ATTACK ON INFLATION

HC Deb 21 July 1975 vol 896 cc175-216

Question again proposed, That the amendment be made.

Mr. Wakeham

It will mean an increase of unemployment in the short term, but there will be an increase anyway, and if we do not grasp the nettle now the longer-term effects for unemployment will be substantially worse than they will be if we tackle our problems correctly now.

In paragraph 26 of the White Paper we are told that the back-up legislation would make it illegal for the employer to exceed the pay limit. I believe that many people would consider it grossly unfair if all the sanctions to secure compliance with the policy were put upon the employer when in many cases it might be a powerful trade union or powerful group of workers pressing a small or medium-size employer to exceed the limit.

I should like to see any legislation which may be introduced not apply sanctions only to the employer but make it illegal for him to employ someone outside the laid-down limits, so that both employer and employee shared in the responsibility and suffered if there were any attempt to break the law.

I therefore give a qualified welcome to the White Paper as part of an attempt to tackle the problem. I am, however, extremely critical of the delay in bringing it forward and of the failure to make a concerted attack on the issues confronting us, and for this reason I shall not vote for the White Paper but shall support the amendment moved by my right hon. Friend the Member for Finchley (Mrs. Thatcher).

10.2 p.m.

Mr. John P. Mackintosh (Berwick and East Lothian)

This debate has revealed a curious situation in that the Government's policy has split the Opposition and split the Left wing of the Labour Party. This is, I suppose, one of the tactical achievements of the Government in the present situation, and I shall begin by agreeing with one or two of the comments made by my hon. Friends below the Gangway.

I thought it fair of my hon. Friend the Member for Liverpool, Walton (Mr. Helfer) to point out the extent of the U-turn which the Government have made in adopting this policy. The Government were elected twice in 1974 on the general argument that it was not necessary for a Government to impose limits on wage bargaining and that it was possible to combine a totally free hand for the unions, through the social contract, with the Government's policies.

That has been one of the traditional approaches of the Labour Party, for since its inception the Labour Party has been a combination of certain producer pressure groups out for their own members—trade unions out for the welfare of their members—with an idealistic approach, an egalitarian policy aimed at social justice for all groups. It was assumed that these two elements could be combined although they were very different in ideology and motivation. It was assumed that they could be combined because for a long time people's wages were so low that pressure for higher wages and pressure for the interests of trade union members could be said to be steps towards social justice.

However, the development of our country has now gone so far that that is no longer true, and we have had staring us in the face during the past year a situation in which the social contract, which was an attempt to keep the two sides together, allowed certain groups to secure wage increases above the guidelines, above the voluntary self-imposed guidelines such as they were, and this has widened the gap between those who got the 30 per cent. and 40 per cent. settlements and those who had the low-grade settlements, with the result that an inegalitarian pressure has come into our society.

This inegalitarianism can be seen in constituencies such as mine, where there are deep divisions between those who have been getting £50 and £60 a week and those who are still struggling with less than £30 a week but whose electricity bills, transport costs and charges of all kinds have been rising because of the wage increases being paid to people in the more powerful unions. This is a direct example. A great problem for poor people is the quarterly electricity bill, and the reason is the wages for those producing the coal for the electricity. [HON. MEMBERS: "No, the Common Market."] The basic reason is the 30 per cent. increase and it has a direct origin in certain wage increases. This is a transfer of income from those least able to pay to those able to get these large increases.

Therefore, there has been a direct conflict between greater egalitarianism and social justice and certain powerful groups demanding and getting increases. This conflict could not have been concealed any longer, and I am glad that it has been brought to a head by the external factor of the sterling crisis forcing it through. It has forced us to look at wage settlements not only as a matter of price inflation but as a matter of equity and social justice in our community, and at how the whole situation has its impact on so many institutions in our society.

I am surprised if anyone on either side of the House seriously imagines that we could have gone on for another year with 30, 35, or even 40 per cent. settlements in certain sections of the community without destroying fundamental parts of our society and the sense of fairness and social justice. Small organisations dependent on subscriptions have been collapsing, and the damage that has been done to big organisations, to the Post Office and the railways by the degree of price inflation that we have had will probably not be remedied for many years.

Mr. George Rodgers

Would not my hon. Friend accept that the figures demonstrate that the greater increases contained within the general pattern of wage increases have been devoted to the low-wage earners—I have in mind the nurses and various other claimants—and that the tendency is for the larger increases to go to the lower paid?

Mr. Mackintosh

No, the figures that I have seen demonstrate exactly the contrary, that the greater increases have gone to the most powerful groups and that the gap between the lower paid and the higher paid has considerably widened.

I refer my hon. Friend to the record of the Labour Government of 1964–70. One of the major reasons why I supported them was their drive for egalitarianism. My hon. Friend Will find that the beginning of the widening of the gap between sectors in the community dates from 1968-69, when wage inflation began to creep ahead. Wage inflation and inflation generally are a greater destroyer of social justice and egalitarianism in our society than any other cause. Lenin said "If you want to destroy a country, if you want to destroy a society, debauch its currency." This we have seen with every group grabbing for itself and social justice and principle going by the board.

That demonstrates the need not only to halt the collapse of foreign confidence in sterling, but to tackle inflation for internal social reasons, which are as powerful, if not more so. In the policy announced by the Government we have split parts of both parties, but in the debate so far we have not had an adequate presentation of any alternative policy. I have waited for the monetarists on the Opposition side to produce their policies. If they do so during the course of the debate, I should like them to follow those policies through and explain precisely the steps by which their policy would produce the desired result of getting rid of inflation.

There are two possible methods. One is by cutting demand. It is the impure monetarists who say that if demand is cut, particularly if there are heavy cuts in public expenditure, unemployment will be increased to a level where wage settlements cannot go any higher. I should like this spelt out. I should like that level of unemployment described, because it would be less socially acceptable in this country than the policy being put forward now by the Treasury Bench. There is overwhelming public support for a wages policy—[HON. MEMBERS: "No."]—for an incomes policy—I am happy to follow hon. Members in that. There is great support for an incomes policy. There is 70 per cent. support behind us in the public polls. I do not believe that this country could take the levels of unemployment necessary to make the monetarist policy of a demand type work, bearing in mind the level and size of the public sector in our economy.

There is a second level of monetarist argument, the pure monetarist argument, which is simply that if no more money is made available demand will fall—that if wages rise, prices will rise, demand for the product will fall, people will become unemployed, and the net result will be no different. But that means fantastic distortions in the economy. In certain sectors, particularly the public sector, there is not that discipline. No one can say today that if railway wages are increased and then fares rise, there will be a corresponding drop in employment or in the use of the railways. There is a monopoly element there which cannot be avoided. Therefore, the increase is passed on to those who have to use the railways, as it is passed on by the Post Office to people who have to send their letters.

Those are the consequences of the monetarist approach. [Interruption.] I shall be happy to deal with interventions, if hon. Members care to make them from a standing position.

Mr. Hooley

Does not my hon. Friend realise that there is a powerful alternative to the railways—namely, road transport?

Mr. Mackintosh

Yes, indeed, but not a total alternative. Many people cannot avoid using rail transport. It is desirable and understandable that the railways should be used, but I am afraid of their being priced out of the market. I am pointing out that the effect of that type of monetarist policy is a distortion between the public and the private sector.

A second effect is the pricing out of the international market of this country's exports. When people tell me that that does not matter because, with a floating exchange rate, the pound floats down, so that it does not matter if the prices of British goods rise, my answer is that a trading nation cannot have its currency sinking indefinitely. It can float for minor and possibly large-ish adjustments, but if it floats down week after week and month after month the result is a collapse of confidence, apart from the inflationary effects on import prices.

If any Conservative Members are making the monetarist case, we are entitled to ask them to spell out the consequences in terms of unemployment, or the reduction of demand spread between the private and the public sector, and to explain the precise implications of how their policy would work. If they look those implications in the face, they will see that the policy is more socially divisive, socially unjust and damaging than the incomes policy presented by the present Government.

Mr. Alan Clark (Plymouth, Sutton)

How could we possibly wish to cause unemployment? Hon. Members laugh, but they know very well that all of us meet our constituents at weekends. We all have personal knowledge of the extremes of human misery and deprivation experienced by constituents who lose their jobs. How can the hon. Gentleman accuse us of wishing to cause unemployment? Even considering the matter at its very lowest, in terms of personal advantage, how would we wish to cause our constituents to lose their jobs?

