ECONOMIC AFFAIRS

HC Deb 30 November 1976 vol 921 cc690-840

Mr. Speaker

Before I propose the Question, I want to tell the House that so many right hon. and hon. Members have indicated to me that they wish to participate in today's debate on the Gracious Speech that it will be impossible for all of them to catch my eye. As far as the length of speeches permits me, I shall endeavour to ensure that there is a fair balance in the debate, and that those who have been trying for days to be called will have their chance.

I can only do my best, and, much as the House knows that I am not averse to visitors to the Chair, I have to say on this occasion that I fall back on my predecessors' strategy on similar occasions. I remind hon. Members that it will be counter-productive for any hon. Member to come to the Chair to advance his claim.

I have selected the official Opposition amendment.

Mr. Eric Ogden (Liverpool, West Derby)

Further to the point of order, Mr. Speaker. For those who have, in hope, submitted their names, of whom I am one, is there no way in which some indication can be given that we shall have a chance to speak, or is it so impossible to get on the list that we could be better employed elsewhere?

Mr. Speaker

I often think that it would be for the good of the House if we went back to the custom that prevailed when I came here. Hon. Members then did not know whether they would be called and we had a good attendance in the Chamber. I am sorry that I cannot tell the hon. Gentleman any more.

3.35 p.m.

Sir Geoffrey Howe (Surrey, East)

I beg to move, at the end of the Question, to add: But humbly regret that the Gracious Speech provides no grounds for confidence in the economic policies of Her Majesty's Government. I begin by seeking to secure quite shortly the agreement of the Chancellor about the economic prospect that immediately faces us. It was described quite shortly by the Prime Minister last Wednesday when he said that the prospect for unemployment was a further increase. We have seen surveys suggesting that it could rise from its present 1¼ million to 1½ million and, in one survey, beyond 2 million. I should like to hear the Chancellor's comments on that.

The Prime Minister told us that there was likely to be no improvement in the rate of inflation for some time ahead. Again, the figures we have seen seem to suggest that it could be running above 13 per cent. and in some cases at 17 per cent. next year. The Prime Minister said that the prospect for growth in the economy was "slight". Other forecasters talk in terms of 2 per cent., 1 per cent. and even a negative growth in the economy. Beyond that, looking to 1978, one cannot foresee any substantial increase in growth. The forecasters also suggest an increase rather than a decrease in unemployment and little change in the outlook for price inflation.

I want the Chancellor to give us his own assessment, so far as he can, of these matters. I want him also to agree that the outlook described by the Prime Minister last week is in total and complete conflict with the forecast given by the Chancellor to the House a few months—indeed, even a few weeks—ago. As recently as the end of September he was talking about the likelihood of growth in the economy of 4½ per cent. per annum, about the prospect of a 10 per cent. inflation rate next year, and about the outlook of falling employment; and in the debate in the House on 11th October he expressed the view that everything suggested that the economy was still on course.

The reality is in contrast with that of other economies, with the prospect of high and still rising unemployment, of low and still sagging growth—the consequences of the attempt in which the Chancellor has persisted on a diet of false expectations to avoid the consequences of the 5 per cent. cut in real living standards for the people of this country that followed from the oil crisis of three years ago. It is no wonder that the Prime Minister has wrenched from the Chancellor the rôle of economic forecaster and no wonder that the Prime Minister himself added in his speech at the Guildhall the other day that we should no longer believe that forecasts were facts.

According to the Press of the last few days, the Chancellor appears before us today rather in the guise of a boy standing on a burning deck from which almost all but he has fled.

Mr. Dennis Skinner (Bolsover)

The right hon. and learned Gentleman is getting worse.

Sir G. Howe

The Chancellor may well laugh at his hon. Friend's comment, but this House is entitled to know just how far, if at all, he will have the support of his colleagues in the Cabinet and of the Prime Minister. If indeed he is, as he should be, standing for the interests of this country, he is entitled to expect and will receive our sympathy and support, but only if he is prepared today to accept responsibility, as surely by now he should, for the extent to which over the past two and a half years he has led the people of this country gravely astray in his management of the economy.

We have too often heard from the right hon. Gentleman various suggestions that the fault lies in his stars rather than in himself. We look to the Chancellor for some sign of repentance. We may be looking in vain, but he should recognise that he will not begin to restore the credibility of his office unless, in some respects at least, he is prepared to acknowledge his mistakes.

I am glad, and I am sure the whole House will be, to see the right hon. Gentleman's announcement yesterday that he has decided to abandon plans for the introduction of a wealth tax. We congratulate him on that accession of wisdom. We now look for more. If he does not accept the need for making a fresh start, he will remain a lame duck Chancellor who carries very little conviction.

Mr. Neil Kinnock (Bedwellty)

Does not the right hon. Gentleman recall the unfortunate experience of the Conservative Government of whom he was a member? When major tax concessions were made, practically none of the additional finance made available to industry found its way back in the form of investment. Does he consider that to be a fitting strategy for our present difficulties?

Sir G. Howe

We shall consider the fitting strategy in due course. I hope that I carry the hon. Member for Bolsover (Mr. Skinner) with me in my condemnation of the failure of the strategy of the Government whom he supports.

Where does the Chancellor go from here? He told the Labour Party conference that he intended to apply to the International Monetary Fund on the basis of his existing policies. It is important for the House to know whether that remains his position, or whether he agrees, as he surely must, that now is the time to make a substantial change in direction if the economy is get back anywhere near on course. We are looking to the Chancellor and the Government for an approach very different from that which they have followed so far.

I ask the Chancellor to give these essential assurances. Is he going to make an entirely fresh start after the debacle of his first two years' policies? Can he count, as he must if he is to carry conviction, on the firm and unequivocal support of the Prime Minister? Can he assure the House that he will not be distracted by colleagues in the Cabinet, or elsewhere, who appear prepared to take very grave risks with the economic future of this country? Above all, will he give an assurance that he will not seek just to preserve the fragile unity of the Labour Party but will try to serve the interests of the British people? We look to him for that.

The people are ready to support the Chancellor if he is brave in the measures which he brings before us. They will never forgive him if, on this last occasion, he fails them yet again.

Mr. Eric S. Heffer (Liverpool, Walton)

Why does the right hon. and learned Gentleman not get a new script writer?

Sir G. Howe

Let me invite the hon. Gentleman to follow me in a script, which should be dear to him, based on a number of observations by the Prime Minister. I commend to the Chancellor as a basis of his approach the speech made by the Prime Minister at the Guildhall only two weeks ago.

Mr. Skinner

Where?

Sir G. Howe

Guildhall, at the Lord Mayor's banquet.

Mr. Skinner

What did they have for dinner?

Sir G. Howe

The hon. Gentleman must absorb what the Prime Minister said to that audience, because it is the basis for the policy of the Government he supports, and I shall be glad to know how far he agrees with it.

The first point made by the Prime Minister was this: We must resume the mastery of our own affairs and especially the control of our currency. He was echoing what he said to the Labour Party conference—that for too long the country has trodden the primrose path and borrowed money from abroad. It still goes on.

Does the Chancellor intend to carry through that first proposition of the Prime Minister? The signs are by no means encouraging. All we hear of the plans being made by the Government are of their hunt for small loans, for large loans, for new loans, for fresh loans, for long loans.

One of the most interesting options in this areas is their apparent intention to fund the sterling balances. Funding sterling balances has a comforting robust ring about it until one examines what it means. It means asking other countries to underwrite the debts incurred by this Government on behalf of this country—funding the sterling debts. The Chancellor was glad enough to enjoy those balances while they were flowing into this country. Other countries that have substantial savings—the Germans, Swiss, Americans and Japanese—are not rushing round the world seeking other nations to fund those balances. I hope that the Chancellor will not believe that this ploy will do anything to fortify the basic strength of the economy.

What disturbs us is that there is one feature in common in any policy to which the Government have been committed or appear likely to follow. The policy is dependent in one way or another—and apparently is intended to remain so—on continued access to the borrowing of huge sums of money wherever they can be found. On this side of the House we have no enthusiasm for that approach.

The policy of the Government bears all the signs of having been over-influenced throughout the years by the advice of the Chancellor of the Duchy of Lancaster—and I am glad to see him sitting on the Front Bench. He may have been able to make a fortune on borrowed money, but he should know by now, having had long experience of his colleagues, that they are not likely to achieve anything like the same success.

Let me give the Chancellor some advice. If he is seeking to shape the necessary policy, let him quit looking as he has done in the past year or two to an automatic growth of world trade to float us off the rocks. If this country is to succeed—whatever the future of world trade may be—we must equip ourselves as a nation to fight for a growing share of world trade and to succeed in winning that share on our own merits. Let him and the Prime Minister quit expecting either Governor Carter or Chancellor Schmidt to come to the rescue and float the policy off the rocks.

The Chancellor has abused the confidence of the world financial community for too long for the good of the Government and the country. Chancellor Schmidt and Governor Carter were elected to govern in the interests of the German and the American people. This Government were elected to govern in the interests of the British people. The House and the country are looking to them to get on and accept that responsibility. If they will not accept it, whatever pattern of distintegration may lead them to fail to do so, and will not get on with the job, the time has come for them to get out and make way for somebody else who will.

Mr. Frank Hooley (Sheffield, Heeley)

Is the right hon. and learned Gentleman seriously arguing that countries like West Germany, with its reserves of 35 billion dollars, and the United States, with its massive reserves, have no responsibility for the present international monetary arrangements of the world?

Sir G. Howe

Of course there are responsibilities to be shared across frontiers for the world monetary order. I complain that this Government, who have recklessly disregarded the policies that have been so successful in Germany and the United States, seem to have no policy other than to look to other countries to get them off the rocks.

The country is sick and tired of an endless cliffhanger as the Government struggle to reconcile the national executive committee of the Labour Party on the one hand and the International Monetary Fund on the other. We are asking just how much longer these visitors from other countries are to remain in this country apparently seeking to secure the agreement of the Government to what ought to be done to put our economy right. The opinion was seriously expressed to me last night that if they stayed here much longer, the Government hospitality fund might be consuming too large a share of the loan that is still in prospect.

We want to know when the Chancellor or the Prime Minister will be in a position to disclose to the House the content of the Letter of Intent. I hope that they will not repeat last year's example of publishing it on the eve of the dissolution of Parliament on 17th December. When is the Chancellor to announce whatever package may emerge from these over-prolonged deliberations? Are the package and the terms of the Letter of Intent to be disclosed to the House at the same time so that we may judge them together? May we have an assurance that the House will have—as it certainly ought to have—an opportunity of debating that package and the terms of the Letter of Intent before the Government are committed to them?

As the hon. Member for Berwick and East Lothian (Mr. Mackintosh) said yesterday, our anxiety is that this is the last chance—not just for the Government but for the country—to put together a sensible economic policy for the years ahead. The people of this country rightly will not forgive the Government if they produce yet another package that is inadequate, does not work and condemns us to three months more misery waiting for the next round.

We seek from the Chancellor an assurance, without qualification, that he understands that, that the Prime Minister understands it, and that they will between them require their colleagues to understand it. No one outside this country will believe the Government unless this time their actions speak louder than their words—and soon. We have had enough waiting and enough half measures. This is the time for the action that will begin to put the country right.

I come to the second proposition from the Prime Minister's speech that I commend to the Chancellor and, indeed, to Government supporters below the Gangway. We must make a success of the mixed economy. We must give absolute priority to industrial needs. We must ensure that industry is profitable. That is the second key ingredient in the prescription that we commend.

For that to happen—if we are to make a success of the mixed economy—the Government cannot look for help in that respect to the public sector; nor can their supporters below the Gangway. There is no prospect in the public sector of the creation or establishment of jobs that will survive. There is no prospect in the public sector of any creation of wealth. It is to the private sector that we have to look for the restoration of health. The real threat to the health of the private sector comes from the very size of the public sector. That is where the importance of the size of the public sector borrowing requirement lies.

We have heard so many speculations about that that we cannot possibly, from the Conservative side of the House, predict with any accuracy what that figure is likely to be. I ask the Chancellor today to let us into the secret that he has been sharing with his Cabinet colleagues and with the representatives of the International Monetary Fund. The House is entitled to know today what is the Chancellor's estimate of the likely size of the borrowing requirement for the current year and for the following year.

What is clear—and we are glad to see it recorded in the Gracious Speech—is that the conquest of inflation is of fundamental importance to the restoration of any prospect of employment. If that is clear, we are agreed also that the proper management of the money supply, which means a steady reduction in its rate of growth, is equally essential to the management of the economy. What concerns us is that, exactly as we predicted earlier this year, we have now been landed in the past six weeks with the most savage squeeze in the recollection of anyone in this country as a result of the incompetence of the Chancellor in the management of his monetary policy. He has demonstrated all the skill of a reluctant and unconvinced convert to that argument. What I want to ask him is where he goes next.

Does the Chancellor still stick to his target for the money supply of 12 per cent.? If so, does he anticipate that inflation will be running in the same year at 14 per cent. or 15 per cent., and if so, does it not follow as we can see as we go up and down the country—that the public sector is exerting and will exert tremendous pressure upon the private sector, thereby destroying present and future jobs in the private sector? That was the point made yesterday by the hon. Member for Berwick and East Lothian.

We can see—and I hope that this is common ground throughout the House—that the wealth-creating private sector of the economy is now being throttled by the high interest rates now imposed which are a direct result of the Government's mismanagement of their monetary policy. We can also see that the private wealth-creating sector is also facing further destruction as a result of the payroll tax which we are to debate next week.

There was only one ray of hope in the Prime Minister's speech last week. He pointed with some cheerfulness to the fact that the minimum lending rate had fallen by ¼ per cent., from 15 per cent. to 14¾ per cent. At the same rate of progress, by the end of the next 12 months we shall have come down to the 13 per cent. which the Chancellor introduced as a crisis rate only six weeks ago. That is in no sense good enough for us. The Government must make such changes in their management of the public sector and of public sector debt as will bring down those crippling rates of interest as soon as possible. They ought to be making changes so as to avoid the necessity of imposing a tax of £1,000 million on British industry and destroying still more jobs.

We are not, as the Chancellor so often seeks to misrepresent us, calling for savage and immediate deflation, whatever that may be. We are asking for evidence of firm, determined progress to restore the essential balance of the economy.

We seek three assurances from the Chancellor. First, we ask that he will do what is necessary to reduce the borrowing requirement, however hard that task may be.

Mr. Skinner

By how much?

Sir G. Howe

Secondly, we ask that he will not seek to achieve that reduction by the imposition of still higher taxes. Surely it must now be well understood throughout the House that higher taxes are as sure a method of destroying jobs as any reductions in public expenditure. Where is the sense in destroying jobs in the private sector by the introduction of higher taxes?

The Chancellor should know all about this. He destroyed many jobs by putting value added tax up to 25 per cent. in his first Budget. Labour Members should know all about it, too. The hon. Member for Ormskirk (Mr. Kilroy-Silk) knows what has happened to a factory in his constituency as a result of higher value added tax. Where is the sense in imposing taxes that will put tens of thousands of engineers, process workers and people in the private productive sector out of work for the sake of keeping tens of thousands of clerks, civil servants and bureaucrats still at their desks? That is the second assurance that we want from the Chancellor.

Mr. Skinner

How much?

Sir G. Howe

The third assurance is this. I take this, too, from the Prime Minister's speech. There must be proper rewards for skill and for responsibility. [Interruption.] I add to that proper rewards for hard work and enterprise. Last night my hon. Friend the Member for Manchester, Withington (Mr. Silvester) quite rightly spoke of a widespread feeling of depression—[Interruption.]—throughout the country about the outlook in the economy.

Mr. Speaker

Order. I must say that continued interruptions from a sedentary position are unfair to any hon. Member seeking to address the House.

Mr. Heffer

We have to liven it up a bit.

Sir G. Howe

The hon. Member for Liverpool, Walton (Mr. Heffer) must know this very well. I was on Merseyside only last weekend. [Interruption.] I should be surprised if the hon. Member did not agree that there is a widespread feeling of depression and, indeed, of demoralisation among the working people of this country. There is an erosion of the will to work.

I want to carry Labour Members with me on this. I am not now talking so much about scrounging. Only a minority are involved in that, as they always have been, although they give rise to widespread irritation. I am talking about the number of people who quite frankly ask when confronted with the challenge of harder work by moving to a new job opportunity "What's the point? Where's the incentive?" The argument takes many forms.

Again at the weekend I met a young engineer on Merseyside who was contemplating the prospect of moving to a different part of the country for a better paid job opportunity. He volunteered that observation to me. "What additional reward shall I get?" he asked. "By the time I have paid the tax on the extra pay I shall receive for going to that job what is the point?" I hope that the hon. Member will agree with me.

Mr. Heffer

The right hon. and learned Gentleman is right. I agree that the people on Merseyside are beginning to feel absolutely fed up with the whole unemployment situation. However, the hon. Gentleman must know that one of the factors which have led to unemployment on Merseyside, particularly among construction workers—many of whom have been out of work for nine months, a year, or, in some cases, 18 months—is the public expenditure cuts. Of those unemployed on Merseyside 30 per cent. are construction workers. If the Conservative Party has its way, it will cut back further on public expenditure.

The figure given by the hon. Member for Guildford (Mr. Howell), which I mentioned earlier, is about £4,000 million to £5,000 million. That would lead to further massive unemployment, particularly among construction workers. What is the right hon. and learned Gentleman's answer to that? What would the Conservatives do in relation to public expenditure?

Sir G. Howe

The hon. Member should not believe what he reads in Labour Weekly. As so often happens in that publication, the report is a complete fabrication.

Let me deal with the merits of the hon. Member's argument. What has been happening to employment on Merseyside? Unemployment has doubled and more than doubled on Merseyside under this Government. What prospects are there of any further growth in employment on Merseyside under their policies? [HON. MEMBERS: "Answer the question."] I shall answer the question gladly, but this Government offer no prospect of further growth in job opportunities on Merseyside through public expenditure. There is nothing left to spend. The Government can only raise money to spend on job creation on Merseyside by taxing out of existence the jobs in factories at Skelmersdale and Ormskirk.

The only way of restoring prosperity to Merseyside—the hon. Member had some insight into this matter yesterday—is to do what is necessary in many other parts of the country, namely, to begin sweeping away the cobwebs of controls and bureaucracy which have delayed private sector recovery in Merseyside, Glasgow and Tower Hamlets for years, and to get back proper control of the management of the economy so as to bring down interest rates.

How can anyone be expected to invest in new factories, new small companies and new jobs on Merseyside, until interest rates have been brought down? One of the consequences of making reduce- tions in public spending will be to bring down interest rates, to restore confidence in the private house-building market, to restore confidence in the industrial market and to begin to get the private sector to create the jobs on Merseyside which the public sector has no capacity of creating. Those are the answers to the hon. Member's question.

I am glad that the hon. Member shares my feeling in this respect. The people of this country are oppressed by the feeling "What is the point?" A case was reported to me the other day of members of the Inland Revenue staff moonlighting—as is not uncommon—in order to seek other means of escaping from the restraints on incentives. That is a measure of how serious the situation is. Cases have been reported to me—other hon. Members may have had the same—of factories in development areas, now recruiting to expand their programmes, finding that the willingness of people to take up the jobs offered now is much less than it was three or four years ago. What is the reason for that, other than the general feeling of malaise and demoralisation which results from the general economic policies of this Government?

It is more than anecdotal. The motor industry is now producing in the third quarter of this year less than two-thirds of its total output in the peak year of 1972. Yet it has short supply. There is a shortage of motor cars to meet export markets, a shortage of motor cars to meet any retail customer in this country who wants to buy a car. Why is it that the motor industry is producing currently 20,000 cars a week against 37,000 cars in 1972? Its capacity is being underused.

I come back to Merseyside. Why is it that Halewood, where there are 3,000 more men employed than there were four years ago, is now producing 47 vehicles an hour against 60 vehicles an hour four years ago? Is that not all evidence of a demoralisation because of the lack of incentive which is the consequence of this Government policies? The same is true of steel.

The reasons—which the Chancellor knows very well—for this state of affairs are the following. First, there is a substantial and growing differential in rewards and salaries for those employed in the public sector by comparison with those employed in the private sector. It has become more and more attractive to take employment in the public sector and less and less attractive to work in trade and industry.

Secondly, as the Chancellor pointed out the other day, a significantly heavier sacrifice is being imposed on those in work than on those out of work. I hope that the Chancellor will tell us more about his thinking on that aspect. It is certainly having a serious effect if those in work are being asked to make larger and larger sacrifices than those out of work.

Thirdly, of course, there is the compression of differentials. That is an inescapable feature of the present incomes policy. The relaxation of differentials must be a feature of the relaxation of present policy at the end of its term. That will be possible only if it is clearly understood that there is no other room for real improvement in take-home pay and that it is essential to begin restoring differentials in that way.

The final cause of this malaise is, of course, the huge and growing load of direct taxation on the pay packet and the salary at all levels in our society. The present balance between direct and indirect taxation has been growing progressively worse and more and more discouraging to the achievement of wealth and growth in the private sector.

The Prime Minister and the Chancellor of the Exchequer have often paid lip service to this need. The Prime Minister did so in his speech at the Guildhall and the Chancellor does so frequently. The time has passed for mere lip service. It is essential to ensure that substance is given to the Prime Minister's statement that we must give proper rewards for skill and enterprise, for hard work and initiative.

The House needs no reminding of a quotation from the Third Report of the Select Committee on Science and Technology which reported a few weeks ago, and I ask the Chancellor to take this seriously: If the Government is serious in its desire to rebuild British productive industry it must create an environment in which there are adequate incentives to attract the ablest young people into industry and away from nonproductive public and private services … It is essential for the future industrial health of Britain that they move beyond the stage of sympathetic platitudes. That is the fourth and most important point in the prescription that I commend to the House, and I hope that the right hon. Gentleman will respond to each of them.

Is the Chancellor determined that the Government, on behalf of the people, shall regain mastery of our own affairs? Now is the last chance for them to do so. Is he determined to promote, as he must, the success of the mixed economy? In particular, is he determined to see that skill and enterprise receive their due reward? We seek from the Chancellor of the Exchequer an assurance that he will stand by those principles. We seek also an assurance that the Prime Minister will stand by these same principles that he has enunciated.

Last night the Secretary of State for Industry had the gall to speak of a yawning gap. No gap yawns more widely than the gap between the Prime Minister and the Chancellor and the views expressed by some members of the Cabinet, not least the Secretary of State for Energy. We wish the Chancellor well in seeking to bridge that gap, because it is important for the sake of the nation that he should. We hope that he can count on the Prime Minister's support in seeking to bridge that gap, because that is important. But, because we have no confidence in the Government as a whole and in the capacity of the Chancellor surrounded by those colleagues to reconcile Socialist doctrine with the needs of the nation, I invite the House to support the amendment.

4.8 p.m.

The Chancellor of the Exchequer (Mr. Denis Healey)

When we last debated the economy on 11th October, I drew the attention of the House to the deterioration in the world economy since the summer. In the seven weeks since then, a growing harvest of economic statistics shows that the dimension of that deterioration is even greater than we believed at that time.

Not all the figures for the third quarter are yet available, so there is some room for a difference of view. But it already seems clear that, whereas in the previous 12 months industrial production in the OECD area as a whole had been rising at an annual rate of about 10 per cent., in the third quarter of this year it rose at less than half that rate, and there has been growing concern among Governments and informed commentators all over the world about this pause in recovery.

The prospects for employment and activity all over the world now look a good deal weaker than they were then, and there is a common concern lest they be weakened still further by an increase in the price of oil.

If we focus our attention on Western Europe, the picture is seen even more clearly. As Eurovision points out in its current number, investment was barely getting under way when the stock markets fell through the floor while interest rates all around Europe went through the ceiling. The balance of payments over most of Europe has now fallen into deficit, and the latest figures for unemployment published by the European Commission last week show unemployment rising in Belgium, Denmark, Germany and France. In Britain, although unemployment seems recently to have levelled off, the prospect, as the Prime Minister told the House last week, is for some further increase in the coming year. Many other countries all over the world face a similar prospect.

There must still be deep uncertainty about the prospects for world growth in the next 12 months, although the general view is that recovery will resume, though at a lower pace than expected last summer. But there is universal agreement that significant growth will not take place in the rest of the world unless the three strongest economies—the United States, Germany and Japan—take the lead. Fortunately, this responsibility is recognised in the three countries concerned. They do not share the view expressed by the right hon. and learned Member for Surrey, East (Sir G. Howe) that it is possible to pursue national interest with no regard for the welfare of the world in which one's nation has to live.

I stress the international context within which Britain's economy must operate, because it must set the framework within which our own performance must be judged and fix the limits within which it can be improved. It is now possible to see more clearly the shape of the summer pause in our recovery. We looked to exports for the main increase in demand, but the volume of our exports fell 3 per cent. in the third quarter as a whole, although there has been some recovery in the past two months. Imports remained about constant. Industrial production fell by about ½ per cent.

Our gross domestic product was sustained in the third quarter by some rise in consumption following the payment of the income tax rebates and a levelling out of the decline in stock-building. Nevertheless, in both the second and third quarters of this year, our gross domestic product appears to have been rising at a rate of under 2 per cent. a year.

Some special factors played their part. The summer weather and changes in holiday patterns affected production in some industries, and the installation of North Sea equipment during the summer kept up import volumes. Nevertheless, it is difficult, even given the slowdown in world recovery, to explain what happened to our exports since they have never been more competitive and profitable for British manufacturers. This is recognised by the CBI and every manufacturing firm in the country.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

The Chancellor will recall that in the last public expenditure White Paper he based his plans for spending on a 3.5 per cent. average growth rate. Now that he has admitted that it is 2 per cent. or slightly under, has he similarly cut his plans for public spending?

Mr. Healey

I think that the hon. Gentleman was awake once or twice during our debates in the past year, and he will know that last July we revised our plans for public spending.

It may be that official statistics exaggerate this failure, since they are not easily reconciled with evidence collected by the CBI from its members, but it would be unwise to bank on that Unfortunately it is difficult to estimate the nature of our export performance in the coming year while we are still uncertain about the nature and causes of our poor performance during the summer. This is one of the many uncertainties which, as I have told the House before, make economic forecasting as unreliable as long-range weather forecasting.

On the other hand, on top of the increase in employment in manufacturing industry which began in the summer—it went up over 60,000 between the second and third quarters of this year—the latest figures suggest that capital spending by manufacturing industry has also begun to improve. Investment by manufacturing industry rose about 2 per cent. between the second and third quarters of this year and spending is now almost 3 per cent. above the low point during the first quarter.

The prospect for the future is brighter still. In its most recent economic report, on the basis of information collected after the sharp rise in interest rates, the CBI—a body which hon. Members opposite regularly smear—forecast a rise of 15 per cent. next year.

In other respects, however, the outlook for 1977 remains exceptionally uncertain, as is demonstrated by the wide range of projections in some of the published unofficial forecasts. The right hon. and learned Gentleman referred to some of them. Only one thing is fairly certain—lower growth than was expected last July.

The depreciation of sterling since the summer will keep inflation at something like its present level well into the coming year and this, in itself, will tend to depress home demand. Moreover, although we can expect the lagged effect of depreciation to produce a substantial improvement in exports and import substitution next year, if world trade fails to grow at the rate forecast earlier in the year, external demand is also likely to be lower than expected. Together, these factors make it likely that, unless world trade improves, the growth in our GDP next year may be only half as high as we expected in July.

But it is difficult to estimate the precise effects of lower growth on other elements in the economy. The right hon. and learned Gentleman asked me to give some views on this. For example, the National Institute in its latest Economic Review, while assuming lower growth next year than most other forecasts, believes that unemployment is unlikely to rise in consequence because there will be much more work sharing and thus that productivity will not rise at its trend rate—if it rises at all. This is one reason why its forecast of the PSBR next year is a good deal lower than others would assume on the same assumptions—although the National Institute admits that not much attention should be paid to its PSBR forecast.

At the same time, the National Institute assumes a much greater improvement in the terms of trade than is easily explained. So it forecasts a substantial and growing surplus on the balance of payments, and argues against any resort to temporary import restrictions to hasten the return to current balance.

I have referred to the new forecast by the National Institute to illustrate the exceptional uncertainty of the outlook for the coming year and the fragility of the assumptions which forecasters are obliged to make. But, as I have said, there can be little doubt that demand at home and abroad will be substantially lower next year than anyone could have expected a few months ago and that output will therefore be lower, too.

Against this background, there has been a welcome change in the tone of some at least of the Government's critics. A few newspapers are still asking for a massive further deflation of the economy through cuts in public expenditure of at least £5 billion in the coming year, but I notice a significant caution in the right hon. and learned Gentleman's speech on that point this afternoon, compared with some of the speeches to which he treated us earlier this year. As I pointed out in my speech at the Mansion House last month, a massive and immediate deflation of this nature would bring a fall in living standards of some 10 per cent. or more, generated largely by an increase in retail prices, and would reduce our national output by some 5 per cent. compared with what it would otherwise have been. It would mean a massive increase in unemployment. I ask the House what I asked my City audience on that occasion. How many hon. Members, apart from the right hon. Member for Leeds, North-East (Sir K. Joseph), really believe that this could happen without widespread industrial disruption, a wage explosion and a collapse in confidence throughout the economy?

I am glad to see that some of the Government's critics at any rate have now become more moderate in their demands, and in this they are echoed by both sides of industry. Indeed the new Director-General of the CBI has made it clear that his organisation does not support the calls for further deflation. It wants measures which would have a broadly neutral effect on demand. The CBI put this point strongly to me when we met in the Treasury last Friday.

What is needed at the present critical moment in Britain is a programme which will bring the economy into balance at a pace which will not overstrain the national consensus on which all hope of industrial progress and recovery must depend. We must think in terms of a stabilisation programme covering at least two years, perhaps three. If this is the meaning of the Liberal Party's amendment, then I welcome it.

The immediate problem, however, is to regain control of the pound sterling. As I pointed out in the last debate, there has been in recent months a continuous and malignant interaction between expectations about the growth in the money supply and movements in the exchange rate. It is no use regarding such financial or monetary factors as somehow irrelevant to the real economy. That was the tragic error made by the last Government, as I think most of their survivors would now agree.

The painful measures which the Government took last month to tighten credit already have had a marked effect on the growth of money supply, although excessive bank lending in October robbed us of the full effect we could otherwise have expected from the massive sales of gilts which followed. That is why we decided a fortnight ago to reintroduce the Supplementary Special Deposits Scheme and to end the provisions under which banks in Britain are able to lend money for financing trade between third countries. Besides making more credit available for British industry within the strict limits now set on bank advances, the latter measure is expected to bring a gain of some £500 million to our capital account in the coming year.

