ECONOMIC SITUATION

HC Deb 24 July 1974 vol 877 cc1599-735

Mr. Speaker

Before calling the Leader of the Opposition to move the motion, I should tell the House that I have selected the amendment in the names of the Prime Minister and his right honourable Friends.

Mr. Jeremy Thorpe (Devon, North)

On a point of order. I should like to raise a matter on which I should be grateful for your guidance, Mr. Speaker. May I respectfully suggest that it may be a matter upon which you would like to reflect, rather than give an immediate ruling?

Early on in this Parliament it was indicated that it might be valuable for this House to be able to reflect more than one alternative viewpoint to that of the Government of the day. Despite your ruling, you will have noticed that there are amendments other than the official Opposition amendment. There are two in the names of my hon. Friends and myself: first, after 'House', insert: 'welcomes the relief for domestic ratepayers and the doubling of the regional employment premium but'; second, to leave out from 'confidence' to end and add: 'and do not include direct action to curb the excessive increase in personal incomes without which both unemployment and inflation will become uncontrollable'. There is another in the names of Members of the Scottish National Party, to leave out from 'problems' to end and add: 'of the Scottish economy and declares that it will only be with self-government and the investment of the revenues from Scotland's oil that the Scottish people may expect full employment and a steady and continuing improvement in their standard of living'. Without going into the merits or otherwise of those amendments, they all indicate distinctive points of view which are not contained within, or at least which differ from, the view of the official Opposition. If the Government amendment which you have called is carried, Sir, that is the end of the matter and it will be for the House to decide whether to vote for the substantive motion or the motion as amended.

But if the amendment is not carried, may I respectfully urge on you the view that the time of the House which would be needed would certainly not be very great and the House would be given an opportunity to reflect or to vote upon different opinions if it were possible for more than one amendment to be called? It seems to me that that would reflect much more than we have by the procedures of the past the particular pattern of this House of Commons.

Therefore, Mr. Speaker, although you have said that you will call only the Government amendment, if that amendment is defeated, may I respectfully urge you not to preclude the possibility of considering calling one or more of the other amendments when that moment arrives later today?

Mr. Donald Stewart (Western Isles)

Further to that point of order, Mr. Speaker. May I, on behalf of my colleagues, support the submission by the Leader of the Liberal Party? We have felt in this Parliament of minority parties that we have not been given scope to make our point of view clear. Many of us have wished to avoid supporting certain actions of the Labour Government without assisting the Conservative Opposition. In the present circumstances, we are given no chance to do so.

Mr. Speaker

The right hon. Member for Devon, North (Mr. Thorpe) said that he was not asking me to rule today. These are points which require further consideration. That is one of the difficulties with the present situation in this Parliament. Anyhow, I have selected this amendment, and I should think that there would be problems about moving other amendments after 10 o'clock.

Mr. Thorpe

Further to that point of order, Mr. Speaker. With great respect, I did not suggest that this was a matter for reflection upon a subsequent day. What I was asking, Mr. Speaker, respectfully, was whether, in the event of the Government amendment being defeated, you would not rule out giving further consideration tonight to calling a subsequent amendment.

Mr. Arthur Lewis (Newham, North-West)

Further to that point of order, Mr. Speaker. Before you reply, may I suggest that if you were to consider this matter you would be considering it without first getting the opinion of the Committee on Procedure, which at present is not in existence? Therefore, would it not be advisable not to take any action which may change the present position until such time as the Committee on Procedure is appointed, when that Committee may be able to consider the matter and help you come to a decision, which would not affect the position tonight? May I suggest, Mr. Speaker, that you would be acting in the best interests of the House if you left the matter in abeyance until the Committee on Procedure can examine it?

Mr. David Steel (Roxburgh, Selkirk and Peebles)

Further to that point of order, Mr. Speaker. You will recall, Mr. Speaker, that very early in this Parliament you said that you thought that this matter of amendments might be looked at by a Select Committee on Procedure. The hon. Member for Newham, North-West (Mr. Lewis) is quite correct. No such committee has been set up. We are now well through the Session and this matter has not been considered. Therefore, I think that we are entitled to look to you, Mr. Speaker, for protection and to ask you to reconsider your ruling.

Mrs. Winifred Ewing (Moray and Nairn)

Further to that point of order, Mr. Speaker. May I take it that there is no procedural reason for calling only the official Opposition amendment—[Hon. Members: "Government amendment."]—and that you have discretion to call several amendments? In this Parliament is it not the case that only once has an amendment tabled by the Liberal Party been called? As the Scottish National Party is in a very special situation, may we, as a minority party, look to you for assurance that tabling amendments is not just a formal matter but may lead to having them called?

Mr. Speaker

I take account of these matters. In the absence of the Committee on Procedure, I have to try as best I can. I have hade my decision for today. I do not think that there is any chance of my changing it, because I do not see how it would be possible to have any new amendment called after 10 o'clock tonight.

3.44 p.m.

Mr. Edward Heath (Sidcup)

I beg to move, That this House regrets that the measures announced by Mr. Chancellor of the Exchequer on Monday are irrelevant to the underlying problems of the economy, make no attempt to restore business confidence, and do nothing to encourage the industrial investment which alone can safeguard the jobs and future prosperity of the nation. I believe that the motion which I have just moved goes to the heart of people's anxieties and fears in Britain today. There are deep fears which have been reflected in the words of commentators and in the Press, and in the reports of international organisations and in the debate in the House yesterday—not least from Government supporters on the benches opposite. Indeed, as far as the Press is concerned, the statement which the right hon. Gentleman the Chancellor of the Exchequer made on Monday is already treated as irrelevant and has disappeared from the scene.

There are today the fears of so many millions of ordinary people and these fears are not less real because they cannot be precsely defined or clearly articulated, or because they cannot put forward solutions for the problems which cause their fears. There are fears of an ever-increasing rate of price increases and fears of growing unemployment, or of both. There are fears for the impact on our society of either a high rate of inflation or a high level of unemployment. Both are social evils of great magnitude, evils both for society and for those men and women who are personally affected by them.

I personally feel this, and regret that there are those who tend to treat unemployment as a purely statistical economic exercise, instead of recognising the human misery and social stress it causes. [Hon. Members: "Oh!"] I say this quite eliberately—[Interruption.] A three-day week is better than a no-day week, which may very well come under the present Chancellor—[Interpretation.]

Mr. Speaker

Order. I should like to intervene at this point to ask the House whether it is not possible to have a debate. If one side shouts at the other, the other side will shout back. Is it not possible for both the Leader of the Opposition and the Prime Minister to be listened to in reasonable silence?

Hon. Members

Tell the truth.

Mr. Heath

I should have thought that it was an agreed fact on the Government side of the House that unemployment is a social evil in human terms of which everyone in the House must take account.

There are fears that even while world commodity price increases are still working through the system, yet another wage-cost spiral will be added to the prices spiral, with all that that means internally and for our competitiveness abroad, when the increase in world trade now shows signs of slowing down drastically. There are fears that our industry is not being left with the means to provide its own investment or to secure what it needs from the market, with all that that means for the future capital backing for workers in industry and, indeed, for jobs for them.

There are instinctive fears among our people that we in Britain have not yet found out how to run our own affairs fairly and competently, in a way which will avoid either and both of these evils. There is an instinctive fear also that the countries of the Western World may well be sliding into their protective cocoons, from which we as a major trading nation could become one of the worst sufferers. Perhaps, above all, there is a fear of facing reality as it now presents itself to our country. In the face of this national mood, I thought it extraordinary that during the statement and long answers to supplementary questions on Monday and in his speech yesterday, the Chancellor had nothing of importance to say on the major aspects of the Government's economic policy in this situation which I have described, a situation characterised by many outside the House as a state of crisis. Indeed, in fairness to the Chancellor of the Exchequer, he did not claim to have said or done anything of importance in the last 48 hours.

It is not, therefore, surprising that the Government's amendment makes no attempt to counter the Opposition's basic motion but only lists again the announcement which the Chancellor made last Monday. I hope that the Prime Minister will address himself to the major questions with which I now propose to deal in this debate.

When the man in the street, with all his instinctive fears, hears and reads above a crisis, he may well ask, what is the nature of the problem which we face, which he fears, and which this country is facing? There are three serious aspects of the present situation which I should like to put before the House. I propose to take, first, the question of the balance of payments.

We have heard—I myself have spoken of it—of the oil and the non-oil deficit. My hon. Friend the Member for Horn-castle (Mr. Tapsell) said yesterday, in an intervention, that we must face the fact that the deficit is all one. With that I would agree, and I know that hon. Members on both sides of the House take this view. I agree, too, that the deficit, whatever its source or size, has to be met in one way or another.

But I personally have always believed that there are advantages to be had in breaking down the deficit for the purposes of analysis. And I believe that it was particularly useful to have done so over the past few months—first because it enables one to prescribe particular treatments for different aspects of that deficit and, secondly, because it enables one more clearly to argue with those who take the view that any deficit at any time must immediately be dealt with by deflation. I therefore propose at present to retain the terms "deficit" and "oil deficit".

First, on the non-oil deficit, the Chancellor says that this is improving largely due to our export performance, with which I agree, and—a fact which he has now acknowledged—the reason for that is that the previous administration floated the pound and therefore gave us a competitive advantage over other countries. It was part of a strategy of getting growth, and exports, especially after floating, follow imports. But the Chancellor is pursuing a policy of borrowing to deal with the oil deficit, on the basis that in due time oil will repay the deficit which is now to be incurred. I find it, therefore, difficult to understand his reiterated criticism—unless it is for political purposes—of a deficit incurred for growth on the basis that when the growth has been achieved and the pound is at the right level, the exports will repay the deficit which has been incurred during that period. That was certainly the policy of the last administration, understood and supported both by the CBI and by the TUC, and the Chancellor in his policies gives absolutely no grounds for criticism of that. Then, again, he is pursuing a policy on overseas borrowing for nationalised industries and local authorities. When the Government were in Opposition they condemned the then Government for pursuing that policy, but now they are pursuing it, too. I accept that and welcome it, but it might have been more helpful to the national interest if they had recognised the merit of the policy a year ago.

It is clear, however, that even with the improvement described by the Chancellor of the Exchequer, we shall be hard put as a nation to eliminate the oil deficit in any reasonable time, and particularly with a likely downturn in world trade which is already beginning to make itself felt. The first thing we must recognise, therefore, is the task which faces us in borrowing in connection with the non-oil deficit alone. Commentators constantly ask that this House should be realistic and face up to these matters and should tell the country the truth. It is essential to tell the people that the task of dealing with the non-oil deficit alone is a major task.

I now turn to the oil deficit, and I shall give figures showing what it involves up to the period 1979–80. If the people of this country are to understand the task which lies ahead it is essential to look at the scale of the operations upon which this country is having to work. The total indebtedness incurred by Britain in paying and borrowing for the oil deficit will be £9,500 million by 1979–80 on present production forecasts, which I suppose are the most optimistic forecasts available and which assume that everything goes right. The total interest paid on this by 1979 will be between about £3,400 million and £5,400 million, depending on world interest rates and, I judge, inclining more towards the latter figure. This assumes that we can cover not only the non-oil deficit but the interest on the borrowing to be made to pay for it. That is unlikely to be the case, but if borrowing reaches £9,500 million by the time we satisfy our own oil needs we shall still have annual interest repayments for 1980 of £1,500 million a year to be covered in our trading account.

If we are not able to pay the interest on our borrowings as we go, our total indebtedness by 1979–80 will be between £13,000 million and £15,500 million. That is the size of the task facing Britain up to 1979–80, which is the earliest anybody could foresee we should be meeting most of our oil needs from our own sources. If we borrow, which is the present policy, that is what is involved.

The Prime Minister (Mr. Harold Wilson)

That was the right hon. Gentleman's policy when he was in Government.

Mr. Heath

It was certainly our policy in Government. I do not dispute that in the least.

The Chancellor of the Exchequer (Mr. Denis Healey)

That was before we had an oil deficit.

Mr. Heath

I have already gone over the policy of growth and the temporary deficit it involved. We must explain to the people of this country that there is now a massive transfer of claims on our resources from our people to the oil-producing countries. I do not believe that the oil deficit is normally seen in that light. Nevertheless, there will be a massive transfer of a size and speed never seen before in the world. It is a major switch of resources from the industrialised developed world to the developing world and the irony of it is that we shall now, from the figures I have just given, find ourselves in the position of many of the less-developed countries.

We have made our loans to the less-developed countries over the last 25 years, under the policies of both Governments, in the form of aid. Many of those countries have found that servicing those loans takes up the greater part of the aid which is being made to them by the Western industrialised world. That is the burden which rests upon them, a burden which some of us in the past have sought to lighten by either national or international means, an endeavour in which, to a large extent, we have failed. Britain and other Western European countries will find themselves, as the figures I have given show, in the position in which a large part of their oil resources will have to be used to service the debt we have incurred, let alone for the repayment of our obligations.

There is a further danger in that, should there be any further substantial fall in commodity prices, other groups of countries producing raw materials might form organisations comparable to OPEC in order to maintain their own position. They would say that they were doing so purely from the point of view of economic self-defence. These organisations would be designed to keep up prices to enable the countries concerned to repay their oil deficits. The danger is becoming more and more obvious, and we are therefore unlikely to see a return to the earlier levels of commodity prices of this half century as we did after the Korean war, and as some people have been expecting, and that is particularly true of foodstuffs.

On top of this situation, and to complete the picture, the present Government have decided to go for borrowings of £2,000 million sterling internally to secure a 51 per cent. participation in North Sea oil for the purpose, which we believe is entirely unnecessary, of obtaining revenues which any Government ought to have from that oil.

Mrs. Winifred Ewing

Does the right hon. Gentleman agree with the findings of the Public Accounts Committee which so condemned his Government for their ineptitude which made them the laughing stock of the OPEC countries in giving away licences at peanut prices?

Mr. Heath

I am afraid that the hon. Lady is wrong. There were two aspects of the report. One was the question of offsetting profits against losses made in the Gulf, and we had announced that we would introduce legislation to deal with that. Our proposals would have been in the last Finance Bill if we had been in office and would have been in time to prevent any profits from North Sea oil or any oil from around our shores being used to offset losses. The second aspect concerns revenues from our oil. There have been no revenues to the oil companies from the North Sea so far and there will be precious little in 1975. That situation, too, would have been dealt with by the Conservatives either in the last Finance Bill or in the next to ensure that the Government secured the resources they required.

The Iranian loan has been welcomed, and I am glad that the Government have welcomed it, but it is small in comparison with our total problems over the oil deficit. Nevertheless we have to contrast the loans secured by the British Government with the massive trade orders which have been secured from Iran by the French Government in their attempt to deal with its problems.

I believe that the Chancellor was right to express doubts about the capacity of the commercial banks to continue the arrangement of loans on the present scale for dealing with this international problem of the revenues of the oil-producing countries and the recycling. One knows that many commercial banks already have grave doubts about the arrangements. They are, in fact, borrowing short and lending long.

I cannot share the Chancellor's optimistic view about the international achievements in this field so far. I believe that the total involved is only 5 billion dollars. When one takes into account the revenues this year to the oil-producing countries, let alone those in the full year of 1975 of probably 60 billion dollars, one sees that it is a minute amount to be handled internationally. Therefore, this problem remains with us.

To deal with the situation, a wide range of policies is required. First, there must be economies in the use of oil and oil products in this country. In this respect the Government have done nothing. The reduction in the price of petrol announced by the Chancellor, if it has any effect, works in the opposite direction. The first thing to urge upon the Government and the country is that we should now deal with the question of economy in the use of oil and oil products.

Secondly, there must be speed in developing our own oil offshore. The Government have not helped in this respect, and because of delay over platforms they have probably missed most of a year in construction. The uncertainty that has been created about the proposals for indulging in carried interest and 51 per cent. participation, instead of saying clearly that the revenue would come through taxation, is also damaging the speed of production of offshore oil.

Thirdly, there is the need to secure trade with the oil producers and to retain our competitiveness as a nation in our dealings with them. After all, they are now one of the most powerful consuming bodies in the world. They can shop around the whole world. Their needs in style, in prices and in delivery dates must be met or we just do not get their orders.

In this respect I urge the Government to use their diplomacy in working with the oil-producing countries to achieve this objective of massively increasing trade with them, and to achieve my fourth objective, which is to get real investment from the oil producers into this country. There may be some ideological objections. They must be over-ruled. We have investment in this country from other countries—from North America and from Europe—and it is essential that we at any rate get our share of real investment from the oil-producing countries and not just loans.

Fifthly, there should be a real drive with our EEC partners and other international institutions to get recycling settled as soon as possible and a common policy adopted towards it. In this respect little has yet been achieved. The behaviour of the Secretary of State for Trade in Brussels yesterday did nothing to help the Community to achieve a common policy towards the matter or to help us to have the benefits of a common policy from our membership of the Community.

Sixthly, it is vital to explain to the country the real position, that this is the scale of our operations even over a five-year period, that it is essential to pay our way not only on the non-oil deficit but on the oil deficit as far as possible at the earliest possible moment, otherwise, the scale of indebtedness and of servicing that debt by 1980 will become an almost intolerable burden upon this country.

It means recognising that we have to achieve increased production to do this, and that most of that increased production cannot go into consumption for ourselves. That is the hard fact of the case, when there is a massive redistribution between the industrialised countries of the Western world and the oil- and raw-material-producing countries of the developing world.

We must also tell the country that we have to beat our competitors in meeting the needs of the oil producers and their prices and deliveries. That means that the organisation of our industry, management and unions, must recognise the hard facts of what we have to do to achieve that purpose.

The second aspect with which I wish to deal when speaking of the problems facing the country is that of inflation. Some would say that I should have dealt with it first.

Mr. Healey

I can agree with much of the speech of the Leader of the Opposition, but he gave estimates of what he thought our burden would be if we aimed to close the gap by 1979–80, the earliest date by which international experts think the oil-producing countries could absorb imports to the value of their exports of oil. The right hon. Gentleman is now suggesting that we should seek to bridge the whole gap very much sooner. By what date does he think it would be sensible to aim at closing the whole of our balance of payments gap?

Mr. Heath

I am not proposing a date by which we should close the whole gap. What I am saying is that we should explain to the people of this country, whether management or members of unions, the scale of the task. We should explain that the slower we are in closing the gap, the greater is the burden we shall have to carry from 1980 onwards of immense debt and servicing of that debt. It is fundamental that we explain to the country the size and scale of the problem and what is required to make any attempt to close that gap.

Some of the proposals I made about real investment in this country could be put into effect by oil-producing countries comparatively quickly, and they are being put into effect by Iran in other countries. Therefore, this matter is not concerned with a five-year period; action could be taken in that regard quickly. The speedier our industry is in meeting the needs of the oil-producing countries, the quicker they will be prepared to pay for our products.

The second aspect of the problem, to which I was turning, is inflation. I have said that many would say that one should deal with it first. I believe that it was right to deal with the scale of the problem we face in what is commonly termed a crisis, because the effect of continuing inflation on that is obviously very great.

The Chancellor said that he wanted to avoid a rate of inflation of 20 per cent. It is already 22 per cent. over a six-month period and 25 per cent. over a three-month period. There has been a considerable increase since February.

The Chancellor said that the sole purpose of his mini-Budget was to reduce the number of threshold payments. The Prime Minister openly stated that he supported the idea of thresholds. He urged it upon me and my Government constantly, as did the TUC from the time it raised it in Neddy. [Interruption.] I said "from the time the TUC raised it in Neddy". I think that that was when the Prime Minister first urged it upon me. There were discussions throughout the Chequers and No. 10 talks. The Chancellor talked about the discussions last autumn. That was before the oil crisis.

Judgments were made in discussions with the TUC and CBI as to the most likely increase in prices and what level of threshold was required. Most people thought that we had fixed the threshold of 7 per cent. at about right, and that the payment of 40p was slightly generous, because it would just more than cover the cost of an increase of one point in the retail price index.

The Chancellor tried to give the impression that that was something of which he disapproved, and for which we were responsible. Of course we accept responsibility for it. But if he did not approve of thresholds, it lay in his power when he became Chancellor to make an alternative arrangement last March. He could have done that after discussion with the trade unions and employers. It was entirely open to the Government to do it. But it was the Chancellor who was largely responsible for triggering the thresholds, and triggering them three times in one month.

I must ask the right hon. Gentleman to face this aspect of the matter honestly. He made the astonishing statement on Monday, when answering a supplementary question, that all he had done in his Budget was to increase nationalised industry prices, and then he entered into an argument about what we would or would not have done. His Government in the March Budget put up indirect taxes. They put up VAT on food, put 5p on the price of a gallon of petrol, and increased duty on wines, spirits, beer and tobacco—a total of £585 million. The impact on the RPI was between 2 per cent. and 3 per cent.

I do not understand what the Chancellor of the Exchequer meant on Monday in saying the only thing he had done to influence the thresholds was to deal with nationalised industry prices. Let him say clearly tonight that of course he triggered them off. If he wants any confirmation, here is the quotation: The principal contributing factors to the April increase in the cost of living were a 13 per cent. rise in tobacco, 6.7 per cent. on alcoholic drink, 3.7 per cent. increase in transport and a 5.4 per cent. increase in housing. Most of these rises came as a result of measures taken by the Chancellor of the Exchequer in his Budget. That is from Tribune of 31st May.

The other aspect is that of the food subsidies, on which the Chancellor of the Exchequer will never be honest, because the greater part of those subsidies, as he has admitted constantly in Questions, stabilised prices but did not reduce them. Milk was an exception, and there was the EEC effect on butter. But for the rest the effect was to stabilise prices where they were on the RPI, and, therefore, the subsidies did not have any impact on reducing the increase brought about by the rest of indirect taxation.

This is the case, and this is the way in which the Chancellor of the Exchequer will never honestly admit that he was very largely responsible for the triggering of thresholds in April of this year. In that, Tribune is absolutely right.

Increases in nationalised industry prices are mostly still to come and, therefore, they will have their effect on thresholds. The Chancellor of the Exchequer seems to blame us for having held down nationalised industry prices. It was a deliberate policy. I do not recollect the Opposition criticising us on this when we were in Government. Some of my hon. Friends did so but not the official Opposition. It was in response to the CBI's 5 per cent. initiative for holding down prices, in reply to its request and that of the unions. Then, when we came to official discussions and on to incomes policy, it was done at the request of both the TUC and the employers, and quite understandably so. They said if they were having restraint in incomes and private industry prices, the same should be done with nationalised industries.

I do not see why the Chancellor of the Exchequer should complain. He is holding down prices of one list of necessities. We were doing it with another, the nationalised industries; and at least the nationalised industries were under our control, whereas world food prices are not under the Government's control. But neither is desirable in the long run in any economy if one is to avoid distortions. It was part of the counter-inflationary policy, but both the Prime Minister and the Chancellor of the Exchequer are constantly talking of a figure of £1,500 million—[An HON. MEMBER: "£1,400 million."]—of £1,400 million which they allege was never revealed at the General Election. I have had these figures carefully checked. I told the TUC and the CBI in our talks that we were contributing to the nationalised industries and that the cost of holding-down prices was £400 million. I have used that figure in the House, and it was right.

The largest estimate ever made so far as we were concerned, in February, was £750 million in support for the nationalised industries, but this included not only restraint in prices but the special measures we agreed to contribute towards coal and towards transport for other purposes; so £750 million was a much larger figure than the cost only of price restraint.

I hope, therefore, that the Chancellor of the Exchequer and the Prime Minister will now abandon this mythical figure of £1,400 million. In any case, I suspect the figure taken by both right hon. Gentleman contains an out-of-date estimate for the impact of the three-day working week on the nationalised industries, whereas, as the Chancellor of the Exchequer has now pointed out, the impact was infinitely less than any of the estimates that were given at the time. On the three-day working week, he has had to come to the House and say that the impact on production was at most 31 per cent. over the two months—and even this may be an exaggerated figure.

This is a tribute to trade unionists and employers who share a production record which was so little influenced; ½ per cent. per year is all it amounts to. It is a tribute to what they achieved during that time. What it has done is to remove any argument whatever from the Chancellor of the Exchequer that the particular problems with which he has to deal spring from that cause. When one looks at the nationalised industries, the British Steel Corporation has since announced a profit of more than £50 million, far greater than was anticipated at the time of the previous administration. It just shows how wrong were the estimates the Chancellor of the Exchequer first gave to the House.

I want to deal in the context of inflation with the measures which the Chancellor of the Exchequer has announced, the 2 per cent. reduction of VAT and the equivalent on petrol. That does not undo the harm he did in March. It is welcome, but had he followed a different policy in March the thresholds would not have been triggered in the way they have been. The rent and rate rebates are welcome because he has adopted the system we used. But what he has not had the courage to do is to say that those who can afford to pay what is right for rent and rates should do so. If he is really arguing that nationalised industry prices should be paid in full, very good; but what possibe argument can there be for saying that people should always pay lower rents and rates than they otherwise should, particularly in the case of rents?

The immediate contribution to rates is welcome. It is the greatest success the Opposition parties have yet had in this Parliament, but the wretched Secretary of State for the Environment was put up in the debate to stonewall and say that nothing whatever can be done, even to deal with the immediate problems which have emerged, partly as a result of his own creation, by altering the rate support grant in favour of the metropolitan boroughs, partly his own fault. He was put up to stonewall.

Now the Chancellor of the Exchequer, after a resolution of the House, does what the House asks, and, of course, this is to be welcomed. It will now fall to us to carry out the rest of the resolution which the House passed. Surely, the important point on inflation is that thresholds are no longer the key figure as far as inflationary pressures are concerned. It is the level of wage settlements this autumn which is causing fear in industry and fear amongst our people generally about spiralling inflation. There are already powerful indications that post-stage 3 settlements already made are very high. The Government for their part have thrown away all means of dealing with this. They have swept away all the institutions, have pledged themselves against any form of statutory policy, have pledged themselves that, no matter what happens, there will be no wage freeze and no action by Government. Therefore, the Government have no negotiating choice of any kind, either with management or with unions in industry. The Government have no means of trying to influence them or to secure an amelioration of the result, which is now causing fear amongst so many in this country. Whether anyone believes what the Government said or not on a freeze is a different matter.

What the Secretary of State for Employment constantly emphasises—and I have heard it emphasised so often by the trade unions—is that there must be an absolute and complete return to free collective bargaining. In most people's judgments there are many distortions, and unjustifiable distortions, in the wage structure of this country and most of them are not the result of incomes policy but have been brought about by free collective bargaining. Even the introduction of statute and the creation of the wages councils has not been able to take care of the interests of the lower paid in this country against the pressure of those who have strength in industry.

As the Secretary of State for Employment prides himself on his humanity and on looking after the less well off, I commend to him the need to do something to redress the balance in free collective bargaining at least to ensure that those who are less well off get a better deal than they have had in the past.

The Incomes Commission cannot influence the immediate situation that we are facing, and I do not believe anybody would suggest that. Conciliation and arbitration in this country have already led to a situation in which in negotiation the employer moves further and further towards the demand of the unions, and only when finally the employer stops moving do the unions go to arbitration. Arbitration will split the difference and following that there will be further negotiation. This bears no relationship to a viable economic policy from the point of view of keeping incomes anywhere in line with production. It bears no relationship at all to that situation—unless the Chan- cellor is prepared to ensure that there are firm and agreed guidelines about the interests to be taken into account, otherwise the exercise becomes a late operation in splitting the difference.

Can price control maintained by the Labour Government be effective on wages? There is an argument that by maintaining severe price control, wages will be kept in line with production. I doubt this and all my experience supports me in that view. In employers' minds in such a situation other things will be cut first. Understandably, employers do not want disruption, if they can avoid it. Therefore, with a very rigorous price control, it will be investment, research and sales organisations which will suffer first. That certainly will be damaging to our industry.

