COUNTER-INFLATION POLICY

HC Deb 20 July 1977 vol 935 cc1606-740

Motion made, and Question proposed, That this House do now adjourn—[Mr. Ashton.]

Mr. Timothy Raison (Aylesbury)

On a point of order, Mr. Speaker. I wish to raise a matter of some importance. We all recognise that you have unfettered discretion as to whom you call in any debate. However, a position will arise this afternoon that may be very unfair to certain groups of hon. Members.

We know that you choose alternately from either side of the House in any debate. We expect to hear on the Opposition side from the Liberal Party, presumably the Scottish National Party, Plaid Cymru, the United Ulster Unionist Council and from Privy Councillors. Therefore, the chances of a Conservative non-Privy Councillor Back Bencher being called would appear to be virtually nil. However much that might delight Labour Members, who are fearful of the outcome, I put it to you, Mr. Speaker, that it makes for a bad debate. Therefore, I ask you, at least on this occasion, to regard the Liberal Party and the United Ulster Unionist Council, which are said to be voting for the Government, as Government supporters,

Mr. Speaker

The hon. Member for Aylesbury (Mr. Raison) has given me the opportunity to tell the House that a large number of right hon. and hon. Members wish to speak in the debate.

I follow the long established tradition, which the House has declined to change when it has considered the matter, that Privy Councillors are accorded a certain special place in the affections of the House. I follow the example of my immediate predecessor by not calling two Privy Councillors from the same party one after the other. Within those confines, I hope that everyone—Privy Councillors and non-Privy Councillors—will bear in mind that others also want to speak.

3.46 p.m.

The Prime Minister (Mr. James Callaghan)

I propose to confine my remarks this afternoon mainly to the new situation that arises from the fact that no national pay increase will apply throughout the country during 1978. For the past two years the Government have had the great advantage of being able to operate against the relative certainty of an agreed national increase. That is no longer the case. Therefore, it is the Government's responsibility to offer advice and guidance to employers and trade unions who will be concerned with pay negotiations.

I begin by emphasising the Government's view that runaway pay settlements will lead to a fresh round of soaring prices. I doubt whether there is much disagreement with that general proposition. Memories are still fresh of those absurd 30 per cent. pay settlements of two to three years ago that utterly failed to bring any permanent improvement in the standard of living of those who secured them.

I am far from saying that wages are the only element in determining the level of inflation. Indeed, I should deny such a proposition emphatically if it were put forward. But surely no one will deny that the level of wages is one of a number of factors that influence the level of inflation.

I think that is particularly important at this moment, because it so happens that some of the other factors that will influence the level of inflation are moving. in favour of this country. I shall instance one or two of them. I have referred before to the cost of buying commodities and raw materials from overseas. I have referred to the fact that the value of the pound sterling has been stable for many months, to the improvement in our balance of accounts with other countries or now, more recently, to the prospects of better cereal crops throughout the world. All these factors are more favourable, and together they will help to keep the level of prices under more control.

It would be a tragedy if, against such an unusually improving background of a number of factors moving in this country's favour, a number of wage settlements were now to take off and offset those improvements. Therefore, the Government wish to influence pay settlements in such a way that everyone in the country will get the maximum advantage from this developing situation. It is our considered judgment, as my right hon. Friend the Chancellor of the Exchequer made clear last Friday, that our people will get the best overall improvement if the in crease in the national level of earnings does not exceed 10 per cent. in 1978.

In our view, everyone in this country, trade unionists and others, will find that this will be the best buy. I go further and say that higher settlements, even if they look superficially attractive at first, will in due course make our people worse off as a whole through either higher prices—even higher prices—and/or more unemployment.

Before I continue let me pay tribute to the far-sightedness and self discipline of the trade unions and their members during the past two years. They have carried through a policy that has been both voluntary and effective even though they knew this would be at a time of falling living standards. I should like to thank them, too, for their understanding even when their hopes were disappointed, as were ours.

There will be very thorny problems to be solved during an orderly return to free collective bargaining. There will be the correction of anomalies that have accumulated during this period. Negotiations will take place about the appropriate differentials in pay between various groups, some of which have been compressed.

There are those who are now right at the top of the salary scale who feel that by comparison with the responsibility of their jobs or by comparison with the earnings of their compatriots overseas or the earnings of comparable groups in this country they have a comparative grievance. All these will be thorny enough and I suppose that there is no one who really believes in his heart that a return to free collective bargaining is going to usher in a Utopia in the future any more than it has in the past. Nevertheless, the desire to return to that freedom has been strongly expressed and cannot be gainsaid. So be it. We start from there.

The Government themselves will have substantial influence or, in some cases, even direct control over the level of wage settlements in their own areas, and we shall negotiate on the basis of the guidance that the Chancellor has offered to others. We shall be faced immediately with a difficulty, namely, that those whose pay is determined by or influenced by the Government will claim that it would be unfair for them to be worse off because they are in an area where the Government directly control the purse strings whereas the private sector is not so controlled.

This notion of equity, the grievance by comparison with others, goes very deep in the formation of wage claims whenever they are formally prepared. Time after time successive Governments have been brought up against this dilemma. Hence it is particularly important, if we arc to prevent that sense of grievance from gaining ground, that employers and trade unions in the private sector should observe the general guidance.

Having mentioned some of the very thorny problems that will arise and face trade union negotiators and employers, I outline some of the other dangers that we shall face and some of the advantages with which we begin this new period. First, the dangers. There is a dangerous illusion, already expressed by some over the weekend, that they should frame their wage claims in the 1978 wage round on the basis of catching up the shortfall of the past two years. That cannot be.

The oil crisis of 1973 and the unprecedented price increases that followed brought about a fundamental change in the circumstances of this country as of others, and during the past two years the country has made the adjustment that was necessary to reflect that change. In reality we cannot job back on what has been forgone. The figures will not add up. Instead we must look forward to improving our standard of living by our own efforts.

The TUC has expressed that in the same way in its own document. I refer to the document that was issued yesterday and states: The emphasis should be on looking forward to what can be genuinely gained in terms of real living standards, not on looking backward to a situation where it was the vain attempt to counter the effects of inflation by escalating wage claims that exacerbated the very ill this was hoped to cure. I endorse and the Government endorse the TUC's view on this matter.

If such an attempt is successful, if people do formulate their wage claims in group formulation on that basis and if they get such settlements—those with the industrial strength would no doubt secure such settlements—they will look as though they are making up the ground of the past two years. But such settlements would be secured only at the expense of others and would set off the upward price spiral once more. If those with the strength get more, if the figures are to add up, others will have to take less, irrespective of the justice of their claims or the social value of their work. If the figures do not add up, the result will be either more inflation or more unemployment, or both. That is the first danger.

The second danger that we face is that some group will act as a pacemaker, or attempt to do so, and force a big settlement, and that others will use their own industrial muscle to jump on the band wagon and secure the same kind of increase. There will also be the risk that, if groups achieve unrealistically high new settlements in the early months after July, the groups whose settlements still have some months to run will feel that they must re-open their agreements. The TUC in its document has also recognised this risk and has advised its member unions not to re-open existing settlements. It has called upon those who are about to negotiate to avoid a possible chain reaction, and I am glad to acknowledge the value and importance of its advice in these matters.

The third danger is that some employers, foreseeing industrial trouble and being anxious to buy it off for what may be thought to be a good reason, will actually be willing to dip into funds that should be used for investment or other legitimate purposes in order to meet pay demands. This would be weak-minded in the extreme, for it would not only weaken the company's future but would be against the best interests of the workers themselves as it would endanger their long-term employment prospects.

Another possible danger is that multinational companies whose interests may lie in several countries outside this one may believe that they can opt out of the considerations that the Government are setting out. I trust that this will not be so and I can undertake that the Government will watch these developments very carefully.

The Government will have some special problems in their own field. We are now considering these and what we shall need to do to reach final conclusions. There are, as I said earlier, the problems that will arise in the public sector, where the Government will rightly be excepted to give a lead in adhering to the 10 per cent. national earnings guidance. However, the public sector is divided into a number of parts. There is the part paid directly by the Government, the part where payment is by way of grant to local authorities, and the nationalised industries, where the Government's influence is less, although it must still make itself felt.

In all these areas the Government will be guided by the advice that they are giving to others. I propose to write to the chairmen of the three pay review bodies, whose work has been of great assistance to the Government over the past few years and whose role in the past two years has been especially difficult. I shall be able to say to them in offering this new guidance that the new pay policy will provide some flexibility, which is needed for them to make a start on overcoming some of the special problems that have arisen in pay structures generally.

Some of the early comments that I have heard are a little too pessimistic about the degree of flexibility that can be introduced in the new arrangements that they will be able to make. The Chancellor's statement last Friday drew attention to the limitations that it will be necessary to observe, but there are opportunities here.

The national interest is at stake and I shall in due course discuss these matters with the chairmen of the three review bodies, hoping that we may continue to rely on their most valuable help and co-operation. The Chancellor of the Exchequer will be similarly in touch with the chairmen of nationalised industries, and Ministers, such as my right hon. Friend the Secretary of State for the Environment, will also in due course approach the local authority negotiating bodies.

Whatever is agreed in the public sector must also have regard to the restraints imposed by our control of public expenditure, which we intend to maintain. Part of that control is the system of cash limits. The cash limits cover pay as well as other items of expenditure, and they will continue to do so.

Most public service settlements affecting the 1977-78 cash limits have already been made under stage 2. For the limited number of employees settling later in the financial year between now and next April the cash limits assume settlements giving a 5 per cent. to 6 per cent. rise in the pay bill over the full year. Taking account of the general prospects for inflation during the remaining months of this year, the Government see no reason for any general revision of these limits. The cash limits for 1978–79 will reflect the Government's general policy on pay.

Excessive settlements in any part of the public sector would have repercussions in the rest of the economy. They might also result in a reduction in the level of service. In other cases they would result in increased prices—a direct blow against the fight to reduce inflation.

There may be areas where genuinely self-financed productivity deals can be worked out provided that they are genuine and do not add to the inflationary price levels, though even in these cases there will often be a good argument for sharing the productivity gains with the community at large. My right hon. Friend the Chancellor of the Exchequer will have more to say about this matter later today if he catches your eye, Mr. Speaker.

Mr. Eldon Griffiths (Bury St. Edmunds)

In so far as there is now a target by the Government with the overall 10 per cent. figure, will the Prime Minister confirm that the Trades Union Congress agrees that this further 10 per cent. increase is not to be based on a consolidation of the phase 1 and phase 2 payments into the basic wage?

The Prime Minister

The TUC has not endorsed the Government's figures. It has specifically refrained from endorsing the Government's figures and has said that it is unable to offer guidance on these matters. These will have to be settled by individual negotiation.

Mr. Eldon Griffiths

Can the Prime Minister say. then, whether it is the Government's view that the 10 per cent. figure is to be achieved by a consolidation of the phase 1 and phase 2 payments into the basic?

The Prime Minister

The new 10 per cent. national earnings level must include whatever is provided by way of consolidation. There can be no avoidance of that.

Last week the right hon. Lady asked me for the publication of a White Paper. Cmnd. 6882 has been published this morning. It has a twofold purpose which I did not fully appreciate last week. First. it is required to support the 12-month rule. The TUC has now endorsed and agreed the 12-month rule, and the White Paper is required for this purpose.

In his statement to the House on Friday my right hon. Friend the Chancellor of the Exchequer made clear that we intended to operate the provisions in the Remuneration. Charges and Grants Act 1975, both to release companies from any contractual obligation that would breach the 12-month rule and to continue the existing use of margin controls to support and enforce the existing TUC guidance on the 12-month rule. The White Paper and the order that will be introduced next week, which will be subject to the affirmative resolution procedure in both Houses, will enable us to do this.

Secondly, the publication of the White Paper, which is in fact the statement my right hon. Friend made, and the subsequent Votes will discharge the undertaking given by the Government in the consultative document on the new Price Code when we said that continuation of margin controls for one year was conditional upon approval by Parliament of a White Paper on pay policy after 31st July.

I have outlined as clearly as I can some of the difficulties that will lie ahead. Let me now outline some of the advantages that we have in facing them.

Mr. John Mendelson (Penistone)

Before the Prime Minister leaves that point——

The Prime Minister

Do not stop me from getting on to the advantages.

Mr. Mendelson

Having stated his own view on the general continuation of a policy of wage restraint, would the Prime Minister care to comment on the point of view put forward in the past fortnight by a group of reputable economists and a number of people in industry to the effect that what the British economy needs is an infusion of considerably higher wages so that the money can be quickly distributed to get rid of some of our unemployment?

The Prime Minister

That is a point of view. It is not the Government's view in the present circumstances. I hope that that time will arrive, and I have no doubt that it can arrive. An infusion of higher wages at present without an increase in productivity would result in runaway prices. We are not going back to that if we can help it. [HON. MEMBERS: "Oh."] We are in a period of free collective bargaining. This is a test of the wisdom of democracy, in my view, as to what happens over the next 12 months.

First, we shall continue this new period of wage bargaining at a time when the rate of price increases is slowing down. I believe this is now generally accepted, and it will certainly become clear as the months wear on.

The rate of increase in prices during the month of June was 1 per cent. It was still too high by historical standards but lower than we have been living through for some time past. Our forecast is that this improvement will continue during the months ahead.

Then, as I said a moment ago, we have the advantage that the cost of goods, commodities and materials we buy from abroad is generally much more stable. As the House knows, so many of these commodities and materials are used in the production of goods by our own industry that that, too, will help to make our own prices more stable.

So in the price field there is more reason for greater confidence than there has been for some time, although I say once again that it remains the Government's view that the rate of inflation is still far too high and must be brought down. However, I invite negotiators in this new era to recall that wage claims will be tabled against a background of a diminishing rate of inflation, not an increasing rate of inflation as on the last occasion. Therefore, the pressure on the negotiators should not be and need not be as great on this occasion as it was the last time round.

The second advantage we have—the value of this cannot be overestimated—is the TUC's policy, declared on 22nd June and repeated again yesterday, that settlements must last for a period of 12 months and that settlements due before 31st July should not be deferred to secure an advantage over other groups. This guidance is invaluable if we are to get the re-entry into the free collective bargaining system properly dealt with. I pay tribute to the TUC for its adherence to this against the opposition of a number of its own members. It will be of inestimable help to us in a return to the collective bargaining system.

The third advantage we have is that if, as I expect, the unions concerned will continue to accept this policy—there is a tradition in the TUC that even if one union is opposed to it, nevertheless, if a majority reaches a conclusion, others accept it—cts of the present round of incomes policy will not suddenly cease in 10 days' time on 31st July. Therefore, claims will be spread over a period of many months during which the benefit of such things as the lower interest rates we have already achieved and of a declining rate of inflation will become more and more apparent.

The fourth advantage we have is, I believe, one of national psychology. There is an overwhelming recognition by nearly everybody, including trade unionists and especially their wives, that 20 per cent. wage increases are of no lasting benefit if they are to be followed by 20 per cent. price increases. Everywhere I go I find widespread acceptance of the view that we must not go back to the madness of two or three years ago.

Mr. Peter Rost (Derbyshire, South-East)

The right hon. Gentleman conned the electorate on it.

The Prime Minister

No, I think not.

It is my view, and only time will bear me out—I know a great many of the trade union leaders—that the majority of trade union executives and their rank and file members will not approach this new period of wage bargaining in a reckless or an aggressive frame of mind. There will be the mavericks. The usual people will make their expected speeches. Of course, it would be out of character if they did not, but we have a great advantage this time round that many other trade unions intend to approach the new freedom that they desire in a way that will benefit their members without harming the national economy. The TUC's document said explicitly yesterday A pay explosion must be avoided. Against that background, as I said a moment ago, the real issue for this country during the next 12 months is whether our democratic structures will enable long-term common sense to triumph over short-term expediency. The Government's advice is clear on the best way forward.

The Government's social policy, as was made clear in the Budget and in the statement by my right hon. Friend the Chancellor last Friday, is to seek to protect the weakest and most needy in society. In November the old-age pension will increase—

Mr. Eric S. Heller (Liverpool, Walton)

I do not particularly want to disagree with the Prime Minister, but may I make the point to him that for the past two years prices have risen much higher than the wages of the workers? It has been precisely because this has happened, plus the fact that unemployment has risen, that has caused the trade unions at grass root level to revolt against phase 1 and phase 2 continuing to phase 3 Would not my right hon. Friend agree with me that if we are not careful we could lead ourselves into a position of confrontation and battle with trade unionists which must be avoided at all costs?

The Prime Minister

I am coming to the question of confrontation in a moment or two. But I would reply to my hon. Friend and say especially to Conservative right hon. and hon. Members that I believe that in the new non-deferential society in which we are all living, whether hon. Members like it or not, this country will be governed only by consensus. Therefore, any Government stupid enough to rush into a confrontation are doomed to failure. What we have on our hands—I know that my hon. Friend does not wholly agree with me about this—is a gigantic essay in persuasion as to what is the best way forward for this country. That is a task in which I shall do my best, and I hope that all my hon. Friends will do the same.

I was referring to the Government's social policy, which is one way in which we are carrying organised labour with us on this matter. In November the old-age pension will increase and will, with the dwindling rate of inflation, enable the standard of life of the pensioner to be maintained. Those who are immobile or who suffer other disabilities will also be protected.

The Chancellor's statement last Friday showed the new emphasis that we are giving during the next 12 months to the family, and especially the wife and mother, with the substantial improvement in child benefits. Then there are the new arrangements for school meals, so that a family man earning up to£75.50 a week with four children at school will find that the school dinner charge for his children is now wiped out. The diuner will in future cost the family nothing. indeed, they will save£3 a week in term time. For a family on an income of£62 a week, with two children, the saving will be £1.50 a week in term time on school dinners. They will be£1.50 a week better off on that alone.

Mr. Dennis Skinner (Bolsover)

If they apply.

The Prime Minister

Of course, if they apply, but why the hell should they not apply?

Mr. Skinner

The reason I said "If they apply" is precisely that for the whole of the seven years I have been in this place—[HON. MEMBERS: "Too long."]—both on the Opposition and the Government Benches I have constantly been reminded by Labour speakers from both the Front Bench and the Back Benches that one of the problems about the cost of school meals being refunded on the basis of an application is that so many do not apply. I am merely being consistent with many of my right hon. and hon. Friends.

The Prime Minister

My hon. Friend may be right, but it is our job to encourage people to apply. If a family with two children can save£1.50 a week and a family with four children can save £3 a week on their school meals, we should be able to devise arrangements, if we are sensible enough, to enable them to save that money, especially if the alternative is a higher rate of inflation because they want more pay.

I want to repeat—especially to my hon. Friends, although I repeat it to the House generally—that the Government respond to the TUC's statement of yesterday and will continue to work with the TUC through the social contract. I know that the social contract is sometimes the subject of sneering, but it is not and never was just another phrase for "pay restraint". It is designed to provide, and has provided, a basis for long-term cooperation between Government and trade unions, resulting from the joint discussion of governmental policies and of proposals for their construction and implementation.

The social contract was intended to create, and has created, a strong feeling of mutual confidence between Government and the trade unions. That spirit will continue to animate the Government in their dealings with the representatives of organised labour. We shall seek out the trade unions and continue to discuss all matters with them, such as improving the level of employment, the prospects for increasing the growth rate at the earliest moment that circumstances make it safe to do so, the future level of prices and other issues.

The Government will operate in this new era of free collective bargaining in a realistic way, for the stakes are high and the prize is great.

Mr. Kenneth Baker (St. Marylebone)

Earlier in his speech the right hon. Gentleman said that it was essential for the public sector employees to settle within 10 per cent. and that where the Government were the direct employers, as with the Civil Service, it was possible for them to insist upon that. One assumes that the settlement for the Civil Service next spring will be 10 per cent. or less. But what mechanism will the Prime Minister use to ensure that some 2 million employees in the public sector in the nationalised industries, particularly in the energy industries, settle for 10 per cent. or less?

The Prime Minister

With respect, I shall not this afternoon discuss the manner in which negotiations should be conducted. I believe—and I say this with respect because I want to achieve the right result—that these matters are far better left to the negotiators for the time being. I hope that the House will not take it amiss if I say that sometimes we go into too much detail in trying to bargain across the Dispatch Box on some of these matters when we should be leaving them to the proper negotiating machinery. [Interruption] I do not claim to know much, but I claim to know a little about wage negotiations. I have lived my live in them.

The Government will consider very carefully their attitude on these claims and these matters. I do not want to discuss individual claims or individual settlements, but I am not without hope about the way in which some of these matters will be dealt with, precisely because we have the advantage of knowing that the trade unions are not seeking a confrontation on some of these issues. In the case of the public service, the Government will consider their own position, and we shall negotiate against the background that I have outlined.

I said just now that I thought the prize was great. I think that this is a watershed in some ways, with so many elements moving in the country's favour. I am not making much of a party point of this, but there are a number of external influences moving in our favour. It is a watershed, and it would be a tragedy if we were to miss this opportunity, at a time when some factors are moving in our favour, if incomes were just to shoot up. Therefore, while we shall make a great effort, I shall not this afternoon go into any detail about the beneficial effects in the 1980s of the North Sea oil wealth on our country's prospects, although it can be employed very usefully and the impact will be considerable.

There is a way ahead and, if we use it, a better prospect for our country. I do not minimise the difficulties, any more than the Labour Party did in the manifesto of October 1974, when we said that the country faced the gravest crisis that it had faced for many years and added that we did not offer people an improved standard of life. The difference between now and 1974 is that the country is in much better shape to face the future than we have been at any time in this decade. There is no doubt about that.

More and more, I believe, if we can get through this period—and I hope and should like to believe that all hon. Members want to see this—instead of being circumscribed, as both parties and all Governments for many years have been, we shall have the growing freedom to try to create the kind of society that we want to see.

Mr. Nicholas Fairbairn (Kinross and West Perthshire) rose—

The Prime Minister

I am just finishing.

There is a difference between the Conservatives and us because—here I return to my hon. Friend the Member for Liverpool, Walton (Mr. Heffer)—we wish to see a society that will be governed by consensus and not by confrontation. That is the basic difference.

Mr. Fairbairn rose——

The Prime Minister

I have given way half a dozen times, but I give way again.

Mr. Fairbairn

I think that this is the question that the nation wants the answer to, and perhaps the Prime Minister will give it. Of course we all want consensus and of course nobody wants confrontation. But supposing one party refuses to consent and to co-operate: does one surrender or does one confront?

The Prime Minister

You do neither. You win people over. Until the Conservative Party learns this lesson hat we are not living in a deferential society—it will not be fit to govern the country again.

Ours will be a society where those who have may have to forgo in order that those who have not may live setter. I believe that our society will be able to provide a basis for Britain's industrial future and enable us once again to resume the task of building up our collective services through public expenditure—yes, more public expenditure—on such matters as health, education and housing, and in the other areas where there are needs crying out to be met.

I read in the newspapers that the right hon. Lady the Leader of the Opposition is to deliver a bitter attack. There will be nothing new about that. I am sure that the spontaneous headlines have already been carefully prepared, that the statistics have been meticulously selected in order to bolster her argument. I am sure that her commitments will be vague enough to attract the unwary without repelling any section or interest group. I am sure that she will conceal once again with a cloud of words, just as she did at Blenheim Palace, how she will lower taxes, fulfil social needs and increase expenditure on defence.

All this we expect—it is old. What would be new, and I should be interested to hear it, would be if she would explain why these old policies, if that is the word for them, that were put forward at Blenheim Palace and that failed to produce results in the past should succeed on this occasion.

Why should these policies work this time when last time they turned a substantial balance of payments surplus into a deficit, well in advance of increased oil prices, led to a loss of control of money supply, which resulted in massive industrial unrest, and began with a promise of price reduction at a stroke and ended with the country's candles flickering over a three-day week? Why should they succeed any better this time than they did last time? I should like to know the answer to that and so, too, would the country.

The right hon. Lady has gone wrong in the past—although she may be beginning to move back—because the nation knows better than to believe any more in instantaneous answers or magic solutions. All of us must bend our efforts to ensure that our people understand the real deep-seated nature of the problems that they confront and the opportunities and prospects that exist, together with the nature of the society that we wish to see. Then the people will not fail us, and we shall not fail them.

4.23 p.m.

Mrs. Margaret Thatcher (Finchley)

I do not know quite what the Prime Minister was expecting of me, but we were expecting more explanations of his policies from him. Like the Chancellor of the Exchequer when he was questioned on Friday, the Prime Minister skated over a great deal. We all expected a good deal more detail on matters to which he seems not to know the answer.

I start by agreeing with the Prime Minister on one or two things. We all agree that we can no longer spend our way out of an economic crisis. Indeed, let me quote some words that will be familiar to the right hon. Gentleman: We used to think that you could just spend your way out of a recession and increase employment by cutting taxes and boosting Government spending. I tell you in all candour, that that option no longer exists and 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. Higher inflation followed by higher unemployment. That was so sound that it might almost have been written by my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) and Peter Jay as a joint effort. I wholeheartedly agree with those words.

Secondly, we must attack inflation and make that the top priority. Even the present targets are inflationary with money supply at 9 per cent. to 13 per cent., because they are way above the productive potential of this country. It will be a very long struggle to get the inflation rate down, and we must not be satisfied even when it comes down into single figures because that was wholly unacceptable a number of years ago and led to a loss of money at a rate that many people thought totally wrong and that could not be the basis of a stable society in future.

These are matters on which I agree with the Prime Minister, but he was less than frank about the sort of campaign that the Labour Party fought in the last General Election. He seemed to say at one point that the trade unions had been constrained in their demands although they knew that their standard of living would be likely to fall. That was not his view at the last election. On 26th September 1974, the Chancellor of the Exchequer said: I don't believe myself it's necessary for the people as a whole to have their living standards lowered in order to conquer inflation.", That is not exactly what the Prime Minister has just been saying. I agree that we do not live in a deferential society and I have no wish for any of us to live in such a society, but I remind the Prime Minister that the consumer is not deferential to those who have industrial muscle and use it. That is also a point to remember about deference. I agree that we do not want a deferential society, but equally we do not want the sort of society where might is right or where wages and salaries go to each according to his strength and from each according to his weakness.

I disagree with what the Prime Minister said about our being in better shape now. Let us analyse his economic policies—because it is they that we are considering, as he regards this as a motion of confidence—in the light of what has happened, his policies on their record and his forecasts on what happened to them. Let us also judge his immense change in strategy by similar changes that have occurred in the past.

Let us judge him on his record. It has been a record of failure. I start with a subject that I have often mentioned before because it is the key. Production has not risen in the last three years and we shall not become more prosperous merely by shuffling around what we have between one group and another. Production has risen in other countries to a far greater extent and they are in a much better position to face the future. Our production has not risen at all.

The Prime Minister's record on inflation is one of the worst of any Government. Prices have risen by 80 per cent., and the pound is now worth only 55 pence. The decline in the standard of living is affecting everyone. According to Treasury figures, at 1977 prices, the average industrial worker, with the average-sized family, has lost£5.32 a week in real terms.

On unemployment, the Prime Minister's record is also a failure. There has been an increase of 800,000—representing an additional 675 unemployed people for every day that the Government have been in office. During our time, the average family paid£389 a year in taxation and now they pay£922. That is a total record of failure, the like of which has not been seen under any previous Government, even other Socialist Governments. The Prime Minister says that we are in better shape than we were, but the facts support my conclusion and not his.

Let us look at his forecasts and consider what value we can put on them. Let us consider the prospects of single-figure inflation, even leaving aside the 8.4 per cent. promise on which he fought the last General Election.

On 24th September 1974, the Chancellor of the Exchequer said: If the Social Contract is maintained we can get inflation down close to 10 per cent. by the end of next year and into single figures the year after. What happened the next year? In 1975, the Chancellor said: There is now every prospect of inflation getting down to a single figure, year on year, by the end of 1976. What happened in 1976? The Prime Minister said: If you can grin and bear it for 12 months more, then by the end of 1977 the inflation rate will be where that of our major competitors is now". On 15th July 1977, the Chancellor said: inflation should fall below 10 per cent. well before this time next year". We know how to judge his previous forecasts. They are known only by their distance from the truth.

