PAY AND PRICES POLICY

HC Deb 07 July 1976 vol 914 cc1377-511

Order read for resuming adjourned debate on amendment to Question [6th July]: 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).—[Mr. Healey.]

Amendmen proposed, 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."—[Sir G. Howe.]

Question again proposed, That the amendment be made.

3.53 p.m.

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

A week ago I laid the White Paper, Command No. 6540, before the House. The House will be well aware that the only further opportunity for discussion of this matter is when the Orders are laid for the annex to a Statutory Instrument which requires the affirmative procedure. But that procedure—which means that the Order is not likely to be laid before the recess—does not enable the House to be heard at an early stage on an important matter, namely, on the changes to the White Paper on counter-inflation policy, and specifically on the Price Code.

It seemed to us, therefore, appropriate that the House should have an opportunity to be heard at an early stage in the consultative process.

I have in the last few weeks seen a number of organisations. My Department and I have seen between us or heard from about 200 organisations and firms, and it seemed right and proper that there should be a full opportunity for the House also to engage in this debate.

Yesterday there were some very useful speeches—I have looked at the Official Report—made on both the prices and the pay side. These speeches will certainly be taken into account in the final document that I lay before the House in the form of an Order.

Perhaps I should also say that, as the House will be aware, the Price Code runs only for a further year, because, under the terms of the original Counter-Inflation Act, as amended by the Remuneration, Charges and Grants Act, the full legislative authority for the Price Code runs out on 31st July 1977. Thereafter, there would have to be fresh legislation for any price controls that might succeed it.

The House is well aware that what we are looking at is the final stage in a Price Code that was inherited by this Administration. It is a complex document, and one, therefore, that it would be foolish to alter completely for the last year of its life.

Before I look in more detail at the changes that have been made, or are proposed to be made, to the Price Code, I should like to fill in a little of the background. An essential part of that background is the relative success that this country is now having in the battle against inflation. The comments made yesterday on this matter from the Opposition Front Bench were rather carping and rather mean. This is unfortunate, because it is in the interests of all of us that there should be a major advance in the battle against inflation.

Inflation went too far, of course, and we have not come down far enough yet. There is still a long way to go. But there is no doubt at all that a decline in the annual rate from the 28 per cent. of last August to the 15½ per cent. of May is a remarkable achievement in a democracy. It is one that has been achieved by voluntary methods, and achieved to a great extent because of the restraint shown twice now by the Trades Union Congress.

It is true, as I told the House in June, that there has been some slippage in the achievement of the single figure of inflation which the Government are determined to achieve. This has been largely due to the depreciation of the pound. Nevertheless, despite this slip-page, the Government are determined that 1977 shall show a further halving of the inflation rate. I believe that with any luck we shall see this position improve from where it is now, and not the opposite.

Indeed, the forthcoming report of the Price Commission—from which I am not at liberty to quote—will indicate that the underlying trend is still, on the six-monthly basis, towards a continuing decline in the rate of inflation. But there is more to it than that—and this is also worth mentioning: there has been a dramatic decline in the number of stoppages and the time lost in respect of industrial strikes.

There has been remarkable improvement in industrial relations, to which not only the TUC but the CBI has paid tribute. I feel that it would be a good thing if on both sides of the House there was recognition of the extent to which industrial relations have improved in the last year, because this is part of the overall achievement.

When I spoke to the House at Question Time on Monday, I said that we were in many ways a country on a tightrope. When I mentioned that, I was referring to the problem of trying to judge what one could take on the Retail Price Index in terms of the effect on the index of relaxations in the Price Code. On the other side, I was referring to the absolute necessity of maintaining the pay restraint policy, which clearly could not survive a major worsening of inflation.

But there is also another kind of tightrope on which this country is placed. We have the problem of achieving our short-term aims while not jeopardising our medium-term aims. Our short-term aim is the rapid defeat of rates of inflation which, in the end, would threaten democracy itself and without doubt threaten the competitive position of this country. But there is also a medium-term goal, and that goal is related to the need for industrial recovery and for much higher levels of industrial investment.

I have to say quite clearly to the House that over the past 11 years, rates of return, after allowing for depreciation, have fallen so rapidly and so far that it is very doubtful whether the private sector could survive if those rates of return continued to deteriorate at that speed. This, again, is not a matter for party congratulation. I shall mention the figures. In 1965, when a Labour Government were in power, the rate of return on capital invested in the private sector, after allowing for depreciation, was 10 per cent. In 1970, it had fallen to 6 per cent., in 1973, it had fallen to 5 per cent., and in 1974 it had fallen to 2.2 per cent. for all companies. There is some reason to believe that it may have fallen a little further, although there are now the first signs of an improvement on these figures.

In the case of industrial and commercial companies, the rate of decline was not quite so marked. Nevertheless in 1974, the rate of return on capital was 4 per cent., and in 1975 it had fallen to 3 per cent. The deterioration has continued under Governments of all colours and it is a deterioration that parallels what has happened in other parts of the world. There has been a decline in the secular rate of return on capital in the United States, in France, in Germany and in Britain. But in Britain it has been more marked, more rapid, and has led to the low levels that I have quoted.

If the economy is to succeed and to sustain full employment—and none of us believes that the present rates of unemployment are tolerable even for a short period—we have to allow a rate of return to the private sector and to the public sector which enables them to survive, to invest and to expand. Anything else is to live in a world of illusion. This goes for both sectors. There has been too much marked delight in what may be the failure of one sector or the other according to where one sits in the House. But our economic position is perilous. Most of us are committed to making the mixed economy work over the next few years. There is no alternative but for it to work, and it does not serve the purpose of anyone to take pleasure in the failure of the public or the private sector, because we need both to be successful, to be efficient and to invest.

That is one reason why we have decided that a limited relaxation of the Price Code is necessary. I say "a limited relaxtion". I shall come in a moment to the criticisms which have been made of the Government for not taking the relaxation further.

Mr. Michael Grylls (Surrey, North-West)

As a result of the changes that the right hon. Lady is proposing in the Price Code, by how much does she expect the 2.2 per cent. to rise?

Mrs. Williams

I shall come to that in a moment. I shall develop my theme a little further and then, if the hon. Gentleman wishes to pursue the matter, I shall be happy to give way to him again.

We estimate that the Price Code relaxation in the coming year will be between £800 million and £1,000 million—probably rather less than £1,000 million—which is about 1 per cent. of the Retail Price Index. The level of profits, up-rated to 1976 figures, is running at about £11,000 million. Therefore, the hon. Member for Surrey, North-West (Mr. Grylls) will see that the immediate effect on profits will be a little under 10 per cent.

Mr. Ron Thomas (Bristol, North-West)

Will my right hon. Friend be prepared at some stage to give a more detailed breakdown of the way in which this will push up the RPI? It seems to me that there are many imponderables here, including investment relief, depreciation, capacity utilisation and getting rid of the 20 per cent. productivity deduction. I am informed by a fairly reliable source that this will push up the RPI by between 3 per cent. and 5 per cent., rather than the 1 per cent. that my right hon. Friend suggests.

Mrs. Williams

My hon. Friend will find that that assessment is nonsense. On the basis of a 5 per cent. expected rate of increase in wages, a 20 per cent. productivity deduction must be 1 per cent. of labour costs, and labour costs are very much less than the total costs of industry. That kind of assessment is miles out.

The best assessment that we can make—and it is very difficult because we are making an assesssment about what will happen to output over the coming year—is about 1 per cent. on the RPI. The reason for this being so small, despite our having made a considerable range of concessions, is one of which the House must be aware. It is the total flatness of the retail market at present. The latest statistics indicate that in May, which is the last month for which we have figures, retail sales were running at 1.5 per cent. less than in the quarter before. In other words, far from increasing, retail sales are falling. Hon. Members on both sides of the House will appreciate that one of the effects of a pay restraint policy is to operate a restraint on domestic demand. In a situation in which domestic demand is increasing very slowly, it is most unlikely that firms will be able to take full advantage of concessions under the code, because they cannot pass prices along.

It is on this basis that our assessment is 1 per cent. on the RPI, and that assessment is as accurate as anyone's can be, granted the many imponderables which have to be taken into account.

I want at this point to depart from my speech in order to correct what seems to be the beginning of a substantial misunderstanding in the House. I said that there would be an improvement of about 10 per cent. on profits in the coming year, as best we could estimate, which is roughly what the effect of 1 per cent. on the RPI is on £11,000 million of profits for 1976. I heard one of my hon. Friends suggest that this was a return from the 2.2 per cent. to 10 per cent. It is nothing of the kind. It is 10 per cent. on 2.2 per cent., which is a very different proposition from a return on capital of 10 per cent., which is most unlikely to be seen in the immediate future.

It is true that the fall in the rate of return on capital has been one feature that has dampened enthusiasm for investment. Companies in the private sector are reluctant to invest in a situation in which rates of return are lower than interest rates. That is true for many companies at the present time. However, it must be said, because this is a valid criticism made by many of my hon. Friends, that if there are to be concessions which are related to price increases, there needs to be some assurance that these concessions will not be related to investment of a kind that is not of value to employment, to exports or to the expansion of manufacturing industry.

In other words, my hon. Friends have a great reluctance, which I share, to see a substantial part of this improvement go to property and overseas investment. I shall speak more about that presently, but I believe that it is essential that there should be seen to be priority for domestic investment in manufacturing and related industries, because this is where we shall get the jobs and expansion that we need.

The CBI has been very critical of the amount of the concessions in the Price Code. I believe that much of its criticism arises from an insufficient understanding of what is possible, and that much of it is misdirected by being directed at what the market will allow in a situation in which it is very flat. Nevertheless, I am encouraged by what the President of the CBI said about the possibility of making a major attempt to increase investment in the next few months. I hope very much that the CBI will feel it possible to respond to what has been attempted by bringing forward investment as far as possible.

On whatever side of the House one may sit, one will agree that the most undesirable situation to arise would be one in which the capital goods industries cannot deal with orders from both abroad and at home at the same time. There is a danger that we may see once again a bunching of orders—at a time when factors are under constraint—of the kind that we saw in 1972–73 and which time and again has brought our recovery to a shuddering halt as it ran up against shortages of skilled workers, qualified engineers and scientists. When we run up against the factors of production in this way, very rapidly the boom gets out of control and overheated and we find ourselves once again having to exercise excessive restraint.

Mr. Nick Budgen (Wolverhampton, South-West)

Will the Secretary of State explain to the House what control the CBI has over British industry?

Mrs. Williams

Nobody believes that the CBI has control over British industry, but it has influence over British industry, just as the TUC has influence over British trade unions. It is not unreasonable to ask the CBI to do this in this situation, when those who exercise pay restraint say that they expect a return in the form of much higher investment and assume that there will be a response along those lines. I have reason to believe that a response will be forthcoming.

Sir John Hall (Wycombe)

There is very little danger of the kind of over- heating in the capital goods industry this year, because there is still a long way to go before we utilise the existing capital resources, which are grossly under-utilised. I cannot see the possibility of any great advances in capital investment in the next few months.

Mrs. Williams

In a sense, the hon. Member has made my point. At the moment industry is working well below capacity—in fact it is working at about 80 per cent. of capacity. It is very much in the interests of this country that orders should be brought forward as far as possible to take advantage of the under-capacity working, and to bring people back into work, rather than delaying for a year or more in a period when the latest investment surveys show that there will be an increase in investment of 15 per cent. A delay would mean that we might see constraints exercised again on investment, because it was left too late. That is my point, and it does not conflict in any way with the hon. Member's point.

On the Price Code relaxations, there is another function as well as the effect on investment. I believe that the relaxations will have a favourable effect on employment, as well. One example that I shall give concerns the distribution industry, which has been facing an increasingly difficult situation in terms of return on its capital over the last year than in any previous time in recent history. In the first quarter of 1976, there are indications that the level of return was lower than that in the corresponding period in the previous year, and the level of return in that year was lower than the year before. In the distribution industry, unlike the manufacturing industry, there has been a deterioration which has not yet come to an end. This is related to the flatness of the consumer market. While there has been some intimation of an improvement in the manufacturing industry, there has been no intimation of an upturn in the distribution industry.

Many hon. Members underestimate the significance of the distribution industry in one respect—the employment of school leavers, about which the whole House is, or should be, profoundly concerned. In 1974, 15 per cent. of the boys leaving school, and 26 per cent. of girls went into the distribution industry. Yet it is over the last year that in distribution above all, shops have been closing and other outlets closing, and this has had a direct and immediate effect on the employment of school leavers.

That is why we have chosen to make certain changes in the Price Code in respect of the distribution industry. These changes are new. They have not been in the code before. We have done this because we are conscious of the important role the industry has to play, even though we would wish that more youngsters would go into manufacturing industry. Nevertheless, it is true that distribution is one of the main employers of school leavers. Therefore, it is in the interests of all of us to maintain employment in this area.

Criticisms have been made of the Price Code, particularly in one respect—that it is too complicated, and that a lot of time is wasted in firms because too much effort goes into getting the returns ready. This point was made yesterday by the hon. Member for Pudsey (Mr. Shaw), and the hon. Member for Malden (Mr. Wakeham), as well as my hon. Friend for Sheffield, Heeley (Mr. Hooley). They all complained that the code was terribly complex and hard to understand. Of course, with one year to go it is not possible to alter it, but we have attempted to simplify it, and we have made several improvements in this respect.

We have changed the categorisation of Category I and II companies to allow for the effects of inflation, and this means that a good many firms—about 300 in manufacturing industry—are relieved of the obligation to pre-notify. This does not mean that they are relieved of the obligation to report and notify, but they do not have to go through the elaborate procedures of pre-notification.

I note the criticism of the fact that many people feel we have not gone far enough. I shall consider that when I look at the proposals for alterations in the document, but nevertheless we have taken a step forward here.

We propose to exempt very low price increases from notification, and we have clarified a number of points where there have been disputes between the Price Commission and firms. We have simplified the position and made it clearer to all concerned.

Turning to the major changes that we have made, the invesment relief has been widened, in terms of the base, to include shops, and I do not need to elaborate the significant effect that this will have on the distribution industry. Some relief for shops will have a direct effect also on employment in the construction industry, which has caused profound concern recently. With shops there is a quicker come-through, unlike the situation with heavy plant and equipment, because shops have a short lead time between ordering and completion. In heavy works, on the other hand, the lead time may be as much as four or five years. Therefore, this change should have a favourable effect on employment in the construction industry.

My hon. Friend the Member for Bristol, North-West (Mr. Thomas) referred to a figure for investment relief. I think that there may be some misunderstanding between us here. The figure he quoted was, first of all, for more than a year, and it was the figure for the amount of investment on which relief is paid, not for the amount of relief itself.

The amount of relief itself, in the year from December 1974 to December 1975, was £380 million, but the Price Commission's latest monitoring indicates that even that sum was not fully taken up in prices. The actual figure taken up in prices was less than £380 million. I cannot give the exact figure, but it will be published shortly by the Price Commission. Therefore, £380 million was the largest figure of relief on investment of £1,955 million, so that the relief able to be passed on for prices is not the same thing as the investment on which that was paid.

Mr. Ron Thomas

On the assumption of an increase in capital investment on the basis of 35 per cent., can my right hon. Friend give an estimate of the figure that she hopes to see over the next 12 months?

Mrs. Williams

I cannot give a precise estimate, but I can give the base workings on which we make our estimates. Last year the figure was 20 per cent., which led to £380 million of notional price increases, not all of which went through. This year the figure is 35 per cent., and the figure for shops, while significant for distribution, does not make all that much difference to the total, broadly speaking. There is some evidence that the rate of relief is slightly less taken up as it increases. That is true, even though it sounds strange. Therefore, the best estimate I can give is that the figure will be of the order of 50 per cent. more than the figure for last year. I would not like to go any further than that, because we should avoid a notional certainty on something as uncertain as this.

I turn now to investment relief. A number of my hon. Friends have once again reiterated their belief that relief on investment may begin to seep through into property and so forth. That is not so. Of course, I cannot say that relief on investment will generate all the investment upon which the relief is offered. I have indicated that last year that was not so. The amount of relief that in theory might have been possible was on about £3,000 million of investment. The actual amount which came forward for relief was about £1,900 million. So, of course, my hon. Friends are not wrong in saying that these proposals do not guarantee investment. They do not, and I cannot in all honesty say that they do. But they, too, have to be honest and admit that the removal of a substantial obstacle to investment is likely to have favourable effects. Without doubt the system of monitoring that has been set up will mean no relief on prices for investment not within these categories, and that is what ought to concern my hon. Friends. If there is investment in other areas no one can stop it happening, but it will not be allowed to have an effect on prices in the way that accepted investment will. I believe that the monitoring system is very powerful.

There are some people who, even if they look at a gift horse, will always try to find bad teeth, and if they looked at Arkle they would probably see a case of dental decay. But I am satisfied that the system will work well and will guarantee that there are no price reliefs except on approved investment.

My hon. Friend the Member for Bristol, North-West expressed a misunderstanding about the question of depreciation. He said yesterday that the relief on depreciation, which is an uprating of 1.3 on depreciated assets, might mean that a firm such as Leyland, with hundreds of millions of pounds of assets, would enjoy a large bonanza. That is a misunderstanding. Only the element of depreciation that comes into the increase in cost can be allowed for Price Code purposes.

I have looked up the recent applications for costs made over the last few months, and depreciation is of the order of 3½ per cent. of total costs and less than 3 per cent. of increased costs. We are therefore considering an uprating of 1.3 on something under 3 per cent. of costs, and this has reached the form of application for price increases, not all of which are allowed. So the figures we are talking about, while important to individual firms, are not of the order that my hon. Friend thinks when he talks of a simple uprating of overall assets.

The modification that we have made is an attempt to recognise the dramatic effect that inflation has had on accounting over the last three or four years. Most firms are still locked into historic costs because there is as yet no broad agreement on how they should move away from them. Many small and medium-sized firms anyway do not have on tap the necessary accounting expertise to be able easily to move away from them. Consequently, to operate in this way is to recognise what inflation has done in terms of depreciation and stock and to combat it by an agreed uprating figure. The agreed uprating figure is 1.3 for depreciation and 70 per cent. for stocks with a 30 per cent. abatement to take account of the fact that with the upturn stocks have increased in volume, and in value due to the audit price increases. It is about that that we are concerned because, they reffect the effects of inflation.

Dr. Jeremy Bray (Motherwell and Wishaw)

My right hon. Friend's figures of 1.3 times 3 per cent., which is 3.9 per cent., mean very nearly 1 per cent. on costs on the depreciation provisions alone.

Mrs. Williams

My hon. Friend has got it wrong. I was talking about total costs. But the Price Commission concerns itself with increases in costs, and these increases in costs are put up to the Price Commission for consideration. Therefore, my hon. Friend is making the same mistake to some extent as my hon. Friend the Member for Bristol, North-West. He is looking at the total figure, but we are not concerned with the total figure. This is a technical point, and I think that my hon. Friend has got it wrong.

I wish to deal with two major concessions which the CBI suggested and which the Government felt unable to concede. One of these was that working capital and not stock should be taken as the basis of relief. The problem is that it is difficult to forecast how working capital will change in the future. It involves making precise forecasts of output, and that is very difficult, and the results are most uncertain. In addition, there is the problem that not all firms use the same definition of working capital. Firms in distribution use a very different definition from manufacturing firms. We therefore thought that it was much more acceptable to keep to a straightforward and well-understood definition which would enable us to apply the same rate to both distribution and manufacturing.

The same reasons of considerable complexity in the Price Code relate to the CBI's presentation about input costing. In that case it is difficult to make any assessment of the impact. There is no doubt that the code would have been considerably more complicated by this approach since the CBI felt that an option would have to be built in for output costing for some firms while retaining input costing for others. That would have added an extra dimension of complexity to the code.

Instead, therefore, we have made a simple response to firms using capacity more fully than in the past. We have said with regard to overheads and to the fixed element in labour costs that firms will have to pass on half of any economies made as a result of improvements in capacity or efficiency but can retain the other half to benefit their margins. That we believe will encourage output to increase, but it recognises that the hard-pressed consumer has a right to some share in the effects of efficiency and greater capacity working.

I have other points to make which I did not mention in my original statement. One of these is that under the code firms may recover past costs which they have not recovered in their most recent cost applications. At present, and under the present code, this retrospective right to claim unclaimed costs goes back to November 1973. We believe that that makes the position both complicated and uncertain, so we have rolled the period of retrospective costs forward to January 1975, the beginning of the next phase of the Price Code. This makes it harder to recover historic retrospective costs, but I have always believed it to be a bit of an illusion to suppose that firms can do that anyway.

There are two safeguards that I wish to mention. There is the 80 per cent. safeguard for manufacturers against their original reference margins. It is based, curiously, on a representative period which can be as little as a single day. That seems an obvious loophole because a single day can produce very strange anomalies. Therefore, in the consultative period I shall be considering whether we should have a longer period instead of a single day so that we may avoid these anomalies.

There was bound to be criticism from both sides of the House about the changes in the code, but some of it has been rather strange. It has been strongly suggested that the 1 per cent. addition to the Retail Price Index which the concessions represent is far too little. It is not unreasonable for me to say that in a broadcast on 11th June, the President of the CBI said that he believed that the concessions which the CBI wanted on the code would have added 1 per cent. or 1½ per cent. to the RPI. It is not all that mysterious that it is still 1 per cent. on the RPI.

It is also not unreasonable for me to say that, in many cases, the market is a major limitation. Hon. Members opposite may laugh but it will not do for them to go on about the Price Code without regard for the market.

The crucial point about the Price Code is that it controls prices, as people who served in the last Administration know, during periods of recovery and recession. It is a simple point, and hardly risible, that in periods of recovery it begins to bite and in periods of recession it does not bite because it does not have to. It will not do for hon. Members opposite to pretend that if we get rid of the code in a period of recession, we shall not have much more rapid increases in prices in a period of recovery.

The Press has understood what has been happening better than some others who have expressed their views. It was no other than "Investors Chronicle" which expressed this commonsense view: No Government could set the price code aside while asking the unions to accept their second, consecutive cut in pay rises. That is so obvious that one wonders why anybody in the House is under the illusion that it might be possible. It is not in the interests of industry, trade unions or this country to wreck the pay restraint policy.

My last words were directed primarily at the Opposition. I turn now to my hon. Friends. I hope they will recognise that in circumstances in which we are all profoundly concerned about unemployment, there is no possibility of returning to full employment entirely through service industries or nationalised industries. There must be a major contribution from the private sector and there is a responsibility on those of us concerned with the economy to make possible an improvement in the output and expansion of the private sector.

I am balancing on a tightrope. I can say with confidence that, having been criticised from both sides, I am still on the tightrope, but I believe that we have got it just about right.

4.33 p.m.

Mrs. Sally Oppenheim (Gloucester)

We have listened to a considerable lecture from the right hon. Lady about the intricacies of the amendments she proposes to make to the Price Code. I could not help feeling that in some respects it was a repetition of the lecture she must have delivered at some point during the negotiations with the TUC.

A notable feature of her statement last week, her speech today and her Question Time on Monday was that she felt she had to defend her policy more to her own side of the House than to the Opposition side. That is not surprising. If ever there were a moment of truth for the Labour Party, it is embodied in these two documents. The Labour Party is confronted with the reality that the options have almost all run out.

They are confronted with the double irony of, first, the Labour Government bringing forward proposals to restrain pay very severely while, at the same time, relaxing price controls—the latter being inevitable and overdue, for there was no alternative—secondly, that on the very day when the White Papers were published the Chancellor of the Exchequer, in what was supposed to be an exclusive interview with the Press Association, was forced to announce once again that his inflation forecast had slipped and was running six months behind target.

Of course there is nothing unusual about that. The right hon. Gentleman has slipped on his inflation target figures so often that one wonders whether his shoes are soled with banana skins. It is the sixth revision of his inflation forecasts since taking office and it will no doubt not be the last. It is commonly said that the only thing more unreliable than the long-range weather forecast is the Healey long-range inflation forecast. That is why my heart sank so low when the right hon. Gentleman talked last weekend of further economic miracles.

I am puzzled to know whether the right hon. Gentleman is on speaking terms with the Secretary of State for Prices and Consumer Protection and whether they have access to the same information and statistics. The Chancellor of the Exchequer's slippage was of the order of about six months, but in Question Time just over five weeks ago the right hon. Lady talked of a slippage of two months. There is a great deal of difference, in the space of five weeks, between a slippage of six months in an inflation forecast and a slippage of two months.

I understand that yesterday the Chancellor, who, like so many of his ilk, likes to dish out but cannot take it, was kind enough to refer to my description of last year's White Paper. He was right to take me to task. I was unduly pessimistic in talking about the lifeboat that the Government had launched with no oars and no auxiliary engine and that could prove to be as leaky as a sieve. I had failed to take account of the standby credit on which the Chancellor began to draw only a few months later. That will no doubt provide a few oars as well as an auxiliary motor, but I only hope the Chancellor can swim, because when his creditors come to tell him the time of day, they will want not only the oars and the motor, but to re-possess the lifeboat as well.

However, I am not treating the Chancellor's revision of his inflation forecast with any frivolity. It means that by the end of this year or the beginning of next we shall have had double-figure inflation in this country for more than three years. The effect that this will have had in terms of personal hardship and economic damage cannot be over-estimated.

It is in this grave context that the document before us must be judged as a White Paper tiger. It is an attack with about as much strategic merit as Napoleon's march on Moscow. As my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) explained so lucidly yesterday, it fails to comprehend or take account of the magnitude of the task before us or the totality of the problem. The hazards ahead are more, not less, daunting than those of the Russian winter.

In his Press Association interview on 30th June the Chancellor spoke of his target slippage being due to the depreciation of sterling and rising commodity prices. He said: We cannot control depreciation which reflects the international money market's view of our relative inflation rates. But he neglected to add that this also reflects the international money market's view of our current levels of spending and borrowing. These are both crucial factors which he was prepared to overlook for 18 months, although the right hon. Lady at least acknowledged them today. During that period when Labour Members boasted time and again that their manifesto pledges had been fulfilled they might have reflected that it was the cost of fulfilling such pledges as were fulfilled that led to the hardship and agony now facing the nation.

I wish that it were possible to rewrite the Labour Party election manifesto and retrospectively to fill in the debit side of the balance sheet that it presented. Page 29 of the manifesto says: Our programme has been fully costed and we have weighed the costs carefully". What it did not say was what those costs would be. It did not say that after 26 months of Labour Government we should have over 50 per cent. inflation. It did not say that a Labour Government would preside over 1,300,000 unemployed. It did not say that a Labour Government would have to borrow £14,000 million. It did not say that a Labour Government would have to raise £10,000 million in taxes that would come from the poor, from pensioners, and from average families as well as from the better off.

It did not say that a Labour Government's policies would cause the value of the pound to fall by over 30 per cent. It did not say that a Labour Government would impose at least two years of pay restraint. It did not say that a Labour Government would take deliberate steps, as they are doing in these White Papers, and as they have no alternative but to do, to depress living standards by over 2 per cent. over the next year. The Labour Party's manifesto was a modest document when it came to counting the actual cost of its programme, but this White Paper and its predecessor last year are only the first and the second instalments of the accounts that will finally have to be paid.

I should like now to turn to a couple of points that arise out of the Government's White Paper, in particular that entitled "The Attack on Inflation. The Second Year". The first point—and I hope that the Minister of State will be able to answer this question when he winds up the debate—is the rather curious feature at the top of page 4 where it says: The Government will continue to consult the trade unions, industry and the public generally and to take them into their confidence. That is a new dimension for this Government. Suddently a whole world is opened up outside that tightly knit governing body of the Government and the TUC.

Who did the Government mean by "the public generally" and when did they consult them? Was it perhaps during the recent local government elections? Or was it more recently during the Rotherham by-election? The massive withdrawal of support from the Labour Party could hardly have been taken as an endorsement of that policy.

I have not met one member of the general public who took part in this great consultation, in this sharing of confidence. Even the Parliamentary Labour Party has been known from time to time to complain that it has not been taken adequately into the Government's confidence. The hon. Member for Newham, North-West (Mr. Lewis) complained about that when the right hon. Lady made her statement.

Perhaps it was a lack of evidence of support for the Government that led to the fact that the trumpets were comparatively muted as the Government embarked last week on phase 2 and why the documents before us are comparatively low key and lacking in characteristically extravagant phraseology. In fact, the bellicosity, except in the case of the Chancellor of the Exchequer, was muted almost to a whisper.

