THE ECONOMY

HC Deb 25 July 1978 vol 954 cc1379-517

4.7 p.m.

The Prime Minister (Mr. James Callaghan)

I beg to move. That this House welcomes the substantial progress already made in combating inflation as described in the White Paper (Winning the Battle Against Inflation) and recognises that a further sustained national effort is required to keep inflation under control as a basis for a healthy and productive, expanding economy capable of providing full employment and rising living standards for the British people. The motion is in three parts. The first part welcomes the substantial progress that has been made in reducing inflation. The second part recognises that a further effort will be required if inflation is to be contained during the coming 12 months. The third part says that the purpose of this effort is to provide a basis on which to build a productive economy—I emphasise the words "a productive economy"—to return to full employment and provide rising living standards.

Those are our objectives—a return to full employment and sustained economic growth. These objectives require continued and continuing improvement on our past performance in price and non-price competitiveness, in industrial performance and in investment.

We attack inflation because it creates unemployment, lowers the family living standards and reduces the sustainable rate of growth. Everyone at home and abroad recognises and acknowledges the healthy improvement that has been brought about by Britain's success in the battle against inflation.

It is a battle which has been fought by the British people, with their consent and help, and it has succeeded. Inflation is increasing, as the House knows, at half the rate it was when the Opposition left office and bequeathed to us an unsavoury inheritance. This was made worse by the fivefold increase in oil prices from which the western world—and the developing world, in particular—has not yet recovered.

Now our money is holding its value better at home and abroad than at any time in recent years. Since we held this debate a year ago, other factors have improved. The economy is beginning to grow. Gross domestic product increased by almost 1 per cent. in the first quarter of 1978. Industrial production in the three months to May was 1.3 per cent. higher than in the previous three months. Manufacturing production increased by the same amount. Consumer expenditure is rising. The volume of exports of goods increased by 8 per cent. in 1977 and imports increased by 1½ per cent. Private manufacturing investment increased by 13 per cent. in 1977 and, in spite of a dip earlier this year, all the surveys show —or suggest, certainly—that in 1978 investment will again show a substantial increase.

As the rate of inflation has fallen steadily month by month, living standards have recovered rapidly. People are better off now than they were a year ago. This has been brought about by a combination of wage increases, lower taxes and higher child benefits. We have given incentives and we shall continue to do so.

Let us take as an example a man who was earning £75 a week this time last year. With a 10 per cent. increase in wages and lower income taxes, his real take-home pay—not his notional pay—will have increased by £2.35 per week at last summer's prices—that is 4.6 per cent.—if the man is single, and by 5 per cent. if he is married with no children. If the man is married with two children under the age of 11, his net family income will also have benefited from the tax-free higher child benefits and he will have had a real increase of £3.19 a week—that is 5.4 per cent. in real living standards.

We have brought the supply of money under control with the growth of sterling M3 on track for the 8 per cent. to 12 per cent. target range set by the Chancellor in his Budget.

Sales of Government stock are going well and the Government's funding programme is well in hand. Our foreign exchange reserves stand at $16½ billion after repaying $2½ billion in foreign debt in the first half of this year.

As yesterday's debate showed, even unemployment is on a falling trend, although there is general acceptance that much more needs to be done.

In total, 1977.78 is witnessing the best recovery the country has made since the oil price increases set hack the western world's economies so dramatically.

In a world in which Britain is so heavily dependent on foreign trade, to some degree our own level of output and employment are a reflection of the world's levels of activity and trade. A total of 30 per cent. of Britain's gross national product is taken up by foreign trade.

However, I am bound to say to the House that the prospects are not altogether bright. We in Britain, having had some success in overcoming inflation, expect to grow faster than last year at 3 per cent. The Government therefore see it as our paramount duty to build on our success so far, to give a lead to contain the present rate of inflation, to temper it with help for the least-well-off and the needy, and to sustain our rate of growth. The success that we achieved in these matters last year gives me encouragement to believe that we can hope for continued co-operation in our efforts.

It is worth casting one's mind and, indeed, one's eye over what was said in the debate held a year ago this week. The Government were told that the improvements that I have just outlined would not take place. I was told that we were on the brink of a pay explosion, that we would not get inflation down into single figures, that if we did, we would not hold it there, that the policy had completely failed, and various pundits were solemnly prophesying the ignominious collapse, as they called it, of phase 3 with wage increases of 25 per cent. and 28 per cent. They were wrong. It did not happen because the people of this country willed that it should not happen.

Now the fainthearts are at it again. They are reinforced by those with a vested interest in failure. I therefore give way to the hon. Member for Cirencester and Tewkesbury (Mr. Ridley).

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

A year ago the Prime Minister also said that the people of this country wanted to return to free collective bargaining. He said "It cannot be gainsaid, so be it." Why did he gainsay it and why did it not be?

The Prime Minister

The definition of free collective bargaining is one that has occupied a great many theologians for a very long time. I shall come to this question in a moment. I am only relieved that the hon. Gentleman's thrust was no more deadly than that.

It is now being said that inflation is going back into double figures next year. The White Paper, "Winning the Battle Against Inflation", is the answer to those who say that. It points out that many elements enter into inflationary price increases. Some of them are outside our control, such as world commodity prices, international currency fluctuations and crop prices, but these elements may affect all our competitors in the same way. Where we can exercise some influence over our own destiny is over some of the costs of production of our goods and services. Pay is one such cost, and it is to this element that the White Paper is directed.

Before the White Paper was published, the Government held many discussions with members of the general council of the TUC and some with the CBI. These discussions have been valuable in helping us to formulate our views. I should like to express my formal thanks to the TUC, in particular, for the wisdom shown by the affiliated trade unions and their members who, although they did not accept the guidelines last year, nevertheless recognised that moderation in wage settlements would bring benefit while a runaway inflation would do undoubted harm.

To my knowledge, and from my conversations, trade union leaders have been reinforced in their view by the way events have progressed since last July. They are making it clear—they have made it clear to me and to my right hon. Friends—that they have no intention of returning to the inflationary spiral of 1973 to 1975.

The Government are grateful to both the TUC and the CBI for coming to meet us in order to hear the Government's views about the likely developments in the economy over the next 12 months. I think that it was important to make a beginning in this way. I should like to see it carried further. I believe that there should be an annual discussion. As long as we have such things as annual wage rounds, it is important that there should be a discussion between the Government and leaders of industry on both sides, whoever they may be, as to how the Government see the economy developing during the following 12 months.

Mr. Peter Hordern (Horsham and Crawley)

I hope that the Prime Minister will also include the House of Commons in such discussions. As the right hon. Gentleman has said that he forecast an increase in growth of 3 per cent. for next year, will he tell the House what is his forecast for unemployment for this time next year?

The Prime Minister

Of course the House of Commons should be included in these discussions. As far as I know, there are a number of economic debates in which the House frequently expresses its view. As regard forecasts of unemployment, my answer is "No". I rely on what the late Iain Macleod said. He said that he did not believe in making such forecasts. I am happy to follow his example.

The TUC, in its conversations with us, said that it would prefer the Government not to put a figure on the general level of increase in earnings. It wanted us to publish our general views without putting a figure on earnings. We considered this very carefully of course, but the Government believe that they have a responsibility to indicate guidelines in the light of the view we take of the prospects for inflation. Our conclusion is that the guideline figure in the year from 1st August should not exceed 5 per cent. if we are to be reasonably certain of keeping the inflation rate within single figures.

The rate of inflation is the test. Keeping it down is the objective. I am concerned that because expectations have been so varied over recent years, when increases have been as much as 28 per cent. or 30 per cent., people sometimes get into the way of believing that an increase in wages of 10 per cent. is a wage freeze. I have even heard that expressed in this House by one of my hon. Friends who was attacking me for a wage freeze last year because wages were going up by 10 per cent.

We have to get back the sense of what the country can do in these matters. The test is not how many pounds one has in one's pocket, but how much they will buy. That is the test. When I looked at the survey published in the London evening newspapers earlier this week, showing how much a suit or a holiday would cost in some Continental countries, I was reinforced in my belief. It is true that the wages are higher. So are the prices. They are very much higher. I thought that there was general agreement between us on that.

We have measured our prospects against those of our major overseas competitors. We have measured the possible development in costs, possible commodity price developments and so on, and we believe that 5 per cent. is the figure that is most likely to maintain living standards and help employment at a time when we need all the orders from abroad that we can get and at a time when the level of world trade is flagging badly. There is no argument between the TUC and the Government about these objectives. The difference is on methods.

The Government recognise the special position of the lowest earners. Those with families have already been helped through the introduction of tax-free child benefits payable to the mother, which were raised last April to £2.30 per child per week, will be increased to £3 per child per week in November and will be increased to £4 per child per week next April. This helps all families but it is of particular benefit to the lower-paid families because they benefited much less from the tax allowances than the higher tax payers.

To help the lowest earners further, the Government are ready to see an exemption made to the 5 per cent. guidelines, where this can be negotiated, and up to certain levels. But we must ask all those concerned in negotiation to accept that any consequential improvement in the position of the lower paid cannot be made the basis for leap-frogging claims otherwise, ultimately no one will be better off.

The White Paper also makes provision for the continuation of self-financing productivity deals. Rather over 10 per cent. —that is an interesting figure—of workers in major groups negotiated such a deal during the current pay round. These deals by their nature do not increase unit costs and should reduce them as far as possible. They are closely monitored and the evidence is that, in general, they are genuinely self-financing.

I want to say a word about flexibility and differentials. The last 10 per cent. guidelines proved less flexible in practice than the policy we set out in the White Paper. The argument against using a figure—this is the TUC's argument, and I think that there is a lot in it, but it is not to be disposed of by sloganising—is that it is taken as a standard and, therefore, in many cases the 10 per cent, became an across-the-board entitlement, at the expense of flexibility and the restoration of differentials. Even so, there were a number of important group settlements—gas workers, ambulance men, insurance and banking staff to quote just a few—where flexibility has been used. The House will be interested to know that an analysis of settlements covering over 4 million workers shows that about one in five includes some adjustment of differentials and over half have included some element of pay restructuring. This year negotiators will have the chance to carry this further and adapt existing pay structures to changing needs.

I have heard it argued that the figure of 5 per cent. does not give room for flexibility. I doubt whether this is so when the percentage figure is translated into pounds sterling and calculated against weekly or monthly earnings. When that is done, in my view there is room—and I say this quite openly—for more flexibility than if it is referred to purely as a percentage matter.

I refer now to the use of the Government's discretionary powers to support pay policy and dividend control. We listened carefully to the representations of the CBI on the pay clauses in Government contracts. We came to the decision that they and the other discretionary powers must be continued, because the Government cannot give encouragement to blatant breaches of the guidelines by firms in receipt of Government industrial aids or Government contracts.

Pay clauses and discretionary powers have broadly been accepted by contractors, and Government contracting has been unaffected. The vast majority of firms observe the guidelines. In fact, the number of cases in which the Government took discretionary action in the past year has been infinitesimal compared with the large total of settlements which have been made within the guidelines. Nor have we any evidence that contract clauses have caused the difficulties that were foreseen. They operate as a deterrent and in no case yet have they had to be enforced.

The debate on Thursday will provide the opportunity for detailed discussion of the Dividends Bill. But the House should know that the Government have decided to introduce this Bill because in our view, it would be quite wrong when we are asking working people to exercise moderation on pay in the year ahead, to fail to do everything in our power to see that moderation is exercised with dividend payments.

I do not believe that the argument is conclusive that insurance policy holders or pension fund beneficiaries will be adversely affected by this measure. What affects them even more than dividend control is the erosion of the value of their savings by inflation, and they have as much to gain as any group by the success of the anti-inflation policies. After all, it was the Opposition who first introduced these statutory powers when they were in Government in 1973. Even the hon. Member for Cirencester and Tewkesbury overcame his reluctance and voted for them. If they genuinely want to see moderation in pay settlements in 1978 they should vote for the Dividends Bill when it comes before the House on Thursday. To do otherwise, against the background of their own history, will destroy any claim they have to be taken seriously on this subject.

Other important matters to which my right hon. Friend the Chancellor has referred in the White Paper, and which I wish to emphasise, are the need to respect existing annual settlement dates and the importance of the Price Commission's activities in maintaining an active programme of investigation into price rises.

I turn to the matter of hours of work. There is growing discussion in some trades unions, but not all, about negotiating a reduction in the working week. The White Paper makes it clear that such negotiations are acceptable—it is a general move that is taking place not only here but on the Continent—subject, of course, to the 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.

On the question of unemployment, there seems at first sight to be a paradox that although there has been a serious increase in unemployment, the number of people in jobs has not fallen. Part of the explanation is that the total of people in work and seeking work has risen by 750,000 in the last four years.

There is a continuing trend for married women to seek work outside the home, and a recent survey showed that of all women betwen the ages of 35 and 59, two out of every three are at work. The number of people at work has remained fairly constant, but the number of people coming into the labour market, and therefore seeking work, has increased. There are now more young people coming into the labour force than there are older people leaving it. This is helping to add 170,000 a year extra to the labour force during the next few years. Nevertheless, it is our view—from factors that we can see, although we cannot put statistics to them—that unemployment is on a falling trend.

We intend to take all possible measures, as my right hon. Friend the Secretary of State for Employment said yesterday, to stimulate employment, especially for young people. By next April, every young person who has left school this Easter or summer should have a job, be in further education or training, or have the opportunity of work experience under the youth opportunities programme.

The third part of the motion recognises that keeping inflation under control is a basis for a productive and expanding economy.

Mr. Ralph Howell (Norfolk, North)

Does the Prime Minister agree that we have a special unemployment problem because a large number of people are caught in the unemployment trap since they cannot afford to work due to our crazy taxation and welfare system? May I draw his attention to one of my constituents who has just been sacked by British Rail, who had £28 spending power when in work, who now has £33 spending power and who says that he cannot afford to take a job unless lie is offered £70 a week? What is the Prime Minister's answer to that?

The Prime Minister

I do not agree with the hon. Gentleman except in very few cases of very large families. Of course there are cases where, because of the level of child benefit, or through other circumstances—

Mr. Howell

My constituent has two children.

The Prime Minister

That may well be so, but I am thinking here of the exceptional case. As regards taxation and levels of remuneration, the hon. Gentleman had better ask his leader, who has said that nationalised industries such as the railways must live within a fixed budget. So the hon. Gentleman's constituent will get no help out of any negotiations there.

The way to help all low-incomes cases is through child benefit, through the family income supplement and by other such measures. What one cannot do—and hon. Members will be wrong-headed if they encourage it—is to believe that if one lifts those at the bottom one can lift up the whole panoply. One would then be away on a wage explosion again. We have to find other ways of dealing with the matter.

Now I come to the third part of the motion which relates to keeping inflation under control—let us see if we have any agreement on this—as a basis for a productive and expanding economy. We are working to achieve this through additional efficiency at home and by means of international co-operation with the other major western industrialised countries. I have already reported to the House on the work done at Bonn.

As regards Britain, the Government's main instrument here is the industrial strategy. This has encouraged the major sectors of industry to re-examine their own needs and prospects. Industrialists and trade unions together, in various parts of industry, have set targets for themselves for their market share in some 30 or more of the major sectors of British industry. Having set their targets for their market share objectives, they have examined the consequences of these for manpower capacity, training, energy, construction, transport, distribution, finance and technology.

This exercise has been done throughout all the major parts of British industry by the voluntary co-operation of employers and trade unionists. I get a little riled when I hear the Opposition sneer at the work that has been done. The findings and recommendations have now been sent to and are being studied by individual companies and workers. It is in the interests of all of us that they should be encouraged to make the necessary changes.

As a result of the sector working parties' recommendations, some of which have gone to member companies, others of which have come to the Government, the Government have taken measures over a whole range of proposals to improve the position of individual companies and of industries. The services of the Export Credits Guarantee Department have been improved precisely as a result of the recommendations.

In accordance with giving priority to the modernisation of our industrial base, some £270 million has been allocated to individual sectors of industry, such as machine tools, drop forgings, ferrous foundries and electronic components, for modernisation and re-equipment of industries that are at the very heart of our national economy. I recommend every hon. Member to read the very interesting article in The Guardian this morning on the re-equipment of the woollen industry and ask himself whether he does not think that this strategy has been justified. I hope that hon. Members have been made aware by company managements and trade unions of the value of the industrial strategy in these matters.

We intend to continue full support and to build up the National Enterprise Board. Its subsidiaries now provide jobs—[HON. MEMBERS: "Oh."] Hon. Members show how out of touch they are with real industrial efficiency. The NEB's subsidiaries now provide jobs for over 280,000 people. In 1977 it invested £200 million in 22 companies. Some of these investments are already showing results. Ferranti was a real success story both for the NEB and for Ferranti's management. This British company is now among the leaders in its challenging field. Rolls-Royce made a profit of £20 million in 1977 and is maintaining its position as one of the three best manufacturers of aero-engines in the world. Does anyone wish to challenge or to sneer at that?

In about 25 companies the National Enterprise Board has minority sharehold- ings which are helping to finance the expansion of these companies. A number of further investments are in progress and others are in prospect in the northern region and in the north-west region following the establishment of regional boards of the NEB. The investment strategy of the National Enterprise Board is fully compatible with the Government's industrial strategy. Whatever the Opposition's prejudices, the Board's work is increasingly valued by British industry.

This, then, is the basis for a productive and expanding economy. We must overcome both domestic and world inflation, work to get world trade increasing, improve the technical efficiency and productivity of our own industries and give incentives to those who work in industry. The Government have taken action in all these areas and will continue to do so, having relieved them of some £6½ billion of taxation since the April 1977 Budget.

We have a clear policy. As a consequence the rate of inflation is going down. Unemployment is moving down. Output is improving and living standards are going up. Taxes are going down and the weakest in society are being cared for. That is the policy that we ask the House to support.

I had hoped to have a serious discussion on these issues today, but this mornings edition of The Times stated that the Leader of the Opposition for the first time in her career speaking immediately after Mr. Callaghan"— and that is not right anyway; it appears that The word in Conservative quarters last night was that she intends to seize this crucial opportunity to destroy both the Prime Minister's arguments and his credibility with the electorate. But Labour back benchers can be counted on to give her a rough time. I hope that last part is not true. If we hear the right hon. Lady in silence we shall miss none of the full flow of eloquence. But if this is to be the test—I wonder which of the "Gang of Four" put that in—if this is the word from Conservative quarters last night, let us look at the alternatives and see what we are faced with.

We are told that the right hon. Lady has a distaste for making policy in the Shadow Cabinet. Looking at her colleagues, I can understand that and sympathise with her. But we are also told that this distaste for policy making leads her to make ill-prepared and sometimes indefensible remarks. I might also add that they are frequently contradictory.

For example, on 29th November 1976, she told us: I believe in a voluntary incomes policy". Thirteen months later she changed her mind. She was then saying that the Government should not interfere with wage bargaining. Then that trusty old sheepdog was put up on 29th December to say that the pay—and I am sure he wants to hear his words—of public service workers should have a fixed relation to national industrial earnings, and that the Government should guarantee that. But six months later the right hon. Lady contradicted him. She told us that while there, should be free collective bargaining in the private sector, the nationalised industries in the public sector must live within fixed budgets.

How does one reconcile that? How can one, in a highly structured society such as ours, say that electricians employed in private industry shall have one rate and shall be able to obtain it by free collective bargaining, but that those employed in nationalised industries must be subject to fixed budgets and cash limits? The right hon. Lady is riding for a fall on that one.

The right hon. Member for Leeds, North-East (Sir K. Joseph) does not always contradict himself. He only contradicts in Opposition what he did in Government, but his view is consistent. He says that incomes policies are actively damaging. But that is not the right hon. Lady's view. It is not the view of the right hon. Member for Penrith and The Border (Mr. Whitelaw) who is sitting next to the right hon. Gentleman—no wonder the right hon. Member for Lowestoft (Mr. Prior) has absented himself this afternoon. The right hon. Member for Lowestoft walks about wringing his hands and prophesying, as he did a year ago, that there will be a wage explosion. He was wrong then and he is wrong now.

The truth is that the Opposition, led by the right hon. Lady with her distaste for policy making, is all over the shop on this issue of pay. There is no Opposition policy worthy of the name. Stiff in opinions, always in the wrong; Was everything by starts, and nothing long; But, in the course of one revolving moon, Was chemist, fiddler, statesman and buffoon. Right hon. Members may pick their own roles in this particular pantomime. They may choose them as they please.

There is only one occasion when they speak in unison. That is when there is a pay grievance from which they hope to extract some party advantage.—[HON. MEMBERS: "Oh."] That is why the right hon. Lady, with the right hon. Members for Penrith and The Border and Leeds, North-East sitting beside her, put the trusty old sheepdog in to double the proposed pay settlement for the police. How he must have squirmed when he had to do it. But he did it. And he will go on doing it. But at least they are consistent. Find a grievance and exploit it, as the right hon. Member for Chesham and Amersham (Sir I. Gilmour) did with the Armed Forces pay, without regard at all to any consequences for pay policy.

One other major facet which distinguishes the three years of the right hon. Lady's leadership can be summed up thus, "Find a rolling bandwagon and jump on it as soon as you can". If there are trade disputes, let us have a referendum. If it is hanging, she is in favour. If it is a closed shop, she is against it, of course, but she will take no action by legislation. If it is immigration, we ate in danger of being swamped. On this last she has done great harm, because she has knowingly aroused the fears of thousands of coloured people living in this country and it will take them a long time to recover their composure. If it is devolution and the bandwagon is rolling one way, she is in favour of an Assembly—

Mr. David Crouch (Canterbury) rose—

The Prime Minister

No, I am dealing with the right hon. Lady. The former leader of the Conservative Party, the right hon. Member for Sidcup (Mr. Heath), has at least been consistent on this. But when the bandwagon seems to be halting, the right hon. Lady is the first to jump off. She is not in favour of an Assembly now. And if we do not like either solution, we can choose what the right hon. Member for Cambridgeshire (Mr. Pym) puts forward and have a federal Britain.

What a way to run a party! The National Enterprise Board will be abolished. No, on second thoughts, perhaps they will not abolish it. They will merely cripple it. Public expenditure they propose to reduce except, of course, on all the items that they intend to increase. Where is the money to come from? We have had the answer—one clear, straight answer from the right hon. Lady on television. What she said was, "Let us abolish the Community Land Act"—and we shall save all of £39 million! The right hon. Lady is insulting the intelligence of the British people with her one-sentence solutions to deep-seated problems.

That is no way to conduct an Opposition, especially when they aspire to be a Government. If the right hon. Lady ever had responsibility she would find out that it is not so easy to get the Cubans out of Africa by refusing to sell a few ships to Poland. It is not so easy to change the attitude of the Soviet Union on human relations by refusing to sell them footwear from Norwich. These one-sentence solutions are an insult to the people of this country. Prejudice and dislike are no substitute for a foreign policy.

The simple truth is this: the right hon. Lady has led the Conservative Party for three years and under her leadership people still do not know what the Conservatives stand for. They still have no clear idea what their policies are on pay, on production, on immigration or on anything else. They do not know because she does not know. She has a distaste for policy-making.

The right hon. Lady's every speech is a rallying cry to prejudice. The Tory Party once aspired to lead one nation and to speak for one nation. Now the Tory Party, many of its members reluctant and sullen, has to listen to the language of division the whole time. That call to division will fall on deaf ears. The British people have come to know that they achieve most when they work together when they work in unison, in social justice and in fair play.

4.44 p.m.

Mrs. Margaret Thatcher (Finchley)

I beg to move, to leave out from "House" to the end of the Question, and to add instead thereof: 'condemns the economic policies of Her Majesty's Government which during the last four years have resulted in record unemploy- ment and stagnant living standards for the British people; deplores the continued use of blacklisting to enforce pay limits; and calls for the implementation of policies for economic recovery based upon realistic and responsible collective bargaining, cuts in personal taxation, and real rewards for hard work, skill and enterprise'. I was rather surprised that the Prime Minister sat down when he did. I was waiting for him to develop an intellectual argument. Perhaps that was a little optimistic. He is long on words; what a pity it is that he has been so short on achievement.

He usually starts almost any speech with a reference to the "unsavoury inheritance". That was not what we were hearing at the last General Election. We heard nothing about an unsavoury inheritance then. Whatever the Government had inherited at that time, they had completely sorted out all the problems—or so they said. The Chancellor of the Exchequer—whatever he had inherited—said that the inflation rate was then 8.4 per cent. It can scarcely have been due to us that, after that, it went up to 27 per cent. His right hon. Friend said that there were no increases in the pipeline. Nevertheless, the rate of inflation rose to 27 per cent.—a record in the whole of our history. The former Prime Minister, the right hon. Member for Huyton (Sir H. Wilson), said that unemployment was beginning to fall and that the balance of payments showed a substantial improvement. We were in great difficulty a couple of years after that.

The Government claimed to have sorted out one policy after another at the last General Election. Anything that happened thereafter was due to their own policies. For the first time, food prices have doubled within a Government's period of office. That has happened during this Government's period of office. Unemployment has more than doubled. The standard of living is falling. As I listened to the Prime Minister, I felt that he did not care what happened so long as at the last General Election inflation was 8.4 per cent. and he could claim just about the same at the next.

The Government, after four and a half years of their own trials and other people's tribulations, have just about got us back to where they started in terms of output from our factories and the living standards of some who work in them. That is the very best that this Government can claim by way of progress after four years—and that takes little account of the tribulations which the people have suffered during these four years, the lowered living standards and the increased unemployment. Yes, perhaps there are more women out at work than there were. That is because they have had to go out to keep up a reasonable standard of living.

I turn to the White Paper. I noticed that the Prime Minister went very wide on subjects which, it seemed to me, did not touch on economic policy. That was his choice. I shall at least try to be relevant. I want to make it quite clear to the Prime Minister that any discussion or statement, in a White Paper, a debate or a forum, which leads to a greater understanding of the workings of the economy and of the continuing need for responsible and realistic collective bargaining in the light of all the circumstances is welcome.

Recently I had occasion to go through all the statements which have been made, since the employment White Paper of 1944, about the need for greater understanding of the matters which affect costs in industry, inflation and full employment. There is an astonishing similarity between the words which have been used at top level ever since the time of Lord Woolton's full employment White Paper which was followed by those of Sir Stafford Cripps, Mr. Harold Macmillan and the then Mr. George Brown and our own incomes policy statement.

There is no doubt—we all know it—of the need to try to contain the increase in wages within the increase in production. The more discussion that we can have, and the more that that is understood, the better. But I and my right hon. and hon. Friends cannot accept that the objective is best achieved by having an absolutely rigid limit of X per cent. applying regardless of the several and many different circumstances of industry and commerce, regardless of the conditions on the shop floor, regardless of the profitability of various concerns. I do not think that we shall get the increase in production and prosperity which is what we all want by that method.

I have four points to make about the White Paper. First, as far as I can understand it, it has two paradoxical features. The 5 per cent. figure seems more rigid by far than the 10 per cent. figure last year. It is quite true that in the debate last year we were told that the 10 per cent. figure was a national increase and that there would be very considerable variations—it was an average. This year the 5 per cent. figure seems to be absolutely rigid and to be the total increase for any group compared with the previous year. I believe that this will make this phase of the incomes policy even more rigid than last year and that it will be even more difficult to bargain for the many variations that occur within our industry.

As events happened last year, the l0 per cent. did not turn out to be 10 per cent. at all. Even though the Prime Minister tried to make it more rigid, it turned out to be 15 per cent., or nearly seven times the increase in output by the summer of this year. That is my first comment. There is much greater rigidity this year in the 5 per cent. than ever before, rigidly applying to each group of people who bargain. But the paradox is that in the rest of the White Paper we seem to have similar provisions, accommodating productivity deals as before—and perhaps "accommodating" is the word.

I remember that last year Frank Chapple, in referring to the power workers' productivity deal, ridiculed the idea that the productivity deal just concluded in the industry was within the Government's pay guidelines. The deal was based on sales of electricity and appliances, and the latter at least were falling. "I cannot see how you can get a productivity scheme out of that", said Mr. Chapple. Nevertheless, the Department of Trade managed to do so.

The point is that it is very difficult indeed to tell what kind of productivity scheme will be accepted. It depends very much on who does the negotiating and with whom in the Department it is done. And yet—and this takes me on to the second point on the White Paper—as a result of varied productivity deals, some of them very accommodating, sanctions are nevertheless to be applied and companies are to be subject to black lists, arbitrary action and pay clauses in Government contracts.

We cannot apply this kind of black list pay clause or sanctions unless we can be absolutely certain of their being consistent in their application. To do anything else is to introduce arbitrary law into our system, and that is the total negation of the liberty of the individual and everything for which we stand.

The right hon. Gentleman will know of the first company that a black list was applied to last year, although for a long time he denied that there was a black list. As late as New Year's Day of this year he said that it was a figment of the imagination. But it was no figment of the imagination for the companies which had the black list applied to them. It was first tried on an excellent company which exported 95 per cent. of its products overseas. The company, in Belfast, which employed 3,500 people, in fact paid its people lower wages than Short Brothers or Harland and Wolff to the tune of some £6 below what workers employed by the latter two firms were getting each week.

Therefore, the company decided—I should have thought that this would have been welcomed by those on the Labour Benches—to put up their pay. I understood that those on the Labour Benches were in favour of increasing the pay of lower paid workers. What did the company get for its trouble? It was put on a black list and finance to help it with its exports was stopped. Fortunately, the firm got the finance elsewhere. Whatever sort of policy was it that attempted to apply black listing provisions to a firm like that?

The truth is that we now have two kinds of law. First, there is legislation properly passed through Parliament and impartially administered. Then we have White Paper law or diktat which is arbitrary, secret and Socialist. It is passed by those who wish to control other people's lives but who have envisaged themselves only as controllers, not as the controlled.

It is interesting to consider what would have happened if, instead of an incomes White Paper phase 4, we had had "Competition in Aviation—Fourth Phase"? Would Freddie Laker ever have been able to win his battle for Skytrain or the consumer have benefited from his determination? Of course not. He was able to win that battle because that ruling was against law upheld properly in a court. One could determine what the conditions were and gain justice in one's favour from a court.

