HC Deb 15 July 1977 vol 935 cc994-1007

In deciding, Mr. Speaker, on the measures which I have announced this morning, the Government have taken account of the progress achieved on the balance of payments since the Budget, of the guidance given by the TUC for a phased and orderly return to normal collective bargaining and of the revised prospects for the PSBR in 1977–78.

They will give substantial additional protection to living standards, for working people generally, and especially for families with children and those with earnings well below that average. Indeed, for the great majority of workers they will themselves be enough, or more than enough, fully to offset the price increase which the Government expect between now and the end of this year.

As I have said, this orderly return to normal collective bargaining is essential to our objective of getting inflation down to single figures and keeping it there. We recognise that we are now attempting something which earlier Governments of both parties failed to achieve. But the policy I have described is one within which living standards will be maintained.

It is a policy which must be applied by all concerned with good sense and realism. The Government will play their full part with the TUC and CBI in seeking to achieve this.

Sir G. Howe

The Chancellor has made a long and important statement and I hope that I shall be allowed a little latitude in asking questions about it, on the basis that I received a copy of it only minutes before the Chancellor rose.

Does the Chancellor agree that the Government's failure to reach a satisfactory agreement on pay with the trade unions, let alone to publish a White Paper embodying it, means that the economic strategy, right or wrong, which was at the heart of his letter to the IMF and at the heart of his last Budget Statement has now entirely collapsed?

Does the Chancellor understand that we were more than a little surprised to hear his continuing reference to the field of the social contract? Does he not recognise that in the eyes of almost everybody outside the House and of hon. Members on both sides of the House the continued pursuit of social contract policies, involving extension of trade union power, high taxation and the destruction of differentials, has done very great damage to the economy of the country? Is he further aware that we shed no tears whatever over the death of the social contract?

On the other hand, I make it clear that we warmly and whole-heartedly support his determination to stick to strict targets for the control of the money supply, of the public sector borrowing requirement, of public expenditure and of cash limits. Does the Chancellor understand that if he and his colleagues stick as firmly as he has said to their duty of exercising their authority and influence—

Mr. William Hamilton

Like Tony Barber?

Sir G. Howe

—to secure pay settlements in the public sector, if they are in line with the target that the Chancellor has outlined, he will receive our full support?

However, does he realise that we have little confidence in the Government's capacity to pursue policies of that kind, founded, as they are and must be, on essential monetary principles? We have little confidence in them when the Chancellor was unable yesterday to secure the agreement of his colleagues in Cabinet to his own White Paper.

Does the Chancellor appreciate that we certainly welcome his acceptance, at least in part, of the additional tax reliefs im- posed upon the Government in Standing Committee, but that we regret that the Government have failed to cut public spending further, have failed to face the need for higher indirect taxes if necessary, and so will not give skilled workers and managers the full benefit of tax cuts originally promised which are so essential to the restoration of incentive in our economy?

Finally, does the Chancellor recollect the unqualified insistence, as I understand it, of the Leader of the Liberal Party—who, sadly, is not here today—that a further satisfactory agreement on pay was an essential condition of the continuance of the Liberal-Labour pact? Will the Chancellor explain to the House how, even to the most liberal of imaginations, that condition can now be regarded as having been fulfilled?

Mr. Healey

I do not like hitting a man when he is down; therefore, I shall try to give a moderate reply to the specific points that the right hon. and learned Gentleman made.

I welcome very much the right hon. and learned Gentleman's kind words about the Government's successes in controlling public expenditure and the money supply. It is particularly welcome, coming from a representative of the previous Government who were so signally unsuccessful in both these regards.

As to a White Paper, I think the House will agree that the statement I have made was precise and comprehensive. I believe that it will serve to meet all the requirements for which the House could possibly ask the Government in defining their position on pay policy and on measures to support pay policy.

As to whether the heart of my policy has collapsed, I assure the right hon. and learned Gentleman that my heart is beating very strongly and is not suffering the sort of palpitation that was evident in his muddled and sour remarks.

Mr. Powell

What is it that will prevent a wage explosion after normal free collective bargaining has in due course been restored?

Mr. Healey

If I may refer to at least four factors which give good hope— as I heard the Vice-Chairman of the British Institute of Management saying on the radio this morning—the Government, first of all, are not printing money to accommodate excessive expenditure in the way that the previous Government were doing. I noted that the right hon. Member for Down, South (Mr Powell) was nodding his head when I said that.

