HC Deb 21 July 1978 vol 954 cc1012-35
Mr. Speaker

Chancellor of the Exchequer—

Mr. Madden

On a point of order, Mr. Speaker. Although I am confident that the Opposition parties will have a copy of the statement that we are about to hear, those of us on the Back Benches have been told by the Vote Office that the Command Paper in question will not be available until the Chancellor's statement has been completed. In the interests of good government and open government, and to give us an opportunity to ask more informed questions, can you give any sensible explanation why the Command Paper is not available before the Chancellor makes his statement?

Mr. Flannery

Further to the point of order, Mr. Speaker. Is it taken for granted that we should have to listen to the Chancellor, absorb what we can and then dash out to get in a queue for the Command Paper and dash back in to ask questions? That is the undignified position in which we are placed.

Mr. Gow

Further to the point of order, Mr. Speaker. Just before Prayers, I asked the Vote Office whether I could have a copy of the Bill which apparently is to be presented by the Chancellor. I was told that I could not have a copy until after the Chancellor had sat down at the end of his statement. By what authority is the Vote Office unable to hand out a Bill until after the Chancellor has finished?

Mr. Speaker

At least I can answer that last point of order. The Bill has not yet been presented, so it would be impossible for a copy to be available. With regard to the other points of order, the Chancellor is making a statement—that is all that we are dealing with at the moment. So far as I know, we are using the customary procedure. The right hon. Gentleman will make his statement, then hon. Members may question him accordingly.

Mr. Lee

On a point of of order, Mr. Speaker. With the greatest respect, that does not settle the matter because it seems as if there are two categories of Member in the House—those who are privileged to have information in advance and those who are not. Under which Standing Order are some hon. Members given preferential treatment in regard to such statements and under which Standing Order are others excluded?

Mr. Speaker

I thought that everyone in the House was aware that it is an old courtesy, long established, that copies of statements are given to certain leaders of parties before they are made in the House. That is all.

Mr. Geoffrey Finsberg

Further to the original point of order, Mr. Speaker. A Command Paper dealing with pay policy is shown as listed outside the Vote Office. That perhaps is the point at issue. Why can that not be made available before the Chancellor speaks? I refer not to his statement but to the Command Paper which is there printed and parcelled up.

Mr. English

Further to the point of order, Mr. Speaker. It is conceivable that the Command Paper might have some financial implications before my right hon. Friend made his statement. If so, would it not have been more sensible for the Chancellor to make his statement, for us then to defer these proceedings until later in the day and to come back when we have read the White Paper and considered his statement and ask sensible questions instead of having to ask questions at such short notice?

Mr. William Clark

Further to that point of order, Mr. Speaker. You said a few moments ago that the leaders of various parties receive statements beforehand. This is not so, if I may respectfully say so. I understand that the leader of Plaid Cymru receives statements before they are made, but the leader of the United Ulster Unionist Party does not. Not only are there differences between Back Benchers there are also differences between leaders of parties.

Mr. Speaker

It is not for me to get involved in that.

11.10 a.m.

The Chancellor of the Exchequer (Mr. Dennis Healey)

With permission, Mr. Speaker, I will make a statement on the Government's policy for winning the battle against inflation.

The policy I announced on 15th July last year comes to an end in 10 days' time. It has been an impressive success. Inflation has been reduced to 7.4 per cent, well under half the rate a year ago, the lowest inflation rate for six years and far lower than that which the present Government inherited in March 1974. In fact, Britain's inflation rate is now about the average for industrial countries—about the same as that of the United States, lower than that of France and Canada, although still higher than that of Germany and Japan.

The standard of living has not simply been maintained, as I then promised. It has risen by some 5 per cent. for most men and women in Britain during the current pay round, partly as a result of the tax cuts and improvements in social benefits which the falling rate of inflation has enabled the Government to make. Some of these tax cuts and increases in benefit have still to take effect. In particular, retirement pensions will be worth £31.20 for a married couple in November—an increase of almost 20 per cent. in real terms compared with the level we inherited four and a half years ago, and the child benefit will amount to £4 a week for every child when the increase next April is added to that in November. As a result of all the fiscal changes since last October and taking account of child benefit changes, a family on £75 a week with two children, will have an increase in net income of some 12 per cent. by next April—equivalent to a wage increase of about 15.5 per cent.

The fall in our inflation rate has also made possible a substantial increase in national growth. Industrial output was rising at an annual rate of well over 4 per cent. in the last three months. Unemployment has been on a falling trend since September last year.

The nation owes a debt to trade unionists and employers alike for the common sense they have shown in observing the Government's guidelines in the last 12 months.