There remains the threat or the fact of unemployment. The question we must ask is whether the Chancellor, despite his protests in the Budget on Monday that he wishes to use all the resources of manpower, is now relying on unemployment to do the job for him on wage claims. I want an answer to that question.

Mr. Healey

You have the answer: no.

Mr. Heath

Perhaps the right how Gentleman will answer in a little more detail. What does he estimate will be the growth in the economy in 1974–75? Outside estimates put it at precious little—perhaps less than 1 per cent. by the end of 1975. With increasing productivity, what will be the effect on the level of unemployment of a growth of less than 1 per cent.? Industrialists and trade unionists will look at that point very carefully in relation to the movement of unemployment in the next 18 months.

Mr. Healey

The right hon. Gentleman asked me to answer the question. I certainly intended to imply the full use of resources and explained some of the international constraints on the economy. A number of hon. Members have argued that I have reflated too much, not too little. The right hon. Gentleman also argued on those lines. However, he must be honest with the House about his own view. Does he believe, as we do, that we should be reflating a good deal more later in the year or not? Until he answers that question, what he is now saying is academic humbug.

Mr. Heath

I have asked the right hon. Gentleman a question which he refuses to answer. I asked him what he thought would be the growth rate by the end of 1975. He refuses to answer that question. Perhaps he will answer when he winds up the debate. Let him say what he believes will be the impact on the present policy of unemployment to the end of that period. We and the country have a right to know. If he has already decided that there should be more reflation later let him tell the House. Let him say what reflation and when. Let him say how he believes this can be effective on the level of unemployment before the end of 1975.

He has already explained to the House that few realised how long it took for budgetary measures to work through the economy. It is evident in the British economy that on each occasion when budgetary methods are used the period of delay becomes greater and greater. The Chancellor should say whether he has already made up his mind on these matters. Why does he not say how much, when, and whether he believes that such a policy will have any impact before the end of 1975?

It was interesting, despite his grave concern about unemployment, to see that he got the figures wrong on Monday. How could he have such grave concern about the matter and still tell the House that the figure for additional employment would be 20,000 by the end of 1975. He came to the House yesterday and said that he had not given us the right answer. He thought that the difference lay between 100,000 and 150,000. What a multiplier! I must confess that in the years I have been dealing with these matters, I have never known a multiplier of that size in operation over such a period. The Chancellor should have been able to say what the facts were at the time.

The right hon. Gentleman is assuming an increased borrowing requirement for 1975 as the result of his action on Monday. We should like to know from the right hon. Gentleman, when he replies, what is the present estimated borrowing requirement from now to the end of 1974–75. He declined to answer that question earlier and said that there were various factors involved. Of course various factors must be taken into account.

Mr. Healey

I gave the exact figures.

Mr. Heath

We want to know the total borrowing requirement by the end of 1974–75. Will the right hon. Gentleman give an estimate now, or when he replies? He could also tell the House what will be the total borrowing requirement following the relaxations in Government expenditure, and what that requirement will be if the building societies are not able to repay the £400 million to £500 million which he was preparing to let them have. Let us have the real facts about the borrowing requirement and then we can make a judgment.

I wish to deal now with import prices. From June 1972 to June 1974, we had to deal with an increase in import prices of 108 per cent. Since February the Labour Government have seen a reduction in these prices of 10 per cent.—in five months. This is to the national advantage and also to their advantage, but what would be fatal would be if this amount were thrown away by wage inflation.

The Chancellor has now said frankly that wage inflation can damage us. That is a different story from what he said last autumn when he took the view that wage costs did not have an impact on inflation. I welcome the conversion. If the Chancellor utters that warning, it would be fatal if that improvement in the terms of trade were to be thrown away by wage-cost inflation. However, I regret that the Government have abdicated all responsibility in this matter. It is essential that in the present economic situation we should have an effective—I emphasise the word "effective"—working relationship between Government and both sides of industry in the national interest.

This brings me to the third aspect of the problem—namely, the impact of the Government's policies in general and the Chancellor of the Exchequer's policies in particular—[Interruption.] I do not mind if the Prime Minister takes over 45 minutes for his speech, but I intend to give the House and the country the situation as I see it. I was referring to the Government's policy in general, and the Chancellor's in particular, in relation to the impact on industry and their attitude to investment. It can be summed up as follows.

Mr. Thorpe

If I understand the right hon. Gentleman's argument correctly, he said that the Labour Government had no prices and incomes policy. He will notice that there is no reference to the need for a prices and incomes policy in the Conservative amendment. Some of us are surprised that that is so. Will he indicate what sort of prices and incomes policy he thinks the Opposition would implement were they in Government now?

Mr. Heath

Our motion seeks to make the point that the Government are lacking in policy, and I think it is quite right to say that. If the right hon. Member for Devon, North (Mr. Thorpe) is reaffirming his belief that there should be an incomes policy, then I personally and my right hon. and hon. Friends believe the same, and I shall deal with that point a little later in my remarks. I was dealing with the present economic situation and saying that any Government must be able to use all the resources at their command. We shall not be able to deal with the situation unless that happens. That is a weakness of the present Government's position.

On industry their attitude can be summed up in the words "growing uncertainty and hostility". Never before has confidence been so low as the CBI figures in July show. The Chancellor took £1,000 million out of their cash flow. REP put a little back, a comparatively small amount, concentrated in the development areas, which will cause stress in the intermediate areas which do not benefit.

I should like to draw to the House's attention a speech made by the present Foreign Secretary when he was Chancellor of the Exchequer in June 1967. Let us get straight once and for all what he said about REP: In our view it is right…that the scheme should exist in full for seven years and that it should then begin to phase out—obviously a review will be made nearer to the time to see how it is going—but this is our present intention—coming to an end theoretically after 10 years or so, because we could take two or three years to phase it out."—[OFFICIAL REPORT, 5th June 1967; Vol. 747, c. 750.] That was the view of the right hon. Gentleman. It was our view, and we were, in fact, having discussions with the TUC and the CBI on the question of phasing it out. I hope that has now settled the question of the intentions of the Labour Party and what we were doing as a Government.

Mr. Tam Dalyell (West Lothian)

Will the right hon. Gentleman give way?

Mr. Heath

I am sorry, but no. I have given way so often.

What the Government do not appear to recognise is the impact on small firms. The Chancellor of the Exchequer says he hopes they will go to the banks because of the lack of cash flow: go to the banks, with high interest rates, or go to the Secretary of State for Industry. Banks, or Benn, it is not a particularly good choice for firms damaged by the Chancellor's promises.

Dividend restraint has been eased: well and good. But do not let the Labour Party ever again condemn the Conservative Party for failing to deal with the question of dividend restraint at a time of income and price restraint, for it is they themselves who have eased it, and rightly, I believe. I hope the trade unions will recognise this, because we took the action on dividends very largely in response to the view—which I believe has a certain validity—that if there is income restraint and firms are receiving very considerable increases in their resources it is wrong that dividends should be unrestrained. In these circumstances, however, I have no doubt the Chancellor of the Exchequer is right to ease it. But if firms have not got the cash flow, how are they to pay the increased dividends he has permitted? If they do pay them in an attempt to keep up their share values, which is understandable in the present state of the market, that money will come out of investment, and that will prevent their going into the investment that we want and will create long-term damage. So price control also has to be reviewed constantly to see the effects of squeezing the economy and the effect on long-term investment and the damage it may do to industry.

There is also among industry now the fear of the wage explosion and how investment can be made worth while while this fear exists. There is the threat of nationalisation hanging over whole industries and detailed Government supervision over individual firms. There is therefore, this present blight over the whole of industry. Why should major industries invest only to find that they are to be taken over if a Labour Government have the opportunity to do so?

Then there is the Government's policy in Europe, which has created uncertainty about staying in the Community and, therefore, about the wisdom of creating further markets there.

All these factors are damaging to the future of British industry, to investment, to production and to jobs.

To sum up, these are the three major aspects of the immense problem which Britain faces today: the real scale and nature of the balance of payments deficit; the real danger of renewed wage inflation on a high scale; the real damage caused to production and industry by the present Government's general policy.

To deal with these requires far more than the Chancellor of the Exchequer or the Government spokesmen have given us in this debate. It needs the real problems to be spelt out to the British people so that they can respond. It needs a far more effective working relationship between the Government and everyone in industry. It means that the Government have to use all the resources of Government, budgetary policy, monetary policy, incomes and prices policy, to obtain a balance in the economy which will deal with inflation. It needs the Government to abandon their plans for nationalisation and control and so remove the present blight over industry. It needs the Government to secure trade and investment from the oil producers and to use their diplomacy accordingly. It requires the Government to abandon any idea of getting out of the EEC, especially when we are more likely to need friends in future, not less likely. It needs the Government to work for their objectives inside the Community and to drop the threat of going outside it. Of course, to work for their objectives inside is perfectly justifiable, and if they declared they would do that they would do an immense amount to remove the uncertainty from industry. In fact, it requires a national effort of a kind never before asked of the British people in time of peace. That is what is required today.

It is clear from this debate that the present minority Labour Government have neither the will not even the desire to lead such a national effort. In that case they had better go.

4.36 p.m.

The Prime Minister (Mr. Harold Wilson)

I beg to move to leave out from "House" to the end of the Question and add instead thereof: welcomes the statement of the Chancellor of the Exchequer on 22nd July in relation to the extension of rate relief, the reduction in value added tax, the extension of food subsidies, the doubling of regional employment premium, and the easing of dividend restraint". The motion in the name of the right hon. Member for Sidcup (Mr. Heath) and my amendment present the House with a question on which tonight we must vote. Does the House, does the Conservative Opposition, does the Liberal Opposition, do other honourable Members support the Chancellor's proposals or reject them? If they do not support them, which of his proposals do they reject?

Presumably the Opposition do not reject the proposals to bring immediate relief to domestic ratepayers, or the improvement in the needs allowance for rate and rent rebates. In so far as I could make anything of the speech by the Shadow Chancellor yesterday, he seemed to welcome these. But what he and his party cannot deny, however much they may argue—and it is a perfectly fair argument—about the distribution of the rate burden between town and country and the rate support grant, is that the total rate levy of the country until my right honourable Friend's proposals on Monday was exactly under this Government as they left it when they went out of office. It was their rate support grant, their total rate burden, their argument about redistribution: and now this Government have acted. The right hon. Member for Carshalton (Mr. Carr) in his broadcast last night referred to "this year's monstrous increase in rates". In total it was their increase. It was not changed until Monday of this week.

Apparently it is not the reduction of VAT which Conservative Members reject. In fact, our VAT standard rate is now the lowest in Europe and has a narrower coverage than most others. Certainly they have made it clear that they cannot oppose the increase in permitted dividend payments to a margin two and a half times what they imposed. So it is only the Regional Employment Premium—

Mrs. Elaine Kellett-Bowman (Lancaster)

Hear, hear.

The Prime Minister

I do not need that support from la tricoteuse; I can have it from the executioners.

It seems, therefore, that they would have preferred to cut it out altogether rather than nourish it as we are doing.

Not only the Opposition motion and the theme of the Chancellor's statement but the whole of this debate this week, as the right hon. Gentleman fairly said at the opening of his speech, centre on the basic economic problems Britain is facing. What I think the Opposition have really failed to say to the country is that we in this country face these problems in common with almost every other advanced non-oil country in the world. Equally, what they have certainly wished to conceal, and have concealed today, is that every problem Britain faces today it faced before they went out of office. Grave and serious though the country's problems are, as we have made clear throughout, before the election, during the election and since the election, we have a policy for dealing with those problems. This debate again confirms, and the last 50 minutes of the right hon. Gentleman's speech confirmed, that they have no policy for dealing with these grave and serious problems, unless perhaps it is a return to the three-day working week.

I start, as did the right hon. Gentleman, with the balance of payments. The overseas visible trade deficit, leaving aside oil, was £240 million per month in the last quarter of 1973. It has now fallen progressively to £144 million a month in the second quarter of 1974—a 40 per cent. reduction in six months. That is nearly £100 million a month less now than at the end of last year—an improvement which is worth nearly £1,200 million per year on our balance of payments.

The right hon. Gentleman took credit for this increase by reference to the floating of the pound. He will have noted that the pound has floated upward since the Government came into office.

There has been some reference to overseas borrowing. The right hon. Gentleman made a very important point here. Earlier in the debate we had reference to the borrowing from Iran. To be fair to them, despite the first amused reaction about the Iranian borrowing from the Leader of the Opposition and many other hon. Members, they have now stopped making much of this in the debate. That is to their credit.

Certainly they have not gone out of their way to associate themselves with the economic pronouncements of their most vehement supporter the Daily Express, whose headline yesterday was "The Shah Bales Out Healey."

It went on to say: To cover the cost of cutting VAT from 10 per cent. to 8 per cent.—over £500 million in a full year—he"— that is my right hon. Friend— is borrowing that amount from the Shah of Persia. No doubt right hon. and hon. Gentlemen opposite hope that this line of argument will reinvigorate their supporters in the country but they know—we had this from the right hon. Gentleman this afternoon—and the distinguished economists who produce the Daily Express equally know, that it plumbs a depth of economic illiteracy of which even I had not thought the Express to be capable.

Almost every advanced country is having to borrow to cover the oil deficit, which for the non-oil world as a whole has increased from $3,500 million in 1972 to $6,500 million last year and to about $60,000 million to $70,000 million this year. That is the measure of the problem for the non-oil-producing countries.

Without borrowing all that money the whole of the non-oil world would plunge into acute deflation and unemployment on a scale comparable with the early 1930s, which all of us in this House reject. The truth of the matter is that, given that the oil producers are sending more oil than we are able to pay for currently by exporting goods, the oil producers are lending by that very act and we are borrowing. This is inescapable for us and almost all other oil-importing countries.

Against this background the direct borrowing arrangement with the Iranians is merely a prudent way of avoiding overburdening the commercial banking system. As hon. Members know, there is a danger that the volume of funds being channelled from the oil producers through the commercial banks may need to rise faster than the capital base of these banks will allow. As the Chancellor said yesterday, the arrangements we have made with Iran are part of a precaution against this.

What neither right hon. Gentlemen nor their supporters in the Press will admit is that they were borrowing on a substantial scale last year—$2,600 million in 1973, on public sector account. Ours is on public sector account, too—public sector borrowing, local authorities, nationalised industries. But their borrowing was before the increase in oil prices, before the massive British and world oil deficit. They borrowed more last year than the Chancellor announced on Monday: and they did it to balance the record non-oil balance of payments deficit which occurred under them in place of the record balance of payments surplus we had handed over to them four years ago.

So the heading to the Express leading article yesterday, "Britain in Pawn", is a true account of Tory Britain in 1973. I do not recall such a headline when right hon. Gentlemen opposite were in office.

The right hon. Gentleman quoted estimates of borrowing from 1973 to 1978. The figures he quoted to the best of my memory are not new. They are grave figures, not serious ones. They were, as I recall, part of the currency of public comment and debate at the turn of the year as soon as the oil problem hit us on the scale described by the right hon. Gentleman. I remember seeing estimates at that time—I do not think they were official Government estimates, but certainly they were serious estimates—of a total of about $30,000 million between now and 1979–80. That is very close to the figure quoted by the right hon. Gentleman, although I agree with what he said about the effect of how far interest is carried as we go.

In the changed situation of oil deficits which the right hon. Gentleman has graphically illustrated again this afternoon, the Chancellor and I have made clear in speech after speech—and I am glad the right hon. Gentleman supported this—that we reject any attempt to solve this world problem on a national basis by physical restriction of imports or internal deflation to send the economy plunging downwards. If we and others were to follow either of those policies the only result would be a world sinking, plum- meting, into depression, as the right hon. Gentleman agreed this afternoon.

Mr. Peter Tapsell (Horncastle)

The right hon Gentleman says that he will not join any international movement to deflate. How does he account for the fact that a number of our leading industrial competitors are pursuing policies of deflation, and what is to happen to us if we alone continue to inflate?

The Prime Minister

We are not inflating. We have still to hear whether the Conservative Party thinks that the Chancellor did too much or too little. I entirely agree with the hon. Gentleman's warnings about the Germans and Americans. No one has said this more clearly than the Chancellor, both in direct talks with them and in public. The hon. Gentleman is perfectly right. We shall not help them or they us if we say we therefore have to deflate and cause unemployment. The whole world will be plunged into unemployment.

On the external side, my right hon. Friend has told the country what he is trying to achieve with other Finance Ministers to deal with the massive volume of petro-dollars so as to prevent the risk of their moving from country to country and endangering international stability and exchange rates.

We reject internal deflation and unemployment as the answer to this problem. It was against this background, as my right hon. Friend made clear on Monday, that he had to consider the best means for inducing a modest reflation of the economy—reflation as a means of dealing, with the threat, on the best forecasts available to him, of unemployment rising, not so much this year, as in 1975.

When the right hon. Gentleman complains about estimates I recall that Conservative Ministers of Labour repeatedly refused to give estimates of unemployment. My right hon. Friend was right to say what he did. What we have not got from the Opposition—not even from the Leader of the Opposition—is their appreciation of whether my right hon, Friend has done too much, or too little. or whether he has got it just right or, as one would judge from their speeches so far, whether they agree with the leading article of yesterday's Times headed, "Too Little Yet Too Much". That just about summarises the Opposition Front Bench speeches—at least, the more coherent parts of them. In the Opposition's search for a policy I commend the phrase to them. It would be a very good election slogan—" Too little yet too much." At least it would be better than the one which really lies behind their thinking—" The Conservatives will get you back to the three-day week."

Mr. Robert Adley (Christchurch and Lymington)

rose—

The Prime Minister

The lights are on even if the music is not playing. When the right hon. Gentleman spoke about—[Interruption.] Mr. Deputy Speaker, I do not mind taking the time of the House. If Conservative right hon. and hon. Members want to waste time in this way it will take time out of the debate. I do not mind.

Mr. Deputy Speaker (Mr. George Thomas)

When Mr. Speaker left the Chair he told me that the right hon. Gentleman the Leader of the Opposition had been heard in reasonable silence and that it was reasonable to expect that such conduct would continue.

The Prime Minister

The right hon. Gentleman referred to unemployment. Of course, he did not tell us that in March, when we came into office, there were 2 million people out of work. The right hon. Member for Carshalton said yesterday—I think that I quote him correctly: the underlying problem of the economy is the present rapid rise in prices". More accurately, that means the cost of living of British families. It is the cost of living which at all times provides the mainspring for wage demands and settlements, but now, with the introduction of threshold agreements, it has an even more direct and more immediate effect. That is why my right hon. Friend's proposals are so overwhelmingly relevant. The reduction of VAT, help for the ratepayer, rate and rent rebates and food subsidies are designed to act on the threshold problem and on the broader cost of living problem.

The Conservative Party in its forays into the country and even in this House, though rather more sotto voce, is engaged in a high pressure PR campaign to suggest that rising prices are the creation of this Labour Government just four and a half months in office.

I leave on one side the argument about the effect of the Budget on prices which the right hon. Gentleman still wants to conduct. My right hon. Friend has already answered that argument twice this week. Leaving aside, too, the effect of the cost of living on increased charges, rates, fares, prices of publicly-owned industries and services, on which the Opposition are singularly coy about engaging in battle, the basic fact is that most of the prices of goods in the shops this July were predetermined by what was happening before we took office. That is not the case, of course, in respect of fresh fruit and vegetables. But in the main, and particularly for manufactured goods and many others, it was the import price of seven or eight months ago which determined the wholesale price of a month or two ago and which will determine the price in the shops now and into the autumn.

The prices of materials and fuels purchased by industry last month showed the first fall for over two years. These will work through. The Institute of Purchasing and Supply in its survey for June also referred to this significant fall, but it said that increases already in the industrial pipeline are still sufficient to warrant more large price increases. That has nothing to do with wages. The Retail Price Index for June, the latest that we have, showed the second smallest increase this year. The Food Price Index for June, excluding seasonal foods, rose by 0.8 per cent.—the lowest this year. The Financial Times Grocery Index for July, which is a month more up to date than the RPI figures, shows the biggest decrease for two years. Even that index has not fully reflected the recent trends in meat prices.

Some of the indices reflect world-wide commodity prices and the collapse of the speculative boom in at least certain commodities. That was a boom which, I must again remind the House, was fed in part by the unrestrained credit expansion undertaken as an article of Selsdon faith by the previous Government which found its way into the commodity markets as well as into property.

However unacceptable these matters may be to Opposition hon. Members, they also reflect the effect of food subsidies and the work of my right hon. Friend the Secretary of State for Prices and Consumer Protection in her attack on retail food prices. In one sense, what my right hon. Friend is doing is not fully reflected in any index because she has directed her activities above all to those foods which loom largest in the household budgets of pensioners and the lowest income families with a wage earner at work.

It is not only the pensions increase introduced by this Government, which takes effect this week, which has helped pensioners but the action that We have taken on prices. Old-age pensioners spend over a third of their income on food, and the food subsidies that we have introduced mean that an elderly couple will save over £17 a year on what their food bills would otherwise have been. That is apart from the increased pensions. Without the subsidies, pensioners would be paying an extra 2p on a pint of milk, an extra 2p on a standard loaf of bread, an extra 5½p a lb. for butter and an extra 7p a lb. for cheese. My right hon. Friend has announced that these subsidies are now to be extended.

Then there is meat. Since 1947—since the time of Tom Williams—British farming has had the benefit of deficiency payments providing a square deal for the farmer and for the housewife. That system was scrapped in the terms—[Interruption.] It was supported by successive Governments until last year. It was scrapped following the terms that were negotiated with the Common Market, which we condemned at the time. More recently, my right hon. Friend the Minister of Agriculture, Fisheries and Food made it clear that the permanent intervention scheme had broken down and that a new kind of system was necessary to solve the beef problem. The right hon. Gentleman the Leader of the Opposition attacked my right hon. Friend. He said that for the first time since 1947 there was no guarantee, in that the EEC guarantee no longer applied. However, what my right hon. Friend has achieved is to restore direct support for the British farmer and to do this by a change in the Community system itself which it will be open to the other members of the Community to take advantage of if they wish. My right hon. Friend has restored a situation which provides justice for the housewife and the farmer. Indeed, he has gone farther. He has convinced the EEC that the Heath-Robinson intervention and storage scheme of which the right hon. Gentleman boasted is as useless to Europe as it is to Britain. He has said that it needs changing and that the best solutions are likely to be found on the basis of his proposals.

Mr. James Prior (Lowestoft)

Apart from the fact that intervention always used to be the policy of the Labour Party and Labour Governments, does the right hon. Gentleman accept that in the six years of Labour Government agriculture production rose by 1 per cent. a year and that in the three and a half years of Conservative Government it went up by 16 per cent. a year? Would it not be reasonable if the right hon. Gentleman paid credit for the fact that what his Government and the public are now enjoying—namely, more British food than ever before—comes as a result of Conservative Government policy?

The Prime Minister

I accept that the right hon. Gentleman is entitled to criticise particular price settlements in agriculture, but what he did was to destroy the system by which price reviews could be held. He handed over to Europe and chose to rely not on deficiency payments but on interventions—namely, taking meat off the market and putting it into store so that people cannot afford to buy it. That is what Conservative hon. Members rejoiced in. This Government have changed that system, and that is why we are getting cheaper beef in the shops. If the right hon. Gentleman had remained in office this change would not have been made.

Conservative policies led to the beef mountain. [Interruption.] Of course, Conservative hon. Members accepted the terms of the intervention system. We are now seeing a fall in the price of beef. One large chain announced a week or two ago a fall of 3s. a lb. That could not have happened if the right hon. Gentleman the Leader of the Opposition had remained Prime Minister. I may have misunderstood what he said, but he seemed to suggest this afternoon—not only in relation to beef but to other things—that price controls should be contained. I thought that he suggested that in general price controls should be eased. Of course, that would mean higher prices, but that is the impression that my right hon. and hon. Friends obtained. The family budget is not measured by food alone—

Mr. Heath

I said that price controls should be reviewed. The Chancellor of the Exchequer told us yesterday that his right hon. Friend is undertaking a review.

The Prime Minister

The right hon. Gentleman said that they should be reviewed, but he seemed to be making a point this afternoon that they are too little or too much, or too high or too low. Does he want them to go up or down? If he was agreeing with us, it did not sound much like it at the time.

The family budget is not measured by food alone. For example, we must consider rents. We imposed a total rent freeze for tenants of local authorities, new towns and private landlords within four days of taking office. The previous Government had deliberately forced up rents. We protected families who were buying their houses on a mortgage at a time when it appeared inevitable that building society rates would rise to 13 per cent. They would have risen to 13 per cent. if the Conservative Government had remained in power, because they did not have anyone corresponding to my right hon. Friend the Chancellor of the Duchy of Lancaster.

We also acted to stimulate house building. Fewer houses were built last year than in any year since 1959. In the public sector, the figures for completions in 1973 were the lowest since 1947, when Britain was just starting to get house building going after the war, in face of all the shortages of material and labour.

Last year, the number of houses started in the public sector was the lowest of any year since the war. When we came to office—the Opposition will have to defend this record in the country as well as in the House—starts by private builders were running at an annual rate of 120,000, which would have given the lowest figure for nearly 20 years.

In response to this situation, my right hon. Friend's Budget allocated £350 million for expanding the local authority housing programmes. Public sector hous- ing has been propping up the total housing programme, and in the first three months of the present Government local authority and new town house building starts were 25 per cent. up on the previous three months.

The right hon. Gentleman the Leader of the Opposition thus presided over the biggest slump in house building not just since the 1930s but since the 1920s. I hope that he is proud of it.

Mr. William Molloy (Ealing, North)

Does my right hon. Friend realise that behind these housing figures lies the great tragedy of the homeless of London, where Labour-controlled local authorities have been trying to resolve it? The actions of the Conservative Government and their allies in local government exacerbated the situation and revealed a complete lack of decency and humanity.

The Prime Minister

That was the point I was trying to make. Of course, that situation exists not only in London. The Conservative Party should be ashamed of its housing record.

I turn now to the question of nationalised industry prices. We were left to pick up the Conservative Government's bill. In December last year, the House was told that the deficit in the nationalised industries during 1974–75 would be about £500 million. That turned out not to be the case. By the beginning of March, when we took office—only 10 weeks later—the picture was very different. It was not around £500 million; it was around £1,400 million.

The Conservative Government had said that there must be no increases in the subsidies and that the nationalised industries had to pay their way, year by year. The Leader of the Opposition tells us now—we must accept it—that he was not deceiving the electorate, that no one ever told him that the figure had gone up to £1,400 million. He says that up to the very night that he left office he was not told that the figure was £1,400 million.

I have to ask myself how it was that when we took office we were told that the figure was £1,400 million. Of course I accept the right hon. Gentleman's good faith. If he says that he was not told, then he was not told. Apparently he was not told before polling day that the figure was £1,400 million, and I accept that.

Therefore, since the figure had got up to £1,400 million by 4th or 5th March, it must all have happened—£900 million of it—in that last weekend when the right hon. Gentleman was flirting with the Liberals. If that is so, that was the costliest dirty weekend in history.

I have referred to action taken to deal with food prices, rents and other essentials in the family budget as being directly relevant not only to wage claims but to threshold payments. The right hon. Gentleman was fair in what he said about threshold payments. They affect the general level of prices throughout the economy; they affect the public sector very directly, not least because so many public sector activities are labour-intensive; they affect transport and, therefore, fares and freight charges; they affect local government, from sewerage to street lighting, and, therefore, the rating system; they affect everything bought or paid for by the Government, from defence to civil servants' salaries.

My right hon. Friend the Chancellor of the Exchequer, in framing his proposals, emphasised the importance of the unemployment threat. This threat had developed long before the election. It developed when, last autumn, the frenetic panic boom set in hand by the former Chancellor of the Exchequer petered out. The boom had petered out by last autumn. There was no boom after that—and that was before stage 3 and before the miners' dispute. The right hon. Gentleman should not look so surprised. I repeat that there was no increase in production after last autumn. We drew his attention to the fact in successive debates at the time.

