HER MAJESTY'S GOVERNMENT (ECONOMIC AND INDUSTRIAL POLICIES)

HC Deb 28 February 1980 vol 979 cc1580-704

Mr. Speaker

I have not selected either of the amendments on the Order Paper. I merely remind the House that on the day of such an important debate obviously almost every hon. Member in the Chamber would like to contribute. That being impossible, I hope that no one will come to the Chair to ask to be called to speak in the debate today. I must do my best and try to be fair.

4 pm

Mr. James Callaghan (Cardiff, South-East)

I beg to move, That this House has no confidence in the economic and industrial policies of Her Majesty's Government. Those words accurately describe the doubts and anxieties of our constituents in every walk of life up and down the country. They are anxious because they see their personal standards and those of their families being eaten into by the long dreary catalogue of higher prices, higher rents, mortgage interest payments, fares and the rest. They are dubious about the Government's economic policies because they can see no visible signs of improvement in Britain's economic position. Instead, they observe a steady and progressive contraction in our industrial output side by side with growing unemployment.

Opinion in the country is mounting that a change in the Government's policies is urgently necessary. That feeling, as far as I can make out, is not confined to the Opposition Benches or to our supporters in the country. It is spreading through the ranks of Conservative voters. It has been taken up by certain of the Government's supporters in the House. It has reached into the Cabinet itself.

These doubts are fed—and deliberately fed—every day by the open disagreements and daily briefings about their differences that are given by Ministers themselves. The Prime Minister is as much responsible as anyone for this situation. When she openly conveys her scepticism about whether the policies of the Secretary of State for Employment will succeed, she undermines his position. She cannot be suprised that the Lord Privy Seal, among others, then conveys his patrician dislike of being dragged along at the heels of the feet of the Chancellor of the Exchequer and the Secretary of State for Industry.

If Ministers are not convinced about the wisdom and efficacy of the basic policies of their colleagues, how on earth can they expect the rest of the country to believe them? This is a matter not just of difference of temperament or of tactics. Some of them are saying that the Government's policies—the policies that are fundamental to their existence—are wrong. If any justification were needed for this vote of no confidence, the well publicised divisions in the Cabinet have given it to us.

The Opposition certainly have no confidence in the Government's policies, and our want of confidence is twofold. First, the Government's strict, almost religious, belief that a rigid monetary policy lies at the heart of their doctrine is weakening and bleeding this country's industries. As we now know, that view is shared by some Conservative Members. Secondly, the tone and style of the Government are out of keeping with their responsibilities to the nation, and much of the responsibility for that falls upon the Prime Minister personally.

Our charge against the right hon. Lady and the Government is that their policies are recklessly widening the social divisions in our society, that they make the rich richer and the poor poorer and that they are deliberately creating greater inequality and social injustice, with the result that dangerous tensions are growing in the country. That is the charge, and it lies against a Government who have thrown away more quickly than any Government I can recall the good will that every new Government acquire as soon as they have won an election.

When the Prime Minister first stood on the steps of 10 Downing Street—the first woman Prime Minister in our history—

Mr. Robert Atkins (Preston, North)

As opposed to an old woman.

Mr. Callaghan

—her words were apposite and well chosen: Where there is discord, may we bring harmony". Can the right hon. Lady truthfully say that her policies and speeches since that day have been intended to bring harmony and unity? [HON. MEMBERS: "Yes."] Have they not rather sought to pander to every popular prejudice, to make the trade unions the scapegoat for every ill, to whip up resentment against any unpopular group and to glory in harshness and stridency? Has that not been the Prime Minister's tone since the election?

What has gone wrong? The Government faced considerable difficulties when they came to power. [HON. MEMBERS: "Hear, hear."] I have no need and no wish to underplay those difficulties, both international and on the domestic front. The painful increase in world oil prices, the upward trend in world interest rates and inflation, the slowdown in international trade and the slide into recession were formidable problems for the new Government. They were equally formidable a year ago during the lifetime of the Labour Government, but the then Conservative Opposition refused to acknowledge them and claimed that Britain's problems were of the Labour Government's own making. It was not we who peddled instant sunshine during the election.

Confidence is waning and doubts have grown because the Government's actions since the election are not those that they led the people to believe in those glossy television commercials that appeared on our screens a year ago. I am sure that no one who watched those performances has forgotten those immaculately screened broadcasts. Some of the slogans, I must say, now come back a little wryly. There were catchy slogans enough. They hardly bear repeating 10 months later. Indeed, I am told that the quickest way to empty a crowded room today is to walk in and shout "Cheer up, the Conservatives are coming."

Then there was that stirring slogan that was plastered throughout the steel constituencies of South Wales: Don't just hope for a better life. Vote for one. Not many people in South Wales were taken in by that, but others were, and now there is no hope.

I turn straight away to the steel strike, which is now in its ninth week. It should not have been allowed to start. Two months ago, on 29 December, I wrote to the Prime Minister warning her that once the steel strike began attitudes would harden and therefore then, and on several occasions since, I have urged the Government to intervene.

That forecast has been borne out. But the Government have not lifted a finger. As the weeks have gone by, the atmosphere has soured and become much more bitter. Groups of workers who meet in the same clubs have, outside their workplace, come almost into physical conflict with one another. In a few places—I emphasise a few places as against the great majority of steel areas—some actions have tarnished the reputations of those who indulge in them in the name of trade unionism. Scars will be left for a long time.

Yesterday, the British Steel Corporation said that it proposes to ballot the steel workers in a preliminary vote to find out whether they would welcome a second ballot on whether to accept the latest pay offer. The unions' response today was that they will urge their members to ignore the ballot or to spoil their papers. I shall come to that again. I shall face it more truthfully than did the right hon. and hon. Gentlemen when in opposition.

It is clear that if these two ballots are to be conducted, whatever view may be taken of them, they will take some time. The results will be inconclusive. This is my view. I may be wrong. No one can say. There will be divided loyalties on this issu.e Let there be no doubt about it: it is a serious issue. I want to see the steel strike settled—and settled more quickly than two ballots conducted by the employers. There is hardship among many families in the steel areas. Some of them are my constituents. I know that their circumstances are getting worse. Because of this, I do not intend today to say some of the harsh things that I intended to say about the way these pay negotiations have been "bungled"—I use the Chief Secretary's word—from the first derisory offer of 2 per cent. The inquest can come later.

There is still room for mediation. I wish today, in all seriousness, to make a proposal that will involve the unions in reconsidering their present position, as well as the Government. The unions have had recourse to the Advisory, Conciliation and Arbitration Service. That body has striven hard, but without success, to bring the two sides together. Rightly or wrongly, from my discussions with them, some of the union negotiators do not have total faith in the independence of ACAS. In my view, such disbelief is not justified, and I have said so to them. Nevertheless, if this is a stumbling block, if procedures are needed to get these issues going again, would a possible way forward be for ACAS itself to appoint an independent mediator who would listen to both sides and, having considered their representations, then make his findings? I use the word "findings" deliberately. If this is a possible procedure, the unions and the BSC should undertake, in advance, to accept such findings as are made. A mediator could reach his conclusions within a week. That is a much shorter period than the ballots will take. The men in the steel industry could be back at work in the week after next and their families could begin to breathe freely once again. If that involves a little more money, it will be worth while.

I cannot understand the attitude of the Government, who are prepared to see this dispute drag on week after week with untold damage being done and then deride a sensible suggestion, when it is put forward, for trying to bring it to an end.

On the other troublesome aspects of the steel industry, I must add this. The unions accepted the need for a further rundown in manpower, but the timetable for closures, I say to the Government, is socially irresponsible.

In our view, the Government should conduct an examination of four aspects of the closures and the industry: first, the projected size of the industry, which in our view is too small on the basis of our long-term needs for one of the core industries of this country; second, the surrender of export markets, where in our view an effort should be made to keep them; third, the need for a rapid capital reconstruction; and, fourth, what effect the rundown in the steel industry will have on the production of coal and pit closures, especially in the South Wales coalfield.

What is to be the future of those miners and steel workers who have no other jobs to go to? That is the responsibility of the Government. Any Government should intervene to investigate these matters. It is by their own actions, and in some cases by their inaction, since the Prime Minister formed her Government, that they have made their own difficulties. In those television broadcasts a year ago, they told people that they would pay less income tax. Yes—but they were not so clear that the only way to do it would be to double VAT. The Labour Party said so in the election campaign, but it was denounced as a lie. When the Conservatives came to power they did it. What is worse, they did it at the very moment when a number of trade union summer conferences were meeting to set their wage objectives for the next round.

At that very moment the Chancellor rose in his place to announce that he was wantonly adding 3 per cent. to 4 per cent., or more, to the retail price index. What response did he expect to get from delegates meeting at sundry trade union conferences up and down the country? He got it, whatever he thought he was going to get. Even before he did that it was clear that 1979 would be a difficult year for the control of inflation. We said so. We had enlisted the aid of the TUC. We agreed with it to try to keep inflation in 1979 within the broad limits of 10 per cent. to 12 per cent. That was to be the first step towards fulfilling our joint agreement, which we reached a year ago, that inflation would be reduced over a three-year period to 5 per cent. by 1982. But at that very delicate moment, when the wage bargainers and their attitudes lay in the balance, the Government undermined and thrust aside any idea of co-operation with the trade unions.

The Government could have obtained that agreement in the first flush of victory. They did not want it. They thought that it was unnecessary. In the pride and arrogance of victory they thought that they could do without it. Now we see the results. The inflation rate has doubled. It doubled in 12 months, with all the resultant evils that flow from that.

The charge against Ministers is that by their rash and precipitous action since they have been in power the policies that they supported have made a difficult situation very much worse. In saying that I, of course, apologise to half the members of the Cabinet. I refer to the policies supported by the other half.

One of the less savoury features of Government policy has been the way in which they attempted to slide away from their responsibilities by foisting the responsibility for our shortcomings on to the trade unions. The Prime Minister led her Ministers in this. Many unfair and untrue things have been said about the trade unions. I tell the Secretary of State for Industry that to call the trade unions "a poison in society" is unforgivable.

Of course, not every member of a trade union is a perfect citizen. But then no more is anybody who works at a more exalted level of society. We all know this—and it should be acknowledged by Government supporters when they rise like flocks of birds every Tuesday and Thursday to pour scorn on the trade unions. Government supporters know that responsible, practical and experienced men and women are operating the trade union movement today.

Of course, it is right to condemn intimidation where it is practised. But Government supporters would carry more conviction if we heard from them at Question Time now and again a question that contained praise for the tens of thousands of active trade unionists who are carrying out their duties punctiliously. If trade unionists voted for the Conservatives, there is even more reason why they should defend their own supporters.

The Labour movement will not support practices that intimidate working people and blockade factories. Some of those who are trying to slipstream behind the Labour movement had better believe that, including those flying pickets who shoulder-charge their way into other people's genuine trade disputes. I do not intend today to enter into the detailed discussion of the Government's industrial relations proposals—that will come later—except to repeat my profound conviction that self-discipline and self-government are the best and only lasting guarantee of good industrial relations. In pursuit of that, the trade unions must act in accordance with the guidelines which they agreed with the Labour Government at the end of last winter and should be ready, where necessary, to take action against their own members if they break the agreed procedures.

In their relations with the trade unions the Labour Government had their failures in these matters as well as their successes, but when co-operation breaks down, as it did at the end of last winter, it is necessary to start again. The Labour Government made such a start just prior to the election in the documents that were agreed on the economic situation and trade union responsibilities, coupled with the TUC guidance on procedure and the conduct of disputes.

It would have been better for the country if, instead of Tory Members sniggering about them, the new Government had built on those arrangements. Instead, the Chancellor of the Exchequer threw them overboard in favour of his monetary policy. He told the Wall Street Journal that his rigid monetary policy was fundamental, crucial, inescapable and absolutely at the heart of his policy. The charge against him is that this policy is a gigantic gamble with the jobs and the livelihood of our people; that it is costing British industry dear because of high interest rates; that it is damaging small and developing businesses and discouraging new investment in plant and machinery; and that the results are hammering our exports through the exchange rate.

To use a Draconian monetary policy, as the Government are doing, as their main or only weapon is to embark upon a huge experiment with the people's welfare based upon entirely unproved theory. I am thankful that the Prime Minister was able to spend only a short time yesterday with Professor Milton Friedman. It may have saved us from much worse.

The Government had no mandate for that policy. There is little evidence that this kind of monetary policy used by itself will bring inflation under control without unacceptable social and economic consequences. Nor does economic evidence provide any proof that the rate of growth of money supply has a powerful restraining influence on wage bargaining. Nothing that has happened to earnings in the past 12 months can give the Government any comfort on that score.

Mr. Patrick Cormack (Staffordshire, South-West)

Will the right hon. Gentleman tell the House whether it is better to determine our own policies than to have a monetary policy imposed by the International Monetary Fund?

Mr. Callaghan

I will deal with these matters in my own way in my speech. I come immediately to one of them. Of course inflation must be brought under control; that is common ground. But reliance on monetary policy as the single or sole weapon produces a totally disproportionate and adverse effect on output in the country and on the growth of the economy. That is the difference, and I am sure the hon. Member for Staffordshire, South-West (Mr. Cormack) understands that.

I have commented on the adverse effect of the rise in oil prices on the Government's policies, but that rise is not the sole cause of our present discontent. The Council of Economic Advisers in the United States, in its annual review, commented that the United Kingdom's fall in output derived principally not from the rise in oil prices but from the very sharp shift towards the restrictive monetary and fiscal policies instituted by the new Government. That is where the responsibility lies.

In a euphoric moment at Question Time the Prime Minister told us that she believed that practically all her policies were working. Let us look at some of the major indices and form a judgment. The inflation rate in January 1979 was 9.3 per cent.; in January 1980 it was 18.4 per cent. Success or failure? The minimum lending rate in March 1979 was 13 per cent.; today it is 17 per cent. and has stood at that level for over three months. Success? The mortage rate in February 1979 was 11¾ per cent.; in February 1980 it is 15 per cent. Success? Mortgage repayments on an average £12,000 mortgage in February 1979 were £90 a month; in February 1980 they are £110 a month, an extra £5 per week. Success? In 1978 there was a balance of payments surplus of £700 million; in 1979 there was a deficit of £2.5 billion. Success?

Earnings in the year to December 1978 increased 13.3 per cent.; in the year to December 1979 they increased 19.6 per cent. Success? Manufacturing investment in 1978 increased by 11.3 per cent.; in 1979 there was a fall of nearly 3 per cent. in the last six months compared with the first six months, and there is a possible further fall of 7 per cent. in 1980. Success?

I have not yet finished this list of successes. I do not want to deny the Prime Minister any merit to which she is entitled. The gross domestic product in 1978 increased by 3 per cent.; in 1979 it increased by 1.6 per cent.; in 1980 there will be a probable decrease of 2 per cent. or more. There was a slow but steady fall in unemployment for nearly two years from October 1977 to September 1979. Now for the fifth month in a row unemployment has risen, and there is an expectation of 2 million being out of work. Which of these flawed gems does the right hon. Lady wish to mount in her crown?

The Prime Minister made the further assertion in a television interview last Monday that for the first time for many years public expenditure had been brought under control. That is untrue. Look at the figures. In 1977–78 public expenditure as a ratio of gross national product was 40.5 per cent.; in 1978–79 it was 42 per cent.; this year it is likely to be about 42 per cent. again. There is no jewel for her crown in that one.

The only conclusion that can be drawn from these figures is that, far from these policies being successful, the Prime Minister has lost control of prices, employment, business confidence and earnings and is now beginning to lose control of monetary policy.

Mr. John Farr (Harborough)

Is the right hon. Gentleman aware that the incoming Conservative Government were shocked by the appalling legacy that had been left to them by the outgoing Socialist Government? That is typified by the Polish ships deal which the Labour Government had negotiated at a cost of £112 million and which subsequently cost the taxpayer a further £68 million. That is an example of Socialist policies.

Mr. Callaghan

The legacy we left the Conservative Government was much better than the legacy they left us in 1974. All the figures were known and published. I undertook during the election campaign to let the right hon. Lady look at the figures if she wanted to do so before she made some of her unwarranted charges. She declined. I know why. She did not want to see them because she knew they would prove that it was impossible to reduce income tax without increasing other taxes. That was denied vehemently time after time.

When all these failures, or, in the right hon. Lady's curious terminology, successes, are known, is it any wonder that the tensions in the Cabinet are spilling out into public view? One group—the Treasury Ministers—is fearful that monetary policy will not succeed because it is not yet stern enough. Another part of the Cabinet believes that the very harshness of the policy will provoke confrontation with large groups and lose the Government electoral support. Speaking as one who totally disagrees with the policies of the Treasury Bench, I am bound to say that if monetarism is to work in any real sense of the word the Government must go much further than they have gone so far. I doubt whether their supporters on the Back Benches yet realise how far they need to go. Expenditure cuts would need to be far harsher than they have been so far. But if the spending Ministers successfully resist further cuts, there will be an increased strain in achieving their monetary targets. So what are they to do? If they resist, if they have difficulty in reaching their monetary targets, interest rates will be driven up even higher than they are today—and perhaps the exchange rate will also be driven up, with consequential further harm to our export prospects.

This is the real dilemma of Government policy. This is the nature of the argument going on in the Cabinet at the present time. This is the problem that the Government have to solve. This is the reason for the cries of anguish. The problem cannot be papered over. Nor would there be much comfort if a compromise were to be reached between the warring factions. A compromise at the present level and the present state of monetary policy would not stop industry from being driven into bankruptcy. The Secretary of State will continue to look on from afar, uttering his message to some of our industrial communities, "Come back in two generations and we shall let you know how the experiment is getting on."

I warn the Government, and I warn Conservative Members, of the serious deterioration that is taking place in the social atmosphere in some of our towns and cities. If the Government abandon their interest in the fate of working men and women, they will cease to be concerned with the interests of the community.

It was the Minister of Agriculture who said that a free market condemns the weak and therefore becomes a powerful source of social disorder". Is that accepted by the Cabinet or not? After another 12 months of the present policies, no one should be surprised if his prediction appears to be coming true.

The Government's only answer seems to be one of further disengagement from responsibility. We live in a period of uncertainty about the impact of the new technology. We know that the failure to use the new technology will destroy jobs as well as creating new jobs. That will demand training and retraining in new and unfamiliar skills.

The Government's response is to disengage and to cut down public expenditure on the skillcentres for training and retraining our young people. The Government should be expanding these centres, not cutting them down. They should be giving greater opportunities for young and mature people to acquire the new skills that this country will need in the 1980s.

The Government are destroying the seed-corn by their attitude in this matter. They emasculate the National Enterprise Board. Instead, they should be creating a new and much more powerful instrument to seek out new opportunities for direct and indirect investment, either in partnership with private industry or on their own account—and, if necessary, the Government should provide the funds to enable it to be done. We must have an active policy and not just the passive approach that we have from the Government today.

Our preference is to see the Government intervene in the economy and to assist in the creation of new jobs, in both existing industry and in the new technologies. [Interruption.] I am asked "Where is the wealth?" My answer is: do not dissipate the revenues from North Sea oil. There is a fantastic amount accruing from that source.

As soon as we can see the Government actively intervening to assist with the creation of new jobs to assist with retraining and to give people the skills they want, we shall hope to see everyone playing his part. We would certainly play our part in encouraging people to accept the changes that will be necessary and the flexibility that will be necessary to go with the new jobs. But until that happens—let the Government make no mistake—we shall resolutely support people who are trying to save their existing jobs if the only alternative facing them is to join the lengthening dole queues in South Wales and elsewhere. That approach may not appeal to the free market economists but it is the only human response that can be made in a period when unemployment is threatening to go to 2 million or even higher.

In the meantime, I notice inspired leaks in the newspapers this morning that the Chancellor of the Exchequer may be able to keep his public sector borrowing requirement in 1980–81 at about the same level as this year, provided that the Budget is more or less neutral in tax terms. Neutral in tax terms, of course, means that he can still put up some taxes and put down others. But, on the whole, bang go all the expectations of further reductions in income tax that were held out to us last year on a continuing basis. It was not to be a once-for-all reduction. Every year we were to have these reductions in taxation unless, of course, the Chancellor decides to continue in that way but to increase indirect taxes once again, and to add further to inflation. In any case, the Chancellor of the Exchequer should refrain from the lunacy of squeezing his public sector borrowing requirement below this year's outturn.

As I have said already, we are at the beginning of a period when the phenomenal growth of Government revenues from North Sea oil will begin to reduce the borrowing requirement to quite small proportions. It would be madness over the next 12 months to do lasting damage to industry, when we know that these revenues will ease the Chancellor's problem in later years.

There are strict limits to what any Government can do by themselves, without the co-operation of the people. Co-operation, agreement and consensus will prove more enduring for the Government than any "tough guy" approach. The Prime Minister could do worse than listen to the views of her predecessor on this when he advises her to be wary of being a tough guy both at home and in her dealings with the leaders of other countries who are not as willing to be lectured by her as are the members of her Cabinet.

It may seem heroic to pose as the Iron Lady but it is not getting results, either in the EEC or elsewhere. It did not get her far in the battle of Dublin, where she was ninth in a nine-horse race.

It is for all these reasons that we have no confidence in the Prime Minister's approach or in the Government's policies. In 10 months the monetarist dream has turned into a nightmare. The Government's empty words are now producing empty factories and empty homes. The people in the country have rumbled the Government, and it is to express their anxiety, their disagreement and their fears about their future that I ask the House to vote for our motion tonight.

4.37 pm

The Prime Minister (Mrs. Margaret Thatcher)

I have listened carefully to what the right hon. Member for Cardiff, South-East (Mr. Callaghan) said. At least, no one could deny his claim to be an expert in the failures of Governments. He gave some carefully selected figures of the record of his own Government. Let me give a few more.

Unemployment more than doubled under the right hon. Gentleman's Government, from 600,000 to 1.2 million. Output per person rose by less than 3 per cent. over the five years between 1973 and 1978. Real disposable income per head fell in 1975, 1976 and 1977. Under the Labour Government, inflation reached a peak of 27 per cent. per annum. The party that he leads presided over the five most catastrophic years in Britain's postwar history.

The right hon. Gentleman is not the person to give lectures on Cabinet disarray and disloyalty. He should read what one of his former Cabinet colleagues said about him on 4 December 1968.—[Interruption.] Barbara Castle said: I think Jim Callaghan is the most disloyal and damaging member of the whole Government. The following year she said: We have taken care not to circulate any papers beforehand, knowing our Jim. —[Interruption.]

Mr. Speaker

Order. That is quite enough. [Interruption.] Order. There are two sides to this debate. The Leader of the Opposition had a reasonably fair hearing and the Prime Minister is entitled to the same.

The Prime Minister

After barely two years in office the right hon. Gentleman's party had brought Britain to the brink of total economic collapse. The country was saved not by his or his party's efforts but by Tory policies of monetary control and reduced public spending, humiliatingly imposed by the International Monetary Fund, and fully supported by my right hon. and hon. Friends and me.

As the monetary medicine began to work, the right hon. Gentleman tried to assign the credit to his incomes policy which promptly collapsed about his ears as his own lifelong allies, the trade unions, rejected both it and him. Having dithered over calling an election in 1978, he tried to buy off the industrial disruption of last winter and finally succumbed.

Today the right hon. Gentleman's party, increasingly infiltrated by people who wish to destroy the mixed economy—[Interruption]—advocates a return to the policies of excessive spending and excessive borrowing which would lead inevitably to another collapse. When I hear the right hon. Gentleman doing his best to explain to us the nature of Britain's difficulties and the remedies he proposes, it is plain that he and his policies are part of our problem and they can never be part of the solution.

The right hon. Gentleman referred to trade union matters, steel, monetary policy, the minimum lending rate, earnings, and so on, and I shall try to deal with those points during the course of my remarks. But may I first set the magnitude of the problem that we face in its context.

There is general agreement that Britain's problem is basically one of fast inflation since the early 1970s and a rate of economic growth which, for the last third of a century at least, has been slow in comparison with that of our competitors. While we were living fairly comfortably in the 1950s, our industries were failing to modernise themselves: not so in other industrial countries. Faced by the destruction of the war, they were creating an industrial base to suit the needs of the second half of the century. Their industries were building for the future, but too many of ours were still living off their capital and former reputation.

During that time in the 1950s and 1960s we missed out on the rapid economic expansion which characterised the early years of the EEC. There was a continual failure to recognise how far and at how fast a rate Britain was slipping. Governments planned over-optimistically for increases in public spending which could be justified only on assumptions about economic growth which were seldom realised.

Between 1963 and 1979 public spending, as a percentage of GDP, grew from 34 per cent. to 42 per cent. The Civil Service expanded from 660,000 to 730,000. The numbers employed by local government leapt from 1.2 million to over 2 million. Thus resources were drained away from wealth-creating industry and commerce to the wealth-consuming public sector. Perhaps most significantly of all, the balance of power within our economy shifted as trade unions increasingly used their strength in key industries.

The Labour Party responded to these problems by increasing public expenditure by 9 per cent. over a period when GDP actually fell. Unemployment more than doubled during their stewardship. The Opposition legislated to put trade unions above the law. They gave them unprecedented new powers as part of the price for their temporary co-operation.

That was the position when Britain voted for a new start and a new Government. The people wanted a Government prepared to face the basic problems realistically, a Government who regarded Parliament as paramount and who were not subservient to any other group, however powerful. People knew that the necessary changes would take time, but they wanted us to make a start right away. Now they expect us to do what we were elected to do and not to be deflected by the fears or the indignant cries of the Labour politicians they sacked last May.

Our objective is clear: it is to return to steady economic growth, earned by people's own efforts in a free and responsible society Our first priority is to restore sound money and conquer inflation. We do not pretend that that alone will be sufficient to revive our economy, but we know that it is the essential precondition. We know, too, that freedom and social justice will be in peril unless we can get inflation out of the economic system.

The right hon. Gentleman and other Opposition Members challenge us because the retail price index has risen since the election. Let me remind the House of what the right hon. Member for Leeds, East (Mr. Healey) said in January 1979: Let us assume, for example … that the increase in the nation's earnings in the current pay round is as high as 15 per cent. … The most obvious and inevitable consequence of this assumption coming true would be that … the rate of inflation … would probably reach about 13 per cent. by the end of the year."—[Official Report, 25 January 1979; Vol. 961, c. 754.] That was the right hon. Gentleman's prediction if wage increases reached 15 per cent.

