PUBLIC EXPENDITURE

HC Deb 10 March 1976 vol 907 cc430-574

Order read for resuming adjourned debate on Question [9th March]:

That this House, in rejecting the demand for massive and immediate cuts in public expenditure which would increase both unemployment and the cost of living, recognises the need to ensure that manufacturing industry can take full advantage of the upturn in world trade by levelling off total public expenditure from April 1977 while keeping under continuous review the priority between programmes.—[The Chancellor of the Exchequer.]

Amendment proposed to leave out from "House" to the end of the Question and add instead thereof:

declines to approve a White Paper which will lead only to lower living standards, fewer jobs and higher taxes.—[Sir G. Howe.]

Question again proposed, That the amendment be made.

Mr. Speaker

I have not chosen the amendment in the name of the hon. Member for Antrim, South (Mr. Molyneaux).

3.50 p.m.

Sir Keith Joseph (Leeds, North-East)

The cuts proposed in the White Paper which we are debating will have disappointed many devoted people and many people who regard themselves as being in need of the help that the expenditure had it not been cut might have provided. We all want the purposes served by the programmes, whether for better housing, better transport or better education, but public spending has to be kept in proportion. It has leapt under the Labour Government.

Public spending is not always effective. Some hon. Members will feel, particularly in the past couple of years, that we have had less service for more money in many fields. The purposes of public spending can often be achieved by means other than public expenditure. Moreover, public spending has to be paid for, and the paying for public spending can affect the vitality of the wealth-creating sector of the economy and, if carried too far, can even erode the freedoms of our society.

It remains true that we could as a country afford to carry a big public sector if we wanted to, provided that we allowed the private wealth-creating sector to create enough prosperity and resources, as several of our neighbour countries have done. It is because the Opposition fear that the Government will not allow the private sector to create resources sufficient to carry this scale of public spending, let alone that which would have been but for the cuts, that we have set down our amendment.

Against this background the Government have, in our view rightly but belatedly, embarked upon public spending restraint. If they were not to do so there would be a grave danger of inflation re-igniting when the upturn in the private sector comes.

Before discussing the White Paper, I should like to put to the House what I believe is the diagnosis implicit in the White Paper though not explicitly explained in it. Many of us believe—and I think that the Government believe—that inflation is still our worst danger. Inflation is itself a symptom of underlying ills. There is no doubt in anyone's mind of the main underlying cause of the ills. It is that over the years demand has been increased beyond supply, and that has been happening ever since the war to a greater or less extent.

Yet, as we debate the White Paper in today's conditions, we have to meet the paradox that inflation should still be the danger when there is so much spare capacity. Why cannot we just increase supply and close the demand-supply gap that way? There is spare capacity, and there are many and varied needs. Increases in quantity and improvements in quality are needed for many of our services. Here is the paradox. We have huge overspending, we are taxed heavily and, in addition to taxation, the Government are borrowing vast sums and spending them. Yet this vast spilling out of money still leaves an increasing amount of spare capacity. Unless we explain that paradox, there is no hope of abating inflation and recovering prosperity and much fuller employment.

I believe that the diagnosis is implicit in the White Paper, and I shall try to spell it out. The Chancellor of the Exchequer has been a little too delicate. He may not agree with the diagnosis I shall give. We must always remember that in these economic analyses we have to allow for lags between cause and effect. The excess demand of the last years—particularly of the last two years whilst the Labour Government have been in office—has to a large extent been directed into relatively unproductive uses. It is no longer true that demand in itself is far too high. What we need is a shift of demand from many of its unproductive forms to where it will be productive. We need both to reduce demand and to increase supply. We do not need a crude deflation.

Where is this unproductive demand of which I speak? The Opposition's view is that subsidies are a substantial part of our troubles. They form a veritable cat's cradle of distortions. We are not for a moment quarrelling with the discriminating subsidies that go to people with low incomes who need help. There are the indiscriminate housing subsidies, which have rocketed, indiscriminate food subsidies, indiscriminate nationalised industry subsidies and industrial "subsidies on the scale provided by the Labour Government. This cat's cradle of expensive subsidies has been distorting what should be the spontaneous adjustment of supply and demand.

Subsidies take the form of overmanning and of "make work". They take the form of rent lower than the dwelling is worth or the tenant can afford to pay. The heart of our argument is that these subsidies represent demand without corresponding supply. An overmanning steel worker draws his pay but does not produce more steel. The same amount of steel is produced whither or not he is there. But he draws his earnings, and there is demand uncompensated by supply. We tackle the essence of inflation from the supply and the demand ends simultaneously if we shift resources from public spending to the private sector. With that, I have finished my diagnosis and I turn to the White Paper.

Mr. Tom Litterick (Birmmgham, Selly Oak)

Will the right hon. Gentleman concede that were the hypothetical steel worker to be unemployed, unless the community was prepared to allow him and his family to die of starvation, his effective demand for goods and services would continue without production?

Sir K. Joseph

I am coming to that.

Two ways of looking at the White Paper have emerged in the debate. Some of my hon. Friends believe that the White Paper is either fraudulent or self-deceiving. I will give five telegraphic descriptions why. There is the statistical strip-tease element. Hon. Members may have seen the description of the Chief Secretary's performance in front of the Select Committee as being entertaining but uninformative. Bit by bit, hon. Members in the Select Committee and elsewhere are extracting the realities behind the predictions.

The second group of criticisms focuses on the hump-backed nature of the demand forecasts—high next year in the predictable future and low thereafter.

Then there are the recklessly implausible growth assumptions, identified by my hon. Friends the Members for Horsham and Crawley (Mr. Hordern) and Cirencester and Tewkesbury (Mr. Ridley), which presuppose record boom record net exports, record industrial investment over a four-year period of price control, low profits and high taxation. Those assumptions are recklessly implausible.

The fourth group of critics look at the large contingency reserve, which it is sensible for the Chancellor to provide, but also at the even larger open-ended commitments—child credits, the consequences of nationalisation, the National Enterprise Board, the British National Oil Company, lame ducks and all the horrors and calls yet to come.

Then there is the fifth group of critics. Here I share the view of the hon. Member for Luton, West (Mr. Sedgemore) that the employment forecast alone totally discredits the figures in the White Paper. The forecast that unemployment will be down to 600,000 or, as the Chancellor now says, 700,000 in four years is totally inconsistent with the growth and underlying productivity assumptions on which the White Paper is based. These are solid evidence of the fraudulent or self-deceiving nature of the White Paper.

There is another way of looking at the White Paper. I believe that there are some hopeful features in it. Over the years most of us have been obliged to try to learn lessons from these disappointing post-war decades. Some of the lessons are becoming common ground. The first lesson is that inflation destroys jobs. I could not hope to put it as well as the Prime Minister when he said "inflation is the father and mother of unemployment". As a result of that lesson, the Chancellor has so far resisted the call for reflation.

Secondly, the Government are practising, even though Ministers denounce, at least some of the monetarist theses. Even the National Institute for Economic and Social Research, in its latest issue this morning, has taken account for the first time—a notable first time—of the monetarist analysis. The Chancellor's method of applying monetarism is damaging. He is squeezing the private sector. We have had monetary contraction and budgetary expansion. The result is the strangulation of the private sector, except at times of low levels of activity, as now.

The third lesson which I believe is now gradually becoming common ground is that slowly and painfully the Government are now embarking on a U-turn over public spending. Ministers seem to accept that monetarism is not enough and that there must be a switch of resources. All this is gain for the country.

There are other lessons still to be learned. We are struggling to identify them. The Government have not yet taken them on board.

Mr. Norman Atkinson (Tottenham) rose——

Sir K. Joseph

I am coming to unemployment again.

Mr. Atkinson

Will the right hon. Gentleman give way regarding these lessons?

Sir K. Joseph

Yes.

Mr. Atkinson

We are all anxious to know what the students at the Centre for Studies are saying on this thesis. The right hon. Gentleman said that inflation was the mother and father of unemployment.

Sir K. Joseph

The Prime Minister said that.

Mr. Atkinson

Just prior to that, the right hon. Gentleman said that unemployment was the direct result of inflation and then went on to say why. He thought that was because in preceding periods demand was in excess of supply. How does he marry those things by saying that unemployment is the result of demand being in excess of supply? It does not add up.

Sir K. Joseph

I shall be coming to that matter. I shall try to answer the hon. Gentleman's question.

These lessons have not been learned by Ministers. Are not Ministers frightening themselves with false fire about the unemployment consequences of cutting public expenditure? I think that the Chancellor is alarming himself unnecessarily about unemployment consequences if he were to cut public spending now.

Someone must pay for public spending. Taxes and borrowing are set by the Chancellor at levels sufficient to pay for public spending. The effect of those taxes and that borrowing is to reduce demand in the private sector. For every man or woman kept in a job because of the Chancellor's public spending, a job is lost in the private sector. It is a case of sacking Peter to keep Paul.

Mr. Ron Thomas (Bristol, Northwest)

It is benefiting the private sector.

Sir K. Joseph

Sometimes the Pauls we keep are concentrated and identified and the television cameras can take pictures of them. They are the overmanning people in a steel works which the British Steel Corporation thinks should be closed, for example. But the people who are sacked in the private sector to pay for the earnings of those overmanning steel workers are widely dispersed, invisible and unidentified, all over the country.

It is an absolute fallacy to believe, as I am sure the Chancellor sincerely believes, that he will cause more unemployment by cutting public spending now than if he does not. The choice is where the unemployment will be. If he desists from cutting public spending, the result will be more unemployment in the private sector than would otherwise be the situation. We sug- gest that public spending should be cut so as to allow more employment or less loss of jobs in the wealth-creating private sector.

The situation is even worse than I am suggesting in some cases. Some of the rescues and overmanning which the Government are supporting with public spending involve a heavy cost per man employed. Let us take, for example, Chrysler, British Leyland or the steel workers again. The consequential expenditure over and above earnings in raw materials, overheads and capital costs is more than the average cost of employing a man in the private sector. I suggest that it is a case not of sacking Peter to keep Paul, but of sacking several wealth-creating private sector Peters to rescue or retain one wealth-consuming public sector Paul. That is the way to make the country poorer. Overmanning and job rescues destroy at least as many and often more jobs than they save.

My hon. Friend the Member for Blaby (Mr. Lawson), in his witty and penetrating speech, rightly said that public spending strangles the private sector. It does. Therefore, their are two effects of cutting public spending now, which is what we want the Government to do. I have missed out one strand in the argument. It is vital, if we are to cut public spending now, that savings be used partly to cut taxation and partly to cut borrowing. Hon. Gentlemen laugh. The country would laugh with delight if that were possible. People would rejoice exceedingly if the Government embarked on that course.

There would be two results from cutting public spending now and using the proceeds partly to cut borrowing and partly to cut taxation. The immediate result, without any transitional pause, would be fewer jobs lost in the private sector which would otherwise be lost to pay for the public spending which had been cut, and, after an interval, a revived private sector which would provide more jobs for those who had been made redundant through public spending savings.

Unemployment will go up either way. The Government way of deferring the main impact of the cuts means that unemployment will go up continuously in the private sector more than it otherwise would. The whole economy depends on the private sector. Our way of more cuts, and sooner, in the public sector means that fewer jobs will be lost now in the private sector and more jobs will be lost in the public sector until the revival.

We share the Government's declared purpose of improved business performance. We believe that less rather than more government is one of the keys.

The next lesson to be learned is that the Chancellor is wrong in claiming that the main cause of unemployment is the world recession. Unemployment will be worse and longer than it need be because inflation is worse here—inflation destroys jobs—and because employment depends not only on aggregate demand but on the mobility of labour, the level of real wages, and the degree to which employers are encouraged to employ or discouraged from employing labour. The cumulative effect of the new Bills introduced by the Government is to discourage employers from taking on new labour. I am talking about the level of employment for any given level of demand. The level of employment also depends on the Government's attitude to entrepreneurs, the output per man-year, the amount of restrictive practices and overmanning which affects our competitive capacity. We could have more jobs for any level of home or world demand if we encouraged more mobility, competitive power, entrepreneurs and employment, and if trade unions took more account of real wages.

The Chancellor of the Exchequer (Mr. Denis Healey)

I am following the right hon. Gentleman's argument with interest. Will he explain why in the United States, which has lower levels of public spending, borrowing and taxation, unemployment in the private sector is much higher than in the United Kingdom and is expected to remain higher as a percentage of the employable work force until the end of the decade?

Sir K. Joseph

No. I find it hard enough to understand our own affairs. I have no glib answers about other countries. Certainly I have no glib answer to the right hon. Gentleman's question, and I would mistrust anyone who had one.

I regret that much of our unemployment growth is caused by trade unions which neglect these truths. I think also that much unemployment is caused by the vendetta of the Labour Party against profits and against rewards for entrepreneurs, managers and risk takers.

One of the biggest injuries done by Socialism to this country is the propagation of what I have for two years described as "the zero-sum mentality", that one man's gain is necessarily another man's loss. This is poison.

In his extremely interesting speech yesterday, the hon. Member for Luton, West emphasised the fact that social services and public services are better in Western Europe than they are here and that they seem to carry a bigger tax burden than we do. I am sure that he is right. But he ignored the other side of the equation. All these blessings are the result of higher output per man-year in Europe, better co-operation between workers and managements, fewer restrictive practices, higher productivity and a greater understanding of the need for profits. If we had those attitudes, we would be able to afford a bigger public sector than we have now. It is because of the zero-sum philosophy that the Chancellor of the Exchequer flinches from or ignores two of the absolute essentials if the purposes of the White Paper are to be achieved.

As published, the White Paper embodies a plan without a driving force. The private sector is meant to recover, to flourish, to win record net exports, to create a record number of jobs, and to create record new investment, yet no reference is made to whence the momentum is expected to come. Profits earned in competition are not once mentioned in the White Paper. The decision makers, the managers, the risk takers and the investors are not once mentioned.

In the zero-sum philosophy, these people benefit only themselves. But, in the real world, it is understood to the Social Democratic Governments of some of the European countries that it is on profit, on shrewd decision taking and on good management that a country's standard of living and level of employment depend.

In 1974, the corporate sector very nearly bled to death after years, if not decades, of inflation, inflation-blind accounting, excessive wage claims, price controls, a ceaseless stream of laws and regulations, and sometimes know-nothing militancy, all culminating in the reckless and ignorant damage done by the Chancellor of the Exchequer in the first two of his 1974 Budgets. Some recovery in profits has occurred since, due in part to the reliefs given by the same Chancellor of the Exchequer in his third 1974 Budget, to low activity and to stock reduction. But still there is an immense shortfall of profits in real terms in the corporate sector. Greenwells have produced an analysis of the profit shortfall. We do not have to accept this analysis that it is between £8,000 million and £12,000 million a year, but it is of an order of magnitude on that sort of scale.

I beg the House not to comfort itself with easy thoughts about property profits in an inflationary period. I beg the House to look behind the often misleading headline figures and to look at real net profits after allowing for the effects of inflation, after taking off interest and after deducting taxation. I beg the House to realise that unless there are healthy profits, the programme set out in this White Paper is a chimera. Profits are the engines of prosperity and of freedom. They need to be built up. They are not mentioned once in the White Paper.

Mr. Ron Thomas

The right hon. Gentleman mentioned the period since the coming to office of the Labour Government. He is now talking about profits. Will he tell us what went wrong between 1970 and 1974 when there were plenty of profits about but when capital investment fell dramatically?

Sir K. Joseph

The hon. Gentleman is again looking at the gross figures. He is not taking inflation into account. This country is not the only one in which profits have been falling. They have been falling in America and in many Western European countries. But they have been falling far worse here than in any of our competitor countries——

Mr. Ron Thomas

Answer the question.

Sir K. Joseph

There was no large increase in real profits between 1970 and 1974 because of the effects of inflation which had occurred as a result of all the years which had gone before. The inflation between 1970 and 1974 was largely an inheritance. The surge—[Interruption.] Let me try to get this right. There has been inflation more or less ever since the war. In the first two years of our Government, it was not our inflation. Some of our excess demand worked through in 1973. Because of the lag, the main effect of the results of the Conservative Government occurred in 1974. There is a lag——

Mr. Healey

This is a very important point. The right hon. Gentleman has just said—and I hope that he will confirm this—that the main effect of the explosion in the money supply in 1973 was felt not just in 1974 but in 1975 because these monetary phenomena take at least three years fully to express themselves.

Sir K. Joseph

No one can define the exact boundaries—[Interruption.] I am not denying the general proposition that the lag effect continued and is now being replaced by the effects of the inflationary policies of the present Chancellor of the Exchequer during the first year of this Labour Government.

The Socialists have conducted a vendetta against profits ever since their party was formed. Some Socialists may still not grasp the fact that the whole economy—the whole of our freedom and of our society—rests upon profit. Only profit-making companies can pay the people who pay the taxes which pay for the public services which in turn employ people who also pay taxes but which could not employ such people in a free society but for the profit-making base. Profits are the source of investment, jobs and expansion.

The search for profit in competition forces firms to seek increased efficiency and thus increased productivity. This is the only solid base for higher earnings and thus less poverty.

Mr. Michael English (Nottingham, West)

Is not there a flaw in the right hon. Gentleman's argument? Surely he realises that there are some Government supporters who are sympathetic to part of his argument. However when he is moving resources from the public sector to the private sector purely on the grounds of profit, I hope that he will bear in mind what, apart from public industry, have been the most growing sectors since the war—advertising, the restaurant trade, services generally, and entertainment. On that basis, is he not likely merely to move resources into sectors which are profitable but which do not necessarily assist our balance of payments, for example?

Sir K. Joseph

There are two parallel phenomena. The first is that we can produce more and more goods and services with fewer and fewer men and women. The second is that a prospering country needs more and more services. Both are true.

Profits create jobs. Job-creating, investment-creating, expansion-creating, poverty-reducing, public sector-supporting and social services-improving profits are essential. Profits are far too low in real terms. They should be enabled to rise, through cost reduction largely and by getting rid of price control. Yet there is no mention of them in the White Paper. They will be affected by price control unless the Government remove it. They will be affected by taxation and by the policy about Sandilands.

What is needed is a shift from public spending to profits. If the trade unions really want an increase in jobs they should put as part of their negotiating objectives in every case the improvement of profit levels in real terms in the firm or industry concerned——

Mr. Atkinson

The right hon. Gentleman will not find many trade unions conducting negotiations on that basis.

Sir K. Joseph

It is very much in the interest of their members that they should be doing so. I hope that the hon. Member for Tottenham (Mr. Atkinson) will not assume that too firmly, because trade unions in other Social Democratic countries take quite a different attitude and understand that the interests of their members depend, among other factors, on healthy profits being carried by the firms in which they work.

Mr. Atkinson

There are no trade unions in Western Europe which are concluding agreements on the basis of a shift into profit, assuming that they have to concede wage restraint.

Sir K. Joseph

Because the trade unions in Europe are not facing a situation in which profit has been driven to such low proportions as here, or such an enormously over-expanded public sector.

Incentives are the other great omission from the White Paper. There is no concept of national wealth creation; of the function of the manager and the entrepreneur, whether self-employed, or in small, medium, large, or giant business. The idea of achieving what Japan, France and Germany have achieved is absurd if we ignore their attitudes to profits, incentive and wealth creation. The people upon whom prosperity and jobs depend include supervisors, foremen, managers, directors, entrepreneurs, investors, inventors, marketing staff, designers and all the other people with related skills; above all the risk-taking, responsibility-bearing, driving, top-decision makers. They are all workers by any descripton. We should encourage people who can grow or help to grow two blades of grass where one grew before. Those abroad will not come home to the tax climate which the Government are creating in this country.

These people have had their incomes squeezed by inflation, taxation and incomes policies. Their lives have been strained by difficult labour relations by floods of legislation—[Interruption.]

Mr. Bob Cryer (Keighley)

These people have been shovelling money abroad and into property companies.

Sir K. Joseph

The hon. Member for Keighley (Mr. Cryer) is ignoring the arguments that the success of these people alone will create the jobs and prosperity that he surely wants for all the people. This Government must be mad to discourage wealth-creating talent. When they do that, all the people suffer. We shall never abate poverty if we do not encourage job creators and national wealth creators.

The White Paper has no engine. Under Labour's lead profit, as a concept, has been discredited over the decades and now, in real terms, nearly destroyed. Net incomes have been compressed and capital attacked. It has been done to provide more for the people, or for some of the people. The result is that we have the worst economic performance in Western Europe. Some workers are much better off than they were before but most workers are worse off and all of our people are far less prosperous than are those in Western Europe. We are mortgaged and taxed to the hilt. We have no room for manoeuvre, as my hon. Friend the Member for Eastbourne (Mr. Gow) said, and are desperately limited in every field. Socialism, as taught and practised here, can never create national prosperity. It can redistribute, but beyond a certain point—and we have passed it—Socialism actually destroys national wealth and national prosperity.

The alibis have gone. There is no more to redistribute, and the Chancellor has said as much. In real terms profits have nearly vanished.

Let us look at our amendment. Living standards will go on declining, jobs will be destroyed, taxes will be increased, the pound will go on falling over the months and years, and worse public spending cuts will become necessary unless the truth is now faced: that co-operation is required, depending on leaders and managers as well as on unions and workers, that it is not a zero sum, that all benefit from the right policies and sensible cooperation, and that anti-profit, anti-enterprise policies and attitudes cannot create jobs or prosperity in a free, internationally trading country. The truth is that profits and incentives are the only sources of prosperity, higher employment, improved social services and less poverty in a free society.

Oddly enough, all we need is a change of vendetta—a vendetta against low productivity rather than against profits and inequality. If we changed our vendetta we could carry a large public sector, as other countries do.

Monetarism is not enough. Even cutting public spending is not enough. It is not even enough to cut it sooner and more than in the White Paper. All that is necessary but not sufficient. There have to be good profits in real terms and there must be incentives. There has to be a stable and encouraging climate for national job and wealth creation. The source of freedom, of prosperity, kindness and concern and of less poverty is profit.

Let the Chancellor of the Exchequer convince his colleagues, including his Leftwing colleagues, that if they really want full employment and better conditions for all, he could have the way. If it is our way, too, what does it matter so long as the country is allowed to cure itself of its troubles? We do not mind who gets the credit so long as the country prospers. Let the Chancellor put the engine of profits and incentives into his plan. Let him cut public spending sensibly, more and sooner, so that he can cut borrowing and taxing, and we shall support him. Because the White Paper gives no hint of such policies, we shall vote for our amendment tonight.

4.26 p.m.

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

It has been customary for Opposition speakers in the debate—and the right hon. Member for Leeds, North-East (Sir K. Joseph) was no exception—to argue that the level of public spending is bad in virtually every sense. I do not accept that it is good, either for democracy or in any philosophical sense, for a worker to have an extra £1 in take-home pay from tax reductions only to be compelled to spend an extra £1 or more to pay for a visit to his doctor, or for his child to be educated.

There are some severely practical reasons why we must restrain the growth of public expenditure. I want to make clear the fundamental disagreement between the Opposition and all my right hon. and hon. Friends in our approach to public expenditure. In that sense we are obliged to the right hon. Member for Leeds, North-East for his honesty in telling us today that the previous Government between 1970 and 1974 were responsible for the rate of inflation in 1974–75. I see that the right hon. Gentleman is not denying that. But he was not as clear in his argument that large cuts in public spending now would actually increase employment.

The Conservative Party frequently seeks to put the debate on this subject on to the high sounding plane of freedom of choice for the individual, or rather their definition of freedom of choice. It is a bogus argument. Most of us on this side of the House came into politics precisely because centuries of Conservative Governments with very low levels of public expenditure provided freedom of choice for only a few. For the vast majority of working people freedom of choice was a myth—it did not exist for them. That is why I do not apologise for the fact that despite our regrettably low growth of output, we have maintained expenditure on social programmes at historically high levels. They are not as high as many of my hon. Friends would like. And I agree with my hon. Friend the Member for Luton, West (Mr. Sedgemore) that as a percentage of GDP our social expenditure is not as high as many countries in Europe—although my hon. Friend tended to overlook the not unimportant fact that our GDP is regrettably much lower than most of those countries.

I share the disappointment that my hon. Friends feel at our not being able to sustain a continuing growth in our social programmes in the three years after 1976–77. But to attempt to do so would be to put our heads in the sand and to ignore the harsh realities of the current economic situation. The central fact is that public expenditure as a percentage of GDP has grown from 50 per cent. in 1972 to 60 per cent. in 1975. We may draw different conclusions from that fact, but we cannot ignore it. Nor should we make irrelevant comparisons with other countries, because countries with a faster growth in output can afford faster growth in public expenditure. I hope that my hon. Friend will listen to this argument because it is relevant to the debate. He should not make irrelevant comparisons with other countries with faster growth in output which can afford faster growth in public expenditure.

In any case there will be few countries which have increased public expenditure 10 times faster than the growth in the gross domestic product, as we have done over the last three years. Nor is it any use saying that 60 per cent. is a misleading figure because about 40 per cent. of public expenditure is represented by transfer payments. That is quite true but that 40 per cent. still has to be financed by taxation of one kind and another.

On the general argument about the burden of taxation, all of us should beware of quoting international comparisons to help sustain an argument. I have been as guilty as anyone of this. Yesterday my hon. Friend the Member for Luton, West justified his figures as being up to date and said that they had been supplied by the Treasury. It is true that the Minister of State at the Treasury on 15th January gave him some United Kingdom tax figures for 1975, but my hon. Friend was less than fair in not quoting the rest of the Answer. Perhaps I should do so for the benefit of other hon. Members. The rest of the Answer was: These figures are not comparable with those used in the international comparisons published in the December 1975 issue of Economic Trends giving estimates for the years 1969–1973."—[Official Report, 15th January, 1976, Vol. 903, c. 218.]

Mr. Brian Sedgemore (Luton, West)

Would my hon. Friend confirm that the Answer went on to say the figures were not comparable because those given in Economic Trends were at factor cost? But would he also confirm that the comparative figures that I gave in my article m Tribune were of percentage of GNP at market prices and that those given by the Treasury in its Answer to me were a percentage of GNP at market prices?

Mr. Barnett

Having lost, my hon. Friend is trying to switch the argument. In fairness, I am not trying to be difficult but he must understand that all I am trying to say is that the figures which he quoted yesterday, and in his Tribune article, were somewhat out of date—and they are.

Mr. English rose——

Mr. Barnett

I would prefer to keep to the argument with my hon. Friend the Member for Luton, West.

Mr. English

As I understand it, my hon. Friend the Member for Luton, West (Mr. Sedgemore) took his figures from some OECD figures which were used in the First Report of the Expenditure Committee for this Session. Those figures are the standard international comparison. The fact that they relate to any particular year merely reflects the speed and efficiency with which the OECD and its member nations operate, having to operate at the speed of the slowest—but they are the latest available figures.

Mr. Barnett

My hon. Friend the Member for Nottingham, West (Mr. English) confirms what I have said.

If I may now be allowed to get on, I said that the figures were out of date, going to 1973. May I tell the House and my hon. Friend that such comparisons on most topics are misleading but never more so than in the field of taxation. I have indicated that the figures are two or three years out of date, they are inevitably very selective, and above all they ignore substantial differences in real income. Above all, they ignore the effects on individual taxpayers.

I hope that we could at least agree that our marginal rates are significantly higher than those of most other countries and start at lower levels, but even if there is no agreement on that, we must all have ample first-hand evidence that present income tax rates are not simply biting hard on those with high incomes but fall on pensioners, widows, the disabled and the low paid. I very much respected the views of my hon. Friend the Member for Luton, West when he said yesterday that it is not a crime for us to say that we can pay for more schools and so on by higher taxation including taxes on the man on average earnings. Of course it is not a crime. Nevertheless, my hon. Friend is wrong on two counts: first, because of low thresholds, the tax would not only fall on the average worker; secondly, whilst he and I might be prepared to pay higher taxes in return for higher public expenditure, he must know, if he is being realistic, that the average worker is not.

We in the Labour Party have always argued, in my view rightly, that desperately needed public services should be financed from taxation on those with highest incomes. What is more, I have always believed that the disincentive argument was grossly over-stated, and I have said so frequently in this House and elsewhere. But in 1975–76, when the yield of income tax would have been increased by only 6 per cent. if we had confiscated all post-tax income over £5,000 a year, the case for progressive direct taxation does not need to be made. We already have it.

Indeed, the old arguments for financing more social expenditure out of higher taxation that we shall need anyway ignores the fact that the higher taxation now needed will not, and cannot any longer, fall simply on the wealthy. It is bound to fall on most of the 20 million income taxpayers. It is that number of taxpayers that marks the difference between 1976 and the time when the case for higher direct taxation was so valid.

Twenty years ago there were just 16 million taxpayers. Thirty years ago there were 15 million. Today 62 per cent. of the income tax yield comes from those with incomes of between £1,000 and £5,000 per year. I believe that those in that category, ordinary working people, recognise that if they are to have an increase in their real take-home pay and real improvement in public services, we must first improve our industrial performance by putting more of our resources into manufacturing investment.

There are those who are always able to obtain some intellectual or political satisfaction from trying to prove that there is virtually nothing that this or any other Government can do to improve our industrial performance. Those who make those pessimistic predictions may be right, and I am sorry that my hon. Friend the Member for Luton, West joined in an unholy alliance with the hon. Member for Blaby (Mr. Lawson) in this gloomy view of our prospects.

As I have indicated elsewhere, the truth is that they and every other forecaster are just as likely to be wrong, although it is fair to say in their defence that most of them, or at least the less arrogant among them, would be the first to accept what I hope might become known as "Barnett's Law", namely the principle of economic scepticism. The critics ask, not unreasonably, what if for once the forecasters outside the Treasury have got it right? After all, the central growth case in the resources table would require higher growth rates in output, exports and investment than we have achieved in the past. Therefore, the argument goes, we shall not achieve them in the future. Although it does not require anything like the economic miracle suggested, growth rate of 5½ per cent. would be high for the United Kingdom, though not exceptional for many of our competitors.

I do not suggest that two years at the Treasury would be an ideal cure for all pessimists, but nor does it convert a natural optimist like me into the kind of pessimist who believes we can never learn any lessons from the past or from others. We can and will, for example, do everything humanly possible to identify and take action to avoid the kind of bottlenecks that have occurred when previous Governments have gone for faster growth. When my hon. Friend the Member for Luton, West quotes the figure of an extra 600,000 workers coming on to the labour market as if it were an albatross round our necks——

Mr. Sedgemore

It is a fact.

Mr. Barnett

Of course it is, but my hon. Friend fails to take account of the major bottleneck in previous upturns—a shortage of precisely that manpower. I am sorry that my hon. Friend likes to present it in a different light, but we are anxious to ensure that growth will be export-led rather than consumer-led and that resources will be available for investment.

Nevertheless, natural pessimists such as the right hon. Member for Leeds, North-East and my hon. Friend are not easily transformed. They genuinely believe that we shall fail in our objectives, not least in our objective to bring down the level of unemployment to about 3 per cent. in 1979.

Mr. Cryer

Some of those who were a little critical of the White Paper would be more convinced if my right hon. Friend were to explain how, by cutting back public expenditure, those resources will be transferred into British manufacturing industry, since planning agreements are not to be compulsory, and particularly since they seem a long, long time a-coming.

