HC Deb 29 July 1980 vol 989 cc1288-421
Mr. Speaker

Order. Before we embark on the debate, I tell the House that many right hon. and hon. Members have indicated that they would like to participate. It is clear that at the end of the day many hon. Members will be disappointed.

Mr. Bob Cryer () Keighley

What about right hon. Members?

Mr. Speaker

Order. They may be, but they are less likely to be. The House wants a good debate. In a motion of no confidence the Chair should be left to concentrate on the debate. Hon. Members should wait to find out whether they catch the eye of the Chair.

I have not selected any of the amendments.

Mr. David Winnick () Walsall, North

On a point of order, Mr. Speaker. As the Prime Minister mentioned the area that I have the honour to represent, together with my hon. Friend the Member for Walsall, South (Mr. George), is it possible for the Prime Minister to make a statement—

Mr. Speaker


Mr. Winnick

—about the matter that is said to be crippling the housing programme.

Mr. Speaker

Order. If the hon. Gentleman does that again, I shall invite him to leave the Chamber. It is unfair to continue shouting once I have asked for order. [HON. MEMBERS: "Name him."]

3.33 pm
Mr. James Callaghan () Cardiff, South-East

I beg to move, That this House has no confidence in Her Majesty's Government whose economic and social policies are spreading mass unemployment, undermining British industry and demoralising the country. The motion has been tabled because of the great harm that the Government's policies are causing our people. Those policies are leading British industry into even greater trouble. Above all, we reject the oft-repeated parrot cry that there is no alternative. There are alternatives, and there are better policies. The Opposition are not alone in their criticism. Although the Government will no doubt use their majority tonight they will not be able to quieten the concern, anxiety and cries for help in many parts of industry throughout the country. Regional authorities, which have a close knowledge of what is taking place in their areas, are also much concerned. We shall probably hear echoes of those cries from the Conservative Benches, especially from hon. Gentlemen whose constituencies contain industries that are in trouble. They may not have been here had it been known at the election what policies a Conservative Government would follow. Had the Prime Minister spelt out what her policies meant, those hon. Gentlemen would not have been in their places today.

In her final broadcast before the election the Prime Minister should have said "During my first 15 months of Government nearly 600,000 more men and women will be put out of jobs; interest rates will be 4 per cent. higher; inflation will double; firms will have to cut back planned expansion and spending on new plant, machinery and modernisation; and the output of our manufacturing industries will be 8 per cent. lower, which will mean more bankrupt firms and redundancies. Oh, let me add, if any of these additionally unemployed people ask me how to find a job, I shall tell them to move." Had she said that the right hon. Lady might not have won the election, but it would have been more honest.

We warned the right hon. Lady and her Government from the outset that they were underestimating the adverse impact of their policies. She ignored us, as she ignored the trade unions. Last December, when speaking to political reporters, she is quoted as having "waxed bullish" about the economy. She said that all those astute reporters and political observers had failed to notice that retail industry was booming and employment still holding. She would not say that today. She also talked about what she termed "this blessed recession". She went on to say that she did not accept that there would be a lower rate of growth in 1980 than in 1979. She would not say that today.

She said that she would get herself a more sceptical forecaster, because she did not believe what the Chancellor's fore- caster was telling her. We remember how scornful she was of the Chief Secretary's hair shirt, but he was closer to the truth about the impact of her policies than she was. With his words about three years of unparalleled austerity he perhaps understood what she was doing, but she did not. The country is now paying the price for that empty self-confidence of last December.

The Chancellor is not much better. On the day that he introduced his Budget and practically doubled value added tax, the Daily Mail, having said that that suggestion by Labour candidates during the election was a gross lie—although we should not take the Daily Mail as an authority—I gave the right hon. and learned Gentleman a warning as soon as he finished his speech. When he delivered that impost, the trade union conference season was in full swing and was determining the attitude of negotiators in the next wage round. I warned him that he was taking a reckless gamble. He dismissed that warning in the way that the Prime Minister dismissed our earlier warnings. He pressed ahead, and we now see the result. A year ago the Chancellor and the Chief Secretary—I do not see him—

The Chief Secretary to the Treasury (Mr. John Biffen)

Here I am.

Mr. Callaghan

A year ago, the Chancellor of the Exchequer and the Chief Secretary—a good man fallen among the wets today—agreed that wages had no role in increasing the underlying rate of inflation. Those two ornaments of the Treasury Bench were still under the spell of their own rhetoric and, I suppose, of Milton Friedman's theories. They believed that all would come right at the end of the day. Even if some strong trade unions got more, the weaker unions would get less, because any excess would be taken from them by the Government strictly controlling the supply of money.

We have all seen the result of that policy. After 15 months, the rate of inflation has increased from 10 per cent. to 21 per cent. and the rate of increase in earnings has risen from 13 per cent. to 21 per cent.

I understand that it is being whispered privately to journalists that Ministers believe that they may have made a mistake in doubling VAT in the first Budget.

More than that, the Chief Secretary—I see that he is sitting on the second Bench back—is alone. The Chancellor of the Exchequer has deserted him, and has changed his tune. The dominant note in every speech that the Chancellor makes nowadays reflects not the theories that the Chief Secretary still espouses but the need for moderate wage settlements as a way to speed up the reduction of inflation. I am glad that the right hon. and learned Gentleman has discovered that. It is a pity that he did not do so earlier.

There was a further error. Last year we warned that the country would be asked to pay too high a price in lost output in order to reduce inflation if the Government tried to achieve that reduction only by a mechanistic control of the money supply and a reduction in public expenditure. We said, time after time, that the country would lose more in lower output than it would gain in lower inflation. That criticism, too, was dismissed by the Prime Minister and the Chancellor of the Exchequer. But what are the facts? Manufacturing output is 8 per cent. lower than a year ago and inflation is higher. That combination is a near-calamity for many firms.

Of course, there is complete agreement that a reduction in the level of inflation is a supreme need. Indeed, we wish that the Government had not added unnecessarily to inflation a year ago. However, there is a difference between us that I wish to emphasise. We are deeply sceptical about the Government's belief that if the level of inflation is substantially reduced—no matter at what cost to output, and we have seen the suffering there—it will lead, by some unexplained process, to a self-generating upturn in new investment and the adoption of high technology.

We believe that the Government are deluding themselves in thinking that their only responsibility is to get the level of inflation down and that thereafter market forces will take over. If the present slump continues for the three years forecast by the Chief Secretary, no one can say with any certainty what will be the state of health of British industry at the end of that time. In its most extreme form the proposition was put by the hon. Member for Macclesfield (Mr. Winterton) on the radio this morning. He said that there was no point in curing the disease if one killed the patient in the process. I agree with him.

There is no evidence and, as far as I know, nothing in our industrial history to justify the belief that British industry will be able, or willing, to modernise during a long period of three years of recession. If the Government continue to damp down demand, British industry will emerge at the end of the three years weaker than it is today and not stronger. That is the problem that the Government face, and it is no use to anyone dodging it. There is nothing in our past to justify the belief that modernisation will take place during a long and deep recession.

The Prime Minister can surely have no misapprehension about what is happening. Even efficient firms are refraining from installing new and up-to-date capacity. Why? Because they cannot see any expansion in demand or in the home market to look forward to. Business confidence is so low that new investment in modernising plant and machinery is set to decline by 10 per cent. over the next 12 months. British industry needs a continuing high level of investment—as high a level as it achieved during the period of office of the Labour Government.

For as far as we can see ahead the Government's policy will ensure reduced output and, therefore, higher unit labour costs. We are agreed that we need a general increase in productivity. We may get a temporary, short-run burst as the recession deepens into a slump, but I firmly believe that we shall not get the consistent increase in productivity that is required to enable us to compete if, following the lowering of demand, inflation is brought to an end or reduced to decent levels.

We have discussed the issues in the past few weeks in a series of debates initiated by the Opposition. We shall discuss them again tomorrow in relation to the textile industry. I have either been present at, or have read the reports of, all the debates and they show, in speeches from both sides of the House, that firms that are efficient, have good industrial relations and are technically advanced are suffering from difficulties and are discharging workers because of the slump that has been induced by the Government's choice of policies.

More than one industry has been quoted by hon. Members in the debates to support the conclusion that it is not inefficiency or even high wages in those industries that has caused such a dramatic drop in sales. My right hon. Friend the Member for Battersea, North (Mr. Jay) put it succinctly when he said that the Government are telling us that we have to live within our means, but it is the Government themselves who are determining the size of those means. My right hon. Friend is correct. The Government's choice of policies is resulting in the present fall in demand. Therefore, the Government are limiting the size of our means.

The House should consider the position of the energy industries. The Daily Telegraph reported yesterday on the falling demand for electricity and said that it would reduce the electricity board's demand for coal. According to The Daily Telegrarph, discussions are beginning between the Central Electricity Generating Board and the National Coal Board about reducing the amount of coal that will be needed.

The CEGB has an understanding with the NCB to take 75 million tons this year. If it does not need that amount there will be serious consequences for the NCB's finances—and that will not be the end of the story. If the CEGB's finances suffer, will it be able to afford to go ahead with its programme of ordering from the power plant industry? We begin to see how these matters tie into each other and are interrelated.

We all know that without regular orders the power plant industry will be unable to compete internationally. Unless the Government are careful and change their policies we shall experience a domino effect, starting with lower demand, continuing into the CEGB's need for less coal and, through its financial difficulties, into the power plant industry's inability to compete.

What I am saying to the Prime Minister is that this country is in danger of being dragged into a downward spiral in both private as well as public industry. We are warned that the CBI survey that is to be published tomorrow will be one of the gloomiest, if not the gloomiest, since the CBI began its surveys. I read that the metal trades, textiles, timber and wood products are all experiencing a sharp squeeze in business activity, which is eroding their longer-term plans.

Industry is now in danger of being sucked into a downward spiral of fewer orders, leading to lower output, leading to lower productivity, which will lead to less capacity to invest in new plant, machinery and modernisation. That will lead to even fewer orders and, at the end of the day, to redundancies and closures. That is the consequence of that kind of policy. It is that combination that triggered off the alarm and anger that ran through the country last week, when the number of men and women out of work was published.

The size and rapidity of the increase and the alarming statements by Ministers—the Secretary of State for Employment among them—that even higher unemployment was expected, aroused both anxiety and fear. It has not been the practice of Governments to give forecasts of unemployment, because of the uncertainties that surround it. Nevertheless, the Secretary of State, to my surprise, gave such a figure in an interview with The Sunday Times on 20 July.