Let us see how we should judge this main strategy change—because the announcement on Friday was a main change of policy and we should treat it as such. The Chancellor of the Exchequer has a most remarkable record on Budgets. There has been a remarkable series of changes in strategy all through the time he has been Chancellor. In his first Budget in March 1974 he blazed the trail for a brand-new strategy. Many of us agreed with it. He said that his main objective was to get down the deficit to reduce the public sector borrowing requirement. He regarded it as absolutely intolerable. It was£4.2 billion and he was going to bring it down to about£2.7 billion. That was his strategy.

Budget No. 2 on 22nd July is, one I well remember. The main objective was not to get own the deficit but to attack inflation at source by cutting the increase in the cost of living. He also cut VAT. His first objective, therefore, had gone, but that was all right. A different objective had been set of reducing the cost of living, and there was a General Election in the offing.

Came his third Budget—we had had the election—and things were very different. Somehow the PSBR was expected to have gone up to£5.5 billion. Reducing that was no longer his main strategy. Somehow what he had done in July, by reducing the rate of VAT to 8 per cent., was not producing enough income. He, therefore, put some VAT up to 25 per cent., a rate which he later had to abandon.

However, his strategy had again gone completely for a Burton. Budget No. 4 in April 1975 saw a complete reversal of strategy. He provided then for a PSBR of£9 billion, although only the year before he had found a PSBR of£4.2 billion totally and utterly intolerable. By October the right hon. Gentleman was forecasting a slowing in the rate at which the PSBR was growing, but the truth was that it was accelerating.

In April 1976 we had another Budget. The Chancellor said that he expected total output to grow quite briskly. The target was to get unemployment down to 3 per cent. by 1979—promise. It involved a growth rate in the intervening years of 500BD; per cent., a rate which we had no chance of achieving, and a rate which required an economic miracle which somehow never happened. Of course, by that time the Chancellor was in great trouble with his PSBR. There was a collapse of confidence because of a complete misjudgment of strategy and by that time the pound was falling. Threw months later, in July 1976, the right hon. Gentleman was at last announcing a—1,000 million cut in public expenditure and a further employment tax.

Finally, with Budget No. 8, after every strategy had collapsed, involving the PSBR, the cost of living, the value of the pound and unemployment, the right hon. Gentleman put us in the hands of the IMF. That is one of the few things for which we can be thankful.

The right hon. Gentleman came to office almost with the mantle of Roy Jenkins, wanting a balanced Budget. But he discovered that that would mean painful public expenditure cuts, so he went for public expenditure expansion hoping that he could hold it with wage and price controls. Public expenditure expansion led to collapse in the confidence of the pound. That injected the next round of inflation into the economy.

The Chancellor then turned to debasing the overseas value of the pound. Finally, the IMF stepped in and set monetary and domestic credit expansion target';, insisting on some of the public expenditure cuts which should have been made many times before. His record shows that the Chancellor is completely incapable of sticking to any strategy for more than about three months at a time. That is how we should judge the present strategy.

I turn now to the Chancellor's statement on Friday. It was a statement on the demise of the social contract. There were two fundamental defects in the social contract, and in a way the Prime Minister has confirmed one of them. The manifesto on which the Prime Minister fought the last election confirmed that the social contract was never a contract between Government and people. It was not confined to wage claims. The Prime Minister preferred to have his contract on all the things which should have concerned all of the people, with only one section of the people. The manifesto said that the contract is not concerned solely or even primarily with wages. It covers the whole range of national policies. It went on: It is the agreed basis upon which the Labour Party and the trade unions define their common purpose. In return for allowing the trade unions to dictate a number of policies on legislation, public expenditure and tax, the Government had the unions confirming in response how they would seek to exercise the newly-restored right of free collective bargaining. That was where we were in October 1974. Many of us suspect that that is exactly where we are to return now.

The other fundamental defect of the social contract arose on differentials, under phase 1 and phase 2. The Prime Minister will remember my constantly pointing this out to him in debates on phases 1 and 2. We did not oppose him on the matter, but we were highly critical of it because of the differential factor. Each time we said that he was building in problems and just pushing them forward, and that one day they would have to be solved. He built in a great compressor of differentials that will now cause him far more problems in coming out of this incomes policy than we have ever faced in coming out of any other.

The Prime Minister has learned nothing from the operation of the previous in comes policies. These differentials will now cause very great trouble. One can see from some of the strikes that we have had already that the lack of differential for skill is a detonator for a pay explosion that I hope will not occur. But it is clear that there must be a great deal of room to provide for differentials for skill because people who have skill or management skills have had a raw deal under the social contract. Those are the two fundamental defects of the contract.

I now turn to some of the points in the Chancellor's statement. As the Prime Minister said, we have returned to what was called normal collective bargaining but what is now known as free collective bargaining. There has been nothing in the speeches by the Prime Minister or other members of the Government to prepare the people for the responsibilities involved in a return to free collective bargaining. The contrary is the case.

Everything that the Prime Minister has previously said has tended to give the impression that free collective bargaining would lead to free collective chaos. That is just what he said on 22nd February 1977. He could not have been a firmer opponent of the policies which he is now following. He has done nothing to prepare people for the fact that under free collective bargaining there will, of course, be differences affecting differentials. There will be differences according to the different successes of companies. There will be great differences in the amounts people will get.

The Prime Minister is talking about a 10 per cent. increase, and some people are talking about 15 per cent. What he does not say is that if differentials are restored, many people will get far less than that and many of them may have to suffer a decline in their standards of living. There has been nothing to prepare the people for that in any way.

May I put one point to the Chancellor of the Exchequer, which I hope he will confirm. Productivity deals are to be totally outside any advice on the 12month-rule that he will give—[Interruption.] That is how I understand his statement. If that is not so, it was a little ambiguous. Productivity deals are outside the 12-month rule. It is important at the moment to get good productivity deals. I know that many people talk of the dangers of bogus deals, but when we have had two years without productivity deals or without any increase in pay for increased productivity, we need genuine deals in this respect. That is one factor that has bedevilled our success in industry, whether in the private or the public sector.

Let me turn to the second point I wish to put to the Chancellor of the Exchequer. There are many firms and nationalised industries in which a large number of unions are involved in bargaining. Many of those unions bargain on different days. They will be in very great difficulty with the relationship between productivity deals and the 12-month rule if they want to move to a situation which many of us would regard as highly desirable—to one particular day on which to bargain. It is unrealistic to think that some would wait 18 months to do that. It may be that some would do it if they could move more easily, but it will damage our future interests and productivity deals if the 12-month rule stops a large number of unions from coming to agreement to bargain on the same day, which would be highly beneficial.

Although the Prime Minister has done something to try to prepare people for the fact that if we are to get within the monetary target and that if some people take a lot others will finish up without a job, I believe that we need to emphasise that factor even more. If we have rising unemployment, it is happening because some people have taken out too much.

Several Hon. Members rose——

Mr. Stanley Newens (Harlow)

Will the right hon. Lady make clear her attitude to the vexed question of differentials? Is she speaking in favour of those who are pressing for higher differentials, and will she make clear her position on the doctors' claim? Does she or does she not support it?

Mrs. Thatcher

We shall have to restore some differentials within the limits which have been announced. Unless we do that, we shall not obtain increased productivity or expansion of our industry, and we shall not keep our skilled people or our best managers here. I should have thought that was obvious.

Mr. Newens

But what is the right hon. Lady's view?

Mrs. Thatcher

I want to create a Britain that will keep the best people here. Only the best is pod enough. Of course we must keep within the cash limits, and some will Lave to have more than others, as I have already said. If the hon. Gentleman dot s not accept that view, he will be avoiding realities, as the Labour Government often do.

Several Hon. Members rose——

Mr. Speaker

Order. I do not think the right hon. Lady is giving way a second time.

Mrs. Thatcher

With respect, Mr. Speaker, I gave way to the hon. Member for Tottenham (Mr. Atkinson), but if the two hon. Members would like to fight it out, they may do so and let me know.

Mr. Newens

Will the right hon. Lady please answer the question: what is her attitude to the doctors' claim?

Mrs. Thatcher

Will the hon. Gentleman listen'? We shall have to provide improvements for those differentials for the doctors within the cash limits. [HON. MEMBERS: "Oh."] That means some will get more and some will get less. Now perhaps the hon. Gentleman will follow that up by asking what cash limits are to be fixed, because they are not yet fixed. Ask the Government whether they know the answer.

Hon. Members

No.

Mr. Speaker

Order. The Prime Minister was given a very good hearing. I hope that the right hon. Lady will be allowed to continue.

Mrs. Thatcher

The third point on which I hope the Chancellor will be more forthcoming than was the Prime Minister when attempting to answer my right hon. Friend the Member for Farnham (Mr. Macmillan) concerns his attitude to public sector pay claims. I know full well that when the Prime Minister spoke of free collective chaos he was afraid that free collective bargaining in some areas might mean free collective bullying. How does he propose to stand up to that, if it occurs? There are some parts of the public sector for which there are no cash limits.

What does he intend to do, for example, in the nationalised industries? Will he tell the House—and he refused to give an answer to my right hon. Friend the Member for Farnham—whether he intends to obtain more subsidies from the taxpayer's pocket to subsidise increased pay claims in the nationalised industry sector, or whether he intends that it will come from increased prices so that the consumer will pay, or whether he intends that it should all come from increased productivity? How does he intend to persuade that industry to increase productivity? [HON. MEMBERS: "You tell us."] I thought this was the Government's policy. They do not even know what it is all about, and they will not answer. They say "Let us not go into detail because that would fox us".

Mr. Norman Atkinson (Tottenham)

Since the right hon. Lady embraces the politics of the IMF and Milton Friedman and also the arguments of the right hon. Member for Down, South (Mr. Powell) and those expressed by the right hon. Member for Leeds, North-East (Sir K. Joseph), and adds them together and says that this is the necessary preparation of the people for free collective bargaining——

Mrs. Thatcher

Will the hon. Gentleman speak up?

Mr. Atkinson

I was saying that the right hon. Lady adds all that together and the sum total, as she described it, was to prepare the people for entry into free collective bargaining. That is her proposition. [HON. MEMBERS: "Ask a question."] How does the right hon. Lady marry those propositions with the ideas that are echoed by the other half of her party who now advocate an incomes policy? Does it not worry her that she will go into the next election on a divided basis? In welcoming the extreme monetarist views of her own party, how does she square that with what she has said? If that is the dominant policy of the Opposition, how can she say——

Mr. Speaker

Order. I know that the hon. Gentleman hopes to participate in the debate.

Mrs. Thatcher

The hon. Gentleman is trying very hard. If he read the statement on Friday and if he read the IMF letter of intent, he will know that we had to accept certain constraints. One of those constraints related to domestic credit expansion, which had certain implications for money supply. That means whether he likes it or not—and clearly he does not—that he has money supply targets already fixed from between 9 per cent. to 13 per cent. One can fix them technically in a band; it is more difficult to fix them more finely than that.

If the 13 per cent. increase in the money supply next year—which is way above the productivity potential and allowing for some inflation—is all taken up by wage and salary claims, there will be no room for any growth or investment and we shall continue with what is known as—and the hon. Member for Tottenham must know the term—a vicious circle. Only if some of that 13 per cent. is left free from wage claims shall we achieve genuine growth and falling inflation next year. The only constraints upon the Chancellor—[Interruption.] The hon. Member for Tottenham is getting a far better answer from me than he would receive from the Chancellor, and it is being given with greater patience, courtesy and a more elegant vocabulary than that of the Chancellor. Unless wage and salary claims allow for some leeway, we shall again have increasing inflation and we shall never achieve expansion. Unless we can achieve expansion we shall not achieve the increased prosperity that we on this side of the House are anxious for the country to have—and I am sure that hon. Members opposite are also anxious about that. We want to see prosperity in the private sector, too.

I want to ask another question about the cash limits in the non-productive sector, which have not yet been fixed for 1978–79. On what basis will the Chancellor fix them? The right hon. Gentleman has said "within the targets". Will that mean an overall increase of 7 per cent. in wage amounts? What does the right hon. Gentleman intend to do about the Pay Research Unit?

I should like to make another point about the statement that the Chancellor made on Friday. The right hon. Gentleman could have geared his whole Finance Bill and tax proposals to be complementary to those who have done extremely badly out of the social contract. I refer to those with extra skills, to managers and to those with particular professional skills. There was a time when the Chancellor expressed a great deal of sympathy for them but it never went further than that. Those people have done doubly badly out of the social contract and tax policies. If the Chancellor wanted to help them, and to obtain maximum co-operation, he should have geared his tax allowances or reductions to help that bracket. The right hon. Gentleman does not wish to help them. All that he does is talk, but nothing ever comes out of his expressions of sympathy. I am told that it would not have cost much, but he will not now obtain maximum co-operation or such good will as the Chancellor could have obtained with a different policy.

Judging by the whole strategy of the Chancellor and his policy—and this came out again today in what was said by the Prime Minister—it seems that we have tremendous differences between us over the proportion of the gross domestic product that should go into public expenditure and the proportion that should be left in the pockets of the wage and salary earners. We on this side——

Mr. John Mendelson rose——

Mr. Speaker

Order. The right hon. Lady was not giving way.

Mrs. Thatcher

The last time that I gave way—[Interruption.]—

Mr. Speaker

Order.

Mrs. Thatcher

If the hon. Member for Penistone (Mr. Mendelson) is cross because I refuse to give way he must blame only the hon. Member for Tottenham who made a speech and not an intervention.

There is a great deal of difference between the two sides of the House about the proportion of our gross domestic products that should be used in public expenditure and the proportion that should be left in our pockets. Every time that there is a choice, the Prime Minister and his party wish to pay more in the social wage and to take money out of our pockets in taxes and rates. That is where the money for the social wage comes from. The proportion that is used on public expenditure has gone up and up, while production and the economy have been static. As a consequence, the Chancellor has achieved something that we have never had before—an identity of interest between all of us who are prepared to put more effort and skill into the economy. All such people are saying that they are paying too much to the Government in taxation and that that robs them of all incentive. Unless the Chancellor breaks out of this level of public expenditure—which is ever-increasing—and into an incentive tax policy, he will not achieve the expansion that we need so much.

Mrs. Barbara Castle (Blackburn)

Does the right hon. Lady endorse the Government's appeal for the 12-month rule, and does she think that it should apply to the doctors?

Mrs. Thatcher

In general, I endorse the 12-month rule, but I have put forward a case where it might be damaging and I have asked for the Chancellor's view. Had the right hon. Lady been listening, she would have heard the case that I put to the Chancellor, which was about a multiplicity of unions, in a firm or nationalised industry, bargaining on different days.

Hon. Members

Answer.

Mr. Speaker

Order. Hon. Members should allow the right hon. Lady to continue.

Mrs. Thatcher

I should like to make one or two points about public expenditure. Having been through the mill myself as Secretary of State for Education I know full well the attitude that was adopted by hon. Members opposite when I had to make some education cuts. I hear hon. Members opposite saying that I took away free school milk, but £25,000 million of public expenditure later their Government have not restored it.

Mr. Thomas Swain (Derbyshire, North-East)

I should like to remind the right hon. Lady that she did not take any milk away from her kids but she took some away from mine.

Mrs. Thatcher

I should like to remind the hon. Member for Derbyshire, North-East (Mr. Swain) that on a small income my father gave a high enough priority many years ago to paying for my school milk, because his priorities were right.

I should also like to remind the House about school meals. I put the cost of them up by 3p and the reaction from hon. Members opposite was outrage—although at that time the economy and real income were growing—and they voted against that. When the Labour Party came into office, the right hon. Member for Newham, North-East (Mr. Prentice) also put up the cost of school meals by 3p, knowing that I should take a reasonable view about it—because I am always extremely reasonable. He had no trouble from Conservatives because he was facing reality. However, the curious point is that now, when school meals are to go up by 10p at a time of declining standards of living, there is no outrage from Labour Members. The rise of 3p during a time of a rising standard of living produced outrage, but for a rise of 10p at a time of a falling standard of living hon. Members opposite will follow into the Lobby like sheep.

Does the Chancellor not realise that it is no more difficult to make cuts in public expenditure now than it would have been then? What he is doing now he could have done earlier. It would have been difficult, of course, but no more difficult than it is now. In fact, if he had earlier made some of the public expenditure cuts that the JMF has made him make now, we should not have had the increase in public expenditure, the fall in the value of the pound or the rise in import prices which injected the next round of inflation into the economy. A lot of the present inflation is due to the fact that the Chancellor funked and chickened out of making those public expendicuts.

Now the Chancellor is also having to make other cuts and to reverse some of his policies on food subsidies. As a result of the social contract, the Government went in for massive increases in public expenditure and a massive increase in food subsidies, which the Chancellor is now having to cut. It would have been better if he had never made some of the increases in food subsidies and some of the increases in public expenditure.

According to the Press release issued by the right hon. Gentleman, food subsidies in 1974–75 were £518 million. They had been got down this year, 1977–78. [Interruption.] I am showing that the right hon. Gentleman can never stick to any policy for two minutes. In 1974–75 he got subsidies up to £518 million, and in 1977–78 they were to come down to £43..4 million, but he could not stick to it so he had to shove them up to £220 million, of which £50 million came from the EEC. I am proving that he cannot stick to any policy for five minutes.

What is the sense of putting a subsidy on something at the same time as one is shoving a 10 per cent. increase——

The Chancellor of the Exchequer (Mr. Denis Healey)

I cannot stand it.

Mrs. Thatcher

Of course the right hon. Gentleman cannot stand it. He never could. [Interruption.] Hon. Members are getting very tetchy.

What is the sense of putting a subsidy on something at the same time as one is putting a tax of 10 per cent. on gas because it is not expensive enough? These are the economics and politics of cloud-cuckoo-land.

The Chancellor is also making hefty grants to industry. I believe that in restructuring industry Governments must swim with the economic tide and not against it. The Government do no service to the health of the economy or the employees involved if they carry on an operation that does not in the end produce a viable concern. We shall never get an efficient economy if we do that.

The fact is that last Friday marked a totally new departure in policy, and a totally new departure in incomes policy. All incomes policies have to come to an end. This one, as far as it had fixed quantities, has now come to an end. How, in fact, should we judge the Chancellor on his re cord? I have given his record in facts, and I have given his record for not sticking to any strategy. We all know that he is Stiff in opinions, always in the wrong; Was everything by starts, and nothing long:". It seems to us that what we have now is policies that have completely failed, strategies that have lurched from one to another. We have a Labour Party that is split from above to below the Gangway. Below the Gangway, it is not interested in making the capitalist society work, not interested in recovery on the basis of a free enterprise society, but more interested in replacing it. Above the Gangway, in some areas there is a certain amount of disillusionment with Socialism and a hoping to goodness that we have no more of it. That split from above to below the Gangway is now reflected by a split in Cabinet, which has replaced collective responsibility with "We beg to differ".

Mr. John Mendelson

What is the right hon. Lady's policy?

Mrs. Thatcher

I see nothing either in the Government's past record or in their present policies to warrant a vote of confidence. There is no basis for confidence in their record or in their capacity to stick to any policy when the going gets rough.

Mr. David Steel (Roxburgh, Selkirk and Peeble)

I have been listening to the right hon. Lady with great care. [Interruption.]. This is supposed to be a confidence debate. What I have been waiting to hear is what arc the policies that she believes—[Interruption.]—she can pursue more effectively than those outlined by the Government?

Mrs. Thatcher

Perhaps I may say through you, Mr. Speaker, to this young man——

Hon. Members

Oh.

Mr. Jeremy Thorpe (Devon, North)

On a point of order, Mr. President—

Hon. Members

Mr. President?

Mr. Speaker

Order. Now the point of order.

Mr. Thorpe

On a point of order, Mr. Speaker. Knowing the way in which most right hon. and hon. Members address each other in this House, is it not unfortunate for the right hon. Lady to draw attention to the age differential between herself and my right hon. Friend the Member for Roxburgh, Selkirk and Peebles (Mr. Steel)?

Mrs. Thatcher

Perhaps the right hon. Member for Devon, North (Mr. Thorpe) should not worry. I would not address him thus. I must say to the Leader of the Liberal Party that it is his policies that we are analysing. It is no wonder that he cannot stand it. We now have a three-way split between those above the Gangway, those below the Gangway and the Liberals.

I see no basis for confidence in the Government's policies or the people who are there to carry them out, and we shall accordingly vote against the Prime Minister tonight.

5.8 p.m.

Mr. Reg Prentice (Newham, North-East)

I think that one phrase in the Prime Minister's speech ought to command the assent of everyone in the House. That was when he said that the country was facing a watershed in the next few years. I should have thought that it was a watershed in the sense that changes in the pattern of world trade, opportunities from North Sea oil and a number of other factors create a situation in which, in the period ahead of us, we stand either to gain more from our success or to lose more from our failure than would have been the case at any other time, even in the critical years through which we have just passed.

On the question whether we succeed or fail, surely the central issue is that of inflation. The central question before the House in this debate ought to be whether the Chancellor's statement on Friday and the Prime Minister's speech today measure up to the challenge that that represents.

I thought that the Chancellor put this challenge very well in the early part of his statement last Friday, when he said, if the rate of increase in earnings is not more than 10 per cent., inflation should fall below 10 per cent. well before this time next year and stay there throughout the year; secondly, if the rate of increase in earnings is as high as 15 per cent., we should not get inflation down to 10 per cent. at all, and it would be rising steadily through the second half of next year and into 1979; thirdly, if the rate of increase in earnings were as high as 20 per cent., prices would soar and we should be back in the situation that we faced just over two years ago."—[Official Report, 15th July 1977; Vol. 935, c. 988.] Relating that to the Prime Minister's words about a watershed, I put it to the House that the first scenario is one on which we could build successfully in the years to come. The second scenario would be one in which we could look back on the period 1977–78 as a period of lost opportunity. The third scenario would be one of complete national disaster.

The key question, therefore, is how far does the rest of the Chancellor's state- ment measure up to that, and how likely is it that the policies that he has set before the House will lead the country towards a rate of inflation getting below 10 per cent? In other words, accepting his own analysis, will this policy enable us to have a rise in incomes of around 10 per cent. and no higher?

The Chancellor, in the passage I have quoted, drew comparison with the situation two years ago. I put it to him and to the House that in many ways the situation we face now is very much more dangerous and very much more conducive to runaway inflation than the period 1974–75. Then, as now, we had something called a social contract. Then, as now, the Government were carrying out measures required of them by the TUC. I believe that many of them were measures that most of us could accept, but there were others on which some of us had doubts. At any rate they were conforming to the wishes of the TUC.

The TUC's response two years ago was, and the TUC's response today is, a response in terms of generalised good intentions, no more. In saying that, I join those who pay tribute to the restraint that trade unions have shown in the intervening two years. Every possible credit should be given to the trade unions for their observance of the phase 1 and phase 2 limits.

The key comparison, if we are to compare the situation now with the situation that existed two years ago, is that the present situation is more dangerous, for a number of reasons. First, two years ago the TUC was appealing to trade unionists to limit increases in pay to the increases necessary to keep pace with the cost of living. Those appeals were not always heeded, but at least the support was there. Yesterday the economic committee of the TUC refused to go anywhere near as far as that. It chose not to give any specific guidance to trade unionists except in respect of the 12-months rule. That is a valid concept, but it is clear from trade union conferences in the last week or two that it will be explicitly or implicitly repudiated by a number of unions.

Secondly, even if negotiators in the period ahead were content to settle on terms that kept pace with the cost of living and no more, the cost of living in the preceding 12 months has gone up a good deal more than 10 per cent. Therefore, cost-of-living settlements, if people were content with them, would still lead to increases in many incomes above the limits that the Chancellor put to the House in his statement.

The Chancellor in his statement and the Prime Minister this afternoon have tried to reassure people by saying that they have evidence that the rate of inflation will go down. They ask people to look ahead and to consider that in the period ahead the cost of living will not go up as much as it has in the past. It seems to me that it is asking far too much of human nature to expect negotiators to go to the negotiating table and to accept limitations on their claims and settlements based on hopes of that kind. I hope that those hopes are right and that the rate of inflation will fall. However, the trade unionist and his wife will be conscious of the rise in prices since the last wage increase, and that will be the starting point of any wage demand.

The third difference, which I think is the most dangerous of all, is that we are seeing expectations raised for wage increases and salary increases not merely to compensate for rises in the cost of living in the past 12 months but to make up the ground lost in the preceding two years. The Prime Minister today said that it was a dangerous illusion to assume that those expectations could be fulfilled. If that is a dangerous illusion, it is a dangerous illusion which is coming out loud and clear from the conferences of the National Union of Mineworkers, the Transport and General Workers' Union, the National Union of Railwaymen, from doctors, dockers, Ford workers and many other groups day by day.

We are getting evidence that what the Prime Minister calls a dangerous illusion is something that people are expecting to achieve. I may well be told, as we are often told in these debates, that a settlement is different from a claim and that a large claim may lead to smaller settlement. The differences that we are talking about between the claims being set out in those conferences and the figure at which the Chancellor is aiming are so enormous that any form of compromise settlement in relation to any group of industrial or professional bargaining power will lead to a settlement well in advance of those that the Chancellor has in mind.

Apparently some settlements have already been made. Yesterday it was announced that the Association of Scientific, Technical and Managerial Staffs had reached a settlement with Longman's for a 30 per cent. increase to take effect in August, seven months after the previous increase. On 9th July, The Financial Times stated: Some employers, for example, have been making pay agreements with their shop stewards in anticipation of a return to free collective bargaining from August 1. We do not know the details of those settlements, but they will emerge in the period ahead.

If we accept the analysis that we are facing a watershed, and if we accept that the defeat of runaway inflation is essential if we are to emerge from this period with success, something very much stronger is needed than what the Chancellor put before the House on Friday. My personal view, which I do not think will carry the agreement of many hon. Members, is that I believe in a statutory incomes policy—a permanent statutory incomes policy. When I use the word "permanent", obviously the guidelines of that policy should vary from year to year, and obviously it should be controlled on a tight rein in years of exceptional difficulty and on a looser rein whenever possible. Obviously it should also be as flexible as possible.

It should be permanent in the sense that we should have prices and incomes machinery such as a Prices and Incomes Board. That Board need not necessarily be one body, although I would prefer that. It should be set up as soon as possible, if possible by agreement between the main parties in the House and therefore having an expectation of life that would go beyond General Elections and beyond changes of Government.

I believe that the constant switching on and off of prices and incomes machinery in the past 12 years or so has meant that Britain has had a much higher rate of inflation that it would otherwise have had. We would certainly have had inflation but it would have been less if there had been more continuity of policy. There should be back-up powers for whatever are the prevailing guidelines. There should ultimately be the sanction of law against the rogue employer or rogue trade union that tries to break the rules agreed by trade unions and employers generally or accepted by the House.

This, I repeat, is a view not taken by either the Government or the Opposition Front Bench, but both parties when in Government have had to face that necessity in the past, and my belief is that one party, or perhaps both, will be faced with it in the future. However, assuming, as I have to assume, that the view which I express is not one which will command wide support in the House, I still believe that the Chancellor's statement could have been a lot clearer and a lot more specific than it was.

I take, first, the question of guidelines for settlements. It seems to me—I should like to hear from the Chancellor about this when he replies tonight—that it is useless to talk of a 10 per cent. increase in overall earnings and at the same time use a vague phrase about hoping for single figure settlements. Surely, the amount in the 10 per cent. attributable to wages drift in all its various forms, and especially wages drift after two years of fairly rigid limits, is about 4 per cent. or 5 per cent. Therefore, if the Chancellor seriously wants people to work within guidelines which lead to no more than a 10 per cent. overall increase, he should have spelt out a limit for settlements of 5 per cent. or perhaps 6 per cent. at the maximum.

If the Chancellor had done that, he might also have been able to go on to specify certain guidelines for the exceptional or special case. I believe that this is a period in which all right hon. and hon. Members would wish to see a larger adjustment for some groups, although we might argue about which groups they were. For example, I believe that there would be general support for the view that the pay of the police ought to go up by more than 5 per cent. or 6 per cent. However, if there are to be such special exceptions, they will have to be limited in number, and they can be afforded by the community only if there is a general level of restraint along the lines I have suggested.

