HC Deb 29 January 1976 vol 904 cc680-812

3.52 p.m.

The Chancellor of the Exchequer (Mr. Denis Healey)

I beg to move, That this House, while welcoming the reduction in the rate of inflation and the improvement in the balance of payments as an essential basis for economic recovery, expresses its deep concern at the continuing rise in unemployment and its determination to take all possible effective measures to reduce it so as to ensure continuing growth with stable prices. At this moment the nation stands at what is always the most critical point in the path of an economic recovery—the point at which output is beginning to increase again but employment has not yet begun to respond to the increase in output. If at this point the Government or the public panic, if there is a collapse of nerve, the consequences can be disastrous, as was proved when the Conservative Party was in power. Therefore, this afternoon I want to describe the situation as I see it and to suggest what can be done to deal with the present intolerable level of unemployment without jeopardising all the advantages that the British people have won so painfully through their sacrifices in the last year.

In recent months our economic prospects have been transformed, largely as a result of the agreement reached between the Government and the trade unions last July on dealing with cost inflation in the current wage round. But the major areas of improvement which we can already record for 1975 were predictable and, indeed, were predicted even earlier. I forecast in my Budget speech last April that in the second six months of last year the rise in the Retail Price Index would be between 12 per cent. and 16 per cent. at an annual rate. In fact it was 14 per cent.—well under half what we endured in the first half of 1975.

The main effect of the £6 limit on pay increases is yet to be felt, but few would now dispute that the Government have a very good prospect of achieving their target of reducing the annual rate of inflation to under 10 per cent. by the end of this year.

The £6 limit has been universally observed. To date we know of major settlements within the policy covering well over 3 million workers. In addition 15 wages councils, covering over 750,000 workers, have agreed new statutory minimum remuneration in line with the policy. The Department of Employment has also been notified of 3,000 settlements covering smaller groups, and none of these is currently in breach of the policy.

The policy is now overwhelmingly supported by those whom it affects directly—by the General Council of the Trades Union Congress, by the rank and file of the trade union movement and, according to reports of a survey recently conducted by Political and Economic Planning, by conveners and shop stewards throughout industry.

I hope I am right in saying that, whatever its earlier hesitations and conclusions, the Opposition Front Bench, at least in its majority, now recognises that the White Paper which it asked the House not to approve in July is in fact making a major contribution towards the resolution of our economic problems.

In addition to its direct impact on our own affairs in Britain, the new policy for incomes has also transformed our reputation throughout the world. When I was in Jamaica for the IMF meeting a few weeks ago, I found my colleagues unstinting in their admiration of what we in Britain had achieved and for the relationship between the Government and the trade unions which made it possible. The House will note that at least five other Governments are currently attempting to imitate our policy.

It is worth recording that the new relationship between the Government and the trade unions has brought an immense improvement in industrial relations too. Britain lost fewer days last year through industrial stoppages than in any year since 1968—less than one-third of the massive 24 million days clocked up in 1972 when confrontation was the order of the day.

We have made equally good progress on the balance of payments. Our current account deficit last year was well under half that in 1974. It fell from £3.7 billion to £1.7 billion in 12 months. It is true that this improvement, as in all industrial countries, owed much to the effects on imports of the world recession and to the improvement in the terms of trade compared with the savage blows we all suffered in 1973 and 1974.

But the world recession also involved a heavy fall in world demand for our goods. Indeed, the fall in demand was a good deal sharper in most of the main manufacturing countries than in Britain. Despite that, however, our share in the manufactured exports of the main industrial countries rose from 8¾ per cent. in 1974 to 9½ per cent. in the first half of 1975. Figures for the second half of the year are not yet available, but it looks as if we actually increased our share in world trade last year, although the competition was a good deal stiffer than in normal times. I hope the House will agree that that was an encouraging achievement by any standard.

There are encouraging features also in our performance on import substitution. The volume of our imports of finished manufactures fell by 7½ per cent., whereas the fall in manufacturing production was substantially less—about 5½ per cent. in the first 11 months of the year.

Of course, it is dangerous to build too much on our trade performance in a single year, particularly one as exceptional as last year. But the fact that our record has been better on both exports and imports than might have been expected gives us real grounds for satisfaction and for hope that a further increase in our exports will take place as world trade picks up.

In fact, there are growing signs that the world recession has already bottomed out. In 1975 the total volume of world exports probably fell by about 6 per cent., but there seems to have been some pick-up in the fourth quarter of last year. There are obviously great uncertainties, but at present we would expect world trade to rise by about 7 per cent. in 1976 as a whole, accelerating throughout the year, and this will offer immense new opportunities to our exporters.

Here in Britain the signs are multiplying that our recession may be coming to an end—if recovery has not already begun. As always, evidence about the immediate past is patchy, but such figures as we have are encouraging. For example, in the three months to November last year industrial production rose by 1.6 per cent. and manufacturing production rose by 1.2 per cent. The CBI's monthly survey shows in December more firms reporting an increase rather than a fall in the volume of total new orders over that latest four-month period—the first time that this has happened for 18 months. Looking ahead, the CBI survey has shown for two months running a balance of firms expecting the volume of output to rise in the four months ahead—a better result than any seen earlier in 1975.

Clear evidence that the recession in Britain may be ending also comes on the demand side. In the third quarter of last year gross domestic product by the output measure fell just ½ per cent., compared with 2½, per cent. between the first and second quarter. GDP on the expenditure measure was virtually unchanged in the third quarter, and total final expenditure—that is the sum of consumption, all investment and exports—actually rose by ½ per cent. Destocking has also fallen back sharply and may have passed its peak.

We can now extend the evidence on the demand side into the fourth quarter of last year. The provisional estimate for consumer expenditure in the last three months showed only a very marginal fall—very much less than the 1½ per cent. fall in consumer spending during the third quarter. Exports have done well, too, particularly on food, materials and chemicals. They grew over 7 per cent. in volume terms in the fourth quarter, partly, I believe, in response to improving world trade, particularly in North America and European markets. All this suggests that Britain is now beginning to pull out of the recession so far as economic activity, output and demand are concerned.

The one exception to these encouraging statistics is, of course, the main subject of this debate. Unemployment figures are still rising, as I forecast they would in our recent debates. The figures here must give us all profound concern. But they do not need the sort of exaggeration that they have received in some parts of the Press, and the more alarming predictions made in some quarters last year have proved very far ahead of the reality. The fact is that we ended 1975 with unemployment under 1,200,000, as I predicted we would in September.

The January figures are serious enough. For the United Kingdom as a whole, the seasonally adjusted rate, excluding school leavers and adult students, reached 5½2 per cent., a total of 1,205,000, and an increase of 42,300 over the December level. Most of the newspapers preferred to headline uncorrected figures. 227,000 increase in a month said the Daily Telegraph. "Nearly 1½ million men out of work" was the general cry. Of course, this is true enough if one eliminates the seasonal corrections which all Governments have made to take account, for example, of the normal winter fall in tourism and building, and if one includes over 116,000 students who signed on the unemployment register, on an entirely temporary basis, over the universities' Christmas break. But I wonder whether we shall see headlines in equally bold type next month screaming "Jobless fall 100,000" because those students have now gone back to college.

The main exception to this type of exaggeration—apart from The Times—was the research organisation run by the Conservative Party and headed by the right hon. Lady the Leader of the Opposition and her Front Bench economic adviser, the right hon. Member for Leeds, North-East (Sir K. Joseph). They claim that the true level of unemployment was 800,000, little over half the figure trumpeted by most of the newspapers and 400,000 fewer than the seasonally corrected figures issued by the Government.

I must ask the right hon. Lady whether she will confirm that that is indeed her view. If it is, how can she justify her hysterical intervention at Question Time last week? The political editor of The Times asserted on Monday—I quote his words—the utter impossibility of the Shadow Cabinet wickedly exploiting the rise in unemployment for cheap party and electoral purposes. But if the right hon. Lady accepts the view of her own research organisation, that is exactly what she did last week. I wonder whether Mr. David Wood will ever recover the virginal innocence that she so brutally outraged.

Mrs. Margaret Thatcher (Finchley)

The Centre for Policy Studies is not the Conservative Research Department and is not related to it. Whichever set of figures the Chancellor uses, both show that unemployment has risen under the present Government and is still rising.

Mr. Healey

The right hon. Lady, as so often, has refused to answer a very relevant question. She is a director of the research organisation to which I have referred. Her Rasputin or Malvolio, the right hon. Member for Leeds, North-East, is another director and, we are told, manages its studies. What we want to know is whether the right hon. Lady will tell us what her view is. Does she agree with her right hon. Friend, does she agree with the Daily Telegraph maximum figures or does she agree with the Government? If she believes that the figures issued by her Centre for Policy Studies were gross under-estimates, let her say so, and let her abolish her research organisation and replace her right hon. Friend the Member for Leeds, North-East as her economic adviser by the right hon. Member for Worcester(Mr. Walker)because he has made it clear that he would be only too glad to have the job.

As it is, the right hon. Lady's whole attitude towards unemployment, like that of many hon. Members who were infected by her hysteria last week—if I may quote the words of another newspaper which commonly supports her policy, the Daily Mail—" stinks of hypocrisy."

Mr. Eric S. Heffer (Liverpool, Walton)

Is my right hon. Friend aware of the fact that many hon. Members on the Government side of the House are in no way affected by the hysteria of the right hon. Lady the Leader of the Opposition or any other Opposition Member? What we are deeply concerned about is the rise in real unemployment to the extent that areas in my constituency—

Mr. Dan Jones (Burnley)

And mine.

Mr. Heller

Certainly, but I am now talking about my constituency. Twenty per cent. of the people there are unemployed. That is what we are talking about, and not figures which come from Conservative Central Office or any other office. We are talking about the reality of our people's unemployment, and we are not going to have it.

Mr. Healey

I am well aware of the very deep and genuine feelings of many of my right hon. and hon. Friends. Indeed, I assure my hon. Friend that it is shared by the whole Cabinet. I propose to tell him this afternoon what we are planning to do about it in order to meet it. [Interruption.] The hypocritical humbug of hon. Members such as the hon. Member for Stretford (Mr. Churchill), who has never shown the slighest sympathy in his whole career for ordinary working people, makes decent people retch.

Mr. Churchill (Stretford)

The right hon. Gentleman will recall coming to speak for me in my constituency in 1974, where, I may say, he was a great help. His principal theme was unemployment, and he implied to my constituents in a very industrial area that it would be lower if they voted Labour than if they voted Conservative. Today in the North-West there are 117,000 more people out of work than there were when his Government came to office.

Mr. Healey

I am grateful to the hon. Member for Stretford. He is of considerable help to me, and if he thinks that I am of help to him, so much the better. However, I shall demonstrate in a moment that what I predicted in that election speech, which I fear did not do enough to turn the tide against the hon. Member for Stretford, was the literal truth and was stated to be so by the Shadow Chancellor of the Exchequer, the right hon. and learned Member for Surrey, East (Sir G. Howe), who, we much regret, is not assisting in our deliberations today.

The fact is that the seasonally corrected increase in unemployment this month at 42,300 was broadly the same as it was over the last three months of 1975 and less than the average from June to September. In this it reflects the slowing down of the recession in the middle of last year, but it does not yet reflect the bottoming out which appears to have occurred in the last quarter. That will produce a levelling off in unemployment in some months' time, and the actual fall in unemployment will then follow.

An indispensable condition for successful economic management is to take account of the substantial lags between a change in overall demand for goods and services in the economy and the change in output which it generates and of the similar lag between the increase in output and the consequent fall in unemployment. Such lags between an action and its consequences are the very stuff of what used to be called political economy, and they occur in almost every field. For example, changes in exchange rates and money supply are even slower to produce their effects. That is why it is essential always to consider the management of the economy over a period of years and always to be thinking as much of the likely situation in 12 months' time as of the situation tomorrow.

In the current state of economic knowledge, it is not possible to be precise about the length of these lags. But it is prudent to assume that both between demand measures and output and between output and employment it could be about six months. For this reason, macro-economic measures taken to increase demand—for example, the reflationary measures which some of my hon. Friends may press upon me today—may take a year to have much effect on unemployment.

It is because of these lags that if I now increased domestic demand by macro-economic measures, this could have little significant effect on unemployment during the rest of this year. Domestic demand reflation now through a reduction in income tax, for example, would take some six months to have a noticeable effect on output and would take a further six months to have a significant effect on unemployment. The full effects of the measures would take even longer to come through. The great bulk of the output effect would take about a year and a half and the bulk of the unemployment effect would take up to two years to come through.

Mr. Ian Mikardo (Bethnal Green and Bow)

Will my right hon. Friend give way?

Mr. Healey

I suspect I know the point that my hon. Friend wishes to raise, and I shall be coming to it in a moment. If I am mistaken, I shall give way to my hon. Friend with the courtesy that I always display to him.

I know that some of my hon. Friends believe that it is somehow possible to escape these lags and reduce unemployment faster by keeping out imports and thereby increasing the demand for British goods in Britain. But this might be even slower to affect employment. There would bound to be some administrative delay, and employers in the sectors which might hope to replace the excluded imports would be less inclined to take on additional labour or put up new plant or machinery to meet an increased demand for their products if they thought that the import controls would be temporary and the rise in demand would not be maintained in the long run.

But there are more powerful arguments against such import controls. They would be unlikely to obtain the acquiescence of the foreign Governments concerned, especially at a time when our balance of payments was steadily improving and our rate of unemployment was in line with that of most of our competitors and substantially lower than in some countries like the United States. In that case, retaliation would be almost certain and this could cost us as much through loss of exports in terms of both jobs and the balance of payments, as we could gain from the increase in domestic demand.

Mr. Mikardo

I am obliged to my right hon. Friend for his courtesy, as always, in giving way to me. But he mistook my point. He has not met it. It is a very different one. It is that, if it takes some time for measures to find their way into extra employment, why is that a case for delaying them? Surely it is a case for getting on with them. Indeed, if my right hon. Friend had taken these measures when some of my hon. Friends and I first advocated them last summer, we should be seeing some results now.

Mr. Healey

I am immensely grateful to my hon. Friend, as I am so often. I shall deal with those two important points in a moment.

As I was saying, if we adopted general import controls they would be unlikely to obtain the acquiescence of the foreign Governments concerned, retaliation would be likely and, in addition to the risk of losing as much through the loss of exports, in terms of both jobs and the balance of payments, as we could gain from the increase in domestic demand, there would be a real risk of starting a world trade war in which all countries would lose heavily, and the less-developed countries most of all. I must remind my hon. Friends who are attracted to that solution that that would risk turning what is already the worst recession since the 1930s into a prolonged slump such as the world had to endure 40 years ago.

I do not believe that any hon. Member would want to run that risk and that is why, for example, the Labour Party conference last year set itself against general import controls and was prepared to consider selective import controls only if they were not likely to provoke retaliation.

To sum up this part of my argument, there is nothing that any British Chancellor of the Exchequer could do now by general reflation of domestic demand —whether by tax reductions, increases in public expenditure or import controls—which could reduce unemployment significantly this year in the months when it may still be rising. The time to have acted, as my hon. Friend the Member for Bethnal Green and Bow (Mr. Mikardo) suggested, would have been in my Budget last April. But as I warned the House as long ago as November 1974, 18 months ago, the intolerable increase in wage inflation which took off in the autumn of that year ruled out that option.

If I had continued in my Budget last April the stimulus that I gave the economy in July and November 1974, I would have brought the whole economy down in ruins. In fact I was compelled instead to increase taxation and not to cut it. But, thank God, the British people learned their lesson in time—I may say with no help from the Opposition Front Bench.

The unprecedented success of the attack on inflation that we launched last July—

Mr. Peter Tapsell(Horncastle) rose

Mr. Healey

The House will recognise that I have given way several times already and that I must be allowed to get on with my speech—

Mr. Tapsell rose

Hon. Members

Give way

Mr. Healey

I shall give way to the hon. Member for Horncastle (Mr. Tapsell) presently, but not just now.

The unprecedented success of the attack on inflation that we launched last July, against the wishes of the Opposition Front Bench, has given me a freedom of action this year which simply did not exist last year. But it will still be a difficult matter of judgment to decide whether any increase in domestic demand is called for in my next Budget.

At the moment it seems likely that the increase in both output and employment, particularly in manufacturing industry, will be rather fast next year. Demand will also be rising fast. An increase in world trade will be increasing our exports. Industry has already declared its intention to make a big increase in investment next year. Stock-building will have resumed. There will also be some increase in consumer spending. If that proves to be the case, a further big stimulus to demand by action this year might turn out to be as ill-timed and disastrous as the piling of one reflationary measure on another by the previous Administration when they panicked in July 1971 and started a consumption boom which they pumped up still further in the Budget of 1972

Mr. Tapsell

When the right hon. Gentleman talks about a reflationary boom being pumped up by the Conservative Government and the British people having now learnt their lesson, may I ask him to bear in mind that when he reduced taxation in July 1974 my hon. Friend the Member for Oswestry (Mr. Biffen) and I warned him of the effects of that and divided the House against him? He claimed that the measures were necessary at the time. Will he bear in mind that the inflation and unemployment from which we are now suffering are very largely the result of those electioneering tactics?

Mr. Healey

I know that that is the hon. Gentleman's view and the view of the hon. Member for Oswestry (Mr. Biffen), who, I am delighted to see, has now joined the Opposition Front Bench. The hon. Gentleman will recall that, although the official Opposition tabled a motion against those measures in July 1971, in the event they skulked in the back rooms of the House of Commons and failed to vote. Only 30 hon. Members joined the hon. Member in the Lobby. Good luck to them. At least they had the courage of their convictions, if that is what it was—unlike the right hon. Lady now sitting on the Opposition Front Bench. I was referring to the measures taken by the previous Conservative Government in 1971 and 1972. I have been delighted to see, during the last 10 minutes of my speech, that the right hon. Member for Leeds, North-East has been steadily nodding his agreement with what I have been saying. Indeed, there is no need to look into the crystal ball when we can read the book. The consequences of excessive reflation in 1971 and 1972 are now history. They brought about the collapse of the Barber boom in 1973 amid the most severe economic dislocations since the 1940s.

Let me remind the House of the facts. In the autumn of 1973 bottlenecks and supply constraints appeared throughout industry. In the CBI survey of October 1973 a total of 51 per cent. of firms were reporting shortages of skilled labour as a factor limiting their output—two-thirds as much again as in the previous peak in 1969. A total of 49 per cent. of firms reported shortages of materials and components—three or four times as many as in 1969. Shortages of plant capacity were widely reported too.

I hope that the right hon. Member for Lowestoft (Mr. Prior) will listen to what I and his right hon. Friend the Member for Leeds, North-East are saying, because if he is to speak later in the debate he will have a lot of explaining to do as to how he interprets his rôle at that time. The fact is that the short-lived recovery generated by the reflationary measures of 1971 and 1972 was strangled in the autumn of 1973, even before the oil crisis hit us. The consequences for the balance of payments were equally disastrous. As the reflationary programme gathered pace through 1972, imports rose 11½ per cent. compared with an increase of only 2.1 per cent. for exports. In 1973 the experience was repeated, though in a less extreme form.

On top of this body blow to our balance of payments the boom dealt a heavy blow to our manufacturing industry. The proportion of our total expenditure taken by manufacturing imports rose from 6½ per cent. in 1971 to nearly 9 per cent. in 1973. Parallel with these immediate economic catastrophes this consumer-led boom set a monetary time bomb ticking away which has certainly helped to bring about the explosion of inflation in the past two years. I gather that the right hon. Member for Leeds, North-East and the hon. Member for Oswestry share the monetarist view that the last Government's monetary profligacy in 1973 was the main cause of the inflation which reached its peak last year. Perhaps they are too unfair to the Government they then supported.

It is a fact that through 1973 the money supply, M3, grew 28¾ per cent.—well over twice the rate of money GDP. As a result, lending for property rocketed, the price of housing, land and building followed and when the bubble burst the secondary banking system suffered a shipwreck from which it has not yet been finally rescued. The House may feel that it is not altogether suitable for the crumbling relics of the disastrous administration which brought about that unprecedented catastrophe in our economic affairs to table an amendment telling me how to deal with the same problem today.

The country can count itself fortunate that the leaders of our trade union movement have not forgotten the lessons of that bitter experience. They have explicitly made it clear again and again in recent months—and repeated it this week —that they are not asking me to engineer a general reflation at this time.

Mr. David Crouch (Canterbury)

The right hon. Gentleman said a few minutes ago that he would say something more about investment. I believe that he may be in danger of inadvertently misleading the House. The view of the Government was apparently expressed by the Secretary of State for Industry two weeks ago when he said he was dismayed that the rate of investment by manufacturing industry was the lowest for 12 years. He was depressed to think that it would not rise in time to meet an upturn in world demand. Surely this should be one of the matters at which the Chancellor ought to be looking if we are to resolve the unemployment problem.

Mr. Healey

I shall deal with this point. I agree that it is one of the keys to improving our economic performance. So far I have been explaining why I cannot at the moment consider a general reflation of the type which the last Government engineered so disastrously four or five years ago. I am coming now to the measures that I believe I can take.

Sir Keith Joseph (Leeds, North-East)

The right hon. Gentleman is quick to make accusations of humbug and hypocrisy. Will he accept that in 1971 and 1972 the Labour Opposition Front Bench was clamouring for increased demand and went on clamouring for increased demand and was nothing like the responsible Opposition which the Government now face?

Mr. Healey

With respect, I find it scarcely possible to parallel the levity of the right hon. Gentleman.

It is too soon at present to decide whether some reflation of demand would be desirable when I present my Budget in a few months' time. What is already clear, however, is that the scale of any measures which may be desirable when that time comes will depend to an important degree on the assumptions I am then able to make about the likely course of inflation once the current pay round is completed. This in turn depends, above all, on what voluntary policy for incomes can be agreed for the next wage round.

If we can safely plan on continuing to reduce the rate of inflation right through 1977, my freedom of action as Chancellor in the next Budget will be substantially enlarged. Our exports will be that bit more competitive, the readiness of industry to invest will be increased. Indeed, there are few areas of our economy which will not benefit. Above all, we shall be able to look to a faster reduction in unemployment than would otherwise have been the case. Just as inflation produces unemployment, so a fall in the inflation rate will produce more jobs.

I know that millions of trade unionists, like all of my right hon. and hon. Friends, are deeply disappointed that the level of unemployment is not already falling. But I have been warning the country for many months that there would be a delay of some months between the recovery in output and the fall in unemployment. This afternoon I have tried to explain why.

No one can deny that because the £6 limit on pay has been maintained unemployment now is lower than it otherwise would have been. I was glad to see that Mr. Hugh Scanlon accepted this point on television recently. I hope he would also agree that, whatever his disappointment at the latest unemployment figures, this would be no ground for refusing to continue the pay policy in any form for another year. He must accept that the only result of that would be to make unemployment next year worse than it need be.

But no one should underestimate the real strains imposed upon the leadership of the trade union movement by the present appalling unemployment level or the demoralisation of those who cannot obtain a job. The Government are firmly convinced that the future of our economy depends on maintaining the sort of co-operation between the Government and the trade unions—and working people as a whole—which contributed so much towards improving our economy last year. We have proved that cooperation is infinitely preferable to confrontation, and we shall not neglect any measure which may help to relieve the strains and sufferings imposed by unemployment.

As I made clear in September and again in December, the Government are determined to take any effective steps open to them to reduce the level of unemployment. We shall continue to do everything that can sensibly be done to save and protect jobs in the next few months and bring forward the coming decline in unemployment to the earliest possible moment.

Mr. Norman Atkinson (Tottenham)

One of the things that trade unionists have been saying to my right hon. Friend for some time is that now is the time to make available resources for the manufacture of capital goods, not consumer goods, goods to be put on the shelves for use when the upturn comes. Will my right hon. Friend confirm that the EEC Commissioners responsible have told the Government that they will not permit resources of that kind being made available? That has been widely reported in the European Press, on the basis of statements issued. Is it true that the Common Market is preventing the Government from making resources available to meet the request made to them by the trade unions?

Mr. Healey

I understand the impatience of my hon. Friends, and I have given way to them as I have to Opposition Members. I shall deal with this point. An argument is proceeding with the Commission, but the Government are determined to adopt whatever measures may be helpful in this area. I shall refer to some in a moment.

I have said that we shall do everything we can to save and protect jobs and bring forward to the earliest possible moment the decline in unemployment. I wish I could feel that that objective was shared by the Opposition. But the right hon. and learned Member for Surrey, East made clear the other day that he wants steps which will increase unemployment in the short term, just when the need for action to reduce it is at its peak. In his speech last Thursday he made clear that his party will continue to press for cuts in public spending now. He added—and I think this was the first time he has admitted this in a public speech: There is no escaping from the fact that this will increase unemployment in the short term. The right hon. and learned Gentleman is not here this afternoon. I had planned to take advantage of his first flush of frankness and ask him to answer the question I have put to him in vain so often. I now put the same question to the hon. Member for St. Ives (Mr. Nott). Even if he is not prepared to itemise the cuts in public spending which he wants this year, can he tell us at least by how many hundreds of thousands he is prepared to see unemployment increase in the short term as a result of those cuts? Unless he is prepared to do so, we must regard the welcome honesty of the right hon. and learned Gentleman's speech last Thursday, however valuable it may have been in seeking to correct the instant opportunism of his Leader at Question Time two days earlier, as just another flash in the pan. Evasion, humbug and hypocrisy continue to rule on the Opposition Front Bench.

Mr. Nigel Lawson (Blaby)

Is not the Chancellor aware that only last Friday his right hon. Friend the Home Secretary, speaking in Anglesey, said that, if public expenditure were not cut now as a proportion of GNP, democracy and freedom would be in danger?

Mr. Healey

The hon. Gentleman does not read very carefully, nor does he listen very carefully. What my right hon. Friend was talking about was cuts in public expenditure after the next financial year.

Mr. Lawson

No. He said that we must cut so as not to exceed the present 60 per cent. of GNP.

Mr. Healey

Nonsense. My right hon. Friend was talking about cuts in public expenditure after the next financial year, cuts which will maintain employment in the public sector as a whole but also enable employment to be maintained in manufacturing industry, particularly in the capital sector which my hon. Friend the Member for Tottenham (Mr. Atkinson) is, like me, so anxious to expand.

We on this side of the House totally reject the right hon. and learned Gentleman's approach. As the House knows, my right hon. Friends and I have in recent months introduced two sets of measures calculated not to raise unemployment still further as the right hon. and learned Gentleman demands but to save and create more jobs in the immediate future. We have been discussing with our friends in the trade union movement what more can now be done.

Mr. Wyn Roberts (Conway)

Will the right hon. Gentleman give way?

Mr. Healey


I told the House in December that the Government would be announcing further measures early in the new year to provide still more and better training. I hope that it will now be possible to go well beyond that and to present a further set of measures in several fields within a few weeks from now. The trade union leaders have made some valuable suggestions which we are already considering. The Manpower Services Commission has also put proposals to us, and we shall listen very carefully to proposals made by hon. Members in this debate.

The most immediate need is for further measures to protect existing jobs and to provide new jobs in the coming months. I know that my right hon. Friend the Secretary of State for Employment is considering bringing forward the operation of the Employment Protection Act for this purpose. We may also find it useful to extend the temporary employment subsidy, which has already helped to save over 15,000 workers from redundancy. The recruitment subsidy for school leavers has helped over 15,000 young people to get jobs. An extension of this scheme, too, may be worth while. The scheme of job creation has already saved thousands of young men and women from the demoralisation of the dole and should ultimately provide 36,000 people with temporary jobs within the money already available. I hope that it may also be possible to give some further help to the construction industry.

But perhaps the most important single objective which the Government must set themselves is to take whatever action can now be devised to ensure that the decline in unemployment, once its starts, is not frustrated once again by the sort of bottlenecks and supply constraints that brought recovery to a halt in 1973. This requires action on training, stockpiles and investment.