My right hon. Friend's reflation proposals are directly designed to offset the forecast increase in unemployment figures, which we inherited. They are an incentive to investment, and whatever may have been said in the last two days, the dividend proposals should help to produce a more orderly stock market—a point urged upon us by the Opposition.

The CBI, at the National Economic Development Council and elsewhere, has stressed the undesirability of industry being forced to finance investment on short-term borrowing. But for many months now, under both Governments, the state of the market has made it diffi- cult for business firms to raise equity capital.

To a considerable extent, the debate has centred on the need for industrial development and investment. Our failure to invest enough over so many years under successive Governments has affected our competitive position in the world. It is a fact that under the Conservative Government investment languished. They had sought, in the terms they negotiated for entry into the Common Market, a new incentive for investment. Once the terms of entry were negotiated in 1971, they believed that investment would take off into the stratosphere. The Leader of the Opposition will remember his moving and ringing speech at Guildhall in November 1971, when he said: Now is the time to commission new factory buildings, to order new plant and equipment…The prospect of free access to the European market, combined with a revival of demand at home, cries out for a major programme of investment in industrial expansion and modernisation…. Let industry now take the long-term view of our future in Europe. We now have the chance to bring about the regeneration and re-equipping of British industry. We must make ourselves the most modern country in the Community. What has been the result after that speech? Investment in manufacturing industry—in plant, machinery, vehicles and building—which was £491 million in the third quarter of 1971, just before the right hon. Gentleman's speech at Guildhall, took off' on a downward path to £448 million by the second quarter of last year. These figures are at constant 1970 prices. Even the £525 million to which investment rose by the first quarter of this year was less, in total, than the figures recorded in the second quarter of 1970, under the last Labour Government. [Interruption.] The figures of investment—[Interruption.]—were lower.

Mr. Deputy Speaker

Order. The hon. Member for Louth (Mr. Archer) should restrain his exuberance.

The Prime Minister

I have given the facts. The first essential to appreciating this important problem is the facts, and the facts have been concealed from the British people in every speech made by the Opposition.

The figures I have given were of investment in this country. They fell. But I have to admit, and readily acknowledge, that there was a massive response to the European negotiations in terms of investment, not in this country but from this country outward towards Europe, mainly in property. The burnt fingers of some of those responsible are now clawing back part of the capital, where it has not been actually written off.

The Government's economic strategy and, within that context, the measures which we are debating today, are also related to investment and employment in particular regions. My right hon. Friend has analysed the problems area by area and has drawn attention to what we must all agree is a difficult problem to assess and deal with—the mixed situation of labour shortage and labour surplus, even within particular regions. We have doubled the regional employment premium. Our predecessors decided to end the REP. They gave notice of that decision. They put nothing in its place. For months on end—once our predecessors had given notice—industrialists contemplating expansion in development areas had no incentive on which they could count.

My right hon. Friend yesterday challenged the Shadow Chancellor and asked what the Opposition would have put in the place of the REP. The Shadow Chancellor complained about the unfairness of such a question and finally admitted that he was not briefed on the subject. It would appear that the Leader of the Opposition has not been briefed on it today. The previous Government never put forward an alternative policy to fill the vacuum. They have not told us today what their policy would be. I believe that they had something in mind, but they have not explained it in detail. It was an utter dependence on an EEC regional policy which would bail them out, and in the event that policy was not forthcoming.

We are not prepared to play fast and loose with the livelihood of hundreds of thousands of families in the areas most requiring help. Our record over the years from 1945 onwards has been far better than anything done by the Conservative Party and far better than that of most countries in Europe. The Conservatives would end the REP and put nothing in its place. We have decided to double it, and by so doing we shall not only help the regions but help company liquidity of some of the most progressive firms in Britain, and at the same time give useful assistance to our exports. Before this debate ends I hope that right hon. Gentlemen opposite say what their policy for the regions would be.

This debate has shown a certain reticence on the part of the Opposition on the subject of statutory wages policy and industrial relations. They still hanker after a statutory wages policy, but have not found a way to formulate it. All the problems to which in Question Time and in debate, hon. Members opposite draw attention—such as those relating to wage claims and settlements—are problems of a transition from a bureaucratic wage control system which had broken down to a system based on a national consensus. The main achievement of their policy was the three-day working week, unlighted streets, unheated shops and offices. They must not think that the British people have forgotten this. Nor have they forgotten the speed with which the Government ended the three-day working week. Right hon. Gentlemen must not think that when the election comes these things will be forgotten—

Mr. David Crouch (Canterbury)

On the question of wage policy, the right hon. Gentleman has not made clear to the House where he and the Government stand with regard to thresholds. He has spoken about thresholds, but he has not made his position clear. Does he believe that thresholds are a cause of inflation, or does he agree with me that they merely transmit the effect of inflation in an even and orderly manner?

The Prime Minister

My right hon. Friend dealt with this yesterday, but I can tell the hon. Gentleman that those of us on both sides of the House who pressed for threshold agreements did not calculate the effect which they have had at this time, and the fact that they are moving in the way they are, threatening prices. But it would be difficult, when 8 million or more people have accepted threshold agreements, for any Government to suggest, whether by a statutory or a consensus policy, that thresholds must now go. What we have said and hon. Gentlemen opposite have accepted, and what the TUC has said, is that if a person is safeguarded against last month's price increases by a threshold agreement, he must not ask for an allowance for this again in his next claim. He must not say that because prices have gone up by X amount last year he must have a wage claim of X amount, if there is a protection in a threshold.

The arrangement is working out unsatisfactorily, we all agree, but it would be unrealistic to suggest that it has to disappear because of the way it is working out.

I was referring earlier to what has not been forgotten. The previous Government's ideological commitment to confrontation in industry will not be forgotten. I remind the House that more than 50 million man days were lost in three and a half year, compared with less than half of that in nearly six years of the Labour Government. There were more man days lost in a single year than we lost in nearly six years.

This week sees the end of the National Industrial Relations Court. We are told it sees the end of a dream that for so long excited the mind of the Leader of the Opposition. He now tells us that so far as industrial legislation of this kind is concerned, he is trying to give it up.

In the last election the then Government tried to confine the issues to a single bogus question. But elections are not only about programmes, and I warn the right hon. Gentleman that still less will they be about the policy fantasies he is trying to erect in place of the disastrous policies which only four months ago he proclaimed to be the only road ahead.

Elections are also about fulfilment of pledges. It would be unkind to remind the right hon. Gentleman of his 1970 pledges. He is only too well aware of his almost total default. But in the month immediately before the election I set out a check list—for checking by the country two or three years from now—which we were pledged to fulfil. Let me remind him, as in due course we shall remind the country, that here is a Government who fulfil their pledges, and are prepared to be judged on their record not after three and a half years, but after only a few months.

In those months, as we pledged, we ended the coal-mining dispute and the three-day working week; we introduced a rents freeze and we raised pensions. We are, as we pledged, restoring sensible industrial relations by repealing the Industrial Relations Act. We have kept the costs of a mortgage down and, as we pledged, we have introduced food subsidies. We have started the process of renegotiation in Europe and set out the terms. We are working on our proposals for taking land for development into community ownership and on our plans for industry. We have announced plans for investment in the coal industry and plans for nuclear reactor investment. We have announced proposals for North Sea oil and gas, as we pledged. The party opposite, on some major questions, particularly North Sea gas and oil, and nuclear reactor investment, had dithered for months and on others for years. We have taken decisions—the right decisions—on these matters, within four months of coming to office.

Tonight we shall vote on the Government's record and on the Conservatives' policies whatever they may be—they have not much time in the debate to tell us—and, specifically, on the Opposition motion and the amendment which I have moved.

The Conservatives have to decide their vote on our amendment. After all their thundering in the country, their much-trumpeted three-line Whip, can they suffer in silence the passage of our amendment? The Liberal Party have to decide too. After the demise of their grand coalition, we shall see tonight whether even the petty coalition can survive.

If the Opposition tonight vote against our amendment—and if they do so they must be prepared to vote twice against it—they will proclaim to the country as their election war-cry the rejection of help for the ratepayer; opposition to the reduction in VAT; hostility to the easement of dividend restraint and, even, the increase in the needs allowances and a rejection of the doubling of the regional employment premium.

That is the challenge, they face tonight in the Division Lobby, if they get there.

The country will await with eager interest to see how they respond to that challenge, and the manner in which they respond will be proclaimed throughout the country, when the decision we take tonight is put for the ultimate democratic choice of the British people.

5.20 p.m.

Mr. John Pardoe (Cornwall, North)

I have news for the Prime Minister. The election will not be about the policies of the Conservative Opposition or the policies of the Labour Government. It will be about us—the Liberals. We have had many injunctions in this debate to tell the truth to the nation, and that is what I shall seek to do.

The truth is that we face the worst economic crisis since the war. Prices and wages are likely to rise at an annual rate of 20 per cent. to 25 per cent. over the next six months. The balance of payments deficit this year is likely to be more than £4,000 million and it is still rising. In the first half of next year it will be at an annual rate of more than £3,500 million. The servicing charge on the balance of payments deficit for this year alone will be more than £400 million.

Because of increased import prices and the downward float of the pound we have to export one-third as much again as we did in 1970 to buy the same volume of imports. Our share of world trade—I do not blame the Government for this because it has happened over a long period—has fallen from 15.3 per cent. in 1963 to 9.5 per cent. in 1973. As if all that were not enough, we face the prospect of severe recession, with unemployment rising to at least 3½ per cent. by mid-1975. Company liquidity is now desperately short, and there will be mass layoffs in the near future.

The recession will be mainly and directly caused by the increase in oil prices. The cost of oil has quadrupled since the Israeli war. In 1972 the average free-on-board cost of imported oil was £6.50 per ton, in 1973 it was £8.30 per ton, and in April and May this year it was £31 per ton. These price increases are likely to add £2,300 million to our imports bill in 1974. This increase in oil prices has had a massively deflationary effect on our economy. This year it has left a hole of £2,000 million in the economy which, if it is not filled, will lead to a slump of 1929 proportions.

I presume that it was to fill the hole and to steer us clear of recession that the Chancellor of the Exchequer introduced his mini-Budget. If that was the intention, the Chancellor's measures are puny by comparison with the task. They do not begin to measure up to the task. We must conclude, therefore, that the Labour Government, faced with the worst economic crisis since the war, have settled yet again for mass employment. I remind the Prime Minister of the phrase he used when he was Prime Minister in the 1964–70 Labour Government when he referred with euphoric timing to the "shake-out of labour". That was the first time since the 1930s that any British Prime Minister had espoused unemployment as a deliberate instrument of Government economic policy. Now a Labour Government have done it again.

I welcome the rates relief. The Secretary of State for the Environment having battered the ratepayers over the head with a shovel only a few weeks ago, it is hardly surprising that the ratepayers welcome the Chancellor's nice new rôle as Florence Nightingale with a bottle of smelling salts. I welcome the doubling of the regional employment premium. I have always advocated that if it is to be effective it should keep up with average wages.

These measures, however, will not solve our basic economic problems. The Chancellor will claim that he had no alternative. As he is not allowed by the terms of his social contract with the unions to take direct action to curb the excessive rise in personal incomes he cannot reflate the economy as much as the oil deficit requires. To do so in the absence of income restraint would be to stoke the fires of inflation with a vengeance. When the social contract has gone the way of all quack remedies and lies dead and buried history will inscribe an epitaph on its tomb: "Here lies the social contract that lived on inflation and died of unemployment." That will undoubtedly come true.

It is with inflation that I wish to deal today. There have been many warnings in the debate yesterday and today about the effects of inflation and its galloping course, but we have been short of remedies. We have not had many remedies from the Leader of the Opposition, and we did not get many more from the Prime Minister. I intend to venture on somewhat dangerous ground by proposing, with humility, remedies.

In his mini-Budget Statement on Monday the Chancellor said: The first and main objective of the proposals I shall now describe is to attack inflation at its source."—[OFFICIAL REPORT, 22nd July 1974; Vol. 877, c. 1048.] That is a splendid aim with which we would certainly agree, but in the context of that noble intent the Chancellor's proposals were frivolous and trivial. So inadequate are they that one must question the Government's seriousness of purpose in tackling inflation. The Chancellor has not even begun to attack inflation at its source. If he has attacked it anywhere, he has attacked it at its index. The retail price index is, no doubt, an excellent index, but it is not the source of inflation. The Government play the retail price index rather like Nero played the fiddle.

In my view and that of my colleagues, inflation is the greatest danger of the age, not just to the economy but to our savings and our exports and to the peace, stability and tranquillity of the whole nation. As surely as war unites a nation, inflation divides it. That is why it must be conquered, and conquered soon.

If we wish to know the source and course of inflation we must first realise that modern inflation is a new phenomenon and the old, textbook, classical remedies will not be of much help. I suppose that it is commonly assumed by members of my generation that inflation is the natural order of things. That is hardly surprising. I was born 40 years ago in 1934. [HON. MEMBERS: "Why?"] I ask the same question of inflation. Modern inflation and I are of the same age. In 1933 the pound was worth more than it was in 1661. The Economist of 13th July put together various price series to show what had happened to prices since the restoration of the monarchy in 1660. Over the last 300 years periods of falling prices have been far more common than have periods of rising prices. [Interruption.] There was free wine flowing from the fountains and that may have cost a little money. Until 1933 prices were generally well below the 1661 level. Until 1933 inflation was generally caused by wars, and the longest period of inflation was between 1914 and 1918. Since then we have had 40 years of uninterrupted rising prices.

If we are seeking the source of inflation, which is what the Chancellor was doing on Monday, we have to ask ourselves what has happened in these 40 years that is so different. Why is it that the historical pattern of prices have been so dramatically changed? I do not believe that it can be because of the reckless and wanton expansion of the money supply by irresponsible Governments. If that were so, all Governments before this period of modern inflation must have been peculiarly careful and peculiarly responsible in their handling of the money supply. Yet our history books are not studded with references to Government action over the money supply. Indeed, I doubt whether control of the money supply featured very large, if at all, in the deliberations of those pre-1933 Governments.

The monetarists mistake the effect for the cause, and they blame Governments and central banks for entering into commitments which necessitate the expansion of the money supply. But we have to ask ourselves what makes Governments and central banks enter into these commitments. This brings us very near to the source of modern inflation.

When Keynes invented full employment, and once he had shown us how to handle unemployment, the maintenance of full employment became an essential part of the economic policies of all political parties. If Governments could avoid unemployment, as they can now by increasing public expenditure or by cutting taxes or both, obviously they could not afford to leave it out of their manifestoes. This process of cutting taxes or raising public revenue following through the commitment to full employment in turn caused the expansion in the money supply and underwrote the wage inflation. With the commitment to full employment the bargaining power of the trade unions increased enormously.

The source and cause of modern inflation is defined quite simply. It is the wage determination process in which the trade unions have been able to exercise their monopolistic wage bargaining powers in conditions of guaranteed full employment and where the unemployed are sustained by greatly improved social security benefits.

Some people will disagree with that analysis. Others will agree with it but draw different conclusions—

Mr. Malloy

Does not the hon. Gentleman agree that it is fair to say also that many awards made to skilled working men have been the result of arbitrations and inquiries and are not merely the result of their using their powers? Therefore, these matters are ones for independent judgment, and I am sure that the hon. Gentleman will accept that they are fair awards which have been conferred by independent tribunals.

Mr. Pardoe

Yes. I agree that much of wage bargaining has followed that course, and a great deal of it has been done through wages councils. No one can claim that the awards made by wages councils have been inflationary. They have tended towards the poverty line rather than the other way round.

Those who disagree with my analysis will say that the answer is to create unemployment through a contraction of the money supply. Liberals and, I hope, most right hon. and hon. Members, reject that solution. We reject the huge social and economic costs of unemployment. We reject the unnecessary contraction of investment. We do not believe that these costs of unemployment are possible politically since no Government who pursued them to the extent at which they would work could survive politically. For that reason there is very little point in discussing this so-called monetarist solution.

We believe that we must adopt the only conceivable alternative policy, which is to deal directly with the cause and source of modern inflation, which is the wage bargaining process. I am aware that others in the past have come to the same conclusion—the last Labour and Conservative Governments. Unfortunately, on all sides, after initial difficulties, the tendency is to hold up hands in despair.

The wage bargaining process is a sacred cow protected by powerful vested interests. The union leaders owe their positions, their jobs and their power to it. Nor can any one trade union opt out of it. It it did, it would be left behind by the others.

What is the sum total of its success? Collective wage bargaining, for all its apparent economic success, has been one of the most colossally wasteful failures of our time. The records of the past 10 years speaks for itself. From 1964 to 1974 average male earnings rose from £19.36 to £46.92, an increase of £27.56 or 142 per cent. It looks marvellous; but let us look a little deeper.

After deducting income tax, adding social security benefits such as family allowances and taking full account of the fall in the value of money, this same average worker's income, assuming that he is married and has two children, increased in those 10 years, with all the advantages of collective bargaining, from £16.64 in 1964 to £18.75 in 1974—an increase of £2.11 or 12.68 per cent. in 10 years. That is the sum total of the success. Was it for this that this average male earner paid his union dues?

The truth is that, after 10 years of collective wage bargaining, after all the union conferences, the strikes, the overtime bans and the other restrictive practices, the whole might of the British trade union movement has been able to increase the average British worker's real disposable income by 12.68 per cent. in 10 years. It is true that collective bargaining has been able to increase the share of wages in the national income, but it has done so only at the expense of investment, with the consequence that our national productivity has fallen far below the level at which it should have been.

We have made remarkably little progress in redistributing income and wealth. I believe that taxation, especially the tax credit scheme and the widespread distribution of shares to employees, would be a far more efficient way of redistributing income and wealth than this cumbersome, inefficient, free collective bargaining system. The present system of wage determination does not serve the interests of trade unionists nor those of any other member of the community, except a small minority for whom it is an end in itself.

If this is the case, what do we put in its place? I believe that monopoly power is always against the common interest and the general good. In all parts of this House we insist on the control and regulation and sometimes even the public ownership of monopoly where it exists in the product market. We must insist on control and regulation where monopoly exists in the labour market. Both sorts of monopolies must be brought under some form of Government control.

There has to be a prices and incomes policy. That is why reference to it is included in our amendment to the Opposition's motion. The Government cannot escape their responsibility for the overall increase in incomes. A prices and incomes policy is the pre-condition of a Keynesian full employment policy. If it is to be enforced there must be a method of enforcement. This is as true of a voluntary incomes policy as of a statutory policy.

The Secretary of State for Employment constantly tells us about the great advantages of his voluntary policy; but this is no more than a device for shifting responsibility for enforcement on to the TUC or on to individual union leaderships. They have no method of enforcement, any more than the Government have.

Obviously no one wants to use prison; the number of potential criminals equals the adult population. The violation of a prices and incomes policy should be not a criminal offence but a civil offence. It must be seen that the violator has broken a contract with the rest of the people and owes them damages for his anti-social behaviour—[Interruption.]—especially if he is a former Lord Mayor of London.

The right enforcement mechanism is a tax. The tax should be severe enough to act like a fine, and the Government's hope should be, as with a fine, not that they will draw revenue from it but that it will not be incurred at all.

We have proposed an anti-inflation tax. For prices, it would be a surcharge on the net post-tax profit of any enterprise which raised its prices by more than an average percentage set each year by the Government. For incomes, the tax would be a charge on the national insurance contributions of employees of firms or bargaining groups where the average labour cost per employee rose by more than the Government's norm.

There must be a separate policy for top salaries, which brings me to former Lord Mayors of London. I do not want to be held to any specific figure, but it could be, say, about £6,000 a year, or even lower, otherwise these people will be able to exact large increases under cover of the averages for their firms, and we have to guard against this specifically.

I admit immediately that the tax is not a panacea—[Interruption.]. It does not surprise me that any mention in this House of remedies for inflation causes amusement among Government supporters. The fact is that, after the Chancellor of the Exchequer announced on Monday that he proposed to tackle inflation at its source, he was greeted the following day with newspaper headlines making it clear that the Press believed that he was at his election games. Those newspaper headlines, in the context of the worst economic crisis since the war and the Chancellor's statement, have all the sniff and whiff of Weimar about them.

Mr. Norman Lamont (Kingston-upon-Thames)

The hon. Gentleman has made clear his criticism of the Government's voluntary incomes policy. I understand that the criticism that he used to make about the previous Government's statutory incomes policy was that it was too bureaucratic and brought about confrontation. Will he tell us how the system that he is proposing would have avoided confrontation in the event of the miners' claim?

Mr. Pardoe

I am coming—and I want to be honest about it—to that point.

Ultimately there is possibly no alternative. This House and the country will have to face the fact that at all stages of history different groups have sought to take power unto themselves. If we have to deal with these power forces, as Henry VII and others throughout history dealt with them, it will be too bad. The special point about the tax—I am not claiming it as a panacea—is that it will take the Government out of all detailed decisions, since it deals only in averages. It will not stop conflicts over prices in nationalised or private industries. It will not stop all conflicts on the incomes front. When the miners, the dockers, or the doctors strike, whether against a tax, a fine, a compulsory incomes norm, or whatever, the State, on behalf of the people, either fights them with all that it has or it gives in and changes whatever laws obstruct the unions' interests.

Taxes, however, have slightly more respect than other rules and laws. A mass refusal to pay the tax is slightly less likely than a mass violation of other laws, and it is slightly more likely that the public would support measures against the evaders of a tax which they saw to be fair and paid by all.

Lastly, the tax will not counter demand-pull inflation. It is directed against cost-push inflation. With all the scepticism that there is on both sides of the House about any possible remedies for inflation, the main danger to this country now is inflation. However it originates, it is perpetuated through cost-push and collective bargaining. It may, but not certainly, be cured by very sharp deflation, but at an unacceptable social cost that begins with impoverishment and ends with civil strife. It is not a good thing. Far from it. A tax is simply the best thing, and no one will do better.

All that remains to be seen now is whether the Government, with the Prime Minister's speech today and the Chancellor's statement earlier in the week, can get their election in before economic disaster strikes. The crash is coming. The Government may be very pleased with the illusions that they have negotiated, but the time is coming, sooner than most people think, when the world will no longer want to bail this nation out.

The ultimate delusion of a much deluded people is that North Sea oil will save us. It is a dangerous national myth. It will have little effect on the value of the goods and services produced in the average hour worked in British industry. That is what economic salvation is all about. Dr. Edmund Stillman of the Hudson Institute, when he referred to North Sea oil in its proper context, said that it was one of a long series of evasions of reality which Britain has adopted to avoid confronting harsh economic competition. The Chancellor's statement this week came into that category as well.

5.45 p.m.

Mr. David Marquand (Ashfield)

I suppose that if the famous coalition is formed the hon. Member for Cornwall, North (Mr. Pardoe) will be a possible Chancellor of the Exchequer. I do not think that we need to argue seriously any longer about that proposition. If I were a Member of the main Opposition party I would say, "With friends like that, who needs enemies?" I have rarely heard a better demonstration of what is wrong with the Liberal Party than the hon. Gentleman's speech, with its frivolity, its glibness, and its search for easy panaceas to problems to which most hon. Members recognise there are no easy answers or panaceas.

I think that we all agree that the debate is being conducted against the background of the most serious economic crisis that the Western world has faced, certainly since the end of the Second World War. I need not go over the nature of that crisis. Like the hon. Member for Cornwall, North, I believe that behind and underlying the economic crisis there is also a social crisis—a crisis of values and of social attitudes—and that it is an illusion to think that we can overcome the economic crisis unless we are aware of the nature of the social crisis as well.

I believe that the social crisis contains, at any rate, the following elements. First—this point was missed by the hon. Member for Cornwall, North and that is why his recipes were irrelevant—I believe that we are now living in a society where millions of working people no longer accept as legitimate the existing distribution of rewards in our society. This is true not only in Britain, but all over the Western world. The low-paid manual workers are no longer prepared to tolerate the existing distribution of rewards in society. They are now prepared and determined to use their industrial power to change that distribution.

Secondly, as a result of a generation of affluence throughout the Western world, we have societies which take it for granted that each member has a God-given right to improve his or her standard of living and personal consumption every year irrespective of what he or she may contribute to society.

Thirdly—this point of view is not accepted by many hon. Members in this House, but I believe it strongly—we are beginning to move into a situation where the growth of industrial production in the world as a whole is starting to press against the limits of what is physically possible.

Therefore, we have a fundamental contradiction, because we have a society which is based upon the proposition that standards of living can increase indefinitely and that every member of it assumes that his or her standard of living can increase indefinitely, and yet we live in a world in which standards of living cannot go on increasing indefinitely because of the limits of what is physically possible. I believe that this is the fundamental crisis lying behind the inflationary explosions that we have seen all over the world.

It is against that background that I want to look at the Chancellor's measures and his speech.

In my judgment, the measures are acceptable. The only serious criticism that could be advanced against the Chancellor's decision to reflate the economy now by something of this order is that it will intensify the rate of inflation. That criticism is based on the implicit assumption that the way to stop inflation is to break it by mass unemployment. That is not true as a matter of fact. The evidence certainly does not bear it out. In the recent past, when unemployment has been increasing inflation has been getting worse at the same time. It may be true that if we allowed a massive depression to occur and unemployment to continue for several years at a rate of 3 million or more, inflation might be reduced or stopped. But clearly this would be socially and politically intolerable, and would tear our whole society to pieces.

Therefore, it was right for the Chancellor to reject the solution of curing inflation by means of depression, so a degree of reflation at present is reasonable enough. Second, the Chancellor was right, given that he was going to reflate by a certain amount, to concentrate his measures on the retail price index. I disagree with the motion, which, if it means anything at all, means that he should have left value added tax where it was, should not have relieved the ratepayers, but should have concentrated in some unspecified way on improving investment. In the circumstances, that would have been a mistake, because the most urgent priority is clearly to stop the thresholds being triggered, so concentrating on the retail price index made sense.

However, although I can give that, I am afraid, not tremendously enthusiastic welcome to the Chancellor's measures, I am not happy about some of the assumptions which seemed to lie behind his speech yesterday and I am not happy about the approach which he has so far adopted to the social and psychological crisis which I believe to underlie the economic crisis which we now face.

In the first place, it is clear that the Chancellor is still living in what I believe to be the fantasy world of the 1950s and 1960s, when one could still think in terms of unlimited economic growth. This is not a criticism personally of the Chancellor; the same is true of the Leader of the Opposition and the Shadow Chancellor and, so far as I can see, of the Liberal Shadow Chancellor—of all the spokesmen of the great political parties and even of the small political parties. Most of them live in that exploded world. That is a mistake.

Let us analyse the Chancellor's thinking on imported inflation. He said that next year commodity prices are likely to fall. He also said that if it were not for the unfortunate fact that the rest of the industrialised world was busily deflating he would have reflated by more than he has. But if the rest of the industrialised world was not deflating, commodity prices would not be falling. Commodity prices exploded a few years ago because the entire industrialised world was caught and mesmerised by the will-o'-the-wisp of unlimited economic growth.

If the rest of the world all followed the good, sound, post-Keynsian, rational and sensible prescription in which all of us at the centre of British politics believe, and did what the Chancellor recommended, commodity prices would go up again and we should be caught in the same vicious spiral. The truth is that commodity prices went up because economic growth was pressing against the limits of what is feasible. We must face that fact. It is an ugly, unpleasant and nasty fact to have to face, but there is no point in trying to hide it.

Perhaps a more alarming fallacy can be detected in the Chancellor's approach to domestic inflation. The main aim of the measures which he announced on Monday is obviously to win the support of the trade union movement for the social contract. Unlike the hon. Member for Cornwall, North, I support the social contract. I can see no possible alternative way of dealing with inflation than through some form of social contract. The other methods have been tried and have failed. But the question still remains, what kind of social contract is it to be? What are the dimensions of the social contract? What is the amount to be distributed by means of it?