The second respect in which I consider that the Chancellor's statement was too vague lies in his reference to control the public sector. The reference to cash limits was put in this way: Spending authorities will not be able to rely on supplementary provision beyond the cash limits."—[Official Report, 14th July 1977; Vol. 935, c. 993.] Again, I think that we should be told whether the phrase "not be able to rely" means that in no circumstances will there be adjustments of the cash limits to allow for pay increases above the guidelines which the Chancellor has in mind. Does he mean that or does he not? I think that he should come clean with the House about it. In reply to a question on Friday from the hon. Member for Horsham and Crawley (Mr. Hordern), my right hon. Friend was at some pains to explain that cash limits are only a very partial weapon. He was at pains to underline the fact that the financial year is different from the pay year we are talking about or the pay year of many of the settlements which will come in the next 12 months.

If that be so, what are the Chancellor's sanctions? I think that we should be told what are his sanctions in the various parts of the public sector. This is why we should have had a White Paper in much more detail than that which was hurriedly rushed out this morning, so that we might know what were the sanctions over all the public authorities, including the nationalised industries, to keep them within the guidelines which the Chancellor has in mind.

Third, the Chancellor should have stated—again, he could still do so tonight—his absolute support for any employer in the private sector who is prepared to stand his ground and to fight against claims which exceed the limits. I think that I should agree with the Chancellor at least on this—and here I differ, I think, from the Opposition—in saying that he is right to talk of sanctions against private employers in relation to price controls, the placing of public orders, industrial assistance decisions and the rest. He needs to use every weapon in his armoury. I believe that he needs other weapons, and he should come to the House to ask for extra powers if he needs them.

It should be clear to all of us that what happens in the next month or two will set the pace for the whole of this pay year. The early claims which have been notified by trade union conferences in the past two weeks or so are so dangerously high that they have to be resisted, and successfully resisted, early in the pay year, since otherwise the claims and settlements which will follow will take us into a runaway inflation. In my view, the months between now and Christmas are crucial in this respect.

My final point relates to the danger of confrontation. I was fascinated by the exchange earlier this afternoon between my hon. Friend the Member for Liverpool, Walton (Mr. Heffer) and the Prime Minister. My hon. Friend said that confrontation has to be avoided at all costs. I ask my hon. Friend and all hon. Members to reflect on those words. Must it really be "at all costs"—if necessary at the cost of runaway inflation, if necessary at the cost of lowering the living standards of everyone in this country, at the cost of destroying the opportunity which the country will have in the years ahead to achieve a higher standard of living, to beat unemployment, to get out of debt and to solve our problems? Surely, not "at all costs".

I thought that the Prime Minister's response was weak when he talked about—I took down his words—"an essay in persuasion". Of course, let there be an essay in persuasion. Of course, we should all be involved in an essay in persuasion. But inevitably, if the Chancellor's figures have any meaning at all, there are bound to be conflicts over pay in the months ahead, especially, as I have said, in the early months—conflicts with powerful groups, conflicts with groups which could hurt people, whether we are talking about the doctors, about the miners or whoever it may be, conflicts with groups which have power to inflict a great deal of suffering upon people if they engage in a period of intensive industrial action.

Yet I still put to the House—I hope that this will command general assent—that the danger of confrontation is far less than the danger of a series of retreats based upon the fear of confrontation. Of course, we do not want a deferential society, but we do, I hope, want a society in which the will of the democratically elected Government and the will of the democratically elected House of Commons prevails, and in which the general interest prevails over special interests.

If that involves confrontation, so be it. We have to face the confrontation and face the cost of the confrontation.

Mr. Heffer

My right hon. Friend must know that I did not mean that every wage claim ought automatically to be granted in all circumstances. I did not argue that. I was arguing that, if we were not careful, we should reach a situation in which inevitably there would be fierce confrontation between the trade unions, or probably rank and file trade unionists, on the one side, and the Government, on the other.

I was urging that we should obviously have to talk our way out of that by persuasive methods. Anybody who knows anything about trade unionists—I know it from the shop floor, not from inside a research office of the Transport and General Workers' Union—knows that that is the only way to deal with the matter in a democratic society, unless one wants a totally rigid legalised society, which my right hon. Friend appears to want.

Mr. Prentice

I gave way to my hon. Friend in the perhaps naive hope that he was having second thoughts about his phrase "at all costs". I still ask him and others who agree with him to think again and to think through the consequences of what they are saying. I want to avoid confrontation as much as anyone does. I do not believe that any view which I have expressed in the House or any of the aspirations which the Chancellor expressed when he spoke about a rate of pay increase of 10 per cent. or less is unacceptable to the rank and file of the trade unions, if we interpret the phrase "rank and file" in its full sense.

I believe that the people of this country, trade unionists and non-trade unionists, are sick and tired of inflation. I believe that people who are unemployed or are threatened with unemployment are sick and tired of that situation and they are realising more and more that unemployment is the result of inflation. I believe that the rank and file to whom my hon. Friend refers want a strong lead from the Government, a stronger lead than we have had. The trouble with my hon. Friend is that he always confuses the minority of militants in the trade union movement with what he calls the rank and file.

It is essential in the present situation that the Government of the day, supported, if possible, by the TUC—I wish that it had not made such a feeble statement yesterday—and supported by managers, too, should appeal to the totality of the rank and file over the heads of the militants in the branches and on the district committees.

Mr. Geoffrey Robinson (Coventry, North-West)

On the question of the psychology of confrontation, which, I think, lies at the heart of what he is saying, will my right hon. Friend agree that there is a danger of becoming obsessed with the need for it as opposed to concentrating our thoughts on how we avoid it? I remember only too well being engaged in a whole series of very difficult negotiations when I was in charge of a fairly large industrial organisation and always being urged, as, it seems, both the Opposition and my right hon. Friend are urging us today, to have a confrontation. In effect, it was put to me "If you do not have a stack-up soon, the whole corporation will be out of control". Does not my right hon. Friend agree——

Mr. Speaker

Order. The hon. Gentleman must bring his intervention to a close now.

Mr. Prentice

I am not saying that there is need for confrontation. What I am trying to suggest to the House—and I hope that my hon. Friend will listen to me, since he made a long intervention and I am trying to reply to him—is that a series of surrenders that lead to runaway inflation would be a greater evil than any confrontation that is likely to happen.

Mr. Geoffrey Robinson

That is not the choice.

Mr. Prentice

It may well be the choice unless there is stronger leadership and stronger evidence of determination by the Prime Minister, the Chancellor of the Exchequer and the Cabinet as a whole than we have seen in recent days. Inflation has already inflicted very great damage on our society under both Governments. It has slowed down our economic growth; it has prevented us from attaining our economic potential; it has slowed down our social progress compared with other countries; it has sapped the morale of our people. We can and we must lick this problem in the next year or two. I only wish that I could say that the Government in this situation were giving the country the lead that it deserves, but I do not believe that so far they have shown that lead.

5.32 p.m.

Mr. Edward du Cann (Taunton)

The utterances and attitudes of the right hon. Member for Newham, North-East (Mr. Prentice) always have the hallmark of courage. Whether one agrees with everything he has to say, what he does say is invariably interesting. One can agree with him that the central issue is inflation, but to suggest, as he did so airily in his closing sentences, that both main parties have equal responsibility for past mistakes is rubbish. As my right hon. Friend the Leader of the Opposition demonstrated in a remarkable speech, the Chancellor of the Exchequer in his sins of omission and commission bears a particularly heavy responsibility in this regard.

The right hon. Member for Newham, North-East is right to say that this is a dangerous period and that perhaps the next few months are critical. I am sure that he will not carry any of my right hon. and hon. Friends with him, however, when he begs for a statutory incomes policy. Listening to him, I am constrained to ask "Who are the moderates in the Labour Party?" I suspect that there is no such thing as a moderate Socialist. I suggest that many of his attitudes are extreme to a particular degree.

My right hon. Friend and the Prime Minister made common ground in regard to the matter of cash limits. I would not wish to acquire the notoriety of Cato the elder who, as the right hon. Member for Down, South (Mr. Powell) reminds me, ended every speech with the opinion that his nation's main trading and commercial rival, Carthage, must be destroyed, but I am sure that I am right if I say, as I have done so often, that State expenditure in the aggregate is the greatest inflationary force in this economy of ours.

Of course, much State expenditure is beneficial and necessary, as the Prime Minister reminded us in a previous speech. But how the taxpayer's money is spent in what passes for this free economy—in reality, it is nothing of the kind now—is a dominating example in the economy. Its influence, direct and indirect, is pervasive whether we speak of its influence in the management of business—that is to say, direct—or whether we speak of its influence indirectly in the creation of various public attitudes that flow from it. For these two practical reasons alone, therefore, it is crucial that this House should exercise a proper and careful control over expenditure and provide itself with the methods and facilities to do so.

Mr. Emlyn Hooson (Montgomery)

When suggesting that State expenditure is largely responsible for, or at least one of the major factors in, inflation, the right hon. Gentleman should say "nonproductive expenditure" because productive expenditure, whether by the State or by private industry, is not inflationary. It is non-productive expenditure that is inflationary.

Mr. du Cann

I see clearly the distinction that the hon. and learned Gentleman is making but I do not agree with it. I aggregate them.

Leaving aside these practical reasons, constitutionalists in this House would no doubt argue that it is fundamental to our British concept of democracy that Members of Parliament exercise the maximum control of the Executive and that the easiest and most effective way to do that is by controlling the purse strings. It seems to me that in recent years we have been careless to the point of recklessness, and so it has been that expenditure has become largely out of control. No one can pretend that what has happened has been planned in any way. I am sure that the Chancellor of the Exchequer would not argue that it has been planned, for he could not. We in this House have no more controlled Government expenditure than Canute controlled the tide. The consequence of this abdication of Parliament's traditional role are too well known to require restating. They are not merely a matter for the most profound regret. I believe that they are a matter of which in truth we should be ashamed.

Most positively, that experience should oblige us to learn its lessons, and lately, I think it fair to say, there has been one notable advance—that is to say, the introduction of cash limits in 1976–77, which has become a major addition to the Government's methods of controlling expenditure. I would not suggest that they are perfect, for they are not universal; they affect only some 65 per cent. of Government expenditure. As my right hon. Friend pointed out, large areas of the greatest importance—for example, the nationalised industries—are not fully included, and that applies with particular force to what one might call the quasi-nationalised industries.

As the House is aware, the essential feature of the system is that cash allocations are made in forecasting outturn price terms for the forthcoming financial year, covering, according to the latest White Paper, about 125 blocks of central Government current and capital expenditure and local authority capital expenditure which may not be exceeded except in exceptional circumstances. Thus, a figure for pay and price rises is estimated and built into the figures from the outset. This now means that the annual presentation of the forward forecasts of Government expenditure are of even greater significance as parliamentary papers than they have been in the past, and it means, too, that many spending Departments now have clear limits on their expenditure which they must not exceed.

As we remember, in past years if the original estimates were exceeded there was very rarely any announcement of a revision of the limits. There was merely a quiet decision, taken privately in some Cabinet committee or perhaps in Cabinet itself, to put forward supplementary estimates. The excuse would be inflationary pressures, for example. But the supplementaries would themselves be a cause of further inflation, and so on, perhaps to disaster.

The Prime Minister made it quite clear in his speech this afternoon, in a remarkable and most significant statement, that the cash limits proposed for the present year would be inviolate. That was not exactly the word he used, but that was what he said, in effect. The situation has now changed, therefore, for the future over a wide area of Government expenditure. For the first time in my 21 years here, and for the first time in modern history, the Government will handle their financial affairs rather more according to the ordinary rules which are orthodox in every family, in every partnership and in every corporation in the land, namely, that expenditure by and large shall match revenue.

We have now in the House, therefore, this new instrument of control. I have already made the point that it is by no means a perfect instrument. There are many detailed criticisms that one could make, concerning the disparity in the size of the blocks, and so on. But there it is, and, as The Times pointed out in a leading article last April, it has a brilliant potential for success.

The Select Committee on Public Expenditure, the largest Select Committee in this House, has reported to the House on cash limits and their operation. The Public Accounts Committee, our oldest Select Committee, of which I have the honour to be the chairman, has also reported on cash limits in its Third Report. Perhaps the House will allow me to quote shortly from paragraph 11: The relationship between the cash limit system and the Parliamentary Supply, Estimates, Votes and Appropriation Accounts is clearly of considerable Parliamentary and practical significance. The cash limits are a purely administrative system devised, and introduced by the Government and do not have any specific Parliamentary sanction. Valuable and necessary as they are in improving the fore casting and reinforcing the control of expenditure, we think that the role of Parliament in the system of public expenditure control also needs reconsideration. You may think it extraordinary, Mr. Speaker, and I suggest that the House should think it extraordinary, that we have not yet discussed or debated these subjects. If the cash limits are to be inviolate as the Prime Minister said, this will cause immense strains in the whole system of Government administration, to an extent which in these inflationary times I believe the House simply has not yet begun to comprehend. I raise the subject not only because of its obvious and fundamental importance in that sense but for another reason, which is topical in the debate in the light of the announcements which the Trades Union Congress has just made and in the context of what has just been said about wages and salaries.

We are proceeding now, are we not, after five unsuccessful and, some may think, ridiculous attempts to control wages and salaries, to a new stage 3. Whether it will be existent or not, none of us knows. If I may quote again from the Third Report of the Public Accounts Committee, I think that right hon. and hon. Members will see the relevance of the particular controls which come under the heading of cash limits. The report states, in paragraph 7: The Government's incomes policy, by enabling accurate estimates to be made for increases during the year in public service pay, had undoubtedly contributed to the successful introduction of the cash limits system; public service pay represented just under half the total expenditure covered by cash limits. An amazingly high proportion of Government expenditure, therefore, is comprised in pay—far more than in any usual manufacturing or service process. The report continues: The Treasury acknowledged that what happens in the future in settling pay will be important for the operation of the system; if for any reason changes in public service pay in the course of a year cannot be forecast with reasonable accuracy it will be more difficult to determine cash limits which can Iv made to stick. The inference, therefore, is obvious. If the system is to continue, the figures, broadly speaking, which the Government have included in their estimates for pay, will have to be maintained.

The cash limits system, as that last quotation implies, has so far had a fairly easy run in which to prove itself. But in future, following immediately after what the Prime Minister has said, cash limits will need to be imposed not merely in expectation of the likely level of wage settlements but as a definite statement of what the Government are prepared to accept—if, that is, cash limits are to be a positive tool of control and policy.

The most important employer, not only numerically, in our over-governed country, is the Government. The Government potentially set—indeed, one might say they actually set—the norm of efficiency through, for instance, the nationalised industries. Everything the Government do, directly and indirectly, should be a model of effectiveness and efficiency. The tragedy—and the bitter complaint that many of us have against the Government's work, either in the main organs of Government or in the nationalised industries—is that that simply is not true. More is the pity and more is the tragedy.

Mr. J. Enoch Powell (Down, South)

It never will be.

Mr. du Cann

My right hon. Friend the Member for Down, South (Mr. Powell) says that it never will be. If that is true, it makes the case for Conservatism all the stronger and the more significant.

Mr. Ian Wrigglesworth (Thornaby)

Will the right hon. Gentleman tell us how he would measure efficiency in the public sector?

Mr. du Cann

There are many ways in which that can be done. Anyone who has experience in managing offices of any sort—particularly in the service industries, if we are talking about the non-productive industries—can list a number of criteria. I have spent most of my life in that style of business and shall be happy to discuss the matter with the hon. Member for Thornaby (Mr. Wrigglesworth) at any time he pleases.

To return to my point, however we measure efficiency, Government and the nationalised industries should be models of innovation, of competence, of high investment, and they should be able to afford the highest wages of all. In my opinion, there is no doubt at all that the general level of salaries and wages in this country, compared with the levels in many nations with which we have to compete, is vastly too low. This again is a matter which we should be resolved to improve, and without delay.

The Prime Minister was right to say—my right hon. Friend the Leader of the Opposition picked up his words, and so did the right hon. Member for Newham, North-East—that perhaps this moment is indeed a watershed in our affairs.

I do not share the view once advanced by Mr. Walter Wriston, the chief executive of the largest bank in the world, who, quoting Paul Valery at a banking seminar in Boston some years ago, said: Things are now so bad that even the future it not what it used to be. Many of us were pleased that the Prime Minister sounded to some extent an optimistic note, for the potential for our country should be very great indeed. The worry that we all have in our heart of hearts is that we may not take the opportunity. Whether we do seems to me entirely to depend upon Government and the lead that they give.

The Government are indeed the arbiter. How they conduct affairs in their own house will surely show their sincerity and their competence. If they will stand by the cash limits system, if they will stand by the limits set for the current year and those that will be set for next year, and if they will extend those proceedings to cover those areas which are not yet covered, and which necessarily should be, then 1 would say that the Government might deserve wider support than they currently enjoy, and not merely from the Liberals, these dilettante opportunists of contemporary British politics. I think all of us in this House have a healthy contempt for their equivocation and lack of political courage. If they do not have the courage of their convictions, the sooner they leave and allow themselves to be replaced by those who surely have, the better.

5.51 p.m.

Mr. R. B. Cant (Stoke-on-Trent, Central)

I do not want to make a political speech. I should like to begin by exhorting my hon. Friends below the Gangway not to wind up the Leader of the Opposition—I was going to say "the old lady"—when she is making a speech because she is far more effective when being questioned.

As one who has been opposed to the five, rather than four, attempts at incomes policy—at any rate those that have occurred since 1966—I would say that we are once again facing the position which any Government arrive at who adopt totally unsatisfactory fiscal and monetary policies. By the time that we get to the third round the whole thing blows up in our face.

I must congratulate my right hon. Friend the Chancellor on finding what I regard as an eminently sensible and almost totally acceptable way out of their rather difficult situation. The fact that he has been supported by the TUC with regard to the 12-months rule—if that sticks—will assist him and the country greatly. However, one thing that my right hon. Friend must do is to mount a much more effective public relations exercise in order to persuade the people of this country about making up for lost time.

As a country we have to accept the fact that we have reached a watershed which is totally different from the one suggested by the right hon. Member for Newham, North-East (Mr. Prentice) in that his watershed occurred much nearer 1970 than 1976. In fact, for a generation after the war we lived in a period where we might have had crises but these were superimposed—apart from the Korean war—on the growth of living standards in this country. This was the consequence of many things which I do not think one should go into. One of the important factors was what the new Ambassador to the United States, whose name I have forgotten, called the benign hegemony of American leadership". That has expressed itself in a number of ways which are of great benefit to the world—the over-valued dollar, direct American investment abroad, a willingness to run a balance of payments deficit almost indefinitely. But the main change that has taken place is that America can no longer bear this vast burden. Enormous structural changes have taken place not only in this country with our declining industries that we cannot put right but throughout the world in the sense that countries like Germany and Japan have now got economic muscle and are challenging America itself. We in this country must accept that we have no guarantee that our living standards will never fall or that our living standards for all future generations are guaranteed at a compound interest of 5 per cent. improvement per annum.

Having spent a few minutes on that introduction, I should like to make a few comments to my right hon. Friend, not in any spirit of criticism but merely to ask a few questions. Much has been said about wages and the wage explosion. Of course, that is important. But if we cast our minds back to July-September 1976, the Chancellor, bless him, took a well-earned rest and let things get rather out of control. I think that there is a slight danger that this might be happening again.

I would remind my right hon. Friend that the financing of the public sector borrowing requirement in August was already becoming a matter of somewhat urgent consideration. Even though he has issued a second floating exchange rate bond 1 suggest that he does not know quite what to do next. He has put into a state of suspended animation that 1991 tap because its price has got out of alignment with the market.

I said that I would not criticise my right hon. Friend and, therefore, I had better put this in the form of a question. Is he having to face up to the possibility that he may have to allow interest rates to rise? That is important, because quite apart from the wages explosion, he is facing a rather similar situation in the context of an improving balance of payments situation. As every O-level student of economics knows, as the balance of payments moves into surplus so money supply, which is now defined in terms of M3, begins to grow.

Money supply is already accelerating. What is my right hon. Friend going to do about it? Is he sitting back hoping that foreigners will mop up indexed gilts that he might introduce or is he expecting that Britishers will sell property and use those funds to buy equities and so on? These are important considerations.

Or is my right hon. Friend being cleverer than that? Is he looking at the interest-yield curve and saying "I shall force up long-term interest rates and depress short-term interest rates"? If he does that I am assured by the best technicians that he might be able to produce a situation in which M3 is influenced favourably and in which M1 can remain quite buoyant. More important than that, is my right hon. Friend conscious of the fact that all those steps that he may have to take well before a wages explosion comes into being will raise interest rates one way or another, directly or indirectly? If that is the case what effect does he think this will have on investment?

Mr. Healey

Can my hon. Friend assure me that he does not seriously expect me to answer his questions? He has put very important and relevant points, but if I attempted to give an answer it may be that the consequences in the markets could be exactly the opposite to what he would wish to see.

Mr. Cant

I am glad that the effect on the market might be quite different from what I am anticipating. That is the great problem in a democratic society when one tries to be loyal. I said that I would not attack my right hon. Friend but would just ask him questions. But he gets up and makes comments of that kind.

The fact remains that outside the wages explosion problem, with which I am sure everybody else will deal—my right hon. Friend must face these problems—there are two complications in the monetary situation as I see it. I do not know, as a monetarist, how far some of these facts will help my right hon. Friend to relax cash limits, not for nationalised industries but for local government, in which I am particularliy interested.

In the area of the personal savings ratio, if we are not careful, we shall have a situation in which the fact that people are going on saving quite pathological sums of money may in itself produce in the next context a position into which a new element of deflation is entering. A lot of the saving, which has gone up from £1,300 million in 1960 to £7,600 million in 1976, is locked-in saving. It is non-discretionary saving because we are all in generous pension funds or are taking out more insurance and so on.

The new situation is simply that, as the balance of payments moves into surplus, as the corporate sector moves into surplus—in case I am criticised by my hon. Friends below the Gangway, I do not concede that the corporate sector is moving into surplus through excessive profits—and as the public sector borrowing requirement falls, because people persist in saving such high amounts, the Chancellor—I say this with regret and a feeling of treachery in my heart—may have to be a bit relaxed about any further cuts in the public sector borrowing requirement to compensate for the facts that I have mentioned.

The final matter to which I want to refer—I am sure that the Chancellor will not answer it—is whether he will at some time throw some light on his great views on the question of the exchange rate. I realise that interest and exchange rates cannot be discussed in the House of Commons. They are sacrosanct and to be discussed only in the Cabinet. However, there is an important point here. We have a massive controversy emerging in this country between, on the one hand, my hon. Friend the Member for Southampton, Test (Mr. Gould) and, on the other hand, Mr. Pepper, who is an economist with Greenwells, the stockbrokers.

One school of thought argues that the pound should be allowed to depreciate almost to or below $1..50 and that many virtues will stem from that. I do not believe it. There are many reasons why one perhaps should not believe it. Nevertheless, it represents a powerful argument if one believes, as the Treasury, the Bank of England and the Chancellor believe, in the doctrine of constant competitiveness or, as the Chancellor would say, constant competivity. In other words, the Chancellor, by stealth, is devaluing the pound effectively although maintaining its value with the dollar.

Is the policy not the maintenance of $1..72 to the pound, but the devaluation of the pound because the dollar is sinking against the weighted currencies and so on? Does my right hon. Friend subscribe to the thesis of my hon. Friend the Member for Southampton, Test, that the pound must be allowed to fall, or does he agree with Mr. Pepper who says that we must stop this business of selling pounds to devalue them and build up pools of sterling which, of course, increase the money supply? If we allow the pound to float, although there will perhaps be some loss of constant competition, all these other things, such as falling import prices and falling interest rates that we do not need to keep up to attract funds in, will make the investment horizon so much more attractive for the businessman. I think that is a question that I can reasonably expect my right hon. Friend to answer tonight.

Will my right hon. Friend go further and agree with Samuel Brittan, who says that Mr. Pepper is right, but that he does not go far enough, because the only real virtue or hope for our future is that we not only allow the pound to float on foreign exchanges but that we remove exchange controls on outward flows because the marginal efficiency of capital investment in this country is declining and therefore we need to invest abroad?

I should like to go on at greater length, but I shall not. I hope that I have posed some questions to which my right hon. Friend will briefly and fleetingly refer in his winding-up speech.

6.7 p.m.

Mr. J. Enoch Powell (Down, South)

I think almost all right hon. and hon. Members who have taken part in this debate so far have recognised that the Government's statements in the last few days have constituted some kind of turning point of more than mere temporary import. However, I must say—I mean no disrespect to the Prime Minister—that in order to detect the nature of that turning point one needs to ignore almost the whole of his speech this afternoon. So far from being disrespectful, I suspect that that may be a compliment, in that it was probably the correct and astute action for the Prime Minister, at a time when a radical change was taking place in thinking and in policy, to utter in the House a speech which was almost an anthology of all the tired metaphors and clichés associated with the very policy and theory which were at that moment being discarded.

The real turning point is of a different nature, and it is one which I regard as a potentially happy omen for this country.

For 30 years—30 years in which we have been afflicted with inflation perhaps beyond our desserts, but certainly beyond our neighbours'—we have lived with the official theory and rationalisation that inflation is caused by prices being raised, and in particular by the price of labour—wages—being raised.

Under that belief, which has become part of the very language in which our affairs have been discussed, we have lived through a crescendo of policies, all attempting to follow out the implications of that belief. It started, I suppose, with Stafford Cripps and "Your tiny wage is frozen". That was a period of incantatory wage control. However, it was succeeded at the end of the next decade, in 1961–63, by a much more elaborate though still voluntary attempt to control prices and wages and thereby combat and control inflation. Already the pattern was then established—the pattern of a policy which starts with a freeze—a flat rate of nought all round—which proceeds to the next phase of a flat rate above zero, and which then finds itself confronting the question "Where do we go from here, as we cannot live in a flat-rate economy for ever?"

The next step upwards—or downwards—in this progression was the prices and incomes policy of the Labour Administration of 1964 to 1970. This, for the first time, was statutory; and the right hon. Member for Newham, North-East (Mr. Prentice) has spelt out this afternoon how logical, how inevitable, it is, once we embark upon this travelling band, to be carried on from voluntary to compulsory, from generality to detail, from hortatory to authoritative implementation of all the implications of the theory.

So there was the episode, which most hon. Members will remember, of the years 1966 to 1968—after which Roy Jenkins began to balance the budget—years during which there was tentative exploration of all that was implicit in the attempt to prescribe by statute, by the law of the land, what prices should be and what wages should be. We might have known that, although the Conservative Administration came in in 1970 proclaiming that it "utterly rejected the philosophy of compulsory wage control", there was something in the character of that Administration that would soon set it at work to follow out still further the rigorous logic of the preceding disastrous attempts.

Sure enough, so it was. The whole progression of almost 30 years reached its disastrous apogee in the 18 months from September 1972 to February 1974, when, with characteristic ruthlessness and incomprehension, the right hon. Member for Sidcup (Mr. Heath) passed from a freeze to a flat rate, and eventually to an actual attempt to enforce in practice specific, differing and arbitrarily determined wages and prices in this place and in that place. It collapsed, of course, in a storm of ridicule and disaster, whereupon there arrived on the scene substantially the present Administration.

Its behaviour at that moment refuted cheeringly the fear many of us recurrently have that mankind is incapable of learning from experience, especially from the experience of others. It had learnt from the experience of the late Conservative Administration. It showed that it had learnt not, of course, by immediately declaring that the philosophies of previous years, to which it had itself subscribed, had turned out to be false and destructive in their implementation, but by adopting a studious vagueness, a generality so oily and sponaceous—as the phrase is—that the mind could not grasp what it was all about. Yes, the Government had a prices and incomes policy, which vaguely corresponded with the old, old theory. Yet as it was inapprehensible, so it was, in a sense, indestructible: no sharp or hard object could easily come into any collision with it. The Labour Administration had, in short, taken the advice of the legendary instructor at the Hythe School of Musketry, who was wont to advise gentlemen cadets how to behave when confronted with an especially difficult question: "Well, sir, I think you should be judiciously vague." Indeed, the Government was "judiciously vague" from 1975 to 1977, to this blessed hour. Admittedly, there was an Act of Parliament in 1975; and during its passage some of us spent a night or two with it. But it was not compulsory. It was intended to look compulsory. But when one examined it carefully, there was scarcely a vestige of compulsion about it.