In this White Paper, which goes in for arbitrary black lists and arbitrary sanctions, it is not possible to tell against whom those sanctions will be applied, except at the whim of the Government when they decide whether they can take on a company, or whether they can apply sanctions against a big company or only against some of the smaller ones, which suffer from so much damage.

I have a third point on the White Paper. I have been through it word for word and I cannot find the word "differentials" occurring even once. Nevertheless, there is a continuing and serious problem resulting from telescoping differentials under successive pay policies. That now presents us with one of the real problems about increasing production. Everyone knows that even in the midst of unemployment there is a shortage of skilled labour and that shortage is stopping the creation of more genuine jobs which will create prosperity as well as work.

Indeed, we have asked several times in this House about the ICI case at Teesside where there is difficulty in finding suitably skilled artificers. Because ICI cannot find these men—because it cannot pay enough to attract them—it is not now proceeding with a £20 million investment in new plant. Yet the White Paper makes no reference to the very serious problem of differentials. It refers to flexibility. Nevertheless, all the flexibility that it permits seems to be within the 5 per cent. limit. That is precious little or no flexibility at all.

The White Paper refers also to anomalous cases in the public sector. But in most of those anomalous cases—the police, the firemen, university teachers and doctors—the pay is determined by outside bodies. What sort of provision is made in the private sector where special groups have done particularly badly? Many of those are among middle management. The White Paper says that any special arrangement must be cleared through the Department of Employment. But, once again, the approach is totally arbitrary. That is a feature of the new White Paper law under this Government; it is totally arbitrary and no one knows where he is with it.

The fourth feature to which the Prime Minister referred—but briefly—was that of dividend controls, which will be debated on Thursday. I think that the future of the many people who are in insurance and pension schemes must he considered. For many, the main source of income comes from dividends from investments.

The Prime Minister knows that the Royal Commission on the distribution of income and wealth which reported in 1975 showed that the largest single group of beneficiaries from shares were the 14 million people saving through life assurance. The next group consisted of 11½ million members of occupational pension schemes. Furthermore, half of all recipients of dividends and interest had total incomes of less than £2,000 a year.

One would have thought that that kind of level of income would normally have been regarded by this Government as low and needing to be increased. If it was from earnings, it would be. For many of the people, that income is from hard-earned savings which have already borne the brunt of inflation. Does the Prime Minister really think it necessary to impose yet another round of dividend control?

I noticed that when the Chancellor of the Exchequer put it across he tended to imply that only wealthy people benefited from dividends. If wealthy people benefit much from dividends, they give most of what they get back to the Chancellor of the Exchequer pretty quickly at up to 98 per cent. rate of tax.

So much for the White Paper. The Prime Minister has set out certain objectives which the White Paper is designed to achieve. Time after time, he and previous Labour Governments have set out objectives on jobs, prices and growth. We could not disagree with the objectives because, of course, everyone wants increased prosperity, an increased standard of living, increased growth and falling inflation. We would agree with many of these objectives; but the truth is that the policies to put them into effect are just not forthcoming, and they never have been.

I agree that we must set this White Paper into the wider perspectives of our ambitions and objectives for the economy of the United Kingdom. I want to discuss briefly, therefore, three points on the economy.

First, if our objective is to have a prosperous, expanding economy, we must recognise that high public spending, as a proportion of gross national product, very quickly kills growth. We have noticed this during the period since the last war. If we examine public expenditure in that period as a proportion of the national income, we find that Conservative Governments tend to lower public expenditure as a proportion of national income. We have to remember that Governments have no money at all. Every penny they take is taken from the productive sector of the economy in order to transfer it to the unproductive part of it. That is one of the great causes of our problems, because this Government have increased the unproductive sector, and diminished the productive sector, so that during the lifetime of this Government we have had virtually no growth at all.

During the period known as the 13 years of Conservative Government, we kept down public expenditure. [HON. MEMBERS: "Wasted years."] Hon. Members call them wasted years. Let us see what was the average performance in those 13 years. Let us see how it compares with the performance under this Government. Growth was at an average of 3 per cent., because we kept down public expenditure. Inflation was at an average of 4 per cent. Unemployment was at an average of 2 per cent. How many people would like to have those figures back again? They would put this present Government to shame. The average regular increase in growth was 3 per cent.

This Government have never achieved anything like that. They have only had a reduction in growth, if I may put it in that way, a fall in manufacturing output, a fall in national income and a fall in standard of living, together with a rapid increase in unemployment. Even the Prime Minister would welcome it if he were ever able to get down inflation to 4 per cent. Yet during that time we were constantly being criticised for not having got growth up to a higher level.

It is interesting to look at the Labour Party manifesto for 1964. Labour's manifesto complained that companies were vying with each other for scarce labour. We were in a period when wealth was being created and when jobs were creating prosperity. There was a steadily rising standard of living. In fact, they were the 13 best years that we have ever known.

One of the great defects of high Government spending is that it leads to high borrowing, as the Chancellor knows, which leads to high interest rates, and that in turn leads to higher public spending. One of our great strictures on this Government concerns the amount of income that now has to go out each year purely on servicing the debt, purely on servicing the amount of money they have had to borrow for their policies over the past four years.

The total amount of debt held outside the public sector when we left office—the Prime Minister was talking about an inheritance—was some £3,000 million. One would have thought that that was sufficient. This year the estimate is some £8,000 million interest on borrowings alone. It is a rather serious thought that this year we are having to spend more on interest to finance borrowings than we are spending on education, on health or on defence.

If some Labour Members had taken some of our advice earlier—before they had to take it because the IMF was called in—and had spent rather less freely than they had of other people's money, the position would have been very different. They have a test of virtue which depends on how much they can spend of other people's money rather than their own. If they had taken our advice, we should have been spending very much less today and had to finance very much less money borrowed. We should have been able to have a very much lower rate of tax.

The second general proposition is that taxation kills incentive. People judge their standard of living by what they have got left in their own pockets and not by how much they have put into the Chancellor of the Exchequer's pocket. That seems to be accepted by almost everyone except Labour Governments. Wherever one goes, one finds it said that all levels of tax are too high. Now and then, even the Chancellor of the Duchy of Lancaster says it. If he does not say it in this House, he says it on television: I must be frank and say that many of these taxes owe more to a judgment of an egalitarian kind than to an economic kind. He went on: My own view is that a correction is now overdue, and I think that we will soon see one. Of course, we did not. But unless one gets the rate of personal taxation down, there will be no incentive to get the extra production or productivity which it is the Prime Minister's objective to secure.

The third proposition is that too much regulation kills jobs. One can take an example from the bread industry, directly from pay policy. The industry wished to go against the 12-months rule on the ground that it would have got a very much smaller settlement. It was not allowed. The industry said that that would mean having a bigger settlement. It said that it would have to have redundancies. Eighteen months later it did.

The Prime Minister's objectives may be the same as ours, but he and his party are unwilling to bring in the requisite policies in order to carry them out. That is why we do not have very much growth in this country. That is why, under Socialism, we have a lower standard of living. That is why, under Socialism, we have had such a very rapid increase in unemployment, which the Prime Minister is unable to do anything about.

Let us compare our economy with the economies of some countries which have been infinitely more successful than we have. Let us look at the United States. An article in the Wall Street Journal of 10th July 1978 states: Since the current recovery began in March 1975, the US economy has created more than 10 million new jobs. What were we getting here in 1975? We were not talking about any recovery at all. In 1976, one of the worst years in our post-war economic history, the Chancellor in fact forecast a public sector borrowing requirement of some £12 billion, and had to go touting round the world for loans to see him through. He eventually had to apply to the IMF, and had to subject us, fortunately, to disciplines which he was unwilling himself to impose.

That is the kind of increase in jobs that we could have had here had we had a Government prepared to have less public spending, more in the private sector, more incentives and less regulation. But we shall never get that from this Government.

Let us look at the result in countries which are prepared to operate such a system. Let us look at the performance of all those countries which were represented recently at Bonn. Let us look at their increase in national income or gross domestic product and compare it with ours. We find that ours, in four years of Socialism, has gone up by only 0.1 per cent. So much for the Prime Minister saying that he wants growth. He is not short on objectives but he has been totally lacking in achievements. Other countries have achieved very much higher rates of growth in the same period and in the same world conditions, without the benefit of North Sea oil. Some of them, such as the United States, had a deteriorating oil problem, or were having to import all their fuels, as in the case of Japan.

In terms of manufacturing output, the Prime Minister has absolutely nothing to boast about. In the four years during which Socialism has been in charge, manufacturing output in the United Kingdom has fallen by 6.1 per cent.—the worst record of all the Bonn countries.

We accept that the Prime Minister is just as anxious to create jobs as we are. In fact, there have been four periods each of which has produced a million additional jobs. Most of them have come from the private sector. Many of them have come from small businesses—from the very sector which this Government have clobbered and have imposed additional taxes upon, even though they have now set out to try to undo a little of the damage which they did previously.

Those periods are a tribute to what private enterprise can do in creating additional jobs. With one exception, all of them were during periods of Conservative Government—from June 1952 to June 1956, from June 1959 to June 1962, from December 1962 to March 1966, and from September 1971 to September 1974. Each of them produced a million additional jobs, operating largely through the private sector, although in periods 3 and 4 some of them were through increases in central and local government, but not a high proportion. The figures are given in "Britain Means Business", and they are there for all to see. They are not a high proportion. The jobs which create prosperity as well as creating work will tend to come from the private sector and will come from small businesses.

These are the principles upon which we operated when we were in power. They are the principles which produced the additional growth and which produced the increased standard of living that the Prime Minister, despite all his talk, is quite incapable of producing. He takes us to task for trying to cash in on a particular wage claim. May I remind him that we have not done that? It was he who did that during the February 1974 election campaign in his famous speech in Aberdare, when, against the background of a statutory incomes policy — and I reject a statutory incomes policy for the future—he said that he backed the miners all the way and that it was utter drivel for us to say that by fighting that claim we were fighting inflation. Those were his words then. Perhaps they can be placed before him once again.

In spite of the Prime Minister's words, if one compares the Labour and the Conservative records in the post-war period, one sees that time and again on almost every indicator and on almost every value the Conservatives' performance comes out streets ahead of Labour's for the benefit of the average person.

Let us consider, for example, the real take-home pay of the average industrial worker. I take the Prime Minister's definition: in terms of what it will buy. When the right hon. Gentleman says something about cash limits, let me point out to him that housewives have had to budget on cash limits all their lives. We know what it is about. The real take-home pay of the average industrial worker rose 60 per cent. in periods of Conservative Government and only 6 per cent. under Labour. The average industrial worker and his family have done 10 times better under us than they have ever done under Labour Governments.

For all that the Prime Minister boasts about what he has now done about inflation, I might point out that on the three-month basis it is currently above where it was at the time of the last General Election when the Chancellor of the Exchequer boasted that it was 8.4 per cent. Inflation has risen twice as fast under Labour as it has under the Conservatives. Unemployment has risen 12 times faster under Labour than under the Conservatives. Output has grown nearly twice as fast under the Conservatives as it has under Labour. Industrial and manufacturing output again has grown nearly twice as fast under Conservatives as under Labour.

These are the facts which the Prime Minister cannot get round. Despite all his euphoric speeches, he cannot argue with this performance. It has come about as a result of applying Conservative policies—the policies of a free market economy and a social market economy.

We contrast Labour's record of economic failure. It is its own condemnation. It is a record born of envy and hostility to wealth creation. The unemployment queues spell the despair of Socialism. The record of inflation tells its own story of Labour incompetence. The present level of interest rates condemns the fiscal and monetary judgments of the Chancellor of the Exchequer.

The realities prevent the Prime Minister believing in socialism.

Mr. John Parker (Dagenham)

Tell us what you mean by Socialism.

Mrs. Thatcher

If the hon. Member for Dagenham (Mr. Parker) has not heard the comparisons that I have made and recognised that under Labour Government after Labour Government all in total can put up the standard of living of the average industrial worker by only 6 per cent., compared with our 60 per cent., and if he does not regard that as failure, I do not know what he does regard as failure.

Mr. Parker rose—

Mrs. Thatcher

No. I have given way to the hon. Member once. I shall not do so again.

Illusions or different political beliefs prevent Government supporters sitting below the Gangway from believing in a vigorous social market mixed economy. Perhaps one writer was correct in his assessment when, about the battle over Clause Four, he wrote: Productivity was never of any interest to the extremists. They would rather control men's lives in uniform misery according to their definition of the public good than allow them to flourish freely. Try as he may, the Prime Minister cannot shift the choice which the nation faces away from the central theme of liberty versus collectivism. Roy Jenkins, perhaps the best Chancellor of the Exchequer that the Labour Party has ever had, reminded us that where the State allocates three-fifths of the nation's resources, freedom of choice and the values of a plural society are in danger. That is what the State is allocating now.

For four years the nation's economic fortunes have been in unsure hands and in the shifting pattern of alliances which have provided the Treasury Bench with its support. The long drab period is, we hope, being brought to an end. A new beginning with a new Government and new opportunities cannot come too soon

5.20 p.m.

Mr. Douglas Jay (Battersea, North)

The right hon. Lady the Leader of the Opposition has given us her idea of an intellectual speech. She told us many things that she would not do if she were Prime Minister; but she omitted to tell us what she would do. What the right hon. Lady is offering us amounts to monetary disinflation plus unrestrained pay bargaining in the private sector and an incomes policy in the public sector. To use her own language, that is what I should call an arbitrary policy. In practice, it would mean increasing unemployment, stagnant production and bitter conflict over pay between the public and private sectors. That, briefly, is what we should have if the right hon. Lady were to carry out her non-existent policy.

As the right hon. Lady has called for an intellectual speech, I shall do my second-rate best. My starting point is that it is high time we returned to full employment and growth. I hope that I carry some support even from the Opposition Benches. As that is my starting point, I am a wholehearted supporter of the Government's proposed incomes policy and the White Paper, including dividend control. The only way to return to full employment in present circumstances—I recognise that for some this may be an unpopular truth—and in the probable future is through an incomes policy.

I particularly welcome the statement in the White Paper that neither my right hon. Friend the Prime Minister nor the right hon. Lady has quoted, as follows: the country should aim at a long-term approach in which collective bargaining is based each year on a broad agreement between Government, unions and employers about the maximum level of earnings which is compatible with keeping inflation under control in the following 12 months". That is a harsh truth that some have still not grasped.

What has really happened to economic policy, and especially employment policy, in the past 10 years? The truth had better be stated starkly. The basic fact is that unrestrained collective bargaining has discovered that it has the power to force up pay rates faster than production. That, as a first result, has forced up prices—notably three years and four years ago—and as a second result has compelled Governments either to continue the inflation or to check it at the cost of unemployment. Baldly summarised, that is the story of the past few years.

This has happened in almost all the industrial countries in the 1970s and not only in Britain. In the United States both the rate of unemployment and the rate of price rises are not so far different from our own. The same is true of France. The process also started before the huge rise in oil prices, even though that rise and, in our case, the common agricultural policy, have exaggerated it.

In effect, completely uncontrolled collective bargaining has disrupted full employment; and we must restore some sort of control if we are to return to the high levels of employment that we all want to see. The right hon. Lady mentioned the employment policy White Paper of 1944. It is worth recalling that that White Paper—incidentally, it was approved by Lord Keynes—stated that demand management could not work without price and pay restraint. That was a prophetic statement that many seem to forget. As I should put it, we cannot manage demand unless we manage costs at the same time. That might not be true if the public would tolerate the ever-increasing price inflation that we have seen in some South American countries, which is a perfectly workable policy if one does not mind ever-increasing inflation. However, experience, convinces me that the British people would not very long tolerate that solution.

If they will not tolerate it, the Government are forced to limit monetary expansion. But, given that the Government thus firmly limit such expansion, it unhappily follows that the faster pay rates rise, the greater will be unemployment. That is why we now see building workers unemployed and building work that needs to be done. It is why teachers are unemployed while schools are in need of teachers. It is why we have to adopt the necessary but somewhat absurd job creation schemes, because sufficient productive jobs are not available.

Indeed, I suspect that if by magic everybody's money income in Britain were suddenly reduced by some substantial proportion tomorrow morning, unemployment would fall rapidly in the subsequent 12 months. I believe that that illustrates vividly the situation in which we find ourselves.

It is, however, more constructive to say that the reason why unemployment has been falling gradually in the past 10 months is that we have had some effective pay restraint. Contrary to what many honestly think, I do not believe that the unemployment that we are now experiencing has very much to do with technology or technological development. Some of us remember that those opinions were repeatedly expressed in the 1930s. At that time it was thought that we should never have full employment again. However, 10 years later those arguments appeared extremely foolish. The fact is that the world's demand for goods and services is unlimited if we follow sensible economic policies.

In the long term, it is surely not even sensible to put the emphasis on shortening hours of work or even lowering the age of retiring. Incidentally, in the Unite States they are moving in the other direction and abolishing compulsory retiring ages. To shorten hours of work ail round is equivalent to raising pay rates and labour costs. That is just as likely to increase unemployment as to reduce it. On the other hand, if we stick to a firm, long-term incomes policy, which must include dividends as well as pay, there is no reason why we should not return to full employment fairly quickly.

Some might argue that in terms of production and productivity even the 5 per cent. policy that the Government propose is too high. However, it is clearly the best that we can get. I therefore warmly congratulate the Government on having the courage to go for that policy, in spite of the great deal of opposition that it will no doubt generate. The Opposition's alternative policy, if we can call it that, of monetary—

Mr. Ian Mikardo (Bethnal Green and Bow)

What is it? Tell us what it is.

Mr. Jay

The right hon. Lady has not told us. I am guessing from the Babel of voices that we have from the Opposition Benches and outside that we should have a mixture of monetary restriction, on the one hand, and an income free-for-all, on the other. This would mean chronic unemployment, low production, low investment and, in the end, the further weakening of this country. That seems to be the certain effect of that policy, if it is the policy that the Opposition propose to adopt. If it is not their policy, no doubt the next Opposition Front Bench speaker will tell me where I am wrong, in that estimate. That will be illuminating for us all.

In spite of there being much more "flexibility"—if that is the blessed word —in the White Paper than the right hon. Lady seems to have noticed, for the forthcoming year, it is true that we have still not solved, or even seriously tackled, the crucial problems of relativities and differentials. Those problems must be overcome if we are to have a successful incomes policy. I cannot see that there is any long-term solution to this problem, except to restore a last-resort pay tribunal of some kind, which would cover all salaries and wages, not just selected bits of the economy. I believe that until we restore that in some form we shall have a steady succession of special cases—the Armed Forces, the police, the firemen and many others. We shall have separate so-called review bodies which tend to become pressure groups for their own particular clients, very naturally. Indeed, we could easily end up with leap-frogging by the review bodies.

Nevertheless, for the moment let us at least do what we can. For that reason, I strongly support the Government's White Paper in the belief that it is at least a major step towards a long-term incomes policy, backed eventually by a competent authority. I welcome it because I believe that is the only way of getting back to full employment.

5.31 p.m.

Mr. Maurice Macmillan (Farnham)

I do not want to go in great detail into the argument that we have heard since I have promised to be extremely brief, but among the many platitudes trotted out by the Prime Minister was the one that the control of inflation was essential to growth. That is true, but he said it in a way that implied that once inflation was under control there would be little difficulty in achieving a rapidly expanding economy with higher wages for all, even perhaps higher dividends, more social spending, and all the rest. I do not think that it is quite as easy as that.

To go back a little in time; I remind the House that, in the 50 years up to the beginning of the First World War, prices were absolutely static. Average earnings went up between two and three times and growth averaged about 1 per cent. a year. The difference was that in those days we were earning a very large amount from overseas in interest, profits and dividends. All through that period—and, indeed, between the two wars—it was seldom that our sales of goods and services overseas covered our necessary imports. Despite successive problems and balance of payments difficulties since the Second World War, we covered a far higher proportion of our imports with the export of goods than we did in the inter-war years, despite the fact that we were then selling to a great extent to a captive market: a colonial empire, whose economies we controlled so that we were able to buy cheap and to sell dear.

That situation has gone, and we do not yet seem to have recognised it. We do not seem to have recognised that we now have to sell a larger proportion of goods overseas than ever before just to stay where we are. Therefore, we need a far greater increase in productivity. I am glad that that was admitted by the Prime Minister.

We have to make a much greater effort than that which I see foreshadowed in the Prime Minister's speech and, indeed, in the White Paper, to decrease unit labour costs. I do not believe this requires longer working hours and, through stopping over manning, greater unemployment. Nor do I think, as the right hon. Member for Battersea, North (Mr. Jay) said, that technological advance necessarily produces unemployment. I think that it may require a change in the pattern of people's work, but I do not believe that it increases unemployment; if anything, and over a period, the reverse is the case.

The main point that I want to make is that, in order to develop our trade at home and overseas—the Prime Minister reminded us that 30 per cent. of our gross domestic product depends on overseas trade—we must consider our position in the world. Until a relatively short while ago, we had a system in which the Empire developed into the Commonwealth and in economic, monetary and exchange terms the Commonwealth developed into the sterling area. We had a group of independent countries where, broadly speaking, we did not need to settle across the exchanges the debts between the countries which were members of the group.

It seems to me that, in the initiative that has been taken by the German Chancellor and the French President at Bremen, they are seeking, despite the great difficulties of doing so, to create a similar type of union within the European Economic Community. They are seeking to achieve for all the member States of Europe the advantages which the sterling area gave to the United Kingdom and to the other member States of the sterling area for so long.

Now that these old advantages have disappeared, it would seem foolish indeed if we in this House and in the country allowed any Government in the course of negotiating the necessary details to give the impression that they were turning in principle against the initiative to bring new advantages by moving towards economic and monetary union, starting with exchange rates. I am slightly prejudiced in favour of this initiative. About 20 years ago I wrote a paper on similar lines for the Western European Union.

We have missed many opportunities in Europe. I think that it was Lady Bracknell in "The Importance of Being Earnest who said: We have already missed five if not six trains. To miss any more might expose us to comment on the platform. Any political party which misses any more chances in Europe will be exposed to very adverse comment on its political platform. We have missed the earlier trains—the Defence Community, the Coal and Steel Community, Euratom and the Economic Community itself. We now have this opportunity both to replace the advantages of the sterling area and to get back into a position in which the European Community can begin to operate as a political and economic entity. Of course there are difficulties and problems, but the prize of success is very great. Since the Bremen initiative will go ahead with or without the United Kingdom, the penalty for failure could be equally great.

5.38 p.m.

Mr. Allen McKay (Penistone)

The occasion of an economic debate seems an appropriate occasion on which to refer to my predecessor, John Mendelson, for whom I had a great deal of respect.

John was a small man, but of great political stature, a good constituency MP and a splendid parliamentarian who served his constituency faithfully for 19 years. His work for the well-being of the area and for the people who live in it was well known and recognised. His fight to retain employment in the area and his forthright honesty in solving problems, large or small, endeared him to all his constituents. His high intellectual ability, along with the sense of purpose with which he pursued problems, projected the greatness that was in him. His reputation was not only high here but was respected in many other countries. He spoke out against oppression wherever it was and against whomever it was who caused it, irrespective of critics or pressures.

But he was not all things to all men. I know that hon. Members on both sides of the House have disagreed with John, as indeed I did both as his agent and friend. But his arguments were always based upon his clear understanding of a problem after much careful thinking. Once he had decided that he was right, his logic was pursued to the end with a determination that he always had. Our backgrounds were different but John gave me a goal at which to aim. I am proud to be in the House, but I wish that I could have come here in some other way than through John's death. He will be much missed by the House and his constituents.

The Penistone area ranges from concentrated urban areas to vast rural areas where it seems that there are more grouse than people. The constituency covers 144 square miles. During the campaign I learnt what that meant. The 71,000 electors work in the coal, steel, engineering and agriculture industries. I am glad that we have a Government committed to creating a modern, viable and efficient steel industry. Their investment in steel at Stocksbridge will make the area part of the overall plan. Without that investment the entire area will stagnate and die.

We have a fine British steel industry which would not be there but for State aid and intervention at a time when they were needed. We have the finest steel workers in the world. They have enough faith in the Labour Government not to let them down.

In my area we also have the best miners and mining engineers. Investment in the Barnsley area by the National Coal Board has ensured the employment of 16,000 miners until the year 2000. It is necessary to continue with that expansion so that the known reserves are fully exploited to the benefit of the nation. To do that we need an integrated fuel policy which will ensure that the best use is made of our energy resources.

There is another side to this industry which shows the care and compassion of the Labour Government. Help has been given to pneumoconiosis sufferers, grants have been paid to help those affected by closures and redundancies, and contributions have been made to workers' pensions schemes. Retirement at the age of 60 has been introduced. I believe that that should be extended to all industries to make way for the young unemployed.

I am conscious that the Government have spent £4.3 million in the area to employ 3,380 people. Without that help the area would be poorer. Unemployment is a world-wide problem. That is why I applaud the Prime Minister for his efforts to get the world economy moving.

During the election campaign the farming fraternity expressed their grumbles. But I am led to believe that Labour's derating of land, basing income tax on two years to even out the good and bad years and the increase of about 16 per cent. in income for 1977, was right for the farmers. The Government should continue to help farming to grow and prosper. At the same time, they should keep a careful watch on food prices. There is still some concern about the cost of farm machinery. The Price Commission could investigate that matter.

When I questioned people in shops about prices, I was told openly that at long last the increase in prices was becoming steadier. I was told that people could now go out on a Friday to shop knowing that the amount of money that they spent the previous Friday would buy the same.

The engineering industry causes anxiety in the area. David Brown has declared 300 people redundant. Had that company asked for Government aid earlier those 300 men would not now be redundant. It took the initiative of a Labour-controlled council to try to set up a workers' co-operative to create employment for those men.

I turn to one of the most disturbing features of the area. This involves a management fault. I do not condemn management for its own sake but I scream out when I think that there is injustice. I am speaking of the Hepworth ironworks. The shop stewards at that company asked the management if they could have a meeting during working hours. They asked for that meeting because the factory operates a seven-day week on a three-shift basis. The shop stewards had no alternative. The management refused their request. After another meeting the shop stewards went back to the management and suggested alternatives, but they, too, were refused.

In view of the problem which the shop stewards were experiencing they believed that they must call the meeting. The management told the convenor that all workers who attended the meeting would be dismissed. The men did not know of that warning when they went to work the next day. They attended the meeting and as a result 239 workers were dismissed.

The trade union has asked for ACAS to be called in but the management has refused. The union has asked for the services of any independent body to be called in, but the management has refused.

The dispute has now lasted for five weeks. The shop stewards have said that they will give up their credentials so that the dispute can be resolved. The management has said that it would want to take away their credentials for five years. No trade union could accept that. The country will not prosper unless there are more suitable arrangements in industry. If either side in a dispute suggests that ACAS should be used, that should be accepted.

Many other matters affect my constituents. I should have referred to them if I had had the time. One of them concerns the economic disadvantages of local government reorganisation. I accept that the present Government are not responsible for that major expensive change, but it is relevant to the national economic situation. There is a need to give areas neighbourhood or successor parish councils with statutory powers.

I feel strongly about the question of television licences, particularly for pensioners. I hope that I shall have the opportunity to press that matter before long.

I have enjoyed the attention of the House for long enough. The Penistone constituency has made a substantial contribution to the creation of our wealth. I hope that national policies and my services will enable my constituency to create more for the well-being of the area and for the country's good. I fought the by-election on the Government's handling of the economy. I am now here. I hope that I and the Labour Government will remain here for many more years.

5.47 p.m.

Mr. John Pardoe (Cornwall, North)

It is a privilege to follow the hon. Member for Penistone (Mr. McKay) after his maiden speech. We welcome him to the House. I welcomed his comments on his predecessor, John Mendelson. When I first came to the House 12 years ago, John Mendelson had a reputation for being a wild, Left-wing Socialist, but I soon discovered that he was more of a radical Keynesian. I cannot pay a man a higher compliment than that. John Mendelson had friends of long standing in the House across party lines. I wholeheartedly endorse the remarks that the hon. Mem- ber for Penistone made about his predecessor.

I have to admit to the hon. Member that I worked against him in his by-election campaign. He might have noticed that I did that with considerable effect. I am not sure whether the maintenance of the Liberal vote is a better comment on the last 15 months of Government than the fall in his vote is on the last four and a half years of Labour Government. Whatever our feelings were in the by-election, I welcome the hon. Member to the House. Clearly, he has a close and keen interest in the people and problems of Penistone. We look forward to hearing from him about these matters in the future.

Listening to the opening speeches in the debate, I was minded to ask the question "Is this a private General Election, or can anyone join in?" Clearly, there will be a General Election pretty soon. Clearly, it will be an election fought on the swapping of statistics more than most, if that is possible. But the debate that we are having this afternoon is in the aftermath of the publication of the White Paper on incomes policy. It would, however, be ridiculous to suppose that pay is the only important ingredient in our own economy, and even more ridiculous to suppose that what we do in our own little island can alone change the fortunes of the world economy, with which our success or failure is so inextricably tied up.

I wholeheartedly endorse the remarks of the right hon. Member for Farnham (Mr. Macmillan) about our place in Europe. It seems to me absolutely essential that we should work within the international community to get the economy right.

The trends in the world economy are not at all encouraging. Inflation is almost certainly moving upwards again in most of the major industrial countries. If we take together six of those major countries, excluding Britain—the United States of America, Canada, Japan, West Germany, France and Italy—we see that prices in May of this year were 6.6 per cent. above those of a year ago. But, of course, that is a 12-months figure, and 12 months is a long time when we are dealing with inflation.

If we take the three-monthly figures for those countries at annual rates, we can see that the inflation rate for them has moved up from 4.6 per cent. at the beginning of this year to 8.4 per cent. in May. This 8.4 per cent. average rate of inflation—the latest average rate of inflation for these major industrial countries —is much nearer to the average 12-months rate for the period 1973–77, the period following the oil crisis, when it was 9.1 per cent.