Mr. Mackintosh

I am sorry that I gave way to allow the hon. Gentleman to make such a piffling point. No one imagines that those concerned wish to cause anything. The point is that they must accept the consequences of their policies, and, if they disagree with Government policy, choose what to do to bring down the rate of inflation. If they decide to cut demand, that will cause unemployment. No one says that they wish it, but that is the consequence of pursuing that type of monetarist policy. I am asking hon. Members to face the consequences of their action. If they wish the policy, they wish the consequences. That intervention added nothing to the dialogue.

The only alternative policy that has been advanced is that in the lengthy amendment tabled by my hon. Friends below the Gangway, which contains two substantive points. The suggestion of import controls is interesting, and it has support. The main problem is that import controls add to inflation.

The second suggestion they put forward is what has been described as instant Socialism—namely, the immediate takeover of the major financial centres, the take-over of a large block of the private sector and the imposition of a directly-controlled economy over a large area. I know that some of my hon. Friends have entertained this policy and advocated it over the years, but to bring in such a policy now would be the total destruction of what remains of confidence abroad in this country's ability to operate.

I do not care to use that argument in the short run. If a policy is desirable in the long term we should aim at it despite the short-term consequences. However, I dislike the policy that is put forward by some of my hon. Friends, because I want a mixed economy with the freedom and the choice that go with it. If we have a total publicly-owned economy the consequence would be statutory control of wages throughout the economy. Any strike or any argument would be a conflict with the State and would upset the entire planning system. The essence of free bargaining as we have known it depends upon a mixed economy and the degree of freedom which it gives to our workers as well as to managers.

I suggest that we are in some muddle about the policy that has been put before us because it is in itself a little obscure. Precisely what is meant by "consent", for instance? It seems that "consent" is no longer the idea of the trade unions running the policy themselves, as with the social contract, but involves the Government imposing a limit. It is desirable that such consent was obtained. It shows a great deal of responsibility on the part of the TUC majority who voted for it. That is a help in beginning a statutory policy, or compulsory policy, as I would prefer to call it. It must help to begin with the acceptance of the working people. The fight against inflation is more important than the free-for-all struggle we have seen in recent weeks and months.

The second point to make about language is the question of the word "statutory". I think that my hon. Friend the Member for Walton had a good point when he said that if an employer, on whom the onus will be laid, is challenged by his workers and he takes out an injunction against them he may well transfer the legal liability from himself to the workers concerned. That is true, and it is semantic nonsense to get tied up in a discussion as to whether or not the policy is statutory.

In practice, we have a compulsory policy. If the policy fails, the Government's will and their capacity to control events will have collapsed. The Government have set their hand to this task, and what matters now is their degree of determination and capacity to carry it through.

I echo the worry of my hon. Friend the Member for Basildon (Mr. Moonman) when he said that there is no one to monitor the policy. When a Government are totally committed to carrying through a policy and have decided to do their own monitoring, I am worried that there may be a temptation in difficult cases to let the monitoring slip. Notification of all wage or income increases should be compulsory. The whole question of monitoring should be dealt with in that way. We may well be told that a certain agreement had not broken the policy because there is an undermanning agreement or other conditions and qualifications. There is a danger that in that way the policy will be eroded step by step. I hope that the Government will set themselves against anything of that kind.

We shall be faced with the question of how to get out of the policy at the end of the year. We are constantly told about the problems of re-entry. I was delighted to see that the Government have accepted the idea of a permanent incomes policy. I hope that when we come towards the end of the year the Government will decide to leave the question of differentials, which I think is the key issue, to bargaining between the sectors, and that the Government will content themselves with setting an overall limit on the extra amount of money available in the community for wage increases.

The essential step is to deal with all major wage settlements in one period of the year. That should apply particularly when the £6 limit comes off next summer We want all major wage agreements for the coming year to be fixed in the month or two before the limit comes off. If that is done the Government will be able to judge the total impact of the full set of agreements on the economy. It will become clearer that what one sector of income earner—and I am grateful to my hon. Friend the Member for Newham, North-West (Mr. Lewis) for this point—receives another loses in this situation. We would like to get this situation through so that the question of fairness comes out and the differentials are left to open bargaining. The total impact on the economy is something of which the Government must take care.

At last the Government have grasped the nettle of wages policy. There is now light at the end of the tunnel. It will be two or three very difficult years that lie ahead of us. We must back this policy and see that it succeeds, because upon it rests the democratic capacity of this House and this Government to order the economy and our affairs.

10.22 p.m.

Mr. Michael Spicer (Worcestershire, South)

I listened intently to the fluent speech of the hon. Member for Berwick and East Lothian (Mr. Mackintosh). My major point of disagreement with him concerns his contention that we can have an effective incomes policy in the absence of a proper demand management policy. He made an unfair response to my hon. Friend the Member for Plymouth, Sutton (Mr. Clark) because clearly if this policy before us tonight is effective the primary reason for that will have been the fact that it has been introduced in a period of major demand recession. It is humbug to pretend otherwise.

There cannot be an effective incomes policy for instance in a period of major reflation. My own view is that the measures outlined in the White Paper can be welcomed only in the sense that one might agree that a patient suffering from cancer should have a temporary dose of morphine. Short-term prices and wages policies have precisely the effects—and the contra-effects— and the limitations of an anaesthetic. They give short-term relief but as with anaesthetics to the metabolism they can do positive harm if they give the illusion of a cure when the reality is that the disease is becoming progressively worse.

There is no doubt that the underlying movement of the British economy is one of rapid deterioration. I must declare an interest in an economic consultancy company in this context. By themselves the measures we are debating offer no hope of long-term salvation. It is true that they might prevent the immediate collapse of our currency and may even contribute something towards the reduction in inflation, perhaps by the end of next year to a figure of between 13 per cent. and 15 per cent. By themselves they do nothing to reverse the trends or the characteristics which currently bedevil the British economy.

These trends are well known and I will not recount them now. It is a fact that over the past 15 years this country has deteriorated. From being one of the wealthiest countries in the Western world per capita it is now one of the poorest. Perhaps the most disturbing feature of the current economic situation is the fact that the oscillations in our trade cycles, as measured, for instance, by the unemployment rates or inflation, are becoming progressively more extreme.

There is now a real danger that our economy will become completely unstable. Even if these measures are successful) in reducing inflation to 13 per cent., which even a few months ago would have been considered completely intolerable, we have to consider what will be going on next year in the world economy. Clearly the world economy will be reflating dramatically so that by the end of next year when, with a bit of luck, our rate of inflation will be somewhere around 13 per cent. to 14 per cent., it must be seen in the context of a superimposition of substantial world price increases.

Therefore, we must consider the problem of the British economy in the context of inflation as an insuperable problem at least for the foreseeable future. If we do what has to be done we must first accept once and for all that there are no panaceas. For instance, it is argued, quite rightly, that one of the major failures of the United Kingdom is in its productivity per head—that we produce per man in this country barely half what other countries are producing. This has been referred to on several occasions in the debate.

One rather bland but correct answer is that we should invest more. However, when we look at the figures about precisely what is required in terms of investment to raise our level of investment, for instance, per gross national product, to the levels of those of our partners, the nature of the task becomes formidable.

At present we are investing about 20 per cent. of our gross national product. If this was to be raised, say, over a period of five years to the levels that our trading partners invest per GNP, we would have to change 20 per cent. over five years into 35 per cent. This would mean a deteriorating level of real disposable income of about 2½ per cent. per year which would have its own effect upon the rate of investment. Therefore, I suggest that there are no simple panaceas even when we examine the question of investment.

Those of us who are directly involved in the political processes have done our country a great disservice in pretending that there are any short cuts to salvation. We have taken an age to get into this mess. It will take an age to get out of it. I completely agree with the remarks made by the hon. Member for Liverpool, Walton (Mr. Heffer). The only question now must be whether we can set our sights sufficiently far ahead and develop determination to think deeply about the matter. The one factor which may give some edge to our determination and willpower must be that we simply cannot continue on the course we are on at present.

There are only two clear options before us. The first was outlined by the hon. Member for Liverpool, Walton. It is clearly the Socialist alternative outlined broadly in the amendment in the name of of the hon. Member for Walton and his hon. Friends. My only comment is that it must surely imply total control of the economy. There is quite a bit of dichotomy on the Labour benches between those who seem somehow to accept total control and those who accept total control of everything except wages and labour. The very first aspect of the economy which would have to be controlled in a totally Socialist economy would be the movement of labour. There is only one country which has, with a limited amount of success, developed a totally Socialist economy and that is East Germany. This has been achieved at the price of complete loss of personal freedom.