Yet even this almost formless incarnation of a prices and incomes policy eventually arrived at this present moment in collision with stage 3. This time something new happened. This time, instead of saying "We have a plan. We are going to set up a new body that will discover the indiscoverable and solve the insoluble", the Government said "We are returning to free collective bargaining." As one might say, "All bets are off". In the words of the Prime Minister last Thursday: free collective bargaining can be restored without undue damage."—[Official Report, 14th July 1977; Vol. 935, c. 779.] It was the end of an era, the close of an epoch, a 30-year epoch in the economic and political story of this country.

Why was it possible? It was possible because the philosophy had indeed changed. The Chancellor of the Exchequer has been—I know this because I have watched him over the years—a monetarist much longer than anyone has ever suspected of him. I used to listen with enjoyment to his speeches in the years 1972 to 1974, and I would shake my head and say to myself, "He will be a good Chancellor of the Exchequer, for he understands the real causes of inflation."

Oh, he understands them all right. The right hon. Gentleman and I had an amusing little passage last Friday morning, when I invited him to indicate what it was in the change of climate that now made it possible to have free collective bargaining. The first reason that he gave—he offered four, the fourth being an afterthought—was the real reason, namely, that the causation of inflation is not what has previously been alleged, the fact that wicked people succeed in putting up this price and that price and then this wage and that wage, but that the element of all prices and wages—the monetary element—however mysteriously in detail is self-evidently in general, by the behaviour of Government, expanded continuously. So, the right hon. Gentleman said that things will be all right, because the Government will control the money supply.

Whether they will do so, and how effectively they will succeed in doing so, may be material for another speech; but at any rate the theory—now we have the theory—is that, if we hold fast to the money supply and the cash limits, we can safely have free collective bargaining.

It was no good the right hon. Gentleman going on to say that his policy is also all right because this takes place at a time when the rate of increase in prices is falling."—[Official Report, 15th July 1977; Vol. 935, c. 997.] The right hon. Gentleman is not going to tell the Labour Party or the House, "If prices should start to increase faster again, hey presto you will have control of wages back. There will be an end to free collective bargaining, if prices should turn up again." That is not what he means. Nor does he mean, when he also says that the exchange rate is behaving much more favourably, that if the exchange rate should turn bad, that will be an end to free collective bargaining once again. No, it is free collective bargaining for good now. The world is safe for free collective bargaining. That is the new policy. That is the revolution of this last weekend.

It is a revolution of great significance and import. Free collective bargaining—qualify it and abuse it how one will—means that prices, including the price of labour, will somehow respond, however broadly or crudely, to supply and demand.

I am sorry to mention those words, Mr. Deputy Speaker, but that is what we really mean. When we talk about "strong" trade unions, we really mean that they are in a position of strong bargaining power. They are in a position of strong bargaining power because people happen to want rather badly the things that those workers make and the services that those workers perform.

So in fact we are witnessing the official adherence of the Labour Party to the principle—I am hesitant about pronouncing the words which are about to come because I fear that, though it is not my intention, I may offend both sides of the House at the same time; yet I must do it—of the free economy. For that is what it is proclaiming.

No doubt, on the Benches around me minds are ticking over and thinking "But this has nothing to do with the free economy. There is no free economy with the monopolistic practices of the trade unions. How can one talk about free collective bargaining being a mark of a free economy?"

To that I reply that there is no such thing as a theoretic free market, but so large and varied is the labour market that only minor fluctuations, minor inequalities, will be produced from time to time by the practices which I imagine in fact both sides of the House deplore when they occur, and that, broadly speaking, free collective bargaining does mirror the ebb and flow of supply and demand and the movements of real economic change.

It would also be a mistake for those on the Benches around me to say "Ah, yes. but price controls remain; the conversion of the Labour Party is incomplete because the Government are still implementing the Conservative policy"—I think they still have some vestiges of the Conservative Act yet—" of compulsory control of prices". But that is a very different thing. Price control is very different from the operation of either flat-rate or specific controls over wages. The Government know perfectly well, and we should understand perfectly well, that if one major element in prices is to be thrown into the market, if we are to have free collective bargaining for fixing relative wages, then, whatever the forms may be, we are also going to have free fixing of prices, through the market and in the market, however much it may be wrapped up.

So I turn to the objections which may be felt on the Government Benches when I declare the big event that the Labour Party has disclosed itself to have been, after all, an adherent of the free economy and—dare I go on and add its other aspect and concomitant?—the free society. They will say "But we are great believers in the power of the State. We are great believers in the beneficence of the State. We do not regard, as do some hon. Members on the Opposition Benches, public expenditure as necessarily of the devil."

I understand all that, but there is an immense difference between saying "We regard ourselves as being free to invoke the regulatory power, even the planning power, of the State where we deem it to be in the public interest" and the sort of Socialism which was being talked by the right hon. Member for Newham, NorthEast—I am sorry that he is absent—and the iron logic whereby he concluded "We shall have to put each group of workers in its place. Each person will have to be assigned his place on the scale."

There was a hint of that old Adam in a phrase which escaped the Prime Minister last Thursday. He realised—he is very quick—the implications of where he was treading and was careful to throw in a qualification. Nevertheless, it was a minatory sentence. The Prime Minister said this: My objection to free collective bargaining in its raw state"— that was his protective phrase, "in its raw state"; we have to take it "in its raw state"— is that it makes for no sense of justice between the various groups of workers."—[Official Report, 14th July 1977; Vol. 935, c. 779.] There is indeed a kind of society in which distributive justice as between groups in the State is carried out by the State itself and where the great movements of the economy, the great changes in society, are imposed by the State, and woe betide individuals, who are the carriers of those changes, if they step out of line. However, we now know—it is established from now onwards—that that is not the philosophy, that is not the Socialism, of the Labour Party, that its members are believers in the free economy, in the free society, in free collective bargaining.

I will make a confession. It has fallen to my lot to come out of joint—I did not choose it, it happened to me—with the party system in the past two or three years. I am not saying anything which you, sitting in that Chair, Mr. Deputy Speaker, will find odd because it is something that is constantly visible from where you sit; but it is astonishing how, once one is detached from the framework of one of the great parties, the common elements—the common elements in this House and the common elements in this country—emerge and assume a greater importance. It is commonplace that the functioning of this place depends upon the common assumptions which exist between the two sides of the House. But then so do the survival of this nation and its well-being depend upon the common assumptions which are shared by all, or nearly all, the elements in this country.

One of those common assumptions has to be the belief in what, clumsily—I apologise for that—I have been calling the free economy and the free society, by which I mean, once again, that, whatever be the role of the State, we do not consider it to be the State which will effect distributive justice nor be the arbiter of what the shape of society or the activities of all the people of this country shall be.

What has happened is owing to the unexpected and quite new denouement of an old play. One had almost got to think one was destined until one's dying day to see the old film round again, punctuated with the same devastating and unanswerable arguments in debate, but still coming to the same old disastrous close. But no, this time it was different. This time the denouement was not a miserable one. The denouement was a happy one—the opening out before us of common ground.

Of course, the Chancellor will not be concurring too explicitly with everything that I am saying [Interruption.] Perhaps he will, but at any rate he understands. I say that it is the opening up of common ground between the two sides of the House and common ground in the country outside, a common ground of freedom—freedom to make bargains, collectively and individually, freedom to work out in some sort of market, however imperfectly, our wills and our wishes, that has been the outcome this time. To me that is a good augury for the future.

6.30 p.m.

Mrs. Barbara Castle (Blackburn)

The House always enjoys the speeches of the right hon. Member for Down, South (Mr. Powell), and I again enjoyed his speech this afternoon, but I must ask the right hon. Gentleman to forgive me if I do not share belief in his so-called common denominator and in the prospects that he holds out of his free market economy.

I begin by rejecting the idea that the free market economy that the right hon. Gentleman has spelt out is synonymous with a free society. The cash limit society towards which he is trying to lure us—I shall come to my right hon. Friend the Chancellor of the Exchequer a little later—is one of human bondage just as great as, in fact greater than, in a society in which men and women freely decide to place constraints upon their market power in the distribution of awards and wealth in society. But the right hon. Gentleman has one great merit. He spells out to us with lucid logic theses which his own Conservative Front Bench has not the confidence or the courage to do.

Mr. Powell

It is not my Front Bench.

Mrs. Castle

I beg the right hon. Gentleman's pardon. I amend that to the right hon. Gentleman's ex-Front Bench.

The best that I can say about the speech of the right hon. Member for Finchley (Mrs. Thatcher) is that it was fortunate for her that so much of it was almost inaudible. That was partly because she gabbled through her prearranged statistical shopping list and partly because some of my hon. Friends made the mistake of heckling her and allowed her to save a dull speech from disaster and scamper away in a rhetorical romp. The result was that the already obscure nature of her policy analysis was left in a still more confusing state.

I suggest to Conservative hon. Members that the interest of Labour hon. Members and the country in the alternative policies that are being placed before us is entirely legitimate, because the success or failure of any policy is always relative. A policy must be judged not by whether it reaches perfection but by what the alternative would be and how successful or lamentable it would be likely to be. Therefore, for the sake of the country, we tried to find out the alternative policy that the right hon. Lady offered us.

At one point the right hon. Lady struck almost a Socialist—I nearly said "Marxist"—note, when she said "I do not want a society where might is right". Really? What else does her patent delight at the breakdown of our voluntury incomes policy mean? The right hon. Lady denounced free collective bullying. How else can we describe the threats of the doctors to strike, at the peril of patients, in order to force through an interim settlement to break the 12-month rule? Of course, the right hon. Lady was not objecting to that kind of bullying, because that is the sort of freedom in which she is interested—the freedom to let loose and exacerbate the disparities and inequalities in our society.

When the right hon. Lady was tackled on this matter she said that she supported the doctors' claim within cash limits for the NHS. Here she became for one moment almost as lucid as the right hon. Gentleman. Behind all her verbiage about not wanting free collective bullying—she saves that epithet for the miners and does not use it for the doctors—behind all her rhetoric about not wanting a society in which might is right, the right hon. Lady has done us a service this afternoon in spelling out to us that that is exactly the alternative choice that faces us when we have the collapse of a voluntary incomes policy.

What does freedom of collective bargaining for doctors under threat of strike action within the cash limits set down for the NHS mean? It means cash increases for consultants and cash limits for everyone else, including the sick. Therefore, the only freedom recaptured in the new free society is the freedom to increase one's income if one has a negotiating advantage and then face progressive impoverishment of the services that make a civilised, modern life worth while. That is what we are asked to vote for—the beggaring of services such as the NHS.

Mr. Ian Lloyd (Havant and Waterloo)

The right hon. Lady talks about the impoverishment of services. Would she regard the impoverishment of the NHS by the progressive emigration of all the consultants in this country as impoverishment or otherwise?

Mrs. Castle

That is an argument that has always been advanced by Conservative right hon. and hon. Members. When I was Secretary of State for Social Services I used to check the matter very seriously before answering Questions. There is some emigration, and I face the fact that our membership of the European Community probably means that it will increase a little. We shall no doubt lose a few consultants, but if we are to go for a society in which there is a free-for-all, in which doctors can blackmail the community by threat of leaving patients untended in order to get their way, I say that the NHS is far more impoverished by giving in to such threats.

It is always the minority, the vocal, militant minority—yes, the militants in the BMA—who set the tone. A far more typical character in the NHS is the whole-time consultant who, devotedly working in deprived areas and deprived specialities is not falling over himself for a distinction award or going into areas where private practice will increase his income. Those are the people whose salaries we should be increasing.

Mr. Neil Kinnock (Bedwellty)

The 45 per cent.

Mrs. Castle

Yes, the 45 per cent. of consultants in our NHS who are whole-time.

I do not believe that materialistic motivation is the only or even the most powerful motivation in our society. If I believed that, I do not know why I should be in politics. If it is all so mechanistic, why are we here? What are we arguing about? What is all human conversation and human co-operation about, if the mechanistic solution is the only one, as the right hon. Gentleman tries to persuade us?

It is obvious that the Tories rejoice at the setback to the social contract that we have faced in the past few weeks, because, as the right hon. Lady hinted, what she dislikes about it is that it brings organised workers into partnership, that it gives them a new status in the management of the economy, in the running of our political life. In our view, that is its greatest merit.

The right hon. Member for Down, South made a brilliant speech, as usual, but he gave us a false reading of history. The first two years of the social contract showed that there were effective alternative motivations in society and that organised workers were prepared voluntarily to sit down with the Government and to accept deliberate restrictions on their own market power. They were not statutory restrictions. We were pledged never to make them statutory, and I do not believe that the Government will ever do so. Organised workers sat down with the Government and said that what mattered to them was not merely the cash payment of wages, but the level of services, the fight for jobs and the fight against inflation. The success of that policy for two years was remarkable. There was not a single breach of the pay policy, even though standards of living were falling. Our strike figures fell to the lowest level since 1967.

What put an end to it? There is a simple answer. The Government did not—they would say could not—keep their side of the bargain. Restraint had been accepted to safeguard jobs, but unemployment increased. Restraint had been accepted to cure inflation. It certainly had a dramatic effect in the first two years, because the rate of inflation was almost halved, but last year the Government was forced, for various reasons, into abandoning social contract policies by the sort of ideology and arguments that were embodied in what the right hon. Member for Down, South has just said and that were encouraged and applauded by the Leader of the Opposition who does not want a more equal society. There was an undermining of confidence in our currency dues in large part, to the mismanagement of sterling in obedience to ideologies alien to those that inspired the social contract. It was due to the failure of the international community to recognise and reward the fact that the social contract was working and was bringing the returns and success for which we had all hoped.

All we needed was time, and that is what we were refused. It was the refusal of time to us, the refusal of a margin during which to work through the policy, that forced us into the acceptance of the sort of policies in which the Leader of the Opposition believes and that have brought us back to the old cuts in public expenditure, deflation, rising unemployment, increasing prices—due not to wage demands, but to internal action—more economic pricing in the nationalised industries as a result of the public expenditure cuts, and so on.

We cannot be surprised that, at the end of such a year, working men and women are saying that it is not paying off. I believe that the House and the country will live to regret bitterly that we disillusioned working men and women with the results of the social contract. The alternative, as the right hon. Member for Down, South told us, is the cash limit society with all that that means; a more unequal society in which the consultants will take the bit between the teeth, regardless of the effect on the resources of the NHS which are to be deliberately limited.

That is the choice facing us on this side of the House. We either believe in different motivations and gear all our policies around that belief, or we are forced into the mechanistic alternative. I say that knowing that the Prime Minister is the last person to wish to be forced into that sort of change. But we have been. My message is that we had better recapture our freedom as quickly as possible.

As our situation improves, as the balance of payments improves, as North Sea oil comes on stream, as we build up our reserves, as we gain room to manoeuvre, we must use these advantages to recapture the right to build the social contract again. I deeply regret the return to so-called free collective bargaining. It is inevitably part of the free-for-all society. I want us to build again the social contract and all the policies that go with it.

6.47 p.m.

Mr. John Pardoe (Cornwall, North)

Like the right hon. Member for Blackburn (Mrs. Castle), I was somewhat disappointed with the speech of the Leader of the Opposition. Like the Leader of the Liberal Party, I listened for some indication of what the Conservatives would do if they were faced with the problems that are facing the Government.

I thought that the right hon. Lady was rather less honest than her noble Friend, who made clear in another place earlier this afternoon that the policies that a Conservative Government would espouse would lead to higher unemployment and higher prices. That was a rather more honest prescription for the future under a Conservative Government than we received from the right hon. Lady.

The right hon. Lady's speech was a well-researched catalogue of the Government's sins of omission and commission. She did not need to convice the Liberal Party. Conservatives will have to understand that my right hon. and hon. Friends and I believe that for the first three years of their existence, this Administration were a very bad Government indeed. In that respect, there is little to choose between their record in their first three years and the record of the last Conservative Government, except that, if I had to make a choice, I should say that in their management of the economy, the last Conservative Government were the worst Administration this country has known since the war.

The Leader of the Opposition made one dangerous suggestion. She implied that there was no need for living standards to fall over the past three years. That is nonsense. I do not believe that there was any alternative to falling living standards following the rise in the price of oil, for which there is no point in trying to blame either side.

Mr. Nigel Lawson (Blaby)

My right hon. Friend did not say what the hon. Gentleman claims she said.

Mr. Pardoe

If the right hon. Lady did not mean that, there was not point in her accusing the Government of having reduced the living standards of the British people. It was an entirely irrelevant and nonsensical remark, unless she was saying that living standards did not need to fall. They needed to fall all right, and no Government since the war has had to preside over such an inevitable fall in living standards as that which has taken place in the last few years.

Moreover, I believe that that was a dangerous suggestion, since it will encourage some people—perhaps they will not need too much encouragement—to believe that it is too easy to get back those living standards by some immediate pay increases. That is the last thing that anyone in this House should encourage people to do.

Mr. Peter Bottomley (Woolwich, West)

The words to which the hon. Member referred, about there being no need for living standards to fall, were a quotation by my right hon. Friend of a statement by the Chancellor of the Exchequer three years ago.

Mr. Pardoe

I do not see that that in any way refutes my point. I hope that the hon. Gentleman is accepting by that remark that living standards did need to fall. If that is what he is saying, he accepts my premise.

The Leader of the Opposition made great play of the Government's broken promises. That is pretty easy. But I remind her that the Conservative manifesto of 1970 said: Labour's compulsory wage control was a failure and we will not repeat it. The Conservatives did repeat it. They not only repeated the compulsory wage control, they repeated the failure. I would have preferred her to talk about "The Right Approach" of October 1976, in which she could have told us what this means: Restraint in pay bargaining does not necessarily imply the adoption of a fully-fledged prices and incomes policy. Very well, what does it imply? What is the Conservative Party's policy for countering inflation? We do not know. I hope that the Shadow Chancellor will deal with this this evening.

Mr. Lawson

What is your policy?

Mr. Pardoe

There is plenty of time for me to develop that. The hon. Gentleman will get plenty of that in a minute.

The right hon. Lady told us that part of the Conservative programme is to make expenditure cuts. In saying this, she is apparently oblivious of the interview which the right hon. Member for Sidcup (Mr. Heath) gave yesterday, in which he said that it was impossible for a Conservative Government to make such expenditure cuts as are now being bandied about. I can understand why the right hon. Lady gave us no clear statement of Conservative policies. The reason is that there is none.

However, at least we were spared embarrassing references to the Victorians and Winston. Outside this House the right hon. Lady's utterances are peppered with such references. I wince every time they occur.

At the end of her speech she showed her hatred of the Liberal Party. What have we done? What has happened to the beautiful love affair? Only three years ago she was a member of a Cabinet which went on its knees with bouquets to woo us. Is it a case of hell having no fury like a woman scorned? Perhaps it is not. Perhaps it is more likely that she knows that By gradual steps, by steady effort from day to day, from year to year, Liberalism enlists hundreds of thousands upon the side of progress and popular democratic reform whom militant Socialism would drive into violent Tory reaction. That is why the Tory Party hate us. She will find those words very familiar. They are Winston's of course. [HON. MEMBERS: Encore!"] Conservative Members may call for encores. They will get masses of encores if they listen to the right hon. Lady.

In considering the Government's present strategy there is no point in pretending that things are what they are not. The Chancellor's statement last Friday is not a policy; it is a statement of objectives—objectives which we share, but none the less they are no more than objectives. What we have from the Government is not what the Government wanted. It is not what the Liberal Party wanted. It is not what a Liberal Government would have done. The Liberal Party believes that in the foreseeable future an enforceable prices and incomes policy is essential if we are to have stable prices and full employment.

Enforcement does not mean sending people to gaol; it means using the tax system to tax the inflation makers. That is a perfectly Keynesian approach, which I hope that those in the House who are still Keynesians will accept. It is ridiculous—I have to take the Prime Minister to task here—to allow the impression to get about that the pay policy was a failure. That is somewhat implicit in the statement by the TUC Economic Committee. I do not believe it. One does not have to look further than the latest Bank of England quarterly report, at page 144, to see how far labour-cost-produced-inflation has fallen as a per- centage of total inflation. In the second half of 1974 labour costs were 74 per cent. of the increase in total inflation. In the first half of 1975 they were still 74 per cent. By the second half of 1975 labour costs had come down to 47 per cent. By the first half of 1976 they had come down to 35 per cent., and by the second half of 1976 they were at 22 per cent. The pay policy has worked.

It is also stupid to try to suggest that the pay policy has somehow foundered by popular request. Opinion polls have consistently shown a substantial body of support for stringent controls of prices and pay. Even now, with the collapse of this policy, the latest opinion polls show only that over 40 per cent. of the people believe the policy should be statutory, and a large majority of people believe that the Government are right to set their guidelines. As I understand it from the Leader of the Opposition, she does not even think that it is right to set guidelines, let alone statutory control.

The right hon. Lady the Leader of the Opposition and some right hon. and hon. Members on the Labour side are glad that we are going to free collective bargaining. What is free collective bargaining? It is nothing but an agreement between two groups of monopolists under which one raises the price of its labour while the other undertakes to pass the increase on to the consumer. That is what we have seen happen. I believe that there is a need for a prices and incomes policy for at least as long as we retain the present bargaining system, because the present bargaining system will not allow free collective bargaining to work. Of one thing we can be absolutely certain: at some time some Government will be back asking the House for another prices and incomes policy.

We now face a very dangerous situation, with the possibility of a pay explosion. Such things have always followed pay policies. We are on the brink of a pay explosion once again. Even before the Chancellor's statement, when it was expected that the Government would reach some agreement with the unions, employers were expecting pay increases of between 12 per cent. and 17 per cent. Most forecasters are now expecting an increase of between 15 per cent. and 20 per cent. If that happens, it will be a disaster.

Have the Government's policies a chance of preventing it? Will the Government's proposals defeat inflation? I find that extremely doubtful, but I have to admit that there are plenty of economists who say that they will. On the whole, the monetarists say "Yes, provided that the Government hold the money supply lines", and the Keynesians say "No". It would be nice to know what kind of economists we have in the driving seat. The Chancellor seems to float between Cambridge and Chicago. The currents are strong in the Atlantic, and land is a long way off—

Mr. Kinnock

He walks on the water.

Mr. Pardoe

It is only the Liberal Party that walks on water.

In his statement last Friday the Chancellor said: if the rate of increase in earnings is as high as 15 per cent., we should not get inflation down to 10 per cent. at all, and it would be rising steadily through the second half of next year and into 1979…if the rate of increase in earnings were as high as 20 per cent., prices would soar and we should be back in the situation that we faced just over two years ago."—[Official Report, 15th July 1977; Vol. 935, c. 988–9.] However, the right hon. Member for Down, South (Mr. Powell) does not believe that. Monetarists do not believe it. They believe it is nonsense.

Mr. Lawson

It is nonsense.

Mr. Pardoe

The hon. Member for Blaby (Mr. Lawson) thinks that it is nonsense. I believe it. The Chancellor of the Exchequer and the Treasury believe it. The sooner that the whole British public believe it and act on it the sooner we shall be able to take effective action against inflation. I regard those on both sides who do not believe it as siren voices. They tell the British people that nothing can affect the rate of inflation; that it has all been decided. Price rises, they say, are like predestination, whether it happens in the womb or in the banking system. They are all decided by whatever happened to money supply 18 months earlier. This is a nonsensical suggestion, and I make no bones about the fact that I am on the sides of Keynes in the argument between the monetarists and Keynes. This is not the time to develop the full reasons for that statement, but the Liberal Party's advocacy of a prices and incomes policy arises out of that contention. It is not just a matter of our advocating intervention for intervention's sake.

What is it that the monetarists ask us to believe? At its simplest, they ask us to believe that because the Government were successful in selling Government stock at a ruinously high rate of interest at the turn of the year the rate of price increase will fall in 1978. To be fair, not all monetarists believe that. Even Samuel Brittan, in the Financial Times, has been crawling back a bit on that point. On 14th July he said: If it really were true that the rate of inflation were rigidly linked to the money supply with a lag of eighteen months, or whatever, there would be no need to worry about the ignominious collapse of phase 3. Such absurd mechanical linkages mainly exist in the rhetoric of the economic establishment and have never been espoused by sensible monetarists.

Mr. Lawson

Hear, hear.

Mr. Pardoe

Perhaps not by sensible monetarists, as the hon. Member for Blaby indicates. But there are not too many sensible monetarists about, and certainly none on this side of the House. [HON. MEMBERS: "Whose side are you on?"] I am on the side of Britain. Which side are the Opposition on?

For those who do not follow these matters too closely, one should point out that even though the monetarists do not base their argument on absurd mechanical linkages, they do base them on an absurd mathematical formula. The monetarist equation is this: money supply multiplied by the velocity of circulation equals output multiplied by prices. But it would be as easy for output to go down as for prices to go down.

That may not happen in the long term, but what will happen in the short term? Indeed, what is the "short term"? The high priest of monetarism, Professor Milton Friedman, says this: In the short run, which may be as much as five or 10 years, monetary changes affect primarily output. Over decades, on the other hand, the rate of monetary growth affects primarily prices". Therefore, we may have to endure falling output for five to 10 years before the monetarists' prescription can effect a cure.

That is the prospect before us. What will that mean for the British people, and particularly for school leavers? It will mean a return to mass unemployment for five or 10 years. There is no hope of bringing down unemployment if we are to employ the monetarist concept. Nor is there reason to suppose that we shall end up with full employment at the end of that period. There can be no certainty that we shall achieve the equilibrium in which the economy will return automatically to full employment. That is what Keynes said, and it is one of the main reasons why I claim to be a Keynesian.

Monetarists tend to answer this kind of criticism by pointing to those countries in which they allege that monetarism has been pursued, Keynesian policies have not been adopted, and everything has gone splendidly. The two countries to which they primarily look are Germany and Switzerland. The fact is that if Germany and Switzerland had not had a reservoir, of guest workers whom they could pull in or push out as and when the economy required, the whole situation would have looked different. If one adds to the total of unemployed persons the guest workers who have been pushed out of the German economy, one sees that there has been no success for monetarism in Germany. Any such claim to success is therefore a fallacy. Because of public opinion throughout Europe, the Germans are now finding it difficult to push out guest workers. They are having to retain those workers. Consequently unemployment has now become, in Chancellor Schmidt's view, "Problem No. 1".

In 1975 the gross national product in Germany fell by 3.2 per cent.—[Interruption.] I wish that the hon. Member for Blaby would shut up. He is becoming the House bore. As I was saying, the German GNP fell by 3.2 per cent. and at the end of that year unemployment stood at 1 million. In 1976 the German GNP rose by 5.6 per cent. and unemployment was not affected at all. We see there a situation in which a 5.6 per cent. growth in the German economy does not improve the employment situation. So what will happen in this country with the much lower growth rates that are predicted? Shall we ever get our unemployment figure down? I believe that if we go along the path of monetarism and ditch the commitment to Keynesian policies we shall be tolerating the intolerable—and I do not intend to do so. There is no reason why we cannot use Keynesian policies to deal with inflation, just as we used them to deal with the problem of unemployment.

I should like to put three points to the Chancellor of the Exchequer about the workings of his policy. In regard to the 12-month rule, I support the objectives. The TUC statement on 22nd June was helpful. The TUC economic statement issued yesterday confirming it was perhaps even more helpful, since it confirmed that the TUC was still of that mind.

Nevertheless, there are great difficulties. It will be even more difficult if the phase 2 settlements negotiated now or in the last few months are overtaken by large phase 3 settlements. People who settled for £4 in July will not take it kindly if those who settle under phase 3 in September, October or November of this year arrive at a figure of 25 per cent. or 28 per cent. However, at least we have a situation now in which a strike against the 12-month rule will be a strike against the TUC rather than against the Government. That is important and a great improvement.

We have no method of enforcing either the 12-month rule or the 10 per cent. guidelines, and therefore the only weapon is mobilisation of public opinion. Whenever any group tries to get a large pay increase the consequences of that increase for the consumer, for other trade unionists and for those who are, or who will become, unemployed must be spelt out to the British public. That means that each pay settlement must be monitored, its consequences calculated, and the facts publicised.