But the foundation of any programme for stabilising our economy must be the re-establishment of confidence in sterling. We have seen a useful improvement here over the last few weeks, and I doubt whether this is due to the delivery, bound and gagged, of the hon. Member for Blaby (Mr. Lawson) to the Opposition Whips' office).

I believe that the successful conclusion of our application for further facilities from the International Monetary Fund will consolidate that improvement, particularly if it is accompanied, or followed closely, by an international agreement to deal with the problems created by our sterling balances.

Mr. Tim Renton (Mid-Sussex)

Does the Chancellor agree that the effect of the application is likely to be a corset which will be so tight that there will be only a 1.2 per cent. growth in the banks' eligible liabilities over the next five months? Therefore, private industry may find itself very short of capital borowings from the banks in the next year or so. Secondly, has he made any estimate of the loss of invisible earnings as a result of the measures designed not to use sterling for trade with third countries?

Mr. Healey

On the first question, I agree that it will be restrictive, but the ending of the facility for financing trade with third countries means that that amount more will be available for industrial lending. Very strict instructions have been issued to the private banks to give priority to industrial lending. A small increase in manufacturing industry this year has been shown already in the figures I have given. It is not possible to make an assessment of the loss of invisible earnings next year, but it is possible to estimate the gain to our balance of payments. This is expected to be £500 million, which is very worthwhile in the present situation.

The House will not expect me to comment this afternoon on the discussions which are taking place with the Fund staff. But it may be useful if I describe the spirit in which the discussions are taking place and the framework of policy established for the decisions which the Government will take.

First let me give the lie to some of the feverish imaginings which have filled the recent pages of some newspapers, which have no objective but to bring the Labour Government down by fair means or foul.

There is no question of the International Monetary Fund seeking to impose on Britain a massive dose of deflation such as some of our own newspapers—and, I suspect, the Conservative Party, are demanding. Nor is there any question of the Fund seeking to force a fundamental change in the direction of the present Government's policy. On the contrary, we have been assured again and again that the basic thrust of our policy is right—to base our recovery on exports and investment, not on an artificial boost to domestic consumption like that brought about by the last Government in 1972 and 1973. Moreover, the Fund agrees with the Government that, providing our industry takes advantage of the competitivity given it at home and abroad by the recent depreciation of the pound, our balance of payments should be in surplus on current account in 1978. The purpose of the Fund drawing for which we have applied is to help in financing our external deficit until that time comes. It is, if one likes, a bridging loan.

Moreover, the Fund gives much more credit to the efforts of the British Government and people than unpatriotic hon. Members opposite. I was asked by one of my European colleagues the other day how I could explain the behaviour and attitude of the Opposition at a time when the British Government are negotiating with the Fund. I found that quite easy to explain.

Mr. Michael Grylls (Surrey, North-West)

Is the Chancellor telling the House that the IMF has told him that the Government's economic policies are right? Is he saying that there will not be any more cuts in public expenditure?

Mr. Healey

No, I am not saying that. I am coming to that in a moment.

Moreover, the Fund gives the same importance as the Government to the two pillars on which our economic policy is based—the social contract with the trade union movement which has given us one of the lowest increases in wage costs in the world and has brought about a dramatic transformation in industrial relations; and the industrial strategy through which the Government, the trade unions and the employers are seeking to improve the performance of our manufacturing industry.

I have heard no echo in any of my discussions with the Fund of the view so loudly trumpeted by the Conservative Party that the social contract is a fool's bargain. Quite the reverse, they regard it as the keystone to our recovery and have already recommended other countries to follow our example. Indeed, the social contract and the industrial strategy together are the only bases on which Britain can hope to receive those structural improvements in her economy to which Congressman Reuss, Chairman of the House Committee on Finance, referred so rightly in his radio interview last night.

Again the Fund recognise the immense progress which has been made by the Treasury in the last 12 months in establishing effective control of public expenditure and our determination to make the limits stick. Their concern, like that of the Government, is that the problems of financing our external and internal deficits should not again disturb our steady progress towards our goal as it has done in the last six months; but they do not believe, as some of the domestic critics of the Government appear to do, that the achievement of financial balance is possible at once. They recognise that we need a two or even a three-year stabilisation programme—although they would not be so ambitious as to pretend that forecasting over a three-year period is accurate enough to permit the programme for the last year to be drawn except in the broadest order of magnitude.

Finally, and here again we are at one with the Fund staff, they are as anxious as we are to ensure that any adjustments on, which we now decide should be sufficient to do the job, that we should not have to take another bite at the cherry. On all these issues there is no division between the Government and the International Monetary Fund.

Mr. Nicholas Fairbairn (Kinross and West Perthshire)

If, as the Chancellor of the Exchequer says, the Fund takes the view that his economic policies are correct, how is it that the majority of the Cabinet apparently are against him and the Fund? Is it that it does not think that the policies are correct and that the Fund is wrong? What is the position? If the Fund thinks he is a genius, why do not the rest of the Cabinet share that view?

Mr. Healey

The hon. and learned Member for Kinross and West Perthshire (Mr. Fairbairn) never ceases to astonish me or, I suspect, his right hon. and hon. Friends. I would have thought that an hon. and learned Member of his vast experience and acute intelligence would know better than to believe stories which he reads in Conservative newspapers.

Mr. Skinner

My right hon. Friend has carefully explained the way in which the negotiations have taken place about the massive cuts in public expenditure. Why did he say that there would be no need for another bite at the cherry? When he talks about loans as distinct from another cut in public expenditure per se has he forcefully explained to the IMF that another 100,000 on the dole would,at current prices, represent an extra £400 million on the public sector borrowing requirement? That is an enormous sum.

Mr. Healey

My hon. Friend made an interesting intervention which he will no doubt expand if he catches Mr. Speaker's eye later in the debate. His last point was relevant—the effect of unemployment on the PSBR. The Fund recognises that it will have a powerful effect. Its broad estimate is that under-capacity working and unemployment in the current year is responsible for between one-third and one-quarter of our whole public sector borrowing requirement. Moreover, any increase in the PSBR next year over what we expected in July—if it takes place—will be three-quarters due to the increase in unemployment which might follow the lower growth rates.

But, as I have said, it is very difficult indeed to predict how growth will affect unemployment at a time when unemployment is already high. As my hon. Friend knows, the National Institute has estimated that although growth will fall further next year than I believe itwill, there will be no increase in unemployment at all. That is the reason why the National Institute estimate shows such a low PSBR.

I now come to the issue about which hon. Members are so anxious. The ques- tion which remains is not one for the IMF. It is for the British Government alone to decide the size, nature and phasing of the adjustments required to bring our economy into balance in time. When we have taken our decision, the IMF will have to decide whether we have decided wisely. But the decision is so important, and the problems and uncertainties we face in taking it are so great, that I make no apology for taking the time required to get it right.

Other countries are finding exactly the same difficulties in deciding what adjustments should be made to meet the unprecedented uncertainties of the coming year. That is particularly true of the countries which I mentioned earlier to which the rest of the world must look if we are to ensure that the world recovery does not spend its force even before it is properly under way. I speak of the United States, Germany and Japan. We have, however, some special problems and I would like to mention some of them. [Interruption.] The wit on the Benches opposite almost baffles the imagination.

First, we inherited a massive balance of payments deficit in 1974which was thereafter swollen by the stupendous increase in oil prices. We have made substantial progress already in dealing with this problem. Between 1973 and 1975 Britain transferred 3 per cent. of its GDP into the balance of payments. But over the same period the deterioration in our terms of trade caused by the increase in oil prices and of other import prices was equivalent to a shift of 2½ percent in the other direction. So the net gain to our balance of payments over that period was equal to only about ½per cent. of our gross domestic product.

In spite of the depreciation of sterling, our terms of trade have been fairly stable so far this year. While this continues we shall get the full benefit of the resources we managed to shift into the balance of payments. But we hope to see a substantial increase in the volume of our exports over the coming year—this is what we need to get unemployment down—and this is likely to require some reduction in their relative prices which could well be afforded out of current profit margins.

Moreover, there are already signs that the level of import prices is at last beginning to reflect the recent depreciation of the pound. We shall probably see some deterioration in the coming year and have to shift rather more resources into the balance of payments next year than indicated by the size of our current deficit.

The second problem I should mention is the balance between public expenditure and taxation. It is now accepted by our friends abroad that as a percentage of GDP our public expenditure is well in line with that of other countries. The new definitions of public expenditure which I have recently announced and which the Select Committee has accepted as reasonable not only make financial control a good deal easier but also bring our definition more closely in line with that used by other countries.

The new treatment of nationalised industry expenditure and of debt interest, as the House knows, gives our public expenditure this year as 51.5 per cent. of GDP. But, many other countries appear to exclude from their Budget figures that part of social security benefits which is financed by contributions. If we did the same, our current total of public expenditure would be further reduced to around 45 per cent., at factor cost, and if, like Germany, we expressed our GDP at market prices, then the current percentage of GDP taken by public expenditure would be close to only 40 per cent.

So the picture of a profligate public expenditure as ignorantly presented by Professor Milton Friedman and fatuously echoed by the Conservative Party bears no relation to the facts. Indeed, in 1975, the last years for which we have figures, the United States spent 8.3 per cent. of its GNP at market prices on social security, compared with 8 per cent. for the United Kingdom.

Mr. John Nott (St. Ives)

If public expenditure is as prudent as the Chancellor of the Exchequer makes out by these new definitions, why do interest rates have to be at 15 per cent. to finance it?

Mr. Healey

I am delighted to see that the hon. Member for St. Ives (Mr. Nott) is following the argument because that is the next point to which I am about to address myself. It is a pleasure to know that he is not sleeping during my speech in the way in which the right hon. Member for Sidcup (Mr. Heath) was sleeping during the speech of his right hon. Friend.

This is only half the story. The sensible changes that we have made in presenting the figures for public expenditure do not in themselves affect the actual size of the public sector borrowing requirement or the taxation requirement for which provision has to be made in the Budget, since the Budget arithmetic already takes account of the self-financing of the nationalised industries and of the receipts which can be offset against total debt interest payments. Therefore, the new definition of public expenditure does not affect the public sector borrowing requirement or the taxation requirement.

Unless we act to reduce the size of our PSBR we are likely to find that we can finance it only by keeping interest rates at levels which, if they persist for any length of time, will gravely damage our industrial strategy. Also, I must warn the House that it is impossible to establish a simple and direct relationship between interest rates and the PSBR and industrial investment, since so much depends on the general state of confidence at any time. On the other hand, it is immensely difficult to forecast the likely size of the PSBR since, as the National Institute points out, it is the residual between very large flows of money indeed.

However, in the midst of all this uncertainty, I believe that there is one thing that we have all learned by the experience of recent years. As the Prime Minister said at Blackpool, We used to think that you can just spend your way out of the recession and increase employment by cutting taxes and boosting Government spending". That was the route taken by our predecessors in 1973. I believe that the Prime Minister was right to add that That option no longer exists and that in so far as it ever did exist it worked by injecting inflation into the economy and each time that happened the average level of unemployment has risen. We must, therefore, aim at a steady and continuous reduction in the size of our PSBR. But there is at least one field in which that reduction cannot be sought—an increase in direct taxation. I believe that the level of income tax is already dangerously high and is already doing real damage to our economic performance, particularly through its effect on those at each end of the earnings ladder. There is a very strong case for tackling the problem of the overlap between wages and benefits. The right hon. and learned Gentleman asked me to express a few thoughts on this matter, so I shall.

As I have pointed out on many occasions, the whole burden of economic sacrifice is at present being carried by those in work. They have limited their wage increases to a level only half as high as inflation during the previous year, and they are taxed on those increases at 35 per cent. Those on benefit have been protected against inflation by the automatic indexing of their benefits—and short-term benefits are not taxed. The result of this is that to get £5 more in work than out of work a married man needs to earn more than £65 a week if he has two children, and more than £70 a week if he has four. There are many parts of the country, including that which I have the honour to represent, where these levels of earnings are above the average.

I fear that the current overlap between benefits and earned income, besides its disincentive effect on those in work, is fuelling a backlash among the low-paid against the whole concept of the welfare State and creating the wholly unwarranted impression that people on benefit are in some sense scroungers. It gives me no pleasure to record that some Conservative Members have felt it right to exploit this feeling without shame or scruple. I think that the whole House should be disgusted with them.

On the other hand, I believe that the social and political implications of this backlash should be a real cause for concern on both sides of the House. It is one of the many reasons for seeking to reduce the burden of direct taxation. This is another of the major problems which the Government must consider before they take their final decision on what adjustments are required to meet our current economic situation.

Mr. Sydney Bidwell (Ealing, Southall)

If the International Monetary Fund is not worried about the current level of public expenditure in Britain, especially in so far as it affects social security benefits and National Insurance benefits, why are we mucking about with the Social Security (Miscellaneous Provisions) Bill on Thursday, which will lead to depriving pensioners at the age of 60 of the right to unemployment pay, which for a year involves, in all, probably about £8 million net? Why are we mucking about with matters of that kind?

Mr. Healey

The Government are deeply concerned about the size of the PSBR. I made clear in July the necessity for the decisions that the Government then announced, some of which have still to be made operational through legislation. I put it to my hon. Friend —no doubt I shall find out later how far he agrees with me—that to refuse unemployment benefit to these particular categories of people who get super-annuation benefit early is socially by far a less damaging way of seeking to bridge a little part of this gap.

Decisions on direct taxation, of course, will be possible only in the spring Budget. Moreover, it will be impossible to take such decisions until the shape of the third pay round is known. The Government believe—the Prime Minister said so the other day—andso does the TUC, which stated so in a composite resolution passed at its Congress, that it will be essential to continue the attack on inflation after the second pay round ends next summer in ways which will permit greater flexibility in wage bargaining than has been possible in the first two rounds. I hope it will be possible to reach decisions on this matter in time for them to be reflected in the income tax provisions of the next Budget. Moreover, if in the meantime the figures show that we have over-estimated the size of the adjustment needed to bring down the PSBR to the right level next year, the necessary demand can be fed back into the economy by income tax reliefs next spring.

I have tried to give the House some idea of the way in which the Government are approaching the problem they now face in adjusting their economic policy to meet the changes in the situation which we now perceive. I do not pretend that these adjustments will be painless. On the contrary. But I hope that I have said enough to indicate that some of the horror stories in the newspapers recently bear little relation to the truth.

In our approach to these difficult questions, we shall be guided as always by the paramount need to give priority to our manufacturing industry and to maintain the relationship with our trade unions which is the foundation of so much that we have achieved since we took office.

Mr. Brian Sedgemore (Luton, West)

I have been listening to what my right hon. Friend has been saying about income tax, but I am not sure whether I have been following him. Is he telling the House that there will be a shift in our taxation system from direct to indirect taxation? Given that the progressive nature of the direct taxation system is largely offset by the regressive nature of the indirect taxation system, what, apart from a psychological boost, is the merit in that?

Mr. Healey

First. I am not suggesting anything of the nature of what my hon. Friend has put to me. However, in commenting on his intervention, I would make this very important point, which I hope that the House will recognise. It certainly was true 30 years ago that, broadly, indirect txation was regressive and income tax was progressive, in the social sense. That is no longer true when income tax is paid at levels of earnings below those which qualify for supplementary benefit. It cannot really be regarded as a progressive tax. On the other hand, the structure of the value added tax, which zero rates half—the most important half—of family expenditure, can be shown to be in many respects progressive rather than regressive. If my hon. Friend cares to send me a letter, I shall be glad to explain this point to him in greater detail.

I suppose that I should now turn to the right hon. and learned Member for Surrey, East, who opened the debate. He seemed to regard me as the Demon King. I should rather be the Demon King than either Buttons or the Widow Twankey. I think that the right hon. and learned Gentleman deserves at least a friendly cuff for all the work he obviously put in on his speech, though I confess that I find it a little less attractive each time I hear it.

I fear that neither the House nor the country will be able to take seriously any views that the Conservative Party express from time to time on economic policy until we have a little more clarity on what precisely the Opposition would do to meet our nation's problems and a little honesty about the implications of their policies for ordinary men and women.

Let us take incomes policy, the key to any attack on inflation. The confusion that they have created over their attitude to incomes policy has never been so complete. According to the Financial Times, the right hon. Lady the Leader of the Opposition gave a pledge in Prestatyn on Friday that a future Tory Government would never introduce a statutory incomes policy. The right hon. Member for Worcester (Mr. Walker) told "The World At One" yesterday that he could only assume that the quotations made from the right hon. Lady's speech cannot be correct, or if they were, they were said off the cuff and will not be repeated.

On Friday last week, two members of the Shadow Cabinet were quoted in the Financial Times as rebuking their leader. Well, what did the right hon. Lady say? I cannot say that she threw much light on the subject by her intervention in answer to my right hon. Friend the Secretary of State for Industry last night. She then refused to confirm or deny the report of what she had said at Prestatyn.

Mrs. Margaret Thatcher (Finchley)

I told the right hon. Gentleman to check it.

Mr. Healey

The right hon. Lady refused to confirm or deny the report. Perhaps the right hon. Lady will now confirm or deny the report in the Financial Times.

Mrs. Thatcher

I am interested that no member of the Government checks what he says before he says it. The word "never" was not used.

Mr. Healey

It seems that the right hon. Lady did not say that at Prestatyn. She confirms that. This is what my right hon. Friend asked her to confirm or deny last night. It seems that she did not say that a statutory policy would never be introduced by a Government whom she leads. I am glad to hear the right hon. Lady say that will never say never again" again, or never said "never" last time.

Last night the right hon. Lady said: I said during the passage of the Bill … last year that I do not believe in a statutory incomes policy."—[Official Report. 29th November 1976; Vol. 921, c. 610.] She did not say last night that she would never introduce one. She went on to say that she did believe in a voluntary incomes policy. What a great triumph it was to get that confession out of the right hon. Lady after the days and nights of debate during which we tried to find out the Opposition's view.

I wonder whether the right hon. Member for Leeds, North-East shares the right hon. Lady's view. Does he believe in a voluntary incomes policy? If the right hon. Lady believes in it, why was the phrase never used in the document entitled "The Right Approach", which was circulated at the last conference of the Conservative Party? I shall not weary the House by reading out the lucubrations by which the Conservative Party sought to avoid any commitment on incomes policy for or against.

Mr. Peter Rost: (Derbyshire, South-East)

The Chancellor promised earlier that he would explain why he has put up the rate of interest to 15 per cent., why it is now damaging industry and what he is going to do to get it down.

Mr. Healey

I can see that the hon. Gentleman wants to change the subject, but he must know that I dealt precisely with that problem. I shall stick where I am

Mr. Skinner

You do that.

Mr. Healey

I shall take the advice, as always, of my hon. Friend. Perhaps not "as always" but one time out of four or five.

The one thing that is absolutely clear about the right hon. Lady is that she believes in dodging issues that are liable to cause her trouble in keeping together the two wings of her party. What is more serious than this type of equivocation is her refusal to be honest with the country about the consequences of the massive cuts in public expenditure to which she has committed herself. When she was asked by Mr. Julian de Havilland on 4th October whether she would accept a large increase in unemployment as a result of her massive cuts in the public services, she replied: No. A very, very small increase would be incurred. She went further the same night in telling Mr. David Holmes: We've been through cuts before. Don't you remember the last Labour Chancellor that put on cuts, Roy Jenkins? They didn't hurt that much. Let me tell the right hon. Lady to take the advice of the right hon. Member for Sidcup, who pointed out to her at Brighton that cuts do hurt, that civil servants have wives and families, too. To pretend in public on television that the sort of cuts—[Interruption.] I have always said that cuts are painful. I have never denied it. To pretend that cuts on a vastly greater scale, such as the right hon. Lady insists upon continually, will not hurt is a dishonesty that disgraces her present role as Leader of the Conservative Party.

The plain fact is that the transient impression that the right hon. Lady has a policy, which was so sedulously cultivated by the professional image-makers at Brighton a few weeks ago, is already fading into thin air, like the equally transient impression of her reconciliation with the right hon. Member for Sidcup. I ask the House to reject the right hon. Lady's amendment with the contempt it deserves.

5.57 p.m.

Mr. David Steel (Roxburgh, Selkirk and Peebles)

The Chancellor of the Exchequer said some important things about the requirement of the IMF for a national stabilisation programme over the next two or three years. I shall respond to what he had to say on that subject, but before I turn to today's debate on the economy I point out that it is the tradition that the winding-up speech in this debate is made by the Leader of the House, who deals with the programme for the year ahead. I wish to address two side remarks—none the less they are important—to the right hon. Gentleman so that he may deal with them in his reply. I hope that he will not choose to stand aside from these remarks by saying that they are matters for the Patronage Secretary.

First, I shall say a word or two about the way in which we conduct our affairs in the House, or how they were conducted during the previous Session. I refer especially to pairing arrangements. I address these remarks to both Front Benches. It is time that the House came to accept that there are nearly 40 Members who do not take the Government or Opposition Whip. It is a pretty scandalous state of affairs that Members, be they Ministers who have to attend important international meetings, members of Select Committees, or members of international delegations, are constantly interrupted in the duties that they have to perform on behalf of the House because of the lack of comprehensive and sensible pairing arrangements. It does us no good to have sick Members being dragged in here from time to time. Both the Government and Opposition Benches must accept some of the blame.

The fact is that the Government and the Opposition will not extend pairing facilities to Members who do not take their Whips. Last week, for example, my hon. Friend the Member for Inverness (Mr. Johnston) and the hon. Member for Moray and Nairn (Mrs. Ewing) had to leave their places in the European Assembly to come back here to vote. [HON. MEMBERS>: "Shame".] I think it is a shame. I think it is disgraceful. Such Members are appointed and sent to the European Assembly to carry out their functions. There are some Labour Members who may disapprove of the European Assembly, but they have as much right as Members of any other party to reasonable consideration in the carrying out of their duties. I hope, therefore, that the Leader of the House will make sure that the arrangements for this Session will be more sensible, will enable Ministers to carry out their duties and will' reflect greatly to the credit instead of the discredit of the House, as occurred during the past Session.

Mr. Norman Buchan (Renfrewshire, West)

I am surprised that the hon. Gentleman should refer to the hon. Members for Inverness (Mr. Johnston) and Moray and Nairn (Mrs. Ewing). Surely it was a disgraceful episode that they should come over specially to vote against the Scottish workpeople in the shipyards.

Mr. Steel

The hon. Member for Renfrewshire, West (Mr. Buchan) should be above that sort of comment. I am making a general point. We shall have our political differences in the House. The pairing arrangements are intended to ensure that the arithmetic at the end of the day is exactly the same whether hon. Members are elsewhere conducting their business on behalf of the House or present in the Lobbies. All I ask is for some rethinking about the way in which we conduct our affairs.

It is certain that the bulk of the coming Session will be taken up with the devolution Bill. My party has a distinguished record on devolution, but when I was arguing inside my party recently that we should at least support the Government on the principle of the Bill on Second Reading, one of my hon. Friends, perfectly fairly, said "What principle is there in the devolution Bill published by the Government?"

The Bill proceeds from expediency and not from principle, and it is defective in many respects. The Leader of the House must not count on support from the Liberal Bench for the passage of the devolution Bill through Committee and on Third Reading unless the Government think again about the absence of devolution proposals for England, about the fact that they are creating representation without taxation—which is a recipe for conflict—about the fact that they have ignored the unanimous recommendation by the Kilbrandon Commission for a representative electoral system in Scotland, and about the fact that they have compounded their folly by creating multimember constituencies without changing the electoral system. They have given inadequate powers over industry and the economy.

The hon. Member for South Ayrshire (Mr. Sillars) is right to reflect on the Labour manifesto. The Government propose to continue the over-representation of Scotland in the House of Commons. I sympathise with hon. Members representing English constituencies who strongly resent that.

An opinion survey, published in the Daily Record—not by my standards a scientific poll—eliminated the federal proposal. It presented readers with a straight choice between the Government package and total independence. Presented with that straight choice, 44 per cent. were driven to declare for independence. The Government should take that result very seriously. Unless they get the package right and create a rational and logical basis for devolution, they will create more trouble instead of finding a solution.

Mr. W. R. Rees-Davies (Thanet, West)

Does the hon. Gentleman also adopt the view expressed by his former leader that two separate Bills, one for Scotland and one for Wales, should be published? Many of us think that that would be the proper course.

Mr. Steel

Yes, I wholly support that view. We have pressed for it all along. The Bill published this morning is a dog's breakfast. Two nations are dealt with in two different ways within the one Bill. That in itself is a recipe for conflict.

I turn to the amendment before us. It is instructive to see from the Order Paper the fundamental difference between the Conservative Opposition amendment and the Liberal amendment to the Address which has not been called. The Conservative amendment is identical to ours except that it leaves out everything positive. It stops at the end of the first sentence. I shall argue our solution in a moment. It may not be the right solution, but at least we put forward positive suggestions, whereas the Opposition ask us to accept a blank cheque —that there is no confidence in the economic policies of the Government without putting anything in their place.

We in the Liberal Party—I suspect that we reflect the mood of the country—have no confidence in the official Opposition, who have put forward no alternative policies. Time and again we are told what the Conservative Party is against. As we have just been reminded by the Chancellor of the Exchequer, we were told within the last day or two that the Conservatives were against a statutory incomes policy, although after the exchanges this afternoon it seems that that firmness is not quite so resolute as it was reported to be.

If the Leader of the Opposition goes on record as being against a statutory incomes policy, she will be following the distinguished record of Leaders of the Opposition who have been against a statutory incomes policy. Both the right hon. Members for Sidcup (Mr. Heath) and Huyton (Sir H. Wilson) in their time as Leaders of the Opposition expressed themselves as being against a statutory incomes policy and lived to repent of it.

If the Leader of the Opposition is arguing, as she did last night, in favour of a voluntary incomes policy, does that mean that she supports the social contract? That, I understand, is a voluntary incomes policy. If she does not support it, does she expect the House and the country to believe that she would get a better social contract than have the Government out of the trade union movement?

I, too, believe in a voluntary incomes policy. It would be nice to have it, but we can have it only by building the political stick of a possible statutory incomes policy when we negotiate for a voluntary incomes policy. A voluntary incomes policy can work only if it has the wholehearted support of Parliament as a whole and not just of the governing party.

The Opposition say that they are against the National Enterprise Board and its associated agencies. Although I may not necessarily agree with the way in which the Government operate the agency, the record, under both Conservative and Labour Governments, of the lack of industrial investment in essential places is so obvious—it has been spoken about by Conservative and Labour Ministers time and again—that it is clear that some agency is required as an instrument of Government to steer industrial investment. By saying that they would scrap the NEB and its associated agencies the Opposition are adding to the impression that we operate politics as a seesaw and that whatever one Government do will be undone by the next incoming Government. That is against the national interest.

The Opposition tell us that they are against public expenditure at its present level, but they are never specific as to where and by how much they would cut it. Am I to go to my local authorities, complaining as they are about the present requirements for cutting local authority expenditure, and tell them that if the Conservatives were in office the cuts would be even more Draconian? If that is not what I am to tell them, what is the alternative method by which the Conservatives would cut public expenditure?

If the Government do not act in the national interest, the right course is to have a General Election, but we should be under no illusion: a third General Election in three years can hardly be described as in the national interest: nor would it give the impression that we are capable of organising our affairs.

Our amendment refers specifically to the Government's record during the past Session of Parliament. The figures given in the amendment are based on what was the position when we were debating the Queen's Speech a year ago. Since then, we have had a 20 per cent. devaluation of the pound, an increase in unemployment from 1,168,000 to 1,377,000, an increase in the annual rate of inflation from 14.8per cent. to 19.7 per cent., and an increase in overseas borrowing from £4,000 million to over £7,000 million.

We go on to call on political leaders to produce a programme of national recovery for the remaining three years' life of the present Parliament. In saying that, I echo what was said yesterday by the hon. Member for Berwick and East Lothian (Mr. Mackintosh). He said that he hoped that the Cabinet was not thinking what some people were thinking: that is, What package can we get through the Labour Party? That is not the correct question. Ministers should ask, 'What will meet the problems of this country?' If a package is produced to meet the needs of the situation there will be a majority for it in this House."—[Official Report, 29th November 1976; Vol. 921, c. 557.] I very much agree with what he said. It echoes one of the understated arguments in favour of the reform of the electoral system. I am not talking about fairness to minorities. It is difficult for any Government who at the last election commanded the support of only 28 per cent. of the electorate to address themselves to the national need and to the other 72 per cent. who did not support them at the polls.

The Chancellor of the Exchequer said that representatives of the IMF are visit- ing London. It is true that they are inspecting the books and that they have a closer view of the books than anyone in the House, outside the Treasury and the Cabinet, but the books do not tell everything, and the IMF representatives will not discover everything from looking at the books. They are entitled to ask about how we manage our affairs as well as about management matters and to ask what the management of this country is like at present. I am afraid that they may conclude—and they would be right —that in recent years that which has been economically necessary in this country has been fundamentally almost politically impossible. We have had, during the past year, four Budgets or the equivalent of Budgets, if we include the massive increases in interest rates, and we are about to have a fifth, presumably, within the next few weeks.

I should have thought that it was common ground in every part of the House that a far greater proportion of our national resources should be allocated to industrial investment. But that requires far greater industrial confidence than we now have in the future of our economy and its handling. It is for that reason, to boost confidence both at home and overseas, that my colleagues and I believe it necessary to produce a programme of national recovery.

I do not think that the Government yet fully understand just how precarious their position appears overseas. They are seen as dependent upon the vote in this House of one Irish Republican publican. When the Labour Party conference passes resolutions about public ownership of banks and insurance and when the Labour Party executive decides to back demonstrations against Government policy, these things are not studied in great detail overseas. This Government are simply seen as having their backs to the wall and as weak.

I was in the United States of America at the time of the Labour Party conference. Time and time again I had to give broadcast and newspaper interviews to explain that the Labour Party conference was not the Labour Party. Why should I have had to do the Government's work? It was necessary and it was an uphill task.

The Government must accept that they are in a very weak position. In my short experience as Liberal Party Leader I have found in both Europe and America general astonishment that the party leaders in this country meet in only two circumstances: publicly to exchange insults across the Dispatch Box, and socially to exchange pleasantries over drinks. There is astonishment that while party leaders may get together to discuss the grave situation in Northern Ireland and issues of national security, the economy is never on the agenda and even the National Economic Development Council is closed to the views of opposition parties. This information is greeted with astonishment overseas.

Investment decisions taken by industry must be made against a hopeful background of a five-year or 10-year projection. It is difficult to take such decisions against a background of political uncertainty which is often destructive to the national economy. If we were to attempt to form a programme of national recovery, it should contain six elements.