Incidentally, I totally reject the view shared by the right hon. Member for Lowestoft and Mr. Clive Jenkins that unemployment is bound to remain over a million into the 1980s. This Prior-Jenkins axis is an entertaining novelty in our affairs. But I hope that the right hon. Lady the Leader of the Opposition will tell the House at this moment that she totally rejects the defeatist nonsense to which her Shadow Secretary of State for Employment yesterday committed himself and his party.

Hon. Members

Come on.

Mr. Healey

My hon. Friends are asking the right hon. Lady to tell us whether she rejects that nonsense. I sometimes find it easier to interpret her silences than her remarks.

The speed at which we can get unemployment down and the level to which we can reduce it will depend not only on the success of our industrial strategy in reducing unit costs and making better use of existing investment but on ensuring that there is an adequate supply of the necessary skills available at the right place and the right time as the economy expands, that there are adequate supplies of essential materials and equipment and that there is a steady increase in investment to get that expansion going.

As the House knows, since my Budget last April the Government have already increased expenditure on industrial training by £67 million. The new pro- posals of the Manpower Services Commission offer us the opportunity of a further expansion for the coming year. But I do not believe that we can be satisfied until we have developed a much more extensive training system on a permanent basis, along the lines of the Labour market policy which has been so successfully running for many years in Sweden.

A few weeks ago I announced Government assistance to the British Steel Corporation to permit the stockpiling of £70 million worth of steel in the current year. We are now considering the possibility of similar assistance for stockbuilding in other areas where future needs can already be identified. This, too, can help to prevent the appearance of critical shortages of materials and equipment during the recovery, such as happened in 1973, as well as providing profitable employment in the coming months.

But the key to full employment in the longer term lies with industrial investment. Here, too, there is a case for giving priority to areas where shortages of capacity may otherwise appear when the recovery is under way. Getting new investment started as soon as possible will also help to bring down unemployment in the short term.

There are obvious limits to what the Government can do to influence decisions on investment. But we are already doing very much more than has been done in similar situations in the past. As the House knows, we have introduced a scheme to provide financial assistance for investment projects which can be started by September this year but which have been stopped or postponed. About £34 million has already been earmarked for 10 major projects, including important expansions of capacity in ball bearings, pumps for diesel engines, and pharmaceuticals. The original allocation for this scheme was £40 million, which we later boosted to £70 million, and £20 million was added for modernisation projects.

As the scheme gets better known, and no doubt also as the deadline approaches, applications are coming in at an increasing rate. We have therefore decided to make available a further £30 million and to consider applications for projects below the £½ million threshold. This is making this help available to smaller projects than we have hitherto envisaged. and it will be of help particularly in the engineering sector.

Most of this money goes in the form of interest relief grants, lowering the effective rate of interest on the investment financing. This means that the total value of projects brought forward is much higher than the Exchequer cost, by a factor of five or six to one. If the whole £120 million is spent, around £600 million of new investment will have been stimulated. Although not all of this investment will take place in 1976 and 1977, it is equivalent to 6 per cent. to 7 per cent. of the total manufacturing investment foreseen in the investment intentions survey. That is a very significant addition. We cannot be precise about the number of jobs this will create, either while the installation work is being done or permanently when the new plant is operating, but it will certainly help.

There remains enormous scope for a rapid increase in investment without such Government assistance. If we are to believe the recent inquiries made of industry, there are still thousands of firms in this country, particularly the smaller ones, which at present plan to cut investment once again this year, yet these same firms express a firm intention to increase investment very substantially in 1977. If they wait that long, I believe they will be taking a very short-sighted view of their own interests. The capital goods that they want are likely to be cheaper and more readily available this year than in 1977. Moreover, investment this year can be relied on to meet the peak of world demand. Delay, as so often in the past, could mean missing that peak. Many big British firms, like ICI, learnt this lesson long ago. If firms wait until the surplus capacity which they have at present it brought fully back into use, it may well be too late to order new plant and bring it into operation before the demand has gone elsewhere, with markets lost to overseas competitors.

There is one apparent impediment to early investment which I can remove immediately. As the CBI and others have told me, this is the uncertainty about the future of deferred tax liability on stock appreciation. My last two Budgets gave a very large measure of relief to industry for increases in stock values, and I know that in spite of reassurances some com- panies are still apprehensive that this was a temporary measure only and that they may have to repay it this year. Let me say firmly that my next Budget will contain proposals for the continuation of stock relief in some form. I cannot yet say what form it will take nor how it will be related to the previous relief, but I can say that there is no question whatsoever of any general withdrawal of past relief.

I have tried to give the House some idea of the measures the Government are now considering to get unemployment moving down as soon as possible. We intend to announce our decisions by the middle of next month. As I have said, our purpose is not only to save and create jobs in the coming months but in doing so to strengthen our capacity for continued growth with stable prices in the future.

Thanks to the efforts made in the past year by all sections of our people, we now have it within our power to start moving up the interational league table once again—to enter the upswing of an international trade cycle with our economy moving into balance, with our inflation rate still falling, and with a steady improvement in our industrial performance under way.

Mr. Patrick Cormack (Staffordshire, South-West) rose

Mr. Healey

The last time an opportunity on this scale lay before us was in the autumn of 1970, thanks to the sacrifices made by the nation in the preceding two years. That time the opportunity was thrown away because a Conservative Government which won power by exploiting the strains imposed by those sacrifices squandered their patrimony and lost their nerve. I have rehearsed that lamentable story in my speech this afternoon. This time we must not panic. We must not lose our nerve. That is what the nation asks of us. I know we shall not fail it.

4.48 p.m.

Mr. John Nott (St. Ives)

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof: regrets that unemployment will be higher and will endure longer as a direct result of the Government's failure to take early and decisive action against inflation; endorses the Government's apparent determination not to undertake a general reflation of the economy nor to impose import controls; but deplores the lack of an effective long-term strategy for a sustained economic recovery based on a prosperous private sector and the reduction of State spending and borrowing". The Chancellor has made a characteristic speech, reeling out Treasury statistics on the one hand and throwing around charges of humbug and hypocrisy on the other. I think I can say that what he said was not entirely unexpected either in tone or in content. When he remarked that the new policy for incomes has transformed Britain's position in the world, I think that he was partial to a little exaggeration.

I hope I shall not disappoint the right hon. Gentleman's Tribune Group friends, his brothers in the movement, if I tell them straight away that I shall be treating the Chancellor more in sorrow than in anger. I note that he is now a confirmed monetarist and that he finds himself in substantial agreement with one or two of my hon. Friends. At Question Time he may have heard my right hon. Friend the Leader of the Opposition talk of what his right hon. Friend the Prime Minister said on 9th October 1974, the day before the election. This was reported at the Press conference at Transport House. The Prime Minister said: Unemployment is beginning to fall.… The pace of inflation and price rises are moderating. On 26th September the Prime Minister said at Bury: Price rises in the shops are slowing down. All these results point in the same direction—to a significant reduction in price increases. There seems to be a substantial difference of view between the Prime Minister and the Chancellor of the Exchequer about the causes of our inflation. Perhaps when the debate is over they will sort it out among themselves.

The Chancellor of the Exchequer and the Secretary of State for Employment are becoming the star performers in these debates. The Government put them on the stage with increasing regularity, although the audience seems to get less and less hysterical about their performance. Watching the Chancellor today, it suddenly occurred to me that he and his right hon. Friend the Secretary of State for Employment are becoming more and more like Laurel and Hardy. Hardy comes on first, rumbustious, self-confident and brash. Then at the end, on comes poor old Laurel, looking more and more downtrodden in each debate. He reels out a string of adjectives—"ghastly", "terrible", "appalling"—and yet nobody, and certainly not the right hon. Gentleman himself, seems to appreciate that he caused the trouble in the first place.

During the past few months the volume of comment about the nation's problems has swelled into a veritable flood. It becomes almost self-defeating to try to absorb the mass of newsprint now being devoted to the structural, monetary and resource problems facing our society. But we, as politicians, have much to learn from personal observation as we do from highly competing and, to use the Chancellor's term, macro-economic theories of the time.

Advisers have their place, but every hon. Member has present experience of unemployment in his or her constituency. We can all see the problems on the ground. The statistics produced by the Chancellor today and pumped out by the machine each month not only mask personal distress, anxiety and growing fear of unemployment but conceal, within broad regional averages, communities where whole towns and villages are out of work.

The hon. Member for Ince (Mr. McGuire) made this point the other night when speaking about the towns of Ormskirk and Skelmersdale. In an intervention in the Chancellor's speech today the hon. Member for Liverpool, Walton (Mr. Heffer) said that what he and other hon. Members were concerned about was the reality of unemployment in their constituencies. That was the right answer to the Chancellor's statistics.

I hope that the House will bear with me if I briefly talk about the one community I know best. I refer to the area represented by my hon. Friend the Member for Falmouth and Camborne (Mr. Mudd) and myself. That area is an industrial, mining, ship-repairing area as well as containing a large agricultural and tourist interest. Other hon. Members will instance West Midlands, Scotland and Merseyside as their examples. Let me give the House the situation in my area. The population in the combined areas is 150,000. Over an eighth—12.5 per cent.—of the working population are now without a job. In Helston, a small manufacturing and service town, the current rate of unemployment is 16 per cent. and in another town in my constituency the figure is as high as 17 per cent. That town has a population of 8,000. The number out of work in this area is nearly 75 per cent. higher than it was a year ago.

In the construction industry, well over a third of all construction workers are now unemployed. I was told this morning that the unemployment rate in the construction industry in West Cornwall is now 45 per cent. The last sum of Government money allocated to the construction industry in our area was £90,000. I do not criticise the figure, and I have not done so locally because the construction industry would get off the ground if the Government abolished the Community Land Act. That is one way to get the construction industry moving again.

What does the Chancellor think the men in the construction industry in my area say when they see over £100 million guaranteed to one American-owned multinational concern apparently just because it is big? What will the construction workers in my constituency say today about Chrysler and the support given to it by the Government? It seems that the workers of Linwood, who are now voting with their feet, are a better judge of these matters than are the present Cabinet members.

Mr. Ron Thomas (Bristol, North-West)

Is not the level of unemployment in the construction industry of Devon and Cornwall to a large extent due to the freeze on public expenditure and the failure of local authorities in Devon and Cornwall to take up offers made by the Labour Government in regard to housing, schools and hospitals? Would not the policies advocated by the Conservatives, aimed at cutting public expenditure, increase that level of unemployment in Devon and Cornwall?

Mr. Nott

The lack of development flows overwhelmingly from the developments following the enactment of the Land Community Bill and the tax legislation which we are all awaiting.

Mr. John Pardoe (Cornwall, North)

I am sure the hon. Gentleman does not wish to mislead the House. He was present at a meeting of construction industry representatives who came to the House from Cornwall last week. I did not attend that meeting because I had a separate meeting with them. However, unless those representatives told him something different from what they told me, the Community Land Act bears little responsibility for the decline in activity in the building industry in the hon. Gentleman's constituency or mine. He should not mislead the House.

Mr. Nott

I do not believe that to be the case. However, I am interested to hear that the hon. Gentleman is in favour of the Community Land Act. I thought that the Liberal Party was against it.

Our nation is not made up solely of large factories in vast urban conurbations. For every Linwood and Ryton there are hundreds of small firms and factories and shops and offices employing a few men here and a few women there. Over 6 million people work for that kind of firm. No Opposition Member would decry the importance of the nationalised industries or the function of local government, but it is on the private sector that we rely for most of our innovation in terms of technological change and our exports. For every inefficient, and capital-intensive firm that we subsidise, we do so at the expense of industry generally. For every job preserved in Chrysler, several jobs are destroyed throughout the country.

The burden on the small and medium-sized employer has become greater year by year. But it is only under the regime of the Secretary of State for Employment that it has become intolerable.

If the presence of the right hon. Gentleman in the Cabinet is the price we have to pay for the unity of the Labour movement, the currency of that payment has now been debased and bad money is driving out the good.

I do not deny that aspects of the Employment Protection Act and the Health and Safety at Work Act are good, but the cumulative effect of new legislation, rules and regulations, permits and permissions, visits by factory inspectors, redundancy payments and social security upratings is increasingly undermining the whole employment structure in these firms.

Most employers in this large sector, who employ 25 per cent. of our working population, would do almost anything to avoid re-employing somebody. I refer not to the financial burdens on a firm meeting the £6 limit but to the administrative problems.

The Government are turning businesses into bureaucracies. They are seeking to recreate industry in their own image. The Secretary of State for Employment has now abandoned the concept of the right to work for the right to go on receiving wages unrelated to any economic contribution. Work is being divorced from production, cost from benefit, reward from performance. This is a recipe for 2 million unemployed.

It is worse than that. For some members of our society there are pleasures and attractions in taking commercial risks. The upside potential under this Government and under the tutelage of the Chancellor of the Exchequer has become virtually nil, while the downside risk is unlimited. The rewards, starting from scratch today, would not permit the accumulation of a capital sum equivalent to the value of a Permanent-Secretary's pension, yet bankruptcy is the downside risk facing virtually every small company in this country.

My right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) has described this situation as our Socialist anti-enterprise climate with indifference, ignorance and often distaste on the part of politicians for the processes of wealth creation. Even if this attitude is not shared by the Chancellor of the Exchequer, he has still introduced penal taxation on capital, particularly the capital transfer tax.

I agree that many of our nation's problems can be laid at the door of management as well as at the door of the antiquated attitudes and structures of the trade union movement, but if management is to be blamed for our performance, it must surely be sensible to try to put it right. We shall not do it by continually diminishing its status and remuneration, narrowing its differentials and recruiting all the best brains into the Civil Service. The relative attraction of the Civil Service as a career with its freehold tenure is now out of all proportion to the needs of our society.

A consultant in the National Health Service overtakes the wages of a docker only at the age of 44. Throughout his working life, a consultant, who has probably spent eight years in training, only just receives more in average lifetime earnings than the man working in the docks who left school at 17. I am not saying that dockers are not doing a valuable job, but until some differentials are re-established in our society, management will continue to decline.

Manchester University Appointments Board recently published a report showing that the starting salaries paid by the Civil Service are 50 per cent. higher than those in the rest of British industry. If the Labour Party, because of its beliefs and its membership, is incapable of reducing the higher marginal rates of tax on earned income, it should give way to a party which will do so.

I have dwelt on these matters because I regard them as being as important in the debate on unemployment as the broader economic arguments to which I shall now turn. Before I do so, however, I wish to deal with the Chancellor's recent measures.

Mr. John Mendelson (Penistone)

Talk about unemployment.

Mr. Nott

If the hon. Member for Penistone (Mr. Mendelson), who called for this debate, does not realise that management is at the root of most of this country's problems, he has a lot to learn.

Mr. Martin Flannery (Sheffield, Hillsborough)

The hon. Gentleman says that he is dealing with unemployment, but he quite clearly differs from his right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) who has signed the same amendment. Will the hon. Member make clear which unemployment figure he is dealing with?

Mr. Nott

I do not think that is very relevant to the debate. If the hon. Member wishes to study the figures put out by the Centre for Policy Studies, he will find that they show unemployment rising at an even steeper rate than the figures published by the Government. The hon. Member's intervention is not particularly helpful.

The Chancellor may have been trying for a year or more to deal with the unavoidable consequences on jobs and prices of the social contract and, given the degree of understanding of some of his colleagues, he has been having a remarkable degree of success in some areas. But that has not prevented him from gratuitously destroying jobs.

In the Adjournment debate on 22nd January, the problems of the television tube factory in the constituency of the hon. Member for Ince were highlighted. I remember the hon. Member for Ormskirk (Mr. Kilroy-Silk) warning Treasury Ministers of the consequences of imposing 25 per cent. VAT on television tubes. The Financial Secretary himself admitted that the higher rate could cost up to 20,000 jobs. It is rather ironic that the Secretary of State for Prices and Consumer Protection should come forward with her plan to restrict price rises of certain essential food to 5 per cent. when her right hon. Friend the Chancellor of the Exchequer imposed a 300 per cent. tax increase on essential home repairs in one fell swoop a year ago.

I know that the Chancellor is very proud and cocky about his success as a monetarist and I will deal with the points he made on monetarism now. The borrowing requirement is now three times the size of the requirement he inherited. I will save him embarrassment by leaving aside his forecasts. In order to prevent that borrowing requirement leading to massive inflation, he has had to borrow ever-increasing sums from overseas until our international credit is virtually exhausted. Treasury guaranteed stocks are now selling on the world market at yields of more than 1 per cent. higher than medium-sized cat food manufacturers from Chicago. That is the extent of the fall in the international credit of the British Government following the Chancellor of the Exchequer's overseas and other borrowing to support his public sector borrowing requirement. The increase in debt interest alone between now and 1980 can hardly be less than £4 billion at present interest rates assuming that we can scale down the borrowing requirement to nil by the early 1980s. We have to look forward to a situation where debt interest alone in the 1980's will be equivalent to the whole of the public sector borrowing requirement inherited by the Chancellor of the Exchequer.

Yet still in front of the Chancellor is the major problem of what to do about bank advances when the economy picks up. Does not the great monetarist himself understand that the nightmare in monetary policy is not the public sector borrowing requirement, if one can borrow money from overseas, but the borrowing through bank advances in the private sector when confidence returns and when industrialists go to the banks for money to re-stock and invest? The problems we face as soon as that situation arises are frightening to contemplate.

If the Chancellor of the Exchequer claims that the Conservative Administration overstimulated the economy in 1971, I can only repeat what my right hon. Friend said in an intervention during the Chancellor's speech—our judgment was shared by every member of the present Cabinet and by most economists and business men. I remember very well the mood around the country in 1971.

I have not time to repeat the long list of contemptible and vicious charges made against us by the then Opposition at that time. I will content myself with one. In a debate on 24th January 1972 the then Leader of the Opposition made an absolutely grotesque speech. It was one of the most vicious, low and disgusting speeches I have ever read. He said, referring to the then Prime Minister: I wish he could have seen the Kirkby juvenile register—351 boys and 273 girls; some of last Easter's school leavers still without a job". And so it went on. Right through the speech there were vicious attacks on my right hon. Friend then Prime Minister. The then Leader of the Opposition said: Last Friday he left these shores, the first dole queue millionaire to cross the Channel since Neville Chamberlain.—[Official Report, 24th January 1972; Vol. 829, c. 999.] I hope that when the Prime Minister crosses the Channel knowing that 1½ million are unemployed in this country he will reflect, when he refers to Neville Chamberlain, on the part that he played in the miners' strike. The attitude of the Prime Minister at that time was much more hysterical and contained far more humbug than anything Labour Members have heard from us.

I am afraid that I do not like the Prime Minister. I think that he has degraded the profession of politics, and history will not divorce his record as Leader of the Opposition and Prime Minister from the decline of Great Britain as a proud and self-confident nation. Although the temptation is substantial, I hope that my hon. Friends will not follow the Prime Minister's example and descend into that domestic fitting which he can occupy with such natural distinction, because I do not think that anything is to be gained by following his example.

Apart from being a symptom of our deeper troubles, unemployment will inevitably accompany the conquest of inflation. As the rate of inflation declines, all those who have depended upon it for their jobs will lose them. We are not encouraging the Chancellor to reflate or to impose import controls, which was what Labour did when we were in office. We will back the Government in any stand they make as an employer in the public sector against outrageous pay claims. However, to support the Government against their critics on their own Benches should not preclude us from reminding the country of what we said persistently about the social contract, of what the Government did artificially to stimulate real incomes and consumption in the short term, of the cut in VAT to produce that famour 8.4 per cent. put forward by the Chancellor, and of the attack on profits before the October election which the Government won. The Chancellor pushed British industry into a financial deficit of £3¼ billion in the period that led up to that election.

These were the measures which ensured that the traumas of unemployment would go deeper and last longer than need have been the case. It is only now that the spiral is unwinding. The Chancellor said to one of his hon. Friends that if he had given the stimulus of July 1974 he would have brought the whole economy down in ruins. But he gave that stimulus in July 1974, and the economy has been brought down in ruins. The right hon. Gentleman did that so that he and his colleagues could win the October election. It was a fraudulent prospectus and every Labour Member knows it. I come now to the charges made against us on public spending. I stress that we would not have started from this point. Public spending now is about £25,000 million more in money terms than when we left office. We do not know the exact figure, but it is probably £5,000 million higher in real terms, and that has all arisen in an environment of virtually no economic growth. The position inherited by the Government was fully under control. Within two months of the oil embargo in October 1973 we had planned a reduction of £1,200 million which left the total for 1974–75 lower by 2 per cent. than for 1973–74. The Government cannot claim that these cuts were never made, because they took full account for them in their White Paper. The gross increase by the Government in 1974–75 turned out, against a planned decrease of 2 per cent., at 11 per cent., and throughout that period the economy was virtually stagnant.

In last year's Budget the Chancellor claimed that in the current year he would hold public spending to planned levels, but it now appears that the real increase may be as much as £1,000 million more than was planned at that time. The consequences of this profligacy, contrary to the Labour Party's myths, has been most severe on the lower-income families. The massive increase in subsidies of every kind has to be financed and the burden inevitably falls hardest on those earning around the national average wage.

The poverty trap is now a real scandal. It is becoming virtually impossible for the family earning below the average wage to improve its position. A man earning £40 a week—and that is a reasonable wage in my constituency—and with four children is now actually 49 per cent. worse off in tax and social benefits if he earns an extra pound. In other words, he goes backwards. He does not even get an extra 1p. What can this man think when he sees the kind of abuses which are undoubtedly existing in the social security system, about which Professor Donnison wrote an article which was referred to by the hon. Member for Cornwall, North (Mr. Pardoe) last week?

We are being challenged on our view on public spending. Has it never occurred to the Chancellor that if he had held control of public spending he could have used the extra £5,000 million in real terms which has gone into State spending to reduce the borrowing requirement, to put more resources into British industry and to raise the tax threshold?

When we were in office we tried to unravel the enormous administrative problems of the overlap of social security benefits and tax which has been much exacerbated by the Chancellor's failure to raise the threshold. But the Labour Government abandoned our tax credit scheme, and, so far as I can see, there are no plans in Government to deal with this the gravest of all social problems, a problem which is worsening year by year.

I conclude by saying what I think should be done, but I emphasise again that we would not have started from this point.

The overriding need at this time is to make British industry alive and well again. It is an exciting challenge and it can only mean far higher profits or, to put it another way, a much higher surplus for investment out of earnings for stock building and for new jobs. I do not know what the profitability gap, as it has been called, is in British industry, but it must be somewhere in the region of £5,000 million to £8,000 million. The latest Price Commission Report, the latest figures from the Central Statistical Office, show that the fall in the profitability of British industry has reached the most dangerous levels, and that profitability is now about half what it was some three years ago.

Second, we must return to ordinary people the freedom to choose. Without it there can be no incentive to work or to save. This must mean fewer subsidies, fewer benefits, and more discretionary expenditure with, ultimately, lower taxes.

Third, if we believe in those two things, which I believe my party does, we have to face the consequences of these requirements. If we need more investment in industry, more exports and a rising standard of living, whether we live in a Socialist society or a capitalist society, the resources can only come out of public expenditure. It is the residual. It is the only place left, and our resources are finite. Our public spending must be regarded at present as a residual.

It means a drastic cut in transfer payments and the political will to resist public sector wage demands which were surrendered to for between six and nine months by the Government, and which led to our present problems. It means there must be a public sector manpower policy, and natural wastage alone in the public sector could throw up £2,000 million of additional resources in three years.

Mr. Healey

I thank the hon. Gentleman for making much clearer than have any of his predecessors what the Opposition Front Bench believes in. In referring to a drastic cut in transfer payments, I presume that the hon. Gentleman means unemployment benefit, old-age pensions and disablement benefit. Will he tell us which transfer payments he wants to cut drastically? He may recall that he and his hon. Friends supported every increase the Government made in the last three years and pressed for a twice-yearly up-rating of the old-age pension.

Mr. Nott

Yes. I will tell the Chancellor right now to which subsidies—transfer payments—I am referring. Subsidies are largely transfer payments. I said that we must cut drastically transfer payments. I am referring to subsidies. Instead of subsidising people to remain in dying industries and industries dependent on inflation, we have to encourage people to move. That encouragement includes retraining. With Socialist housing policies it is impossible for anyone who moves to find another home. It is madness to subsidise houses and not people. It enslaves people in their existing homes. I do not have the figure in front of me, but I believe that housing subsidies under the Chancellor's direction have grown by about £1,500 million since he came to office. I will check that figure but it is not far wrong.

Unless we change our housing policies, people will go on being unemployed, as they are, and, when the pick-up comes, will go straight back into declining industries. All this unemployment will have been to no avail. Unless we can achieve more mobility the trauma we are going through will be of no avail.

Mr. George Rodgers (Chorley)

The hon. Gentleman refers to cuts in housing subsidies. Does he apply those cuts to owner-occupiers and mortgage repayments?

Mr. Nott

We should look at the whole range of subsidies throughout the economy. Subsidies have got completely out of hand. I am in favour of a review of every subsidy so that we can get the matter straight.

We need to publish our long-term targets and not keep them wrapped up in Treasury obscurity. We noticed the little niceties in the Chancellor's letter to the IMF. He excluded debt interest from public spending. Of course, he had to exclude it. He has borrowed so much that he does not dare to include it in the figures. We must publish our long-term targets so that everyone—the Treasury, the House of Commons, the Opposition and the country—knows them and makes sure that the Government keep to their long-term targets which are essential to put our economy right.

Sound monetary policy is very important, but it is not an end in itself. Sound monetary policy, with fiscal policy, is a precondition for stability. In itself monetary policy cannot solve our structural problems. It has rather the opposite effect. If tight, it will tend in a recession to transfer resources into the public sector, which is thoroughly insensitive to economic conditions. Therefore, with a sensible monetary and fiscal policy, we have to have as well a policy for the public sector to reduce its size and get resources back into the private sector, otherwise nearly 66 per cent. of our activity which is in the public sector will remain relatively insensitive to turns of the economic cycle. If that happens, inflation will grow and grow.

Mr. Heffer rose

Mr. Nott

I hope the hon. Gentleman will forgive me if I do not give way. I referred to him in my speech and I am just drawing to a close.

None of the principles which I have enunciated is new. Most of what I have said is broadly acceptable to Social Democrats. There is a common ground between us. It is no use deriding that term used by my right hon. Friend the Member for Leeds, North-East. We owe a lot to him for having the guts to speak out and challenge some of the economic assumptions which many of us followed for too long.

However, the impression I gain is that although there is much common ground between us, a leader of the Labour Party or a Chancellor in a Labour Government can hold one belief, express another and pretend a third. He continually has to con his hon. Friends—and they know it. The Chancellor will try to hide this by accusing the Opposition of hypocrisy and humbug, and by claiming that two years after he took office, in spite of what the Prime Minister said at the October General Election, it is all our fault. It is apparent to everyone why he does this. He cannot answer the questions asked by his hon. Friends because he is the biggest humbug of the

Mr. Speaker

Order. I have ruled that I will not have that word applied to an individual. I do not mind it's being applied to an argument.

Mr. Nott

I apologise, Mr. Speaker—

Mr. Victor Goodhew (St. Albans)

I apologise for encouraging my hon. Friend to use the phrase, but I think that the House rather feels it.

Mr. Speaker

Perhaps the hon. Member is fortunate in that I shall not be in the Chair for much longer.

Mr. Nott

I have one final principle, which is not for the House but for the Press. There are no gimmicks left to make the headlines. No magic and dramatic answers, no changes in the system, no juggling with personalities will save the British people from themselves. The move back to a prosperous society will be a long and painful business, and the going will be extremely hard, but the gravamen of our complaint against the Government is that they have not yet begun. If, as I suspect, the Chancellor is a prisoner of his party and his circumstances, the Conservative Party must do these things, for we are prepared to see through a long-term strategy for full employment and a free society. As things are going, I predict that it will not be long before we have the opportunity of doing so.