Mr. Barnett

I can assure my hon. Friend the Member for Keighley (Mr. Cryer) on one thing: if we do not release the resources, there will be no chance whatsoever of there being extra resources available for manufacturing industry. Indeed, I dealt with this point before the Select Committee. Of course I cannot give anybody a guarantee that the resources released will definitely go into manufacturing industry. But then, can my hon. Friend, hand on heart, suggest that an increase in corporation tax of some £3,000 million will all within the next year or two automatically go into manufacturing investment? Can he suggest that, even if it did, there would be no effect on that section of manufacturing industry that would be affected——

Mr. Ian Mikardo (Bethnal Green and Bow)

If I may answer my right hon. Friend's question on behalf of my hon. Friend the Member for Keighley (Mr. Cryer), I would certainly give him a guarantee that the money so released would go into investment if the Government were carrying out the economic planning policy on which they were elected.

Mr. Barnett

With great respect to my hon. Friend—and I have a great deal of respect for him—if he thinks that we can take £3,000 million and within the next two years so arrange it either through the National Enterprise Board or in any other way—and we are doing as much as possible there—that we can set up new manufacturing industry, with new managers and all the rest and put that money into it immediately, I am bound to tell my hon. Friend that he is living in cloud-cuckoo-land.

Mr. Neil Kinnock (Bedwellty)

Given that chances must be taken, does not my right hon. Friend think that there is slightly more chance of the resources which we are trying to dedicate to industrial development and investment being used by a Government agency specifically created for that purpose than if it is left to the whimsicalities of private enterprise, which has a pathetic record in this respect?

Mr. Barnett

I agree in one respect—that private manufacturing industry has a pathetic record; but that is why we are looking at it from both angles—first, through the National Enterprise Board and the Industry Act, which the last Government kindly left for us, and, secondly, by making resources available for manufacturing industry. It is no use my hon. Friend suggesting that we must first take out the existing manufacturing sector and in that way—(Interruption.] With great respect, as my hon. Friend yesterday suggested—and I can quote——

Mr. Nigel Lawson (Blaby) rose——

Mr. Barnett

This is a serious argument between my hon. Friends and myself. I am very sorry that my hon. Friends are as pessimistic as they seeem to be. But even if they are right about the levels of employment in 1979, and the economy does not grow sufficiently, it does not necessarily follow that our employment objectives will fall. It would depend on the reasons for a slower growth rate. There might be any of several reasons. It might be due to a slow rise in productivity, which would mean that unemployment would not be much greater. But I hope that my hon. Friends will not deduce from this that low productivity is somehow helpful. It is not.

The countries with the highest increases in productivity also had the highest increases in manufacturing employment. The Chancellor of the Exchequer gave some of these figures yesterday. Japan's productivity, measured by output per man, grew by 8 per cent. in the years 1955 to 1973, and manufacturing employment grew by 155 per cent. In the same period, United Kingdom productivity grew by 36 per cent., while manufacturing employment declined by 13 per cent.

Mr. Litterick

My right hon. Friend's colleague the Chancellor of the Exchequer used this argument yesterday, and it is exceedingly irritating. The economies of Japan, France and Italy were mentioned in this context by the Chancellor of the Exchequer yesterday in relation to the growth of their manufacturing labour forces. This is very misleading, because these economies have been drawing on huge reservoirs of labour employed in agriculture. It is particularly true of Italy, and, as the right hon. Member for Leeds, North-East (Sir K. Joseph) said earlier, it is singularly inappropriate to make that kind of comparison. If the Front Bench insists on making it, it would seem to indicate a degree of economic illiteracy which is a little shocking.

Mr. Barnett

I agree with my hon. Friend the Member for Birmingham, Selly Oak (Mr. Litterick) in one respect. Of course, it is true that in other countries there is a much greater labour force on the land available to come into manufacturing industry. But I was seeking to make only one point, which my hon. Friend must have overlooked. We do not necessarily, from a lower growth of output, a lower rate of productivity, help our manufacturing industry. Indeed, the very reverse is the case. That is all I was seeking to point out, and nothing as complicated as my hon. Friend read into it.

The figures that I and others have quoted neither prove nor disprove any particular thesis about how well or how badly we shall do in the years to 1980. They indicate the serious consequences if we once again fail to move additional resources into manufacturing industry.

The Opposition have argued that we have not cut public expenditure sufficiently in order to free the resources needed if we are ever to get out of the vicious circle of low investment and low growth. In a serious debate, such an argument cannot be dismissed, but nor can it be proved, for it is frankly impossible to prove that an additional £1,000 million, £2,000 million or £3,000 million cut in public expenditure would make the difference between economic success and failure. What can be said is that the social and economic consequences of such cuts, and the consequences for any Government's hopes of co-operation with the trade union movement, have not been thought through.

I should like to examine the consequences and the practicality of many of the Opposition proposals. The consequences would certainly be considerable if—as we were told somewhat hesitatingly by the right hon. and learned Member for Surrey, East (Sir G. Howe)—the cuts were largely made in transfer payments. The net result of such cuts would be to increase privately financed personal consumption at the expense of publicly financed personal consumption. This would allow some reduction in taxation—although not, of course, if it is also the intention, as we are told, to reduce the public sector borrowing requirement.

I happen to believe that in some respects, as I have indicated, our level of direct taxation is too high. But the case has not been made that high taxation is either the sole or the main cause of our poor industrial performance.

I would not myself suggest that all transfer payments are good, or even that they are all socially progressive. But I wish all those who speak so easily about massive cuts in transfer payments could have had my experience of searching for savings in programmes in recent months.

I should like briefly to examine some of the better known candidates for the knife, if only to expose some of the serious consequences to which I have referred. Housing is a regular subject for attack—the right hon. Member for Leeds, North-East referred to it today, and the right hon. and learned Member for Surrey, East referred to it yesterday—and especially housing subsidies. I believe that we are right to plan in the longer term for the proportion of housing costs to be borne by rents to grow from 43 per cent. in 1976–77 to 50 per cent. by 1980. But massive increases in rents now could only be disastrous in their effect on inflation. This would not make co-operation with the trade unions on a second pay round any easier, to put it mildly.

What is more, any reasonably objective observer would be bound to note the contrast between such a policy and the pledge to give a subsidised mortgage rate which would cost, at present rates of interest, about £300 million. The right hon. and learned Member for Surrey, East seemed to say yesterday that he had found a loophole in the Conservative Party's manifesto that would have allowed him to renounce that pledge.

Mr. Lawson

Will the right hon. Gentleman explain why it is right for the Government to phase out completely subsidies to nationalised industries and food subsidies, both of which would not be inflationary, but to argue that to reduce housing subsidies would be inflationary?

Mr. Barnett

I should like to think that sometimes the hon. Gentleman listens to someone else's speech, not only to his own. To make massive cuts in housing subsidies now would make the negotiation of a second pay round extremely difficult, to put it mildly. I hope that he can accept that.

In this debate there have already been several very diverting references to the recent Bow Group pamphlet which makes a series of recommendations for cutting transfer payments and creating new transfer payments in reverse, as it were, by payments for education and health, along the lines implied by the right hon. and learned Member for Surrey, East.

I appreciate that the Bow Group is supposed to be a moderate group, although I am not so sure now having seen that the foreword to the pamphlet was written for the hon. Member for Blaby. I am sure that Members of the Opposition Front Bench would be very hurt if I called them such a dirty name, but one is bound to conclude, in the absence of evidence to the contrary, that a Conservative Government led by the right hon. Lady the Member for Finchley (Mrs. Thatcher) would find these suggestions in the pamphlet, shall we say, acceptable, unless a Member of the Opposition Front Bench is prepared to deny this foul accusation.

Mr. Mikardo rose——

Mr. Barnett

I shall deal with the Opposition first and then give way to my hon. Friend. In the absence of any denial I want to refer to some of the suggestions for large-scale savings contained in that pamphlet.

In housing, to which the right hon. and learned Member for Surrey-East, referred, a saving of £1,800 million is suggested from cutting the number of council houses to be built and stepping up sales. The case briefly made—and it is made frequently by Conservative Members, which is why I refer to it—is that the global housing stock exceeds the global need. That is true. It is a matter of fact. However, the conclusions is then drawn that there is less need for new housing than there was in the past. With respect, that exposes with great clarity the glaring gap in the knowledge of the writer which equally applies to many Conservative Members.

Such a proposal and support for it fails to comprehend the enormity of the housing problem in many urban areas. If such a policy were to be adopted, combined with the suggested saving of £1,300 million from total elimination of housing subsidies, which would add on average about £5 a week to the rents of 6 million council tenants, the economic and social consequences, not to mention the consequences for co-operation between that Government and the representatives of those affected, would be very serious. I should have thought that it would, at a stroke, as it were, destroy the attempts of the right hon. Member for Finchley to woo the trade union movement.

Next we have the now customary saving in education—put at £3,000 million —from, among other things, the introduction of taxable vouchers, reduction in the statutory minimum leaving age, coupled, we are graciously told, with enforcement of minimum literacy standards. As for those troublesome young people who have the nerve to want higher education, they must pay for it.

The writer at least concedes: … such a scheme would have an effect on the sort of education being offered. He can say that again.

In trade and industry the suggestion is made that a saving of £1,200 million could be made by phasing out regional support, and selective support for industry. But the Conservative White Paper, Command 4942, on industrial and regional investment committed itself to maintaining the then new system of incentives until at least 1st January 1978, to give industry the confidence to invest. The least industry is entitled to hear from the Opposition, perhaps from the hon. Member for St. Ives (Mr. Nott) in his reply, is a repudiation of the statements in that document and a clear announcement that the Opposition intend their previous pledges to stand. Perhaps the Opposition can do that at a by-election in a development area—that might provide a suitable opportunity. I understand that in the Coventry by-election even a Monday Club Conservative candidate did not exactly press the Opposition case for no aid to Chrysler and British Leyland.

There are many other transfer payments that the Bow Group writer would abolish. It is worth listening to a few—they have been mentioned by Conservative Members—to show how much easier it is to generalise about cuts. One transfer payment relates to roads and transport subsidies. No doubt hon. Gentlemen would combine with the abolition the cost of letters for Conservative Members of Parliament to send to their constituents explaining why the cost of commuting to work should not be reduced but substantially increased.

Then there is a reduction in the "subsidy", if that is the right word, provided by a free family practitioner service and free short hospital stay. Thus, the writer would have the "right"—as he calls it—level of health spending decided, not by medical requirements, but by what he calls "market discipline and pricing".

It will be clear that many of the proposals in the Bow Group pamphlet would be deeply offensive to my hon. Friends and myself, but I believe that we owe the group a debt of gratitude. This group of young Conservatives has at least been prepared to spell out where it would make the cuts that its elders on the Conservative Front Bench have only been prepared to hint at. In this debate they have had the opportunity to tell us if this is broadly what they have in mind, and how they will cope with the consequences.

The right hon. Member for Surrey, East, the Shadow Chancellor, said: Let me tell the Chancellor what he should be doing. He then, frankly, embarrassed even his staunchest supporters. He mentioned some transfer payments, especially debt interest. On this he was right to point out, as we have pointed out, that while the demand effect is low, it will still have to be financed by tax increases. However, his criticism was sunk without trace by an intervention from the right hon. Member for Down, South (Mr. Powell), who asked him the extent of his proposed cuts in 1976–77.

If the right hon. Member for Down, South were seeking after truth, he and the House will have been very disappointed. Under some pressure the right hon. Member for Surrey, East eventually told us that his total cuts would be £4 billion, although not for 1976–77. He said: That is the target we should like to see, but Heaven knows how quickly we could achieve it".—[Official Report, 9th March 1976; Vol 907, c. 284–9.] Certainly he was right to give his heavenly qualification as to how soon he could achieve it, for his £4 billion included a reduction of £2.3 billion in loan costs. To reduce loan costs by £2.3 billion would require a reduction in our debts of about £20 billion. I trust Opposition Members now fully understand the public expenditure policies that they support.

In fairness, few in the House have in the past been prepared to give a lead to the country on the two central questions on public expenditure. First, what should be the total of public expenditure, and secondly, whatever the total, what should be the priorities within it?

On the first question, there is at least in one sense more agreement than is generally accepted. I mean that whilst some of my hon. Friends want to spend much more, and Opposition Members want to spend less, at some point between nil and 100 per cent., we all accept that the amount available for public expenditure is finite.

I do not argue that 60 per cent. is the right level, or the 53 per cent. by 1979–80 referred to in the White Paper, or that 1, 2, 3 or 5 per cent. above 60 per cent. would be particularly damaging to a democratic society—although I believe that the laws of arithmetic, not to mention the perfectly natural human desire to choose how to spend some of the money we earn, play an increasingly important part in deciding what should be the total proportion of GDP a Government can take in public expenditure.

If we cannot be precise in answering the first question as to the right amount that should be taken in total public expenditure, we can be sure there will be in this House alone 635 different answers to the second question as to the priorities within whatever is taken to be the total. That is, each Member will have his own priorities.

There is no magic formula to guide us either on what should be the total of public expenditure, or on priorities within it. We believe that we have struck a fair balance that takes account of the reality of available resources now and in the future, and of the consequences of which I have spoken.

On the priorities within that total, as my right hon. Friend pointed out, we did not make the customary across-the-board cuts. We have been guided by the aspirations which are common to all my hon. Friends. I do not pretend that we have been able to spend as much as I and many of my hon. Friends would like. That is not possible, given the limitation created by our national resources not being as great as we would like. However, I do claim that within those constraints we are helping the most disadvantaged in our society.

A married pensioner with no other income will, for example, have seen his real income grow by almost 14 per cent. from the uprating in the autumn of 1973 to the last uprating in the autumn of 1975. A single pensioner will have had a real increase of 15 per cent. Under White Paper plans those pensions will be raised in line with gross earnings or prices, whichever rises faster. Of course we would all like to do more but, given the limitations, those increases are a measure of our priorities. We are also providing additional help for single-parent families and the disabled, as well as in short-term benefits.

Within the limited resources available, programmes such as housing and health have been given a high priority. The council housebuilding programme had sunk to an all-time low under the previous Government, and private sector housebuilding had been crippled by an explosion in houses prices and a mortgage famine. Both these sectors have been helped, particularly so on the council house front where we have reversed the previous discouragement of councils, so that starts in the public sector in 1975 were about 170,000 in comparison with 108,000 in 1973.

In the health and personal social services programme, expenditure increases overall are, in real terms, about 1½ per cent. a year from 1976–77. Again, this provision will not do as much as many of us would like, but it will enable present standards to be maintained at a time when there are rapidly increasing numbers of old people and of children in care. It will also permit the continuing spread of new methods of treatment.

Even in education, where I know many of my hon. Friends are very troubled, there has been a vast and continuous improvement ever since the war, and after the savings we are making, the resources devoted to education will still be nearly 20 per cent. more at the end of the present decade than at the beginning. Perhaps I may say to my hon. Friend the Member for Eton and Slough (Miss Lestor), whose courage and sincerity we all admire—I am sorry that she is not present—that the one sure way to do the greatest possible harm to education, and, indeed, to other areas of public expenditure, is for us as a nation to continue to live beyond our means.

Despite what I consider to be a choice of priorities in keeping with our commitments, I know that the cuts we have had to impose on social programmes, whilst attacked as insufficient by the Opposition, are repugnant to my hon. Friends. That does not surprise me. I would not have it otherwise. But if the Opposition's approach to public expenditure, and improved public services, would create the kind of society we on the Government side of the House would not want to see, we in turn must recognise that we shall not create a truly compassionate and caring society without first providing the extra resources.

I believe that the White Paper, by levelling out public expenditure after April 1977, will, as our motion says, ensure that manufacturing industry can take full advantage of the upturn in trade, which is the only way in which we can obtain the extra resources. We do not say that our choice of priorities within the total of public expenditure is rigidly fixed for all time. That is why the motion confirms that we shall keep priorities under continuous review. But I have no doubt that the plans set out in the White Paper point the way to ensuring a genuine improvement in the use of resources in the country, as well as providing the only way to obtain in the longer term the higher levels of social expenditure that all of us on this side of the House want to see.

5.6 p.m.

Mr. Edward Heath (Sidcup)

I am glad of the opportunity to make an intervention that I hope will deal with major points in this debate. I do not particularly want to go into many of the details, which have been mentioned, quite rightly, by the Chief Secretary and which appear in the White Paper. I want in particular to look towards the future, because I hope that we may together be able to learn lessons from the past.

I am sorry that the Chancellor of the Exchequer has left the Chamber. I can quite understand that, having listened to a large part of the debate already, he has found it necessary to go. However, if he reads my speech I hope that he will not take it amiss if I say that I did not find yesterday's performance one of his better speeches in the House. I feel that the paste and scissors approach, whether it is from the Socialist manifesto to his hon. Friends below the Gangway or from the Bow Group to my hon. Friends on the Opposition side of the House, is not a satisfactory way of dealing with the enormous problems that face us with Government expenditure, particularly at such a crucial time in the economy as we find ourselves.

The Chancellor's dilemma is very plain. He is boxed in on every side. We all are. The decision which must be made is in which way he and the Government will decide to break out of this box. This is the crucial decision. I want to say something about the means of doing that later. However, I think it is important that we should all recognise the dilemma.

The Chancellor is boxed in on the side of public expenditure. He is boxed in on the side of unemployment. He is boxed in on the side of investment and of trade, and he is boxed in now on the rate of sterling, which has fallen below $2. I find it entirely incomprehensible that the Chancellor of the Exchequer could make a speech yesterday, in a two-day economic debate, without even mentioning the £ sterling and what has happened during this past week. I should have thought, as I have said, that it is one of the crucial aspects of the dilemma which faces him, yet we heard not a word about it. There was no explanation of his policy or the Bank's policy in regard to sterling, the lowering of interest rate, at the same time as the sterling rate was falling and deposits were flowing out.

We heard nothing of the Chancellor's views about the Nigerian decision apparently to diversify their holdings in sterling. I should have thought that this was an important matter, because surely it must be an indication to us all of exactly how vulnerable we still are the whole time with sterling deposits and the rate of sterling. It might also be taken as an indication to all of us in the House as well as to the country of the impact of British policy in Southern Africa on our financial and commercial interests and, above all, on sterling.

Perhaps I may add another sentence here. There are many in this House who have vivid recollections of 1956 and what happened then as regards sterling and the financial position of this country. Surely the problems that now face us in Southern Africa are just as difficult to handle there. Our interests in Black Africa are greater commercially and from the investment point of view than those in White Africa, and what we have seen as the impact of one sterling deposit from one country ought to be borne in mind in the whole of our policy towards Southern Africa. However, the Chancellor found it fit not to mention any of these matters or to give his view on the likely outlook for sterling.

The second dilemma—the problem of expenditure which we are debating today—is, of course, linked with the Budget and the next phase of incomes policy. In my view at present, it is impossible to disentangle these aspects of financial and economic policy. Therefore we are actually at a disadvantage when speaking in this debate, although perhaps we can emphasise some of the items which should be taken into account in the Budget and in the negotiations on the next incomes policy.

In his speech, the Chancellor put all the emphasis for his dilemma on the world recession. I do not accept his analysis. It is very dangerous that he should have done so because it leads all too easily to the conclusion—which perhaps some of the hon. Gentlemen below the gangway may share—that when we pull out of the world recession our problems will disappear and, within the time-scale of this White Paper. I also find that unacceptable.

The Chancellor did not mention the 35 per cent. wage increases in a year and the 26 per cent. rate of inflation which followed from that. It is this aspect, much more than the world recession, which has led to his problems of Government expenditure.

After all, in one respect the world recession has helped him. From February 1972 until February 1974 the Financial Times index of commodity prices rose by 182 per cent. That was the real problem which faced the Conservative Government, but today it is all too seldom remembered or spoken about. I hope that my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) will remember that when dealing with his analysis of inflation during that period. The index rose by 182 per cent. in two years. I have never yet met a monetarist who could explain to me how one could deal with a 182 per cent. increase in prices by reducing the money supply. However, I do not wish to enter into that particular argument.

Since February 1974 and up to 8th March last—two days ago—there has been a reduction in the Financial Times commodity index of 22 per cent. The Government have had all the advantages of this improvement in the terms of trade. Therefore, the record of inflation during this period, with decreasing commodity prices, is all the worse.

I emphasise that what we have seen in the rise of Government expenditure and what we have to deal with is far remote from anything that we have had to do in the past. Then it was a question of tackling the particular problems of a project which we should not have embarked upon, or an increase in a year or two years hence which we wish to lower slightly. We are now dealing with a massive increase in Government expenditure in which the wage increases and the Government procurement increases, as a result of wage increases outside, are in fact enormous.

I have been able to analyse only the Defence Supplementary Estimates. It is indicative of the situation that the total Supplementary Estimates for this year, so far—they may now be final—are £6.1 billion, yet all this has almost passed without notice.

There are some hon. Members who can recall when the Chancellor of the Exchequer and two Ministers resigned over a difference of £50 million. I can recall the time, as a Whip, when the Government seemed to be in danger because there was a Supplementary Estimate of £96 million for a year. However, today we have Supplementary Estimates of £6.1 billion in one year. That is the scale of the problem with which we are dealing. I wish to emphasise this matter because so much of it springs from wage increases and from procurement increases containing wage increases from outside. That is the problem with which the Chancellor has to deal.

I wish to emphasise that some of the Chancellor's problems—a comparatively small amount—come from additional policies but if he is to tackle this problem then the wage increases must be shown to be the high element which are are. The Defence Supplementary Estimate is £140 million of which £92 million is in procurement—not, I am sure, for things which we did not plan to buy before but because of the increase in prices of equipment we were already committed to buy—£38 million on pay increases for the Services, ex-Service people and civilians employed, and £10 million on accommodation for increased rents. That is the make-up of the Defence Supplementary Estimate.

When dealing with Government expenditure we must ask ourselves which of those items can we reduce. No one would suggest that wages could be reduced for either Service men or civilians. In connection with procurement, we must either make changes, and that means delays which have other effects for industry and so on, or we must say that we shall not have the things that we want for the time being or put them right off altogether. Therefore, I want to bring home to the Chancellor and the House the enormous prospect with which we are faced.

Government expenditure has suddenly been jacked up to a very large extent. I do not believe that it can be dealt with other than by a strategy to cover a considerable period. In this respect I think that the White Paper is right, although I do not agree that the White Paper is an adequate strategy for dealing with the problem. I hope that we can realise the immense scale of the task when we talk about getting Government expenditure once again into balance.

On the general question of the proportion of gross domestic product, the Chancellor has emphasised that he wants to get it down to 53 per cent. Under the Conservative Government from 1970 to the beginning of 1974 the proportion of the GDP was kept roughly level. In 1970 it was 50.6 per cent.; in 1971 50 per cent; in 1972 50.1 per cent.; in 1973 51.1 per cent. It shot up in 1974 to 57.3 per cent. when the present Government abandoned Lord Barber's reductions in expenditure and embarked on their own policies. Therefore, in trying to get to 53 per cent. the Chancellor will in fact be trying to get to a figure which is still higher than any figure we have had in this country before the present Labour Government came into office in 1974. That is the task that faces the Chancellor.

At the same time, the Chancellor is carrying out a contradictory policy because he and his colleagues are constantly widening the public sector. By taking in the aerospace industry or the shipping industry or another industry they automatically widen the public sector. That is bound to happen. Therefore the Chancellor is pursuing a contradictory policy of trying to get the proportion taken by public expenditure down as far as he can—although not as far as it was before—and at the same time pushing it up by the responsibilities he is accepting in industry, including investment.

I should like to say a few words about the public sector because it seems to me that some people labour under a good many misapprehensions. People always say "the unproductive public sector". This is an over-simplification. What are coal, electricity and gas if they are not productive? They require investment. In this respect I have heard some strange views. It seems to me that if the steel industry were in private hands and if it were investing £500 million next year, we would go round patting members of the steel industry on the head, saying, "Well done, thou good and faithful private enterprise servant. You are investing £500 million." However, because it is a nationalised industry there is the common criticism that this is, in itself, unjustifiable.

I want to add two qualifications to that. The first qualification is the question how effectively public investment is used in a nationalised industry. The problem which faces every Government concerns the means of ensuring that public investment is effectively used. There is the problem that these industries are usually monopolies and therefore they do not have the pressure upon them which most private enterprise firms have. Secondly, once one starts checking and counter-checking one increases the bureaucrats ad nauseam, slows up the process of decision-making, and in the end it becomes more expensive than it was in the beginning.

My second qualification is that whether or not these industries can have the investment depends on the Government's capacity to borrow. I have never had much sympathy with the idea that we put this matter under a holding company and it does the borrowing. All it means is that we borrow the same amount of money but pay 1 per cent. more for it. Alternatively, the Government guarantee the holding company, but once again we are in the same position. What the nationalised industries can have for their investment depends on what the Government can raise in their borrowing.

In connection with the administrative sector perhaps my colleagues will recall the sort of problems we had in trying to reduce the administrative side of Government. They were very great problems. None of my colleagues liked the idea of an across-the-board cut. I had every sympathy with them. None of them liked the idea of cutting down on their own Departments by cutting back on policies which they wanted to retain.

The plain fact about the administrative Civil Service is that it cannot be reduced substantially unless policies are radically changed, and that means that services are wiped out. There are two ways in which the number can be reduced substantially. One is to introduce a system of self-assessment on income or general taxes in the same way as the Americans. We would then save probably 10,000 or 15,000 of the jobs involved. But that has never appealed to the British. It is not that they do not trust each other. It is that they prefer others to fill in the forms.

The alternative is to have a tax credit scheme, which would save a very large number of jobs. The cost of it would depend on the extent to which the Chancellor proposed to fill in the benefits. To say that such a scheme automatically would cost a certain amount is wrong. The Chancellor must decide on the figures to fill in, but, once introduced, the scheme would be infinitely simpler for people to use and would save a considerable amount of administrative work and personnel. In those two respects great changes could be made, but, failing those, we would need a more efficient system of administration, and that would take a certain amount of time.

Just what does it mean when public expenditure is jacked up in this way? It means a continuing reduction in the standard of living of the people of this country. There is no alternative. The reason for the jacking up is that with a 26 per cent. rate of inflation and a 35 per cent. rate of wage increases we have paid ourselves paper, and now we have to get production up to correspond to that paper. Until that happens there will be a reduction in our standard of living. That has already been happening to a considerable extent. In the debate last July I said that this would necessarily happen, and it will continue. The judgment that the Chancellor must now exercise with his colleagues is to what extent this can continue while at the same time he carries through the incomes policy upon which he is embarked. This is bound to be a matter of judgment and understanding by the trade unions as to what the real situation is. That is the importance of not producing alibis but of explaining the real situation.

One of the alibis is that the Conservative Government were responsible for the inflation. I do not accept that. The Chancellor will see from the figures from 1970 to the end of 1973 that the increase in gross domestic product was 44 per cent. while the increase in Ml was 38 per cent. The increase in M3 was greater because of foreign deposits. I have never heard anyone suggest that we should keep out foreign deposits. These are the figures which should be taken into account against the background of the 182 per cent. increase in the price of commodities to which I referred.

Let us try to show the trade unions that this process must, alas, continue until these factors are in balance again. What are the alternatives? They have to be reflected in the incomes policy, and that means a very tough approach—much tougher than anything we have had so far. Some of us said that the £6 limit would not reduce inflation at a pace which would enable us to get the borrowing rate down to a suitable level. That limit was imposed, however, and we shall now move on to the next stage. Unless we are to face even greater problems, that phase will have to be even tougher.

The other method of dealing with it is not by direct but by indirect taxation. If it is done by indirect taxation, which does not affect our export prices, that must be acceptable to those who are carrying out the wage negotiations, and that is a matter for negotiation by the Government with the trade unions about what they are prepared to accept in recognition of the situation.

I reinforce what the Chief Secretary said about direct taxation. But he indicated that he thought that the case for reducing it was greatly overemphasised. Many of us now have all too many examples of British citizens who are working abroad for firms based in this country when the firms are unable to bring their people back home because of the great difference between what they are being paid abroad, with the tax they pay there, and their take-home pay here. In all reasonableness they could not be expected in those circumstances to accept promotion and to come back to headquarters. I could give the Chief Secretary individual examples of what is happening and examples of the nonsenses which are taking place in the way in which firms are trying to run their businesses when, because of the heavy burden of taxation, they are unable to bring their best talent back to Britain. This situation must be changed, but the question must be left until the Budget to see whether the Chancellor will be in a position to do that.

Fundamentally we come back to the fact that this situation will mean a continuing reduction in the standard of living for our people. They must be told why and how it is happening, and the weakest in our society must be protected. It means that adjustments which are made must help the weakest—and I am sure that my right hon. Friend the Member for Leeds, North-East, in proposing adjustments in subsidies, social service benefits and so on, had this in mind—in order to tide them over their difficulties during a period in which there will be a general reduction in the standard of living.

I turn now to the debt, and the servicing required for it, because that leads on to the borrowing requirement which is in many ways my main concern about the consequences of the White Paper. We shall have to find an additional £3 billion in servicing debt to the end of 1976–77, and that is an enormous sum. A large part of that has to be serviced abroad. The Chancellor said yesterday that the proportion was 30 per cent., but I strongly suspect that debt incurred in the last two years, and which will be incurred in the coming year, requiring servicing abroad will be a much higher proportion. As sterling falls, the servicing of that debt will become more expensive because in almost every case it must be done in the currency of the country of origin or in a foreign currency. That is an immensely heavy burden which is increasing as sterling depreciates.

It is sometimes said that North Sea oil will look after all this, but how much North Sea oil shall we have to export above our own requirements in order to meet a debt servicing of £3 billion a year? How much profit must we make from the oil industry at home in order to cover that £3 billion of indebtedness and so allow Government expenditure a better chance of coming into balance? These sums are enormous, and to talk lightly of their being dealt with by the oil industry is to disregard the figures with which we are dealing.

I come to the conclusion, therefore—and here I warn the Chancellor and the country—that the right hon. Gentleman is gambling on getting his borrowing requirement for these coming years, with probably another £12 billion for this year, from the oil producing countries. Yet they will have far less money available than in the past two years. He is gambling on the rate of sterling taking the strain entirely in this coming year. He has not cut Government expenditure this year and therefore sterling will take the whole burden.

I find myself faced here with a moral problem. We are incurring debt at a rate which will be at least £30 billion over the three years from 1974–75 to 1976–77. That indebtedness will be paid for not only by our generation but by the children and grandchildren to come and by the generations after that. Are we morally entitled as a generation to embark upon indebtedness of this kind from which future generations will get no benefit but which we have incurred because we are enjoying ourselves beyond our means? This big moral question colours my whole attitude towards getting the Government borrowing requirement down.

My hon. Friends have been saying that if Government expenditure is reduced, taxation can follow suit. That may help on direct taxation, but if the borrowing requirement is also to be reduced there will be a limit on what can be done, and we should not delude ourselves about that either. The Chancellor is gambling on obtaining his borrowing requirement. If he does not, there will be an inflationary situation, apart from other considerations, and he will reduce the value of sterling still further.

What means have we at our disposal for dealing with these problems? First, I do not believe that the modern Cabinet system is admirably suited to dealing with all our present problems. The system was developed in the nineteenth century to deal with political problems, and it was admirably suited to dealing with them. It was developed so that political decisions could be taken in a collective fashion, and people stuck by those decisions.