Inflation will remain around 8 per cent. for the rest of this year at least. We must now ensure that it does not rise into double figures again next year. This means that earnings must increase substantially less in the coming pay round than in the current round.

Our aim should be to keep the increase next year to half what it has been this year. The climate for pay negotiation is now very much more favourable to moderate settlements than it was a year ago. Nevertheless, the Government cannot rely on this alone. They must give a clear lead: they must accept the responsibility for fixing guidelines which will enable us to keep inflation in single figures. The White Paper to be published today therefore sets a guideline for pay settlements for the coming round at 5 per cent.—half the level of the guideline in the current round.

The White Paper sets out some limited exceptions to this guideline. The form of the guideline offers negotiators the same flexibility as they have had in the current round to structure their settlements in the way best suited to their particular circumstances. I hope employers and uinons will use this flexibility according to their needs—in particular, to restore differentials where appropriate.

In a small number of cases in the public sector the Government have already recognised that some exceptional increase is required. The increase in national earnings resulting from these exceptions is expected to be only about 0.15 per cent. in each of the next two years. There may be a small number of other groups for whom similar treatment might be appropriate when they reach their settlement date. But it would be self-defeating if more than a few groups were accorded such treatment and the Government will therefore carefully examine any proposals put forward in this area to see how far the same considerations apply.

To help those on the lowest incomes, the Government would be ready to see higher percentage increases where the resulting earnings were no more than £44.50 for a normal full-time week, which is the present-day equivalent of the minimum pay target set by the TUC four years ago plus the 5 per cent. The Government expect those on higher earnings in the same or other industries to accept the relative improvement in the position of the lowest paid which follows.

The Government will expect negotiators, as in the current year, to respect their existing annual settlement date. In the very exceptional case which may arise where a highly fragmented bargaining situation needs to be rationalised, the Government will be prepared to consider synchronising settlement dates providing that the overall level of the settlement takes account of any costs involved.

Self-financing productivity deals will be permitted on the same conditions as in the current round.

Much attention has been focused on the possibility of reducing working hours and the contribution this might make to increasing job opportunities. We welcome the recent TUC initiative on the reduction of overtime working. However, if a reduction in hours led to an increase in labour costs the result could only be to reduce employment. In general, therefore, the Government could accept a reduction in hours as part of a pay settlement only on condition that the settlement as a whole does not lead to any increase in unit costs above what would have resulted from a straight guideline settlement on pay.

As in the current round, the Government will do everything possible to ensure that the guidance set out in the White Paper is observed throughout the public sector. In the private sector the Government rely on employers and unions to act with responsibility and moderation as the CBI and TUC have assured us they will. However, the Government will, if necessary, take account of any failure to observe the guidelines in exercising their discretion in the fields of statutory assistance and other appropriate discretionary powers. The pay clauses in existing Government contracts will remain in force and will continue to be included in new contracts. The Government will, of course, as promised in March, be ready to hold discussions with the CBI about the operation of these arrangements for the future.

The Government regard continuing price control as an important part of the battle against inflation. Over the coming months the Price Commission will maintain an active programme of investigations into individual companies and will also examine, at the direction of the Government, pricing practices in different sectors of industry. The Commission not only has a duty to identify excessive price increases and to recommend the steps needed to correct them, but in doing so to take full account of the wider economic background against which such price increases are put forward.

The present statutory powers to control dividends expire on 31st July 1978. The Government will introduce a Bill to extend the statutory control for a further 12 months from 1st August 1978 on the present basis, with the present provisions for exceptions and one new provision. From 1st August 1978 no company will be required by the controls to increase its dividend cover above the highest level achieved since the current controls began. This will enable companies to increase their dividends in line with profits or in line with the statutory limit, whichever is the higher, but they will not be permitted to distribute funds accumulated in the past. A separate announcement giving details of this provision will be made.

The Government are convinced that the British people will not throw away the gains they have made over the last three years in the battle against inflation. The guidelines laid down in the White Paper offer negotiators the opportunity to use their freedom in collective bargaining to reach settlements with responsibility and moderation. By doing so they will encourage the regeneration of British industry, maintain living standards and make possible a continuing fall in unemployment.

Sir G. Howe

Clearly the House will wish to reserve until the debate next week its comments on much of the general matter dealt with by the Chancellor, but may I ask him whether he is not aware of the fact that his repeated reference in his statement to the continuing fall in unemployment has a rather hollow ring in light of this week's unemployment statistics? Are not those unemployment statistics one of the most important reasons why, certainly from this side of the House, I endorse absolutely the need for realism, moderation and responsibility in pay bargaining?