The reality is that earnings over the last pay round rose not by 15 per cent. but by 16 per cent. to 17 per cent. So, on the right hon. Gentleman's own arithmetic the rate of inflation would have been over 13 per cent. by the end of the year. And that before anything he would have done, if he had continued as Chancellor, on indirect taxes, and before the doubling of oil prices, which has added, and will continue to add, to the index. The charge that we have been responsible for all, or even most, of the price increases since the election is thus blatantly false.

The right hon. Gentleman rightly said that we did increase prices in the Budget—as a result of the increase in value added tax and other Customs and Excise duties. The purpose of those increases, as the House knows, was to switch from direct to indirect taxes, thereby reducing tax on the pay packet—a cause that the right hon. Member for Leeds, East occasionally espoused when he was Chancellor of the Exchequer but not frequently enough.

Most of the other increases that the right hon. Gentleman attributes to us are hardly our fault. Nationalised industry finances were rapidly moving out of control when we took office because of high settlements in the last pay round. Higher prices were the inevitable consequence.

Mr. James Callaghan

Gas and electricity?

The Prime Minister

The right hon. Gentleman calls out "Gas and electricity". He knows that those matters were referred to his Price Commission. His Price Commission recommended far higher price increases for gas than the increases that have been implemented.

Milk prices to the farmer and distributor had to go up because the Labour Party delayed them before the election. The mortgage rate had to go up in spite of our efforts to get Government borrowing down. The spendthrift policies advocated by the Opposition would have pushed it up even further.

Yes, school meal charges have gone up from 25p in two stages to 35p.

Mr. Andrew Faulds (Warley, East)

If the right hon. Lady would look behind her, she would discover the best reason for not allowing television cameras into the Chamber.

The Prime Minister

I see that when I look at the hon. Gentleman.

Yes, school meal charges have gone up from 25p in two stages to 35p. But the former Secretary of State for Education and Science put them up from 15p to 25p in one go, and she announced the increase from 25p to 30p well before the election.

Experience shows that the only sure way of attacking inflation is to keep the money supply closely related to the output of goods and services. Whenever Governments have not followed this simple rule—when money is in greater supply than goods—inflation has resulted.

It does not require A-level economics, or artificial labels like monetarism, to understand this. Even the Leader of the Opposition seemed to grasp it on 16 January 1979 when he said in the House: I make it clear that we do not intend, as a Government, to finance inflation … We intend to adhere to monetary targets, with inevitable effects both on the level of activity in the economy and on the level of unemployment. That is what the right hon. Gentleman said then.

So we are determined to bring the growth of the money supply down. There are only two ways of doing this—first, by reducing the burden of Government borrowing and, secondly, by ensuring that borrowing by the private sector does not grow too fast. If one or the other is ton high, and if we are to achieve our monetary targets, interest rates inevitably have to rise. That is the situation we have been faced with.

I deal with Government borrowing first. The Government are borrowing too much because public spending is too high. The right hon. Gentleman has scarcely been helping to get that down. The plans we took over from Labour were totally unrealistic—over 2 per cent. growth per year and no allowance for Clegg and the explosion in public service pay. The Clegg comparability awards which the right hon. Gentleman left us to honour and pick up will cost an extra £2,000 million next year, and last year's settlements for civil servants and local government staffs will cost another £1,000 million.

By the time we took office, we were largely saddled with the Opposition's plans for the present financial year. We cut them back as far as we could—£1½ billion on programmes and another £1 billion through our policy on cash limits. Without that, Government borrowing for this year would have been higher and so, too, would interest rates.

Our revised plans for 1980–81 and later years will be published in a few weeks' time, and they will show substantial cuts on Labour's plans. The Opposition will no doubt mount a chorus of complaint in spite of the fact that they were boasting a moment ago that they were able to cut them by 6 per cent. in one year under the aegis of the IMF. But what are the alternative policies? Are the Opposition suggesting that we increase income tax? [SEVERAL HON. MEMBERS: "Yes."]

They did that in 1974 and 1975. More and more people were brought into tax. and as a result incentive and enterprise were destroyed.

Are the Opposition suggesting that we borrow even more and allow interest rates to rise still further? The right hon. Gentleman seemed to know the answer a year ago. In that same speech he said: What would be the result of a small increase … in the quantity of money financing very large wage settlements of 20 per cent. or 30 per cent? There could only be one result—the weakest firms would go to the wall and there would be more unemployment. In addition, instead of easing interest rates, the country would be faced with further tightening".—Official Report, 16 January 1979; Vol. 960, c. 1554.] The same holds true today. But for reasons of his own, the right hon. Gentleman chooses to ignore his own warnings.

The Opposition accuse us of being uncaring when we cut back certain spending programmes. Of course there are many things we would like to do in the social field, but they cannot all be done until we have a stronger economy. Yet we did provide for the pensioners' Christmas bonus last year. Moreover, we have introduced legislation to ensure that it is paid annually. In 1975 and 1976 there was no Christmas bonus for pensioners under Labour. Unlike the Labour Government, we did abolish tax on war widows' pensions.

Spending on the Health Service is not declining. And accusations that it is come ill from the party which between 1974 and 1979 decided to close over 250 hospitals. Education spending per pupil will continue to rise.

All these matters are part of Government spending and borrowing. I referred earlier to private sector borrowing and its effect on the supply of money and inflation.

In recent months, companies have been borrowing to finance not only high stocks but pay settlements that they simply cannot afford. If they go on doing so, interest rates will stay high, there will be less money available for new business and new jobs and companies will fail.

If that lesson is learned, the path to lower inflation will be shorter and less painful. But too many trade unions still seem determined to make demands which ultimately will inflict damage on themselves, on their fellow trade unionists, and on the rest of the community.

That is why—this brings me to the second main point that the right hon. Gentleman mentioned—we are determined to redress the balance of power in our society, away from the trade unions and in favour of the individual—whether he be a member of a union, a consumer, producer or taxpayer.

After the events of last winter, under the right hon. Gentleman, when this country suffered the deepest indignities and insults at the hands of militant trade unionists, the standing of trade unions had seldom been lower in public esteem.

For years trade unions had campaigned for greater legal powers for themselves in industrial relations and employment. The previous Government increased those powers still further until it seemed that, whatever harm trade unions inflicted on others, neither individuals nor industry had any legal redress.

But as well as a right to strike, there is a right to work. As well as the justice of a demand, there is the injustice that industrial action may inflict on others. As well as a loyalty to the union, there is a loyalty to family and to company. As well as a right to a decent wage, there is a duty to society to provide essential services.

It had become abundantly clear that, just as the unions had at one time sought redress from the arbitrary actions of employers, so today individuals, businesses and citizens were seeking protection from the power and might of trade unions.

There is in this country a widespread view, which we on this side endorse, that a person who is not a party to a trade dispute should be entitled to freedom to carry on his business and go to work unhindered. People feel that these rights should be protected by the law of the land.

These feelings were the origins of the Government's Employment Bill now going through the House. It will no doubt be vigorously opposed by some trade union leaders, by the militants and by the Labour Party, but not by the rank and file trade unionists, and not by the overwhelming majority of the British people.

The militants will oppose the provision for secret ballots. They do not wish the silent majority to be heard, even on matters which vitally affect their members' future. But the rank and file want it even if the TUC General Council does not.

The militants will oppose the provisions which restrict picketing to the place of work of the picket. But those who have been at the receiving end of secondary picketing at Sheerness and Hadfields will welcome them.

The militants will fight fiercely the provisions on closed shops which give the individual redress against the employer or the union or, in some cases, both. But the ordinary members believe that the remedy is long overdue.

Some trade union leaders will object to the clauses in the Employment Bill which prevent a repetition of the injustices practised by the SLADE union, injustices which were the subject of an inquiry, an inquiry to which the union refused even to give evidence. But those who work in the industry have been pleading for just this protection.

The Employment Bill begins to redress the balance of power in favour of individuals and those not involved in a trade dispute.

Some trade union leaders will acknowledge that what we are doing has to be done. Most trade union members know it beyond all doubt. The more quickly and smoothly we can make these changes, the more justice will be seen to be done, the sooner trade unions will return to public favour, and the quicker our economy will recover.

The right hon. Gentleman said a number of things about industrial policy. Of course, there are many other changes which are necessary to improve the operation of our mixed economy. The Government's job is to create the economic climate which will result in new jobs and present investment being used more effectively.

First, we want to increase the incentives and rewards for extra effort, unlike the Opposition. My right hon. and learned Friend the Chancellor made a start last year. We want a bigger gap between income in work and income out of work.

Secondly, in contrast to the Opposition, we believe that goods are produced more efficiently through competition in the private sector than under the monopoly protection of the public sector. Hence our programme on which we have started of denationalisation wherever this is possible.

Thirdly, there is much evidence that large firms, large plants, large organisations, are more prone to industrial discontent than smaller units. It is particularly to small firms that we have to look for many of the jobs of the future. That is where tax incentives and the reduction of controls are so important. Further, we are studying how best we can achieve the move towards smaller units in both nationalised and private industry.

Fourthly, Britain's industrial problems are not only those of low productivity, but in too many areas defects of quality, design, and delivery. This Government have restored to management the freedom and the responsibility to manage. We expect them to use it to improve their industry's performance.

The Government, however, can and will help to influence these matters by policy on public sector purchasing, and on research and development.

Fifthly, we must adapt to today's markets.

We recognise fully the problems of Britain's declining industries and those who work in them—industries which have similar problems in most of the older industrialised countries. These adjustments cannot take place overnight—whether in steel, shipbuilding or railways. [Interruption.]

Mr. Speaker

Order. I think that it is very unfair of hon. Members continually to interrupt the Prime Minister. No one should have to fight for a hearing in this place.

The Prime Minister

But they have to be made. The longer they are delayed, the more they tie up resources that could be deployed in new ventures. We must not flinch from the realities. It is easy for politicians to win applause by postponing the day of reckoning. That is only self-indulgence and deceit. It is what the Opposition practised in relation to these industries in the past.

The right hon. Gentleman referred to the present dispute in British Steel. It shows just what happens when people refuse to face the facts.

The previous Government poured taxpayers' money into BSC to cover its losses—well over £1,000 million over the five years that they were in office. This year, even before the strike, BSC was heading for a loss of over £300 million; and that the Government were prepared to finance. But we are not prepared to go on funding losses in 1980–81.

In May 1978, the right hon. Member for Chesterfield (Mr. Varley) endorsed BSC's aim of break-even by 1979–80, this financial year. But his right hon. Friend now wants us to go on providing for losses not just this year, but next year as well. And no doubt the year after that. BSC has offered a minimum of 14.4 per cent. in return for agreements on productivity. It says that there is scope for considerably more for those who want to earn it. The fact is that the dispute could end tomorrow on the basis of a substantial pay settlement for the steel workers.

The right hon. Gentleman put forward some proposals about what ACAS could do. The truth is that ACAS already has powers to appoint a conciliator, a mediator or an arbitrator with the consent of both parties. It does not need those powers. It already has them, and it could use them. The BSC has said that it would have either a mediator or an arbitrator, but the trade unions have refused. That is the position. All the powers are already there. They could be used, but it is the trade unions which will not use them, even though the members of the ISTC went out on strike without a ballot and without strike pay. They have now been out for about nine weeks and have been without good pay packets for that time. They could have had increased pay packets for that time.

Failure to reach a settlement can mean only two things—continued loss of earnings for steelworkers and their families, and a worse prospect for the industry. The longer the strike continues, the harder it will be for the BSC to get its business back and to achieve profitability, and the risk of greater redundancies will grow.

But I stress that we cannot hand over more taxpayers' money to an industry where earnings are already well above the national average and which has already received so much. We recognise the special problems which closures and redundancies are going to cause, especially in Wales. That is why the BSC has allocated a substantial sum for redundancy payments out of the £450 million cash limit for next year.

That is why my right hon. Friend the Secretary of State for Wales announced on 4 February the allocation of an additional £48 million to be spent over the next two years in the areas affected by the rundowns at Llanwern and Port Talbot. At a time when we have to cut public spending, the allocation of these funds on top of what would otherwise have been available to the Welsh Office is a clear sign of our determination to take effective action.

I spoke earlier about the wish of the British people last May for a new start and for a Government prepared to tackle the country's problems. We have been in power for less than 10 months.—[HON. MEMBERS: "Too long."]—But already we have had to take hard decisions which the right hon. Gentleman could not or would not face. We have had to take decisions to cut Labour's irresponsibly inflated spending plans, and to try to give the taxpayer and ratepayer value for money; to restore incentives by getting personal taxes down; to enable council house tenants to become home-owners and to give a charter of rights to remaining tenants; to reduce waste in the public service; to honour our defence obligations to our own people and to our allies; to provide the British people with better protection against violent crime at home and to restore confidence abroad, not only in our currency but in Britain as an influence in the world.

All these things we were pledged to do, and with all of them we have made a firm start and achieved a good measure of success. Despite the need to retrench, last year we made the biggest ever increase in pensions and social security benefits. We have taken special steps to help the disabled, one-parent families and war widows. We have made the biggest ever cuts in personal taxes, benefiting all taxpayers and increasing allowances to double what was needed to offset the previous year's inflation. And we are doing pretty well abroad. The pound is a strong currency, free of exchange controls for the first time in 40 years.

If, in 1975, after their first 10 months, the Labour Government could have pointed to a record of achievement even remotely comparable with that, they would have been boasting. But as it was they were still floundering amid policies already doomed to failure.

We are facing Britain's long-standing and deep-rooted problems with firmness and realism, which is exactly what the British people want. Attitudes are changing, as we have seen at Sheerness, Hadfields and in South Wales, and the mood of realism is spreading fast. Perhaps it will never spread to the Opposition, which is why the country finally rejected the policies of yesterday at the election. That is why I ask the House today decisively to reject their motion, thereby expressing confidence in Her Majesty's Government.

5.16 pm

Mr. David Steel (Roxburgh, Selkirk and Peebles)

There is one obvious difference between this no-confidence debate and the last four or five no-confidence debates that have taken place in the House. It is that I doubt whether any hon. Member has been out ordering his election envelopes in advance of the day. Of course, at the end of the day, the result will be boringly predictable.

But for all that, this is a good opportunity to take a look at the Government's whole record in industrial and economic matters. I want to say straight away that with some of the Government's declared objectives, we Liberals find no quarrel. Of course we want to see an incentive society. Of course we want to see the Government bringing public expenditure under control and establishing monetary discipline. But our quarrel with the Government is two-fold. First, there is no sign that their policy is proving effective. And second, the reason why there is no sign of that is that the Government have no other economic policy. What they are doing is not part of their policy; it is the whole of their policy. Monetary policy is all that they have.

I should like to set out six areas of policy where I believe the Government ought to be taking some action. The fact is that at present, as we suggested in our amendment, the Government's policies have proved: economically disastrous and socially divisive". Indeed, the Prime Minister is often characterised as a person of great conviction. But it turns out that her conviction means "10 years' hard" for the country as a whole. All the indicators—inflation, output, unemployment and investment—look bad in the years ahead. The fact is that the Government's greatest failing is that they are not uniting the country. That is why we have used the phrase "socially divisive". I believe that they are incapable of uniting the country behind the policies that they are pursuing.

Let us take the phrase "incentive society". Do not the Government realise that, far from creating more incentives at the lower levels of income, they have increased the poverty trap during their 10 months in office? It is not just that they have not looked forward to the long-term restructuring of our tax system. One cannot expect that in 10 months. We do not expect them to bring forward a tax credit scheme in that time. But the combination of their failing to update the child benefit scheme whilst at the same time they have introduced other fixed charges, such as school meals and transport, increased prescriptions and so on, means that, far from all the promises that were made by the Conservative Party when in opposition, it is now paying more people at the lower levels of income not to work than to work. Indeed, the very reverse of an incentive society is being created. Moreover, that does not just apply to the lower levels of income. The disincentives exist for those on the middle levels of income. The effects of inflation, and in particular the mortgage interest increases, have been very severe on those on middle incomes.

I remember the remarks of the right hon. Lady in her memorable speech during the censure debate on 20 July 1977. She may remember that she was kind enough to refer to my youth on that occasion. She said: Secondly, we must attack inflation and make that the top priority … It will be a very long struggle to get the inflation rate down, and we must not be satisfied even when it comes down into single figures."—[Official Report, 20 July 1977; Vol. 935, c. 1622.] She has been travelling in the wrong direction. I am particularly bitter because I remember the attacks that came from the Conservative Party during the Lib-Lab period. During that 18 months, the rate of inflation came down from over 19 per cent. to 8 per cent. The right hon. Lady has succeeded in putting the rate almost back to the point at which we started in the spring of 1977. The Government have failed to act on a whole range of policies. She is therefore in danger of turning neglect into a political philosophy.

I shall suggest six areas in which the Government should take positive action.

The first issue is that of industrial borrowing. I do not know how the Prime Minister had the nerve a moment ago to refer to the needs of small businesses. Certainly, that was a key point in the Conservative manifesto. On page 16 it states: The creation of new jobs depends to a great extent on the success of smaller businesses … our general and economic and industrial relations policies are the key to their future. What do small business men say now? The Association of Independent Businesses stated in its newsletter of December: Are there not better ways of constraining the money supply than by clobbering every business that borrows in order to create jobs and more products and which are the meat and drink of the defeat of inflation? … They— that is, the Government— look to the smaller firms sector for much of the improvement in the economy that non-interventionist policies in the public sector will not provide. Yet how can our members expand and take on new capital equipment and new staff with these sorts of interest rates? I have not quoted from a party pamphlet. I have quoted from the Association of Independent Businesses, to which the Conservative Party claims to appeal. The association is protesting about the present disastrous rates of interest. The time is long overdue for the Government to intervene directly. The Government should allow a system, either through the NEB or through the joint stock banks, that would enable people to borrow risk capital at lower rates of interest. That would create new business and more jobs. The Government should take action on that issue.

Second, the Government must shed their distaste for an incomes policy. If the economy continues to slide, we shall have the worst form of incomes policy possible, namely, a total freeze. That is the most Draconian and unfair type of incomes policy. It is time to work out a long-term agreement. We do not want short-term policies which have been produced in a panic by Governments who do not believe in them. We need a long-term sustained approach to settling control over wage inflation. It makes no sense for the Government to pay out increases of 15 per cent. or 18 per cent. to civil servants, yet at the same time to offer steel workers 2 per cent. The Government cannot expect to get away with that.

The bare bones of an incomes policy need not be rigid. There must be an attempt to secure agreement between the Government, the trade unions, and the employers as to what the country can afford. Beyond that, the framework of a future incomes policy should give every company and, better still, every plant every possible incentive to increase productivity, to engage in productivity barbaining and to enlarge profit-sharing schemes. People should be encouraged to earn more and to seek rewards for their efforts. If the Government have not begun to think in those terms and if they think this is some doctrinaire policy that does not fit in with their economic theories, we shall drift and drift.

Third, out of the wreckage of their policies, the Government will have to create a new mood of co-operation in industry. Again, I shall not quote from a party pamphlet. Some very interesting speeches have been made by men in responsible public positions on this theme.—[Interruption.] I do not wish to discuss their political leanings. I shall quote the chairman of the Stock Exchange. I do not think that he is part of the militant tendency. In a recent speech he said, We also need to ensure proper consultation within industry. And we need to encourage the widest possible ownership of industry and commerce because by this means we can involve more of our people in its success and convince politicians of the need for success. He went on to point out that that had been behind the success of some of the French Government's recent policies.

The new chairman of the CBI has also spoken about the CBI's survey of 450 member firms. It showed that less than half the companies consulted had regular meetings between management and employees to examine the business, for any purpose. He said that those who talked with their employees about investment plans and those who agreed that their employees' views might influence fundamental decisions, could be represented on the fingers of one hand, or two at the most. That is a deplorable state of affairs and it has gone on for far too long.

We should listen also to the words of the director-general of NEDC. He spoke about the need for legislation in order to encourage a basic framework of cooperation within our companies. Liberal Members give their support to the Secretary of State for Employment in much of the legislation that he wishes to introduce. That alone will not be enough. Legislation on employee participation is urgently needed.

Fourth, I thought that the Prime Minister almost agreed that we must examine the type of industrial society that we need in the future. She hinted that for far too long we have assumed that larger and larger units of industry in the public and private sectors are automatically good. She seemed to hesitate on the brink of saying that "small is beautiful." She is right. One should consider the history of British Leyland, even before it was taken into public ownership and before large amounts of public money were spent. The philosophy of amalgamating independent firms into one great combine has meant that more and more decisions have been referred upwards to high salaried bureaucrats. That has been a mistake. The British Steel Corporation is another example of a case where we should break down the Corporation into smaller units. The Government should pursue a positive approach in creating smaller units of work.

Fifth, the Government should intervene more directly and should be more selective as regards public expenditure. Their control over public expenditure and their method of cutting back has been crude to say the least. I shall give one or two examples. The Government are fundamentally wrong to announce that they will go ahead with a £5,000 million programme on the Trident missile. That is no part of our defence commitment, of our commitment to NATO. The Government have made a deliberate decision. It will use up much of the defence budget over a period of 10 years. If the Prime Minister pursues that programme, she will discover that she has the most expensive face in history since Helen of Troy. Helen of Troy only launched 1,000 ships, but they were a dashed sight cheaper than four or five Trident submarines. There is is no case on defence grounds, on wider strategic grounds, or on economic grounds for proceeding with that programme.

I cannot understand the announcement this week of the intention to cut insulation grants to private homes. After all the lessons of the past 10 years, surely we have learnt that we must conserve energy in every possible way. The removal of those grants is a false economy. I put down a written question. I did not pay very much attention to it until I received the answer. I asked whether any design effort had been made to include hydro-electricity generation in the construction of the Kielder dam in Northumberland. I am suspicious of the Government's dedication to massive expansion of the nuclear power programme. That is a huge expense. I received an answer to the effect that the work had been done but that no installation of generating capacity was going ahead.

That provoked the Northumbria water authority to write to me. It pointed out that it was willing to include electricity generating. The trouble was that no one would give it the money. It would cost £5 million to install hydro-electricity in the dam. That is enough to allow a town of 20,000 people to become self-sufficient in electricity. That is the sort of discriminatory decision that the Government should make. However, it requires direct and detailed intervention across the board.

We should also consider the Chancellor's policy of issuing Government bonds at 15 per cent. If the Government really believe that they can bring inflation under control, bonds at 15 per cent. will vastly increase public expenditure for future Governments. The Government are wholly inconsistent in putting that interest rate on Government bonds, while at the same time telling local authorities that in their forward budgets they must assume an inflation rate of 13 per cent. If local authorities do that in the current year, their books will be completely out of key by the end of the year.

One of our strongest objections to the Government's programme of public expenditure cuts is that they are leaving local authorities to do most of their dirty work. Whatever their political complexion, local authorities are getting increasingly angry at being left to make decisions on such items as school cuts, especially when the Government produce the silly scheme for spending money on assisted places. It does not make sense.

In the constituency of the hon. Member for Berwick and East Lothian (Mr. Home Robertson), the local authority received a circular from the Scottish Office about saving electricity wherever possible. It proceeded to shut down, as an experiment, the sewage plant. Raw sewage was pumped into the Tweed until there was an outcry. Sir Harold Macmillan gave us the affluent society. The right hon. Lady is in danger of giving us the effluent society.

The Government do not admit that they are responsible, but they are imposing a squeeze all along the line.

Mr. Nigel Spearing (Newham, South)

Will the right hon. Gentleman tell us about the Liberal Party's policy? In an important television interview with Mr. Brian Walden just after Christmas, the Prime Minister said that she would be happy to see a further £2,000 billion in public expenditure cuts, with the money going to productive industry. Can the right hon. Gentleman give any reason why the money saved by such cuts should go to productive industry? Does his party have a policy in that respect?

Mr. Steel

The hon. Gentleman is being a little unfair. He should have interrupted the Prime Minister and taken up her time. It is not my policy. It is the Prime Minister's.

My sixth and final point is that I believe that the Government should be much more active over import substitution. I am suspicious of the siren calls for import controls, which would be disastrous. However, I strongly believe that the Government are not nearly vigilant enough in encouraging home manufacture and reducing the scale of imports. There is no point in having public corporations without an overall policy of procurement in the domestic sector.

Three weeks ago I asked the Prime Minister whether she would intervene in the decision of the Civil Aviation Authority in awarding contracts for our new radar system. It is an important issue, and several factors are involved. It is not similar to problems such as those of the steel industry or British Leyland. It concerns new technology. The contract is worth between £20 million and £30 million, yet it is believed that it will go to America., to a bid from Westinghouse over a bid from Plessey and Marconi.

Non-intervention falls down when we consider that case. The Westinghouse bid is based on a great deal of investment in research and development by the Federal Aviation Authority. We have State competition on the one hand, and the Government saying that it is nothing to do with them but entirely for the Civil Aviation Authority on the other. We are losing jobs on the frontiers of technology, bringing in imports and losing potential exports. I hope that the Government will reconsider their attitude to that case and to other aspects of public procurement.

In a short time I have covered six areas of policy in which we can justifiably criticise the Government. I have one final criticism, which is the reason why we shall be voting against the Government tonight. I believe that they have failed to give the necessary leadership to the country. Leadership is not a question of simply raising one's voice or humiliating Cabinet colleagues in television interviews. It should involve trying to set the country on a course that people will be willing to follow. I am worried that the persistent economic failure of our country is beginning to breed a new spirit of meanness. I am not worried just about the social consequences to which the Leader of the Opposition referred. There are other issues.

The Brandt report was published the other day. Certainly for the younger generation the report is of enormous consequence. It points out that while we in the northern hemisphere have one-quarter of the world's population, we have 80 per cent. of its income, 90 per cent. of its manufacturing capacity and use 85 per cent. of the oil. The implications of that report are enormous, yet in the same week what do we get? There is a miserable exposition of cutting overseas aid, threats to the work of the British Council and increases are announced in fees for overseas students. That is the image that the Government are projecting to our younger people and to the rest of the world.