In this period, in which we are moving back to so-called free collective bargaining—and I notice that the Chancellor said "normal" rather than free "there is a greater need for publicity than even during phase 1. It might be best to give the job to the National Consumer Council, but the council should be given the tools for the job. We need a monthly statement to Parliament on the progress of the policy, on average earnings and on settlements made. This is a matter of such importance that it should be done by the Prime Minister, because that would underline the importance that the Government attach to the fight against inflation.

The control on cash limits in the public sector must be made much more specific, and I hope that the Chancellor will say something about that. What will the cash limits be in relation to pay? In reply to a Question from the hon. Member for Horsham and Crawley (Mr. Hordern) last week, the Chancellor said that the limit would be 5 per cent., but will that be 5 per cent. of total labour costs, or earnings per head? Cash limits must he set Department by Department and programme by programme. Otherwise there will be cross-subsidisation, and a saving on one thing, such as public investment, will be used to subsidise pay increases in either the same Department or another one. We need far more specific information and publication of the cash limits.

In the private sector the Chancellor has no clothes at all. It is unfortunate that without some method of enforcement the private sector could overtake the whole policy. Of course, some people say that that would not matter—that an efficient firm could afford to pay and still be in business. However, the trouble is that that could raise expectations. If Fords settle at 28 per cent. in November, the sky will be the limit for everybody else. There must be a method.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

Will the hon. Member say what disciplines he would like to see to enforce the limit in the private sector? Will he spell out the limit?

Mr. Pardoe

I was about to answer that. There should be a specific commitment by the Government to increase the taxation on the corporate sector severely if, after three months, the level of earnings in the corporate sector had increased by more than what would equate with the 10 per cent. annual rise in earnings that the Chancellor has spelt out. The Chancellor should say now what the penalty will be. He should not wait until the Budget.

Mr. Heffer

For the record, unions are asking Fords for 15 per cent. and there is no question of talking in terms of 28 per cent. The unions know jolly well that probably they will not get that much.

Mr. Pardoe

The hon. Member for Liverpool, Walton (Mr. Heffer) has been engaged in pay negotiations long enough to know that that is an extremely naïve point. The 15 per cent. that is being asked for at Fords, plus all the bits and pieces, has been calculated by the management to be 28 per cent. That is part of the problem that we face.

The Tory Party seems to think that we are doing a gross disservice to it and the country in continuing to support the Labour Government. I should like to point out to the right hon. and learned Member for Surrey, East (Sir G. Howe) an article in the Economist this week—

Mr. Heffer

It is 15 per cent.

Mr. Deputy Speaker (Mr. Bryant Godman Irvine)

Order. Observations from a sedentary position are deprecated.

Mr. Heffer

On a point of order, Mr. Deputy Speaker. I repeat, for the benefit of us all, that the figure for which the unions are asking is 15 per cent.

Mr. Deputy Speaker

As the hon. Gentleman knows, that is not a point of order.

Mr. Heffer

It is no good lying about it.

Mr. Deputy Speaker

Will the hon. Member try to contain himself? [HON. MEMBERS: "Withdraw."]

Mr. Pardoe

No doubt the right hon. and learned Member for Surrey, East read the article that appeared in the Economist this week. I am sure that he noted the words: It has for a long time seemed clear that the best hope for the country will be if a Labour government is in power when that eventual confrontation is joined with a union which can (like the coal miners four winters ago) bring a large part of British industry to crisis. It has been even clearer that the worst danger for the the country will come if a Labour government flees from responsibility just as the confrontation becomes inevitable. Then Labour-in-opposition might cry that demands for 90 per cent. wage rises by miners, whose productivity is falling, are being blocked only by Mrs. Margaret Thatcher's class warfare; and Britain could pass down Argentina's post-1945 road and become ungovernable. We shall stay with our agreement with the Government as long as the Government's resolve in the battle against inflation holds. We shall remain with it to bolster that resolve. When that resolve falters we shall fight an election on our policies and not on the failure of other people's policies—which is the only alternative that we have heard from the Tory Party today.

7.8 p.m.

Mr. Sydney Tierney (Birmingham, Yardley)

In my contribution I do not intend to try to cover all the facets of this debate, and far less do I want to attempt to give all the answers. The subject that I want to raise concerns the problems of the low-paid. It is a narrow subject, but I do not apologise for that because a large number of people in this country belong to the army of the low-paid.

Over past years we have experienced successive attempts to hammer out an effective prices and incomes policy, and all that we have achieved in these attempts has been periods of wage restraint, and that is not the same thing. We appear to be coming to the end of another attempt to bring about restraint.

Those who choose to scoff at the social contract must find something better, because although the social contract has not achieved everything that it set out to do, it has achieved a climate of understanding, which never existed before. Certainly the targets for inflation and employment levels have not been met, and opponents of restraint on both sides of the House will point out that the unions have failed to improve and defend the living standards of their members—which is the chief function of the unions—and that consequently the standard of living of trade unionists has fallen. Would workers and the country have been better off without wage restraint and the social contract?

That question is worthy of consideration. The odds were that this country was well on its way to an economic catastrophe of great magnitude in 1974–75. Millions of workers, rankand-file trade unionists on low pay, the old and the sick, would have suffered greatly. That part of the social contract—and I say "that part" deliberately—that dealt with prices and incomes made a positive contribution in a difficult situation.

Mr. Arthur Lewis (Newham, North-West)

When my hon. Friend gets time, perhaps he will look at this evening's edition of the Evening Standard, in which it is said that Prices leap to record level over pay. It is true that the trade unions have done a magnificent job, but he cannot say that the Government have been swamped in their attempt to keep prices within reasonable levels, otherwise the ministerial statement would not have been published today.

Mr. Tierney

I can still repeat to my hon. Friend, even after the reference that he has made, that that part of the social contract dealing with prices and incomes made a positive contribution in a difficult situation. If he is saying that it is getting more difficult, that is another matter, but it made that contribution in that difficult situation.

In successive periods of wage restraint the term "rough justice" has often been used to gloss over the many inequalities that incomes policies contain. When the injustice gets too rough there is a clamour to return to free collective bargaining to put the matter right and smooth out some of the inequalities. The problems of differentials, skilled workers, consolidation, productivity schemes and low pay have to be looked at. I say most emphatically that these problems are certainly made worse in the rough justice situation of a pay restraint period, but they are problems that have always been with us and will always be with us unless we have an equitable and just incomes and prices policy, as opposed to wage restraint that is effective and a prices policy that is not.

The problems of differentials and of skilled workers arise from many sources, including outmoded industry and weak employers. As we have seen, supervisory and technical staff have been joining trade unions as fast as they could because of the very bad pay and standards over the years. We see that skills go unrewarded sometimes because they are never properly exploited and because of outdated machinery and practices that belong to the last century rather than this one. There are many other reasons why we have differential problems, problems in regard to skills, and so on, apart from any pay restraint or pay policy.

Since the war—and I think that this ought to be and will be generally accepted—while our standards have improved, we have remained in the low-pay, low-productivity league. Long there we shall remain till higher wages, real wages, are linked to higher output and greater productivity. Our standards will remain less acceptable than those of many other countries with which we have to compete. It is common knowledge that those who are least able to mobilise their labour power for a wages offensive in any situation are always the most vulnerable. They will continue to be the most vulnerable if we return to beggar-my-neighbour attitudes and policies which lack justice and equality in the future.

The low-paid have suffered severely in recent years for, in the main, three reasons: punitive levels of taxation as applied to them in their particular region; rocketing food and fuel prices; and the inability of weak employers to pay a living wage and of weak trade unions which have not been there to insist upon that. The low-paid have been the principal casualties of the unacceptably high rate of inflation. Action is urgently required to assist them.

It is crucial that the Government take effective action on basic food prices. I am pleased to note from the statement and the debate that we had on the Price Commission Bill that they intend to bring stricter controls to bear through the Price Commission on gas, electricity and so on, in areas in which it has not been operative previously.

On my first point, and regarding taxation, I welcome what my right hon. Friend has already announced. Further steps must be taken to remove lowly paid workers from the penal and nonsensical effects of income tax and the repercussive effect of the poverty trap. This is a farce, which ought to be done away with as quickly as possible.

On my second point, another trap in which the low-paid are often caught is that, pro rata, their fall in living standards has been more rapid because of rocketing food and fuel prices. I want to refer to the retail price index. The RPI under-estimates the impact of rising prices on the lower paid. An examination of the Family Expenditure Survey shows that certain expenditure groups form an increasingly large proportion of household expenditure as family income falls. Therefore, if the price of those com- modities rises faster than the average level of prices, this causes the cost of living for low-income groups to rise faster than it does for other groups.

I should like to give an example of this. The level of prices for food, fuel and light have risen faster than the all-items figure. From March 1976 to March 1977 the all-items figure rose by 16.7 per cent., but in the same period food prices rose by 21.3 per cent. and fuel and light prices rose by 17.1 per cent. There are often significant variations within certain price groups. For example, fares have risen faster than motoring costs within the transport group. The figures from March 1976 to March 1977 show an increase in motoring costs of l4.7 per cent., whereas for fares on public transport the increase was 20.7 per cent. That shows that there was a considerably higher increase in fares over the last 12 months than in motoring costs. The lower-income worker using public transport is obviously facing higher prices than the higher paid car user. That brings out the effect that the policy has had on low-paid people in the last two years.

On my third point affecting low-paid workers I want to refer to the inability of weak employers to pay a living wage where their is, in the main, no trade union organisation. I refer particularly to sections of retail distribution and catering as highlighted in the Wages Council blitz that has been carried out in recent months. We hear a great deal from the Opposition Benches about the small businessman and the difficulties in which he is placed, and so on, but it is fairly obvious that a great number of difficulties in the establishments visited by Wages Council inspectors are caused by the competition between retail distribution companies, some of which remain in existence because they pay very low wages.

It was discovered when the blitz took place that there are many in the retail distribution and catering industries many employers who plead guilty, not only to not paying an average industrial wage, and not only to not paying the trade union rate, but, as we have seen, even to not paying the legal minimum rate. They are breaking an Act of Parliament, and they should be dealt with in the way in which the law decrees, because the employees affected need all the protection that they can get when inflation eats away at their earnings.

I ask the Chancellor to look at this area in order that within the whole Wages Council system he can introduce more realistic wage norms, and not only that but ensure that these norms are paid when they are agreed as Wages Council rates.

It is my view that the greatest differential problems that we have—and we have had much talk about differentials—and the problem that we shall have to face in future is the difference between the average low wage, such as the wages to which I have just referred, and the average wage earned in the country. When we come to determine future policies on prices and incomes, and particularly in the light of a possible free-for-all, we need to give a great deal of attention to this particular part of the problem.

In the final point that I want to make about the low-paid I should like to refer to an article in last Friday's edition of The Times, under the headline, Dilemma for the Cabinet over profit margins and dividend controls. That was before the Chancellor's statement. We now know what is to happen about dividend controls, so I want to raise a query about profit margins.

Workers in the food industry, with which I am familiar, whether they are in manufacturing, processing, wholesaling or retailing, firmly believe that the industry in which they work has been used as a political football by successive Governments for a very long time. The Government have responded to the need to check on prices and profits in the food industry—and we accept this in what is an emotional and sensitive area in measuring the living standards of the general public. For example, a 1p increase in the price of bread causes a greater outcry than a £100 increase in the price of a new car, because the nation's attention is purposely drawn to the price of food by successive Governments and the policies they have pursued. Workers in the industry truly believe that the effect of this over-scrutiny and restraint contributes much to making the industry a low-wage industry whose recruiting is done at the bottom end of the labour market as a consequence. They also believe that through their low wages they contribute in effect one of the few remaining food subsidies.

It is suggested in the article that if the Government cannot produce a pay policy they are committed to discontinuing profit margin controls. On the other hand, there is a suggestion in the article that the Government might still be able to exercise this control in some other way. Will my right hon. Friend clear up this important point? If he is able to control profit margins, particularly in the retail and distributive section, to osffet the 15 per cent., 20 per cent. or 25 per cent. pay claims in other sections of industry—some of which might well get through—he then unfairly restricts the ability of workers in the distributive and retail sectors to get similar percentage increases because of the narrower profit margins brought about by Government action.

Mr. George Rodgers (Chorley)

My hon. Friend is making an enormously interesting point. Will he concede that many of the major food retailers have recently declared profit increases of between 30 per cent. and 70 per cent.? Does not he think that there is room for curtailment of these profits to improve the lot of the workers about whom he is speaking?

Mr. Tierney

I appreciate that this is an area which we can look at from both angles. We are concerned with holding prices, and holding profits will help to hold prices. It is right that we should watch the situation concerning profits and controlling prices.

There must be no extra disability placed on workers in the distributive industry in going for the same kind of increases because the Government restrict profits to narrow margins and, consequently, the moneys from which these increases can be negotiated. In this kind of free-for-all situation, if that is allowed, workers in the distributive and retail trades will be free only to observe others moving further and further away from them in an ever-widening gulf, perpetuating the most dangerous differential problem of all.

Workers in the low-pay sections of industry, who are the majority of workers in this country, need the protection of a realistic wage norm to bargain with employers. It appears that we are about to return to the bargaining table and, in an effort to achieve some measure of restraint and orderly return to some form of collective bargaining, fettered or unfettered, over which the Government, trade unions and industry might have some degree of control, although it now appears that that will be limited. Let it not be a return to the strip poker game where one side says "You show me your cards, and I might show you mine." Some do not want to be involved in the game, some have thrown in their hands already, and low-paid workers want a fairer hand and a better deal. I say this with due respect to dockers and miners.

How many crises must we face before we accept the need for restraint and collective action by Government, the TUC and industry to achieve economic viability? How many crises must we face to achieve industrial strength and fairer and more just rewards for all classes, irrespective of the industry in which they work? The effort must be made, and I call on the Government to play their full part in getting a fair deal for all low-paid workers.

7.35 p.m.

Mr. Maurice Macmillan (Farnham)

I hope that the hon. Member for Birmingham, Yardley (Mr. Tierney) will forgive me if I do not take up his argument about low-paid workers. It is not that I do not appreciate the importance of the subject. I had a certain amount to do with it when the Conservatives were in office. But I think it would have been much better if the tax credit scheme that we had prepared had been put into practice.

In general terms, the situation that we are debating is almost depressingly familiar. It is almost like one of those Westerns that one sees on the television. The scene is much the same. There is hardly any difference in the plot and there is not much change in the actors, although some of them have switched roles. We also have the permanent resident critic, the right hon. Member for Down, South (Mr. Powell).

I fear that from what the Chancellor said in his statement and what the Prime Minister said in his speech, this drama is only too likely to have the same end as it had before, because no one believes that 10 per cent. on earnings will not in fact become 10 per cent. on the ordinary basic settlement. I agree with the Prime Minister that any Government must govern by consent, but that is not the same thing as trying to govern by a mixture of exhortation tapering to appeasement if exhortation fails.

Taking the somewhat depressing view of the right hon. Member for Newham, North-East (Mr. Prentice), we look as if we are back on the vicious circle, with the Government facing two possibilities: either being forced into confrontation or trying to stand firm on their policies and then being forced into an election, by which time the Government will have been deserted by their Liberal allies or choosing to have an election just before the wage explosion works through into prices, so that they can reap the benefit of the one without having the troubles of the other. The right hon. Member for Down, South was a little more optimistic because of his certainty about the conversion of the Chancellor of the Exchequer to monetary policies.

Certainly I believe that it should be easier for the present Government to avoid some of the mistakes of the past. As my right hon. Friend the Leader of the Opposition said in her splendid opening speech, at least everyone now recognises that it is foolish to take short-term measures either to bring down inflation or to bring down unemployment, if those measures will themselves lead to more inflation and rising unemployment later. It is generally accepted that inflation itself is the major enemy of full employment. I thought that I detected in Government speeches—perhaps not fully supported by hon. Members on the Labour Back Benches—that they accepted the need for controls on public spending. I am bound to say that there are two sorts of expenditure. There are some sorts of expenditure that the Government are required to make which will generate activity in the private sector, because they are the only customer for the private sector for arms—certain types of heavy construction and equipment, power stations and so on.

But I believe it to be generally accepted—it certainly should be accepted by the Government—that what is wrong is the proportion of public spending on income account, rather than this kind of public investment, in relation to the total available to the private sector. It is the pre-empting of resources of manpower and investment by Government provision of non-marketable goods and services which has got out of phase with the marketable sector.

The hon. Member for Stoke-on-Trent, Central (Mr. Cant) made some extremely interesting comments about exchange rates, the floating pound and their relationship to interest rates. I agree with most of what he said, and I hope therefore, that we can avoid another mistake which has, I believe, bedevilled past attempts to deal with these problems. I refer to an over-concentration on domestic remedies, on remedies here at home. [Interruption.]

Mr. Deputy Speaker

Order. I think that the hon. Member for Newham, North-West (Mr. Lewis) has probably got the message now.

Mr. Arthur Lewis

Yes, Mr. Deputy Speaker, but an hon. Member is entitled to have with him a paper from which he needs to quote in debate. I hope to catch your eye and to quote in my speech the report that the Government have allowed the State-backed British Sugar Corporation to raise its dividend by 100 per cent.

Mr. Deputy Speaker

Order. If the hon. Gentleman should catch my eye, we may then hear what he wishes to quote.

Mr. Lewis

But, with great respect, Mr. Deputy Speaker, you did not hear my point. You called me to order when I was studying my notes, and my notes point out that the Government have today allowed the British Sugar Corporation to increase its dividend by 100 per cent. That is not out of order.

Mr. Deputy Speaker

Perhaps I can help the hon. Gentleman. I am not aware that he has applied to be called in this debate.

Mr. Lewis

I must protest strongly, Mr. Deputy Speaker. I have been here quite a long time, and I have always understood that a Member is entitled to rise at any time to catch the eye of the Chair. There is nothing in any rule which says that there must be a list, and I object strongly.

Mr. Deputy Speaker

Order. If the hon. Gentleman does not regard my information as helpful, he can make such use of it as he wishes. Mr. Macmillan.

Mr. Arthur Lewis

I am sorry, Mr. Deputy Speaker, but you have made a statement which is against Standing Orders and the accepted practice of the House that any hon. Member has the right to catch the eye of the Chair.

Mr. Deputy Speaker

Hon. Members have the right to stand at any time which they think may be suitable.

Mr. Macmillan

I think that the hon. Gentleman would have found the news he is seeking a little earlier on the tape rather than in the stop press, if he is worried about his own investment.

Mr. Arthur Lewis

I hope that the right hon. Gentleman will not think that I am disagreeing with him in any way. What I am disagreeing with is being called to order when I am trying to get my notes prepared for a speech.

Mr. Macmillan

I apologise, Mr. Deputy Speaker. I thought that the hon. Gentleman was looking at the racing results.

I was saying that we have in the past made a mistake in over-concentrating on the domestic side of our policies, particularly monetary policies. That mistake ought to be easier to avoid in the future than it has been in the past because of the coming on stream, as it is called of North Sea oil. This will help with the balance of payments. It will help with the public sector borrowing requirement. It could, provided that it is invested and not wasted, help to reduce the domestic credit expansion; also in the process it need not expand the money supply unnecessarily.

I believe that we can hold this situation, especially since both right hon. Members who represent different parts of Leeds have become monetarists. They will have less to disagree about now, either here in the House or in Leeds. But I set two provisos for success. There are two requirements to be met for the sort of policies to which the Chancellor of the Exchequer has been converted to work.

First, we must use the North Sea oil revenue properly. This could lead to a massive improvement in the balance of payments, followed a little later by a reduction in the public sector borrowing requirement as the taxes and levies on oil production flow into the Exchequer. But North Sea oil is a capital asset, and as such it increases the national income. If we regard it as a cure-all for all our difficulties, there will be a grave danger that the demands it will lead to will cause spending by an amount greater than the increase in the national income, and if that is allowed to happen it could entail an even greater rate of inflation than the biggest wages explosion could create.

Second, we must concentrate a little more than we have in the past on the other side of the inflation equation. Everyone knows that inflation is too much money chasing too few goods. Where I think the monetarists should direct their attention, as Keynes would have done, for in that sense he was a monetarist, is in concentrating monetary polices not only on the reduction of the money supply but on the production of more marketable goods and services. Any Government, therefore, must adopt policies which will help in the creation of new wealth, not only by new investment but by encouraging the proper use of existing equipment and discouraging overmanning and by helping through more flexibility to keep the machines going.

I turn now to the sort of policies which I believe the Government should follow in the present situation. The control of money supply is a technical operation which affects the private sector only and perhaps the non-monopoly publicly-owned companies. It is a matter of technical judgment. But it cannot help with nationalised industry or public sector settlements because they are made, directly or indirectly, under the Government's direct control. The Chancellor's resolution in controlling the money supply and thereby the private sector must therefore be matched by his resolution in keeping firm on the cash limits of the public sector.

The Chancellor's problem throughout is to keep a balance so that growth goes forward both without inflation and without having to rely on very high interest rates. This is another reason why monetarists should take a more international view and a more international line in trying to keep the inflation rate down and interest rates down. In the context of North Sea oil, I believe that this requires that the Government do not try to prevent either the depreciation or, more important later, the appreciation of sterling against the dollar. Otherwise, there will be the great danger of their being tempted to reflate and increase public expenditure as soon as North Sea oil has removed the immediate constraints of the balance of payments deficit and the public sector borrowing requirement.

I thought that the hon. Member for Stoke-on-Trent, Central got that aspect of the matter right—that it is a question of matching interest rates and not only allowing the pound to float up or down. But I would add, in order to get investment from the oil revenues either at home or overseas, or both, progressively to lift exchange controls. This will prevent reckless spending.

If we are to get more goods and services and real growth in marketable goods and services, quite a lot needs to be done at home as well as abroad. We have to reduce direct taxation, because it is the take-home pay after deductions that people mind about—both the low-paid and every level of management, who have been hit even harder than many shop-floor workers. It may be well argued that a lower income tax would bring about a bigger yield from the tax—that 50 per cent. of 100 in yield terms is greater than 90 per cent. of 50—and in economic terms the difference is a growth without inflation. If there is a gap which is not filled by the oil revenue, I believe that we should increase indirect taxation and perhaps if necessary employee contributions to insurance.

We have to take a completely new look at productivity. We have to accept that productivity is a factor of machines and investment rather than of people. Therefore, the essential thing is to keep the machines going flat-out, and management and unions have to get together in discussion on how best to do it. For example, in industries where there is a high absentee rate or great overmanning, it might be better for people to have more leisure for the same pay and thereby seek a high output at lower labour cost. That is true in my own trade, printing, in that the average earnings in the United States are nearly three times those in the United Kingdom and the labour costs are just about the same because the Americans are effective in running their machines.

It is all very well to talk glibly about self-financing productivity schemes. The real question is what is required in each industry and each place of work to achieve a steady growth in demand, employment, and real wages without pricing the product out of the market. We have to negotiate not on catchwords but on facts.

I do not think that there is any quarrel between most hon. Members about the need not only to use our existing equipment more effectively but also to make new investment. I think it possible that North Sea oil will help us to do that, especially in the productive end of Government investment—in power stations, for example. I do not regard the building of Drax B, for example, as being necessary to appease the miners but necessary in order to preserve skills and capacities which we are otherwise in danger of losing for good. The same thing applies to other high technology industries.

The Government are failing the country in the most dangerous way by refusing to make a decision on nuclear power. We shall have an energy gap in a few years time if the Government do not decide now. The Government should also be making up their mind about the future of the computer industry. A great deal of new investment must be done very soon if skills and abilities, the planners, the designers and the skilled men are not to disappear for good and so lose to us a whole range of activity which could employ our people effectively and profitably. I accept that this may well require a joint effort with our partners in Europe there is the example in air-craft construction. There is certainly a strong case for combining more closely with Europe in defence industries, particularly through greater standardisation.

I end by making a point which I do not think will be widely accepted in the House. I believe that there is a very strong economic case for increasing rather than reducing defence expenditure. This case is in addition to the defence purpose—the need to increase our contribution to NATO, the need for more NATO equipment to be supplied from European and British sources rather than American. There is no doubt about the need to strengthen the European capacity within NATO, especially in conventional weapons. I think that the American nuclear shield is in danger of becoming less and less credible, particularly as far as fringe erosion of the West is concerned and for ensuring that we can maintain the security of our raw materials in Africa and keep our sea routes open.

Quite apart from that, we have the ability and capacity to make arms and warships and aircraft and sell them overseas. But we cannot do it if we do not use them ourselves, because people will not buy them unless our own use of the equipment ensures our customers that their spare parts will be available. This would give markets providing employment where it is most needed—ship-building, for example—and where there is no adequate civilian market to take up unused capacity. It would also help to keep the high technology and skills which we need, and it would be a great help in the areas of very high unemployment. We have seen and been given examples of the large loss of jobs through existing defence cuts, let alone what would be entailed in the extra cuts proposed by the Tribune Group. All this is something that should be carefully considered.

There is one other point. Future full employment depends on the capacity to develop small industries and to enable them to grow, and on our small companies. We have a smaller proportion of companies employing 10 people or fewer even than the United States, and ours is a diminishing figure, made up of those who are hanging on against penal taxation and the demands of a bureaucracy on their time and effort. In America, the number is more or less static but it is changing constantly in composition as new people start up, some going bust at the other end, and some growing larger. It is this liveliness that we have to get back into our economy.

Building up on the basis of an armaments industry could help here, too, because it is the smaller firms which supply the large ones, and their marginal costs would be reduced by the contracts that they would have, thus making them more competitive in expanding.

I accept that this is a difficult concept for us. But looking at the United States economy, it is easy to see that the sustained growth, and the growth in real income, matched the periods when the United States economy was on a war footing.

I do not say that the other sorts of policies that I have been trying to advocate very briefly are easy. They depend upon a determined switch from non-marketable to marketable goods and services. They depend upon less administration and more production. They depend, in the Government services and the social services, on having fewer chiefs and more Indians. They depend upon giving people, through the tax system and money supply policies, the incentive that they need, and a discipline which will prevent things from getting out of hand.

I think it is now possible to run this kind of economy successfully, partly because of the effect of North Sea oil, properly used. But it means that successive Governments must resist the temptation to reflate as soon as the balance of payments improves. They must be prepared to use the revenue from the North Sea for investment at home or overseas. They must therefore be prepared not to interfere with exchange rates, and they must progressively remove exchange control restrictions.

It is in that sort of style that I think we can hope to see the meeting of minds between the two right hon. Members for the Leeds constituencies, the old and the new neo-Keynesian monetarists.

Several Hon. Members rose——

Mr. Deputy Speaker

Order. With less than an hour left for Back Bench speeches, and with a long list of right hon. and hon. Members wishing to speak, I am sure that brevity would be appreciated. Mr. Rooker.

8.3 p.m.

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

I shall certainly not be as long as the right hon. Member for Farnham (Mr. Macmillan). I consider the length of his speech to be a flagrant abuse of the rules of this House by a Privy Councillor. The hon. Member for Aylesbury (Mr. Raison) was absolutely right in his comment. There probably will not be a single ordinary Tory Back Bencher taking part in the debate, because of the abuse by the Privy Councillors.

I wish to cover only three brief points. The first concerns a group touched upon by my hon. Friend the Member for Birmingham, Yardley (Mr. Tierney)—the low-paid. Anyone would think, to listen to the Chancellor of the Exchequer and the Prime Minister—and the Leader of the Opposition, for that matter—that the low-paid have had a good deal out of the last two years of pay policy. The fact is that many of them have not.

One of the statutory wages councils, in the year of the £6 policy, granted only £1.60, and when the minimum was £2.50, it had the effrontery to put through a wages order for £2.40 per week, without any spill-over into phase 1. When everyone else could have had £6 and £2.50, on the minimum, totalling £8.50, people in manufacturing industry, under the lowest-paying wages council, have had only £4.

The Trades Union Congress, the trade union leaders particularly concerned and, for what it is worth, the Ministers at the Department of Employment, have not done a thing to alter this state of affairs. Nine wages councils, covering over 250,000 workers, have paid less than the minimum in the last two years. With this state of affairs, it ill becomes the Government to boast about the effect that the present pay policy has had on the low-paid workers.