First, it is necessary to establish agreement on the proper boundaries between the public and private sectors in the economy and the rôle of the National Enterprise Board. I accept that there may be from time to time pragmatic arguments in favour of public ownership, as indeed the Tory Government found in the case of Rolls-Royce. But there is no case for continuing the dreary battle that has bedevilledus since the end of the war about the doctrinaire boundaries of public ownership, for the Government to be pushing through irrelevant nationalisation policies, or for the Opposition always on regaining office to be introducing Bills to denationalise parts of the public sector.

Secondly, there will have to be agreement about the limitations on pay after next August. It is deeply damaging for us overseas that the Government should go round the world saying that we have a social contract and a policy which is half working but that it expires in nine months' time and that they do not know what we shall do after that. We cannot proceed with restoring long-term confidence at home and abroad unless we have a consensus about policy after next August.

Thirdly, it is very important that we should stop creating illusions for our own public about the real effect of inflation. The Chancellor—with his famous 8.4 per cent. figure at the last election—must accept part of the blame for this. This continued last night at the summit meeting in the Hague when an argument took place between our Prime Minister and the Prime Minister of France about the possible devaluation of the green pound. For the EEC it does not make economic sense that such a massive amount A Community taxpayers' money should be used in supporting cheap food imports into this country. [HON. MEMBERS: "Cheap?"] All right, less expensive food imports.

It does not even make sense nationally. At a time when, as the Chancellor of the Exchequer admitted a few moments ago, a boom is not taking place, we should be looking for ways of making savings on imports. Concealing the reality of food costs and encouraging cheap imports instead of going for a greater expansion of home agriculture is not at all sensible. Food subsidies should be abandoned faster than the Government propose.

The same is true of our nationalised industries. It was interesting last night that the Secretary of State for Industry criticised the previous Government because, he said, Their deliberate policy of controlling the pricing policy of the nationalised industries resulted in subsidies to those industries having to be handed over and paid for by this Government when we took office, subsidies of £1,250 million."—[Official Report, 29th November 1976; Vol. 921, c. 611.] Of course, he is right, but what disturbs me about what I call the "sucks, yah boo" school of politics is that if he is right now he should have been right at the time when the subsidies were voted by the House.

I looked up the Division list for 21st November 1973 when there was before the House the Second Reading of the Statutory Corporations(Financial Provisions) Bill, which provided for compensation for the gas and electricity industries and for the Post Office because of the policy of price restraint. I found that the names of neither the present Secretary of State for Industry nor of any of the Labour Opposition of the time appeared as voting against. They were happy to accept it for good political reasons when it was presented by a Conservative Government. It does not do for them now to complain. It is the policy of illusion and of concealing the reality of inflation from the public that must he stopped.

Fourthly, there must be a concerted effort to reduce wasteful public expenditure. We cannot let the Tory Opposition get away with the fact that it was under their Government that the National Health Service was so reorganised that it now has more administrators than doctors. It was under a Tory Government that the number of local government units was reduced from 1,400 to 400, but the number of local government employees went up by nearly 250,000.

It was under a Tory Government that the insane Motor Vehicle and Driving Licence Centre at Swansea was created. In 1973–74—I looked up the figures—before centralisation took place the service employed 4,700 people and cost £19 million per annum. In the first year of the new operation, admittedly with the transfer still going on, it employs 6,700 people and it has cost us £30 million, leaving out of account the capital cost of the project. It is this sort of wasteful expenditure that the Government should be looking at severely.

Is it really necessary in an age when we support 334,000 Service men for them to have a back-up of 240,000 civil servants to sustain them? I agree with the Chancellor of the Exchequer that one cannot have painless cuts in public expenditure. The civil servants in these positions are the victims of policies which have been pursued over the years. They cannot be thrown on the scrap heap. But public efficiency audits and a real scrutiny of the scale of public expenditure and where it is going is essential.

Over the last 20 years manufacturing employment increased in France by 11 per cent., in Germany by 31 per cent., and in Japan by 155 per cent. In Britain the number of people in manufacturing employment in the same period was down by 13 per cent. Mr. Harold Macmillan was right in his recent television programme when he said that what is wrong with Britain is that our manufacturing and industrial base has become too weak for the massive administration which we are now required to support. What is required is a major shift in social and economic policy, which will be unpopular, and that is why there must be a greater consensus in this place if we are to carry it out.

Fifthly, there must be a major review of the tax structure. When the Chancellor read the section of his speech today which referred to the effect of income tax on the lower income groups, he read it as though it had come as a recent blinding revelation to him. But I recall that the Liberal Party devoted its one miserable day a year to this subject last March. He should have taken action on the matter in April.

I remember speaking in that debate about a family with two children and on an income so low that they qualified for family income supplement, yet what the FIS people gave the tax man took away, and the net benefit of all that administration to this one family was 8p per week. The situation is ludicrous. It has obtained throughout all the Chancellor's period in office, and his solution or suggestions for what he will do about it next April seem pretty vague.

The Chancellor ought to do more than raise the income tax threshold. He must reduce income taxes right across the board in order to restore incentives. He should recognise that, in relation to our Community partners, we are the country with the heaviest proportion of taxes on incomes and the lowest proportion of taxes on things through such systems as VAT, in which, in my view, there is room for a fairly considerable increase.

For my sixth element, I take up what has been said already in the debate on the Gracious Speech about industrial partnership. I refer, first, to what the Prime Minister has said. It is reported that he had a blinding flash on the road to Chancellor Schmidt one day and that he is deeply impressed by the German experience. I hope that he will look at it accurately. There is nothing in the German experience which extends trade union patronage. It is a genuinely democratic experience in West Germany, where everyone within any place of work of over 50 people has a right to help to elect members of the statutory works council.

Moreover, it has operated against a background of one union, one industry—the system for which we helped to legislate the immediate post-war period. It has been one of the failures of our industrial society since 1945 that no one has been able to tackle the problem that our trade unions still remain vested in the old craft basis and we still have problems of demarcation and overmanning as a serious inhibiting factor in the working of our economy.

When one speaks about a programme of national recovery, it is interesting to see the reactions of those who lead and who have led this country. The Prime Minister says that the trouble with any form of national recovery programme is that it would represent the lowest common denominator of all the parties I do not regard such matters as those of which I have been speaking as weak or flabby or as representing any lowest common denominator. I dare say that people could contribute other things, and I do not say that it is the perfect solution but I believe that we could achieve a wider measure of agreement across the Floor for the necessary programme.

In a recent radio interview, the right hon. Member for Huyt on said that he was against coalition and things would have to be very serious before he contemplated it. What sort of condition does he think we are in now? We have rising inflation, record unemployment, a pound which has slumped and stagnant production, and we are in record debt. Is that not a very serious condition? Has not the time come to think of alternative political solutions?

If we are to have what the Chancellor referred to as a national stabilisation programme, there must at the same time be a political stabilisation programme over the next two or three years. In a noteworthy speech to the Conservative Party conference, the right hon. Member for Sid cup said that the crunch had now come. My problem is that I am not sure that he was right. I think that the danger is that in our present condition the crunch never comes. It is simply a slide slowly down and down, and there is no magic point. Because we do not have fixed exchange rates now, there is not even the shock of a sudden devaluation such as we used to have.

I believe that a programme of national recovery is far more important than the people who might be involved in it, although the newspapers love to speculate about who would be involved in the process. It seems to me that, if we are to have a programme of national recovery, the Government have three options. First, they could amend their programme and put before the House a programme which had been discussed with the Opposition parties and which could therefore attract their support for the rest of the lifetime of this Parliament. That is one option, and it is one which I should certainly consider.

The second option is to have a formal grand coalition between the two major parties, as existed in West Germany, for example, from 1966 onwards. I regard that as the least probable scenario, but at least it is one which should not be excluded.

The third option—perhaps in political terms in the public mind the most popular—is the possibility of the Government being reconstructed to provide a Government of national recovery, probably losing their own Left wing and probably excluding the Right wing of the Cinservative Party. But it could, I reckon, command the support of at least 400 of the 635 Members of Parliament.

That is what the public want, and I believe that politicians should occasionally respond to public demand. The way of handling the economy so far has been that the Government of the day have constantly under-estimated the readiness of the public to follow a lead and accept sacrifice. In saying that, I recall how struck I was by the reaction of public opinion in December 1973 when Lord Barber was Chancellor of the Exchequer. I believe that we failed then to take the necessary measures which the public would have accepted if the Government had been willing to be tough enough.

The Prime Minister's favourite nautical metaphor in his advice to the House is "Steady as she goes." It will not do now when she is sinking. I believe that if he were to say "All hands on deck, everyone man the pumps", he would have the personality and experience to evoke a national response. The question is whether he has the will.

5.26 p.m.

Mrs. Reneée Short (Wolverhampton, North-East)

The hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel), the Leader of the Liberal Party, has once again floated his idea about a National Government, but I do not believe that it evokes much response on either side of the House or, indeed, in the country. What the country wants is that the Government who have been elected should carry out the policies on which they were elected. As for what we heard from the right hon. and learned Member for Surrey, East (Sir G. Howe), with his talk about sweeping away cobwebs, moonlighting and the rest, that does not take us very far, either.

Although I have been critical and remain critical of the direction in which my Government have been going, especially in connection with cuts in public expenditure—largely because they are cuts in public expenditure and not in private expenditure—I do not accept that we have heard anything from the Opposition Benches to persuade us to join them in the Lobby tonight.

One of my greatest concerns is that we are raising money in order to spend it in an utterly unproductive way. The present level of unemployment, now at nearly 1½ million, is costing us £3,000 million a year. That is unproductive expenditure in terms of manufactured goods and of tax return to the Chancellor, and it is an enormous burden for us to carry. The 20,000 unemployed teachers represent a public investment of £150 million in their training. This also is an appalling waste of public resources. It is high time that we examined the ways in which we use the money which we raise at such great cost to the public purse.

There are many local education authorities still with over-size classes. In 1972, some time ago now, the right hon. Lady the present Leader of the Opposition produced a White Paper on education expenditure. That was when she was Secretary of State for Education and Science, and I supported her wholeheartedly in her proposals, especially the proposal for the expansion and development of nursery education. But the right hon. Lady left a fatal flaw in that part of her White Paper because she did not also introduce a requirement that nursery education should be part of the State system. She made an allocation of resources which she said would be available for local education authorities to call upon, but there was no compulsion on those education authorities which acquired the allocation actually to spend it on nursery education or to carryout a scheme.

That failure has bedevilled nursery education as a whole since 1972. In this current year, 17 local education authorities which asked for an allocation when it was offered by the present Secretary of State refused to take it up, and they have accordingly provided no nursery classes this year at all. Twenty more local education authorities have refused part of the allocation, again an allocation for which the originally asked the present Secretary of State, and they have done that, they say, because they cannot afford the revenue costs of carrying out the capital expenditure.

That is a very sad state of affairs. It means that there are today fewer children receiving nursery education than there were at the turn of the century. That is something which the Government will have to take on board. I had hoped that the Queen's Speech would mention that nursery education should be part of the State system for those parents who want it—at least until we get to the position of making it part of the State system for all children from the ages of three to five.

I wonder whether the Government could be persuaded to look at some more imaginative and perhaps unorthodox way of using the unemployed teachers to whom we are now paying a large amount of unemployment pay. Perhaps we could allow education authorities to employ unemployed teachers, and if the Government were still to pay that part of their salary in unemployment pay, and let the education authorities make up the rest, we would then have more teachers employed. It would be the same cost to the State but the State would get something back in taxation. It would be a reduced cost to the local education authorities. We could then see nursery education carried out. In other sectors of education the sizes of classes could be reduced, which would bring great benefit to the whole area of education from the earliest stage right through.

If hon. Members opposite are concerned about improving standards in education, they must accept that to get the foundation right at the age of three or four is the best way The next best way is by reducing the size of classes throughout primary and secondary education.

I offer this suggestion to my right hon. Friend free of charge. It may be unorthodox but it has already been tried by some members of the NUT. It has been accepted by the Labour group on the Hertfordshire County Council who raised it at the education committee of that council—which is Conservative controlled—and it was accepted by them. There is some feeling that this might not be a bad idea.

Cuts in Government expenditure which have been carried out or are about to be operated are having disastrous effects in the National Health Service. The NHS is facing a similar crisis to education. The South-East is facing a cut of possibly 5,000 hospital beds. A cut in that number of hospital beds means that roughly the same number of jobs will be lost. Area health authorities all over the country have carefully combed through their expenditure and are facing a similar situation. They arc told that certain amounts have to be cut from their expenditure. Undoubtedly the service to patients will be affected.

The teaching hospitals are also being affected. In the London area Guy's, St. Thomas's, King's College, the Middlesex, the Post-Graduate Medical School at Hammersmith, Charing Cross and University College Hospital are all facing cutbacks in expenditure. This inevitably means that centres of excellence, which the teaching hospitals represent, and which are essential to medical research, are likely to be closed.

Some of the important departments are concerned with women's medical care. I am thinking particularly of breast cancer screening. It is so much under-utilised at present that nowhere near the amount of screening necessary in the age group most at risk is being done either in London or outside London.

I had a letter from a professor working in this field at University College Hospital a few days ago in which he indicated that his work in breast cancer screening is likely to be cut and that he will have to leave that field. He will work in other areas of the hospital but this important work will be lost. That means that the leading teachers and research workers will withdraw from this area of research. Other people will be affected. I beg the Government to look at this again.

What is particularly annoying to me and to many of my hon. Friends is that alongside the sad situation which affects NHS hospitals and teaching hospitals we find that private hospitals are growing up like mushrooms. According to the Independent Hospital Group, 100 new private hospitals are in the planning or development stage, most of them in London and the South-East. Within the Greater London area seven private hospitals are on the drawing board and several others are being expanded. Other private hospitals in Coventry, Wolverhampton—there is one going up in Wolverhampton—Leamington, Derby, Sutton Coldfield and Bromley are on the way and many others are being planned for.

All these schemes have been funded. It is interesting that in a comparatively short period, the money has been raised to build these private hospitals. They will attract doctors and other staff from the NHS hospitals which are already being depleted. This is a situation which cannot be allowed to continue.

One that is threatened with closure is the Elizabeth Garrett Anderson Hospital which deals entirely with women's health problems. We cannot allow any NHS hospitals to be closed, or partly closed, while allowing private hospitals to be built. Clearly, there is a lot of money about. The Chancellor of the Exchequer should take note of this. There is a lot of money to build private hospitals. There is a lot of money to buy houses at £600,000 a time. There is a lot of money to spend on an enormous amount of imported foods and luxury manufactured goods from the Common Market which are pouring into the country every day.

I would suggest that the wealth tax, which has been excluded from the Gracious Speech, ought to be put back.

Sir John Hall (Wycombe)

I am grateful to the hon. Lady for giving way. Would she agree that the development of private hospitals has been stimulated largely by the withdrawal of pay beds from the NHS hospitals? Would it not have been better had those pay beds remained in the NHS hospitals for the benefit of both income and staff?

Mrs.Short

We have argued about this in the House for a long time. The Expenditure Committee took a great deal of evidence, largely from professional people, about the effect of private practice within the NHS hospitals. It uncovered a large number of inequalities and abuses in the NHS system which needed to be put right.

The answer is to have no private practice at all and to have all consultants and doctors working full time for the NHS and using their medical skills, and organising and political skills, to improve the NHS. I would have thought that that was a much more preferable situation.

I ask why we have not got the wealth tax and when we shall get it. We see the sad position of penny pinching in children's education, especially at the most important stage. We have seen it in respect of women's health and in respect of the NHS. We see it in the arts, which also faces a difficult situation. We have refused to provide a small amount of money to give some recompense to writers. It is a dismal situation.

The Opposition are always whining about more public expenditure cuts. Yet from time to time, when Ministers are answering Questions, they are asking for more public expenditure. They are very schizophrenic about this. It is time they sorted out their own difficulties and decided exactly what it is they are planning for.

The Opposition do not care about education. They care only about maintaining privilege in education. They do not care about the closure of NHS hospitals or teaching hospitals. They care only about the privilege of part-time consultants and those who can afford to pay for private medical treatment. They do not really care about more unemployment. They think that everyone is well off on the dole or on social security.

It is time that the Government stopped playing the Tories' game. The Chancellor can find many sources of additional taxation revenue and save much of the fabric of our society to which all of us on this side of the House are committed to improving and safeguarding. I hope that my right hon. Friend will carry that message back.

5.40 p.m.

Mr. Reginald Maudling (Chipping Barnet)

I am grateful for the chance of catching your eye, Mr. Deputy Speaker, and for the opportunity, after a very long time, of making a speech in the House about economic problems. I greatly welcome this opportunity.

I cannot say that I equally welcome the circumstances in which it arises. That, after all, is another matter. In the meantime, I gather that I have become one of the neo-Keynesians who appear to be rather despised by some individuals. I do not mind being associated with John Maynard Keynes. After all, he, together with Freud, was one of the great innovative intelligences in this century, just as Hegel was in the last century. If his theories of economics do not wholly apply at present, it is simply because there are new political circumstances which he could not have foreseen. He would have adapted his principles to those circumstances—not deserted them, as they have been deserted by some of those who are so frightened by or so disapproving of modern society that they seek to take refuge in the last century.

I want to put forward three themes. I know that we are discussing an amendment to the effect that there is no confidence in the Chancellor of the Exchequer or his policies. I do not think that I need add to the conclusive case made by the Chancellor himself on that issue. I wish to put forward three themes which may be unfashionable but which I believe have some substance.

First, too much emphasis is now put on monetary economics at the expense of real resources. It is resources which matter and money, important as it is, draws its importance solely from the fact that money moves resources around.

Secondly, all economic problems are really political problems in the widest sense. What should concern us in the House is not the intricate mechanics of an economic model but what goes on in the minds and hearts of people in this country—their desires, ambitions, frustrations, jealousies and fears. These are the things upon which, and upon which alone, the House of Commons can erect an effective and lasting economic policy.

Thirdly, in contrast with the normally held view of Britain, I believe that our economic prospects are better than they have been for many a long year if we have the wit and the will together to grasp them. We have a substantial amount of spare capacity available. We have a highly competitive currency. We have the signs of a development of international trade. We have the growing substance of North Sea oil.

Taking all these things together, what a mark we could make on the world if we could unite to develop and use them. Despite this, all we seem to talk about in public is how much we should cut and how soon.

We are getting things back to front. We should not say all the time that we are spending more than we are earning. We should say that we are earning less than we are spending and we should concentrate on this. It is not that we are spending too much. How can anyone, looking at the face of Britain today, argue that we are spending too much? We are no doubt spending unwisely—too much on some things, and too little on others. But, looking at the face of Britain and of our society, can anyone really argue that we are spending too much as a whole? Of course not.

Our problem is, not over-spending, but under-earning. These are fundamentally different things, though they may seem to be the same. It was Aristotle—the right hon. Member for Down, South (Mr. Powell) will correct me if I am wrong—who described the difference between the road from Athens to Thebes and the road from Thebes to Athens by saying "They may look the same, but it matters a heck of a lot which one you end up on at the end of the day".

It is rather the case with our economic situation. We are under-earning rather than over-spending. That is why I do not see an economic case at present for a new and drastic deflation of demand. Let us cut public spending by all means, but the purpose should be to lay the foundations of expansion. How can it make sense in a country where falling demand is piling up unused resources to reduce demand further and to increase waste further? This is the demand of the monetary economists.

How does this misconception arise? I think that it arises from a confusion between cost-push inflation and demand-pull inflation and the desire to use remedies appropriate to the one for the curing of the other. A good deal of the blame for this must rest on the shoulders of the monetary economists. I strongly suspect that in the past two years a great deal of intellectual bosh has been spoken about money supply by the more trendy academic economists and their more bemused followers. For when their arguments are analysed as a guide foraction—that is what we want—their recipe for beating inflation in practice amounts to no more than the old-fashioned credit squeeze which I remember from many years ago at the Treasury.

The high priest of these mysteries is Professor Milton Friedman who, as I see in the newspapers, has just been dancing on the grave of Britain with all the uninhibited freedom of the truly ignorant. He argues that there is a two-year time lag between movements in the money supply and the effect on the economy. A two-year time lag is not a very good guide. It is rather like the man who, having lost his way in Liverpool, asked how to get to the East Lancashire road and was told that he should not have started from there in the first place.

In my opinion, the only way in which a credit squeeze can restrain prices is by reducing profits, on the one hand—but everyone, including the Prime Minister, agrees that profits should not be reduced —or, on the other hand, by reducing incomes which is the only element in the cost of production which is amenable to a credit squeeze.

Deflation is a barbarous method of doing this. If reliance were to be placed on deflation to contain the growth of costs and prices, first, it probably would not work and, secondly, if it did work, we should need deflation and stagnation for ever to maintain it.

The same is true of the balance of payments. Deflation is the solution of despair. Nor in our present situation is it needed by our present economic balance of payments prospects. I think that there is a great deal of misunderstanding about international borrowing. What matters is our total net overseas indebtedness and, subject to the obvious qualification about the quality of investment, this cannot rise by more than our current deficit. Every time the Bank of England supports the pound sterling by buying pounds in the market it is paying off a debt. To borrow from the Fund, for example, at 8 per cent., to pay off Arab holders of sterling at 15 per cent. seems to me to be, on the whole, quite good business.

The case for cuts in public expenditure is a strong one on its own and should not be based upon the frail and sometimes facile arguments of demand management. The case is simply this. The proportion of the gross national product taken by the public sector is too high. The best remedy for this is to increase the total national product. But this is itself inhibited by the level of the public sector requirement at present.

Nationalisation is a costly nonsense. I do not know what the man in the Clapham omnibus might say, but I know what the man in the Chipping Barnet pub would say—that we need more nationalisation at present like we need a hole in the head. Public expenditure is clearly wasteful. I have been shocked recently—I know other Members have been shocked as well—by figures showing how few of those employed in the National Health Service or in education are actually teaching, doctoring or nursing. These are deplorable figures and a strong argument for action.

A large public expenditure must lead to a high scale of taxation. Whatever the arguments about taxation one way or another, it surely can not be a coincidence that we in this country have the highest marginal rate of taxation in Europe and the lowest economic record of performance. That is a correlation which cannot be explained away purely on grounds of coincidence.

Mr. Sedgemore

So explain it.

Mr. Manning

It does not need to be explained away: it is absolutely clear. With taxation at these rates, one gets production at these rates.

Mr. Sedgemore

If this correlation is so obvious, why is it that distinguished economists for 100 years have sought to prove it but have found no evidence to substantiate it?

Mr. Maudling

I sometimes find that distinguished economists have a little difficulty in recognising the obvious.

The fourth argument is that resources need to be transferred from services to manufacturing—broadly speaking, from public sector to the private manufacturing sector. That is a good argument, so long as we are clear about the consequences. It is no good at all destroying jobs in the service sector if there is no creation of jobs in the manufacturing sector. After all, at present there is no great extra demand in the manufacturing sector.

I think that the lesson of the last 20 years has been clear—that whatever incentives we might give to manufacturers, whatever tax reductions or concessions we may make, we will not get people to invest in additional capacity so long as their present capacity is under-utilised. It is as simple as that. If we want to achieve this switch from services to manufacture, we must stimulate the demand for manufactures.

That brings me to the problems of incomes policy. The whole essence of the problem of expansion without inflation, which we have been talking, about in this House for a generation now, rests in incomes policy. I make no apology for restating the views on this subject which I have held consistently, in and out of government, since the 1950s. My belief is simply this—that in modern conditions any Government must have an incomes policy as a major element in their economic policy.

This has been confirmed by experience. Succeeding parties when in office have found it necessary, and with the growth of the pressure of income inflation it has become even more important than it was. Whatever form it takes, voluntary or statutory—clearly, voluntary is far more desirable—any Government must have a policy for dealing with the growth of incomes if they are to deal with inflation, for the growth of incomes is the major factor in the growth of costs and prices.

This cannot be left to the free market mechanism, for the simple reason that there is nowadays no such mechanism. The new consciousness of their power among the trade unions makes the operation of a free market mechanism quite impossible. Just as Goverments in the past have had to act against potential monopolies of capital, so Governments in the foreseeable future will have to have policies designed to deal with the monopoly exercise of power by the suppliers of labour. The techniques may be different. but the need is the same.

Her Majesty's Government have two great problems now in this field. The first is the present claim by the miners. My right hon. Friend the Member for Sid cup (Mr. Heath) might ruefully reflect upon the words of Winston Churchill—that there is a melancholy justice in the long swing of events. This is a new situation for the Government but it is an old problem—how to find a way in which the claims of the underground workers, which are so exceptional, can be met without allowing them to act as a battering ram in the Government's whole incomes policy. We did not get much help in 1974. We on this side will help the Government now if they are doing the right thing, but it is the same problem; it is a very difficult and crucial problem indeed.

The second problem of incomes policy is that always it has appeared too negative, always it has appeared solely destined to restrict and restrain, which is not the purpose of incomes policy. The purpose of a rational incomes policy is to encourage and facilitate maximum growth of incomes consistent with avoiding inflation. The reason that it has gone wrong is that successive Governments have come too late to adopt incomes policies and have adopted them at times when the crisis was such that it was impossible to give any proper concern for differentials and impossible to have the flexibility to encourage productivity.

In planning the future of incomes policy, it seems to me enormously important to have regard to this essential matter. As I was saying earlier, it is greater output, greater productivity, greater production, at which we must aim. All our policies—on incomes, on taxation, on anything else—must be geared to that necessity.

I am afraid that I have wearied the House. I come to my final theme. Our answers now in this country lie not in restriction but in expansion. There is no one problem that we face that we cannot solve from the resources of this nation. There is no reason why British industry—managers and workers alike—should be any less productive than the industry of Germany or Japan. We have the skills, we have the brains, we have the traditions.

We have the most civilised society in the world in which to work and for which to work. We have the oil of the North Sea. The problems are not economic but political. They lie not in men's pockets but in their hearts. We shall solve them not with the small change of party dispute but with the major currency of human endeavour—united British endeavour. Can the House of Commons give a lead?

5.57 p.m.

Mr. Eric Ogden (Liverpool, West Derby)

The right hon. Member for Chipping Barnet (Mr. Maudling) has made a bold and lively return to the Back Benches. My father used to say, "Eric, as you move along, up or down, you will meet people in all walks of life. Always greet those you see as you go up the ladder because they will be there to greet you as you come down." Perhaps "Cross-Benches" is a more suitable term than the words "up" or "down". From where I sit, the alternative Government below the Opposition Gangway look much more impressive than the alternative Government on the Opposition Front Bench. Interruption.] There are other alternative Governments in the Chamber; on this side of the House my hon. Friends on the Government Front Bench should not be afraid of that.

Before the right hon. Gentleman's speech, this debate was a depressing experience for me. This is the first time in 12 years that I have even attempted to intervene in an economic debate on the Queen's Speech. I have taken some interest in regional economic affairs, but I left the high points of economics to others of my hon. Friends. That may be one reason why the economic state of this country now is rather worse than it was 12 years ago when I first came here —but this is not entirely my responsibility.

I would say to the right hon. and learned Member for Surrey, East(Sir G. Howe), who took 30 minutes to reaffirm some of the things he has told us in the past, that I do not recognise his description of depression and malaise on Merseyside. There is anxiety, worry and concern there, there is a degree of what I might call "bloody-mindedness", but my impression of Merseyside does not include depression and deep gloom, and I hope that the right hon. and learned Gentleman does not, either.

The Chancellor had many things to say, not only to hon. Members but to people outside. I only wish that, in a speech lasting almost an hour, he had found five minutes to talk to people like mine on Merseyside—people who have worked 50 weeks this year, who want to work the same next year and who do not ask too much of life—people who are now facing the third economic crisis this year.

We were told last March that there was an economic crisis and that measures were needed to deal with it. We were then told in June that those measures were not working and that there was an economic crisis for which measures were needed. We arc now being warned of a pre-Christmas package because of the difficulties with which we now have to deal.

In all this, my concern for Merseyside relates to jobs. In my area the main industrial unit is a factory controlled by the General Electric Company. The concern in that company is that its workers are in some danger of losing orders at home and abroad, not because of lack of technology, or because those goods are not required abroad, or because they have not the right quotas or delivery times, but because they cannot put a price to their contracts. There is a real danger that we may not win major contracts, and that means that we on Merseyside are not able to earn the money to provide for our services.

The over-riding priority for workers and management is that we should seek to establish the value of the pound at a level which will give our manufacturers the ability to say "We can produce and deliver goods at the right time and at a certain price." Therefore, the first priority in regard to jobs on Merseyside is for the Government to lift the value of the pound. If it is a question of jobs or social services, the answer must be jobs. If the argument is between jobs or council rents—and I represent many thousands of council tenants—jobs must take first place. Again, if the calculation lies between jobs or education, we must see that jobs come first. If there has to be pruning, it must be pruning not just to enable growth and leaves to appear on the trree but to provide some fruit.

In the last days and weeks we have had many and various reports of different opinions in the Cabinet. Therefore, throughout this debate I have become more than a little worried over the question of who is in charge of the Government's economic strategy. Is it my right hon. Friend the Chancellor of the Exchequer, or my right hon. Friend the Chancellor of the Duchy of Lancaster—or, if neither of my right hon. Friends, who is in charge of the strategy?

My constituents on Merseyside are not particularly worried about who is in charge, provided that whoever is in charge brings forward a package and makes it work. My constituents are not particularly concerned whether my ideas are put into operation, or whether they should be the ideas of my hon. Friend the Member for Liverpool, Walton (Mr. Heller), or indeed the ideas advanced by the Opposition. My constituents require a guarantee that they are able to work. If the package that is brought forward in response to pressures internally and outside has less effect than that of guaranteeing work, we are in real danger of losing the confidence of our people in any part of the country.

The message that must go to my right hon. Friend the Chancellor of the Exchequer is that he must bring forward his own package supported by the Cabinet. No doubt if it works other people will take credit for it, but if it does not work then my right hon. Friend will certainly get the blame. I sincerely hope that the next package will not be just one of a long series. We cannot go through this whole procedure time and again. We must surely seek to avoid that situation. It is no use coming back to the House time and again doing too little too late. If the Chancellor will trust his own judgment and his own courage, he will deserve and receive the support of the House. If he does less than that, he will not deserve the support of the House or the country. Given that courage and determination, then everything is possible.

6.4 p.m.

Mr. Richard Page (Workington)

I rise to speak in this debate conscious of the fact that not only is it the first time that I have addressed the House as parliamentary representative for Workington, but that I do so following the elevation to another place of Workington's former Member. My predecessor served that constituency for31 loyal and hard years, and I wish to place on record my appreciation of the work he did for the constituency. He was well liked and was regarded with affection in the constituency and also by his colleagues with whom he came in daily contact.

I shall consider myself fortunate if in time in Workington I can be regarded with the same affection and trust which is so typically Cumbrian. Whereas our policies and aims may be different, I hope that I shall use the right approach to bring about their solution.

