PAY BOARD AND PRICE COMMISSION

HC Deb 23 July 1973 vol 860 cc1176-293

4.20 p.m.

The Secretary of State for Employment (Mr. Maurice Macmillan)

I beg to move,

That this House takes note of the Reports of the Pay Board and the Price Commission (House of Commons Papers Nos. 363 and 374).

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

I have to inform the House that Mr. Speaker has selected the Opposition amendment, to leave out from 'House' to the end of the Question and to add instead thereof: 'believes that the Price Commission and the Pay Board, neither of which is accountable to Parliament, are proving to be unfair and un workable; and calls upon Her Majesty's Government to adopt policies in Stage III for dealing more effectively with inflation'.

Mr. Macmillan

The Government gave an undertaking during the passage of the Counter-Inflation Act that the work of the two agencies which it set up would be debated in this House before the Summer Recess. Inevitably, this means discussing reports covering a very short period, which must include the difficulties of new organisations starting work on an untried code. Both reports cover the two months of April and May. The work of the Pay Board began on 2nd April, but since the stage 1 arrangements lasted a month longer on the prices side, the Price Commission began its stage 2 work effectively from 29th April.

I hope that I am expressing the views of the whole House in thanking the commission, the board and their staffs for the extra effort and work involved in preparing and presenting their first reports so promptly in response to a request from this House, especially since we can all appreciate the work required anyway in setting up new organisations.

The promptness and nature of the reports and the wide range of matters covering every aspect of the agencies' work that could be raised in today's debate in themselves make it difficult to assert that the Price Commission and the Pay Board are not accountable to Parliament. This point was discussed at length and in some depth during the Committee stage of the Counter-Inflation Bill.

I have already expressed my gratitude to right hon. and hon. Gentlemen on both sides of that Committee who moved amendments, some of which the Government were able to accept and others which enabled us to alter the Bill on Report. I have no doubt that as a result the Act is a great improvement on the Bill.

There was always in the Bill the ability which remains in the Act to use parliamentary Questions to probe the effect of decisions in individual cases, either by putting the matter directly to the appropriate Minister or by challenging his failure to use the powers contained in Schedule 2(6). A number of Questions have been put to my right hon. and learned Friend the Minister for Trade and Consumer Affairs, some of them in considerable detail.

Then there is the requirement on the commission and the board to make quarterly reports to the Government so that Parliament may debate them. On this first occasion the reports cover two months only. From now on they will be made every three months, partly because that is what we agreed and partly because it fits in better with the parliamentary timetable.

After setting out their work, the reports themselves list the statutory instruments. The code itself was debated in draft, as will be any new code or substantial amendment to one.

The terms of the Opposition amendment show that the whole House is at least agreed on the overriding importance of controlling inflation. In criticising the work of the Price Commission and the Pay Board and in suggesting policies for stage 3, I hope that the whole House will pay some regard also to the world situa- tion and its inevitable effect on the United Kingdom.

I do not want to repeat too many of the points made in the more general debate that we had last week. However, in order to assess the workability and fairness of the Price Commission and the Pay Board, we need to consider the circumstances which led to their being set up and to recall the results of every past effort to deal with this problem of inflation.

As right hon. and hon. Members on all sides of the House will admit, it is a problem that has concerned every industrialised country pretty well since the end of the Second World War, and it has intensified with the increasing prosperity of the primary producing countries. In that sense, it is a problem of prosperity, and in that sense, too, it is less damaging than the appalling suffering and waste of pre-war decades. It is a problem not of depression but of rising expectations and of maintaining more steadily the rise in our standard of living which since the war has been continuous though jerky and uneven in its impact.

Over the past 25 years the share of employment incomes in national income has risen from 65 per cent. to 75 per cent. while that of net trading profits has fallen from 13 per cent. to 7 per cent. Over the past 15 years the all-industry wages index has increased nearly three times as much as the retail price index over the same period. I know that price increases have been too great, but wages have increased nearly three times as fast as prices. In that 15-year period the increase in the all-industry wages index has been 285 per cent. Over the same 15-year period the increase in the retail price index has been 96 per cent. I am not saying that the increase in prices was not too fast. I am saying that wages increased nearly three times as fast. Even between June 1970 and April 1973 average earnings went up by 38 per cent., which is faster than at any comparable period since the war. In that same period the rise in the retail price index was 26 per cent.

Mr. Anthony Wedgwood Benn (Bristol, South-East)

It will be remembered that the right hon. Gentleman or the Chief Secretary made the same point in Committee. We asked then whether the object of the Government's policy was to reverse the trend in favour of profits at the expense of employment income. From the figures which the right hon. Gentleman has just given, it would appear that that is what the Government have in mind. Will the right hon. Gentleman confirm that?

Mr. Macmillan

I think that that point will be answered a little later, if the right hon. Gentleman is patient. In any event, it is not the object of the operation and, as the figures will show, it has not been the result of the operation.

The difficulty which successive Governments have tried by various means to overcome is to maintain full employment and a steady expansion of the economy while trying to find ways of keeping down the rate of inflation by methods which do not themselves tend to slow down the rate of growth, which do not increase taxes, direct and indirect, and which do not so depress profits and investment that unemployment increases.

The previous Administration tried policies of wage restraint, deflation and mounting taxation. It was no wonder that investment and employment took some time to recover. Then the Labour Administration let go their restraints too soon, with the result that in 1970 not only were prices rising very rapidly but there were more price rises still to come due to the pre-election wage explosion.

The right hon. Member for Coventry, East (Mr. Crossman) made clear what had happened when he said on 15th April 1971: The main fact is that we won the 1966 election by choosing the moment of wage inflation before the prices had really been felt to rise, and obviously we were seeking to do it again in the election in 1970. That is the situation in which this Government acted effectively through 1970 and 1971. The high and accelerating rate of inflation was virtually halved. However, the miners' strike touched off a new bout of inflation. Settlements were being reached at levels unprecedented in postwar years. They were reaching nearly 17 per cent. above the previous year. They are still very high, despite the standstill and stage 2. Taking the year-on-year increase in wage rates, it was 15.4 per cent. to June of this year. Taking the year-onyear increase in earnings, the figure to May was 14.2 per cent. Although both food and all items show smaller monthon-month increases, of course the rise in the retail price index is still far too high at 9.3 per cent. year-on-year. But, as several of my right hon. and hon. Friends pointed out in last week's debate, in only the last year have world food prices and costs of basic materials risen so violently —nearly double in the last year or so.

It is in this situation that the Price Commission and the Pay Board are having to administer the code for stage 2. The Price Commission, applying the prices code, has given approval to price increases because of this rise in costs and because the degree of absorption of costs enforced and accepted during the standstill could not be carried through into stage 2. One can see this bearing in mind the effect on manufacturing industry of rises in the price of basic materials in the last seven months—up by about 17.3 per cent., or almost the same in the last seven months as in the whole six years of the Labour Administration.

Mr. J. Bruce-Gardyne (South Angus)

My right hon. Friend cites figures for the growth in wage rates over the past 12 months to June at 15.4 per cent. and the growth in retail prices at 9.3 per cent. I am not clear whether that is advanced as a measure of the success of the Price Commission and Pay Board system or as a measure of its failure. Could he elucidate that?

Mr. Macmillan

I am advancing these matters to set the situation, as my words made clear, in which the Price Commission and the Pay Board have had to operate the stage 2 code. It is part of the situation with which we are faced and in which they have to apply the code. I added that in the last seven months since the standstill the increase in the costs of manufacturing industry through its basic raw materials had advanced by almost the same amount as was experienced during the whole six years of the Labour Government, and I pointed out that this was a problem. The code, although it cannot enforce the same degree of cost-absorption as was accepted during the standstill, can and does limit the degree to which these costs may be reflected in prices by restricting the costs which are allowed, by the productivity deduction which generally disallows 50 per cent. of increases in labour costs, by ensuring that the benefit of lower unit costs as a result of increasing output up to the time of the proposed price increase is offset against cost increases, and by the limitation on profit margins, which is likely to become increasingly important in future.

Mr. Charles Loughlin (Gloucestershire, West) rose—

Mr. Macmillan

I have given way a good deal, and I do not wish to take too much of the time of the House.

During the one month of its full operation, the Price Commission has inevitably concentrated on category 1 firms, that is, the larger firms which have to seek approval of price increases before they introduce them. I think it worth noting that, despite the massive increase in world prices and despite the effect of the rise in cost of materials to manufacturing industry, less than half of the firms which could have sought approval in this period have done so, and less than half of the 100 or so which have applied to the commission for price increases have had their increases approved as submitted. The cut-back has been significant, as the report shows in Appendix 6, Table 4, in its impact on the consumer and consumer prices.

The first quarterly report on category 2 firms, that is, those which do not have to pre-notify but have to report price increases, is due by 10th August. The Price Commission will not hesitate to roll back such prices where they rise beyond the code. My right hon. Friend the Prime Minister reported to the House last week how the chairman of the commission intends to step up action in three main ways.

Mr. Tam Dalyell (West Lothian)

How is it intended—

Mr. Macmillan

No, I cannot give way. I am not pretending that this is a perfect system. The code is complicated. The report itself sets out some of the misunderstandings and misinterpretations which have arisen, and it describes the commission's activities to deal with those by the giving of information and publicity about the provisions of the code to those who are in doubt either generally or, in particular, as to what it means in their case. But there can be no doubt that the code and the work of the Price Commission have had a considerable effect and will have an increasing effect in restraining price increases—

Mr. Dalyell

Will the Secretary of State give way?

Mr. Macmillan

—and it has not produced the side effects which would have been most damaging for the future. Profits have not been so restrained as to discourage investment. It is true that, after allowing for stock appreciation, gross trading profits of the company sector accounted for 11½ per cent. of total domestic income in the first quarter of this year, but it is equally true that if the gross trading profits of the company sector during the first quarter of this year had been running at the same average level in relation to total domestic income as they were under the Labour Government, the proportion would have been not 11–1 per cent. but 13 per cent. I think that that goes some way to meet the point made by the right hon. Member for Bristol, South-East (Mr. Benn).

Mr. Dalyell rose——

Mr. Macmillan

Industrial investment is now forging ahead. The last two CBI surveys show that the balance of firms expecting to increase spending on plant and machinery over the next year is the highest on record.

Mr. Dalyell

Will the Secretary of State allow me?

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

The hon. Gentleman must not keep rising to ask the Secretary of State to give way if it is clear that he intends not to give way.

Mr. Macmillan

For the Pay Board, the task—[Interruption.] Right hon. and hon. Members will have ample opportunity to make their points if they succeed in catching the eye of the Chair, and my right hon. and learned Friend is fully capable of answering them, especially with reference to the Price Commission, when he winds up.

Mr. Dalyell

On a point of order, Mr. Deputy Speaker. At the beginning of his speech, the Secretary of State was good enough to pay a tribute to hon. Members on both sides who, according to him, had worked hard on Standing Committee H. Is it not a bit rough that on a point of clarification he will not give way?

Mr. Deputy Speaker

Order. It is for the Minister to decide that.

Mr. Macmillan

The task of the Pay Board is not easier than that of the Price Commission but it is simpler in the sense that the Pay Board is applying the relatively simpler pay code to increases which normally take place annually, and within the limits set by the code the details are settled not by the board but by the negotiators. The board is concerned only with implementing the code, which imposes an upper limit of £250 on individual pay rises, but, apart from that upper limit, negotiators are able to settle within the negotiating groups total limits as suits them best. This leaves room, as both the TUC and the CBI specifically requested, for a bias to be given in favour of the lower paid in addition to that which is inherent in the mixture of flat-rate and percentage expression of the pay limit.

In addition to satisfying itself that the general requirement has been met on settlements which are notified to it, or arising from spot checks, the board has to monitor the special increases outside the limit which, since they are designed to give extra help where it is most needed, the board will permit and, I hope, encourage. I refer here to progress to equal pay, completion of the move to a 40-hour week and a third week's holiday, and improvement in pension and benefit schemes.

During the period of this report the board dealt with 1,704 settlements, affecting about 4 million workpeople. Very few settlements had to be modified to bring them within the limit, and no restrictive orders had to be made. Notice of intention to restrict a settlement had to be given in only one case, and that a minor one. I understand that subsequently the board has cleared more settlements so that there are now 8 million men and women who have concluded agreements since March with the very minimum of difficulty.

Part of the reason for the ready way in which settlements have been made within the code and for the board's judgment having been accepted is that the country as a whole, including those who have reached stage 2 settlements, recognise that the Government have done everything possible to devise a pay code that is as fair as it could be made and that the Pay Board itself has dealt with applications and reports—and, indeed, with the many requests that it has received for information—as quickly and as effectively as possible, and in all cases within the statutory time limits.

I must be fair to the right hon. Member for Bristol, South-East. This morning I received from the right hon. Gentleman a letter casting doubt on the statement that in all cases the board has dealt with matters within the statutory time limit. I hope the right hon. Gentleman will appreciate that 1 cannot give him an answer to that today. It is, as he recognises, a question of legal interpretation, and I am having the matter looked into as rapidly as possible.

There is another reason for the general acceptance of the code and the work of the Pay Board. It is that the stage 2 policy is very far from being a standstill on wages. When we refer to "settlements" we mean increases. On the Pay Board's figures, large numbers of people have received substantial pay increases and improvements in conditions over recent months, averaging about 7 per cent. to 8 per cent., with more for the lower paid. I am glad to say that 220 of the first 1,704 settlements took about 300,000 women further towards equal pay.

I am not trying to pretend that the code and the Pay Board are perfect. They are not, and there have been difficulties. There have been problems of interpretation, to which the report refers. It is fair to say that the board has coped with them sympathetically and with common sense. All that I have sought to do is to show that on the pay side the policies which the Government have been forced to adopt are as fair as it was practicable to devise, and I hope that no one will suppose that my right hon. and hon. Friends, and least of all myself in my present position, like the idea of this detailed statutory interference in wage negotiations. We tried very hard to find agreement on means as well as ends to achieve a voluntary method, and we shall continue trying in our further talks with the CBI and the TUC.

I am only too well aware that there may be undesirable side effects. My hon. Friends have said that there may, for example, be strong pressures for exceptional treatment on various grounds—economic, social, and so on. There may be unevenness in the application to smaller firms which could lead to attempts to "poach" labour by evasion of the spirit if not the letter of the code. It is fair to say that the board investigates complaints from those who claim to have lost labour, including key employees, in this way.

The problem does not signify in its report, and the board has denied that the code is at the root of the problem. This is a matter that we shall have to watch with care, especially as, to some extent, what is happening is a feature of the increased mobility that always happens in an expanding economy. This is what Mr. Derek Robinson, the Deputy Chairman, pointed out at a conference last week.

Right hon. and hon. Gentlemen on the Opposition benches have given other examples. They say that they effect is uneven, disturbing relativities between people working closely together, but that was true even under completely free bargaining which did not do much over the years to improve the relative position of the lower paid either.

The self-employed—real and bogus—are a difficulty, and I think that typical is the construction industry lump, which was recognised both by the board and the commission in the setting up of a special joint panel.

Mr. Dalyell rose—

Mr. Macmillan

But those who totally reject this policy must face the consequences of containing inflation merely by fiscal and financial methods and by drastic reductions in the money supply, and openly admit that those methods may mean bankruptcy and high unemployment, both concentrated in areas where economic activity tends to be relatively low—

Mr. Dalyell

On a point of order, Mr. Deputy Speaker. May we have from a Minister of the Crown a definition of who are the bogus self-employed?

Mr. Deputy Speaker

That is for the Minister to decide, not for the Chair.

Mr. Benn

Further to that point of order, Mr. Deputy Speaker, May I, through you, appeal to the Minister to help us with questions? The board and the commission are not accountable to Parliament. Questions cannot be put down about them. We are not able to put down Private Notice Questions about them. Unless the Minister can help backbenchers—and Front Benchers, too—with points of fact, the whole debate will proceed in ignorance and we shall have to wait for the Minister who is to reply to the debate to answer the questions that are asked. This is an unusual situation, and I wonder whether, Mr. Deputy Speaker, you would allow me through you to appeal to the Minister, if necessary by lengthening his speech, to answer the questions that have been asked.

Mr. Deputy Speaker

It is not for me to answer those questions. It is for the Minister to decide what to do. The right hon. Member has doubtless heard what has been said.

Mr. Loughlin

May I put a further point of order, Mr. Deputy Speaker. It is appreciated that Ministers have to use copious notes. Such notes allow for interventions from either side of the House. If there are no interventions, and if the Minister is using copious notes to the extent that he is today in that he has read every word of them, is not that contrary to the rules of the House?

Mr. Deputy Speaker

There has been nothing disorderly on the part of the Minister so far, but it is nearing the point of disorder for hon. Members continually to raise as points of order matters which do not come within that category.

Mr. Macmillan

The right hon. Member for Bristol, South-East knows that a considerable number of questions have been put down to my right hon. and learned Friend on the operation of the code. In addition, a few letters have been received by my Department. No Questions have been put down and no efforts have been made to raise any points of detail on the pay side. The report of the Price Commission is detailed, and the Pay Board indicates the number of settlements with which it has dealt, without going into immense detail. I have given a summary of the facts. I think the right hon. Gentleman knows that there were opportunities for him to raise matters, and one of the purposes of the debate is to enable right hon. and hon. Members on both sides of the House to make the points that they wish to make on the operation of the Pay Board and the Price Commission.

On the point made by the hon. Gentleman, I must say that I have heard from hon. and right hon. Gentlemen opposite themselves that there was a certain amount of bogus self-employment in what is known in the construction industry as the lump. I was referring to the criticism made from the other side on that aspect.

Those who totally reject this policy on the ground that it should be dealt with differently have to accept the consequences. Hon. and right hon. Members in opposition must, in the face of their own past experience, explain how any policies to contain inflation can work, whatever other elements they may contain, unless they contain the elements of wage and salary control, knowing that wages and salaries form a substantial part of the cost, up to two-thirds of the total. They must remember, when they come to explain what they believe should be the more superior policy for the future, one of the truest things ever said by the right hon. Gentleman the Leader of the Opposition, which is that one man's pay increase is another man's price increase.

In the circumstances in which the Government were forced to take drastic action, and in the face of sudden and very recent increases in world prices, the situation would have been a great deal worse if we had followed either the advice of the Opposition or their example when in office.

The Pay Board and the Price Commission have in their reports indicated how they believe present policies can be better administered. By the end of the year the Pay Board in its advisory capacity is due to report to the Government on the question of relativities of pay both within and between groups of employees. Its report on the anomalies arising out of the standstill and stage 2 will be laid by 15th September.

I hope that this debate will itself make a significant contribution to our stage 3 policy, and indeed to the future discussions with the TUC and the CBI later this month. As my right hon. Friend the Prime Minister has told the House, we have been examining methods of providing for pay increases in the face of the inevitable uncertainty about the movement of world prices, including what have become well known both in the House and outside it as threshold agreements. We have now concluded as a Government that we should positively propose to our partners in the talks about stage 3 that this type of agreement should be allowed for as part of the machinery.

I hope that in the talks about stage 3 the arrangements we make can provide for greater flexibility without loss of control, because I am sure that most people. including most of the trade union leaders and trade union members—and perhaps some hon. and right hon. Gentlemen opposite—do not want a return to the free-for-all that has proved so disastrous a result of the too-sudden and complete relaxation of restraint. That is one of the many reasons why I hope that we can find as a result of the talks some sort of agreement that will make so many of the difficulties which have been put forward in criticism of our policies as a whole that much easier to deal with, and reach a voluntary agreement which will in due course gain the approval of the House.

The talks with the CBI and the TUC are due to start soon. If there are changes in the code, or a new code, they will be laid before the House in draft and debated in draft, as the Government have previously undertaken. Meanwhile, I commend to the House the first reports of the Price Commission and the Pay Board.

4.55 p.m.

Mr. Reg Prentice (East Ham, North)

I beg to move to leave out from "House" to the end of the Question and to add instead thereof: believes that the Price Commission and the Pay Board, neither of which is accountable to Parliament, are proving to be unfair and unworkable; and calls upon Her Majesty's Government to adopt policies in Stage III for dealing more effectively with inflation". We have just listened to a speech incredible in its complacency in view of the fact that it comes from a member of a Cabinet which has presided over the worst inflation this country has ever known in peace time. We were entitled this afternoon to hear from the Secretary of State a more complete justification—indeed, some attempt at justification—of the Government's policies over recent months. Much more importantly, we were entitled to hear from the right hon. Gentleman some indication of future policies as seen by the Government, and the approach they are making to the vital talks with the CBI and the TUC. I believe that the House will insist on going on to discuss these matters, and it is a great pity that the discussion was not started off by a speech from the Government side which made a proper and constructive introduction.

I want first to make a brief reference to the form of these two reports. I do not want to spend much time on this point because I want to get on to discussion of Government policies, and particularly the prospects for the future. But the Secretary of State quite rightly said that in Committee we demanded, and we moved amendments to ensure, that there would be frequent reports from both bodies. We did so with a sense of urgency because of the way in which the Counter-Inflation Act was drawn up so as to deprive the House of any kind of control over the development of policy and the way in which policy decisions were removed not only from the House but from Ministers of the Crown. Against that background we wanted frequent reports.

I am bound to say that the reports are rather disappointingly brief and arid. They relate to a two-month period which is now two months in the past. They related to April and May. When the Government publish future reports two things would make debate better and more meaningful. The first is that there should be a much shorter interval between the closing date of the period covered by the report and its availability to and debate in the House. The second is that the reports themselves should discuss the development of policy, the alternatives as they present themselves to the Pay Board and the Price Commission, and future trends so that we have in front of us not merely a dry and factual account and a series of figures but policy choices that we can discuss more effectively than we can anything now before us.

Having said that, I must say that my main feeling about the members of the Price Commission and of the Pay Board and their staffs is one of some sympathy for their having to play a prominent role in a situation of rampant inflation which they did not create and which they have very little power to influence. if the Price Commission has become popularly known as the "rising price commission", it is the Government's fault and not the commission's. If the Pay Board is forced to forbid the implementation of an agreed threshold arrangement in the newspaper industry at the very time that the Government are themselves thinking of threshold arrangements, the fault is that of the pay policy and drafting of the pay code and not that of the board itself. It is a policy which the Government are now discussing, and we must recognise that the two authorities have little scope for initiatives.

The Secretary of State expressed the hope that in this debate we should make a contribution to the policy for stage 3. I agree that we should. It is perhaps a further piece of evidence of the remoteness of the House from development of policies in these matters that important talks are to take place next Friday and in subsequent weeks when the House will be in recess for more than two months. We can this afternoon comment on what we hope will happen, but by the time we meet again the talks between the Government, the TUC and the CBI will either have succeeded or failed—I still want to keep open the hopes of their success, even if I am not optimistic—and we shall then be able to debate only the fait accompli, not the situation as it developed. I am glad, as I am sure are most hon. Members, that the talks are taking place. We wish them well. As a trade unionist, I am glad that the majority of trade unions have followed their leaders' advice that they should take part. It is hoped that the talks will lead somewhere.

The one thing we must ensure as essential if any future counter-inflation policy is to have a chance of success is that it is based on a far greater degree of consent than exists today. We have argued, and shall argue again this afternoon if hon. Members wish, the relative merits of statutory and voluntary policies. But, however that is decided, no policy is likely to have any considerable measure of success unless it is broadly acceptable to the main body of opinion. Therefore, the talks among the three parties are crucial. If they are to succeed, the leadership of both the TUC and the CBI will face a challenge to their power to get acceptance to what is agreed, but the biggest threat will be to the Government.

There are two questions at issue. The first is whether the Government are capable of achieving agreement in talks with the TUC and the CBI. Given that they were elected on false promises to bring prices down, that they have presided over the greatest ever peace-time inflation that we have known, and that they have contributed to that inflation by their own deliberate policies, is it possible for the Government to make proposals to the TUC and the CBI which stand any chance of success at this time?

The second question is whether Ministers really want to reach agreement in these talks, or whether the talks are seen by Ministers merely as a smooth public relations exercise to create the impression that Ministers are trying to get agreement and that it will be somebody else's fault if they fail.

Much as been made by the Prime Minister and other Ministers of the claim that, as distinct from last time, no subjects are barred in the tripartite talks. On the last occasion the Prime Minister was insisting that many of the vital matters that the TUC wanted to discuss were political decisions on which he was not prepared to negotiate with the TUC. This time he has said that all subjects may be discussed. That seems, on the surface, to be a step forward. But is it? Was it simply an indication that the public relations exercise this time would be more sophisticated, that an attempt was being made to pretend to the country that everything could be discussed when Ministers had already made up their minds that they did not want agreement with the other parties?

