HC Deb 06 July 1976 vol 914 cc1175-306
Mr. Speaker

Before I call the Chancellor of the Exchequer to move the first motion, I should announce that I have selected the amendment in the name of the right hon. Lady the Leader of the Opposition, at the end of the Question to add, 'welcomes the Government's belated realisation that jobs depend upon profits and are endangered by excessive growth of public spending; recognises the need for restraint in pay bargaining; but deplores the absence of a convincing strategy for economic recovery based upon a prosperous private sector and the reduction of state spending and borrowing'. I understand that it will be for the convenience of the House to discuss at the same time the following four Government motions: That the Counter-Inflation (Continuation of Enactments) Order 1976, a draft of which was laid before this House on 30th June, be approved. That the Limits on Remuneration Order 1976, a draft of which was laid before this House on 30th June, be approved.

Income tax (charge and rates for 1976–77) (No. 2)

That the Resolution of the House of 12th April (income tax (charge and rates for 1976–77)) be varied as follows—

  1. (a) in paragraph (a) and the heading of the first column of the Table for '£4,500' there shall be substituted '£5,000';
  2. (b) in the first column of the Table for '£2,000' where it first occurs there shall be substituted '£1,500';
but this Resolution shall not require any change to be made in the amounts deductible or repayable under section 204 of the Incomes and Corporation Taxes Act 1970 (pay as you end) before 27th July 1976.

And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provincial Collection of Taxes Act 1968.

Income tax (alternation of personal reliefs) (No. 2)


(1) In section 8 of the Income and Corporation Taxes Act 1970 (personal reliefs)—

  1. (a) in subsection (1)(a) (married) for '£995' there shall be substituted '£1,085';
  2. (b) in subsections (1)(b) (single) and (2) (wife's earned income relief) for '£675' there shall be substituted '£735'.

(2) In section 14(2) and (3) of that Act (additional relief for widows and others in respect of children) for '£280' there shall be substituted '£350'; but this Resolution shall not require any change to be made in the amounts deductible or repayable under section 204 of the said Act of 1970 (pay as you earn) before 17th August 1976.

And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.

3.58 p.m.

The Chancellor of the Exchequer (Mr. Denis Healey)

I beg to move, That this House takes note of the White Papers entitled "The Attack on Inflation, The Second Year" (Command Paper No. 6507) and "Modifications to the Price Code" (Command Paper No. 6540). I am grateful to you, Mr. Speaker, for having said that it will be possible to debate at the same time the two draft Orders and the two Ways and Means Resolutions. My right hon. Friend the Secretary of State for Prices and Consumer Protection and Paymaster-General will deal later in the debate with the second of the White Papers mentioned in the motion. I shall deal with the first, Cmnd. 6507, which sets the counter-inflation policy for the coming 12 months in the context of the Government's broader economic and social goals.

That White Paper begins by stating the Government's fundamental aims—to reduce unemployment, to maintain our social priorities, to eliminate our balance of payments deficit, and to build up British industry so as to sustain a new period of export-led growth. It explains that, if we do not get inflation under control, each of these objectives will be put at risk. The immediate task, therefore, must be to see that the United Kingdom inflation rate continues to decline until it is at least no higher than that of our main competitors abroad and that thereafter it stays at or below the average level experienced by industrial nations as a whole.

The White Paper is therefore not just a document about pay policy and the agreement reached between the Government and the TUC. It touches on every aspect of economic management and social policy, showing how each is related to the others as part of a comprehensive strategy designed to re-establish Britain as a leading industrial nation which can again offer the people a rising standard of living and social provision. It shows the importance of pay restraint in helping to keep down industry's costs and so make British products more competitive in international markets. It stresses the need to give industry the confidence it needs to invest, to innovate, to find new markets and, above all, to provide new jobs.

Price controls must be modified to allow industry a better rate of return on the capital it employs and so enable it to take full advantage of the world economic upswing which is already under way. But, at the same time, the Price Code must continue in being so as to reassure people at work that their restraint on pay is not in vain but will continue to be reflected in a lower rate of price increases than would otherwise occur.

The White Paper explains how the Government plan to manage the economy so as to contain inflation and to ensure that industry has the necessary access to finance for its expansion. This means that we must exercise firm control over public expenditure so that planned totals are not exceeded; that we should finance a large part of the borrowing requirement from the gilts market and not from the banks, so that their funds are available to support industrial investment; and that we should make certain that demand does not grow so rapidly as to pre-empt the resources which industry so urgently needs. Because we must give priority to exports and investments, we cannot increase our general living standards in the immediate future.

The new pay limit, therefore, will contain domestic consumption and at the same time improve the competitiveness of British products in world markets. But it would be wrong to press this to a point where living standards were unnecessarily depressed. That is why I proposed the conditional tax reliefs described in the Budget.

A large section of the White Paper is rightly devoted to describing the quite remarkable achievements of the past 12 months. It is almost a year ago to the day that the Government published the White Paper "The Attack on Inflation". This was against the background of six months in which retail prices had gone up by more than 17 per cent. at an annual rate of nearly 38 per cent. Wage settlements at well over 30 per cent. were becoming the rule rather than the exception. In other words, ever-higher wage demands were chasing—but failing to catch up with—ever-higher price rises in a vicious upward spiral. As Mr. Laurence Daly pointed out in his speech to the recent special congress of the TUC, for the miners to have pressed for £100 a week in those circumstances would have meant asking for £200 in two years' time simply to stand still.

The origins of this inflation lay partly in the huge increases in world prices of raw materials, and particularly of oil in 1973 and 1974. But let there be no mistake about it: the difficulties imposed by external forces were gravely compounded by the disastrous economic and industrial policies pursued by the previous Administration, and in particular—I know that I have the Conservative Front Bench with me on this, as it has made this point many times—by the unprecedented expansion of the money supply in their last two years. I have the impression that the whole of the Opposition Front Bench now agrees with the right hon. Member for Leeds, North-East (Sir K. Joseph) that the 23 per cent. increase in the money supply which took place in 1972, followed by the 28 per cent. increase in 1973, was a major cause of the inflation in 1974 and 1975.

On top of that reckless stimulus to inflation, the previous Government added a systematic policy of industrial confrontation to which the right hon. and learned Member for Surrey, East (Sir G. Howe) made a special contribution. As a result, by the time they left office they had contrived to alienate the working population of this country and to bring relations between the Government and the trade union movement to a new low. Observers at home and abroad were beginning to describe Britain as ungovernable.

The policies set out in last year's White Paper, and especially the voluntary £6 pay limit, were the fruits of an understanding between this Government and the trade union movement which began long before we took office and has been strengthened with every month that passes. The agreement on pay in particular represented our common determination to save the country from disaster. It was received by the Opposition Front Bench with the same sour and sullen sneering as the 4½ per cent. policy has been received by the Opposition this year

Mr. James Prior (Lowestoft)rose—

Mr. Healey

The hon. Lady the Member for Gloucester (Mrs. Oppenheim) dismissed the attack on inflation as a lifeboat without any oars, with no auxiliary engine and one, moreover, which could prove to be as leaky as a sieve."—[Official Report, 21st July 1975; Vol. 896, c. 198.] The right hon. and learned Member for Surrey, East, said: we say that this is abhorrent nonsense. This will not work … It will not survive." —[Official Report, 24th July 1975; Vol. 896, c. 899.] That was the reception last year to the £6 pay limit. I see that there is one Rip Van Winkle on the Benches opposite who believed that the words then spoken bore some relationship to the truth, yet what in fact was the result?

Mr. Prior

After what the right hon. Gentleman has said, will he read the first paragraph of his own White Paper "The Attack on Inflation. The Second Year", published two weeks ago, in which he said: But in the first year of the attack on inflation we have made a good start. Why did he wait until July 1975, when the Government had been in office for 18 months, before he found it necessary to start attacking inflation?

Mr. Healey

If the right hon. Gentleman can tell me why he opposed us in making a start at that time, it might be easier to answer that question, because the fact is that the Conservative Party attacked the £6 pay limit. Now it is saying that it was a start to the attack on inflation. But the Conservative Party attacked it then and in attacking the 4-1 per cent. limit now.

Yet what in fact was the result? The right hon. and learned Member for Surrey, East, as already quoted, said: This will not work … It will not survive. Yet the voluntary pay policy, on which the Opposition poured such scorn, has been strictly observed throughout the economy, in both the public and private sectors. I know that the right hon. and learned Gentleman, who in a calmer mood is a moderate and reasonable fellow, will at least agree with me on that.

Even those trade unions which were originally opposed to the policy have accepted the decision of the majority. Up and down the country individual groups of workers, whether negotiating at local or national levels, have shown their common sense and patriotism by voluntarily observing the collective decision of the trade union movement as a whole. As the new White Paper says. their understanding has been the Government's greatest strength in tackling our difficulties.

As the months have gone by. the benefits of their understanding have been more and more clearly visible in the Retail Price Index. Last September, the yearon-year rate of increase in the index fell for the first time for over a year. It has fallen in each succeeding month since, little by little at first but much more dramatically over the last few months, when the effect of lower settlements was being felt on prices. Already the six-monthly rate of increase is well under half what is was over the same period last year, and the year-on-year increase is now down to 15-4 per cent. With the occasional hiccup here and there, the yearon-year increases in basic wage rates and average earnings indices have also declined substantially from last year's peaks.

This is good progress by any standard, but, of course, it is not enough. Our rate of inflation is still higher than the inflation rates of our main competitors, particularly those of Germany, France, Japan and the United States. Notwithstanding the success of the £6 policy, earnings in Britain are still increasing faster than elsewhere. Between the second and fourth quarters of 1975, earnings per head in manufacturing in the United Kingdom rose by 12.9 per cent. In France and Japan they rose by 7.3 per cent., in Germany by 5 per cent. and in the United States by only 4.2 per cent. This, of course, is nothing new. If one looks at the figures over the last 15 years or so, the increase in earnings per head in manufacturing in the United Kingdom has been consistently higher than that of most other industrial nations, although the growth of productivity has been less.

Even now, therefore, we are still paying ourselves more than we are earning. We could not succeed in bringing down our rate of inflation still further if we were to go on in this way. That is why, in my Budget Statement on 6th April, I made clear that over the next year the increase in pay would have to be less than half what it has been under the £6 policy in order to achieve our objective for inflation.

Mr. Ron Thomas (Bristol, North-West)

I am a little concerned that my right hon. Friend might be suggesting that it is the working people who control the level of productivity. Surely the main ingredient in the absence of an increase in productivity in British industry is the lack of capital investment.

Mr. Healey

The rate of capital investment in the United Kingdom is far too low although, interestingly, not lower that it has been in the United States in recent years. The main reason for the deplorably low rate of increase in productivity in Britain is the poor use made of existing capital investment by both sides of industry. That is not the responsibility of the trade union movement alone. The study recently carried out by Professor Dudley in the West Midlands for the West Midlands Chamber of Commerce suggests that the major responsibility lies with management.

I make that point in answer to my hon. Friend the Member for Bristol, North-West (Mr. Thomas) because it should be common ground on both sides of the House that if we want to see a rapid increase in output in this country—as I hope we all do—it will be much more easily achieved by making better use of existing investment than even by a massive increase in the rate of investment. I apologise, Mr. Speaker, for that somewhat lengthy answer to the intervention, but the point raised by my hon. Friend is of great importance.

As the White Paper indicates, the new agreement reached with the TUC on a further year of strict voluntary pay restraint meets the objective I have just mentioned. The House will already be familiar with details of the new pay limit, and I shall not repeat them now. The important thing is that the limit itself represents an increase of about 4+ per cent. on average in wages and salaries, which is below what any of our main competitors expect to be facing over the next 12 months. Moreover, the extreme tightness with which the rules are drawn will restrict to the minimum any additional increase in earnings over and above the basic limit. That is why I am able to ask the House to legislate for the full tax reliefs I described in my Budget speech.

I know that the new pay policy is a tough one. I believe, however, that one reason why it has proved acceptable to the trade union movement is that it is also a fair one It applies to all people at work. There is no provision for particular groups to get exceptional increases. Moreover, despite what we were told three months ago by those who consistently underestimate the intelligence of ordinary men and woment, the average worker has had no difficulty in understanding that he will be better off in real terms with the new pay limit and the tax reliefs attached to it than with a higher pay limit and no tax reliefs.

Mr. J. W. Rooker (Birmingham, Perry Barr)

He could not understand the Child Benefit Scheme.

Mr. Healey

I think that the Child Benefit Scheme is well understood, and that is the reason for some recent events.

Nevertheless, I doubt whether many hon. Members would have predicted six months ago—I am sure that my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) would not have predicted—that the British trade union movement would, of its own free will, accept a pay limit for the second year of our counter-inflation policy which is under half as high as that in the first year, and would do so by a majority of nearly 18 to one, compared with a majority of about two to one in favour of the £6 policy last year.

I hope that there will be no disagreement anywhere in the House that this is an impressive demonstration not only of the ability of the British people to understand and accept the nation's needs in a crisis but of the response which a British Government can evoke from those to whom they are responsible—provided that the Government can prove that they share their aspirations and are prepared to tell them the truth.

The new agreement has, if anything, made even more impact on opinion abroad. If I may pick two tributes out of the many which I have seen—[Interruption.] I wish that the right hon. Member for Lowestoft (Mr. Prior) would not keep muttering about unemployment when the policy to which he and the Opposition Front Bench have dedicated themselves in the last year is, on the admission of the right hon. and learned Member for Surrey, East, calculated to produce a massive increase in prices and unemployment in the current year.

As I was saying before I was so discourteously interrupted by the right hon. Gentleman, the EEC Commissioner for Economic and Financial Affairs stated on 22nd June that the recent $5.3 billion standby had been offered to Britain by the Group of 10 because the evidence convinced them that Britain is now definitely on the road to recovery. The West German Chancellor, Mr. Helmut Schmidt—who is often, perhaps surprisingly, held up to us by the Leader of the Opposition as a model we should all follow—told his Parliament last week: The encouraging progress in Great Britain towards a new social consensus between the Government, unions and employers, which was received with applause in Puerto Rico, justifies the display of increased faith in the British pound.

Mr. Nigel Lawson (Blaby)

The Chancellor of the Exchequer referred to the S5-3 billion standby. Will he tell the House how much of that has been used?

Mr. Healey

Yes, I could tell the House but I shall not do so because the hon. Member for Blaby (Mr. Lawson), who is a deep and long-standing student of these financial questions, knows that if I were to give any indication of how much has been drawn or spent I would be giving an indication of our intervention policy, and that is something which no Government should ever do. "A good try" I would say to the ageing Alcibiades below the Gangway. I have said that before, but I thought it worth repeating on a hot afternoon. It is a good try, but the hon. Gentleman well understands why I cannot answer his question.

Mr. Kenneth Baker (St. Marylebone)

Will the right hon. Gentleman give way?

Mr. Healey

No, I fear not. I owe it to both sides of the House to give the right hon. Member for Sidcup (Mr. Heath) the opportunity to explain the views which were so unfairly traduced in a recent article in The Times, which he has undertaken to correct in his speech today.

Mr. Edward Heath (Sidcup)

I gave no indication when I would attempt to catch Mr. Speaker's eye. I am quite happy for the Chancellor of the Exchequer to give way to my hon. Friend the Member for St. Marylebone (Mr. Baker).

Mr. Healey

In that case, I give way with the greatest pleasure in the world.

Mr. Baker

Does not the Chancellor accept that the answer he gave to my hon. Friend the Member for Blaby (Mr. Lawson) will not assist Government policy? About a fortnight ago the Government said that they were not using the standby credit. Last Thursday or Friday the Treasury said that the Government were using the standby credit. There is a great deal of suspicion about the extent of the use of the standby credit. Does not the right hon. Gentleman accept that, unless he comes clean and says how much he has used, he may be depreciating the estimate of the value of sterling overseas?

Mr. Healey

If the hon. Gentleman believes that, I advise him to look at the course which sterling has followed in the last few days.

When I was asked at Question Time a little over a fortnight ago whether we had drawn, I said "No". We have drawn since then, but I shall not tell the House how much. The hon. Member for St. Marylebone (Mr. Baker), who, I believe, held a distinguished position as fag or something similar to the right hon. Member for Sidcup, should understand at least part of our financial affairs a little better than to make that preposterous remark.

I remind the right hon. Lady the Leader of the Opposition, whose passionate attachment to my friend and colleague the Chancellor of the Federal Republic of Germany is well known and understood, that the Federal Republic, like the other countries which contributed to the recent standby, has put its money where its mouth is.

The agreement which the Government have reached with the trade unions has received overwhelming support from the mass of the British people and a very generous welcome from the CBI. One question which the House will want to study over the next two days is why an agreement which received such universal endorsement from both sides of industry in Britain is receiving such sour, sullen and grudging support from the Opposition Front Bench. There is an extraordinary contrast between the constructive attitude of those who actualy represent the management side of industry and the Opposition, who have contrived to alienate themselves from both sides of industry at once.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

Particularly at Rotherham.

Mr. Healey

I am delighted to see that my young Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) is listening as effectively as ever from the Benches opposite. I hope that he succeeds in addressing us from a vertical position later.

The Opposition's amendment makes a formal attempt to curry favour with British industry, whose confidence they so obviously lost recently and of which the right hon. and learned Member for Hexham (Mr. Rippon) never ceases to complain. But they should take note of the views of industry as expressed by the CBI and chambers of commerce all over the country. They and the British people, unlike the right hon. and learned Member for Surrey, East, do not regard the new pay agreement as an onslaught upon their standard of living and freedom generated and forced down their throats by ageing doctrinaire, prejudiced. Socialist trade union leaders."—[Official Report, 11th May 1976; Vol. 911, c. 375.] The right hon. and learned Gentleman recently confirmed on television that he still holds those views. The country will feel that that sort of offensive claptrap does even his own party a disservice. I am sure that the tone of his speech this afternoon will show that the message has finally sunk in. He must recognise that playing politics with this issue pleases no one and that he is beginning to irritate his most devoted supporters—if he has any.

I hope that the right hon. and learned Gentleman will take note of the warning given to his leader in the Spectator recently. It said of the right hon. Lady: Her tone has been relentlessly partisan but she has so far failed to unify even her own Party, let alone the nation. That, I fear, is nothing but the truth, and we shall, no doubt, get further evidence of that over the next two days. I hope, despite the coyness with which the right hon. Member for Sidcup disguises his intentions about speaking in the debate, that he will give us and the country and the editor of The Times an opportunity of understanding his views. [Interruption.] The right hon. Member for Lowestoft is muttering away again on the Front Bench, but he is well known for his verbal incontinence.

Perhaps the most important aspect of the new agreement, and the reason why it has evoked so much admiration from our friends abroad, is that it means that Britain will be one of the few countries in the world which can look forward to experiencing a rapid recovery over the next 18 months with a rate of inflation which is falling, not rising. Indeed, the £6 limit has already helped to put us in that position. We are one of the two countries in the European Community whose rate of inflation has fallen over the last three quarters. In all other countries it has been rising.

As Commissioner Haferkamp pointed out at the tripartite meeting of the European Community on unemployment in Luxembourg the week before last, in the European Community as a whole the rate of inflation rose in the first months of this year to an annual rate of 13 per cent. compared with an annual rate of 9 per cent. in the last six months of last year. So far as we can tell, it is still rising. During that period our rate of inflation was falling steadily, but we still have a little way to go before we get down to a year-on-year rate of 13 per cent. If the Opposition would like to put their money where their mouths are, perhaps they can meet me behind Mr. Speaker's Chair after the debate. I would not be surprised to find the rate of inflation in some of the countries which compete with us moving up past ours in the coming winter as we continue to move downwards.

Of course, the new pay agreement on its own is not the complete answer to all our economic problems or even to the problem of inflation. But without it I do not believe that we can hope to solve any of our problems. With it, they all become soluble at last—although I do not claim that they are yet solved.

I now pass to some broader aspects of our economic and industrial recovery in which the new pay agreement pays such a vital role. In concluding my Budget speech three months ago I predicted that, provided we got a low pay limit and I was able to implement the additional tax reliefs, our gross domestic product should grow by about 4 per cent. and manufacturing output by about 8 per cent. in the year to mid-1977. The Opposition were sceptical about those forecasts being too optimistic, but it now looks as if growth in both cases will be somewhat higher. The official index of industrial production has risen faster than expected in recent months and I see that both the CBI and the London Chamber of Commerce surveys take the view that a rapid recovery is now in progress.

Moreover, the increase in output is based above all on exports, which are also growing faster than expected because world trade is growing faster than we expected a few months ago—contrary to the fear of some of my hon. Friends. Unemployment should be falling before the end of this year from a level which is already lower than pessimists were predicting last year. For those and other reasons, the public sector borrowing requirement this financial year should be lower than the £12 billion that I forecast in my Budget speech.

On the other hand, the increase in commodity prices has come sooner and has been somewhat sharper than we expected, and this, together with the depreciation of sterling, means that we are unlikely to reach last year's original target of under 10 per cent inflation as soon as we hoped. But the year-on-year increase in the RPI should still be down to international levels by the end of 1977.

The rate of growth we now foresee for the coming year is consistent with getting unemployment down to 3 per cent. in 1979—the objective that we have set ourselves. But to maintain that progress over the next three years will require continuing vigilance in three areas of economic policy First, we must do our best to identify and remedy the sort of bottlenecks in industry which in the past have tended to produce overheating at high rates of growth. We had a complete seizure of industrial growth in 1973 because of bottlenecks. Second, we must ensure that our monetary policy is not allowed to refuel inflation. Third, we must see that our fiscal policy is consistent with our counter-inflation policy and that it leaves industry with sufficient resources to permit investment and exports to rise to the level required.

The Government have already taken many steps since the middle of last year to reduce the problem of bottlenecks—by their programme for accelerating certain investment projects and for restructuring key industries, such as ferrous foundries, where shortages of capacity might otherwise be expected. We have also doubled the money available for training people in the skills which recovery will require. At the meeting of NEDC tomorrow we shall be discussing reports from 37 working parties on sectors covering some 60 per cent. of manufacturing industry. We shall be considering what further action is required to deal with capacity constraints. No doubt hon. Members will have seen that the CBI is putting its full weight behind the exercise. Indeed Lord Watkinson, a former colleague of right hon. and hon. Members on the Opposition Front Bench, paid tribute to the work being done by the NEDC in industrial policy in this way.

The House should recognise that one of the most important contributions towards removing bottlenecks and maintaining a steady flow of supplies to industry during the upturn will come from the dramatic fall in the number of days lost through industrial disputes. In the first five months of this year we lost well under half as many days as during the same period last year, and last year we lost only one-quarter as many days as in 1972. I believe that the continuity of supply to industry in our very interdependent industrial structure is probably the most important single factor if we wish to maintain a high rate of growth over the coming years. There could be no more striking illustration of what the whole of industry can gain from the existence of a Government who have the confidence of the trade unions.

Mr. David Crouch (Canterbury)

When the right hon. Gentleman spoke of industrial production rising and the confidence of the CBI and the chambers of commerce, he did not give a figure. I understand that the rise in industrial production over the past six months has been only 1 per cent. Can the Chancellor comment on that?

Mr. Healey

The rise in GDP has been 1 per cent. a quarter for the past two quarters. That would be an annual rate of 4 per cent., if it were steady, which is the rate I forecast in my Budget speech. Recent evidence suggests that the increase in GDP in the coming year is likely to be about 5 per cent. rather than 4 per cent. and that the increase in industrial output is likely to be about 9 per cent. rather than the 8 per cent. I then forecast. If the hon. Gentleman studies the Financial Times survey, which I think appeared in yesterday's issue, or the CBI survey yesterday, he will see that there is a great deal of detailed collateral evidence supporting this revision of the forecasts which I have just described.

In monetary policy our record makes a dazzling contrast with that of our predecessors. Never since we came to power has the growth in M3 exceeded the growth of money national income, so it has always been exerting a downward pressure on prices in support of the Government's policies. In the last three banking months to May, the growth of the money supply—M3—was at an annual rate of just over 11 per cent. That compares with 23 per cent. in 1972 and 28 per cent. in 1973, the last two years in which the Conservative Party was in power.

Mr. Tom Litterick (Birmingham, Selly Oak)

For the benefit of my constituents, will my right hon. Friend translate the code signs, M3 and so on? The public listen to these debates, even if through the distorting medium of Press and television, and they would like to know what these things mean.

Mr. Healey

In a nutshell, if we can keep the money supply consistent with the growth of money GDP—[Interruption.] Let me put it this way. I take my fate in my hands when I try to convert into intelligible language some of the uniformities discovered by academic economists. Broadly speaking, however, if the Government allow more money to slosh around in the economy than the value of the goods the economy is producing, we have high rates of inflation, which produce a seizure in the economy and a large and increasing balance of payments deficit. That is a major threat to jobs, as was discovered from the experience of the previous Government.

One of the few things for which we must be grateful to the right hon. Member for Leeds, North-East, whose cheery face I now see beaming at me from the Opposition Front Bench, is that he has finally persuaded his profligate colleagues —at the cost of admitting that he was one of the most profligate when he was last in power—that the way in which they handled the money supply was a major contributor to inflation in the following two years. I do not think that I am being unfriendly or unfair to the right hon. Gentleman. I see from the way in which he is biting his lip that although he is determined not to nod his head, as he always did previously when I made this point, at least he is not shaking it.

Mr. Peter Hordern (Horsham and Crawley)

The Chancellor, who was giving a lesson in monetary economics to his hon. Friend the Member for Birmingham, Selly Oak (Mr. Litterick), will appreciate that the supply of money sloshing around in the banks has risen by more than 20 per cent. each quarter during the past three quarters, as measured by Ml. It is only a question of time—-a very short time at that—before the present recovery of the economy competes with the Government's own requirement for funds. Therefore, will the right hon. Gentleman now tell the House what proposals he has to cut public expenditure?