Some Members are privileged to represent constituencies and areas of contrasting interests—constituencies made of an amalgam of industry and farm, country and city, representing a changing and challenging pattern of interest. I count myself fortunate to represent a constituency that is among that number.

Workington is a name that suggests very much what it stands for. That name in the past was evocative of mills and mines and hard-earned coal and steel, wrenched from the ground on the backs, and even the lives, of the West Cumbrian. The name embraces the coastal town of Maryport, the central market town of Cockermouth, and the tourist area of Keswick. Workington covers an area of over 500 square miles which, besides comprising areas of outstanding natural beauty with its lakes and mountains, also covers some of the finest farming land of its sort in the country.

The coal mines as such have gone and have been replaced by the far noisier opencast process and the town of Workington contains the steelworks at Moss Bay and the Distington Engineering Company at Chapel Bank. These complexes not only are the largest employers of labour in the area, contributing £13 million to f14 million of salaries per year in the town, but are also highly profitable sections of British Steel.

Next year will see the celebration of 100 years of rail rolling at the steelworks in Workington, and they can be justifiably proud of that achievement as they are the producers of the finest railway lines in Europe, if not in the world. Although the area is greatly dependent on steel, other industries have moved in over the years. It would be wrong, and perhaps inappropriate, for me to mention them one by one, but they include the manufacturers of buses, shoes, plastics, paper and even of Cumberland pencils. Cumbria has been cut off in the past, but in a few months' time, in an effort to speed communications with the rest of the country, the completion of improvements on the A66 will give important links with the motorway network.

Workington is, as it says, a working town. Nearly half its working population are engaged in manufacture compared with the national average of 33 per cent. Furthermore, over 3 per cent. of the working population are engaged in farming as opposed to the national average of just under 2 per cent. Therefore, I very much welcome the following statement in the Gracious Speech: My Ministers are convinced that the key to a better economic future for the British people lies in improved levels of industrial output and productivity, a higher level of industrial investment, and being more competitive thus securing a greater share of world markets. That part of the Speech is absolutely right, because it is the only way in which we shall bring our economy under control. However, I noted with some concern the next passage: They will pursue these objectives through continued development of the industrial strategy in co-operation with both sides of industry. Nobody will argue on the subject of cooperation with both sides of industry because that is a vital factor and will play its part in righting our economy, but we all know that in pursuance of the present development of that strategy industrial productivity has slumped and we have a high level of imports of finished manufactured goods. In certain areas I am sure that selective dumping or adverse reciprocal trading occurs, such as in motor cars, shoes and textiles.

I welcome some of the ideas that are pursued on this subject in other countries. If anybody brings goods into those countries and sells them more cheaply than they are being sold in the home country, those goods are either refused admission or an appropriate tax is imposed upon them. I believe that we owe it to our industry and to our manufacturing units to consider such an idea.

The present strategy forces high national insurance premiums upon employers, increasing the cost of labour. There is the prospect in April of these contributions becoming even greater. No doubt this will have exactly the effect that we fear and will put up unemployment.

This present industrial strategy gave an average return last year of 3.9 per cent. on capital invested, and there is the prospect that this year the figure will be even less. It is a derisory amount for an industrial nation which depends on its wealth from its manufacturing in order to survive and we must compare this figure with that of 132 per cent. achieved in 1960.

Our companies, our manufacturing industries, our wealth producers, are then faced with a company corporation tax at the end of their financial year of over 50 per cent., which leaves them precious little for investment for capital growth and for any regeneration.

In addition, we have a Price Code which ensures that companies cannot earn too much money. It makes sure that they do not produce any seed corn to invest in order to bring about this so necessary capital investment and regeneration and makes management spend most of its time filling in the forms and making the applications to the appropriate body.

This present strategy gives us an inflation rate which means that every devalued penny's profit is absolutely vital to ensure not that we grow, not that we get bigger, but that we have exactly the same stock or raw material on the shelves as we had at the beginning of the year.

I noted grimly that at one point of the year the money supply had been inflated at a greater rate than the increase in inflation.

Then we have a personal tax rate—it has already been mentioned that it is one of the highest in any industrial nation—which is guaranteed to reduce the will to work in the hearts and minds of the people of Great Britain. We are losing the psychological battle in people's minds, and it is a battle we must win if we are to regenerate this country's economy.

We now have a bank rate at an unprecedented level, some three times that in the United States. This in turn simply forces up costs, puts people out of work and further decreases the hopes of any industrial regeneration.

These are just a few of the inhibiting factors which hit our industries and demoralise the people who work in them. I am sure that if these and other crippling burdens could be removed or reduced, our industries would then revive, and not only drive out the competition which is hurting us so much on the home market but achieve a greater share in the world market. This in turn would produce the wealth to reverse this country away from economic disaster and so that we should be able to support the social programme in the public sector, which must in the short term bear a reduction in order to have eventual long-term benefits.

I ask this not only for the sake of Workington, with its high industrial commitment and its high unemployment, but also because I believe that it is the only way to a true, genuine and lasting national recovery.

6.13 p.m.

Mr. James Sillars (South Ayrshire)

It is my extremely pleasant duty to congratulate the hon. Member for Workington (Mr. Page) on his maiden speech. I came in at a by-election, and I know how difficult an experience it is to come to a House of Commons which has already had its character formed and to insert one's own personality and point of view.

Without wishing to appear at all patronising to the hon. Gentleman, may I say that he can relax completely, because everyone who has listened to him found him most eloquent and pleasant to listen to. We were particularly impressed with the kind tribute that he paid to the former Member, Fred Peart.

There was one stage during the hon. Gentleman's speech, when he dealt with import controls, at which I thought that, unlike his predecessor, he was a potential member of the Tribune Group. But he can relax, because the rest of his speech showed that he is sitting exactly where he should be.

I turn from that rather pleasant duty to the less pleasant duty of referring to the speech of the Chancellor of the Exchequer earlier this afternoon. Like my hon. Friend the Member for Liverpool, West Derby (Mr. Ogden), I found the whole affair—until the right hon. Member for Chipping Barnet (Mr. Maudling), a former Chancellor of the Exchequer, spoke—extremely depressing, particularly when the Chancellor of the Exchequer made reference to the fact that he is deliberately thinking, or thinking deliberately, of cutting social benefits to persons who are unemployed at present. I am perfectly well aware of the fact that there is a great deal of public concern, anxiety and frustration over the payment of benefits to people who are out of work, but that is a tragedy for which those people, who are the victims of current economic policies, are in no way whatsoever responsible.

We have a Socialist Chancellor of the Exchequer lending legitimacy this afternoon to the argument that one of the ways to cure the economic problem of this country is to have an attack upon unemployment and social security benefits. It is a disgrace, coming from a Socialist, a member of the British Labour Party, or of any other Labour Party inside the United Kingdom.

We shall never solve the problems of the working people by turning one worker upon the other—the old Tory device of divide and rule. It is a great tragedy for the British Labour Party that in the week in which its own Chancellor of the Exchequer drops the election pledge of a wealth tax he also talks about cutting benefits.

No matter how fancy the language the Chancellor of the Exchequer employs, if he attacks supplementary or unemployment benefits, it is simply cutting the benefit at the end of the day. There is no more harrowing experience for working people, men or women, than to be faced with having to take up a position in the dole queue in company with 11 million other people. They do not expect a Labour Chancellor of the Exchequer to start talking about cutting their benefits. If that Bill ever comes forward, it will be with considerable pleasure that I shall vote against it.

I say to my hon. Friend the Financial Secretary to the Treasury that he should look at what was produced by the Labour Party in 1975 to celebrate its 75 years of existence. He will find that in that production there is a cartoon from the 1930s. It shows four people standing upon a ladder. The unemployed man at the bottom has his head just above water, and the man at the top is saying "Let us all take a step downward for the sake of the country." In essence, that is what the Labour Chancellor of the Exchequer is saying to the unemployed at the present time.

This Government, like their predecessor, have a Chancellor of the Exchequer who is guilty of flawed judgment on major economic policies. There have been about six major economic statements from him since February 1974. He has a history of allowing optimistic words to mask reality. If I may say so to my hon. Friends, I am one of the most pessimistic Members of the House of Commons. I did not come to the House like that six and a half years ago. I have been turned into a pessimist at the hands of optimists such as the Chancellor of the Exchequer, and I have had to live with the consequences of their optimistic action for six and a half years.

The Chancellor of the Exchequer is quite wrongly optimistic on the Achilles heel of the Government's economic strategy in relation to investment. There is no member of a Socialist movement who will deny that the rôle of investment in economic policy is fundamental and critical. The Chancellor of the Exchequer, earlier this afternoon, was extremely optimistic about investment intentions. He was talking about a 2 per cent. increase, and the CBI is talking about a 15 per cent. increase. He did not tell us that it is 2 per cent. on far more depressed investment levels than we have had in this country for a considerable period of time and comes nowhere near the level of investment which will be required if the proper regeneration of the manufacturing sector is to take place in British industry.

The difference between Britain's need for investment and its investment performance can be no better illustrated than by quoting the speech made by the current Secretary of State for Energy, then the Secretary of State for Industry, during the Second Reading of the Industry Bill. This was at a time when my hon. Friend the Member for Liverpool, Walton (Mr. Heifer) was Minister of State in that Department. My right hon. Friend the Secretary of State said: Since 1970 British manufacturing industry has been investing a mere 4p in every pound of our gross national income in new plant and equipment. The United States, Japan and France invest twice as much per worker as we do. After an intervention from the hon. Member for Bridgwater (Mr. King), the Secretary of State went on to say: over the last 30 years, under Governments of both parties, the country has failed to obtain the level of industrial investment it needs to be effective. Then more ominously, after dealing with Scotland and Wales, my right hon. Friend said: Nor do I see how we can prevent the Midlands, with its vital but often ill-equipped engineering industry, from entering on a downward slide towards development area status, unless we … act directly on the investment gap and find some alternative to the industrial disputes that have troubled that industry."—[Official Report, 17th February 1975; Vol. 886, c. 940–3.] I refer my hon. Friend the Financial Secretary to the phrase "act directly". That is precisely what has not happened since February1975. One reason is that my right hon. Friend was removed from that Department and my hon. Friend the Member for Walton unfortunately removed himself. Instead of acting directly on investment and regenerating the economy, we have slid into a condition of wage cuts, unemployment, loss of jobs and loss of morale such as this country has not seen for 40 years.

If the Government are to pursue an economic strategy, they will require to accept the logic of their previous analysis of the problems of British capitalism. They are there in the 80,000 words in "Labour's Programme for Britain 1973" —the best Socialist document since 1945 —upon which was founded the election manifestos of both February and October 1974.

There will have to be prohibition on capital outflow, designation of priority areas in certain sectors of the economy, compulsion in planning agreements, direction of capital and full control over the investment institutions if the Government are to act directly to fill the investment gap.

Mr. Alan Clark (Plymouth, Sutton)

What about the direction of labour?

Mr. Sillars

I did not catch what the hon. Gentleman said.

Mr. Alan Clark

I as trying to jog the hon. Gentleman's memory. What about the direction of labour?

Mr. Sillars

I come from a country where labour has been directed for generation upon generation, because we have been unable to give our people jobs in our areas. I do not need any lecture about the direction of labour. We already have the direction of labour in a private enterprise society.

My argument is that we require the direction of capital. If we get the direction of capital, we shall not need deliberately to direct labour. It is time to abandon the idea that we can gently persuade the investment institutions to do their patriotic duty. We cannot cajole, bribe and exhort them to do what they have not done in the post-war period. I should have thought that lesson had been learned by this Labour Government from the previous Administration.

The lecture delivered by the former Prime Minister, my right hon. Friend the Member for Huyton (Sir H. Wilson), to investors at the Institute of Directors has been quoted time and again. My right hon. Friend said: "You used to say that you had not the confidence to invest because there was a Labour Government. You then had a Tory Government, and you said that you needed economic growth. I have gone for 5 per cent. growth. Then you said that needed to go into the Common Market. I have taken you in and still you will not invest." Those are not his exact words, but they are an accurate paraphrase of his lecture.

As yet, there is no sign on the Treasury Bench of acceptance of the logic argued by the Labour Party in opposition and during the elections of February and October 1974. Sometimes one gets the impression that some Members of the Parliamentary Labour Party would prefer the Liberal idea of coalition to a Socialist Government.

Mr. Heffer

Quite right, too.

Mr. Sillars

My hon. Friend said "Quite right, too". That would be the revolution of the year. We do not have a great deal of confidence in the Government's ability to overcome the economic problems and to restore full employment. I say that seriously and with a considerable amount of sadness.

I shall finish, as did the Leader of the Liberal Party, on a Scottish note. I have come to believe from my experience at Westminster that, if we are to have a successful economic strategy, and certainly if we are to deliver to Scottish working people, who have for many years sent a Labour Party majority here, the full employment to which they are entitled, we shall require a substantial amount of economic control vested in a Scottish Parliament in Edinburgh. That control will have to be of sufficient magnitude to warrant the establishment of a Ministry of economic affairs in Scotland able to act directly upon the age-old Scottish problem of heavy unemployment.

Mr. Ian Lloyd (Havant and Waterloo)

The hon. Gentleman emphasised the direction of capital. As a considerable proportion of the new employment in Scotland has depended to a large extent on American capital voluntarily sent to this country, what does he propose to do about that?

Mr. Sillars

I am more concerned at the end of the day with the amount of capital which will flow once the oil hits the Scottish mainland and travels through pipelines, together with the added development probably taking place in Rotterdam and elsewhere. We are pre- pared to borrow American capital at going rates of interest as long as we get a share of the dividend for the Scottish economy. There is nothing new about that in the Socialist movement. People much further to the Left than me in countries such a Romania and the Soviet Union have that kind of relationship with capitalism now.

I believe that we need a Scottish Parliament in Edinburgh with real status, power, economic control, and a share of the oil revenues. It is a considerable disappointment that the devolution Bill gives us virtually none of those things. While on this occasion I shall find it impossible to vote with the Opposition parties, at the same time I shall find it impossible to vote with the Government this evening.

6.26 p.m.

Mr.J. Enoch Powell (Down, South)

In this debate, there have been two maiden speeches. One was made by the hon. Member for Workington (Mr. Page). Some Members come into this House as the inheritors of the lush patrimony of a large majority which will secure to them the prospect of remaining here for almost as many years as they desire. That will not be the experience of the hon. Member for Workington. His experience will be to hold his seat precariously, but it will be a challenging life which he will live, and we can assure him that he will derive no less from it and will contribute no less here because of the seat upon which he is so precariously balanced.

The other maiden speech, if I may use that expression, was by my right hon. Friend the Member for Chipping Barnet (Mr. Maudling). I found it both moving and humbling. I found it moving because I recalled that he and I entered politics in almost the same month over 30 years ago and that we made our real maiden speeches in the same month in 1950. I found it humbling because, as I listened to his speech, I realised that it was an anthology, well selected and convincingly expressed, of almost all the propositions which I have been led to combat over the last 20 years. As I listened and said to myself "My right hon. Friend seems not to have changed under the impact of events and experience", the humbling thought came to me that perhaps I might be as mistaken as he appeared to me to be.

Last night, in the closing stages of the debate, I addressed a question to the right hon. Member for Lowestoft (Mr. Prior). It was a simple, plain question which I thought only admitted of the answer "Yes" or "No". I asked him whether the Opposition were in favour at this point of accepting the IMF loan. I was mistaken. I got neither "Yes" nor "No" for an answer. I am not sure whether it was both "Yes" and "No" or neither "Yes" nor "No". But his reply was: We must accept the loan. We have no alternative but to accept it. But we must also decide for ourselves the terms on which the loan is possible".—[Official Report, 29th November 1976; Vol. 921, c. 604.] What a delightful world it would be not the world we inhabit—in which the borrower decided the terms on which he was to borrow. One has a whimsical picture of the right hon. Member for Lowestoft in the office of his bank manager informing him that it is absolutely essential that he should have an overdraft and proceeding to tell the bank manager the terms on which he is willing, graciously, to accept that overdraft.

But I will not ask others a question without answering it myself. My answer to the question whether we should accept the loan from the IMF is "No". We should courteously open the door to the representatives of the IMF and bid them good day. We should neither ask for nor receive the loan which, I suspect, they are proffering. It can do us no good. Indeed, it will do us harm. Its acceptance would only delay those events which, sooner or later, I have faith, we shall experience and through which both sides of the House can have their hearts' desire.

Our difficulties are of our own making, and therefore they must be of our own removing. When I say that they are of our own making, I am not associating myself with the Chicago professors or the American television commentators who enjoy attributing our difficulties to the failure of the fibre of the British working man, to deep-seated faults in our society and the degeneracy of our population. Neither do I attribute our difficulties to any failings, real or imaginary or statistical, in our productivity. Our productivity might be higher or lower than it is without our suffering from any of the embarrassments, difficulties and dangers which have led us to this position.

Nor is our celebrated deficit on the balance of payments—even if one corrects the expression and calls it our deficit on current account—the cause, the fons et origo, of our difficulties; for the deficit on current account is but the counterpart of our external borrowings, of our net surplus on capital account. There, indeed, we see perhaps the reason why the IMF team is here, why we have these visitors, why there is no element of reluctance on the part of other nations directly or indirectly to lend us money. We see the reason why those who pour scorn on "the sick man of Europe", as they delight to call us. gather round our bedside with proffered cordials and assistance. They are only too anxious that our capital surplus should be maintained as the counterpart to our current deficit, as otherwise the two sides of the account might be brought into balance by something which they do not desire for their own reasons, but which is necessary to us—that is, an exchange rate which recognises the real value of our currency and of our goods in the outside world.

The true cause, the true root, of our difficulties is more generally recognised on both sides of the House at present than at any time in the past 20 or 30 years. It was candidly acknowledged by the Chancellor of the Exchequer this afternoon, as anyone who listened carefully to his speech would have realised. It is the fact that the spending projections of the public sector so greatly exceedthe revenue-receiving projections of the public sector, resulting in our celebrated PSBR or public service borrowing requirement. The only way to deal with this—the Chancellor made no secret of it—is to reduce that gap to such a size as can, on a reasonable expectation, be filled by genuine savings voluntarily proffered to the Government, preferably from inside this country rather than from overseas.

That is only one way in which that can be done. It cannot be done by the method sometimes advocated by Labour Members—the imposition of import controls. There may or may not be a case, on other grounds, for import controls; but there is no case for them as a means of dealing with the consequences of the exorbitant public sector borrowing requirement. By all means let those who advocate import controls surround this country by a wall of brass. By all means let them forbid the penetration of that wail by a single pound's worth of imports. The projections of public expenditure and of public revenue would be no better than they are today. I might even be prepared to argue that they would be less favourable. At all events, there is no remedy for the divergent projections of the public sector to be sought by cutting ourselves off from the rest of the world.

Nor is there any hope, and here I differ from my right hon. Friend the Member for Chipping Barnet—this has been tried before and has failed—in the dash for growth. I do not see any hope in our saying "Let us go on heaping up the money supply generated by our failure to meet this gap on the off chance that it might summon up so much production that it will counterbalance and eat up the surplus money supply". That is a totally unrealistic prescription. Even if there were excuses in the past for offering this solution, the repeated experience of the past 10 or 15 years has made it mere mischief to do so.

The only method is that of which the Chancellor was talking with great can dour this afternoon. It is a combination of an increase in projections of revenue with a reduction in projections of expenditure. Only by achieving that, and achieving it on a sufficient scale to put us out of risk of losing control of the money supply, may our difficulties be overcome and may we be able to look the rest of the world in the face.

I have had some experience—and from inside the Treasury—of this business of handling the estimates of future expenditure. Among other things, this experience makes me very cautious of what I read in the newspapers, which purport to tell us what is going on day by day in the Treasury and at meetings of the Cabinet. I remember how in the early days of January 1958, when Lord Thorneycroft was locked in mortal battle with his Cabinet colleagues over the Estimates, for 1958–59, the newspapers informed the public day after day that the Government were unable to decide on the proper measures to be taken in the island of Cyprus. I think that we should therefore suspend judgment.

We should do so all the more because, whatever we may say, and whatever hon. Members have said in this debate about making a quick job of it and getting it done and over with once and for all, that is quite unrealistic. If the Chancellor is to succeed in what is his national duty in the next six months he cannot do it all at once. A Chancellor of the Exchequer gets stronger and stronger as the months which lead up to the Budget go by. What is happening at the moment, if I mistake not, is that the Chancellor of the Exchequer is collecting a few hundred millions, maybe the odd thousand million, here or there. There will be another phase in a month or two's time when he will collect the next instalment. But he will be at his maximum strength and take his final instalment immediately before the Budget in the spring of next year.

But this much can be said already, and ought to be said; and perhaps I am personally entitled to say it against the background of the experience to which I have referred. Never, in my judgment, since the war has the control of public expenditure been exercised with the courage, the determination and the consistency which has been shown in recent months by this Administration and this Treasury team. [Interruption.] I am trying to cause no discord between the Government and their supporters, I simply speak as I observe.

What the Government have been prepared to do in their control, for instance, of local government expenditure—I mean no moral condemnation, but local authorities have been the most prodigal force in the expansion of public expenditure over these many years—and what they are envisaging doing in future to control it is something that no previous Administration, not even the previous Labour Administration in 1968–69, would have been prepared to face.

Mr. Ian Gow (Eastbourne)

Despite the praise which the right hon. Gentleman is heaping on the Government Front Bench for their welcome cuts in the rate support grant, does he agree that to continue to borrow, as the Government are doing, at the rate of £30 million a day shows that public expenditure is totally out of control?

Mr. Powell

I do not know whether the hon. Gentleman happened to enter the Chamber—I do not complain if he did not—during the earlier part of my remarks; but the whole burden of my argument is that we have to free ourselves, and that the Chancellor of the Exchequer and the Government have to free us, from this necessity which is upon us to attempt to borrow, because of the still exorbitant divergence of those two lines of projected expenditure and projected revenue.

That is a task in which the right hon. Gentleman deserves, in the first place, the support of all sections of the Labour Party. This is not a debate about Socialism. This is not a debate about whether public expenditure is a good thing, or whether more public expenditure is a good thing. There are other arenas in which to debate with Government Members or, indeed, hon. Members on this side of the House, whether expansion of particular public expenditures is desirable, or whether public expenditure itself is the key to unlock the treasury of social results which they wish to achieve.

I say that the debate is not about that, because I challenge any hon. Member on the Government Benches, when he pronounces his blessing upon public expenditure, when he says that public expenditure is a good thing and has his support in principle because it is the way to the Socialism to which he looks forward, to say that he means public expenditure financed by international bankers. Surely not. There would be no hon. Gentleman opposite who would not be ashamed to say that that was the public expenditure that he meant.

Nor does he mean that it is public expenditure that will be financed by money created out of nothing in order to secure a transfer of resources from the rest of the community on the most unjust and unreasonable system possible, that of inflation. There is no hon. Gentleman opposite who would—[An HON. MEMBER: "There is."] We shall see. I am issuing a challenge. I say that there is no hon. Gentleman opposite who would come forward and say "My ambition as a Socialist is to achieve the expansion of public expenditure by means of inflation". Of course not. Whatever may be our differences about what should be the proper scope of public expenditure, or of the public sector, we ought to be, and we can be, united in the determination that, however large or small it is, it is going to be financed honestly, and it is going to be financed by this country without dependence upon the rest of the world.

So I say that the Chancellor of the Exchequer deserves support—no doubt he will get it—from the empty Benches behind him above the Gangway; but he deserves support from all parts of that side of the House.

He also deserves support, and receives it, from my hon. Friends and myself on this Bench. We were mandated when we came here to support the Government in restoring the balance of the Budget and the balance of the economy, and the Chancellor of the Exchequer and his hon. Friends who occupy offices in Northern Ireland will agree that we have remained faithful to the undertaking which we gave at the beginning of this Parliament, and to the mandate which we brought here.

The Government are also entitled to support from the Conservative Party. However, there is an amendment on the Order Paper, humbly regretting that the Gracious Speech provides no grounds for confidence in the economic policies of Her Maejsty's Government. A fair comment, and a comment which must have risen to the lips of many who read that, is "Who is talking?". Long before the present crunch was reached in the control of expenditure, long before the falling rate of inflation had produced 1.3 million unemployed, an Administration of the party which now forms the official Opposition would have disappeared over the horizon out of sight altogether in a flurry and dust cloud of manufactured money. We know that from the form. We know that, because that was how that Administration behaved in a crunch far less alarming or severe than that wherein we stand at the present time.

Yesterday my hon. Friend—I use the expression rather in the personal than in the parliamentary sense—the Member for Oswestry (Mr. Biffen) was received with cheers from the Benches behind him when he quoted the Prime Minister's condemnation of the option of spending our way out of a recession and increasing employment by cutting taxes and boosting Government spending, where the Prime Minister went on to say that so far as that option ever did exist it worked by injecting inflation into the economy. Some of the cheers came from hon. Members who did not live through the years of 1970 to 1974, in particular who did not live through the volte-face of 1972–73. My hon. Friend the Member for Oswestry is perhaps the only occupant of that Bench who without a blush or a sense of shame dare quote, and quote with approval, those words of the Prime Minister.

There seems to be some notion among Her Majesty's Opposition that now that they have got the hon. Member for Oswestry as a kind of totem on the Front Bench, everything will be all right, that everyone will look at the hon. Member for Oswestry and listen to what he is saying and forget everything else that happened in the past. I assure them they are mistaken. I assure them that the sponge will not be passed over the memory and the record of the conflict with economic common sense, the conflict with sound financial management, the conflict with the supreme national duty in the years 1970–74, until most of those who were co-operators, connivers or consenters to those events have passed elsewhere.

Meanwhile, it is an impertinence for the present occupants of the Opposition Front Bench to declare that they "have no confidence in the economic policies" of a Government who have analysed and defined—as they did not—the cause of the malady and who deserve their support in the crucial steps that will have to be taken in the coming months to apply the only remedy to it. That is why, in their partially deserted Lobby tonight, will not be found my hon. Friends and myself.

6.52 p.m

Mr. Eric S. Heffer (Liverpool, Walton)

I am almost afraid to say anything that would make the right hon. Member for Down, South (Mr. Powell) desert his recent declaration. After that quite brilliant speech, it is very difficult to come out against it. However, I am afraid that although I listened very carefully to what he said, particularly about the present Labour Government and why he thought that he and his hon. Friends should support them, or at least not vote against them tonight—which I welcome—I should be absolutely horrified if I thought that my Front Bench was actually accepting the right hon. Gentleman's basic economic views. If it were, I could not support the Government either, and Government would find themselves in great difficulties.

The right hon. Gentleman clearly dissociated himself from Milton Friedman. He said in passing that he was not in any way associated with a certain professor from the Chicago school. Nevertheless, much of the argument that he put forward today was not very different from the type of argument that has been advanced by Milton Friedman. I find myself in total opposition to the arguments put forward by that gentleman.

I want to make a few references to Milton Friedman because undoubtedly the Opposition Front Bench seems to have accepted him as its guru. A great deal of talk is coming from the Opposition about the Chicago school, how private enterprise is equated with freedom, why it is necessary to have the free market economy, and so on. I do not know why anyone should want to listen with any seriousness to anything that Milton Friedman says, despite the fact that he has received the Swedish Nobel Prize.

Milton Friedman was also the individual who advised the Chilean Government. After the junta came into power, inflation increased in Chile, as did unemployment. That was based upon the concepts of the free market economy put forward by Milton Friedman, so why should we want to listen to his arguments with any seriousness? Why should we believe that he has the answer to Britain's problems?

I wish that I could meet the gentleman face to face, because I should like to say quite bluntly to him that to say that the British working man is lazy is to lie. British working men are no more lazy —in this sense, no more industrious, either—than working men in any other part of the world. In many respects they are probably a damned sight more hardworking than workers in other parts of the world. I refuse to accept that all our economic ills stem from the position outlined by Friedman—that our people are lazy and workers will not work hard.

My hon. Friend the Member for South Ayrshire (Mr. Sillars) made the point that investment per worker in Britain was lower than such investment in many other countries. That is absolutely true. Investment per worker means machinery. Investment in itself, in any case, does not necessarily mean an increase in the number of people working. In my constituency at present I am faced with the case of Lillicups, which is about to introduce into its factory at a cost of £1 million, assisted by the Department of Industry, 16 new machines. In one fell swoop this will reduce the staff of workers by almost 50 per cent. With 16 machines, as against 35, and with half of the work force, the final production will be about the same. Therefore, productivity per worker in that factory will rise. That is investment.

Investment does not necessarily mean that our people will get more jobs. Therefore, we have to create not merely investment in existing companies but investment in new industries. We must expand in that direction, otherwise we shall not create the work for our people and we shall have a permanent unemployment figure of up to 2 million and possibly more. That is one of the factors with which we must grapple.

Mr. Fairbairn

This is one of the fundamental problems of Western industrial society—namely, if one increases productivity and efficiency, one decreases the number of people required to do the job. This is a matter to which I have addressed myself a lot over the years. Is the hon. Gentleman in favour of such investment which increases productivity and output and necessarily requires a smaller work force?

Mr. Heffer

It is very interesting. We are obviously all Marxists now. Karl Marx explained in "Das Kapital" a long time ago that the very nature of the capitalist system meant that as one increased investment, one was bound to have what he called a reserve army. Of course, that is absolutely right. That is what happens within our type of economic system.

The answer to the hon. Gentleman is that we need planned investment, the extension of new industries, and a reduction in worker's hours. That must all be done on a planned basis. A great shudder goes through Opposition Members when we talk about planning. They believe that if there is planning, there can be no genuine political or industrial democracy.

Of course I am in favour of investment, but not purely on its own without taking it a stage further. The analyses made by the right hon. Member for Down, South, the hon. Member for Oswestry (Mr. Biffen), myself and others are not very different, but the conclusions we draw and the answers we get are different. The right hon. Member for Down, South is dedicated to the acceptance of the present economic system—a perfectly understandable position for him to hold. On the other hand, I think that the present economic system is out-dated. It has outlived its usefulness. To ensure full employment we require planned investment, industrial development and democratic planning of the type put forward by myself and my party.

Mr. Geoffrey Johnson Smith (East Grinstead)

Why does the hon. Gentleman think that what he calls democratic planning but what many of us suspect means State planning—dictatorial planning at that—is more likely to guarantee job satisfaction and increased prosperity for the nation when other more prosperous countries with a mixed economy have rejected his form of democratic planning?

Mr. Heffer

The hon. Gentleman says that other countries which are more prosperous than we are have rejected democratic planning.

Mr. Johnson Smith

State planning.

