ECONOMIC SITUATION

HC Deb 14 June 1978 vol 951 cc1013-142

4.11 p.m.

Sir Geoffrey Howe (Surrey, East)

I beg to move, That the salary of Mr. Chancellor of the Exchequer should be reduced by half. We are dealing this afternoon with the man who over the last four years, under two successive Prime Ministers, has been in charge of the economy of this country. Looking at him alone, aside from the record of the Government, one begins by saying at once that there is little, if anything, of which he can be proud in the record of the last four years. Indeed, there appears to be so little confidence by the Prime Minister and his colleagues this afternoon in the capacity of the Chancellor to defend himself against that charge that no more than 60 minutes before this debate was due to begin we heard the astonishing intelligence that the debate was to be made an issue of confidence in the Government.

It is a remarkable development that, unwilling and unconfident of their capacity to defend the Chancellor in his own rights, at this eleventh hour the Government have decided to invoke the tattered remains of what is left of the Lib-Lab pact, seeking, so it seems, to save themselves by summoning the rats to rejoin the sinking ship and man the pumps.

Let us consider the record of the Chancellor. Let us begin with the moment when he last secured, or succeeded in obtaining, the confidence of the people of this country in the election of October 1974. The House will well remember that that was the time when he told the people of this country, with all the confidence which he can command, that inflation was then running at a rate of 8.4 per cent, a year.

My hon. Friend the Member for Blaby (Mr. Lawson) secured an interesting answer not many days ago from the Chief Secretary about calculating inflation on the basis of the figures over three months. The Chief Secretary had this to say: because it is based on such a short period, this figure is an unreliable indicator of current trend."—[Official Report, 24th May 1978; Vol. 950, c. 619.] It is wholly characteristic of the Chancellor of the Exchequer that he should have chosen precisely that basis on which to make his most well-remembered and most misleading boast to the people of this country. It is wholly right that he should be judged by that same standard today. Over the last three months on that same basis, after four years of the Chancellor's tenure of the Exchequer, inflation is still running at 11.2 per cent, a year.

A year after he made the boast, it was running at 26 per cent, a year. Over the last four years the price which the people of this country have had to pay for food has gone up by more than twofold, unemployment has risen from 600,000 to 1.3 million—that also has more than doubled—and production remains up by just 1 per cent, over four years as a result of the Chancellor's tenure of office. It is still well below what it was in 1973.

Only the Chancellor, after that kind of record, would have the gall now to seek to rescue his economic performance by urging the German economy to risk its stability by raising its annual rate of production from 3½ per cent, to 4½ per cent, a year. Only the Chancellor would dare to behave in that way. Even by the standards of his service to his own party, the Chancellor has failed to achieve anything of significance at all. Was 1978 not the year to which politicians were meant to be swimming for survival—the year in which any Government who had lasted this long would be able to bask in the surplus of North Sea oil revenue? Yet today's trade figures produce a current deficit on the month of May of £49 million and all the signs suggest that over the next year the Chancellor will be achieving a deficit over the entire year.

Even by the standards of those who sit behind him, who were at least hoping to be able to congratulate the Chancellor on having contrived to deliver a modest, bogus boomlet with which to beguile the people into returning this Government to office, the Chancellor has failed, because his policies announced last week have destroyed even that last hope.

For the nation the outcome has been a great deal worse. Over the last four years taxes per household have risen from £389 a year to £939 a year, even after taking credit for the cuts which we imposed only a month ago. They are up by more than £10 a week. Over the last four years the living standard, after payment of tax, of a building labourer has dropped by about 8 per cent., of a foreman in the building industry by about 27 per cent. and of a chief executive of some of our leading companies by up to 50 per cent. That is the standard by which the Chancellor should be judged.

The more valuable the contribution which a citizen has had to make to our economy, the more severely he has been punished by the Chancellor. He has succeeded only in laying the foundations for a stagnant economy and an impoverished society. The charge which we make against the Chancellor this afternoon is that this disastrous record is a consequence of a combination, fortunately so far unique in British history, of ignorance matched with incompetence and of recklessness matched with deceit. They are made even more unattractive because the Chancellor has acted out the whole sorry saga with an air of unrepentant arrogance which has made him as unappealing even to his own party as to those of us on this side of the House.

One of the interesting questions is what view the Liberal Party will take with regard to today's motion. The House will remember that the hon. Member for Cornwall, North (Mr. Pardoe), in an article in the News of the World on 9th April, pronounced his then verdict on the Chancellor. He said that the first three years of the Chancellor's performance have been the worst in economic history since the war. He added that it had been a saga of economic blunders, wrong forecasts, misplaced optimism, poor judgment and sheer wrong-headed dogmatism unmatched in modern times. That is quite a fair commentary. We now see today in that important organ of national opinion—Liberal News—the headline—which plainly sets out what we had understood to be the intention of the Liberal Party: Healey must go is call from Libs". Shall we see that clarion call delivered in the Division Lobby tonight? I wonder. One looks at the small print of the statement issued by the leader of the Liberal Party on the day of the announcement of the Chancellor's last measures. It begins by saying that the whole episode is a sad commentary on the Chancellor's handling of the Finance Bill and concludes with these words: The shaking of confidence and the denting of the government's standing through the two defeats on the Finance Bill are entirely the responsibility of the Chancellor". The closing sentence stated: It is perhaps time he was shifted to another post. We shall judge that "perhaps" when we vote tonight. We hope that the Liberal Party will have the courage of its quavering convictions when the time comes.

But let us look at the record of the Chancellor simply for the sake of example of one or two incidents and go back to the 1974 Budget. The House will remember that in that Budget he announced triumphantly the establishment and introduction of capital transfer tax. That was a vindictive and destructive measure which has wrought untold damage to the business of this country. The Government know it. What has the Chancellor of the Duchy been doing ever the last six or nine months? The Chancellor of the Duchy of Lancaster has been wheeled out from whatever back room he was lurking in and set to work to undo the damage done by the Chancellor of the Exchequer, ably assisted by the Chief Secretary who is sitting beside him.

The people of this country, for that one mistake of the Chancellor, have had to pay a high price in lost business opportunities and the destruction of jobs. That is a high price to pay for the misguided incompetence of the Chancellor.

And in the same Budget, the Chancellor set about savaging the companies and businesses of this country by raising corporation tax and by providing for the payment of advance corporation tax, so that within six months of the Chancellor's first Budget, British industry was on the verge of bankruptcy.

The election of October was hardly over before the right hon. Gentleman came rushing forward with his November Budget to undo the damage done by his Budget of April 1974. Once again, there was a catastrophically high price to pay for the Chancellor's performance in weakening confidence and destroying jobs throughout the company sector of our economy.

The Chancellor might be expected to have learned after 12 months "running-in" to avoid some comparable excesses of the same kind. Not in the least: the 1975 Budget came along and he charged into the arena determined to introduce value added tax at the rate of 25 per cent., under some ignorant illusion that, for example, the television set was a wicked luxury instead of being a necessity enjoyed in every pensioner's home. As a result of that, thousands of jobs were destroyed in the boat and caravan building industries. Thousands more jobs were destroyed in the television construction industry. The hon. Member for Ormskirk (Mr. Kilroy-Silk) is not the only Member who has seen a television manufacturing factory close in his constituency as a direct result of that piece of folly on the part of the Chancellor.

A year later, when the Chancellor had succeeded in savaging the television manufacturing industry, he repented and cut the rate back to 12½ per cent., only to open the gate for a flood of Japanese imports to replace those which had formerly been made by British manufacturers.

The building industry was not to be left alone. Development land tax at penal rates was imposed to clobber that. The motor car industry was not to be left alone. He introduced a tax on benefits in kind to cause great disturbance in that area. One could go on with these examples of incompetence. The Chancellor, who has probably talked more than any other member of the Government about the importance of the so-called industrial strategy, has in practice presided over a strategy for the demoralisation and destruction of British industry.

It is not only ignorance and incompetence with which we charge the Chancellor. We charge him specifically with recklessness and deceit. I should like him to examine with the House the events of 1976, which are of great importance in that respect. The House will remember that in the Budget of 1976 the Chancellor was talking, not for the first time, about the economic miracle that shortly lay ahead of the British people. He stated to the House in his Budget Statement on 6th April 1976: confidence in our future has been transformed both at home and abroad". and we could look forward to further substantial progress in this coming year".—[Official Report, 6th April 1976; Vol. 909, c. 238.] That was the picture that the Chancellor was painting in his Budget of April 1976. He should remember that when we reflect on his habit for almost the whole of the four years that he has been in office of ever claiming credit for the miracles that are to come and ever blaming his predecessors for their failure to arrive.

What was the position two months later, by 7th June? Far from any improvement, the pound had lost 25 cents against the dollar since March. The Chancellor came to the House on 7th June and announced, with his customary sense of pride, his success in getting a stand-by credit from the international banks. He refused then to accept the case that I pressed upon him that public spending cuts were necessary and expressed himself totally satisfied with his action up to that date.

By 22nd July, in the Chancellor's eighth Budget, he was back before the House announcing a programme for public spending cuts of £1,000 million in a full year and the introduction of the first 2 per cent. surcharge on national insurance contributions. Once again he expressed himself totally satisfied with his performance. Within the next three months we had the spectacle of the Chancellor, clad in his tropical suit, all set for a holiday in Manila, cancelling his visit to the International Monetary Fund conference and flying straight from the battlefield, as he put it, to another battlefield at the Labour Party conference and announceing that he was flinging himself upon the mercy of the IMF. He told the conference that he was doing so on the basis of his existing policies.

A week later, the minimum lending rate went up to 15 per cent. Within those months the pound had sunk as low as $1.60. By the end of the year, the Government's economic policy had been entirely reshaped to the dictates of the IMF. Excise duties were increased by 10 per cent. and there were further reductions in the public sector borrowing requirement of £2 billion.

One further fact has since come to light about that period of history. In the three interesting and, so far as I know, unchallenged articles in The Sunday Times last month entitled: The day the £ nearly died we are told that two days before the Chancellor came to the House on 7th June, he had signed a letter in response to the US Secretary to the Treasury setting out specifically the terms to which he and the Prime Minister had agreed, namely, that if any money had been drawn from the stand-by credit which he had arranged and not repaid, the Government would seek a long-term loan from the IMF.

When I charge the Chancellor with recklessness and deceit in this matter, the House is entitled to have some answers from him to certain important questions about that period in our history. When he went to the Labour Party conference in September 1976 and said that he was to negotiate with the IMF on the basis of existing policies, which we now know was untrue because it did not happen, did the Chancellor believe that he was telling the truth or not?

When he came to the House on 7th June to describe the stand-by credit, I suggested that the position was not quite as rosy as the Chancellor then tried to paint it. The Chancellor rebuked me with characteristic arrogance and said that I should recognise what he described as this massive international endorsement of sterling."—[Official Report, 7th June 1976; Vol. 912, c. 916.] Did he believe that to be true?

When he was asked on the same day by his hon. Friend the Member for Birmingham, Handsworth (Mr. Lee) whether there were any strings attached to the loan then taken by the Government, the Chancellor said: there are no strings to this money at all."—[Official Report, 7th June 1976; Vol. 912, c. 926.] That does not begin to withstand examination. We know the terms of the letter that he signed in answer to the Secretary to the Treasury of the United States. Did the Chancellor believe it when he told the House that there were no strings attached to the money? Did he believe, in the days before the pound when on slumping still further downwards, that the international community had produced a "massive endorsement" of sterling? Did he believe when he went to the Labour Party conference that he could negotiate with the IMF on the basis of existing policies? If the Chancellor believed any of those things, he was recklessly foolish and unfit to hold the office which he then held. If he did not believe those things, he gravely deceived and misled the House and the nation and is equally unfit to hold that office.

The more immediate past is almost more interesting. For a year or so after Christmas 1976 there was some improvement in the financial condition of the country—though in very little else. Why? It is because oil had begun to flow and produce revenues before the Chancellor had begun to spend them all again. It was because the Chancellor, as he told the House and the country on many occasions, was achieving a levelling off in public expenditure which he described as essential for a few years if he was to achieve what was necessary.

In other words, from Christmas 1976 onwards, belatedly and finally, the Chancellor had accepted the advice proffered by the Conservative Party for the previous two years. Monetary targets were set and were being strictly observed. Public expenditure was being controlled and reduced. This was not because of a sudden rush of wisdom to the Chancellor's reckless head. True, he had accepted our advice. It was only because of the imposition of that advice by outside forces —by the International Monetary Fund.

The verdict of The Sunday Times story is clear and important. It says: Although British Ministers will go to their graves denying it, the facts of this story suggest that without American and IMF pressure, the Cabinet would not have taken the measures which, with remarkable speed, stabilised the currency. The Government and the Chancellor were saved from the consequences of their own worst excesses not because of their repentance, but because of the imposition of discipline from outside this country.

In the months since then, everything has begun to go wrong again. Until the autumn of last year, the Chancellor struggled with great energy, so it seemed, to hold down the sterling exchange rate and he took credit for doing so. Too late he changed that policy, relented and allowed it to rise. Until Christmas, he insisted on maintaining the entire apparatus of exchange control without relaxation. Too late he relented on that, but not sufficiently.

Throughout the latter part of last year, the Chancellor was building up in his coffers a huge and wholly misleading surplus of foreign funds and destroying the monetary policy by which he had set so much store only a few months earlier. We see the consequences of that in what happened in the year that ended in April.

The growth of money supply, over a year when the Chancellor took pride in setting a target of 9 per cent. to 13 per cent., turned out, over the full year, at 16 per cent.—more than 50 per cent, above the central target. Over the last six months, the growth has been at an annual rate of 20 per cent. and over the last three months, it has been at an annual rate of about 24 per cent.

The Chancellor had succeeded in destroying his own monetary policy and in laying the foundations of the increased inflation which lies ahead, which the Prime Minister is doing his best to deny and the Secretary of State for Prices and Consumer Protection is doing his best to distort, but with which the next Conservative Government will have to cope. The important point of that story is that the seeds of the crisis that broke last week were sown by that misconduct by the Chancellor. They had nothing to do with votes of the House or the attitude of the Conservative Party.

Those seeds were fertilised by the Chancellor's decision, when he published the public expenditure White Paper, deliberately to go for an increase in public spending in this year over last year of more than 8 per cent. According to an assurance published by the TUC after the Chancellor and the Chief Secretary had met union leaders on 10th May: They reaffirmed the Government's expectation that here would be a real increase of public expenditure of 6 per cent. between 1977–78 and 1978–79. That is a commitment to an increase in public spending at least twice as large as the Chancellor's most optimistic expectations of the growth of the economy and probably three times as large as the likely out-turn. It sits oddly alongside what the Chancellor said in his letter to the Director of the IMF on 15th December 1976. Then, in extremis, when seeking the loan that he eventually received, the Chancellor said: an essential element of the Government's strategy will be a continuing and substantial reduction over the next few years in the share of resources required for the public sector. There we have a characteristic insight into the mind of the Chancellor. In December 1976, the Chancellor gave an undertaking to the IMF to reduce the share of resources taken by the Government. In May 1978, he gave to the TUC an undertaking—totally in conflict with his earlier undertaking—to secure an increase in the share of resources being taken by the Government. By which does he stand? Whom will he deceive and let down? The Conservative Party and the House have no responsibility for any of those foolish things done by the Government in the last six months.

In his last Budget the Chancellor set out to increase the public sector borrowing requirement, deliberately and in the teeth of his own advice, to a figure of £8,500 million. No one but the Chancellor was surprised by the reaction to his Budget. On Budget day, the Stock Exchange index fell by 10 points and the value of the pound fell by 20 points. The Chancellor himself thought it prudent to raise the minimum lending rate by 1 per cent. and since then minimum lending rate has gone up by 2½ per cent.

All those things are the judgment not of the Conservative Party or of the House but of the world with which the Chancellor has to deal upon the recklessness of his Budget judgment. They show the extent to which he got it wrong. To make matters worse—and hon. Members opposite will remember this better than we do —on the day after he had announced his Budget, the Chancellor went to a meeting of the Parliamentary Labour Party, apparently euphoric to the point of recklessness, blowing kisses at his hon. Friend the Member for Coventry, South-West (Mrs. Wise) and with a song in his heart, and let it be known—according to all the papers—that he was hoping to introduce another economic package later in the summer and hoped that it would be a very nice one. Irresponsibility knows nothing more absurd than that.

Does the Chancellor deny that he gave that sort of impression and that it was reinforced by the Chief Secretary in the House on the same day? Does he still intend before the summer is out to introduce another very nice economic package—or are 14 enough for the time being? Does he intend to deceive his hon. Friends in the PLP? Are they still looking forward to another very nice package before the end of the summer, or must they settle for what they have before them?

The man responsible for the destruction of the Chancellor's Budget strategy and for the aborting of Labour's pre-election boom is the Chancellor himself. The Labour Party is suffering from self-inflicted wounds—wounds inflicted by the Chancellor on his own party as well as on the country.

We in the Conservative Party make no apology for the changes we were able to persuade the House to impose upon the shape of the Chancellor's Budget.

Mr. William Molloy (Ealing, North)

The right hon. and learned Gentleman should be ashamed of himself.

Sir C. Howe

If hon. Members opposite have any real contact with the feelings of the people they claim to represent, they will know that nothing is more necessary than to restore the prospect of real rewards for hard work, enterprise and success. Every party on this side of the House took that view and voted with us. It was not the Conservative Party alone that drove that hole in the Chancellor's Budget strategy; it was the House of Commons speaking on behalf of the people of this country.

If the Chancellor takes counsel with the Chancellor of the Duchy of Lancaster, he will surely recollect that on 23rd April of this year, the Chancellor of the Duchy, in a moment of candour of the sort that we have come to associate with the right hon. Gentleman, though not with the Chancellor of the Exchequer, said in an interview on London Weekend Television that the No. 1 priority was for the higher rates of tax to be cut substantially as soon as possible. Why does the Chancellor of the Exchequer complain when the House takes the Chancellor of the Duchy at his word and does just that? If the framed Budget has been shattered in that way it is because the Chancellor so framed it that it is impossible to make in it the changes that are necessary for the economic health of this country.

Of course we made plain that the Chancellor was responsible for the judgment up to that point and that he had to take whatever action was necessary, either to reduce public spending or to recoup the consequences of the tax cuts that we had made, but the Conservative Party did the right thing on behalf of the people of this country in making those modest changes which are the first of many steps that are necessary to restore some sense and sanity to the tax system of this country.

Of course the introduction of a package such as that outlined by the Chancellor last week was necessary to correct the consequences of the Chancellor's misjudgments and mismanagement of the economy over the preceding six months, but the package could not have been more badly designed. It strikes at the heart of economic sense, in particular because of the attempt to recoup £1,500 million by the imposition of a 2½ per cent. employers' surcharge. Never have truer words been spoken than when, in his Budget Statement just two months ago, the Chancellor said of suggestions that the surcharge should be increased: I do not believe it would be right to increase it so soon after it has been introduced, and at a time when unemployment is our major problem. It would increase industrial costs at a time when it is essential to improve our competitiveness and it would ultimately be largely passed on in higher prices at a time when the fight against inflation is at a crucial stage."—[Official Report, 11th April 1978: Vol. 947, c. 1204.] The tax that the Chancellor has sought to introduce is one which will come through in higher prices, but not yet. He hopes that he may gain something from that. It will come through in higher unemployment, but once again he hopes not yet. It is a tax which applies to exports but not to imports. On the other hand, value-added tax applies not to exports but only to imports and home sales.

The increase in the national insurance surcharge, which the Chancellor has chosen, does not apply to imports save to the cost of handling them once they come into the country. It is a most astonishing change to make. It cannot be measured in its effect by itself.

It is very interesting to consider just what this Government have done in imposing tax after tax after tax after tax upon jobs since they came into office. First of all we saw the withdrawal of the regional employment premium by the Government. Secondly, we saw the increase in national insurance contributions to pay for higher pensions, and I make no complaint about that. But beyond that—and the Chancellor must accept responsibility for this—in the summer of 1976 he chose deliberately to tax jobs by a further 2 per cent. increase in the national insurance surcharge and last week to add another 2½ per cent. to the cost of employment. The cost of employing a man or a woman, of maintaining a job, under this Government as a result of the deliberate decisions of the Chancellor has risen by a 5¾ per cent. impost on the employers' pay bill, and by the withdrawal of the regional employment premium.

While the Chancellor has been moving in this wrong direction, increasing the cost of employment by imposing a tax upon jobs, other countries, because of the changed economic environment, have been moving in the opposite direction. The employers' surcharge—the social security contribution—has been reduced in recent months in France, Finland, Italy, Norway, Spain and the United States. It is coming down in all these countries while the Chancellor is putting it up. While other countries are moving in the direction of sanity, the Chancellor is doing that which he was not elected to do because he has not got the courage to do anything else.

Consider the effect of this change on just one aspect of our market. One of the main competitors for the markets of British manufactured motor cars is Japan. As a direct result of the taxes and conditions placed on the cost of employment, the average cost of a British motor car—a Cortina or Marina—has been increased by £95. This is the direct result of taxes imposed by this Government on employment within the country. They could have done something quite different by ensuring that the tax burden fell equally on imports as well as exports. It is not just a higher price, but a prescription for fewer jobs.

Surely it is ludicrous for the Government to subsidise jobs in uncompetitive industries while taxing jobs in productive ones. Consider the effect of these changes on the job market in Scotland, Wales or Northern Ireland. It is true that some jobs now receive a subsidy of £20 a week in temporary employment subsidy, but all jobs now do without the REP of £3 and all of them pay the additional tax to which I have been referring. This means an additional cost of £7.50 a week, so that the net annual tax on jobs amounts to £386 per job. Is it any wonder that the Director-General of the CBI said last week—I believe rightly—that the measures introduced by the Chancellor last week would destroy 100,000 jobs. What an absurd way of conducting an economy.

We have advised the Government to restrain public spending, to set about restoring incentives and to reduce taxation to make it worth while once again to work instead of taxing the creation of work. The Chancellor has been following, throughout his time in office, economics through the looking glass. What he did last week is not good politics; it is not even good cosmetics.

Members of all parties on this side of the House should now make a judgment about the disastrous consequences of the four years during which the Chancellor has been in the Treasury. At the beginning of my speech I charged the Chancellor with ignorance and incompetence, with recklessness and deceit. I charge him additionally with cowardice and conceit. His record speaks for itself. The fact that the Government have chosen to make it a vote of confidence shows how little confidence the Government have got in their capacity to defend him. I call upon the House to pass this motion and find the Chancellor guilty as charged.

4.45 p.m.

The Chancellor of the Exchequer (Mr. Denis Healey)

The Government have decided that the issues raised by the Opposition today are too important to be treated other than as a matter of confidence with all that that implies. The Prime Minister will wind up the debate. I shall deal with the economic issues raised by the right hon. and learned Member for Surrey, East (Sir G. Howe) which are presumably behind his motion of censure.

I start with the measures which the Government announced last Thursday and which are the immediate occasion of today's debate. The right hon. and learned Gentleman finally got round to them, a trifle nervously I thought, after ploughing through a tedious and tendentious farrago of moth-eaten cuttings presented to him by the Conservative research department. That part of his speech was rather like being savaged by a dead sheep.

When I presented my Budget to the House two months ago I did so against a background of the dramatic turn around in our financial situation. The pound was strong, interest rates had fallen substantially from the high point of October 1976 and were well below the level which I inherited from the Conservative Party. Our foreign trade was well in balance—I inherited a deficit of £3.5 billion from the Conservatives—and our reserves were at an all-time high, high enough to enable me to announce a repayment of $2,000 million worth of IMF borrowing ahead of time.

In these circumstances I judged it right that the Budget should offer a stimulus to demand and output so that the real economy could reflect the improvement which had already taken place on the financial scene. In fact, as we now know, output had already started moving up steadily in the first quarter of this year. Therefore, I announced very substantial cuts in personal taxation which, together with the reliefs for small businesses, gave a demand stimulus amounting to £2,000 million in the current financial year.

I concentrated these tax reliefs in areas where I judged the need was greatest. In particular I introduced a lower-rate band to help the low paid and an additional increase in child benefit, bringing it to £3 a week tax-free for every child. This will take place in November when the pension for a married couple will also be increased to £31.20 a week. It was essentially a family budget. It was not only in the nation's social interests but in its economic interest as well that it should have been so.

Wage earners are already receiving in their pay packets the benefits of the increased personal allowance which is worth 50p a week for a married man and 25p for a single person. In a few weeks time the benefit of the lower-rate band will be felt which will give a rebate of about £18, and a continuing further weekly reduction of £1.30. Such tax reliefs and improvements in benefits have played an essential part in achieving a far better out-turn in the current pay round than most hon. Members believed possible when we promulgated our pay policy last summer. They will play the same role in the next round.

Britain has learnt from bitter experience in recent years that the prime task for any Government must remain the control of inflation. This is an indispensable pre-condition for a return to high employment. Just as we learnt four years ago that massive pay increases were worthless if they resulted in massive price increases, so I believe we have learnt that it is far better to make moderate and responsible pay settlements, since the lower inflation which results from them makes it possible for the Government to cut income tax. Working people have been able to achieve increases in their living standards in the last 12 months averaging 5 per cent. in real terms, although the level of pay settlements at the beginning of the round was very much lower than the level of inflation at that time. It was above all to encourage moderation and responsibility in pay settlements in the coming wage round that I concentrated my tax reliefs last April on the ordinary family and avoided any Government action to increase prices, except for the health tax on high-tar cigarettes.

The control of inflation depends not only on moderation in pay bargaining but on firm control of the monetary aggregates. That is an area in which the present Government have a consistent record of firmness and responsibility, particularly by comparison with our predecessors. In the last two years of the Conservative Government, the money supply increased at about twice the rate of money national income. In the first four years of the present Government it increased at only about half the rate of the increase in money national income.

When I presented my Budget last April, it seemed likely that the increase in sterling M3 for the fiscal year 1977–78 would be under 14 per cent.—only slightly above the upper level of the range which I announced a year ago, although large inflows of foreign currency last summer and autumn must have contributed several percentage points to the increase in sterling M3. But it became apparent some weeks after the Budget that the seasonal correction for the money supply in the early months of this year and the increase in money supply in April must bring the increase in sterling M3 last year to 16¼ per cent.

Even this did not in itself present an overwhelming case for further action in monetary matters. A number of countries have been able to accept very substantial increases in their money supply in recent months without concern for its impact either on their inflation rate or on their exchange rate. For example, in Germany, which is always being quoted to us, the central bank money stock, which according to the target laid down should be increasing at an annual rate of between 5 per cent. and 7 per cent. at the present time, has been running twice as high—at an annual rate of 12.8 per cent. in the last three months. Switzerland, which is aiming at a 5 per cent. increase in Ml, its measure of monetary control, has from January to March found M1 running at 13 per cent. —well over twice as high. Yet as the chairman of the Central German Bank, Dr. Emminger, pointed out in Munich the other day, there does not seem great reason for alarm at present, either about the Swiss rate of inflation, or about the exchange rate of the Swiss franc. Furthermore, there is not much worry about Germany's inflation rate or exchange rate either.

