HC Deb 21 July 1975 vol 896 cc46-174

3.57 p.m.

The Chancellor of the Exchequer (Mr. Denis Healey)

I beg to move, That this House approves the White Paper on The Attack on Inflation (Command Paper No. 6151).

Mr. Speaker

We turn to the business on the Order Paper which comes first—in spite of the point raised by the right hon. Member for Stafford and Stone (Mr. Fraser)—that is, the Prime Minister's motion.

I have selected the amendment in the name of the right hon. Lady the Leader of the Opposition, leave out from 'House' to end and add 'supports Her Majesty's Government's belated commitment to reduce the disastrous rate of inflation and their acceptance of the need both for strict cash limits throughout the public sector and for a substantial reduction in the level of pay settlements; regrets, however, Her Majesty's Government's prolonged failure to reduce public spending and to promote the prosperity of the private sector; and deplores their decision to increase indiscriminate subsidies and to proceed with further measures of nationalisation, which are damaging in themselves and inconsistent with the conquest of inflation'. I have not selected the amendment to the amendment in the name of the hon. Member for Nottingham, West (Mr. English).

It may be appropriate to discuss, with the amendment in the name of the right hon. Lady the Leader of the Opposition, the amendment in the name of the hon. Gentleman the Leader of the Liberal Party, after 'House', insert: 'welcomes Her Majesty's Government's inevitable conversion to a statutory incomes policy as one essential means of controlling modern inflation; rejects indiscriminate cuts in public expenditure which would disrupt essential services and accelerate the rise in inflationary unemployment; and, while regretting that Her Majesty's Government's proposals are only short term and deploring the lack of adequate enforcement and monitoring powers, nevertheless, at this time of national crisis'. It may also be appropriate to discuss the amendment in the name of the hon. Member for Liverpool, Walton (Mr. Heifer), leave out from 'House' to end and add 'declines to give support to the White Paper "The Attack on Inflation" because it constitutes a fundamental shift in the economic strategy of the Government in response to pressures from the enemies of the British Labour Movement, will reduce the living standards of working people and cause mass unemployment, and is a reversal of commitments given by Government Ministers during the February and October general elections; believes that the wage control proposals outlined in the White Paper are based on the false premise that wage increases are the sole reason for inflation and cannot solve the immediate or long-term economic crisis facing Great Britain; rejects the view of the Conservative Opposition that further cuts in public expenditure and the social wage are required which, like the cash limits proposals in the White Paper, will inevitably lead to higher unemployment and a further adverse effect on capital investment decisions: considers that other measures are necessary to deal with the crisis, namely, a price freeze on basic commodities which particularly affect working people, pensioners and others on low incomes and a more effective control over other price increases, the use of selective import controls, the marshalling of Great Britain's overseas assets to defend the pound, the use of depreciation guarantees to overseas holders of sterling, stringent control over the outflow of capital, the control of banks and insurance companies and the directing of their funds into productive capital investment via the NEB, real cuts in arms spending, and the extension of public ownership and public accountability as a necessary step towards a planned economy; urges the Government to introduce a wealth tax and to use other fiscal measures to create a more egalitarian society and asserts that such policies are essential to the implementation of the commitment in Labour's election manifesto to bring about a fundamental and irreversible shift of wealth and power in favour of working people and their families; and calls upon the Government to enter into urgent discussions with the TUC in order to reach a genuine voluntary agreement on all aspects of income and wealth which, coupled with the radical measures proposed above, is essential if Great Britain is to have a planned economy so its it can deal on a longer-term basis with its economic problems'. It will be in order to discuss those amendments with the first amendment, after it has been moved, and while that is being discussed.

I wish to make one further point, namely, that 75 right hon. and hon. Members have indicated that they wish to speak in this debate. The House will, therefore, realise the burden placed upon the Chair. The only palliative is brevity.

Mr. Eric S. Heffer

(Liverpool, Walon): On a point of order, Mr. Speaker. Could you clarify the position? You say that it is appropriate to discuss the amendment in my name and that of my hon. Friends together with the amendment in the name of the Leader of the Opposition. Does that mean that there can be a separate vote on that amendment, because this is important from our point of view?

Mr. Speaker

In accordance with the rules of order, as they now stand, I expect that the debate on the first amendment will continue until 10 p.m. tomorrow and after that, I assume, there will be a Division. Therefore, it will not be within the rules of order after that for the amendment of the hon. Member for Walton to be moved, even formally. This is a matter we have discussed in this House before. It is a matter that has been before the Select Committee on Procedure. As the situation is at present, I am bound by the rules as they are. Unless the debate on the first amendment finishes in time—and the Division on it—the hon. Member will not be able to move his amendment, even formally, and there cannot be a Division on it. The same applies to the amendment in the name of the right hon. Gentleman the Leader of the Liberal Party and his hon. Friends.

Mr. Norman Atkinson (Tottenham)

further to that point of order, Mr. Speaker. Are we to assume that your ruling just now means that within the rules of the House it is permissible for you to select only one amendment? Is that the interpretation that we should make of your ruling?

Mr. Speaker

I am afraid that that is the position for a vote in these circumstances.

Mr. Peter Walker (Worcester)

On a point of order, Mr. Speaker. Last Thursday, further to the representations of the Leader of the Opposition and the Leader of the Liberal Party, the Leader of the House undertook to me that he would contact the Prime Minister to see about the publication of the draft legislation which is such a vital part of this White Paper. I have just been to the Vote Office, and the document is still not available. Could not the Government make it clear that it will be available very quickly in order that we may discuss it along with the business today?

Mr. Speaker

That, again, is not a matter for me.

Mr. Nigel Lawson (Blaby)

Further to that point of order, Mr. Speaker. Are you aware, Mr. Speaker, that at the Press conference which the Prime Minister gave on 11th July, he categorically stated that this legislation would be published? What is more, at the same Press conference, a transcript of which I have in my hand, the Chancellor of the Exchequer said something very important about this legislation. He said: The legislation we have drafted contains provision for it to take effect from the moment the Bill is announced. We do not have to wait until the Bill is through the legislative process.

Mr. Speaker

Order. This is irregular. I cannot allow it to continue. It is not a matter for the Chair. It is a matter for argument and debate. I have no power to direct the Prime Minister to do anything in this regard.

Mr. John Peyton (Yeovil)

Further to that point of order, Mr. Speaker. I do not wish to trespass on your patience, but the House is in real difficulty here. The right hon. Gentleman the Patronage Secretary, on Friday last, said: I have no doubt that by Monday morning, when the matter starts on its way in the House of Commons, many of these points will he cleared up."—[Official Report, 18th July 1975: Vol. 895, c. 1940.] Simply nothing has been done—except a holding reply addressed to my right hon. Friend the Leader of the Opposition. But the whole House is in real difficulty in that it still does not know the measure of the Government's intentions. One can only believe that this silence on their part is more conditioned by their own interest than by any concern for the country.

Mr. Speaker

Order. These are all arguments and matters which can be put to the Chancellor of the Exchequer.

Mr. Jeremy Thorpe (Devon, North)

On a point of order, Mr. Speaker. With great respect, we are being asked to debate a White Paper in paragraph 26 of which substantial reference is made to legislation, legislation which has already "been prepared" and which the Government in certain circumstances would wish the House to pass forthwith. Therefore, this is very germane to the debate on the White Paper—

Mr. Speaker

Order. I am afraid that I must interrupt even the right hon. Gentleman. These are matters for argument and for criticism of the Government. They are not matters for the Chair. There is nothing under the Standing Orders of the House which would enable me to take any action on this at all.

Mr. Thorpe

May I, through the Chair, ask whether the Leader of the House could make a statement today, before the debate, as to how the House will be got out of this very difficult situation?

Mr. Speaker

I cannot order the Leader of the House to make a statement. It is up to him. If the Chancellor of the Exchequer were allowed to begin the debate, he might be able to deal with these points.

Mr. Kenneth Lewis (Rutland and Stamford)

Further to that point of order, Mr. Speaker. As these matters concern the Prime Minister, and as the Prime Minister is sitting on the Government Front Bench, in order to help you, Mr. Speaker, and the House, could not the Prime Minister himself say what he proposes to do?

Mr. Speaker

Not everything affecting the Prime Minister raises a point of order.

Mr. Robin Maxwell-Hyslop (Tiverton)

On a point of order, Mr. Speaker. This point is from a different angle, Mr. Speaker. As you have a responsibility for the operation of the Vote Office and it is sometimes the case that documents are sent by the Government printer to the Vote Office but the Government instruct that they shall not be released until a certain time, can you tell us, Mr. Speaker, whether the Bill has been delivered to the Vote Office, for which you are responsible, with instructions not to release it until a certain time, or whether no such Bill has arrived at the Vote Office?

Mr. Speaker

Ingenious—but not very effective. I have no such knowledge.

Mr. Healey

When I made my statement to the House on 1st July I made it clear that the Government were determined to get inflation down to 10 per cent. by the end of the next pay round and into single figures by the end of next year, and that this would require the increase in wages and salaries over the next 12 months to be limited to 10 per cent. I said I would discuss the problem with both sides of industry in the following week in the hope that they would agree with the Government on a voluntary policy which would satisfy this target, leaving it open whether the 10 per cent. limit should be achieved through the establishment of a percentage limit in individual settlements, a limit fixed in cash terms, or some mix between the two. I also insisted that there should be convincing arrangements to ensure compliance with the policy agreed.

Ten days later, after the most intensive and continuous discussions, the Government were able to announce that agreement had been reached with the General Council of the Trades Union Congress on new guidance to negotiators which was consistent with the anti-inflation target I had set. I cannot recall any previous occasion in industrial history when the trade union movement has voluntarily agreed, not just in general terms but in the most precise detail, to set a limit to wage increases over a whole year which is based on a target for a substantial reduction in the rate of inflation. This unique achievement was by no means due solely to the pressures imposed by the time limit I was obliged to set on 1st July because well before that date trade union leaders had been proposing that wage settlements next year should be based on what was necessary to achieve a lower rate of inflation rather than on the actual rate of inflation over the previous 12 months.

As the House knows, the Government agree with the TUC that the limit should be expressed in terms of £6 a week to full-time adult workers up to a cut-off point with a lower pro-rata limit for part-time workers and juveniles. This figure is consistent with the Government's 10 per cent. target since it is associated with the most stringent limitations. The cash amount will be applied as a straightforward supplement to earnings; it will not be carried through to overtime or shift premiums. There will be no special cases. The only exceptions adding to the pay bill are the increase necessary to enable women to obtain equal pay by the end of 1975 and prior commitments to staged increases which exceed £6 a week. Moreover, with the agreement of the TUC General Council the Government are asking Parliament, in the Remuneration, Charges and Grants Bill, to relieve employers of contractual obligations which would compel them to increase pay above these limits.

The Government have been able to welcome all the TUC's proposals in this field with the one exception of the cutoff, which the Government believe should be set at incomes of £8,500 a year rather than £7,000. A lower limit would be too disruptive of existing pay scales among supervisory and technical staff. The £8,500 cut-off includes all emoluments which are reckonable for tax purposes. I believe it is right that the higher paid should make some additional sacrifice; they will benefit like everyone else from the reduction in the rate of inflation. The House should note the most important statement by the TUC General Council that the TUC will oppose any settlement in excess of the £6 limit.

I ought to make clear to the House the extent to which the CBI was able to go along with us on these matters. The CBI agreed with us on the objectives of the policy and on the need for a limit equivalent to 10 per cent. on pay. The CBI told us, however, that it preferred a percentage pay limit to a flat rate, and that if it was to be a flat rate, it ought to be £5 rather than £6. It also thought that the cut-off point should have been higher than £8,500. It dislikes our decision to allow incremental increases provided they do not add more than £6 a head to the pay bill for the group concerned. The CBI also favoured compulsory monitoring of settlements. I shall refer again to the CBI's views on monitoring in a moment. Despite these disagreements, it has undertaken to give the strongest support to the Government's efforts to control inflation.

I appreciate the reasons which led the CBI and many hon. Members to feel that it would have been preferable to set the limit for individual settlements in percentage terms. But this would have had a perverse effect on the distribution of post-tax increases between rich and poor. It would have benefited most those earning between £4,000 and £6,000 a year—well above average earnings—and would have given steadily smaller benefits to rich and poor alike as earnings moved in either direction away from this central band. In theory, some of these disadvantages could have been reduced by a mixture of percentage and cash limits as, for example, in the previous Government's incomes policy, but the Government agree with the TUC that to achieve so rapid and drastic a reduction in the rate of inflation as we propose in a single year it is essential to use a formula which is dramatic and easily monitored and brings home the reality of our national problem to every man and woman in the country.

The flat £6 limit will be progressive right throughout the income scale. I do not deny that the resulting compression of differentials will make it more difficult to pass to more flexible and sophisticated guidelines after the current wage round. It will complicate the re-entry problem next year. The TUC is as aware as anyone else of this, and I hope discussions will begin in good time about the handling of wage negotiations once the next round is complete. As I made clear the other day, the problem of inflation will not be solved when we are down to 10 per cent. We must continue with our efforts at least until our prices are rising no faster than those of our competitors. We must be certain that once we have achieved the necessary level we are no longer vulnerable to the same domestic pressures for inflation that have produced the problems with which we are wrestling today.

I must make clear, too, that the figure of £6 is an upper limit for wage increases. It is not an automatic entitlement. Of course, trade unions have the right to press for settlements up to this limit, and I have no doubt they will use this right. But the capacity of an employer to pay will be a factor in determining the agreement finally reached at the negotiating table, just as much under this new policy as under any other. There are bound to be some employers who simply cannot pay the full £6 without making substantial reductions in their labour force, going bankrupt or raising prices to unacceptable levels.

Questions have been raised—and no doubt will be raised in this debate—on various points of interpretation of the pay guidelines in the White Paper. The guidelines are basically simple, but it is natural that people should seek assurance on particular points, and, in order to assist with such questions, the Department of Employment set up a special inquiry unit immediately the White Paper was published. This unit gives advice on the application of the pay guidelines and has already dealt with hundreds of requests for advice from employers, unions and workpeople up and down the country. The nature of these inquiries has shown the extent to which people want to work this new voluntary initiative and are anxious to see it succeed.

My right hon. Friend the Secretary of State for Employment will deal with the questions of interpretation which have arisen most frequently and with any others which may arise in the course of this debate when he winds up tomorrow.

Mr. Tom King (Bridgwater)

The right hon. Gentleman says how good this unit is at answering inquiries, but I have evidence today of an employer who sought clarification on incremental problems and was told by a senior official of the Department that he did not know the answer and suggested that the employer would do better to ask the TUC.

Mr. Healey

I was not aware of that fact. No doubt if the hon. Gentleman gives the details to my right hon. Friend, he will take up the matter and comment in the House tomorrow.

As I told the House on 1st July, the Government propose to employ a battery of weapons to ensure that the limit is observed in the public and the private sector.

Mr. Hugh Fraser (Stafford and Stone)

Roll them out.

Mr. Healey

I am just about to roll them out. Perhaps afterwards we can roll out the right hon. Member.

In the public sector, we recognise that, wherever we have direct responsibility as employers, the Government's major duty is to ensure that no settlement is made above the limit. We must resist pressures, of whatever nature, to break the rules. Sanctions after the event against those who are responsible for breaching the limits are very much a second best, but the knowledge that sanctions exist and will, if necessary, be applied is bound to act as a deterrent. For settlements affecting the 2 million people directly employed by the Government, including those in the National Health Service, the Government themselves will ensure compliance. This will require the suspension of the operation of pay research in the Civil Service for the period of the policy. The Government will also ask the relevant review bodies to comply with the pay limit.

In the nationalised industries, which employ another 2 million people, the Government's power is rather less absolute. The chairmen of the nationalised industries have already undertaken to observe the limits, and my right hon. Friend the Secretary of State for Industry has pointed out that the Government possess a very significant sanction as far as they are concerned. We have also made it clear that the Government will not foot the bill for excessive settlements in the nationalised industries through subsidies, by permitting extra borrowing or by allowing excess costs to be loaded on to the public through increased prices or charges.

Mr. Norman Tebbit (Chingford)

Can the right hon. Gentleman deal with the problem of pension funds, particularly those in nationalised industries where there is a statutory obligation to increase pensions by the amount of increase in the cost of living? In many cases, this would exceed £6 a week.

Mr. Healey

The Government propose that existing pension obligations should be met by public and private enterprises, even where they exceed the £6 limit. This is a different matter from increases in wages.

A further 3 million people are employed by the local authorities and public transport authorities. Apart from teachers and the police, the Government are not directly involved in pay settlements in this sector, but we finance by rate support grant a high proportion of local authorities' current expenditure. This year the proportion is two-thirds in England and Wales and three-quarters in Scotland.

If there should be any national pay settlement for local authorities' employees which exceeds the pay limit, the Government will pay no grant towards financing the excess. If any individual local authority should make an agreement to pay more than the limit, it will stand to forfeit grant on the whole of its settlement under new legislation which the Government will introduce.

Mr. Hugh Fraser


Mr. Healey

Next week. If the right hon. Gentleman had taken the trouble to read the Bill which is available in the Vote Office he would see that provision for this is included in the measure we are to discuss on Wednesday.

If, in spite of these sanctions, the local authority exceeds the pay limit, the Government can, and will if necessary, offset the excess by using its powers of control on the borrowing of individual local authorities to reduce their capital expenditure.

We shall be discussing the application of the limit by local authorities and the operation of these arrangements, as well as the restriction of manpower which is the other element in the local authorities' pay bill, with their representatives through the new consultative machinery which I announced in the Budget Statement.

In the private sector, the Government's sanctions are more limited. A firm's record of observance of the pay limit will be taken into account in our general purchasing policy, in the awarding of contracts and in assistance to industry under the Industry Act. Our main weapon, however, depends on amending the Price Code, so that where an employer breaks the limit, the whole pay increase will be disallowed for price increases.

The Department of Employment will certify to the Price Commission whether any of the settlements notified to the commission in applications for a price increase exceed the limit. My right hon. Friend the Secretary of State for Prices and Consumer Protection will deal in more detail with these provisions later in the debate.

Mr. Lawson

Will the Chancellor explain how he squares paragraph 21 of the White Paper with paragraph 23? He has referred to them both. Under the Price Code provisions companies which pay over the limit will not be able to increase their prices, and that will mean that they will sell their goods more cheaply. However, in their public purchasing policy the Government will be telling people not to buy from these cheap suppliers but to buy from those selling goods more expensively. At the same time he says he is concerned to curb public expenditure.

Mr. Healey

Sometimes the hon. Member talks the most awful rubbish. If he had any familiarity with the thousands of applications which go to the Price Commission every month he would know that no business in this country is prepared to pay very large pay increases without some chance of recovering the cost through increased prices. This, therefore, is likely to be a very effective sanction.

The information about pay settlements underlying price increase applications will be one element in the flow of information to the Government on the observance of the policy and of the pay limits. The CBI has explained to me its views on the need for compulsory notification of pay increases. I understand those views and can assure the House that the Government have considered the problem very carefully. We believe that compulsory notification is not necessary either for the monitoring of the policy and of economic developments generally or for seeing whether the pay limit is being endangered so as to necessitate consideration of the use of the reserve powers.

The Department of Employment will have full information about settlements, made and intended, in the public sector. Under informal arrangements it will have information about most of the more important private sector settlements. Taken together, its information will cover nearly 60 per cent. of the employed population. In paragraph 28 of the White Paper we express the hope that further monitoring arrangements might be agreed between the TUC and the CBI. But, whether or not this proves possible, the Government are satisfied that they will have sufficient information to monitor the policy without compulsory notification through the information flowing to the Department of Employment directly, and through the price control. If the pay limit were endangered and use of the reserve powers became necessary, they would, of course, be supported by powers to require compulsory notification. Meanwhile, the Government intend, as paragraph 28 of the White Paper says, to monitor economic developments, including the trend of pay settlements, jointly with the TUC and with the CBI, if they agree to help us.

This is a voluntary policy with powerful sanctions in the public and private sectors and support from legislation in the three fields to which I have referred —relief from contractual commitments, selective reductions in rate support grant for offending local authorities, and disallowance of excess settlements under the Price Code. It is clear that the great majority of the British people on both sides of industry are determined to make it work. But the Government have prepared legislation which, if applied in particular cases, would make it illegal for the employer to exceed the pay limit. If the pay limit is in danger and the great majority of our people who wish to observe it risk finding their readiness to make sacrifices for their country made nonsense of because a selfish minority chooses to breach the policy, the Government will ask Parliament to approve this legislation forthwith.

Several hon. Members


Mr. Healey

I know, and if I did not the exchanges at the beginning of the debate would have told me, that there is great interest in the nature of the powers which the Government would seek in this contingency. These powers would have four main features. First, the legislation would give the Government legal powers enforceable against individual employers who exceed the pay limit.

This brings me to the second point. All recent history from Churchill at Betteshanger to the Tipstaff at Pentonville Gaol has shown that an attempt to apply criminal sanctions against trade unionists on such issues can result only in discrediting the law. So, unlike earlier legislation, the powers held in reserve would not provide for criminal sanctions on work people in order to enforce the pay limit. But, like earlier legislation in this field, there would be provision to prevent the prosecution of work people for criminal conspiracy.

The Bill would, thirdly, provide for compulsory notification of all wage settlements and, fourthly, once passed, it would enable the Government to reduce to the White Paper level any settlements made after 1st August 1975.

Mr. Patrick Cormack (Staffordshire, South-West)


Mr. Healey

Like the whole of the Government, I hope that it will never be necessary to ask the House to approve this legislation. I have no doubt that the House would approve it, and that the country would applaud it, if the need were ever demonstrated.

Several Hon. Members


Mr. Healey

I give way to the Leader of the Liberal Party.

Mr. Thorpe

Will the right hon. Gentleman go into a little more detail? He said that he would take legal powers against employers. What legislation does he have in mind? This could mean anything from deportation to putting them on probation. On the fourth point—namely, that he will reduce arbitrarily wages which exceed the limit—will this be by Order in Council, by an inflation tax or by some other means?

Mr. Healey

An Order in Council would be required to activate the Act against individual employers, or to require them to "roll back" pay increases. On the first question as to the sort of penalty, this is one of the matters to which I am coming.

Several Hon. Members


Mr. Healey

I cannot give way. The House must let me continue. [Interruption.] Very well, I give way to my hon. Friend.

Mr. Heffer

In the event of the Bill becoming law, what would happen if an employer took out an injunction against a group of workers who decided to strike in order to secure a settlement in excess of the limit? Surely the employer would be taking out an injunction in order not to break the law. The situation could surely arise in which the workers would go to prison.

Mr. Healey

I have made it clear, and I repeat what I said a moment ago. Like earlier legislation in this area—and this was a feature of both the previous statutory incomes policies—there would be provision to prevent the prosecution of work people for criminal conspiracy.

Several Hon. Members


Mr. Healey

I will not give way again. Hon. Members opposite have asked me to give some account of the proposals, and I hope that they will have the patience to listen to my account.

Legislation to give effect to these powers has already been prepared, but since there are some technical details which may require some revisions of the drafting, the Government cannot publish it in draft at this stage. What is important to the House for present purposes is to know the main elements of the Bill and the character of the powers that would be sought. These I have described. The details of drafting are not central at this stage, and might anyway have to be changed somewhat to meet the circumstances at the time of introduction—and we all hope that the Bill will never have to be introduced.

Several Hon. Members


Mr. Healey

I will not give way, Mr. Speaker, until I have finished answering the questions put to me by hon. and right hon. Members opposite. I hope that the House will do me the courtesy of listening to what I have to say before interrupting me again. There is no point in debating the drafting now and, therefore, no advantage in publishing a detailed draft, particularly as such a draft could not be the final one.

I give way now to the right hon. and learned Gentleman.

Sir Derek Walker-Smith (Hertfordshire, East)

I wish to put a question to clarify the question raised by the hon. Member for Liverpool. Walton (Mr. Heller). The hon. Gentleman was, I think, concerned not with criminal conspiracy in the illustration which he gave but with what would be the effect if an injunction were taken out in those circumstances and the employees, the workers, then became liable to committal for contempt of court. I see that the hon. Gentleman nods assent, so I take it that that was the point which he had in mind, but it is a point to which the Chancellor of the Exchequer has not yet addressed himself.

Mr. Healey

It is precisely one of the drafting points still under consideration. [HON. MEMBERS: "Oh."]

Mr. John Biffen (Oswestry)


Mr. Healey

I think that anyone who is aware of the catastrophic history of the attempts to apply legal sanctions to workers under the previous administration will know that these matters require —and they will certainly have from this Government—the most careful consideration.

Mr. Cormack

On a point of order, Mr. Speaker. The Chancellor has just said that this is a drafting point, which implies that the Bill has not been prepared, yet the White Paper states categorically that it has.

Mr. Speaker

Order. I have already said that that is not a point of order for the Chair.

Mr. Healey

I gave a full account of that when the hon. Gentleman was yelling at me, but he was more concerned to hear the sound of his own voice than to listen to mine.

I turn now to the essential buttress for any policy for incomes, the Government's policy for prices. The present price controls already ensure that the reduction in wage costs produced by the new pay guidelines will be passed on to the consumer in lower prices. I recognise that the best possible send-off for the new policy would have been a total freeze on prices for a period of months. But an immediate price freeze after nearly three years of stringent price control would have depressed investment still further, forced many companies into bankruptcy, and thrown many thousands more people out of work. Indeed, mistaken rumours of an intended price freeze at one stage appeared to jeopardise the support of a major union for the new policy.

In recent months there have been many big increases in pay and other costs. Until these cost increases are out of the pipeline, we shall not see the benefit in prices of the lower rate of settlements.