The test of the Government's good intentions is the extent to which they are prepared in these talks to make voluntary changes in those policies which have been so disastrous in causing inflation. All we heard in last week's debate, repeated by the Secretary of State today, was the Government's new thinking about threshold agreements. This is the only new idea to be brought forward. Personally, I think that a lot can be said for threshold agreements, but only if they are part of a much wider arrangement which will take care of many other matters on which Ministers have remained silent. Threshold agreements simply grafted on to existing policy will not be widely accepted.

The test is how far Ministers are prepared to say "We, the Government, are responsible for this inflation, or partly responsible, and we are prepared to recognise that we have to bring to the talks voluntarily a change of course in some of the major policies that have stoked up inflation." We have often repeated our major criticisms of the Government's policy, and I shall refer to only two examples of what seem to be the minimum steps the Government should take if they are to stand any chance of getting agreement with the TUC and the millions of people represented by it.

The first is the Industrial Relations Act. The Act is the main symbol of that period in which the Government were fighting a civil war against trade unions in Britain. If the Government were to come forward and say that they would repeal the Act, or drastically amend it, that of itself would help to create a major change in the climate. It is not sufficient for Ministers to say, as in the past 12 months, that they are prepared to discuss amendments suggested to them by trade unions and others. The Act was the Government's Act, and the damage it has caused is the Government's responsibility, and it is their responsibility to produce proposals for changing it.

Mr. Adam Butler (Bosworth)

I took it that the right hon. Member intended to refer to policies which had been so "disastrous" in causing further inflation. The first of these policies, apparently, is the Industrial Relations Act. Would he like to show the House how the Industrial Relations Act has been disastrous in this way?

Mr. Prentice

In order to achieve an agreed policy acceptable to the trade unions and to working people generally, a new atmosphere is required. If the Government's course of declaring civil war on the trade union movement is not reversed, they are not in a good position to say to trade unions "We want your help in dealing with inflation." The Government's inflationary measures have led to the most damaging period in industrial relations since the 1920s, and the hon. Member for Bosworth (Mr. Adam Butler) has only to look up the strike statistics of last year to see that they were the worst figures since 1926. Industrial disputes are themselves inflationary as well as damaging in other ways.

My second example is the Housing Finance Act. Nothing has caused more cynicism in the country about the Government's intentions than that, at the same time as they were asking others to bail them out and to make sacrifices to fight inflation, the Government were insisting, and passing laws to ensure, that there would be increases in rents, rents being the most sensitive single item, with the possible exception of food, in the weekly budget of every family. At the very moment that the National Union of Mineworkers was balloting its members about whether to have a national strike, miners in the north of England had notices of rent increases of £1 a week coming through their doors. The Government and the country were lucky to escape a strike in the mining industry.

Mr. Hugh Jenkins (Putney)

It would strengthen my right hon. Friend's case to say that the Greater London Council last week asked the Department of the Environment not to insist on a further 50p rent increase in October. The Department refused and insisted that the increase must be sanctioned. Surely that is inflationary.

Mr. Prentice

I am grateful to my hon. Friend. The point he makes is that the Labour-controlled GLC is trying to fight inflation but is being frustrated by the Conservative Government who at the same time ask other people in the community to fight inflation for them.

One could go on with such examples. Unless there is a reversal of policy on one or more of these major controversial items, the Government will not have demonstrated either a capacity or a will to secure an agreed strategy in fighting inflation.

I should like to turn to the problems of incomes policy and to make some references to the operation of incomes policy as illustrated in the Pay Board's report. My right hon. Friend will later concentrate to a greater degree on the report of the Price Commission. I should like to begin by reiterating what I have said many times from this Dispatch Box, that any Government of this country have to have an incomes policy. The question is: what kind of incomes policy, and to what extent is it regarded as fair and reasonable by people throughout the country?

The need for an incomes policy was reiterated only a few weeks ago by the Labour Party in its policy statement "Labour's Programme for Britain". I quote from that policy statement. It speaks of the need to hammer out an agreement for the orderly growth of incomes with stable prices". It goes on to say: We accept that a policy of price restraint cannot succeed for very long if wages and salaries are moving out of line with the growth of productivity. Let us not hear any more, as we heard from the Secretary of State this afternoon, this weary repetition of the myth that somehow or other the Conservative Government are the Government with an incomes policy and that the Labour Party is weak on these matters. I have advocated an incomes policy for many years, as a member of a trade union, long before I was in this House, and it has been discussed at great length in the Labour movement.

If one goes on to ask, as hon. Members are entitled to ask, "How would your incomes policy work?", we have to start from the position that neither this country nor any other country in the free world has yet made a success of an incomes policy on either a statutory or a voluntary basis. But that is not a reason for accepting a counsel of despair, which, no doubt, we shall hear from the right hon. Member for Wolverhampton, South-West (Mr. Powell) later. It is a reason for continuing to try to reconcile the difficulties of getting a stable cost of living with full employment and economic growth.

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

If the right hon. Gentleman found that in all parts of the world attempts to fill a sieve were proving unsuccessful, would he say it was a reason for continuing to try?

Mr. Prentice

We are talking about something infinitely more complex than the right hon. Gentleman is ever prepared to admit. I believe we need to try to find an answer to how to reconcile full employment, economic growth, a stable cost of living and a healthy balance of payments. As the right hon. Gentleman admitted himself in his article in the News of the World yesterday, the policy that he advocates could only lead to very high unemployment.

Mr. Powell

No.

Mr. Prentice

He did.

Mr. Powell

The right hon. Gentleman clearly did not read what I wrote.

Mr. Prentice

Yes, I did.

Mr. Powell

I said that any policy which succeeds in slowing down inflation, whatever that policy is and whatever is the method, must temporarily cause unemployment. The unemployment is the result of slowing down the inflation. It is not the result of the method by which it is done. That is what I said.

Mr. Prentice

In other words, what the right hon. Gentlman said was that he believed in a reduction of the money supply in order to slow down inflation and he believed that any policy that slowed down inflation would lead to an increase in unemployment.

Mr. Powell indicated assent.

Mr. Prentice

What the right hon. Gentleman has to recognise is that we find it unacceptable to plan for an increase in unemployment of this kind. We are striving to find a method of reconciling full employment with a more stable cost of living. We are going on trying, even if he is giving up the attempt. That is the difference between us.

I want to go on to examine the way in which this policy has been working from the point of view of its acceptability to ordinary people. I believe that there has developed in this country an increasing sense of the unfairness of the policies of phase I and phase 2. When the Secretary of State told us that he thought they were being accepted by the people, I think he was incredibly complacent on this point, as he was on so many other points. The fact is that people accept these policies in the sense that they do not go on strike against them, and they do that, I think, partly because the authority of the law is behind the policies but partly also because the policies of phase I and phase 2 have been temporary policies and what is building up is an expectation that somehow or other there will be a fairer and more reasonable system in phase 3 and beyond.

The most useful thing we can do on the incomes side of the policy is to identify those elements of it which are unfair and, while identifying them, thereby point the way to lessons in the future.

I want to mention in particular five aspects of this policy which are resented, and rightly so, by people who are affected by it. The first is the aspect which emerged from the exchange between my right hon. Friend and the Secretary of State during the Secretary of State's speech. The policies of phase 2 represent a deliberate cut in the living standards—I stress, a deliberate cut—of wage and salary earners in this country. The Secretary of State went out of his way this afternoon to talk about the growth in the share of the national product which has gone to wage and salary earners over the last 30 years. The simple fact is that the intention and the formula in phase 2 was to reverse this trend. At the time when we debated the code in this House a month or two ago, we were suggesting that at the very least what would be involved would be that the share of the national income taken in wages and salaries would be reduced, although we did not know at that time whether there would be an actual fall in living standards of wage and salary earners.

We now know that the cost of living increased in excess of the percentage increases allowed under phase 2. When people are told that by law they may have an increase only after a 12 months' interval, and the increase is less than 8 per cent.—in gross pay terms—then when the cost of living goes up, according to the official index, by over 9 per cent., clearly this policy is having the effect of reducing living standards, and reducing them at a time when the national product is growing.

Therefore the question arises; what happens to the growth? What other sections of the community are getting what the workers are not getting? Certainly, as one looks forward to phase 3, the first test that has to be faced by the Government is whether the formula which they propose would allow some improvement in the real living standards of wage and salary earners in this country and whether they will begin to reverse the trend of phases 1 and 2.

My next point is this. The most serious decline in living standards is among the lowest-paid people. The Government have shed a lot of crocodile tears over the lower-paid and have tried to indicate that the formula is designed to help the lower-paid. There is one point on which the House should have more information. In paragraph 26 of the Pay Board's report it is indicated that there have been some cases, in both the private sector and the public sector, where the wage or salary increase to a group has been distributed in such a way that the lower-paid have got proportionately more than the others. We ought to know how many such cases there have been, and what has been the nature of that distribution.

Certainly all my information is to the contrary, that in the vast majority of cases the lower-paid have not been getting any more than the formula intended in phase 2. This means an increase of £2 a week or less for the lower-paid, and it can mean an increase of as much as £5 a week to people earning £100 a week at the moment, plus the fact that the lowest-paid are the hardest hit by rising food prices because they have to spend a larger proportion of their income on food, plus the fact that they get the smallest benefits from tax changes. which in April meant hundreds of pounds a year to the wealthiest members of the community. In other words, this policy is operating to increase the divisions in our society, to increase the gap between the better-off and the lowest-paid.

The Secretary of State mentioned one group of low-paid people in his speech.

He mentioned women and progress towards equal pay for women. But he should recognise and acknowledge that part of the price of his policy has been a refusal to implement Section 9 of the Equal Pay Act 1965, so that such progress as he boasts about was far less than it would have been if the Labour Government's intentions in regard to equal pay had been carried out. The right hon. Gentleman will not fool many women trade unionists by talking, as he did today, about making progress towards equal pay for equal work.

The third main criticism is that during the period of phase 1 and phase 2, the 12 months' period represented by the two phases, there will have been no progress towards productivity deals and no reward possible to workers for making productivity agreements. This is unfair, particularly to those who improved their productivity radically just before last November and were given either precise or implied promises that their incomes would benefit as a result. Not only is it unfair; it may have struck a permanent blow against the willingness of working people to enter into productivity agreements. It may be permanently bad from that point of view.

The fourth main criticism is that there has been a tremendous disruption of agreements about comparability between groups of workers. The Secretary of State says that there has been acceptance of his policy, but he should talk to some of his own civil servants about this and recognise the intense anger throughout the Civil Service in terms of the Priestley Report. Civil servants have traditionally lagged behind others, having had to rely for pay increases on reports on pay research, making comparisons between themselves and people in outside employment. This arrangement has been completely disrupted by the policy. But it is equally vital that we should recognise that we are not here talking only about well-publicised groups, such as civil servants, hospital workers and others—strong as their case may be—but about many millions of people in smaller groups whose pay arrangements have been disrupted in this way.

If there is one simple point that should be registered with the Government it is that, whatever recommendations come from Mr. Derek Robinson's report on anomalies, there has to be in phase 3 sufficient resources to enable something substantial to be done to rectify the injustices under this heading that arose under phase I and phase 2.

The fifth major criticism is that during this period there has been an almost complete disappearance of arbitration from the industrial scene. In many cases in the past, workers in dispute with their employers, about earnings or other matters, have been content that the matter should go to an arbitrator or to a court of inquiry, or to someone else who could take an impartial look at the issues in dispute. That satisfied their sense of fairness. That satisfaction is no longer available to them.

It is significant that during the gas dispute a few months ago the unions were saying to the Government "Give us a settlement consistent with phase 2 but, at the same time, allow us a court of inquiry that would report on the merits of our claim, so that we have on the record what we are entitled to when the pay restraint can be relaxed." But that kind of avenue has been closed. It ought to be opened again. As long as it is closed it does terrible damage to industrial relations and destroys the progress built up in so many industries over many years by those who have painfully erected systems of conciliation and arbitration, only to have them destroyed in the course of this policy.

Mr. Bruce-Gardyne

The right hon. Gentleman has been very generous in giving way. I am a little mystified by his argument. He draws attention to five ways in which he thinks that the operation of the prices and incomes policy has been unfair. But the Opposition's amendment calls upon the Government to adopt policies in Stage III for dealing more effectively with inflation. Whether these policies have been fair or unfair, would not the right hon. Gentleman agree that if their effect has been—as he argues that it has—that, in general, prices have been rising more rapidly than earnings, which some might dispute, that in itself is an effective policy against inflation? Is he arguing that earnings can now rise more rapidly than prices and that that would be an effective policy against inflation?

Mr. Prentice

What I was arguing earlier is that for any policy, in the long term or the medium term, to be effective, it must be based on an element of consent which is at present missing. That is the whole point on which I am trying to address the House. Therefore, we should pay attention to those elements of the present policy which are unfair and are seen to be unfair by those who are affected by them.

In phase 3 we have to be more flexible on this matter. If we are not, there will be a great degree of anger and possibly—I put it no higher than that—a considerable amount of industrial unrest during the autumn and winter. I hope that that will not happen, but it may well happen. If it does happen, and if it happens because the Government have not seen the warning lights, the Government will have only themselves to blame.

No one doubts the damage of inflation to our society in recent years. No one doubts the danger of continued inflation, with which we are at present threatened, particularly if that continued inflation turns out to be at a faster rate than the inflation of other industrial countries. We are competing in world markets. Our inflation has been faster than theirs in the recent past. It would be disastrous for us if that continues to be so. Certainly, the British public have no doubt about the gravity of the situation. One opinion poll after another shows that people regard inflation, and particularly the cost of living, as being one of the most important political issues of the time.

We should be aware also of this fact. The deep feelings of pessimism and cynicism with which people regard the Government's record in this matter are themselves contributory causes of inflation. Inflation feeds upon itself. If people have an expectation that the value of their money will continue to decrease at the alarming rate of recent years, this itself has an effect on their conduct and leads in turn to a further twist to the inflationary spiral.

Furthermore, the degree of cynicism and pessimism that we see is bad for democracy. Some of the disenchantment with politics that we see at present is due to the belief that what we are saying and doing in this House is having no effect on the problems which worry people most of all.

It is time, therefore, for new policies, It is time for a new attempt to create a social contract between the unions, industry and the Government of this country by which we can make a cooperative attempt to fight inflation. If that will not come from the present Government, they ought to make way for a Government who will carry out such a policy.

5.29 p.m.

Mr. John Page (Harrow, West)

As secretary of the fan club on the Conservative benches for the right hon. Member for East Ham, North (Mr. Prentice), I feel that the long-playing HANSARD of this afternoon will not be among his best sellers. He is the straightest man on the Opposition Front Bench. The weakness of his speech today lay in having to attack a policy in which he really believes, and trying to pick holes in reports which, if he were on the Government side of the Chamber, he would be commending with real enthusiasm. It was noticeable also that he did not read out the amendment, or rarely mentioned it, except in a matter early in his speech. He does not really believe that the Price Commission and Pay Board are proving to be unfair and unworkable. That is why he was less convincing today than usual.

I am in a different position, because I am trying to say something nice about policies in which I do not believe, instead of saying something nasty about policies in which I do believe. I shall try to avoid being quite so philosophical as the right hon. Gentleman. I have always felt that a short, sharp freeze is acceptable, but it has yet to be proved to me that a statutory prices and incomes policy is workable. I am amazed at how well phase 2 has gone so far. However, statutory prices and incomes policies are like Dartmoor and debt—they are much easier to get into than to get out of.

We have only to witness the difficulties in the United States. That country was spotlighted as an example by my right hon. Friends when their policy was introduced. When we were in phase 1 the United States was in phase 2. Now we are in phase 2 the United States finds that its phase 3 does not work, and its phase 4 is to go back to phase 2.

I said that the Government's policy had been accepted more than I thought it would be. On the pay side, it is considered, in the words of the right hon. Gentleman, to be broadly acceptable to the majority of people in this country. It may be wrongly so, but it is accepted as fair. The formula for pay is extremely simple. It was acceptable because a 7 per cent. or 8 per cent. wage increase in any year is not too bad, no matter how high inflation may be running. Moreover, in a boom, when there is plenty of overtime, wage packets are likely to be fatter than they were previously.

I congratulate the Pay Board and the Price Commission on the clarity of their documents and the courtesy of their employees, both in correspondence and on the telephone. This may be because they are located in Page Street.

I declare an interest, as a director of a plastics and rubber company. I wish in a rather pedestrian way to deal with some of the nuts and bolts of phase 2, which are worrying businesses in this country.

First, I want to raise the question of indirect exports by component manufacturers. These are parts which are manufactured by one British company and sent to another British company for inclusion in a car, domestic appliance or toy, which is then exported. The export price of the ultimately manufactured product is not controlled, but the price of the components is controlled. Therefore, the component manufacturers are giving a subsidy to the manufacturers of the finally exported goods.

There is another anomaly in the export sector, to cite a case on the other side of the same coin. An international company with factories in this country and abroad naturally wishes to buy goods and components from the cheapest supplier. Therefore, it may be found, and I believe it is being found, that orders which would normally be placed for exports either in an overseas country or directly for export from this country are being purchased by a United Kingdom office of an international company at United Kingdom prices and then shipped to the firm's factories abroad. Thus, again, the British companies are not able to achieve or obtain for their products the full uncontrolled export prices which they would have been able to obtain if the products had been directly exported. The supplier is again the loser.

Do the Government wish to take a view on this? It may be possible, as it was on a previous occasion under a Labour Government when there were control quotas on imported goods, to reckon on the proportion of those goods manufactured which are indirectly exported.

Another aspect of the problem is the great inconvenience to manufacturers, particularly those dealing with plastic foil and chemicals, resulting from an international shortage of certain plastic chemicals and foil. British manufacturers are starving their United Kingdom customers in order to maximise their profits by selling abroad. This is a perfectly legitimate activity, and the company would probably be wrong if it did not take part in this activity. But I am sure that my hon. Friend the Member for Oswestry (Mr. Biffen) would agree that it would be particularly stupid for a manufacturer who wishes to get a material in this country and is starved of it at the British price to have to buy the same product after it has been exported and then re-exported from Rotterdam. That is another anomaly which is extremely annoying and which makes the Government's policy less attractive and acceptable to those affected.

If my right hon. Friend cannot give exact answers to all these questions, I shall forgive him. As the holidays are approaching, I hope he will be kind enough to answer them by letter.

There is a strange anomaly relating exclusively to the home market. It is laid down that goods can be sold to any class of United Kingdom customer at the highest level being paid by any member of that class of customer which was existing before 6th November 1972. Thus, a company which had negotiated a good and favourable price for itself could be told that under phase 2, as well as under phase 1, the price could be raised to the level which its most inefficient negotiating competitor was having to pay. Is it possible for an agreement to be made for the charging of higher prices if there is a willing buyer and a willing seller?

Mr. Arthur Lewis (West Ham, North)

What about the trade unions?

Mr. Page

I am pleased that the hon. Gentleman is following my speech so closely. I shall now turn to complaints and discussion of the pay aspects of the subject which we are discussing.

It has been remarkable how few complaints there have been at individual factories about the operation of the phase 2 criteria. I have given before some of the reasons. It is noticeable that some of the more extravagant trade union leaders —I do not like the word "militant" -have not been able to persuade some of their members to revolt against agreements which come within the arrangements of the code. This proves that by most people the pay scales are considered fair and just.

My right hon. Friend said that on 15th September we should get a report from the Pay Board on the anomalies brought out during phase 2. It will be significant and interesting. I shall give my right hon. Friend one anomaly now. In the pay code, it is said that when a company opens a new plant or office in a certain area it should subscribe to the general level of wages in that area. What are the criteria for measuring the general level of wages? It is difficult to decide what a general level of wages is. However, I should like my right hon. Friend's views of a company opening a new office in a neighbourhood and paying rates generally accepted to be 15 to 20 per cent. higher than others locally.

Mr. John Biffen (Oswestry)

My hon. Friend should reflect that the Price Commission and the Pay Board seem to have had the difficulty he mentions. Paragraph' 2.4 of the commission's report says: The shortfall reflects the difficulty of recruiting sufficient numbers of staff with the requisite specialised qualifications.

Mr. Page

That is a neat point, although I was not referring to a new organisation in central London where, apart from the question of finance, it is very difficult for the board and the commission to recruit the staff they need because of the scarcity of people with the immediate expertise required.

I was talking of a more simple kind of clerical staff who may be paid 15 to 20 per cent. higher than the general wages applying in a locality but for the very good reason that they are part of a national company with a policy that all employees in its factories and offices throughout the country should receive the same wage scale. What is the Government's policy towards that situation?

I do not accept the view which is fairly generally stated that phase 2 is causing a large number of people to move from one job to another. The Department's own figures do not prove that to be the case, but I also feel that firms which may be bidding up in the context of phase 2 would probably be bidding up in ordinary circumstances.

The other report which my right hon. Friend mentioned is that on relativities of pay between one group of workers and another, which we are to get at the end of the year. I wonder whether it is a kind of reconnaisance into a national job evaluation. I hope that the report will go quite wide and throw a spotlight on the relationship between, say, the pay of nurses, teachers and stenographers. It might also be able to help me to understand how it is, for example, that a lavatory attendant working for a motor company is probably paid twice as much as his colleague doing the same job when employed by a local authority.

The right hon. Member for East Ham, North said that phase 2 did not do enough to help the lower-paid. But there is no doubt that the criteria do help the lower-paid. The most interesting quotation I can give on this is also from a speech by Mr. Derek Robinson last week at a Financial Times conference. He said: To close the gap between two objects, it is necessary to be able to influence both of the objects. To change the pay relationships between two groups of workers it is necessary to ensure that action taken to move one of the groups is not negated by independent action by the other group. This means that if we want to help low paid workers we must bring into the discussion the high paid. If we want to change the relativity of certain groups we must at the same time discuss the pay of other groups. Later he went on: More importantly, those who will be required to exercise restraint are frequently those who have great power. It is of course the lion who has to moderate his strength in the cause of social justice, not the mouse. There has been a little talk today about threshold agreements, or indexing agreements, or safeguarding agreements, or whatever the "in" name is at the moment. At present, not a lot of information is readily available about industries which have some form of indexing, but Messrs. Goodman and Thompson in the British Journal of Industrial Relations this month suggested that about 20 per cent. of all wage earners receive part of their increases by some form of indexation, and that the operation of indexation-induced increases—a ghastly expression—accounts for only 5 per cent. to 10 per cent. of the total net change in weekly rates. They also say that during the last 20 years nearly 80 industrial bargaining units have operated some form of indexation.

This proves that, although not many industries have thresholds or indices in their agreements for wages, a lot of information and practical knowledge about such techniques is readily available. I am delighted that my right hon. Friends the Prime Minister and the Secretary of State for Employment should be interested in the idea that phase 3 might have threshold agreements, because that seems to me to be the most respectable exit they have from phase 2 and from a statutory policy. It has always been my belief that threshold agreements can and should form a large part of the wage negotiation system used by most industries in normal times.

Lastly, getting on to a hobby horse of mine and leaving it to others who know more about the subject to talk about money supply, I strongly recommend to my right hon. Friend that soon after we return he does something to curb violent picketing and the subsidisation of strikes through social security benefits. There will never be a perfect time to introduce those measures. So, if there is not a perfect time, the sooner my right hon. Friend does it the better.

5.50 p.m.

Mr. Neil Kinnock (Bedwellty)

Because of the shortage of time I shall have to leave the hon. Member for Harrow, West (Mr. John Page) galloping off on his hobby horse into the Valhalla of at least some back-bench Tory Members—the marvellous Utopia in which nobody receives social security benefits when on strike and we no longer incur a massive inflation because of militant picketing.

I take as a starting point the words used by my right hon. Friend the Member for East Ham, North (Mr. Prentice) concerning the prospects of talks between the Trades Union Congress and the Government. I concur with my right hon. Friend that it is, taking all things into consideration, necessary for the leaders of the TUC to meet the Prime Minister and his colleagues in 10 Downing Street or wherever a meeting of that nature is convened.