But in Britain high money supply figures have been aggravated by the addition of nearly £500 million to the public sector borrowing requirement as a result of the Opposition's irresponsibility over the Finance Bill. As a result the financial institutions failed to buy Government stock in the necessary quantities, and this in itself led co a further increase in the money supply figures. At the same time bank lending to individuals and services, though not to manufacturing industry, was beginning to accelerate and retail sales have been rising exceptionally fast.

The Government therefore decided to take action in good time to break the deadlock in the gilts market and to demonstrate their determination to maintain control of the monetary aggregates so as to restore the integrity of the Budget judgment in both fiscal and monetary matters. Our action last Thursday proved that we shall not allow the PSBR ceiling of £8,500 million to be breached, and that we shall maintain the growth of sterling M3 within the range of 8 per cent. to 12 per cent.

For the reaction of the financial market since Thursday, let me quote one of the city circulars: Tough action has been taken in an election year—totally refuting suggestions that vote-catching considerations would deter the Government from doing the right thing. As the Opposition Front Bench knows, our measures have already been a resounding success.

I now wish to deal with each of the three measures in turn. First, we raised the minimum lending rate to 10 per cent. in order to bring it into line with the rates already ruling in the market. The Governor of the Bank of England and I have thought it better that we should take direct responsibilty for changes in the minimum lending rate. The last Government sought to shuffle them off.

The decision we took last Thursday to raise the rate by 1 per cent. to 10 per cent. proved that we did not do so because we believed that it might be an easy way of evading responsibility for unpopular decisions. That was the reason that inspired the Conservative Government to introduce the previous system for determining the minimum lending rate.

I know that my hon. Friends are concerned about the increase in mortgage rate which followed last week's increase in MLR, but they will have seen from the newspapers that the chairman of the Building Societies Association, Mr. Ralph Stow, has made it clear that the societies intended to go for a 1 per cent. increase in the mortgage rate in any case, even before last Thursday's increase in MLR.

I do not believe the building societies needed to add the extra ¼ per cent. Events in the financial market have shown that the effect of my measures has been to reduce the uncertainty which has faced the societies and others in those markets. The Financial Times rightly pointed out on Saturday: the market expects that the first of what is usually a long series of cuts in the lending rate can be expected in a matter of days, or at most a few weeks. I believe that to be true. But in any case the effect of the MLR increase is to add only about £1 a month to the average cost of a new mortgage. If, as I hope, interest rates soon fall to a more satisfactory level, I trust that the building societies will once again adjust their rates and bring them down accordingly. Even so, the House will know that at 9¾ per cent. the present level of mortgage rates is still 1¼ per cent. below that which we inherited from the Conservative Government.

The second measure introduced by the Government last Thursday was the scheme for supplementary special deposits —the so-called "corset". As I mentioned, there was some evidence in last month's clearing bank figures that the banks had been lending too much in recent weeks. There have also been signs that, in case the Government might ultimately introduce the corset, some banks have been artificially inflating their eligible liability. For both these reasons, and as a further reinforcement of our control of the monetary aggregates, we decided that the time had come to introduce the corset. But we are confident that there will be room within the corset for sufficient lending to British industry to keep expansion on the path laid down in the Budget.

If, as now seems likely, the restoration of confidence in domestic and external markets leads to substantial gilt sales, so reducing the public sector's need to borrow from the banks, the corset should have no damaging effect on industry since there will then be sufficient room within it for the banks to satisfy industry's requirements—and industry's requirements are the first priority under the Bank of England's directional guidance to the banking system.

If we take the increase in MLR and the corset together, the Financial Times was right to say on Saturday, in the leader to which I have already referred, that this squeeze is quite a mild one judged by the standards of the past—for example, the Barber squeeze in 1973—and it will have little effect either on growth or on the sharp rise in industrial investment which is now accepted both by the CBI and by the Department of Industry.

I now come to the third measure announced last Thursday, the decision to ask the House to recoup the revenue lost by the Opposition amendments to the Finance Bill by an increase of 2½ percentage points in the national insurance surcharge to take effect on 2nd October.

Mr. Nicholas Ridley (Cirencester and Tewkesbury) rose—

Mr. Healey

I am delighted to give way to the hon. Gentleman, whose views on the trade unions and the nationalised industries have so endeared him to the mass of the British people.

Mr. Ridley

The Chancellor said that he did not think it mattered that the Swiss and German authorities had exceeded their money supply targets. Nor did he think that it mattered that he did so in a rather reckless way last year. He also said that he wished strongly to adhere to the monetary targets. Will he say which of those two contrasting views he holds?

Mr. Healey

I spoke of the views of the chairman of the German Bundesbank about the excessive increase in the Swiss and German money supply. I have made clear on many occasions—I did so last when I announced the new money supply figures, the target range, in the Budget—that the Government did not consider it necessary to be disturbed by a temporary blip in the money supply figures, even if it lasted for two or three months. That is the view of every monetary authority in the world that operates monetary targets. The hon. Gentleman knows that. He should not intervene half an hour after I have made a point merely to show that he has woken up.

I come to the third measure, the 2½ per cent. increase in the national insurance surcharge to take effect on 2nd October. It will reduce the public sector borrowing requirement by about £500 million in the current financial year, and would yield £1,500 million net additional revenue in a full year. The House should understand that my Budget next year may be able to offset some or all of the revenue from the national insurance surcharge by cutting tax or by some other means.

The Opposition—I am glad that the right hon. and learned Member for Surrey, East admitted this—are fully in agreement with the need to recoup the money that their own irresponsibility added to the PSBR. However, they believe that we should have found the money either by immediately increasing prices through an increase in value added tax or by immediately throwing people out of work through cuts in public expenditure. I shall describe the reasons that led the Government to opt for the increase in the national insurance surcharge and what I believe the effects are likely to be on the economy.

It would have been a good deal easier from the administrative point of view to recoup the money by an increase in value added tax, although to follow the Opposition's advice and unify the rates of value added tax at 10 per cent. would have fallen well short of what we need this year to offset the cost of the Opposition's irresponsibility.

To have increased value added tax now sufficiently to cover the PSBR cost of the Opposition's amendments in the current financial year would have raised the retail price index immediately by over 1 per cent. I cannot believe that that would have made sense at a moment when we are seeking the understanding of working men and women of the need for moderation and responsibility in wage settlements.

As matters now stand, and as my right hon. Friend the Secretary of State for Prices and Consumer Protection demonstrated in detail last weekend, the country may look forward confidently to inflation remaining roughly where it is now until at least the end of the year after a a further fall in the next month or two. From the end of the year onwards the rate of inflation will depend increasingly on the level of wage settlements after the new round begins in August. If we can maintain and improve on the present level of inflation, it will be of immense value to our economic performance for many years to come.

Throughout the Western world the greatest single task facing Governments is to break the vicious circle of inflationary expectations that has so damaged economic performance throughout the world in the past few years. We are beginning to break that vicious circle in Britain. As the Bank of International Settlements said this week, our pay policy has played a vital role. I believe that it would be disastrous for the British Government to jeopardise that achievement now by administering an immediate increase in prices, especially at a moment when discussions on the next wage round are in full course.

It would be no less disastrous to seek cuts of £500 million in public expenditure to take effect in the current financial year. We are still waiting to hear the Opposition tell us from where the cuts will come. I have asked the question in every economic debate for the past three years and I still have not had a reply. Let them tell us this evening. Are they planning, for example, to oppose any of the increases in social benefits that the Government introduced in the Budget? If not, do they want us to cut current or capital expenditure in the public services or the nationalised industries?

The Opposition never cease to attack us for making cuts in capital expenditure. It can only be concluded that their intention is to slash current spending. Apart from its immediate effect on the level and standard of public services, cuts in current spending would mean immediately throwing men and women out of work in large numbers. If that is what the Opposition really mean, for heaven's sake let them have the courage to tell us.

I went through these arguments in detail before the House voted on the Opposition's amendments on 8th May. I said on that occasion that I would consider, instead of taking action on public expenditure and indirect tax, the possibility of increasing the employer's national insurance surcharge, although that presented daunting administrative difficulties in the middle of the fiscal year, and despite the effect on prices and industrial costs to which I refered in my Budget speech.

The administrative difficulties are real. They have needed careful examination by officials in the Departments involved. There are no administrative problems for the Inland Revenue, which collects the proceeds of the surcharge along with PAYE payments and national insurance contributions. However, there are problems for the Department of Health and Social Security, which has responsibility for the national insurance contributions machinery. Nevertheless, with the advice of my right hon. Friend the Secretary of State for Social Services, I think that the problems are manageable.

I know that the increase in the surcharge will also impose an additional administrative burden on employers. However, that will not be a serious difficulty. The method of collection that we have chosen will minimise the administrative burden falling on employers. It is a matter of substituting new tables for those that are now in use.

I made it clear in my Budget Statement that there is a price to be paid for an increase in the national insurance surcharge at this time. That is why I told the House that I did not want to increase it. I should not have done so if I had not had to find the least damaging way of offsetting the Opposition's irresponsibility. Nevertheless, the effects of the 2½ per cent. increase in the national insurance surcharge on the economy are much smaller than some of the claims that I have read in the newspapers in the past few days.

The CBI, for example, has suggested that the surcharge will increase prices by 1½ per cent. within a year, will worsen the balance of payments and reduce employment by 100,000. I am bound to say that I find such estimates difficult to reconcile with the way in which I believe the economy works and the way in which we have seen it working in recent years. Even if the increase in the national insurance surcharge is considered separately from other aspects of the economy—I will make it clear that that is quite an unrealistic assumption to make—its effect on prices and unemployment is likely to be substantially less than has been claimed.

If employers pass on the surcharge in their prices, they will take time to do so. Prices would scarcely be affected this year, and would rise by three quarters of a per cent. by the end of next year, in 18 months' time. Of course, as the price effects come through so demand will fall and unemployment rise.

The CBI seems to forget that the surcharge has been imposed reluctantly by the Government to offset the increase in demand that was caused by Opposition amendments for which the CBI was pressing. By the end of the next financial year —namely, in the first quarter of 1980—the two measures combined could still add some thousands to the number of unemployed. However, that is a fact of which I shall take account when I come to my 1979 Budget. As I explained, I may be able to increase employment by tax cuts or other means in offsetting part or all of the £1,500 million increase in the yield of NIS in a full year.

In so far as the surcharge is not reflected in prices, the payment will represent a reduction in companies' cash flow over the same period. In practice some firms will be prepared to accept the decision without attempting to increase their prices. Other firms may look for increased productivity or a reduction in their work force. I do not deny that, but there is no reason to expect that companies will behave differently over the surchage than they have responded to increases of the same sort in the past. A squeeze on company financing is usually followed by a price adjustment.

The House should recognise—we published the figures last week—that the liquidity of the 200 largest companies increased by well over £1 billion in the six months before the Budget. Therefore, I am confident that companies' investment and production plans will not suffer.

What I have just been saying is what might happen if we could realistically consider the effect of the national insurance surcharge interest in the abstract, entirely on its own. But it is not realistic to look at the NIS separately from everything else that happens in the economy.

I expect that the House can remember very well the cries of disaster, the predictions of catastrophe and the chorus of calamity which accompanied our decision to introduce the 2 per cent. surcharge in the summer of 1976. That surcharge came into effect in April 1977, and it is still in effect.

But what has happened over that period? Inflation has not risen; it has fallen. It has fallen by over half. The balance of payments has not been worse. It was £700 million better in 1977 than we predicted in last year's Budget. Unemployment has been falling steadily since last September, not rising. Job vacancies have been increasing, even though 170,000 extra men and women are coming on to the labour market every year. Private manufacturing investment has risen in volume by 13 per cent.—faster than most other countries that compete with us.

Of course, I am not claiming that the national insurance surcharge is responsible for these improvements in our performance. The hon. Member for Worthing (Mr. Higgins), whose exile to the Back Benches I deplore just as much as he must, knows perfectly well that we cannot isolate so small an element in the economy from everything else which is going on.

This year, for example, the effect on jobs of the increase in the national insurance surcharge will be offset by the extra tax reliefs which it has been imposed to replace. The effect on sterling and the financial confidence of last week's package as a whole—we have plenty of evidence of that—should easily make up for the price effect of the extra surcharge. In other words, the effect of the whole package—surcharge and all—will be to restore the outlook for the economy to what it was when I announced my Budget on 11th April.

Even after the addition of 2½ per cent. to the existing national insurance surcharge, Britain will be getting less of her total revenue from the employers' contribution to social security or payroll taxes than any of her main competitors in Europe. Germany, Belgium and Holland will be getting significantly more than Britain, and France and Italy more than twice as much. That is even after the reduction to which the right hon. and learned Gentleman referred.

What would have happened if we had followed the advice of the Leader of the Opposition and increased value added tax? Prices would then be rising more in one month than the maximum that they are likely to rise after two years under the surcharge. If we had cut public expenditure, the loss of jobs would have been immediate.

Meanwhile, the measures that we took last Thursday have already achieved their objective. The effect on the gilts market was immediate and electric. We are already well ahead of our funding programme, and doubts which may have existed earlier about the Government's ability to reconcile a PSBR of about £8½ billion with a target range for sterling M3 of 8 per cent. to 12 per cent. should have been dispelled.

We acted to restore control of the monetary aggregates immediately it became clear that it was necessary. The Conservative Opposition, which let the money supply grow at a record 26 per cent. for two years before taking action, have chosen this moment to mount a personal vote of censure against me and the Government's economic policy. I am not surprised that they have chosen this device rather than to put down a motion which might compel them to reveal their own views about economic policy.

In recent weeks, the Conservative Opposition have not even troubled to offer a semblance of unity on this or any other question. Indeed, the fact that they have chosen the right hon. and learned Member for Surrey, East to open the debate and the right hon. Member for Lowestoft (Mr. Prior) to close it demonstrates once again that they can achieve a factitious unity only by the juxtaposition of opposites. If the right hon. Member for Lowestoft does not agree with me, I hope that when he winds up the debate he will explain whether he supports the view of the right hon. and learned Member for Surrey, East about pay policy. Only a year ago the right hon. and learned Gentleman said that pay policy was 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". I confess, I wonder somehow how they can sit together in any semblance of amity and even appear to belong to the same party.

So far as I could detect a consistent theme in the right hon. and learned Gentleman's speech, it was that the public sector borrowing requirement was still too high and should be further reduced by slashing cuts in public expenditure. But the Opposition still refuse to tell us the level of PSBR at which they aim, with the one honourable exception of the hon. Member for Blaby (Mr. Lawson) who, in the Budget debate, defined it with gay abandon as something between £4,000 million and £8,000 million.

Mr. Nigel Lawson (Blaby)

The Chancellor of the Exchequer knows perfectly well that I was quoting the margin of error that the Chief Secretary had quoted of £2,000 million either way.

Mr. Healey

Certainly the hon. Gentleman referred to a margin of error. I should say that the margin of error is even larger than £2 billion each way. If that was the basis on which he put it, he appeared to be aiming at a PSBR of £6 billion. In that case, he must tell us how he would make cuts of £2½ billion in the PSBR consistent with cuts in taxation and increases in public expenditure to which the Opposition have already committed themselves.

Concerning the central proposition put forward by the right hon. and learned Member for Surrey, East—that the PSBR is too high to be consistent with the target range for money supply—I quote to him the words of his hon. Friend the Member for St. Ives (Mr. Nott) who, God bless him, five years ago was a Treasury Minister and unable to luxuriate in the irresponsibility of Opposition. He said: It is wrong to think that an increase in the public sector's borrowing necessarily means an increase in money supply… the size of the borrowing requirement, although large need not necessarily lead to inflation as long as it is financed with the non-hank public."— [Official Report, 8th March 1973; Vol. 852, c. 721.] Of course, that is true. We have already met this condition for some months ahead of time this year through the market's response to last Thursday's measures.

In any case, as Chancellor Schmidt pointed out the other day, Britain's public sector deficit is a smaller proportion of her GDP than is German's, and it is very much lower still than the deficit of Japan. Yet both countries, I am glad to say, are following the advice offered to them by the IMF, the Bank of International Settlements, OECD and myself, and are contemplating an increase in their deficits as a contribution to the concerted action at the summit in July.

In fact, the Opposition have committed themselves to economic policies which would substantially increase the PSBR without giving us any convincing indication of how they would offset these increases.

Only last Friday, the right hon. and learned Gentleman, who always takes refuge by chatting to one of his neighbours on the Opposition Front Bench when he is embarrassed, pledged the Conservative Party to massive cuts in income tax, capital gains tax, capital transfer tax and the investment income surcharge. All that is on top of the com- mitment to abolish the rates and to introduce a tax credit system which alone could this year cost £6,000 million if it followed the lines of the scheme announced to the House by the last Conservative Chancellor of the Exchequer. The right hon. and learned Gentleman then said that these cuts in direct taxation must be financed by higher taxes on what we spend. He did not tell his audience that that would mean increasing indirect taxation to a level which raised the cost of living by 8 per cent. "at a stroke" That phrase might be familiar to the right hon. Member for Sidcup (Mr. Heath). On top of these tax cuts the right hon. and learned Gentleman for Surrey, East and his colleagues have committed the Conservative Party to massive increases in public expenditure—£l,600 million, through a 4 per cent. increase, on the Armed Forces, on the police and in a dozen other ways.

I am sorry that the Leader of the Opposition is not here. I was looking forward to having a word with her She was questioned on this matter, I gather from Monday's The Times, when she spoke to the Welsh Conservative conference at Llandudno on Saturday. I shall quote from the report in The Times of that auspicious occasion: One questioner wanted to know where Mrs. Thatcher was going to cut public expenditure after her cuts on all taxes, in order to pay more for defence, the police and housing. What a sensible question. Mrs. Thatcher began a list. Enormous funds went out through the National Enterprise Board. They would be stopped. She did not explain that this would mean the collapse of Rolls-Royce and British Leyland. I resume the quotation. There would be cuts regarding the Community Land Act. But this would raise at most £50 million She went on to say: And then there would be administrative-savings. Mr. Leslie Chapman, a former civil servant had suggested that up to £1,000 million could be saved in that way. But the right hon. Lady was too modest to point out that Mr. Leslie Chapman resigned from the Civil Service at the end of 1973 because he could not stomach the failure of the Conservative Government to act on his ideas in three and a half years of office.

I am bound to say that the hon. Member for Southend, West (Mr. Channon), the Minister at the time, estimated that if Mr. Chapman's methods were applied all over the country they would achieve savings of between £25 million and £30 million a year. That is a far cry from the £1,000 million quoted by the Leader of the Opposition. But she is a little given to exaggeration when she is among the Welsh Conservatives. The report concluded: Mrs. Thatcher admitted that there was a certain amount of risk about it but we have got to get production up. That is no way to approach the problems of the nation's economy.

The fact is that the Opposition have not the slightest idea what policies they would follow on tax or public expenditure or anything else. They have already abandoned policy as an element in their appeal to the British people. They rely instead on an advertising agency called Saatchi and Saatchi to market them by the same techniques as it used for marketing Penguin biscuits, Quality Street chocolates, Fairy Snow and, appropriately, "Schhh ….. You know who".

I do not believe that one can win the confidence of the most mature electorate in the world by selling a political party like a soap powder. Yet the Conservative Party offers nothing else, except one thing —the personality of its leader whose natural instinct is to divide rather than unite, to confront rather than co-operate, to exploit fear and prejudice rather than appeal to responsibility and tolerance and who, I am glad to say, is steadily losing ground both in the country and inside her own party as a consequence.

The Labour Government can offer an alternative. It is an alternative which has been proved to work. Only four and a half years ago many observers wondered whether the democratic system itself would survive the strains imposed by years of confrontation. They wondered whether the United Kingdom could remain united in the face of the refusal of the Conservative Government to contemplate devolution for Scotland and Wales. They wondered whether the economic problems facing us were soluble at all within the constraints of our constitution.

Our policies have brought Britain through the severest crisis since the 1930s, with its social structure not only intact but strengthened. Government and people are now working together for the common good. The trade unions have accepted responsibility for the welfare of the nation as a whole in return for the Government's commitment to further the aspirations of working men and women.

The rewards are there for all of us to see in falling inflation, falling unemployment and rising living standards. Britain is now paying her way in the world again. To the financial transformation that we achieved last year we can now add the first evidence of a steady improvement in the real economy. Confidence has returned. Britain's inflation rate is still falling at a time when it is beginning to rise again in many of the countries which compete with us. Last Thursday's measures guarantee that we can preserve and build on this achievement.

The issues that are at stake today far transcend these economic matters, vitally important as they are to our health and prosperity. They go to the root of the sort of people that we want to be. Do we want the forces of division and distrust to take over, to determine relations between Government and people, between the two sides of industry, between the races which contribute to the richness of our community, between the nations which compose our State? I believe that we do not. I believe that we seek moderation, not extremism, construction not destruction, co-operation not confrontation. In that belief I ask the House to reject the Opposition's motion.

5.28 p.m.

Mr. David Steel (Roxburgh, Selkirk and Peebles)

I am deeply moved by that reception. Last week we were told that this would be a general debate on the economy at the request of the Official Opposition. Whatever else the debate is, it has not been that so far. I do not see how it could be expected to be a general debate on the state of the economy given the nature of the motion tabled by the Opposition.

I have noticed that of the 17 Supply Days that we have had so far this Session —the days when the Official Opposition have chosen the subject for debate—only five have been on positive policy resolutions. Of the others, eight have been debates on the Adjournment and four on Ministers' salaries. This approach lies at the root of one of the defects in the Conservative Party. It is, as the Chancellor said, that the Conservatives do not put forward positive alternatives to the House for its consideration. Very few propositions are advanced on which we can pass our judgment.

We know why: there is a lack of positive and agreed policy within the alleged alternative Government for us to consider. Plenty of kites are flown outside the House. We are told that we do not discuss immigration and race relations enough and yet, when we ask for a debate in Opposition time, it is not given. We are told that there may be a referendum on capital punishment. We do not debate that. There is also the Ridley Report, although that may not have been so much a kite that was flown as a kite that escaped. None of these policies is ever put forward for discussion in the Opposition's time.

We then come to the question of public spending. We are constantly told that the Conservative Party believes in reducing public expenditure. I could hardly believe my ears when I heard the right hon. and learned Member for Surrey, East (Sir G. Howe) castigate the Government for having abolished the regional employment premium, as he did this afternoon. Its abolition represented a substantial reduction in public expenditure—one with which I did not agree—and it conies ill from the Opposition to complain since at the last election they campaigned for the phasing out of REP.

When one boils down the Conservatives' criticisms on public expenditure, one comes back always to their points about curbing the National Enterprise Board and the associated agencies in Scotland and Wales. I must tell the right hon. Member for Lowestoft (Mr. Prior), who is to wind up the debate and who is responsible for employment matters on the Opposition Front Bench, that during the recess I visited two of the four mills in my constituency which are now owned by the Scottish Development Agency. It has a majority shareholding in the parent company under the Act. I was asked on my visit, both by workers and by management, what would happen if the Conservative Party came to office and carried out its pledge. They were anxious to know what would happen to their jobs and to the companies. I was unable to give them an answer. What is more distressing, the Conservative Party dues not give them an answer either.

Every time we hear these calls for reductions in public expenditure we learn of yet new campaigns for increases. It was discovered the other day that the hon. Member for Glasgow, Cathcart (Mr. Taylor) had led a deputation to the Scottish Office to seek the expenditure of £20 million on Hampden Park. That is a drop in the bucket considering the present state of Scottish football. That is another item of public expenditure proposed by the Conservatives.

Some of the newspapers, commenting on a speech of the Leader of the Opposition, said that there was a veiled suggestion that if a Conservative Government had been in office troops would have been sent to Zaire. I do not know whether that is true, but each time we hear these speeches the theme is for more public expenditure in particular and less in unspecified and general terms.

Therefore the Opposition must understand that if we are to have these debates they must be regarded either as a ticking off of the Chancellor—and I have the feeling, especially having listened to him this afternoon, that he would not know a penitent's stool if he saw one—or as serious economic debates in which the Opposition of the day put forward alternatives.

The fact is that today's debate is neither of these things. If this had been a debate simply ticking off the Chancellor I have no hesitation in saying that my colleagues and I would have voted against him tonight—[HON. MEMBERS: "Oh"]—for reasons that I shall explain in a moment. But the Prime Minister and the Government consider for reasons that I understand that a defeat against the Chancellor would be the equivalent of a defeat for the Government as a whole. They are right so to consider it. That would cause havoc in the markets and they would be right to go to the country if a motion of censure on the Chancellor were carried.

My colleagues and I therefore have to consider whether we should allow our natural irritation with the Chancellor to bring about the downfall of the Government as a whole, to destroy the programme of legislation upon which we are embarked and to destroy all that has been achieved over the last 18 months.

When the right hon. and learned Member for Surrey, East talks about the Healey formula for inflation he always fails to tell us what was the rate of inflation during the last three months of the Conservative Government. Does he have that figure in his mind? If not, I certainly do. It was 18.9 per cent.

Mr. F. A. Burden (Gillingham)

No, it was not.

Mr. Steel

Yes it was. It was 18.9 per cent.

Mr. Burden

Will the right hon. Gentleman give way?

Mr. Steel

No, I will not. In the last three months before the Lib-Lab agreement the three-monthly rate of inflation was 21.6 per cent. That was the state of crisis that the country faced in March 1977. I have no hesitation in saying that even though it may not have done my party any great good we were absolutely right to stick through a programme of economic recovery which has at least brought the inflation rate down to about 8 per cent. That achievement should not lightly be thrown away.

I turn to our reasons for our irritation with the Chancellor. Unlike the Opposition, we published comprehensive Budget proposals. We may have been open to criticism for that. The Press and hon. Members may have taken up points and argued against them. But at least we produced something that was open to argument, and we produced a balanced Budget. In fact, the Economist, the Financial Times and a number of independent commentators described what was called the Pardoe Budget as the best on offer. I hope that my hon. Friend the Member for Cornwall, North (Mr. Pardoe) will forgive me saying that it was not very high praise because there was none on offer from the Conservatives and only one on offer from the Chancellor. Nevertheless, it was considered to be superior to the Chancellor's.

Among the proposals that we published and discussed with the Chancellor was a fundamental switch in the burden of taxation away from incomes and on to expenditure. The whole list of our pro- posals was published, and I shall not go into the details here. But the one point about our discussions with the Chancellor —and I am sure he will not mind my making this known because he has indicated this fact himself—was that he rejected various of our proposals because they would have had a direct and immediate effect on the retail price index. We understood that objection. However, we stuck by the integrity of our Budget proposals, but we understood the Government's difficulties at a time, as the Chancellor said, when we were trying to counter inflation and enter into wage negotiations.