Since, as hon. Members opposite never cease to remind me, the rate of price increase was particularly low in the third quarter of last year, partly as a result of the July measures, the year-on-year increases in the retail price index which will be announced up to October are still likely to be high. But, as I said in my Budget speech, the month-on-month increases are likely to be very much lower for the rest of this year than they have been up to now, since the effect of tax increases imposed by the Budget is now almost complete and the bulk of the increase in nationalised industry prices has already taken effect.

The latest figures for wholesale and retail prices are encouraging in this respect. On the other hand, the recent depreciation in the parity of sterling, which was caused by our domestic inflation, will be reflected in an increase in the retail price index of about 1 per cent. over the next six months. The full effect of the new pay guidelines will be felt only from the beginning of next year, when I expect to see a dramatic fall in the rate of inflation. Only a major increase in the cost of imported raw materials or a breakdown in the new policy for incomes could prevent our achieving the targets we have set ourselves in the second half of the year.

Meanwhile, the Government will do whatever they can without damaging the economy to reinforce the strict price controls already operating. We shall finance through a special Exchequer grant of up to £2 million the establishment of more consumer advice centres in local authority areas and accelerate the programme of price display and unit pricing.

We are discussing with the CBI and the Retail Consortium a programme for stabilising prices of selected goods which are specially important in family expenditure. I am adding £70 million to food subsidies for next year, restoring part of the cut-back announced in the last Budget, and local authority rent increases will be limited to the rise in the cost of living, so that average rent increases next spring should be about 60p per week rather than £1 a week or more. This will cost the Government £80 million.

On the other hand, we propose to continue our programme for phasing out price subsidies in the nationalised industries. The lower rate of wage costs envisaged under the new policy should ensure that the rate of price increase in the nationalised industries as a whole should be a good deal lower next year.

I have made clear on many occasions to the House that in my view inflation does not have one single cause or one single cure. In the last 12 months excess wage settlements have been the biggest single factor in making our inflation rate so much higher than that of our competitors. But wages have not been the only factor. Without going so far as many right hon. and hon. Members opposite who make it the sole cause, I have little doubt that the unprecedented increase in the money supply under the last Government in 1973 has made a significant contribution to the rate of inflation this year.

The Government are determined to ensure that in the period ahead excessive expansion of bank credit does not endanger the achievement of our planned reduction in inflation. We have substantially reduced the growth of money supply in the last year and a half, and we shall use the full range of instruments available to us to keep the growth of money supply under firm control, while seeing that priority in lending is given to the essential sectors of the economy.

The effective control of public spending is another element in our attack on inflation, although in my view it has a greater relevance to other aspects of our economic performance. There are two separate problems here, and I shall spend a little time on each of them.

First, successive Governments have announced plans for public spending in the year ahead and beyond, but the actual level of spending has been higher. This has partly been by choice, where new policies have been introduced, but it has happened also because action has not been taken to keep expenditure in line with estimates. This has particularly been the case in the large and important field of local authority current expenditure. In each of the four years up to 1974–75—the last financial year—the total of this expenditure has been considerably higher than the amount provided for in the previous year's White Paper. In 1973–74 the growth of local authority expenditure was nearly 30 per cent. higher than planned, but in both 1972–73 and 1974–75—one year under each administration—it was over 50 per cent. higher.

We are now improving our arrangements for the monitoring and control of this expenditure through discussions in the new Consultative Council. I believe that the new guidelines for wage negotiations which I have described, together with the associated sanctions and a careful control of manpower. should do a great deal to help in establishing firmer discipline here, particularly since the wage bill forms so large a part of local authorities' spending.

Similarly, in the nationalised industries we are strengthening the existing arrangements for financial information and control so that the Government are kept more closely in touch with the industries' revenues and expenditure, including, of course, wages and salaries.

It would not be generally practicable, however, to set rigid and predetermined limits on the total finance to be raised by the nationalised industries in any given period. They are very large trading organisations whose revenues and expenditures depend on trading conditions. There are also bound to be considerable fluctuations in stocks and working capital which cannot be precisely forecast. None the less, like any private firm, the nationalised industries must have regard to the call that the business makes on their cash requirements, and it is our intention to strengthen the arrangements for scrutinising substantial changes in these requirements. Although allowance has to be made for special factors, I see no reason why cash control should not play a key rôle in the nationalised industries, as it already does in private companies of comparable size and complexity.

Mr. Nicholas Fairbairn (Kinross and West Perthshire)

I have listened with care to the Chancellor's battery of weapons, particularly with regard to the nationalised industries. May I have an answer to this very simple question? Labour in the nationalised industries has a very powerful weapon, and that is the strike. What is the Government's answer to a strike in the nationalised industries?

Mr. Healey

The hon. and learned Member shows a degree of wisdom and insight that is not universal on his own side of the House. He has pointed to the central fact that no incomes policy can work without the support of the majority of working people in the industries concerned. I hope that he will agree with me that the support already given to the new pay policy by critically important and powerful unions, particularly in the nationalised industries, such as the Executive Committee of the National Union of Mineworkers, shows that the present Government have an advantage in putting forward their incomes policy that no previous Government ever had.

Mr. Hugh Dykes (Harrow, East)


Mr. Healey

Even at the risk of speaking longer than I intended, I propose to give way at fairly regular intervals to hon. Members on, I hope, both sides of the House, but I do not think that it would be fair if I were to bob up and down in a sort of Greek stichomythia throughout my speech. If I did, I doubt whether any of the 75 other Members who have indicated a desire to speak would have a chance.

If for any reason excessive pay were to be conceded, the industry—we are talking about the nationalised industries —would have to make offsetting cash reductions in its employment bill or in the other costs of the services that it provided. The specific measures to be taken would have to be clearly identified and agreed by the Government. This is one example of the way in which the Government plan to get a firmer control over the amount of cash which they spend themselves or provide to other bodies.

As the White Paper makes clear, The present system of planning and control of public expenditure puts the main emphasis on the volume of resources used rather than the cash cost and has substantial advantages, especially for control in the medium term. However, at a time of rapid inflation and with important changes in relative prices, this system needs reinforcing in appropriate programmes by placing a limit on the amount of money which the Government are prepared to pay in the year ahead towards the purchase of the planned volume of resources. Cash limits of this nature already apply to a number of services financed by the Government and they were recently extended to several construction programmes, both Government and local authority. They are not a suitable method for controlling services such as social security benefits where expenditure must inevitably depend on the statutory rate of benefit and on the number of claimants. We are, however, working on the introduction of an extensive system of cash limits in 1976–77 in those areas where this technique would help to reinforce the existing system of control in constant prices.

Wherever these limits apply, Departments will have to live within the cash limits allocated to them, and additional allocations will be considered only in quite exceptional cases. The general aim will be that, apart from unsuitable programmes, such as social security benefits, cash limits will be applied to all Government expenditure, capital as well as current, unless a case is made out for its exclusion. The general presumption will be that the expenditure of Government money, whether directly or in the form of grant, will be within the scope of cash limits rather than the other way round, and I shall need a lot of convincing if it is argued that cash limits should not apply in a particular case.

Mr. Peter Walker

As the Secretary of State for Industry has made it clear that the chairman of a nationalised industry who used investment funds to meet additional wages would be sacked, why does not the cash limit apply to wages rather than to the whole of a nationalised industry?

Mr. Healey

Because there are many other elements than wages in the expenditure of a nationalised industry requiring control in cash terms. I agree that in the nationalised industries, and even more in local government, wage costs form a very large element, and it should be possible to set severe limits to the total wage bill in the coming year under the new pay policy.

Sir Geoffrey Howe (Surrey, East)

My question arises directly from the point that the Chancellor has just made. In his statement to the House on 1st July, the Chancellor said: The Government … propose to fix cash limits for wage bills in the public sector …"—[Official Report, 1st July 1975; Vol. 894, c. 1189.] He has not now repeated that statement. It is not contained in the White Paper, nor was it contained in the Prime Minister's statement of 11th July. What is the Government's policy: as the right hon. Gentleman first stated it, or as subsequently stated?

Mr. Healey

What I have said—and I hope that I have made this clear to the House—is that the public sector will be expected not to make wage settlements in excess of the limit set in the White Paper. There will be restrictions on the amount of manpower that local authorities will be able to employ. In some of the nationalised industries there will be restrictions in terms of total manpower. In other cases—for example, where investment plans are under way—there may have to be some latitude for increases in manpower in one field or reductions in another.

Sir G. Howe

Will the Government, or will the Government not, fix cash limits for wage bills in the public sector."? Yes or no?

Mr. Healey

Yes, Sir, but I hope that I have made it clear to the House that in this as in other fields that I have mentioned cash limits might be required to be adjusted in the course of a year to take account of, for example, unforeseen changes in investment programmes, or otherwise. However, subject to the limitations that will apply throughout the whole field of cash limits, cash limits will be applied to public sector wage bills.

I believe that the changes envisaged in the relations between the Government and the local authorities, together with the more general use of cash limits, will introduce greater financial discipline and precision into the short-term control of public expenditure. But cash limits, as I have just been saying, are not a panacea. They can support, but are not a substitute for, a policy designed to keep pay settlements to acceptable levels. Public expenditure is relevant to the problems of inflation also through the level of demand which it makes on resources and on public finance. This must be determined in the light of a realistic assessment of our economic prospects for the rest of this decade.

In my Budget Statement of 15th April I explained why it had become essential for us to reduce the public expenditure programmes in 1976–77 by about £900 million at 1974 survey prices, equivalent to more than £1,200 million at 1976–77 prices, and I explained how these reductions would be made both in Government and in local authority programmes. These cuts mean that the planned level of public expenditure as a whole for 1976–77 is now actually 1 per cent. lower than that for the present year. I also warned in my Budget Statement that, looking beyond 1976–77, there would at best be only very restricted room for overall growth in public expenditure.

This is inevitable after a period of years in which successive Governments have made exceptionally large increases in public expenditure. In 1973–74, its last year of office, the previous administration increased total public expenditure by about 6 per cent. in volume terms. I hope that the right hon. Lady the Member for Finchley (Mrs. Thatcher) heard that figure. I do not think that she did, and so I repeat it. In 1973–74, its last year of office, the previous administration increased total public expenditure by about 6 per cent. in volume terms. It did not raise tax rates to help to finance that additional expenditure. Instead, there was a very sharp increase in the money supply, which has contributed to the current level of inflation. Indeed, some hon. Members opposite think that it is solely responsible for the current level of inflation.

In 1974–75, the first year of the present administration, public expenditure was increased by nearly 8 per cent. in volume terms. But we raised tax rates, and we have kept the money supply under strict control. In the current year the planned rate of growth of public expenditure has been cut back to about 1½ per cent.—a very marked reduction in the rate of growth compared with the previous two years.

I have been urged to cut back the rate of growth still further in the current year by making immediate cuts in expenditure already under way. I do not think that there would be any justification for this at a time when our economy is working well below capacity and unemployment is rising. In these circumstances there would be little chance of absorbing into other employment the manpower and resources released by such cuts.

Moreover, as the Expenditure Committee pointed out in its Ninth Report last year, there are strong arguments against using public expenditure as a tool of demand management in the short term. The Opposition appear to envisage, among other cuts, substantial immediate reductions in expenditure on food and housing subsidies. But immediate cuts in public expenditure of this kind would add further to unemployment and could only push prices up further at a time when we all agree that it is vital to get the support of the British people for pay restraint.

The right hon. Lady has chosen to cloak her inability to take a decision on the policy which the Government are putting forward in the White Paper by tabling an amendment in which she commits herself to large cuts in public expenditure. I hope that she will tell us honestly in this debate—she has not told us so far—what increase in prices and what increase in unemployment she is prepared to accept in consequence of the immediate cuts in public expenditure that she demands.

Mr. Hal Miller (Bromsgrove and Redditch)

Will the Chancellor kindly confirm that the reduction in public expenditure that he has announced for this year takes into account—in other words, is inclusive of—the sum set aside for, say, British Leyland under the Ryder Report and the money to be spent on the nationalisation of the shipbuilding and aircraft industries, to quote just a few examples? Will he confirm that all these additional expenditures are still included in the cut that he has announced?

Mr. Healey

I have already answered that question, but I can tell the House that the public accounts do not take account of the extra £50 million—£60 million that the Opposition added to the public sector borrowing requirement by their vote last Thursday. The House and the country will note their total hypocrisy in lecturing us on the public sector borrowing requirement when in every vote they seek to add to it.

Mr. George Rodgers (Chorley)

If the effects of the measures were such that there was a substantial increase in unemployment in the short term, would my right hon. Friend be prepared to relax the cash flow to local authorities to stimulate employment in that area?

Mr. Healey

I see no reason to believe that the measures that I have announced will lead to any increase in unemployment. [Interruption.] Absolutely not. But I can tell my hon. Friend that if I saw any reason to believe that they were doing so I would seek to take countervailing action, though I cannot guarantee that it would be in the particular area of local authority expenditure to which he referred.

I was talking about the arguments against any immediate panic cuts in the current year's public expenditure. We shall all be listening eagerly to the right hon. Lady to note her reply to the questions I have just put about the increases in unemployment and prices that she is prepared to accept as a result of the cuts in public expenditure that she is urging on the House.

The situation should be very different after next year—that is, from 1977 onwards—when world recovery should be well established and the British economy should be returning towards full capacity working. For this reason, as I indicated in my Budget speech, in the course of the current normal annual review of all expenditure programmes over the next five years the Government will be seeking further substantial economies in these programmes, particularly in 1977–78 and 1978–79. If we adhere to the plans in Cmnd. 5879, public expenditure in 1977–78 would then be about £1¼ billion higher, at 1974 survey prices, than the reduced level now planned for 1976–77. This would be quite unrealistic.

The prospects for the growth of total resources in the economy must remain uncertain until we have brought our immediate and pressing problems under firm control and established a sound and lasting competitive position. We must ensure that in these critical years, when keeping inflation under control will still be a high priority, we make sufficient resources available for exports and investment without denying the British people the prospect of some rise in their own real earnings. It is to an expansion in exports and investment that we must look for the extra demand needed to bring unemployment down, and this requires a continuing shift in the current balance of resources within the economy.

We shall also require a major shift in the financial balance of the economy. At present we are able to finance our expenditure with a high public sector borrowing requirement without losing control of the money supply, but this is partly due to the low level of demand for bank credit from the private sector. Hon. Members will be aware that as industry recovers and the balance of payments improves it will be very difficult to hold the growth of money supply unless we reduce the borrowing requirement to more reasonable levels. If this is not to involve exceptionally severe increases in taxation, public expenditure must be contained.

Thus the needs of the resource balance and of the financial balance in the economy point in the same direction. Public expenditure must be firmly contained for several years to come. The outcome of the current review, which is bound to require a new look at priorities for public spending, will be announced when it is completed later this year. But it is clear that, in carrying the reassessment of spending programmes forward beyond 1976–77, there will at best be very little room for overall growth beyond the reduced level for that year. As I have already said, that year's planned total of public expenditure implies an absolute reduction in the real level of public spending compared with the present year.

What the country will be able to afford in years after 1976–77 depends on many factors, only some of which are under our own control and only some of which we can now clearly foresee. It would, therefore, be imprudent to get committed to plans for public expenditure which in the event we lacked the resources to carry through. It is damaging in the extreme to proper planning of our vital public programmes if programmes have to be cut back without notice because events have not gone as expected. If we are to avoid this by being realistic in our planning, we must recognise that our minimum public expenditure plans must be based on a cautious assessment of our prospects so that there is a good chance of carrying them out even if economic progress is less than we hoped. Conversely, we must have ready properly prepared plans for feeding in the most desirable projects to take advantage of the situation if growth is faster than expected. This is the only way of ensuring that the resources required by public programmes neither pre-empt the resources we need for exports and investment nor involve intolerably large increases in taxation on incomes or consumption.

Mr. Michael English (Nottingham, West)

My right hon. Friend spoke of "intolerably large increases in taxation" but, whilst I accept all that he said about the borrowing requirement and public expenditure control, I would point out that one can attack the borrowing requirement through taxation as well. My right hon. Friend will be aware that the latest international figures show that in the EEC only Ireland and Italy are taxed less than we are, although the basis of taxation is different.

Mr. Healey

I must put this seriously to my hon. Friend and to all who think like him. The current marginal rate of income tax is one of the highest in Europe. If we were to meet the full cost of current public expenditure programmes —in other words, if we did not reduce them—that could require a marginal rate of State take-away from increases in earnings of 50p in the pound. I do not believe that that would be acceptable to the masses of the British people, nor do I believe that it would be compatible with any attempt to achieve the voluntary restraint in wages that is required. If, on the other hand, we sought to produce such taxation through indirect means—namely, by taxing consumers—that would have an even more direct effect on pressure for increased wages. I think that my hon. Friend must accept that these are severe restraints which would be imposed by political realities on any Chancellor in my position.

Several Hon. Members


Mr. Healey

With respect, I have given way at least 20 times and I have spent at least 20 minutes answering interventions and listening to interventions. I must now finish my speech.

The proper planning and control of our public expenditure programmes will keep down the size of the public sector deficit and so make it easier for Government financial needs to be met without an excessive increase in the money supply. This is an important contribution to the control of price inflation. But it is not a policy for reducing overall demand for goods and services. So far from producing any increase in unemployment, it is part of the attack on price-inflationary forces which is essential if we are to have any hopes of maintaining a high and stable level of employment, as are the policies I have described for pay and prices.

The whole of the Government's policy is designed to create the conditions for the most rapid possible return to full employment. Last year I was able to take action in July and November to counteract the effects of the international depression, whose depth and duration we in Britain foresaw perhaps more clearly than some of our friends abroad. The excessive rate of inflation which followed breaches in the 1974 guidelines prevented me from taking further action of this nature this year. But, as the rate of inflation comes down, and world recovery gets under way, we can look forward to an upturn in our own economy. But I must repeat what I said in my Budget speech. The countries with comparatively strong balance of payments positions must lead the way to world recovery for the benefit not only of them-selves but of the international economy as a whole. If such countries do not pursue suitable reflationary policies, this will damage the flow of world trade just as directly as if they introduced physical controls on imports, and I shall then have to consider other measures for maintaining employment in Britain.

In any case, as the rate of inflation falls the prospects for employment are likely to improve along with the competitiveness of our exports and the readiness of business to invest. The CBI has already committed itself to this effect. In its statement on 11 th July it stated: The CBI on behalf of member firms wishes to make it clear that insofar as the Government's counter-inflation proposals alleviate the cash position of companies, the major part of such help will necessarily be devoted to investment, either in plant or machinery, or in the working capital needed to maintain the business. Apart from helping to preserve jobs and increase output this will ensure that British industry is better placed to take advantage of the expected upturn in world trade. Meanwhile, the Government recognise the need for action to mitigate the effect of the unemployment already generated by past inflation. I announced a range of measures in April for increasing opportunities for training and retraining, for helping people to move to new jobs and for strengthening the employment services. Powers to enable us to introduce the temporary employment subsidy are now part of the Employment Protection Bill, which I hope will be law by the end of the month, and we shall bring it in as soon as possible. We are now planning further measures to increase training opportunities for young people and are consulting the TUC and CBI about special measures to encourage the employment of young people in industry. These measures, however, though they will reduce the impact of current unemployment levels, are no substitute for getting the general level of unemployment down. That is why it is so essential that this new attack on inflation should succeed. Then, and only then, will the Government be able to use all the weapons at their disposal for the attack on unemployment.

The White Paper which we are asking the House to approve outlines the Government's strategy for the attack on inflation, by far the most urgent and important task facing the nation at the present time. Inflation is a canker which eats away the security of every family in Britain. Inflation at the rate to which it has risen in recent months threatens not only the health of our economy but the very survival of our society. Unless we can cut the present rate of inflation as dramatically as the Government propose, the consequences will be catastrophic for jobs, for investment, for public expenditure and for living standards. If we succeed in the task we have set ourselves, we shall at last have laid a firm foundation for the action so desperately needed to improve our industrial performance, and this, the regeneration of British industry, is the underlying challenge facing our generation.

In the 30 years since the end of the Second World War wages in Britain have not risen faster on the average than in the countries which compete with us. But productivity has risen far more slowly. This is the problem which lies at the root of all our economic troubles—even at the root of our present inflation. But the improvements in productivity we seek cannot be achieved overnight, and cannot be achieved at all with inflation at its present level.

This is the central fact the House must face. There is no way of bringing down the rate of inflation as fast as we must bring it down except by acting directly on the level of wage settlements. The alternative policies put forward by fringes on the Left and Right of British politics—and I fear that on the Right it is far more than a fringe—whatever their merits might be in the longer-term, cannot possibly produce their effect in time.

I do not pretend that the policy embodied in the White Paper will not impose sacrifices on the British people as a whole. But I do claim that those sacrifices will be distributed fairly, so that the broadest backs carry the biggest burden. I do not claim that the new policy will not produce anomalies—

Mr. John Davies (Knutsford)

The Chancellor has made the point that he does not wish to load unfair hardships on people. He will be aware of the wide-spread anxiety amongst over 10 million occupational pensioners about the effect of his wage policy on pensions. Before the right hon. Gentleman finishes his speech, will he not give an assurance on that subject?

Mr. Healey

The right hon. Gentleman should be aware that I have already answered a question on that matter. I made it clear that the payments would go ahead. I think that everyone heard me say that except the right hon. Gentleman.

I do not claim that the new policy will not produce anomalies and distortions. Any incomes policy is certain to do so. But I do believe that this policy has a better chance of success than any incomes policy since the voluntary policy introduced by Stafford Cripps just after the war—because, like that policy it has overwhelming support from the British people, and from the trade union movement it has not only support but deep and detailed understanding too. No trade unionist wants to be paid in confetti, to quote the words of Lawrence Daly's powerful speech to the Durham miners' gala on Saturday. The groundswell of support among the British people for this policy is now approaching the dimensions of a tidal wave. Sometimes the British people are wiser than those who claim to represent them in this House.

I hope that on this occasion the support of the British people will be reflected in equally firm support from both sides of the House. This is not a time to allow considerations of party management to dictate a carefully calculated neutrality. History will not forget or forgive those who stand on the sidelines at this time seeking to cloak their abdication of responsibility with quibbles on procedure. The battle against inflation is now under way. I ask all hon. Members to join it.

5.11 p.m.

Mrs. Margaret Thatcher (Finchley)

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof: supports Her Majesty's Government's belated commitment to reduce the disastrous rate of inflation and their acceptance of the need both for strict cash limits throughout the public sector and for a substantial reduction in the level of pay settlements; regrets, however, Her Majesty's Government's proloneed failure to reduce public spending and to promote the prosperity of the private sector; and deplores their decision to increase indiscriminate subsidies and to proceed with further measures of nationalisation, which are damaging in them-selves and inconsistent with the conquest of inflation". I have listened carefully to what the Chancellor has said. It is a great pity that he was not saying it 15 or 16 months ago. There was not a shred of evidence throughout his speech to suggest that he realised that he had been in charge of the economy of Britain and that it was he and his policies that had brought us to this pass and to this White Paper. The policies we are debating today reject and falsify the whole basis upon which the Labour Party fought two General Elections.

Let me repeat what the Chancellor said during those two elections. On 23rd September 1974 he said: Inflation…is currently running at 8.4 per cent. The same day he said: We have in fact succeeded in doing very well on our own this year—I have cut the inflation rate I inherited by half. Later he said: If the social contract is maintained we can get inflation down close to 10 per cent. by the end of next year"— that is this year— and into single figures the year after. Another member of the right hon. Gentleman's Government, the Secretary of State for Employment, said: I trust that we shall never see a statutory system of wages restraint in this country again. I am bitterly opposed to the idea that you can settle wages by some high and mighty authority from London, be it Downing Street, the Pay Board or anything else. The Chancellor said at the close of his speech today that history will not forget. History will not forget the attitude of the Labour Party during those two General Elections.

I find it difficult to adjudge whether this is a voluntary or a statutory policy. It seems to have all the structure of a statutory policy but to have certain of the supports removed at the last instance. It is interesting to note that had the Chancellor taken some action a great deal earlier we might never have had the level of inflation we now have, the level of public expenditure we now have or the level of unemployment which we shall face this winter.

Inflation is now over 26 per cent. at an annual rate, while the three-month rate, or the "Healey half-truth", is running at 48 per cent. Until now the Chancellor was noisily denying the need for any action. Now he is noisily asserting the need for action on his own policies. It is interesting to observe that the previous starting point for counter-inflation policies was when the level of inflation was far lower than it is now. In 1961 action was taken because it was thought that the level of 3.2 per cent. annual inflation was too high. In 1968 the figure was 5.3 per cent., and in November 1972 we took action when the figure stood at 7.6 per cent. Now we have got the rate up to 26 per cent. before taking action.

It will be easy to say in some respects that we have been here before, because this is the sixth post-war pay policy starting with that of Sir Stafford Cripps. But we have no previous experience of rates of inflation as high as this, let alone getting them down by 15 per cent. in one year. The true rate of inflation is a lot higher than 26 per cent. since that is the retail price index rate. But this rate has been reached at a time when we have had price control operating for three years, when food and housing subsidies have been increased and when the latter actually doubled in two years. Of course, such subsidies have not solved the housing problem. This rate of inflation has also been reached at a time when profit margins have been squeezed to a dangerously low level.

The real rate of inflation is very much higher than 26 per cent. The public might not be bearing the cost in prices but it is bearing the cost in another way. It comes either in taxes or in borrowing, which itself can increase the inflation and start the pound sliding, which again puts up prices.