That figure was given before the authoritative figures were published. However, for 1981 the hon. Gentleman is reported to have said that he believed that 1.8 million people would be out of work. The country is entitled to ask the Prime Minister whether the Secretary of State gave that figure. If he says that he did not, he will no doubt wish to take the matter up with The Sunday Times. However, if the Secretary of State did give that figure we are entitled to ask the Prime Minister, if that is a Treasury estimate, how much higher the figure will go, and for how long.

The Prime Minister told us that some short-term increase was inevitable. How long is short-term? There are already over 390,000 long-term unemployed and job vacancies have fallen for 13 successive months. What confidence does the Prime Minister have that if Government policies persist unchanged those who are now being discharged from their jobs—[Interruption.] I can understand why Conservative Members would prefer to be diverted from the serious nature of these problems. The same hon. Gentlemen are responsible, and they had better listen and consider whether they believe that the Government are taking steps to put the situation right.

If the Government's policies persist unchanged will not those who are now being discharged, or just entering the labour market as school leavers, become the long-term unemployed and join the 390,000 that I have mentioned? We are entitled to ask the Government whether they would just sit there if the unemployment figure rose to 2V million during 1981 or 1982. Do the Government have a ceiling for unemployment before they will change their policy, and do they know what they would do in those circumstances?

I put it to the Prime Minister that she should help the country by saying what impact, in her view, given levels of inflation, money supply and earnings would have on the level of unemployment. That has been worked out. It is no use pretending that it has not. The Government have figures and estimates. Perhaps those estimates will not be wholly accurate but we have not been in this position since 1944, when the Coalition White Paper was published.

The Government have a special responsibility to give the country guidance about what they believe could be achieved given certain policies. If the Prime Minister would tell us that, the country would know what was in store. What is more, people would be able to say whether they were prepared to back the Government in accepting such policies if it meant a rise in unemployment to 2½ million or more—though I trust that will not happen.

I do not depart, and never have, from my view that an important and just means of helping to avoid inflation—though not the only means—is a linkage between increased productivity and reasonable wage settlements. That is as true today as ever it was. But if the Government hope for reasonable wage settlements they must take the people into their confidence. Even more important, the Government must convince working people that they are working in their interests. The Prime Minister has gone a long way towards disqualifying herself from being able to convince working people of that. Many people simply do not believe, or accept, that it is socially right or just to pay for reductions in rates of income tax or surtax for those who are best off, or to embark upon a £5 billion programme to replace Polaris, when they contrast—

Mr. Patrick Cormack () Staffordshire, South-West

Will the right hon. Gentleman give way?

Mr. Callaghan

I am in the middle of a sentence, I shall not give way. When people contrast that with the Government's miserable penny-pinching policy of closing of old people's homes or stopping school meals, they will not accept that Government policy is justified.

The Prime Minister must address herself to the contrast that she is making in that direction. How can she justify reducing income tax in that way while at the same time asking ordinary people to accept restraints? I believe that restraint is necessary, but I also believe that we must have a Government who are determined to ensure social justice before that restraint is obtained.

Mr. Cormack rose

Mr. Callaghan

I shall not give way. From the estimates that we have been able to make about unemployment it is clear that the Government's monetary policy is too tight. We must have a responsible monetary policy and we can achieve that if our monetary target and our inflation levels are compatible. The Labour Government did it. We had a monetary target of between 8 per cent. and 10 per cent. and we had an inflation rate running at 10 per cent. or under. That was perfectly consistent with the growth of British industry, and that was why industry grew by 3 per cent. in 1978.

The Government cannot escape the fact that their present monetary target of between 7 per cent. and 11 per cent. with inflation running at up to 20 per cent., means, as sure as night follows day, that real output will fall, more firms will close, and more people will be put on the dole. The two are incompatible, and the Chief Secretary to the Treasury knows that if nobody else does.

The Prime Minister recently went to Swansea, where she offered advice to those who were out of work. She said that if people could not find a job they must be mobile. I am sure that she did not realise the desperate memories that such a comment would arouse. There was genuine anger in South Wales that weekend. The Secretary of State for Wales claimed that the Prime Minister had been misunderstood and, subsequently, both he and she have lamely attempted to explain that she meant that people should move locally within South Wales. That turned the anger into mockery.

I do not know whether the right hon. Lady has any idea of the position in South Wales. If my hon. Friends and the House will allow me I shall state that position, because I know that it illustrates the position in other parts of the country. The Prime Minister was speaking in West Glamorgan, where 3,272 young people are seeking work and only 23 jobs are available. When those vacancies have been taken up there will be 3,249 young people left to make a move.

When they move across to Mid-Glamorgan they will find that there are 16 more vacancies available. They will also find 5,623 young people living locally who will snap up those 16 jobs. If the young people of West Glamorgan and Mid-Glamorgan then join forces and decide to go further east, to Gwent, they will find a further 17 jobs being offered. They will also find that another 5,121 young people are scrambling for those jobs. Altogether, in Glamorgan and Gwent over 17,000 young people are seeking jobs, but there are only 96 notified vacancies.

Now does the Prime Minister understand? Would she like to give an explanation or, better still, will she admit her error? She must know that it is not true that young people can move inside South Wales and get jobs. The Secretary of State for Wales made a fatuous suggestion. He said that they should go to rural Cardigan. He should know better.

Mr. Nick Budgen () Wolverhampton, South-West

Will the right hon. Gentleman tell the House what he thinks the monetary target should be?

Mr. Callaghan

I shall come to that part of my speech later.

I welcome, as we all must, the new schemes for factory building announced yesterday by the Welsh Development Agency. However, they are a mere drop in the bucket compared with what is required. That is well understood. Leaving aside the 17,000 young people scrambling for 96 vacancies, 95,000 adults are out of work in Wales. The figures are seasonally adjusted. Vacancies total 5,400. There is one vacancy for every 20 men and women who are out of work. What does the Prime Minister mean when she says that they can move locally to get jobs?

While the Government tinker with denationalisation, South Wales lives in fear that steel making will be abandoned. Now, perhaps, the Prime Minister understands why one of the leading newspapers in South Wales said that when she returned to London she left South Wales "confused and demoralised."

My hon. Friends from the North, the North-East, the North-West and Scotland can give similar accounts. Perhaps for the first time, serious unemployment has spread to Yorkshire and the prosperous Midlands. For people in such areas who wish to add to their incomes there is a new slogan—"Take a lodger." That is the new remedy. That, I suppose, will solve the problems. It is time the Government finished with the slogans and started to concentrate on the real needs of the country.

We do not accept the Chancellor of the Exchequer's decision to continue to reduce the borrowing requirement. An expansion of public expenditure is consistent with a responsible monetary policy and lower interest rates. In short, our view is that in the present situation the Government should be using budgetary and monetary instruments to stimulate demand. I wish to make that clear. Even Professor Friedman, the guru of the Conservative Government, now says that there is no necessary relationship between the size of the borrowing requirement and monetary growth. That is not a matter of theoretical debate; it is a matter of fact.

The Labour Government succeeded in supporting higher levels of public expenditure and lower interest rates because we had a balanced policy. It was balanced between monetary policy, fiscal policy and incomes policy. If the Government applied that combination they would achieve the same level of monetary supply as we had. There would be a more stable, efficient, and hard-working economy, and full employment.

Interest rates should be brought down quickly and firmly. If the Government were prepared, as they should be, to intervene in the foreign exchange markets, the exchange rate would not be as high as it is. I recognise that that would mean some rise in the money supply. We are balancing factors, let the Government understand that. I realise that it would mean some rise in the money supply, but a money target that is more closely related to the rate of inflation would allow the Government to bring interest rates down and bring the exchange rate closer to that which is justified by Britain's present economic performance. Manufacturers in the Midlands and elsewhere will be telling Government Members that, if they have not already told them. In such circumstances, investment and exports would be assisted.

The Government should put North Sea oil revenues more directly at the service of industry instead of using them to finance high levels of unemployment. The Government should reintroduce the accelerated projects scheme which the Labour Government began. That scheme generated investment in a number of industries. The figures are there if the right hon. Lady cares to turn them up. The scheme generated an investment level five or six times greater than the amount it cost the taxpayer. We are coming up to 1 August and the Government are proposing to reduce the size of assisted areas and to downgrade some of them. That is at a time when unemployment is higher than it has been since the 1930s. They should reverse that policy immediately.

Mr. Cranley Onslow () Woking

Does the right hon. Gentleman intend to dwell on the international setting in which Britain's economy exists? Does he believe that there is any connection between international demand and his recipe of producing more goods, which might not be saleable in the world?

Mr. Callaghan

If the hon. Gentleman cares to wait, I shall come to that in the final paragraph of my speech. If hon. Members exercised patience they might learn something.

There is a great need to get potentially efficient companies and industries over the worst of the recession. Direct job subsidies should be introduced. They were used by the Labour Government and have been continued, but they have been cut by the present Government. The Government should invest more in improving our infrastructure, such as railways, roads and ports. They should also improve our social infrastructure by building houses at a time when construction workers are idle.

Companies are cutting back on training and apprentices. My right hon. and learned Friend the Member for Aberavon (Mr. Morris) gave a classic example of the British Steel Corporation cutting apprenticeships at Port Talbot from 65 or 70 a year to 35. Everybody says that we need skilled labour, but only lip service is paid to it. The British Steel Corporation has said that it is ready to continue training the full number of apprentices, but the cost is £150,000. The corporation has asked whether the Government will find that money, but the Government would sooner be penny-wise, pound-foolish and cut by half the number of apprentices being trained. The Government must increase training, not only to help the unemployed but to improve the chances of rising productivity.

The Manpower Services Commission budget has been cut. What defence is there for that? What madness is it? Some industrial training boards are said to be under threat. The Government wish to put additional responsibility for training on companies at a time when they can least afford it. If world growth and trade are to recover it will require a change in attitude by the Prime Minister every bit as great as that called for by the failings of her domestic policies.

One of the most depressing features about the Venice summit was the failure—particularly by the Prime Minister, because of the severity of the slump in Britain—to fight against the synchronised downturn of all the industrialised countries.

If world trade does not expand, inevitably countries will drift into a protectionist war. We believe that it is essential that world trade should expand. Until the leaders of the world can agree on a viable plan we in Britain will need to safeguard our industrial position, provided that we can combine that with trade and aid for the developing world. It is necessary to introduce some temporary measure of protection for some of our efficient industries. Such measures in the case of industries that need modernisation should be combined with viable plans for modernisation for the temporary period.

There should be a further summit—a successor to the Venice summit—at which the Prime Minister can battle for British and world trade.