It was for that reason that, after a series of discussions that my hon. Friend the Member for Cornwall, North had with the Chief Secretary and the Chancellor, we tended to focus on the proposal for an increase in the national insurance employers' contribution. We were proposing a 1½ per cent. increase. The Chancellor and his colleagues told us, first, that it was wrong because it was a tax on employment and, second, that if it had been right it would be impossible to do this year. That was in April. In June we find that it becomes possible, and at the higher rate of 2½ per cent. There is a big difference between the 1½ per cent. increase that we advocated as pact of a Budget change and as a quid pro quo for cuts in taxes at the higher rate, and the 2½ per cent. increase, without the changes in the higher rates of tax and after a 3½ per cent. increase in the minimum lending rate with the effect that that has had on industry.

The other reason for our irritation was that when I and my hon. Friend went to the Treasury to have detailed discussions on our proposals with the Chancellor just before the Budget, we had an amicable discussion. The next morning my hon. Friend and I were astonished to read the front-page headlines in the newspapers. The Guardian carried the heading, Anti-Budget vote means General Election —Healey, Liberals get poll warning". and The Times said, Election if Liberals oppose the Budget Mr. Healey rejects Steel tax plan". Unlike with any other discussion that has taken place between myself and the Prime Minister, in the consultative committee that was set up between us, or in the consultations with Ministers, we experienced here a one-sided leak intended to try to discredit the Liberal proposals. That was the reason for the justified anger among my colleagues.

Faced with that, we in the Liberal Party had to stick to our line, and we did so. We did exactly what we said we would. We voted for the tax reductions in the Committee stage of the Finance Bill, and the Government suffered two defeats which were entirely unnecessary. They arose because we had failed to reach agreement on the Budget. We then had a month's delay before the Chancellor announced the measures that he was going to take to restore the public sector borrowing requirement to its proper level. During that month there was no consultation with my colleagues, and confidence in the City began to ebb from the Government.

That is the reason why we are angry with the Chancellor. That is why I believe that I was right, in the statement that the right hon. and learned Member for Surrey, East quoted, to complain about the way in which the Chancellor handled the Budget judgment.

What is the conclusion, therefore, to which we come? I believe that the Chancellor has still got to learn—maybe he has learned now, rather late in the day—that minority Government is a very different art from majority Government, and that in minority Government, whether or not one likes it, one has to pay rather less attention to one's own past speeches and one's own manifestos and far more to the prevailing opinion in Parliament.

What is incontestable is that a reduction in taxes on incomes was not only though to be desirable by commentators outside but was the majority view in the House, and was known to be the majority view in the House at the time when the Chancellor was preparing his Budget, but he appeared to make no concession to it. But it was not only the majority view in the House. As the Chancellor of the Duchy of Lancaster confirmed, only on Monday of this week at Question Time, it was also his publicly stated view as well and, I suspect, the view held among others in the Government.

Indeed, any of us who visit industry from time to time, knowing that it has to compete now internationally, particularly within the European Community but internationally in general for middle management posts and promotions, know the extreme difficulty of having a tax system that is so hopelessly out of gear with the rest of the industrialised states.

The case for reducing income tax was well known and well argued, yet the Chancellor chose to ignore it. I hope that he will not ignore that sort of position in the future.

If the Chancellor will take independent advice, rather than advice from the Liberal Party, I should like to refer him to the article headed "Minority is Beautiful"—a sentiment with which I do not expect him to agree—on Friday 12th May in the Financial Times by Mr. Joe Rogaly. He said: Britain has now been blessed with nearly a year and a half of minority Government. It has been a salutary experience. This is a far happier state of affairs than the one that is customary in this country. It is usually held that the Government must govern' or that if 'A Chancellor cannot get his Budget through unamended the Government ought to resign' or some such nonsense. Britain is the only West European country in which it is assumed that it is a disaster when the Executive cannot have its will worked without question by a complaisant legislature. In all the others there must always be some kind of horse-trading. Mr. Rogaly concluded: The need to keep some sort of peace with the Liberal Party has done the Labour Government a power of good over the past year. I do not necessarily expect the Chancellor to admit that in public. But if as a result of today's events he is a sadder but wiser man, the Opposition's motion will not have been entirely wasted.

5.42 p.m.

Mr. Douglas Jay (Battersea, North)

Although I do not agree with a great deal of what was said by the right hon. Gentleman the leader of the Liberal Party, I at least agree with him that the Prime Minister is entirely justified in making this debate a matter of confidence. The proposal to reduce the salary of the Chancellor by half is clearly a matter of confidence, and it is only reasonable that we should treat it as such.

I also agree with the leader of the Liberal Party that it is time that the country came to understand what a Tory Government would mean in present conditions and with the present leaders of the Conservative Party. It is quite clear that a Tory Government, for one thing, would propose to close down the National Enterprise Board, British Leyland, Rolls-Royce and Chrysler and would withdraw most of the finance now enjoyed by the steel and shipbuilding industries. That would not be a very wise contribution to full employment in Britain.

Having listened to the right hon. and learned Member for Surrey, East (Sir G. Howe) this evening, I thought that the most remarkable thing about his speech was that he justified the large reduction in income tax voted by the Opposition, which has raised the borrowing requirement by about £500 million, he argued that that gap had to be filled and the cut in the borrowing requirement restored, he opposed the increase in the national insurance surcharge which the Government have proposed in order to fill that gap, and he gave absolutely no account of what the Tory Opposition would urge should be done to fill the gap.

That seems to me to be the height of irresponsibility in what is, I suppose, intended to be a serious economic debate. Indeed, having listened for many years to economic debates in this House, I can hardly ever remember such a story of irresponsibility by any Opposition as we have witnessed in recent weeks.

It was obvious this spring to anyone who understood the situation that sudden tax reliefs of £500 million over and above what was given in the Budget would risk upsetting the hard-earned stability which this country had achieved in the last two years. It was not hard to see that in April and May this year. I am not being wise after the event. I was bold enough to say in the debate in May, when we discussed income tax cuts, that I thought that it would be imprudent to increase the borrowing requirement still further at a time when interest rates were tending to rise here and in the United States and when the balance of payments could so easily slip out of control.

Of course, the Conservative Party entirely ignored the real situation. The Conservatives pressed on with the tax cuts, and they must bear the main responsibility for the measures that the Gov- ernment have now been forced to introduce.

But the even more remarkable fact about the Opposition is that they are not merely continuously demanding lower taxes but are also proposing major increases in public expenditure all the time. Every day at Question Time more proposals for higher Government expenditure, on almost every subject, come from the Conservative Party, in almost every Question asked.

I ask the Opposition Front Bench just this one question. I am sorry that the right hon. and learned Gentleman has disappeared. How large is the increase in defence spending that the Conservative Party proposes? Is the hon. Member for Blaby (Mr. Lawson) prepared to tell us now? Is the figure of £1,600 million given by the Chancellor today the correct figure for the increase in defence spending proposed by the Opposition?

It is very evident that the Opposition Front Bench are not prepared even now to answer the question. The right hon. and learned Gentleman accused the Chancellor of ignorance. It is very evident that the hon. Member for Blaby is entirely ignorant of the increase in defence spending that the Conservative Party is proposing, because if he knew the answer he would presumably give it to us.

But I also noticed that the right hon. and learned Gentleman showed himself ignorant of a number of the salient facts in our present economic situation which any reasonably serious review would have included. First, I mention what he appeared to regard as a minor matter and did not even mention—the gold and dollar reserve of this country. When the Tories left office in 1974, the gold and dollar reserve stood at rather less than $7 billion. Today, after all the efforts of the Conservative Party to disrupt stability and confidence in the last few months, it stands at $16 billion—far higher—

Mr. Lawson

What about the debts?

Mr. Jay

—than at any time since the war. The latest figure is $16,661 million, one of the highest figures in the world. That is at least one factor in the situation.

Another salient factor in the situation, secondly—which the right hon. and learned Gentleman never mentioned—is that unemployment has now been falling for nine months. Of course it is much too high. Nevertheless, it means something that we have had a nine-month steady fall in unemployment and a rise in the figures for unfilled vacancies.

Thirdly, the right hon. and learned Gentleman never mentioned the enormous burden now falling on our balance of payments as a result of the terms of EEC membership negotiated by the Conservatives. Failure to mention that burden is characteristic of economic debates nowadays. I am always struck by the fact that in such debates we hear nothing about the EEC from all those hon. Members who were arguing three, five and 10 years ago that membership would mean an enormous gain to this country. We all remember the great market of 250 million of which so many people spoke.

The truth is that we are now wasting all or possibly more than all our balance of payments gains from North Sea oil in bearing the balance of payments cost of EEC membership. I give the figures only briefly. The net cost to us of the EEC budget—these are Government figures—has risen to nearly £700 million in the present year. The total balance of payments cost of the EEC budget plus the common agricultural policy was recently estimated in a report of the Cambridge department of applied economics at about £1,000 million in the present year.

In addition to that £1,000 million, we have incurred, as some of us predicted, a huge deficit in trade in manufactured goods with the rest of the EEC. The relevant comparison here is in our trade with the Six rather than with the Eight, because we were in free trade relations with Denmark and Ireland before we joined the EEC. Here the figures are equally remarkable.

In 1970, before we joined the EEC, our trade with the EEC Six in manufactured goods showed a small surplus, of £160 million. By 1977 that same trade exchange had been turned into a deficit of £1,399 million. In spite of statements that this is now diminishing, the reverse is true. For the first four months of this year the provisional figure, which I have had from the Department of Trade today, is that our deficit in manufactured goods with the Six is now running at an annual rate of £2,160 million, worse than at any time before. The "great home market" is now costing us a deficit in manufactured goods of about £2,000 million a year, which implies much higher unemployment in manufacturing industry than we should otherwise experience.

It may be that the whole increase in the deficit in manufactured goods is not entirely due to EEC membership, although the greater part of it must be, because one of the consequences of membership was that we reduced higher tariffs on manufactured goods than were reduced in return on the goods we exported. But even if one attributes only half the present deficit in manufactured goods to membership—and that is an obvious underestimate—it still follows that the total burden on our balance of payments due to EEC membership is now running at about £2,000 million a year.

That burden is therefore eating up the whole or rather more than the whole of our earnings from North Sea oil. If my right hon. Friend the Chief Secretary cares to give his estimate of earnings from North Sea oil on the balance of payments this year, I shall be glad to know what the latest figure is.

The consequence of what I have described is that we are only barely in surplus now on the balance of payments, with all that that means, when we should be earning a comfortable and established surplus. The result is that our whole economy is held back and unemployment is much higher that it need be.

The report of the Cambridge department of applied economics estimated that the £1,000 million burden on the balance of payments meant a loss of GNP of about three times that figure—about £3,000 million a year. The House can easily see what that means in terms of production, employment and exports.

I shall pursue the argument no further this afternoon, but I do not believe that the country can much longer bear the burden of that trade deficit on top of the cost of the CAP and our rapidly rising contribution to the EEC budget. Nor shall we get unemployment down as long as we go on importing that huge volume of manufactured goods from Continental Europe.

Mr. Molloy rose—

Mr. Jay

I shall not give way, as I had better finish now.

If we are serious about this country's future economic fortunes, it is surely to the removal of those gratuitous and unnecessary burdens that we should turn our minds, rather than to short-term wrangles about tax rates, the money supply and the borrowing requirement, which by comparison will have far less effect on our long-term economic fortunes.

5.56 p.m.

Mr. Reginald Maudling (Chipping Barnet)

The debate began as a debate on a motion of no confidence in the Chancellor of the Exchequer. I gather that now the Division will be a vote of no confidence or confidence in the Government. That does not make much difference, because the Chancellor is so central to the whole of Government policy that the one is commensurate with the other. However, it seems to have affected the Liberal Party, which I gather might have considered censuring the Chancellor but could not censure the Government. I have never seen a more obvious example of being Willing to wound, and yet afraid to strike". In his robust—as usual—and inaccurate —as usual—defence of his policies, the Chancellor said a good deal about the most recent measures and a certain amount about the extended past. I want to deal mainly with the most recent measures. All I would say about the Chancellor's whole past record is that it was summed up with great force and detail by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) and was not answered by the Chancellor. It is the reason why confidence in the Chancellor has gone. The overwhelming reason why we should declare today that we have no confidence in the present Chancellor is that everyone outside the House has already said precisely that.

No Chancellor can succeed if he has lost the confidence of the financial community here and abroad. It may be unjust, it may be unfair, and one may say that markets are more concerned with what they think is true than with what in fact is true, but, whether it be unjust or unfair, it is the basic truth. A Chancellor who does not command confidence cannot be successfully responsible for this country's finances.

I believe that there is no economic justification for the Government's recent measures. They have been made necessary solely by the Chancellor's mismanagement and the subsequent collapse of confidence in his ability. He confirmed that very point this afternoon, when he said that Switzerland and Germany can have a big increase in the money supply and no one worries. Why is that It is because in Switzerland and Germany people have confidence in their Governments' financial management and confidence in their Finance Ministers.

The only cause of the recent measures was the collapse of confidence in the Government. The public are being asked to pay the price of the Chancellor's failure. We must make it absolutely clear that the price falling upon the public results solely from the Chancellor's failure.

There is no economic case now for a serious credit squeeze and the effects it will certainly have on employment, investment and expansion. If there were such a case, there must have been one a few weeks ago, when the Chancellor introduced his expansionary Budget If there is an economic case now for a credit squeeze, there was no case at all for that Budget.

The Chancellor argues that the measures that he has just introduced have been made necessary by Opposition amendments reducing the rates of income tax. That is totally, palpably and demonstrably absurd. I argued on 8th May in supporting the reduction in income tax rates that the cost of our amendment fell well within the margin of error in the public sector borrowing requirement. I did not expect to have such early and complete confirmation of that from the Chancellor himself.

I wonder whether the Chief Secretary has read the main story in the City columns of The Times today. I hope that it is accurate. It makes very interesting reading: Public spending this year is now expected to be about 1 per cent. less than forecast at the time of the April Budget. This could cut as much as £700 million from … the PSBR … Mr. Healey yesterday let slip the news of the latest official revision", at a trade union conference, in … an apparently unplanned comment". I bet it was unplanned.

If this story is accurate—I assume that it is, because it has obviously been written after consultation with the Treasury—I hope that in replying the Government spokesman will say so. If the story is true and there has been such a reduction in the Government's own estimates of public spending, the whole argument that the surcharge is needed to mop up our £500 million totally falls to the ground. Either the Government must deny that story completely today or they must accept that their aguments are totally bogus. One or the other they must do.

Coming to the Chancellor's measures, the employers' surcharge is utterly misguided. Of course it will put up prices, unless the Government plan to tell employers not to put up prices as a result of this increase in their costs—although why this increase should be sacrosanct, I do not know.

But the point which the Chancellor totally ignored today is that, if employers do not pass on this increase in their costs, it will not counteract the reduction in income tax; it will only reduce corporate savings and the effect on inflation will be nil. The Government can have brought in this measure only if they intended to put up prices as a result; otherwise, it is totally meaningless.

But the measure is more dangerous than just being meaningless. It is fundamentally wrong from the point of view of the management of the economy. The Government say—I agree, and have always agreed, about this—that it is essential to restrain wage increases. They are asking the unions to restrain their demands because the cost of labour must not go up. At the same time, they are taking deliberate action to put it up themselves.

How can the Government say to the unions, "You must not ask for more wages because that will raise the cost of labour to the employers, but, by the way, you may not have noticed that we ourselves are putting it up by 2½ per cent."? No Government can possibly hope to conduct a consistent incomes restraint policy if they are deliberately doing the opposite thing. That has always been the fundamental, and I believe valid, argument against any sort of poll or employment tax since it was first suggested by Lord Selwyn-Lloyd many years ago as the first regulator.

It is clear what happened in the last few weeks. The Chancellor and the Prime Minister—he is a downy bird if ever there was one—faced with the collapse of confidence in their own policies at home and abroad, decided that something had to be done. They thought that they saw a wonderful opportunity: they could restore confidence in the financial markets for a few months—they are only thinking about the end of the year—certainly past October, by an overkill of this character and blame it on the Tories for reducing income tax. That was the scheme. It was a clever bit of political planning, but a poor way to run a country.

The main components of prices are profits and costs. I see no danger of a profits boom in the near future. I do not think that raw material prices are likely to rise much in the light of the slackness of world trade. The only increase will come from weakness in sterling, arising once again from loss of confidence in the Government.

The real danger of a renewed inflation rate comes from a new wages explosion. By this measure, the Chancellor has done all he possibly could have done to encourage a renewed wages explosion and to work against a policy of restraint.

The Prime Minister was right to say that inflation need not go up again, but that is not the same thing as saying that it will not go up again. One thing is crystal clear: if the rate of inflation rises again, the blame will rest there—on the Government Front Bench.

6.5 p.m.

Mr. George Robertson (Hamilton)

I do not need to underline to this House the pride I have in being elected as Member of Parliament for Hamilton. I hope that my presence here and the result in that constituency are of some little relevance to this debate.

It is a great honour for me to follow in the footsteps of the late Member for Hamilton, Mr. Alexander Wilson. I knew him well and I know that he was widely respected in the House. He was a man of dignity and integrity, who worked quietly and without fuss in his constituency and in the House pursuing the interests of the people of Hamilton and of Larkhall. He did so diligently, without publicity and with honour.

The work which Mr. Wilson did quietly was all designed to help the people of the area and to further the interests of his constituents. I know from the volume of work which is there and the catalogue of achievement mentioned to me during the by-election that he was a man who clearly made an impact in the House and had much to offer.

Although I am proud to be the new Member for Hamilton, I am aware that that is possible only due to the tragic and untimely death of Alex Wilson. I know that he also made a considerable contribution within the parliamentary mining group. That is an industry which he knew well and from which he came. He is well remembered within the industry in Scotland, throughout Scotland and in the mining group.

At this stage in history it is also a pleasure for me to represent Hamilton because the features of that part of Lanarkshire show all the promise of the new Scotland which lies ahead. It is an exciting mixture of ages, of classes, of population and of industry. In that mix it has changed dramatically from the older and more traditional industries of the past—especially that of mining, on which Scotland's economy previously relied—to light engineering, electronics and the production of sophisticated clothing. In those areas it is excelling. The character of Hamilton is an indication of the way in which Scotland will go in future—not just electorally but in the areas of industry and of technological progress.

During the by-election, as perhaps during any by-election, local circumstances and problems were highlighted. Although there is much of promise in the area, one of the greatest causes for concern is unemployment. As an aspiring Member, I made it my duty and obligation to pursue the subject of joblessness in the community. We cannot rest, in the House or throughout the country, as long as the present level of unemployment continues.

At 11 per cent., unemployment in Hamilton is considerably above the Scottish and national average. It is a sub- stantial problem. The most serious aspect is youth unemployment. The prospects for young people leaving school this year and in future without jobs are a matter of concern for them, for their parents and for us in society as a whole, because the future of the country and the future stability of society will be largely dependent on the sort of future that we can offer to young people.

I feel that we have in the country as a whole to make a concerted effort to ensure that the problems of unemployment that we now face are purely temporary, and that we can build a future prosperity which will mean that especially the young people will be assured the jobs, the training and the prosperous future that they would wish for themselves, and that their parents would wish for them.

However, I fought a campaign based on the Government's record. I did it not uncritically but not apologetically, and I asked the people to give their assessment of the situation and their view of the future and to say which party they would trust to run the country's affairs in the future. In the context of this debate, it is instructive and relevant to remember the answer that the people gave.

However strongly we feel about the present position of the economy, we must recognise that locally and nationally much has been done to alleviate the problems of unemployment, and especially to look after the needs of young unemployed people. In the Hamilton area, much has been done about unemployment as a whole. In the past five months there has been a positive increase in employment and a very clear decrease in unemployment which has been greater than the national trend, which in itself is welcome. As for youth unemployment, over half those between the ages of 16 and 17 registered as unemployed are already involved in job creation schemes and Government-assisted programmes. We were able to show that, although there was a level of concern that we should not in any way attempt to disguise, there has also been positive Government action to make sure that the impact was the least that was possible in the circumstances.

The area also shows other signs of Government intervention, and of the intervention of a Government in regional policy which has made a serious impact on the problems of Central Scotland. The Scottish Development Agency—of which I was privileged to be a board member until I came to Parliament—had quite a significant impact in the area. Its industrial estates employ the vast majority of the people in the area, and in companies in which investment has taken place in surrounding areas jobs have been safeguarded for people who work within Hamilton. In the steel industry—one of the largest employers in Hamilton, although it is marginally outside the constituency—investment by the Government has assured the future of Ravenscraig and associated industries.

Although temporary Government measures are not an answer, there are all the signs in the area that the jobs which are necessary for the future, the growth that is needed and the hope that is desired by the people are being promised by the Government. The people in my area gave a pretty clear and decisive answer as to which party they would trust for the conduct of their affairs in the future.

The acid test at the end of the day is the will of the people, and there have not been very many tests of public opinion in Scotland where the issue has been put to the country. Not only has the Government's record been judged and, I think, honourably tested in this election. The future of the constitution of the country was also put to the test in the circumstances here. The policies of separation and of the disintegration of the United Kingdom as we know it were clearly put to the electorate. The electorate gave an answer which shows that people in that area, as throughout Scotland, want to see Britain united and the problems faced head on.

I also feel that one of the lessons of that by-election, and its result in my presence here today, is that the people of Britain and of Scotland are tired of the cynical manipulation of policies by whichever party may choose to pursue them. They have rejected confrontation quite clearly and precisely whether it be in industry or within the separate parts of this country. If there is an answer to be taken from any of the election results that we have had recently, it is that the constitutional settlement proposed by the Government is necessary, desirable and in keeping with the desires of the peoples of this country, who are looking for a different constitutional set-up.

The Government's resolve in this area of the constitution, despite the frustrations with which they have clearly met so far, has been of enormous consequence in stemming the tide towards the break-up of the United Kingdom. I believe that the lesson of the present period is that the British people are tired—and clearly tired—of confrontation, and that they will in future continue to put their trust in this Government, believing as they do that only this Government's competence, conviction and philosophy will be relevant to the problems of all these islands in the 1980s.

6 15 p.m.

Mr. J. Enoch Powell (Down, South)

The hon. Member for Hamilton (Mr. Robertson) has come to this House fresh from a by-election which was of more than passing importance and on which the eyes of all parts of the United Kingdom were directed. He has plunged straight into a debate which we learn is on a matter of confidence, and into the heart of political controversy. He has thereby given a sign of possessing at any rate one of the indispensable political qualities—that of courage.

The hon. Member referred in fitting terms to his predecessor's devotion to the interests of his constituents, and he mentioned that his predecessor had gone about that part of his work very quietly Indeed, I happen to believe that our work for our constituents, individually and locally, is, on the whole, best and most sucessfully achieved if it is pursued quietly. But the hon. Member will he called upon to display the quality of political courage in facing the questions of the age into which we have entered. It is a time when questions which go to the very existence of the United Kingdom, and the powers of this House, divide not only the two sides of the House but the individual parties. We shall look forward to watching the hon. Member's progress and his development in that environment

Time was, I believe, when a member of the Government who was the object of a motion of personal censure would consider it incumbent upon him, so far as he possibly could, to be in attendance upon the House throughout that debate, to hear what might be said, and to hear it said to his face. Although one recognises, of course, the other calls upon the time of an exalted Minister such as a Chancellor of the Exchequer, I think it should be said that throughout this debate his place primarily is on the Front Bench. I am not sure that the Chancellor, as the occupant of his office, has not relied too much, or more than he ought to have done, upon the loyalty and, I may say, upon the ability and the diligence of the team by which he has been supported. We could have done, and I think they could have done—perhaps he could have done—with his presence in the House more often during economic debates.

If the right hon. Gentleman were here now, as he ought to be, it would be useful to remind him of what he appeared to have forgotten, that is to say, what he forecast on 8th May when the debate took place of which this debate is in a sense a continuation and an intensification. When he spoke at the beginning of that debate he envisaged the possibility of the amendments being carried against him. We should remember what he then told the House the Government would do if those amendments were carried. He said, no more than just over a month ago: The Government would thereafter watch the situation closely both as regards the development of the economy in the coming months before the payments to which I have referred are made"— those were the repayments of tax in the autumn— and as regards any further irresponsibility in Finance Bill debates. The Chancellor went on to say: As I have explained, the outlook for the PSBR is inevitably uncertain. I shall monitor its movements continuously to ascertain whether it is likely to exceed £8½ billion. If it seems likely to do so, the Government will take all necessary steps to correct it."—[Official Report, 8th May 1978; Vol. 949, c. 817.] That was the position five weeks ago in the first half of this debate. The Chancellor did not consider that the carrying of those amendments, at a cost of £500 million in the current year, called for any immediate action. The Government would stand back and watch the development of this situation over the coming months; but if the PSBR of £8½ billion was going to be exceeded, they would have to take all necessary steps to correct it. It is pertinent to inquire what has happened since to alter the course of action which the Chancellor then foresaw. It was certainly not that the total PSBR for the financial year is now foreseeably going to exceed £8½ billion. The right hon. Member for Chipping Barnet (Mr. Maudling) pointed out, and again it bears quotation, the news attributed to the Chancellor himself in The Times this morning that Public spending this year is now expected to be about 1 per cent. less than forecast", which would be equivalent to a reduction of £700 million, not £500 million, in the PSBR.

Be that right or wrong, the fact is that at this stage in the year the fluctuation in the various items of expenditure and in the rate of the various items is such as to throw up alterations in magnitude far greater than £500 million—the point upon which the Government have sought to base the pyramid of their accusation against the Opposition. In any case, the Prime Minister himself only last week put an end to any idea that the condition precedent, set by the Chancellor, might have been fulfilled; for in his excitement over his usual duel with the right hon. Lady the Leader of the Opposition he put his foot through his own hoop. He was talking about the borrowing requirement: it is true", he said, that both last year and this year it was estimated at £8.5 billion. Last year, it turned out to be about£5 billion, or perhaps a little lower. Then he went on: Because of the difficulties of estimating these borrowing requirements, no one can say to what extent it will be accurate this year, but £8.5 billion is a reasonable figure to take and to work on. No one can say at this stage that it is likely to be over the top."—[Official Report, 8th June 1978; Vol. 951, c. 363.] So we have the authority of the Prime Minister himself not only for the complete uncertainty—on a scale far exceeding a mere £500 million—of what will be the PSBR out-turn for the current financial year, but also for the proposition that, at any rate, so fax nothing has happened to force upon the Government the urgent conviction, calling for instant action, that the £8½billion limit is to be overshot.