Does the Chancellor recollect that when he made a similar statement last year he said many times that the object of his announcement was to secure an orderly return to normal collective bargaining? Does he not recognise that that is exactly what was not achieved because of the strict, fixed rigidity with which his 10 per cent. guideline ultimately came to be applied? Is he not aware, therefore, that our greatest concern is lest the 5 per cent. figure announced this year should be applied with similar rigidity and similar results, with a similar failure to return to normal collective bargaining?

Does not the right hon. Gentleman accept that it is absolutely essential—and more and more so as each year goes by —to begin restoring differentials and real rewards for higher skill, harder work and higher enterprise, and that this policy must not be allowed to stand in the way of the real importance of restoring differentials in that way? Does he not recognise that there is an in-built conflict between his statement that the Government wish to achieve a relative improvement in the position of the lowest paid and his statement that the Government wish to achieve an improvement in differentials? As much as we should like to do it, we cannot achieve both at the same time.

Is the right hon. Gentleman aware that we deplore the continued and, as seems likely, extended use of sanctions and black-listing in support of the policy in the year ahead? Does he not realise that that itself is contributing to the growth of economic distortions and unreality and is itself constitutionally improper?

Does not the right Gentleman also accept that we deeply regret the Government's decision to continue with the restraint on dividends by statute? Does he not recognise that that income accrues overwhelmingly, through insurance companies and pension funds, to the benefit of pensioners, and that the continued restraint of that increment which has already been severely restrained, represents a real and continuing threat to the pension prospects of million of working people?

Finally, does not the right hon. Gentleman recognise that this policy, if applied with the rigidity that characterised last year's approach, represents a programme for continued detailed restriction and restraint of the economy which can only continue to do severe harm to its real potential for achieving success? Does he recollect telling his party colleagues on the day after his Budget Statement this year that he looked forward to introducing in July a very nice Budget? May we take it from today's statement that he has abandoned all hopes of fulfilling that rash promise?

Mr. Healey

I will try to deal with all the points raised by the right hon. and learned Member for Surrey, East (Sir G. Howe).

First, this week's unemployment statistics do not represent a check to the slow but steady fall of unemployment over the last nine months. Unemployment now is 64,000 less than it was last September, 27,000 less than it was last July, and job vacancies are 54,000 higher than they were last September. My right hon. Friend the Secretary of State for Employment explained, in presenting the unemployment figures this week, some of the factors which led to the apparent bulge. I gather that the House will be debating this subject on Monday, when no doubt it can be explored further.

But there is no doubt that if we want to get unemployment down we must get inflation down and keep it down. I say, with respect to the right hon and learned Gentleman, that the kind of flexibility that he asks for, the free-for-all in the private sector to which the Leader of the Opposition committed herself recently, would not be compatible with keeping inflation down, and I think that he and she both know it.

I would have wished the pay policy in the current round to be more flexible than it was. It was a great deal more flexible than in the first round, and the next round, as I explained, will be more flexible than the policy in this round. It is essential to combine flexibility with a moderate growth in earnings, and the sort of policies that the right hon. Lady and the right hon. and learned Gentleman have been recommending recently would lead only to a pay explosion in the private sector and to deep resentment among those working in the public sector that they were being discriminated against.

The House should recognise that differentials have been compressed a great deal ever since 1967, and the compression was brought about in the first place under a regime of free collective bargaining, for reasons which have been fully explained in articles in the Department of Employment Gazette. Differentials were somewhat expanded in the current pay round, and I hope that they will be further expanded in the next round. But these expansions must be compatible with keeping the overall increase in national earnings at the level which I have stated.

Finally, on the question of dividends, I think that the Conservative Opposition must recognise that it will be very much more difficult for union leaders to observe the moderation and responsibility which they themselves wish to observe if they see dividends increased by 10 or 100 times the rate at which pay should be increased in the next round. The Conservative Party must recognise that this is a fact of the pay bargaining situation. If it sincerely believes, as it sometimes says it does, that it wants to keep increases in national earnings down, it should support the Government next week in their Bill for continuing control of dividends.

Mr. David Steel

Is the Chancellor aware that the Liberal Party agrees that the success over the last 15 months in reversing the very severe trends of inflation has been greatly beneficial to the country and, indeed, has been quite remarkable, and that that ought to be maintained? Therefore, despite its detailed shortcomings, we shall support the proposals in the White Paper.

Secondly, will the right hon. Gentleman confirm that it is the Government's policy, as hinted by the Prime Minister yesterday, that pay and price restraint should be sought on a long-term basis? If that is so, is it not time that the Labour Party overcame its hang-up against a statutory basis for such a policy? Does not he accept that that would be far better than the series of temporary and different pay and prices policies over the last 10 years, that it would avoid the use of discretionary powers, that it would enable us to establish a statutory minimum level of earnings, and that we should create some sort of national refereeing body to which special cases could be referred?