I am the first to admit that for many of these workers £6 was the biggest one-off rise they have ever had. But that does not mean to say that we have to ignore the fact that a lot of other low-paid workers have suffered extremely badly in the last two years. We have done nothing about them. They have been left to the wolves. I am not in favour of a free-for-all. I am also not in favour of the position that has existed during the last two years, and which is to carry on, under which the really low-paid people have suffered worse than ever. It is a totally unsatisfactory state of affairs.

We have laid down under phase 2 that workers should get only £2.50, or 5 per cent. Members of Parliament are making sure that they get their 5 per cent., and many other people are doing the same. But people under wages councils, who are earning over £50 a week—which would take them to the 5 per cent. level—have received only £2.50. Of the 38 wages councils which have settled so far, less than 15 have paid 5 per cent. when the 5 per cent. would have been more than £2.50.

Most of the bodies which Parliament has set up to look after the low-paid have totally abrogated their responsibilities in the last 12 months. The Department of Employment has taken no action to correct this situation, and neither has the Chancellor of the Exchequer.

My second point relates to the 12 months rule. The Leader of the Opposition refrained from giving any examples of companies but, although I hate to be at one with the right hon. Lady, I detected during her speech at least two sentences of a speech of my own, made a week ago, on the issue of British Leyland. Unless there can be a planned departure from a rigid 12-months rule, British Leyland will go down the drain in the next two months. There are no two ways about this.

The trigger mechanism to reform industrial relations and consequently to solve the production problems of British Leyland is the reform of the pay bargaining structure. People either have to work 15 months or 18 months for a pay rise or have to have two bites at the cherry in the 12-months period. We cannot escape from it, and the Government will come up against this problem early on.

I know that the Department of Employment has said "No" to British Leyland, but I take hope from a remark in the statement by the Chancellor of the Exchequer last Friday, when he was talking about the 12-months rule and referred to anomalies and pay problems. He said that only the most serious difficulties could be tackled in the coming year. Previously the Chancellor said that the only exceptions to the 12-months rule should relate to occupational pensions and self-financing productivity schemes.

If in 12 months' time it were apparent that British Leyland's share of the market has gone down further, because of disputes and loss of production, it would be easy for hon. Members to say that what British Leyland had lost could have been made up by reorganising the pay structure. It would have been self-financing, if we take account of the loss of vehicles which occurs because of disruptions taking place.

I hope that when British Leyland management are at one with the work force they will approach the Government with a view to getting a common date for pay negotiations, to start for everyone from November 1979, and to phase it in over two years. I hope that the Government will not slam the door in the face of the British Leyland management and workers but will ensure that the salvation of the company takes priority. British Leyland, after all, is a pace setter, because of the spin-off to the sub-contractors.

If British Leyland were to fail as a result of Government policy it would be tragic. Companies such as Ford, with a common starting date, and Chrysler—now surviving on public funds—would take the whole of the share of the market which Leyland should have by rights. The £300 million spent so far and the £700 million that the Government are planning to pump into the company would be completely wasted.

I hope, therefore, that we shall not have a strict and rigid adherence to a 12-months rule. That is not to say that we must have a system that is rigged so that people can get two real pay rises in 12 months. It is fairly easy to phase in five-twelfths or three-twelfths extra on the existing pay arrangements and to bring people to a common starting date. If the Government ignore the problem in this one company, it will have a tremendous effect throughout the rest of the manufacturing sector and the engineering industry. If British Leyland suffers serious production problems, it bodes ill for the economy.

It is not a question of any special pleading for British Leyland. I am not seeking to do that and do not want to be accused of it. The engineering and manufacturing sector very much follows what happens in the motor industry, and the pace setter in the motor industry is, by and large, British Leyland. I hope that there will be some commitment with regard to the 12-months rule in the winding-up speech. All the Chancellor has to do is go a little further, or at least reiterate what he said on Friday. I hope that he does not fall into the trap of saying that there can be no breaches whatever because I feel sure that there is scope even within the Chancellor's policy.

The unions have told me that they think there is hope in what the Chancellor has said.

Mr. Wrigglesworth

If judgments are to be made on a perfectly defensible case, does my hon. Friend not think that there will have to be some body which makes that sort of judgment? Should it be the Government? Who should it be?

Mr. Rooker

I gave an answer to that question 12 months ago. I would give the job to the TUC. No one could say that the TUC was running a pay policy if it assessed productivity schemes or restructured a pay system within the 12-months rule.

That would be our salvation, because the TUC would not be asked to police a pay policy, since it would be totally separate from the issue of the level of earnings and the level of pay settlements.

I should not want independent boards to do this job and, frankly, I do not think that the Government are the body to be fixing that sort of arrangement. To be onest—this is not meant as in an insult in any way—most of the Government, by and large, do not have any grass-roots experience in manufacturing industry. A lot of Government Members have experience in the trade union movement, but most of the problems will come from the manufacturing sector.

It is therefore important that we should give this job to the TUC because it is adhering to the 12-months rule. Admittedly, there will be real problems if it sticks rigidly to it but the TUC would probably see itself as the body to give approval or non-approval to any so-called breaches.

I turn to the third point that I wish to make, which concerns the doctors. The Leader of the Opposition really had no answer to the intervention of my hon. Friend the Member for Harlow (Mr. Newens). The answer she gave was that we should give the money to the doctors but should take it from the nurses, the ancillary workers and the patients. That is what the right hon. Lady said. There can be no dispute about that.

I quote from what the doctors said about their £25 claim. According to The Guardian, doctors have fallen behind comparable professional people, like accountants and solicitors, in the past two years". I should like to know how the doctors can fall behind any profession, unless that profession has been breaching the pay policy.

Mr. Arthur Lewis

Of course they have. They all have.

Mr. Rooker

That is the point. They have driven a coach and horses through the pay policy, because they are self-employed and have not been restricted on their earnings. We shall see when the earnings survey is published later in the year. Doctors want to be linked to accountants and solicitors because clearly the comparability argument does not hold any water. For example, if they were earning £8,000 a year they were not supposed to get the £6 increase. So clearly solicitors and accountants have breached the pay policy.

The doctors have said that they need £25 a week, but they have already received a pay increase of £20 a week. They will not boast about that, and neither will the Conservative Opposition or the Treasury Front Bench. But the fact remains that family doctors have received a £20-a-week increase. I shall spend two minutes explaining how this has occurred. Like everyone else, they got the £4 award. The average salary of a doctor is £8,800, but as a result of the tax cuts announced in the Budget family doctors got the equivalent of a rise of £14 or £15 a week. When we add on the £4 per week, that brings the figure to £19 a week. I admit that they have not had that in net pay, but the £25 a week that they are seeking is not a net increase. They are asking for a grossed-up increase. It is therefore fair to compare what they have received in tax cuts in order to work out what they have already received. Doctors have had an increase of £20 a week and they have had the net effect of that after tax.

I hope that the Secretary of State for Social Services, when he sees the doctors, will point that out. The right hon. Gentleman will not do it, for the same reason that the Leader of the Opposition said we had done nothing for middle managers—it is not in the interests of the Government to let the millions of workers outside this House know the effect their tax cuts in the Budget had on the higher paid.

Managers on £16,000 a year—there are a few hon. Members who receive of £16,000 not far from the Front Bench—get a net tax cut of £15 or £16 a week. A manager on £23,000 a year—there is a hon. Member of this House who gets £23,000 a year—gets a net tax cut of £19 a week. But it is not in the interests of the Treasury or the rest of the Cabinet to tell people outside.

Mr. Arthur Lewis

What have Ministers had?

Mr. Rooker

I have not said what Ministers have had. I have drawn attention to two groups outside this House, although those figures may coincide with ministerial salaries.

It is not in the interests of the Government to say this, because it will let the cat out of the bag. There is collusion between the Government and the Opposition. The right hon. Lady the Leader of the Opposition said that we had done nothing for these people. That is not true and it is deliberately misleading the House to say so.

I hope that during the coming weeks some of my hon. Friends will join me in blowing the whistle on this, because it is the only weapon that we shall be able to use against higher paid people like doctors and solicitors, who are attempting to walk away with all the money.

8.15 p.m.

Mr. Alan Haselhurst (Saffron Walden)

This is not exactly a maiden speech, but it marks my debut in this House as the hon. Member for Saffron Walden. I am pleased to return to the House and that pleasure is unalloyed after having sat through this whole debate this evening.

I deeply regret, as all hon. Members do, the particular circumstances which led to the by-election. Peter Kirk gave very distinguished service to the constituency of Saffron Walden, to this House and to the country. Whether in the smallest village in his constituency, or here, or in the European Parliament, he was liked and respected. His is a great loss, not least to the European cause of which he was such a champion. To be elected as the successor to Mr. Butler and Mr. Kirk, as they remain popularly known, puts me in the position of having an awesome responsibility which I hope I shall be able to discharge in the best traditions of this House.

The Saffron Walden constituency is formidable in size but pleasing in nature. Four hundred square miles of rural Essex is something of a contrast to Middleton and Prestwich, which I formerly represented. Hon. Members may find that I shall be speaking on some subjects that are rather different from those on which I spoke in the past. Whether people live in the hamlet of Middleton in Essex or in the area of Middleton in greater Manchester, their concern with certain issues remains the same.

When I last spoke in this House it was on the Youth and Community Bill. But unemployment was not then the most important problem with regard to young people. The situation has changed considerably. Saffron Walden cannot claim to have as serious an unemployment problem as many other parts of the country but the spectre of youth unemployment is now becoming much more menacing. It seems to be the logical starting point for me on my return to the House. The Chancellor's statement was pretty thin on employment prospects. The totality of his measures, which he said meant substantial additional employment, when it came to answer a question, amounted to 60,000 jobs.

The conquest of inflation may be crucial, but the whole tenor of the Chancellor's statement furthers the impression of the Government's reliance on some kind of corner that has to be turned and that everything will be all right regarding employment. Labour Members have referred to an upturn in the economy, as though somehow that will produce the necessary number of jobs. Even if one accepts the Chancellor's claims for the success of his policies, the prospects for employment must continue to be grim.

The whole trend of technological change in industry means that the industries upon which we shall have to rely increasingly in future will employ fewer people than the traditional industries of the past. Some traditional industries of the past will become the increasing preserve of Third world countries, whose industrialisation we have to support if we believe in the wider concept of the developing world attaining higher living standards. There is also serious over-manning, which few can deny, in great sectors of the public service and industry.

Against this background it is understandable that people should want to hang on to restrictive labour practices, although they have defended them just as rigorously in better times. But to hang on to those restrictive labour practices in these circumstances does not seem to make the best of the situation. Obsession with yesterday's jobs is to deny tomorrow's employment opportunities.

What scope is there for real job development at present? Consider the main stream of manufacturing industry. There seems no way in which the Government will be able to create the numbers of jobs needed if we look at the statistics of those unemployed. The pattern of development of some of our major companies is such that they are producing very much more with very much reduced numbers of employees. This is a remorseless trend.

Therefore, it is in the service industries that we might expect to see more jobs develop. Attention might be given rather more to projects for training people in scarce skills. There are scarcities in many communities There could be scope for small transport operators to do a more effective job within rural communities than can be done by any large undertaking and provide employment at the same time.

I agree with my right hon. Friend the Member for Farnham (Mr. Macmillan) that small businesses possibly provide the greatest opportunities for job creation. It is extraordinary that the burden of so many of the Government's policies has made it difficult to create jobs in the area where we might expect to see jobs develop. With only a little encouragement, small businesses could bring about a big increase in the numbers of vacancies.

However, there is no encouragement for risk-taking.

If there is to be any priming of the pump for small businesses, attention might be given to the fact that large industries have ideas on their shelves that they will not develop, but, in the hands of smaller enterprises, they could be developed, provide necessary employment and add to the country's productive capacity.

We should be looking in that direction if we are concerned about creating more jobs. We should encourage risk taking and reverse the trend of this Government's policies towards small businesses. The Government's inability to see that that area could provide genuine growth in employment is astonishing.

If there is still any imbalance between the numbers of people seeking work and the jobs available, there must be a coherent training programme. But the Government have been extraordinarily dilatory in that respect as well. Their acceptance of the Holland working party report is something, I suppose. But it was grabbed at with such haste—after earlier denials by the Secretary of State for Employment that it could be accepted just like that because, he said, people had to be consulted—that it feeds the suspicion that the Government have no coherent strategy in this area. There must be a completely new look at the training of people, particularly young people.

We are living with anachronisms from the last century. This is not helping with the training of workers for new skills. One thinks particularly of apprenticeships and the arbitrary age limits that surround them. The Government still do not seem to understand the seriousness of the scale of unemployment and potential unemployment. They have a totally inadequate record of meeting the needs of those aspiring to work.

There is little to choose in reliability between the Chancellor's forecasts on employment and inflation. The right hon. Gentleman is not placing the facts of unemployment before the country. He has had far too little to say about this matter. Until he faces the facts of the manpower situation, it will be that much harder to find a proper solution not only to the manpower crisis but, I suspect, to the inflationary crisis of which the manpower crisis forms but part.

8.27 p.m.

Mr. Norman Atkinson (Tottenham)

In view of the time, I am sure that the hon. Member for Saffron Walden (Mr. Haselhurst) will not expect the usual courtesies. There is another reason for not doing so—he is back after what could perhaps be described as an indecent interval. None the less, the hon. Gentleman's return is welcome. If he is a potential Rab Butler, he must be a peer among his colleagues. There is hope for development of that kind.

I should like to go straight to some of the comments made by the right hon. Lady the Leader of the Opposition, who, I thought, spelt out very clearly the policies that now constitute the basis of the Conservative Party. I disagree with those of my right hon. and hon. Friends who said that there was confusion about the Opposition's intentions. I think that they are quite clear. From the unity that has been established during the debate between the right hon. Member for Down, South (Mr. Powell), with his monetarist attitudes, and the right hon. Lady and her right hon. Friend the Member for Leeds, North-East (Sir K. Joseph), the case is clear.

Mr. Powell

I think that the hon. Gentleman might be under a misapprehension. My speech was directed to description and approval of the Government's policy.

Mr. Atkinson

I understood that clearly. I realise only too well the direction in which it was pointed. None the less, I could see that under the right hon. Gentleman's tutorials, as he develops them from time to time in the Chamber, he was having an influence on the Leader of the Opposition. It is clear to me that if given a chance in government they would squeeze hard on the money supply and on the resources available to industry. That would be the discipline that they would want, and they would squeeze hard until the jobs fell out. That is how I see it, and surely that is a very good reason for continuing the arrangement with the Liberals and keeping the Government going for as long as possible. I take that view because of the frightening spectacle of the monetarist attitudes now emerging from the Tory Front Bench.

It has also become clear this afternoon that the right hon. Lady the Leader of the Opposition is to be regarded separately from the right hon. Member for Lowestoft (Mr. Prior). What she was saying is quite different from the story that both she and the right hon. Gentleman have told the TUC in their discussions with various trade union leaders. She expressed a very different attitude from the almost below-surface suggestions that have been made about where the Tory Party would stand in its relationship with the trade union movement. Today has done one thing if nothing else; it has clarified the Tory Party's policies.

What effect are cash limits having on industry? I take up the comments of my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) about British Leyland and the steel industry. Sir Charles Villiers has set out the difficulties facing the industry. We are in an unbelievable situation when we consider that we are now on the verge of becoming possibly the most powerful nation in the world in terms of resources. That, of itself, should develop a first-class steel industry, yet we seem to have missed out on most of these advantages. We are now suffering to the extent that the share of the home market enjoyed by the British Steel Corporation is about 56 per cent., and we are talking this year of cutting back no less than £450 million over two years. That cut-back must affect developments at Newport and Redcar. That is a contradictory situation.

If it is to be argued that there is some merit in attempting to control or influence wage settlements by the manipulation of cash limits and the effect that that will have on industry, especially the steel industry, it must be borne in mind that such a policy is so devastating and contradictory that it would produce some of the difficulties to which the Government have referred and which they and all Government supporters would wish to avoid.

If we are to continue with this minimal share of the manufacturing of steel, imports must increase. The situation is extremely worrying. It must be set against the settlement that the electricians have made in the steel industry. Sir Charles Villiers has said that the dispute cost £27 million. Certainly the settlement is outside the Government's guidelines. I hope that the lack of flexibility in dealing with the electrician's settlement will not cause further troubles in the steel manufacturing industry. If there are further troubles, they will be at the expense and detriment of industrial development.

It is said of Leylands that there is no confidence. Comment is about made the money that is coming from the National Enterprise Board. Commercial judgments in both the steel industry and British Leyland mean that the minimum programme that is required is much longer than the average length of a Parliament. As a Socialist I find that worrying.

I want to see the steel industry and British Leyland succeed. If the present lack of confidence and lack of investment is because they cannot see continuity in future, that is a disturbing situation that must threaten jobs. I say to Opposition Members, especially those on the Opposition Front Bench, that if they are equally concerned about the future of the steel industry and British Leyland they should be much more forthcoming and should state their intentions clearly. If there is a lack of confidence because of a possible lack of policy continuity and investment potential, why do not the Opposition clear away that lack of confidence so that we may make sense of British steel. If they are interested in the industry, surely they will remove any doubts that now exist.

Let us make sense of British Leyland. Let the Opposition remove the ambiguities. Let them make it clear whether they want to continue the National Enterprise Board and continue the Leyland Corporation in its present structure. Let them make it clear whether they see a future for the corporation along the present lines. If that is within their own thinking, they should make that clear, so that there is a restoration of confidence in these two industries and a resoration of the original investment programme.

Much depends upon the attitude of the Tory Opposition as to whether confidence can be restored in some of our major industries. As a Socialist I recognise that commercial judgments must be based upon longer periods than the life span of any Government. A glaring example is Leyland; the commercial decisions necessary to guarantee the organisation's future are not being taken.

I want to relate the 10 per cent. increase in gross earnings about which the Government are talking to the budgetary benefits which are likely to accrue. The benefits total, possibly, an improvement in take-home pay of 1½ per cent. I hope that the 10 per cent. ceiling will be very flexible, for good reasons, most of which have already been stated. There is the question of the anomalies that have been created by previous phases of wage restraint policies.

I hope that any consolidation into basic rates will not be included in the 10 per cent. ceiling. In the engineering industry, for instance, consolidation would swallow up 4 per cent. or 5 per cent. out of the 10 per cent. Discussions are proceeding about the necessity for consolidation. One simple reason for this is that engineering workers, if working under federation agreements, receive less for overtime working than for normal working. At present, with a basic rate of £42 for 40 hours, engineering workers get time-and-a-third for additional hours. Once a worker who is in receipt of more than an additional one-third on the basic rate for normal day work moves on to overtime, he receives less reward than he does during the ordinary day. This gives employers an incentive to think in terms of overtime rather than of job creation. This cannot be tolerated in future. I hope that the Government will recognise that it is a serious anomaly.

I hope that there will be realistic discussions in industry about the restoration of differentials and about productivity agreements. An anomalous position in terms of productivity has arisen as a result of phases I and 2. In many areas of manufacturing there is a disincentive to produce more, because of these anomalies.

It has been suggested that a ceiling of 10 per cent. will be insisted upon by the Government so as to restore some credibility for themselves and some confidence in the future. I ask the Government to reconsider their position. It is not too late for them to do so. I ask them to recall the promises that they have consistently made to trade union leaders that they see no necessity to reduce living standards for the 12 months from 31st July.

What will a rigidly applied 10 per cent. do? I ask hon. Members to consider this in relation to someone earning £70 a week gross, which is the average quoted by the Government. Let us assume an increase of about 13 per cent. in the price index year on year during the coming 12 months. That is if there is a realisation of the figures spelt out by the Chancellor, that starting at 17 per cent. now, year on year the figure will drop quickly towards the end of the year to single figures, which at best can mean only 9 per cent. No matter how one looks at that falling curve, it must mean a 13 per cent. rise in the price index during the coming 12 months.

For the person on the average wage of £70 a week gross, a 10 per cent. increase may mean about £3.50 extra in take-home pay. After stoppages, the average take-home pay is now about £50 a week. To cover a 13 per cent. increase in the price index and maintain his living standard, a person taking home that amount would need to receive, in real money, an extra £6.50 a week, but under the 10 per cent. arrangement he will be far short of that. Therefore, of necessity, there will be a considerable fall in living standards if there is any rigidity in the 10 per cent. maximum about which the Government have talked.

I agree that the average person might gain about £1 a week from the tax changes and allowances conceded by my right hon. Friend the Chancellor, but that is not enough to carry out the guarantee that there should be no fall in living standards during the coming 12 months. Let my right hon. Friend examine that sort of problem. If the Government intend to tell workers generally that whatever may happen this year they do not desire that workers should suffer a fall in their living standards from now on, as a result of the Government's policy, it is not good enough to keep talking about 10 per cent. as though that in itself can give the average wage earner any guarantee of the maintenance of his living standards.

There has been a tremendous fall in living standards last year and this year. The reason for the break for freedom in wage bargaining is that workers are not prepared to take a third phase of that sort of fall in living standards. Therefore, the Government should not stick to the idea that a 10 per cent. gross increase will preserve anything. There would be a massive drop in living standards, even if the Government dealt with the anomalies to which I have referred.

There is no hope of the Government's achieving any agreement, or of trade union leaders in the TUC being able to secure any loyalty from their membership, if there is rigidity such as I have described. I hope that there will be second thoughts on such matters. It is not too late for the Government. I hope that these questions will be cleared up before the end of the debate.

8.43 p.m.

Mr. Douglas Henderson (Aberdeenshire, East)

The hon. Member for Tottenham (Mr. Atkinson) will not expect me to follow him through the whole length of his argument, but I wish to refer to one point which he made and which has been touched on infrequently in the debate. There has been an almost total absence of any reference to productivity in the Government's thinking and in their proposals. In the Chancellor's statement on Friday there was an incidental reference to it, when the right hon. Gentleman said: The only exceptions to the 12-months rule relate to occupational pensions and self-financing productivity schemes."—[Official Report, 15th July 1977; Vol. 935, c. 987.] Whether the lack of reference to productivity is because the Government no longer consider it essential to preach the virtues of productivity or because they think that it would be ineffective any way, we should know. We recall that 10 years ago, in a very similar situation, the Department of Employment was renamed the Department of Employment and Productivity. All its letter heads, plaques and notice boards were changed, because the Government then laid great stress on productivity. In the light of the rather cursory and incidental reference to it today, one wonders what their thinking on the matter is now. I agree with the hon. Gentleman that the rigidities built into previous prices and wages policies were inhibitions to productivity, particularly in the engineering industry, of which the hon. Gentleman is obviously very knowledgeable.

I am the first, and will probably be the only, Scottish Member to speak in the debate, so other hon. Members will not be surprised if I deal with the position in Scotland and especially with how the people of Scotland have been affected by the rise in living costs. It is still true that average earnings in Scotland are considerably lower than those in other parts of the United Kingdom. In 1975, the latest date for which I have figures, the average total weekly household income in Scotland was £63.60. In England, it was £66.79 and in the south-east of England, £74.37. The index of regional incomes, adjusted throughout the United Kingdom, shows that Scotland has a lower standard of living than any other part of the United Kingdom. I am glad to see the Under-Secretary of State for Scotland, the hon. Member for Stirling, Falkirk and Grangemouth (Mr. Ewing), on the Government Front Bench. No doubt he can corroborate these figures.

The figures show that the standard of living in Yorkshire and Humberside is more than 11 per cent. higher than in Scotland. Even in the impoverished North-West of England that we are always being told about, the standard of living is 3.5 per cent. higher than in Scotland, and in the South-East of England, it is 22.5 per cent. higher.

I know that hon. Members sometimes resent hearing these statistics and find it hard to accept, but they must understand that the statistics are real things to many people in Scotland.

Mr. Malcolm Rifkind (Edinburgh, Pentlands)

Will the hon. Gentleman give way?

Mr. Henderson

No, time is very short. I have been sitting here for five hours hoping to make this contribution. The hon. Gentleman knows that I normally give way, but I must press on now.

In the regional surveys to which I have been referring, the cost of living in Scotland is shown to be 5.5 per cent. higher than in the rest of the United Kingdom. Not only are we in Scotland suffering from lower earnings but we have higher costs too.

If the Government are to issue any further guidance on how pay agreements should be approached, I hope that they will give serious consideration to granting equity for Scotland in terms of a weighting allowance similar to that paid in London. There is no doubt that in many parts of Scotland costs are just as high as they are in London, yet workers are paid up to £9 a week more in inner London and nearly £6 a week more in outer London in weighting allowances.

The Government have been prepared to put into the London area weighting allowances ranging from £22.5 million in 1972 to £61 million in 1976. Paradoxically, the Scottish taxpayer is expected to pay his proportionate share of 10 per cent., which means that he is paying £6 million to ensure that that earnings are inflated by that amount in the London area.

I am sure that the private conversation that the Minister of State, Treasury is having is very interesting, but he is here to listen to the debate. The Government should reconsider this whole question. Either there should be no weighting or distortions in the payments system in any part of the United Kingdom—in which case the London allowance of £465 or £275 should be done away with—or equity should be restored between workers in London and the people of Scotland and the Government should say that what is sauce for the London goose should be sauce for the Scottish gander.

The people of Scotland are no longer prepared to see their money used to pay higher wages in London while they are meeting higher costs. The Government must understand that. They should also realise—this is a point wrich has come out during the debate—that many people cannot understand why wages have been depressed for so long while prices have risen at such a rate. They were told that if only wages could be restrained over that period we would get on top of inflation and prices would come down. Prices have not come down at anything like the rate that we were led to expect.

Whatever forecasts we have had from the Chancellor today, there is no saying that they will be any more accurate than they have been in the past. If I had a cynical mind—fortunately, I have not, despite my length of time in this place—I would be tempted to take a certain view of the fact that an increase in wages historically creates an increase in prices but that there is a time lag between the two of 18 months or so. If one were cynical one might say that the Chancellor's statement on Friday was an opening shot of the April 1979 election campaign, given the distinct time lag between the time at which the higher wages are agreed and the time at which they work their way into prices.

Other hon. Members take a much more sympathetic view of the Government's difficulties, but I am reminded of the view of the late President Kennedy, the distinguished American statesman, who said that in the first two years of an administration the Government deal with inflation left by their predecessor. In the second two years they create their own inflation so that they can secure re-election. I put that point to the Minister for him to convey it to the Chancellor. Only the most cynical person would draw that conclusion, and I am sure that he will put that fear at rest.

Equally important in the statements that we have had are the effects on employment. One of the most disappointing things about the Chancellor's statement is that it added little to any indication that we shall see a roll-back of the massive unemployment from which we are suffering. InThe Scotsmanof 19th July Maurice Baggott, a very distinguished industrial correspondent, said: Scottish unemployment is at a record postwar level and there is every prospect of its getting worse over the next six months, with redundancies continuing at a high rate. While there is considerable investment in process of implementation, there is very little likelihood of this producing jobs in the immediate short term. When the Chancellor made his statement on Friday I asked him what effect it would have on additional employment, and the answer was: They should generate additional employment of about 60,000."—[Official Report,15th July 1977; Vol. 935, c. 1000.] That figure applies to the United Kingdom as a whole. But it will mean about 6,000 additional jobs for Scotland—about 10 per cent. or 11 per cent. of the total. Six thousand jobs is one job for every 31 persons unemployed in Scotland at present.

Therefore, the Chancellor told us on Friday, and the Government are saying to the people of Scotland, "Have faith in us because the effect of our measures is that one out of every 31 of you who are unemployed will have a job by the end of this year." What happens to the other 30? We have had no answer to that question from the Government.

The sad story of how this Government have presided over one of the largest increases in unemployment ever witnessed in the Scottish economy needs to be seen to be believed. In 1974 the figure was 78,000 in Scotland, at 3-6 per cent., and in 1977 for the comparable month the figure was 186,000—up to 8-6 per cent. The Fraser of Allander Institute predicts that seasonally adjusted unemployment will rise to 190,000 in the next two months. There are many further redundancies in the pipeline. Paradoxically, the Government's legislation under the Employment Protection Act has given us news of these additional redundancies before we might otherwise have learned of them under the 90-day notification rule.

