Hn. Sir David Tebbit, Norman
Monro, Hector Rhys Williams, Sir Brandon Temple, John M.
Montgomery, Fergus Ridley, Hn. Nicholas Thatcher, Rt. Hn. Mrs. Margaret
More, Jasper Ridsdale, Julian Thomas, John Stradling (Monmouth)
Morgan, Geraint (Denbigh) Rippon, Rt. Hn. Geoffrey Thomas, Rt. Hn. Peter (Hendon, S.)
Morgan-Giles, Rear-Adm. Roberts, Wyn (Conway) Thompson, Sir Richard (Croydon, S.)
Morrison, Charles Rost, Peter Thorpe, Rt. Hn. Jeremy
Mudd, David Royle, Anthony Tilney, John
Murton, Oscar Russell, Sir Ronald Tope, Graham
Nabarro, Sir Gerald St. John-Stevas, Norman Trafford, Dr. Anthony
Neave, Airey Scott, Nicholas Trew, Peter
Nicholls. Sir Harmar Scott-Hopkins, James Tugendhat, Christopher
Normanton, Tom Shaw, Michael (Sc'b'gh & Whitby) Turton, Rt. Hn. Sir Robin
Nott, John Shelton, William (Clapham) Vaughan, Dr. Gerard
Onslow, Cranley Shersby, Michael Waddington, David
Oppenheim, Mrs. Sally Sinclair, Sir George Walder, David (Clitheroe)
Orr, Capt. L. P. S. Skeet, T. H. H. Walters, Dennis
Owen, Idris (Stockport, N.) Smith, Cyril (Rochdale) Ward, Dame Irene
Page, Rt. Hn. Graham (Crosby) Soref, Harold Wells, John (Maidstone)
Pardoe, John Speed, Keith White, Roger (Gravesend)
Parkinson, Cecil Spence, John Whitelaw, Rt. Hn. William
Percival, Ian Sproat, Iain Wiggin, Jerry
Payton, Rt. Hn. John Stainton, Keith Wilkinson, John
Pike, Miss Mervyn Stanbrook, Ivor Wolrige-Gordon, Patrick
Pink, R. Bonner Steel, David Wood, Rt. Hn. Richard
Pounder, Rafton Stewart-Smith, Geoffrey (Belper) Woodhouse, Hn. Christopher
Price, David (Eastleigh) Stodart, Anthony (Edinburgh, W.) Woodnutt, Mark
Prior, Rt. Hn. J. M. L. Stoddart-Scott, Col. Sir M. Worsley, Marcus
Pym, Rt. Hn. Francis Stokes, John Wylie, Rt. Hn. N. R.
Quennell, Miss J. M. Stuttaford, Dr. Tom Younger, Hn. George
Raison, Timothy Sutcliffe, John
Ramsden, Rt. Hn. James Tapsell, Peter TELLERS FOR THE NOES:
Rawlinson, Rt. Hn. Sir Peter Taylor, Sir Charles (Eastbourne) Mr. Bernard Weatherill and
Redmond, Robert Taylor, Edward M.(G'gow, Cathcart) Mr. Walter Clegg.

Question accordingly negatived.

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