What happened? I do not think one can describe more concisely what happened than in terms—I am sorry to quote The Times twice in one debate; I apologise for that—in its report on Friday 9th June. It ran as follows: In recent weeks the Government has found itself trapped in a vicious circle in which institutions have not bought gilt-edged stock because they felt that money supply was growing too fast, and the failure of gilts to sell was forcing the Government to expand the money supply to pay its bills. What happened, in short, was that the Government found that they could not borrow. They suddenly found they did not have the credit to be able to sell Government stock. There was a collapse in the Government's borrowing power which they had not expected—the less so because a month ago the Chancellor took additional credit for the fact that this year, in the few weeks since the Budget, the movements of the exchange rate had been such as to diminish his borrowing needs rather than to increase them, as had been the case the previous autumn. Still, there was the fact, staring the Government in the face, a fact which they could not banish and in the face of which they had to take action—the action announced last week, including the imposition of additional taxation, which happens to be a sum calculated to offset the cost of the amendments carried on 8th May.

The reason why the Government found themselves unable to borrow, the reason why they ran out of credit, was not that people said "Aha, this year, as a result of what happened on 8th May in the House of Commons, the PSBR will not be £8½ billion—Heaven help us, it will be £9 billion! It will be one-seventeenth greater than the Government had anticipated". To suggest that this was a disastrous turn-round in face of which confidence of course ebbed away and the Government were unable to sell their stock is ludicrous. The inability of the Government to borrow was not the result of £500 million more or less upon the prospective out-turn of the PSBR, come the time when it is all added up next March or April. It was due to the fact that the Government are already borrowing hugely more than can be sustained over a period.

No one can foresee or predict—no one could have predicted—exactly at what point of time that excessive borrowing would produce its inevitable effect. But it produced it right enough. The symp- toms appeared last week. Year after year the Chancellor has come to this House with the air of a boy riding a bicycle with his hands off the handlebar saying "See, no hands. Whatever the PSBR is, I get away with it". This time he has not got away with it. It is not the £500 million, more or less, involved in the decision of the House on 8th May. It is the fact that for this country, in our circumstances, a PSBR of the dimensions of £8 billion is unsustainable. It is that borrowing requirement, that balance of our public finances, which destroys what my old friend and colleague, now the noble Lord Lord Rhyl, once described as one of the conditions of civilised life that the Government should be able to borrow"— —that is, able to borrow genuinely, not to borrow through the banks and thus create new money.

It is, therefore, a sentence upon the whole financial policy and management of the Government which has been pronounced in these last days by the behaviour of the market, and the reaction of the Government themselves to it. But it is not something which has come suddenly or unexpectedly. This is not an irruption from outer space or an act of God. This is something which sooner or later was bound to come home. We could not go on—and I am not the only person who said it, although I have said it year in and year out—budgeting annually for that size of borrowing requirement and hope to get by, taking one year with another, without being forced to create inflation.

It is no use expressing the borrowing requirement as a fraction of the gross national product and then engaging in one of these silly international comparisons and saying that the Germas do it or the Swiss do it. Perhaps the day will come when the credit of this country and the expectations as to its financial management and its standards are so restored that, if necessary, we can borrow with safety the same proportion of the gross national product as they can borrow in the Swiss Confederation or in the German Federal Republic. But that is not our situation and we have known that it is not our situation these many years; for it is not only the present Government who have been gambling. For years both parties have gambled knowingly and it is catching up with us at last.

Two questions were opened in the debate on 8th May. The first was answered by the decision of the House on that occasion. It was answered to the effect that in the view of the House a greater priority should have been accorded to the reduction of personal taxation especially on the higher incomes.

But there was a second decision, which was left open—whether, in consequence, it was necessary that an adjustment should be made in the revenue. That was the second half of the debate.

Before, however, that second half came up, it was overtaken by a verdict not upon the minute financial consequences of the decision of 8th May, but upon the whole financial management over the past five or seven years of the Chancellor of the Exchequer and, I am prepared to say, of his predecessor.

Dr. Jeremy Bray (Motherwell and Wishaw)

It seems to me that, however low the borrowing requirement, if the Chancellor has to specify a target the gilt-edged market will speculate about it and the interest rate will go all over the place, anyway. Surely this arises from having a target at all, rather than any level of target.

Mr. Powell

I cannot agree with the hon. Gentleman that the financial consequences for Government of a borrowing target of £1,000 million are the same as those of a target of £10,000 million. The hon. Gentleman waves his hand airily; but there comes a point, and we now know that we are past it, at which saturation has been reached. We knew that we were going to reach that point, and now we have got to it.

In these debates we have for a long time, perhaps deliberately and perhaps out of a certain sense of delicacy, been dealing in magnitudes which were not the important magnitudes. The PSBR in itself is not significant: it is how the PSBR is financed that is significant. The Chancellor of the Exchequer is right in saying that there is no necessary connection between the size of the PSBR in any one year and the growth of the money supply that year or the rate of inflation at whatever is the appropriate time lag thereafter. That depends upon the extent to which the borrowing requirement is financed by genuine borrowing or has to be financed by inflation.

Similarly, there is no real meaning in talking about the injection of stimulus into the economy of so much and no more—£2 billion but not £2½ billion—for that £2 billion or £2½ billion is only the marginal element of the total borrowing requirement, so that again we are brought back to the question of the possibility and practicability, one year with another, of borrowing the sums required from the non-banking sector.

We are coming to the point when we have to acknowledge that our budgeting and the conduct of our finances have for long been unbalanced. We can now restore it only if we are prepared to give back to the Government the control over the money market. There is only one way in which the Government can have control over the money market. There is only one way in which the Government can decide how much extra money they will create. It is all very well to have these targets of 8 per cent. or 12 per cent. of M1 or M3, but the decision on the matter will rest with the Government only if they are not forced to borrow an excessive sum month by month and year by year to get through. If they need to borrow no more than they are in a position to borrow on their own terms, only then can they genuinely decide what stimulus they will give to the economy by an increase in the money supply. Then and only then will the Government be the masters, and not the forces which create inflation.

This is a vote of censure, of censure upon the management which has brought us to the necessity for last week's events. It is also a vote of censure upon a House which has been content to walk the edge of a precipice year after year, considering that the lesser evil was the wobble from time to time into a greater or lesser degree of inflation.

I hope we are coming to the end of that phase. Knowing now that we shall have to produce a different balance between revenue and expenditure, I hope we are coming to the end of the phase in which we have these silly exchanges of taunts between the two Front Benches in which they ask "What would you cut? Where would your control of public expenditure be?" I hope that we are coming to the end of the era in which Government and Parliament were at the mercy of inflationary forces and to the beginning of the next era in which, in the name of the people of this country, we in this House, and the Government through us, take real control.

6.37 p.m.

Mr. John Evans (Newton)

It is a great privilege to follow in debate my hon. Friend the Member for Hamilton (Mr. Robertson). Like my hon. Friend, I am also a member of a trade union. His magnificent maiden speech shows the tremendous strength of the British trade union movement when it can bring forward men like my hon. Friend who speak with such clarity.

My hon. Friend referred to work done by his predecessor, and we all knew Alec Wilson very well. I am sure that Alec Wilson would be proud to know that his constituency was being served so well by the man who has followed in his footsteps. We look forward to further speeches in the House from my hon. Friend the Member for Hamilton on the economy and on industrial affairs. He has also strengthened the trade union group in the House and we look forward to his participation in the activities of the trade union group. We sincerely hope that after the next General Election more trade union members will come forward and represent the Labour movement in the next Labour Government.

The remarkable speech of the right hon. Member for Down, South (Mr. Powell) aroused much interest on the Conservative Benches. It seemed to arouse more interest than the speech made by the right hon. and learned Member for Surrey, East (Sir G. Howe). But the right hon. Gentleman did not tell us how he and his colleagues will vote tonight. He has once again left us in a cliffhanger situation. Sometimes ordinary people understand and appear to agree with the right hon. Gentleman's views on race, but they have not the faintest idea of what he is talking about on the subject of economic affairs.

One of the problems of ordinary people when attempting to follow economic affairs debates is deciding whether politicians are talking gobbledegook when they refer to the PSBR, the M1 and the M3. It would help if Members talked in ordinary language so that ordinary people might understand them. I say that of every hon. Member who considers himself an economic expert—and I hasten to add that I do not consider myself to be an economic expert. Indeed, when I survey the ruins to which the economic experts have reduced this country I sometimes think that it would be better to get rid of at least half of them.

The motion is probably the most cynical that the Opposition have ever put before the House. I am forced to wonder why they did not table a motion of censure but sought to treat this debate as a personal attack upon the Chancellor of the Exchequer. The right hon. Member for Down, South referred to the Chancellor's absence from the debate. It is only fair for me to point out that he is now back in the Chamber listening to the views of hon. Members. The Opposition tabled the motion with their usual cynical approach and tried to suggest that the minority parties should support them in this venture. It is right that the Government should have turned it into a motion of confidence, and we shall watch with interest to see how the minority parties vote.

There is no doubt that the people of this country accept the arguments and policies put forward by the Government. The victory of my hon. Friend the Member for Hamilton, at the by-election is evidence of that fact. I am confident that we shall win the next General Election on the policies of the Government over the past two years. If the minority parties do not follow the Government into the Lobby they will earn the wrath of the British people when they give their opinion of the performance of respective parties in the difficult circumstances of the last four years. I hope that the Opposition parties will have enough acumen to join us in the Lobby. Otherwise they may be charged by their own supporters with naivety and opportunism.

Of course, Opposition parties have the right to be critical of the Government, as the leader of the Liberal Party was earlier. Indeed, I am sure that Ministers appreciate that many of their own Back Benchers are sometimes critical of the Government. I wonder what last week's measures, which seem to have been received with such glee in the City, will do for employment or the confidence of the trade union movement in agreeing to another round of pay policy. I am sure that no one will suggest that those measures will improve employment opportunities at a time when unemployment is still far too high, particularly in the region that I represent. They will certainly do nothing to produce a better climate for another phase of pay policy. When we consider the effects on mortgages and local authority borrowing and the likely impact on council house rents and rates, we can hardly suggest that the people who normally vote Labour will be delighted by the performance of the Government in the past week.

However, I recognise that the Government had to repair the hole that the Opposition blew in the Chancellor's strategy, and it is irresponsible for the Opposition to suggest that the Chancellor's salary should be reduced when he is attempting to make good the hole that they blew in his strategy.

The main subject with which I wish to deal is pay policy. It is obvious that, in one form or another, we shall have another round of pay policy. I do not criticise the Government for attempting to achieve another round of the policy, but I am entitled to criticise the fact that after three years of pay policy we have still not worked out a strategy on pay policy with the trade union movement and employers.

I thought that in the last three years the Government would have had a public debate with Parliament, the trade union movement and employers about the sort of economic contract that the people of this country would like to enter into over the next decade. We hear a great deal about the City, the public sector borrowing requirement and the money markets, but it is the strength, ability and courage of the British people that will put this country on its feet. As an old trade union leader once said, if the City of London caught the flu tomorrow and dropped dead nothing much would change, but if there were a flu epedemic that killed all the workers the country would go bankrupt overnight.

It is essential to start a debate with the trade union movement and employers about what we mean by pay policy. Certainly a long-term policy would be better than a policy that was entered into in July or August and seemed to settle the markets and steady the pound until after Christmas but then created uncertainty because of the media contemplating whether there would be a further round of pay policy in the next July. It is time that the Government embarked upon a debate with the trade union movement on the need to work out a policy.

There have been three years of non-statutory sanctions-backed, allegedly voluntary—but often compulsory—policies which have been relatively successful and have played a major part in reducing inflation. I am sure that we all agree that maintaining the level of inflation at that of our competitors should be our aim, but we must ask where we go in the future. What are we aiming at for our society? Is it to maintain unemployment at more than 1 million or to maintain the trade union movement shackled into a position that causes considerable controversy in industry?

The Opposition are happy to talk about the country being in the grip of militant trade union leaders, but we sec at Leyland that tool room workers are taking action against their own union—my union—which is trying to suggest that the men should return to normal working. That is the sort of problem that we face at present.

Everyone agrees that across-the-board pay policies are fair—provided that they do not apply to him. As long as they apply to everyone else, pay policies are acceptable, but everyone regards himself as a special case needing a special deal. We hear that approach time and again from the Opposition in relation to the police, the Armed Forces and various sectors of industry. All the opinion polls bear out that everyone agrees that pay policies are necessary, but not if they apply to him.

We must also recognise that the term "free collective bargaining" is meaningless in the public sector. It has never existed in the public sector because that sector has always been restrained by the Treasury, the ratepayer or, sometimes, by a combination of the two. In the private sector free collective bargaining is acceptable, but it is often unfair and in many places workers doing similar jobs in different firms receive different levels of income, often for historical reasons. In addition, free collective bargaining in the private sector can create problems and unfairness for public sector workers, and one group of workers is therefore set against another.

We must also appreciate the special position of workers in certain nationalised industries. Coal, steel, railway, gas and electricity workers are virtually operating in the industrial sector. They are industrial workers and want to be treated as such, certainly for comparison with other workers doing similar work.

We must recognise that there is a very large element of the population for which only the Government can cater—the pensioners, the sick, the disabled and the unemployed. Their income can come only from the Government and the Government can provide it only through taxation. Often anti-inflation measures introduced by the Government create hardship and unemployment for those at the bottom end of the ladder. Those whom the Government must look after are often the first to feel the effects of the anti-inflation measures such as those which were undoubtedly necessary when we were going through the period of 25 per cent. inflation.

A healthy public sector paying excellent wages and providing excellent conditions for its workers requires a healthy industrial sector, both public and private, which is winning orders abroad and improving its productivity. Whilst the rest of the world certainly admires much that is British, other countries certainly will not stand by and allow markets to be given to us. We shall have to fight other nations in the best possible way by winning orders in open competition.

Therefore, there will have to be a dialogue between the Government and the trade union movement about incomes. While the trade union and labour movement talks a lot about a planned economy, the fact remains that we cannot simply talk about planning agreements for industry, equitable taxation policies, a fair comprehensive education system, compassionate social service and pension policies, just housing policies, a thriving National Health Service and a massive reduction in unemployment and at the same time say that wages can be left to the law of the jungle and that only those who have muscle shall benefit from whatever is going. Therefore, in that context there must be a dialogue which must be based on an equitable share of the national cake. Through dialogue we can discuss all the policies which are involved and we can then achieve what I believe is possible in this country—a steady and a prosperous future.

We in the labour movement have seen the alternative. The report which the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) leaked to the Press gave to the working people of this country a glimpse of what would happen if the Opposition were returned to power. We should have industrial anarchy, confrontation, the law of the jungle and unemployment. I am sure that the British people do not want that. Therefore, it is up to my Government to ensure that we enter into a meaningful dialogue with the organised working people of this country.

6.45 p.m.

Mr. Donald Stewart (Western Isles)

I congratulate the hon. Member for Hamilton (Mr. Robertson) on his maiden speech. It was a very lucid, well delivered speech, and, although I know that he has considerable experience in public speaking, that is rather different from rising to one's feet for the first time in the House of Commons. It was a very robust speech, and the fact that I disagreed with 80 per cent. of it makes me all the more keen to hear the hon. Member again so that we may have a chance to cross swords. Also, as one of the friends of our late colleague Alec Wilson, I support the hon. Member in the fine tribute he paid to his predecessor.

The right hon. Member for Battersea, North (Mr. Jay) made a very good point when he drew attention to the fact that the United Kingdom's membership of the EEC is hardly ever mentioned in economic debates. He laid strictures on the Conservatives, quite correctly, for their negotiation of our entry. Unfortunately, too many of his right hon. and hon. Friends shared the same delusions, and this has caused great discomfort to all of us.

In his speech today the Chancellor painted a picture of a country that has been transformed from near bankruptcy—without ever mentioning how we came to be in that position—to prosperity. That is a totally false picture. He also gave us additional forecasts today, something which he does frequently. I expect that there will come a time when he will come to the House after Question Time and present us with a fresh Budget as an application under Standing Order No. 9.

Successive Tory and Labour Governments have claimed that unemployment and raging inflation are the products of a world-wide economic recession, but the fact remains that we have fallen catastrophically behind our industrial competitors. Our economic success, in terms of income per head of population—and that is a fair gauge—can be measured by the fact that the United Kingdom was fourth in the world league table in 1960. We were behind only the United States, Sweden and Canada. By 1975 the position had deteriorated dramatically. We had crashed to seventeenth place behind all our major European competitors, apart from Italy.

A belief has been fostered by the Government and swallowed by the credulous that our economic difficulties have been overtaken. However, almost every economic forecast, apart from the Government's, underlines the stagnant level of our production—still about the level of the three-day week—the low levels of investment, the high level of inflation, and the balance of payments difficulties in the offing. All these point to the paucity of the claim that the situation has been satisfactorily improved.

My party has taken a decision to vote tonight on the Government's record in Scotland. It is based on three basic points. The first is the misuse of the oil resources, which were diverted to the Treasury, bypassing Scotland. We have a country with mass deprivation, unemployment and lack of opportunity, yet the resources from the Scottish sector of the North Sea—the terms of the Government's own document—have been taken away to the Treasury in London. Mr. Peter Balfour, chairman of the Scottish Council (Development and Industry), said on 9th March: The bonus of oil revenue must not only be invested to secure our long term position, but should also be sepaartely identified and accounted. It should not be allowed to disappear like some maxi road fund into the maw of the Treasury and disappear without trace. Nor should it in my view be used to finance programmes in which the Government would have been obliged to invest anyway, but should be spent on imaginative new projects which would otherwise be beyond our capacity to finance. I believe that the Government's decision to divert these resources to the Treasury will simply mean that they will he raided and looted by the Government as the road fund was in the 1920s. At a time when Scotland has the first chance in two centuries to restructure her economy, little or nothing has been done about it. In the absence of a Scottish oil fund, Scotland has no access to the investment benefits of oil revenue. Where is the economic plan? It is non-existent. Does that demand a vote of confidence from my party?

Social deprivation in the west of Scotland is still largely unchanged. It is an appalling shame, unequalled by almost any country this side of the Iron Curtain. The Government have only toyed with the problem. They have had four years to mount a real offensive on these conditions, but they have done little about it. Does that qualify for a vote of confidence?

The Labour Party manifesto for October 1974 stated: The first and overriding priority facing Scotland in the next five years will be to create more and better jobs. We shall act to protect our existing jobs and expand our existing industries, as well as attract new industries and new jobs to Scotland. That promise has been totally betrayed. In February 1974 the unemployment figure in Scotland was 93,000. In February this year it was 196,000—more than double. We have seen a breach of faith by the Department of Industry following the pledge given by the Secretary of State that the new Chrysler model would be built at Linwood.

In these areas—unemployment, the misuse of oil resources and social deprivation, not to mention all the others—the Government's record in Scotland is totally without redeeming features. The Government have been faithless and they have abandoned their election promises. There is not a scrap of evidence to justify the support of my party in a vote of confidence, and my party will refuse to supply that support.

The Minister of State, Scottish Office (Mr. Gregor MacKenzie)

Before the right hon. Gentleman resumes his seat, may I put one point to him?

Mr. Deputy Speaker (Sir Myer Galpern)

The right hon. Gentleman has resumed his seat.

7.0 p.m.

Mr. Archibald Hamilton (Epsom and Ewell)

I am grateful to be called to speak in this important debate and for this opportunity to make my maiden speech to the House.

I was lucky enough to have been elected in the recent by-election to a constituency in one of the most pleasant and sought-after areas of the country. But, in common with most places, Epsom and Ewell has its problems, and the one that has been most persistent is that of rogue gipsies. Gipsies have historic rights to make use of Epsom Downs at certain times of the year, but today constituents are faced with the problem of rogue gipsies many of whom are not proper gipsies at all, who camp in the centre of the area the whole year round. Many of these people openly flout the law and are a source of great aggravation to shopkeepers and townspeople alike. At the same time, they claim protection under ancient Acts of Parliament.

Epsom and Ewell is associated with the Derby and has an extremely fine racecourse. Only last week 250,000 people cheered home an English horse and an English jockey in an extremely exciting finish to what is without doubt the most famous race in the world. Racing and British bloodstock remain an important industry in the constituency, and play a significant role in helping our balance of payments, but it is regrettable that the number of Epsom trainers in the post-war years has declined from 22 to eight, with the inevitable loss of jobs that has resulted.

In the seventeenth century Epsom was a fashionable spa favoured by royalty, which is how we come to have Epsom Salts. Unfortunately the salts, renowned for their properties as a purgative and chemically known as magnesium sulphate, are no longer produced in Epsom but are more likely to be imported from West Germany. One wonders whether this is a case of misrepresentation under the Trade Descriptions Act. However, the constituency continues its association with the health of the nation, and today has four large mental hospitals serving many London boroughs.

I also wish to take this opportunity to pay tribute to my predecessor, Peter Rawlinson, who represented the constituency for nearly 23 years. He is now Lord Rawlinson of Ewell, having been deservedly elevated to another place. His distinguished record as a Law Officer took him through some very troubled times in our recent history when terrorism in British cities was at its worst. Both Peter Rawlinson and his family had to be given the strictest possible police security, with all the inconvenience and discomfort in which that resulted. I am sure that hon. Members will join me in wishing every success to him in his future career, wherever it may take him.

I have spent most of my working life in industry, and I share the concern of hon. Members on both sides of the House that British manufacturing industry has been in a state of decline for far too long. As competition from the developing world gets fiercer, many of our traditional industries are under threat and are unsure of their survival, yet the Government propose to burden them with increased national insurance contributions and higher interest rates. Surely it would be better for Government to cut back on public expenditure than to impose an even heavier burden on the industrial sector. We shall never be able to reduce the queues of unemployed while the Government make it more expensive to take on labour. We shall never get the level of investment that we need in industry as long as Government borrowing pushes up interest rates, and high personal taxation holds down consumer demand. It surely must be apparent that the Government can either increase public spending or it can set about reviving British industry—but it cannot do both.

I describe myself as a small business man, by which I do not mean that I am particularly small, but the engineering company that I run employs 35 people. From my experience, I have found that many small businesses are under-capitalised and depend most heavily on their skilled employees. As little of their machinery is automated, the only way they can respond to rising demand is by taking on more operators. In contrast in our large industries, demand can increase significantly before they need to employ more workers. But many of our small businesses could expand their work force in these days if they did not feel that the Government were against them and that the future was so uncertain.

So much of the Government's recent legislation has only succeeded in discouraging employers from taking on labour and building up their businesses. The effect of employment protection legislation means that many small businesses are now employing workers on short-term contracts to avoid the liabilities that arise from longer periods of service. When small business men hear about the workings of the industrial courts, it is always the horror stories of anti-employer bias and exorbitant awards that get the widest coverage. Few of these people feel confident enough to conduct their own defence and therefore they hire lawyers—and legal fees can mount alarmingly.

It is hardly surprising that so many small employers settle out of court to avoid spending valuable time away from work. It is no surprise either that unions invariably advise their members to have a go in the industrial court. It can so often produce a tax-free bonus for very little effort and no expense. Hon. Members must question the wisdom of legislation that protects people at work but at the same time puts more men and women in the dole queues.

What a tragedy it was that the Chancellor of the Exchequer's thirteenth and fourteenth Budgets missed such a golden opportunity to give a new deal to British industry—a new deal to transfer the burden of tax from what we earn to what we spend, so that wage earners can once again be rewarded for their efforts, so that it will be worth while to work the extra hours, or to train for greater skills or promotions. We need a new deal that would make it pay for craftsmen to work for industry again rather than doing, as we know they all do, work outside for cash, a new deal that would bring much of our ablest professional and managerial talent back from abroad to work for the success of this country, and a new deal that would put heart back into our profitmakers—the men with the new ideas, the men who can react quickly to changing market conditions. I refer to men such as my former constituent, Sir Freddie Laker, who was justly recognised in the recent Birthday Honours, and who can take on the giant organisations and beat them. These are the men who can get British industry moving again, who can realise the potential of our inventors and engineers, and who can put Britain back on the industrial map.

Finally, surely we must try to bridge the gulf that divides people at work. Now that so many industries are fighting for survival, should we not work together for prosperity which everyone can share? Should not the Chancellor encourage an attitude to profits so that all the workers in an enterprise can participate? I wish to see Britain adopt a system similar to the system in France where profit-sharing schemes are tax-deductible to the company and, after a period, are paid tax-free to the employee.

People in industry must realise that the divide between "them" and "us", between management and unions, is largely illusory. The real division is between success and failure, between profit and loss. Industry stands on the right side of that division when everybody works together for the prosperity in which all can share.

I wish to thank the House for listening to me so patiently.

7.8 p.m.

Mr. Ian Wrigglesworth (Thornaby)

It is a great pleasure to congratulate the hon. Member for Epsom and Ewell (Mr. Hamilton) on his maiden speech. We have listened with great interest to the facts that he gave about his constituency. Some of us do not know that constituency at all and therefore probably listened with greater interest than those hon. Members who know the area. We also listened with interest to his comments arising from his connection with business as a business man. I am sure that he will have further opportunities to put forward his views on that subject in the House. We look forward to hearing those views and his experiences which I am sure will be of value to the House, even though all of us may not agree with him.

We hope that the hon. Gentleman's predecessor, Lord Rawlinson of Ewell, a distinguished former Member of this House, will achieve success in another place and in his career. We hope that the hon. Gentleman will follow in Lord Rawlinson's footsteps and will have an equally distinguished career in this House.

The House must support the Government and the Chancellor of the Exchequer because the strategy offered to us by the Opposition, such as we can work it out, is wrong and would do great damage to the country. The Government's strategy, as outlined in the past few months and in recent weeks, and indeed over the longer period of the Labour Government, is clearly right for the country and has been of enormous benefit to our people.

Although the first three years of our period of office were years in which people had to tighten their belts and suffer from some of the difficulties that arose from the period of the previous Government, we are now reaching a situation where we shall be on top of inflation and where we can begin to see some of the benefits that have been worked for and for which sacrifices have been made over the previous two or three years.

The Opposition have been trying to inflict on Britain the same economic irresponsibility in Opposition as they did when they were in Goverment. The criticism that we make of the specific action that they have taken in the past few weeks in making further cuts in taxes is one that is straightforward in economic terms. In the past few months domestic expenditure has been considerably boosted. Retail sales have risen by 2 per cent. in May and by 7 per cent. over the past six months, which is faster growth than we have seen since 1972–73. If there were to be a further boost to the economy, the boost should not come in the form of further tax handouts. Such a course would almost certainly lead to a further increase in domestic expenditure.

In my view, and in the view of most Labour Members, if there were sufficient flexibility and the possibility of making a boost, that should be directed into forms of public expenditure that would give rise to increased employment and help industrial capacity in a way that increased domestic expenditure would not.

The reason for the increase in domestic expenditure is there for all to see. We have had a successful year of pay policy in which prices have not risen as much as pay. Indeed, price increases have been considerably less than the increase in pay, so there has been a considerable boost to the money in people's pockets over the past year. In addition, the Chancellor in his Budget made substantial reductions in taxation that have gone into people's pockets. It is only natural that the boost in domestic expenditure, in retail sales, has taken place. To adopt a policy of further boosting domestic expenditure would be wrong.

If such a possibility existed, the boost should come in construction—for example, public works, housing, hospitals and other such sectors. That would have a beneficial effect throughout the construction industry, which would be welcomed by my hon. Friends.