Mr. Healey

I was just coming to the point which the hon. Gentleman has raised, but I think that it would be carrying cruelty too far if I tried to inflict on the House and my hon. Friend the Member for Birmingham, Selly Oak (Mr. Litterick) an explanation of how M1 differs from M3 and M2. I shall ask him to have a private word with the hon. Member for Blaby, but not to take too seriously what the hon. Gentleman says. [HON. MEMBERS: "Answer the question."] I am coming to the point made by the hon. Member for Horsham and Crawley (Mr. Hordern).

I shall continue to monitor the movement of the monetary aggregates with the greatest care. If it becomes clear that present policies need to be reinforced, I have already made clear my readiness to take the appropriate further action. I shall make sure that there is not excess liquidity in the system, by whatever mix or measure seems most appropriate at the time.

In my answer to the right hon. and learned Member for Surrey, East on 7th June, I stressed that the most important objective now was to continue to finance a large part of the borrowing requirement by sales of gilts outside the banking system, and I announced a new long-dated stock at an attractive rate of interest. On another occasion other measures, such as a call for special deposits, might be more appropriate.

I ask the right hon. and learned Gentleman to compare my record in this area with that of the party he represents when it was in office. I think I have some grounds for asking the House to believe that I mean what I say. I have kept the money supply under very strict control the whole time I have been Chancellor.

The White Paper stresses that, in addition to controlling the growth of the money supply, the Government are equally determined that the expansion of productive capacity and exports should not be held back by competing public sector demands for finance", and that they will reinforce their policies if necessary by further action in the fiscal and monetary fields.

On public expenditure, I have already said that there is no economic case for changing our plans for the current year but that we are determined to ensure that the planned total of expenditure is not exceeded. Cash limits and the improved financial information system for Government expenditure are playing a key role in this. The new arrangements for monitoring the expenditure of local authorities have already proved their worth. In agreement with the Consultative Council on Local Government Finance, the Govern- ment have made it clear that local authorities must bring their estimates for the current year within the White Paper figures. Arrangements have also been introduced for much closer monitoring of claims on the Contingency Reserve.

It is worth pointing out that this year the nationalised industries will be making their contribution towards reducing net public expenditure. The subsidies initiated by the previous Government to restrain prices have now been largely phased out, except for some subsidies still to be paid to British Rail and other undertakings for long-term reasons of transport policy.

It is worth drawing the attention of hon. Members, particularly the Opposition, to what the Financial Times said in its editorial yesterday: The attempt to use the nationalised industries to suppress inflation did not hold down the price level. All it did was to put a brake on price increases in 1972–74 at the expense of a sharp acceleration in 1975". It went on to point out how encouraging it is that the coal, gas, electricity and steel industries and the Post Office are expected to finance internally a higher proportion of their capital spending than has been achieved since the mid-1960s. The previous Government's handling of the nationalised industries, like their profligacy in regard to the money supply, was a major cause of the inflation with which we have been wrestling in the last two years.

I suppose that at this stage I should say a word or two about the addendum which the Opposition have put down to our motion. I cannot say that I am surprised by it. This Opposition have lost their power to shock or, indeed, to excite the most feeble interest in their activities. But I must confess to feeling a flicker of curiosity when I read the actual words of the addendum and reflected on the hours of disputation between competing economic theologies which led to their recognition of the need for restraint in pay bargaining. In other words, they want to take advantage of the popularity of the pay policy without actually saying that they agree with it. If that is not the case, and if there is some other explanation for these weasel words, no doubt the right hon. and learned Gentleman will tell us presently.

I wonder how many Opposition Members, when they drafted the terms of their addendum yesterday afternoon, had read the words that appeared in The Times yesterday morning. In case they had not done so, let me repeat them. These are the words of The Times, not the most conspicuous supporter of the present Govemnment's economic policies or, indeed, in these days, those of previous Governments, though it is no doubt quite devoted to the policies of the Front Bench opposite as long as it is in Opposition.

An article in the City section of The Times yesterday said: If sound finance consists in holding public expenditure and limiting the rate of growth of the money supply, there must be some irony in the fact that in the last decade it has happened only under Labour Governments. Those words are true, and I do not believe that any right hon. or hon. Member can deny their truth. They will remain true and, of course, they are the final answer to the windy rhetoric that we get from Opposition Members and which is so rapidly exposed as flapdoodle whenever they exercise responsibility.

I might make just one other point about the Opposition's addendum. They appear to attach enormous importance to the health of the private sector and yet they attack those policies, like the pay policy, on which the private sector is to depend in part for its help in the coming years. May I ask the Opposition to read the wise words of Lord Watkinson, one of the most distinguished adornments of this Front Bench when the party opposite was in power some 15 years ago, though I have no doubt that the right hon. and learned Gentleman would regard him as an ageing and prejudiced Conservative industrial leader. According to the Financial Times, Lord Watkinson, indicating the CBI's position in the coming discussions with the Government, suggested that industry was willing to accept many Government policies of which it disapproved, including the nationalisation of shipbuilding and aerospace, the establishment of the National Enterprise Board and the development of sectoral planning agreements, provided the Government acted on its express belief in the need for a thriving and profitable private sector'.". He went on to say that The Government has … accepted the need for profit in industry and the diversion of resources into the productive sector. It's our job now not to argue about where the mixed economy has got to go but to accept that it's here … make it work. He drew the conclusion, on behalf of British industry, that it is now our job not to argue about where a mixed economy has got us but to accept that it is here and make it work.

The overwhelming majority of men and women in this country will share those sentiments even though they do not share all the political views and principles of many of my right hon. and hon. Friends. They are asking themselves when the Conservative Party, which is the only party on the Benches opposite which could ever be expected to form an alternative Government, is to come to terms with reality and when it will drop the kind of nonsense expressed by the right hon. Member for Leeds, North-East that an economy cannot live as a slave and must be free with the implication that as long as there is any public element in the economy we have some kind of irremediable contradiction in the system.

Mr. Cecil Parkinson (Hertfordshire, South)

Does the right hon. Gentleman accept the system?

Mr. Healey

Of course we do, and we are making it work. If the hon. Gentleman cares to go to anybody who is actually working in industry, he will find that there is far more confidence in those who are responsible for industry, on both sides of the shop floor, than there is in the Conservative Party.

I ask the House to reject the Opposition's addendum. I appeal to the Opposition to withdraw it. Let us make a fresh start in these two days. Let the Opposition put their motion where their mouth is. Let them express their confidence in the road on which we are moving. If they do not do so, I ask the House to reject the Opposition's addendum, and I commend the White Paper to the House as offering the only sure set of policies to succeed in carrying through the attack on inflation for a second year. So that those policies can be fully implemented, the House will be asked at the end of this debate to affirm the two draft Orders laid before Parliament on 30th June and also to pass the Ways and Means Resolutions relating to the conditional tax reliefs.

4.45 p.m.

Sir Geoffrey Howe (Surrey, East)

I beg to move, at the end of the Question, to add: welcomes the Government's belated realisation that jobs depend upon profits and are endangered by excessive growth of public spending; recognises the need for restraint in pay bargaining; but deplores the absence of a convincing strategy for economic recovery based upon a prosperous private sector and the reduction of state spending and borrowing". The amendment stands in the names of my right hon. Friends and myself.

I have to tell the House that my hon. Friend the Member for Gloucester (Mrs. Oppenheim), who was hoping to open the debate tomorrow afternoon, if she were able to catch your eye, Mr. Deputy Speaker, is unfortunately unwell this afternoon and cannot be here. I am sure that the reason for her absence will be understood.

During the present Parliament the House has heard some fairly disgraceful speeches from the Chancellor of the Exchequer, but none, I think, has reached the new low of abysmality which we have heard this afternoon. Never has the House had to tolerate throughout his speech, and apparently throughout mine, a man so pleased with himself with so little cause for pleasure. He is very easily pleased. He must be. The Chancellor has spoken of the offensive claptrap on the part of some of my hon. Friends. There is no greater expert in this House in offensive claptrap than the Chancellor himself.

The idea that the Chancellor, of all people, should seek to castigate my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) by describing anything he says as nonsense—and in the patronising style in which he did so—is absolutely disgraceful. The hon. Member for Birmingham, Selly Oak (Mr. Litterick) said that the Chancellor should explain economic policy. The Chancellor was opening a two-day debate on two key documents of the Government's economic strategy, and he told us precisely nothing. One can only reach the conclusion that there must be all kinds of strange developments taking place within the Cabinet and the Treasury, making it impossible for him to tell us anything further than he has told us this afternoon. He spoke of playing politics, but for the Chancellor of the Exchequer to come to this House in a debate of this seriousness and to say as little as he said this afternoon, and with such frivolity, is playing politics in the extreme. I read some time ago a profile about him by a hapless journalist in which it was said that one of the phrases he was likely to apply to himself was "intellectual thug". This afternoon he has concealed his intellect a great deal more successfully than he has controlled his thuggery.

The Chancellor has also resorted to several of his characteristic diversionary tactics, appearing to claim credit, of all things, for what he saw as the quite remarkable achievements of the last 12 months. We are not yet quite halfway back to the level of inflation of which he was boasting two years ago, we have a long way to go before we get down to 13 per cent.—and a heck of a long way to go before we get back to 8.4 per cent.

The Chancellor of the Exchequer also spent some time on his favourite diversionary tactic by talking about monetary policy and the respective role of both parties in that connection. I want to know for just how long the Chancellor in this respect can go on riding two horses at the same time with such disreputable inconsistency.

Let me take the right hon. Gentleman back to what he told the nation in October 1974. On that occasion, he said that the rate of inflation was down to 8.4 per cent. He was presenting himself for all the world as though he was a Chancellor of the Exchequer in competent charge of a real-life economy. He came before the House of Commons with the verisimilitude of a Chancellor of the Exchequer in July 1974 saying, in his egotistic style, "I find it possible to give away additional money to the nation." He came before the House in November 1974, again in apparent control of the situation, saying "I shall give away more money" —only, let it be said, to redress the huge extractions that he had made with such recklessness in his first Budget. But he was giving every sign of being a man in charge of the economy and a Chancellor of some responsibility.

The right hon. Gentleman told us what the nation could expect if it returned a Labour Government in October 1974. According to both the right hon. Gentleman and the Prime Minister, nothing was too bright for the descriptions of the economy of which they were in total charge. The then Prime Minister talked about the social contract working because "we are making it work." He said that it was the Labour Government's answer "in the short term, the medium term and the long term to the problems of a modern industrialised society." Later, we were told that unemployment was beginning to fall, that the balance of payments showed a substantial improvement, and that the pace of inflation and price rises was moderating. But now we are being inundated with gloom and doom.

Where in that analysis was there any reference, right or wrong, to the monetary or fiscal policies of the previous Government? How is it possible for the Chancellor of the Exchequer, with any credibility, to rely now, two years after taking charge of the economy, on the consequences of fiscal and monetary policy as long ago as that? The right hon. Gentleman cannot have it both ways. Either he believed what he said in those proud boasts about his magnificent control of the economy in October, in which case he was manifestly incompetent to do so, or he did not believe what he said, in which case we must draw even worse conclusions about his character. But he cannot go on having it both ways.

Then the right hon. Gentleman comes before the House, in a way which must surprise many of his hon. Friends below the Gangway, as a kind of perfect do-it-yourself self-confessed monetarist, able to explain these technical terms—

Mr. Eric S. Heffer (Liverpool, Walton)

Nothing surprises us.

Sir G. Howe

Nothing surprises the Chancellor's hon. Friends below the Gangway. I am sure of that. They have the misfortune of knowing him better than we do. But he was describing himself in this way, as a self-confessed monetarist, as a man of immense virtue who followed the most superb monetary policies with tremendous consistency.

However, he must make up his mind how he wishes to use monetarism. Is it to be used as a term of abuse when it is convenient to denounce my right hon. Friend the Member for Leeds, North-East? Is it to be used as an alibi when it is convenient to rely on Lord Barber years after he has left the Treasury? Is it to be used as a halo with which to astonish the right hon. Gentleman's hon. Friends below the Gangway? He cannot have it all three ways, and it is about time that he stopped trying to lay the responsibility for his own disastrous management of the Treasury on the policies of the previous Government.

The Chancellor points lamely to my right hon. Friend the Member for Leeds, North-East. However, it was the Chancellor himself who told us in a debate on 29th January of this year that he did not believe that the most significant cause of the inflation of the past 12 months was monetary policy. He believed that the most significant cause was what he described as the disastrous round of wage inflation which began in November 1974. So he cannot have the game all ways and in the middle. It is time that he accepted responsibility for the disastrous way in which he has managed the economy.

It is important to put the record straight about the policies of the previous Administration. That Government, throughout almost the whole of their time in office, had to face a Labour Party in opposition of unique irresponsibility, clamouring in support of every pay claim and every demand for the expansion of public expenditure. When Lord Barber, as he now is, came to this House in December 1973 in response to the oil crisis and announced his intention to introduce expenditure cuts of £1,200 million, what thanks did he get from the right hon. Gentleman and his party? We were denounced for savaging the social services. But, years later, after the Chancellor's incompetence, he is now facing the British people with the consequences of catching up with the adverse change in the terms of trade which took place at that time, which we had the courage to face up to then and which he has only begun to face up to after 18 months in office.

Let us consider this astonishing White Paper in relation to the point raised by my right hon. Friend the Member for Lowestoft (Mr. Prior). This Government have been in office for two and a half years. We look at the opening two paragraphs of the White Paper. The second paragraph describes a scene of pervasive gloom affecting the economy, rapid inflation damaging human and economic values, confidence threatened, jobs being destroyed as industries cease to be profitable. Then we read the astonishing sentence which says that since July 1975 we have begun to pull away from these dangers.

What was the Chancellor doing for the first 18 months? He was himself creating the dangers. He came to office committed to the superb policy of the social contract which was to solve all these difficulties. Why is it that the year that is just ending is described as only "the first year" of the attack on inflation? Did history begin on 1st July last year? Are we to forget that the outgoing Government had been endeavouring to tackle inflation for years before that and that there then came the catastrophic lost weekend, 18 months ago, in which this Government came to office prepared to raise every kind of expectation, prepared to challenge every aspect of the previous Government's realistic economic policy and prepared to let wage inflation rip?

The result is that the Chancellor was saying, describing his own first 12 months in office in January of this year, 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."—[Official Report, 29th January 1976; Vol. 904, c. 689.] He had a good try.

The Chancellor's performance today is characteristic in another way. It is the way in which he seeks to deal with his relationships with his international creditors. My hon. Friend the Member for St. Marylebone (Mr. Baker) asked him what was the extent of drawings on the standby credit that we negotiated earlier this month. The Chancellor's handling of that matter was characteristic. When he was first asked about it by me two or three weeks ago and it was convenient for him to tell us the answer, he was proud to leap to the Dispatch Box and say "We have not had to draw on this. I hope that we shall never do so."

Mr. Healey

I did not say that.

Sir G. Howe

The impression that the right hon. Gentleman sought to give was that this was not an overdraft but a standby credit; indeed, that it was not so much an overdraft or credit as a massive vote of international confidence. What rubbish! It has turned out to be a convenient sum on which he is already drawing, and it is characteristic of the whole of his conduct of economic policy that, when he can claim a bogus pat on the back from some spokesman of international finance, he is glad enough to do so; but he is always prepared to disregard these uncomfortable facts and unwilling to tell us now what is so very important, which is how much he has had to draw of this credit.

The attitude of our international creditors has been clear throughout. If we read the reports and observations of the kind of long-term adult education course which the hapless Finance Ministers of foreign countries are having to administer to our Chancellor of the Exchequer, we find some progress being made. It would be nice to believe that the changes in wisdom, such as they are, which come over the Chancellor the Exchequer were entirely the work of the Opposition in this House. But we do not claim sole credit for that. We give some credit to those whom the Chancellor confronts around the world at the great international gatherings. The United States Secretary to the Treasury, Mr. William Simon, said at the OECD: Lenders will become increasingly reluctant to finance current account deficits unless the borrowing nations make some fundamental changes in domestic economic policies.

Mr. Frank Hooley (Sheffield, Heeley)

Will the right hon. and learned Member accept the evidence of Mr. Simon that 5½ per cent. unemployment rate is acceptable in the industrial world?

Sir G. Howe

This Government by allowing inflation to rip ahead has found a sure-fire way to have a high and rising unemployment level for ever more.

The communiqué from the Puerto Rico conference drove home the same point. It underlined the need to accept the restoration of a better balance in public finance, as well as disciplinary measures in the fiscal area and in the field of monetary policy. What does the Chancellor have to say in the face of these observations, made to him both in private and in public in all parts of the world? In Paris the other day he said that sterling had fallen to an unjustifiable level. After that, Mr. Parsky gave him a justifiable rebuke that no Finance Minister could say that an exchange rate was wrong. The Chancellor responded in his curmudgeonly way saying that "strictures from foreign sources were never helpful". That was a very understandable reply, especially with a record like his.

The Chancellor's whole approach to economic management is equally foolish. One has only to look at his jubilant reaction when the stand by credit became available to him. He rushed in and out of the Chamber like a schoolboy with a lollipop. The debtor who boasts about his success in enlarging his overdraft is not merely a man without a sense of responsibility, which we know the Chancellor to be, but a man who has lost his sense of shame as well. It is unthinkable that the more distinguished Socialist Chancellors of the Exchequer which this House has known—Sir Stafford Cripps, Hugh Gaitskell and even the present Home Secretary—would ever have handled this grave economic matter with the frivolity the present Chancellor has shown.

The truth is that the most curious aspect of this debate this afternoon is the form of the motion which the Government have deployed. All we are getting from the Chancellor is a modest lecture about our sour, sullen and sneering response. Last year the Chancellor came to the House on a motion to approve the White Paper—

Mr. Healey

Before the right hon. and learned Gentleman makes a muck of this one, may I remind him that the second White Paper is a consultative document and that the proposals in it are for consultation with industry. That is why we cannot ask the House to approve it today.

Sir G. Howe

That is a very curious response, because the Chancellor had no trouble in wrapping up one Ways and Means Resolution, and two Statutory Instruments in his motion today. Surely it is not beyond the wit of his procedural experts to devise a means of inviting us to approve it rather than just to take note of it.

What we notice most about the White Paper is the extent to which it represents some movement towards wisdom on the part of this Government. This movement towards wisdom means that the Government will find themselves at odds with their hon. Friends below the Gangway. We see the way in which the illusions of Socialism are crumbling away one by one. The sacred cows of Socialism are drawn up in this White Paper, in readiness for the slaughter. The tragedy is that, in so far as this White Paper has begun to be right in its diagnosis, there is no prospect of the Government carrying these new-found principles into action because too many of their hon. Friends below the Gangway still cherish illusions which deny the principles in the White Paper.

One of these principles is the plain recognisition of the fact that inflation destroys jobs; there is no longer a choice between unemployment and reflation; and real take-home pay must be reduced if unemployment is to fall. This is important because it is not what hon. Members below the Gangway believe in or vote for. That is why it is all so absurd.

Mr. John Mendelson (Penistone)

One of the consequences of the motion being debated in this form, because of the rules of the Select Committee of Procedure, is that the point of view of over 100 Labour Members, which is opposite to the point of view of both Front Benches, cannot be freely expressed in this House.

Sir G. Howe

What arrogance the Chancellor showed in coming to the House and talking about divisions in the Conservative Party, when his own party is historically and irretrievably divided into two separate parties. This is not a question of our coming to terms with the management of a mixed economy. They are the ones who should make moves in that direction.

This White Paper suggests that the Chancellor is getting some insight into the management of the mixed economy, but hon. Members below the Gangway do not believe in a mixed economy. One only has to read the speech of the Secretary of State for Energy last weekend, when he said that we are about to witness the collapse of capitalism and the crumbling of the mixed economy. There are deep divisions of philosophy to be found in the Labour Party and however close the Chancellor comes to a realisation of reality he will never carry with him that half of his party which is dedicated to the overthrow and destruction of the mixed economy, rather than being prepared to join with us and the Chancellor in making it work.

Mr. Ron Thomas

The right hon. and learned Gentleman is telling us what is, in his view, the cause of unemployment. Why is it then that West Germany, which has carried out the kind of policies in which he believes, also has an unacceptable level of unemployment?

Sir G. Howe

Unemployment in West Germany is falling. In any event, if the hon. Member believes that he can make legitimate comparisons between ourselves and West Germany which are to our advantage, then he will believe anything. West Germany has a Socialist Party which has had the wisdom to cast aside all the nonsense which is believed on the Benches below the Gangway. It is a Social Democratic Party which has succeeded in achieving a standard of living which is miles ahead of that in this country. It has the resources to generate further growth and prosperity, and unemployment is falling. It has the resources to care for its unemployed which are much greater than those we have.

The extent to which there is this division in the Labour Party is demonstrated very clearly, because the Chancellor and his colleagues in the Cabinet would give their eye teeth to have a Labour Party which is anything like the Social Democratic Party of Germany. They dream at nights of getting rid of hon. Members below the Gangway—and if they do not, we do.

The first illusion that they have is about the truth that inflation destroys jobs. But there is one more uncomfortable—

Mr. John Mendelson

Will the right hon. and learned Gentleman give way?

Sir G. Howe

I am afraid not.

Mr. John Mendelsonrose

Mr. Deputy Speaker (Mr. Oscar Murton)

Order. The hon. Member for Penistone (Mr. Mendelson) may have an opportunity later of putting his point of view. He cannot do it now.

Mr. John Mendelsonrose

Sir G. Howe

I will not give way. It is not for me to organise real debates between the two points of view in the Labour Party.

Mr. John Mendelson

The right hon. and learned Gentleman is afraid to give way.

Sir G. Howe

If the hon. Gentleman believes that he will believe anything.

Mr. Deputy Speaker

Order. I must advise the hon. Member for Penistone that he may have an opportunity to speak later but not now.

Sir G. Howe

If I could organise such a debate it might be entertaining and it would certainly give the British people an insight into the rabble upon which the Government of this country depend. Such a debate between the two factions would show which of the parties was deeply divided—one faction of the Labour Party wanting to go beyond the Iron Curtain, the other struggling to remain on this side of it.

Mr. John Mendelson

On a point of order, Mr. Deputy Speaker. The right hon. and learned Gentleman is now making allegations having refused to allow an ordinary point to be made and having said that he wanted a real debate. That is unfair and disorderly conduct.

Mr. Deputy Speaker

That is not a matter of order. I explained to the hon. Gentleman that if he were fortunate in catching the eye of the Chair he would have the opportunity of putting his own point of view later. Sir Geoffrey Howe.

Mr. Haffer

Will the right hon. and learned Gentleman give way to me?

Sir G. Howe

I am afraid not. If the Labour Party wishes to conduct its own debates it may do so on another occasion, but I wish now to make my own speech.

Mr. Heffer

On a point of order, Mr. Deputy Speaker. The right hon. and learned Gentleman accused Labour Members of wanting the Iron Curtain system. That is not normal political debate. That is the sort of smear tactic to which we are getting used from Conservative Members. I ask the right hon. and learned Gentleman to withdraw that statement.

Mr. Deputy Speaker

Order. That is not a point of order from the hon. Member for Liverpool, Walton (Mr. Heffer). It is a point of debate—

Mr. Heffer

It is not a point of debate.

Mr. Deputy Speaker

Order. The Chair will make decisions in these matters. Sir Geoffrey Howe.

Mr. Heffer

Further to the point of order—

Mr. Deputy Speaker

Order. I cannot take a further point of order because there was no point of order to begin with. Let us conduct this debate in a courteous manner. The right hon. and learned Gentleman must be allowed to make his speech.

Mr. Heffer

On a point of order, Mr. Deputy Speaker. The statement made by the right hon. and learned Gentleman was that we wanted the Iron Curtain system. That is not a debating point, it is a smear. I want the right hon. and learned Gentleman to withdraw that allegation.

Sir G. Howerose

Mr. Ron Thomas

Further To that point of order, Mr. Deputy Speaker—

Mr. Deputy Speaker

Order. The right hon. and learned Member for Surrey, East (Sir G. Howe) must be allowed to continue.

Mr. Maurice Macmillan (Farnham)

Further to that point of order, Mr. Deputy Speaker. Do I understand that the hon. Member for Liverpool, Walton (Mr. Heffer) claims to have been smeared or that a smear has been made because a political viewpoint is alleged to have been Marxist?

Mr. John Mendelson

It had nothing to do with that.

Sir G. Howe

No doubt Labour Members can explain their points of view as they think fit. However, I formed a certain impression about the primary affections of some Labour Members when the Chamber was filled with a choral rendering of "The Red Flag" not many weeks ago.

The Chief Secretary to the Treasury (Mr. Joel Barnett)

What has that got to do with it?

Sir G. Howe

The Chief Secretary may well ask. I do not pretend to be an expert in the nice distinctions between Marxism and Socialism. I am content to leave Labour Members to do that.

The Chancellor and his colleagues on the Treasury Bench have recognised in this White Paper that profits are the key to prosperity and that the downward trend in profitability must be reversed. They realise that price control is doing damage. They know that profits have fallen dangerously from 10 per cent. to 2 per cent. That may be all well and good to them. Labour Members have spent most of their lives denouncing profits and describing them as obscene and intolerable when they were at levels which are comparable to those at present. It is no wonder that the Labour Party is incapable of carrying through its conclusions in a proper way.