However, it would be a mistake for the Secretary of State or anyone else to run away with the idea that the TUC is a willing partner in such negotiations. It is only realistic to recognise that the TUC, as it constitutes the fourth estate in our society, cannot afford not to accept the invitation of a Prime Minister to attend talks of this kind. The TUC is showing great sense and sensibility in acknowledging that it would weaken the position and image of trade unions throughout society if a Prime Minister who is as deft and able at public relations promotion as this Prime Minister is, even if he is useless at everything else, were able to say "We invited the TUC to speak with us about important affairs of State, but it turned down the invitation."

The TUC is obviously over a barrel. It must attend, even though it is a reluctant partner. I ask the Secretary of State not to place too much reliance on or hope in the prospect of a deal being done over the Industrial Relations Act, not that he appears too anxious to do one. Just in case there is any lingering feeling that the leaders of the trade unions or the rank and file want to do any deal over the Act, it might be well to look briefly at the history of the Act as it has operated. The Act and all the institutions established under it have been completely neutered so as to become in practice inoffensive to the conduct of trade unions in their national and day-to-day affairs. There can be no deal over the Act. For all practical purposes, the Act, fortunately, has ceased to exist because of the activities of trade unions and trade unionists.

My remarks from now on will be aimed more at the report of the Price Commission than at that of the Pay Board. The Secretary of State spoke, as the Price Commission's report speaks, of the success that has been achieved or is implied by the fact that so few companies have applied for increases under the Counter-Inflation Act and the price and pay code. Great comfort is taken from the fact that there seem to be a large number of category 1 companies which are content to continue trading on the basis of the system as it existed before the introduction of the code.

In view of some of the profits being made in British industry, it is small wonder that those companies have not had to make an application for an exceptional price increase. They are doing more than nicely even without having to seek an increase.

A list was given in last Saturday's Evening Standard. Eastwood— best known for its chickens", as the correspondent puts it—had an increase in profits in the year to last March of almost 380 per cent. to nearly £4.8 million. Montague Meyer, the timber group of major importance to construction costs, had an increase in profits in the same 12 months of nearly 200 per cent. to £10 million. Allied Breweries and Scottish and Newcastle Breweries each had major increases in profits in excess of 20 per cent. Tesco—known generally as the housewife's friend, as the correspondent puts it—increased its profits by 31 per cent. and registered a pre-tax profit of £21.7 million for the 12 months to the end of the last trading year. Courtaulds, the textile giant, pushed profits up 53 per cent, to £65 million, General Electric up 56 per cent., Great Universal Stores up 28 per cent., Boots, the high street chemists, up 65 per cent., Barclays Bank up 75 per cent., Thorn Electrical Industries up 43 per cent. The list continues.

The charge is often made against hon. Members on this side that we have a basic, almost biological opposition to those who make profits. The charge is frequently overstated. When we are supposed to be in a period of general restraint, subordinating individual or group interests to superior national interests, it is difficult to equate growth in profits of that magnitude with the imposition on individuals of a ceiling of £1 plus 4 per cent.

It is not surprising that there have been so few applications for price increases under the Price and Pay Code. Obviously the companies concerned do not require any additional revenue, because they are doing quite well under an unrestricted system of profit making.

The Price Commission's report is characterised by a kind of injured innocence. Its conclusions are gentle admonitions to business not to play the game quite so dirtily. The first awakening to this feeling was a report by Mr. Graham Turner in the Sunday Telegraph a few weeks ago. His report about the attitudes of individual members of the Price Commission, including the chairman, was more than borne out by the report when it eventually appeared. Paragraph 4.5 states: There are important and sensitive areas which are excluded from the field of control for which the Commission is responsible. The main exclusions of general public interest are fresh foods; imported goods and services —which covers a wide range of basic materials; goods and services, such as coal and steel, covered by international agreement; rent, rates and interest. They are not simply holes that exist in the price code. They are nails that have been knocked into the coffin of the Government's incomes policy. The Price Commission says this at the end of the paragraph: The goods and services included, even if less emotive, do in fact account for nearly two-thirds of total goods and services entering into consumer expenditure. They are invariably goods of elastic demand, goods for which a substitute can be found, goods whose consumption can be postponed. The goods that are not subject to the scrutiny of the commission are goods which, by their very nature, constitute the absolutely irreplaceable basis of a family's consumption pattern and standard of living.

It is not until a Government are willing to tackle these elementary parts of a family's consumption, these elementary facts of their standard of living—their food, rents and mortgage interest—that we are ever likely to get any consent for or conformity with a national incomes policy.

The weakness which is betrayed in this incomes policy and the way in which it is outlined by the commission is further emphasised by a report in last Friday's Economist, which puts the matter as blandly as anyone has done during the discussion since the introduction of the Counter-Inflation (Temporary Provisions) Bill several long months ago. It says that the commission … works to a set of rules that sets out which increases in costs may be passed on in higher prices and which may not. In practice this means almost everything except higher wages. Yet, when we on this side and trade unionists have continually claimed that the prices and incomes policy is not intended—indeed, is specifically so designed—to control wages only, we have been scoffed at derided and dismissed by those who support an incomes policy of this type. Time is proving them wrong, even if the commonsense arguments of several months ago did not convince them.

The commission continues throughout Section 4 on the price and pay code with an air of innocence which would do credit to the most virginal adventurer on the economic scene. It talks, as the Secretary of State did today, of misunderstandings and misinterpretations by business in the operation of the code.

Several months ago, several hon. Members on this side, including me, tried to point out the weaknesses in the code. We spoke of loopholes and light-fingered accountants, of the ability of business to subdivide itself, to find continual excuses. So it is in some ways heartening, but in other ways disappointing, to find that, despite the expertise and sophistication of those chosen to serve on the commission, it has taken them two or three months to discover that business was out to con them all the time, to subvert the code from its inception.

There is a general tut-tutting air about the whole section, especially when it says: Many people overlook the fact that if total costs have increased less than allowable costs, then the price increase is limited to the amount justified by the increase in total costs". There is even talk of the poor standard of arithmetic of the applicants. There is a general air of euphemism about this section. Possibly, this is a subtle way, chosen by some of the more erudite members of the commission, gently to nudge big business and put a warning shot across its bows to the effect that the commission has rumbled the great game of "dodge the code" which is being played.

But the commission will have to come up with something far more efficient than simply nudging or attempts publicly to cajole business to conform with the code. Such a system will require stringent powers backed by Government if it is to have any effect. I would obviously support such stringent powers, which are elementary to an effective incomes policy in any society. But, while those who feel strongly about such issues can debate the efficacy of such a system, in general it is obviously nonsense to hope that by nudging, suggesting or cajoling we shall get people who are responsible for large business empires to subordinate their interests to a voluntary code like this. It is simply not on.

For the commission to talk of large companies "erring" and "making mistakes" as it does in paragraph 4.10 is a gross misunderstanding of the processes that those companies have been following over the last months to find ways through the code and to charge what the market will take.

I have come to the opinion in recent years, even after the disastrous experience, as I would think, of the incomes policy introduced by the Labour Government and the even more disastrous experience which confronts us a consequence of this incomes policy, that nevertheless incomes policies are about to become as permanent a feature of modern economies as income tax or other systems of income rationing and sharing. It has become my conviction, reluctantly, over these months that, one way or another, the democratic State tan only take enough power to itself to bring about the necessary redistribution of wealth, the control of inequalities and the control of incomes, the encouragement of—

Mr. Deputy Speaker (Sir Robert Grant-Ferris)

Order. The hon. Member for West Ham, North (Mr. Arthur Lewis) knows that he should not read newspapers.

Mr. Arthur Lewis

On a point of order, Mr. Deputy Speaker. It is correct, is it not that an hon. Member is allowed to have a newspaper if he wishes it for debate? The headlines in this paper talk of yet more price rises in baby foods, chocolates and tyres. The newspaper says that hundreds of increases have been announced, from 1.4 per cent.—

Mr. Deputy Speaker

Order. I got the hon. Member's point. It is perfectly all right if he is going to quote from the newspaper if he catches my eye. There is no need to make further points which are not points of order for me.

Mr. Lewis

I thought that you had risen, Mr. Deputy Speaker, to call me to order, and I wanted to make sure that you understood that this is all relevant to the debate.

Mr. Kinnock

I trust that my hon. Friend's chances of catching your eye, Mr. Deputy Speaker, have not been diminished by that intervention.

I was saying that I believe that incomes policies are about to become a permanent feature of our system of economic management—as if they have not been so already for some considerable time. But I believe that we are now embarking on this system formally. It is a logical development of the way in which we run our economies, for good or bad, in modern societies. But such policies are bound for absolute disaster if they try to freeze the pattern of distribution of income. They will be disasters if they provide a fallback for managements which, like the girl in the song, "can't say no" to extravagant—"militant" is now going out of fashion, according to the hon. Member for Harrow, West—trade unionists, and if they are used as a deflationary weapon. Such policies will lack any element of fairness, consent or even economic efficiency which would provide them with a start towards the rationalising of incomes and the increasing of fairness and efficiency in our society.

If, on the other hand, such policies apply to all incomes without exception, if they embrace progressive taxation policies, if they are redistributive as well as rationalised, if they seek to take from the rich and give to the less well-off as well as seek to decide between the less well-off how much they should get, they can begin to succeed. If they are conducted—this is the absolute basic essential—in the strictest accord with the representatives of labour power, we shall begin to see the dawn of success for such policies.

This policy lacks all the necessities for an efficacious or even a useful incomes policy. The Times and others are arguing for deflationary policies. The CBI is asking for a slackening of the controls. The commission argues subtly but nevertheless positively for a tightening of the price controls.

In spite of all those pressures, the Government are likely, in view of the other characteristics of our economy, to take upon themselves the function of making the income side of the policy more deflationary, of making the pay conditions much tougher, and justifying it on the basis that over 12 months wage incomes will probably have increased by about 12 per cent., and of not cracking down further on the prices side. The consequence is bound to be a further reduction in the standard of living even harsher than the one referred to by my right hon. Friend the Member for East Ham, North. That is why it is necessary for us on this side of the House, for trade unionists and for all conscientious citizens to fight against the Government's policy.

6.11 p.m.

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

I share the apprehension of the hon. Member for Bedwellty (Mr. Kinnock) that prices and incomes policies may be well on the way to becoming an established feature of our society. It is ironic that that should be so, despite what was recently described as their unique and comprehensive record of failure". One thing which seemed to emerge with absolute clarity from the hon. Gentleman's argument was that if a prices and incomes policy will not work when it is compulsory, it will not work if it is voluntary and that the alleged desirability of substituting a voluntary policy for a compulsory policy lacks logical foundation.

It is perhaps worth the while of this House to look back for a moment and contrast the atmosphere and arguments used from the Government Front Bench today with those which were popular a year ago. There was hardly a garden fete or public meeting a year ago at which my right hon. Friends did not take the opportunity to emphasise if not the unique then at any rate the overwhelming role of the trade unions in the causation of inflation. Certainly my right hon. Friend the Prime Minister never allowed a Tuesday or Thursday afternoon to go by without giving at least one supplementary answer in which he firmly nailed trade union power as the decisive cause of the phenomenon of inflation from which the country was suffering.

It was above all as a means of dealing with that supposed cause of inflation that stage 1 of the prices and incomes policy was introduced in the autumn of last year. Of course, it included prices, dividends, and so on; but no one who listened to the speeches made at that time and in the months leading up to the introduction of the policy could be in any doubt or ambiguity that the main factor against which the policy was directed and which, in the view of my right hon. Friends, had to be brought under control was the power of the trade unions to extort excessive and what were called inflationary wage settlements.

Well, we have had eight months of the policy—five months of freeze and more than two months of stage 2. There is no question but that the policy has been implemented. There is no question of any accusation that far and wide trade unions, abetted by employers, have infringed the law. Almost universally the unions have obeyed the law. Indeed, not only have they obeyed the letter of the law, but employers and unions alike have shown what some people might consider to be an almost excessive anxiety not to be accused of departing from what they were informed by the Government was the spirit of the law as well as the letter.

Therefore, whatever the policy was to do, whatever the legislation was to achieve in respect of the crucial factor of wages, pay and incomes, there has been no failure. The policy has been implemented 100 per cent.—the freeze and stage 2, so far as it has gone. Yet the result today is that inflation is running at approximately the same level as it was a year ago, with the additional fact that it is visibly accelerating. All this is true, although the policy has coped, within its terms, completely with what was regarded as the major cause of inflation and the major reason for its introduction.

What is more, as my right hon. Friends move to stage 3, they talk about threshold agreements. Such agreements are not an element which would be built into the talks with the trade unions, which would not be envisaged in stage 3, if it were the unions who were the culprits responsible for the continuing inflation. A threshold agreement is something which one makes to deal with the victim, not with the culprit. If my right hon. Friends still believed in the overwhelming significance of this factor, they would not be approaching stage 3, as my right hon. Friend the Secretary of State did today. saying to the trade unions, "If we find that prices are rising "—presumably as a result of the behaviour of the trade unions themselves?—" then an automatic addition can be made to the levels of pay agreed under stage 3". A Government who go into stage 3 with the offer of threshold agreements on a plate before the discussions start is no longer a Government who regard trade union power as the leading, if not almost the exclusive, factor in the causation of inflation.

It is no wonder that we have heard very different language in the last few months. Ever since it became evident that these two things would coincide—the complete implementation of the prices and incomes policy so far, and the resumption of an accelerating rate of inflation—we have heard entirely different language. Today all the talk is about world prices. Apparently, the trouble is the rise of prices in world markets—something of which the trade unions are as much the innocent victims as anybody else. World prices have stepped into the place which, in the speeches made 12 months ago at garden fetes and from the Government Front Bench, was occupied by trade union power. That place is now occupied by world prices—

Mr. Arthur Lewis

And the weather.

Mr. Powell

—including the weather, the behaviour of the anchovies off Chile, the appetities of the Argentinians and the most regrettable shortages in the USSR and China. There has been a complete change of scene.

But, alas, the new explanation, though it has not yet been as decisively disposed of by experience as the previous one, is no more satisfactory. It fails totally to account for the fact that the movement of the price of goods which are not imported, of those articles which in many cases are exclusively of home production, has followed the general trend. We should be prepared to listen to the argument about world prices, and to admire the sleight of hand by which they have been substituted in this drama for the trade unions, if it was the price of articles dependent on world trade which alone had risen while other prices had, on the whole, remained stable in obedience to the success of the prices and incomes policy.

My right hon. Friend the Foreign Secretary a few days ago, in an attempt to defend the story of world prices, was remarkably selective. He remembered the beef; he recollected the tomatoes; but he said nothing about the humble herring or the domestic haddock. Wherever we look, however we examine the behaviour of prices, we shall find little or no trace of the exclusive and predominant power of world prices suddenly to step into the shoes of the greedy and rapacious trade unions.

Everyone knows that prices alter relatively to one another whether or not there is inflation. No one denies that all the time some articles are becoming scarcer and dearer and others are becoming more plentiful and relatively cheaper. But this movement of individual prices goes on all the time, whether there is deflation, stability or inflation. It has nothing to do with the phenomenon of inflation itself.

My right hon. Friend the Chancellor of the Exchequer is under no misapprehension about where the root cause, the driving force, behind inflation lies. Why did my right hon. Friend come to the House on 21st May to announce, admittedly only as a first instalment, very tentatively—his colleagues had not allowed him to go very far, for they were not sufficiently alarmed—a reduction in the estimates for this year and next year? I do not believe that my right hon. Friend did that out of sheer sadistic delight in cutting estimates. I do not imagine that he found it easy to get it past his colleagues in the Cabinet. Why did he do it? He knew that if public spending continued at the rate which was projected without being curbed, then one or both of two consequences would follow. Either he would presently be obliged to increase taxation or he would himself be fuelling the very inflation which he and his colleagues were purporting to deal with by the prices and incomes policy.

Why has my right hon. Friend the Chancellor of the Exchequer shown such acute interest in and anxiety about the uncovered deficit on this year's Budget? Why has he devoted so much attention to funding the Government's borrowing requirements? This is not some doctrinaire attachment to Treasury doctrine. Everyone knows what will be the consequences if not merely a large part but the whole of that deficit cannot be funded by my right hon. Friend the Chancellor of the Exchequer. The consequences will be that the Government's own behaviour, the balance between the public spending which they control and their revenue, will produce an addition to the forces of inflation that will sweep away anything else that can be done. While the pantomime of a prices and incomes policy is being played, with reasons produced—first one, then another—to underpin such a policy, my right hon. Friends at other times make no secret of their understanding of the true, unique and indispensable cause of inflation. Indeed, my right hon. Friend the Chancellor of the Exchequer has talked of the Government not providing money to finance more than a given level of inflation.

It is totally irreconcilable to use that language and to apply that policy while pursuing a prices and incomes policy based on the assumption that prices rise because individual suppliers choose to put them up and that wages rise because unions choose to demand them and employers choose to concede them, and that a system can be erected which by dictating individual prices will keep all in order and ensure the predetermined march of inflation—not perhaps at 5 per cent. but at something nearer to 5 per cent. than to 10 per cent.

That brings me to the two agencies—the Pay Board and the Price Commission. They were not necessary during stage 1 —a freeze is a freeze is a freeze, and everybody knows that nought equals nought. But though stage 2 is a freeze in the sense that it imposes a flat rate code, since it is a flat rate x degrees above the level it has to be administered in detail; for it has to be interpreted. The code, although it is the most accurate description of a flat rate arrangement which can be devised, nevertheless has to be interpreted case by case; and over time it must be policed. These are the functions of the agencies. They have performed them to the best of their ability and, so far as I can judge, in a blameless fashion. In stage 2 they are merely interpreting, case by case, in as nearly as may be a judicial manner the application of a flat rate code.

Then comes stage 3. Nobody doubts that sooner or later—and it must be in stage 3, 3a, 3b, 3c or 3d—prices and wages, and wages especially, have to begin once again to move relatively to one another. We can wrap this up and talk about eliminating unfairnesses, removing anomalies and redressing relativities; but the underlying economic reality is that one cannot indefinitely in a living economy keep prices, including the price of labour, rigid. Everything has to start to move again. Things have to change in relation to one another.

I agree totally with the Opposition Front Bench when they say that if the administration of stage 3 is to be entrusted to the agencies, it would be intolerable that the agencies should not be directly responsible to this House. While one can imagine and accept the judicial application of a code which has been debated in this House, what is unacceptable is that arbitrary and unique decisions about the relative values of articles, labour and the whole range of prices and incomes should be made by bodies which are not responsible to this House. But we shall be saved from that embarrassment by the very impracticability of stage 3.

The fact is that there is no stage 3. There cannot be a stage 3. No rules can be laid down in advance, or administered by any body of men or Government, so as to decide, prescribe and order, without the most evident and unacceptable injustices, without arbitrary interventions, anomalies and unfairnesses, how all prices and wages are to start to move in relation to one another as well as all moving up together at whatever rate of inflation it is decided to accept for the time being. What is important about stage 3 is that there is no such thing as stage 3; or, as one of my right hon. Friend's predecessors might have said, "There ain't gonna be no stage 3."

What are the possibilities? There are two routes of escape.

The first is a sham in terms of a voluntary agreement which all the parties know cannot and will not be honoured because it is uninterpretable and unenforceable. Even worse would be a voluntary agreement backed by statutory powers, which means that those powers would be used arbitrarily and in the manner of a bully in one case or another. That is one direction. That is one way of avoiding the central fact that there is no stage 3.

The other is to try to go on with a new version of the flat rate accompanied by ever more stringent compulsion. That will last for a time; but it will not last for ever; for, with every week it goes on. the contradiction between such a policy and the realities of a live economy will become more screamingly intolerable.

There is, however, a third course; and whatever the modalities, I appeal to my right hon. Friends to accept it, for it is implicit in so many of their words and certainly implicit in the Chancellor of the Exchequer's budgetary policy. They know where the key to inflation lies. Let them do their duty. Let them do what only the Government can do; for only government can cause inflation and only government can stop causing inflation.

At the beginning of the debate there was an exchange between myself and the right hon. Member for East Ham, North (Mr. Prentice). Our difficulty, I think, arose out of a mutual misunderstanding. I have never said or believed that unemployment is a necessary condition of the stable value of money. I have never believed it, I have never said it, and I have never thought it. But what I have said over and over again—and I challenge anybody to dispute it—is that when inflation in an economy is running at 10 per cent., then anybody who says that that rate can be reduced to 5 per cent.—whether it is done by prayer or by lighting candles or by juju or by a prices and incomes policy or by control of the money supply—without causing unemployment is deceiving himself or others. Whatever the method, the result will be the same. The result will be temporary dislocation, including unemployment.

As was said earlier in the debate, in a period of inflation everybody anticipates that inflation will go on—everybody extrapolates. If one then defeats those expectations, sure enough defeated expectations spell dislocation and, for the time being, unemployment. The temptation is thus enormous for any Government to inflate on the one hand while pretending on the other hand to be "fighting" inflation through a prices and incomes policy.

I ask my right hon. Friends, who have a duty in this matter, to make a reality of their profession to give the people of this country stable money, to give them a relief from the continuing and mounting anxieties of inflation. After all, the Conservative Party has promised to do this. We fought the election on this promise. It is no excuse to say that to do it in very truth would be painful. Nobody but a knave or a fool can doubt that. The only way to achieve it is to be candid about what one is doing, why one is doing it, and what the price will be, so that we take the public into our confidence and the people fully understand the cause, the policy, the nature of what we intend, and why we have confidence in what we propose to do. Then and only then, if my right hon. Friends will so act, will they give the people of this country what we have promised them—and give it to them not in the form of a sham but in truth.

6.35 p.m.

Mrs. Renee Short (Wolverhampton, North-East)

I want first to apologise to the Front Bench speakers for not being here earlier in the debate, but with some of my colleagues I was engaged upstairs in the proceedings of the Expenditure Committee.

The right hon. Member for Wolverhampton, South-West (Mr. Powell) said that we are suffering from accelerated inflation, and he is absolutely right. He appealed to his Government to relieve the people from the burdens of the policy which they are now pursuing. But he must feel that that appeal falls on stony ground, because as long as the Government intend to pursue their policy and erect all manner of "phoney" façades to try to persuade the people that something is being done to tackle what they themselves have created, there will be no respite for the people of this country.

The right hon. Gentleman might have gone on to attack the Prime Minister, who, in this situation of acute inflation, is determined to go ahead with grandiose schemes like Maplin and the Channel Tunnel and to continue to waste money on Concorde at a time when inflationary pressures are so great and when those resources and the skill and manpower employed could be used for other purposes.

There has been a rapid decline in the economic well being of this country and the standards of living of ordinary working people, and there has been a decline in the standards of public and private life. We live in a state of continual crisis, and the Government sit back and hope that somehow or other the fat years will return, that food prices will settle down, that in time unions will be less militant than they have been, and that phase 3 will be settled amicably.

I do not want to become involved in any conflicts within the Conservative Party or in the internal affairs of that party, and I cannot answer about what is said at Tory Party fetes. But we know that the unions have been made the whipping boy over the period of rising prices. Wage earners have been blamed whenever they took the only steps open to them to campaign for better pay to meet rising prices, and the Tory Press has carried the message day after day week after week ever since the Government were returned that it was the trade unions who were responsible for the difficulties in which we find ourselves. There was no sympathy on the Conservative benches or in the Tory Press for the lower paid workers such as the railway workers or hospital ancillary workers who did what they had to do to improve their position. The Prime Minister and his party never blamed the profiteers or those masquerading in the city as respectable business men doing their legitimate business of making increased profits year after year. They never entered into the picture. It was a question of blaming the workers, a matter of divide and rule, the classic recipe which reactionary governments always use to maintain power.

Therefore, we had wave after wave of increases right across the board not only in food but in household durables, clothing, footwear and every manner of thing. The Prime Minister has now blamed all our difficulties on world prices—and little Sir Echo, the Minister of Agriculture, says the same thing. A Parliamentary Secretary was appointed to the Ministry of Agriculture who was supposed to be the housewives' watchdog. She is not much of a watchdog, as we see at Question Time week after week when the Department is answering Questions. She has no voice with which to bark and no teeth with which to bite. After all the phoney sunshine words that we heard from her about the peak of rising prices being reached, we see prices continuing to rise. If the hon. Lady had any sense. she would resign.