5.28 p.m.

Mr. John Mendelson (Penistone)

You have informed the House, Mr. Speaker, that the amendment standing in my name and the names of 112 other right hon. and hon. Members will not be called for a Division. With your permission, I intend to make the speech I would have made if the procedural position were different, because it is appropriate and it is the only speech I have prepared. I am reinforced in this determination by the two speeches we have heard. I see no reason for introducing any changes in my prepared speech.

The basis of the amendment is that there is an underlying agreement on economic strategy between the two Front Benches, and that assumption has been confirmed by the opening speeches. We are undergoing a singular experience in that the official Opposition have put down an amendment to the Government's motion which attacks not the motion but my amendment. The two major pillars of the amendment which the motion attacks are the proposal for early measures of controlled reflation and the proposal for import controls.

The main purpose of the speech of the hon. Member for St. Ives (Mr. Nott) was to praise my right hon. Friend the Chancellor for this underlying agreement and to tell the House how glad he and the Conservative Party are that the Chancellor is not moving away from his opposition to reflationary measures and import controls. The hon. Member for St. Ives, shortly before he concluded his speech, said that he attached great importance to the freedom to choose. Against a background of 1½million unemployed, that comment reminds me of the great French writer Anatole France who also coined the phrase "Freedom to choose". He pointed to the homeless in the City of Paris who could choose the kind of bench upon which they wished to sleep and the kind of park where they wished to sleep.

The freedom of choice which the hon. Member for St. Ives and the Conservative Party support was indicated in the poverty of the proposals he offered to deal with the problem of unemployment. During his speech he speedily moved away from any proposals for dealing with the problem of unemployment, in sharp contrast to the deep concern of Labour Back Benchers, the Labour movement both within and without this House, and the trade union movement. Those people have personal experience of unemployment and therefore will not make the type of Oxford Union speech which the hon. Gentleman made in the face of 1½ million unemployed. [Interruption.] The laughter and the sneers are an indication of the frame of mind in which the Opposition approach this problem. I shall take no correction from hon. Gentlemen who shout. They are not in the least bit interested in reducing the level of unemployment.

Indeed, the charge of hypocrisy levelled against them by my right hon. Friend the Chancellor stands and is fully justified. They want to use it as a stick in the party battle against my right hon. Friend, but they have no proposals to put forward and they are not interested in the matter. Indeed, if one carefully reads the policy speeches made by right hon. and hon. Gentlemen one realises that each one leads to the same conclusion—namely, further unemployment and no measures to reduce it. Let there be no doubt about it. No speech or political decision by a Labour Member can be in any way complete unless it starts from the point of analysis from which I have tried to start.

As the House knows, the origin of this debate is not the sins of the Opposition but a lobby of 12,000 unemployed people and their trade union representatives to this House. I see that my hon. Friend the Member for Dearne Valley (Mr. Wainwright) is nodding in agreement. Hon. Members on both sides of the House who met their constituents on the day in question will remember that it was a most interesting lobby. After we had met the lobbyists, some of us decided that we would give this matter the highest priority and ensure that the maximum amount of time was given to a debate on unemployment.

We must now face the issues which divide the policies of my right hon. Friend the Chancellor and the Cabinet from the policy proposed in the amendment. That does not in any way preclude that there is a good deal of common ground. It does not in any way indicate any indifference to the sincere attempt made by the Government, especially my right hon. Friend the Secretary of State for Employment and my right hon. Friend the Chancellor, to produce alleviating measures. That is not the argument today.

It was my purpose in framing the amendment to bring to a head the points of disagreement. I admit that quite freely. As my right hon. Friend the Secretary of State for Employment has often asked us in the past, what is the House of Commons for if not for the serious discussion of political principles and policies? It is a place where people can honourably disagree. This is not a mutual admiration society. I shall concentrate on the disagreement.

My right hon. Friend the Chancellor says, and obviously he is well advised by a number of people—some pre-Keynesian, some post-Keynesian and, I regret to say, very few obviously Keynesian—that it is not possible at present to engage in any significant measures of reflation. For my sins I am old enough to have listened to the great man Keynes himself when he lectured to the Marshall Society. However, I point out that I am not old enough to have been one of the original students. I remember that during his lectures to the Marshall Society he warned that if there were another deep, profound, international economic crisis in the system, the most terrifying and dangerous thing that could happen would be for the psychology of the business man to spread to the politicians. I am often reminded of that dictum. It is not my own dictum because I am not capable of coining such a phrase. I believe that that is what has happened to my right hon. Friend the Chancellor.

Let us consider the two neuroses which Keynes warned us about concerning the business man or the entrepreneur, as he always called him. The first neurosis is that when we are on the upswing, when trade is booming, everything is on the up and up, the sky is the limit, everything goes—secondary banks, property booms, loosely knit companies, enterprises galore, South Sea Bubbles—it does not matter which century one lives in—money flows. Such conditions feed upon the illusions which they create for each other.

When we get into the downturn and into the crisis, the second neurosis takes over. Everything is bad. Nothing will succeed. There is no profit at the end of the road. Wherever one goes there is no light at the end of the tunnel. Therefore, we get rid of everything and we do not invest. We hear that the banks are bulging with money and offering entrepreneurs money to invest. However, the entrepreneurs do not want to take it. Many people are saving but they do not want to invest their savings. They go to Harrods and buy two fur coats instead of one. I do not know why a decent man wants to buy two fur coats—one should be enough—but that is what people do. I shall leave the question unanswered. Will people invest—not on your life. What is most dangerous is that a reflection of that is seen in the City.

Mr. Richard Lamb, a reputable journalist, is often heard on the five o'clock programme on a Saturday, "PM Report". When speaking directly to my right hon. Friend the Chancellor he said, "The City hopes that the Chancellor will hold fast and let unemployment rip". I know that many of my hon. Friends heard him say that. Many of us take an hour off on Saturday afternoon to hear what Mr. Lamb reports. We do not always have the same access as hon. Gentlemen do to all the City tycoons. We get our information from wherever we can because we are humble people.

It is remarkable that when unemployment figures go up so do share prices. We have experienced the same crazy, topsy-turvy situation before. The termination of the upswing cannot be left to the City. That is one of the lessons we must learn.

I do not share my right hon. Friend's confidence about the end of the crisis. We have heard many forecasts and some have been of mixed economic and political origin.

Some people have said that they cannot conceive that the Republican Party in the United States or the Social Democrat Party in Germany will go into an election year without manufacturing a boom. But we cannot bank on that. I have carefully followed—I am sure that my right hon. Friend has followed even more carefully—the pronouncements of Dr. Friderichs. My right hon. Friend will have many assistants to monitor these matters for him. So far as I can tell, Dr. Friderichs is not too optimistic. He has warned German industry and the trade unions of the need for caution and the fact that there is no certainty about an upturn in the United States. Many voices have said that there might be delay, that the boom might not happen at the end of this year but might be delayed until well into 1977.

In a recent television interview, the Chancellor had to face this question and he gave an honest answer when he said that if it came to a hard choice he would have to face the problem and think again. This amendment—were I able to call a Division on it tonight—wants the Government to face the problem now—and precisely for the reason that the Chancellor himself gave, because of the period of gestation involved in doing something if things were to go wrong.

It is no argument to say that if the process started now it would take time to come to fruition. My hon. Friend the Member for Bethnal Green and Bow (Mr. Mikardo) intervened effectively to say that my hon. Friend should have started a year ago and that if he did not start a year ago, he cannot use the same argument for not starting now. We are therefore very concerned and insistent that certain measures of controlled reflation should be started.

Mr. F. A. Burden (Gillingham) rose

Mr. Mendelson

I do not want to give way. There are some right hon. Gentlemen, men of great political past and experience, from whom we can all learn, who should give way. But it is not important that I should give way to the hon. Gentleman.

Mr. Burden

On this point.

Mr. Mendelson

Very well.

Mr. Burden

The hon. Member said that his right hon. Friend took no measures to reflate the economy. But in July 1974 he said that steps that he had taken then would decrease unemployment by between 20,000 and 40,000 and increase employment by between 100,000 and 150,000. Surely that was an attempt to reflate.

Mr. Mendelson

I deliberately did not want to go back to the hustings—

Mr. Burden

He said this in the House.

Mr. Mendelson

There is an answer to what the hon. Gentleman said. I gave it in my election address but I will not give it today. I want to return to what matters now—unemployment and how to deal with it. I am sure, Mr. Speaker, that you will be much happier if we do that. My first major example is the construction industry. It is a sign of the obscenity of the economic system under which we operate that there should be 175,000 unemployed construction workers while homeless people are walking the streets. It is quite wrong for a Labour Government not to say, "We must now risk the investment of large sums to put those construction workers to work". The one perfunctory sentence that my right hon. Friend devoted to the construction industry was totally inadequate.

We want to hear real plans. Several hundred million pounds should be spent on this matter right away. There need not be a long delay, nor should there be a large import bill. We have the building workers and the institutions. All that would be required is the import of timber from some Scandinavian countries. The oniy other thing that is needed is a Government decision.

The other industry that I want to mention is the television and tube industry, which has recently been discussed a good deal. Here I move to the second leg of the amendment, import controls. This reference was not put in wilfully. I am not unmindful of the danger of retaliation or the importance of free trade for a large trading country like Great Britain. Those who are concerned that it should remain a united Kingdom for the sake of its economic future must be particularly concerned for its trading position. It is all of one piece.

But the talk of retaliation has been exaggerated. After all, many countries are interested in the British market where 25 million people are gainfully employed. They will not cut Britain off without a penny and say that they are not interested in her. It is a scandal to talk about import controls only in such propagandistic terms.

My proposal is much more precise. In preparation for the debate, I have taken advice from some importers. I am told by some people who are not in principle in favour of general import controls that there is a proper place for them, particularly in the period to which the Chancellor referred today. They fear that, in the months before an expected upturn, the Chancellor's own policy would be gravely in danger if, just at that time, when people were beginning to earn more —particularly if he accepted some of my proposals for earlier reflation—they could not find the things that they wanted to buy on the home market. Retooling would not have been carried out, so there would be a flood of imports. It would be just then that we should need a certain amount of protection.

If temporary protection is not allowed, then—I do not expect the Treasury and the Department of Trade to tell us how "temporary" it would be—we could not do anything about the imports problem. The flood would come in and no one would want to invest in the necessary retooling. Import controls then would bring an outcry.

It has been suggested in Whitehall and elsewhere that we are under a binding commitment to the EEC, that it would be ultra vires for us to impose certain import controls and that the Customs and Excise might feel that they were illegal. If that is so, the nation should be told and should be given the reasons. Such obstacles would not be insurmountable. They could be overcome by de novo legislation. This is a national crisis and temporary de novo legislation could overcome it.

There would be criticism of us, but other countries, like Italy and France, who are members of the EEC and who have imposed controls, have accepted such criticism. I am not asking for controls lasting until the end of the century. It would be for the Government to decide how temporary was temporary. That is what an Executive is for. Our amendment does not prescribe in detail. We do not want the House of Commons to assume the rôle of the Cabinet. This is a carefully-prepared and thought-through proposal which the Executive would have to put into effect.

Even an amendment which has not been called does not give the potential mover the right to speak all day and to prevent everybody else from taking part, so I must draw to a close. My right hon. and hon. Friends who have signed the amendment are convinced that the Government's policy is too timid to deal with this serious problem, the seriousness of which exercises us as much as any other member of the Labour Party, here or outside. There is nothing between us on this. No one here sets himself or herself up as being more concerned about this problem than any one with responsibility in the Executive. But the Government are too timid.

We want to change or shift their policy. We want them to make a start in shifting or changing their policy. To indicate that we are serious about it, this will be done in different ways tonight by different groups of my hon. Friends. The best way would have been for the House of Commons to be able to support the amendment, but we want the Government to take warning—as they ought to have done already—from the the developing discussion.

I do not take kindly to my right hon. Friend the Chancellor of the Exchequer, and sometimes the Prime Minister, telling us time and again that the last Labour Party conference and Trades Union Congress accepted the policy of the £6 limit. It is historically true that the two conferences and the movement accepted the £6 limit as a sound policy only on condition that there would be a policy of reducing unemployment at the same time, hand in hand with it. If my right hon. Friend the Chancellor of the Exchequer had gone to either conference or to both conferences and said, "Accept the £6 limit and higher unemployment", the conferences would not have accepted either policy from him.

This is not a matter of being right or wrong, because there was wisdom in the attitude of the movement—[Interruption.] Perhaps I may give myself an extension of two minutes, Mr. Speaker. [Interruption.]

As I was saying, the historic record is clear. The movement, being responsible for the people who are its members, knows that unemployment will always be regarded by the working people of this country as the gravest problem.

The right hon. Lady the Leader of the Opposition, who sat through the beginning of the debate, said haughtily at her first party conference—I want to put this on record before I conclude—that "This unemployment is not due to capitalism" She added, "I support the capitalist system", and nailed her colours to the mast. She did not talk about the ugly face of capitalism, as other Conservative leaders have sometimes done in the past. She said proudly and haughtily, "I support the capitalist system. This is the unemployment of the Labour Government." That was nonsense. It is the unemployment of the capitalist system. It is not the Labour Government that is responsible for unemployment.

There are 25 million people unemployed today in various categories and countries. It is not only in the United Kingdom that there is unemployment. There are 8½ million unemployed in the United States of America, the strongest of all capitalist countries. There are 1,400,000 unemployed in West Germany.

That is the system. The right hon. Lady can have it. She will not get away with it. The Conservative Party do not deserve to get away with it. At the right time we shall remind the electorate of the Conservative Party's responsibility. But my right hon. Friends carry the responsibility for the country and for curing unemployment as best we can. It is to call them to their duty that the amendment is being moved and will be supported in the House and in the country today.

Mr. Heffer

On a point of order, Mr. Speaker. We have just seen a demonstration by young people who are obviously deeply concerned—

Mr. Speaker

Order. We have not seen anything. It is the convention of the House not to refer to what happens in other parts of the House. We are concerned only with what happens on the Floor of the House.

Mr. Heffer

Further to that point of order, Mr. Speaker. Whether we saw it or not according to the rules of the House, I actually saw some young people throwing something on to the Floor of the House, and something hit my hon. Friend.

I have in the past come into the House from outside when there have been demonstrations, and I have asked that the people who have been demonstrating —when they have been involved in conflict—should be treated leniently because of their deep feelings. I am asking that the Officers of the House should recognise the deep feelings of these young people about unemployment—wrong as they no doubt are in their demonstration—and treat them with leniency. People have the right to tell us how they feel about unemployment—

Mr. Speaker

Order. It is for me to decide, and I have not yet decided to take any disciplinary action against anybody.

5.56 p.m.

Mr. Peter Walker (Worcester)

We have listened to the hon. Member for Penistone (Mr. Mendelson) with some interest and I should like later to comment on some of his proposals, particularly on those concerning the construction industry.

Regional policy was not mentioned by the Chancellor of the Exchequer but I hope it will be mentioned by the Secretary of State for Employment when he winds up the debate tonight. The people of the Midlands will be very depressed that in the Chancellor of the Exchequer's speech there was no suggestion that there are any specific problems in the Midlands or in other regions.

There is a tendency at the present time, with rising unemployment in the North-East, the North-West, Scotland and Wales, for some hon. Members on both sides of the House to suggest that regional policy has been a failure. I believe that regional policy has contributed considerably towards reducing unemployment, which would otherwise be far higher in the regions.

Although I very much agree with the remarks of my hon. Friend the Member for St. Ives (Mr. Nott) about the importance of increasing mobility, retraining and housing facilities,, it would be a disaster if the House ever pursued a policy of encouraging people to move to more buoyant regions, leaving behind them immensely distressed communities of old people and completely misusing the very substantial social capital that exists in the regions.

Mr. John Stokes (Halesowen and Stour-bridge)

I understand my right hon. Friend's point of view. He will know—as I do only too well—that one of the most successful movements of population was from Wales to the West Midlands in the 1930s. The people involved were very grateful, and the move greatly contributed to our prosperity.

Mr. Walker

I also recognise the immense hardship suffered by the people of Wales at the time when they had to move in order to find work in that way. But I much prefer to see industrial development taking place in Wales, so that communities can flourish there, rather than that type of movement.

As one who, as Secretary of State for Trade and Industry and also as Secretary of State for the Environment, pursued many positive regional policies, I believe that it is time the Government reviewed the situation in the West Midlands. There has been a trebling of unemployment there during the last two years. We have had the biggest increase in unemployment and the biggest decrease in job vacancies.

It must be wrong to continue pursuing industrial development certificate policies and policies of financial discrimination when, for a number of reasons, the West Midlands has become a depressed region and one of high unemployment. With the Chrysler closures and other events which are likely to take place there, the situation is deteriorating. I hope that the atmosphere on both sides during the debate will be to wish to do everything positive that we can to reduce unemployment.

One might sometimes feel that a cycle of unemployment is necessary in order to get things right, but one must not underestimate the permanent damage caused by unemployment. It is a permanent damage that affects people's attitudes to work. The worst restrictive practices existing in the trade union movement today are much more related to the high unemployment between the wars than to any other possible circumstance.

In view of the present rise in unemployment, we must recognise the nature of some of the grave social problems that it is creating and will create. Mention has been made of school leavers. A young person leaving school and finding it impossible to obtain work has a frustrating and shattering experience.

I regret that the Centre for Policy Studies is seeking to remove from the unemployment figures people between the ages of 60 and 65. Some of the greatest distress and hardship is felt by that group of people. Their family responsibilities have probably passed and they feel that they can save for retirement, only to find that this is a period of considerable financial strain and stress.

One problem which the House has grossly underestimated, and will continue to do so at its peril, is the current incredibly high unemployment rate among young West Indians, which has increased from 3,600 to 14,000 in the last two years. That is only part of the story.

Some people say that the unemployment figures are lower than the published statistics. The 1971 census shows that unemployment among young West Indians is not higher but considerably lower. That is because about half of them do not register for unemployment. Therefore, the figure is probably about 21,000. In the Midlands there are 4,000 unemployed West Indians centred on Birmingham. In London the figure has gone up from 2,000 to 8,000, as recorded, but in reality it is probably 12,000.

That means a massive increase in crimes of every nature. It is no use this House eventually blaming the immigration policy of successive Governments for the increase in mugging and other crimes associated with young West Indians if we pursue economic policies which make it impossible for them to get work. I hope that the Government will concentrate some specific policies on that area. They have the urban aid programme and a multitude of agencies, but they have failed dramatically to make any impact on that problem.

I turn now to the national position. We should recognise that there is no national interest in having substantial public sector payments for 1½ million people to produce nothing. That is an inflationary policy. Those who rightly comment on the size of the public borrowing requirement deficit should also recognise that unemployment payments, social security payments and rent and rate rebates without any production on the other side are not particularly good for the public sector borrowing requirement.

I shall analyse the reason for the increase. My hon. Friend the Member for St. Ives rightly dismissed the manner in which the Chancellor of the Exchequer argued that he had inherited this situation and that it had gone on from there. That would have been plausible if we had only one General Election and not two General Elections in 1974. The Government fought the last election on the basis of the notorious 8.4 per cent. rate of inflation and the Prime Minister saying that unemployment had declined. The Government cannot, after winning an election on that bandwagon, claim that the previous Government were responsible for what happened thereafter.

What is the real difference which has taken place? It was not mentioned by the Chancellor, it was not mentioned by the hon. Member for Penistone and—this is no criticism—it was not particularly mentioned by my hon. Friend the Member for St. Ives. The real difference in the last two years is the colossal gap which has opened up between the increase in earnings and the decrease in production. We ignore that gap at our peril. That gap has contributed more than anything else to both unemployment and inflation.

I want the House to reflect on the figures. In the calendar years 1972 and 1973—the last two years of the Conservative Government—manufacturing production went up by 13.4 per cent. and earnings went up by 29.1 per cent. There was a gap between earnings and manufacturing production of 15.7 per cent. That in itself was inflationary and would perhaps eventually contribute to some degree of unemployment. But a gap was unavoidable in that period. According to the Financial Times commodity price index, during those two years commodity prices world-wide very nearly trebled. It was impossible for any democratically-elected Government to pass on the whole weight of that burden at once to the people. It would have been an intolerable burden to bear. Therefore, we had earnings going ahead of production by 15.7 per cent.

Consider what has happened in the two years of the present Government, taking the period from when they came in to the latest available figures. Manufacturing production has gone down by 8.6 per cent. and earnings have gone up by 50 per cent. We cannot have a gap of 58.6 per cent. between earnings and production and not expect inflation and unemployment on the scale that we are suffering today. That is why the Secretary of State for Employment reluctantly went over to an incomes policy and why the Chancellor has decided that his greatest asset is the success of an incomes policy.

I remind the House that in the whole of the five days of the Budget debate last year only two voices—one on the Government side and myself on this side of the House—advocated the necessity for an incomes policy. I am not sure what the total is now. I do not know whether anyone is against such a policy. Certainly nobody would doubt that the continuation of the free-for-all would have been disastrous. I should like a situation in which there was no necessity for an incomes policy because I know as well as anybody the difficulties and absurdities which are created.

We have not had this desire for a 50 per cent. increase in earnings with falling production because the unions were hostile to the Government. Indeed, they are friends of the Government. Nor has it been because the unions have negotiated with employers and found that it was reasonable to have such an increase. The monetary argument that if they are short of money they do not give wage increases, and that if there is control over that aspect it is all right is not true. In fact, if they are short of money they give way on wage demands quicker than if they have plenty of money because they cannot afford a breakdown in production and cash flow. The Government sat back during that period until the election. After the election they could not stop it, so the situation drifted on. Now we have this gap of 58.6 per cent. between earnings and production. That is the major cause of our problems.

My hon. Friends constantly kept on about the public sector borrowing requirement. It has gone up from £4 billion when we were in office to £12 billion this year. The free-for-all in wage increases added £6.6 billion to public sector wages and salaries. Most of the increase is accounted for by the massive increase in public sector wages and salaries in that period.

Therefore, if we on our side are concerned, as we should be, about the size of the public sector borrowing requirement, we must also be concerned about what has been proved correct in the last two years—and, indeed, when we were in office—that, as long as the unions negotiate on the basis not of considering what the employer or local authority can afford but of competition of one union against another, one saying "They have got 20 per cent. so we must get 22 per cent", there is a basic necessity for an incomes policy.

The hon. Member for Penistone pleaded for consideration to be given to the construction industry. He underestimated the figures. The latest unemployment figure for the construction industry is 211,000. The traditional argument on both sides of the House is that one must not reflate and do anything about it now. I would do something about it and act now in relation to the construction industry.

What would be the cost? When I was Secretary of State for the Environment—and now, seemingly, criticised by the present Chancellor for doing so—I reflated for the construction industry. I started an enormous campaign of housing improvement, for putting in bathrooms and so on. The cost was £450,000 a year. It has come down under the present Government to £168,000 a year. One can do that type of reflation on a short time scale, and one can phase it out at the end of the time scale and say "If you do it in the next 18 months you will get the grant. If you do not, it ends there"

If the Government decided to reflate in that sphere to, say, £450,000 a year, as we achieved only two years ago, and if they decided to bring back Operation Eyesore, which I introduced, and the house improvement campaign, it would probably cost £300 million and an additional £70 million for Operation Eyesore, making a total of £370 million. I would guess that it would reduce unemployment in the construction industry by 70,000 people.

However, the net cost would not be £370 million. One would save 70,000 unemployment payments, social security payments and rent rebates and rate rebates, and one would draw tax on all those people's income and probably some corporation tax from the firms by which they were employed. Therefore, the net cost of reflating is relatively small. It is tiny when compared with the £6,600 mil lion public sector wage increases during the recent period.

The next phase of incomes policy is the key to all this. The Prime Minister has now come out with the phrase "A fair day's work for a fair day's pay". The difficulty that the present Government are in is that they have given the fair day's pay before they have got the work. Now they should be asking the country to do the work for the enormous pay increases that have been awarded—and that is a very uncomfortable thing to do. I would certainly support the Government in a tough incomes policy. I would bring about tax reductions, particularly increasing the threshold, to help the lower-paid sector, and I believe that general reductions in taxation are much more related to productivity or production than any flat-rate increase or incomes policy.

Let us try to persuade the country as to its position. Listening to the Chancellor's speech today one can appreciate that there is a tendency to feel that it is all beginning to go rather nicely, all moving along, that next year there will be great demands and that world trade is picking up and we are doing rather better than most. However, let the Chancellor remember that we still have thousands of unemployed to come from the steel industry, and still 20,000 unemployed to come from the Post Office. Chrysler unemployment is still to come. The shipbuilding industry has its worst order book for years. The building industry is getting its worst order book for years. Then there are firms in the aerospace industry, Britsh Rail, Post Office equipment manufacturers and the machine tool industry, probably quite a few will be going out of business. If we look at the geographical pattern of these closures, we shall find some ghastly, awful social problems involved with them.

The Chancellor said that the balance of payments was improving. He said that we were doing jolly well and had halved the deficit last year. But we must look at it relative to what has really happened. If it did not fall in a period in which commodity prices fell by nearly one-third and in a period when British industry was destocking as never before, that would indeed be a very remarkable circumstance. But what was the position? Our deficit last year was $3.8 billion. Germany had a $4 billion surplus and the United States had a $10 billion surplus. In 1974 France and Italy had almost the same adverse balance as we had, or slightly less. Now France is in balance and Italy has reduced its deficit to half of ours.

We should not underestimate the colossal danger to the British economy when we restock, after all the other countries, when commodity prices have increased. If we have a $3.8 billion deficit when we have destocked, what will be our position when restocking with far higher commodity prices?

The Chancellor talked about the position that he inherited in relation to exports. He failed to say that he inherited the biggest export orders in history. Exports continued to rise until August 1974 and then reached a peak. If we had continued at that level, without increasing it further—which we could have done without the massive wage inflation which took place—we would have had £1,000 million-worth more in export orders last year than we did.

The Chancellor said that inflation rates are improving, and that in the last few months they have come down to between 14 per cent. and 15 per cent. He mentioned the success that we are having. However, we should look at the position of our industrial competitors. In the last three months—the period in which we have been boasting of the figures—our rate of inflation has been half as much again as that of Japan, Italy, and France, double that of America and treble that of Germany.

I believe that the basic weakness of the British economy, not merely over the last two years in which I think that this disastrous wage inflation has done immense and permanent damage, can be illustrated quite simply.

I hope that the House will reflect upon two simple facts which are terrifying in themselves. When I first became a Member of the House, in 1960, we were beginning to negotiate Britain's entry into the Common Market. I was one of its leading opponents. At the time when we first negotiated to go into the Common Market, had we then gone into the Community Britain would have contributed 27.9 per cent. of the GNP of the then Community. Fifteen years later, taking the same Community countries and leaving aside the new member countries which joined, apart from ourselves, the figure is not 27.9 per cent. but 16.5 per cent. of Community GNP. In 1960 the exchange rate was 11 deutschemarks to the pound. Now it is less than six. Relative to our major industrial competitors in Europe, there has been, in 15 years of British government—eight years Labour and seven years Tory—this relative decline of this country.

I believe that it will be a very tough and hard road. I believe my hon. Friend the Member for St. Ives when he warned that to recover from this position means, first, that the British people must understand the factors of what is our situation. We would then have the toughness to beat it. We must make progress as never before in areas such as employee participation. I remind those of my right hon. and hon. Friends who are nervous of this by statute or any other means that I know that a delegation of Labour Members from the trade union group recently went to Germany to study these matters there, and there is much to be learned from the greater participation in that country. We need a new climate of industrial relations.