To sum up, the Government must not attempt to solve the nation's problems on the backs of 2½ million unemployed men and women. Any improvement that they get will be bought at too high a price. I have put forward a package of measures that would stimulate demand. That is far better than the dreary hopelessness to which Conservative Members will be confined during the forthcoming months. Measures such as those that I have put forward and others that I have outlined should be adopted. We shall continue to press them upon the Government. We shall take our proposals to the country on every occasion, so that public opinion, in the end, will force the Government to change their stance or, better still, to go.

4.10 pm
The Prime Minister (Mrs. Margaret Thatcher)

I have taken part in many censure debates over the last 20 years. With but a single exception, in which I was particularly involved, as was the right hon. Member for Cardiff, South-East (Mr. Callaghan), their outcome was a foregone conclusion. Nevertheless, I think that for the most part they were occasions when the parties of opposition, or some of them, were genuinely convinced that the Government of the day were grievously in error. I do not doubt the sincerity of the Opposition this afternoon. My task is to explain why I believe that the change of direction which they urge upon us would be fundamentally mistaken. Having listened to the right hon. Gentleman, it seems to me that what he wants is more of everything except financial responsibility.

Every one of us on the Government side of the House is as concerned as the right hon. Gentleman about rising unemployment. [HON. MEMBERS: "Rubbish."] We recognise, as much as any on the Opposition Benches, the heavy toll of disappointment and frustration represented by every person on the unemployment register. We also believe that it is a cruel deception to pretend to the unemployed that it is within the capacity of politicians, on their own, to create employment that will last, or to avert indefinitely the disappearance of a job whose market has gone. What is more, protestations from the Opposition Benches would carry more weight if the Opposition's own record in office had been better. They know, and the right hon. Gentleman knows, that under the Labour Government unemployment doubled and that, at the peak in 1977, there were 1 million more men and women out of work than when they took office.

What did the right hon. Gentleman say then? He told us that it did not help to pretend that there were immediate and quick solutions."—[Official Report, 3 March 1977; Vol. 927, c. 607.] In 1978 he said that to suggest that the unemployment that is sweeping the Western world is due to the policies of Her Majesty's Government was sheer party politics."—[Official Report, 24 January, 1978; Vol. 942, c. 1174.] The tune has changed a little since then. Today, the whole centrepiece of the right hon. Gentleman's approach is the immediate reflation of the economy, which he would achieve mainly by increased public spending. He could finance that extra spending in one of only three ways. He could tax more, borrow more or print more, or, to judge by previous form, a combination of all three. The right hon. Gentleman admitted, when he was in government, that earnings were already too heavily taxed. He even took some inadequate steps towards reducing that burden. It took a Conservative Government to make the real breakthrough in cutting direct taxation and allowing people to keep more of the money they earned. We hope to go further in this direction.

Perhaps, rather than tax more, the right hon. Gentleman would advocate that we should relax our fiscal policy, which he did, and borrow more. I believe that another £3 billion has been mentioned. At a time when the demand for industrial and commercial credit is still high, for the Government to borrow still more could only have the effect of driving up interest rates. In our view, that would be one of the most damaging things that could happen to the private sector and to the prospects for jobs.

The outlook for interest rates depends crucially on curbing public spending and borrowing, a course to which the Government are already committed. The Government are determined to bring interest rates down further as soon as it is prudent to do so. [HON. MEMBERS: When?] As soon as it is prudent to do so.

The only other way of spending more money would be to print more by relaxing the monetary targets. That is what the right hon. Gentleman advocated. He is telling the House that the Government's target range of 7 to 11 per cent. for this year should be increased. In doing so, he is abandoning any pretence that the attack on inflation is his first priority.

There are those who take the view that we should give up the aim of reducing inflation and simply adjust to the current rate. It is argued that this would avoid the formidable transitional problems we inevitably face. That was the right hon. Gentleman's argument. The history of the past 20 years has shown that attempts to adjust to inflation have merely led to ever-increasing inflation rates. Each time commodity prices or oil prices move upwards, we have been ratcheted to a new, higher level of inflation. Each time, it is argued, as the right hon. Gentleman argued today, that this should be accommodated because the price of preventing it would be too great.

The Government are determined to reverse this process. They are determined to establish credibility for sound financial management and to resist attempts to argue for more adjustment. Accommodating inflation does not mean stable inflation at a higher level. It inevitably means accelerating inflation leading to hyper-inflation. That would destroy confidence in our society and be a cheat and fraud on the savings of the people, particularly the elderly.

Mr. Robert Sheldon () Ashton-under-Lyne

Is the Prime Minister aware that responsible financial management led Sir Winston Churchill to return to the gold standard and that he regarded this as the greatest mistake of his life because it increased the exchange rate, led to unemployment and led to the destruction of industry?

The Prime Minister

If the right hon. Gentleman has to go back that far, he really is in difficulty. I should like to give him a reply relating to a more modern and up-to-date time. The right hon. Gentleman the Leader of the Opposition—perhaps, the right hon. Gentleman supports this—suggests that we stimulate demand by printing more money.

Mr. David Stoddart () Swindon


The Prime Minister

Of course he does. That is exactly what he is doing. The answer to everything that the right hon. Gentleman said was given by his right hon. Friend the former Chancellor of the Exchequer, who said in 1977: If we tried to stimulate demand by printing money to give away at home, then we would run slap up against the problems that nearly knocked us off our feet last year (1976). We would increase the gap between what the Government spend and get in revenue to a size which we could not finance without raising interest rates to a level which choked off our industrial revival. So the only result would be to get deeper into the red, to send the pound plummeting and prices and unemployment rocketing. That is true. That is exactly what the Leader of the Opposition was advocating today.

There are those who say that we should accommodate inflation because they are not prepared to fight it. But there are also those who, unlike the right hon. Gentleman, say that although our strategy is right we are not applying it vigorously enough, that unless we reduce public spending faster, the effect of the monetary policies will bear too heavily on the private wealth-creating sector and on the very firms upon which we count to provide growth and jobs for the future. I understand and share these anxieties. It is, indeed, a danger, but the Government believe that, bearing in mind the many problems that we face, the pace of change is as fast as circumstances will allow.

It has been particularly difficult to reduce public spending when we have had to meet the cost of the Clegg and other comparability awards. That catching-up process—which follows the inevitable collapse of incomes policies—is now nearly over. The Government are making strenuous efforts to keep public sector pay settlements within what the nation can afford. We owe it to the private sector, and especially to the small businesses.

If we want more money in the private sector we can have that only while we are fighting inflation by reducing the public sector. That is what the Leader of the Opposition will not face.

Mr. Dennis Skinner () Bolsover

Is the Prime Minister aware that there is another area where public spending is increasing very rapidly? Does she agree with the words of the Minister of Agriculture, Fisheries and Food, at Warwick a few weeks ago, when he told the Tory Reform Group that of a public sector borrowing requirement of £9,000 million per annum, £7,000 million went to finance the dole queue? If she does not, will she explain what she is to do with her right hon. Friend?

The Prime Minister

First, I do not think that my right hon. Friend said that £7,000 million of the £9,000 million public sector borrowing requirement—[HON. MEMBERS: "He did."]—was needed to finance the dole queue. On the whole, unemployment benefit is financed out of the national insurance fund. If the hon. Member wants precise figures he must ask my right hon. and learned Friend the Chancellor of the Exchequer for them. However, neither the Leader of the Opposition nor the hon. Member for Bolsover (Mr. Skinner) can ignore the fact that if we are to continue to fight inflation we cannot have increasing public spending and more resources in the private sector. That is the conundrum that we have to try to solve.

The right hon. Gentleman also suggested that we should by one means or another bring down the exchange rate to help make British industry more competitive. I agree that a high exchange rate is making life difficult for some of our industries, but I must tell him that he greatly overestimates our capacity to influence or resist the markets.

Sterling has strengthened recently because we have North Sea oil and because investors overseas believe that our economic policies are right, that they will succeed, and that under a Tory Government Britain is worth investing in. I agree with them. I also concede that if overseas investors thought that we had thrown in the sponge in the fight against domestic inflation they would want to get out of our currency and it would fall. But is that really what the Opposition would advocate, bearing in mind what happened in 1976, when, under the right hon. Gentleman, the pound plummeted to $1.56? If it is, our answer must be "No".

The right hon. Gentleman and his supporters have suggested the widespread imposition of import controls. We certainly believe in strong and vigorous action through the EEC against dumped or highly subsidised imports. At present the Community is actively pursuing complaints about dumping of petrochemicals and synthetic fibres. Although we are concerned about the level of import penetration, which increased considerably under the right hon. Gentleman, particularly in cars, we do not feel that general import controls really deal with the problem, and they could have very damaging effects on exports and on our industry generally.

If trade is two-way, barriers also work two ways, and in this country there are a lot of jobs in exports. Indeed, one-third of our manufacturing output goes into exports. We export a greater proportion of our GNP than all our major competitors—double that of Japan and four times that of the United States. Moreover, the right hon. Gentleman ignores the fact that import controls would raise prices to the consumer and would shelter inefficient industries.

We hear complaints about cheap imports from the low-wage developing countries, but last year we had a surplus of £2.1 billion in manufactures with them. We hear complaints about imports from the newly industrialised countries such as Korea, Taiwan and Mexico, but our surplus on manufactures with them last year was £1.2 billion. We hear complaints about imports from Europe, and yet nine out of 10 of our top export markets are European countries, with West Germany our best export market. Moreover, international companies have set up here on the basis that their products would have free access to Europe, for example Ford engines at Bridgend. Our industries must compete by the efficiency of both management and work force. It is no good demonstrating to keep yesterday's jobs. We shall not succeed. We can and do offer practical help to mitigate the effects of change, but we cannot resist it. We should foresee it, and we should adapt to new technology and new industry.

I see that the Labour Party is making another attempt to convince the country that it can make something saleable out of its special relationship with the trade unions. I even hear the magic words "social contract" being bandied around. But I doubt whether the country will be caught that way again. Let us remember what the social contract was designed to do. The Labour manifesto for October 1974 boldly said: The Social Contract is the trade unions' free acknowledgement that they have other loyalties—to the members of other unions, too, to pensioners, to the lower-paid, to invalids, to the community as a whole". Those are very fine sentiments. Four years and several stages of incomes policy later, we saw industrial disruption in schools, hospitals and old people's homes, and even in the ambulance service, and in some areas the bereaved were prevented from burying their dead. The truth is that the right hon. Gentleman was kept in power not because of support from the trade unions—who finally turned on him—but by his liaison with the Leader of the Liberal Party, without whom the Labour Government would have collapsed in 1977. That was the contract that really mattered.