If we are to continue to preserve our liberties and at the same time to regenerate the economy, there has to be a complete change of rhetoric and philosophy by which our actions are guided. We must begin by changing the emphasis from an obsession with the spending and the distribution of wealth to a new consideration about how it is to be created.

I believe that at a personal level we must somehow detach status from the process of consuming and transfer it to those who have the capacity to work and take the risk. There will have to be a new sense of values by which the adventurous and hard working will be the first claimants upon rewards. There will have to be an acknowledgement that the rewarding of success will generate the wherewithal to compensate the un- successful. There must be no apology for policies introduced within the framework of these principles.

The trend by which trading profits over past years, for example, have fallen from 11.5 per cent. to 4 per cent. as a percentage of costs must be reversed. Marginal rates of taxation which, as the Chancellor of the Exchequer mentioned in his speech, are now amongst the highest in the western world, contrary to the general opinion of hon. Gentleman opposite, must be reduced.

Public spending, as has been said many times in this debate and elsewhere, must be brought down or reversed from the trend which, over the past 15 years, has increased it from 35 per cent. to 50 per cent. of the GDP.

Savings must be not only indexed, but rewarded, as was conventional and traditional.

Above all, there must be a search for a new sense of confidence on both sides of industry. The whole implication is that the problems with which we are faced—I believe that inflation is merely a symptom, an outcome, of our present economic problems—have now gone well beyond the reaches of economists and theoreticians. They belong absolutely and properly to the kind of debate that we have had tonight.

The real argument lies between the kind of points put by the hon Members for Walton and Tottenham and the broad objectives and reversal in current mythology and ideology which I have been trying to suggest. That is the real argument and this is where it should take place.

The kind of recipe which has been put forward by, for example, the hon Member for Berwick and East Lothian—a kind of half-baked moderate Socialism—is the single definite recipe for disaster. We cannot have half-baked Socialist measures, which happen to include high rates of profit tax and regressive nationalisation of British industry, as a backdrop to a policy of trying to manage a mixed economy, as the moderates within the Labour Party would have us do.

I believe that we must have either total Socialism—that is one way out of our problem, but it is not one that I should support for the reasons that I have given —or a mixed economy run within the rules of the game.

10.33 p.m.

Mr. Raphael Tuck (Watford)

I am bewildered—I often am in this House—at what I might call the polarisation between hon. Members. On the one hand, there are those who take the view that we must have an incomes policy, either statutory or voluntary, because we must control wages. Wages, they say, are the great evil. On the other hand, there are those who say that we must let wages go sky high, but control prices and invest.

I have always been against a statutory incomes policy. However, it seems that the Government have no alternative if the voluntary policy will not work. But why use only one blade of the scissors? Why not have both blades working at the same time? I submit that we cannot use one without the other.

Mr. Fisher, of the National Union of Public Employees, recently said that a Price Commission without teeth is a disgrace. Mr. Bowman, of the National Union of Railwaymen, said that we could not expect the unions to follow or to tie in with the Government's lead unless we maintained control of prices. He said that there would be no support from the unions unless prices were regulated and held down. I think that he is right. If we want the unions to support us we must hold prices down.

There is, however, no mention in the White Paper of a freeze on the prices of essentials. At Question Time today I referred to the proposals of the National Consumer Council for a price freeze on essentials. It is a great disappointment that little has been done or is to be done to reduce prices during the autumn and winter. I pointed out this afternoon that producers are also consumers and, therefore, their wage demands are bound to be influenced by the level of prices. But the level of prices will not come down unless advance action is taken on prices. Unless such actions begin now, the Government's policy will be undermined from the beginning.

The Government hope, that, if there is a pay limit, price increases for essentials will be held down by retailers. What a pious hope. It is doomed to disappoint- ment. Why not step in with subsidies to hold down prices. [HON. MEMBERS: "Oh."] I hear grunts of disapproval from hon. Members on both sides, but surely that would ensure that price rises were cut to 10 per cent. until wages and other costs and then prices came down to the target level. Then, and only then, should additional subsidies be withdrawn.

It is very disappointing also to read what the White Paper says about the nationalised industries. Massive increases are proposed in postal, telephone and gas charges, but instead of introducing subsidies, the Government are phasing them out. How can the Government expect workers to make sacrifices if they see prices constantly rising? I warn the Government that if there are massive increases in postal, telephone and gas charges, they will be followed by a spate of wage demands from the workers—and who will blame them if they see prices going up and up?

I refer my right hon. Friend the Secretary of State for Prices and Consumer Protection to what the Irish Republic has done. On 26th June, Mr. Ryan, the Minister for Finance, announced in the Dail cheaper food, fuel and public transport. The Irish Times reported: The Government has decided to apply subsidies as soon as possible to CIE, reducing fares by an average of 25 per cent. we are increasing them— and to bread (5½p a loaf), flour (4½p a kilo), butter (10p a lb.), milk (2p a pint) and town gas (12½ per cent.). Value Added Tax will be removed from electricity, all fuels except road fuels, and clothes, clothing materials and footwear … Subsidies will be made effective 'as soon'"— as possible— and the net effect of these measures … would be to reduce the Consumer Price Index …"—

Mr. Crawford

Does not the hon. Gentleman realise that the Republic of Ireland Government are trying to break free of the United Kingdom pound, and that is why they are taking these measures?

Mr. Tuck

The motive does not concern me. I am concerned with what is being done, and its effect.

The report continues: The Minister announced an increase of £27 million in public capital expenditure—on housing, telephones, industry and agriculture …". The Minister needs to recoup himself. How will he do it? In fact, he announced a 10 per cent. surcharge this year on all income tax paid at rates of 35 per cent. in the £ or over. Is that not common sense? Mr. Ryan justified the imposition of the income tax surcharge by saying that collective and individual actions to cope with our economic problems could not be painless and maintaining: It is only equitable that the relatively better-off should be called upon to make some temporary financial sacrifice.

Mr. Mike Thomas

Will my hon. Friend note that the Irish Government are producing an "essentials" budget financed from direct taxation, which is a totally Socialist approach to the problem? The Irish Government are also providing that certain categories of consumers—particularly pensioners—shall be entitled to certain commodities free—notably they will receive a free allowance of electricity.

Mr. Tuck

I am grateful for that intervention. I, too, am a Socialist. Right or wrong, I firmly believe in Socialism. I ask my right hon. Friends seriously to consider what I have said and to use what I have termed the other blade of the scissors. If they do not, then, despite all the incomes policies in the world—voluntary or statutory—they will be doomed to disaster.

10.41 p.m.

Mr. Nick Budgen (Wolverhampton, South-West)

It is hardly surprising that much of our discussion has been upon the relative merits of wage control, the statutory control of wages and the whole panoply of price and wage control. My right hon. Friend the Member for Finchley (Mrs. Thatcher) spoke of the practical advantages of wage control. She said, rightly, that in certain circumstances statutory or voluntary control of wages might reduce the level of unemployment. She spoke also of the psychological effect that a period of wage freeze or control might have upon inflationary expectations. I thank her also for what she did not say. She did not pretend that wage control had any effect in curbing inflation.

The practical disadvantages of any form of wage control are equally obvious. Such a policy may easily be put forward by any Government as an alternative to necessary measures. Indeed, it is plain from the present package that the Government envisage some form of wage control as an alternative to cutting Government expenditure. Secondly, it is plain that forms of wage control have been tried so often since the war that instead of becoming a psychological depressant upon wage claims they have, if anything, become an irritant, and when wage controls are finally taken off the pressure upon wages is even greater than it was before the controls were imposed.

Unlike my hon. Friend the Member for Eastleigh (Mr. Price) I am not a pragmatist in my attitude towards wage or price control. I am fundamentally opposed to it for deep philosophical reasons. There is no better way of dividing the nation and creating deep resentment between all classes of our people than for Government after Government to blame one section or another for the creation of inflation. It is no more just for the Government to blame the workers for inflation than it was for the last Government to blame property speculators for the last period of inflation—or indeed to blame the anchovies as they took a different course in the waters around South America. There is no policy better designed to set class against class. It is only when the Government admit that they, and they alone, create inflation, that we shall have set the condition precedent once again to becoming a united nation.