That applied until recently, when it seemed that a variety of views could be put forward. But when dealing with modern times we are involved to a large extent with the allocation of scarce resources and the problems of priorities. As any Chancellor and his colleagues will know, the Cabinet system makes it immensely difficult to determine priorities.

I believe that there are two means of avoiding the difficulties presented by the Cabinet system. I established Programmes Analysis Review to examine all departmental activities and to ask "Are they any longer justified?". Departments like to increase their activities and to adopt new policies. They like to have the money to carry them through. In my experience Departments never examine policies established 20, 30 or 50 years ago and ask "Are they still justified?". I believe that the present machinery should be used to the full, and even more than we used it after embarking upon it.

I have come to the conclusion that we shall not see our economic affairs properly managed and Government spending kept under control unless we have a different Treasury arrangement. The Labour Government tried a new arrangement in 1964 by establishing a Department with responsibility for Economic Affairs, but they got it the wrong way round. We require a man and a Department to deal with economic strategy over a considerable period. That is essential.

On the other hand, there must be a Minister standing in his own right who will deal with the budgetary aspect of income and expenditure. I realise that I am being highly controversial. I am being tendentious, but I do not have to consult anyone now. If there are two finance Ministers in the Cabinet, one may try to argue against his colleagues on expenditure only to find himself let down half an hour later when the Chancellor takes a different view, agreeing with his colleagues and coming to a different decision. The present system is not working satisfactorily, and I do not believe that it will do so until we have a proper arrangement for economic strategy and budgetary matters.

The present Government, if they stay in office, will find themselves faced with the same problems that we had from 1972 to 1974. I hope that they will reconsider some of the things that they said in Opposition. The world will pull out of recession much more slowly than either President Ford or Chancellor Schmidt would like, but when it does so commodity prices will begin to rise. When we were in office they increased by 182 per cent. They have now dropped by 22 per cent. but when the world pulls out of recession they will begin to rise.

Britain will begin to make its recovery after two major trading powers—namely, America and Germany—have made theirs. It will be a much more difficult recovery. The Americans now have the dollar in a position in which it provides an immensely strong balance of payments and in which it can protect their home market. It will be more difficult for Europe, and especially for Britain, in the American market.

When we begin to pull out of the recession our industrialists will recognise that they have probably the lowest stocks that this country has ever had. They will then start stockpiling like mad. It will be too late, but they will do so. They will then put an enormous burden on our import bill. We have been through this before. It is foolish for the Government Front Bench to continue jibing at Administrations which had to face the same problems. We shall never get the economy on a sound footing unless we face the facts.

There was a chance of achieving a sound economy in 1973. We would have done so if we had not suffered the oil crisis. It was not possible because of the quadrupling of prices. The Government will have to face a problem that has been faced before, but they will be in a much more difficult position. They are much further behind and they have a currency of a much lower value. I suggest that they begin considering the problem now and not wait until it arrives.

We should have learnt by now that our recovery from a recession takes much longer each time. After this recession the industrialists will need even more convincing that they should invest before they do so. The period taken will be longer than it was from 1969 to 1973. That was longer than was taken following the previous recession.

Perhaps the Chancellor is thinking about what he should do in the Budget about inducements and incentives. I have come to the conclusion that provided inducements are reasonable, it is the state of confidence in industry that really matters. Let the Chancellor recognise that there is a considerable time lag.

We now have to import 50 per cent. of our food and almost all our raw materials. We are not able to get the full benefit of a depreciating currency as can a country such as France. We know that France does not have to import the great mass of its requirements. When it has a depreciating currency its export prices decrease and it immediately enjoys an advantage. When we are in that situation export prices improve, but we never have a real chance to get the upswing or, to use a technical phrase, to get on the "J" curve.

We have been in the present situation for some years and I believe that it will continue. It is a psychological factor involving the nation as a whole, and the trade unions I believe that a floating currency has a purpose to perform. I believe that we were right to float when we did. We preserved our reserves, and we could not have done the things that were done subsequently unless we had done so.

However, there are situations in which a floating currency is extremely dangerous. It is dangerous because it does not force the Government and the country to take the action which is necessary. When there is a fixed parity and there is a crisis it is generally recognised that there is a crisis. The Governor rings up to say that he wants to see he Chancellor privately at No. 11. When he has spoken to the Chancellor he rings to say that he wants to see the Prime Minister privately at No. 10. The Prime Minister sees the Governor and the Chancellor and they explain the situation, telling him what must be done. If he is wise, the Prime Minister calls the Cabinet. If he is not wise the Prime Minister asks "Do this or else what?" The Chancellor replies "Or else I go, the Governor goes and the Court of the Bank goes." Then the Prime Minister calls the Cabinet.

The danger of a floating currency is that there is never a crunch. It may float downwards because of inflationary pressure, but there is never a point at which the Governor or the Chancellor are forced to take the necessary action. Nor is there a point at which the country is confronted with something which it really recognises as a crisis, although some would say that that is an old-fashioned view. The action that has to be taken must be extremely unpleasant.

That is the grave danger which we have faced during the past year. We are sliding and the Government have not succeeded in showing the nation that it faces a crisis of the most dangerous sort.

I am glad that there has been emphasis on growth. People must have hope if they are to live through a dark period. In many circles growth is now, quite unjustifiably, a dirty word. But unless we have growth in the economy we can never achieve anything we want in any sphere—social, cultural or otherwise.

The Government say that they want an average manufacturing growth rate of 8½ per cent, for three consecutive years. To think that they had the nerve, when in Opposition, to accuse the Conservative Government of going hell bent for growth regardless of anything else! To think that they now come forward with the proposition of a growth rate of 8½ per cent.!

We were also accused of reducing unemployment at any cost. I have recently read the leading articles in the national newspapers about the Budgets of Lord Barber. They now make interesting reading. I recommend them to some of the columnists. One leading article in The Times said that the Conservative Party, after five years in office, would be judged on the extent to which they reduced unemployment. Certain views have changed since then. The Chancellor is aiming at a total of 700,000 unemployed. That is very near the target at which the Conservative Government were aiming over three years. But we were starting from a target far lower than 1¼ million, or whatever it will rise to.

Now, the Chancellor says that he can get the unemployment figure down with a growth rate in manufacturing industry of 8½ per cent. for three years—5½ per cent. overall. One must take leave to doubt that statement. If he is really going for that target, he will have even greater problems than we had.

What worries me is that so little is being done to make this progress possible. The Government are rightly increasing training, but by a minuscule amount compared with what we need from the point of view of industry. The Chief Secretary talked of bottlenecks, but the mobility of labour is now even less than it was five years ago. I agree I find little is being done for housing in enabling labour to become more mobile for industry which has the need and is able to expand.

All this is another reason for organising the Treasury properly to have the control and to put drive behind the whole of this movement so that we have an economy which is adaptable and mobile, in which we get investment and in which those who have job opportunities can take them up. We heard so much about this in 1966, after the July measures, and up to 1970. We heard it again from the Chancellor yesterday—"We must make room."

But the process is no longer automatic because the resistances are in-built and so great, and until we overcome them we shall not be able to produce results and we shall find ourselves with the same problems but in a much weaker position to tackle them.

I urge upon the Government that they cannot just sit back and think that automatic processes will work. There is no time in the modern trade cycle schedule to enable such processes to work effectively in this country at the moment. Therefore it is right that industry should be helped by regional devices and other means to make the changes which are necessary. There is not the time otherwise.

What worries most people in industry is that there is now a very grave risk that we shall just about miss—it will not be a boom—most of the world's improvement from recession. When that improvement starts going down again, we shall have missed it. It is worrying industrialists that, in the modern time schedule, we shall not be able to be in a position to take advantage of the world pulling out of its present trade recession.

I want to conclude by speaking generally of our financial position—and again I am speaking out bluntly. We know that so many of our problems come from the position of our currency, our indebtedness and sterling balances. Many of the things that hon. Members worry about would not worry them if we had not got that situation. Nor would the Government worry. Nor would any Government. There is only one way out of this end of the box—and that is through Europe.

But if we are to have an arrangement in Europe which helps us to get out of the box we have to be prepared to make our contribution towards it. A great chance was missed in 1973 when the main speculation was against the dollar and going against the German mark. Herr Brandt and the West German Government could, if they had decided, have got Europe then to pool its resources. We could have "done in" the speculators and had the strength of European currencies in a move forward in the unity of Europe.

There is only one solution in the long term—and I hope that it will be as short as possible—and that is to arrange for Europe to work together in a united pooling process. It will be a shock to Europe, and therefore we have to work into it with our partners, and show them what we can contribute, if we are to benefit in this country. I do not now see any way out of this problem of the box unless we work with Europe. These are the long-term problems facing the Government, and all I ask is that they should face them honestly.

5.44 p.m.

Mr. Douglas Jay (Battersea, North)

I agree with a great deal that the right hon. Member for Sidcup (Mr. Heath) has said, although I am afraid that I do not agree with the last point he made. I certainly agree that what the public wants to know is how we can get out of the existing impasse. I agree that the problem of public expenditure is closely linked with incomes policy, and also that what he said about the nationalised industries shows how artificial the distinction often is between the public and the private sectors.

Between those in the debate who think that the Government are spending too much and those who think that they are spending too little, I find myself agreeing modestly with Mr. Jack Jones, Mr. Hugh Scanlon and others who believe that, on the whole, my right hon. Friend the Chancellor of the Exchequer has got it about right. In spite of a great deal that has been said in the debate, particularly yesterday, we should not be deluded by some of the Press headlines into thinking that the Chancellor is making overall so-called cuts in total expenditure when he is really only curbing the total level of expenditure.

Of course, some individual items will go up and others will go down. I am glad that my right hon. Friend has not made an exact across-the-board cut, which is an inefficient way to do it. The total expenditure that the Chancellor has to face, including debt interest, is planned to rise even in real terms every year from now until 1979–80, and even if we exclude debt interest the total is planned to be higher, in real terms, in 1979–80 than it was in 1974–75.

The so-called cuts, quoted from page 141 of the White Paper, are comparisons of last year's forecasts of what we thought we might be able to spend three or four years hence with what we now think that we shall be able to spend. I sometimes wonder whether this marvellous advance of economic thought, by which we publish figures of what we think we should be able to spend three or four years hence, then revise them downwards in face of reality and then call them "cuts" and have a quarrel about them, is really a more sensible way of proceeding than the way of Chancellors of the Exchequer from Mr. Gladstone to Sir Stafford Cripps who did not presume to see the future more than one year ahead.

It is true that some programmes are a little up and some a little down, but I believe in priorities and therefore that the Chancellor is broadly right in giving priority, for example, to new house- building over subsidies, and to the health services, and, above all, to industrial investment over consumption. He is also right not to make still further cuts in defence beyond what he has made already.

In all this, I think we ought to admit that we ourselves, as Members of Parliament, must take some share of the blame in that every day in every party almost all of us are pressing for increases in expenditure and hardly ever for economies. Indeed, the right hon. Member for Sidcup did not remind us today that he was in favour of Maplin and the Channel Tunnel and a whole series of London motorways, each of which would have cost many hundreds of millions of pounds. I often remember Sir Stafford Cripps's remark that the Chancellor today has to defend the taxpayer against the rapacity of the legislature. So much have things changed over recent years.

Since my right hon. Friend asked yesterday for constructive advice and priorities, I will try briefly to set an example. I believe, for instance, that we should spend a good deal less on the road building programme and rather more on education. By cutting extravagant motorway schemes still further, the Chancellor could, for once in this cost-saving business, actually win some grateful cheers from many parts of the country.

In order to be brief, I will not detail all the figures, but our total road programme, both local authority and national, has today reached the astonishing figure of £1,270 million a year, of which as much as £700 million is new construction. I believe that when we are forced to make economies in all sorts of essential programmes, which we hate doing, that level of expenditure on new road building is indefensible.

There are a number of reasons why I believe the Chancellor is right to prevent any further rise in the proportion of GDP taken by the public sector. The debt interest problem has now become alarming. Of course, it is a transfer payment and does not directly eat up resources. Indeed, Opposition Members sometimes forget that other transfer payments, such as retirement pensions, enlarge the choice of the people receiving them as they limit the personal choice of those who have to pay for them.

But let us not fall into the opposite trap of thinking that transfer payments do not have to be paid for. They have to be paid for either by taxation or by borrowing—which would increase the debt interest still further. If we continue to borrow at home and abroad £10,000 million a year at 10 per cent. or more, we shall head for a dilemma from which we could escape only by taxation which the country would not be willing to bear.

I have argued all my life for more redistribution of income through the tax machine, but I have also always argued that there is a limit beyond which we cannot go and which can be discovered only through practical experience and not through any theory or dogma. I am convinced that for the moment we have gone far enough, not just because of the prospect of 50 per cent. or 60 per cent. of GDP being channelled through the public sector, but because of the more human fact that, even on the Chancellor's optimistic forecast of growth and his curbed expenditure programmes—if we assume the necessary rise in exports and investment—there will be virtually no growth in the personal expenditure of the ordinary working population for three or four years. I do not believe that the working population will be willing both to stand for virtually no growth in standards for several years and to refrain from making inflationary pay claims.

I have also long advocated a major expansion of our public services, but no sensible person has ever argued that they should be expanded to any level without limit. When the public sector was taking 20 per cent. or 30 per cent. of national resources, one could reasonably argue for an increase. We have got beyond that point now and the argument that any public expenditure at any time on anything is desirable is one which none of us would seriously advance. Indeed, some of our motorway programmes would prove the contrary.

How have we got into our present impasse for which we are all partly to blame? There are two reasons which are mainly preculiar to this country and two others which have hit all industrialised countries in the last few years. I say little about the two we have inflicted upon ourselves. First, there was the wild credit inflation of 1972–73 which the right hon. Member for Leeds, North-East (Sir K. Joseph) admitted today carried its evil effects into the years of the present Government. Secondly, there has been the common agricultural policy, which, on the EEC Commission's own figures, has added £700 million or £800 million a year to our food import bill.

When the right hon. Member for Sid-cup mentioned the huge increase in import prices which we had suffered, he did not point out that some of that increase was caused by rises in food prices which were partly due to our assumption of the CAP.

The two causes which have affected all industrial countries are the oil cartel and, most important for future policy, the extravagant rise in money incomes in 1974–75. This was general in industrial countries, but particularly extreme here.

But the crux is this. The single fact underlying all our current economic problems—and this has still not been grasped—is that if we are not to finance runaway price inflation with new money, then the greater the excess of the rise in money incomes over the rise in output, the more unemployment we are bound to have. The cost-inflation of 1974–75 caused the present unemployment and is still pricing us out of markets at home and abroad.

If we simultaneously inflate all money incomes and plan public expenditure on the basis of volume rather than value, two things must happen—public expenditure will rise rapidly, almost without control, as a percentage of GDP, and manpower will shift, also rapidly, from the private to the public sector. That is what has happened over the last two years.

There is one other long-term cause of our public expenditure problem which very few hon. Members have mentioned. The percentage of our population which is either retired and living to a greater age or being educated has been steadily increasing, while the proportion of those working has been steadily decreasing. This throws a heavy burden of taxation on those at work. One long-term policy we should adopt to ease this situation is to allow people to go on working after the formal retirement age if they wish.

For all the reasons I have given and also because of the need to reduce the debt interest bill, which we can only do by reducing inflation and then converting to lower interest rates—which is a long, hard and laborious road, but the only one we can take—incomes policy is now the key to the whole situation. We owe a very great debt to Mr. Jack Jones over the last two years for the fact that we have got as far as we have.

We must keep the rise in money incomes next year to at least no more than this year, although we should allow more flexibility and not so much rigidity. The flaw in the last Conservative Government's incomes policy was that it did not allow enough flexibility for those claims where the case was extremely strong. The danger of a flate-rate norm is that it will break down and we shall slide towards the precipice again.

I urge on the Government my strong conviction—though they may not yet be persuaded of this—that we can never be on firm ground and assured of continued restraint until we have at least set up an independent tribunal to rule on disputed claims for all of us, from Sir Richard Dobson down to the humblest worker. I believe that we must do all this if we are to get interest rates down and Government spending under control. Briefly stated, that is my recovery programme. It is a long, and hard road, but provided only that we can free ourselves from the lunacies of the common agricultural policy—this self-inflicted wound—I believe, more optimistically than do some hon. Members, that it is one we can successfully take.

6.0 p.m.

Mr. Kenneth Baker (St. Marylebone)

No speech from the right hon. Member for Battersea, North (Mr. Jay) would be complete without a reference to the common agricultural policy, but I do not intend to be drawn into that argument. I agree with the right hon. Gentleman that we have come to a watershed in the economic affairs of our country.

What divides Labour Members below the Gangway from most other hon. Members on both sides of the House is a realisation that we have probably come to the end of the political and economic phase of the past 50 years when public expenditure has gone up year after year as people's expectations have gone up year after year. Labour Members below the Gangway say that there is no reason why this trend should not continue. That is economically unrealistic, but at least they hope.

The Government have reluctantly recognised, albeit very late in the day, that that trend cannot go on, because our capacity to spend has outstripped our capacity to create wealth. This presents all of us—to whichever party we belong—with an enormous political challenge. We have to say to the people who sent us here that next year will not be better than this year, that it will be worse, and that the year after that is likely to be worse.

The stability of the democratic process of the Western world over the past 50 years has not been based upon that premise. Each election, whether in this country or in America, has been based upon the prospect of a better future, and a better future very soon. We now have to say in simple, hard and realistic terms that that option is no longer open to us.

That has been vividly highlighted in the White Paper by the realisation of the enormous amount of debt interest that has been built up as a result of this pattern over the past few years. Of all the White Papers on public expenditure that I have seen, I cannot remember one that has brought home to me more vividly the cost of debt interest—£5,000 million this year, an extra £1,000 million next year and £7,500 million in 1978–79–12½ per cent. of total Government expenditure.

How can we go to the electorate and tell them that one-eighth of what we spend will go on paying off debt interest in the year 1980? There is no question of the repayment of capital; that is just servicing the debt. What will be the taxpayer's reaction when he realises as we—in a more sophisticated political milieu—realise that one-third of the income tax he pays each week or each month will go to pay debt interest?

We are close to the threshold of public acceptability in this state of affairs. Whether the indebtedness of the country is overseas or domestic does not matter. We have to find the interest whether it goes to the sheikhs or to the holders of gilt-edged in this country. Not only is it wrong, as my right hon. Friend the Member for Sidcup (Mr. Heath) said, but it is morally wrong to take on debts of this sort which future generations will have to service.

It is not possible for the State to repay the debts. It is, strictly, possible, but it never happens. The State has to re-fund. If a private company or a public corporation were devoting one-eighth of its total expenditure to debt interest, it would go to the shareholders and say "We must recapitalise", but the British citizens cannot recapitalise the debts which are being built up. Moreover, in 1976 and 1977 the Government will have extreme difficulty in funding the debt.

Since 1973 there has been a great deal of loose cash floating around the world as a result of increased oil prices, but those sources are beginning to dry up. The dollar has certainly dried up. In trying to refund this debt the Government will be forced to look to the domestic market of the United Kingdom selling gilts. The more they are successful in that, the more will the public sector be deprived of funds for expansion.

The impression which the Chancellor gave yesterday of being in command is a false one. His whole strategy for economic recovery which is behind the White Paper is in danger. He has brought forward these modest proposals to cut public expenditure only because he believes that we shall get a rate of growth of 3.4 per cent. a year. That rate has been obtained only intermittently and almost accidentally in a few years since the war. To underline the point rather obliquely, the Chancellor yesterday threw into the debate another figure when he said that to get unemployment down to 700,000 by 1979 we should require a rate of growth of 5.5 per cent. It is unrealistic to think that either of these rates of growth will be obtainable other than on a "one year off" basis, but that is the Chancellor's basic strategy.

The Chancellor also imperilled our chances of economic recovery by taking a confused position over the past few days on the sterling crisis. On Thursday, the authorities were selling pounds. On Friday, the minimum lending rate was reduced. On Monday, the authorities were buying pounds. During that period the Chancellor remained quiet. He did not seem to have a view about what should be happening.

It cannot create confidence for the authorities to be trying to drive the pound down on Friday and trying to hold it up on Monday. The Chancellor should adopt either a neutral attitude towards the exchange rate and let it find its own level, or a positive attitude of intervention to stabilise at a certain figure. What he cannot do is change his attitude over the weekend. That produces in industry a weakening of confidence.

Of course, the weakening pound again puts in jeopardy the possibility of economic recovery. Since last Friday metal prices have gone up by 6 per cent. When the great tide of economic recovery comes which the Government hope will float us off the rocks, the economy will be too weak to take advantage of that tide because the Chancellor has not gone sooner for restraining public expenditure.

I come now to a relatively small part of public expenditure, that is, the size of the bureaucracy, for which I had some responsibility in the previous Conservative Government. Since 1974 the size of the Civil Service—industrials and non-industrials—has gone up by about 54,000. I am convinced that savings can be achieved. The savings envisaged by the Government, so far as one can determine them, are about 20,000 or 30,000 poeple.

I know only too well how difficult it is to restrain the size of the Civil Service. We did rather better in our four years of Government—we put on the handbrake. The main reason why the number of civil servants goes up lies in this House. Hardly a day passes without an hon. Member from either side advocating courses of action or solutions to local or national problems which, as an inevitable consequence leads to an increase in the size of the Civil Service. To some extent the remedy lies in our own hands.

I believe that the Government should be more forward looking in examining certain areas. For example, a target area is education. Why is it that, in this decade from 1971 to 1981, of the 400,000 extra people in the education service only 100,000 will be teachers? Why do we need this enormous administrative tail? Local government is another area where over-staffing must be looked at.

I remain convinced that the only effective way of controlling the size of the Civil Service is by reducing the rôle of the Government. If we eliminate the tasks which Government and this House impose on the Civil Service, we shall be able to reduce its size.

Mr. Jay

Does the hon. Gentleman agree that we could save about 5,000 jobs by abolishing VAT and going back to purchase tax?

Mr. Baker

I am sure that we all have our own particular suggestions. One suggestion which we put forward when we were in Government to reduce the numbers in the Revenue was the adoption of the tax credit scheme. That would have saved 20,000 to 25,000 civil servants. If the right hon. Gentleman is talking only about tax, I suggest that Treasury Ministers should ask themselves why we have as many people in our Revenue as America, which has three times the number of taxpayers. We should have moved to the selective tax system which the Americans had long ago. But the right hon. Gentleman diverts me.

I believe that the only way to control numbers and the cash which central Government spend is to change the Cabinet system to some extent. The Civil Service Department is not strong enough to control the growth in numbers of the Civil Service. We should take public expenditure control out of the Treasury and put it with the Civil Service Department and form a Bureau of the Budget, which is what most other countries have, with a Minister who could be called the Minister of Programmes. He would sit in the Cabinet alongside the Chancellor and be in control of public expenditure.

Indeed, until we bring about such a system, it will be difficult to restrain the propensity of the big spending Departments to go on spending. That kind of change should and must come about. I hope that the Chairman of the Public Expenditure Committee will consider that suggestion. Unless we impose a more effective system of control, the debts being built up will grow even higher. As the debts grow, the resistance of the public to bearing the burden of those debts will become intolerable.

6.13 p.m.

Mr. Ian Mikardo (Bethnal Green and Bow)

I am grateful for the opportunity of following the hon. Member for St. Marylebone (Mr. Baker), who has the ineffable and incomparable honour of representing me in this House. But, though I agree with some of the remarks that he made, he has not yet managed to induce me to vote for him at the next General Election. Nevertheless, I hope that he will go on trying, because I am sure that the effort can only improve him.

I agree to a large extent about the need to change the way that major economic decisions are taken. In that the hon. Gentleman echoed what was said most effectively by the right hon. Member for Sidcup (Mr. Heath). I particularly enjoyed the right hon. Gentleman's speech, and I expect that other Members enjoyed it, too. It was a vivid demonstration of the stimulating, almost rejuvenating, effect of ceasing to be the leader of a party. That is of no direct interest to me, but I hope that the leaders of other parties will take notice of the new lease of life which the right hon. Gentleman has acquired since he left office.

The right hon. Gentleman and the hon. Member for St. Marylebone were right in saying—because de facto that is what they were saying—that economic planning will not be got right until it is taken away from the Treasury. If I may say so without immodesty, some of us on this shelf have been saying that for the last 20 years. I remember Nye Bevan graphically saying that the moves of the Treasury are geared to the concept of a Budget for a year—from spring sowing through harvesting and back to spring sowing again—for a society based on the 12-month agricultural cycle which later did a bit of manufacturing either freehand or with simple hand tools and where the manufacturing cycle was very short.

The Treasury is incompetent to understand the intricacies of a modern industrial society, partly because it looks at figures on pieces of paper—not at men, machines, steel, timber and chemicals—and partly because it is not geared to dealing with an industrial situation in which the manufacturing cycle from drawing board to sale can sometimes be 12 or 15 years. We must do something along the lines suggested by the right hon. Member for Sidcup and the hon. Member for St. Marylebone. I strongly commend what they said on that subject.

I want to make four points of my own. Accepting the injunction which you laid upon us yesterday, Mr. Speaker, I shall make each one very shortly.

First, I should like to point out how artificial and unrealistic this debate is. If anyone wants to know what I mean by that, he has only to look at the Order Paper and read the terms of the Government's motion and the Opposition's amendment. Neither is couched in terms which have any relevance to the arguments which spokesmen for the Government and the Opposition respectively have put forward.

The Opposition's amendment is the standard behind which an absolute phoney attack is being mounted on the Government's policies outlined in the White Paper. The Opposition must go through the routine of opposing, if only because their Pavlov dog reaction to any attack on the working class is to demand a bit more of the same. They must oppose to justify their existence.

Of course, the Opposition are glad to have the Bow Group putting a bit of flesh on the skeleton of this phoney opposition. My right hon. Friend the Chief Secretary said that he did not want to be rude to the Bow Group; neither do I. However, my constituents in Bow feel very sore at having the name of their historic area sullied by an association with the midsummer night economic orgies of what chooses to call itself the Bow Group.

This opposition is not real. The Opposition Front Bench know, though demanding more and earlier cuts, that the policy outlined in the White Paper is about as far as the Opposition would dare to go if they were in power. Broadly speaking, the Opposition know that what the Government are doing and propose to do is more or less what they themselves would do if they were in office. They are quite happy to have a Labour Government doing their job for them, especially because a Labour Government can get trade union support for the policy which is being adopted much more readily than they themselves could ever hope to get if it were they who were carrying out the policy.

Of course, the Opposition's allies in the CBI and in the City are happy as well, notwithstanding their routine expressions of opposition. If any hon. Member wants evidence of that, I suggest that he studies the state of the stock market in the two hours after the White Paper was published. Share prices went up a lot, and very quickly. That means only one thing. They do not look upon the White Paper as being a disaster for them, whatever adverse effect it may have had on other people.

I do not want to be unfair to either side of the House. Equally, the Government motion has no relation to the arguments which have been put forward from the Treasury Bench both by my right hon. Friend the Chancellor of the Exchequer yesterday and by my right hon. Friend the Chief Secretary today. They argued in favour of the White Paper, but the Government have not put down a motion in favour of the White Paper. This is the first occasion in the decades that I have been in this House on which any Government have published a White Paper and had a debate on it in this Chamber without asking the House to approve the White Paper or at least to take note of it. That is a very strange and interesting state of affairs.

Why is it that the Government, whose spokesmen have devoted themselves entirely to justifying the White Paper and trying to sell the White Paper to the House, have not done so for the purpose at the end of the day of getting approval or at least acceptance or note being taken of the White Paper? Instead of a motion to approve or to take note, or a motion which includes something of the content of the White Paper, why have they put down a somewhat convoluted motion which has no relevance to the White Paper and does not even mention it? The answer is simply that they have designed the motion in order to attract the votes of even those who disapprove of the White Paper.

I must say that that is a stratagem much too thin and much too transparent to deceive me, for one, and I suspect that I shall not be the only one. Although the House is not being asked to approve the White Paper, I have no doubt that, if the Government's motion is carried, the Chancellor of the Exchequer will go round saying that the House accepted the White Paper. For that reason, the Government expect a lot if they imagine that those who disagree with the White Paper will go into the Division Lobby with them. To my mind, it would be a wholly salutary lesson if what happens between now and 10.20 p.m. induces the Government to take back the White Paper for another think and to produce a second and improved issue of it.

The second of my four points refers to the claim made in the White Paper, which was made by the Chancellor of the Exchequer and by the Chief Secretary, that the Government's strategy is the only alternative to raising the rates of taxation and not merely tax amounts. Between now and the Budget, I hope that the Chancellor of the Exchequer will have a much closer look, if his conventional mandarins at the Treasury will allow him to, not merely at rates but at the base of taxation and, above all, at the thousands of millions of pounds which go in reliefs and rebates mostly to the better-off sector of the community. There are thousands of millions of pounds to be found there.

I quote just a small example, but it is a highly graphic one. A certain gentleman named Sir John Davis got himself mixed up in a company battle recently. During the course of the court hearing it transpired that he had several previous wives to whom he paid alimony and that his payments amounted to £14,000 a year. However, he told the court that it cost him only £250 a year because he got £13,750 in tax rebates on it.

Why is my right hon. Friend the Chief Secretary shedding all these tears on poor chaps with only average pay——

Mr. Joel Baraett

They have average wives.

Mr. Mikardo

They have average wives and the average number of wives. I have had only one wife per 44 years of marriage. Apparently it pays to change them. I should be better off if I made a change, in view of the tax reliefs that I should get.

The Chancellor of the Exchequer should look at the system of relief on mortgage interest, not because it is wrong in principle, but because what is wrong with it is that the richer the man and the dearer the house that he buys the more tax relief he gets. What is progressive about that? It is one of the most regressive aspects of the whole tax system.

Then there are tax hand-outs to companies. There are reliefs on loan interest which go predominantly, though not entirely, to the better-off people in the community. Why do not we have a real wealth tax and not a phoney one—one which really bites on wealth?

When will the Chancellor of the Exchequer really look at evasion in tax havens? I am not now talking about the Cayman Islands, the Bahamas, and the rest. I am talking about the Isle of Man and Jersey. A few weeks ago, I saw a newspaper advertisement by a business school education company which was running a day seminar at £150 a head. The subject was, How to use Jersey to reduce your tax liability. I reckon that the Chief Secretary ought to have paid £150 and gone to listen. He could have made a tremendous profit for British taxpayers out of what he learned there.

So I come to my third point. Like some other hon. Members, I very much mistrust the claimed authority for all the figures in the White Paper. I agree with those hon. Members who have said that the exercise of trying to look ahead five years, even if it were done by a company of economic archangels, is bound to be a bit fanciful, and so far we have not had a Government consisting of a company of economic archangels.

As I wade through the White Paper, I find its forecasting about as scientific as a Roman soothsayer poking through the entrails of a strangled cockerel. There is not much more in it than that.

Mr. Roderick MacFarquhar (Belper)

I have been following my hon. Friend's argument with care and I agree with much of it. But is there not a contradiction? Earlier, he suggested that it was vital to have someone in the Cabinet thinking more than one harvest year ahead, whereas he is now saying that he does not trust that way of looking at it.

Mr. Mikardo

No. It is precisely because it is impossible to forecast ahead with precision that it is essential to do some thinking ahead. But the thinking has to be done in a flexible way, with the thinker prepared to change his conclusions. It has to be a permanent operation, and the person doing the thinking has to be prepared to change his conclusions as he goes along. Above all, during that operation he must not claim the sort of precision and the level of infallibility which these people in the Treasury always claim for themselves.