Secondly, the Government have the support and good will of the trade union movement. Thirdly—and this is a piece of good fortune attributable largely to the sacrifices made by the trade union movement in the last two years of pay policy —the return to free collective bargaining will take place at a time when the rate of increase in prices is falling, not rising, as it was in the last year of the last Government's policies.

The fourth reason is that the course of world prices now looks a good deal more moderate than was the case when the last Government's pay policy expired in such catastrophic conditions.

Mr. Prentice

The Chancellor referred to an objective of single-figure settlements. Will he agree that this formula is dangerously vague compared with the figure of 5 per cent. which was widely canvassed by Ministers over a number of months? Was 5 per cent., or some other precise figure, in the original Treasury draft of the White Paper? If so, why was it removed? Is this another indication that the Government are running scared of the Trades Union Congress and the Tribune Group?

Mr. Healey

I thank the right hon. Gentleman for his inquiries and will seek to answer them. There was no figure in any draft submitted by the Treasury to the Cabinet or any Cabinet committee. The pay policy which I have just announced is the pay policy that we have been talking about for very many months.

I say to the right hon. Gentleman—[HON. MEMBERS: "Friend."] No, the right hon. Gentle man. The right hon. Gentleman was a trade unionist of some experience in his earlier career. He has also been a Minister in the field of employment. I think that he will know that a return to normal collective bargaining is inevitable after two periods of strict pay policy. The important thing is that that return should be an orderly one. The trade union movement wishes that, the Government wish it, and I hope that I have indicated this morning how it can be achieved.

Mr. Pardoe

I am sure that the whole House will wish to confine its general reaction to next week and to confine itself today to questions. May I first ask the Chancellor about the commitment by the TUC General Council on 22nd June on the 12-months rule? Has he had any indication from representatives of the trade union movement in the last two or three days that that commitment still stands?

Secondly, will the Chancellor say a little more about how he intends to enforce the provisions in the public sector on the private sector, in particular spelling out his link with prices and price control? What will he do when the first major private sector firm breaks the 12-months rule or wildly exceeds the 10 per cent. limit?

Finally, if at the end of the first three months or thereabouts of the new policy earnings have risen by more than can possibly be contained within an annual estimate of 10 per cent., what fiscal measures will he take?

Mr. Healey

On the last point, I cannot anticipate my next Budget, but I have given the TUC representatives an assurance that if prices appear to be rising to an extent which will not maintain living standards, and if pay increases have been held within the general guidance that I have stated, I shall consider with them what fiscal action is most appropriate in order to correct the position.

As to the 12-months rule, I have been assured by representatives of the TUC, including the leaders of the more important trade unions, that they intend to maintain and to recommend to Congress the guidance they gave about the 12-months rule on 22nd June—guidance which was passed, let me say, by 19 votes to 4 in the General Council. The hon. Member will know that the TUC has always shown that when an important decision is taken by Congress as a whole, even trade unions which disagree with it seek to abide by it.

Mr. Heffer

Is my right hon. Friend aware that I think that most of us—or all of us on the Government side—will not think that it is the end of the world to have a return to collective bargaining. Is he also aware that we feel that over the last two years trade unionists have shown remarkable patriotism and restraint which has not been accepted by all sectors of society?

Will my right hon. Friend also accept that we shall obviously have to look at the taxation proposals very closely indeed but that we certainly welcome any effort made to carry out the other part of the social contract, namely, to develop full employment and particularly to get the construction workers back to work? I hope that the £100 million is but a first step towards getting the 300,000 workers in the construction and allied industries back to work at the earliest possible moment.

Mr. Healey

I am grateful to my hon. Friend for his remarks. It is not, of course, the end of the world that two years of an extremely stiff pay policy, which has caused distortions and rigidities in many parts of the economy, is now coming to an end and that there is a return to normal collective bargaining, which must be orderly and must avoid, as the TUC has laid down, both a free-for-all and a wage explosion. I think that that is widely understood throughout the country.

I gratefully accept the tribute that my hon. Friend has paid to the patriotism and restraint of the trade union movement over the last two years, and I wish that it had been more evident on the Conservative Benches. Opposition Members do not do themselves credit by sneering and giggling every time any reference is made to the contribution that people in far less comfortable circumstances than themselves have made to help the nation in the past two years.