The prospect for jobs in the western economies is certainly no better than that for inflation. Even if we take the most optimistic assessment of the follow-up to the summit conference, it cannot have much effect until 1979, and even then it is pretty dismal. The gross national product of all OECD countries together in 1978 will probably rise by no more than 3.6 per cent. That is less than the 4 per cent. achieved in 1977. I do not think anyone can expect that 1979 will be better on present policies than 1978.

World trade in 1978 may grow by a little less than 5 per cent. and may accelerate slightly in 1979, but that will be not much more than half the rate of growth that we knew in the decade leading up to the 1973 oil crisis. These are the international realities that we have to face in dealing with our own domestic economy.

All this makes it doubly incomprehensible to those of us who deem ourselves to be European that the British reaction to the European economic initiatives which we have seen, particularly at the Bremen conference, should have been so half-hearted—half-hearted on the part of the Government and, indeed, on the part of the official Opposition. We had absolutely nothing this afternoon, in a speech on the economy, from the right hon. Lady the Leader of the Opposition which led one to believe that she was in any way interested in these important international initiatives.

The British Establishment's reaction to international and especially European proposals to change the world economic order is, I think, little better than that of a beetle staking out its territorial claim on its own dung-heap. I fear that that des-scription is probably apt for the British economy in 1979. It is probably not a bad description of the European economy in that year, too.

This may seem incomprehensible to foreigners, but it is, perhaps, understandable in the atmosphere of British domestic politics, because there is to be an election. The opinion polls have already shown that public opinion has turned quite substantially against the whole European idea. Therefore, I fear that both major parties will clearly be conducting an election campaign in which they will certainly, if not pander to, do the best to cultivate the lowest prejudices of Britain. These prejudices are the very same prejudices as made us late for every important European initiative that we have had in the last 30 years, and we are about to be left at the European starting-gate all over again.

This afternoon, the Leader of the Opposition paid a compliment to the President of the European Commission, Mr. Roy Jenkins, as the best Labour Chancellor, by which I think she meant that he had actually left the Conservative Government of 1970 with a surplus of income over expenditure—which they rapidly turned into a very substantial deficit. It is utter and complete nonsense for the right hon. Lady to talk about public spending being lower as a proportion of GNP under a Conservative Government. Under the Conservative Government of which she was a member it rose more rapidly than at any time in the last 50 years, and the borrowing requirement rose to a higher proportion of the GNP than it is now.

Nevertheless, I turn to what the best Labour Chancellor—to borrow a phrase from the Leader of the Opposition—said as President of the European Commission in an important speech last October in Florence. He said that the restoration of full employment required action on a historic scale comparable with Europe's postwar reconstruction, the Marshall Plan and the Keynesian Bretton Woods international monetary system.

Last April, at Copenhagen, Europe's leaders agreed to seek common solutions to these problems which the President had then outlined. The Bremen conference was held this month to take that process a stage further. The European leaders have, of course, agreed to work to establish a European monetary system, backed by the colossal sum of $50,000 million of our pooled currency reserves. These are even bigger than the funds available to the IMF. If successful, this initiative can achieve the monetary stability which Keynes and Bretton Woods gave the world for 25 years and which was the foundation of the rapid growth in the post-war period.

Unless this initiative is followed through, there is no hope at all that Britain or anyone else will solve its economic problems. The European monetary fund, for which I seem to remember the Liberal Party called as long as 15 years ago, will enable the industrial countries to put the huge surplus funds, the OPEC funds and other surpluses which are floating around the world mainly in an orgy of currency speculation back to productive use.

Therefore, international action, particularly international action within Europe, is absolutely essential if we are to solve our problems effectively. But international action does not absolve us from taking action ourselves to put our own house in order.

No one can deny that the British economy is in many respects greatly improved over the past year or so. However, the Prime Minister, like the Leader of the Opposition, should be a little less selective in his choice of periods for comparison, because at the beginning of 1977 the British economy was a disaster area after three years of Labour Government.

Inflation then was over 20 per cent., which was a little higher than it was when. Labour came to power in 1974. Three years of Labour Government, on its own, had done nothing to bring this rate down. If one is quoting selective statistics—frankly, this kind of selectivity is somewhat meaningless—on the improvement in inflation and the performance of various Governments on inflation, no one can possibly deny that the quite astonishing collapse of the inflation rate from over 20 per cent. to under 8 per cent. has taken place during the last 15 months, the very period in which the Liberal Party and the Labour Government have been working together.

I do not fool myself by these statistics, and I do not fool myself about the British economy. There are two laws of politics that we all ought to observe. One is not to believe the other fellow's propaganda, but the other more important law is never to believe one's own. Nothing fundamental has changed in the British economy. This is the problem. Inflation has fallen, but it is still twice what it was before the 1973 oil crisis, it is higher than that of most of our major competitors, and it is probably rising again as theirs is also.

The balance of payments is certainly on the credit side, but I believe that that is only short-lived and it is mainly because of oil. In 1977 non-oil export volume rose by 7.8 per cent. and imports rose by 6.7 per cent., so it is hardly surprising that the balance is on the credit side. But the trend in 1978 is, unfortunately, very different. The volume of non-oil exports will rise by perhaps 3½ per cent., if we are lucky, while non-oil imports may rise by as much as 6½ per cent. Even on price, our exports have become uncompetitive. On the more important non-price factors, nothing has happened to change our chronic and perpetual uncompetitiveness.

Of course, there is a real limit to what the Government can do on non-price factors of exports, because that is very much up to management. But pay is crucially important in relation to the price factor. As one who supported phase 3 and who still believes that it was very much better than nothing at all, and very much better than anything which the official Opposition had on offer at the time, I have to say that it was only partially successful and not good enough.

Mr. Ron Thomas (Bristol, North-West)

I was interested in what the hon. Gentleman said about the price factor with regard to exports. Surely he is aware that multinational companies decide the prices which they will charge in order to get the highest profit. Even at a time when sterling was being devalued and they could have lowered their prices, they refused to do so because it was more profitable to sell less than to sell more.

Mr. Pardoe

That sounds like an argument for a tax on exports, but I shall not follow the hon. Gentleman down that particular road.

I continue with the argument about pay policy and quote from last year's White Paper, since we are discussing this year's, which said: the general level of pay settlements should be moderate enough to secure that the national earnings increase is no more than 10 per cent. I am sure that the Chancellor has those words engraved on his memory, just as I have. The trouble is that this White Paper has had to admit that that 10 per cent. has not been adhered to. It does not actually admit it in very bald terms, but it says that the outcome is "somewhat higher than this". Actually, it is 50 per cent. higher on the old index and 35 per cent. higher on the new index, and I do not know which index the Chancellor works on.

The most important paragraph in the White Paper is that which deals with the long-term determination of pay and locks forward to some system which can outlast the ad hockery of recent years. But what does keeping inflation under control mean for the Government? What rate would they equate with keeping inflation under control, and what sort of long-term arrangements do they have in mind? Unfortunately, the White Paper makes no mention of that at all other than simply looking forward to some long-term arrangement. In no sense is it a basis for the great national debate which needs to take place.

Does the Chancellor think that it perhaps might have been better had we had more of a discussion document on the long-term future in addition to a White Paper in respect of the next 12 months? I am convinced that there is a need for an incomes policy, and a long-term policy at that, which prevents wage inflation but permits flexibility in individual earnings. A national norm has every possible disadvantage, as we have seen. It tends to become a minimum for wage negotiation and it is very inflexible as between one industry and another. We need a formula which is tailor-made to the situation of each industry and each enterprise. I think that the best formula would be one which relates labour costs to added value in each enterprise and which is enforced by imposing a tax on those enterprises which exceed this ratio.

I am in no sense wholeheartedly in support of the Government's sanctions policy. I think that the sanctions are better than none, because none implies that we have a pay policy in the public sector and no pay policy at all in the private sector. But it is particularly the continuing repetition of the phrase "gov- ernmental discretion"—discretionary powers—in the White Paper to which I object. Who exercises the discretion about which private enterprise concerns shall obey the guidelines and which can disregard them? If one is unlucky enough to have work in the public domain, where one has contracts with Government, one is not always clobbered, although one has a fair chance of being clobbered by these sanctions, but if one has no Government contracts there is no control at all. I believe that the Government should have introduced a form of sanction or penalty which applies equally to everyone who infringes the guidelines and which is not subject to this kind of arbitrary discretion by civil servants and Government Ministers.

One is often asked whether the policy has to be statutory. I would ask the Chancellor whether the dividend control has to be statutory. If it is sufficient simply to urge trade union leaders and those who negotiate pay on the capital side of industry to be moderate and to stick within the 5 per cent. guidelines, why is it not also sufficient to ask industry to exercise voluntary control over dividends? There is absolutely nothing in this White Paper which convinces me or my right hon. and hon. Friends that we should vote for the reimposition of dividend control without similar control on pay and prices as part of the prices and incomes policy.

A pay policy has to be enforceable on those who do not wish to abide by it and who have the power not to do so. That has always been the argument for the rule of law, and I see no reason for not introducing the rule of law into this area.

I come to the point raised by the right hon. Member for Battersea, North (Mr. Jay) about the need for some kind of umpire or arbiter. However flexible or bespoke the norm may be to each and every enterprise, as I would wish, at the end of the day someone will have to make a decision about whether one industry shall be able to breach it. What a tragedy it is that the political foolishness of the two-party system in this House abolished the National Board for Prices and Incomes, which was the best investigative machinery that the House has set up since the war in the area of prices and incomes. It was a tragedy that that was abolished by the stupidity of the two-party political system, a system which decrees "What I am for you are against, what you are for I am against, and whatever you did, I come into power to undo."

It was also a tragedy that this Government abolished the Relativities Board, which to a limited extent replaced some of the functions of the National Board for Prices and Incomes. How much better that would be instead of the Edmund-Davies committee, the Houghton committee on teachers' pay, and a whole series of other ad hoc committees set up to make their own decisions devoid of any basic economic argument about the public interest at all and ignorant of the consequences of their action on other pay settlements. It is very nice for all of us to welcome the police settlement, but that settlement will have horrific consequences for pay policy even though it may settle a political problem at the moment. It will involve leap-froggings among the police, teachers, firemen and who next?

Therefore, it is a tragedy that the two-party political system has abolished those two bodies which would have enabled arbitration to take place in a sensible manner which took account of the national interest. We shall have to come back to a long-term pay policy. We shall have to replace the National Board for Prices and Incomes, and the sooner the better.

6.9 p.m.

Mr. Ian Mikardo (Bethnal Green and Bow)

The part of the speech of the hon. Member for Cornwall, North (Mr. Pardoe) which I enjoyed most was the part in which he made fun—and quite justifiably—of the Prime Minister and the Leader of the Opposition for their rather silly game of trading selective statistics. But, having taken the mickey out of them for doing it, he then proceeded to join in the game himself. I do not propose to follow him in that.

However, I shall follow him in congratulating my hon. Friend the Member for Penistone (Mr. McKay) on his most impressive maiden speech. We were all deeply moved by his tribute to his predecessor. Those of us who mourn John Mendelson as a parliamentarian and a friend—as I do—at least have the consolation of knowing that the constituency of Penistone continues to be represented in this House at the very highest level.

I find it very difficult to make up my mind about how I should vote at the end of this debate. On the one hand, I have no time at all for the White Paper. Its economic analysis is defective and the proposals it makes will not achieve the objectives it seeks. Also, any attempt to implement the proposals in their present form will result in abject failure. Nothing in the White Paper will make a worthwhile contribution to remedying the two basic defects of the British economy—high unemployment and low investment and productivity.

On the other hand, we shall be voting tonight on the Government motion. Its phraseology is bland and innocuous. It says nothing at all. It is very difficult to oppose it or even not to support it. In effect, the terms of the motion are that this House is opposed to sin and in favour of virtue. That is all there is to it. In that case, if there is nothing wrong with the motion, why should I not vote for it?

However, another consideration must be taken into account. The wording of the motion has been chosen deliberately—not to express but to disguise the views of the Government. The motion represents not the face of Government economic policy, but the mask upon the face of Government economic policy.

I have no doubt that, if the motion is passed this evening, the Chancellor of the Exchequer will not say next week, and the Prime Minister will not say when he addresses the TUC's annual congress, that the House of Commons passed this motion. What they will say is that the House of Commons supported the White Paper—5 per cent. and all. They have put down a "catch-all" motion—

Mr. Dennis Skinner (Bolsover)

I hope that the Chancellor is listening to this.

Mr. Mikardo

The Government have put down a "catch-all" motion in order to attract support, or at least some evidence of support, for something that is not in the motion at all. That is what puts me in a quandary about the way in which I should vote tonight.

I wish to concentrate my remarks on a single sentence in the speech of the Leader of the Opposition. It was a sentence which she used several times. She said that the problems of this country were due to Socialism. She spoke twice of the past four years of Socialism. Even in her absence and by proxy I want to tell her something about Socialism. I believe that I have greater authority to speak on that subject than she has.

I have listened to the right hon. Lady saying this in every weekend speech that she has made recently. She has been followed sheepishly by many of her hon. Friends and the newspapers which support the Conservatives. They say that all our ills are due to the fact that this Government have turned Britain into a Socialist society. I have been all round Britain with a fine-toothed tooth-comb, a magnifying glass and a laser beam, and I have difficulty in perceiving any evidence of Socialism in our society that is discernible—even to the greatly reinforced naked eye.

We have no economic plan. Whoever heard of a Socialist society without an economic plan? Except for a few marginal things, we have a virtually unrestricted laissez-faire system. There may be justification for that in some people's eyes, but it is still not Socialism. We do not even have planning agreements with the major companies. That would be a tiny, tangential piece of planning, not even Socialist planning. The French go in for planning agreements in a big way and the French entrepreneurs are at least as individualistic as any in the world. Yet they take it as a matter of course that any big company shall enter into a planning agreement. We have only one—with Chrysler. Whatever that is, it is not Socialism.

We have no effective controls over import penetration. How do we run a planned Socialist economy without controls which enable us to decide which parts of the things we use we make ourselves and which parts we get from outside the country? As a result of having no import controls whatever, one British industry after another is going to the wall. That is not Socialism.

We have totally inadequate and ineffective controls over outward investment. Whoever conceived of Socialism without there being controls over money flowing out of the country? Everyone in the House must know what has been happening as a result of the inadequacy, incom- pleteness and ineffectiveness of our overseas investment control.

We live in a country which desperately needs more investment in British industry in order to raise the standards of technology and to provide jobs for British workers. Yet British business has multiplied its investment overseas fivefold in the past decade, at a time when British industry has been starved of investment.

It is sometimes said that we have inward investment as well as outward investment and, indeed, a great deal of this is very welcome. But this is a relatively poor country in investment terms. As the outward investment figure continues to be twice as great as the inward investment figure, all that we are doing with much of this investment is creating in other countries the jobs that we should be creating in the United Kingdom.

On the calculation of Government Departments themselves, 35 per cent. of all British overseas investment occurs at the expense of jobs in Britain. Forty-five per cent. of our investment in the other eight EEC countries is at the expense of British jobs. Some may try to justify that, but they cannot say, as the Leader of the Opposition says, that it is Socialism.

We have not had four years of Socialism, as the Leader of the Opposition rather foolishly suggests, but we have had a manifest waste of our economic resources by the failure to use even some of the most simple instruments of economic intervention. This is partly because we are locked into the European charter for big business and partly because Government economic thinking is dominated not by Socialists, but by pragmatists, monetarists, mercantilists and by the last remaining survivor of the Manchester free trade school of more than a century ago. I hope that no one will intervene to ask me the name of the last person on that list.

If I were a private entrepreneur, should say a prayer before I went to bed every night for the people who are running the economy of our country today because it is largely for the benefit of private entrepreneurs that it is being run.

Let us look elsewhere for evidence of the four years of Socialism that the Leader of the Opposition was babbling about. We see that major decisions affecting the lives of millions of people are made outside this elected Parliament by a self-perpetuating oligarchy of a few hundred directors of big companies. The manifesto on which my right hon. Friends and I were elected—perhaps the difference between us was that I meant it and they, apparently, did not—included as its central theme a significant and irreversible transfer of power and wealth to working people and their families". We have made no transfer at all. The same little oligarchies still determine the way this country is run.

There has been no extension of participation in decision-making and no transfer of power. The nationalised Bank of England takes its prime function to be not the guardian of the national interest but the protector and spokesman of private City interests. Whatever justification there may be for that, it is certainly not Socialism.

We see that earned incomes are held down while unearned incomes are virtually unrestricted. Whatever that is, it is not Socialism. We see that workers at all levels pay their full taxes, but we know that rich people and, as The Sunday Times told us, large companies avoid paying large parts of their tax. Whatever that is, it is not Socialism.

It is still true in this country that more than one-third of all personal disposable income is held by 1 per cent. of the people. I cannot equate that with Socialism either. We have luxury living side by side with millions on the poverty line. There has been no transfer of wealth to working people and their families. That is why we see highly expensive private hospitals proliferating while National Health Service hospitals are being shut down left, right and centre in working-class areas. Whatever that is, it is not Socialism.

I hope that I have said enough to stop the Leader of the Opposition from carrying on with the babbling brook of nonsense which she inflicted upon us earlier.

Except in a few small communities such as the kibbutzim in Israel, Socialism has not been instituted and does not exist anywhere in the world. That is why there is no factual basis for the Leader of the Opposition or anyone else saying that Socialism "has failed". There is no experience to go on, no experience on which she can base that claim. What someone once said of Christianity is equally true of Socialism: it has not been tried and found wanting; it has been found difficult and not tried.

I end on a personal note. When I joined the Labour Party nearly half a century ago, I did so in the belief that our party would be the instrument for transforming this country into the first genuinely Socialist society in the world. I was a young man then and I hoped to see the transformation come about in my lifetime. Having reached my three score and 10 years, I know that that hope will not be fulfilled, but I am convinced with every fibre of my being and from everything I have learned in that half century that this country and many others will turn to democratic Socialism—if not in the lifetime of my children, at the latest within the lifetime of my grandchildren.

The tide of history is sweeping hard that way and no Political Canute can turn it hack. Any politician who can project his thoughts beyond the next General Election but one can see it coming inexorably and inevitably. One does not need to go far to find the reason.

The young people of today, who are better educated and more mature, understanding and sophisticated than young people were when I was their age, can look around and see for themselves to what a pathetic mess the world has been brought by the competitive, capitalist system which dominates it. They can judge for themselves how capitalism has failed to improve and refine its mechanisms for distribution and exchange in order to keep pace with the great improvements in its mechanisms for production, with the result that the people of the world cannot consume all they produce.

These young people see millions of unemployed workers and millions of others who pine for the goods that those unemployed workers could make. They see millions of idle builders and millions more without a roof over their heads. They see millions of hungry people and millions of tillers of the soil with no soil to till. They see exuberant luxury and exuberant waste, side by side with abject poverty—casinos in the West End and people sleeping rough in the East End, mountains of unused milk powder in the northern hemisphere and starving babies in the southern.

These young people see that over the past decade the money spent in the world on the instruments of life has remained virtually static while the money spent on the instruments of death has doubled. They see science geared to making a nuclear weapon that is so clever that it can select its own target, and they see, at the same time, people dying for lack of a few kidney machines. As these young people look around our society, they can see that, to this day, a man is judged not by his worth, but by his birth and esteemed not for what he is, but for what he owns. That is why we shall have a move away from the system that has caused all these ills. Our young people see all that I have described, and in the long run they will not stand for it. They will reject the system that brought the world to this pass.

I hope that our young people will not be attracted by any totalitarianism that exacts too high a spiritual price for whatever material benefits it may confer. They will ruthlessly reject any political leader of any party, including my own, who is too myopic to see their vision. That is why the future lies with democratic Socialism.

If there is any hon. Member who thinks that what I have been saying is not directly relevant to the motion he is wrong. The fact is simple. After this motion is passed or defeated, when the General Election has come and gone, whenever that may be, all the problems we have been discussing today will still remain unresolved. They will continue to remain unresolved until we break away from the fetters of conventional thought that have shackled all our Governments, Conservative and Labour alike. Until then we shall go on having economic debates against the same sad and sombre background that afflicts us today.

6.32 p.m.

Mr. Esmond Bulmer (Kidderminster)

I join the hon. Member for Cornwall, North (Mr. Pardoe) in congratulating the hon. Member for Penistone (Mr. McKay) on his maiden speech. We listened with pleasure to the tribute he paid to his predecessor, who was always the most straightforward opponent, and a debater of very great skill. We look forward to hearing from the hon. Member again.

What a sad speech we had from the hon. Member for Bethnal Green and Bow (Mr. Mikardo). I can agree with him only in his view that the White Paper does not contribute any lasting solution to our problems, particularly to unemployment.

The figure that sticks in my mind, as our unemployment rises and our share of world markets falls, is that if we could stop the process and recover even 1 per cent. of our original share of world trade that would be worth 400,000 jobs or so. The central charge we make against the Government is that they have not provided the environment in which British business can compete effectively in the world.

Industry looks to Government to provide three things—to control the rate of inflation, to create conditions in which British companies can invest on competitive terms with foreign rivals, and to provide a political, social and economic background sufficiently stable to allow long-term decision making. The Government cannot claim to have provided any of these.

During their first months of office, and in order to win the October 1974 General Election, the Government fuelled wage rises that drove the rate of inflation up to 20 per cent. That made any sensible long-term decision making impossible. How many people who are out of work today would now have a job if the Government had set then the pay guidelines that they are now recommending to the House? Their public expenditure excesses have so driven up interest rates that at no time since 1973 has it been possible for industry to borrow money long term at an acceptable fixed rate.

The Government's legislation affecting business has been of a breadth and complexity never before suffered by industry. Perhaps the high water mark of interference contemplated by the Government was the Bullock report. Certainly the proposition that a shop steward, after three or four weeks in a trade union college, could discharge the world-wide responsibilities of a main board director of ICI showed how far the Government were prepared to go to sacrifice industrial efficiency on the altar of dogma.

Management has lost two particular freedoms, and that loss is partly responsible for our poor industrial performance. The first is the freedom to price. It has been prejudiced by taxation and the operation of the Price Commission. There is a limit to how far Government can raise industry's taxes without having an adverse effect on jobs. Increases in the payroll tax have cost 60,000 jobs according to the Chancellor of the Exchequer, 110,000 jobs according to the Secretary of State for Employment, or more than 150,000 jobs according to the Treasury estimate to the Expenditure Committee.

No one knows how many jobs were lost as a result of the 25 per cent. level of VAT. Short-lived though it was, it had an immediate and disastrous effect on unemployment. My company had to face a 30 per cent. increase in its wholesale prices at the stroke of the Chancellor's pen, and, after we had kept our price increases below the rate of inflation, our growth was checked overnight and a high-volume, low-price strategy was torpedoed.

When we brought this fact to the attention of the Treasury we were told that there were all sorts of factors apart from prices which might have contributed to the subsequent drop in demand. When we applied to the Price Commission for a price increase of the order of that inflicted upon us by the Treasury in order to restore margins, the arguments we had used to the Treasury and which the Treasury had refuted were used by the Price Commission against us. The result of the conduct of the Treasury and the Price Commission has been that we are employing several hundred fewer than we otherwise would, and capital investment which would have taken place outside of the company and would have brought jobs to Labour constituencies has had to be cut back.

The Government seem incapable of grasping one simple truth. It is that when margins are cut back, employment is cut back. If a company does not have the cash to continue—many companies have gone through terrible cash crises in the past two or three years—they have to cut back on jobs in order to stay afloat, because otherwise a whole lot more jobs would be lost.

The Price Commission is causing a loss of jobs in manufacturing industry and is one of a number of bodies which are creating a growing resentment among management about the level and destructiveness of Government interference. If Government can, without even token consultation, wreck a company's business strategy and then demand that the company submits its entire strategy to detailed cross-examination by people who do not understand the way in which the company works, can anyone wonder that exception is taken?

When a Treasury Minister, no doubt advised by a civil servant, tells a business man that a 30 per cent. increase in his wholesale price may not have led to the drop in his business, one is given some insight into how Galileo must have felt when the Vatican continued to insist that the earth was flat.

Two specific criticisms can be made of the Price Commission. The first is that the real reason why an application is turned down may never be known. There is no provision for the company to talk directly to the people who say "Yes" or "No", and a suspicion is growing that rejections are largely political, and that applies particularly to those designed to postpone increases beyond October.

The second criticism is that the legislation is drafted so widely that management can never feel totally confident in facing an inquiry; nor, therefore, can it plan ahead sensibly. The knowledge of the certain loss of revenue which will result from the delay in implementing a price increase and the prospect of a scourge of accountants causing enormous dislocation to the day-to-day running of a business normally ensures that companies settle for a lower figure.

When one remembers that the return on capital in the larger manufacturing companies has dropped from about 16 per cent. in 1960 to 2 per cent. today net of inflation, one realises that only a Government with such blinkered vision as this could argue the continued need for the Price Commission in its present form. British industry has too little cash, not too much.

However, the additional danger of bodies such as the Price Commission and the level of Government interference is that the "English disease"—which, rightly or wrongly, is often described as the inability of manager and managed to get on—will assume a different shape. Increasingly, it will become the inability of those in industry and the Civil Service to get on.

Many civil servants are able and intelligent people who want to be helpful, but seldom have they been trained in industrial management. Not in the Treasury, the Department of Industry or the Department of Trade are there senior civil servants with practical experience of running medium or large companies, yet these people constantly take decisions which cut the ground from under the feet of those running British industry.

In many areas, the Government have set the Civil Service on a collision course with management. That is disastrous for the country and for employment.

Mr. George Robertson (Hamilton)

The hon. Member has implied that shop stewards cannot help to run industry. He now says that civil servants cannot run industry either. Is the poor performance of British industry really solely the responsibility of the British Government? Does no blame attach to British management at all?

Mr. Bulmer

What I have been trying to describe is the way in which management has not been allowed to operate in what it would regard as the best interests of its company and how often Government interference has torpedoed the strategy on which management has set the company and the disastrous effect that that has had.

How many people say to Labour Members "Why should I go on producing? Why should I not join the Civil Service? There I shall not be accountable in the same way. I shall probably be better paid, if I am successful I shall have a 'K' or perhaps something less at the end, and I shall have an inflation-proofed pension."? There is an imbalance between the rewards given to management and the Civil Service.

Mr. Arthur Lewis (Newham, North-West)

And they can go to private industry afterwards, or become the chairman of a bank, as Lord Barber did.

Mr. Deputy Speaker

Order. I would strongly deprecate an hon. Member trying to address himself to sedentary interruptions.

Mr. Bulmer

The loss of freedom to price is serious enough, but the loss of freedom to reward may be more harmful. Some Labour Members will understand the feelings of the work force when exceptional effort cannot be rewarded. In the past four years, many efficient firms in the private sector have seen their productivity gains taken from them and handed to those industries which are supported by the Government through taxation and which are bywords for inefficiency, low productivity and over-manning.

If management cannot reward a hardworking work force as it deserves, it is deprived of one of its most important tools, and performance is bound to suffer. The contrast between remuneration of British managers and skilled workers and the pay in those countries which compete most effectively with us is nothing more than a formula for international suicide. If the country's best managers or skilled workers can earn two or three times as much abroad, it is hardly surprising that a growing number are doing so. I cannot understand how the Government or the unions can believe that it is in their best interests that the nationalised industries or the private sectors should be prevented from competing in an international market for the best skills and the best managers available.

Another distasteful feature of the White Paper is the continued clobbering of all those who have invested in industry. This has been going on now for five years. Seventeen families out of every 20 in this country have a direct stake in British industry and it is wrong that they should continue to be penalised in this way. It is a sign of the times when pension funds of trade unions are not investing everything they have in British industry but are buying works of art and other hedges against inflation.

If one considers industrial shares against a house or agricultural land, taking 1946 as the basis, one sees that the RPI has risen from 100 to 650. For a house, it has risen from 100 to 900 but for industrial shares it has risen from 100 to only 350. That seems to be cutting off one's nose to spite one's face. We should do all we can to make investment in industry attractive.

My right hon. Friends have continued to point out how successful businesses have been handicapped by taxes, particularly on capital. The capital transfer tax means that a successful business cannot be passed on from the first to the second generation. Many of today's great cornpanies—Wedgwood, Pilkington, Marks and Spencer and the rest—could never have emerged under this regime.

The Government have also promised to introduce a wealth tax. The Financial Secretary may have read the words of Mr. Colley in the Dail when withdrawing the Irish Government's wealth tax: … one certain result emerged: existing jobs were lost and jobs in prospect never came to fruition. I hope that the Minister will ponder the Irish experience.

The poor performance of this country in recent years has come about because we have not created an environment in which the skilled worker, the manager, the entrepreneur and the owner can make their full contribution to our success. I look to the return of a Conservative Government to see that they can do so.

6.47 p.m.

Mr. Arthur Lewis (Newham North-West)

I apologise to you, Mr. Deputy Speaker, for making a sedentary interjection during the speech of the hon. Member for Kidderminster (Mr. Bulmer). I now repeat it. I agreed with most of what he said about the Civil Service and wanted to point out that, although years ago civil servants had well-paid jobs and pensions which became inflation-proofed, it was then the custom that they simply retired when they left their jobs. Now, of course, they can take another lucrative job in industry, and invariably in the industry for which they have been responsible in the Civil Service.

I do not blame the civil servants. As I said in my interjection, Lord Barber, the prolific Tory Chancellor who led this country into an economic mess and who was advised by the same Treasury advisers as this Government have, became the chairman of a bank at a salary of £20,000 a year. He was all in favour of an incomes freeze.

I am not just getting at Lord Barber. It is true of all of them. Roy Jenkins dragged us into the Common Market and then went off to a £60,000 tax-free job, paid for in part by the British taxpayers whom he had conned into supporting his incomes policy.

Mr. Alan Clark (Plymouth, Sutton)

Hear, hear.

Mr. Lewis

Let us not forget Christopher Soames, Tugendhat and the rest. They all feathered their own nests.