Mr. Heffer

There are about 8½ million unemployed in the United States of America, one million unemployed in France, over one million unemployed in West Germany and unemployment on a huge scale in Italy. All the Western European countries have a high level of unemployment. In some of those countries there are planning measures. France in particular has a record of planning of a kind we have never envisaged. When planning is suggested by the Labour Party through the development of the National Enterprise Board, Opposition Members on the other side of the fence almost have a fit at the very idea of our attempting to intervene in private industry, although such intervention has been accepted in France for a long time.

I do not want to spend all my time talking about the advantages of democratic planning over our present non-planning or partial planning. I trust that none of my hon. Friends in the Labour Party accepts the arguments put forward by Milton Friedman.

Mr. Alan Clark

I am anxious that the hon. Gentleman might not mention wages. Within the parameters of democratic planning, as he calls it, is he or is he not personally committed to the principle of totally free collective bargaining?

Mr. Heffer

I shall have to ask the hon. Gentleman to read my book on the subject, in which I make clear that I am not in favour, and never have been, of a statutory incomes policy. I have always been in favour—just like the Leader of the Opposition—of trying to get a voluntary incomes policy.

I have never believed that we should have a totally free-for-all. That can lead to great imbalances. I have always believed in the necessity for a voluntarily negotiated agreement between the trade union movement and the Government of the day. That is nothing new. I have always argued that. Where I differed from my Government in the past was in arguing against a statutory incomes policy. That was when I joined some of my hon. Friends who were opposed to any type of incomes policy, voluntary or otherwise. I am moving slightly away from what. I want to say—

Mr. Deputy Speaker (Sir Myer Galpern)

Order. The hon. Member has omitted to state the price of his book.

Mr. Heffer

It is very expensive—£3.95, I think.

I wish to comment briefly on the IMF loan. I agree with the right hon. Member for Down, South that our objective must be to stand on our own feet. I appreciated the remarks he made in a recent speech. At a time when others were suggesting that I and my hon. Friends were agents of foreign Powers, he pointed out that although he did not agree with our economic strategy, the arguments we put forward were basically patriotic arguments for solving our economic and political problems in our own way, in our own country. That has to be said over and again, because it is what we have always argued.

The Government should have listened to us 18 months ago when we originally put forward our strategy. Unfortunately, they did not do so. It is no good saying after 18 months that they have to accept our strategy, lock, stock and barrel, but my right hon. Friends on the Front Bench must come at least partially in our direction.

If some of the proposals that we put forward are accepted by the Government, during the next 18 months or two years we shall be able to advance and take full advantage of the upturn in the economy that is likely to come, the oil that is likely to flow, and the better balance of payments position that in any case will occur. I put that seriously to my right hon. Friends. We do not want any further massive public expenditure cuts as a result of pressure from the IMF.

Yesterday, my hon. Friend the Member for Berwick and East Lothian (Mr. Mackintosh) said: I am always puzzled by my hon. Friends who, like the National Executive of the Labour Party, are prepared to run demonstrations because of cuts in public expenditure. I sympathise. I do not want to see teachers. the keepers of public parks and school cleaners laid off."—[Official Report, 29th November 1976; Vol. 921, c. 555.] Does not my hon. Friend understand that public expenditure cuts do not affect only teachers, school cleaners and those who work in public parks? It is the construction workers who suffer more than any other sector in industry from public expenditure cuts.

About 50 per cent. of the construction workers in my area are out of work. The biggest clients for both private and public construction work, if one includes direct labour, are local authorities and Government agencies. Further cuts in public expenditure must mean extra unemployed workers in the construction industry and, finally. almost the demise of that industry. If there is an upturn there will be no trained workers in the construction industry because no apprentices are now entering the industry. This is a factor that my right hon. Friends on the Treasury Bench should take into consideration when discusing the IMF loan.

I want to conclude by making one last point. I am glad that the hon. Member for Guildford (Mr. Howell) is here, because I want to raise the subject of his statement which was—so I was told—that one should not always believe what one reads in Labour Weekly. I accept that. I do not believe everything I read in any newspaper, whether Labour Weekly, The Times, the Telegraph, the Morning Star, or any other. I should like the hon. Member for Guildford to tell us that he was not arguing for a further £4 million or £5 million cut in public expenditure and, if not, what the figure is that he and his right hon. Friends on the Tory Front Bench put on further cuts in public expenditure.

It is about time that the Tories explained to the people of this country what they are talking about. Are they suggesting that further cuts in public expenditure will mean cutting back on unemployment benefits, old-age pensions and social benefits, which have been gained as a result of efforts made over the years by successive Governments? I think that if the hon. Member for Guildford speaks later he should let us know precisely what the position is and whether the Labour Weekly report was correct. If he does not, we can only assume that the report was 100 per cent. correct.

Mr. David Howell (Guildford)

I dislike responding to the kind of hectoring demands that the hon. Member for Liverpool, Walton (Mr. Heffer) is wont to make. He was muttering about me earlier this afternoon—I cannot always hear what he says these days because he speaks so softly—but it is incredible to me that he should be so naïve as to believe what he reads in Labour Weekly and that he should take his advice on economic matters from that organ.

It is only slightly less unbelievable than the analysis he has put before us. He does not understand that it is the imbalance in the balance of payments and abnormally high interest rates which are damaging jobs, throwing people out of work, and undermining the job security of, among others, his own constituents, and which will continue to do so in future. That is the basic cause of unemployment. If he does not believe that, his naïvety in believing the Labour Weekly report—which was, incidentally, a complete fabrication—is almost matched by his naïvety in failing to understand why unemployment is high and why it will rise until we get outstanding debts under control.

Mr. Heffer

If the Labour Weekly story is a complete fabrication, will the Opposition Front Bench reveal by how much it is prepared to cut public expenditure? It is no good arguing about further public expenditure cuts unless the Opposition are prepared to say precisely what that means, the fields in which cuts will be made, and their levels. Otherwise the British people cannot take the hon. Member for Guildford seriously.

To that extent the right hon. Member for Down, South is absolutely right. If the Opposition were really concerned about these matters, they would show some support for the efforts which my own Government have taken in this direction, although I believe that in many respects the Government were not right. Therefore the arguments the hon. Member for Guildford has put forward are totally phoney. Tories have shown once again this afternoon, as on so many other occasions, that they are not prepared to say exactly where they stand on this question of public expenditure.

I should have liked to deal with many other issues in this debate and to have taken up the other arguments put forward by the hon. Member for Guildford in his brief intervention, but I trust that my right hon. Friends on the Treasury Bench have listened carefully to the points I have made and I hope that they will respond.

7.16 p.m.

Mr. Douglas Crawford (Perth and East Perthshire)

I should like to join in the congratulations which have been offered to the hon. Member for Workington (Mr. Page) on his maiden speech. I have spent many happy holidays in Keswick, and he alluded to that very pleasant town in the Lake District.

It is a privilege for me to be speaking from the Scottish National Party Bench on St. Andrew's Day since it is today that the devolution Bill has been published. We see the Bill as a step along the road to full independence and sovereignty for Scotland.

I was depressed and astounded to see that the most recent comments by the media and others on devolution suggesting that, given the United Kingdom's current economic difficulties, to introduce this Bill now is folly and that to do so is to fiddle while London burns. Perhaps the Observer was in our eyes the biggest culprit. On Sunday under the heading "Fiddling as we burn", the Observer said: The Parliamentary session which has just begun could be a psychological disaster of the first magnitude. At a time when the concern of ordinary people is about how to get or keep a job and how to mitigate the fall in their living standards, the main item on the agenda at Westminster will be devolution for Scotland and Wales. Many will find it hard to conjure up a more appropriate example of 'fiddling while Rome burns'; or a more certain way to increase public cynicism about Politics. It was sad that this came from such a liberal and renowned newspaper, because I believe devolution is vitally relevant, more relevant than hon. Members and the country know, to the economic plight, of the countries of the British Isles.

Self-government for Scotland is the only way in which the countries of the British Isles can individually regain their prosperity. I do not say this facetiously or ironically, but in all humility. If I am about to preach a short Church of Scotland sermon, I make no apology because I think that England needs one and that it could help in a number of ways. I take as my text the words in Deuteronomy: Thou shalt lend unto many nations but thou shalt not borrow; and thou shalt reign over many nations but they shall not reign over thee". As far as the United Kingdom is concerned, this philosophy is past and will remain so. It will be difficult for the House to grasp, but if this political philosophy is not appreciated and translated into action, disaster stares the economy of these islands in the face.

The hon. Member for Berwick and East Lothian (Mr. Mackintosh), in his trenchant speech yesterday, said that this was a last chance, and I agree with him. It is essential to get back to the economics of stability as propounded by Adam Smith. A nation cannot go on living on tick for ever. Yet this is precisely the result of what the United Kingdom sought to do as it searched its way out of the economic morass of 1929, 1930 and 1931. In adopting the deficit financing policies of John Maynard Keynes, the seeds of today's crisis were sown.

It may have been safe for the United Kingdom to run a deficit on its current account when it was the beneficiary of cheap food and raw materials and the guaranteed markets which the British Empire provided. But a deficit on current account, as every accountant knows, can change into a deficit on capital account straight away when the sources of cheap materials disappear. That is precisely what is happening to the United Kingdom now.

Towards the end of the last century, Rudyard Kipling penned the words: Lo, all our pomp of yesterday Is one with Nineveh and Tyre! It is happening again. India, East Africa, West Africa and Southern Africa, together with our other erstwhile colonies, are looking elsewhere for their manufactured goods, if they are not making them themselves. We all know what has happened to the prices of raw materials and food which England—I say "England" advisedly—has to import. As the House knows, Scotland is self-sufficient in food.

Mr. Alexander Fletcher (Edinburgh, North)

Not true.

Mr. Crawford

Presumably, the hon. Gentleman is omitting from the equation the valuable commodity, fish. Scotland is self-supporting in beef, lamb, eggs, milk—

Mr. Fletcher

Oranges?

Mr. Crawford

The hon. Member tells me that we are not self-sufficient in oranges. We export enough food to other countries to pay for the oranges and other foods which we import. In any case, a nation does not live on oranges alone.

I am pointing out that what has happened has changed a deficit on current account to a deficit on capital account. If ever this was spelled out clearly, it was spelled out in the latest Barclays summary of the state of United Kingdom financial markets: Even on the basis of relatively optimistic forecasts of capital movements in the second half of this year, it seems likely that the bulk of the IMF loan (assuming it to be granted in full) will be utilised in making good the loss to the reserves incurred in financing the deficit this year. The loan therefore represents at most a short breathing-space which must be used to reverse the flow of capital funds it sterling is not to continue depreciating rapidly in 1977. We all know what that would mean—continuing high inflation, continuing high interest rates and continuing high import costs, all of which erode any competitive edge which the devaluation of sterling gives to our exports.

I think it important that the House should be well aware of what the SNP policy is and what it proposes for a self-governing Scotland. We propose, for example, the creation of a national bank to carry out in Scotland those functions presently carried out in the United Kingdom by the Bank of England. Next, we propose the right to control our own currency and the power to manage it in such a way that it does not float upwards too quickly, and the right to fix our own interest rates. The Chancellor said that interest rates in Europe were going through the ceiling. I presume that he has not read of what is happening to interest rates in Norway, Sweden, Switzerland, Belgium, Holland and Austria.

When the SNP published its paper on proposals for monetary policies in a self-governing Scotland, it naturally attracted attacks from both the Tory Party and the Labour Party. The Labour Party said that a £ Scot floating upwards could lead to unemployment. Could anything be more ironic than that, coming from the party which at the last General Election campaigned on the slogan "Back to work with Labour" and which is now presiding over unemployment levels almost twice what they were when the party came to power?

Further, the Labour Party in Scotland stated: The fact that other European countries, like Germany, which have strong currencies also have low unemployment rates is irrelevant to Scotland. What an amazing statement. We remember the scare stories we heard from the Labour Party about bank notes being smuggled up and down the A74 between Carlisle and Scotland. Let me remind the Labour Party that any simple economist knows that that does not happen if there are no violent fluctuations between one country's currency and another. There are no latter-day Bluebeards smuggling avalanches of Norwegian, Swedish or Danish currency across the Skagerrak, and there will be none between Scotland and England.

As for the Conservatives, they had their own stories, and the hon. Member for Edinburgh, North (Mr. Fletcher) was in the van. He said that he and others had been approached by companies which said that, if Scotland gained self-government and put its monetary policies into effect, they would leave Scotland. We challenge the hon. Gentleman to say which those companies were. I give him another chance now to name the companies which said it. If he does not take that chance, I suggest that for ever he holds his peace.

Mr. Alexander Fletcher

I hope to speak later in the debate, if I catch the eye of the Chair.

Mr. Crawford

I hope that the hon. Gentleman will, and that he will tell his hon. Friends and, inter alia, the marvellously named "Scotland is British" campaign that they should get some more confidence in their own country.

The Scottish National Party's monetary policy enunciates the basis of a sovereign Scotland's financial structure, based on the economics of rectitude, and from that basis, if it has ears to hear, England itself can profit. Scotland is not the least interested in an economically poor England: quite the contrary. For reasons of friendship and sentiment as well as self-interest, we need and we wish to see a healthy and prosperous England south of the border.

It is our contention that the English body politic and body economic, once the envy of many parts of the world, is sick and ailing. The right hon. and learned Member for Surrey, East (Sir G. Howe) talked about prescriptions. I have to tell him that medicine can no longer help. Even the Dr. Faustuses of the IMF can administer no more than a short-term cure, and, as the right hon. Member for Down, South (Mr. Powell) said, the IMF will not play "Sugar-Daddy" for ever.

What is needed is surgery or—to get away from metaphors and speak in plain language—the English body politic and economic needs a change, a constitutional shock, if it is to shake itself out of its presently near fatal lethargy. We believe that self-government for Scotland will administer precisely that kind of shock which will enable England to come to her senses.

We have seen the usual banal movements to and fro between the two Front Benches which we always see when we debate the economy. They are totally irrelevant to what is happening in the country, and that is precisely why today's devolution Bill is so important in the context of the present economic crisis. I agree with the hon. Member for South Ayrshire (Mr. Sillars) that it is not enough. It is not nearly enough, but at least it is a start. It will be the forerunner of a sovereign Scotland.

Here, let me reassure all hon. Members and the country, as well as the media —especially "Weekend World" and the political correspondent of The Times— that the SNP parliamentary group is wholly united with the party at home in wishing an early General Election, which will pave the way towards a sovereign Scotland. Press stories to the contrary are so much rubbish, and one is entitled to wonder whether one can put any trust in the Press. If the Press can so garble the affairs of a parliamentary group of 11, I hate to think of the idiocies which it can perpetrate when discussing Cabinet meetings, Shadow Cabinet meetings and the like.

I realise that English politicians and economists will in the by-going have to cast out many preconceived economic ideas and doctrines. I realise that the reappraisal will be agonising. But I am convinced that a sovereign England will benefit from the precepts of the policies of economic stability which we intend a self-governing Scotland to put into practice. If we in the self-governing Scotland of the future can help that to come to pass, we shall have done England some service, and done it gladly.

Mr. Deputy Speaker

On behalf of the 16 hon. Members still wishing to take part in the debate before the winding-up speeches commence at nine o'clock, I appeal for brevity. If hon. Members observe my appeal, a substantial number might have their opportunity.

7.27 p.m.

Mr. Roy Hughes (Newport)

I think that it was Lord Salisbury who, at the turn of the century, said that politics are islands. It now seems that politics is devolution. That is certainly the impression one would gain from listening to the hon. Member for Perth and East Perthshire (Mr. Crawford).

Some of my hon. Friends claim that the Scottish National Party is based on principles which are now out of date. I have had some doubt about that, but, after listening to the hon. Gentleman, I think that my hon. Friends may well be right, especially after his references to Adam Smith and Rudyard Kipling. One would hardly think that the ideas of those two men were relevant to the highly complex industrial society in which we now live in Britain.

On its front page of last Friday's issue, the New Statesman suggested that the Queen's Speech might well have been written by Prince Philip. We know that the bulk of parliamentary time this Session will be taken up with devolution. I welcome the Government's proposals. They have taken the only honourable course which they could take, after the promises and pledges made and freely entered into. Nevertheless, it must be reassuring to them, if the New Statesman is to be believed, that they have at least Prince Philip on their side.

In considering the Gracious Speech, we should bear in mind not only what is in it but what has been omitted. In my view, we should have had a short sharp Bill to clear away the remaining delaying powers of the House of Lords. This is relevant even to the Government's economic policy and strategy, since at any time that body can throw a spanner in the works, as we saw over the Aircraft and Shipbuilding Industries Bill.

A Bill about the House of Lords should have been given the highest possible priority by the Government. The behaviour of the House of Lords has been deplorable. It is noticeable that the Lords behave like this only when a Labour Government are in power and particularly when the country is facing severe economic difficulties, as it is at present, or when we are approaching a General Election situation. It goes without saying that the hereditary system— "the first of the litter" as my illustrious fellow Welshman, David Lloyd George, once called it—is now very much out of date. Likewise, the patronage system is equally disreputable made up, as it is, by friends and publishers of ex-Prime Ministers.

I believe that the present obstructionist tactics of the House of Lords is really part of a Tory plot. The Conservatives want a reformed second Chamber, perhaps partly elected, but on a basis suitable to them. That would be a means of putting the damper on future progressive legislation to be implemented by a Labour Government.

We should have Lords reform. This body should be swept away. We could start by ending their delaying powers, which at least would be the penultimate nail in their coffin. However, the Government seem to have decided against such a measure, at least for the time being.

Far from being Marxist-dominated I would say that the Government are actually too conservative. What we really need in the Government at present is a David Lloyd George. I am sorry to say that my right hon. Friend the Member for Ebbw Vale (Mr. Foot) seems to be a poor substitute. The conservative nature of the Government is reflected in their economic policies. We now have almost 1½ million unemployed. We must bear in mind that unemployment is what led to the creation of the Labour Party and is what it is all about. Keir Hardie was known as the Member for the unemployed.

Mr. Peter Hordern (Horsham and Crawley)

Perhaps the hon. Gentleman would remind the House of what David Lloyd George, who was a great reforming Chancellor, instituted in the way of income taxes and what rate of income tax he introduced at that time.

Mr. Hughes

I appreciate that David Lloyd George was responsible for an awful lot of progressive legislation. The point that I am trying to make is that the Government could learn a lot from him despite the fact that he was at his zenith even before the First World War.

Despite the astonishing figure of almost 1½ million unemployed, the Government have repeatedly turned their face against import controls. The Government's failure to act in this direction is keeping many thousands of extra people on the dole. We know that the country has been persistently troubled by a balance of payments crisis. Many of our traditional industries are being undermined —electronics, textiles, motor cars and so on.

During the debate we have listened to extracts from Marx, from Keynes and from the Chicago school. To me it makes sound economic sense that we should only import what we can afford to pay for by our exports. Home demand could and should be controlled by adjustments in taxation and the level of public expenditure. In this way we could expand effective demand without a recurring balance of payments crisis. Production, employment and investment would grow rapidly.

The Cambridge economists who have put forward this particular theory are absolutely right in their analysis. For the Chancellor to suggest that there is no alternative to the Government's present strategy is misleading to say the least. If the Government were to introduce the sort of import controls that I am suggesting, there would no doubt be many snags and anomalies in implementing such a policy. There would certainly be squeals of anguish from the Common Market and from our trading partners in GATT. But these organisations must be flexible enough to enable this country to get back on its feet.

An impoverished United Kingdom can only be of limited value as an ally. Likewise, a major trading nation like the United Kingdom, persistently in economic difficulties, undermines the trading stability of the world.

7.37 p.m.

Mr. Alexander Fletcher (Edinburgh, North)

It cannot be a matter of national pride that the financial world, in the form of the IMF, is once again taking stock of Britain's creditworthiness and considering the viability of our forward budgetary plans. Apart from the IMF examination of our books, our financial plight is being considered by Presidents and Prime Ministers all over the Western world.

The reason is simply that since March 1974, when Labour took office, it has persistently refused to face the facts of economic life and economic reality. Labour fell into the trap of believing its February 1974 propaganda by then claiming that there was no serious economic problem to worry about. It clung to power in October 1974 with promises that not even the Chancellor, with his renowned brass neck, would dare to defend today. The IMF doctors may prescribe medicine, but they will not force it down our throats. They do not have to lend us money. That is something which Labour Members should bear in mind when they make their criticisms.

The question now is whether the Government have the sense and strength to take the medicine which should have been prescribed in the first of the Chancellor's many Budget Statements since March 1974. It is, perhaps, our last opportunity to take the necessary, if painful, steps towards Britain's economic recovery following the horrific rates of inflation that have been inflicted on the country since Labour came into office.

I endorse the hopes, so eloquently expressed by the hon. Member for Berwick and East Lothian (Mr. Mackintosh), that we will have from the Government an effective and final package of economic measures. Judging from the Chancellor's remarks this afternoon it looks as if the watering-down process is very much in hand in the Cabinet and will, no doubt, be seen in the Parliamentary Labour Party.

There are two matters of particular concern that I would like to raise. The first is the inevitable bewilderment and disappointment that public expenditure cuts will bring to people in those areas of the country where public investment is so chronically needed. I am referring to areas of urban deprivation, mainly in the inner cities. There are parts of our cities, for example Glasgow, where, in the space of just a few streets, one crosses a social border between one kind of society or civilisation and another, but one is not crossing into a different political regime; it cannot be compared with crossing politically from the West into East Berlin; but physically the environmental sight is much worse than that encounterd when crossing from the West into East Berlin.

I therefore hope that, in whatever package the Government try to produce in the course of the next few days, they will appreciate that, in addition to cuts which, in public expenditure, most people are agreed are necessary, there must also be a disciplined reallocation of public resources to meet the desperate needs of areas that have been neglected for many years. The future for the people in those areas can only be bleaker still if in the present economic crisis there is not an attempt to reallocate public sector spending in favour of people who for far too long have suffered from a depressing environment.

Local government could help by encouraging private enterprise projects in those areas. It would also help if EEC grants and loans from the Regional Fund and the Social Fund were allocated entirely to those areas of particular deprivation throughout the country.

I want to obey your request, Mr. Deputy Speaker, that speeches should be brief.

My next point concerns the impediment to investment, from which we all suffer because of the economic situation, not just in Britain but in Scotland, as stated by the hon. Member for Perth and East Perthshire (Mr. Crawford).

I believe that this impediment arises from the devolution proposals, the demands for a separate Scottish economy within a devolved context, and the demands for a separate Scotland—a completely independent Scotland going far beyond any proposals tabled today by the Lord President of the Council and Leader of the House of Commons.

It does not take too great an imagination to understand that people in business and elsewhere who make investment decisions must pay close attention to political pronouncements, and not least the political pronouncements of the Government of the United Kingdom regarding their plans for devolution in Scotland and, to a certain extent, to the political pronouncements of people such as the hon. Member for Perth and East Perthshire who has recited again something of the economic philosophy which he hopes to introduce in Scotland. Some people, quite rightly, pay attention to this.

When I travel abroad, I find that there is a constant need, as a Scottish Member, to try to explain to people what is happening in Britain and to stress that Britain is not on the point of breaking up its unity, that there will not be a separate Scottish economy within the United Kingdom with a separate method of operating its money supply and its general economic affairs. If this is likely to happen—I hope that the hon. Member for Perth and East Perthshire will agree with this—people will make different investment decisions in this context than if the decisions were taken within a unified economic structure of the United Kingdom.

In Scotland itself Scottish and British companies are hesitating about investment in Scotland, and their hesitations arise for precisely the same reasons. I have had a number of letters from British companies as well as regular conversations with Scottish companies which have asked my opinion about what is likely to happen in Scotland. I do not doubt that the hon. Gentleman has had similar conservations. Our stories will be different, but essentially we are trying to answer the same questions. It is up to the recipients of our answers to decide precisely what they think is likely to happen.

Mr. Crawford

Will the hon. Gentleman name the companies?

Mr. Fletcher

The hon. Gentleman has asked me to name companies. He knows that that is impossible. One speaks in confidence, and I hope he respects the confidence of the companies that speak to him about their investment plans, as I would respect their confidence.

It does not need much imagination to lead one to look at the sort of business which exists in Scotland today and to ask ourselves the questions that the managers must ask themselves. Let us consider the example of the management of a mutual life assurance company which is responsible only to its policy holders and which has operated successfully in Scotland for many years, although perhaps 80 per cent. of its policy holders are in England. Anything that will upset the balance between Scotland and England is of great importance to that company's management and must cause it to hesitate before taking investment decisions.

Mr. Crawford

The hon. Gentleman will be aware that the associated Scottish life offices have established a sub-committee which will produce a paper in the near future in the financial and monetary proposals of the Scottish National Party.

Mr. Fletcher

That information might make us look forward to getting a statement from the industry of the kind that I and my hon. Friends have received privately. It is entirely up to the industry when it decides to make a public statement. It is not up to people like myself.

Hon. Members will have seen from a television newsreel that thousands of employees of Babcock and Wilcox in Renfrew are desperately concerned about their future employment, as there is a shortage of orders for power stations. These men wish to be assured of future employment. An order for a power station is more likely to come from England than from Scotland. This illustrates in a simple way the dependence of so much of Scottish industry on the United Kingdom economy as a whole. That situation will not change overnight or, indeed, in a generation.

To make my final point I shall again refer to the hon. Member for Perth and East Perthshire. I hope that he will appreciate that I do this out of no disrespect to him: indeed, I believe that he is a constituent of mine. According to reports, he wrote to the Managing Director of the International Monetary Fund a few weeks ago saying "Do not lend any money to the United Kingdom. Do nothing to help Britain on the security of North Sea oil, because it is not Britain's oil."

The Managing Director of the IMF is in a position to judge the importance of that letter without any assistance from me or any other hon. Member, but if to the managing director of an international organisation, that sort of letter goes out attempting to damage Britain's financial and economic reputation, think what might go out privately to less well-informed individuals regarding what happens in Britain generally and Scotland in particular.

To return to my main theme, Britain now await its fate at the hands, not of the IMF, but of the Government Front Bench. I believe that the picture could be so different if we had a Government who were less conceited about their own powers and who had more confidence in what the people of this country could do for themselves if we set free their energy and resources. Surely that is the only road to economic salvation for all the people of the United Kingdom. It is an economic freedom leading to economic prosperity on which the unity of the United Kingdom must depend. Nationalism and separatism feed on inflation, unemployment and on a devalued currency.

I think that most hon. Members will remember the history of Europe in the 1930s. It is sufficiently close to remind us of the evils in store for British people if the Government fail to face the economic and political facts of life and fail in their duty to the nation.

7.49 p.m.

Mr. Bryan Gould (Southampton, Test)

This debate takes place at the same time at other perhaps more important debates in the Cabinet and between the Government and the IMF on Britain's economic situation. It is worth while pausing for the moment to remark on the reason for our present negotiations with the IMF and for the fact that they take that particular form at this time.

We have to negotiate a loan from the IMF at this time principally because the standby credit that we obtained in July runs out in a week or so. If we are asked what we did with the money that we then borrowed, the answer is not that we in any sense financed our public sector borrowing requirement or even our overseas trade deficit. What we did with the thousands of millions of pounds that we borrowed, and spent, was prop up the pound in a futile attempt to maintain it at an unrealistic level.

We did so because the Treasury utterly failed to recognise how far our loss of competitiveness made the fall of the pound inevitable. That monumental error by the Treasury has attracted virtually no attention. That is principally because the Opposition, and the Press who support them, are so ideologically blinkered that they must have it that our need to borrow from the IMF is related in some way to our levels of public expenditure.

So keen are they on this idea, so ready to wield the axe, that they ignore any factor which offers a simpler and more direct and rational explanation. The danger is that our own Labour Government might be infected by such nonsense and that, having run out of money with which to support the pound, they will turn to other measures, such as very high interest rates, to achieve the same objective, that they might even be tempted to seek "confidence"—a much overworked word—by deflationary cuts and squeezes on the familiar model. If that were to be done, it would be totally misguided, both as to means and as to ends.

It would be misguided as to means because confidence in the pound is not won or lost on the basis of measures reflecting the mish-mash of monetarist the orising. It depends rather on the hard facts of our economic and trading performance, facts which are available to every foreign holder of sterling, facts showing our comparative increase in unit labour costs and export prices for manufactures and the rate at which exports are increasing in volume by comparison with imports.

It would be misleading as to ends because every cent by which the pound is maintained at a value higher than its true value simply penalises our exports, subsidises our imports and acts as a major disincentive to any manufacturer who might be tempted at any point to think of investing in new export capacity. In other words, it would be quite ludicrous for us even to contemplate paying the price of a further and irrelevant deflation, all for the privilege of maintaining an uncompetitive exchange rate.

Our only escape from our economic straitjacket is, as the Prime Minister himself keeps saying, export-led growth. By export-led growth I mean—and I presume the Prime Minister means—such a growth in net exports as to make a significant difference to investment, employment and the balance of trade. I do not mean by export-led growth what the Treasury apparently mean. They forecast in April, and have not yet revised the forecast, that in the first half of 1977 as compared with the first half of 1976, there will be a 9 per cent. increase in exports—they might even revise that estimate downwards now—with a corresponding increase in imports of 9 per cent. and therefore a growth in net exports of nil.

That is not the stuff of which export-led growth is made. If we are to get the export-led growth we need, we must have a substantial growth in net exports. Whatever else we may get right, that will not be achieved unless we get the exchange rate right. If we are to have the right exchange rate, it must do two things. First, it must enable us to sell abroad at a price which is competitive. Secondly, that competitive price must be a price which makes it more profitable for manufacturers to sell abroad than to sell on the home market. Unless we combine those two conditions, we shall not get export-led growth.

If we do not make our prices competitive, we shall not get the demand which will lead to a volume increase in exports; unless we make exports profitable, the manufacturer will do as he has done every time in similar situations since the end of the war: he will turn back to the more profitable and easier home market as home demand is allowed to rise.

All the facts suggest that we have not yet succeeded, even with the current fall in the value of sterling, in combining those two conditions. In fact, our export prices for manufactures this year have not fallen at all. We have become less competitive. We have become more competitive by comparison with the Americans, it is true, but the Germans have actually become slightly more competitive and the Japanese, French, and Italians substantially more so, by 5 per cent., 9 per cent. and 18 per cent. respectively.

It is not surprising in the light of those figures, although the Chancellor seemed to be surprised, that our export performance has been rather bad so far this year. There is little evidence of any substantially increased demand for our exports, in direct contrast to the German and Japanese exports during this year.

The continued competitiveness of imports is shown by the fact that the volume of our imports has gone up very fast— faster than that of exports—over recent months and the only sign that the fall in the value of sterling may at last be beginning to have an effect is that import prices went up very fast in October.