We must, alas, have a period of a tougher incomes policy. We have to attract inward investment, because there is no way in which the British economy in its present position can generate sufficient capital to create a basis upon which we can genuinely compete. That will mean many different policies to attract that inward investment and to make progress. Only when we do that with a sense of reality will the real recovery commence.

6.18 p.m.

Mr. Douglas Jay (Battersea, North)

I will say for the right hon. Member for Worcester (Mr. Walker) that he has been talking about subjects which ought to be before the House today. It is a rare pleasure for me to be able to agree with the right hon. Gentleman about almost anything, but I agree most warmly with what he said about the importance of regional policy and the great contribution which it has made in recent years to unemployment in the areas concerned. Indeed, there is nothing which would make unemployment worse in Wales and Scotland in particular than to sever the economic and industrial link between those countries and the United Kingdom as a whole.

I also agree with what the right hon. Gentleman said about incomes policy, but it was his Government who, in 1971, abolished the then Pay Board. That, I believe, was one of the tragic mistakes made in recent years.

I welcome what my right hon. Friend the Chancellor said today about the temporary and rather minor measures that he is adopting to keep unemployment down. I must say that I could wish that some of them had been more vigorous and more effective than what we actually heard—

Mr. Mikardo

And earlier.

Mr. Jay

I believe that, whatever else the Chancellor of the Exchequer does, he must take steps in his coming Budget to raise the tax threshold on the lower earned incomes, because the present position is untenable.

Nevertheless, this is a sad occasion for many of us, including some like myself who have been advocating full employment policies ever since 1931 and in my case who also had a hand in the drafting of the employment policy White Paper in 1944. Although I agree with the right hon. Member for Worcester that the permanent effects of unemployment must always be kept in mind, I am now reluctantly forced by the hard facts of the case to the conclusion that, at any rate, the basic policy of the Chancellor of the Exchequer is right, that he should not substantially relax or reflate until at least two main conditions are satisfied: first, that a continuing incomes policy to operate after next August is devised and agreed with those concerned; and, secondly, that the annual rate of rise in the Retail Price Index is at least brought down to single figures. If my right hon. Friend does that, I believe that by 1977 prices will be held in check, unemployment and the payments deficit will be falling, and production and real incomes will be rising again. On the other hand, if he lets go altogether now, I believe that we shall be back some time in 1977 with accelerating inflation, a widening deficit and a sense of crisis once again.

Those who ask for immediate sweeping reflation now—and I know how strongly they feel about it—are genuinely ignoring some of the basic facts about the modern industrial economy—not just ours but those with which we are surrounded. Putting it, as one must, briefly and summarily, I believe that the basic fact is that, if unrestrained collective bargaining persistenly pushes up pay rates in money terms faster than the rise in production, one of only two things is bound to happen: either the Government allow the money supply to increase fast enough to finance that higher pay for the whole of the employed population, in which case prices must rise; or else, if, as some advocate, the Government refuse to let the money supply increase, unemployment must rise correspondingly.

That is just a statement of arithmetical fact. But in the last few years I believe that we have learned something more than that. It is that if, in the next pay round, the attempt is made to recoup the loss in real earnings due to previous rises in prices, the rate of inflation must tend to accelerate almost continuously, and then, of course, the attempt to escape from it will be more prolonged and more painful than if we had acted earlier.

My reason for decisively rejecting the alternative of indiscriminate reflation now is that I believe that when the rise in prices had reached 40 per cent. or 50 per cent. a year, the public simply would not stand for it continuing,and the hangover, when it was stopped, would be even more painful than we are experiencing now.

Those who demand wholesale reflation are failing to grasp this basic dilemma—

Mr. Mikardo

We do not demand wholesale reflation.

Mr. Jay

I hope that no one thinks—

Mr. Mendelson

The amendment refers to "controlled" reflation.

Mr. Jay

The process that I have described is roughly what occurred in this country and in industrial countries throughout the world in 1973–74, but it occurred particularly acutely in this country.

Mr. Flannery

On two occasions now my right hon. Friend has referred to "sweeping" or "wholesale" reflation. In the amendment which has not been selected and which in my opinion is the only relevant one, nowhere do we see any other expression than "controlled" reflation. Therefore, it is in those terms that we should be debating this matter.

Mr. Jay

I was not referring to any specific amendment. If we are all agreed about what I am saying, I am only too happy that that should be so. I am arguing that any reflation beyond a moderate extent at the moment would cause greater difficulty in the future.

If that is true, the responsibility for today's unemployment cannot be laid at the door of my right hon. Friend the Chancellor of the Exchequer. I believe that it can be laid in two other directions: first, those who prompted or at any rate allowed the grotesque credit inflation that we had in the period 1972–73. I do not know whether hon. Members realise, even now, that from the end of 1971 the money supply in the United Kingdom was actually doubled in three years. Certainly none of us ever advocated that. That extraordinary increase had little or nothing to do with the public sector borrowing requirement in those years. It consisted very largely of private advances stimulated by the misconceived policy of what was called "Competition and Credit Control" and the indiscriminate tax relief for overdrafts interest.

Secondly, if we look at it dispassionately—and I am being quite impartial between the parties—the responsibility also rests on those who in 1974 took advantage of that credit inflation to demand all the way up the scale to doctors and highly-paid public servants, extravagant and absurd pay increases of 25 per cent. and 30 per cent.—far beyond any increase in productivity which would have been possible.

Those two factors together made the price explosion of 1975 inevitable. Therefore, it is not true, as even the Chancellor of the Exchequer said today, that inflation causes unemployment. It does not. The truth is that inflation on that scale forces any Government into an absolute dilemma in which they must either let the price rise continue and accelerate or check it and face unemployment. Having got to that point, there is no way out of the dilemma and, the longer they wait, the more prolonged will be the unemployment before it is safe to take off the brakes. That is where the Government found themselves last summer.

Not being wise after the event, if I have any criticism to make of the Chancellor of the Exchequer it is that in my view he should have acted sooner than he did last July. But Governments never act with ideal timing, and they have to have the agreement of most of the people concerned.

Thus, it is now fairly well established by the experience of the past 30 years that the only way of combining genuinely full employment with reasonably stable prices is by a continuing and agreed but flexible incomes policy. Incidentally, I have little doubt that if Keynes were alive today, that is what he would argue. If hon. Members care to look at the employment policy White Paper of 1944, they will see that that was stated as long ago as then and that what we have learned now is the truth of it rather than it being a wholly new idea.

But the practical crux is what sort of incomes policy we should have after next August. If we are to operate a continuing and workable policy, it will not he practicable beyond these 12 months if it is to be based on a fixed rate for everyone of £X a week. I say that for two reasons with which I hope that my right hon. Friend the Secretary of State for Employment will agree. The first is that we cannot suppress and distort the differentials between the skilled and the unskilled and all the other differentials very much longer without producing a violent reaction. The second and more important reason is that, if we are to have full employment in a mixed economy, the ratio of pay rates in different occupations —the "relativities", as they are called—must be allowed to change; otherwise we shall get intensifying shortages in one industry and overmanning in another.

If the price of oil is quadrupled, the wages of coal miners have to rise. To neglect that fundamental fact seems to me to be precisely the mistake that the right hon. Member for Sidcup (Mr. Heath) made which cost him and his Government so much.

Frankly, I do not see how we can achieve a workable incomes policy of this kind in future without some national pay tribunal of the last resort something similar to that which operated from 1966 to 1971. As long as we have a series of so-called review bodies competing with one another as they did in 1974–75 we shall get this spiral. They will generate a scramble and give to it the polite name of "comparability". Although any incomes policy after next August would certainly be better than none, I believe that any successful policy must be agreed with industry. I urge the Chancellor, if he can, to work towards some sort of last resort pay tribunal or pay board to operate as soon as possible.

There is one other reason for trying to secure agreement on such a firm incomes policy before next August. if the underlying forces now at work are similar to those I have described, we can begin to understand, among other things, why it was that the intense world boom of 1928–29 was followed by the most intense depression ever known and then by a weak and slow international recovery I see certain signs that the world recovery over 1976–77 will probably also be weak and slow. That is a clear warning that we certainly cannot afford to let things get out of hand. For those reasons, and with the minor criticisms I have made, I believe that we should support the Chancellor.

6.32 p.m.

Sir William Elliott (Newcastle-upon-Tyne, North)

I want to comment on a number of points made by the right hon. Member for Battersea, North (Mr. Jay). He and my right hon. Friend the Member for Worcester (Mr. Walker) have enormous experience of development areas. It is to the development area of the Northern Region that I wish principally to refer once again. I say "once again" advisedly, because during the time that I have been a Member of this House I do not know how many debates I have taken part in dealing with unemployment. Certainly unemployment has been the subject on which I have spoken most. I have thought most about it and tried to make some contribution to the solution of this problem more than I have tried to do anything else.

I very much agree with my right hon. Friend the Member for Worcester and the right hon. Member for Battersea, North about the success of regional policies in the past. Certainly in the Northern Region we would not be in the comparatively reasonable position that we are in today but for the policies introduced by both Governments during the past two decades.

In making this contribution—one of a long line for me—I wish to suggest that for the Northern Region and for development areas generally there is now a new dimension to the problem of unemployment For years it has been the old industrial areas like mine which have suffered from massive unemployment because of the decline in traditional industries—in the case of the North-East of England, the decline of the coalmining and shipbuilding industries.

What is the position today? Falling employment is no longer confined to the development areas. It is the traditional areas of high employment which now know this problem. I note from a map produced in the Financial Times last week that in the Northern Region the January rate of unemployment was 6.6 per cent.—very much higher than it was a year ago—but that in the West Midlands the unemployment rate was 5.4 per cent. Quite often in these debates I have referred to the West Midlands as an area of high employment and tried to assist Ministers of both Governments to persuade industry to come to my region from that area.

Even in the prosperous South-East the unemployment rate is 3.7 per cent. Such regions as mine can therefore no longer expect the spin-off employment which we have been getting over the years. My right hon. Friend the Member for Worcester is right to suggest that we need a new approach and that development certificates and such things must be considered as things of the past. With or without the high employment areas and the underemployed areas, the problem is still the same as it has always been. If central economic policy as put forward by the Government is not working correctly, there is little hope for any reasonable level of employment in such areas as mine. I pay tribute to the right hon. Member for Battersea, North and my right hon. Friend the Member for Worcester, who during their periods of high office operated regional policies which to some degree have worked. These now must be rethought.

I was interested in my hon. Friend's suggestion about reintroducing Operation Eyesore. I have before me an appeal I made, together with other hon. Members, to my right hon. and learned Friend the Member for Hexham (Mr. Rippon) when he was Secretary of State for the Environment asking that Operation Eyesore should be continued. I quote from his answer to me when he said: But circumstances have changed and, with employment rising fast and growing pressure on resources, I have concluded that a general extension cannot be justified. I very much agree with my right hon. Friend the Member for Worcester that something in the nature of Operation Eyesore would be of the greatest possible assistance to the building industry in the Northern Region at the moment when 38 unemployed skilled operatives in the building industry are chasing each vacancy. It, as the Secretary of the Building Employers' Federation said a while ago, is a position of extreme crisis.

What we have to do in such debates as this is to try to find the common ground. I shall resist travelling up those paths which some hon. Members have travelled today in trying to determine where responsibility lies. I am clear about that. It dates back to 1974, the two elections and the wages free-for-all. I have no doubt on that score. On this occasion I shall leave it at that. I agree with the right hon. Member for Battersea, North that we shall need a continuation of some form of prices and incomes policy. It was the greatest possible tragedy that the earlier policy was abandoned.

In seeking the common ground we must be wholly honest about the position. In this respect I congratulate my right hon. Friend the Member for Lowes-toft (Mr. Prior) on what he said on television recently. We have to be honest about the fact that there will be a continuing high level of unemployment for some time yet. We must get our heads out of the sand. We know that the Chancellor has to bat for his side and justify his policies, but he was over-optimistic today. His theme was that it has been terrible but it will be all right. I think that it will be a long, hard pull. There is no quick or easy answer if we are to attain a reasonable level of employment in development areas such as mine.

We have to be honest about overmanning in industry. I find it distressing from time to time to talk to employers in my region who make it clear that there is overmanning in industry. Unless we face the problem of overmanning and over-realistic rates of pay in industry, we could face an inflation rate of more than 20 per cent. and 2 million unemployed.

With his considerable experience in office and since, my right hon. Friend the Member for Worcester was right to emphasise that there has been a disastrous gap between increased pay and decreased production. We have somehow to correct that gap. There is no easy or short-term answer, but we must face the fact that we cannot have over-realistic rates of pay alongside poor production. We must relate increased pay to increased production. All parties in the House must face this hard and inescapable fact before it is too late. It is the enormous challenge of our time. Debates such as this are of no use whatever—we have had them in the past—unless the message goes out to the country that there is no bottomless pit of wealth on which to draw. The propping up of inefficient industries with taxpayers' money can only be a short-term palliative. It is not the answer.

Secondly, we must deal with the problem of the continuing shortage of skilled labour. Are we doing enough about that? In my region I do not think that we are. The appeal for action on this matter has been constant when both parties have been in office. In the Northern Region we are still deplorably and dangerously short of skill.

A few days ago I asked a Question about skillcentres in the Northern Region The number of places now available is more than it used to be. This is good. But when I asked about the intentions for providing additional places in the Northern Region I was told: A new skilicentre is due to open at Bradford by the end of 1976 with 120 training places which will eventually increase to 170." —[Official Report, 26th January 1976; Vol. 904, c. 80.] All I can say is that Bradford is quite a long way from Newcastle, and in the area of the Tyne and the Wear there are many unskilled people. It is time for a new look at training, and in this respect the Chancellor's speech was encouraging, although other parts were certainly not.

Mr. Burden

The question of retraining is of interest to every hon. Member. Training centres are required to be custom-built. Therefore, it is essential that a programme for building them should be organised immediately if they are to operate soon and be effective.

Sir W. Elliott

I agree with that. We have been crying out for additional training for a long time and something has been done. When the right hon. Lady the Member for Blackburn (Mrs. Castle) had responsibility for these matters, I asked her whether we knew enough about the skill requirements of new industry in the Northern Region. I still do not think that we know enough today.

I was distressed to see in our regional newspaper that unemployment in my area is at its highest level since 1940. It has risen by 13,000 in one month to 103,000, and yet in that same newspaper one of the North's leading firms, Clark Chapman, was advertising for skilled personnel. We have not got enough skilled personnel. Therefore, we need to do a lot more about training. I hope that the Government will take account of such areas as mine in their new measures. There is only one answer to the present level of employment in the longer term: work must pay. It has not paid enough in the last two years. We must encourage small and medium-sized businesses. One of my hon. Friends is initiating a debate in the House on this subject, as I initiated one a year ago. I appealed then, and I appeal now, for a raising of the taxation threshold for small businesses especially and for the easing of the taxation burden for small and medium-sized businesses. We must have more investment. In my area this is vital. For too long we have thought in the short term in such debates. It is no good talking about advance factories and bringing more and more of them to the regions. In the North-East advance factories could become monuments to good intentions of both Governments unless we think in the long term. We must think of the sort of future production we want in development areas. We must think not of this year or next year but in the long term.

We must recognise that investment is not just a matter of taxation but is a matter of the general policy of the current Government.

I was distressed to read in the Financial Times of falling American investment. This is attributed to world recession to some degree. The Financial Times states that American business has had to look hard at loss leaders and has had to cut back. But falling American investment is attributed also to steadily increasing burdens placed on management. It becomes more and more difficult to employ people. It is right to refer to management's increasing burdens. There is less and less encouragement because of protective legislation to employ workers. It is only common sense to realise that there are places in the world such as the United States and Brazil that do not have national interference with employment.

I end yet another speech in the House on the subject of employment, as always, with just a note of optimism. I believe that a solution can be found, but the hour is late for my own region, which has the highest unemployment since 1940. Action is needed quickly.

6.49 p.m.

Mr. Brian Walden (Birmingham, Lady-wood)

An American friend of mine said recently that he thought Britain was a bewildered nation with an uncertain future. I did not dissent very strongly but I added that I believed that the whole industrialised West was a bewildered area with an uncertain future. I confess fully to my share of bewilderment and uncertainty.

Perhaps that accounts for the fact that I have managed to agree with quite a bit of every speech that has been made in this debate. To my astonishment, and no doubt to his, I managed to agree with a huge chunk of the speech of my hon. Friend the Member for Penistone (Mr. Mendelson). When he explained what he meant by a controlled reflation I began to realise that he was not arguing for a general and sweeping reflation. I then realised that there was almost nothing between us.

I think that my hon. Friend must accept the logic of my decision to vote for the Government when I say that I do not think that the Government, since they changed their strategy in 1975, have made any substantial errors, except, perhaps, being somewhat tardy and unimaginative. If my hon. Friend thinks that we are as close as I believe us to be he may take the same course of action when the Division takes place. Perhap I might give him some cause to think about that when I refer to the speech of the hon. Member for St. Ives (Mr. Nott) that was made from the Opposition Front Bench.

Although it is very seldom that I agree with the right hon. Member for Worcester (Mr. Walker), I think it would be unjust—I know that that is not the intention of my hon. Friends, from the reception that they gave to the right hon. Gentleman—if acknowledgement were not paid to the right hon. Gentleman's remarkable speech. I am far from agreeing with some of the policies that his Government pursued, especially their monetary policy. My right hon. Friend the Member for Battersea, North (Mr. Jay) was on a sound point when he referred to that policy. None the less, the right hon. Gentleman's speech was informed by the kind of understanding of the social and economic damage that is caused by widespread unemployment. He showed an understanding that one would like to feel is shared by all hon. Members and that it could be taken as read that there was no need to discuss it further. Perhaps all hon. Members do feel like that. I am prepared to believe that that is the position, but I am less sure that every commentator in the Press and in the media shares that feeling. Sometimes their view of unemployment seems not only callous in human terms but socially, economically and politically irresponsible.

No man in his right mind can want as a preference the waste of human resources. There is some strange psychological argument that we shall somehow give encouragement to those who are employed when there is heavy unemployment, but all that it has done in the past is to encourage all those in employment to be much more afraid and unadventurous than they otherwise would have been. I hope that the speech of the right hon. Member for Worcester will be studied as carefully by some commentators outside the House as I am sure it will be studied by those who did not have the privilege of hearing it. It was a very fine speech.

I turn to the speech of the hon. Member for St. Ives so that I can swing on to what I regard as the main issue of the debate—namely, unemployment. It is a pity that the hon. Gentleman is not in the Chamber, but as he is a friend I know that he will not mind my saying that he had relatively little to say about the measures that his party would take in the short term to reduce unemployment—for reasons which do not altogether surprise me. He is an honest man and he was not prepared to say from the Opposition Dispatch Box that there was an element in the official policy of his party that would reduce short-term unemployment. He must be almost convinced in his own mind—he might in private confess that this is so—that if some of the policies of his party were carried out we would see a sharp increase in short-term unemployment. I give the hon. Gentleman credit for not trying to pretend otherwise.

I took the hon. Gentleman's main point of view to be rather like that of the yokel who was asked the way to Birmingham. The hon. Gentleman was saying that we should not start from here anyway. It seems that he takes the view that it is all the fault of the Labour Party for having created short-term unemployment, and that he is not called upon to judge the present situation. That may be a very good view in paradise where time does not matter, but it is not of much use to the country at the moment.

I remember the hon. Gentleman when he was a Treasury Minister, when I sat on the then Opposition Front Bench as a Shadow Treasury spokesman. I used to ask the hon. Gentleman about the money supply, about which I felt rather worried. I shall not discuss the arguments that used to take place between the Shadow Treasury team about the money supply. Suffice it to say that there were differing views. I was always allowed to do much as I liked, and I used to ask the hon. Gentleman and others about the money supply. I was told that there was nothing to worry about, that the situation was being carefully regulated and well looked after. I was told that one should not take too much notice of the various indices. If I could demonstrate that an index was rising alarmingly I was told that it was not one that mattered anyway. The argument was switched depending which index was going through the ceiling.

However, I must say to the hon. Member for St. Ives—I wish that he were present but I know that he will read my comments—that he presided at the death bed of one orthodoxy, and that he should not go too far overboard for another—namely, monetarism. That is an orthdoxy which is at least as fragile in its economic theory as anything that a misunderstood Keynesianism ever was.

I do not wish to go into the argument of the monetarist issue as I do not want to get involved in all the technicalities. We want to talk about unemployment and I know that other hon. Members want to speak. However, monetarism is the most important of all policies in this context. It is politically and socially impossible to impose it in this country over any period so long as we choose to preserve a democratic Government.

It is easy enough to pursue the policy of monetarism if it is decided that there will be 3 million unemployed. With that sort of unemployment it might be possible to break labour monopoly bargaining power. It might be possible to get a free market price for labour which would force down real wages. If one were irresponsible enough to want to do so, it would be possible also to make massive, instantaneous cuts in public expenditure which would add to unemployment. But if that were done, do the supporters of monetarism believe that this country would be governable? Do they think that there is any substantial section of the community that would be prepared to tolerate a remedy that savage?

Mr. Lawson

Will the hon. Gentleman tell the House what on earth 3 million unemployed has to do with monetarism and what he understands by that term, which he uses very loosely?

Mr. Walden

Then I am in very good company. The hon. Gentleman knows very well how difficult it is to secure a monetarist who will supply a precise definition of what he wants. I am assuming that what is wanted is what is generally arguedt in the speeches of, for instance, the hon. Member for Oswestry (Mr. Biffen), the hon. Member for St. Ives and, if I may dare to make reference to a person who is no longer a member of the Conservative Party, the right hon. Member for Down, South (Mr. Powell). I assume that they represent the pyramid of political monetarism. I believe that the application of their policies would mean a dismantling of welfare and would produce for a time an unemployment figure of at least 3 million. I think that at least one of those three would be prepared to pay that price.

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

As a monetarist I ask my hon. Friend whether he is not speaking a great deal of nonsense. Does he accept that the great difficulty that he has described arises because some people feel that we can have enormous monetary acceleration? What we are now experiencing is not the dethronement of monetarism but difficulty in applying the brakes to the car. Will my hon. Friend put to my right hon. Friend the Chancellor that the case for those who say that we should have a little reflation in the economy can be derived most substantially from monetarism, which shows that during the last four months the growth of the money supply has been negative in real terms?

Mr. Deputy Speaker (Sir Myer Galpern)

There is still a large number of hon. Members who wish to take part in the debate. I strongly deprecate interventions that are tantamount to speeches.

Mr. Walden

I take note of that comment, Mr. Deputy Speaker. I was about to meet the point made by my hon. Friend the Member for Stoke-on-Trent Central (Mr. Cant). I want to be clear and wish to deceive nobody. I did not say that monetarism was economic nonsense. I said that it did not matter whether it was or was not because it was of no practical use to the Government whatever. It could never be applied as a policy in a democracy. There is a measure of wisdom in what my hon. Friend said.

I agree with my hon. Friend the Member for Penistone that the House of Commons has a responsibility to discuss these issues seriously, taking full note of the gravity involved and not to search for scapegoats. No one class or group or political party has brought us to our present position. There are important factors relating to the whole theory of politics, government and economics that have brought us to the present situation. These matters should be taken seriously, and I am attempting to do so.

For a long time what has happened is that the industrial economies of the West have, by misunderstanding the process of Keynesian techniques, used demand management to regulate the level of unemployment and the rate of inflation. We now know that demand management—which is shorthand for Government control over spending—was all based on a fallacy. It looked as though it was working because we took too short a run of time. In the long term it does not work. Demand management, as we have traditionally applied it in the West, means that we can affect the price level but cannot guarantee stability. Demand management does not give stability.

There is no way that we can regulate the rate of inflation or of employment with the now discredited Phillips Curve. It is over and gone, and we might as well accept the reality. It does not mean that the work of Lord Keynes is not valuable. Nothing could be less true. But that is not the point. The point is that that kind of fine tuning is now obsolete and will not work. The god has failed, because it is a false god. Having failed, it does not matter how exotic or choice are the sacrifices offered to it. It will not perform miracles anyway. That is where the misunderstandings arise among many people. I am talking not of the ordinary citizen but of the whole army of offshoots of the Phillips Curve who are used to seeing rituals performed. That is not the way in which to find a solution, and we shall not be able to patch the thing up in that way. It is over and done with.

We must examine the situation as we now find it and see whether there is anything in the theory we have inherited initially, and in recent experience or practice, to help us in the future. That is what matters. It is not only a matter of regretting unemployment now but of examining how we shall get over this situation in the short as well as in the long term.

I agree with my right hon. Friend the Member for Battersea, North and the right hon. Member for Worcester that my right hon. Friend the Chancellor of the Exchequer is being somewhat optimistic about the recovery cycle. I believe that the industrial West is in a serious and deep crisis which is not cyclical. Let us not worry too much about see-saws or of moves up or down. There will be some moves up, but there will also be some moves down. We have a trans-cyclical crisis which goes to the root of our system.

Let us deal with that aspect for a moment before coming to the specific issues of unemployment. I agree with my right hon. Friend the Member for Battersea, North that this matter has a great deal to do with the price of labour as opposed to the creation of jobs.

Let me say a word of warning about wages policy. I am somewhat sceptical. I am not saying that I am other than deeply grateful for having such a policy. I cross my fingers and hope that we shall achieve that end again, and then again and again. But running the economy is not like keeping order in a classroom. We are not able to tell economic variables to behave themselves and expect that they will. In my judgment, mankind's worst ideological delusions and follies have arisen from the belief that one can order economic variables to behave themselves and that they will. When they do not do so we start killing people to make sure they do. I hope that we shall not regard incomes policy as an everlasting constant to be delivered to the Government year in and year out. It is bound to reach a cycle of ambiguity by which, although it is put on paper, it loses all meaningful content.

Yet it is to the credit of my right hon. Friend the Secretary of State for Employment that the Government have made enormous progress with the TUC on wages. One of my objections to the speech made by the hon. Member for St. Ives is that he appeared to regard all improvements as illusory. He thinks that nothing has gone right. In saying that, he is quite wrong because a great deal has gone right. Who would have supposed a year ago that the TUC would co-operate in a wages policy with the present Government or indeed any other, when it knew that a large number of workers would suffer a reduction in real wages? It is extraordinary that that has happened.

Even more extraordinary is the fact that for the first time publicly the trade union leadership has confessed that there is a market clearing price for labour, and that if the price of labour is pushed too close to, or even beyond, the value of output, jobs are inevitably destroyed. If some people work at wages above what would be the free market wage, many other people cannot get jobs at all.

That attitude by the trade union leadership is an extraordinary step forward. I appreciate that it would not greatly impress an academic economist, but anybody who knows the Labour movement appreciates that it is an enormous step forward. Trade union leadership now sees a close correlation between inflation and unemployment. When inflation hits a certain level the Government have to intervene, and their very intervention inevitably produces unemployment.

Dr. Jeremy Bray (Motherwell and Wishaw)

My hon. Friend has made an important comment. He said that the trade union leaders have accepted that there is a market clearing price for labour. I suggest that is not what they have accepted. They have accepted that there is a price which is not a market clearing price, which is not at all the same thing.

Mr. Walden

In view of the observations by the Chair a few minutes ago, I shall not go too deeply into that matter. I think there is a market clearing price for labour and it is important that the trade union leadership has, in effect, admitted it. It is not that I want to see a market clearing price operate, but it helps us to be much more sensible about what the Government can do in the real world if we can at least get the theoretical concepts right.

Of course, the rates of unemployment are intolerable and some of the justifications for them are not true. I want to stress very strongly the cost of unemployment. I do not blame the Government. When one is in a situation where the normal regulators do not appear to work, where it is not possible to depend on the guarantees one thought one could depend upon, and where the international situation does not respond in the way it is expected to respond, Governments inevit- ably tend to side with caution because there is a real danger of hyperinflation. It is not invented by the Chancellor of the Exchequer to excuse himself. It was predicted by many people, including the son of my right hon. Friend the Member for Battersea, North. He says that inflation is so built into our practices that it is bound to happen whatever we do. This is a real issue and a real danger.