Any increase in capacity or in public expenditure was not possible. It was not possible to boost the economy more than my right hon. Friend did. Indeed, at the time of the Budget it will be remembered that there were those, especially in the City, who said that the cuts that the Chancellor made should have been less than £2 billion. There were some who were pressing for £1.7 billion while others urged £1.5 billion. It may be that the views that they expressed led them to be alarmed in a way that has not been helpful because of the subsequent Budget that the Chancellor introduced.

When we talk about the public sector borrowing requirement being £8½ billion and we look back to last year and find that it turned out at only £5.7 billion, it is clear that we must make some judgment at the time of the Budget on what can be done. The Chancellor's judgment was one that I felt went as far as the Government could go. It was what the CBI was pressing for at the time. Therefore, it might have been expected that the market would accept that judgment and be prepared to fund the Government's borrowing requirement in a way that they clearly have not done in recent weeks.

I should have been happy to see the Chancellor take the steps that he took rather earlier so as to forestall some of the increases in interest rates that have taken place. However, there is no doubt that the steps were necessary.

The right hon. Member for Down, South (Mr. Powell) says that we have reached the end of the road. It is clear that the market does not agree with him, otherwise it would not have been buying gilts in the period since the Chancellor took action as it has done. There have been occasions before when the Governments have found difficulty in financing their borrowing requirement and action such as that taken recently has had to be taken to encourage the market to buy Government stock.

I do not see that we have reached the Armageddon that the right hon. Gentleman seemed to suggest. He suggested that we have reached the end of the road. All the signs are that the Government will now be able to sell their stock on the market in the way that they need to do to fund their requirements during the coming year. As the right hon. Gentleman will know, all the factors on the market at present lead us, if interest rates are to come down and the value of stock is to increase, to think that the sales of Government gilt-edged stock will continue for some time.

The Government's strategy has clearly been the right one. It has stopped inflation rising. When the right hon. Gentleman criticises the Government for borrowing more than they should have done and for increasing the money supply, all that I can do is draw his attention to money supply figures in recent years. The figures are remarkable. I know of the right hon. Gentleman's interest in these matters and surely they give him grounds for supporting the Chancellor.

In 1972 there was a 27 per cent increase in the money supply. In 1973 there was a 27 per cent. increase. In 1974 it was 10 per cent., in 1975 it was 6 per cent. and in 1976 it was 9 per cent. It has been an equally low figure by comparison with the 1972–73 figures of the previous Administration in the past year although it has not been as low as in recent years. The Government's record since they came into office on the point on which the right hon. Gentleman sets so much store surely presents a case to cause him to support the Government tonight.

What we have seen in recent weeks is another example of the Opposition cynically and opportunistically exaggerating the economic difficulties that the Government have faced to try to obtain party advantage at the expense of the country. They have demonstrated cynical opportunism. The action that the Government have taken is by no means unprecedented.

The Chancellor has been attacked for having so many Budgets. I welcome the fact that he has used the regulator and taken various actions. There have not been 14 Budgets since my right hon. Friend became Chancellor, as those who have served on Finance Bills during that time will know. There have merely been the normal number of Budgets with Finance Bills following on from them, except for the additional Budget for the introduction of capital transfer tax.

All previous Chancellors in all previous Administrations have, to a greater or lesser extent, used the regulator and the other economic controls that they have at their disposal from time to time. Although the Press might refer to mini-Budgets, they are not Budgets in the sense that we understand the major Finance Bill of the year with which we are now involved. Therefore, it is wrong to try to caricature the Chancellor as one who has had many mini-Budgets. I welcome the fact that he has done that.

It has always seemed silly to many of us—and there has been public criticism of Governments about it—that we should have this one-and-only Budget every year in which the Government are supposed to do everything, taking no further action until the next Budget in the following spring. Many of us feel that it is wiser to use the regulator in July, the autumn or whenever necessary to try to keep the economy in balance, to try to reduce unemployment, growth in the money supply or any other matters which get out of balance during the year rather than leave it until the subsequent spring. There can be no exception to what the Chancellor did last week. Indeed, his action was well justified and should be supported by the House.

The Opposition's opportunism on this matter—this is another reason why I think that all Labour Members should support the Government tonight—is matched equally by their opportunism on so many other issues. Looking at the Opposition's record during the last two years and the confusion and division which exists within their ranks, all of us, certainly on the Government side, will be only too pleased for the sake not only of the Government but of the country, to ensure that we win this vote tonight and maintain the Labour Government in office.

We have seen opportunistic demands for increased pay for the police, the forces and the firemen at the same time as the Opposition have commended pay restraint in other sectors. We have seen opportunism on race and on crime. We have seen division and confusion in areas of industrial policy and in the Opposition's attitude towards the trade unions, devolution, pay policy, education, and prices. I could go on with a whole range of issues. If we read "The Right Approach to the Economy", the statements by Opposition spokesmen on various subjects and the statements by the Leader of the Opposition, we find confusion and division and no certainty as to what the Conservative Party would do were it to gain office.

It is clear from comments made not only by Labour Members but by Opposition Members that a Conservative Government would have a divisive influence within the country. The way in which Opposition Members have been condemned by their own colleagues refutes the suggestion that the Opposition are seeking to follow moderate policies.

The Leader of the Opposition has reacted because she has been called extremist. I refer her to comments made by the right hon. Member for Worcester (Mr. Walker). On 16th February the right hon. Gentleman said: It is a depressing spectacle to watch a small, but vocal and apparently influential section of the Tory Party bow down to worship the free market gods which brought so much squalor, so many slums, so much social divisiveness and injustice. The right hon. Gentleman also said: I have to tell my right hon. and hon. Friends that there is no way in which this problem can be solved by easy application of free market forces. Mr. Milton Friedman has only to take a short cab ride from his university in Chicago to see what free market forces have done to some districts in that city."—[Official Report, 9th February 1978; Vol. 943, c. 1717.] We hear a great deal about infiltration into the Labour Party. The hon. Member for Woking (Mr. Onslow) has warned the country about infiltration into the Conservative Party. We have heard of the National Association for Freedom. It has called the right hon. Member for Lowestoft (Mr. Prior) some unkind things in its time. In "Free Nation" on 28th October last year, he was called "that archetypal milksop".

The hon. Member for Woking said that the National Association for Freedom represented extreme infiltration into the Conservative Party, and he has condemned it for its increasing interference in the internal affairs of that party.

If the country is faced with the Conservative Party as a potential Government, what are we to think? What are its policies towards the trade unions? What are its policies on pay? What are its policies on public expenditure cuts? I could go through the list of public expenditure cuts proposed by the Opposition. What are their economic policies? What are their taxation policies? What are their education policies? Are they for grammar schools or for comprehensives? What are their policies on these matters? The Opposition are for anything which is popular. They adopt cynical, opportunistic policies simply to try to gain favour with the electorate.

For those reasons, as well as for the economic arguments that I have sought to put before the House, I hope that there will be substantial support for the Government tonight. The worst thing that could happen to this country would be to have a change of Government. A change of Government would in any case be bad for the country. However, to have in government a cynical, opportunistic party, which has no clear policies and is divided, would be even worse for the country. I cannot imagine anything worse for the country than having such a party in office. Therefore, I hope that the motion will be roundly defeated tonight.

Several Hon. Members

rose—

Mr. Deputy Speaker

Order. A substantial number of right hon. and hon. Members still wish to take part in the debate. We are getting near the final stages. If hon. Members will restrict their speeches to 10 minutes each, I assure all right hon. and hon. Members who wish to participate that they will be accommodated.

7.27 p.m.

Mr. Maurice Macmillan (Farnham)

Despite your warning, Mr. Deputy Speaker, the temptation to take up the argument of the hon. Member for Thornaby (Mr. Wrigglesworth), in view of the irrelevance, inaccuracy and complacency of his remarks, is almost irresistable. Nevertheless, I shall resist that temptation.

I congratulate the hon. Member for Hamilton (Mr. Robertson) on a maiden speech which makes me, at least, hope that we shall have plenty of opportunity of enjoyable disagreement with him in the future.

I warmly congratulate my hon. Friend the Member for Epsom and Ewell (Mr. Hamilton) on a speech in which he paid a gracious tribute to his predecessor whom I felt honoured—and I mean that word—to call my friend as well as my colleague in Government. I know that my hon. Friend will be a worthy successor. I confess to having a slight interest in watching some of the results of the industry for which one part of his constituency is famous. I wish that I could afford to take a greater and closer part in it. My hon. Friend endeared himself to me by speaking as an industrialist in favour of employee shareholding—a cause which has been dear to my heart for many years.

I want to make one particular point in the debate. It is an economic rather than a financial point. Indeed, it follows what was said by my hon. Friend in his admirable maiden speech. One of the failures of the Chancellor and the Government is to see accurately the links between productivity, unit labour costs, prices, real earnings and the level of employment. All the figures that I shall use come from the Treasury's publications. If they are wrong, I cannot help it. If they are right, the Government are wrong.

Let me take the composition of the end price of our manufactured products. In 1966 50.5 per cent. was income from employment. In 1976 it was 49.5 per cent. In other words, the income element in the end price has gone up hardly at all. Gross profits and other income as a component of output costs have fallen from 22.4 per cent. to 18.5 per cent. That means that any increase in prices was not due to the end in real earnings of either capital or labour in industry over that period. It makes one wonder what happened. The Treasury has provided the answer in the economic progress report.

In the articles in this report published last December and this May it is made plain what is wrong and that it has gone more seriously wrong during the years of the present Government. There has been a slower rate of growth in productivity in the United Kingdom, associated with a faster rate of growth in unit labour costs and in consumer prices, and a slower rate of growth in real earnings. Incidentally, there has been considerable damage to levels of employment.

One of the points made in these Government publications is that industries with the highest level of labour productivity also show the highest level of growth in overall employment. Increasing productivity has not been shown to reduce the number of jobs available in an industry. Instead it has been shown to increase the number of jobs over a period.

The rate of increase in United Kingdom wage costs is higher than it is in any other major industrial country with the exception of Italy. This is due largely to the policies of the right hon. Gentleman whom we are censuring today. I shall give the House two sets of figures which compare the periods 1965 to 1973 and 1973 to 1977.

In France earnings in the first period showed an annual average rate of growth of 10.6 per cent. The figure for the United Kingdom was 9.4 per cent. In France the output per worker showed an average rate of growth of 4.9 per cent. In the United Kingdom the figure was 2.9 per cent. Unit wage costs showed an average rate of growth of 5.5 per cent. in France. In the United Kingdom it was 6.3 per cent. In France prices showed an average rate of growth of 5 per cent. In the United Kingdom it was 6.1 per cent. I chose to use France as a comparison because on the table it was shown to be only marginally better than the United Kingdom.

Let us take the later period, the four years of the present Government. The annual average rate of growth of earnings in France was 14.4 per cent. In the United Kingdom it was 7.4 per cent. The growth in output per worker had dropped in France to 2.3 per cent. In the United Kingdom it had dropped to 0.1 per cent. per year. The unit wage costs in France had gone up considerably—by an average of 11.8 per cent. per year. But in the United Kingdom the average was 17.2 per cent. Prices in France over that period were rising at 11.2 per cent. per year and in the United Kingdom by 18.1 per cent.

All this is clear evidence that under the Chancellor's policies our industrial performance has been allowed to decline, diminishing the real increase in living standards, causing unemployment and fueling the flames of inflation.

I quote from the Treasury's last economic progress report. It states: The most recent evidence suggests that the underlying pressure of domestic costs in manufacturing has become stronger and remains greater in the United Kingdom than in the most important competitor countries, holding the danger of a reversal of the recent downward trend in inflation with its likely adverse effects on employment and living standards. Shorn of its formal phraseology, that means that the present and immediate past policies of the Chancellor of the Exchequer are bound to cause higher inflation, more unemployment and lower living standards. That is one reason why I hope that the House will censure the Chancellor.

7.37 p.m.

Mr. Jim Craigen (Glasgow, Maryhill)

Today's debate on the economy has taken a new twist. We all realise that the life of the present Government and the timing of the next General Election are at stake. We are living in what is supposed to be a responsible democracy. None of us would deny that a General Election will unleash a campaigning period during which the competing political parties will present prospectuses to the electorate and that they will say that they will do more rather than less.

In his 45-minute speech the Shadow Chancellor, the right hon. and learned Member for Surrey, East (Sir G. Howe), did not unfold the Conservative policy for tomorrow. He did not say how the Opposition propose to reduce public expenditure. The present situation exists because in the Budget debate the Opposition said that they wanted to hand out the sugar and leave the Labour Government to dish out the medicine. Unfortunately, we had to do that last week.

I turn to the question of the increase in the national insurance surcharge. In spite of what the Chancellor said yesterday at the NALGO conference, increasing the surcharge will have a detrimental effect on the long-term recruitment policies of some firms. An example is the retail distribution industry, which is labour intensive. It is not a matter simply of full-time jobs that might be lost because many firms in the retail distribution industry employ part-time workers. When the cost of labour increases, there is an easy way out for some employers by reducing the scope for part-time employment. The increase comes on the heels of the removal of the regional employment premium earlier this year. Companies in development areas will find it difficult to cope with the imposition of a further surcharge.

More attention ought to be paid to a wider range of companies in the United Kingdom. My right hon. Friend the Chancellor said today that the cash flow position of the top 200 companies in the United Kingdom had improved recently. I do not know that that is altogether so for many smaller and medium-sized companies. All too often Treasury assessments are inclined to look at the very large companies or to try to take a blanket approach to industrial matters. That ignores the fact that industry is highly variable.

I turn now to the subject of MLR. The reason that the Chancellor had to act last week was that there was something of an investment strike in the buying of Government securities. The days of the small saver seem to be over, because increasingly decisions are being taken by a number of managers of investment trusts, insurance companies and pension funds. But although they obviously have to safeguard the interests of their investors, it is in the interest of those investors that the health of the economy should be sound.

The Treasury affords favourable tax relief in respect of pension funds and life assurance premiums. That results in a loss of income to the Treasury. I wonder whether in the not too distant future the Treasury might consider conditionality of tax relief in these areas with a view to a proportion of such investment funds being put into Government securities. If the Government are to provide an incentive for people to put money into pension funds and life assurance, the Government should have some support from those institutions in financing their borrowing requirement.

Today we did not get from the Opposition an outline of where they would reduce public expenditure. Of course, we know that in Scotland, for example, they would abolish the Scottish Development Agency. In view of the chiding by the right hon. Member for Down, South (Mr. Powell) of my right hon. Friend the Chancellor for his temporary absence, it is worth pointing out how noticeable it is that the Leader of the Opposition has not taken much interest in today's debate, other than in the opening speeches. I wonder whether that indicates the extent to which the Opposition's interest behind this debate is in the economy, or whether this is simply yet another trial of strength in the Division Lobbies.

7.43 p.m.

Mr. William Clark (Croydon, South)

In view of the shortness of the debate I do not propose to take up the points made by the hon. Member for Glasgow, Mary-hill (Mr. Craigen), but I must remind him that the person who is being censured in this debate, and the person to whom the right hon. Member for Down, South (Mr. Powell) was referring, is the Chancellor of the Exchequer. He should have been here as much as possible.

I add my congratulations to those already offered on the two maiden speeches. It was interesting to hear the hon. Member for Hamilton (Mr. Robertson), although I did not necessarily agree with all that he said. The House looks forward to hearing further speeches from him. Tthe other maiden speech was by my hon. Friend the Member for Epsom and Ewell (Mr. Hamilton). It was refreshing to hear a real live business man speak. The definition of a business man is someone who has to meet a payroll every week. That teaches one to run a business. The House looks forward to further contributions from my hon. Friend. It is unique in one debate to hear two maiden speeches, one maiden speaker rejoicing in the name of the constituency of the other.

This is the Chancellor's fourteenth Budget and I offer him my congratulations on his consistency. Until now he has had 13 goes at getting it right, and each time he has been wrong. Andrew Alexander in the Daily Mail today is The Chancellor repeatedly comes to the House saying that everything will be all right. He says that he got it wrong the last time but that this time it will be right. That happens with monotonous regularity.

Today the right hon. Gentleman is blaming the Conservatives and presumably the other Opposition parties because of the £500 million cut in taxation. But, as my right hon. Friend the Member for Chipping Barnet (Mr. Maudling) said—and the Treasury Ministers know this—with public expenditure running at about £6,000 million to £7,000 million a year, an error of just under 1 per cent. will give the Treasury another £600 million or £700 million. So it is within the purview of the Treasury and the margin of error to absorb the £500 million that these amendments will cost.

The Chancellor dealt contemptuously with his partners in the Lib-Lab pact when they suggested a national insurance increase of 1½ per cent. Now he has come back to the House with a 2½per cent. surcharge on the national insurance contribution. All hon. Members are worried about unemployment. The Prime Minister referred to that yesterday. He glibly said that the national insurance contribution would raise £1,500 million in a full year, but that it will start only in November and will therefore raise only £500 million this year. His arithmetic is wrong, because if the surcharge starts on 1st November it will produce for the Revenue £625 million, which is £125 million more than the cost of the tax cuts that have been inserted. The Prime Minister said that the matter would be looked at next April, but if the Government intend to look at it then, why not create some certainty for employment? Why not impose the surcharge for four or five months only, or for whatever length of time is needed to produce £500 million?

The current high rate of employment is a far cry from the slogan of the Labour Party that "Labour works". How can Labour work when, as Joe Haines said, 1.5 million of them are not working? That is an indictment of the Government. I believe, and all the commentators and anyone in business will agree, that this tax on employment is bound to retard the decrease in the level of unemployment. absolutely right to suggest that the Chancellor has an ego that is impenetrable,

If we are to get unemployment down we must pay more and more attention to small businesses. They are the wealth creators, the innovators and inventors. They should be getting every encouragement, but as my hon. Friend the Member for Epsom and Ewell said, they have been clobbered. The Employment Protection Act is good in theory and in principle, but in practice it is preventing the employment of various people. How can a small business man take on an employee unless he has the right to get rid of that employee if the employee does not turn out to be satisfactory or, indeed, if that business man's operation or trade goes down?

It is all very well for Ministers to shake their heads. They know this. All that they need to do is to go around industry and talk to small business men and ask them what their fears are as to increasing their labour forces.

Another thing that I would recommend to the Minister—if he has not seen it already—is an excellent article in The Daily Telegraph written by a Mr. Circus, saying how the Employment Protection Act works. He givese chapter and verse as to how the Act is working against an increase in employment. The Act is too high a cost for the small business man.

I come to the £1,500 million that this surcharge will produce. If, as the Chancellor said yesterday—he repeated it today—he did not think that this £1,500 million surcharge would have very much effect on employment, and if he agrees with his right hon. Friend the Chancellor of the Duchy of Lancaster that taxation in Britain is too high, why did not the Chancellor, in April, introduce a surcharge? With the £1,500 million he could then have reduced income tax to the benefit of all and not necessarily only to the benefit of those on higher incomes or those on lower incomes. If the £1,500 million will not have an effect on the employment prospects of the nation—why is it not used to reduce taxation so that it gives more incentive for people to work, with which, presumably, the Chancellor agrees?

I want to make one or two comments about interest rates. The minimum lending rate has risen to 10 per cent. In itself, that will retard business and increase costs. It is all very well for the Chancel- lor to say "This little bit and that little bit will not have any effect". It will have an effect. For example, let us consider the mortgage interest rate of 9¾ per cent. The increase in the rate means that the consumer market will be deprived of that increase. That again will slow down business.

The lack of confidence in our economy, which manifests itself in the fall of the sterling rate abroad, in itself will increase our import costs by probably between 6 per cent. and 8 per cent.—to say nothing of our borrowing requirement. A borrowing requirement of £8,500 million is far too high. It is all very well for Labour Members to say "Where would you cut? What would you cut? How would you do it?" They are the Government. They know that the country cannot afford a borrowing requirement of this magnitude. Therefore, they must cut their expenses.

The Secretary of State for Prices and Consumer Protection maintains that inflation will remain in single figures. Indeed, the Prime Minister supported him. Yesterday, in response to a question from my hon. Friend the Member for Leominster (Mr. Temple-Morris), who said that someone had said that the inflation rate would never rise into double figures, the Prime Minister said: Nobody has said that inflation will continue indefinitely into the future at single-figure rates."—[Official Report, 13th June 1978; Vol. 951, c. 827.] That raises a point of order. Hansard must be wrong, because if one looks at column 25 of Hansard for 6th June, one finds that when talking about the inflation rate, the Prime Minister said: I would like to see it come down —and so on— It will range between 7 per cent. and 8 per cent. But if we follow the policy that we intend to follow I see no reason why it should ever get back to double figures."— [Official Report, 6th June 1978; Vol. 951, c. 25.] Both of those statements cannot be right. One of them must be wrong. I do not know whether the Prime Minister has made representations to the Table. However, if he said yesterday that no one had said that inflation would never go back into double figures yet on 8th June in fact he said precisely that, one of those statements is wrong.

I should have thought that the other worry of people in Britain, apart from unemployment, is their rate of tax. Time does not permit me to give a lot of figures. However, a single man earning about £80 a week, which is just under the national average wage, pays £18.41 a week in tax, leaving aside national insurance or any other surcharge that he may have. A married man with the same income pays £14.82. That is far too high.

I am absolutely convinced that today's taxation is out of step with modern society. We want more and more wealth creators. We do not want any politics in this matter. We must encourage the wealth creators. All that we have at present—and this is a serious indictment of the present Government; not only the Chancellor but the whole Government, who take collective responsibility for their economic strategy—is a rate of inflation that I am convinced will return to higher levels. What is in the so-called economic pipeline will take three, four or five months to come through to the shopping baskets. Presumably the General Election will be over by then.

Unemployment is going higher and higher. Production is low, even if it equals that of the three-day working week. The frustration of the public and workers is increasing daily.

Consequently, it is essential for the future of this country and for each and every person in it, irrespective of politics, to realise that the sooner we have a change of course in our economy, the better. The only way in which we shall get a change of course is to get a change of Government.

7.57 p.m.

Mr. George Rodgers (Chorley)

I, too, add my brief tribute to my hon. Friend the Member for Hamilton (Mr. Robertson) and to the hon. Member for Epsom and Ewell (Mr. Hamilton), who have made their maiden speeches today. If my congratulations are short, that is not because I do not appreciate their able and wide-ranging contributions but because I think that the House wishes to push on with the debate.

Throughout the debate we have been subjected to the old familiar and rather tedious noises from Opposition Members. We have heard it all before, and the concoction has not improved with age. In startling contradiction to the outpourings from the Conservative Benches, the simple truth is that the country's economy is on a much sounder footing now than it was when the Labour Government took office in 1974. The evidence is there for all to see.

The balance of payments position is obviously much healthier. The level of inflation has dropped quite dramatically and it is now running at a much lower rate than that which applied when the previous Tory Government were in office. The level of interest rates charged to people purchasing their own houses is lower now than it was when the present Government took office. Furthermore, building society spokesmen are convinced and confident that the rate will not increase in the immediate, foreseeable future. We must concede that this is a very different economic setting from that which existed during the chaotic period immediately before the 1974 election.

Of course, this situation is not unique. We are all aware that it has become custom and practice for Labour Governments to rescue and restore the nation's ailing economy after every spasm of Conservative maladministration. The cure is usually quite agonising and has certainly proved electorally expensive on many occasions. But the next time around, I for one expect that the electorate will refuse to be hoodwinked and will totally reject the shrill appeals of the Conservative leadership, which is now clearly desperate to secure office, an arrangement which the Tories appear to consider is theirs almost by a divine right, and having little connection with ability or merit or even with political integrity.

The grand economic and electoral appeal of the Opposition party is based entirely on the stimulants of greed and selfishness. As this becomes more and more apparent, there is a growing distaste among ordinary people for the formulae that they propose.

Under a Tory Government, the structure of taxation would be changed in such a fashion that it would favour those who are already financially well-heeded, but who, despite their wealth, are reluctant to contribute towards the needs of others who are dependent in times of hardship upon collective and community provision. The Conservative aim is to give even greater privilege to the prosperous minority, knowing full well that this can be achieved only by the further deprivation of people who are already disadvantaged.

The Conservatives advocate extremist Right-wing policies which will only provide a rallying point for extremist groups at the other end of the political spectrum. It is well known that the centrepiece of Tory economic thinking is that there should be a massive curtailment of public expenditure. That is a simplistic concept. The wise administration of a nation's economy does not consist of a reckless reduction in public spending. An efficient economy involves saving or spending to the best advantage. It concerns using time and ability to the greatest effect. It relates to a sound stewardship and accountability to the community.

The comments we have heard today from Opposition Members have been crude and sloganistic to the point of absurdity. They have been influenced less by concern for the pound or the people than by a desperate desire to claw back the lead they have lost in the opinion polls.

I belong to a sector of my party that has frequently been critical of the economic strategy of my right hon. Friend the Chancellor. It is perhaps as well that constructive opposition has occasionally been mounted from within the Labour Party, for the protestations of spokesmen or spokeswomen representing the Conservative Party have been confused and insignificant. How paltry, for instance, is the oft repeated charge that my right hon. Friend has introduced an excessive number of Budgets. Surely it is clear that in this day and age an annual Budget is not adequate. Treasury Ministers must respond to circumstances, often those brought about by activities outside this country.

In any case, what is so sacrosanct about an annual Budget? The simulated fury of the Conservative Party and the Conservative Press at the increase in the employers' national insurance contributions has fallen flat, as there has been no attempt to substantiate the charges that the additional level will generate inflation and unemployment.

When tackled about the methods they would use to recoup the revenue denied to the Exchequer, the Tories have been forced to reveal their intentions. As the euphemism has it, there would be taxation on spending rather than on earnings. In that case, how is the pensioner to fare, especially the pensioner who is entirely dependent on the State pension and whose income is such that there is no prospect of his benefiting from tax reductions? A pensioner dependent on a State pension does not receive enough to pay income tax but would have to pay the extra tax imposed on commodities purchased in the shops, and would inevitably be worse off as a consequence of the Tory tax adjustments. The simple truth is that the Tory policies would adversely affect millions of pensioners. That should be made clear.

Mr. Peter Tapsell (Horncastle)

Will the hon. Gentleman give way?

Mr. Rodgers

I am reluctant to do so. We have been asked to make progress.

Mr. Tapsell

The hon. Gentleman referred to retirement pensioners who were entirely dependent on their retirement pension. Such people, with no other source of income, would be entitled to supplementary benefit, so the hon. Gentleman's case is entirely invalid.

Mr. Rodgers

My case is absolutely accurate, because a pensioner who depends on his State pension and supplementary benefit does not pay tax. Under the Tory formula, he would still have to pay the increased prices resulting from indirect taxation, particularly value added tax. There is no dispute there.