The Paymaster-General (Mr. Edmund Dell)

My hon. Friend is speaking under an illusion. The Treasury claims neither precision nor infallibility for these forecasts.

Mr. Mikardo

I am delighted to hear it. But no one who read the White Paper would dream that that was so. When the second issue is produced, I hope that what my right hon. Friend said will be written in as a foreword, because it will improve the second edition even further.

Not only the poor, long-suffering, much maligned Tribune Group has criticised the assumptions in the White Paper. In a Sunday newspaper recently I read an abridgement of a paper presented to the Expenditure Committee which made absolute mincemeat of the assumptions and calculations in the White Paper. My hon. Friend the Member for Luton, West (Mr. Sedgemore) went through the calculations yesterday and showed us how defective they were. I mistrust all this.

The right hon. Member for Sidcup referred to the occasion when three Ministers left a Tory Government over a miscalculation of £50 million. In 1951, three Ministers left a Labour Government because the then Chancellor of the Exchequer said that it was essential to balance the Budget in that year and that he could not do that without the £13 million additional revenue to be gained from imposing charges for the National Health Service. He introduced the charges, three Ministers resigned and the Budget surplus at the end of the year was £220 million—nearly 20 times as much as the £13 million which the Chancellor said he needed. That involved calculating one year, not five years, ahead.

I question strongly the concept in the White Paper. It is more than a concept: it is an assumption, a presumption of almost total precision that all the money to be released by cuts in public expenditure is to be almost automatically generated into investment in private industry. Where does that idea come from?

Hon. Members should read yesterday's powerful speech by my hon. Friend the Member for Norwich, South (Mr. Garrett) which was one of the best made in the House from any side for a long time. The reader would then understand the extent of the emasculation of our economic planning strategy by watering down the National Enterprise Board, starving it of real capital and virtually killing the planning agreement system by ensuring that only those companies who come with a begging bowl are going to have planning agreements.

The extent of that emasculation of any form of economic planning, culminating in the NEB guidelines published last week, prevents any control over the movement of spare resources for investment into manufacturing. Consequently, investment will not go where it is most needed or be used in the way it is most needed because, as my hon. Friend the Member for Norwich, South said, the Government have given up any instruments there are to ensure correct investment. Investment will take place according to the state of the market and where it is most profitable.

As a result of that, there will be a direct transfer out of the pockets of the recipients of the public services, who are predominantly the poorer people, into the pockets of shareholders, who are usually the better-off minority in the community. That is not only the view of the Tribune Group. It was expressed powerfully in a leading article in The Guardian of 3rd March. It was also strongly expressed by a distinguished industrial journalist on the radio this morning when he said precisely what I have just been saying—that this policy leads to a direct transfer from social security recipients and other recipients of public service benefits to shareholders.

It is not only the Tribune Group which criticises the Chancellor of the Exchequer, but he reserves his most abusive and inelegant language for those members of his own party who dare to question his Jove-like omniscience and infallibility. Others have seen, as we have seen, that what is happening is contrary to all we have stood for in our party. What is happening is a regressive transfer instead of the progressive transfer to which we are all dedicated.

The Chancellor made much of his highly selective quotes from our election manifesto. I should like to make him a present of a slogan for the next manifesto which doubtless, on the strength of this White Paper, he would like instead of the one we had in our last manifesto. In the White Paper the Chancellor is calling—and he might like to put this in our manifesto—for a fundamental and irreversible shift of wealth and power to private shareholders and their families. That is not what I fought the last election on and it is not why I joined the Labour Party. It is not the way I vote in the House.

6.37 p.m.

Mr. J. Enoch Powell (Down, South)

With the speech of the hon. Member for Bethnal Green and Bow (Mr. Mikardo) the debate has resumed the normal tenor which it has had from the beginning; for its memorable characteristic has been the agony of the well-covered Government Benches below the Gangway. In its pathos that agony has been reminiscent of a wounded animal in the kind of combination of incomprehension and pain. So I want to use the relatively short time available to me in trying to alleviate, as those with natural compassion should, the suffering of fellow Members.

I shall take as a kind of keynote the intervention made by the hon. Member for Tottenham (Mr. Atkinson) yesterday during the Chancellor of the Exchequer's speech. The hon. Member drew attention to a parabola—one might call it "the Tottenham parabola"—pointing out, on the basis of the White Paper, that the proportion of the national income represented by public expenditure would describe a ballistic curve between the beginning and the end of the decade, to finish up at the end of the 'seventies somewhat lower than it was at the beginning. I want to examine the reasons for that partially real and partially spurious phenomenon to which he drew attention.

First, I must ask him and the House to concentrate for a moment upon a very simple and almost mechanical proposition—that the transfer of resources to the control of the State can occur only by one of three methods or a combination of them. There are only three methods whereby it can be effected. The first is by taxation, the second is by borrowing from the public—and we must nowadays say "from the public at home or abroad"—the third is by causing inflation.

By a harsh dispensation of Providence, none of these methods is satisfactory. Taxation is unsatisfactory, because not only does it involve wearisome and time-consuming procedures in this House, but it is also fearfully obvious and apt to rivet the attention of the taxpayer upon what is actually going on. So it is a method to which, though all Governments and all Chancellors are obliged to use it, they are tempted to resort as little as possible.

In contrast, the second method—to borrow—is delightful, as we experience in private as well as in public life. But, unfortunately, all good things come to an end. One of the joys of the speech of the Chancellor of the Exchequer yesterday afternoon was his naive and innocent delight in having discovered that if one goes on borrowing, one has to pay more and more interest on one's borrowings as time goes on. This is indisputably—I do not think there has been any disposition to dispute it in this debate—one of the great disadvantages and limiting constrictions upon method two.

That leaves only method three, which is to transfer resources by causing inflation, which is just as much a transfer of resources from the citizen as is taxation or borrowing. Indeed, reverting to a point made by the hon. Member for Bethnal Green and Bow, it is just as cruelly regressive as some forms of taxation. In fact, I am prepared to argue that inflation is the most cruelly regressive form of taxation that there is. It is certainly the most cruelly haphazard.

Still, for a time it is pleasant, because not only does it cut out all this business of having to have Ways and Means Resolutions, debates and all the rest, needing no legislation and barely any parliamentary proceedings, but there is the added advantage that when it starts to hurt the citizens, the victims themselves can be blamed for having been the cause of their own miseries. We have lived through 20 or 30 years when Government after Government have persuaded the people that all the troubles they have caused are really the fault of the citizens. That is a refinement which adds a lustre to this third device.

Alas, this third mechanism, too, cannot be continued beyond a certain point, because there have to be constant doses of the same medicine and, like a drug, the doses always have to be increased. It is not as if it were a self-perpetuating method. It is a method which has to be pushed up and up, till it reaches a point beyond which society and the economy cannot cope with the speed of adjustment which becomes necessary.

Having established that simple mechanism, the three alternatives, let me come back to the Tottenham parabola. In the first three or four years of this decade, the increase in public expenditure, certainly the deliberate increase in 1972–73 and 1973–74, was financed by inflation. This must be taken to have been intentional, for it was advertised as a reflationary measure and the objects which were claimed for it would have been defeated had the additional expenditure been financed by withdrawing resources from other sectors of the economy. So the increase in the money supply which was built up by the right hon. Member who has now left the Chamber—and has also left office—must be hailed as the one indubitable success of the late Administration. It was the one thing which that Administration set out to do in which it certainly succeeded—to create a major inflation—by successive large deficits, due to increased expenditure and diminished taxation, to create a net borrowing requirement which would be met by creating additional money to fill the gap.

In due course, this additional money came home to roost in final prices in 1974 and 1975. Only when its end effect was fully exhausted did inflation begin to fall, from the middle of last year onwards, with all the consequences. So in the first half, as it were, of this ballistic curve the growth of expenditure was primarily financed by inflation.

Then something happened which I do not think the wisest or most farsighted, not even the Treasury itself, had anticipated. The present Administration discovered in 1974 that it could borrow, and borrow from the public at home and abroad, upon an unprecedented scale. Those of us who threatened them "if you go on with a net borrowing requirement of this size, you will find yourselves obliged to meet it through inflation by creating the money" were proved, for the time being, wrong. The Administration did finance it by borrowing. It financed billions of pounds of expenditure in its first two years of office, and the consequences of that, the coral reef laid down by that borrowing, are shown in the appropriate part of this White Paper.

Now, however, the defects and limitations of these two methods of financing Government expenditure have become too severe to be ignored. The Chancellor of the Exchequer hesitates now, and we all hesitate, to go on piling up debt, even if we can still borrow. At the same time, the Chancellor must be aware that should he fail to borrow, he will have to put into circulation a vast quantity of additional money which will start the inflationary cycle once again, with all its miseries both in going and in coming. So he takes a look at No. 1, at taxation.

There was a marvellous passage in the speech of the right hon. Gentleman the Chief Secretary this afternoon. He did not exactly say "We have killed the golden goose", but he said "The golden goose will not lay any more taxation". His view, the Treasury view, the official view, is that the virtual limit of taxation has been reached. That must be a matter of political judgment, of course, more than financial judgment. It is a matter of judgment on which hon. Members might disagree not only on one side of the Chamber, but across the Chamber. But on this I think it would be difficult to disagree—that the remaining elasticity of taxation is nowhere near adequate to fill the vast gulf of the net borrowing requirement of the year which is just drawing to a close.

The Chancellor of the Exchequer, therefore, comes forward with the spending projections, with the Government's plan for expenditure, for the remainder of the decade, and the hon. Member for Tottenham is shocked, shattered, to discover that, in filling in the remaining part of the curve, the Chancellor of the Exchequer has drawn it downwards with a neat contrapuntal balance, as it were, between the two halves in the first and the second half of the decade.

This is where I really believe I can help the hon. Member and many of his colleagues. Ever since the Plowden Report in 1961 and its adoption by your predecessor, Mr. Speaker, I have protested—and I was interested to note that I had the support in this of the right hon. Member for Battersea, North (Mr. Jay)—against the practice of the Government, the Treasury, coming forward annually with four- and five-year projections of public expenditure. Of course there have to be programmes of expenditure, forecasts of expenditure, not just for five years, but for 15 years and more, to make sense of the administration of various individual departments such as the hospital service; but that is an entirely different matter from drawing up these now obligatory annual five-year projections of overall Government expenditure.

I am on record as warning the then Chancellor of the Exchequer that in my opinion the effect would be to relax Treasury control, to relax control over public expenditure, because it would imply so specific a commitment to the different programmes and to the totals that it would be difficult thereafter to escape. I turn out not to have been mistaken in that—for I think it has played its part in the loosening of control in the last 15 years—but not to have foreseen the peculiar and in some ways equally damaging effect which these projections are having today.

Today, and in the recent past, these projections are enabling Governments and Chancellors of the Exchequer to spoof the House of Commons, to spoof the public, and maybe to spoof themselves, precisely by doing what worried the hon. Member for Tottenham—making a projection in which, after the immediately following year, everything is tailored to produce the presentational result desired at that moment of time.

The hon. Member for Tottenham was incautious enough, or tactless enough, to take it seriously. Let us be clear that in these public expenditure White Papers all the years after the immediately following year are not meant seriously. They are not only not worth the paper they are printed on. They are a net disadvantage; for they are a cause of miscalculation, misunderstanding, deception and loose thinking about the financing and course of public expenditure.

One only has to submit oneself to the painful experiment of taking the successive projections and seeing what happens to figures which have been solemnly discussed in Press and Parliament. There is no resemblance from one year to the next. There was not under the previous Administration and there will not be under this Administration.

I am sorry that the hon. Lady the Member for Eton and Slough (Miss Lestor) has not been here this afternoon, for in a sense she is the Joan of Arc of this debate. She, even more than the hon. Member for Tottenham, took seriously what was not meant seriously at all. The House has already been reminded this afternoon that I have some little experience of resigning, and resigning over estimates of prospective public expenditure——

Mr. Sydney Bidwell (Ealing, Southall)

Being sacked.

Mr. Powell

No, I do not happen to have experience of being sacked.

Mr. Bidwell

As an Opposition Front Bencher.

Mr. Powell

Oh, yes, that. But when Lord Thorneycroft and his two juniors could not stomach the sum—it was not £50 million but nearer £150 million—over which they could not arrive at agreement with their colleagues, they were concerned not with projections of expenditure three years ahead but with the expenditure proposed for the immediately coming 12 months. That is what it was about.

The hon. Member for Cirencester and Tewkesbury (Mr. Ridley), in a brilliant speech last night—hon. Members who did not hear it have only themselves to blame—pointed out that, even for this year, 1976–77, which last year was only one year ahead, there is a difference in trend between −1 and +2.3 per cent. in the actual direction, let alone the quantity, of public expenditure.

If we are wise, therefore, we shall concentrate upon what is to happen in the immediately coming financial year. Nor have we yet got the full data for considering that. We have, of course, in a rudimentary form got the expenditure side, but we shall not until Budget day have that balance which produces the crucial figure of the net borrowing requirement. Therefore, to some extent this debate is taking place not only in the mists of futurity but in ignorance as to what is to be presented to us next month. Neverthless, we are able to some extent to concentrate our minds upon the decisions which ought to underlie the spending and the taxing of the next 12 months.

Mr. Atkinson

I did not interrrupt the right hon. Gentleman before, when he was developing his thesis about the parabola, but he is spreading a dangerous delusion if he is suggesting that we should not take seriously the figures before us. While politicians notoriously fail to carry out promises, they repeatedly, judged by history, carry out their threats to make cuts.

Mr. Powell

What I am suggesting to the hon. Member—and I am sustained in doing so by all experience to date—is that he should resolutely refrain from taking seriously anything after the figures for 1976–77. But I am also suggesting to the House that it should take very seriously indeed the figures for 1976–77, although we have not yet got the means of translating them into terms of the projected net borrowing requirement for that financial year.

In coming forward with an actual increase in expenditure over the current financial year, what is it that the right hon. Gentleman the Chancellor of the Exchequer is intending to do? Will he once more say "I reckon I can borrow it again"? Will he put another £9,000 million—I can only approximate—of debt upon the existing pyramid or pile of debt? Or will he say "I may not be able to borrow it—I have been so lucky so far that I can hardly expect to go on like that—but, should I run £3 billion or £4 billion short, if I meet that by inflation, the conseqeunces will not come home to roost until a year or two or three years later, by when everything else will be changed and confused, and maybe we shall have got through another election"? Or will he look at taxation? Will he look again at expenditure?

It is to these—the two genuine options, the two honest options—that the House is obliged to address itself—increased taxation or the drastic reduction of the figure for 1976–77. Perhaps like the right hon. Member for Sidcup (Mr. Heath), I enjoy the advantage of not being part of a collective official Opposition entity. However, I have gone on record with a view of my own on the question which I posed to the right hon. and learned Member for Surrey, East (Sir G. Howe) and to which he declined to reply. I say that it is an unacceptable danger—not to a class but to the nation—for us not to aim at eliminating the net borrowing deficit over the next two years, and without being able to quantify that precisely—of course I cannot—I say that it means a reduction of about £4 billion on what is proposed in the coming financial year. I said that six or nine months ago, at a point of time when it would have been much easier to achieve that result. If I am asked how, that is a fair question and I shall answer it.

Mr. John Mendelson (Penistone)

What about employment? Will the right hon. Gentleman give way?

Mr. Powell

I heard the hon. Gentleman say "unemployment".

Mr. Mendelson

I said "employment". The right hon. Gentleman always wants to face questions squarely. He knows that that is a critical point in his argument. The OECD Report about Britain has just been published. If the Government act on his advice, what consequences would he be prepared to accept for a further considerable increase in the number of unemployed in this country over the next 18 months?

Mr. Powell

I will answer that question before I answer my own, and will do so in the sense of an important passage in the speech this afternoon of the right hon. Member for Leeds, North-East (Sir. K. Joseph). If this £4 billion is still spent by the State, it will be withdrawn from the public by a combination of any of three means. First, it may be withdrawn by inflation, which will devalue the pound in people's pockets and reduce their purchasing power—reduce their power to make claims upon the work of their fellow-citizens. That means employment. The second alternative is that it will be borrowed; that is to say, that it will compete with other opportunities for investment and the attempt to borrow it will drive up interest rates and thus make it more expensive and less likely to invest it productively. The third alternative is that it will be withdrawn from the purchasing power of the general public by taxation.

No, the unemployment from which we suffer is the consequence—it is the predicted consequence—of the fall in the rate of inflation. Until we come to the end of that phase, unemployment, unfortunately, is with us, because it is the consequence of what is already built into the system. As the right hon. Member for Leeds, North-East said, transfer of resources from one sector to the other is not in itself, other than frictionally, the cause of any effect upon employment.

I return to the question that I promised to answer, namely, where, broadly speaking, would I say that £4 billion in year one should come from in these figures? Some of it certainly could and should come from the subsidies to which the right hon. and learned Member for Surrey, East referred. However—and here I join with the right hon. Member for Battersea, North—I believe that the lion's share has to come from the deferment of public capital programmes, and I should put roads right at the top of my shopping list, because it is in that part of public expenditure that large totals are most readily malleable without interference with existing expectations and with growing and continuing services with which it would be criminal to interfere, if it can be avoided.

Therefore, we are making a compact with ourselves in this debate on behalf of the nation. Knowing what the two unacceptable possibilities are, how shall we balance the two that remain? How shall we balance increased taxation against reduction of projected expenditure? The answer to that question is not a party political one. It does not depend upon whether one is a Socialist or a Conservative or upon whether one wishes to see the scope of the State in the affairs of this nation expand or contract.

I do not believe that any Labour Member who wishes to expand the scope of the State in the affairs of the nation, would even mean, let alone say, that he wished that to be done by the accumulation of an intolerable load of debt or by the progressive depreciation of the currency and the unlawful taxation which is the reality of inflation. He would say "No, this has to be done honestly and openly." He would, therefore, come forward and say "This gap has to be closed by an increase of taxation; or the rate at which we transfer resources from one sector to the other has to be slowed down, perhaps interrupted; or else there must a combination of both."

That is the challenge that faces both sides of the House, irrespective of ideology and political intentions in the long run. It has come home to us as a House of Commons and we shall fail as a House of Commons if we do not meet the real challenge which is implicit in the White Paper where it refers to 1976–77.

7.7 p.m.

Mr. A. E. P. Duffy (Sheffield, Attercliffe)

All hon. Members who have spoken so far have raised questions about the scope and purpose of the debate. I do not doubt the need for a debate of this kind, just as I do not doubt the strategy of the Chancellor of the Exchequer, though I share some of the doubts that have been aired. Generally I support the Chancellor.

The first reason and, perhaps the most crucial—it cannot be put on record too often, because of the difficulty some people have in accepting this point—is that spending this year is up by £1.6 billion, was up last year by £4.2 billion and will be up next year by more than £500 million. If that had not been so, the recession would have been deeper.

The base from which public spending has been tackled by the Chancellor has risen. From the record of public spending and the Treasury's record, it is likely to rise even above intended levels. Secondly, even to maintain the original public spending programmes would mean adding a crushing new weight to the tax burden from which the nearly-poor could hardly have been excluded. Already the man trying to claw his way out of the poverty trap is being hit by taxation.

In recent years increased public expenditure has in many cases merely produced extra well-paid middle-class jobs, partly financed—as the White Paper shows—by workers with less than average earnings and they have not produced even incremental public benefits. Is this a course which the Government, in the midst of their counter-inflation strategy could possibly have maintained? Nevertheless, the Chancellor has only changed gear and only cut the rate of increase in public spending.

Even against that background it is important to register the fact that priorities have been maintained. During the present decade, from 1970–71 through to 1978–79, spending on housing will be up by 42 per cent. spending on education will be up by 19 per cent., spending on health and personal social services will be up by 29 per cent. and spending on social security will be up by 38 per cent., whereas the defence budget will be cut throughout the same period in real terms. The defence budget will be cut in the current year by more than 7 per cent., next year by 9½ per cent., the following year by 12 per cent., in 1978–79 by 15 per cent., and at the end of the decade, in the final year, by 17 per cent. Throughout that period public spending will still rise, but so will taxes needed to pay for it.

Even so, as more than one speaker in the debate has observed, the Chancellor will be keeping his fingers crossed about a number of assumptions, including the trade cycle and its behaviour, the terms of trade and export performance, and not least, the ability of the financial markets to carry his spending—as the right hon. Member for Down South (Mr. Powell) so compellingly reminded the House-once the present high ratio of savings dips and long-term interest rates turn.

Let us assume, however—and this is not an assumption that is made by all hon. Members—that the Chancellor gets his money and finds the money to pay the bills. Public spending must still rise. That is because, as so many speakers in the debate have already pointed out, the rising interest burden, which is up from £5 billion to £7½ billion for 1978–79, will force up the tax burden in spite of the slow-down in spending. Incidentally, the politics of under-developed countries illustrate how this kind of burden can get out of hand. Workers, including those earning less than the national average, will have to shoulder that burden. Nothing that the Chancellor does to the tax threshold in his April Budget can wholly remove it.

I was interested to hear last night my hon. Friend the Member for Luton, West (Mr. Sedgemore) defending a policy of even higher taxation. It reminded me of a debate that I heard in Scarborough last Saturday during which the president of the Yorkshire miners opposed the Government's present pay policy and, indeed, incomes policies in principle. He went on to state the very telling fact that his members, following the most commendable and deserving wage increases during the last two years, are nevertheless now finding that, including deductions, they are having to pay back 33 per cent. of their income in tax. Yet if these spending programmes had been persisted with, if the Chancellor had not undertaken these adjustments, the Yorkshire miners would, in this forecast period, have soon discovered that they were having to pay back not merely 33 per cent. but perhaps between 50 per cent. and 55 per cent., and on the authority of the Chancellor.

Mr. Kinnock

When my hon. Friend next meets the Yorkshire miners will he sound out their opinions on paying more for school meals for their children and more for their rents, having reduced social services for their old people and having less money available for local authority mortgages, and on many other consequences of the current cuts and of the projected cuts? Will he ask them whether they understand that nothing is for nothing and whether they would be willing to pay additional taxes if they had a tangible reward in the form of a rising social wage?

Mr. Duffy

I shall do that. I have ample opportunity for doing so. I take my hon. Friend's suggestion seriously. Despite the absence of a mechanism that formally connects expenditure and taxation, I assure my hon. Friend that nevertheless it is beginning to percolate through to the Yorkshire miners, as well as to workers elsewhere, that there is no such thing as a free lunch, that, as my hon. Friend observed, everything must be paid for or worked for, and that if we are to spend more, we must produce more. This is recognsed in the White Paper in the generous switch of resources to increasing investment in the private and public sectors that sell their output. This encouragement of industrial investment is crucial if the appalling erosion of our manufacturing base is to be stemmed and the tide of unemployment turned.

Perhaps I may dwell briefly on two of the assumptions of the Chancellor that I queried earlier, investment and exports, on which, I think more than any other assumption, the Chancellor is basing his hopes of a recovery that should be export-led. In theory, a commitment to reduce inflation, to hold taxes steady and to use the exchange rate to keep exports competitive can help to provide a favourable climate for investment. There is undoubtedly a need, though it is much less urgent, to stimulate investment through the home market and, therefore, consumer expenditure. That will doubtless be provided for in the Budget, though, I still hope, only modestly and with the utmost caution. The important need at this stage is to get consumption—that is, demand—investment and, it is hoped, growth into a new relationship, otherwise a realistic attack on unemployment cannot be mounted. That the White Paper clearly seeks to achieve. Whether it will manage it is a different matter, but that presumably is the strategy.

What of exports? An economic recovery that seeks to be based largely on a growth of expors will mean a substantial importation soon of raw materials—as the right hon. Member for Sidcup (Mr. Heath) reminded the House, drawing on his own perhaps all-to-painful experience of 1972–73. In addition, much of our recent borrowing must be repaid over the next few years. Reduced interest rates in the United Kingdom that we shall need to stimulate investment could presumably lead, however, to currency outflows. We are told that much of the North Sea oil is mortgaged against past capital inflows, and the capital account cannot be neglected. A major improvement in the terms of trade cannot be depended upon, either.

Already it seems very likely that the Chancellor has decided to allow the pound to float down between 1976 and 1979 while counter-inflationary policy is reducing the gap between the United Kingdom inflation rate and that of other countries. The alternative, in order to correct the balance of payments deficit, would be a "stop" policy, and I take it that no hon. Member would now advocate a "stop" policy. But—and this is a big "but"—such a float down, like the presumed state of the capital account for the rest of the decade must, in harness, militate against an improvement in the terms of trade.

That is not to say that risks are not justified to achieve a European-type growth. We must, of course, escape from the sraitjacket of past policy and trends. We have no choice if we are to change investment and exports as dramatically as we must if the Chancellor's targets are to be achieved, but the Chancellor's optimism cannot be discounted too much.

Finally, public expenditure depends on a large national cake—not more out of a smaller cake. If these adjustments in public expenditure are seen in that light to give the opportunity for growth, they can be justified.

When following the policies which the Chancellor is now shaping I hope that we shall seek opportunities for making public expenditure more selective. I cannot recall the acute problems of a deprived area such as my own constituency of Attercliffe and compare them with other parts of Sheffield without being moved to urge such a policy. The needs of the East End of Sheffield are completely different and more substantial than those of West Sheffield.

Therefore, I am tempted to argue strongly against public expenditure based on universality and non-selectivity. It can be shown that public expenditure has more social worth with a given volume than even with a higher volume. If we submit the controllable part of public expenditure to most rigorous examination, we can achieve a more effective deployment of scarce resources and avoid achieving redistribution in reverse which I suggest, with the greatest respect to my colleagues, we are in danger of doing.

I was reminded of this when my hon. Friend the Member for Bethnal Green and Bow (Mr. Mikardo) said that the White Paper was contrary to what the Labour Party has stood for. I remind him that if we persist with the present policies of universality and non-selectivity, we are in danger of doing things that the Labour Party does not stand for and has never stood for. Moreover, what is worse, we are in danger of dragging public expenditure into disrepute.

The incomes policy is a vital concomitant of counter-inflation policy. To those who chaff against its restraints we argue the benefits of the social wage. We know that it is of vital importance. Many people equate public expenditure with a social wage, but this equation is not so. The social wage is measured by the value of output produced by public expenditure. However, extra public spending increases the social wage only if there is a genuine improvement in the service provided. Waste and inefficiencies reduce the social wage.

How often do we dwell on that and ask ourselves whether the direction that this spending is now taking might not have overrun its time and therefore its legitimate course? If money could not be switched now to another direction, does that spending always keep pace with tastes as well as changing needs, or are we sure that our idea of priorities wholly corresponds with those to which I referred a few moments ago?

Public expenditure is producing jobs for the middle classes and rail travel for the rich. It confers more benefits per capita on the west side of Sheffield than it does on its East End. This is not in the interests of Attercliffe, its working people, or Attercliffe's industry and its workers. The local industry, like everywhere else, must be given every chance to seize market opportunities when the recovery comes. It cannot possibly have that chance if the overwhelming demand of the public services soaks up both labour and capital.

I plead for a more balanced approach now in the hope that we shall all rejoice in the Chancellor's achievements as he now goes for growth and a broader manufacturing base which will eventually enable us to devote more resources to the public sector.

7.25 p.m.

Mr. Tony Newton (Braintree)

I shall not attempt to follow the comments of the hon. Member for Sheffield, Attercliffe (Mr. Duffy) in any detail although I think he knows that all Opposition Members respect him for the view that he expresses in these debates. I have much sympathy for him, especially for the observations that he made towards the end of this speech. I point out to him that it is because many Opposition Members doubt the responsiveness of a large public sector to the wants and wishes of the public and to the changes in society and the world at large that we have an underlying suspicion of public expenditure. It is our desire to leave as much as we can in the hands of people in the private sector because we believe that they are more responsive to the kind of changes which the hon. Gentleman has in mind. I shall not attempt to debate that matter at length or to go over some of the purely statistical arguments which have been put forward.

It is clear that we can judge the White Paper properly only when we have the Budget figures. It may be that we shall also need the figures for the next incomes policy. Certainly we shall need to know the Budget before we can make a full and final judgment on the White Paper. All that can be said at this stage is that it will need to be quite a Budget before the policies that have been put forward in the last few days and during this debate will find ready acceptance by the Opposition.

Many hon. Members wish to speak in the debate, and therefore I shall confine my remarks to three points. The first concerns the stance—not the details or the arguments about percentages—in which the White Paper and the speeches which have been made by the Chancellor and the Minister of State yesterday, and the Chief Secretary today, leaves the Government. This point has perhaps been more fully appreciated by Labour Members below the Gangway than by anyone else. It is because they appreciated it so clearly that we sensed their anger and dismay.

The introduction to the White Paper and all the ministerial speeches in the debate have explicitly accepted the point of view which has been put forward for two or more years by the Opposition. The analysis is the same as that of my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) and, before him, of Lord Carr, whose successor we shall be electing in Carshalton tomorrow. The points being made about the worries of the disincentive effects of taxation, the squeezing of manufacturing industry by the growth in the take of the public sector, the consequences of this enormous burden of public expenditure and the increase which has taken place in it, have been made not from the Labour Dispatch Box—until the last two weeks—but from the Conservative Dispatch Box week in and week out for two years. That is what is worrying Labour Members below the Gangway

However, what should be worrying everyone else and what certainly worries me is that, having accepted our analysis, there is absolutely no follow-through into the policies which should flow from that analysis. Instead, as the right hon. Member for Down, South (Mr. Powell) has observed, despite the worries about taxation and disincentives which are referred to in the White Paper, and despite the worries about the total take of the public sector and the squeeze on private industry and the need to make room for private investment, the Government are proposing another large increase in public expenditure in the present year. There is nothing to make room for private industry, or for reductions in taxation. The analysis has changed, but in broad terms the policy remains the same as before. That leaves us with a Government who are effectively operating in a vacuum, and who are unwilling to accept the consequences of the conclusions to which they have been driven in terms of analysis and to reflect them in terms of the policies which they now put forward.

It inescapably follows from what Ministers have said and what the White Paper states that present plans for nationalisation should be deferred. That point was made by my right hon. Friend the Member for Sidcup (Mr. Heath). These industries should be left in the private sector and financed from the private sector and not brought into the public sector to add to its problems. From the figures showing how little revenue can be raised by seizing more money from the allegedly wealthy, and from what hon. Members are saying concerning their constituents' worries about the level of income tax, it follows inevitably that if we want to get the economy moving we should make room for substantial reductions in direct taxation and for substantial increases in the profitability of industry.

But none of them is there. That is why, although we understand, and, in many ways, sympathise with the objections of Labour Members below the Gangway, we can see nothing in the White Paper or in the policies which Ministers are advancing which matches up to the needs which they themselves seem to have recognised to exist.

My hon. Friends have talked about a fraud. I do not know whether the White Paper is a fraud, and I do not know what public expenditure will be in two years' time. It is clear, however, that there will be no reduction in public expenditure in the coming year, and beyond that there is certain to be, even on the basis of proposed policies and the alleged cuts for the years ahead, a significant further increase in taxation. That is what the country will have to face up to.