I understand why the Government have been reluctant to have any kind of general reflation. They would need bigger and bigger injections of spending power and higher and higher rates of inflation even in order to attempt, let alone achieve, a given level of employment now. That is what I meant when I said that demand management techniques are not working. The patient is so stuffed full of dope that enormous amounts have to be poured in to get anything out of him at all.

Consumers and pay bargainers discount for expected inflation and once they have done that they lose all the stimulative benefits of having it. But if we cannot have a general reflation, as I listened to my hon. Friend the Member for Penistone and the right hon. Member for Worcester (Mr. Walker), I came to see how strongly I agree with them that there can be some measure of controlled reflation.

There is infinitely too great an underestimation of the cost of having people unemployed. This is not a criticism of the poor men and girls who do not have jobs. Much of the unemployment today is outside the traditional working class, particularly among men over 50, where many technicians and managers are involved. Having them out of work is an enormous drain on our resources. I estimate it might be adding £1 billion to our public borrowing requirement. If we could get them off the dole and into work we would get a clawback from their taxes and the taxes their companies would pay by virtue of employing them. A properly balanced equation would take these factors into account.

I am not against the Government when they say they intend to subsidise the production of jobs. I would like to see it done on a much larger scale, particularly in the construction industry, but generally as well. I am not saying I foresaw all this months ago, because I did not. I understand why the Government did not react as swiftly as they might have done.

Perhaps some of my hon. Friends are right and the Government should have reacted earlier. Anyway, they can do it now. The charge on our resources would not, in any way, produce dangerous consequences leading us to hyperinflation. It is a policy we ought to consider very seriously indeed.

We also ought to consider, though not place too much reliance upon, import controls. If other countries protest about what we are doing to treaty obligations I would courteously suggest that they should check their own economies and industrialists to see whether their observance of the GATT is as simon-pure there as they claim. I think a considerable number of exports to this country are carrying a hidden subsidy. However, if we do use import controls, we should not expect too much of them. If they become so general as to give us a siege economy it is almost inevitable that there will be economic nationalism of the kind talked about earlier. If they are not that general, the benefit to employment will not be as great as has been suggested in some quarters. It will certainly be nowhere near the figure of 500,000 I have seen quoted.

Let no one underrate the gravity of the situation we face. Anyone who knows the son of my right hon. Friend the Member for Battersea, North will recognise that he is one of the most outstanding practical economists and economic theorists in this country. Yet he has practically given up on democracy. He says there is an inbuilt contradiction between economic common sense and democratic government, that democratic governments will always be compelled, by the need to buy votes, to perpetrate economic lunacy, and that this will bring down the structure. That does not come from a foolish young man of totalitarian convictions, but from one of the most shrewd observers of Western economies. That is the challenge we have to beat. We have to prove him wrong and show that the democratic system can overcome these difficulties. I believe that the Government have done their best. If they adopt the suggestions of some of my hon. Friends they will do better. They will have to do better if we are to save the very fabric of our civilisation.

7.18 p.m.

Mr. Maurice Macmillan (Farnham)

Some time ago I made a slip of the tongue and referred to the hon. Member for Birmingham, Ladywood (Mr. Walden), who used to represent Birmingham, All Saints, as the hon. Member for All Souls. Hon. Members who heard his speech tonight will feel that that slip was pardonable.

The hon Member got me very depressed at one moment. He said that monetary policy was no help in dealing with unemployment, that incomes policy did not really work, that we could gain nothing by inflation and that no general reflation was possible. I began to feel like a passenger on a ship with one of the crew saying that the wireless was broken, the radar did not work, the compass was inaccurate and the navigator did not know his job. It turned out not to be quite as bad as that. The hon. Member was merely warning us that these matters require practical, rather than theoretical, solutions.

We are charged not only with the duty of discussing these problems in economic terms, but also, and far more important, bearing in mind, at all times, their impact on people. In his speech the Chancellor made it quite clear that he had no intention of embarking upon a general reflation. The right hon. Member for Battersea, North (Mr. Jay) agreed that this was correct and said that reflation should not happen until there was an effective incomes policy and the increase in the Retail Price Index had been reduced to single figures.

There is a further criterion to be added: financing the deficit. The Secretary of State for Employment, who, I believe is to reply to the debate, could allay this one of our fears, a fear which was voiced by the hon. Member for Lady-wood. He might say something about the problem which will face the Chancellor in financing his public sector borrowing requirement when the industrial upsurge which the right hon. Gentleman forecast diverts funds from the Government to industrial investment. If there is to be upturn in industrial investment, it is bound to be to some extent at the expense of the money that is now financing the public sector borrowing requirement. Any Chancellor in these circumstances must face that problem.

The main tenor of most of the speeches this afternoon was admirably captured by an article published last week in the Daily Mirror which said: With unemployment at the appalling level of 1,430,369, the temptation is strong to increase public spending and to start creating jobs for the sake of creating jobs. If this is done—and done for the best and most humane of reasons—inflation will be unleashed yet again. Result: more people will be out of work. That states the dilemma which all hon. Members have been seeking to resolve.

I wish to be brief and I shall therefore raise only two of the many points which arise in this debate. They are, first, investment, particularly in relation to overmanning, and, second, the question of how Government spending and investment should be directed.

On investment, the Chancellor has reassured many of us in business who were concerned about the cash flow problems which might arise if he were suddenly to rescind his deferment of corporation tax. He has given indications of further financial assistance to industrial investment. Particularly welcome will be the extension of such incentives to individual projects costing below £500,000. All these inducements are effectively methods of reducing the rate of interest on capital investment in new projects. But the obstacles which exist to the creation of new wealth by new investment are not wholly or even mainly financial. I do not believe that a high rate of interest is necessarily a deterrent to an investor in a profitable and reasonable enterprise. The certainty of his being allowed to maintain profits to provide a large enough surplus to reinvest and finance the continuation of his growth is far more important.

The smaller businesses, particularly the unquoted companies and unincorporated businesses, will need different incentives if they are to find it worth while making the type of investment which the Chancellor is suggesting. By definition they are not likely to qualify for the sort of help he has in mind. The hon. Member for Penistone (Mr. Mendelson) made an extremely interesting speech, part of which, he will be surprised to hear, I did not quarrel with. In it he quoted Keynes, referring to the "neurosis of business men" through which they did too much when things were good and not enough when things were bad. I do not believe that Keynes was at his best on this point. I believe that this is the neurosis of financiers. Keynes was much better at making money as a financier than as a business man.

The non-financial disincentive to investment for ordinary business men particularly in the private company part of the private sector, is far greater than many people realise. What is the point of borrowing money to put in new equipment if it will not lead to increased productivity because it is impossible to negotiate the manning agreements required to justify its expense?

We all know that one of the more serious problems facing the country in this highly competitive world is that we are not getting out of the same equipment the same output per man hour which is achieved in other countries. It is no use trying to excuse our poor performance as a country by saying that managers have not put in good enough machinery and that the labour force cannot give of its best on inadequate capital equipment. The reality is that, comparing capital equipment like with like, the output in this country is lower than in almost any other country in the world.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

Is my right hon. Friend aware that the Secretary of State for Employment, to whom these remarks should rightly be addressed, because he is the greatest advocate of overmanning and restrictive practices ever to have held office, is not even listening to what my right hon. Friend is saying? He is seeking to deny himself the opportunity of hearing my right hon. Friend's words of wisdom.

Mr. Macmillan

I do not think that it would make much difference if he did hear them. He does not appear to take advice from in front of him or from behind, much though he would benefit from so doing. But my hon. Friend is right.

One of the reasons why a quite large number of business men are buying equipment from overseas is that they find that the product they want and the goods they need are not only more readily available but delivery dates are better. Because of the greater productivity in those countries the goods are cheaper even though the wage levels there, both in money and real terms, are higher than ours. This seems to be a cruelly self-imposed wound by our labour force on itself. I do not think that anyone would wish to see unemployment at the present level for a moment longer than is necessary. Therefore, remedies are suggested. What worries me, however, is the element of self-deception that could lie behind this approach, even for persons as clear-sighted as the hon. Member for Lady-wood and my right hon. Friend the Member for Worcester (Mr. Walker) who say that it is worth while creating some jobs for the sake of creating jobs because it is cheaper than leaving people unemployed.

What worries me is that it may not be realised that the result depends on how it is done. All too often it has been done by paying or encouraging employers to add to their wage bills in a way which increases the unit cost of their output. It is criminal to do that. It means that people turn overseas for their investment and their goods, not because they want to do so but because they have to in order to compete in exports and in many cases to survive.

What is so sad is that now, where demand is increasing and British entrepreneurs are selling more and more goods abroad, those goods are manufactured or semi-manufactured abroad rather than exported from the United Kingdom. Yet if there were not overmanning there would be plenty of work for all the people in the industry concerned, because the unit cost would be brought down and it would once more pay British entrepreneurs to use British investments, British resources and British labour.

There is only one area in which there is a need to create jobs in the long term. I am not referring to the short-term solutions mentioned by my right hon. Friend the Member for Worcester and the hon. Member for Ladywood. I feel sure that they will agree with what I say about overmanning and in their plans for the short term do not wish to jeopardise the longer-term future. Getting the longer term under control depends on the growth of enterprises which will create wealth and not simply, as the Daily Mirror said, creating jobs for the sake of jobs.

The one area in which we should create new work is in the general area of defence. I understand that the current defence review will reduce the number of Service people by about 38,000, or 11 per cent., and reduce the civilian backing by another 30,000, or 10 per cent. That is a total of 68,000 lost jobs—new people on the labour market. The Manpower Services Commission is asking for a further £90 million to produce 60,000 jobs. I understand that there is to be a further cut of 25,000 in the civilian staff connected with defence in a couple of years' time.

The Government would do well to consider the need to employ more people in the defence industries and to have regard to their longer-term future. Some of our most vital industries, especially in areas of higher technology, are largely dependent on the defence programme. Those industries include aerospace and shipbuilding, which without Government support cannot continue to exist, not because of their inefficiency but because the Government, by definition, are one of their main customers. They are industries which are required for the future creation of wealth in the sense that they are an essential part of our technical and technological development.

Their destruction means the destruction of skilled design teams, the break-up of groups and, alas, in many cases the removal of highly-skilled technical personnel to other countries. Their preservation, on the other hand, has its own repercussions in helping to preserve the prosperity and effectiveness of the smaller firms which operate as their main contractors and sub-contractors. The main financial impact on the management of the economy from the Chancellor's point of view does not come until the later years, when, as he said, it would be more easily carried.

There is no doubt that we need to rearm to safeguard our country, or that we should spend more on the defence programme to match our European allies in terms of equity. We spend about $200 per year per head on defence, compared with expenditure on defence by Germany, France, Norway and the Netherlands of between $264 and $216. Belgium and Denmark spend slightly less per head than we do. Our forces are not large. Our manpower is about 345,000 compared with the 495,000 men under arms in West Germany, 500,000 in France and about 3½ million in Soviet Russia.

Therefore, by employing more people on defence we should safeguard our country, rebuild our economy and create jobs, not simply to provide work whether or not it is useful but to provide work which is essential to produce the spin-off which inevitably comes with any industrial expansion, especially in high technology. The Government would do well to consider carefully my right hon. Friend's argument about the balance of advantage between public expenditure on new jobs and the cost of unemployment in this field where the need for security means the need for new employment.

These are the matters which I should like the Government to consider. My hon. Friend the Member for St. Ives (Mr. Nott) referred to the distorting effect on the economy of individual taxes. He was referring not to the overall impact of taxation or the level of taxation but to the distorting effect of individual taxes on investment, manpower and the economy. We must find a means of tackling overmanning and thereby restore our competitive position in the world. In the process of so doing, we should consider seriously the need to safeguard our country by stopping defence cuts and contemplating the possibility that the time has come for the expansion of our defence forces, rearmament and investment in the industries concerned.

7.38 p.m.

Mr. William Small (Glasgow, Garscadden)

As an earnest of my good intentions I shall throw away half the speech I had prepared. I take issue with the economic scholasticism to which we have to listen in the Chamber as if it were the real world. I pay tribute to my hon. Friend the Member for Birmingham, Ladywood (Mr. Walden), who made an excellent speech, and advise him to read Kant's "Critique of Pure Reason".

Like Socrates, I am not an Athenian or a Corinthian; I am a citizen of the world. Unlike Socrates, I refuse to accept the dram of hemlock and say that we shall perish today. I want to see Britain rate high in the world.

I am old enough and experienced enough to have walked the streets for years. I am not claiming to be better or purer than anyone else. I know what unemployment means to people. One cannot make a happy home in a dole queue —the spirit departs. Intelligent people and skilled apprentices who feel that they have a potential are thrown on the scrap-heap. It is the worst thing that can happen to a democratic society.

I have lived in the days of the razor gangs in Glasgow. I can remember when "Love on the Dole" was the most popular theatre show. I can remember when Leningrad was Petersburg.

The right hon. Lady the Leader of the Opposition became an hon. Member the same year as I did, but she has achieved fame while I am still probably the most modest and humble Back Bencher in the House. I have visited every city in Europe, both East and West.

In the intellectual and technological caravan which started rolling after the war, the Germans set out on a search for the soul of the German nation. They turned to simplicity and away from the philosophy of the economic scholastics. They wanted to leave behind the days when they had had to live with the Gestapo looking over their shoulders. They got off their knees and became free. They built opera houses, cafes and cinemas so that people could mix. They searched for an economic philosophy of co-determination so that their nation could survive.

In Japan, under the MacArthur plan, they were not allowed to produce anything relating to armaments, not even a radio valve. Yet that was the nation that had produced the Zero fighter, the equal of the Spitfire. Twenty-five years ago people were advised not to buy Japanese goods because they were cheap. The same applied to Japanese cameras. But then they brought out Leika and Zeiss and flooded us with cameras. Then came Honda, which now sells cars across Africa, and Datsun and other names.

Japanese industry is now part of the international scene: it is our competitor.

Japanese shipbuilding represents unfair competition for the Clyde. I pay tribute to the £70 million that the Government intend to put into steel, but there are redundancies threatened in every shipyard in Britain. Even after keels have been laid down, men can be made redundant. Plumbers, joiners and artificers are thrown out of work. Then the soul goes out of that industry, because building a ship is a three-year project. I hope that the Government will make money available for the steel industry so that we can maintain the continuity between the steel and shipbuilding industries.

There are 5,000 American technicians working 30 miles from Moscow, yet people in Britain are screaming about the cold war and gaining us the title "two-faced Britain". The Prime Minister went to the Soviet Union and made a £500 million deal not as a continuing element of detente but as a way of helping this nation to rise again.

We must get on our feet again. America has double-digit inflation at the moment but is hoping that output will rise by 3 per cent. Europe hopes for a rise of 2 per cent. and Britain for 1½ per cent. as a result. Therefore, anything that this nation can do to raise itself again depends on forces outside Britain. That is why I am trying to put the scenario into perspective. I blame no one But the price of victory must be to avoid complacency in the work force and management.

In the meantime we are up against it hard. The right hon. Member for Worcester (Mr. Walker) now supports industrial democracy. I have read papers on this subject from Brussels. The abolition of collective bargaining has been introduced by stealth into this country and we have accepted the £6 pay limit. How long can we go on with the interests of technicians and instrument artificers set against those of the men on the shop floor?

Although I am a craftsman I would not make a case for differentials on their own, but differentials are part of the means of improving our minds and our quality of life. They can be held back only so long. For that reason we may have to reintroduce resale price maintenance for a short time.

Without going into all the details, there is an alternative to a fixed incomes policy. I have read what OECD and the Observer have said about income tax indexation, which has been tried in Canada, Denmark and elsewhere. As an element of industrial justice in regulating the amount of money a man can spend, it has its place and is worth examining.

I appeal to the Government emphatically to do something about shipbuilding, where we are already being held to international ransom. We have to bring in goods and services at someone else's freight prices: if we cannot do it for ourselves, we are in trouble.

7.48 p.m.

Mr. John Pardoe (Cornwall, North)

I welcome many of the comments of the hon. Member for Glasgow, Garscadden (Mr. Small), particularly that about indexation and its relationship to the tax system. Many of us are being forced by outside commentators into a false choice —a false choice which the hon. Member for Birmingham, Ladywood (Mr. Walden) put his finger on. They are forcing us to choose between "general" reflation, whatever that may mean, and specific projects which we can recommend and which will create jobs and get the economy moving without creating mass inflation.

That is why I particularly welcomed the speech of the hon. Member for Penistone (Mr. Mendelson), with which I largely agreed. I was particularly delighted by his reference to and defence of Keynes. There is, of course, a real fear of inflation, and the present reduction in inflation has to be qualified. There are already indicators that we may be turning up. The input of costs to British industry, for instance, is already rising. It rose at an annual rate of 30 per cent. in the last quarter of 1975, having risen rapidly throughout the previous two quarters. That is the tell-tale sign for the future.

Therefore, we do not have to be too optimistic about our success on inflation at this stage while recognising that the rate has come down. We are not out of the wood yet. But when I read some commentators who have been pouring out their advice for our benefit and that of the Government I believe that there is far too easy an acceptance among them of high unemployment. It is easy to say that unemployment is cushioned by benefits. Of course it is, but the social consequences are still severe. The right hon. Member for Worcester (Mr. Walker) and the hon. Member for Ladywood pointed that out.

I should like to refer to a vital document of our time, referring to a part of the country that I do not know well —a report prepared by Chief Superintendent Norman Chappell of the Merseyside Police on vandalism and juvenile delinquency in Kirkby. He went much further than one would expect a policeman to go in analysing the causes and the problems. There is no doubt that he viewed as the major single cause the social conditions created by, as he put it, in some cases third-generation unemployment.

It is no good commentators and outside monetarists telling us that all we have to do is sit there and let it happen. There are many social consequences of crime, vandalism and total social disruption which we have to take into account as politicians and which they can conveniently ignore. Therefore, these armchair economists are too ready to attack any method of job creation in rather similar terms—the hon. Member for Penistone will be interested in this—to those used by a leader in The Times in 1929: Unemployment is too organic a disease to yield to a method of which the repercussions are quite uncertain. After referring to the "facile architects of prosperity", it went on: It will require more than a tendentious pamphlet to convince the public. That was a reference to what it called the "somewhat vainglorious pamphlet" of Mr. Lloyd George, in other words "We Can Conquer Unemployment", largely written by the great man himself, Lord Keynes.

In an article last week in The Times, Mr. Ronald Butt seemed to be going in exactly the same wrong direction as that leader of 1929: Today, the Keynesian theory can be seen to have solved the unemployment problem only at the cost of accelerating inflation. What absolute balderdash that is. What a total travesty of the facts. If that were true, why is it that it has only recently happened? For two-thirds of the post war era the Keynesian theory did no such thing. It is only recently that something seems to have gone wrong. But it is not what Mr. Butt says has gone wrong. The essential distinction that he failed to draw is between the quality of Keynes's ideas and the quality of the men and institutions who have put them into practice.

I should like to say something about the rôle of the Opposition when it comes to unemployment—as part of an opposition, but not the Opposition. Last week we heard the phrase "the natural party of unemployment". It is easy to say that sort of thing, but it is no more true than if I were to say that, on the record of the events between 1970 and 1974, the Conservative Party should be christened the natural party of inflation. That would be just as true. Indeed, if one reflects on those words of Ronald Butt and the whole of that article, the distinction that I mentioned has to be made particularly in relation to that period of government between 1970 and 1974.

Keynes's greatest contribution was to liberate us from automatic standards, whether of the gold standard or of the balanced Budget. There are dangers in liberation. It gives the Government much greater discretion, it requires that those who exercise that discretion are rational, responsible and wise, and it requires that the institutions through which they work are equal to the task.

In his great biography of Lord Keynes, Sir Roy Harrod said: He deemed England a sufficiently mature country for it to be possible to assume that the authorities could be trusted to carry out a policy of monetary reform faithfully and would not indulge in an orgy of feckless note issue. It is not good enough to blame Keynes for not realising that several years later, in 1970, a Conservative Government would be returned to power who would set out exactly on an orgy of feckless note issue. In three and a half years—that is the period that Peter Jay gave today—they doubled the money supply. One does not have to be a monetarist to know what that will do to the rate of inflation. One cannot play around with the money supply to that extent and get away with it.

The Leader of the Opposition severely embarrassed her Shadow Chancellor, because the next day he put it about that her explosion here on Tuesday of last week was not exactly the line that the party would be taking. On the following day The Times reported him as saying that they would not use the rising unemployment figures as a stick with which to make political capital". The exchanges on that day were precisely an example of using the unemployment figures for that purpose. In fact, it is political capital that the Opposition amendment tonight is all about. That is one reason—there are others—why we shall certainly not be voting for it.

There is nothing constructive about the amendment. Its only positive suggestion is that we should get on with cutting public expenditure. Again, how easy that is—

Mr. George Younger (Ayr)

It is not.

Mr. Pardoe

As the hon. Member says, it is not easy. The Opposition did not find it so when they were in office. Indeed, they increased it at a rate of knots, and nowhere faster than in the budgets of the Department of Education, over which the Leader of the Opposition presided at the time. As the Shadow Chancellor has said, however, cutting public expenditure at this stage could do nothing but raise unemployment. On a rough calculation, over the last year or 15 months an extra 300,000 jobs have been added to the public sector. I am not saying that all those 300,000 jobs were worth while or needed. Of course they were not. Many may be doing things which not many of us really want done. But one must accept that, if they had not been created in the public sector, the figure that the right hon. Lady complains about would be not 1,400.000 but 1,700,000.We deserve something slightly better from her party.

But the Government are not guiltless. They would not expect me to say that they were.

Mr. Nott

The Liberals are, of course.

Mr. Pardoe

Yes, we are, as the hon. Gentleman says.

The Secretary of State for Employment is certainly guilty of one thing. That is that neither he nor his colleagues fore saw the present level of unemployment as a natural consequence of the chronically high level of inflation that they inherited.

In the Sunday Times last Sunday, Eric Jacobs wrote: Soon after Labour was re-elected to government two years ago, an official told Michael Foot, the new Employment Secretary, that he was preparing contingency plans to meet unemployment levels of between I million and 1.25 million. Foot rather huffily told him he need not bother. Unemployment would not reach such levels—at any rate not while he was minister—and anyway he had an Employment Protection Act up his sleeve. I do not know whether that is an accurate report, but it is good enough to hang a comment on.

It was fairly obvious that those levels of unemployment would be reached. In an election pamphlet published by the Liberal Party for the last General Election, we said: On present trends unemployment, now at 606,000, will rise to 780,000 by the middle of 1975, and will certainly exceed one million in the winter of 1975–76. That was reasonably accurate, with some help from OECD, the International Monetary Fund et al. We were a lot more accurate than the Government, and to a large extent the Government's problems are due to their failure to get the figures right.

It was back in 1967 that the Liberal Party committed itself to the view that positive Government intervention on pay and productivity, backed by realistic sanctions, was the proper price to pay for full employment. Some of our problems are due to foreigners, and some of our problems are imported—that is the excuse of all Governments—but a large part of our problems is due to the fact that Governments have never been prepared to pay the proper price for full employment.

Governments have come to power with a firm commitment not to intervene on pay. They have always wasted precious months in trying to square the inflationary circle without such intervention. They have usually resorted to price controls, which, except in a monopoly market, are an economic madness and, as a result, reduce the profitability of big industry to dangerously low levels, sabotaging the will to invest, which would have created the jobs which are now in such desperately short supply.

Gradually, successive Governments have finally surrendered to the logic of events and proposed an incomes policy hastily cobbled together at the eleventh hour. In each case it has been bitterly attacked by the Opposition of the day, who only a few years before were trying to produce their own hastily cobbled incomes policy. That has been the pattern of events. This is the insanity of adversarial politics, and it will bedevil us until the British people decide to certify their present political system and lock it up in an institution for psychopaths.

It is a sorry tale, as has been said, and there is no reason for any of us to deny it. We have had stop-go. Each stop has been longer than the last. Each go has been shorter. Each recession has seen higher and more sustained unemployment. Each recovery has seen higher inflation. Although we should all be deeply concerned about the present situation, it is the "fire next time" that worries me even more—the fire next time of unemployment, the fire next time of inflation.

I make no apology for being specific in what we are asking the Government to do and in dealing with some fairly minor or small areas of this country, particularly referring to my own area, in the far South-West, as an example of what we want the Government to do in terms of regional policy and helping employment in the regions on a selective basis.

First, we want the Government to look carefully at the regions of high unemployment. Secondly, we want them to look carefully at those industries which could be stimulated without pulling in excessive imports. In my own area of the far South-West male unemployment in December was 12.8 per cent. In Wade-bridge, a town in my constituency, it was 21½per cent. Whatever else may be said about the country and the economy as a whole, it cannot be said that in the jargon of the day, these areas are near to overheating. They are a long way from it. Therefore, we have a long way to go before we run up against the old bottlenecks.

The biggest single disaster area within the economy of the far South-West is the construction industry. I had a little fracas with the hon. Member for St. Ives (Mr. Nott) over his statement to the House about what the construction industry representatives did or did not tell us concerning the causes of the decline in construction. All I can say is that we were presented with a letter that those representatives had written to the Prime Minister. I went with them to Downing Street to present it. We were presented with a memorandum of several pages, and I can assure the hon. Gentleman that nowhere in that document, or in the letter to the Prime Minister, is there any mention of the Community Land Act.

I do not think that it serves the Cornish construction industry, or the construction industry of the South-West, particularly well to emphasise things that they do not believe to be crucial to the argument. I opposed the Community Land Act and voted against it, and I do not believe that it is crucial to the argument about how construction can be increased in the area.

The building industry is not so heavily dependent on imports as are some other industries. The unemployment figures are truly disastrous. The figure for the whole South-West Region is 18.5 per cent. of building operatives out of work. In Cornwall it is nearly 28 per cent. These are very distressing figures indeed, and there are towns throughout the South-West where the rate of unemployment among construction workers is well over 50 per cent.

I am not asking for massive public works from the Government. That would create buildings just for their own sake. Let us be very selective, therefore, and look now at housing improvement. Mine is a region of small, self-employed builders, and house improvement grants are very important. Under the Housing Act 1974 these grants were limited to houses with a rateable value of no more than £185. This has resulted in a major reduction in improvement grants.

Mr. Stephen Ross (Isle of Wight)

The figure is £175.

Mr. Pardoe

This has resulted in a major reduction in improvement grants. I do not ask for any general increase in the level, but it would be very helpful if the level were increased to £350, but only in cases where improvement leads to an additional unit of accommodation for letting purposes.

We have great under-occupation of housing in the United Kingdom compared with many other countries, and that is a very inefficient use of our housing stock. If the Government wish to limit it even further for social purposes, I make no objection to raising the limits in those circumstances where the individual houseowner makes a commitment to the local authority to let the house to the local authority for onward letting to someone on the housing list—as indeed, the Department of the Environment has asked local authorities to do.

A little carrot would be useful, and if the Chancellor of the Exchequer could see his way to allowing the individual houseowner, who owns one but not more than one house, to have, say, the first £500 or £1,000 of rent from that arrangement with the local authority tax-free, for a tax holiday of three to five years, that would also help enormously.

In the construction industry there is also the problem of the "moving shelf". This is a point that some members of the Tribune Group have made, with the TUC, on the question of capital plant for industry. It is absolutely vital that, when the time comes for the Chancellor of the Exchequer to take off the brake, these projects should be ready and available for building—not for planning at that stage or for design, but for building. They should all be ready with the planning and design already done. This would mean a commitment of public funds but of very limited sums.