I understand that many of my hon. Friends will want to question and argue aspects of tax policy. As always, I look forward to that type of argument. As for the construction industry, I think that my hon. Friend will realise that this is a second step. The first step was taken in the Budget. I do not pretend that a stride has been taken. The problems of the construction industry remain severe. In the course of the current expenditure review the Government will be considering what further steps they can take in the coming financial year.

Mr. Henderson

Does the right hon. Gentleman accept that although there will he a welcome for additional funds for the construction industry, it must be taken into account that the money involved seems rather small compared with the other measures that have been announced? is he able to give a judgment today on the effect that the additional funds will have on the rate of unemployment by the end of this year?

Mr. Healey

The measures for the construction industry are likely to increase employment in the construction and supply industries by about 12,000. I know that that is not large compared with total unemployment in the industry, but I think the House will agree that it is substantially better than nothing, especially for the 12,000 human beings concerned. Compared with the present situation, the measures as a whole represent a total stimulus to the economy of £1½ billion in the current year, rising to £1½ billion when the new child benefits come in next April. That should generate additional employment of about 60,000.

Dr. Bray

Is my right hon Friend aware that many optimistic forecasts have been given about prospects for prices under the social contract? The trouble is that people have simply stopped believing them. Does he agree that he cannot give guarantees on maintaining the standard of living without risking infringing IMF conditions? Finally, is he aware that in the present circumstances a Government of either party are bound to go to the IMF to renegotiate a more sensible set of conditions?

Mr. Healey

I am afraid that I cannot agree with my hon. Friend. In the first year of the social contract the reduction in the level of inflation was precisely what I forecast it to be—namely, half from about 26 per cent. to about 13 per cent. In the second year of the pay policy there has been an increase in the rate of inflation attributable to the excessive depreciation of the pound —much of which has now been recovered since the December measures—the increase in food prices due to the drought, the increase in world commodity prices and other factors. It is true that no Government can guarantee what inflation will be because many factors affect inflation besides wages. That is one of the lessons of the past year. if there were events outside this country that led to a large increase in the price of oil, that would have its effect again as it did in 1975. As I said in my statement, on the best forecast that we can make of all the factors affecting inflation—exchange rates, interest rates and world prices, for example —the outlook is as I have described it.

Mr. Maurice Macmillan

The Chancellor referred to some additional sanctions on the private sector▀×namely, the use of public purchasing power and financial assistance. Will he give some assurance about nationalised industries? Notably, will he assure the House that he will not artificially hold down the prices of nationalised industries irrespective of cost increases, not allow their deficits to add to the taxpayers' burden? Will he make it plain that if those prices are increased, in view of the sanctions that lie has put upon the: private sector, those overpowerful unions that might cause excessive wage settlements will be causing unemployment: to their fellow trade unionists in other sectors?

Mr. Healey

I have heard of Satan rebuking sin, but I think that the right hon. Gentleman is merely an imp in that regard. Let us recall that the right hon. Gentleman was a Minister in the Treasury at a time when the Conservative Government wrecked financial discipline and morale in the nationalised industries by forcing them to hold down prices and imposing an extra burden of £1,500 million on the taxpayer, which the Labour Government, at some cost to their popularity, have now removed. He will have noticed that there is no action proposed in my statement on nationalised industry prices. The number of Daniels coming to judgment outnumber the lions in any den that the Conservative Party may wish to inhabit.

Mrs. Wise

Does; my right hon. Friend accept that the proposed increase in child benefits will be widely welcomed? Does he also accept that we are pleased to hear his statement that tax relief should be directed mostly to the low-paid, even if his conversion has been a little belated? In fact, it is more the welcome for that. May we look forward to an extension of that policy so that in my right hon. Friend's next Budget we may reach a situation in which tax is not paid by those with incomes below the poverty line? That will be the next logical step from what my right hon. Friend stated this morning.

Mr. Healey

I am grateful to my hon. Friend for what she has said. As she knows, she shot my fox. I hope that she will not object too much if I have stuck on the tail in a slightly different part of the anatomy. I recognise what she says, and she will recall that I said in my last Budget Statement that I regarded the lifting of the level at which tax is paid above supplementary benefit level as a priority target. She will know that many members of the trade union movement and members of the public regard a reduced rate band of tax as having more priority than further action on thresholds. I shall have to make up my mind on that issue before the next Budget comes along.