I believe that the Government never had a mandate. As Leader of the Opposition, the right hon. Lady scorned the then Prime Minister because his Government existed on 29 per cent. of the electorate. She has 32 per cent., but it is still a minority. Even though the House may decide tonight, because of the in-built majority of the Conservative Party, that there is confidence in the Government, the people in the country do not have confidence in the Government, and they never had.

5.35 pm

Mr. Julian Amery (Brighton, Pavilion)

The Leader of the Liberal Party made an important speech, even if he was somewhat hurried in the development of his points.

I do not see why a motion of censure has been tabled. The country is facing difficult problems, and the Leader of the Opposition knows that well. I should have thought that we deserved his support today, just as we gave him our support when, at the end of 1976, the pound came to the brink of collapse.

The right hon. Gentleman and his right hon. Friend the former Chancellor of the Exchequer know the scenario well. Vast Budget deficits in 1974, 1975 and 1976 produced an inflation rate of 27 per cent. and brought us to the brink of collapse. In 1977 and 1978 the Labour Government adopted policies indistinguishable from those which we are pursuing. They exercised control over the money supply at least as strictly as my right hon. and learned Friend the Chancellor of the Exchequer, and their cuts in public expenditure were rather more severe than those that we have so far proposed. As a result the pound stabilised and inflation came down to 8 per cent.

The former Chancellor of the Exchequer was really Milton Friedman's prize scholar, and his policies were pure Chicago water, bottled under "appellation contrôlée". The only difference is that we believe that it is necessary. The Labour Government did it because they were told to by the IMF. The Opposition know perfectly well that, without monetary control and cuts in public expenditure, the economy would have collapsed in 1976 and would collapse today even more swiftly, under the pressure of the current world recession.

What do the Opposition want us to do? The Leader of the Liberal Party had the courage to say that he wanted a return to an incomes and, I take it, prices policy. I detected little enthusiasm for that in the speech of the Leader of the Labour Party. I am not surprised that, with the bitter experience of "In Place of Strife", our efforts in 1973–74, and his own "concordat" written across his heart, he does not go for the idea.

Whatever the theoretical rights and wrongs of an incomes and prices policy, I believe that we have to accept—and it is implicit in what the Leader of the Liberal Party said—that, within the present framework of industrial relations, and unless we can move in the direction of participation, it simply is not on at present.

What was the Leader of the Opposition saying? He was saying that we should go a bit more slowly. What does that mean? Does it mean that we should print a little more money? It will be a little more inflationary, he would say, but it will not hurt very much. It will buy a little peace. That is one way of looking at it. Cut a little less public expenditure? The borrowing requirement will have to be increased a little, and the interest rates will be forced up as a result. But it will buy a little peace. Increase taxes a little? It will destroy incentive a little, but it will be seen as being more fair, and it will buy a little peace. That is not much of an alternative policy. It is not a policy on which there should be a motion of censure.

I am as much of a pragmatist as any Conservative Member. I am prepared to accept that sometimes there can be good social reasons for adopting unsound economic policies. However in our present circumstances, to adopt unsound economic policies is more likely to produce worse social consequence in very short order than not to do so.

The duty of the pragmatist is to find out where public opinion is going. Does public opinion require a deviation from what the former Chancellor of the Exchequer in his heart must know—and the present Chancellor advocates—are sound economic policies? Should the Chancellor deviate from them for reasons of public opinion? It is a matter of judgment. In my judgment, the Government are not ahead of public opinion and, if anything, I suspect that they are a little behind public opinion. I think that there would be support for even greater cuts, particularly in the bureaucracy—central and local. It has grown by 40 per cent. since 1972. As far as I can judge, it has not given us anything like a 40 per cent. improvement in services as a result.

As a pragmatist, I add the following thoughts. I say to my right hon. Friend the Prime Minister and to my right hon. and learned Friend the Chancellor that there are policies that they can carry out this year which will gain the support of the public. I am not sure whether they will be able to carry them out next year or the year after if the recession grows. I suspect that this is not the moment to call a halt, or to retreat. If we can get a breakthrough in the battle against inflation now, we might have a decent chance of arresting the long decline in our affairs. But it is not enough to arrest the decline. We need a radical revision of our fortunes.

For a long time Conservative and Labour Members have said—the former Chancellor of the Exchequer also said it—that we have been paying ourselves more than we have been earning. For 10 years or more, there has been debate about how to pay ourselves less so that what we pay ourselves corresponds to what we are earning. There has not been sufficient emphasis on how to earn a little more, in order to catch up with our aspirations.

Low productivity is at the root of the British disease. Why is it that in Britain our output per man-hour is about half of what it is in West Germany and almost half of that in France, Belgium and Holland? That is dramatically illustrated in the motor car industry. Some of the multinational companies are making the same car in Britain, Germany and Japan, but the Germans and Japanese make twice as many as the British make in the same time.

Productivity depends on investment and equipment, and on the proper utilisation of manpower. There can be no doubt that in Britain over-manning and restrictive practices have deterred investment. We cannot expect the private sector, in its own interest to invest in new machinery if the machinery is not worked. It would be irresponsible of the public sector to do that if the trade unions block the operation of the new machinery.

There has been a scandalous case in Wales, where one of the best and most modern steel plants was installed. There was a six-month delay, during which time the plant was not used, while argu ments took place about the manning levels. Here is the main cause of the de-industrialisation of Britain. It is not the high rate of the pound, as some economists pretend. The Germans and the Japanese export perfectly well with a strong currency. It is the inability of our economy, because of over-manning and restrictive practices, to operate successfully the new machines that have been installed or which might be installed. We have talked about the problem for 20 years, but during those 20 years revolutionary changes have been taking place. If we fully exploited the machinery that is available today there could be an enormous increase in productivity, offering higher wages or shorter hours, or a choice between the two. If only over-manning and restrictive practices could be reduced—

Mr. Eric S. Heifer (Liverpool, Walton)

rose—

Mr. Amery

I shall give way in a moment.

If over-manning and restrictive practices could be reduced to the level of our competitors we would have an immense opportunity—because we are starting from a low level—to achieve an economic miracle.

Would that lead to unemployment? I do not see why it should. Once we become competitive, we can enlarge production that would provide new jobs. What is more, if shorter hours are within our reach because of the exploitation of machinery, more people could be employed on shorter shifts. That would maintain existing jobs. But trade union attitudes today block the exploitation of machinery and they will continue to block it until the unions accept obligations corresponding to their power.

That is why I agree with my right hon. Friend the Prime Minister that we need to change the legal framework of our industrial relations. There is an argument—I know that there is argument inside the Conservative Party—about how fast we should move. As a pragmatist, I am not sure that to move gradually is the right approach. The country is less worried about union bashing by the Government than it is about public bashing by the unions. The fear of the unions is strong, not least among trade unionists. It was strong at the time of the election, and has been reflected in public opinion polls ever since. I am not sure that the proposals now before the House go far enough. If we are to go further—as my right hon. Friend the Prime Minister indicated on "Panorama" on Monday evening—we should do so now. There are things that can be done in the green leaf which cannot be done in the sere.

But it is not sufficient to take a negative approach to these matters. I return to what was said by the Leader of the Liberal Party earlier. If we are to succeed, we must not only pull down the barriers to increase productivity, we must give positive encouragement to co-operation in productivity.

In our manifesto of October 1974 and in our publication "The Right Approach", we laid considerable emphasis on profit-sharing, consultation, works councils, even on worker-directors in appropriate cases, and on the development of a forum where these issues—possibly based on NEDO—could be discussed in public. What happened to those words? There is nothing in the legislative programme, and nothing in the speeches.

There is nothing anti-Conservative in participation, profit-sharing, works councils or even worker-directors. We have always viewed enterprises not as conglomerates of individuals but as families. There is nothing here against the social market philosophy which I know inspires my right hon. Friend the Secretary of State for Industry. West Germany is the home of the social market philosophy, and that country has developed participation to a higher level than any country in Europe. I have no blueprint to propose. Different industries will need to develop different plans. The Government need to work out methods of encouraging the development of such plans. There is company law to ensure that shareholders are properly treated, and there should now be changes in company law to encourage and help the development of participation.

The hon. Member for Liverpool, Walton (Mr. Heller) made a striking statement on the subject in a discussion with Professor Friedman on television. If I understood him correctly, he said that he thought the only way of preventing his brand of Socialism from becoming excessively totalitarian and authoritarian was to have what he called industrial democracy—some form of participation. Since 1948, when I was a candidate for Preston in the heart of industrial England—where I was the Member for 18 years—I have argued that the only way of preventing the potentially divisive aspect of the free enterprise system was to give all who work in private and national enterprise the assurance of a share in the profits and a voice in the control of the industrial process which they serve.

I go further. I should like to see NEDO developed into a forum for public discussion of these matters on the lines advocated by Sir Winston Churchill in 1930 in his well-known Romans lecture. I believe that if the claim of the steel unions that the public should pay for extra wages which they could earn themselves were discussed in that way, it would be laughed out of court by an audience of other producers who are also consumers of steel.

I have argued the case for participation on its own merits. But to my right hon. Friend the Prime Minister I would stress that the case for participation is urgent for other reasons. The recession in the world is deepening and the threat to peace is growing. It has never been more important than it is today to build up national unity.

I believe that our economic and financial policies are right. I stand by the Government's monetary policy, by the cuts which are proposed and by the reform of industrial relations. I would even go further if the Government decidede that they wanted to do so. However, if the policies are to prevail and command full assent from the public, the Government should also take positive steps to mobilise the widest possible support for them.

5.52 pm

Mr. J. Enoch Powell (Down, South)

In taking part in the debate I am bound to be conscious that I am one of those who come to the House from that Province of the United Kingdom which most acutely shares the extreme consequences of all the ups and downs of the economy of the United Kingdom. That is something of which Ulster and its people make no complaint. The United Kingdom is their birthright. In fact, it is because they are determined to assert it that they live under pressures unknown to the rest of the Kingdom.

Claiming that as their birthright, they accept, equally with the benefits, the burdens and the difficulties of integral participation in the economy of the United Kingdom. I stress that because, recently, a speech was made by one of the Northern Ireland Ministers which appeared to cast doubt upon that proposition and its implications, and I should like to take the opportunity, on behalf of my colleagues as well as myself, of acknowledging the frank and handsome withdrawal which that Minister publicly made in the last 48 hours. Certainly, it will be well received by those whom he tries to serve—and upon the whole succeeds.

The debate is essentially a continuation of the debate on the economy at the end of November. I argued at some length in that debate that the phenomenon of inflation and the inflation index at any particular time is, whether we like it or not, related to factors which already lie a considerable distance in the past. The 19 per cent. or so inflation rate is the most marked and urgent of our difficulties at this moment, but it derives from causes which lie at least a year or two back. That is not a proposition which can be disputed by the occupants of the Opposition Front Bench. In their earlier years of office, they never tired of pointing out that in the high rates of inflation experienced in 1975 and 1976 we were suffering from the monetary and budgetary mismanagement of 1972 to 1974. Accepting that as they did, and must, they and we are equally bound to accept that, on coming into office last May, the Government entered upon factors that were no longer within their power to control and which were bound to produce the economic constellation and particularly, the level of inflation we experience at the moment. That is the reason why my hon. Friends and I consider that it is, at worst, premature to censure the Government for the economic phenomena of the early months of 1980 after only 10 months in office.

It does not follow, however, that, although they were unable to control the factors which dictate our present circumstances, they did not enter upon heavy responsibilities or that the manner in which they have taken those up is beyond criticism. By the same taken, their responsibility from the time of entering office is for the state of the economy—and, above all, for the soundness of our money—in years ahead. Upon what they do or fail to do in the first two years of this Parliament will depend the economic and, certainly, the monetary fortunes of this country in the later years of the Parliament.

In her speech this afternoon the Prime Minister acknowledged—as did the Leader of the Opposition—the primacy of urgency of inflation. If we cannot bring a tolerable degree of stability into the value of our currency, there is nothing else, either at home or abroad, that we can be confident of achieving. It is, above all, against that test that policies and the means adopted to fulfil them must be judged. The right hon. Lady also said rightly—indeed it seemed an understatement—that the Government were still borrowing too much. In saying that, she identified the one measurable feature which, although it is not to be precisely equated or mechanically linked with the phenomenon of monetary growth, is the only apprehensible fact which we can deal with in seeking to come to grips with inflation.

For it is not disputed in any quarter, whatever other factors may be argued to exist, that it is the borrowing propensity of government and the ability of modern government to satisfy their marginal requirements by borrowing from the banks, and thus expanding the currency, which is the sine qua non of inflation—the condition without which there cannot be inflation as we have experienced it in the last two decades. [Interruption.] I am sorry that the right hon. Member for Battersea, North (Mr. Jay) who sits in front of me and with whom I agree on some of the most important matters of our national life, finds himself at such grumbling division from me on this; but the actions of his party in office have acknowledged, no less candidly than I am stating it, the crucial importance of the Government's total borrowing—of the public sector borrowing requirement. It is not for nothing that, whatever the jibes and the jokes about monetarism and so on, all economic commentators at home and abroad concentrate upon that index, upon that item, more than upon any other. They recognise in practice how crucial it is.

I repeat that the right hon. Lady was right in saying that it is too high. I will go further and say that it is dangerously high, 10 months after a new Government came into office. To be assured by those channels which turn out not to be so unofficial as they would like us to believe that the Chancellor of the Exchequer is hoping to get within reasonable distance of a £9 billion borrowing requirement is not good enough at this time of day. A country which has lived with our inflationary experience of the last five and more years is in no position to contemplate borrowing year by year sums verging on £10 billion. If the Government are looking for recovery and looking with the urgency that is necessary in the early years of this Parliament for the means to get a grip and a stranglehold on inflation, then neither £9 billion nor anything approaching that figure will do this year.

We should be aiming at a nil net borrowing requirement. Before any hon. Members starts to think, or to say, that that is a typically exaggerated and extreme statement from the right hon. Member for Down, South, let me recall that it is only 11 years since there was presented to this House a Budget with not merely a nil net borrowing requirement but a negative borrowing requirement—that is, a net repayment of tax—and I well remember the interesting debates that we had in which we discussed whether there was total symmetry between a positive and a negative borrowing requirement.

That was only 11 years ago. At that time we took it for granted. It is a perfectly possible and practical thing; it was achieved under the Labour Government, and with low unemployment prevailing. I do not remember outrage being expressed by any section of the Labour Party at the time of that Budget. "What, no borrowing requirement!" did they exclaim? "What no billions to be borrowed from the public!". Apparently it was perfectly reconcilable with almost any of the strands of Socialist thought. Only 11 years ago, then, the spending and the taxation, the incomings and the outgoings, of this country and its economy were in balance. So it is not an extreme statement nor is it a mere provocative absurdity to say that what we need is at any rate a period during which the Government of this country do not need to come cap in hand to borrow.

Mr. Hugh Dykes (Harrow, East)

Excluding defence and security spending, does the right hon. Gentleman accept the need, according to his own arguments, for cuts in the very heavy subsidies to Ulster?

Mr. Powell

I am not going to leave my argument at the point to which I had brought it. Indeed, I propose to be much more precise than those who have so far contributed to the debate on the ways in which I believe that what is necessary in my view could and should be done. I do not know whether the hon. Member for Harrow, East (Mr. Dykes) was in the House when I began my speech.

Mr. Dykes

indicated assent.

Mr. Powell

He was in the House? So he would have heard me say that the Province in which I have the honour to represent a constituency fully accepts its share in the policies that are necessary for the United Kingdom as a whole. I stated that, and I state it again; so let me resume.

There are a number of ways—some of which can be used in tandem—for securing that major reduction in the net borrowing requirement which is urgently necessary at this stage.

Of course, it can partly be done by mirrors. As a former Treasury Minister I know that the Treasury has a set of very cunningly devised mirrors for use at Budget time to produce a different net borrowing requirement from that which would otherwise appear. But it is my belief that that is not very much to the taste of the present Chancellor of the Exchequer. He would certainly not be responding to the gravity of his responsibilities if whatever might happen in other years, he allowed himself to be diverted now into taking mirror reflections into his calculations upon the net borrowing requirement.

Nor can we—strong though the other reasons may be for it—look for any relief by way of reduction of the £1,000 million net tribute, mounting presently to £1,350 million, which we pay to the European Economic Community. For if we reduce what we pay to the Community—the gross sum—that is the equivalent of an increase in taxation, since it is from the additional taxation we levy at the behest of the EEC that we pay the Community this tribute, like the tribute the Greeks paid to the Cretans.

If on the other hand—and I am sorry to see that thoughts seem to be turning in this direction—we intend to come nearer to a balance with the EEC through an increase in the sums that it pays to us, it is a sobering reflection that that will do us no good at all unless those increased sums go to satisfy existing, but not additional expenditure in this country.

The Prime Minister

indicated assent.

Mr. Powell

I am glad to note agreement coming from an authoritative quarter.

So, laying these delusions on one side, there are, so far as I can see, two or possibly three sources—they are terribly plain ones—from which we can deal with what we have to do.

The first is taxation. If I have a complaint of the general economic and fiscal behaviour of this Administration—I made it in the Budget debate last year, as well as in November—it would be that they attempted to pluck the fruits of tax relief before the buds had openend, let alone before the fruit had ripened on the branches. Although much of the tax relief in the last Budget was achieved by means of offsets, the background which the Government created by the suggestion that it was the first of a series of relieving Budgets has made it specially difficult for them to do now what has to be done—that is, to obtain a massive contribution from taxation; for that is one of the means of moving towards closing the gap between Government receipts and Government outgoings.

We need something like an additional £1 billion to £2 billion out of taxation in the coming Budget towards that task. How much more easily—with all their protestations of the damnosa hereditas upon which they entered—they could have done that a year ago! Then the Government could have said to the electorate with some correctness "We came in committed to tax relief, but we could not with any degree of responsibility begin it in the circumstances which we find. Indeed there have to be, for a time at any rate, further tax burdens." Further tax burdens indeed there have to be if we are serious about dealing with the root cause of inflation.

On the other side there is—I come to the remarks of the hon. Member for Harrow, East—expenditure. It is disheartening, after 10 months of hacking away at what it is alleged the Labour Government would have been spending—I think that is the correct formula and I believe that the right hon. Lady was careful to use it in her speech this afternoon—to find oneself more or less where one was at the start.

There has to be a rapid approach towards the centre of the gap from the expenditure side also. This will not be done by tightening the general collar of cost limits. It will not be done, fond though, as an ex-Financial Secretary to the Treasury, I am of sealing wax and candle ends, by those well known Gladstonian implements. It has to be done in large items; and the only way in which large items can be obtained from spending is through the deferment of major capital projects. This alone, over the course of 12 months and 24 months, will yield a substantial move towards balance between the incomings and the outgoings of government.

I think that the Chancellor, in his work on the Estimates, ought to aim at obtaining a substantial contribution on capital account by deferment of projects. Remembering that we are in what is called a crisis situation, we have to hit an objective, and hit it hard, at this stage in the Parliament. This cannot be done by a gradual gnawing, eroding process, which is constantly undone again, like footprints covered up as we walk across the sand. It has to be done by large, massive acts which will free the Government boldly from their present borrowing incubus.

Mr. Heifer

If the Government were unwise enough to agree with the right hon. Gentleman's suggestion of the deferment of major capital projects, would he explain what would happen to construction workers in Britain as a whole, particularly those in the unemployed sector in Ulster?

Mr. Powell

It is indeed bad news for the construction industry. But there is a good deal of other bad news: we are not in a position to choose between good news and bad news. The common predicament of politicians is having to choose the least of evils amongst the courses with which they are faced.

Now, if the Chancellor will permit me, I am going to apply an emollient to any wounds that I may have inflicted upon him. I am going to open to him, if he will only yield to my persuasion, an easy option.

Mr. Douglas Jay (Battersea, North)

An easy way out?

Mr. Powell

No, that would be too much; but, at any rate, something easier than the two necessary large-scale ingredients which I have already commended to him. I believe this is a time when we are entitled, and when it is sound, economically and monetarily, to apply part of our reserves to filling the gulf.

At the moment, even with the gold element undervalued, we hold $24 billion reserves, the only purpose of which is to enable the Bank of England to speculate on the currency exchanges. Incidentally, the only way that it can influence the currency exchanges by means of those reserves is to force the exchange rate of sterling up. Therefore, I hope that none of those on the Opposition Benches who groan at the strength of sterling—something which was our aspiration only a year or two ago—will take issue with me on that point. It is a dangerous temptation, and nothing better, that the Bank of England should have control over this huge asset—the fruit of various speculations and borrowings in the past.

If part of that asset is realised by the Government to meet their net borrowing requirement, that is no more sinful, no more uneconomic, than to sell off parts of the nationalised industries to the public. It is a method of converting capital assets into current cash. Indeed, it is the very process that the Government are commending to the British Steel Corporation, and I am suggesting that the Government should set an example by applying it. I do not suggest they should blue it all at once—the whole $24 billion—though I must say that there are attractions in getting rid of the entire net bor- rowing requirement at one fell swoop. I would take it a little more easily, besides, I think that there should be other contributions and I want to see the contributions which I have already mentioned both from the taxpayer and from the pattern of Government spending. If £2 billion, £3 billion or £4 billion of these assets are realised, the Government will be securing control of sterling as surely as if they issued a new gilt-edged stock: it is exactly the same process, no more inflationary—indeed, just as doflationary—in its effect.

Mr. Peter Tapsell (Horncastle)

Is not one difficulty about the scheme that the right hon. Gentleman has outlined, which appears on the face of it to be so attractive, that by far the greater part of the $24 billion is not our money at all? It is money which has been lent to us by other Governments, or short-term deposits by people who place their money here and are free to withdraw it whenever they wish. Therefore, the idea of blueing the lot, attractive as it sounds, seems a somewhat socialistic approach for the right hon. Gentleman to advance.

Mr. Powell

First, if it is not our money, why is it that from time to time we spend it as if it were ours by exchanging it into sterling for the purpose of rigging the exchange rate?

Secondly, while it is true that as a nation we are an external debtor, that no more makes our assets the property of our creditors than it does in the case of anybody else. So this notion which got into the head of the City Editor of the Daily Mail, that the reserve somehow belongs to somebody else, does not stand up to examination.

I am not, of course, suggesting that this is the whole of the answer to the Chancellor's problem. I am not even suggesting that it is the greater part, but I mention it to emphasise the necessity at this stage in this Parliament of mobilising every resource to eliminate, within a measurable time, that great cause of our disability—the incubus that weighs upon the whole of the economy and of the British people—the large net borrowing requirement.

Mr. Robert Sheldon (Ashton-under-Lyne)

Will the right hon. Gentleman give way?

Mr. Powell

I really ought to bring my speech to a conclusion. I apologise to the right hon. Gentleman for not giving way. No doubt my arguments can be dissected later here and elsewhere.

I want to conclude by addressing myself to the Opposition, though that may not be normal at the end of a speech in a censure debate. What is their position over the net borrowing requirement and the peril of ever-increasing and recurring inflation?

The Leader of the Opposition referred to the lunatic—I think that was the word that he used—desire to reduce the net borrowing requirement. Does he or does he not accept that it is because of the size of our borrowing requirement that—I am going to use the word "lunatic" again—we have lunatic interest rates at 17 per cent. and above? It is impossible to live a civilised existence in any economy with interest rates of 17 per cent. Does the right hon. Gentleman think that there is no connection between the Government wanting to borrow £9 billion or £10 billion and the level at which interest rates have to be held?

Again, does the right hon. Gentleman, after all that has been said and done by him and by his colleagues in office, deny that the size of that borrowing requirement is crucial to the existence, persistence and level of inflation? He does not. He cannot possibly deny it. He is hopelessly estopped by the words and actions of his party and colleagues.

So I ask him this at the end. Does not he consider that inflation is the most grave of all our social evils and that it lies at the root of the very industrial disturbances and the divisive misapprehensions from which the classes and parties in this country suffer?

I choose to end with that appeal to the Opposition, because this business of conquering inflation is a great matter, and a great matter such as this cannot be achieved without a broad common understanding and common will in the nation. Whatever differences and disputes there must be between the parties, there must be a common will to confront this evil and root it out. The Opposition cannot escape from responsibility for leadership in the manner in which they confront this most real of all the dangers and difficulties that lie before our country.

6.20 pm

Sir William Clark (Croydon, South)

It is a pleasure to speak after the right hon. Member for Down, South (Mr. Powell). I am sure that all Government supporters and many Members of the Opposition agree that after 10 months in office it is premature to have a censure debate. The Leader of the Opposition really had a nerve to criticize Government policies. As the ex-Chancellor of the Exchequer will recollect, in the Labour Government's four or five years in office, their policies, which they pursued with varying degrees of enthusiasm at different times, doubled prices, unemployment, taxes, Government spending and the national debt. That is not a good record for any Government. It is not a basis on which to criticise policies that have not had the opportunity to work through the system.

When the Government came to office, output was down by 4 per cent. and imports were being sucked in and were rising at an alarming rate of 13½ per cent. Therefore, it is slightly hypocritical to criticise the Government's policies.

I am delighted that the right hon. Member for Down, South paid so much attention to the public sector borrowing requirement. People do not understand what "PSBR" means. In modern jargon everything seems to get an initial. We glibly talk about the PSBR. The ordinary voter does not understand one bit of it. It would be better if the Government put this over in simple terms. If each of us realised that for every hour of every day we as a country spent over £1 million more than we earned, it would bring the matter down to an understandable level. The PSBR is far too high. I am sure that that is at the root of our economic ailment.

The Government have not allowed an increase in the PSBR. I am looking forward, as no doubt are many of my right hon. and hon. Friends, to the public expenditure White Paper, which we expect about Budget time, to see where we are making absolute cuts.

I do not agree with the right hon. Member for Down, South, who said that we should increase taxation to squeeze the £8 million or £9 million PSBR. I am not absolutely certain that it would be practical to use Government reserves to reduce it. However, that is by the way. My main point is that I do not think that we should try to reverse the trend that we started of cutting income tax.

The public expenditure system in government must be considered. I feel sorry for the Chancellor and his team at Cabinet meetings. Those Ministers are trying to control the expenditure of taxpayers' money. They sit round the table with spending Ministers. No matter how good they are, spending Ministers are fighting their own corners. They are trying to spend more. It would not be a bad idea if in each large spending Department one junior Minister were wholly responsible for the financial policy of the Ministry. I ally that idea with the practice in commerce. Where a group company has various subsidiaries, there is a financial director in each subsidiary who reports to head office. In this case each Minister should report to the Chancellor of the Exchequer. That idea is worth considering.