I am also philosophically opposed to any form of wage and price control, as any freeze stultifies the market in labour. It prevents the man who has labour to sell from moving from a loss-making firm to a profit-making firm.

In the long term any formula of wage or price control is arbitrary and unjust. If the present proposal is that we should have a long-standing control of both wages and prices—which, from some of the remarks which the Chancellor of the Exchequer has made over the past fortnight, we may predict—it will create great anomalies. Some people will be caught. Some will escape through the net.

Mr. Arthur Lewis (Newham, North-West)

indicated assent.

Mr. Budgen

As a member of the self-employed I have always been amongst those who have escaped through the net. I do not blame the self-employed for that. They are an example of a class that is frequently hated during a period of statutory wage controls.

Mr. Arthur Lewis

The overwhelming majority of Members of Parliament who support this wage freeze are lawyers. During all these periods they fix their own fees. I read recently in the newspaper that Sir Comyns Carr, Q.C., will fix the refresher fee at hundreds of pounds.

Mr. Budgen

The hon. Gentleman illustrates very clearly the resentment which one class in society feels towards another. Frequent periods of wage restraint have taught him to look at other people's incomes. He does not accept the oddities and anomalies of life and say to himself "That is the market economy working in all its strange ways." No. He says "There is a class which earns more than I. Let us stop them. Let us see whether we can find some way of creating an even better and fairer form of wage control."

Indeed the unhappy scene of last Wednesday illustrated perhaps best of all that each class of society, each profession, tends at the beginning of a period of wage control to be in favour of the control of other people's wages. I am opposed to that. I believe that the right to bargain for the best wages is the single most important freedom possessed by many of our fellow citizens. Those people perhaps are buying cars on hire purchase. Perhaps they do not have an assured position in society. But their position in the family and in society rests most of all upon the size of their wage packet. If they cannot bargain for the best wage packet going, we have infringed the single most important human liberty they possess. A long-standing infringement of that right is unlikely to be supported by the mass of the people for very long.

But do not these proposals also lead to a constitutional danger which is even more important? They lead to the corporate State and to a deal between the TUC and the CBI. I make no attack upon the TUC. At best it represents 10 million people. Some of us might argue that it does not represent that number. It represents the 1 million people who vote in that way.

I do not wish to attack the CBI, although it is difficult to know who that body represents. However, it certainly does not represent the 14 million children to whom my hon. Friend the Member for Woolwich, West (Mr. Bottomley) referred in his most moving maiden speech, the 13½ million mothers of whom he also spoke, or the 7 million pensioners. However, we in this House for all our numerous defects, represent all those constituent parts of the nation, and if we surrender our right to control inflation to other bodies, whether they be the TUC or the CBI, we shall be denying our basic duty to the nation.

Therefore I believe that there are profound philosophical and practical arguments against any form of statutory or voluntary interference in the level of wages. Of course, it is true that the alternative of accepting the monetarist argument for controlling the supply of money and of cutting back Government expenditure is a painful course—a course which needs courage and consistency in advocating. However, I believe it to be the only alternative which is consistent with a free society. It is, therefore, for those fundamental reasons that I can give the White Paper only a tepid welcome.

However, there are reasons for arguing that the White Paper is not wholly bad. At least the Government have recognised in the first paragraph of the White Paper that their overriding obligation must be to reduce the rate of inflation. They have recognised the importance of cash limits in cutting Government expenditure and of keeping a tight control over bad credit.

For those three reasons one cannot say that the White Paper is wholly bad. That, perhaps, provides a respectable reason for abstaining on the main Question.

10.53 p.m.

Mrs. Renée Short (Wolverhampton, North-East)

Although very little time remains for me to put the points that I was hoping to put, first, may I agree with my right hon. and hon. Friends who have put forward the thesis that the system under which we live has failed, that capitalism is not delivering the goods, that the crises which are occurring at increasingly frequent intervals, are creating fantastic difficulties for everyone and that we are now facing what may well be our last opportunity to resolve the problem.

Is the White Paper likely to find the solution? I support the flat-rate proposals because they are fair to all wage and salary earners. However, many of the other weapons available have not been used and should have been used. In my view the White Paper will fail simply because it does not use those weapons.

There is no argument that British industry is now spiralling downwards and that means that unemployment is rising. Important areas such as the West Midlands—in which the constituency of the hon. Member for Wolverhampton, South-West (Mr. Budgen) and my constituency are located—where there is a vast concentration of engineering skills and talent, are now suffering a catastrophic level of unemployment with an enormous number of short-time workings imminent and a contraction of job opportunities and apprenticeships for young people. We face the prospect of thousands of young school leavers with no opportunity of employment. They are the next generation of the engineering skills that the nation needs if it is to survive.

Investment is not forthcoming from private sources and therefore, this lack must be filled by the State. We have the National Enterprise Board and the planning agreements which, we hope, will provide a dramatic increase in the capital needed. However, that is a fairly long-term view and until that can materialise urgent action is needed to salvage the best of the firms—firms that are in danger—and to bring new opportunities to men and women. Women have a very important part to play in our economy if only we would allow them to do so. No one has said a word about women during the course of this debate.

In my constituency, urgent and immediate is the problem of what is to be done to take into public ownership Britain's remaining motor-cycle industry—Norton Villiers Triumph. If we let this go to the wall we shall leave the world motor-cycle market to the Japanese, Italians and Germans. A commitment was made by the previous Secretary of State for Industry. I have in my hand a copy of the letter in which it was made. That commitment must be honoured, because the livelihood and happiness of about 20,000 families in Wolverhampton and other parts of the West Midlands depend on these jobs. Their enthusiasm for their project is enormous. They are determined to fight for it. The Government cannot let them down. If they do, they will not be forgotten, and it will not be forgotten. If the Government let NVT down, unemployment in the West Midlands will rise to 5 per cent. or more.

These are acute problems. Those of us who have been Members of the House since 1964, as I have, will know that we have been through all this before. We have had Ministers beating their breasts and saying, "Never again shall we endeavour to introduce a statutory incomes policy or anything of that kind. We shall not again try to put the main burden of resolving our economic problems on the shoulders of workers. We shall not blame wages any more for our inflationary situation."

The Opposition can offer us only cuts in public expenditure. That is the recipe they followed previously—when Mr. Barber was Chancellor of the Exchequer—with disastrous results, to the spending Ministries, particularly social services, and local authorities. The White Paper offers no alternative to putting the main burden on wage and salary earners.

As our industries are contracting our balance of trade worsens because more and more manufactured goods and industrial products are imported. That is the position we are seeing now. Between 1970 and 1974 the volume of manufactured goods imported rose by 67 per cent.—nearly twice as much as our exports of manufactured goods, which rose by only 35 per cent. This surely is the road to ruin.

The Government cannot sit back and allow this to continue. We cannot allow our motor-cycle and car industry, our shoe and textile industry and our industrial machinery industry to collapse while allowing unlimited imports of all these goods to come pouring in. I do not know what the House may think about it, but the West Mercia Police has recently given us a marvellous example. They have decided not to buy British cars but to import 18 BMWs at £5,000 each. Why on earth do they have to do this? Why is it permitted?

We are also importing enormous amounts of food from all over the world. We import half the food we use. We could produce a good deal more. It has been estimated that about £700 million could be saved on imports of food if only we would allow our farmers and agricultural workers to produce what we need.

What is urgently needed now is control on the goods I have mentioned so that we can produce these goods. As long as we import so much manufactured goods and other goods our own industries will contract and job opportunities will disappear. We also need to cut down immediately on all imported luxury foods. It is not necessary to bring large quantities of out-of-season foods from all over the world simply to titillate the palates of those in a position to pay high prices for them.

If we were to do these things urgently—only the few that I have time to mention—we could instil some sense of urgency into the problem. We could make people understand that the position is serious.

We could make clear that we are not expecting working people to make their contribution to solving our inflationary situation by having their wage and salary increases held back in the face of rising inflation, but that other proposals will be coming forward to increase job opportunities and reduce the disastrously high level of imports. We could then make a small contribution to the immediate problem of closing the gap between imports and exports.

11.1 p.m.

Mrs. Sally Oppenheim (Gloucester)

My first two tasks are extremely pleasant. I am sure the House will welcome the news that my hon. Friend for Wycombe (Sir John Hall), who collapsed earlier in the day, is recovering in hospital and is expected to be discharged tomorrow morning.