It is true that paragraph 8 brags incorrectly yet again that the Government have halved the rate of inflation. The rate of inflation commonly understood by most people in this country and commonly used is the year-on-year rate. It was 25 per cent. last year and it is 15½ per cent. this year. That is not half, and if the Government care to make different comparisons, I suggest that they look at the last six-monthly figures, exclusive of seasonal foods, which show that the underlying trend over that period has not been downward but that, month by month, taken over the past six months, there has been a slight upward trend. I shall be pleasantly surprised if the Chancellor's latest forecast of the year-on-year rate of 12½ per cent. by the end of this year is met.

As for what the right hon. Lady describes as factors beyond the Government's control, the fall in the value of the pound and the rise in commodity prices, according to the Chancellor of the Exchequer yesterday—column 1187—rose more sharply and sooner than he expected, but neither was unpredictable or beyond the Government's control. The fall in the value of the pound, as we have said over and over again, reflects the lack of confidence in the Government's policies. Rising commodity prices are affecting our inflation targets more than those of other countries because of the fall in the value of the pound, it is true, but also because we are out of step with the world reflation cycle. I warned that that was likely to happen when we debated the Price Code last year, and it gives me no satisfaction to be proved right.

In normal circumstances I should not have dreamed of quoting from one of my own speeches, but as the Chancellor of the Exchequer set a precedent, I am almost forced into doing so. I said then: Now we are perhaps more vulnerable than any other developed nation in the world to every rise in oil prices and to every tremor in the commodity markets. The Government have brought us to the point where every cold breeze that blows can give us pneumonia. … We have now missed the boat and are likely to find that, even if pay is restrained, we shall have to take on board not only high prices for commodities but even higher prices because of the fall in the value of the pound."—[Official Report, 16th October 1975; Vol. 897, c. 1675.] I take no credit for making that prediction. It was an easy one to make, but it seems to have caught the Government unawares.

My right hon. Friend the Member for Lowestoft (Mr. Prior) when he winds up the debate for the Opposition will deal with that aspect of the White Paper that is devoted to the pay policy, but again I suggest that when the Government boast of their achievements and that of the TUC leadership in reaching agreement on a pay package they should make clear what has been the price of that agreement. At least part of that price must be, on the right hon. Lady's own admission, that it has been necessary to make inadequate amendments to the Price Code as outlined in the second of the two documents which we are debating today and with which I propose to deal now.

The Chancellor of the Exchequer made a good deal yesterday of the rate of increase in the money supply during the last Administration and of the fact that previous Conservative Administrations had artificially held down the prices of the nationalised industries. The right hon. Gentlemen could not have cited two better examples to illustrate the degree to which the private sector has been hit, because it is a combination of Government policies of rocketing public expenditure and monetary restraint that has hit the private sector very hard indeed.

It is interesting to note that when the public sector of industry is forced to restrain its prices, it is fully compensated, but the private sector has to do so without any compensation whatsoever. The private sector is not asking for massive subsidies to compensate it for price restraint. It is merely asking for adequate profitability. It is true, as I said when the right hon. Lady made her statement last week, that such reliefs as she has given under the Price Code are welcome. I freely acknowledge those, but I suspect that they are not only inadequate but a good deal less than the right hon. Lady would like to have given if she had not had the TUC breathing down her neck.

The right hon. Lady spoke of the compromise that was necessary and of the tightrope that she was bound to walk. I respectfully submit that what she called a compromise was a surrender and that people who find themselves on tightropes invariably get there of their own volition, and stumbling uncertain steps are not, in any case, the best way of negotiating them.

Of course the right hon. Lady had a difficult task. She had a period of difficult negotiations with the two sides—I freely acknowledge that—but she had a unique opportunity which she missed. She knows, as well as do many others, that the Price Code is not popular and is not valued by consumers. She knows that this was an ideal opportunity, if circumstances had allowed, to get rid of it altogether. In fact, the increase in prices if she had done so would have been far less than the impact on prices of the fall in the value of the pound.

The right hon. Lady knows, too, that the operation of the Price Code has become increasingly unfair and unequal in its effects. It is deeply damaging to industry, and the right hon. Lady knows —as she has argued so often—that the return on capital, on average, 2 per cent. is potentially disastrous. We have been given a figure, and we were told at Question Time on Monday that the return on capital was likely to rise to about 3 per cent. If that is correct, it is a pathetic concession in view of the damage that has been done. Industry cannot recover profitability or confidence sufficiently to embark on the scale of investment which the Chancellor of the Exchequer wants and which the country needs.

Because the TUC and some Labour Members are so obsessed with their detestation of profit, they are, unfortunately, blind to the fact that, in denying trade and industry full profitability, they are destroying jobs not just today but for many years ahead and are seriously eroding the viability of British industry for years to come. After all, it was the Prime Minister himself who said it is the profits of the private sector which not only provide jobs but also finance social spending. He may have added "and which, incidentally, help to finance the public sector of industry as well".

In the light of the right hon. Lady's failure to interpret her own appreciation of the reality that she knows exists in respect of the reliefs she has proposed, some people might be forgiven for thinking that the Government are now deliberately using the Price Code to keep unemployment high and to destroy the private sector. Personally, I would not take such an uncharitable view of the situation as that. But whether the action is deliberate, or whether it is dictated by political expediency, to a considerable extent, that is what the effect will be.

Those reliefs which have been given have been carefully chosen not to offend the TUC. The revision on the basis of reference levels is welcome and at least it provides an option to use a more relevant basis. The existing basis was not only damaging but extremely unfair. Surely the right hon. Lady herself must know that the longer the code continues in existence, the more anomalous historic references become. She knows that some companies and whole industries have hardly been touched by the Price Code at all because of the lucky chance of advantageous reference levels during the relevant period, while others have been inordinately hit year after year.

But that is only part of it. On top of intrinsic unfairness in such a situation there were, in fact, internal distortions. The CBI gave an example of just such a distortion when a subsidiary is involved in the memorandum it presented to the right hon. Lady in April. It called this "Case S". It spoke of: … the impact on group reference level caused by the exceptional losses of one subsidiary during the base period. The reference level is (despite an appeal) below what it would be if the company concerned were not part of the group. There is thus a strong incentive for the group to close or dispose of a profitable company employing 250 people and with export sales averaging £2 million per annum. We are currently forced to seek a disposal of that company …". I have no way of knowing whose constituency that company was in, but I do not think any hon. Member, on either side of the House, would relish the job of explaining to 250 unemployed constituents that it was the bureaucracy of the Price Code to which their jobs were sacrificed. The reliefs which have been given in this respect, the uprating to 2½ per cent. on the one hand and 12½ per cent. on capital employed instead of 10 per cent., have been regarded by the CBI pathetic.

It is true that practically the whole of industry has welcomed the abolition of the productivity deduction, but, as the right hon. Lady once again knows, these kinds of reliefs, when given at a time of recession, are worth a great deal less than if they had been given earlier. After all, according to the consultative document the productivity deduction has now been abolished to provide jobs. If so, why did the Government wait for unemployment to reach 1,300,000 before abolishing it?

Paragraph 20 of the consultative document, to which the right hon. Lady has referred, is the most extraordinary reaction to the CBI's plea or simplified administration and less bureaucracy, because it deliberately superimposes additional bureaucracy upon existing bureaucracy. It contrives to give an impression that the code is being made more flexible when, in fact, it probably represents a slight tightening of the code. It is in paragraph 20(e) that we have the greatest volte face of all because the right hon. Lady, who has consistently extolled the glories of cross-subsidisation, suddenly no longer considers it equitable, and not before time.

I now turn to the reliefs given for stock depreciation and for stock appreciation. Once again it will be acknowledged that the effect of these will be far less during the period of recession than it would be during the period of upturn. As the CBI pointed out, this is stock relief and not relief on working capital, as the right hon. Lady has herself acknowledged. There are two further features of the proposals in the consultative document which are represented as reliefs but which, in fact, represent a minor tightening of the code. They are, first, the bringing in to control of firms which have been trading for the past two years and, secondly, the movement of the cut-off date before which cost increases do not qualify, with which the right hon. Lady has dealt and which must certainly be considered as a tightening of the code.

One could go on nit-picking for a very long time among the tangled web of proposed amendments, but I do not propose to delay the House unduly. As my right hon. and learned Friend the Member for Surrey, East said yesterday, these amendments to the code are so involved and complex that they should almost have a Finance Bill Committee stage to deal with them adequately.

Fortunately, the consultative document before the House is still subject to further negotiation and the CBI, the Retail Trade Consortium and others have already expressed strong dissatisfaction with some of the details and the scope of the reliefs that have been given. No doubt the Secretary of State will take note of such further representations as are made, and I hope that she will feel able to act accordingly.

The House should be clear, however, that although it has been said that the amendments to the Price Code contained in the consultative document are worth some £1,000 million in practice, experience has shown, as the right hon. Lady has acknowledged, that likely take-up is about 40 per cent. We can assume that the reliefs will be given at the rate of about £400 million. I ask the Minister of State when he winds up the debate to say how much investment this is likely to generate and how many jobs it is likely to create.

The whole package must be considered in the context of a situation in which the net liquidity of industry and commerce has dropped by nearly two-thirds since 1973, in which gross trading profits have halved since 1973, in which gross fixed investment has gone from plus 8 per cent. in 1973 to minus 12 per cent. in the first quarter of this year and in which, as has already been said, the average rate of return on capital has fallen to 2½ per cent. It is unlikely that the reliefs proposed, either in their totality, and they will not be global in their effect, or individually, will place industry in a position to take full advantage of the upturn when it comes.

It is not during the present recession that industry expects to recover full profitability and maximise investment. It is the presence of the lack of capacity inherent in the amendments to the Price Code that will determine future levels of employment. Quite clearly, this capacity has not been fully restored, particularly as no opportunity has been given to recover any of the lost profitability of the past two years.

Finally on the subject of reliefs, I draw the attention of Labour Members, who have continually called for the monitoring of reliefs to ensure that they are attracted into investment, to the fact that, as the right hon. Lady has explained with monumental patience, if investment relief is given, investment must take place—and that is precisely what is wrong with the amendments to the Price Code. Increased profitability should not be available just for investment alone but should enable companies to build up reserves and attract equity investment. That is just as important to jobs as to the viability of British industry in the future. Once again there is certainly no evidence that the proposed amendments will provide that much scope.

By the end of 1977, or at the height of the upturn, whichever comes first, we shall have had stringent price controls for over four years. No one should underestimate the damage that will have been done to industry over this time. Faced with the overriding need to keep price increases down to 1 per cent., the right hon. Lady has felt unable to go further. She does not accept the CBI's estimate that the total abolition of the code would not cost very much more. She is afraid that the pay deal might be endangered.

Yet the White Paper itself points out in paragraph 35 that it is the economic climate and not the Price Code that is keeping prices down at present. Similarly however much credit the Government may claim for themselves and the TUC, I suspect that the pay deal owes as much to a shrewd appreciation on the part of the TUC leadership of what the market will bear during a period of recession and high unemployment as to any desire to please the Government.

However, if the cost of price controls in terms of lost jobs and investment has at last, reluctantly and inadequately, been acknowledged by both the Government and the TUC, the country has not yet fully realised the cost of the pay deal. It is because the Government have resolutely refused to cut their levels of spending and borrowing until they are forced to do so that the right hon. Lady has been left with no scope to risk the effect on prices of an upturn situation unaccompanied by price controls. That was the price of last year's pay deal. The cost of this year's pay deal has yet to be counted.

I have been critical in my remarks about the Government's policy, about their record, and about what is generally considered to be the inadequacy of the amendments to the code that they are proposing—as I have every right to be and as every Opposition have a duty to be. Why the Chancellor of the Exchequer should think that his Government are above criticism I cannot think. Indeed, there has been an implication in the statements of some Ministers that to criticise the Government is to be unpatriotic. That seems to be verging on some form of megalomania.

There will always be deep differences between the two sides of the House on the issues that we are discussing, but our concern for our country is common. Surely if we have learned anything in the past decade we have learned that artificial distortion and manipulation of prices and pay does nothing to solve our underlying fundamental economic problems, although it may diguise them in the short term.

Despite food subsidies, prices have risen by over 56 per cent. in the past two years. Despite the panoply of the massive bureaucracy of the Price Commission, despite the damage done to industry, jobs and investment, since price controls were first introduced prices have risen by 68½ per cent.

Inflation has not been cured. It has been partially disguised. Despite what will have been, by the end of next year, four years of stringent price control and two years of pay restraint by the present Government, at the end of next year, on the basis of the Chancellor's own forecast, prices will have risen since the present Government came to power by 72 per cent.

Of course, anyone who embarks upon a pay and prices policy hopes that he can plan re-entry at a time when inflation is falling sufficiently for the effects to be mitigated. Those plans always have a way of coming unstuck. Perhaps nowhere is the basic fallacy so beautifully illustrated as in the last two lines of Louis MacNiece's poem "Bagpipe Music": The glass is falling hour by hour, the glass will fall for ever. But if you break the bloody glass, you won't hold up the weather. I apologise for that unparliamentary expression, Mr. Deputy Speaker.

I believe that at least the Prime Minister, the right hon. Lady and the Chancellor have accepted that maxim already—if only they were free to say so—just as they have accepted, very late in the day, at least some of the expenditure cuts which are likely to be pressed on them by our creditors and which are likely to be announced any day now.

The last paragraph of the White Paper is entitled "Realism and Recovery." So far we have seen very little of the former and not too much of the latter. We have paid very dearly for the time that has been lost so far. The longer the recognition of this reality is delayed, the longer the Government fail to recognise not only the reality but the urgency of the situation, the further and further we shall get from the fulfilment of the social needs of our constituents, from the restoration of living standards, from higher employment, and from the ability to reward and encourage initiative and industry. If the Government leave it too long, there will be no cake to share out at all, for only the crumbs will be left.

5.5 p.m.

Mr. Eric S. Heffer (Liverpool, Walton)

A few minutes ago the hon. Member for Gloucester (Mrs. Oppenheim) said that some Labour Members had been requesting my right hon. Friend the Secretary of State to tell us whether by this policy we would be getting the investment that we have required. The hon. Lady said that my right hon. Friend had shown monumental patience in explaining the realities of life to us. The hon. Lady also implied that she herself was showing monumental patience to we dimwits on the Government side of the House.

I do not mind being lectured by one right hon. Lady, but to be lectured by two is asking a bit too much. I ask the hon. Lady to refrain from giving us these lectures. Apart from anything else, I always find it very difficult to be offensive to lady Members, even when I politically disagree with them. It is one of my problems that I can be rather tougher with my right hon. Friends who are male than with those who are female. Therefore, I ask the hon. Lady not to give us such lectures.

My right hon. Friend the Secretary of State raised some of the most fundamental questions of our present difficulties. She said that unless there were an increase in the rate of return on capital there would be the possibility that the private sector would not survive. I think that that was a slight exaggeration. Nevertheless, I take the point on board. I have always argued that the very motive of the capitalist system is to make profit. If it does not make profit obviously it does not invest, and it goes out of business and the system collapses, and with that collapse masses of workers are thrown out of work. That is absolutely true. That is what has happened in the past. In the circumstances of today, it could happen now. One does not have to believe in capitalism to recognise the facts of the capitalist system. That is the reality of the situation.

However, in appreciating that, we come to the fundamental question. Can we allow to continue a system that does not guarantee that there will be planned investment and full employment? As my hon. Friend the Member for Penistone (Mr. Mendelson) said yesterday, in a first-class speech, the capitalist system cannot guarantee full employment. In the Western capitalist world today there are about 25 million working people out of work, of which 1.3 million happen to be in this country. For the benefit of the present Opposition Front Bench, if not the past Front Bench, I must say that we live in a capitalist society. It is not the Socialist millenium of which we are always being accused. It is said that we live in a society in which there is too much Socialism. However, what we live in is a controlled capitalist society which has now reached the crossroads. The crossroads are there for all of us to see.

How are we to get the investment? My right hon. Friend said that there will be monitoring, but she cannot guarantee, despite the monitoring, that the investment will be where we want it. That is what we have been arguing about.

Mrs. Shirley Williams

I think I can guarantee that the investment will be where we want it. What I cannot guarantee is that it will necessarily occur. It is possible that it will not occur, but if it occurs I am sure that we can guarantee that it will be where we want it.

Mr. Heffer

Although my right hon. Friend says that she can give me that guarantee, I do not think she can. If she says that she is not certain that the investment will occur, she is not giving a guarantee. If I may say so, what sort of investment is it if it may not occur? If it occurs, shall we ensure that it goes to the right place? What will happen if it does not occur? I say, with all respect, that my right hon. Friend's argument is not very logical. Perhaps she has a first-class honours degree and I do not, but her argument does not appear to be logical.

What we need, if we are to get investment, is a system of planning agreements on a compulsory basis. How else are we to do it? We argued in the Industry Act for a system of planning agreements. They are voluntary and there is no guarantee that large companies will enter into such a system with us. Why should they? Why should they do so if they are to get very little in return? All that we are saying to large companies is that if they enter into a planning agreement and there are future changes in the various investment grants, for example, and a guarantee that there will be the same level of support. If I were a large industrialist, I do not think that that would make me rush into a planning agreement.

Therefore, we need compulsory planning agreements. That is precisely what we argued for in the Green Paper that was issued by the Labour Party when we considered establishing the National Enterprise Board and the whole system of planning agreements I argue that we need compulsory planning agreements if we are to guarantee the investment that we are told may occur if this prices policy is accepted.

The House has discussed the whole question of pay and prices policy ever since I have been a Member. I think I have participated in about every debate on pay and prices policy in the past 12 years. The conclusion to which I have come is very much the conclusion to which the hon. Member for Gloucester has arrived—namely, that pay and prices policies do not solve the problem in the long run. Of course, what the hon. Lady said contradicted what the previous Conservative Government said There is a clash of opinion within the Conservative Party as there is a clash of opinion within the Labour Party. I do not deny that clash for one moment. Strong attitudes are adopted on both sides of the argument.

It is clear that the credits that the Government have obtained are useful at a given moment in a given situation, but they will not solve the underlying problems. It is no use pretending otherwise, because, as I said, we are at the crossroads. We either move forward to a more planned economic system with a National Planning Commission introduced into the Government machinery, an extension of public ownership, control over the basic industries and a compulsory planning system, or we return to the total laissez-faire policy that the Opposition are suggesting.

If we get the Opposition's policy, we shall get massive unemployment. That is why we are totally opposed to the policy that is now being put forward by the Opposition Front Bench. I say to my right hon. Friends that we shall not argue against pay policies that are accepted by the trade union movement. All right, we have been defeated in our arguments. The movement believes that its action will make a contribution, that the credit will make a contribution, but let us not leave the matter there. There are 1,300,000 workers out of work under a Labour Government. That is a scandal. It is the biggest scandal of this Government. I do not mind saying that, as I have been unemployed too many times not to know what unemployment means to people. I have always argued that measures to combat unemployment should be the Government's priority.

There is the idea that further cuts in public expenditure will mean that the money that is saved will be pushed into private industry, but there is no guarantee that that will happen. I ask my right hon. and hon. Friends to think again about further cuts in public expenditure. Let them think about them seriously. We are not prepared to allow further people in the public services to be unemployed with no guarantee that they will be pushed into manufacturing industry.

Mr. Nigel Lawson (Blaby)

The hon. Gentleman is free in demanding guarantees, but what guarantee can he give that his Socialist nostrums will provide full employment and rising prosperity?

Mr. Heffer

The hon. Gentleman knows full well that we do not have a fully planned economy. Therefore, we cannot argue in the present situation that we can give guarantees. We argue that in this society no attempt is being made to deal positively with the problems. In a fully planned and socialised economy with democratic control—I do not want the Russian system and have never wanted it—we shall be able to guarantee full employment. But that cannot be argued now because we are not in that immediate situation.

I want to conclude because I have taken longer than I intended. I gave an assurance that I would speak for only 15 minutes. Unfortunately, whenever I make a speech I am interrupted on numerous occasions, especially from Conservative Members.

Mr. Deputy Speaker (Sir Myer Galpern)

Order. I can assure the hon. Gentleman that he is forgiven for the extra minute or two.

Mr. Heffer

Thank you very much, Mr. Deputy Speaker. I regret that the interruptions do not always add a few minutes to my allotted time.

I conclude by saying that I believe that my right hon. Friends on the Front Bench must give this matter greater consideration. We must not be mesmerised by the mixed economy. We must not believe that it is the last word in economic systems. In fact, it is neither one thing nor the other. If we do not have proper planning we cannot extend planned investment and work towards full employment. Without control, how can one regulate investment or production?

I am very pleased that my right hon. Friends have raised once again the fundamental questions for debate and discussion. Although those on this side who think like me will go along with the policy as it stands, up to a point, we want our right hon. Friends to recognise that there should be no further cuts in public expenditure, that we should get back to the policies pursued at the beginning of this Parliament, of extending public control and bringing in planning agreements on a compulsory basis. In the last analysis that is the only way in which we can create full employment for our people.

5.21 p.m.

Mr. Edward Heath (Sidcup)

I always listen with the greatest interest to the hon. Member for Liverpool, Walton (Mr. Heffer) because at any rate he always addresses himself to the fundamental problems which face us. However misguided I may from time to time think his conclusions are, I give him full credit for that.

Indeed, I am greatly tempted to follow the hon. Gentleman in some of the thoughts that he has put forward. I will resist that temptation except to comment that, in the same way as, he said, for all his time in the House he has found himself discussing incomes policy, so, for the 24 years or so for which I have been in government, I have found myself involved with nationalised industries and the public sector. Everything that I have seen there has only revealed to me the extraordinary extent of human fallibility when it comes to trying to involve oneself in overall planning, or indeed individual planning of a particular industry.

If at any time anyone wants an example of that, he has only to go back to the nationalisation of the power industries, considering the White Papers produced by Governments of both complexions since then forecasting what would be required in power and what the programme would be, to realise that every White Paper has been wrong in its conclusions about the power industries.

I will therefore resist the temptation to follow the hon. Member in that, but I might add that anyone who has had to deal with incomes and prices policy also recognises the complexities of trying to get this subject right in human society.

I should like now to pass on to the speech of the Secretary of State. Again, I do not want to follow her argument because I want to deal with other matters, but I listened with great interest to a speech of eloquence and clarity. I would only make one or two points about it.

The right hon. Lady said, in regard to the complexity of the code, that if it has only a year to run it is difficult to tackle that fundamental aspect. This matter goes to the root problem of an incomes policy and a prices policy. I hope that I am being realistic—I should have thought that most hon. Members opposite would agree with me—when I say that I am unable to visualise a situation in which there was an incomes policy, either voluntary or statutory, but in which there was not a prices policy at the same time.

If that is the case, the right hon. Lady must recognise—perhaps she knows—that, in a year's time the Government will have to deal again with incomes policy. I would ask her only to start now thinking in terms of a complete and radical overhaul of the prices control arrangements as at present set out in the White Paper. Like my hon. Friend the Member for Gloucester (Mrs. Oppenheim), who also spoke so eloquently, I welcome the changes made. I never understood why the 50 per cent. productivity allowance was reduced to 20 per cent., but now at any rate it has been abolished completely.

But my second point is that even with all these changes, the Secretary of State herself has said that the level of profits in this country will move from 2.2 per cent. to 2.42 per cent. Without arguing about the past, I think that she will recognise that that is a very inadequate figure to enable British industry to achieve the profitability and the investment which it requires.

The problem which confronts the right hon. Lady, I recognise, is how to change that code, particularly at a time when we are on the upward sweep of the trade cycle, to give British industry something at any rate approaching what it requires for reinvestment. I think that the challenge to the right hon. Lady will come when some of the firms which are in the main exporting firms can take advantage of profits which do not come under the Price Code and take advantage of the present position of sterling and, if these companies get their pricing policies correct, then publish figures to show that they have made considerable and justifiable profits which will help their investments.

That is the moment when the right hon. Lady will come under attack from many of her right hon. and hon. Friends, and, I fear, from some of the leaders of the trade union movement. But that is the moment when there will be an opportunity for further education in how essential real profitability is if industry is to re-equip itself and to provide the jobs which will be required.

The Chancellor of the Exchequer explained to me that he and the Prime Minister cannot be here today because they are at the meeting of Neddy which is discussing the future of many of our industries and industrial reconstruction. Of course I fully accept that. I have always attached great importance to Neddy, which was, after all, inaugurated by a Conservative Chancellor and Government.

I hope that we could now have a fuller process of consultation between the Prime Minister when he presides over Neddy, or otherwise the Chancellor of the Exchequer, and the bodies concerned on the deliberations and the conclusions which Neddy reaches. I have myself put forward proposals before this that there could at any rate be greater publicising of what it thinks in hard terms. I should like the discussions to be in public, but I recognise the difficulty of doing that.

I would say, in passing, to my hon. Friend the Member for Horncastle (Mr. Tapsell), whose speech yesterday I read with great interest, that all the discussions carried on in 1972 and 1973 between the trade unions and the CBI were Neddy discussions. The trade unions would never have agreed to have them otherwise. The Director of Neddy, Sir Frank Figgures—or, later, Sir Ronald McIntosh—was present at all those meetings. The reason that they were between the TUC and the CBI, broadly speaking, is that Neddy, broadly speaking, consists of the TUC and the CBI. All the TUC representatives who were in Neddy were those who were in our talks, and the CBI representatives at Neddy were those who took part in our talks.

So throughout, this process has been a Neddy process. Those who were not there were the two representatives of the nationalised industries, because the Government had discussions separately with them, and the two independent members who gave their views at the normal Neddy meeting. Then we ourselves added for consultation the Retail Consortium to deal with the whole of the distribution industry.

It is possible to widen Neddy. My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe), the Shadow Chancellor, who I think in his major speech recently and again in his speech yesterday is trying to reach a fair balance among the different tools to be used in managing the economy, spoke of these matters being handled by people. Government and Parliament.

I find that a difficult concept to absorb, although I know what is in my right hon. and learned Friend's mind—that he wants the whole of the nation to be involved in major decisions. But we must face the fact, although there is sometimes confusion about this, that Parliament is not a negotiating body and never can be. It is not an executive body and never can be, although some, from their own natural inclinations, would like it to be.

Parliament in fact is a debating and legislative chamber and its purpose is either to give or to deny a Government authority for the conclusions which they reach. It is important that this should be clear, because for many years Governments have carried on the same consultation with almost every other interest in the country that they now carry on, as did our Government, with trade unions and employers.

What is more, so far as agriculture is concerned, since the 1947 Act, Governments have gone much further in negotiating directly with the National Farmers' Union, which is, after all, a union, the prices for its products and the subsidies that it will receive and, on occasions, allowances for buildings and so forth. They have then come to the House and said, "This is what we have agreed", or, "This is what we shall do, even though it is disagreed", and then Parliament has had the final word.

It therefore seems to me that we are moving quite deliberately, with industry and trade unions, into the sphere which we have long occupied with other interests. The question is, how do we manage these things properly?

If there is anyone who today thinks that Government can move out of the whole of this sphere of intense consultation with industry and the trade unions he could not in my view be more mistaken. The grumbles from industry and employers are not that they are over-consulted or over-considered by Governments. The complaints are always that they are under-considered or that views which they put forward are totally ignored. That is the problem in the relationship between employers, management and Government today.

Those countries which have had the greatest success in dealing with their industrial situation are those which, in one way or another, have the closest form of consultation with both sides of industry. Those who have studied this will know that in Japan, Germany. Sweden or Singapore—in those countries where there is close consultation—there is always the best result from the point of view of industrial production and, incidentally, from the point of view of dealing with inflation.

This brings me to the White Paper on incomes policy. I fully and unequivocally support the agreement which the Government have reached with the trade unions. I believe that it is in the national interest that this agreement should have been reached. I do not believe that we should hedge about it. I have already said that I do not view it as being in any way unconstitutional. It is a formalisation of what has been going on for many years in the Chancellor of the Exchequer's office in the Treasury before every Budget.

We ought to recognise that to have an incomes policy which is, in the circumstances, quite a tough one, especially when we are on the upturn of the trade cycle, is a remarkable achievement and that an increase of £2.50 when average earnings are now £60 a week is not a great deal of extra money for a family of a man and wife and two children, who are having to deal with all the difficulties of the price increases of the past two years. This is a limited amount of money and I should have thought that most Members would know that to be true from their daily lives. Even the £4 for those at the top of the scale, with above-average earnings, is still a small amount.