Up to now, the Government seem to have proceeded on the assumption, which is spelled out in the TUC's guidelines—the Chancellor seemed to be saying it as well—that post-tax living standards can be maintained. The harsh fact is that post-tax living standards in the near future cannot be maintained for the population as a whole.

The OECD forecast yesterday shows that the high probability is that over 1974 as a whole the national income of this country will be 4 per cent. less than the year before and that, in the first half of 1975, we may get a tiny degree of growth of 1¼ per cent. The only conceivable way in which real post-tax living standards can he maintained in that situation is by totally sacrificing everything that this party has ever said about public expenditure and the social wage. We cannot have it both ways. If we are to maintain the social services and public expenditure at a tolerable level, post-tax personal living standards cannot be maintained in the near future. That is a fact of simple arithmetic.

So the unpleasant truth is that we need a much more spartan kind of social contract, a much more redistributive social contract—if I dare use the word, a much more Socialist social contract—than we have yet had. We need one that is far more redistributive both at the top end and at the bottom end, and we need Ministers to spell out clearly to the people of this country that the broad mass of people in the middle cannot enjoy both maintained personal living standards and decent public services at the same time for the immediate period ahead.

Some of my hon. Friends say that that is a recipe for political suicide—that such an approach cannot possibly work. All I can say is that I believe that the people of this country at the time of the General Election in February felt that in their bones. There was a very deep sense among the voters that as a nation we faced a crisis and that sacrifices would be necessary by individuals as well as by the community as a whole. I am sorry to say that that mood has been dissipated. It is necessary to recreate it urgently and quickly if we are to have any hope at all of avoiding a far more serious crisis than we have yet seen.

5.58 p.m.

Mr. Reginald Maudling (Chipping Barnet)

Although I would not go along with everything said by the hon. Member for Ashfield (Mr. Marquand) in an interesting speech, there are many things he said with which I would strongly agree. The first is that what underlies our economic crisis, if it be a crisis, is a social crisis. I am sure that he is right to say that immense changes in social conditions and social factors have gone a long way to falsify many of the traditional economic doctrines. We must look again at all our analyses of economic problems and solutions for them against the background of a wholly changed social system and the shifting balance of power, and conscious power, within that social system.

Second, I am sure that the hon. Member was right to say that it is unrealistic to think in terms of maintaining, let alone increasing, post-tax living standards in a community in which total wealth will not expand. If we all have to pay twice as much for our petrol, we shall have less to spend on other things. It is a simple fact, which tends to be obscured in economic discussion, that if we are to reach the right conclusions—if total living standards cannot advance and if some sections of the community use their industrial muscle to advance their standards—we must accept that others must fall behind.

In those circumstances, if there is to be justice between one section of the community and another, surely the broad decision should be taken by the consensus of Parliament and not by the application of pure industrial muscle. On those two propositions I draw a conclusion that is possibly different from that of the hon. Gentleman, but his analysis is very sound.

I turn to the Chancellor's proposals. I start by saying that I have a good deal of sympathy for him in his difficulties. Apart from the personal fact that he will soon be joining the association of ex-Chancellors of the Exchequer, in which he will be very welcome for certain reasons, he obviously had to face difficulties, which all Chancellors have to face, but possibly of a rather more acute degree than we have known in the past. However, the reason why my sympathy is mitigated is that many of the difficulties arise from the mistakes that he and his colleagues have made, and from the speeches which many of his colleagues have made.

After all, Chancellors have to face, on the whole, three main problems. First, the conflict, always, between the needs of the domestic economy and the needs of the balance of payments. Ever since the days of Dr. Dalton we have heard Chancellors complaining about the difficulty of balancing the one with the other and the extremely inconvenient fact that a speech designed for the House of Commons is also read in Zurich—and, I suppose I should add, Teheran.

Second, there is a conflict between investment and consumption. We all know that one of the main reasons for the relative weakness of our economy in the last decades has been the inadequate ratio of investment. Yet we have found time and again that it is very difficult to stimulate investment without, in advance, stimulating consumption. If one does not stimulate consumption people will not invest to produce the goods which are to be subsequently consumed.

Third, there is the very difficult dilemma—never yet resolved—as to whether one fights inflation better by putting prices up or by bringing them down. The present Chancellor has tried both ways. He raised prices in the Budget, designed to reduce total demand. He reduces prices now, designed to reduce cost-push inflation. Which is the right solution? Neither is ever a panacea at any given time. I believe that many of our economic problems have stemmed from an inability to distinguish between cost-push inflation and demand-pull inflation. The relation between those two underlies much of the confusion of economic thought at present.

I certainly support the Chancellor in his desire to see that our resources are used to the full. Anyone looking at the burden upon this country, our balance of payments and overseas indebtedness, must recognise that for the next decade we must concentrate all the effort we can on seeing that our resources are fully used, because such a high proportion will have to be diverted to exports merely to pay for the imports that we have been enjoying. But I cannot, at the same time, accept the apparently overriding priority that the Chancellor gives to maintaining the full use of resources, because inflation is an equally important problem and, in my belief, a very urgent one.

In general, I think that the Chancellor has made the mistake of falling between two stools. He says that the economy is not closed and, therefore, it cannot act as if it were. That is true. Yet the addition to consumer demand that he has made—running to well over £500 million in a full year—must bear upon the balance of payments. I am surprised that we have had no figures showing the effect on imports of this additional demand. The Chancellor clearly could not have reached his decisions without having before him an estimate of the effect, indirect and direct, on the volume of imports of this additional purchasing power. He ought to give this figure to the House. If the House is to judge the effect of his measures, this is one of the most important factors that comes into the matter.

What worries me is that the Chancellor's measures will not be enough to have any real impact on unemployment, while, at the same time, they may have a deleterious effect on the balance of payments. The main item, in terms of volume, is the reduction in value added tax. It is always difficult to envisage an investment boom without an expansion of consumption in advance of it. But I am not sure whether this time it will work. The difficulties of the present Chancellor have been greatly enhanced, first by his own action in abstracting cash from industry in his Budget and, second, by the speeches of his right hon. and hon. Friends who have threatened industry with nationalisation. Therefore, quite naturally, the reluctance of business to invest will not be conquered by a mere increase in consuming power. The reluctance of business to invest will not be conquered unless there is a change of heart on the part of the Government about the problem of cash and confidence, to which my right hon. Friend the Member for Carshalton (Mr. Carr) referred yesterday.

The Prime Minister, in his speech this afternoon—inaugurating the General Election—said that there was something wrong with a headline, in The Times, "Too little, too much." Yet that is absolutely right. It is too little, too much. It is too little to get investment stimulated and too much, I think, for the balance of payments. That is exactly what has gone wrong, from that angle, with the Chancellor's calculations. The Chancellor said that his main objective was to fight inflation at its source. With that, as an objective, no one would disagree. Certainly he is right in saying that the conflicting advice coming from differing schools of economic pundits is very remarkable. It is divided between the monetarists who say that one should deflate more in order to control inflation, and those who say that one should expand in order to bring idle resources into employment.

I have never really seen at all the argument of the strict monetarist school. I do not see how one can deal with a cost inflation by restricting the money supply. This is very much reinforced by the present coincidence between a remarkable cut-back in the money supply and a record rate of inflation. I believe that if one tries to deal with a cost inflation by restricting the money supply, or, in the old-fashioned phrase, by credit squeeze—there is not much difference—the result is stagnation, no investment, cash-hungry companies giving way to wage demands, and many people out of jobs altogether, while those who can exercise industrial muscle continue to march ahead, pushing up the cost of living as they go. This solution is not the right solution to cost inflation.

It is true that demand inflation can be superimposed upon cost inflation and make it worse. That we should avoid. But, as long as there are idle resources in the economy, it should be possible to expand demand without aggravating cost inflation. I believe that the Chancellor would be justified in this expansion of demand, and possibly justified in more expansion of demand, if—but only if—he and his colleagues had a real grip on the problem of incomes. There is no sign at present that they have any such grip. Given that grip and a real control of cost inflation, demand could be expanded without danger to the balance of payments. But so long as this cost inflation persists the Government are not justified in taking measures of the kind that we see in the proposals that we are debating.

The main components of prices are surely materials, profits, and wages and salaries. The costs of raw materials are flattening out, as we know, and should, on the whole, be on a fairly reasonable curve for the rest of this year. Profits, although apparently inflated recently by inflation itself, are now probably on a downward curve. The one remaining inflationary factor in British costs is the level of wages and salaries. It is upon this above all that the Government should concentrate. If they can control this, there is much to which this country can look forward in the way of prosperity, with expansion, full employment and a healthy balance of payments.

No one has yet found the answer entirely to this problem—not by a long way. Anyone who had would still be Chancellor. But the present Government make a very fallacious assumption when they talk of a return to free collective bargaining. In modern conditions that is a nonsensical phrase. There can be no freedom of collective bargaining if one part to the bargaining holds a monopoly power to bring the economy of the country to a standstill. That is a fact that is wholly unreconcilable with the ideas of free collective bargaining, as the hon. Member for Cornwall, North (Mr. Pardoe) said a short while ago.

We have been able in legislation to deal with monopolies of capital, but no one has been able to deal with the problem of the monopoly of labour. We have heard a great deal about the social compact or social contract. I hope that the Government are successful with it. It seems to me very much akin to the attempts we made in the past to organise a voluntary incomes policy. If that could be done, if we could achieve by a voluntary means a policy to keep the general growth of incomes in line with what the economy can stand, it would be of great benefit to the nation. But until it can be shown that a voluntary social compact will work the abandonment of statutory powers over incomes would be a great mistake, and would be wholly irreconcilable with the expansion of the economy now being sought by the Chancellor.

People tell us that we tried statutory control, that it is bureaucratic and does not work, but it remains the best policy we have. No one has found a better and more effective policy, and until we do we must try, try and try again because that is all that stands between us and prosperity.

The sole remaining problem is of how to deal with the expansion of incomes, which, if it is allowed to continue at the rate foreshadowed in the Press, is bound to bring us the disaster which we could so easily avoid if we had the will.

6.12 p.m.

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

The right hon. Gentleman the Member for Chipping Barnett (Mr. Maudling) will know from his experience that in the formulation of Budget judgment and the presentation of Budget Statements all Chancellors have to pick their way through a welter of contradictory advice. It was implicit in what he said that he acknowledges that the present Chancellor has been subject to an even greater spread of advice. I cannot recall a time when professional economists have been more at variance both in their views as to the state of the economy and as to whether the principal objective of policy should be to deal with cost inflation or unemployment. In his speech the right hon. Gentleman seemed to appreciate that both were very real problems and that many right hon. and hon. Members were finding it very difficult to know just where the emphasis of policy should now lie.

Many economists who are not unfriendly to the Labour Party have strongly advised the Chancellor in recent weeks against adopting a reflationary package, and some of them have warned against precisely the measures the Chancellor brought forward on Monday because they see the control of inflation as the most important problem facing the country. Others, and I am among them, have feared that sagging demand at home and beggar-my-neighbour policies abroad threaten unemployment in 1975, and so I have come down on the side of reflation.

I am not unmindful of the varying difficulties this might yet present for both the exchange rate and the balance of payments. On the other hand, in spite of the gloomy report that has come to us today from OECD there is evidence that our exports are still competitive and that the terms of trade are still moving in our favour. It is possible, therefore, still to retain an optimistic view about our balance of payments.

Presumably the Chancellor has taken the same view, and, as I see it, has compromised. On the one hand he has taken steps to slow the rise in prices and on the other has boosted employment prospects in the development areas and eased the pressure on the companies. In so doing he has made use of VAT for the first time as an instrument of economic management, and I hope that that has not been lost on some of my hon. Friends who have been most critical of VAT since its inception. However, there are administrative difficulties, and I am sorry that these have not yet been fully acknowledged by the Chancellor or the Chief Secretary.

I want now to address myself to the Financial Secretary and to remind him that for everyone in business, but especially for the small businessman, the drop from 10 per cent. to 8 per cent., which may seem to the layman not a difficult adjustment, presents immense difficulties. The Financial Secretary will know that for many small traders operating the old scheme the adjustment, say, of their invoices to arrive at an input tax was of the order of one-eleventh. Now I am told they have to employ figures like eight one-hundred-and-eighths or two twenty-sevenths, and since my information is that many small traders have still not come to terms with VAT it is easy to imagine just what the change will mean for them in seeking further to come to grips with VAT and all the paper work that is involved. I hope the Customs and Excise will appreciate all this and not be as hard on them as the small traders fear.

One of my hon. Friends said today—and if this does not bring home the difficulties to the Chancellor nothing can—that the secretaries of working men's clubs would be deeply perplexed by this adjustment. That was a good illustration. I hope, therefore, that the Financial Secretary will bring this matter to the attention of the Chancellor and will drive the point home. It is regrettable that this adjustment should have to be made—although my hon. Friend will know my views on this. I have continued to support VAT while those around me who supported it originally were faltering. I welcome the opportunity this has given the Chancellor to demonstrate the usefulness of the tax. Nevertheless, I was surprised that there was no attempt by the Chancellor on Monday to recompense traders for this further administrative load. On the contrary, it seems to me that people in business will not enjoy the rates relief that is to be extended to other sectors. I would have thought that the least that could have happened would have been relief to be available to those who are now faced with this further load.

Mr. Terence Higgins (Worthing)

The House appreciates that the hon. Member is very expert in the whole question of small retailers and special schemes and so on. Does he feel that the time given for the adjustment is such that small retailers will be able to carry out calculations in time to make the adjustment in prices?

Mr. Duffy

I must be frank and say that I do not, though I recognise just what that implies.

A further feature of the Chancellor's measures was his deployment of REP, and I can understand the premium being welcomed by some of my hon. Friends, especially those from certain of the development areas. I remind the Financial Secretary, however, that there is a case now for its expansion. It is not even applicable to all the development areas, if by that we include the intermediate development areas, and my constituency is in such an intermediate area. In south Yorkshire there are employment problems every bit as grievous as those that REP is intended to combat in other development areas, notably in Scotland.

I hope that the Chancellor will give some thought to that. I thought that the right hon. Member for Carshalton (Mr. Carr) made this point very well on Monday. I doubt whether enough has been done for companies, for their liquidity and for their investment. The companies I consulted in my constituency yesterday about the Chancellor's state- ment were unanimous in their regret on this score. Therefore, although my right hon. Friend has made a useful compromise and has taken important steps towards a slowing down of the rise in prices and boosting employment prospects in development areas as well as easing the pressure on companies, I think a little more could have been done in respect of the second and third matters.

On the other hand, my right hon. Friend has taken an enormous risk, as was suggested by the right hon. Member for Chipping Barnet. Although I am for reflation, I recognise that my right hon. Friend has taken a tentative step in that direction on the brink of a pay explosion. If it is a calculated risk, as I am sure it is, doubtless my right hon. Friend appreciates that the threat of cost inflation in Britain is now the threat of wage inflation, given falling world prices. My right hon. Friend will also appreciate that a rise in cost inflation at present is visibly bringing with it demand deflation.

Here I should like to make an observation on what I thought was one of the right hon. Gentleman's central points. Rising cost inflation is visibly bringing with it demand deflation, yet demand reflation will almost certainly slow instead of intensifying cost inflation, but only over a certain range, although I recognise that even that is arguable. I believe that VAT was just the right instrument with which to try to do this.

If my right hon. Friend achieves his desired results—and the one we are first looking for is the one he stated on Monday, much less the more sophisticated result I was just probing—if he achieves just a slowing down of prices, as will be evident in the retail price index, will he get an appropriate response from the trade unions? That is the big question that exercises my mind.

I have handled the matter very delicately in the past few months, but the time has come when some Labour Members must say clearly to the trade unions that they denied power to what is now the major Opposition party in February, and they now have it in their gift to give us power this autumn, but only if they make an appropriate response, and there is little evidence yet that some trade unions are prepared to do so. Some of us who have not merely followed the reported speeches of trade union leaders this summer but have attended the gatherings and listened to those trade union leaders, and quizzed them afterwards about their speeches, have little ground for belief that that response will be forthcoming from all the trade unions.

I am thinking of big unions, but it is only fair to say that some of them are fully aware of all the complexities of the problem for the country and therefore this House, as well as for them and their members. It is not every trade union leader who thinks that his responsibility rests with his own membership, although it is not difficult to argue that a trade union leader can be fully responsible only to his own membership when he is fully conversant with this kind of problem and all its implications, and faces up to those implications. He cannot confine his responsibility to his own membership; he must be concerned with society's responsibilities, concerned for the general level of prices, all the consequences of his own wage claim. He cannot seal off the effects of the wage claim he is prosecuting for his members from his own membership in a few months' time.

I do not know of any other issue that the average elector will be interested in this autumn. I recall those thoughtful Labour voters in my constituency who asked me questions in February about what was then an emergent social contract. The discussion was inevitably hazy, and, therefore, I could not but give a hazy assurance. In any event, we were not then in the position we are now in. If I am asked the same kind of questions during the coming election, I shall be a good deal more straightforward. I shall say that the responsibility is with the trade unions, and in my area that means certain well-known large unions, and the audiences I shall be addressing will be drawn from them to a large extent.

I repeat that the unions have it within their gift to give the Government power such as they do not now have, but only if the unions respond to the measures of my right hon. Friend the Chancellor. If they do not, although I am for reflation, I have no doubt that the right hon. Gentleman the Member for Chipping Barnet is correct in his fears that any Chancellor, any Government, will soon find that the demand refiationary measures that I have welcomed will be more than offset by the demand deflationary consequences of continued cost inflation as well as fiscal drag, and our economy will begin to slide into that deppening recession that my right hon. Gentleman said on Monday was now widely feared on the international scene.

6.27 p.m.

Mr. Michael Alison (Barkston Ash)

The hon. Member for Sheffield, Attercliffe (Mr. Duffy) indirectly touched upon the theme on which I want to concentrate in suggesting that demand inflation can in the end be deflationary. The factor I want to include to make the equation even clearer is that of monetary policy. My right hon. Friend the Member for Chipping Barnet (Mr. Maudling) touched on monetary policy, and disappointed me slightly in his diagnosis of it. I want to put on the record my conviction that the Chancellor of the Exchequer has fallen into the trap that many of his predecessors have fallen into in not giving sufficient weight to monetary policy.

The irony is that the very complacency with which at Question Time recently, and in his statement to the House on Monday, the Chancellor congratulated himself on keeping the rate of growth of money supply under control ".—[OFFICIAL REPORT, 22nd July 1974; Vol. 877, c. 1053.] seems to me to show his ignorance of the potency of this factor in relation to the others he has been handling. He seems to regard fiscal policy, as have many of his predecessors, as the Titan in the range of armoury he has to deploy in fighting inflation or controlling the economy, with the monetary factor as a sort of residual, a little minnow. I believe that the opposite is the truth, that fiscal policy in relation to monetary policy is the minnow and that monetary effects come out as the Titan on this scene.

The facts of the present monetary situation, which have had insufficient attention, certainly in what the Prime Minister said today and the Chancellor's statement on Monday, were summed up very neatly in The Times at the beginning of this week, when we learnt that The broadly defined money supply figure (M3) rose by only ¼ per cent. last month". That represents an annual growth rate of 2.6 per cent. The Times pointed out that that is much less than the expected growth of money national incomes this year. Even that fact alone must cause people to think what will happen in the economy if money national income is projected to grow at a certain rate and the supply of money, that which alone can requite the growth in money national incomes, is lagging behind it. Unless the velocity factor somehow accelerates—and velocity is generally held by the academic experts to be pretty invariable and not likely to accelerate—there is bound to be a stoppage. It will not be possible to bridge the two sides of the gap if money national income is projected to grow and money supply to requite it does not follow.

The implications of this imbalance between the supply of money and the rate of growth of at least cost inflation are terrifying. I use the word deliberately, because "terrifying" was the word used to the Select Committee on Expenditure quite recently by a widely acknowledged academic expert in this field. He said it was "terrifying", above all for its implications for employment and the use of real resources in the economy.

The acid question is whether the Chancellor is either ignorant of or simply has not at all faced up to the question of how much contraction is now implicit in the economic situation we are facing in this country, and how much unemployment is looming before us. In his statement on Monday the Chancellor said his measures were designed to maintain full employment. The Prime Minister was a little more perceptive and circumspect in the words he used about employment and unemployment in his speech on 30th January to the international Socialist gathering.

The Prime Minister said it was the policy of the British Government to avoid policies which would produce acute inflation or acute unemployment. He chooses his words carefully, and I believe he suspects that a large dose of unemployment is coming along. The whole question is whether it will be just simply unemployment or acute unemployment. My own feeling is that precisely because the Government have ignored the potency of the monetary factor we shall have a terrifying increase under present circumstances in the level of unemployment.

Let me briefly put the monetarists' proposition in this context. Our advice in the Select Committee on Expenditure from an expert whom we invited to give evidence was that: It is the rate of monetary expansion relative to the expected rate of inflation that tells us whether policy is expansionary or contractionary. He gave us interesting figures to elaborate all the implications of this. He said that a 10 per cent. rate of monetary expansion when the rate of inflation has been 5 per cent. makes that rate of monetary growth expansionary. But the same rate of 10 per cent. monetary growth when past inflation rates have been 15 per cent. or more makes that rate of monetary expansion extremely contractionary and very likely to produce a large dose of unemployment.

Let us look at the actual situation that we are now faced with. Far from a 10 per cent. rate of monetary expansion being associated with a 15 per cent. rate of inflation—which our expert told us was itself a highly contractionary situation—we have the phenomenon of a rate of monetary expansion which has dropped. It fell from a rate of growth of nearly 30 per cent. a year in 1973 to a rate of 2 per cent. a year, which is the latest figure made available to us. This is a staggering drop in the rate of growth in this particular factor when associated with a rate of price inflation galloping away in exactly the opposite direction, possibly up to a level of 15, 20 or 25 per cent.

These two factors are moving in precisely opposite directions. A severe and sharp drop in the rate of growth of money and an intense acceleration in the rate of price inflation is bound to open a really sensational gap in the economy in terms of the possibility of mobilising and using real resources, human resources above all.

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

This is a very interesting technical discussion but is the hon. Gentleman implying that M3, which is usually regarded as nominal cash balance, should be interpretated in terms of real cash balances of the banks; in other words, that there should be some allowance for the inflationary factor?

Mr. Alison

I am using M3 simply as it is defined for us. Admittedly, it is nominal in terms of real demand. It is defined as cash in hand, together with balances in the banks held by the personal and company sector be it in current accounts, deposit accounts or in certificates of deposits. These are nominal sums in relation to the growth of real resources in the economy. Nevertheless, they are the factors which control the demand for new resources in the last analysis; and, whether one looks at M1 or M3, it is the movement of these quantities relative to the movement of price inflation which is such a crucial factor.

What is particularly illuminating is that we have heard this story before, so we know a little of what is implied by these monetary precedents. The story can be repeated and the House will have no difficulty in reminding itself about it. It happened in 1969; throughout the whole of that year and into the early part of 1970 there was a very sharp fall in the rate of monetary expansion. The cause and effect time lag in the monetary field is generally acknowledged by most people to be quite substantial. This was a point missed by my right hon. Friend the Member for Chipping Barnet in appraising the interrelationship between cost inflation and the money supply factor at the present time. By looking at and allowing for the time-lag effect, it was this very sharp monetary contraction in 1969 and the early part of 1970 which led to the severe unemployment problem which began to appear, given the time-lag, at the end of 1970 and led to the very large unemployment figure of about 1 million, if my memory serves me right, in the winter of 1971–72. Incidentally, it is interesting to note that that led on to the quite sharp fall in the rate of inflation later in 1972 from about 10 per cent. to 5 per cent.

What I am here discussing, however, is unemployment, and the point I wish to leave with the House is that the monetary contraction in 1969 and 1970 which produced over 1 million unemployed in 1971–72 was an appreciably smaller contraction than that now going on in the economy. This point has entirely failed to be taken by the Treasury Ministers. They are either being coy or are still labouring under the illusion that monetary factors are residuals and not the core of the matter, the crucial economical lever which regulates these things after a time-lag.

It may be that the Treasury apparatus of thought and appraisal is too geared to short-term measures and forecasts so that the significance of the monetary time-lag puts the whole phenomenon outside its terms of reference. I will not go so far as to say that is so but there is still a sense in which the Treasury considers this factor to be too predictable and long term to be taken seriously. But I believe unemployment on a large scale is implicit in the fact that the Government now allow money supply growth to go sharply downhill while allowing prices to go sharply uphill.

My feeling on the mini-Budget is that it is entirely irrelevant in this field. Fiddling with small sums of money in relation to what is implied by the money factor makes it entirely irrelevant. I would be happy to vote against the Government simply on the proposition that they do not know what is going on and have no clue of the real pressures lurking under the surface. Certainly one of the most important things they should do at the present time, paradoxically, is to ease up on the brakes on the rate of growth of money supply, at least to produce some upturn in the inevitable employment drop that I see looming before us in 1975.

6.40 p.m.

Mr. Stanley Newens (Harlow)

The speeches of many Conservatives, including the hon. Member for Barkston Ash (Mr. Alison), have focused on the problem of inflation. The hon. Gentleman gave a carefully argued lecture on money supply, but most of his hon. Friends referred to the wage explosion or the problem of collective bargaining, which they regard as the major cause of inflation. They have argued that my right hon. Friend the Chancellor of the Exchequer in his mini-Budget has done little, if anything, to help to deal with the problem.

The Opposition want it both ways. In the first place, the Conservative Opposition want to denounce the increase in demand, but at the same time they seek to claim credit for such things as relief to ratepayers, which is quite contradictory. On the other hand, we had the spectable of the Liberal Shadow Chancellor first blaming the trade unions for inflation and then belittling the limited increases in wage levels achieved by trade unions in the last decade or so.

In general, I support the steps taken by the Chancellor—the reduction in VAT, the relief to ratepayers, the increases in needs allowances, the provision for additional food subsidies and the changes in regional employment premium—because I believe those steps were necessary to offset a possible increase in unemployment and also to prevent wastage in capacity. However, I wish to express concern about the balance of payments situation, and most of my remarks will be addressed to that topic.

I am concerned about the enormous deficit we are now carrying which at present is being bridged to a large extent by loans—namely, through the Eurodollar market and in other ways. The Chancellor referred to the £2,500 million loan negotiated at the time of the Budget, a loan which has not yet been drawn upon, but he reported a further loan of $1,200 million from the Iranian Government. I am very unhappy about these loans and the need to depend on them, but I am particularly concerned about the unwritten terms which so often we hear little about until they begin to pinch. I believe that, unless other steps are taken, the existence of these loans will lead in the long run to pressure on Britain to restore solvency by deflating the economy. If the pressure grows, it will undo many of the things for which the Government are now able to claim credit.

Mr. Peter Hordern (Horsham and Crawley)

Many of my hon. Friends would agree with the hon. Gentleman on the risks which the country and the Government are running in making this borrowing. Some estimates are that we shall be in debt to the tune of a further £10,000 million by 1979 and that at that time we shall have an extra burden of interest of about £1,000 million. Does not the hon. Gentleman think that the situation will be made worse by Labour Government proposals to borrow a further £2,000 million to nationalise or to take some further share in the North Sea oil proposals?

Mr. Newens

The present situation demonstrates how important it is that there should be more public control over what is happening to our economy than we have at present. I intend to develop my argument on those lines, and I hope the hon. Gentleman, even though he may not agree with it, will at least follow it.

I emphasise that inflation is not caused just by wage pressure. In the last few years the high prices of primary products, expecially oil, have been responsible for much more inflation than has wage pressure. Commodity prices nearly trebled in the period 1972–73. In those circumstances we must be concerned about our record in imports and exports. The performance of much of our industry in that respect is very disappointing. If we look at metal manufacture, engineering, electrical goods, transport equipment, cars and vehicles we see that imports have grown much faster than have exports. Britain cannot continue to survive and preserve its present standards if we are increasingly to become net importers of primary products—food and manufactures. I welcome my right hon. Friend's measures to reflate, but I am concerned that steps should be taken to prevent them leading to more imports being sucked in and to a growing deficit.