Secondly, I would like to congratulate my hon. Friend for Woolwich, West (Mr. Bottomley) on his excellent maiden speech. He spoke with a great deal of compassion from a background of expertise on a subject he obviously understood. One of the most charming aspects of a charming and interesting speech was his justified and understandable paternal pride in his new constituency and constituents. I am sure the whole House will look forward to his contributions in future debates.

There have been two notable features about this debate. First, there has been the thread running through almost every speech that over 10 days after the Chancellor's statement and more than a week after publication of the White Paper, Members were still unable to tell whether we were discussing a statutory, voluntary, compulsory-statutory or compulsory-voluntary pay policy.

Secondly, almost every hon. Member on this side of the House and a number opposite expressed relief that at last the Government are facing up to the implications of the disastrous inflationary crisis to which they have brought us.

But the White Paper which is entitled "The Attack on Inflation" could have been more appropriately entitled "The Day the Chickens Came Home to Roost", because, if it represents anything, it represents an admission by the Government of the complete failure of their policies and their disastrous Social Contract.

The White Paper could only have been debated against the background of the current economic situation and in the light of the record, and it is not surprising that a number of hon. Members have spoken of the disastrous chain of events leading to this country after 16 months of Labour Government having practically the worst rate of inflation in the world.

Whereas the Government have shown some belated recognition of the seriousness of the crisis, they have shown no recognition of their own culpability. They have shown a massive misjudgment which their credulous belief in the social contract constituted, the irresponsibility of a Government who, in opposition, gave not only tacit support, but actual encouragement, to inflationary wage claims at a time when we were trying to control inflation—a lack of responsibility incidentally that led as much as anything else to the three-day week and, perhaps more than anything, to the collapse of their own social contract.

They can hardly blame the trade unions for being surprised at the re-allocation of priorities away from political expediency towards the conquest of inflation when the Labour Party came to power. My hon. Friends were right to point out in this debate the deception of that "blue skies round the corner" election campaign which cruelly misled people and reinforced expectations still further. We are also, above all, right to point to the neglect of the Government in sitting back for the 13 months during which they were content to watch prices rise at a record rate, month by month, more concerned with making excuses for the social contract than getting to grips with inflation. This was followed by three months of inert acceptance of the fact that all was not well with the social contract, a period of insane euphoria which led to the 11th hour panic, the appearance of the Chancellor in the House a couple of weeks ago to make a statement with all the forethought of Ethelred the Unready, and of the White Paper itself.

And so to this dismal catalogue of culpability we add the profligate levels of expenditure with which my right hon. Friend the Leader of the Opposition and practically all of my hon. Friends have dealt this afternoon. It is the sum total of the Government's culpability which has brought them to the House today, White Paper in hand, the victims of their own misjudgment, irresponsibility, deception, neglect and extravagance. If they were the only victims it would not be so bad, but they have made the country and the people victims, too, as so many hon. Members have said, including my hon. Friend the Member for Woolwich, West.

Far from creating the compassionate society to which they so often give lip service, they have created a society in which, over the last 16 months, advantage has been concentrated not where the need was greatest but where the greed was greatest. A society in which people are going to have to pay a grim price for a long time to come for the spoils that only a few have enjoyed, a society in which mounting unemployment and seething inflation are eroding living standards daily and causing hardship and fear among millions of people.

That is the record of the Government and that is the background to the White Paper, which contains no expression of regret from the Government for their avoidable failures. The package itself, which is ill-prepared, which is largely in- adequate and in some ways unfair, carries the depressing implication that the Government intend to meet the very serious dangers that we face with half measures and compromise, and without the other essential measures which are necessary to conquer inflation and bring their own spending under control.

The Government have launched their lifeboat without any oars with no auxiliary engine and one, moreover, which could prove to be as leaky as a sieve. In spite of the Government's assertion that the Price Code solution will work there appear to be a number of loop-hopes, which no doubt the Secretary of State for Prices and Consumer Protection will deal with.

Quite apart from the loopholes about which the CBI has expressed concern—the question of incremental payments and the worries about the TUC appendix to the White Paper, referring to special cases—there are a number of major credibility gaps which must be filled before the Government can carry conviction. Not least of these is the publication of the statutory back-up Bill which, by the time it is published, will probably become the statutory back-down Bill. In view of the Government's remarkable attitude today it is not surprising that no one can be sure that they will produce it, if necessary, in time.

We heard from the Chancellor today that it will be introduced only if pay limits are endangered, but who is to decide if and when that happens? Will it be the Government who have sat back for 16 months and allowed breach after breach of the social contract? How many breaches of their new pay limits will the Government condone? How much more fatal delay will there be before they acknowledge or admit that statutory backup powers may be necessary. Or are they prepared to sit back and wait for our creditors to impose far more unpalatable measures on the country?

I wonder whether the right hon. Lady can tell us—this may be an important loophole in the proposed amendments to the Price Code—whether she proposes to take powers through the Price Code to limit export prices. We are not advocating this, but—[Interruption.] I am just exposing one of the possible loopholes. I am trying to help the Chancellor by pointing out loopholes which he may wish to close.

If there are no limits on export prices, what is to stop a company with a big export trade giving an excessive wage increase and financing it through higher export prices? That may or may not in itself be harmful, but what would be harmful would be the precedent created by the payment of such a claim and the leapfrogging effect it would have.

Then there is the question of industries which do not produce a standard product and which have contractual agreements, such as the construction industry, which are subject not to price control but to profit control. Will they be exempt? Will they be able to meet any sort of excessive pay claims? Having had only a cursory look at the consultative document at this stage, I am not sure whether this is dealt with in paragraph 11 of that document. Perhaps the right hon. Lady will tell us.

As for the nationalised industries, how tough will the Government be? Already we have seen evidence of double-talk in the White Paper and double-talk in the Chamber today, and it is the nationalised industries which are driving consumers to distraction. In paragraph 10 of the White Paper we see the ambiguous phrase: The Government will ensure strict observance throughout the public sector". Precisely how will they ensure strict observance? Will they outlaw strikes? They have not said so. Apparently, there will be volatile pay limits in nationalised industry. The Chancellor admitted that the powers were less than absolute there.

In paragraph 19 of the White Paper, we see the phrase "excessive pay settlements". Does the reference to "excessive" pay claims in the nationalised industries mean anything whatsoever in excess of £6 or not? If it does not mean that—and it is ambiguous—the House and the country are entitled to know.

So long as these questions remain unanswered, as well as the other important questions raised by my hon. Friends and hon. Members opposite during the debate, the Government will not carry conviction in the House, in the country or in the world outside that they really mean business, that they fully recognise that there is no time left for trial and error or for retreat, and that playing with words is no substitute for effective action.

I have been interested to hear hon. Members on the Government side talk about the monetarists in the Conservative Party as though this were some new and strange disease. They might look for a moment at the monetarists—the not very successful monetarists—in their own party. I remind them of what the right hon. Lady herself said in the Standing Committee on the Prices Bill in 1974: There are broadly two means of fighting inflation. One is a general attack on the whole level of inflation, upon the general pressures of inflation and on the retail price index. One may do that by sensible economic management and by reducing the borrowing requirement. The present Government"— she said, in response to my hon. Friend the Member for Oswestry (Mr. Biffen)— are going nearer the hon. Member for Oswestry than his own party did in this respect."—[Official Report, Standing Committee D, 14th May 1974; c. 208.] That was in May 1974. Since then, of course, the public sector borrowing requirement, as one of my hon. Friends said, has risen to nearer £11,000 million.

I was interested also in the remarks of the hon. Member on the Government side who made an impassioned plea about monetary policy and in favour of income restraint—

Mr. Arthur Lewis

Wages restraint.

Mrs. Oppenheim

—or wages restraint. If the monetarists are so frightening, how is it that almost every head of a family and every housewife in the country is a monetarist? They do not spend a great deal more than they have or more than they can borrow, and, unlike the Chancellor, they do not have a little printing press up their sleeve if things go wrong. They have to manage to balance their budgets.

I was admiring the hon. Member for Liverpool, Walton (Mr. Heffer), because to have been a member of the Parliamentary Labour Party as long as he has and to be able to avoid cynicism is quite an achievement. Still to be able to express surprise that something in his party's manifesto was not being carried out was a most engagingly naive quality. Does he not know, has he not learned yet, that for his right hon. Friend the Prime Minister there are no yesterdays and no tomorrows; only the political expendiencies of today? I am afraid that he will have to learn it the hard way.

The right hon. Lady the Member for Lanark (Mrs. Hart) gave a rather depressing impression that once her mind was closed, there was absolutely no way of opening it.