I said nothing in the Budget debate because I did not want in any way to be thought to be damaging what the Chancellor was attempting to do. I felt that he approached it from the wrong way. By coming here and saying "These are allowances I will make provided the trade unions will make such-and-such an arrangement" he gave the impression overseas that he was prepared to bargain and negotiate and might waver in his position. That lost us 10 points on sterling. If he had done it the other way and come to the House and said "This is my Budget. If in the negotiations I am carrying out I get a good incomes policy I can make changes.", it would have made a difference. It may seem a slight difference but it is an important psychological one for foreign opinion. I did not say that at the time but I believe that it would have been right for the Chancellor to say "This is my Budget. If the negotiations with the trade unions produce the result I want, I can make changes which will be of benefit."

Mr. Mike Thomas (Newcastle upon Tyne, East)

Will the right hon. Gentleman not concede that the trade unionists needed to see the specific figures set out in the table appended to the Budget giving the amounts by which they would benefit by way of pay increases and tax allowances? Does he not agree that that was important and that the Chancellor had to do this in his Budget?

Mr. Heath

The hon. Gentleman is right. That was an advantage. Against that we set the disadvantage of the effect on sterling. Secondly, those figures could have been made plain in the discussions with the trade unions and then publicised. What is an even greater advantage is that for the first time in my experience the trade unions have accepted publicly that a reduction in taxation, whether direct or through allowances, is to be taken into account and is of importance to them. Whenever I have discussed wage negotiations in the past with all those involved, they have always said "We are sorry but we cannot argue that matter in trade union negotiations." I remember when Lord Barber took £1 off taxation and put it back into everyone's pay packet; that was not taken into account in wage negotiations. For the first time this has been accepted by the trade unions. In itself that is an important advance.

I believe that this pay policy arrangement will stick. The last one did and perhaps therefore it will make the future task easier by disarming the sceptics who have always believed that such a move was not possible.

Another point mentioned by the Prime Minister—and one of my hon. Friends raised the question—is, what about the CBI? I do not think that we should forget that it was the CBI which first made a voluntary agreement to limit prices. It carried that agreement through. In fairness to the CBI that should be recognised. That was why we decided to limit increases in the prices of the nationalised industries, so that they would not get out of step with the CBI and private industry. The Government have already acknowledged that fact. They now say that the nationalised industries should at any rate cover their costs and, where possible make profits. Therefore, we can expect little criticism from the Government Bench if we take the same— view that nationalised industries have to justify themselves.

This pay policy agreement will stick, event though the pressures a little later may become greater than they are now. I noticed today that at the NUM conference the miners have demanded a week's extra holiday and retirement at 60, which is not in accordance with the pay code and, therefore, cannot be granted. I wondered what would happen if they decided to push this in January to the ultimate limit and whether perhaps they might decide not work at weekends or to withdraw their labour. In that case would the Prime Minister gather the Lord President and the Chancellor of the Exchequer together and say "We are a dastardly group of confronters. Look what has happened."? I hardly think so. Of course not. That is because the Government are following a policy which has the support of Parliament. They could not be accused of confrontation if those circumstances came about.

The Prime Minister might also go back two-and-a-half years and recognise that there was not a policy of confrontation on the part of the Government then. There never was a desire for a confrontation on the part of the Government of 1970–74. I hope that the Prime Minister, who has said that he wants to bring about a national approach to these matters, will now refrain from using an argument which he knows is palpably untrue and will instead endeavour to go on creating a national position on these matters.

In carrying through these aspects of the policy I do not believe that it can be said to be part of an undemocratic process. The real test of the democracy of the Labour Party and of its leaders is completely different. It is this: are they prepared to stand up and say to the trade unionists of the country that they ought to behave in a similar way towards any democratically-elected Government of this country? In due course the electorate will demand an answer. It is not sufficient to say "Oh, well, of course if another party is prepared to do the same things as we do that will happen."

Another party will be returned on a different manifesto, with a different mandate from the electorate. The electorate will want to see those things carried out. On matters concerning trade unions, such as wage bargaining and allied matters, well and good. But when it comes to the political aspects of the policy of a party returned as the Government, the real test of the democracy of the Labour Party is whether it will publicly declare that the trade union movement should behave in the same way towards a Government of a different colour.

Mr. Heffer

The trade union leaders have always said that they are prepared to work with any Government, irrespective of political complexion. Does the right hon. Gentleman recall that when the Industrial Relations Bill was first introduced, in White Paper form, the Trades Union Congress was told quite bluntly by the right hon. Gentleman's Government that the principles were not debatable, that there were three pillars and that they would be kept all the way through? Was that not a confrontation situation?

Mr. Heath

In my view it was not. As the hon. Gentleman always goes to the heart of the matter, let me say that the proposals for the changes in industrial relations—which had largely been put forward by a Labour Government who had then failed to secure them—were put forward in maximum detail to the electorate in the 1970 election.

I am sometimes criticised, as the former Leader of the party, for having put forward detailed proposals on industrial relations at the General Election, but those proposals were there for everyone to read. My only regret is that trade union leaders who were constantly invited to discuss the proposals between 1965 and 1970 were unprepared to do so. I hope that on another occasion the present Opposition leaders will be prepared to enter into discussions with the trade union leaders, because that is part of our life in a democracy.

I want to speak of the future, and, first, of the economy. The Chancellor of the Exchequer yesterday dealt with some aspects of the economy. He prides himself on decreasing inflation and increasing production. I confess that, having known the Chancellor of the Exchequer for the last 40 years, I do not share his admiration for himself, whether expressed directly or through quotations from his friends in other countries. He is able to pride himself on decreasing inflation and increasing production only because the first was so high and the second so low. That was his achievement.

The Chancellor presided over the most disastrous year in British economic history, from March 1974 to March 1975. Our gross domestic product fell by £2,000 million, or 2.8 per cent., and manufacturing production fell by 8½ per cent., way below the level achieved during the three-day week. He increased public spending by over £4,000 million, or 7½ per cent., and allowed earnings to rise by over 30 per cent., with the resultant inflation of 26 per cent. That is why he can point to the fact that at last, with the aid of the trade unions, the employers and the incomes policy—which he denied at the General Election would ever be necessary—he has been able to begin to get production up and the rate of inflation down. It is interesting that for this remarkable failure—this disastrous year—he now blames us.

I find that difficult to accept on two counts. First, in the October 1974 election he again boasted that he had already brought inflation down to 8.4 per cent. We did not then hear anything about the monetary abuses alleged to have been committed by the Conservative Government of 1970–74. Secondly, there is no mention of that in the White Paper. The White Paper says that the balance of payments problems were largely caused—not "in part", as the Chancellor said —by the world increase in the prices of imported raw materials and food. That is the truth. Why does not the White Paper say that those problems were caused by the monetary sins of the Conservative Government? There are two reasons for that. The first is that the Chancellor's advisers know perfectly well that they were not and, secondly, his advisers, being men of integrity, would not allow him to put that in the White Paper even if he wanted to. That deals with the allegations against the Conservative Government.

It is time that some of the myths surrounding monetary supply and control were dispelled. The Chancellor is unlikely to do that because, as he displayed yesterday to one of his hon. Friends, he is no monetarist. When asked to explain M1 on M3 he bumbled and finally referred to it as being too much money sloshing around. That does not make much appeal to his hon. Friends below the Gangway. Most people who work in factories do not have too much money sloshing around.

To take the figure for MI—which the Bank of England considers to be an important figure—from the second quarter of 1970, when we took over, to the first quarter of 1974—our last quarter in office—the increase in M1 was overall below the figure for the gross domestic product That is vital to this argument. The figure for M1 was 42 per cent. and the figure for the gross domestic product was 52.3 per cent. There is no justification for the argument that Ml—which consists of notes, coins and current account deposits —was the cause of inflation. In fact, the White Paper is right.

It is constantly forgotten that in the two years 1972 and 1973 the Conservative Government had to deal with a 182 per cent. increase in the price of raw materials and foodstuffs. I have never heard credit given for the difficulty that caused, nor have I heard that altering Ml, which was already below GDP, would have prevented those increases in prices from coming through into the economy. It is important that this myth should be killed once and for all.

Mr. Michael English (Nottingham, West)

A report of the Sub-Committee which I chair pointed out that an increase in import prices is not in itself necessarily inflationary. It is inflationary if it is financed totally by a balance of payments deficit, but not necessarily otherwise. I suggest to the right hon. Gentleman that notes, coins and current deposits are not in practical terms the sole definition of money.

Mr. Heath

They are not the sole definition because there is M3, which is the addition of Euro-deposits and noncurrent account deposits. In the Financial Times of 26th January this year an article appeared written by Mr. Anthony Harris in which he pointed out that M1 is the figure that matters. I do not want to get into an argument about the technical definition of inflation. If import prices rise money is taken away from people's purses and the result is deflation. It is increases in prices which concern people in the street and Members of Parliament when they are dealing with policies for incomes and prices.

Mr. Douglas Jay (Battersea, North)

I think that the right hon. Gentleman reached that conclusion by mixing up the dates unjustifiably. The increase in M1 from the end of 1971 to the middle of 1974 was far in excess of any increase in GDP.

Mr. Heath

I am taking the period for which we were responsible, which is from the end of the second quarter of 1970, when we took office, to the end of the first quarter in 1974. I cannot be responsible for adding on the 1974 figures which, for 10 months, were the responsibility of the present Government.

The Financial Secretary to the Treasury (Mr. Robert Sheldon)

The right hon. Gentleman can certainly take some responsibility for the £4,000 million public sector borrowing requirement before the oil price increases came into effect and before the large increase in commodity prices to which he referred.

Mr. Heath

I also accept responsibility for the cuts which were made by the Conservative Cabinet in December 1973, announced to the House and allocated to Departments, cuts which the present Chancellor of the Exchequer abandoned directly he came into office. He increased the borrowing requirement by over £4,000 million in that year. Now the Government have a borrowing requirement of £12 billion. We heard yesterday that it might be a little less than that, which would certainly be welcome. I do not think that the Financial Secretary has much to score there.

I want to deal with the particular problems that face us now. We have just heard that expansion is going faster than the Chancellor thought. In manufacturing industry, it is 9 per cent., and we hear that there is additional capacity in the heavy engineering industry. With an expansion rate of 9 per cent. there will be problems similar to those faced by the Conservative Government which the then Labour Opposition sneered at and now will have to deal with. The Government will find that the capacity is not there in particular industries. Above all, they will find that skilled workers are not there.

What has been done to deal with this problem so far is minimal. The Chancellor of the Exchequer and other Ministers say that they are taking action to move resources into exports. I heard that often in 1966 after the 1966 measures. It is an easy phrase. There are some who believe that running an economy is an easy matter, and that one just has to say what is to be done and it is done. It is not. When the Government say that they want to move resources into exports, tremendous problems arise. It is necessary to get workers to the firms and to set people with the right skills into the right manufacturing firms. That is not a speedy and automatic process. The Government will run into problems of that kind, and they will also run into problems over the cost of raw materials and foodstuffs.

The figures are startling. In the first 18 months of their life the Government had the advantage of a reduction in imports of 27 per cent. Since then imports have gone up 50 per cent. and they are still going up. We have not yet started restocking and we are the last of the countries in the world to recover. 'I he demand on world raw materials and foodstuffs will hit consumer prices and import prices. Unless the Government are prepared to act, this will have an impact on sterling because it is a long period in the eyes of the foreigner to the end of 1977 or to the beginning of 1978 in which to get inflation down. It could be 21 months away. That is why the Government must take action on public expenditure. If they do not take that action, they will not be able to hold the situation.

The Chancellor of the Exchequer is following a very high risk strategy. He is hoping that the loans which he has obtained will suffice to cover the balance of payments deficit and his enormous Budget deficit without his having to cut Government expenditure and without a further depreciation of sterling. He hopes to carry that policy through until the spring of 1977 when he will begin gently to cut Government expenditure. That is an enormous risk to take with the economy of this country and it is right for me to give that warning.

There is nothing in the White Paper or which has been said by the Chancellor about what will happen at the end of the incomes policy. The work should have been done already. We must remind ourselves of past experience. When the Chancellor says that the fight began in 1975 he is doing less than justice to his own party. The fight began under Stafford Cripps in the late 1940s. I am alarmed by how quickly the efforts and their consequences have passed from the memory of the House and of the commentators who write about them. We should look at past experience and circumstances and take them into account because they are important for the future.

We have heard about a return to free collective bargaining, but that is a limited concept. Trade unions support wages councils, they want minimum wage legislation, but that is not free collective bargaining because it is imposed by Parliament. If we have free collective bargaining in the remaining sector, there are disputes. We have tried voluntary arbitration, but there was no binding agreement about that. We have tried compulsory arbitration, and again, with one or two exceptions, it was not agreeable to the unions. I can remember a case in the 1950s when the railwaymen were awarded a nil per cent. increase in wages because, we were told, the railways could not afford to pay and therefore there was no economic justification. The dispute went on, there was an inquiry and the railwaymen were awarded 3½ per cent. which was a large increase in those days.

The phrase emerged "If you will the end, you must will the means". In other words, if one wants a railway one must be prepared to pay the men a proper wage. At that point we abandoned economic criteria. That is now one of the facts of life. We went on to tribunals and. inquiries and we found that they split the difference. That will not give us any safeguard against inflation. Negotiating techniques grew and trade unions moved forward quickly, and the difference split was to the advantage of the trade unions. That did not help our problem.

We tried to introduce the concept of the national interest—the consumer interest—but there was great hostility to that. The tribunal decided that its job was to get a settlement and it did that by splitting the difference. Those are the problems of dispute in a free wage bargaining economy.

We are told that if the employers and unions bargain together on the up part of the cycle, they will agree together because employers believe that they can put up prices. They can always do that in the up part of the cycle. But that does not deal with the problem of rising prices. Unions up their wages and employers up their prices. In the downward trend we are told that if one refused to let them have the money they would be forced to stand out. But employers do not when they have no money in the kitty. For 15 years the name Rootes was on the lips of every employer because it stood out. Everyone saw what happened to Rootes. It was taken over by Chrysler. Look what happened to Chrysler and the consequences. That is no easy solution to the problem either.

Then we had the 1966–70 policy which broke down because there were so many exceptions. The Minister of the time had great difficulty, although she tried with skill, and that Government decided to deal with the matter by reforming trade union legislation. The Chancellor of the Exchequer said that he would give up his incomes policy in response to that and in the end he got neither. That was the stage when we came into office in the 1970s.

Those are the problems that are facing those who say "Away with an incomes policy—have one of the other alternatives." I want to be convinced how they can work when we have seen how they have failed to deal with inflation in the past, even when there has been strict money control, as the Chancellor calls it, or, as I believe, reasonable monetary control under our Government.

When we were in office we had talks to try to reach agreement with the unions. It has never been understood how, in those talks, we tried to create an economic model with the best information, or how we tried to achieve a rational approach. I did not see any alternative to that, but if particular groups want to stop it they can use their strength in a variety of ways —and that is done mostly by the unions. That approach seemed the right one to us. We had to go for a freeze because we did not get an agreement—although we might have been nearer to an agreement than we thought. We had phase 2 which was flexible and then the even more flexible phase 3.

The Chancellor talked about industrial relations. Historically, days lost through strikes are always fewer in number when an incomes policy is operating. Under our Administration, days lost through strikes dropped by two-thirds and the same is happening now because people feel that there is a fairness about an incomes policy. They know what the arrangements are and therefore operate under them.

Relations between trade unions and the Government are now crucial in politics. We maintained our political principles during the discussions to which I have referred. When it came to the Housing Finance Act, which was bitterly opposed by the then Opposition, we continued the policy that rents would go up but that those who needed help would get it. The present Government are doing the same, and that, again, involves an understanding of the economy as a whole in the country as a whole.

Amendments to the Industrial Relations Act would have been necessary. Sometimes we did things that we thought would please the trade unions, but exactly the reverse happened. We hoped to have a court to decide on disputes, but the trade unions said that they had observed injunctions passed by the normal High Court but that they would not observe those passed by an industrial court. That provision could have been amended. We retained our principles in all those discussions. It is essential that any Government should be able to do that.

Of course, there are limitations on an incomes policy. There are limitations on differentials. That is where one of the main problems will come at the end of this year. We tried to deal with the matter by the Relativities Board, which the present Government abolished. It can be said that nobody can definitely fix what a relativity should be, but can anybody say that it is more fairly fixed by the monopoly power of one union prepared to use that power? That is the other side of the coin when we are dealing with free collective bargaining.

One of the major problems today is with management. If we compare the salaries of management in this country with those in Europe, Australasia or North America, we see that they are very poor. Understanding is required not only of profitability but of the position of management—indeed, of all those who are prepared to take risks in order to increase production, their own artistic effort or whatever. They should see their rewards. This is a fundamental problem of understanding for the trade unions.

I should like to say a little about the article in The Times, because it seemed to me clearly to illustrate the sort of difficulties with which Governments, Oppositions and all hon. Members must deal when it comes to problems of the economy and trying to formulate future policy. I see views fluctuating wildly from side to side, with no attempt to achieve a proper balance of interest between the many arguments. I have no animosity towards The Times. Some of the things I shall quote are rather complimentary. On 22nd March 1972 it said: From now until the end of their term of office, the Government will be judged above all on their ability to reduce the level of unemployment. There was nothing there about inflation, monetary policy, the gold standard or anything like that. The Times continued: However, neither in its aggregate terms nor in its specific proposals does the Budget ensure that the reduction will be substantial. The 1971 Budget had been criticised even more strongly. The Times then said: a closer look at the Budget arithmetic suggests that it may not prove reflationary enough, when one considers the urgent need to halt the present rise in unemployment. Unemployment was then foremost in people's minds and was said to govern policy. Hon. Members may recall that when we went over the 1 million unemployed mark the proceedings of the House were disrupted by Labour Members and the Sitting had to be suspended. As Prime Minister, I was not allowed to answer Questions. But now we have gone 11 months with unemployment over a million, at 1¼ million. [Interruption.] The hon. Member for Walton speaks out about it, but his party has the responsibility. Damage is now being done to the school leavers and university leavers who cannot obtain jobs, who for some time to come cannot see themselves finding jobs, or who will have to take jobs beneath their qualifications. That damage is enormous.

Criticising the 1973 Budget, The Times said: It is devoutly to be hoped that Mr. Barber's gamble will pay off, that all-out expansion will secure the prize of a successful counter-inflation policy rooted in popular consent and that over-heating and demand pressures on prices will not develop before the middle of 1974. But before that The Times had been pressing very hard for a compulsory incomes policy. We were very much criticised for not introducing it. On 27th March 1973 it wrote: For more than two and a half years The Times has argued consistently that compulsory pay and price restraint is needed, and that a voluntary policy, however politically seductive, would only work if it was itself backed by a statutory apparatus. That was constantly reiterated. Then in October 1973 The Times said: If the country does not accept and abide by the broad terms of Phase Three of the Government's prices and incomes policy, then it clearly has no wish to resist Latin-American rates of inflation and the prolonged bout of heavy unemployment to which that would lead. I am not criticising that but emphasising that it has been the whole flow of the argument during those four years.

How much longer will it be, with unemployment year after year at 1¼ million, before the people of the country again ask "Shall we put up with unemployment at these levels for year after year, with all the impact on the young people?" That question will come to the fore again.

By July 1975 The Times had gone through the monetarist phase—with no incomes policy and everything to be controlled by monetary means. Then the editor himself wrote a distinguished article supporting a return to the gold standard. My hon. Friend the Member for Plymouth, Sutton (Mr. Clark) also wants a return to the gold standard. What would it mean? The development of the Western economies would rest on the supply of gold from two countries and on how much they were prepared to sell. The whole development of the Western world would depend upon an apartheid Government in Cape Town and a Communist Government in Moscow. When I see these things I feel a great alarm, because there is no opportunity to try to achieve a balance.

On 18th July 1975 The Times said: What would one then expect? It is surely that the Conservative Party would welcome the conversion of their opponents to the policies which they had themselves not only advocated but carried out. The Conservatives would claim, and with justice, that the destruction of the compulsory incomes policy in 1974 had been followed by an enormous surge in wages, particularly in the public sector, which had inflated costs and prices, damaged the competitiveness of British industry, raised unemployment, produced an enormous Budget deficit, weakened the pound, and threatened the ability to continue the operation of anti-inflationary fiscal and monetary policies. They would rejoice to have been proved right. Later, in the same leading article, it said: A great political advantage is being thrown away. The Conservatives are not giving their full backing to the incomes policy. They thereby deprive themselves of the claim to be the party that puts the campaign against inflation first. They deprive themselves of the right to argue that the Wilson policy of 1975 has shown how necessary the Heath policy was which Mr. Wilson attacked in 1974. They deprive themselves of the argument that they are the more consistent of the two parties, since they are now behaving as Mr. Wilson did in Oppo- sition, only with less skill and less effrontery. And incidentally they go against the weight of public opinion which supports the incomes policy by an even larger majority, according to the Gallup Poll in The Daily Telegraph, than the referendum vote. If it is popularity they are after, this is the way to lose it. I ask the editor of The Times to con-trust that, written a year ago, with the conclusions in his article three weeks ago. That is why I wrote the letter to him.

I have taken up too much time, so I want to conclude with some views on the reasons why we have these problems. If we can consider whether they can be changed, we may be able to get away from some of the difficulties of the present policies.

First, we are a small country. In the past 20 years I have seen a change so that it is no longer possible to respond to what would normally be different economic criteria in different parts of the country in different situations. It can be said that it is not economic to pay such-and-such a wage 100 miles north, but the fact is that employers must pay it because the industrial system and the trade unions will not in most cases allow otherwise.

Secondly, there is no real balance today between employers and unions, least of all in the nationalised industries. There is none of the normal disciplines in those industries. For me, that is one of the main arguments against nationalisation. Governments are tempted to interfere when they have no power to deal with the problems. Some say "Make the nationalised industries behave like free enterprise", but that is not possible, because they are not free enterprise. Therefore, it is necessary to invent a way to try to put pressure on them.

Thirdly, there are the regional differences which still exist between the North and the South. As the Government run into problems, so those differences will become larger and larger in the next few years, if the Government remain in office.

I want to make my position quite clear. Budgetary action is necessary. It is essential to use the Budget because of its influence on the economy, and, indeed, we always did that when we were in office. Furthermore, it also has an influence on social policies—a course which every Government since 1945 have followed.

Unless the Chancellor of the Exchequer and his colleagues take some action soon to make reductions in Government expenditure, they will find themselves forced into a position in which there will be percentage cuts all the way round. They will not be able to maintain the position of sterling, and this will damage the incomes policy because of the effect on prices. We require selective cuts in budgetary expenditure. If this does not happen, there will have to be percentage cuts across the board, and immense damage will be done in many ways.

Secondly, monetary management is also essential, but it must be true management. I do not believe in casting aside the economic powers and influence in the hands of the Government. I do not believe in the Government adopting the attitude "We shall fix a figure and let some monetarist economist say what the figure will be"—because that will not produce the answer. Therefore, I emphasise that we require monetary as well as budgetary management. The situation is much more difficult than those who write about these things in academic rooms can ever believe. They would see some of the problems involved if they had to sit in the Treasury room or the Cabinet room and deal with these matters.

Thirdly, I believe that an incomes policy is part of economic management. The better one can make that aspect of policy, the more suitable and flexibly the economy will be managed.

All three are necessary, as was made clear in the two Conservative manifestos during the General Elections of 1974. I say to my right hon. and hon. Friends that in those manifestos we said that we wanted to bring about these other changes, but that if it became necessary in the national interest to introduce a voluntary or statutory policy, we should not hesitate to do so. Therefore, we took an honourable stand, in a way in which the Chancellor of the Exchequer and his colleagues did not.

That sets out my position quite clearly on budgetary action, monetary management and income policies. The important consideration now is the relationship of Government, employers and unions. In the time that lies ahead I do not see any alternative to doing everything we possibly can to improve that relationship in terms of Government, Parliament, organisations such as NEDC, and the employers and the unions. When thinking ahead, the Government will be able to strike a proper balance, as will the rest of us in this House, only if they learn the lessons of the past.

I well recognise that there is no easy short cut to the solution of these problems. It is only through management—whether budgetary, monetary or in terms of an incomes policy together with a prices policy—that we shall be able to deal with our economic problems. Those problems are immense and the Government no doubt will find them looming larger and larger in the coming 18 months.

They require the deepest solution at the highest level. Only if we are prepared to use all our efforts to manage our economy in those three ways, and only if we take these steps as individuals as well as within firms, trade unions and Government shall we have any chance of improving our economy and of regaining our proper place either in the Community or in the world as a whole.

6.15 p.m.

Mr. Stan Crowther (Rotherham)

I am sure that nobody will be surprised when I say that at this moment I am torn by wildly conflicting emotions. I am very pleased and proud to have become a Member of this House, yet I am conscious of the fact that I am here only as a result of one of the greatest tragedies to have hit political life in this country for many years.

Brian O'Malley was not only an outstanding Member of Parliament and a most talented and capable Minister, but he was a man who was much loved in his constituency. He was a man of whom I am proud to have been a personal friend for many years. Although we in the constituency mourn his death, we know that our grief is shared by hon. Members on both sides of the House. Although Brian O'Malley has now gone from the scene, I must, however inadequately, try to take his place.

On my second day in this House, when I was hardly in a position to do anything about it, the right hon. and learned Member for Hertfordshire, East (Sir D. Walker-Smith) had some rather sarcastic comments to make about my constituency, and indeed about me. He referred, in a slightly obscure way, to a by-election which, he said, took place in the 1920s. I believe that he may have been referring to the by-election that took place in 1933. I shall be happy to help him with his history, if not with his politics. We have had three by-elections in Rotherham in a period of 43 years, and it is my fervent hope that we shall not have any more.

I shall try to observe the convention of non-controversiality in speaking briefly on the subject of pay and prices policy. However, that may be a little difficult, because I am totally committed to the agreement worked out between the Government and the trade union movement, although I understand that some hon. Members are not quite so committed. I believe that, with the successful implementation of a policy of that kind, there is every hope of defeating the great evils of inflation and unemployment. Without it, there is none.

I am not suggesting that the agreement by itself provides the solution, but I believe that it will make a solution possible. In the recent by-election campaign I laid great stress on the importance of the agreement. Whatever interpretation may be put on the size of my majority by the right hon. and learned Member for Hertfordshire, East, or indeed by the hon. Member for Gloucester (Mrs. Oppenheim) in her speech today, the fact is that we won—and I am here to prove it. Indeed, I secured more votes than all the other five candidates put together, which is more than the right hon. and learned Member for Hertfordshire, East can say about his majority at the last election.

I wish to take this opportunity to press one main point on the Government. If and when we return to a position that is regarded nationally as one of full employment, let nobody imagine that we can forget the regional problem. Unemployment has been like a tide: the tide comes in, but when it goes out it leaves behind deep pools on the beach. I know that in my constituency and in other parts of South Yorkshire, as indeed in other regions, many of these pools of unemployment have been with us for far too long.

They are basically due not to any temporary trade recession, but to changes in the employment structure of our traditional local industries. If and when the national unemployment figure returns to something like 1 or 1½ per cent., it will still be 4 or 5 per cent., or even more, in areas such as mine unless full use is made in the next year of the opportunity to prepare policies that will ensure the injection of massive amounts of capital investment into new growth industries to provide thousands of new jobs in those areas.

Within the area that is now the Metropolitan borough of Rotherham, of which my constituency is part, we have lost about 16,000 jobs in the coal and steel industries in the process of making those industries more productive. We have gained about 8,000 jobs in other industries and the Rotherham Area Development Council, of which I have been chairman since its formation, can claim some credit for that. But the fact remains that we have suffered a severe net loss of employment opportunities. Enormous financial inducements to private industry to develop in the assisted areas have failed to solve the regional problem.

It is now manifestly obvious that only public intervention on a vast scale can get rid of this problem of regional unemployment. If trade unionists in Rotherham and elsewhere are to exercise restraint in their completely justifiable wage demands, they are entitled to expect in return not only that their own jobs will remain secure but that their sons and daughters will be able to get employment when they leave school.

Youngsters last year in many parts of the country—certainly in mine—faced very severe problems, and the prospects for those leaving school this year are bleak indeed. This is not only demoralising for the young people themselves. It is creating long-term problems for the country. The reluctance of many firms to set on apprentices is sowing the seeds of another shortage of skilled labour.