Thirdly, we cannot accept that it is equitable to try to maintain dividend controls by statute but pay controls by guidelines. The same policy should be applied to both.

Finally, I ask the right hon. Gentleman to observe and confirm that each pay and prices policy introduced over the last decade by successive Governments has resulted in the Opposition of the day offering the people the illusion that somehow if they come to office they will scrap all these controls. Does he not agree that it is time that the House accepted that pay and prices policies of some kind are here to stay and that we should get down to the task of deciding how most fairly they should be established?

Mr. Healey

I am grateful to the right hon. Gentleman for what he said and, indeed, to the Liberal Party for the support it has given to the Government on pay over the last three years, despite disagreements with certain aspects of the policy. I am grateful to him for offering the support of the Liberal Party for the policy in the coming year.

The right hon. Gentleman advocated a statutory basis. I think that it will be necessary for the Government, unions and employers to reach an agreement in the summer of each year on the permitted level of wage increases in the following year that is compatible with the desired level of inflation, but I do not believe—and we have often argued this—that to attempt to control wages by law would be either feasible or desirable. It has been tried by previous Governments and in all cases the operation of the law against trade unions has proved ineffective and has been withdrawn. No one knows that better than the right hon. and learned Member for Surrey, East, who tried to do it as a Minister in the last Government.

Secondly, I do not believe that it is possible to define a pay policy with the necessary strictness required to involve the law in its application and still have the degree of flexibility that is needed to deal with many of the problems with which we have to deal.

On the question of dividend control, I only ask the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) to consider with his right hon. and hon. Friends what the effect will be if the lapsing of controls leads to very large and provocative dividend increases right at the beginning of the current round, and to reflect very carefully before they take a final decision on how they will vote next Thursday.

The right hon. Gentleman is right, of course, in his last point about the Opposition. The opportunism of the Conservative Party was best illustrated by the fact that only the other day the right hon. Lady the Leader of the Opposition said that the Government must operate the strictest and most draconic controls in the public sector and yet, on the occasion of the first public sector increase, for the police, which followed that statement, her right hon. Friend the Member for Penrith and The Border (Mr. Whitelaw), on her authority, asked the Government to award a 40 per cent. increase this November. Opportunism and self-contradiction could hardly go further.

Mr. Wrigglesworth

Is my right hon. Friend aware that the most important point, which people in the country have certainly appreciated, is that the incomes policy of the last year has led to a real increase in their incomes? For the first time for a considerable period they have had a real increase in their disposable incomes and therefore the policy that my right hon. Friend has introduced to the House this morning will be widely welcomed.

Is my right hon. Friend also aware that there is considerable concern, certainly on the Labour Benches, that some productivity agreements and some changes in differentials might lead to an erosion of the policy? Will he tell us what discussions he has had about the means of monitoring these agreements during the forthcoming year to ensure that the 5 per cent. norm is not breached?

Mr. Healey

I think that my hon. Friend was absolutely right in saying that the policy over the last year, which we were told by the Opposition could not possibly work, has produced not only a very dramatic fall in the rate of inflation but a very substantial increase in living standards, an increase in output and an increase of employment.

I know that there were doubts in many parts of the House about the risk that productivity agreements would prove a general loophole for breaches of the policy but, of the major agreements that we have registered, only one in nine has included a productivity feature. The CBI agrees with the TUC that real increases in productivity have been derived from the possibility of self-financing productivity deals. What this country needs more than pay restraint are increases in productivity.

The Department of Employment monitors these productivity deals, and in the public sector it has been able to assure itself already in detail that the deals have produced the increases in productivity which were envisaged.

Mr. Hordern

Is the Chancellor aware that the further restraint on dividends will adversely affect the pensions and future pensions of over half the working people of this country? Will he say what estimate he has made of the cost to the Exchequer of fulfilling the guarantee of index-linking to inflation the pensions of the nationalised industries and of the local authorities?

Mr. Healey

Dealing first with the hon. Gentleman's last point, have not made an estimate, but if he will put down a Question I shall seek to find an answer.

I would not deny that there are some disadvantages in dividend control, just as there are some disadvantages in pay policy, but I think that the advantages in employment and output which follow from a fall in the inflation rate far outweigh any marginal disadvantages which may flow from some aspects of the pay policy which produces it.

Mr. English

Paragraph 24 of the White Paper, dealing with the public sector, does not mention the Government's reactivation of the Pay Research Unit, which will have practical effect in 1979. Do the Government intend to follow its recommendations concerning non-industrial staff in the Civil Service, or do they intend to follow this White Paper?

I ask my right hon. Friend to remember, in his answer, that the industrial civil servants do not come under the Pay Research Unit. One would imagine that they might have cause to object if civil servants above them were getting a higher rate of increase.