Let me cite a few rising prices which I have extracted from the journal of the Transport and General Workers Union —[Interruption.] It is a very good organisation. I happen to be a member of it. The journal gives some indication of price increases that occurred over a range of food products in March and April, before the Price Commission got going. The first item concerns canned meat. For a 12 oz. tin the increase was 4½p. That may not sound very much in today's decimal money. But when it is translated into what very many people still regard as real money it means 11d. That is the increase on a 12 oz. tin of meat, all in one go. Then the price of one brand of breakfast cereal rose 7d in old money for an 8-ounce packet. The price of cooking oil rose 5d for a 16 oz bottle. The price of self-raising flour rose 5d for a 3 lb bag. Something called Wall's Raspberry Ripple Mousse—I do not know what that is—went up by 4d. The most staggering increase of all was for 1 lb of honey, the price of which rose from 22p to 32p—an increase of 2s per lb. It is incredible, and it is not surprising that people wonder what has hit them.

After the Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food we had the Minister for Trade and Consumer Affairs. His appointment also seems to have been rather pointless. It is difficult to see what he has done to help the consumer—

Mr. Arthur Lewis

That is unfair—

Mr. Deputy Speaker

Order. Does the hon. Lady give way to the hon. Member for West Ham, North (Mr. Arthur Lewis)?

Mrs. Renee Short

I might as well.

Mr. Arthur Lewis

I am sure that my hon. Friend does not want to be unfair to the Minister for Trade and Consumer Affairs. She said that the right hon. and learned Gentleman had not done anything. She may be interested to know that I took up a case with him last December. He sat on it for six weeks and did nothing about it. Then he referred it back to the local weights and measures inspector. Only today I went to court in order to give evidence. The case was postponed. My hon. Friend will see from that that the right hon. and learned Gentleman occasionally does something even though it may have a gestation period of nine months.

Mrs. Renee Short

From what my hon. Friend has said, it appears that the right hon. and learned Gentleman is acting as a postman—[Interruption.] I must be careful what I say. I do not want to tread on the corns of any Post Office worker.

Apparently the Birmingham housewives gave the Minister for Trade and Consumer Affairs short shrift when he went on a walkabout exercise there. Perhaps the right hon. and learned Gentleman will come to Wolverhampton. I shall see to it that he gets a warm welcome if he cares to meet Wolverhampton housewives.

Following the enormous wave of price increases which we saw after June 1970 and which became even more acute after the beginning of phase 2, we had the Price Commission set up. The commission was another part of the confidence trick. In setting it up the Government sought to wash their hands of unpleasant phenomena like rising prices, and thought that they could hide behind the commission. But the shocks have come non-stop since it was set up three months ago. The report that is before us deals with only two months' working of the commission, and there are pages and pages listing applications to it which have not yet worked through the pipeline but which presumably will hit us when the House is in recess.

Since the Price Commission was set up it has put about £250 million in increased prices on the backs of our unfortunate housewives. A large sector of manufacturing industry escapes the commission's attention because it deals only with the top 200 firms. The rest are able to do as they like. The medium- and small-sized firms can do as they wish. There is no attempt to control them.

The report indicates that only 11 out of 441 applications for price increases have been refused. In addition 62 have been withdrawn, most of them because they were incorrectly made. But they will be back when they have learned how to make an application to the commission. Nearly half of the 441 of the original applications are still in the pipeline.

The chairman of this body gets £16,000 a year for acting as the Government's stooge. He must feel a very frustrated man. If he wants to do a real job of work, he will be better advised to resign his present job and to go back to Boots from whence he came, taking his commission with him.

In his Budget speech the Chancellor of the Exchequer made great play with the fact that there would be reductions in the prices of certain foods with the introduction of VAT and the ending of SET and purchase tax. This was another part of the confidence trick. For a few weeks the prices of some confectionery lines and biscuits went down a bit, but they have gone up again rapidly since then.

Looking at the trading profits of some of the 190 or so firms which have been allowed to raise their prices, it is seen that some of them are included among those firms which we were told would reduce prices when VAT was introduced. The Director magazine gives an indication that profits between 1972 and 1973 of 60 of the top companies rose by 23 per cent., and that five of them doubled their profits in a year. Allied Bakeries, for example, which was allowed to increase its prices in the first two months of operation of the Price Commission, had an increase in profit from £24 million in 1971 to £28 million in 1972. Birdseye Foods and Vanden Berghs were allowed to increase their prices. They are part of the enormous complex of Unilever, which makes huge profits. They went up from £120 million to £141 million. Cadbury Schweppes Limited was allowed to increase its prices. Its profit went up from £24 million to £31 million. Esso Petroleum Limited was allowed to put up its prices. Its profit went up from £32 million to £63 million. ICI's profit went up from £130 million to £141 million. Lyons Bakery's profit went up from £5 million to £7 million. Rank Hovis McDougall's profit went up from £31 million to £37 million. The list goes on, with Spillers and the rest.

In the list of the large number of firms allowed to put up their prices I can find only one which has not shown an increased profit from 1971 to 1972. That exception is the Metal Box Company. It has been allowed to put up its prices, perhaps, because its profit fell from £20 million to £19 million in the period.

This is a situation which bewilders the ordinary person who does not understand what is going on and why firms which make enormous profits year after year are allowed to put up their prices. If ordinary housewives do not understand. it means that the trade unions do not understand, either.

We know that many of the price increases which have occured since the beginning of the year and which are reflected in the cost of living index are not within the control of the Price Commission but are due to the common agricultural policy—another of the Prime Minister's follies. The prices of butter, sugar, meat, fish and bacon have all gone up tremendously, either because our existing subsidies have had to be removed or phased out as being unacceptable or because we have had to impose import duties in order to fit in with the CAP. However much the Prime Minister continues to deny this, people know that it is true.

That is all the more reason, then, for the Price Commission to take a tough line with those British firms which are already making large profits but which still want to increase their prices and so place even greater burdens on the unfortunate housewives.

From the information which we have, however, it is clear that the Price Commission has done nothing to ensure that reductions in world prices are passed on to the consumer. My hon. Friend the Member for Renfrew, West (Mr. Buchan) referred to this in his letter to the Minister of Agriculture. The Fatstock Market- ing Corporation has surprised itself by the increase in profits which it has made this year. On the other hand, we understand that the price of some imported Argentine meat fell by 10 per cent. between April 1972 and February 1973. That reduction has not been passed on to the consumer. Indeed, as I have already said, the price of some tinned meat went up between March and April this year, in one of the largest increases on record.

The cheaper beef imported from the Argentine is used in manufacturing processed foods. Plainly, there has been a dereliction of duty on the part of the Price Commission and the Minister responsible, who is content to sit back and watch this state of affairs continue month after month, and presumably year after year, so long as this Government are in office.

United Nations statistics show that the rise in food prices in this country between June 1970 and March 1973 has been the largest among all the Western European countries. In France, food prices rose by 20.7 per cent., in Italy by 17.9 per cent., in Belgium by 15.3 per cent.—in America, incidentally, the rise was 16.8 per cent.—but in Britain the rise was 32 Per cent. It is a scandalous situation and

Mr. Tom King (Bridgwater)

In citing those figures, has the hon. Lady given any thought to the contribution made by domestic agriculture and how much individual countries are affected by the need to buy on world markets?

Mrs. Renee Short

I am aware that we have to import a great deal of food, but we are not the only food importer among the countries which I have mentioned. One can take the matter further. In Eastern Europe food prices increased by about 5 per cent., and not all those countries are self-supporting. There is a fantastic contrast between what other countries are doing and the increasing burden which the British consumer has to bear. In this year alone, as those who are constant readers of that very good magazine the Grocer know, there have been over 5,000 increases in food prices.

It is clear that the Government's policy is a sham and a charade. They do not intend to do anything serious to peg prices. Their only intention is to attempt to peg wages and to keep down the standard of living of working people. Their policies are understood by the mass of the British people as unfair and unworkable, and leading us to the verge of bankruptcy.

In my view, the Opposition amendment is too restrained. My right hon. and hon. Friends should be asking for the resignation of the whole of the Price Commission and for the resignation of this incompetent unfair Government, with all their unworkable policies.

6.53 p.m.

Mr. Ian Lloyd (Portsmouth, Lang-stone)

The hon. Member for Wolverhampton, North-East (Mrs. Renee Short) referred, as have several other hon. Members, to what she calls the decline of the standard of living in this country over recent months and years. I have here the latest OECD report, published yesterday, and I think it right that the House and the country should know precisely what the figures are. At market prices, in 1971 and 1972, and 1973 estimated, the rise in our gross domestic product is shown as 1.7 per cent., 3.4 per cent., and 61 per cent. If one applies the implicit GDP price deflator, as the hon. Lady would doubtless do, these figures are reached: 0–6 per cent., 2–6 per cent., and 7 per cent. as the estimate for 1973.

The hon. Lady may have her own views about the distribution of wealth within the community during that period, but I cannot imagine that anyone facing the statistical facts honestly could assert that this country's industrial production has fallen. Our national wealth and income are standing at an all-time record. The dispute between the two sides of the House, I am sure, is essentially about the distribution of that wealth rather than about its production or its existence.

Mr. Norman Buchan (Renfrew, West)

That is an astonishing statement, and I did not follow the conclusion that the hon. Gentleman drew from the figures. In fact, this year there has been a fall between the first and second quarter of about 0.1 per cent. We do not need predictions. The facts are there.

Mr. Lloyd

I can only give the latest figures available from the OECD. The prediction for this year is a rise of 7 per cent. If the hon. Gentleman thinks that the figures are wrong, it is up to him to disprove them statistically when he has opportunity.

Both the hon. Lady and her hon. Friend the Member for Bedwellty (Mr. Kinnock) based some of their attack on the fact that profits are increasing. There is no dispute that a number of important companies have recently declared increased profits. However, I draw attention to an article in Lloyds Bank Review about six weeks ago which took the record of profits in this country as a percentage of gross domestic product over the past 15 years. Whether those profits are taken gross before tax, with historic depreciation as the factor or with inflationary depreciation, that is, allowing for rising prices, or net after tax—whichever form of curve one takes, all three slide right across the graph from top to bottom. That is the situation which the country now faces.

The general reward for investment has been declining continuously over a secular period. That is the fact, whatever standard one chooses. All hon. Members opposite want those who own capital to invest more, while at the same time they say that profits must be taxed the moment they emerge. I should have expected them to welcome the emergence of profits. They believe in swelling the public sector coffers.

Where do the profits go? In this country, between 75 per cent. and 80 per cent. of declared gross profits disappear into the tax man's bag. Do hon. Members opposite want that or not? If they want it, do they want profits to emerge? If they do not, what is their alternative? Do they believe in a real return on investment or do they not? If they believe in such a return, how do they reconcile it with their claims for greater investment now as an essential condition of recovery? These are the arguments which hon. Members opposite, generally speaking, do not face.

As one would expect of him, my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) gave the House a profound and most interesting analysis of the central economic problems facing this country today. With much of what he said I agree. I share his general philosophy that the total control of the price system or total control of the economy is something which successive Governments in the West have tried through the ages. But having tried it, in the end they have had to retreat and admit defeat. They have succeeded in sustaining the illusion longest only during a period of war when the communities which they govern are prepared to accept total control. During periods of peace, however, their retreat has usually been precipitate, usually occurring after 18 months at the most.

However, when my right hon. Friend the Member for Wolverhampton, South-West declares, as I believe he does, that the villain of the piece is public expenditure and that the sole responsibility in this situation lies with the man who has the levers of public expenditure under his control, I believe that he is falling into a fallacy of which he accuses others. It seems to me that the argument that there is one unique and indispensable—I think that was his phrase—cause of inflation is not one which bears serious examination. For ours is a most infinitely complex cybernetic system. What my right hon. Friend said will have some impact on the forces that the Government are seeking to control, because of the considerable influence of what he said, of his thinking, of his sincerity and all that accompanies these qualities.

This is part of this immensely complicated thing which successive Governments have failed to control, and I should like to quote to my right hon. Friend what the OECD said on this: Another valid fear could be that even if governments are not reconciled in advance to accepting higher rates of inflation than in the past, they are uncertain as to how to proceed. In a number of countries the restrictive demand management policies of 1970–71 were followed by recessions which went beyond the 'cooling off' period they were designed to produce. The trade-off between inflation and unemployment"— this lies at the core of the argument— proved more unfavourable than previously envisaged and the price relief was in most cases small and in virtually all cases short-lived. While demand management is likely to—and indeed must—remain an important weapon for achieving reasonable price stability in the sense that when demand becomes excessive the battle is lost"— as my right hon. Friend will argue— governments will probably be searching, with increasing urgency, for effective complementary policies. That is the point where I should like to continue my own argument, because the control of inflation, if ever it is likely to be successful, will be the result of a series of interlinking, interlocked, rational, effective, but complementary policies, of which the central part will be a monetary plank as a fundamental component. I go so far as to agree with my right hon. Friend in saying that it will be an indispensable component, but by itself, ignoring all these other factors, I doubt whether it would produce results which everyone in this Chamber desires.

I beg leave to doubt that because I do not think that a single lever policy will work. If one asks the Chancellor, sitting at the lever, whether he can apply it in the way suggested, whether he will apply it in the way suggested or, perhaps a more important question, whether he will be allowed to apply it in the way suggested and how quickly can he apply it, one must start asking and attempt to answer questions of this kind.

Are the consequences of his application of that lever unpredictable, or, as some would assert, economically controllable? Many would argue that its consequences would not necessarily be economically controllable, and some of the evidence in the OECD analysis of Western Europe in the last two or three years suggests that it has not been.

Then one comes to a much more central point, and that is whether the consequence would be politically acceptable. Here again, the answer that if the Chancellor were suddenly to apply the brake to the monetary mechanism and to that alone, not taking into account the whole range of complementary policies designed to achieve a reasonably comfortable lurch from a position of gross inflation to minimal inflation, he would find himself in grave political difficulties.

I should like now to turn to one or two problems that are at the heart of the situation. I think hon. Members will recall that a great Member of this House, Sir Winston Churchill, once said, when confronted with the problem of the Battle of the Atlantic, how willingly he would have exchanged a full-scale attack by invasion for this shapeless, measureless peril expressed in charts, curves and statistics. It is fair to say that what we are talking about this evening is a shapeless, measureless peril expressed in charts, curves and statistics. The battle of inflation and the Battle of the Atlantic are expressed in charts, curves and statistics and if they are to be beaten they require a united national effort. Both have nearly brought this country to its knees in terms of policy, or the defeat of policy.

There are, however, fundamental differences between the two. The Battle of the Atlantic was associated with large-scale physical destruction for which there was no economic compensation. Our present degree of inflation is associated with rapid growth and physical output. It is of fundamental importance to remember at all times, however disastrous the social consequences of inflation, that this remains a positive gain, and it is understandable that Governments throughout Western Europe, in attempting to reach forward to a solution, feel that whatever else they abandon this is something which they must not abandon—the concept of holding on to real growth. Although I believe that it creates a major philosophical problem of another kind, which need not detain us here, in the context of today, the immediate future and immediate policy, it is a reasonable attitude for any Government to take.

The right hon. Member for East Ham, North (Mr. Prentice) said that if there is to be a successful policy it must be broadly acceptable to opinion in this country. I think that we come here to one of the central problems in the battle against inflation. The right hon. Gentleman has stated the problem in tautological terms, because if the policies are right they will not necessarily be acceptable to public opinion, and if, on the other hand, the policies are acceptable to public opinion they will not necessarily be right.

That poses the dilemma which confronted the Labour Government, which has faced this Government and, as the OECD analysis shows, has confronted every Government in the North Atlantic Community. If the policies are right they are not necessarily acceptable, and if they are acceptable they are not necessarily right. Because the skill of economic management and political management are closely intertwined and linked, they seem to require a resolution of this dilemma.

May we ask ourselves what is the significance and weight of public opinion which, in a climate where the increase in real output over a prolonged period has been about 2–9 per cent. to 3 per cent., insists in a significant number of cases in demanding an increase in its monetary income of 15 per cent.? My right hon. Friend will argue that this is not a central cause, that this situation is allowed to develop because of monetary management. I do not believe that that is so.

The existence of excessive liquidity in the economy may create conditions in which this type of demand is more readily met and in which employers more readily concede demands. But that situation having existed, and this result having followed, I believe that the exact and specific consequence of it is inflationary, and I see no easy or ready escape from that unless policy operates on that front as well as on the front of monetary and demand management.

The dilemma is a central one in a democratic society. Economic reality as we attempt to apprehend and understand it is complex. It includes as a component of reality the public concept of what that reality is. But does not the disparity between economic reality and the public concept of that reality lie at the core of the problem of inflation?

Reality is a controversial matter. Hon. Members, given the same set of statistics and figures, will, without any difficulty, interpret them differently, and I go so far as to say that people outside this House, with possibly less political motivation for interpreting figures differently, would also do so quite honestly and genuinely.

Reality is complex. The understanding of economic forces is a difficult thing. It was Max Planck who said to Keynes —and I apologise to the House for recounting this, but it is relevant—that economics was far more difficult than quantum physics, and that is an opinion that sometimes tends to be unheard because there are so many armchair strategists on economics that one tends to assume that this is a fundamentally simple situation. I believe that part of the problem is that it is fundamentally immensely difficult and complex. It was Lewis Carroll who, in defining arithmetic, described it as uglification, derision and distraction, and it is fair to say that when strongly pressed by political forces we all resort to a bit of uglification, derision and distraction.

It seems to me that here we come to the facts of the problems of price control. Price control is something that is now being looked upon as an essential to economic management, and of great virtue. It was said in the House just the other day that it is really a preferable alternative to rationing by the purse. This is a highly emotive phrase and one understands why it appeals in certain circumstances, but the pattern of supply reflects changes in the structure of scarcity in our Western civilisation and industrial economy.

As technology opens up new resources which were not thought of three or four years ago, as education creates new skills which were not defined in any books of statistics ten years ago, as depletion of our basic national resources affects the basic pattern, only the price system can effect the rapid and necessary adjustments between these complex sets of factors. I know of no superhuman set of beings who, even in control of some vast set of computers and receiving all the information that can possibly be supplied, can achieve a better and more efficient resolution of these complex matters than can the price system.

It therefore seems to me that we must argue further and say that this system is one of the central pillars of a free society and something that we must seek to maintain whatever other forms of control we seek to impose on our economy. We do not want to go to the computer-coupon society any more rapidly that we can possibly help. I believe that prices are the signals of a cybernetic process. We live in a vast cybernetic system. Unless we use every possible technical means of reconciling human demand and resources—and we in this House are perhaps now at a peculiar pinnacle in which both have their impact—we shall most certainly fail.

7.12 p.m.

Mr. Michael Meacher (Oldham, West)

We have listened to a most thoughtful speech from the hon. Member for Portsmouth. Langstone (Mr. Ian Lloyd).

I agree that the discovery of an explanation of the reality about inflation is highly complex, and one in which there is infinite variety, but the explanation of this phenomenon has certainly escaped the Price Commission, whose report we are now discussing.

The most remarkable thing about this report—like Sherlock Holme's dog that failed to bark in the night—is not so much what it says as what it fails to say, and in part this is not the commission's own fault, because several important and sensitive areas, such as food prices, imported goods and services, rents, rates and interest, are entirely excluded from its purview. That means that more than one-third of all consumer expenditure is outside its jurisdiction. That is a pretty major limitation.

Secondly, even within its own lights the claims of the commission are excessively modest, as well they ought to be. It says that it aims to stop prices rising as fast as they otherwise would. Just how excessively moderate has been the achievement of the commission is revealed in its statement that in April and May the average price increase it granted was only 5–6 per cent. as compared with the 6–7 per cent. applied for. Since companies obviously apply for more than they seriously expect to obtain, to reduce the level of prices that is asked for by merely one sixth is not very much to write home about, and it is doubtful whether it represents a net improvement upon what might otherwise have been expected to happen.

Similarly, in its comments on the causes of the current inflation, what the commission does not say seems to be more important than what it does say. It merely reflects the conventional wisdom of official circles in blaming world commodity prices, though surely this is to tell only part of the story. I would not go so far as the right hon. Gentleman the Member for Wolverhampton, South-West (Mr. Powell). I do not think that the increase we have seen can be entirely ignored, but it is equally wrong to inflate it into prime importance, as the Government have done. What has made the impact of world commodity prices a great deal worse on us than on our competitors is the sinking value of the pound, due to the unprecedentedly bad balance of payments situation, for which, again, the Government must take responsibility. Since the float began in the middle of last year the value of the pound has sunk by no less than 16 per cent. below the pre-Smithsonian level and recently we have seen a further decrease of 4 per cent., which is bound considerably to aggravate domestic prices.

But the most extraordinary omission is that of the Minister for Trade and Consumer Affairs who, in welcoming this document, said: I am constantly seeking to sharpen competition". If the right hon. Gentleman can say that he can say virtually anything. What he says entirely ignores the fact that there are much more profound reasons for attributing to the Government themselves direct responsibility for the current inflation. The Government's whole economic strategy has been geared towards engineering a consumer boom at any cost in order to promote private investment and boost profits, and within the limits of their own goal the Government have succeeded. That has been their central theme.

Mr. John Page

The hon. Gentleman has not stated what I believe to have been the Government's central goal, which was the reduction of unemployment below a level of 1 million.

Mr. Meacher

In the first place. that is bogus, in the sense that the Government have regularly understated the unemployment level. One has only to look at the census figures to know that. But, more than that, the Government deliberately inflated the figures, and merely to deflate them as the boom gets going cannot be considered the central economic goal of the Government.

Over the last three years profits have climbed steadily month after month. They are the only thing that has climbed constantly under the present Government, and that trend is accelerating. Profits have climbed every quarter since the Government came to power, and are now accelerating to a level 18 per cent. higher than that of a year ago. They are now going up twice as fast as prices. Our situation can properly be described as a profit-push inflation. It was never a wage-push inflation, and there is evidence now to suggest that it is profit-push that is the main force behind inflation. But the cost of this gain for business and shareholders which has been placed almost entirely on the shoulders of the work people has been enormous, and constitutes the main cause of the current inflation.

The boom has been largely fuelled through a prodigious expansion of consumer credit. I cannot see how anyone can deny that argument, which has been propounded so forcibly by the right hon. Member for Wolverhampton, South-West. It is an undoubted fact that the main substance behind the consumer boom has been the deliberate expansion of consumer credit, with the total hire-purchase debt outstanding by February of this year standing at no less than a staggering 28 per cent. higher than the year before. Not only that, but Government spending in the year to the next budget was planned to rise twice as fast as Government tax receipts. As a result, total Government borrowing has rocketed to around £4,500 million and the unprecedentedly high interest rates used to cover this gap by attracting savings have proved enormously inflationary, especially for house purchase and private investment.

The result has been that the money supply was being expanded last year at a rate no less than 14 times the annual rate at the end of the 1960s. This fantastic expansion of the money supply could be non-inflationary only when matched by a comparable growth in real economic activity, especially an increase in domestic investment.

Precisely the opposite has happened. Manufacturing investment last year was 17 per cent. down on the level of 1970, and, although it has improved in the past few months, all that has happened is that it has risen a little from the bottom of a low trough and it is still considerably lower than two or three years ago.

But British investors did not stop investing. This is the fallacy of supposing that if one increases profits they will all be ploughed back into domestic investment. That is not what has happened. British investors lost confidence in the British domestic economy, but what has expanded enormously has been their investment abroad. Last year it increased to no less than double the level of 1970, and it managed in that year to be almost as much as the total investment in United Kingdom manufacturing industry.

This huge outflow of British capital had to be financed, and that, too, has proved extremely inflationary. Net foreign currency borrowing by United Kingdom banks in order to finance overseas investment rose massively last year, by no less than eight-fold over a two-year period from 1970. This evidence shows incontrovertibly that the Government largely created the unparalleled inflation by their own policies in order to get the boom going.

There is a further insidious process over which the Government purport to have jurisdiction, but they have so far taken no real action to stem the potent underlying cause of inflation. It is the remorseless growth of corporate monopoly power where the Monopolies Commission—I regret to say that this has been true of other Governments—has been made conspicuous by the relative absence of referrals to it.

In 1972 that process took a marked turn for the worse. Acquisitions and mergers in that year reached a new peak, with mergers totalling over £2,500 million. That was well over the rate of previous years, the value of mergers in the last quarter exceeding the total value of mergers throughout 1971.

The consequence of this enormous growth of monopoly power has been that just 100 companies now control more than half the economy. The effect of this advent of monopoly, which is what we are now seeing in this country, is a virtual decline and collapse of competition, and that is inevitably used by private corporate power to put up prices and to boost profit rates. The competitive market in Britain has now failed. With the collapse of market checks and balances, as we have seen over the past few years, and never more so than last year, it is the consumer who is having to pay the price.