Areas such as mine have borne more than their fair share of sacrifice in the past—sacrifice in terms of environmental damage, unemployment and industrial pollution. This time, in return for our support of the pay policy, we want to see some real evidence that the Government will take the regional problems seriously and will take positive steps to solve them once and for all.

6.22 p.m.

Mr. Ian Lloyd (Havant and Waterloo)

I am sure that the whole House will have enjoyed the contribution of the hon. Member for Rotherham (Mr. Crowther). He has, of course, touched very lightly on matters of controversy and in that sense obeyed our convention. Many of us will appreciate that aspect of his contribution.

The hon. Member expressed what some of us would regard as surprising optimism in relation to his own Goverment, but on the first occasion on which he speaks we could hardly expect him to do less than that, however much his real pessimism may have been disguised. We all hope that we shall hear from him again on many occasions.

I hope that it will not be out of order for me to refer at this stage in the debate to the modifications to the Price Code. I believe that this is one of the main subjects for debate. Although this is a White Paper that summarises the Government's philosophy on our economy, or one aspect of it, at this stage it is perhaps a much more significant document that we may give it credit for being.

I should like to draw the attention of the House to the complexity of the code. We know that there have been codes before in history. Hammurabi had a rather complicated one. Justinian had an even more complicated code. Colbert had a most profoundly complex code.

I think that it was Gibbon who once said that the Byzantine empire was never worse defended than when every village was fortified. One may say in this context that the consumer is never worse defended than when every price is regulated.

In a very interesting phrase, the Secretary of State said that the consumer "has a right to share in efficiency". I do not think that anyone would dispute that. But when the right hon. Lady referred to the code she used the words "as those who are expert in it will know". I believe that to be a most telling and significant phrase.

The full details of the code run from page 24 to page 59 in page after page of the smallest print. All I know about this code is that if there are 250,000 enterprises in this country and perhaps approximately 10 people in each of them, 2.5 million people will have the overall responsibility for obeying this code.

How many of them, I wonder, will read the code? How many of them will understand it? How many of them can we seriously expect either to read or to understand it? I think that the frank and realistic answer to that question is that a very small proportion indeed will have done so. That is why documents of this kind in the long run have so very little effect on the course of economic affairs.

My next point is what I might describe as the quid pro quo proposition. It is a very interesting one, and we have heard it expressed on both sides. It is that there can be no wage restraint—this is a most important economic component of the proposition—without price regulation and that any Government, therefore, setting out on this tortuous road of national economic management must buy, as it were, both sides of the bargain or none at all.

I believe this to be a very dangerous argument. It is similar to the argument that because there is grit in the oil, someone must also put sugar in the petrol and that the car will then go better. I do not believe that this is so for a moment. They are both aspects of the same great macro-economic illusion that central Government, given central power, given sufficient legislation, given sufficient support of one sort or the other, can always manage the most complex aspects of modern economics better than the individuals concerned looking to their sole self-interest, can possibly manage their affairs themselves.

I do not believe that this is anything more than an illusion. I do not believe that everything works better if the Government can grab, as it were, both the tail and the snout of the animal.

May we now just look at the code, on pages 24 to 59, for a moment? What an extraordinary document it is! It is, if I may so put it, a masterly exhibition of wet towel English. Practically every paragraph requires translation or interpretation. Can we really expect that any bureaucratic machine can seriously enforce such an extraordinary series of regulations?

The big firms will try to follow them, and they will fail. They will try because, being very much in the public eye, they will feel obliged to do so. The medium firms will try in some cases and become disoriented by this type of exercise. But small firms will not try, unless they employ the most persuasive solicitors who convince them that they really must do something about it for otherwise they will be in very grave difficulty. We have no right therefore, to expect that the Price Code will have a serious impact on our economic affairs.

I now turn to a subject more fundamental—the profits and rewards of capital. We have had in recent days some remarkable and interesting pronouncements by the Government which would have been almost unthinkable in 1965 and, one might say, almost unthinkable even in 1975. The rehabilitation of the profit motive and of profits is calling forth all the propaganda skill at the Government's command. The prodigal motive has returned in Sandilands and ashes, and a place has been cleared for it at the bottom of the table. Will the Government's conversion be effective? Are they likely to be trusted by the investing community? This is a matter of the greatest importance.

What are the facts? These today are really not in dispute. I have here the latest quarterly report of the Bank of England which sets them out in all their succinct and devastating clarity. Virtually every major economic survey in this country over the past 18 months to two years points to the overall fall in the profit levels of British industry. Virtually every major bank review has had articles on this subject. Without exception, they draw the same conclusion. If we are serious about a mixed enterprise economy, that part of the economy which is mixed is in a pretty bad state, as a result very largely of Government policy. All tell the tale of catastrophe or near catastrophe.

Now comes this latter-day St. Paul on the road to Threadneedle Street. Why should he be believed? What is the evidence that he should be believed? I do not think there is any real evidence that he should, because the acid test is one which lies completely outside almost all the discussions we have heard so far. The acid test, as I see it, is at what point and in which measure the fruits of successful investment are likely to be enjoyed by those whose resources are being invested.

It is no use tinkering with all the fiscal machinery right the way through to the end and then at the end stopping short and saying "Nothing may come out; it must all go in." At the end of the day, someone somewhere has to commit resources which are owned by someone somewhere. There have to be dividends. There has to be a net income which is finally distributed and finally allowed to be spent by the person taking the risks, and, as I understand it, the greater the risk, the greater must be the reward.

Whatever adjustments the Government make in the whole of the rest of the system, if there is no reward proportional to the risk at the end of the day, it will not work, there will be no investment, and the same jaundiced judgments will be made about Governments whose views on investment are at heart Socialist and at heart not in the support of the private enterprise system. We all know that we want a high technology society. We heard this from the former Prime Minister in 1964 in a great display of enthusiasm. We want Royces, Whittles, Napiers, Nuffields and Taylor-Hobson's. We want all these to develop their technology here in the United Kingdom. But what incentive do they have? What support do they get?

I draw attention to the lessons that have learned—I can only speak for myself because my Committee has not deliberated on its findings and we have not yet reported—from the 15 months that the Science Sub-Committee has spent looking at the interface between the universities and industry and asking why the technology is not flowing. I shall endeavour to give my answers to the question.

First, we had from no less a person than the Secretary of State for Industry yesterday a statement that the road of the speculative entrepreneur in Britain was now a particularly stony one. The Government have virtually admitted, and much of the evidence given to the Sub-Committee from a wide spectrum of witnesses suggests, that the speculative entrepreneur now operates in one of the developed world's most hostile economic environments—Great Britain—and that, until we can remove that hostility from the environment, it is no use asking where are the Royces, Whittles and TaylorHobsons and why are not they developing their technology here.

I draw attention, for example, to the evidence given to the Sub-Committee by the chairman and managing director of the Oxford Instrument Company. He was asked: But you accept that as an internal company problem or a purely company problem? What are the hindrances or harassments which you might find which would prevent that situation which you see as ideal? He replied: In very general terms I would say England is not at this moment of time a country in which it is very easy for industry to expand because of a number of overall financial-labour situations. The whole problem of attracting and keeping the staff of companies like ours, and other companies in general, happy in the industrial environment in England in this decade is not an easy one. This is one specific example of evidence that we have received from a very broad front, and we have been looking especially at the areas of high technology on which, in my view, the future of the country most profoundly depends.

Dr. Bray

The hon. Gentleman has been making a very powerful argument about the problems of the entrepreneur. However, will not he agree that entrepreneurs who go into property speculation, for example, seem to have an extraordinarily easy ride?

Mr. Lloyd

Looking at the shares and the general situation of property companies, the evidence of the past 15 months suggests that the market is going down as well as up.

However, I am not concerned with that. I am concerned with the far more important and fundamental side of British industry where new technology must be applied over the whole manufacturing range. The question which we must ask is why it is not working. Why is the whole institutional system failing? Can we relate it not only to the fiscal system but to some other important factors?

We have had evidence from the noble Lord, Lord Bowden, Chairman of the Manchester Institute of Science and Technology. In his institute about 80 per cent. of students in textile technology are from overseas. They are learning the best textile technology that we can teach them, and then they are going back overseas and setting themselves up in competition against us. That is a process that has gone on from the beginning of time, and it is not of undue significance provided that we have a large number of students not only acquiring but going on and applying the latest textile technology here.

I am no expert on the textile industry, but this is the general situation, and it was made clear to my Sub-Committee time after time that the flow of the best technological brains in this country from the university and technological system into industry is diminishing seriously and that there is no sign at the moment of its stopping. I see very little sign of the Government's obtaining the recovery for which they hope while these fundamental processes go unchecked and unchallenged. We have had similar evidence from EMI and from Dr. Frank Jones of Philips.

The second matter to which I should like to draw attention is that today the evidence is still that major technological opportunities are being missed again and again. I draw attention to the evidence given to the Sub-Committee by Professor Sir Brian Pippard of Cambridge. He told the Sub-Committee: One historical fact which occurred with the invention of the transistor was that the big electrical firms of this country seem to have agreed that they would prefer to buy the patent rights and the licences to develop rather than do it themselves. I mention this because it is not my opinion. It is Sir Brian Pippard's evidence. It happens to be factual and, most regrettably it happens to be typical.

If our major firms—and even our minor ones—are in this mould of indifference to the importance of advanced technology and the whole institutional system of support is such that they are not prepared to touch it, to touch it sufficiently often, or to touch it in the areas which matter, nothing which the Government are doing by tinkering with pay and prices codes and the fiscal system will have any effect. We shall not break out of these major problems, which show themselves up in the major deterioration of our important industries.

There is undoubtedly an unfortunate mutual hostility between young technologists, the scientific community, and industry. There are conspicuous and important exceptions to it, and some of them are very encouraging. Some of the science parks established by the universities are beginning to provide an environment in which young, enterprising, technologically-minded men can break out. But those trying to do so have also given evidence to us, and they have reinforced the opinion of the chairman of the Oxford Instrument Company that it is not easy and that this is a most hostile environment in which to break out and make a start.

At the end of the day they go to such places as West Germany and California where the economic environment is less hostile. They take their ideas, training and technology and quite legitimately they go abroad. The evidence is that within a matter of months or years we are importing the products of our own brains. While this happens, adjustments of pay and prices codes and all these comparatively superficial phenomena on which the Government are concentrating mean merely that we are tinkering with the machinery at the top and not dealing with the machinery underneath.

Then there is evidence that a growing proportion of the output of British institutions of higher scientific and technological education is going overseas. To the extent that this happens and continues to happen we shall not break out of our problems.

One of the most interesting analyses presented to the Sub-Committee came from Sir Frank Jones, who has published a paper entitled "The economic ingredients of industrial success". I shall not bore the House with a lot of figures, but he points out that the monitoring of British industrial efficiency is singularly ineffective in that we pay far too little attention to value added in our whole industrial performance. He has published some remarkable and dramatic figures comparing value added in the United Kingdom with that in Japan. I recommend the Government to pay close attention to this analysis. It has also been printed as evidence to the Sub-Committee.

I believe that we are dealing with the most fundamental problems. As an engineer put it to me recently, when we discuss these matters in the House we exhibit what he described as "bang-bang servo". We have a bang on this side, followed by a bang on that side and the servo-assisted argument goes back and forth. It tends to be stereotyped and there is an equal and opposite reaction to every action. In many cases, when we change sides we change our views. We cannot afford much more bang bang servo. Can we escape? If so, how? Obviously we must escape, but I do not believe that we shall do so by over-detailed regulation of our society and our economy.

This is always the easy way out for Governments. But the record of not only Britain but the United States, Canada, France, and West Germany shows that whenever there has been over-detailed regulation, it has almost invariably proved disastrous. At the end of the period, whether it be one year, 18 months or three years, the whole thing collapses. We then start again, and go on. If anything, the record shows that the attempt to regulate has restricted output, and national growth and there is an absolute loss which is never recovered.

It is the illusion of doing something for the community which we find necessary to promote politically but the actuality of achieving something for the community is quite another matter, and the record does not support the view that something is achieved. Only by overwhelming emphasis on productivity—and the word is not mentioned at all in these two documents—can we give incentives to industrial and commercial efficiency and promote the exploitation of British inventiveness. Only in this way shall we achieve that recognition of the process of wealth creation upon which our national salvation depends.

In my view that process has always flourished best and will flourish again in an unregulated environment in which people are left to get on with what they can do best in the best possible way, subject only to the broadest constraints of the law.

6.44 p.m.

Mr. Mike Thomas (Newcastle upon Tyne, East)

I hope that the hon. Member for Havant and Waterloo (Mr. Lloyd) will forgive me if I follow him only in his congratulation to my hon. Friend the Member for Rotherham (Mr. Crowther). My hon. Friend paid a moving tribute to the late Brian O'Malley, who was known and loved in this House, and the sincerity with which he spoke of the problems in his constituency and in the region will commend him to both sides of the House. He will know from my constituency background that I share much of his concern and understand his strong feelings. If he speaks in this manner on future occasions, as I am sure he will, he will always command the respect and attention of the House of Commons.

I wish that we could hear a member of the Opposition Front Bench give the kind of unequivocal support for the Governments pay and prices policy that we heard today from the right hon. Member for Sidcup (Mr. Heath). He was right, and The Times leader, which he quoted, was right. It would do the Opposition more credit if we heard more speeches like that of the right hon. Member. Instead, it seems that all we can hope to hear are the sort of speeches that we heard from the hon. Member for Gloucester (Mrs. Oppenheim), the self-confessed nit-picker. Her speech was characterised by nit-picking of the most unhelpful and carping kind. It was the sort of performance we expect from her in this House. [HON. MEMBERS: "Where is she?"] Hon. Members opposite will know that I would have been ready to make these remarks in her presence, even more so than in her absence, for which I am not responsible.

In looking at the Government's prices policy we must consider the way in which it fits into the overall strategy of the Chancellor and his objectives for the economy. His objectives are to reduce unemployment, maintain social priorities, eliminate the balance of payments deficit, and build up British industry in order to sustain a new period of export-led growth. The Chancellor stressed yesterday that his objective also is to get inflation down at least to the level of our major competitors, and having got it there, to keep it there.

The real question is not that which has been posed by the Opposition—whether there should be a Price Code at all—but whether the changes in the Price Code are in accord with the Chancellor's objectives and the needs of the nation. Many of us on this side of the House are not happy with the code and no doubt, if the truth were told, I can include my right hon. Friend. We believe that politically it represents the worst of both worlds. It operates as a general control, which creates difficulties for industry, and involves a degree of rough justice.

At the same time we do not even have the consolation of being able to demonstrate to the individual housewife that the code has a direct effect on the price of a specific prod-act that she wants to buy. But we must remind ourselves that we are not responsible for the Price Code. Conservative Members invented it. We have been struggling to improve it, but it was not us who brought it into being. I am sure that if my right hon. Friend the Secretary of State for Prices had been starting from scratch, she would have preferred to start with a different mechanism.

That having been said, this is not the time to do away with the Price Code. The success of the Government's strategy to get industrial relations and wages policy back on the rails after four years of Conservative hatchet work depends on telling the truth, taking account of the reasonable views of groups in the community and sticking to bargains, whether these bargains are made by employers, the trade unions or the Government.

My right hon. Friend is walking the most slippery tightrope. She has, on the one hand, the trade unions saying that they cannot expect their members to accept a pay deal and make sacrifices if price control is not kept effective. On the other hand, industrialists say they cannot invest, or in some cases even survive, unless changes in the code allow an increase in prices. On top of that both trade unions and industrialists say that they need investment.

I often wish that we had more qualitative comment about investment rather than quantitative comment. We should emphasise using existing investment effectively, and place an emphasis on profitable investment that makes good use of our resources. That is the real argument that we should be conducting instead of concentrating on an argument about a notional figure that we should like to see channelled into unspecified investment. I think that my right hon. Friend has got her balance right on the tightrope, even though some of us will want to sway her in one direction or another, according to our political prejudices and the views of organisations we may represent in this House.

The real question is not whether the Government should have done away with controls—I believe with my right hon. Friend that some form of price control will continue for the foreseeable future—but whether the changes will meet the Chancellor's objectives. I believe that the relaxations will help to deal with unemployment. I shall give a specific example of how the relaxations will help when I deal with the view of the cooperative movement about the consultative document. I believe that the changes will also help the elimination of the balance of payments deficit. Price control does not apply to exports, but the arrangement whereby half of the benefits of rising volume, including exports, will be allowable will ensure that there is a clear incentive to export more. I believe that the changes will help in the job of building up British industry again through investment. Investment relief is one example of that. I say to my hon. Friend the Member for Liverpool, Walton (Mr. Heffer) that no one in a mixed economy in a free society can force the private sector to invest, but in any system, whether planned, mixed or otherwise, investment must be made on criteria of return, whether those criteria are social or economic. There is no point in investment for its own sake.

The price that we are being asked to pay for changes in the code—which will be about 1 per cent. on the retail price index—is worth paying. I believe that the monitoring arrangements on the investment relief will ensure that relief is given only where investment is properly made.

Perhaps I may now express the view of the co-operative movement whose interests I have the privilege to represent in this House. I want after that to turn for a short while to the somewhat ambiguous statements in the consultative document about the nationalised industries.

We in the co-operative movement have accepted the necessity for continuation of the Price Code. We see that as the price that has to be paid for a satisfactory understanding on wages policy with the trade unions. We think that the benefits of that far outweigh any inconvenience the code may cause us. The question is not, therefore, whether we are in favour of the code. The movement's view is similar to my personal view that the real question is whether the specific changes proposed are helpful.

I start with our one big disappointment, which is that the proposals make no changes for the relaxation of gross margin control. The 10 per cent. cut made in 1974 has not even been restored, although a small adjustment to the safeguard clause in paragraph 88 of the code gives limited help. Nevertheless, 80 per cent. of net margin under this clause is very little, and the Minister should increase it.

The Opposition as usual are consistently trying to have it both ways in these matters. They tell us that the whole exercise is cosmetic, and then they complain that it is terribly painful for industry. However, there are two instances where the code is biting and where I would hope my right hon. Friend would feel able to make some adjustment. The new profit to capital employed ratio is to be 12½ per cent. instead of 10 per cent. margin on turnover is to be increased from 2 per cent. to 2½ per cent.

Although these changes are helpful, the second is barely realistic for a business largely concerned with food. It is totally unreal for a non-food business, for example, for a department store where much lower stock frequencies prevail. I hope that my right hon. Friend will be able to look at this point, because although it is difficult to deal with the problem of mixed distributors—those who mix their sales of food and nonfood, who have different sorts of products with different stock lives, and so on—the safety nets should be realistic if they are to be credible to those who have to rely upon them.

The distributive sector and the cooperative movement are major investors and major employers. My right hon. Friend will know that shop closures, staff reductions and the curtailment of expansion and modernisation are current realities for many retailers, the co-operative movement included. We are glad that the changes go some way to checking this and have specific employment consequences which can only be beneficial.

The increase from 25 per cent. to 35 per cent. in the rate of investment relief is welcome, but more welcome still is that it will now apply for the first time to expenditure by retailers on the construction of shops. If only we could now get local authorities to speed up the planning processes so that much-needed shop building work could get under way, we should also ease unemployment in the building and construction industry, which has been complaining bitterly and justly at the way in which the recession has been affecting it. Of course, a number of issues like this will be raised with my right hon. Friend and her colleagues by the movement in the consultative period to 16th July.

The co-operative movement welcomes very much the tidying up of the administrative arrangements to which my right hon. Friend referred in her opening remarks. The unseen cost of administering the code is a burden. It takes people away from productive work and engages them in no-productive duties. I know that the Government do not want that, and any ways in which that can be minimised will be very welcome.

I turn to my second specific subject, which concerns the nationalised industries. I find the consultative document extremely unclear on this point. While the document admits in paragraph 38 that Nationalised industry prices have on the whole increased at above the average rate of inflation in the last 18 months", paragraph 39 tells us In considering whether to exercise their powers to cut back surpluses and proposed price increases, Ministers will bear in mind both the interests of the consumer and the needs of financing each industry's investment programme We need to look at the background against which these two paragraphs have been written. The Central Electricity Generating Board made £58 million profit in the last financial year. That brought the industry as a whole back into the black, perhaps overall by as much as £10 million or £15 million, although we do not yet have the final figures. British Gas made about £25 million profit in the last financial year, yet Mr. Rooke, the new chairman, was reported in the Sunday newspapers to be asking that the rules should be bent and waived and that the new ceiling on turnover of 2 per cent. should be increased to 3 per cent. for the corporation.

Post Office telecommunications made £150 million to £200 million profit in the last financial year, which covers severals times over the modest latest loss on the postal side, which is perhaps somewhere less than £50 million. The National Coal Board will break even and British Airways is moving into a period of strong profitability after an admittedly difficult two or three years. Only British Rail and the British Steel Corporation, for individual and peculiar reasons, are still loss-makers of any substance.

Dr. Bray

The British Steel Corporation is trading profitably in the current financial year.

Mr. Thomas

I think that depends upon the way in which we do our sums. I understand that it is expected that the BSC will make losses of up to £250 million in the last complete financial year.

No one would deny that the nationalised industries will even so only get back to financing about 50 per cent. of their capital requirements. No one will deny that their reserves are low, but if the private sector is to share the benefits of price increases and of the economic upturn with the consumer, why should the public sector not do the same? I hope that my right hon. and hon. Friends will be able to give a clear and unambiguous answer to that question tonight.

If my right hon. Friend is looking for ways of allowing them to do so, she might like to consider some suggestions. The Post Office has entered into a commitment not to increase the main letter rate charges or telephone charges until the end of this year. That is welcome, but the consumer would welcome a return to sanity on one or two other fronts. It is clear that connection charges are now a substantial disincentive to poor consumers, including the sick and the old, to have the telephone connected. The charges should be reduced.

Those who move home are often unfairly treated by the present charging system. Call-box users often lose their money without having the conversation for which they have paid. Calls are misrouted to the wrong numbers, the coin box is faulty, there are line-fault disconnections, crossed lines and a whole range of other problems for the hapless user of the British telephone box. Theoretically, these people can get a refund, but we know that in practice most do not. In practical terms if they make a successful call in these circumstances they are forced to pay the operator rate for making the call although it is not their fault that they have to use the operator.

If we are looking for areas where nationalised industries can make their contribution, that is a series of suggestions in telecommunications that I should like to see the Government adopt. I have just one simple suggestion on the postage side. Why on earth do we not reduce the first-class rate by ½p.

I shall not repeat all the arguments on electricity and gas made by the Select Committee on Nationalised Industries, the National Consumer Council, the Right to Fuel Campaign and the Committee chaired by my hon. Friend the Member for Widnes (Mr. Oakes). Suffice it to say that these industries could change their tariff structures to stop them being so unfair to the small consumer and change their disconnections policy instead of irresponsible scaremongering about the cost of doing so and look properly at developing pre-payment meters, token meters and pay-as-you-go schemes. These are ways in which the electricity and gas industries could make a contribution that would be widely welcomed by consumers.

In conclusion, I am indebted to my hon. Friend the Member for Woolwich, East (Mr. Cartwright) for a quotation from Louis MacNeice, the poet that the hon. Member for Gloucester quoted in her speech. In "Autumn Journal" MacNeice defines capitalism as: An utterly lost and daft system that gives a few, at fancy prices, their fancy lives, while ninety-nine in the hundred, who never attend the feast, must wash the grease of ages off the knives".

7.2 p.m.

Mr. Joseph Godber (Grantham)

I found myself in considerable agreement with a great deal of what the hon. Member for Newcastle upon Tyne, East (Mr. Thomas) said, and I shall seek to touch on some of those points in my speech. I start by declaring an interest as chairman of two public companies and director of another, all of which will be affected by the proposed changes. However, I wish to speak in my capacity as Chairman of the Retail Consortium. I have had discussions with the Minister about these documents and I shall address myself specifically to problems concerning the amendments of the Price Code.

As one of the authors of the code, I cannot go along with some of the strictures of my hon. Friend the Member for Havant and Waterloo (Mr. Lloyd), who described it in rather graphic detail. He will recognise the difficulties of being precise in such matters. However, it is not the wording of the code but its effect with which I am concerned.

The code was introduced as part of a prices and pay package and was intended by the then Government to be fair to industry and the unions. Whatever the outcome, that was the intention. When the present Government came to power, they abolished the pay restrictions but kept the Price Code. This meant there was a continuing restriction on all those affected by the code at a time of a free-for-all in pay.

That position continued until July last year, when the £6 pay limit was introduced. The only thing that happened to retailers during this period from March 1974 until the £6 limit was introduced was that they suffered a cut of 10 per cent. in their gross margins. I know that manufacturing industry also has problems and I do not want to belittle them, but I am concentrating on the retailer's point of view, and their ability to earn a decent livelihood was reduced during that period.

The £6 policy was designed to bring about a limitation compared with the previous free-for-all, but it was difficult for retailers to see that in that way. Whether rightly or wrongly, retailing has traditionally been one of the lower-paid employments. The Secretary of State drew attention earlier to the large number of school leavers who enter the retail trade. In the last few years the application of equal pay has had a dramatic effect on wage costs in retailing because of the large number of women employed in the trade. However, despite this, the £6 limit represented the largest single wage increase ever paid in retailing.

Paragraph 16 of the White Paper says: The £6 a head pay policy has reduced the rate of increase in labour costs, but even so Increases inevitably constitute a large element in firms' total costs especially in the more labour intensive sectors of industry. I do not think that many retailers would agree with the first part of that sentence, because the policy has not reduced the level of their costs. The second part of the sentence, however, applies to them with very great force. Retailing is a labour-intensive industry which has been caught in two ways.

Wages represent at least 50 per cent., and frequently much more, of retailers' running costs. Since the imposition of the Price Code, they have risen faster than ever before. Other major cost items which have been completely out of retailers' control, including rates, electricity, postage—which has hit mail order firms particularly hard—and telephones have been rising extremely fast during the period of control. Even in his last Budget the Chancellor of the Exchequer's change in the fuel tax resulted in a substantial increase in distribution costs. Under the VAT arrangements, retailers were able to claim back some of the costs of fuel, but under the new arrangements they are not. This is an additional hardship for them.

It is small wonder that their gross margins, particularly after the 10 per cent. cut, seem totally inadequate and that for many the reference rate net margin seems increasingly unattainable. Section (1) of the latest Price Commission report says: Profit margins in manufacturing have improved. But the recovery does not yet seem to have extended to distribution. The Secretary of State conceded this point in her speech. The situation is spelled out in further detail on page 17 of the report which says: If one compares the fourth quarter figures for 1975 with the figures for the corresponding quarter of 1974, net profit margins for all Category II distributors show a fall from 77.6 per cent. of reference levels to 72.1 per cent.: and even if the motor and motor fuel sector were excluded they would still show a fall. The recovery in net profit margins which has occurred in manufacture does not yet seem to have extended to distribution. That reinforces what I have been saying about the position of the retail and wholesale side of distribution. I do not think the Secretary of State would deny that. Indeed, she drew attention to certain aspects of this situation in her speech. It is necessary to emphasise these facts as the background to my comments on the proposals in the consultative document.

My colleagues and I in the Retail Consortium—in common with other organisations—have had discussions with the Secretary of State over the last three months. We have told her that in our view the Price Code is no longer necessary because the force of competition in the market place is so severe that the abolition of price control would not lead to any significant rise in prices.

We have further told her that if some form of control is to continue, the gross margin at least should be abolished. It is clearly superfluous when the average net margin achieved is of the order reported by the Price Commission. It is also unfair in that it does not take account of those large increases in costs to which I have referred. I must, therefore, record our deep disappointment that the Secretary of State has not seen fit to do either of those things that we asked.

Turning to the proposals that we have before us, I recognise that they have to be seen against the background of the pay proposals agreed between the Government and the unions, and I was interested in what my right hon. Friend the Member for Sidcup (Mr. Heath) said about this. I do not disagree with his general thesis. I recognise, too, that the proposals mark a step of some significance in that the need for profits is recognised and also its link with investment and with employment. That is brought out clearly in the first paragraph of the consultative document.

When a fact that has been self-evident all one's political life is suddenly recognised by one's political opponents that is a source of deep satisfaction, and I welcome it warmly. I am not sure whether some of those hon. Members who would normally be sitting below the Gangway recognise these facts as clearly as do their colleagues, and the hon. Member for Liverpool, Walton (Mr. Heffer) in his intervention today did not seem to agree with that point of view. I hope that the truth of it will percolate through even to them in due course, because, if not, I fear that there is little hope of a realistic appreciation by them of the fundamentals of this matter. For my part, I welcome the Government's clear recognition of this fact.