The hon. Member for Walton spoke quite rightly of the fact that not everybody's pay was concerned in the inflation that we have in this country. That is absolutely true and the cause of a great deal of the resentment. We all have in our constituencies working people and people at work who have not received these enormous pay increases. The hon. Member was right too, to say that it is not always pay that is to blame, but it is largely to blame for this particular cycle of inflation that we have today.

Although it would be very foolish to pretend that it is always to blame, the hon. Member did not take account of the fact that the last Price Commission report made it clear that pay was the major factor in inflation at present. What was really frightening was the speech of the hon. Member for Tottenham (Mr. Atkinson). Has he only just woken up to the fact that there are no soft options left, that there is no easy way out and no way now to protect living standards over next year and probably for longer than that? If he still thinks that there is an easy way, the implications of what he said are even more frightening.

I turn now to the part of the White Paper, paragraphs 29 to 34, to which I assume the right hon. Lady will want to address a number of her remarks. It is entitled, somewhat ironically in the circumstances "Prices and consumer protection", ironically because the professions of concern about prices and consumer protection in paragraph 29 coming as they do from the Government and the TUC who have stood by and let consumers be exploited by the big batallions as never before over the past 16 months, sound rather hollow, because not only have they exploited consumers, but in doing so they have ensured that the resources that would otherwise have been available from the Government, from business and industry for further consumer protection measures are simply not there. If paragraph 29 is notable for its irony, it is also notable for the blinding originality of the elementary way in which it expresses what I should have thought would have been a self-evident truth about the relationship between pay and prices, which in my innocence I should have thought would have been made abundantly clear when the social contract was first negotiated.

If paragraph 30 is striking in its originality, paragraphs 33 and 34 are striking too for the way in which they illustrate that the Government have not only run out of time, but room to manoeuvre as far as prices are concerned, and, far from the rosy commitments that they have given in two election campaigns, they have no more scope left for any further action on prices or for any further freeze. This is of course the beginning of the end of what is to happen in terms of prices over the next six months at least. It has happened because of the extent to which profits have been eroded over the past year by wage costs, which has meant that some industries, especially the food industry, are in serious trouble. At Question Time today the right hon. Lady confirmed that the Price Commission report will show that profits have been halved—such profits as were left—over the past year and that most of the retail trade is finding profit margins below reference levels. Therefore, clearly, they cannot be pushed any further.

One of the manifestations of the great disadvantages to consumers of this situation is that there is already a noticeable reduction of choice, because manufacturers and retailers have been squeezed by the stringent application of the Price Code, and by inflation they are forced to reduce their stocks, forced to reduce and limit the number and variety of goods that they manufacture and offer for sale. If it continues, some of those goods will not be manufactured at all, leaving the way wide open for the importation of those goods at higher prices.

The Government will have to face the reality that, just as you cannot make people work for less money than they think they are worth, so you cannot make manufacturers or retailers produce and sell goods at little or no profit. If this is taken to its logical conclusion, it will be consumers who lose out every time.

Given that the Government are left with no scope for further price freezes or stringent controls, prices will continue to rise quite sharply in the short term, as Labour Members have indicated, as the White Paper accepts, and as the right hon. Lady has acknowledged, but they will also continue to rise in the medium term, because of the pressure of wage settlements still working their way through, and the higher price that must be paid for the goods we buy abroad with our devalued pound. At the very best, if the Government's policies are 100 per cent. successful, the very least that will have happened is that the Government will have inflicted nearly two years of the most damaging and disastrous inflation that we have ever had.

If paragraphs 30 and 31 demonstrate how little action the Government can take about prices, the paragraph on the shopping basket, paragraph 33, and the paragraph on food subsidies, paragraph 34, demonstrate the insignificance and the cosmetic nature of what they do propose, we have all the old familiar ingredients of the window dresser's art, Shirley's shopping basket and food subsidies. They have been taken down off the shelf, dusted over and put back in the window. But in this case the old price does not pertain. Not surprisingly, that perennial constituent of any social contract, food subsidies, rears its head again.

Mr. Heffer

Would the hon. Lady care to explain, in the last seven minutes of her speech, what the Opposition's alternative is? We on our side of the House, in the Tribune Group, have put forward an alternative policy. People either agree with it or disagree, but at least they know where we stand. I am fascinated to hear the hon. Lady's arguments, but I should like to know where the Opposition stand. Will she explain what their policies are, and what they believe?

Mrs. Oppenheim

I am sorry that the hon. Gentleman has forced me to notice that I have only seven minutes left. I do not want to deprive his right hon. Friend of her time. I suggest that the hon. Gentleman does me the courtesy which I did to him, which is to read our amendment. I have read his, and if he reads ours he will see precisely what we mean.

The only relevant fact about food subsidies, about which a number of hon. Members have spoken, and which is the occasion of massive Government expen- diture, causing some of the inflation about which we are talking, is that although they may be saving the average family about 75p a week, and a larger, poorer family something more, that larger, poorer family is probably having to spend more than £10 a week more to live than it did last year, as a result of inflation, partly generated by expenditure on food subsidies.

As for the proposal not to reduce the amounts spent on food subsidies in 1976–77 by £70 million, as far as one can calculate—and this must be variable, because there are many unknown factors—this will be worth about 2½p per person per week. Not only can it be claimed that it is not very significant, but it is no more than a socially inconsequential but expensive hiccup in the phasing out of food subsidies, to which the Government are already committed.

In paragraph 33 we have that old inflation-beater, Shirley's shopping-basket. I am not sure whether the right hon. Lady has noticed, but she has a big hole in her basket. With the same money which would have filled her basket when the scheme was first introduced last year, given the items that she specified, she can now fill it only a little more than two-thirds full. I hope that her new basket will be a good deal more robust than the old one.

Even if the right hon. Lady had not had a hole ripped in her basket by inflation, we could never have told exactly how effective it was going to be. Much depended on cross-subsidisation, which meant that the prices of some things went up and the prices of other things went down. There could not be any monitoring because of the amount of promotional activity taking place at the time that the scheme commenced. The one thing we knew about the scheme was that it applied to only one brand and only one size of the items specified. Therefore, not unnaturally, those items for which there was the least demand were the items selected for promotional offers. I hope that the right hon. Lady will tell the House whether her new shopping-basket will be based on a similar scheme.

The right hon. Lady will appreciate too that the scope for concentrating on food items is extremely limited. Will she tell the House in what way she is to extend her basket and whether the rumour we have heard is correct that she will include in it such family necessities as cinema tickets, beer and other items which may not be considered by many hon. Members to be items which are of fundamental importance to families.

I know that time is limited, but I ask the right hon. Lady what will happen to her shopping basket if the £6 limit becomes not a maximum but a norm in the distributive industries, and if more than 23 per cent.—and most of it can be passed on in prices—is passed on on the very items in her basket on which she hopes money will be saved?

On paragraph 32 I offer a very small welcome for the slight increase, for what it is worth, in consumer advice centres. I hope that the Government realise that some of the most successful centres are operating on far lower budgets than they otherwise accepted as the norm.

I do not propose to speak at length on the Price Code amendments because my colleagues and I have not had much time to consider them. The amendments were published only just before the debate began. However, there are two matters that I must reiterate clearly, because this is a fundamental part of the Government's policy for overcoming inflation. First, I reiterate that it is unfair to place the entire onus on employers, whatever the consequences and in so doing to imply that even the most militant union is above reproach. This is a policy emphasis which no doubt owes something to the Prime Minister's voracious appetite for scapegoats. Now to the Gnomes of Zurich and the wet ducks of the cocktail party circuit we have the rogue employer pressing for excessive pay increases on unwilling workers.

Mr. Mike Thomas

What would the hon. Lady do?

Mrs. Oppenheim

I am coming to an important point. The House will understand that I have only two minutes left as I started after 11 o'clock. I turn to a point to which I hope the right hon. Lady and the hon. Member for Walton will listen. The Government have carefully not made it clear that very high unemployment is the inevitable consequence of non-compliance with the Price Code sanctions. If an employer is to be faced with not being able to pass on a price increase and with going bankrupt, apparently he is to be allowed to do so. If he is to be bankrupted by a long, crippling strike, he is to be allowed to go bankrupt. Alternatively, if he absorbs the price increase and has to lay off a large part of his work force, he is to be allowed to do so. I must ask the right hon. Lady to tell the House whether it is the Government's intention, and indeed central to their policy, to allow the bankruptcy and unemployment that would arise from non-compliance and from the sanctions which are imposed under the Price Code and, if this is so, whether the whole policy can only succeed if there is acceptance by those with big bargaining power that this is the case. Will the right hon. Lady make it clear to the House whether the Government are prepared to stand by this policy whatever the consequences, in which case the country may just as well know that the Government's main sanction against breaches of the pay limit is high unemployment? Or is it, alternatively, that the Government intend to let the small companies go to the wall and take a Government stake in the bigger companies?