The Chancellor inevitably goes towards the relationship between inflation and unemployment. I think that often deliberately he has confused people on this issue. Economists and politicians may vary in their views about the causes of inflation but most now agree that the more we delay before dealing with it the greater unemployment will ultimately be. The Chancellor has delayed. He has constantly pursued a short-term policy which is against the long-term interests of our people and of jobs in industry. We should have had a much lower level of unemployment than we shall now experience this winter if the right hon. Gentleman had not done so. In spite of all the noises the right hon. Gentleman is making, and one would imagine that he is not responsible for the unemployment figures, there is nothing he can do now to prevent those figures from rising substantially this winter—rising to far more, I fear, than the 1 million level which he prophesied. I understand that he is going around talking in much larger terms now.

The yearly rate of inflation will probably go up further before moderating next year. Nevertheless, there is a purpose in an incomes policy in this inflation-unemployment relationship. The first purpose is to reduce the level of unemployment from what it would otherwise have been. If the money supply is held tight and some take more of it, there is obviously less for the rest. They would fall into unemployment but for the existence of an incomes policy.

The second purpose of such a policy is to reduce people's expectations of future pay increases and thereby, hopefully, to have some effect on the rate of inflation. We would endorse both of those objectives. But an incomes policy is only a part of the fight against inflation. The Chancellor knows this. It is highly unlikely that most of us have lived through six incomes policies, several trade cycles and rising inflation without having learned some general economic lessons about the other steps which have to be taken simultaneously.

The one lesson that seems to be most important and which is most commonly agreed is that all economic policies must be operated in the same direction simultaneously—money supply, public expenditure, fiscal policy and incomes policy—so that they reinforce one another in effect. I do not believe that it is sufficient to rest on one or even two factors alone. That is what the Chancellor is in danger of doing and is, therefore, in danger of having only half a package on inflation.

With that in mind we might go a little more closely into our examination of the White Paper and see how it deals with these several factors. I listened carefully to what the Chancellor said, but, in spite of the fact that he said a lot, he did not give us very much information. It was clear that every time he was cross-examined he had no idea about how these things would operate in detail. That is always the difficulty with incomes policies. Everyone agrees with them in general but they so often disagree with them in particular because they do not agree about what is fair. It is difficult to get the detail operating fairly. The metahod chosen by the right hon. Gentleman in this White Paper seems to make it specially difficult.

From the record both voluntary and statutory incomes policies appear to have had only temporary success. They have gone through an initial stage for a period of nine to 12 months, particularly if there has been a freeze, and they have seemed to work dramatically. They have then entered a second, much more detailed, phase in which they have been seen to be deficient and to lead to many rigidities in both the labour market and the prices area. They have been seen to create anomalies and differentials. They have then entered the third phase, after they have broken down, in which all the benefits of wage reductions, as far as inflation is concerned, seem to have been cancelled out and there is a tremendous catching-up period.

Therefore, it is now particularly important to go into a policy in such a way that avoids these problems when we come out. However, that is not what the Government have done. The £6 limit will play havoc with differentials both within groups and between groups.

There is also considerable conflict within the White Paper itself, let alone in the interpretation of the £6 limit. Paragraph 6 says, and the Chancellor repeated today: The £6 is however a maximum within which negotiations will take place; some employers may not be able to pay it. However, the White Paper refers us to the TUC document which is annexed and which, presumably, becomes, for the first time, an official document. In paragraph 1 it says: The General Council therefore conclude that there should be a universal application of the figure of £6 per week. That is very different from what the Chancellor said. Does the TUC understand that everyone gets £6 a week automatically, because that is what it says: a universal application of the figure of £6 per week"? Many people will expect that to mean exactly what it says, and they will demand £6 when otherwise they would not have done so. If that figure is demanded and paid in the textile and food industries, it will put up prices by far more than 10 per cent., because I gather that it is equal to approximately a 23 per cent. wage increase in those industries. It is not a question of what the Chancellor says but of the expectations that arise in people's minds about what this means.

What will the Government do in the public sector—in the Civil Service? Will they pay £6 to everyone? Will there be universal application of a £6 increase or will it be negotiated? From what the Chancellor has said, it appears that the £6 limit is not the upper limit in some public sector occupations because he spoke of excessive wage settlements. We cannot have excessive wage settlements if £6 is the upper limit. He speaks of an excessive wage settlement and then knocking it off current expenditure. Therefore, £6 is not, in fact, the upper limit.

It seems that there will be a considerable mess about increments. I am not surprised that the inquirer was directed to the TUC, because the only place, as far as I can see, where increments are mentioned in the White Paper is in the TUC document, and then it is in very difficult terms. It appears that some will get £6 plus increments, some will get £6 and no increments, and some will get £6 and part increments. It will depend on the age structure of those in a particular group. For example, with teachers, those who leave will be paid at the top of the incremental scale, but those who come in will be at the bottom. If, ignoring the £6 a week, the rest of the wage bill, with all the increments, is no bigger this year than last year they will get the increment. If not, they will not. That will cause enormous difficulties because it is not only in the public sector that there are increments. After the last incomes policy round I said that if increments were to be exempted and I were a trade union leader I would start negotiating increments now. That is what a lot of them have done.

I gather that there are now 2 million people in the private sector who also have increments. However, if those people stand one beside the other, and one receives £6 and no increments and another £6 plus increments, they will not consider it fair.

There will be a great difficulty because of the way in which the Chancellor has gone into the policy and the level of inflation. The people who received a full 30 per cent. in July will be much better off than the people who receive only 10 per cent, in August, who will practically never catch up if the policy continues for more than a year, again with people working one beside another.

I come to the question of monitoring, enforcement and reserve powers. I begin to wonder what the Reserve Powers Bill does contain if the elected representatives of the people cannot see it when discussing this matter. Is the reason that it is too tough, or is it that it is not tough enough? We do not know the nature of the offence. We do not know the nature of the punishment. It is like saying to a person "You shall not know what the punishment is until you have committed the offence, and you shall not know precisely what the offence is until you have committed it." It is absolutely absurd. In my view it is a complete contempt of and an insult to Parliament.

The reality is that the Government do not know what they will do about these powers. Paragraph 26 of the White Paper states: Legislation has therefore been prepared". They have drafted it and it is probably printed. However, the Prime Minister in his reply to me—I am most grateful to him for letting me have it before the debate started—said: We shall continue to work on the details of that contingency legislation in parallel with the work which still is to be done on the details of the voluntary policy announced in the White Paper". Therefore, the reality is that the Government do not know what they will do. They may be changing their mind, but I must say that throughout the whole of the White Paper it seems as though there is still a great deal of detail to be worked out. The Chancellor of the Exchequer did not seem clear about a great deal of it either.

Mr. Atkinson

The right hon. Lady seems to be telling the House ways in which success can be achieved by backing every horse in the race. Will she now tell us, having left the whole question of the £6, whether or not it should be higher or lower? Does she agree with the CBI and its advocacy of £5? She has pointed out quite rightly all the anomalies that are likely to arise, but does she want to avoid these anomalies and apply more rigorously all the power of the law whether it be against employers or workers? Is she complaining that there are no effective methods contained in the Bill? Does she agree with statutory policy? We should like to know.

Mrs. Thatcher

The Government got us into this economic mess and they must get us out.

Mr. NevilEe Sandelson (Hayes and Harlington)

Where do you stand?

Mrs. Thatcher

If the hon. Gentleman had heard what I have said many times, he would know full well that I infinitely prefer a voluntary policy to a statutory policy. That remains my own position. We would never have got to 25 per cent. inflation. We reached it because of the Government's attitude through two General Elections. They said that it was 8.4 per cent.—the "Healey half truth". [Interruption.] It is a pity that I am not at the Government Dispatch Box instead of this one.

Last week I and a number of hon. Members asked the Prime Minister what protection an employer who was driven out of business because he upheld the Government's policy would have. His reply was: we would not hesitate to introduce the statutory powers".—[Official Report, 15th July 1975; Vol. 895, c. 1263.] Those statutory powers, from what the Chancellor of the Exchequer said, will contain no protection whatsoever for the law-abiding citizen. Therefore, the Prime Minister's reply was thoroughly misleading. We understand that there is to be no protection for the responsible employer who, in carrying out the Government's policy, loses his business.

On the incomes side of the Government's policy, it seems that they have gone into it in such a way that it is bound to create problems—inflationary problems—at the end of the year. They have learned nothing from the past. It does not look like being for "one year for Britain". It looks as if this policy will go on for several years with increasing detail, rigidity, control and increasingly catastrophic consequences at the end of it.

The Chancellor of the Exchequer asked me about public expenditure borrowing requirements and fiscal policy. I always find his arguments on this matter somewhat intellecutally ambidextrous. They were again today. In his estimation, it is always necessary to cut public expenditure. But it is always necessary tomorrow, never today. Why he can do tomorrow what he cannot do today is a mystery.

The Chancellor referred to the amount that we were borrowing when we were in Government. The Prime Minister made great fun of it during the February General Election campaign. He said: This Government has minted and printed in three years more money than all the Governments of this country… Record borrowing. In last year's budget Mr. Barber announced that he would have to borrow £4,400 million. That is comparatively modest compared with present levels. This was eight times the total borrowing by his predecessors to pay for the Napoleonic Wars, the Crimean War and the Boer War. For good measure you can include the War of Spanish Succession, the War of Austrian Succession, the Seven Years War". To meet this Government's borrowing requirement of £9,000 million, history has run out of enough wars. It sits ill in the mouth of the Chancellor of the Exchequer to castigate us for a much smaller borrowing requirement on an economy which was growing than he has had on an economy which is absolutely stagnant. The Chancellor knows that we do not need to borrow as much if we do not spend as much, because we can cover a smaller amount of spending by taxation and get nearer to balancing the budget.

Let us look at the record mentioned by the Chancellor. In 1974–75 total public expenditure rose by 30 per cent., which was nearly half as fast again as the gross domestic product at current prices. This disproportionate increase in public spending was a sharp departure from recent trends, because—this is what the right hon. Gentleman failed to mention—between 1969–70 and 1973–74 public spending and domestic output had risen broadly in line. Public spending went up, but so did domestic output. The right hon. Gentleman has put up public expenditure substantially while output has remained virtually the same. His great increase—in 1974–75 it amounted to about 54½ per cent. of gross national product—was financed partly by greater borrowing and partly by greater taxation. So much for the facts.

Interpreting those facts, we find that there has been an enormous drain of funds and resources from people and companies into the Government sector. There has been a fantastic drain out of the private productive sector into the Government sector. That drain has occurred in both taxation and borrowing.

Although the Chancellor of the Exchequer is fond of saying that he will make the rich howl with anguish by increased taxation, it is not the rich who have howled with anguish but those on average wages who have constantly had to bear the increased level of taxes. They now equate them not in gross terms but in terms of net take-home pay. It is interesting to observe that a £6-a-week increase will be £3.57 net of standard tax with the increased national insurance contributions. People are now saying that they do not regard a social wage as a substitute for the wages in their pockets. They are not prepared to have taxation going up and up. If it does go up, they will try to recoup it in increased wages. They will not have their net take-home pay go down.

Not only has money gone from the private into the public sector through taxation, but money which companies have as they go into the beginning of a recession, instead of being put into investment and re-stocking, is now being put into gilt-edged stock. The reason is clear. At present price levels, they cannot get a decent return on investment. Until profitability is restored, companies will not be putting more money into investment.

Mr. Frank Hooley (Sheffield, Heeley)

The right hon. Lady seems to have overlooked the fact that when there was profiability in the years 1971, 1972 and 1973 investment in manufacturing industry went down and the Conservative Government did nothing about it.

Mrs. Thatcher

But 1973 was a particularly good year for investment. It was increasing. Next year will be a very bad year for investment.

The hon. Gentleman knows that there are two problems. The first is that the profitability of industry has gradually been reduced over a number of years. Secondly, it is not always possible to get back the investment on new technological undertakings because of over-manning. This is one problem which we have to a greater extent than on the Continent. We put in new machinery, but often we still have the same numbers of people as on the old machinery.

Unless the Government are prepared to reduce public expenditure there will be no room whatsoever for manufacturing industry to take advantage of the improvement in trade which will come within a year. All the money is going into Government spending at the moment. As soon as industry wants to take advantage of rising trade, it will withdraw its money, it will restock, and it will need still more for working capital, leaving a gap in Government financing. The Chancellor knows very well that the danger is that in about a year, unless he has made full reductions in public expenditure, he will have to finance it by printing. That is why it is vital to make cuts in public expenditure now.

The White Paper makes two points about public expenditure. First, it increases food subsidies by £70 million and rent subsidies by £80 million. Those two increases, not reductions, are in areas where we were hoping to get rid of some of the distortions in the market. I am always puzzled why the Chancellor of the Exchequer thinks it right to get rid of distortions in nationalised industry prices by putting them up at a time when he is increasing distortions in rents in the housing market. Unless we get some sense into housing finance, we shall never have people properly housed. The more we put on these subsidies, the more difficult it will be.

The Chancellor of the Exchequer did not say how this subsidy would be dealt with in rate support grant settlements. I am not sure whether the £80 million covers in full the costs which local authorities will have to meet. However, there is no mechanism under rate support grant settlements for distributing the £80 million according to the cost to each local authority. Therefore, there will be times when that extra rent forgone will have to be borne by the ratepayer.

Having listened to what the Chancellor said on cash limits in the public sector, I cannot escape the conclusion that the Government have not gone into this matter very far and do not know how it will work. They have already been working in some areas—for instance, in the University Grants Committee—for some time, and I fail to see some of the alleged difficulties. I only hope that the cash limits in local government will apply to the total of local authority expenditure and not only to rate support grant totals, because people must have some protection from considerable rate increases at a time when their incomes will be curtailed substantially.

On the public expenditure side, if expensive schemes like the Land Community Bill—which will cost between £360 million and £400 million per annum and involve the recruitment of 14,000 extra officials—and petroleum nationalisation go through, it will hardly seem that the Government are serious about reducing public expenditure in the short, medium or long term.

But the sector on which we rely for exports and most of our jobs is the free enterprise sector, and that is the one which has received such cursory treatment from the Government.

Mr. Healey

Will the right hon. Lady answer the question which all of us on this side of the House want answered: how big an increase in the RPI, and how large an addition to unemployment, would she tolerate as the inevitable consequence of the further public expenditure cuts which she wants to be made this year?

Mrs. Thatcher

The right hon. Gentleman does not seem to understand that the increase in the RPI has occurred under his stewardship—the biggest increase involving the biggest guilt in history. The increase in unemployment has occurred under his stewardship. He was using the same arguments a year ago as an excuse for not taking action. Had he taken action, we should not have a 25 per cent. inflation rate nor over 1 million people unemployed. It is his fault; he is the guilty man.

Mr. F. A. Burden (Gillingham)

Is my right hon. Friend aware that on 26th July last year the Chancellor of the Exchequer stated that the measures he had taken the previous day would reduce unemployment by between 10,000 and 20,000 this year and increase employment by between 100,000 and 150,000?

Mrs. Thatcher

It would be best if we believed precious little of what the Chancellor of the Exchequer said at any time.

Mr. Healey

Answer our question.

Mrs. Thatcher

I live for the day when the Chancellor of the Exchequer will be answerable for his economic sins in both inflation and unemployment.

Mr. Healey

The right hon. Lady must be aware that she has dodged the central question. No one in the country will give the slightest regard to the frivolous humbug to which she is treating us unless she answers our simple question.

Mrs. Thatcher

No one in the country will give any attention to what the right hon. Gentleman says after his forecast of an 8.4 per cent. inflation rate. We now have a 48 per cent. inflation calculated on the Healey three-monthly rate. If we look—[Interruption.]—

Mr. Robert Adley (Christchurch and Lymington)


Mr. Deputy Speaker (Mr. George Thomas)

Order. The right hon. Lady is entitled to be heard. I realise that we are accustomed to interruptions, but there is a difference between reasonable inter- ruptions and sustained interruptions which prevent speaking.

Mrs. Thatcher

What bothers me is that I do not believe that what the Chancellor of the Exchequer has said will have much success in tackling inflation. His arguments are the same as those he used a year ago. Other nations were taking action simultaneously at that time in four fields. That is what the Chancellor of the Exchequer is not doing, and it is one reason why the Government's policy is only half a package. The key elements in the strategy of other nations were: first, wage restraint, which the Chancellor is proposing now; secondly, prices in general were not controlled, which greatly helped to preserve profitability; thirdly, public spending programmes were cut back. In the major OECD countries there has been no real increase since 1973. Some increases are being planned now but in the context of a healthy reflation from a much lower inflation base. Fourthly, monetary policy was tight. In Germany, the inflation rate is down to between 6 and 7 per cent.

Mr. John Cronin (Loughborough)

Is it not the case that the Cabinet of the Government of the right hon. Member for Sidcup (Mr. Heath) in which the right hon. Lady served agreed in 1973 to a 24 per cent. increase in money supply, which was a record in peace time, and that that excess money supply was used not for productive investment but for property speculation and other undesirable financial objectives?

Mrs. Thatcher

As far as I can make out, under the present Government the money supply has increased by about 20 per cent. in the last two months. [Interruption.] Obviously the Government are switching from one indicator to another. M3 is not a proper indicator at present. It is much easier to control the money supply in a period of depression than it is in a period of boom—and we are going into a quite severe depression.

Mr. Thorpe

As the right hon. Lady said that, in her view, this was only half a package which she did not think would succeed, are we to take it that the Opposition will be voting for or against, or abstaining?

Mrs. Thatcher

I hope that I have said enough about the weaknesses of the incomes policy, about which the House is riot allowed to know, for the right hon. Gentleman to realise that we shall realise that we shall reserve judgment on the package. We shall ask the country in a year or two what it thinks of it when the country knows how it works in detail, which is a great deal more than the Chancellor of the Exchequer knows at present.

The recipes used by other countries have included all four of the methods to which I have referred. As a result, their economies are in a reasonably healthy condition and are ready to take advantage of the upturn in world trade which will come soon. We agree with the Chancellor's immediate objective—the rapid reduction of inflation—but insofar as we have been able to examine his methods we have reason to doubt whether in the longer term they will do the job, and we fear a reflation on top of an inflation which has not been properly quelled.

The Chancellor's longer-term strategy remains clear. It is progressively to increase the area of Government control over industry through more nationalisation and by buying up shares in profitable companies. It is to get more Government control over the pay packet and savings through the typical Socialist method of increasing taxation on both. This is not the way to create wealth or to further the prosperity and well-being of Britain.

The pronouncements of the Chancellor of the Exchequer during election periods and since—I quoted some of them at the beginning of my speech—show that he has never yet found the truth for the hour. Unlike a previous politician, he was prepared during the election campaigns to sell the truth for the hour. Now he has found a half truth well after the hour has struck. Against that record the responsibility for the level of prices is his. This policy is not a wholehearted attack on inflation. When it is, we shall support it.

5.50 p.m.

Mr. Jeremy Thorpe (Devon, North)

The right hon. Lady the Leader of the Opposition has at least told us what she will do from her reserved position, which is to abstain.

At the outset I should like to say what my hon. and right hon. Friends will do. They will not be in a reserved position. Despite the reservations which we have, on the charitable basis of judging the policy as a first instalment of further powers which the Government will be compelled to ask for in the autumn, and which they have been very coy about showing us—about as coy as the right hon. Lady has been in declaring her intentions—my colleagues and I believe that the White Paper must be given the chance to succeed and that the measures should be supported by any responsible Opposition in the national interest.

This is not a time to imperil the policy or increase its chances of failure by voting against it or, for those who cannot make up their mind, abstaining. Therefore, we shall vote for the White Paper, but, as we say in our amendment, we believe that stronger powers may be required. We certainly do not believe in indiscriminate cuts in public expenditure which we believe—as I think the Chancellor of the Exchequer agrees—will lead to increased unemployment.

Although in our view the White Paper does not go far enough, it represents a fundamental change in the thinking of Her Majesty's Government and the TUC. Any doubts on that score may be resolved by looking at the Tribune Group amendment, which suggests that it is a full-scale attack upon the Ark of the Covenant. I think the Tribune Group would agree that it certainly represents a full-scale change in the Government's thinking. The Government recognise that not only have the social contract and the guidelines been inadequate but that they must accept a greater share of responsibility for the level of prices and also for the level of wages.

The Government already have statutory powers in regard to prices because they have not repealed Sections 5 and 6 of Part II of the Counter-Inflation Act 1973. Now we are told that there are powers in reserve which could be of a a statutory nature with regard to incomes. We already have statutory powers in regard to incomes if the Bill which is before the House is carried this week. For example, there will be power to withhold rate support grant from local authorities which are in breach. There will be power to refuse to buy from employers who are in breach. To be told that there is a vague illegality which an employer might commit at a later stage yet to be resolved shows extraordinary haste in the preparation of the case. I suspect that the view that is taken is that the Bill will not see the light of day until after the TUC conference and after the Labour Party conference.

Despite the events of the last 18 months, considerable credit is due to Len Murray, Jack Jones and the Chancellor of the Exchequer, backed by David Basnett, Tom Jackson, Frank Chapple and others who have come to this decision, but there is not much credit due to anyone else, certainly not to the Government, who have waited for a 26 per cent. rate of inflation, the prospect of 1 million unemployed, a fall in the value of the pound of 40 per cent. since 1967 and wage awards running at well over 30 per cent. before acting.

There is little to admire in the history of prices and incomes under successive Governments. In 1966 the present Prime Minister told the electorate that he would never introduce statutory controls. In 1968 the Parliamentary Labour Party was told that he could not govern without them and he introduced compulsory measures. The Conservative Party in opposition opposed every order and every attempt to give effect to that statutory policy. We voted for it.

In 1970 the Conservative Party manifesto said: Labour's compulsory wage control was a failure, and we will not repeat it". At that time I believe that the right hon. Member for Sidcup (Mr. Heath) and the right hon. Lady were in total agreement. After saying in 1970 that the Conservatives would never introduce compulsory wage control, in 1972 the right hon. Member for Sidcup, who was then Prime Minister, said that the Government had no alternative but to bring in statutory measures.

As the rôles were reversed, the Labour Party in opposition bitterly and stoutly resisted the introduction of statutory controls at every stage. Both Labour manifestos in 1974 declared that Labour would not in any circumstances introduce a statutory prices and incomes policy. In the first of the two Tory manifestos a statutory policy was vital, and in the second in October the Conservatives said that they might introduce a statutory policy. So now the Labour Government are introducing it and the Conservative Opposition will abstain. We do not know whether the Opposition are abstaining from voting for a statutory prices incomes policy so that they are consistent with their views of 1972 to 1974, abstaining from voting against it so as to be consistent with their views of 1966 to 1970 and 1970 to 1972, or merely abstaining for the sake of abstaining.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

Is the right hon. Gentleman aware that the two periods in recent history when the rate of inflation has moderated a little—not gone down but gone up less fast—were in 1971 and 1975, which are the only two periods in the last 10 years when there has been no statutory control on prices and incomes? Does it not therefore seem to the right hon. Gentleman perhaps better not to have a statutory policy?

Mr. Thorpe

The hon. Gentleman seems to think that 1975 is a halcyon year. It is a record year—

Mr. Ridley


Mr. Thorpe

Surely 26 per cent. is a rather high rate of inflation. It may come down by about 1 per cent., and if that gives the hon. Gentleman any joy and hope in heaven he is welcome to it. The hon. Gentleman's other example was 1971. I refer him to his former leader who thought that the rate of inflation at the end of 1971 had become so acute that he had to introduce his statutory prices and incomes policy in 1972—but I do not want to widen the splits in the Tory Party. Perhaps it is wisest for the Conservatives to abstain on this issue, otherwise hon. Members may be going in different directions.

We have the extraordinary situation that the Government have totally changed. They have come round to the well-known views of the Secretary of State for Employment, who is always known as being very firm in these matters and who is giving support to the package, with an Opposition which, in the words of The Times, have decided on the great national issue of how to tackle inflation to be the party of "decisive indecision", militantly united in abstention.

Therefore, it comes as no surprise that this measure has been introduced. May I modestly remind the House that at the time of the last election I said that within six to nine months, whichever Chancellor was returned, a form of statutory prices and incomes policy would be introduced? I similarly predict that by Christmas the Government will be coming back for tougher measures and saying "It has not gone as we would have liked and we therefore want a second instalment".

Mr. David Made! (Bedfordshire, South)

The right hon. Gentleman is giving us an interesting lesson in history and consistency. When matters were getting difficult for the Conservative Government in 1973, does the right hon. Gentleman recall his hon. Friend the Member for Cornwall, North (Mr. Pardoe) saying in November 1973 that the miners should easily be able to find their way through the multitudinous holes in stage 3? Does he recall saying in January 1974 that stage 3 was not worth dying for? May we have an assurance that the Liberal Party will be consistent in this, as manifestly it was not in November 1973 and January 1974?

Mr. Thorpe

That greatly assists my case. My hon. Friends and I voted against phase 3 as we thought that the threshold arrangements were wildly inflationary. In retrospect I think that that fact is now accepted by everybody. I said in the House that we did not believe that phase 3 was worth dying for.

There was proper machinery for settling the miners' dispute in the relativities board, which could easily have been retained, without the threshold arrangement of phase 3, to which we were opposed.

I suggested to the then Prime Minister on two occasions that he should refer the miners' dispute to the relativities board. He refused. He eventually did so only at 6 o'clock following the 12 noon announcement that there would be a General Election, since no further options were open to him. I spent that morning with the National Union of Mineworkers. I am convinced that there could have been an honourable settlement within the framework of the relativities board. We are now back in the old milieu of one Government introducing a statutory policy while the other side merely abstains with harsh words.