It is vital to my right hon. Friend's policies that certain steps should be taken to help mitigate what has occurred as a result of our joining the EEC. In 1970 Britain exported about as much in manufactures to Germany as Germany exported to us and exported considerably more to the Netherlands and to France. By 1973 the trade surpluses with France and the Netherlands had disappeared and a massive deficit had appeared with Western Germany. We have to recognise that this is closely connected with the terms on which Britain entered the EEC. There was also a massive change in our import-export balances with Japan. Thus, in 1973 there was a total of £853 million by way of deficit with those four countries alone.

Again we must recognise on the deficit with the oil-producing countries that it is a physical impossibility for the United Kingdom, or any other highly developed country, to export enough to oil-producing countries to offset the cost of all the oil they are exporting to us. We need to take much more stringent action than has yet been proposed to deal with the non-oil trade deficit, which has grown considerably. We are placing great faith at present on the possibility of bridging, by means of loans, the gap between the present and the time when the North Sea oil becomes available. We must do something much more effective than merely rely upon that aspect. We must take direct measures to reduce our import burdens.

I strongly advocate that my right hon. Friend and his colleagues should look seriously at the necessity for introducing selective import controls, to reduce inflation on inessentials and at the same time endeavour to produce a planned programme of import substitution. I know that many Conservatives will not approve of what I am going to say, but we probably need State trading agencies with power to buy in bulk and on the most favourable terms so that we shall be able to reduce the tremendous potential burden on our import exports. If we were to introduce direct controls, it would bring in the need to restrict certain economic ventures in Britain. But I think we should face up to it. We should recognise that this is preferable to deflation. We should see to it that limitations on imports would result and in those people who are producing the most essential products in this country, particularly for export, having priority.

We must discourage oil consumption in this country by all means possible, by aiding and stimulating the use of all other forms of transport. I consider that many of the things that my hon. Friends have spoken about in connection with the railways, free transport and so on will become increasingly necessary in the future in order to prevent an ever-increasing demand for imports of petrol to fuel private cars. I also think that we have to encourage the production at home of all sorts of commodities which we are at present importing. Of course, food is a particular example, but there is a very considerable scope. But at the present time we are handicapped in doing this and in boosting production in many spheres by our membership of the Common Market, by the common agricultural policy, and in other respects.

In order to boost exports many methods should be investigated. I recognise that there are problems with export subsidies or tax incentives for exporters, but I think the Government have to bring substantial pressure to bear on large enter- prises, particularly when there are multinational connections, so that we can get these people to produce and export to the greatest extent possible.

Those who are familiar with the activities of multi-national companies will know that in some cases markets are shared out on an international basis and subsidiaries in this country of large multinational concern are not permitted to export to particular parts of the world. This is quite unacceptable, and the Government must bring increasing pressure to bear on those enterprises. When we consider that in 1971 half our total exports were made by 79 concerns we can see the very important rôle which they play.

I believe that we also have to reduce overseas expenditure in other respects. I consider that overseas military expenditure is at much too high a level at the present stage, and we have got to reduce that, not only because it is necessary because of the considerations which apply as far as international relations are concerned but simply because we cannot afford in the future to bear the tremendously heavy financial burden which is involved.

If we introduce a system of selective controls on imports and attempt to boost exports there is the problem, I recognise, that is always raised, that of retaliation. But I would argue that many of our trading partners would not wish to enter into a trade war with us. They must recognise that we cannot continue indefinitely with a huge deficit. Sooner or later, one way or another, we shall have to reduce imports. I believe that bilateral deals could be negotiated with our major trading partners which would redound to the advantage of both ourselves and those partners.

My right hon. Friend the Chancellor of the Exchequer and other hon. Members have spoken of the possibility of world recession. I think we have to take this very seriously indeed. We have to recognise that we are reaching a time when the world which arose out of the Bretton Woods Agreement and the various other agreements made at the end of the war is changing. That era is coming to an end and the system is no longer working. The fact that the Italians have already introduced import deposits is one indication of that. We have to ask ourselves seriously: is it not possible that trade controls and planning at this stage could help to prevent a general collapse of confidence and a subsequent catastrophic collapse of international trade, which all of us in this House who have studied these problems at all know very well is possible in the period ahead? It is quite unacceptable that West Germany and the United States should continue to insist on multinational, unfettered trade and at the same time consider it possible for them to continue with a large favourable balance of trade.

The Labour Government have the job of safeguarding the employment of British people and guarding against the collapse. Therefore, I think that, if the Chancellor of the Exchequer—quite rightly I believe—seeks to reflate, we must deal with this very crucial problem of the balance of payments deficit. I would argue that the time has arrived when we have to consider vary seriously selective import controls. It may well be—and I believe it is true—that the time has arrived for a new world settlement on these issue, and I believe that Britain and a Labour Government should take the lead in demanding international conferences to discuss these matters.

The world system today is increasingly dominated by international companies with annual product values which exceed the GDP of medium-sized countries. We have to recognise that this is a very different world from that which existed at the end of the war, and we must do something to change the system and deal with this problem. I believe it can be changed only if we introduce further planning, and through Socialism. Therefore, I appeal to my right hon. Friends, while I support the measures which they have introduced, to look ahead and plan; to look very seriously at the need to introduce selective import controls, boost exports and reduce overseas military expenditure; and to see that this country plays its part in helping to bring about changes in the pattern of international trade arrangements which will help us to avert the tremendous catastrophe which we all know very well may be waiting for us a very short time ahead.

Mr. Speaker

I am grateful to hon. Members for the brevity of the last five speeches. We have only two more hours, and I hope that those I call will remem- ber that there are others who wish to catch my eye.

6.58 p.m.

Mr. John Biffen (Oswestry)

The hon. Gentleman the Member for Harlow (Mr. Newens) very rightly drew our attention to the existence of a substantial non-oil trade deficit. I am certain this is one of the major factors which govern not only this debate but the thoughts of the Treasury and the actions of the Chancellor. But I hope he will not think I am churlish if I say that it does not match the analysis that was offered by my right hon. Friend the Leader of the Opposition of the great significance for this country of the oil deficit and the consequential burden of interest payments which stretch into the future and will have a very significant impact upon the way in which economic management can proceed in this country.

I am certain it is not merely the fact of domestic inflation—which is, I suspect, a factor of expectation throughout all industrial countries—but the added complication, perhaps of horrendous dimensions, of the switch of resources implicit in a quadrupling of oil prices which has led a number of hon. Members, and most notably my right hon. Friend the Member for Taunton (Mr. Du Cann), to make speeches which have been elegant and have been delivered with authority but with a great deal of foreboding.

It is against that background that we are invited to consider the Chancellor's proposals. He is not alone in coming to a parliamentary assembly with proposals at this time. Monsieur Jean Pierre Fourcade, the French Finance Minister, has a stabilisation programme of upwards of £700 million. I understand from The Times that the Gaullist Party spokesman, Monsieur Debré, has said: we must be ready to regard it as only a first step. The Times correspondent goes on to say: The general feeling in and out of Parliament is that a further turn of the screw will be necessary in the autumn. The Italian Prime Minister, Signor Rumor, has just presented a stabilisation programme to his Parliament involving about £2,000 million. The list of measures makes extraordinary reading when set alongside what is being presented to this House. Signor Rumor's package contains substantial upward modifications of VAT, higher rates of personal income tax and higher charges for energy and electricity. Signor Rumor also forecast, says The Times, increased social service contributions paid by employers and a payment for medicines provided through health insurance institutes.

It is against that background that we have the extraordinary picture of the Chancellor coming along with a measure designed to deal with a situation common to all the economies of Western Europe by proposing almost exactly the opposite prescription. He has already been upbraided for that by his hon. Friend the Member for Ashfield (Mr. Marquand). I cannot help feeling, having listened to the Prime Minister this afternoon, that there is a perverse old-world style of patriotism about this form of financial management, contrasting with the behaviour of our continental neighbours. I can well imagine that the Treasury feels that here again we have the Younger Pitt saving England by his exertions and Europe by his example. It is all very well for the Treasury Bench to express smug satisfaction at this interpretation. I do not think we can afford to live with quite so obvious an insular approach to our problems.

We may well live to regret what was proposed on Monday. There is no doubt that Monday's proposals represent a retreat from our stabilisation programme which was begun by my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) in his December measures and was to some extent consolidated by the Chancellor with the Budget he inherited from the Treasury officials who were happy designing it while we were away disporting ourselves during February.

Now that the political nature of the Chancellor is able to reveal itself somewhat we see a retreat from our stabilisation programme. We all know why that retreat is now being envisaged and conducted. It is because of the fear that the consequences of stopping inflation are more unacceptable than the consequences of going on with inflation. We all share that dilemma with the Chancellor.

None of us supposes that there is any easy or painless way of avoiding the dilemmas implicit in any stabilisation programme designed to reduce the rate of inflation as a pre-requisite to bringing about a much more stable monetary circumstance. Some reference was made to the economists who advised the Chancellor. The memorial "Dear Prime Minister" addressed to that gentleman by the self-styled economic radicals who include the Professor of Economics at Manchester University, David Laidler, whose comments featured in the most persuasive and technical speech of my hon. Friend the Member for Barkston Ash (Mr. Alison), contained the daunting comment: The flames burn too determinedly for you to contain inflation with any speed unless you are willing to witness mass unemployment. That is very exaggerated language but I think it is the kind of language which people of the distinction of those who addressed the memorial feel obliged to use to force us to realise that there is no painless way of climbing down from a rate of inflation which now runs at about 20 per cent.

I have no doubt that, whatever means are to be used if we are successful in climbing down from this rate of inflation, there is a price that will have to be paid in production forgone and unemployment temporarily incurred. The right hon. Member for Jarrow (Mr. Fernyhough) was quite right last night to remind us that unemployment as a factor in our society has different social and economic consequences from those which it had in the 1930's. Of that I am certain. But it cuts both ways.

My hon. Friend the Member for Norfolk, North (Mr. Howell) has spent a great deal of time analysing what is the nature of the unemployment statistics which are among the few guides we have when trying to assess the economic and social consequences of inflation. If at some time he has a further opportunity to detain the House on the issue, perhaps when we can seriously debate this subject in its own right and not merely as an adjunct to a general economic debate, he will be able to put forward a great deal of good, sound analytical sense about the present nature of unemployment in this country. I am sure he will be able to deal with what are the social and economic characteristics of the kind of unemployment which I think would happen anyway, whatever means were successful in bringing down the rate of inflation.

I turn now to the Chancellor's measures. They are modest, and I must say that I welcome the rate support grant proposal. I go even further than my hon. Friend the Member for Wycombe (Sir J. Hall), who welcomed this yesterday, and say that I think the present rate of inflation as it is affecting many local authorities will mean that they will require some new deal to be struck with the Government over the method of financing local authority expenditure.

I understand from my own county council that its inflation is running at 20 per cent., largely quite outside its control. Therefore, the balance of local authority expenditure which will be met from the rate support grant source must increase as a temporary factor until perhaps the reforms affecting rating which might flow from the committee of inquiry can be realised. I place that on record because I must accept the consequence.

If there is to be increased public spending to meet an enhanced rate support grant, it must come from increased taxation. I do not see how I can argue otherwise with the devotion I have to a Government which will move towards balancing their Budget. It is because I have that instinctive preference for Governments who will balance their Budgets that I regret the reduction in value added tax. I am highly sceptical of the regional employment premium being the best way in which to supply assistance to the regions. Those who represent intermediate areas can pray in aid many examples of the distortionary impact that the premium has upon employment rather than its overall beneficial effects. I would emphasise the arguments that were put forward by the hon. Members for Sheffield, Heeley (Mr. Hooley) and Sheffield, Attercliffe (Mr. Duffy). I will not elaborate those arguments in my own right. I shall merely say that there are a variety of reasons for me to believe that the present tax reductions and public expenditure increases now before the House are measures which should excite our hostility and scepticism rather than our endorsement.

Above all, I am immensely worried about the idea of conducting public finance on the basis of what its impact shall be on the retail price index. There are better ways of fighting inflation than fighting the retail price index. We murdered the finances of nationalised industries in the hope that that would have some impact upon the retail price index. It seems that we have not learned from that recent folly. We are prepared to compound it by making taxation changes, which are based on an obsessive concern with RPI and which lead to meretricious methods of public finance. I regret that such methods do little or nothing to restore business confidence. That can come about only with the relaxation of the price code.

I believe that subsidy and price control will inevitably lead to shortage. We are already advised by those as distinguished as Sir Richard Trehane that there are dangers of a shortage of supplies of manufactured milk. We have evidence that the bread industry is suffering from the consequences of subsidy and price control. I quote from the Financial Times of 19th July, which reports: An independent Lancashire-based baker is going out of business because of the impact of price controls on bread profits. Sayers (Confectioners) is closing its bakery division, Golden Bake, which serves about 800 shops in the Huyton area. The decision makes 300 men redundant. Two or three days later the Financial Times reported the closure of another bakery. The report reads: A second Merseyside bakery, Spillers-French, is to close because price controls are said to be making business uneconomic. We must try to draw back from the prospect of enlarging the area of the economy which is subject to the twin evils of subsidy and price control. Once more it underlines our concern with palliatives and indicates that we are not concerned with the real cause of the inflation which we seek to contain.

My second regret is that I believe that, once the fiscal and monetary basis for containing inflation is weakened and when inflation proceeds and intensifies, the Government will look around for other victims to blame for the folly of their own financial mismanagement. I do not believe that the social contract can bear the load that it is now being obliged to support. Far from Monday's measures sustaining the contract, I believe that they will play an important rôle in its demise. The hon. Member for Attercliffe has already given us his own early warning that he does not think that the social contract is likely to endure if some of the signs which he perceives are intensified.

I think that probably I would carry most hon. Members with me if I said that I thought that Monday was the prelude to a General Election. Any thoughts I had on that score were amply sustained by the speech of the Prime Minister today.

My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) said last night that he hoped that there could be agreement, even in the context of a General Election, on at least certain basic facts which would unite us and within which we could conduct our controversies. I hope he is right. I hope we can agree that a balanced Budget—and I shall not be drawn into the intricacies of M1 and M3 and all the rest—is a reasonable discipline to expect of a Government. We could then argue about the level at which to strike the balance and about the component items of taxation and expenditure. They are legitimate items for argument, and they will divide this House as long as people come here with the instinct for argument, which I believe is indispensable for the good government of this country.

Do not let us deceive ourselves or those from whom we hold or seek trust that there is the option of spending ourselves out of inflation. Perhaps the most generous judgment that we can make of Monday is that it was an exercise in political fine tuning. It may have been a good exercise in that respect but for me it was evidence of dangerous economic escapism. It is the escapism, the triviality and the irrelevance of the Chancellor's measures on Monday that deserve the censure of the House by voice and by vote.

7.17 p.m.

Mr. Brian Sedgemore (Luton, West)

It is a pleasure to speak after the hon. Member for Oswestry (Mr. Biffen). He almost carried his gruesome logic through to its conclusion but he hesitated a little on the way over the rate support grant. We all have our Achilles heel. At this great time of crisis it seems a pity that the hon. Gentleman's Achilles heel should turn out to be an increase in that grant.

There are a significant number of people in this country—about 6 million in all—who tend to argue that politicians are to blame for all our economic problems. Apparently we come here and squabble and bicker and accentuate our difficulties. If politicians are to blame, I think that the blame must lie with the Front Bench politicians on both sides of the House. They refuse to put to the British people the real choice that faces them.

We have a right to say to the significant minority of 6 million people who are represented on the Opposition benches that they themselves are somewhat to blame, in that they want to live in the cuddlesome land of Alice in Wonderland. They want their dreams, their cake, and growth, and prosperity. They cannot have them all.

I should have thought that hon. Members on both sides of the House should be explaining to the British public that there is a choice to be made. The choice involves, on the one hand, monetary and market discipline and, on the other, much greater governmental, municipal, cooperative and public intervention in British industry. If we politicians were to spend more of our time explaining the details for those broad generalisations we would clear away many of the myths that confuse British politics. We should say to the public, "It is up to you to decide which of those two policies is in your interest. It is up to you to decide which of them is related to investment and growth, to the distribution of income and wealth, to social policies and the twin problems of unemployment and inflation".

In this House we should be trying to pull away the centre of British politics and to explode the myth that deep down in the hearts of Liberal politicians there lies a painless cure that is struggling to get out but cannot be expressed in words or deeds. I am sure that the hon. Member for Cornwall, North (Mr. Pardoe) does not believe that inflation will go away by taxing it. I should say that I accept a great deal of the hon. Gentleman's economic analysis.

My right hon. Friend's Budget is rather an odd measure. It raised many a cheer on the Floor of the Stock Exchange and yet delighted many people throughout the country. I thought that it was a nice box of tricks that was heading vaguely in the right direction. But I do not think that my right hon. Friend the Chancellor of the Exchequer would remotely claim that by what he has done he has warded off the threat of mass unemployment or impending recession. He must realise that between now and the autumn, if he has decided—as he has—that unemployment is the greater of the two evils and that he will tackle it, he will have to take further measures.

One of the measures which my right hon. Friend might well take would be to remove some of the public expenditure restrictions imposed by the Conservative Government in December. I understand that my right hon. Friend the Prime Minister is engaged in discussions with the consultants, the BMA, the Royal College of Nursing, the Royal College of Midwives and others, and it may be that after those discussions will be a good time to announce the removal of the £111 million of restrictions which were imposed last December on the National Health Service. I am sure that nearly all hon. Members opposite would support that policy.

Equally, if my right hon. Friend the Chancellor of the Exchequer intends, as I believe he does, to inject more money into the economy in the autumn, I hope that he will do so not by mucking about with value added tax or even with a different rate support grant, but through long-term social policies. Perhaps he will consider raising family allowances or giving an allowance for the first child.

In the longer term, most people would agree that we are really concerned about investment and output. If we are, we in the Labour Party must look to the policies in our manifesto which offer some salvation in that direction. We must look to the National Enterprise Board, to the planning agreements, and to the extension of public ownership. It may well be that we shall have to go beyond our manifesto and look to the control and public ownership of the banking system.

But I fear that we are running up against certain difficulties. Some of them are practical and some of them are of political will. It is the practical difficulties which, in a sense, disturb me. Over the planning agreements, for instance, we are running up against a log jam in the Civil Service, particularly in the Department of Industry. I think that we are also running up against the problems of the structure of Government. It seems to me most unsatisfactory that between the Secretary of State for Industry and the Prime Minister we virtually have two Chancellors of the Exchequer. I do not see how the system can operate with a third Minister, the Chancellor of the Duchy of Lancaster, between the Chancellor of the Exchequer and the Prime Minister. If one has that number of figures between a policy and its fruition, there is bound to be conflicting advice and strands. I think that we shall end up in difficulties over planning agreements and so on with such a system.

We also suffer from a lack of knowledge of what goes on in British industry and in industries abroad. One of the ways we could overcome that would be to get the Government into British industry, not through 3 per cent. shareholdings, or 25 per cent., or even 48.2 per cent., of the ordinary stock of BP, for example, but through 100 per cent. ownership. Then we could find out what is happening to the money in these industries. For example, we could find out why it is that certain of their capital expenditure in overseas countries is being put to the development of North Sea oil. We could find out about the way they employ certain consultants to build up tax losses. Until the Government find out what is going on in British industry, they will be pawns in the game.

It is well understood that the Civil Service lost rounds one and two over North Sea oil. Most of us, if honest, will admit that we have lost round three as well. Precisely at the time that my right hon. Friend the Secretary of State for Energy was in this House announcing his great public ownership programme, one of the major oil companies was negotiating with Egypt—and the Egyptian Government are to get 80 per cent. of the profits. Yet here we are struggling to get 51 per cent. on all the existing funds. For these reasons, we have to pull ourselves together and decide that we mean to do something about these planning agreements and about public ownership, and that we are not simply talking about minority shareholdings in State holding companies.

The Opposition amendment refers to the maintenance of jobs and full employment. That is hypocritical. The advice which the Opposition are getting from intellectuals, academics and others has one thing in common—that the British public must expect a rise in unemployment. The only dispute amongst those who advise the Opposition is about the amount of unemployment that the British public should be made to suffer in the attempt to tackle inflation.

Professor Walters—a well-known right-wing monetarist economist—wrote a letter to The Times a couple of days ago about the way in which he would tackle the problem of inflation. He advised the Government to balance the Budget over the next three years, if that was possible. Basing his analysis on what happened between 1969 and 1971, he said that this would necessitate at least 1 million unemployed.

Mr. Richard Body (Holland with Boston)

No; he did not say that.

Mr. Sedgemore

He said that unemployment might have to go up to 1 million. Indeed, I saw the figure of 1.2 million. He did not say that this was a definite figure, but he was talking in particular terms.

Mr. Body

Professor Walters has categorically said that this need not be so. What he has said many times is that unless we take a firm grip on the problem of inflation by balancing the Budget there will be massive unemployment later on.

Mr. Sedgemore

Professor Walters said, certainly in the latter part of his letter, that if we did not take his sort of approach there would be mass unemployment. That mass unemployment figure was more than 1 million, as I understood it. He was talking about balancing the Budget over three years rather than one year, and he said that unemployment could go up to over 1 million. I do not think that I am misquoting him.

Certain Conservative advisers go even further. The Conservative editor of The Times has published two editorials on this matter. In one, he spoke of the need to create 1½ million unemployed in order to tackle the problem of inflation. In the second, he widened the compass, as it were, and said that we might have to create between 1 million and 2 million unemployed. Also in The Times, Peter Jay, whom I would not accuse of being a right-wing economist, and who is an able man, has spoken of unemployment in the "low millions" throughout the 1980s. That can only mean 2 million or 3 million, or more. Thus, the advice reaching the Opposition would mean an unemployment spectrum of between 1 million and 3 million.

I agree that that would have the effect of curing inflation. It would knock it down to about 3 per cent. per annum. But does anyone believe that if there were 2 million unemployed—people who have never experienced it before—it would stop at the productive industries in the North-East, Scotland and other regions? It would apply across the whole range of employment. It would affect office workers and middle management as well. Do the Opposition suggest that that would not produce social unrest and a breakdown of our society? Indeed, it would produce the very social unrest that the Opposition are worried about when they talk about the effects of inflation. In talking about maintaining full employment in their amendment, the Opposition are deluding themselves and the country in view of their own policy.

I am not sure whether the social contract will work. I regard it as an interim measure on the road to a more Socialist society. If it falls down on the way, we shall have to introduce that more Socialist society sooner rather than later.

7.30 p.m.

Mr. Hugh Fraser (Stafford and Stone)

The speech of the hon. Member for Luton, West (Mr. Sedgemore) has been a real gem for the Conservative Party's propaganda machine. I congratulate him on it most warmly. It probably fills some of his right hon. and hon. Friends on the Government Front Bench with a certain element of disquiet.

Apart from the speeches from this side of the House, there has been only one important thing said so far in the debate It was contained in an aside by the Chancellor, during a laborious election address by the Prime Minister which must first have had the approval of the TUC and of Labour Party headquarters, and which, because of HANSARD delays, should be printed by them as an election manifesto. The Chancellor, nettled perhaps by my right hon. Friend the Leader of the Opposition, stated that he was going to reflate even more in the autumn.

I wish to draw attention to two other significant points—the announcement in Paris of a budget of £21 billion with a budget surplus of 14 per cent., and the remarks of Mr. Clive Jenkins that we should expect a 30 per cent. inflation rate by the end of this year. Mr. Jenkins' economic team has been remarkably successful in its predictions. It has been infinitely more successful than the Treasury knights, who have got the sums wrong for the past 15 years—especially when they disposed of a large gold stock which could now be meeting many of our overseas problems. One's confidence in their advice given to this Government and the last Government is small.

The complacency by the soi-disant Prime Minister has filled one with appalled horror. He touched on three subjects. The first was the oil deficit. He seemed to see no problems about this. I hope in the Government's reply to the debate we shall be given some idea of the amount of short-term foreign money in this country at the moment which is supporting the City, the nationalised industries and local and central government. There is no doubt that foreign money is being borrowed on a massive and terrifying scale. If there should be a failure of the country's economy the impact of the withdrawal of this short-term money would be devastating.

There is no doubt that the international attempts to have the Arab oil dollars—what the Prime Minister called the petrodollars—recycled has been a resounding flop. It will go on being a resounding flop as long as certain European countries like England and Italy run enormous Budget deficits. People will not put money here unless the rates are exorbitantly high—effectively the highest rates in Europe.

The Prime Minister has produced a collection of election statements and strung them together. He has taken the attitude that that would do for the House of Commons, and as such he has this afternoon shown complete contempt for the House, and on that alone he deserves to be voted down tonight.

Another example of Government complacency relates to the rate of inflation and what they are doing to abate it. My right hon. Friend the Member for Taunton (Mr. du Cann), in an admirable and powerful speech yesterday—supported by my hon. Friend the Member for Oswestry (Mr. Biffen) this afternoon—made clear, as many other people have done, that the main problem facing this country is that if the rate of inflation is allowed to continue it will not just create a breach in the so-called social contract, drawn up by certain trade union leaders and the Government, but also affect the wider social contract which exists in this country in the grandest sense. There has always been this unwritten contract between Government and governed that the taxes are paid, that people obey the law, that services are run properly and that people perform their appropriate functions as allotted to them or for which they are being paid. But all these things are now beginning to break down because of the rate of inflation. We see evidence of this in corruption in local or central government and in breaches of various codes in the City of London. Throughout the country the effects of inflation are now hitting at our moral fabric. It is because of this that it is essential that something should be done.

It is sometimes said that Members of Parliament—especially those on the Front Benches—are out of touch with what people are feeling in the country. Outside there is a growing sense of fear and despair. The House of Commons must put this right. If it is not able to do so—if it cannot produce a solution—it will have failed totally in its function.

My right hon. Friend the Leader of the Opposition made an extremely telling point this afternoon. The point has been re-echoed on the other side of the House. It is that there must now be serious consideration as to how we save can our balance of payments by ensuring that less oil is consumed in this country and that the rarer raw materials are recycled. There is, for example, a fantastic waste of imported paper. The Government by cutting the price of petrol by 1p. per gallon will merely increase oil consumption.

More important that that, however, was the point made by my right hon. Friend the Member for Taunton yesterday about Government expenditure. He was speaking with the full authority of the Chairman of the Public Accounts Committee. There is a huge area in which there could be Government saving. I go further and say that this should apply equally to local government, in which £7,000 million pounds is at present being spent. I feel that the reorganisation of local government is not paying off in the way people expected it to. Local government reorganisation is taking place slowly and it is positively preventing efficient administration. It has already cost a great deal of money. There should be an investigation into this, and there should be much stricter control of the powers of local authorities to borrow short term overseas.

I make what I regard as a genuine suggestion to the Government and to both Front Benches. There is no doubt that in this country at present there is growing a hypnotic trance which presages disaster. The country must break out of this trance. Unless the trance is broken and the full efforts of the country are used, there will be the sort of disaster which some of my hon. Friends have forecast.

There has not been sufficient mobilisation of forces in the managerial sector of the country. There has been a tremendous gap in proposals for mobilising capital in the national interest. Far too many people have become worried about the attack launched on industry. It is all very well for the hon. Member for Luton, West to talk about nationalisation, but the proposals by some of his colleagues for what would amount to a 100 per cent.—or if he could do it,—a 300 per cent. nationalisation of British industry—no doubt the hon. Gentleman would include The Times in the package—would do great damage. People like the Secretary of State for Industry are constantly upsetting industry with threats of nationalisation. He is a Bourbon Bourgeois who represents the public school-sending backbone of the Labour Party. He is a ci-devant aristo masquerading as a sort of Phillipe Egalité. He and his kidney are precisely what disturbs those who invest in industry and those who try to make industry run.