The same argument applies to the millions of householders with young children. Those householders would be forced to carry the burden of additional VAT on many necessities. Is it the Tory Party's intention to move towards a common tax structure with other EEC nations, as is so gleefully advocated by the pro-Marketeers? Would that involve value added tax being imposed on food, coal, gas and electricity, which are at present exempt from VAT? Would the price of petrol be increased to match the rates charged in Continental countries?

The Conservative Party has conceded under pressure that it would increase indirect taxation. May we be told tonight by how much it would be increased and in which directions? There is a widely held view that it is wrong to take the Tories seriously on any economic question. It seems to be true that they do not take the issue seriously themselves. How else can one explain the constant demand for huge increases in public spending by individual Tory Members, particularly for projects within their own constituencies? Such demands are worth a few lines in the local newspaper, but whenever the bold advocates of lavish public spending are given an opportunity to vote in favour of the principle they turn tail and bolt into the Lobby which advocates the proposition that all public spending is unwholesome and must be cut back to the maximum.

I seek the direction of a greater proportion of our available resources towards education and the hospital services and a wider provision for the disadvantaged and the elderly. Unlike many of my close political colleagues and friends, I accept the necessity for an incomes policy, but only against a background of an equal degree of control over profits and prices. I believe also that there must be more control and direction of industrial investment.

Labour Members have noted with approval the steady decline in the number of our people who are unemployed. No doubt, there has been equal satisfaction over this by Conservative Members, although they manage successfully to conceal their elation.

It is proper that we should be concerned and anxious about the number of our people who are unemployed, yet, strangely, there are now probably more people in employment than there were 10 years ago. Our problem is that there has been a sensational increase in the labour force, and it will continue to grow for several years.

The position is further bedevilled by the fact that manufacturing industry is less labour-intensive than it was even a few years ago. We must rid ourselves of the absurd notion that the greater the investment in manufacturing industry the greater will be the number of job opportunities created in manufacturing industry. The reverse is true.

We must realise that the role of industry is to create wealth, not employment. The real debate should be about the distribution of the wealth so created. In my view, a wider public control of industry to prevent its wealth being syphoned off to serve merely a tiny sector of the community should be introduced.

There must be a move towards the expansion of job opportunities in the public sector, which is comparatively more labour intensive. We must advance towards a shorter working week and a shorter working lifetime. We should seek extended educational facilities and examine the prospects for introducing sabbatical years for working people.

I remain optimistic about our economic future but I am a realist about our current problems. It will be necessary for the Government to draw up a programme of long-term industrial development, industrial renewal, and certainly protection of the living standards of workers whose employment is at risk as a consequence of advanced technology.

The result of the vote today will not be of great significance. The real decision will be made by the people outside the Chamber, who I believe have sufficient understanding and common sense to appreciate the value of a Labour Government not only to themselves but to their children and their children's children.

8.8 p.m.

Mr. Russell Fairgrieve (Aberdeenshire, West)

In response to the request of your predecessor in the Chair, Mr. Deputy Speaker, I shall resist the temptation to answer many of the points made by the hon. Member for Chorley (Mr. Rodgers), although I shall touch on some of his comparisons between the records of the two parties. Before I make my few remarks, I should like to add my compliments to the hon. Member for Hamilton (Mr. Robertson) and my hon. Friend the Member for Epsom and Ewell (Mr. Hamilton), who made their maiden speeches today. I hope that we shall hear more from them in the Chamber.

Apart from just under four years in the early 1970s, it is now 14 years ago that the Labour Party became the Government of this country. It is not without its appropriateness that today we are talking about what is, more or less, the fourteenth Budget that this Chancellor of the Exchequer has introduced during the last four years.

If we think back to the famous 13 years of Tory rule from 1951 to 1964, and then compare them with the basically Labour rule from 1964 until today, a devastating picture emerges. For those with memories of 1951 there were clothes coupons, food rationing, identity cards and a host of other controls and restrictions. But there then arrived, after two post-war Socialist Governments, a Tory Administration under Sir Winston Churchill, with a Chancellor by the name of R. A. Butler, who made the amazing remark that he intended to double the standard of living of the British people in 25 years, or, in other words, within a generation. He did it in about half that period. When the Tory Party left office in 1964, instead of what I described earlier, there were refrigerators and deep freezers. Those of us who served on local authorities then were having to construct garages on council estates to take a multitude of cars off the roads and had to consider the structure of houses to carry the host of TV aerials.

When we demitted office in 1964, the British people had about the highest standard of living in Western Europe. Today, we have the lowest. That is the legacy of Labour and that is why it is more than right and overdue that this censure motion should be carried.

The handling of the British economy by the Labour Party in general and the Chancellor in particular has been truly appalling. Socialist dogma has been put before the welfare of the British people. Laws, restrictions, acts and actions are brought in to distribute wealth, but virtually nothing is done to create it. If one wants to distribute wealth, what is the point of preventing its creation?

For example, one can walk into a shop in Britain today and buy a ball-point pen. If one turns it around in one's fingers, one might well see on it "Made in Japan". Why is this? Are there no British initiatives or competent skills to make such articles when there is an obvious demand? Of course, the answer from Labour Members below the Gangway is restrictive quotas and import controls. What a barren philosophy, produced only to protect sterile Socialist political dogma.

There could be many people in this country prepared and willing to set up a business to make ball-point pens, but I can tell the House why they do not and will not. The reasons are corporation tax, capital transfer tax, capital gains tax, the Employment Protection Act, income tax levels, multi-rate VAT, interest rates and now this national insurance surcharge, which is a payroll tax and which will, in today's circumstances, prevent increased employment.

Far better for a keen and ambitious young bloke to take a job as a roustabout on an oil rig—two weeks on, two weeks off and some tax-free moonlighting in between. That is the price that our country is paying for Socialism. That same barren philosophy is reducing the standard of living of our people compared with our compatriots in Western Europe.

Worse still, the new industrial countries of the Far East have realised that capitalism brings a higher standard of living to all the people of any country than Socialism, so they are carrying out the philosophy that once gave us such rich rewards and will continue to practise it privately while giving their Governments innocuous political titles.

This motion may be couched in technical parliamentary terms, but the underlying facts remain. It calls upon all of us to make a judgment upon the economic handling of our country's affairs. In my opinion, this has been dogmatic, biased, negative and even Marxist in many parts. For the many reasons that I have mentioned, I hope that all parties represented in the House will support the motion.

8.13 p.m.

Mr. John Cronin (Loughborough)

I hope that the hon. Member for Aberdeenshire, West (Mr. Fairgrieve) will not expect me to follow his somewhat contentious speech. Nor shall I comment in detail on the speech of the right hon. and learned Member for Surrey, East (Sir G. Howe). He made a rather unconvincing speech, but he always does. We always have the same tableau—the right hon. and learned Gentleman speaking from the Front Bench while the right hon. Lady the Leader of the Opposition sits beside him wearing a look of severe displeasure. Nothing much emerges from his speech, for the simple reason that there is no coherent Tory economic policy.

The unfortunate right hon. and learned Gentleman, for whom I have great sympathy, is in the difficult position of being put up to sell something which does not exist. We ought to treat him with some sympathy.

The right hon. Member for Down, South (Mr. Powell) made an interesting speech. However, I could not understand his argument that the public sector borrowing requirement was onerous for the economy. In terms of population and GNP, it is less than those of Germany and Japan. Why is it that they can run high PSBRs yet the right hon. Gentleman feels that we cannot?

Mr. Powell

Because the Government of this country do not have the same credit as the Governments in those countries, because the importance that we have attached in the past to maintaining the value of money has not been the same.

Mr. Cronin

"Credit" is a vague word. There is no economic reason why this should not happen. I am also surprised that the right hon. Gentleman paid so little attention to the Government's unfortunate defeat in Committee on 8th May. One accepts that the £500 million is only a small part of total Government expenditure, but when the market is a little lacking in confidence, as it was, reckless and irresponsible actions by the Opposition act as a catalyst for the whole chemical reaction.

From that moment, public opinion in the markets started to deteriorate. In introducing the "corset" and the employers' surcharge and in raising the minimum lending rate, the Chancellor did exactly the right things.

It is surprising that the Chancellor should be criticised for doing something which obviously has the approbation of the City. Ever since he introduced those three measures last Thursday, there has been a complete reversal of all indicators. The City institutions have been voting with their cheque books and buying Government stock.

In those circumstances, why do the Opposition adopt such lugubrious attitudes? They are certainly not shared by people who I suspect have the same political opinions—the gentlemen in the City.

The cost of these economic measures will be very small. The employers' surcharge will not take effect until October and will certainly not increase inflation appreciably within the next six months. I hope that, certainly within the next six to nine months, we shall have another Budget in which it will be greatly reduced. I am looking forward to my right hon. Friend introducing a fifteenth Budget in which he does exactly that.

The "corset" restrains the clearing banks from extending their credit facilities, but that affects only private expenditure. The banks are all giving the maximum priority to industrial expenditure when it is required, so there is no harm in that.

The suggestion that the minimum lending rate should have such a bad effect on the economy is most odd. The MLR fluctuates in the most extraordinary way, and has done as long as I have been in the House. It is up now, but no doubt within the next few months it will be coming down again. The important thing is that it has achieved its useful purpose.

One thing which is very attractive about the Chancellor's measures is that no one in any circumstances could describe them as electioneering, whereas almost every speech from the Opposition has been an electioneering speech. That is also a mark in favour of the Chancellor's measures.

What is the alternative to those measures? Some hon. Members have suggested an increase in VAT. That would immediately increase inflation. What possible value would that be? Some have suggested reducing the PSBR, but except for social security payments, Government expenditure is labour-intensive. Any substantial reduction in the borrowing requirement is bound to increase unemployment. I should have thought that both those suggestions would have an undesirable effect. There is a tendency in these debates for there to be a controversy between the monetarism of the right hon. Member for Down, South at one extreme and the sort of modified Keynesian economics of the Treasury Bench at the other extreme.

I should have thought that the time has come to consider protectionism, not to an extreme degree but to a partial degree. The hon. Member for Aberdeenshire, West made a very good point when he talked about Japanese imports. There is a very strong case, surely, for reducing the import of Japanese motor cars, of hosiery, and of many other commodities in regard to which there is no reciprocal gain for our companies. I believe, therefore, that the suggestion that some element of protection should come into the Chancellor's policy should be given very serious consideration. It is certainly a form of economics which has gained increasing favour among the Cambridge economists and is becoming more and more respectable.

I suggest that there are two absolute short-term priorities. One is the control of inflation. The other is the continued co-operation between the Government and the unions in bringing about moderation of pay claims.

I welcome the Government's obvious inflation. The steady increase of support for the Government shown in the public opinion polls is an indication that the country appreciates that the Government are getting the economic situation under control. We must hang on to this improvement, whatever happens. It was most refreshing to hear my right hon. Friend the Secretary of State for Prices and Consumer Protection tell us the other day that there is no question of the rate of inflation rising before the end of the year. Whether it does so will depend on the moderation shown by the trade unions.

The control of inflation is a reality, but there are still some uncertainties about the co-operation of the trade unions on the question of pay claims. Obviously, it is a matter of continued patient negotiation on the part of the Government and also of making sure that the living standards of trade unionists increase. Over the last 12 months, they have had a 5 per cent. increase in their real living standards. The Government must try to maintain that momentum.

The Government must also ensure that there is no provocation of the trade unions by any undue increase in the incomes of people who already have enough. In that context, my right hon. Friend might consider what is to happen when dividend limitation expires on 31st July.

I also believe that a very important part of maintaining the co-operation of the trade unions will be the introduction of industrial democracy.

I have said that there are two important short-term questions of policy for the Government. There is also a third, and that is the continuation of a Labour Government. Conservative Members are mostly well meaning, but they have hardly any declared credible policy. They are divided on what little policy they have. They stand for confrontation instead of moderation. They stand for a return to the cruelties and uncertainties of a market economy instead of an economy managed in the interests of the whole community. I suggest that if ever the right hon. Lady leads a Conservative Government, we shall be entering a dark period in British economic history.

8.23 p.m.

Mr. Terence Higgins (Worthing)

In at least two respects this is, I believe, an extraordinary parliamentary occasion. We were told at the beginning that the Government had decided to make the debate a vote of confidence and that the Prime Minister was to reply, but in many ways the debate has been "Hamlet" without the king. The Prime Minister, as far as I am aware—and I have been here throughout the debate—has not made a single appearance in the Chamber. That is quite a disgraceful thing to happen to the House of Commons. It is appalling that the Prime Minister, on a vote of confidence, does not see fit to attend a debate to which he is supposed to be replying.

Mr. Ioan Evans (Aberdare) rose—

Mr. Higgins

I shall not give way: the hon. Gentleman has not been here either. It has also been a case of "Hamlet" without the prince, because the Liberal Party has been in a state of To be, or not to be". There was no indication from the leader of the Liberal Party, when he spoke, as to which way his party was to vote. There was the implication that the Liberals will abstain. How any party can decide to abstain when the question is a vote of confidence, I find beyond comprehension.

It is quite clear that the contempt with which the Prime Minister has treated the House today was very similar to that which was shown by the Chancellor of the Exchequer in not making a statement to the House of Commons on the very important economic measures which we are debating today. It was quite incorrect for the Leader of the House to say that we could debate those measures on the Finance Bill. I am glad, therefore, that in Opposition time we have an opportunity to pursue some of these matters.

I think it is absolute rubbish to suggest that the measures which have now been taken by the Chancellor are necessary as a result of the amendments which were carried during the Committee stage of the Finance Bill. Quite clearly, the increase in the employers' contribution alone would have been sufficient in that respect, so that the two other major measures, the massive increase in interest rates and the "corset", are a correction of the Chancellor's own mismanagement at the time of his Budget. If we do the arithmetic, we find that that is very clear indeed.

In addition, it is quite clear that the Chancellor's choice of the employers' surcharge is wrong. It is also one which is not understood on the Labour Benches, as has been clear from speeches made this afternoon. Instead of increasing the employers' surcharge, it would be far better to increase value added tax, which would not fall on exports, as the employers' surcharge will, and would not fall on food, and therefore would not have the same regressive effect, which I have always understood that the Labour Party was anxious to avoid. It would, instead, result in a more equitable distribution of the burden, because VAT does not fall, as was suggested, on essential items. An increased VAT would be vastly preferable to the Chancellor's proposals.

It was suggested that nothing in the present package is electioneering. That is not true. I believe that the true reason that the Chancellor opted for an increased employers' contribution rather than an increase in VAT is that the effects of the increased employers' contribution will not be felt until later in the year, after an October election. I think that that is the real reason for it.

As for the other measures, whether they are electioneering or not, the reason that they have been imposed is that the Government's hand has been forced by the Chancellor's own misjudgment in the Budget. As a result of this, he found that the market would not accept his view, and he has been compelled to increase minimum lending rate, and to impose a "corset". This is not, therefore, some splendid approach in which the Chancellor is saying that he is not electioneering. It is something for which he had no alternative as a result of his own mismanagement, and it is right that for this reason we should censure him today.

I want to say a few words about a longer view of the economy and the Chancellor's stewardship of his high office. In doing so, it is necessary to look at the past record and to consider the future situation should we be so unfortunate as to have a Labour Government returned with an overall majority. The figures for the record are very important indeed and give us a basis of comparison between the Chancellor's performance and that of the previous Conservative Government. He is estopped from arguing that this was the problem he inherited, because he assured the country in October 1974 that everything was under control and that everything would be all right. He cannot argue that what has happened since then has anything to do with the situation which he has inherited.

If one looks at the record of the Conservative Government and at the record of the present Labour Government, one will see that the main economic variables are very clear indeed. I am glad to see that at long last the Prime Minister has honoured the House of Commons with his presence when there is just half an hour to go before the winding-up speeches commence on a debate which is a vote of confidence on the Government.

The Prime Minister (Mr. James Callaghan)

I apologise to the hon. Gentleman and to the House and would have done so when I came to my own winding-up speech. As I think he and the House knows, I have had other preoccupations today, in connection with the President of Romania, which has made it impossible for me to be here.

Mr. Higgins

That may be so, but the Prime Minister first and foremost has a duty to this House of Commons, particularly on an occasion when it is a vote of confidence in his Government. It is not good enough to say that one will reply to a debate when one has heard virtually none of the speeches.

I should like to pursue the point that I was making, and I am glad that the Prime Minister is present to hear it. I was comparing the performance of his Government with that of the previous Conservative Government. Between the second quarter of 1970 and the fourth quarter of 1973, the rate of increase in gross domestic product was 3.1 per cent. a year, whereas if we look at the performance of the present Government we find that between the second quarter of 1974 and the first quarter of this year the increase was only 0.4 per cent.

The record is even more remarkable with regard to the standard of living. During the period of the Conservative Government, real incomes per head each year went up by 4.6 per cent., but under this Government only 1.1 per cent. If we turn to the crucial question of inflation, we find that between June 1970 and January 1974 the annual rate was 9.5 per cent. under a Conservative Government while between February 1974 and April 1978 the rate was 16.9 per cent. Finally with regard to unemployment, under the Conservative Government the maximum level was 973,000 compared with 1,600,000 under this Government.

If we are judging the Chancellor on his performance as Chancellor, this comparison of records makes very interesting reading indeed. It is right and proper that we should bring that to the attention of the country at the present time and right and proper that we should bring it the attention of the House of Commons. The fact is that until the Government were forced into the position of having to go to the IMF, and found themselves in a position in this House where they did not have an effective majority, their policies were disastrous.

My own view is that should we find ourselves in such an unfortunate position that we have a Labour Government with an overall majority, the same procedure would emerge. Indeed, much of our present trouble stems from the irresponsibility of the Government when they came into power in 1974 in not resisting wage claims.

When one hears the words which they now utter about incomes policy one would think that they never went through the period of 1974 and 1975, the social contract and all that that implied. We have all been suffering from the results of that ever since.

What about the forecasts for the future? I believe that one ought to look at the outside forecasts, and I am glad that the Prime Ministher is present to hear this. He said these extraordinary words on 6th June: But if we follow the policy that we intend to follow I see no reason why it"— that is to say, inflation— should ever get back to double figures".—[Official Report, 6th June 1978; Vol. 951. c. 25.] It seems to me extraordinary that the Prime Minister should be so unaware of outside commentators and the reasons they gave why it is likely that inflation will again begin to accelerate that he should not be aware of any reason why inflation is not likely to get back into double figures. Of course, it is likely that he will go to the country before that happens. But the extraordinary thing is that he will go on a record of inflation which is appalling, and a record of unemployment which is frightful, yet now comes before the House—as the Chancellor proposes to do—with a measure on employers' contributions which undoubtedly will increase the level of unemployment in this country.

If ever again a Labour spokesman presumes to say that the Conservative Party is the party of unemployment, I hope that point will be brought home to him very forcibly indeed.

8.34 p.m.

Mr. Ron Thomas (Bristol, North-West)

I am not surprised that most Opposition Members have tried to gloss over the main reason why we are having this debate. That is the action of the Tory Party during the Finance Bill proceedings. That is the main reason we are having this debate today.

It is not just a question of £500 million. If the Tories and their allies had had their way and got all they wanted to give to a small but wealthy section of the community, the total would have been about £1,100 million.

I have said previously—I do not retract a word of it—that the Tories entered the Budget controversy on the basis of sheer naked class interest. I suspect that they already know that they will lose the next General Election, so they wanted to use the occasion to give the biggest possible handouts they could to the people whom they represent.

The amendments on the Monday cost £500 million-plus, but on 16th May—this is column 293 of Hansard—I checked the figures with my right hon. Friend the Minister of State and ascertained that if the Tories had had their way in further tax handouts the total cost would have been £780 million. Moreover, if they had had their way also on the so-called indexation of capital gains, the full total which they would have handed out to the wealthy would have been over £1,100 million.

I remind the House that £1,100 million is almost equal to the Government's expenditure on law and order, it is not far short of total Government expenditure on education, it is almost half the revenue from corporation tax and it is 28 per cent. of the revenue from value added tax.

Thus, we are talking here about a Tory economic strategy in relation to the Budget which would give away to the wealthy over £1,100 million. That was their intention as revealed by the full effect of their amendments.

Even before those Tory amendments, it was made clear in reply to one of my hon. Friends that 57 per cent. of the total tax handouts in the Budget would in any case go to those earning over £4,500 a year, which is the average wage, but if the Tory amendments had been carried over 70 per cent. of the total handouts in the new Budget would have gone to those earning over £4,500 a year.

On the Government's proposals, someone with £25,000 a year will already get a handout of £750 and another £1,200 if he manipulates his capital gains in the appropriate manner, as, no doubt he would. But the Tories would have given another £1,500 to the man on £25,000 a year, and another £5,000 to an individual with £50,000 a year.

There has been a good deal of talk about elections and votes of confidence. I should be happy to fight an election on that clear evidence of basic class interest which the Tories have presented. I should be happy to go to the country and simply say "If you are earning £10,000 a year-plus, the Tory Party is the party for you, and if you are earning less than £10,000 a year you will get nothing out of the Tory Party and its allies." That is the truth of the matter. The Tories approached the Budget determined to give massive tax handouts to those earning £10,000 a year and more.

I am not surprised that the whole business has been glossed over. The right hon. and learned Member for Surrey, East (Sir G. Howe) again gave us a long history of various Budgets. He told us about what he described as the iniquitous and depressing capital transfer tax. Last year, we collected £260 million in capital transfer tax. The Royal Commission on the Distribution of Income and Wealth tells us that the total personal wealth holding in this country is £190,000 million, yet all we are collecting in any form of wealth tax is £260 million—about 0.001 per cent., I should not wonder. We were not told by the Tories from where they would raise this money. The CBI, not unexpectedly, suggested cutting public expenditure and putting it on value added tax.

The Tories weep crocodile tears when they speak about unemployment. At the same time, they want to cut public expenditure. If the Tories had had their way in terms of cuts in public expenditure and help via the NEB to British Leyland and other companies, our level of unemployment would have made the inter-war years look like an economic miracle.

At the same time, I am very concerned that the Government Front Bench seems to be united with the Tory Front Bench in this grip of militant monetarism. We have never had a debate in the House about Milton Friedman and his views on monetarism. It has always been accepted that if we have a PSBR or an M3 or a domestic credit expansion of a certain amount, ipso facto we must have inflation. I table questions and I do not get very satisfactory answers on this matter. We will all accept that if the building societies and the banks expand credit, property and housing—those assets which are in fixed supply—will increase in price.

The idea is put forward that because borrowing is being expanded and people are consuming more of the products of manufacturing industries, which are now running at well below their capacity, prices will go up when in fact they will come down. Even the Governor of the Bank of England is not clear about the matter. In his latest report he says that monetary expansion must have contributed to the rapid rise in asset prices that occurred notably in real property. He says that it is more difficult to decide how it affects the real economy. He says that it affects it in some general sense, but it does not make much analytical sense.

Mention has been made by the right hon. Member for Down, South (Mr. Powell) of the difficulty of Government borrowing. He suggested that we had come to the end of the road. I suggest to him that it was not a matter of principle but simply a matter of money. The oligopolistic money market—there is not any free competitive money market—decides, as a group of institutions, what Government stock it is going to take, and so on. At that time it was not prepared to take it at the rate of return.

The Financial Times of Tuesday says that the Government flogged £900 million just like that at a 10.5 per cent. rate of return. Since Gladstone, or since the time when we failed to balance Budgets, someone has always said that we have come to the end of the line. I should like to know what kind of PSBR is acceptable to Conservative Members, given that we have 1½ million unemployed which is probably costing us a total of £10,000 million in terms of economic resources.

My right hon. Friend the Chancellor wanted again to tell us that he felt that the real economy was now, he hoped, on course. There are 1½ million unemployed, and we have an import bill for finished and semi-finished manufactured goods of about £22,000 million. It is not long—about 10 years—since imports of finished and semi-finished manufactured goods were 30 per cent. of our total import bill. They are now two-thirds of our total import bill and they are increasing every day, whether it is electronics, motor cars, or anything else.

It is all very well to sit back and believe in this kind of Ricardian laissez-faire of the nineteenth century. We are not just saying that there should be import controls. The Chancellor often tells us that the wage bill in this country is so much that it cannot be ignored and must be planned in some way. I say to him that £22,000 million worth of finished and semi-finished manufactured imported goods must be planned in some way. We want a planned trade policy.

I note also that, despite the problems that we have faced over the past three years, another £5,000 million net capital was invested abroad. We have failed to bring about planning agreements and the strengthening of the NEB. We shall get the real economy right only when we get a real economic strategy based on Socialist priorities and policies. Once again the Tories have shown the native blatant class interests they are here to represent, and I would welcome a General Election on that issue. I hope that we shall fight it on the 1976 programme that was hammered out by our party conference.

8.45 p.m.

Mr. F. A. Burden (Gillingham)

I hope that the hon. Member for Bristol, North-West (Mr. Thomas) will forgive me if I do not attempt to follow the line of his speech. The debate was originally to be about a vote of censure on the Chancellor, but it has turned out to be a vote of censure on the Government and the Prime Minister. In the light of those changed circumstances, it is perhaps desirable that we should remember the view of the Prime Minister in 1955 when he said: The Labour Party never would have reached the peaks and heights of power unless we had been prepared to subordinate our individualism to our Socialism. He made his view perfectly clear at that time, and I believe that that is still his attitude and philosophy.

So far the Government's economic policies have been constrained by the fact that they have not had a full majority, but there is no doubt that pressures from below the Gangway and from the extremists in the Labour Party outside the House and some within the Cabinet would turn the Labour Party into what I would regard as a Marxist party. The Chancellor of the Exchequer is smiling. He knows quite a bit from his past days about the Marxist policy in this country.

It is useful to remember that Labour's manifesto for the October 1974 General Election said: The industrial sector of our economy is suffering from grave and chronic debilitation and that sort of illness cannot be cured with a couple of aspirins. Even this Government cannot claim that the Socialist economic medicine they have thrust down the patient's throat has brought a recovery. If anything, it has caused a further decline. Only the arrival in 1977 of Dr. North Sea Oil and the IMF nurses has given the patient a chance to recover.

We must not forget what the Liberals have done. They have made grandiose claims, but it is extraordinary that not one Liberal has been in the Chamber for a considerable time. Dare I suggest that their influence has been only to keep the Government in power? The so-called pact has been seen by the Government only as an expedient which, by its nature, may have caused them to soft pedal for a few months and so give them a better chance of winning the next election and the pursuit of full-blooded Socialism.

I wonder whether the Liberals are aware of the full extent to which they have been used. I wonder whether their leader read the Labour manifesto of October 1974 which said: Why can't we accept the idea of a coalition to meet the nation's crisis? Because what our country needs in this crisis is a government with a clear-cut understanding of the nation's problems and the ability to decide quickly and effectively how to deal with them. A coalition government, by its very nature, tends to trim its policies and fudge its decisions; and in present circumstances that just won't do. If we believe, as we must, in our own independent political philosophies, there is no meeting point between us and those with quite different philosophies, and it would be a cruel farce to suggest that the future of the country would be helped by shuffling, compromising administration. That really shows up the pact between the Government and the Liberal Party. I wonder whether the Leader of the Liberal Party read it, and if so what he really feels about it. That statement makes clear how the Liberals have been used. It reflects little credit on the Government for the way they have used the Liberals, and even less upon the Liberals for allowing themselves to be so used.