Having seen a genuine degree of consent and agreement between the Government, the TUC and the CBI, can we in the national interest and the interests of the economy take this a stage further? I believe that we can. Can we learn from the lessons of countries such as Germany, Sweden, the Benelux States and France, which have had greater success than the United Kingdom in tackling inflation? Unless there is a radical change in the way in which we control our economy —I do not believe that we shall achieve that radical change without agreement—we shall face a difficult situation in August next year when the problems of differentials and other difficulties flow from this policy.

We must have regard to three matters. We have suffered since the war from chronic underinvestment as a result of causes which are generally accepted. We have a problem of overmanning compared with our European partners. There is a problem of productivity per man. The trade union movement fears the growing rate of unemployment. As a result, we have often pursued job security policies which have led to serious overmanning in large sections of our industry. That is one of the root causes of inflation.

The electorate were shocked to read in the Ryder Report on British Leyland that over many years that firm had been overmanned by 25 per cent. That applied to 40,000 out of 150,000 workers. I estimate that that must have added about £80 million a year to the overheads of British Leyland. If that wasted manpower could have been diverted to designing and producing the capital re-equipment which British Leyland so desperately needed but for which it did not have the necessary finance, the situation and story would have been different today. The same is true of steel, printing and many other industries.

The effect of overmanning on the cost of production has led us into a mentality where many people almost welcome the decline in the foreign exchange value of the pound, as they believe that this will allow us to be more competitive in selling our goods. Every time the value of the pound falls, the advantage is short-lived and buys less and less time, and wages rapidly catch up. The increased cost of imports resulting from the 40 per cent. depreciation in the value of the pound since 1967 has probably been £4,000 million. That is a direct additional cost on the price at which we export our goods.

Since world trade has increased by about 300 per cent. since the war, why is it that our competitors have done so much better? First there is the problem of overmanning. Next there is the level of investment and re-equipment. If we compare other industrialised countries, both on the basis of volume and per capita, we have probably underinvested by comparison with our competitors, to the tune of £20,000 million over the past decade. That fact must be recognised. But if we are to achieve the consent and agreement which we need there must be greater worker participation in industrial policy formulation. We need much closer worker participation in capital growth and investment decisions. Now is the moment for the Government to start working on policies to achieve those objectives.

For the past 25 years the main supervisory boards of the German steel and coal industry comprised 11 people, five representing the shareholders, five representing the employees and a neutral chairman. Many of the decisions on issues such as investment and overmanning are taken with the agreement of the representatives of both sides of industry working together. They are now thinking of having parity on boards of concerns employing over 2,000 people. That is the way in which the Germans are moving. Likewise, in Sweden 20 per cent. of the profits are free of tax if they are set aside in the State bank and are spent—after obtaining the agreement of the supervisory board representing employers and employees, if there is an approved scheme—either on improving the working environment or providing improved benefits such as works canteens or on protective measures for dealing with pollution either in the factory or the environment. Many of our competitors have followed that pattern. I do not believe that that will solve the problems overnight. But if there are problems of overmanning and of friction between management and labour, that is one way in which we can bring about a far greater understanding of what people should regard as being to their mutual advantage.

The feeling at present is that investment can come from profits or from the State, usually at the last moment to bail out a firm. A firm can always obtain money from the State if it is going bust. However, a nationalised industry wanting to expand finds that it is almost impossible to obtain funds, as I know from a nationalised industry in my constituency.

It is not realised that the imposition of more tax does not diffuse or spread wealth. Instead the wealth is concentrated in the hands of the Government. That is what has happened. It is a justified criticism for a wage-earner to say "A wage restriction for me is total. A dividend limitation for the shareholder is deferred". I can see that. Therefore, I should like the Government to work out a national investment plan for the whole of British industry which would be slightly different from the National Enterprise Board, although both could work together, and which would include wage and salary earners.

The gross national product of the United Kingdom is about £80.000 million, of which £60,000 million is accounted for by incomes from employment, leaving aside the self-employed. That figure represents a 50 per cent. increase over three years. If we compare gross profits before tax, or gross profits net of stock appreciation, with the annual bill for wages and salaries, the 1973 wage bill and the global overheads that firms had to meet were seven times the gross trading profits. This year they will be nearer 11 times the gross trading profit. Therefore, in dealing with the matter as a ratio there will be less profit. There will be insufficient profit with which to provide all the investment required.

Just as the Government talk in the White Paper about a cash wage and just as they have often talked about a social wage, I should like them to move towards accepting an investment wage. This is not an airy-fairy idea. At the moment there are some 14½ million employees in Germany who are benefiting from capital accumulation schemes as a result of some 850 union-negotiated agreements. If the Government say to people "We are sorry, but there will have to be a cash limit on the actual wage that you can negotiate and obtain", I believe that there is a lot to be said for supplementing it at a later stage—I should like this to be worked out as soon as possible—with an investment wage.

If employers were to credit to each employee of the order of 2½ per cent. of wages free of tax to a British national investment trust, with employers putting in 2½ per cent. themselves, something of the order of £3,000 million would be accumulated a year or, at the end of 10 years £30,000 million. This scheme could work closely with the National Enterprise Board and it would be not only a form of saving but a new form of capital for investment in industry.

Obviously one asks the question "Could it be cashed?" My view is that it would be reasonable to suggest that it could not be cashed, at any rate for the first five years, but afterwards it could be. Tax would then have to be paid on it, but if it were not cashed until the date of retirement it should be tax free

The Germans have shown that this is one way in which people can take a genuine interest in the whole of industry, both the State sector and the private sector. However, this scheme does not hold the same dangers that would apply if one were to put all one's money in one firm—as happened in the case of Rolls-Royce—where if the firm goes bust the workers lose their money.

Mr. Hooley

How does the right hon. Gentleman deal with the situation of the 7 million employees in health, education, the Civil Service and other Departments who cannot possibly participate in this scheme but who will not sit back and watch advantages accruing to the manufacturing sections of employment in which they cannot take their fair share?

Mr. Thorpe

Germany has schemes for civil servants. The nationalised industries credit to their workers a particular percentage which the workers match. This can be translated into loan stock if the particular nationalised industry wants to attract investment from the unit trust involved. It has to be a viable proposition before the unit trust backs it. However, it is possible to include all those persons. I agree with the hon. Gentleman that otherwise it would gravely weaken the case.

It has been said that it is extraordinary that we do not know what the Government's reserve powers are. I hope that the Government will reconsider this matter. To talk about vague legal powers is an unsatisfactory way of proceeding when we are being asked to look at the package as a whole. The first question I ask the Government is, how did they come upon the figure of £6? Does £6 reflect to them 10 per cent.? If they fail to reduce inflation to 10 per cent. and they get it down, say, to only 12 per cent. or 15 per cent., is that 15 per cent. to be translated into a higher cash term next year?

Having discussed this particular problem with Len Murray in public, the Government may regard the £6 as the maximum, but I can assure them that there are many members of the trade union movement who regard it as the norm and there may well be a difference of interpretation here.

Secondly, what monitoring have the Government in mind? They have said that they do not want compulsory monitoring except in their reserve, unseen and hidden Bill. I got the impression from Len Murray that the trade unions were anxious to see monitoring working effectively and efficiently. As paragraph 28 of the White Paper refers to monitoring, I hope that we shall be told something more about it. Surely it cannot be based on the normal accounting practices, which are based on an annual budget. I should have thought that that would be too late in the day.

Paragraph 9 states that the Government are opposed to criminal sanctions on workpeople, with which I agree. Are they also opposed to criminal sanctions on employers, or are employers regarded as a rather different category? This is a simple point and I hope that the Secretary of State for Employment can deal with it.

What is the time scale? When will the Government start discussing the problems of differentials? I disagree with the right hon. Lady. I do not mind making changes in differentials because I believe that this can do more than anything to help the low paid in this country. This is long overdue, but I recognise that the problems of differentials will be one of the effects. But is it fair to cut back on local authorities' and nationalised industries' expenditure when measures such as the Community Land Bill will increase not only their work but their costs? I am well aware that those measures will not have immediate effects, but psychologically it is not a good way to persuade local authorities to cut down on their obligations.

Mr. Atkinson

Does the right hon. Gentleman relate what he is saying about differentials to what I take to be the policy of the Liberal Party, namely, the introduction of a permanent incomes policy, not something of a temporary character? How does he view his differential? Does he not say that in terms of recognizable differentials lie, as a Member of Parliament, has a differential far too great in the present circumstances and that this should be reduced? If so, by how much should it be reduced?

Mr. Thorpe

The hon. Gentleman has asked me two questions. We believe that there should be a permanent prices and incomes policy for this country until such time as we get plant bargaining and we get away from the present totally archaic monopoly bargaining situation that we have. That is why I believe we should have a statutory prices and incomes policy for the foreseeable future. I do not say that we should have one for ever. Certainly it would not he right to consider giving up such a policy until such time as we had brought our rate of inflation down to that of our competitors. We would then he able to know whether we could live without it.

With regard to the point about hon. Members' salaries, I must not trespass on the debate we shall have tomorrow night. Suffice it to say that even Lord Boyle thought that the figure of £8,500 was the correct one to restore differentials. I believe that the Government were right to think that the differential should not be restored. Indeed, I am not certain whether they have the right figure. I would prefer it to be £6 per week over three and a half years. The Government would then have a stronger case to put forward.

I hope that the Chancellor, when he referred to local authorities, meant that there would be a total freeze on the payroll of such authorities. This is one of the great industries in this country which employs more people and, collectively, produces very few additional services. This year, on the Chancellor's own figures, the bill for local and national government officers has increased by £3,000 million over last year's figure. This is one of the biggest growth industries we have. If the hon. Member for Liverpool, Walton (Mr. Heller) is wondering whether I am referring amongst others to the local authority in my constituency, I am. My local authority has been increased, but the same work is done by more people at higher cost. This is the same in every constituency in this country, if only Members had the courage to say so, but they do not.

The Government have started very modestly. I believe that they have at last realised that the social contract applied to everyone except the next breach—and then there was a good reason why it was an exception. They have realised that there has to be some control. They will have to have statutory back-up powers; they will probably have to use them. I hope that they will listen to those who are prepared to support the White Paper, who will give it a chance and who do not sit in sullen abstention unable to make up their minds whether they are for or against it.

I do not believe that the White Paper has enough teeth, but it should be given a chance. Any Government who can get on top of inflation will be able to claim that they have maintained, improved and enhanced the living standards of the people of Britain and removed the sceptre of unemployment. If they do that, they will be the first Government to have done so since the war.

6.19 p.m.

Mr. Eric S. Heller (Liverpool. Walton)

This afternoon my right hon. Friend the Chancellor of the Exchequer clarified at least one point about the Government's policy. That is that we now apparently have a voluntary policy with powerful sanctions. In other words, we have a form of statutory incomes policy. When I heard my right hon. Friend the Prime Minister speak recently. I was not sure whether we had a voluntary voluntary policy, a voluntary compulsory policy or a compulsory compulsory policy. But at least we now have the position clarified. We now have a statutory incomes policy.

The position was further clarified by my right lion. Friend the Secretary of State for Prices and Consumer Protection in a radio broadcast a week ago last Sunday, when she was discussing the position and clearly pointing out that the sanctions were very powerful indeed and that the Government wanted to use them to the full. In other words, if a local authority decides to go beyond the £6, action can be taken in relation to the rate support grant and so on. If the nationalised industries go beyond the £6, action can be taken on subsidies and finance for them.

There is no question about it. Whatever my hon. Friends try to say, this is a statutory incomes policy. It is no good denying it. I say in particular to my right hon. Friend the Secretary of State for Employment, who is a great personal friend and has been for many years, that there is no question about it that this is a statutory incomes policy, backed in a way by sanctions, without its actually being in a Bill. The first part of the two Bills comes up for discussion on Wednesday, when we shall be discussing certain powers in a Bill which may be actually brought before the House.

I want to remind my right hon. Friends of what we said in the last two election campaigns. I shall not quote the manifestos. I have no doubt that they have been well studied in the last week or so, certainly by the Opposition, as we studied their manifestos and speeches when they also did their U-turn when they were last in Government. I can remember making speeches from the Opposition side of the House reminding the then Prime Minister of the speeches he has made and the various statements in the Conservative manifesto. However, I want to recall what we said in our manifesto.

We said that we had already taken four lines of action to deal with inflation. We then said that we intended to take four further lines of action to deal with inflation. We did not say that one of those four lines of action would be the introduction of a wages control policy. That was not among the actions we were to take. In fact, in the section dealing with the social contract we made it absolutely clear that we had no intention of reintroducing the type of legislation we had got rid of which had existed under the previous Tory Government.

I say to my hon. Friends that we knew that there was a crisis. When the leader of the previous Conservative Government said in the election campaign that we had misled the people about the seriousness of the crisis, we made it absolutely clear, as did certainly my right hon. Friend the Prime Minister, on television and elsewhere, that this was not true. We boasted about that. We said that we knew there was a crisis, the most serious crisis we had faced since the days of mass unemployment in 1931. That is clearly on record. It is in our manifesto. It is worth while quoting the manifesto on that point, because it says: Britain faces its most dangerous crisis since the war. The Labour Party makes no attempt to disguise this. On the contrary, at the time of the February election, we took the British people into our confidence and shared the realities of our daunting problems. Therefore, we know that there was a most serious crisis.

We put forward our policies in relation to dealing with inflation and our economic problems. We said nothing about a policy of wage control because we did not believe that wage control was necessary to deal with that crisis. On the contrary, we argued the opposite. I can remember making a speech about this. The right hon. Member for Devon, North (Mr. Thorpe) talked about bringing in a wages control policy. I said that this was absolutely absurd. In our manifesto we are clearly against such a policy. Either my right hon. and hon. Friends are, as I said in the House the other day, economic illiterates and do not know the position or they have misled themselves in particular.

This is a very serious matter from the point of view of the Labour Party. I am not one of those who believe that we should ever say one thing to the electorate and do something else when we are elected as a Government. It is that sort of thing that leads to cynicism and ultimately to the undermining of our parliamentary democratic system.

Of course we must tackle inflation. No one denies that. We made that clear in our manifesto. There was a whole section on the question of inflation, and we said that it had to be tackled. There were sonic of us in the Government who clearly stated months ago that drastic action had got to be taken. Because of the international crisis in the capitalist system with our own crisis grafted on to it, we recognised that we had to take drastic action to deal with the crisis or otherwise Britain would move steadily into a deteriorating position. We argued the sort of lines that ought to be adopted. Our policies were not accepted, as we all know. Some people even then believed that the real answer was wage control, on the ground that they have always believed that our inflation is wage-led.

That is not a view that I accept. Wages are only a marginal part of our inflationary crisis. I am not denying that they have some effect—it would be ridiculous to deny that in respect of certain industries and certain groups of workers—but not as a general principle. In 1953 the wage percentage of the gross national product was 38.1. Taking wages and salaries together, it was 57.4 per cent. These figures are taken from National Income and Expenditure Blue Books. In 1973 the wage percentage had fallen to 32.6 per cent., and coupled with that the percentage of salaries and wages together had risen to 59.6 per cent., just 2 per cent. higher than it was in 1953.

Therefore, the idea that wages and salaries have been moving miles ahead is absolutely unfounded. Salaries and wages taken together have remained a relatively stable proportion of the GNP, but taken alone wages have gone down.

Mr. Thorpe

These figures cannot be allowed to pass. The Central Statistical Office has shown that the gross national product in 1975 is likely to be £80,000 million and all income from employment is likely to be £60,000 million. Income is three-quarters of GNP, compared with two-thirds in 1973.

Mr. Heffer

I would like to draw the right hon. Gentleman's attention to the information I was quoting. He cannot get away from the fact that it is based on the most impeccable information one can get. I do not know where he gets his information.

Mr. Thorpe

From the Press Information Office of the Central Statistical Office. The information is put out by the Government.

Mr. Hafer

My information is also put out by the Government. The only deduc- tion I can make from that is that we should never take any notice of figures.

Mr. Peter Hordern (Horsham and Crawley)

Perhaps I can assist the hon. Gentleman. I had an answer from the Chancellor of the Exchequer a week ago which said that the proportion of wages and salaries to GNP in 1965 was 67.5 per cent. and in 1973 was 68 per cent.

Mr. Heller

I did not quote any figures for 1975 because I do not have them. If the hon. Gentleman has extra figures, I shall be happy to receive them.

I still insist that in percentage terms working people's wages have not leapt ahead of the general increase in wealth in this country. Of course wealth has gone ahead, but the wage percentage has not. Any one who suggests that the whole of our inflationary crisis has arisen because of wages is not taking into consideration all the other important factors the existence of which was admitted by the Chancellor of the Exchequer today.

Let us take a look at some of the other factors. The devaluation caused by the floating of the pound since 1971 has reached about 30 per cent. and has caused a massive increase in import prices. Rising unemployment has led to increasing unit costs and, again, to increased prices. The Common Market agricultural policy has led to a dramatic increase in prices, and the high interest rates which are charged in order to attract foreign cash have also resulted in price increases. There are many other factors, one of the most important of which is the pricing and profits policy of multinational companies.

The old laissez-faire policies are largely gone. Under the old capitalist system, based on the workings of the market, there would be increases or downturns in prices according to whether there was a period of boom or slump. However, since the multinational companies came on the scene we do not get downturns in prices even when there is a slump. This is because of their pricing policies on an international scale. This is a new factor in capitalism.

Mr. Lawson

I am most grateful to the hon. Member for giving way. If it is the multinational companies and their pricing policies that are responsible for inflation, why is our inflation two or three times as high as that in other countries where these companies operate with the same policies?

Mr. Heffer

I should not have given way. I said that this was an additional factor in relation to rising prices. I did not say that inflation was entirely due to multinational companies. I gave their policies as just one example of many that could be cited. Inflation is not purely or primarily wage-led. There are many other factors which need to be dealt with in a comprehensive policy.

Prices can be held down in our system for only a short period. Such action leads to a lack of profits and investment, but the lesson I draw from that is not the same as the lesson drawn by hon. Members opposite. I draw the lesson that we need to extend and expand controls over the economy as a whole. We need greater investment. We have suffered from a lack of investment in this country. An hon. Member referred earlier to overmanning. This is partly caused because of the fear of unemployment but also because there have not been the required new technological advances and machinery, and this is because of lack of investment. I worked in industry and I know the basic reasons for what is called overmanning.

We need investment yet we have allowed capital to flow out this country on a massive scale. It has doubled in the last 10 years. We have overseas assets which could be organised and used on behalf of this nation in the same way as they were used during the Second World War. These are radical measures, but we need to go further. We need to control the banks, insurance companies and finance houses. [HON. MEMBERS: "Like Russia."] It is not a question of Russia. It is a question of dealing with our people's problems to make certain that we do not have the mass unemployment that we are likely to get unless we have this sort of radical policy.

We have tried six wage control policies, and each time they get worse. Each one is a failure because at the end of the period the cork comes out of the bottle and there is a greater rush for wages than we had previously. All that we do is to make people increasingly wage conscious when we adopt these policies.

Several hon. Members


Mr. Heffer

I am not giving way. I shall be speaking for only a limited period. I give way generously in this House, perhaps too generously. I am a democrat and I believe that people should have the right to ask questions.

I must say to my right hon. Friends on the Front Bench that if we persist in this policy, even with the support of the General Council of the TUC, we are adopting a policy with no real future. As it progresses, discontent among the working people at the absence of any real control of prices will grow, and the Labour movement will bear the full weight of that discontent. The Conservatives will be sitting waiting for the next General Election in order once again to move in and pick up where they left off.

I must warn the Government that this is a most dangerous path for them to tread. My right hon. Friend the Secretary of State for Employment has said so many times about incomes policy. I merely repeat the argument that he put forward in the past. Len Murray suggested that all that the Left had to offer was instant Socialism, but he is wrong. We do not offer instant Socialism, but we know that in order to deal with the basic underlying crisis, which is part of the capital crisis, we must have Socialist measures.

Socialism is not something for the distant future. It is not something one dreams about for 100 years. Socialist measures are required now in order to deal with our serious problems. We have been along this road before and I urge my right hon. Friends not to cause us to tread it again. Let us back away now. There is still time. We need an alternative economic strategy. My hon. Friends both on the Right and the Left of the party have said that we are putting forward a policy which in the long term has great merit, but they ask what we have to offer as an immediate policy to deal with the crisis.

Mr. Leslie Huckfield (Nuneaton)

Hear, hear.

Mr. Heffer

The policy being put forward by the Government will not deal immediately with inflation. We shall not be able to work a miracle on this problem. The Government will not be able to clutch out of the air a policy which automatically solves all our problems. Only on a longterm basis and moving stage by stage will we deal with those problems.

Mr. Huckfield


Mr. Heffer

I shall not give way. The collective measures that we have put forward in our amendment are designed positively to deal with the crisis, and they are just as immediate as and far more important than the policies put forward by the Government.

Mr. Huckfield

Tell us what they are.

Mr. Heffer

If hon. Members will read the amendment, they will see. We are not opposed to getting a genuine voluntary agreement with the TUC. In fact, it was not a genuine voluntary agreement.

Mr. Roy Hughes (Newport)

It was blackmail.

Mr. Heffer

It could hardly be a genuine voluntary agreement, in spite of what my right hon. Friend the Chancellor said on television, and it is no good his telling me that he was at the meeting and I was not. That makes no difference. I know people who were there. I can discuss the matter with General Council members as well as anyone else. The position is quite clear. The General Council was informed that if it did not go along with some such policy—probably put forward with the best of intentions by Mr. Jack Jones—a Bill would be brought in immediately on the basis of the type of legislation introduced in the past.

A Bill will be introduced anyway. We are involved now only with the first step. Stage by stage we shall move into a wage control situation. The Conservatives might like that but I do not. I do not like the corporate State mentality which hon. Members, particularly in the Liberal ranks, have developed even in the argument today, in which the TUC, the Government and the CBI work out a policy in which Parliament and the people have no say.

I want to get back to the genuine voluntary agreement. Only by the adoption of a voluntary agreement coupled with the measures we have put forward can we deal with the crisis.

Mr. Huckfield


Mr. Heffer

I shall not give way. My hon. Friend has explained his views to me elsewhere.

Mr. Huckfield


Mr. Heffer

I shall not give way.

Hon. Members

Give way.

Mr. Huckfield

I am grateful to my hon. Friend for giving way. May I reassure him that I support him still in his immediate and long-term aims for the British economy?

Mr. Roy Hughes

You could have fooled us.

Mr. Huckfield

How does my hon. Friend propose to surmount the present problem of keeping money in this country when there is a 30 per cent. rate of inflation? Or does he think that a sterling crisis is something like an optional extra?

Mr. Heffer

My hon. Friend knows that whenever there is a Labour Government there are withdrawals of capital from this country.

Mr. Ian Gow (Eastbourne)

Is the hon. Gentleman surprised?

Mr. Heffer

Of course I am not surprised. It is nothing new. It happens to every Labour Government. The Prime Minister's great tome—perhaps I should have pronounced that "tomb"—says at one point that this is to be expected, but when it happens we do not have any measures to deal with it. Take the latest crisis over the so-called withdrawal of Arab money. It may be a figment of someone's imagination because no one seems to know anything definite about it. I understand that one of the arguments used in the Cabinet in support of the policy was that if action was not taken the Arabs would withdraw their money and the pound would collapse. All sorts of ingenious arguments may be used to get a policy through, and that might have been one of them. Withdrawals are always bound to happen, especially since sterling is the world's second reserve currency. We obviously have to take serious measures to deal with it. That is why my hon. Friends and I have put down the amendment. We believe that we need an alternative economic strategy which is as positive and important as anything we have heard from the Government.

6.50 p.m.

Mr. Peter Bottomley (Woolwich, West)

I am sorry that I cannot say I have come here having defeated someone who put forward at the Woolwich, West by-election a policy such as we see in the third amendment on the Order Paper today, However, I prefer to leave most of the comments of the hon. Member for Liverpool, Walton (Mr. Heffer) for others to answer, because I wish to start on a note of agreement among everyone.

I wish to say to the Prime Minister, in whose private office my predecessor worked, to Bill Hamling's close friends, to his family and to all hon. Members on both sides of the House, as well as to all those on both sides of the political fence in West Woolwich, that I regard it as a great privilege to follow in this place someone who was so well loved and respected both in the House and in the country.

I hope that in my first speech I shall not have to compete with someone who 10½years ago was interrupted a dozen times—or by a dozen people in the same interruption—having brought it upon himself, perhaps, by referring to you, Mr. Speaker, in a previous capacity. However, having won a record election, and having voted twice for the Government on my first day here—I suppose that I must regard that as a mark of distinction, if not of incompetence—and having discovered myself in the same Lobby with the hon. Member for Bolsover (Mr. Skinner) on my second day, I cannot imagine that anything that will happen in the remainder of this Parliament will greatly surprise me.

I represent a very sensible place, sensible not only because the electorate elected me but sensible also because they had Bill Hamling as their Member before me. It is an area where people take their political duties seriously. They have a high turn-out at local government elections. They are generally well served by their council, of either political complexion. Incidentally, I think that it is likely to change again fairly soon.

Woolwich, West is an area where most people are desperately concerned, as they showed by their behaviour last month, about the future of our country. They are worried about their children's education. They are concerned about our Armed Services, because it is a place where the military and the Military Academy hold a high place in their hearts and in their employment. I believe that most of my constituents are concerned also that the lesson of the referendum and the lesson of their by-election are taken more to heart beyond the confines of Westminster than has been the case so far.

On another occasion I hope to be able to raise such matters as the question of the Rochester Way and the future of Colfe's Grammar School, but today I shall direct myself to the White Paper "The Attack on Inflation". The White Paper modestly does not acknowledge the influence of the Government party during 3½ years in opposition and 17 months in Government. Neither does it acknowledge that it was the Labour Party which pulled the trigger of inflation several times over and the trigger of unemployment. One cannot entirely blame the Government for that, since it was the Liberal voters who gave them the gun when they could not make a firm choice between our two major political parties in February last year.