I agree with everything said by my hon. Friend the Member for Bethnal Green and Bow (Mr. Mikardo) about Socialism. I wish that he had also quoted the remark of that great and true Socialist Nye l3evan, whom we were both so proud to know, that he had never known international bankers to be the friends of Socialists or to help introduce Socialism. I cannot see the IMF, which is supposed to be the friend of the Chancellor and the Government, helping us to produce Socialism. The Government are not interested in Socialism. They have not done anything to produce moves towards more Socialism. I do not blame them. They are carrying out the instructions of those at the Treasury.

Let me instance the case of Lord Armstrong. When he was Mr. Armstrong, in charge of the Civil Service, he introduced the first wage freeze. The right hon. Member for Sidcup (Mr. Heath) was Prime Minister. Before Mr Armstrong's wage freeze was introduced he suggested that all top civil servants should have their salaries increased by 25 per cent. His salary was the first to be affected. Then he discovered that civil servants should have inflation-proofed pensions. As he was due to retire to become chairman of a bank—following the example of Lord Barber—he suggested that he should wait and not draw his pension for 12 months so that he could then claw it back at the inflation-proofed rate. All the poor taxpayers whom he had been taxing had to pay for that.

What about the present Chancellor of the Exchequer? I should like him to tell us how, on his known limited income, he can, in the course of four or five years, afford two or three houses costing £200,000 or £300,000. I do not know how he does it. The ordinary taxpayer certainly cannot do it. We have these advisers telling us that an incomes policy is good and should be introduced. They say that it should be statutory.

Incidentally, it is worth pointing out that the Liberal Bench is now empty. What about stockbrokers? Do they have a limited income? What about the leaders of both Front Benches when they are playing their musical chairs? At the moment it is the Tories who write the centre page spread in The Sunday Express. They share it themselves. The right hon. Member for Chipping Barnet (Mr. Maudling) is one of those who share it. They write lovely articles saying that the worker should limit his income—and they get £300 or so for writing the article. These are the people who are telling us that we should have a prices and incomes policy.

I was surprised that my hon. Friend the Member for Bethnal Green and Bow ended his speech by saying that he did not know which way to vote. His speech convinced me. I have made up my mind. I shall vote against the Tory amendment and abstain on the main Question. I know that if the Tories gain power they will be no different from a Labour Government and that if Labour holds power things will stay as they are. I fought the last General Election on the ground that there would not be a statutory incomes policy. Technically speaking, we do not have such a policy. We have everything except that.

We have had Opposition Members telling us that there will be free collective bargaining. If they are in power, they will be advised by the same civil servants and before long they will break their promise. The people have become fed up with these Treasury statements. Practically every six months a statement is made saying "X is right." Six months later, we are told "It is not X. It is Y. We made a mistake. Our forecasts were wrong. We did not understand this, we never appreciated that." Almost every six months these people are proved by their own statements to be wrong. Who pays for this? Who suffers? It is the ordinary person, the poorest working man, the chap on the lowest income.

There is the suggestion that people can negotiate up to £44 a week. Why do not the Government bring in a national mini- mum wage below which no one shall fall? Why not ask Lord Boyle and his committee to work out a reasonable percentage of the increase which has been given to the chairman of Cable and Wireless Limited? He has got a 100 per cent. increase for a three-and-a-half-day week. If he attends the Lords, he gets another £16.50 tax free, which is worth to him, on his known public income, £100 per day. That noble Lord—Lord Glenamara—was in favour of incomes policies. When he was Government Chief Whip, he used to try to whip me in. I have never supported any incomes policy because I know that it cannot work.

An incomes policy will work for some—the poorest. It does not work or the lawyers. How many lawyers have we here? We have about 16. They all voted for an incomes policy. Incidentally, they are the only ones who, as Members of Parliament, are allowed to hold an office of profit under the Crown. They can act as recorders at £5,000 and £6,000 a year. Every Member of the House of Lords can hold any office of profit he wants. Reference has been made to the committee chaired by Lord Diamond. I know Lord Diamond. I knew him when he was in this House. He was an accountant, just like the Chief Secretary to the Treasury. Lord Diamond is on the quango train. Everyone in the Lords who wants it has either a well-paid sinecure, a part-time job for which he is paid thousands of pounds a year, or is getting expenses worth thousands of pounds a year. They all get up and make lovely speeches in another place saying that it is time that we had an incomes policy.

Later tonight we shall no doubt have a member of the legal profession speaking on the Opposition Front Bench. It may well be the right hon. and learned Member for Surrey, East (Sir G. Howe). I do not know whether he will be for or against an incomes policy. I do not know whether the Opposition have changed their minds yet. All that I ask is, what about the lawyers? Almost every day we read in the papers of a case in the High Court which may have lasted two or three days, or even a week, and we are told that the legal costs will be £50,000, £70,000, £100,000 or £500,000. Who pays? It is not the Government. The taxpayer pays. The Government have no money. They do not have a halfpenny. The money is produced by the workers, by hand or brain. It is they who pay.

It is a crying shame that a Labour Government should try to grind into the ground those who are already the lowest paid. The richer and more exclusive brethren will get away with it—those who write articles, those who broadcast. I have heard all of these debates in the past 30 years. I heard someone on radio saying how much he supported the Government's income policy. My wife was listening and she said "He put up a good case". I said "Yes, and he'll get more for those three or four minutes than my average worker will get for a week's work". That broadcaster was all in favour of an incomes policy, and well he might be.

Let us remember again the words of that great Socialist Nye Bevan. My hon. Friend the Member for Bethnal Green and Bow was here at the time, and he will remember when the great Roy Jenkins and Hugh Gaitskell put a temporary charge on medical certificates. That charge was then extended to teeth and spectacles. I think that that was in 1947. It was a temporary charge, but it is still on.

When Nye Bevan was resigning, I went to him and said "Look, Nye, for God's sake do not vote against the Government. Do not resign, because if you do you will bring the Government down, and we cannot have a Tory Government." He said "Look, son"—he was much younger than I was—"do not tell me that to be kicked in the tookers"—my hon. Friend knows that expression—"by a Labour Government is better than being kicked in the tookers by a Tory Government, because to me it does not matter. I am still being kicked in the backside. I do not want to be kicked in the backside at all." That is my attitude.

I do not want to support a so-called Labour Government carrying through their so-called incomes policy when it is not an incomes policy at all but is a further attack on those on the lowest standards of living. Therefore I shall, as I said, vote against the Tories because I do not trust them, and I shall abstain from voting on the motion.

7.1 p.m.

Mr. Douglas Henderson (Aberdeenshire, East)

The debate started in a sad way, with two of the worst speeches that we have ever heard from the Front Benches in this House on any subject, but I am glad to say that the debate has improved considerably within the past hour of so. We all enjoyed the contribution of the hon. Member for Newham, North-West (Mr. Lewis), and I think it is fair to say that all those who were here at the time were impressed by the maiden speech of the hon. Member for Penistone (Mr. McKay).

When the hon. Member for Cornwall, North (Mr. Pardoe) paid the usual tribute to the hon. Gentleman, he said that he had campaigned against the hon. Gentleman during the by-election. I shall pay my tribute, but my hands are clean because my party had no candidates at Penistone and, therefore, the tribute that I shall pay is sincere. I thought that the hon. Gentleman showed a great deal of compassion and understanding for his constituency, and I am sure that we all look forward to further contributions from him.

The other speech that I should mention was that of the hon. Member for Bethnal Green and Bow (Mr. Mikardo) which I am sure friend and foe alike would admire as a brave, honourable and sincere speech. Speeches of that kind, I am sorry to say, are not heard often enough in this House.

If the opening speeches from the two Front Benches today were a foretaste of what we are to have during the General Election, I can only say that we are in for one of the dreariest and most negative General Election campaigns that we have ever experienced. Both speeches were atrocious, and I think that when we are discussing a matter as profound and important as this we are entitled to expect the Prime Minister to be more Prime Ministerial, and we are entitled to expect from the Leader of the Opposition a speech which at least has some sparkle and originality. You might throw me out for saying this. Mr. Deputy Speaker, but I counted at least 12 hon. Members who were fast asleep when the right hon Lady was speaking. I shall not embarrass anyone by naming names.

Mr. Deputy Speaker

It is no use the hon. Member appealing to me. I certainly shall not throw him out. I am waiting to hear his masterpiece.

Mr. Henderson

Thank you very much, Mr. Deputy Speaker. I shall try to make sure that what I have to say is sufficiently interesting so that you will be fully awake during the whole of it.

The point which comes through in the Government's propaganda, the White Paper, is that the control of wages is the sole means of controlling inflation, and that if ordinary working people, be they managers, or be they on the shop floor, will restrict themselves to this 5 per cent. figure during the coming year, all will he well.

The final sentence in paragraph 31 of the White Paper says of the Government's policy: It will encourage the regeneration of industry, guarantee living standards"— that is a pretty formidable undertaking— and make possible a continuing fall in unemployment, bringing lasting benefits to all sections of the community. That is a very rash and unprincipled statement for the Government to make, because it is clear that one reason why inflation has fallen over the past year is that commodity prices are very much more stable than they were a year ago. An interesting article by Dr. Graham Hallett, the senior lecturer in economics at University College, Cardiff, traces this extremely well. He has done a graph showing the position over the past few years. It shows that after the rise in 1973–74, and the fall in 1975, there was a very much more balanced and stable situation in the spring of 1977. His conclusion is that the fall in the British inflation rate owed a great deal to the singularly fortunate combination of stable commodity prices and a rising pound.

Dr. Hallett went on to say: The outlook now is less promising. That is the first point that the Government have to answer. What is their forecast of the direction and the pace at which commodity prices are likely to move over the next year, because the United Kingdom is vulnerable, particularly in agricultural commodities, because this country can virtually feed itself for about three days a week? We always say in my party that we are rather sorry for the people of England in this respect. They can feed themselves for only three days a week. We feed them for one day a week by the exports which they get from us, Ireland feeds them for one day a week, and the rest of the world feeds them for the other two days of the week.

The hon. Member for Bethnal Green and Bow talked about planning, but I have to say that this is perhaps the only area in which the Government have made any attempt at planning in the past few years with the publication of the White Paper "Food from Our Own Resources" which was designed to say for the United Kingdom "Let us raise the level of self-sufficiency in foodstuffs by investment in agriculture" and anyone looking at the targets and figures postulated in that White Paper can see what a futile exercise in planning that has been, because the targets have not been achieved, and in fact they have slipped back over and over again.

There must be concern about what the exchange rate will do in the next year, and again we should like an informed judgment from the Treasury on this matter, because the strong balance of payments surplus that was confidently being forecast even a few months ago has not materialised and the monetary growth has recently been about 15 per cent. rather than the 11 per cent. that was being suggested. When we are talking of inflation, let us not think that we are talking only of wage costs. Let us not play a cruel hoax on the working people and tell them that if they will keep down to 5 per cent. the rate of inflation can be controlled.

There is a perfunctory reference to these factors in the first paragraph of the White Paper about the contribution which a higher exchange rate and stable commodity prices have made, but it is only perfunctory, and that argument and rationale are not developed in the White Paper, and nowhere are there any figures of Government projections on these two crucial factors—perhaps the two most crucial factors in the past year—in the change in the rate of inflation.

I see the Financial Secretary sitting there with a frown on his face. No doubt he or whoever else winds up the debate will give us that information, because I do not think that we can look solely at wage costs, and look at this policy, without taking into account how effective the Government will be in dealing with these other factors.

In terms of rising prices and rising costs, the Government having published their pronouncement that wages must be kept to 5 per cent., I must inform the House that I have just received today from the Scottish Special Housing Association a note of the increased rents which it intends to charge this year for houses in my constituency. The increases are not 5 per cent. I cannot see one increase for any type of house which is 5 per cent. The smallest increase that I can see is 9 per cent, and that is for a five-apartment semi-detached house. If, however, one happens to live in a block of four flats, the rate of increase will be 12 per cent. If one happens to be in the giddy heights of living in a terraced end house with no side access; the rate of increase will be 15 per cent.

Here is the point. At the very time when the Government are telling people that wage increases must be restricted to 5 per cent., the Scottish Special Housing Association, with thousands of houses throughout Scotland, is telling its tenants that they are to be charged a minimum of 9 per cent. more, and in some cases 14 per cent. and 15 per cent. more. I expect to have an answer from the Government on that question as well. I do not know what is likely to happen on the local authority side. No doubt we shall hear about increases there as well.

I want to make a very special point about the position in Scotland, because many of us feel that we are entitled to some special consideration and some special treatment in this situation. I will give the reasons for this. The first is that the productivity of Scottish industry has been higher than the productivity of industry in the United Kingdom over the past few years. Making the comparison between the United Kingdom and Scotland for all industries, and using 1970 as the base line at 100, I find that in 1974 the figure for Scotland was 108, as against 106.9 for the United Kingdom. In 1975, the figure for Scotland was 106, as against 101.6 for the United Kingdom. In 1976, it was 108.9 for Scotland, as against 102.2 for the United Kingdom. In 1977, it was 107.1 for Scotland, as against 102.6 for the United Kingdom. In other words, there was greater productivity in Scottish industry over these years, with a differen- tial of some 5 per cent. when compared with that of the United Kingdom.

Mr. John Evans (Newton)

Where is the evidence?

Mr. Henderson

These are Government figures, published by the Scottish Office. I realise that they are uncomfortable figures, which make some people a little edgy.

Mr. Arthur Lewis

Will the hon. Gentleman give the code or reference number? We should like it to be in Hansard for reference purposes.

Mr. Henderson

I will send the hon. Gentleman the reference. The information is published by the Scottish Office every six months. Wage levels in Scotland, then, are to be held down, although productivity has been higher. This means that the level of demand of the Scottish economy is to be held down correspondingly.

I turn to the level of incomes in cot-land, where again the figures are contentious. The information comes from the regional survey. This material is in the Library. It shows that for the last year for which figures are available, 1975–76, the average household income per week in Scotland was £74.68, as compared with £78.59 for England. I do not begrudge people in England getting an income of £78.59, but ordinary people in Scotland are entitled to ask "Given the circumstances in which we live, why is not our income £78.59 as well?"

The next factor to which I refer is the cost of living in Scotland. Again, the figure comes from the regional survey. For the year 1977, the annual budget for food for the United Kingdom was £918, but the corresponding figure for Scotland was £940.

I recently met a young couple from Chelmsford who have just moved into my constituency, where, of course, they will have a very much better Member of Parliament than they had in the area from which they came. The first comment that the wife made to me was that on coming to Scotland she had been appalled to notice how much higher was the cost of food. She could not understand why she had been able to buy things in supermarkets in Chelmsford for very much less than she was able to buy them in the shops in Aberdeen, in Ellen or in Peterhead. In terms of cost of living, there is about a 4 per cent. differential between Scotland and the rest of the United Kingdom.

The Government have already recognised that in London there are some distortions of labour costs. When I refer to the London weighting, I am not making an attack on the right of people in London to have proper recognition taken of the circumstances in which they live. Indeed, those of us who come to London and see the conditions in which they live have some sympathy with them. But I think that my constituents and constituents of hon. Members in other parts of Scotland are entitled to say to the Government "If you can do this for London, why cannot you do it for Scotland?" The Government ought to carry out a proper survey, on the same basis as they did for London. If that were done, the people of Scotland would abide by the results. If the results were to show that the positions were comparable, there ought to be a Scottish weighting allowance, just as there is a London weighting allowance.

Incomes data survey study no. 157, which I saw in the Library, shows that the BBC pays its staff £9 a week extra in London as compared with what it pays in Glasgow or Edinburgh. The IBA, which is slightly more affluent, perhaps, pays almost £9.50 a week extra to its staff in London. In inner London the Post Office pays almost £12 a week more to its staff than it pays to its staff in any part of Scotland. In subscribing to the Automobile Association, as many of us do, we probably have not realised that we have been subscribing towards a London differential of £9 to £10 a week for the staff there. The clearing banks are paying about £13 a week extra to the staff working within 3 miles of Charing Cross. Is it suggested that bank staff in Aberdeen or Edinburgh have lower living costs than bank staff in London?

This is a matter to which the Government must address themselves with increasing attention as the General Election comes nearer. If a special survey can be made for London, it can also be made for Scotland. It is high time that this matter was looked at in terms of the distortion of the labour market in Scot- land through lower family incomes and higher costs. I am sure that such a survey would show the true position and help to even up the differentials between Scotland and the rest of the United Kingdom. I hope that we shall have a reply on this aspect from whoever winds up the debate tonight.

The hon. Member for Bethnal Green and Bow said how difficult it was to decide between Tweedlcdum and Tweedledee. Not because we think that there is any great intellectual merit, any great compassion or any great understanding of the problem on the part of the Conservative Party, but simply because this matter is the Government's responsibility, we shall be in the Opposition Lobby tonight. We have no great confidence that the Opposition could do one whit better for the people of Scotland than the present lot are doing.

7.18 p.m.

Mr. Sydney Tierney (Birmingham, Yardley)

This has been an interesting debate, Mr. Deputy Speaker, I do not wish to comment, as the hon. Member for Aberdeenshire, East (Mr. Henderson) has done, on the quality of the speeches, but I think that we have had something of a full dress rehearsal at the beginning of the debate, and no doubt the same will apply at the end of it.

We had a debate yesterday on unemployment, and although the debate today will cause more interest and more excitement, because of the political and electoral implications, it is the problem of unemployment which overshadows everything else that we discuss in real and human terms in this House. Consequently, the greatest and most immediate problem for us all is how to return to a situation of full employment.

Whether it affects school leavers or those who are 40, 50 or 60 years of age, unemployment is no less intolerable. We are faced with this formidable problem of unemployment again and again, and we have to seek solutions to it. We have to consider measures such as those in the White Paper—sometimes unpalatable measures—to resolve the problem. Although we may not agree with all that is contained in the White Paper "Winning the Battle Against Inflation", it is something that we have to discuss and determine, and we must give our deep consideration to it.

The arguments about a lower rate of inflation being essential if we are to create more jobs, reduce unemployment and keep British goods competitive both at home and abroad are well understood. Employers and trade unions know that they have a very heavy responsibility in the conflict between the Government's overall strategy to contain wage levels, inflation and unemployment and the flexibility which they need to deal with such matters as differentials, low pay and special cases. It is a very delicate balance and I think that everyone agrees that the Government have an extremely difficult task.

In "Winning the Battle Against Inflation", my right hon. Friend the Chancellor of the Exchequer is right to stress the debt which the nation owes the trade unions for the moderation and responsibility which they have exercised over the past three years.

Mr. Skinner

And the naivety.

Mr. Tierney

My right hon. Friend is also right to emphasise that we must secure our gains and build upon our successes. Therefore, he must not be surprised if the trade union movement, having studied the Government's measures proposed in the White Paper, expresses its disappointment at the lack of elbow room to build upon those successes. For three years we have had ad hoc policies on a year-to-year basis, set and firm in their concept and rigid in their application. Although the general strategy has been successful, the inflexibility of such measures has brought consultation problems, differential and special case problems and, perhaps most of all, low pay problems.

I want to spend a few minutes on the problem of low pay. A number of hon. Members on both sides wish to speak, and I shall confine my remarks to this problem.

In Great Britain, 2½ million employees work in trades covered by wages councils. Wages councils fix minimum legally enforceable rates of pay in relation to a specified working week. In agriculture, 44 per cent. of male employees earn less than £50 a week. In hotels and catering, 58 per cent. of males earn less than £50 a week. In retail distribution, 33 per cent. of males earn less than £50 a week.

I refer my right hon. Friend the Financial Secretary to the Retail Drapery, Outfitting and Footwear Trades Wages Council, which covers people working in retail drapery shops, outfitting, shoes and so on. The report of that wages council shows changes which take effect from 3rd July of this year—two or three weeks ago. It covers clerks, sales assistants and cashiers in those trades.

Reference has been made already to London weighting. The London rate for clerks, sales assistants and cashiers in the proposal—and the next negotiating date is July 1979—is £40. Away from London, in provincial cities and towns, the rate of pay as from 3rd July 1978 running on to 3rd July 1979 is £38.50 for the same categories of workers.

In the meantime, obviously, in the months ahead other wages councils will determine similar rates for similar categories of workers, especially those engaged in retail distribution. Taking the figure of £38.50 for workers in those trades and remembering that the anniversary date is July 1979, they will need an increase of £6 or approximately l5½ per cent. to reach the figure of £44.50 mentioned in the White Paper.

I know that there has been some talk by my hon. Friend the Member for Newham, North-West (Mr. Lewis) about a minimum wage. But I want to ask the Financial Secretary whether the Government, who have some good influence in the negotiating operations of wages councils, are prepared to see wages councils' rates move towards this figure of £44.50 in the next 12 months. In other words, if wages councils meeting in September, October and November this year do not gain this £44.50, are the Government prepared to see them meeting again within the 12-months period so that they may reach this £44.50 or, better still, will they ensure that that rate is put into effect as quickly as possible?

Mr. Arthur Lewis

Is my hon. Friend aware that the Minister can refuse to sign an agreement and can refer it back? As he does that if there are wages above the level, would not it be a good idea if he considered doing it when they were below the level?

Mr. Tierney

I am grateful to my hon. Friend, and I am sure that he has made the point.

Apart from wages councils, there is little doubt that some trade unions will in some instances have to negotiate voluntary agreements for £44.50. That may surprise some hon. Members. Paragraph 19 of the White Paper refers to respect for existing settlement dates. I hope that we shall be told whether the Government will allow wages councils or trade unions and employers voluntarily to engage in a second set of negotiations within the 12 months, the first set having failed to achieve the rate of £44.50—miserable rate though that is.

Low-paid workers suffer not only from the problems of low wages but from all the other anomalies thrown up by pay policies. For instance, they experience the most devastating differential problem of all, which is the difference between average low-pay earnings and the average earnings in British industry generally. In 1976, at the TUC conference, 113 unions representing more than 11 million workers carried unanimously a resolution moved by my own union, the Union of Shop, Distributive and Allied Workers, stating that they sought improvements of basic rates to assist workers on low pay and the implementation of a TUC minimum wages policy.

There is an Early-Day Motion in circulation headed A Policy for Low Paid Workers". It makes the point that there exists an unacceptable low estimate of the social and economic worth of the jobs performed in the public services, in agriculture, in hotels and catering and in retail distribution. It goes on to point out that wages are subsidised because of the excessive dependence on means-tested benefits such as family income supplement.

The TUC has given priority to the low pay problem and, as I have said already, a resolution on the subject was passed in 1976. The TUC has fixed the low pay rate at two-thirds of the national average earnings figure, which means that we should be aiming at a figure of £55 as a basic minimum rather than the £44.50 mentioned in the White Paper.

I recognise that a start is being made. At least there is some consideration in the White Paper, modest though it is, for low-paid industries. It may be that the Government are coming round to the belief that low pay and the problems that it brings also make up a special case, a case for special consideration, and a special case which requires immediate and urgent inquiry.

The ever-continuing problem of low-paid workers and their struggle to escape the poverty trap can be resolved permanently only by substantial increases in real wages. In most of the trades which I have mentioned—the public services, retail distribution and so on—productivity schemes, self-financing or otherwise, which are the escape route for many industries are almost impossible to achieve and apply.

The workers in these industries, which are efficient and prosperous, resent their low pay label and the employers who get away with miserable levels of pay qualifying for social security Dm fit but not providing a standard living rate of pay. If the low paid were treated as a special case, as they should be, we should be able to release many wage earners from the poverty trap and restore their respect. We should thereby eliminate the need for social service benefits, which is often a duplicating and time-wasting process. We should eliminate the need for rent and fate rebates and all the other services and effort that are required to ensure that a family receives an income of subsistence standard to enable it to survive.

We need a far wider discussion on pay than the Government have so far undertaken. That is necessary if we are even to begin to understand the problem of low pay. We must move away from dealing with the problem on an annual basis. At present we put ourselves in the clear for 12 months at a time and hope for the best. In 1975, under phase 1, the £6 basic rate increase was the highest ever received by retail distributive workers. It was higher than the 10 per cent. in 1977–78. In 1976–77 the Government reverted, unfortunately, to a percentage increase that left the low paid even further behind. That is because no special consideration was given to their plight.

In the White Paper we are faced with another percentage increase and the hope that some of the low paid might be able to acquire a basic minimum rate of £34.50 a week. That is £10 or more behind the acceptable figure. That indicates the extent of the problem that has to be overcome and the need for a year-on-year consideration.

I understand the view that Britain should aim at a long-term approach in which collective bargaining is based each year on a broad agreement among the Government, unions and employers about the maximum level of earnings that is compatible with keeping inflation under control. However, I hope that my right hon. Friend the Prime Minister will understand, as I am sure he does, that over many years the free play of market forces—the free-for-all—has failed to secure equity between various bargaining groups.

In 1975 we set off with a pay policy to arrest and contain the glowing rate of inflation. Those measures were successful in that respect. It was essential that they should be. Since the war—not since 1975 or 1974—we have allowed wage growth to evolve in a way that has left us with deep-rooted problems. None is more deep rooted than the problem of low pay.

I have confined my remarks to the special case of the low paid precisely because it is a special case. I make no apology for making that claim. The low paid are a special case because their wages are far too low. They are a special case because they suffer the most devastating differential problem. That is the problem brought about by the difference between their average rates of pay and the national average rate of earnings throughout industry. They suffer all the anomalies that rigid pay norms bring and they are unable to turn to productivity bargaining, whether or not it is self-financing, for support.

The problem of the low paid has been with us for a long time. They are the poor, and over many years our economic achievements have been all the poorer because of our acceptance of low pay standards throughout industry. It will take a considerable time to put matters right, but we must make a start.

In the discussions that my right hon. Friends have with all sides of industry, I hope that they will make the elimination of the low pay problem an urgent priority. The TUC, through the trade union movement, must be allowed to pur- sue and overcome the problems of low pay. Action is needed to end the scandal of Britain's poverty wages. Such action is long overdue.

Mr. Deputy Speaker

I remind the House that about 11 hon. Members have been waiting patiently throughout the debate and are anxious to speak. There remain 90 minutes before the wind-up speeches begin. Unless there is a drastic curtailment of the length of speeches so that they continue for about eight minutes apiece, many hon. Members who wish to make contributions will not have the opportunity of doing so. I hope that this evening we shall win the battle against not only inflation but lengthy speeches.

7.35 p.m.

Mr. Ralph Howell (Norfolk, North)

Ever since 1961, and under successive Governments, we have had debates on the economy, on various White Papers and on the introduction of more and more controls of wages, prices and dividends. All of them have been unsuccessful and have resulted in the dismal position in which we now find ourselves. I do not believe that there is any hon. Member who believes that the White Paper will do anything to improve Britain's productivity or to get us out of the terrible morass into which we have fallen.

I congratulate the hon. Member for Birmingham, Yardley (Mr. Tierney) on his excellent and well-reasoned speech and on the service that he is doing for the low paid. I can associate myself almost entirely with everything that he said and with part of the speech of the hon. Member for Newham, North-West (Mr. Lewis). I associate myself with both hon. Members' call for a minimum wage. It is time that we recognised that it is a disgraceful state of affairs that we tax those who are earning less than half the national average wage. We have the most absurd system whereby we top up wages with the family income supplement, for example, only to take money away in tax. I hope that we may join forces to some extent to try to push forward the idea of a minimum wage. I cannot understand how it is that after four years of a Socialist Government Labour Members have to preach to the Government about the need to help the poor and the need to lift low wages by introducing a national minimum wage.

I shall direct my remarks to the White Paper and the dismal idea of holding down wages to 5 per cent. We are the nation with the lowest wages in the EEC. In 1961, when we first started the foolish business of restricting wages, we had the highest level of wages in any of the countries now within the EEC. I shall illustrate the price that we are paying by referring to a few figures. The average hourly earnings of male workers in Britain are £1.62. Even in Ireland they are now £1.71. Our wages are less than half those being paid in Denmark, which are £3.84. They are little more than half those being paid in Germany, which are £2.97.

It is time that we tried actively to get on a par with our competitors and to provide incentives for people to work. Even with our present low wages, we cannot compete with foreign car manufacturers. How is it that our car manufacturers allow their home market to be taken over by the Germans, the Japanese, the French and almost everybody else, despite the fact that we are running such a low wage economy?

The crucial factor that we have to consider is that there is insufficient incentive to get people to work properly and efficiently in Britain.

Mr. Skinner

Rubbish.

Mr. Howell

It seems that the hon. Member for Bolsover (Mr. Skinner) wants to keep it that way. He is not interested in seeing the wages of the lower paid lifted.

Mr. Skinner

The week before last I attended a meeting, which the hon. Gentleman did not attend, in a Committee Room upstairs when Mr. Alan Fisher addressed Members of Parliament on the question of low pay. I support the £60 minimum. I doubt whether the hon. Gentleman does.

Mr. Howell

I support a minimum wage. I think that a £60 minimum is a little excessive at the moment.

Mr. Skinner

I thought the hon. Gentleman would say that.

Mr. Howell

I hope that we can work towards it very quickly. I should like to see the hon. Gentleman do something more active in supporting—

Mr. Skinner

I used to work with my hands, brother.

Mr. Howell

I did, too. I should like to see the hon. Gentleman do something more active in supporting his hon. Friends with the idea of introducing a minimum wage. Let us not make it too high for a start, or it will be impractical. Let us get a minimum wage and get away from wages councils awards.

We have created a treadmill society in which people at all levels, due to our appalling tax system, find it almost impossible to better themselves. We have a high-taxation, low-wage, high-frustration society. It is high time that we broke away from this state of affairs.

I turn now to the hypocrisy in the Government's motion of aiming towards full employment. They have done nothing towards getting anywhere near full employment. In fact, they have taken us so much further away. It is appalling hypocrisy to dangle the thought of such a situation when they know that it is impracticable with our present system.

Tremendous numbers of people are caught in the unemployment trap. In an intervention to the Prime Minister, I mentioned this matter. I believe that tens of thousands—hundreds of thousands—of people simply cannot afford to work due to our very low tax thresholds and high tax rates. In fact, it is now more profitable not to work than to work.