As for profitability, there is some evidence that manufacturers have taken advantage of the devaluation in profit margins rather than by increasing the volume of their sales abroad. Export prices have gone up 17 per cent.—the pound has been devalued by 16 per cent.—but home prices have risen only 10 per cent., which suggests that exports have become comparatively more profitable. But even that increased element of profit margin must owe something to cost pressure and those increases must also be considered in the light of the relative un profitability of exports over recent years.

So there is nothing in the present exchange rate to suggest that we have yet adhieved the conditions necessary for export-led growth. If we are to be serious about such an objective, we must do some hard thinking about what a realistic exchange rate is. Unfortunately, when we come to do that, we find substantial obstacles to clear thinking.

First of all, when we consider our present competitiveness, we have to consider it against an historical backdrop of continued and consistent un competitiveness ever since the end of the war. We have an economy in which our own home prices for manufactures have risen faster than import prices, in which our export prices for manufactures have risen much faster than those of our competitors. That is the profile of an economy which has consistently had an over-valued currency.

One cannot be surprised that the argument that we are marginally more compentitive than we were, let us say, in 1970, does not cut much ice. For a start, we simply were not competitive in 1970. We have to make a major improvement on the performance of 1970 before we start to get export-led growth. In addition, since 1970 we have lost our tariff protection against Common Market imports. Our balance of trade in manufactures with the Germans alone is running at a deficit of £928 million this year. We have also lost the tariff advantages that we used to enjoy in the Commonwealth and in EFTA.

The second obstacle to clear thinking is that we have been so mesmerised by the speed and extent of the fall in the pound's value this year that we have simply taken it as a matter of faith that it must be under-valued. But what we fail to take into account is the fact that, while we were inflating rapidly—unit labour costs in this country went up by 60 per cent. in the two years 1974 and 1975—£4,000 million-worth of Arab oil money flowed in and artificially propped up the value of the pound. So, far from the sterling balances having dragged down the pound, in fact they propped it up throughout that period. Incidentally, if we were only to achieve a realistic exchange rate, many of the problems about the so-called funding of the sterling balances would disappear.

Thirdly, it is rightly argued that there is a price to be paid for devaluation, that it puts up the cost of imports and therefore the cost of living. That would be a powerful argument if it were possible to avoid such a price in other ways. But there is no way in which we can avoid the price for our past mistakes and failures. It will work its way through the economy in one form or another. We have the choice of the form—devaluation—which will at least give us the chance of export-led growth or of the form—a further deflation—which itself has an impact on the cost of living. Hon Members have only to look at the level of mortgage interest rates,—which has none of the corresponding advantages which export-led growth would present to us.

In any event, the impact of devaluation on inflation should not be overstated. No less than 58 per cent. of our import bill now comprises imported manufactures. Certainly we do not want to make them artificially cheaper. On the contrary, we want to price them out of the market. As long as we maintain the present value of the green pound, we are equally protected against any sizeable impact on our food bill.

Then there is the sophisticated argument, in a sense, that our lack of competitiveness is not a matter of price alone but reflects our failings in terms of quality, design, delivery, and so on. Again, no doubt that is true. But what should we do about those difficulties tomorrow? We can hardly argue that an uncompetitive exchange rate makes them easier of solution. What are we to do? Shall we make more ministerial speeches exhorting people to invest more or to work harder? Are we to say to our foreign customers "We realise that we have long-term problems, but you must wait while we resolve our problems" and, therefore, make our goods saleable at the current exchange rate? Of couse not. If we cannot sell because of superior quality, we must sell in terms of price. We must make exports both profitable and competitive now.

The Government now face a major choice. They can follow the almost age-old so-called remedy of solving our balance of payments problems and propping up the pound with further deflation. Any fool can solve those problems in the short term by screwing down everything so tightly that nothing moves. But such a solution would do nothing to resolve our long-term problems. In fact, it would make them much more difficult.

I believe that we must resist that sort of strategy to the death. There is no point in waiting for North Sea oil to come to help us, because it will do nothing to encourage investment or employment in manufacturing industry. If we use the oil revenues to prop up the pound, to reduce our public sector deficit and to balance our trade, we shall simply live on North Sea oil revenues and end up with no manufacturing industry at all.

The alternative is to go for growth, to recognise that the falling pound is a symptom rather than the disease. If we repress the symptom, we make the disease worse. The disease is the familiar British one of low growth, low investment, low productivity, low wages and, now, low employment. We ought to do the little bit extra that we have not yet managed to do. We have done 90 per cent. of what is necessary. We have a stable wage rate and a very successful voluntary incomes policy. We have the lowest level of industrial disputes for 23 years. We have a major programme of tax incentives so that any manufacturing company which wishes to invest can do so without paying any tax. We have a Government who are restraining public expenditure and the money supply. We have a Government who make it clear that their first priority is manufacturing industry. If we do the remaining 10 per cent., by which I mean low interest rates and a competitive exchange rate, we can go for growth without the usual obstacles and inhibitions. If the exchange rate is right, we can expand without running into balance of payments problems.

I believe that that is the strategy which the Government should adopt. If we run into short-term problems with capacity, the answer is some form of import restriction. I would favour an import deposit scheme.

That is the choice facing the Government. Unless they make the right decision, we shall not solve our economic problems and, incidentally, this Government will not win the next election.

8.5 p.m.

Mr. John MacGregor (Norfolk, South)

I hope that the hon. Member for Southampton, Test (Mr. Gould) will forgive me if I do not pursue any of the matters that he raised in his interesting speech, since there is no time to do so, as you have indicated, Mr. Deputy Speaker. However, it seems to me that his prescription may well not work. Over the past months we have had a rapid decline in the exchange rate, and it has not produced the rejuvenation of industrial confidence or the switch to the manufacturing sector that the hon. Gentleman seeks.

I wish to concentrate my early remarks on one or two comments on the speech earlier today by the Chancellor of the Exchequer. First, it seemed to me that his speech again showed all the spasms of self-delusion and complacency to which we have become so accustomed.

I give two examples. On capital investment the right hon. Gentleman said that the prospects for the future were brighter still. From my talks with representatives of industry I do not get the feeling that that is the case at the moment. The right hon. Gentleman also indicated that in the talks with the IMF it was recognised that the twin bases on which the Government's strategy were based at the moment were regarded as the right ones. If they are so good, why is our projected rate of inflation over the next 12 months still so very much worse than most of our competitors? I understand the right hon. Gentleman's desire for some bright light in the present situation, but he is fooling himself if he thinks that he has the strategy right.

Secondly, the right hon. Gentleman expressed surprise that exports were not rising sufficiently. I do not wish to repeat the detailed analysis of the export situation made by the hon. Member for Test, but I make one small comment. Exporting for Britain's managers and salesmen is a pretty hard business. It is not fun. At present, there is little incentive for them to go out and spend months abroad away from their families, as they have to do if they are to get big export orders.

It is not just Britain's tax rates which are at fault, though they are bad enough. The evidence coming to me recently suggests that those who spend a fair amount of time abroad on export business find themselves increasingly inhibited by Inland Revenue rulings on some of these overseas earnings which go beyond what most of us who took part in the passage of the 1974 Finance Bill thought would happen. So part of the remedy lies in the Chancellor's court—giving real incentives to the people who are doing the hard export work which will enable them to do it.

That brings me to my third comment on the right hon. Gentleman's speech, which concerns his interesting passage on direct taxation and social security benefits. He was incorrect in ascribing to the Opposition the view that we were mainly concerned at present with scrounging in social security. It goes on, and it is a minor problem which must be put right. But the main point to which we have all addressed ourselves is that in the present situation, because social security benefits are free of tax and have been more than indexed and because tax thresholds have been nothing like indexed to take account of inflation, there is now for large numbers of groups with below average incomes a positive incentive not to work rather than to seek work.

The Chancellor today gave the key illustrations himself. I think that he is beginning to recognise that the real anger, frustration and concern about this comes from the lower income groups, as I know directly week after week from my own constituency, and not from those in higher income groups. Therefore, at last he has got the message that we have been trying to put across to him over the past few months.

But whose fault is it? It is the Chancellor who has deliberately created this situation. In 1974, he said that he would set out to do so, and he has done it. Therefore, all that he is now doing is starting to put right a situation which he himself created.

The right hon. Gentleman's comments on direct and indirect taxation were fascinating. If he means what he says, what he is about to embark upon is a welcome and long overdue shift in the burden of tax from direct to indirect taxation. But I fear that he will pay only lip service to this, as always. I suspect that the carrot of direct tax cuts which has been hung out will not come before next April but that we shall see increases in indirect taxation much sooner. Moreover, all that the right hon. Gentleman has been saying about taxation demonstrates the need for further public expenditure cuts.

I now move on from the right hon. Gentleman's speech to make one comment about the employee participation Bill. I think that it is relevant to this debate, although more so to yesterday's debate, because this Bill could be very important for an efficient economy. My one plea to the Secretary of State is that the Government postpone the Bill this Session. It is of major importance to get the Bill right—positively, because a good employee participation Bill with the right flexibility and concentrating on those areas where employees wish to participate could make a major improvement, as it has to many companies, to the performance of the British economy; negatively, because, if we get a single structure or the wrong structure, it could do immense harm.

We should not reject the Bullock proposals as coming down on a tablet of stone. I doubt very much, from some of the noises coming out of the Committee, whether they will be right. This demonstrates a strong need to consult wide sections of British industry before the Government frame their own proposals, and that will take time. Therefore, in this Session there will be neither time for the Government to consult properly nor time for them to bring forward a Bill which will enable this House to deal with it properly. Although I accept fully that an employee participation Bill is desirable, I urge the Government not to introduce it this Session.

The main point of my speech relates to the present Cabinet dispute. Clearly, there must be a dispute, because it is not just a question of newspaper leaks, as the Chancellor suggested. We have had the Secretary of State for the Environment saying that it would be an act of gross folly to engage in big public expenditure cuts at present. He said that publicly in a broadcast. If that line is followed, it will be an indication that once again the Government will be making all the mistakes that they have made in the past two years. I wish to strengthen and support the line which I hope Treasury Ministers are taking.

We are all agreed on the importance of industrial rejuvenation and the switch of resources to get the industrial and commercial sectors going again. But, for all the talk from the Government, I have the impression that they would like that rejuvenation to work magically without too much effort from them, so that they will be able to spend freely of the extra wealth created, and that they are not prepared to make the major shifts of policy which are necessary to make it happen.

Over these last two years, public expenditure has begun to gobble up such an undue proportion of resources—of labour because of the increases in employment which have taken place in the public sector, while the massive unemployment has taken place only in private manufacturing and the commercial sector, and of finance. The burdens of industry have increased through corporation tax, although the Chancellor finally recognised his mistake and introduced the stock relief provisions, through the £1,000 million extra in insurance contributions and through the many extra burdens put on industry through legislation. It has often struck me observing the Government side in the past two years that it is all too easy to imposee new burdens on industry without worrying about the effects, and to spend freely without worrying where the money is coming from. Because of the Government's failure to keep the rise in public expenditure within bounds, we have had latterly an undue reliance on fiscal policy through VAT and on monetary policy, which has produced the very high interest rates. All of these factors have put additional burdens on the private sector.

I agree with my right hon. Friend the Member for Chipping Barnet (Mr. Maudling) about the need to be expansive. That is my natural temperament. But I do not think that we are in a situation where, in the short term, that expansion can be achieved quickly or easily. My fear is that the economic recession in manufacturing industry and commerce will continue and will need much endeavour to shift it.

The recent CBI survey was before certain events. Talking to companies about their plans for the next 12 months, one finds that they are extremely anxious. They are taking into account moves that the Government may make in the next few weeks. There is a lack of confidence in their markets. They are worried about the combination of high interest rates and their continued poor returns on capital. They need to be sure of expansion, which they cannot be, because of the high cost of employing extra labour through the events of the last two years.

On top of all that there is uncertainty about the future growth of world trade and the possible impact of OPEC oil price rises to which the Chancellor referred. So the present environment for manufacturing and commerce, which have to take up the slack of unemployment, is very uncertain. And we should remember that so far the Chancellor has always been over-optimistic about growth calculations when framing his public sector expenditure programmes. If the Government do not get their package right, they will really keep the lid on the manufacturing and commercial sectors.

The Prime Minister has accepted that there will have to be some further increase in employment. The question is where it should fall—in the productive or in the unproductive sector. The present unemployment measures are only a temporary palliative. The real need is to get lasting jobs in the productive sector.

The core of the problem of the public sector borrowing requirement will be about the level of debt which the Government will have of finance. If it is still too high it will mean that high interest rates will remain, and that in turn will inhibit the private sector. If the Chancellor chooses to do it through indirect taxation, mainly through value added tax, again the brunt will be borne by the industrial sector. Something of that sort is only possible if it is accompanied immediately by cuts in direct taxation.

I agree with the hon. Member for Liverpool, Walton (Mr. Heffer) about the effect of concentrating all the expenditure cuts on the capital side. If that happens once more, the private sector will again suffer the brunt, and again that will be a lasting and long-term disadvantage. I do not object to a growth of public expenditure as such—ideally, I am in favour of it. But there has been this massive shift over the last two years and there is a need now for a permanent and massive switch back from the unproductive to the productive sector.

That is why we can justify our argument for cutting public expenditure and creating the jobs which will last. The Government have not done that yet, but I hope that those Ministers urging that such steps should start now will be supported in the Cabinet.

8.15 p.m.

Mr. Joseph Dean (Leeds, West)

I welcome the declaration of intent by the Government in the Gracious Speech to place priority resources in inner city and other stress areas. However, I find it hard to understand how that can be achieved when there is a massive cut in the house-building programme. I wish that the stress areas had had the cosseted treatment which has been given in the past to the new towns. If they had received such treatment, we might not be discussing them as distressed areas, because they would have been dealt with adequately.

The hon. Member for Cornwall, North (Mr. Pardoe) yesterday, as the Liberals usually do, produced instant remedies, knowing that there was no possibility of his being called upon to put them into action. He said that he could cure the unemployment by asking the Minister involved with the road building programme to take action on the fact that we now have massive road-building machines of foreign origin which are now building mile after mile of motorway and major roads. I am with the hon. Gentleman on the argument that perhaps there is a case for import restrictions if he is talking about providing employment in the engineering industry, because I believe that we have companies here which could produce that type of machine. But the hon. Gentleman was saying that we should train all these youngsters and surplus labourers and turn the clock back, as it were, to the labour gangs of the late 1920s and early 1930s, thereby again building roads by manual labour.

It would be difficult to find a more bizarre and ridiculous notion. The hon. Gentleman might have taken the trouble to check his facts. I asked the city engineer of a major local authority what the cost comparison would be. He told me that we would end up with a minute stretch of roadway at the cost of what would otherwise have been a major road scheme. The hon. Gentleman's suggestion is a non-starter and as ridiculous as his remark on television when he stated that senior Treasury officials had been in Washington trying to sell the country down the river, a charge which, as usual, he never substantiated.

If I were to pick out one part of the Gracious Speech which I do not welcome, it is the proposals for devolution. I think I was the first Back Bencher to speak in the devolution debate against devolution, but I have been prepared to sit back and listen to the arguments developed on merit. I was perhaps prepared to accept Assemblies for Scotland and Wales on the basis that it would mean no extra cost to my constituents. In my speech on devolution, I spelled out the preferential financial arrangements per capita that Scotland was enjoying as against my constituency, and no one refuted me.

Taking development grants as a whole, and calculating on a per capita basis, one finds that Scotland gets 5½ times the amount that English regions get while the Welsh get 6½ times. In domestic rate support grant, Scotland gets 27p and Wales 36p in the pound. It therefore comes a little hard to hear an hon. Member representing the Scottish racialist party—I mean the Scottish National Party—saying that Scotland is so badly done to. I find it hard to accept that they have been hard done to by their counterparts from Westminster. In some respects some of us, or certainly our predecessors, in the English constituencies have been rather placid and have let develop a situation which should have been arrested some time ago.

The Scotland and Wales Bill published today makes clear that the financing of the Scottish Assembly will take place via block grant—but which block grant? If we divide the financial cake distributed by the Government in three, among England, Scotland and Wales, and since the amounts are already rigidly fixed, if any increased financial assistance is to be expected from that total Government allocation to finance the Scottish and Welsh Assemblies, it can happen only at the expense of money that should be made available in the English regions.

I had assumed that this was the accepted pattern, and I have been assured in private conversation with junior Ministers that it was never intended that money should go from the English regions to finance a Scottish Assembly. However, a report in the Guardian yesterday stated that prominent people in certain political parties—some in my own party—north of the border believe that the financial arrangements in the Bill are inadequate—and they took that view before the Bill was published. Where do they think the money will come from?

I have strong reasons for believing that the setting up of such Assemblies will create yet another army of civil servants north of the border. We were told that no such thing would happen—that those officials are already there. I have reason to believe that there is an option to send a thousand civil servants north of the border to see that the Assembly is well-serviced and run. When we are in our present serious financial situation and are being investigated by IMF officials—and indeed we probably now face the most serious financial crisis since the 1930s—why should we waste 30 days of parliamentary time and considerable finance on such an exercise?

In the final analysis I do not believe that such a move will provide anything extra for the Scottish and Welsh peoples. I shall be interested to be told on Second Reading why the Bill should be supported by such people as myself. Perhaps my mind is still slightly open on the subject, but I shall need some convincing that this measure will not be to the detriment of my constituents—and in the last resort my loyalty lies with them.

We hear perpetual incantations from the SNP Benches about so-called Scottish oil. We get the impression that if that oil is obtained, it will afford independence and will be the foundation-stone on which to build a new Scotland. However, the most optimistic predictions lead one to believe that by the turn of the century those resources will be very much expired. The major energy resources of the United Kingdom are not in the North Sea. They happen to be under the newfound coalfields in Yorkshire, Nottingham, Derbyshire and Leicestershire.

The Leader of the Liberal Party has asked for a certain percentage of oil revenues to finance the Scottish Assembly. In that case why should not hon. Members from Yorkshire, Lancashire, Derbyshire, and Staffordshire take the view "The miners in our area are now producing coal at a very economic cost compared with their counterparts north of the border"? If that is a good argument on that ground, it is also a good argument in another context. Why should not our areas have special benefits, too?

The wrong assumption is being made by the Labour Front Bench, and certainly by SNP Members, that this Bill is nicely parcelled and tied up with pink ribbon. But unless assurances are given on some of the points I have mentioned tonight, I cannot see the devolution measure becoming an Act, and 30 valuable parliamentary days will be wasted.

One of the minor items in the Gracious Speech relates to the intention to legislate to allow direct labour organisations to tender for work for other bodies. I welcome that move where such organisations are successful. Where direct direct labour organisations are in a position to tender for work for other authorities or public bodies, they should do so. I believe that this will bring a discipline to the pricing of tenders. That is one part of the Queen's Speech I truly welcome, and I hope that the measure will have a successful passage through Parliament.

8.25 p.m.

Mr. Ian Lloyd (Havant and Waterloo)

The hon. Members for Leeds, West (Mr. Dean) and Southampton, Test (Mr Gould) have injected into the debate two refreshing streams of reality. Although I do not go all the way in agreeing with the hon. Member for Test, I go a long way in agreeing with the hon. Member for Leeds, West on the subject of devolution. Doubtless we shall hear much more on that topic as the Session progresses.

I want to take issue with the hon. Member for Liverpool, Walton (Mr. Helfer), who criticised the contribution made by Professor Friedman to Chile's difficulties. I thought that the hon. Gentleman's remarks were singularly unfair. What made the Chilean situation so disastrous was the effect of two years of rule under Allende and the whole story of political confusion following the civil war. Whatever economist was let loose in that part of the world or whatever advice was given there would have been rampant and raging inflation in Chile for a considerable time after Allende fell from power. Therefore, it was wholly unfair and unrealistic of the hon. Gentleman to lay blame on Professor Friedman.

When listening to the right hon. Gentleman the Chancellor of the Exchequer this afternoon involving himself in the great public expenditure debate, I could not help recalling the analogy between the effects of public expenditure on the body politic and of alcohol on the body private. In excess both create an illusion of well-being, both tend to cause loss of control, and both result in a severe diminution of judgment. Furthermore, both tend to inculcate the belief that cure will be hastened by more poison. In the case of the body politic, as in the case of the body individual, bankruptcy is usually at the end of the road. Moreover, in both cases there are many who will hasten the individual and the State on their way to perdition with bad advice. There are other similarities. The habit is hard to break, and for some economies an excess of public expenditure becomes a form of poison.

There are, of course, contrary arguments. Who is not familiar with the languid and skilled propagandist, John Kenneth Galbraith, to whom so much of the views about the inherent goodness of public expenditure must be attributed? He would probably be the last to admit to being an advocate of some form of national economic alcoholism. But there is no doubt that if the United Kingdom body politic is now staggering down the international pavement of the IMF and its soul is being fought over by the Colonel Friedmans of the IMF Salvation Army, advocating their brutal economic teetotalism, and, on the other hand, by the progressive reformers—such as the American banker who in The Times this morning was suggesting that he is much more concerned with the effect of withdrawal symptoms than he is with the progress of the disease—this is a situation which is hardly surprising.

I want to examine briefly the criteria being used to make our judgments in this situation and those which I suggest, in all humility, should be used, and also to test some of the prescriptions of the Gracious Speech against both. The criteria being used are basically four.

First, will the particular policy prescription be supported by the Trades Union Congress? Secondly, will it exacerbate unemployment or otherwise? Thirdly, will it damage that interesting phenomenon which we now describe as the social contract and by implication unleash more inflation, which is commonly thought to be an undesirable result? Finally, will it reinforce such little cohesion as remains within the Parliamentary Labour Party? These questions, no Member can deny, are dominating the discussion.

The objectives are not nearly so controversial. They seldom are. We all want economic salvation and growth and a healthy balance of payments. But what criteria should be used? I suggest that they should be much more precise and, if it is not a contradiction in terms, more broadly based. The ranking is important but not vital.

The first criterion—this is the acid test that I would apply to any policy prescription—is whether it will restore people's self-confidence in this country. Secondly, will the policies convince the non-Socialist world, to whom in general we are turning for support, that the self-indulgence of Socialism in the United Kingdom will be put second? I do not think that any of our possible lenders expect a Socialist Government to abandon Socialism, but the least they expect the Government to do is to finance only as much Socialism as they can afford. The objective judgment of our lenders at the moment is that that is very little indeed, and they would expect a Socialist or Labour Government to conform to that restriction. Thirdly, will the policies operate both effectively and expeditiously on the crucial economic indicators? What are these indicators?

This brings me to the point made by my right hon. Friend the Member for Chipping Barnet (Mr. Maudling). Will the claims on resources increase more or less rapidly than the availability of resources? He suggested that we should earn more. This is always the cry of Micawbers throughout the ages. Every Micawber who is sixpence short has earned sixpence too little, but the problem was created by the excess on expenditure in the first place rather than by the lack of earnings.

I accept what my right hon. Friend said: of course the national productive capacity of this country, given certain stimuli and certain important conditions, can be rapidly and drastically increased, but that is another matter. In the context in which we find ourselves at this moment in time, we are in the Micawber situation, spending sixpence too much, and the national result is misery.

Will the net improvement show quickly across the exchanges? Quite clearly, any policy which achieves both these results is better than one which merely achieves a domestic increase in resources.

Will gross national product per employee rise? Will the areas of high productivity and industrial performance expand more rapidly than the areas of low productivity and industrial performance? We have both, and we know which they are.

Will the investment in new technology-based firms be stimulated? There is a very great deal of evidence—much of which has been given to the Select Committee on Science and Technology, to which my right hon. Friend referred this afternoon—that one of the main causes of the poor economic performance of the United Kingdom in recent years has been the comparatively poor availability, accessibility and application of high technology. Will there be an increase in national imagination, endeavour or performance, or will it be inhibited by the policies proposed?

Policies which satisfy the above will, in my view, have the right effect on the rate of interest, on the value of the pound, on the balance of payments, on real wages, on profits, and on all these other matters. Of that there is no question. Measures which do not satisfy these criteria will not have the right effect on these indices.

The social contract is shown a degree of deference which has not been exceeded since Caligula made his horse a consul, but with this difference: Caligula did not attribute to his horse the collective wisdom of the Roman Senate, and sometimes, when I follow the Government's attitude towards the social contract, it seems to be regarded as something so sacrosanct and so much the embodiment of wisdom that I am absolutely astonished. The attitude is similar to that of someone going to his banker and saying "Do not foreclose or you will damage my social prestige," and it is about as relevant.

The social contract may or may not have trimmed the wage-income explosion, but in my view a more important contract is involved—the contract of the British people with their own destiny. The proposals which satisfy my criteria should satisfy the TUC, because it has nothing to lose from economic recovery.

But what of that grossly neglected, much maligned, gravely under-represented body which I define as the NUC—the non-union community? About 20 million people in this island belong to the non-union community. No measures will be be successful, whatever the TUC does or does not do, supports or does not support, unless they have the support of the NUC as well. That point must be made by Members in this House, because many of us represent at least in half in our constituencies the NUC as well as the TUC.

I come now to an analysis which suggests one answer to the Chancellor's dilemma. This afternoon the right hon. Gentleman seemed uncertain whether to pat the nation's head or kick it on the shins. It seems to me that he might end up by doing both.

If policies are geared solely to the first limited criteria which I have described—unemployment and the social contract—they will suggest that the Chancellor has been governed by effects rather than by causes, and there is a danger that he will kick the nation on the head and pat it on the shins.

I come now to the stark inconsistencies in the Government's policy which are revealed in the Gracious Speech. The Speech argues for improved levels of industrial output and productivity, a higher level of industrial investment". Those are quite unexceptionable sentiments. But how is that to be done?

Looking at the Gracious Speech, we see four essential measures: the nationalisation of the shipbuilding and aircraft industries; the introduction of industrial democracy; the development of industrial training; and an increase in indirect labour. Only one of these measures stands up to any close and critical examination. Only the improvement of industrial training can be said to have a direct, if not an immediate, effect on industrial productivity.

What about nationalisation? I am sure that most hon. Members—unfortunately, there is not time to read it—have seen the study of United Kingdom nationalised industries, published by a Government Department, under the chairmanship of Sir Ronald McIntosh. This is an official Government publication published by Her Majesty's Stationery Office.

The Lord President of the Council and Leader of the House of Commons (Mr. Michael Foot)

indicated dissent.

Mr. Lloyd

The right hon. Gentleman shakes his head. Perhaps he disagrees with the conclusions. But that it is a NEDC Report published by the Government is not in doubt.

The conclusions on nationalisation in this report are remarkable. That any Government, having recently had the benefit of the advice which this report has made available, should make the nationalisation of further major sectors of the economy a major plank in their platform is astonishing.

I turn now to the question of incentives and stimuli, which I believe to have a profound importance. The figures published in The Times this morning and produced by my hon. and learned Friend the Member for Solihull (Mr. Grieve) show how serious these can be. If the Government will use their imagination, measures can be taken, even in the present restrictive context, to achieve a higher response, which is what we want.

I suggest three possible measures. The first is that all income in excess of 1975–76 levels earned by commission on export sales should be free of income tax. That would have a dramatic effect on our export performance.

Secondly, I suggest that all dividends of firms with exports more than 25 per cent. up on their 1975–76 levels should be free of tax above those levels. That would be a bonus to the firms concerned to go out and change export patterns.

Finally, what would happen if 50 per cent. of all income or fees earned abroad above 1975–76 levels and remitted to the United Kingdom were free of tax or were taxed at 10 per cent.? I suggest that would have a dramatic effect on the tens of thousands of people on whom the Government depend for an improvement of their economic performance.

Unfortunately time permits no further comment, but if the Government are serious about making an effort for some degree of realism, there is no question whatever but that they will not achieve this unless they look more seriously and more continually at the basic industrial structure of this country, and what makes it tick.

8.41 p.m.

Dr. Oonagh McDonald (Thurrock)

The Prime Minister made it clear at the beginning of the debate on the Queen's Speech that what matters in this Session of Parliament is the management of the economy, and in particular the management of industry. Yet, when we look at the proposals in the Queen's Speech we see the same system of grants, loans and tax concessions to encourage manufacturing industry. Successive Governments have used grants, loans and tax concessions as incentives. Yet they have failed to increase manufacturing investment in this country, and they have certainly failed to increase it to the level of our competitors. In other words, they have failed to revive manufacturing industry.

Vast sums are spent on aid to private industry. The total was almost £l½ billion last year, and almost the same level is expected to be reached this year. Plenty of carrots are offered to private industrialists to invest, but there are not enough takers. It is time that we learned, and it is time that the Government realised, by looking at industrial problems and rising unemployment, that offering tax incentives is not enough. It is not enough to dangle a carrot in front of an industrialist's nose. We must make sure that the industrialist bites the carrot and invests in the right way in the right place.

We need much more stringent policies to encourage investment. We could look at other countries. We could look at Sweden, for example, and impose swingeing tax penalties on companies which fail to invest out of retained profits.

We must ensure greater accountability in the use of public money. It is public money which is being used by private companies. Government aid to private companies is often massive. The Government are continuing to give massive aid, and, as in the case of Courtaulds, the Government find that they are taken by surprise by closures and the consequent loss of thousands of jobs, while industrialists offer feeble excuses for closing their factories. In order to ensure accountability we need the use of planning agreements—not just in a voluntary way but compulsorily, to ensure that companies give us the information we need about their future planning, as far as manpower and pricing policies are concerned. We need to know what they propose. We need planning agreements to ensure that the right kind of investment takes place in the right part of the country.

It looks as though the Government propose to continue using regional aids in the same way. Yet our regional policy, which has developed since 1940, now needs to be changed, to be refined in order to take account of changing patterns in industrial development and employment. It needs to take account of the increasing concentration in British industry and the increasing ownership of British industry by foreign and British-based multinationals. It needs to take account of the changing pattern of employment. For example, areas which have been designated development areas are in many cases not now high unemployment areas, while others which were not designated development areas are now areas of high unemployment.

I cite my constituency of Thurrock as an example. It has a current unemployment level of 8.2 per cent. That level of unemployment is the result of a decline not in demand, but in part at least of primary industries and the permanent loss of jobs. For example, two cement works in my area have been closed, with the permanent loss of about 700 jobs. Those jobs will not be replaced no matter what kind of upturn there is in world or national demand for cement. Regional policy should be used carefully with a view to taking account of changing patterns of employment and ownership of industry, and once again that is best done by using planning agreements with major companies so that we can rapidly discern changing patterns and changing levels of employment.

In considering regional policy we need to think of moving not just manufacturing industry but service industries and office development from London to areas of high unemployment, to areas that are not designated as development areas, such as Thurrock. We must make careful use of regional policy and not just continue with policies that have been developed over many years, as though nothing had changed about employment in industry.

The Queen's Speech makes it clear that the Government have rightly turned their attention to the inner cities as well as to the development areas. They have turned their attention to the inner cities because many of them have become areas of high unemployment, but in looking at downtown London I want the Government to be sure that they turn their attention to other parts of the South-East, such as Thurrock, where unemployment is unacceptably high.