Over the past five years—I am broadening the time span deliberately—we have seen a redistribution of incomes and of spending, partly from those who save to put something by for their old age to those who spend as they go, and I cannot believe that anyone would regard that as desirable. We have seen a redistribution of income and spending from individuals to local authorities and to the central Government. This has reached a point now when, deliberately or otherwise, families are discouraged, or in some cases virtually forbidden, from spending the marginal increase in pounds in their pocket on things which matter most to them.

In housing, for example, we see that people cannot make the small jump from £5 a week on rent to £7 in order to get a better home for themselves, and certainly not to £17 or £25 for a private mortgage. In education, people cannot move from paying a small cost—or nothing, because it comes through local authority expenditure—to £15 a week for a private school. Moreover, we see that our direct grant schools are likely soon to suffer even more. Anyone who is really interested in the use of resources and who believes in Samuel Brittan's theories of participation without politics ought to realise that, instead of getting rid of our direct grant secondary schools, we should be working towards direct grant primary schools, upon which most people's initial concern for their children's education centres and which set the foundations of all education. Much the same applies also to medicine.

Over the past five years—this topic was not mentioned by the hon. Member for Walton, and neither was it touched on by the Chancellor of the Exchequer—there has been a redistribution of income from families with children to households with all income earners, whether just one adult or three or four. I have not been able to gather information from the Central Statistical Office, and neither do I have such information as the hon. Gentleman had in terms of the proportion of gross national product going to people earning wages and salaries, but, according to my coarse arithmetic, £2,500 million a year has been redistributed away from people with children and has been given to people at work without family responsibilities.

It is difficult to be precise about these figures because the Government do not have them, so one is working to some extent in the dark, and I acknowledge the help of the valuable work done by my hon. Friend the Member for Kensington (Sir B. Rhys Williams), who managed to get some figures out of the Secretary of State for Prices and Consumer Protection.

Paragraphs 33 and 34 of the White Paper talk of family budgets and food subsidies, but they do nothing to acknowledge that transfer of £2,500 million. There are hon. Members on the Government side who share my concern for people with children, but we have not yet heard that concern expressed in the debate, partly because the debate so far has been taken up by hon. Members like me who are almost strangers here themselves or by those who put down amendments which ignore the influence of five years' inflation on families with children.

The £6 flat-limit increase will again redistribute more resources away from families with children. It was said during my election campaign that I was in favour of motherhood and against inflation. Indeed I am. I am concerned also about industrial relations and conditions at work. But it must be emphasised that half our population—14 million children and 13.5 million parents—are, apparently, totally ignored by the House most of the time, and I think it suitable, therefore, to concentrate most of my speech on them.

The Government cannot find time for a proper debate on the Finer proposals for one-parent families, whose circumstances are even worse than those of two-parent families, which are bad enough. They cannot find time for a proper debate, and they also tell us that they cannot find the money to implement more of the Finer proposals. Yet the White Paper implies that the public sector will find £1,500 million for up to £6 increases for 5 million people, and the way they seem to be approaching the matter is that that £1,500 million will be balanced by £4,500 million in the private sector, making £6,000 million in all—over £.100 for every man, woman and child in the country. This will inevitably have its repercussions in terms of unemployment and price increases. Yet the Government tell us that we cannot instead have that £100 a year for an interim family allowance for the first child. Would it not be better to introduce a £2 a week interim allowance and hold back on adults, in view of the way in which our society has been treating families and children over the past five years?

I wish to put to the authors of the White Paper a few short questions, and I am willing to wait until tomorrow evening for the answers. During their discussions with the TUC—apparently the principal body to be consulted—how far did the Government consider representations about the position of the family? Under this Government, there has been a massive transfer of resources from children to adults—or, as it was well put a week or so ago in the debate on the Child Benefit Bill, from the butcher to the betting shop, vividly illustrating that if it is not in the mother's purse one cannot be sure where the money is spent. Again, according to my coarse arithmetic we have a Government prepared to allow this same redistribution to continue under their White Paper proposals.

These are important issues, especially when we have a Government who apparently cannot contemplate even a six-month limited pay freeze for people at work but who are prepared to announce a 24-month pay freeze for mothers at home. During the Report stage of the Child Benefit Bill we were told that it was impossible to do anything more for familly allowances, or to bring family allowances and child tax allowances together before April 1977, and we could not be sure that it would happen even then. Certainly we were not told whether the total benefit would be higher or would be the same as the existing value of benefits.

Thus, 7 million mothers are told that there is no more for them for 24 months —I am referring here to the period April 1975 to April 1977—yet in the first three months of this period there has been a 10 per cent. price increase. They are 10 per cent. worse off already.

The monthly price increases have dropped from 4 per cent. to 2 per cent. and we are told that they are to come down to 1 per cent., but even supposing that over the next 21 months they rise by only 1 per cent. a month, and adding on the 10 per cent. by which these people are already worse off, the result is that they are 31 per cent. worse off. But this is the only pay freeze, the only total income restraint that the Government are willing to put forward—a 30 per cent. reduction for those who have children. This is a 30 per cent. reduction while we wait for the child tax credit scheme or the child endowment scheme, apparently delayed by high alumina cement in Newcastle.

If the House of Commons allows the Government to get away with this, we shall not be doing our job, not always the job of governing but of controlling the Government—although it is a great pleasure to be sent here to arrange the income tax of other people. If the Government care about families, they ought not to listen only to the political voice of organised labour, which is considered by many not to be the voice of the people, but rather the result of an inexpert ventriloquist manipulating ever more reluctant dummies. I speak as a dummy myself who, as a member of a trade union, has not attended any debate in four years, although I go to my branch meetings regularly, where the subject has been the social contract or the referendum. Yet we are all aware that the view of the people is supposed to come, accord- ing to Labour Members, from the leaders of the trade union movement. That view is also held by many commentators in the newspapers too.

I have two leading trade union leaders living in Eltham, which shows what a good area I represent. Whenever a trade union leader says that he will not allow a drop in his members' living standards —and we know that our living standards have to come down—if attention is paid to him it must mean that others must suffer an even greater drop, and they include workers without a job—and there are more and more of those—and pensioners who do not have a union, and the 14 million children who have no votes in parliamentary elections or in electing delegates to the TUC.

To change the subject slightly, I should like to refer to the £6 limit. I want to know whether the Government have considered not just having a £6 overall limit for 12 months but whether they are willing to consider paying some attention to what has happened to any particular group of workers over the past 17 months. It seems particularly relevant to what people get over the next 12 months to know whether they have had 30 per cent. or 10 per cent. over the last 17 months.

I want to put forward one or two simple suggestions to accompany the White Paper. If the Government are in touch with the economic facts of life and if they wish to undo the damage that has been done by politicians through the ages, I hope that their publicity machine—and that includes Ministers as well as the people they hire to put advertisements and editorials in the newspapers—will start talking openly about the unemployment and inflationary implications of their present proposals and the unemployment and inflationary consequences of their previous proposals. We could then see what has been the effect of the last 17 months and judge what will be the effect of the next 12 months, or the effect of the four years before the Government came in if hon. Members want to take a longer period.

I hope that both in office and in Opposition right hon. Gentlemen on the Government side will explain the economic facts of life to their most Marxist and flat-earth supporters. By this I mean that if the terms of trade move against us or if the price of oil moves against us, no amount of price increases or pay increases will compensate for our becoming worse off. The present round of inflation was set off by external price increases. If as politicians we face the economic facts of life, we shall avoid trying to pour water uphill when we are in Opposition and accepting that it will dribble down our necks when we are in Government, and we shall find that we have a more sophisticated electorate who will take politicians more seriously.

It is important that we all accept that unions have a proper job to do in representing people at work, not in providing management and not in providing politicians. If that happened, we should have to have another set of unions, one to represent people at work and another lot to provide politicians to represent the people in the House of Commons. When my constituents want to put forward their political views and ideas, they do so through me and I do not see why two of them should be privileged in being represented also through the TUC, or why the unions should be able to influence the Government when they move away from dealing with the terms and conditions of employment into subjects such as the level of defence spending and other issues about which my constituents in Eltham feel very strongly.

It is even more important for Government supporters and certainly for members of the Government themselves to repeat the frequently forgotten first law of economics—that whether one is dealing in fantasies or goods and services, one cannot consume or benefit by anything until it has been produced. In the last year we have been paying ourselves increases 20 times greater than the increase in production, and that makes one wonder whether universal education for two generations has had the desired effect on this country, certainly on this country's politicians.

I should like to touch on three subjects to which I hope to be able to return but which are now relevant to the White Paper. The first is that we must look more and more at the value we are getting for our resources. A small example is that of education in primary schools. All primary schools in London have the same staff-pupil ratio and the same resources, but in some schools the standards are so good that if a child's name is not put down at the age of three he will not be able to get a place, while at other schools a child can simply walk in at the age of five. In education debates hon. Members do not talk about the education system becoming more responsive to the expressed wishes of parents, and they do not ask why some teachers manage to get better results with limited resources. When there are cash limits, we need to look at the value obtained as well as at the level of money allocated.

The second topic is housing. When local authorities are restricted in the amount they can lend on mortgage or to the improving of homes, is it not perfectly obvious to everyone that this is a chance to provide massive opportunities for the sale of council homes so that people can, if they wish, pay out of their own pockets and thereby leave more money in the local authority's pocket or the Government's pocket, so that they may buy their own home and not find when they retire, as they do under the present system, that they are condemned to pay the same rent in retirement as when they were in work, although left with only 20 per cent. or 40 per cent. of their working income, which means that they probably have to live on supplementary benefit? This seems a good opportunity both to combat inflation and to make people better off.

Thirdly, the Government should make a gesture by declaring a 5 per cent. cutback in the amount of office space used by the Government, 5 per cent. a year for the next five years. This would completely change the investment outlook of those who look after investment funds and insurance funds. The consequential adjustment of investment decisions combined with a belated recognition of the value of profits would lead to more investment in manufacturing industry, which is what this country needs.

Last of all I come to a problem which faces the politically uncommitted—I have met many of them over the last months —which is shared by many Christians, people who want to take a responsible interest in politics and who feel that they cannot opt out of an imperfect system, but who find it impossible to identify wholly with one set of political prejudices, beliefs or principles. We can all unite in the belief that we have to defend community life from the totalitarian view, which provides repression for every expression of the human spirit. Fascism was defeated in part because of a debate held 35 years ago. Marxism has equal dangers—Eastern Europe is a bleak proof of that. Out of power it attempts every ruse and every act of social violence to poison the unity and freedom of our community life.

I have found in a previous debate some comfort during this battle against inflation and those who directly or indirectly support it. It comes from reading the words of a previous Labour leader. Instead of quoting, I shall merely refer to them. Hon. Members will find the reference in column 1094 of Hansard for 7th May 1940.

7.10 p.m.

Mr. Douglas Jay (Battersea, North)

In welcoming the hon. Member for Woolwich, West (Mr. Bottomley) to this debate, I should like to echo what he said about the respect and affection felt for his predecessor both in the House and in Woolwich. I am happy to follow the hon. Gentleman, because we have met on many occasions, but also because I was born in his constituency, and because on the whole I preferred his speech to that of the leader of his party.

I thought that the Leader of the Opposition made a most extraordinary speech. She did not tell us whether she or her party were in favour of an incomes policy. She did not tell us whether they were in favour of a statutory incomes policy. She could not tell us what forms of public expenditure they would reduce. All that she said was that they reserved judgment on the whole issue before the House—and she took a very long time to say it.

My only quarrel with the Government is that I believe that they should have acted earlier. My hope is that they are now preparing a more long-term incomes and prices policy to apply intelligently when this short-term emergency is over. I am bound to give general support to the Government, having said in the debate on the Budget on 21st April: the Government must act quickly. We must have this summer a new social contract and a revised incomes policy … a White Paper should be issued by the Government, and approved by Parliament setting out the Government's incomes policy in clear and unambiguous terms."—[Official Report, 21st April 1975; Vol. 890, c. 1033–1034.] Therefore I say "At any rate, better late than never."

Basically, it seems to me, our present discontents spring from the fact that almost everybody in this country is trying to increase his real income when it is impossible for the real income of the country as a whole to rise. The amendments would be improved if they took more account of the hard economic facts underlying all these arguments, which I summarise as follows.

As the supply of goods and services available to us now, and for some time ahead, cannot be increased, a rise in money rates of pay combined with a rise in the money supply is bound to push prices up further. A rise in money rates of pay without a rise in the money supply can only increase unemployment. Therefore, it is only by restraining both the rise in money incomes and the money supply that there can be any hope of full employment with reasonably stable prices.

In short, there are three possible roads open to us. The first is to let pay rates and the money supply rise without restraint, and then prices will certainly go on rising at 20 per cent., 30 per cent. or 40 per cent. a year. The second is to let pay rates go on rising, with no incomes policy, and stop the increase in the money supply, and then we could well have a million or more unemployed for three or four years. The third is to control both the money supply and pay rates by some reasonable policy.

The controversy between those who say "Control the money supply" and others who say "Control incomes" is absurd and artificial. We must do both if we are to have any hope of success. Back in the 1940s and 1950s I think that it was possible to hope that pay rates and price rises could be restrained without any specific incomes policy, and for some years after the war they were. It is no longer sensible or realistic to think that. There are some things that one has to learn from experience rather than from theory [An HON. MEMBER: "Permanent control?"] Long-term. If we talk about permanency, this is beyond my powers of foresight, but for the foreseeable future I would accept such control.

To those who say that free collective bargaining is a sacred principle, and that everything must give way to it, I reply that it is a means and not an end. It was made for man, and not the other way round. If we have to choose, as I believe we must, between free collective bargaining and full employment, I certainly choose full employment.

To those who say, as I think my hon. Friend the Member for Liverpool, Walton (Mr. Heffer) did today, that any statutory control is a breach of the Government's election manifesto and the social contract, my reply is that the social contract was, after all, a contract. In my view the Government wholeheartedly carried out their side of the contract, but not all the other parties did so, and one cannot break one side of a contract and demand that the other party be held rigidly to it.

To the doctrinaire monetarists—if there are any left in the House, and I think that I see one—I say that to clamp down on the money supply and refuse to control pay rates would probably in the end check the rise in prices, but my estimate is that in Britain in the 1970s it would mean many years of high unemployment, low or nil growth and very low investment. What a price that would be to pay for the sake of a doctrinaire objection to any sort of incomes policy! Even Professor Laidler, a less doctrinaire monetarist, said in his recent pamphlet, published with Professor Friedman, "Unemployment Versus Inflation", that, rather than face unemployment of over 1 million for five years or more, he would reconcile himself to living with high inflation rates. I would also say to the monetarists, and the right hon. Lady, that I certainly want to see a cut in the borrowing requirement. But let us not assume, without looking at the figures, that the public sector debt or the Budget was the main instrument for the wild Barber inflation of 1972–73. I do not believe that it was. The figures in "Financial Statistics" show that total bank deposits rose from about £38,000 million in 1971 to the incredible figure of £76,000 million in early 1974. But the rise in the corresponding bank assets consisted hardly at all of public sector debt, but mainly of an equally extravagant rise in bank ad vances, from £30,000 million to £69,000 million in March 1974. Much of that rise in advances was to overseas residents, but the rest was mainly to companies and to private borrowers, including over £2,000 million to property companies.

Therefore, the statistical evidence is that the credit inflation of 1972–73, from which we are still suffering as always happens, came mainly not from the Budget but from the misguided competition and credit control policy of 1971, which removed restraint, the indiscriminate tax relief for overdraft interest, and—monetarists please note—the compulsion on employers to borrow in order to finance higher pay rates. It is arguable that it was the higher pay rates that led to the credit inflation, rather than vice versa.

In spite of that, I should like to see some economies in public expenditure. One programme simply crying out to be cut is major new road construction. Evidence of extravagance in motorway building reaches us from all directions. My hon. Friend the Member for Meriden (Mr. Tomlinson) gave some examples from his area in the Budget debate. At the very least, many such schemes are of very low priority.

The latest figures of Government expenditure that we have, in the Public Expenditure Blue Book, show for 1975–76 the huge sum of £597 million for new road construction and improvement—that is, local and major roads—in addition to £335 million on maintenance. The Government should reduce the enormous figure of new road construction by at any rate postponing schemes that have not yet started. It is intolerable that when housing is being cut we should continue with extravagant road building. However, we all know that economies of that kind would not make an enormous difference to the total situation even if they were made.

The crux of the Government's policy will be the long-term income strategy which they propose should succeed the present 12-month freeze. I agree with Professor Galbraith's excellent letter to The Times last week. We must now design a policy to last not for 12 months but for the foreseeable future. Otherwise the dam will simply burst again next year.

The Government's long-term policy will, I hope, be backed by reasonable monetary restraint. There must be a realisation that a total freeze cannot last more than nine or 12 months. In a mixed or free economy the system cannot work unless pay relativities constantly change, and change largely for economic reasons as well as for reasons of equity. I believe that it was the fatal mistake of the right hon. Member for Sidcup (Mr. Heath) not to understand that if there is a desperate shortage of fuel, then miners' pay must rise relative to other pay rates in the economy.

If we are to allow relativities to change over a period without being enmeshed in the upward spiral, once again we must re-establish some sort of national tribunal or pay board which can consider the whole structure of incomes and give final awards when all else fails. There is no other practical way of succeeding in the long term.

The present medley of separate tribunals for nearly every separate vested interest is a recipe for continuous pay inflation. Last week's rather absurd antics over MPs' pay were only one inevitable consequence of the present regime under which we are living. I do not believe that it is an issue of principle whether a national tribunal is backed by statutory powers. My objection to such powers is not a moral one but one that is based on the experience that usually they do not work. If some reserve powers will work, let us try them. If they do not work, let us do the best we humanly can with the moral authority of an independent and impartial authority. One of the great mistakes of recent Governments was the abolition of the Pay Board which we had in 1971, which was gaining authority and respect. Most of the board's decisions were being accepted.

I am happy to agree with my hon. Friend the Member for Walton that the Government could make this package much more acceptable if they were to sweep away the present high import taxes on essential foodstuffs. It is absurd to select, as I gather will be the case, a number of essential foods and try to keep prices down by subsidising them, and at the same time impose higher and higher import taxes. At least we must have an assurance that the Govern- ment will not raise import taxes any further.

If Ministers will hold down food prices in that way—and it is in our power to remove such taxes—and if they will prepare thoroughly in advance the sort of incomes policy that I have been suggesting, I believe that our problems will be perfectly manageable and that we should not be too gloomy. Indeed, there are quite a few encouraging signs now, given the falling world prices of many materials. But do not let us delay any longer effective action to deal with what is the really long-term problem.

7.24 p.m.

Mr. Julian Amery (Brighton, Pavilion)

I join the right hon. Member for Battersea, North (Mr. Jay) in offering my congratulations to my hon. Friend the Member for Woolwich, West (Mr. Bottomley) upon his maiden speech. There is nothing like fighting an election campaign in a marginal seat to bring one in touch with public opinion. It was refreshing to have a contribution from someone whose views have not yet been distorted by the rather hot-house atmosphere in which we tend to live in the Palace of Westminster.

The right hon. Member for Battersea, North struck a note of consensus. I do not agree with all that he said but I liked his general approach. His formidable intellect was arrayed against most of us in the referendum battle but I should like to think that in this campaign it will be on the side of the angels.

Yesterday, at the commemoration ceremony for the Tolpuddle martyrs, the Chancellor of the Exchequer explained the cost of inflation in these words: For the past 18 months we have been living above what we have been earning. I think that the right hon. Gentleman put the matter very simply and very truly. What he said applies to the industrial wage we have been paying ourselves and to the social wage—the social services.

Of course, inflation itself is only a symptom of a deeper disease. There is something rather absurd about the fact that we should not be able to earn an equivalent wage or equivalent social services to the Germans we defeated or to the French and others whom we liberated. There is no inherent reason for our not being able to do so. The explanation is simple enough—namely, that our levels of taxation and our restrictive practices, such as overmanning and demarcation disputes, have had such an impact on enterprise and investment over the past 10 or 15 years that we have fallen seriously behind our European neighbours.

The problem underlying the inflation which we face today is, in my judgment, essentially political rather than economic. Unlike the countries that we defeated or liberated, we were never obliged to adapt our economic or political structures to meet the changes that have taken place during the Second World War and since to our social structure. For that we are all of us to blame—employers, trade unions, Government and Parliament. Our company law remains archaic.

We have still given no proper recognition to either management or unions. As the right hon. Member for Devon, North (Mr. Thorpe), the Leader of the Liberal Party, pointed out, they are still regarded as commodities to be hired in the market. We have done nothing like what the Germans have done to give them the status which corresponds to the power which they hold. The trade unions have acquired enormous power but have neither sought nor been given the responsibilities that should go with power. Mr. John Lyons, in an article in the magazine of the Electrical Power Engineers Association, wrote: We are living in the 1970s, not the 1930s, and the attitudes and slogans which were absolutely right in dealing with the problems of the 1930s are no guide for action today. There is a certain irony in listening to a speech such as the one we heard from the hon. Member for Liverpool, Walton (Mr. Heffer). In one breath he said that what we need today is a far more controlled and planned economy, but in another breath we heard him defending free collective bargaining with all the ardour of Cobden and Bright defending laissez faire.

It should also be clear by now that Governments of both parties have been very slow to institutionalise consultation between themselves, industry and the unions. We have lagged far behind Europe in this.

Our inertia here has been the opportunity of the militants and extremists, and behind them the Communist Party. They have seized the opportunity and they have set the pace in pressing for higher wages and higher social services and even in seeking to influence the conduct of foreign and defence policies. They have done so partly by direct industrial action and partly through the influence which they have acquired by assiduous attendance at every level in the Labour Party, as we see in Newham today. They have done so through the money that they provide and through the energy they show. This is not a new problem. Successive Governments have made attempts to overcome it.

The Labour Party tried to overcome the problem in the days of "In Place of Strife". I shall always regret that we on the Conservative side opposed the effort made in "In Place of Strife" to deal with much the same issue which is confronting us again today, though the problem facing us then was a much easier one to solve. My right hon. Friend the Member for Sidcup (Mr. Heath) also tried to solve it, and for 18 months with considerable success. Whether he could have carried his solution through if he had had the support of the Labour Party is a question which hon. Members can think over for themselves.

The Labour Party tried to return to a purely voluntary policy through the social contract. I doubt whether it will be possible in our new society to have a purely voluntary policy. But in a climate of recession it was only natural that militant union leaders should say "Rather than see our standard of living go down we will grab all that we can, even if it is at the expense of others, even if it disrupts our mixed economy and our pluralist social democracy." Some of them indeed make no secret of the fact that they would have welcomed the disruption of the mixed economy and the pluralist democracy. The result of their efforts has been an inflation rate of 26 per cent.

This rate of inflation would have gone on but for the fact that our foreign creditors, the holders of sterling abroad, lost confidence and there was a run on the pound. The Government and trade union leaders had to face up to the fact that unless they did something quickly to restrain inflation they would have to go to the International Monetary Fund and be restrained by an outside authority. There was no alternative. I believe that the hon. Member for Nuneaton (Mr. Huckfield) in an article he wrote in one of the Sunday newspapers yesterday was abundantly right when he said that, despite his sympathies with the long-term policies put forward by his hon. Friend the Member for Walton, none of those policies would deal with the immediate crisis now facing us. The truth is, and it had to be faced and was faced, that, to use the elegant phrase of the Secretary of State for the Environment, "the party is over".

What we are debating today is how to restrain inflation. There will be differences of emphasis in all parts of the House about how that should be done. But this we can say at the outset. No policy has any chance of winning unless Government and Parliament can find the way by persuasion, or, if necessary, by law which is enforced to restrain the militants.

This is not a new phenomenon. We have been through it in our history on many occasions—with the Barons, the mediæval Church, the "King's friends", the land-owning oligarchy, the industrialists of the Victorian era, the plutocrats in the Edwardian era. We have managed, certainly since the Civil War, to solve such problems without violence, and I believe that we can do it again. The White Paper is a declaration of intent, and as such I welcome it wholeheartedly. If observed it must help in the short term to bring down the rate of inflation.

I agree with my hon. Friends who tend to take the monetarist view that to put a ceiling on wages, particularly a flat-rate ceiling, will build up distortions. But what we need at the moment is a short-term remedy, and in the short term what is proposed must help. But the question in all our minds is: Is it for real? The Government's record in this matter is not encouraging. They have appeased the militants, acquiescing in excessive wage claims and themselves spending far more money than we could afford on social services and public expenditure generally.

There are still no back-up powers. The Chancellor was pretty vague about what they will be, if they are ever produced. He was vague about the reductions in public expenditure. There was not a word from him about the postponement —I do not ask for more from the Labour Party—of nationalisation proposals which are not only divisive but must be inflationary. This White Paper is born of compromise out of necessity. We all know—it is an open secret—that the Treasury proposals were different. They have been substantially watered down, no doubt through the influence of the Secretary of State for Employment.

I do not underrate the importance of maintaining the unity of the Labour movement in this crisis because what the Government are trying to do, and what the House hopes they will succeed in doing, is to persuade the rank and file of the trade union movement to follow moderate rather than militant counsel. But the cost of a policy of political convenience can be very high. As my right hon. Friend the Leader of the Opposition pointed out, when the European countries were faced with the inflationary crisis last year they adopted conventional deflationary measures at some cost in terms of unemployment. They have now got on top of their inflation and are in a position to begin reflating. Last year our Government went on reflating for reasons of purely political opportunism—to win the October General Election.