As to the details of the proposals, I have already expressed our disappointment about gross margins. The only concession here is the limited one in the so-called "safeguard" clause—paragraph 88—by which if the net margin of profit is below 80 per cent. of the reference level, the gross margin has been allowed to creep up from 105 per cent. to 110 per cent. This might have been of some real help if the comparable net margin figure had been allowed to rise to at least 85 per cent. That, I think, would have been a reasonable compromise to have asked the Secretary of State to accept and we shall wish to press her further on this because we believe that there is no really effective help here.

If we really want investment, if we want to see industry, and particularly the retail and wholesaling side, improve conditions and improve business premises, that will not be achieved unless some opportunity is given to increase profits. Although profits are below that 80 per cent. reference level, unless there is a belief that they can be raised substantially, we shall not get the investment which is needed and which will have its direct effect on employment. I ask the Government to look at this further. This is an issue to which we attach tremendous importance, and I urge the Secretary of State to look further at the matter, because failure to make this marginal change could discourage the very investment and job security that the Government wish to encourage.

My second main grumble is in regard to the threshold for Category III retailers. This is important to the small retailers, and I should have thought it was important administratively to the Government, too, because attempting to keep a detailed check on so many small retailers puts a burden on the Price Commission out of all relation to the benefits that could possibly accrue. What is also true is that it is these small retailers who have felt the full brunt of increased costs and who cannot increase their throughput sufficiently to compensate. This is another aspect deserving of reconsideration.

One admits that some improvement has been made, but the increase for Category III retailers from £250,000 to £375,000 turnover does not fully compensate for the degree of inflation since the Price Code was introduced. To do that the Secretary of State would have to go significantly higher, and surely there is every justification for raising this category not by 50 per cent. but by double that amount. Putting the £250,000 up to £500,000 would be a more realistic approach and one that would give real help to the small retailer. It is he who has had and who is having a difficult time, and I urge the Government to make some change here.

Having made my two main criticisms, I want to make clear that we realise that a genuine attempt has been made in some respects to ease the difficulties of retailers. In particular, we welcome the fact that investment relief is to be extended to shops. This is putting right an injustice that has operated against retailers, and we warmly welcome this move. In addition, the increase from 20 per cent. to 35 per cent. in investment relief should provide a major incentive to investment provided that in other ways the climate for investment is right. It is for this reason that I stress once again the need to make some further adjustment under paragraph 88.

Another important concession, and one that was strongly urged by the Retail Consortium, is the relief on stock appreciation. Stocks carried by retailers are traditionally high, and the fictitious profits arising from increases in stock values have distorted many retailers' profit figures. This relief is essential if we are to have some effective easement from the present limitations that surround us. I must point out, however, that even this concession, valuable though it is, has been limited by the fact that only 70 per cent. of the increased value of stock is subject to relief. We think that an abatement of 30 per cent. is too much—we should be happy if there were no abatement at all, but I recognise the force of the argument for some abatement—and we suggest that 20 per cent. is a more realistic figure.

I know that others have put forward the view that relief on working capital would be more effective than stock appreciation relief. We looked at this very carefully. There is no shadow of doubt that for retailers this would be a poor substitution for stock relief, and we should have to be strongly opposed to any change of that nature.

We welcome also the proposal in paragraph 24(a) to give a greater degree of flexibility in regard to the accounting years on which reference levels are based. This seems a sensible move. The Price Code was, after all, originally intended as only a short-term measure, and the longer it goes on, the more difficulties can be created by using base years which become increasingly out of date.

The proposal in paragraph 24(b) for a rolling 12-month period is one which in principle is sound. However, there are some possible difficulties in regard to this, and this is one matter which my colleagues and I would like to discuss with the Secretary of State.

The same applies to the question of interest which is dealt with in paragraph 35. In principle it seems a sensible change, but it has been put to me that in certain circumstances it could operate unfairly.

There are, indeed, a number of other points which need clarification, and I hope that there will be an opportunity to discuss them. What I wish to stress is that, given the limitations which surround it, this is a constructive document. It could have been very much better, and in the two respects that I have stressed I very much hope that the Secretary of State will be able to make the changes on the lines that I have suggested. It is, after all, a consultative document, and presumably that means that changes can be facilitated.

What we have to recognise, however, is that what is proposed is a series of changes designed for 12 months only. As such, they can have only limited effects, although the undertaking on investment given in paragraph 4 of the document is important for the longer term. What is of great concern to retailers, however, as it is to industry generally, is what proposals are likely to be brought forward with regard to the period after the 12 months that we are now considering. We know that the TUC is already pressing for freedom from wage restraint at that time—or some leading members of the TUC are.

I do not propose to comment on that aspect now. What I want to make abso- lutely clear to the Government is that it would be intolerable if wage restraint were removed while restraint on prices, in whatever form it took, were to be retained. We have already seen quite grotesque unfairness in the period from March 1974 to July 1975. There would be the strongest resistance to any attempt to retain a control on prices while relinquishing it altogether on wages in the future. Whatever the arguments for or against control, they must cover both aspects.

The Government have already said that they are willing to start discussions in due course on what is to replace the Price Code in 1977. We in the Retail Consortium would not feel bound by any discussions if we were to be confronted with a free-for-all on the wages front. We want much greater freedom and flexibility on the prices front. Any continuing control on prices, however free or flexible it may be, must be matched by something comparable on the wages front. That must be clearly understood by the Government.

Mr. Mike Thomas

May I make it clear that that is a position widely held on this side of the House, too?

Mr. Godber

I am glad to hear the hon. Member say that. It has been clarified by the debate this afternoon, but I thought it as well to make it clear how we stood.

I turn to the wider aspects of the debate. Amendment of the Price Code to stimulate investment can help only if the control of the economy is sound. No one can honestly say that it is sound at this time. The position of the pound may be a little better at the moment and I hope that it will continue to improve. But it is not so many months ago that we thought that a pound at $2.10 was weak. Let no one take too much credit for a pound at $1.80.

What has to come, and the Chancellor knows it as well as I do, are massive cuts in Government spending. What I fear, from what I read in the Press, is that it will be too little when it comes. If it is inadequate, the pound will still be in danger. We cannot opt out of this situation. Either the Government takes sufficient steps to cut back the excess of public spending or the world outside will impose its own judgment on us by a continuing lowering of the value of our currency.

The Government's ability to relax the Price Code has already been cut back by the fall in the pound since they first started talking about this subject. The incentives to investment and employment which the relaxation of the Price Code is designed to promote will not have their full effect unless they are accompanied by a much more prudent attitude to public spending than we see at present.

This Chancellor has far too often been too complacent about the present and too confident about the future. Is it too much to hope that he will this time have the courage to ignore his party's left wing and do what he knows is necessary for the health of our economy at home and the standing of our currency in the world? If he can face up to these issues, we can then follow the proposals for amendment of the Price Code with the further adjustments that I hope we shall see.

In that event we can perhaps look forward to something a little better. We shall want to see, when we come to discuss a further document, a great deal more flexibility and concern for the future. I do not believe that industry can be tied down indefinitely in the way that it has been over the past three years.

7.24 p.m.

Dr. Jeremy Bray (Motherwell and Wishaw)

Had the Government of which the right hon. Member for Grantham (Mr. Godber) was a member not introduced the Price Code I cannot help feeling that the Labour Government would not have had the face to do so. If the right hon. Gentleman were slightly wriggling on his own petard he did not give the impression that he expected the Price Code to be abolished in the fore- seeable future. It is something with which we shall have to live for a long time.

Mr. Mike Thomas

May I point out to my hon. Friend that one wriggles on hooks and hangs from petards?

Dr. Bray

I thought one was hoisted by petards. It is to the remarkable speech of the right hon. Member for Sidcup (Mr. Heath) that I wish to address myself. I see on the Conservative Benches some of the poor bloody infantry from the Finance Committee, keeping their hands in during the frustration of waiting for Report stage. No doubt we shall hear from them later.

There is a tendency for hon. Members to retail the latest fad of the economic correspondents. The right hon. Member for Sidcup tellingly traced the switches of policy and of emphasis in one newspaper, and perhaps one economic correspondent, Peter Jay, but nevertheless echoing something that could have been just as closely followed for Sam Brittan or Tony Harris or Frances Cairncross or any of those other excellent writers, none of whom ever read what we say in this Chamber and all of whom we all too readily quote as the ultimate fount of wisdom.

The fact is that they have no more time to study public policy or even to read elementary textbooks than do hon. Members. Were the Government to pay somewhat closer attention to what is said to them from the Back Benches—even the Opposition Back Benches—from time to time, they might have a slightly more consistent and easier passage when making their policies. When the Chancellor was speaking yesterday there was a delicate moment when my hon. Friend the Member for Birmingham, Selly Oak (Mr. Litterick), who is always anxious to help the Chancellor, asked him to explain what the money supply was and how it was affecting his constituents in Selly Oak. The Chancellor said that it was all a question of having too much money sloshing around.

I very much like having a lot of money sloshing around. I cannot help thinking that most of our constituents do, too. They cannot quite work out why what is right for me should be wrong for the nation or for the other guy. There is all this nattering about Ml and M3. I suspect the real difficulty was that the Chancellor had forgotten which was Ml and which M3.

If I may offer my right hon. Friend a helpful suggestion, three is bigger than one, and three is the wider definition. The problem though is that it is difficult to identify any relationship between the money supply and the money GDP. As Vera Lynn said: Don't know when, don't know where, But I know we'll meet again some sunny day. We have M1 wandering off one way and M3 wandering off another way. No doubt they will meet money GDP somewhere. They have not been moving in the same direction lately and it is unlikely they will meet again at any predictable point in the future which is no earthly good to the Chancellor, the Bank of England or the monetary authorities in the difficult task of monetary management to which the right hon. Member for Sidcup referred.

The right hon. Member made an eloquent plea for some consistency in the development of public policy and in assessing our problems. We should concede that there are important monetary effects in the economy. Nothing which we say on these Benches contradicts this.

For example, we suffered terribly from the absurd things done to building society liquidity, mortgages and deposits through the early 1970s. It sent the house market all over the place. Prices went up and demand for new housing rose wildly. A lot of people suffered badly.

Again, undoubtedly how much money a man has in the bank or under his pillow affects how much of his income he is prepared to spend from day to day. This has been churned out as the only traceable explanation for the enormous increase in the savings ratio. The only effect which has been clearly identified is that a fall in personal liquidity causes people to save a large proportion of their income to restore their position.

Another more aguable effect, which it has not been possible to identify but which we cannot dismiss as an argument, is that the liquidity of companies, the amount of money which they can readily lay their hands on, affects their investment behaviour. Certainly one way or another it affects their readiness to pay wage increases.

To admit that there are monetary effects in bits of the economy is by no means to concede that the whole economy should be seen from a monetarist point of view and that the regulation of the economy should be left to monetarist prin- ciples. A change in M3 may be due to many different things, which are entirely different in their cause and their effect. It may be due to an increase in the public sector borrowing requirement. It may be due to increased bank lending to companies, or to persons, or due to a change in the external deficit. The different possible causes of each of these changes in M3, and the likely consequence of them and the response that it should evoke from the Government, are completely different. If it is an increase in personal liquidity, the entirely appropriate response to an excessive increase in company liquidity would be irrelevant. Therefore, to impose blanket restrictions on the money supply could be hopelessly destabilising for the economy as a whole.

The House might care to reflect upon the current situation, in which there has been a big increase in M3 over the past four years, although that has been accompanied by a fall in personal liquidity. While the liquidity of the country as a whole has increased, personal liquidity has fallen, and as a consequence the savings ratio has risen.

This general approach to admitting the importance and relevance of monetary effects in different places in the economy is clearly recognised in the United States by most practical, working day-to-day economists—if not by the sort of glamour boy economists who get quoted by Opposition Members. The major economic models of the United States take monetary effects in this specific way of particular monetary variables having an impact on specific sectors of the economy, rather than any general "money rain" effect where the whole money supply has some magical effect on the whole of money GDP.

There is one exception to that, in that the St. Louis Federal Reserve model shows a large effect on money GDP of the money supply, but there is a very interesting nonsense from that effect. At the meeting in December of the American Economic Association, the seven major models in the United States had a competition to see whether they could have run the United States enconomy from 1966 to 1975 better than history actually did. Of course, they all did better. However, the way in which the St. Louis Federal Reserve model did it was that because the money supply had a bigger effect on GDP, it gave the most enormous increase to the money supply in 1974–75 to reduce the depth of the recession, while having only the most marginal effect on inflation. One can be led into this nonsense by effects which are not rigorously identifiable but which are put in for doctrinaire reasons in pursuit of some doctrine that is not sustained by the evidence.

As a result of these fads, to which the right hon. Member for Sidcup referred, and the fashions of economic correspondents, there is one particular naiveté that is current. That is that to each objective there is an instrument that is appropriate to the attainment of that objective. Conversely, each instrument should be used to pursue one particular objective. We had this from the hon. Member for Guildford (Mr. Howell) in his speech last night, when he said that lack of pay restraint would lead to losses of jobs.

However, the converse of that is that the implementation of pay restraint will lead to the restoration of full employment—which is simply not true. There is a grave danger that the trade unions will feel led up the garden path by that belief. It is not true that wage restraint will restore full employment. It will need a whole battery of measures integrated across the field. Perhaps I may quote from The Times an article by Peter Jay, which appeared on 11th March 1976 and in which he clearly makes the mistake of allotting a specific instrument to pursue each specific objective. He said that the management of the economy should be based on three simple principles: Inflation can only … be eliminated by balancing the budget. Balance of payments deficits can only occur … to the extent that governments choose to spend from the reserves … Employment … will in the future be up to those who supply it to offer it at a market-clearing price. In other words, the trade unions should reduce wages until they get full employment.

Mr. Kenneth Lewis (Rutland and Stamford)

Does the hon. Gentleman accept the converse—that if wages were to go through the roof again, as they were doing two years ago, this would add to the unemployment, and that what happened two years ago has largely created the present increase in unemployment?

Dr. Bray

It has done many other things as well. Every cause has many effects. And to achieve any objective one needs to use many instruments. That interaction in the economy is grossly oversimplified by the economic pundits today. However, I entirely accept what the hon. Gentleman says. There have been major effects, but it is not just one effect following that enormous bout of inflation.

The appropriate way of approaching the problem and, in all earnestness I would suggest a way in which we can see a steady continuous development of the approach to public policy making which can be agreed by both sides of the House, is an approach that says "If these are our priorities—and we differ as to our fundamental priorities, between the two sides of the House—what is the appropriate package for policy adjustments that we should make now in order to pursue those priorities?"

The way of making that systematic analysis would use economic models in a way which has not been the subject of much research or interest in Britain but has been in the United States. Such work that has been done in this country has been done largely by some of my friends outside the House and myself.

However, through considerable badgering, the Government have set up in the past fortnight a committee on policy optimisation which will be looking at the economy from this point of view. It will be saying, "If these are our priorities, if this is the importance that we attach to a reduction in the rate of inflation versus a reduction in the level of unemployment, versus a reduction in the balance of payments deficit, vesus an increase in the rate of profits, what is the appropriate policy mix that we should have now?"

It is a very distinguished committee. The chairman is Professor Ball. The other members are drawn from the Treasury, the Bank of England, the National Institute, Oxford, Cambridge and the London School of Economics—the trinity itself. I have no doubt that in its work this committee will come up with some interesting conclusions.

The sad thing is that these techniques are already in use in the United States and becoming a part of the standard approach of the United States to policy making. They will get an enormous filip if Jimmy Carter wins the Democratic nomination for the presidency and if his chief economic adviser, Lawrence Klein, becomes the chairman of the Council of Economic Advisers in Washington.

Mr. J. M. Craigen (Glasgow, Maryhill)

I get the impression that we have all these thinkers and very few doers in Britain. I am puzzled about this, because apparently the United States has not successfully overcome its unemployment problem and its inflationary position with all these economic models on the go.

Dr. Bray

We have 635 thinkers rather than doers in the House. We should not underrate the importance of my hon. Friend's contribution and the contributions of hon. Members on both sides of the House to thinking about the hard problems. I want people actually to do something about these problems. I entirely agree that we want to see action. We want to see action following clearly from our thinking. We do not see that today. We see the action thrown up by changes in fashion, which I am sure my hon. Friend would concede, and which was referred to by the right hon. Member for Sidcup. We on this side of the House are just as liable to react to changes in fashion as are hon. Gentlemen on the other side of the House. One can see this clearly where the extremities of the Tribune Group in one year become the orthodoxies of the Government five years later. My hon. Friend the Chairman of the Tribune Group will recall that in regard to import deposits in the mid-1960s. No doubt we shall see many other changes over the next few years.

But that is, in a sense, business for the future and I do not want to detain the House because we have an urgent problem which we have to face now. The Government are considering cuts in expenditure. One does not have to be a monetarist to accept the need for restraint in public expenditure. There is the balance of payments problem which hangs like a sword of Damocles over the exchange rate which may drop all of us into the most terrible situation. There is the appalling level of unemployment and there is simply the preference of people—how strong it may be I do not know—to have the money to spend rather than to have it spent for them. Hon. Gentle- men on this side of the House, who grumble about rates of income tax, may reflect this. It is a grumble which I personally do not make.

I would plead that the Government should be governed by two principles when considering the particular expenditure cuts they are going to make. First, the cuts should not be deflationary. The Government should seek cuts only in as far as they believe that through the more rapid expansion of the economy than they expected which is taking place—more rapid expansion, perhaps in consumer demand and investment, certainly in exports—there is a need for restraint in public expenditure.

Secondly, the cuts should not be regressive. They should seek to redistribute income to the less-well-of members of the community. For example, in the field of local authority expenditure, if cuts are to be made they should be made in administrative staffs and not in services or in transfer payments. If they are to be made in the field of taxation they should be made in Inland Revenue staffs by simplifying the Baroque structure of our taxation system. If there are to be pressures on food subsidies, then those pressures should be more than counterbalanced by increases in supplementary and other benefit rates. There should be no action on rents of council houses in advance of the Housing Finance Review which will also take into account the position of the owner-occupier.

To offer any priorities at all is, in a sense, to offer hostages to fortune because they can always be quoted against us when pressures have gone too far. I would say to my hon. Friends on this side of the House that if we believe there are priorities within public expenditure we must be able to say what those bits of public expenditure are that we would most passionately defend and what those are that we would be prepared to see offered a lower priority. Those two principles, that the cuts should not be deflationary or regressive, are the criteria by which we shall examine any policies that the Government announce in the next few weeks.

7.44 p.m.

Mr. Cecil Parkinson (Hertfordshire, South)

I enjoyed listening to the speech of the hon. Member for Motherwell and Wishaw (Dr. Bray). It must have been quite a change for him to be standing on that side of the House speaking to, and lecturing, us rather than sitting in the Finance Bill Committee listening to us going on and on.

His speech was extremely interesting. I will not follow him except in one respect. He talked about money supply and we have had a great deal of talk about this in the last few days. Every time the Chancellor gets up he likes to boast about his record as a monetarist and how successful he has been in controlling the money supply. One does not have to be Einstein to work out why the Chancellor boasts about it. If one has as little to boast about, as the Chancellor does, it is only natural that one should refer to one's apparent successes. However, like most things which toe Chancellor says, even his claims about his success have to be carefully examined.

The truth is that the Chancellor has managed to control the money supply at the depth of a recession and at a time when the world was awash with spare funds, when the Arab nations, and other oil-producing countries were looking for countries to deposit their funds in. He did so at a time when, as the hon. Member for Motherwell and Wishaw mentioned, personal liquidity was at a very high level and the Government were able to fund the public sector borrowing requirement and to sell almost unbelievable quantities of gilt-edged.

The Chancellor goes on about his success but even this Chancellor would have found it difficult not to control the money supply in the very special circumstances that have obtained in the last year or two.

The Chancellor's claims are rather like the claims of a Government which says that the ice cream vendors outside Westminster Abbey have sold a record quantity of ice cream under a Labour Government—far more than they ever sold under a Conservative Government—without mentioning the fact that we just happened to have had a very hot spell in 1976 for which they can claim absolutely no credit. The Chancellor's claims are, to some extent, slightly bogus.

The other speech to which I would like to refer was the speech of the right hon. Lady the Secretary of State. I have just come back from a four-day seminar in America where we discussed world problems 1975–85. The prospects, as seen from the other side of the Atlantic, for this country are extremely gloomy. The projection is that our GNP in 1985 will be approximately 40 per cent. of that of the Germans or the French. The people I was with see no reason why this should change. They consider that we as a country have very big problems indeed and show no signs of knowing how to tackle them.

There was an air of farce about the right hon. Lady's speech. After enormous soul-searching she said that the depreciation rate which could be will be allowed will be a factor of 1.3 of the actual depreciation charged in the accounts. What has that to do with reversing the long-term downward trend?

The right hon. Lady went on to say that school leavers are going into distribution and that, therefore, what we need is more shops. I thought "My goodness, the right hon. Lady's solution to Britain's problems is that we are actually to become the nation of shopkeepers that many people in the world think we already are". She seemed to think that the thing Britain lacked was high street shops. Frankly, the one thing which in my constituency we are not short of—and we are short of many things—is high street shops.

There was an air of unreality and farce about her speech and one felt that here was a capable, honest and able person fiddling around with the minutiae while the country slowly drifts on a course towards disaster.

I would like to quote from the first paragraph of "The Attack on Inflation". I have read more, but it has been notable how many hon. Members have quoted from the first paragraph of the White Paper and I am not sure that they have read much further than that. The first sentence says: Britain needs a strong economy and a fair society. That is a laudable objective and I am sure the Government would not mind if we apply that text both to their achievements and policies. Is Britain stronger as a result of this Government's activities? Is it likely to be stronger? Is it a fairer and more just society? Both are laudable objectives.

But let us start by considering the first objective, that of producing a strong economy. The Government are reluctant to admit what is happening here. They like to pretend that they came to power on 1st July 1975, but they have been in office now for nearly two-and-a-half years. It is fair to consider a few basic statistics. I make no apology for doing so; I have done so before. I am sorry to say that the figures do not improve. The key indicators show that production is up a mammoth 2 per cent. since 1970. Over the same period, wages have risen by 253½ per cent. One does not need to be Einstein or even to know the names of dozens of outstanding economists, as does the hon. Member for Motherwell and Wishaw, to know that those two figures spell trouble, for a start. Nor does one need to be Einstein to know that much of the increase in wages has been during the last two-and-a-half years.

We have 1,250,000 people out of work. We are running a balance of payments deficit of over $6 billion and the pound is languishing at $1.77. Yet the Chancellor yesterday behaved in an outrageously frivolous way. He was the man who had it made, the man who knew all the answers but did not know how to do the arithmetic or how to get the results which he knew he must try to achieve, and he did not seem to care. He was a man without a care in the world yesterday, standing at the Dispatch Box as if he had solved the problems instead of having created many of them.

Let us consider company profitability. In 1960, companies were producing a rate of return after tax of between 8 per cent. and 9 per cent. on capital employed. By 1974, the after-tax return was zero—in fact, less than zero, a minus quantity in real terms. Only the stock appreciation relief turned that minus into a plus. Without the stock appreciation relief, companies would have been producing a minus return on capital employed. We all know that that relief was not a relief at all, in fact, but a deferral. It was not a permanent gift to the companies: it can be claimed back. So the real rate of return was a minus quantity.

The Chancellor tells us that the answer to our problems lies in investment and export-led growth. I hope that we clap in irons the next Chancellor who talks like that, and acts as if it has happened. He is doing nothing to produce that investment and growth. The reason that people are not investing as he would wish is that they receive a nil return. They are told to take all the risks, borrow the money at high interest rates and then they will get a nil return for their trouble. Then the Chancellor finds it puzzling that companies are not investing.

Thus, by any standard, we are not a strong economy at the moment. The Government certainly cannot point to any major achievements. They can point to record inflation and record unemployment, but that is the only sort of achievement that they have to their credit. But assuming that although the Chancellor was hapless, ignorant and incompetent, but has now learned something, what is he doing? Let us consider the proposals in the White Papers.

First, the Price Code is to be relaxed, but as the Secretary of State made clear several times today in her attempt to please those of her hon. Friends who are to the Left of her, she does not intend that relaxation to be serious or to have any major impact because that would be unacceptable to them. So we should not look to the relaxation of the Price Code to transform anything. If any major changes or relaxations were made of a kind which would produce a meaningful increase in profits, that would be totally unacceptable to her hon. Friends. The relaxations are only a slight cosmetic job for the distinctly short term. They will certainly not help to solve British industry's main problem—the present low return on capital employed.

Let us consider the devaluation of our currency. There will be short-term benefits. Our exports are very cheap. I heard someone say the other day that, with a bit of luck, we could become the Hong Kong of Western Europe—a source of cheap labour and cheap goods and materials. That is not a prospect that I particularly want for the people of this country.

We shall get short- and medium-term benefits from devaluation, but just think of the price that we shall pay. Already, manufacturers' raw material prices have risen by over 10 per cent. in the first five months of this year. That will all come through in prices in due course. It will do nothing to improve companies' profitability. The price increases which will have to be allowed will just cover costs.

Let us consider the cost of repaying some of the huge debts which the Government have incurred. That is a burden which will have to be met out of a currency which has been debased. There is a short-term benefit ahead of us, but there are serious long-term problems. Anyone who thinks that a devalued currency is a major asset for the country is misleading himself or herself.

Let us consider incomes policy and the agreement with the unions. It is true that they have agreed to limit pay demands, but they have made a number of other demands which have severely damaged industrial confidence. I sometimes wonder whether the Government have a deal with the unions at all. The unions certainly have not accepted the other part of the package, cuts in public expenditure.

Day after day, union leaders say, openly and honestly, that they will not wear any cuts in public expenditure. Yet the Government say that they have an agreement with the unions. It may or may not be an accident but it is after the conference at which the TUC approved the pay package that it will be told that the Government are going back on the other half of the deal and there will be cuts in public expenditure. Union leader after union leader has said, "Do not count on our co-operation if there are major public expenditure cuts." Yet we all know that there will have to be such cuts.

So if the Government have constructed a ship which they will push out to sea in the middle of the world economic storm, it is a frail and temporary vessel, certainly not built with any long-term prospects. By the test of whether this agreement will produce a strong economy, I must say that it will not. It gives us a breathing space but does nothing to strengthen the economy. Part of the price for it is the damaging of industrial confidence which will prevent the essential strengthening of our industrial base.

Are the Government producing a fairer society? Many people are alarmed at the growing power of the TUC. Many are concerned that their tax reliefs this year were settled not by Members of Parliament but in conference between the Government and the TUC and the rest of us were told that only if the TUC approved of the policy would we get our reliefs. We had no chance to have a say. Is that a fair society, a society in which the big battalions of the TUC are consulted and the rest of us put up with the deal that they find acceptable? That does not coincide with my idea of a more fair society. It seems that we live in a society in which the robber barons, the big guns, the men with the muscle, have the biggest say. That is not by any standards a definition of fairness.

Mr. Jack Jones lectures us day after day about the need for others to make the sacrifices that he and his members have been making. However, industrial wages have been increasing at a faster rate than inflation. Since the Government have been in power the people who have been squeezed and pressured are middle management, the elderly and those living on fixed incomes or on small investment incomes. They are the people who have been squeezed, but they are not consulted about achieving a more fair society, the society that the Government claim they are seeking to create.

I have in my hand a very good letter that was written to The Times, which I shall not quote extensively. It was written by the Deputy Managing Director of GEC. It shows how the squeeze has been concentrated firmly on skilled workers and those above. It shows how the purchasing power of take-home pay has been severely squeezed. That has taken place in a quite arbitrary fashion, ranging from 10.5 per cent. for the skilled manual worker to 32.5 per cent. for the skilled managing director. Severe pressure has been applied on only one section of society.

I do not see how that is particularly fair. I believe that it is arbitrary, discriminatory and owes very little in its conception to fairness. It is the fact that those who are being squeezed hardest tend not to be supporters of the Government.