In doing so the Government should remember that we cannot have the proper development of industry in the regions unless there is thriving industry in the South-East, which is our industrial seedbed. Industrial development moves out from the South-East, not in the reverse direction. Therefore, when the Government hand out incentives, grants and loans they should look closely at where industry is located and at what kind of development can take place in the South-East—which is where I want to see it happening—to replace declining industries. I hope that the Government will look also at further developments that could flow from reviving industry in this area.

It is not enough to continue with the same old system. It is not enough to dangle carrots. At a time when people want to restrain public expenditure the Government would do well to look closely at the kind of aid that is given to private industry. They should do that to make sure that the aid is directed and controlled through planning agreements so that the right kind of industrial development takes place and we do not give money to companies which then say "We are sorry, but we did not notice that women had stopped buying tights because the miniskirt went out and so we have to close that plant".

There must be the right kind of development and proper control, otherwise public money will be wasted. There must be planning, and not just through planning agreements. There must be centralised planning and protection for our basic industries, for without centralised planning we shall waste time, money and effort, and in the meantime jobs will be lost. As I say, there must be not only planning, but protection, for without protection for some of our basic industries by means of wide-ranging import controls we shall in a few months' time find that we have lost those industries, and the money that has been poured out will have been wasted. Let the Government take note that it is not enough to continue with the old system of support for industry. The support must be planned, channelled and controlled.

8.50 p.m.

Mr. Peter Hordern (Horsham and Crawley)

I thought that the speech of the Chancellor of the Exchequer this afternoon was the worst that I have heard him make in that capacity. He is, of course, in a very restricted position. He is boxed in, and in every sense he is a residuary legatee of the Labour Party's policy of the social contract. I do not know whether he sought this—although I believe so—but when he became Chancellor his policy should be so dependent upon the social contract itself.

I was particularly struck by the speech of my right hon. Friend the Member for Chipping Barnet (Mr. Maudling) and his notable contribution. I am sorry that he is not in the Chamber at present. He has been very consistent over the years. He has taken no notice of any development in economic thinking, particularly on the monetary side. I notice, because I read his speeches when he was Chancellor of the Exchequer, that he never even mentioned monetary policy when he was Chancellor. I do not think that he was alone in that respect, but even now he pays scant attention to monetary policy and he still depends overwhelmingly upon incomes policy as the only way in which to control inflation.

I shall not ask my right hon. Friend to read the works of Milton Friedman. I am sure that he would prefer to read and follow Monty Python instead. Nor is it necessary for him to read the works of Milton Friedman because he has only to follow the experience in controlling inflation of those countries that have been most successful in doing so—namely, Western Germany and the United States. Neither of those countries has any form of incomes policy whatever.

However, if my right hon. Friend needs further proof, he has only to turn to the economic record of the last 12 years, at any rate since I have been in the House, of over-dependence on incomes policy as a means of controlling inflation. I believe that the experience of the last 12 years has been that inflation has not been controlled and that the principal weapon that has been used to try to control it has been the incomes policy. This is a policy which has emanated most of all from the Treasury. Happily, my right hon. Friend need not concern himself with this prospect any more because the management of our affairs will be taken out of our hands and out of the Treasury's hands. It will be put into the hands of the International Monetary Fund, which will, whether we like it or not, adopt a very strict monetary stance.

I turn briefly to the comments of the right hon. Member for Down, South (Mr. Powell). I understand that he is advising his hon. Friends to vote with the Government side tonight because, he says, the Government have adopted a stricter monetary posture than that which my right hon. and hon. Friends have adopted or would be likely to adopt. If the right hon. Gentleman does not mind my referring to him in this way, perhaps I may say that he will know that he was not alone in opposing his then Government and my then Government in their economic policy at the time. If he really wants an indication of what the present Government have done, he has only to look at their record in the first months of 1974. It was not the previous Conservative Government that increased public expenditure, reduced value added tax from 10 per cent. to 8 per cent. and increased the borrowing requirement. It was the Labour Party that produced those things.

I do not have much time. I shall address myself to only a few points on public expenditure because I believe them to be of some importance. Public expenditure lies at the root of our economic problems. The simple fact is that public expenditure, as I see it as a member of the Public Accounts Committee, and as some other hon. Members see it, is out of control. We estimate that it is out of control in the strict sense by £1,000 million in this last year.

Secondly, the Public Expenditure White Paper, which has a five-year target, is itself way out of date. As the House will know, it is based on an assumption of growth in the gross national product and what proportion of that product public expenditure should take. The fact is that in the present round of public expenditure, between 1974 and 1979, the economy is estimated to have an average growth rate of 2.4 per cent. each year within that period. We are now two-and-a-half years through, and we have had no growth so that, even on the last estimate, we must have an increase in growth of 4 per cent. per annum for the remainder of the period up to 1979.

The Financial Secretary well knows that the prospects for next year of any growth are virtually nil—and probably for the year after. What kind of economic miracle does he expect for 1979? The proportion of the GDP taken up by public expenditure is certain to rise. I say that not only because it is true but because many of the calculations of the Public Expenditure White Paper are plainly incorrect. I take as an example the cost of unemployment benefit which for this year was based on an unemployment level of 700,000. That level, it was assumed, would come down next year to 500,000. That, for a start, will be way out. There are inherent difficulties in controlling public expenditure of which the Financial Secretary will be only too well aware.

In any case, the level of public expenditure as a proportion of GDP is bound to rise. I always find the Chancellor of the Exchequer's remarks on statistics extremely interesting though not always complete. He said today that the new Treasury calculation of public expenditure as a proportion of GDP is down from 60 per cent. to 52 per cent. What interests me is how fast that proportion has grown in the past two years. On exactly the same analysis, two years ago the level of public expenditure as a proportion of GDP was 45½1 per cent., so it has grown by six points during the last two years alone.

If I am right in saying—as I am sure I am—that public expenditure will grow again, from where will the growth of the economy come? So far as can be established, there are to be no funds for the private sector to borrow during the whole of 1977 because the Government will need to borrow every penny. If the borrowing requirement next year and into 1978 is as high as £11 billion, it is certain that there will be no funds for the private sector in the following year either. That is the price we have to pay—a very high level of interest rates—and it will go on until public expenditure is reduced. That is why it is so important to reduce public expenditure and so reduce the level of interest rates. That is the key to our problems.

I want to mention one or two small matters which are interesting and indicative of what is going on. There are various matters in our public accounts which baffle people. Does the House know, for example, that last year we contributed £382 million to the Shah of Iran? We are even giving £41 million to Saudi Arabia—which I would not have thought to be the most poverty-striken country in the world. There are many items such as that all through the public expenditure accounts which should be cut out.

So serious is the position today in the private sector because of its inability to expand that I do not believe that we shall get the increased manufacturing investment that is necessary. Glaxo, which I suppose has been the most successful company in the past 10 years, had a rights issue and raised £30 million from its shareholders last year. The company has put ever penny of that £30 million into short-dated Government securities because by lending the money to the Government it will get a better return than it would get from manufacturing investment. The same is true of other companies. That is an indication of what is happening. Companies and firms throughout the country are lending their money to the Government because by doing so they get a higher return. What sort of prospect is that for any advance in the economy in future?

This Government have no notion of how to get us out of our difficulties. The Government are wedded entirely to the social contract and as long as they are wedded to that, they will also be wedded to too high a level of public expenditure, and as long as the Government are wedded to that, this country cannot make progress.

9.0 p.m.

Mr. Francis Pym (Cambridgeshire)

I shall try to sum up the whole of this debate, begun last Wednesday with such an engaging speech from the hon. Member for Huddersfield, East (Mr. Mallalieu). I want to deal with the Opposition amendment on the subject of the economy and to say something briefly about devolution.

We have certainly had some good and interesting speeches in this five-day debate. One is very sympathetic to all those hon. Members who hoped to catch the eye of the Chair but who were unlucky. Two of the very best speeches were those made by my hon. Friend, the Member for Walsall, North (Mr. Hodgson) yesterday and by my hon. Friend the Member for Workington (Mr. Page) today. My, hon. Friend the Member for Workington paid fulsome tribute to his predecessor, Lord Peart, who was himself a lavish tribute giver, and he then went on to make a trenchant criticism of the Government's industrial strategy, the lack of profit in the private sector, and the burdens imposed upon that sector. I think that his speech was well received in the House, and we hope that he will secure his return to the House on subsequent occasions and that we shall hear more from him, despite what the right hon. Member for Down, South (Mr. Powell) said.

We heard a persuasive speech from my right hon. Friend the Member for Chipping Barnet (Mr. Maudling) and, characteristically, he showed his great consistency. His analysis and prescription contained a message of hope for our country if only we can overcome political problems. What he had to say was well received on the Labour Benches, particularly below the Gangway. But he was then shot down by the right hon. Member for Down, South, who, nevertheless, gave his advice to Labour Members.

The hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) touched on the parliamentary situation. He gave us his usual dose of a bit of praise for and a bit of criticism of both Government and official Opposition. He teased them, as he likes to do, for playing party games, giving the impression that he is above all that sort of thing. But the whole point is that that is the very ploy which he delights to play seemingly at the expense of the two main parties, while actually scoring points for himself.

Until today the debate had an air of unreality and irrelevance. Even the Chancellor of the Exchequer had nothing positive to say today. He has a fantastic capacity for passing the blame. He is the biggest blame passer we have in the House of Commons, and he has an amazing capacity to justify himself, however wrong he may have been.

My hon. Friend the Member for Horsham and Crawley (Mr. Hordern) thought that it was the worst speech the Chancellor has ever made. I thought that it was the most confusing. The Chanceller said that public expenditure was a good thing. He went on to say that our level of public expenditure was in line with that of other countries, which seemed to imply that there was nothing wrong. But he then said that it was too high and must be cut. No one really knows what one should make of all that.

Mr. Michael English (Nottingham, West)

The right hon. Gentleman has mentioned an air of unreality. He will recollect that his right hon. Friend the Member for Finchley (Mrs. Thatcher), when replying to the Chancellor of the Exchequer, said that one should check the text of her speech at Prestatyn. I tried to. I checked with the general news service of the BBC, which got its report from the Press Association. I found out that the word "never" was used in the Press Association's outgoing report. I do not suggest that it was necessarily the right hon. Lady's fault, but I have also found out that there was no text. How, then, can one check, as the right hon. Lady asked? She may have had a text or a tape recording but where is it?

Mr. Pym

The hon. Gentleman has made his intervention, and we can no doubt return to the matter on a future occasion.

The unreality to which I referred derives from the contradiction that exists between, on the one hand, the Government's declared adherence to their economic strategy, seemingly oblivious of the fact that it has failed, leading to high unemployment, rising prices, roaring inflation and all the rest, and, on the other hand, the expectation of a new strategy about to be announced if and when the Government can lay their hands on someone else's money to borrow.

What my hon. Friend the Member for Oswestry (Mr. Biffen) described so graphically yesterday as open disagreement openly arrived at has been going on for too long. Even now no one knows which Cabinet leak to believe, whether the leaking itself is a ploy, or who is being fooled by whom. For some months, negotiations have been going on for a new loan, with the attendant arguments, and this following a period when the Chancellor was full of assurances that no loan at all would be necessary.

In such a shaky and hopelessly uncertain economic climate, not to mention the absence of public political support for this Government, it is hardly surprising that the debate on the Gracious Speech has a hollow ring about it. There has been an atmosphere of charade until today, for peoples' livelihoods are at stake.

In my view, the present parliamentary and political situation calls for a Sessional programme reflecting the maximum degree of general support and agreement. Our present self-inflicted predicament requires the maximum degree of unity. This is not the time for fuelling the flames of political controversy. The economic blizzard is too severe for that. People are too worried and fearful about their jobs, about taxes, about rates, or whatever it may be, and we ought to be concentrating on areas where we can agree very broadly.

I pick out of the Gracious Speech the reference to elections to the European Parliament, which we support. I single out the references to the fishing industry. I think that the whole House is agreed about the serious position of that industry today' and about what needs to be done. I think that the House is agreed about the need to expand home food production. The only mystery here is how the Government intend to achieve it. They have expressed these good intentions for nearly two years now, and we still do not know how on earth they intend to achieve success.

Of course everyone hopes for a negotiated settlement in Rhodesia which will he acceptable. Of course everyone wants progress in Northern Ireland. The Government, so the Gracious Speech tells us, will continue to strive for a just solution to the problems of Northern Ireland". The Government's policy towards Northern Ireland is rather obscure, and I should like to know from the Leader of the, House whether they are just hoping for the best, which is the impression' they are giving at present. What positive action are they taking now? What political reconstruction is in hand? It is time the Government said something more about Northern Ireland, and I think that they will be forced so to do by the debate on devolution which will shortly come.

Devolution is a subject upon which we shall spend many days and weeks, and, by the time the Green Paper on the English regions is added, I imagine that several days will be added even to that time. The devolution Bill will attract most public attention and parliamentary time, and I wish now to say a brief word about it.

For my part, I entirely understand the dissatisfaction of those who live in Scotland with government as it affects Scotland. If I lived in Scotland, I should want to find better forms of government. I should want to be more involved in decisions affecting Scotland if a satisfactory method could be found.

My right hon. and hon. Friends identified the need long ago. There is nothing sacrosanct about the existing arrangements—and there are not many people in Scotland who want things left as they are. We made our constructive and positive proposals. But the Government came into this business in a serious way only a couple of years ago, apparently out of political panic. We have seen the letter in the Daily Telegraph today from our erstwhile colleague in the House, Mr. George Lawson, explaining what happened. He says: … when in August 1974 the 'Scottish Socialists' were brought finally into line, the about-turn was made against the judgment and advice of the party's Scottish Council. We have seen the right hon. Member for Kilmarnock (Mr. Ross) and some of his hon. Friends somersaulting with pretty extraordinary political inelegance. We had built up hopes of legislation last Session with the promise that a Bill would be published in draft, as it were, last spring. That did not happen. Indeed, the Government took the plunge with this enormous Bill published today.

Whatever view one takes about the extent and form of devolution, many hon. Members will question whether it is the right way to do it. Already today the Bill has been subject to a great deal of criticism. The hon. Member for Roxburgh, Selkirk and Peebles gave it a knock and so did the hon. Member for Leeds, West (Mr. Dean).

Mr. Crawford

I understand that the right hon. Gentleman recently spent some time in Edinburgh. Is he now saying that he is committing the Conservative Party to voting against the devolution Bill?

Mr. Pym

If the hon. Gentleman will await what I shall say in due course, he will know what we shall do. But the Bill will not be considered until a fortnight's time. That is true. I could devote the whole of my speech to describing our policy, but I shall not do so. But it is only fair to the House, since a number of hon. Members have mentioned the subject, that I make some comments about it. [Interruption.] The Bill has been criticised from a number of quarters, either because it goes too far or because it does not go far enough.

Mr. Sedgemore

Is the right hon. Gentleman for or against the Bill?

Mr. Speaker

Order. It is quite wrong for the hon. Member for Luton, West (Mr. Sedgemore) to think that he may shout from a sedentary position. It almost amounts to barracking.

Mr. Pym

rose—

Mr. Sedgemore

For or against?

Mr. Speaker

Order. If the hon. Member for Luton, West does that once more, I shall have to ask him to withdraw.

Mr. Pym

If it were possible for the House to come much closer to a common approach in reforming the method of government as it affects Scotland, it would make far more sense to tackle such a major problem that way than by introducing a botched-up scheme invented by the Labour Party. There ought to be progress with the maximum amount of agreement and not the imposition of measures. How do we know who wants this particular scheme in any case, either in Scotland or in Wales? Will Parliament accept this scheme? If so, which parts of it? No one knows.

In any case, it is wrong to have one Bill for Scotland and Wales. There is no mention of Northern Ireland in the Bill. If Northern Ireland is to be treated separately, why should not Scotland and Wales? As the Bill progresses, what will the people of Northern Ireland say about it? I think that they will have a lot to say. I do not think they will be content to see this House debate a Bill for Scotland and Wales day after day when they are apparently to be left out of the discussion altogether.

One wonders whether the Government have considered these proposals in relation to the European Parliament or other tiers of local government. I would quote what the Prime Minister said in opening the debate on the Gracious Speech. He stated: The devolution Bill … is a necessary means of bringing government closer to the people."—[0fficial Report, 24th November 1976; Vol. 921, c. 33.] It should bring government closer to the people, but does this scheme do it? It may sound as though it does bring government closer to the people, but that does not necessarily follow. We shall have to see how we get on. I am certain that among other things Parliament will want to consider the method of election to the Assemblies, the number of Members of Parliament in this House, and their rôle. The Bill will have to be thought about in the context of Scotland, Wales, Northern Ireland and England. There is a great deal of dissatisfaction with existing arrangements and there is an amendment on the Order Paper tonight in relation to this matter.

Mr. Michael Stewart (Fulham)

The right hon. Gentleman is urging the Government to concentrate on measures on which we can agree. Surely it is difficult for the Government to do that if the Conservatives will not tell us whether they agree with this measure.

Mr. Pym

The Government have proceeded with considerable speed, very much pursuing their own ends. They have been panicked into taking this action by the results of certain elections. I do not think that was a sound fundamental approach to what is a constitutional matter.

The House will want time to consider matters such as a referendum. I understand that the right hon. Member for Ebbw Vale (Mr. Foot) mentioned that this morning. Although I have not had an opportunity to discuss it with my right hon. Friends, my personal view is that a referendum in Scotland or Wales at some stage could well be a valuable guide to this House as to what is required.

Our objectives are, first, to preserve and strengthen the United Kingdom, which I believe most people in Scotland want, anyway, and, secondly, within the United Kingdom to find improved methods of government as it affects Scotland, methods which will work and methods which will not bring conflict, which is what I am afraid the Bill will produce to a considerable degree.

Contemplation of democracy in the United Kingdom leads to a consideration of industrial democracy and participation. I agree wholeheartedly with my hon. Friend the Member for Norfolk, South (Mr. MacGregor). At least there is no commitment to legislate this Session, which I think would be ridiculous as the Bullock report has not yet come out. However, the "necessary consultations" referred to in the Gracious Speech will certainly have to be thoroughly carried out. It is not so much the legislation that matters as obtaining the public consent and understanding, but that is what this Government are particularly bad at.

Most people, certainly we on these Benches, as the House well knows, are sympathetic to the objective of involving people more in their work, but it is another area of potential agreement and it would be a tragedy to throw that away and to foist unwanted or resented measures on industry. Many firms already are excellent practitioners of industrial democracy, and I think that we should build on that. I therefore hope that the Government will take their time.

One of the principal reasons for the exceptional degree of unpopularity which this Government now enjoy is that their misleading statements and forecasts are now finding them out. The fashion is now for the Chancellor to say that he does not like forecasts, unless they happen to be bright ones, in which case he is only happy to use them. His earlier statements have proved to be wrong, inaccurate or misleading, and that is one reason why the public do not have confidence in the Government. The Government are being rumbled in the ballot box.

So far from giving warnings of what was to happen, the Government have constantly painted too rosy a picture. They have raised expectations too high. They have encouraged others to share their own wishful thoughts. Even the right hon. Member for Huyton (Sir H. Wilson) did not help very much; he did not know that a crisis was coming. If we are to believe him, if he had known that a crisis was coming, he would still be sitting on the Treasury Bench.

Any helpful suggestions made by my right hon. Friend the Leader of the Opposition, by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe), or by anyone else have been brushed aside by the Government in the hope that everyone else would forget. It is too late for any repentance now.

We know the story, from 8.4 per cent. onwards. Even last April the Chancellor said that we should have inflation at a rate of under 10 per cent. next winter". In June the Chancellor said that the rate of inflation would be 12 per cent. by the end of this year and about 7 per cent. by the end of next year". All that has now been abandoned, along with growth rates of 6 per cent. or even 4½ per cent. of which the Chancellor spoke earlier this year. No wonder there are confusion and distress.

We had hopes of the new Prime Minister. When he was first elected, in his first broadcast he said: We are only keeping up our standards by borrowing and this cannot go on indefinitely. There is no soft option". He said in Blackpool: If industry cannot generate sufficient funds to buy its new plant and machinery then you will not get the investment and we shall continue to go downhill. These are elementary facts of life, well-known to every trade unionist". These remarks and others indicated the hope of action to make a mixed economy work. The private sector is taking all the knocks at present. It is the private sector that is receiving all the blows. Yet it is the private sector that is the wealth-creating sector that we now have to encourage.

The Prime Minister seemed to recognise the reality of the unfavourable climate in which business and commerce, are trying to operate. We are still wondering whether he meant it. He held out the hope of altering things, and I still hope that he will, but there is scepticism, because his words have not yet been followed by action.

In the debate last Wednesday the Prime Minister said: We must ask the country to adhere to existing policies, hard though that may appear to families who see the necessities of life costing more each month."—[Official Report, 24th November 1976; Vol. 921, c. 38.] No wonder he had to add that phrase, because the existing policy is the very one which has brought the country to its present pass. Those words in no way seem to coincide with what the Prime Minister said at Blackpool, so they are misleading. We still do not know what the right hon. Gentleman means. That is one reason why this Government are so extremly unpopular and unsuccessful.

Then we come to the long paragraph in the middle of the Queen's Speech on the subject of the economy. That does not throw much light on how the Government will tackle the problem. How is the "better economic future" that they talk about to be achieved? The reference is only to boards and agencies. But it is not the National Enterprise Board or the development agencies or any other nuts and bolts of administrative machinery which will get this economy moving again.

The economy will get moving again only when the climate becomes favourable and that will happen only when people feel that their services are wanted and appreciated, that the fruits of their efforts and their work are not confiscated. It is what people believe in this situation that matters. It is what people believe that governs confidence. Today, people believe that this Government are agin them.

We shall not get that favourable climate until profit ceases to be a dirty word in the minds of the party opposite. How is it supposed that industrial investment can be at a high level without adequate returns? What is the point of investing if one cannot see that a profit will be earned? That point was well put in the context of small businesses by my hon. Friend the Member for Walsall, North yesterday. He referred to interest rates which cost nearly 20 per cent. when the profitability of industry is 4 per cent.

Interest rates at that level, coupled with the payroll tax foreshadowed in the Gracious Speech, is no way to change the climate for British industry, which is the section of our economy which is in real trouble today. The trouble is that the Government have convinced many people that they are dead against them. People are not allowed to keep enough of their earnings or to pass on their businesses to their heirs. What is required is a change in the Government's attitude. Perhaps we shall hear that announced in the next week or so, but I doubt it.

After all that has happened, how can we be optimistic? What confidence has the House that the national interest and the needs of our society will motivate and determine the Cabinet's decisions? On the evidence, it cannot have that confidence. Hence our amendment for today.

No doubt the Leader of the House will rest everything, as the Government seem to do, on the social contract. That is beginning to look not so marvellous. Not only are the Government in a mess over the economy, but many trade unionists are worried about it too, as is almost the whole nation. There used to be talk about whether the next Conservative Government could work with the unions. That is not the question now. The question is, how soon can the Labour Government go so that a Conservative Government, together with the unions and with all sections of our community, can begin to clear up the mess? After all that has happened in two years, after the Government having clearly shown that they were totally unprepared for the economic blizzard which is now affecting us, when they are now in a terrible tangle themselves, publicly split across the Gangway, how can confidence return to the British people?

There are two other measures which should not be in the Gracious Speech. The first is the proposed Bill to remove restrictions on direct labour departments. That is an unwanted and divisive measure. It is a dirty little Bill, put in no doubt as a political sop to certain Labour councils, and it should not be there.

The other is the water charges Bill, put in, according to the Prime Minister, for the benefit of the people of Wales. The people of Wales are a large group and certainly should be heard—and have been heard, quite rightly.

But what about the small groups to which the Prime Minister also referred, as previously had my right hon. Friend the Leader of the Opposition? What about my constituents? What about Cambridge? What about the Cambridge Water Company? I can tell the right hon. Gentleman that they will be very angry and, although I do not presume to suppose that this subject will be uppermost in their minds on Thursday, I have no doubt that some people will take the view that that is an action taken by this Government without the kind of consultation, let alone the consent, to which the Prime Minister himself referred in his opening Prime Ministerial broadcast.

It is not necessary for the attainment of the Government's objectives to have this Bill. There is also lying in those words a threat to nationalise the private water companies, which again is an absurd measure to contemplate and one which is totally unnecessary.

I understand that the Leader of the House is to reply to this debate. That may be bad luck for me. Certainly it does not fill me with any great optimism. But I am not thinking about that in any personal sense, because I think that he is seen by us all to have cast aside his championship of Parliament, especially of the rights of Back Benchers. He seems to have changed his colours as he now masterminds the ministerial control and direction which appears to inform his leadership of the House.

If the evidence of the last Session is not enough to prove my point, the motion on the Order Paper today which is to be taken tomorrow in relation to the Aircraft and Shipbuilding Industries Bill provides all the evidence that we need. It is an attempt to stifle the grievance which I have no doubt would have been and may still be raised by my hon. Friend the Member for Tiverton (Mr. Maxwell-Hyslop) before it had even had an airing. I do not think that that is a very sensible way to proceed.

If the Government were so keen that the nationalisation of the aircraft and shipbuilding industries should go through, they could have had it for the asking provided they were prepared to sacrifice ship repairing. They could have had three-quarters of the Bill without the need for any further parliamentary process in this Session. I am bound to say that it was their greed, their spite or their pique that caused them to take this line. Certainly it is not the way in which the Leader of the House would have been prepared to see it done had he not been occupying his present post.

We want the Government to change their attitude to industry by deeds and not just by words. We want them to base their actions and take their decisions upon the basis of the needs and the genuine interests of our whole country and our whole community. We want the Government to govern for all the people, which is what the Prime Minister tried to imply in his first broadcast. The trouble is that he is not doing it.

Unless the Government change their minds about that—if they cannot or will not do it—the sooner that they make way for a truly British Government who can govern for the whole community, the better it will be.

9.28 p.m.

The Lord President of the Council and Leader of the House of Commons (Mr. Michael Foot)

If the right hon. Member for Cambridgeshire (Mr. Pym) will permit me, I shall not deal at the moment either with the Aircraft and Shipbuilding Industries Bill which we shall be discussing tomorrow or with the apoplectic water companies of Cambridgeshire which he described a few minutes earlier.

I hope that he will not mind if I turn instead to his opening remarks and the congratulations which he offered and which I am glad to support to the two of his hon. Friends who made their maiden speeches, the hon. Members for Walsall, North (Mr. Hodgson) and Workington (Mr. Page). In common with my right hon. and hon. Friends, I cannot say that I welcome their presence in this House. We understand that they will not be here representing those constituencies after the next election. But I am sure that all those who heard their speeches will wish to congratulate them. Perhaps I might say to the hon. Member for Workington that we appreciated especially what he said about his predecessor and that we thank him for the congratulations which he offered to my noble friend. We also repeat what we have said on previous occasions—that of course we shall wish to hear both hon. Gentlemen speak in this Parliament on many future occasions.

I turn now to the remarks of the right hon. Gentleman and others referring to the position in Northern Ireland, as well as to speeches made by hon. Members from Northern Ireland. There is an amendment on the Order Paper standing in the name of the hon. Member for Antrim, South (Mr. Molyneaux), supported by his hon. Friends. In the context of our proposals for devolution to Scotland and Wales, it regrets the lack of any proposal to increase Northern Ireland's parliamentary representations or any fresh measure of devolved government in Northern Ireland.

I do not think that I can do better than to repeat the words which my right hon. Friend the Secretary of State for Northern Ireland used in a speech he made last Friday. He said that he believed that the time was ripe for devolution, and added: It would be a pity if Northern Ireland should now lag behind Scotland and Wales. There is, moreover, the present under-representation of Northern Ireland at Westminster; a constitutional settlement would open the way for change here. If the basis of agreement is present there need be no problems about implementation. Let all the parties show their commitment to devolution by demonstrating their desire to participate with others in a new system of devolved government. The Government will not be slow to respond. I ask the political parties—or better still ask them to ask themselves—whether they are ready to confess to their own people that once again they have failed to secure for them what others in the United Kingdom are getting. Scotland and Wales are moving on: is Northern Ireland to he left behind? The Government also believe that progress should be made on devolution to Northern Ireland and, indeed, on the question of Northern Ireland's representation in this House. We look forward greatly to the success of discussions be-between the Northern Ireland political parties and all others concerned to see how best progress can be made in that direction.

The hon. Member for Antrim, South has also tabled an amendment about the point in the Gracious Speech at which Her Majesty refers to Northern Ireland. It criticises that part of the Speech in which the reference is made. I have looked up previous Kings' and Queen's Speeches, and I understand that it is usual for such references to be made at such points. I am sure that this is not a matter which we need discuss at length and that it would be more proper to note that the Gracious Speech reflects on the heartrending situation in Northern Ireland and reiterates the determination of the Government to bring peace there. I emphasise that no disrespect was meant by the manner and place of that reference in the Gracious Speech.

I turn now to the speech by the Leader of the Liberal Party. All who heard it will agree that it was a notable contribution to the debate.

Mr. Norman Tebbit (Chingford)

Is the right hon. Gentleman saying that, in the event that there is a devolved Parliament again in Ulster, the representation of Ulster in this Parliament will be on the same basis as for English constituencies?

Mr. Foot

I was not saying that. I do not think that any hon. Member who heard what I said would interpret it as that. I was saying that, clearly, the matter of representation in this House from Northern Ireland is one to be discussed, and that we would be prepared to discuss it. We are not making a commitment about it. We are making a commitment to discuss it in the form stated by my right hon. Friend the Secretary of State for Northern Ireland in his speech last weekend. I have quoted his speech and I think that the point is well understood in the House.

The Leader of the Liberal Party, before turning to economic matters, asked me two questions. He first asked about pairing arrangements between the different parties. I do not think that it would be a satisfactory arrangement to have regular pairing between the Labour and Liberal Parties. On some occasions the Liberals vote with the Government and on other occasions they vote against them —and occasionally in the course of the debate they change their minds, and that may alter the situation. I do not think that that would be the best way to deal with the situation. There has been some discussion between the usual channels, and we believe that some progress should be made in dealing with the serious problems that occurred a few months ago when dealing with sick Members. We hope that progress will be made in a dialogue on this matter and that the results will benefit the House as a whole.

Secondly, the Leader of the Liberal Party asked about the Scotland and Wales Bill and warned the Government that we could not rely on permanent Liberal support for the Bill. I fully understand that the Liberal Party has its own view on the matter, and no doubt we shall hear it during the many debates on that topic. No doubt they will then be able to make up their minds how they will vote on individual matters.