I am serious in suggesting that the Government and both Front Benches should consider whether inflation is getting outside political control. That is what many people are beginning to believe. Many people, especially the Labour bourgeoisie are sitting on savings, not knowing what to do with them. They see those savings being destroyed by inflation before their very eyes. I suggest to right hon. Gentlemen that in so far as they have accepted a system of institutionalised inflation—which is what the threshold agreement set up by the last Government means—they should start thinking about index-linked savings. There is a strong argument for considering index-linking of all Government savings to attract money and to make it possible to reduce the high levels of taxation.

My right hon. Friend the Member for Chipping Barnet (Mr. Maudling) said that what is needed is a lead, a lead for industry in cash and confidence. House owners now comprise 55 per cent. of the population. There are millions of people who do an ordinary, decent, well-paid job. It is necessary to mobilise these forces, and that requires a lead which the Government seem to be incapable of giving. They are trying to encourage militants, and are themselves becoming a front for a truly Socialist party which believes in total nationalisation, a party in which there can be no national confidence. Therefore, the vote that we shall give tonight will be more than justified.

7.42 p.m.

Mr. Ivor Clemitson (Luton, East)

At one stage in the speech made by the right hon. Member for Stafford and Stone (Mr. Fraser) I wished that we had a system of simultaneous interpretation. I promise that my speech will be entirely in English.

Day after day in this Chamber we debate problems which seem to be intractable, about which the only sensible thing that can be said is "If I were going there, I would not start from here." Economic problems are in that category. Our economic problems are intractable given two conditions. The first is that we continue to operate with the economic tools and the tools of management which we have traditionally used, and the second is that we continue to think within the confines of accepted economic dogma. If those two conditions are fulfilled, our economic problems are intractable.

The tools and the dogma have not served us badly in the not so recent past. For nearly a quarter of a century they served us reasonably well. From this distance the world of the 1950s and early 1960s appears to have been quite an attractive one. I imagine that to be so if one is looking back from the point of view of the Chancellor of the Exchequer. What we used to call inflation—which appears to have been trivial—and unemployment were two sides of a coin. The remedies for both were, apparently, understood and fairly clear-cut. The rules of the game were understood by all—a bit of acceleration when unemployment was rising and a touch on the brake when prices started moving up a bit sharply and when our balance of payments was in the red. We could argue about the time and the degree of pressure that should be applied to the pedal, but the basic tools were available, and, apparently, within their limited confines they worked.

There were longer-term problems which some people were concerned about, such as our poor investment record, our poor growth record and our sliding down the international league table, but the short-term tactics were clear. Political and economic considerations could be made happily to coincide every four or five years, to the benefit of the party in power.

What is a poor Chancellor of the Exchequer to do in these days when inflation, high unemployment and a massive balance of payments deficit coexist? Furthermore, the inflation, unemployment and balance of payments deficit are at levels which in the halcyon days of stop-go would have been considered to be intolerable and beyond imagination. The world has changed. As the Americans say, we are in a different ball game.

I am not talking about the oil sheikhs waking up to the fact that they are sitting on a fortune. The signs of change were there before the price of oil and other basis commodities started to go through the roof. The simple world of gentle waves on the graphs of the various statistical series came to an end in the latter half of the 1960s, well before the oil crisis. The reasons for the changes were not short-term aberrations. Long-term trends began to come to the surface, and long-term changes in economic structures and relationships began to affect the graphs of unemployment and prices.

I want to concentrate on one relationship which has changed greatly; that is, the relationship between investment and employment. We still glibly tend to assume that the way to increase employment is by increasing investment. The Opposition motion perpetuates that fallacy, criticising as it does the failure of Government measures— to encourage the industrial investment which along can safeguard the jobs and future prosperity of the nation". To an increasing extent investment means fewer and not more jobs. At the least, more investment is needed to preserve the same number of jobs. At the most, investment replaces jobs. All industries are moving along the spectrum from labour intensive to capital intensive. That happens not only in manufacturing industry, where there has been a considerable drop in the absolute numbers employed since the mid-1960s; it is happening in the tertiary sector, in the service industries, and so on. This has enormous social and economic implications.

The changes in the economic structures and policies which are needed if we are to deal with the underlying problems that we face are immense, and they have been touched on by my hon. Friends. Equally great are the changes in attitudes which will be required. Given our intensely conservative way of life, the time taken to make the radical changes in structures, policies and attitudes which we require will be considerable.

Our problem is to commit ourselves to the radical changes and to buy ourselves enough time so that we can put those radical changes into effect. Given the hopelessly inadequate tools and economic theory at our disposal, all that we can hope to do in the short run is to contain the problems of inflation, unemployment and the balance of payments long enough to allow the long-term radical changes to be put in train.

I am aware of Keynes's famous dictum that in the long run we are all dead. But the manner and timing of the death is of some significance and consequence. In the Litany we pray for deliverance from battle, murder, and sudden death. Let us hope that these awful possible consequences of the breakdown of our admittedly limited democratic structures do not occur, and that we can all die peacefully in our beds.

The challenge is no less than to achieve a revolution by democratic means in a very short space of time. We could spend our time debating the odds of our success or failure, but it would be more useful to spend it getting on with the job.

7.52 p.m.

Mr. Ian Lloyd (Havant and Waterloo)

We have been regaled this evening with two interesting speeches from the hon. Members for Luton, West (Mr. Sedgemore) and Luton, East (Mr. Clemitson).

The hon. Member for Luton, East will forgive me if I take him up on only one matter—his statement that investment generally, in the modern age, reduces the number of jobs available. Surely that is a mistaken view of investment. Even today, investment upgrades the productive apparatus with which the employment force can work. In the United States, which is the richest country in the world, only 3 per cent. of the work force is employed with its hands. If we said, "No more investment," there would be a constraint of the most fundamental kind on the productivity which our society requires to escape its dilemma and tensions.

The hon. Member for Luton, West produced more fundamental concepts. He suggested that the solution to our problems was nationalisation. However, he went on to confess that the Civil Service was creaking and groaning at the seams. I wonder whether he was conscious of the contrast between what he advocated at first and his second analysis. If the Civil Service is straining at the seams, his solution is to nationalise it. That would not get us very far.

This is a serious debate, and I find myself in close agreement with the speech of my right hon. Friend the Member for Taunton (Mr. du Cann) and my hon. Friend the Member for Oswestry (Mr. Biffen), and finally, the very conspicuous and important speech of my right hon. Friend the Member for Stafford and Stone (Mr. Fraser), who, unfortunately, has left the Chamber. However, that saves me a great deal of what otherwise I would have had to say.

The debate so far has shown a predictable if disappointing preoccupation with two main issues—the regional employment premium and inflation, probably in that order. I say "predictable", because it would have been astonishing if, in a debate on economic forces, we did not pay our customary obeisance to inflation. I say "disappointing", because the world economic crisis is of such shattering, unprecedented and international proportions that it is amazing that matters like regional employment should occupy our time.

While we concern ourselves with REP, the forces of political and economic destruction are doing their best to write "RIP" on our economy, and thus on our civilisation. But I am not a pessimist. I think that the forces of reason, of technology and of order will ultimately prevail, given certain conditions. If they do, we shall have to raise our intellectual preoccupations well above the level of REP and consider the basic attributes of the forces which we have to admit in our saner moments have defeated every Government of every party in every major Western democracy since the war, and which show every likelihood of continuing to do so.

In my view, the national demand for a coalition Government is not so much a narrow political reaction to party incompetence—though it may be that as well—as a profound recognition that the problems are about 10 years ahead of the policies, and that the policies required to stabilise our civilisation and its basic economy are not likely to emerge from the depressing, irrelevant and Pavlovian views about the distribution of wealth, the extent of the demand for the State control of industry and the massive social neurosis that the British people suffer about industrial relations. The public sense that they are merely symptomatic of more profound problems.

This difficulty hangs over our economy like a dark cloud, but instead of preparing to meet the flood we quarrel over the distribution of the champagne. The problem has been identified clearly. We have all seen the cloud, and we know how large it is, but we suspect that it will sweep away our political preoccupations and leave us naked and afraid in he face of forces which cut through our pretensions of control like a thermic lance.

The cloud is the energy crisis, and that is why it was so profoundly depressing to hear the right hon. Member for Jarrow (Mr. Fernyhough) criticising the profits of the Shell Company and asking how the Shell refinery workers could be expected not to be greedy. This attitude is symptomatic of our failure to produce and apply relevant economic policies. It is an attitude based on limited information, distorted analyses and the certainty of wringing emotional responses from a community which has been encouraged to resent any wealth-creating process producing an adequate return, even after massive taxation, proportional to the inherent risks of the activity concerned. Risk and uncertainty are not driven out of the Augean stables of the private enterprise system by the nationalisation of the enterprise or the destruction of the profit motive.

I look at the facts, because they are relevant to our North Sea policy and to the black cloud. The Chase Manhatten Bank produces a valuable survey on the world's oil economy. The latest edition contains a number of significant facts. Between 1955 and 1970, the oil industry spent 104 billion dollars on the search for oil in the free world. That would produce one-third of the free world's oil requirements between 1975 and 1985. So the search alone for oil over the next 15 years will require 450 billion dollars. But the refineries, tankers and other equipment to distribute our energy will require a further 360 billion dollars. That means a total of 810 billion dollars over 15 years, which has to be compared with 215 billion dollars in the past 15 years. The increased requirements of working capital in the industry will be a further 540 billion dollars. That comes to a staggering total of 1.35 trillion dollars. That is the energy requirement of the next 15 years.

The Chase Manhatten Bank concludes that the task of generating such an enormous sum will be exceedingly difficult at best and conceivably impossible. Depreciation and borrowing capital together are expected to provide, at most, half, if an adequate return on risk capital is forthcoming, but not otherwise. That leaves the staggering sum of 675 billion dollars to be provided from net profits. That will require profits. to grow at an annual rate of 18 per cent. over the next 15 years.

The final conclusion of the analysis should be shouted from the rooftops again and again. Within the ranks of Governments of many nations there is a failure to realise that profits must necessarily be the major source of the funds needed for capital investment. Until this realisation becomes more clear in our society we are not likely to escape from some of our present dilemmas. Those who invest must be rewarded.

I am sorry that the right hon. Member for Jarrow (Mr. Fernyhough) is not in his place. I wonder that his reaction would be if the Shell company were to say: "We are sorry, but your pension has been reduced. The company has decided that its profits are anti-social. It has used them to pay 50 per cent. per annum wage increases. There will be no dividends on shares, and your pension will be correspondingly reduced."

I wonder what those who criticise systems would have to say if in five years many companies which depend on the Shell Oil Company for supplies were to be told that Shell had no more capital for the oil search because it had all been distributed in the form of social dividends?

Now thrive the armourers! I suppose the relevant phrase today is "Hail the economists". It is not sufficient for the Chancellor of the Exchequer—indeed, for Chancellors past and present—to get away with some of the statements that have been made by firing salvoes of grape shot at economists. Successive Chancellors have produced a state of affairs in which is is now almost impossible for the free enterprise capital-raising system to operate satisfactorily. The present incumbent has nothing to put in its place. The sops that he is now offering to Cerberus lack any conviction. He might expect Cerberus to behave like Lazarus and to relish the crumbs of comfort that he has been offering, but the solutions to our problems are not to be found in the socialist-based economic policies which have continued without change for several economic decades.

Who, of all people, are politicians to attack economists? Can we claim any higher measure of agreement? Are our thought processes conspicuously more rational? Is not the truth that we are both engaged in attemping to explain, on the one hand, and to control, on the other, the most complex cybernetic system the world has known?

All that we have discovered is that the system has a propensity to behave in ways which outwit the politicians and often defeat the predictions of the economists.

Keynes has the last word on this subject. In the concluding chapter of his famous work, "The General Theory", he said: Practical men who believe themselves to be quite exempt from any intellectual influences are usually the slaves of some defunct economist—madmen in authority who hear voices in the air which are distilling their frenzy from some academic scribbler of a few years back. The House may speculate with interest who are the academic scribblers from whom the latterday madmen are distilling their frenzy. I can suggest at least one. His name is Galbraith. There may be others.

Many years ago Confucius, who I understand does not rank high in the modern society of the Left in China but perhaps was more respected among the Manchus, made an interesting remark when asked by the Prince of Wei to take over the government of the province. He was asked what would be the first thing that he would so. Confucius's answer is interesting. He said: "I would define my terms, for when terms are not defined statements do not accord with facts. When statements do not accord with facts, justice becomes arbitrary. When justice becomes arbitrary, business is mismanaged. When business is mismanaged the people do not know what to do."

I can think of no more succinct summary of the state of affairs that we are facing today. If Confucius were asked to take over the administration of this province, there are a few terms for which he would immediately seek a more rigorous definition.

The first is reflation. Of all the minor idiocies which have afflicted economic thought in recent years, this is probably the most outstanding. It has no economic precision whatsoever. It is a semantic monstrosity which makes about as great a contribution to intelligent discussion of economic reality as the buzzing of bees to the harmony of a symphony orchestra.

If it means anything, it means that the political machines in control of our economic systems are afraid that success in the control of inflation might be achieved inevitably at the price of that other great semantic bogy term—unemployment. The moment that any signals of success are dimly discernible, they run for cover. They turn on the spending taps, increase the money supply, relax credit restraint, reduce taxation, and then turn to the country with a sense of mysterious superiority and say, "We are reflating." In my opinion, it is nothing more than economic flatulence generated by intellectual over-indulgence.

What they really mean, or should say, is, "We are terrified of the consequences of bringing inflation any further under control, so we have decided to postpone our efforts to a politically more appropriate season. We would rather face rising prices than rising political indignation." But eventually the reflationists, who are merely the wolves of inflation in the sheep's clothing of the Treasury Bench, have to face both rising prices and almost uncontrollable public indignation.

I should now like to refer to the other bogy term, the semantic mystery of the present age—unemployment. I have repeatedly argued that unemployment has become an outdated and misleading criterion of economic policy making. It is so for several reasons. First, even the most complex statistical representation can be little more than a gross oversimplification of reality. We are looking at a phenomenon, which is a spectrum of the efficiency with which human resources are employed by concentrating our whole attention on an arbitrarily selected dividing line.

Secondly, this term encourages us to neglect the efficiency of employment within the employed sector. That is of far greater significance in economic terms than the lowest output from the technically under-employed or unemployed.

Thirdly, it is because of our experience in the 1930s—the emotional influence over political attitudes and decisions which would have been wrong even in the 1930s, but which in the 1970s has become catastrophic.

Fourthly, it is because the social and economic consequences of unemployment have been greatly diminished by the Welfare State arrangements introduced from Beveridge onwards.

Finally, though many of us may deplore the attitude towards being unemployed, this has undoubtedly changed in recent years. I do not think that anyone would dispute that. There are far too many people who do not give a damn whether they are or are not in any realistic sense gainfully employed. I stand by that statement.

Samuel Brittan, in a most perceptive analysis, reminded us that Keynes himself, the father of full employment, divided his figures into unemployables, seasonal unemployed, transitional unemployment, the misfits of trade or locality, and deficient total demand.

I hope that if unemployment is to be presented to the House, as it will be over the next 18 months, as one of the dominating criteria of economic policy, we will have the figures so broken down into those segments that we know precisely which unemployment, at what time and in what circumstances the Government are talking about. One thing that we have not had for a long time is deficient total demand.

The interesting analysis published by Professor Parkin of Manchester University, of the institution known as the inflation workshop, deserves the widest attention. The Chancellor should endeavour to reply to the many questions in that article.

To that, I would add one of my own. William Jennings Bryan once said that the United States should not be crucified on a cross of gold. I would say that the appropriate saying today is that the United Kingdom must not be crucified on a semantic cross of unemployment. We are in danger of crucifying our civilisation and our economy on irrelevant concepts.

Finally, I turn to what I referred to earlier as the "dark cloud"—the supply of energy to our economy. Energy availability is the key determinant of economic growth. We know what this energy availability is likely to be. It will determine, without any other factors, the real growth of our economy. It determines it in real terms, whatever Governments may do, and the whole of that component of our gross national product which is directly dependent on it cannot be varied by any other form of policy. The only room for manoeuvre derives from improvements in the efficiency with which we use our energy—a marginal contribution—and by that sector of the GNP which is not directly dependent on energy for its growth.

As I see it, it is the task of general economic policy to gear itself in particular to the level of demand, so that the output which the supply of energy makes possible will not be prejudiced by the inflationary conditions which distort expectations, incomes and investment. If one looks at the Monday Budget, one sees that the one thing that we have done is to reduce VAT on one of the major sources of energy, which undoubtedly is about the last thing that any Government in the middle 1970s and the energy crisis should have done, in almost any circumstances.

So energy is the determinant. Energy—if all goes well and the oil companies are allowed to raise capital to make the search to find the oil that they will need—may just allow our economy to go on growing, in real terms, by 2 per cent. or 3 per cent. if we get things under control and get things right. But concepts of monetary increases of 15 per cent., 20 per cent., 25 per cent., and, as we have seen this afternoon, 30 per cent. one can only call the lunacy of the modern age. If our society persists in trying to construct and operate institutional justifications for wage increases of that size, we will have willingly joined the ranks of the Gadarene swine.

8.13 p.m.

Mr. Frank Hatton (Manchester, Moss Side)

In welcoming the Chancellor's statement, I want to talk about domestic relief for ratepayers. I have said before that some of the most unjustified attacks in recent times were on the Secretary of State for the Environment for trying to correct the great imbalance in the rate support grant. The House should be reminded that the total grant was the sum left by the former Government. It was a redistribution which was carried out, and one that I personally welcomed. Nevertheless, I am not a little surprised at the wholehearted welcome for the Chancellor's relief to some domestic ratepayers.

I was interested that my local newspaper, the Manchester Evening News, at the height of the controversy, gave examples of three properties in the Greater Manchester conurbation. One of the properties was in the constituency of my hon. Friend the Member for Manchester, Wythenshawe (Mr. Morris). The house had a rateable value of £304 and last year £186 was paid in rates. This year it had increased to £193, an increase of 4 per cent.

Adjacent to that area, in the constituency of the right hon. Member for Altrincham and Sale (Mr. Barber), was a similar house with almost exactly the same rateable value—£299. Last year £122 was paid in rates and this year it increased to £179—a 56 per cent. increase. The Chancellor's action will mean a rebate on that property of over £19, but I would remind those who protest so vigorously that the rates paid on that house will still be almost £20 per annum less than on a similar property in Manchester. That is an example of the imbalance which still exists in the major urban areas.

Much of' the increase now being borne by ratepayers is the result of a piece of Conservative legislation—the reorganisation of local government. That was one of the most disastrous pieces of legislation that this country has ever seen, and we are now reaping the evil benefits. The great cities and the large county authorities which have been the pacemakers of local government have now seen their administrations totally destroyed.

Whereas many chief officers of large authorities used to settle their problems merely by crossing corridors in county and town halls, they now find that the major services of local authorities are scattered about their cities and towns—some of them in metropolitan districts, some in metropolitan counties, some under area health authorities, water authorities and sewage authorities. I only wish that this Government could do something about that disastrous reorganisation.

The Chancellor said that the cost of the rate relief would be about £150 million. I have referred to the great imbalance which still exists and should like to refer also to the many problems still facing the major urban centres of our civilisation I hope that in future disbursements of this kind my right honourable Friend will seriously consider the need to assist authorities in the job that still has to be done—providing adequate services. I shall refer to only one of them.

In the Sunday Times recently there was a report of the grave problem facing the nation of the large number of private houses for which there are no buyers. It is estimated that at present 45,000 new homes are standing empty for which there is little prospect of private buyers. There are at present about 200,000 similar houses under construction, for which builders are desperate to find buyers and are unable to do so.

The only people who will rescue us from this situation and provide the homes that are needed are the local authorities. I am grateful for the efforts which have been made by my right hon. and hon. Friends in finding the resources to enable local authorities to take up some of this housing stock and to reduce the waiting lists in our big towns and cities. I welcome, as so many hon. Members have done, the rate relief that the Chancellor has been able to provide, but I remind my right hon. and hon. Friends of the considerable imbalance that still exists in the great urban areas.

8.21 p.m.

Mr. Julian Amery (Brighton, Pavilion)

I hope that the hon. Member for Manchester, Moss Side (Mr. Hatton) will forgive me if I do not follow up the very interesting and important points he raised. He anchored his remarks to one aspect of the mini-Budget. I do not want to get too involved in the detail of that mini-Budget. Indeed, I rather regret that the debate has coincided with it. I agree with my right hon. Friends that the mini-Budget is in many ways irrelevant to the economic problem. I am not sure that it could have been otherwise. I had hoped that the debate would be more of a grand inquest on the economic problems of the country, and not one dealing with the day-to-day decisions or the immediate proposals which the Chancellor has put forward.

I think that there is a judgment in the House that inflation at present is no longer sparked by external forces. It was sparked by enormous increases in commodity prices and, later, by oil prices; by the effects of the floating of the pound, which were tantamount to devaluation; and at one time—a long time ago—by perhaps a certain looseness in the money supply. But none of these factors applies today. Commodity prices are stabilising. The pound is reasonably strong. The money supply has been under control for a year or more.

I shudder to think what would have happened if there had been no control of wages during the time when commodity prices were going through the roof, when the pound was hitting the bottom and when money supply was out of control. Fortunately, it did not happen. But we can see that today the only motive force for inflation is domestic, and it arises from excessive wage claims. When I say "excessive", I mean claims which go beyond what the nation can afford. I do not think that there is any cause for dispair here. It is a great thing that there is only one central cause of inflation at present. But it is a problem which successive Governments have failed to solve. It is a problem which arises from a basic shift in the balance of power in our society.

The previous Labour Government tried to tackle it with "In Place of Strife". We tried to tackle it, in the early days of our return to power, on the Selsdon programme, and that was a failure. We tried with phase 3, with results that emerged at the General Election, when the country declined to give a verdict one way or the other. Now we have a social contract, or compact—"compact" may be the wiser definition; the more cosmetic definition. I wish it good luck, but I am not at all sure that it will succeed.

If I had to devise a formula, I think that I would devise some form of price control and wage control with an indexation element—in the short run. Indexation permanently could be a straitjacket which neither industry nor unions would accept, but for a year or two it is something that might be considered. However, when I have put forward this idea I have been told that the trade unions would never look at it. There are many pessimists about in our society who say that it is not possible to reconcile the aspirations of trade unionists with our democratic system, that the mixed economy is breaking down and that we shall be faced with either a Right-wing or a Left-wing authoritarian system.

I refuse to agree with the analysis, but I do agree with my right hon. Friend the Member for Chipping Barnet (Mr. Maudling) and my right hon. Friend the Member for Taunton (Mr. du Cann) that fairly unpleasant measures will have to be taken. It is clear that those measures will not succeed unless we can do two things, which are very difficult to ride in tandem. We have somehow to secure the co-operation of salary earners and wage earners and at the same time we must give confidence to industry that there will be a return to growth.

Let me deal first with the securing of co-operation from salary earners and wage earners. This will call for a major restructuring of company law. This will have to be based on the following principle. It will have to recognise that those who contribute to the industrial process, whether by their savings or by their brains or their labour, all perform an essential part in that process—shareholders, managers and workers. If this principle is once recognised, it will follow from it that company law will have to be so amended that companies will be operated not only in the interests of those who have invested their savings but equally in the interests of the managers and workers who serve the companies.

Does not this lead inevitably to the acceptance of co-partnership, profit-sharing, workers' councils and other forms of participation—participation of managers and workers in the decision-making process at different levels, including the boardroom where appropriate?

I do not presume to put forward to the House a blueprint of how this should work. The diversity of our industry is immense. Some industries are capital-intensive, some are labour-intensive. Clearly, there are some industries in which it would not be appropriate to have workers' representation on the board. There are others where it would be perfectly natural and right. There is a multiplicity of unions which complicate the process, unlike in Germany where there are only about a dozen. Nor do we want to be too influenced by foreign parallels. Nevertheless, we should require companies above a given size to submit schemes to the Government of the way in which they propose to introduce participation. We and Italy are the only two countries in the EEC which have made no statutory provision for this.

The question of workers on the board has been widely discussed, and I do not want to pontificate about it. However, as I see the problem the representatives of the shareholders, which is the situation today, should be accompanied by representatives of management and workers, and these should be elected from within the company. I do not much like the proposals in the Green Paper "The Community and the Company" produced by the Labour Party industrial policy subcommittee, which suggests that they should be nominated by the trade unions. It is not only from a suspicion that this is an attempt by the trade unions to take over the business, that it is a syndicalist conspiracy, but it is that the trade unions have a quite different function. The trade unions' business is to get the best possible conditions for their workers. The business of the workers' directors and the managers' directors, as well as the shareholders' directors, would be to see that the interests of the company were defended so that all those who worked in it and were likely to work in it could look forward to a prosperous future.

There is clearly a possible clash of interests here but I see nothing in it which would discourage workers in a company from electing their own workers' representatives, with the managers doing the same, and the company collectively negotiating with the unions. That is one of the points on which I disagree with the Green Paper. I do not like its failure to suggest that management should be represented. Representation of management is just as important as representation of workers. Nor do I think that its proposal to separate the supervisory board from the management board is in the least practical. I do not think it is possible to run any business efficiently without a complete interlocking between the two, but here I fear that there could be a difference of intention.

My own advocacy of co-partnership, workers' directors and profit sharing, which goes back to 1948—I have been preaching this in season and out, and not finding very receptive audiences, I might add—is based on the idea that the mixed economy this country has produced is good and sound and something we want to maintain, and that in order to maintain it we need to broaden its base and bring in managers and workers to share in what we used to call a property-owning democracy.

I fear that the object of the Green Paper is not to do that but to transform our society and create a situation in which companies would come under the control of the trade unions, not necessarily representing the wishes of those working in the company and belonging to the trade unions. I think it is no secret that before the election we were preparing a Green Paper which would have given effect to some of the proposals I have made, and our manifesto for the last election gave a blessing to these ideas in general terms. It is time we spoke out rather more clearly, and I hope that my hon. Friend the Member for Henley (Mr. Heseltine) will make the appropriate representation to those who are preparing the manifesto to make sure that these views are put in a rather more cut-and-dried form. Unless we do that we shall not get the appropriate basis for pursuing what I would call a high profit and high wages economy, yet that is what we need.

We would also get from that process a much sounder base for the tripartite consultations which my right hon. Friend the Leader of the Opposition—I will not say "initiated"—developed to a degree not seen under previous Governments. His regular discussions with the TUC and the CBI went far beyond what has been seen under previous Labour or Conservative Governments, and the consultations were extremely valuable and important. However, they were necessarily conducted behind closed doors, and that was a disadvantage.

We all know that there are unacceptable faces both of capitalism and of trade unionism. There are problems of over-manning, demarcation, over-pricing and share manipulation. We now need measures which will oblige business and the unions to justify their actions and to substantiate their claims in public. It is only if the leaders of the unions, industry and finance can be made publicly accountable, as Ministers are here, that we shall clear out some of the debris that clogs up our industrial life.

How is this to be done? In 1930, just after he had stopped being Chancellor of the Exchequer, Mr. Winston Churchill made a proposal in a famous lecture, a Romanes lecture at Oxford, in which he called for the setting up of a council of industry. The City, industry and the unions were all to be represented on it and to debate together the economic issues facing the country. Ministers were to make speeches to it. Bills and so on were to be referred to it.

The concept—a concept of many years ago, and, therefore, one that would have to be adapted—was that all those present would be there as producers individually, but many of them would be consumers of each other's products, and all would be taxpayers. There is today a proposal that railway workers' wages should be greatly increased in certain categories. I can imagine that in such a council there would be some deep probing by those who use the railways as to why each grade should receive the increase. I understand that when the last pay claim of the National Union of Mineworkers was conceded, it was conceded not only to those who work underground but to drivers, typists and others. It may be that other nationalised industries and private industries would have had some questions to ask about that.