Mr. Healey

The Pay Research Unit, as its name implies, does not make recommendations. It seeks to establish the facts about pay relationships between non-industrial civil servants and others. The Government have undertaken to reactivate the Pay Research Unit and to consider its report when the time comes. The various sections of the White Paper describe the considerations which will be in the Government's mind when that report is received.

Mr. Ridley

When the Chancellor and the Prime Minister went on their inter- national junketings to Bremen and to Bonn, did they ask the leaders of those countries with lower inflation rates how they had done it without having any of this pay policy nonsense? Did they also say, to those leaders whose countries' inflation rates are higher than ours, that they would be better off if they had a policy such as he has just put before us, and what reply was received?

Mr. Healey

I think that quite a number of people who heard the hon. Gentleman's opening remarks will regard his triviality as being pretty distasteful, but I make no complaint about it. We are very used to it.

As to the attitude of other Governments to our own pay policy, I can tell the hon. Gentleman—and give him evidence—that we have been congratulated by all the Governments that I have met in recent years, and by the IMF and the OECD, on the perseverance with which we have pursued our pay policies, and the success which these pay policies have had in reducing the rate of inflation.

Germany, which has a very low inflation rate, has a pay policy of a type towards which I hope that we can move. It is based on an annual consensus between both sides of industry and the Government on what is desirable. I believe that it may be possible for us to move to a more flexible arrangement of that nature in the future when we have got our inflation rate down, and when we have destroyed the inflationary expectations which were released during the past two years of the Conservative Government.

Mr. William Hamilton

Will my right hon. Friend agree that, whatever policies are pursued in this field, there is bound to be rough justice, and that in order to carry public opinion with him in these matters it is very important that abundant evidence is shown that we are protecting the lower paid in the matter of anomalies and flexibility? Will he give an assurance that in the forthcoming year there will be no further independent inquiries, which only seek to put off problems for one or two years in the future?

Mr. Healey

My hon. Friend is, of course, right to say that any pay policy involves rought justice, but I think that experience has shown that a pay free-for-all involves very much rougher justice, in which the distribution of reward bears little relation to the needs of those concerned and is related simply to bargaining power in situations of conflict. I think that an increasing number of trade unionists have come to that view and have expressed it at their union conferences.

I indicated that we shall be giving special help to the lowest paid by the provision to allow increases above 5 per cent., provided that they do not produce total earnings which are above £44.50 I think that this will be welcomed by those on whom otherwise it might bear. The Government's tax and benefit policies which have already been announced, and which have already come into effect, will ensure that the low paid will gain over the next 12 months more than the high paid, particularly if they have families.

Mr. Maurice Macmillan

I congratulate the Chancellor on having achieved a fall of one percentage point in inflation from the 8.4 per cent. that he claimed in October 1974 to the 7.4 per cent. that he is now claiming—an admirable achievement. May I ask him three specific questions?

First, what proportion of the low paid, on £44.50 a week, will be paying income tax? Secondly, is the Chancellor at all concerned about the extent to which pension fund managers, such as those concerned with the National Union of Railwaymen, are being driven to buy works of art as a hedge against inflation, rather than invest in productive industry?

Thirdly, may I ask the Chancellor, in connection with his reference to the use of statutory discretionary powers, to realise that any use of statutory powers given in relation to the functions of a Government, if used for the purposes of price control, will represent a gross extension of the prerogative, and that is tantamount to government by decree?

Mr. Healey

If I may try to pick my way through that rather confused and rambling series of observations and take up the right hon. Member's first remark, I thought that he intended to compare the inflation rate of 7.4 per cent. with the rate of 13 per cent. which we inherited from the last Government on an annual rate or the more than 18 per cent. on the three-monthly rate which the right hon. Member quoted in my regard. The fall in the rate of inflation which this Government have achieved has been impressive by any standard. It must be slightly shaming to the Conservative Party, which left us with the consequences of two years' explosion of the money supply and threshold agreements guaranteeing that the increase in oil prices would feed straight through into wages. Against that background, the achievement of this Government on behalf of the British people has been impressive and will be welcomed by all members of the community, especially housewives.

Mr. Heffer

In view of the fact that none of the Government's policies in the past three years could have been achieved without the support and agreement on a voluntary basis of the Trades Union Congress, will my right hon. Friend explain why in the White Paper the discussions with the TUC have been, to say the least, drawn very sketchily? He has said nothing in his statement this morning about the attitude of the TUC. Is he not aware that there has been building up, especially amongst the rank and file of trade unionists, a feeling that their sacrifices over the last three years have now reached the stage where they no longer want norms of any kind but want free collective bargaining and to get back to the position where they as trade unionists can bargain plant by plant and company by company on the basis of the profits made by those companies so that they are able to deal with the situation as they see it? Will my right hon. Friend also say what discussions there have been with the TUC on a quid pro quo basis for further voluntary pay restraint coupled with a reduction of working hours, which is fundamental if we are to help tackle our still much too high level of unemployment?