I want to draw the attention of the House in more detail than I did earlier to two people, one of whom worked and the other of whom is still working for British Rail. I have my constituent's permission to mention his name. It is all too easy for cases to be brought up which are generalised. My constituent, Mr. Tatchell, was a crossing gate keeper. He still lives in a British Rail tied house. His wage, before he was sacked, was £46 a week. His spending power after tax, national insurance and rent was £28.

Mr. Tatchell thought that his job was underpaid and the hours too long-90 hours a week on duty. He is now unemployed. He receives £44.90, out of which he has to pay £11.50 rates. Therefore, he is more than £5 a week better off unemployed than at work. He does not want to be unemployed, but he cannot accept a job at much under £70 a week. He has two children. This applies not only to the large families about whom the Prime Minister was talking but to the average size families. Mr. Tatchell has calculated that he needs £70 a week before it is worth his while going back to work.

Mr. Tatchell's friend, a little further down the track, is still at work. His rent has been pushed up to £16 a week. I have his pay slip here. It shows that he earned £58 in a certain week. After deductions for rent, tax and national insurance, he received a cheque for £28. It is disgraceful that we should tax people earning such low wages. It is not worth their while to work.

We must apply our minds to this problem. It is not worth while pulverising a dying Government on this issue. However, the next Government must attend to this problem. All Governments since 1961 have held down wages and indexed benefits to such an extent that we have reached the absurd situation where nearly half the working population are either better off unemployed or only marginally better off if at work when account is taken of what they have to pay to get to work.

The system is destroying the British people. I believe that nearly everybody in this country would like to work, work intelligently and see the country prosper once again. I believe that we do remarkably well, despite the handicaps that we place upon ourselves. We are almost keeping up with other countries. We are like an Olympic swimmer who could streak past his competitors if only we removed the heavy weight that we insist on having round our neck. The weight of taxation is destroying incentive at all levels.

I should like to draw attention to another pay slip that I saw earlier. A person earning £20,000 a year had half his monthly salary deducted in tax. We must overhaul and reframe our taxation, welfare and employment system. The Conservative Government between 1970 and 1974 tried to patch it up in various ways. We tried to help with family income supplement and measures of that kind. But there is no way of repairing or improving the present totally unco-ordinated taxation and welfare employment system. I hope that our incoming Government will recognise that we must overhaul the system in order to allow the British people to get themselves out of this appalling mess.

7.47 p.m.

Mr. Giles Radice (Chester-le-Street)

congratulate the hon. Member for Norfolk, North (Mr. Howell) on his speech, particularly on his concentration on low pay and poverty trap issues. The hon. Gentleman made a valuable contribution to the debate.

I also congratulate my hon. Friend the Member for Penistone (Mr. McKay) on an excellent maiden speech. I should like to take this opportunity of paying tribute to John Mendelson, whom I always found encouraging and kind to all younger Members like myself.

I want to concentrate on the White Paper. I had hoped to hear from the Opposition Front Bench today some elucidation of the Conservative Party's viewpoint on inflation and incomes policy, because its policy has been in a highly confused state.

The right hon. Member for Leeds, North-East (Sir K. Joseph) said that incomes policy was actively damaging. He puts his faith in controlling the money supply. Before the debate the Leader of the Opposition made noises about possibly having some kind of incomes policy in the public sector, but letting the private sector go hang. We also had the right hon. Member for Lowestoft (Mr. Prior) being rather more enthusiastic about the idea of an incomes policy.

I hoped that the right hon. Lady would let us all into the secret of the Conservative Party's policy, but she did not. She criticised my right hon. Friend the Prime Minister for the lack of intellectual content in his speech and then made a speech almost totally lacking in intellectual content. It was one of the worst speeches I have heard from the Opposition Front Bench in the five years that I have been a Member of this House.

I confess to being an unrepentant supporter of incomes policy. My experience as research officer of the General and Municipal Workers' Union and, indeed, as a Member of Parliament for an industrial constituency has strengthened my conviction that we must have an incomes policy.

I agree that, because there are a number of different causes of inflation, incomes policy is only one of a number of measures or weapons that a Government can use. We know from experience that it is wrong to rely on incomes policy alone. We have had the experience of the three years in the 1960s when incomes policy was almost the sole instrument in controlling inflation. That was in the years before devaluation. It was not a great success.

In 1972–74 the Conservative Government had an incomes policy but did not control the money supply. That was ineffective. Any Government who want to control inflation must have policies on the exchange rate, money supply, public expenditure, competition, productivity and prices, as well as incomes. But I cannot see how it is possible to run a modern economy—whether it is capitalist, mixed or a total command economy—without an incomes policy. So I welcome the White Paper.

I turn to the question of the 5 per cent. norm. After the 10 per cent. limit—which has turned out to be rather higher than that—5 per cent. seems low. But because of the current rate of inflation, which is between 7 and 8 per cent., and the need to reduce it further, we must reduce the norm. I recognise that our rate of inflation is about average for OECD countries, but it is higher than the rates in main competitor countries such as Japan and West Germany. I believe that the Government have got the figure about right.

There are exceptions. The Leader of the Opposition did not recognise the exceptions. I have seen at least three exceptions in the White Paper. Groups of workers who are in positions similar to those of the firemen and police might be regarded as special cases. The low paid are in certain circumstances to be regarded as an exception. As in the previous pay policy, those with self-financing productivity deals are to be regarded as an exception. So it is not a rigid norm. Provided that the norm is held, the rate of inflation will come down and, for the second year running, there will be real increases in living standards. I welcome the White Paper and the norm.

I also welcome paragraph 9 of the White Paper in which the Government commit themselves, for the first time in this Parliament, to a long-term incomes policy. Nobody pretends that running an incomes policy is easy. It is not. Inevitably there are anomalies and distortions. Anomalies and distortions that arise in one phase have to be corrected in the next. In my experience, the difficulties caused by distortions and anomalies are made far worse by our national habit of abandoning incomes policies after three or four years and going back to a free-for-all which, in its turn, creates more distortions and anomalies. We then have to have a rigid incomes policy which creates further anomalies and distortions.

Many people have come to the conclusion that we need a permanent but flexible policy which can be adjusted to changing circumstances while maintaining an overall control of incomes. We should be aiming at that.

A number of things follow from that. One must have criteria for issues such as low pay, productivity and differentials. The new incomes policy appears to accept that. There must also be an adjudicating body which is voluntary and preferably on a tripartite basis with trade union participation. There must be a body which can make consistent judgments about the difficult cases such as those involving the firemen, policemen and university teachers. The sooner we accept the need for such a body, the sooner we can get rid of all the ad hoc review bodies with which we are now littered and which, because of their different adjudications, are making a nonsense of incomes policy.

We need a long-term incomes policy. But that will have long-term implications for the role of the trade unions. One must admit that. It is wrong to say that the bargaining functions of the trade unions will be removed. They will be able to bargain about low pay, differentials, productivity, hours of work and overtime, but one would be less than honest not to admit that there is bound to w some modification of the trade union role.

Over the past few years the trade unions have played an important economic and social role nationally. It is right that they should do so. It is right that one of the two major interest groups should be consulted and should play a part in the determination and shaping of national affairs. All Governments, of whatever hue and whatever they say before they take office, are bound to attempt to agree a social contract—what ever they call it—with the trade union movement. Such a contract must include economic and social issues as well as pay.

At the level of the company, the drive towards industrial democracy has its own logic and force. Its time has come. The adoption of a long-term incomes policy will hasten that process because trade unions will demand more control over management decision making. They will demand more control over the strategic decisions which shape company affairs. Trade unions will want to be certain that the resources of the firm to which their members contribute so greatly are used properly.

Whatever the long-term changes, the Government are to be congratulated on their courage in stating their own view in such a clear fashion. I wish that the Opposition had done the same. I believe that the Government's view is right. I also believe that in October, or whenever the election is, that view and policy will be supported by the British people.

7.57 p.m.

Mr, Julian Amery (Brighton, Pavilion)

Whatever else the debate has not done, it has to some extent restored my faith in democracy. We are on the eve of a General Election, and yet in this great debate on economic issues the argument is not between the parties. It cuts across the Floor of the House. That is true of incomes policy, of how to achieve the highest productivity and the nettle that I propose to grasp. The hon. Member for Chester-le-Street (Mr. Radice) has shown great courage in committing himself to an incomes policy. It is not popular with some of those hon. Members who adorn the Benches around him.

I propose to speak about the international context in which we operate. It is no use controlling inflation or securing productivity unless we can sell what we produce. We have to sell much of what we produce outside this island.

When I examine the results of the latest Bonn summit, I conclude that although it was not a disaster it holds out little hope. This morning's figures for the price of gold and the position of the yen and the dollar suggest that we are a long way from recovering from the world recession. Unless some order can be brought into the monetary markets, we face a grim outlook for 1979.

What are we going to do about it? There is the Cambridge school view of those who more or less follow Professor Wynne Godley's ideas. These would lead to reflation at home with inflationary results which would to some extent be controlled by rigid import controls and successive devaluations. With a population of between 55 million and 60 million, I do not believe that this could conceivably work. At the end of the day we should find ourselves forced out by this policy from the European Community to look for some new association—perhaps the COMECON, which would allow Lord Kaldor and Lord Balogh to reintegrate themselves into the countries of their origin.

So what are we to do? The present situation is untenable. An insular position is untenable. The European Community has so far seemed the best hope But, when we look at the European Community, I think we must accept that the United States, through the "benign neglect" of the dollar, is getting more than its fair share of European trade. The Japanese, through superior efficiency, are getting a very large share. The Soviet bloc, through dumping—which has pretty well been accepted by the Community—has been getting, until it has recently been stopped, a considerable share.

Therefore, while I never thought that there was a case for island protection, British protectionism, there is a case that one could argue for European Community protectionism. I do not propose to argue it today. I think that we may come to that. There is, however, a logical case for it unless the imbalance between the European Community and the United States, Japan and the Soviet Union can be overcome.

I want to suggest, however, that there is a better way. It is the way towards which the French and German Governments have been trying to lead us. We have overcome many obstacles to our trade with Europe. A lot of the trade barriers have been eliminated through our joining the Community. But the differences between the exchange rates, between the pound, the franc, the mark and the lira, particularly when they are floating, act as a discouragement to trade and investment.

If we could have some harmonisation of European currencies on the lines suggested by Chancellor Schmidt and President Giscard d'Estaing, there would open a new perspective enabling intra-European trade to be greatly increased. We have had some experience of this. Mr. Fukuda, the Japanese Prime Minister, is always going back to 1931, so I shall allow myself to do the same. When we went off gold in 1931 and created the sterling area, we founded a system of harmonised currencies, but floating against the rest of the world. The effect was to bring about an enormous increase in intra-sterling trade. I believe that the creation of that monetary union had as much to do as the introduction of imperial preference with the dramatic expansion of intra-Commonwealth trade that took place in the 1930s.

It is interesting to note that it was all done quite voluntarily. There was no supranational institution. What happened was that these countries, at very different levels of development, all agreed to bank their reserves with the Bank of England and, within limits, to follow the advice of the Bank of England. This system worked from 1931, through the depression, through World War II and through the aftermath of World War II until the 1960s.

I think that the break-up was inevitable because the industrial strength was not there to back the system. But the breakup did not bring the relief that many people thought it would bring. On the contrary, ever since the sterling area broke up, what we have really been looking for is another payments area into which we could fit.

The Bremen proposals seem to me to represent something which, if we join in and help to shape them, could give very great relief and open new perspectives to us.

I beg the House not to turn its back on those proposals. I beg the House, and not the Government, because we are near to a General Election, and although it is not this House that will decide these things it is the House that will return after the election. We turned our back on the coal and steel proposals in 1950. That was a great mistake. We turned our back on the European Defence Community, which was ill-conceived but could well have been reshaped. We turned our back on Messina, on the Treaty of Rome. We had to crawl in without having much influence on the terms, and we are still suffering from it.

I pray that we shall not make the mistake, what Dante called the supreme sin, of the great refusal of those who have an opportunity and do not take it. I hope that we shall not turn our back, not only for economic reasons but for political reasons too. I see that the Gaullists in France and the Communists in France are attacking President Giscard d'Estaing on his proposal because they think that it could lead to a German domination of the European economy. There will be no German domination if Britain, France, Germany and the other economies of the Community are involved. But if we stay out, that is a different story. I understand the anxieties of our French friends when they see the strength of Germany and the reluctance of Britain.

I think that politically this would be useful, too, because it would not be an anti-American or an anti-Japanese move. I was in Japan recently and I found the Japanese extremely sympathetic to the idea. Although I see that the Americans have reservations—the present American Administration seem to have reservations about quite a lot of good things and positive views about many rather doubtful things—I think that it would help the dollar if there were an alternative reserve currency with which the Americans had to keep in tune.

Of course it involves imposing certain disciplines upon ourselves. But there is no escape from discipline anyway. What have we been doing over the last two years since we accepted the International Monetary Fund support? The disciplines that we would have to impose upon ourselves would be less, I should have thought, and we should have a greater say in drawing up the rules. Of course we should be more independent and freer if we kept completely aloof from every organisation. But we all know the answer. What is the use of freedom which means freedom to sleep in the open air under the bridge in winter? That is not much of a freedom.

The one thing that we have to fear is our lack of self-confidence. We still have in this country very great expertise in banking, insurance and all the arts of the square mile of the City. Ten years ago the authority of the Bank of England and the Treasury would have enabled us practically to dictate the terms of the European monetary union. We have lost a lot of ground since then. But let us not be afraid of our own weakness. This is the one fear that we have still to overcome.

8.8 p.m.

Mr. Dennis Skinner (Bolsover)

The right hon. Member for Brighton, Pavilion (Mr. Amery) referred to the meetings at Bremen and Bonn and he placed some emphasis on the new Franco-German pact, which he thinks will do us a hell of a lot of good. Like the Common Market, it will further penetrate our industrial economy. It will mean that our current balance of payments deficit inside the Common Market, mainly with West Germany, will get worse. It will mean that the common agricultural policy will never be changed. There will be several other spin-offs, but those are the two most important matters.

The right hon. Gentleman has gone on record many times in regard to his delirious excitement and the frenzy into which he gets about the Common Market. He is like many other hon. Members. However, at least one can give him one sole credit. That is that he still tries to sing the Common Market's praises. There are some on the Opposition Front Bench, including the right hon. Gentleman's leader, who, although from time to time they talk about the European party, are now beginning to bewail the fact that we are inside the Common Market.

I know that an election is coming—at least some say that it is coming. But at least it is to the right hon. Gentleman's credit that he still tries to prop up this ramshackle organisation.

We are not here to discuss that matter, although I accept that wages and matters of that nature are all inter-related when multinational companies are spreading their wings all around the world.

I want to quarrel with one point made by my hon. Friend the Winber for Bethnal Green and Bow (Mr. Mikardo). He said that we have not seen any Socialism during the course of the past four years. He is absolutely right. But he went on to say that we had a laissez-faire economy. I do not think that that is right. This economy, currently—so called "private enterprise"—is propped up by lots and lots of taxpayers' money.

There are lots of Conservative Members, and a few Labour Members, who are directors of companies which are milking the taxpayers in order to survive. That is the real truth of the matter. About the only private enterprise area which one can find currently is the manufacture of skateboards, which is not in the assisted areas, and Ladbroke betting shops.

Mr. Neville Sandelson (Hayes and Harlington)

The Bar.

Mr. Skinner

Not the bar in here. That is heavily subsidised. The bars in here are indeed heavily subsidised.

Mr. Sandelson

I meant the barristers Bar.

Mr. Skinner

My hon. Friend is on about the Bar. That Bar also is heavily subsidised—his Bar, and the £30,000 a year which he picks up as well as being a Member of Parliament. Those are his words, not mine.

Mr. Sandelson

I wish you were right.

Mr. Skinner

This White Paper is really a Bill. We have been dragged here under false pretences. I was told last week that we were to have a debate on the White Paper which forecasts a permanent incomes policy—the one which says that 5 per cent. will be good for workers in the forthcoming year. What do the Government do? They manufacture some sort of emotion. The motion welcomes the substantial progress already made in combating inflation". There has been an element of that, but not all that much. It then goes on to talk about: a further sustained national effort". National effort? Who will be held down? Will estate agents be held down?

Mr. Sandelson

Barristers?

Mr. Skinner

Barristers? Lawyers of all kinds and descriptions? Will they be restricted to 5 per cent., especially those dealing with property conveyancing? Of course not. What about all those who are on contracts? What about all those footballers who are currently signing new contracts? Will they be subject to 5 per cent., whether they come from Argentina or anywhere else? There are literally millions of people who never have to be subject to an incomes policy. Those Labour Members who get carried away with the idea that this is good, fair and equitable ought to study the facts. All these people escape the net. Incomes Policies are devised to put a fence around those who can be easily identified.

There are about 200,000 miners. The Government want to put a fence around them and slap 5 per cent. on them, if they can get away with it. But there is no chance. Perhaps they will find the railway men and slap an incomes policy on them, or find the teachers and do likewise. Of course all those who are organised inside trade unions will be subject to an incomes policy. That is why, throughout the period that I have been in this House, and whether it has been a Tory or a Labour Government, I have refused to support such a policy.

I must ask the monitor on the Government Front Bench, the Minister of State, Treasury, to tell the Chancellor that some of us are not supporting his policy. He will not be able to tell the nation's press that he has Dennis Skinner roped in on a 5 per cent. permanent incomes policy. I am not worried about the consequences, because the consequence of my voting for something that I abhor is more important than carrying on with a Government under whom unemployment now stands at 11 million. It is things such as that which I must take into account.

This White Paper has been produced without any consultation with Labour Members. Of course, the Liberals were consulted. But where are they? They are missing again. They are perennial absentees who come in here under their job creation scheme, set up 15 months ago with the Government in order to save their own jobs, and consult the Government on every important piece of legislation. But we Labour Members are herded into the Chamber, or herded into some Committee Room upstairs, and told "This is what we have got for you today, lads. Take it or leave it."

I used to serve on a local authority, where we all had one vote apiece. The chairman of the council, the chairman of committees, and even the newest councillor, all had a vote. But in this place the Liberals are consulted as, I suppose, is the Conservative Front Bench on most of these things. It certainly looks to me as if they have been consulted about this motion and the amendment.

Mr. John Page (Harrow, West) rose—

Mr. Skinner

I shall not give way. I have not seen the hon. Gentleman in the Chamber all day. I know that he is a lawyer, and that he has been busy, but he will not interrupt me. I shall give way only to an hon. Member who has been present throughout the debate

Mr. Page

On a point of order, Mr. Speaker. I have been present frequently enough to listen to the sotto voce and sedentary remarks from the hon. Gentleman, but what I really wish to do is to remove the insult that I am a lawyer. I am just extraordinarily clever.

Mr. Skinner

I reckon that the hon. Gentleman would just about make one. Labour Members who sit below the Gangway went into the 1974 General Election fighting for Socialism. I remember Conservative Members saying that the only time we could have an incomes policy was in time of war. That view was held by our ex-Prime Minister, who now sits in this House occasionally. Even Roy Jenkins said on television that we could not have an incomes policy except in times of war. Yet here we are moving into phase 4. The Government are hoping that by surreptitiously placing this motion on the Order Paper they can drag Labour Members into the Division Lobbies to support it.

The result of reducing consumer purchasing power and the £6 pay policy and its successors is that there are 1½ million people on the dole. That is not something temporary. It is not an aberration. It has been there for God knows how many months. Of course, there has been a marginal change during the past few months. With their hands on the economic levers, any Government worth their salt ought to be able to bring down unemployment on a seasonal variation, or whatever they call it, by about 3 or 4 percentage points. We expect them to do that. But as a result of the policies that they have pursued, this Government have engaged in throwing people on the scrapheap. That is the truth of the matter.

Mr. Martin Flannery (Sheffield, Hillsborough)

There would be twice as many if the Conservatives were in power.

Mr. Skinner

Yes, I accept my hon. Friend's remark. There is no question about that. They would get rid of all the so-called attempts that have been made to prop up jobs. But we Labour Members are in business to plan the economy. We have had opportunities and we should have used them to plan away unemployment. We have not done so, because during the past two and a half years, the Treasury Bench has been obsessed with cutting back public expenditure, unless it has been defence, and throwing people out of work by that deliberate action. We are now faced with the consequence of going into a General Election—so we are told by my hon. Friend the Member for Chester-le-Street (Mr. Radice)—with courage. I do not believe that one wins elections on the basis of so-called masochistic courage.

In my view, this country is rich. It is rich in talent. Currently it is even rich in money. It has the possibility of a trade surplus over the next decade, something which we have never had before when moving into a General Election. Yet this same Government now want to clobber the workers with another 5 per cent. They even have the audacity to put this motion on the Order Paper before the Dividends Bill is debated. We all know what will happen to that. That outfit across the way—the Liberals, Scottish nationalists and all the rest—will throw it out. Therefore, a kind of tasty morsel is dangled in front of the Left wing, and we shall then be herded through the Lobbies to support a permanent incomes policy on the flimsy basis that we might get some sort of dividend control, which has been evaded anyway during the past few years.

One only has to read the established newspapers such as The Sunday Times to discover that top companies are not paying income tax. Tribune happened to mention that fact about 12 months ago. This is the scenario today. I know that it is not devised that way. It is devised in such a way that in this pre-election period we all go marching into the Lobbies united on the basis of a permanent incomes policy. In order to kid some people, this motion was devised to give the impression that we are not really voting for it.

I want to hear the Chancellor of the Exchequer say quite bluntly tonight that it is the Government's incomes policy and that it has nothing to do with the Parliamentary Labour Party, a large section of which will not support the 5 per cent. guidelines.

I believe that far from thinking about an election—which we are supposed to be having in October—we should be doing something much different. We, or the Government, should recognise that in the last year of this Parliament we have arrived at the stage at which we must tell the workers, who have been subject to incomes policy after incomes policy, that we will not continue with yet another one. We must tell them that we shall return to free collective bargaining, as outlined in our manifesto during both elections in 1974. The Government should tell the people that we will come back next time and, to all the howls and cries of derision from hon. Members opposite, we will introduce a Budget that will not give away more money to the wealthy, but will introduce new elements in the social wage.

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

I am not an enthusiast for incomes policies, but I wonder whether my hon. Friend would seriously suggest that this country can afford to give to the miners, MPs, teachers, barristers, estate agents and everybody else a 20 per cent. increase in income next year.

Mr. Skinner

I reckon that if those in top positions—the chairman of the National Coal Board, the chairman of the British Steel Corporation, the judges who have been wrecking section 2 of the Employment Protection Act, and the top civil servants who wander off into jobs in industry, complete with a pension—can all get up to 70 per cent., apparently somebody says that there is enough money in the country to pay them.

We cannot devise an incomes policy that is fair to all. That is Impossible when 70 per cent. of the economy is supposedly in the private enterprise sector. That is the real crunch for me. Whenever there is an incomes policy there are all these people who escape through the net.

The Minister of State, Treasury, who is on the Front Bench, must tell the Chancellor and the Prime Minister that what they should be concerned about is winning back support from working-class voters. The last two by-elections did not indicate that we are on a wave that will carry us through to victory in October. What we need is to come back next time and present a Budget that will introduce new elements of the social wage—abolish the television licence, get rid of school meal charges for all children, let Lids go to school without having to pay bus fares, and give old people the right of free travel throughout the length and breadth of this country. Even if we were defeated by that lot opposite on these measures—which I doubt—we should be able to say to the workers of this country "This is what the election is about, and this is what we must defend."

My guess is that a 5 per cent. incomes policy plus an incomes policy that will be there for ever will not be enough. I emphasise that I am not here to wreck this Government or to inflict grievous wounds on the Labour Party. I am trying to say to those who occupy the big seats in the House of Commons and the Government that they are on the wrong track. If they want to win the election they should follow my advice. Then they might just make it.

8.24 p.m.

Mr. Ian Lloyd (Havant and Waterloo)

The hon. Member for Bolsover (Mr. Skinner) places me in some difficulty. So often I find myself unable to accept either his premises or his conclusions. At least tonight I have found his premises interesting and some of his conclusions agreeable. For other reasons I find the whole concept of an incomes policy rather strange.

This has been a strenuous debate and we have had a great deal of declaratory, dogmatic and other kinds of Socialism put forward. Beginning with the hon. Member for Bethnal Green and Bow (Mr. Mikardo), we had a very good example of what one might describe as "observational egalitarianism". We can always have our emotions wrung, as long as there is one surviving element of poverty in the land, by comparison with anything which can be described as the opposite. It seems to me that the purpose of the observational egalitarians is to eliminate the mode, the median and the average. They should really settle down and ask themselves whether that can he done in a human society. I think they will find that the answer is "No"

Then we had the very interesting experience of the hon. Member for Newham, North-West (Mr. Lewis), whom one might describe as a typical example of the Neanderthal Socialist. He uses egalitarianism as a club to take economic weight off other people.

Lastly we come to the Prime Minister, whom one could describe as being an exponent of cosmetic Socialism. He does it when the Tribune group cannot be gainsaid, and he does not do it when the IMF says that the country is broke. He puts rouge on when he is addressing the Labour Party executive and highbrow pencil when he is addressing the IMF.

This is an accepted part of the peculiar games which we play in this Chamber. Each side tries to discover, expose and ridicule what it believes to be the inconsistencies of its opponents. We spend much of our time and much of what is misdescribed as our intellectual energy in combing the pages of Hansard for ammunition. The result is that the House is for ever looking backwards, and when a choice example is found right hon. and hon. Gentlemen present the discovery with all the enthusiasm which prompted the Greeks in Homer to shout "Thelassa!" What they would have shouted had they seen the Government Front Bench even Homer would have found unprintable.

This situation justifies two observations. The first is that this activity and the obvious joy which it engenders are utterly inconsistent with the argument, so often put forward by the same right hon. Members, that conviction should be subservient to fact and argument, that Governments should freely admit their errors and that political doctrine should reflect reality and not seek to distort it.

But if every Government joined the learning curve of experience at a pretty low level, every chart, graph and economic statistic would proclaim loudly and clearly not only that Labour Governments enter office at the bottom of the "U" curve but that they stay there so long that it is flattened by the sheer weight of ineptitude into a straight line. Thereafter the economy lurches from crisis to crisis as policy is constrained by the more absurd examples of economic illiteracy which pass for serious criteria when Labour Governments are in power.

No undertaking is quite as difficult as an attempt to climb the north face of the Labour Party's economic prejudices. It is a cold, inhospitable and dangerous precipice of human doctrine, and the valleys beneath are littered with the corpses of those who have stayed too long or have been blown off by some economic blizzard. Some, of course, reach the top and fall exhausted into the resuscitating arms of the IMF.

One could hardly blame responsible people who follow our national and parliamentary affairs seriously for concluding that this charade demonstrates that no Government of either major party have really been in full, confident and effective control of the situation for the last 20 years. The record entitles the nation to ask whether the country has had government by a Cabinet and Parliament intent on discovering, observing and enforcing the national interest over all sectional interests—which is what they are put here to do—or whether the country would have done just as well had the Cabinet been selected from the "Muppet Show".

The British public, represented perhaps by those two elderly characters in the "Muppet Show" theatre box, have recently had to reconcile Prime Minister Kermit advocating public participation, which in this theatre is known by such terms as the social contract, Chancellor Fozzie Bear trotting out feeble jokes about how different it would all be if only the audience would laugh in the right places—I interpret this as meaning that industry should invest in high-risk technology for what is effectively a nil rate Of return in real terms—and the Monster, that great shaggy beast, who presides over the most important Department in Britain—the Department of Energy—tearing up and down backstage, destroying the scenery of each show as it is just about to come on. Nor, evidently, is he averse to pulling the rug out from under Kermit whenever he is slightly off balance. One might describe that as a neurosis in charge of an apotheosis.

This is the dishevelled, disoriented and irrelevant bunch of comedians who dare to stand at the Dispatch Box and ask us to endorse their policies and commend them to the nation.

If the IMF parts of the Government s policy bear some relation to the needs of the hour, the Government are as incapable of enforcing such a policy as they are of discovering it. It is, therefore, pertinent to inquire what a truly comprehensive policy would be and whether it can be enforced by any Government enjoying the conventional authority that derives from their own conviction, their sense of purpose and the advice they receive from civil servants. The realities of our national situation have been buried for years under a vast pile of misleading semantic camouflage.

We should take a new look at the meaning of words. I take as my text a phrase that illustrates the central fallacy of our times more effectively than most. It comes [...] speech made by the Chief Secretary to [...] Treasury to the Industrial Society last year. The right hon. Gentleman said: The tax reliefs in the last two Budgets of 1976–77 have, of course, done a great deal to help living standards in the meantime. The Prime Minister has often said exactly the same sort of thing. If ever there were a misuse of the words "of course", this is it. Of course, Budgets have done nothing of the kind. They do lots of things, but they cannot alter the living standards of the nation as a whole in the short run. In the long run, their influence is overwhelmed by much more powerful influences.

What Budgets do in the short run is confined essentially to two things. They alter the distribution of money incomes in a society in exactly the same way as a wage claim that is unrelated to productivity. They also alter the distribution of real resources between the public and the private sectors. In the longer run, the distribution of tax burdens has a significant influence on the wealth-creating capacity of the nation. We know a great deal about that after the past four years.

In the short run, living standards are determined by one thing and one thing only—the efficiency with which a given output of goods and services is produced and the number of people entitled to exercise a claim over it. If there is one thing that has been conspicuously absent from the debate so far, it is the word "output". Time and again we hear about living standards, money claims, minimum wages and so on. When shall we hear about productivity and output, because they determine the whole thing?

We are extraordinarily adept in the House at spending hours, weeks, even months debating the distribution of incomes. If we spent only a fraction of that time debating the efficiency of the nation and why in the past 20 to 25 years we have fallen from the top to the bottom of the productivity league table, we might make a very much greater contribution.