The Government's present proposals will mean—they have not been precise about them—more unemployment than we would have had if they had cut back public expenditure last year. Inflation has been the curse of the 1970s just as unemployment was the curse of the 1930s. But it is a worse curse because it brings with it unemployment. The great question is: is the White Paper enough to prevent even worse unemployment than would follow from slightly more severe measures? It is not for me to judge. I do not think that in the House we can be sure which way the situation will develop over the months ahead.

The market will judge. The holders of sterling will decide whether to keep their money here or to take it away and precipitate a fresh crisis. If we have done too little too late we shall have to turn to more and deeper surgery. Ultimately we shall inflict a worse injury upon the country than was ever necessary. Let none of us underestimate how serious the situation is. Our economy is literally on a knife edge. The last bulletin of the Bank of England showed that our foreign liabilities stand at £7.4 billion while our external assets are only £4.2 billion. This would mean a declaration of bankruptcy for any company. And a large part of those external assets are held by private individuals and could not easily be mobilised—as hon. Members in the Tribune Group should realise.

Against this background foreign holders must look with great concern at our borrowing requirement and ask themselves how will the Government finance it. Can they get more loans from abroad? I do not think so, certainly not from private sources. Can they sell gilts to the public here? Yes, up to a point, but nothing like enough to cover this enormous borrowing requirement which is already in excess of £9 billion. Foreign holders of sterling must think of themselves that there will be an enormous temptation on the Government to turn to the printing press.

This question mark is so obvious to any foreign banker that the Government must recognise that they can only restore confidence by tabling at an early opportunity the back-up powers with which they mean to enforce their new incomes proposal. They must give precise details of how public expenditure will be cut and must make an announcement that nationalisation plans are to be postponed, not because we Conservatives ask for that, but because they are inherently inflationary.

The Prime Minister is said to be a good judge of public opinion. He has certainly shown great political flair in winning elections, earning him as I think he sometimes remarks, a lease of office comparable only to that held by Mr. Gladstone. I do not know what his opinion is, but I believe that the time is now ripe, the tide is flowing the right way, for him to face the issues squarely. But the weather can change. As the days shorten and we head towards the turn of the year, unemployment will rise to a 1½ million or more, and it may not be so easy to get a consensus of the Labour Party, the Labour movement, or indeed, of the country as a whole.

Now is the time to face the issue not only squarely but nationally. Now is the best chance to unite the nation at home and restore confidence abroad. If the Government let the opportunity slip and over-insure in order to obtain party unity, they may pay—indeed we may all pay—a very high price.

None of us on either side can claim to emerge with very great credit from the way we have sought to tackle the basic illness of the British economy over the past decade or more. I regret that the Conservatives opposed the Labour Party over "In Place of Strife." I regret the way that the Labour Party opposed us in the run up to the 1974 election and the way in which they acquiesced in excessive wage claims and have encouraged since then excessive Government expenditure.

I cannot speak for the Conservative Party as a whole, but I believe that if the Government mean business there will be very little inclination on the Conservative side to make political capital out of measures which the Government take, even if they are measures taken to remedy their own mistakes.

But we are entitled to ask for the postponement of what are divisive and, into the bargain, purely inflationary measures. We are all in this together. We shall need the co-operation not only of the trade unions but of the other and larger sections of the country. When we pull through I look forward to heated debate about how best we can establish industrial democracy in this country and how best we can restructure our economy and, indeed, our institutions. But first we have to deal with the immediate danger.

The White Paper is full of good intentions. Some of the speeches made by Ministers throughout the country show a welcome change. But we have not yet got a firm programme and there is no clear decision to act. It is only action that will restore unity at home and confidence abroad.

7.43 p.m.

Mr. Ray Carter (Birmingham, Northfield)

I was elected in 1970 and, therefore, I come to the debate with a certain degree of humility. However, if there are hon. Members present who were also present in 1962, I imagine that they come to the debate with even more humility. I have been here approximately five years, but it appears to me that we are going round a track the sides of which have a certain degree of familiarity about them. There are some people who could claim over that period of 14 or 15 years some degree of consistency. However, in a matter as complex as this and in a society as complex as ours, consistency of the kind that some people have displayed over that period is not necessarily a virtue.

It is true that during that period, when confronted with certain problems, most Governments have come to the same conclusions. There is, however, a unique distinction to be drawn between the conclusions of this Government in 1975 and the conclusions of other Governments over the past 15 years or so, and that is that on this occasion, however vague the debate may have been when it started, and however vague the White Paper might appear to be to some people, compulsion does not lie at the heart of it.

I am trying to be as fair and as impartial as possible but consent for the first time is the basis of a policy to deal with inflation, prices and wages. We should ask ourselves why. The quite simple reason is that at long last—and it is rather sad that we have had to wait until now before we realised it—the problems that we face are not simply economic. They are desperately political as well. During the past two months or so an increasing section of the trade union movement has realised that.

We cannot, as last year, have two General Elections about one central matter—namely, how to deal with inflation—and exercise two major options in the kind of democracy we live in and then, having exercised them, refuse to search for an answer to the problem. Jack Jones, who happens to be the leader of my own trade union, in my view was foremost in realising that. That is why he, with other members of the trade union movement, sought to find at long last a basis of consent for tackling the desperate problems that we face. In conjunction with industry and other sections, they arrived at an agreement with the Government which forms the basis of our debate.

Therefore, this is a unique occasion and we are taking a historic step. Although we are currently only flirting with our problems, perhaps we can go on from this faltering first step towards achieving consent between the trade union movement, industry and the Gov- ernment to find ways in which, in co-operation with one another, we can deal with these massive problems.

I think I carry most Labour Members and probably many Opposition Members, too, when I say that we have to go much further than the mere question of prices and incomes. On the basis of consent we must start to grapple with the desperate and underlying problems of the British economy. We must involve the trade union movement, the CBI and other sectional interests in the whole question of investment policy. That door has been closed to the trade union movement for too long. It has a vital part to play in the way we, as a community, apportion our national priorities.

The trade union movement should also be involved in social priorities. If we ask the trade union movement to be responsible in the area of incomes, equally we must offer it a share in the way we, as a community, govern ourselves and tackle the task of dividing the national cake. It should have something to say about the whole question of manpower planning. We should not in an abstract way either here or in Government decide from year to year—almost month to month in recent years—precisely what the level of unemployment or employment should be or where manpower should be shifted from or to.

We must involve the trade union movement. It has a constructive part to play, and I am sure it is prepared to play that part. Equally, it can play a useful part in the area of pricing policies. For too long the Government or industry have decided almost in a vacuum precisely what the pricing policies should be in either the nationalised industries or the private sector.

We have, at long last, realised—certainly a large section of the trade union movement realises—that consent is the only way we can get ourselves out of the desperate problems we are in. Either we must consent to planning or, by default, we must consent to unemployment. In a sense the middle way is the only way. There is no other way apart from consent, with the Government and the community working together to solve the problems that we face.

Our problems are almost unique in the Western industrial world. We are the oldest industrial society with an accumulation of problems which are not to be found anywhere else in the Western world. It is no use comparing us with Germany, France or Japan. They are entirely new industrial democracies. Our industrial democracy is almost 200 years old with a massive accumulation of industrial and urban problems. Our problem, therefore, is not just inflation. It is how we set about the task of transforming an aged, ailing industrial society and how we find a massive injection of investment to revitalise our industrial sector so that it can start producing the goods without which we cannot pay our way in the world.

But there is cause for hope. It is not entirely a lost cause. With the prospect of North Sea oil and the new sense of hope that the agreement between the trade union movement and the Government has given us, I believe that we can look forward in the not too distant future to a better and brighter basis upon which to tackle our problems.

A secure energy base will transform our industrial sector and balance of payments situation, leaving the pound for once in a strong position, so that we can get to grips in a sense of community with the problems facing us.

I think that in what is almost a crisis situation—

Mrs. Sally Oppenheim (Gloucester)

It is a crisis situation.

Mr. Carter

Yes, it is a crisis situation, but it is not entirely a crisis situation, because we are debating measures and steps which can solve the problems currently confronting us.

With the willingness of the trade union movement, the employers, the CBI and the Government to sit down together and begin discussion around which, on the basis of consent, we can get cooperation, I believe that this Government, like no Government before them, have it within their grasp to solve our problems. It seems to me that to mark time for just two or three years, in the secure and certain knowledge that there is a brighter future, would not be to give an awful lot away. I believe that there is hope in the situation and that people outside are waiting and hoping for the Government to give the lead that is desperately needed.

7.53 p.m.

Mr. Douglas Crawford (Perth and East Perthshire)

As a veteran of nine months, I should like to add my congratulations to the hon. Member for Woolwich, West (Mr. Bottomley) on his excellent speech. I lived in Woolwich for one and a half years. Perhaps it was that that turned me into a Scottish National. The hon. Member for Woolwich, West may have been forgiven if he thought that he was listening to a Budget speech—it is the third Budget speech of the year—had it not been for the noisy behaviour of hon. Members over which neither the Chancellor nor the Leader of the Opposition could at times make themselves heard.

There has been much talk during the debate of this "nation". The Chancellor of the Exchequer referred to our national problem. The hon. Member for Birmingham, Northfield (Mr. Carter) referred to this nation and country. What nation?

My hon. Friend the Member for Caernarvon (Mr. Wigley) in his maiden speech in this Parliament reminded the House that there was more than one nation in the British Isles. He said that the United Kingdom was a State and that there was more than one nation in it. Even Shakespeare could not find a proper answer to the rhetorical question he put into Llewellyn's mouth in Henry V when he asked: "What is my nation?"

I know what my nation is, I know how it is suffering, and I know its potential. My nation is Scotland, and it is from that standpoint that I speak.

Scotland and England have together faced many crises in the past. Scotland and England have fought against dictatorship and totalitarianism in the past. I was too young, but many members of my party have fought for King and Queen and country in the past.

Nobody doubts that the United Kingdom now faces a major crisis. But it is not the same kind of crisis as arose in 1939, 1914, or earlier. We are not fighting a dictator or totalitarianism This is a peace-time crisis.

The Scottish National Party parts company with the three other parties in this House when it comes to the suggestion that it is a matter of there being only one solution for the whole of the United Kingdom. It is not necessarily right to say that there is a blanket solution for the United Kingdom. Some parts of the United Kingdom have contributed to the crisis more than others. Mr. Micawber said, Annual income £20, annual expenditure £19 19s. 6d., result happiness. Annual income £20, annual expenditure £20 Os. 6d., result misery. I suggest that in certain parts of the United Kingdom expenditure has been £20 Os. 6d., whereas in others, including Scotland, it has been £19 19s. 6d. We do not want any more misery.

Hon. Members on both sides of the House have said that the economy has been mismanaged. I suggest that it has been mismanaged from London. Both previous Tory and Labour Governments are to blame.

Mr. Dykes

None the less, does the hon. Gentleman agree that, despite his analysis, before North Sea oil began to come on the horizon there was ample evidence that Scotland had a physical trading deficit with England and perhaps the rest of the United Kingdom and that, therefore, Scotland's standard of living has been higher than if it had been a separate entity?

Mr. Crawford

I do not think that there is any actual evidence that we had either a balance of payments deficit or a surplus with the United Kingdom. I concede that the oil find proves our economic case beyond a shadow of doubt.

At the beginning of the century Scotland was economically better off than England. Indeed, it was better off than the United Kingdom as a whole. Between 1914 and the mid-1960s we were having trouble. Therefore, why did not the rest of the United Kingdom say "Go away and run your economy by yourselves"?

Hon. Members on both sides of the House have said that other countries in Europe have solved their inflationary problems more quickly than Britain. The right hon. Member for Brighton, Pavilion (Mr. Amery) said that the Labour Government were slow to act. The Conservative Government were also slow to act to solve the problem of the increase in oil prices in 1973.

I put it to the House that solutions cannot be found in textbooks on classical economics. We need a new departure from political and economic thinking in this country. Perhaps the Scottish National Party can be a catalyst to England's as well as to Scotland's benefit. Political and economic centralisation is at the heart of the problem. Centralisation is bad for the regions of England as well as for Scotland. Decentralisation, political and economic, will be genuinely good for the regions of England as it will be for Scotland and Wales.

I want to be practical from the Scottish point of view and make one or two points which show that the difference between the Scottish and English economies is great.

First, it is said that for every 1 per cent. fall in the value of the pound, £36 million is added to the United Kingdom's food bill. But that does not apply to Scotland, because Scotland has a small surplus in food production. Indeed, Scotland, is a small net exporter of food. In 1973 we produced £33 million worth of food, which made us virtually self-sufficient, whereas the United Kingdom imported £1,000 million worth of food. I believe that the United Kingdom imports almost half her food requirements.

Secondly, Scotland's per capita income is lower than in England. The Prime Minister, in reply to my hon. Friend the Member for Galloway (Mr. Thompson) last week, referred to wage rates and said that the differences between Scotland and England were almost closed. The point concerns not wage rates but family income. If we take the Government's family income and expenditure survey for 1974, we see that per capita income in the South-East of England was £18.94 per week whereas in Scotland the figure was £14.28. The difference is quite substantial. Unemployment in Scotland is 4.7 per cent. compared with just over 3 per cent. in the United Kingdom. In England it is just over 3 per cent. and in the South-East it is 2.2 per cent. There are great differences between the Scottish and English economies. In Austria the figure is 2.2 per cent., in Norway 1 per cent. and in Sweden 1.5 per cent. Those are the types of economy which we in Scotland and the SNP are trying to emulate.

Fourthly, we have a higher rate of exports than England. The Scottish Council Research Institute stated in a recent survey: Exports have risen steadily maintaining Scotland's relatively large share of United Kingdom exports. Further, the increase in Scottish exports has been greater than for the United Kingdom as a whole … comparatively the increase in the value of Scotland's manufactured exports has been greater than that for the United Kingdom as a whole. Taking 1965 as the base year and an index of 100 in 1973 the figure for the United Kingdom as a whole was 254 while in Scotland it was 261.

Thus, on many accounts the Scottish economy is different from that of England. We accept that an incomes policy is an important economic ingredient for any country, and there should be a Scottish incomes policy, not a London-based one.

The extent of poverty and deprivation in Scotland is such that it is unthinkable that there should be deliberate reductions in Scotland's living standards. We have 115 of the 121 worst areas of deprivation in the United Kingdom. If the people of Scotland are required to make sacrifices, it should entail no more than a deferral of long overdue increased living standards. The Argyll oilfield is on stream, and it will be worth £80 million to the Scottish economy. We therefore believe that paragraph 3 in the White Paper is unacceptable. It reads: 'The problem is not just one for the next year: the Government intend to maintain policies which, over a number of years, will control domestic inflation …". We are not prepared to tolerate for long the measures outlined by the Chancellor of the Exchequer today, especially when our oil is flowing. The impact of our oil should add 4 per cent. to Scotland's real wealth this year and 12, 13 or 14 per cent. next year. Yet, with this wealth, we are told that we cannot have the schools, houses, hospitals, roads, industrial investment and jobs that we need. If we were to tell that to the Scottish people, they would not be very happy about it.

We suggest two practical points as possible solutions of the problem of inflation in Scotland—and perhaps England could learn from them. First, we agree with the Leader of the Liberal Party, the right hon. Member for Devon, North (Mr. Thorpe), that there should be a Swedish-type meeting between the Scottish Council of the CBI and the Scottish TUC annually where the basic facts about the Scottish economy would be agreed and targets for salaries and wage increases in the various industries would be agreed, taking into account the Scottish economy's growth potential—and it is a huge growth potential. The right hon. Member for Battersea, North (Mr. Jay) was, I think, groping for this point in a United Kingdom context.

Mr. Tam Dalyell (West Lothian)

Does not that assume a perfect accord between Mick McGahey and some of the Scottish industrialists?

Mr. Crawford

It implies a near-perfect accord between the General Council of the Scottish TUC—I do not believe that McGahey is a member of it—and the Scottish Council of the CBI, which is a sensible body of people.

In the first year the objective would be within the United Kingdom to maintain Scottish living standards when London is deliberately seeking to depress them. Later it would be to distribute the benefits of Scotland's growing wealth to all the people of Scotland in a real increase in living standards. I accept that we need a strong currency to do this, and this will come only from self-government, but come it shall.

We also suggest a Scottish cost of living index regularly adjusted, perhaps every six months. This indexation would apply not only to wage agreements—which is inflationary—but to personal allowances against tax. As a major incentive to wage and salary earners to participate in national agreements, we should like to see tax indebtedness relatively lessened when increases were given, and the backlog of tax allowances which indexation would have provided over the past 13 months would be translated into increases in personal tax allowances via the PAYE coding so that wage increases would not necessarily result in too much going to the tax man. There would, therefore, be less inflationary pressure and less demand for increased wages.

I realise that indexation is difficult in United Kingdom terms because it acts as a barrier to the reduction of living standards which England requires. In Scotland it would operate against a background of sustained expansion, backed eventally by a strong Scottish currency.

Mr. Dalyell

Let us suppose that we took for ourselves all the advantages to which the hon. Gentleman has referred. What does he think the reaction of England would be. Would there be any co-operation? Is this the price that we must pay? What about my hon. Friends from the North-East or from the Midlands? Would they co-operate? Do not be silly.

Mr. Crawford

A self-governing Scotland would have a great interest in maintaining a prosperous England, and perhaps there would have to be some recycling of the oil revenues from England to Scotland so that Scotland could buy back that part of Scottish industry which England owned.

Mr. Mike Thomas (Newcastle-upon-Tyne, East)

I hope that there would be at least as great an interest as England has had, particularly in areas like my constituency, in supporting a poor Scotland over decades.

Mr. Crawford

Scotland has not always been that poor. I sympathise with the hon. Gentleman.

We have a constructive alternative. The Government have been perfectly fair, although they have not been wholly fair because they have not shown us the Bill. The Conservatives do not have a policy. The Leader of the Opposition said "The Government have got us into the mess and they should get us out of it." That is not helpful to Conservative voters. There is a need to realise that the blunt weapon proposed by the Government—or, as in the case of the Chancellor of the Exchequer, the battery of weapons—cannot be applied indiscriminately throughout all the countries of the United Kingdom, and certainly not in Scotland. No Scottish Government, with all Scotland's potential, would dream of doing this. Although the people of Scotland are prepared to play their part, as soon as they see their standard of living going down and the natural resources flowing from Scotland, greater impetus will be given to the movement for self-government.

8.8 p.m.

Mrs. Judith Hart (Lanark)

It was attractive to hear the hon. Member for Perth and East Perthshire (Mr. Crawford) spreading out the array of the economic policies of the Scottish National Party, which seemed to be suspended in uneasy space between Adam Smith and, I suppose, Keynes. The hon. Gentleman will forgive me if I do not take my time in examining the policies which he has presented. In the present situation of inflation, it is not possible to separate Scotland's problems from those of the rest of Britain.

First, I set out the parameters of my remarks. I agree with all those hon. Members who have emphasised the severe and critical nature of our economic problems. I agree that we have a serious rate of inflation. I agree that a sharp problem is presented by our borrowing requirements. And, although it has been comparatively little mentioned in the debate, I am sure no one would disagree that we have a serious underlying, continuing balance of payments problem. The latest figures may be better, but they reflect a situation in which we have fewer imports because of the depression already hitting the economy. We would all agree that the underlying balance of payments problem is one of the major factors in the nation's overall economic problems.

I wish to direct attention to the lack of wisdom in selecting one element, namely wage inflation, out of the complex of factors which compose our economic difficulties and directing all economic attention and the policies of the Government to it. It would be absurd to deny that it is one element, but it is only one.

Over the past four or five months, as the index of retail prices has climbed steadily, the attention of the media and the Government has been directed sharply towards certain wage settlements. Increasingly the Government and the media, helped along by the City, the CBI and the Conservative Party, have concentrated attention on wages as being the major factor and, in the last couple of weeks, the only factor in inflation about which steps were to be taken. This insidious process has taken us along with it to the point of denying the House its normal critical attitudes.

We are therefore presented with an analysis in the White Paper and reserve powers in a Bill about which we are not permitted to know, and that analysis is so incomplete as to lead us into critical dangers.

The British situation is a comparative one. Our problems are greater than those of our industrial competitors, and that is why we have this emergency. In considering the factors that have led to the British situation, we are entitled to point to the fact that in the past two years or so there has been a combination of circumstances unique to us which has not been experienced by any of our industrial competitors. Had we said that loud and clear to the people who deposited their sterling with us, we might have lost a little less confidence in ourselves.

We have shared with other countries the rise in oil and commodity prices and the trend towards world depression in the past few years. The factors we have not shared with other countries and which are ours alone are these. Over the four years leading up to 1974 we had an acute balance of payments deficit. I do not seek to make party points. Just as the Conservatives can say that the Government should have acted differently, so we can argue that the Conservative Government should have acted differently between 1970 and 1974. During that time there developed serious under-investment in manufacturing industry. That is another key factor.

One element of stimulus to price inflation was caused by our entry into the EEC—the element that VAT contributed, in addition to the increase in food prices, which will continue with 2 per cent. this year and 2 per cent. next year. Those were an added stimulus to the inflationary process in terms of price inflation, as France and Italy found a decade earlier when the EEC was formed. The problems arose in part from EEC policies and in part from uncertainties whether we should stay in or come out, and that no doubt was one factor which affected underinvestment. Those are two factors which our competitors were not experiencing.

There is also the interaction of one factor on another. We experienced a rate of effective devaluation as we moved away from the old-fashioned sterling crisis we used to have to a floating pound. That rate of effective devaluation was greater than that of any of our competitors. Indeed, one or two of our major competitors have revalued. That also is a factor which is special to us.

Then there is the further factor mentioned by my hon. Friend the Member for Liverpool, Walton (Mr. Heffer) which should not be under-emphasised. We have experienced at an accelerated rate in the last 10 years or so a concentration of the ownership of British industry into a smaller number of giant firms, most of them with multinational connections. The more our big firms have developed multinational relationships, the more resistant have they become to orthodox methods of Treasury management, because their price determination has not been influenced by the normal factors that in classical Keynesian and post-Keynesian economics are held to influence price determination. They are factors which are concerned with situations beyond Britain.

In all those circumstances which I have outlined which are unique to us, the Government have picked out one element. They have said "Wage inflation; this is where we bring our battery of weapons to bear ". Indeed the Government seem to have taken upon themselves a sense of guilt that they need not have done. So we have this unwise decision, unwise to the extent of identifying one element only, by bringing to bear conventional capitalist wisdom and admitting the complete victory of the wage inflation theorists. Until two or three years ago there was a battle raging, but the wage inflation people have clearly won.

Within the next few months what we are doing now in this place will begin to affect ordinary people. One wonders why we should not have considered steps similar to those taken in France, which imposed a price freeze on certain essential goods, or in Ireland, with a similar rate of inflation to ours, where public sector prices have been reduced and there is a different approach to the problem.

I want to look at the effects of what we are doing. First, if the analysis is not right and the remedy is therefore incomplete, we shall not resolve the problem. In failing to resolve the problem we shall risk the creation of serious tensions and conflicts within our society and we shall, I fear, produce a quasi co-operation or coalition between the major parties in confrontation with the working people. That I fear deeply because it could be a threat to our party-based democratic system.

I turn to the effect on living standards. Here again, the Government analysis is neither complete nor frank. There are certain questions that we are entitled to ask and to have answers to, not necessarily this evening. We are told by the Treasury that its estimate of the effect of the wage restraint of £6 a week is that it is likely to result in a fall of between 1 per cent. and 2½ per cent. in our living standards. But that is the effect only of the relationship between the £6 per week increase, for those who receive it—not everyone will necessarily receive it—and what it is predicted will happen to prices. Does this include the price increases which will come in the public sector? Will it include the rent increases which are still to come, in spite of the subsidy which will slightly minimise them? What level of continuing price increases is assumed?

The Chancellor apparently assumes that prices will begin to fall as we move into next year. When, and by how much? No one can claim that the effect of the £6 a week limitation will be between a 1 per cent. and 2½ per cent. fall in real standards of living unless we clearly set our figures straight as to the assumption about continuing price increases. I know that wholesale prices in the pipeline are said to be diminishing, but there are a great many of them and they are diminishing from a high level of 25 per cent. or 26 per cent. We are entitled to know about the calculations.

A further element has not so far been mentioned. When workers and their wives judge the effect of these policies on them, they will not be interested in the minutiae of the White Paper. They will be concerned about what is happening to their gross or real earnings, their real disposable income. To arrive at that real disposable income, however, we must take account of the tax proposals in the Budget, the increases in the public sector prices and the increases in the prices of imported goods.

We must also take account of gross earnings and how many hours are worked in industry. At this time unemployment is rising steeply. It is predicted that it will touch 1½ million or even 2 million. Are we asked to believe that in those circumstances there will not be a tremendous increase in short-time working and a great deal less overtime, which will reduce the net disposable income of workers who are earning less in gross terms and a good deal less in net terms? That is what will matter to the worker on the shop floor. He will be concerned if he loses his Sunday working or other overtime. For he will not merely lose a given number of hours of work. He will lose a disproportionate amount of his income since a high proportion of it is earned on overtime working. We cannot reconcile 1½ million unemployed with a high level of overtime working and the continuance of a high level of gross earnings. That must be taken into account.

The Government have not given us in the White Paper, or in anything else they have said so far, accurate statements of the figures on which they base their predictions to justify their claims. The so-called voluntary agreement, with its element of statutory powers to come, is reached on the basis of a false diagnosis and an unclear understanding of the facts. The next few months will show that those of us who believe that the policy is wrong —as it is based on a wrong analysis—are right. That will give me no pleasure, as it will mean that we are setting a course of confrontation between the Government and the working people, the people who elected the Labour Government.