Scottish hon. Members will know the situation in the various areas in regard to redundancies. They do not need to be reminded of the situation at the Carron Company at Falkirk, at Glenfield and Kennedy at Kilmarnock, and at A. F. Shiels of Jedburgh. So the story goes on. Unemployment continues to rise and we have seen no effective measures from the Government to say how they will tackle it. However, I see that the Chancellor of the Exchequer has now returned to his place on the Government Front Bench, and no doubt all the answers which he has so assiduously concealed from us for so long will soon be made known.

I put to the right hon. Gentleman that there are two positive things in a Scottish context that could be done, and ought to be done now. One is to let us have back our regional employment premium money. If ever there was a piece of robbery out of the Scottish economy, it was the removal of the REP, which in 1975–76 amounted to £78 million. In effect that money has been taken out of the Scottish economy by the Government since they discontinued the premium. One effective and practical course the Chancellor could take tonight is to say that he repents his sin and error and will return the REP figure amounting to £78 million to the Scottish economy.

The second thing he can do is to increase the budget of the Scottish Development Agency. I remember that when the Bill to set up the Agency was going through the House, the then Secretary of State for Scotland, the right hon. Member for Kilmarnock (Mr. Ross), trumpeted the news of the industrial transformation that was about to hit the Scottish economy. He wagged his finger in a magisterial way at anybody who dared to suggest that that transformation might not be as significant as he had indicated. However, we understand from a recent parliamentary answer that the factory letting programme for the SDA will account for only 2,000 jobs. Beyond that we have heard nothing more. It is urgent that the SDA budget should be increased. That could be the vehicle by which development could take place with some prospect and hope given to the Scottish people that there would be jobs for them.

I make no apology for returning to a point which has been mentioned several times. The remarks of the Chancellor in his statement last week—and this matter was taken up by the right hon. Member for Farnham (Mr. Macmillan)—are always accompanied by the words "We must not think that this is a panacea for all our difficulties, but North Sea oil will be flowing in the next few years." That oil is flowing already, and ordinary working people in Scotland cannot understand why that money is not being put back into the Scottish economy to provide the developments and opportunities which the people of Scotland are entitled to expect.

The people of Scotland are being offered a wonderful bargain. The Chancellor of the Exchequer and the Prime Minister are telling them "You give us your oil, and we will give you higher unemployment." That is the bargain we have by being in the United Kingdom. That is the deal we have been offered. Scottish oil is being used to pay for English inflation.

It is little wonder that the people of Scotland are increasingly beginning to realise that there is no future for them in this place. One party after another has tried to deal with the problem or has given the appearance of seeking to do something about the situation. However, we are not yet out of the wood. The only way we shall get out of it is by taking control into our own hands, as any country has the right to do. At the end of the day this is not a question of pure economic factors but relies on factors such as national morale and purpose.

I see precious little sense of national morale or purpose in the rather tired and discredited parties that inhabit the House. We shall have better in Scotland and we shall build a better country for our people—and the sooner that we are out of this place to do so the better.

9.0 p.m.

Sir Geoffrey Howe (Surrey, East)

I dare say that I start on a note of unanimity with the Prime Minister and the Chancellor in saying that none of us, I fancy, goes along with the line of argument of the hon. Member for Aberdeenshire, East (Mr. Henderson). I am not as confident as he that the people of Scotland would be better served by separation from the United Kingdom than by continued membership. I dare say that I also carry the Chancellor with me in uttering some words of courtesy and welcoming back to the House the former hon. Member for Middleton and Prestwich who has now returned as my hon. Friend the Member for Saffron Walden (Mr. Haselhurst). I am sorry that I missed his speech but I am delighted to see him back.

The Prime Minister said that we had reached a watershed in our affairs. The right hon. Member for Newham, North-East (Mr. Prentice) echoed that phrase and it was amplified by the right hon. Member for Down, South (Mr. Powell), who said that we had reached the end of an epoch. While the Chancellor and the Prime Minister were absent from the Chamber a certain amount of confusion developed about what exactly had come to an end and what is taking place. The right hon. Member for Down, South certainly heralded the return of a period of free collective bargaining, but he appeared to regard the preceding period as something closer to free collective bargaining than did the Government, the Opposition or anyone outside the House. As I understood it, the right hon. Member for Down, South said that wisdom descended upon the Government almost as soon as they came to power because their pay policy was inchoate, shapeless and had no sharp edges. I fancy that the right hon. Gentleman was looking too favourably upon what has afflicted the British people during the past two or three years.

The right hon. Member for Down, South was certainly at odds with the tight hon. Member for Blackburn (Mrs. Castle), because she was in no doubt that the period through which we have just passed was one of a voluntary incomes policy—one which I remember the right hon. Member for Down, South denouncing with almost as much vigour and enthusiasm as a statutory incomes policy. The right hon. Member for Blackburn was in no doubt about calling the voluntary incomes policy a social contract and in asserting her wish to reconstruct that creature.

The right hon. Lady demonstrated a curious bitterness, partly in the nature of her attack upon the Leader of the Opposition and also in the way that she chose to focus her criticism narrowly on the phrase that she borrowed, "free collective bullying". The right hon. Lady saw fit to say that that was something which was shortly to be deployed by the doctors to the disadvantage of the sick and others for whom they care. The right hon. Lady went on to say that that was an intolerable prospect and an imposition of cash limits on the sick. "Cash limits" is now a favourite phrase of the Chancellor's and the right hon. Lady spoke as though that phrase were some kind of hallmark of sin. The right hon. Lady said that she wanted to return to a world free of cash limits and, in a rather fantastic way, added that the marvellous uplands of the social contract had been destroyed by some alien ideology. The right hon. Lady claimed that what went wrong with the Government last year—shortly after she left them—was that they were no longer sustained in the passage of borrowing and lending upon which the Chancellor had launched them.

Mr. Heller

No matter what my right hon. Friend the Member for Blackburn (Mrs. Castle) said, what does the right hon. and learned Member for Surrey, East (Sir G. Howe) think?

Sir G. Howe

I am explaining clearly what I think about the right hon. Lady. The right hon. Lady appeared to suggest that it was a dreadful wickedness that the Government had been brought up against the stops, and that it was dreadful to live with cash limits in a world in which there was a limited amount of money available. I was made fearful by the thought which the right hon. Lady put forward—and which has been echoed by other hon. Members on the Labour side—that this marvellous world free of cash limits will shortly be recreated as a result of the accession of North Sea oil. No thought could be more dangerous.

The Prime Minister, in one or two of his speeches recently, talking about the ice beginning to break and the way beginning to open ahead of us, and a golden decade of opportunity lying ahead of us, may be doing a grave disservice to the very policies for the conquest of inflation that he is now laying before the House. Of course North Sea Oil represents an accession to the British economy, but it would be the gravest possible misunderstanding to exaggerate it, to suggest that at one bound it will set us free from all the constraints that have surrounded us. The Prime Minister has certainly been giving some currency to that illusion.

At all events, the world which has come to an end, that which is behind the watershed, has been the world of the social contract. We rejoice at its passing, and we do not want the Prime Minister or anyone else to seek to maintain it in life for any purpose whatsoever.

At heart, of course, the social contract was a formula for the regulation of pay. It was the £6 limit, and the rather less formal regime that went before it, the £5 limit last year. However, as the hon. Member for Liverpool, Walton (Mr. Heifer) said, it was much more than that, as well.

Mr. Heffer

Is the right hon. and learned Gentleman aware of the fact that the social contract arose out of the establishment of a liaison committee in 1972 and that its concern originally was with getting rid of the Tory Industrial Relations Act and with what would come in its place, and an agreement with the trade unions that we should carry out certain things, which, in the main, the present Government have carried out? Is he also aware that the social contract is not dead? It may have been slightly changed, but it is not dead.

Sir G. Howe

Indeed, I am going on to say that the social contract has been the foundation of most of the more foolish policies imposed upon the people of this country by the present Government. The social contract prescribed a massive increase in the power of union leadership, exercising political power beyond that for which union leadership was elected. It embodied huge extensions of Socialism and huge reductions of the frontiers of the free society. The social contract was a charter for disastrously high taxation. It was a charter for the compression of differentials, for the very kind of redistributive justice about which the right hon. Member for Down, South spoke. More than that, it had a particular importance as being a phrase, a marketing device for the Labour Party to secure election by the British people on the strength of a whole series of false premises. It was the phrase in which the Labour Party sought to embody the idea that it had some unique capacity for bringing to the British people a little bit of peace and quiet—I think that was the phrase—and a unique capacity for securing understanding with the trade union movement. All that is now at an end. The myth has been destroyed.

Mr. Laurie Pavitt (Brent, South)

While the right hon. and learned Member is dealing with the social contract, will he not do us the credit of acknowledging that one of the basic planks of that contract, which was insisted upon by the Transport and General Workers' Union, was a fair deal for pensioners? The present Government have redeemed that pledge very quickly.

Sir G. Howe

It needs no social contract to secure a fair deal for pensioners. The record of the previous Conservative Government and of my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) shows that we brought more justice and higher living standards to pensioners than anything that the present Government have done.

Mr. Kinnock

Joseph the money-printer.

Sir G. Howe

The period of the social contract is at an end. What is more, it has not been killed or destroyed by this House or by any plot of the Conservatives. It has been destroyed at the hands of the British people. It died its death in the toolrooms of British Leyland and in the workshops of Heathrow, and it died its death at the hands of the electricians of the Port Talbot steel works. All of them have seen for themselves the frustration, oppression and tyrannies that they have served under to no purpose under the social contract.

Mr. Kinnock rose——

Sir G. Howe

I shall not give way to the hon. Gentleman. I gave way earlier.

The social contract has been pronounced dead by the voters of Workington, Walsall and Stechford and finally has been laid to rest at trade union conference after trade union conference in the past two weeks. When the Chancellor of the Exchequer arrived here last Friday to announce the ending of an epoch he carne to announce the death of the social contract. I shall borrow a rather curious phrase to describe it that was used in the verdict on the Treaty of Westphalia by Pope Innocent X. [HON. MEMBERS: "Oh."] The Chancellor likes ecclesiastical phrases, and he will enjoy this one. The social contract is now null, void, iniquitous, unjust, damnable, reprobate, inane and empty of meaning for all time. Now we move to a new era, but what exactly is the nature of this new era? According to the Chancellor we have returned to normal collective bargaining, but according to the Prime Minister we have returned to free collective bargaining.

I would like the Chancellor to answer some questions about the nature of the era into which we have returned. The first question was posed by the hon. Member for Birmingham, Perry Barr (Mr. Rooker) and my right hon. Friend the Leader of the Opposition. Is the 12-month rule designed to frustrate or obstruct the kind of restructuring that is regarded as important, for example, at British Leyland, where one is trying to regroup a whole series of bargaining units and is trying to bring them together to a common bargaining date? Is it designed to work to the disadvantage of many of the people who have suffered most severely under the social contract, such as those salaried workers who are not able to undertake productivity bargaining?

Thirdly, what exactly is the scope of the phrase in the White Paper which defines the Government's intention to use public purchasing policy and the allocation of industrial assistance to discipline the settlements. The Chancellor will recall the words: where a firm has reached a settlement which is quite clearly inconsistent with the policies set out in this White Paper, the Government will take that into account". What is meant by "the settlement" is explained in paragraph 14: Only the most serious difficulties can be tackled in the coming year, if necesary on a phased basis and taking full account of the need to keep the total settlement in single figures. Will the Chancellor tell us whether that power to withhold Government assistance will be used to discipline the shape of pay settlements at Chrysler? Will it be used as an additional discipline on settlements in British Leyland? Will it have any application beyond that? What exactly is the nature of the period that we are moving into?

The hon. Member for Cornwall, North (Mr. Pardoe) gave us the benefit of a rather tortured analysis of whether we were facing a policy that was monetarist or Keynsian in nature—

Dr. M. S. Miller (East Kilbride)

The policy of the right hon. and learned Gentleman is Dickensian.

Sir G. Howe

So far as I understand it, the hon. Member for Cornwall, North was seeking to describe the policy that he wanted as something that was Keynesian. I do not think that the late Lord Keynes would have wished to have the hon. Member for Cornwall, North as his post-mortem advocate in the House. It was not a very enlightening experience.

The reality is that the essential disciplines on which the Chancellor is relying are the discipline of controlling the money supply, the discipline—as my right hon. Friend the Member for Taunton (Mr. du Cann) pointed out—of controlling public spending, and the discipline of cash limits. The Chancellor must uphold those disciplines with resolution in face of public sector pay claims. He must make it plain that there are cash limits against which they will come, whatever those pay claims may be and whatever their source.

I very much took the point made by the right hon. Member for Newham, North-East that it is dangerous to accept the invitation of the hon. Member for Walton to avoid confrontation at all costs if "at all costs" means abandoning the determination of the Government to maintain the control of the money supply and the control of public spending.

Of course, that policy, which is essentially monetarist, is not by itself enough. Of course, as the Prime Minister said, one needs an intensive pattern of education, of persuasion, to persuade people to accept the consequences of what the Chancellor is talking about. Those who indulge in collective bargaining must understand that if the Government are holding tight to the limits of money supply and doing all they can to check inflation, they face a heavy responsibility to control unemployment. That is the answer to the hon. Member for Cornwall, North when he asks what is the purpose of emphasising the need for restraint. The need for restraint is evident in this policy as in any other. If the money supply is being controlled, those who collectively bargain must exercise self-restraint if they are not to destroy jobs and to increase unemployment.

Mr. Kinnock

Since the right hon. and learned Gentleman emphasises the necessity of persuasion, as my right hon. Friend did, and since he emphasises the necessity of education among collective bargainers, if there were, say, in three weeks, a General Election and if he were successful, how would he go about persuading and educating the collective bargainers whom he has listed in his speech so far, as well as many others, including the miners and the dockers, whom he has thus far avoided, against the background of the tight money supply limits which he has previously advocated? An answer to that question would be much more interesting than the garbage which the right hon. and learned Gentleman has talked so far.

Sir G. Howe

The hon. Gentleman puts a question which now goes fairly and squarely back—[HON. MEMBERS: "Answer."] It needs an answer from the Chancellor, because these policies—the hon. Gentleman must wake up to this—are now part of the common ground of British politics. We have to live within a limited money supply, and all right hon. and hon. Members must persuade people of the necessity of doing that. I can understand why the right hon. Member for Newham, North-East may be fearful about the prospect, but I think that the right hon. Member for Down, South is a bit over-optimistic in saying that the world is safe for free collective bargaining, for this Government are returning to a pattern of free collective bargaining in the worst possible circumstances.

The Government have not prepared the people for a return to a pattern of free collective bargaining. Until the very last moment, they have been looking for the reenactment of a stage 3 incomes policy. They have allowed the social contract to build up explosive pressures. Skilled workers, managers, those who made the biggest sacrifices, are now bringing great pressures to bear and will need to be handled with great caution. All the old fashions of redistributive justice will die hard. Our society must relearn the case for differentials, for the principle that higher rewards go to those with higher skills and higher responsibility and those who work harder.

The Prime Minister was worried about the implications of a deferential society. What I want to see is Britain get back to being a differential society in which rewards go to those who deserve them most. We need to set free all the other engines of a free society. We need to recognise that it is not enough simply to introduce this policy now but that our society needs also to recognise the importance of personal motivation, the importance of incentive, the importance of the small business and the small enterprise which this Government have done so much to destroy.

We need to kick away so many of the restrictions of Socialism. We need to reduce the burden of personal taxation in a way which the Chancellor has recognised but has failed to do. Six hundred million pounds spent on saving jobs in one industry would be far better spent in tax reductions and helping to create jobs in 1,000 other industries.

The most serious question of all is whether this Government and their supporters will have the will or the authority to uphold the disciplines which they are now trying to impose on the money supply. Very many supporters of the Government do not believe in the policy to which the Chancellor is now being driven, and those who do believe in it are not themselves to be believed. The Government are supported in their policy by a motley crew of allies. Those below the Gangway opposite are hardly likely to applaud the policy that the Chancellor is enunciating because they understand how they feel themselves to have been misled by the way in which he presented it last week.

Much more fragile even than the Chancellor's support below the Gangway opposite is the support, although critical, which the Government enjoy, if that is the right word, of the Liberal Party. The hon. Member for Cornwall, North tonight again luxuriated in the new-found sense of self-importance that he enjoys. He set out, as always, to attack the last Conservative Government. He is always indifferent and indiscriminate in his abuse, although I should have thought that the last Conservative Government would at least commend themselves to him because they had a statutory incomes policy with sanctions, the one thing that he wants.

The hon. Member denounced the Chancellor for not having a policy to introduce something that the Government do not want and the Liberals do not want and he made the House's flesh creep with his description of the monetary horrors which lie ahead under the policy to which the Chancellor is committed. We were warned of the prospect of mass unemployment for five to 10 years. We were reminded of the robust comments we have been hearing in the last week or so from the Liberal party.

Mr. Hoosonrose——

Sir G. Howe

Not now. I see that the Leader of the Liberal Party is nodding his head. He was asked a question, rather shrewdly, on "Panorama", and this is the exchange that took place: Would it be cynical to say that it is increasingly looking as though phase II is going to be pretty close to window-dressing with maybe only a twelve-month gap between bargains … and that pretty well whatever is produced, so long as it is headed phase II, will be acceptable to the Liberal Party? Mr. STEEL: No, that is not the case. Obviously the twelvemonth gap is important in itself and that is already agreed, but we must go beyond that, we must accept that there must be some method of preventing a complete return to free-for-all wage bargaining because if we have that this year then we are not going to succeed in the battle against inflation which was the original reason for coming into the agreement in the first place… Rather more forthrightly, the hon. Member for Cornwall, North said on Independent Radio News: If the unions cannot deliver on Phase 2 —he meant phase 3, but he always gets it wrong— then the Government will have to step in with some statutory measures. The Government has to hold the ring.

Hon. Members

No.

Sir G. Howe

I am quoting from Liberal News. Perhaps I may continue to rely on this imperfect reporter, who went on: Asked if the Lib-Lab deal would be jettisoned if the Government failed to put in statutory controls, Mr. Pardoe said: "I think that that is now extremely likely. A complete disruption of Phase Two would lead to chaos, and I don't intend to sit around being part of that chaos.

Mr. Pardoe

Is the right hon. and learned Member aware that although I view the prospect of the continuance of the Government, with their record, with less than enthusiasm, it pales into insignificance compared with the horror with which I view the prospect of the right hon. and learned Member becoming Chancellor of the Exchequer? His performance as an economist is a matter for hilarity which has run throughout the debate.

Sir G. Howe

The House will recognise that the hon. Gentleman is in great difficulty in defending his curious position in supporting a Government who, he said, for the first three years of its existence were the worst Government he had ever known.

I do not believe and the House does not believe that that is the real motivation of the Liberal Party. The hon. Member tried to tell the House that he will stay with this Government as long as their resolve holds. The reason he gave for that, is that the Prime Minister may count on the support of the Liberal Party—if the Prime Minister finds this comforting—to buttress the resolve of the Government. If I may say so, I have never seen a but- tress in my life which looked more like a flying buttress—[Interruption.]

The hon. Member taunted us with a quotation from Sir Winston Churchill. Perhaps I may return one to him to describe the role of the Liberal Party: So they go on in strange paradox, decided only to be undecided, resolved to be irresolute. adamant for drift, solid for fluidity, all-powerful for impotence. To come back to——

Several Hon. Members rose——

Mr. Speaker

Order. It is quite clear that the right hon. and learned Gentleman is not giving way.

Sir G. Howe

To come back to the resolve of the Chancellor of the Exchequer himself, I confess that that gives me no confidence whatsoever. When we listened to his statement last week we found him moving from one fantasy to another, in-increasingly a stranger to the truth.

Several Hon. Membersrose——

Sir G. Howe

At the very outset of his statement last week, the Chancellor said that the new opportunities opened up for us by the success of our other policies gave him confidence in the policies that he then produced.

I wonder at what point the Chancellor can identify any success whatsoever in the policies over which he has presided in the last two years, with inflation up by 80 per cent., taxes up by two-and-a-half times, unemployment up by two-and-a-half times, and the pound having lost one-third of its value. Where does he seek to identify any successes whatsoever. How can we possibly believe him?

I refer now to another example of his lack of insight into his condition. He told his hon. Friend the Member for Bethnal Green and Bow (Mr. Mikardo) that 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."—[Official Report, 15th July 1977; Vol. 935, c. 1004.] If the Chancellor believes that, he will believe anything. What was moving the market to take such a gloomy view of this society was the fact that the Chancellor was sitting in the Treasury, that he was failing totally to control the money supply, which was rising last September at 20 per cent. a year, and that he was failing totally to control the public sector deficit. If the Chancellor has not understood that, then we can have no confidence in his capacity to look after the policy in the months that lie ahead.

The truth is that the Chancellor last Friday announced a fundamental and total reversal of the central features of his policy. The House well remembers that in the letter which the Chancellor wrote to the International Monetary Fund on 15th December last year he said: The two pillars on which this strategy is based are the social contract with the trades union movement, which has already allowed us to achieve a substantial reduction in the rate of price and wage inflation…". He went on to say It is our firm intention to continue the policy of securing a progressive deceleration of inflation through voluntary agreement between the Government and the Trades Union Congress. The Chancellor has failed to fulfil that pledge.

When the Chancellor came before the House at the time of introducing his Budget in April this year, he said that we must get a satisfactory agreement on pay. He said that it was impossible to exaggerate the advantages of a satisfactory pay agreement. He said that a pay agreement was the key to his Budget strategy and that a pay agreement was at the heart of his economic strategy. In all those respects he has now failed.

The House cannot possibly have confidence in the capacity of the Chancellor to withstand and sustain the disciplines necessary to carry these policies through when he has plainly violated those two pledges of the past which are the foundation of the policies on which he has stood for the last three-and-a-half years.

We have no confidence in the record of the Chancellor and the Government over the last three-and-a-half years. We have no confidence in their capacity to sustain the policy to which they are now committed. For those reasons, I invite my right hon. and hon. Friends to support me in the Lobby.

9.30 p.m.

The Chancellor of the Exchequer (Mr. Denis Healey)

The right hon. and learned Member for Surrey, East (Sir G. Howe) seemed to be a little sore and sensitive about what I said on Friday. I wonder why. But nothing he said obscured one of the interesting things about this debate, which was that the main issue between the two Front Benches is not whether, after two years of strict incomes policy, we should now begin a return to normal collective bargaining, but how we ensure that that return is an orderly one and does not produce a wage explosion, like the return from the policy of the right hon. Member for Sidcup (Mr. Heath), and how we ensure that it produces an increase in earnings of not over 10 per cent.

There are some, even on the Opposition Front Bench, who say that it does not really matter at all. The right hon. Member for Leeds, North-East (Sir K. Joseph) is one of them. It was a view that was put by the right hon. Member for Down, South (Mr. Powell) and it has been expressed by the Editor ofTheTimes. They fall into a group which I might call a group of one-dimensional monetarists. They say that inflation will fall automatically if the money supply is under control and that the result of excessive wage claims is only to increase unemployment and not to increase inflation.

I do not think I am being unfair to the right hon. Gentlemen when I describe that as their view. We on the Government side of the House do not take that view. We agree with the hon. Member for Cornwall, North (Mr. Pardoe). Let me point out that if the one-dimensional monetarists were right, the control that this Government have exercised over the money supply would guarantee inflation in single figures next year whatever happened to wages. The only one who believes that is the right hon. Member for Leeds, North-East.

What we do believe is that we cannot master inflation unless we have control of the money supply, and we have had control ever since we took office. [Interruption.] Oh, yes. I shall be giving figures in a moment. It is completely unclear what the right hon. Lady believes. What is clear is that she thinks that confrontation between the Government and the trade unions is inevitable. She gives the impression that she welcomes the prospect and she has done everything possible to make it more likely.

My right hon. Friend the Member for Newham, North-East (Mr. Prentice) seemed to take the same view in his speech, but he draws the conclusion, rejected by the right hon. Lady, that because confrontation is inevitable we must have a permanent statutory incomes policy which imposes legal penalties on working people. Surely my right hon. Friend's own experience has taught him that that cannot work, least of all after two years of a strict pay policy. If I may say to him—[HON. MEMBERS: "To whom?"] To my right hon. Friend. He has strong and sincere views, which is more than can be said of many Conservative Members. But he also has a streak of obstinate self-righteousness which must lead to confrontation in a local area and will lead to catastrophe in a Cabinet. The right hon. Member for Sidcup, supported by the Opposition Front Bench, proved this not very long ago, when he was Prime Minister.

My right hon. Friends and I believe that we must primarily rely on persuasion to get the outcome on earnings at which we are aiming. We know that confrontation may become inevitable in some cases—[HON. MEMBERS: "Ah!"]—but only if and when persuasion fails.

My hon. Friend the Member for Liverpool, Walton (Mr. Heller), like me, believes that the Government must bend every effort to achieve their objectives by persuasion. He does not believe, any more than I do, that that means that on all occasions the Government must see that the trade unions, when bargaining, must get anything that they want. My hon. Friend does not believe that. Indeed, none of my right hon. and hon. Friends believes it.

The real problem facing not only the Government but the country—the Opposition share this problem with the rest of the country—is how to maximise the chance that persuasion will work and avoid the need for confrontation and industrial disruption with all the economic and social consequences that that would bring. Persuasion will work only if the Government can somehow induce those concerned with bargaining on both sides of the bargaining table—the employers have as much responsibility here as the trade unions—honestly to face the facts of our national situation and to recognise what rewards they can achieve by keeping the earnings increase to 10 per cent. and what penalties they will incur if they fail to do so.

I agree that publicity is vital here. If we want to get inflation under control—unless we take the view, shared by very few people with practical experience, that it can be done by control of the money supply—each and every one of us must use his influence to ensure that people understand and face the facts. As a Government, we believe that we face an additional responsibility—namely, to seek to create the climate in which that understanding will grow. If we are to achieve this objective, we must first show ordinary people that their standard of life will not suffer if they keep their settlements within, single figures. Essentially, that will depend on the prospects for prices.

As my right hon. Friend the Prime Minister said, many factors besides wages affect inflation. But on this occasion most of the other factors are moving in our favour and not against us, as they did for so much of the last 12 months. All the forecasters, inside and outside the Government, now agree that we should soon see a significant fall in the year-onyear inflation rate, although the figures for July are unlikely to be very different from those for June.

The reasons for expecting an improvement in later months are as follows: first, the Government aim to keep the public sector borrowing requirement, domestic credit expansion and sterling M3 in line with their undertakings, and they have been warmly applauded for doing so by their international friends; secondly, the effect of last year's depreciation has almost finished feeding through into prices. The effect of the rise in the value of the pound since the December measures is already being reflected in the lower prices that industry pays for its products. In fact, apart from April, the price increase each month since January has been 1 per cent. or less. The wholesale price index is gradually moving downwards. The June year-on-year figure is down to 10.9 per cent., compared with 29.1 per cent. in January. As the House will know, the prices of raw materials for industry have actually fallen in the last two months. Moreover—we published the figures this afternoon—the earnings increase in the current round is likely to be under 10 per cent.

The hon. Member for Cornwall, North asked whether we will monitor the earnings increase month by month. If the hon. Gentleman looks at this year's figures, he will know that it is impossible to do so. We were told some months ago that the earnings increase during this round was likely to be over 15 per cent. That is what appeared from the monthly figures in January and February. In fact, the figures published this afternoon show that the May-to-May figure has fallen from 11 per cent. to 10.3 per cent. and that the figure is likely to fall further before the round is over. We can still be fairly confident that the year-on-year RPI figure at the end of December is likely to be 12 per cent. or 13 per cent. That is the view expressed by most independent forecasters outside the House.

As I said last week, the tax and price measures that I announced on Friday will more than compensate for the increase in prices over the rest of this year, short of a major international catastrophe, whether natural or man-made. It is difficult to foresee anything that is likely to worsen the outlook for the rest of the year unless we have a pay explosion that produces a rapid fall in the value of the pound.

I believe that the measures that the Government have taken to protect living standards over the next six months will give real help to wage negotiators in observing the guidance laid down yesterday by the TUC. The essential thing is that negotiators stick to the advice that they should look forwards and not backwards. They should aim to maintain living standards through the next wage round rather than attempting to recoup losses that they have suffered over the past year or so. As hon. Members have said during the debate, there is no chance of recouping the losses of the past year or so because those losses reflected the cut of 5 per cent. in our real national income that was imposed by the increase in oil prices three years ago.