Whether this country pays itself an increase in money wages of 3 per cent., 30 per cent. or 300 per cent., its standard of living in real terms will not and cannot vary by more than plus or minus 3 per cent. in any year. That is the historical record of our national productive system. It is confirmed in the latest Government publication which gives the figure as an average of 2¾ per cent. over the past 30 years. I suggest that that figure of 3 per cent.—not 5 per cent., 10 per cent., 15 per cent. or 30 per cent.—should be engraved on every £1 note, every cheque, every Government document and every machine tool and above the portals of every factory gate, public office and Government Department. Indeed, until national common sense reasserts itself, this should be said both before and after grace at meal times. It should also be printed perhaps on every packet of cigarettes and on every manifesto in the next General Election. It should certainly be printed on the stationery of every trade union in the country, and particularly on the forms used to make wage claims. The White Paper pays belated recognition to these fundamentals, but even it still talks about 5 per cent.

What an improvident Government can do, of course, is to maintain current living standards at a higher level than is justified by real incomes. They can do this by forcing the consumption of capital or by borrowing the difference between money incomes and output. A Government can also create an environment that is generally hostile to the production and investment of wealth. This Government have done that. Governments frequently do it while paying lip service to the "incentives" that they know to be necessary but which they have no intention of operating in practice.

A beast called Cerberus gets in the way of that, and Cerberus in the United Kingdom has just about polished off the whole private enterprise system for breakfast. It no longer pays in this country to take real risks, and those real risks, especially in high technology, are precisely what this country needs to take.

All this has a fundamental relevance to pay policy, for I am arguing that, if we are serious about living standards and if we really wish to see them rise, two clear consequences must be accepted. The first is that the whole thrust of public debate must be shifted from the income to the output side of the equation, and the second is that if the full energies of the entrepreneurial, the industrious, the ingenious and the gifted members of society are to be engaged in this enterprise, they must be allowed to share more than equally in the results. They must also know that this will not be reversed and their wealth or earnings dissipated by a turn of the egalitarian screw after a sudden change in national political fortunes.

This is the area in which this country does itself such continuous and lasting damage. Has the National Enterprise Board, for example, recognised this in setting up its new organisation to make micro-processors? If it has, may we now conclude that the Government have recognised the importance of rewards for risk-taking and intend to encourage substantial differentials? If they have not, and if there is a bluff somewhere along the line, we can be certain that, however many millions of pounds are put into the venture and however gifted are those who are recruited to it, it will fail, and so will many others.

I turn now to the output side of the equation, which suffers from fundamental constraints which Ministers who preach about Government guarantees and living standards would be unwise, if not dishonest, to ignore. It can be, and has been, established beyond serious statistical challenge that gross national product is related closely and directly to the supply of energy. The growth of gross national product and gross national product per head in the developed world has been made possible historically by the growth of energy supplies. Each major burst of growth can generally be associated with the availability of a new form of comparatively cheap fuel. The progression from wood to coal to oil and finally to uranium sees our civilisation on the threshold of the solar age, devising processes which will enable us to harness and store energy in that remote nuclear furnace, ultimately without depending on fossil fuels and paying the immense price necessary to get fossil fuels out of the ground.

If the fuel is indigenous, a Government may claim to be able to influence both supply and price. The record of both coal and North Sea oil bears this out. But a Government who cannot influence the availability or price of their major sources of energy cannot even pretend to influence national output. The efficiency of energy use is an important factor, and I pay tribute to what the Government have done in this respect recently. But again, historically, improvements in the efficiency with which energy is used overall are seldom dramatic, and we should probably be over-optimistic to set a limit of 3 per cent. per annum.

Efficiency and conservation, both usually requiring considerable capital investment, might just enable us to achieve an increase in energy supplies of about 1 per cent. per annum and the growth of GNP associated with such a figure. It is, therefore—I say this advisedly—utterly irresponsible for any Government to forecast a growth in GNP. That includes even Socialist Governments who can claim a monopoly of public welfare, as they do. To do so, they must offer something real to back up the wages lottery unless they can produce figures to show an increased availability of energy either from total supplies, which have a major effect, or from conservation, which has a minor effect.

The figures given on the useful statistical cards produced by the Department or Energy show a virtually constant energy input of primary fuels from 1973 to 1976. I ask the House to draw its conclusion. With the decline in coal being offset by other fuels, especially gas, there was in this period a massive artificial shift in the terms of trade between energy and other manufactured goods, a shift to which our coal miners contributed almost as much as the much maligned Arab sheikhs in OPEC. The only difference is that the difference is not felt across the exchanges.

It may be argued that the increasing availability of North Sea oil and gas within the United Kingdom provides precisely the increased availability of energy on which the Government base their optimistic forecasts. The Prime Minister has said as much on numerous occasions, but this amounts in effect only to the prospect of being able to maintain our existing primary energy input at about its present level with the guarantee that we shall be able to supply oil to ourselves at a cost no higher than the marginal cost per barrel of the last barrel we choose to extract from the North Sea. This could well be lower than future OPEC prices, but North Sea costs will never be lower, certainly not in real terms, in the foreseeable future than OPEC costs, even when its supplies approach exhaustion.

Therefore, the prospect is for the continued availability of the present quantum of primary energy at what will probably be slowly increasing costs in real terms. By that I mean that the terms of trade between energy and manufactured goods will continue to move inexorably against manufactures.

The only offsetting factors are twofold. The first is utilisation efficiency, which Governments can and should encourage by stimulating capital investment in this area. The second is the predictable bonus from new energy technology, such as the fast breeder reactor and fusion, but these cannot be quantified—certainly not yet—and Governments have no right to base GNP forecasts, optimistic or otherwise, which they cannot fulfil on technologies which have not yet left the laboratory.

Where does this leave us on the much-vaunted question of prices, incomes and pay policies? There is only one answer. They are a lasting monument to the complete and total inability, vividly demonstrated year after year in this House, of the political process to force democratic electorates to come to terms with the realities that they have to face.

If primary fuel supplies do not grow, there can be no economic growth other than that fuelled by the efficiency of structural change. If economic growth is artificially limited because legislation and political prejudice combine to impose massive restraints on improvements to the economic process, as we have seen, there can be no growth in real incomes—and if there is no growth in real incomes the whole massive annual or semi-annual ritual of pay claim, wage bargaining and incomes policy becomes nothing more or less than a time-consuming, misleading and dangerous political farce.

In these circumstances, the duty of any Government is to emphasise two important and predictable effects of the annual wage demand ritual. The first is that income allocation, by a combination of market forces and taxation, is replaced by the inherently uncontrollable and damaging process of income allocation by inflation. The second is that, as the revolution of rising expectations runs violently into the sands of reality, those who abuse the political process to pretend to powers which they do not and cannot possess will suffer the fate common to all witch doctors who fail to produce the cure: they will be butchered by the electorate, and the discredited political or resource allocation process over which they have presided will probably suffer the same fate as the witch doctor's bones. The political "Muppet Show" will not enjoy as long a run as "The Mousetrap".

My conclusion, therefore, is that responsible democratic Governments in the developed world now face a clear duty, which few if any of them are discharging because its discharge obliges them to notify disenchanted electorates that the oil bonus of our civilisation is just about spent. The party is over in a much more fundamental sense than is realised.

Continuous annual increases in money incomes simply cannot produce continuous and corresponding increases in real incomes in the developed world as a whole or in the undeveloped world. To the extent, therefore, that the mythology of so-called annual wage bargaining is indulged in, this Parliament will merely lose all effective control over the internal distribution of incomes and will thus eventually become spectator to a game of economic musical chairs in which some section of society will always be the loser.

If trade unions insist on continuing the pantomime, any claim which they make to represent the interests of their members must be set against the damage which their activities will cause to the whole of the economic process and to the social cohesion which that process requires. If they turn their attention to energy availability and utilisation, to industrial efficiency and productivity, their claim to participate in the affairs of the nation will regain a validity which at present it simply does not possess, whatever the degree of lip service we politicians of either party choose to pay to it.

The confrontation which this country cannot avoid is the confrontation with the harsh realities of its own economic situation, its social absurdities and its technological conservatism. That is the confrontation which matters. It is to the outcome of that confrontation that we should pay much more attention than we now do.

8.45 p.m.

Mr. Arthur Latham (Paddington)

I will not follow the hon. Member for Havant and Waterloo (Mr. Lloyd) except to express the hope that he will have his copious notes recycled.

I am not at all clear whether there are likely to be two Divisions at the end of the debate. One Right-wing member of the Parliamentary Labour Party, and I suppose that there are many to choose from, has already remarked to me, having heard the speech of the Leader of the Opposition, that even Socialism would be better than that. It has been put to me that, because of the way in which the debate developed, or failed to develop, the Opposition may not be pressing the main Question to a Division. I make it clear, in line with the comments of my hon. Friend the Member for Bolsover (Mr. Skinner), that, if there should be a second Division and a vote on the Government motion, it is possible that the Government could lose that Division because some of us, rightly or wrongly, are taking the simple view that we shall oppose the Opposition amendment because we disagree with it, and shall fail to support the Government motion because we disagree with that, too.

I understand that some of my hon. Friends—and they have every right to do this and I hope that it will be respected and understood outside—intend, in the event of there being a second vote, to support the Government but to issue a statement explaining why they are against the economic policies that the Government are pursuing. It may or may not be right to do that, but I want to remind those of my hon. Friends who intend to take this course that the public expenditure cuts, the level of unemployment and the argument about economic strategy are all part of the debate tonight. If we look carefully at the ingenious Government motion, we find that the House is being asked, in effect to approve that which has gone before and to endorse that which is to come if the Government pursue the policy in their White Paper.

The motion makes it clear that we are being asked to applaud the progress as described in the White Paper and that we should then continue further along those lines. There is some merit in the approach of those who support the Government's strategy and who, therefore, approve the public expenditure cuts, as indeed do the Opposition. That is a reasonable position for such hon. Members to take. I am unhappy about those who oppose cuts but at the same time support the Government's strategy. There is just as much inconsistency and hypocrisy in that as there is in the approach of those who support cuts affecting other people but protest when they are affected.

I go on record as being opposed to a strategy which has led to cuts in education, housing, social services, health and local government generally. I repeat the opposition of some of us, including a number who may vote for the Government if there is a second Division, both to the economic theory and the political attitudes behind those public expenditure cuts and all that followed from them. We reject the view that all private manufacturing is necessary and desirable and that all public service is an optional luxury. It was at one time claimed to be one of the main strategies of Government somehow to achieve a transfer from public services to private manufacturing. Some of us questioned not only the ethics and desirability of that but whether there was any mechanism by which such a switch could be achieved.

It means making an absolute assertion that a firm producing plastic ducks is of greater merit and deserves the support of the State whereas meals on wheels for the elderly or handicapped are far down the list of priorities. I as a Soda-list deny that that choice has to be made in the way the Government have held with their economic theory. We ought to see all of this happening against the background of the maldistribution of wealth and a society in which the minority still owns whilst the majority works, where we have non-owning producers and non-producing owners. There has been no change in that basic structure of our society.

It also needs to be reasserted that the effect of lower taxation in general benefits the better off, and that we ought not to have disregarded, as the Chancellor appears to have done, the redistributive effect of taxing the wealthy. My hon. Friend the Member for Bolsover has again referred to the social wage, which seems to have been largely forgotten in much of the Government's policy making.

I put this question to the Government. At the height of our controversy about public expenditure cuts which followed from the strategy, there was a supposition that there would be a £9 billion public sector borrowing requirement. Subsequently it was suggested that that would run to £12 billion. In the event, we arrived at a figure of £6 billion, and this year we have a Budget that is professedly based on an assumption of a £5½ billion PSBR.

I remember asking my right hon. Friend the Chief Secretary to the Treasury at the time what was considered by the Treasury to be the proper level of PSBR and what were the criteria taken into account It seems to me to have been absolute nonsense that the House, the Labour Government and the Labour Party should have gone through all the trauma that they did recently over £500 million when the acknowledged margin of error is apparently £3 billion either way.

The suggestion that somehow or other that £500 million was of great consequence had no other meaning except in terms of the rather neurotic and hysterical behaviour of some of those in charge of international financial institutions. If we are to continue to offer carrots to investors, if we are to continue the practice of free trade within the EEC, however high the tariff wall externally, if we are to continue to pander to foreign lenders, if that is what it is all about in terms of incomes policy and all that flows from it, I put it to the Government that if we are to rely on the economics of the market we shall be stuck with the morality of the market.

In London we face the serious social consequences of further dock closures. If anything is to be done in human terms, the commercial forces have to be resisted and the Government have to disregard the laws of the market. If we are to tackle unemployment in a positive way and overcome the moral dilemma of unused resources and unmet needs, we must challenge market values.

In the White Paper the question of employment is linked to incomes policy Paragraph 4 says: A lower rate of inflation is also essential it we are to create more jobs and keep British goods competitive. That is a philosophy that I believe that Socialists in this House and outside will reject because the idea of simply producing jobs as a result of greater competition means putting other people elsewhere out of work, which is what is behind the suggestions about transfers from region to region, greater mobility, and so on.

I do not think that the policy in the White Paper really indicates anything other than following the conventional past pattern of relying entirely on market forces and simply having competition about the share of western unemployment which we are going to experience.

Mr. Ron Thomas

Does my hon. Friend agreed that the other countries of western Europe—indeed, the other capitalist States—which have a lower level of inflation than ours have still failed miserably to deal with their levels of unemployment?

Mr. Latham

That is precisely the point, that the White Paper suggests no means of tackling the fundamental problem, any more than do the Conservatives, but is concerned simply with the share of the unemployment to which my hon. Friend has referred.

The position as I see it is that the Labour Government continue to believe that there should be a market for everything except wages. Whether or not the Dividends Bill is passed on Thursday, the idea that that kind of dividend control is the quid pro quo for holding back wages is false, because when people's dividends are postponed the accumulated and accrued wealth is still there subsequently for them, whereas the worker who has a wage increase put back loses that additional income for all time. I never have been able to accept that it is part of a Labour Government's policy to suppress workers' wages.

My hon. Friend the Member for Bolsover talked about when a Bill is not a Bill. Although we are supposed not to have a statutory incomes policy, we have a policy which appears to have statutory effect without there being legislation. Although there may not be provisions for imprisoning offenders, there are substantial sanctions which can be used in many cases.

It seems to me that as a result of this motion the Government hope to be able to proceed with the policy outlined in the White Paper and to claim for it the authority of Parliament without having obtained parliamentary approval. That will be the effect if there is no second Division. That is why I am unable to go along with those who feel that they should vote for this policy while at the same time explaining that they are against it, and in fact reject it.

Whatever the outcome of that, along with them there will be a number of us who will campaign for different policies. We know that one alternative to a Labour Government, some of whose policies we disagree with, is what is described outside the House as a Thatcherite Government. That, many of us feel, is like cutting one's throat to cure pneumonia. What we want to campaign for is a correct alternative, a Labour Government following different policies.

I want in the two minutes to which, I gather, I am now restricted to summarise once again the fairly modest and moderate set of proposals which a number of us have been urging for a long time. First, there must be controlled reflation. Secondly, we should plan imports so that the effect of the controlled reflation is not simply to stimulate other economies. Thirdly, there should be an expansion of the National Enterprise Board, the development of planning agreements and the development of public services. There should be that kind of positive job creation, and we should make good the cuts in public expenditure that we have experienced. There should be reduced spending on weapons, and the introduction of a wealth tax.

Like my hon. Friend the Member for Bethnal Green and Bow (Mr. Mikardo), I know that the achievement of those policies is not something immediately to be attained, but I hope that we shall go on campaigning for them and that we shall move towards those radical changes. I appeal to my hon. Friends who share that view not to compromise themselves by voting for a motion tonight which, however cleverly worded, none the less endorses the policies pursued up to now and approves the strategy outlined in the White Paper, which I for one believe to be a non-Socialist strategy.

8.59 p.m.

Sir Geoffrey Howe (Surrey, East)

May I begin, Mr. Deputy Speaker, by saying how glad I was to have the opportunity of hearing the lucid speech of my right hon. Friend the Member for Farnham (Mr. Macmillan) about the opportunities opened up by the Bremen initiative. I also want to say how much I regret having missed the speech on the same theme by my right hon. Friend the Member for Brighton, Pavilion (Mr. Amery), who rightly spelled out the case against protectionism, and who likewise called for a positive response to the Bremen initiative. Clearly, what my right hon. Friends had to say deserves very serious consideration.

I am also glad to have the opportunity of paying tribute to the hon. Member for Penistone (Mr. McKay), having had the pleasure of hearing him make his maiden speech in the House. I am sure that the whole House will have enjoyed and appreciated the gracious way in which he paid tribute to his predecessor. All hon. Members will realise the truth of what I say when I suggest that no debate of this kind can really be regarded as complete without the former hon. Member for Penistone.

I can extend my common ground of welcome to the hon. Member for Penistone a little further by saying that in his performance in his by-election contest he managed to bring comfort to almost every party in the House save the nationalists. He succeeded in holding the seat for his own party. He succeeded in allowing the Liberal Party to hold its vote. He also succeeded in enabling my party to achieve a swing in its favour sufficient to deliver the next Conservative Government with a towering majority. We are all well pleased with his brilliant performance.

I must say that the Labour Party does not have much hope of avoiding that kind of an outcome to the forthcoming General Election if its campaign is to rest upon the foundation of complacency laid by the Prime Minister's speech this afternoon. If we look at the various claims that he made in the course of the early part of that speech, we find him saying with some pleasure, perhaps not surprisingly, that the Government's funding programme was going well. In language that most of us, would understand, it means that the Government are somehow succeeding in borrowing the huge sums that they want, and borrowing on a scale comparable with what they achieved last year. In the circumstances which have actually happened, that is not something of which the Prime Minister ought very readily to boast.

During the four and a half years in which the right hon. Gentleman's Government have been in office, the interest on public sector debt held outside the public sector has risen from £3¼ billion a year to almost £.8½ billion a year. That is a huge increase of more than £5,000 million in the annual interest payments paid on sums of money borrowed by the Government. It is astonishing that the-Prime Minister should see fit to boast about the success with which he is adding to that huge burden of debt for future generations.

Even this year, as a result of the so-called successful Government funding programme, because it is so large, the interest rate—the minimum lending rate, or bank rate as we used to call it—has risen from 7 per cent. to 10 per cent. That very rise—a necessary price to pay. for funding this huge borowing—is itself adding hundreds of millions of pounds to public spending and public debt this year.

It should be a matter for regret rather than pride that the size of borrowing per household in this country under this Government has risen from £2,600 in 1973–74 to £5,000 in the present year. We are borrowing per head more than twice as much as our nearest international rival. That should be a matter for great regret rather than for pride in a Prime Ministerial speech.

The second matter about which the Prime Minister took some pride was the record in relation to inflation. It really is time that we got the Government's position on that quite clear. Not for the first time a Government spokesman was saying that they had reduced the rate of inflation to half the rate which they had inherited. The Government, as is well known, fought the last election on the Chancellor of the Exchequer's claim that inflation then was running at 8.4 per cent. That is either part of the political record of this country or it is not. If the Chancellor was prepared to take credit for that figure in the course of that election campaign, he should have the courage to accept responsibility for it now as the foundation for this Government's record.

On the same basis as that claim, inflation, on the last month's figures is now going up at 11.7 per cent. a year, and at a rate which is accelerating. Why should we not be allowed to draw attention to this movement of the inflation rate? The Prime Minister says that it is in some way unpatriotic for us to do so, when the National Institute of Economic and Social Research, which the Government fund so amply, makes the same forecast that it is going up beyond 10 per cent. next year? Why should we not tell the people the truth? When the London Business School, whose officials give the Government valuable advice, make the same forecast, why should not we also tell the people the truth about that?

The reality is that the Government dare not face the truth about the future of inflation, just as they dare not spell out their record in the past. Between February 1974 and April of this year, prices went up by 91 per cent.—four times as fast as they did in Germany in the same period, three times as fast as they did in the United States and about twice as fast as they did in France. On this Government's record, we are equal bottom of the inflation league with Italy, and it is a disgrace on the Government's record of which the people should be made aware.

As for the value of our currency, during the same period of four years, while the value of the Japanese currency increased by 39.5 per cent. and that of West Germany by 20.1 per cent., while France's currency had fallen by less than 1 per cent. and those of the United States and Canada by 10 per cent. or 11 per cent., Britain's currency had fallen in value during that four-year period by 27.4 per cent., and once again we were competing with Italy for bottom place in the international currency decline league.

Mr. Norman Tebbit (Chingford)

Here comes the head waiter.

Sir G. Howe

Before the Prime Minister came into the Chamber, I had been dealing with what he said today about the so-called improvement in the rates of output and growth. He was taking credit, be it noted, for what was happening this year. I do not know whether the House noticed it, but the figure which the right hon. Gentleman quoted was the figure for the improvement in industrial production between the first and second quarters of this year and not over an annual period. There was an increase of 1.3 per cent. between one quarter and the next. The right hon. Gentleman did not go quite as far as the Chancellor of the Exchequer in his statement on Friday when introducing the White Paper. The Chancellor of the Exchequer, true to his 8.4 per cent. three-monthly figure averaged over 12 months style, went the distance and said that we were now growing at an annual rate of 4 per cent.

But it is in no sense an insight into the reality. A change between one three-month period and the next is no insight into what is actually happening.

Looking at the record of manufacturing output since this Government came to office, in the years between 1973 and 1977 manufacturing output fell by 6 per cent. We are the only country which during that period has not achieved some growth in our manufacturing output. So once again, on output and growth, we are bottom of the international league and there is nothing for the Prime Minister to boast about.

But what, finally, did the Prime Minister say about living standards? Hon. Members will remember the careful way in which he chose his words. He said that the people would be grateful for the fact that they were better off today than they were a year ago, and he produced figures which spelt out that a married man with two children who earned £75 a week would now be enjoying £3.19 more in real terms than he was 12 months ago—an increase of 5.4 per cent. But why did the Prime Minister compare today's living standards with those of only a year ago? Why did he not compare them with the living standards of four or five years ago?

I want to press the Prime Minister in some detail about that. Hon. Members will have seen the interview which the right hon. Gentleman gave last week on television in which he was asked by Mr. Fred Emery of The Times: You say we're prosperous, but people do seem to have a sense that they have lost ground economically, they are less prosperous than they were four years ago. PRIME MINISTER: Oh, that certainly isn't true. MR. FRED EMERY: Do you think that's an illusion on their part? PRIME MINISTER: Well, it's a statistical illusion anyway. None of the figures would bear out what you're saying. It is worth looking at those figures with some care, because my hon. Friends have been asking Questions of Treasury Ministers about the change in living standards over the past four or five years. I have three recent versions before me. The first is the answer given yesterday to a Question by my hon. Friend the hon. Member for Blaby (Mr. Lawson) asking what was the real weekly net income at June 1978 prices of a married man on average earnings with two children under the age of 11, on the basis of the latest price index. In 1973–74 the average real weekly net income at June 1978 prices was £73.30. In 1977–78—that is the last figure given in the column in the answer—the same man with two children had a real weekly net income of £67.60.

Mr. Nigel Lawson (Blaby)

Is that an illusion?

Sir G. Howe

Even if we add the £3.19 for which the Prime Minister took credit this afternoon, we arrive at £70.79. Therefore, at June 1978 prices the average man with two children is still about £3 worse off than in 1973–74.

There is another set of figures that makes the position even clearer. The Government were kind enough to estimate the real value of earnings for next year. The estimate was given in answer to a question tabled by my hon. Friend the Member for Blaby and appeared in column 781 of Hansard of 13th July. The real weekly net income of a married man with two children in 1973–74 was £68.70. The Treasury gives the real weekly net income for 1978–79 after taking account of the tax cuts that were made by the Opposition when we debated the Finance Bill in Committee and entitlement to 10 per cent. pay increases in the current year. On that basis, the real weekly net take-home income for a married man with two children will drop from £68.70 to £67.

Mr. Lawson

Is that an illusion?

Sir G. Howe

Is that a "statistical illusion"?

Mr. Jay rose—

Sir G. Howe

By what standard and in what sense does the Prime Minister assert to millions of viewers the reply it's a statistical illusion anyway. None of the figures would bear out what you're saying"? It is fair that the right hon. Gentleman should be given the opportunity to reply. Is he able to point to one figure that will bear out what he said to the viewers? I am willing to let the right hon. Gentleman correct his reply. If he is unwilling or unable to challenge my figures, surely it follows that the figures that he quoted and the statement he made on television last week, far from being accurate, were themselves a "statistical illusion" of fundamental and deceitful importance.

Mr. Jay rose—

Sir G. Howe

The Prime Minister—

Mr. Eric S. Heffer (Liverpool, Walton)

Give way.

Mr. Speaker

Order. It does not seem that the right hon. and learned Member for Surrey, East (Sir G. Howe) is giving way.

Sir G. Howe

At this stage I am anxious that the Prime Minister should have the opportunity of defending himself. If he will not do that, perhaps he will withdraw the observations that he made on television and apologise to Mr. Fred Emery and through Mr. Emery to the country. I give way to the right hon. Member for Battersea, North (Mr. Jay).

Mr. Jay

As the right hon. and learned Gentleman says that he has studied the figures with such care, will he say how much of the drop in real incomes was due to the common agricultural policy?

Sir G. Howe

I dare say that the right hon. Gentleman will be able to ask about that for himself and will be able to ascertain how far, if at all, the answer would have been different were it not for the renegotiation for which the Prime Minister was in part responsible.

The British people now have the truth firmly on the record that they are worse off and that living standards have been cut over the past four years. However, the situation is worse than that. The figures that I have quoted relate to the average industrial earnings of those who have the good fortune to be in work. What about those who are out of work after four and a half years of Labour Government? The unemployment figure increased last month despite the Prime Minister's bland observations about trends. It increased to 1.586 million. If that is taken into account, average living standards have fallen even more sharply than the Prime Minister is willing to admit.

We find that in international comparisons as well. This country's record, after four and a half years of Labour Government, is worse on unemployment just as it is worse on productivity, just as it is worse on living standards, just as it is worse on inflation and just as it is worse on the decline in the value of the currency. We are the only country in the western world of our kind and size in which private enterprise has been hauling ashore to add to our riches tons and tons and millions of pounds worth of North Sea oil, yet prices have risen faster, unemployment has risen higher and faster, debt has grown larger and more massive and living standards have fallen more sharply than in any comparable country in the western world.

This Government, of which we had the Prime Minister speaking this afternoon, are the only Government in the history of this country who have succeeded on this scale in halting growth, doubling prices, more than doubling taxes, more than doubling debt, almost trebling unemployment and slashing living standards. Their programme in 1974 was on the platform Back to Work with Labour. When the British people come to pass judgment on them, they will know that the reality was "Back to square one with Labour." We have had enough of them.

Clearly, against that background the policies set out in the White Paper, even if they are right, would not be enough by themselves to restore the economic fortunes, of this country. But the White Paper addresses itself to real and central issues about the future management of our economy. It is the result of a lot of learning by the Government, partly by our advice and partly from the hard school of experience.

It is important for the House to understand that the White Paper establishes a fair degree of common ground that the parties ought to recognise when discussing these matters. It is worth identifying them. I say that it is worth identifying them for this reason. It is important to stake out the ground on which the future Government, after the forthcoming General Election, have to stand as they shape the economic policies of this country. We shall be looking, so far as we can, for support from the then Opposition on the strength of our joint experience to date. We know that the Labour Party, on its record and form, has the capacity to be even more damaging in Opposition than in Government. It is important to remind it of the lessons of its own experience, which will be part of our common equipment as we go ahead.

It is important to know how we are to create the conditions to restore industrial prosperity, and I want them to be established between the parties as far as possible. First, it is now common ground that the essential foundation of the battle against inflation is proper and effective control of the money supply, with the target rate for the growth of the money supply reducing from year to year. In so far as the present Government have helped to establish that point it is important, and a number of hon. Members are entitled to take credit for it. It is an important point. In 1973 the Labour Party's behaviour towards the Conservative Government was of such quality as not to entitle it to criticise us now. Let us take credit for what has been learned.

Secondly, I welcome the extent to which the Government in the White Paper, as they did last year, spell out the necessity for strict control of public spending through cash limits. That is an important new discipline, essential to the establishment of effective control over this country's economy.

Thirdly—on this the Government have wavered but have showed signs of learning—it is important, if we are to achieve that kind of control, to secure year by year steady reductions in the size of the public sector deficit or the public sector borrowing requirement. This year, unhappily, they have reversed that trend and are increasing it again.

It is worth reminding the House of what the Chief Secretary said on St. David's day 1976: But we shall reduce that deficit as we move out of recession, because we are only too well aware that the regrettably high level of debt interest—made higher of course in real terms as the attack on inflation succeeds—would itself be a heavy burden in the years ahead. We must give credit to the Chief Secretary for that, regret his failure to carry it through this year and mark that up as another part of the common ground.

The most important thing is that, as we apply the policies which are now agreed between us, this Government and the future Government must secure wider understanding and a wider sense of reality and responsibility in the collective bargaining process. It is right that the Government should play their part in spelling out the necessity for that understanding. To that extent we are also on common ground.

The right hon. Member for Battersea, North and the hon. Member for Chester-le-Street (Mr. Radice) said that we must recognise the need to establish a longterm, permanent incomes policy. I do not regard that as the right way to approach the matter. Both sides of the House have for too long discussed in extremes incomes policy on the one hand and free collective bargaining on the other.

Last year the Chancellor of the Exchequer was moving on to the right ground when he said that he was hoping, as a result of the changes that he made last year, to be paving the way to a return to normal collective bargaining. It is that for which we must strive—the restoration of realistic, responsible collective bargaining, without Government interference, in the context of the type of policies which I have described.

The Chancellor of the Exchequer (Mr. Denis Healey)

The right hon. and learned Member referred to the progress that I made last year, but when he discussed my policy last year he described the pay policy as an onslaught on the British people's standard of living and freedom generated and forced down their throats by ageing, doctrinaire, prejudiced, Socialist trade union leaders. Is that still the right hon. and learned Gentleman's view?