Mr. Healey

Let me say first to my hon. Friend that I agree entirely that it would have been quite impossible for the Government to help to bring down inflation if they had not had the co-operation of working men and women over the past four years and if that co-operation had not been led by the leaders of the trade union movement.

On guidelines for pay, my hon. Friend will recollect that the TUC found it impossible to endorse a guideline last year but that, despite its doubts and misgivings, its members observed responsibility and moderation in making settlements over the past year. But that responsibility and moderation did not involve a sacrifice. It made possible an increase of 5 per cent. in living standards over the last 12 months—an increase in living standards which will continue to improve in the months ahead.

My hon. Friend and those who share his very sincere view must recognise, as I think the overwhelming majority of men and women recognise, that pay increases of 30 per cent. or 35 per cent. in confetti money which lead to no real increase in living standards but which produce an increase in unemployment are not in anyone's interests. The memory of the year when this took place combined with the knowledge of the improvement in living standards under pay policy in the last 12 months will have an immense impact on the approach of trade unionists to pay bargaining in the coming round.

Mr. Paul Dean

Will the right hon. Gentleman confirm that I am correct in saying that the biggest group of people who depend for part of their standard of living on dividends are pensioners and policy holders? Will he agree that it is grossly unfair for the Government to guarantee inflation-proofed pensions for public servants and, indirectly, for the nationalised industries while they deny to private occupational pension schemes the means of doing likewise for their pensioners? Is not that perpetuating two classes of pensioners?

Mr. Healey

The hon. Member will know, surely, that the Government not only inflation-proof the retirement pension but increase it more than the increase in inflation over the previous year, if, as in the current year, earnings rise more. It is true that a large number of retired people get part of their pension from dividends. But it is also the case that a large number of very wealthy people derive immense income from dividends. If such people are to get increases of 100 per cent., 200 per cent. or 300 per cent. it will be very difficult for ordinary working people to observe the moderation in pay which is required.

Mr. Gerry Fowler

Does my right hon. Friend agree that, for reasons to which he alluded, the longer pay policy continues, the more acute will be the difficulty as between the public and private sectors and that we have to find some long-term solution to this rather than simply dealing with special cases, as we have tended to do of late? Does my right hon. Friend agree also that damage is done to pay policy by the resentment which is caused by certain well-publicised cases of people who clearly have evaded it, for example, by taking highly paid non-executive directorships when they have no discernible ability, and that there is a need for more restraint in these matters?

Mr. Healey

I agree with my hon. Friend's last remarks. As for the relationship between pay in the public and private sectors, there are enormous problems, and what has tended to happen over the postwar years is that at one period the public sector has drawn ahead, at another period the private sector has, and then there has been a catching-up process. If we could find a way to reduce or eliminate this type of leap-frogging, it would be desirable. But it is also extremely difficult to organise, though one seeks to do the best that one can.

I am surprised by the attitude of the Conservative Party to dividend control. The last Conservative Government introduced it in 1973 and maintained it during the last 18 months that they were in power. Every one of them voted for it. Why on earth do they complain about our continuing it now?

Mr. Baker

Is it right to conclude from the right hon. Gentleman's statement that for the large groups of public sector employees such as local authority employees, National Health Service employees, Post Office workers and those involved in the teaching profession, when their settlement dates come up it will be the Government's firm intention to ask them to settle at 5 per cent?

Mr. Healey

Yes, of course. I made that quite clear in my statement—with the one exception that where people achieve a settlement, even though it is above 5 per cent., which produces a result meaning that weekly earnings will be no higher than £44.50, the Government are prepared to accept an increase higher than 5 per cent.

Mr. Flannery

Will my right hon. Friend accept from me that there will be a widespread welcome among Government supporters and working men and women for dividend control? Will he accept, further—[Interruption.] We do not expect it from the Opposition, obviously. Will my right hon. Friend accept, further, that the massive and provocative increases given to the so-called top people were hardly the sensible prelude to his talk this morning about helping the lower paid and are bound to leave a bad taste in the mouths of those who actually produce the goods? Will he accept from me, finally, that he ought to trust the trade unions more to negotiate freely, bearing in mind that he has paid quite fulsome tributes to them this morning for the restraint that they have shown over the recent two or three years? Will my right hon. Friend comment on what I have said?