We must consider what we did in the first Budget. Taxation was cut by £4,500 million in a full year. Could we once and for all set out of our minds the idea that the whole of that sum went to the rich? Nothing could be further from the truth. On the top rates of income tax, the amount of tax that was relieved totalled £862 million. The amount of tax relieved on the lower echelons of the tax systems was £3,638 million. Roughly, there was a 19 per cent. relief at the top echelon. That was in our manifesto. Let us make no mistake about that. On page 13 the manifesto says, about cuts in income tax, that: It is especially important to cut the absurdly high marginal rates of tax. It goes on: The top rate of income tax should be cut to the European average. I do not think that anything could be clearer than that. We said that in the manifesto. I cannot think why people were surprised when we did what we said.

Many other things were said in the manifesto. I am irritated when people say that the Conservatives did not tell the public this or that. If we had time to go through the manifesto we should see that even on page 8 we spoke about the borrowing requirement. We said that we would cut the PSBR. In the manifesto we gave a warning that prices would go up and that unemployment would temporarily rise. The Opposition cannot charge the Government with having hoodwinked the public. It was in the manifesto. I do not know how many Members of the Opposition have read the manifesto. [Interruption.] I assure those right hon. and hon. Gentlemen who are laughing at it that it is not a funny book. It is serious. It put before the country what we wanted to do when we won the election.

Mr. Heffer

rose—

Sir W. Clark

I shall give way in a moment.

On another page of the manifesto we talked about social security. The Opposition and many Government supporters would agree that we must do something about that. I am not referring to the retirement pension. That is already linked to earnings or prices, whichever are lower.

We are building up two nations. First, there is the person who works. He may, depending on where he works, receive an increase in his salary of 8 per cent. or 10 per cent. If he is not working, and receives short-term social benefit, he automatically receives a 17½ per cent. rise, or whatever it is. That must be wrong. We cannot go on telling the working population that they must accept the market forces that entitle them only to 8 per cent. while at the same time we are protecting the people who are receiving benefits. Successive Governments, for whatever reason, have made unemployment far too attractive. We must make employment attractive.

We said in our manifesto what we would do about picketing, and so on, and industrial legislation is going through the House now. The previous Government increased the immunity of trade unions. Where there is a closed shop or a semi-closed shop the amount of power exercised over the workers on the shop floor by the leaders of the trade unions is so dictatorial that the workpeople are afraid to say anything to their leaders. There is too much victimisation within the trade union movement.

Some of us would like the provisions for secret ballots to be made stronger. Only yesterday the TUC turned down the secret postal ballot proposals. If the ballot is a permissive right, we must ask oureslves to whom we are offering it. We are offering it to the trade union leadership, and if those leaders want it they will have it. The man on the shop floor has no say in it. We must follow company law and provide that if a certain percentage of the workers want a ballot a ballot shall be mandatory on the trade union leadership. I am not union bashing; I am making a reasonable proposition. Under company law if a certain percentage of shareholders feel that the directors of a company are not satisfactorily carrying out the business of the company they have a right to demand a special meeting. Why cannot a similar right be given to workers in the trade union movement?

I am sure that the Leader of the Opposition, with his great experience, will half agree with me when I say that there is a great deal of apathy among the workers and that that is why there is not true democracy in the trade union movement.

We have been criticised about our policies for the nationalised industries. Our manifesto clearly lays down that nationalised industries must be commercially viable and subject to financial discipline. Nationalised industries are an important part of our industrial and economic structure, and we must run them as a commercial proposition. If we want to run part of the nationalised industries as a social service, that part must be taken away and funded differently. A nationalised industry should make a profit on the taxpayers' money that it put into it. Even with the price increase, domestic gas will give a return of about 9 per cent. or 9½ per cent. on capital employed. The taxpayer has provided that capital, and it is not a commercial proposition for the taxpayer, through the Government, to borrow money at 15 per cent., put it into the gas industry and get a return of only 92 per cent. We must get away from the feeling that the nationalised industries are part of the Welfare State. They are nothing to do with the Welfare State and they should be commercially viable.

Mr. Michael English (Nottingham, West)

Perhaps the hon. Gentleman will agree, on reflection, that he chose a bad example. There is no consistency in the form of accounting employed by nationalised industries, because the Treasury has not yet imposed any consistency. The British Gas Corporation chooses a form of accounting that allows it to conceal the extent of the profit it made even before the recent increase.

Sir W. Clark

I do not agree with that. I have been into this matter and I can say that on historic cost accounting there will be a 9½ per cent. return with the increased price when it has gone through the pipeline. A 9½ per cent. return on capital that is borrowed at 15 per cent. is not commercially acceptable. Nationalised industries have either to be commercially viable or part of the welfare services. We cannot have it both ways.

The Leader of the Opposition accused us of not telling the voter what we would do. It is all in the manifesto—even the switch from direct to indirect taxation. I do not know what the censure motion is all about. We said that we would do certain things and we have started doing them. It is as easy as that. We have promised to do certain things; we have delivered some and we will deliver the rest. The Opposition are fighting on the platform on which they fought the general election last year. They were heavily defeated then and I hope that they will be defeated tonight.

I agree with the right hon. Member for Down, South that we must eradicate the disease of inflation. There is no easy way to do that. A whole package of measures is necessary to kill inflation. We have been in office for nine or 10 months, and the policies that we have adopted will take some time to work out.

We have tried incomes policy, and we have tried spending ourselves out of the recession, but those policies did not work. This policy at least has a chance of working. I am convinced that it will work. We want to kill inflation and create more work. In the past we have been spending wealth before it has been created.

6.38 pm

Mr. Douglas Jay (Battersea, North)

When the hon. Member for Croydon, South (Sir W. Clark) said that the Conservatives told us during the election what they would do and then did it he was, I suppose, thinking of the increase in VAT from 8 per cent. to 15 per cent. I welcome the fact that we are having a comparatively quiet interlude in the debate, in which we may perhaps forsake some of the party cries and continue the serious economic argument.

My case against the Government is that they are pursuing unsound economic policies. When I say "the Government" I refer only to that half of the Cabinet known in Downing Street as the "hawks" as opposed to the "wets". I compliment the hon. Member for Croydon, South by including him with the hawks, whom I now propose to criticise.

As the Prime Minister told us earlier today that she had an open mind on these subjects I shall start by analysing the economic errors that I think are at the root of the Government's policy. I add, to my regret, that some of them also exist in the mind of the right hon. Member for Down, South (Mr. Powell).

The first fallacy is the Government's apparent belief that we are suffering from a demand inflation. We are not; we are manifestly suffering from a cost inflation. A demand inflation causes high profits, rising production and rising employment, as well as rising prices. A cost inflation produces low profits, rising unemployment, closures and bankruptcies. Everyone knows that it is from the latter that we are suffering at the present time. Every business man knows that in 1980 his prices are being pushed up by costs and, mainly, by pay claims, and not by a pressure of demand.

Therefore, a large part of what is becoming parrot talk about the money supply and the public sector borrowing requirement is irrelevant to the present realities of the economic situation. Of course, some monetary restraint is necessary; there is no dispute about that. The question is whether it is the only remedy for our present position.

The second fallacy from which the Government and Treasury Ministers suffer is that even if it were a demand inflation with which we are faced at the present time, money demand is not immediately determined by the stock of money—the so-called money supply; it is determined by the flow of money incomes and money spending, which are in turn influenced by a number of other factors as well as by the stock of money. We hear a good deal of talk about A-level economics, but our present Treasury Ministers seem all the time to fall into a major confusion between the stock and the flow of money in the economy.

Thirdly, even if the volume of money were the sole cause, in recent years the increase in that volume—here I cone to the argument of the right hon. Member for Down, South—has been caused, mainly, not by public borrowing at all but by the persistent pressure of the clearing banks, in search of profit, to extend their private advances. I gave the figures that prove that beyond question—particularly in the period of the Barber boom, from 1971 to 1973—in the debate on 28 November 1979. Therefore I shall not repeat them here, but I recommend them to the right hon. Member for Down, South.

At a time, however, when the high cost of Government borrowing—which I agree is excessive—is all supposed to be due to market forces, it is just worth reminding the House in passing that during the war and in the immediate postwar years the clearing banks were required to lend a given sum to the Government by way of Treasury deposit receipts, at a rate of interest that, in the years from 1940 to 1950, never exceeded 2 per cent. And they were given a ceiling beyond which their private advances were not allowed to rise.

I am not saying that that is the only way of controlling the monetary base—there are many other ways of doing it—but at a time when interest rates stand at 17 per cent. and when the National Westminster Bank reports a profit of £440 million in one year for one bank, it is worth looking back at the system that was enforced in the immediate post-war years instead of talking about market forces as though they were something that we can in no way control. It is perfectly practicable, in fact, to carry out the policy that we carried out then. The powers exist in the Bank of England Act 1946.

The next and most simple-minded fallacy of all that is muddling the Government's mind is that which is particularly beloved by the Prime Minister. She repeats over and over again that we all have to live within our means, but she forgets that the Government's economic policy is largely itself determining our means and indeed reducing them at the present time.

For example, the Government's deflationary and interest rate policies first cut down the demand for steel; and then we are told that as the demand is not there for the moment we must destroy steel-producing capacity, with lasting damage to the country. Indeed, the most serious criticism that I would make of the Prime Minister in this respect is that she is weakening the future defence capacity of this coutry by the damage that is being done to the steel and ship-building industries. I hope that we shall hear something about that before very long from the Government Front Bench.

Next, the Government—indeed, all Conservative speakers—seem to have entirely forgotten that deflation is a cumulative process. Each time the Secretary of State for Industry closes another factory—which he does almost once a week—and hundreds of people are thrown out of work, income tax revenue is reduced and spending on unemployment benefit increases. The PSBR goes up again as a result, and the Chancellor of the Exchequer then says that he must have another round of cuts, and so we have another round of deflation.

That is what is happening now. We are told that the Treasury expects a 2 per cent. or 2½ per cent. reduction in real gross domestic product in the coming year. But after all these efforts—I understand the sorrow of the right hon. Member for Down, South—the PSBR is still to stay at £8½ billion. That is because a monetary deflation is a cumulative process. That is also why the Financial Secretary to the Treasury has been so desperately wriggling with his estimates for this year that for the first time ever he apparently cannot publish a public expenditure White Paper until Budget day. On this issue, I wish Ministers would remember that one man's spending is another man's income in the economy.

Have Ministers also forgotten that the cumulative deflation in the years between 1929 and 1933 went on and on until all the banks were closed in March 1933, when the Roosevelt Government came to power and the State had to come to the rescue of the economy? It is worth while remembering that that can also happen.

Ministers also seem to have forgotten the simple truth that, of course, price inflation—Conservative Members talk about inflation without specifying what they mean—can be caused not merely by rising money demand but by falling physical output. By cutting down industrial output, as they are now doing, Ministers are helping to stoke up price inflation from the supply side. We hear a lot about productivity, and I fully agree that that is extremely important, but falling production means lower productivity as well as higher prices.

The net effect of the Government's economic policy so far is that they are simultaneously cutting down demand and allowing costs—in particular, pay rates—to be inflated without any restraint. That must mean—I do not think that Govern-members can deny it—depressing the whole economy, which the Government then call a "recession", as though it were some entirely natural process and not what it really is—an imbalance between demand and cost which has been forced upon the economy largely by Government policies.

So long as those policies and that process continue we shall have cumulative deflation with employment, production and Government revenues tending to fall, but wage costs and prices continuing to rise. And if Government Ministers think that present monetary policies themselves will prevent pay rates rising excessively, they may have to wait five or 10 years.

The basic fact about the contemporary economy is this: output and employment cannot be raised until demand is raised; and demand cannot be raised until there is some control over costs and pay. Whether we like it or not, that means that there must be some sort of incomes policy. The Government have a sort of incomes policy, but unfortunately it is one that will not work. We must of course have an incomes policy as an addition to other restraints. With a workable incomes policy we could return to full employment reasonably soon. We will certainly not get full employment without an effective incomes policy within a foreseeable period.

If any of my right hon. and hon. Friends think that we can indulge in a reflation of demand without an incomes policy the answer is that that would lead to accelerating price inflation. That is the reality. I realise that incomes policies are troublesome and difficult, but it is not true to say that they are unworkable.

I will give two simple examples. In the past two years, Norway, by a firm incomes policy, has reduced the rate of price inflation to 4 per cent. a year in 1980. And unemployment in Norway is under 2 per cent. There is no basic reason why we should not be able to achieve the same. Secondly, between 1975 and 1978 in this country the then Government performed the remarkably difficult operation—and it was due to an incomes policy and not the IMF—of reducing the rate of price inflation from over 20 per cent. to 8 per cent. or 9 per cent. So it is no good anyone saying that it cannot be done.

To achieve the recovery we all want to see, this country needs three basic economic policies. First, we need to import our food and materials, without any restriction, at the lowest world prices. Secondly, we need to impose on imported manufactured consumer goods, from wherever they come, at least our present GATT tariffs. Thirdly, we need to introduce an effective incomes policy. I fully agree that the first two would mean breaking away from the present shackles fastened on us by the EEC. The third represents a return to a voluntary incomes policy. I am in favour of all three.

6.54 pm

Mr. Donald Stewart (Western Isles)

I do not agree with the view of the right hon. Member for Battersea, North (Mr. Jay) about an incomes policy. It has been my experience that any freeze of wages is restricted to the people on the shop floor. At management and directorship level salaries can be upped during a wage freeze by creating new titles. I also take issue with the right hon. Member for Down, South (Mr. Powell)—not, I hasten to add, on the main theme of his argument but in relation to his belief that it is possibly premature to have a censure motion on this Government.

I am prepared to accept that the Government's legacy on taking office was a barren sheep that might have left a lot to be desired. There were certain commitments, and I think that the right hon. Gentleman the Leader of the Opposition was frank about them in his opening speech. However, the Government have been in office long enough to know that no Government since the war have had less right to a vote of confidence.

The lines that the Government intended to follow were clear from the start. They set out like inverted Robin Hoods to take from the poor to give to the rich. In the Budget the Government looked after their rich friends. Having taken them on board the ship they pulled up the ladder on the great mass of the population.

Despite the election campaign denial, VAT was increased to 15 per cent. That was serious. It still has not percolated right through the economy. When it does people will discover that the Government have completely betrayed their election pledge.

On the ground of making economies the Government have attacked school meals and transport, but there was no question of making savings when they rifled the public till to assist fee-paying schools. The hopes of young people wishing to buy a home have been dashed by interest rates that are quite beyond them, but the banks are now shovelling in loot without increasing production in any way. The Government have laid it on for the banks to get their snouts into the trough. This has all been done in the name of curbing inflation, which is escalating. The tax incentives have produced nothing, though they have increased the balance in the bank books of the wealthy.

Throughout the country rates are due to rise—in most cases by about 33 per cent. The price of food is allowed to soar. There is some merit in saying that the previous Administration's Price Commission was a toothless animal, but the answer was to give it real teeth and not to abolish it. The Government might have received more public co-operation had they done that.

In short, the philosophy of this Government seems to be that the weak should go to the wall. It is not surprising that some Government Members are alarmed at this trend. The naivety of the Government is as staggering as their heartlessness. Their monetarist policy is put forward in the belief that there are simple solutions to complicated problems. The Prime Minister and others have mentioned A-level economics. One would be reassured if one were certain that the Government were working at that level.

The Government's programme for nuclear power is allowed to proceed before the problems of safety and waste disposal have been solved. The Prime Minister imagines that because she sat on top of a nuclear reactor at Dounreay and was able to walk away from it all problems of safety have been solved.

The Government are operating on the premise of a pure balance sheet; if something pays it is in, if it does not, it is out. Everything has a price ticket.

The country is in a parlous state, so we are told. I remember when we were debating our entry into the Common Market we were told that we were being thrown a marvellous lifeline that would change everything yet the EEC question drags on. I must tell the Government that there is no prospect whatever—I tell the Minister this now, and events will prove me right—that the common agricultural policy and the fisheries policy will be changed in any way to give a semblance of a fair deal to the United Kingdom.

The Prime Minister totally mishandled the question of the United Kingdom's contribution to the Community budget. Noisy demands and threats were made, but they were totally nullified by the Prime Minister's assurance to the EEC that we had no intention of ever withdrawing. The only card of any value was thoughtlessly discarded. In spite of the threat to fisheries, the Government still refuse to give the fishing industry the help that it needs to get it through a difficult and worrying period.

I am sorry that the right hon. Member for Down, South has left the Chamber. He said that Ulster should not escape the difficulties of the rest of the United Kingdom. I do not express that view about Scotland. Scotland should escape, because the wealth on which the Government are depending is that gained from the Scottish oilfields.

The Tory manifesto for Scotland in 1979 promised a more prosperous country. It added: We need to concentrate more on the creation of conditions in which new, more modern, more secure better paid jobs come into existence. What is the reality? A generation of Scots has been denied the right to secure employment and economic stability. A few years ago, when works were being closed down, the workers sat in to keep them open. There is now a loss of confidence. That is spreading with epidemic force. Workers now look to redundancy payments. The Government have a great responsibility in that direction.

The Irish Development Agency is recruiting Scottish time-served men to work in the Republic. Redundant craftsmen are preferring to emigrate to get away from Scotland and from the United Kingdom altogether. They do not wish to face the risks in another locality in a few years' time. The loss of these skills is bloodletting of enormous consequence. Even such aids as the employment transfer scheme—so useful in a constituency such as mine, with just on 15 per cent. unemployment and few opportunities—and the STEP programme have been abolished or whittled away. The Government deserve censure on these grounds.

The background that I have described is all totally unnecessary from Scotland's point of view. The proven oil and gas resources in Scottish waters are of enormous value. In 1980 30 per cent. of public expenditure in Scotland will be met by oil taxation. That revenue is not being used to alleviate the collapsing economy and bleak future.

A majority in Scotland voted in favour of the Scotland Act. The obstacles and sabotage placed in its way in the House are irrelevant. I know that the Government have advanced derisory ideas about improving the Scottish Grand Committee and Select Committees. Such improvements should take place in any event. They are no substitute for any form of Scottish Government.

In the referendum Lord Home advised Conservative voters to vote against the Scotland Act. He said that he would provide a better measure. He has done nothing—almost a year has passed—to provide it. The Scottish people are learning the hard way.

I have heard Conservative Members say that the Labour Party, if in Government, would lead Britain to a State rather like one of the East European States. Nothing will bring that on quicker, if it is coming, than the way in which the Government are now acting.

7.5 pm

Mr. Richard Page (Hertfordshire, South-West)

I rise for the first time to address the House as the Member for Hertfordshire, South-West. I am well aware that one cannot make two maiden speeches. However, I wish to follow the format of a maiden speech. I shall understand if Opposition Members decide not to give me a free ride. I hope that they will equally understand if I decide not to follow the convention of being non-controversial.

I have the privilege to follow two Members of Parliament who served the constituency since 1950. Sir Gilbert Longden served from 1950 until 1974 and he established rapidly a reputation for accuracy of phrase and expression. In this day of the cliche and sloppy grammar that is indeed a reputation to be emulated wherever possible. He in turn was followed in 1974 by Geoffrey Dodsworth, who sadly, in the latter part of 1979, had to step down for medical reasons.

I am glad to tell the House that Geoffrey Dodsworth is now considerably better. During the period in which he served the constituency he gained for himself a reputation for diligence on behalf of his constituents. Wherever I have gone I have found that constituents regard him with warmth and affection and if during the period in which I serve the constituency I gain that same warmth and affection, I shall consider myself to be very fortunate.

The constituency, before any ravages of the Boundary Commission descend upon it, is shaped as a rather ragged letter "C" around Watford. It is well-served by seven railway stations and underground stations but I must confess that at times the travel conditions are such that if we were dumb animals there would be several organisations campaigning on our behalf.

One can judge the essential character of the constituency by the names of its hostelries—not for South-West Herts the usual run-of-the-mill titles that seem to be named after various severed parts of the anatomy of departed monarchs. For my constituency there are slightly more evocative names. I shall mention two of them. One is called the Whip and Collar, that brings back memories of farming days. Another is called the Land of Plenty, which is a monument to the failed Chartist movement of a century ago.

The constituency is responsible for providing the birthplace of several famous men. It would be wrong to start enumerating them, but it has the unique claim of providing the only English Pope, Pope Adrian IV, who lived in the Abbots Langley area.

It is not for me to go on about the delights of my constituency, because I should hate to bring to Opposition Members any feelings of discontent and jealousy when they return to their constituencies. I shall turn to this rather inappropriate censure motion. The fact that it has been tabled indicates that the Opposition still have no idea of what goes to make up the economic facts of life in our economy. Surely to goodness Opposition Members must know that the economic position, with the exception of the VAT change, is the result of the measures taken in 1978 by the then Chancellor of the Exchequer, the right hon. Member for Leeds, East (Mr. Healey).

I remember the intervention of the IMF in 1976–77 because I entered the House at the same time. The then Labour Government were made to slash public expenditure with the IMF's economic package. Surprise, surprise, in 18 months' time inflation fell into single figures. In turn, it is not surprising that inflation is now in double figures, which is the result of the direct reversal of that economic package by the right hon. Member for Leeds, East in 1978.

The Opposition's condemnation in the motion is a condemnation of their policies some 18 months ago. However, in this world nothing is ever completely new. It has always occurred in some form or other, possibly centuries before, I am irresistably drawn to the parallels of the problems between 1974 and today and to the conditions that existed at the time of the Emperor Diocletian in the third century in Rome. He was faced with demands for increased public expenditure but he did not want to increase taxation because the burden was heavy enough on the people of Rome. He hit upon the bright and brilliant idea of minting more coinage to pay for any increased expenditure. I suppose that it was the Roman equivalent of the PSBR of today.

At first the idea seemed marvellous. The coinage washed into the system and the Emperor managed to get a little of his public expenditure paid for. However, as all the extra coinage moved into circulation prices began to rise and inflation appeared.

However, never let it be said that a Labour Chancellor of the Exchequer can be outdone by a mere Roman emperor who had life and death at the snap of his fingers. Whilst Diocletian pushed up the bronze coinage from eight old coins to 15 new coins, the Labour Government managed in their five years of office, as well I know, to double not only individual tax paid but prices and unemployment.

Of course, Diocletian tried other measures as well. He tried taxing land—the equivalent of the Community Land Act 1975. He tried a prices and incomes policy and one thousand other edicts, all punishable by death—I suppose the equivalent of squeezing the rich till their pips squeak.

Despite those very strenuous Socialist measures, there were uprisings, there were riots, and prices rose. After all those problems. Diocletian was lucky enough to be able to abdicate and retire to his farm south of Rome. Probably there are more parallels to be drawn here than I thought originally.

The censure motion provides us with an opportunity to understand that Britain is in almost the same position as that which existed in Rome some 16 centuries ago. It required Constantine the Great—I do not mind giving Opposition Members a short history lesson—to restore common sense by introducing currency reform as well as embracing Christianity. Our Conservative Government are, by strenuous efforts, taking the same necessary steps to ensure that Britain lives within its means.

Of course it will be a painful and hard process, but it will be in no way as difficult or as painful as it would be if we allowed inflation and public expenditure to continue unchecked.

Let us not forget that during the period that the Opposition were in government, they not only doubled everything that I have mentioned but they had an absolutely flat industrial production rate. That was at a time when all our main competitors had increases in production of between 4 per cent. and 13 per cent. That is why our competitors are doing so much better than we are at present.

I do not share the pessimism of some of the experts on the speed of Britain's recovery. When the people and the businesses of Britain realise that we have a strong leadership and that inflation is being brought under control—and it will start to drop in June—the upturn will be dramatic indeed.

Any revival does not need good housekeeping only and I prefer the word "housekeeping" to "monetarism", because housekeeping is what we are engaging in, namely, living within our means. It requires increased industrial activity, especially the understanding that industry cannot receive vast sums for modernisation year after year and increasing wage packets without giving a balancing factor of flexibility of working practices and reduced unit production costs.

I wish to touch on the present steel troubles. I hope that the ISTC executive, especially Mr. Bill Sirs, will cogitate on the fact that one cannot have the penny and the bun. One cannot have thousands of millions of pounds for investment and one of the lowest productivity rates in the world, and also expect large wage increases.

I question the whole necessity of the steel strike. From the telephone calls and letters that I have received I believe that if a ballot had been held before the strike began the answer would have been "No" to a strike. If a ballot were held now, the answer would be "Please let us return to work".

I believe that it is to the individual and the smaller businesses that we shall have to look for an increase in our gross national product, and to restore the sort of social standards and employment for which we wish. Those social standards will come from earned, and not borrowed, money.

The first step towards achieving that aim is the switch from direct to indirect taxation. I hope that over the lifetime of this Parliament—although perhaps not in the next Budget—that will be one of several steps in the right direction.

The inflation rate will begin to drop after June. All the major clearing banks are telling us that it will begin to drift downwards at that time. When that happens I shall look to the Government to provide further encouragement to our small business sector, which already provides about 25 per cent. of our gross national product.

We must bear in mind that the countries which we hold up as an example of productivity—countries to emulate and follow—have vastly increased their smaller business sector. The Government must produce encouraging packages—for example, to allow the smaller business man to obtain a self-financing loan to start up a business without a bank demanding his home as a guarantee; to allow companies to buy a percentage of their own shares; to allow individuals to invest in the equity of smaller businesses; to allow that sector of our economy to expand and provide the wealth and the jobs that we need.

In conclusion, I must say that I am grateful to you, Mr. Deputy Speaker, for giving me the opportunity to speak in the debate. This censure motion is itself a condemnation of the Labour Party's policies between 1974 and 1979, and as such will be resoundingly defeated in the Lobby tonight.

7.17 pm

Mr. Tony Benn (Bristol. South-East)

I welcome the hon. Member for Hertfordshire, South-West (Mr. Page) back to the House. Having heard his speech I can understand why Workington found it wiser to return to another representation. We shall listen to everything that he says with great interest—the greater as we get further from his election speeches.