In a letter dated 22nd July, the Under-Secretary of State for the Environment said: We are now considering the feasibility of developing a rolling programme of projects. I gather that it is still being considered. It is time for the consideration to cease and for the "moving shelf" to get going.

What are the Government prepared to do about planning agreements in the construction industry? No industry in this country has been more bedevilled by the lack of any long-term planning with the Government. The industry has been used rather in the manner that a maniac would use a motor car, with one foot on the accelerator, the accelerator going through the floor and the next minute the other foot hard on the brake. Planning agreements with the construction industry would engender confidence, and I hope that we shall hear something about this.

Many of us must have asked why in the 1930s, with so much unemployment and so much needing to be done—the scars of that neglect are all round us today in all parts of the country—the unemployed were not put to work to do what was needed. What I fear is that we are getting ourselves into a situation in which our children will be able to ask that same question of us.

There are still a vast number of jobs to be done—slum clearance, renovation of schools, transport improvement and work related to the infrastructure. There is also the reclamation of polluted areas of land and water. All these things are crying out to be done while unemployment and supplementary benefit is being paid to men and women for doing nothing. A simple change in public accounting would help to solve this problem. We should allow local authorities to put these men and women to work and to claim the national insurance funds and the supplementary benefits which are now paid out.

The hon. Member for Ladywood, in a depressing and gloomy speech, said that in the Wincott lecture Mr. Peter Jay had come to the conclusion that he was deeply sceptical of the capacity of modem industrial democracies to solve their problems and wondered whether industrial democracy could survive. I did not get that meaning from Mr. Peter Jay's Wincott lecture. I agree with his scepticism, but it seemed to me that he was saying something more hopeful—that we had to adapt our political institutions to meet that situation. That is the challenge before us.

The Government's strategy appears to be twofold. The first part of it is to wait for the upturn. Many hon. Members have already drawn their own conclusions on how long we shall have to wait. This recession will be more difficult to emerge from than others. Business men and economists have been telling me for months—almost years, it seems—"Do not worry. The American economy is about to move. The Japanese economy is about to move." It is not happening on schedule. The upturn is a little late this year. Therefore, we shall need a better strategy than waiting for that.

The second part of the Government's strategy is waiting for North Sea oil. On the latest forecasts, by 1990 we shall no longer be self-sufficient in oil. The demand curve will overtake the supply curve at about that time. What are we doing to plan for that? That is no long-term solution for the British economy.

We face a political challenge—a challenge to adapt and to create new democratic institutions to meet the challenge which Mr. Peter Jay and the hon. Member for Ladywood have put before us. Many of the failures in so-called fine tuning are failures not of Keynes's theories but of the institutions of government through which we have to work. It is those institutions to which we must direct our efforts if we are to ensure that Peter Jay's desperate forecasts do not come to pass.

8.13 p.m.

Mr. Ian Mikardo (Bethnal Green and Bow)

When one has been in this House for as long as I have, one experiences almost everything. I never expected to sit through a debate and find myself agreeing with almost every word of a speech by the right hon. Member for Worcester (Mr. Walker). Still less did I expect to find myself agreeing with nearly everything in a speech by my hon. Friend the Member for Birmingham, Ladywood (Mr. Walden).

I am not at all surprised to find myself agreeing with every word of what was said by the hon. Member for Cornwall, North (Mr. Pardoe). I say as more than a conventional compliment that it is always nice to follow him, except that his speeches are so full of meaty material that if one were tempted to comment on everything he said one would have no time for one's own speech. I hope that the hon. Gentleman will not mind, but I cannot for the life of me understand why he should waste so much of his time and considerable talents reading, cutting, commenting on and bothering with the load of rubbish that is printed about this country's affairs in the newspapers. I must tell him how I maintain my sanity as well as my physical well-being.

Mr. Eric Ogden (Liverpool, West Derby)

And charm.

Mr. Mikardo

And charm. I am obliged to my hon. Friend. I read only the football scores in a newspaper. Sometimes I buy a second paper to check the accuracy of the first.

When my right hon. Friend the Chancellor of the Exchequer rose to speak this afternoon I sat up, leaned forward, cocked my better ear and listened very carefully to every word. I was not listening for things to criticise. I knew that there would be some of those. On the contrary, I was listening for anything he might say that would diminish or, still better, get rid of the predilection I had in advance of the debate to oppose the Government in the decision that we must take this evening. I was looking for any kind of excuse to support my right hon. Friend. I was looking for any ray of hope in my right hon. Friend's speech which would lead me to say "They have not been doing very well up to now, but it looks as though they are beginning to get some fresh ideas". There was not one word of encouragement. I was deeply disappointed at my right hon. Friend's speech after all the hopes I had entertained.

My right hon. Friend did not begin to deal with the point which I ventured to put to him in an interjection. He keeps saying "It is no good starting a controlled reflation, because, although it would do some good and reduce unemployment, it would take some months before it got there". I repeat what I said then. The fact that a thing takes a long time to operate is no reason for delaying its commencement. Indeed, it is a reason for hastening its commencement. If a man has a slow-acting cure for a headache he takes it quickly. He does not wait and say "It is no good taking this, because, even if I do, my headache will not be cured for another two or three hours". This is the challenge of too little, too late, which my right hon. Friend did not begin to meet.

I have a horrible nightmare—I hope it is only a nightmare and will not turn into reality—that we may have a debate at the end of January 1977 precipitated by the fact that the January 1977 unemployment figures are 150,000 more than they were in December 1976, and that my right hon. Friend, with his customary bonhomie, will stand at the Dispatch Box and say "It is no use my hon. Friends calling for reflation because, if I did it now, it would not take effect till next year."

My right hon. Friend should have moved very much earlier. My hon. Friend the Member for Birmingham, Ladywood was right about that. If the Chancellor had taken even a bit of the advice given to him from these Benches —and from other quarters, too—in the middle of last year, we would not now be having this debate and we would not have the high unemployment figures and atmosphere of crisis which we are facing.

I was very disappointed when my right hon. Friend trotted out the hoary old myths about import controls—"We cannot do that, because it will lead to retaliation". I do not know why it is felt that, because something issues from the Treasury, it becomes true and even more true if it is reiterated day in, day out, week in, week out. After all, we are not without evidence. We do not have to theorise about the effect of import restrictions. We are not doing it for the first time in the recorded history of man. It has been done over and over again in many countries. We do not have to guess whether there will be retaliation. We have some evidence of past imposition of import controls to look at and from which to see to what extent, if at all, they invoke retaliation, before we come theoretically to consider the possible future events.

We had import controls under a Labour Government twice in the second part of the 1960s. From 1964 to 1966 we put a specially high tariff on finished products in order to limit their import, and it did that very considerably. From 1968 to 1970 we had a special deposit scheme which limited imports very much indeed. Of course there were protests, and our then EFTA partners were particularly upset about this. They protested loud and long. So should I have done had I been in their position.

Mr. Raphael Tuck (Watford)

Am I not right in thinking that in the case of Japan, if we put import controls on goods from that country, there could be no retaliation of any consequence as Japan is flooding us with cheap goods and refusing to accept our goods in exchange?

Mr. Mikardo

My hon. Friend, with his usual prescience, has precisely forecast a point to which I was about to come.

Mr. Tuck

I apologise to my hon. Friend.

Mr. Mikardo

We get no retaliation in those two cases.

The Italians ran very tough import controls for over one and a half years, from June 1974 until just a week or two ago, with no retaliation at all. if someone tells me that we cannot do it because of GATT, I ask how the Italians did it. If someone tells me that we cannot do it because of the EEC regulations, again I ask how the Italians did it. They had protests, just as we did in 1960s, but no retaliation whatever. If someone tells me that we cannot do it because of EEC regulations I shall ask about the French putting restrictions on imports of wine from Italy. Those two countries are both members of the EEC.

I have gone through all the history of all the import controls in the last decade. There are quite a lot of them. I have found one single instance of retaliation. That was by Turkey against us. Turkey switched an intended purchase of a plant worth about £2½ million from us to another West European country. It was not a very damaging retaliation, because the plant was bought by aid funds which we were going to give Turkey but which the other country gave. That is not very serious retaliation because we would have been paying for the thing ourselves. That is the only example that I can find.

Now let us look at what might happen potentially in the future. Here I come to the point which my hon. Friend the Member for Watford (Mr. Tuck) foresaw I was coming to. Looking at the breakdown of what has caused our problem in this regard, one finds that almost all our import of manufactures and semi-manufactures comes from eight countries. Every one of those eight countries has a surplus in its trade with us. For every one of those eight countries we are the biggest customer that it has. It follows, then, that they would all have far more to lose in a trade war with us than they would have to gain. Business men do not go around spitting in the eye of their best customer. Even if the customer gets a bit shirty sometimes, they still do not spit in his eye.

There is no basis for the belief, on an examination of the figures, that we should invoke retaliation. The lessons of history and any reasonable examination of the contemporary position both lead to the conclusion that the story about retaliation is merely a story and is really a myth.

Most of all, I was disappointed by my right hon. Friend's speech because I thought that he never really tackled what has been agreed by a number of hon. Members on both sides of the House to be the basic problem, which is the unemployment caused by—and in itself further creating—the decline in investment. We had a fall of 14 per cent. in investment in 1975. From the way that it is running at present it looks as though we shall have a further fall of 10 per cent. in 1976. How much there is in the pie-in-the-sky talk of what will happen in 1977 none of us really knows. The hon. Member for Cornwall, North said that the turn-up is not coming on schedule. He is right, but I add to that the opinion that when it comes there is no guarantee that we shall get our whack of it. The Treasury does not know, either, that we shall get our whack.

Really, therefore, unless something concrete and practical is done about this problem we shall not get in our economy an upturn which will seriously lower the unemployment figures. The palliative measures which the Government are taking are very welcome. I applaud them. They are all right, but these are putting plasters on the pimple. They are not curing the blood impurity. They are not getting at the root of the disease. We shall not get at the root of the disease unless we do something effective about investment.

My right hon. Friend described something of what he was doing—giving money to this one and to that one. He and I were both members of the group which produced Labour's programme for 1972. If Opposition Members will bear with me while I talk about Labour Party affairs I think that they will find it not uninteresting. That programme was updated into Labour's programme for 1973, which became the basis of our two election manifestos in 1974. We said in that programme, spelling it out on page after page—it is worth re-reading; it is good stuff—that what had gone wrong with our economy was that nothing that successive Governments, Labour and Conservative, had done to cajole the entrepreneur into investing, or to bully or bribe him into investing, had succeeded in getting the job done.

We had had regional employment premiums, investment grants, loans, allowances and free handouts like the one that the Chancellor of the Exchequer is giving now. They had not done the job. Therefore, we said that we had to have a brand new approach. It involved a new industrial strategy based on the National Enterprise Board and on planning agreements which, we said, would do the job. We adopted it.

The Government abandoned it by watering it down. The hon. Member for Cornwall, North spoke about planning agreements in the construction industry. As a result of the watering down of the Industry Bill no one will have a planning agreement unless he asks for it, and the very people who most need it are the very people who will not ask for it, and, therefore, they will not get it.

The hon. Member for St. Ives (Mr. Nott), in what I thought was a very superficial speech which was not at all directed to the subject before us, said that we could solve the investment problem easily and that all we had to do was to let business men make a lot of profits because, when they had a lot of money, they would invest.

Mr. Stokes

Quite right.

Mr. Mikardo

But do they? If that was not just an emotional reaction on the part of the hon. Gentleman I invite him to consider the facts.

One outstanding fact is that, in the three full years of the Conservative Government of 1970–74, profits went up by two-thirds, taxes on companies were lowered by £300 million, and investment fell by one-third. They had all the lolly. What did they do with it? They did two things. They speculated in land and office blocks, and they invested overseas, including investment in property overseas. The hon. Member for Halesowen and Stour-bridge (Mr. Stokes) should go to see some of the office blocks in Brussels financed with the money made out of the surpluses of manufacturing companies in Great Britain and which they put into office blocks in Brussels instead of into machines in their own factories.

It is obvious, then, that all that the Chancellor of the Exchequer spoke about was a little continuation of the policy which we ourselves proved conclusively had failed, which we therefore said we would abandon, and which we immediately readopted as soon as the Government got into office.

This is the real burden of my complaint against the Government. Unless the Government have the guts to have a real go at solving the problem, the sacrifices made by workers under the social contract will have been made in vain. They are not inconsiderable sacrifices. Real disposable earned income fell by 3 per cent. in the first half of 1975. We do not have the detailed figures yet for the second half, but, on a reasonable estimate of the trends, it looks as though in the two years from the beginning of last year to the end of this year real disposal earned income will fall by between 6 per cent. and 8 per cent.

It was my hon. Friend the Member for Birmingham, Ladywood who said that a great many people, including many at the low end of the income scale, have suffered a fall in their living standards. That is the sort of sacrifice that they have made. Every time that they make that sacrifice, every time there is an upsurge in unemployment, there is a little boom-let on the Stock Exchange. Some people do not make the sacrifice. I ask my right hon. and hon. Friends, who is giving a year for Britain? Some people are and some are not.

What is the contribution of the combination of rising unemployment and financial speculation with profit on the end of it towards the fundamental and irreversible shift of wealth and power to working people and their families"? Those words are from the manifesto on which the Chancellor of the Exchequer and I and 633 other people fought the General Election. That is really the nub of the complaint that my hon. Friends and I have against the Government's policies on unemployment and the main reason why we tabled our amendment.

I must draw to a close, but may I take a couple of minutes, having dealt with the global problem, to deal with a narrower but terribly important matter in which I declare a constituency interest. In this I follow the example of the hon. Member for Cornwall, North who told us in an interesting way what is going on in his part of the world.

There have been many references today, starting with that by the right hon. Member for Worcester (Mr. Walker) to regional policy. Regional policy has made a notable contribution to national welfare over the years. Many hon. Members have affirmed this today. But it has become fossilised. It is much too macro, much too broad brush, in its effect. It is not sufficiently discriminating and discreet. It has become a blunt tool.

One of the things which make regional policy such a blunt tool is that it is based on assessments of large regional averages. What is not understood is that within a region, which is not of itself at the top of the unemployment league, there can be pockets where the unemployment rate is among the highest in the country. What is also not understood is that changes can take place in a short time. Hon. Members who represent the West Midlands will know that. That area has gone from being Boomtown to Slumptown tertibly quickly. There is nothing in regional policy which reacts to that. It is not sufficiently flexible and adaptable.

There is no regional policy applied to the South-East at all because that is a prosperous area with only—mark the "only"—3 per cent. average unemployment. What is happening in the South-East is that the inner city areas are running down in the most awful way. They are becoming economic and social deserts. We are doing much more damage to them than did our forefathers as a result of the hideousness and heartlessness of the Industrial Revolution a couple of centuries ago.

In my borough of Tower Hamlets in East London, an area which has been hit over and over again in many ways—it was badly hit during the war—the percentage of unemployment has nearly doubled in a year. The number of unemployed in Tower Hamlets has increased by 84 per cent. in a 12-month period. By coincidence, male unemployment has now reached exactly the same figure as that quoted for his constituency by the hon. Member for Cornwall, North—namely, 12.8 per cent.

Since that figure was published the Port of London Authority has announced the closure of the West India and Mill-wall Docks. The Authority followed the best practices of consultation; there was consultation with the workers. The Authority made the announcement of the closure at 10 o'clock last Monday morning and began seeking consultations at 3 o'clock on Monday afternoon. I shall not go into the details because the issue is outside the main debate, but I am bound to say that I believe this to be a mistake which, on purely commercial grounds, represents a business miscalculation of the worst order. But the Authority can do it, never mind what the Government say. Here is a public body which chucks 3,700 men out of work. There is a big multiplier factor here and that figure will ultimately be nearer 5,000 to 6,000, but the Authority does not want to know. It is public policy.

No one stops to do what one of my right hon. Friends used to call the total sum. The only sum that is done has to do with the effect on the profit and loss account. I think that the Authority has got that sum wrong, but that is a different matter. It does not do the sum which involves working out what will be paid in unemployment pay, the loss of tax paid by the men on their earnings, and all the rest. No one does the total sum, taking into account the social consequences and the loss of revenue for London Transport. There are all sorts of consequences, but no one in this day of the computer, when cost-benefit analyses can be carried out very effectively indeed, sits down with the responsibility for doing that sum. That is why we go wrong.

My right hon. Friend the Chancellor of the Exchequer looks upon each item as one statistic given by the Treasury. The Port of London Authority, Chrysler and other organisations just look upon it as one statistic in their profit and loss account. Nobody puts the items all together. Nobody but the Government has the capacity to put them together. When they begin to do this, I think they will find, even on their own analysis, which I think is restricted, fossilised and unimaginative, that the total sum will lead them to different policies from today's.

I deeply regret having to speak in those terms. I meant it when I said that I listened to my right hon. Friend the Chancellor today hoping for something that would enable me to abate my opposition, if not to rationalise it out of existence. He has let us down.

8.42 p.m.

Mr. Churchill (Stretford)

I share much of the disappointment expressed by the hon. Member for Bethnal Green and Bow (Mr. Mikardo) about the content, or lack of content, of the Chancellor's speech, especially because it avoided the question of industrial investment and the means of promoting it. However, I cannot join him in his prescription that we should impose import controls. That would have a disastrous effect, above all, on the high flyers of the British export industry on whom must depend so much of our future prosperity and job creation, once we move into a period of expansion.

All sections of the House have shown recognition of the great and grievous social consequences of the unacceptably high level of unemployment. Whatever differences there are in the methods advocated across the Floor of the House, and between different sides of the Gangway, there is no doubt about our common determination to see a reduction in the level of unemployment at the earliest possible moment.

I regret that the Chancellor devoted so much of his lengthy speech to the period for which he had no responsibility, and spent much of the time shuffling off responsibility for the periods when he was in office. Above all, I regret that he said so little about any Government plans for generating resources for productive, job-creating investment. The Chancellor appeared to confine himself to waiting for events to take their course. This is unacceptable to both sides of the House.

When the Chancellor was referring to the period between 1972 and 1974, I was surprised that he complained that there were then shortages of skilled labour, raw material and industrial capacity. My constituents in Trafford Park would infinitely prefer the problems created by a shortage of labour to those of a glut of labour and a shortage of jobs, which face them today.

Unlike the Chancellor, I do not intend to indulge in cheap personal abuse. I prefer to rely on the sounder judgment of my electorate in Stretford as to who it feels should represent its interests. It was not only the Chancellor who came to speak for me at the last election. I am glad to say that the Secretary of State for Employment favoured us with his attentions. The one clear theme that ran through their speeches and the speeches of the dozen or so ministerial heavy and mini gangs that were brought up to Stretford at the time of the election was unemployment. There was a clear implication in all their speeches that a Conservative vote would be to let oneself in for a high level of unemployment, the reverse implication being that a similar situation would not develop under a Labour Government.

Mr. Tom Litterick (Birmingham, Selly Oak)

Before the hon. Gentleman makes too much political capital of that point will he reflect on how many Conservative Governments are in office in Western Europe and the level of unemployment in each of those countries?

Mr. Churchill

In the time available I cannot discuss each of the countries involved. If the hon. Gentleman were to study the figures that are published regularly he would understand that, with the exception of the Irish Republic, Britain has the highest rate of unemployment of all the EEC countries.

Mr. Litterick

What about Germany?

Mr. Churchill

Far from turning the corner, we seem to be the last in the race to do so. I am bound to say that the scaremongering tactics that were used at the time of the last election and the false promises implying that there would be a reduction of unemployment under a Labour Governments are viewed sourly by my constituents and people throughout the whole of the North-West.

At the time that the Labour Government took office in the first week of March 1974 there were 110,000 people out of work or temporarily stopped in the North-West Region. There are now 217,000 people out of work or temporarily stopped, approximately double the number in that position when the Labour Government came into office.

Mrs. Elaine Kellett-Bowman (Lancaster)

There are three times as many people out of work in my constituency, not twice as many.

Mr. Churchill

I am obliged to my hon. Friend. I was talking about the North-West as a whole. No doubt there are areas where the situation is even worse than double what it was when the Conservative Government left office, when the effect of the three-day week was being felt. That is some condemnation of the policies pursued by the present Government.

How did all this come about? If we are to believe the Chancellor or the Prime Minister the present situation is entirely due to world factors. They suggest that it is the fault of the wicked Arabs for increasing the price of oil or the failure of the anchovy crop in Peru. These alibis are beginning to wear a bit thin. Today there are over 100,000 more breadwinners in the North-West who have been thrown on to the slag heap of unemployment. This is a situation which demands a critical assessment of the policy that the Government hay been pursuing for the past two years.

The greatest disappointment in the Chancellor's speech—maybe the Secretary of State for Employment will repair the omission—was that there was no recognition of the grievous mistakes made above all in the first year that the Labour Government were in office. We have these unacceptably high levels of unemployment because we have a Government who entered office with the clear policy of declaring open warfare on the free enterprise sector, a sector of the economy which accounts for two-thirds of all employment and 90 per cent. of British exports. So far as that affected industrial and investment confidence it was an absolute catastrophe and killed stone dead any hopes of an early industrial expansion. Secondly, the Labour Government have heaped on the private sector a massive legislative tax burden, the Employment Protection Act, the capital transfer tax, and other bureaucratic and fiscal burdens which are making British industry today bankrupt or in many sectors unprofitable. The by-product of this decision to impose a Socialist straitjacket on what was largely a free enterprise economy has been the root cause of our problems.

Finally, and most recklessly of all, a Socialist Government—a Government who claimed to have a special relationship with the trade unions—stood aside and watched—this applies particularly to hon. Members below the Gangway—or applauded the success of powerful trade unions which used their industrial might to secure inflationary wage claims. Those aims had the effect of putting people out of work by pricing them out of the market a year or so later.

The Government have been responsible for releasing a holocaust of wage and price inflation on the British people. At the time many hon. Members below the Gangway looked to inflation as their principal weapon in reactivating the class war on which they are so keen. They saw it as a means of attacking private enterprise industry and of securing the greatest transfer of wealth that has ever been seen in this country. That transfer took place on a wholly haphazard basis. It grieviously harmed many sections of the community least able economically to protect themselves.—[An HON. MEMBER: "Like you."] No. Not like me. I am referring to those who were unable to protect themselves against the powerful unions which were able to demand unrealistic wage levels.

These were short-sighted demands and they have led to the present situation. Even today the Government seem to be more concerned with propping up uneconomic jobs in unviable industries than in channelling resources into the sectors of British industry that can make the best use of them through cost-effectiveness and economic job creation.

The principal yardstick that seems to be used by the Government for channelling investment through the much-vaunted NEB and the controversial Lord Ryder is that assistance should be given to those places where the political squeals are loudest and where the noise is strongest. We know that jobs at £5,000 a time are being put into Linwood, British Leyland, NVT and the Scottish Daily News. The Government are taking advantage of the borrowing requirement and using resources which would otherwise be available to profitable sectors of British industry. In that way the Government's actions are leading to a situation in which more people are out of work. These have been the fruits of the supposed regeneration of British industry under a Socialist Government. We have seen an over-hasty attempt to impose hard-core Socialism on what is still a free enterprise economy, and the time is long overdue for the Government to stop this squeeze on the private sector.

Mr. Litterick

Sit down!

Mr. Churchill

I recognise that the hon. Member for Birmingham, Selly Oak (Mr. Litterick) will support the Government even though unemployment in his constituency has doubled during their lifetime.

The principal job creation effort of this Government has been to over-stuff an already bloated bureaucracy which, in the past 20 years, has been growing at 10 times the rate of employment in manufacturing industry.

The Government are presumably looking for ways of stemming the rising tide of unemployment.

I agree with the suggestion of my right hon. Friend the Member for Farnham (Mr. Macmillan) who called for the restoration of the defence cuts. In the North-West we have suffered enormously through the loss of employment in the textile industry. High technology industries in firms like Vickers, the British Aircraft Corporation and Hawker-Siddeley are among the principal sources of employment in the region. If the Government intend to nationalise the aircraft industry solely in order to change the name of Hawker Siddeley Private Enterprise to Hawker Siddeley British Government they will not be creating a single new job. If Labour Members spoke to shopfloor workers at Hawker Siddeley they would know how bitter they are. They argue that if the Government use these massive resources merely to change the firm's name and impose a more bureaucratic management it will be a great waste. It would be far better to use the resources by placing contracts for equipment. This would save jobs and provide employment in the North-West. It is a waste to channel resources into nationalisation. People in the industries want orders and jobs.

The Government must realise they have deliberately lost 80,000 jobs in the Services and defence industries and that this has contributed to a large degree to the unemployment in the North-West. If the defence cuts were immediately restored, many jobs could be saved, even at this late stage. Nothing could be more immediately beneficial to the employment situation in the North-West.

I hope the Secretary of State will give serious consideration to this point. Great Britain's defences are at a dangerously low level, and although we hope to achieve mutual balanced force reductions with the Russians, through negotiations, they must not be on the basis of Britain disarming unilaterally, as has been happening in the past two years.

9.0 p.m.

Mr. Eric Ogden (Liverpool, West Derby)

The hon. Member for Stretford, (Mr. Churchill) may have learnt a lot since he came to Lancashire to represent his constituency. He has a lot of facts and figures, but he has yet to convince me as a Lancastrian that he can even begin to feel with his heart as he thinks with Iris head.

It was my intention to help reduce the average length of speeches in the debate. Some of them have been brilliant at the expense of brevity. The right hon. Member for Lowestoft (Mr. Prior) has kindly agreed to give up a few minutes of his time to enable me to speak.

In these debates Members speak with the knowledge and experience of the region from which they come. For Liverpool and Merseyside, the two greatest needs have been for jobs and homes. The number of homes has increased, but the number of unemployed is greater than ever before in my lifetime. We do not ask for short-term, temporary, passing advantages which will inevitably increase inflation and unemployment in the long term. We want the Government to work out with the trade unions, employers and all parts of industry and commerce long-term proposals, decide what needs to be done, and secure the agreement of Parliament and people. Then they must stick by their decisions and carry them through. We have all had the experience of supporting unpopular measures, going out on to a limb to support them and then finding later that the Government have sawn off the branch. That is not a comforting experience. Our discomfort is not important, but the effects on employment of uncertainty and weakness can be disastrous.

Within the limited measures referred to by the Chancellor this afternoon—and we all have our own opinions about his speech—I hope that the Government will give some priority to the construction industry. Proposals have been brought forward on Merseyside by a "consortium" of the district council, the county council, the trade unions, and finance, both public and private, for the construction of an advanced office block and a police headquarters. Private capital, which would normally have gone into town centre redevelopment, would be used to boost the local construction industry with the building of these projects. These and house building would help to get things moving. There are also the proposals to change development status and to involve giving help to a particular industry in an area rather than to the area itself.

The Chancellor spoke of stockpiling. There are two major concerns in my part of Merseyside engaged in the electrical industry and concerned with supplying the Post Office with switchgear and fusegear. They are Plessy and General Electric. Surely it is not beyond the wit of man to devise a scheme of cost-only contracting which would enable these concerns to carry on production and to bring forward advance programmes for the Post Office on reduced profit margins. The plant would be used and operations would continue to the advantage of the P.O. workers and the electrical companies.

We on Merseyside are aware of the dangers which could come to the North-West from the present proposals for devolution. The problems of the North-West and Merseyside will not be solved in the North-West alone. It is all very well for the SNP amendment to talk in terms of Scotland being prosperous while the rest of the United Kingdom is in peril. The nationalists talk about Customs controls, but these could apply to both sides of the border, and it might be, if they continue with their present approach to the English in these matters, that in 30 years' time when North Sea oil has run out the English will be existing on devolution at Scotland's expense. I do not want any in the North-West to join in the folly of saying that we can be independent and prosperous at the expense of any other part of the country. That is industrial and economic suicide.

I hope that my hon. Friends will look at the amendments on the Order Paper and consider all the speeches that have been made. They will notice that the differences of attitude expressed in the speeches are fewer than the differences between the amendments.