Mr. Peter Temple-Morris (Leominster)

I interrupt the Chancellor's monologue to ask him a specific question about the National Union of Mineworkers. When the Chancellor said that in some cases there may be a confrontation under the Government, is he aware that during the Durham Miners' Gala, in the face of the Prime Minister, Mr. Arthur Scargill likened him to a false god whom he, Mr. Scargill, had been worshipping for too long and whom he had cast out of his temple? Does the right hon. Gentleman consider that the miners will settle within this precious 10 per cent. that he is talking about?

Mr. Healey

The hon. Gentleman should—[HON. MEMBERS: "Answer."] Of course I shall answer. Mr. Scargill has made a number of uncomplimentary remarks about the Prime Minister, myself and many of our colleagues over the past three years, but the National Union of Mineworkers in each year has accepted the position taken by the majority of the TUC, and I believe that it will do so again this year.

I have already said that we cannot expect single-figure inflation next year unless we have single-figure pay settlements. As the TUC pointed out in its Economic Review last February, a single-figure pay-price equation may well be the same in the short term for living standards as a double figure equation, but it is incomparably better designed to protect living standards for a two-year to three-year period because of its impact on the exchange rate and on the possibility of economic growth, which is what I have described as the prospect if people show common sense.

Mr. Julian Amery (Brighton, Pavilion) rose——

Mr. Healey

On the other hand, if the rate of increase in earnings accelerates again, prices will start to rocket up in consequence. In that event we should be heading back to the situation that we faced just over two years ago. All our hopes about growth of output, living standards and employment would be at risk. Jobs would be threatened simultaneously on at least three fronts.

First, the rise in wage costs would undermine the competitiveness of our industry in world markets and would price people directly out of their jobs. Secondly, it would be only a matter of time before the pound came under pressure. Depreciation would not solve the problem. The danger then would be of being trapped in a vicious circle of inflation and further depreciation.

Thirdly, the investment that we desperately need to create new jobs and permit a steady growth in our economy would also be threatened by rising interest rates and the increasing cost of capital, by the squeeze on company profits and liquidity, and by the collapse of confidence which goes with accelerating inflation. As my hon. Friend the Member for Birmingham, Yardley (Mr. Tierney) said, jobs would be the first casualty not only in the distributive industry, with which he is particularly concerned, but throughout the economy if the rate of inflation were to take off again.

I must tell the House that in that situation no responsible Government could shirk their duty for maintaining firm control over the supply of money and using the necessary fiscal and monetary instruments for that purpose. Unless we did so, inflation would soar to stratospheric heights and within a year or two unemployment would rise into the low millions.

I do not claim that this would be a painless process, but there is no way in which excessive wage increases can fail to damage the prospects for growth and a return to full employment. But this Government, unlike their predecessors, would accept their responsibility for blocking the road to inflation by maintaining the money supply under control within the 9 per cent. to 13 per cent. limit set themselves rather than opening the gates to disaster by printing money as the previous Government did in this situation. In the public sector, cash limits would reinforce the role of monetary policy.

If anybody doubts this Government's will, let him look at the record since we took office. In the past three years, sterling M3 has grown by only 25 per cent. overall, although money GDP grew by about 70 per cent., and the growth of money supply has been relatively steady from year to year—9 per cent. in 1974–75, 6.5 per cent. in 1975–76, and 7'5 per cent. in 1976–77.

We do not need lectures from the Opposition on this matter and the Opposition should be ashamed to give them, because they let the money supply grow by 14.5 per cent. in 1971–72, by 27 per cent. in 1972–73, and by 23.8 per cent. in 1973–74—a total increase over three years of 80 per cent., when money GDP rose by little over 40 per cent. Their record is equally bad in terms of domestic credit expansion. DCE at constant prices started at £2.2 billion in 1971–72, then increased two and a half times in 1972–73, and increased to £6.1 billion in 1973–74. We got it back to £2.3 billion last year. We do not need lectures from the Tory Party on this matter.

Mr. David Crouch (Canterbury)

Before the Chancellor takes off completely on his list of statistics, will he say whether he is able to carry the trade union leaders in his argument, if I say to him that I believe that he has kept the tap fairly tightly closed on the money supply but if they fail to follow his advice on keeping their demands for wage increases to 10 per cent. his mini-Budget on Friday will turn out to be a Budget for unemployment? Has he made that clear, and has that been accepted?

Mr. Healey

I only wish that right hon. and hon. Members on the Opposition Benches understood the facts of the situation as well as do the leaders of the trade union movement and were as honest about the facts as they are.

As I said a moment ago, the increase in prices will start declining in the next month or so and we can keep it falling if wage settlements are in single figures, but prices will still be rising and one of the Government's most important tasks will be to ensure that if pay settlements do remain well within single figures living standards will not suffer as a result. It is particularly important, in our view, to ensure that living standards do not fall over the rest of this year, when the first claims will be made against the background of high annual inflation rates. The measures that I announced last Friday will be more than sufficient to cover the increase in prices that is still to come between now and the end of December.

We have been particularly concerned to help families and the low-paid. The House must recognise that the low-paid may find it more difficult to protect themselves by wage increases during a return to normal collective bargaining. The further increases in tax allowances that I announced will take another 365,000 of the low-paid out of tax altogether, on top of the 845,000 who were taken out of tax in April. Half a million more children will receive free school meals. The freezing of milk prices to the end of the year will be of special value to families, and the child benefit next April will make a two-child family more than £1 a week better off after the reduction in child tax allowance.

Altogether, the help on prices will cut the RPI by over½per cent. this year, and the help on taxes will be even more substantial. The single man on average earnings will receive a rebate of £17.52 later this summer, on top of an increase of 88p in take-home pay. The married man will receive a tax rebate this summer of £19.42 and an increase in take-home pay of £1 a week.

Mr. Ameryrose——

Mr. Healey

I shall give way to the right hon. Gentleman in a moment. There is nothing I enjoy more.

I tell my hon. Friend the Member for Tottenham (Mr. Atkinson) that I believe we can offer a good assurance that living standards will be maintained right through the next pay round. I have assured the trade union movement that if there is a risk of our falling short I shall discuss with it what action is most appropriate to correct the situation in good time before the spring Budget next year.

Mr. Amery

I apologise to the right hon. Gentleman for breaking in on the reading of his departmental brief. When I first tried to do so, earlier, he had just affirmed his confidence that the National Union of Mineworkers was solidly behind the Government. May I put it to him that the catcalls at Durham marked curtains for the Prime Minister? Will he tell his right hon. Friend that when the Praetorian Guard revolts Caesar had better be careful?

Mr. Healey

I regret that I gave way for so trivial an intervention.

I believe that the measures that we announced on Friday will help create the climate for common sense in wage negotiations, but we cannot guarantee success. [HON. MEMBERS: "Oh."] Of course not; nobody can. There will always be some people working against success. There will be many people, some on the Conservative Benches, who will want the policy to fail because they hope for some personal or group benefit, or for some political benefit. There will be some people who will make claims far beyond what they expect to achieve and who will misrepresent what they get to make themselves appear successful.

We had a good example of that from ASTMS. That union claimed to have made a settlement which won a 30 per cent. increase, an increase of £15 a week for tea ladies. On inquiring into the matter I discovered that the company concerned had no intention of giving any increases that would be in conflict with Government policy. It turns out that it does not have any tea ladies; it uses machines instead. It is obvious to all of us who understand these matters that the Press statement was issued by the union simply as a prospectus in a fight for membership. I am considering whether it should be referred to the authority that deals with advertising standards. I hope that the newspapers will not fall for that sort of claim on a second occasion

Let me answer some of the questions asked by the right hon. Lady. First, productivity deals can be introduced within 12 months of a phase 2 settlement, provided they are self-financing. I agree with the right hon. Lady that it is very desirable that that should be possible. On the other hand, it is vital that they should be genuinely self-financing, because if they are not the company that makes such a deal will be subject to the Price Code sanctions under the 12-months rule.

The Leader of the Opposition and my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) asked whether it would be possible to synchronise pay settlements in certain cases under the 12-months rule. This is not provided for in the TUC guidelines and there are great risks if an unfair advantage is taken of the possibility. I believe that there is a real problem for some major companies, for the reasons that my hon. Friend the Member for Perry Barr mentioned. If the management and unions concerned reached an agreement that did not infringe the guidance given by the TUC, I have no doubt that the TUC would consider whether the proposal was acceptable.

The right hon. Lady said a good deal about me, and I deserve the right to reply. She did something to repair the morale of her party, but that is not surprising, because the twirl of the hockey stick is more exciting than the hum of the drone. [Interruption.] I found something profoundly depressing in her shrill, relentless, single-note—[Interruption.] In a speech of exceptional length, the right hon. Lady offered not a single clue to her policy on any issue. She told us nothing about her party's policy on pay. She asked questions, but refused to answer them. She said that she supported the doctors' claim and added that if above-average increases were given to some in a bargaining group, others would have to suffer what she called a severe decline in their living standards. Which other group does she propose should be sacrificed within the NHS? The nurses? The ancillary workers? She must answer these questions if she expects the House or the country to take her seriously. She said that she supported the 12-month rule, but the doctors' claim violates that

rule. What is her position on that? What is the position of her party? Let her tell us.

She asked whether we would subsidise nationalised industry prices—that from a member of the Government that wrecked the morale and discipline of the nationalised industries in order to get temporary political gain.

Hon. Members

Out, out.

Mr. Speaker

Order. There is not long to go.

Mr. Humphrey Atkins (Spelthorne)rose in his place and claimed to move, That the Question be now put.

Question, That the Question be now put, put and agreed to.

Question put accordingly, That this House do now adjourn:—

The House divided: Ayes 282, Noes 312.

Division No. 202]	AYES	[10 p.m.
Adley, Robert	Corrie, John	Gower, Sir Raymond (Barry)
Altken, Jonathan	Costaln, A. P.	Grant, Anthony (Harrow C)
Alison, Michael	Craig, Rt Hon W. (Belfast E)	Gray, Hamish
Amery, Rt Hon Julian	Crawford, Douglas	Grieve, Percy
Arnold, Tom	Critchley, Julian	Griffiths, Eldon
Atkins, Rt Hon H. (Spelthorne)	Crouch, David	Grist, Ian
Awdry, Daniel	Crowder, F. P.	Hall-David, A.G.F.
Bain Mrs Margaret	Davles, Rt Hon J. (Knutsford)	Hamilton, Michael (Salisbury)
Baker Kenneth	Dean, Paul (N Somerset)	Hampson, Dr Keith
Banks, Robert	Dodsworth, Geoffrey	Hannam, John
Bell, Ronald	Douglas-Hamilon, Lord James	Harrison, col. Sir Harwood (Eye)
Bennett Sir Frederic (Torbay)	Drayson, Burnaby	Harvie Anderson, Rt Hon Miss
Bennett Dr Reginald (Fareham)	du Cann, Rt Hon Edward	Haselhurst, Alan
Benyon, W.	Durant, Tony	Hastings, Stephen
Berry, Hon Anthony	Dykes, Hugh	Havers, Rt Hon Sir Michael
Biffen, John	Eden, Rt Hon Sir John	Hawkins, Paul
Biggs-Davison, John	Edwards, Nicholas (Pembroke)	Hayhoe, Barney
Blaker Peter	Elliott, Sir William	Heath, Rt Hon Edward
Body, Richard	Emery, Peter	Henderson, Douglas
Boscawen, Hon Robert	Ewing, Mrs Winifred (Moray)	Heseltine, Michael
Bottomley, Peter	Eyre, Reginald	Hicks, Robert
Bowden, A. (Brighton, Kemptown)	Falrbalrn, Nicholas	Higgins, Terence L.
Boyson, Dr Rhodes (Brent)	Fairgrieve, Russell	Hodgson, Robin
Brittan. Leon	Farr, John	Holland, Philip
Brooke, Peter	Fell, Anthony	Hordern, Peter
Brotherton, Michael	Finsberg, Geoffrey	Howe, Rt Hon Sir Geoffrey
Brown, Sir Edward (Bath)	Fisher, Sir Nigel	Howell, David (Guildford)
Bryan Sir Paul	Fletcher, Alex (Edinburgh N)	Howell, Ralph (North Norfolk)
Buchanan-Smith, Allck	Fletcher-Cooke, Charles	Hunt, David (Wirral)
Buck Antony	Fookes, Miss Janet	Hunt, John (Bromley)
Budgen, Nick	Forman, Nigel	Hurd, Douglas
Bulmer, Esmond	Fowler, Norman (Sutton C 't' d)	Hutchison, Michael Clark
Burden, F. A.	Fox, Marcus	Irving, Charles (Cheltenham)
Butler. Adam (Bosworth)	Fraser, Rt Hon H. (Stafford & St)	James, David
Carlisle, Mark	Fry, Peter	Jenkin, Rt Hon P.(Wanst'd & W'df'd)
Chalker, Mrs Lynda	Galbraith, Hon. T. G. D.	Jessel, Toby
Channon, Paul	Gardiner, George (Relgate)	Johnson Smith, G.(E Grinstead)
Churchill, W. S.	Gardiner, Edward (S Fylde)	Jones, Arthur (Daventry)
Clark Alan (Plymouth, Sutton)	Gilmour, Rt Hon Sir Ian (Chesham)	Jopling, Michael
Clark William (Croydon S)	Gilmour, Sir John (East Fife)	Joseph, Rt Hon Sir Keith
Clarke, Kenneth (Rushcliffe)	Glyn, Dr Alan	Kaberry, Sir Donald
Clegg, Walter	Godber, Rt Hon Joseph	Kellett-Bowman, Mrs Elaine
Cockcroft, John	Goodhart, Philip	Kershaw, Anthony
Cooke Robert (Bristol W)	Goodhew, Victor	Kilfedder, James
Cope, John	Goodlad, Alastair	Kimball, Marcus
Cordle, John H.	Gorst, John	King, Evelyn (South Dorset)
Cormack, Patrick	Gow, Ian (Eastbourne)	King, Tom (Bridgwater)
Kitson, Sir Timothy	Normanton, Tom	Skeet, T. H. H.
Knight, Mrs Jill	Nott, John	Smith, Dudley (Warwick)
Knox, David	Onslow, Cranley	Smith, Timothy John (Ashfleld)
Lamont, Norman	Oppenhoim, Mrs Sally	Speed, Keith
Langford-Holt, Sir John	Osborn, John	Spence, John
Latham, Michael (Melton)	Page, John (Harrow West)	Spicer, Jim (W Dorset)
Lawson, Nigel	Page, Rt Hon R. Graham (Crosby)	Spicer, Michael (S Worcester)
Lester, Jim (Beeston)	Page, Richard (Workington)	Sproat, Iain
Lewis, Kenneth (Rutland)	Paisley, Rev Ian	Stainton, Keith
Lloyd, Ian	Parkinson, Cecil	Stanbrook, Ivor
Loveridge, John	Pattie, Geoffrey	Stanley, John
McAdden, Sir Stephen	Percival, Ian	Steen, Anthony (Wavertree)
MacCormick, Iain	Peyton, Rt Hon John	Stewart, Rt Hon Donald
McCrindle, Robert	Pink, R. Bonner	Stewart, lan (Hitchin)
Macfarlane, Neil	Price, David (Eastleigh)	Stokes, John
MacGregor, John	Prior, Rt Hon James	Stradling Thomas, J.
Mackay, Andrew James	Pym, Rt Hon Francis	Tapsell, Peter
Macmillan, Rt Hon M. (Farnham)	Raison, Timothy	Taylor, R. (Croydon NW)
McNair-Wilson, M. (Newbury)	Rathbone, Tim	Taylor, Teddy (Cathcart)
MeNair-Wllson, P. (New Forest)	Rawlinson, Rt Hon Sir Peter	Tebbit, Norman
Madel, David	Rees, Peter (Dover & Deal)	Temple-Morris, Peter
Marshall. Michael (Arundel)	Rees-Davies, W. R.	Thatcher, Rt Hon Margaret
Marten, Neil	Reid, George	Thomas, Rt Hon P. (Hendon S)
Mates, Michael	Renton, Rt Hon Sir D. (Hunts)	Thompson, George
Mather, Carol	Renton, Tim (Mid-Sussex)	Townsend, Cyril D.
Maude, Angus	Rhodes James, R.	van Straubenzee, W. R.
Maudling, Rt Hon Reginald	Rhys Williams, Sir Brandon	Vaughan, Dr Gerard
Mawby, Ray	Ridley, Hon Nicholas	Viggers, Peter
Mayhew, Patrick	Ridsdale, Julian	Wakeham, John
Meyer, Sir Anthony	Rifkind, Malcolm	Walder, David (Clitheroe)
Miller, Hal (Bromsgrove)	Rippon, Rt Hon Geoffrey	Walker, Rt Hon P. (Worcester)
Mills, Peter	Roberts, Wyn (Conway)	Walker-Smith, Rt Hon Sir Derek
Miscampbell, Norman	Rodgers, Sir John (Sevenoaks)	Wall, Patrick
Mitchell, David (Basingstoke)	Rossi, Hugh (Hornsey)	Walters, Dennis
Moate, Roger	Rost, Peter (SE Derbyshire)	Warren, Kenneth
Monro, Hector	Royle, Sir Anthony	Weatherill, Bernard
Montgomery, Fergus	Salisbury, Tim	Wells, John
Moore, John (Croydon C)	St. John-Stevas, Norman	Welsh, Andrew
More, Jasper (Ludlow)	Scott, Nicholas	Whitelaw, Rt Hon William
Morgan, Geraint	Scott-Hopkins, James	Wiggin, Jerry
Morgan-Giles, Rear-Admiral	Shaw, Giles (Pudsey)	Wilson, Gordon (Dundee E)
Morris, Michael (Northampton S)	Shaw, Michael (Scarborough)	Wood, Rt Hon Richard
Morrison. Charles (Devizes)	Shelton, William (Streatham)	Young, Sir G. (Ealing, Acton)
Morrison, Hon Peter (Chester)	Shepherd, Colin	Younger, Hon George
Mudd, David	Shersby, Michael
Neave, Alrey	Silvester, Fred	TELLERS FOR THE AYES:
Nelson, Anthony	Sims, Roger	Mr. Spencer Le Marchant and
Neubert, Michael	Sinclair, Sir George	Mr. Michael Roberts.
Newton, Tony
NOES
Abse, Leo	Butler, Mrs Joyce (Wood Green)	Deakins, Eric
Allaun, Frank	Callaghan, Rt Hon J. (Cardiff SE)	Dean, Joseph (Leeds West)
Anderson, Donald	Callaghan, Jim (Middleton & P)	de Freltas, Rt Hon Sir Geoffrey
Archer, Rt Hon Peter	Campbell, Ian	Dell, Rt Hon Edmund
Armstrong, Ernest	Canavan, Dennis	Dempsey, James
Ashley, Jack	Cant, R. B.	Dolg, Peter
Ashton, Joe	Carmichael, Nell	Dormand, J. D.
Atkins, Ronald (Preston N)	Carter, Ray	Douglas-Mann, Bruce
Atkinson, Norman	Carter-Jones, Lewis	Duffy, A. E. P.
Bagler, Gordon A. T.	Cartwright, John	Dunn, James A.
Barnett, Guy (Greenwich)	Castle, Rt Hon Barbara	Dunnett, Jack
Barnett, Rt Hon Joel (Heywood)	Clemltson, Ivor	Dunwoody, Mrs Gwyneth
Bates, Alf	Cooks, Rt Hon Michael	Eadle, Alex
Bean, R. E.	Cohen, Stanley	Edge, Geoff
Beith, A.J.	Coleman, Donald	Edwards, Robert (Wolv SE)
Benn, Rt Hon Anthony Wedgwood	Concannon, J. D.	Ellls, John (Brigg & Scun)
Bennett, Andrew (Stockport N)	Conlan, Bernard	Ellis, Tom (Wrexham)
Bidwell, Sydney	Cook, Robin F. (Edin C	English, Michael
Bishop, Rt Hon Edward	Corbett, Robin	Ennals, David
Blenklnsop, Arthur	Cowans, Harry	Evans, Fred (Caerphilly)
Boardman, H.	Cox, Thomas (Tooting)	Evans, loan (Aberdare)
Booth, Rt Hon Albert	Craigen, Jim (Maryhill)	Evans, John (Newton)
Boothroyd, Miss Betty	Crawshaw, Richard	Ewing, Harry (Stirling)
Bottomley, Rt Hon Arthur	Cronin, John	Faulds, Andrew
Boyden, James (Bish Auck)	Crowther, Stan (Rotherham)	Fernyhough, Rt Hon E.
Bradley, Tom	Cryer, Bob	Fitch, Alan (Wigan)
Bray, Dr Jeremy	Cunningham, G. (Islington S)	Fitt, Gerard (Belfast W)
Broughton, Sir Alfred	Cunningham, Dr J. (Whlteh)	Flannery, Martin
Brown, Hugh D. (Provan)	Dalyell, Tam	Fletcher, L. R. (Ilkeston)
Brown, Robert C. (Newcastle W)	Davidson, Arthur	Fletcher, Ted (Darlington)
Brown, Ronald (Hackney S)	Davles, Denzil (Lianelli)	Foot, Rt Hon Michael
Buchan, Norman	Davies, Ifor (Gower)	Ford, Ben
Buchanan, Richard	Davis, Clinton (Hackney C)	Forrester, John

Fowler, Gerald (The Wrekin)	Lyons, Edward (Bradford W)	Ross, Rt Hon W. (Kihmarnock)
Fraser, John (Lambeth, N'w'd)	Mabon, Rt Hon Dr J. Dickson	Rowlands, Ted
Freeson, Reginald	McCartney, Hugh	Ryman, John
Fraud, Clement	McDonald, Dr Oonagh	Sandalson, Neville
Garrett, John (Norwich S)	McElhone, Frank	Sedgemore, Brian
George, Bruce	MacFarquhar, Roderick	Selby, Harry
Gilbert, Dr John	McGuire, Michael (Ince)	Shaw, Arnold (Ilford South)
Ginsburg, David	MacKenzie, Rt Hon Gregor	Sheldon, Rt Hon Robert
Golding, John	Maclennan, Robert	Shore, Rt Hon Peter
Gould, Bryan	McMillan, Tom (Glasgow C)	Silkin, Rt Hon John (Deptford)
Gourlay, Harry	Madden, Max	Silkin, Rt Hon S. C. (Dutwich)
Graham, Ted	Magee, Bryan	Sillars, James
Grant, George (Morpeth)	Mahon, Simon	Silverman, Julius
Grant, John (Islington C)	Mallalieu, J. P. W.	Skinner, Dennis
Grimond, Rt Hon J.	Marks, Kenneth	Small, William
Grocott, Bruce	Marshall, Jim (Leicester S)	Smith, Cyril (Rochdale)
Hamilton, W. W. (Central Fife)	Mason, Rt Hon Roy	Smith, John (N Lanarkshire)
Hardy, Peter	Maynard, Miss Joan	Snape, Peter
Harrison, Rt Hon Walter	Meacher, Michael	Spriggs, Leslie
Hart, Rt Hon Judith	Mellish, Rt Hon Robert	Stallard, A. W.
Hattersley, Rt Hon Roy	Mendelson, John	Steel, Rt Hon David
Hatton, Frank	Mikardo, Ian	Stewart, Rt Hon M. (Fulham)
Hayman, Mrs Helene	Millan, Rt Hon Bruce	Stoddart, David
Healey, Rt Hon Denis	Miller, Dr M. S. (E Kilbride)	Stott, Roger
Heffer, Eric S.	Miller, Mrs Millie (Ilford N)	Strang, Gavin
Hooley, Frank	Mitchell, Austin Vernon (Grimsby)	Strauss, Rt Hon G. R.
Hooson, Emlyn	Mitchell, R. C. (Solon, Itchen)	Summerskill, Hon Dr Shirley
Horam, John	Molloy, William	Swain, Thomas
Howell, Rt Hon Denis (B'ham, Sm H)	Moonman, Eric	Taylor, Mrs Ann (Bolton W)
Hoyle, Doug (Nelson)	Morris, Alfred (Wythenshawe)	Thomas, Jeffrey (Abertillery)
Huckfield, Les	Morris, Charles R. (Openshaw)	Thomas, Mike (Newcastle E)
Hughes, Rt Hon C. (Anglesey)	Morris, Rt Hon J. (Aberavon)	Thomas, Ron (Bristol NW)
Hughes, Mark (Durham)	Moyle, Roland	Thorpe, Stan (Preston South)
Hughes, Robert (Aberdeen N)	Mulley, Rt Hon Frederick	Thorpe, Rt Hon Jeremy (N Devon)
Hughes, Roy (Newport)	Murray, Rt Hon Ronald King	Tierney, Sydney
Hunter, Adam	Newens Stanley	Tinn, James
Irvine, Rt Hon Sir A. (Edge Hill)	Noble, Mike	Tomlinson, John
Irving, Rt Hon S. (Dartford)	Oakes, Gordon	Tornney, Frank
Jackson, Colin (Brighouse)	Ogden, Eric	Torney, Tom
Jackson, Miss Margaret (Lincoln)	O'Halloran, Michael	Tuck, Raphael
Janner, Greville	Orbach, Maurice	Urwin, T.W.
Jay, Rt Hon Douglas	Orme, Rt Hon Stanley	Varley, Rt Hon Eric G.
Jeger, Mrs Lena	Ovenden, John	Wainwright, Edwin (Dearne V)
Jenkins, Hugh (Putney)	Owen, Rt Hon Dr David	Wainwright, Richard (Colne V)
John, Brynmor	Padley, Walter	Walker, Harold (Doncaster)
Johnson, Walter (Derby S)	Palmer, Arthur	Walker, Terry (Kingswood)
Johnston, Russell (Inverness)	Pardoe, John	Ward, Michael
Jones, Alec (Rhondda)	Park, George	Watkins, David
Jones, Barry (East Flint)	Parker, John	Watkinson, John
Jones, Dan (Burnley)	Parry, Robert	Weitzman, David
Judd, Frank	Pavitt, Laurie	Wellbeloved, James
Kaufman, Gerald	Pendry, Tom	White, Frank R. (Bury)
Kelley, Richard	Penhaligon, David	White, James (Pollok)
Kerr, Russell	Perry, Ernest	Whitehead, Phillip
Kilroy-Silk, Robert	Phipps, Dr Coffin	Whitlock, William
Kinnock, Nell	Prescott, John	Willey, Rt Hon Frederick
Lamble, David	Price, C. (Lewisham W)	Williams, Rt Hon Alan (Swansea W)
Lamborn, Harry	Price, William (Rugby)	Williams, Alan Lee (Hornch'ch)
Lamond, James	Radlce, Giles	Williams, Rt Hon Shirley (Hertford)
Latham, Arthur (Paddington)	Rees, Rt Hon Merlyn (Leeds S)	Williams, Sir Thomas (Warrington)
Leadbltter, Ted	Richardson, Miss Jo	Wilson, Alexander (Hamilton)
Lee, John	Roberts, Albert (Normanton)	Wilson, Rt Hon Sir Harold (Huyton)
Lestor, Miss Joan (Eton & Slough)	Roberts, Gwilym (Cannock)	Wilson, William (Coventry SE)
Lever, Rt Hon Harold	Robertson, John (Paisley)	Wise, Mrs Audrey
Lewis, Arthur (Newham N)	Robinson, Geoffrey	Woodall, Alec
Lewis, Ron (Carlisle)	Roderick, Caerwyn	Woof, Robert
Llpton, Marcus	Rodgers, George (Chorley)	Wrigglesworth, Ian
Litterlck, Tom	Rodgers, Rt Hon William (Stockton)	Young, David (Bolton E)
Lomas, Kenneth	Rooker, J. W.
Loyden, Eddie	Roper, John	TELLERS FOR THE NOES:
Luard, Evan	Rose, Paul B.	Mr. James Hamilton and
Lyon, Alexander (York)	Rose, Stephen (Isle of Wight)	Mr. Joseph Harper.

Question accordingly negatived.