I come now to the main part of the right hon. Gentleman's speech, which was concerned with unemployment. We are all concerned about the rising trend of unemployment, especially among young people. We are as concerned about unemployment having risen by some 600,000 under our Government as Labour Members were concerned at its having risen by 1 million under their Government.

Mr. Alexander W. Lyon (York) rose

The Prime Minister

We care just as much as Labour Members—

Mr. Lyon rose

Mr. Speaker

Order. The Prime Minister is not giving way and therefore the hon. Gentleman must sit down.

The Prime Minister

I am sorry, Mr. Speaker, I did not see the hon. Gentleman.

Mr. Lyon

Is it not right that the fastest rise in unemployment at the moment is among the long-term unemployed—those unemployed for more than a year—and that many of these people are over 50? Does the right hon. Lady agree that it is in this area that spending is being cut? Surely this is an area to which the Government should be giving some attention in seeking to ameliorate the impact of unemployment.

The Prime Minister

We are most concerned about the rise in the numbers of school leavers coming on to the register. We shall concentrate our efforts on them. The fastest rise in unemployment between May and July of a following year was under a Labour Government, when, between May 1975 and July 1976, unemployment rose by 613,000, which is more than it has risen under this Government. At the same time, inflation reached 26.9 per cent. and the exchange rate 1.78 dollars. Whatever our record is, it is not as bad as that.

The Government are just as concerned as the Opposition about the sheer waste and lost opportunities that unemployment entails. Our differences arise in terms of the causes and the cure. What we had from the right hon. Gentleman was an assortment of palliatives that in the long run would only worsen the situation. He would like us to take the country down the same path as that taken by the last two Labour Governments. Yet look what happened to jobs under those Governments. Under the first one, when the right hon. Gentleman was Chancellor, between 1964 and 1970 the number of jobs in the economy fell by over 300,000. That was under Labour. Between 1974 and 1979 the number was virtually static. This contrasts starkly with what happened under Tory Governments. In 1964 there were nearly 2 million more jobs than in 1951, and in 1974 there were 300,000 more jobs than in 1970. These figures speak for themselves.

Let us consider the causes of the disturbingly high level of unemployment that now faces us. I believe that there are four. The first is the simple fact that more and more people have been coming on to the labour market. The increase in the number of school leavers is making the problem of youth unemployment especially acute. Secondly, the recent tripling of oil prices has triggered off a world recession similar to that of 1974–75. There is no way that we can escape the effects of this recession. Unpalatable though it may seem to the Opposition, all the industrialised countries have now learnt that the idea of spending their way out of recession is no more an option for them than it is for us.

The third reason for our rising unemployment is our failure to adapt to changing conditions and changing patterns of trade. In the process we have lost more and more jobs to other countries. It is a sad fact that wherever the trade unions have tried to protect jobs and living standards by industrial action and restrictive practices they have all to often thrown those jobs—or someone else's jobs—away.

Let us take General Motors, for example, which, because of its experience with strikes at Ellesmere Port, is expanding in Europe rather than in Britain. Let us take the closure of British Leyland's Speke factory because employees refused revised manning levels. Let us take the incredible delays in the construction of power stations. While preserving a few jobs in one industry, the cost has been higher electricity prices and many fewer jobs in other industries.

Other countries are suffering from structural unemployment, but ours is worse because we are slower to respond to change. The Government are trying to encourage change. That is why we have freed industry from controls.

The Labour Party wants to go back to controls and its beloved planning agreements. I understand that the right hon. Member for Chesterfield (Mr. Varley) is particularly attached to them. He once managed to negotiate one. The Labour Party wants an ossified economy. Why else does the right hon. Gentleman berate us for suggesting that we need greater mobility?

With continuing skill shortages and a much higher ratio of vacancies to unemployed in some parts of the country than others, a greater willingness to move must help. [HON. MEMBERS: "Where?"] The distribution of vacancies around the country is 45 per cent. in the South-East and 55 per cent. over the rest of the country. I would think more of what the right hon. Gentleman said and what the Opposition are now shouting if it were not for the fact that under Labour, unemployment in Wales rose by 208 per cent.

A fourth and much more immediate cause of unemployment is the recent level of pay settlements, which have not been matched by productivity. Trade unions have been demanding, and too often getting, for their members increases that their employers could not afford.

Pay in the United Kingdom has been going up twice as fast as that of our competitors. With the strong pound, this has meant a massive loss of competitiveness.

Mr. Dick Douglas () Dunfermline

Will the right hon. Lady tell the House in which areas of the country there are vacancies, and in what skills?

The Prime Minister

I did that a moment ago, when I gave the percentages. Do not the Opposition realise that each month 250,000 people go off the unemployment register? They find jobs. It is not a static position. At the moment there are comparatively few vacancies—126,000—but that figure has not touched bottom. It was lower under the last Labour Government. We must multiply by about three to get the actual number of vacancies. As the hon. Gentleman goes over the situations vacant columns in many local newspapers throughout the country, as he has, he will find many vacancies.

A fourth and much more immediate cause of unemployment is that the recent levels of pay settlements have not been matched by productivity. By paying themselves more than they have earned, people have put their own jobs at risk. When they have passed it on in higher prices they have also put the jobs of others at risk, and by taking for themselves the money that otherwise would have been available for new jobs they have worsened the prospects for school leavers.

Mr. Jack Ashley (Stoke-on-Trent, South) rose

The Prime Minister

I must carry on now.

Too much pay means too few jobs. We have set out our monetary targets for several years ahead, so that management and unions may negotiate against that background. If earnings exceed those targets, unemployment will rise. If earnings are well within that range, there will be room for growth and more people will be at work. No one can opt out of this responsibility.

Unlike the right hon. Gentleman after his reconversion to Socialist economics, we can make no pretence that Government alone can control the level of employment in a free society, but we do regard it as a duty of the Government to facilitate change and to alleviate its effects.

We are spending more on training measures, especially for young people, than the last Government spent. My right hon. Friend has rightly pledged that by Easter of next year every school leaver will have been offered a job or a training place under the youth opportunities programme. We are continuing to assist industry directly. For example, today we announced grants of £6.1 million to Dunlop for the modernisation of its United Kingdom tyre operation. The two factories are in Birmingham and County Durham.

Mr. Ashley

I am sorry to persist. If the Prime Minister insists that high wages and the lack of technological change are two major causes of unemployment, as she has just done, how does she account for the fact that in the Potteries there are moderate wages, a great deal of technological change and massive exports, and yet we are faced with very serious unemployment?

The Prime Minister

I gave four reasons for increasing unemployment, of which one was the world recession. That world recession came about because people have to spend more on oil than they did before. That means that they have less to spend on other things. That does not obviate the fact that one of the main causes of unemployment now is that people take more for themselves at the expense of jobs for others.

Mr. John Morris (Aberavon) rose

The Prime Minister

I might have some news for the right hon. and learned Gentleman in a moment.

Another project to which we have been giving careful attention is the National Enterprise Board investment in Inmos. The House will remember that under the previous Labour Government the bulk of the first £25 million went to providing a factory and jobs in Colorado Springs. About six months ago the NEB recommended that we should provide the second tranche of £25 million to build the first United Kingdom production plant at Bristol, where Inmos has already built its technology centre.

We had grave doubts whether we could justify building the factory at Bristol, in view of greater needs elsewhere. As a result of a full-scale review, the NEB has recommended that the production plant should be situated in South Wales. We have decided to approve the second £25 million on that basis. This factory is expected to provide about 2,000 new jobs over the next three or so years.

In his Budget Statement my right hon. and learned Friend the Chancellor of the Exchequer announced proposals for establishing enterprise zones in areas of economic and physical decay. Both the private sector and many local authorities, including many Labour authorities, have recognised this initiative as offering a real prospect of stimulating investment and job creation. Enterprise zones will offer special advantages to business and will encourage investment and initiative.

My right hon. and learned Friend announced the names of a number of authorities which had been invited to make proposals for enterprise zones in their areas. We have now selected seven locations for possible zones. They are as follows: in Northern Ireland, the inner area of Belfast; in Wales, in the lower Swansea valley; in Scotland, based on Clydebank; on Tyneside, parts of Newcastle and Gateshead; on Merseyside, Speke; in Greater Manchester, parts of the Salford docks area and the Trafford Park industrial estate; in London's docklands, the Isle of Dogs, where we propose that the urban development corporation should be the enterprise zone authority. My right hon. Friends will give further details in statements later today.

Mr. Donald Anderson (Swansea, East) rose

The Prime Minister

No, I must go on. The success of the zones will depend in large measure on the willingness of each authority to agree to planning relaxations and on their ability to come to quick decisions. The zones will be designated only if we are fully satisfied on these matters.

In view of the enthusiastic response from a number of other authorities we have decided to consider one or two additional areas for enterprise zones. One of these will be in the Midlands.

Mr. Anderson rose

The Prime Minister

Enterprise zones demonstrate the Government's determination to tackle the problems of economic and physical decay in an imaginative and radical way. We are creating an opportunity unequalled in modern times.

We regard it as a duty of the Government to mitigate the economic and social effects of change. We are prepared to help the transition to higher productivity and to more jobs. We are not prepared to buy a few extra jobs now at the expense of higher inflation and higher unemployment in future.

Despite existing difficulties, there are many exciting developments going on which are creating new jobs. [HON. MEMBERS: "Where?".] In Scotland, the electronics industry is growing rapidly, with IBM, Motorola, National Semiconductor and Pye all expanding their operations, to name just a few companies. In Wales, Sony is planning a further substantial development. A new titanium plant is to be built at Shotton and a new canning plant has just opened at Wrexham. Those are some examples.

What we need now is a determination to make all our industries competitive. That can be achieved only if we get inflation down.

In summary, we adhere firmly to our monetary strategy. The rate of inflation has started to fall. Interest rates, though still too high, have begun to come down. To reduce them further it is vital that we keep strict control over Government spending and borrowing. Unemployment is inevitably rising because of world recession and excessive pay settlements. A reduction of inflation and the growth of pay within the monetary target will lay the basis for growth and the prospect of more jobs.

When the recession ends, the vital need will be to be competitive. When trade revives we must be ready and able to increase our share of the market. Then there can be a real prospect of prosperity and growth. Instead of using the revenue from North Sea oil to suck in imports and impoverish our industries, we shall be using this great asset to rebuild them and to provide a better standard of life for everyone.