Mr. Hordern

Will the right hon. Gentleman confirm that cash limits in the public sector for this year allow an increase in earnings of only 5 per cent.? If his pay policy in the public sector has any credibility, that means that the public sector wage increase next year will be confined to 7 per cent. Will he confirm that that is correct? How can he justify a further period of dividend control when there is now no firm policy on pay control?

Mr. Healey

All Governments of which I am aware have imposed dividend control whenever they have wished to maintain any sort of pay policy. I think that this Government are right to retain such control. Cash limits will be maintained in the current year, but the hon. Gentleman should know that they cover the period from April of this year to April next year. Settlements in the next pay round in the public sector will not begin until August. The majority of them come late in the year. They are not very much influenced by cash limits. There is a good deal of play in respect of cash limits because of the overlap between the cash limit period and the other points that the hon. Member for Worthing (Mr. Higgins) pointed out in a recent article, the moderation and good sense of which many of his right hon. and hon. Friends should copy.

Mrs. Hayman

Is my right hon. Friend aware that the emphasis that he put on support for families in his statement is especially welcome on the Government Benches, although I noticed that the right hon. and learned Member for Surrey, East (Sir G. Howe) did not seem enthusiastic about it? Is he aware that the retention of the increased child benefit supplement for one-parent families is a welcome benefit for the one-and-a-quarter million children who are being brought up by those parents?

Mr. Healey

Yes. I am grateful to my hon. Friend. However, I think that she is a little unfair to the right hon. and learned Member for Surrey East (Sir G. Howe). He has not been greatly given to enthusiasm recently.

Mr. Paul Dean

Will the right hon. Gentleman confirm that he said in his statement that occupational pension schemes were to be exempt from the 12-month rule? Does that mean that the present restrictions on the improvement of occupational pension schemes are now removed? Can the right hon. Gentleman give the House an assurance that firms in the private sector which wish, in order to help the unemployment situation, to introduce voluntary early retirement schemes on the same lines as those proposed for the miners and teachers will be free to do so?

Mr. Healey

On the hon. Gentleman's general question, I can confirm that there will be freedom to improve occupational pension schemes after 31st July without the limitations which apply in the current year. Frankly, I do not know the answer to the hon. Gentleman's question about voluntary retirement schemes. If he will put down a Question, I shall see that it is answered.

Mr. Mikardo

Is my right hon. Friend aware that I warmly welcome almost the whole of his statement, especially the first steps towards reflating the economy, which would have been better taken a few months ago, as doubtless they would have been but for the gross miscalculation by the Treasury of the public sector borrowing requirement? However, does my right hon. Friend realise that the analysis which he made in the early part of his statement weakens the authority of his policy and its acceptability to millions of trade unionists in that it may appear to them to suggest that wages are the only factor affecting inflation—[Interruption.] I hope that those of my hon. Friends who dissent from that will read carefully the first 300 or 400 words of my right hon. Friend's statement. What I am asking is based fairly on those words. Will not my right hon. Friend confirm that many elements in inflation are due directly to policy decisions of the Government about levels of interest, levels of rent, expenditure, the exchange rate of sterling and taxation, including the highly inflationary VAT, to say nothing of the common agricultural policy?

Mr. Healey

I do not know how far I can welcome all that my hon. Friend the Member for Bethnal Green and Bow (Mr. Mikardo) says, although I am grateful to him for welcoming the substance of my statement. But he was unfair to it. I said specifically in my statement that very many factors influenced inflation, and I repeated that later in answering a supplementary question. This, of course, is the case. If wages were the only factor to influence inflation, we would have had a big fall in inflation this year.

With respect to my hon. Friend, the Government are not responsible for the depreciation of the pound sterling or for the rise in interest rates last year. They resulted not from decisions of the Government but from the play of market forces. Hon. Members must accept—those Opposition Members who served in the Treasury and who know anything about financial matters will know—that there are very narrow limits within which any Government can influence the effect of the markets in those two areas.

But my hon. Friend would have done more credit to himself if he had recognised that interest rates have fallen from a MLR of 15 per cent. last October to 8 per cent. today, that the dollar exchange rate has risen by 16 cents above what it stood at last October, and that the only factor which now shakes world confidence in sterling is the occasional rumour that the right hon. Member for Finchley (Mrs. Thatcher) might by some accident be put in charge of our economy.