The Secretary of State for Prices and Consumer Protection has produced a Price Code which we are to discuss in more detail tomorrow. But how does she think that will give the sort of help which is required by British industry? Has she not noticed the extent to which Lord Watkinson—to whom the Chancellor referred earlier—has complained about it? Has she not noticed that the Price Code, which began its life as a modest 15-page document, has grown under her jurisdiction to a 37-page document with 155 clauses and about 30 new sub-clauses, and has increased in price from 26p to 75p, which is an apt tribute to it? Does she not realise that the multiplication of complexities of that kind is inimical to profits?

The White Paper claims that the failure to control public spending will destroy any prospect of economic recovery and spark off another round of inflation. That is not what half the Labour Party believes, but it is what the Chancellor is groping towards. There is, however, little chance of his producing the necessary cuts in public spending with sufficient speed to avoid the conflict in the demand for funds which is likely to develop between private and public sectors. He cannot command the necessary credibility as someone seeking to control the size of the public sector—with all his reputation for intellectual thuggery—when one contemplates some of the legislation that he is allowing his colleagues to push through—and I leave aside nationalisation, about which he has some emotional hang-up.

There is the destruction of the grammar schools—[Interruption.] Labour Members may laugh, but I believe that parents are asking what kind of Government it can be which talks about controlling public expenditure yet which grinds Bill after Bill through the House adding enormously to public expenditure. There is the Dock Work Regulation Bill. Throughout the country at this time working parties are touring town and county halls to assemble all the officials telling councils how to get along with implementing the Community Land Act, how to begin recruiting new armies of officials and to set about borrowing without limit in order to implement the legislation. How can the Government seriously talk about controlling public expenditure with that sort of thing going on?

The latest insight into the Chancellor's thinking came a few days ago with his dawning realisation that the nation is at the end of its taxable capacity. We are facing massive burdens now which are falling principally upon the groups who are most neglected in the White Paper—and I refer to the skilled workers and middle management, upon whom industry depends. These are the talents we can least afford to lose, yet the Chancellor has converted the brain drain of the 1960s into the middle management drain of the 1970s. He is doing it with his eyes open because he created the atmosphere of hostility to those people and set out to impose taxes which would provoke "howls of anguish". He is the man who is carrying through the hangover of his truly Marxist past into taxation policies of this kind. So his conversion is sometimes only skin-deep. He is ploughing ahead by attacking benefits in kind, putting yet another burden on this group of people.

The Chancellor has also begun to develop an interest in the critical import- ance of monetary policy. I do not suppose that Labour Members below the Gangway expected to hear their Chancellor asserting monetary policy with such purity. The idea of a Socialist Chancellor as a true monetarist among hon. Members below the Gangway is as convincing as the thought of a ventriloquist in a Trappist monastery. He does not fit.

The case for restraint in pay bargaining is overwhelming. If it came about on a spontaneous basis, not a soul in the House would quarrel with it. It is a recognition of the reality of economic conditions, an alternative to higher unemployment, essential to the control of public expenditure and part of the very difficult process of lowering inflationary expectations.

But when we have a policy which is not spontaneous, which is voluntary only in its form and is effectively dictated by agreement between trade union leaders and the Government or the Labour Party, we have to consider what our attitude should be to that policy.

Mr. Joel Barnett

It would be helpful to the House, and particularly to hon. Members opposite, in deciding whether to support the Opposition amendment if the right hon. and learned Gentleman could tell us whether the words in his amendment recognises the need for restraint in pay bargaining mean that he welcomes the pay deal.

Sir G. Howe

Perhaps the Chief Secretary will allow me to make my speech in my way. I was just coming to the point he raised. My next question was to be, what should our attitude be to the pay deal?

Some people on both sides of the House say that in most circumstances in a modern economy a deal of this kind is essential. Some would go as far as to say that it should be permanent, though that would not include many with ally experience of trying to operate such a policy. Other people on both sides of the House say that to have any such arrangement would be to court disaster.

I can say on behalf of us all on this side of the House that the Chancellor and the Government can hardly expect us to be falling over ourselves offering him enthusiastic congratulations on this policy or on the one he adopted last year. The right hon. Gentleman is fond enough of talking about the collapse of the so-called Heath Government's prices and income policy. That is a gross distortion of history. The Chancellor knows that he and his colleagues did everything possible to destroy it. Worst than that, for the first 18 months in office they took the nation on a whirlwind journey into inflation.

However, whatever our reservations about that history, the Chancellor will not find us following his example by seeking to overthrown his policy. Our amendment makes that clear. The Chief Secretary is muttering. No hon. Member can point to anything we have done to try to overthrow the policy.

We recognise—how could we not?—that in circumstances as desperate as those of last summer, and even this summer, expedients of this kind may come to seem almost literally inescapable. However, I beg the House not to be deceived. An incomes policy of this kind will not cure inflation. In many respects, it will make the cure far harder because it will divert attention from policies which are the essentials.

Of course we need a policy for wages in any modern economy. They have such policies in Western Germany and the United States, and the Government have a key role in setting such a policy for public sector pay, but we must consider the difficulties, distortions and damage done by the present policy. Already there is understandable talk of relaxation and an abandonment next year. There is nothing more desirable than that we should be able to do without an incomes policy of this kind and to get away from the on-off incomes policy politics of the last 20 or 30 years.

We can see how difficult it will be for the Government to emerge next summer. Differentials will be bursting to resume their normal patterns. Two awards—the £6 and the 5 per cent. limits—will be consolidated in basic rates. There will be a nightmare legacy of resentment crying out for relief.

All these difficulties will have to be contended with and it will be extremely difficult for this or any other Government to start away from the rigidities of this kind of policy without a returning to the inflation which is so likely to occur.

It is essential for the Government to recognise that the price so far paid for this policy is far too high. Government spending has remained too high, taxes have remained at an intolerable level, price and dividend control has been maintained with undue rigidity and a whole raft of unwanted and unnecessary legislation is being thrust through Parliament. Worst of all, the Chancellor and the Government have found themselves locked in a box, in trying to take the economic decisions which are now necessary, because of the promises they have made to achieve the present position.

Mr. Norman Atkinson (Tottenham)

It is important that we should understand where the Conservative Party stands on this matter. In summary of the right hon. and learned Gentleman's analysis so far, can he say whether he believes that the trade unions were right or wrong in concluding a voluntary agreement with the Government?

Sir G. Howe

I would not say that they were wrong to do that. Hon. Members opposite may laugh, but this is an important point. The price paid for that agreement by the Government on behalf of the entire community has been too high. It does not represent a sensible way of considering these matters. Massive public expenditure, massive over-taxation, a legislative programme of absurd size which only damages the national economic interest, and everything else we have had to endure in the past two years have been part of that price.

Let us consider how the matter ought now to proceed. Of course restraint in pay bargaining is necessary and desirable, but it should be undertaken because people know that it is in their interest, and that will be achieved only on the basis of unshakeably firm monetary policy with money targets which are plainly fixed.

That will not be enough by itself. The kind of bargaining which has taken place between the Government and trade union leaders is not the sort for which we ought ideally to aim. The real bargain to be struck is the one between the Government in Parliament and representatives of people as a whole. We want to look for wider, more effective and more continuous ways of doing that and a much more continuous method of explaining the connection between—[Interruption.] Hon. Members opposite may laugh, but this is a serious problem which is not soluble behind closed doors.

We need to devise methods of negotiation and discussion—between Governments, unions, all representatives of industry and wider groups—which are more closely related to this House. Bargaining behind closed doors away from this House is not the best way of arriving at sensible economic policies. It may be possible to develop the process I have outlined around the framework of the NEDC. We want to bring a wider group of people into this kind of bargaining. This needs to be accompanied by the other policies for which we are pressing.

We need a determined attack on waste and extravagance in Government, abandonment of the mammoth load of destructive legislation still going through this House, the prospect of lightening the load of taxation which oppresses so many people in this country and a relaxation of price control and other pressures on industry. These are the only ways of promoting a true revival of the private sector.

The Government's White Paper reveals a dawning understanding of some of these facts, but understanding is not enough. The Chancellor of the Exchequer may be prepared to acknowledge part of what is needed and some hon. Members below the Gangway opposite also appear to have acknowledged part of it when they were reported as saying last week that capitalism appears to be the price of Socialism. Any party that really wishes to rebuild our economy, raise living standards and develop social services must come to terms with a mixed economy.

The Labour Party is still incapable of making up its mind whether it wishes to change society and to move away from a mixed economy or whether it is prepared to get down to the business of running a mixed economy as it should be run. For that reason, a Labour Government will not for long be able to sustain a credible economic policy resulting in a relaxation of price control and recognising the need to restore profits and make cuts in public expenditure when half their own troops do not believe in what the Government are doing.

The Labour Government are a Government placed in office by the so-called Labour movement. The only thing that is notable about that movement at present is that it does not know where it wants to move. It is time, therefore, for the Labour Government to move out of office to make way for a Government who know what needs to be done and who have the guts to do it.

Mr. Deputy Speaker

Mr. John Mendelson—

Mr. Raphael Tuck (Watford)

On a point of order, Mr. Deputy Speaker. The right hon. and learned Member for Surrey, East (Sir G. Howe) not only did not put his motion where his mouth is—one might tell him where to put it—but did not even move it.

Mr. Deputy Speaker

That is not a point of order.

5.32 p.m.

Mr. John Mendelson (Penistone)

The right hon. and learned Member for Surrey, East (Sir G. Howe) made a number of personal attacks and smears against Labour Members. Before entering into the debate, I want to put on record that he had every opportunity to withdraw what he said. However, he refused to do so. When he was driven into a corner he said that he made his remarks because on a recent occasion a number of Labour Members were singing "The Red Flag". He showed the same ignorance about that song as so many newspaper writers have shown. It is well known that it is a song of the British Labour Party. It has nothing to do with any other Labour movement.

Mr. Heffer

It was written by an Irishman.

Mr. Mendelson

It has nothing to do with the references made by the right hon. and learned Gentleman. As a former Law Officer, he would be well advised to consider carefully the smears in which he engages against other hon. Members.

It is well known and on record that my hon. Friends have never made personal attacks against the right hon. and learned Gentleman—indeed, they have not sought to do so. The right hon. Member for Lowestoft (Mr. Prior), who sits next to the right hon. and learned Gentleman and who speaks on labour matters, knows that no personal attacks have been made on him either. My hon. Friends and I have at all times conducted the argument on the level of economic policy. That is within the knowledge of Opposition Members. I never make references to the personal attitudes of Opposition Members, and I expect the same from the right hon. and learned Gentleman. He should be profoundly ashamed of the conduct in which he has engaged this afternoon.

This should be a real debate and should have some meaning. Everyone knows that because of present procedures, and until the Select Committee meets and can engage in a change of rule which will allow for more than one amendment to be moved and more than two points of view to be expressed, there will be a certain amount of unreality about our most important economic debates. I wanted to give expression to that view when I was trying to interrupt the right hon. and learned Gentleman the second time. He has a duty to give way because he speaks for the entire Opposition on these occasions. A Back-bench Member is not under the same obligation. The man or woman who speaks for the Government or the Opposition is under a different parliamentary obligation. That is because the country wants to know the views of the two sides of the House.

When the right hon. and learned Gentleman was saying that the responsibility of the Labour Government is quite different from that of either the West German Government or the American Government, I wanted to dissent from that point of view. There are 24 million unemployed workers, 1 million of whom are British. The other 23 million are in other capitalist countries. Unemployment has nothing to do with the Labour Government. [HON. MEMBERS: "Oh."] Unemployment is the result of the economic system under which many of the most important industrial countries live. That is not a discovery that I have made, or that members of the Labour Party have made. It is the point of view of anyone who knows anything about economics.

We are in a depression and we are only beginning to emerge from it. Why, other- wise, should we have 8 million unemployed in the United States of America? Over the years the United States has been consistently under Conservative Administrations—namely, Republican Governments. They are Conservative Governments under a different name. They pursued various policies, but when the depression hit them they had between 8 million and 10 million unemployed. If they are emerging from the depression, they will be able to reduce that level of unemployment.

The right hon. and learned Gentleman was wrong when he said that the West German economy escaped unemployment to a large degree because at the Godesberg Conference, to which he was obviously referring, the German Social Democratic Party changed its policy and abandoned its public ownership principles. The German Social Democratic Party took that line at that conference, but that did not free the German economy from unemployment at the height of the present depression. The level of unemployment in Germany was slightly higher than in the United Kingdom. That is a simple fact. It does not matter whether one believes in one philosophy or another, it is a simple fact.

It was wrong for the right hon. and learned Gentleman to create the impression that West Germany is the great model that everyone has to follow if they want to avoid unemployment. That is not the way in which to hold a real debate. However, it is not my purpose to spend my time on the Conservative Party and its policy. That would lead to only a brief contribution.

The right hon. and learned Gentleman has not produced much policy. He made life easy for himself by complaining about my right hon. Friend the Chancellor of the Exchequer not producing a policy, but there was no policy in what he produced. If one wants to be benevolent in one's judgment, it can be said that the right hon. and learned Gentleman has a difficult task. The Opposition represent many different policies, and for him to represent them all is difficult.

On Sunday I listened to a short radio broadcast that included a contribution from the former Leader of the Opposition and ex-Prime Minister, the right hon. Member for Sidcup (Mr. Heath). It was an interesting broadcast about economic and wages policy. The right hon. Gentleman made a number of points that are not those that the Opposition would now follow. It must be difficult for the right hon. and learned Gentleman to present a point of view today that embraces the views of the right hon. Member for Leeds, North-East (Sir K. Joseph) and the right hon. Member for Sidcup. I regard that as a genuine difficulty. I do not want to be too harsh on the right hon. and learned Gentleman because of that.

I can understand why he did not produce a policy today. May be the time will come during the election campaign in a couple of years or so when the Opposition will be forced to put their cards on the table. We shall then hear what policies they have. They can say today that they are not obliged to present all the details of their policy, but in fact we have not heard anything from them about policy. All that we heard—this is a point that I must deal with as it brings me to the Government—is that there must be cuts in public expenditure. That was the recurring theme of the right hon. and learned Gentleman's speech. We have heard that many times before, and from many other Opposition Members.

However, what makes it significant now is that the Opposition have now adopted a new line. They are now embracing the Prime Minister and the Chancellor of the Exchequer with their friendship and they are beginning to praise them, with the allegation that they expect the same policy to be followed by the Government. We have to examine that matter. That is the reason why I wanted to take part in the debate. It was not because of anything that the Opposition might put forward.

This is the most important and most serious part of the debate. I do not know who will be dealing with this aspect in reply for the Government. However, for Labour Members this will be the most important part of the debate that is now beginning. We shall have to make up our minds on our attitude on these matters.

The right hon. and learned Member for Surrey, East said that he very much welcomed the Chancellor's conversion to the view—he called it "the beginning of wisdom"—that higher wages are a reason for further unemployment and lower payments allow for less unemployment on the same wages. That provoked my first intervention in the right hon. and learned Gentleman's speech. I believe this to be complete economic nonsense. I want to relate a little incident in the United States in order to contradict that point of view.

Some time ago, after the end of the war in Indo-China, when many of us were concerned that the Americans might find it difficult to get out of the depression, I happened to be in the United States. As I represent a steel-making constituency, I asked to be taken by some American friends to a steel-consuming factory. In Massachusetts I was taken to the shipbuilding yard of General Dynamics. I spent a day there discussing the works with a director. He took me around. They were just in the process of retooling. Far from being in a difficult situation, they had just received a new order for 300 tankers—they were not to be very large tankers; only of medium size—and the yard would be busy working on them for three years.

As hon. Members will know, in a shipbuilding yard one normally does not see many men. However, as they were retooling, I met a good many men and talked to them about wages. A director told me later that the company had been laying off several thousand men, but had taken on 2,500 again and would be taking on another 2,000, which would mean that it would end up with 800 more than it originally had. He said, "This will interest you. On re-employing labour to raise the strengths we offered every man an increase of 65 cents per hour of our own free will." That was the managing director of that shipbuilding works.

Of course, I was quite astonished. However, that was the modern entrepreneurial attitude in the United States. That is the modern attitude which has helped America to get out of the crisis. There is by no means unanimity among entrepreneurs and among owners of factories that it is helpful to create more unemployment to pay the lowest possible wages. What the right hon. and learned Gentleman has been saying this afternoon is economic nonsense. In this instance, what the Americans have done has helped their economy. The additional wages that these men were paid were circulated through the American economy. The standard of living of those work people was increased. They had more goods to buy. It helped America to get out of the depression. It is my conviction that we could do the same. It is nonsense to say that the more we cut down the better we shall get out of our depression. That is my first point.

That brings me to what must be implied in the consultative document that my right hon. Friend the Secretary of State for Prices and Consumer Protection has put to us and to organisations in this country for discussion. The underlying assumption there is beginning to show through in the Chancellor's speeches. We had an element of that today. I do not want to be too rigid about that, because we have not had any proposals yet from the Government, and I do not want to assume merely from newspaper articles what the Government will ultimately propose. However, if we were to cut down in public expenditure—not this year, as the Chancellor made clear, but for next year-1 do not believe that we would then get a direct transfer of the resources so freed from the public service and that the capital would be put into productive investment in productive industry. There is no evidence at all that such an automatic transfer would take place. There is no evidence in past economic experience that such a direct transfer ever takes place. Many other things have to happen before the encouragement of investment takes place.

It is arguable that, generally, in a country such as the United Kingdom, we may reach a level at which we might have to say that we have not got the resources to transfer, for instance, and to build up our service industries beyond a certain limit. I suppose that it is possible in theory to argue that while a country such as the United States, with its very large capital resources, could go on and on and could build up its service industries to a very high degree, in Britain the limit would be lower—but that would be for another reason and purpose. It would not imply the automatic transfer of those resources into productive investment.

Therefore, merely on the argument about building up our productive industries I would certainly not give my approval, by vote or in any other way, to a cut in the public services. I am not now discussing the demand for a cut in public services that comes from the Opposition. To them it has become almost a ritual, a constant reiteration of the demand, although many Opposition Members do not even give reasons why they want this. There is a certain unpopularity in local government expenditure and certain other types of expenditure. However, I am not now talking about that. I am talking about a much more serious idea, which comes through in the consultative document and in some of the Chancellor's speeches.

Let it be argued that there is now a need for special measures to increase investment—which I believe to be completely correct. That, however, has nothing whatever to do with the cutting down of education and of teachers, for instance, or with cutting down the National Health Service, because that would imply the non-availability of real resources. I do not believe that at present we in this country are suffering from a non-availability of real resources. That does not mean that we may not reach that stage. If a terrific boom were to develop over the next 18 months, a position could be reached at which a shortage of real resources might occur. We are nowhere near it.

The Chancellor was rather general in his talk about unemployment figures this afternoon. He said that by the end of 1979 he wants us to reach the low level of 3 per cent. I do not regard 3 per cent. as a low level at all. However, what is to happen between now and the end of 1979? I am interested to know the Treasury's estimate for the end of this year. I do not want to have a figure that leads me only to the end of 1979. I regard the unemployment position as very unsatisfactory. I hope that as a result of the increase in the level of production we shall be able to reduce very greatly the level of unemployment. At present there is no sign of a shortage of real resources.

Mr. Crouch

When the hon. Gentleman talks about real resources, is he suggesting to the Government that the real resources should be the release of more Government money into industry to create more investment, or is he agreeing, perhaps with the Government and with paragraphs 32–36 of the White Paper, that the release of real resources can be met by taking some of the shackles off industry by relieving the provisions of the Price Code in some way, as the Government intend? Is he against that, or does he want to see the Government using taxpayers' money as Government expenditure going into industry? There is a difference.

Mr. Mendelson

I am not referring at the moment to the very limited proposal contained in the consultative document which deals only with a level of 2.2 per cent., as the hon. Gentleman knows. If the Government are convinced, and if the facts are convincing, that there is a need for a certain limited increase in the general amount of profitability of our productive firms, then I shall not stand in the way of trusting the judgment of the Government, in agreement with the major industries after investigation, that such a limited increase should take place.

There may be general reasons, and general grounds, why that would be desirable while maintaining price controls in order to make wages more reasonable and fair. Only a limited release is proposed. I am talking about a policy, which has not yet been announced, in regard to cuts in public expenditure for 1977 which is beginning to be so much a feature of speeches and articles and which has been so warmly welcomed by the right hon. and learned Member for Surrey, East.

I am declaring my opposition to such a policy, and to the grounds on which such a policy might be advanced, because I do not believe that the grounds so far advanced would be acceptable. On the contrary, I believe that the resources are available to use for investment. Where there could be difficulty is that, although the capital is available, people are not prepared to use it. There was some evidence of that during the last debate on unemployment when I made the same point.

Two days later I received a letter from a staff member of one of the Big Four banks inviting me to meet some of the staff because I had been critical of the banks and said they had capital which was not being used for productive investment. I was told that I had been abso- lutely right. The staff members did not argue with what I had said but asked what they were to do. They said that, while they were sitting on that capital, industry was not coming to them and they could not force the money upon them. That was the representative point of view of one of the four major national clearing banks in response to something I had said during the last debate on unemployment when I tried to get the House to vote on an amendment which, unfortunately, proved impossible under the existing rules at the time.

It is not just an individual opinion but a fact, which is accepted in many circles, that the capital and the real resources are available. However, one danger is that a number of things might immediately follow, and one of them could be an increase in consumption. Just as an increase in consumption followed an increase in employment and investment in the United States, which America could cope with because of the tremendous home base of her industries, so there could be a considerable increase in consumption in this country. That could result in a twin danger to our balance of payments and to some of our home industries, some of which are weak and would be pushed to the wall, and some of which would never be allowed to get off the ground. There could be a vast increase in imports which would immediately knock our balance of payments sideways. We have to guard against that.

That is why, for more than two years, some of us have consistently demanded temporary limited import controls. It is precisely at the moment when the upturn comes, and when consumption begins to grow considerably, that it is absolutely necessary to have a period of temporary import controls. It is serious that the Chancellor of Exchequer is not prepared to make any statements on that subject. If he has entered into international commitments which make that impossible, then he ought to tell the country. I am quite sure that many of us would not approve of such commitments. If he has not made any such commitments, but if there are difficulties, then we ought to do what France, and other countries have sometimes done, and that is to recognise the need to take certain measures for a limited period which are essential for the recovery of the British economy.

It is all very well for the right hon. and learned Member for Surrey, East to say that other countries are prosperous and are doing this, that and the other, while not being prepared to support taking any risk at all, or doing anything which is likely to be courageous in our interests. After all, the history of this country is that certain economic activities have been undertaken by British governments when other people wished they had not done so. Yet, after a period, people accustomed themselves to it and said that if it were necessary, and as long as we would take the controls off again later, they had better accept them. That is bound to happen in this case, too.

The Government would be able to do that in the knowledge that there would be approval by the House of Commons and that there would be a safeguard against the balance of payments seriously running into the red again. Temporary import controls would also be a safeguard for those industries which are weak and which have to be built up, as well as for some new ones which would have a period to retool and invest. That is an internative policy.

On the other hand, we must examine the policy that what is now most needed is the cutting down in public expenditure. To say that we have been having too much of a party in recent years, and that many essential things, however desirable, will have to wait, without any guarantee that such a policy will lead to desirable economic results, is a policy about which we have not been persuaded on the evidence so far provided. That is not the same as arguing that both the private and public sectors must be prosperous.

The right hon. and learned Member for Surrey, East was talking his usual propaganda nonsense when he tried to suggest that there is something new in members of the Government arguing that there ought to be a successful private sector, or that there was something new in their belief in a mixed economy. The belief in the mixed economy has always been Labour policy. There has never been any doubt in my mind about that since I joined the Labour Party. How could one join a party led by Herbert Morrison, or Clement Attlee, without knowing that he had joined a party which believed in a mixed economy? All my life we have been dedicated to a mixed economy. What we want is to have a prosperous, growing public sector and a prosperous private sector. As the private sector is larger than the publicly owned sector, there is plenty of time for growth in the public sector in our lifetime and beyond. That is the policy of the present Government and there is no conflict in support of that policy.

But there may be difficulty if we pursue policies which are not courageous enough, which are based upon propositions which are unproven and where the balance is not even between those of the lower income groups, who always make sacrifices, and those of the higher income groups who rarely make sacrifices. That is where there may be disagreement. However, if there is fairness and good sense, and if we can be convinced that it is a policy for which they have a mandate, then support for the Government will be good and strong.

We hear rumours of wild cuts in public expenditure based on the unproven assumption that that is what is needed to build up industrial investment. There is no agreement on that score, and I would not support it if it were put forward. On the other hand, there may be a need for the Government to see that investment goes in the right direction and also to influence industry to invest in the right direction. There is also a need to build up a national investment board and even for legislation to compel a certain amount of investment if people refuse to invest.

All these are valuable policies and should be considered. If that happens and if social policies are maintained in the interests of the many people who have a right to be heard and considered, the Government will have nothing to fear, and indeed can look forward with confidence to the next General Election. We have now reached the crossroads and beyond this stage everything is premature. The debate has started. Let it now continue.

6.2 p.m.

Mr. Julian Amery (Brighton, Pavilion)

There has been a certain air of unreality about this debate so far. The Chancellor of the Exchequer announced a far-reaching conversion to views which we on the Conservative Benches have long held, but his remarks were disguised in a series of recriminations about what the Conservative Administration did several years ago. I thought that my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) got much the better of the argument in exposing the inconsistencies of the Chancellor's present position with the earlier publicly-declared position to which he has until recently adhered.

An uninformed observer might have thought that the hon. Member for Penistone (Mr. Mendelson) was directing his venom against my right hon. and learned Friend the Member for Surrey, East, but a close study of the hon. Gentleman's speech will make it clear that, although it was disguised as an attack on Conservative policies, it was in reality an attack on his own Government Front Bench. If I may use a phrase with which I know the hon. Gentleman will be familiar, he was externalising the internal factor.