It is no good dreaming about U-turns. There aren't any available. To adopt our policies is to be realistic and optimistic about our people, their ability, their resolution and their future. Far from demoralising the country, we are doing what the country elected us to do. This Government will have the guts to see it through.

4.47 pm
Mr. David Steel () Roxburgh, Selkirk and Peebles

We on the Liberal Bench can at least agree with the Prime Minister's opening words. Of course the country's problems cannot be solved by politicians alone. However, Britain is entitled to look for an intelligent lead from the Government, and it is our contention that it is not getting it.

The Prime Minister concluded by saying that she was doing what she was elected to do. I do not recall electors voting Conservative during the 1979 general election to increase unemployment to nearly 2 million or to double the rate of inflation. I do not recall those consequences being among the pledges of the Conservative Party at the election.

The right hon. Lady charged the Liberals with having associated ourselves with the previous Labour Government. We did that for 15 months. I am prepared to compare that 15 months with the right hon. Lady's 15 months in office on any day and on any grounds. The inflation figures came down to 8 per cent. during the 15 months when the Liberals were associating with the Labour Government. A prospective householder was able to get a mortgage at 8½ per cent. I am sure that most would say that the Government's first 15 months in office do not compare with the Liberals' 15 months in association with the Labour Government.

We welcome the announcements that the right hon. Lady has made—for example, the NEB/Inmos decision and aids to Dunlop. We are prepared to judge the enterprise zones when they come. If these two major decisions do not represent a U-turn, let us hope that they represent at least a wiggle, and perhaps the beginning of a turn in direction by the Government.

The global unemployment figures—this argument was advanced with specific reference to South Wales by the Leader of the Opposition, but it is of general application—conceal a serious situation in certain geographical areas. When Scottish unemployment is stated to be 8.8 per cent., that conceals the fact, for example, that in Strathclyde, where half the population of Scotland lives, the figure is 12.3 per cent., that within specific districts in Strathclyde—for example Inverclyde and Dumbarton—it is 15 per cent. and that within central Liverpool it is more than 25 per cent. That is why industrialists outside the London area are increasingly voicing public concern about the Government's policies. It was the Government's own appointee, as the new chairman of the Scottish Development Agency, Mr. Robin Duthie, who said a week or two ago that: People in London and the South-East just do not seem to realise what is actually happening north of Watford". That was not a Labour or Liberal politician but the Government's own appointee.

Several Hon. Members rose

Mr. Steel

I shall not give way quite so soon. It was the chairman of the CBI in the North-West of England who said: The Government must have no idea what is happening to manufacturing industry, because if they did know they would care". Do they not know, or do they not care? The CBI in the North-West would certainly like to know the answer.

At one point at the end of the Vietnam war it was said of the Americans that they were creating a desert and calling it peace. I believe that there are certain parts of Britain where the Government are creating a desert and calling it freedom. There is very strong reaction in many parts of the country against the inaction of Government. The Prime Minister has again said today that it is not the Government's fault and that the policies are not deliberate. However, the effect of Government policy can be seen from a Government's inaction as well as directly from actions of Government.

I do not think one can possibly say to the unemployed teenager on the street corner "You have priced yourself out of the market", or any of the other phrases that trip from the lips of Government Ministers. As for the phrase "Let them move house", that deserves to go down in history along with "Let them eat cake" as a monumental irrelevance.

Of course there is a world recession, but in the face of such a recession it is the job of government to mitigate its effects on the country over whose activities and concerns they preside. After all, it was not the world recession which doubled VAT at a stroke, which decided to push up interest rates, which decided to increase prices in the gas industry or which decided to abolish development area grants in whole areas of the country. Incidentally, where that has been done, it has now been followed by guidelines—which in my view have not been given sufficient publicity—to the NEB and the SDA, which have now withdrawn promises of help to firms that were already in the pipeline. For example, there is one such firm in my constituency. That firm did not deal with what the Prime Minister called yesterday's jobs but with jobs on the frontiers of technology with which it may not now be able to proceed because the new instructions to the SDA have told it that it cannot go ahead and offer the help that had been agreed some time ago. In other words, there are deliberate policies of government which are inhibiting the development of the economy and of jobs in many parts of the country.

I believe that the root cause is that there is an in-built fallacy in the Government's economic thinking. I do not believe that there is any longer such a thing as the free market, either internally or internationally. Internally, the Government must cope with the fact that there are large sections of public enterprise and that there are large private combines, many of them international, which will take their business elsewhere if they find that other Governments are more sympathetic to industrial development.

There is also monopoly trade union bargaining power. All of those militate internally against the application of nineteenth century free market economics.

As for the international scene, many of our industries now find themselves having to compete with firms which locate themselves in other countries where Governments are either bearing the cost of research and development or their high technology or indulging in cheap energy policies. Let me take a specific case. The Government are faced with a plea for help from the Bowater paper-making plant in Ellesmere Port, in which 1,500 jobs are involved. But why is papermaking declining? It is because our competitors in those bastions of free enterprise—the United States and Sweden—are able to compete with us as a result of cheap energy policies.

Governments elsewhere are intervening like mad all over the place, while the British Government allow industry to sink or swim on its own, and many firms are sinking. That is particularly true of the textile industry about which the Prime Minister has heard a great deal from many hon. Members on both sides of the House. In fact, the Cabinet as a whole reminds me of those medieval philosophers who went around proclaiming that the world was flat, and when people told them "We are sorry to tell you, but it has been finally proved that it is not flat", their reaction was to say "Well, it damn well should be". That is the posture which the Government have adopted all along.

The alternative policy is to live in the world of reality and to accept that we are competing internationally in a world where other Governments do intervene in a variety of ways—intelligently and selectively—in order to assist the development of their economies. For our part, we would accept that there is a case for increasing the PSBR and for indulging in selective public investment for two purposes—to create jobs in the short term and investment in the infrastructure in the long term, because the two can be done together.

Let us take construction as an example. The construction industry is facing the most serious crisis of all. Employment has fallen dramatically, yet housing starts both in the public and private sectors are dropping. Insulation grants have been cut. Surely employment created through insulating homes is an obvious candidate for Government support at the present time, both because of short-term employment and the beneficial long-term effects on the economy. Even selectively, there are parts of the road programme—and I am not talking about prestige motorway developments—which are at present completely undeveloped. For example, the English motorway system is not linked to the Scottish motorway system in any way. There is potential employment there. The same applies to the railways. Why should we not allow the British Railways Board to construct and introduce more modern rolling stock as it wishes to, because that would be of long-term benefit to the economy?

There is also the Phurnacite plant in the coalfields of South Wales, where the Government have specifically refused to give the NCB the extra money for the new investment to replace that plant, even though 1,000 jobs are involved. It is a product which is widely used, both domestically and in industry, throughout the country. I believe that there is a case for selective public investment with these twin objectives.

If that is to be done without creating inflation, the Government must think again about a prices and incomes policy. I shall not repeat all that I said in our debate a week or two ago. I simply say that one sees, both in the Prime Minister's speeches and in the leaks to the press, that the Government are beginning to apply a selective pay policy only to the public sector. That cannot work, because people in the public sector will not accept restraint on pay if they believe that they are being discriminated against while the private sector is allowed to pay whatever it likes at any time.

The Prime Minister said that pay in the United Kingdom was going up twice as fast as it was among our competitors. That is true, but if one looks at most of our competitors one will find that in many different ways most of them have some form of incomes policy which applies overall. That is another area in which the Government will have to undertake a U-turn.

My third suggestion is that the Government must take action to cut the overvalued state of the pound. I suggest that they can do it in at least two ways—first, by reducing the minimum lending rate still further and, secondly, by looking again at the policy of issuing stock at fixed rates of interest into the next century. The present interest rate of 13 per cent. is well above the Government's own forecast of the rate of inflation. If that does not attract more money and push up the value of the pound, I do not know what does. I would have thought that the issue of index-linked stock would be far more sensible and would help to cut the over-value of the pound.

Fourthly, the Government should take direct measures to deal with the problem of unemployment among young people. A simple and not very expensive method would be to cut the employers' national insurance contribution for those employed under the age of 21, because the ratio of the contribution to wages is higher than among older age groups. I believe that such a policy would be justified and that it would give a stimulus to the employment of young people.

I also believe that the Government should be willing to embark on a more ambitious industrial training programme on a speculative basis, even if there are not the jobs to go to at present. The Leader of the Opposition was quite right to give specific examples from the steel industry. However, the same applies to many other industries as well. If the Government believe, as they do, that in time we shall come out of the recession, we shall need more skills, and we should be equipping our people and using our young people profitably and usefully by greatly expanding the training programme.

I do not despise the possibilities of a properly directed "Buy British" campaign. I think that people will respond to a positive lead of such a kind given by Government. If we are to have a "Buy British" campaign, it must be accompanied by legislation that requires goods to be labelled with the country of origin. The Government have been fiddling about for a year with a consultative document on the issue, instead of pressing ahead with it. I shall give the Prime Minister a personal example. With my 96 per cent. pay increase, I went to one of the summer sales and I bought the suit that I am now wearing. It is merely labelled on the inside with the washing instructions, the composition of the material and so on. It was not until I arrived home that I found on the inside of one pocket a tiny label saying that it was made in Yugoslavia. Surely, if people are to be motivated to buy British, there should be legislation requiring as clear labelling of the country of origin as there is for the washing instructions. It would not cost the Government a penny to bring forward that legislation, and they should do so.

I should like to press the Prime Minister and the Chancellor of the Exchequer on a question that was put by the hon. Member for Bolsover (Mr. Skinner). I, too, read the report of the speech of the Minister of Agriculture, Fisheries and Food in which he said that the direct cost of unemployment was £7 billion a year. Is that the correct figure? Does it include the supplementary benefit cost and the losses of tax income through wastage of people on unemployment benefit? What is the Government's estimate, not in human terms, but in financial terms, year by year, of allowing the dole queue to grow? It is essential that the House should be given more guidance, because it is against that cost that we can weigh the cost of some of the measures that some right hon. and hon. Members are advocating the Government should take to help cure unemployment.

I believe that one of the reasons for a public mood of despair—the Prime Minister should not try to convince herself that the public mood is anything other than one of despair—is that the process of industry is made the plaything of political doctrines. The Government are busy selling off bits of public enterprise to try to balance the books, leaving the less profitable parts in public hands. There is the constant argument "Let us push back the frontiers of State enterprise." At the same time, the Labour Party in opposition introduce an interim manifesto which proposes to introduce an enabling Act allowing Ministers to nationalise any industry by statutory instrument in order to push forward the frontiers of the public sector. Industry is caught in this perpetual argument about where the boundary should be drawn. We should concentrate on, and create conditions of, stability through the National Enterprise Board, with pragmatic decisions and through reform of industrial relations, aiming at making the private sector as profitable as possible, and the public sector as efficient as possible. If we did that instead of arguing about where the boundary should be drawn, and if we took ourselves away from the adversarial system of politics, I believe that industry would look forward to the future with a great deal more confidence.