One of the purposes of the debate must necessarily be to clarify the choices and open up some of the issues, so that people can see what are the alternatives. When I listened to some of the speeches, especially that of the right hon. Member for Down, South (Mr. Powell), on monetarism, and I saw heads nodding or shaking, I received the impression that much of the debate was about some economic philosophy. However, the reality of the life of people in Britain today has nothing whatever to do with the finer points of monetary flow, as I intend to show.

When Conservative Members were trying to follow the right hon. Member for Down, South, I noticed that they were puzzled as he went into the details. But, when he said "cut public expenditure" they nodded. That is because the Government want to cut public expenditure. Let us have rather less of the discussion at a high, sophisticated, mathematical, economic level. Those listening to the debate want to know what we have to say about the reality of their position.

What is the reality of the position? First, it is not only in Britain that the capitalist world is in slump. When listening to some of the speakers one would have thought that we were the only country with unemployment. There are 6 million unemployed in the EEC. The United States—which has not had by any manner of means a Socialist Government—is facing a decline of activity. The truth is that the whole Western world is slipping into a decline.

Britain has 1½ million unemployed, rising to about 2½ million. If there are one or two dependants in every household where there is an unemployed person, that means that there will be 4 to 5 million directly affected because the breadwinner in the home in which they live is denied an income. They wish to know what we, as their representatives, have to say about that in this debate.

We know that public expenditure is, in part, being cut back because money that should be available for education in the era of the micro-chip, or should be available for health at a time when modern technology has improved health possibilities, is being directed to pay those who are able-bodied to do nothing. That is one reason why public expenditure is under pressure.

I do not know the latest figures, but I should not be surprised if almost the whole of the public sector borrowing requirement was used to keep the unemployed unemployed. That is a nonsense. One does not need an economics degree to realise that. We know that unemployment is socially divisive. My hon. Friend the Member for Liverpool, Walton (Mr. Heifer) will no doubt speak later in the debate, and correct me if I am wrong, but I understand that in some parts of Merseyside there is almost 50 per cent. unemployment among school leavers. In Corby, where there is 30 per cent. male unemployment due to the closure of the steelworks, there are disaster areas with social consequences that Dr. Milton Friedman would not understand if they were shown to him under a magnifying glass.

When people are out of work they become bitter. They do not watch the money supply figures to see whether they will find a job later. They become bitter and suspicious. It divides black workers from white workers. It could have profound effects upon race relations. The Government are tipping a wink in that direction with their new immigration rules. It has an effect in dividing men from women. Tomorrow we shall again discuss the "Corrie Bill". Do not let anyone be under any illusion. The biggest attack upon the rights of women that we have witnessed in the last two or three years, as the slump has come on, is the fact that women have been driven back home to make room for jobs for men. Women's living standards and family incomes are directly affected by the policy which the Conservative Party holds up as the answer to our problems.

In the end, it is a question of law and order. We all know that when there are high levels of unemployment, problems which should be settled by economic, industrial and social policy, present themselves to society as problems of law and order, such as vandalism. Then the special patrol group or detention centres are brought out as a remedy to problems for which the true responsibility lies with this House and with parties from both sides who have occupied positions of responsibility.

While all that is happening, imports are pouring into the country. Where do they come from and how do they get here? They are financed by oil. The strong pound makes the import cheaper and exports more difficult. Oil is being used to mask from us a balance of payments deficit in terms of manufacturing so massive that if it were revealed and understood we would again crush the economy, just as we did during all the post-war stop-go periods which some of my right hon. Friends remember. Imports are also pouring in under the Common Market rules.

What is sauce for the goose is sauce for the gander. Why do not Treasury Ministers warn that subsidised steel imports are coming in from Germany on a substantial scale? The German steel industry receives £3 billion a year through Government subsidies to the German mining industry. That was when I last checked the figure. Much German steel comes into the country with wheels on it, and destroys our motor car industry. That destroys our mining industry, which is the cheapest mining industry in Europe.

What people fear, and what I fear, is that the cycle of deindustrialisation will go on so rapidly that as one sacks the shipbuilder it will have an impact on steel, and as one sacks the Corby worker he will not buy the Leyland car—so there is less demand for the Corby worker—as a result of which coking coal pits that were specially built with public money in Durham and South Wales close because there is no demand for steel. We shall then have mass unemployment, just as we had before the war. People will ask "Why was it done?".

To be candid, I do not believe for a moment that the Cabinet is mesmerised by monetarism. What it believes is that in order to defend the interests which paid for it to get into power—[Interruption.] As so many Conservative Members are now attacking monetarism, is it not nice if I can acquit the Government of true monetarism? They want to raise profit margins. That is the real object of Government policy—[Interruption.] The Conservative Party had better listen to what I am saying, because it is an analysis which may help it solve its own problems.

The Government want to cut wages, which is why they offered 2 per cent. to the steel worker when inflation was 20 per cent.

Mr. Robert Atkins

We did not offer it, the British Steel Corporation did.

Mr. Benn

The hon. Gentleman is one of the new wags of the House. The Government want to cut wages and public expenditure and to shift the burden of taxation on to the poorest in order to restore profit margins. If the Financial Secretary to the Treasury were honest—indeed, I think that he is—he would admit that the pressure on profit margins is one of the reasons why our investment has been too low. The main obstacle to the shift of money back into profits is the trade union movement. Therefore, the Government's second objective is not to follow Friedman in detail, but, by unemployment, to cut back on the bargaining power of the unions, by legislation to cut back on union capacity effectively to defend the interests of members and by divisive propaganda to divide the rank and file from the trade union leadership.

I have wanted to say this for some time, and perhaps I can put it on the record. Derek Robinson said in Birmingham exactly what Lord Ryder was saying. It was identical. If Lord Ryder was a Red wrecker whose whole purpose was to undermine Michael Edwardes, why was his name not linked with that of Derek Robinson? What the Leyland shop stewards were doing—I wonder how many people have ever read their policy statement—was to point to the deliberate cutting back of Leyland production in order to get short-term profitability, whereas Lord Ryder said "Here is a capacity which could be re-equipped at a higher level of production. If you wait a bit longer you will have a bigger domestic industry and then you will have fewer imports and more exports, as a result of which you will be stronger."

I cite that example because I have never met Mr. Robinson, and anyway these things are not personal. However, the propaganda that was designed to divide the shop floor from the rank and file motor car workers involved misleading people about what the conveners were saying. What they were saying, and they were absolutely right, is that Michael Edwardes is cutting back Leyland production below its full capacity. My belief is—I hope to God that I am wrong—that within a year volume production at Leyland could well be at an end, because that has been the strategy of many people in the last year or two. Those workers who sacrificed the 13 plants that they agreed to close, followed by their convener, will find that they will lose their work. The propaganda, and the effect of it on the steel industry—

Mr. Richard Page

rose—

Mr. Benn

Perhaps the hon. Gentleman will allow me to continue. I want to be fairly brief because many hon. Members also want to speak.

This is the first Government in the lifetime of many people—although those who remember the 1930s will remember a parallel—who do not believe in full employment even as an objective, and who do not believe in the Welfare State—[Interruption.] They believe in a two-tier Welfare State, where they run down the services for the many and help to finance special services for the others. In fairness, Conservative Members should not shout because they know that is what they want. The Government do not believe in social justice, if social justice involves narrowing the gap between rich and poor.

In the whole of our history, I do not believe that we have ever had a Government—certainly not a Conservative Government, who normally have a Union Jack on their waistcoat—who have put the interests of the United Kingdom below the interests imposed by international market forces. If there is uneasiness in the Conservative Party, it is because it knows that the destruction of British industry, upon which our future depends, in the interests of allowing internatioal market forces to work their way through, is an act which in its own terms can only be called an economic treachery.

In the case of the EEC, the Government make loud noises about the right to a due balance between our payments. But when it comes to the crunch, the Iron Lady is not really fighting for this country because she cannot fight for the country without raising the question of our membership.

To those doubters in the Cabinet who are now supposed to have anxieties about whether this is the right course of action to follow, I must say that I do not believe that there is another course of action which the Government can follow. I believe that the bridges have been blown up behind them by what they have said and done since last summer. I believe that the greatest achievement of the Chief Secretary and his colleagues has been that they have destroyed confidence in the consensus which they have replaced with their policy. There are those in the Cabinet, such as the Lord Privy Seal and the Secretary of State for Employment, who would like to creep back across the bridge. But there is no bridge. The Chief Secretary has destroyed it. Therefore, once the British people know what the Government's intentions are, they would not believe a U-turn even if a U-turn were offered.

As I said before the Chief Secretary entered the Chamber, the Government's policy is not one of monetarism. It is not that such an intelligent man and his colleagues worship that economic philosophy. We are witnessing the restoration of the old balance of wealth and power in our society. Tax changes and privatisation are not being undertaken in pursuit of what some Chicago professor has said. The Government want to get back to a society where their kind can dominate, as they did before.

I had an opportunity to listen to Friedman on the radio. When he was asked about the State he said: First of all the State is not interested in anybody. The State has no interest. The State is a figment of the imagination. That is the philosophy lying behind Government policies. They want to demobilise the forces of the State—set up as a by-product of parliamentary democracy in order to defend the people from those who have economic power—so as to leave people defenceless in the face of economic power. That is a denial of the role of government in a democracy. It plants a seed, the harvest of which has yet to be reaped.

There is one other ingredient that takes me back to pre-war years. Those who recall those years will know that the last slump was cured by rearmament. The closure of Palmer's yard in Jarrow triggered off the great hunger march. "Queen Mary", the old Cunarder, lay rusting for five years on Clydeside. Anyone who visited those areas or who visited Ebbw Vale and engineering plants in Britain, will know that the pre-war slump was cured by rearmament. That brought capitalism back to full employment. Perhaps the Prime Minister's cold war speeches can be explained by an attempt to get back to full employment. Perhaps the House does not appreciate that rearmament is financed by public expenditure.

The private consumer does not go to his local aircraft dealer. He does not order a Spitfire or a Bren gun. The Government buy it all. Public expenditure brought full employment, and with it, a capacity to finance the Welfare State. The Government spent that money on weapons of war in the 1930s. Public expenditure funded the war, the post-war boom, and the Welfare State. Harold Macmillan is now a figure of hate in the Daily Mail and elsewhere. However, public expenditure allowed Harold Macmillan to say that we had never had it so good.

What are the alternatives? The Liberal leader hopes that when the Government fall, he, Roy Jenkins and one or two people who live at Colombeyles-Deux-Eglises and Sidcup will join together in a third party. I admire the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel). When I met him the other night in the Lobby, I warned him not to let Roy Jenkins wreck his party, as he had tried to wreck ours. However, the right hon. Gentleman's hopes are destined for utter failure. The names of those associated with the third party are the same as those associated with a federal Europe, a statutory pay policy and some type of corporate structure for society. That has been rejected. The right hon. Gentleman should enjoy himself with those cast-offs from the other parties. However, he should keep his purity as a Liberal.

When the Labour Party comes to power it will inherit a country as badly damaged by monetarism as it was by Hitler's militarism. When Hitler bombed our factories, we spent any amount of the taxpayers' money in order to keep them open. Britain needed factories in war and in peace. We shall find those factories closed by the Secretary of State for Industry. There will be not 2½ million soldiers and airmen to be demobilised, but 2½ million demoralised unemployed. There will be a demand for an alternative policy.

Full employment is the legitimate aspiration of our people. Technology permits us to meet all our needs by means of a 35-hour week. Any Government who attempt to deny responsibility for creating full employment—not all can easily succeed—do not merit the support of the British people. We should re-equip our industry by means of oil and other revenues. We must find ways of recycling the nation's savings back into industry. Perhaps private enterprise will not do that.

We should not destroy the economy so that wages are so low that money is invested here, instead of in Taiwan. There must be investment by the public, with public accountability and public ownership. We must re-equip our basic industries as we did after the war. There should be an expansion of public investment, of public accountability and of public ownership. I hope that that expansion will not be left in the hands of the Finnistons, Marsh's and Robens' of this world. That is not the type of public ownership that we want.

We must plan our trade. Even The Guardian put its toe in the water on Tuesday. We cannot sit back and see our industries destroyed. I am not in favour of import controls if they merely feather the bed of inefficient industry. That was not in our manifesto of 1974. However, if public money is put in to reequip the Durham coalfield to produce No. 301 coking coal, one does not wish to find that the British Steel Corporation has undercut that investment with imports from Australia. If one wishes to reequip British Leyland one should not allow it to be destroyed. It produces £3 billion a year in production terms. It directly employs 153,000 people. A further 500,000 people are probably employed in component and other factories. It exports £1 billion worth of products a year. That should not be destroyed at a time of re-equipment. We must plan our trade.

It should not be thought that we do not have import controls. We do. We call it unemployment. When a man is out of work in Merseyside he cannot buy a Japanese television. He cannot buy as much American tobacco or as many French shoes as he would like. If we want our industry to grow, we must plan our trade. That would enable us to have a larger market at home. I was unable to persuade my colleagues to do this. However, along with the Government, they will have to come round to the idea of planning trade.

We should expand our public services. There is nothing more absurd than to have perhaps 500,000 people or more on hospital waiting lists. How many people are waiting for hospital treatment? How many people attend schools that are inadequate? How many people live in houses that are inadequate? However, there are unemployed building workers. Where is the money going? Some of it is going into speculation. I made inquiries in the House of Commons Library. If anyone had put £10,000 into gold on 19 January 1973, it would now be worth £120,000.

Mr. Robert Atkins

Good move.

Mr. Benn

The money that is used in speculation could be used to bring our people back into employment. That is common sense and it is Socialism.

Mention has been made of participation in industry based on the old Churchillian idea in 1930 of building up NEDO. Those who create the wealth in industry have an equal right with investors to decide how those firms should be run.

That is the fundamental difference between the open door policy and a little bit of participation, making company accounts a little more acceptable. People will, rightly, not accept today the destruction of their jobs.

They should not be destroyed simply because the owner of a company will benefit from selling a firm, or by rationalising it out of existence or selling the land at a profit to create a parking lot or a warehouse. I do not believe that anything other than a shift of power at the place of work will meet the problem that we call industrial relations.

We must restore the power to govern ourselves. There has been much talk about the Common Market from both sides of the House. The Prime Minister accidentally gave the kiss of life to the sleeping giant of English parliamentary democracy by demanding the right to have a fair balance. Looking back to 1975, we realise that it was a disaster to accept the terms. It was a disaster for the House of Commons to abandon its ancient right to pass its own laws, tax its people and change its own Government, laws and taxation. As it goes on, even the Chancellor when he draws up the Budget will have certain things preset by the Treaty of Rome and Council of Finance Ministers that he cannot change.

I do not say immediately, but at some stage the British people will recognise that there is nothing nationalistic in wanting to govern ourselves or to work with others as a fully self-governing State. We cannot accept a society in which we no longer have the power to govern ourselves.

Around that policy support will grow.

Mr. Nigel Forman (Carshalton)

Will the right hon. Gentleman give way?

Mr. Benn

No, I shall not give way because I wish to allow other hon. Members to speak. I apologise for taking so long.

The whole philosophy of the Government is based on a political view of life that deliberately, conscientiously and, in fairness, publicly abdicates responsibility for the economy of this country. The tradition of Parliament is to allow our people to elect their representatives and to choose a Government to meet their aspirations and needs, and to do so democratically. This Government have been the first to discover that capitalism and democracy are incompatible. That is why the transfer of power to Brussels and to local government from the centre and the growth of law and order are dominant themes in this Government's philosophy. In the guise of extending freedom they are restricting it. In all sincerity I believe that the Government are playing with fire.

The Government much misread the mood and temper of the British people who, above all, believe in decent conduct, one with another. They should not believe that a single ballot at Longbridge or what happened in South Wales means that the country is being swept along on an enthusiastic wave of public opinion. They are not. The British people are thinking deeply about what is happening. When they realise what is being done to them, I believe that this Government will be thrown out in such a way as to sweep them in to the dustbins of history, and replace them with a Government more in line and in tune with the spirit of the people whom they represent.

Several Hon. Members

rose—

Mr. Deputy Speaker (Mr. Bryant God-man Irvine)

Order. There are 23 hon. Members who wish to speak, and I am sure that brevity will be widely appreciated.

7.43 p.m.

Mr. Julian Critchley (Aldershot)

I shall comment only on one of the extra- ordinary range of assertions that the right hon. Member for Bristol, South-East (Mr. Benn) made—that the Government are about to secretly embark on a programme of rearmament to restore our economic situation. Would that they were about to embark on a whole progress of rearmament. If we accept, as I do, the nature of the Soviet threat, the anxiety is that, sooner or later, over a decade in which there will be little or no growth, we shall be obliged to reduce defence expenditure rather than incraese it. It is an extraordinary assertion for the right hon. Gentleman to make.

The object of a censure motion is to unite the Opposition. The effect of it is to unite the Goverment. I suggest that the unity on either side threatens to be short-lived.

I have yet another confession. In the somewhat inelegant but forceful language employed by our masters, I am a "wet". So are many of my best friends. I am also the author of that now notorious anonymous article in The Observer. I hoped to follow in the illustrious footsteps of the author of those three magisterial articles that appeared in The Times in the mid 1960s, signed "A Conservative". Alas, I was rumbled, and I hope to have learnt my lesson. But I stand by the theme of the article.

There is something about the style of the Government and the stridency of their policies that I dislike. What would be the effect of Government policies were they not to change? We need look no further than my right hon. Friend the Chief Secretary to the Treasury. I do not object to his view that we face three years of hard labour, but I do object to the relish with which he says it.

I suppose that I was responsible for the phrase "A-level economics". I have little or no economic expertise, but when I see the destruction wrought by those who profess to economic expertise I feel no sense of shame.

We are the only country in Europe that has a monetary policy without an incomes policy, either formal or informal. Our problem is how best to avoid a long recession at a time when there is no real modification of wage claims. Unemployment is not of itself the cure for inflation, probably because the wrong people are made unemployed. If unemployment reaches 2 million it will be a recipe for social disaster. We need a permanent economic machine or machinery to try to determine what incomes should be.

Finally, I wish to turn to the steel industry and the steel strike. I believe that the steel strike should never have been allowed to take place. It is asking far too much of the workers in the steel industry not only that they should have been initially asked to accept an increase of only 2 per cent. but that they should lose a large number of their work force and that factories should close. It was never possible for Bill Sirs to sell that deal to his essentially moderate union, which had never struck in the past 50 years.

The Secretary of State for Industry is a man of luminous intelligence and great charm, but he has not yet realised that politics is essentially an irrational activity.

What is the effect of the steel strike on the Conservative Party and the Government? It has inflamed relations within industry at a time when it was in the Government's interest and the national interest to play it long rather than short, to introduce the reforms that are necessary in the trade union structure, but always with the consent of the great bulk of trade unionists in the country.

It is the steel strike, yet unsolved, that has made the task of the Secretary Of State for Employment so much more difficult. And it was the Secretary of State for Employment who learnt last Monday evening, if he did not know it already, that life is one humiliation after another.

It would be humbug for me to pretend that I am an enthusiast for the economic policies of the Government. I shall vote for the Government tonight in the pious hope of a conversion, but I shall be first into the Lobby and first out.

7.50 pm

Mr. Eric S. Heifer (Liverpool, Walton)

I am honoured to have been called to speak after the hon. Member for Aldershot (Mr. Critchley) because I had intended to quote from his article.

I welcomed his article in The Observer, and I think that it might be a good idea to quote a small part of it. He said: It is a matter both of policy and personality. Mrs. Thatcher is didactic, tart and obstinate. Her economic policies are 'Thatcherite' rather than Conservative. That is the point that I wish to make in relation to the argument. I do not entirely agree with everything that was said by my right hon. Friend the Member for Bristol, South East (Mr. Benn)—in this sense only. I agree with him 99.9 per cent. However, I want to make it clear that in my view there is a serious difference within the Conservative Party between the monetarists and the traditional Conservatives. I am not saying that the traditional Conservatives are better than the monetarists. It is a matter of degree. Both monetarists and traditional Conservatives are concerned with maintaining the balance of privilege, power and wealth in a small minority, at the expense of the mass of working people. It is important that we understand the basic arguments within the Conservative Party.

If the policies of the right hon. Member for Oswestry (Mr. Biffen) and the policies of his right hon. and hon. Friends continue, Britain will face abject poverty, mass unemployment, and the destruction of the Welfare State. The position will be far worse than that of the 1930s. Traditional Conservatives, in the sense that they accept the basic concepts of Sir Harold Macmillan, Lord Butler and even Disraeli, should acknowledge, before it is too late, that enough is enough and that it is time for the Government either to make a U-turn or to get rid of the present leadership, not simply in party interests but in the interests of the nation. We cannot tolerate this sort of situation for much longer, with this sort of Government in power.

The classic monetarist today is the right hon. Member for Down, South (Mr. Powell), who is absent from the Chamber.

Mr. Benn

He spoke a lot of rubbish.

Mr. Heffer

Yes, it was destructive rubbish. The right hon. Gentleman has now entered the Chamber. I intervened during his speech to ask him what would happen if there were a massive cutback in capital expenditure. I asked him what would happen to the construction workers not only in England, Wales and Scotland, but in Ulster. He rightly accepted that it was bad news. That means that it is bad news for ordinary working-class people, many of whom are already suffering. In the construction industry there is no hope for the workers. So many are unemployed—

Mr. Dykes

Can the hon. Gentleman give a figure?

Mr. Heffer

We do not have a figure. We never get figures from the monetarists. The Government do not have time to give figures. The right hon. Member for Oswestry is the only member of the Government who gives figures. He admitted in his White Paper that his policies would lead to a further increase of 300,000, at least, in unemployment. That is a sad prospect for Britain.

Mr. Dykes

I am sorry to interrupt the hon. Gentleman, but he is being a little unfair to the right hon. Member for Down, South (Mr. Powell). The right hon. Gentleman gave a figure of £2 billion for the whole of the United Kingdom. Is it not right that the people of Ulster should know their proportion of that £2 billion?

Mr. Heffer

The hon. Gentleman should put that question to the right hon. Member for Down, South at another time, and not in the middle of my speech. His intervention has taken time out of my speech, and it means that other hon. Members—

Mr. D. N. Campbell-Savours (Working-ton)

The right hon. Member for Down, South has given a figure. He gave a figure in Carlisle five weeks ago. He said that £9,000 million was an acceptable figure. Perhaps my hon. Friend would care to comment on that.

Mr. Heffer

I do not intend to comment at length on what was said by the right hon. Member for Down, South. I had hoped to continue to develop my own arguments and to make some additional points.

Mr. J. Enoch Powell

I shall be brief in my intervention. I apologise to the hon. Member for Liverpool, Walton (Mr. Heller) for not being present to hear the first part of his speech. His remarks and his exchange with the hon. Member for Harrow, East (Mr. Dykes) provide an explanation of why Britain has suffered so severely, for so many years, from inflation.

Mr. Heffer

I hope that hon. Members will bear with me and that they will allow me to continue my own speech, in my own way. I have stimulated sufficient argument in relation the right hon. Gentleman's point.

I wish to make another point in relation to the attitude of the Government towards the trade union movement. I listened carefully to the right hon. Lady the Prime Minister this afternoon. It is not their proposals but the attitude of the Government that is at fault. It is their nastiness towards the trade union movement, which springs from the fact that the right hon. Lady the Prime Minister and most of her right hon. and hon. Friends have never understood the trade union movement, that is at fault. They have never understood its aims and objectives.

Mr. John Stokes (Halesowen and Stourbridge)

That is all over and out of date now.

Mr. Heffer

It is not. It is not all over, and it cannot be all over so long as there are two sides in industry—one that is trying to make the maximum profit and the other that is trying to get decent wages and conditions. It can never be all over in our type of society. That is one of the reasons why we argue for the introduction of genuine industrial democracy within our industries—particularly within our public industries. We wanted the workers to be able to have a say in the running of the industries. If workers are allowed to make decisions, matters will be different. Workers will be involved in decision-making.

The right hon. Lady the Prime Minister refers constantly to militants. Her policies have transformed a union renowned for its moderation into one of the most militant unions in the country, being supported by sections of other workers. If they continue along the lines that they are now adopting they will transform the entire trade union movement. They boast that they have split the workers in South Wales and got the workers to vote to return to work, and so on, in BL. That is all very fine, but there are certain special conditions about that. The special conditions in South Wales apply because the miners' union in my opinion went slightly too quickly beyond the rest of the movement. However, that will not continue. Sooner or later the entire trade union movement will be involved in South Wales as well as in other parts of the country.

I make no bones about it. I support any workers who are involved in any form of strike struggle to defend their wages, conditions and jobs. I make no apologies for that. As a former worker in industry, I have always shown my solidarity with other workers when they have been fighting for their rights. That is what those sections of workers are fighting for. If the Chief Secretary has any real influence with his right hon. Friend the Prime Minister he should tell her to stop the nagging and the hectoring way that she has with the trade unions. The right hon. Gentleman should tell her to stop her legislation programme. If not, we will be faced with disaster.

You asked us to make brief speeches, Mr. Deputy Speaker. I wanted to say a lot more. I had a lot to say—it is all documented here and I have not looked at any of it. You will have to forgive me for that—you are probably pleased that I have not looked at it. I conclude by saying that my party is absolutely right to put down the motion of censure. It is not to unite us. As a matter of fact, the party is 100 per cent. united in its opposition to the policies of the Government. If there are arguments in our ranks they are not on the fundamental issues in which the Conservative Party is now indulging they are on questions of the best way to improve our organisation and make it a better fighting machine so that we can get the Government out at the earliest possible moment. Having got them out, we will be able to get in a Socialist Government that will have the consent and support of the people.

8.3 pm

Mr. Patrick McNair-Wilson (New Forest)

It ill-becomes a party which in Government saw unemployment double and which produced the biggest economic smash-up that we have seen for years, to the point where we had to be rescued by the IMF with all the draconian policies which that implies, to table a censure motion after the Conservatives have been in government for only 10 months. The Labour Party went out of office leaving behind an economy which was cobbled together with taxpayers' money and overseas borrowings, the interest on which is £10 billion a year which is being funded by the people of this country. Its performance was an insult to parliamentary democracy.