I wonder how far we can afford to have these internal divisions at present. We have an alarmingly high rate of unemployment, and we have an inflation rate that is double—indeed, sometimes treble—the rate of inflation of our principal competitors. We are told that it may come down to single figures—not this year, but possibly by the end of next year. Furthermore, we have a mountain of debt and we have experienced a dramatic decline in individual living standards and in the social wage in the last 10 years. This has brought us down from being top of the European league, except for Sweden, to being second from bottom, with only Italy below us—well below countries that we either liberated or defeated in the last war.

I wonder whether we could not find more genuine common ground on which to base our approach to the present crisis. I have always supported a prices and incomes policy. I thought that we were wrong to oppose the Labour Government over "In Place of Strife." I support my right hon. Friend the Member for Sidcup (Mr. Heath) in his prices and incomes policy. Although I do not necessarily agree with every detail of what the Labour Government did last year, and are doing this year, on the wages front, I welcome their approach. But it is clear that price controls and incomes controls will have to be relaxed next year compared with this year. It is equally clear that in themselves those controls are not enough. The sterling crisis proves this clearly.

It is nonsense for the Chancellor of the Exchequer to say that the pound is under-valued. Money is a means of exchange, but it is also a store of value. It is as a store of value that its worth is determined. I fear that there have been, and still may be, fairly sound reasons for the lack of confidence in sterling. If the Chancellor had come a little cleaner and told us a little bit more in the White Paper, and certainly if he were a little more informative, I should not now find it necessary to give my own balance sheet of the reasons why I think sterling is in its present situation. As it is, I shall try.

The public sector borrowing requirement has been officially given as £12 billion. Some estimates seem to indicate that it may prove to be a little less than that sum, but certainly no foreign banker or foreign holder of sterling would discount that figure.

What are the means of financing it? There is the balance of the 1975 IMF loan, and perhaps there is £500 million of that left. Certainly the Minister will know that figure, even if I do not. Then there are National Savings.

If they are as high as last year—and they were very high—that could give a figure of £400 million. Assuming an 8 per cent. to 10 per cent. increase in money supply on M3, one would get a figure of between £3,200 million and £4,000 million out of that consideration. Let us assume a sale of gilts of between £3,000 million and £3,500 million. That is not as high as last year's £4,400 million, but last year's figure was a record year, when interest rates were very high. If one tots up these figures, one finds a shortfall of between £3,600 million and £4,900 million between the requirement and the means of financing it. No doubt there are ways in which money can be moved from official reserves to help to bridge the gap. Furthermore, it may be that the borrowing requirement will be a little less than the one that is officially estimated. It may be that the sale of gilts will be a little higher, although if that happens it is the corporate sector that will suffer.

How are the Government to bridge the gap? The Chancellor has excluded increases in taxation, indirect as well as direct. Therefore, the only alternative, apart from borrowing, appears to be cuts in public expenditure. Until the other day there was no sign that the Government were ready to undertake any such cuts. The conclusion drawn by foreign holders of sterling was that the Government would soon resort to the printing press. Hence came the panic.

The Government will be better informed than I am on this matter, but I am told that three major holders of sterling decided to withdraw, at considerable loss to themselves. It was absurd for the Chancellor to say that we were given the standby as a mark of confidence in the management of our economy. We were given the standby because the Group of Ten recognised that, unless they did something to help us, there would have been a major international financial crisis. The standby has stopped the panic withdrawals. Since the rate is being underwritten, it makes it possible for an orderly withdrawal to take place. But that in itself does not restore confidence. It is only by public expenditure cuts, and only if the Government can prove that they can meet their borrowing requirement without printing fresh money and fuelling inflation again, that confidence will be restored.

This is common ground between the two Front Benches. The Government are committed to making cuts by the terms of the standby. The hon. Member for Penis-tone said that we did not know what had been agreed, but I am sure that he knows in his heart that the terms under which the standby was secured include repayment within a period of six months, if necessary by seeking a loan from the IMF. But this implies acceptance of strings imposed by the IMF, which will be severe unless we mend our ways. The time limit is a period of six months, but after a period of three months it will become clear whether we are in a position to repay the standby. If we are to support the rate out of the standby—as the Chancellor has admitted we are doing —it seems to me extremely unlikely that we shall be able to avoid a going to the IMF.

Obviously the Government's room for manœuvre is limited. Indeed, they have only one choice open to them. If they intend to cut public expenditure, they must announce those cuts before the House rises for the Summer Recess. Otherwise the cuts will be imposed on them by the end of the year by the IMF. They are rather in the position of a man who is told by his doctor to cut down his drink or be certified and put in a home for alcoholics.

It is not for me to advise the Prime Minister how to lead his party or to keep it united. He must decide whether it is more blessed to lead or to be pushed. But I have no doubt myself which is the more honourable attitude to adopt.

This brings us to a further question. How deep must the cuts go? That is a question which should interest hon. Gentlemen below the Gangway as much as other hon. Members. There is talk about cuts amounting to £1 billion. Is £1 billion enough? When Rome was burning Nero tried to console himself with melodies. Is £1 billion the right melody? Can we afford to fiddle at this stage? I am a little doubtful whether £1 billion is enough, under whatever conditions the cuts are imposed. The timetable is clearly relevant. When are the cuts to be made? If they are deferred until the next financial year their impact on confidence will be much less than if they were imposed before, although I fully accept that it is becoming increasingly difficult to make any substantial cuts in this financial year as time goes by.

The question is, what should the figure be? I do not think that there is an arithmetical answer. It is not a question of bridging the exact gap between the borrowing requirement and the means of financing it. There are two variable factors—the confidence of foreign holders of sterling and the confidence and morale of enterprise at home.

If the Government are determined to carry on with their present programme regardless of the opinion of Parliament and the country, I say to them, and to hon. Gentlemen sitting below the Gangway on the Government side, that these cuts will have to be much deeper. If the Government are determined to go ahead with the nationalisation of the aircraft and shiprepairing industries, and the ports and docks legislation, if they are going to throw more meat to hon. Gentlemen below the Gangway and pursue what we regard as an antiquated, anachronistic and anti-social policies, the effect on confidence is bound to be bad. The International Monetary Fund will not interfere in our internal affairs. It will finance Socialism—even red-blooded Socialist policy—but at a price. The price will be a great deal higher.

If, on the other hand, the Prime Minister dropped the controversial items for his programme and sought a consensus of this House and the nation, I think that he would find that foreign confidence would return much more quickly and that tensions at home would be rapidly reduced. Even the trade union movement would not be all that sorry to see these changes made.

I do not underrate the difficulties. I said at the beginning of my remarks how serious our predicament was in terms of unemployment, underinvestment, over-manning, inflation and the general decline in our living standards. However, unity, if achieved, could restore the situation rapidly. There have been a dozen such instances in our history from the seventeenth to the twentieth centuries. I cite the case of what happened in the Second World War, when a change in leadership set a completely different tone. Within a few weeks of Winston Churchill taking over from Neville Chamberlain the morale in the country became quite different. Later we saw the speed with which the Germans picked up though we had flattened their economy in the war. We saw the same rapid recovery in France after 1958. We all know from our own experience—whether of a regiment, ship, company, college or other institution—that a change of leadership can quickly bring about a complete change in morale and in the output, enterprise and effort of the organisations involved.

The Prime Minister has the advantage of being a new leader. I should like to think that his predecessor gave way to him to afford him the opportunity to strike a new note. The Prime Minister has a historic opportunity. What we want to know is this: is he big enough to take it?

6.15 p.m.

Mr. Richard Wainwright (Colne Valley)

The House was bound to be a little suspicious that something was being concealed when a White Paper on inflation of such staggering complacency was commended to the House by the Chancellor, acting in the rôle of an exuberant fatstock auctioneer who, for once, had two or three sound beasts in his pen and wanted to convince the crowd that all his stock were of that calibre.

In fact, such complacency may be dangerous. It certainly no longer fools the foreigners. There used to be a myth that some currency dealers abroad could be influenced by a "bit of flannel" from the Dispatch Box in this House. History long ago showed that that was not so. There is a great danger that busy people in this country, who do not have the time to read all the fine print, may be given an illusory idea that inflation is on the way out and that the Government have successfully done the trick. It is a great pity that those achievements, which are to the Government's credit, have been somewhat tainted by the way in which the Government have been less than frank about the remaining difficulties.

The White Paper "The Attack on Inflation" is far less than frank in stating how far the Government's target of single-digit inflation by the end of this year has slipped behind. We are given no clear chart showing exactly what is the position now. My own view is that we shall perhaps, with luck—I hope that this happens—get down to single-digit inflation towards the end of 1977, but I fear that it is virtually inevitable that we shall be back to an inflation rate of 11 per cent. or 12 per cent. in the early part of 1978, because the Government are pro-ceding on a hand-to-mouth basis with their anti-inflation tactics.

The White Paper, again, gives no reasonable analysis of how far the Government's modest successes are due to the sinister pressures of unemployment rather than to any strategic skill of the Government.

This afternoon the Chancellor failed to acknowledge the fact that his policy, agreed with the TUC, is for a 4½ per cent. maximum rather than a maximum in the area of 3 per cent., which he stipulated explicitly in his Budget.

There was no reference to the way in which this deal with the TUC was to be enforced. We must hope that everybody honours their bond, but we must realise that vast numbers of workers in this country are entirely honourable in feeling that they are not in the least bound by any pact that was entered into by the TUC. More than anything by way of reservation, I want to stress the fact that this is very much a hand-to-mouth document. We must be grateful that it is likely to tide the country over for another nine or 10 months, but the White Paper contains no hint of preparation of strategy for the years to come, and especially no hint as to how the Government will tackle the much more difficult attack on inflation when we are out of the recession, when demand is booming and all the customary pressures return. Indeed, it might be said, on a rather purist analysis, that the plan agreed with the TUC will make re-entry to boom conditions all the more difficult and will buy temporary relief at the expense of storing up trouble in a year or two.

This is grave cause for doubt about a White Paper which otherwise contains some welcome material. The whole strategy will be nothing like complete unless, later in this debate, after a disappointing start by the Chancellor, the Government say something about how they are preparing the longer-term strategy.

For instance, what about the next version, mark 2, of the social contract, which is already becoming a little overdue? The Government are preparing their boasts of how they are rapidly coming to the end of achieving the promises of the first version of the social contract. To keep up this alliance with the TUC—good luck to them, if it can be maintained at a more reasonable price—they will have to come forward with a new social contract.

It is my private belief that one factor which led to the recent change of Prime Minister was the fact that the former Prime Minister could not bring himself to the point of having to rewrite the social contract in today's conditions—a social contract promising a lower standard of living and vast reductions of spending on public amenities or alleged amenities, and one which could not honestly promise any startling reduction in unemployment.

Indeed, giving the Government credit for a good deal of intelligence, I should think that one reason why they appear to be so complacent about the future trend of policy when this year's White Paper has run its course is that they know that unemployment will not come down dramatically and that, unfortunately, they will be able to rely in 1977–78—and, I fear, in 1978–79—on the sinister pressure of unemployment to help them to keep wage demands in check. That is a negative and, in my view, an unnecessary weapon to have to use when there are more sophisticated weapons which a courageous and imaginative Government should see.

Mr. Frank Tomney (Hammersmith, North)

Such as?

Mr. Wainwright

Such as the incomes policy, to which I shall turn and on which I shall try to have some constructive things to say.

It is the view of the Liberal Bench that in this year there should have been some modest moves towards flexibility of policy. The idea of a completely uniform, relentless maximum, regardless of circumstances—particularly a maximum that pays very little attention to pension anomalies and other such difficulties—is too much to expect the nation to carry for a second year running, when the atmosphere of emergency has been somewhat dissipated.

Mr. Tomney

Politicians in general and economists in particular have not yet cottoned on to the fact that this country is currently over-populated in regard to both prime resources and manufactured resources, both national and international. It may be the order of the day that policies will have to be adapted not only to contain but to provide for a large reservoir of unemployment.

Mr. Wainwright

The House would not thank me if I allowed myself to be diverted for more than a moment to deal with that intervention, which did not bear on my theme, but I wholly repudiate the idea that this country has a surplus of population. There may be romantics who wish that history had been written in a different way, but I am content to believe that, with appropriate guidance from the Government, we can usefully employ all those able-bodied people in our population and not fall victim to the romantic or despairing idea that we have an insoluble population problem.

To return to my point, there should have been some flexibility in this year's policy. One could forgive it in the first year of emergency policy to achieve the suppression of 30 per cent. wage demands but to say for a second year running that companies shall not buy past service pensions for shop floor workers who have devoted most of their lives to the service of the company is carrying repression too far. It is, of course, a singularly anti-labour, not to say anti-Socialist, policy, but it is a fact that the pay deal—I am astonished that the TUC agreed to this—prohibits companies from going any further in their pension schemes than is necessary to secure contracting out under the new legislation.

That means that companies are forbidden to buy pensions in the way they always used to do, if they were enlightened, to cover the past service of employees. At the very time when we want to achieve pension deals for people on the shop floor equivalent to those which staff employees have had for many years, it seems iniquitous that the buying of past service pensions by employers should be caught by this year's policy.

Similarly, we believe that there should have been greater flexibility in matching the exception that has always been made for employees who have a fixed, written, codified increments system. It is a standing injustice that employees who might have expected an acknowledgement of their growing seniority in a firm but who do not have it codified are not allowed to receive such an acknowledgement. They are simply landed, just like the office boy or the newly-joined dispatch clerk, with the 4½ per cent. limit.

It could have been possible for a reasonable maximum to be allowed where it could be proved that an employee had achieved an increased degree of seniority in the firm, or was carrying an appropriate extra responsibility. The gradual growth of two nations—incremental staff and non-incremental staff—could have been prevented.

The development that the Liberal Party would particularly like to have seen incorporated towards the end of the White Paper was some indication of the way in which the Government intend, this year to develop the tactic of which we thoroughly approve, namely, harnessing the tax system to the service of pay restraint. We acknowledge wholeheartedly that the Chancellor's device of bringing possible tax reliefs, which the House is now asked to approve, into the negotiations with the trade unions is a most commendable move. The way in which it was done may have offended some parliamentary susceptibilities and might be improved, but we should have liked to see a reference in the White Paper to the possibility not merely of continuing but of expending it.

One thinks, for instance, of the possibilities of adjusting the social security contribution of both employer and employee according to a firm's willingness to conform to certain pay restraint norms, so that a company or a group of employees would be technically free to exceed a pay norm but only at the price of a considerable penalty in higher social security contributions. There is no inkling of that sort of development in the White Paper.

Mr. David Madel (Bedfordshire, South)

There is a big snag in that argument, is there not? It is not the first time that we have heard it. If a group of employees have a democratic vote to exceed a pay norm, and 53 per cent. vote to exceed it and 47 per cent. vote against exceeding it, is it not unfair on the 47 per cent. if all of them have to pay the excess? In any case, how does one tell who voted which way in a secret ballot?

Mr. Wainwright

I am grateful for that intervention, because the question of harnessing the tax and social security system to anti-inflation policy is important, and all the snags should be examined. I regularly concede that, from a purist point of view, there are always difficulties in applying penalties collectively. But there are two answers to that. First, rough justice is much better than no justice at all. Secondly, we hoped that the Government would refine their use of the tax weapon by coming down this year to a much more intimate level than dealing simply with the TUC.

This year, the bargain on behalf of the whole vast work force of this country has been struck with one institution—the TUC. We should like to see the tax discrimination brought down to the level of the form. I agree with the hon. Member that that is still of collective importance, but collective on a far smaller scale, involving far less rough justice than dealing simply with the TUC. I doubt whether we could ever get to that refinement of justice in which every employee can have his tax status varied accordingly to his willingness to conform to a norm.

As has already been said in the debate, we are dealing with these matters, and the Government are dealing with them, against the sombre backcloth that if we do not inspire confidence in this country among our creditors, the IMF and other outside bodies will intervene

It is because we on the Liberal Bench think that, in spite of all its shortcomings, and to some extent its shortsightedness, the White Paper "The Attack on Inflation" copes better than any other imminent Government could have coped with this year's problems, that we shall support the Government in the Lobby.

Finally, I am obliged to turn to the Conservative Opposition's amendment. The Conservative Opposition—we do not from this Bench grumble about it, because we are exploring with others the channels for putting it right—enjoy a monopoly, by precedent, in having their amendment called in debates such as this. There is no purpose, therefore, in other groups and parties in the House putting down amendments which they know perfectly well will not be selected for a debate or for a vote.

But, since that monopoly exists, it seems to us—I do not know whether we have the support of other disfranchised minorities in the House in this matter—that on this occasion the Conservative Opposition have not really used their monopoly position for any constructive purpose Their amendment is such a flimsy affair that we certainly shall not feel inclined to take part in any Division upon it, nor can I feel that the IMF, or any other of our creditors, will have its confidence in Britain bolstered by reading that the only other imminently alternative Government in this country merely recognises the need for restraint in pay bargaining". I cannot believe that that form of words, if it were to be carried tomorrow night—and it will not be carried with our support—would make the IMF feel that Britain had at last regained its heart of true oak and discovered the secret of anti-inflation policy.

6.33 p.m.

Mr. Raphael Tuck (Watford)

Despite any differences between my right hon. Friend the Chancellor of the Exchequer and myself —and there are some differences: for example, I believe in selective import controls, as does my hon. Friend the Member for Penistone (Mr. Mendelson), and I do not believe that the Chancellor does—I feel that he has done a tremendous job this time in cooperating with the trade unions and getting their consent to the policy he has put forward. It is a great achievement and a great step forward, and it is one which I do not believe any Conservative Government could have achieved. That is why I fear greatly that any future Conservative Government, if there is one, may indulge in a life-and-death struggle with the trade unions, because the Conservative Party believes in confrontation rather than co-operation.

Mr. Prior


Mr. Tuck

The right hon. Gentleman says "Nonsense", but it has been proved by past events, particularly the events of early 1974. No one can get away from that.

The charge has been levelled against my right hon. Friend the Chancellor of the Exchequer that he was pandering to the trade unions by getting their consent. I feel that those who level that charge do not see the whole situation in its historical perspective. It must be remembered that the Labour Party arose originally as the political wing of the trade unions. I want to see that link between the trade unions and the Labour Party developed and strengthened for the future.

I shall, therefore, put forward a suggestion which will, no doubt, appear to many hon. Members as heterodox. I am rather nervous about introducing it, because many of my hon. Friends, and hon. Members on the Opposition Benches, may laugh it to scorn, but I remind them that the heterodoxies of today become the orthodoxies of tomorrow. I ask them at any rate to accept that I hold these views sincerely and honestly. Like the right hon. Member for Brighton, Pavilion (Mr. Amery), I believe in an incomes policy, but I do not believe that it should be a compulsory one. I believe that it must be voluntary. In that sense I do not agree with the right hon. Gentleman that "In Place of Strife" was right. I feel that it was wrong, in that we cannot move masses of people around like pawns on a chess board.

Mr. Prior

It has nothing to do with it.

Mr. Tuck

The right hon. Gentleman is making sedentary grunts. It certainly has something to do with it.

Mr. Prior

The White Paper "In Place of Strife" had nothing to do with an incomes policy. It was about the reform of industrial relations.

Mr. Tuck

It may have been about the reform of industrial relations, but it certainly had a lot to do with incomes policy.

The situation has been reach in which the Government must not issue directives to the trade unions on an incomes policy which the trade unions must accept. The Government are not, thank heaven, in the happy or unhappy position of the EEC Commission, which issues directives to its members which they have to observe. No Government in this country can do that any longer. They must carefully consider the views of the trade unions before reaching their decisions.

My next point is addressed to Mr. Jack Jones, whom I admire immensely, but who distressed me when he hinted strongly recently that next year we cannot have a 4½ per cent. or any agreed increase in wages, but must return to collective bargaining. Just as the Labour Party or the Labour Government must not issue directives to the unions, the unions must not claim increases in wages and salaries that are entirely inimical to the economy. They must have regard to the economy and to the people of this country.

Collective bargaining, in my view, therefore, must give way to collective plan- ning, that is, consultation and cooperation between the Labour Government and the trade unions, and the decisions reached must be borne of that consultation and co-operation.

I therefore have the temerity to suggest to my right hon. Friend the Chancellor of the Exchequer—I hope my hon. Friend the Minister will convey this to him—that next time, instead of putting forward his policy and then asking the trade unions if they agree with it, he will consult with the trade unions first of all and formulate with their agreement, consent and co-operation a policy which is agreed between them, and that he will then put it before the country.

If there is that consultation and that co-operation we are more than half way towards victory. If this becomes the norm in the future, we may find that we are the envy of all the nations in the civilised world.

6.40 p.m.

Mr. Peter Tapsell (Horncastle)

I do not know why the hon. Member for Watford (Mr. Tuck) expressed anxiety about the heterodoxy of the proposals he was about to put before the House. His concluding words exactly described the policy which the Chancellor and the Government whom the hon. Gentleman supports have recently adopted and practised.

One interesting and valuable aspect of the debate, and of the Government motion and the Opposition amendment, has been to reveal a greater degree of common ground between the two sides of the House on economic affairs and on how our problems should be handled than has been evident for many years past.

As my right hon. Friend the Member for Brighton, Pavilion (Mr. Amery) wittily pointed out, the two Front Bench spokesmen in their opening speeches did their best to conceal that common ground by indulging in the usual party political knockabout which is inseparable from our affairs, particularly in economic debates, but if we cut through that we find that both Front Benches are agreed that the policies that particularly need to be pursued are a tight control of the money supply, a strict control of public expenditure—although there are differences between us on this in timing and emphasis—and restraint of wages. That degree of agreement is a valuable advance.

One of the hardships which the country has had to endure for the past 10 years or more is that there has been so little agreement on economic affairs between the two great parties. The Opposition of the day have always opposed incomes policy and the Government of the day have always said that they would not introduce an incomes policy; right up to the moment when they announced it.

The Chancellor was being a little ingenuous when he claimed credit for consistently seeking to pursue sensible economic policies, because he left out of account the period from March 1974 until July 1975 when he was pursuing policies wholly different from those described in the White Paper "The Attack on Inflation" which we are debating today. The Labour Government, under the pressure of events, particularly international events, have shifted their ground on economic affairs. Since the Prime Minister took office there has, at least in terms of verbiage, been a major shift in economic thinking which has brought the Government close to the policies which the Conservative Party has been advocating from these Benches ever since the February 1974 election. If only the Government would implement the thinking of the White Paper and the recent speeches made by the Prime Minister, and his answers from the Dispatch Box at Question Time, there would be a real hope of seeing a turn for the better in our national affairs.

I was heartened to hear the excellent speech made by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe). It revealed the economic divisions between the two sections of the Labour Party, but it also underlined the degree of common ground between the two Front Benches. I was particularly interested in that section of my right hon. and learned Friend's speech in which he dealt with incomes policy and looked to the National Economic Development Council as the body which the next Conservative Government would use to make an incomes policy viable. I welcome that, because it is in the tradition of the Conservative Party to work through that body, and would give us a chance to get away from overdue reliance on the CBI and the TUC. If, as my right hon. and learned Friend suggested, we can use the NEDC as the vehicle for working towards a nationally agreed incomes policy, we can ensure that the entire nation is involved in the discussion and not merely those two powerful, influential but not wholly representative bodies.

One of the other great advances of recent years is the almost unanimous agreement that money supply and its proper control holds the key to these problems. The proper control of the money supply and a drastic reduction in public expenditure—more drastic and immediate than the Government yet envisage—are of fundamental importance. Yet I have in the past differed from some of my right hon. and hon. Friends in thinking an undue reliance on the money supply dangerous. That is still my view. Since 1970 I have been expressing the view that an incomes policy is an essential element in the overall package, and that we must use all the instruments of Government—fiscal, monetary and an incomes policy—if we are to have a healthy economy and a happy country.

Those people who wish to rely solely on control of the money supply and do not wish to have an incomes policy are entitled to say that it could stop inflation. I do not doubt that if we pursued a sufficiently rigorous control of the money supply we would bring inflation virtually to a standstill, and that would be a very desirable result to achieve, but the price we should have to pay for that would be very high. The price in terms of the level of unemployment and the level of bankruptcies in industry, the City and agriculture would be an intolerable price.

Those of us in the House who have been through several international and economic crises know that whatever our colleagues may say in the academic circumstances of opposition, when they are in Government the pressures start to build up. There are the pressures of lost by-elections, the pressures of constituency officers saying that they are unhappy with what is being done, and the pressures of meeting in one's surgeries constituents, once devoted supporters, who are extremely unhappy because their livelihoods are threatened. No matter how many of our colleagues have been in favour of a particular policy, when it comes to the crunch they have had second thoughts. Governments take that very much into account. Governments of all political complexions change course and involve themselves in what their opponents term "U-turns".

Mr. Lawson

My hon. Friend is right to talk about the price of certain policies. Those of us who are sceptical about an incomes policy as it is generally understood are against it not mainly on purist grounds but because we feel that there is a heavy price to be paid for it, and the game may not be worth the candle. Does my hon. Friend argue that the Government are paying for this incomes policy a price that should not be paid?

Mr. Tapsell

My right hon. and learned Friend the Member for Surrey, East made the same point in his speech, and I agree with my hon. Friend the Member for Blaby (Mr. Lawson). The price which the Government have had to pay for their remarkable settlement with the trade unions has been high, in many respects too high, but we must also ask ourselves what price we have to pay if we do not have an incomes policy. The two must be set against each other.

The price that one must pay if one does not have a generally acceptable incomes policy is twofold. Either we have a confrontation, as we had in January and February 1974, or runaway wage inflation as we had from March 1974 to July 1975. Both those prices are too high. The task of Government in handling the economy and in political management is to steer a middle way between paying too excessive a price for achieving a viable wages policy or paying too excessive a price for not having one at all. There must be a compromise between the two.