5.4 pm

Mr. John Peyton () Yeovil

When the leader of the Liberal Party says that despair is the mood of the country, he is falling into the common mistake of thinking that more people share his views than is in fact the case.

The Leader of the Opposition made a remarkable speech, and it received a strange reaction from his Back Benchers—an interesting variation on the curate's egg. The hon. Members immediately behind him thought that there was merit in his speech. His hon. Friends below the Gangway thought that there was none. He has problems with the unity of his party with which we can all sympathise. However, I do not believe that he helped himself when he talked about a slump induced by the Government. He knows that politicians thrive on the benefits of their policies, and not on the injuries. That kind of talk comes ill from a right hon. Member who has enjoyed his high office.

The Leader of the Opposition showed that memory was not his strongest feature. For instance, he forgot that he and his party have been in office for 11 of the past 16 years. He made no mention of oil prices. He passed by, with hardly a glance, the problems of inflation, and at the end of his speech in a most astonishing way, he referred to the package of measures. That was the classic case of the conjuror who left the rabbit in the hat.

A debate such as this allows the Government to restate their policies and objectives, and I am glad that my right hon. Friend the Prime Minister should have seized the opportunity as she did. I applaud the resolution that she and her colleagues have shown in difficult times, and the way in which she has resisted the pressure to make what is commonly known as a U-turn.

We have yet to hear a contribution to the debate from the Left, whose input into our affairs in recent years has been as unhelpful as it could be. The right hon. Member for Bristol, South-East (Mr. Benn) constantly speaks about the need to impose irreversible change upon us, and he does so with all the fervour of an ayatollah, although he has not yet gone to the extreme of saying that stoning is good for people.

In this House we are notoriously fond of committees, and we make a habit of demanding inquiries. I wonder why we cannot abandon some of the more stupid traits associated with votes of censure and ask ourselves seriously how we came to this pass—a pass that is a great deal more wretched than that of many of our competitors. It did not happen suddenly. I wonder whether it will be possible to put together some sort of national resolve, not to find a scapegoat, but to find a way out and a way through our problems.

It is no good our going back to useless nostrums that failed us yesterday. Over the years we have found it comforting to tell ourselves that we have somehow risen above the economic facts of life. Mr. Attlee felt that way many years ago, when he declared that his Government would not be the prey of blind economic forces. However, our country has been severely buffeted by those forces ever since. We have kept the spending habits of a rich nation, without taking any trouble over how we should remain rich.

How else can we explain our extraordinary attitudes towards industry? There has been endless tampering, for many reasons, most of them unrelated to the commercial success of industry. We have neglected the research, development and innovation which are the keys to that prosperity which we take for granted. The taking of risks has hardly been encouraged; the rewards have been eroded; there has been ample harassment, particularly from Labour Governments, and there has been plain neglect.

The belief that the Government could and should control wages has led repeatedly to a build-up of pressures which have proved irresistable. It has also led us into the quagmire of comparability, which has diverted attention altogether from the need to encourage the skills of which we were short, and of which we remain short.

We also thought that industrial relations needed our attention. We have somehow kidded ourselves that a combination of weakened management and privileged unions, resulting in disruption, loss of competitive muscle, lower earnings, less investment and fewer jobs, could help. The contribution by the House of Commons to industrial relations is nothing of which we have reason to be proud.

I referred to the loss of rewards and of encouragement in industry. The real after-tax rates of return on the trading assets of our commercial and industrial companies were 12.1 per cent. in 1964 compared with 4.1 per cent. in 1979—a clear and lucid explanation of why we are in our present troubles.

Manufacturing investment in Japan in 1978 and 1979 grew by an average of 3.1 per cent., in Germany by 1½ per cent., in the United States by 1.1 per cent. and in the United Kingdom by 0.2 per cent. Those figures reflect the results of policies of neglect of investment and failure to innovate. In 1978 and 1979 our unit labour costs went up by more than 20 per cent.—double the increase of our competitors. Ad hoc Government policies cannot quickly be put into force to redress the effect of the years so vividly shown in the figures which I have quoted.

Should we not inquire into the arrangements of our method of government? Are we satisfied that Government Departments are adequately designed to do the difficult jobs for which they were set up? Can they control their own sprawl? Can they control the money that they pay themselves?

It is worth-while to ask about the performance of Parliament. What have we to say about the cascade of legislation which pours out from here, much of it incomprehensible and imposing enormous burdens upon the small businesses which we profess to want to help? Are we satisfied that these new Committees which we have set up are making a worthwhile contribution to government instead of a substantial contribution to Government expenditure?

The House of Commons would do well on an occasion such as this to ask whether over the years it does more to divide or to unite this nation. Do we spread trust or sow mistrust? If, as I suspect, we assiduously sow mistrust and disunity, we are doing nothing to earn the gratitude or respect of the nation.

We are in our present trouble because we have consistently yielded to pressures to search for and adopt painless solutions when none was available. We have for long neglected to look after the future and to take care for the long term. The future has come sooner than we expected. If we are to meet our problems, we shall have to do so in different ways, not by eating great mouthfuls of seedcorn, which those spurious advocates on the Opposition Benches urge upon us, but by paying attention to the need to invest, as other countries do, and to provide and furnish a modern, up-to-date industry which will create wealth and enable this country again to hold up its head among nations.

5.15 pm
Mr. J. Enoch Powell () Down, South

The Leader of the Opposition, in moving the motion, said that the purpose of this debate is to prove that there is an alternative to the policies being pursued by Her Majesty's Government. That being so, it becomes all the more surprising that in the debate, continued today but carried on weekly during the past year between the two Front Benches, there has, when one looks more closely, been so much common ground.

It is not exactly a debate of the deaf. There are none so deaf as those who will not hear—or rather, there are none so deaf as those who do not wish to be caught hearing. One often detects common ground, substantial agreement, between the two Front Benches combined with the desire to disavow and conceal it.

There is no disagreement between the two Front Benches as to the consequence, under any Government or any policy, if a Government fail to borrow large sums of money which they need to cover their current outlays. The Leader of the Opposition and the Shadow Chancellor of the Exchequer know that perfectly well, as well as do the Government and their supporters. Indeed, the texts which remind us of their past assertions to that effect are read out regularly, almost like a litany, every week on Tuesdays and Thursdays between 3.15 and 3.30 pm. It is common knowledge and common ground that, whatever may be the other ingredients, or whether there are or are not other ingredients, of the scourge of inflation, it is impossible for it to exist unless the Government are attempting and failing to borrow large sums of money with which to meet their current outlays.

Mr. Norman Atkinson () Tottenham

The right hon. Gentleman is the biggest beneficiary of public borrowing. It is absolute hypocrisy. Let us start by getting out of Ireland.

Mr. Powell

I am obliged to the hon. Gentleman for his intervention, albeit sedentary, at so early a stage. He is one of those, who are not uncommon—especially, but not exclusively, on these Benches—who make no distinction between controlled expenditure and no expenditure at all and who therefore think that if one argues for a limit on expenditure one must be opposed to all public expenditure. There is a difference between the two. It is possible sensibly to consider the relative benefit of different forms of public expenditure and at the same time to argue that the global total of public expenditure is of supreme importance.

There is another respect in which there is acknowledged common ground between the two Front Benches. They both know that the present level of interest rates in this country, which requires enterprise to borrow at interest rates of 20 per cent. and higher, is intolerable and that such interest rates place a hopeless inhibition on employment, on industrial development and on economic progress.

The two Front Benches also both now that that level of interest rates is a principal cause of the so-called excessively high level of sterling. There is a sense in which a floating exchange rate can never be described as artificial; for it is always the rate at which supply and demand balance at a particular moment. However, given so artificial and unrealistic a domestic interest rate, it is fair to regard the consequential exchange rate of sterling as a seriously distorting factor in the economy.

It is convenient that last week the Leader of the Opposition summarised briefly what he has said at greater length this afternoon. He then put forward what he considered to be the alternative policy, and summarised in a single sentence the alternative that he intended to put before the House this afternoon at greater length. The alternative policy, he said, consisted in a reduction in interest rates and an increase in public expenditure".—[Official Report, 22 July 1980; Vol. 989, c. 269.] The Leader of the Opposition knows the consequences of reducing interest rates and increasing public expenditure as well as anyone else. It would not only increase the amount that the Government require to borrow in order to meet their outlays but would also ensure that they failed to do so on a massive scale. So the Leader of the Opposition has accepted that the level of borrowing and of deficit financing is the real cause of inflation. He has accepted that the high level of borrowing causes high interest rates. Yet he has put forward a proposition that runs contrary to the facts, as he knows them. He has put forward a policy of reduction of interest rates and an increase in public expenditure; and, lest there should be any misapprehension about the meaning of his proposals, I will read out to the House what the right hon. Gentleman said to the Prime Minister immediately afterwards: Does the right hon. Lady not recognise that she has deficit financing now, to the tune of £10 billion"— that is perhaps slightly on the high side; I believe that I see some assent to that proposition from the Treasury Bench— and that it should be increased?"—[Official Report, 22 July 1980; Vol. 989, c. 269.] That is the Opposition's central recommendation. That is what lies behind the censure motion.

The Leader of the Opposition understands that his logic is false: he tells the Government that they are driving within a foot of the precipice, and that this only shows they can go within a quarter of an inch of it. When the Leader of the Opposition was in government, he and his colleagues repeatedly stated that deficit financing and the inability to meet that deficit by genuine borrowing were the cause of inflationary disaster. Yet the right hon. Gentleman now tells the Government that they should increase that deficit.

Mr. Geoffrey Rippon () Hexham

In view of what the right hon. Gentleman said about interest rates, does he at least agree that the result of increasing interest rates over the past year has been to add about £900 million a year to the public sector borrowing requirement? Some of that money might be available for other purposes.

Mr. Powell

Of course, it is a race between the addition to public expenditure that results from pushing up interest rates and the effect of high interest rates in enabling the Government to meet their current deficit. As the right hon. and learned Gentleman implies, there is a point at which the attempt to meet the borrowing requirement by pushing up interest rates becomes self-defeating.