This is confirmed by work carried out recently by the Manchester Business School, which found that the motive for takeovers mainly quoted by successful executives was not an increase in effi- ciency but a clear aim deliberately to eliminate competition in order to increase monopolistic trading power. This is precisely what has happened—a greater concentration in an industry, increase in prices and a sharper boost to the profit rate.

Until the Government take steps to slow down and ultimately reverse this intensifying trend towards monopoly, the public can only expect a further twist to the inflationary spiral. Whatever the Price Commission and other similar agencies may say or do, in the short term—apart from taking the necessary steps to reduce domestic overheating, which is now reaching an intolerable point, and stopping this increasing trend towards monopolistic trading throughout industry—there is an unanswerable case for short-term subsidies to phase out over a longer period the veritable price explosion over the last few months.

There is also an unanswerable case for increasing family allowances, partly in view of the Prime Minister's pre-election commitment and partly because the only argument used by the Government — that the level of the tax threshold had rendered the claw-back principle virtually inoperative—has been undermined by the Government's own action in the last but one Budget.

Limited rescources could have been used much better to reduce the retail price index by I per cent., and that would cost about £300 million. That is precisely what the Government are giving away this year to the rich in reduced taxes on unearned income—a perverse order of priorities at a time of food price crisis. But not one of these remedies has been adopted by the Government, either long or short term, and, for a Government that won an election on a price-cutting commitment, that is a deception unparalleled in postwar politics.

7.26 p.m.

Mr. Hugh Fraser (Stafford and Stone)

One of the troubles of our present economic dilemma is probably that we have more economists per square inch than any other country. I do not propose to take up the interesting conclusions that the hon. Member for Oldham, West (Mr. Meacher) read into the fairly brief report of Sir Arthur Cockfield and Sir Frank Figgures. I shall deal with the question of what indications we have of the likely success of phase 3. Judging by our present experience, this is a factor that must exercise all our minds during the coming months.

My fear is not the same as that of my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell), with most of whose arguments I wholly agree, but the more positive fear that phase 3 could be a positive institutionalisation of inflation. That is the fear to which I should like to address my mind.

It is clear from the admirable, fair and frank report of Sir Arthur Cockfield that the areas on which price control can be effective in the economy are extremely limited by nature. This is one of the immediate problems facing us. The hon. Member for Oldham, West spoke about the various areas excluded by Government policy. But even if those areas were put back into Government policy, even if a Labour Government were prepared to control rents, food prices and so on, there would still be about 40 per cent. of production outside control, first, because it is imported, and, secondly, because of the nature of the control, as set out by Sir Arthur in his report, of the various divisions of industry into three factions, for it is clear that the third faction, which runs into tens of thousands of firms, is just outside the possibilities of effective price control.

Another consideration which should be borne in mind by my right hon. Friends on the Front Bench is that there is a danger that not enough money is going into investment and not enough being put to profits from which new investment could be made, and so there is a danger of distortion of the economy, even in the present phase 2, where profits arise mainly probably not in manufacturing but in distribution. The profit is probably accruing more in distribution than in manufacturing, so far as the larger firms are concerned. Here is a dangerous distortion of the economy, with profits arising not in the area where profits are needed but where the social function of investment is at the lowest point.

The next stage is to comprise discussions between the Government, the trade unions and the CBI. It is quite clear that we have a very determined Government, a Government who are determined to get some sort of success; a trade union movement which is determined not to be outflanked, which will not actually agree but which will make some sort of an agreement with the Government; and the CBI, in which I confess I have very little confidence. These three parties are to get together at Chequers or some such place and will try to work out some system which will be generally acceptable to the trade unions, to a point at which they will not positively revolt against it. This will build in a permanent blast of inflation, and inflation in this country will skyrocket. It is this which I fear.

Let us take a few instances of what this could mean. As we have seen over the last 15 months in this country, and as we have seen in Europe, phases 1 and 2 have always been a limited success because the workpeople, the managers and the general population are prepared to call a halt for some time until the anomalies in an incomes policy become absolutely intolerable. Anomalies in an incomes policy become intolerable, roughly speaking, after 18 months, and we shall see these anomalies becoming pretty intolerable by the end of this year.

As a small industrialist, I know that labour is being taken away because new firms can offer far higher rates. The hon. Member for West Lothian (Mr. Dalyell) knows what is happening in the North of Scotland, where there is a fantastic shortage of labour because people are dragged away by excellent wages, but the people who wish to compete are not able to offer their workpeople the same money because they are tied by an incomes policy.

These anomalies will increase. We have seen how they have increased in America. I had the pleasure the other day of talking to the gentleman who brought in phase 2 for the American Government. He admitted that he did not know the answer to inflation, but he said, "I know that after a time there are so many anomalies in the system that the system becomes pretty well unworkable."

Unfortunately, there are three bodies which will gather together at Chequers or Downing Street or some such place and try to work out some form of system which will appear to be acceptable, or just acceptable. I believe this will build into the economy an institutionalised rate of inflation which is bound to push the value of the pound down further and, therefore, increase the cost of raw materials which we bring in. This is the main thing that we have to avoid.

Hon. Members opposite may say that the Government have failed completely. I disagree. The Government have had a remarkable series of successes. They have done a great deal for industry. It was quite right to start a consumer boom. It was quite right to float the pound. But the time has come when there has to be a change of policy. It had a U-turn before, and it is time for another U-turn back in the direction of the policy advocated by my right hon. Friend the Member for Wolverhampton, South-West.

After all, this is the issue on which we were elected. I know that my right hon. and learned Friend the Minister for Trade and Consumer Affairs will introduce a series of vetting shops, rather like Ladbroke's, all over the country, to see whether people are being swindled or not. I would rather go to the root of the problem, and that is a switch in policy. That involves various things.

One thing which it involves is cutting the throats of various new sacred cows which we see trotting across the Foulness wastes. Also we have got to see some control of the money supply and a Budget bringing back control. These are the bases on which we fought the last General Election and they are the bases on which the Government could and will win an election if they stay true to the principles for which they were elected. We were elected to see that the value of money ceases to decline. That is the only issue in which the people are interested.

For all my right hon. Friend's complicated systems of checks and balances, counter-movements and weighing-up, the chain of vetting shops all over the country and all the rest of the policy, my fear is that we shall see the institutionalisation of inflation, which would be a national disaster.

7.36 p.m.

Mr. John Golding (Newcastle-under-Lyme)

The right hon. Member for Wolverhampton, South-West (Mr. Powell) has pointed out that the Govern- ment no longer can or do use the trade unions as a scapegoat. They are now concentrating on world prices, even though the Government by their devaluation have successively increased the prices that we have to pay for commodities in the world market.

My right hon. Friend did not mention the newest scapegoat of the Government. It appears that in the last two or three weeks they have tried to persuade the housewives that it is their husbands, the men, who are the cause of their difficulty, and that it is because the men have refused to hand over their wage packets that the standard of living of the family has declined. I am very pleased that the Sun has put an end to that myth.

It really is time that the Government conceded that they have been responsible for the decline in the standard of living of trade union members and their families. Value added tax, unprecedented mortgage repayments, very high interest rates, rents, the withdrawal of subsidies —all these are the stuff of inflation, as is also the massive handout to the rich which we saw in the Budget.

The defence of the Government is that they are protecting those on low pay from inflation. Those on average pay are not living in comfort. Those on above-average pay are not living in comfort. It is no comfort to a man whose wage packet is £35 a week to be told that the extra 50p rent applies only to him and not to the lowest-paid. At present it is very hard for the man on average or just over average pay to find the additional money to pay the rent increase.

I wish to turn to the report of the Pay Board because I think it raises certain important questions. First, I should like to declare my interest, as an officer of the Post Office Engineering Union, a union which has a claim being studied by the Pay Board at the present time. I do not, however, want to argue the merits of that claim, except to say that both the employers and the union believe that it fits entirely the pay code. I should like, from experience of that claim, to ask the Minister when he winds up to say something about the machinery of the Pay Board. Perhaps he could tell me what the machinery laid down in paragraph 7 means in practice. Does it mean that the Pay Board, after having studied a claim for 28 days, can then have another 28 days to study the details and implications of the settlement with the employers without reference to the trade union concerned? Is the period of 14 days' notice, which has to be given to a trade union before a settlement is stopped, included within the two months' period or is it additional to that? That is a practical question of some consequence. One of the disadvantages of the present Pay Board procedure is the built-in delay. The Minister would concede that the Pay Board has itself reported that unfortunately delays are longer than it would have wished. The Minister should say what action he is taking to ensure that the delays are not quite so long.

What is perhaps more important is that this raises the issue of the involvement of the union in the talks with the Pay Board. What happens at present is that the union agrees a pay increase with an employer and the joint settlement is submitted to the Pay Board, but the Pay Board, to obtain details of the claim and to discuss it, talks only to the employer. Once a settlement has been reached and that settlement is the subject of study by the Pay Board, I believe that the board should approach the employer and the union separately. Within the precedure the union ought certainly to have equal opportunity to that of the employer to discuss the process of the claim through the Pay Board. Psychologically, if for no other reason, it is wrong that the Pay Board should have discussions only with the employer.

The Pay Board has referred in its report to problems of interpretation and to problems which have arisen in the determination of what constitutes a principal increase and in the application of the rules relating to personal increments and to pre-standstill settlements. But nothing is said in the report about productivity agreements. Have there been no difficulties about productivity agreements? How is the Pay Board dealing with them? What principles is it applying to these agreements?

I am one of those who believe that it is very important, despite pressure within the unions to the contrary, that productivity agreements continue. I cannot see how the Price Commission can look forward with confidence to reductions in the unit cost of commodities without increases in productivity. Yet in the Price Commission's report it is implied that the commission looks forward to stabilisation in prices not so much from a reduction in the world price of raw materials but from a reduction in the unit costs of commodities. Stripping away the jargon, that means that there have to be increases in productivity, either from investment and the introduction of new equipment or by increasing labour productivity.

Let us spell it out quite clearly. The Government and the employers will not get increased labour productivity without productivity wage agreements. If the Government disrupt the productivity agreements that have been concluded in the past, not only will there be no future productivity agreements but the pressure in the unions to rescind the productivity agreements that have already been made will be very great.

The events of last November were like the events of 1963 in that they shook confidence in the conclusion of long-term wage agreements based on rational principles. The blows in the Civil Service last year were equivalent only to the trauma that occurred within the Post Office and the Civil Service generally when the principle of comparability was breached by a former Chancellor of the Exchequer in 1962–63. It took many of us a long time to persuade our members that they could trust once again the principles of pay determination negotiated and freely entered into between Government and public employees. The events of last November have also shaken, once again, the confidence in free arbitration. The point made by my right hon. Friend the Member for East Ham, North (Mr. Prentice) was important. Whether or not the awards are implemented, it is important that cases can at least be presented to arbitration tribunals so that the tribunals may declare what award, if the existing agreements were continued, would be given.

If the Government think that they can have a system of threshold agreements without guaranteeing an end to Government interference in long-term contracts, they will have to think again. One of the problems that the printers faced when they entered a claim in all faith, honesty and trust was that they would accept less at a certain point of time in return for a cost-of-living-related increase. They have been let down very badly. They have seen, as the civil servants and other groups have seen in the past, that it is often better to fight hard at a particular time to get as much as possible rather than to take less on the promise of more to come later.

I should not have thought that it was in the interests of the Government to try to push the trade unions into that type of thinking. It would be better for the Government to reach agreements with the trade unions which would encourage productivity and rational, longterm wage agreements, rather than force the unions to fight for every penny that they can get at a particular point in time.

Will the Minister tell us something of the detailed working of the Pay Board and of the practical proposals that it will put to the trade unions in the autumn which will make it possible for the unions to carry their members in a way which relates to the principles of social justice?

7.50 p.m.

Mr. Tom King (Bridgwater)

I seem to make a habit of following the hon. Member for Newcastle-under-Lyme (Mr. Golding). I am particularly pleased to follow him on this occasion because the whole House will have appreciated the serious way he addressed himself to what is essentially the subject of the debate. I wish I could extend the same tribute to some of his hon. Friends. He particularly concentrated on the detailed aspect of the working of the Pay Board.

Like the hon. Gentleman, I begin by declaring an interest. I am connected with a food importing company and a food manufacturing company. I declare this interest not out of embarrassment but as a qualification to speak in the debate, because hon. Members are well aware that food companies are at the heart of the problem which we are tackling and the dilemma which the Government face.

I wish to express my appreciation of the work of the Price Commission and the Pay Board. The hon. Member for Wolverhampton, North-East (Mrs. Renee Short) was the only Member who attacked the Pay Board and its work.

Even in his severe indictment the hon. Lady's constituency neighbour, my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) made clear that he was in no sense blaming the Pay Board and the Price Commission. He was blaming the brief under which they were operating. It was that which he criticised.

I was pleased that the right hon. Member for East Ham, North (Mr. Prentice) also made the point that criticism, if there is any, is not of the way in which the Pay Board and Price Commission have done their work but of the tools that they have been given to do the job. I express my appreciation of the way in which they have tackled an extraordinarily difficult job. The right hon. Gentleman described the reports as arid, but answered himself in his next sentence by admitting that the board and commission were reporting on only two months' work. He made the point that the reports must be published promptly, and I also believe it is essential that they appear at the earliest possible date following the quarter to which they refer because, with the volatility of world events, we shall otherwise find it difficult to remember the situation to which a particular report refers.

If one stands as an impartial observer outside the House and sees the party confrontation taking place, and reviews the present pay and price regulatory mechanism, one is left with two views. One is that it is becoming a good and effective mechanism, and the other is that it is an utter farce. With the usual political hyperbole with which both sides dress up the situation taken away, the country recognises that it is an attempt, in an impossibly difficult situation, to introduce some real control of pay and prices. When I say "impossibly difficult situation", I particularly have in mind the work of the Price Commission against the most difficult background ever known in food prices, raw materials and commodities. Hon. Members know this. Anyone who has made only a perfunctory study of the situation knows what is happening.

The Opposition's case appears to be that price rises should not be allowed. The attitude of the hon. Lady the Member for Wolverhampton, North-East appears to be that every price increase is a total defeat for the work of the Price Commission. That is an unrealistic point of view. There are situations in which the only alternative, if price increases were not allowed against some of the world increases in raw materials, would be the withdrawal of certain lines. We have come close to that, for there have been occasions when lines have almost been withdrawn. But, for all the delays that the Price Commission has instituted into its workings as part of the attempt to restrain price increases as much as is reasonably possible, as far as 1 am aware not a single line has been withdrawn because of failure to get a price increase.

That has not been the situation in the United States, where some supermarkets have been unable to supply foods because the price controls were not flexible enough. Lines have been withdrawn because manufacturers were not prepared to make them and pay more for the raw material than they received for the finished product. That sort of situation arises when price increases are not permitted to manufacturers forced to buy in world markets. It is an untenable situation.

There is a lot of talk in the House about the energy crisis. The subject comes up frequently. It was mentioned at Question Time today. But not many hon. Members appreciate that there is also a protein crisis of very real dimension. There are hopes that it is temporary. The hon. Lady spoke of the fat years. Funnily enough, a little earlier my right hon. Friend the Member for Wolverhampton, South-West had been interpreting for me Joseph's interpretation of Pharaoh's dream of the seven fat years and the seven lean years. In today's Press it is stated that the Japanese Government are proposing storage facilities like the Pharoah, to prepare the world for the grain shortage that may occur.

I am advised that wheat cif prices for September through to December this year will be about £65, whereas the comparable figure for last year for hard wheat was £29. The price of soya bean, if one can get it, is probably treble what it was. The protein supply situation is serious.

This country should not feel lonely in this matter. We read in the newspapers each day about other countries facing identical problems, trying to tackle them in different ways. There has been the United States, with President Nixon's new proposals, Australia, with proposals for tariff reductions—and today it is reported that the Italian Cabinet is peparing what I understand to be a form of pay and prices commission for Italy. The situation is not the result of the British Government's policy. Nothing could be more obvious. There are indeed interacting forces at work—and I am sorry that my right hon. Friend the Member for Wolverhampton, South-West is not present, as I recognise the force of his argument. However, there are many other factors at work, and that of world prices needs the closest attention.

Mr. Arthur Lewis

Did the hon. Member and the Prime Minister not know in 1970 that world prices had an effect on internal prices? If they did know, why did the Prime Minister say that he would cut prices at a stroke?

Mr. King

I am pleased that the hon. Member has raised that point, for he has repeated something which, no doubt inadvertently, was also said by the right hon. Member for East Ham, North. I can lay that one smartly. There was never a promise to cut prices. The promise was to reduce rises in prices. This is an important point and it completely answers the interjection. The hon. Gentleman is continuing to repeat something which was never said. He knows it was never said.

Mr. Lewis

Did the Prime Minister promise to cut prices or did he not? It seems that the Prime Minister is a liar.

Mr. King

I am concerned about the unevenness of the bite of the various controls. Many companies are placed in an extremely embarrassing situation over the application of the controls on prices. Many have been virtually forced out of production, perhaps to be rescued only on the brink.

There are other cases where the controls seem to bite much less effectively. There are anomalies in the way in which companies are being treated. I have a relatively small company in my constituency of whose case the Department has knowledge. It is being treated as part of an enormous group and is being required to pre-notify, which is a substantial obligation for a small company. I have made representations to my right hon. Friend the Minister of Agriculture and have been promised some information, but that promise is now more than two weeks overdue for fulfilment and I ask for the matter to be looked at, because it is of great concern.

In considering the lack of bite, one is concerned also about the question of the returns on retailing. There is a considerable difference in balance between the profitability of manufacturing and the profitability of retailing. Inevitably in the present situation, retailing companies are reporting but are not required in any sense to pre-notify. So their profits will only shortly come forward for examination.

In that situation for retailing companies, if prices for manufacturers go up and they maintain their percentage margins, inevitably their profits will increase. This is understood and recognised in the case of manufacturing companies. There may be a justification for their profits to increase because they have to buy in raw materials at higher prices and, therefore, need increased capital to finance their work-in-progress stocks. But the efficient retailing companies have in fact a positive cash flow and there is no need for them to increase the margins to that extent. Although a substantial part of their profits are prior to even the freeze or phase 2, there is concern that they are not sharing equally in the load being borne at the moment by many manufacturing companies.

I echo the words of my right hon. Friend the Member for Stafford and Stone (Mr. Hugh Fraser) about the Pay Board. I am very concerned about, and have evidence of, the amount of poaching going on between companies. Companies will stick a situation for so long, but in the end in their own interest they are forced to take whatever measures they can to retain essential people. I hope that proper measures will be taken to ensure that, if some companies are carrying the load, others are suitably encouraged to keep in line.

In considering phase 3, I am concerned also about the position of incremental payments. I was a critic of this aspect in the Government's original proposals, and I still think that it is grossly unfair to many companies and their employees whose pay system does not happen to include an incremental scheme. In this situation, there must be some inbuilt flexibility to allow people who do not enjoy automatic incremental increases to share fully in whatever is the possible limit of increase under the Government norm, because in their case it will not be additional to an increment.

I said when phase 2 was introduced that I hoped that company pensions, representing an area of permitted improvement under the original scheme, would be greatly encouraged. I should be interested to know whether my right hon. Friend has any information whether this has, in fact, happened or whether any effort is being made by his Department to encourage further something which should be a most important and valuable byproduct of the difficulties we are facing.

In general, I welcome these reports as a start on what I reckon is the second best road open to us. I should have preferred a voluntary policy, but that did not prove possible. I am, therefore, determined to do all I can to try to improve and make workable the policy we have at present.

8.5 p.m.

Mr. Eric S. Heller (Liverpool, Walton)

The hon. Member for Bridgwater (Mr. Tom King) correctly pointed out that inflation is not peculiar to this country. Without doubt, however, a great deal of the inflation that we are suffering is the direct result of Government policy. The hon. Gentleman was also correct in saying that inflation is affecting not only certain advanced industrialised countries but some under-developed countries. The interesting point is that all the affected countries have the profit-making capitalist system.

The United States, for example, has the profit-making, private enterprise capitalist system. Australia, although at present it has a Labour Government, still has the capitalist economic system of profit as the basic motive force. Italy is also part of the capitalist world. Northern Italy is highly industrialised and is part of the capitalist world, and Southern Italy—the Mezzogiorno—suffers considerably, partly for historical reasons. As the hon. Gentleman implied, inflation is primarily a crisis of advanced industrialised capitalist countries. That is the essence of the argument. If we are to be serious, we must face it.

The right hon. Member for Wolverhampton, South-West (Mr. Powell), in a brilliant speech, talked in terms of the present economic system. His argument was that there would be disruption, which would lead temporarily and unavoidably to a certain measure of unemployment, and so on. According to his argument, that was essential if we were to deal with the problem. His answer was to cut the money supply.

If we consider the question in the context of our type of economic society, we see that no one really has an answer to the problem of inflation. Economists, whether of right, left or centre, all have different answers, and they go round in circle after circle trying a million different ways to deal with the problem of a highly industrialised country with full employment. Before the Second World War, we had heavy unemployment. That was a different situation. In such circumstances, one can have a different type of incomes policy, determined by the fact that five or six men are waiting for the next man's job. That keeps wages down.

Therefore, the problem that we must face is that of a highly industrialised capitalist system with relatively full employment. Every Government must face it, whether they be Conservative, Labour or—God forbid ! —Liberal, although a Liberal Government is never likely to materialise.

All Governments must seek an answer to the problem of wages. This Government have made a U-turn on this question. We all remember the speeches made by the present Prime Minister and others on the Treasury Front Bench—ably supported by the hon. Member for Oswestry (Mr. Biffen)—when they were in opposition and argued equally passionately that we did not want this type of statutory incomes policy. We argued this in the House late at night. I can remember how late we used to go when all those orders came forward—all the votes and all the heart searching that went on. Present Ministers, then in opposition, said that in no circumstances would they accept such a policy. What they introduced was the Industrial Relations Act, which was intended to do much the same job. That Act has been an utter failure, primarily because the trade unions have kicked it into touch and ignored it.

The Government then had to come back to what all Governments in our type of society seek—to control wages by means of a statutory so-called prices and incomes policy which is basically an incomes policy. The statistics contained in Appendix 8 to the Report of the Price Commission show that since November prices have risen but wages have risen much more slowly. The right hon. Member for Wolverhampton, South-West is right to that extent—the policy has been successful up to a point, because that is what the Government wanted and that is what they have got. The Government banked on the trade unions being such good boys that, once this law was enacted, they would not be prepared to fight over it. The Industrial Relations Act was different.

It is the organised working class movement—trade unionists—who have been affected by the incomes policy. What about the unorganised people? What about those in the building industry—I am sorry to bore the House with this, but I must keep coming back to it—who work on the lump, or in labour-only subcontracting? I go on about this so often that I begin to bore myself.

Paragraph 25 of the Report of the Pay Board states that The second principle of the Code is to apply the pay limit fairly, irrespective of the form of any increase or the method of determining it. The Board has kept this principle very much in mind and has applied similar criteria to all settlements at all levels whether arrived at by collective bargaining or any other method. I have a note there saying "rubbish", because it is rubbish. Those working on labour-only sub-contracting do not give a damn about the criteria. People in the building industry not under the national agreement regulations are earning between £60 and £100 a week. Not only have they driven a coach and horses through this so-called incomes policy; they have driven the Royal Scot and every locomotive which came after it.

Then it was admitted that there was a problem, and it was decided to set up the Construction Panel, which was To consider means of securing the most effective application in the construction industry of the Price and Pay Code and to report finally by 31 December 1973 to the Chairmen of the Price Commission and the Pay Board. By 31st December 1973 there will not be any pay code, because organised workers in industry, particularly those in the building industry, are getting particularly fed up when they see what is happening on the same site, or on the site next door, to unorganised workers. That is why labour-only sub-contracting is beginning to spread from the construction industry to a whole series of other industries. This policy is basically responsible for it. If I were a worker on a building site and wanted to get a decent wage so that I could provide a proper living for my family, have a decent house and run a decent car, even as a good trade unionist I should be tempted to go and do likewise. The report which is to be rendered by the end of the year will not be worth the paper it will be written on.

Mr. Tam Dalyell (West Lothian)

In view of what my hon. Friend is saying, does he not think that all these pious statements from the Secretary of State about the bogus self-employed are pretty wide of the mark?