Mr. Nick Budgen (Wolverhampton, South-West)

Does my hon. Friend the Member for Horncastle (Mr. Tapsell) agree that the price can be divided into two? There is the short-term price in terms of policies agreed with the TUC, and the longer-term price which involves a sharpening of the movement towards a corporate State. Does he agree that some people are reluctantly prepared to accept that second price? Is it possible that my hon. Friend regards the movement towards a corporate State as a good thing? Does he want central economic issues to be taken away from the House to be decided by something like a vast televised NEDC?

Mr. Tapsell

I am not in favour of the corporate State if by that my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) used those words emotively to mean a Fascist-type corporate State.

That is one of the reasons why I welcomed the suggestion by my right hon. and learned Friend the Member for Surrey, East that we should work through the NEDC rather than just have discussions with the CBI and the TUC. There are certain dangers in doing that and then announcing to the House that something has been agreed and that the tax arrangements in the Budget are all dependent upon it. I did not regard that action by the Government as unconstitutional. It was fully justified to achieve the result it did, but I prefer the NEDC approach.

Equally, the words "corporate State" —in inverted commas—tend to be bandied about too easily just as people throw the words "Fascist" and "Communist" about too freely. Few of us really believe that this country is in danger of becoming a Mussolini-type corporate State. I agreed with some remarks by my right hon. Friend the Member for Sidcup (Mr. Heath) the other day when he said that the words "corporate State" were bandied about too freely without true significance. There is a danger to be guarded against, but the country faces grave economic peril and we should not lightly disregard what could be productive methods of behaviour simply because of a fear of the words "corporate State".

This country does not exist in a vacuum. In the course of my commercial life I have travelled extensively round the world and almost wherever I go I notice that Governments, central banks and those interested in trade unions and commerical life are discussing incomes policy in different forms. They put varying degrees of emphasis on it. I recently visited two countries, one smaller and one bigger than this country, but both exceedingly efficient. I found that both Singapore and Japan pursue incomes policies and attach great importance to them. Both countries have the closest consultations on these matters with their trade union movements.

When I was in Tokyo I was proudly told by a senior Japanese Government official that their "spring offensive"—as they call it, because they make one settlement a year—had resulted in an average wage increase of 9.05 per cent. for the next 12 months. I found it interesting that they calculated that to the second figure after the decimal. Their incomes policy is more sophisticated than ours because within that average settlement there are enormous variations. Some workers get over 20 per cent. and some under 5 per cent. The Japanese cannot be criticised for lack of entrepreneurial zest, lack of economic efficiency or lack of competitiveness in world markets. Yet incomes policy is a major instrument of their economic achievement, and majority opinion in Japan is that they would not be as efficient or competitive economically if they did not have an incomes policy. One could say the same of many other countries. Curiously, too, the dispute about incomes policy in this country is mainly confined to the House of Commons, journalists and academic circles. Public opinion polls indicate overwhelming support for an incomes policy. Those who circulate in the City and industry find that the majority of people who earn their living in the competitive market place believe that an incomes policy is necessary.

The first question asked by a potential foreign investor in sterling concerns the present strike record in Britain and the rate of wage increases for the next 12 months. It is certain that if the Government had not achieved their recent settlement with the TUC we would not have obtained the recent standby credit. If the incomes policy broke down another run on sterling would immediately follow. Britain's present position now leaves Government with no alternative but to have an incomes policy.

One of the weaknesses in the argument of the pure monetarists—those who believe that an efficient control of the money supply makes an incomes policy irrelevant—is that it overlooks the monopoly position of certain of the great trade unions. Who can doubt that if the miners, the power workers and the dockers wished to challenge a Govern- ment who were conducting economic affairs solely on the basis of control of the money supply they could bring the country to its knees? As we know from experience, a combination of the miners, power workers and dockers striking simultaneously could bring the country to a standstill. What is then happening to M1, M2, M3 or M500 will make not the slightest difference to their bargaining power in such a situation.

When we are dealing with the realities and practicalities of life we must have an agreement, preferably voluntary, with all workers and the trade unions. I go further and say that it is a brave politician who would think that no future Government will ever again require a statutory wage freeze. On the contrary, I believe that it will never again be possible anywhere in the Western world efficiently to run an industrialised parliamentary democracy without an incomes policy.

7.0 p.m.

Mr. J. W. Rooker (Birmingham, Perry Barr)

If the last remarks of the hon. Member for Horncastle (Mr. Tapsell) have done nothing else, they have certainly shown how stupid was the intervention of the right hon. Member for Lowestoft (Mr. Prior) a few minutes ago, when he said that industrial relations had nothing to do with an incomes policy. The two are completely intertwined, as the hon. Gentleman has just pointed out. That is why, if they ever reach government again, the Conservatives will never successfully work out a policy that will have the acquiescence of the trade union movement.

I am struck by the tone of this debate compared with the one on last year's White Paper. The Chamber is not very full. I concede that the Labour Benches are more nearly empty than the Opposition Benches. That probably shows that the policy is in the bag. It has been decided outside the House. Many of us supported the proposals of my right hon. Friend the Chancellor in the Budget speech that that should happen.

In putting the White Paper before the House, the Government are borrowing one more year. They will not be able to do it again. The provisions of the Remuneration, Charges and Grants Act do not allow a further Order to be brought before the House on the matter of a White Paper and an agreement with the TUC. Therefore, we shall have to consider fresh legislation, if it comes to that point, in a year's time.

I want to refer to two remarks made when the pay policy was introduced, one of them in the document sent, at great expense, to every householder in the country to explain the policy. It said that: a continuation of the present rates of inflation would— greatly increase unemployment". That was last September. On 20th August the former Prime Minster, my right hon. Friend the Member for Huyton (Sir H. Wilson), had said in a television broadcast that the £6 policy was an essential weapon against the growing menace of unemployment, and an essential expression of national self-discipline required to get us on the road to full employment. He said that that was why the next year was crucial. It was the year in which we say "Stop".

No one has mentioned the fact that unemployment today is almost exactly 50 per cent. higher that it was this time last year, when the policy was introduced. That means that more than 400,000 more people are unemployed. What will happen if the plan of the past 12 months is continued for the next 12 months, and we see a continuing increase in unemployment, or a hovering around the 1.3 million mark, this time next year? Whatever the Government propose, the vast army of unemployed and their families—who by then will be very much long-term unemployed—the trade unions and even the Parliamentary Labour Party, or a majority of it, will not be able to support the Government on a test of confidence, especially if they want to make it on such spurious policies as the child benefits Bill. That will be the position unless there are some changes in the unemployment level in the next 12 months. It is within the Government's capacity and resources to do something about it.

The present pay policy is in the bag, with the TUC's support and, I accept, substantial support in the country at large for some form of incomes policy. I admit the substantial drop in levels of inflation this year and am sure that the policy will be a success in that regard. Therefore, we should now be starting to think about the third year, or the first year of the next policy, whatever it will be. It is because of its failure to think about this that I object to the White Paper so much. The hon. Member for Colne Valley (Mr. Wainwright) said that there was no indication in it of what might happen in the future.

A few weeks ago even Jack Jones said that planning should start fairly soon and that there should be discussions about what is to happen after August 1977. I am the first to admit that if he said that we should probably be remiss to argue with him. He is an extremly powerful man. But he comes out with some ideas which I hope the Government will not adopt. One example of a few weeks ago was not his talk about a return to free collective bargaining but his suggestion that there should be a reduction in the working week to 35 hours. Anyone who has been in industry, on either side of the shop floor or in management, knows that a claim for a reduction in the working week on its own is fraudulent. It would not increase leisure hours, and would not help to reduce unemployment. It would only increase the overtime worked.

The overtime now worked in manufacturing industry is almost equivalent to the total number of hours that we have lost through people in manufacturing industry being unemployed. Therefore, I should be much happier if the Government started to think about a restriction, on the hours of overtime worked. We are one of the few countries in the Western industrial world that do not have some restriction on adult male overtime. We are one of only two countries in the Common Market in that position. Nearly all our economic competitors have some restriction. That is the sort of policy I am pursuing—not just a decrease in the nominal hours of the working week.

That policy, coupled with the introduction of flexibility in the retirement age for men, so that some men below the age of 65 can cease work—men who have worked in foundries and heavy engineering all their lives and are too ill to continue working—would do far more to reduce unemployment than any claim to reduce the working week to 35 hours. I should like the Government to start to move in that direction as soon as possible, and not leave it until the usual panic stories, around Whitsun and Easter, that we must satisfy the international bankers and others from whom we have borrowed money.

The third matter on which the Government should start is one that is not my party's policy, but in the two and a half years I have been here we have done many things which are not exactly Labour Party policy. I refer to discussions on the national minimum wage. The pigeon-holes of the Department of Employment are stuffed with reports about that idea. I was pleased when my right hon. Friend the Secretary of State for Employment, at the Press conference outside the House last week, when he introduced the White Paper, according to reports objected less to a floor than to a ceiling on wages". If he can be persuaded to pursue that argument, he will naturally come to the conclusion that a national minimum wage is extremely desirable, more so than a return to free collective bargaining, which others might describe as the law of the jungle, under which the weak go to the wall.

We spent many hours in the House last year putting the Employment Protection Bill on the statute book. Much of it is now in force, but a substantial part of it—Schedule 11, which is almost an Act in itself—shows no sign of being implemented. It affects terms and conditions of employment and lays down rules under which certain sections of the working population can succeed in a claim based on the relativity of their terms and conditions to those of other workers in similar industries, and so on. It strengthens the fair wages resolution and the existing legislation on the subject. There is no doubt that it could lead to substantial increases in pay, but those increases would necessarily be ordered, because they would have to be bought out before a tribunal if they were disputed. The legislation is already on the statute book, so there can be no arguments about interference with free collective bargaining. I think that employers, given time, would be able to co-operate.

The fifth area to which I wish to refer concerns the sledge-hammer effect of the policy from which we are now moving away, in that we are moving into complete rigidity of pay scales in ordinary manufacturing industry. Probably over the last two years there have been more attempts at restructuring the wage system in industry than there have been in the previous 10 years, because of the mad rush as a result of the implementation of the Equal Pay Act. Many firms left action till the last minute. Many firms did not wish to establish equal pay on its own. They saw disadvantages in it and wanted to take the opportunity, quite rightly, completely to restructure their factory wage system with the consent of the work force and of the trade unions, among them many of the firms of which I know in my constituency in Birmingham. While they have been able to implement the equal pay aspects in relation to women they have been unable to proceed with the rest of their restructuring policy, which would make sense of equal pay and avoid causing disruption in the factories.

I can think of nothing more ludicrous than pumping hundreds of millions of pounds of taxpayers' money into British Leyland, as we are doing at the present time, when we are to be left at the end of the day with exactly the same basic industrial relations problems within British Leyland as those which caused so much of the trouble in the company as it exists at present

In the first set of British Leyland accounts since the undertaking was nationalised last year there is a reference to reforms that have been introduced, but other important reforms, such as the amalgamation of bargaining units is held up by the operation of the Government's incomes policy. We have heard from the hon. Gentlemen on the Opposition Benches about getting one agreement for everybody, such as that which operates in Japan. We cannot even get complete agreement in our larget manufacturing company owned by the State, into which we are committed to pour hundreds of millions of pounds to achieve the regeneration of that industry. At the end of the day we shall have put in all the assembly lines and press shops and have retrained and moved many employees but we are still to be left with the same situation of hundreds of different bargaining units—something like 250—resulting in leapfrogging claims, questions, and all the irrational things that happen on both sides, with walk-outs and Press publicity about the British motor car industry. The policy advocated in this White Paper will not change that one iota.

Taking those five points together, now is the time to start talking and laying down the ground rules so that we do not have a wage explosion which, as an hon. Member said, could be of atomic proportions. If we take all these five areas together there could be a planned and orderly return to a different system of wage bargaining. I make no bones about the fact that there are alternatives to free colllective bargaining, which means the law of the jungle and the weakest go to the wall. In this country at present 68 per cent. of the adult male working population actually receive below-average gross earnings. We must couple with that the fact that in the next four years—this is a point that the Chancellor rode over, as he has done before —the working people in this country will increase by 600,000 net. That fact frightens me enough to be ready to try any solution to avoid a free market in wages, as we would try to avoid a completely free market in investment or goods.

That would not work. If the working population is to increase by 600,000 in the next four years and the Chancellor wants to bring unemployment down to about 700,000, it means that he must find over 1 million jobs in four years. In the present policy there is no indication of any planning to eliminate that problem. I am prepared to pay a high political price to see the level of unemployment reduced.

Mr. J. M. Craigen (Glasgow, Mary-hill)

Does my hon. Friend think that part of the price might involve the direction of labour as well as the direction of investment?

Mr. Rooker

On the one hand, there is enough surplus labour all over the country at present, whether in the region that my hon. Friend represents or the so-called "prosperous" area, the West Midlands, part of which I represent; but the need even to contemplate that is a long way off, because unemployment all over the country is extremely high. There are pockets in which unemployment is very low, even in Scotland and particularly Aberdeen, so I do not consider that such a policy need be contemplated. We have not done enough to redirect industry. I am all for pushing that first.

We have put many carrots before the workers to encourage them to move round the country. Since January, we have paid grants of £1,000 to workers in development areas who have never owned a house but wish to purchase one in another area where there is work for them. But I understand that up to two months ago only 65 workers had yet taken advantage of that.

My last point is that my own union opposes the policy of the TUC, and long may trade unions be free to oppose the TUC. I must make a mini "commercial" here, because of the success of the ASTMS in breaching the £6 pay policy. Last year, during the passage of the Remuneration Charges and Grants Bill, I proposed an amendment to that legislation to provide that the 1946 fair wages resolution of the House of Commons would still stand and that claims under it would not be subject to the £6 limit.

The present Leader of the House accepted that there would be no limitation on the effect of the fair wages resolution. In the last 12 months my union has been the only one successfully to pursue claims under it and has achieved remarkable success, for example, an increase of £13.50 for foremen. It did so under the previous pay policy in 1973 also, at the same company. There is therefore some credit to the union for the fact that it opposed the system in principle and wished to have a system of total free collective bargaining. But my union showed more sense than some others in using some, I will not say loopholes, but clauses and gateways to increase and advance the terms and conditions of its members.

Axiomatic to what I have said, I would not be prepared to couple with these five proposals a free-for-all for everyone else. That does not mean to say that anyone badly affected by these proposals should not get some increase, for that would not be acceptable to the trade unions and my constituents.

That brings me to my last point, on productivity bargaining, much discredited in the late 1960s. Like many others, since I could not get round the limitation of the system operating in 1967–68 I was involved in productivity bargaining of a kind that was a little spurious and left much to be desired, though it kept industrial peace. Nevertheless, by late 1969, when the Prices and Incomes Board reported for a second time on productivity agreements, there had been established rather wider acceptance of the guidelines that it put forward. There was a wish to get away from the term "productivity agreement" and to speak of "efficiency agreement" or something of the kind.

Clearly, we have to have such a system, because workers in companies need to receive increases in pay as their output and efficiency increase. That is absolutely vital, but we do not want a Government body, like the Pay Board, policing that area. I am still for going back and latching on to the present policy, drawing the organised trade union movement of the country into the central management of the economy, including wages and investment.

I would put fairly and squarely on the trade union movement, perhaps including the CBI, the duty of policing jointly the efficiency of productivity agreements, so as to get some kind of consent. I accept that after a legislative battle we have had a policy that seems to have worked, but it cannot continue to work. Therefore, given a year of breathing space, which the Government bought from the trade unions and from the Government side of the House, now is the time —this month or next month—to start working on arrangements and proposals for stage 3 or year 3, or stage 1 of what is to come after—for clearly something must follow what we are now proposing.

Mr. Deputy Speaker (Sir Myer Galpern)

I am sure that hon. Members will welcome the information that I am about to give them. There are still 16 other Members who wish to take part in the debate before the winding-up speech starts at 9.30 p.m. I leave it to hon. Members whether they are going to co-operate one way or the other.

7.20 p.m.

Mr. Douglas Crawford (Perth and East Perthshire)

After the two opening speeches, I was prompted to ask myself "When, oh when, will this House come to its economic senses?" It was with a growing feeling of despair that I listened to the two Front Bench spokesmen.

However, the contributions from the right hon. Member for Brighton, Pavilion (Mr. Amery), the hon. Member for Horncastle (Mr. Tapsell) and the hon. Member for Colne Valley (Mr. Wainwright), among others, injected some sanity into what was an insane beginning to this debate. The two Front Bench spokesmen skirted round the principal issue without getting to its guts. The guts of the issue are that a nation or, in this case, a State comprising several nations, cannot go on living on tick or in hock for ever. Deficit financing is all right for a time, but it cannot go on for all time.

As Mr. Micawber said—I make no apology for repeating it yet again from the Scottish National Party Bench—"Income, 20s., expenditure, 20s. 6d.—result, misery." It is from this, in my opinion that the United Kingdom has been suffering. The United Kingdom ship of state is awash with borrowed money, and the pumps—its ability to service its debts—are increasingly less able to cope. The United Kingdom ship of state still has too many imperial pretentions. It parades too many folies de grandeur. Turning the analogy, perhaps the United Kingdom is displaying increasingly a death wish of Cleopatra. Give me my robe, put on my crown I have immortal longings in me. Let us see what is at the root of price increases or, to use the more brutal and more honest word, inflation. Inflation can be caused by bad macro-economic management or by a basic structural fault in a country's economy, or both. Alas, it would appear that the trouble with the United Kingdom is that it is caused by basic structural faults in the United Kingdom economy. This structural fault is at the root of the present inflation.

Basically, the United Kingdom is consuming more than it is producing. The public sector borrowing requirement of £12,000 million is only part of the reason. There is a private sector borrowing requirement which is just as serious a problem.

We see some of the tips of the iceberg. Are they causes or effects, or both? Some of the tips are evident. First are our high interest rates. They must, ipso facto, contribute to higher prices. If we compare this country's interest rate with Norway's 5 per cent., Holland's 5 per cent., Belgium's 7 per cent., Denmark's 8½ per cent., Sweden's 6 per cent., and Austria's 4 per cent., we can see what industry in this country is up against.

A further cause and/or effect is the falling pound. Let us not delude ourselves that it is recovering. It is still far too low. Although it may make exports cheaper, it makes imports dearer, and all too often imports have to be bought before exports can be sold. What is more, if the pound drops much faster, the United Kingdom will soon be giving away its exports. The solution, in the centralised and solidified United Kingdom context, is hard, brutish and short. It is freedom to raise prices and to restore wage rises below the rate at which those prices increase. It will mean a drop in consumption and further cuts in public expenditure, and it could lead to very serious social unrest.

In all this, we in Scotland—and I am sure that I speak for Plaid Cymru Members when I say "and in Wales"—wish no part, and here are our Scottish reasons.

According to the regional survey of the Department of Employment, the "Quarterly Cost of Living Report", Scotland's cost of living is 9.4 per cent. dearer than that of the other areas of the United Kingdom. Income per capita in England, according to the Department's Family Expenditure Survey, is 9.4 per cent. higher than in Scotland. Many food prices in Scotland are higher. According to the Price Commission's Report "Food Prices in the Outlying Areas", food prices in the North of Scotland showed the greatest disparity from typcial United Kingdom prices, to the extent of 7.3 per cent. above the average. It is against this background that my party wants nothing to do with cutting down on price increases.

The idiocy of legislating for the United Kingdom as a whole as one economic entity is clear now as never before. The United Kingdom is made up of several economies, and the Scottish economy is one of them. Scotland is different, and there is a need to decentralise not more control over Scotland's own economic affairs but total control over them.

Mr. Robert Hughes (Aberdeen, North)

Will the hon. Gentleman concede that in England there is the same disparity between incomes and prices?

Mr. Crawford

Certainly there is a disparity between the various regions of England—

Mr. Robert Hughes

And Scotland.

Mr. Crawford

And Scotland. But one is either comparing Scotland with England or the regions of Scotland with those of England, and there is no region in England that suffers as much, for example, as the region represented by my hon. Friend the Member for Western Isles (Mr. Stewart).

I used to think that the decentralisation of economic activity could be achieved within the Westminster framework. Now I know that this is not so. Scotland's independent control over the Scottish economy demands Scottish independence and, until such time, any move towards substantially increasing prices in Scotland will be resisted by the SNP.

It is not Scotland's fault, and it is none of Scotland's business, that the rest of the United Kingdom is living beyond its means and that it cannot afford to buy the food and raw materials that it needs. Scotland is not living beyond her means.

Perhaps the nation of Adam Smith—and what is wrong with Adam Smith, and is not it time to return to some old-fashioned financial virtues?—could teach the nation of John Maynard Keynes. Let us get away from the intellectual economics of Oxford BAs and Hampstead PhDs. Let us get back to real basic economics and balance our books.

Mr. Robert Hughes

The hon. Gentleman appears to be making a very powerful case. However, two study groups set up by the SNP could come to no conclusions as hard and fast as those that the hon. Gentleman is reaching.

Mr. Crawford

I am not sure what are the reports to which the hon. Gentleman is alluding—

Mr. Robert Hughesrose

Mr. Crawford

No. I have given way to the hon. Gentleman several times already.

There is no reason why a thrifty Scotland should suffer for the economic excesses of a spendthrift England. My party is opposed to opening the floodgates of price increases. It is my belief that a self-governing Scotland will have an economy able to sustain itself without overheating, without serious balance of payments deficits, without United Kingdom-style inflation, and without high unemployment. I remind the House that we have higher unemployment in certain parts of Scotland than anywhere in England.

The sooner that Scotland is away from the rest of the chronically unbalanced United Kingdom economy, the better—the more stable will be our economy and the more stable will be our price structure, with it.

7.27 p.m.

Mr. Giles Shaw (Pudsey)

The first White Paper is entitled "The Second Year", and no one will disagree that it will be a very long time before we can write "finis" to the attack on inflation. However, the scale of our domestic problem owes much to the Government's mishandling of events during their first full year of office, as my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) stressed. The abandonment of restraint in that first period led to the biggest wage bonanza of all time. "Footloose and fancy free" must be the description of it.

When the Government now call, in the light of their recent and successful initiative with the TUC, for a new response from management in view of what they have achieved in the second phase of wage restraint, let them not forget that restraints on prices, profits and dividends have been imposed by legal sanction for four consecutive years and that to that should be added, in fairness, the previous year of voluntary price control by the top 200 companies to the limit of 5 per cent which the CBI voluntarily imposed.

So it is this historic erosion of industry's financial base combined with the traumatic effect of the high level of inflation, which is now shortly to enter its third consecutive year of being in double figures, which has brought our industrial performance so low.

I believe that one of the most serious consequences of these events has been the real sapping of the will of management to manage its own affairs. If the Chancellor seeks industry's response to the TUC arrangement—and I pay full tribute to their success in that achievement, because it was a genuine one—that response must lie primarily with management, and the rôle of management must be understood clearly. That rôle is to assess and take risks leading to sustained and profitable returns; to take and implement decisions affecting the future of profitable employment: and in view of this responsibility to be adequately rewarded for that contribution.

There is no doubt that the will and the willingness of British management to execute its role has been eroded seriously in recent years by the taxation policies of this Government. It is against that background that the Government's proposals must be judged.

The second year, albeit one vital year late, poses the vital challenge for management because the Government's main objective is the recovery of industrial profitability. Paragraph 32 of the White Paper says: The downward trend in profitability must be reversed. It is high time that we saw a statement like that in a White Paper from this Government.

How do the modifications of the Price Code stand up to examination? I do not share the outright opposition of the President of the CBI to the proposed modification of the Price Code. I recognise that there may be some political mileage to be gained from opposing the Government on this, but I understand the tightrope which the Secretary of State for Prices and Consumer Protection must walk to get the acceptance by the TUC of the 4½ per cent. wage deal. But I beg leave to doubt the success of amendments to the Code as far as an increase in investment and jobs is concerned.

The Chancellor quoted with pride the comments of the German Chancellor, and the applause which reverberated throughout Puerto Rico when he told Ministers of his achievements in wage negotiations. But when I, with other members of a Select Committee, visited Germany recently and discussed such matters as central banking with the Bundesbank, one of their directors commented that the United Kingdom had established a new economic law—namely that the export advantages of a declining currency were being overtaken by the increased costs of imported raw materials and food to the extent where the United Kingdom was importing inflation. The Secretary of State for Prices and Consumer Protection notified us of a slippage in the inflation target because of the importation of high-priced raw materials. This is the difficulty which we are facing.

Certainly with the hardening of commodity prices and the steep rise in world food prices, I doubt whether we can look forward to much relief from the upward price spiral, and at the same time the weakness of our currency must cause great concern. I wonder what Chancellor Schmidt would have thought if the Secretary of State for Prices had told him that it was Government policy to raise the permitted return on capital employed from 2.2 per cent. to 3 per cent. I cannot believe that he would regard that as anything but totally inadequate.

Investment is undoubtedly vital, but it is not the rôle of management to create jobs. Its rôle is the creation and exploitation of products and services which are capable of competing successfully both at home and abroad. Investment is the taking of risks to promote profits on which jobs ultimately. depend. We welcome the importance attached in the White Paper to the essential rôle of profit. But there must be generous room for doubt about whether the changes in the Price Code will go far enough.

I welcome the change in investment allowance from 20 per cent. to 35 per cent. But in many industries—the food industry for one—the real problem faced today is not new capital for investment but finding working capital to maintain people in jobs. In the food industry the import of raw materials spells escalating costs, in view of the declining pound. This has brought most severe constraints on working capital. Some modification should be made to allow companies some help in trying to maintain working capital.