I asked recently what would be the consequences for taxation if the gross domestic product did not achieve what the White Paper postulates in one of three cases. The Chief Secretary told me that projections assuming GDP growth rates other than those in Table 1.1 cannot be provided without a disproportionate expenditure of time and resources."—[Official Report, 8th March 1976; Vol. 907, c. 91–2.] That may be true, but not one person who has spoken in this debate and no newspaper articles published since the White Paper believe that there is the slightest possibility of achieving the growth rates set out in Table 1.1. There are very few who believe that the lower case can be reached, let alone the middle or higher cases. Everything the Government are saying is based on the assumption that it will be reached, and they are saying that society cannot stand the additional increases in taxation which would be needed if they were not making the cuts they are proposing. What happens if we do not get the growth and if they are forced to make further cuts in public expenditure, to take extra borrowing or to impose additional taxation? Perhaps, the Chief Secretary did not want to answer the Question because the reply would have been embarrassing.

If the Chief Secretary seriously means that the Treasury has done no contingency planning based on the possibility that we shall not achieve the most wildly optimistic growth forecasts ever published in this country, that is a scandal and a disgrace, and when the chickens come home to roost the Government will be entitled to be criticised with all the force and vigour at our disposal.

In another Question I asked how much money was included in the figures in the White Paper for the various bits of what I would call additional Socialism. The Chief Secretary kindly answered the Question yesterday. I stress that the figures are for the whole four-year period. They are, for the National Enterprise Board £900 million; for the British National Oil Corporation £450 million; for British Leyland £200 million; for Chrysler £73 million; for the Community Land scheme £312 million; and for the municipalisation of private housing—that is not rent subsidies—£608 million.

That adds up to about £2,500 million, but that figure makes no provision for the British National Oil Corporation in the years from 1977–78 onwards in view of the difficulty of estimating what will be required. No provision is made in that figure for British aerospace and British shipbuilders because it is too early to say what will be required. All that expenditure will be covered by a contingency reserve. We know that that reserve rises to the estimate in the White Paper of £1,400 million. I guess that we can add all of that to the £2,500 million and that we are therefore approaching £4,000 million or more, simply to pay for these deliberate extensions of the public sector over the next few years.

I do not want to argue with the Government about whether, if we can make further savings, how much they should be, and whether they should go primarily towards easing taxation, reducing the borrowing requirement or into other areas of expenditure. What I do know—and I think I shall have some sympathy on this from the hon. Member for Wolverhampton, North-East (Mrs. Short), who might wish to refer to nursery education—is that if I am presented with a document which asks me as a Member of Parliament and taxpayer to spend, over four years, between £2,000 and £5,000 million on the municipalisation of housing, on the BNOC, on propping up one car firm at the expense of other car workers, including the Ford workers who live in my constituency, and on all the other items on that list, I will not be told that to do that it is necessary to cut nursery education, that there should not be proper hospital programme, or that all the other things that people care about cannot be done. That is not conceivably a defensible set of priorities. I guess that I would get some sympathy from some rather unexpected quarters on the Labour Benches in that view.

The fact is that the industrial priorities of expanding the State sector have been put ahead of what I take to be the real social priorities, and that will not help but will hinder growth. I am not prepared to vote for a White Paper which rests on that basis.

Perhaps I may sum up the essential features of what we are being asked to approve. In the next few years there will be a decline in the standards of public services, accompanied by a steady rise in the rates of taxation. Almost certainly there will be a further decline in the standard of living of everyone in the country down to and below average earnings. Ultimately, the whole strategy upon which the Government were elected will have failed, as is clearly appreciated below the Gangway, and all we shall have to put in its place is a Blue Book which is a monument to wishful thinking.

7.38 p.m.

Mr. Michael English (Nottingham, West)

I should like to think that the Blue Book now before us, the Public Expenditure White Paper, will be the last one we shall ever see in this form. I am not objecting to the contents, I am advocating something which the General Sub-Committee of the Select Committee on Expenditure advocated in its First Report of the Session—a linkage of expenditure with taxation. A significant feature of the debate is that that point was mentioned in various ways by the right hon. Members for Sidcup (Mr. Heath) and Down, South (Mr. Powell) and by my hon. Friend the Member for Bethnal Green and Bow (Mr. Mikardo). I hope that Treasury Ministers will take into their ken the strength of support for that point.

The debate is really part of a continuing dialogue between Parliament and successive Governments, the Governments' protagonists in the debate being the Treasury, and the parliamentary protagonists sometimes being this House itself, as in this debate annually, and sometimes the Expenditure Committee and its General Sub-Committee.

Relations between the Treasury and the Sub-Committee are good. We do not have the little local difficulties that others seem to find when we invite Ministers to talk to us. We enjoy good co-operation. However, I must comment upon the Financial Secretary's remarks last night about the Expenditure Committee. He said: Members of the Expenditure Committee have only themselves to blame when they complain that the expenditure patterns in the White Paper do not correspond with their own priorities."—[Official Report, 9th March 1976; Vol. 907, c. 375.] I am amazed to see my hon. Friend, on behalf of the Government, kneeling at the shrine of the Expenditure Committee and praying that it should provide the pattern of expenditure cuts. I thought that the decision was made in 1660 that the House of Commons should cease to have Executive responsibilities and should stick to being a legislature. Even American congressional committees and committees of the European legislatures are not executive committees.

If my hon. Friend wishes to know, the Expenditure Committee pondered and decided that it was not its responsibility to determine the pattern of expenditure cuts. It is well understandable to me why that should be so. The Expenditure Committee is a body of nearly 50 people. It has several Sub-Committees, all of them related to specific Departments. All but one is a spending Department. The non-Treasury Departments are all involved in Government spending. The General Sub-Committee, the body relating to the Treasury and the Civil Service Department, is in a rather different category. In fact, it suggested what my hon. Friend was suggesting.

My hon. Friend the Financial Secretary mentioned that the Procedure Committee set up the Expenditure Committee, but it was an earlier Procedure Committee than he thought, one of which I was a member. The Expenditure Committee, as it now is, was a compromise between being a real committee that could be effective and spliting up its responsibiliites between a series of specialist committees relating to different Departments. I am not sure whether it was a satisfactory compromise in the end. It may be that the new Procedure Committee will have different ideas.

A committee which relates to foreign affairs or defence, although it may be a Sub-Committee of the so-called Expenditure Committee, does not concentrate on expenditure. Naturally its considerations are directed towards foreign affairs and defence. It is quite possible that it may wish to increase expenditure in those directions. That applies particularly to a committee that is concerned with education, for example. It is only the committee that is concerned with Treasury affairs that is the natural ally of the Treasury in wishing to reduce expenditure. In that sense the Sub-Committees of the Expenture Committee are separate committees with different viewpoints on this subject.

However, the General Sub-Committee has endeavoured to keep down and to control public expenditure in the sense of trying to get adequate value for the money that is spent. I come more and more to the conclusion, as has the Sub-Committee—this is mentioned in paragraph 14 of the Treasury's reply—printed as the Second Special Report of the Expenditure Committee—that Sir Alexander Cairncross is right in saying that Britain is unique. That is what he claims. He says that it is unique in considering expenditure separately from taxation. I do not know of a country that does not consider them together other than Britain.

I am glad that in its reply the Treasury has modestly said that it will give further study to the presentation and practices of other countries. I hope it will realise that there is a great deal of support in the House for such a study. That support comes from those who are widely distributed in political view. The General Sub-Committee also has a great division of political view. Views range from those of the hon. Member for Cirencester and Tewkesbury (Mr. Ridley), whom I am glad to see on the Opposition Front Bench, being restored to it temporarily for the purposes of this debate, to those of my hon. Friend the Member for Luton, West (Mr. Sedge-more), with almost every shade of opinion in between. If the Committee can produce a proposal with such a degree of unanimity, I think it is likely that we can secure some support among colleagues in various groups in the House.

The present White Paper has its very unsatisfactory portions. I do not want to rehash all the ones that have been listed so ably by the members of our Sub-Committee from both sides of the House. We have wasted an awful lot of time discussing the percentage of the gross domestic product that is taken up by the public sector. First, it is necessary to know the forecast of the gross domestic product and to be right. Secondly, it is necessary to know the forecast of public sector expenditure and to be right. In dealing with two shadowy imponderables, to quote St. Paul, we see through a glass, darkly. I shall never object to the Treasury getting its forecasts wrong. Anyone can make wrong forecasts. We are not technologically equipped anywhere in the world to make precise forecasts of events far ahead. It is therefore a waste of time to start discussing percentages of one forecast event in relation to another, when either of them has an enormous range of error which may supplement or contradict each other.

We discovered in the course of evidence that the figures in Case I, Case II and Case III in the resources table in the White Paper are not really forecasts at all. In fact, they are assumptions. They are normal desirable assumptions which we should all like to see come to fruition. Assumptions are made for example that the balance of trade is in equilibrium and that unemployment can be reduced to a level that can be regarded as full employment. The Government then work backwards, saying what is necessary to achieve what is assumed.

The Chief Secretary went so far as to say that there is a Treasury forecast which he is not prepared to publish. When talking about forecasts he said: very many of them could be self-fulfilling. He said that if they were published people might conform to them. I think that my right hon. Friend has a higher opinion of Governments in the modern world than myself. Surely most Governments in history would have wished to have their forecasts fulfilled by the public. My right hon. Friend used as the excuse of not publishing the forecasts that they would be fulfilled, something most Governments would desire.

My right hon. Friend said last week the words that I have quoted, yet this week the Treasury, in accordance with the Industry Act 1975, published not its forecast but the model which is used to construct it. There must be a catch in this somewhere.

I know of at least one catch. I should like my right hon. Friend the Paymaster-General to explain why it is that one week the Chief Secretary can say that forecasts will not be revealed when the following week the Treasury can announce that it will not only publish its model but, for a suitable fee, allow others to use it to create forecasts for the economy. I have no doubt that there is a subtle difference, but I should like an explanation.

It is of interest that the Chief Secretary said that the advisers to the General Sub-Committee are as likely to be right as those of the Treasury in making forecasts about the economy. That is the best compliment that Wynne Godley and Terry Ward have been paid in recent times.

I do not quite agree with the remark of the right hon. Member for Down, South that the forecast for the next five years is not worth the paper it is printed on. If he thinks about it, he will realise that that remark contains an economic fallacy. I think that the forecast is just about worth the paper it is printed on and the cost of the labour which went into printing it. But I gravely doubt the future of these forecasts of—as he called them—the Tottenham parabolas or ballistic curves of these White Papers. On last year's White Paper, we asked the Treasury whether this peculiarly-shaped curve, going up in the immediate view and coming back in the slightly later view, was not, in the light of events, becoming a standard which was a fallacy. The Treasury replied that it was fairly apparent that it was wearing a little thin.

Mr. Powell

Does not the hon. Gentleman recall that the Conservative Government had exactly the same parabolic projections in December 1973?

Mr. English

I am grateful to the right hon. Gentleman. It was perhaps the only weakness in the excellent speech of the right hon. Member for Sidcup that he did not admit that this rise in public expenditure commenced in the 1970–74 period as compared with the previous period. It has continued subsequently, but it started in 1970–74.

Sir Alec Cairncross argued that one should consider taxation with expenditure because it enforces a sense of reality upon the people considering either. It is pointless to consider taxation without discussing what one should spend the money on. It is equally pointless to consider the provision of services without realising that someone in the end has to pay for them, whether by education vouchers or the taxpayers' money. One cannot omit the latter if it happens to be the latter.

The right hon. Member for Leeds, North-East (Sir K. Joseph) mentioned various forms that subsidies take, but I am sorry that he did not mention that sometimes they take the form of tax allowances. They do not always do so. If we are all getting personal allowances, for example, that is not a subsidy. There is no difference unless tax allowances are differential in some way. But if some people are getting tax allowances on interest they pay on their mortgages, that is slightly different from the situation of people who rent.

We have the ludicrous situation, however, that practically every house in the country is subsidised. We are all paying taxes in order to subsidise everyone. The only person not subsidised is the man who pays cash for his house, and he is either ill-advised or simply crazy. But it becomes impossible in that context to discuss the effect of the White Paper on housing without having the alternative figures.

The General Sub-Committee was in a position to ask the Treasury about the figures of tax allowances, but the point is that everyone who reads the White Paper should be able to do these things. The thing should be brought together with a paper on taxation at existing levels. Then we could discuss sensibly in a Budget debate whether the expenditure and taxation levels should be changed. That is what the Budget should be about.

After 1861, at a later date in his life, Mr. Gladstone was famous for cutting down an oak tree. He cut it down at a great age. When one Tory Member suggested to Disraeli that he should criticise Gladstone for being too old at 82 to be Prime Minister, Disraeli's famous answer was, "Please do not say anything like that or he will cut down another oak tree while surrounded by the Press."

But Mr. Gladstone also created what has become an oak tree in the non-botanical sense. In 1861, he did not create Budgets but he put every tax proposal into a single Finance Act. That was a great improvement in its time. But that time was in the middle of the nineteenth century, when inflation did not happen. His father, Mr. John Gladstone, once laid down a forest and calculated what his grandchildren would receive from it when it was cut. He was exactly right, because in three generations there was no inflation. Mr. W. E. Gladstone was the man in between, the son of the father and the father or uncle of the grandchildren. That is a world we no longer live in. We need to change the system to suit the world we do live in. We need a system whereby we can all see taxation proposals, as Mr. Gladstone put them together, but, in addition, to see expenditure and taxation proposals together so that we can arrive at sensible and rational decisions which, it seems, most other countries do.

7.57 p.m.

Mr. Maurice Macmillan (Farnham)

The hon. Member for Nottingham, West (Mr. English) has made interesting proposals about the form of the White Paper. I shall not take up time in following his argument, because I wish to be brief. However, in whatever form it is printed and whatever the forecasts may say, I cannot share the somewhat touching faith that my hon. Friend the Member for St. Marylebone (Mr. Baker) and my right hon. Friend the Member for Sidcup (Mr. Heath) showed in the ability of some form of organisation or other, either this House or the Government, to be able to manage the future to the extent that many people, I fear, still believe possible.

I want to deal merely with one aspect of the policy implicit in the White Paper. I am sure that the whole House can agree with the Chancellor's basic objective that … Britain should move into the period of world recovery with the highest possible level of employment, with steadily increasing investment and exports, and with its manufacturing industry steadily absorbing a greater proportion of the nation's resources and manpower."—[Official Report, 9th March 1976; Vol. 907, c. 255.] That is an admirable objective, but it seems to me that he has set out for it in a remarkably rum way.

To do him justice, I must admit that the Chancellor did not even pretend to explain how what he was proposing for public expenditure was going to help manufacturing industry in any way. My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) called the right hon. Gentleman's speech one of aggressive complacency. I would call it one of progressive frivolity. It did not even begin to accept, as my hon. Friend the Member for Blaby (Mr. Lawson) pointed out, that the Chancellor himself must have at least partial responsibility for the situation in which the Government find themselves, in that his policy between February and October 1974 was totally the reverse of his present policy, and added to the country's problems. The Chancellor's speech was also frivolous because it made no attempt to deal with the rôle of devaluation in his strategy, despite the fact that the pound has just fallen steeply.

It was very ungracious of the Chancellor not to congratulate the Bank of England on the skill with which it appears to have been managing a floating pound to maintain its value for several months at relatively little cost to our reserves and, in so doing, to conceal the disastrous effect of Government policies while the Chancellor was arguing with his colleagues about public expenditure. The Chancellor should at least have shown some gratitude for the Bank's skill in getting to the new rate so quickly and with so little panic. There seems to have been an admirable technique of selling sterling on behalf of existing holders, including Nigeria, to change the composition of their holdings and then to buy back later at a lower rate in order to check the fall from going too far and, in the course of this, to discourage speculators by such sudden shifts in direction.

While it may have been ungracious of the Chancellor not to express his gratitude to the Bank of England, it was certainly disingenuous of him not to disclose how essential this devaluation has been to his strategy, or to explain that it was necessary not in order to create an export-led boom, but to adjust the relative rates of inflation in this country and in others over the past year or more.

Taking November 1974 as the starting date, OECD figures show that the exchange rate of the pound against the United States dollar was then 2.32 and was the same in terms of goods that could be bought. Over the next year, the actual exchange rate remained consistently rather higher than that which would have been required to equate the purchasing power of the dollar and the pound measured in terms of goods. The biggest gap came in January, February and March of 1975, but it slowly closed until, in November, the exchange rate required to equate the pound and the dollar in terms of goods was 1.99 and the actual exchange rate was 2.02. From these figures, it appears that the exchange rate today ought to be about 1.92 and it is actually 1.935.

This devaluation was not simply to release resources for the future, as the Chancellor suggested, but to restore balance to our economy from its past imbalance compared with other countries. I do not know what future that implies for the Chancellor. The OECD has made clear that not only is our relative inflation rate far too high, but we have a very long way to go to limit public and private consumption to the purchasing power we are producing. That is what is required to deal with an otherwise intolerable inflationary situation.

The devaluation in itself is not enough. It has great advantages for the Chancellor because it could lead to considerably better trade figures in June and July, which is a period of traditional weakness for sterling and also the time when the Chancellor may be engaged in discussions with the unions about future wage rates. It also enables him, by lowering the value of the pound, to keep the minimum lending rate steady and removes the need to increase it to protect sterling, which would put up the interest rates on mortgages and would not be effective anyway, as has been shown in other countries.

However, there are also disadvantages. My right hon. Friend the Member for Sidcup was right when he said that if we are to get the expansion in our manufacturing industry in time, we should be starting to stock up now with the raw materials and tools we shall need to take advantage of any boom in world trade. But the cost of such materials will increase. We shall have to sell many more goods to achieve the same export earnings and, alas, in some cases, because of long-term contracts, we shall not be able to put up prices where our goods are already competitive.

I was hoping to hear some recognition from the Treasury Bench that this relationship existed and that the value of sterling fitted into the Chancellor's thinking somewhere. Is he hoping to get by entirely by allowing the rate to drop in a series of jerks, as it has in the last few days, or more smoothly? Alternatively, is he hoping to maintain the rate at its present level and, if so, what sort of pay restraint will that require? Will it be £4 per week—say 6 per cent.—or something like the £2 plus 3 per cent. formula we have seen in the past? The Chancellor gave no recognition of the fact that these are among the choices he has to make.

Public and private spending is too high as a proportion of our total output to allow the Chancellor very much choice. There is not much point in talking about future proportions of public spending and GDP when both are so uncertain, but, looking back, one can demonstrate that the margin of profitability for reinvestment in industry has been squeezed by the steady rise in public expenditure as a proportion of the national income over many years.

It can be shown that the Chancellor is boxed in between more devaluation, stronger wage restraint and the possibility of more unemployment. Public and private expenditure is too high to bring down the present rate of unemployment without considerable further devaluation or, as the right hon. Member for Down South, (Mr. Powell) pointed out, inflation.

No one from the Treasury Bench has yet said just how, even allowing for the more rash assumptions about future developments, the resources alleged to be realised by the Chancellor's present policy are to be channelled into manufacturing industry. We have had no indication even of the effect of the Chancellor's present borrowing, however successfully he finances his borrowing requirement by institutional lending. The freer the institutions are to lend money, the more they lend, and that freely happens today. On the other hand, he faces a problem in the future. If industrial investment gets going again, institutions and individuals will have less money to help him to finance his public sector borrowing requirements by lending to the Government.

The problem that the Chancellor has not dealt with is that there is no incentive to invest in manufacturing industry because there is no incentive for the people on whom the private sector depends to develop it further, and that point was made clearly by my right honourable Friend the Member for Leeds, North-East (Sir K. Joseph).

Mr. English

The right hon. Gentleman surely realises that his right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) did not explain how that investment would be channelled into manufacturing industry. The biggest rewards of this day and age go to people who write books that are biased against North Atlantic sharks.

Mr. Macmillan

If the hon. Gentleman is thinking of writing books, I assure him that school books for export are one of the more profitable lines that are likely to earn him a better living for a longer period.

My hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) showed clearly that investment incentives in the form of money to help finance industry are wasteful and in some senses counter-productive. He showed that the yield from corporation tax just about balanced the subsidies required for that type of help for investment.

Labour Members make the mistake of confusing aid for the financing of industry and incentives to industrialists and entrepreneurs to invest—the Prime Minister made that mistake recently at Question Time. Part of that incentive is the whole climate of opinion in which it operates. People will not take risks, will not be entrepreneurs in the old sense of the word, if, when they are successful, they are made to feel social outcasts because of their success. People will not make profits for re-investment if half the time they are being blamed by half the House of Commons for so doing.

The right hon. Gentleman the Chief Secretary said that he doubted whether high taxation was a disincentive. The attitude that underlies the desire to tax people because they are high earners, if not a disincentive, is at least a discouragement. No one disputes that in financing necessary public spending those who earn more should pay more than those who earn less. What I object to is that, in the climate of opinion, built up over the years, which denigrates the efforts of the private sector, the Chancellor, with undisguised hypocrisy, should turn to the private sector because he knows that it is the only place where wealth can be created.

I accept that the views of the hon. Member for Luton, West (Mr. Sedgemore) are honourable and straight. He wants to go in the opposite direction. He believes that it can all be done through the State. That at least makes sense, but it does not make sense to say, as the Chief Secretary said, that the limit of personal taxation has been reached and, in the next breath, that taxation is not a disincentive.

The right hon. Member for Down, South referred to the Chief Secretary's admission that the goose that laid the golden eggs is, if not dead, at least dying. I think that it is being strangled. The way to get investment into manufacturing industry is to stop strangling that element in it which seeks the rewards of being a successful entrepreneur and to stop helping that element in it which is not willing to face the consequences of being an unsuccessful entrepreneur.

I remind the Treasury Bench—here I must properly declare my interest—that a significant proportion of the new investment, the innovation of the expansion on which the Chancellor depends, will come from smaller businesses, unquoted companies and unincorporated businesses, which provide about half the private sector total employment and produce about 40 per cent. of the GDP.

Before we start talking about wealth distribution, let the Chief Secretary and his colleagues turn their attention to what is required to create new wealth. I am all for public spending where private spending is wrong, or inadequate to help those whose need is greatest, but all that can be spent are the taxes of successful private enterprise. I am all for extending the rewards of successful private enterprise, whether of large or small companies, through greater ownership by work people and others in industry.

I have a lot of sympathy with the hon. Member for Bethnal Green and Bow (Mr. Mikardo). We are taxing and borrowing to invest in industry and to lend to industry in a way which should not be needed and would not be needed were it not for the Government's taxation policy, the uncertainty they have created in business, and inflation. At the same time as we are cutting social programmes we are taxing the enterprise which alone can provide the wealth to build up social programmes and help those who are in need.

The Government may say that they believe in a mixed economy, but they have the wrong mix. It is the private sector which should be helped to create the wealth. Then we can safely spend what is needed where it is needed most.

If the Chief Secretary says that in the past any freedom of choice was a myth because there was too much poverty, I am inclined to agree with him, but he and his colleagues seem to be set upon a line of policy which will perpetuate that state of affairs, so that we in Britain will be equal in our equal misery instead of seizing the opportunity to get going once more and build up the private sector to finance the social and other programmes that hon. Members on both sides of the House would like to see.

Mr. Deputy Speaker (Sir Myer Galpern)

I remind the House that, before the winding-up speeches, 22 hon. Members still wish to take part in the debate.

8.20 p.m.

Mr. Stan Thome (Preston, South)

I sympathise with your difficulties, Mr. Deputy Speaker. The speech by the right hon. Member for Farnham (Mr. Macmillan) appeared to be a long one. Perhaps it just appeared to be that way.

I am concerned with the Labour Party manifesto which was issued in 1974 and in which I declare a vested interest. It seems to me that this debate stems from a sound, certainly vociferous, campaign on the part of the Opposition to achieve the kind of recommendations which appear in the White Paper.

I am concerned about the part of the manifesto which refers to preparations for an election and uses words of which the Government Front Bench should be reminded: A coalition Government by its very nature tends to trim its policies and fudge its decisions. I take the view, certainly in economic and in other matters, that we have had a de facto coalition for some time. That may have something to do with the trimming of policies and the fudging of decisions which goes on.

Within the same part of the manifesto there is mention of what I thought was absolutely crystal clear—that there is no meeting point between the philosophies advocated by the Conservative Party and those advocated by the Labour Party. The existence of independent political philosophies was one reason why any talk of coalition was absurd. I accepted and still accept that view. That is why I am surprised that, whilst there is no room for Tory philosophies, Ministers are in the process of putting Tory policies into effect.

At the heart of the manifesto is the claim about the social contract. We have heard a lot about the social contract. It has been mooted over recent months. One idea put forward by the Prime Minister was that it was not only a contract about wages but a contract which suggested that, in exchange for an agreement between the Government and the trade union movement, there would be gradual progress towards the realisation of the aims contained in the manifesto.

One of those aims was the control of prices. We have talked a great deal about the control of prices. But we have not talked about agreeing to certain changes in agricultural policy arising from membership of the Common Market which would raise food prices.

We certainly referred in the manifesto to restoring and sustaining full employment. The Government have the job of telling us how the cuts envisaged in the White Paper will contribute to restoring and sustaining full employment. The explanations so far given do not convince me one iota.

In the general argument about unemployment the Chancellor, who is very much involved in what we are debating, should be reminded of certain words which he uttered in response to some comments made by the right hon. Member for Leeds, North-East (Sir K. Joseph). What did he say? The Chancellor said: "Some people proposed"—I assume he meant the right hon. Member for Leeds, North-East— that shortages in the shops should be dealt with by depressing demand and throwing one million people out of work. This was morally obscene and it would be like burning down the Houses of Parliament to roast a chicken. My right hon. Friend said that in November 1974.

I think that it would be reasonable for the Front Bench, through the Chancellor's representative, the Financial Secretary, to explain why it has not been possible to pursue that clear aim contained in that condemnation of a statement made by a Member of the Opposition. I fully supported the Chancellor when he made the statement to which I have just referred. I only regret that he has been unable to live up to it.

In the manifesto we talk about protecting the least well-off—the pensioner and the low-paid. To what extent will this White Paper help in that regard? The Chancellor claims that it will. He made that plain in reply to a Question by one of my hon. Friends only a few days ago. How will this set of proposals assist us to improve the position of the pensioner, the low-paid and the disabled? We have had many arguments from both sides of the House on that question.

How shall we get economic expansion? Proposals have been put forward about loans, increased taxation and various aspects of economic policy. What seems to have emerged from the contrary arguments put forward by the erudite economists who get into this kind of debate is that no one has adequately explained where the money will come from for this large-scale expansion of industry which will produce the goods.

We have heard no mention of import controls. There has been no mention of the United Kingdom's overseas investment folio as a contribution towards raising our reserves. No mention has been made of the control of capital which continuously flows out from Britain at an increasing rate. There has been no mention of the public ownership of highly profitable sectors, such as Imperial Chemical Industries and other large monopolies or oligopolies in Britain whose profits could be used to assist us to solve some of our economic difficulties.

What has the Chancellor or the Prime Minister's economic adviser recently said about North Sea oil? Are the deposits in the North Sea, which are to flow advantageously to the oil companies, to be taken into public ownership? No. That will not happen, because we have already issued 65 per cent. of the licences to private companies and we have no intention of changing the situation in terms of direct ownership.

The manifesto refers to the introduction of a wealth tax. I am beginning to wonder whether this annual wealth tax on incomes of £100,000 will ever be introduced, because some of our Cabinet colleagues have a direct interest in incomes of that kind. Some of them will immediately be affected by such a wealth tax. That may be why we have not heard much about it. But it seems to me that it is yet another way of raising the funds referred to in the Labour Party manifesto.

When we talk about an improvement in pensions, we have to recognise that, although pensions have increased, their value has been eroded continuously. Recently, I spoke at a meeting of several hundred pensioners who were concerned that the concept of a pension for a married couple based on a rate of 50 per cent. of average earnings seemed to be coming no nearer and to be receding further and further. In fact, it is clear that the sort of economic policy decisions that we take in this House will defer it for some considerable time.

In much the same way, we shall defer assisting one-parent families, improving the National Health Service—an improvement which is long overdue—and meeting the problems of nursery and further education, which we promised in the manifesto. It is certain that we shall not get much improvement in student grants, the development of the Open University, which was included in our manifesto, more money for local building, for slum clearance, or for assisting home buyers. All are deferred. When we come to transport, the situation is even sorrier. Far from improving public transport facilities in terms of rail and local bus services, we are looking for economies and effecting cuts.

The result of this programme, like previous economic decisions made by this Government, will not be an improvement in the general standard and quality of life of the British people. We shall now have increased school meal prices, increased bus fares, rail fares certainly rising again, teacher unemployment rising, the National Health Service deteriorating, council and other rents rising, and improvements to old schools being deferred again.

As for the policy of redistributing wealth and the suggestion referred to earlier by my hon. Friend the Member for Bethnal Green and Bow (Mr. Mikardo) about our setting out on the road to a fundamental and irreversible shift in the balance of wealth and power in favour of working people and their families, that, too, is deferred.

It seems to me that this Government need very much to return to the philosophies of the Labour movement which would never have permitted an acceptance of the Tory philosophy contained in this White Paper. It is precisely because a Labour Government are pursuing Tory policies that my constituency party rejected them completely at its annual general meeting, as I shall reject them in the vote tonight.

8.32 p.m.

Mr. Douglas Henderson (Aberdeenshire, East)

I shall not attempt to take up any of the arguments advanced by the hon. Member for Preston, South (Mr. Thorne), who is continuing what appears to be a long debate within his own party on the merits or demerits of Government policy which in many of its manifestations has made other hon. Members feel like intruders into a Labour Party conference, and a somewhat stormy one, at that. It is not for me to intervene in that issue. Right hon. and hon. Members on the Government Benches seem to be making quite a good job of it themselves.

One speech which attracted my attention today was that of the right hon. Member for Sidcup (Mr. Heath), who made some very telling observations on the whole situation. What was of special value was the way in which he focused upon the seriousness of the situation and on the lack of manoeuvre that this Labour Government have in the United Kingdom.

Members of the Scottish National Party have often referred to "a bankrupt England", and we have been jeered at and scoffed at whenever we have done so. But nothing brings home more clearly the desperate situation within the United Kingdom today than the facts which have been brought out in this debate.

Over the years, Scotland has been expected to be used as a place to bring tribute to the imperial capital here in London. The living standards of the Scottish people have been depressed to maintain extravagant projects and expensive overheads of the Government here in London. It may be that people from different part of England feel otherwise. It may be that they have the same sentiment but that they feel it in a different way. But we in Scotland feel it particularly, being a nation and one of the oldest nations in Europe.

Earlier this year, in the course of the debate on the White Paper on devolution, we were told of the tremendous benefits and advantages of being part of this United Kingdom in the way that it is at present constituted. But we see the reality of the situation and the difficulties in which this Government are placed, and today everyone in Scotland realises that we can with confidence proceed quickly to the control and management of our own affairs in our own hands. The question now is not whether Scotland is viable, but whether Britain is viable in the terms in which we are talking today.

One feature of this debate which is discouraging to me as a friendly and neighbourly outsider is that there seems to be a lack of any sense of national objectives or national purpose in England from Government supporters, from Opposition supporters, from the Tribune Group, or from any other part of the House. Whether hon. Members agree with me or not, in Scotland at least a growing proportion of the population know where they are going and what they want. There seems to be a total absence of that sort of clarity of purpose in the rest of the United Kingdom.