Mr. Healey

I certainly understand my hon. Friend's feelings and that of many of his hon. Friends about the recent increase in top salaries. However, I fear that this increase had become inevitable. After a period of six to eight years in which managers of the public sector received no increases at all, it was not in the interests of my hon. Friend, or the party that he and I represent, for us to discriminate in this way for ever against the public sector. We need good managers in the public sector no less than in the private sector, and the adjustments that were recently promulgated therefore were necessary.

On the question of trust, I have great confidence in the common sense of trade unionists—the rank and file and the negotiators on the shop floor—but it would not have been possible to secure a halving in the increase in earnings unless the Government had been prepared to say honestly what they implied in terms of a figure. I regret the necessity, but we could never have expected to secure it unless we were prepared to do that. Many members of the trade union movement dislike this type of policy, but I do believe that they will consider all the factors in the situation, realise the necessity for keeping inflation down, which is the key to creating more jobs, and will observe some moderation as they have in past rounds.

Mr. Alan Clark

Although the Chancellor pays lip service to the concept of differentials, his real concern is the low paid, or what he rather quaintly calls "needs". Who determines "needs" and why is this separate from status, skills and the danger of certain jobs?

Mr. Healey

I find that strange coming from a member of the party which believes in means tests in every part of social life. The hon. Member seems to think that there is something irrational in taking account of the needs of various sectors, yet his party is all for means testing. He must concede that the Government have a right to determine need. People working on earnings of £30 a week—and there are many of them—have needs of which the hon. Member cannot conceive. It is the lack of imagination in the Conservative Party which has most affronted the ordinary men and women of this country.

Mr. Norman Atkinson

Would the Chancellor acknowledge that the inclusion of a 5 per cent. pay limit is sheer political masochism? The only beneficiaries of such a statement are the Conservatives.

Mr. William Hamilton

Nonsense.

Mr. Atkinson

Will the Chancellor acknowledge that those workers without dependent children are being asked to take a cut in their living standards? Does the Chancellor realise that he is placing workers in the public sector at a disadvantage compared with those in private industry? For those reasons, his statement is bad economics and bad politics.

Mr. Healey

I appreciate my hon. Friend's rhetoric, as always. I do not think that the Opposition Front Bench would regard me as a masochist. They might try to attribute to me one of the other—

An Hon. Member

A sadist.

Mr. Healey

I am surprised that my hon. Friend regards me in that light but I suppose that I shall just have to grin and bear it. I know that he and some of his hon. Friends hold their views sincerely but they are not widespread on these Benches or in the trade union movement or in the country.

Mr. Hall-Davis

Will the Chancellor recognise that one of the main reasons for the widening gap in living standards between this country and our European partners is the lower productivity of British industry? Therefore his policy should be actively to encourage productivity deals rather than to use the word "permit" as he did in his statement.

Will the Chancellor say whether any payments from profit-sharing schemes introduced under the Finance Bill will have to be included in the 5 per cent., or whether they will be exceptions?

Mr. Healey

Profit-sharing income does not count as earnings; therefore it does not count in the 5 per cent. I agree that our productivity is lower than that of most of the countries with which we compete and has been so for more than 100 years. However, it is interesting to note that the lowest increase in productivity in this country was in the 10 years leading to the First World War when we had no Welfare State and very little income tax. Therefore, some of the panaceas put forward for dealing with productivity have very little basis in our history.

Mr. Madden

Will my right hon. Friend agree that the lack of emphasis placed on the difficulty of the low paid by Opposition Members demonstrates graphically their scale of priorities? Will the Chancellor say more about the approach that he will adopt to tackling the problems of the low paid, which constitute the biggest pay scandal in this country? There are millions of workers in this country in full-time occupations who draw miserably low pay. What figure would now prevail compared with the TUC's low-pay target of £30 in 1974? Will he ensure that there is maximum flexibility, not only on pay but on the 12-month rule in order to remedy the difficulties of low-paid workers?

Mr. Healey

I do not think that changing the 12-month rule will give particular help to the low paid. If advantage of that were taken by higher-paid workers it could damage the living standards of low-paid workers very severely. As I said in my statement, the £44.50, beyond which earnings which include an above- 5 per cent. increase should not rise in the next round, does represent the TUC's £30 low-paid target, adjusted for earnings since that date, plus 5 per cent. for next year.

Mr. Madden

But not inflation.

Mr. Healey

No, not inflation. It is adjusted for earnings. It is in fact a low-pay target that is adjusted for the way in which earnings have risen since then, plus the 5 per cent. for next year. That will give a valuable degree of flexibility. But the low paid will benefit from this additional flexibility only if those who are a little higher up the earnings scale do not use their advantage as a base on which to rebuild differentials. That is absolutely essential. If they did so inflation would wipe out all the gains of the low paid and we would once again be trapped in the vicious circle of rising wages and rising prices.