The Government are doing all they can with the alternatives available to them. They deserve our support in the Lobby and in the country.

Several Hon. Members rose

Mr. Deputy Speaker

Mr. Henderson.

Mrs. Maureen Colquhoun (Northampton, North)

On a point of order, Mr. Deputy Speaker.

Mr. Deputy Speaker

Order. The two Front Bench speakers who are to wind up the debate have generously agreed to take five minutes off their time. Therefore, we have another five minutes available and I call Mr. Douglas Henderson.

9.5 p.m.

Mr. Douglas Henderson (Aberdeenshire, East)

I was beginning to wonder whether there was to be any protection for the rights of minority parties in the House. The length of speeches has averaged about 25 minutes and I was wondering whether there would be any opportunity for many hon. Members on both sides of the House who wish to speak. I shall not comment on the abuse of the time of the House by both Front Bench speakers at the beginning of the debate. They told us nothing. They merely played the game of cops and robbers. I thought that we were here to discuss the problems of unemployment and what could be done about it.

Mr. Dennis Canavan (West Stirling-shire)

Get on with it.

Mr. Henderson

I am quite capable of getting on with my speech without any assistance from the hon. Member for West Stirlingshire (Mr. Canavan).

In Scotland, unemployment is no new phenomenon. In 1949, unemployment in Scotland on average was 2.9 per cent., whereas in England it was 1.2 per cent. Ten years on, in 1959 unemployment in Scotland was 4.1 per cent. compared with 1.7 per cent. in England. Ten years later, in 1969 the figure was 3.7 per cent. in Scotland and 2.1 per cent. in England. No one need be surprised that we are perturbed by the unemployment figures.

Mr. Canavan

Will the hon. Gentleman give the unemployment figures in Scotland when he had deserted Scotland and migrated to South Africa to seek his living in that racist State? [Interruption.]

Mr. Henderson

I have only five minutes. I had hoped that I should be listened to in that five minutes. I shall ignore the childish intervention of the hon. Member for West Stirlingshire.

When I hear Ministers of the Crown, from the Prime Minister downwards, telling us that every industrial country has a high rate of unemployment and that we in Scotland should not be alarmed about our unemployment figure—

Mr. Canavan

What about South Africa?

Mr. Henderson

The hon. Gentleman is obviously an expert on South Africa. He can give us that figure. The unemployment figure for Norway is 1.3 per cent., for Sweden 1.6 per cent., for Finland 2.1 per cent. and for Austria 2 per cent., and in Switzerland unemployment is so small that it cannot be measured.

Scotland must be compared not with areas of the United Kingdom but with progressive, industrial, small European countries which have many of the same characteristics and resources and many of the same problems. Those countries have one difference in that they have the opportunity to solve their problems for themselves. The difference between Norway and Scotland is that Norwegians run their own economy and their own affairs, but Scotland's affairs are run from this place. What an indictment of the Union with England and all the advantages of economic integration are the present unemployment figures in Scotland.

The regional policies and the remedies have been tried time after time over the years since 1934. We have had 40 years of it. They have not cured the basic problem that there is no power or decision-making in Scotland. The ordinary working man in Scotland, whether he is unemployed or whether he is in a job but looking over his shoulder and thinking that he might be unemployed in the weeks to come, is beginning to see the real position. He will have economic security and a future only if there is independent control of the Scottish economy by the Scottish people.

Several Hon. Members rose

Mrs. Colquhoun

On a point of order, Mr. Deputy Speaker. May I draw your attention to the fact that during this unemployment debate not one woman Member of the House has been called? I should like to be reassured that Mr. Speaker's Department does not think that women Members should be restricted in debates to their own areas of understanding as defined by men. I am referring to subjects like social services and mental health. If these debates can be constantly rearranged for five minutes to enable mere males to speak, why cannot they be extended for mere females?

Mr. Douglas Crawford (Perth and East Perthshire)

On a point of order, Mr. Deputy Speaker.

Mr. Deputy Speaker

Order. Let us be fair and reasonable. We have had a reasonable debate. I shall deal with the hon. Lady's point of order first. The question of the selection of speakers has been done on a regional basis. Mr. Speaker decided on a process of selection which I think is very fair. However, I assure the hon. Lady that there is no sex discrimination so far as Mr. Speaker's Department is concerned.

Mr. Crawford

On a point of order, Mr. Deputy Speaker. You said that speakers had been selected on a regional basis. The authentic voice of Scotland has had five minutes whereas the average length of other speeches has been 25 minutes.

Mr. Deputy Speaker

I call Mr. Prior.

Mr. Richard Kelley (Don Valley)

On a point of order, Mr. Deputy Speaker. To my knowledge, not one unemployed person has been called to take part in the debate. [An HON. MEMBER: "Speak for yourself."]

Mr. George Reid (Clackmannan and East Stirlingshire)

On a point of order, Mr. Deputy Speaker.

Mr. Deputy Speaker

Order. The debate has been conducted on a reasonable basis. I hope we shall be able to conduct the conclusion of the debate in the reasonable and sensible fashion in which we have conducted the rest of it. Surely we can get on with the winding-up speeches.

Mr. Reid

On a point of order, Mr. Deputy Speaker. With respect, some of the language directed towards these Benches has not been reasonable. I am referring in particular to the words of the hon. Member for West Stirlingshire (Mr. Canavan), who used the words "Afrikaaner" and "racialist" in relation to these Benches. In fact, he used a phrase which was heard on these Benches, "racialist swine". I ask the hon. Member for West Stirlingshire to withdraw those remarks.

Mr. Deputy Speaker

Order. I call Mr. Prior.

Mr. Canavan

I was merely pointing out that the hon. Gentleman had attributed—

Mr. Deputy Speaker

Order. Mr. Prior.

Mr. James Prior (Lowestoft)rose

Mr. Gordon Wilson (Dundee, East)

Mr. Deputy Speaker, my hon. Friend the Member for Clackmannan and East Stirlingshire (Mr. Reid) has raised a point of order which I ask the Chair to answer. Is the phrase which was used by the hon. Member for West Stirlingshire (Mr. Canavan) a parliamentary one, and is it not correct that he should be called upon to withdraw it?

Mr. Deputy Speaker

Did he not rephrase it?

Mr. Wilson

On a point of order—

Mrs. Winifred Ewing (Moray and Nairn)

On a point of order—

Mr. Deputy Speaker


Mrs. Ewing

Further to that point of order—

Mr. Deputy Speaker

Order. I think that, as the occupant of the Chair, I am as reasonable an hon. Member as there is in the House or in any party. I appeal sincerely to hon. Members to allow us to conduct the final stages of this debate in a reasonable fashion.

Mr. Gordon Wilson

Further to the point of order that I raised, Mr. Deputy Speaker. It is on record that the hon. Member for West Stirlingshire has used the unparliamentary expression of "racialist swine" directed against my hon. Friend the Member for Aberdeenshire, East (Mr. Henderson). Is it not in order for you, Sir, as Deputy Speaker to exercise the authority of the office which you hold by authority of this House and instruct or ask the hon. Member to withdraw that disgraceful expression?

Mr. Deputy Speaker

I can only rule upon expressions that I have heard. I assure the hon. Gentleman that I did not hear that expression.

Mrs. Winifred Ewing

Well, we did.

Mr. Prior

Further to the point of order, Mr. Deputy Speaker. I should like to submit to the House that it is doing itself no good in what is an extremely serious debate by behaving in this manner. I would submit that, although tempers may get frayed and people may get upset, we should do ourselves far more good on both sides if we now settled down and got on with the debate.

Several Hon. Members rose

Mr. Deputy Speaker

Mr. Prior.

Mr. Priorrose

Mr. Reid

Further to the point of order—

Mr. Prior

Mr. Deputy Speaker—

Mr. Donald Stewart (Western Isles)

There is a point of order here.

Mr. Prior

The background to this debate has been cool and collected—

Mrs. Winifred Ewingrose

Mr. Gordon Wilson

On a point of order.

Mr. Prior

The background to this debate has been cool and collected, and I think that we do ourselves an immense amount of harm in the eyes of the public if we go on—

Several Hon. Members rose

Mr. Deputy Speaker

Order. I have not heard the expression. I have assured the House on that point. What was the expression supposed to be?

Mr. Gordon Wilson

The hon. Member for West Stirlingshire (Mr. Canavan) addressed the remark to my hon. Friend the Member for Aberdeenshire, East (Mr. Henderson) that he was a "racialist swine". Further, after you yourself, Mr. Deputy Speaker, had said that the Chair had not heard that remark, he was heard by me and other hon. Members to say "So he is," or words to that effect. I now ask you to exercise the authority of your office and ask him to withdraw those expressions.

Mr. Deputy Speaker

I must ask the hon. Member for West Stirlingshire (Mr. Canavan), did he use that expression?

Mr. Canavan

I referred to the fact, Mr. Deputy Speaker, that the hon. Member for Aberdeenshire, East (Mr. Henderson) left what he called his beloved country, Scotland, in order to seek his living in South Africa, a racialist country. He left Scotland, a democratic organisation, in order to exploit a racialist organisation in South Africa.

Mr. Priorrose

Mr. Charles Irving (Cheltenham)

On a point of order, Mr. Speaker. That statement is quite untrue. He did call the hon. Member a racialist swine.

Mr. Speaker

I think that we should get on with the debate.

Hon. Members

Hear, hear.

Mrs. Winifred Ewing

On a point of order—

Mr. Gordon Wilson

On a point of order. I realise that tempers might be frayed at this stage, but this is a very important point. Is an hon. Member of this House entitled to use such an expression? Is he entitled to repeat it? Is he entitled to make a statement that he did not make it only to have an hon. Member from another party attest to the fact that he was not stating the truth?

In defence of the rights of hon. Members of this House, may I ask the hon. Member for West Stirlingshire to withdraw his accusation? If he were to do so, we should be perfectly willing to drop the whole matter, but in view of the expression used by the hon. Member I feel that we are entitled to press the point.

Mr. Speaker

I shall certainly examine carefully the report of what has been said. if I consider that a rebuke or an explanation is needed, I shall try to insist on it, but not at the moment.

9.20 p.m.

Mr. James Prior (Lowestoft)

It is now 20 minutes past nine, and there has been a good deal of "injury time". I therefore suggest that we try to divide the remaining time between the two Front Bench speeches. Part of the difficulty arose because we were trying to cut down the amount of Front Bench time. That has led us into trouble.

This has been a very sober and serious debate. I should hate to think that the excitement of the last few minutes has in any way obscured the fact that the House has taken the problem of unemployment extremely seriously. A number of very important speeches have been made, and many deeply held views have been put forward on both sides. No doubt we shall, regrettably, have many more debates on unemployment over the next few months.

I thought that the Chancellor of the Exchequer's speech today was absolutely characteristic. It was just what I expected of him. He started by taking the credit for everything that had gone right and blamed us for everything that had gone wrong. He spent most of his speech not in addressing himself to the problems we face but in going back to the problems of 1971 and 1972.

The truth is that the Chancellor of the Exchequer has consistently underestimated the problem of unemployment. Time and time again he has led the country astray by his optimism. He has always spoken of sunny times around the corner. They have been round the corner again today. He is still waiting for a pickup in world trade to solve all our problems.

In April, when unemployment was just over 700,000, the right hon. Gentleman was talking about being close to the bottom of the trough and stating that, fortunately, the alternative to inflation was not a continuing rise of unemployment over the indefinite future. How wrong the Chancellor of the Exchequer has been. He would have done himself and the country a little more credit if he had been a little more sincere and a little less hypocritical in many of the remarks he made. We all know that we face—and will continue to face for many months, if not years— a very serious unemployment problem.

I received a letter only today from the National Federation of Building Trades Employers in which it is pointed out that by the end of the year, unless something happens to prevent it, the building industry alone will account for 300,000 of the unemployed in this country as compared with the 200,000 unemployed for which it accounts at the present time.

The Chancellor of the Exchequer's remarks about the growth of world trade were adequately deal with by the hon. Member for Birmingham, Ladywood (Mr. Walden) and by the right hon. Member for Battersea, North (Mr. Jay), who both thought that the likely impact of increasing world trade would be nowhere near what it was in the last decade.

Most sober commetators looking at world trade today regard the prospects for growth in the next few years as being very limited indeed. It would be totally wrong to believe that we can sit back and wait for growth to take up the slack in our economy. We have reached the situation where we must admit to ourselves and to the country that at each period in the cycle we are now getting greater unemployment at the trough and less growth at the peak. If we do not do that, we do not do ourselves justice and we do not do any credit to the country.

I fear much higher levels of unemployment. I shall come later to what I think we must recognise about it. It is no use hon. Members going on talking in terms of the old economic conventions. Some people are monetarists, other are Keynesians. As the hon. Member for Lady-wood said, it is no answer to suggest that we can cure everything by a monetarist policy. After all, if a man is on a diet he can still die if it is not a balanced diet. The same applies to the monetarist as to Keynesian policies. If a man fills himself full of drugs he can still die. That is no answer either. We need a balanced economy. We are not getting it at the moment.

The Government cannot reflate because the bankers and the overseas money that we need prevent this happening. In any case, the Chancellor dare not reflate because of the risk of hyperinflation. That is why our amendment is framed as it is.

In The Times today Peter Jay, in the last paragraph of his article, says: By contrast a conventional reflation now, with or without benefit of import controls, will guarantee a decade of massive unemployment and political chaos in the 1980s. We should he careful to avoid falling into that trap.

The Chancellor spent much of his speech attacking the Opposition. He has a short memory. What a contrast this debate has been to the shrillness of debates in earlier years when the problem was so much less serious than it is today. What were the sober, cautious and responsible comments of the Prime Minister at that time? I shall not have time to go through many of his comments. However, when unemployment was below 1 million in November 1971 the Prime Minister told us that it was "intolerable". Just over two months later, with unemployment at just over 1 million on unadjusted figures, he told the House: In the dole queue there is no freedom; there are no differentiations. For them the universal leveller is the denial of freedom to work."—[Official Report, 24th January 1972; Vol. 829, c. 1001.] In the same speech the Prime Minister said that unemployment was "a social tragedy". It was then that he branded my right hon. Friend the Member for Sidcup (Mr. Heath) as the first dole queue millionaire to cross the Channel since Neville Chamberlain."— [Official Report, 24th January 1972; Vol. 829, c. 999.] That remark has already been referred to this afternoon.

Now the Prime Minister always talks about world factors. I do not recall him or the Chancellor spending much time in 1971 and 1972 talking about world factors. Memories are conveniently short on these matters. I wish that the memories of right hon. and hon. Gentlemen on the Government side would stretch back a little further than the last few months. If they think that they are adopting the same responsible attitude towards this serious problem as we are adopting, no one, certainly on this side of the House, will believe them for a moment.

In February 1974 the Prime Minister campaigned on the slogan Back to work with Labour. In October he told the voters of Preston We will not have our own people unemployed. Unemployment in Preston, where there are two marginal seas, is 2,600 more than it was a year ago. The day before polling, the Prime Minister said that unemployment was beginning to fall. Really, therefore, the Prime Minister stands condemned. Either he is telling the truth now about the position or, if he is doing that now, he was deceiving us at the time of the General Elections in 1974.

If there is anger about the situation, I am not surprised. Unemployment will be higher and will last longer as a result of what has happened in the last two years. Listening to the speech of the Chancellor today, it seems that collective responsibility has given way to collective hypocrisy.

What can be done? When we have put forward suggestions on public expenditure, as we have done for about one and a half years now, saying that it must be cut, we have been told every time that if we cut public expenditure temporarily unemployment will rise.

Mr. Raphael Tuck

It will.

Mr. Prior

But what has happened for the last 18 months without any cuts in public expenditure? Unemployment has risen. This is the weakness of the argument of Labour Members. If they had cut public expenditure when they should have done, by now they would be getting through the difficulties which we still have to experience.

Incidentally, it is no good telling us about what is happening overseas. If Labour Members look at the up-to-date figures they will see that unemployment is now falling in nearly every other country. Taking the last three months for which figures are available, one can see that the rate of increase in unemployment in Britain is higher than it is in any other country.

This is the message. I have the figures produced by the right hon. Gentleman's Department to prove that this is so. If we had cut public expenditure at the right time, we would certainly be in a better position now.

There is no easy answer or painless solution to this problem. Anyone who thinks that there is is not living in the real world. We simply have to make room for the private sector. If we do not make room for the private sector of the economy, there will be no new jobs created to create the wealth on which the country depends. It is the easiest thing in the world to increase public expenditure and to increase the number of jobs which are created in the public sector. But they are not productive jobs, and it is productive jobs on which the whole future of the country depends.

The Government are talking with two voices on all of this. They are now saying that we should encourage private enter—at least, they say that for a little while and then they drift back into others things. However, if we are to encourage private enterprise to invest, which is what the Chancellor wants to do, he must make changes in the price controls. That is the only way in which he can do it. There are manufacturers all over the country who are now saying that they will not invest in new plant and machinery or in new buildings until they know the future of price controls.

Price controls at present may not be hurting manufacturers a great deal, but they are worried about when the upturn comes and new investment is made. They are worried about the effect of price con trols at that time on any investment they could make. Price controls at present are prohibiting investment and destroying confidence, and thereby destroying employment too.

Manufacturing investment means more cash to be earned and ploughed back into industry. If right hon. and hon. Members on the Government side of the House do not recognise that, they do not recognise anything.

Again, we have to do far more to cut out legislation which at present affects the level of employment. We warned the Secretary of State for Employment when he was putting through the Employment Protection Act that the effect of that legislation in the long run might be beneficial but that in the sort run it would stop people taking on labour. That is precisely what it has done. It is especially true of small businesses.

Then, at the time of his Budget, the Chancellor of the Exchequer was warned that to put a 25 per cent. rate of VAT on small boats, yachts, television tubes and so on would affect employment. That is what it has done.

It is no good the Government coming back to this House a few months later to push a lot more money into regional employment premiums or any of the other temporary employment subsidies, because the damage is done. This is what the Government have never understood.

Then we have the Bill to regulate dock work coming up. I do not know one person on the management side, and I know very few on the union side, who actually believes—

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

I do.

Mr. Prior

The Patronage Secretary is one, but he is in the minority most of the time anyhow. There are very few people who believe that the Dock Work Regulation Bill will do anything other than damage investment prospects and employment. This is known.

It would be far better if the Government started by telling the people the truth. This has plainly not happened. If they start by telling people the truth, there is some chance that they will be able to get people to understand the long-term problems.

Mr. Reginald Eyre (Birmingham, Hall Green)

Is it not a fact that, as a direct consequence of the Government's policies which my right hon. Friend has outlined, unemployment has grown most rapidly in the great industrial areas in which the Labour Party got most support?

Mr. Prior

Yes, and during the debate on unemployment before Christmas I asked the Government what was their policy on IDCs. We have still not had an answer. We still do not know the Government's policy towards IDCs in the West Midlands.

If the country accepts, as I am certain that it will, that unemployment will be a lot higher in the next two or three years than we have known for a very long time past, perhaps we had better start looking at proper schemes of retraining. Let us use all that spare capacity in industry for proper schemes of contracts with private industry to get people trained. That would now he a better use for any cash that we have than going on with the process we have at the moment of palliatives towards short-term unemployment. We have to recognise now that we shall need a massive retraining and training exercise spread over a long time.

The Secretary of State for Employment has a special responsibility because he was very largely responsible for stoking up the inflation of 1974 and part of 1975. It was he who gave encouragement—almost a blessing—to every large wage increase in the public sector and elsewhere, and he is now reaping the whirlwind of what has happened. He sits in his place as Secretary of State for Employment knowing that it is the policy which he adopted—and he more than anyone else—in that period from March 1974 to July 1975 which has resulted in the inflation that we have experienced, and the bringing down of that inflation now is the cause of the unemployment from which we suffer.

At one stage the right hon. Gentleman went so far as to say that he was not prepared to remain in his Department and preside over mass unemployment. That was when unemployment was running at a level of 600,000. Today it is 1.2 million and increasing.

The truth is that the last two years have been disastrous years for our country and for our people. The only coherent alternative strategy that we have heard from the Opposition has come from the far Left of the Labour Party —[Interruption.] I meant from the Government Benches. For one moment I thought that I was back in the Government. The only coherent alternative strategy comes from the far Left. If we accepted it, it would fundamentally change the nature of our society. Let us have no doubt about that. Half-hearted mutterings about private enterprise from the Government—a Government who bend to the winds of expediency and Left-wing pressures—are no answer to our problems.

We need a Government who know what has to be done, mean what they say, tell the truth for a change, trust the people and lay down the foundations for restoring confidence and prosperity to all our people. I believe that this Government have failed the nation. They have failed to tell the truth. That will result in unemployment lasting longer and being worse than necessary. We need a properly-run economy. I invite my right hon. and hon. Friends to vote for our amendment.

9.41 p.m.

The Secretary of State for Employment (Mr. Michael Foot)

One of the problems of replying tonight, particularly in the abbreviated time left to the right hon. Member for Lowestoft (Mr. Prior) and myself, is that we have had at least two major debates compressed into one. There have been criticisms from the right hon. Gentleman to which I will seek to reply if I have the time, and we have had the criticism from my hon. Friends who were unable to move their amendment but who nevertheless put their case—my hon. Friends the Members for Penistone (Mr. Mendelson) and Bethnal Green and Bow (Mr. Mikardo). In saying that I mean no disrespect to the spokesmen from Scotland and elsewhere, but the problem we are discussing is not only a Scottish or Welsh problem, although both Wales and Scotland suffer severely from the unemployment afflicting so much of our country.

In a sense it is not only a British problem. [HON. MEMBERS: "Ah!"] 1 say that partly because the right hon. Gentleman misquoted the facts. If the seasonally adjusted figures are taken, and they are the right ones to take, serious and deplorable though the level of unemployment in this country is it is none the less still the case that in the United States, and Canada, Germany, France and most of the other countries of Western Europe, unemployment is worse. These are the facts which in themselves dispose of a considerable number of the accusations made by Tory Members.

I begin by referring to the speech of the right hon. Member for Worcester (Mr. Walker). I think that all who heard it would agree with what was said by my hon. Friends the Members for Birmingham, Ladywood (Mr. Walden) and Bethnal Green and Bow, namely, that it was a remarkable speech. I agreed with many parts of it. I agreed with what the right hon. Member said about the psychology of unemployment and how debasing and deplorable can be its long-term effects for the whole of our industrial society. I agreed with what the right hon. Member said about the advantages of regional policies as we have had them. I do not think that they should be despised.

I also have sympathy with my hon. Friend the Member for Bethnal Green and Bow, who said that in some respects regional policies have become fossilised and we must find more flexible ways of applying them.

I agreed with the right hon. Member also when he said that the construction industry probably presents the most tragic and absurd contrast of all with its unemployed building workers at a time when people want houses. I agreed also about the necessity to count the cost of unemployment, any inflation in the public borrowing requirement, and all the other factors. The House is deeply indebted to him for the way in which he put the case. Everyone who heard his speech will agree that it pointed to some of the ways in which we should approach the question.

I also agree with what my hon. Friend the Member for Birmingham, Ladywood said, although he had some criticisms of the Government. They were not very fierce criticisms, nor were those he made of my hon. Friend the Member for Penistone. My hon. Friend the Member for Birmingham, Ladywood argued that he was presenting much the same case as my hon. Friend the Member for Penistone, but said he would support the Government the more because he believed that we were right, too.

The criticisms made by my hon. Friend the Member for Penistone formed the central feature of the debate, and it is proper that we should try to answer them. I thank him and my hon. Friend the Member for Bethnal Green and Bow for the way in which they referred to our so-called alleviating measures. They did not deride or reject them. They said they were not enough, and I understand that. It would be a mistake for anyone in the House to minimise that part of what we are doing.

The right hon. Member for Lowestoft stressed the necessity for training. I agree with him. In this recession more has been done to assist training than in any previous recession, thanks to the Government's measures, although I agree that training is not confined to what can be done by Government expenditure. Other expenditure is even more important. The training that has been done has been extremely important. The number of apprenticeships taken up by the engineering industry in this recession has been kept up, whereas in the last recession the number fell by about 25 per cent. The millions of pounds provided by the Government for training last year, the millions provided for the temporary employment subsidy, the millions for the job creation scheme and for the construction industry are of some importance, but I agree that much more has to be done for the construction industry.

The packages introduced just before Christmas will have saved jobs for several hundreds of thousands of people, and the further measures that we are preparing, which will be introduced and announced in a week or two, will also contribute. Whatever hon. Members may say, in all the discussions we have had with the trade unions, they have agreed that these measures are of great importance, despite their insistence about the desirability and urgency of still further measures.

I now come to the argument of my hon. Friends who said in their amendment that they wanted controlled reflation as soon as possible. That is what I want, too. I believe that is what the country wants. We want to see the expansion of our economy as soon as we can do it safely. My hon. Friends are asking not for great, sweeping, indiscriminate reflation but for controlled reflation. I do not believe we should protest against pressure of that character. The sooner we can arrive at that situation, the better.

My hon. Friend the Member for Bethnal Green and Bow asks "What is the answer to the argument that it should have been done months ago?" Even on the argument as my right hon. Friend the Chancellor presented it, my hon. Friend says that action should have been months ago. He says that it takes so long for the controlled measures for reflation to take effect that there is all the more reason for having taken such action earlier. That is what my hon. Friend argues, and I understand the argument. Some of my hon. Friends are suggesting that the Chancellor should have embarked upon a course of controlled reflation at about the same time as we were introducing the £6 limit and the controls over inflation which we then sought to establish. It seems that that is one of their principal criticisms.

On further consideration I do not think that they or anyone else will believe that that would have been the sensible course. I am sure that that will be their conclusion, when what we had to do in the interests of the nation, and what we did in full collaboration with the trade union movement, was to take measures to try to stop the runaway inflation which would have swept away all our policies and our Government in the same process. I do not believe it was possible at that time to embark upon a controlled reflation.

We wish to secure a controlled reflation as soon as we can and as safely as we can. We wish to do so without plunging ourselves into the same sort of inflation which led to all these problems and difficulties.

My hon. Friend the Member for Bethnal Green and Bow then said—I understand his argument, and it is one that must be considered by the House and the country most seriously—that controlled reflation must be combined with some form of import control. Of course, my hon. Friends' amendment—I do not complain about this—leaves open the issue of whether there should be selective controls or controls going across a wide area.

I believe that my hon. Friends will accept that there are different arguments for different controls at different times. For example, some months ago when most of the great industrialised countries in the world were suffering from heavy deficits in their balance of payments, it would have been impossible for a British Government to have embarked upon controls without running the great possibility of widespread retaliation. My hon. Friends have said that they can cite examples of what happened in the past, and so can I. There was retaliation during the great slump of the 1930s. Resort to such measures in those circumstances led to retaliation and deepened the nature of the slump. But that does not mean that there are not other circumstances in which the Government should consider import controls as one of the methods for assisting a reflation.

I am not excluding what my hon. Friends are proposing. I believe that it is a proper thing to be considered. When right hon. and hon. Members of the Opposition exclude it altogether they are proving that they are the doctrinaires. Perhaps they are so carried away with the oratory of the Common Market debate that they believe such a course should be excluded altogether. I do not believe that that is the case.

I now come to the accusations of the right hon. Member for Lowestoft. I am sorry that we do not have much longer to debate these matters tonight. However, I know that we shall have plenty of time to discuss them in other places, although I agree that the discussions are urgent. I fully accept what my hon. Friends say—namely, that the sooner we can get the National Enterprise Board, planning agreements and all such measures into full-scale operation the better. We shall only see the possibilities if we can keep a Labour Government in office. We shall not be able to expect much from the Opposition.