Let us consider the Government's proposals for taxing benefits. What do we find? As soon as the Government discovered that railway and airline employees were to be taxed it was decided that the clauses should be removed. That is because those people matter in the TUC. It is because they have power. But is the poor salesman who has a company car to be relieved of the tax? That is a privilege in the same way as being able to travel on the railways or air lines at cheaper rates. No, the salesman is not to be relieved of tax. An amendment is to be brought forward, but that has nothing to do with justice. It is to be introduced because it would suit British Leyland better if the provisions were changed. The amendment has nothing to do with justice for the individual taxpayer.

On the evidence of their performance to date, and on the evidence of the proposals in the two White Papers, I do not believe that the Government are proposing anything that will make the British economy stronger or British society more fair. I believe passionately that the Price Code in its present form is damaging the long-term prospects of British industry and the long-term prospects of those who work in it and depend on it. Let us remember that they are a substantial proportion of the population.

The pay agreement runs for only one year. Union leader after union leader has made it clear that the unions are not interested in renewing anything of that kind. That provides the Government with a year. They have no long-term basis for recreating wealth or prosperity in our society. They merely have a breathing space, a chance to get on with the job that must be done—namely, the cutting of Government expenditure, moving towards a more balanced Budget and the cutting of the penal rates of taxation. None of those things can be done to take effect immediately, and the cutting of the penal rates of taxation especially will have to wait.

The truth is that the proposals in the White Paper add very little to fairness. They will do nothing to produce the stronger economy that we all want. I am sorry to have to say that I cannot join Labour Members in congratulating the Chancellor, whom I regard as having done a disastrous job to date.

8.5 p.m.

Mr. Tom Litterick (Birmingham, Selly Oak)

I shall not try to take up all the points made by the hon. Member for Hertfordshire, South (Mr. Parkinson), but perhaps I ought to comment on his remarks about the consultation that has taken place between the Government and the trade unions. Since the Macmillan Government it has been the practice of Conservative and Labour Governments to consult the trade union movement at the highest level—namely, at national official level. That consultation has become commonplace in our political life.

Before any of the great economic decisions are made by the Government we expect consultations to take place between the Government, the CBI and the TUC. All that has happened during the lifetime of this Government is that the process has become somewhat more formalised. The British people are accustomed to this consultation, and I think that they would be shocked if the trade union movement were not consulted.

I am a little sceptical about the validity of the consultation that actually takes place. Perhaps in this respect the hon. Member for Hertfordshire, South and I are on common ground. Perhaps there is a danger in relying so heavily on consultation with national secretaries and presidents. We cannot help but notice that most of the members of the TUC General Council do not have dependent children and have therefore been more amenable to the persuasions of the Treasury about the child benefit scheme. It is easy to see that in certain obvious senses the TUC General Council is not as representative of the working class as it might be.

Dr. Bray

Is my hon. Friend being entirely fair to the TUC General Council? Is this not partly a problem of time? If the Chancellor has to fix up a deal quickly, he has no alternative but to do it with the General Council. If there is to be the consultation throughout the trade union movement that my hon. Friend and I would like to see, the Chancellor should start talking about the next round now.

Mr. Litterick

Indeed. I hope that my hon. Friend the Member for Motherwell (Dr. Bray) will recognise that there is a difference—I do not mean to make a party point—when I say that the Prime Minister of the Conservative Administration was severely damaged after making the assumption that in some sense national secretaries of trade unions can deliver the goods. Apart from the implicit cynicism in that assumption, a profound judgment is being made about the nature of trade union democracy.

One of the essential elements of British trade unionism is that it is composed of a series of democratic institutions. In practice they might be far from perfect but, unlike their European and American counterparts, they are institutions that have been developed from the ground upwards rather than imposed by a political party on the working class. If we are not careful, we are in danger of doing some violence to major institutions in our society.

It was understandable that the Chancellor should refer to what he described as the remarkable achievements of the past 12 months. I happen to believe that there has been a remarkable achievement during that period, but I do not think that it features in the achievements that my right hon. Friend was trying to put before the House yesterday. He spoke, understandably, about reducing the rate at which the domestic price level is rising. He also referred to the narrowing of the trade gap. Those are commendable objectives, but my right hon. Friend chose to place remarkably little emphasis on the level of unemployment, which since last July has risen by more than one-third.

No Government will claim such an increase in unemployment as an achievement, but it must be recognised as a component in the Government's action during the past 12 months and perhaps to some extent a result of some of the Government's actions during that period. To put the best face on it, it would seem to be reasonable for my constituents to be a bit sceptical about my right hon. Friend's claim of remarkable achievements, bearing in mind that rather more of them are out of work now than 12 months ago. Birmingham has more than 50,000 unemployed workers. The figure is almost 40 per cent. up on 12 months ago. That could hardly be described as an achievement.

There is another danger present in what the Government have been doing with the trade union movement and the wages system. One long term damaging conse- quence might be the suppression of the process of collective bargaining. We are now in the second year of wages restraint. Institutions are viable only as long as they are used. It has long since been noticed by the House that the most vital element within the British trade union movement was within the factories and centred around the activities of the shop steward who had to work with his constituents. That is no longer so.

Throughout industry employers were telling their workers that they could have the £6, and not a penny more, with no questions asked and no bargaining. Negotiation does not arise. Now they will be telling their workers that they can have the 4½ per cent. and no bargaining. Employers are falling over themselves to do this, and that is a clear manifestation of the fact that employers see wage restraint as being in their interests.

As the wage restraint policy will reduce the real value of family incomes, it is clearly on in the interests of the British worker, unless someone can spell out, as the Chancellor attempted to do yesterday, a long-term benefit. That is where the Government are getting into trouble. It is difficult to convince the British people that their sacrifice will result in a material long-term benefit. I assure the Chancellor that the British worker is a firm materialist when considering his own interests as expressed in the wage packet and what it can buy.

The Chancellor is trying to persuade the working class that there will be an advantage in the long term. The day after tomorrow there will be pie in the sky. His most remarkable achievement is to persuade the leadership of the trade union movement to accept this policy. I do not want to create the wrong impression. I do not approve of the policy. I think that the leaders of the trade union movement are profoundly wrong and mistaken. Perhaps they have been pressured into accepting the deal by people who are better at putting on the pressure than they are—which is saying something. They have been subjected to pressures which they find difficult to resist. The argument with which they have been presented is that there is but one possible set of policies to get us out of this hole, and the alternative is total disaster for them. That is never true either in politics or in economics.

The evidence of the conferences suggests that that is how the policy has been presented. One after another the general secretaries of the trade unions—sometimes men who have hitherto been regarded as holding radical opinions—have mediated that message from the Government to their members and terrified them into acceptance. I do not apologise for using the word "terrified" because there is a sort of terrorism involved in what the Government have done to the trade union movement. That is a political ploy for which, however skilful, they will in the long term have to pay dearly.

The Government are saying that restraint on working-class families' wages will contain domestic demand and keep down British industry's manufacturing costs. They are suggesting by implication that if they can suppress domestic demand, some other part of the economic balloon will expand. That is simply a declaration of faith, or even hope, that it might happen, that exports might grow disproportionately and make up for what the British people will not be allowed to consume. In economics things rarely work in that simple way. There is no reason why the Japanese should suddenly buy vast quantities of British goods, or why the Americans should suddenly become more liberal in their attitude to British exports or the Germans easier in their attitude to us. As they have come through similar experiences, there is every reason to think that they will get tougher.

As for improving the competitiveness of British industry, it is extremely unlikely that British manufacturing costs will he reduced because British wages are restrained. British wages are amongst the lowest in Europe. If we exclude Greece, Spain and Portugal, the British worker is already the cheapest worker in Western Europe. The British worker might well ask "How cheap do we have to be before the British economy becomes viable in the eyes of the people whose confidence is being sought?".

Here we get to the heart of the matter. The Government are seeking to inspire confidence in people who do not live here, let alone pay taxes here. They seek to inspire confidence in people abroad who speculate in sterling, who may or may not invest in this country and who do not like what the British Government are doing.

We do not hear Opposition Members complaining about those aliens, who frequently profoundly damage the British economy. The Opposition spend more time and energy in talking about a different sort of enemy because they think that that will get them a few votes. That is the truly threatening alien influence that concerns British people. The people who control capital in New York, Paris, Hamburg, and Yokohama can and do attack Britain and damage the interests of my constituents as and when they please. The sadness of the Government's strategy is that they propose no means by which they can prevent a repetition of that attack.

To that we must add the irresponsible behaviour of our home-grown patriotic capitalists who take their money out of the country as and when it suits them, with no consideration of the consequences for Britain. If they are ever involved in making self-validating pronouncements about the future of the British economy they say that it is all gloom, and will get worse, and those pronouncements promptly bring about those events. I understand that that is called an attack on the pound.

The British worker does not do that. He travels to work on a Monday morning—assuming that he has not been math redundant. According to the Government, he does not have a crisis of confidence. His confidence is not being sought, and that is the essential weakness and failure of the Government's approach.

What will improve Britain's industrial competitiveness is an improvement in managerial efficiency. Hon. Members have spoken at length about the supply of capital to industry, but we in the West Midlands well know that managers are not particularly good at using their resources. The report referred to yesterday by the Chancellor produced by Professor Dudley's Committee for the West Midlands Regional Economic Planning Board, and the earlier report made by Professor Turner, are both concerned with interruptions to production and both have come up with the same conclusions.

The reports noticed that machines were being woefully under-used. The Dudley Committee noticed that in some cases machine tools were operating at about 30 per cent. capacity. That was in the first half of 1974 before we had reached the depths of the slump. The Turner Report noticed that the vast majority of interruptions to production were caused by internal managerial factors such as a falloff in scheduling, failure to provide plant maintenance, and so on. Only a relatively small proportion of the total number of interruptions and the total number of days lost in production was caused by industrial disputes or could be attributed to the British worker, British trade unions, or the mechanisms of collective bargaining and conciliation.

That is fairly convincing evidence that as yet we are unable to use the tools we have, for reasons which seem to be endemic to British management and the structure of industry. The Chancellor said that cuts are being made in public expenditure because resources had to be made available. Professor Dudley's committee made it clear that we do not suffer from a shortage of resources. About 200,000 building workers are unemployed and that is a resource. There is no shortage of bricks. Brick works are operating at half capacity and we have been stockpiling bricks for a year.

Birmingham has a shortfall of more than 20,000 houses, despite there being no such shortages. What kind of logic is the Chancellor of the Exchequer applying to that? The same situation exists in virtually every city in the country. A major industry is being paralysed because the Government are presenting a policy that makes it impossible for that industry to operate. There is no shortage of resources at all.

As and when it comes, the upturn will be characterised by those managements which can use the capacity that they have, thereby slowly taking up the slack with little effect on the level of employment. If investment ever gets going in the private sector it is certain that it will take place in the capital intensive areas. The result on employment will be far less during the recovery period than it was after previous slumps. While that slack is being taken up, unit costs of production will inevitably fall.

Listening to the hon. Member for Gloucester (Mrs. Oppenheim) today, one might have been forgiven for thinking that the opposite was true. If an organisation is operating at 50 per cent. capa- city or less and it starts to increase productivity, it is inevitable that its unit costs will fall, and yet the Government are helping prices to be pushed up and are making concessions to encourage companies to put up prices. The fall in costs which is inevitable with an increase in activity will widen profit margins. Companies do not need another concession either in terms of a relaxation of the Price Code or a relaxation in tax allowances for depreciation to create the necessary surplus that they say that they should have.

There has been no instance of a fall in the retail price index in the United Kingdom in any time in the trade cycle since 1934. The last great depression was the last time that the general level of prices fell. From the Second World War we entered an age in which we had to accept inflation as normal if we were to remain committed to full employment.

The Chancellor of the Exchequer has assured us more than once that he expects the level of unemployment to fall to 700,000 by 1979. That is a retreat from full employment and a retreat from the idea of maintaining full employment. Unless there is a serious attempt to change everyone's attitude towards work—to change society's attitude towards work—that 700,000 unemployed, which the Chancellor of the Exchequer regards as a desirable target, will be seen as evidence of intellectual failure by the Government.

We should remember that the favourite bloodsport of the Opposition is hunting social security claimants. Examples of the victims of their sport will be excoriated in page after page of daily newspapers because members of that party will gladly find examples of unemployed men and women who are getting too much and of whom they can say "Is not that a scandal?".

Generally, we still regard working as evidence that a person possesses social virtues. It is time that we questioned that view. It is time that we accepted that adults should be able to opt out of work frequently, to do something else which is not generally regarded as work. Adults should, for instance, be able to take up full-time education. That should be a large component of our social and economic policy.

People should be allowed sabbaticals from the horrible places in which they are obliged to work. Very few hon. Members would like to work at Long-bridge assembling motor cars but, unfortunately, it is people like us who get sabbatical years—or sometimes sabbatical four years. I come from a profession that treats its members in that way, and that is right. But the kind of stresses to which I was subjected are not the same as the stresses experienced by build, ing, car, or foundry workers.

We find it difficult to look at that seriously because we are stuck with the ancient belief that if a man is not having a horrible time at work, he is not working. It is time that view was changed. Middle-class people unconsciously take the view that it should be unpleasant for working-class people to work but that it should be enjoyable for them.

Mr. Lawson

That is silly.

Mr. Litterick

If the hon. Member for Blaby (Mr. Lawson) wants to make a contribution, he should rise to his feet and do so.

Mr. Lawson

I have been trying to do that all day.

Mr. Litterick

The hon. Gentleman's patience will be rewarded.

The other element that will hamstring the Government's strategy is our membership of the Common Market. Whilst the trade gap has narrowed, it has become more and more painfully obvious that our trade gap with the EEC seems to be immovable and stands at rather more than £2,000 million. It seems that there is no chance of that changing for the better in the foreseeable future and that the Government are prepared to take no action apart from exhortations to the CBI to invest more.. That is no use.

We are being defeated economically and damaged fundamentally by the EEC. Not only are we being obliged to pay hugely for our food as a result of our membership—which largely contributes to our large balance of payments deficit—but we are obliged to open our doors to Western European manufactured goods, which further damages our balance of payments position and further weakens the pound.

It appears that that will remain a chronic source of weakness in the standing of the pound. Whatever else happens in our trading relations with the rest of the world, so long as that continues, the pound will remain vulnerable and weak. Therefore, the standard of living of the British people will be easily subject to attack from outside because our own capitalists are such nervous people.

It is a mistake for the Government to harp too much on inflation being the key to our economic problems. We should think about what lies behind it. If I had time, I should like to draw attention to the detailed history of the Japanese economy during the past 15 years. For eight of those years Japan had a higher rate of inflation than any of the 12 most highly industrialised nations. In 12 of those years it had a higher rate of inflation than the United Kingdom, and it also had a much lower level of public expenditure than the United Kingdom at any time during that period.

Yet Japan continued to increase her share of world trade steadily and had the biggest jump in her share of world trade during the year when she experienced the highest level of inflation she has ever had—22 per cent On the face of it, that makes nonsense of the argument that if only we could get inflation down we should become more competitive, like the Japanese, and therefore see all our problems go away. That argument is not borne out by the facts.

The Government need to indulge in a fundamental rethink of their approach before it is too late. There will be a price to be paid, and unfortunately it now looks as though the British people are being asked to pay it. If the Government tarry, if they are frightened to rethink, the Labour Party may also be asked to pay a very heavy price.

8.31 p.m.

Mr. Maurice Macmillan (Farnham)

The hon. Member for Birmingham, Selly Oak (Mr. Litterick) seemed to think that the only reason why there was an unsual degree of agreement in the House and perhaps outside, not so much on the detail of the Government's proposals as on the general line of economic policy and the methods required to deal with our current problems, was that we all felt that there was no real choice for any Government and any Chancellor of the Exchequer, that outside pressures had left no room for manoeuvre, and that the fundamental state of the British economy had pre-empted all choice.

I do not altogether agree with that analysis. As the hon. Member for Liverpool, Walton (Mr. Heffer) made clear, there is a fundamental choice—whether we have a totally Government-controlled plan for investment in productive assets or use the market sector of private enterprise to achieve that increase in productive assets which alone can support the sort of public spending programmes that we should like to see.

We have agreement pretty well throughout the House that we must have an economy that is to a great extent managed by the Government, that we must have consultations with what in Europe are called the "social partners "but more commonly known in Britain as "both sides of industry", and that this is best done through a more or less formalised method.

I cannot agree that the mehod which has grown up of consulting the CBI and TUC, and occasionally bringing in the Retail Consortium, is altogether satisfactory. Like my hon. Friend the Member for Horncastle (Mr. Tapsell), I should prefer a rather more formalised and extended method of consultation, which covers a wider area of industry, perhaps developing into that old concept put forward by Sir Winston Churchill as long ago as 1929 of a Council of industry. Such a body would deal with matters such as wage restraint, how the money supply can best be managed and questions of public expenditure.

Here I must declare an interest as chairman of an unquoted company. It is unacceptable that such a body exclude the smaller firms, the unquoted companies, the unincorporated businesses, which are not properly represented by the CBI and which account for more than half the total employment of the private sector. Let us not forget that about 40 per cent. of the gross domestic product comes from firms employing 500 people or fewer. I should also like to see some representation of that half of the work- ing population, including weekly wage-earners, who are members of no trade union.

Whatever we feel about the method used for consultation, I hope that all hon. Members agree that the final decision rests here, and that in their consultations the Government must feel themselves accountable not to the TUC, the CBI or anyone else but only to the representatives the people elect to this House. I do not think there is anybody on either side of the House who would disagree with that.

I do not believe that such a body can reach investment decisions, and feel that the right hon. Lady the Secretary of State for Prices and Consumer Protection in opening the debate showed a touching faith in the ability of the CBI to influence investment decisions. It is doubtful whether anybody, other than entrepreneurs and managers, can channel investment successfully. The Government no doubt can help to achieve investment earlier than otherwise would happen—certainly early enough to be helpful early in any expansion.

The hon. Member for Walton wants to see the Government or some other body planning investment to achieve a higher level of output, but from what I have seen from experience both in and out of Government of the efforts of bureaucracy in planning investment, I would rather leave it to the managers and entrepreneurs, who would be a great deal more successful.

We are making a great mistake if we insist on investing only in manufacturing industry, because we must remember that we market overseas a sum approaching £7 billion worth of services and that service industries need a firm home base as much as manufacturing industries.

I wish I could be as convinced that the general agreement which seems to have been reached about some policies would be as effective when it comes to the major strategic decisions which the Government will have to take. What worries me is that the Government appear to be tinkering with the economy. We do not hear about any policies that will have any effect in the medium or long-term. It is true that any reduction in public expenditure is bound to help to ease the pressure on the economy, provided that the output of the market sector does not fall but continues to increase, generating sustained expansion.

The right hon. Gentleman the Chancellor of the Exchequer was almost indecently optimistic in referring to the growth of the gross domestic product of manufacturing industry and to the fact that exports were rising, unemployment was going down, and so on. He emphasised that it was necessary not only to have new investment, but to make better use of existing investment. But we have heard all this before. The figures he quoted could have been quoted fairly regularly by Governments of different political parties ever since 1961. But since 1961 any upturn in the economy, despite the efforts of successive Governments, has been diverted away from the market sector into the non-market sector. As a result there has been a squeeze on profits and investment, and this has affected industrial confidence and resulted in balance of payments problems, rising unemployment and inflation.

In my short analysis of the situation, I have used the distinction between market and non-market sectors rather than between public and private sectors. I believe it to be more relevant in dealing with the problems of inflation, balance of payments and a return on capital required to reinvest and to finance working capital. It is marketed output that has to provide in full for private consumption, including consumption of the non-market sector. It has to provide all investment, public and private, and also has to provide all exports.

What successive Governments have not fully grappled with—and I do not believe that this Government are even beginning to make any attempt—is the change since 1961. It is terrifying. In 1961 the non-market sector took before tax 41½ per cent. of marketed output. In 1974 it was 60½ per cent. This means that fewer and fewer producers have had to support more and more consumers.

The problem of recovery has been greatly worsened by all the failures of this Government in the last few years—including the period that the Chancellor of the Exchequer is trying to write out of history, between March 1974 and July 1975. These failures have produced various extra problems that have been listed by my right hon. Friend the Member for Sidcup (Mr. Heath) and by several other hon. Members. But I support—and I feel most people support—what I think the Chancellor is trying to do.

What I doubt is his will and ability to do it. Perhaps because of some of the efforts of some of his hon. Friends below the Gangway, I doubt whether he can enable the market sector to recover fast enough to absorb in productive work the skills made available by the increased productivity he is seeking. I doubt that he can help the market sector expand and invest so as to absorb those resources which are released by the economies that even he is proposing to make in public spending.

I accept that we cannot just leave it to market forces alone. We cannot sit back, balance the budget and let unemployment mount until the market solves the problem. That is a totally unrealistic approach. It is certainly not the way in which Germany, France and Japan recovered from the last War. Nor, indeed, is it how Britain recovered under a Tory Government in 1951.

The United Kingdom has come to resemble a post-War economy. We are not as damaged as we were in 1951, but the proportions between the sectors and between the regions—as mentioned in a notable maiden speech by the hon. Member for Rotherham (Mr. Crowther), to which I should like to pay tribute—have been distorted. The structure of our economy is out of balance, and any Government must use some of the methods of post-war reconstruction, including some which we would not perhaps think of using in a time of settled prosperity and an expanding economy, in which there were no fear of overheating and no possibility of a crisis of success.

We must all recognise that since 1961 Britain, to our shame, has moved into the classic position of those countries whose economies are not really viable. It is no good blaming it on foreigners, on management, on unions or workpeople, or on the European Economic Community. The fault is ours as a nation. We have high non-market spending mixed with low investment. We have, as a result, a productive sector which is too small.

This would be true whether we had a wholly capitalist, a wholly Socialist or, indeed, a Communist economy. If the non-market spending is too high and investment is too low, the productive sector gets too small, and it is absolutely inevitable in those circumstances that we have chronic inflation, structural unemployment, balance of payments crises, and constant requests for foreign help so that our people can get what the economy cannot produce for them itself.

It is no good hoping that some strong Government can get out of this by themselves. All that they will do if they try, is either depress the standard of living of everyone except their own supporters or preside over a state of near chaos—or both. That is where I fear that this Government are going. I am afraid that their policies will be neither one thing nor the other.

They will not follow the suggestions of the hon. Member for Walton, and I would oppose the Government if they did, because I believe them to be wrong. But at least they are reasonable, logical and consistent. Nor will the Government do enough to support the market sector of the system. If the Government really intend to do that, they have to drop doctrinaire measures which are at best irrelevant and at worst damaging.

The Government will also have to encourage the entrepreneur and the investor. Not only must they help finance investment in order to get it early enough; they have to make it worth while for people to do well, and stop punishing success. They have to see that skill and effort in both management and work people are properly rewarded. The hon. Member for Birmingham, Selly Oak attacked management. My reply to that is that we get what we pay for, and our management is underpaid and over-taxed.

I hope that the Secretary of State for Employment can show that the belief in the mixed economy and in helping the market sector is real and permanent and not just a convenience to help a Labour Government out of a difficulty. I hope that he will show that his Government regard themselves as accountable to this House and not simply to TUC leaders. I hope that he can demonstrate that the Labour Government are Social Democratic in tone and neither Marxist nor, in the non-pejorative sense, Fascist and that they still believe in a plural society though they seem to be pursuing the ultimate goal of the corporate State. Unless he can do that, whatever success he may have in the very short term, the end result will be nothing but pain and grief for the Government and the country within a very few months.

8.49 p.m.

Mr. Eddie Loyden (Liverpool, Garston)

I do not intend to take up any of the arguments of the right hon. Member for Farnham (Mr. Macmillan). Anyone listening to his contribution and those of other Opposition Members might be forgiven for thinking that this was the first time in our economic and political history that we had faced the situation that we have at the moment. It would appear from the arguments of Opposition Members that the present crisis was without precedent in the way in which the gentle flow of capitalism had developed and progressed over the years. However, that is simply not the case. The history of British capitalism is inundated with periods of slump and boom.

Even during the post-war years, we had a situation where, between 1960 and 1963, in an attempt to deal with the crisis, the then Chancellor of the Exchequer introduced measures, which were followed later by the Labour Party, to intervene in the wage bargaining situation. The guiding light of the then Chancellor, the former right hon. and learned Member for Wirral, Mr. Selwyn Lloyd, was the beginning of a new fashion of intervention in wage bargaining.

The national plan of the Labour Party which was followed in 1964 was another attempt to deal with the problems of the mixed economy. This marked a different historical and economic stage in the development of the mixed economy but it did not prove successful.

Each succeeding crisis is of a longer period, goes much deeper, and is more difficult for the Government, with all the instruments available, to claw their way out of, and begin to gear the economy to growth, progress and better capability.

In that sense, there is nothing new in the discussion we are having tonight. What is new about it is that the whole industrial complex has changed over the last two decades, and little or no attention has been paid to the fact that the changes have meant that the economic instruments by which we manage our affairs are no longer related to those changes.

It is ironic that in his day and age when it is possible, through the inventiveness of man and the progress of science to take away the sweat and toil of production and to produce through automation and new technologies, the things which man wants, we cannot find the solution within the system under which we live to overcome the problems of distribution.

Hon. Members opposite, who have seen their magic figure expressed in terms of public expenditure, will say that 62 per cent. is wrong. We have reached the situation where we have overcome the problems of productivity, and the problems of producing commodities for the benefit of our people, but we have not overcome the problem of distribution in the sense that we are leaving behind an impoverished area in the public sector. It is logical, therefore, that attention should be given to the areas of impoverishment which have been with us for many years. One would think from the statements which have been made today that we have reached a millennium in that sense.

It has been pointed out that there is massive unemployment in Birmingham, for instance, and a massive need for housing. On Merseyside, there is still overcrowding in the classrooms, yet we are talking about reducing the number of teachers. I was told this week in a Written Answer by the Secretary of State for Education and Science that numbers in primary classes in Merseyside and other areas are far too high. Yet at this point in time, because of pressures from the Opposition and pressures externally, this Government are thinking in terms of cutting public expenditure further, which will reduce the number of teachers employed. In Merseyside we have a 10.7 per cent. rate of unemployment—the highest in any development area and we are talking about an imbalance between the public and private sectors.

Those who argue that resources can be made available from reductions in public expenditure should tell us what sort of mechanism will be used to channel these resources into manufacturing industries in areas where investment is needed. Anyone who can spell out how this process will develop will have my careful attention. In fact he may even change my mind about cuts in public expenditure.

The Government are living on borrowed time with the social contract. One Conservative Member suggested that the TUC's rôle in the social contract should be restricted exclusively to restraining wages. He said it was not the TUC's job to argue expenditure cuts. I believe, however, that, having discussed with the Government the restraint of wages, and having reached a successful agreement, the TUC is entitled to a very strong say on the direction our economic activity should take, particularly in the public sector, bearing in mind that its members' jobs and their standard of living are at stake.

I urge the Government to take care because although the TUC leadership may be happy with the course of events there is growing frustration among the mass membership which is experiencing doubt and uncertainty over the prospects for its living conditions.

Unless the Government are prepared to take the necessary steps I believe that they will run into the opposition of the whole trade union movement. Their licence will not be extended beyond the next TUC conference unless they take the measures laid down in the manifesto, to get more direct control over the economy and so direct investment. Until they take that control it is pointless arguing about directing resources, as if by some magic formula. What they do not own and control they cannot plan. If we are to talk about a planned economy we must have control of investment through the NEB.

Unless the Government are prepared to take these steps the trade union movement will not feel that the enormous sacrifices it has made have been in order to establish a better and more just society but merely to continue the stop-go type of economy that we have suffered from for years. Only if they take those steps will the Government secure continued co-operation with the trade union movement with all the benefits that will flow from that.

8.59 p.m.

Mr. James Prior (Lowestoft)

The hon. Member for Liverpool, Garston (Mr. Loyden) has delivered a forthright attack upon his Government. Perhaps I shall come to some of his remarks later in my speech.

I begin, however, by congratulating the hon. Member for Rotherham (Mr. Crowther) on his maiden speech. We wish him every success and happiness in the House. He follows a kind and distinguished man. Many of us are familiar with the part played by Brian O'Malley in the Department of Health and Social Security. We know of the vast numbers of letters he wrote to Members—no letter, as far as I know, ever came to fewer than two pages. We think that he made a great contribution to our country. He was particularly interested in pensions and we are very sorry that the hon. Member for Rotherham finds himself here as a result of the sad death of Brian O'Malley.

We wish the hon. Member for Rotherham every success here. I think that he will find life a little harder than he expected. Rotherham used to be a safe seat: it is now very marginal. I went there during the by-election and was delighted that the majority was reduced by so much. I was told by Labour supporters that the reason was that they were all on holiday. They were certainly on holiday from voting Labour, and they stayed at home.