I throw out these ideas. How could they be developed? NEDO is perhaps a base on which all this could be built. It would have to be consultative in the beginning, but it might ultimately evolve into a third chamber of Parliament, with limited but real powers.

I turn to the other side of the equation. We have to do certain things to secure the co-operation of salary earners and wage earners. I have sketched what they might be. It will be no use doing them unless at the same time we can give confidence to industry and finance to invest in growth. There are at present various material constraints on that—high interest rates, the decline in certain foreign markets and so on. But a great deal of it is psychological. I do not want to go into the matter in detail, because my right hon. Friend the Leader of the Opposition did it in his speech. There are the threats of nationalisation, threats of State take-overs, the kind of syndicalism in the Green Paper to which I re- ferred, the clobbering of industry by excessive taxation. All these things are discouraging.

I am not saying that there is not room for reform. Of course there is. I have advocated some reforms this evening. But reform must be based on the confidence of industry that the Government of the day are trying to strengthen the mixed economy and not to destroy it. The feeling at present throughout industry and in the City is that the Government, or elements that are very influential in the Government, wish to destroy the system. We need to affirm our faith in the mixed economy. I have never understood why it should be so difficult. If one looks at the world, one does not have to form a theoretical or intellectual judgment from the text books.

There are two very good examples. The United States on one side and the Soviet Union—Russia—on the other both liberated their serfs in the 1860s. They both had the same kind of geography, and they went into the railway revolution at the same time. There have been certain differences in their history, but, broadly speaking, one has shot ahead and the other has not. The same is true to a lesser extent of East and West Germany.

I should like to say one other thing on the creation of confidence. British industry for 300 years, since the beginning of the industrial Revolution, has never been based on Britain alone. It has been based on the much wider trade and payments area of the old colonial Empire, later the Empire and Commonwealth. That is no longer a trade and payments area. The erosion of the sterling area and the imperial preference system has brought it to an end. Europe could take its place, and Europe is vital to growth. Unless there is a clear commitment to Europe, industry will not have the necessary confidence to invest for growth. That is why it is time to end the charade of renegotiation as soon as possible.

We shall very soon be on the hustings. I have tried tonight to avoid making an electioneering speech. I do not know what the alignment of forces will be after the election but it seems to me there are three policies on which the bulk of the Conservative Party, most Liberals and I should have thought what I might broadly call Social Democrats in the Labour Party would agree. They are: no more nationalisation but the encouragement of participation, a prices and incomes policy for a short time, and a clear commitment to Europe and the North Atlantic Treaty Organisation as the foundation of our external policies. I do not know what the alignment will be after the election but I suggest to the House that the need for policies of national unity will remain.

8.41 p.m.

Mr. John Roper (Farnworth)

I shall not take up directly the remarks of the right hon. Member for Brighton, Pavilion (Mr. Amery), particularly his final ones, though I must confess they were sufficiently provocative that had I as much time as he has had I would have wished to comment upon some of them at considerable length. Like a number of my hon. and right hon. Friends, I welcome the proposals which my right hon. Friend the Chancellor announced on Monday of this week. In my speech following his Budget earlier in the year I suggested that he might have been over-optimistic in his Budget judgment—and that certainly seems to have been the case. I only hope the measures he has now introduced are sufficient to deal with the problems which are facing us. I suspect that my right hon. Friend may well have to place further measures before the House later in the year.

I wish in particular that as well as the measures he has introduced he had done more to remedy some of the cuts in public expenditure—particularly in public construction—which were introduced last December, because I believe that in the months and the year to come we are likely to see serious under-employment, particularly in the construction industry. Given the considerable gaps in our provision of housing, schools and hospitals, more expenditure here would have been useful.

Like my hon. Friend the Member for Manchester, Moss Side (Mr. Hatton) who spoke earlier, I particularly welcome the further measure to aid ratepayers. Certainly, it will be welcomed in my constituency, particularly in Little Lever, where ratepayers feel very strongly about the increase. But my regret at the measures my right hon. Friend has introduced, and at the whole development of the Western economies that has occurred in the last few months, is that there has been a lack of agreement either within the European Community or within the broader framework of OECD as to the form of co-ordinated package in all our economies which would assist all our countries to tread more effectively and more confidently the narrow tightrope between recession on the one hand and hyper-inflation on the other.

Mr. S. James A. Hill (Southampton, Test)

Is the hon. Gentleman not aware that only yesterday the Minister for Trade completely blocked Community co-operation on an energy policy?

Mr. Roper

I have read Press reports of the discussion on energy policy, and from what I have seen the Commission's proposal requires further discussion. I hope that agreement will be reached on this very shortly. But whether or not it is a question for the Community of Nine, it is quite clearly within the wider context of the whole of the industrialised countries of the OECD. Certainly, the OECD Economic Outlook, published only today, shows that the chance has not been taken to co-ordinate the policies of the Western world. It is that which I regret, and I am sure the hon. Gentleman will agree with me in regretting this failure to find the common package which is needed. I hope that my right hon. Friend will continue his efforts to work out common policies—policies which will differ from country to country within the Community and within OECD, depending on the economic circumstances—which can be co-ordinated in the common interest.

I realise the great difficulties which are now facing the Government in handling economic policy. For a variety of reasons, we are operating outside the normal parameters of our economic models. The forecasts made by the Treasury, the National Institute, the OECD and other bodies are probably even less reliable and more difficult to interpret than usual.

Mr. Harold Macmillan once referred to economic forecasts being on a par with looking up a train in last year's Bradshaw. At present we are in a situation of trying to plan a road journey on the basis of the Domesday Book. Therefore, in this situation of great uncertainty, fine tuning is more difficult than it has been in the past. The amount of action which the Government can take to establish the solution to our problems is limited. It would be rash and dangerous for us to claim too much in terms of action that the Government can take. The Government's main job in this situation is to make clear to the decision makers in the economy—the companies, the trade unions and others—the realities of the economic situation so far as they are known and the dimensions within which economic decisions can and should be made.

The right hon. Member for Brighton, Pavilion referred to Neddy as having an important role to play, but the discussions in that body, although valuable, since they bring together trade unionists, industrialists and Ministers, are in a semi-confidential setting. My right hon. Friends should do more than they have to explain to the country our economic problems. Together—I emphasise the word "together"—rather than with Government making all the decisions for us, we can, as a country, make the right decisions in the inevitably difficult months that lie ahead.

A clear statement of the problems facing us and of the limits in respect of what is and is not possible is an essential precondition to our reaching sensible and satisfactory solutions. It would be disastrous if our economic situation deteriorated, as it might, not because of external factors but because people in this country were making decisions in ignorance of our serious difficulties. I hope that in the months that lie ahead my right hon. Friend will ensure not only that further measures are taken when necessary but that more is done to make sure that people on both sides of industry are aware of the dimension which faces us, so as to ensure that decisions are taken in the interests of the whole nation.

8.50 p.m.

Mr. Esmond Bulmer (Kidderminster)

I should like to begin by saying how much my constituents welcome the rate relief granted in the Chancellor's measures. Had he accepted our new clause to the Finance Bill on this topic, my constituents would have been relieved more in line with the burden imposed upon them by the Secretary of State for the Environment. Of the county council increase of 17p, 10p came from the reduction in rate support grant.

I wish to talk about the fundamental lack of confidence which, as someone who has worked in industry all my life, I feel. I think one could start with the proposition that investment and risk-taking are less profitable in the United Kingdom than anywhere else in the West. I would follow the Prime Minister in saying that the lack of confidence, the lack of investment, is something which is very deep-seated in this country. It probably goes back to the organisation of our educational system which followed the reforms of Arnold and Jowett and which organised our society for empire and not for industry and commerce.

As a result of these reforms the most able men went on to the Civil Service or the City or stayed at university: they did not go into industry. The result was that the universities produce brilliant inventions which were capitalised by others, notably the Americans. The City, in the words of a Frenchman, became full of good bookmakers but was bloody bad at breeding horses. The Civil Service continued to prefer the advice of academics to that of practical industrialists, and one could say that commercial acumen was at a discount, in the hands of people who were largely not accountable for their actions.

In the nineteenth century the harshest critics of manufacturing industry were certainly in the Conservative Party. When Joseph Chamberlain crossed the Floor we on this side of the House started to learn something about industry—somewhat imperfectly and in no way more clearly demonstrated than in the distinction which was allowed to develop between return on property investment and return on manufacturing industry by the last Government.

The Labour Party has drawn its inspiration from two main sources: one simply wishes to overthrow the system, and the other to transform it through the exercise of State power. Neither stream of thought accepts the profit motive for what it is, the most perfect instrument yet devised for the efficient use of resources. Small wonder that against this background manufacturing industry lacks confidence. Small wonder it questions the credentials of those who seek to direct it. Small wonder it points to the record. What management would last an hour beyond the annual general meeting when, commanding a monopoly of gas or electricity or steel, it had to confess that it could not make a profit? Yet this is the record of the Government and the Civil Service. Who would put money into the National Enterprise Board, if it were rash enough to invite it, when he examined the State's record on picking losers and the treatment of those rash enough to deposit their savings with it?

Industry is sick to the teeth of the suggestion, which is implied by continual interference, that the objectives it pursues are less moral or patriotic—in the best companies—than those obtaining in political parties. Certainly its concern for employees and shareholders compares favourably with the record of the Treasury. It is sick to the teeth, too, of being lectured by those who have no apparent credentials for industrial management, by men whose failure is met by no higher sanction than translation to the House of Lords or perhaps to some regional water authority, there to be comfortably flushed from sight.

I do not believe that industry is afraid to consult with the Government on its intentions. I believe it would welcome it. It welcomes much legislation that goes through the House. If only the Government would cease beating it about the ears!

If the Government wish to see industrial investment increase, let them ensure that that investment is profitable. How many companies could cover their dividends today on the basis of inflation accounting? Let them ensure that members of companies are properly rewarded. Even the most able today can maintain their standard of living only by changing jobs or emigrating. Let them ensure that productivity gains are fairly distributed throughout the companies. Let the Government look once more at the need for an incomes policy.

Two companies I know have recently granted wage awards in excess of last year's profits without knowing whether they can pass on these costs. Either way the choice is between unemployment and inflation, and it highlights the failure of the Chancellor to tackle the fundamental issue before us.

If the Government want investment they cannot allow a situation to continue whereby prices are held down while wages are not. Above all, if the Government want investment they must look at the combined effect of inflation at an accelerating rate and the present levels of taxation. There is no real return on most investment today. Where can a person put his savings so that inflation does not corrupt them or the Chancellor break in and steal them? Not in productive enterprise. Perhaps into land, where the attacks on incomes have driven a disproportionate amount of our resources.

This is clearly a considerable threat for the fanning industry, which is not at the moment profitable. If the Chancellor is determined to develop his attacks on capital as he has developed his attacks on income, he will find that confidence collapses absolutely.

Any farmer today who wants to hand his farm on to his son finds that, if the value of the farm does no more than keep pace with inflation, after 10 years he has to hand half of the value of the farm over to the Exchequer. It is small wonder that farmers talk of returning to the dog and stick and small wonder that we can expect a massive failure of agricultural investment.

If the Chancellor wants to encourage investment he could do worse than look at the example of Germany. There the Government have held down inflation and maintained domestic stability. The tax and banking systems encourage investment and ensure that it is rewarded. Their trade unions are organised in a way which discourages disruptive strikes and enables trade union members to have a greater identity with the companies for which they work.

Their educational system, their foreign service and the mores of their society are more in train with their industrial enterprise than are ours. If the Chancellor does manage to go to Germany, perhaps he could look a little further to the east and remind himself that State intervention and State control has nowhere provided a basis for a civilised society.

If the Chancellor persists in his declared intention, if he moves further towards creating a society in which hard work has no reward and incompetence no sanction, surely he will bring this country through its decline to its fall. If, on the other hand, at this late hour he takes the shackles from those who can create the wealth necessary to bring about the recovery we all wish for, if he sheathes his dagger and casts to the floor the poisoned chalice held out by the Secretary of State for Industry, perhaps the fall may be arrested and the recovery may begin.

8.58 p.m.

Mr. John Tomlinson (Meriden)

I am sure the House will forgive me if I do not follow the hon. Member for Kidderminster (Mr. Bulmer) in his remarks. I wish to refer to some of the earlier comments made by the hon. Member for Havant and Waterloo (Mr. Lloyd). During his speech he spoke about unemployment being no real spectre in a Welfare State. He said that workers did not give a damn if they were unemployed. The experience of some work groups in our community—for example, the Triumph workers at Meriden in my constituency, who have been fighting for nine months for the right to work—gives the lie to that kind of nonsense. This is totally unacceptable to most working people.

A man who is able to work but for whom there is no employment is a tragedy in human and economic terms. It is nonsense for Conservative Members to pretend that we can solve the economic problems of the country by the deliberate creation of unemployment.

In welcoming the Chancellor's measures I wish to refer particularly to the rates issue and to the rate relief my right hon. Friend has given. My hon. Friend the Member for Manchester, Moss Side (Mr. Hatton) referred to the problem of rates, the way that problem had been created by the unnecessary reform of local government and the criminal stupidity of reforming it without reorganising the financial basis of local government.

I must disagree with my hon. Friend when he tries to draw comparisons between rural and urban areas. I said in the debate on the rate support grant that I do not think we shall solve the problem by tinkering about with distribution between one and the other. What is fundamentally wrong is the rating system itself. I hope that the House regards the relief given by the Chancellor, welcome as it is, as being of an interim nature which is a prelude to a fundamental reform of the whole basis of local government finance.

In the short time that is left to me I shall briefly turn to the remarks made by the right hon. Member for Brighton, Pavilion (Mr. Amery) about inflation. He said that inflation was internally created. The imputation of his remarks is that it is trade unions and work groups who have a direct effect on inflation. May I remind the right hon. Gentleman that the major inflationary pressures are threshold agreements from his own Government's incomes policy. I suggest to him that an examination of the history of the last 20 years will show him, or should show him, that the experience of statutory incomes policy has been such that it leads us to the conclusion that it does not solve inflation but merely postpones the problem to be dealt with by someone else.

I welcome my right hon. Friend's measures, and I hope that the country will judge them in the light in which they will solve our problems.

9.1 p.m.

Mr. Michael Heseltine (Henley)

Anyone versed in parliamentary procedure will well understand that the Government have taken the opportunity to ensure that the House passes no decisive view about the Government's industrial policies. They have used a time-honoured procedural device to preclude the possibility of a Division upon that subject which the Opposition wished to see debated. Of course, we can well understand that the Government have no wish to have their industrial policies debated. It would be unrealistic, we having pressed the Government into surrender on the rates issue, now to put ourselves in the totally false position of voting against the very measures which we have been trying to persuade them to adopt.

We find ourselves on this one issue alone, responding to the electoral atmosphere in which the Chancellor has dealt with his Budget Statement. We refuse to find ourselves put into a false position which will be misrepresented by the Chancellor, as have so many other aspects of the debate, in speech after speech.

The Prime Minister has asked me to explain that he has an urgent matter to deal with and that he much regrets—

The Financial Secretary to the Treasury (Dr. John Gilbert)

rose—

Mr. Heseltine

Yes, the Prime Minister, the right hon. Member for Huyton (Mr. Wilson). The Prime Minister has explained to me that he is not able to be present. I fully understand that situation, as will all right hon. and hon. Members who know about the way in which these matters can happen.

Mr. Ron Lewis (Carlisle)

Why mention it?

Mr. Heseltine

I mention it because the Prime Minister asked me to do so. I do not think that that is unreasonable.

The background to the entire debate has been one on which there has been a real measure of agreement on certain aspects. The whole House has listened to speech after speech from hon. Members who understand the gravity of the position that no faces us. There is no doubt that to be confronted, as we now are, with an annual external deficit of £4,000 million, an annual rate of inflation running in excess of 20 per cent., the prospect of unemployment rising next year from about 21 per cent. to about 4 per cent., and the possibility that there will be an acceleration in the declining investment performance of industry, can do nothing but send a shiver down the spine of anyone who has considered these grave facts and has come to face the reality that they may well mean.

The difficulty which the Chancellor hinted at in his speech is that he is surrounded by conflicting advice that is diametrically opposed in many aspects. What he seeks to do is implicit in what he said in his Budget Statement. It seems that he has decided to do that which is likely to be electorally popular, namely, that which will have only the most minimal effect upon our real problems. He has made it clear that his judgment about the mass of economic problems facing him will be left to a Budget Statement which, in his delusion, he believes he will introduce later this year. Therefore, those issues with which we are dealing are those most likely to have a political and not an economic effect.

Again, I believe that the House will agree that there are many factors beyond the control of the Government, as they were beyond the control of the Conserva- tive Government—although the willingness of Opposition Members now to recognise just how many of these factors are beyond the Government's control is a great deal more obvious than when they were in opposition.

The fact is that, on the estimates we have available, commodity prices are now likely to help the position. However, the trends in world trade are not likely to help. The economic actions of other countries, on which we are so dependent, are beyond this country's control. It is not being guilty of over-humility to realise how dependent we are on other people and on the actions they take.

But if there is that measure of agreement, there is undoubtedly another problem on which there is little agreement. Never has there been greater need, first, to tell the truth to the British people, and, secondly, to seek policies which will attempt to unite where too often there have been policies which divide the people. Never has there been greater need to try to find a consensus in which the whole nation, or the vast majority, can respond to the initiative and leadership of the Government—because in reality, within the framework of our economy, only the Government can give decisive leads. If ever there was a time when the Government should search their own souls and consider their own policies in order to be sure that they have done everything reasonably practical in seeking support from the overwhelming majority of our people, that time must be now.

If there are policies which we believe the Government should take quickly to deal with the problems now growing and which are becoming every day more evident, one of them must arise from the way in which the Government have dealt with the corporate sector of the economy and another from the way in which the Government will deal with the escalating rate of wage inflation which every independent observer agrees will grow as the autumn develops. For the Government to ignore or stand back from these problems will, in my judgment, be seen, in the context of this decade, as one of the greatest abdications of responsibility by any Government of our time.

There is no doubt that everyone realises that if we are to maintain our prosperity, or to attempt to maintain that part of prosperity that the vast majority of the electorate believe to be indispensable, it cannot meaningfully be done unless we can involve the corporate sector of the economy in our endeavours. As my hon. Friend the Member for Kidderminster (Mr. Bulmer) eloquently pointed out, it is not possible to see how our mixed economy can invest and create jobs and offer to our people a rising standard of living, albeit over a relatively long period, unless that sector of the economy makes profits and the nature of profits is explained to and understood by the people who work in those companies. if that does not happen, the consequences are as clear as they could be. First, jobs will be at risk. The Chancellor of the Exchequer knows this as well as we do.

It is not for me to say whether The Times is right in suggesting that there will be a rise in unemployment from 2½ per cent. to 4 per cent. or whether the present level of 600,000 unemployed will be closer to 1 million in a year's time. It is for the Government to publish the best evidence they have available of the way they see economic trends developing, but the present Government are denying—for the first time since 1968, despite the concept of open Government—to informed commentators and the House of Commons the figures which were first produced by a Labour Chancellor in 1968 and which have never been withheld since. The Chancellor must tell the House why he will not publish those figures.

If he now believes that there is a degree of uncertainty which makes it impossible to do that, he must spell out what that continuing uncertainty amounts to. Why can the OECD publish figures not merely for the British economy—after discussing the British economy with Treasury officials—but for the economies of all the other countries involved? Why is the OECD able to do that, in consultation with the Chancellor's officials, while the Chancellor cannot let us into his confidence? The reasons are clear. The Chancellor knows—probably beyond doubt—that the figures will show levels of unemployment that everybody, on both sides of the House, regard as intolerable.

If we do not foster the corporate company we shall not find a way to increase real wages—paper wages, yes, but not real wages—and there will be an immedi- ate and growing effect upon the pensions of the people who are dependent upon the assets and equities of these companies. It is just a small straw in the wind that yesterday the National Westminster Bank had to transfer £10 million to its pension fund out of its profits in order to top up the fund. It must not be forgotten that the assets backing the national occupation pension scheme have declined in value by 20 per cent. since the Government came to power.

The savings of our people as represented in the unit trust movement and in life assurance and other forms of equity participation have all suffered from the dramatic decline in the value of the British investment in private companies since the Government were elected. The Chancellor believes, apparently, that he had no part to play in this situation. He came to the House of Commons shortly after he was elected, in that brave new dawn of Socialist Government, to squeeze the pips of the corporate companies in a way which could only have the most disastrous consequences. He took £1,100 million out of their liquidity in the current year and he believes that that is not likely to have the most damaging effect upon the fortunes of these companies in the future.

He has the effrontery to suggest that my right hon. and hon. Friends put forward during consideration of the Finance Bill proposals which would cost £500 million in the votes which were carried. He knows that we did not in any way vote for and succeed in carrying—[Interruption.] If hon. Members on the Government side are now saying that every Opposition vote in Committee or on Report has to be added up and quantified they must realise that their record of what they did in opposition will be brought into the same arena. Such a suggestion is a total and absolute fiction of parliamentary democracy. My right hon. and hon. Friends carried amendments which affected £60 million worth of the Budget judgment—that is all—in the current year, and it is a total deception for the Chancellor to pretend that it is anything else. It is no good working on the basis that by telling something big enough and often enough it sticks. It is no good repeating the figure of £500 million. The Chancellor knows that that is a total delusion.

We had the squeezing of £1,100 million of company liquidity at a time when, in real terms, the proportion of profits in the private sector, as a part of the national product, was declining. If we take account of stocks and capital consumption we find that there appeared to be an increase, but that in reality—if we discount the inflationary element—the element of profit going into the national income was declining in 1973.

It is against that background that we have to listen to the Chancellor and, today, the Prime Minister, discussing investment. Everyone in the House is aware that investment is a crucial part of job improvement and increasing opportunities. Everyone knows that one of the dilemmas that have upset all Governments is the time lag in the growth of confidence in industry—the interval between the time of the intention to invest and the time when the intention comes through in the form of orders for factories or developments in places where building contracts happen to be located.

For the Chancellor of the Exchequer yesterday to justify himself by asking what the fuss was about because investment in the first quarter of 1974 was higher than it was in the last quarter of 1973 and the investment in the second quarter of 1974 was higher than it was in the first quarter of 1974 is totally and monumentally irrelevant. We are concerned not with investment that is materialising now because of the increased industrial confidence which the Conservative Government created, but with the investment which will flow from the decisions of the Labour Government. The decisions of today will materialise in cash terms in 18 months' or two years' time.

The graphs for the period from 1958 to 1973 show that in 1959 there was a peak of investment expectation and confidence which was not mirrored in expenditure until 30 months after the industrial community developed that sense of confidence. In 1963, when there was another peak of industrial confidence, it was 24 months before industrial investment peaked out. In 1971 it was 18 months before investment intentions were translated into cash. We are concerned about the relationship between the decisions and investment intentions of today and the level of industrial investment that will follow in 1975 and 1976.

Equally indicative of the dilemma we face is the relationship between profits and investment. Since 1961 there has never been a time when there was not a direct relationship between rising gross trading activities and rising investment. Equally, there has been no time when declining profits were not followed by declining investment. That is why my hon. Friend the Member for Kidderminster is right in saying that the decline of profits and the decline of industrial investment intentions today can only aggravate the danger of growing unemployment next year or the year after.

Planning decisions, ordering decisions and design decisions have to be taken. One cannot buy steel in under a year. In certain areas of the economy one cannot obtain components in under a year. To translate that into investment requires a time-lag.

I was staggered to hear the Prime Minister say that investment went down within four months after my right hon. Friend the Leader of the Opposition had urged British industry to invest. My right hon. Friend created the circumstances in which the European venture became possible, and industry began to lay plans which came through decisively towards the end of 1973. It would be pathetic for the Prime Minister to make that cheap debating point about investment falling within four months after my right hon. Friend's speech were it not for the fact that throughout the country people who were responsible for investment decisions will read what the Prime Minister said and realise that he is totally out of touch with the decision-making process throughout British industry.

The Government have completely failed to understand the relationship between industrial confidence and the need to maintain the effort and morale of British industry. That is shown by the way in which the Secretary of State for Trade refused to understand the point put to him about the continuing refusal to clarify the areas where ECG investment cover is likely to be available for British industry in future. It is no use his saying "I have not yet announced a review, and if I announce a review I will let everyone know the details." We all fully understand that. But, before sending its sales missions across the world, industry wants to know whether, if it succeeds in landing contracts, it can be sure of the backing of the British Government. It is the Government's refusal to give a clear statement which is causing so many people to wonder where they should be trying to sell.

I welcomed the announcement by the Chancellor of the Exchequer of the loan from Iran. My right hon. Friend the Member for Altrincham and Sale (Mr. Barber) and my right hon. Friend the Member for Worcester (Mr. Walker) tried persistently to reach agreement with Iran on a whole range of different matters, including finance, because they realised the importance of Iran in the developing world and the immense significance of the Shah in the leadership that he gives that world. The loan is obviously a matter which continues a policy which the previous administration started.

What I cannot help point out is the difference of approach between the French Government and the British Government. This Government have come back with a loan of $1,200 million but with no offsetting trade benefits. The French Government announced that they had obtained an advance deposit of £400 million against orders for five nuclear power stations, a special steel plant, underground railways, a gas liquefaction plant and 12 liquid gas tankers. Iran is anxious to trade. The previous administration discussed a whole range of trading agreements with the Government of Iran which would have created jobs and opportunities in this country. But, as a result of the attitudes which have made this Government an uncertain trading partner, Iran has changed its approach and is now investing heavily in France.

If I am asked what the Conservative Government produced, I would remind the House that we obtained the first orders for the Concorde ever secured outside the United Kingdom and France.

I turn from the arguments about squeezing liquidity in industry, and the harm to investment and the unemployment that it will cause, to move on to what is perhaps the most difficult and dangerous areas of activity that this Government have embarked upon since coming to power. One of the matters in which the Chancellor of the Exchequer took pride was his decision to double the regional employment premium. But, as I listened to the right hon. Gentleman, I heard about nothing but the need to protect jobs in the regions and to help those areas of the economy which traditionally do not expand as fast as the South-East and the Midlands. I did not hear that it will increase the £2 million a day which the Secretary of State for Industry accuses British industry of taking from the taxpayer to bolster up its inefficiency. The harm which the Secretary of State for Industry is doing by referring to regional subsidies and grants as attempts to subsidise British industry will create far more unemployment in the regions than any doubling of the REP which the Chancellor intends to do will prevent.

It may be that the Chancellor of the Exchequer will accept the view of a man whom everyone understands and respects. I draw the right hon. Gentleman's attention to the statement by the Chairman of Beechams, Professor Sir Ronnie Edwards. I remind hon. Members of the track record of that industrialist: an academic, the chairman of the nationalised electricity supply industry, a director of British Airways and now the Chairman of Beechams. Few men can have had the opportunity to see the whole spectrum of British industrial organisations with the experience that he has.

Today he said: I am convinced on stronger grounds than the propaganda that we should do all in our power to prevent the growth of industrial control by Government because there is every reason to believe it would reduce not merely industrial efficiency but individual freedom. The statement continued: The appetite for intervention grew on what it fed on … 'until intervention is all-pervasive and economic and political power are concentrated in the hands of the State'. That is a statement by a man who has seen all aspects of industrial reorganisation in this country and is in a position to judge how all sections of the economy work. Many hon. Gentleman opposite will know Sir Ronald. As a Minister, I worked with him. There is no man with greater detachment or who is prepared to try to make any form of organisation work more determinedly than is Sir Ronald. If people like him are making statements like that, this Government have cause for concern and they should take that point well on board.

If the Chancellor of the Exchequer is the leech which has fed upon the liquidity of industry, there is no doubt that the carrion crow which is waiting for the pickings of the flesh is the Secretary of State for Industry.