For the Opposition to accuse my right hon. Friend the Prime Minister of trying to divide the nation, when they produced such a weak base from which we had to start, is beyond description. Far from being as pessimistic as many hon. Members have shown themselves to be, I regard this as the best opportunity since the war for taking fundamental new attitudes to the problems which have dogged us for over 20 years. I came into the House at the same time as the hon. Member for Liverpool, Walton (Mr. Heifer). In all the years that I have been in this place I have listened to debates of this sort, backwards and forwards, depending upon which side of the House one is sitting, all the time watching Britain and her economy graually becoming weaker and weaker every year. The hurling of insults one way or another has made no difference to the British performance in the great world away from this building. Britain has found it harder and harder to pay her way.

I believe that if the strategy which this Government set out so clearly in their manifesto and which is now developing can be adhered to, and if we do not become too concerned with tactical setbacks and problems, by the end of the decade Britain can become one of the most prosperous and successful countries in the Western world. If the decisions which we take now are the right ones, we have, coupled with our unique strength in energy resources, a glittering future to look forward to. However, that requires changes in our attitude.

The first of those changes must be a recognition that Governments of all complexions have wrongly raised false hopes in the minds of the people. Since the war, there has been an assumption that people get richer automatically. Every year, people still hope that that will he so. Certainly we all hope to fulfil that, but we do not live in that sort of world. I believe that it is the duty of Ministers to make clear to the people of this country that we can pay for the services that we want only by having a strong economy and we can pay the wages that we want only by having strong industries. We must recognise—a fact which Opposition Members have been trying to use as a charge against the present Administration—that one person will be able to enjoy a substantial wage award where another may well have to go without.

It is an unfair world. There is no way in which we can all have wage awards every 12 months. The steel workers of this country must recognise—indeed, I believe that most of them do—that they are working for a bankrupt employer. If that employer were in private hands, he would have gone bust long ago. This bankrupt employer cannot really afford to grant any increase at all. We know that an offer exists, not only of actual cash in the hand, but the facilities to build up a substantial amount more out of local productivity deals. It is totally futile for the Opposition to continue to egg the strikers on in the belief that they will get money from the Government. There is no future in that line of argument. It is almost dishonest to try to persuade people who have already lost about £1,000 in this dispute that they should continue to withdraw their labour from the plants when, by doing so, they make their own future, when they go back to work, that much more uncertain.

As I have done on many occasions before, I declare my interests. I am associated with a company that makes smelting electrodes. I know the industry well—I used to be in the Iron and Steel Trades Confederation and I am in contact with the industry almost daily. When BSC's salesmen go out at the end of the dispute to their customers, be they stockholders or anyone else, and try to replace the orders that have been lost through the strike, they will, unfortunately, find that their customers have already placed orders elsewhere. In cases where they are buying from, for example, Holland, the suppliers there have made clear that they are not prepared to supply on the basis of covering the strike, but they want reasonably long-term contracts. The customers that BSC's salesmen will be looking for will have disappeared for ever. So far from having produced a stronger industry and a larger wage packet the salesmen will be at least £1,000 lighter in their own wages. They will return to an extremely uncertain future.

Even if we accept the view that was put forward by the Leader of the Opposition that £20 million is not worth 2p—that is what he said some time ago in the House and we all remember his remarks this afternoon—and give more money to the industry at this time, our share in the market will become smaller still because of rising steel prices. The fact is that world demand for steel has never been higher. It is our share of it that is getting smaller and if we try to solve this dispute by taking action that raises prices we will do no service to the industry.

Of course I recognise the sense of grievance that someone feels who sees the miners getting a pay rise of 20 per cent. and whose request that his wages should keep pace with the cost of living is refused. But these are the realities of life and I do not believe that we do anyone any service if we try to encourage people into believing that somehow my right hon. Friend can manufacture wealth and prosperity for them.

I publicly congratulate my right hon. Friend the Secretary of State for Industry on his steadfast refusal to intervene in this dispute. It would do absolutely no good if politicians were to get themselves between management and unions in this dispute. They are the only two bodies which can reach a satisfactory solution.

Far from censuring the Government on their industrial policy we should be—and I am—congratulating them. The Government are, rightly, not indulging in political judgments which in the past have proved to be so disastrously wrong. This strike in a sense is a microcosm of all our ills because it relies on the old belief—seen so clearly in 1974 and somehow still lingering on—that if one hangs on long enough the Government will write the cheque. It is essential that when my right hon. and learned Friend replies to the debate he makes it crystal clear that that will never happen.

If we take the firm decisions about which we have spoken; if we try as a nation to live within our means, and if somehow we can—though it is difficult —accept the fact that we are a poor nation for the time being the future can be good after this period of belt-tightening. I say to my hon. Friend the Member for Aldershot (Mr. Critchley) who, like everyone else, is entitled to his view, that weakness now will damage our future. To go back on the old toboggan run will be to betray those who voted for us in the last election. Indeed my right hon. Friend might care to remember what was said by Cervantes in "Don Quixote": Faint heart never won fair lady!".

8.14 pm

Mr. L. R. Fletcher (Ilkeston)

I have a lot to say because I have not been able to speak in this House for three years. That means an enormous accumulation of, perhaps, a little wisdom but certainly a lot of words and I must pack it all in to 10 minutes. That means that the House will hear a very truncated speech as I am a somewhat truncated Member.

I am getting rather fed up with all the "isms" that have been floating around in this debate. We have heard of "monetarism" and "Friedmanism". There has been talk of this "ism" and that "ism".

Mr. Michael Brown (Brigg and Scunthorpe)

And Socialism.

Mr. Fletcher

I have not used the word "Socialism" yet. One wishes sometimes that these "isms" could be converted into "wasms" because they do not really exist. There is no such thing —I say this in order to correct what has been said by some hon. Members—as "Friedmanisms". I read Friedman, just as I contribute to the publications of The Institute of Economic Affairs. That is a very odd situation. That is an organisation supported by those who would pay thousands to get me removed from Parliament and yet the Institute allows me to contribute to the various symposia that it publishes from time to time. All my contributions are somewhat heretical.

In a pamphlet published in 1975 the great guru Milton Friedman talked about the effects of trade unions on inflation. He said I doubt that, in practice, any part of your inflationary problem has been produced by mischievous unions. No doubt there have been many mischievous actions; I am not saying there have not. I am not trying to defend unions, far from it. I think they do an enormous amount of harm. But I believe that we do no good by using bad reasons for good objectives. Professor Friedman was using those remarks about this country, having made similar remarks about his own country.

Therefore, the first delusion that we have to get rid of is that all our troubles are due to trade union pressure. I would argue if I had the time that one of the reasons for the trouble in which we find ourselves is that the unions have not been strong enough, have not been sufficiently organised and have not been sufficiently constructive in their approach to successive Governments.

The first majority Labour Government asked the unions to put forward proposals for certain industries. Answer came there none. Instead, we got bureaucratic monstrosities which I detest as much as anyone in this House. That argument could be sustained. It has been suggested —and I pick and choose from a whole volume of ideas floating around in my mind—that something has gone wrong with this nation and particularly with our industries and that the ills can be cured by more productivity, incantations, rhetoric, speeches, exhortations, television appearances and banging on gongs. The only thing left now is to call in a witch doctor and have fires built up on the Floor of the House.

I depart from economic matters to say that it may well be that many of this nation's troubles began to aggravate themselves to the point of really dangerous inflation when the people decided not to remain a nation any more and subsided into what they assumed would be the comfortable bed of the European Community. From that moment the sense of nationhood in this country diminished. We must not dismiss that as mere airy-fairy nonsense belonging more to grand opera than to political discourse. It is real. A sense of nationhood can affect what goes on in a factory. It can affect productivity. There is a feeling that faceless people in Brussels are deciding our future, by writing regulations governing the quality of our beer, and the types of car and lorry that we drive. That feeling debilitates a nation and it also has an industrial effect.

I argue that when a nation is so affected by disorders of this kind, whether it is a collective loss of will or whether, more importantly, it is because of divisiveness injected into the body politic by one side or the other, and when a nation ceases to think of itself as a nation all sorts of distastrous consequences follow. I do not dispute much of the analysis of our deflationary problems put forward by the right hon. Member for Down, South (Mr. Powell). I am always getting into trouble for supporting the right hon. Gentleman. However, I face that with my customary fortitude. There is no doubt that if there is too much money sloshing around in the economy inflation results. There is no doubt that if we borrow too much we will get inflation. But I also argue that, if the nation is falling apart and becoming a warring group of tribes, one against the other, that also creates an inflationary dangerous situation.

At one of the lectures that I was privileged to deliver down the road, I argued, purely hypothetically, along these lines: let us assume that the terrible consequences of inflation—I confess, I was thinking more of the hyper-inflation of 1923 in Germany than of what we have now in this country—are its causes. The analysis seemed to work, but nobody in that audience agreed with me. Lord Robbins, who was in the chair, thought that I was suggesting that all economists should go and see their psychiatrists. Only one member of that audience agreed with me, and he is now in the present Government. I shall not tell on him. I shall not sneak on him in any newspaper, even if someone offers me £75,000, which I understand is the going rate for selling muck.

If we have unnecessary industrial strife, for whatever reason it is not correct to ascribe it solely to trade union pressure. Let us not forget that stupid investment decisions that preceded the present trouble in the steel industry. The steel industry was not brought under proper scrutiny or control by the House of Commons.

I recall once reading in The Economist a mock Socialist manifesto to the effect "We intend to bring certain industries—coal, steel and so on—under public control. To this end, we propose to denationalise the lot".

We have had no control over investment programmes. We have not been consulted or told about them over the years. Consequently, the seeds of the present conflict in industries which are supposed to be owned by the nation and controlled by Parliament were sown. There will be other conflicts and they will contribute further to inflationary pressure.

I had better round this off by backing my Leader and having a bash at the Chancellor of the Exchequer. He is the nicest fellow in politics, but he really has to have it. I do not propose to quote at great length, because others want and have a right to speak in the debate, but I refer the right hon. and learned Gentleman to the French experiment in using primarily monetary methods to get out of an inflationary situation—the so-called plan of 1976. The French started rather differently. There was a freeze on most prices, a reduction in the standard rate of VAT, and so on. I shall not go on with the whole story. It is in Barclays Bank Review—an excellent journal. It does not cost a penny. I like free journals. However, it demonstrates that between 1976 and now there were ups and downs and a far from easy ride in France, and still they have not got the thing under control. They still have difficulties and problems.

No one can accuse the present French Prime Minister of being a softy. No one can say that the French bureaucracy is anything other than ruthless when the occasion requires ruthlessness. Yet, four years after the inception of the plan, the French face more or less the same rate of inflation as in 1976 and many of the same problems.

The present Government, in pursuing the policies that they have pursued up till now, are trying to reverse not merely what the previous Labour Government did, but—something much more ambitious—to reverse almost everything that has taken place in politics since 1906 with the great Liberal landslide: attitudes, institutions and everything else. It was at that point that Welfare Statism—one of those horrible words that I said one should not use—and all sorts of other things started to come in. We imported many of them from Germany. Bismarck was the first guy to have a go at this sort of thing.

Speaking generally, I argue that if we take the monetary road—by that I mean making the monetary instrument the main instrument to drain inflation out of the economy—we shall require a time span. I naturally want to see inflation taken out of the economy. I do not want an inflated economy. It is costing me enough now in interest charges to my bank. If this policy is to succeed—I do not make the assumption in politics that all my opponents are scoundrels, villains, highwaymen, muggers or fools; many are, but I do not assume that all are—it will require a time span of at least a decade. How in the hell—perhaps I should not have said that, but I have been away a long time, so perhaps you will forgive me, Mr. Deputy Speaker—can we get through a decade with the kind of divisive policies now being pursued to attain the inflation-free goal?

I do not want to offer any assistance to the Chancellor of the Exchequer in winning the next election. But, in view of the harsh measures that he will have to take for three years, or even four years, how will he win the next election so that he can carry on with his 10-year programme of using the monetary method to deal with inflation?

Frankly, I have not always been happy with the policies of the Labour Party—being too much of an individualist I am not happy with the policies of any party —but I am far more worried about the kind of policies now being advocated and pursued by the Prime Minister than anything that has been suggested by the Labour Party at any time in the 15 years that I have had the honour to be a Member of this House.

8.28 pm

Mr. Michael Brown (Brigg and Scunthorpe)

It is a great pleasure for me to follow the hon. Member for Ilkeston (Mr. Fletcher). This is the first opportunity that I have had of listening to him since I came to the House. Although he may have been in poor health in the past, he certainly seemed to be in good health this evening. I hope that we shall hear from him on many future occasions.

The hon. Gentleman said that he was an individualist and that he did not necessarily go along with some of the views and policies of his own party. I believe that I am here today as a result of the views and policies of the Labour Party, as the first Conservative Member of Parliament for a heavily industrial, steel-dependent constituency, Brigg and Scunthorpe. Last year my constituents noted that the policies of delay of the Labour Government between 1974 and 1979 resulted in a loss of 1,700 jobs in February of last year just before the General Election. About 17,000 of my constituents—one in five—work in the steel industry, but 9,000 of them are on strike at present.

My constituents recognise that the borrowings of the nation and the steel industry had to stop. They did not flinch from taking what was for them, perhaps, a difficult decision, and going against the party that they were accustomed to have representing them. They realised that the nationalisation by the Labour Government in 1967–68 gave them neither ownership of industry nor job security. Indeed, over the past 10 to 15 years the steel industry became uncompetitive and reliant upon a begging-bowl approach to the Government.

Some of my constituents take a different view from me. The ordinary steel workers, many of whom are on strike against their will, recognise reality. They realise that it is useless to be paid merely an inflationary wage increase which will add to the public sector borrowing requirement and therefore lead to higher inflation. The overwhelming majority of my steel-working constituents want the opportunity to work in a profitable steel industry which is not totally dependent on Government handouts and public dole all the time.

I contend that if only the union leaders gave my steel-working constituents the opportunity to decide on the pay increase which was offered by the British Steel Corporation, they would be back at work tomorrow. Although the union leaders may not like the idea of a ballot, I know that it will be regarded with relish by the overwhelming majority of my constituents, who have now lost well over £1,000 each in many cases and who wish to return to work at the first opportunity.

Mr. Spearing

rose—

Mr. Brown

I am conscious of the pressure of time. I should like to give way but shall not do so on this occasion, if the hon. Gentleman will excuse me.

If the Government can be accused of anything, they can be accused only of sticking to the promises and pledges that they made at the last general election. Few Members of Parliament, whatever their political views, would accuse the Government of not sticking by the policies on which they were elected. I congratulate the Government. As one who has a difficult task of standing by the Government—a task which I am happy to perform—I recognise that if we depart from the policies upon which they were elected there will be many more redundancies in the future than have been announced. There will be much greater inflation in the long term if we flinch, as did the Labour Party when it was in power, from taking the important necessary decisions.

The Government must take painful decisions. I compare the situation faced by the Government with that faced by an alcoholic. The nation has constantly been given supplies of alcohol, which we may translate in terms of public funds. It has been punch drunk for many years, deluding itself that public money and excess public borrowing may in some way solve the nation's problems. The alcoholic has been drunk for many years and not noticed the pain. However, when the doctor tries to solve the problem of alcoholism there is a painful short-term period. When an alcoholic decides to reform and become sober the early days are painful. If ever one has drunk too much there is a difficulty when one walks along the road to sobriety. I suggest that the country is now going through a painful process of readjustment, which is necessary and which was recognised as being necessary by the electorate when it took its bold decision last year.

Although my right hon. Friends have painful decisions to take, I believe that the electors who made a bold choice last year are with the Government. Although the Leader of the Opposition believes that our measures are unpopular, I note that the opinion polls are not against the Government in the way that the Opposition would like to believe.

The motion of no confidence is inappropriate and ill-timed. It comes from the Labour Party which, if it had the responsibility of guiding the nation through the difficult years ahead, would not have much confidence in itself.

My right hon. Friend the Chief Secretary to the Treasury, the Prime Minister and the Chancellor of the Exchequer have pointed out the difficult decisions that have to be taken, and we cannot flinch from them. I ask my hon. Friends to stand by the Government's policies. It is vital that the country should become less dependent upon public funds, public borrowing and taxation. The only way we can do that is by ensuring that in the future the nation earns the wealth that in the past it has been used to spending when it has not been earned.

The people are behind the Government at a difficult time and it is vital that we solve the problem of inflation. If we do not we shall have a higher public borrowing requirement, and that will be even more dangerous for the steel industry. I urge the trade union leaders to give their members the opportunity to vote for the British Steel Corporation offer which I believe most trade unionists would accept.

8.36 pm

Mr. Jack Dormand (Easington)

The hon. Member for Brigg and Scunthorpe (Mr. Brown) will probably agree that the drunkards who received a huge tax handout last year had a greater feeling of euphoria than did the Government.

My right hon. Friend the Member for Bristol, South-East (Mr. Benn) touched upon the question of coking coal. He was right to do so, but he did not go far enough. In my Dart of the world an investment of £40 million was made for the production of coking coal. A few miles down the road, at Redcar, an investment of £500 million was made to enable the coal that was being produced that short distance away to be used. At least we can say about the Australian coking coal that it was economic. It was open-cast, and the easiest mined coking coal in the world. The coking coal that the Government permitted us to use was heavily subsidised, and some came from the Common Market. It is that kind of economic and political madness that has led the Opposition to table the motion.

I shall be brief, and shall refer only to one aspect of the Government's policy, namely, regional policy. Nowhere is the failure of the Government's economic and industrial policies illustrated more vividly than in their regional policy. In July last year a reduction of £233 million was made in the aid given to regions. That was a cut of one-third, the biggest single cut in the whole range of public expenditure cuts. The Government's feeling is that because the reduction is concentrated in that way it will produce better results. That policy has fallen flat on its face. It is not just because of the high interest rates, inflation, and particularly the high rate of sterling, but because business men in the deprived regions, as they have told me, have lost confidence in the proposals that were made by the Government some months ago.

I should like to illustrate my argument by referring to the Northern region. This week we have had the unemployment figures. In the Northern region, 128,000 people are unemployed, representing 9.2 per cent. of the work force, compared with a national figure of 6.1 per cent. The Northern region figure of unemployed has risen in seven consecutive months, and the February figure is the highest since the war. That is the most astonishing statistic. Putting it more graphically, in the Northern region there are now 15 people unemployed for every vacancy.

Against that background and the claptrap that we have had from the Government about the more efficient use of people, and the upgrading of areas—the Secretary of State for Industry has made a great song about this subject—there was not a single upgrading in the whole of the Northern region. Indeed, the only change was that several areas were downgraded and became less eligible for regional aid.

I want to be constructive, and I have two suggestions to make. First, the Government should at the earliest opportunity establish a northern development agency, on the lines of the Welsh Development Agency and the Scottish Development Agency. It must have the same type of structure and the same kind of resources. In the Northern region we have put up with a great deal over the generations and are not prepared to put up with a second-class development structure. The agency would be a focal point and would co-ordinate the present wasteful efforts.

It is of considerable interest that most people in the Northern region support the idea. The northern group of Labour Members of Parliament have been pressing for it. The local authorities accept the need for it. I am sure that some Con- servative Members—I do not see any of them present at the moment—support the idea. If that does not impress the Government, perhaps they will be impressed by the fact that the CBI in the Northern region supports the proposal.

Some hon. Members may ask "Why the Northern region? Why not the South-West or some other region?" I point out that we have—and always have had—the highest rate of unemployment, and it looks as though we shall continue to have it. That is one good reason for having a northern development agency.

Unemployment in the Northern region stems from the older industries—steel, shipbuilding and coal mining. In respect of those industries, the country has lived on the back of the Northern region, and the establishment of an agency would be some recompense for that. I hope that the Government will give the suggestion sympathetic consideration.

The other point that I wish to make is that the Government should have a second look at the way in which the northern National Enterprise Board is working. Unfortunately, we have seen evidence of the kind of thing that has made the National Enterprise Board the lapdog of the Government. There was a clean sweep of the former members of the board. They expressed a complete lack of confidence in the policies of the present Government and resigned en bloc. That sort of thing would not serve the needs of the Northern region, which requires more resources; even more important, it requires more flexibility and autonomy. I understand that the trade union representatives have withdrawn from the board. I think that their contribution is essential and I hope that the Government will make some attempt to get them back on to the board.

Before I sit down I want to refer briefly to what I suppose I can now call the infamous letter received by northern Labour Members from the managing, director of Inmos. In that letter he states that the new industrial "superstars"—that is his word—will not come to places such as the North of England because they are "depressed industrial areas". It is unbelievable that the head of one of our newest and most exciting companies should hold that medieval view, especially when it is public money that is involved. No risk capital is involved; it is all public money.

I do not want to harp on the details tonight because the Minister will receive them in a letter from me, but we in the North refute the argument put forward by the managing director of Inmos with all the force at our command. We hope that the Secretary of State will tell him that his view is not shared by the Government. The people of the Northern region are hard-working, versatile, and flexible, and have a first-class industrial relations record. They will play their part in responding to Government initiatives, but in today's difficult circumstances those initiatives are a first essential. The onus now rests fairly and squarely on the Government.

8.46 pm

Mr. Tristan Garel-Jones (Watford)

I hope that the House will reject this censure motion for two main reasons—first, because of its provenance and, secondly, because of the motives that lie behind it. What is the provenance of the motion? We are led to believe that it is a censure motion tabled by the Leader—at least for the time being—of Her Majesty's Opposition. The House and the country are entitled to ask what credentials enable him to put forward such a censure motion. Lord Wigg—an unimpeachable source I should have thought—tells us that in the early 1940s the right hon. Gentleman told him his recipe for political success. It was to find out what the trade union line was and to follow it. If he has done nothing else the right hon. Gentleman has certainly been consistent in that.

My right hon. Friend the Prime Minister made a brief reference to the diaries of Barbara Castle earlier in the debate. I do not want to go into that further, apart from saying that it seems quite clear that the right hon. Gentleman was regarded by the majority of his colleagues as a kind of trade union nark inside the Cabinet. In February 1974 he was to be found in the valleys of Wales—as, indeed, he was this afternoon—urging that settlement should be made. The right hon. Gentleman's message seems to be "pay up". It is also worth saying that after a lifetime of service to the Labour movement he was mandated into Downing Street as Prime Minister not by a rank and file vote of the nation as a whole, but, appropriately enough, by a vote inside the Labour Party, which many of us have come to regard as a subsidiary company of the trade union movement.

The right hon. Gentleman's career represents, in many ways, the compromises that have caused the difficulties this country now faces. It is not surprising that the right hon. Gentleman's masters, having placed him in Downing Street, should have turned upon him and thrown him out, after he had attempted to resist their demands.

The right hon. Gentleman is left as the nominal leader of a nominal Opposition who seem to be united in their wish to oppose the Government's policies regardless of the cost to the nation. My only surprise is that the right hon. Member for Bristol, South-East (Mr. Benn) and the hon. Member for Liverpool, Walton (Mr. Heffer), who have an alternative policy and who advance it with courage and conviction, do not feature on the Order Paper as having signed the motion.

There is one thing that unites right hon. and hon. Members on the Opposition Benches. As the hon. Member for Ormskirk (Mr. Kilroy-Silk) once naively confessed, each one of them carries in his rucksack a field marshal's baton, just as the foot soldiers in Napoleon's army used to do. The only point that seems to be at issue is whether this army intends to retreat from Moscow.

It is hardly surprising that, against a background of no serious opposition from the Labour Benches, many of my colleagues are emboldened to make suggestions to our right hon. and hon. Friends within the context of the Government's policy.

There can be no doubt that the Government were elected for two reasons above all others. The first reason was to try to help the trade union movement to regain a position of public esteem—a position that it should enjoy in the life of Britain—so that it may begin to play its real role of working towards greater productivity and higher wages for its members. Secondly, the Government were elected so that the country might have honest money once again. Opposition Members may laugh, but we were elected to do that by a combination of monetarist and fiscal controls that are familiar to the Leader of the Opposition. The right hon Gentleman attempted to operate those controls with the help of the IMF from 1976 onwards. These policies are not new to the right hon. Gentleman.

My right hon. Friend the Prime Minister has made it clear that there will be a difficult road ahead and that great sacrifices will have to be made by all the British people. I cannot conceive a Conservative Party that will not do its utmost to ensure that the burdens are distributed with compassion, especially towards poor families and the elderly.

I urge my right hon. Friend to ensure that the arguments that we used when in opposition in favour of child benefit should be borne in mind. I can do no better than quote the argument advanced by my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin), who is now the Secretary of State for Social Services. Before doing so, I must make it clear to the Opposition that there are many Conservative Members who are willing to argue on detail within the context of the Government's main policies. I accept that the Labour Party is used to such a wide degree of unity that Labour Members find it extremely surprising that there is any discussion in other parties. I accept that. However, I am sure that my right hon. Friend the Prime Minister would not expect her party to run in any other way.

I remind my right hon. Friend of the statements that we made in opposition. We said that child benefit was the best way to restore the position of families, the best way to ease poverty, the best way to help poor families in work, the best way to reduce the nonsense of people being better off out of work and the best way of reducing the dependence of families on means-tested benefits. I refer to the words of my right hon. Friend the Secretary of State for Social Services.

I remind my right hon. Friend the Prime Minister that we made no increase in child benefit last year, and that no sum less than £1 will be sufficient to restore child benefit to the level that many of us would like to see.

May I also make a plea for the pensioners' Christmas bonus? I know that it is something that the Opposition have never liked. The Labour Government did not pay it in 1975 or 1976. The Conservative Government wrote it into the Social Security Act 1979. I urge the Government to aim to double the £10 allowance by 1984. If we allow it to remain at £10 the whole concept will fall into disrepute as the bonus loses value.

I realise that having proposed Government expenditure of £600 million for child benefit and £103 million for the Christmas bonus, it is perhaps incumbent upon me to make one or two brief suggestions on how those proposals could be financed. Unlike the right hon. Member for Down, South (Mr. Powell), I cannot offer my right hon. and learned Friend the Chancellor of the Exchequer the prospect of £24 billion.

I wish to make three suggestions. First, in the next few months the clearing banks will be announcing profits of £1½ billion. Those are not true profits in the sense that I understand them, in that they have not been earned by business acumen or by any wise decision of the clearing banks. They are the result of the temporary high minimum lending rate. There is a good case for placing a levy on those profits, which might raise as much as £½ billion.