One cannot help asking whether a highly centralised economy—as the United Kingdom economy has been in both the private and public sectors—and a highly centralised system of demand management, which we are told is good for Scotland because it has brought us so many blessings, can serve the purpose of the Scottish people and nation any longer.

What are the Government's intentions in the White Paper? The Financial Secretary to the Treasury said in a most disarming manner last night that the figures in the White Paper were only forecasts. He implied that if one did not like the figures, one could make up one's own and that maybe they would be better. In so far as the forecasts express priorities and some kind of insight into Government thinking and what weight should be given to one aspect of policy or another, I have some questions to ask.

I want to ask the Government about the allocation of funds for trade and industry. For Scotland the picture in the White Paper is not particularly rosy. The Scottish Development Agency was created to transform and regenerate the Scottish economy. The Secretary of State for Scotland said on Third Reading of the Scottish Development Agency (No. 2) Bill: I think that in the Agency we have a means of finding a longer-term solution for a comprehensive and co-ordinated attack on the deep-seated structural problems of the economy."—[Official Report, 21st October 1975; Vol. 898, c. 399.] Yet according to Table 24 in the White Paper the Scottish and Welsh Agencies are to get £269 million over a five-year period. On a proportional basis that means that the Scottish Development Agency will get £179 million, which, in anyone's language, is totally ridiculous and totally inadequate for Scotland's needs. Will the Government deal with that? The whole of the expenditure under the remit of the Secretary of State for Scotland, which is currently 32 per cent. of the GDP of Scotland, is to undergo a decline to 20 per cent. by 1979–80.

My hon. Friend the Member for Dunbartonshire, East (Mrs. Bain) referred to Scottish education, which appears to have to bear 39 per cent. of total United Kingdom education cuts. Shipbuilding is very important in Scotland. If the industry is to have any competitive future in the world, the suggested reductions in financial assistance from £37.3 million in 1975–76 to £10 million in 1979–80 mean that the shipyards might as well put up their shutters now.

Mr. Gordon Wilson (Dundee, East)

Does my hon. Friend realise that at the same time the Government have given the go-ahead to the MRCA project which is costing about £2 billion, to the benefit of the English industry?

Mr. Henderson

I would also mention Concorde, which is one of the many white elephants which the Scottish taxpayers have had to subsidise over the years.

In Table 24 the only item that is not shown at constant 1975 prices but expressed in actual money terms is the regional employment premium. That means that if these projections were adjusted to show constant money value, there might be a serious reduction in the regional employment premium.

In general terms, the question we have to ask ourselves is whether the intentions disclosed by the Government, or the fallacious assumptions on which they are based, are doing anything to assist Scotland or the Scottish economy. In opening the debate yesterday the Chancellor of the Exchequer said: If we are to reduce unemployment to 700,000 in 1979 … our gross domestic product must grow at an average rate of 5½ per cent. over the preceding three years and manufacturing output must grow at about 8½ per cent. a year over the same period. The right hon. Gentleman went on to say: I admit that it will not be easy to reverse a trend which goes back at least to the end of the last War."—[Official Report, 9th March 1976; Vol. 907, c. 255–6.] He could certainly say that again. It is a pious hope. It is not a policy. It is not a programme.

Another subject to which the right hon. Member for Sidcup rightly drew attention was the value of the pound. That surely is a most catastrophic situation in which the United Kingdom finds itself. I had the honour to present a Bill under the Ten-Minute Rule to make Scottish banknotes legal tender. In doing so, I said: In a few years, when we are an independent country, as the English pound sinks slowly over the horizon and the robust and secure Scottish pound rises, there will be a considerable premium on the latter."—[Official Report, 18th February 1976; Vol. 905, c. 1296.] The pound is not sinking over the horizon; it is galloping out of sight.

That is one of the most serious situations for any country and yet not a word has been heard from the Treasury Bench on that in the course of the debate. Only today the hon. Member for Preston, South has referred to North Sea oil, as he calls it—Scottish oil, as it is constitutionally correctly termed. We have heard that the Bray Field with reserves estimated at 4 billion barrels, thought to be the biggest yet, has been discovered. We are expected in the same breath to accept the implications of a reduction in our standard of living and in opportunities for employment and advancement for the Scottish people. That does not make sense to me and it will not make sense to the people of Scotland.

Scotland is determined now, more than ever before—and this debate has confirmed our worst fears of the state of the British economy—that Scotland's future must now lie in its own right so that we can help our deserving and needy neighbour.

8.43 p.m.

Mr. Ray Carter (Birmingham, Northfield)

The hon. Member for Aberdeenshire, East (Mr. Henderson) will not expect me to follow what he said about his part of the United Kingdom. I will not follow him for other reasons, the principal one being that we are quickly running out of time and that I want to make my small contribution towards a cut in private consumption—and I shall try to make the shortest speech in the debate so that at least one other hon. Member can take part in it.

First, I would like to deal with the way in which this debate has gone, because it seems to me that it has been something of an anti-climax. The major debate started with the publication of the White Paper and people immediately took up positions around it. When we are talking about the very heart and future of British life, British society and the British economy, I wonder whether this is the right way of going about things. Almost immediately people on one side of the argument were saying that public spending was bad and private spending was good, while those on the other side were saying that public spending was good and private spending was bad. That simply is not the case. We all know that, but because of the way the debate started, that was the natural reaction to the White Paper.

We should remind ourselves that if, in the long term, this White Paper is to be a success, it must rest on national consent. We live in a democracy. We cannot compel people, trade unions, employers, banks or financial institutions to do this, that or the other. All the things we ask people to do rest on consent.

But, having said that, I support the White Paper in terms of general principle. I support it on a number of grounds, but I rest my case and my support of it on the need to strengthen the industrial base of the British economy. It has been stressed time and time again since the publication of the White Paper and in the course of this two-day debate—particularly in the speech this afternoon of the Chief Secretary—but it needs to be re-emphasised that if this White Paper is to come to anything, and if the objectives set out in it are to achieve any kind of success, we shall have to restate this salient and obvious fact continually in the course of the next few years.

The nation's future depends on that industrial base, and it is interesting to point out that in the TUC Economic Review, 62 pages out of 85 are devoted to industrial growth and prosperity. We have all been saying this kind of thing for the past 30 years. I joined the debate about 15 years ago, and in all the arguments that led up to the 1964 return of a Labour Government we were saying precisely what we are saying now. But we did not achieve success.

The reasons for this are extremely complex. I do not think anybody can come to this House—with the possible exception of the right hon. Member for Down, South (Mr. Powell)—and say with certainty that this, that or the other will happen. We must all have some doubt, given past experience, not only as to what the future will be but as to how we set about solving our desperate industrial problems. Those problems are not only in the private sector but in the public sector, too.

In order to put those problems right we have to get our economic priorities ordered in a correct way. We have always said in my party that the language of Socialism is the language of priorities. but for many people in the movement—of which I have been a part virtually all my adult life—that has, unfortunately, been nothing more than a slogan. We have to turn it into a reality.

I represent an industrial seat, as does virtually every Member of the Parliamentary Labour Party, and therefore we have a vested interest in seeing industry revived and regenerated. Like me, they will have watched over the years the steady decline of industry. It is significant that at the present time three-quarters of all people who are unemployed are industrial workers. They are not civil servants. They are not local government workers. They are not professional workers. They are industrial workers, and they are unemployed not only because of the world recession in trade but because our industrial sector has been particularly badly hit by the problems of world trade.

In my constituency I have the biggest factory of British Leyland. We all know the story of British Leyland. We have debated it over many hours in this Chamber. It is a sad and a pathetic tale. If we were to ask the British Leyland workers how they want the resources of this country to be spent—the company is currently supported by public money—I have no doubt that every one of them would far rather that their industry and their jobs were supported by public money than that they should go out on the dole and be paid unemployment benefit. I say that knowing that it is a public resource that we are dealing with in the support of British Leyland and that we should be concerned with the way in which that public money is used.

I desperately hope that in the coming years there will be a switch in the use of public resources towards the productive and industrial areas of our economy. We must remind ourselves—in the context of an industrial revival it needs to be said time and time again—that the productive sector of our economy supports the non-productive sector. We can aspire to the highest standard of services that any society wants or believes that it needs. However, those services can be sustained only on the basis of a highly productive and efficient industrial sector.

Having said that, however, I have some doubts about the White Paper. I ask my right hon. Friends on the Treasury Bench, as has been asked of them already, what evidence they have that the hoped-for investment will take place. I ask that question seriously because I represent an industrial seat and industrial workers, and am a member of a party that represents industrial workers. I am concerned that that investment takes place. There must be an element of hope in it. I realise that to a large extent we must depend on world trade, but the projections that are made in the White Paper are extremely serious in terms of what we hope to achieve. I spoke to the directors of Barclays Bank only a week ago, and, as I understand it, they alone have £13,000 million of investment funds available for anyone who wants to use them. At present no one is coming forward saying that they need £100 million or £200 million for an assembly line, a new plant and so on.

On the other hand, it may be that this vexed question of confidence plays a part. I have always had doubts about it, but if it does, what does the Chancellor of the Exchequer intend to do in his Budget and during his management of the economic affairs of this country to give industry confidence? I know that confidence will be given to the private sector. I regret that more industry is not publicly-owned, but if Labour Members want unemployment to be drastically reduced in the short-term, they must accept that the private sector will soak up those who are currently unemployed.

I am also disturbed about the diminished rôle of the National Enterprise Board. If this much-hoped-for private investment does not take place, the Government Front Bench runs the risk of criticism from some of us who hoped that the National Enterprise Board would fill the vacuum created by lack of private investment.

I conclude by commenting on two matters. We live in an industrial society. We have lived that way for 150 years or more. We cannot put the clock back—we cannot go back to an agrarian past. Therefore, living in an industrial world, we have to compete with industrial competitors. We either secure that industrial base or we fail. There is no argument about it. Either we compete, produce the goods on time, at the right price, in the right quantity, or we fail. If we fail, every public service that has been referred to during this debate will also collapse. Our hospitals and educational system will fail and all the social services will decline.

Secondly, the Government have to do something to get our priorities right in terms of reward within the economy to ensure that we get the right kind of people into industry. The problems that we face there were brought home vividly during the lifetime of the previous Conservative Government during the 1972 miners' strike, when it was discovered that a coalminer working at the coal face on average earned less than a typist—a female typist—working in London. That may seem to the Government Front Bench to be a frivolous point to make in a debate such as this, but it seems to me that that was indicative of the decline in the level of our priorities. Fortunately, miners have lifted themselves up the scale now. However, we in this country simply cannot afford, struggling as we are to compete industrially with every other industrial country, to have that kind of social injustice, that weakness, present in the economy.

Therefore, quite apart from dealing with the question of investment and of ensuring that public and private industry has a degree of confidence granted to it so that it can operate properly, I desperately hope that the Government bring home the message to the people that we need to reward people partly on the basis of where they are employed—and currently it happens to be the first priority that we should give better rewards to people who work in industry.

8.56 p.m.

Mr. John Loveridge (Upminster)

I shall not detain the House for more than a moment because I know that the hon. Member for Colne Valley (Mr. Wainwright) wishes to take part in the debate. I shall therefore simply put a single point, out of context, from what was to be a large sermon.

Output per man in Britain is very low, as we know. Machines are used for only a small part of the working week. Men here produce only half, or perhaps even a quarter, of what comparable men produce in other countries. We obtain in five days the output of a three-day week.

All this suggests to me one thing that has not been really dealt with in the debate, except perhaps in passing by my right hon. Friend the Member for Sidcup (Mr. Heath). That is that there is a great shortage of demand in the industrial sectors of our economy, whatever the overall situation about demand is, taking the country as a whole. So long as we can hold public spending and cut it quickly—quicker than the Government intend—we can utilise that spare capacity.

It is wishful thinking to assume that minor adjustments in the exchange rate can correct the situation. Depressed output keeps unit prices high. Business cannot keep unit costs down unless they are working to near full capacity. As Lord Keynes said, the existence of surplus equipment is likely to lead the entrepreneur to a loss.

That is the case with much of our industry. Before we worry about investment, we should worry about using the equipment we already have. Exports require a reasonably large-based home market and home demand. I cannot enlarge on this matter as I wish, but I want that message to go home to the Government and to my own colleagues.

Because of the lack of time, I end with that comment.

8.59 p.m.

Mr. Richard Wainwright (Colne Valley)

I am grateful to the hon. Member for Upminster (Mr. Loveridge) for his accommodating brevity. I hope that he will forgive me for not following up his remarks, because I wish to comment very briefly on the recommendation that will be made to Liberal Members about the vote on the main Question at the end of the debate. We on the Liberal Bench believe that the valuable part of this White Paper is the attempt to focus national attention on the total resources likely to be available. In spite of the well aired difficulties of forecasting that sort of thing, we argue that attempts should be made to forecast resources and that a variety of forecasts should be provided.

We do not share what seems to be a widespread opinion across the House that the Government's assumptions are necessarily fraudulent or have been put down for some ulterior motive. At the same time, we cannot visualise even the lowest of the three assumptions being realised in anything resembling the present economic and political climate.

Therefore, in our amendment which I shall not weary the House by quoting, we make the point—and we shall endorse it in the Lobby—that although at any rate the lowest of the three assumptions and perhaps even the central case could be achieved by a country mobilised to expand production, especially in manufacturing, we do not believe there is anything in the White Paper to show the nation how to set about it. We have set out in our amendment three ways in which we think the Government could give the necessary leadership to the country and a sporting chance to achieve the fantastic rates of growth which are set out in the White Paper.

The first concerns taxation. There should be not only lower taxation but, equally important, some certainty about taxation, so that those planning their business could plan with a degree of assuredness about the level of taxation on companies for some years ahead. We think that a maximum rate of tax for companies should be included in a Bill of Rights, because companies do not have votes.

The second way concerns industrial relations. We believe that there is no chance of the nation achieving the productivity miracle which is required unless we achieve not trade union corporatism but industrial democracy on the basis of one worker, one vote, and a widespread sharing of capital resources.

The third way concerns the economic strategy itself about which the right hon. Member for Sidcup (Mr. Heath) and others spoke so eloquently during the debate. It is our belief, and not ours alone, that until we have a Parliament elected in such a way and conducting itself in such a way that there is real political stability in this country, and an end to zig-zag politics, we cannot hope for industry to plan itself or for those working in industry to give of their best in the way the country needs.

For that reason, we shall vote against the Government on the main Question.

9.2 p.m.

Mr. John Nott (St. Ives)

It is a considerable privilege to wind up a debate which contains speeches of the quality and depth of experience of that of my right hon. Friend the Member for Sidcup (Mr. Heath), who has courteously apologised for not being here for the winding up, and of the intellectual weight of that of my right hon. Friend the Member for Leeds, North-East (Sir. K. Joseph).

Without casting any aspersions on my hon. Friends or on any Labour Members who spoke yesterday, in my view day two of this debate has gone rather better than day one. That is only my personal opinion. I do not think that the Chief Secretary's speech rose to the heights of my right hon. Friend's speech, but it was a courageous speech and he stood his ground very well against the criticism of his hon. Friends.

However, in contrast, the contribution of the Financial Secretary last night, who was meant to be winding up a debate but instead launched into an attack on the House of Commons which took up 10 minutes of his speech, was thoroughly inappropriate. To suggest that the legislature, which is what we are, should either wish or be required to define its own priorities as between programmes is a new extension of that fashionable perversion which seeks to turn Parliament into an arm of the Executive. It is all the more offensive when I point out that I obtained from the Committee Office of the House today a list of those Reports which have been made by Committees and to which the Government have not even taken the trouble to reply and which they have not found time to debate in the House.

I give two examples. Public expenditure on transport was reported on in July 1974. The Government replied in March 1975 and the debate took place on 1st May 1975. Educational maintenance was reported on in September 1974. There is still no reply from the Government, but we debated the matter on 10th July 1975. If the Government wish the House to play the type of rôle which the Financial Secretary was suggesting, at least they could reply to Committees on time and allow these matters to be debated on the Floor of the House.

The Chancellor's contribution also fell far short of what we are entitled to expect from one who holds his high office. To fend off criticism by attacking the Bow Group for such a length of time falls short of what we expect. It is one of 20 or so research groups in the Conservative Party. To attack the Tribune Group in the way that he always does only shows the weakness of his case.

Mr. Healey

Does the hon. Member agree—I do not see how he can avoid doing so—that the only group in the Conservative Party which has given any clue to how it would implement the rhetoric emitted by various Conservatives from the Opposition Front Bench is the Bow Group? For the want of anything better, I had to demean myself by discussing its suggestions.

Mr. Nott

I think that the Chancellor did demean himself, and when the Day of Judgment comes and he is transported—no doubt in one of Sir Richard Marsh's trains, since he finances them—to the Pearly Gates, or when he crosses the River Styx with a coin in his mouth—worth $1.50 to the £—he will not be able to defend himself by attacking the Bow Group.

The introduction of the Chancellor's White Paper is an honest appraisal of our national dilemma and involved what could not have been an easy decision for him—telling the faithful that their faith had been misplaced, that the graven images that the Socialists had worshipped for so long were false gods, that, far from bringing about a land of justice and plenty, they would inevitably lead to industrial and social famine. I do not intend to be gratuitously offensive to Labour Members below the Gangway by reading out passages from the introduction, but I can see that it must be very difficult for them. To have not only that arch deviationist, that capitalist roader, that bowl of Russian goulash, the Home Secretary, but also half the Cabinet going around expressing these heresies, with total silence from the right hon. Members for Ebbw Vale (Mr. Foot), Bristol, South-East (Mr. Benn) and Blackburn (Mrs. Castle), and with certain ambiguous statements coming from the TUC, it must be very galling for them.

I do not intend to draw any physiological analogies, as the Chancellor did, about the shape and size of Tribune man's skull. I leave that to the right hon. Gentleman. His phrase must have caused a great deal of consternation in the Foreign Office, and the number of Foreign Office telegrams, which run at 500,000 a year without telex messages, must have increased manifold when that expression was used.

I am glad the Government included a special section in the White Paper on debt interest. Although we can assume that all the figures will be wrong, that is no reason for not putting them in. I think that the borrowing rate this year will be rather lower than the Chancellor suggested in his IMF letter. The rate of inflation will be very much higher over the five years than is anticipated, but it was good to have a separate section in the White Paper. It would have been more honest to have included the forecasts, or illustrative figures as I think they are known, in the totals of public expenditure.

On debt interest the most dramatic illustration of what has happened was given by my hon. Friend the Member for Blaby (Mr. Lawson) yesterday when he said: … it is a striking fact that it took from the glorious revolution of 1688 to the inglorious coming in of this Government for us to build up a total National Debt of £26 billion; and it looks very much as though, by the end of the coming financial year, that National Debt will have doubled. In other words, in three years this Government will have succeeded in adding as much to the National Debt as it took all previous Administrations the best part of 300 years."—[Official Report, 9th March 1976; Vol. 907, c. 310.] My right hon. Friend the Member for Sidcup was right to describe this as a moral dilemma. Do we have the right to live beyond our means to this extent? Do we have the right to build up this degree of debt for future generations?

Whatever may be said of Part I of the White Paper, it marks something of a watershed in politics. At least the process of education within the Labour Party has begun. Whether it means that the centre of gravity of British politics has changed, to use the phrase of the hon. Member for Luton, West (Mr. Sedgemore), I do not know, but, to echo the words of my hon. Friend the Member for St. Marylebone (Mr. Baker), it is becoming clear that our capacity to spend has outstripped our capacity to create wealth.

We are probably entering an entirely new phase of economic and political life. That goes for all countries in the Western world. The encouragement of rising expectations and the blurring of economic truths cannot continue. The style of politics in which the Prime Minister is so expert will have to change.

My right hon. Friend the Member for Sidcup and others have talked about the efficiency of the public sector. I think it is more than just the figures that we should study in these debates. The way in which the money is used is also important. Of the £60 billion—I talk in round figures—that is taken by the Government out of a GNP approaching £100 billion, about £25 billion goes on transfer payments of various sorts. Another £10 billion goes on public investment.

I am sure that the right hon. Member for Down, South (Mr. Powell) is conscious of the fact that when he talks of approaching £4 billion on capital expenditure he is talking about 40 per cent. of the existing figure for capital investment in the public sector. The remaining £25 billion provides current goods and services, of which the major constituent is wages.

It is essential that we have a manpower policy in the public sector, but no one can quite see it happening. I understand that yet another manpower review is proposed under the Head of the Civil Service, and yet another departmental committee. The Chancellor and everyone else know exactly what they will report. We know they will report that there is no way in which numbers can be reduced unless the rôle of Government is reduced.

My hon. Friend the Member for St. Marylebone, who is experienced in these matters, was right to say that savings can be made. I hope that Ministers will concentrate on how they can make their own Departments more efficient.

Through my letter box the other day came a most interesting paper entitled "Refuse Collection Today". No doubt many hon. Members have seen it. On the front of the paper is a picture of the Under-Secretary of State for Health and Social Security, the hon. Member for Oldham, West (Mr. Meacher). Above his photograph are the words: Kiss of Life for Waste Paper Stockpile Scheme. I do not know whether the hon. Gentleman is still with us, but I remember him well. He has disappeared into the Government, but we used to hear a lot of his statistics in the old days. I read the editorial of "Refuse Collection Today" part of which says: Then came the collapse of the wastepaper market and the possible promise of Government intervention to iron out peaks and troughs. Michael Meacher … the Under-Secretary of State for Industry"— that was the hon. Gentleman's office— has recommended to the Treasury a stock support scheme. I suppose that that is the National Enterprise Board. It seems that the Government may provide backing of up to £10 million". We have also heard my right hon. Friend the Member for Sidcup refer to the whole question of the machinery of Government. We have to get the machinery right, especially in the organisation of the Treasury and the spending Departments. It is astonishing that only now, after an increase of over £20 billion in money terms of Government expenditure—and I give credit to the Chancellor and the Chief Secretary for this—are the Departments setting up systems to monitor cash movements and to report monthly to the Treasury.

I know that the Chancellor will agree that Ministers cannot do everything. Why is it that although talk was going on about such a change when the Conservative Party was in office, so little progress has been made in bringing revenue and expenditure decisions together? The separation of public expenditure from the Budget process cannot continue. Each publication is based upon a different price basis, and it is almost impossible for the layman to understand the documents laid before the House.

As long ago as four years, it was generally agreed that progress had to be made in bringing the Budget and the public expenditure exercise together, and still it has not happened—still the Treasury talks about its staffing problems.

Of course, it is true that no amount of determination on the part of the Chancellor and his fellow Treasury Ministers to succeed will succeed unless there is the political will in the Cabinet, backed by the Prime Minister, to get public expenditure down.

But the fact still remains that the machinery is vital and it does not lie in ministerial hands. I was glad that my right hon. Friend the Member for Sidcup touched on this point. He talked about the necessary re-organisation of the Treasury and the central Departments. I agree very much with what he said.

I come now to the resources table, which has been the central core of much of the debate. Perhaps I can take a candid peep into the past. When I, as a Treasury Minister, was called upon to reply to debates like this, I asked for a briefing on the resources table in the White Paper of the time. Officials came to see me in droves to explain the intellectual model they had constructed for themselves. At the end of successive meetings, I was as convinced as I am now that the resources table is utterly worthless, being based on a series of assumptions which have no political reality.

I read in The Observer about the Chief Secretary's exercise upstairs the other day. His problem is that he has exactly the same brief as I had. They have not even changed the commas. When one has a bad case as a Minister, the best one can do is stick to one's brief. That is what the Chief Secretary did today, and it is no good.

Let us look at the resources table. Case 1 means that the gross national product has to grow by 4 per cent. within the next three years. But it has grown more than 4 per cent. on only one occasion in the last 20 or 30 years, and that was between 1958 and 1961. Capital expenditure, including stock-building, has to grow between 15 per cent. and 20 per cent.—and that at a time of uniquely low profits. We have to have a massively increased share of world trade in order to arrive at a balance-of-payments equilibrium. As my right hon. Friend the Member for Sidcup said, industrial production has to grow at over 8 per cent.

We remember the charges which the Chancellor and the Chief Secretary made against us when we were trying to get a higher growth rate in the economy. But all that the Chief Secretary could say the other day was that all the resources table is based on is mere illustrations. The Financial Secretary said last night that they were forecasts. I am sure that he has been corrected today. They are not forecasts; they are pure illustrations. They mean nothing.

Mr. Healey

As he always does, the hon. Gentleman is making a most entertaining speech, and he has pointed out on four major issues that the Government are doing things which the Conservative Government, in which he worked at the Treasury, failed to do. Can he explain why the Conservatives failed to do all these things which we are now doing and which he is praising us for doing?

Mr. Nott

I am not going to be drawn into that. I have only 10 minutes left. I am not going to have my speech ruined by the Chancellor of the Exchequer.

I have taken the opportunity to re-cast the resources table. I have been doing work in opposition which the Chancellor, who holds responsibility for these things, should have been doing in Government.

Even with pay restraints and incomes policies, there is not the slightest justification for imagining that private consumption can be held to the level in the resources table. The average rise in consumer spending between 1969 and 1974 was 2.7 per cent. and that is the lowest figure I can get for it. This shows that with case I in the table, involving 4 per cent. growth over the next three years—2.4 per cent. over the five-year period—we should need to save about £6,650 million of Government expenditure by 1979, at 1975 survey prices, in order to achieve the objectives of the Government.

If the resources table contained any figures based on recent experience or sensible estimates of the rate of growth, it would show that the reduction in Government expenditure would have to go far beyond anything now being suggested in the period up to 1979. But these are pure resource calculations, demand effect calculations, which are less important than the monetary consequences of what is in the White Paper.

The Chief Secretary has said that the Government would do their best to avoid the sort of bottlenecks that we have had in the past, but, as my right hon. Friend the Member for Sidcup said today, we shall climb out of this recession with a £9 billion or £10 billion borrowing requirement and far more vulnerable to an escalation of imports for stock-building and bank advances to finance them than we were the last time we were at this stage of the trade cycle. It is the monetary consequences of what we have here which are so daunting.

There is another measure, the percentage of GNP, which is not very sophisticated but to which the Chief Secretary has referred. He spoke about the natural desire to choose on what we spend, and the percentage of GNP is a good reflection of this. I do not have to repeat what the Home Secretary has said on this subject.

It will be clear from my remarks that I share the view expressed by my hon. Friends the Members for Cirencester and Tewkesbury (Mr. Ridley) and Blaby and the right hon. Member for Down, South that the importance of this White Paper has been greatly exaggerated. It certainly provides an endless source of intellectual debate in virtually incomprehensible language—one moment it is in factor cost, the next survey prices and the next current prices, with the years continually changing—for the economic establishment. It is a sort of endless dialogue between, one the one hand, 20 Wynne Godleys and, on the other, 20 civil servants with first-class honours in classics.

The hon. Member for Norwich, South (Mr. Garrett) described last year's White Paper as: simply a wish list—a vague aspiration which tries to make the immediate future look more promising than it is."—Official Report, 17th April 1975; Vol. 890, c. 771.] The hon. Member for Norwich, South said yesterday: It does not provide adequate means for the elected legislature to scrutinise, examine and question the big issues of public policy, the justification for expenditure or its effectiveness."—[Official Report, 9th March 1976; Vol. 907, c. 336.] He was absolutely right. The mechanism embodied here has proved a useful tool for measuring programmes, but a total failure for controlling them.

Its main relevance has been to promote additional expenditure since once a spending Department has its bids in the programme, it takes months, sometimes years, and many Cabinet meetings and the intervention of the Prime Minister, to get them out of this wretched book. Sometimes it takes the whole lifetime of a politician.

The Government have just shifted some capital programmes from the in-tray to the deferred tray. They have pushed the capital programmes forward, and it has taken nine months to do it. It requires a newspaper with the intellectual pretensions of The Times to write leading articles suggesting that the White Paper is more important than the Budget. From the attendance yesterday it is clear what the House thinks about it. The House instinctively known that this is rubbish, and the House is right.

The White Paper may have some relevance to the current year, but it has no relevance to the year after. The Financial Statement is the more useful document. Last year, the estimates for 1974–75 changed by £400 million between the publication of the 1975 White Paper and the Budget three months later. The final out-turn figures for 1974–75 were published in January this year, and they were £631 million higher, which is probably about £800 million higher at current prices.

The hon. Member for Eton and Slough (Miss Lestor) and many of the Tribune Group are needless martyrs.

I do not know whether the Chancellor is aware of this, but this morning in the Welsh Grand Committee the Secretary of State for Wales announced that local authority new building for Wales would be between £20 million and £30 million higher than the figures quoted in the White Paper for 1976–77. Ministers do not even have the decency to wait until this debate is concluded before upping the estimates by £30 million. It is a ludicrous performance and, as my right hon. Friend the Member for Sidcup said, we have to make Supplementary Estimates hurt again.

In conclusion, I ask where we are now. It may look as if we are boxed in on every side, but I hope that there is a way out. In the past three years public expenditure has grown by nearly 20 per cent. in volume while output has risen by less than 2 per cent. The tax burden has greatly increased. The increase in the tax burden has fallen heavily on low wage earners. Those earning less than the average contribute over a quarter of the income tax yield. That is not my description of what has happened in the past three years. It is the opening passage of the White Paper.

In opening the debate today the Chief Secretary referred to the higher taxes which have fallen on widows, the disabled and the low paid. He is absolutely right. We are entitled to ask how that compares with the social and economic justice promised in the Queen's Speech 18 months ago. The Queen's Speech reads as follows: The Government will as their most urgent task seek the fulfilment of the social contract as an essential element in the strategy for curbing inflation … encouraging industrial investment, maintaining employment and promoting social and economic justice. What have we had? We have had inflation up to 25 per cent., industrial investment probably down by about 20 per cent., unemployment running at 13 million, and a sort of social and economic justice which involves those who are earning less than the average national wage contributing one-quarter of the income tax revenue.

That is the past. What of the present? It is no good the Chancellor and the Chief Secretary pretending that they have changed their plans for public spending since the Budget because of the depth of the recession. In his Budget Statement last April the Chancellor said: Our public spending plans were set out in the White Paper published in January … and it warned that if the economic prospects deteriorated, the expenditure programmes would have to be reappraised. The prospects unfortunately have deteriorated, and I have explained why public expenditure savings must make a substantial contribution in 1976–77 to the necessary reduction in domestic demand. The planned level of expenditure in that year … will be reduced by over £1,100 million at present prices".—[Official Report, 15th April 1975; Vol. 890, c. 295.] The Chancellor was there saying precisely the opposite to what has been said by Ministers in this debate.

In his Budget Statement last year he said that he might have to increase the reductions in Government expenditure if the economic situation deteriorated. Ministers have turned that argument on its head and said the opposite. Now we are talking about expenditure of £2,000 million higher in current prices than the Chancellor was talking about in that Budget.

Finally, because I have one more minute in agreement with the Paymaster-General, what of the future and the figures which are contained in this White Paper? After all, that is what we are debating. I cannot do better than to quote the words used yesterday by the hon. Member for Luton, West, who is engaged in conversation with his Whips. The hon. Gentleman said: It has been said that economics are at their best when they accord with the laws of arithmetic. On that simple test the White Paper is a failure. It is a rag-bag of hypotheses, forecasts and accounting identities, which work back from the results that the Government hope to obtain. For that reason no credence can be placed on the figures for investment, the shift of resources into the balance of payments, or the growth of our GDP. Judged against reality, the figures do not add up."—[Official Report, 9th March 1976; Vol. 907, c. 300.] The hon. Gentleman, talking to his Whip, may or may not have a tiny Chinese mind—I do not know—but in those few words he encapsulated more good sense than anything we have heard from the bigger head of the Chancellor in this debate.