Mr. Higgins

I am sorry that I cannot return the right hon. Gentleman's complimentary remarks. It is fairly apparent that he did not anticipate all that would be in this Budget Statement. If he believes that money supply and DCE will remain approximately the same, why does he anticipate an increase in aggregate demand which will significantly increase employment? Does he agree that even an increase in earnings of 10 per cent. against the framework that he has set will lead overall to an increase in unemployment?

Mr. Healey

I do not agree with the hon. Gentleman's first question though I do not blame him for seeking to protect himself against my compliments. I assure him and the House that DCE and sterling M3 are well on target—we published figures during the current week—and that they will remain so through the financial year.

Mr. Cronin

I congratulate my right hon. Friend on his admirable and realistic proposals. But can he give an undertaking that, if wage rates increase to a prejudicial degree, he will not lose control of the money supply? In that context, is it not an act of remarkable effrontery on the part of the right hon. and learned Member for Surrey, East (Sir G. Howe) to be lecturing the Government on the money supply when he was a member of the Cabinet which brought about the most insane expansion of the money supply ever to have occurred in this country?

Mr. Healey

I can give my hon. Friend the assurance for which he asked in his first question. As for his second question, I must confess that I rather agree with him. The Opposition Front Bench remind me of nothing more than a home for rather aged fallen women who are now commending all those virtues which they never practised when they were themselves on the streets.

Mr. Lawson

The right hon. Gentleman spoke a great deal about the effect of his proposals on living standards. Is he aware that living standards will be determined not by anything that he has said today but by how much workers and managers can produce and sell in the markets of the world? As for pay, to get the stage 3 pay agreement which he sought originally mean that inflation over the coming year will be any higher than it would have been otherwise?

Mr. Healey

I can give the hon. Gentleman the confirmation for which he asked in his first question. It is good Socialist doctrine which we have always preached to people who regard purely financial and monetary factors as determining all aspects of the economy. I am glad to see that the hon. Member for Blaby (Mr. Lawson) is moving, though slowly, in our direction. This view is taken unanimously by those in industry and banking and the TUC who support the Government in their industrial strategy. They expressed this view very strongly in the recent meeting chaired by my right hon. Friend the Prime Minister.

Several Hon. Members rose

Mr. Speaker

I have allowed 35 minutes of questions. I propose to take only two more questions from each side of the House. The matter can be pursued on another occasion.

Mr. Anderson

Has my right hon. Friend noticed the universal welcome on this side of the House for his additional measures of family support? On the wages front, what reassurance can he give trade unionists, especially those in the public sector, who may be prepared to moderate their wage claims, that they will not lose out?

Mr. Healey

I welcome what my hon. Friend said about family support. Dealing with his second question, it is essential that employers in the private sector follow the lead which the Government propose to set in the public sector. We have the right to use the weapons which have been used over the past two years in the withholding of Government assistance and support to companies which breach the guidance that I have mentioned, and the Price Code will also play a role.

Mr. Tapsell

Is it not clear that the right hon. Gentleman's reversion to the policy of controlling prices and dividends without any adequate restraint on wages marks a return precisely to the policies that he pursued in the first 16 months of his Chancellorship, which have proved so disastrous for the nation ever since?

Mr. Healey

No. Sir.

Mr. John Ellis

Does my right hon. Friend accept that the reception he has been given owes at least something to the complete failure of the Opposition this morning? Nevertheless, there are real problems, and there will be those who will seek to pass on unjustifiable price increases. Will my right hon. Friend give all his support to his right hon. and hon. Friends in the Department of Prices and Consumer Protection to ensure that they take immediate action, if necessary, to bring down prices, not merely to contain them?

Mr. Healey

I agree with my hon. Friend. I am afraid that even an artificial fern looks rather better if it is in a bed of rather dirty pebbles. On my hon. Friend's second point, I shall put that to my right hon. Friend, who I noticed was listening with great attention when I made my statement.

Mr. Younger

If this is another phase of pay policy, will the Chancellor say what help he proposes to give to a company in the private sector faced with a ruinous choice between strikes which will throw it out of business or breaking the Government's pay norm?

Mr. Healey

I am afraid that the Government can give no help to such a company. I believe that the employers' organisation plans to consider what help it can give, but Opposition Members must not sneer at incomes policy and then point out the difficulties of running a system that depends on moderation in trade unions.