Finally I sound a note of caution to the Prime Minister—

Mr. Mike Thomas

Tell us what you would do.

Mrs. Oppenheim

The hon. Gentleman is depriving his right hon. Friend of the chance to answer some important questions. I am about to tell the hon. Gentleman what we would do if he will listen. So far, since this Government came into power, consumers have felt let down as never before. If people are to make sacrifices the least that they can expect is a resolute Government. If people are to face a difficult time and a great deal of hardship they are entitled to feel, and will need to be persuaded, that the Prime Minister will pursue a much broader concept of consent than he has pursued so far. The consent he has pursued and won is from a narrow sectional interest—the leaders of the TUC who represent less than half of the people at work. This is important but the right hon. Gentleman will also have to obtain the consent of the vast majority of people in the country who are reasonable and moderate who may or may not belong to a trade union, who may be employer, employee or neither. Above all, he must get the consent of those who have suffered most from the inflation.

We have highlighted what we believe to be the shortcomings in the Government's policy, as we are entitled to do, as we have a responsibility to do, and as our amendment signifies. However, we join with the country in hoping that the Government's policy will succeed, because the national interest is our interest. [Interruption.] Unlike the Leader of the Liberal Party we reserve the right, if there is compromise or retreat, to expose it, attack it and press for the policy which we believe is necessary. If we could have a really determined Government, prepared to go the whole way to defeat inflation, they would have our support and the support of the country. If the Government want to show their own good faith they could do so by accepting our amendment.

11.33 p.m.

The Secretary of State for Prices and Consumer Protection (Mrs. Shirley Williams)

I begin by echoing the sentiments of the hon. Member for Gloucester-(Mrs. Oppenheim) and saying that we on the Labour benches are delighted to hear that the hon. Member for Wycombe (Sir John Hall) is not seriously ill and is recovering. We should like to send him our best wishes for a rapid return to this House. Second, I join in the congratulations to the hon. Member for Woolwich, West (Mr. Bottomley) who made his maiden speech in the debate. He follows a Member of Parliament with a great tradition, for whom many of us had much affection. We hope that he will live up to that tradition. We shall look forward to hearing him again.

The hon. Member for Gloucester nagged at us eloquently, but in the course of her nagging at us eloquently she presented not a single constructive idea, suggestion or plan. All she could do was to recommend to us the Opposition's amendment, which I have read carefully. Apart from saying that it agrees with some of the things the Government say, it goes on to say that it wants to cut public expenditure in unspecified ways by unspecified amounts on unspecified sectors of the economy.

That is not a policy. It is not even an excuse for a policy. It is an attempt to avoid stating any policy at all in case someone blames the Opposition for taking a stand. It will not do. The House must recognise, and I believe that many hon. Members in all sections do recognise that faced as we are by a remarkable public response to the attempt to deal with inflation—all right we can all make criticisms about the timing and so forth—it will not do for us to respond by nothing better than the most petty points which can be chucked across the Chamber on an individual footing.

I turn to some of the contributions made to this debate which pointed to how deep are some of the problems we have to face in our society. They are problems of the past year, two years or even five years. They are problems endemic in what has happened in our society over the past 50 years.

Hon. Gentlemen on both sides, including my right hon. Friends the Members for Battersea, North (Mr. Jay) and for Lanark (Mrs. Hart), have pointed to some of the underlying weaknesses with which we must deal—the weaknesses of inadequate investment, the weaknesses of concentration of industrial power and the weaknesses of inadequate attention to productivity. Here I very much accept what my hon. Friend the Member for Basildon (Mr. Moonman) said. What we need to do now as a country, however, is to deal with the immediate threat of inflation and then, side by side with that, to get to grips with these underlying structural problems that have bedevilled our economy for many decades past.

The Government are attempting to do that. It may be that hon. Members, in all parts of the House, do not agree with the way they are trying to do it, but through the reconstruction of industry, through macro economic measures, through planning agreements and in many other ways the Government are attempting to tackle precisely those underlying weaknesses.

It will not do simply to pretend that the country's economic problems existed and started in February 1974, because that is nonsense and we all know it. It is also nonsense for people to pretend that we live in a market economy. We do not. We live in an economy which, whether we like it or not, is constrained by powerful institutions on both sides of industry and in society itself. Surely the challenge to us is to find out how one runs such an economy.

We want neither the pure capitalism of Marshall or of his predecessors, Adam Smith and others, nor, for that matter, the purist Socialism which one sees in some parts of Eastern Europe, but something which is neither of those things, something new and evolving, unusual and strange, something to which we have to find new answers.

When my hon. Friend the Member for Birmingham, Northfield (Mr. Carter) said, quite rightly, that we face not only problems of economics but also, in the most profound sense, problems of politics, what he was saying, and what the House is surely capable of responding to, is that we have to find a new politics to go with these new economics and that those new policies can be based in the most profound sense only on consent.

Mr. Adley

May I—[Interruption.] It might surprise Labour Members that some of us are trying to listen with some sympathy and understanding to what the right hon. Lady is saying. Many of the points she has just made are valid. Does she not accept, therefore, that if we are to get away from the old-fashioned political thoughts that she is condemning, and if we are perhaps to try occasionally to support each other across the Floor of the House, it would be a great deal more helpful if that aim is to be achieved if her party would make its modest sacrifice in getting rid of some of the worst doctrinal excrescences of her right hon. Friends' proposals, such as the nationalisation of the aircraft industry? Will she at least accept—

Mr. Deputy Speaker (Sir Myer Galpern)

Order. I hope that interventions will not be endless. Mr. Adley.

Mr. Adley

Will the right hon. Lady at least accept that some of us put some store on the Government making sacrifices as well?

Mrs. Williams

Had the hon. Gentleman waited a bit, he would have seen that I am attempting to say some things about what we can agree upon, and one of the things upon which I think we can agree tonight—at least I hope so— is the possibility of facing the battle of inflation on a quite extraordinary degree of consent.

One of the things about which I felt rather sad in listening to the debate was how few people seemed to realise what a long way we have come in carrying both sides of industry with us in the acceptance of a new policy, a policy which is in many ways essentially voluntarist, in trying to deal with the inflation which is today perhaps the most immediate short-term evil that we have to cope with. There has not previously been presented to the House a policy which is as open and which has been as widely discussed as this one, both within the House and outside, and one which has carried this degree of consent with it.

Opposition Members criticise the Government for basing the sanctions in the private sector on the employers—[An HON. MEMBER: "Not all of them."]—not all of them, but they do not seem to realise that the CBI itself accepted that sanctions in the private sector must be based on employers and accepted the concept of a Price Code sanction to do this. They do not seem to recognise what a long way it has been for the Trades Union Congress to come to accept the concept of a single flat-rate limit on increases regardless of collective bargaining strength. I suggest to hon. Members opposite, including the right hon. Lady the Leader of the Opposition, that the great merit of the flat-rate approach is that it is simple, that it can be easily understood, and that it has about it—[An HON. MEMBER: "Unfairness."]—not unfairness, but all the characteristics of fairness at a time of sacrifice when no one group can expect to use its strength to maintain its relativities against everybody else. It has the great merit that, at a time of difficulty, everyone is entitled to the same, but no more than the same, and that the strongest and richest must make the major sacrifices.

Mr. Crawford

The right hon. Lady said that the richest and strongest must make the greatest sacrifice. Therefore, should not the South-East of England make a greater sacrifice than Scotland, Wales and the regions of England?

Mrs. Williams

I think that the hon. Gentleman will recognise that, if his assumption is correct—I am not sure that it is correct as it once was—that people in Scotland are paid very much less than people in the South-East of England, a flat-rate increase will benefit the Scots far more than people in the South-East. That is the simple arithmetic of this policy. I can only say that £6 on £24 is a 25 per cent. increase whereas £6 on £60 is a 10 per cent. increase. I learned that in the first form of my secondary school. I am surprised that others did not.