Several Hon. Members

rose—

Mr. Deputy Speaker (Mr. Oscar Murton)

Order. There is a considerable amount of business to be conducted today and the House will have an opportunity to return to these matters next week. I shall call two more speakers from each side.

Sir B. Rhys Williams

The Chancellor placed emphasis in his statement on the importance of child endowments in his projection of living standards. Why does he not follow the logic of that policy by immediately increasing the rates of benefit for the children of those in work to compare with those paid to those out of work? This would help the low paid without reducing differentials. It would restore the incentive to go back to work and help selectively to meet the pressure for higher wages from the very people who are most affected by inflation.

Mr. Healey

That is precisely the purpose of child benefit.

Mr. Litterick

Will the Chancellor of the Exchequer agree that it is an inevitable consequence of wage restraint in our kind of economy with our inadequate institutions that more and more people should feel that the policy is unfair because they have had a bad deal out of it? Will the Chancellor take note of the established fact that the 5 per cent., like tion is coming; otherwise we would not used, will be used in a simplistic way by employers? They will say that as the limit is 5 per cent. they will give 5 per cent. to everyone and in doing so will cause an even greater sense of grievance in terms of the number of people who feel aggrieved and the length of time that those grievances have been held? Is he aware that there are workers in my constituency who have had pay increases deferred for two years? Because of the operation of the 5 per cent. rule, it now looks as if it will be three years.

Mr. Healey

My hon. Friend the Member for Fife, Central (Mr. Hamilton) was right when he said earlier that any pay policy has rough edges and appears unfair to some. However, I noticed that at their union conferences, Mr. Tom Jackson and Mr. Sid Weighell, both of whom represent low-paid workers, feel that they get a very much better deal out of the sort of policy that the Government have had over the past three years than out of the sort of free-for-all that has been recommended by the Leader of the Opposition.

With regard to undue rigidity and applying the guidelines, I said in my statement that I hoped that employers would take advantage of the flexibility, as some have in the present round. For example, in the last round the Ford settlement, which covered a large number of workers, gave a spread of increases ranging from over 8 per cent. to nearly 14 per cent. I hope that that will be more possible in other industries in the coming year.

Mr. Alexander Fletcher

Is the Chancellor aware that his policies have so eroded differentials that in the midst of high unemployment there is a serious shortage of skilled labour, particularly in Scotland and other development areas? This shortage is in itself causing unemployment to remain high because, clearly, unskilled people cannot find work if skilled men are not around to be employed. When will the right hon. Gentleman realise that no previous Chancellor in history has said more from the Government Dispatch Box and achieved less for the British economy?

Mr. Healey

I can see that the hon. Gentleman thinks that a General Elec- tion is coming, otherwise we would not have that sort of charity from him. If the hon. Gentleman is in touch with industrialists, he will recognise that one of the problems is that industry has not trained anything like enough skilled workers in the past. We are now seeking to improve the training of skilled workers. I do not deny that the compression of differentials has also had an effect, but, as I said earlier, a great deal of that compression took place under free collective bargaining, particularly in the motor car industry.

Mrs. Wise

Does my right hon. Friend accept that an obsession with unit costs obscures the true cost of unemployment to the community at large? Does he acknowledge that demand and purchasing power could safely be allowed to rise if we had a policy of planned imports? Will he confirm that in their reaction to the proposals on dividends the Conservative Opposition are saying that dividends should rise at a greater rate than profits, whereas my right hon. Friend's White Paper clearly says that dividends will be allowed to rise in line with profits?

Mr. Healey

I agree with my hon. Friend's last point. My hon. Friend talked about my being obsessed with unit costs, but any stimulus which I give to the economy will leak into imports if our unit costs rise higher than the unit costs of other countries. Therefore, a fiscal stimulus will produce jobs in other countries rather than in Britain unless we can keep our unit costs down. There is no way around that problem through import controls.

Mr. Dykes

On a point of order, Mr. Deputy Speaker. I apologise for detaining the House, and I certainly would not argue with your judgment that it is time to call a halt at some stage, and I appreciate that questioning has gone on for some time, but lest the Chancellor should feel that his policies are wholly correct, after the controlled rage of the hon. Member for Tottenham (Mr. Atkinson), may I point out that a number of other hon. Members, including myself, wished to put serious points about some aspects of today's announcement? In view of the points of order made at the beginning, will you confirm that no penalty was imposed by you on those hon. Members who had to go outside briefly to get a copy of the statement in order to prepare their questions to the Chancellor if they got in?

Mr. Deputy Speaker

I have issued no cards to anyone.