The issue of full employment is one which every decent Government—and indeed every decent person—must hold as the main objective. When Labour came to power in 1974, unemployment stood at 577,700–2.5 per cent. of the working population. Last month, under this Government, the figure stood at 1,366,400, or 5.7 per cent. Of course, the Government are hoping to alleviate the situation by giving school boys and girls £6 a week to stay at school another year so that they will not appear on any unemployment returns. Heaven knows what will happen in the schools.

Commenting on the unemployment figure of 815,919–3.4 per cent.—which occurred during the term of office of the last Conservative Government, the present Secretary of State for Energy said: there is nothing more wasteful than maintaining such a large body of men and women paid to do nothing in an economy"—[Official Report, 29th April, 1971; Vol. 816, c. 724.] He went on to quote the OECD report of December 1970, which said: A major recession would no longer be an act of God, but only could result from miscalculation or a deliberate act of Government". —[Official Report, 29th April, 1971; Vol. 816, c. 726.] On Prices, it is very interesting to hear what the Government are saying now and comparing it with what the Secretary of State for Energy said in our day. He said: In the last 12 months prices have increased by 8.8 per cent. That amounts to a hydrogen bomb explosion. On that basis, this Government have been lobbing hydrogen bombs around for the past four years and they are continuing to do so.

The Government have put Britain in pawn by their borrowings. Between March 1974 and April this year they borrowed $8.55 billion, half of it in 1977 when North Sea oil was flowing in substantial quantities. By 28th February this year no repayments had been made or were due. However, on 26th January the Chancellor told the House of the Government's intention to repay early $1 billion to the IMF. Has that money been repaid? If not, why not, and when is it intended to be repaid?

On 26th April, in a Written Answer, I was informed that the interest on the $8.55 billion was running at $620 million a year. In addition, the Government have floated enormous national loans, all of which have to be repaid and serviced. The Government are continuing to hang a legacy of debt around this country's neck, and it will take us many years to get rid of it.

Neither the Chancellor nor the Government seem to realise that a country, like a company, cannot borrow its way out of bankruptcy. It is tragic that we are losing credit-worthiness abroad. Other countries are losing confidence in our ability to restore our economic situation. This has all happened under this Government.

Perhaps the worst feature of this Government's performance, politically and morally, is the way in which they have used the Liberal Party in order to hang on to office. It is a tragedy that the Liberal Party has allowed itself to be used by the Goverment. The realisation by the public of what has happened will mean that the Liberal Party at the next election will become the party of irrelevance. That will be the public's view through the ballot box.

8.55 p.m.

Mr. Nigel Forman (Carshalton)

I wish to spend the few moments that are available to me in this debate in considering some aspects of the Government's record over the past four years. This debate gives the House an opportunity to examine the Government's record over a longer period than simply that relating to the package that is before us.

It has already been said that this is the fourteenth economic package of the Labour Government, and we all know the disastrous way in which real living standards have had to be slashed because of the Labour Government's economic mismanagement. Unemployment is intolerably high—twice the figure of that four years ago; industrial production is scarcely above the level attained during the three-day week; and productivity is virtually stagnant. The record of the present Government on all major economic indicators is sad, and the Prime Minister and his Chancellor of the Exchequer have to bear the major share of the responsibility.

There is no doubt that the Government have reeled from crisis to crisis and from policy to policy, rather like a gang of drunken sailors. I do not credit them with a great deal of malevolence aforethought. I believe that they have staggered from one disaster to another with- out having any clearly thought-out plan of action.

The impact of the latest batch of Government measures will mean further unemployment—perhaps another 100,000, according to the CBI, on top of the already tragic level—it will mean higher prices, perhaps an additional 1½ per cent. in a full year, again according to the CBI, and it will result in reduced international competitiveness—a factor that is so vital and to which the Government attach so much importance.

Above all, this latest package has been a cruel blow to the tender plant of revived industrial confidence. There was a hope a little while ago that industrial confidence was beginning to pick up. It is against that background that the Government's major commitment to a so-called industrial strategy now seems so hollow. It must be galling to those who work so hard in industry to create the wealth which the Government are rapidly seeking to redistribute.

Let me recall to the House a quotation from the Chancellor's Budget Statement. He said: But we cannot expect to see the rate of unemployment moving down at an acceptable speed unless we can create new jobs particularly in profitable firms in manufacturing industry and so strengthen the industrial base on which our whole economy depends."—[Official Report, 11th April 1978; Vol. 947, c. 1187.] That is certainly true, and it is equally true that this particular package has done nothing to advance that cause.

Let me now deal with the future. One is bound to conclude that this package is another example of what The Guardian describes as "cynical electioneering". In an apposite remark in a recent leader that newspaper suggested that the measures which Mr. Healey and the Government have chosen amount to the sacrifice of jobs and investment to make sure that the Government wins an election in October". I have my own view about the Government's chances of becoming remotely near to winning an election in October, and I think that those chances are very poor. This says something about the cynical calculation in Ministers' minds and the way in which they have advanced these measures. They are working on the basis that the adverse effects of any of these measures could be pushed well into the future beyond the likely date of an autumn election.

If by some miracle the Labour Party were to win such an election, it is obviously reckoning on the idea of cobbling together some further measures to deal with the consequences of its own mismanagement. However, on the assumption that the Labour Party will not be carrying out the task of government, it will not be particularly bothered by the consequences of inflation, unemployment and its cumulative mistakes.

The National Institute Review recently forecast a return to a level of inflation of about 12 per cent. in 1979 and unemployment rising again to about 1½ million. If that is the inheritance that the next Conservative Government have to pick up, they will be justified in blaming the previous Labour Government for a legacy of cruel irresponsibility.

When we are faced with the latest set of crisis measures and when the Chancellor had the cheek to talk about the present situation as a dramatic turn-around in the economy, I recall the refrain from one of Vera Lynn's wartime songs—I shall not sing it—which went along these lines, "We'll pay our way, don't know how, don't know when".

The record of four years of Labour Government and the latest package show that the Chancellor has learnt nothing and forgotten nothing. We see before us a demoralised and desperate party clinging to power. I am mindful when looking at it of a Yeat's quotation The best lack all conviction, while the worst are full of passionate intensity. On an evening when a number of hon. Members have made it abundantly clear that we are talking about the record of a bankrupt Administration with bankrupt policies, I am happy to join my hon. Friends in voting against the Government.

9.2 p.m.

Mr. Stan Thorne (Preston, South)

I shall speak briefly as I recognise that little time is left. The debate has been about how industry is organised, about its goals and who decides those goals.

We have had nothing new from the Opposition on those matters. Again we are being invited to accept that private enterprise should be the determining factor in regard to how industry is run and organised. We are again being told that there should be no Government intervention in industry, in spite of the fact that the Conservative Party has found it necessary in the past to intervene, especially in the case of Rolls-Royce, when there have been problems.

I am concerned primarily about the problem of unemployment. I am not convinced that the measures that the Chancellor is putting forward at present will not exacerbate the problem that already exists. It is true that unemployment is a problem of the Western world generally. I would argue that there is not sufficient Government intervention in the economy to enable it to address itself primarily to that problem. Planning the economy has always been part of the Labour Party's approach to present-day society in Britain. However, we continue, as my hon. Friend the Member for Bristol, North-West (Mr. Thomas) has said, to accept that there is no need for any real action on import controls.

In my constituency, and in several others in the North-West, jobs have undoubtedly been lost because of the tremendous inflow of manufactured goods. It is worth recalling the figures for passenger motor cars as imports from 1974 to date. The figures tell their own story. In 1974 it was £357 million, in 1975 it was £516 milion, in 1976 it was £889 million and in 1977 it was £1,328 million. In the first four months of this year it is £555 million. If that trend continues, at the end of the financial year the imports of passenger cars will reach a level of £1,665 million

Surely we ignore figures of that description at our peril. We cannot possibly talk about regenerating British industry unless we are prepared to accept that some measure of import controls has to be introduced to protect that industry. That means that they must be selective and be in areas where the effects on the exporting country will be felt least.

I am more concerned with the overall question of the world economic situation. Clearly, I cannot deal with that in the two or three minutes left at my disposal. I want to issue a warning which has already been issued by Labour Members. It will be not too far distant when the world crisis will be between the nations which have and the nations which have not. The tremendous input that we could make to the developing world to improve its economic position will be lost precisely because we have not put our minds to the regeneration of British industry which is not only in our economic interest but in the interest of meeting needs in other parts of the world. In view of the time, I shall leave it at that.

9.6 p.m.

Mr. James Prior (Lowestoft)

I start with the pleasant duty of congratulating two hon. Members on their maiden speeches.

My hon. Friend the Member for Epsom and Ewell (Mr. Hamilton) follows a distinguished Member of this House—now Lord Rawlinson. My hon. Friend concentrated largely on youth unemployment and the problems of small businesses. He fought a good fight and had a very good victory. We are pleased to see him on the Opposition Benches.

Much the same applies to the hon. Member for Hamilton (Mr. Robertson), who also made his maiden speech today. He follows a popular and quiet Member of this House who died recently. The hon. Gentleman also stressed the importance of unemployment, particularly among young people, in what I am told was a constructive and conciliatory speech.

It is usual on these occasions to wish that we hear from such hon. Members many times in future. I think that their speeches today were of the kind that we should like to hear on future occasions. But I hope that they do not follow the example of the Chancellor of the Exchequer. If they do, we shall not want to hear them again very often.

I say that because I thought that we heard the Chancellor of the Exchequer today at his worst, his most arrogant, his most cynical and his most inexcusable. I find Andrew Alexander difficult to take at times, but this morning he said that it was impossible to penetrate the right hon. Gentleman's ego. My goodness, if he listened to the debate this afternoon, he would have been proved right again.

The Chancellor was his usual self, because in his speech he made the same old excuses. Looking back over the last four and a half years of the Chancellor's excuses when he has brought further economic measures before us, there has always been someone or something else to blame. It has even been the weather on occasions. It is what other countries are doing the fact that business has not invested, that wages have gone up too quickly or that the world economy is expanding too fast or too slowly. It is never the Chancellor's fault that anything goes wrong.

The Chancellor of the Exchequer has proved himself to be entirely cynical in the measures that he has chosen on this occasion. The Guardian stated: The measures which Mr. Healey has chosen to take represent cynical electioneering. Put crudely the Government has chosen to sacrifice jobs and investment to make sure that it wins an election in October. The article concluded: The Government may have regained initiative in the money markets but it has done so at the cost of elbowing industry aside once again and this time in the interest of political expediency just as much as economic necessity. That was The Guardian's view:

On the fourteenth Budget that the Chancellor has introduced, I must say to him that there are some people about whom one cannot truthfully say that practice makes perfect. It certainly does not in the case of the Chancellor.

The Chancellor—and the Prime Minister is also fond of doing this—referred to the money supply figures for 1972–73. When we in the Opposition were sitting on the Government Benches I do not remember the right hon. Gentleman, when he was Shadow Chancellor, castigating us about the money supply. I remember that we were castigated about the level of unemployment when the number of unemployed was 900,000. We were castigated about the level of unemployment when it was 600,000—not the 1.4 million that it is today.

Have the Government forgotten that they fought an election in October 1974 when they said that unemployment was coming down and that inflation was under control and when the Chancellor said that there was no reason why there should ever be over 1 million unemployed? They have forgotten all about that. They try and try again to pin the mistakes that they have made constantly and consistently over the past four years on the money supply problem of 1972–73. That just does not wash.

The Chancellor says that there are divisions in policy thinking on these Benches. But they are nothing compared with the divisions in policy that he has announced in the past two months. It is extraordinary. Two months ago, in the Budget Statement, the Chancellor said that to increase the employers' national insurance surcharge would mean that it would ultimately be passed on in higher prices at a time when the fight against inflation was at a crucial stage and, even worse, that it would harm us when unemployment was our major problem.

The day before yesterday the Chancellor said almost the same as he said today. He said: The increase in the surcharge will have next to no effect on jobs, investment or trade. Indeed, the moaners are talking a lot of nonsense. It ill becomes the Chancellor or anyone else on the Government Benches to talk about splits in policy or about not knowing one's own mind. The Chancellor does not know his own mind from one moment to the next.

Not for the first time the Government have misjudged the economic position. The Budget judgment was entirely wrong. It was wrong in terms of the borrowing requirements and in terms of public spending increases and in its combination of tax changes. It was also wrong in its judgment of the House of Commons. In the end it was the fear of a sterling crisis, a plunge in the reserves, and a plummet in the exchange rate that made the Chancellor act. It was not the £500 million tax cuts that the House imposed upon him. It is clear that it was a far deeper and far more serious crisis than that which began a long time before there was any question of tax cuts.

My right hon. Friend the Member for Chipping Barnet (Mr. Maudling), who received no answer from the Government, was right to point out the interesting figure which the Chancellor has used and which appeared in the Financial Times today—that the borrowing requirement is about £700 million less than was forecast. If that is right, it completely destroys any argument that the Government might have been able to use—and use very unfairly—against the tax cuts of the second week in May. It is no good the Chancellor saying that our borrowing requirement is less than that of Germany or Japan as a percentage of GNP. Japan and Germany have strong economies whereas ours is weak. We are not in the luxurious position of being able to borrow at the rate at which other countries can borrow and still sustain their economies.

The Goverment are in a vicious circle. They have boxed themselves in by their own policies. They realise that Britain is now operating under a new kind of restraint—that of monetary discipline. But once again they have proved that they are incapable of living within it. They respond to their own supporters by increasing public spending even though the country has not earned the money by increased production and sales.

The Government have to borrow. They are a poor risk. Accordingly they have to pay over the odds for the money they borrow. The money they are borrowing now at enormously high rates of interest will have to be repaid by future generations. It is most unfair that those generations, not to mention the present generation, should have to suffer for the Government's mistakes now.

Because of their policies, the Government are forced to retrench again, so they go for the private sector. Twice in two years they have put on an employers' surcharge for national insurance. They do that rather than hit the public spending sector, although of course their action still hurts the public. There is no way of avoiding that. The Government therefore hit at the already dangerously narrow industrial base whence comes our wealth. The country is not yet aware of the desperately serious state of much of our industry.

Costs rise, unemployment increases and investment declines. Our competitive position deteriorates and our unit costs go up. We sell less and we import more. Let me ask the Government where they think the British economy would be today if it were not for the £5 billion we are now getting from North Sea oil and natural gas. I remember last year that the BBC's industrial correspondent—no doubt prompted by some Treasury spokesman—stated on the news that the balance of payments was in the black. There was no reason, he said, why the balance of payments should not stay in the black for 15 to 20 years. Yet within six months we are back in the red again. We are back in the red this month and we were in the red on average for the first three months of this year.

As unemployment and prices rise, the Government seek to spend more to provide employment aids to put people into work, and they seek to spend it to prevent increases in prices that become inevitable as a result of their policies. They seek to protect the jobs that their policies have put at risk. They seek to prevent the price rises that their policies have made inevitable. As the situation grows worse they introduce tougher wage restrictions, and their very nature precludes the movement of differentials to the greater flexibility that is now essential. One had only to listen to the news this morning and to hear of the shortage of skilled men at ICI at Wilton, which is causing that plant to close, to know how damaging to the economy is the very tight and totally inflexible pay policy of the present Government.

Mr. Robert Mellish (Bermondsey)

What would the right hon. Gentleman do? What is the alternative?

Mr. Prior

Give me a chance.

It is vital that we begin to break out of this vicious circle. The Government have shown themselves incapable of doing so.

Mr. Mellish

What is the right hon. Gentleman's alternative?

Mr. Prior

I shall tell the right hon. Gentleman this as well. I think that trade unionists have behaved with remarkable responsibility. [HON. MEMBERS: "Hear, hear."] I shall tell the right hon. Gentleman something else. They have been shabbily rewarded by the present Government, because present policies are not working for them now.

The more the working man takes stock of his position and the more he understands his country's and his firm's position, the more he will seek the change in policy that is essential if we are to get production and productivity moving forward.

The Government offer confrontation[Laughter]—yes, confrontation with the dole queues and confrontation with higher prices. Labour Members may laugh, but let them visit people on the factory floor and hear what they have to say. Let them not always be guided by London taxi drivers—Oh, I forgot; they do not travel in London taxis. Let them not be guided by the few people who do not tell them the truth about the level of taxes and of prices. I shall say a little more about that before I resume my seat.

The Government have absolutely no right to presume to tell us the effect of our policy when their own is failing so abysmally.

Let me turn for a moment to the effect of the Government's measures on employment. I never thought that I would live to hear in the House of Commons a Socialist Chancellor of the Exchequer cheered by his own side with unemployment at 1.4 million. I never thought that that day would come. Yet I heard that this afternoon, when I hear a Chancellor defending not only a record of 1.4 million unemployed but also further measures that will increase that total.

What is more, it is no good the Chancellor thinking that these increases in unemployment will not start before the autumn, because that is when the unemployment surcharge comes in.

Mr. Mellish

Tell us what you would do, Jim.

Mr. Prior

The increases will start now. The increase in unemployment will begin now because more and more people in small businesses and big businesses will look at their payrolls and will decide, wherever they can, to cut down the number of people that they employ.

I do not know whether Labour Members realise it, but the surcharge will cost about £100 per average industrial worker employed in British industry. It will cost the Government a lot of money, too. When my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) puts down an Question to the Secretary of State for Social Services about its effects on the National Health Service, the Government cannot even tell the House what the effect will be. They have not even got round to working it out. So panicky was the measure they had to introduce that they have not even worked out the effect in their own business, let alone in the other businesses of the country.

Mr. Mellish

What is Tory policy?

Mr. Prior

I have here a letter given me by my hon. Friend the Member for Shoreham (Mr. Luce). The letter, dated 9th June, is from the Federation of Sussex Industries, which asks: Cannot the Government see that they are creating unemployment with these measures? Small firms in particular are cutting back on staff—every new employee is a potential tribunal case, so what with this new measure they will be even more reluctant to take on extra workers". That is the truth of the position. The Government know that as well.

I quote next from what the Financial Times said of the Chancellor: He must also be aware that there is something ludicrous in the spectacle of a Government which subsidises employment in uncompetitive industries by imposing a tax on employment in productive ones. That is what the Government are doing.

I have been making winding-up speeches in the House for some while, but I cannot remember an occasion when the behaviour of right hon. Members on the Government Front Bench was as extraordinary as it has been today. First, the Prime Minister announced at the eleventh hour that he would treat the motion as a vote of confidence and that he intended to reply to the debate himself. Presumably his main motive was to flush out his colleagues in the Liberal Party so that they would jump through the hoops once more. I do not think that he needed to point such a large piece of artillery at them. Gone are the days when they cheered the prospect of marching towards the sound of the gunfire.

As the Prime Minister decided to speak in the debate, it seems strange that, even given his programme outside the House, he chose to spend so little time here today. He did not even send a message, as he has on previous occasions, to explain why he could not be here. I gather from the noise they are making that Labour Members do not care much about the House of Commons. If they did, they would have seen that the Government made the original statement in the House.

Then we had the hustings speech of the Chancellor. He plumbed new depths, even for him. He seems to have chosen to spend most of his life in the political gutter, and I shall not follow him there now.

The main part of the right hon. Gentleman's speech was a characteristically vitriolic attack on Conservative policy. He said that Conservative policies were extreme and divisive. What nerve from the man whose policies have more than doubled the number of men and women out of work, the man whose policies will have pretty well have doubled prices by the time of the next election. I can think of no holder of his office whose policies have been more divisive than the right hon. Gentleman's.

If the Chancellor wants, as he seemed to suggest in his speech, a serious comparison of policies, let him look at Conservative policy set out in "The Right Approach" and then look at the Labour programme—a collecton of Eastern-European-style policies passed by an Eastern-European-sized majority at Labour's conference 18 months ago. The right hon. Gentleman will remember that conference. It is the one he had to attend when the pound was plummeting and he was called back from Heathrow. He will also know, as hon. Members do, what Mr. Bert Ramelson said about Labour Party policy. He said: The Communist Party can float an idea early in the year and it can become official Labour policy by the autumn. The right hon. Member for Orkney and Shetland (Mr. Grimond) said of the Labour Party: The Labour Party remains without principle, clinging to office, paid by the trades unions and with an anti-democratic Marxist wing. The pact, I fear, is having no effect on the nature of that party. "The Right Approach"—our right approach—which the Prime Minister quotes with approval at every opportunity sets out our policies. I have not heard the Prime Minister pointing to the Labour programme. That is not surprising when it calls for more nationalisation. Does the right hon. Gentleman agree with it? Will he tell us tonight? Does he agree with nationalising the banks and insurance companies? His party does, but does he?

That programme of his will lead to higher spending, bigger debt, higher taxes, higher inflation, higher unemployment. Is that moderate or is it extremist? Would that unite the nation or would it divide the nation? In Burnley the other day—it is bad luck for him that the local reporter was there to take down what he said—the Chancellor told the comrades: I will offer you proper Socialism when we get a decent majority in the House of Commons to enable us to do it. That is not quite the message that the right hon. Gentleman whispers over the brandy and cigars down at the City lunches. It is a different message down there. But the message that he gave the Burnley comrades is the true message and the one to which the country must pay attention.

But is it the right hon. Gentleman's "proper Socialism" which we are supposed to believe would unite the nation? Of course it would not. It would drive us back down the road to bankruptcy. It would be back to the policies of 1974 which got us into this mess and it would be full steam ahead for 1984 instead.

Mr. Mellish

Now let us have Tory policy.

Mr. Prior

I will give the right hon. Gentleman the theme on which I believe and I know my party will fight the election when it comes. As we approach the next election, let us take for our guide words from an American—[Laughter.] Labour Members would do a lot better to listen to these words rather than laugh because they have never listened to words like them before. I hope that they will listen now. Those words are: If we promise, we must deliver. If we propose, we must produce. If we ask for sacrifice, we must be the first to give. If we make mistakes we must be willing to admit them. We must provide the people with a vision of the future that is attainable. We must strike a balance between the idea that the government can do everything and the belief that the government should do nothing. This Government have misled the country for four years. The result is 1.4 million unemployed. They have doubled prices and doubled unemployment. The Chancellor stays in office against the wishes of everyone on this side of the House. It is long overdue that his salary was reduced, and it is long overdue that he gave up his job.

9.34 p.m.

The Prime Minister (Mr. James Callaghan) rose—

Mr. William Whitelaw (Penrith and the Border)

Hear, hear.

The Prime Minister

I hope that the right hon. Gentleman will also cheer at the end of my speech.

I should like to begin as the right hon. Member for Lowestoft (Mr. Prior) began by congratulating the two hon. Members who have made their maiden speeches today. I regret that I heard neither the speech of the hon. Member for Epsom and Ewell (Mr. Hamilton) nor that of my hon. Friend the Member for Hamilton (Mr. Robertson). I understand that the hon. Member for Epsom and Ewell is an employer and works in an engineering firm. It is very valuable that people with practical experience should come here. It complements well the activities of my hon. Friend the Member for Hamilton, who is an experienced trade unionist. Both sides of industry need representation in this House, and from what I have been told it seems that we have gained two excellent new Members. I congratulate them.

I apologise to the House for not having been here during the debate. It is true that I did not send a note, as I usually do; and I offer my apologies, but I thought it was known that. I have had over five hours of discussion today with the President of Romania. That is the reason that I was not here. It would not have been possible to put off the President of Romania today, and I do not believe that the House of Commons would have wanted me to do so.

If I am asked by the Opposition, as I am, why I reply to the debate, my answer is that it is because I take responsibility for asking that the House should vote tonight on a vote of confidence. I think, therefore, that it is right that I should come here and say why.

In a minority Government such as we have—and we have been in a minority of anything between 10 and 20 on ail occasions—it is inevitable that we shall constantly suffer defeats. We have accepted them during the last four and a half years, trying to put them right whenever we could, but, on the whole, we felt that it was right that we should carry on and accept such defeats.

It could have been argued—and, indeed, was argued—that we should do the same tonight, if indeed the House were to vote against us, and put down a vole of confidence tomorrow on which the House could decide. That seemed to me not the right way to do it, and I shall explain why.

The job of a Chancellor of the Exchequer is the most onerous and responsible and almost intolerable job in any Government. If anybody wishes to challenge that, I suggest that he should look at the record of the late Lord Selwyn-Lloyd or of Lord Barber, or even of two of us who are still in this House. Anybody who has done this job recognises its very onerous nature. The task of Chancellor of the Exchequer is central to that of the whole Government's economic and financial policy. Therefore, this is not like an attack on any other Minister. As I understand it—I hope I do—an attack on the Chancellor of the Exchequer, and an attempt to undermine him in this way, is an attack on the central policy of the Government. The whole of the Government, therefore, should put their weight behind the Chancellor and support him in a matter such as this.

It seemed to me to be appropriate, therefore, that we should say that the House should make up its mind on the whole record of the Government and that, if the House cannot support us this evening, I would ask for a dissolution of Parliament and go to the country. That seems to me to be the right way to handle this situation, because, as the Chancellor of the Exchequer is so central to Government policy, a vote against him in the House tonight would have its repercussions in the markets and would have its reprecussions on the exchange rate. Indeed, it would have its repercussions in a great many of our financial and monetary affairs.

It seems to me, therefore, that the House should vote—as I know it will, in all responsibility tonight—on that central issue whether it thinks that in all these circumstances, and taking the whole record, the House should censure the Government through the Chancellor of the Exchequer. That, therefore, is the reason why—

Mr. Malcolm Rifkind (Edinburgh, Pentlands)

I am grateful to the Prime Minister for giving way. He has explained his reason for making this a vote of confi- dence. Can he explain why he came to that decision only just before lunch today?

The Prime Minister

I thought that I had already done so—[HON. MEMBERS: "No."]. I said that there was a suggestion that we could accept today's decision in any case and then put down a vote of confidence tomorrow. Having reflected on this I came to the conclusion that that was not the right way of doing it. If hon. Hembers voted tonight without the knowledge of the damage they would be doing in certain circumstances, I believe that it would be leaving the House under a false impression. I did not want to do that. That is the reason why I ask the House tonight to vote in the full knowledge of what the results will be, and in the added certainty that if we cannot get support from the House we believe that we shall get full support from the country.

I understand from all sides that the Chancellor today made an outstanding speech. Indeed, I am told that it was his best in this Parliament. I suppose, therefore, that there will be the usual number of bruised shins going home tonight.

But the reason why I ask that there should be no support for this motion, in addition to what I have already said, is that there is a large amount of unfinished business still to complete. I take first the legislative side. There is the whole question of the devolution Bills for Scotland and Wales. On more than one occasion the House has declared itself in principle in favour of these Bills. We have spent two years on them. They have been amended, they will still come back to the House and there is no doubt that there will be further discussions. But they are reaching their final stages.