Sir G. Howe

By no means. The Chancellor will recollect the correspondence that we exchanged about this which, if he has the grace and wisdom to recognise it, establishes common ground. [HON. MEMBERS: "Answer."]

Mr. Speaker

Order. Constant interruptions from a sedentary position are unfair.

Sir G. Howe

In reply to a letter from my right hon. Friend the Member for Lowestoft (Mr. Prior), the Chancellor—he was quoting me at that point—said: there needed to be an understanding about the total increase in pay that the economy could afford, but that it would be 'unthinkable' to translate that into an individual flat-rate figure… The task in the next twelve months is to complete the transition to responsible collective bargaining from two years of rigid pay restraint, without in the process touching off a pay explosion. We were on important common ground in that respect. The tragedy is that during the last year the Government have allowed their indication of what the economy could stand to develop increasingly into a rigid, strict and tight norm and to restrain the process of a return to collective bargaining. That is the mistake that we fear this year. That mistake led to the decision to introduce blacklisting and secret sanctions—which are an affront to the rule of law and which do great damage economically. They should have no place in the return to collective bargaining.

Even if we get that right, we must do something else to restore our economy to health. We must begin once again to encourage and restore rewards for initiative. It is that for which the Government have not begun to understand the need.

The Chancellor of the Duchy of Lancaster, who is not with us this evening, has had the candour to admit what is necessary. In a television interview on 23rd April, he said: That rate of tax on salaried talent is very high in this country…. The putting of this right is a massive problem that will take a little time and I believe this to be a number one priority…an urgent priority…. There has to be a move to make our tax rates, especially on earnings, comparable with what our rivals…on the continent have". The Government have resolutely refused to learn that lesson. They will never learn it. For that reason, they will not have the capacity to restore the scope for creating wealth and prosperity to our country.

When we made changes in the Budget—knocked 1p off the standard rate of tax and raised the threshold by £1,000—what was the response of Government Members? They did not thank us for doing what the Chancellor of the Duchy of Lancaster has been urging upon us. Putting on their Opposition hats, they too readily said that we were the pressure group for the rich. As long as that kind of attitude dominates tax policy, there is no prospect of a return to sanity.

The Prime Minister took some pride in the success of Rolls-Royce. I join him in paying tribute to that company. But does the Prime Minister know that one of the most significant refugees from this country in recent weeks, and who has left specifically because of the penally high level of taxation, is the finance director of Rolls-Royce who was instrumental in securing its most recent large order? That is characteristic of what will go on if we continue with the present Government.

We are clear in our purposes as to what needs to be done. We are clear in our policies as to what needs to be done. We are ready and impatient to put them into practice.

It would be interesting to know just exactly what is the condition of the Labour Party. We read of many meetings and many to-ings and fro-ings and of the right hon. Member for Bristol, South-East (Mr. Benn) mobilising his group in one corner and the Prime Minister mobilising a counter-group for action in the other. We must certainly have some clue as to the nature of what is going on in the Labour Party.

I think that I may have found it in an extract from the last volume of Mr. Crossman's diaries, describing a discussion in the spring of 1970. I shall quote it because it is quite important and interesting. It is as follows: Jim"— that must be the Prime Minister— said that we were half-way through our tremendous change and this should be our theme, solvency, which appealed to the middle classes…. We should point up the choice between us and the Tories. Then he emphasised that we need time, time, and we need the trade union secretaries to work up the anti-Tory campaign. Bob came next, and he said: We must do something for the trade unions, they must feel the need for a Labour Government and we must work up their feelings of fear of the Tories. Wedgie said—[HON. MEMBERS: "Ah."]— The electorate must fear them and like us…and, for a lift to our own side, the great thing we want is healthy reflation. Not a flash but a sense that the economy is growing, and without upsetting the international bankers. So much for Wedgie.

Then we come to the Chancellor of the Exchequer: Denis only feared that we would stumble this year, which was why he wanted the election as soon as possible. [Laughter.] Thirteen Budgets later, he must be in even greater fear.

Finally we come to Shore: Shore's main point was to stress achievements…. But what next? We must do some hard thinking about that. We have not really got a 'what next?'. If they have, they are not telling us about it.

We have heard something about the "what next?" from the members of the Tribune group below the Gangway. The hon. Members for Bolsover (Mr. Skinner) and for Paddington (Mr. Latham) may recognise this rather interesting text about "what next": Now Denis Healey has made it clear that the 'great revival' was just a myth after all. It was, of course, an illusory revival anyway…underneath this butter, the bread has still been crumbling away. The real story about what Denis Healey likes to call the 'real economy'…is told by the imports crisis…while the Government has no real strategy it will again be panicked into squeeze, as it has been so clearly this time. This is another chapter in the log of a Government paddling along not knowing where it is going. That is a very excellent editorial from Tribune of about one month ago describing exactly the condition of the Government whom the Tribune group is so reluctant to support.

So what is there on offer? We have had a few glimpses of insight from some statements made by some right hon. Members on the Labour Benches. On that celebrated occasion in Burnley when the Chancellor of the Exchequer thought that the press was not present, he offered one of his rare insights into his political vision. He said: I will offer you proper Socialism when we get a decent majority in the House of Commons to enable us to do it.

Mr. Healey

Hear, hear.

Sir G. Howe

The Chancellor says "Hear, hear." What on earth does he mean by "proper Socialism"? Is it what he talks about to the managing director of the IMF or to international bankers? Does he mean to promise a prospect of no more Sussex homes and farmsteads for Labour Ministers, no more chauffer-driven cars for Government Ministers from the Government car service, no more tax-free representative homes and no more outdoor relief for former Labour Party supporters as members of quangos? I doubt whether the Chancellor means that. But, however much the economy declines, however poor the British people become under the Chancellor of the Exchequer, they themselves will see that they are all right. Their Socialism is highly selective. They certainly do not believe in taking their own medicine.

We had one other little incident about which the House might like to ponder for a moment, and we are glad to see him present. I refer to the Lord President of the Council, who in the by-election at Moss Side the other day made the utter- ance that four years in office had made him more, not less, of a Socialist. He added: The more I've seen, the more I'm convinced that we have to carry through a major democratic transformation in our society. We've only just started. We offer you"— God help us— 10 to 15 years of exciting politics in Britain if you have the nerve and courage to stay with us I do not know what kind of excitement the right hon. Gentleman has in mind, whether he has in mind the prospect of attacks on the judiciary once a week instead of once a year or whether he has in mind the prospect of picket duty for the Secretary of State for Education and Science, the Secretary of State for Defence and the Minister with responsibility for sport once a month instead of once a year. God knows what kind of excitement the Lord President has in mind.

As for the Prime Minister, his own aspiration is to have as little policy as possible. The less he has to say about it, the better. The more he has to concede to the national executive committee, the worse he knows that it will be. Will he have to nationalise all the banks, or only some of them? Will he have to nationalise all the docks, or only some of them? Will he have to nationalise all the building industry, or only some of it? Just how far will the Prime Minister have to go?

The British people are determined to reject this wretched Government on their record and on their promises as well. The British people are yearning for a Government who will once again set the nation free to create wealth and who will bring into effect financial policies which will once again begin to restore the prosperity of our country. The British people are yearning for a change of Government, and it cannot come a moment too soon.

9.32 p.m.

The Chancellor of the Exchequer (Mr. Denis Healey)

I should like to start, as did the right hon. and learned Member for Surrey, East (Sir G. Howe), by congratulating my hon. Friend the Member for Penistone (Mr. McKay) on a most moving and sincere maiden speech in which he demonstrated his love of his constituency. I had the privilege of speaking with him during the recent by-election campaign which brought so much comfort, as the right hon. and learned Gentleman said, to so many people. I must say that I was deeply impressed by the direct common sense and the wide industrial experience and experience of local government which my hon. Friend showed, as well as by his deep humanity. These qualities make him a worthy successor to Jack Mendelson, and I know that he will continue to contribute matters of great value to our debates.

It is nice to hear the right hon. and learned Gentleman again. I must say that he has broadened his literary tastes a little since we last met. I was a little surprised at their catholicity, if that is the right word. I was interested to see that his hon. Friend the Member for Blaby (Mr. Lawson) has at least introduced him to numbers, which is about time in view of the responsibilities which he claims he wants to follow.

In the main, the right hon. and learned Gentleman made a very entertaining speech—[HON. MEMBERS: "A very good speech."]—yes, it was a very good speech. I was unfair to him last time. He is not dead, but sleepeth. The right hon. and learned Gentleman wanted to explore common ground, for reasons which I shall come to later. He did, indeed, declare a wide area of common ground, somewhat to my surprise and, I think, that of the Tribune group. With however little hope of success, I shall try to start by carrying both sides of the House with me in describing as objectively as I can the background against which I think any fair-minded person will wish to judge the Government's economic record.

For nearly five years the western world has been living in a crisis of economic uncertainty. When the fourfold increase in oil prices was imposed overnight by the OPEC countries, the industrial economies sustained a blow from which they have still not recovered. The stability that we had come to enjoy in the post-war years was undermined, and the steady expansion of material wealth was brought almost to a standstill. Massive unemployment spread over western Europe and North America and soaring inflation swept across most countries as a result of the sudden immense leap in the price of the raw material on which most of the industrial life of the west depended. We are still suffering from the consequences of the pertks it reached during this period.

Those words, as I know hon. Members opposite will recognise, come from the matrimonial address of the right how Member for Sidcup (Mr. Heath) in Penistone a few weeks ago. He knows what he was talking about because he was Prime Minister when the February 1974 General Election was fought. He plighted his troth to the Leader of the Opposition in the words that I have just quoted, and she leapt to embrace him with a statement issued within a minute of the news coming over the tapes. She said: I welcome the warm terms in which Ted Heath has pledged his support. They will give added strength to the Conservative cause in the battles ahead. I confess that I thought that she was a little ungrateful to her wooer when she spoke this afternoon, because she tried delicately to ignore the whole record of the Government of whom he was the Leader and she was a member. She concentrated on the record of what we on this side of the House call the 13 wasted years before the 1964 General Election. I thought that her slogan in the next election might be "Bring back Harold Macmillan".

Of course the right hon. Member for Sidcup learned a great deal from his experience in office at the head of a Government in which so many of those on the Opposition Front Bench had the privilege—if one can call it that—to serve. Three years ago, almost to the day, he spoke to us in this House with all the authority of a man who had only just left the Prime Minister's office and he told us that the oil crisis faced us with a cut in living standards of 5 per cent. to 10 per cent. He said that the reason was that there was a massive transfer of resources from each country of the western world to the oil-producing countries.

The right hon. Gentleman said: For too long—perhaps over 30 years "— that includes the 13 wasted years under Mr. Macmillan and four years under himself— we have seen that the payments that we make to ourselves are greater than our production of resources to meet them. He said that the reason why we have never been able to run our economy at a reasonable rate in the last 30 years without crises was that fundamentally we had had an unbalanced economy."—[Official Report, 22nd July 1975; Vol. 896, c. 344–8.] That was the economy that we inherited four and a half years ago, as described by the leader of the Government from whom we inherited it. His new alliance —if that is the right word for it—with the Leader of the Opposition will sweep the Tory Party to oblivion.

The fact is that we inherited an economy which was gravely out of balance. It was running a balance of payments deficit of £3.5 billion. Inflation was over 13 per cent. and rising fast, with 11 triggers of the threshold agreement by October 1974. The minimum lending rate was at 12½ per cent. I do not know how the Opposition have the audacity to complain about the minimum lending rate of 10 per cent. against their record. Added to all this, growth collapsed completely in two months of three-day working. This was all before the oil crisis had really hit us. The right hon. Member for Sidcup pointed out in 1975 that, given the impact of the oil crisis and the world recession that accompanied it, unemployment was bound to rise. Indeed, he thought that it would rise faster than it did.

Let us look at the situation today. The balance of payments is in surplus, not because of oil alone, but because we had a 7 per cent. increase in the volume of our manufactured exports last year. For the first year since the war, we increased our share of world trade in manufactures. Inflation is down to 7½4 per cent. and has been cut by more than half in the past 12 months to the lowest level for more than six years—long before the last Conservative Government left power.

The minimum lending rate is down to 10 per cent. and output is rising, in the last three months for which we have figures at over 4 per cent. and the retail sales figures suggest that it will continue rising at the same rate for many months to come. Unemployment is falling slowly, but steadily.

Mr. Lawson

What happened last month?

Mr. Healey

The hon. Member for Blaby instructed his right hon. and learned Friend the Member for Surrey, East to refuse to accept three-monthly figures. Now the hon. Gentleman asks me what happened last month. We had a small increase last month, but that was largely because the number of unem- ployed school leavers is very much smaller and there is no question in my mind, and we shall find out in detail next month, but that many of last month's school leavers took jobs that, a year ago, would have gone to adults and therefore swelled the seasonally corrected unemployment figures.

I do not deny that we still have a long way to go, but we can claim that, perhaps for the first time since the war, we have an economy in balance. As the right hon. Member for Sidcup pointed out, we had not had the economy in balance for 30 years. We have seen a massive shift of resources into exports. We have built solid foundations on which we can continue to build in the years to come. The policies througa which we did this have proved themselves in action and I have quoted the figures that demonstrate that fact.

In his timid and rather late exploration of common ground, the right hon. and learned Member for Surrey, East referred to our policy on public expenditure. We have it under firm control for the first time in a decade and we can safely plan for steadv and sustained expansion in our public expenditure. We have firm control of the monteary aggregates. During the last two years that the Conservatives were in power, money supply was growing at twice the rate of money GDP. In our first four years in power, we had to keep it down to half the rate of growth of money GDP and now we are able to allow it to grow roughly in line with money GDP, as do our competitors abroad.

Mr. Lawson

It is growing ahead of money GDP.

Mr. Healey

With great respect to the hon. Member for Blaby, it is not growing ahead.

Our funding programme is well ahead of schedule. The right hon. and learned Member for Surrey, East had the temerity to suggest that we learnt all this from the Tories. He reminded me of what Nye Bevan said about Selwyn Lloyd at the time of Suez it is like one bacillus saying to another that they were responsible for the advance of medical science.

We have an industrial strategy which has solid support from both sides of industry, though it never encounters anything but sneers from the Conservatives increases for those with whom they are In the British National Oil Corporation, we have an instrument for maximising the nation's gains from the North Sea which has already won the respect of all the international oil majors. We have a National Enterprise Board which is moving into areas of high technology that have been avoided by the private sector. All these elements and instruments of policy depend for their success on our getting inflation under control, getting it down and keeping it down.

In order to succeed in its objective, which the Opposition Front Bench temporarily says it shares with us, we need the co-operation of the trade unions and employers. We have had it for three years—longer than any Government in our history. We shall continue to secure it for another 12 months at least, even though the unions and the employers have serious disagreements with us on some aspects of our pay policy.

Mr. Crouch

The Chancellor mentioned two bodies which have emerged during the life of this Administration—the National Enterprise Board and the British National Oil Corporation. May we have an assurance that, apart from consulting the TUC about the worth and the progress of these two bodies, he will involve Parliament, too, in their accountability, given the enormous responsibilities they now carry without the supervision of Parliament?

Mr. Healey

We have regularly debated these matters in Parliament and on each occasion Parliament has supported the Government's view on them.

We depend on the success of our pay policy for the success of our other policies, and we have sought steadily to introduce more flexibility into our pay policy as the years have passed—from £6, to 2½ per cent. and £4, up to the straight 10 per cent. in the current round and 5 per cent. for the next 12 months. In this coming round there will be two elements of flexibility. First, there will be provision for negotiation on hours, subject to certain conditions, as we have laid down conditions for productivity agreements. Secondly, there will be provision for protecting the lowest paid.

My hon. Friend the Member for Birmingham, Yardley (Mr. Tierney) asked me about wages councils. They will be free, if they so decide, to recommend wage concerned up to a maximum total wage of £44½50 a week. But they will not be able to break the 12-months rule or undertake a second negotiation in a single 12-month period.

The most important thing is that these difficult years of pay policy have not involved a sacrifice for the men and women who get the pay. I hope we have not forgotten that some years ago when wage increases reached 30 per cent., 40 per cent. and, in one case, 50 per cent., the real value of those increases was wiped out within a few months by price increases. In the past 12 months what appeared at the time to be a very tough guideline of 10 per cent. has meant, because inflation has fallen and because we have been enabled to make tax cuts and increase benefits, that real earnings over the year have increased by at least 5 per cent. overall.

A sacrifice is involved, and I and my friends in the leadership of the TUC are deeply conscious of it. That is the sacrifice by those who negotiate on pay on both sides of industry—employers as well as shop stewards and convenors—who find themselves limited in their fredom to negotiate by the needs of pay policy. It did not surprise me or my colleagues that this year as last the TUC found it impossible again to endorse the Government guidelines. What emerged most clearly in our discussion, however, was that the TUC shares our objective. It is as keen as we are to keep inflation in single figures and to stop it rising for the coming year. I think that it recognises that the Government have responsibilities to the nation as a whole which they cannot avoid.

We have the responsibility for making clear to those who negotiate what limit on earnings is required to keep inflation under control. That is a responsibility which we have accepted, which we cannot dodge, and which we will not dodge.

The hon. Member for Cornwall, North (Mr. Pardoe) raised an issue of great importance when he asked how we proposed to move from the current type of system to a permanent system. He will not be surprised that I cannot agree with his proposals. I do not think that it would make sense or be possible for the Government to develop a detailed juridical machinery to enforce a complicated blueprint for settling relative wages according to labour costs divided by value added, or some such formula.

We must try, if we are to get the flexibility we need in a dynamic economy, to move towards a system such as already exists and has existed for many years in Western Germany, Austria and Scandinavia in which a consensus about the level of pay which is consistent with keeping inflation under control leads to settlements which are consistent with that level without the need for detailed Government intervention, because there is a shared perception of what is reasonable and what can be expected of inflation in the coming year. We have not yet reached that stage. I hope that we shall in the near future.

I know that the present system is far from perfect, but until we get the sort of consensus to which I have referred, it will remain difficult to reconcile flexibility with the type of moderation overall which is required if we are to keep inflation under control.

This year, we expect to get an earnings out-turn of 13 per cent. to 14 per cent. on the new index, of which 1 per cent. to 2 per cent. will arise from self-financing productivity deals so that the inflationary drift over the 10 per cent. will be only 2 per cent. or 3 per cent.

We made a mistake last year, which I admitted to the House in a recent debate. We set the 10 per cent. initially, not as a guideline for settlements but, as the right hon. and learned Member for Surrey, East fairly said, as a limit to the increase in the nation's earnings. However, I think that we have learned from experience that any figure which is published, what ever its intended purpose, is liable to be taken as a floor for settlements by those who negotiate. That is why this year we set a guideline of 5 per cent. for settlements, knowing that that is likely to result in an earnings out-turn about half that in the current year —[HON. MEMBERS: "Half?"]—about half the increase in earnings in the current year—in other words, about 7 per cent. It would have been impossible to achieve it this year or achieve it next year without the use of discretionary powers in support.

But the real problem is the one which was demonstrated with classical simplicity in the speech of the Leader of the Opposition. She really provided us with a textbook case. She started by saying that she thought that probably 5 per cent. was right for the increase in earnings nation-wide, but, she said, some should get less and some should get more. She said that people should be enabled to expand differentials, so that skilled workers could get a bigger percentage increase than unskilled workers and managers could get a bigger percentage than skilled workers.

Then, in the next breath, the right hon. Lady said that we should also have given more to Mackies, because the workers there are low paid. Then again, the other clay she said that we must have draconic severity in imposing a guideline on the whole of the public sector through cash limits. Then she puts the sheepdog up to ask for 40 per cent. increases for part of the public sector this year. At the same time, the hon. Member for Stratford (Mr. Churchill) has been asking for even larger increases for the Armed Forces.

The right hon. Lady wants a 5 per cent. limit on earnings, but she wants more for the low paid and for the high paid. She wants more for the public sector if they happen to appeal to her politically, and more for the private sector. How, then. does she keep earnings within the sort of limit she purports to aim at? It really cannot be done.

What the right hon. Lady did not tell us was who these groups are who are supposed to get less than the 5 per cent. The nearest approach we can ge to an answer to that question is from the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) who, we are told, has made a list of trade unions in those industries whose bargaining power is so weak that the Government of the day can do anything they like with them—the railway men, the local authority manual workers, and so on. That is what really lies behind the right hon. Lady's policy, if anything lies behind it at all—but of course she will not tell us that until after an election.

What we get from the right hon. Lady, and from her right hon. and learned Friend, is rhetoric provided by Saatchi and Saatchi, perorations produced by Tom Utley, Patrick Cosgrave, Paul Johnson, Uncle Tom Cobleigh and all. But for policy all we get is that she will offer anyone anything to buy votes. Something for nothing—that is the programme on which she will fight the next election. She preaches moderation and responsibility. yet she will not accept the responsibility herself for doing or suggesting anything which will be unpopular with anyone.

That, of course, is why we have had this deathbed conversion to incomes policy in the past three days. It is because the right hon. Lady thinks—she has seen the opinion polls—that it might be popular. She has dropped the position she has been holding for the past four years and switched it round for the duration of the General Election. Befote the General Election was as close as she now thinks it is— she could be wrong about that; is not that so, Prime Minister?— she dedicated herself to a rigid, theological monetarism which rejected compassion and co-operation.

The attitude which the right hon. and learned Member for Surrey, East expressed in this House a year ago when we debated the last pay policy—which he now says was such a wonderful idea—was typical. I ask him again, does he still believe that pay policy is: an onslaught on the British people's standard of living and freedom generated and forced down their throats by ageing, doctrinaire, prejudiced Socialist trade union leaders"? When I ask the right hon. and learned Gentleman this question he suddenly finds himself engaged in a passionate conversation with whomever happens to be sitting on his right—and occasionally on his left.

The fact is that behind the desperate opportunism which determines all the actions of the Tory Party at the moment there is a deep psychological obsession with conflict and confrontation which has driven the right hon. Lady, in one area of policy after another, to an extremism

which is profoundly hostile to the moderation and responsibility which, for the next few months, she hopes to be able to preach. We were able to see that the other day on television. Abroad she plans to confront Russia, Cuba and the United States. She will take them all on. At home she wants to confront the immigrant population, the Scots, the Welsh and the Irish. In industry she wants to take on the CBI and the TUC at the same time.

The fact is that, however much the right hon. Lady may attempt to fudge her attitudes during the period before the next General Election, her basic position is a recipe for anarchy in this country and the people of the country will reject it.

We have been present at a historical occasion today. We have heard this afternoon the last speech which will be made in this House by the right hon. Lady—if she is right about the date of the General Election—as Leader of the Conservative Party. The axes and the knives are already being sharpened. The sheepdog is playing for the policemen's votes, the right hon. Member for Chesham and —Amersham (Sir I. Gilmour) is playing for the Armed Forces' votes and the anti-American vote, while the right hon. Member for Cambridgeshire (Mr. Pym) is fighting for the federalist vote. They are all shooting off in their own different directions—the sign of a party in the last stages of decay. It is the sign of a party which is riding to certain defeat when it next has the chance to meet the British people.

I ask the House to reject the amendment and to pass the Government motion.

Question put, That the amendment be made:

The House divided: Ayes 287, Noes 304.

Division No. 310]	AYES	[10.00 p.m.
Adley, Robert	Berry, Hon Anthony	Buchanan-Smith, Alick
Aitken, Jonathan	Biffen, John	Buck, Antony
Alison, Michael	Biggs-Davison, John	Budgen, Nick
Amery, Rt Hon Julian	Blaker, Peter	Bulmer, Esmond
Arnold, Tom	Body, Richard	Butler, Adam (Bosworth)
Atkins, Rt Hon H. (Spelthorne)	Boscawen, Hon Robert	Carlisle, Mark
Atkinson, David (B'mouth, East)	Bottomley, Peter	Chalker, Mrs Lynda
Awdry, Daniel	Bowden, A. (Brighton, Kemptown)	Channon, Paul
Bain, Mrs Margaret	Boyson, Dr Rhodes (Brent)	Churchill, W. S.
Baker, Kenneth	Braine, Sir Bernard	Clark, Alan (Plymouth, Sutton)
Banks, Robert	Brittan, Leon	Clark, William (Croydon S)
Bell, Ronald	Brocklebank-Fowler, C.	Clarke, Kenneth (Rushclifte)
Bendall, Vivian	Brooke, Hon Peter	Clegg, Walter
Bennett, Sir Frederic (Torbay)	Brotherton, Michael	Cockcroft, John
Bennett, Dr Reginald (Fareham)	Brown, Sir Edward (Bath)	Cooke, Robert (Bristol W)
Bonyon, W.	Bryan, Sir Paul	Cope, John
Cormack, Patrick	Jenkin, Rt Hon P. (Wanst'd&W'df'd)	Rathbone, Tim
Costain, A. P.	Johnson Smith, G (E Grinstead)	Rees, Peter (Dover & Deal)
Craig, Rt Hon W. (Belfast E)	Jones, Arthur (Daventry)	Rees-Davies, W. R.
Crawford, Douglas	Jopling, Michael	Reid, George
Critchley, Julian	Joseph, Rt Hon Sir Keith	Renton, Rt Hon Sir D. (Hunts)
Crouch, David	Kaberry, Sir Donald	Renton, Tim (Mid-Sussex)
Crowder, F. P	Kellett-Bowman, Mrs Elaine	Rhodes James, R.
Davies, Rt Hon J. (Knutstord)	Kershaw, Anthony	Rhys Williams, Sir Brandon
Dean, Paul (N Somerset)	Kilfedder, James	Ridley, Hon Nicholas
Dodsworth, Geoffrey	Kimball, Marcus	Ridsdale, Julian
Douglas-Hamilton, Lord James	King, Evelyn (South Dorset)	Rifkind, Malcolm
Drayson, Burnaby	King Tom (Bridgwater)	Rippon, Rt Hon Geoffrey
du Cann, Rt Hon Edward	Kitson. Sir Timothy	Roberts, Wyn (Conway)
Durant, Tony	Knight, Mrs. Jill	Rodgers, Sir John (Sevenoaks)
Dykes, Hugh	Knox, David	Ross, William (Lordonderry)
Eden, Rt Hon Sir John	Lamont, Norman	Rossi, Hugh (Hornsey)
Edwards, Nicholas (Pembroke)	Langford-Holt, Sir John	Rost, Peter (SE Derbyshire)
Elliott, Sir William	Latham, Michael (Melton)	Royle, Sir Anthony
Emery, Peter	Lawrence, Ivan	Sainsbury, [...]im
Ewing, Mrs Winifred (Moray)	Lawson, Nigel	St. John-Sieves, Norman
Eyre, Reginald	Lester, Jim (Beeston)	Scott, Nicholas
Fairbairn, Nicholas	Lewis, Kenneth (Rutland)	Scott-Hopkins, James
Fairgrieve, Russell	Lloyd, Ian	Shaw, Giles (Pudsey)
Farr, John	Loveridge, John	Shaw, Michael (Scarborough)
Felt, Anthony	Luce, Richard	Shelton, William (Streatham)
Finsberg, Geoffrey	McCrindle, Robert	Shepherd, Colin
Fisher, Sir Nigel	McCusker, H.	Shersby, Michael
Fletcher, Alex (Edinburgh N)	Macfarlane, Neil	Silvester, Fred
Fletcher-Cooke, Charles	MacGregor, John	Sims, Roger
Fookes, Miss Janet	MacKay, Andrew (Stechford)	Sinclair, Sir George
Forman, Nigel	Macmillan, Rt Hon M. (Farnham)	Skeet, T. H. H.
Fowler, Norman (Sutton C'f'd)	McNair-Wilson, M. (Newbury)	Smith, Dudley (Warwick)
Fox, Marcus	McNair-Wilson, P. (New Forest)	Smith, Timothy John (Ashfield)
Fraser, Rt Hon H. (Stafford & St)	Model, David	Speed, Keith
Fry, Peter	Marshall, Michael (Arundel)	Spence, John
Galbraith, Hon T. G. D.	Marten, Neil	Spicer, Jim (W Dorset)
Gardiner, George (Reigate)	Mates, Michael	Spicer, Michael (S Worcester)
Gardner, Edward (S Fylde)	Mather, Carol	Sproat, Iain
Gilmour, Rt Hon Sir Ian (Chesham)	Maude, Angus	Stainton, Keith
Gilmour, Sir John (East Fife)	Maudling, Rt Hon Reginald	Stanbrook, Ivor
Glyn, Dr Alan	Mawby, Ray	Stanley, John
Godber, Rt Hon Joseph	Maxwell-Hyslop, Robin	Steen, Anthony (Wavertree)
Goodhart, Philip	Mayhew, Patrick	Stewart, Ian (Hitchin)
Goodhew, Victor	Meyer, Sir Anthony	Stokes, John
Goodlad Alastair	Miller, Hal (Bromsgrove)	Stradling Thomas, J.
Gorst, John	Mills, Peter	Tapsell, Peter
Gow, Ian (Eastbourne)	Miscampbell, Norman	Taylor, R. (Croydon NW)
Gower, Sir Raymond (Barry)	Mitchell, David (Basingstoke)	Taylor, Teddy (Carthcart)
Grant, Anthony (Harrow C)	Moats, Roger	Tebbit, Norman Temple-Morris, Peter
Gray, Hamish	Molyneaux, James	Thatcher, Rt Hon Margaret
Grieve, Percy	Monro, Hector	Thomas, Rt Hon P. (Hendon S)
Griffiths, Eldon	Montgomery, Fergus	Thompson, George
Grist, Ian	Moore, John (Croydon C)	Townsend, Cyril D.
Grylls, Michael	More, Jasper (Ludlow)	Trotter, Neville
Hall-Davis, A. G. F.	Morgan, Geraint	van Straubenzee, W. R.
Hamilton, Archibald (Epsom & Ewell)	Morgan-Giles, Rear-Admiral	Vaughan, Dr Gerard
Hamilton, Michael (Salisbury)	Morris, Michael (Northampton S)	Viggers, Peter
Hampson, Dr Keith	Morrison, Charles (Devizes)	Wakeham, John
Hannam, John	Netive, Airey	Welder, David (Clitheroe)
Harvie Anderson, Rt Hon Miss	Nelson, Anthony	Walker, Rt Hon P. (Worcester)
Haselhurst, Alan	Neubert, Michael	Walker-Smith, Rt Hon Sir Derek
Hastings, Stephen	Newton, Tony	Walters, Dennis
Havers, Rt Hon Sir Michael	Normanton, Tom	Warren, Kenneth
Hawkins, Paul	Noll, John	Watt, Hamish
Hayhoe, Barney	Onslow, Cranley	Weatherill, Bernard
Heath, RI Hon Edward	Oppenheim, Mrs Sally	Wells, John
Henderson, Douglas	Osborn, John	Welsh, Andrew
Heseltine, Michael	Page, John (Harrow West)	Whitelaw, Rt Hon William
Hicks, Robert	Page, Rt Hon R. Graham (Crosby)	Whitney, Raymond
Higgins, Terence L.	Page, Richard (Wokington)	Wiggins, Jerry
Hodgson, Robin	Parkinson, Cecil	Wilson, Gordon (Dundee E)
Holland, Philip	Pattie, Geoffrey	Winterton, Nicholas
Hordern, Peter	Percival, Ian	Wood, Rt Hon Richard
Howe, Rt Hon Sir Geoffrey	Peyton, Rt Hon John
Howell, David (Guildford)	Pink, R. Bonner	Young, Sir G. (Ealing, Acton)
Howell, Ralph (North Norfolk)	Powell, Rt Hon J. Enoch
Hunt, David (Wirral)	Prentice, Rt Hon Reg	Younger, Hon George
Hunt, John (Ravensbourne)	Price, William (Rugby)
Hurd, Douglas	Prior, Rt Hon James	TELLERS FOR THE AYES:
Hutchison, Michael Clark	Pym, Rt Hon Francis	Mr. Spencer Le Merchant and
Irving, Charles (Cheltenham)	Raison, Timothy	Mr. Michael Roberts.
James, David