That is illustrated by the fact that the right hon. Gentleman began his speech by trying to make accusations against me. He talked as if I am the sole author of inflation. Others have been into the history of the matter a little more carefully. It is sometimes called the Barber inflation. I think that is most unfair. It was not the Barber inflation. It was the Barber-Heath-Thatcher inflation, or the Barber-Heath-Thatcher-Joseph inflation. The right hon. Member for Leeds, North-East (Sir K. Joseph) is nodding agreement again.

I know that many Opposition Members have not listened to the debate. [Interruption.] Indeed, they seem determined not to listen to it now. If they had been present they would have observed the wonderful contrast between the speeches made from the Opposition Front Bench and those delivered from below the Gangway.

We did not have the advantage of hearing the right hon. Member for Sid-cup (Mr. Heath), who played a leading part in the last Tory Government. I am sure the right hon. Member does not deny that. We know that the right hon. Gentleman and the Leader of the Opposition used to exchange a few words, but we know that they never speak to each other now. We have the most extraordinary pantomime horse in political history—one in which the front legs never communicate with the back legs. Whoever would want to ride on such a ramshackle steed?

Mr. Churchill

When will the right hon. Gentleman deal with the unemployed?

Mr. Foot

I am dealing with the unemployed. We know the Tory attitude on the unemployed because we have examined their voting record. It is not a question of theory or of having to put arguments about public expenditure, but of examining the Opposition voting record when the Government have tried to save jobs for the people. In British Leyland 160,000 jobs were saved, but the Opposition voted against. More jobs were saved at Alfred Herbert. Again, the Tories voted against that. They also voted against our proposals for Chrysler. In that case 17,000 jobs were saved in Chrysler itself and 40,000 in the rest of the country. If the Tory vote had been effective, those workers would have lost their jobs. How can they talk about unemployment? They have neither the policy nor the will to deal with it.

Mr. Churchill

What is the right hon. Gentleman's policy?

Mr. Foot

I understand the criticisms made by my hon. Friends, and I have in mind the party manifesto on which we won the election. I agree with them that in the interests of the country we must stay in power and carry on. That is what we intend to do. [HON. MEMBERS: "Resign."] It is precisely because the Opposition have not the courage of their convictions that they will lose the vote tonight.

Question put, That the amendment be made:

The House divided: Ayes 250, Noes 299.

Division No. 48.] AYES 10.0 p.m.
Adley, Robert Bowden, A. (Brighton, Kemptown) Clegg, Walter
Aitken, Jonathan Boyson, Dr Rhodes (Brent) Cockcroft, John
Alison, Michael Braine, Sir Bernard Cooke, Robert (Bristol W)
Amery, Rt Hon Julian Brittan, Leon Cope, John
Arnold, Tom Brocklebank-Fowler, C. Cormack, Patrick
Atkins, Rt Hon H. (Spelthorne) Brotherton, Michael Corrie, John
Awdry, Daniel Brown, Sir Edward (Bath) Costain, A. P.
Baker, Kenneth Bryan, Sir Paul Crouch, David
Banks, Robert Buchanan-Smith, Alick Crowder, F. P.
Bell, Ronald Budgen, Nick Davies, Rt Hen J. (Knutsford)
Bennett, Dr Reginald (Fareham) Bulmer, Esmond Dean, Paul (N Somerset)
Benyon, W. Burden, F. A. Dodsworth, Geoffrey
Berry, Hon Anthony Butler, Adam (Bosworth) Douglas-Hamilton, Lord James
Biffen, John Carlisle, Mark Drayson, Burnaby
Biggs-Davison, John Chalker, Mrs Lynda du Cann, Rt Hon Edward
Blaker, Peter Churchill, W. S. Durant, Tony
Body, Richard Clark, Alan (Plymouth, Sutton) Dykes, Hugh
Boscawen, Hon Robert Clark, William (Croydon S) Eden, Rt Hon Sir John
Bottomley, Peter Clarke, Kenneth (Rushcliffe) Edwards, Nicholas (Pembroke'
Elliott, Sir William Kitson, Sir Timotthy Rees, Peter (Dover & Deal)
Emery, Peter Knight, Mrs Jill Rees-Davies, W. R.
Eyre, Reginald Knox, David Renton, Rt Hon Sir D. (Hunts)
Fairbairn, Nicholas Lamont, Norman Renton, Tim (Mid-Sussex)
Fairgrieve, Russell Lane, David Ridley, Hon Nicholas
Fell, Anthony Langford-Holt, Sir John Ridsdale, Julian
Finsberg, Geoffrey Latham, Michael (Melton) Rifklnd, Malcolm
Fisher, Sir Nigel Lawrence, Ivan Rippon, Rt Hon Geoffrey
Fletcher-Cooke, Charles Lawson, Nigel Roberts, Wyn (Conway)
Fookes, Miss Janet Lester, Jim (Beeston) Ross, William (Londonderry)
Fowler, Norman (Sutton C'f'd) Lewis, Kenneth (Rutland) Rossi, Hugh (Hornsey)
Fox, Marcus Lloyd, Ian Rost, Peter (SE Derbyshire)
Fraser, Rt Hon H. (Stafford & St) Loveridge, John Royle, Sir Anthony
Fry, Peter Luce, Richard Sainsbury, Tim
Galbraith, Hon. T. G. D. McAdden, Sir Stephen St. John-Stevas, Norman
Gardiner, George (Reigate) McCrindle, Robert Shaw, Giles (Pudsey)
Gardner, Edward (S Fylde) Macfariane, Neil Shaw, Michael (Scarborough)
Gilmour, Rt Hon Ian (Chesham) MacGregor, John Shelton, William (Streatham)
Gilmour, Sir John (East Fife) Macmillan, Rt Hon M. (Farnham) Shepherd, Colin
Giyn, Dr Alan McNair-Wilson, M. (Newbury) Shersby, Michael
Godber, Rt Hon Joseph McNair-Wilson, P. (New Forest) Silvester, Fred
Goodhart, Philip Madel, David Sims, Roger
Goodhew, Victor Marshall, Michael (Arundel) Sinclair, Sir George
Goodlad, Alastair Marten, Neil Skeet, T. H. H.
Gorst John Mather, Carol Smith, Dudley (Warwick)
Gow, Ian (Esstbourns) Maude, Angus Speed, Keith
Gower, Sir Raymond (Barry) Maudling, Rt Hon Reginald Spence, John
Grant, Anthony (Harrow C) Mawby, Ray Spicer, Jim (W Dorset)
Gray Hamish Maxwell-Hyslop, Robin Spicer, Michael (S Worcester)
Griffiths, Eldon Mayhew, Patrick Sproat, lain
Grist Ian Meyer, Sir Anthony Stainton, Keith
Grist, Ian Mills, Peter Stanbrook, Ivor
Grylls, Michael Miscampbell, Norman Stanley, John
Hall Sir John Mitchell David (Basinastoke) Steen, Anthony (Wavertree)
Hall-Davis, A. G. F. Moate, Roger Stewart, Ian (Hitchin)
Hamilton, Michael (Salisbury) Molyneaux, James Stokes, John
Hampson, Dr Keith Monro, Hector Stradling Thomas, J.
Hannam, John Montgomery, Fergus Tapsell, Peter
Hastings, Stephen Moore, John (Croydon C) Tapsell, Peter
Havers, Sir Michael More, Jasper (Ludlow) Tebbit, Norman
Hawkins, Paul Morgan, Geraint Temple-Morris, Peter
Hayhoe, Barney Morris, Michael (Northampton S) Thatcher, Rt Hon Margaret
Heath, Rt Hon Edward Morrison, Charles (Devizes) Thomas, Rt Hon P. (Hendon S)
Heseltine, Michael Morrison, Hon Peter (Chester) Townsend, Cyril D.
Hicks, Robert Mudd, David Trotter Neville
Higgins, Terence L. Neave, Airey Tugendhat, Christopher
Holland, Philip Nelson, Anthony Vaughan, Dr Gerard
Hordern, Peter Neubert, Michael Viggers, Peter
Howell, David (Guildford) Newton, Tony Wakeham, John
Howell, Ralph (North Norfolk) Nott, John Walder, David (Clitheroe)
Hurd, Douglas Onslow, Cranley Walker, Rt Hon P. (Worcester)
Hutchison, Michael Clark Oppenheim, Mrs Sally Walker-Smith, Rt Hon Sir Derek
Irvine, Bryant Godman (Rye) Osborn, John Wall, Patrick
Irving, Charles (Cheltenham) Page, Rt Hon R. Graham (Crosby) Walters, Dennis
James, David Parkinson, Cecil Weatherill, Bernard
Jenkin, Rt Hon P. (Wanst'd & W'df'd) Pattie, Geoffrey Wells, John
Jones, Arthur (Daventry) Percival, Ian Whitelaw, Rt Hon William
Jopling, Michael Peyton, Rt Hon John Wiggin, Jerry
Joseph, Rt Hon Sir Keith Pink, R. Bonner Winterton, Nicholas
Kaberry, Sir Donald Powell, Rt Hon J. Enoch Wood, Rt Hon Richard
Kellett-Bowman, Mrs Elaine Price, David (EasNeigh) Young, Sir G. (Ealing, Acton)
Kershaw, Anthony Prior, Rt Hon James Younger, Hon George
Kilfedder, James Pym, Rt Hon Francis
Kimball, Marcus Raison, Timothy TELLERS FOR THE AYES:
King, Evelyn (South Dorset) Rathbone, Tim Mr. Spencer Le Marchant and
King, Tom (Bridgwater) Rawlinson, Rt Hon Sir Peter Mr. Michael Roberts.
Allaun, Frank Bidwell, Sydney Callaghan, Jim (Middieton & P)
Anderson, Donald Bishop, E. S. Campbell, Ian
Archer, Peter Blenklnsop, Arthur Canavan, Dennis
Armstrong, Ernest Boardman, H. Cant, R. B.
Ashley, Jack Booth, Albert Carmichael, Nell
Ashton, Joe Boothroyd, Miss Betty Carter-Jones, Lewis
Atkins, Ronald (Preston N) Bottomley, Rt Hon Arthur Cartwright, John
Atkinson, Norman Boyden, James (Bish Auck) Castle, Rt Hon Barbara
Bagier, Gordon A. T. Bradley, Tom Clemitson, Ivor
Barnett, Guy (Greenwich) Bray, Dr Jeremy Cocks, Michael (Bristol S)
Barnett, Rt Hon Joel (Heywood) Brown, Hugh D. (Provan) Coleman, Donald
Bates, All Brown, Robert C. (Newcastle W) Colquhoun, Mrs Maureen
Bean, R. E. Buchan, Norman Concannon, J. D.
Beith, A. J. Buchanan, Richard Conlan, Bernard
Benn, Rt Hon Anthony Wedgwood Butler, Mrs Joyce (Wood Green) Cook, Robin F. (Edin C)
Bennett, Andrew (Stockport N) Callaghan, Rt Hon J. (Cardiff SE) Corbett, Robin
Cox, Thomas (Tooting) Jay, Rt Hon Douglas Price, C. (Lewisham W)
Craigen, J. M. (Maryhill) Jeger, Mrs Lena Price, William (Rugby)
Crawshaw, Richard Jenkins, Hugh (Putney) Radice, Giles
Cronin, John Jenkins, Rt Hon Roy (Stechford) Rees, Rt Hon Merlyn (Leeds S)
Crosland, Rt Hon Anthony John, Brynmor Richardson, Miss Jo
Cryer, Bob Johnson, James (Hull West) Roberts, Albert (Normanton)
Cunningham, G. (Islington S) Johnson, Walter (Derby S) Roberts, Gwilym (Cannock)
Cunningham, Dr J. (Whiten) Johnston, Russell (Inverness) Robertson, John (Paisley)
Davidson, Arthur Jones, Alec (Rhondda) Roderick, Caerwyn
Davies, Bryan (Enfleid N) Jones, Barry (East Flint) Rodgers, George (Chorley)
Davies, Denzil (Llanelli) Jones, Dan (Burnley) Rodgers, William (Stockton)
Davis Clinton (Hackney C) Judd, Frank Rooker, J. W.
Deakins, Eric Kaufman, Gerald Rose, Paul B.
Dean, Joseph (Leeds West) Kelley, Richard Ross, Stephen (Isle of Wight)
de Freitas, Rt Hon Sir Geoffrey Kerr, Russell Ross, Rt Hon W. (Kilmarnock)
Delargy, Hugh Kilroy-Sllk, Robert Rowlands, Ted
Dell, Rt Hon Edmund Kinnock, Neil Sandelson, Neville
Dempsey, James Lambie, David Sedgemore, Brian
Dolg, Peter Lamborn, Harry Shaw, Arnold (llford South)
Douglas-Mann, Bruce Lamond, James Sheldon, Robert (Ashton-u-Lyne)
Duffy, A. E. P. Latham, Arthur (Paddington) Shore, Rt Hon Peter
Dunn, James A. Leadbitter, Ted Short, Rt Hon E. (Newcastle C)
Dunnett, Jack Lee, John Short, Mrs Renée (Wolv NE)
Dunwoody, Mrs Gwyneth Lestor, Miss Joan (Eton & Slough) Silkin, Rt Hon John (Deptford)
Eadie, Alex Lewis, Ron (Carlisle) Silkin, Rt Hon S. C. (Dulwich)
Edge, Geoff Litterick, Tom Sillars, James
Edwards, Robert (Wolv SE) Loyden, Eddie Silverman, Julius
Ellis, John (Brlgg & Scun) Luard, Evan Skinner, Dennis
English, Michael Lyon, Alexander (York) Small, William
Ennals, David Lyons, Edward (Bradford W) Smith, Cyril (Rochdale)
Evans, Fred (Caerphilly) McCartney, Hugh Smith, John (N Lanarkshire)
Evans, loan (Aberdare) McElhone, Frank Spearing, Nigel
Evans, John (Newton) MacFarquhar, Roderick Spriggs, Leslie
Ewing, Harry (Stirling) McGuire, Michael (Ince) Stallard, A. W.
Fernyhough, Rt Hn E. Mackenzie Gregor Steel, David (Roxburgh)
Fitch, Alan (Wigan) Mackintosh, John P. Stewart, Rt Hon M. (Fulham)
Fitt, Gerard (Belfast W) Maclennan, Robert Stoddart, David
Flannery, Martin McMillan, Tom (Glasgow C) Stonehouse, Rt Hon John
Fletcher, Ted (Darlington) McNamara, Kevin Stott, Roger
Fool, Rt Hon Michael Madden, Max Strang, Gavin
Ford, Ben Magee, Bryan Strauss, Rt Hon G. R.
Forrester, John Mahon, Simon Summerskill, Hon Dr Shirley
Fowler, Gerald (The Wrekin) Mallalieu, J. P. W. Swain, Thomas
Fraser, John (Lambeth, N'w'd) Marks, Kenneth Taylor, Mrs Ann (Bolton W)
Freeson, Reginald Marquand, David Thomas, Jeffrey (Abertillery)
Freud, Clement Marshall, Dr Edmund (Goole) Thomas, Mike (Newcastle E)
Garrett, John (Norwich S) Marshall, Jim (Leicester S) Thomas, Ron (Bristol NW)
Garrett, W. E. (Wallsend) Mason, Rt Hon Roy Thorne, Stan (Preston South)
George, Bruce Meacher, Michael Thorpe, Rt Hon Jeremy (N Devon)
Gilbert, Dr John Mellish, Rt Hon Robert Tierney, Sydney
Ginsburg, David Mendelson, John Tinn, James
Golding, John Mikardo, Ian Tomlinson, John
Gould, Bryan Millan, Bruce Tomney, Frank
Gourlay, Harry Miller, Dr M. S. (E Kilbrlde) Torney, Tom
Graham, Ted Miller, Mrs Millie (llford N) Tuck, Raphael
Grant, George (Morpeth) Mitchell, R. C. (Solon, Itchen) Varley, Rt Hon Eric G.
Grant, John (Islington C) Molloy, William Wainwrlght, Edwin (Dearne V)
Grimond, Rt Hon J. Moonman, Eric Wainwright, Richard (Colne V)
Grocott, Bruce Morris, Alfred (Wythenshawe) Walden, Brian (B'ham, L'dyw'd)
Hamilton, James (Bothwell) Morris, Charles R. (Openshaw) Walker, Harold (Doncaster)
Harper, Joseph Morris, Rt Hon J. (Aberavon) Walker, Terry (Kingswood)
Harrison, Walter (Wakefleid) Moyle, Roland Ward, Michael
Hattersley, Rt Hon Roy Mulley, Rt Hon Frederick Watkins, David
Hatton, Frank Murray, Rt Hon Ronald King Weetch, Ken
Hayman, Mrs Helene Newens, Stanley Weltzman, David
Healey Rt Hon Denis Noble, Mike Wellbeloved, James
Heffer, Eric S. Oakes, Gordon White, Frank R.(Bury)
Ogden, Eric White, James (Pollok)
Hooley, Frank O'Halloran, Michael Whitlock, William
Hooson, Emlyn O'Malley, Rt Hon Brian Willey Rt Hon Frederick
Horam, John Orbach, Maurice William, Alan (Swansea W)
Howell, Denis (B'ham, Sm H) Orme, Rt Hon Stanley Williams, Alan (Swansea W)
Howells, Geraint (Cardigan) Ovenden, John Williams, Alan Lee (Hornch ch)
Hoyle, Doug (Nelson) Owen, Dr David Williams, Rt Hon Shirley (Hertford)
Huckfield, Les Owen, Dr David Williams, W. T. (Warrington)
Hughes, Rt Hon C. (Anglesey) Palmer, Arthur Wilson, Alexander (Hamilton)
Hughes, Mark (Durham) Pardoe John Wilson, Rt Hon H. (Huyton)
Hughes, Robert (Aberdeen N) Park, George Wilson, William (Coventry SE)
Hughes, Roy (Newport) Parker John Wise, Mrs Audrey
Hunter, Adam Pavitt, Laurie Woodall, Alec
Irvine, Rt Hon Sir A. (Edge Hill) Peart, Rt Hon Fred Woof, Robert
Irving, Rt Hon S. (Dartford) Pendry, Tom Wrigglesworth, Ian
Jackson, Colin (Brighouse) Penhaligon, David Young, David (Bolton E)
Jackson, Miss Margaret (Lincoln) Perry, Ernest TELLERS FOR THE NOES:
Janner, Greville Prentice, Rt Hon Reg Mr. J. D. Dormand and
Mr. Peter Snape.

Question accordingly negatived.

Main Question put:—

The House division: Ayes 234, Noes 25.

Division No. 49.] AYES [10.14 p.m.
Anderson, Donald Freeson, Reginald Moonman, Eric
Archer, Peter Garrett, W. E. (Wallsend) Morris, Alfred (Wythenshawe)
Armstrong, Ernest George, Bruce Morris, Charles R. (Openshaw)
Ashley, Jack Gilbert, Dr John Morris, Rt Hon J. (Aberavon)
Bagier, Gordon A. T. Ginsburg, David Moyle, Roland
Barnett, Guy (Greenwich) Golding, John Mulley, Rt Hon Frederick
Barnett, Rl Hon Joel (Heywood) Gould, Bryan Murray, Rt Hon Ronald King
Bates, Alf Gourlay, Harry Oakes, Gordon
Bean, R. E. Graham, Ted Ogden, Eric
Benn, Rt Hon Anthony Wedgwood Grant, George (Morpeth) O'Halloran, Michael
Bishop, E. S. Grant, John (Islington C) O'Malley, Rt Hon Brian
Blenkinsop, Arthur Grocott, Bruce Orbach, Maurice
Boardman, H. Hamilton, James (Bothwell) Orme, Rt Hon Stanley
Booth, Albert Harrison, Walter (Wakefleld) Ovenden, John
Boothroyd, Miss Betty Hattersley, Rt Hon Roy Owen, Dr David
Bottomley, Rt Hon Arthur Hayman, Mrs Helens Padley, Walter
Boyden, James (Bish Auck) Healey, Rt Hon Denis Palmer, Arthur
Bradley, Tom Hooley, Frank Park, George
Bray, Dr Jeremy Horam, John Parker, John
Brown, Hugh D. (Provan) Howell, Denis (B'ham, Sm H) Pavitt, Laurie
Brown, Robert C. (Newcastle W) Huckfield, Les Peart, Rt Hon Fred
Buchanan, Richard Hughes, Rt Hon C. (Anglesey) Pendry, Tom
Butler, Mrs Joyce (Wood Green) Hughes, Mark (Durham) Perry, Ernest
Callaghan, Rt Hon J. (Cardiff SE) Hughes, Robert (Aberdeen N) Prentice, Rt Hon Reg
Campbell, Ian Hunter, Adam Price, C. (Lewisham W)
Cant, R. B. Irvine, Rt Hon Sir A. (Edge Hill) Price, William (Rugby)
Carmichael, Nell Irving, Rt Hon S. (Dartford) Radice, Giles
Carter-Jones, Lewis Jackson, Colin (Brighouse) Rees, Rt Hon Merlyn (Leeds S)
Cartwrlght, John Jackson, Miss Margaret (Lincoln) Roberts, Albert (Normanton)
Castle, Rt Hon Barbara Janner, Greville Roderick, Caerwyn
Clemitson, Ivor Jay, Rt Hon Douglas Rodgers, William (Stockton)
Cocks, Michael (Bristol S) Jeger, Mrs Lena Rooker, J. W.
Coleman, Donald Jenkins, Hugh (Putney) Ross, Rt Hon w. (Kilmarnock)
Concannon, J. D. Jenkins, Rt Hon Roy (Stechford) Rowlands, Ted
Cornlan, Bernard John, Brynmor SandelBon, Neville
Corbett, Robin Johnson, James (Hull West) Shaw, Arnold (IIford South)
Cox, Thomas (Tooting) Johnson, Walter (Derby S) Sheldon, Robert (Ashton-u-Lyne)
Craigen, J. M. (Maryhill) Jones, Alec (Rhondda) Shore, Rt Hon Peter
Crawshaw, Richard Jones, Barry (East Flint) Short, Rt Hon E. Newcastie C)
Cronin, John Jones, Dan (Burnley) Silkin, Rt Hon John (Deptford)
Crosland, Rt Hon Anthony Judd, Frank Silkin, Rt Hon S. C. (Dulwich)
Cunningham, G. (Islington S) Kaufman, Gerald Silverman, Julius
Cunningham, Dr J. (Whiten) Kelley, Richard small, William
Davidson, Arthur Lambie, David Smith, John (N Lanarkshire)
Davies, Bryan (Enfield N) Lamborn, Harry Snape, Peter
Davis Denzil (Llanelll Leadbilter, Ted Stallard, A, W.
Davis Clinton (Hackeny C) Lestor, Miss Joan (Eton & Slough) Stewart, Rt Hon M. (Fulham)
Dealins. Eric Lewis, Ron (Carlisle) Stoddart, David
Deakins, Eric Luard Evan Stonehouse, Rt Hon John
Dean, Joseph (Leeds Wesi) Lyon Alexander (York) Stott, Roger
de Freitas, Rt Hon Sir Geoffrey Lyons Edward (Bradford W) Strang, Gavin
Delargy, Hugh McCartney, Hugh Strauss, Rt Hon G. R.
Dell, Rt Hon Edmund McElhone Frank Summersklll, Hon Dr Shirley
Dempsey, James MacFarquhar, Roderick Taylor, Mrs Ann (Bolton W)
Dolg, Peter McGuire, Michael (Ince) Thomas, Jeffrey (Abertillery)
Dormand, J. D. Mackenzie, Gregor Thomas, Mike (Newcastle E)
Douglas-Mann, Bruce Mackintosh, John P. Tierney, Sydney
Duffy, A. E. P. Maclennan, Robert Tinn, James
Dunn, James A. McMillan, Tom (Glasgow C) Tomllnson, John
Dunnett, Jack McNamara, Kevin Tomney, Frank
Dunwoody, Mrs Gwyneth Madden, Max Torney, Tom
Eadie, Alex Magee, Bryan Tuck, Raphael
Edwards, Robert (Wolv SE) Mahon, Simon Varley, Rt Hon Eric G.
English, Michael Mallalieu, J. P. W. Wainwright, Edwin (Dearne V)
Ennals, David Marks Kenneth Walden, Brian (B'ham, L'dyw'd)
Evans, loan (Aberdare) Marquand, David Walker, Harold (Doncaster)
Evans, John (Newton) Marshall, Dr Edmund (Goole) Walker, Terry (Klngswood)
Ewing, Harry (Stirling) Marshall, Jim (Leicester S) Ward, Michael
Fernyhough, Rt Hn E. Mason, Rt Hon Roy Watkins, David
Fitch, Alan (Wigan) Foot, Rt Hon Michael Meacher, Michael Weetch, Ken Weitzman, David
Ford, Ben Mellish, Rt Hon Robert Wellbeloved, James
Forrester, John Millan, Bruce White, Frank R. (Bury)
Fowler, Gerald (The Wrekin) Miller, Mrs Millie (llford N) White, James (Pollok)
Fraser, John (Lambeth, N'w'd) Mitchell, R. C. (Soton, ltchen) Whitlock, William
Willey, Rt Hon Frederick Wilson, Alexander (Hamilton) Wrigglesworth, Ian
Williams, Alan (Swansea W) Wilson, Rt Hon H. (Huyton)
Williams, Alan Lee (Hornch'ch) Wilson, William (Coventry SE) TELLERS FOR THE AYES:
Williams, Rt Hon Shirley (Hertford) Woodall, Alec Mr. John Ellis and
Williams, W. T. (Warrington) Woof, Robert Mr. Joseph Harper.
Bain, Mrs Margarat Kllfedder, James Wainwright, Richard (Colne V)
Beith, A. J. MacCormick, lain Watt, Hamish
Crawford, Douglas Pardoe, John Welsh, Andrew
Evans, Gwynfor (Carmarthen) Penhaligon, David Wigley, Dafydd
Ewing, Mrs Winifred (Moray) Reid, George Wilson, Gordon (Dundee E)
Freud, Clement Ross, Stephen (Isle of Wight)
Grimond, Rt Hon J. Steel, David (Roxburgh) TELLERS FOR THE NOES:
Hooson, Emlyn Stewart, Donald (Western Isles) Mr. Douglas Henderson and
Howells, Geraint (Cardigan) Thompson, George Mr. Cyril Smith.
Johnston, Russell (Inverness) Thorpe, Rt Hon Jeremy (N Devon)

Question accordingly agreed to.

Resolved, That this House, while welcoming the reduction in the rate of inflation and the improvement in the balance of payments as an essential basis for economic recovery, expresses its deep concern at the continuing rise in unemployment and its determination to take all possible effective measures to reduce it so as to ensure continuing growth with stable prices.

Mr. Reid

On a point of order, Mr. Speaker. Earlier this evening the hon. Member for West Stirlingshire (Mr. Canavan) referred to hon. Members on these Benches as racialist swine and racialist rats. The fact that these remarks were made was confirmed not only by those on these Benches but by Members of the official Opposition sitting behind us. The hon. Member himself, when challenged, said, sotto voce, "That's dead right".

Earlier this evening, Mr. Speaker, you said that you would consider the matter, and I ask for guidance. First, is the use of such language in this House right and proper? Secondly, what action do you consider it right to take in this matter?

Mr. Speaker

Mr. Canavan.

Mr. Canavan

May I say in explanation, Mr. Speaker, that in an intervention in a speech by the hon. Member for Aberdeenshire, East (Mr. Henderson) I said that he had left his native and so-called beloved land, Scotland, in order to emigrate to a racialist regime and take part in racialist exploitation. That was what I said in public and I do not withdraw it. I think that the hon. Member's action was unpatriotic, amounting to racialism on his part.

Mr. Speaker

I shall not at this time of night have a discussion on the merits of the question. I shall look at the Official Report. If I think that any right hon. or hon. Member has gone too far, I shall take the appropriate measures, whatever I consider them to be.