Mr. Heffer

They are pretty wide of the mark. I return to my point about the attitude of trade unionists. One right hon. Gentleman has rightly stressed that from the Government's point of view the trade union movement has been very good in accepting the terms—and, he almost said, the spirit of the legislation. The unions will accept it for only so long. They are not accepting it now at grass-roots level. Why do the Government think that the AUEW conference instructed Hughie Scanlon not to attend the "phoney" talks that are about to take place in Downing Street? It was because they have had enough of it. Why do not the Government understand that at grass-roots level the feeling is growing that they cannot continue with this for much longer?

One hon. Member speaking in a recent debate—I cannot remember the hon. Gentleman's constituency, but he spoke in military terms—said that we were sitting on a volcano, and that this movement was taking place among workers. That is absolutely true.

If the Government believe that they can go into these talks with the TUC with the ability this time to convince the TUC to accept some permanent incomes control, they may as well forget it. Trade unionists and their leaders have a job to do. Their job is to increase wages and better conditions. That is what they are paid to do, and if he agreed to a permanent structure of threshold agreements—incidentally, with no margin to go beyond the cost of living—a trade union leader might as well pack his bags and forget the trade union movement; he would do better as a beet farmer in the Common Market, where he would make a lot more money.

The Government must understand that this revolt is taking place now. My advice to them is to forget phase 3 and return to normal union negotiations such as we have had in the past. The Labour Party must learn the lesson from all these years and understand that the answer to inflation in the long term is not tinker with the capitalist system or try to find a solution in this context at all, but to ensure that, when we return to power, we intervene in economic matters so as to transform the system and build a Socialist society. That, in the long run, is the answer to inflation.

8.22 p.m.

Mr. Adam Butler (Bosworth)

The hon. Member for Liverpool, Walton (Mr. Helfer) is always colourful, usually exaggerates, but certainly should not be ignored. I want to take up one or two of his points.

He referred to threshold agreements, which, he said, the trade union movement will reject. I believe I understand the reason—that unions are basically negotiators—but I suggest that, if the unions do reject this kind of arrangement, the country will reject them. It is an arrangement that can be seen to be fair. If the cost of living is to rise and if, through a threshold or safeguard arrangement, a percentage is built in to take that increase into account, the country at large will see that to be fair. So I say to the hon. Member, "Reject it at your peril."

The hon. Member also picked up a theme of one of my hon. Friends, about inflation being associated with industrialised countries with a capitalist system, adding that it required full employment to complete the picture. But I suggest that unemployment at the level of last year did not prevent rapid inflation. It was not unemployment but the measures taken by the Government to deal with unemployment that contributed to the present inflation.

I hoped that the hon. Member would lead on from his implied suggestion that inflation was the prerogative of industrialised capitalist countries to look at the Far East. He might have considered the example of Communist China, where the claim is—there is no reason to doubt it—that there has been no inflation since what they term the "liberation" in 1949. If we were looking for an example of a successful prices and incomes policy, perhaps we should consider Red China. But the features of Red China are total State control, rationing of essentials like cotton and rice, and —this is not always realised—profiteering on luxury items. There is no trade union movement for free negotiations in Red China. There is a low standard of living and gross under-utilisation of labour. But perhaps the most important feature of that economy—again, highly relevant to this debate—is that the Chinese economy is virtually isolated from world price movements.

I want to refer back to the speech of the right hon. Member for East Ham, North (Mr. Prentice), because I took him up on his point about the Industrial Relations Act being inflationary. That is absolute nonsense.

Mr. Kinnock

And he did not say it.

Mr. Butler

He did—perhaps the hon. Member was not here at the time—and when I challenged him on it, he admitted that what he had been trying to say was that the Act was inflationary and that industrial disputes are inflationary because they raise costs. To that extent, what he said was true, but in the first half of 1970, when inflation was rampant under the hon. Member's Government, would he claim that there were many industrial disputes? I doubt it, because wages were allowed to rise unhampered. In 1972, compared with the present time —and particularly the first parts of each year—inflation was lower but industrial disputes were numerous. The number of disputes this year is five times lower than the number last year, and inflation is higher. So to suggest that disputes are automatically inflationary is nonsense.

Mr. Kinnock

Of course it is nonsense, and that is not the case that my right hon. Friend was making. He talked of the condition in which the Government, the State, could talk to the representatives of labour. He said that the atmosphere had been prejudiced by the passing of the Industrial Relations Act. The hon. Member then insisted on misinterpreting my right hon. Friend and led him down a garden path that he should not have followed. But the hon. Gentleman has considerably weakened an already tenuous case by misquoting my right hon. Friend. He should desist from doing so if he is to get on with his speech.

Mr. Butler

I should not like to misrepresent the right hon. Gentleman, but if I may remind the hon. Member—I am sorry to take up further time on this, but perhaps he was not listening carefully—his right hon. Friend referred to certain Government policies which had had a disastrous effect on inflation. He then went on to give two examples—the Industrial Relations Act and the Housing Finance Act. By mentioning the latter, he was trying to show that rent increases also were inflationary.

One must ask the Labour Party whether it would prefer a blanket subsidy for all council house tenants—which has been more or less the habit in the pastor putting money where it is most needed, using the balance for slum clearance. If it is to have the blanket subsidy and, presumably, go for slum clearance and improvement as well, it will be injecting more money into the economy. That itself will be inflationary. Therefore, the second main policy which the right hon. Gentleman put forward falls to the ground.

I wish to touch on various points in the Price Commission's report. First, there is the Opposition's claim that the commission and the Pay Board are outside the control of Parliament. Both bodies make absolutely clear in their reports that they were set up by statutory instrument, that they have virtually no discretionary powers, and that they judge all cases within the various codes laid down by the House. That seems to indicate clearly that they are within the control of this House, and if the regulations and details which have been decided in this Chamber are not correct it is up to us to correct them. We have, as we are experiencing for the first time today, opportunities to debate their reports.

I was impressed by the fact that the pre-notifiers, as the report calls them—the large companies—account for about half the manufacturers in this country. I find some assistance in this, because if they are carrying out their work correctly, as I believe they are, and if they are operating over 50 per cent. of manufacturing industry, this must bring about a further amelioration of prices. However, the point in the report which strikes me most is the emphasis laid on the benefits of economic growth. The report stresses on more than one occasion the simple, elementary fact of industrial economic life, that higher production will bring about lower unit costs. That is support from an independent body of the Government's main plank in their present platform, which is to go for growth, and to continue to go for growth, for a wide variety of reasons, not least because of the effect which it has on unit costs.

Those are a few miscellaneous points from the Price Commission's report. I wish to concentrate on only one aspect of phase 3 policy. I have no doubt that there are many points which require changing in detail so far as the regulations concern the Price Commission and the Pay Board. I wish to deal with a point which concerns profits.

A great deal has been said about profit in this debate. The hon. Member for Oldham, West (Mr. Meacher) tried to concoct some theory that we were suffering from profit-push inflation. I should have liked to ask him, if he was present in the Chamber, where he thought profits went. If they are withdrawn from circulation, clearly they are deflationary. During the past few months of the Government's statutory incomes and prices policy we have experienced a restraint on dividends, so they cannot have been pushed back into circulation in that way. There has been too little investment, so they have not been pushed back in that way. What has happened is that, generally, companies' liquid position, which has been in a very bad state, has improved. Therefore, higher profits, rather than causing inflation, have helped to reduce the amount of money in circulation and thus have been helpfully deflationary.

If a nationalised industry runs at a loss, which tends to be more usual than not, and if the Government write off capital and deficits, which is more usual than not, this injects money into the system. Therefore, the absence of profit in the nationalised sector is not deflationary if it is replaced by money from the State, as has happened.

Mr. Kinnock

What about putting up prices?

Mr. Butler

If the price of coal had been increased after the last strike, it would have had exactly the same inflationary effect as if we had written off, as happened, £200 million of deficit in the last two years of the National Coal Board's operations.

I strongly support what I understand to be one of the CBI's proposals to the Government; namely, that the profit limitation in phase 3 should go. I want to see, regretfully, a continuing tight control on prices and authorisation for price increases at least as strict as it is now. I certainly want the continuation of dividend restraint, because that is part of the same picture.

If we continue to restrain profit margins we affect industry in several ways. First, we reduce its efficiency, or its attempts to be more efficient. There is no point in cutting administrative and overhead costs if that has to be followed by a price reduction. We may get the ridiculous situation of a company deciding to undertake additional expenditure, let us say in a fruitless promotional exercise running into large sums of money, to maintain its costs and restrict its profit margins so that it does not have to reduce its prices. That is nonsense. We want competition to play its part. I do not subscribe entirely to what the hon. Member for Oldham, West said about monopolies, but we do need effective monopoly legislation.

The other good reason for allowing profits to grow is investment. The Government may take heart from the improved liquidity position of companies to which I have referred, but there can be no joy for anyone in the drop in the share of the cake taken by profits referred to by my right hon. Friend in his opening remarks. If we are to return to the operation of a free system, that is the way to start.

If profit is evil to some—and judging by the speeches from the Opposition benches it is completely misunderstood—let us work towards profit-sharing in industry. We cannot legislate for this but we can encourage it at all levels of industry. I hope that it will form part of a growing partnership between employers and employees in the coming years.

We have been debating two creatures of this House. I accept that these first reports indicate that they are doing their job adequately, although it is early days. They are faced with difficult circumstances, and I have pointed only to one way in which I should like to see the Prime Minister's work altered.

8.38 p.m.

Mr. George Wallace (Norwich, North)

The hon. Member for Bosworth (Mr. Adam Butler) made a fleeting reference to council house rents. There are two price control bodies, the Price Commission and the rent scrutiny boards. The Price Commission's duty is to try to moderate price increases, but it appears that the duty of the rent scrutiny boards is to double council house rents.

The first decision taken by a rent scrutiny board in the North of England last week is alarming to other areas of the country. The Lees decision indicated a doubling of rents and it has caused considerable concern in my constituency. There are in Norwich 22,000 council house tenants, many of whom are low-wage earners who are likely to be considerably affected by this inflationary danger. At present half of our tenants are on rent rebates. The hon. Member for Bosworth might say that rent rebates help to reduce rents, but the point to be considered is: who pays for the rent rebate? The fact is that, after all the form filling and additional staff required, the estimate for 1973–74 is a charge on the general rate fund of £108,000 in respect of rent rebates. This is inflationary. There appear to be some noisy interruptions to my left which have nothing to do with my speech. They are most distrubing and not at all helpful.

Mr. Arthur Lewis

I apologise to my hon. Friend the Member for Norwich, North (Mr. Wallace), but I would point to the unfairness of the way in which speakers are selected. Since that is a reflection on the Chair, I shall withdraw it.

Mr. Deputy Speaker (Sir Robert Grant-Ferris)

Order. That is a reflection on the Chair and the hon. Gentleman should not make it.

Mr. Lewis

I shall withdraw from the Chamber.

Mr. Wallace

Naturally. Mr. Deputy Speaker, I shall not comment on that incident.

The housing account in the city of Norwich, prior to this situation, was self-balancing. The situation is that on the one hand £108,000 is being taken away and with the other hand it is being placed as a burden on people, including council tenants, who pay rent and rates. The present rents in Norwich average for a pre-war house £3–50 and for a post-war house £4–25, but the Lees decision could mean rents of about £5 and £6–50 per week, plus rates. For some houses with rent, heating, rates, and in some cases plus the cost of a garage, this could mean rents of £10 per week. If these increases take place, as is a distinct possibility, 75 per cent. of our tenants will be on rent rebates of some kind or another, and this in turn will increase the charge on the general rate fund.

I submit that all this talk of containing inflation is sheer hypocrisy if rent increases of this size are allowed as a result of deliberate Government policy. Since my area is a low-wage area, as is the whole of East Anglia, the effect on low-wage earners could be serious.

I wish briefly to refer to early day Motion No. 250. It calls for meetings of rent scrutiny boards to be held in public so that councils which wish to put forward their proposals would appear before the rent scrutiny boards to explain their reasons. This procedure would also provide for tenants to be present. The situation at present is that rent scrutiny hoards take their decisions in secret and are accountable to nobody, not even to the Government. When their decisions are known, such as the decision to double council rents, the only alternative that is open to tenants or councils is to appeal. We all know about the delays, frustrations and worries involved in an appeal. Furthermore, while an appeal is pending the full rent must be paid.

I believe that it would be sensible to alter the procedure so as to allow councillors or council officials who put forward proposals to scrutiny boards to be there to make their case in person instead of the evidence being produced in written form. The present situation is that these rent scrutiny boards approximate to secret courts. This is not British democracy as we understand it. Councils are in a better position to assess the rents in their area for they know their people and the types of property. Most councils are very good managers—far better managers than a group of totally unnaccountable Government nominees.

We must never forget that increases in council rents mean increased pressure for higher wages. I have said before, and I say again, that it is a simple fact that pressure for wage increases comes from the home. It is caused by pressure on the family budget and by the knock on the door of the rent collector asking for an increased rent. That is a basic fact of life which some people simply do not understand.

At the moment the Government are themselves creating inflationary pressure on rents by the force of law, which is downright ridiculous. I ask the Government to think again. We have heard talk of U-turns today. In my view, the Government should take a double somersault. They should suspend further action on rent increases, or, better still, repeal the Act. It is a festering sore to the trade union movement and it prevents any possibility of some sensible negotiation of wage increases.

One further matter which I have put forward before, and which I still think should be investigated, concerns the work of the Price Commission. It checks on prices and decides whether increases are justified. I should like to know whether those checks include any detailed examination of price structures from the point of production overseas to the retail outlet in the United Kingdom. What check is there on speculation and on monopoly practices in respect of shipments of food from overseas, especially those in short supply? This is a serious factor which needs attention. I speak with some experience in the handling and importing of wholesale meat. I know how at times of shortage there is a great deal of speculation which adds greatly to the price of food without any additional constructive service being put into its distribution. Matters such as this must be looked at all the time.

I conclude by asking the Government again to think about rents and to ease the anxieties of many of my constituents who cannot understand what is to happen to them and who in their hundreds have written to their local councillors and to their Member of Parliament asking for some protection from the Government's inflationary policies.

8.47 p.m.

Mr. Wyn Roberts (Conway)

A year ago this month I urged the Government to take firmer action against inflation on the lines of the American standstill and phase 2 which had proved so successful. As we approach our phase 3 we do not have a successful American parallel to which we can refer. The American phase 3 which began in January was a dismal failure. The relaxation of controls was very short-lived, and we now see the Americans embarking upon a return to controls with their phase 4. The American experience suggests that we should not think of our phase 3 as a period of relaxation and that we should prepare ourselves for a continuation of controls.

I believe that the people as a whole will tolerate controls. If I may be heretical, I think they will tolerate a bit of price inflation, too, provided that they are assured that their incomes from whatever source will keep ahead of prices.

During the three years since the Government took office, wages and pensions have kept ahead of prices. I do not think that anyone quarrels about the figures: wages are up by 38 per cent. and pensions by 35 per cent., and the retail price index has risen by 26 per cent. The concern centres on the last few months, and whether what has been happening recently represents a continuing trend. This is the nub of our present problem.

What are the facts? In the 12 months ending November 1972 the monthly index of average earnings, which covers all workers, rose by 16.6 per cent., while the index of retail prices rose by 7.6 per cent. Earnings, therefore, had a 9 per cent. lead over prices in the year ending last November. In the five months from November last year to mid-May this year, however, earnings rose by 4.6 per cent. while retail prices rose by 54 per cent. In other words, earnings lagged behind prices by 0.5 per cent. Last month, I admit, the lag was rather greater, at 1.8 per cent.

I believe that that explains the current anxiety of the trade unions to return to free collective bargaining. They fared very well—perhaps too well—under that system last year, and that is why they were blamed for the rise in prices. Now, under phase 2, they fear that price rises will erode their wage gains. But they should realise that far worse erosion of their wage gains than the current 0.5 per cent. would have taken place had the present price controls not been in operation.

I do not believe that the Government intended the ½ per cent. erosion. I am prepared to say that, on the basis of the present evidence, our control of prices might have been a shade firmer during the last six months, but I would go no further than that. I think that we underestimated the growth in demand. I have high hopes of the Price Commission, however, whose summing up of future prospects on page 16 of its report is absolutely right. In particular, the statement that the fact that a price increase can be justified under the Code does not mean that the price ought to be increased is clearly of paramount importance and suggests that the commission will be delving more deeply and taking a firmer line with applicants for price increases. I should not be surprised if, when we look back at the standstill and stage 2 as a whole, wages were ½ per cent. ahead instead of ½ per cent. behind prices as they are at the moment.

For the future, it is important that the Government should declare unequivocally that their aim is to ensure that earnings maintain their lead over prices. This would, I believe, as my right hon. Friend the Prime Minister said on Wednesday, prevent anxiety about the erosion of wage settlements. It would be a major curb on the inflation psychology. I was glad that my right hon. Friend committed himself to presenting some form of threshold agreement to the trade unions. I hope that we shall explain thoroughly to the public what a threshold agreement means. To my mind, it means a guarantee or an insurance that wages will keep ahead of prices.

I should like to see a threshold agreement for pensioners and State dependants. I regard that as essential in the interests of fairness to all. I am particularly concerned about those on fixed incomes, of whom there are many in my constituency. The age tax exemption limit should also be related to a threshold arrangement unless the Chancellor feels generous enough and able to exempt the State pension scheme altogether from taxable income.

Threshold arrangements should be based on the retail price index or on the price movements of the three major items of family expenditure—food, transport and housing, which account for a total of 51.7 per cent. of the average family's expenditure. Those three items taken together rose by 749 per cent. between November and May, compared with a rise of 51 per cent. in the retail price index as a whole.

Assuming that a guarantee will be Oven that incomes will keep ahead of prices, where is the money to come from to support the guarantee? I shall not try to answer that question in detail, but it is clear that wherever the money comes from it will go into consumption or personal savings; that is, to demand or investment.

If we may believe the London and Cambridge Economic Bulletin, we need a cutback in domestic demand to improve our balance of payments position. At the same time, we surely want to increase savings and investment. I believe that the guarantee contained in a threshold arrangement will result in a return of confidence in the value of savings and investment and will help to counteract the current decline in savings. Whatever the cost of threshold agreements, it will be a small price to pay for eliminating the fear that so many people have of being overtaken by rising prices.

The first step towards a fair society is to stabilise the relationship between incomes and prices, and that can be done by extending the threshold agreement concept from wages to pensions, benefits, and fixed incomes, too. The assurance that the Government are determined to keep income increases ahead of price rises would help considerably to eliminate the fear that causes and results from inflation. The Government must pursue this idea despite the cool reaction so far from the trade unions. Within such a system, it would be easier to look hard at the lower levels of income and seek to improve them. We have already begun to do that in stage 2, and we must make further progress in stage 3.

We have had a considerable argument over the function of the money supply and its relationship to inflation. One tends to get the impression in this debate that the Government increased the money supply in order to cause inflation. We know that that is not the case. The Government increased the money supply in order to fuel the economy, to eliminate unemployment and to achieve growth. I do not see how one can achieve growth except by fuelling the economy, and surely that is precisely what is done by other countries.

I have general faith in the measures that are being taken by the Government in the shaping of phase 3, which I believe may be as successful as phase 2, and I think that the people of this country share that faith, as was indicated by the ORC poll published in the Sunday Times yesterday when, according to the poll, 68 per cent, of trade unionists and 59 per cent. of the public were for co-operation between the Government, the trade unions and the CBI. I, too, share their feelings and believe that we can raise the standard of living.

9.0 p.m.

Mr. Tam Dalyell (West Lothian)

I would like to reiterate the doubts of a number of hon. Members of rather different political views ranging from the hon. Member for Oswestry (Mr. Biffen) who, unfortunately, did not catch the eye of the Chair, to those in the Opposition who expressed doubt, when the relevant legislation was being considered in Standing Committee H, about the whole question of hiving off. We were doubtful whether Parliament should hive off these matters to this kind of agency, over which it is now apparent we have very little control.

I ask a specific question of the Minister. As I understand it, in his opening speech the Secretary of State for Employment said that the first quarterly report on the category 2 firms—that is, those which do not have to pre-notify but have to report price increases—is due by 10th August, and that the Price Commission will not hesitate to roll back prices that rise beyond the code. As one who attended every hour of every sitting of Standing Committee H, I should like to be clear how prices are to be rolled back. I simply do not believe that this can be done under the legislation that we have passed. So the crisp question is: how are prices to be rolled back?

In Committee there was considerable discussion on the question why the Price Commission and the Pay Board could not be amalgamated into one organisation. It may be within the recollection of my right hon. Friend the Member for East Ham, North (Mr. Prentice) that among a number of us, and between the Treasury and the Department of Employment, there was a distinct and admitted difference of opinion on the merits of having separate organisations. We have had six months since those discussions. May we have some reflections from the Government on the question whether they still think these two agencies should be separate?

I thank my right hon. Friend the Member for Bristol, South-East (Mr. Benn) for allowing me time to speak before he begins his speech.

9.2 p.m.

Mr. Anthony Wedgwood Benn (Bristol, South East)

This is the last major debate we shall have in the House for 12 weeks. It seems to me that the House itself, having had a good debate last week on the economics of inflation, has quite deliberately chosen to make today's debate on the political as well as the industrial and economic approach of the Government, and the debate has to a large extent concentrated on the politics of inflation. Since I have doubts about the value of an exchange of selective statistics about economic matters across the Floor of the House, for my own part 1 am rather glad that the debate has taken this form.

What interests me about the present situation is that the faster the rate of inflation goes the more cheerful Ministers become I was much impressed by their weekend articles and broadcasts. The Prime Minister was beaming with complacency in the Sunday Express. The Chancellor of the Exchequer was patting himself relentlessly on the back in the Sunday Telegraph. The Minister for Trade and Consumer Affairs himself was on "World at One". The right hon. and learned Gentleman is like a parking meter which has been built but is still hooded: we know the mechanism has been tested but we also know it has not yet been put into operation. He was saying that we must look "on the bright side". and that there had been "a big improvement". The Secretary of State for Trade and Industry, in a speech to the internal combustion engineers at the Cafe Royal. a few weeks ago—on 5th July—said he welcomed the rise in world raw material prices because it transferred purchasing power to potential customers, and even welcomed the fall in the value of the pound because it made exports more profitable. The Secretary of State for Employment today. in so far as a man who looks so sad can manage it. was very cheerful.

Why are all those Ministers so cheerful when they consider what, we are officially told, is a great crisis? This is the first political question. and the answer is very easy to find by looking at these two reports. First, let us look at the report of the Pay Board. There is only one paragraph-4.2, I believe—worth reading. It says that 1,704 notifications of pay settlements involving 4 million workers have all gone through, and have all gone through under the £1 plus 4 per cent. That is all there is to say about the pay policy. It has worked. I calculate that the six members sitting for eight weeks, five days a week, have polished off 40 settlements per working day in the period, each, on average, involving 2,000 workers. The Government's first ground for satisfaction is that the pay policy as distinct from the prices policy has worked. No one has got through the pay policy during the period from the beginning of the freeze to stage 2.

If, by contrast, we consider not the Pay Board's report but the Price Commission's report we find a totally different story. My hon. Friend the Member for Bedwellty (Mr. Kinnock) has rightly said that it is one long apology for failure. The commission makes it clear, and asks us to understand, that it is not responsible for whether the price increase is reasonable. It is not allowed to take account of social and economic factors. The burden of justification is on the firm itself. It talks about sales resistance being the ultimate weapon against a rise in prices. It talks about the realities of life, and the rises in prices to which it refers are realities which include rent increases that have been imposed by the Government of the day.

The commission points out that there is nothing it can do to stop retail prices from increasing. It points out that there are important and sensitive areas, as it says, that are excluded, and it describes these. But, of course, this all flows from Government policy, and it is Government policy that we are now discussing. It says that some of the less emotive items are excluded, and there is no control over the retail end. Above all, the commission says that it does not wish to obstruct the working of the competitive system.

Then we come to the point that profit control, on the basis of which the policy was sold, was not even begun to be thought about until mid-July. The plain truth—this explains why Ministers are so cheerful—is that the Price Commission has let through price increases and the Pay Board has been effective in stopping increases on the wages side.

There is no doubt that the Price Commission is a fiasco. Fresh food is exempted, higher rents are imposed by the Government, but land speculation is almost positively encouraged. Bank lending to property companies has increased from £498 million in November 1971 to £1,498 million in May 1973. So on that side there is almost official encouragement. Steel prices cannot be dealt with because of the Common Market, and the common agricultural policy plays some part at any rate in pushing up food prices.