NOES
Abse, Leo	Faulds, Andrew	McGuire, Michael (Ince)
Allaun, Frank	Fernyhough, Rt Hon E.	MacKenzie, Rt Hon Gregor
Anderson, Donald	Fitch, Alan (Wigan)	Maclennan, Robert
Archer, Rt Hon Peter	Fitt, Gerard (Belfast W)	McMillan, Tom (Glasgow C)
Armstrong, Ernest	Flannery, Martin	Madden, Max
Ashley, Jack	Fletcher, Ted (Darlington)	Magee, Bryan
Ashton, Joe	Foot, Rt Hon Michael	Maguire, Frank (Fermanagh)
Atkins, Ronald (Preston N)	Ford, Ben	Mallalieu, J. P. W.
Atkinson, Norman (H'gey, Tott'ham)	Forrester, John	Marks, Kenneth
Bagier, Gordon A. T.	Fowler, Gerald (The Wrekin)	Marshall, Dr Edmund (Goole)
Barnett, Guy (Greenwich)	Fraser, John (Lambeth, N'w'd)	Marshall, Jim (Leicester S)
Barnett, Rt Hon Joel (Heywood)	Freeson, Rt Hon Reginald	Mason, Rt Hon Roy
Bean, R. E.	Freud, Clement	Maynard, Miss Joan
Beith, A. J.	Garrett, John (Norwich S)	Meacher, Michael
Benn, Rt Hon Anthony Wedgwood	Garrett, W. E. (Wallsend)	Mellish, Rt Hon Robert
Bennett, Andrew (Stockport N)	George, Bruce	Mikardo, Ian
Bidwell, Sydney	Gilbert, Rt Hon Dr John	Milian, Rt Hon Bruce
Bishop, Rt Hon Edward	Ginsburg, David	Miller, Dr M. S. (E Kilbride)
Blenkinsop, Arthur	Golding, John	Mitchell, Ausitn (Grimsby)
Boardman, H.	Gould, Bryan	Mitchell, R. C. (Solon, Itchen)
Booth, Rt Hon Albert	Gourlay, Harry	Molloy, William
Boothroyd, Miss Betty	Graham, Ted	Moonman, Eric
Bottomley, Rt Hon Arthur	Grant, John (Islington C)	Morris, Alfred (Wythenshawe)
Boyden, James (Bish Auck)	Grimund, Rt Hon J.	Morris, Rt Hon Charles R.
Bradley, Tom	Grocott, Bruce	Morris, Rt Hon J. (Aberavon)
Bray, Dr Jeremy	Hamilton, W. W. (Central Fife)	Morton, George
Brown, Robert C.(Newcastle W)	Hardy, Peter	Moyle, Rt Hon Roland
Brown, Ronald (Hackney S)	Harrison, Rt Hon Walter	Mulley, Rt Hon Frederick
Buchan, Norman	Hart, RI Hon Judith	Murray, Rt Hon Ronald King
Buchanan, Richard	Hattersley, Rt Hon Roy	Newens, Stanley
Butler, Mrs Joyce (Wood Green)	Hayman, Mrs Helene	Noble, Mike
Callaghan, Rt Hon J. (Cardiff SE)	Healey, Pt Hon Denis	Oakes, Gordon
Callaghan, Jim (Middleton & P)	Heffer, Eric S.	Ogden, Eric
Campbell, Ian	Hooley, Frank	O'Halloran, Michael
Canavan, Dennis Cant, R. B.	Hooson, Emlyn	Orbach, Maurice
Carmichael, Nell	Horam, John	Orme, Rt Hon Stanley
Carter, Ray	Howell, Rt Hon Denis (B'ham, Sm H)	Ovenden, John
Carter-Jones, Lewis	Hoyle, Doug (Nelson)	Owen, Rt Hon Dr David
Cartwright, John	Huckfield, Les	Padley, Walter
Castle, Rt Hon Barbara	Hughes, Rt Hon C. (Anglesey)	Palmer, Arthur
Clemitson, Ivor	Hughes, Robert (Aberdeen N)	Pardoe, John
Cocks, Rt Hon Michael (Bristol S)	Hughes, Roy (Newport)	Park, George
Cohen, Stanley	Hunter, Adam	Parker, John
Coleman, Donald	Irvine, Rt Hon Sir A. (Edge Hill)	Parry, Robert
Concannon, Rt Hon John	Irving, Rt Hon S. (Dartford)	Pavitt, Laurie
Conlon, Bernard	Jackson, Colin (Brighouse)	Pendry, Tom
Cook, Robin F. (Edin C)	Jackson, Miss Margaret (Lincoln)	Penhaligon, David
Corbett, Robin	Danner, Greville	Perry, Ernest
Cowans, Harry	Jay, Rt Hon Douglas	Phipps, Dr Colin
Craigen, Jim (Maryhill)	Jeger, Mrs Lena	Prescott, John
Crawshaw, Richard	Jenkins, Hugh (Putney)	Price, C. (Lewisham W)
Cronin, John	Johnson, James (Hull West)	Price, William (Rugby)
Crowther, Stan (Rotherham)	Johnson, Walter (Derby S)	Radice, Giles
Cryer, Bob	Johnston, Russell (Inverness)	Rees, Rt Hon Merlyn (Leeds S)
Cunningham, G. (Islington S)	Jones, Alec (Rhondda)	Richardson, Miss Jo
Cunningham, Dr J. (Whiten)	Jones, Barry (East Flint)	Roberts, Albert (Normanton)
Dalyell, Tam	Jones, Dan (Burnley)	Robors, Gwilym (Cannock)
Davidson, Arthur	Judd, Frank	Robertson, George (Hamilton)
Davies, Bryan (Enfield N)	Kaufman, Rt Hon Gerald	Robinson, Geoffrey
Davies, Rt Hon Denzil	Kelley, Richard	Roderick, Caerwyn
Davies, Ifor (Gower)	Kerr, Russell	Rodgers, George (Chorley)
Davis, Clinton (Hackney C)	Kilroy-Silk, Robert	Rodgers, Rt Hon William (Stockton)
Deakins, Eric	Kinnoch, Neil	Rooker, J. W.
Dean, Joseph (Leeds West)	Lambie, David	Roper, John
de Freitas, Rt Hon Sir Geoffrey	Lamborn, Harry	Ross, Stephen (Isle of Wight)
Dell, Rt Hon Edmund	Lamond, James	Ross, Rt Hon. W. (Kilmarnock)
Dempsey, James	Latham, Arthur (Paddington)	Rowlands, Ted
Dewar, Donald	Leadbitter, Ted	Ryman, John
Doig, Peter	Lee, John	Sandelson, Neville
Dormand, J. D.	Lestor, Misr Joan (Eton & Slough)	Sedgemore, Brian
Douglas-Mann, Bruce	Lever, Rt Hon Harold	Selby Harry
Duffy, A. E. P.	Lewis, Arthur (Newham N)	Sever, John
Dunnett, Jack	Lewis, Ron (Carlisle)	Shaw, Arnold (Ilford South)
Dunwoody, Mrs Gwyneth	Litterick, Tom	Sheldon, Rt Hon Robert
Eadie, Alex	Loyden, Eddie	Shore, Rt Hon Peter
Edge, Geoff	Luard, Evan	Short, Mrs Renee (Wolv NE)
Edwards, Robert (Wolv SE)	Lyon, Alexander (York)	Silkin, Rt Hon John (Deptford)
Ellis, John (Brigg & Scun)	Lyons, Edward (Bradford W)	Silkin, Rt Hon S. C. (Dulwich)
Ellis, Tom (Wrexham)	Mabon, Rt Hon Dr J. Dickson	Silverman, Julius
English, Michael	McCartney, Hugh	Skinner, Dennis
Evans, Fred (Caerphilly)	McDonald, Dr Oonagh	Smith, Cyril (Rochdale)
Evans, Ioan (Aberdare)	McElhone, Frank	Smith, Rt Hon (N Lanarkshire)
Evans, John (Newton)	McKay, Allen (Penistone)	Snape Peter
Ewing, Horry (Stirling)	MacFarquhar, Roderick	Spearing, Nigel

Spriggs, Leslie	Tomlinson, John	Whitehead, Phillip
Stallard, A. W.	Tomney, Frank	Whitlock, William
Steel, Rt Hon David	Torney, Tom	Willey, Rt Hon Frederick
Stewart, Rt Hon M. (Fulham)	Tuck, Raphael	Williams, Rt Hon Alan (Swansea W)
Stoddart, David	Unwin, T. W.	Williams, Alan Lee (Hornch'ch)
Stott, Roger	Varley, Rt Hon Eric G.	Williams, Rt Hon Shirley (Hertford)
Strang, Gavin	Wainwright, Edwin (Dearne V)	Williams, Sir Thomas (Warrington)
Strauss, Rt Hon R. G.	Wainwright, Richard (Colne V)	Wilson, Rt Hon Sir Harold (Huyton)
Summerskill, Hon Dr Shirley	Walker, Harold (Doncaster)	Willson, William (Coventry SE)
Swain, Thomas	Walker, Terry (Kingswood)	Wise, Mrs Audrey
Taylor, Mrs Ann (Bolton W)	Ward, Michael	Woodall, Alec
Thomas, Jeffrey (Abertillery)	Watkins, David	Woof, Robert
Thomas, Mike (Newcastle E)	Watkinson, John	Wrigglesworth, Ian
Thomas, Ron (Bristol NW)	Weetch, Ken	Young, David (Eolton E)
Thorne, Stan (Preston South)	Weitzman, David
Thorpe, Rt Hon Jeremy (N Devon)	Wellbeloved, James	TELLERS FOR THE NOES:
Tierney, Sydney	White, Frank R. (Bury)	Mr. James Hamilton and Mr. Alf Bates.
Tilley, John	White, James (Pollok)

Question accordingly negatived.

Main Question put:—

The House divided: Ayes 296, Noes 281.

Division No. 311]	AYES	[10.15 p.m.
Abse, Leo	Cryer, Bob	Grocott, Bruce
Allaun, Frank	Cunningham, G. (Islington S)	Hamilton, James (Bothwell)
Anderson, Donald	Cunningham, Dr J. (Whiteh)	Hamilton, W. W. (Central Fife)
Archer, Rt Hon Peter	Dalyeli, Tam	Hardy, Peter
Armstrong, Ernest	Davidson, Arthur	Harrison, Rt Hon Walter
Ashley, Jack	Davies, Bryan (Enfield N)	Hart, Rt Hon Judith
Ashton, Joe	Davies, Rt Hon Denzil	Hattersley, Rt Hon Rop
Atkins, Ronald (Preston N)	Davies, nor (Gower)	Hayman, Mrs Helene
Atkinson, Norman (H'gey, Tott'ham)	Davis, Clinton (Hackney C)	Healey, Rt Hon Denis
Bagier, Gorden A. T.	Deakins, Eric	Helfer, Eric S.
Barnett, Guy (Greenwich)	de Freitas, Rt Hon Sir Geoffrey	Hooley, Frank
Barnett, Rt Hon Joel (Heywood)	Dell, Rt Hon Edmund	Hooson, Emlyn
Bates, Alf	Dempsey, James	Horam, John
Bean, R. E.	Dewar, Donald	Howell, Rt Hon Denis (B'ham, Sm H)
Beith, A. J.	Doig, Peter	Hoyle, Doug (Nelson)
Benn, Rt Hon Anthony Wedgwood	Dormand, J. D.	Huckfield, Les
Bennett, Andrew (Stockport N)	Douglas-Mann, Bruce	Hughes, Rt Hon C. (Anglesey)
Bishop, Rt Hon Edward	Duffy, A. E. P	Hughes, Robert (Aberdeen N)
Blenkinsop, Arthur	Dunnett, Jack	Hughes, Roy (Newport)
Boardman, H.	Dunwoody, Mrs Gwyneth	Hunter, Adam
Booth, Rt Hon Albert	Eadie, Alex	Irvine, Rt Hon Sir A. (Edge HIII)
Boothroyd, Miss Betty	Edge, Geoff	Irving, Rt Hon S. (Dartford)
Bottomley, Rt Hon Arthur	Edwards, Robert (Wolv SE)	Jackson, Colin (Brighouse)
Boyden, James (Bish Auck)	Ellis, John (Brigg & Scun)	Jackson, Miss Margaret (Lincoln)
Bradley, Tom	Ellis, Tom (Wrexham)	Janner, Greville
Bray, Dr Jeremy	English, Michael	Jay, Rt Hon Douglas
Brown, Robert C. (Newcastle W)	Evans, Fred (Caerphilly)	Jeger, Mrs Lena
Brown, Ronald (Hackney S)	Evans, Ioan (Aberdare)	Jenkins, Hugh (Putney)
Buchan, Norman	Evans, John (Newton)	Johnson, James (Hull West)
Buchanan, Richard	Ewing, Harry (Stirling)	Johnson, Walter (Derby S)
Butler, Mrs Joyce (Wood Green)	Faulds, Andrew	Johnston, Russell (Inverness)
Callaghan, Rt Hon J. (Cardiff SE)	Fernyhough, Rt Hon E.	Jones, Alec (Rhondda)
Callaghan, Jim (Middleton & P)	Fitch, Alan (Wigan)	Jones, Barry (East Flint)
Campbell, Ian	Fitt, Gerard (Belfast W)	Jones, Dan (Burnley)
Canavan, Dennis	Flannely, Martin	Judd, Frank
Cant, R. B.	Fletcher, Ted (Darlington)	Kaufman, Rt Hon Gerald
Carmichael, Neil	Foot, Rt Hon Michael	Kelliey, Richard
Carter, Ray	Ford, Ben	Kerr, Russell
Carter-Jones, Lewis	Forrester, John	Kilroy-Silk, Robert
Cartwright, John	Fowler, Gerald (The Wrekin)	Kinnock, Nell
Castle, Rt Hon Barbara	Fraser, John (Lambeth, N'w'd)	Lemble, David
Clemitson, Ivor	Freesen, Rt Hon Reginald	Lamborn, Harry
Cocks, Rh Hon Michael (Bristol S) Cohen, Stanley	Freud, Clement	Lamend, James
Concannon, Rt Hon John	Garrett, John (Norwich S)	Leadbitter, Ted
Conlan, Bernard	Garrett, W. E. (Walisend)	Lee, John
Cook, Robin F. (Edin C)	George, Bruce	Lestor, Miss Joan (Eton & Slough)
Corbett, Robin	Gilbert, Rt Hon Dr John	Lever, Rt Hon Harold
Cowans, Harry	Golding, John	Lewis, Ron (Carlisle)
Craigen, Jim (Maryhill)	Gould, Bryan	Litterlek, Tom
Crawshaw, Richard	Gourley, Harry	Luard, Evan
Cronin, John	Graham, Ted	Lyon, Alexander (York)
	Grant, John (Islington C)	Lyons, Edward (Bradford W)
Crowther, Stan (Rotherham)	Grimond, Rt Hon J.	Mabon, Rt Hon Dr J. Dickson

McCartney, Hugh	Parker, John	Strang, Gavin
McDonald, Dr Oonagh	Parry, Robert	Strauss, Rt Hon R. G.
McElhone, Frank	Pavitt, Laurie	Summerskill, Hon Dr Shirley
McKay, Allen (Penistone)	Pendry, Tom	Swain, Thomas
MacFarquhar, Roderick	Penhaligon, David	Taylor, Mrs Ann (Bolton W)
McGuire, Michael (Ince)	Perry, Ernest	Thomas, Jeffrey (Abertillery)
MacKenzie, Rt Hon Gregor	Phipps, Dr Colin	Thomas, Mike (Newcastle E)
Maclennan, Robert	Prescott, John	Thorpe, Rt Hon Jeremy (N Devon)
McMillan, Tom (Glasgow C)	Price, C. (Lewisham W)	Tierney, Sydney
Madden, Max	Price, William (Rugby)	Tilley, John
Magee, Bryan	Radice, Giles	Tinn, James
Maguire, Frank (Fermanagh)	Rees, Rt Hon Merlyn (Leeds S)	Tomlinson, John
Mallalieu, J. P. W.	Richardson, Miss Jo	Tomney, Frank
Marks, Kenneth	Roberts, Albert (Normanton) Roberts, Gwilym (Cannock)	Torney, Tom
Marshall, Dr Edmund (Goole)	Robertson, George (Hamilton)	Tuck, Raphael
Marshall, Jim (Leicester S)	Robinson, Geoffrey	Unwin, T. W.
Mason, Rt Hon Roy	Roderick, Caerwyn	Varley, Rt Hon Eric G.
Meacher, Michael	Rodgers, George (Chorley)	Wainwright, Edwin (Dearne V)
Mellish, Rt Hon Robert	Rodgers, Rt Hon William (Stockton)	Wainwright, Richard (Calne V)
Mikardo, Ian	Rooker, J. W.	Walker, Harold (Doncaster)
Milian, Rt Hon Bruce	Roper, John	Walker, Terry (Kingswood)
Miller, Dr M. S. (E Kilbride)	Ross, Stephen (Isle of Wight)	Ward, Michael
Mitchell, Ausitn (Grimsby)	Ross, RI Hon W. (Kilmarnock)	Watkins, David
Mitchell, R. C. (Soton, Itchen)	Rowlands, Ted	Watkinson, John
Molloy, William	Ryman, John	Weetch, Ken
Moonman, Eric	Sandelson, Neville	Weitzman, David
Morris, Alfred (Wythenshawe)	Sedgemore, Brian	Wellbeloved, James
Morris, Rt Hon Charles R.	Selby, Harry	White, Frank R. (Bury)
Morris, Rt Hon J. (Aberavon)	Sever, John	White, James (Pollok)
Morton, George	Shaw, Arnold (Ilford South)	Whitehead, Phillip
Moyle, Rt Hon Roland	Sheldon, Rt Hon Robert	Whitlock, William
Mulley, Rt Hon Frederick	Shore, Rt Hon Peter	Willey, Rt Hon Frederick
Murray, Rt Hon Ronald King	Short, Mrs Renée (Wolv NE)	Williams, Rt Hon Alan (Swansea W)
Newens, Stanley	Silkin, Rt Hon John (Deptford)	Williams, Alan Lee (Hornch'ch)
Noble, Mike	Silkin, Rt Hon S. C. (Dulwich)	Williams, Rt Hon Shirley (Hertford)
Oakes, Gordon	Silverman, Julius	Williams, Sir Thomas (Warrington)
Ogden, Eric	Smith, Cyril (Rochdale)	Wilson, Rt Hon Sir Harold (Huyton)
O'Halloran, Michael	Smith, Rt Hon (N Lanarkshire)	Willson, William (Coventry SE)
Orbach, Maurice	Snape, Peter	Wise, Mrs Audrey
Orme, Rt Hon Stanley	Spearing, Nigel	Woodall, Alec
Ovenden, John	Spriggs, Leslie	Woof, Robert
Owen, Rt Hon Dr David	Stallard, A. W.	Wrigglesworth, Ian
Padley, Walter	Steel, Rt Hon David	Young, David (Bolton E)
Palmer, Arthur	Stewart, Rt Hon M. (Fulham)	TELLERS FOR THE AYES:
Pardoe, John	Stoddart, David	Mr. Donald Coleman and
Park, George	Stott, Roger	Mr. Joseph Dean.

NOES
Adley, Robert	Butler, Adam (Bosworth)	Fell, Anthony
Aitken, Jonathan	Carlisle, Mark	Finsberg, Geoffrey
Alison, Michael	Chalker, Mrs Lynda	Fisher, Sir Nigel
Amery, Rt Hon Julian	Channon, Paul	Fletcher, Alex (Edinburgh N)
Arnold, Tom	Churchill, W. S.	Fletcher-Cooke, Charles
Atkins, Rt Hon H. (Spelthorne)	Clark, Alan (Plymouth, Sutton)	Fookes, Miss Janet
Atkinson, David (B'mouth, East)	Clark, William (Croydon S)	Ferman, Nigel
Awdry, Daniel	Clarke, Kenneth (Rushcliffe)	Fowler, Norman (Sutton C'f'd)
Bain, Mrs Margaret	Clegg, Walter	Fox, Marcus
Baker, Kenneth	Cockcroft, John	Fraser, Rt Hon H. (Stafford & St)
Banks, Robert	Cooke, Robert (Bristol W)	Fry, Peter
Bell, Ronald	Cope, John	Galbraith, Hon T. G. D.
Bendall, Vivian	Cormack, Patrick	Gardiner, George (Reigate)
Bennett, Sir Frederic (Torbay)	Costain, A. P.	Gardner, Edward (S Fylde)
Bennett, Dr Reginald (Fareham)	Crawford, Douglas	Gilmour, Rt Hon Sir Ian (Chesham)
Benyon, W.	Critchley, Julian	Gilmour, Sir John (East Fife)
Berry, Hon Anthony	Crouch, David	Glyn, Dr Alan
Biffen, John	Crowder, F. P.	Godber, Rt Hon Joseph
Biggs-Davison, John	Davies, Rt Hon J. (Knutsford)	Goodhart, Philip
Blaker, Peter	Dean, Paul (N Somerset)	Goodhew, Victor
Body, Richard	Dodsworih, Geoffrey	Goodlad, Alastair
Boscawen, Hon Robert	Douglas-Hamilton, Lord James	Gorst, John
Bottomley, Peter	Drayson, Burnaby	Gow, Ian (Eastbourne)
Bowden, A. (Brighton, Kemptown)	du Cann, Rt Hon Edward	Gower, Sir Raymond (Barry)
Boyson, Dr Rhodes (Brent)	Durant, Tony	Grant, Anthony (Harrow C)
Braine, Sir Bernard	Dykes, Hugh	Gray, Hamish
Britian, Leon	Eden, Fit Hon Sir John	Grieve, Percy
Brocklebank-Fowler, C.	Edwards, Nicholas (Pembroke)	Griffiths, Eldon
Brooke, Hon Peter	Elliott, Sir William	Grist, Ian
Brotherton, Michael	Emery, Peter	Grylis, Michael
Brown, Sir Edward (Bath)	Ewing, Mrs Winifred (Moray)	Hall-Davis, A. G. F.
Buchanan-Smith, Alick	Eyre, Reginald	Hamilton, Archibald (Epsom & Ewell)
Buck, Antony	Fairbairn, Nicholas	Hamilton, Michael (Salisbury)
Budgen, Nick	Fairgrieve, Russell	Hampson, Dr Keith
Buller, Esmond	Farr, John	Hannam, John

Harvie Anderson, Rt Hon Miss	Maude, Angus	Scott, Nicholas
Haselhurst, Alan	Maudling, Rt Hon Reginald	Scott-Hopkins, James
Hastings, Stephen	Mawby, Ray	Shaw, Giles (Pudsey)
Havers, Rt Hon Sir Michael	Maxwell-Hyslop, Robin	Shaw, Michael (Scarborough)
Hawkins, Paul	Mayhew, Patrick	Shelton, William (Streatham)
Hayhoe, Barney	Meyer, Sir Anthony	Shepherd, Colin
Heath, Rt Hon Edward	Miller, Hal (Bromsgrove)	Shersby, Michael
Henderson, Douglas	Mills, Peter	Silvester, Fred
Heseltine, Michael	Miscampbell, Norman	Sims, Roger
Hicks, Robert	Mitchell, David (Basingstoke)	Sinclair, Sir George
Higgins, Terence L.	Moate, Roger	Skeet, T. H. H.
Hodgson, Robin	Monro, Hector	Smith, Dudley (Warwick)
Holland, Philip	Montgomery, Fergus	Smith, Timothy John (Ashfield)
Hordern, Peter	Moore, John (Croydon C)	Speed, Keith
Howe, Rt Hon Sir Geoffrey	More, Jasper (Ludlow)	Spence, John
Howell, David (Guildford)	Morgan, Geraint	Spicer, Jim (W Dorset)
Howell, Ralph (North Norfolk)	Morgan-Giles, Rear-Admiral	Spicer, Michael (S Worcester)
Hunt, David (Wirral)	Morris, Michael (Northampton S)	Sproat, Iain
Hunt, John (Ravensbourne)	Morrison, Charles (Devizes)	Stainton, Keith
Hurd, Douglas	Neave, Airey	Stanbrook, Ivor
Hutchison, Michael Clark	Nelson, Anthony	Stanley, John
Irving, Charles (Cheltenham)	Neubert, Michael	Steen, Anthony (Wavertree)
James, David	Newton, Tony	Stewart, Ian (Hitchin)
Jenkin, Rt Hon P. (Wanst'd&W'df'd)	Normanton, Tom	Stokes, John
Johnson Smith, G (E Grinstead)	Nott, John	Stradling Thomas, J.
Jones, Arthur (Daventry)	Onslow, Cranley	Tapsell, Peter
Jopling, Michael	Oppenheim, Mrs Sally	Taylor, R. (Croydon NW)
Joseph, Rt Hon Sir Keith	Osborn, John	Taylor, Teddy (Carthcart)
Kaberry, Sir Donald	Page, John (Harrow West)	Tebbit, Norman
Kellett-Bowman, Mrs Elaine	Page, Rt Hon R. Graham (Crosby)	Temple-Morris, Peter
Kershaw, Anthony	Page, Richard (Wokington)	Thatcher, Rt Hon Margaret
Kilfedder, James	Parkinson, Cecil	Thomas, Rt Hon P. (Hendon S)
Kimball, Marcus	Pattie, Geoffrey	Thompson, George
King, Evelyn (South Dorset)	Percival, Ian	Townsend, Cyril D.
King Tom (Bridgwater)	Peyton, Rt Hon John	Trotter, Neville
Kitson, Sir Timothy	Pink, R. Bonner	van Straubenzee, W. R.
Knight, Mrs. Jill	Prentice, Rt Hon Reg	Vaughan, Dr Gerard
Knox, David	Price, David (Eastleigh)	Viggers, Peter
Lamont, Norman	Prior, Rt Hon James	Wakeham, John
Langford-Holt, Sir John	Pym, Rt Hon Francis	Walder, David (Clitheroe)
Latham, Michael (Melton)	Raison, Timothy	Walker, Rt Hon P. (Worcester)
Lawrence, Ivan	Rathbone, Tim	Walker-Smith, Rt Hon Sir Derek
Lawson, Nigel	Rees, Peter (Dover & Deal)	Walters, Dennis
Lester, Jim (Beeston)	Rees-Davies, W. R.	Warren, Kenneth
Lewis, Kenneth (Rutland)	Reid, George	Watt, Hamish
Lloyd, Ian	Renton, Rt Hon Sir D. (Hunts)	Weatherill, Bernard
Loveridge, John	Renton, Tim (Mid-Sussex)	Wells, John
Luce, Richard	Rhodes James, R.	Welsh, Andrew
McCrindle, Robert	Rhys Williams, Sir Brandon	Whitelaw, Rt Hon William
Macfarlane, Neil	Ridley, Hon Nicholas	Whitney, Raymond
MacGregor, John	Ridsdale, Julian	Wiggins, Jerry
MacKay, Andrew (Stechford)	Rifkind, Malcolm	Wilson, Gordon (Dundee E)
Macmillan, Rt Hon M. (Farnnam)	Rippon, Rt Hon Geoffrey	Winterton, Nicholas
McNair-Wilson, M. (Newbury)	Roberts, Wyn (Conway)	Wood, Rt Hon Richard
McNair-Wilson, P. (New Forest)	Rodgers, Sir John (Sevenoaks)	Young, Sir G. (Ealing, Acton)
Madel, David	Rossi, Hugh (Hornsey)	Younger, Hon George
Marshall, Michael (Arundel)	Rost, Peter (SE Derbyshire)
Marten, Neil	Royle Sir Anthony	TELLERS FOR THE NOES:
Mates, Michael	Sainsbury, Tim	Mr. Spencer Le Marchant and
Mather, Carol	St. John-Stevas, Norman	Mr. Michael Roberts.

Question accordingly agreed to.

Resolved,

That this House welcomes the substantial progress already made in combating inflation as described in the White Paper (Winning the Battle Against Inflation) and recognises that a further sustained national effort is required to keep inflation under control as a basis for a healthy and productive, expanding economy capable of providing full employment and rising living standards for the British people.

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1. DIVIDENDS BILL 40 words