I hope that the House will not take it the wrong way if I say that the Conservative candidate in that by-election put up a very good fight. We should all recognise that those who fight difficult seats, whether Bournemouth for the Labour Party or Rotherham for the Conservative Party, are doing an essential task for democracy, not always the easiest thing to do. Perhaps while congratulating the hon. Member for Rotherham on his maiden speech we may also say that we think that the Conservative candidate put up a very good fight.

There have been some distinguished speeches in this two-day debate and my main regret is that they have been heard by so few. I do not know what we are to do, but I am certain that this feature of the Chamber cannot go on as it is.

I came in for the immigration debate on Monday night and there were only two hon. Members on the Government Back Benches. There were very few hon. Members on either side last night and, although I am not complaining that hon. Members are not here to listen to me, there are very few in the Chamber for the end of such an important debate. We do not attend in the Chamber in the way the public expects us to attend, particularly on major issues. I regret that this Chamber has lost so much in its influence in recent years.

The speeches in this debate have shown that there is a growing together of the attitudes of the Government Front Bench and the Opposition and a sharp division between the left wing of the Labour Party and the Government. I have heard very few speeches from Labour Members that have been complimentary of their Front Bench.

When I see the Chancellor of the Exchequer put his hand on his heart and express his honesty, I start counting my spoons. When I hear him trying to say that the Opposition are divided, I know that he is having considerable problems with his own Back Benchers. That was certainly brought out in the debate.

The hon. Members for Liverpool, Walton (Mr. Heffer), Penistone (Mr Mendelson), Birmingham, Perry Barr (Mr. Rooker) and Garston have made it plain that the Government's Back Benchers are divided on the White Paper and on the policy the Government should follow. I must say to the hon. Member for Walton, whose speech was very effectively answered by my right hon. Friend the Member for Sidcup (Mr. Heath), that I have seen nothing to suggest that the State knows best how to invest or that the State would make a better job of investment or employment policy than can be done by the operation of market forces.

Before the hon. Member for Walton leaps to his feet, I should say that although he is schizophrenic in these matters, I am not saying that he wants a Russian society—I know that he does not—but I have followed experience in Russian agriculture with particular interest. For many years nearly all the land was owned by the State through collective farms. The Russians found that their production was so low that they had to return a certain amount of land to the farmers themselves. They returned about 3 per cent. of the land, and that 3 per cent. now produces 30 per cent. of the output and the other 97 per cent. of land produces the remaining 65 per cent. I believe that that is the greatest condemnation of a system of collectivisation, of Government control and planning that one could possibly have.

Mr. John Mendelson (Penistone) rose—

Mr. Prior

I shall give way in a moment. That is why I reject strongly the idea that one can control events through the Government to the extent that one can decide on investment policy, on what people should and should not do, and keep full employment in that way. The nationalised industries have not been successful in keeping full employment—anything but. I do not think that that is any answer at all, and obviously the Government Front Bench agrees with me and the left wing of the Labour Party disagrees.

Mr. Mendelson

The right hon. Gentleman told the House that he was satisfied with the attempt of his right hon. Friend the Member for Sidcup (Mr. Heath) to answer my hon. Friend the Member for Liverpool, Walton (Mr. Heffer). Ought he not in all honesty to put on record that his right hon. Friend effectively answered the attack by the hon. Member for Gloucester (Mrs. Oppenheim) on the wages policy?

Mr. Prior

No. My right hon. Friend was absolutely in line with the policies which we are pursuing and in which we believe. I do not think that I should say that sort of thing. My right hon. Friend is entitled to take whatever view he likes, but I was delighted to find myself in so much agreement with what he said. I shall come to that a little later.

Mr. Mendelson

The right hon. Gentleman has not answered my question.

Mr. Prior

I shall answer it in full.

Sometimes in this House we are a little too critical of all sections of society in our attitude to the problems that Britain faces. I do not think that our problems have arisen just in the last five or 10 years, and I do not think that we should blame the politicians of this generation for everything that has gone wrong, any more than we should blame managements or unions. Many of our problems go back over many years, and I do not think that we do ourselves, our country or our people any good by trying to pin the blame too much on to one section of society or another. I always try to start from that position, and that is why I come next to deal once more with the myth that the Chancellor of the Exchequer has tried to create about who is responsible for the problems of the last two years.

The right hon. Gentleman accused me yesterday of having verbal incontinence. When I look at what the right hon. Gentleman has said over the last two or three years, particularly since he has been Chancellor of the Exchequer, I do not know how on earth he has the effrontery to come to the House and accuse anyone else of verbal incontinence.

It is an old trick to quote from what right hon. and hon. Members have said from time to time, but I think that perhaps one ought to give one or two quotations of what the right hon. Gentleman has said. I shall not quote the 8.4 per cent., but just what he said on 26th September: I think we can keep inflation well under the 20 per cent. rate that's being talked about for the rest of this year. I hope we can get it down steadily from say Easter next year … so that by the end of next year"— that is 1975— if the social contract is maintained to the degree to which it is reasonable to plan … somewhere close to 10 per cent. and I think that the following year we can get the rate down into single figures. That was the right hon. Gentleman in 1974. We might be forgiven for thinking that he was talking in July 1976. He is still saying the same thing now. He has just been proved wrong again. That is why anything the right hon. Gentleman says has to be taken with a large pinch of salt. He has been totally wrong in every single forecast he has made.

From 3rd March 1974 until the begining of August 1975 the Government did nothing to control inflation. The cost to the country has been higher unemployment than necessary, a higher rate of inflation than necessary, a decline in sterling and a lack of investment, with all the social implications that follow from this. These are some of the things that the hon. Member for Garston was pointing out.

Gross disposable income—the cash a chap has to spend—has dropped from £28.50 in the peak year of 1972–73 to £27.15 in 1975, and it is obviously still going down. As the White Paper says, we started the attack on inflation a year ago. We could have started it and kept up the attack from the day that this Government came into office. We did not, and that is why we condemn the Government for their policies of the past two years. I do not believe that anyone looking at the facts could disagree when I say that we are totally justified in taking the attitude set out in our amendment.

What is the present position? We have been asked our view of TUC adherence to the pay policy. All of us on the Conservative side of the House recognise that the TUC has once more delivered to the Government an exceptional pay deal. I pay tribute to the TUC for what it has done. I did so last year but got very little credit for it from Labour Members.

One of the conditions that was in the TUC document last year relating to its acceptance of that pay policy was that there should be a major reduction in the level of unemployment in 1976. Unemployment is now 400,000 higher than it was a year ago. That side of the policy is not working. We must take into account the fact that although the TUC has delivered a pay policy, the price of that policy is heavy.

There are great difficulties in the pay policy. First, there is the problem of differentials. Secondly, there is the problem for middle management, those earning over £8,500 a year and restricted to an increase this year of £208, having had no increase last year. These people are showing us their opinion of the situation by upping sticks and going to other countries. Far too many of our bright young executives are going abroad. They will not return if things go on as they are. If we do not recognise the importance of young management and give it the proper opportunities, we have no hope of getting the economy right.

There is also the question of what happens after phase 2. During the debate many hon. Members have said that they are worried about what will happen when this phase is over. They are quite right to be worried, because we have the whole problem of consolidation. If we consolidate the £6 and the 5 per cent., or the £4, into basic pay structures next year, in itself that would be an increase in the pay bill of over 5 per cent. We are storing up for ourselves far too much trouble in the operation of phase 2 of this policy.

One has only to look at our speeches when the Government wound up the Pay Board to see some of the difficulties into which the Government are now getting. The very fact—I have had this brought to my attention tonight; it is a technical point—that the pay increase is to be 5 per cent. added to each week's wages is in itself a very difficult formula to work. I am told that at present quite a lot of computers—the Shipbuilding Association made this point only today—cannot cope with an individual 5 per cent. calculation each week on pay as set out in Annex B(ii). I hope that the Department of Employment, or the Secretary of State when he winds up the debate, will give us some views on this matter.

Then there is the difficulty over London weighting. It seems to me that if London weighting is given because there is need for extra pay to meet extra expenses as the price of living in or around London, it is grossly unfair to say that that extra cost of living in London must now either come out of the increase in pay for this year or not be treated at all. That again seems to be another anomaly that we are building up for the future.

Therefore, this has to be a simple policy, because it is administered by the TUC. However, I do not believe that that is the best way for the Government to get from phase 2 to phase 3, if and when that comes.

What does pay restraint do? It certainly affects the level of employment. We can all see that unemployment would have been a good deal higher this year than it has been if we had not had the reduction in the level of wage settlements that we have had. It can also help to control inflation. If hon. Members do not accept that, all I can say is that certainly foreigners accept it. One of the features for which they look in the British economy and one of the criteria by which they judge us is whether we have an incomes policy of any type. Certainly overseas opinion recognises that some form of incomes policy is of aid to the British economy.

The TUC has demanded a price. It is perfectly entitled to demand that price and has done so. However, for my right hon. and hon. Friends and myself, it is too high a price to pay for a pay policy of this nature, because the price has been nationalisation of shipbuilding and the aircraft industry and the extension of dock work.

As regards the extension of dock work, at a time when the Australian dockers, who have been known for half a century to be the most militant dockers in the world, have agreed with the employers of dockers, with the present Australian Liberal Government and with the Labour Opposition that the time has come to give up a dock labour scheme and to move forward to an employer-employee relationship, what do the present British Government do? They seek to extend the Dock Work Scheme and the National Dock Labour Board to cover a great many other people.

That is absolute nonsense. If the the Australians, of all people, in agreement between unions and employers, can move on this issue, why do our present Government have to be left behind the whole time in taking the right sort of action?

Mr. Heffer

Are the right hon. Gentleman and his right hon. and hon. Friends against the extension of decasualisation in other industries, for example, the building industry, which is crying out for a decasualisation scheme so that workers are not constantly on the dole simply because their job has finished? Is the right hon. Gentleman against that system?

Mr. Prior

Perhaps it would be easier if I said what I am in favour of. What I am in favour of is a proper employer-employee relationship covered by the vast amount of legislation of the last few years which gives guarantees to the employee about his job, his redundancy pay, his holiday pay, and about the conditions laid down in the Employment Protection Act.

That is a much better way to deal with these matters than to have put between an employer and employee, as happens under the National Dock Labour Scheme, a further tier which makes the employee feel he has not got anyone to work for, or which makes the employer feel that no one is responsible to him. I am against casualisation and I am very much in favour of a proper employer-employee relationship, which is what the Australians are now doing in regard to dock work and which is what I believe we should do here.

I come on to prices, because this is another of the demands made by the TUC as part of the deal on pay. We have all heard from the Secretary of State for Prices and Consumer Protection about the changes she has made in the Price Code. Many of us feel that she went as far as she possibly could go, but it has taken her until this year to do so. Of course, when the Government first came into office they tightened up the Price Code. It has taken them two years to recognise the damage that the Price Code in its present form has been doing to British industry.

It is not enough to say that it was our Price Code which the Secretary of State inherited, because she has had plenty of time to change it if she wished. She changed it by tightening it up, but she could have changed it by loosening it at the right time.

The difficulty with this Government is that they did not recognise in 1974 what the effect of the Price Code was doing to investment, any more than the Chancellor of the Exchequer recognised what his 1974 Budget did to business confidence generally. I warn the House that the prices forecasts of the present Government could look very silly indeed if the commodity boom goes on as it is at the moment and if the weather deteriorates—thus affecting the production of food—as it has deteriorated in the last few weeks.

We have to have more investment. Let me give an example of where the Government are going wrong. British Leyland, supported by the Government, is advertising for 200 development engineers so that it can produce the components it currently purchases from the component industry of the United Kingdom. We know that we have the most efficient component industry in Europe. It is able to sell all over Europe, but at the moment that industry does not know what its future is. It cannot make investment plans up to 1980 because it is now frightened that British Leyland will try and take some of the business away from it.

Here we have an industry, supported by Government money, now preventing private enterprise, and an efficient industry, from making investment plans and investing in its own future. That is the sort of damaging situation which this Government have done nothing to stop and everything to encourage. It is another example of wasteful public expenditure. We cannot get this message home too often. The hon. Member for Garston said that we ought not to be thinking in terms of decreasing public expenditure at all. He quoted the unemployment figures of his own constituency. The Government have just decided not to put up the price of school meals by 5p this coming autumn. That will cost £35 million. For £35 million we could employ no fewer than 15,000 of the young school teachers who will be leaving college this summer without a job to go to.

What is the Government's priority in public expenditure? What answer does one give to the parents of young teachers when asked why they have been trained at a cost of £7,000 or £8,000 and then cannot find a job? What answer do Labour Members give to that question when they can still afford to spend an additional £35 million to prevent school meals from rising in price by 5p in the autumn?

Hon. Members below the Gangway opposite know that the Government will have to cut public expenditure further. If only they had taken our advice two years ago and cut it then, when unemployment was at 700,000, they would not be facing the problem of having to cut it now, when unemployment is 1.3 million. I never want to hear again from the Government side accusations that we on this side by cuts in public expenditure would put up unemployment. If they had carried out this policy at the right time, as we told them to, we should be getting over our difficulties now and be on the downward slope towards reducing unemployment, as is nearly every other country in the world.

The Chancellor of the Exchequer (Mr. Denis Healey)

I think that the right hon. Gentleman should know that the only two countries in which unemployment is now falling are the United States and Germany.

Mr. Prior

Apart from the fact that those are the two countries which the right hon. Gentleman has held out to us for two years as having higher and faster accelerating unemployment figures than ours, if they are now coming down and if the right hon. Gentleman—

Mr. Healey rose—

Hon. Members

Sit down. Mr. Prior: If one looks—

Mr. Healey

The right hon. Gentleman has it wrong.

Mr. Prior

If one compares the percentage increases in other countries with the percentage increase in Britain over periods of three months, six months, nine months or 12 months, one finds that our figures have gone up faster than those in any other country. The Chancellor will not deny that, I know, because he knows that it is correct.

Mr. Healey

The right hon. Gentleman said that I would not deny it. Of course I deny it. To take one country of which I know, unemployment has been rising in France in recent months and much more slowly in Britain. Unemployment in Japan is statistically impossible to gauge—as hon. Members should know—because of the system of lifetime employment in factories, which means that the real figures are at least twice as high as those published.

Mr. Prior

I am very sorry, but I checked the figures when the right hon. Gentleman was speaking the other afternoon, when he was again making out that our figures were a lot better than those of other countries. I found that he was totally wrong in his figures and I stick by the figures that I have given. [An HON. MEMBER: "Take it back."] If the hon. Gentleman is no more accurate in his figures on this occasion than he has been on others, I have nothing to take back.

The White Paper starts with the words: Britain needs a strong economy and a fair Society.

Mr. Arthur Lewis (Newham, North-West)

Hear, hear.

Mr. Prior

I am glad that there is some applause for that.

I should like to rewrite another passage in the White Paper for the benefit of Labour Members. It would read "Britain needs a strong economy and a fair society. From March 1974 to July 1975, having scrapped our predecessors' incomes policy, we allowed inflation to get out of control. As a result of that, unemployment has risen to intolerable levels. We are not able to take reflationary measures as we have no cash of our own and our creditors will not let us. However, our inflation rate is now halfway back to the level we said it was in September 1974. Having tightened the Price Code and undermined investment and hence employment, we have changed policy here too. The danger which faces us is still the Left wing, but since July 1975 we have begun to pull away from it as well."

The truth is that the Government have failed in their policies and have failed to take action. They now have another agreement for a year of pay policy. They need have no fear that my right hon. and hon. Friends will seek to undermine that policy in the way that they sought to undermine the Conservative Government's counter-inflation policy night after night and day after day. When the Government do the right things, we shall support them, but when the Government take the sort of attitude that the Chancellor has been taking for the past two years, we are right to move our amendment tonight.

9.31 p.m.

The Secretary of State for Employment (Mr. Albert Booth)

I join, first, those who congratulated my hon. Friend the Member for Rotherham (Mr. Crowther) on his maiden speech. The House much appreciated the tribute that he paid to his predecessor. He will have gathered from references already made that his predecessor was respected in many parts of the House. I am sure that my hon. Friend will prove a worthy successor. I noted his point about regional policy. It showed an early appreciation of the time it takes to develop policies in the House. It showed a keen appreciation of the problems of representatives of industrial constituencies, of whom I count myself one.

The past two days have seen a useful debate covering all aspects of counter-inflation policy. Earlier today the House heard a full account from my right hon. Friend the Secretary of State for Prices and Consumer Protection of the modifications to the Price Code that are proposed in the White Paper. I can say on behalf of my right hon. Friend that she is grateful for all the points made by those who have spoken on the Price Code. As she has explained, the White Paper is a consultative document, as is required under the counter-inflation legislation. She is seeking the views of a wide range of interests, and all that Opposition Members have said will be carefully considered before she returns to the House later this month with an Order to introduce the new code, which the House will be asked to affirm.

I shall concentrate tonight on the aspects of the White Paper that relate to pay policy. Before I do so, and in view of the completely wrong statement made by the right hon. Member for Lowestoft (Mr. Prior), I must tell the House that there is no question of the pay policy having been arrived at as some condition or arrangement with the TUC in relation to other Government legislation dealing with nationalisation or the Dock Work Regulation Bill. Nothing could be further from the truth.

The commitment of my right hon. and hon. Friends and myself to the nationalisation of the shipbuilding and aircraft industries and the Dock Work Regulation Bill was determined long before any discussions took place with the TUC about the present pay policy. The trade unions were involved in the determination of the policy through the Labour Party Conference. That is where they played their part in determining the nationalisation of the shipbuilding and aircraft industries. I made my commitment to my constituents at works gate meetings outside the Vickers shipyard, not in any talks with the Neddy Six. That should be clearly understood in the House when we are discussing the nature of the pay policy.

The policy in the White Paper was proposed by the TUC in long talks with the Government. It represents its judgment and its willingness to sacrifice all organised workers to ensure economic recovery from the worst recession of post-war years. Its effect on wages and salaries involves three elements—namely, increases in pay, tax reliefs, which are a novel aspect of policy, and the benefits that a lower rate of inflation will have on the purchasing power of the pay packet.

The framework of the pay policy is the same as it was last time. The White Paper incorporates the TUC pay guidelines as approved by a special TUC conference and endorsed by the Government. The CBI is asking its employer members to do all they can to ensure the success of the policy. The TUC has again proposed a pay limit which can be universally applied with the minimum of exceptions.

The details of the pay limit are already well known. The policy requires increases to be negotiated, with an individual weekly limit of £2.50 or 5 per cent. of total earnings, whichever is greater, subject to a maximum of £4. As under the £6 policy, pay increases will be paid as supplements although the actual amounts can vary from week to week. The interpretation of the policy in particular circumstances will in general be the same as it is in the current period.

For example, the 12-months rule is still in force. The White Paper makes clear that increases within the new limit are not payable until 12 months after any increase received since 1st August 1975. Those who have been subject to the £8,500 cut-off should not receive any increase until 12 months after the date on which they would have received the increase but for the cut-off.

The policy on London weighting is exactly the same as it was last year. I take the point that there are those who say that if the increase in London weighting is in recognition of particular expenses, it should be allowed to go ahead as for any other expenses. But I assure the House that concern to have a broad base for the increases across the country must take precedence over special arrangements for special areas whether on a geographical or any other basis. Where exceptions have been made, they are on a basis that does not raise those considerations.

Mr. Douglas Crawford (Perth and East Perthshire)

Given, as I said yesterday, that family income in Scotland is 9.4 per cent. lower than it is in England, and that the cost of living is 9.4 per cent. higher in Scotland than it is in England, will the right hon. Gentleman consider introducing a weighting allowance for Scotland within the policy?

Mr. Booth

I do not agree with the hon. Gentleman's assertion about the cost of living. The cost of living figures which I have considered show that in many parts of the South-East the average cost of living is higher than it is in Scotland. If the hon. Gentleman is worried about the cost of living, to the extent that the policy plays a part in reducing the rate of inflation it will benefit those who suffer from a high cost of living at present.

There is no upper cut-off in the pay policy. The White Paper makes clear that anyone earning over £8,500 who is on an incremental scale will not be allowed to catch up from the previous cut-off by receiving two increments in the next round.

Another feature of the policy is the treatment of new and improved occupational pension schemes. Improvements up to the minimum requirements for contracting out under the Social Security Pensions Act may be implemented outside the pay limit.

There are no transitional provisions this time. In the circumstances of last summer it was appropriate to introduce transitional provisions in paragraph 8 of the White Paper to enable certain pre-existing commitments to be implemented on or after 1st August even if they were in excess of the £6. There is no case for further transitional provisions on this occasion, although any remaining stages of agreements partially implemented before 11th July 1975 will be paid if they are offset against the new limits. That is the policy set out in the White Paper.

As, in the current round, the policy is essentially voluntary, but the Government are seeking parliamentary approval for an extension of the back-up powers we have operated throughout the current round. These include sanctions against excessive pay settlements applied to the Price Code and the consideration of applications for Government assistance under the Industry Act and through public purchasing.

On 30th June I laid before the House the Limits of Remuneration, 1976, Order. Section 1 of the Remuneration, Charges and Grants Act 1975 refers to limits in last year's White Paper which will apply and continue up to and including 31st July 1976. That section also empowers me, by Order, to add to those limits the references set out in the new White Paper. Those new limits will apply from 1st August until 31st July 1977. The section provides that no such Orders shall be made unless a draft has been laid before and approved by Resolution of each House. Although the take-up provisions will continue, the Government will be relying on the co-operation of employers and employees.

We have been greatly impressed by the tremendous support that we have had for the present policy. The success of the policy is due largely to union officers, convenors and shop stewards who have had to deal, at the sharp end, with the difficulties of applying a pay policy. In British industries and services the Government are confident that the overwhelming vote in favour of the new policy at the special TUC congress points to the same kind of support in the next round. The decision of the TUC to propose a second year of strict pay policy involves not only consideration of the measures necessary to reduce inflation but consideration of ways in which other related isues will be tackled—such as pensions, social benefits, profits, investment, employment, training and manpower.

The White Paper is about more than pay and prices. It is about people, their jobs, their future and the prospects for their country. In the debate we have heard how the economy is going and the Chancellor of the Exchequer predicted a growth in the GNP of 5 per cent. for the coming year and an increase in productive output of 9 per cent. The House and constituents want to know what the employment prospects look like in the year ahead during which the pay policy will operate.

I do not want to mislead the House. Indeed, the unemployment figures, irrespective of the curious office of the hon. Member for Leeds, North-East (Sir K. Joseph), are very bleak for the next few months. This month's count will be published on 20th July and I shall not be surprised if it shows a considerable increase in the number of unemployed summer school leavers joining the register. Although we expect the economy to pick up, that will not solve the school leaver problem, as it will take some time to feed through into the economy. After that, we can look forward to rising employment. As my right hon. Friend the Chancellor of the Exchequer said, we expect unemployment to fall to 700,000 in 1979.

Some people fear that the industrial strategy, by increasing output per man, will add to unemployment. I say to my hon. Friends who have expressed that fear that we have not got a choice in this country between improving productivity and using less than the most efficient methods in order to retain employment. We have not got that choice. To be fully competitive and to build up the manufacturing sector we must go for the most efficient forms of production. That will sometimes mean introducing capital intensive plant in former labour intensive industries. We have not got a choice and the implications for employment will have to be faced. But it will have more favourable implications because it will make a call for more capital goods, more machine tools and a call for the building of more factories. That aspect will be much welcomed.

As an industrial strategy it will also involve many changes of job, place of employment and type of work, and the acquiring of new skills. There were nearly 2½ million job changes in manufacturing industry alone in the year from July 1972 to June 1973, when the economy was last expanding.

I should be the last to talk glibly about job changes. Those who talk about labour mobility have probably never had to shift their wife and children to house in another town to obtain a job, and face all the problems that arise from that. I face up to this in the context of a Government policy which provides for training. We shall have to examine the special redundancy provisions and see how far some of them can be usefully employed, possibly in enabling people to continue in employment and be retrained within their own work for new job opportunities in their own industry, or particularly in their own area.

Only by delivering the right goods at the right price at the right time, backed by first-class service and design, can we create new jobs. We cannot drift along trying to support employment which cannot hope to keep us competitive in a world in which we are becoming very competitive.

In the meantime, we must stand ready to cushion the impact on individuals, particularly young people, of existing high unemployment. The Government have shown that they are prepared to adopt ideas and concepts that break new ground in combating this short-term problem. We have developed new instruments with which to attack it. Our existing schemes are constantly being reviewed, and we are considering new proposals. So far the Government have set aside well over £400 million to finance the existing schemes.

We have now produced the equivalent of 250,000 jobs and training places as a result of such schemes as job creation, temporary employment subsidy and the recruitment subsidy for school-leavers. Last week we had the 100-thousandth application for temporary employment subsidy, which is having an impact on keeping down the rate of redundancy. All these measures, operated through my Department and the Manpower Services Commission, are separate from major interventions by the Government to save firms such as Chrysler, Alfred Herbert and British Leyland, in which thousands of jobs were involved.

The Government have set themselves the target of getting unemployment down to 3 per cent. by 1979. I know that that is not good enough for many of us on the Government side of the House and that we should like to do better, as would the TUC. But to reach that figure means a faster rate of growth than we have ever maintained, although it is not impossible, given that we start from a very low level of capacity use.

Today, the agreement on a second-year deal on wages, upon which no bookmaker would have given odds after the three-day week is only one sign of the willingness—

Mr. David Madel (Bedfordshire, South)

Can the Minister return to the temporary employment subsidy? He talked about the number of applications the Government have received. How long is it taking to process them and to decide whether the subsidy should be granted to the firms in question? Are the Government satisfied that they have enough inspectors to do the work?

Mr. Booth

On my last check I think that about 80,000 of the 100,000 applications had been approved. We are approving them as quickly as we can, but it is not possible to give an assurance that any one application will be processed in one week, two weeks or three weeks. Some can be processed and approved very quickly. Others throw up problems. I want to see every application processed in a way which will surmount the redundancy problem.

I remind the hon. Gentleman, knowing his interest in the employment protection legislation, that we as a Department are notified of redundancies. We receive 60 days' notification, as do the unions, and 90 days' notification of redundancies of 100 or more. In all but the most exceptional cases this will give ample time to process applications for temporary employment subsidy, provided that they are put in quickly after the redundancy notification.

I appreciate the fact that the hon. Gentleman raises this matter, because it is of the utmost importance It would be a tragedy if any chance to save jobs were missed as a result of delay in the processing of an application. Therefore, not only do we have a sign of great support for policies to tackle the combined problems of inflation and unemployment, but the number of strikes has dropped. Hon. Members who study these matters will know that there is much more evidence of a willingness to work and to co-operate. Some of this evidence has come forward at meetings of the NEDC, and indeed I had to leave a meeting of that Committee this afternoon to come to this debate. Obviously there is evidence of a willingness to co-operate in tackling these problems.

Mr. Frank Hooley (Sheffield, Heeley)

My right hon. Friend appears to be overlooking one point. There is a worldwide demand for goods which our manufacturing industry is not meeting. Why cannot the Government bring pressure on manufacturing industry to buy the new machinery that is essential to expand the labour force, and also to concentrate on extending its labour force?

Mr. Booth

There are many ways in which the Government are trying to do precisely that. The grants made under Section 7 of the Industry Act in many cases are for exactly that purpose. The doubling of the regional employment premium has helped with the provision of additional labour in those areas. Although I can understand the frustration that lies behind possible missed export opportunities, it is a matter of winning over the employer to take these opportunities. Some contribution has been made in this regard by the modification of the Price Code introduced by my right hon. Friend the Secretary of State for Prices and Consumer Protection.

I should stress that the pay policy has within it a bargaining element—a matter which has been overlooked by some contributors to the debate. In this particular round there can be bargaining on the introduction of pensions, sick pay, redundancy schemes and indeed the introduction of equal pay.

Since we are now considering the move from the £6 pay policy to this new pay policy, it is worth considering some of the aspects of the £6 policy which have been beneficial. In another context I recall the right hon. Member for Grantham (Mr. Godber) pointing out that the payment of £6 to all adult workers in the retail distributive industry was the largest increase ever paid. Therefore, there is that special feature of the policy which has protected low-paid workers. Following on the £30 low-pay target, this meant for some a 20 per cent. increase. Therefore, it contains within it a considerable element of protection for the low-paid. It has also a facility in terms of the introduction of equal pay because of exemptions from the limit.