With profits rising rapidly and wages held, the policy is succeeding, and it is a policy designed to do just what the Secretary of State for Employment indicated more tactfully today; namely, to transfer earnings from employment to business profits. It is no good the right hon. Gentleman shaking his head, because if it is not that that he is trying to do, what is the object of the policy? That policy is to get profits up. We had bank profits announced last week with Lloyds Bank 96 per cent. up in a six-month period, the Midland Bank 78 per cent. up and Barclays up from £54 million to £95 million.

That is what it is all about, as the Government see it. That is why the figures given of what has happened over the last three years between prices and wages are not relevant. It was a two-year experience of that that drove the Government to try to reverse the policy and get it tilted back in the other direction. We said at the time that this policy was a fraud, and experience and a study of the two reports prove it.

But it would be a great mistake for the House to think that these two agencies are the only means by which this policy is being pursued. The Price Commission is playing its part and the Pay Board is playing its part, but the floating of the £ has also played a part in its effect, its unconnected effect, in redistributing income in our society. It pushes up the cost of living and increases the profits of exporting companies.

The Budget was used for that effect, deliberately giving £300 million to the richest section of society. Value added tax pushed up the cost of living, and even where cuts were made for sweets and chocolates, they are now restored by the price increases approved by the Price Commission today.

The Housing Finance Act is a redistribution of wealth between one section and another, and even the rent scrutiny boards are redistributing income against the tenant and broadly in favour of the well-to-do. Land and house prices, which have been rising most sharply of all, are also redistributing wealth and income. So, of course, does the Common Market in its effect on our domestic economy.

To consider the pattern politically, which is what we are here to do, one must take account of the consequences of these changes of attitudes. We are not a House of economists: we are a House of people elected to represent our constituents in Parliament and to understand the development of thinking of our society as well as simply to calculate what is happening to different sections of the community.

The first thing that has happened over the past nine months—nobody said it better than the right hon. Member for Wolverhampton, South-West (Mr. Powell) —was that the myth that inflation was induced by wage claims has been totally and finally shattered by the experience of phase 1 and phase 2. I go further and say that another view of what is happening has come forward as a result of some recent revelations about the City. Sir Denys Lowson's decision to give back £5 million may seem generous, but the question is how he got it in the first place. The instance of the right hon. Member for Streatham (Mr. Sandys), whose golden handshake was beyond the dreams of the most rapacious trade unionists, also threw light on the balance of wealth and power. The perquisites of Mr. Tiny Rowlands and revelations of the tax havens indicated to people, just at the time they realised trade unions were not responsible for inflation, that a lot of other people were doing very well out of inflation. That is a very important change in public attitudes.

One other lesson has been learned in the past nine months, and it is about time it was learned. It is that to defend oneself against rising prices, if one lacks the advantages of the power of the board of Lonrho or that sort of crew, one must have powerful and strong trade unions. The Conservative Party devoted many months and years of political activity to persuading the British people that the trade unions were the cause of inflation. In the last General Election a great part of the campaign was to persuade the women that it was their husbands who were causing inflation.

But in the past nine months many millions of housewives have come to see in their husbands' trade unions the main defence against the erosion of their living standards. If Ministers wonder why trade unions want to get back to free collective bargaining in phase 3 and reject threshold agreements, it is in part that what their leaders are elected to do can be better done by them than by a pay board and a few civil servants checking through 40 settlements in an afternoon, and partly because they have learned the political lesson of the past nine months. What has happened, therefore, in the last nine months—it is not what the Government expected—is that the basis of consent on which they sought to rest phase 3 has been withdrawn. The honeymoon has come and gone without any desire for permanent cohabitation. It is the withdrawal of consent arising from that experience that is now the main political problem facing the Government as they approach talks with the TUC and the CBI this week.

What is the Government's answer to all this criticism? It is very simple. Ministers say it again and again. It is that they are, at any rate, getting sustained growth, and that somehow out of this growth—even though they might admit, if one got them in a corner, that it was a bit unequal in its early accretion—will come good things for everyone. The whole of their policy is based on the belief that this growth can be secured and that on the basis of it they are justified in pursuing policies that fly absolutely contrary to everything that they put before the electorate in the 1970 General Election—and, more than that, everything which in their hearts they believe to be true and necessary.

Is it true that the growth on which they base their policy is as secure as they claim? If that part of their programme —growth—were not to be realised, even their own justification for what they are doing would be removed. I want to invite the House to see how well and soundly based the boom upon which the whole Government policy rests really is. I have no desire to be a prophet of doom, and I shall not go so far as the hon. Member for Walsall, South (Sir H. d'AvigdorGoldsmid), who has already been quoted by my hon. Friend the Member for Liverpool, Walton (Mr. Heller), in his speech in the inflation debate last week. I shall not go as far as he did, but I shall quote his words: Price inflation all over the world in the last 18 months is something which will bring much of the Western world as we know it to an end."—[OFFICIAL REPORT, 11th July 1973; Vol. 861, c. 541.] Words of that gravity used from the Opposition Front Bench could easily be denounced as being a deliberate attempt to destroy confidence. Coming from a banker of distinction, who is a supporter of the Government, they ought now to be looked at seriously. We have a duty in the House, particularly with Parliament adjourning for three months, to examine the basis on which the Government's policy rests. We have a duty to examine the dangers that confront this country, and not just this country but other industrial societies.

First of all, we are bound to notice that the international monetary situation is dominated by a weak dollar made weaker by a weak United States President. Without seeking at this point—which I am not—to make any point against the Cabinet's handling of affairs, it is possible that the effect of a weak President trying to cope unsuccessfully with the weakness of his currency could well have some serious effects on this country as well.

The second thing we have to face is a weak pound, which has sunk so low because of the massive balance of payments deficit which has been built up by this Government in the period of their stewardship. We sacrificed a lot to try to bring about a balance of payments surplus. Perhaps our strategy lacked much that it should have had. But one thing is clear: it has all been thrown away now, and the forecasts of a continuing deficit during 1974 are factors that have to be taken into account.

When one detects also in it that the deficit between this country and its Common Market partners, which was supposed to be narrowed by our entry, has widened from £180 million in 1971 and is now running at a rate of £1,000 million a year in 1973, there are no grounds for the Government to throw their hats in the air and say that all is well. This problem has been recognised, rather vaguely, by the decision to make some public expenditure cuts and to raise the minimum lending rate.

The third cloud on the horizon is a possible continuation of the rise in world prices, which would be amplified in its domestic impact by a further sinking of the pound, giving a further fresh and dangerous spurt to inflation in this country. There is always the possibility that the Treasury may wish to do more, whether or not influenced by the right hon. Member for Wolverhampton, South-West.

Against that background one now has to see the virtual certainty that phase 3 will not be acceptable—whatever the hopes of hon. Members individually may be—because of the unfairness of the policy that the Government have pursued.

All these factors have to be taken into account by a House of Commons that seeks to be responsibly examining the possibilities that lie ahead. I am not forecasting the situation. Certainly no one on either side of the House would wish it to happen this way. But if Ministers refuse to face the realities in all their speeches—this is a serious charge to make, and I make it—and to face up to their responsibilities, the Opposition have a duty to warn.

If a crisis of this kind develops, it will be no use the Government trying to find some new scapegoat to explain their failures. They have made the unions their scapegoat and abandoned them in favour of world prices. The truth is that were such a situation to develop or to get worse—I do not want to make it sound too dramatic—it would be much more than a crisis of economic management; it would be a political crisis for the British people. If it occurs, and if the situation gets worse, or even if, after phase 3, the Government seek to negotiate some further agreement, it will come at a time when the Government have deliberately divided the nation by the policies that they have pursued.

I think that it is broadly accepted across the Floor of the House that to have success with any policy, whether it is supposed to be backed by statute or to be voluntary—the Prime Minister recognised this very clearly in his interview by the Sunday Express on Sunday —such a policy must carry the support of the people. There is no better example of a statute that did not carry public consent than the Industrial Relations Act to indicate how quickly such things can wither in the pigeonholes in Whitehall. It is not effective because it is not supported.

If the Government seek to intensify their present policies, which are unfair, and try to make the working population pay the price in lower living standards, I say candidly that Ministers cannot expect the trade unions or the Labour movement to give them support.

Nor can the Government expect to rally the nation around them on the basis even of their old Conservative philosophy. My understanding of Conservatism, as an observer from the outside, happily, over the years, is that it is based on three things: patriotism, somewhat dented by the Common Market entry terms; free enterprise—somewhat dented by the Counter-Inflation Act—and the aristocratic values of leadership, somewhat dented by a decision to adopt a managerial style of Government.

Therefore, I do not believe that the present Cabinet have the reserves of political support, even among their own people, to which they can appeal in the event of a crisis of this kind developing. I very much hope that the Cabinet do not think that they can appeal to the sense of responsibility of the British people at a time when they have systematically stripped the people of this country of the institutions of democracy and self-discipline upon which our society has rested.

Mr. John Page

Will the right hon. Gentleman give way?

Mr. Benn

I have a little more to say. I hope that the hon. Gentleman will allow me to complete the point that I am trying to develop.

The Government have stripped the trade union movement of its legal rights. They have stripped the trade union negotiators of their functions.

Mr. Page

Rubbish!

Mr. Benn

The Government have stripped the House of Commons of its supervisory role, as is evident from the debate today. They have stripped the British people of their right of self-determination, and in the vacuum created by these policies the right hon. Member for Wolverhampton, South-West moves forward with his solutions. I listened carefully to his speech. The House filled as it often does to hear his argument. He wins the respect of those who see him as a man ready to come into conflict with his party, which is always a ground for listening with respect.

But I do not believe that the right hon. Gentleman's remedy, attractive as it seems, brilliantly presented as it was, offers any answer to the problem confronting this country. However he puts it, whether talking about restraining money supply or about other deflationary measures, he is calling for one thing, unemployment. That is what he wants. He says that any deflationary measure will produce unemployment. This is not a prerogative of his money supply theory. What he is calling for—and it is time it is said clearly so that people understand it—is that unemployment is a remedy for inflation. It is not acceptable.

Mr. Powell

Everyone who calls for reducing a running rate of inflation of nearly 10 per cent. to anything substantially below that rate is, whether he knows it or not, and whether he says so or not, calling for unemployment.

Mr. Benn

The right hon. Gentleman has the benefit of opposition to be able to air his theories in a way which sounds more attractive. I remember an earlier speech of his about musical chairs. That was the way he described the lame duck policy, saying that as resources are reorganised it is not always possible to have a chair for everyone.

If there were unemployment on the scale which, I believe, the right hon. Gentleman contemplates, it would have other effects on the fabric of our society. There might be some people who said that the unemployment was due to immigrants There may be secondary and tertiary effects. Although I yield to no one in my admiration of the academic ability of the right hon. Gentleman, I believe that he is a bad adviser to the nation on inflation. I hope that people do not accept his advice.

The more serious the situation becomes, the more it will be necessary to win the support of ordinary working people for the remedies that will be necessary, and that can only be done by policies that redistribute wealth and power in favour of working people. That is the programme we are putting before the nation and which is referred to in our amendment.

This is a country which is not very fair and has never been very fair. Some people ask why the unfairness has been allowed to continue for so long. What is changing, and this is why the politics of inflation are more important than the economics of inflation, is that people are progressively waking up to the unfairness in their society and are demanding a change. There is a gap not only between rich and poor but between rich and poor regions, between those who are at work and those who are retired, between different classes of pensioner. It is an unfairness to which my right hon. Friend the Deputy Leader of the Opposition referred last week, which begins at school and ends with retired people. It is an unfairness which is widening and not narrowing.

In the programme we have put before the House and referred to in our amendment, a programme which we have agreed with the TUC, on pensions, rents, subsidies and the repeal of the Industrial Relations Act, on land, wealth, income, and in our public ownership proposals, there is the same connecting theme of the redistribution of power and wealth in favour of working people.

One of my hon. Friends talked about a society where the whole nature of the economy was beginning to collapse. There are many people who think that when a. society collapses it necessarily collapses in the sense of mass unemployment, as in the past, but what I interpreted the hon. Member for Walsall. South to be saying in his speech about a volcano last week was that the seeds of the destruction of our system may lie not in the pre-war type of unemployment but in the post-war inflation, which will change the political balance in all Western societies.

We are arguing—and this is the case we are putting before the House—that the experience of the Government's policy makes it clearer that we need greater equality and greater democratic control to check the abuse of power. Because the Government have chosen to ignore this abuse and have opted for a managerial society in the interests of the better-off, they have done much more than betray their trust to the electors; they have misunderstood the temper of the people, who deserve better than they are getting, will demand it and will ultimately get it, if not under this Government then under the next.

9.30 p.m.

The Minister for Trade and Consumer Affairs (Sir Geoffrey Howe)

The right hon. Member for Bristol, South-East (Mr. Benn) closed his speech, as so often, with a passage of classic over-simplification. He claimed, as always, an absolutely exclusive prerogative to speak for the people, overlooking the fact that we, too, seek to represent the people by whom and on whose behalf we have been elected—and we do so in the name of all the people and not in the divisive way in which he seeks to claim to speak for one or other section of the people.

The right hon. Gentleman chose, at the beginning of his speech, the rather curious metaphor of comparison with a parking meter. The trouble about him is that he resembles a parking meter which has been unhooded for far too long—a meter whose indicator always stands at "Excess Charge" and which could well be dispensed with.

My right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell), in his analysis, contributed to some extent, no doubt, to an understanding of the problem, but he contributed almost as much to a misunderstanding of it. In his analysis of this and many other problems he seeks always to identify the single cause—to use his own phraseology, to look for the key. He sees others who have considered the same problem as approaching it with equal simplicity. Of the Government, he said that we, in our analysis of the problem of inflation, had identified first one cause and then another, as though we were identifying a single cause and as though we accepted his analysis, which enabled us—again to use his phrase—to identify the "true, unique and indispensable cause" of inflation.

It is the pursuit of the unique solution —the single, simple key—that leads my right hon. Friend astray from finding the solution. It is over-simplification to say that the cause of inflation is to be found in the management or mismanagement of the money supply. My hon. Friend the Member for Portsmouth, Langstone (Mr. Ian Lloyd), my right hon. Friend the Member for Stafford and Stone (Mr. Hugh Fraser) and, from a rather different point of view, the hon. Member for Oldham, West (Mr. Meacher) all agreed—and there is no dissent from this—that the manage- ment of the money supply is an important factor. So does my right hon. Friend the Chancellor of the Exchequer.

The Government do not accept that the underlying cause of the recent inflation is to be found in monetary factors, but we recognise that too rapid a growth in money and credit could exacerbate inflationary pressures and greatly complicate the problems of economic management. It is for exactly that reason that over the past year we have taken steps to keep the rate of monetary expansion in check. It is exactly for that reason that there have been several calls for special deposits from the banks and financial houses and an appreciable upward trend in the general level of interest rates.

My right hon. Friend does not accept —nor, I suspect, does the House the analysis of my right hon. Friend the Member for Wolverhampton, South-West that this is the unique cause of inflation. Especially if we are pursuing economic growth, as my hon. Friend the Member for Langstone pointed out, surely in the words of the OECD Report that he quoted, it is right to look for a complementary set of policies with which to approach the problem of inflation.

It is wrong to dismiss as wholly irrelevant to the argument, as my right hon. Friend the Member for Wolverhampton, South-West does, the impact of world prices. As I understood him, my right hon. Friend acknowledged the impact of world prices on many of the commodities that have been in recent shortage around the world; and surely he must do that, because in that sense the effect of market forces on commodities which are in short supply is to raise the price which we have got to pay for them. So it is wrong to dismiss altogether, as though it was of no account, the impact of world prices.

Equally, I suggest that it is wrong to dismiss, or to believe that the Government have dismissed in their recent analysis of the problem, the impact on inflation of inflationary pay settlements. My right hon. Friend the Member for Wolverhampton, South-West sought to caricature the analysis that the Government have made by suggesting that last year we were identifying a unique and single cause of inflation in the form of inflationary pay settlements but this year we are seeking to identify another inflationary cause. The fact is that in the autumn of last year average pay settlements were running at about 17 per cent. above the level of the previous year. They could not continue at that level. The effect of those settlements was contributing to inflationary pressures, and has been, and still is, continuing to do so. The effect of many settlements reached immediately before the standstill could not be passed on during the standstill, and they come into the reckoning even at this moment as allowable cost increases. In addition, pay settlements are being made now under stage 2 limitations. Labour costs have contributed significantly to rising inflation and continue to do so, although on a limited basis.

It is for that reason that it is critical to keep the pay side of pay and income factors under control. As my right hon. Friend the Prime Minister said on 18th July, we should not blind ourselves to the fact that wages and salaries are still twice as important as imports in the make-up of costs and prices." —[OFFICIAL. REPORT, 18th July, 1973; Vol. 860, c. 525.] and that it is entirely within our hands to moderate the impact on prices of what we pay ourselves.

My right hon. Friend the Member for Wolverhampton, South-West sought to suggest also that at this stage in the counter-inflationary policy the rate of inflation was accelerating. That also is not a true analysis of the situation. If the House casts its mind back to the figures announced with the Index of Retail Prices last Friday it will recall that they represented the smallest increase in the all-items index since November of last year. They also represent the smallest increase in the food index since October of last year. They represent a substantial drop of 2.2 per cent. in the seasonal food index and a slight reduction —not an increase—in the year-on-year rise in the all-item index.

To take the other point made by right hon. Members opposite, the year-on-year advance in wages of 15.4 per cent. and of earnings at 14.2 per cent. is well ahead of the rise in prices. Even the rise in earnings since October, at 6.3 per cent., is ahead of the 6 per cent. rise in prices since that date. The rise in earnings since phase 2 started, at 1.9 per cent., is also ahead of the rise in prices since that date.

The truth about the analysis of the causes of inflation is not as simple as my right hon. Friend sought to suggest. I do not—I say this in fairness to him—say "as easy" as he sought to suggest because, as the right hon. Member for Bristol, South-East has pointed out, my right hon. Friend does not suggest that the solution to inflation is an easy one. He acknowledged the growth of unemployment as an inevitable consequence of the policy which he propounded—-

Mr. Powell

No.

Sir G. Howe

I take my right hon. Friend's further point. [Laughter.] I appreciate that my right hon. Friend went on to argue that any policy that achieves a significant reduction in the rate of inflation must contribute to a rise—and, on his analysis. a substantial rise—in unemployment. I do not believe that that simple causal chain can be allowed to drive us to accept his simple policy. I have, incidentally, little respect for those Labour Members who, by implication or by their silence, support the analysis of my right hon. Friend—as, to be fair to the right hon. Member for Bristol, South-East, he did—but would be the first to repudiate the implications of that policy.

The solution depends, as my hon. Friend the Member for Langstone said, on complementary policies. It depends. first, on policies for the regulation—either controlled or voluntary—of the consequences of collective bargaining. Collective bargaining is. in fact, an argument about the distribution of the resources of a complicated modern society. In the conduct of collective bargaining it is possible no one can gainsay this—for the powerful, by ruthless combination, to increase their share to the disadvantage of the weaker members of society.

It is an essential element—as the right hon. Member for East Ham, North (Mr. Prentice) clearly acknowledged—in civilised society for us to find and make work a civilised way of resolving these conflicts about the distribution of the resources of society.

Mr. Heifer

The right hon. and learned Gentleman refers to collective bargaining. I hope that he will now answer some of the debate by referring to the question of labour-only sub-contracting—the lump—which I raised in this debate, which has nothing whatever to do with collective bargaining and which means that some workers are earning about £100 a week while those who use collective bargaining are getting only the basic rate. Will the Minister, on behalf of the Government, answer that point and start doing something about it?

Sir G. Howe

I am indeed answering the debate. I am answering at this point a section of the debate which was not attended by the hon. Gentleman. I am willing to acknowledge that the relationship—[Interruption.] I am sorry that I missed the hon. Gentleman's speech, since I normally listen to him closely. I am, of course, ready to acknowledge that the consequence of the lump is one of the elements to be resolved in this kind of discussion. It is clear in any analysis of the distribution of the resources of productive industry that the relationship between those who are paid on the lump and those paid through traditional collective bargaining must be discussed.

All that I am asserting—this is surely accepted now by the entire country—is that it is necessary for us to have in one form or another, by agreement or by consent of this House, a policy for the regulation of the consequences of collective bargaining. It is one of the policies that we have essentially—[An HON. MEMBER: "What does that mean?"] A policy of the kind that the right hon. Member for East Ham, North himself claimed was contained in the latest Labour Party policy document

Mr. Prentice indicated assent.

Sir G. Howe

I see that the right hon. Gentleman nods in agreement.

I mean a policy for society to decide the best way, in one way or another, to distribute the fruits of productive industry.

Mr. J. Grimond (Orkney and Shetland) rose—

Mr. Dalyell

You were not here.

Mr. Grimond

I certainly was here.

Since the Minister is explaining the Government's view, will he say why they put forward the opposite view at the election, telling us that a prices and incomes policy of the sort that they are now imposing would not work, could not work and never bad worked?

Sir G. Howe

We have never sought to contend that society can do without machinery—there are many ways of approaching it—for resolving this kind of problem. We need to have a policy for prices as well. I agree with my hon. Friend the Member for Langstone that the price system is the pillar of a free society and that the pricing mechanism provides the signals of an economic system. We do not, and certainly would not, seek to destroy the working of that system. But in certain circumstances and in certain ways——-again, this is common ground—a price mechanism can be operated unfairly or in a way that works to the disadvantage of society.

In a period of rising world prices, and in a period when inflation has been fed by wage settlements it is important to demonstrate the fairness of the way in which the price system works. The role of the Price Commission is to ensure that price rises are as small as possible and that price increases are justified and can be justified by reference to the code. The commission operates in that way in relation to retail prices by reference to gross margins in the same way as it operates in relation to the prices of manufacturing industry.

The House must acknowledge, as the report discloses, that the average price increases granted were 5–6 per cent. compared with the 6–7 per cent. applied for. The comparable figure for the 35 manufactured food applications was 4.2 per cent. against the 6 per cent. applied for. If the price increases are related to the total turnover of pre-notifying firms of controlled products, they amount to per cent. It is important to recognise that the commission does not seek to replace the market mechanism or price mechanism. It supports the role of competition in helping to regulate prices.

Mr. Kinnock

If the right hon. and learned Gentleman takes comfort from those figures, his opinion is not echoed by the Price Commission, which, in its report, recounted continual failures. Does he propose to introduce more stringent powers for the commission? What the commission has said repeatedly in its report is that the loopholes are so big that unless it is given extra powers it will not be able to provide in future the kind of control that it has provided in the past. Will the right hon. and learned Gentleman give it extra powers?

Sir G. Howe

The commission does not argue in that way. The hon. Gentleman said that the commission will not he able to provide in future the kind of control that it has provided in the past. He thereby acknowledges the extent to which it has provided control in the past.

The code has been having the effect which I have described. The pattern and detail of the code is, as my right hon. Friend the Secretary of State made clear, always a matter for discussion. The commission is operating to contain the rate at which prices are rising, and it is doing so in a way which supports rather than conflicts with the role of competition. Competition is an equally important part of the Government's approach to the whole policy. It is in that context that we see the role of the Monopolies Commission.

The hon. Member for Oldham, West suggested that one of the matters which had to be kept under review was the extent to which corporate power was becoming increasingly monopolistic and increasingly capable of adversely affecting the price level. That is why competition remains at the heart of our approach to the problem of prices. That is why we have made, and will continue to make, references to the Monopolies Commission of any sectors of industry which appear to justify it.

The other element in the complementary policies which we must have is a policy for profits. It is important for the House to understand the extent to which profits are similarly under control by virtue of the code. Control is in fact being exercised. Profits are controlled by comparison with the reference levels, and the control will continue to be so exercised. Already—and there is no doubt about this—the control by reference to profits is beginning to bite.

Mr. Bend

Will the right hon. and learned Gentleman deal with paragraph 6 of the Price Commission's report, which points out that the first reports on prices and profits are not required to be made until mid-July at the earliest? In what sense is the control biting? Profits are rising as fast as prices.

Sir G. Howe

The right hon. Gentleman should have the patience to wait for my next sentence. The Price Commission looks at profit limitation in examining applications for price increases. Of 12 applications for price increases refused so far, three have been turned down expressly because they would break the profit limit. The main effect lies ahead. From the middle of July onwards the profit control will begin to bite increasingly.