I note the modifications to the code on saving fuel and energy. This is an important initiative and the Minister should consider extending it to other imported raw materials. In this hot weather it might even be a good idea to have an allowance for saving water to encourage efficiency. The reduction of consumption of water might be a means of getting industry to contribute to the saving of that vital commodity.

As far as recategorisation is concerned, I do not believe that any fewer companies are now omitted than in 1973. In fact we are back very nearly to 1973 levels and the Government owe it to industry to try to bring some relief to a number of companies which have been brought within Category 3 of the Prices Code.

I am disappointed that the three-month rule is not being relaxed, although there is recognition that allowances for sudden costs do exist. On a matter of detail, what is the position of metrication under paragraph 62 of the Prices Code, especially where unit prices for fixed weight food products are concerned?

The code remains a very large instrument of Government, and the Minister of State must recognise that there is very little in the code as proposed which means that the load will be less on management. What is in it for management? The cosmetic aspect of these schemes, the Price Code, and the Price Check Scheme, which is about to end, worry me. One can conceal some of the truth some of the time and use various methods to conceal from the consumer some of the effects of inflation for some of the time. But the people—all the people—must be told the truth. Our problem is the generation of wealth, not its taxation and distribution. Our problem is the investment in new technology, not the preservation of obsolete technologies. Our problem is the release of skilled energies by men and management, and to see that when risks are taken, real rewards are given. Our problem is the recognition that a nation in debt is a nation in decay.

Our solution is that if we honestly lead British industry then we have in the private sector productive resources which can sustain our survival as they have done so often in the past.

7.39 p.m.

Mr. John Garrett (Norwich, South)

Any view on the White Paper "The Attack on Inflation. The Second Year" must take account of the extent to which it attempts a solution to two broad categories of problems—the unacceptably high level of unemployment and inflation; and the fundamental and long-established weakness in the British economy and the economic injustices in our society. In tackling the first of these we must establish the basis for a systematic attempt to solve the second.

It seems important to take a view of the White Paper from the standpoint of general industrial strategy. The White Paper concentrates on the short-term problem—that of inflation—and suggests that the next stage will reduce it to around 7 per cent. at the end of next year, at which point we shall be inflating no faster than our major competitors and the unemployment levels will be on the way down. On all the evidence available the target for inflation seems to me to be broadly feasible, but I have severe misgivings about the forecast for unemployment. I believe that the Government have severely underestimated the prospect for imports, principally of manufactured goods. We are all aware in the early stages of recovery that there is a rapid build-up in the import of raw materials and components as stocks are rebuilt, but the unique feature of the British economy is the ever-increasing flood of imports of manufactured goods, which reaches a higher level in each succeeding boom.

One feature of the recession of the past two years has been the extent of factory closures, which have permanently reduced our manufacturing capacity, capacity which will be needed in the coming expansion. One has only to consider the capacity which has been closed down in the television, electronics, car and motor cycle, machine tool and the clothing and footwear industries.

I can take an example from the footwear industry in Norwich. Factory closures have taken place throughout the recession, one following another. The last one was last week when a further 250 jobs were lost. So we have a shrunken footwear industry with over 40 per cent. of the home market taken by imports. I fear that when consumer spending revives and increases the size of the home market, the home industry will be too weak to respond. The industry has shrunk under the impact of imports and the combination of indifference and the nineteenth century laissez-faire attitudes still firmly held by the Department of Trade.

I believe that it was in the essential national interest that import controls should have been placed on footwear while the industry constructed a plan for its survival and growth. Nevertheless, the Government disagreed and the industry declined still further. Worse still, the Department of Trade handles complaints of unfair competition with dilatoriness, allows countries which export shoes to us to impose high tariffs on our shoes, and cannot even bring itself to plan imports to this country from the COMECON countries. The footwear industry is a good example of our industrial decline caused by uncontrolled and unplanned imports, and presided over by the Department of Trade, to which planning is anathema. Thousands of British workers will stay jobless unless the Government take a positive attitude to imports, as every other Government in deep economic trouble seems able to do.

In the longer term the Government have staked everything upon a massive increase in exports and investment. No doubt we are at last in the early stages of an export-led boom, but if this boom is based solely on a grossly undervalued pound it will not last very long. The goods we should be exporting should be those which we sell because of their technical superiority and delivery performance, not their price. As the Director-General of the National Economic Development Office said recently, in certain sectors of engineering we could easily become the world's largest exporters of obsolescent goods. It is pursuing a will-of-the-wisp to place our hopes for continued export improvement on the fact that traders in currency are unable to put a realistic value of sterling.

Making room for investment by reducing public expenditure and private consumption is fine in theory but valid in practice only if the investment takes place in the economy where there is insufficient capacity. It is clearly true that investment in plant and machinery is low and has been for many years in comparison with our main competitors. But this has been as much a demand problem as a supply problem. Even when, 10 years ago, profits in industry were far higher then they are now, British industry grossly under-invested. This was the start of the present and continuing import boom. It would be an outstanding folly if the cuts in public expenditure included funds required by the National Enterprise Board to invest in manufacturing industry, because that is the only vehicle by which the Government can ensure that investment actually takes place where it is needed.

The problems of British industry run far wider than a simple shortage of investment. They include a very low level of management competence—partly a matter of status, partly of training and partly of inferior prospects. They include a neglect of marketing—which is the main function of industrial management, all others being subsidiary. They include massive class hostilities between management and worker. They include inadequate resources devoted to design, and a misdirected national research effort. The Government have taken steps through stock relief, investment allowances and relaxation of the Price Code to make available funds for investment. A world upturn is providing the opportunities for selling the products of that investment.

We are left with an act of faith that the investment will actually take place—though historical precedents are not encouraging. If it does not take place we have only an embryo planning agreement system, and an already fully burdened NEB to fall back on as machinery for monitoring and promoting investment. We shall pay the penalty of having failed in the past two years to construct any national planning system which can be used to relate any industrial objectives to corporate and sectoral plans.

All we have for dealing with the longer term and structural weaknesses of our industry are the NEDO studies of 39 industrial sectors. I have no doubt that these studies will analyse what NEDO has been analysing for the past decade—the bottlenecks in production and the obstacles to growth. I might add that I came into Parliament not to "de-bottleneck" British industry, but to take over the bottle. These studies may be more rigorous and have more urgency than those in the past, but they are not accompanied by any overall plan or strategy for industrial development, and therefore they provide no way of ordering priorities, taking direct action against weaknesses or building up our strengths.

I understand that the NEDO procedure is called "bottom-up" planning, since "top-down" planning is held to be interventionist, dirigiste and therefore offensive to British industrialists. When I practised corporate planning it always seemed to me that the sole use of either approach was wrong and that both had to proceed together. Planning by sector had to be fitted into a top level general strategy which established overall aims and objectives and the general direction of the enterprise. It is in my view not enough to demonstrate to an industry that its performance is inadequate in productivity, manning, exports or import substitution, or design and technology and then to say "But we have arranged for plenty of funds to be available for investment. Now put yourself right."

British working people who are sacrificing their living standards and their standards of community provision in order to make these funds available have the right to expect a more positive and certainly a more Socialist attitude from the Government than that. We must expand the NEDO studies into a national economic planning system with powers of direction of investment if all our incentives to invest fail in practice.

But the construction of such a system will take at least the rest of the decade. In the meantime the prospective growth of exports cannot compensate for the prospective growth of imports, a reduction in unemployment to, say, 750,000, an increase in living standards and the maintenance of today's modest levels of public services. This situation might change once we are a substantial exporter of oil, as we may be when the very favourable prospects for new discoveries in the North Sea and the Western Approaches are exploited. But until that day comes the only way in which we can protect working people from the penury which market forces will exact will be to plan industrial development and plan our imports of manufactured consumer goods. Why should planning so unnerve a Labour Government?

7.47 p.m.

Mr. Michael Neubert (Romford)

This afternoon the Chancellor reminded me very much of Muhammad Ali. The boxer has just come out of hospital after a contest in the martial arts, in which he managed to land only two punches on his opponent's head in 45 minutes. He was asked what deep philosophical thoughts he had when he was sat on heavily by his opponent for a long period. He replied that he was just waiting his time to collect his $6 million. Likewise the Chancellor, battered by his bankers and pummelled by the left wing of the Labour Party, seems to have no answer to inflation except to await the next drawing on his $5 billion standby facility. His policy, if he had one today, seemed largely to consist of monitoring monetary aggregates and accelerating overheated bottlenecks.

I was greatly disappointed by the Chancellor's lack of emphasis on reducing costs in the White Paper. One of the prime purposes of these proposals is to stimulate investment, in the interest of greater numbers of jobs. It is now accepted that improved profits are a necessary precondition of that investment, but improved profits, come both from higher prices—and the proposals in the Price Code will allow slightly more dealistic prices, which will encourage some investors—and from reduced costs, and it is with great misgiving that I noticed so little emphasis directed to that aspect, particularly as it affects overmanning, which term is not used in the White Paper.

Apart from three oblique references to productivity in the White Paper, there has been virtually no reference to one of the main barriers to capital investment. Unless manning levels are reduced, there will be little incentive for companies to invest in new capital equipment.

One of the problems over the years has been that we do not get investment simply by holding out the prospect of improved prices. Companies will be encouraged to invest if they believe that that the installation of labour-saving equipment will realise its full potential in reducing manning levels, and there is little in the White Paper to encourage that belief among companies.

It was only when provoked by the hon. Member for Bristol, North-West (Mr. Thomas), who suggested that invest- ment should be the scapegoat, that the Chancellor discussed this subject at all—and he simply substituted another scapegoat, namely management.

The problem of overmanning is endemic, and must be removed. It is as important a factor as underpricing in poor profits. Overmanning can be found in many parts of industry. The "Think-Thank" review of the car manufacturing industry produced the categoric and uncomfortable conclusion that the British car worker, given the same power at his elbow and similar working conditions, produced only half as much as his Continental counterpart.

Small wonder that imports accounted for 36.9 per cent. of our car market last month. This illustration can be multiplied 10,000 times over throughout British industry. Unless there is a radical change of heart, there will be no improvement on this side of the equation.

I visited a car manufacturing plant last summer and was dismayed to see a man whose job was to stand between two machines cutting and moulding metal panels and direct them from one machine to the other. Such was the din and the isolation from his workmates that this man might just as well have been struck deaf and dumb for eight hours at a stretch. Technical ingenuity could easily automate that man's job, but would unions be prepared to accept the consequent reduction in manpower? If not, there would be little chance of the necessary expenditure being undertaken by the company concerned.

This example indicates what needs to be done, and it is sad that the Government should pay so little attention to this matter in the White Paper.

One can partly understand the Government's attitude. They are concerned with the grave problem of unemployment, but there is a much more serious problem of under-employment—men in jobs which do not exist.

Unlike the hon. Member for Birmingham, Perry Barr (Mr. Rooker), I welcome recent proposals for work sharing and a shorter working week, with the corollary, of which the hon. Member was so sceptical, that there should be reduced wages. Workers should be encouraged to regard leisure as one element of an improved standard of living and not measure any improvement solely in terms of extra cash.

Are the unions content with the morality of some men working many hours' overtime while others are made redundant? Are they satisfied with a system in which the overtime that some men are working could have been shared among their colleagues to avoid some of the closures during the recession, to which the hon. Member for Norwich, South, (Mr. Garrett) has just referred.

After all this time, unions must realise that it cannot be in the interests of workers to allow dehumanising processes to exist. However, they will exist if there is no incentive to remove them. The key is the attitude of the trade unions.

On the question of profitability, it is symptomatic and politically cowardly that the unions have got half as much again as the Government originally offered, while industry is to receive only half as much as it asked for. There can never be a fine balance in such a formula, but that crude equation underlines the inadequacy of the proposals to relax the Price Code to restore industry's profits to a healthy level.

We can see that continual control on prices has only a limited, indeed, minimal impact on the cost of living. Since the Price Commission was established three years ago, prices have risen by 70 per cent. That surely demonstrates the ineffectiveness of price control in the face of inflation caused by other factors. But the small savings achieved by price control could make a significant difference to the prosperity of companies.

The 100 Group of the London and District Society of Chartered Accountants has calculated that if, during two and a half years of price control, businesses had been allowed to earn their previous level of profits, it would have added 1 per cent. a year to the retail price index and that if firms had been allowed to increase profits by 25 per cent., it would have had the effect of adding 2½ per cent. a year on the RPI. Last year, the rate of inflation was 10 times that figure. We can see how high a price we are paying for minimal impact.

The Government should ensure that industry is allowed to make more profits. Artificially low prices are another unseen subsidy to the consumer.

The main problems on which action is needed are the bloated public expenditure programme and the burden of foreign borrowing. One area for retrenchment should be food subsidies, currently totalling £400 million a year. This largely indiscriminate and wasteful expenditure is one element in the increasing doubts which foreign bankers and investors have about our economic judgment.

We know that the benefits are widespread and unselective. It cannot but interest people who follow these issues that the average family receive 68p a week in subsidies, which is just about the same amount as the 60p a week by which the average household increased its expenditure on beer, wine and spirits last year. Similarly, it was reported that £30 million was bet on the Derby—not at Ascot, the subject of so much recent Left-wing apoplexy, but in the bracing, beery atmosphere of Epsom Downs.

I have always suspected that one of the reasons for the campaign for food subsidies was that working husbands do not always pass on to their wives enough, or any, of their wage increases. A recent survey reported that one-quarter of working-class wives received from their husbands nothing extra by way of housekeeping for the year ending January 1976—a period in which there was a £6-a-week pay award. Are the Government sure that they are not underpinning in this way the candyfloss economy which they have so heartily condemned in the past?

Public expenditure must be cut. The Prime Minister has said that he will make a statement on public expenditure before the Summer Recess, and that will he none too soon. The target dates for reducing the rate of inflation are already beginning to slide rapidly. It may well be that before long a member of the TUC will take the Secretary of State for Prices and Consumer Protection to one side to say "Shirley, your slippage is showing". Then there will be real trouble.

That is the situation that the Government face, and I look forward to the Prime Minister's statement. I suggest that it is made a fortnight today, namely, on 20th July. That will be 10 years to the day when his right hon. Friend the Member for Huyton (Sir H. Wilson) came down with a bump to reality, on his return from Moscow in 1966. It will not be a year too soon.

8.1 p.m.

Mr. Ron Thomas (Bristol, North-West)

I shall make one or two comments on some of the points made by the Chancellor of the Exchequer and the right hon. and learned Member for Surrey, East (Sir G. Howe) before I comment on the White Paper.

At the beginning of the debate there was a good deal of discussion about the cause of inflation. One of the supposedly simple axioms in economics into which many people slip is that wage claims are responsible for inflation, and that inflation, with rising prices, is responsible for unemployment. That was one of the main themes running through the two Front-Bench speeches. But many of us still do not accept that wage claims should be put at the centre of the stage. We do not accept that they are mainly responsible for inflation.

To take the view that wage claims are at the centre of inflation is to disregard the lack of capital investment in British industry over decades, to disregard the considerable injection of price increases as a result of the devaluation of the pound, to disregard the penal rates of interest that find their way into the cost of business, or rents or mortgages, and to disregard the fact that with a low level of demand and a low level of production, many firms—if not practically every firm; certainly this applies to manufacturing industry—are working below their optimum level of capacity. Unit costs have risen considerably because of the low level of demand and low level of production.

I have outlined some of the main reasons for inflation. To isolate trade union bargaining as the main factor would not give us any answer in terms of inflation and unemployment. It would not tell us why other capitalist countries have experienced a high level of unemployment.

When the right hon. and learned Member for Surrey, East was talking about unemployment, and seemingly putting the blame entirely on trade union bargaining, many of us tried to remind him of the 24 million or 25 million workers who are unemployed in capitalist States. Western Germany is an example. It has a high level of unemployment even after getting rid of all its visiting workers from Yugoslavia and goodness knows how many other countries. But it is a country that has followed the market policies advanced by the Opposition. I have never heard an Opposition Member claim that the German trade unions are responsible for inflation and, ipso facto, responsible for unemployment. It is necessary to look further to explain the high level of unemployment in capitalist States. To fail to do so would be completely to misunderstand the whole exercise of wage bargaining.

When trade union officers or shop stewards put a wage claim to an employer they have to show that prices have increased over the requisite period. I have never had experience of an employer who has said "There is £5 for what has happened over the past 12 months, and here is another couple of pounds because I believe that prices will rise over the next 12 months". Trade union bargainers chase price increases. They do not create them in the way that has been suggested.

The second main area to which I turn—this was touched on by my hon. Friend the Member for Norwich, South (Mr. Garrett)—is that we are still not convinced by any means that the so-called resurgence in world trade, that still seems to me a long time coming, will be the salvation of our economy and will reduce unemployment to a level that many of my hon. Friends will find acceptable. Unemployment statistics of the past 20 years tell us that as we have emerged from each slump we have left behind a higher hard-core level of unemployment. The unacceptable level of unemployment that reached its peak a few years ago has now become the norm, the target for which we should work. Indeed, there are some who say that if we can reduce unemployment to only 800,000 we shall achieve some kind of economic miracle.

I remember the Labour Party saying immediately after the war that it would find it unacceptable if anyone were unemployed and looking for a job. We have moved away from that approach completely. When we listen to Chancellors now they do not mention full employment. They talk about a stable level of employment or unemployment that will not be allowed to rise above a certain level.

There are 1¼ million unemployed and hundreds of thousands on short-time working. Over the next 12 months or two years, another 600,000 bodies will come on to the labour force looking for jobs. We are asked to accept that the Government's present policies can deal with that situation, but I do not believe that they can. I doubt very much whether the upsurge in world trade will be able to deal with it.

British industry, because of the lack of capital investment, will not be able to take advantage of the great upsurge in world trade that is supposed to be coming. I believe that when it comes it will be the competitive firms in other countries that will be able to take advantage of it and that we shall have a massive inflow of imports. I believe that we shall be back again on the old stop-go treadmill.

The import statistics for last year—I deduct from the import bill the cost of oil because it distorts the figures—show that almost half of the £22,000 million import bill consisted of finished and semi-finished manufactured goods. They represented 30 per cent. of the import bill 10 years ago whereas they now represent almost 50 per cent. The Chancellor gave us some statistics about the resurgence in world trade that is supposed to be coming. There is no indication of it acting to our benefit in terms of the Department of Trade's Press Notice for June. The volume of exports increased by 5 per cent. but the volume of imports, although it increased slightly less in value terms, was far higher than exports.

The Department of Trade's Press Notice of 14th June states: Imports of finished manufactures rose by 2½ per cent. in terms of volume. That is at a time when sterling is devaluing at God knows how much. The notice continues: but higher prices led to a value increase of 12 per cent. Within this group imports of machinery were 12 per cent. higher by value, mainly the result of higher prices, and there was a rise of 31 per cent. in the value of road motor vehicles and other transport equipment, with higher volume contributing about two-thirds of the increase. Even with the devaluation of sterling and the high costs that that will bring in terms of increased prices to millions of working people in Britain, this is still not sufficient. Still the imports are being sucked in. As we move towards any kind of growth, that will certainly be accentuated.

We are in a situation in which the present pay agreement will cut back substantially working peoples' consumption. Let us be clear about that. Taking away from the present increase the taxation and other payments which must be made, and setting that against price increases which have occurred or are in the pipeline, it will be seen that there will be a substantial cut-back in the standard of living of working people in terms of consumption. That, therefore, will have a considerable impact upon levels of unemployment. It will not be offset by the so-called resurgence in world trade.

I want to make a few brief points about the Price Code changes. I comment first on capital investment and investment relief. From a document that my right hon. Friend was kind enough to let me have, I understand that between September 1974 and May 1976 almost £600 million was given in capital investment and investment relief at the rate of 20 per cent. This rate is now to rise to 35 per cent. In my simple arithmetic terms, I assume that this will mean over £1,000 million, based on the 35 per cent.

I understand—my right hon. Friend will correct me if I am wrong—that the CBI was saying that for any new capital investment that was made, it should be allowed to increase prices by 100 per cent. of the cost to meet it. Presumably the CBI, like many, has now decided that the Stock Exchange is completely redundant, as are all the other financial institutions that exist, we are told, as part of the capital-raising machinery.

I am just not convinced that this money will be invested. I repeat what I said to my right hon. Friend the other day. Those who would have invested in any case—Vickers, ICI and all such companies—will still collect this 35 per cent. in addition. I am not satisfied that we cart prevent a considerable amount of this money finding its way overseas in overseas investment.

At the same time, as I understand the Price Code, companies will be allowed to move from a basis of historic cost to actual cost for 30 per cent. I do not know whether it is historic or actual cost, but the assets of ICI are over £1,000 million, and the assets of Vickers are about £90 million. If in one year they are allowed this 30 per cent. increase in depreciation alongside the 35 per cent. they are to get as investment allowances, and if with that they can also disregard 70 per cent. of stock appreciation, at the same time as the economic growth for which we hope and which may happen—and on the assumption that it does, which is what the Price Code is based on—half of any fall in unit costs due to the increase in production will go to the firms and only a half will be reflected in some way in a decrease in prices.

We all know that if working just below capacity, many capital intensive firms make a loss, but if they work 5 per cent. to 10 per cent. above capacity, they make massive profits. I find that unacceptable.

I notice that the nationalised industries are not eligible for this investment relief. Will my right hon. Friend explain why that is so?

This whole package will mean a considerable shift. I should like my right hon. Friend to put a global figure on it. I think that it is far higher than 1 per cent. of the Retail Prices Index. It will mean a considerable shift for working people towards the corporate sector. It will mean a cut in the standard of living of working people. This is the shift that has been demanded in the White Paper on the cuts in public expenditure. That is what that was all about.

We reject the belief that there is some undefined mysterious mechanism within the capitalist system which means that if one cuts public expenditure the resources so released will be directed into capital investment and exports. We rejected the analysis in the White Paper on that basis. We shall reject it again if there are further cuts in public expenditure on that basis.

As I have said, this package, in global terms, represents a considerble shift from the consumers, working people, in terms of increased prices, to the corporate sector. I am not convinced that it will find its way into exports and capital investment. Rather, I believe that it will find its way into capital investment overseas and other speculative investment with which we are all familiar.

8.16 p.m.

Mr. Alan Clark (Plymouth, Sutton)

I listened with great interest to the speech of the hon. Member for Bristol, North-West (Mr. Thomas). I am very glad to follow the theme with which he started his address, because the White Paper that we are debating this evening and which was the basis on which the Chancellor made his speech is, when stripped of its verbiage and all the ineffective hypocrisy that pervades the language, that curious mixture of the nanny and the witch doctor, which muddles all documents that come from the joint hand of the Treasury and the academic economists who seem to combine to produce the texts.

The message and theme of the document that we are debating is how to hold wages down, no less. I would hope that my hon. Friends, and particularly my right hon. Friends, would see that the time has now come when we might consider dissociating ourselves from this theme, because we are, after all, the party that protects, in particular, these freedoms and properties from the encroachment of the State. Of all a man's properties, his earning power must rank before everything else. It ranks before his house, his savings and his other material possessions. It is incomprehensible to me that the Conservative Party should ever in any way be associated with what is, however disguised, an attack on a man's earning power.

Labour Members should remember that they, too, are in the property business. A man's earning power is his first property. I know that some of them believe, or profess to believe, that the prime source of wealth in industry and commerce is the labour that goes into it. However, where is the wealth that comes out to be spent? Is it to be spent on COMECON bonds at 2½ per cent., or is it to go back into goods and services that generate further prosperity? There is, therefore, upon them also an obligation to see that a man's earning power remains inviolate.

Second only to a man's earning power is his right to be distinguished, on the basis of his skill, experience and status and the danger of the job he is doing, from those who do less skilful, less important or less dangerous jobs. Here, too, at the back of the document, there are some tables that show how these differentials or distinctions are also to be attacked. I suppose that it is incomprehensible to the Government Front Bench that there may be a reason why one man is paid less than another. All the energies of the Government are directed to compressing the gap between them, thus degrading and demoralising—it would be a miracle if it did not happen—those who earn more on account of their skills than those who, for various reasons, are at the lower end of the scale.

The major element in our problem is the question of incentive. Incentive attaches primarily to a man's earning power. The trade unions, above all else, are responsible for protecting this, but they have abdicated that responsibility. They have sold their own members down the river. For what price? It is for a spurious power; for the right to participate in governmental decisions; for the right to extend their activities outside what is their proper fief.

It was for something about which many of us, in the February 1974 election, at the time of the first intrusion of the concept of the social contract, warned. When the unions were seduced into territory quite outside their proper province, when they were invited to make judgments and assess the merits of the Government's policies, they were abdicating their first duty, which was to look after the interests and, above all else, the earnings, of their own members.

Here they now are, only two years later, going along with the Government and selling their own members down the river. Of course there are pious and widely accepted reasons which apparently justify their doing this. We are told that inflation is caused by high wages. This has become a tenet of almost universal acceptance. It is easy to see why employers subscribe to this view. It is very convenient for them. It is easy to see why Socialist politicians subscribe to it. They do not want high earnings. The more a man earns, the more independent he is and it is not in the interests of Socialism that earnings should be high.

Socialists, too, subscribe to the myth that wages and earnings contribute to inflation and that they must be suppressed. But how or why the Conservative Party should go along with this theory I find less easy to understand. We are told—there has been much publicity about it—that my right hon. Friend the Member for Sidcup (Mr. Heath) will say something on this subject tomorrow. We shall listen to that speech with the greatest interest and see whether, like his many other virtues, an intelligent flexibility is now advancing to a prominent position.