We must reconsider the answers. The amendment proposed by many of my hon. Friends includes an alternative strategy to do something effective about prices and to take other steps to control imports. Import controls attract highly respectable support. This is not a Left-wing fantasy. Half the economists in the country support selective import controls. Why do the Government reject them out of hand, with the Chancellor producing a fairy-tale story about shirts in Marks and Spencer? Let us properly examine this proposal. Let us see whether selective import controls can make a substantial contribution to our problem. Let us see whether we can mobilise many of the assets of our overseas firms, against which we can borrow. Let us examine the alternative proposals put forward in the amendment.

On that basis it may be possible to reach a genuine voluntary agreement with the trade unions, a genuine voluntary incomes policy based on true facts and true predictions, not misleading anyone. That is the way forward. The policy proposed is so far from that course that I shall be unable to support the Government.

Mr. Deputy Speaker (Sir Myer Galpern)

Despite the fact that the debate continues tomorrow, there are so many hon. Members who are anxious to take part that I feel I must make an appeal for brevity. If we could have speeches of 10 minutes' duration, we could accommodate 16 hon. Members before the winding-up speeches tonight. That would make the occupant of the Chair and the 16 hon. Members involved very happy.

8.27 p.m.

Sir John Hall (Wycombe)

After that appeal I shall try to confine my speech to the 10 minutes which you requested, Mr. Deputy Speaker.

The House will have listened to the speech of the right hon. Member for Lanark (Mrs. Hart) with some interest. I agree with her that the development of wage demand is not the only contribution to inflation. I doubt whether any member of the Opposition would say that that was the only cause of inflation. It is one of the causes. At present it is probably the main cause.

The right hon. Lady mentioned other contributory causes of inflation, which I accept. However, she mentioned one which I found difficult to accept. The same point was raised by the hon. Member for Liverpool, Walton (Mr. Heffer). I refer to the operation of the multinational companies. I find it difficult to believe that multinational companies could have a more adverse effect on this country than on the other countries in which they operate. Although it is true that multinational companies tend to absorb companies and businesses within one country, other companies and businesses spring up contantly. There are a considerable number of independent companies outside the ranks of multinational companies.

I have, as is generally known, spoken against the use of voluntary or statutory controls consistently over the years that I have been a Member of Parliament—ever since the whole concept of statutory or voluntary controls on prices and incomes was first mooted. I have not changed my attitude about that one iota. Indeed, nothing I have seen over the years in the way these systems of control operate leads me to believe I was wrong in my original attitude to them.

I have my reasons for this view which are well enough known for me not to bore the House by repeating them. However, basically, I believe that controls of this kind, whether they are called voluntary or compulsory, have only a temporary effect. They distort the economy, and the process of re-entry—to use the current jargon—tends to give an even savage twist to the inflationary spiral. These are the basic reasons why I have always been against controls.

The hon. Member for Walton could not quite make up his mind whether we were having a voluntary compulsory policy or a compulsory voluntary policy. I would describe it as a compulsory voluntary policy of the kind to which we are accustomed in the Army. This runs throughout the whole of the White Paper. The difference is that previously when the Conservatives were in Government and I expressed my disagreement with policies of this kind, I then had the support of right hon. and hon. Members in opposition. Unfortunately, I now find that the support which I had hoped and looked for from at least the majority of Labour Members is denied me. The Prime Minister and the Chancellor of the Exchequer, if I can mix my metaphors, have shot my fox and I no longer have the support to which I used to look forward from Labour Members when I expressed my opposition to the kind of policies we are now discussing.

It would be quite easy to have a lot of fun at the change of policy, to talk about U-turns and to quote from past speeches. Last Thursday the Leader of the House said that, of course, the social contract was not dead and that this measure was an expansion of it, which restored my faith in the whole belief of the survival of life after death. One could adapt Humpty Dumpty's famous remark about the use of words. I do not propose to do so because the situation with which we are faced, both in this House and in the country, is too serious for party games. We tend to fall into that trap far too easily.

I am sure that we are all grateful that the Government have now realised the dangers of galloping inflation and have had the courage to take action—even if it is action with which I do not entirely agree—in the face of the opposition they knew it would attract from Labour Members and from many of the trade unions which they have had great difficulty in persuading.

From what has been said in the debate, all informed opinion is conscious of the evil effects of inflation. I should like to quote a part of what I believe to be the best analysis of the evil of inflation that has been written recently. It is from an article, which will be familiar to most hon. Members, written by Paul Johnson in the New Statesman on 16th May this year. This underlines and supports the argument I shall make about an alternative method of dealing with this problem. Mr. Johnson said: wage inflation is the very worst kind of rat-race. It sets group against group and makes self-interest the guiding principle of life. It makes money seem the only social nexus, and the sole criterion of well-being. It forces on us all the aggressive posture of comparative envy. It turns money and its ever-changing value into the chief preoccupation not just of the miser and banker but of every human being, the dominant topic of conversation, the source of all anecdote, the ever-present, ever-nagging worry behind every plan and move. It makes the young predatory, the middle-aged apprehensive, the old fearful. It penalises not just the poor, the old, the sick and the weak, but the decent, the diffident, the unselfish, the reasonable, the temperate, the fair-minded, the loyal and the generous. And, by contrast, it allows the social Mood to be set by the rapacious, the unscrupulous, the antisocial and the bully. Hyper-inflation forces us to accept a world of blind materialism where ideals cannot be realised, where force, power and selfishness are the only dynamics, and where charity is dead. That strikes me as an extremely good analysis of inflation and of the kind of hyper-inflation into which we are moving. Therefore, it lends greater emphasis—if emphasis is needed—to the importance of the measures we are now considering, and it is our responsibility to decide whether or not they are the right ones.

The present proposals aim at reducing the rate of inflation to single figures by the last quarter of 1976. Today at Question Time I asked the Secretary of State for Prices and Consumer Protection whether she did not agree that the cost of living would probably have increased by 30 per cent. by the end of the year. Therefore, the task facing the Government to reduce the rate of inflation to single figures by the last quarter of 1976 is formidable indeed. If we are to do it, we shall need far more drastic measures than have been put before us so far. Not only does it require the reduction of Government expenditure of the kind that has already been forecast by the Chancellor of the Exchequer but it requires a far more drastic reduction—a reduction that should be carried out with the greatest speed, with all the effect that will have of creating unemployment and the almost irresistible pressures it will bring to bear on the Government to reverse their policies. It is true that the imposition of cash limits, as proposed, will help to produce the needed reduction in Government expenditure. But I suggest that the Government could easily abandon some of their doctrinaire policies at great economic benefit to the country and with a considerable saving.

I wonder, however, whether the Government will have the courage to maintain this policy next year. Several hon. Members have mentioned during the debate the figure of 1½ million unemployed—some have said by the end of this year. I would suggest that this will arise certainly by the spring of next year. The Chancellor's view of the possible development of unemployment is even more pessimistic than that. But I should be prepared to make a bet—I do not bet very often—that we shall have at least 1½ million unemployed unless the Government produce measures and policies which they have not so far announced.

In those circumstances and without the improvement in world trade which the Chancellor is banking on for next spring, which I do not think we shall see happening until well on into 1976 and possibly not until the beginning of the following year, will the Government really have the courage to cut Government expenditure in the way they say they will, faced by an ever-increasing demand from hon. Members on both sides of the House to do something to deal with mounting unemployment, especially when it has been the policy of both major parties since the war to try to avoid unemployment at all costs? That policy has led us sometimes into some very convoluted actions indeed.

What do we do against that background when we realise, too, that we shall face a borrowing requirement not of £9 billion, which we were told about in April in the Budget speech, but a figure, I would hazard a guess, approaching much nearer to £12 billion than £9 billion? What do we do against that background and the background of the Supplementary Estimates which are about to be put before the House, which involve nearly £2,000 million, only a few months after we had the normal Estimates for the current year?—[AN HON. MEMBER: "What would you do?"]. I shall come on to the question of what to do. I am just considering what parts of my speech to skip in order to comply with the request of Mr. Deputy Speaker. However, I am coming to the part that really matters—that is, my particular solution to this problem.

First, I believe that we have all been in error in the past in regarding economic problems as something that could be treated in isolation from the rest of the social system, as something which we could regard as separate problems and to which we could apply certain well-known and well-tried techniques, which would operate on the economic situation without having any effect upon or being affected by the rest of the social system. That is a grave error. This world-wide phenomenon of inflation from which we have been suffering springs as much from rapid changes in social attitudes as it does from any movements in economic affairs. We have to pay a great deal of attention to this matter if we are to find any long-term solution to the problem of inflation with which we are now bedevilled.

I should have liked to develop some of the social activities to which we should pay attention, but in view of the time I shall skip that subject. Perhaps I may mention that in another debate if I have the privilege of catching the eye of Mr. Deputy Speaker.

If this is a long-term problem—which inflation is—it will be with us for a long time yet. I believe that the present programme is very unlikely to solve the problem. However, if we are to have something which will at least hold the situation until we can find the real longterm solution for which we are searching, I would suggest one thing which we can do. Perhaps this is the one moment at which I could have the attention of the Secretary of State for Employment and the Chief Secretary to the Treasury, who I am sure would be most interested to hear this.

One thing that we shall have to do in the short term is to introduce indexation. I can see the Chief Secretary rolling his eyes in despair, because this subject has been introduced on many occasions during the long watches of the night when we were debating the Finance Bill in Committee, and the right hon. Gentleman has heard a great deal about it. To be successful, indexation must be applied right across the board. If nothing else, it ensures that the sacrifices which are almost bound to follow inflation are evenly spread. We would not find that powerful, well-organised groups were able to opt out while the great majority, who are not organised in that way, had to suffer more and more from the evils of inflation. Indexation is not a cure for inflation, but it does facilitate its control. It prevents inflation causing major distortion. It cannot prevent the destruction of past savings, but it can protect future savings.

The Government have shown themselves conscious of this fact by introducing two index-linked bonds recently. Indexation takes the fear out of inflation and makes extortionate wage demands unnecessary. It preserves the real value of incomes and makes the sort of controls we are discussing tonight unnecessary. Of course, it has to be accompanied by more orthodox action to support it in order to control the underlying causes of inflation. We would still require the operation of strict monetary control in one form or another, and attention would have to be given to controlling Government expenditure as well.

Indexation was introduced in Brazil. a country which suffered acutely from inflation. Perhaps its experiences are not so different from our own. In the post-war years, inflation in Brazil was running at 11 per cent., and it moved up to 17 per cent, between 1958 and 1968 and on to 30 per cent. between 1969 and 1972. By 1962 it had reached 80 per cent., and in 1963 and 1964 it reached nearly 140 per cent. Once it broke the barrier of 30 per cent., it moved extraordinarily rapidly. When they introduced indexation in Brazil, it reduced inflation to between 20 per cent, and 25 per cent. in 1967–69 and to between 15 per cent, and 20 per cent, in 1972–73. Inflation increased again in 1974 because of oil prices, but it is coming under control again now.

Brazil's rate of growth over the five years to 1964 averaged 10 per cent. per annum, and has been rising since then. It has maintained growth at a fairly high rate while drastically reducing the rate of inflation.

Perhaps Brazil's circumstances are not similar to our own. There is rather more support behind the Brazilian Government than is available to our Government, and they had a good deal of military backing. However, the fact that the policies when imposed, were successful at least demonstrates that there is some underlying merit in them. We are now faced with a White Paper and proposals the intention of which, whatever is said by the Government Front Bench, is compulsory in nature. There will be back-up legislation designed to make the policy compulsory. If there is a real challenge from a trade union which refuses to do as the Government ask, the Government will find themselves facing the downfall of their policies.

I have had my 10 minutes and a lot of other hon. Members want to speak. I have had to cut a lot out of my speech to make room for them. [Laughter.] It is good that on an occasion like this when we face a very serious problem we can at least find time to laugh. I only hope that when the laughter has died down and we have had time to think about the solution hon. Members might come to the conclusion that there is something to be said for a policy that at least ensures that burdens we are called upon to bear are fairly shared and evenly spread over everybody. What I advocate is a policy which would not encourage the continuation of inflation. It would provide a breathing space in which we could find long-term solutions. These will be found not by concentrating only on economic problems but by looking also at many other aspects of our social and political life.

Mr. Deputy Speaker

Order. The hon. Member said that he had had his 10 minutes. He must have misread the clock. He has actually had almost 20 minutes.

8.46 p.m.

Mr. Mike Thomas (Newcastle-upon-Tyne, East)

The hon. Member for Wycombe (Sir J. Hall) reminds me of the Duke of Wellington, who wrote home after his first Cabinet meeting telling his wife that the meeting had gone well, that he had presented all his proposals to the Cabinet and that the thing which had surprised him was that the Cabinet seemed to want to discuss them. The hon. Member clearly would not have his policies to control inflation discussed by anyone. He would have them enforced by the Army or whatever other body it was which enforced them in the countries to which he referred. I hope that we have moved a little way since the Duke of Wellington. The hon. Member would not have great success in discussions with the TUC or the CBI on that basis.

I wish to pay tribute to the Government for playing a substantial part in helping to bring about the remarkable change of atmosphere both in the House and in the country in the last two months. Within the constraints imposed upon the Chancellor, I believe that the package before us has considerable merits. My right hon. Friend the Member for Lanark (Mrs. Hart) must accept that in the short run, given the constraints on the Chancellor, wages are the only major cost item that are amenable to change. We may not like that and we may wish for structural change in the economy, but in the short run wages are important and we cannot escape from that fact.

I share some of the desire expressed by my hon. Friend the Member for Liverpool, Walton (Mr. Heffer) for comprehensive control of the economy, but I will not accept that comprehensive control does not include control and management of the wages structure. It is disingenuous to suggest that every other aspect of our life except wages should be controlled, and it is even more disingenuous to suggest that until everything else is controlled we should make no attempt to control wages.

I do not wish to concentrate on these issues, however. The atmosphere which we have now managed to create, an atmosphere which may enable this package to work, will be very easily dissipated. For the people and the trade union movement the proof of the pudding will be in the eating, and the pudding in this instance is the question of prices. I regard with some concern the Chancellor's target on the price front. He tells us that he wants to get prices down to a 10 per cent. rate of increase in 12 months' time and to single figures by the end of 1976. I applaud that objective. We all want it to be achieved, but we have to be realistic too.

We have only to look at the White Paper to see that even the Government have their doubts on that score. In paragraph 29 they talk about the increases that are in the pipeline. Later they talk about oil price rises, and the possibility of these cannot be ruled out in the next six months. In paragraph 37 the Government give themselves a let-out on import costs—the cost of imported raw materials.

The Government talk about the problem of the pay increases of the past 12 months working their way through into prices in the next 12 months, and in paragraph 31 they talk of the problem of creating profits and the money for further investment.

By any realistic process of addition, if we put all those factors together, quite apart from any unforeseen factors which may arise, we shall be lucky if we bring inflation down to the 15 per cent. to 18 per cent. level within 12 months, even if the £6 limit is rigorously adhered to.

I take no joy in that whatever, but we must have regard to the effect that there will be on the atmosphere, on the trade union movement and on ordinary working people if in 12 months, after they have played their part in restraint, they look at the pudding again and see that price increases are still going on at rates which may well be double those that the Government have promised.

If that moment comes, far from our being able to say that we kept our side of the contract but they did not keep theirs, there will be a legitimate argument that the Government did not keep their side of the contract, and what that bodes for stage 2 and the atmosphere 12 months hence must be a matter of serious concern to us all.

I turn now to some of the price proposals in the White Paper, partly because of the general importance of this aspect of the matter for the success of the Government's overall policy and also because of the importance of prices to the poor. Inflation has a vicious regressive effect on the poorest in our community. The poor spend a larger proportion of their income on essentials such as food, fuel, clothing and housing. None of us on this side will forget how damaging it was to have it alleged in 1970 that the poor had got poorer under a Labour Government. Whether it was true or not may be a matter for statistical argument, but I fear that the White Paper proposals on the prices side may make us vulnerable again to that charge, and I beg my right hon. and hon. Friends on the Front Bench to look seriously at that problem.

In paragraph 33 of the White Paper, under the heading "Family budgets", we are told that, once pay limits are being effectively observed, the Government will take steps to hold the prices of essentials —we are not told what essentials— to about 10 per cent. We are told that the CBI and the Retail Consortium will discuss this, and we know that there is to be a consultative document. I presume that this is to be some sort of extension of the voluntary agreement on essentials which the Government have had in the past with the retail sector. But the only sanction mentioned in that part of the White Paper is the extension of the three months' interval between price increases.

In paragraph 34 we are told that food subsidies will be increased by £70 million, but it is still the Government's intention to phase them out. We are not even told that their real value will be maintained by the £70 million additional payment.

On rents, we are told that the Government will take steps to keep rent increases in line with the cost of living, but we are told nothing about rates and nothing about mortgages.

With regard to nationalised industry prices, the best that we can be promised in paragraph 36 is that there may be good prospects for a lower rate of increase—and that after we have had a year by the end of which electricity prices, for example, may well have risen by as much as 100 per cent.

Altogether, the prices proposals are the weakest aspect of the Government's policy package. Overall, I wonder whether they are enough to make the £6 limit stick. In particular I wonder whether what is proposed will be effective in protecting from inflation those 15 million people in Britain who are on or near the breadline. I wonder whether even what is proposed will be capable of enforcement by the Government.

I believe that what is necessary is the assurance to everyone in the community that the cost of the essentials of life—food, fuel, clothing and housing—will not rise more than their incomes. There is a need for a Government-subsidised "Essentials Budget" deliberately controlling the prices of essential goods. I am wholly in favour of the Government phasing out indiscriminate subsidies. The official Opposition's reference in their amendment to indiscriminate subsidies is laughable in view of the way in which they indiscriminately subsidised the nationalised industries, with no attempt to see that the subsidies reached those in need, so that in fact they went largely to the better off. They are in no position to criticise the Government for their subsidies policy.

What I want—and in effect this is a sort of negative income tax, which I understand at least some Opposition Members favour—are carefully directed subsidies financed from direct taxation, in effect a negative income tax in kind. They would have the benefit of being universal. There would be no take-up problems.

A great advantage of the Government's food subsidy programme is precisely what the Opposition are continually complaining about—the fact that everyone receives it. I see no argument against everyone in the community receiving the essentials of life at reasonable prices, the richer having that benefit clawed back from them, as we do with family allowances, through the income tax system.

I regard that as practicable and socially just. It is the equivalent of a negative income tax in kind. Some of the practical proposals that would run from such an approach are just an extension of what the Government are already doing—main- tenance and extension of the food subsidy programme at at least 1974 levels in real terms, rigorous enforcement of regulated prices for other essentials in the family budget—for example, children's clothing and shoes—at retail as well as wholesale and manufacturing levels, with particular attention to the availability and pricing of small quantities of goods.

I would go for a two-tier pricing structure for electricity and gas with a quota of low-priced, or in some cases free, units followed by higher-priced run-on units with an end to standing charges, and that to be financed by direct subsidy to the industry concerned through direct taxation. I would directly subsidise domestic coal prices and continue to subsidise council and private rents. In addition, I would try to help those who wish to own their own homes by additional subsidy to small mortgages—say, those less than £7,500—and perhaps increasing the tax burden on those with larger mortgages.

I think that in her heart of hearts the Secretary of State for Prices and Consumer Protection accepts the bones of that programme, and we can see that in some ways it is applied in the White Paper package. I have grave doubts about my right hon. Friend the Chancellor of the Exchequer, whose statements in the past have not always been helpful on this front.

The National Consumer Council, which the Government have established to speak independently for the consumer, takes up two of my major points. In its statement at the end of last week it advocated a key essentials Budget for the products of special importance in family expenditure and it asked for control of those prices and for cross-subsidisation from other products. The council has been making the case that I have made for help to small and poor consumers of the products of the nationalised industries.

The most important fact is that, without this sort of approach, not only will the poor suffer in the next 12 months from the effects of our ravaging inflation but the seeds may be sown of the ultimate failure of the Government's policy. All that is needed to make the policy succeed on the prices side is to extend some of the thoughts that are half articulated, half put into the White Paper, and turn them into a comprehensive programme to protect the poor.

I urge my right hon. Friends to reconsider whether it is possible to protect the poor by an essentials Budget directly financed from the income tax system, and whether they cannot join me in seeing this as a way to help make all the other desirable aspects of the Government's policy stick over the next 12 months.

9.1 p.m.

Mr. David Price (Eastleigh)

I agree with the hon. Member for Newcastle-upon-Tyne, East (Mr. Thomas) that on almost any time scale the withdrawal symptoms from a 26 per cent. a year inflation are bound to be painful, and on the Government's time scale of one year—I think that this was the hon. Gentleman's point—if they are to be successful, the symptoms will be positively agonising. I do not believe that Ministers have brought that sufficiently to the attention of the House. I do not have time to develop that matter, but the point will be obvious. We are dealing with the inflationary equivalent of withdrawal from heroin and not merely from pot.

Exactly a year ago plus one day, on 22nd July, the Chancellor of the Exchequer offered us an economic package, not a Budget, but a special package such as we have had in the White Paper. He 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.] Inflation then was running at 16 per cent. a year, and it is now running at 26 per cent. For both those figures I take the Index of Retail Prices as being the most acceptable of the many measures of inflation.

Without sounding too impertinent, may I ask the Treasury Bench what went wrong? Did Ministers not attack inflation at its source? Presumably they did not. Why not? The Chancellor presented his measures then as if they were going to attack inflation at its source.

I look to the White Paper to see whether it assists me in finding the answer to the problem. It tells us that, unlike 1972–73, great increases in the cost of imported food and raw materials were not to blame, nor, as in 1973–74, were large increases in oil prices. Then I ask myself "What was to blame?". As far as I can detect from listening to debate here, from the White Paper, the statement of the Prime Minister, his Press conference, and the Chancellor's statement, the Government have given us no reason why, to coin a phrase, they were blown off course. Before we vote tomorrow evening we are entitled to know why the Government think their previous measures did not succeed, and why, incidentally, they think that their new package will succeed where the previous one did not.

The Government always tell us that they are a Government of planners. Even in my most partisan and hostile moments I would not accuse them of positively planning a 26 per cent. inflation. They may be a bad Government, but they are certainly not a mad Government. I have an instinct that under the present Prime Minister's leadership they may, like the Bourbons, have learnt nothing and forgotten nothing. To old-stagers like me, the Prime Minister's speeches have a familiar, almost nostalgic, ring from the past. I have the sort of feeling that, rather like Archie Rice, the entertainer, we are going round the same old bumpy course again. We have seen this show come round before.

Mr, Atkinson

Like the Archers.

Mr. Price

The hon. Member for Tottenham (Mr. Atkinson) will probably recall with me the joint statement of intent between the Government, the TUC and the CBI in December 1964. Did not the Prime Minister describe the joint statement as a great landmark? What happened to that?

Going through the sequence of events, we had the White Paper of 1965 with the 3½ per cent. norm. What happened to the norm? Then we went on to the early warning systems. What happened to them? We had a General Election in early 1966, when the Prime Minister said: I do not think you can ever legislate for wage increases … Once you have a law prescribing wages I think you are on a very slippery slope. Four months later we had the historic document dealing with prices and incomes. We had a standstill, a total freeze.

I shall not embarrass the Government Front Bench by recalling all these matters in detail. I merely remind the House that eventually, in 1969, the Prime Minister abandoned all these controls. If the Sun newspaper is correct, the right hon. Gentleman told a meeting of some of his back benchers: the crucial issue is not the incomes policy, but the General Election. As we know, the Prime Minister did not win that election. However, he may have been right when he said that the crucial issue was not an incomes policy.

I suggest to the House that before we go round the same old bumpy course again with the Prime Minister we should ask ourselves how far incomes policies have worked in the past. If they have not worked in the past, by what alchemy of habit and time should they be expected to work in the present situation? There are now many empirical studies available about the determination of the rates of change of wages and prices for the past 20–50 years. Amongst them there is much evidence to suggest that we in Britain, or those in any other democratic country, have not seen a prices and incomes policy that has had a lasting effect on the rate of inflation of retail prices.

This is not a matter of personal opinion. I believe that there is a great deal of evidence to prove what I am saying. I suggest that the evidence supports the view expressed by Professor Michael Parkin in the current number of the Lloyds Bank Review, when he writes that variations in the rate of both wage and price inflation are determined mainly by variations in the state of excess demand in the previous year and variations in the expectations of future inflation. Professor Parkin went on to claim that the available evidence is consistent with the view that inflation is a monetary phenomenon associated with the elimination of excess demands initiated by excessive monetary expansion. It is not consistent with the wage-push view. As one who is personally agnostic on matters of economic theory, I find that the evidence points more and more towards the monetary demand-pull theory and away from the wage-push view. To say the least, it is imprudent for the Gov- ernment to ignore the evidence. Alternatively, I ask the Government, before the debate is over, to indicate what evidence they have to support the alternative theory. Certainly they have not yet deployed it before the House.

What makes the Prime Minister think that he can succeed where he has failed before, and where, to be fair, his successor has failed—namely, my right hon. Friend the Member for Sidcup (Mr. Heath)? I would add my personal view that the evidence points against the statutory prices and incomes policy being the determinant.

I have no doubt that the Government cannot escape their responsibility for the movement of public sector incomes, simply because they are the employer in the public sector. Therefore, their responsibility there is not as the manager of the total economy but as employer qua employer. The Prime Minister may deny that the Government's new incomes policy is an imposed policy. He may say that it is all a matter of consensus. But we have not yet seen the reserve powers. It has become clearer in the exchanges that have taken place that the new incomes policy is as voluntary as a voluntary contribution to the Mafia in the city of Palermo.