While I should not expect, or, for that matter, much want the assistance of the Tribune Group in the Lobby tonight—because that would in a way be a false alliance—nevertheless I am happy that, in our very different ways, on this White Paper we have won the argument, and that in the long term is what the political debate is all about.

9.32 p.m.

The Paymaster-General (Mr. Edmund Dell)

The hon. Member for St. Ives (Mr. Nott) began by saying that it was a privilege to wind up a debate such as this. It is indeed a privilege. It has been a very fine debate. One might say that it has been the only real debate that we have yet had on a Public Expenditure White Paper. Listening to the hon. Gentleman, I began to wonder whether, if the right hon. Member for Finchley (Mrs. Thatcher) fulfilled her ambition of becoming Prime Minister this year, it might be the last debate, on a Public Expenditure White Paper, at any rate of this kind. Evidently, such White Papers serve no purpose as far as the hon. Gentleman is concerned.

We have heard the hon. Member for St. Ives in an unmuzzled mood tonight. We have heard how the Conservative Government managed things in the time that he was at the Treasury. He found it right—I am grateful to him for this—to pay tribute to many of the changes in the control of public expenditure which this Government have introduced.

I contrast what the hon. Gentleman said this evening with what the right hon. and learned Member for Surrey, East (Sir G. Howe) said yesterday. The right hon. Gentleman was rightly contrasting public expenditure under this Government with the superb control of public expenditure which he claimed was exercised by the Conservative Government when he was in office.

Today we have heard the other story. The right hon. and learned Member for Surrey, East, talked about the cuts which the Conservative Government introduced on going into office. Most of them were bogus cuts. They consisted of the conversion of investment grants into capital allowances. The right hon. Gentleman boasted that at any rate public expenditure had kept track with GDP. But from listening to him, it is clear that that was pure accident. Under the previous Government there was no control of public expenditure, and the hon. Gentleman has been honest enough to say that in many respects we have improved it.

The hon. Gentleman, who on this subject is the most eloquent spokesman of the natural party of opposition, at any rate regards it as a positive element in our situation that the Opposition now consider it important to control public expenditure and the money supply.

The right hon. Member for Leeds, North-East (Sir K. Joseph) devoted his speech to a consideration of those improvements in our situation which might lead to an upturn in our industrial economy. He referred to the need for a transformation in the profitability of industry, and here again he confessed that what was done between 1970 and 1974 had not served that purpose. He also referred to the need for an increase in personal incentives. In considering these matters, I hope that the right hon. Gentleman remembers the present constraints under which we are operating and the limit on what we can do.

The right hon. Gentleman referred to the stock relief scheme which we introduced. He was here yesterday to hear the speech of my hon. Friend the Member for Luton, West (Mr. Sedgemore), who gave a calculation of the types of assistance that this Government have given to industry. Nevertheless, we operate under constraints, and, if the right hon. Member for Leeds, North-East is saying that a transformation in the profitability of industry beyond anything that has happened since the war—which is what it really amounted to—is what is required to produce an upturn, he gives weapons to those who believe that the mixed economy cannot work——

Mr. Lawson

We could start by removing price control.

Mr. Dell

The hon. Member for Blaby (Mr. Lawson) says that we could start by removing price control. The right hon. and learned Member for Surrey, East did not suggest removing it. He wanted it changed—he, the architect of the present system of price control. We have said that we shall review the present system of price control, but the right hon. Member for Leeds, North-East went far beyond this. He seemed to want a degree of additional profitability on the part of industry. He wanted a transference of resources into the profitability of industry far greater than that which has existed in any situation since the war. Part of the criticism which my right hon. and hon. Friends make of the sort of speech which the right hon. Gentleman made today is that we have had that before and that it has not worked.

The Government are not saying that public services are adequate. Nothing could be more absurd than to say that. They are low compared with many countries in Europe, for example, and they are low because of the performance of our economy. I wish that the situation were otherwise but, unfortunately, the standard of service can only be one of the criteria in deciding the level of public expenditure. We cannot expand services and public expenditure irrespective of the performance of the economy. A productive economy pays the bill and, unless the productive economy is expanding, we cannot expand services.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

That is exactly what the Chancellor of the Exchequer has done. He has expanded the expenditure of public money on the services which the right hon. Gentleman is describing by 20 per cent. What have we got for it?

Mr. Dell

I am coming on to discuss those matters, so the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) need not get too anxious. I am saying that we cannot take the position that, whatever the level of public expenditure relative to available resources, public expenditure must always be increased and that it must always be the overriding priority.

There is, and has been for many years in this country, intense competition for resources, partly because of the slow growth of the economy. In my judgment, part of the reason for the inflationary pressures that we have suffered over recent years is that people want to retain a higher proportion of their incomes than they are allowed to retain at current tax levels. I do not say that that is unfair. I am saying that that is what people want. They want to retain a higher proportion of their incomes.

In the proposals that we put forward, we show their implications—some increase in tax levels. My hon. Friend the Member for Luton, West was frank enough to say that his proposals would involve an increase in tax levels even beyond the implications of this White Paper. My hon. Friend referred to the need for leadership, and I agree with him. We have come to the point where we cannot persuade people of the need to pay 50p in tax out of every additional pound that they earn, or perhaps eventually more.

The trouble is that we are in an impossible position to meet higher public expenditure, higher personally financed consumption and the requirements of better economic performance, although in this respect we have been greatly helped by the willingness of the Trades Union Congress to agree a voluntary incomes policy, which reduces some of the inflationary pressures.

We are in a difficult position. First, let us confess that it is difficult to cut established public expenditure programmes. The right hon. Member for Sidcup (Mr. Heath) said that today. The difficulty is illustrated by the attempts made by hon. Members opposite to propose cuts which are additional to those which we have made in the programmes. Indeed, all the pressure is upwards, including pressure from the Opposition. But the evidence is that public expenditure is difficult to cut and that once having been cut, it is difficult to control. That is the importance of the new systems which we are introducing—the cash control system and the system of consultation with local authorities.

We have heard interesting reminiscences from the hon. Member for St. Ives about his time at the Treasury and from the right hon. Member for Sidcup about the workings of Cabinet Government in that respect. It has been decided by the Prime Minister that the Cabinet itself will take decisions regarding the use of the contingency reserve. We are attempting to improve the control of public expenditure, which is vital in our circumstances, in many ways which the previous Government might well have attempted. It may be easier to hold to public expenditure targets because we are not asking for stabilisation after a period of slow or nil growth in public expenditure—and I hope that my hon. Friends will remember that—but we are asking for stabilisation after a period of very fast growth.

Another difficulty is that we have suffered a fall in the standard of living due to the increases in commodity prices. That means that there is less to distribute from national resources. Looking to the future, that is the assumption on which the White Paper is based. We can no longer, as we did in the past, expect to be borne up by favourable movements in the terms of trade to improve our standard of living. The real disposable national income in this country fell by about 5 per cent. between 1972 and 1974 at a time when public expenditure was not under control and that has made the problem more serious. As a result of that time we entered the crisis created by the oil price increases less well prepared than any other industrial country. We have the current problem of high unemployment which has led us to delay cuts in public expenditure programmes until we see a prospect of a revival in world trade. This resulted in a higher public sector borrowing requirement than we would have had otherwise.

The right hon. Member for Down, South (Mr. Powell) said today that he had been wrong to anticipate that the level of public sector borrowing requirement in the existing financial year would have stimulated inflation and that we have so far succeeded in financing it without inflation. The hon. Member for Blaby was supported by the right hon. Member for Leeds, North-East and the right hon. Member for Down, South, when he said that our position would have been easier if, in order to support employment, we had gone for tax cuts rather than for public expenditure increases. It was suggested that this would have had no effect on the unemployment level and that we could have achieved it in that way. I am not denying—on the contrary I am arguing—that it is necessary to reduce the proportion of public expenditure to gross domestic product in the long term, according to the programme indicated in this White Paper. But in the short term I am virtually certain that the proposal would not have worked—and I will give the reasons.

The first is the time lag. Cuts in public expenditure would cause immediate falls in employment. Cuts in taxation would at best have a delayed effect in creating employment. Secondly, it is uncertain how far the cut in taxation would stimulate employment, because one cannot, for example, be certain how much would go into savings. Therefore, to achieve the result for which some hon. and right hon. Gentlemen are looking there would have had to be a larger than proportionate cut in taxes. This would have had an adverse effect on the public sector borrowing requirement, which is exactly the opposite of what hon. and right hon. Gentlemen opposite wish to achieve.

Probably there would have been an import effect also which we could hardly accept in our current balance of payments situation. I am afraid, therefore, that I do not accept that in the situation which the Chancellor faced and bearing in mind the decision he had to make to sustain employment in this country, it would have been an alternative to cut taxes rather than maintain or increase public expenditure.

A further problem is that we have a low level of productivity growth, for reasons that have never been clearly identified. Had they been identified, we could probably have dealt far more successfully with them than the history of the last 30 years shows that we have in fact dealt with them. The hon. Member for Aylesbury (Mr. Raison) laughs. I cannot see any record in any Government of his which suggests that they have been able to tackle this problem. The hon. Gentleman brings to a consideration of serious problems a triviality which his own record does not justify—and I am giving him credit in that he has had an interesting past as editor of a valuable weekly.

We now believe that we may be able to expand faster because now we have larger spare capacity than at any time since the war. Many doubts and criticisms have been expressed about the assumptions in the White Paper. The hon. Member for Colne Valley (Mr. Wainwright) found them credible. Many of my hon. Friends have found them incredible and so have hon. and right hon. Gentlemen opposite. All I can say is that if the assumptions are too favourable, then, as the White Paper makes clear, that must have implications for the level of public expenditure in this country. If we were to succeed in doing as well, or better, that could also have implications for the level of public expenditure. But the White Paper makes it clear that the downside risk is the greater. In any case, as the motion in the name of the Government makes clear, the priorities expressed by the White Paper can be changed, and will be under constant review by the Government.

Mr. John Mendelson

Does the assurance which my hon. Friend has just given carry the clear implication that, for instance, the proposed cuts in spending on education, to which so many hon. Members have attached such great importance during this two-day debate, will be open to reconsideration, and that it is the firm intention of the Government that they should be reconsidered?

Mr. Dell

I assure my hon. Friend that, as I have just said, the priorities in the White Paper are certainly not absolute. They are certainly subject to review. They must be subject to review. But I also have to draw the attention of my hon. Friends to what is said in the White Paper concerning the nature of the risks we face. I believe we have no choice other than to follow the policies set out in the White Paper.

Various suggestions have been put forward by my non. Friends and by right hon. and hon. Gentlemen opposite. One related to import controls. We have discussed import controls and we shall no doubt do so again in many contexts. The relevant context here is that of public expenditure. If we make all the favourable assumptions we can about import controls—that there would be no retaliation and that they would achieve the sort of transformation in the efficiency of our economy and in investment that my hon. Friends believe—I do not see that such a measure would have any effect on the need for public expenditure cuts and cuts in programmes which I am talking about. It would make necessary the transfer of resources into industrial investment, perhaps, on a larger scale, because I believe that if there were import controls, a lot of resources would go into industries which would not be internationally competitive. It would need more by that route than by way of public expenditure controls.

Mr. Litterick

Having made this declaration of faith in free trade—not a particularly Socialist attitude—will the hon. Gentleman advise the House whether the Government are prepared to allow the free entry into the United Kingdom of cheap Arab oil in preference—[Interruption.]

Mr. Dell

I am glad that my hon. Friend has got hold of some cheap Arab oil.

The next proposal which some of my hon. Friends have made—in particular my hon. Friend the Member for Tottenham (Mr. Atkinson) in his article in the Daily Telegraph and my hon. Friend the Member for Luton, West yesterday-is that we should borrow. Now, we have borrowed—[Interruption.] If borrowing is a test of Socialism, we have been very Socialist. It leads me to wonder whether my right hon. Friend the Chancellor of the Duchy of Lancaster is not the greatest Socialist of all.

However, my hon. Friend the Member for Tottenham pointed out in his article that we could borrow because the demand content was only 30 per cent. That adds up, as the White Paper shows. Borrowing to this extent has an effect on interest rates. It has an effect on the diversion of resources from industry. It endangers monetary control. In regard to overseas borrowing, that is a 100 per cent. demand on the United Kingdom and not a 30 per cent. demand. But that, too, I am afraid, is no alternative to what we are now doing.

My hon. Friends also say that public expenditure is the only way to deal with unemployment, because the investment and export targets will not be met. I can assure them that if they are not met there will be no hole to fill. There will just be fewer resources available. The claims of the balance of payments and of investment would be that much more onerous. If we reflated in those circumstances it would have dangers in respect of our balance of payments deficit.

I do not believe that in the present situation there is any alternative. I accept entirely what hon. Gentlemen have said on both sides—that this question cannot just be left to an automatic transfer of resources from the public to the private sector. The right hon. Member for Sidcup made that point. The object of our industrial policy is to stimulate that transfer and to make it more effective.

We have taken many steps in that area. I mention one only because there is a misconception about it. It is the level of training. Conservative Members have the idea that the White Paper proposes an increase in the amount of training only of 13,000 persons. That is not the case. It is an understandable error because paragraph 52 of the White Paper, which deals with this problem, does not give any figure. However, we estimate, as a result of the measures taken by the Chancellor of the Exchequer, that there will be 80,000, not 13,000, additional training places.

The right hon. and learned Member for Surrey, East also had alternative pro- posals. They emerged curiously and uncertainly from what he said. He did not explain how the interest saving was to be made. Yet that was more than half of what he proposed. He recommended that we follow a policy of realistic prices and reduce the burden of subsidies. The right hon. Member for Leeds, North-East said today that subsidies were a major area of distortion. Do right hon. Gentlemen remember the situation in respect of subsidies to nationalised industries which we inherited? The hon. Member for Cirencester and Tewkesbury said yesterday—and this was the unkindest cut of all—that we shall have more price restraint subsidies in this financial year than the last. The hon. Gentleman is entirely mistaken. This year we have heavily reduced price restraint subsidies and next year we hope to abolish them.

The right hon. and learned Member for Surrey, East referred to North Sea oil. Whenever we have a debate on that subject we are told how much money would be saved if the Government did not interfere in North Sea oil. We have heard this story time and again, and it remains true that the development of North Sea oil will go ahead, that we shall be self-sufficient by 1980 and that nothing which the Government have done has hindered that. Last year we heard from the Opposition how the petroleum revenue tax and participation would damage North Sea oil. They have not. We also heard from them last year how participation would cost £3 billion to £4 billion. It has not. That has all proved to be nonsense. The speeches of the right hon. and learned Gentleman and his Front Bench colleagues ignore the difference between cash and resource costs.

However, I understand the Conservative Party's conversion to public expenditure control. I understand that it brings to this conversion the intolerance and certainty of the converted. However, what I cannot take from Conservative Members is the high moral tone with which they address us on this issue after their record in Government. It is rather like Henry VIII preaching on the virtues of monogamy. At any rate we can, I hope, be sure that the Opposition will not make any further proposals in respect of public expenditure.

The Opposition motion in the light of history is either hypocrisy or a bad joke. I hope that my hon. Friends will support the Government who, in circumstances of great difficulty, retain the priorities dictated in the Labour Party manifesto but which lay down as an essential principle

in this country's policy that manufacturing industry must take priority.

Question put, That the amendment be made:—

The House divided: Ayes 274, Noes 304.

Division No 83.]	AYES	[10.0 p.m.
Adley, Robert	Fell, Anthony	Lloyd, Ian
Aitken, Jonathan	Finsberg, Geoffrey	Loveridge, John
Alison, Michael	Fisher, Sir Nigel	Luce, Richard
Amery, Rt Hon Julian	Fletcher-Cooke, Charles	McAdden, Sir Stephen
Arnold, Tom	Fookes, Miss Janet	MacCormick, lain
Atkins, Rt Hon H. (Spelthorne)	Fowler, Norman (Sutton C'f'd)	McCrindle, Robert
Awdry, Daniel	Fox, Marcus	McCusker, H.
Bain, Mrs Margaret	Fraser, Rt Hon H. (Stafford & St)	Macfarlane, Neil
Baker, Kenneth	Fry, Peter	MacGregor, John
Banks, Robert	Galbraith, Hon T. G. D.	Macmillan, Rt Hon M. (Farnham)
Bell, Ronald	Gardiner, George (Reigate)	McNair-Wilson, M. (Newbury)
Bennett, Sir Frederic (Torbay)	Gardner, Edward (S Fylde)	McNair-Wilson, P. (New Forest)
Bennett, Dr Reginald (Fareham)	Gilmour, Rt Hon Ian (chesham)	Madel, David
Benyon, W.	Gilmour, Sir John (East Fife)	Marshall, Michael (Arundel)
Berry, Hon Anthony	Glyn, Dr Alan	Marten, Neil
Biffen, John	Goodhart, Philip	Mates, Michael
Biggs-Davison, John	Goodhew, Victor	Maude, Angus
Blaker, Peter	Goodlad, Alastair	Maudling, Rt Hon Reginald
Body, Richard	Gorst, John	Mawby, Ray
Boscawen, Hon Robert	Gow, Ian (Eastbourne)	Maxwell-Hyslop, Robin
Bottomley, Peter	Gower, Sir Raymond (Barry)	Mayhew, Patrick
Bowden, A. (Brighton, Kemptown)	Grant, Anthony (Harrow C)	Meyer, Sir Anthony
Boyson, Dr Rhodes (Brent)	Gray, Hamish	Miller, Hal (Bromsgrove)
Bradford, Rev Robert	Grist, Ian	Mills, Peter
Bralne, Sir Bernard	Grylls, Michael	Miscampbell, Norman
Brittan, Leon	Hall, Sir John	Mitchell, David (Basingstoke)
Brocklebank-Fowler, C.	Hall-Davis, A. G. F.	Moate, Roger
Brotherton, Michael	Hamilton, Michael (Salisbury)	Molyneaux, James
Brown, Sir Edward (Bath)	Hampson, Dr Keith	Monro, Hector
Bryan, Sir Paul	Hannam, John	Montgomery, Fergus
Buchanan-Smith, Alick	Harrison, Col Sir Harwood (Eye)	Moore, John (Croydon C)
Buck, Antony	Harvie Anderson, Rt Hon Miss	More, Jasper (Ludlow)
Budgen, Nlck	Havers, Sir Michael	Morgan, Geraint
Bulmer, Esmond	Hawkins, Paul	Morgan-Giles, Rear-Admiral
Burden, F. A.	Hayhoe, Barney	Morris, Michael (Northampton S)
Butler, Adam (Bosworth)	Heath, Rt Hon Edward	Morrison, Charles (Devizes)
Carlisle, Mark	Henderson, Douglas	Morrison, Hon Peter (Chester)
Carson, John	Heseltine, Michael	Mudd, David
Chalker, Mrs Lynda	Hicks, Robert	Neave, Airey
Churchill, W. S.	Higgins, Terence L.	Nelson, Anthony
Clark, Alan (Plymouth, Sutton)	Holland, Philip	Neubert, Michael
Clark, William (Croydon S)	Hooson, Emlyn	Newton, Tony
Clarke, Kenneth (Rushcliffe)	Hordern, Peter	Nott, John
Clegg, Walter	Howe, Rt Hon Sir Geoffrey	Onslow, Cranley
Cockcroft, John	Howells, Geraint (Cardigan)	Oppenheim, Mrs Sally
Cooke, Robert (Bristol W)	Hunt, John	Page, John (Harrow West)
Cope, John	Hurd, Douglas	Page, Rt Hon R. Graham (Crosby)
Cordle, John H.	Hutchison, Michael Clark	Pattie, Geoffrey
Cormack, Patrick	Irving, Charles (Cheltenham)	Penhaligon, David
Corrie, John	James, David	Percival, Ian
Costain, A. P.	Jenkin, Rt Hon P. (Wanst'd & W'df'd)	Peyton, Rt Hon John
Crawford, Douglas	Jessel, Toby	Pink, R. Bonner
Critchley, Julian	Johnson Smith, G. (E Grinstead)	Powell, Rt Hon J. Enoch
Crouch, David	Jones, Arthur (Daventry)	Price, David (Eastleigh)
Crowder, F. p.	Jopling, Michael	Prior, Rt Hon James
Davies, Rt Hon J. (Knutsford)	Joseph, Rt Hon Sir Keith	Pym, Rt Hon Francis
Dean, Paul (N Somerset)	Kaberry, Sir Donald	Raison, Timothy
Dodsworth, Geoffrey	Kershaw, Anthony	Rathbone, Tim
Douglas-Hamilton, Lord James	Kilfedder, James	Rawlinson, Rt Hon Sir Peter
Drayson, Burnaby	Kimball, Marcus	Rees, Peter (Dover & Deal)
du Cann, Rt Hon Edward	King, Evelyn (South Dorset)	Reid, George
Dunlop, John	King, Tom (Bridgwater)	Renton, Rt Hon Sir D. (Hunts)
Durant, Tony	Kitson, Sir Timothy	Renton, Tim (Mid-Sussex)
Eden, Rt Hon Sir John	Knox, David	Ridley, Hon Nicholas
Edwards, Nicholas (Pembroke)	Lamont, Norman	Ridsdale, Julian
Elliott, Sir William	Lane, David	Rifkind, Malcolm
Emery, Peter	Langford-Holt, Sir John	Rippon, Rt Hon Geoffrey
Evans, Gwynfor (Carmarthen)	Latham, Michael (Melton)	Roberts, Michael (Cardiff NW)
Eyre, Reginald	Lawrence, Ivan	Roberts, Wyn (Conway)
Fairbairn, Nicholas	Lawson, Nigel	Rodgers, Sir John (Sevenoaks)
Fairgrieve, Russell	Lester, Jim (Beeston)	Ross, William (Londonderry)
Farr, John	Lewis, Kenneth (Rutland)	Rossi, Hugh (Hornsey)
Rost, Peter (SE Derbyshire)	Steen, Anthony (Wavertree)	Walker, Rt Hon P. (Worcester)
Royle, Sir Anthony	Stewart, Donald (Western Isles)	Wall, Patrick
Sainsbury. Tim	Stewart, Ian (Hitchin)	Walters, Dennls
St. John-Stevas, Norman	Stokes, John	Warren, Kenneth
Scott, Nicholas	Stradling Thomas, J.	Watt, Hamish
Shaw, Giles (Pudsey)	Tapsell, Peter	Weatherill, Bernard
Shelton, William (Streatham)	Taylor, R. (Croydon NW)	Wells, John
Shepherd, Colin	Taylor, Teddy (Cathcart)	Welsh, Andrew
Shersby, Michael	Tebbit, Norman	Whitelaw, Rt Hon William
Silvester, Fred	Temple-Morris, Peter	Wiggin, Jerry
Sims, Roger	Thatcher, Rt Hon Margaret	Wigley, Dafydd
Sinclair, Sir George	Thomas, Rt Hon P. (Hendon S)	Wilson, Gordon (Dundee E)
Skeet, T. H. H.	Thompson, George	Winterton, Nicholas
Smith, Dudley (Warwick)	Townsend, Cyril D.	Wood, Rt Hon Richard
Speed, Keith	Trotter, Neville	Young, Sir G. (Ealing, Acton)
Spence, John	Tugendhat, Christopher	Younger, Hon George
Spicer, Michael (S Worcester)	van Straubenzee, W. R.
Sproat, lain	Vaughan, Dr Gerard	TELLERS FOR THE AYES:
Stainton, Keith	Viggers, Peter	Mr. Spencer Le Marchant and
Stanbrook, Ivor	Wakeham, John	Mr. Cecil Parkinson.
Stanley, John	Walder, David (Clitheroe)
NOES
Abse, Leo	Davis, Clinton (Hackney C)	Hughes, Rt Hon C. (Anglesey)
Allaun, Frank	Deakins, Eric	Hughes, Robert (Aberdeen N)
Anderson, Donald	Dean, Joseph (Leeds West)	Hughes, Roy (Newport)
Archer, Peter	Delargy, Hugh	Hunter, Adam
Armstrong, Ernest	Dell, Rt Hon Edmund	Irvine, Rt Hon Sir A. (Edge Hill)
Ashley, Jack	Dempsey, James	Irving, Rt Hon S. (Dartford)
Ashton, Joe	Doig, Peter	Jackson, Colin (Brighouse)
Atkins, Ronald (Preston N)	Dormand, J. D.	Jackson, Miss Margaret (Lincoln)
Atkinson, Norman	Douglas-Mann, Bruce	Janner, Greville
Bagier, Gordon A. T.	Duffy, A. E. P.	Jay, Rt Hon Douglas
Barnett, Rt Hon Joel (Heywood)	Dunnett, Jack	Jeger, Mrs Lena
Bates, Alf	Eadie, Alex	Jenkins, Hugh (Putney)
Bean, R. E.	Edge, Geoff	Jenkins, Rt Hon Roy (Stechford)
Beith, A. J.	Edwards, Robert (Wolv SE)	John, Brynmor
Benn, Rt Hon Anthony Wedgwood	Ellis, John (Brigg & Scun)	Johnson, James (Hull West)
Bennett, Andrew (Stockport N)	English, Michael	Johnson, Walter (Derby S)
Bidwell, Sydney	Ennals, David	Jones, Alec (Rhondda)
Bishop, E. S.	Evans, Fred (Caerphilly)	Jones, Barry (East Flint)
Blenkinsop, Arthur	Evans, loan (Aberdare)	Jones, Dan (Burnley)
Boardman, H.	Ewing, Harry (Stirling)	Judd, Frank
Booth, Rt Hon Albert	Faulds, Andrew	Kaufman, Gerald
Bottomley, Rt Hon Arthur	Fernyhough, Rt Hon E.	Kelley, Richard
Boyden, James (Bish Auck)	Fitch, Alan (Wigan)	Kerr, Russell
Bradley, Tom	Fitt, Gerard (Belfast W)	Kilroy-Silk, Robert
Bray, Dr Jeremy	Flannery, Martin	Kinnock, Neil
Brown, Hugh D. (Proven)	Fletcher, Raymond (Ilkeston)	Lambie, David
Brown, Robert C. (Newcastle W)	Fletcher, Ted (Darlington)	Lamborn, Harry
Brown, Ronald (Hackney S)	Foot, Rt Hon Michael	Lamond, James
Buchan, Norman	Ford, Ben	Latham, Arthur (Paddington)
Buchanan, Richard	Forrester, John	Leadbitter, Ted
Butler, Mrs Joyce (Wood Green)	Fowler, Gerald (The Wrekin)	Lee, John
Callaghan, Rt Hon J. (Cardiff SE)	Fraser, John (Lambeth, N'w'd)	Lestor, Miss Joan (Eton & Slough)
Callaghan, Jim (Middleton & P)	Freeson, Reginald	Lever, Rt Hon Harold
Campbell, lan	Freud, Clement	Lewis, Arthur (Newham N)
Canavan, Dennis	Garrett, John (Norwich S)	Lewis, Ron (Carlisle)
Cant, R. B.	Garrett, W. E. (Wallsend)	Lipton, Marcus
Carmichael, Neil	George, Bruce	Litterick, Tom
Carter, Ray	Gilbert, Dr John	Loyden, Eddie
Carter-Jones, Lewis	Ginsburg, David	Luard, Evan
Cartwright, John	Golding, John	Lyon, Alexander (York)
Castle, Rt Hon Barbara	Gould, Bryan	Lyons, Edward (Bradford W)
Clemitson, Ivor	Gourlay, Harry	Mabon, Dr J. Dickson
Cocks, Michael (Bristol S)	Graham, Ted	McCartney, Hugh
Cohen, Stanley	Grant, George (Morpeth)	McElhone, Frank
Coleman, Donald	Grant, John (Islington C)	MacFarquhar, Roderick
Colquhoun, Ms Maureen	Grimond, Rt Hon J.	McGuire, Michael (Ince)
Concannon, J. D.	Grocott, Bruce	Mackenzie, Gregor
Conlan, Bernard	Hamilton, James (Bothwell)	Mackintosh, John P.
Cook, Robin F. (Edin C)	Hardy, Peter	Maclennan, Robert
Corbett, Robin	Harper, Joseph	McMillan, Tom (Glasgow C)
Cox, Thomas (Tooting)	Harrison, Walter (Wakefield)	McNamara, Kevin
Craigen, J. M. (Maryhill)	Hattersley, Rt Hon Roy	Madden, Max
Crawshaw, Richard	Hatton, Frank	Magee, Bryan
Cronin, John	Hayman, Mrs Helene	Maguire, Frank (Fermanagh)
Crosland, Rt Hon Anthony	Healey, Rt Hon Denis	Mahon, Simon
Cryer, Bob	Heffer, Eric S.	Mallalieu, J. P. W.
Cunningham, Dr J. (Whiten)	Hooley, Frank	Marks, Kenneth
Davidson, Arthur	Horam, John	Marquand, David
Davies, Bryan (Enfield N)	Howell, Rt Hon Denis	Marshall, Dr Edmund (Goole)
Davies, Denzil (Llanelli)	Hoyle, Doug (Nelson)	Marshall, Jim (Leicester S)
Davies, Ifor (Gower)	Huckfleld, Les	Mason, Rt Hon Roy

Maynard, Miss Joan	Roberts, Gwilym (Cannock)	Thorne, Stan (Preston South)
Meacher, Michael	Robertson, John (Paisley)	Thorpe, Rt Hon Jeremy (N Devon)
Mellish, Rt Hon Robert	Robinson, Geoffrey	Tierney, Sydney
Mendelson, John	Roderick, Caerwyn	Tinn, James
Mikardo, Ian	Rodgers, George (Chorley)	Tomlinson, John
Millan, Bruce	Rodgers, William (Stockton)	Torney, Tom
Miller, Dr M. S. (E Kilbride)	Rooker, J. W.	Tuck, Raphael
Miller, Mrs Millie (Ilford N)	Roper, John	Urwin, T. W.
Molloy, William	Rose, Paul B.	Varley, Rt Hon Eric 0.
Moonman, Eric	Ross, Stephen (Isle of Wight)	Wainwright, Edwin (Dearne V)
Morris, Alfred (Wythenshawe)	Ross, Rt Hon W. (Kilmarnock)	Wainwright, Richard (Colne V)
Morris, Charles R. (Openshaw)	Rowlands, Ted	Waiden, Brian (B'ham, L'dyw'd)
Morris, Rt Hon J. (Aberavon)	Sandelson, Neville	Walker, Harold (Doncaster)
Moyle, Roland	Sedgemore, Brian	Walker, Terry (Kingswood)
Mulley, Rt Hon Frederick	Selby, Harry	Ward, Michael
Murray, Rt Hon Ronald King	Shaw, Arnold (Ilford South)	Watkins, David
Newens, Stanley	Sheldon, Robert (Ashton-u-Lyne)	Watkinson, John
Noble, Mike	Shore, Rt Hon Peter	Weelch, Ken
Oakes, Gordon	Short, Rt Hon E. (Newcastle C)	Weitzman, David
Ogden, Eric	Short, Mrs Renée (Wolv NE)	Wellbeloved, James
O'Halloran, Michael	Silkin, Rt Hon John (Deptford)	White, Frank R. (Bury)
O'Malley, Rt Hon Brian	Silkin, Rt Hon S. C. (Dulwich)	White, James (Pollok)
Orbach, Maurice	Sillars, James	Whitehead, Phillip
Ovenden, John	Silverman, Julius	Whitlock, William
Owen, Dr David	Skinner, Dennis	Willey, Rt Hon Frederick
Padley, Walter	Small, William	Williams, Alan (Swansea W)
Palmer, Arthur	Smith, John (N Lanarkshire)	Williams, Alan Lee (Hornch'ch)
Pardoe, John	Snape, Peter	Williams, Rt Hon Shirley (Hertford)
Park, George	Spearing, Nigel	Williams, Sir Thomas
Parker, John	Spriggs, Leslie	Wilson, Alexander (Hamilton)
Parry, Robert	Stallard, A. W.	Wilson, Rt Hon H. (Huyton)
Pavitt, Laurie	Steel, David (Roxburgh)	Wilson, William (Coventry SE)
Peart, Rt Hon Fred	Stoddart, David	Wise, Mrs Audrey
Perry, Ernest	Stott, Roger	Woodall, Alec
Phipps, Dr Colin	Strang, Gavin	Woof, Robert
Prentice, Rt Hon Reg	Strauss, Rt Hon G. R.	Wrigglesworth, Ian
Price, C. (Lewisham W)	Summerskill, Hon Dr Shirley	Young, David (Bolton E)
Price, William (Rugby)	Swain, Thomas
Radice, Giles	Taylor, Mrs Ann (Bolton W)	TELLERS FOR THE NOES:
Rees, Rt Hon Merlyn (Leeds S)	Thomas, Jeffrey (Abertillery)	Mr. James A. Dunn and
Richardson, Miss Jo	Thomas, Mike (Newcastle E)	Mr. Tom Pendry,
Roberts, Albert (Normanton)	Thomas, Ron (Bristol NW)

Question accordingly negatived.