Pending that, I can only warn my hon. Friends that they are in very dangerous territory in subscribing to the view that it is wages that cause inflation. It is for this reason that I completely endorse the opening remarks so eloquently made by my right hon. Friend the Member for Surrey, East (Sir G. Howe). Part of the error may arise because, although it is true that an inflationary condition may be temporarily abated, by clamping down on wages, it is no more accurate to say that it is being treated than it would be accurate to say that a bacterial fever is being cured by putting the patient in an iced bath. One could reduce his temperature and even briefly get a normal reading on a clinical thermometer, but one would not have cured the disease.

The professions in this document, that it is the desire of the Government to attack inflation, are quite misleading. I believe them to be fraudulent, because Governments, particularly Socialist Governments, like inflation. They need inflation if they are to carry out their purposes. If inflation is bad, deflation must be good. Do they want deflation? They would not recognise deflation if they saw it. If deflation came over the hill, and they could see what it was, they would run a mile. Do hon. Members know when we last had deflation? Do they even know what net deflation is? Members may care to recall what it is. It means that on 1st January of one year the same wage will buy more in goods and services than it did on 1st January the previous year. The last time this happened was in 1936.

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

I merely observe, it sure was.

Mr. Clark

Perhaps the right hon. Lady is thinking of the unemployment figures in 1936. The unemployment figure in that year was 1.6 million. After deducting all those twilight areas that we have at the moment, where unemployment is concealed by job creation and subsidies, and curious schemes to retain people on the books for doing no work at all, I do not see that the unemployment is concealed by job creation a net deflation, are any greater—they could even be slightly smaller—than the unemployment figure that exists today.

Mr. Hooley

The hon. Gentleman cannot have made a serious calculation, because the activity rate in those days was vastly lower, since the vast majority of women were at home and not working as they are now.

Mr. Clark

I was not wishing to comment on women staying at home. It is perfectly possible for these figures to be juggled and jiggled to prove various things, but we must accept that they are net figures issued in the HMSO tables for the relevant years.

However, if deflation is what Governments want they can do it overnight. I refer to the nanny-like theme of some of the texts contained in "The Attack on Inflation". There is one very good sentence: It is just no good paying ourselves in confetti". That could easily be dealt with. We could call in all the paper money and put it through the shredder and introduce, as our prime unit of currency and exchange, a quarter ounce disc of solid gold. We might even feel disposed to put an effigy of the Head of the State on one side. It might even be called a sovereign. If that were our currency we would have got a reduction in inflation.

However, the confession that the Government are serious in tackling inflation is compeltely fraudulent. Socialist Governments need inflation because it provides for them a never-never system whereby they can purchase the commodity that they need most, namely, votes. It gives them an enormous cash flow, which they can direct—first by the taxation that they raise and recycle, and, secondly, by means of the money that they can borrow or print and thereby direct towards whichever section of the community they feel most needs placating.

This purchasing of votes by redirection of resources is turning this country into some kind of rotten borough. It makes the holding down of wages much more effective and is a deliberate repression of the natural level of prosperity and earnings of the majority of the population.

For that reason, I regard it as the duty of the House of Commons to reject the claims, assertions and the spurious and bogus contentions in this White Paper. I believe that, in so doing, we shall be acting in the best interests of the majority of our people.

8.30 p.m.

Mr. Frank Hooley (Sheffield, Heeley)

Ten years ago this House first embarked on a major programme involving a prices and incomes policy. At that time we spoke about a statutory policy, and since then the argument has fluctuated to and fro on whether the policy should be statutory, voluntary, or a mixture of the two. Again, we have returned to the necessity for some kind of governmental intervention and direction in this area. It is interesting in this debate to see that even the Opposition have more or less paid lip-service in their amendment to the need for a prices and incomes policy of some kind.

I have always supported this concept and have been puzzled by my colleagues who have opposed it, because we share the view that, if we are to have a sensible direction of our national economy, economic planning is essential.

The current policy clearly has had some success in bringing down the rate of inflation, it has made some contribution towards easing our balance of payments situation, and to some extent it has contributed to industrial peace. A major cause of dissension in industrial relations has been the feeling that one group has been achieving a better deal than another group. Certainly the concept of a single £6 rate went a long way towards reducing though not eliminating, the feeling among varying groups of workers that one section of the community was being better treated than another. Therefore, I think it can be said that on those three grounds—a reduced rate of inflation, assistance to the balance of payments, and improved industrial peace—the Government's policy so far has made a valuable contribution.

However, the most unacceptable part of the policy has been the fact that it has made no contribution towards reducing unemployment This is the key political and economic issue to which the Government must bend their minds in the next few months I shall not support a policy which has behind it the cheerful attitude "Perhaps by 1979 unemployment will be brought down to about 3 per cent.". A figure of 800,000 unemployed is not acceptable to me. I want to see the rate of unemployment rapidly reduced. I see no economic sense in having 1,250,000 men and women, boys and girls, doing nothing and making no active contribution to the well-being of our economy. Therefore, whatever argument the Government may produce in this debate and in the next few months, their central theme must be the fact that they are grappling with the problem of unemployment and are steadily reducing it. If that does not happen, their political support in the House and in the trade union movement will wither.

One curious aspect of the effect of the policy of the past few months is that the trade union movement has responded outstandingly and with great statesmanship to the overtures of the Government. The trade union movement has entered into the dialogue and has fulfilled the terms of the £6 policy, and I believe that it will also do so in terms of the 4½ per cent. policy.

In the meantime, what have private manufacturing industry and the CBI been doing? It is generally accepted that British industry badly needs to invest if we are to modernise our industrial base and to sustain both public expenditure and private consumption. The money has been there if needed. Every account I read in the financial Press informs me that there are massive funds available from the banks and institutions But that investment has not been made. British manufacturing private industry has not been investing over the past year, nor is it doing so at the present time on the scale required.

British industry seems to take the view that it must be bribed, persuaded, cajoled or bullied into doing what its major industrial competitors elsewhere do as a matter of course. Industrialists always argue that there are no profits, or that the time it not right, or that we are at the bottom or the top of a recession. The argument is always trotted out by private industrialists that now is never the right time to invest. However, in every major industrial country in the world—the United States, Japan, France, Germany, Sweden—it is taken for granted that a high level of investment is essential to any industrial nation that wishes to export, trade and develop in world markets.

We must demand from the CBI a more forthcoming attitude on the question of investment. It must explain its attitude—and not make excuses. Investment is an essential and normal part of modern industrial behaviour. It is not an optional extra that we may put on or take off as the current circumstances demand.

We now have a great pool of unused manpower. Industry cannot complain, as it complained in the past, that it cannot compete for manpower with the public sector, or that it must pay extortionate prices to recruit men or women to do whatever jobs are needed, or that it simply cannot persuade people to do certain jobs. The manpower is there. It is high time that industry set about recruiting and using it.

Reference was made to the better performance of the German economy in recent years. One of the reasons for that is that the German economy sucked in up to 3 million immigrant workers from all parts of Europe to man its manufacturing industries. In many cases—this is difficult to say—they did jobs which the German workers were not keen on doing. The manpower was there. The Germans were faced with the necessity of drawing in 3 million workers to keep their economy expanding.

British industry now has the opportunity of using idle manpower, which amounts to 1¼ million men, women, boys and girls. It is of the greatest importance that industry should recruit those people and put them to active work.

Despite comments to the contrary, there is a big world demand for British products. I have travelled abroad only a little in comparison with some other Members of Parliament. When I have been abroad I have not received complaints about British goods, or about their quality or design. The complaint was always that the goods were not available.

There is now a general upturn and expansion of world trade, especially in some of the newly-rich oil countries. Some countries are enjoying better standards of living as a result of rising commodity prices on the world markets. They are prepared to buy British goods. The only question is, why are these goods not available. British manufacturing industry must address itself to this problem and deliberately set out, by expansion, investment and increasing its manpower to satisfy world demand which undoubtedly exists.

I am given to understand that the Government may argue that unless we cut back on some aspects of public expenditure, manufacturing industry will not be able to expand in the way I have described, which I consider to be desirable. But I cannot possibly accept that argument when there are 1¼ million men, women, boys and girls unemployed.

It is possible to argue—as I think my hon. Friend the Member for Penistone (Mr. Mendelson) argued earlier—that there may be a high level of services and social effort which our economy could not sustain, and that there may be an optimum level. But it is clear that in terms of real resources we have nowhere near approached that level at present. With vast numbers of men and women unemployed it is absurd to cut down on the public sector whose main raw material is manpower so as to make room for manufacturing industry. Until manufacturing industry uses up all the unused wealth of manpower, there is no case for cutting back public expenditure, either on the social services or on electricity, gas and so on.

As I have said, the money, the manpower and the markets are there. The difficult question is, what do we do if private industry still refuses, despite the vast bribes of taxation and so on offered by the Government, to get on with the job and make the same kind of statesmanlike response to the country's needs as the TUC has made? In that situation, the Government must use the instruments, imperfect though they are, which we already possess.

The resources of the National Enterprise Board will have to be greatly expanded. We shall have to take greater control over the institutions, the money they possess and the directions in which they lend it. We may have to take more direct control of bank lending.

Mr. Budgen

Does the hon. Gentleman believe that all pension funds should be taken over, too? If he does, would he tell the House what sort of response he has had to that idea from many of his constituents?

Mr. Hooley

There is clearly a strong case for seeing that pension funds are invested in the real wealth of this country, which is manufacturing industry, rather than in property and such things which have no relevance to expanding basic wealth. If it were necessary to channel a proportion of pension funds into manufacturing industry, that would in the long term benefit precisely those workers whose funds were so channelled.

The other instrument in the Government's hands is the use of the public corporations to develop an export capacity. In the past we have probably to some extent neglected the possibility that railway workshops and the expertise of the CEGB and the Gas Corporation, for example, could be deployed to much greater effect in world markets—both directly in producing things which other countries wish to buy and indirectly in consultancy services and so on. The public corporations have not been used to help our export potential nearly as much as they could be.

I have always supported the concept of a prices and incomes policy. The current policy has contributed in important respects to the recovery of our economy. But if it makes no contribution to solving the unemployment problem, politically it will cease to be effective.

8.44 p.m.

Mr. John Wakeham (Maldon)

I suppose that it is inevitable in a debate such as this that there should be a lot of common ground on objectives and that where we differ is about solutions. I would not quarrel with the objective of adopting policies which will reduce, if not eliminate, inflation. I would certainly support policies to encourage more investment, particularly in manufacturing industry but also in commerce and the service industries.

The principal advantage of having any Price Code at all—I am not sure whether there is an advantage—must be that it persuades the TUC to agree to support a policy of wage restraint. Certainly by itself the Price Code has very little effect on inflation. If anything, probably it can be argued that it is inflationary, because the holding down of prices artificially, either in the public or the private sector, produces a hidden subsidy to the consumer and switches resources away from the corporate sector into consumption, thereby, it seems to me, increasing inflation.

The Secretary of State recently said—as she is perfectly entitled to do—that if she were devising a price code from scratch, she would, like the Irishman, not start from where she is now. That was a perfectly fair and reasonable remark to make. I do not think one can necessarily hold her responsible for all the shortcomings in the Price Code.

I declare an interest here, in the sense that my company has to try to work the Price Code from a practical point of view. But, as industry and the Price Commission have gained experience of the code, some of the practical difficulties have lessened. Indeed, I would prefer to accept some of the disadvantages of the present Price Code rather than having to go through the whole business of learning the system again and trying to work a new one.

Nevertheless, it is an extremely expensive burden for industry to bear, and I notice that the Department is not able to estimate what it costs industry or the Price Commission to administer the service. But we are entitled to say to the right hon. Lady, when she makes changes in the Price Code, that while we cannot necessarily hold her responsible for all the imperfections of the past, we can look at some of the changes she is making in order to see whether they are moves in the right direction.

I believe that paragraph 45 is quite unacceptable. In this paragraph the Secretary of State has attempted to adjust the categories to take into account inflation since the previous figures were set in, I believe, April 1973. I make my comments in this respect in line with the right hon. Lady's comments recently that she felt that the Price Commission and industry were working the system extremely well. I was very surprised to find that, in Category 2 and Category 3, the adjustments she makes, with the exception of manufacturing industry, are not sufficient to take into account the increase in the Retail Prices Index.

It is a very fair complaint from industry that, in view of the practical problems with which both sides of industry have had to deal—and the Price Commission in working the Price Code, whether we agree with it or not—we should be moving to a point where we have higher figures rather than lower. There should have been some recognition of this for a change in the figures.

Secondly, I think that the investment provisions are still inadequate, but they are much better than they were under the previous arrangements.

There is a great deal of evidence—here I comment on something to which the hon. Member for Plymouth, Sutton (Mr. Clark) referred—that in each recovery cycle, not just in the United Kingdom but perhaps more so here than anywhere else, investment recovery has been slower, and more artificial stimuli appear to be required for private enterprise.

In this country we have had a considerable history of investment allowances, grants and depreciation allowances, interspersed with exhortations from politicians from all parties, trying to persuade private enterprise to invest more capital in manufacturing and other plant. Still our performance is poor, and the fundamental reason for that poor investment performance is the low profitability of British industry. The Secretary of State talks about the relaxations in the Price Code increasing the return of capital from about 2 per cent. to about 3 per cent. That is not exactly a wild bonanza.

Other factors have played a part in industry's failure to invest. With high interest rates, companies have been reluctant to commit themselves to long-term borrowing at fixed rates of interest. Difficulties are caused when a company commits itself to a substantial long-term funding operation at high interest rates and those interest rates subsequently fall. For many companies that has been a factor over several years. That has meant that they have an inadequate capital base for their investment, and that has produced a substantial weakening in their financial strength, because their ratio of short-term bank finance to fixed capital has been steadily increasing. I make no party point here. The evidence is that it has been steadily increasing from about 30 per cent. in 1960 to about 70 per cent. in 1975.

For people who run businesses, short-term loans have one advantage in a world of many disadvantages. The one advantage is that they are indexed to the rise and fall of interest rates in the market. The factor of high rates of interest has been of considerable concern to companies.

I come to the nub of my remarks. It is doubtful whether we shall achieve a return to adequate levels of investment so long as we have inflation and uncertainty about future interest levels. For as long as we find it necessary to adopt Price Code arrangements we shall have inflation. If those arrangements work effectively they hold down prices for consumers and that, paradoxically, causes inflation.

I accept that there is a psychological advantage in the Price Code if it helps wage control, but I urge the Government not to underestimate the psychological disadvantage to those who make investment decisions. By their existence the Price Code arrangements have a deterrent effect on those who make investment decisions, and the Government must do more to recognise that.

I should like the Price Code arrangements to contain no restraint on investment. Unlike tax relief, that could be done without additional cost. It would appeal to the TUC, because artificial restraints on investment cannot be to the benefit either of working people or of companies. I believe that it is possible to sell that method of increasing investment in the interests of all.

8.55 p.m.

Mr. Ted Fletcher (Darlington)

This has been a wide-ranging debate on the incomes policies that are being followed by the Government. A tribute has been paid to the part played by the trade union movement in securing agreement with the Government on a pay policy limiting pay to £6 a week at present and to 4½ per cent. in the future. But because the agreement has been reached, the Government must not assume that the present policies have the backing of the TUC. The philosophy of the trade union movement has been set out in its 1976 economic document, which suggests a number of roads along which the Government must travel.

Although the TUC is prepared to reach agreement on a wages policy, in view of the increasing inflation, it assumes that the Government intend to carry out their part of the social contract by following some of the policies in that document. For example, the TUC wants to see control of the export of capital and selective import controls—in particular, in the textile and footwear industries. It wants the Government to get on with the job of introducing a wealth tax, but the Government seem to be dragging their feet on that issue.

Those measures must form the basis of Government policy if the TUC is to continue its co-operation. The TUC wants controlled reflation rather than cut-backs in public expenditure. Most important, it wants steps to be taken by the Government to reduce the rising tide of unemployment. It will look with a jaundiced eye on the relaxing of price controls, which will add 1 per cent. or 2 per cent. to the cost of living at a time when wages are tied down. In particular, many trade unions are campaigning against the projected cuts in public expenditure.

We have been told that another announcement about further cuts in public expenditure may be made shortly, possibly during the recess, if past Government practice is followed. The Government have put forward two arguments to back their case for public expenditure cuts. The first is that we must reduce our borrowing requirement and the second is that wealth must be diverted to productive industry.

I say to the Government that they cannot lower their borrowing requirement if they want to sustain a high level of employment, because cuts in public expenditure will mean a loss of jobs in the Civil Service, local government and nationalised undertakings. Our borrowing requirement is the same when people are unemployed as it is when they are employed.

Earlier this year I asked the Chancellor of the Exchequer if he will itemise the cost to the state that would arise if a married man with two dependent children earning £3,000 per year and having worked for 20 years became unemployed, under the following headings: (1) loss of income tax, (2) loss of national insurance contribution, (3) cost of flat rate benefit, (4) cost of earnings-related benefit, (5) cost of supplementary benefit and (6) cost of redundancy pay."—[Official Report, 23rd March 1976; Vol. 908, c. 131.] The answer was that the cost to the State would be £3,187 for that man, earning £3,000 a year. It would cost the State more to keep that man unemployed, at least for the first 12 months, until his wage-related benefit and redundancy pay had been exhausted, than to see him employed as a local government officer or civil servant.

How can the Government lessen their borrowing requirement if they borrow as much to keep people out of work? How do they divert capital to productive industry when they pay more to keep a man idle than they do when he is in full employment? Those are substantial arguments that will be deployed, particularly on the Government side of the Chamber, when my right hon. Friends' projected cuts in public expenditure take place.

I am not against cuts in public expenditure. We could reconsider defence expenditure, and I am sure that there are certain areas, such as our Diplomatic Service, in which cuts could be made. But if the cuts are, in the last analysis, to be made at the expense of jobs in our public enterprises, local government and the Civil Service, we save nothing by keeping hundreds of thousands of people unemployed when we could be paying them to engage in public activity.

The whole lesson of slumps throughout the world—and I speak with some knowledge of the slump in the 1930s—is that nations have bought their way out of them by reflating the economy. It was done in the United States in the 1930s with such projects as the Tennessee Valley development. Hundreds of millions of dollars were poured into public enterprise, and that ended the slump. In this country the 1930s slump was also ended by public expenditure on the production of armaments, and so on, because of the war which many of us could see was inevitable in 1939. Money could not be found to finance industry in the early 1930s, but it could be found when armaments were necessary to defend this country.

Japan and West Germany are embarking on vast programmes of public expansion. They are seeking to reflate out of a crisis that is endemic in the capitalist system of society in which we live. It is wrong for us to talk about cutting back when it costs us more to cut back public expenditure than to keep people in productive employment.

Those are some of the arguments that will be rehearsed time and again when we battle with our Government—the Government that we put in power—to see that we sustain as far as possible a system of full employment that guarantees a man a job. We were sent here to sustain employment, to increase the standard of living. That is what some of us will be battling for in the months ahead.

9.3 p.m.

Mr. David Madel (Bedfordshire, South)

I do not think that any hon. Member who has spoken in the debate has underestimated the difficulties that the present Government or any Government would have in reaching an agreement with the TUC on pay policy. But the Government are suffering from a double difficulty in their negotiations—falling living standards and rising unemployment.

I do not think that the Government realise what deep trouble they are getting into over the whole question of increasing unemployment. The Chancellor of the Exchequer tried to give the impression this afternoon that he had been incredibly clever in reaching his agreement. I think that he has been incredibly lucky. Whether the pay policy survives until July 1977 is very much a matter of conjecture.

There are many dangers in a simple, flat-rate pay policy. There is the problem of the intricate structure of a work force and the time it has taken in industry to negotiate differentials and the relationship of one part of the work force to another. There is also the problem of the union designed for people in a career industry, where promotion and regular pay increases are fully accepted, and there is all the work that has been done in many industries on a job-evaluated pay structure. All this is put into cold storage when we have a mere flat-rate pay policy.

There is a further problem which the Government cannot escape. Three or four years ago a number of parity agreements were negotiated and this year the unions were expecting those to be completed. They have been told, of course, that they can have either the £6 or a parity agreement but not both. This is another strain of which the Government do not seem to be fully aware. Two years of flat-rate policy, which is what we are being asked to accept, produces real tensions and difficulties.

Nor does this policy operate in a vacuum. Halfway through his speech the Chancellor made a very significant remark. He said that increases in world commodity prices were sharper to date than had been expected. If this goes on that is a further enormous strain which the Government and the unions will have to take on this pay policy.

When the party on this side were in Government we saw what happened when commodity and oil prices went through the roof in 1973. I felt that when the Chancellor of the Exchequer was speaking he was saying that everything in the garden was lovely. I suggest that it is not and that there are very significant dangers ahead.

There is the further problem that an increasing number of people feel that, given the pay policy, it is not financially worth while to accept a more arduous job. If people do not do so, if they will not take a more responsible job, that increases the difficulties of a particular firm.

There is one point of detail which I hope the Government can answer in the next two days. They have embarked on a temporary employment subsidy. Many firms have applied for it. I should like to know whether the Government are satisfied that there is a sufficient number of inspectors to process applications from firms for the temporary employment subsidy. I have some indications that while applications have gone in, it takes a very long time for the subsidy to be received from the Government. This can put some firms in an extremely precarious situation.

Much of our debate has dealt with the problems of training difficulties and bottlenecks. Last week the Government produced their consultative document "Training for Skills". On page 7 of that document the Government give an estimate of where they believe the skill shortages are likely to occur and refer to mechanical engineering, instrument engineering, electrical engineering and construction. I would ask the Government whether they ought not to think very carefully about the number of teachers who will be unable to get a job in the coming academic year. The Government have not yet decided whether those people should do their probationary year of teaching. Ought we not to know how many teachers are qualified in science and mathematics? Ought we not to ask, if we want to give children a sound scientific education, as we ought to do, whether they will be better prepared to train for these skills if we are likely to be short? In other words, we need all the science teachers we can get.

The Government have said that they will welcome comments on this document and that they want these to be received by 29th October next. Teacher unemployment and the question of teachers who are trained in mathematics and science and are unemployed will have to have urgent attention. In this document, the Government also refer to geographical mismatch and mobility caused partly by housing difficulties. This is something to which the Government must give urgent attention. The co-operation between housing departments of councils and those who wish to transfer their jobs and homes, and the information exchanged, is nothing like good enough. When we consider the use to which we put computers in this country, for example in dealing with centralised vehicle driving licences, we feel that there is an urgent need for something to be done on this whole question of matching one area to another. The Government hint at this on page 7 of the document.

The time has come to move quickly ahead to ensure that local authorities act much more in co-operation with each other on housing exchanges so that people with a particular skill can easily change their job by moving from one part of the country to another. Page 8 of the document refers to the fact that in periods of recession employers are obliged to cut back on the number of people taken on for training. This is something all Governments have discovered since the war.

However, I suggest to the Government that when they hint in this document about the costs of collective funding, clearly the lion's share of the cost will have to be met by the Government. With the recession and the difficulties which so many firms are in, for the Government to think and to hint about firms paying large contributions towards training is quite unreasonable. In view of the present economic situation, contributions on the scale which appear to be envisaged by the Government cannot easily be undertaken by firms.

Then the Government refer to sponsored training schemes. These schemes are designed normally for young people under the age of 19 who cannot get on sponsored training schemes where employers sponsor people for courses in skill centres. I hope that the Government will look again at the age limit to see whether they cannot lower it.

The Government ought also to look at day release schemes to see whether there is not a need for the kind of package day release scheme which in my view will be essential if we are to have more people trained for skills in industry. A day release package scheme is essential for the good functioning of the economy.

Those are just a few thoughts on training. Unless we get it right, the bottlenecks about which we have heard will never be overcome.

I conclude with a few remarks on the future of the incomes policy. We may get through the next year, but there may be one or two dents in the incomes policy. If there are, I hope that we shall not have hysteria in the Press suggesting that a dent has become a big hole in the policy and that the whole policy is about to come crashing down in ruins. I was in favour of a dent being made for the miners in 1974, as were other of my hon. Friends. But we have to understand what is likely to happen when we get out of stage 2. Do we have a relativities commission? Can we staff it properly? Can it look properly into differentials and skills? How quickly can it report? How quickly can it act?

In my view, any chance of stage 3 succeeding and taking into account differentials is doomed unless there is some measure of economic growth. Underlying all this is that this Government have struck an iceberg in terms of youth unemployment. Unless we do better in training people for skills and getting people more easily into industry from school, a real social problem is upon us which we have not yet faced.

9.12 p.m.

Mr. David Knox (Leek)

We have had a very interesting debate, and there has been a much wider measure of agreement between the two sides of the House than is normal on occasions like this. I welcome this, especially as far as it concerns my own party, at present temporarily in opposition but showing a political maturity which is unusual in Oppositions. This attitude was represented clearly in the outstanding speech earlier by my hon. Friend the Member for Horncastle (Mr. Tapsell) and in the excellent speech by my hon. Friend the Member for Bedfordshire, South (Mr. Madel).

Nothing annoys the public more and nothing does more harm to the standing of this House outside than for politicians in Opposition to attack the actions of the Government of the day when they know and everyone else knows that if they had been in office they would be doing as the Government are doing. In recent years, this has happened over a number of issues. The attitude of the Labour Party to the Common Market between 1971 and 1974 comes readily to mind. The attitude of both parties to the principle of incomes policies over the past 15 years comes equally readily to mind. Neither party can take much credit for its behaviour in opposition on that issue.

I think that I can claim, however, that the present Conservative Opposition probably emerge with most credit—or with least discredit—on this. The Labour Opposition in the 1960s attacked in principle the incomes policy of my right hon. Friend the Member for Chipping Barnet (Mr. Maudling). The Conservative Opposition attacked in principle the incomes policy of the Labour Government between 1964 and 1970. The Labour Opposition attacked in principle the incomes policy of the Conservative Government between 1970 and 1974. I know that some of my hon. Friends would like to attack in principle the incomes policy of the present Government but I am pleased to say that, to date, the official Conservative line has been to refrain from doing so.