Secondly, further sales of Government assets, especially through the Property Services Agency, could be undertaken. I was surprised, when making inquiries, to find that the PSA makes no valuation of its properties. Unlike a company, it feels that it is not required to produce a balance sheet. It should do so as soon as possible. All property which is surplus to Government and defence needs should be offered for sale to the private sector.

Thirdly, in the longer term, the whole area of company taxation should be considered. It is a tremendous condemnation of this country that some of its brightest and most able men are now employed as tax advisers and tax lawyers. They spend most of their time devising schemes to assist people to avoid taxation. For all the contribution that they make to the economy of Britain, they might as well be doing The Times crossword puzzle.

In the last year for which I have figures, 1978–79, the total yield of corporation tax to the Exchequer was £3,940 million, while the total loss to the revenue from capital allowances and stock relief alone was £4,000 million. There must be a case for removing most, if not all, of these allowances, lowering the rate of corporation tax, and attempting to gain a bigger yield for the Exchequer.

Some weeks ago a motion was read out in the House in the name of the Leader of the Opposition. I confess that I was bumptious enough to shout out "Where is he, where is he?". He appeared from behind Mr. Speaker's Chair, wearing a smile and waving a white handkerchief. That gesture symbolised not only the right hon. Gentleman's own career, but the whole approach of the Opposition in this debate.

The British people are in no mood for surrender. That mood is adequately reflected in the attitude taken by my right hon. Friend the Prime Minister and her Government. I hope that this side of the House will reflect that attitude by rejecting this tatty little motion tonight.

8.59 pm

Mr. Denis Healey (Leeds, East)

Some may find it a little surprising that the House of Commons is celebrating what is almost the start of a new decade with a motion of no confidence in the policies of a Government elected only nine months ago. It is a motion for which a large number of Conservative Members, Front Bench as well as Back, would vote if they had the courage of the convictions that they have expressed, mainly anonymously, to the Lobby correspondents. I should at least like to congratulate the hon. Member for Aldershot (Mr. Critchley) for having the courage to express his views directly.

What I find a little surprising about the Prime Minister is that she is terribly keen on secret ballots in the trade union movement. I wonder whether she would dare to face a secret ballot of her own party tonight?

A year ago, everyone would have agreed that for Britain the 1980s would be a decade of exceptional economic and industrial advance. For the first time this century, we are self-sufficient in energy, when none of our world competitors have that advantage. North Sea oil is at last starting to bring immense benefits to our economy—to our national wealth, our balance of payments and to the Government's revenue. We in Britain have security of supply when no other country in the world can rely on it, and when there is great risk of a sudden interruption in world output.

The recent doubling of oil prices has more than doubled Britain's relative advantage in all these areas. Yet the astounding thing is that the United Kingdom's prospects in this new phase of the oil crisis are not better but worse than those of all our competitors. For example, Germany is totally dependent on imported oil, but this year she is expecting growth in her economy of 2 per cent. The United Kingdom is totally independent in oil—indeed, is selling large quantities of oil to Germany—yet the Government expect our output to fall by 2 per cent. this year. The reasons are not controversial, but are universally agreed. First, the Government have decided to adopt a fiscal and monetary policy that is far stricter than any other industrial country in the world and, secondly, they have abdicated their essential responsibility for helping industry to improve its performance at a time when all our competitors are accepting increased responsibility for helping their industries.

The House may still not be fully aware of the revolution in our situation that has been produced by North Sea oil. In 1974, just after the first oil price increase, the incoming Labour Government found that the first OPEC increase was cutting our gross domestic product by 5 per cent., was increasing by£1½ billion a current account deficit which already amounted to £1 billion and was rising fast, and was having a big impact on domestic prices. The incoming Labour Government in 1974 had to cope with that situation at a time when the money supply had been growing at nearly 30 per cent. for the two previous years and earnings were set to rise by 13 per cent. in their first six months, solely because of the ill-starred threshold agreements established by the right hon. Member for Sidcup (Mr. Heath).

It was a very different situation when the right hon. Lady took office in May. In 1979, the incoming Conservative Government faced another increase in oil prices of roughly the same economic magnitude as the first increase, although it was a doubling of oil prices rather than the quadrupling which took place in 1973–74. But because we were almost self-sufficient in oil in 1979, the second increase in oil prices means that North Sea oil will this year add 5 per cent. to our gross domestic product.

A benefit of £7 billion will be derived from our current account in the balance of payments from North Sea oil this year, instead of a disbenefit of £1½ billion in 1974. In addition, this year the Government will derive additional revenue of £4,000 million from North Sea oil. However, I understand that not all of it will go into the Treasury coffers when the money is due. That is a windfall of staggering magnitude.

Despite that, our prospects today are far worse than they were in 1974. They are also worse than the prospects of any of our competitors. However, none of them enjoy our advantages. That is not only my view, it is also the view of the Government. The other day the Chief Secretary told us that we face three years of unparalleled austerity. A couple of days ago the Cancellor of the Exchequer extended that three years to 10 years, in a speech that he made in the City of London. His pessimism is not surprising. There has been a frightening deterioration in every aspect of our economic performance since the Government came into power and found themselves floating on a sea of oil that was steadily increasing in value.

This afternoon, the Prime Minister quoted some selected figures about the Labour Party's performance during its five year's of office. Some of them were very daunting. They included the first two years of painful readjustment to the increase in oil prices and to the legacy inherited from the previous Tory Government. However, once the adjustments had been made—it took us only two years —it was a very different picture. The record of our last three years in office has been described in detail by the Chancellor in a letter that he recently sent to the right hon. Member for Taunton (Mr. du Cann), as chairman of the Select Committee. He pointed out that during those last three years the average increase in output was well above 2½ per cent. He further pointed out that there had been a steady movement into surplus on current account, a steady fall in unem ployment for two years and a growth in money supply over the whole five years that averaged just over 10 per cent.

The Government have recently published figures showing that during the last two years of Labour Government, private manufacturing investment rose by 26 per cent. in volume. Industrial productivity rose by 11 per cent. and inflation was under 10 per cent. for our last 15 months of office. That progress was stopped in its tracks by the election of the Conservative Party to government. Growth has fallen steadily since it took office. According to the Government, output will fall by 2 per cent. this year. Indeed, fresh leaks suggest that they forecast a 3½ per cent. fall for this year. The Government have spent the last 48 hours furiously massaging the figures in order to produce a better outturn.

All of that is taking place at a time when North Sea oil is adding 5 per cent. to our gross domestic product. It is forecast that the balance of payments deficit for this year will be £2 billion. However, oil will benefit our balance of payments by £7 billion. Investment is set to fall by 7 per cent. this year. Productivity has just begun to fall and that is shown in the figures published yesterday, where the third quarter for last year is compared with the second quarter. The only thing that will rise this year is inflation and unemployment.

Unemployment has risen by 9½ per cent. in the past six months. That is shown in the figures that were published on Tuesday by the Government. The rate of inflation has doubled during the past 12 months. The right hon. Lady will be able to celebrate her first anniversary in power by announcing that inflation is above 20 per cent. It will have doubled since the election.

The only bright spot in the whole picture so far as the Government are concerned, if we are to believe that this morning's leaks from the Chancellor are more accurate than those of yesterday, is the prospect for the public sector borrowing requirement. We were told yesterday, unanimously in six or seven newspapers, I suppose as a result of a briefing by the Chancellor or one of his officials, that without drastic action in the Budget we should have a PSBR of about £11 billion. We are told today that without any action by the Government we shall have a PSBR of only £8 billion.

I can well understand that that should be true. This year the Government will get an extra £2 billion in oil revenue and £2 billion more from the increases in VAT decided last June.

I am interested to know why the PSBR estimate has changed by £3 billion in 24 hours. Is it because the right hon. and learned Gentleman used the £11 billion figure yesterday to frighten his colleagues into public expenditure cuts, and has chosen £8 billion today to reassure the City, because cuts in public expenditure will not be large enough?

I tell the Chancellor that if he is aiming at a PSBR of £8 billion next year, it is far too low for the state of the economy. The savings ratio jumped 3 per cent. between the second and third quarters of last year to 17 per cent., a level of almost Japanese magnitude. The economy is set to work far below its natural capacity.

I say to the hon. Member for Croydon, South (Sir W. Clark) that Britain is not living beyond her means. We are not spending more than we earn, if people are saving 17 per cent. of their income, and the Government decide to borrow 5 per cent. of total income out of those savings in order to finance public services that need help to get going and to raise the rate of growth in the economy. There is no Government in the world that does not hold that view except the present British Government.

The excuse that the right hon. and learned Gentleman gives for getting the PSBR down to that level—and we heard it echoed by some of his Back Bench colleagues this afternoon—is that interest rates cannot be lowered unless the PSBR is brought down. That is bunk, and the right hon. and learned Gentleman knows it. Interest rates were much lower under the Labour Government, when the PSBR was almost twice as high as a percentage of our GDP.

The problems for the Government's monetary policy are not created by the PSBR. The right hon. and learned Gentleman has more than financed that in the past 12 months, although at far too high a price. The problems arise entirely because of excessive lending by the clearing banks to private firms. The Chancellor of the Exchequer has admitted that, because he told us many times in recent months that he will not reduce the minimum lending rate until private bank lending is reduced. That is the problem. It is not the PSBR.

The right hon. and learned Gentleman has got himself into an extraordinary situation. It is the banks that are responsible for breaking his monetary target, but instead of punishing them he is rewarding them by raising interest rates, which will double their profits. That is the economics of the madhouse. How can he justify it?

If the right hon. and learned Gentleman is not able to announce in the Budget a large fall in the minimum lending rate, we shall press, I hope with support from many Conservative Members, for a windfall tax on these excessive bank profits, which have been generated wholly by his monetary incompetence. That is only one example of the appalling intellectual and practical muddle that the Government have got themselves into by attaching themselves to punk monetarism, as preached by Professor Milton Friedman, the TV pundit, who seems to bear no relation to Professor Milton Friedman. the Nobel prizewinner.

The right hon. Member for Down, South (Mr. Powell) treated us once again to his version of the higher lunacy, in a speech that I found somewhat overlong, and a little over-familiar. Unfortunately, the right hon. Gentleman was not invited to No. 10 Downing Street yesterday to hold a seminar for the inner Cabinet. Professor Friedman was invited and, so far as I am able to tell, he was asked to conduct a seminar for the benefit of the Lord Privy Seal. I confess that I am not entirely clear—perhaps the Chancellor could enlighten me—as to whether tie was present to learn along with the Lord Privy Seal or to prevent the Lord Privy Seal from getting away.

I strongly recommend that all right hon. and hon. Members, especially Conservative Members, watch Professor Friedman's television series, which started a week or so ago. They will find it at least as entertaining as a comic strip by Saatchi and Saatchi. They should watch it because it provides the intellectual foundation of the Government's economic, industrial and social policies. That foundation is laid out so that all its logical fallacies and moral repulsiveness are clearly exposed. They will find it a series of stupefying shallowness and disgraceful dishonesty. But at least they will have the benefit of seeing the shallowness and dishonesty exposed in the discussions that follow. It is a tragedy that the right hon. Lady and the "Gang of Six", of which she is the centre, take this charlatanism seriously and that they are using it to crucify the British people.

Monetary control must be one element in economic policy. I used it myself. I kept the money supply at 10 per cent. for five long years, without any of the consequences that followed the right hon. Lady's monetary policy. However, it is one thing to give a dose of quinine to a patient who is suffering from a fever, but it is quite another to sit the British people down in front of a tank of quinine and tell them that they must drink a pint for breakfast, a pint for lunch, a pint for dinner and that they should eat or drink nothing else in three years—or 10 years, as the Chancellor of the Exchequer now tells us. That is the Government's policy at present. I warn Conservative Members who have shown some restiveness, that, as the first pint gurgles down their gullets, the consequences that they are now seeing are only just the beginning.

The right hon. Member for Brighton, Pavilion (Mr. Amery) warned the right hon. Lady that he could take it for one year, but that if it went on beyond 12 months, she would be hearing from him again. The Chief Secretary to the Treasury has told us—and the Government forecasts in a fortnight will show it in detail—that 1981 will be as bad a year as 1980. It could be worse. He said that 1982 will be as bad as 1981. One reason is that the Government have made their self-imposed ordeal more painful by the massive increase in prices which in that wonderful dawn, the Chancellor recklessly inflicted on the long-suffering British people.

I listened carefully to the Prime Minister's speech this afternoon. She did not attempt to deny that 5 per cent. of the increase since the last election was the direct result of Government policy. Therefore, the bulk of the increase since the last election flows entirely from the policy of the Government. By the middle of this year, further price increases that are al- ready decided by the Government will add 8 per cent. at least to the RPI which the Government inherited. Indeed, one reason for that is that most of the so-called public expenditure cuts are not cuts in Government spending. They are new ways of financing existing spending by raising prices rather than raising income tax.

The consequence of that for earnings is liable to be horrific. The other way in which the right hon. Lady is financing existing spending is by selling oil which we have not yet produced—forward oil—and selling off priceless national assets such as the BNOC. However, I am glad to see that the most junior member of the "Gang of Six", the Secretary of State for Energy, is putting up a sort of pallid battle against that decision.

The irony is that among those who will suffer most severely from the Government's policies are precisely those people who voted for the Conservative Party at the last election because they believed that its policies would protect them. I shall take two examples at opposite ends of the spectrum. If we take an average family with two children living in a council house in a safe Conservative area such as Kent or Cheshire, it will face an increase in outgoings of about £6 a week this year. That increase will be caused by rents, rates, school meals charges and school bus fares alone. A similar family in Kent would face an increase of about £9 a week. Those increases come at a time when their cost of living has already been pushed up by about £15 a week. So far, that family has received only a few pounds help from the income tax cuts of the last Budget.

How can the right hon. Lady be surprised if ordinary working people demand compensation for the imposts that are inflicted upon them by the present Government and which owe nothing to their wage increases in the past? At the other end of society, we should consider the effects of the Government's policies on British industry—especially on the small firms for which so many crocodile tears have been shed by Conservative Members in this debate. The increase in MLR is forcing them to run down their stocks and drop investment plans that are already under way in many cases and have been going on for one or two years. The increase in MLR is still not enough to keep the Government's money supply growth on target. It is still growing at about twice the target rate, if the acceptances which the Governor set himself last October of 7½ per cent. to this October are included.

The effect of MLR has not been to reduce bank borrowing. That has been remarkably resistant, as the Government should have known, because the Bank of England explained in detail why bank borrowing is so resistant to changes in interest rates. The only effect, besides the swelling of bank profits, of which I have already spoken, has been to push up the exchange rate so that the firms which are already crippled by MLR cannot compete at home or abroad in markets which are shrinking steadily. Indeed, they are shrinking at home because of the over-tight Government fiscal policy.

The right hon. Lady made a great deal of sterling being a petrocurrency. I ask the right hon. Lady to consider this. Last week when the interest rate differential dropped by a few percentage points between Britain and the United States, the pound sterling dropped three cents in a day.

The fact is that excessive interest rates are bound to attract some of the 100 billion petrodollars that are now moving round the world unwilling to go into any long-term vehicle and therefore attracted by any short-term differential. I hope that the right hon. and learned Gentleman will assure us—and he showed some sensitivity when he broke all his principles last week by lending £500 million to the clearing banks to slop short rates rising again—that he will not allow the irresponsible increases in interest rates that obtain in some other capitals, particularly Bonn and Brussels, to push him into raising MLR yet again.

Nothing would be more healthy for our industry than for this differential to disappear so that the pound could settle to a more realistic level in relation to the growth of Britain's industrial costs. Squeezed as it is between excessive earnings increases generated by the Government's inflation policy, excessive MLR generated by their monetary policy and an excessive sterling exchange rate generated by the excessive MLR, industrial confidence is now at its lowest level since the war. Consumer confidence according to the Financial Times consumer confidence survey is the lowest since records began. I warn Conservative Members to take this seriously even if their Government do not.

We shall see a financial freeze particularly on small firms later this year that will litter the country with bankruptcies. I do not need to describe, because others have already done so, the human misery and humiliation involved in unemployment and the steady fall in living standards which the Government are inflicting on the British people. I ask the House to consider this. Supposing that the monetary policy succeeded in the aim that the Government have set for it in bringing down the rate of inflation in three years or 10 years as the Chancellor has suggested. Where will the growth come from?

By that time vast areas of Britain will be an industrial desert. Whole sectors of manufacturing industry will have disappeared altogether and what is left of it will have carried out no investment during the previous three to 10 years.

Sir William Clark

rose—

Mr. Healey

What basis is that for the industrial miracle that the Government claim they will create? These are the years of the oil revenues. They will not last for ever. We should be channelling Government money into industry on an increasing scale, as all our competitors are doing. The Chancellor spoke fine words earlier this week about the importance of the National Economic Development Council. But did he read the speech by its director a couple of days ago, saying that the Government really must use their power to intervene in industry so that industry might trade and invest in the way that our competitors all over the world are doing?

Did the Chancellor read the latest NEDC report on the vital new industry that the microprocessor will generate to improve office administration? Here again we shall be totally incapable of competing unless the Government are prepared to use their power to channel those oil revenues into industry.

However, the Government have another plan. They are planning to use these revenues exclusively to finance unemployment on an increasing scale and to replace the revenues that they are losing because of an over-strict fiscal policy.

Sir William Clark

rose—

Mr. Healey

The British people will accept sacrifices. They have proved that. They will accept sacrifices for years if need be, provided that they can see some light at the end of the tunnel.

Sir William Clark

rose—

Mr. Healey

The hon. Gentleman is simply cutting the time available to his right hon. and learned Friend, but that may be his intention.

There is no light at the end of this tunnel. We are falling, falling, falling into a bottomless pit. The reason is—

Sir William Clark

rose—

Mr. Healey

—that the right hon. Lady is deaf to all the wiser voices which are addressing her from inside her Cabinet and on her Back Benches. She is deaf because she is constitutionally incapable of listening. She is incapable of balance or moderation. "Everything to excess" is her watchword.

I was not in the least surprised the other day to see that President Giscard d'Estaing and Chancellor Schmidt saw her as a rhinoceros—an image, I may say, a great deal more appropriate to her than to her jovial companion sitting on her right, the right hon. Member for Lowestoft (Mr. Prior). She has an impenetrably thick hide, she is liable to mad charges in all directions and she always thinks on the trot.

A country such as Britain cannot afford to be led by a Prime Minister who treats the trade union leaders as dirt, who treats foreign statesmen as if they were trade union leaders and who treats her colleagues in the Cabinet as if they were foreign statesmen. She is a one-woman walking disaster area, and the sooner we get rid of her, the better.

9.32 pm

The Chancellor of the Exchequer (Sir Geoffrey Howe)

I should like to begin on a harmonious note by saying how much the House welcomed the reappearance in our debates of my hon. Friend the Member for Hertfordshire, South-West (Mr. Page), returning to the House after a very short absence.

That allows me to move immediately to the rather strange remarks with which the right hon. Member for Leeds, East (Mr. Healey) began his speech when he confessed that it was somewhat surprising to find this debate taking place on this occasion. I share that sense of surprise.

We heard on the radio this morning that the principal objective of the debate was to enable the Labour Party to get its policy across to the nation. We have seen precious little sign of that. I am not in the least surprised, because the Opposition have not yet made up their mind which one.

It appeared subsequently that the object of the exercise was to set about denouncing the Government in relation to their responsibility for the present state of the nation.

The Opposition were joined for that purpose, rather remarkably, by the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel), the Leader of the Liberal Party, who said that there was no sign of our policies being effective yet. Surely he should realise that a lapse of 10 months is scarcely sufficient to judge any policy. Surely in his party and position he must have learned that patience is the politician's most precious commodity. After more than half a century out of government the Liberal Party should have learnt that.

We heard the Leader of the Opposition, in a rather over-rehearsed section of his speech, giving a catalogue of success and failure, which his right hon. and hon. Friends took a long time to get on cue for, indicating the folly of that line of argument. Towards the end of his catalogue he began denouncing my right hon. Friends for the balance of payments in 1979, as I understood him, and comparing it with the balance of payments in 1978 as though that were something for which my right hon. Frends and I were to bear exclusive responsibility. We came to the management of the account only half way through the years. If the right hon. Gentleman wishes to be judged by this test, one half of the total balance of payments deficit last year was accumulated in the first quarter of the year, and two-thirds of it in the first six months of the year. If those are the standards on which the right hen. Gentleman founds his case, it collapses at the outset.

In the course of this recurrent tendency to denounce my right hon. Friend the Prime Minister for having the courage and clarity to stand up for Britain's interest, the Leader of the Opposition had the gall to criticise her conduct of our country's case in Dublin. He should know. Who was the Foreign Secretary at the time of the designing of the present financial mechanism? Does not the House remember, in 1975, at the conclusion of the triumphant renegotiations, for which the right hon. Gentleman was responsible. his coming back to the House? It is worth marking these words carefully. He said in the Report on Renegotiation", Cmnd. 6003, that: The Government —that is, the Labour Government— therefore sought an arrangement to ensure that the United Kingdom would not have to pay a disproportionate contribution to the Community budget. At the meeting of Community Heads of Government in Dublin on 10–11 March agreement was reached on arrangements which, though complex, will result in a refund to the United Kingdom if in any year our contribution goes significantly beyond what is fair in relation to our share of total Community GNP. The House should know, if it does not already know, that under that remarkable financial arrangement negotiated by the right hon. Gentleman, not one penny piece has yet been refunded to the United Kingdom. My right hon. Friend the Prime Minister, in the negotiations that she undertook at Dublin before Christmas, was struggling to strip away from the existing financial mechanism the checks and balances and restraints that the right hon. Gentleman put on to it. An that she has so far been able to do is to undo the shackles placed upon the mechanism by the right hon. Gentleman's foolish handiwork. How he has the cheek to raise that case in this House I cannot imagine.

The same goes for the Shadow Chancellor. He reminded us this evening of a theme that we have heard from him so often during his time as Chancellor of the Exchequer, of which he was reminded by the right hon. Member for Down. South (Mr. Powell), in which all the shortcomings of the first two years of his administration were ascribed, whenever it suited his convenience, to the errors and mistakes of Lord Barber. If the right hon. Gentleman claimed that his inheritance expunged the first two years of his disastrous administration, he should be under a self-imposed vow of silence for at least 14 months.

We still wonder why this debate takes place at all. I heard it suggested on good authority that the Opposition Chief Whip was by no means enthusiastic about these proceedings. It appears, according to the usual channels that inform us about these matters, that the chief protagonist for tonight's piece of premature and misguided political exhibitionism by the right hon. Gentleman was the Shadow Chancellor himself. I can well understand his impatience. He referred to the prospect of a secret ballot within the Conservative Party. But is he not panting to take part in a secret ballot for the leadership of his own party?

I understand the right hon. Gentleman's impatience, because I see well that the rubicund bloom of advanced middle age will not linger much longer upon his cheeks. I fear that he may have quite a long time to wait. We should recollect that the right hon. Gentleman the Leader of the Opposition, upon whose decision the right hon. Member for Leeds, East must wait for his great opportunity, is not renowned for his willingness to take a decision if he can possibly postpone it.

Let me give the right hon. Member for Leeds, East a little advice, For us to have the opportunity to topple the Leader of the Opposition from his place we had to table and carry a motion of no confidence in him. If the right hon. Member for Leeds, East wishes to do the same, we could give him advice on how to displace his Leader and give him a chance of getting to the front. It must be very gratifying for the right hon. Member for Leeds, East to evoke such a chorus of support from his hon. Friends behind him.

Let me turn to the case that the right hon. Member tried to make in suggesting that the present state of inflation owed anything to the Government's policies. He suggested that we made a major mistake in changing the pattern of our tax system from direct to indirect taxation. Does he not realise that if we had not increased value added tax in that first Budget we should have been unable at any stage to set about the major changes that are vitally necessary to reform the excessive burden of our direct tax system? Had we not done that, such was the scale of the inheritance that he left us that, even after reducing public expenditure by £3½ billion, we would probably have had to raise income tax as well.

If we had attempted to hold down the prices charged by nationalised industries as he had been doing before the election, that would have increased the public sector borrowing requirement, with still further inflationary effects. At the moment when he handed over the economy to the Conservative Government we were suffering from an expansion of the money supply by 16 per cent. the year before, and we were facing substantial movements in world prices and an explosive collapse of the pay policy, over which he and his right hon. Friends had presided. Indeed, the public sector borrowing requirement is still suffering from those things.

The special problem of catching up public sector pay settlements was consigned to Professor Clegg and other authorities. These settlements were promised but not paid by the Labour Administration. We are still picking up the post dated cheques they left behind, which will add about 10 per cent. or more to public sector pay costs in the current calendar year. There was nothing that we could have done to refuse those disastrous consequences.

Moreover, the difficulties facing our economy have been substantially increased by what has been happening in the world outside during the past 12 months. It is all very well to point to what has happened to consumer prices in the United Kingdom, but during the past 12 months the rate of inflation in all the major OECD countries has risen from 8 per cent. to 12 per cent. As a result of those increases in import prices, the total input costs of material and fuel to British industry have increased by 27 per cent. in the present year, compared with 9 per cent. in the previous year. Those are the conditions with which we have to cope, in addition to the longstanding decline of the British economy under Labour management.

In 1978 we manufactured 4 per cent. less than we did in 1973. In that same year, manufactured imports rose by 13 per cent. That is the measure of the deindustrialisation that the Labour Government left behind them.

Many things are necessary in order to put that right. It is not enough, as my right hon. Friend the Member for Brighton, Pavilion (Mr. Amery) said, to arrest that decline. We must set about reversing it. We shall need many of the measures that the Leader of the Liberal Party mentioned for further co-operation in industry, and for the extension of profit-sharing, along the lines introduced at our suggestion in 1978.

Of course, we need to tackle deindustrialisation. The one thing that Labour Members ought to understand about that process is that far and away the most potent cause of deindustrialisation in this country has been the defence and protection of restrictive practices by the Labour Party and its willingness, far more often than not, to promote and sustain strike action. Far more jobs have been destroyed in the last 20 years in this country by misguided industrial action than by any other economic measure.