Main Question put:—

The House divided: Ayes, 256, Noes 284.

Division No. 84.	AYES	10.19 p.m.
Abse, Leo	Cohen, Stanley	Faulds, Andrew
Anderson, Donald	Coleman, Donald	Fernyhough, Rt Hon E.
Archer, Peter	Concannon, J. D.	Fitch, Alan (Wigan)
Armstrong, Ernest	Conlan, Bernard	Fitt, Gerard (Belfast W)
Ashley, Jack	Corbett, Robin	Fletcher, Raymond (Ilkeston)
Bagier, Gordon A. T.	Cox, Thomas (Tooting)	Foot, Rt Hon Michael
Barnett, Rt Hon Joel (Heywood)	Craigen, J. M. (Maryhill)	Ford, Ben
Bates, Alf	Crawshaw, Richard	Forrester, John
Bean, R. E.	Cronin, John	Fowler, Gerald (The Wrekin)
Benn, Rt Hon Anthony Wedgwood	Crosland, Rt Hon Anthony	Fraser, John (Lambeth, N'w'd)
Bishop, E. S.	Cunningham, Dr J. (Whiteh)	Freeson, Reginald
Blenkinsop, Arthur	Davidson, Arthur	Garrett, John (Norwich S)
Boardman, H.	Davies, Bryan (Enfield N)	Garrett, W. E. (Wallsend)
Booth, Rt Hon Albert	Davies, Denzil (Llaneill)	George, Bruce
Bottomley, Rt Hon Arthur	Davies, Ifor (Gower)	Gilbert, Dr John
Boyden, James (Bish Auck)	Davis, Clinton (Hackney C)	Ginsburg, David
Bradley, Tom	Deakins, Eric	Golding, John
Bray, Dr Jeremy	Dean, Joseph (Leeds West)	Gould, Bryan
Brown, Hugh D. (Provan)	Delargy, Hugh	Gourlay, Harry
Brown, Robert C. (Newcastle W)	Dell, Rt Hon Edmund	Graham, Ted
Brown, Ronald (Hackney S)	Dempsey, James	Grant, George (Morpeth)
Buchan, Norman	Dolg, Peter	Grant, John (Islington C)
Buchanan, Richard	Dormand, J. D.	Grocott, Bruce
Butler, Mrs Joyce (Wood Green)	Douglas-Mann, Bruce	Hamilton, James (Bothwell)
Callaghan, Rt Hon J. (Cardiff SE)	Duffy, A. E. P.	Hardy, Peter
Campbell, lan	Dunnett, Jack	Harper, Joseph
Cant, R. B.	Eadie, Alex	Harrison, Walter (Wakefield)
Carmichael, Neil	Edwards, Robert (Wolv SE)	Hattersley, Rt Hon Roy
Carter, Ray	Ellis, John (Brigg & Scun)	Hatton, Frank
Carter-Jones, Lewis	English, Michael	Hayman, Mrs Helene
Cartwright, John	Ennals, David	Healey, Rt Hon Denis
Castle, Rt Hon Barbara	Evans, Fred (Caerphilly)	Hooley, Frank
Clemitson, Ivor	Evans, loan (Aberdare)	Horam, John
Cocks, Michael (Bristol S)	Ewing, Harry (Stirling)	Howell, Rt Hon Denis
Huckfield, Les	Mason, Rt Hon Roy	Small, William
Hughes, Rt Hon C. (Anglesey)	Meacher, Michael	Smith, John (N Lanarkshire)
Hughes, Robert (Aberdeen N)	Mellish, Rt Hon Robert	Snape, Peter
Hughes, Roy (Newport)	Mendelson, John	Spearing, Nigel
Hunter, Adam	Millan, Bruce	Spriggs, Leslie
Irvine, Rt Hon Sir A. (Edge Hill)	Miller, Mrs Millie (Ilford N)	Stallard, A. W.
Irving, Rt Hon S. (Dartford)	Molioy, William	Stoddart, David
Jackson, Colin (Brighouse)	Moonman, Eric	Stott, Roger
Jackson, Miss Margaret (Lincoln)	Morris, Alfred (Wythenshawe)	Strang, Gavin
Janner, Greville	Morris, Charles R. (Openshaw)	Strauss, Rt Hon G. R.
Jay, Rt Hon Douglas	Morris, Rt Hon J. (Aberavon)	Summerskill, Hon Dr Shirley
Jeger, Mrs Lena	Moyle, Roland	Swain, Thomas
Jenkins, Hugh (Putney)	Mulley, Rt Hon Frederick	Taylor, Mrs Ann (Bolton W)
Jenkins, Rt Hon Roy (Stechford)	Murray, Rt Hon Ronald King	Thomas, Jeffrey (Abertillery)
John, Brynmor	Noble, Mike	Thomas, Mike (Newcastle E)
Johnson, James (Hull West)	Oakes, Gordon	Tierney, Sydney
Johnson, Walter (Derby S)	Ogden, Eric	Tinn, James
Jones, Alec (Rhondda)	O'Halloran, Michael	Tomlinson, John
Jones, Barry (East Flint)	O'Malley, Rt Hon Brian	Torney, Tom
Jones, Dan (Burnley)	Orbach, Maurice	Tuck, Raphael
Judd, Frank	Ovenden, John	Urwin, T. W.
Kaufman, Gerald	Owen, Dr David	Varley, Rt Hon Eric G.
Kelley, Richard	Padley, Walter	Wainwright, Edwin (Dearne V)
Kilroy-Sllk, Robert	Palmer, Arthur	Waiden, Brian (B'ham, L'dyw'd)
Lamborn, Harry	Park, George	Walker, Harold (Doncaster)
Lamond, James	Parker, John	Walker, Terry (Kingswood)
Leadbitter, Ted	Pavitt, Laurie	Ward, Michael
Lever, Rt Hon Harold	Peart, Rt Hon Fred	Watkins, David
Lewis, Arthur (Newham N)	Perry, Ernest	Watkinson, John
Lewis, Ron (Carlisle)	Phipps, Dr Colin	Weetch, Ken
Lipton, Marcus	Prentice, Rt Hon Reg	Weitzman, David
Luard, Evan	Price, C. (Lewisham W)	Wellbeloved, James
Lyon, Alexander (York)	Price, William (Rugby)	White, Frank R. (Bury)
Lyons, Edward (Bradford W)	Radice, Giles	White, James (Pollok)
Mabon, Dr J. Dickson	Rees, Rt Hon Merlyn (Leeds S)	Whitehead, Phillip
McCartney, Hugh	Roberts, Albert (Normanton)	Whitlock, William
McElhone, Frank	Roberts, Gwilym (Cannock)	Willey, Rt Hon Frederick
MacFarquhar, Roderick	Robinson, Geoffrey	Williams, Alan (Swansea W)
McGuire, Michael (Ince)	Roderick, Caerwyn	Williams, Alan Lee (Hornch'ch)
Mackenzie, Gregor	Rodgers, William (Stockton)	Williams, Rt Hon Shirley (Hertford)
Mackintosh, John P.	Rooker, J. W.	Williams, Sir Thomas
Maclennan, Robert	Roper, John	Wilson, Alexander (Hamilton)
McMillan, Tom (Glasgow C)	Rose, Paul B.	Wilson, Rt Hon H. (Huyton)
McNamara, Kevin	Ross, Rt Hon W. (Kilmarnock)	Wilson, William (Coventry SE)
Madden, Max	Rowlands, Ted	Woodall, Alec
Magee, Bryan	Sandelson, Neville	Woof, Robert
Maguire, Frank (Fermanagh)	Shaw, Arnold (Ilford South)	Wrigglesworth, Ian
Mahon, Simon	Sheldon, Robert (Ashton-u-Lyne)	Young, David (Bolton E)
Mallalieu, J. P. W.	Shore, Rt Hon Peter
Marks, Kenneth	Short, Rt Hon E. (Newcastle C)	TELLERS FOR THE AYES:
Marquand, David	Silkin, Rt Hon John (Deptford)	Mr. James A. Dunn and
Marshall, Dr Edmund (Goole)	Silkin, Rt Hon S. C. (Dulwich)	Mr. Tom Pendry.
Marshall, Jim (Leicester S)	Silverman, Julius
NOES
Adley, Robert	Brown, Sir Edward (Bath)	Dodsworth, Geoffrey
Aitken, Jonathan	Bryan, Sir Paul	Douglas-Hamilton, Lord Jams"
Alison, Michael	Buchanan-Smith, Alick	Drayson, Burnaby
Amery, Rt Hon Julian	Buck, Antony	du Carin, Rt Hon Edward
Arnold, Tom	Budgen, Nick	Dunlop, John
Atkins, Rt Hon H. (Spelthorne)	Bulmer, Esmond	Durant, Tony
Awdry, Daniel	Burden, F. A.	Eden, Rt Hon Sir John
Bain, Mrs Margaret	Butler, Adam (Bosworth)	Edwards, Nicholas (Pembroke)
Baker, Kenneth	Carlisle, Mark	Elliott, Sir William
Banks, Robert	Carson, John	Emery, Peter
Beith, A. J.	Chalker, Mrs Lynda	Evans, Gwynfor (Carmarthen)
Bell, Ronald	Churchill, W. S.	Eyre, Reginald
Bennett, Sir Frederic (Torbay)	Clark, Alan (Plymouth, Sutton)	Fairbairn, Nicholas
Bennett, Dr Reginald (Fareham)	Clark, William (Croydon S)	Fairgrieve, Russell
Benyon, W.	Clarke, Kenneth (Rushcliffe)	Farr, John
Berry, Hon Anthony	Clegg, Walter	Fell, Anthony
Biffen, John	Cockcroft, John	Finsberg, Geoffrey
Biggs-Davison, John	Cooke, Robert (Bristol W)	Fisher, Sir Nigel
Blaker, Peter	Cope, John	Fletcher-Cooke, Charles
Body, Richard	Cordle, John H.	Fookes, Miss Janet
Boscawen, Hon Robert	Cormack, Patrick	Fowler, Norman (Sutton C'f'd)
Bottomley, Peter	Corrie, John	Fox, Marcus
Bowden, A. (Brighton, Kemptown)	Costain, A. P.	Fraser, Rt Hon H. (Stafford & St)
Boyson, Dr Rhodes (Brent)	Crawford, Douglas	Freud, Clement
Bradford, Rev Robert	Critchley, Julian	Fry, Peter
Braine, Sir Bernard	Crouch, David	Galbraith, Hon T. G. D.
Brittan, Leon	Crowder, F. P.	Gardiner, George (Reigate)
Brocklebank-Fowier, C.	Davies, Rt Hon J. (Knutsford)	Gardner, Edward (S Fylde)
Brotherton, Michael	Dean, Paul (N Somerset)	Gilmour, Rt Hon Ian (Chesham)

Gilmour, Sir John (East Fife)	MacGregor, John	Rossi, Hugh (Hornsey)
Glyn, Dr Alan	Macmillan, Rt Hon M. (Farnham)	Rost, Peter (SE Derbyshire)
Goodhart, Philip	McNair-Wilson, M. (Newbury)	Royle, Sir Anthony
Goodhew, Victor	McNair-Wilson, P. (New Forest)	Sainsbury, Tim
Goodlad, Alastair	Madel, David	St. John-Stevas, Norman
Gorst, John	Marshall, Michael (Arundel)	Scott, Nicholas
Gow, Ian (Eastbourne)	Marten, Neil	Shaw, Giles (Pudsey)
Gower, Sir Raymond (Barry)	Mates, Michael	Shelton, William (Streatham)
Grant, Anthony (Harrow C)	Mather, Carol	Shepherd, Colin
Gray, Hamish	Maude, Angus	Shersby, Michael
Grimond, Rt Hon J.	Maudling, Rt Hon Reginald	Sillars, James
Grist, Ian	Mawby, Ray	Silvester, Fred
Grylls, Michael	Maxwell-Hyslop, Robin	Sims, Roger
Hall, Sir John	Mayhew, Patrick	Sinclair, Sir George
Hall-Davis, A. G. F.	Meyer, Sir Anthony	Skeet, T. H. H.
Hamilton, Michael (Salisbury)	Miller, Hal (Bromsgrove)	Smith, Dudley (Warwick)
Hampson, Dr Keith	Mills, Peter	Speed, Keith
Hannam, John	Miscampbell, Norman	Spence, John
Harrison, Col Sir Harwood (Eye)	Mitchell, David (Basingstoke)	Spicer, Michael (S Worcester)
Harvie Anderson, Rt Hon Miss	Moate, Roger	Sproat, lain
Havers, Sir Michael	Molyneaux, James	Stainton, Keith
Hawkins, Paul	Monro, Hector	Stanbrook, Ivor
Hayhoe, Barney	Montgomery, Fergus	Stanley, John
Heath, Rt Hon Edward	Moore, John (Croydon C)	Steel, David (Roxburgh)
Henderson, Douglas	More, Jasper (Ludlow)	Steen, Anthony (Wavertree)
Heseltine, Michael	Morgan, Geraint	Stewart, Donald (Western Isles)
Hicks, Robert	Morgan-Giles, Rear-Admiral	Stewart, Ian (Hitchin)
Higgins, Terence L.	Morris, Michael (Northampton S)	Stokes, John
Holland, Philip	Morrison, Charles (Devizes)	Stradling Thomas, J.
Hooson, Emlyn	Morrison, Hon Peter (Chester)	Tapsell, Peter
Hordern, Peter	Mudd, David	Taylor, R. (Croydon NW)
Howe, Rt Hon Sir Geoffrey	Neave, Airey	Taylor, Teddy (Cathcart)
Howells, Geraint (Cardigan)	Nelson, Anthony	Tebbit, Norman
Hunt, John	Neubert, Michael	Temple-Morris, Peter
Hurd, Douglas	Newton, Tony	Thatcher, Rt Hon Margaret
Hutchison, Michael Clark	Nott, John	Thomas, Rt Hon P. (Hendon S)
Irving, Charles (Cheltenham)	Onslow, Cranley	Thompson, George
James, David	Oppenheim, Mrs Sally	Thorpe, Rt Hon Jeremy (N Devon)
Jenkin, Rt Hon P. (Wanst'd & W'dt'd)	Page, John (Harrow West)	Townsend, Cyril D.
		Trotter, Neville
Jessel, Toby	Page, Rt Hon R. Graham (Crosby)	Tugendhat Christopher
Johnson Smith, G. (E Grinstead)	Pardoe, John	van Straubenzee, W. R.
Jones, Arthur (Daventry)	Pattie, Geoffrey	Vaughan, Dr Gerard
Jopling, Michael	Penhaligon, David	Viggers, Peter
Joseph, Rt Hon Sir Keith	Percival, Ian	wainwright, Richard (Colne V)
Kaberry, Sir Donald	Peyton, Rt Hon John	Wakeham, John
Kershaw, Anthony	Pink, R. Bonner	Walder, David (Clitheroe)
Kilfedder, James	Powell, Rt Hon J. Enoch	Walker Rt Hon P. (Worcester)
Kimball, Marcus	Price, David (Eastleigh)	Wall, Patrick
King, Evelyn (South Dorset)	Prior, Rt Hon James	Walters, Dennis
King, Tom (Bridgwater)	Pym, Rt Hon Francis	Warren, Kenneth
Kitson, Sir Timothy	Raison, Timothy	Watt Hamish
Knox, David	Rathbone, Tim	Weatherill Bernard
Lamont, Norman	Rawlinson, Rt Hon Sir Peter	Wells, John
Lane, David	Rees, Peter (Dover & Deal)	Welsh, Andrew
Langford-Holt, Sir John	Reid, George	Whitelaw, Rt Hon William
Latham, Michael (Melton)	Renton, Rt Hon Sir D. (Hunts)	Wiggin, Jerry
Lawrence, Ivan	Renton, Tim (Mid-Sussex)	Wigley, Dafydd
Lawson, Nigel	Ridley, Hon Nicholas	Wilson, Gordon (Dundee E)
Lester, Jim (Beeston)	Ridsdale, Julian	Winterton, Nicholas
Lewis, Kenneth (Rutland)	Rifkind, Malcolm	Wood, Rt Hon Richard
Lloyd, Ian	Rippon, Rt Hon Geoffrey	Young, Sir G. (Ealing, Acton)
Loveridge, John	Roberts, Michael (Cardiff NW)	Younger, Hon George
Luce, Richard	Roberts, Wyn (Conway)
McAdden, Sir Stephen	Robertson, John (Paisley)	TELLERS FOR THE NOES:
MacCormick, lain	Rodgers, Sir John (Sevenoaks)	Mr. Spencer Le Marchant and
McCusker, H.	Ross, Stephen (Isle of Wight)	Mr. Cecil Parkinson.
Macfarlane, Neil	Ross, William (Londonderry)

Question accordingly negatived.

Mrs. Margaret Thatcher (Finchley)

On a point of order, Mr. Speaker. The Government have been decisively defeated and discredited on a matter central to their whole economic policy. Such a defeat is unprecedented in modern times. In the light of the decision of the House of Commons, I call upon the Government to resign, or to seek a vote of confidence on this issue forthwith. In the absence of the Prime Minister—[HON. MEMBERS: "Where is he?]—I ask the senior member of the Government present forthwith to make a statement of his intentions.

Mr. Speaker

Mr. Short.

The Lord President of the Council and Leader of the House of Commons (Mr. Edward Short)

On a point of order, Mr. Speaker——

Mr. Jeremy Thorpe (Devon, North)

On a point of order, Mr. Speaker——

Mr. Speaker

Order. I had called the Leader of the House. He is on a point of order. It is a very broad point of order.

Mr. Edward Short

My right hon. Friend the Prime Minister will consider the situation created by the voting tonight and announce his intentions in due course.

Mr. Thorpe

Further to that point of order, Mr. Speaker. Since this is a defeat for the economic strategy of the Government, which likewise fails to give endorsement to the alternative strategy of the official Opposition, are we to take it that this country now has no economic strategy at all? What will the Prime Minister do to remove the uncertainty, which will have a devastating effect not only on the pound, but on the economy of this country?

Mr. Donald Stewart (Western Isles)

Further to that point of order, Mr. Speaker. In view of the decisive defeat on this tremendous economic issue and in view of the points made by my hon. Friends today regarding Scotland, and as Scotland is ready for an election, I suggest that the Leader of the House should see his right hon. Friend to that effect immediately.

Mrs. Thatcher

The reply by the Leader of the House, that a statement will be made in due course, is an insult to the House of Commons. The Government have been defeated by 28 votes. The least that we can expect is a statement tomorrow afternoon.

Mr. Edward Short

I have nothing to add to what I said, except to point out that the Opposition were defeated by 30 votes on their amendment.

Mrs. Thatcher

The Leader of the House adds insult to insult. If democracy meant anything in this country, it would already have gone by his highly dictatorial attitude. The Government have been defeated, and they were on trial tonight. We demand a statement tomorrow afternoon.

Several Hon. Members rose——

Mr. Speaker

Order. This is clearly a matter on which I cannot rule. This argument will have to be continued tomorrow.

Mr. Peter Emery (Honiton)

On a point of order, Mr. Speaker. This is obviously a major constitutional matter. As the Prime Minister has been seen in the House, will you consider suspending the sitting in order that we may have the statement that the Leader of the House intimated would be given as soon as possible?

Several Hon. Members rose——

Mr. Speaker

Order. The Leader of the Opposition asked for a statement tomorrow. I think that I am correct in that. [HON. MEMBERS: "Tonight."] My hearing is very good. Despite the excitement in the House on a major occasion, I do not believe that any advantage will be gained by continuing points of order. Clearly, serious decisions have to be taken.

Several Hon. Members rose——

Mr. Speaker

Order. I have not yet resumed my seat. I was not indicating by whom those decisions would have to be taken. I am not taking sides. We should move on to the next business.

Sir David Renton (Huntingdonshire)

On a point of order, Mr. Speaker. If the life of the House of Commons means anything, it means that, as an Opposition, we have the right to challenge the Government. If we succeed in challenging and defeating the Government as decisively as we have tonight, traditionally we have the right to expect the Government to make an immediate response to the decision of the House of Commons. It is for that reason, no doubt, that my right hon. Friend the Leader of the Opposition has demanded that the Prime Minister should state his position—[HON. MEMBERS: "Tomorrow."]—because it is his Government's future that is at stake, and he should do so tonight as soon as he can be brought here.

On an occasion such as this the Prime Minister should have been in the Chamber. Failing that, he should be immediately readily available. I suggest that it is only courteous and right to give him an opportunity to come down to the House—[Interruption.]—in order to—[HON. MEMBERS: "He is behind the Speaker's Chair."]——

Mr. Speaker

Order. Hon. Members must try to control themselves. The right hon. and learned Member for Huntingdonshire (Sir D. Renton) is addressing the House.

Sir D. Renton

In the nature of things, the Prime Minister cannot be far away. He will be either somewhere within the precincts of the House or two minutes' drive away in Downing Street. Even if he has gone to Lord North Street, he will not be too far away. Therefore, it is not physically an unreasonable request that we make for the Prime Minister to be present.

I see the Patronage Secretary standing by the side of your Chair, Mr. Speaker. I think that by now he ought to have got a message to the Prime Minister. It may be that we can simply await the flight hon. Gentleman's arrival.

There is further business to be conducted tonight. It may not take long, but it will probably take long enough for the Prime Minister to get here. If I may respectfully make a suggestion, it is that the Leader of the House should assure us that the Prime Minister has been informed of the wishes expressed by my right hon. Friend the Leader of the Opposition and that, if we proceed with our further business, the Prime Minister will come to the House and declare his intentions about the future of his Government.

Mr. John Peyton (Yeovil)

Further to that point of order, Mr. Speaker. In the circumstances, I think that we would wish to be very patient and restrained. I wonder whether you would consider suspending the sitting for, say, a quarter of an hour so as to give the Prime Minister time to prepare himself and to make even a brief appearance this evening.

Mr. David Crouch (Canterbury)

On a point of order——

Mr. Julian Ridsdale (Harwich)

On a point of order——

Mr. Speaker

Order. I am already dealing with a number of points of order.

I am not prepared to suspend the sitting at the moment because it has been said quite clearly that a statement will be given to the House tomorrow. As I understand it, the Leader of the House has said that the Government will make a statement tomorrow.

Hon. Members

No.

Mr. Edward Short

On a point of order, Mr. Speaker. That is not what I said. But if it will help the House, I will certainly say that a statement will be made tomorrow.

Mr. Ridsdale

On a point of order, Mr. Speaker. In view of the uncertainty in world financial markets, it would be wise for the Government to make an immediate statement rather than to procrastinate and let the pound fall further because of this situation.

Mr. Crouch

The House is used to sitting up late at night. The Government have suffered a severe reverse tonight and the people outside the House, including in my constituency, will not understand the workings of Parliament and democracy if we do not get a decision tonight. I earnestly ask you, Mr. Speaker, to suspend the sitting to give us time to see the Prime Minister tonight and to hear his statement.

Mr. Patrick Cormack (Staffordshire, South-West)

I reinforce what my hon. Friend the Member for Canterbury (Mr. Crouch) has said. This situation is totally without precedent. The Prime Minister is skulking in the wings leaving his colleagues on the Front Bench. This means that we have to wait until 3.30 p.m. tomorrow for a statement. Will you suspend the sitting for quarter of an hour, Mr. Speaker?

Mr. Robin Maxwell-Hyslop (Tiverton)

On a point of order, Mr. Speaker. The Prime Minister is the senior Treasury Minister. The debate has been on a Treasury matter. Alone among all the members of the House you, Mr. Speaker, are the most senior and you have the right to command the presence of any Member of the House. It is the clear will of the House that you should command the attendance of the senior Treasury Minister after the Government have been defeated. As by now the Prime Minister has disappeared from behind your back, I think that it would be appropriate for you to order him as the First Lord of the Treasury to be present in the House at 11 o'clock and for you to suspend the sitting until then.

Mr. George Strauss (Vauxhall)

On a point of order, Mr. Speaker. All the points of order so far raised on the Opposition Benches have been on the assumption that when a Government are defeated on a vote, it is their duty to declare their proposals and policy the same evening. But I am sure that you are aware, Mr. Speaker, that when Mr. Winston Churchill was defeated in this House on a vote, he announced that he would make his decision——

Hon. Members

He announced it himself!

Mr. Speaker

Order. The House should allow the right hon. Gentleman the Father of the House to finish what he is saying.

Mr. Strauss

The point, Mr. Speaker, as you will appreciate, is that the reaction of the Government was that time should be permitted for the Prime Minister to consider the matter, and a promise was given that an announcement would be made the next day about the Government's policy.

Mr. Ridsdale

What about the pound?

Mr. Strauss

The Leader of the House today in this House has exactly followed that precedent.

Hon. Members

No.

Mrs. Thatcher

On a point of order, Mr. Speaker. May I ask the Leader of the House to ascertain whether the Prime Minister is present within the precincts and, if so, to bring him here at once?

Hon. Members

Answer!

Mr. Speaker rose——

Mr. Victor Goodhew (St. Albans)

On a point of order——

Mr. Speaker

Order. We are reaching a stage now of argument rather than of points of order.

Mr. Goodhew

On a point of order, Mr. Speaker——

Mr. Speaker

Order. When I am on my feet, there cannot be a point of order.

My predecessor in the Chair, on similar occasions, when the defeat might not have been as great but when there was great excitement in the House over defeats, allowed two bites of the cherry on each side and then called it a day. I am going to do the same.

Mr. Goodhew rose——

Mr. Speaker

Order. The House must play the game with me on this.

Mr. Cormack

So must the Prime Minister.

Mr. Speaker

Order. It is all right for hon. Members to be shouting from a sitting position, but it is out of order and very unworthy of the House to do so when I am on my feet.

We have had a statement from the Government Front Bench that a statement is to be made in the House tomorrow. That follows precedent. The question as to who makes the statement is not for me. A statement has been made by the Leader of the House on behalf of the Government. The next business is EEC Orders.

Hon. Members

No.

Mr. Goodhew

On a point of order——

Mr. John Page (Harrow, West)

On a point of order. With very deep respect to you, Mr. Speaker, I feel that there is no real precedent for what has taken place tonight, since the Prime Minister is not out of the country, and he is not out of the House: he is actually here.

Mr. Speaker

Order. I have made it clear that it is not a point of order for me to rule who is in the Chamber and who is not. That is perfectly clear. I am following well-established precedent. When a Government statement is made announcing that a statement will be made the next day, the House has hitherto always accepted it.

Mr. Walter Clegg (North Fylde)

No.

Mr. Speaker

It has.

I am now moving on to the next business.

Hon. Members

No.

Several Hon. Members rose——

Mr. Speaker

Order. I may tell the House that I will not accept points of order on a matter on which I have already given a ruling.

Mr. Ridley

On a point of order——

Mr. Speaker

Unless the point of order that the hon. Gentleman wishes to raise is on a different matter, I am not prepared to accept it.

Mr. Ridley

On a totally different point of order, Mr. Speaker. According to the Order Paper, which I have here, the further business before the House is three Defence Votes, followed by a motion on Protein Deposit and Private Storage Aid Proposals. Then, of course, we have the Solicitors (Scotland) [Money] Resolution, to which we are all looking forward. As we did not approve the Government's proposals for public expenditure, it is not possible to debate these matters. For instance, we cannot decide about maintaining 78,000 officers, ratings and Royal Marines in the Naval Service if we are not going to approve of the defence apportionment——

Mr. Speaker

Order. The hon. Gentleman is referring to items which are not to be called tonight.

Mr. Ridley

The same applies to the motion concerning Protein Deposit and particularly to the Solicitors (Scotland) [Money] Resolution. One of the reasons for my hon. Friends being particularly annoyed by the Public Expenditure White Paper was that there was so much money for Scottish solicitors. It is quite clear that we cannot proceed to discuss these two motions. It is futile and fruitless to discuss them if we are to proceed to dissolve Parliament and to have a General Election. [Interruption.] On our return to the other side of the House we may wish to make different provision for protein deposit as well as for the Solicitors (Scotland) [Money] matter. It would be wiser, I suggest, not to proceed with these items of business in view of the very great state of uncertainty about the Government's intentions.

It might be better if we could therefore in some way adjourn the House either until the Prime Miniser can be found or until tomorrow, because it clearly would not be fitting, in the mood of the House, to proceed to discuss these matters.

Mr. Speaker

The business of the day does not depend on the mood of the House, and I can only follow the Order Paper. The next business is the Prime Minister's motion. [Interruption.] [HON. MEMBERS: "Where is he?"] Order. The answer to the question is that I do not know. [Interruption.] Mr. Pearl. [Interruption.]

Mr. William Whitelaw (Penrith and The Border)

On a point of order. Mr. Speaker——

Mr. Speaker

I call the right hon. Gentleman on a point of order. Mr. Whitelaw.

Mr. Whitelaw

Would it not be sensible, in the interests of the House, to recognise that my right hon. Friend the Leader of the Opposition has asked the Leader of the House whether the Prime Minister is on the premises and whether he will come here? There has been no response to that, so, clearly, the Leader of the House is refusing to do that. Very well. If that is the case and the Prime Minister will not come tonight, I do not believe that, in the mood of the House now, it is at all possible to proceed to further business. If the Leader of the House will not do the first, will he do the second, and withdraw all business tonight? That surely would be sensible.

Mr. Edward Short

In view of the mood of the House, that is a very sensible suggestion. Therefore, my right hon. Friend the Minister of Agriculture will agree not to move his motion, and the House will move on to the Adjournment.