In the early days of this Government we were promised a wide dialogue involving the future reorganisation of Government and industry. We were told that there would be a Green Paper and wide consultation. But the Green Paper became a White Paper, the White Paper became a transparent paper, and the transparent paper has now become totally invisible.

It is clear that the Government, despite the fact that they are doctrinally committed to the furtherance of Socialism, believe that if they can get through to the Summer Recess, if they can water down their industrial proposals in a White Paper which will never be debated in this Parliament, they can deceive the electorate into believing that there will never be quite the same impact as we all know they intend if they get a majority at the General Election.

I am disappointed that the Secretary of State for Industry has not had the opportunity to carry out what he promised. We were promised a wide discussion, and meetings in every industrial city in the country. I believe that should have happened. Indeed, it will happen. We will make sure that meetings are held in every industrial city in this country.

The Secretary of State for Industry believes that his proposals are not fully understood. I shall help him to ensure that they are fully understood.

The reality is that this Government are more determined to spread their Socialist convictions than to manage the economy effectively in the nation's interests. No one should believe that this is a personal ambition of the Secretary of State for Industry. It would be tempting to try to make him the scapegoat for this Government's industrial policies.

I wonder what the impact on industry would be of a Chancellor of the Exchequer who said: We are all agreed on the need for a massive extension of public ownership into building land, North Sea oil, the ports, shipbuilding and ship repairing. On top of this we are working out proposals for a further extension of public ownership into insurance, banking and the aircraft industry. We are all agreed on establishing comprehensive planning control over the 100 or so largest companies in Britain. We are all agreed on the need for a National Enterprise Board to organise and extend public ownership in the profitable manufacturing industries. No one should believe that it is the Secretary of State for Industry who is the enemy in this situation; it is a Labour Government, with a majority. At a time when the nation is crying out for policies upon which the overwhelming majority of people can unite and work to overcome the most grave industrial crisis that we have ever had, it is a Labour Government who will never compromise, who will never conciliate or move from their long-term declared aims, because co-operation with anyone other than themselves is not the language of Socialism.

9.29 p.m.

The Chancellor of the Exchequer(Mr. Denis Healey)

I think that both sides of the House will have found it helpful to have had a preview of the election speeches that the hon. Member for Henley (Mr. Heseltine) will be making in the next month or two. The best thing that I can say about his speech is that it shows that, with effort, he will make a worthy successor to the right hon. Member for Worcester (Mr. Walker). [An HON. MEMBER: "Cheap!"] Cheap indeed!

The astonishing announcement with which the hon. Gentleman opened his speech—the announcement, I may inform my hon. Friends who may not have been present half an hour ago, that the Opposition are not going to vote tonight on the motion of censure against the Government—makes a fitting conclusion to the most extraordinary two days that I can recall. The hon. Member has announced as a general principle of Conservative policy that the Conservatives put amendments on the Order Paper with no intention of voting, that if they vote they have no intention of winning and that if they win they have no intention of carrying out the decision which is reached.

In the last two days Opposition spokesmen have been continually shifting the ground on which they have stood since the stunned and slightly hysterical reception they gave to my announcement of my measures on Monday afternoon. Every Opposition Front Bench speaker from 3.30 on Monday afternoon until 9.30 on Wednesday evening has taken a different line. Indeed, the right hon. Member for Carshalton (Mr. Carr) shifted his line between the speech that he made in the House at 4.30 yesterday and the speech he made on television five hours later.

In this situation the Leader of the Opposition did the only thing possible this afternoon. He combined every one of those contradictory attitudes in one speech, leaving the House as much in the dark about the real views and policies of his party as it was two days ago.

I will take up the right hon. Gentleman's major points one by one. First, he professed this afternoon an intense dislike for, indeed disgust at, the prospect of unemployment. Yet, as a deliberate act of policy in his first two years as Prime Minister he produced a million unemployed. His last act before leaving office was to produce 2 million unemployed as a result of a totally unnecessary confrontation with the working population. He made it crystal clear this afternoon that if he were by any mischance re-elected to power he would follow once again the precise policies which led the nation so close to disaster only six months ago.

Mr. Heath

I think that one must say to the country what this House already realises, which is that the Chancellor of the Exchequer has a congenital capacity for parliamentary deceit which is unequalled in the memory of anyone in the House. It is perpetual deceit, and it is reiterated in every speech he makes. What the country ought to realise is that in one of the gravest situations that this country has ever faced he is entirely unworthy of his high office and quite incapable of dealing with national problems in the national interest.

Mr. Healey

The right hon. Gentleman has just demonstrated his inability to answer any of the facts which I have mentioned. The facts are that he produced I million unemployed within 18 months of taking office, that he left office with 2 million unemployed and that he has announced again this afternoon that he proposes to follow the same policies if he is ever again in power as led this country to disaster six months ago.

Right hon. Members have asked me about my views about the future prospects for employment. I tell the House frankly, as I did yesterday, that the prospect at the moment is for increasing unemployment during the winter to come and considerably increasing unemployment in 1975. That view is one that is held not only by me but by the OECD, by the European Community and by others who have in recent months attempted to predict the future in Britain. I believe that this trend must be stopped. I began the process this week by restoring £200 million worth of demand into the economy, which I had taken out of the economy in March with the approval of hon. Members of the Opposition. I believe that it would be unwise to go further at this time in restoring demand without more international consensus on the nature of the problem which not only Britain but all the oil-consuming countries now face. I hope that this consensus will be achieved by the autumn, as I said yesterday, as the risks of a world recession become clearer to some of my colleagues in some other countries.

However, what I find it impossible to form a view on, after the right hon. Gentleman's speech this afternoon, is whether he thinks that I did too much in the measures I took on Monday, whether I put in too much new demand—in which case how much more does he think that I should have put in? His right hon. Friend the Member for Carshalton made it very clear in the article that he wrote in the News of the World on Sunday that he thought I should not put more demand into the economy and he seemed to imply that in the rather obscure television broadcast he made last night. Indeed, most hon. Members who have spoken from the Opposition benches tonight have very clearly indicated their view that I was wrong to do anything on Monday in order to reduce the possible rate of unemployment over the next 18 months. The House has no clearer idea now than it had at the beginning of the debate yesterday what the Opposition's real view is about what should be done about a prospect for—[Interruption.]

Mr. Hugh Fraser

rose—

Mr. Tapsell

rose—

Mr. Healey

With respect, I am very well aware of the hon. Members' views. I know the views of innumerable hon. Members on the Opposition benches. But no speaker from the Opposition Front Bench has given the slightest indication, in two days of debate, whether he thinks that I have done too much or too little in order to deal with the growing problem of unemployment.

Mr. Heath

In view of what the Chancellor has now said about his own anticipation of heavy unemployment in 1975, is he prepared to be accused of deliberately creating ¾ million or 1 million unemployed in 1975? if he is not, why does he levy that charge against his opponents, who in 1970–71 had to put up with the creation of unemployment by the deliberate wage burst which occurred after his Labour predecessor's Budget in 1970? That is the sort of argument in which he engages. Now let him reach up to a national level.

Mr. Healey

The right hon. Gentleman's incoherence is a measure of his incapacity to make a contribution to a serious discussion of the nation's present needs.

I come now to the somewhat lengthy section in the right hon. Gentleman's speech about the balance of payments. From what he said I assume that he agrees, as did his right hon. Friend the Member for Carshalton, with the view I hold myself—that, as there is little prospect of the oil-producing countries being capable of absorbing goods to the value of the oil they sell before the end of this decade, it would be a disastrous error for the oil-consuming countries to enter into cut-throat competition for a rapid closing of the whole of their balance of payments gap in a period in which we know this to be physically impossible. We know that the oil-producing countries will have a monetary surplus as a result of the increase in oil prices this year of between $60 billion and $80 billion—perhaps more, perhaps less—in 1975.

If it is both impossible and undesirable for the consuming countries to attempt to close the whole of their deficits—

Mr. Hugh Fraser

Will the right hon. Gentleman give way?

Mr. Healey

No. With respect to the right hon. Gentleman, I must get on. The Leader of the Opposition has already wasted enough time.

If we cannot close the gap—

Mr. Hugh Fraser

rose—

Mr. Healey

—we must finance the gap—[HON. MEMBERS: "Give way."]—by borrowing.

Mr. Hugh Fraser

rose—

Mr. Healey

The Conservatives cannot attack the Government for borrowing, and speakers today have not sought to do so since they borrowed £2,600 million in the public sector to finance not the oil deficit but the non-oil deficit last year. The excuse that the right hon. Gentleman gave this afternoon—

Mr. Hugh Fraser

On a point of order, Mr. Speaker. During this debate many points have been raised on the question of borrowing but the right hon. Gentleman has not agreed to make a statement—

Mr. Speaker

Order. This is not a point of order.

Mr. Healey

I shall deal with the right hon. Gentleman's point in a moment. I think he will then agree that he was wise to contain himself.

The extraordinary argument by the Leader of the Opposition was that the Conservatives borrowed these immense sums of money last year in order to finance growth, but the growth which began in 1973 stopped completely by last autumn. The deficit on the balance of payments was rising, and it was at its highest by December, and that is why in December the Conservatives totally reversed their economic policy with the so-called Barber cuts in public expenditure and changes in hire-purchase controls.

One thing has been achieved by this debate. We are having no more jokes from the Opposition about the gnomes of Teheran. I must confess that I do not blame them because, as the hon. Member for Henley has just admitted, the last Tory Chancellor did not wait for an approach from the Iranian Government as I did—he rushed off to Switzerland in January, forcing a leading British Conservative newspaper to say how incredible and ignominious it was that the Chancellor should take to the slippery slopes of St. Moritz. [HON. MEMBERS: "Which paper?"] It was the Daily Express. My predecessor flew to St. Moritz, spent several days in a hotel waiting for an audience and in the end did not get the money. The right hon. Gentleman made a trade arrangement.

Mr. Heath

This is again characteristic of the Chancellor of the Exchequer's plain deceit. This is parliamentary deceit. Will he kindly tell the House the details of this allegation which he makes about my right hon. Friend the Member for Altrincham and Sale (Mr. Barber). My right hon. Friend went with my right hon. Friend the Member for Worcester (Mr. Walker) in order to negotiate a trade arrangement, which is something more than the Chancellor has secured, and there was no question of waiting days for an audience. Why does the Chancellor of the Exchequer lie to the House like this?

Hon. Members

Oh!

Mr. Ioan Evans (Aberdare)

On a point of order, Mr. Speaker—

Mr. Speaker

Order. On reflection I think that the right hon. Gentleman will realise that that is one of the words I am not allowed to permit.

Mr. Heath

In that case, Mr. Speaker, I replace that word with my original phrase of parliamentary deceit.

Mr. Healey

The right hon. Gentleman is in a bit of a bake tonight, so much so that he obviously did not listen to what was said by his hon. Friend the Member for Henley. His hon. Friend said in as many words that the previous Chancellor went to St. Moritz in order to negotiate a loan which I finally succeeded in negotiating. Those were exactly the words he used.

Mr. Heseltine

I appreciate that it is a reflection on my memory, but I did not even know that my right hon. Friend had been to St. Moritz.

Mr. Healey

It will be within the recollection of the House that the hon. Gentleman referred to the previous Chancellor's entering into discussions with Iran. He said that it was in Switzerland. He may not have known that it was in St. Moritz.

The hon. Gentleman claimed that the loan I have just succeeded in negotiating was prearranged by my predecessor. I hope that the Leader of the Opposition will not accuse his hon. Friend of parliamentary deceit. As I think that the right hon. Gentleman must have been as well aware as his hon. Friends of the facts, the words he used are better applied to himself.

The right hon. Member for Stafford and Stone (Mr. Fraser) asked about the amount of long-term borrowing.

Mr. Hugh Fraser

Short-term.

Mr. Healey

The Government as such have carried out no short-term borrowing, but I am glad to say that confidence in sterling in the outside world is so great that many foreign Governments and others have placed short-term funds in London.

Mr. Hugh Fraser

How much?

Mr. Healey

It is not a figure that is ever given.

Mr. Hugh Fraser

Then I will tell the right hon. Gentleman—

Mr. Healey

What I will tell the right hon. Gentleman is that the previous Government arranged loans of £2,600 million—long-term borrowing.

Mr. Hugh Fraser

Short-term?

Mr. Healey

Short-term borrowing is a matter for the individuals who choose to put their money in London. But this is not something that is contrived by the British Government. I should have thought that the patriotism of Conservative Members would lead them to welcome the fact that so many foreign Governments have so much confidence in Britain that they are leaving money in Britain in spite of the fact that there have been occasions recently when the interest rate in Britain has been lower than that in New York.

Of course, borrowing to finance a deficit imposes a serious future burden of repayments, but every consuming country in the world has to do it. We at least have North Sea oil, both as a collateral and as a powerful support for meeting the problems that will face the nation, as they will face other nations which do not have this advantage, when the time for repayment arrives.

The Leader of the Opposition, contrary to his right hon. Friend the Member for Chipping Barnet (Mr. Maudling), said that we should close the balance of payments gap faster. But the right hon. Gentleman gave us no indication how much faster, by what sort of methods, and at what cost to living and social standards in Britain. I asked him this question, and he gave me no answer.

Now I come to the question of what we do about the whole complex of problems we now face. What we are still waiting to hear from those on the Opposition Front Bench is whether they believe—[Interruption.]—I am discussing my measures now—whether they believe that the amount of reflation I put into the economy on Monday was too much or too little or just right. What we have heard from them today—very different from their reaction on Monday—is that they support the reductions in value added tax and the measures we have taken on the rates. It is not clear whether they support the measures we have taken to keep the price of flour stable, although the Leader of the Opposition made it clear this afternoon that he holds the extraordinary economic view that to stabilise prices that would otherwise rise is no contribution to the fight against inflation.

The position of the Opposition on the regional employment premium is obscure, but as far as I can make out from what the right hon. Gentleman said this afternoon he still does not oppose the increase, but he thinks that the REP should in any case be phased out in October. If he takes a different view on the REP, I wish he had made it clear to us. The right hon. Gentleman has now had the political and moral courage—and I agree that it takes some—to agree that he is no longer going to try to re-introduce the Industrial Relations Act. I had the impression from the words he used about it the other day that he shares the view expressed not long ago that it has soured or sullied industrial relations. Now, that he himself takes this view I hope that he will have the decency to appeal to the Confederation of British Industry to let poor Mr. Campbell Adamson out of the penitentiary within which he was confined for saying exactly the same thing during the last General Election.

I am not surprised that the Opposition has decided not to vote on its motion of censure against the Government, because, after all, the motion of censure includes the words: That this House regrets that the measures … do nothing to encourage … industrial Investment … The right hon. Member for Carshalton last night said exactly the opposite—that the measures will do a little to help industrial investment. Maybe this is the secret of the retreat which the Opposition has made so very late in the day. But what the House and the country have learned from the last few days' debate is that the whole of the Opposition's policy on the central issue facing this country at the present time is a jumble of contradictions and evasions. They say we are going to have unemployment and we must prevent it, and yet they oppose reflation, They say that £340 million added to the public sector borrowing requirement is too much, yet they want to add at least £300 million in aid to companies. They say that more money to business will produce more investment, but nobody has said more often than the Leader of the Opposition, when Prime Minister, that the showering of largesse on business when he was in power had totally failed to produce investment. The party opposite is hopelessly split on all these issues and this became crystal clear this afternoon.

Mr. Alison

rose—

Mr. Healey

I have given way on several occasions, and all I had were incoherent splutterings from the Leader of the Opposition. Let me tell the hon. Member that I am just going to pay a compliment to him and those who think like him on the Opposition benches. I believe the central problem of the Conservative Party in Parliament is that it is hopelessly split on the central issues of economic policy. Many of the Young Turks of the 1974 vintage talk sense and think very much as we do on these matters, but the Old Turks, like the hon. Member for Oswestry (Mr. Biffen) and the right hon. Member for Stafford and Stone adopt a posture of puritanical monetarism; and they have recently been joined by a Greek—the ageing Alcebiades from Blaby (Mr. Lawson). If we attempt to filter out of Conservative speeches a line of policy, all we get is a shrill high-pitched whine—the call sign all over the world of a sailor who goes back to the wharf to find his yacht adrift and tumbling over the weir.

The measures announced on Monday will make a modest contribution towards avoiding unemployment in Britain. They will make a bigger contribution to holding down prices. Nobody on the Conservative benches has attempted to maintain anything to the contrary. Moreover, they will bring help to millions in our country who are hardest pressed at present, whether they are at home, or in the factories, or in the boardrooms.

The extraordinary conclusion we must draw from our debates is that the Opposition Front Bench supports each one of the decisions I took on Monday, taken separately, yet apparently it regards them all as totally irrelevant to the underlying problems of our economy.

What we have seen, above all, tonight, is the final collapse and disintegration of the Conservative Opposition. They have neither policy nor leadership, nor even the most vestigial traces of a political identity.

I ask the House, with confidence, to support the Government's amendment, so that we can move into the General Election, which cannot be long delayed, and have confidence in the support of a united Parliament—and achieve a majority for the Labour Party. That majority will give the next Labour Government the

opportunity of carrying through the policies on which we fought the last election and on which we shall fight the next, so that we may set the country on a new road.

Several Hon. Members

rose—

Mr. Cranky Onslow (Woking)

That was one of the most frightful pieces of bombastic rubbish.

Mr. Speaker

Mr. Tebbit.

9.59 p.m.

Mr. Norman Tebbit (Chingford)

I am grateful for the opportunity to make a contribution to this debate, which I hope—

The Parliamentary Secretary to the Treasury (Mr. Robert Mellish)

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

Hon. Members

No.

Mr. Speaker

If I accept a motion for the closure, it must take precedence.

Question put, That the Question be now put:—

The House proceeded to a Division.

Mr. Donald Coleman and Mr. John Golding

were appointed Tellers for the Ayes, but no Member being willing to act as Teller for the Noes, Mr. SPEAKER declared that the Ayes had it.

Question put accordingly, That the amendment be made:—

The House divided: Ayes 269, Noes 28.

Division No. 100.]	AYES	[10.1 p.m.
Allaun, Frank	Campbell, Ian	Delargy, Hugh
Archer, Peter	Cant, R. B.	Dell, Rt Hon Edmund
Armstrong, Ernest	Carmichael, Neil	Doig, Peter
Ashley, Jack	Carter, Ray	Dormand, J. D.
Ashton, Joe	Carter-Jones, Lewis	Douglas-Mann, Bruce
Atkins, Ronald (Preston N)	Castle, Rt Hon Barbara	Duffy, A. E. P.
Atkinson, Norman	Clemitson, Ivor	Dunn, James A.
Bagier, Gordon A. T.	Cocks, Michael (Bristol S)	Dunnett, Jack
Barnett, Guy (Greenwich)	Cohen, Stanley	Dunwoody, Mrs Gwyneth
Barnett, Fit Hon Joel (Heywood)	Colquhoun, Mrs Maureen	Eadie, Alex
Bates, Alf	Concannon, J. D.	Edelman, Maurice
Benn, Rt Hon Anthony Wedgwood	Conlan, Bernard	Edge, Geoff
Bennett, Andrew (Stockport N)	Cook, Robert F. (Edinburgh, C.)	Edwards, Robert (Wolv SE)
Bidwell, Sydney	Cox, Thomas (Tooting)	Ellis, John (Brigg & Scun)
Bishop, E. S.	Craigen, J. M. (Maryhill)	Ellis, Tom (Wrexham)
Blenkinsop, Arthur	Crawshaw, Richard	English, Michael
Boardman, H.	Crosland, Rt Hon Anthony	Ennals, David
Booth, Albert	Cryer, Bob	Evans, Fred (Caerphilly)
Boothroyd, Miss Betty	Cunningham, G. (Islington S)	Evans, Ioan (Aberdare)
Bottomley, Rt Hon Arthur	Dalyell, Tam	Faulds, Andrew
Boyden, James (Bish Auck)	Davidson, Arthur	Fernyhough, Rt Hon E.
Bradley, Tom	Davies, Bryan (Enfield N)	Fitch, Alan (Wigan)
Broughton, Sir Alfred	Davies, Denzil (Llanelli)	Flannery, Martin
Brown, Hugh D. (Provan)	Davies, Ifor (Gower)	Fletcher, Ted (Darlington)
Buchanan, Richard	Davis, Clinton (Hackney C)	Foot, Rt Hon Michael
Butler, Mrs Joyce (Wood Green)	Deakins, Eric	Ford, Ben
Callaghan, Jim (Middleton & P)	Dean, Joseph (Leeds West)	Forrester, John
Fowler, Gerald (The Wrekin)	Lyon, Alexander W. (York)	Ross, Rt Hon W. (Kilmarnock)
Fraser, John (Lambeth, N'w'd)	Lyons, Edward (Bradford W)	Rowlands, Ted
Freeson, Reginald	Mabon, Dr J. Dickson	Sandelson, Neville
Garrett, John (Norwich S)	McCartney, Hugh	Sedgemore, Brian
Garrett, W. E. (Wallsend)	McElhone, Frank	Selby, Harry
George, Bruce	MacFarquhar, Roderick	Shaw, Arnold (Ilford South)
Gilbert, Dr John	McGuire, Michael (Ince)	Sheldon, Robert (Ashton-u-Lyne)
Ginsburg, David	Mackenzie, Gregor	Shore, Rt Hon Peter
Gourlay, Harry	Maclennan, Robert	Short, Rt Hon E. (Newcastle C)
Graham, Ted	McMillan, Tom (Glasgow C)	Short, Mrs Renée (Wolv NE)
Grant, George (Morpeth)	McNamara, Kevin	Silkin, Rt Hon John (Deptford)
Grant, John (Islington C)	Madden, Max	Silkin, Rt Hon S. C. (Dulwich)
Griffiths, Eldon	Magee, Bryan	Sillars, James
Hamilton, James (Bothwell)	Mahon, Simon	Silverman, Julius
Hamilton, W. W. (Central Fife)	Marks, Kenneth	Skinner, Dennis
Hamling, William	Marquand, David	Small, William
Hardy, Peter	Marshall, Dr. Edmund (Goole)	Smith, John (N Lanarkshire)
Harper, Joseph	Mason, Rt Hon Roy	Snape, Peter
Harrison, Walter (Wakefield)	Meacher, Michael	Spearing, Nigel
Hatton, Frank	Mellish, Rt Hon Robert	Spriggs, Leslie
Healey, Rt Hon Denis	Mendelson, John	Stallard, A. W.
Heffer, Eric S.	Mikardo, Ian	Stewart, Rt Hon M. (Fulham)
Hooley, Frank	Millan, Bruce	Stoddart, David
Horam, John	Miller, Dr M. S. (E. Kilbride)	Stonehouse, Rt Hn John
Howell, Denis (B'ham, Sm H)	Mitchell, R. C. (Soton, Itchen)	Stott, Roger
Huckfield, Les	Molloy, William	Strang, Gavin
Hughes, Rt Hon C. (Anglesey)	Morris, Alfred (Wythenshawe)	Strauss, Rt Hon G. R.
Hughes, Mark (Durham)	Morris, Charles R. (Openshaw)	Summerskill, Hon Dr Shirley
Hughes, Robert (Aberdeen, N)	Morris, Rt Hon J. (Aberavon)	Swain, Thomas
Hughes, Roy (Newport)	Moyle, Roland	Thomas, Dafydd (Merioneth)
Hunter, Adam	Mulley, Rt Hon Frederick	Thomas, Jeffrey (Abertillery)
Irvine, Rt Hon Sir A. (Edge Hill)	Murray, Rt Hon Ronald King	Thorne, Stan (Preston South)
Irving, Rt Hon S. (Dartford)	Newens, Stanley	Tierney, Sydney
Jackson, Colin (Brighouse)	Oakes, Gordon	Tinn, James
Janner, Greville	Ogden, Eric	Tomlinson, John
Jay, Rt Hon Douglas	O'Halloran, Michael	Torney, Tom
Jeger, Mrs Lena	O'Malley, Rt Hon Brian	Tuck, Raphael
Jenkins, Hugh (Putney)	Orme, Rt Hon Stanley	Urwin, T W.
Jenkins, Rt Hon Roy (Stechford)	Ovenden, John	Varley, Rt Hon Eric G.
Johnson, James (Hull West)	Owen, Dr David	Wainwright, Edwin (Dearne V)
Johnson, Walter (Derby S)	Padley, Walter	Walden, Brian (B'ham, L'dyw'd)
Jones, Barry (Flint, E.)	Palmer, Arthur	Walker, Harold (Doncaster)
Jones, Dan (Burnley)	Park, George	Walker, Terry (Kingswood)
Jones, Gwynmoro (Carmarthen)	Parker, John	Watkins, David
Jones, Alec (Rhondda)	Parry, Robert	Weitzman, David
Judd, Frank	Pavitt, Laurie	White, James (Pollok)
Kaufman, Gerald	Peart, Rt Hon Fred	Whitehead, Phillip
Kelley, Richard	Pendry, Tom	Whitlock, William
Kerr, Russell	Perry, Ernest G.	Wigley, Dafydd
Kilroy-Silk, Robert	Phipps, Dr Colin	Willey, Rt Hon Frederick
Kinnock, Neil	Prentice, Rt Hon Reg	Williams, Alan Lee (Hornch'ch)
Lamborn, Harry	Prescott, John	Williams, Rt Hon Shirley (Hertford)
Lamond, James	Price, C. (Lewisham W)	Wilson, Alexander (Hamilton)
Latham, Arthur (Paddington)	Price, William (Rugby)	Wilson, Rt Hon H. (Huyton)
Lawson, George (M'well & Wishaw)	Radice, Giles	Wilson, William (Coventry SE)
Leadbitter, Ted	Richardson, Miss Jo	Wise, Mrs. Audrey
Lee, John	Roberts, Albert (Normanton)	Woodall, Alec
Lestor, Miss Joan (Eton & Slough)	Roberts, Gwilym (Cannock)	Woof, Robert
Lever, Rt Hon Harold	Robertson, John (Paisley)	Wrigglesworth, Ian
Lewis, Arthur (Newham N)	Roderick, Caerwyn E.	Young, David (Bolton E)
Lewis, Ron (Carlisle)	Rodgers, George (Chorley)
Lipton, Marcus	Rodgers, William (Stockton)	TELLERS FOR THE AYES:
Loughlin, Charles	Rooker, J. W.	Mr. Donald Coleman and
Loyden, Eddie	Roper, John	Mr. John Golding.
NOES
Aitken, Jonathan	Iremonger, T. L.	Skeet, T. H. H.
Bennett, Sir Frederic (Torbay)	Lawson, Nigel (Blaby)	Taverne, Dick
Body, Richard	Miller, Hal (Bromsgrove)	Tebbit, Norman
Budgen, Nick	Morgan, Geraint	Viggers, Peter
Churchill, W. S.	Page, John (Harrow West)	Wainwright, Richard (Colne V)
Cormack, Patrick	Redmond, Robert	Wells, John
Dodsworth, Geoffrey	Renton, Tim (Mid-Sussex)
Fraser, Rt Hon H. (Stafford & St)	Ridley, Hon Nicholas	TELLERS FOR THE NOES:
Gow, Ian (Eastbourne)	Rost, Peter (SE Derbyshire)	Mr. John Biffen and
Grimond, Rt Hon J.	Royle, Sir Anthony	Mr. Peter Tapsell.
Hordern, Peter	Sims, Roger

Question accordingly agreed to.

Main Question, as amended, put and agreed to.

Resolved, That this House welcomes the statement of the Chancellor of the Exchequer on July 22nd in relation to the extension of rate relief, the reduction in value added tax, the extension of food subsidies, the doubling of regional employment premium, and the easing of dividend restraint.

Mr. Healey

On a point of order, Mr. Speaker. Is it in order to ask for a statement from the ex-Leader of the Opposition?

Mr. Speaker

Perhaps not.

Mr. Thorpe

On a genuine point of order, Mr. Speaker.

Mr. Speaker

Order. I must put the Ten o'clock Business Motion.