The hon. Member for West Lothian (Mr. Dalyell) asked what was the meaning of the phrase "roll back" used by my right hon. Friend the Secretary of State. If it is apparent that the profit margin is being exceeded the Price Commission will be able to reduce prices sufficiently to bring them down to the reference level; in other words, reduce the level of profitability to the reference level.

Mr. Dalyell

By what mechanism will this be done?

Sir G. Howe

By the service of a notice under Section 6 of the Act after the figures have been analysed. The Price Commission will be able to reduce the price which is being charged to a figure sufficient to eliminate the excess of profits above the reference level.

Mrs. Renee Short

Will the right hon. and learned Gentleman tell us how it is that further colossal price increases, some as much as 91 per cent., are being allowed to firms that are already making large profits year after year?

Sir G. Howe

Because it is no part of our prices policy to eliminate or drive out of existence the very concept of profit. Profit control is calculated by reference to a profit limit related to the average of the best two years of the last five. Of course, profits merit surveillance, control and limitation during a period when a balanced policy is being pursued. At the same time, new investment has to be financed to achieve the required level of investment for the growth that lies ahead, and some recovery of profits is essential, particularly after a period of exceptionally low profits. Net trading profit on the proportion of total domestic income fell from 13.1 per cent. in 1960 to 7 per cent. in 1970. It is only sensible to expect some increase in profits within the limits laid down. The House will remember that without profits there will be no investment, without investment there will be no growth, and without growth there can be no rising standard of living. Profits have a vital rôole to play in a free society.

The hon. Member for Wolverhampton, North-East (Mrs. Renée Short) referred to profits of Eastwoods, which she described as excessive. In that case, by way of example, it is as well to remember that the firm is recovering from exceptionally low levels of profit in 1970 and 1971 and that the profits of the firm now as a percentage of sales are still well below the levels enjoyed by that company during the late 1960s under the Labour Government.

Several points on the code were raised by my hon. Friends. I hope to be able to respond shortly to the point made by my hon. Friend the Member for Bridgwater (Mr. Tom King) but he will appreciate that a statutory instrument would be required.

My hon. Friend the Member for Harrow, West (Mr. John Page) raised several matters on the code, and those also will receive detailed consideration. He, too, discussed the effect of the pay code on labour mobility and the importance of relativities. That is one of the many questions raised by the right hon. Member for East Ham, North and echoed later. He wanted to know whether the object of stage 3 was to secure a reduction in real living standards because of the fall in the proportion of wages compared with profits. I emphasise that that is certainly not the object of the policy. The object is sustained economic growth.

It is right to remember, when we consider rising living standards, the time scale in which they should be considered. It is right to remember that over the last three years since June 1970 there has been a rise of 13 per cent. in real living standards of our people and that there have been matching improvements for pensioners and others on social benefits. We are glad to discuss with the TUC and the CBI how better to work for the achievement of economic growth to that end, but it is not the object of the policy to produce a cut in real living standards.

Mr. Prentice

If someone is not allowed a rise of income until 12 months after the previous rise, if that rise is confined to a statutory limit which amounts to less than 8 per cent. and if the cost of living is going up faster, surely that will mean a drop in living standards?

Sir G. Howe

I have already dealt with that point in the figures I gave, when I explained that average earnings last month were 14 per cent. up on the average level 12 months ago. That is certainly the fact and it is not the object of stage 3 to produce a reduction in living standards.

The right hon. Gentleman asked how well stage 3 was designed to help the lower-paid. Helping the lower-paid remains an agreed objective of the policy. It was an objective in the £2 limit which we discussed at Chequers a year ago. It remained the objective of the £1 plus 4 per cent., which is at the heart of stage 2.

The right hon. Gentleman also asked what proportion of settlements reported under paragraph 26 of the Pay Board report were weighted to the advantage of the low paid. I cannot tell him the number of settlements, but I can tell him that settlements involving 1½ million workers out of a total of 7 million workers were particularly weighted to the advantage of the lower-paid. Once again, on that point we are glad to discuss how the policies can better help the low-paid in stage 3.

Next, the right hon. Gentleman asked how far the policies in stage 3 involve consideration of productivity deals and bargaining. This is a matter that is being closely examined. We are fully aware that the next stage of the policy should allow for a measure of flexibility in that respect. But we must make sure that whatever flexibility is introduced is properly justified and controlled. Both sides of industry recognise the extent to which such agreements can be collusive and cloak "phoney" productivity deals which do not exist.

The right hon. Gentleman asked about the importance of comparability and relativity. Certain reports which are being produced by the Pay Board are important in respect of those two subjects. We shall gladly discuss those as well.

The right hon. Gentleman then asked whether we attach importance to the restoration of arbitration. As a means of pre-empting other discussions it would be difficult to accept arbitration, but as a means of resolving grievances and of solving disputes we shall be glad to discuss the matter. But this is relevant to the central problem, which we invite the trade unions to discuss. I refer to the question how to reconcile the pursuit of free collective bargaining with the achievement of a fair and expanding economy.

The right hon. Gentleman and I part company sharply when he accuses the Government, in their other policies, of causing, contributing to or deliberately creating inflation. He called for the

reversal of some of those policies on which we were elected and which contribute to the creation of a freer and fairer society. The fair rents legislation, for example, was designed deliberately to help people who need greater help and was designed—contrary to what the right hon. Gentleman said—to achieve a redistribution in favour of those who need help and away from those who do not need it. Similarly, there was another policy which he called upon us to change. He said, astonishingly, that it was no longer sufficient for us to be willing to discuss the Industrial Relations Act, and he called for its repeal or drastic amendment. That is a central policy for the achievement of a fairer, more just and more reasonable society. We stand on those policies, but we are willing to discuss the pattern of stage 3 throughout the next period.

Question put, That the amendment be made :—

The House divided: Ayes 267, Noes 298.

Jones, T. Alec (Rhondda, W.)	Mitchell, R. C.(S'hampton, lichen)	Silkin, Hn. S. C. (Dulwich)
Judd, Frank	Morgan, Elystan (Cardiganshire)	Sillars, James
Kaufman, Gerald	Morris, Alfred (Wythenshawe)	Silverman, Julius
Kelley, Richard	Morris, Charles R. (Openshaw)	Skinner, Dennis
Kerr, Russell	Morris, Rt. Hn. John (Aberavon)	Small, William
Kinnock, Neil	Moyle, Roland	Smith, John (Lanarkshire. N.)
Lambie, David	Mulley, Rt. Hn. Frederick	Spearing, Nigel
Lamborn, Harry	Murray, Ronald King	Spriggs, Leslie
Lamond, James	Oakes, Gordon	Stallard, A. W.
Latham, Arthur	Ogden, Eric	Steel, David
Lawson, George	O'Halloran, Michael	Stewart, Rt. Hn. Michael (Fulham)
Leadbitter, Ted	O'Malley, Brian	Stonehouse, Rt. Hn. John
Lee, Rt. Hn. Frederick	Oram, Bert	Stott, Roger (Westhoughton)
Leonard, Dick	Orbach, Maurice	Strang, Gavin
Lestor, Miss Joan	Orme, Stanley	Strauss, Rt. Hn. G. R.
Lewis, Arthur (W. Ham, N.)	Owen, Dr. David (Plymouth, Sutton)	Summerskill, Hn. Dr. Shirley
Lewis, Ron (Carlisle)	Padley, Walter	Swain, Thomas
Lipton, Marcus	Paget, R. T.	Thomas, Rt. Hn. George (Cardiff, W.)
Lomas, Kenneth	Palmer, Arthur	Thomas, Jeffrey (Abertillery)
Loughlin, Charles	Pannell, Rt. Hn. Charles	Tinn, James
Lyon, Alexander W. (York)	Parker, John (Dagenham)	Tomney, Frank
Lyons, Edward (Bradford, E.)	Parry, Robert (Liverpool, Exchange)	Tope, Graham
Mabon, Dr. J. Dickson	Pavitt, Laurie	Torney, Tom
McBride, Neil	Pendry, Tom	Tuck, Raphael
McCartney, Hugh	Perry, Ernest G.	Urwin, T. W.
McElhone, Frank	Prentice, Rt. Hn. Reg	Varley, Eric G.
McGuire, Michael	Price, William (Rugby)	Wainwright, Edwin
Machin, George	Probert, Arthur	Walden, Brian (B'm'ham, All Saints)
Mackenzie, Gregor	Radice, Giles	Walker, Harold (Doncaster)
Mackintosh, John P.	Reed, D. (Sedgefield)	Wallace, George
Maclennan, Robert	Rees, Merlyn (Leeds, S.)	Watkins, David
McMillan, Tom (Glasgow, C.)	Rhodes, Geoffrey	Weitzman, David
McNamara, J. Kevin	Richard, Ivor	Wells, William (Walsall, N.)
Mahon, Simon (Bootle)	Roberts, Albert (Normanton)	White, James (Glasgow. Pollok)
Mallalieu, J. P. W. (Huddersfield, E.)	Roberts,Rt.Hn.Goronwy(Caernarvon)	Whitehead, Phillip
Marks, Kenneth	Robertson, John (Paisley)	Whitlock, William
Marquand, David	Roderick, Caerwyn E. (Brc'n&R'dnor)	Willey, Rt. Hn. Frederick
Marsden, F.	Rodgers. William (Stockton-on-Tees)	Williams, Alan (Swansea, W.)
Marshall, Dr. Edmund	Roper, John	Williams, Mrs. Shirley (Hitchin)
Mason, Rt. Hn Roy	Rose, Paul B.	Williams, W. T. (Warrington)
Mayhew, Christopher	Ross, Rt. Hn. William (Kilmarnock)	Wilson, Alexander (Hamilton)
Meacher, Michael	Rowlands, Ted	Wilson, Rt. Hn. Harold (Huyton)
Mellish, Rt. Hn. Robert	Sandelson, Neville	Wilson, William (Coventry, S.) Woof, Robert
Mendelson, John	Sheldon, Robert (Ashton-under-Lyne)	TELLERS FOR THE AYES:
Mikardo, Ian	Shore, Rt. Hn. Peter (Stepney)	Mr. James A. Dunn and
Millan, Bruce	Short,Rt.Hn.Edward(N'c'tle-u-Tyne)	Mr. John Golding.
Miller, Dr. M. S.	Short, Mrs. Renée (W'hampton,N.E.)
Milne, Edward	Silkin, Rt. Hn. John (Deptford)

Division No. 208.]	AYES	[10.0 p.m.
Abse, Leo	Crawshaw, Richard	Freeson, Reginald
Allaun, Frank (Salford, E.)	Cronin, John	Galpern, Sir Myer
Archer, Peter (Rowley Regis)	Crosland, Rt. Hn. Anthony	Garrett, W. E.
Armstrong, Ernest	Crossman, Rt. Hn. Richard	Gilbert, Dr. John
Ashley, Jack	Cunningham, G. (Islington, S.W.)	Ginsburg, David (Dewsbury)
Atkinson, Norman	Dalyell, Tam	Gourlay, Harry
Bagier, Gordon A. T.	Darling, Rt. Hn. George	Grant, George (Morpeth)
Barnes, Michael	Davidson, Arthur	Grant, John D. (Islington, E.)
Barnett, Guy (Greenwich)	Davies, Denzil (Llanelly)	Griffiths, Eddie (Brightside)
Barnett, Joel (Heywood and Royton)	Davies, G. Elfed (Rhondda, E.)	Grimond, Rt. Hn. J.
Baxter, William	Davies, Ifor (Gower)	Hamilton, James (Bothwell)
Benn, Rt. Hn. Anthony Wedgwood	Davis, Clinton (Hackney, C.)	Hamilton, William (Fife, W.)
Bennett, James(Glasgow, Bridgeton)	Davis, Terry (Bromsgrove)	Hamling, William
Bidwell, Sydney	Deakins, Eric	Hannan, William (G'gow, Maryhill)
Bishop, E. S.	de Freitas, Rt. Hn. Sir Geoffrey	Hardy, Peter
Blenkinsop, Arthur	Delargy, Hugh	Harrison, Walter (Wakefield)
Boardman, H. (Leigh)	Dell, Rt. Hn. Edmund	Hattersley, Roy
Booth, Albert	Dempsey, James	Hatton, F.
Boothroyd, Miss B. (West Brom.)	Doig, Peter	Heffer, Eric S.
Bottomley, Rt. Hn. Arthur	Dormand, J. D.	Hllton, W. S.
Boyden, James (Bishop Auckland)	Douglas, Dick (Stirlingshire, E.)	Horam, John
Bradley, Tom	Douglas-Mann, Bruce	Houghton, Rt. Hn. Douglas
Broughton, Sir Alfred	Driberg, Tom	Howell, Denis (Small Heath)
Brown, Robert C. (N'c'tle-u-Tyne,W.)	Duffy, A. E. P.	Huckfield, Leslie
Brown, Hugh D. (G'gow, Provan)	Dunnett, Jack	Hughes, Rt. Hn. Cledwyn (Anglesey)
Brown, Ronald (Shoreditch & F'bury)	Eadie, Alex	Hughes, Mark (Durham)
Buchan, Norman	Edelman, Maurice	Hughes, Robert (Aberdeen, N.)
Buchanan, Richard (G'gow, Sp'burn)	Edwards, Robert (Bilston)	Hughes, Roy (Newport)
Butler, Mrs. Joyce (Wood Green)	Edwards, William (Merioneth)	Hunter, Adam
Campbell, I. (Dunbarlonshire. W.)	Ellis, Tom	Irvine, Rt. Hn. Sir Arthur (Edge Hill)
Cant, R. B.	English, Michael	Janner, Greville
Carmichael, Neil	Evans, Fred	Jay, Rt. Hn. Douglas
Carter, Ray (Birmingh'm, Northfield)	Ewing, Harry	Jeger, Mrs. Lena
Carter-Jones, Lewis (Eccles)	Faulds, Andrew	Jenkins, Hugh (Putney)
Castle, Rt. Hn. Barbara	Fernyhough, Rt. Hn. E.	Jenkins, Rt. Hn. Roy (Stechford)
Clark, David (Colne Valley)	Fitch, Alan (Wigan)	John, Brynmor
Cohen, Stanley	Fitt. Gerard (Belfast, W.)	Johnson, Carol (Lewisham, S.)
Coleman, Donald	Fletcher, Raymand (Ilkeston)	Johnson, James (K'ston-on-Hull, W.)
Concannon, J. D.	Fletcher, Ted (Darlington)	Johnson, Walter (Derby, S.)
Conlan, Bernard	Foot, Michael	Jones, Barry (Flint, E.)
Corbet, Mrs. Freda	Forrester, John	Jones, Dan (Burnley)
Cox, Thomas (Wandsworth, C.)	Fraser, John (Norwood)	Jones, Rt. Hn.SirElwyn (W.Ham,S.)
		Jones, Gwynoro (Carmarthen)
NOES
Adley, Robert	Burden, F. A.	Dykes, Hugh
Alison, Michael (Barkston Ash)	Butler, Adam (Bosworth)	Eden, Rt. Hn. Sir John
Allason, James (Hemel Hempstead)	Carlisle, Mark	Edwards, Nicholas (Pembroke)
Archer, Jeffrey (Louth)	Cary, Sir Robert	Elliot, Capt. Walter (Carshalton)
Astor, John	Channon, Paul	Elliott, R. W. (N'c'tle-upon-Tyne,N.)
Atkins, Humphrey	Chapman, Sydney	Emery, Peter
Awdry, Daniel	Chataway, Rt. Hn. Christopher	Eyre, Reginald
Baker, Kenneth (St. Marylebone)	Chichester-Clark, R.	Farr, John
Baker, W. H. K. (Banff)	Churchill, W. S.	Fell, Anthony
Balniel, Rt. Hn. Lord	Clark, William (Surrey, E.)	Fenner, Mrs. Peggy
Batsford, Brian	Clarke, Kenneth (Rushcliffe)	Fidler, Michael
Beamish, Col. Sir Tufton	Cockeram, Eric	Finsberg, Geoffrey (Hampstead)
Bennett, Sir Frederic (Torquay)	Cooke, Robert	Fisher, Nigel (Surbiton)
Bennett, Dr. Reginald (Gosport)	Coombs, Derek	Fletcher-Cooke, Charles
Benyon, W.	Cooper, A. E.	Fookes, Miss Janet
Berry, Hn. Anthony	Cordle, John	Fortescue, Tim
Biffen, John	Corfield, Rt. Hn. Sir Frederick	Foster, Sir John
Biggs-Davison, John	Cormack, Patrick	Fowler, Norman
Blaker, Peter	Costain, A. P.	Fox, Marcus
Boardman, Tom (Leicester, S.W.)	Critchley, Julian	Fraser,Rt.Hn.Hugh(St'fford & Stone)
Boscawen, Hn. Robert	Crouch, David	Fry, Peter
Bossom, Sir Clive	Crowder, F. P.	Galbraith, Hn. T. G. D.
Bowden, Andrew	Dalkeith, Earl of	Gardner, Edward
Braine, Sir Bernard	d'Avigdor-Goldsmid, Sir Henry	Gibson-Watt, David
Bray, Ronald	d'Avigdor-Goldsmid,Maj.-Gen.Jack	Gilmour, Sir John (Fife, E.)
Brewis, John	Dean, Paul	Godber, Rt. Hn. J. B.
Brinton, Sir Tatton	Deedes, Rt. Hn. W. F.	Goodhew, Victor
Brocklebank-Fowler, Christopher	Digby, Simon Wingfield	Gorst, John
Brown, Sir Edward (Bath)	Dixon, Piers	Gower, Raymond
Bruce-Gardyne, J.	Dodds-Parker, Sir Douglas	Grant, Anthony (Harrow, C.)
Bryan, Sir Paul	Drayson, G. B.	Gray, Hamish
Buchanan-Smith, Alick(Angus,N&M)	du Cann, Rt. Hn. Edward	Green, Alan
Bullus, Sir Eric		Grieve, Percy

Griffiths, Eldon (Bury St. Edmunds)	McNair-Wilson Michael	Russell, Sir Ronald
Grylls, Michael	Madel, David	McNair-Wilson, Patrick (New Forest)
Gummer, J. Selwyn	Maginnis, John E.	Maddan, Martin
Gurden, Harold	Marples, Rt. Hn. Ernest	St. John-Stevas, Norman
Hall, Sir John (Wycombe)	Marten, Neil	Sandys, Rt. Hn. D.
Hall-Davis, A. G. F.	Mather, Carol	Scott, Nicholas
Hamilton, Michael (Salisbury)	Maude, Angus	Scott-Hopkins, James
Hannam, John (Exeter)	Maudling, Rt. Hn. Reginald	Shaw, Michael (Sc'b'gh & Whitby)
Harrison, Brian (Maldon)	Mawby, Ray	Shelton, William (Clapham)
Harrison, Col. Sir Harwood (Eye)	Meyer, Sir Anthony	Shersby, Michael
Haselhurst, Alan	Mills, Peter (Torrington)	Simeons, Charles
Hastings, Stephen	Miscampbell, Norman	Sinclair, Sir George
Havers, Sir Michael	Mitchell,Lt-Col.C.(Aberdeenshire,W)	Skeet, T. H. H.
Hawkins, Paul	Mitchell, David (Basingstoke)	Smith, Cyril (Rochdale)
Hay, John	Moate, Roger	Smith, Dudley (W'wick & L'mington)
Hayhoe, Barney	Molyneaux, James	Soref, Harold
Heseltine, Michael	Money, Ernie	Speed, Keith
Hicks, Robert	Monks, Mrs. Connie	Spence, John
Higgins, Terence L.	Monro, Hector	Sproat, lain
Hiley, Joseph	Montgomery, Fergus	Stainlon, Keith
Hill, John E. B. (Norfolk, S.)	More, Jasper	Stanbrook, Ivor
Hill, S. James A. (South'pton, Test)	Morgan, Geraint (Denbigh)	Stewart-Smith, Geoffrey (Belper)
Holland, Philip	Morrison, Charles	Stodart, Anthony (Edinburgh, W.)
Holt, Miss Mary	Mudd, David	Stokes, John
Hordern, Peter	Murton, Oscar	Stuttaford, Dr. Tom
Hornby, Richard	Nabarro, Sir Gerald	Sutcliffe. John
Hornsby-Smith,Rt.Hn.Dame Patricia	Neave, Airey	Tapsell, Peter
Howe, Rt. Hn. Sir Geoffrey	Nicholls, Sir Harmer	Taylor, Sir Charles (Eastbourne)
Howell, Ralph (Norfolk, N.)	Noble, Rt. Hn. Michael	Taylor, Edward M. (G'gow,Cathcart)
Hunt, John	Normanton, Tom	Taylor, Frank (Moss Side)
Hutchison, Michael Clark	Nott, John	Taylor, Robert (Croydon, N W.)
Iremonger, T. L.	Onslow, Cranley	Tebbitt, Norman
Irvine, Bryant Godman (Rye)	Oppenheim, Mrs. Sally	Temple, John M.
James, David	Orr, Capt. L. P. S.	Thatcher, Rt. Hn. Mrs. Margaret
Jenkin, Patrick (Woodford)	Osborn, John	Thomas, John Stradling (Monmouth)
Jennings, J. C. (Burton)	Owen, Idris (Stockport, N.)	Thomas, Rt. Hn. Peter (Hendon, S.)
Jessel, Toby	Page, Rt. Hn. Graham (Crosby)	Thompson, Sir Richard (Croydon. S.)
Johnson Smith, G. (E. Grinstead)	Page, John (Harrow, W.)	Tilney, Sir John
Jones, Arthur (Northants, S.)	Parkinson, Cecil	Trafford, Dr. Anthony
Jopling, Michael	Peel, Sir John	Trew, Peter
Joseph, Rt. Hn. Sir Keith	Percival, Ian	Tugendhat, Christopher
Kaberry, Sir Donald	Peyton, Rt Hn. John	Turton, Rt. Hn. Sir Robin
Kellett-Bowman, Mrs. Elaine	Pike, Miss Mervyn	Vaughan, Dr. Gerard
Kilfedder, James	Pink, R. Bonner	Vickers, Dame Joan
Kimball, Marcus	Pounder, Rafton	Waddington, David
King, Evelyn (Dorset, S.)	Price, David (Eastleigh)	Walder, David (Clitheroe)
King, Tom (Bridgwater)	Prior, Rt. Hn J. M. L.	Walker, Rt. Hn. Peter (Worcester)
Kinsey, J. R.	Proudfoot, Wilfred	Walker-Smith, Rt. Hn. Sir Derek
Kirk, Peter	Pym, Rt. Hn. Francis	Wall, Patrick
Kitson, Timothy	Quennell, Miss J. M.	Walters, Dennis
Knight, Mrs. Jill	Raison, Timothy	Ward, Dame Irene
Knox, David	Ramsden, Rt. Hn. James	Warren, Kenneth
Lamont, Norman	Rawlinson, Rt. Hn. Sir Peter	Wells, John (Maidstone)
Lane, David	Redmond, Robert	White. Roger (Gravesend)
Langford-Holt, Sir John	Reed, Laurance (Bolton, E.)	Wiggin, Jerry
Le Merchant, Spencer	Rees, Peter (Dover)	Wilkinson, John
Lewis, Kenneth (Rutland)	Rees-Davies, W. R.	Winterton, Nicholas
Lloyd,Rt.Hn.Geoffrey(Sut'nC'field)	Renton, Rt. Hn. Sir David	Woirige-Gordon, Patrick
Lloyd, Ian (P'tsm'th, Langstone)	Rhys Williams, Sir Brandon	Woodhouse, Hn. Christopher
Longden, Sir Gilbert	Ridley, Hn. Nicholas	Woodnutt. Mark
Loveridge, John	Ridsdale, Julian	Worsley. Marcus
Luce, R. N.	Rippon, Rt. Hn. Geoffrey	Wylie, Rt. Hn. N. R.
McAdden, Sir Stephen	Roberts, Michael (Cardiff, N.)	Younger, Hn. George
MacArthur, Ian	Roberts, Wyn (Conway)	TELLERS FOR THE NOES:
McCrindle, R. A.	Rodgers, Sir John (Sevenoaks)	Mr. Walter Clean and
McLaren, Martin	Rossi, Hugh (Hornsey)	Mr. Bernard Weatherill.
Maclean, Sir Fitzroy	Rost, Peter
McMaster, Stanley	Royle. Anthony
Macmillan,Rt.Hn.Maurice(Farnham)

Question accordingly negatived.

Main Question put and agreed to.

Resolved,

That this House takes note of the Reports

of the Pay Board and the Price Commission

(House of Commons Papers Nos. 363 and 374).