All this, even though we all know that the present Government and the two immediate predecessor Governments, despite pre-election pledges to the contrary, were forced to introduce not just incomes policies, but statutory incomes policies. They did so not because they wanted to but because events forced them to do so. They did so not because, in government, they became blind to the disadvantages of an incomes policy which they had perceived so clearly in opposition, but because it became apparent that the balance of advantages and disadvantages came down on the side of an incomes policy.

Those of us who have advocated an incomes policy are not blind to its weaknesses. We understand them only too clearly. We recognise that an incomes policy introduces a degree of rigidity into the labour market, which places a great strain on it. Then there is the difficulty of differentials and the weakening of incentives to upper and middle management. Also, there is inherent in any statutory incomes policy the possibility of confrontation between the Government and a powerful trade union, with all that can mean.

Those are real weaknesses, and there are many others that I, as a supporter of an incomes policy, readily concede. But I do wish that those who are opposed to an incomes policy would just as readily concede the disadvantages of rejecting such a policy for the disadvantages are real and substantial.

In the absence of an incomes policy the level of unemployment will have to be much higher if income-cost inflation is to be avoided. In fact, recent evidence suggests that "much higher" means considerably higher than the present intolerable level of 1,300,000 out of work. What would the effect of this be in a society? What would the effect be in our country in which the unemployment level was down to 1 per cent. in the mid-1950s and 1960s, and half a million just over two years ago? How would our people react to an unemployment level three or four times that level? For this would be the price for avoiding inflation in the absence of an incomes policy.

Apart from the economic waste, such unemployment would lead to the alienation of many hundreds of thousands, if not millions, of our fellow citizens from the society in which they live. The degree of alienation among younger people, particularly young black people, could reach explosion point.

High unemployment is one of the disadvantages of rejecting an incomes policy, but in the absence of such a policy not only would unemployment be higher, but the deflation of the economy necessary to curb inflation would mean that the level of industrial output in relation to capital capacity would be much lower, and plant and equipment would be under-utilised. No industrialist I know would increase investment in new plant and equipment if his existing stock was substantially under-utilised. Therefore, the incentive to invest would be severely reduced, with adverse consequences to the long-term strength of the economy.

There are many other disadvantages in not having an incomes policy, but I hope that detailing these two disadvantages will suffice to show why I believe that the disadvantages of rejecting such a policy are substantially greater than the disadvantages of having one.

However, though I believe that an incomes policy is essential this does not mean that I think that, in itself, an incomes policy is sufficient to control inflation. Other policies of a monetary and fiscal nature have an equally important part to play. In my view an incomes policy without the correct monetary and fiscal policies could not be expected to succeed any more than fiscal and monetary policies without an incomes policy could be expected to succeed.

For example, although tight control of the money supply will contribute to controlling inflation, dependence solely upon it will not enable us to avoid inflation, for a number of reasons. First, it is very difficult to quantify exactly the increase in the money supply. As Mr. Burns said to a recent Congressional Committee about defining what had happened to the money supply in the United States in February: We published an increase of 6.5%. It might have been, using a different seasonal correction, zero and might have been 10.6%. Second, any measure of money supply inevitably excludes an increasing number of transactions which have economic significance but which do not involve the use of money. Third, it is not possible to forecast the velocity of circulation of money in advance, and upward and downward movements inevitably have economic significance. Fourth, as my right hon. Friend the Member for Chipping Barnet frequently points out, tight control of the money supply can result in firms, especially capital-intensive firms, conceding exorbitant wage and salary claims with severe inflationary consequences. If the availability of funds was more adequate to cover their overhead costs during a strike, firms might feel able to resist such strikes and eventually settle at a less inflationary level.

I make these points about the defects and deficiencies of controlling the money supply, not because I do not think that it is important but rather to show that in itself it is unlikely to be a panacea for all our problems. To beat inflation and our other economic problems we need a combination of monetary, fiscal and incomes policy. My plea therefore is to get away from these fruitless doctrinaire arguments for or against one policy or another, and to recognise that all policies have advantages and disadvantages, and that our best hope of success rests in a judicious mixture of monetary, fiscal and incomes policies. Each on its own is not perfect, but, taken together, while they may still fall short of perfection they may bring us as near to it as we are ever likely to get.

I turn briefly to the mechanics of the present incomes policy. I note in passing that the second phase of the Labour Government's incomes policy, like the first, is statutory. Page 11 of the White Paper sets out three orders required under the heading "Legislative Steps", so let us not have any argument from the Labour Benches about it not being a statutory policy. It would be churlish to deny the success of the £6 limit. It was not perfect, but it has worked moderately well. As the White Paper states Over the past year, this policy has been fully observed throughout the economy. Wage and salary settlements have been much lower in the past year and the rate of inflation has been braked back. That rate is still too high, and although the Government's target to reduce it to less than 10 per cent. by the end of this year will not be achieved, inflation has been halved in the past year, and that is creditworthy. I do not think that would have happened without an incomes policy, or certainly not to the degree that it has.

The 4½ per cent. policy outlined in the White Paper is not perfect, either. However, just as 12 months ago the £6 limit was the best incomes policy we had, so now the 4½ per cent. policy is the best incomes policy we have. I hope that it works as well as the £6 limit worked, not because the Government deserve it to work but because it is in the national interest that it should. Whatever the Government may say about inflation and the success of their policy against it during the past year—and I concede that success—they can never be forgiven for abandoning the incomes policy of the last Conservative Government when Labour took over in February 1974. They can never be forgiven for permitting and encouraging the wage and salary explosion of 1974 and early 1975. The hyperinflation that we faced last July was of their making and of no one else's.

The harsh consequences of withdrawal from that hyper-inflation, involving as they do hundreds of thousands of people being unnecessarily unemployed—many of them school leavers and immigrants—is the price that the ordinary people are being asked to pay for the wage and salary free-for-all that the Government encouraged between March 1974 and July 1975. As these consequences bite harder it is no wonder that the electorate in by-elections and local government elections, are turning increasingly against the Government. It is no more than they deserve.

9.25 p.m.

Mr. David Crouch (Canterbury)

I am happy to be called even at this late hour, and I am aware how little time I have to develop my arguments.

I am pleased that the hon. Member for Penistone (Mr. Mendelson) is here. He had a flaming row with my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) and recovered some of his poise—I almost said dignity, but the hon. Gentleman always has that, even when in dispute with you, Mr. Speaker—in a very valuable contribution from the point of view of those sitting below the Gangway opposite on the vexed problem of the prices and pay policy which the Government are forced to follow.

Last July, I welcomed the Government's £6 pay limit and I wished the Chancellor of the Exchequer will in the spring of this year with his even tougher proposals for, in effect, a £4.50 a week pay limit. My hon. Friend the Member for Leek (Mr. Knox) has given us some wise words, which too few people heard, on the problems of such a policy. He gave an extremely valuable commentary on the advantages and disadvantages of such rigorous pay policies.

I stand by what I said in July and in the spring on these policies. The country needs such policies and I value very much the remarkable acceptance of them—by a majority of nearly 18 to 1—by the TUC. They have supported a tough personal policy for the 10 million workers concerned and have endorsed a policy of tough self-denial.

Mr. John Page (Harrow, West)

What about the other 14 million workers?

Mr. Crouch

I have not forgotten them, especially those in middle management who are earning more than £8,500 a year. They should not be brushed aside or regarded by Parliament as not needing better remuneration to meet the 18 per cent. inflation with which we still have to live. I hope that answers my hon. Friend's question.

In an extremely interesting and very good speech, my right hon. and learned Friend the Member for Surrey, East acknowledged that there were various shades of opinion in our party on the pay policy. Some of us accepted it in part and others not at all. I am sure that my right hon. and learned Friend knows that I am one of those who have always accepted the policy in full. He also accepted the policy, but only grudgingly after a great deal of reflection because he felt that the price being exacted from the British people—not just Parliament and hon. Members—was too high.

I go further. I accept the pay agreement as a remarkable achievement which we had to have if we were to prevent the nation from crashing a year ago. We still face that danger. We could still crash if we took off the brakes. Last July we had to apply the brakes very firmly and determinedly. We only just managed to get acceptance in the country for such an application of the brakes, but I believe that we must continue to keep on the brakes in our pay policy. But, like other hon. Members, I do not want to see a continuation of the rigid control of free collective bargaining that contains so many anomalies throughout the scale of pay negotiation.

My right hon. and learned Friend the Member for Surrey, East spoke of the too high price of the Government's pay policy. He itemised the elements that make it too high a price. He referred to the continuing high and extravagant Government expenditure that was so ably and strongly defended by the hon. Member for Penistone. He is the only Labour Member to whom I can refer, with the exception of the hon. Member for Darlington (Mr. Fletcher), who made a passionate appeal from the grass roots, if I may say so, in Darlington. He explained why he felt that Government expenditure was necessary. I interrupted him when he said that Government expenditure is necessary to sustain employment, to encourage investment and to produce growth. It is not my belief, although I endorse the Government's control of pay policy to produce a reduction in inflation, which I think is of prime importance, that a pouring out of Government expenditure to produce jobs is the proper concomitant of the pay policy. I agree with my right hon. and learned Friend that the price we are paying—namely extravagant Government expenditure and borrowing—is one that we cannot continue to afford.

I do not think that the Prime Minister differs from me in this regard. I believe that his utterances in Puerto Rico and in the House, and the utterances of the Secretary of State for Industry a week ago on Monday, have all confirmed that the Cabinet now believes that we must encourage industry to earn more and to make higher profits so that it can generate its own wealth, and produce greater wealth for the nation, including more jobs for those who are unemployed. If it produces more wealth for the nation, the Government can continue public spending in areas such as social services or defence.

My right hon. and learned Friend referred to one other aspect that he felt was too high a price for us to pay—namely, the whole host of Left-wing measures that are unnecessary and damaging to our economy and society. This is a contentious point but I have no hesitation in making it. I interrupted the Chancellor to ask whether his figures were right when he said that our gross domestic product had been increasing by 1 per cent. a quarter for the past four quarters. He deduced from that that there had been an increase of 4 per cent. in our gross domestic product. He asked me to read what Lord Watkinson had said over the weekend, Lord Watkinson being the new President of the CBI, and to read the CBI report. I was able to find only one copy of the report available in the Library. I have read what the Chancellor suggested, and that explains my absence from the Chamber.

Lord Watkinson said some remarkable things. We must remember that he is the President of the CBI and that tomorrow he is about to enter into one of the most important meetings of Neddy, a meeting which the Prime Minister has acknowledged will be very important. Over the weekend he said: The CBI has moved a long way over the past year or so. We have accepted what we would never have accepted before in the way of the need for price control as the price of wage control. That goes a long way when it comes from someone who speaks primarily to the private sector of industry. I have much sympathy with his attitude of imaginative co-operation with the Government. He said that he was prepared to accept much more of what he personally disapproves of, and what the CBI disapprove of—namely the Left-wing nationalisation measures, which have not yet returned to the House to be decided upon, the introduction of the National Enterprise Board and sectoral planning agreements. Lord Watkinson said that he would accept all these things. However, he added a rider—provided that the Government acted on their expressed belief in the need for a thriving and profitable private sector.

Lord Watkinson has expressed his views on the new strategy of the CBI. I shall quote what he said about that new strategy, which no doubt he will declare tomorrow. He said that the essence of the CBI approach was development of a plan for national recovery and discussion of the next phase of wage and price restraint at the earliest possible moment. I like this new strategy of the CBI to concern itself with national recovery. I say the same thing to the Chancellor, even in his absence. I support such a strategy. I hope that the Chancellor and the Government will do the same.

I shall accept that price. My right hon. and learned Friend the Member for Surrey, East, has spoken about a price, as has Lord Watkinson. However, I too have one qualification to put to the Chancellor on my price. That is that the Chancellor should now stand by his word to allow industry to makes its own growth and to finance its own achievements and its own investment. The Chancellor said that he believes in higher profits. The Prime Minister has this week said the same thing, as has the hon. Member for Penistone. Let the Chancellor be brave enough and big enough to back his words with deeds.

9.37 p.m.

Mr. David Howell (Guildford)

It would be wrong to describe this afternoon's debate as electrifying. Indeed, I am a little mystified why the Government have not thought fit to field a speaker at the end of the debate. I do not know whether it is because no one was too happy about following the Chancellor's earlier jocular and lightweight contribution or because the Chief Secretary is tired after his efforts in Committee on the Finance Bill, or whether it is just as it was under the Lord North Administration, when they simply gave up trying to defend their policies and stayed silent. I do not know whether there is such an analogy to be drawn. It is a pity that there is to be no Government contribution. There is much explaining to be done as to what the Government are about, and that might have helped to round up the first day of this debate.

I take my cue from my hon. Friend the Member for Horncastle (Mr. Tapsell), who made an interesting speech. I did not agree with every shade of what he said. That will not surprise him. However, he said that he thought that we were moving on to some kind of common ground. In a way, he is right. There is a glimmering of common ground in our debate today. I am not talking about the no-man's-land, the mire of common ground into which we were invited in 1974 and in which we were invited to join in the disastrous social contract which brought this nation to the verge of total disaster through 1974 and 1975. I am talking about that common ground upon which the primacy of monetary and budgetary rectitude are recognised and the central place of profits as the engine of social progress.

That is our common ground, on the Opposition side of the House, and we welcome Labour Members to that common ground, at least in some of the things that are said in the White Paper "The Attack on Inflation". That is the ground upon which this nation's recovery will be built. We welcome what is said in those parts of the White Paper that at least say—I shall come to the matter of action shortly—that the Government's thoughts are turning to a further round of public expenditure cuts and the critical importance of profits.

My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe), in his excellent opening speech, pointed to the fact that we are seeing one more step in the education of the Labour Party to realities. There was the first step last year when it was realised that pay restraint, or the lack of it, would lead to loss of jobs—that there was a connection between the two. That was an important step, and no one denies it. The next step has now been that the Government are talking seriously at last about public expenditure cuts and are right to do so. They can look back over the last two years to the most collosal growth of public spending—50 per cent. in money terms—in any peacetime period in recorded history. There was unprecedented growth. But some realism has broken through and they realise that this must stop. For these small mercies we should be thankful.

Moreover, as my right hon. and learned Friend the Member for Surrey, East rightly said, realism is breaking through when we have sections in a Government White Paper recognising the place of profits in the desperate situation to which real profits on capital have sunk and the vital need to raise them, if possible back to the levels of 10 or 12 years ago, if we are to have the job opportunities and the investment to restore vitality to our country.

But the cuts are only talks. They are only mentioned and talked about in the newspapers. Rather soon the talking will have to stop. I say "rather soon" because it may be assumed that the six months, until the 5 billion dollar standby credit runs out, may give us a lot of elbow room. However, I assure the Financial Secretary, and perhaps he would remind the Chancellor when he has a chance to speak to him, that June rapidly turns into December. Already people are asking what are the conditions—the Puerto Rico requirements—upon which the post-standby credit situation will be established. What will happen in December? The OECD Ministers are asking it. The EEC Commission has given strong hints, United States Treasury officials mentioned it and it received the usual sour reaction from the Chancellor for their pains.

The standby credit is now being drawn on. We have that on the authority of the economics correspondent of the Financial Times last Saturday. My right hon. and learned Friend the Member for Surrey, East did not press the Chancellor on the details of how far it had been drawn down, although he pointed out that it had gone down. Perhaps it would have been wiser if the Chancellor had not given such an aggressive answer when asked a few weeks ago whether there had been any drawings. Perhaps, on reflection, it would have been better if he had not been quite so impetuous.

The country now is asking what we are going to do next. We shall await a detailed statement from the Government about their intentions in regard to public spending. They should not be embarrassed about this. It is the custom of Labour Governments, about this time of year, to come forward with a Budget, or statement, to correct the mistakes that they made in the April Budget or statement. The Financial Secretary will recollect that it is done. There should be no embarrassment or surprise about the Government making their usual July statement on the next move in the economic situation. We shall expect that, and it would be right to make it.

It is true that for some years the July statements have not been all that educative or instructive. Last year, for instance, we had a statement on 1st July when the Chancellor began by telling us that by the end of the present pay round —that was 12 months ago so I think he meant by the end of this month—inflation would be down to 10 per cent. That was his statement then and, of course, it turned out to be wrong. In the further education of the Labour Party in its handling of these matters—I hope that this will not be taken amiss—in addition to the points made by my hon. and learned Friend the Member for Surrey, East about the realisation of the rôle of profits and so on, a very good start in the next round would be if the Chancellor in particular paid a little more attention to accuracy. This would help the general sentiment in the restoration of confidence both at home and internationally. That would restore some of the loss of credibility attached to the Chancellor's statements.

He said only the other day that he may be found to be wrong again. He is a very bad punter indeed. If we look back over the last 18 months, most of the predictions about inflation have been wrong. First, they were wrong last July when he said that he wanted to bring down the figure to 10 per cent. by the end of July this year. On 6th April he said: On prices, I believe that we can still achieve our target of under 10 per cent. next winter."—[Official Report, 6th April 1976; Vol. 909, c. 281.] I do not remember when the movement of the Chancellor's hand changed the concept so that it became "next winter".

Then, early in June, it slipped again. The right hon. Gentleman then said that we are unlikely to reach our original target of 10 per cent. by the end of the year. It may be delayed until the spring."—[Official Report, 17th June 1976; Vol. 913, c. 723.] This may be amusing to the Chancellor, but it is unnerving to many people. It is like a movable feast wrapped up in a mirage in the desert sand. We need more accuracy from the Chancellor. That would be one lesson that should be applied in handling the next stage of Labour Party policy. This is not a minor point. Nothing will go right for the Chancellor; there will always be something coming along to upset his predictions until the whole policy is correct and until the Government ceases to rely on this or that component part alone.

Dr. Jeremy Bray (Motherwell and Wishaw)

The hon. Gentleman is pursuing an interesting argument. But is he suggesting that if the Government adopt a particular package of measures that reduces the economy to a particular prediction? If so, he is talking rubbish.

Mr. Howell

I am not saying that, and if he had listened more closely to my speech the hon. Member would know what I was suggesting.

In recognising that public expenditure must now be cut substantially, one shibboleth in the Labour Party has been thrown overboard, and that certainly is an advance on what went before.

The next one to go overboard is the Labour Party's concern for income equality and redistribution. Labour's natural desire in this context found its highest expression in the days of 1974, when some of the Chancellor's speeches showed that he wanted to be beastly to the higher-paid people and to adopt a general atmosphere of hostility towards those on higher incomes. That is the next attitude that will have to change. I do not know how long it will take to get to that next stage. There will be problems for the Labour Party because it is becoming difficult to keep track of whom they are trying to hurt.

Only a few weeks ago the Labour Party were baying after those who enjoyed fringe benefits. Those were the evil people of the hour. Everybody in the Labour Party was determined that those benefits should be wiped out in the interests of equality, fairness, sacrifice, and all the rest of it. But that was a few weeks ago. Therefore, it is slightly surprising that only yesterday the leader of the miners, Mr. Gormley, for whom I have a great respect, told the miners conference that they were well on their way to an improved standard of living that would come from improved productivity bonuses and from the increased value of fringe benefits such as concessionary coal, subsidised transport and other things.

That is a remarkable turn-round. It is a move towards realism. Mr. Gormley should have visited some of the sittings of the Finance Bill upstairs in Committee. He would then have realised that he was on the right track, whereas a few weeks ago he would most definitely have been on the wrong track.

Mr. Dan Jones (Burnley)

There is such a shortage of miners that if any Members of the Opposition require those fringe benefits, Joe Gormley will make room for them.

Mr. Howell

That does not sound an unhealthy attitude.

In Committee the Government believed that anyone earning over £100 a week belonged to the capitalist or management classes, and should be accorded special treatment in respect of all their untaxed benefits. The Government learned to their surprise that almost 25 per cent. of the work force came into that category. The basic take-home pay, other emoluments, expenses and reimbursable expenses, put almost 25 per cent. of the work force into or over the £100 a week level. This may interest some hon. Members who have not been able to follow the proceedings in Committee in detail. However, in Committee the Government gradually discovered to their horror during the proceedings on the Finance Bill that what they believed to be the enemies of the Labour Party, and to be chased after, were vast numbers of people who traditionally used to support the Labour Party. I am not sure whether they still do.

One example is that of the railway workers. Instead of hitting at a handful of top-hatted directors, the Government discovered that they were up against 45,000 members of the National Union of Railwaymen, and tens of thousands of airline employees and bank employees, all of whom were threatened by the original crusade against fringe benefits. That leaves out of account the legions of hard-working salesmen who use their cars all round the country. They earn modest incomes of between £80 and £100 a week. All those people would be severely penalised by these provisions.

It is no wonder that the stuffing has been knocked out of the Finance Bill, as we shall learn on Report. Why has that happened? It turned out that what was proposed was not a support for the sacrifices of the workers but an attack on the workers. We shall find that that is so if we look closely at the group of people that I mentioned.

I am referring to those who earn between £4,000 and £6,500 a year. A few years back it might have been thought that those kinds of salaries were earned by senior management—the people to whom the Government wanted to be nasty. That is not so today. If we consider people in that group today, we find that we are referring to skilled workers, higher paid workers, and those who are supposed to benefit under the proposed deal in the White Paper "The Attack on Inflation".

I have some figures which relate to a man earning £100 a week. He is not a fat manager living an indolent life. He is a hard-working man who earns £100 a week. He is married, with two children. When he receives the benefit of the deal, and the extra pay, and has deducted from that the new rate of national insurance contributions—which will increase from £3.79 to £5.46 a week—if he has two children and his wife is not at work, he will be 1p per week or 52p a year better off. That is all that he will make out of the deal in money terms.

If we add the 15 per cent. inflation which we expect—only the most wild optimist thinks that the inflation figure will come down to 10 per cent.—we find that we are dealing with the most colossal fall in living standards for that kind of person—yet again. Last year and the year before these people took a 10 per cent. to 15 per cent. cut in living standards. Those people do not need to be lectured about sacrifices. They have made the sacrifices on substantial terms. They must agonise over the breakfast table to meet the monthly mortgage payments. They must cut their living standards on every side. They are the people who have been driven to more and more worry as they wonder how to meet the monthly bills. There is no mention in the White Paper, from the first word to the last, of these people, the management and skilled workers.

That leads us to the next lesson for the Labour Party. It will somehow have to engineer, if it is still in office, a major shift in the tax system to lift the burden of income tax from these people, because this situation cannot go on. It is an impossible situation in which they have placed middle management—and not merely middle management but tens of thousands of skilled and semi-skilled workers who are supposed to be part of the useful people whom the previous Prime Minister was so fond of praising and who now find they are being hit hard by the working class war waged by the Labour Government.

Mr. Dan Jones

The hon. Member is pushing at an open door.

Mr. Howell

I am glad to hear it. Certainly these people are pushing at an open door—but it will no longer be marked "Labour Party".

The next lesson follows from the previous one—that, with all this fine talk of social contracts, it must by now be understood by this Government after two years that one cannot have a social contract unless it embraces the whole community. That, after all, is what Jean-Jacques Rousseau laid down clearly. The social contract should embrace everyone, not just the few, not just the friends of the Labour Party, but the entire community. Millions of people cannot just be lost in Government files because they do not fit into the categories of affiliation to the TUC. One cannot just say that they do not matter, that the Government will not write any appendices to a White Paper for them, that they are not part of the deal. They must be involved in any development of this kind. That is another lesson which has to be learned.

There are many other lessons which lie ahead, but I have time to outline only one more. That concerns the Price Code. We shall be debating that at much greater length tomorrow. I do not know whether anyone—even the Secretary of State herself—now has time to read through all the details of the Price Code. It is fiendishly complicated and even begins to make the Finance Bill look a little simple—although that perhaps is going a shade too far. There is no time to quote the details of the stock appreciation relief under the Price Code as compared with the stock appreciation relief under the Finance Bill, but it is strange that we let this vast and detailed legislation go rolling through in the form of a code and that it is not properly debated as a Finance Bill should be.

The Price Code should be properly debated. I suggest that it should be put to our Finance Bill Standing Committee. They might do a very good job on it, and with the help of the Financial Secretary, it would probably emerge totally emasculated, like a paper hoop with the centre blown out of it. So it should, because this sort of detailed Price Code has no further place in our affairs. I am sorry that we have had to hang on to the details which the Secretary of State claims—no doubt she will elaborate on this tomorrow—are necessary. I do not believe that they are necessary. The time has come to do away with the detailed form of the price code.

What is the Government's response to the real needs of this country, which has to begin painfully over the years to catch up with our neighbours again? I think that we can do it, although I suspect that it will take anything up to ten years. The two responses that they have offered are, first, to leak that there will have to be cuts, as they have leaked so many other things. This is not a Government at all but a sieve. The second response is officially to produce this White Paper.

As I have said, from cover to cover there is no mention in this White Paper of the plight of management and skilled men. There is a lot of talk about how resources are to be channelled into this industry or that but no talk about the people who are supposed to do the channelling. There is no word about the status of or better economic independence for the workers of this country. There is nothing about greater ownership opportunities for working people, giving them the kind of fuller life that their Continental counterparts have. There is no concern at all for the still rising tax burden, which workers at all wage and salary levels deeply resent.

We are told that public spending cuts will lose jobs. That has been the constant cry of hon. Members on the Government side. We say that nothing will reverse the job decline until there is a return of confidence in private industry, and we say that that will not come until the government changes its policies and its Chancellor of the Exchequer.

It being Ten o'clock, the debate stood adjourned.

Debate to be resumed tomorrow.