Mr. Robert Sheldon

Perhaps the right hon. Gentleman will also deal with the point which arises from the increase in unemployment. As he knows, in addition to the fact that the public sector borrowing requirement has to be increased to deal with high interest rates, one must also deal with the large amount of extra money that is needed to pay unemployment benefit. The public sector borrowing requirement has to rise for two reasons, both of which are dictated by the Government.

Mr. Powell

The right hon. Gentleman has been a distinguished Treasury Minister and he understands the trick implicit in his intervention. It is perfectly possible to take any element in the total estimate of public expenditure of a particular year, such as the estimated cost of the social services including unemployment benefit in a particular year, and then to isolate that item and equate it with the whole or part of the net borrowing requirement. He also understands that that procedure is fallacious.

The Leader of the Opposition could have argued that he believed it was possible to increase public expenditure without increasing the public sector deficit. He could have argued that at the same time the expenditure could generate such an increase in national income that the public sector borrowing requirement could be reduced and to that extent become easier to meet by genuine lending. He did not so argue. It was conspicuous that the right hon. Gentleman did not suggest, at any point in his speech, that the increase proposed in public expenditure would be self-financing. The Leader of the Opposition's

theory was not that the increased expenditure would be a method of generating additional income.

What the right hon. Gentleman did mean was perfectly clear. What he meant was consistent with his knowledge of the consequences when the public sector borrowing requirement is not met by genuine borrowing. He knew that the result would be increased inflation. The very burden of his speech was that inflation reduces unemployment and we should have more inflation. [Interruption.] I shall test the Opposition and see whether they are really recommending an increase in inflation. For, if they wish, they can increase public expenditure without increasing the public sector borrowing requirement.

If the Opposition do not want to increase the risk of inflation, they can easily advocate a way in which that can be avoided. They can increase public expenditure without increasing inflation so long as they also advocate increased taxation. When the right hon. Lady suggested that ultimately taxation was one of the factors in the equation and put it to the Opposition that perhaps they should consider increasing taxation, there was a nod here—

Mr. Norman Atkinson rose

Mr. Powell

—and a grunt there, but there was not that full-hearted roar of approbation which would have come from the Opposition Benches if they really had wanted to increase expenditure without increasing inflation. In fact, the Opposition do want to increase both expenditure and inflation, because they believe—and have said—that increased inflation is the way to combat unemployment. They do argue that, if one puts more money into the system, one will have less unemployment. That is their alternative case, and it should be taken seriously.

Mr. Tam Dalyell () West Lothian


Mr. Powell

It is curious, but I have spent most of the latter part of my parliamentary life giving way to the hon. Member for West Lothian (Mr. Dalyell). It has almost been one of my obsessive habits. On this occasion, I shall make a compact with him. Let us make this debate an exception. Will he allow me to get away with it just for once?

Mr. Dalyell rose

Mr. Powell

Perhaps the hon. Member was not present when I had a little exchange with the hon. Member for Tottenham (Mr. Atkinson) [HON. MEMBERS: "He was."] I was trying not to be too offensive to him, but, if the hon. Member was present, he failed to take the point that I made.

Mr. Robert Hughes () Aberdeen, North

The right hon. Member wants to keep spending in Northern Ireland but reduce expenditure elsewhere.

Mr. Powell

Well, at least that would be a respectable argument. [Interruption.] It would be perfectly consistent, as it is consistent for every Minister at present in government to say that he accepts the necessity of a limitation upon total expenditure but at the same time intends to argue for the form of public expenditure with which he is particularly concerned. What we are talking about in this debate is the total of public expenditure, the total of the borrowing requirement, and the intended consequences of deliberately increasing it.

If there is an alternative being put forward—we are told by the Leader of the Opposition that there is—that alternative is more inflation; and it is a serious proposition.

Several Hon. Members rose

Mr. Powell

I am sorry. I intend to proceed with my arguments.

Mr. Norman Atkinson

The right hon. Gentleman is a charlatan. He should answer the questions that are put to him.

Mr. Powell

Willing as I am to conduct seminars, this is a debate in which many hon. Members wish to take part, and all of us are under the constraint of time. Therefore, I intend to address myself to the proposition that is being put forward to the House and to the country by the Opposition—[Interruption.]

Mr. Atkinson

The right hon. Member is getting away with murder.

Mr. Deputy Speaker (Mr. Bernard Weatherill)

Order. I cannot hear what the right hon. Gentleman is saying to the House.

Mr. Robert Hughes

That is to your benefit, Mr. Deputy Speaker.

Mr. Powell

I am sorry, Mr. Deputy Speaker, if you did not hear. I repeat that the proposition being put to the House and to the country by the Opposition is that we should not merely allow, but cause, the rate of inflation to increase as a remedy, albeit temporary, for unemployment.

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

Mr. Powell

I am not giving way now. If I believed that by increasing the rate of inflation it was possible to put ½ million, 1 million or 1½ million of my fellow countrymen back in employment. I would consider that a proposition that should be taken very seriously. But there is still something to come afterwards. It is probably true that, if we push up inflation deliberately to 25 per cent., 30 per cent. or 35 per cent. we would at first gain a reduction in unemployment and an increase in employment. But one could not stop there. One would need to continue with increased doses of the same medicine. The nature of inflation is that it is not static but dynamic: one must go on to ever higher rates.

Mr. Norman Atkinson

Cut spending in Northern Ireland.

Mr. Powell

Even if inflation were continued up to Brazilian levels of 300 per cent., there still must come a point at which it must stop, a point at which one must stop inflating and regain a currency of stable value. So all that would happen if we acted upon the Opposition's ideas would be to increase unemployment, misery and disruption in the future.

Mr. Norman Atkinson

The right hon. Member should get over to the other side. He is only concerned about attacking blacks and underprivileged people.

Mr. Deputy Speaker

Order. The right hon. Gentleman has a right to make his own speech and to be heard in silence. [HON. MEMBERS: "No, No."]

Mr. Cant

He will not give way to anybody.

Mr. Gerard Fitt () Belfast, West

On a point of order, Mr. Deputy Speaker. We have just heard that the right hon. Gentleman has a right to make his own speech. I understand that one of the reasons why he may have been called is that he is a right hon. Gentleman. But there are other speakers from Northern Ireland who may not be called in this debate, and who hold a completely and utterly different point of view from that of the right hon. Gentleman—[Interruption.] The right hon. Gentleman is just an import into Northern Ireland.

Mr. Deputy Speaker

Order. There are hon. Members with many points of view in this House and they all have a right to be heard, including the right hon. Gentleman.

Mr. Robert Hughes

On a point of order, Mr. Deputy Speaker. At the risk of incurring the displeasure of the occupant of the Chair and possibly cutting out my own opportunity to speak later, I must point out that some of us are becoming increasingly annoyed at the way in which Privy Councillors from a minority party on this side of the House are called in debate after debate after debate. They take up Opposition time and cut into the time of Back Benchers of the major parties who have no opportunity to put forward their point of view.

Mr. Deputy Speaker

Order. That is not a point of order. It has long been a right of Privy Councillors to be called early in debates, and the right hon. Gentleman was called by Mr. Speaker.

Mr. William Hamilton () Fife, Central

On a point of order—

Mr. Deputy Speaker

Order. Points of order of this kind will only ensure that those who wish to speak will not have an opportunity to do so.

Mr. Hamilton

That will happen in any event. I want to ask you, Mr. Deputy Speaker, and Mr. Speaker, to read a report from the Select Committee on Procedure of a few years ago on this very point. That report indicated that the Chair had no obligation whatever to call Privy Councillors. It urged the Chair to use its discretion in a wiser way than it has been doing ever since.

Mr. Deputy Speaker

I think that the hon. Member may have an opportunity to make that point in a procedure debate later in the Session.

Mr. Hamilton

I think I will, too.

Mr. Powell

I do not know why Labour Members should be so unwilling to consider the consequences for unemployment of an increase in public expenditure, an expansion of money and an increase in the rate of inflation. These are subjects that are—

Mr. Norman Atkinson

They are being distorted. The right hon. Member talks absolute nonsense. He is an economic illiterate.

Mr. Powell

If I am falling into error, Mr. Deputy Speaker, then no doubt in the remaining course of the debate attention can be drawn to it. What cannot be doubted is that, since its very inception, the Labour Party has been intimately concerned with the relationship between unemployment, the money supply and inflation. If these are not subjects with which the Labour Party is desperately and sincerely concerned, I do not know what should be.

I am pointing out the consequences of the recommendation that the Opposition are making. If they are not arguing for increased inflation, they must argue for taxation to be increased pari passu with the increase in expenditure for which they call. Perhaps that will come later. Perhaps the right hon. Member for Ebbw Vale (Mr. Foot) in winding up will make good the omission. Certainly, I have criticised the Government for having been too anxious and too quick during their 15 months of office to reduce taxation. I have argued that, in the light of their supreme and central task, they should have increased it instead—

Mr. Norman Atkinson

They have not reduced taxation. They have increased it. They have doubled VAT.

Mr. Powell

—but unless and until the Opposition make it clear that their plea is for increased expenditure to be balanced by increased taxation, we must take it, as will be found to be implicit—I believe that at one point it was explicit—in the speech of the Leader of the Opposition that they are asking for an increase in the rate of inflation as a means of dealing with unemployment.

Mr. Stuart Holland () Vauxhall

Will the right hon. Gentleman give way?

Mr. Powell

I am concluding my remarks, and the hon. Gentleman may have a chance to speak.

In so doing the Opposition are misleading the people of this country. If they offer an apparently easy option to the country—if to 2 million people unemployed they say "There is a solution to your plight by way of further inflation"—they are cruelly misleading those people, and the counsel that they proffer is profoundly misguided.

5.41 pm
Sir William Clark () Croydon, South

It is always a great pleasure to follow the right hon. Member for Down, South (Mr. Powell). I shall later return to the question of the public sector borrowing requirement, to which he has paid so much attention.

It is hypocritical of the Opposition to table a motion of no confidence in the Government in view of the record of their last five years in office. They doubled inflation, unemployment and borrowing. They criticise this Government for their policies, but we have had all the others—incomes policies, social contracts, the dash for freedom and the pay pause. We have ended with economic chaos.

Overborrowing is a major factor in the inflationary pressures that we suffer. The national debt was started over 300 years ago. By 1974, when the last Labour Government took office, the national debt was around £40,000 million. It took 300 years for the national debt to reach that figure, yet in five short years, through overborrowing, a Labour Government managed to double it to about £80,000 million.

Mr. Robin F. Cook () Edinburgh, Central

Will the hon. Gentleman give way?