Whatever views either side may take about this matter, I believe that there is now a growing acceptance that the people of Scotland and Wales should have the opportunity of declaring their view as they will do, through a referendum on this matter. I believe that it would be a disservice to the people of Scotland and Wales to deny them that opportunity. It is well known—I am sure that it is well known by those who apparently are seeking to interrupt me from the Scottish National Bench—that if the House should be dissolved—as I hope and believe it will not—both of those Bills will be lost. We should have to start again completely from scratch. The Members of the SNP should also remember when they vote tonight that if they have the misfortune to have a Tory Government those Bills will never start again.

Mrs. Winifred Ewing (Moray and Nairn)

Would not the Prime Minister reflect on the fact that for 50 years it was the policy of the Labour Party to promise a much more full-blooded Assembly for Scotland? We are still waiting on that. Therefore, what confidence can we have in the promises of either side?

The Prime Minister

I would have thought that the record of the Government in persisting with these Bills, despite the most vigorous opposition, is the best reason for confidence that the hon. Lady could have that we intend to bring them to a conclusion. I very much hoped that we would have more support from the hon. Lady and her colleagues with regard to this matter. If these Bills are lost, the referendum is lost. I hope that the people of Scotland and Wales will be able to declare themselves. As far as we in Wales are concerned, I hope that our people will declare themselves in favour of an Assembly. I should like to see that take place. But if we lose the vote tonight, both those Bills will disappear. The people of both Scotland and Wales know that.

Another piece of business which is unfinished—indeed, it will never be finished; the battle is continuous—is the battle against inflation. We have had great successes here, but we must go on, and I think it important that the Government should know that they have the support of the House of Commons in carrying on that battle.

We have had great successes. I must say that when I hear the right hon. Member for Lowestoft talk of the high cost of borrowing now, although his references were good I wish that he had looked at the cost of borrowing when he left office. It is now 10 per cent., and he is grumbling about it, but when he left office the cost of borrowing was 13 per cent.

We have seen the right hon. Member for Lowestoft in his traditional role tonight, paying tribute to the trade unions, trying to seduce them, but I am afraid that they have seen too much and heard too much of other speeches. The voice may be the voice of Lowestoft, but the hands are the hands of Joseph.

There was only one thing we were disappointed about in the right hon. Gentleman's speech. He quoted great words, with many of which, I must say, I found myself in agreement, from a great American, but he did not tell us who it was. I began to wonder whether we had exchanged Karl Marx on this side for Groucho Marx on that. But we heard no word of who the great American was who will now sustain the Conservative Party.

I wish to refer also to some of the other financial provisions in the battle against inflation. The right hon. Gentleman spoke of the money supply. The money supply is one tool, though not the only tool. But if comparisons are to be made—if we are as bad as everyone says—how do the Opposition account for the fact that whereas the money supply has increased by 26 per cent. in the past two years, it went up by 65 per cent. in their last two years? What do they think was appropriate then which is not appropriate now? Why do they think that they did so much better when the increase in money supply was so much higher? We have asked that question many times, and I despair of getting an answer, but if we are comparing records, it is worth while putting these things on the record.

With regard to the balance of payments, to be fair to the Opposition I have taken one quarter, the last quarter of 1973, before the increase in oil prices really took effect. The balance of payments deficit was then running at an annual rate of £1,300 million. If I took the following year, of course, the figure would be over £3 billion, but in that quarter it was running at the rate of £1,300 million a year. In 1977, we had a surplus of £165 million. What do the Opposition want to make of that? What is so special about their record in that respect?

I have referred already to our record on inflation. The right hon. Member for Lowestoft referred to this and complained about how high it was at 7.9 per cent. I agree that it is high at 7.9 per cent. I I agree that we must naturally try to keep it there or reduce it, if it is humanly possible. But I must remind the right hon. Gentleman and the Opposition who are censuring the Chancellor tonight that when they left office inflation was at 15 per cent. and rising. It is now 7.9 per cent. and falling.

Mr. Cyril Smith (Rochdale)

Does the Prime Minister not agree that as well as inflation the issue of unemployment is extremely important? Will he undertake between now and the Report stage of the Finance Bill to have meaningful discussions with the Liberal Party and its leaders to try to reduce the 2½ per cent. surcharge that it is proposed to put on employers and particularly on small businesses because of the effect that that might have on them?

The Prime Minister

We should be happy to have discussions with the Liberal Party on this matter or with the official Opposition if they wish. However, I cannot undertake to the hon. Member for Rochdale (Mr. Smith) that the 2½ per cent. surcharge will be reduced at this moment. I cannot go further than I have gone before, along with my right hon. Friend, in saying that the 2½ per cent. is necessary if we are to raise the revenue that has been lost in other ways for this year. But there is another Budget next April and the matter will be considered again before then. If the hon. Member for Rochdale or any of his hon. Friends wish to discuss that matter between now and the Report stage we shall be happy to enter into talks with them.

I turn to the question of unemployment. The first point that we want to put on record is that the Government have saved hundreds of thousands of jobs during the last four years. The temporary employment subsidy and the short-time working proposals which have just come into force have applied to over 430,000 workers. The workers of this country know and understand this. They therefore know that the Labour Government are far better at handling unemployment when it occurs than is the Conservative Party.

Mr. Anthony Grant (Harrow, Central) rose—

The Prime Minister

I have only just started on the question of unemployment. I may deal with the hon. Gentleman's point on the way through. In the matter of shipbuilding, we have saved hundreds of jobs, if not thousands, against the desire and votes of the Conservative Party. Jobs have been saved in aircraft against the votes of the Conservative Party. Jobs have been saved in the motor car industry against the votes of the Conservative Party. We have helped large and small firms against the votes of the Conservative Party. We have given coal a firm base from which that industry can proceed.

We have in the matter of the Scottish and Welsh Development Agencies given assistance to small and medium-sized firms, and not one of us has had a reply from the Opposition as to what it would do about those two Agencies, which are extremely valued and welcome in Scotland and in Wales.

What policy does the Conservative Party follow? The Conservative Party believes that grants and subsidies always do great harm. That is the theme of the Conservative Party, which is constantly expressed and constantly reiterated by the right hon. Member for Leeds, North-East (Sir K. Joseph). That is why the Conservative Party on every possible occasion votes in favour of cutting out jobs and of more unemployment.

The unemployment figure has fallen slowly during the last eight months and I believe will continue to fall over a period of the next 12 months but not month by month, provided that we can overcome the battle against world recession and overcome the battle against inflation. I reiterate the Government's firm conviction that the battle against inflation is the first and overwhelming battle. Inflation, when it gets out of hand, destroys jobs. It is because we wish to see jobs preserved that we shall continue to fight this battle for as long as we can.

Mr. Reginald Eyre (Birmingham, Hall Green)

Has the Prime Minister thought about the situation in the inner areas of our cities where unemployment is increasing so much and where the only prospect of improving that position is through the creation of new small businesses? Has he considered the terribly damaging effect of these latest proposals on those businesses?

The Prime Minister

The problems of our inner cities is a great one, but I wish that the hon. Gentlemen had thought about this before he unbalanced the Budget by his vote last month. We have introduced this package as a defensive measure because of the reductions in taxation that were voted. The hon. Gentleman and the country know that.

We want to continue tackling the problem of overcoming the world recession. Britain has put forward a five-point programme which appeals for more growth, energy conservation, more stable currencies, success in the multilateral trade negotiations and long-term aid to the developing countries. In my view, this, and only this, will begin to reduce the 16 million unemployed in the Western world. I believe that it is vitally necessary that in addition to accepting our own responsibility for the levels of unemployment in this country, arising out of inflation and low productivity, we should not deceive our people by pretending that we shall get rid of our unemployment until the health of the Western economies is far better than it is today.

I must conclude shortly by asking for the support of the House on these matters. I thought that my right hon. Friend the Member for Bermondsey (Mr. Mellish) was a little unfair to the Opposition when he said that he did not know what was their policy.

Mr. Mellish

I never have known.

The Prime Minister

Perhaps my right hon. Friend will allow me to enlighten him on what I think is their policy. I shall put it in about five short sentences.

Their policy, as I understand it, is to have sabre rattling against the Soviet Union, tub-thumping on hanging, shuffling on immigration, confrontation with the industrial workers and running away on devolution. It is also to preach for public expenditure cuts while putting forward proposals for at least an extra £1,500 million a year on measures they have asked us to introduce immediately.

Everyone who votes tonight, of whatever party, must consider whether that sort of negative approach to politics today deserves the support of this House. In my view, it does not. In my view, what we are doing, within the limitations of being a minority Government—that is why we must ask for a vote of confidence tonight—is to face the issues of inflation and unemployment that confront this country. We are combating them with a fair degree of success and with much more support in the country than we have in the House. [HoN. MEMBERS: "Try it".] I know that Conservative Members do not want the devolution Bills to go through, but I do and therefore I think that this is not the right time to appeal to the country on these matters.

I say to my right hon. and hon. Friends that whenever the time comes, however the vote goes tonight, we can appeal to the country in confidence, with conviction, proud of our record, and we can appeal to the country knowing that facing us is a bankrupt Opposition.

Question put, That the salary of Mr. Chancellor of the Exchequer should be reduced by half:—

The House divided: Ayes 282, Noes 287.

Division No. 231	AYES	[10.00 p.m.
Adley, Robert	Bowden, A. (Brighton, Kemptown)	Clark, William (Croydon S)
Altken, Jonathan	Boyson, Dr Rhodes (Brent)	Clarke, Kenneth (Rushcliffe)
Alison, Michael	Bradford, Rev Robert	Clegg, Walter
Amery, Rt Hon Julian	Braine, Sir Bernard	Cooke, Robert (Bristol W)
Arnold, Tom	Brittan, Leon	Cope,John
Atkins, Rt Hon H. (Spelthorne)	Brocklebank-Fowler, C.	Cormack, Patrick
Atkinson, David (B'mouth, East)	Brooke, Hon Peter	Costain, A. P.
Awdry, Daniel	Brotherton, Michael	Craig, Rt Hon W. (Belfast E)
Bain, Mrs Margaret	Brown, Sir Edward (Bath)	Crawford, Douglas
Baker, Kenneth	Bryan, Sir Paul	Crouch, David
Bell, Ronald	Buchanan-Smith, Alick	Crowder, F. P.
Bendall, Vivian	Buck, Antony	Davies, Rt Hon J. (Knutsford)
Bennett, Sir Frederic (Torbay)	Budgen, Nick	Dean, Paul (N Somerset)
Bennett, Dr Reginald (Fareham)	Bulmer, Esmond	Dodsworth, Geoffrey
Benyon, W.	Burden, F. A.	Douglas-Hamilton, Lord James
Berry, Hon Anthony	Butler, Adam (Bosworth)	Drayson, Burnaby
Biffen, John	Carlisle, Mark	du Cann, Rt Hon Edward
Biggs-Davison, John	Carson, John	Dunlop, John
Blaker, Peter	Chalker, Mrs Lynda	Durant, Tony
Body, Richard	Channon, Paul	Dykes, Hugh
Boscawen, Hon Robert	Churchill, W. S.	Eden, Rt Hon Sir John
Bottomley, Peter	Clark, Alan (Plymouth, Sutton)	Edwards, Nicholas (Pembroke)
Elliott, Sir William	King, Tom (Bridgwater)	Rathbone, Tim
Emery, Peter	Kitson, Sir Timothy	Rees, Peter (Dover & Deal)
Ewing, Mrs Winifred (Moray)	Knight, Mrs Jill	Rees-Davies, W. R.
Eyre, Reginald	Knox, David	Reid, George
Fairbairn, Nicholas	Lamont, Norman	Renton, Rt Hon Sir D. (Hunts)
Fairgrieve, Russell	Langford-Holt, Sir John	Renton, Tim (Mid-Sussex)
Farr, John	Latham, Michael (Melton)	Rhodes James, R.
Fell, Anthony	Lawrence, Ivan	Ridley, Hon Nicholas
Finsberg, Geoffrey	Lawson, Nigel	Ridsdale, Julian
Fisher, Sir Nigel	Lester, Jim (Beeston)	Rifkind, Malcolm
Fletcher, Alex (Edinburgh N)	Lewis, Kenneth (Rutland)	Roberts, Wyn (Conway)
Fletcher-Cooke, Charles	Lloyd, Ian	Ross, William (Londonderry)
Fookes, Miss Janet	Loveridge, John	Rossi, Hugh (Hornsey)
Forman, Nigel	Luce, Richard	Rost, Peter (SE Derbyshire)
Fowler, Norman (Sutton C'fd)	McAddon, Sir Stephen	Royle, Sir Anthony
Fox, Marcus	MacCormick, Iain	Sainsbury, Tim
Faser, Rt Hon H. (Stafford & St)	McCrindle, Robert	St. John-Stevas, Norman
Fry, Peter	McCusker, H.	Scott, Nicholas
Galbraith, Hon T. G. D.	Macfarlane, Neil	Shelton, William (Streatham)
Gardiner, George (Reigate)	MacGregor, John	Shepherd, Colin
Gardiner, Edward (S Fylde)	MacKay, Andrew (Stechford)	Shersby, Michael
Gilmour, Rt Hon Sir Ian (Chesham)	Macmillan, Rt Hon M. (Farnham)	Silvester, Fred
Gilmour, Sir John (East Fife)	McNair-Wilson, M. (Newbury)	Sims, Roger
Glyn, Dr Alan	McNair-Wilson, P. (New Forest)	Sinclair, Sir George
Godber, Rt Hon Joseph	Madel, David	Skeet, T. H. H.
Goodhart, Philip	Marshall. Michael (Arundel)	Smith, Dudley (Warwick)
Goodhew, Victor	Marten, Neil	Smith, Timothy John (Ashfield)
Goodlad, Alastair	Mates, Michael	Speed, Keith
Gorst, John	Mather, Carol	Spicer, Michael (S Worcester)
Gow, Ian (Eastbourne)	Maude, Angus	Sproat, Iain
Gower, Sir Raymond (Barry)	Maudling, Rt Hon Reginald	Stainton, Keith
Grant, Anthony (Harrow C)	Mawby, Ray	Stanbrook, Ivor
Gray, Hamish	Maxwell-Hyslop, Robin	Stanley, John
Grieve, Percy	Mayhew, Patrick	Steen, Anthony (Wavertree)
Griffiths, Eldon	Meyer, Sir Anthony	Stewart, Rt Hon Donald
Grist, Ian	Miller, Hal (Bromsgrove)	Stewart, Ian (Hitchin)
Grylls, Michael	Mills, Peter	Stokes, John
Hall-Davis, A. G. F.	Miscampbell, Norman	Stradling Thomas, J.
Hamilton, Archibald (Epsom & Ewell)	Mitchell, David (Basingstoke)	Tapsell, Peter
Hamilton, Michael (Salisbury)	Moate, Roger	Taylor, R. (Croydon NW)
Hampson, Dr Keith	Molyneaux, James	Taylor, Teddy (Cathcart)
Hannam, John	Monro, Hector	Tebbit, Norman
Harrison, Col Sir Harwood (Eye)	Montgomery, Fergus	Temple-Morris, Peter
Harvie Anderson, Rt Hon Miss	Moore, John (Croydon C)	Thatcher, Rt Hon Margaret
Haselhurst, Alan	More. Jasper (Ludlow)	Thomas, Rt Hon P. (Hendon S)
Hastings, Stephen	Morgan, Geraint	Thompson, George
Havers, Rt Hon Sir Michael	Morgan-Giles, Rear-Admiral	Townsend, Cyril D.
Hawkins, Paul	Morris, Michael (Northampton S)	Trotter, Neville
Hayhoe, Barney	Morrison, Charles (Devizes)	van Straubenzee, W. R.
Heath, Rt Hon Edward	Morrison, Hon Peter (Chester)	Vaughan, Dr Gerard
Henderson, Douglas	Mudd, David	Viggers, Peter
Heseltine, Michael	Neave, Alrey	Wakeham, John
Hicks, Robert	Nelson, Anthony	Walder, David (Clitheroe)
Higg[...]ns, Terence L.	Neubert, Michael	Walker, Rt Hon P. (Worcester)
Hodgson, Robin	Newton, Tony	Wall, Patrick
Holland, Philip	Nott, John	Walters, Dennis
Howe, Rt Hon Sir Geoffrey	Onslow, Cranley	Warren, Kenneth
Howell, David (Guildford)	Oppenheim, Mrs Sally	Watt, Hamish
Hunt, David (Wirral)	Page, John (Harrow West)	Weatherill, Bernard
Hunt, John (Ravensbourne)	Page, Rt Hon R. Graham (Crosby)	Wells, John
Hurd, Douglas	Page, Richard (Workington)	Welsh, Andrew
Hutchison, Michael Clark	Paisley, Rev Ian	Whitelaw, Rt Hon William
Irving, Charles (Cheltenham)	Parkinson, Cecil	Whitney, Raymond
James, David	Pattie, Geoffrey	Wiggin, Jerry
Jenkin, Rt Hon p. (Wanst'd&W'df'd)	Percival, Ian	Wilson, Gordon (Dundee E)
Jessel, Toby	Peyton, Rt Hon John	Winterton, Nicholas
Johnson Smith, G. (E Grinstead)	Pink, R. Bonner	Wood, Rt Hon Richard
Jones, Arthur (Daventry)	Powell, Rt Hon J. Enoch	Young, Sir G. (Ealing, Acton)
Jopling, Michael	Prentice, Rt Hon Reg	Younger, Hon George
Joseph, Rt Hon sir Keith	Price, David (Eastleigh)
Kershaw, Anthony	Prior, Rt Hon James	TELLERS FOR THE AYES:
Kilfedder, James	Pym, Rt Hon Francis	Mr. Spencer Le Marchant and
Kimball, Marcus	Raison, Timothy	Mr. Michael Roberts
King, Evelyn (South Dorset)
NOES
Abse, Leo	Atkinson, Norman (H'gey, Tott'ham)	Bidwell, Sydney
Allaun, Frank	Bagier, Gordon A. T.	Bishop, Rt Hon Edward
Anderson, Donald	Barnett, Guy (Greenwich)	Blenkinsop, Arthur
Archer, Rt Hon Peter	Barnett, Rt Hon Joel (Heywood)	Boardman, H.
Armstrong, Ernest	Bates, Alf	Booth, Rt Hon Albert
Ashley, Jack	Bean, R. E.	Boothroyd, Miss Betty
Ashton, Joe	Benn, Rt Hon Anthony Wedgwood	Bottomley, Rt Hon Arthur
Atkins, Ronald (Preston N)	Bennett, Andrew (Stockport N)	Boyden, James (Bish Auck)

Bradley, Tom	Hattersley, Rt Hon Roy	Orbach, Maurice
Bray, Dr Jeremy	Hayman, Mrs Helena	Orme, Rt Hon Stanley
Broughton, Sir Alfred	Healey, Rt Hon Denis	Ovenden, John
Brown, Hugh D. (Provan)	Heffer, Eric S.	Owen, Rt Hon Dr David
Brown, Robert C. (Newcastle W)	Hooley, Frank	Padley, Walter
Buchan, Norman	Horam, John	Palmer, Arthur
Buchanan, Richard	Howell, Rt Hon Denis (B'ham, Sm H)	Park, George
Butler, Mrs Joyce (Wood Green)	Hoyle, Doug (Nelson)	Parker, John
Callaghan, Rt Hon J. (Cardiff SE)	Huckfield, Les	Parry, Robert
Callaghan, Jim (Middleton & P)	Hughes, Rt Hon C. (Anglesey)	Pavitt, Laurie
Campbell, Ian	Hughes, Robert (Aberdeen N)	Pendry, Tom
Canavan, Dennis	Hughes, Roy (Newport)	Perry, Ernest
Cant, R. B.	Hunter, Adam	Phipps, Dr Colin
Carter, Ray	Irvine, Rt Hon Sir A. (Edge Hill)	Price, C. (Lewisham W)
Carter-Jones, Lewis	Irving, Rt Hon S. (Dartford)	Price, William (Rugby)
Cartwright, John	Jackson, Colin (Brighouse)	Radice, Giles
Castle, Rt Hon Barbara	Jackson, Miss Margaret (Lincoln)	Rees, Rt Hon Merlyn (Leeds S)
Chemitson, Ivor	Janner, Greville	Richardson, Miss Jo
Cocks, Rt Hon Michael (Bristol S)	Jay, Rt Hon Douglas	Roberts, Albert (Normanton)
Cohen, Stanley	Jeger, Mrs Lena	Roberts, Gwilym (Cannock)
Coleman, Donald	Jenkins, Hugh (Putney)	Robertson, George (Hamilton)
Colquhoun, Ms Maureen	John, Brynmor	Robertson, John (Paisley)
Concannon, Rt Hon John	Johnson, James (Hull West)	Robinson, Geoffrey
Conlan, Bernard	Johnson, Walter (Derby S)	Roderick, Caerwyn
Cook, Robin F. (Edin C)	Jones, Alec (Rhondda)	Rodgers, George (Chorley)
Corbett, Robin	Jones, Barry (East Flint)	Rodgers, Rt Hon William (Stockton)
Cowans, Harry	Jones, Dan (Burnley)	Rooker, J. W.
Cox, Thomas (Tooting)	Judd, Frank	Rose, Paul B.
Craigen, Jim (Maryhill)	Kaufman, Rt Hon Gerald	Ross, Rt Hon W. (Kilmarnock)
Crawshaw, Richard	Kelley, Richard	Rowlands, Ted
Cronin, John	Kilroy-Silk, Robert	Ryman, John
Crowther, Stan (Rotherham)	Kinnock, Neil	Sandelson, Neville
Cryer, Bob	Lambie, David	Sedgemore, Brian
Cunningham, Dr J. (Whiteh)	Lamborn, Harry	Selby, Harry
Davidson, Arthur	Lamond, James	Sever, John
Davies, Bryan (Enfield N)	Latham, Arthur (Paddington)	Shaw, Arnold (Ilford South)
Davies, Rt Hon Denzil	Leadbitter, Ted	Sheldon, Rt Hon Robert
Davies, Ifor (Gower)	Lee, John	Shore, Rt Hon Peter
Davis, Clinton (Hackney C)	Lestor, Miss Joan (Eton & Slough)	Short, Mrs Renée (Wolv NE)
Deakins, Eric	Lever, Rt Hon Harold	Silkin, Rt Hon John (Deptford)
Dean, Joseph (Leeds West)	Lewis, Arthur (Newham N)	Silkin, Rt Hon S. C. (Dulwich)
Dell, Rt Hon Edmund	Lewis, Ron (Carlisle)	Sillars, James
Dempsey, James	Loyden, Eddie	Silverman, Julius
Dewar, Donald	Luard, Evan	Skinner, Dennis
Doig, Peter	Lyon, Alexander (York)	Smith, Rt Hon John (N Lanarkshire)
Dormand, J. D.	Lyons, Edward (Bradford W)	Snape, Peter
Douglas-Mann, Bruce	Mabon, Rt Hon Dr J. Dickson	Spearing Nigel
Duffy, A. E. P.	McCartney, Hugh	Spriggs, Leslie
Dunn, James A.	McDonald, Dr Oonagh	Stallard, A. W.
Dunnett, Jack	McElhone, Frank	Stewart, Rl Hon M. (Fulhem)
Eadie, Alex	MacFarquhar, Roderick	Stoddart, David
Edge, Geoff	McGuire, Michael (Ince)	Stott, Roger
English, Michael	MacKenzie, Rt Hon Gregor	Strang, Gavin
Ennals, Rt Hon David	Mackintosh, John P.	Strause, Rt Hon G. R.
Evans, Fred (Caerphilly)	Maclennan, Robert	Summerskill, Hon Dr Shirley
Evans, loan (Aberdare)	McMillan, Tom (Glasgow C)	Swain, Thomas
Evans, John (Newton)	Madden, Max	Taylor, Mrs Ann (Bolton W)
Ewing, Harry (Stirling)	Magee, Bryan	Thomas, Jeffrey (Abertillery)
Fernyhough, Rt Hon E.	Mahon, Simon	Thomas, Mike (Newcastle E)
Fitt, Gerard (Belfast W)	Mallalieu, J. P. W.	Thomas, Ron (Bristol NW)
Flannery, Martin	Marks, Kenneth	Thorne, Stan (Preston South)
Fletcher, L. R. (Ilkeston)	Marshall, Dr Edmund (Goole)	Tierney, Sydney
Fletcher, Ted (Darlington)	Marshall, Jim (Leicester S)	Tilley, John
Foot, Rt Hon Michael	Mason, Rt Hon Roy	Tinn, James
Ford, Ben	Maynard, Miss Joan	Tomlinson, John
Forrester, John	Meacher, Michael	Tomney, Frank
Fraser, John (Lambeth, N'w'd)	Mellish, Rt Hon Robert	Torney, Tom
Freeson, Rt Hon Reginald	Mikardo, Ian	Tuck, Raphael
Garrett, John (Norwich S)	Millan, Rt Hon Bruce	Urwin, T. W.
Garrett, W. E. (Wallsend)	Miller, Dr M. S. (E Kilbride)	Varley, Rt Hon Eric G.
George, Bruce	Mitchell, Austin (Grimsby)	Wainwright, Edwin (Dearne V)
Gilbert, Rt Hon Dr John	Molloy, William	Walker, Harold (Doncaster)
Ginsburg, David	Moonman, Eric	Walker, Terry (Kingswood)
Golding, John	Morris, Alfred (Wythenshawe)	Ward, Michael
Gould, Bryan	Morris, Rt Hon Charles R.	Watkins, David
Gourlay, Harry	Morris, Rt Hon J. (Aberavon)	Watkinson, John
Graham, Ted	Moyle, Rt Hon Roland	Weetch, Ken
Grant, George (Morpeth)	Mulley, Rt Hon Frederick	Weitzman, David
Grant, John (Islington C)	Murray, Rt Hon Ronald King	Wellbeloved, James
Grocott, Bruce	Newens, Stanley	White, Frank R. (Bury)
Hamilton, W. W. (Central Fife)	Noble, Mike	White, James (Pollok)
Hardy, Peter	Oakes, Gordon	Whitehead, Phillip
Harrison, Rt Hon Walter	Ogden, Eric	Whitlock, William
Hart, Rt Hon Judith	O'Halloran, Michael	Willey, Rt Hon Frederick

Williams, Rt Hon Alan (Swansea W)	Wilson, William (Coventry SE)	Young, David (Bolton E)
Williams, Alan Lee (Hornch'ch)	Wise, Mrs Audrey
Williams, Rt Hon Shirley (Hertford)	Woodall, Alec	TELLERS FOR THE NOES:
Williams, Sir Thomas (Warrington)	Woof, Robert	Mr. James Hamilton and
Wilson, Rt Hon Sir Harold (Huyton)	Wrigglesworth, Ian	Mr. Joseph Harper.

Question accordingly negatived.