I turn now to some of the objections raised by some of my hon. Friends. They object to the White Paper on the ground that it is based upon the false premise that wage increases are the sole reason for inflation. I do not read that in the White Paper and I do not believe it to be true. It is idle to pretend that increases in incomes have not been an important factor, and in the last few months probably the most important factor, in inflation. I want to set out the record not only for them, but for the hon. Member for Gloucester and other Members who shared in the Conservative administration. The causes and sources of inflation are far more complicated than were suggested in the hon. Lady's speech.

Since the summer of 1972 inflation in this country has been accelerating without a halt. It accelerated, admittedly, from quite a low level broadly comparable with that of our industrial competitors. The main engine of inflation in those early months—those who were Ministers in the last administration cannot deny this—was the massive explosion in commodity and oil prices. The index of basic materials and fuel purchased by manufacturing industry in 1972 and the largest part of 1973 soared by about 80 per cent. at any annual rate of 69 per cent.

That jump in commodity and oil prices reflected a redistribution of resources and incomes in the world, not just in this country, between primary producers and industrial countries like our own which indeed required of industrial countries a certain sacrifice in standards of living to make room for it. Whether we like it or not, that was one of the basic engines of inflation. It is no use pretending that it was not there. It was, and we have to live with the consequences of it.

What then happened, as hon. Members opposite may be fair enough to recognise was that they took a substantial gamble on what they expected to be a fall in commodity prices coming at the end of 1973. Looking at some of the speeches made in that period, one notices the extent to which they expected, admittedly on the basis of a number of economic forecasts, commodity prices not to continue to go up after the end of that year. That was when they introduced the thresholds, because the thresholds made sense only in a situation in which they were likely not to be triggered and in which they were likely to give a guarantee to employees that their standard of living would be protected. But the gamble was wrong. The thresholds were triggered no fewer than 11 times and consequently the RPI was set 5 per cent. higher than it would have been had there been no thresholds.

Either the Conservative Government were wildly irresponsible in introducing thresholds or they made, as any of us can, a wrong estimate of the future. But it does not do to pretend that thresholds made no contribution to what later happened to the RPI, because they made a substantial contribution, and they meant that the social contract based as it was on the RPI, started at a higher level than it would have done had there been no thresholds.

Mr. James Prior (Lowestoft)

I have been following the right hon. Lady's argument very closely and I agree with much of it. Perhaps it is a pity that her party did not recognise it in 1972–73. Is she saying that had we not introduced the threshold payments so that people were not safeguarded against rises in the cost of living because of the increases in commodity prices wage increases would not have been so great? If so, there is no proof of it.

Mrs. Williams

Yes, I am saying that. The threshold policy made sense only if the underlying forces behind inflation were likely to weaken. In fact, in that period, the underlying forces, which I accept were commodity movements, strengthened and did not weaken, which made a considerable nonsense of the threshold policy.

Mr. Heffer

I am absolutely amazed by my right hon. Friend's argument. She is saying that when the cost of living increased, as it did, there should not have been an increase in workers' wages to meet the increase. Is she arguing as a Labour Minister that workers' wages should not keep up with the rise in the cost of living?

Mrs. Williams

If there has been a sudden savage increase in commodity prices, room must be found to meet it, because one cannot pretend that it does not exist. If my hon. Friend wants me to argue, as I gladly will, that any attempt to make room for it must be made on the basis of protecting the less well off people, I will go all the way with him. But one cannot pretend that an increase in oil prices can be overridden by an increase in incomes which is more than equal to it.

I wish to say a few words about the position that this created for companies. My hon. Friends who have been urging me to introduce a price freeze must recognise what the consequences of the increase in costs, however created, had on the situation of firms. The position of firms has changed rapidly over the past 10 years, and this is a fact which we must take into account in setting our policies. I take that long period to show the way in which things have changed. Gross trading profits net of stock appreciation are half the level of what they were in 1964 as a percentage of total domestic income net of stock appreciation. The fall in the rate of return on capital has been to a quarter of what it was 10 years ago. The effect of the Price Code—and I ask the hon. Member for Gloucester to bear in mind who the authors of the Price Code were—has been to reduce the proportion of reference levels of firms to just over 50 per cent. of what it was at the time that the levels were established. In the case of distributors—the retail trade—the fall has been from 83 per cent. in the first quarter of 1974 to 57 per cent. now. Unquestionably, I believe that to have been right because profits had to make a substantial contribution to the battle against inflation. But it will not do now for people to argue that the Price Code has not operated and should now be operated, because it has operated fairly stringently in the past year. I urge my hon. Friends to consider that profits now are running at about half what they were running at just over a year ago. The consequences of a price freeze would be redundancies, bankruptcies for a number of firms and the disappearance of a substantial number of lines of produce from the shops.

There is another factor which I urge hon. Members who care about low wages to consider carefully. One of the effects of the £6 limit is intended to be redistributive. It is meant to help those with low wages as distinct from those with high incomes and high wages. It is a sad truth that some of the lowest-paid industries are those connected with essential consumer goods. The £6 limit for male workers in food manufacturing is not 10 per cent. but 11 per cent., and for female workers 20 per cent. In the clothing industry it is 17 per cent. and in distribution it is 16 per cent. We are not talking about sectors in which the £6 limit is a mere bagatelle but sectors in which it would be perhaps the most substantial increase the workers in those industries had ever enjoyed. To declare a price freeze on essential goods would be to deny to some of the lowest-paid people in the country any possibility of getting even part of the £6 limit let alone the whole amount.

The Government have to make a difficult judgment between these pressures and circumstances. There are encouraging signs that the policy is widely accepted. Perhaps the people are wiser than their own Parliament. There is from them more support, more strongly urged, for this policy than one would believe from listening to debates in the House. If the policy does work—and I hope that it will without the need to introduce any further statutory elements—unquestionably it will take between five and six months for the major relief on costs to find its way through into retail prices. At that point, without disruptive effects upon employment, and without disruptive effects in terms of bankruptcies among companies, we want to introduce our price stabilisation programme.

The hon. Member for Gloucester called it "Shirley's shopping basket". I do not care what it is named but I do care that there should be some response in prices to the restraint we are asking for incomes, and that it should come through at the earliest practicable moment. I wish, with my hon. Friend the Member for Watford (Mr. Tuck), that the earliest practicable moment could be tomorrow but it cannot be without the consequences which I have described. I assure him that as soon as we can operate—once the pipeline of costs is beginning to ease—we shall do so. We shall do so not on just what the House has come to call essentials but on the whole range of household goods we all need. That means ovens, consumer durables and all the other items that households need to buy. We sometimes seem to think that only food and clothes are essentials of daily life, but we are wrong in that. The wider the area covered the more effective can be our restraint policies.

I want to say a word or two about the ray of light that may help us on our way. In the last month there has been a marked slowing up in the input prices of the goods we have to buy—less than 1 per cent. for the input prices of food manufacturers and industry. Even the rate of increase in the output index for wholesale goods is beginning to fall quite dramatically. I shall not promise the House that these falls of commodity prices will offset the other cost increases. But I believe at long last that we have the chance to grasp this opportunity and to turn it into an effective fight against inflation.

I wish that I had time to spell out in more detail the Government's intention in respect of the Price Code. Suffice it to say—I underline this—that it is the Government's intention to operate this with private sector employers and with the nationalised industries. We shall not permit any increase above the norm to be reflected in price increases. That means any part of any settlement above the norm, and not the element above the norm.

The Leader of the Opposition taxed the Government with their inability or unwillingness to face up to inflation. Perhaps I can make one modest plea. I recall that eight months ago the Government first put forward in the consultative document of last November the suggestion of a price code reflection of settlements above the norm. It was rejected at that time by the Opposition and the CBI. Here we are again. Perhaps it would have been better if we had acted earlier. But we attempted to do so and we did not win the consent that we needed to go ahead with it. We shall do it now effectively in the private sector. I assure the hon. Member for Gloucester that this will apply to any attempt to increase contract prices to reflect settlements above the norm.

The House has seen a considerabl response to the counter-inflation policy from a number of trade unions, the CBI, employers and, I suspect, a wide section of the public. I hope that this time we shall respond to that desire to deal with the most serious short-term problem facing us, and indeed to construct a longer-term policy which will match up to the needs of our society and our economy. But I would urge on the House not to miss this great opportunity to seize the moment, to live up to it and to respond at the level at which people are already responding.

Debate adjourned.—[Mr. David Stoddart.]

Debate to be resumed tomorrow.