If the House thinks that that is a slightly harsh judgment, might I draw its attention to the exchange that took place on Friday 11th July at the Prime Minister's Press conference? I would add that the Press conference was a great deal more revealing for what was said by the Prime Minister and the Chancellor than the exchanges which took place an hour earlier across the Floor of the House. I will quote one exchange from that conference: Q. Does the Prime Minister define this as a voluntary or a statutory policy, because I am not at all clear? The Prime Minister: It is a question of terminology. I am more concerned with policy than trying to find a name for it … So it starts as a voluntary policy, it has that statutory backing, but we have made clear that we shall use all the powers at present in the hands of Government together with others that we propose to take … to make it work. Before we go around the old course again let us have some evidence from the Government or from the Leader of the Liberal Party that prices and incomes policies have had a lasting and determining effect on the rate of inflation. There is much that I would like to say, but, taking your advice, Mr. Deputy Speaker, to be as brief as possible, this is my main contribution.

I observe in conclusion that I can think of only one possible reason why the House should support this White Paper, and I can put that reason briefly in a line from Hilaire Belloc: always keep a-hold of Nurse for Fear of finding something worse. Reading the amendment tabled by members of the Tribune Group, I suggest to my right hon. and hon. Friends that there might be something worse than this White Paper. That is the only reason I can think of for approving it.

For me it is not a sufficient reason. The best I can do, in this time of national crisis of which we have heard, to meet the Government half way is to do what anyone does with a rather doubtful product—take it on approval. The only way I know of indicating in this House that I will take the Government's package without paying for it at the moment —"on appro"—is to abstain.

9.13 p.m.

Mr. Eric Moonman (Basildon)

It is right that the hon. Member for Shipley (Mr. Fox), who is currently sitting on the Opposition Front Bench, should convey to the leader of his party that the reason why she got such a roasting this afternoon was that many of us who have reservations about this package nevertheless feel that it is an attempt to try to deal with something that is affecting not only the economy but the whole basis of production in the country. It is wrong for someone who leads a party not to be able to offer an alternative or to say "Yes" or "No".

Many of us feel that while it is right that some of our colleagues should have serious reservations about the package —my hon. Friend the Member for Liverpool, Walton (Mr. Helfer) has expressed his concern—it is odd that the official Opposition should take the view that abstention is the one decision they are able to reach. That cannot possibly be a right decision except on rare occasions. On crucial issues abstention surely reveals weakness of mind or character, or both.

Perhaps the Opposition are not inclined to commit themselves, because the operative phrase presented by the right hon. Lady was that "We shall judge the issue as it comes". The White Paper is available. A fair amount of debate has taken place. There have been a number of weekend speeches. The hon. Member for Eastleigh (Mr. Price) has referred to the rocky road. In my view, with a reasonable amount of insight, the Opposition should now be in a position to tell us what they want to do.

The Opposition have been told. In a very forceful Leader in The Times last Friday it was pointed out, quite apart from the economic need, that A great political advantage is being thrown away. The Conservatives are not giving their full backing to the incomes policy. They thereby deprive themselves of the claim to be the party that puts the campaign against inflation first. They deprive themselves of the right to argue that the Wilson policy of 1975 has shown how necessary the Heath policy was which Mr. Wilson attacked in 1974. They deprive themselves of the argument that they are the more consistent of the two parties ". I do not think that any further reference is required. But I am sure that any Opposition Member who speaks on the basis of that background must need some clear understanding of exactly where the Conservative Party is going.

Let us deal with the point raised by the hon. Member for Eastleigh. He took us down the very rocky road of the voluntary attempts that have been made since 1964. I do not think that there is anything terribly embarrassing or indeed particularly wrong about a Government recognising the social milieu and the difficulties of trying to make decisions on a voluntary basis. The whole point of the measures that have been attempted since 1964 is consensus.

When efforts have been made to go into the arena, as the Conservative Party did, to introduce a measure of censure and sanctions, there has been a quick response from the working class. The hon. Member for Eastleigh makes a great mistake in knocking the very difficult attempts by the Government since 1964 to try to get a voluntary policy. It will never be easy to attempt to deal with a difficult measure, but on every occasion the attempt has been worth while. That is why I welcome the Government's anti-inflation White Paper.

The Government's priorities are right. It is important that the level of expenditure in essential areas of social need is maintained. I am staggered that some of my colleagues, while making serious criticism of the anti-inflation measures, appear to have overlooked this point. The preservation of the welfare safety net for the poor, the sick and the deprived is a first priority for any Labour Government, and never more so than in times of economic crisis.

The continuation and strengthening of subsidies as well as no attempt to make a major cut-back in public expenditure indicates that this Labour Government are particularly concerned to look after the vulnerable groups of society. Surely the mixture is near enough right. Its strength can certainly be seen in the public sector, which in recent times has been at the heart of the inflation problem.

In my view the strategy is promising. The idea of cash limits on nationalised industries and the whole of public service pay puts a heavy responsibility on Ministers. That is exactly where the responsibility should be. It should have been there a long time ago. It also shows that perhaps for the first time this responsibility is a shared responsibility with the Treasury. Some of us have never accepted the extraordinary role which the Treasury has fulfilled in the past in acting as a watchdog. We have seen it act when it comes to co-ordination, but it has gone much further in the past 10 years or so.

Instead, each spending Minister will be responsible for his own budget plan. Instead of a breach by a particular group of occupational workers within an industry, the responsibility will be that of the Minister. Therefore, the Secretary of State for the Environment will be held responsible for local authority breaches.

No incomes policy, be it voluntary or statutory, is an end in itself. It can do no more than gain us a breathing space during which some fundamental issues can be resolved. One of these is the nature and role of a future incomes policy. As a party of planning we cannot plot investment, employment levels and economic growth and leave incomes totally out of account. If we do, we shall upset the whole picture.

I am not suggesting that we should have a Government who meddle in collective bargaining. I am looking for something more sophisticated in the sense of trying to establish guidelines for the relationship between upper and lower incomes, the rôle of differentials and the analysis of jobs in different industries. There is a Royal Commission currently dealing with the distribution of incomes. I hope that its report will be forthcoming fairly soon.

I have three worries about the White Paper, and they can be expressed simply. The first is that the Government's package is not without weaknesses. In particular. it is not clear how the level of settlements in the private sector can be monitored. The onus placed on the Price Commission to monitor wage settlements as part of its criteria for allowing price increases will put it under great strain. I cannot accept that it is not possible to have notification of all wage or salary increases. Surely it is not beyond the wit or ability of the Government to show that they are taking the whole psychology as well as the economic circumstances of the policy seriously.

One important matter regarding the psychology of the mixture is that the Government should consider making notification of all wage or salary increases compulsory. That cannot be left out. As has been pointed out, we will probably have about 60 per cent. of all wage and salary increases monitored because of the way in which we shall be getting the larger companies and the public sector to help. That is not enough. It is alarming that we should be satisfied with 60 per cent. when there can be serious omissions and abuses in the other 40 per cent. In no other situation—certainly not in industry—would we be able to go to a management or board and say "We are going to get 60 per cent, of the information on which to make a judgment." It is outrageously wrong. I ask Ministers to look at that point again.

My second worry is on the role of management. The Government have put the onus for carrying out their incomes strategy on management, whether in private industry, the public sector or local government. That is not a bad thing. Most managers, in much the same way as Ministers have responsibility, will welcome that. But such sanctions as there are in the initial voluntary stage, as well as in the statutory back-up, will penalise management weakness through price control, withdrawal of rate support grant and subsidies. The CBI has indicated that this is a major cause for complaint. I should have thought that it would be a cause for celebration, because it passes back to management the responsibility for relations with the work force. In looking at the strategies and the micro aspects, one is inclined to get them out of proportion. Most managers, in recognising their responsibilities and meeting certain objectives, find this a handicap, but the existence of the upper limit for pay settlements will give them a breathing space. That is an opportunity to plan for the future.

An incomes policy, especially when combined, as this one is, with a freeze on dividends, would help to put at management's disposal a larger share of company income than it would otherwise have done. The Government should ask, what will happen to that money? Its proper use is investment for the future prosperity of this country. I hope that the Government will bear that in mind in their use of the Industry Act.

My third concern is the complete omission so far from the Government's statement of any reference to productivity. Lack of mobility and antiquated equipment are the major causes of our weak industrial position. Some consideration should be given, if not within the next two days, at least when we come to look at later stages of the proposal, to a sophisticated productivity unit. We should accept that there is a need for national retraining schemes. Reference was made to this point earlier but it was not spelt out. I should like to see greater interest by the consumer. Some of us have argued that the consumer is not to be thought of as a label and should be considered not only from time to time, but at most critical points in wage negotiations and so on. An independent body would take account of the consumer interest.

In a succession of economic crises since the war, we have tried traditional economists' solutions and they have not worked. That does not justify what the hon. Member for Eastleigh said about the problems of a voluntary policy. It is far more important that we try to make the voluntary policy succeed than to attempt something more serious in the nature of a statutory policy, recognising that it could disturb the balance of industrial relations. In short, we have a less orthodox approach which has caused some confusion in the mind of my hon. Friend the Member for Walton, who uses such terminology as a statutory-statutory policy. I am not sure what that means as opposed to a statutory-voluntary policy.

Some of us are not equipped to understand what the Government are trying to do. It is up to the Government to make clear how the policy will work in practice. We should give the policy our backing. It is understandable that we on this side of the House have reservations. What cannot be tolerated is the way the Opposition have behaved today. If they continue in this way, they will make no contribution to solving the national crisis. They will have no credibility in asking people to believe that they understand the crisis. Although they may feel that because they are no longer in power they do not have to take any responsibility, it is possible that people will remember this and will act accordingly in future.

9.27 p.m.

Mr. Russell Fairgrieve (Aberdeenshire, West)

I cannot commence my brief remarks without referring to the speech of the hon Member for Perth and East Perthshire (Mr. Crawford). It is not good enough for him and other members of the Scottish National Party to produce selective statistics, saying that unemployment and wages in Scotland are X and in England are Y without mentioning that in parts of Scotland wages are higher than they are in parts of England and that unemployment is lower in parts of Scotland than it is in parts of England. The attitude of the SNP is completely selfish. We have had an integrated economy for a century. Is it suggested that, because of the temporary benefit of the discovery of oil, we should disintegrate and then when the oil has been extracted by the much-maligned multinational firms we should reintegrate?

The Scottish National Party argues that the oil is Scotland's oil. As long as this is a united kingdom, it will be a United Kingdom asset. The argument is dangerous because the logic is that the next cry will be that it is Shetland's oil. That island is making good agreements with the oil companies, and I should hate to encourage it to do a UDI.

Mr, Hamish Watt (Banff)

On the criterion which the hon. Gentleman is using, does he agree that in the past Scotland should have had exactly the same rates of unemployment as England?

Mr. Fairgrieve

You, Mr. Speaker, and your Deputy have asked hon. Members to be brief. Most hon Members have complied and there have been virtually no interventions. The hon. Member has rarely been present during the debate. Therefore, I shall not waste time by answering stupid and half-baked questions.

I give a welcome to the White Paper, with the proviso that it is too late and too little. We have had 18 wasted months, with two bought elections, while wages have been allowed to let rip with settlements of around 30 per cent. Hon. Members have criticised the Opposition for tabling a reasoned amendment and intending to abstain on the main Question. But we shall support the Government although they did not support us, not necessarily by voting in the House but by our actions in the country and by not encouraging people to make vast wage settlements. We shall abstain and yet support the Government's honest intention to bring down inflation because of where the White Paper stops short.

The main reason why we object to what is proposed is the Government's failure to do anything about costly nationalisation projects. Such projects were supported, if at all, by only 30 per cent. of the electorate. I doubt whether half the Labour Party is in support of nationalisation. Yet we have the Land Community Bill—that is, the nationalisation of land—the Employment Protection Bill, which includes a good bit of employer bashing, the Petroleum and Submarine Pipe-lines Bill, which sets up the useless and irrelevant British National Oil Corporation, and the Industry Bill, another form of nationalisation, with its Scottish and Welsh Development Agencies to buy into prosperous and efficient firms and make them unprosperous and inefficient.

The Chancellor told us that Britain could get out of its problems by an increase in productivity. The Bill which I did not mention—the one dealing with British Leyland—provides for the pouring out of £1 million a day into the company over the next eight years, but has any guarantee been given about productivity or overmanning? None whatsoever. It is a virtual encouragement to this inefficient state of affairs.

We object to the fact that there is to be no cut now in national or local government expenditure. We also object to the increase of £150 million in subsidies. We all know that if subsidies were removed taxes could be brought down by similar amounts and people would realise more accurately what things cost.

It is ridiculous, unfair and arbitrary to increase VAT to 25 per cent. on certain items, when it is well known that if the 10 per cent. rate overall were reimposed instead of the 8 per cent. rate the Chancellor would get more revenue than from the combined 8 and 25 per cent. rates.

Those are the sound reasons why we have put forward a responsible amendment to the motion and, while abstaining on the main issue, we shall support the Government in genuine attempts to bring down inflation, although the Labour Party did not support us.

9.31 p.m.

Mr. Norman Atkinson (Tottenham)

I have just heard a stage whisper "Good God, is he winding up for the Government?". The hon. Member must have looked at the clock and not read the Order Paper. I reassure the House that I am rising to speak to the amendment—

Mr. Speaker

I hope that the lion. Gentleman's speech will not be as lengthy as a winding-up speech.

Mr. Atkinson

I want to deal with some of the comments that have already been made about monetary policy and the Labour Party. Before doing so I wish to comment briefly on the wage aspects and to relate them to the amendment in the names of myself and my hon. Friends.

On the subject of a planned economy and free wages, several speakers have suggested that Socialism extends to a compulsory wage policy. Others have suggested a voluntary wage policy as part of the concept of a planned economy. They have it the wrong way round. Socialists over the ages have agreed that in a planned economy a wage policy would be an integral part of the planning concept. But we are a long way from that.

Other speakers have suggested that there should be some form of wage control but free prices. That is totally illogical unless those who now argue for wage control also argue for permanent price control—but I suspect that the opposite is the case. I take that to be the idea advanced by the Liberal Party and some hon. Members who say that there should be total planning. In other words, the argument is for free price fixing within a free market economy and within that system some wage con. trol, although wages are merely an integral part of the price structure leading to the price of the product. Many people argue that wages should be controlled but that the prices of the products should be open to a free market. I find that illogical.

Reference has been made to the deflationary effects of the wages policy, which is based on the £6 per week flat-rate increase. In opening, the Chancellor said that that was a maximum. However, some employers may go out of business if they concede increases of £6 per week to each of their employees. Some may compromise at £4 or £4.50. British industry must be in a precarious state if the difference between bankruptcy and solvency is between £1 and £1.50 per week per worker, and if those are the narrow margins which apply in industry—[Hon. Members: "They are."] If the Opposition seriously advance that argument, the basis of our economy is more precarious than I had imagined.

I now turn to the basis of our opposition to the flat-rate increase of £6 a week. We can calculate how much it is necessary to pay in total wages to equate the projected rise in the price index. If we compare that with the increase in wages resulting from the £6 a week flat-rate increase, the difference must be more than 7 per cent. in terms of living standards. The difference between the total wages bill proposed by the Government, against that which is required to maintain living standards and to keep pace with the rise in price index, is a 7 per cent. drop in living standards on aggregate for all wage earners. We do not believe that that should be tolerated. It is not necessary to take that amount out of the economy to achieve a mythical result. It could have a tremendous effect by adding to the numbers which we know are likely to become unemployed in the next 18 months or two years. That is a further reason why we should resist the Government's proposal to deflate wages and to cut living standards by this enormous amount. That alone is a good reason for opposing this policy.

Most hon. Members recognise that there is a fine balance between maintaining living standards and triggering price inflation. My view is shared by most Government supporters. I have always believed that trade unions are sufficiently sophisticated to understand their responsibilities as wage bargainers. Indeed some time ago they set out on their adventure with the social contract recognising only too well their responsibilities as wage bargainers. They understood the fine balance between attempting to win for their members the maintenance of living standards whilst they did not want to contribute to price inflation in the way in which some of our labour-intensive industries have suffered over the past 12 months. There is nothing wrong with the understanding of the trade unionists. Indeed, if other policies had been pursued by the Government, the social contract, as originally conceived, would have been successful and would have prevented much of the inflation which has occurred in the past few months. No matter how we view in retrospect the events and the relationships to which I have referred, we are forced to that conclusion.

We have always advanced the case that it is possible responsibly to negotiate wages against fixed price ceilings. However, if our purpose as Socialists and as a Labour Government is to intervene in the price mechanism and to reject the idea that the free market economy can allocate resources according to the priorities set out in our manifesto—if we reject the system as incapable of doing that—it involves us in intervening in the price mechanism. By that means, trade unionists must freely bargain their wage agreements against the ceilings which are socially agreed. The concept which the TUC accepted at the time was that we can have free wage bargaining within a system that has agreed upon price ceilings.

At that time we accepted that that was the way in which to bring about a redistribution of wealth through the wage system. All these things were transitionary but could be contributory factors in leading up to the kind of transitionary society or economy that we have always envisaged. Therefore, we have come to certain conclusions about the policy.

The reason why we have rejected these ideas is that we believe that the fundamental changes we have set out, plus the fact that if there was—as some Conservative Members suggest—indexation of wages and some way of having close harmony price rises and negotiated wages, of necessity that would mean a deceleration in price rises, although in accordance with the targets set by the Chancellor. None of the hon. Members who have put their names to the amendment in the name of my hon. Friend the Member for Liverpool, Walton (Mr. Helfer) disagrees with that conclusion or the targets laid down by the Chancellor. Indeed, we have argued for the deceleration of price rises.

We have spent 18 months attempting to convince people that there is a way of doing this which is consistent with the ideas set out in our manifesto. There is a means of getting exactly the price deceleration about which the Chancellor spoke. Therefore, there is unanimity among hon. Members, the Chancellor and the Government in that we totally agree that we must now decelerate prices from the existing 26 per cent. rate of inflation down to 8 per cent. at the end of 1976. which is approximately 1 per cent. per month over an 18-month period. That is the target which we all agree, and, whatever happens, that must be achieved at the end of the day.

Mr. Hoo!ey

Will my hon. Friend explain how he sets a price ceiling on the price of oil or world prices of food or raw materials?

Mr. Atkinson

It is not possible to do that within this country. However, it is possible to set a price ceiling on products that our labour will produce with the aid of oil, recognising that we have to accept the situation if we cannot control the price of one factor within the total price. That, with all the other considerations,must be taken into account in setting the maximum price ceiling. It puts a greater strain on trade unionists who bargain for wages when there are external factors—for example, inflation among commodity prices. That makes the responsibility that much greater.

I conclude on the basic argument about the question of the monetary policy of the Labour Party and the problems we suffer. I know that my hon. Friend the Member for Berwick and East Lothian (Mr. Mackintosh) wishes to speak on this matter, so I shall be brief. It is germane to the debate and important to the Labour Party to understand our difficulty. As a party we must recognise that we are elected on a programme of high social expenditure. In setting out the programme on which we were elected, we are trying to achieve a rapid shift from capital intensity in manufacturing industry to a labour-intensive service industry. Our aim is for that shift to take place in the economy in order to minimise the labour content in manufacturing industry by rapid investment, with all that goes with modernising industry —making it competitive in the world market—but at the same time finding a way of shifting our human resources into all the social services, improving health, housing and education, and making our society that much better. That is the purpose of our being here. We can get general agreement on that.

However, because this is a shift from capital intensity into labour-intensive social industry or social service—because that is the movement—it does some things in the absence of regulators or controls in a free market economy. For the Labour Party to have to pursue a policy of that kind in the absence of these other regulators means of necessity that that in itself is inflationary. No one would disagree on the pure monetarist argument that in a free market economy without any other controls or interventionist strategies pursued by a Government—in the absence of all that —of necessity a Labour Government cannot make the books add up.

It is arithmetically not possible in this situation unless we go to phenomenally high rates of taxation, which are in themselves a disincentive to building the kind of society that we want. We cannot raise income in this way so that arithmetically it can balance the books with the kind of social expenditure to which we are committed. Therefore, of necessity there must be printing of money with a Labour Government. Of necessity that must happen.

However, there is a case to be argued, and I ask hon. Members seriously to consider the implications of what we are trying to do. Two things that we have always argued are that in pursuing a policy of that sort a Socialist Government, in trying to reach out towards a planned economy, must intervene in the price mechanism and must introduce import controls to prevent the conversion of that additional currency into higher domestic prices—because that is what happens. Therefore, we say that the inadequacy of the present economy is such that the Labour Party, in pursuing the policies now before us, must do the other things which are spelt out in the amendment on the Order Paper in order that we can successfully transform society in this way.

That is the essence of our economic argument: not to be afraid about having a Budget deficit, or afraid of the monetarist arguments saying that we are overspending or over-reaching within the economy, but to introduce the restructuring of society that we think necessary in order that we can safely carry out those policies and at the same time protect the living standards of the people whom we represent.

I know that in the few minutes of the debate that have been allocated to me it is important to try to set out the fact that we recognise the difficulties in the journey that the Labour Party has to face. We recognise all the problems and all the criticisms that the monetarists may have. But statutory wage control is not the answer. That is the reason why we have tried to say that there is a need to do certain things, a need to restructure the economy in accordance with our ideas and our purpose. That is what we have tried to do. We have tried to set out in the amendment the way in which we think it should be done and how speedily we can do it.

Where the Government are weakest is in the fact that they are presenting an "and/or" situation. Speaking at Tolpuddle, the Chancellor suggested that there would be 3 million workers unemployed if inflation continued as it is now. No one has ever nosed seriously an alternative of that sort. That is not the choice before the country. What we are saying is that it is possible to decelerate prices in the way stated by the Chancellor but also at the same time to do something about rising unemployment. It is possible to bring about full employment in this country while simultaneously decelerating price inflation within the target figure set by the Chancellor of the Exchequer. The Government fail to look at the whole business of rising unemployment and there is a basic weakness in the argument submitted to the House by the Chancellor of the Exchequer.

Mr. Bruce Douglas-Mann (Mitcham and Morden)

: Is my hon. Friend really saying that the only way to defend full employment and decelerate inflation is by the method he has suggested? Does he reject increases in taxation to meet the expenditure we all regard as necessary? Does he think his solution is the only one? If he does, he will not carry a great deal of credibility.

Mr. Atkinson

I am not saying that. An hon. Friend beside me says "That is another half-hour". It will not be another half-hour because I intend to conclude on this point. I take less time than those hon. Members who sit here making pretty rude remarks. I have spoken only once in this House this year and that was on 25th February. I was reminded by Mr. Speaker how many times I had spoken. I do not think there is any need for rude comments.

I was saying that we had not reached the level beyond which we could not go with tax increases. There are margins left and tax might go 2 per cent., 3 per cent. or 4 per cent. higher before we reach the point of disincentive. However, there is a point of disincentive, and if we go beyond it, we need a totally different method of collection in order to transfer that revenue to pay for something else in the sort of social programme envisaged by the Labour Party. We must also take into account the size of the current public and private borrowing requirement.

If we are going to re-tool British industry, we cannot do it at the pace required and improve health, education and the other social services within a budget for which people will voluntarily contribute and still have the incentive to do all that is necessary in society. We cannot go up and up with taxation.

We should not be too worried about not making the books balance because we have some arithmetic problems here. We must have intervention in the price system. and we need to do something about import controls.

The whole of our case is that this policy, whether it is voluntary or statutory, will have a tremendous effect on the economy and on deflating wages. Our policies should be designed to do what is well within the capability of the Government if they want to pursue the policies they once advocated. They would take on price deceleration at the same time as tackling this massive difficulty of rising unemployment.

9.55 p.m.

Mr. John Wakeham (Maldon)

I do not feel competent to follow the hon. Member for Tottenham (Mr. Atkinson) in the points he made at the end of his speech, and, therefore, I shall restrict my remarks briefly to the White Paper. There must be very few people who will not give a warm welcome to the fact that the Government are taking some action to deal with inflation. My constituents are bewildered why action has not been taken before. Provided it was fair, an incomes policy, whether statutory or voluntary, would be generally acceptable to a very large number of my constituents.

I wish to declare an interest as an employer and a chairman of a company. As my right hon. Friend the Leader of the Opposition said, such people run the risk of being punished for a crime which has not yet been invented and of paying a penalty which has not yet been determined. I shall certainly wish to see the Bill very quickly—we are not quite sure whether it is in draft—if this policy is to be put into effect. This policy is so akin to a statutory policy that for all practical purposes that is just what it is.

I have no objection in principle to a statutory policy. At the last General Election my party said that in the last resort it might be necessary to invoke the law to fight inflation. However, we have always maintained that an incomes policy alone will not solve our problems. It must be part of an overall package of measures designed to reduce inflation, and that means policies which will have the effect of reducing everyone's standard of living in the foreseeable future. If the right measures had been adopted at the right time, a statutory incomes policy might not now be necessary.

If the White Paper proposals are to have any chance of success, the other measures referred to in it will have to be brought forward and further measures will have to be added. The only thing which can be said for an incomes policy is that it can buy a little time. There is no real evidence that an incomes policy can have a marked effect upon the rate of inflation except over a very short period. There is considerable evidence—some of it was referred to by my hon. Friend the Member for Eastleigh (Mr. Price)—that the cause of inflation is the expansion of the money supply. If the Government can get that under control, they can solve the problem.

But that is far more difficult and, certainly in the short run, far more unpleasant. It involves cuts in Government spending. It probably entails increases in taxation. It probably means abolition of the Price Code, and it should certainly mean the abandonment by the Government of further measures of nationalisation.

It being Ten o'clock the debate stood adjourned.