Several hon. Members in the debate have said "We support this policy, but we are concerned about what will happen when we come out of this policy in 1977." This is a remarkable contrast to the debate a year ago when Conservatives were saying that the £6 policy would never work. This time they have said "It will certainly work but you are storing up problems for next time."

We shall, of course, have discussions about some of the issues which will have to be taken into account at the end of the pay policy, but tonight I am concerned not about a further policy but with the one now being introduced. I believe that the pay policy which we are introducing tonight is one which reveals a remarkable degree of co-operation and understanding between the trade union movement and the Government. In the light of what was said, however—

Mr. Giles Shaw (Pudsey)

Will the Secretary of State, in relation to the policy he is discussing, please indicate how he expects management to regard the new pay policy? Does he regard co-operation and understanding with management as of comparable importance to that with the trade unions?

Mr. Booth

I expect management to be delighted with this policy. In fact, I think that a great many managers in this country three months ago would have been delighted at the prospect of a continuation of the £6 pay policy. What they have is the prospect of operating for a year with a pay policy which will give a maximum of £4, and 5 per cent. between limits. Management should appreciate that.

In saying this I acknowledge immediately that a number of managers are concerned that they will get no increase in pay over and above the £4 limit which applies to the rest. But managers, particularly line managers who are close to shop-floor workers, and shop stewards, will understand, as will any Member of the House, how essential it is to have a limitation on top salaries if we are to get the co-operation of trade unions, particularly those which have been organising the lower-paid workers in British industry during this period.

Many trade union leaders have pointed to the need for an orderly return to collective bargaining following the present pay policy. They have called for early discussions on many of the important issues. My right hon. Friend the Prime Minister has already indicated that the Government have a desire to engage in such discussions.

We know that there will be problems. These have already been pointed out. It would not be possible, given the nature and conditions of British wage bargaining, to turn away for two years from dealing with differentials and restructuring without building up such problems.

Having allowed for that, the framework of the wider social contract in which this pay policy was formed can be sustained, and will provide the right framework in which to solve those problems to which people are pointing as likely to occur 12 months hence.

I believe that the support of the organised workers in this country is essen-

tial to a strategy which will enable us to recover from the recession and to achieve the growth we require. The pay policy contained in the White Paper is overwhelming evidence that that support exists. It is with the most keen appreciation that that support has been attained and exists that I commend the White Paper to the House.

Question put, That the amendment be made:—

The House divided: Ayes 251, Noes 286.

Division No. 220.]	AYES	[10.0 p.m.
Adley, Robert	Fairgrieve, Russell	Kimball, Marcus
Aitken, Jonathan	Fell, Anthony	King, Evelyn (South Dorset)
Alison, Michael	Finsberg, Geoffrey	King, Tom (Bridgwater)
Amery, Rt Hon Julian	Fisher, Sir Nigel	Kitson, Sir Timothy
Arnold, Tom	Fletcher-Cooke, Charles	Knight, Mrs Jill
Atkins, Rt Hon H. (Spelthorne)	Fookes, Miss Janet	Knox, David
Awdry, Daniel	Forman, Nigel	Lamont, Norman
Baker, Kenneth	Fox, Marcus	Lane, David
Banks, Robert	Fraser, Rt Hon H. (Stafford & St)	Langford-Holt, Sir John
Bennett, Sir Frederic (Torbay)	Galbraith, Hon. T. G. D.	Latham, Michael (Melton)
Bennett, Dr Reginald (Fareham)	Gardiner, George (Reigate)	Lawrence, Ivan
Berry, Hon Anthony	Gardner, Edward (S Fylde)	Lawson, Nigel
Biffen, John	Gilmour, Rt Hon Ian (Chesham)	Lester, Jim (Beeston)
Biggs-Davison, John	Gilmour, Sir John (East Fife)	Lewis, Kenneth (Rutland)
Blaker, Peter	Glyn, Dr Alan	Lloyd, Ian
Body, Richard	Godber, Rt Hon Joseph	Loveridge, John
Boscawen, Hon Robert	Goodhart, Philip	Luce, Richard
Bottomley, Peter	Goodhew, Victor	McAdden, Sir Stephen
Bowden, A. (Brighton, Kemptown)	Goodlad, Alastair	McCrindle, Robert
Boyson, Dr Rhodes (Brent)	Gorst, John	Macfarlane, Neil
Bradford, Rev Robert	Gow, Ian (Eastbourne)	MacGregor, John
Braine, Sir Bernard	Gower, Sir Raymond (Barry)	Macmillan, Rt Hon M. (Farnham)
Brittan, Leon	Grant, Anthony (Harrow, C)	McNair-Wilson, M. (Newbury)
Brocklebank-Fowler, C.	Gray, Hamish	McNair-Wilson, P. (New Forest)
Brotherton, Michael	Grieve, Percy	Madel, David
Brown, Sir Edward (Bath)	Griffiths, Eldon	Marshall, Michael (Arundel)
Bryan, Sir Paul	Grist, Ian	Mates, Michael
Buchanan-Smith, Alick	Grylls, Michael	Mather, Carol
Buck, Antony	Hall, Sir John	Maude, Angus
Budgen, Nick	Hall-Davis, A. G. F.	Maudling, Rt Hon Reginald
Bulmer, Esmond	Hamilton, Michael (Salisbury)	Mawby, Ray
Burden, F. A.	Hampson, Dr Keith	Maxwell-Hyslop, Robin
Butler, Adam (Bosworth)	Hannam, John	Mayhew, Patrick
Carlisle, Mark	Harrison, Col Sir Harwood (Eye)	Meyer, Sir Anthony
Chalker, Mrs Lynda	Harvie Anderson, Rt Hon Miss	Miller, Hal (Bromsgrove)
Channon, Paul	Hastings, Stephen	Miscampbell, Norman
Churchill, W. S.	Havers, Sir Michael	Mitchell, David (Basingstoke)
Clark, Alan (Plymouth, Sutton)	Hawkins, Paul	Moate, Roger
Clark, William (Croydon S)	Hayhoe, Barney	Molyneaux, James
Clarke, Kenneth (Rushcliffe)	Heath, Rt Hon Edward	Monro, Hector
Clegg, Walter	Heseltine, Michael	Montgomery, Fergus
Cocker oft, John	Hicks, Robert	Moore, John (Croydon C)
Cooke, Robert (Bristol W)	Higgins, Terence L.	More, Jasper (Ludlow)
Cope, John	Holland, Philip	Morgan-Giles, Rear-Admiral
Cordle, John H.	Hordern, Peter	Morris, Michael (Northampton S)
Cormack, Patrick	Howe, Rt Hon Sir Geoffrey	Morrison, Charles (Devizes)
Corrie, John	Howell, David (Guildford)	Morrison, Hon Peter (Chester)
Costain, A. P.	Hunt, David (Wirral)	Neave, Alrey
Critchley, Julian	Hunt, John	Nelson, Anthony
Crouch, David	Hurd, Douglas	Neubert, Michael
Crowder, F. P.	Hutchison, Michael Clark	Newton, Tony
Dean, Paul (N Somerset)	Irving, Charles (Cheltenham)	Nott, John
Dodsworth, Geoffrey	James, David	Onslow, Cranley
Douglas-Hamilton, Lord James	Jenkin, Rt Hon P. (Wanst'd&W'df'd)	Oppenheim, Mrs Sally
du Cann, Rt Hon Edward	Jessel, Toby	Page, John (Harrow West)
Durant, Tony	Johnson Smith, G. (E Grinstead)	Page, Rt Hon R. Graham (Crosby)
Eden, Rt Hon Sir John	Jones, Arthur (Daventry)	Paisley, Rev Ian
Edwards, Nicholas (Pembroke)	Jopling, Michael	Percival, Ian
Elliott, Sir William	Joseph, Rt Hon Sir Keith	Peyton, Rt Hon John
Emery, Peter	Kaberry, Sir Donald	Pink, R. Bonner
Eyre, Reginald	Kershaw, Anthony	Powell, Rt Hon J. Enoch
Fairbairn, Nicholas	Kilfedder, James	Price, David (Eastleigh)
Prior, Rt Hon James	Shersby, Michael	Trotter, Neville
Pym, Rt Hon Francis	Silvester, Fred	Tugendhat, Christopher
Raison, Timothy	Sims, Roger	van Straubenzee, W. R.
Rathbone, Tim	Sinclair, Sir George	Vaughan, Dr Gerard
Rawlinson, Rt Hon Sir Peter	Skeet, T. H. H.	Viggers, Peter
Rees, Peter (Dover & Deal)	Smith, Dudley (Warwick)	Wakeham, John
Rees-Davies, W. R.	Spence, John	Walder, David (Clitheroe)
Renton, Rt Hon Sir D. (Hunts)	Spicer, Michael (S Worcester)	Walker, Rt Hon P. (Worcester)
Renton, Tim (Mid-Sussex)	Sproat, Iain	Wall, Patrick
Ridley, Hon Nicholas	Stainton, Keith	Walters, Dennis
Ridsdale, Julian	Stanbrook, Ivor	Warren, Kenneth
Rippon, Rt Hon Geoffrey	Stanley, John	Weatherill, Bernard
Rodgers, Sir John (Sevenoaks)	Steen, Anthony (Wavertree)	Wells, John
Ross, William (Londonderry)	Stewart, Ian (Hitchin)	Whitelaw, Rt Hon William
Rossi, Hugh (Hornsey)	Stokes, John	Wiggin, Jerry
Rost, Peter (SE Derbyshire)	Tapsell, Peter	Winterton, Nicholas
Royle, Sir Anthony	Taylor, R. (Croydon NW)	Wood, Rt Hon Richard
Sainsbury, Tim	Taylor, Teddy (Cathcart)	Young, Sir G. (Ealing, Acton)
St. John-Stevas, Norman	Tebbit, Norman	Younger, Hon George
Scott, Nicholas	Temple-Morris, Peter
Shaw, Giles (Pudsey)	Thatcher, Rt Hon Margaret	TELLERS FOR THE AYES:
Shelton, William (Streatham)	Thomas, Rt Hon P. (Hendon S)	Mr. Spencer Le Marchant and
Shepherd, Colin	Townsend, Cyril D.	Mr. Cecil Parkinson.
NOES
Abse, Leo	Davies, Bryan (Enfield N)	Huckfield, Les
Allaun, Frank	Davies, Denzil (Llanelli)	Hughes, Rt Hon C. (Anglesey)
Anderson, Donald	Davies, Ifor (Gower)	Hughes, Robert (Aberdeen N)
Archer, Peter	Davis, Clinton (Hackney C)	Hughes, Roy (Newport)
Armstrong, Ernest	Deakins, Eric	Irvine, Rt Hon Sir A. (Edge Hill)
Ashley, Jack	Dean, Joseph (Leeds West)	Irving, Rt Hon S. (Dartford)
Ashton, Joe	Dell, Rt Hon Edmund	Jackson, Colin (Brighouse)
Atkins, Ronald (Preston N)	Dempsey, James	Jackson, Miss Margaret (Lincoln)
Atkinson, Norman	Doig, Peter	Jay, Rt Hon Douglas
Bagier, Gordon A. T.	Dormand, J. D.	Jeger, Mrs Lena
Bain, Mrs Margaret	Douglas-Mann, Bruce	Jenkins, Hugh (Putney)
Barnett, Guy (Greenwich)	Dunn, James A.	Jenkins, Rt Hon Roy (Stechford)
Barnett, Rt Hon Joel (Heywood)	Dunnett, Jack	John, Brynmor
Bates, Alf	Eadie, Alex	Johnson, James (Hull West)
Bean, R. E.	Edge, Geoff	Johnson, Walter (Derby S)
Benn, Rt Hon Anthony Wedgwood	Edwards, Robert (Wolv SE)	Jones, Barry (East Flint)
Bennett, Andrew (Stockport N)	Ellis, John (Brigg & Scun)	Jones, Dan (Burnley)
Bidwell, Sydney	English, Michael	Judd, Frank
Bishop, E. S.	Ennals, David	Kaufman, Gerald
Blenkinsop, Arthur	Evans, Fred (Caerphilly)	Kelley, Richard
Boardman, H.	Evans, Gwynfor (Carmarthen)	Kerr, Russell
Booth, Rt Hon Albert	Evans, Ioan (Aberdare)	Kilroy-Silk, Robert
Bottomley, Rt Hon Arthur	Ewing, Harry (Stirling)	Kinnock, Neil
Boyden, James (Bish Auck)	Faulds, Andrew	Lambie, David
Bray, Dr Jeremy	Fernyhough, Rt Hon E.	Lamborn, Harry
Brown, Hugh D. (Provan)	Flannery, Martin	Latham, Arthur (Paddington)
Brown, Robert C. (Newcastle W)	Fletcher, Raymond (Ilkeston)	Leadbitter, Ted
Brown, Ronald (Hackney S)	Fletcher, Ted (Darlington)	Lee, John
Buchan, Norman	Foot, Rt Hon Michael	Lestor, Miss Joan (Eton & Slough)
Buchanan, Richard	Ford, Ben	Lever, Rt Hon Harold
Butler, Mrs Joyce (Wood Green)	Forrester, John	Lewis, Arthur (Newham N)
Callaghan, Rt Hon J. (Cardiff SE)	Fowler, Gerald (The Wrekin)	Lewis, Ron (Carlisle)
Callaghan, Jim (Middleton & P)	Fraser, John (Lambeth, N'w'd)	Lipton, Marcus
Campbell, Ian	Freeson, Reginald	Litterick, Tom
Canavan, Dennis	Garrett, John (Norwich S)	Lomas, Kenneth
Carmichael, Neil	George, Bruce	Loyden, Eddie
Carter, Ray	Gilbert, Dr John	Luard, Evan
Carter-Jones, Lewis	Ginsburg, David	Mabon, Dr J. Dickson
Cartwright, John	Golding, John	McCartney, Hugh
Castle, Rt Hon Barbara	Gourlay, Harry	MacCormick, Iain
Clemitson, Ivor	Grant, George (Morpeth)	McElhone, Frank
Cocks, Michael (Bristol S)	Grant, John (Islington C)	MacFarquhar, Roderick
Cohen, Stanley	Grocott, Bruce	McGuire, Michael (Ince)
Coleman, Donald	Hamilton, James (Bothwell)	MacKenzie, Gregor
Concannon, J. D.	Hardy, Peter	Mackintosh, John P.
Conlan, Bernard	Harper, Joseph	Maclennan, Robert
Cook, Robin F. (Edin C)	Harrison, Walter (Wakefield)	McMillan, Tom (Glasgow C)
Corbett, Robin	Hart, Rt Hon Judith	McNamara, Kevin
Cox, Thomas (Tooting)	Hattersley, Rt Hon Roy	Madden, Max
Craigen, J. M. (Maryhill)	Hatton, Frank	Magee, Bryan
Crowther, Stan (Rotherham)	Hayman, Mrs Helene	Mahon, Simon
Crawford, Douglas	Healey, Rt Hon Denis	Mallalieu, J. P. W.
Crawshaw, Richard	Heffer, Eric S.	Marks, Kenneth
Cronin, John	Henderson, Douglas	Marquand, David
Cryer, Bob	Hooley, Frank	Marshall, Dr Edmund (Goole)
Cunningham, G. (Islington S)	Horam, John	Marshall, Jim (Leicester S)
Cunningham, Dr J. (Whiteh)	Howell, Rt Hon Denis	Mason, Rt Hon Roy
Davidson, Arthur	Hoyle, Doug (Nelson)	Maynard, Miss Joan

Meacher, Michael	Roberts, Gwilym (Cannock)	Tierney, Sydney
Mellish, Rt Hon Robert	Robertson, John (Paisley)	Tinn, James
Mendelson, John	Robinson, Geoffrey	Tomlinson, John
Mikardo, Ian	Roderick, Caerwyn	Tomney, Frank
Millan, Bruce	Rodgers, George (Chorley)	Tuck, Raphael
Miller, Dr M. S. (E Kilbride)	Rodgers, William (Stockton)	Urwin, T. W.
Miller, Mrs Millie (Ilford N)	Rooker, J. W.	Varley, Rt Hon Eric G.
Moonman, Eric	Rose, Paul B.	Walden, Brian (B'ham, L'dyw'd)
Morris, Alfred (Wythenshawe)	Ross, Rt Hon W. (Kilmarnock)	Walker, Harold (Doncaster)
Morris, Charles R. (Openshaw)	Rowlands, Ted	Walker, Terry (Kingswood)
Morris, Rt Hon J. (Aberavon)	Sandelson, Neville	Ward, Michael
Moyle, Roland	Sedgemore, Brian	Watkins, David
Mulley, Rt Hon Frederick	Selby, Harry	Watkinson, John
Murray, Rt Hon Ronald King	Shaw, Arnold (Ilford South)	Watt, Hamish
Newens, Stanley	Sheldon, Robert (Ashton-u-Lyne)	Weetch, Ken
Noble, Mike	Shore, Rt Hon Peter	Weitzman, David
Oakes, Gordon	Short, Rt Hon E. (Newcastle C)	Wellbeloved, James
Ogden, Eric	Short, Mrs Renée (Wolv NE)	Welsh, Andrew
O'Halloran, Michael	Silkin, Rt Hon John (Deptford)	White, Frank R. (Bury)
Orbach, Maurice	Silkin, Rt Hon S. C. (Dulwich)	White, James (Pollok)
Orme, Rt Hon Stanley	Sillars, James	Whitehead, Phillip
Ovenden, John	Skinner, Dennis	Wigley, Dafydd
Owen, Dr David	Small, William	Willey, Rt Hon Frederick
Padley, Walter	Smith, John (N Lanarkshire)	Williams, Alan (Swansea W)
Palmer, Arthur	Spearing, Nigel	Williams, Alan Lee (Hornch'ch)
Parker, John	Stallard, A. W.	Williams, Rt Hon Shirley (Hertford)
Parry, Robert	Stewart, Donald (Western Isles)	Wilson, Gordon (Dundee E)
Pavitt, Laurie	Stoddart, David	Wilson, Rt Hon H. (Huyton)
Peart, Rt Hon Fred	Stott, Roger	Wilson, William (Coventry SE)
Pendry, Tom	Strang, Gavin	Wise, Mrs Audrey
Perry, Ernest	Strauss, Rt Hon G. R.	Woodall, Alec
Phipps, Dr Colin	Summerskill, Hon Dr Shirley	Woof, Robert
Prentice, Rt Hon Reg	Swain, Thomas	Wrigglesworth, Ian
Price, C. (Lewisham W)	Thomas, Dafydd (Merioneth)	Young, David (Bolton E)
Price, William (Rugby)	Thomas, Jeffrey (Abertillery)
Radice, Giles	Thomas, Mike (Newcastle E)	TELLERS FOR THE NOES:
Rees, Rt Hon Merlyn (Leeds S)	Thomas, Ron (Bristol NW)	Mr. Peter Snape and
Reid, George	Thompson, George	Mr. Ted Graham
Richardson, Miss Jo	Thorne, Stan (Preston South)

Question accordingly negatived.

Main Question put:—

The House divided: Ayes 279, Noes 13.

Division No. 221.]	AYES	[10.14 p.m.
Abse, Leo	Carter-Jones, Lewis	Evans, Fred (Caerphilly)
Allaun, Frank	Cartwright, John	Evans, Ioan (Aberdare)
Anderson, Donald	Castle, Rt Hon Barbara	Ewing, Harry (Stirling)
Archer, Peter	Clemitson, Ivor	Faulds, Andrew
Armstrong, Ernest	Cocks, Michael (Bristol S)	Fernyhough, Rt Hon E.
Ashley, Jack	Cohen, Stanley	Flannery, Martin
Ashton, Joe	Coleman, Donald	Fletcher, Raymond (Ilkeston)
Atkins, Ronald (Preston N)	Concannon, J. D.	Fletcher, Ted (Darlington)
Atkinson, Norman	Conlan, Bernard	Foot, Rt Hon Michael
Bagier, Gordon A. T.	Cook, Robin F. (Edin C)	Ford, Ben
Barnett, Guy (Greenwich)	Corbett, Robin	Forrester, John
Barnett, Rt Hon Joel (Heywood)	Craigen, J. M. (Maryhill)	Fowler, Gerald (The Wrekin)
Bates, Alf	Crawshaw, Richard	Fraser, John (Lambeth, N'w'd)
Bean, R. E.	Cronin, John	Freeson, Reginald
Beith, A. J.	Crowther, Stan (Rotherham)	Freud, Clement
Benn, Rt Hon Anthony Wedgwood	Cryer, Bob	Garrett, John (Norwich S)
Bennett, Andrew (Stockport N)	Cunningham, G. (Islington S)	George, Bruce
Bidwell, Sydney	Cunningham, Dr J. (Whiteh)	Gilbert, Dr John
Bishop, E. S.	Davidson, Arthur	Ginsburg, David
Blenkinsop, Arthur	Davies, Bryan (Enfield N)	Golding, John
Boardman, H.	Davies, Denzil (Llanelli)	Gourlay, Harry
Booth, Rt Hon Albert	Davies, Ifor (Gower)	Grant, George (Morpeth)
Bottomley, Rt Hon Arthur	Davis, Clinton (Hackney C)	Grant, John (Islington C)
Boyden, James (Bish Auck)	Deakins, Eric	Grocott, Bruce
Bray, Dr Jeremy	Dean, Joseph (Leeds West)	Hamilton, James (Bothwell)
Brown, Hugh D. (Provan)	Dell, Rt Hon Edmund	Hardy, Peter
Brown, Robert C. (Newcastle W)	Dempsey, James	Harper, Joseph
Brown, Ronald (Hackney S)	Doig, Peter	Harrison, Walter (Wakefield)
Buchan, Norman	Dormand, J. D.	Hart, Rt Hon Judith
Buchanan, Richard	Douglas-Mann, Bruce	Hattersley, Rt Hon Roy
Butler, Mrs Joyce (Wood Green)	Dunn, James A,	Hatton, Frank
Callaghan, Rt Hon J. (Cardiff SE)	Dunnett, Jack	Hayman, Mrs Helene
Callaghan, Jim (Middleton & P)	Eadie, Alex	Healey, Rt Hon Denis
Campbell, Ian	Edge, Geoff	Heffer, Eric S.
Canavan, Dennis	Ellis, John (Brigg & Scun)	Hooley, Frank
Carmichael, Neil	English, Michael	Hooson, Emlyn
Carter, Ray	Ennals, David	Horam, John
Howell, Rt Hon Denis	Meacher, Michael	Short, Mrs Renée (Wolv NE)
Howells, Geraint (Cardigan)	Mellish, Rt Hon Robert	Silkin, Rt Hon John (Deptford)
Hoyle, Doug (Nelson)	Mendelson, John	Silkin, Rt Hon S. C. (Dulwich)
Huckfield, Les	Mikarco, Ian	Skinner, Dennis
Hughes, Rt Hon C. (Anglesey)	Millan, Bruce	Small, William
Hughes, Robert (Aberdeen N)	Miller, Dr M. S. (E Kilbride)	Smith, Cyril (Rochdale)
Hughes, Roy (Newport)	Miller, Mrs Millie (Ilford N)	Smith, John (N Lanarkshire)
Irvine, Rt Hon Sir A. (Edge Hill)	Moonman, Eric	Snape, Peter
Irving, Rt Hon S. (Dartford)	Morris, Alfred (Wythenshawe)	Spearing, Nigel
Jackson, Colin (Brighouse)	Morris, Charles R. (Openshaw)	Stallard, A. W.
Jackson, Miss Margaret (Lincoln)	Morris, Rt Hon J. (Aberavon)	Steel, David (Roxburgh)
Jay, Rt Hon Douglas	Moyle, Roland	Stoddart, David
Jeger, Mrs Lena	Mulley, Rt Hon Frederick	Stott, Roger
Jenkins, Hugh (Putney)	Murray, Rt Hon Ronald King	Strang, Gavin
Jenkins, Rt Hon Roy (Stechford)	Newens, Stanley	Strauss, Rt Hon G. R.
John, Brynmor	Noble, Mike	Summerskill, Hon Dr Shirley
Johnson, James (Hull West)	Oakes, Gordon	Swain, Thomas
Johnson, Walter (Derby S)	Ogden, Eric	Thomas, Jeffrey (Abertillery)
Johnston, Russell (Inverness)	O'Halloran, Michael	Thomas, Mike (Newcastle E)
Jones, Barry (East Flint)	Orbach, Maurice	Thomas, Ron (Bristol NW)
Jones, Dan (Burnley)	Orme, Rt Hon Stanley	Thorne, Stan (Preston South)
Judd, Frank	Ovenden, John	Thorpe, Rt Hon Jeremy (N Devon)
Kaufman, Gerald	Owen, Dr David	Tierney, Sydney
Kelley, Richard	Padley, Walter	Tinn, James
Kerr, Russell	Palmer, Arthur	Tomilnson, John
Kilroy-Silk, Robert	Pardoe, John	Tomney, Frank
Kinnock, Neil	Parker, John	Tuck, Raphael
Lambie, David	Parry, Robert	Urwin, T. W.
Lamborn, Harry	Pavitt, Laurie	Varley, Rt Hon Eric G.
Latham, Arthur (Paddington)	Peart, Rt Hon Fred	Wainwright, Richard (Colne V)
Leadbitter, Ted	Pendry, Tom	Walden, Brian (B'ham, L'dyw'd)
Lestor, Miss Joan (Eton & Slough)	Penhaligon, David	Walker, Harold (Doncaster)
Lever, Rt Hon Harold	Perry, Ernest	Walker, Terry (Kingswood)
Lewis, Ron (Carlisle)	Phipps, Dr Colin	Ward, Michael
Lipton, Marcus	Prentice, Rt Hon Reg	Watkins, David
Lilterick, Tom	Price, C. (Lewisham W)	Watkinson, John
Lomas, Kenneth	Price, William (Rugby)	Weetch, Ken
Loyden, Eddie	Radice, Giles	Weitzman, David
Luard, Evan	Rees, Rt Hon Merlyn (Leeds S)	Wellbeloved, James
Mabon, Dr J. Dickson	Richardson, Miss Jo	White, Frank R. (Bury)
McCartney, Hugh	Roberts, Gwilym (Cannock)	White, James (Pollok)
McElhone, Frank	Robinson, Geoffrey	Whitehead, Phillip
MacFarquhar, Roderick	Roderick, Caerwyn	Willey, Rt Hon Frederick
McGuire, Michael (Ince)	Rodgers, George (Chorley)	Williams, Alan (Swansea W)
Mackenzie, Gregor	Rodgers, William (Stockton)	Williams, Alan Lee (Hornch'ch)
Maclennan, Robert	Rooker, J. W.	Williams, Rt Hon Shirley (Hertford)
McMillan, Tom (Glasgow C)	Rose, Paul B.	Wilson, Rt Hon H. (Huyton)
McNamara, Kevin	Ross, Stephen (Isle of Wight)	Wilson, William (Coventry SE)
Madden, Max	Ross, Rt Hon W. (Kilmarnock)	Wise, Mrs Audrey
Magee, Bryan	Rowlands, Ted	Woodall, Alec
Mahon, Simon	Sandelson, Neville	Woof, Robert
Mallalieu, J. P. W.	Sedgemore, Brian	Wrigglesworth, Ian
Marks, Kenneth	Selby, Harry	Young, David (Bolton E)
Marquand, David	Shaw, Arnold (Ilford South)
Marshall, Dr Edmund (Goole)	Sheldon, Robert (Ashton-u-Lyne)	TELLERS FOR THE AYES:
Marshall, Jim (Leicester S)	Shore, Rt Hon Peter	Mr. Thomas Cox and
Mason, Rt Hon Roy	Short, Rt Hon E. (Newcastle C)	Mr. Ted Graham.
Maynard, Miss Joan
NOES
Bain, Mrs Margaret	Sillars, James	Wilson, Gordon (Dundee E)
Crawford, Douglas	Stanbrook, Ivor
Evans, Gwynfor (Carmarthen)	Stewart, Donald (Western Isles)	TELLERS FOR THE NOES:
Henderson, Douglas	Thomas, Dafydd (Merioneth)	Mr. Andrew Welsh and
Kilfedder, James	Thompson, George	Mr. Hamish Watt.
Robertson, John (Paisley)	Wigley, Dafydd

Question acccordingly agreed to.

Resolved, 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.