The hon. Gentleman said that our proposals were based on expediency whereas his proposals were based on principle, but I must remind him that our proposals on one major matter accord more closely with the recommendations of the Kilbrandone Report than do the Liberal proposals. Kilbrandon rejected the principal distinctive proposal of the Liberal Party that there should be a federal solution to the problem. We do not believe in a federal solution, for much the same reasons as were adumbrated by Kilbrandon. We believe that the disproportion between England, Scotland, Wales and Northern Ireland is so great that a federal solution would mean that much greater power would be attached to one part of that federation. We do not believe that it would be a sensible way to proceed. In most of the successful federations cited as examples to follow such a situation does not prevail. For that reason alone we believe that it would not be a satisfactory solution.

Therefore, we have set out to try to discover a solution which will unite the United Kingdom but will still ensure that we have proper democratic devolution to Scotland and Wales. We believe that our solution meets those principles. It is a matter not of expediency but of seeking a proper workable solution to the problem. We shall present it to the House, and we shall listen to hon. Member's views.

I was gratified to hear the clear thinking and bluff downright statement made by the right hon. Member for Cambridgeshire on these matters. No more will the country need to be in doubt about Con- servative policy on the subject of devolution. I commend to every hon. Member the right hon. Gentleman's speech, which will merit close reading. However, if anybody who heard the right hon. Gentleman was not sure what his conclusion might be, I am sure that the right hon. Gentleman will fulfil his promise within a fortnight to tell us what he meant by his remarks. I shall greatly look forward to that occasion.

Mr. Crawford

Leaving aside any question of Government expediency, does not the right hon. Gentleman agree that the government of Scotland is not a matter for Kilbrandon or for this Government but for the people of Scotland?

Mr. Foot

It is a matter for the people of the United Kingdom as a whole. [HON. MEMBERS: "No."] We are putting forward proposals which we believe will be of benefit to all the people of the United Kingdom. We advance them not only in the interests of people in Scotland and Wales but in the interests of people in England as well.

We shall have plenty of time in which to discuss these matters and to reach our conclusions. I believe that the more the House examines our proposals and sees the care and detail with which they have been prepared, the more it will find that they are sensible proposals which will, I believe, command the general support of the House.

That does not mean to say that we shall be dogmatic about each particular suggestion or proposal. As to any proposals that may be made about some form of referendum, as long as that referendum did not hold up the provisions of the Bill, and the Bill getting on the statute book, we should be prepared to consider such proposals. But we are certainly not prepared to go back on the general undertakings that we gave as a party to the people of Scotland, to the people of Wales and, indeed, to the people of Britain as a whole. We are not prepared to go back on those general proposals, and we are presenting to the House in the Bill a faithful execution of the pledges we gave then.

Mr. Sillars

Does my right hon. Friend link the statement on the referendum with his previous remark that the question of Scottish government is a matter for the whole of the United Kingdom? Does that mean that if there is a referendum conceded by the Government, it will not be one taken only in Scotland? If that is the case, what makes Scotland so different from Northern Ireland when its constitutional position was determined?

Mr. Foot

So that there is no mistake about it, what I say is that the decision about the future of the United Kingdom and the maintenance of the unity of the United Kingdom—which is provided for in the Bill from its very first clause onwards—is a matter for the United Kingdom as a whole, and we are carrying out our undertakings to the United Kingdom as a whole.

If, however, this House agreed to a devolved system of government for Scotland and for Wales and if, having agreed to the proposition, it was then considered that there should be a referendum—the Government have not made up their mind about it but we are prepared to listen to what the House says—I am not suggesting that that referendum should be in the whole country. It should be in Scotland and Wales. That is a sensible proposal and would be understood by the rest of the House.

On this matter—I agree that it was a matter of detection rather than a simple statement—it appeared to me that I had the support of the right hon. Gentleman. Whether I should be encouraged by that I am not quite sure, but at any rate that appeared to be the case.

Mr. George Cunningham (Islington, South and Finsbury)

Does my right hon. Friend not think that if the people of Scotland want to be completely independent, that is an issue which the people of Scotland and they alone are entitled to decide? But if what they are looking towards is devolution, a half-way stage, which affects the rights of England and the rest of the United Kingdom as well, that is a decision which ought to be taken by the people of the United Kingdom as a whole.

Mr. Foot

I do not agree with my hon. Friend in the formulation he has made of these matters, but these are questions which will have to be debated by the House as the Bill goes through. What I am indicating is that, of course, the Government, when they come to that matter, will be quite free to have a debate in the House, to hear what is said, to make their proposals and to consider the matter in that way. All the considerations put forward by my hon. Friend will be relevant at such a time. I believe that the House of Commons itself will shape the Bill and, I believe, improve the proposals that the Government have made, although the Government have worked out very carefully what is proposed.

Turning to the speeches of hon. Members who have participated in the debate—

Mr. Tim Renton

I am grateful to the right hon. Gentleman for giving way. Will he tell the House whether it is in his mind to propose in due course a devolved system of government for the English regions as well? If so, will not this inevitably bring us towards a federal system of government?

Mr. Foot

The hon. Gentleman has no doubt followed these questions very closely and will know that the Government have agreed and will be publishing, before Second Reading debate on the devolution Bill, a White Paper on the subject of what is proposed for England and for the rest of the country, and what may be considered. That is a consultative White Paper. It will be more a matter for discussion of what might be the possibilities here than setting out any cut and dried final solution.

I do not wish to raise any expectations that we have solved all these problems. Certainly the solution to the problems would not be the one suggested by the hon. Gentleman. When he reads the White Paper or the document that we produce on the subject, he will see clearly enough the reasons why we have reached that conclusion.

I want now to come to what was said—

Sir Derek Walker-Smith (Hertfordshire, East)

rose—

Mr. Foot

I want to get on to the speeches made by hon. Members on other subjects. We shall have plenty of time to discuss this matter later in the Session.

I turn now to what was said by the Leader of the Liberal Party on another question which has figured prominently in the debate—the whole matter of a statutory wages or incomes policy. The hon. Gentleman said that he preferred a voluntary incomes policy. In that he differentiated himself from his hon. Friend the Member for Cornwall, North (Mr. Pardoe) who has always been a strong advocate of a statutory policy.

This matter cropped up especially in remarks made by the Leader of the Opposition, who has been eager to underline that she now takes a somewhat different view of these matters from that when she was a member of the previous Government. Last night, the right hon. Lady said to my right hon. Friend the Secretary of State for Industry: The right hon. Gentleman clearly did not check what I said… Unlike the right hon. Gentleman, I check my facts and I check transcripts."—[Official Report, 29th November 1976: Vol. 921, c. 610] At the beginning of the debate today, the right hon. Lady advised my right hon. Friend the Chancellor of the Exchequer to do the same.

I have done my best to check what the right hon. Lady said. It is important that everyone should know what she said. First, this is the report which appeared in The Times. I say right away that, because a report appears in The Times, it is no guarantee of its accuracy. I am sure that the right hon. Lady will be grateful to me for clearing up this matter, because some people might have been deceived by what appeared in The Times. The report reads: Mrs. Thatcher said last night that a Conservative Government would never introduce a statutory incomes policy again. The right hon. Lady has objected to that construction on her speech. Thanks to the assistance of my hon. Friend the Member for Nottingham, West (Mr. English), I have had the report of what was said by the reporter who was there. I agree that the right hon. Lady is entitled to say that the report in The Times was in one sense incorrect because, although the sense is not tremendously different, there is a marginal difference. Under the title "Liverpool Daily Post", which had a reporter there, there is the headline Our first priority—by Maggie. Further down, it states: I do not intend to have a statutory policy again. The right hon. Lady did not say "never again". I am very sorry. I had pictured her singing the famous old song, I'll never say 'never again' again. I have always had a soft spot for the right hon. Lady, if I may confess it to her. I thought that she had been making this vow. At any rate, I think that we have cleared up the fact that she never intends to have a statutory policy again—not never again, but never again. The right hon. Lady never intends to have a statutory policy again.

Will the right hon. Lady tell us at some suitable time—I do not suggest at this moment—or circulate in the Official Report, or we might make provision for this in the Library, all those items in the previous Government's policies which she is never going to have again or not going to have again?

At any rate, a statutory incomes policy is out. Some of us on this side of the House, but not all, were guilty of being in favour of a statutory incomes policy. I was never in favour of such a policy. I am strongly in favour of the right hon. Lady's view. I am sure that the right hon. Member for Down, South (Mr. Powell) is in this alliance, too. The right hon. Gentleman may not have made his normal approaches to the Front Bench today—I am sorry that I missed his overtures, because I am told that they were of a most touching character—but in any case, having missed them, I am very gratified that we three at least—the right hon. Lady, the right hon. Member for Down, South and myself—are all anti-statutory incomes policyites, and we are not prepared to have such a policy at any future time. Right, we have established that. We do not know how many we have on our side.

What about some other items on her list apart from the statutory incomes policy—and we all know who was responsible for that; it was the ghost of Banquo who has not turned up, for he cannot face it. However, the right hon. Member for Chipping Barnet (Mr. Maudling) made a very good speech if I may say so without losing the support of the right hon. Member for Down, South.

The right hon. Lady said that the only matter over which her Government—which she frequently now disowns—quarrelled with the trade unions was statutory incomes policy. But if I remember rightly there was a little trouble over the Industrial Relations Act 1971. [Interruption.] I seem to remember a few dock strikes and other disruptions. In fact, we had three years of the worst industrial relations in this country since recorded time. That must have escaped her recollection.

Mr. Peter Bottomley (Woolwich, West)rose—

Mr. Foot

No, I will not give way.—ah! Speak of the devil—the right hon. Member for Sidcup (Mr. Heath) has come in. I was just explaining how I hoped that the Leader of the Opposition would put in the Library a list of the measures which she supported in the right hon. Member's Administration, but which she now opposes. I am sure that the right hon. Member would be in favour of that little list, although it may well he a longer list.

We got to item No. 2. What about the Industry Act? After all, if the Opposition are to be as ruthless as the hon. Member for Oswestry (Mr. Biffen) suggested in the application of monetary policies—the Leader of the Opposition seems to have been converted to them—and if the Opposition intend to carry them out to the letter, they cannot draw a distinction between Rolls-Royce and British Leyland. They cannot assist one and not the other. So the right hon. Lady must have on her list the fact that she would never again have an Industry Act. Not only would that mean abolishing the National Enterprise Board and planning agreements; it would mean wipping away the entire Industry Act introduced, in a minor capacity by the hon. Member for Henley (Mr. Heseltine). He was sacked in the last reshuffle. We understand why. It was because he was one of the authors of the Industry Act.

There are quite a number of other measures and the Leader of the Opposition owes it to the House and the country to give a full list of all the measures which she previously supported but which she will never again support.

Mr. Rost

Tell us about the IMF.

Mr. Foot

I thought that we were discussing the Opposition amendment but they do not seem to want to talk about that now.

Many hon. Members came into this debate rather late and did not hear the many interesting speeches. They did not hear the speech of the right hon. Members for Chipping Barnet. I recommend hon. Members to read it. I wonder how often he delivered it in the Shadow Cabinet. The right hon. Gentleman shakes his head. I am not surprised. Had he delivered it once, he would have been out on his ear a long time ago.

What can one think of the selection of the right hon. Lady who sacks the right hon. Member for Chipping Barnet in such an unceremonious manner but keeps in the Shadow Cabinet—if he is still there; he could have been sacked for all I know—the hon. Member for Guildford (Mr. Howell) as spokesman on Treasury matters, still with the authentic stamp of the new regime upon him? I am not sure what rôle he played in the regime of the right hon. Member for Sidcup, but I think that before the right hon. Lady makes further approaches to the trade unions she had better sack the hon. Member for Guildford too, because he made a speech—I have checked this—and he confirmed to me that the report is broadly correct, like the speech of the right hon. Lady at Prestatyn.

The hon. Gentleman said: A future Tory Government would have nothing to do with the 'self-interested mafia who now prowl the upper reaches of trade union bureaucracy'… Those well-heeled princes of trade union officialdom' had concern only for their own political power and appointments and none at all for their workers.

Mr. Tebbit

rose—

Mr. Foot

We are not surprised at the hon. Member for Chingford (Mr. Tebbit). We know that he agrees with that statement. The hon. Gentleman has the reputation of being the most studiously offensive Member of the House. He does not even have to rise to his feet to sustain his reputation. We know how well he would work with trade union leaders.

Does the right hon. Lady approve of the language of her hon. Friend the unsacked Member for Guildford? She had an opportunity just after that speech was delivered to put the hon. Gentleman out on his ear, too. Maybe she will get that Bench so crowded that she will have great open spaces—

Mr. Tebbit

rose—

Mr. Foot

I shall not give way. I have expressed my view about the hon. Gentleman, and nothing on earth that he could say would make me alter it. He should take his seat and try to catch your eye, Mr. Speaker—

Mr. Tebbitrose—

Mr. Speaker

Order. One at a time in the last two minutes.

Mr. Foot

All I am saying to the right hon. Lady is that the next time she is trying to reorganise her Shadow Cabinet I should be happy to offer my

assistance to her. Apart from the hon. Member for Chingford, there is a likely lot sitting on that Bench below the Gangway. So mistaken did I think the right hon. Lady in her choice that I thought she was going to select the hon. Member for Chingford, and he would have been sitting on the Front Bench. I hope my few remarks will make it certain that such an appalling thing will never happen to this House.

To return to the right hon. Lady's amendment, I hope it is understood that no case has been made for it. I hope, therefore, that the House will throw it out and give full support to the Government's motion.

Question put, That the amendment be made:—

The House divided: Ayes 266, Noes 276.

Division No. 3.]	AYES	[10.00 p.m.
Aitken, Jonathan	Dodsworth, Geoffrey	Havers, Sir Michael
Alison, Michael	Douglas-Hamilton, Lord James	Hayhoe, Barney
Amery, Rt Hon Julian	Drayson, Burnaby	Heath, Rt Hon Edward
Arnold, Tom	du Cann, Rt Hon Edward	Henderson, Douglas
Atkins, Rt Hon H. (Spelthorne)	Eden, Rt Hon Sir John	Heseltine, Michael
Awdry, Daniel	Edwards, Nicholas (Pembroke)	Hicks, Robert
Bain, Mrs Margaret	Elliott, Sir William	Higgins, Terence L.
Baker, Kenneth	Emery, Peter	Hodgson, Robin
Banks, Robert	Ewing, Mrs Winifred (Moray)	Holland, Philip
Beith, A. J.	Eyre, Reginald	Hooson, Emlyn
Bell, Ronald	Fairbairn, Nicholas	Hordern, Peter
Bennett, Dr Reginald (Fareham)	Falrgrieve, Russell	Howe, Rt Hon Sir Geoffrey
Benyon, W.	Fell, Anthony	Howell, David (Guildford)
Berry, Hon Anthony	Finsberg, Geoffrey	Howell, Ralph (North Norfolk)
Biffen, John	Fisher, Sir Nigel	Howells, Geraint (Cardigan)
Biggs-Davison, John	Fletcher, Alex (Edinburgh N)	Hunt, David (Wirral)
Blaker, Peter	Fletcher-Cooke, Charles	Hurd, Douglas
Body, Richard	Fookes, Miss Janet	Hutchison, Michael Clark
Boscawen, Hon Robert	Forman, Nigel	Irving, Charles (Cheltenham)
Bottomley, Peter	Fowler, Norman (Sutton C'f'd)	Jenkin, Rt Hon P. (Wanst'd & W'df'd)
Bowden, A. (Brighton, Kemptown)	Fox, Marcus	Johnson Smith, G. (E Grinstead)
Boysor, Dr Rhodes (Brent)	Fraser, Rt Hon H. (Stafford & St)	Johnston, Russell (Inverness)
Braine, Sir Bernard	Freud, Clement	Jones, Arthur (Daventry)
Brittan, Leon	Fry, Peter	Jopling, Michael
Brocklebank-Fowler, C.	Galbraith, Hon. T. G. D.	Joseph, Rt Hon Sir Keith
Brotherton, Michael Gardiner,	George (Reigate)	Kaberry, Sir Donald
Brown, Sir Edward (Bath)	Gardner, Edward (S Fylde)	Kershaw, Anthony
Bryan, Sir Paul	Gilmour, Rt Hon Ian (Chesham)	Kilfedder, James
Buchanan-Smith, Alick	Gilmour, Sir John (East Fife)	Kimball, Marcus
Budgen Nick	Glyn, Dr Alan	King, Evelyn (South Dorset)
Bulmer, Esmond	Godber, Rt Hon Joseph	King, Tom (Bridgwater)
Burden, F. A.	Goodhart, Philip	Kirk, Sir Peter
Carlisle, Mark	Goodhew, Victor	Kitson, Sir Timothy
Chalker, Mrs Lynda	Goodlad, Alastair	Knight, Mrs Jill
Churchill, W. S.	Gorst, John	Knox, David
Clark, Alan (Plymouth, Sutton)	Gow, Ian (Eastbourne)	Lamont, Norman
Clark, William (Croydon S)	Gower, Sir Raymond (Barry)	Langford-Holt, Sir John
Clegg, Walter	Grant, Anthony (Harrow C)	Latham, Michael (Melton)
Cockcroft, John	Gray, Hamish	Lawrence, Ivan
Cooke, Robert (Bristol W)	Griffiths, Eldon	Lawson, Nigel
Cope, John	Grimond, Rt Hon J.	Lewis, Kenneth (Rutland)
Cormack, Patrick	Grist, Ian	Lloyd, Ian
Corrie, John	Gros, Michael	Loveridge, John
Costain, A. P.	Hall, Sir John	McAdden, Sir Stephen
Craig, Rt Hon W. (Belfast E)	Hall-Davis, A. G. F.	MacCormick, Iain
Crawford, Douglas	Hamilton, Michael (Salisbury)	McCrindle, Robert
Crouch, David	Hampson, Dr Keith	Macfarlane, Neil
Crowder, F. P.	Hannam, John	MacGregor, John
Davies, Rt Hon J. (Knutsford)	Harvie Anderson. Rt Hon Miss	Macmillan, Rt Hon M. (Farnham)
Dean, Paul (N Somerset)	Hastings, Stephen	McNair-Wilson, M. (Newbury)
McNair-Wilson, P. (New Forest)	Price, David (Eastleigh)	Steen, Anthony (Wavertree)
Madel, David	Pym, Rt Hon Francis	Stewart, Donald (Western Isles)
Marshall, Michael (Arundel)	Ralson, Timothy	Stewart, Ian (Hitchin)
Marten, Nell	Rathborte, Tim	Stokes, John
Mates, Michael	Rawlinson, Rt Hon Sir Peter	Stradling Thomas, J.
Maude, Angus	Rees, Peter (Dover & Deal)	Tapsell, Peter
Maudling, Rt Hon Reginald	Rees-Davies, W. R.	Taylor, R. (Croydon NW)
Mawby, Ray	Reld, George	Taylor, Teddy (Cathcart)
Maxwell-Hyslop, Robin	Renton, Rt Hon Sir D. (Hunts)	Tebbit, Norman
Mayhew, Patrick	Renton, Tim (Mid_Sussex)	Thatcher, Rt Hon Margaret
Meyer, Sir Anthony	Rhys Williams, Sir Brandon	Thomas, Rt Hon P. (Hendon S)
Miller, Hal (Bromsgrove)	Ridley, Hon Nicholas	Thompson, George
Mills, Peter	Ridsdale, Julian	Thorpe, Rt Hon Jeremy (N Devon)
Mitchell, David (Basingstoke)	Rifkind, Malcolm	Townsend, Cyril D.
Moate, Roger	Rippon, Rt Hon Geoffrey	Trotter, Neville
Monro, Hector	Roberts, Michael (Cardiff NW)	van Straubenzee, W. R.
Montgomery, Fergus	Roberts, Wyn (Conway)	Vaughan, Dr Gerald
Moore, John (Croydon C)	Ross, Stephen (Isle of Wight)	Viggers, Peter
More, Jasper (Ludlow)	Rossi, Hugh (Hornsey)	Wainwright, Richard (Come V)
Morgan, Geraint	Rost, Peter (SE Derbyshire)	Wakeham, John
Morgan-Giles, Rear-Admiral	Royle, Sir Anthony	Walder, David (Clitheroe)
Morris, Michael (Northampton S)	Sainsbury, Tim	Walker, Rt Hon P. (Worcester)
Morrison, Hon Peter (Chester)	St. John-Stevas, Norman	Walker-Smith, Rt Hon Sir Derek
Mudd, David	Shaw, Giles (Pudsey)	Wall, Patrick
Neave, Airey	Shaw, Michael (Scarborough)	Walters, Dennis
Nelson, Anthony	Shelton, William (Streatham)	Watt, Hamish
Neubert, Michael	Shepherd, Colin	Weatherill, Bernard
Newton, Tony	Shersby, Michael	Wells, John
Nott, John	Silvester, Fred	Welsh, Andrew
Onslow, Cranley	Sims, Roger	Whitelaw, Rt Hon William
Oppenheim, Mrs Sally	Skeet, T. H. H.	Wiggin, Jerry
Page, Rt Hon R. Graham (Crosby)	Smith, Dudley (Warwick)	Wilson, Gordon (Dundee E)
Page, Richard (Workington)	Speed, Keith	Winterton, Nicholas
Pardoe, John	Spence, John	Wood, Rt Hon Richard
Parkinson, Cecil	Spicer, Michael (S Worcester)	Young, Sir G. (Ealing, Acton)
Pattie, Geoffrey	Sproat, Iain	Younger, Hon George
Penhaligon, David	Stainton, Keith
Percival, Ian	Stanbrook, Ivor	TELLERS FOR THE AYES:
Peyton, Rt Hon John	Stanley, John	Mr. Spencer Le Marchant and
pink, R. Bonnet	Steel, David (Roxburgh)	Mr. Carol Mather.
NOES
Abse, Leo	Conlan, Bernard	Fletcher, Ted (Darlington)
Allaun, Frank	Cook, Robin F. (Edin C)	Foot, Rt Hon Michael
Anderson, Donald	Corbett, Robin	Ford, Ben
Archer, Peter	Cowans, Harry	Forrester, John
Armstrong, Ernest	Cox, Thomas (Tooting)	Fowler, Gerald (The Wrekin)
Ashley, Jack	Crawshaw, Richard	Fraser, John (Lambeth, N'w'd)
Atkins, Ronald (Preston N)	Cronin, John	Freeson, Reginald
Atkinson, Norman	Crosland, Rt Hon Anthony	Garrett, John (Norwich S)
Barnett Guy (Greenwich)	Crowther, Stan (Rotherham)	Garrett, W. E. (Wallsend)
Barnett, Rt Hon Joel (Heywood)	Cryer, Bob	George, Bruce
Bates, Alt	Cunningham, G. (Islington S)	Gilbert, Dr John
Bean, R. E.	Cunningham, Dr J. (Whiteh)	Ginsburg, David
Benn, Rt Hon Anthony Wedgwood	Davidson. Arthur	Golding, John
Bennett, Andrew (Stockport N)	Davies, Bryan (Enfield N)	Gould, Bryan
Bidwell, Sydney	Davies, Denzil (Llanelli)	Gourley, Harry
Bishop, E. S.	Davies, Ifor (Gower)	Graham, Ted
Blenkinsop, Arthur	Davis, Clinton (Hackney C)	Grant, George (Morpeth)
Boardman, H.	Deakins, Eric	Grant, John (Islington C)
Booth, Rt Hon Albert	Dean, Joseph (Leeds West)	Grocott, Bruce
Bottomley, Rt Hon Arthur	Dell, Rt Hon Edmund	Hamilton, James (Bothwell)
Boyden, James (Bish Auck)	Dempsey, James	Harper, Joseph
Bradley, Tom	Doig, Peter	Harrison, Walter (Wakefield)
Bray, Dr Jeremy	Dormand, J. D.	Hart, Rt Hon Judith
Brown, Hugh D. (Proven)	Douglas-Mann, Bruce	Hattersley, Rt Hon Roy
Brown, Robert C. (Newcastle W)	Duffy, A. E. P.	Hatton, Frank
Buchan, Norman	Dunn, James A.	Hayman, Mrs Helene
Buchanan, Richard	Dunnett, Jack	Healey, Rt Hon Denis
Butler, Mrs Joyce (Wood Green)	Dunwoody, Mrs Gwyneth	Heffer, Eric S.
Callaghan, Rt Hon J. (Cardiff SE)	Eadie, Alex	Hooley, Frank
Callaghan, Jim (Middleton & P)	Edge, Geoff	Horam, John
Campbell, Ian	Edwards, Robert (Wolv SE)	Howell, Rt Hon Denis (B'ham, Sm H)
Canavan, Dennis	Ellis, John (Brigg & Scun)	Hoyle, Doug (Nelson)
Cant. R. B.	English, Michael	Huckfield, Les
Carmichael, Neil	Ennals, David	Hughes, Rt Hon C. (Anglesey)
Carter, Ray	Evans, Fred (Caerphilly)	Hughes, Mark (Durham)
Cartwright, John	Evans, loan (Aberdare)	Hughes, Robert (Aberdeen N)
Castle, Rt Hon Barbara	Evans, John (Newton)	Hughes, Roy (Newport)
Clemitson, Ivor	Ewing, Harry (Stirling)	Irvine, Rt Hon Sir A. (Edge Hill)
Cocks, Rt Hon Michael (Bristol S)	Fernyhough, Rt Hon E.	Irving, Rt Hon S. (Dartford)
Cohen, Stanley	Fitch, Alan (Wigan)	Jackson, Colin (Brighouse)
Coleman, Donald	Flannery, Martin	Jackson, Miss Margaret (Lincoln)
Colquhoun, Ms Maureen	Fletcher, L. R. (Ilkeston)	Janner, Greville

Jay, Rt Hon Douglas	Miller, Dr M. S. (E Kilbride)	Small, William
Jenkins, Hugh (Putney)	Miller, Mrs Millie (Ilford N)	Smith, John (N Lanarkshire)
John, Brynmor	Moonman, Eric	Snape, Peter
Johnson, James (Hull West)	Morris, Alfred (Wythenshawe)	Spearing, Nigel
Johnson, Walter(Derby S)	Morris, Charles R. (Openshaw)	Spriggs, Leslie
Jones, Alec (Rhondda)	Morris, Rt Hon J. (Aberavon)	Stallard, A. W.
Jones, Barry (East Flint)	Moyle, Roland	Stewart, Rt Hon M. (Fulham)
Jones, Dan (Burnley)	Mulley, Rt Hon Frederick	Stoddart, David
Judd, Frank	Newens, Stanley	Stott, Roger
Kaufman, Gerald	Noble, Mike	Strang, Gavin
Kelley, Richard	Oakes, Gordon	Strauss, Rt. Hon G. R.
Kerr, Russell	Ogden, Eric	Summerskill, Hon Dr Shirley
Kilroy-Silk, Robert	O'Halloran, Michael	Swain, Thomas
Kinnock, Neil	Orme, Rt Hon Stanley	Thomas, Jeffrey (Abertillery)
Lambie, David	Ovenden, John	Thomas, Mike (Newcastle E)
Lamborn, Harry	Padley, Walter	Thomas, Ron (Bristol NW)
Lamond, James	Palmer, Arthur	Thorne, Stan (Preston South)
Latham, Arthur (Paddington)	Park, George	Tierney, Sydney
Leadbitter, Ted	Parker, John	Tomlinson, John
Lee, John	Parry, Robert	Tomney, Frank
Lestor, Miss Joan (Eton & Slough)	Pendry, Tom	Torney, Tom
Lever, Rt Hon Harold	Perry, Ernest	Tuck, Raphael
Lipton, Marcus	Prentice, Rt Hon Reg	Varley, Rt Hon Eric G.
Litterick, Tom	Prescott, John	Wainwright, Edwin (Dearne V)
Loyden, Eddie	Price, C. (Lewisham W)	Walden, Brian (B'ham, L'dyw'd)
Luard, Evan	Price, William (Rugby)	Walker, Harold (Doncaster)
Lyon, Alexander (York)	Radice, Giles	Walker, Terry (Kingswood)
Lyons, Edward (Bradford W)	Rees, Rt Hon Merlyn (Leeds S)	Ward, Michael
Mabon, Dr J. Dickson	Richardson, Miss Jo	Watkins, David
McCartney, Hugh	Roberts, Albert (Normanton)	Weetch, Ken
McDonald, Dr Oonagh	Roberts, Gwilym (Cannock)	Weitzman, David
McElhone, Frank	Robinson, Geoffrey	Wellbeloved, James
MacFarquhar, Roderick	Roderick, Caerwyn	White, Frank R. (Bury)
McGuire, Michael (Ince)	Rodgers, George (Charley)	White, James (Pollock)
MacKenzie, Gregor	Rodgers, Rt Hon William (Stockton)	Whitlock, William
Mackintosh, John P.	Rooker, J. W.	Willey, Rt Hon Frederick
Maclennan, Robert	Rose, Paul B.	Williams, Alan (Swansea W)
McMillan, Tom (Glasgow C)	Ross, Rt Hon W. (Kilmarnock)	Williams, Alan Lee (Hornch'ch)
Madden, Max	Rowlands, Ted	Williams, Sir Thomas (Warrington)
Magee, Bryan	Ryman, John	Wilson(Alexander (Hamilton)
Mahon, Simon	Sandelson, Neville	Wilson, Rt Hon Sir Harold (Huyton)
Mellalieu, J. P. W.	Sedgemore, Brian	Wilson, William (Coventry SE)
Marks, Kenneth	Selby, Harry	Wise, Mrs Audrey
Marguand, David	Shaw, Arnold (Word South)	Woodall, Alec
Marshall, Dr Edmund (Goole)	Sheldon, Robert (Ashton-u-Lyne)	Woof, Robert
Marshall, Jim (Leicester S)	Shore, Rt Hon Peter	Wriggiesworth, Ian.
Mason, Rt Hon Roy	Short, Mrs Renée (Wolv NE)	Young, David (Bolton E)
Maynard, Miss Joan	Silkin, Rt Hon John (Deptford)
Meacher, Michael	Silkin, Rt Hon S. C. (Dulwich)	TELLERS FOR THE NOES:
Mellish, Rt Hon Robert	Silverman, Julius	Mr. Joseph Ashton and
Mikardo, Ian	Skinner, Dennis	Mr. James Tinn.
Millan, Rt Hon Robert

Question accordingly negatived.

Main Question put and agreed to.

Resolved,

That an humble Address be presented to Her Majesty as follows:

Most Gracious Sovereign,

We, Your Majesty's most dutiful and loyal subjects, the Commons of the United King- dom of Great Britain and Northern Ireland, in Parliament assembled, beg leave to offer our humble thanks to Your Majesty for the Gracious Speech which Your Majesty has addressed to both Houses of Parliament.

To be presented by Privy Councillors or Members of Her Majesty's Household.