It is important also to focus attention on our economic and industrial policy. The first priority in our policy—

Mr. Heffer

rose—

Sir G. Howe

—is to get inflation down, as an essential precursor to the return of economic vitality.

Mr. Heffer

rose—

Sir G. Howe

The right hon. Member for Leeds, East not only did not give way but overran his time by 2 minutes.

I want to address myself to the conquest of inflation, which the right hon. Member for Down, South rightly identified as the most important task of the Government. He made a very important contribution when he pointed also to the heavy burden of responsibility resting on the Labour Party. We shall not be able to conquer inflation as effectively as we should like unless we have the support from the Labour Party that ought to be forthcoming, if it is true to what it has said in the past.

The Leader of the Opposition spoke today about monetarism, charactistically with two voices. At one stage he was complaining of rigid monetary policy. He referred in another epithet to draconian monetary policy. That appeared to imply that there was a good monetary policy but that it could tip over the edge and become draconian, or rigid. At a later stage in his speech he went a great deal further and sought to refer to it as an entirely unproven theory. Which is it? Do the Leader of the Opposition and the Shadow Chancellor regard monetary policy as some way-out eccentricity, or do they regard it as central to the conquest of inflation?

It is important for the House to be clear that this is not some manifestation of Friedmanism. John Maynard Keynes, in one of his own. writings—[Interruption.] I am delighted that this evidence should be so applauded by Labour Members. Speaking of monetary policy, Keynes said: This theory is fundamental. Its correspondence with fact is not open to question. That is from "A Tract On Monetary Reform". It should be accepted by the Labour Party as well as by everyone else. Long before Professor Milton Friedman was born—[Interruption.] If the Leader of the Opposition is unwilling to accept that, I will remind him of what he had to say on the subject. In his speech at Blackpool on 28 September 1976 he said: We must ask ourselves unflinchingly what is the cause of high unemployment. Quite simply and unequivocally it is caused by paying ourselves more than the value of what we produce. This is an absolute fact of life which no Government, be it left or right, can alter. We used to think that you could just spend your way out of a recession and increase employment by cutting taxes and boosting Government spending. I tell you in all candour that that option no longer exists and that in so far as it ever did exist, it worked by injecting inflation into the economy. And each time that happened the average level of unemployment has risen. Higher inflation, followed by higher unemployment. That is the history of the last twenty years". Does the right hon. Gentleman still accept that analysis of the vital part played by monetary policy in causing inflation? Does the right hon. Member for Leeds, East still accept his own statement?

At the heart of his first letter to the IMF in January 1976, at the moment when he decided to go straight in his management of the affairs of this country, he had this to say: It is essential that our policies should not be undermined by excessive monetary expansion. Is that still right? Is monetary policy still at the heart of economic management? It is necessary not only for the House but for the Opposition to understand the central importance of this proposition. As the right hon. Gentleman put it only a year ago: The Government are determined to maintain the monetary policy to which they have pledged themselves and the fiscal policy implied by those monetary policies. May that be taken from now on as common ground in the approach to the policies that we are following? May it also be taken as common ground that a Budget stimulus, the injection of demand into the economy, will not necessarily achieve expansion by itself and that an increase of that kind will be met, as the right hon. Gentleman said, by imports and by setting inflation going again?

How, then, do the Opposition seek to criticise or challenge our present policies? Do they want us to go in for higher borrowing and for a larger public sector borrowing requirement? What effect do they suggest that would have on interest rates? Or do they want us to go in for less borrowing, to raise taxes, or to go in for lower or higher public expenditure?

It would be interesting to have confirmation of one other point. Again the right hon. Gentleman for Leeds, East, in one of his other letters to the IMF—[Interruption.] I quite understand why the Opposition do not like being reminded but let them weigh each word in this sentence because it is very important: An essential element of the Government's economic strategy will be a continuing and substantial reduction in the public sector borrowing requirement relative to national income". Is that still a crucial part of economic strategy, because no such qualifications were contained in that letter to the IMF, nor were they intended? It is true that that obligation was sustained only for so long as the Opposition were under surveillance by the IMF, but the proposition is still important.

I come now to the other part of the equation. How far do the Opposition accept the importance of keeping expenditure under control? We regard it as paramount, if we are to get interest rates down and to restore prosperity in our economy, to keep public expenditure under control.

I was interested to read a speech made by the right hon. Member for Heywood and Royton (Mr. Barnett). He had this to say: I have no sympathy whatsoever with those who try to 'con' working people into believing that it is somehow possible, at one and the same time, to have increasing public expenditure, with lower output from an ever-declining manufacturing base, and without levels of taxation which would be unacceptable to the average worker". In other words, we cannot continue to have our cake and eat it. The sooner that we stop pretending that we can the better it will be for the country.

The Government's policies on monetary control are crucial to the conquest of inflation, but so, too, are the changes that we propose in the Employment Bill. The changes proposed in that measure are desired by the overwhelming majority of working people. We propose to limit the range of picketing as it has been so far conducted. The Leader of the Opposition this afternoon said "The Labour movement will not support those who blockade factories". The people certainly agree with that, and so does the Bill introduced by my right hon. Friend the Secretary of State for Employment. Will the Labour Party accept legislation to prevent misconduct of that sort?

The Leader of the Opposition said "The Labour movement should be ready to act against those who break procedures." Does that include procedures about expulsion from a closed shop? The people agree on the need for enforcement of fair procedures in relation to the closed shop, and so does my right hon. Friend's Bill. Will the Labour Party support changes to that effect?

Mr. Mike Thomas (Newcastle upon Tyne, East)

rose—

Sir G. Howe

The British people expressed themselves last year overwhelmingly in favour of secret ballots on behalf of union members. They know that such ballots allow working people to make their views felt. They know that secret ballots enable people to show themselves increasingly realistic and responsible. They enable working people to show how detached from them are the leaders who claim to speak for them. Is not the Labour Party impressed by the fact that the workers at Hadfield's, when given the opportunity to decide for themselves, cast aside the leadership that they had been given by their leaders? Is it not impressed by the fact that the workers at Longbridge, as soon as they had the chance to vote, cast aside the leadership that they had been given by Red Robbo?

Mr. Mike Thomas

rose—

Sir G. Howe

Is it not even more impressive that the workers in the South Wales coalfields, as soon as they had the chance to vote in a secret ballot, rejected the advice that they had been given by their leadership by an overwhelming majority?

In the Bill introduced by my right hon. Friend we are proposing that funds should be available for secret ballots, not by compulsion but entirely voluntarily at the option of the trade unions. How can there possibly be any objection to the use of public funds to give workers a better chance to vote secretly, or not to have to vote?

I see in today's newspapers that the TUC is apparently proposing to regard that proposal as the main lever in its campaign to frustrate reform of industrial relations. How out of touch can union leadership get with the feelings of ordinary working members? The truth is that working people are declaring that they have no confidence in their industrial leadership, just as those same working people 10 months ago said that they had no confidence in their political leaders in the Labour Party.

It is remarkable that the Labour Party has the gall to suggest that the British people have no confidence in Her Majesty's Government. The most remarkable thing for the people to analyse is what on earth it is the Labour Party now seeks to stand for. No Opposition have been more deeply divided. No Opposition have launched a more empty censure debate than that launched tonight.

Who speaks for the Labour Party on pay policy? The Shadow Chancellor has been waxing increasingly keen on a pay policy to be introduced forever. However, half his party wants nothing to do with a pay policy. Does the Labour Party want a pay policy? The country will be asking that question time and time again. Does the Labour Party believe, as the Shadow Chancellor used to believe, that the control and reduction of public spending is important? Does the Labour Party continue to believe that public spending should continue growing forever?

The truth is that there is no reason for the House or the country to have confidence in the Labour Party and every reason to have confidence in the Government.

Question put:—

The House divided: Ayes 268, Noes 327.

Division No. 201	AYES	[10 pm
Abse, Leo	Edwards, Robert (Wolv SE)	Leighton, Ronald
Alton, David	Ellis, Raymond (NE Derbyshire)	Lewis, Ron (Carlisle)
Anderson, Donald	Ellis, Tom (Wrexham)	Litherland, Robert
Archer, Rt Hon Peter	English, Michael	Lofthouse, Geoffrey
Armstrong, Rt Hon Ernest	Ennals, Rt Hon David	Lyon, Alexander (York)
Ashley, Rt Hon Jack	Evans, Joan (Aberdare)	Lyons, Edward (Bradford West)
Ashton, Joe	Evans, John (Newton)	Mabon, Rt Hon D J. Dickson
Atkinson, Norman (H'gey, Tott'ham)	Ewing, Harry	McCartney, Hugh
Bagier, Gordon A. T.	Faulds, Andrew	McDonald, Dr Oonagh
Barnett, Guy (Greenwich)	Field, Frank	McElhone, Frank
Barnett, Rt Hon Joel (Heywood)	Fitch, Alan	McGuire, Michael (Ince)
Beith, A. J.	Fitt, Gerard	McKay, Allen (Penistone)
Benn, Rt Hon Anthony Wedgwood	Flannery, Martin	McKelvey, William
Bennett, Andrew (Stockport N)	Fletcher, L. R. (Ilkeston)	MacKenzie, Rt Hon Gregor
Bidwell, Sydney	Fletcher, Ted (Darlington)	Maclennan, Robert
Booth, Rt Hon Albert	Foot, Rt Hon Michael	McMahon, Andrew
Boothroyd, Miss Betty	Ford, Ben	McMillan, Tom (Glasgow. Central)
Bottomley, Rt Hon Arthur (M'brough)	Forrester, John	McNally, Thomas
Bradley, Tom	Fester, Derek	McNamara, Kevin
Bray, Dr Jeremy	Foulkes, George	McQuade, John
Brown, Hugh D. (Provan)	Fraser, John (Lambeth, Norwood)	McWilliam, John
Brown, Robert C. (Newcastle W)	Freeson, Rt Hon Reginald	Magee, Bryan
Brown, Ronald W. (Hackney S)	Freud. Clement	Marks, Kenneth
Buchan, Norman	Garrett, John (Norwich S)	Marshall, David (Gl'sgow,Shettles'n)
Callaghan, Rt Hon J. (Cardiff SE)	Garrett, W. E. (Wallsend)	Marshall, Dr Edmund (Goole)
Callaghan, Jim (Middleton & P)	Gilbert, Rt Hon Dr John	Marshall, Jim (Leicester South)
Campbell, Ian	Ginsburg, David	Martin, Michael (Gl'gow, Springb'rn)
Campbell-Savours, Dale	Golding, John	Mason, Rt Hon Roy
Canavan, Dennis	Gourlay, Harry	Maxton, John
Cant, R. B.	Graham, Ted	Maynard, Miss Joan
Carmichael, Nell	Grant, John (Islington C)	Meacher, Michael
Carter-Jones, Lewis	Hamilton, W. W. (Central Fife)	Mellish, Rt Hon Robert
Carlwright, John	Harrison, Rt Hon Walter	Mikardo, Ian
Clark, Dr David (South Shields)	Hart, Rt Hon Dame Judith	Millan, Rt Hon Bruce
Cocks, Rt Hon Michael (Bristol S)	Hattersley, Rt Hon Roy	Miller, Dr M. S. (East Kilbride)
Cohen, Stanley	Haynes, Frank	Mitchell, R C. (Soton, Itchen)
Conlan, Bernard	Healey, Rt Hon Denis	Morris, Rt Hon Alfred (Wythenshawe)
Cook, Robin F.	Heffer, Eric S.	Morris, Rt Hon Charles (Openshaw)
Cowans, Harry	Hogg, Norman (E Dunbartonshire)	Morris, Rt Hon John (Aberavon)
Cox, Tom (Wandsworth, Tooting)	Holland, Stuart (L'beth, Vauxhall)	Morton, George
Craigen, J. M. (Glasgow, Maryhill)	Home Robertson, John	Moyle, Rt Hon Roland
Crowther, J. S.	Homewood, William	Newens, Stanley
Cryer, Bob	Hooley, Frank	Oakes, Rt Hon Gordon
Cunliffe, Lawrence	Horam, John	Ogden, Eric
Cunningham, George (Islington S)	Howell, Rt Hon Denis (B'ham, Sm H)	O'Halloran, Michael
Cunningham, Dr John (Whitehaven)	Howells, Geraint	O'Neill, Martin
Dalyell, Tam	Huckfield, Les	Orme, Rt Hon Stanley
Davidson, Arthur	Hudson Davies, Gwilym Ednyfed	Owen, Rt Hon Dr David
Davies, Rt Hon Denzil (Lianelli)	Hughes, Mark (Durham)	Paisley, Rev Ian
Davies, Ifor (Gower)	Hughes, Robert (Aberdeen North)	Palmer, Arthur
Davis, Clinton (Hackney Central)	Hughes, Roy (Newport)	Park, George
Davis, Terry (B'rm'ham, Stechford)	Janner, Hon Greville	Parker, John
Deakins, Eric	Jay, Rt Hon Douglas	Parry, Robert
Dean, Joseph (Leeds West)	John, Brynmor	Pavitt, Laurie
Dempsey, James	Johnson, James (Hull West)	Pendry, Tom
Dewar, Donald	Johnson, Walter (Derby South)	Penhaligon, David
Dixon, Donald	Jones, Rt Hon Alec (Rhondda)	Powell, Raymond (Ogmore)
Dobson, Frank	Jones, Barry (East Flint)	Prescott, John
Dormand, Jack	Jones Dan (Burnley)	Price, Christopher (Lewisham West)
Douglas, Dick	Kaufman, Rt Hon Gerald	Race, Reg
Douglas-Mann, Bruce	Kerr, Russell	Radice, Giles
Dubs, Alfred	Kilfedder, James A.	Rees, Rt Hon Merlyn (Leeds South)
Duffy, A. E. P.	Kilroy-Silk, Robert	Richardson, Jo
Dunn, James A. (Liverpool, Kirkdale)	Kinnock, Nell	Roberts, Albert (Normanton)
Dunnett, Jack	Lambie, David	Roberts, Allan (Bootle)
Dunwoody, Mrs Gwyneth	Lamborn, Harry	Roberts, Ernest (Hackney North)
Eadie, Alex	Lamond, James	Roberts, Gwilym (Cannock)
Eastham, Ken	Leadbitter, Ted	Robertson, George
Robinson, Geoffrey (Coventry NW)	Stewart, Rt Hon Donald (W Isles)	Welsh, Michael
Rodgers, Rt Hon William	Stoddart, David	White, Frank R. (Bury & Radcliffe)
Rooker, J. W.	Stott, Roger	White, James (Glasgow, Pollok)
Ross, Ernest (Dundee West)	Strang, Gavin	Whitehead, Phillip
Ross, Stephen (Isle of Wight)	Straw, Jack	Whitlock, William
Ryman, John	Summerskill, Hon Dr Shirley	Wigley, Dafydd
Sandelson, Neville	Taylor, Mrs Ann (Bolton West)	Willey, Rt Hon Frederick
Sever, John	Thomas, Dafydd (Merioneth)	Williams, Rt Hon Alan (Swansea W)
Sheerman, Barry	Thomas, Jeffrey (Abertillery)	Williams, Sir Thomas (Warrington)
Sheldon, Rt Hon Robert (A'ton-u-L)	Thomas, Mike (Newcastle East)	Wilson, Gordon (Dundee East)
Short, Mrs Renée	Thomas, Dr Roger (Carmarthen)	Wilson, Rt Hon Sir Harold (Huyton)
Silkin, Rt Hon John (Deptford)	Thorne, Stan (Preston South)	Wilson, William (Coventry SE)
Silkin, Rt Hon S. C. (Dulwich)	Tilley, John	Winnick, David
Silverman, Julius	Tinn, James	Woodall, Alec
Skinner, Dennis	Torney, Tom	Woolmer, Kenneth
Smith, Cyril (Rochdale)	Urwin, Rt Hon Tom	Wrigglesworth, Ian
Smith, Rt Hon J. (North Lanarkshire)	Varley, Rt Hon Eric G.	Wright, Sheila
Snape, Peter	Wainwright, Edwin (Dearne Valley)	Young, David (Bolton East)
Soley, Clive	Wainwright, Richard (Colne Valley)
Spearing, Nigel	Walker, Rt Hon Harold (Doncaster)	TELLERS FOR THE AYES
Spriggs, Leslie	Watkins, David	Mr. James Hamilton and
Stallard, A. W.	Weetch, Ken	Mr. Donald Coleman.
Steel, Rt Hon David	Wellbeloved, James
NOES
Adley, Robert	Clarke, Kenneth (Rushcliffe)	Grylls, Michael
Aitken, Jonathan	Clegg, Sir Walter	Gummer, John Selwyn
Alexander, Richard	Cockeram, Eric	Hamilton, Hon Archie (Eps'm&Ew'll)
Alison, Michael	Cope, John	Hamilton, Michael (Salisbury)
Amery, Rt Hon Julian	Cormack, Patrick	Hampson, Dr Keith
Ancram, Michael	Corrie, John	Hannam, John
Arnold, Tom	Costain, A. P.	Haselhurst, Alan
Aspinwall, Jack	Cranborne, Viscount	Hastings, Stephen
Atkins, Rt Hon H. (Spelthorne)	Critchley, Julian	Havers,Rt Hon Sir Michael
Atkins, Robert (Preston North)	Crouch, David	Hawkins, Paul
Atkinson, David (B'mouth, East)	Dean, Paul (North Somerset)	Hawksley, Warren
Baker, Kenneth (St. Marylebone)	Dickens, Geoffrey	Hayhoe, Barney
Baker, Nicholas (North Dorset)	Dorrell, Stephen	Heath, Rt Hon Edward
Beaumont-Dark, Anthony	Douglas-Hamilton, Lord James	Heddle, John
Bell, Sir Ronald	Dover, Denshore	Henderson, Barry
Bendall, Vivian	du Cann, Rt Hon Edward	Heseltine, Rt Hon Michael
Benyon, Thomas (Abingdon)	Dunn, Robert (Dartford)	Hicks, Robert
Benyon, W. (Buckingham)	Durant, Tony	Higgins, Rt Hon Terence L.
Best, Keith	Dykes, Hugh	Hill, James
Bevan, David Gilroy	Eden, Rt Hon Sir John	Hogg, Hon Douglas (Grantham)
Biffen, Rt Hon John	Edwards, Rt Hon N. (Pembroke)	Holland, Philip (Carlton)
Biggs-Davison, John	Eggar, Timothy	Hooson, Tom
Blackburn, John	Elliott, Sir William	Hordern, Peter
Blaker, Peter	Eyre, Reginald	Howe, Rt Hon Sir Geoffrey
Body, Richard	Fairbairn, Nicholas	Howell, Rt Hon David (Guildford)
Bonsor, Sir Nicholas	Fairgrieve, Russell	Howell, Ralph (North Norfolk)
Boscawen, Hon Robert	Faith, Mrs Sheila	Hunt, David (Wirral)
Bottomley, Peter (Woolwich West)	Farr, John	Hunt, John (Ravensbourne)
Bowden, Andrew	Fell, Anthony	Hurd, Hon Douglas
Boyson, Dr Rhodes	Fenner, Mrs Peggy	Irving, Charles (Cheltenham)
Bradford, Rev. R.	Finsberg, Geoffrey	Jenkin, Rt Hon Patrick
Braine, Sir Bernard	Fisher, Sir Nigel	Jessel, Toby
Bright, Graham	Fletcher, Alexander (Edinburgh N)	Johnson Smith, Geoffrey
Brinton, Tim	Fletcher-Cooke, Charles	Jopling, Rt Hon Michael
Brittan, Leon	Fookes, Miss Janet	Joseph, Rt Hon Sir Keith
Brocklebank-Fowler, Christopher	Forman, Nigel	Kaberry, Sir Donald
Brooke, Hon Peter	Fowler, Rt Hon Norman	Kellett-Bowman, Mrs Elaine
Brotherton, Michael	Fox, Marcus	Kershaw, Anthony
Brown, Michael (Brigg & Sc'thorpe)	Fraser, Rt Hon H. (Stafford & St)	Kimball, Marcus
Browne, John (Winchester)	Fraser, Peter (South Angus)	King, Rt Hon Tom
Bruce-Gardyne, John	Fry, Peter	Kitson, Sir Timothy
Bryan, Sir Paul	Galbraith, Hon T. G. D.	Knight, Mrs Jill
Buchanan-Smith, Hon Alick	Gardiner, George (Reigate)	Knox, David
Buck, Antony	Gardner, Edward (South Fylde)	Lamont, Norman
Budgen, Nick	Garel-Jones, Tristan	Lang, Ian
Bulmer, Esmond	Gilmour, Rt Hon Sir Ian	Langford-Holt, Sir John
Burden, F. A.	Glyn, Dr Alan	Latham, Michael
Butcher, John	Goodhart, Philip	Lawrence, Ivan
Butler, Hon Adam	Goodhew, Victor	Lawson, Nigel
Cadbury, Jocelyn	Goodlad, Alastair	Lee, John
Carlisle, John (Luton West)	Gorst, John	Lennox-Boyd, Hon Mark
Carlisle, Kenneth (Lincoln)	Gow, Ian	Lester, Jim (Beeston)
Carlisle, Rt Hon Mark (Runcorn)	Gower, Sir Raymond	Lewis, Kenneth (Rutland)
Chalker, Mrs Lynda	Gray, Hamish	Lloyd, Ian (Havant & Waterloo)
Channon, Paul	Greenway, Harry	Lloyd, Peter (Fareham)
Chapman, Sydney	Grieve, Percy	Loveridge, John
Churchill, W. S.	Griffiths, Eldon (Bury St Edmunds)	Luce, Richard
Clark, Hon Alan (Plymouth, Sutton)	Griffiths, Peter (Portsmouth N)	Lyell, Nicholas
Clark, Sir William (Croydon South)	Grist, lan	McCrindle. Robert
McCusker, H.	Parris, Matthew	Stanley, John
Macfarlane, Neil	Patten, Christopher (Bath)	Steen, Anthony
MacGregor, John	Patten, John (Oxford)	Stevens, Martin
MacKay, John (Argyll)	Pattie, Geoffrey	Stewart, Ian (Hitchin)
McNair-Wilson, Michael (NewBury)	Pawsey, James	Stewart, John (East Renfrewshire)
McNair-Wilson, Patrick (New Forest)	Percival Sir Ian	Stokes, John
McQuarruie, Alber'	Peyton, Rt Hon John	Stradling Thomas, J.
Madel, David	Pink, R. Bonner	Tapsell, Peter
Major, John	Pollock, Alexander	Taylor, Robert (Croydon NW)
Marland, Paul	Porter, George	Tebbit, Norman
Marlow, Tony	Powell, Rt Hon J. Enoch (S Down)	Temple-Morris, Peter
Marshall, Michael (Arundel)	Prentice, Rt Hon Reg	Thatcher, Rt Hon Mrs Margaret
Marten, Neil (Banbury)	Price, David (Eastleign)	Thomas, Rt Hon Peter (Hendon S)
Mates, Michael	Prior, Rt Hon James	Thompson, Donald
Mather, Carol	Proctor, K. Harvey	Thorne, Neil (llford South)
Maude, Rt Hon Angus	Pym, Rt Hon Franci	Thornton, Malcolm
Mawby, Ray	Raison, Timothy	Townend, John (Bridlington)
Mawhinney, Dr Brian	Rathbone, Tim	Townsend, Cyril D. (Bexleyhealh)
Maxwell-Hyslop, Robin	Rees, Peter (Dover and Deal)	Trippier, David
Mayhew, Patrick	Rees-Davies, W. R.	Trotter, Neville
Mellor, David	Renton. Tim	van Siraubenzee, W. R.
Meyer, Sir Anthony	Rhodes James, Robert	Vaughan, Dr Gerard
Miller, Hal (Bromsgrove & Redditch)	Rhys Williams, Sir Brandon	Waddington, David
Mills, Iain (Meriden)	Ridsdale, Julian	Wakeham, John
Mills, Peter (West Devon)	Rifkind, Malcolm	Waldegrave, Hon William
Miscampbell Norman	Roberts, Michael (Cardiff NW)	Walker, Rt Hon Peter (Worcester)
Mitchell, David (Basingstoke)	Roberts, Wyn (Conway)	Walker, Bill (Ferth & E Perthshire)
Moate, Roger	Ross, Wm. (Londonderry)	Walker-Smith, Rt Hon Sir Derek
Molyneaux, James	Rossi, Hugh	Wall, Patrick
Monro, Hector	Rost, peter	Waller, Gary
Montgomery, Fergus	Royle, Sir Anthony	Walters, Dennis
Moore, John	Sainsbury, Hon Timothy	Ward, John
Morgan, Geraint	St. John-Stevas, Rt Hon Norman	Warren, Kenneth
Morris, Michael (Northampton, Sth)	Scott, Nicholas	Watson, John
Morrison, Hon Charles (Devizes)	Shaw, Giles (Pudsey)	Wells, John (Maidstone)
Morrison, Hon Peter (City of Chester)	Shaw, Michael (Scarborough)	Wells, Bowen (Hert'rd & Stev'nage)
Mudd, David	Shelton, William (Streatham)	Wheeler, John
Murphy, Christopher	Shepherd, Colin (Hereford)	Whitelaw, Rt Hon William
Myles, David	Shepherd, Richard (Aldridge-Br'hills)	Whitney, Raymond
Neale, Gerrard	Shersby, Michael	Wlckenden, Keith
Needham, Richard	Silvester, Fred	Wiggin, Jerry
Nelson, Anthony	Sims, Roger	Wilkinson, John
Neubert, Michael	Skeet, T. H. H.	Williams, Delwyn (Montgomery)
Newton, Tony	Speed, Keith	Winterton, Nicholas
Normanton, Tom	Speller, Tony	Wolfson, Mark
Nott, Rt Hon John	Spence, John	Young, Sir George (Acton)
Oppenheim, Rt Hon Mrs Sally	Spicer, Jim (West Dorset)	Younger, Rt Hon George
Osborn, John	Spicer, Michael (S Worcestershire)
Page, John (Harrow, West)	Sproat, Iain	TELLERS FOR THE NOES
Page, Rt Hon Sir R. Graham	Squire, Robin	Mr. Spencer Le Merchant and
Page, Richard (SW Hertfordshire)	Stainton, Keith	Mr. Anthony Berry.
Parkinson, Cecil
Question according negatived.