Sir W. Clark

Not yet.

That record should not commend the Opposition to the people of this country.

As was brought out recently by my right hon. and learned Friend the Member for Hexham (Mr. Rippon), the increase in the PSBR and the national debt means that there is an increase in the budgetary pressures on the Exchequer. To service the national debt costs between £9,000 million and £10,000 million. That is a great drain on the country and on the money that any Government would like to spend on extra social services and so on.

Every time the Opposition have an argument with the Government they say that the Government must intervene. People are getting a little sick of that argument. What does Government intervention mean? It means only that the taxpayer will be asked to pump more money into any area that the Opposition consider requires Government intervention. Most Labour Members like high taxes. Under their Government the highest taxes stood at about 98 per cent. They also keep asking for Government intervention indirectly to purchase jobs. No economy can last if a Government continue to purchase jobs. In order to survive we must be competitive. To subsidise job creation is ridiculous and self-defeating.

We also have the argument for protecting our home industries from unfair competition. In passing, I believe that the Government could reconsider our dumping regulations, which are often so slow to operate that the damage is done before effective action can be taken. However, leaving dumping aside, I agree with my right hon. Friend the Prime Minister and others that import controls will inevitably invite retaliation from our overseas customers. Import controls would also cosset British industry, which cannot afford to be cossetted. It has been cossetted for far too long. At long last this Government have given British industry the right and opportunity to manage its own affairs.

We are getting the change in attitude that we sorely need. Leaving aside the needy and the old, no one has a right to expect a living at the expense of others. The only way in which the country can once again become prosperous is to return to the old-fashioned principle that one gets nothing that one does not work for.

Mr. Frank Haynes () Ashfield

People cannot get jobs.

Sir W. Clark

It will take time for the Government's economic changes to take effect.

Mr. William Hamilton

Three years.

Sir W. Clark

Two or three years. Who knows?

The Government cannot create prosperity. Listening to the Leader of the Opposition one would think that the Government had only to increase the PSBR and prosperity is round the corner. That is rubbish, as the right hon. Gentleman knows. All that the Government can do is set the scene for economic expansion. It is time that we brought a sense of realism to the talk of job creation. Counting lamp posts and checking up on pushchairs will not do the country much good.

I turn now to Supplementary Estimates. I am delighted that my hon. Friend the Financial Secretary to the Treasury is in the Chamber. As my right hon. Friend the Member for Yeovil (Mr. Peyton) said, we must look at the structure of government. We have the Public Accounts Committee and the new Treasury Select Committee, but they are all looking at something that has happened. The money has disappeared. There is little point in knowing why the money has gone. We need to stop it going.

As I have said before, it is no good giving a spending Department a budget and leaving it until it receives the budget for the following year. We want a Minister responsible for finance in every spending Department. That would be analagous to what happens in business, where there is a finance director at head office and finance directors in each subsidiary who are responsible to their managing directors, but have access to the finance director at group headquarters. It would be useful to consider such an idea, because the control of public spending is not as effective as it should be. We must not rely on the PAC and Select Committees alone. We must control spending within Departments.

I applaud the Government's decision to abolish exchange controls. A lot of poppycock is talked about getting the exchange rate down. Our industrialists operated for a long time with a £2.40 exchange rate against the dollar, which is almost the same as the present level. If the exchange rate came down, the import bill would increase and that would add to the inflationary pressure.

I congratulate my right hon. Friend the Prime Minister and her colleagues on the economic strategy that they have carried out to date. I urge them not to be diverted. We have tried all the gimmicks and they have not worked. They left us with the sort of chaos that we inherited when we took office.

Our people do not look at the finances of the country in simple terms. In fact, they are relatively simple. A household with an income of £100 a week that spends £110 a week can go on like that for some time, but eventually it will have to retrench, and not merely to only £100 a week, but to £90. That is the position that the Government are in. I urge them to keep going on the same course.

5.53 pm
Mr. Eric S. Heffer () Liverpool, Walton

The Prime Minister's speech was the most ice-cold speech that I have heard in the House. It was also the most inflexible speech that I have heard and if the right hon. Lady is correct in saying that there can be no U-turns, I fear for the future of our country.

I can foresee nothing but industrial deserts, with millions of our people out of work, increasing misery and poverty and social unrest on a scale never known in the history of Britain. That is the prospect that the right hon. Lady put before us. It is a horrific prospect and I hope that the people of this country will note carefully what she said, because, if they understand her policies, they will quickly reject them, as they are already beginning to do.

As the Leader of the Liberal Party said, there is a mood of tremendous despair in this country. I can testify to that. There are 107,000 people out of work on Merseyside—15 per cent. of the population. At the last count, 12,000 young people were chasing 20 jobs. There is no future for those young people under the Government's policies. It is obvious that there is a mood of despair, particularly in areas such as Liverpool.

The Prime Minister says that the unemployed ought to seek jobs elsewhere and that there should be greater mobility of labour. I pointed out at Welsh Question Time yesterday that workers from Liverpool, particularly the unskilled, used to find jobs at Shotton and elsewhere in North Wales. Now that the steel works are to close, where will they find jobs? It is no good workers from Shotton looking to Merseyside for employment and it is no good Merseyside workers looking to North Wales. There is no employment in either area.

The Prime Minister apparently does not understand that skilled workers have always been mobile in their employment. There are Scotsmen and Welshmen in jobs all over the country. Those left behind are the unskilled. It is not easy for skilled men to find jobs at present and there is no hope for the unskilled. Where should they go? Are they expected to join those who have to live under the arches in London every night because there is nowhere for them to lodge?

The Prime Minister should remember that in the 1930s many people tramped this country seeking employment. I worked with a man who was unemployed for nine years in the 1930s. After the war, he never stopped working on building sites. He worked for every second. I said to him "Don't kill yourself, brother" and he replied "I was nine years unemployed". He tramped the country looking for employment and the only work that he found was fighting the Nazis in Europe during the Second World War. The Prime Minister ought to appreciate how working people have suffered in this country and she ought to appreciate where her policies are leading us.

I wish to refer not only to the speech of the right hon. Member for Down, South (Mr. Powell) but to the piece that he wrote in the Sunday Express, in which he referred to the decisive battle against inflation and suggested that we were in the same position today as we were before the Battle of Waterloo.

There have been many other decisive battles since then and our generals have learnt that they do not need to destroy their troops in order to win a battle. They learnt that in the Second World War and did not repeat the mistakes of the First World War.

Economics has moved on as well. We have heard the ideas not only of Keynes, but of Harold Macmillan, who is never mentioned by Conservatives nowadays.

Mr. Giles Radice () Chester-le-Street

They are ashamed of him.

Mr. Heffer

Harold Macmillan believed in economic intervention. He believed in—

Mr. J. Enoch Powell


Mr. Heffer

Inflation will come down as a result of the Government's policies. The price will be mass unemployment, misery and poverty for our people. Yes, it will come down because the Government have a way to solve an economic crisis such as this one. Their way is to put the burden on the shoulders of working people. That is the answer to the problem put forward by the right hon. Member for Down, South and the Prime Minister.

Of course, the right hon. Gentleman is somewhat selective in his fight against inflation. Of course, he was happy to accept when it was pointed out to him, that interest rates had added to the public sector borrowing requirement. He admitted that unemployment benefits—a point made by my hon. Friend the Member for Tottenham (Mr. Atkinson)—had added to the PSBR, but the right hon. Gentleman did not mention Harland and Wolff. When that matter was raised with him he said that that was controlled expenditure. He felt that controlled expenditure was all right, particularly when it was in his own constituency and particularly if it was in Northern Ireland.

However, it is not all right. The global figure is wrong. I have listened to the speeches of the right hon. Gentleman very carefully and have always been deeply impressed by them. But I must say to him that, for the first time, I was not impressed today. I have always thtought his views were wrong, of course, but today I was not impressed because the right hon. Gentleman got it totally and economically wrong in the way that Conservative Members have got it wrong.

I shall not make a long speech. However, an alternative solution was pointed out by my right hon. Friend the Leader of the Opposition. There is no basic difference of approach between what my right hon. Friend said and what the Left has to say on these matters. If we look at the document "Peace Jobs Freedom" and if we look at the TUC liaison committee document issued this week—and some of us on the National Executive are associated with that document—it will be seen that there is no fundamental difference of approach. We are making a number of extremely important points.

I shall examine those points and suggest an alternative solution. We must expand the United Kingdom economy by domestic reflation, including increased public spending. We are not ashamed of that objective. We think that that is the only way to deal with the current crisis. We also believe that it is right that there should be appropriate supporting policies on exchange rates and interest rates. We believe that there must be controlled import penetration but that does not mean that we believe in total import control in every industry. We have never advocated that. We have always argued for selective import controls. Who can tell the car workers, the textile workers, the boot and shoe workers and those in the wood-working industry—all of whom are receiving dole of next to nothing—that there should be no selective controls of any kind? Can we honestly say that to those workers, when we know that, though Japan does not have import controls the Japanese certainly make it difficult for us to get our exports into their country? Selective controls are absolutely vital.

We believe that there is a need for improved trade preferences on import penetration for developing countries, within agreed ceilings. We are not unconcerned about Third world countries. I could go on explaining our point of view but I shall not do so. My right hon. Friend explained it extremely well.

Mr. Alan Clark () Plymouth, Sutton

Will the hon. Gentleman give way?

Mr. Heffer

If the hon. Member for Plymouth, Sutton (Mr. Clark) does not mind, I shall not give way. I do not wish to be discourteous but there are many hon. Members waiting to speak in the debate and I wish to give them that opportunity.

I conclude with a quotation from this TUC document where we set out the basis of an alternative approach to the problems in industry and trade. We say: In doing so, we reject utterly the notion that only through the policies of a slump and mass unemployment can the economy be made strong. Our priority is the restoration and maintenance of full employment: and we contend that unless the policies set out here are carried through, it will be impossible to achieve sustained full employment. I believe that, and my party believes it. If there are not to be any U-turns, and if Conservative Members are not sufficiently courageous and prepared to force their stupid leadership to change, we must have a general election at the earliest possible moment. The Government have got to get out.

6.5 pm

Mr. John Townend () Bridlington

I am sure that my right hon. Frends will be relieved to know that I am 100 per cent. behind the Government's economic policies. I do not intend to bore the House with details. I cannot compete with the great eloquence of the Prime Minister, nor with the cold logic of the right hon. Member for Down, South (Mr. Powell). However, one does not have to be particularly clever to see that all the policies that have been tried over the past decade have failed.

The Leader of the Opposition did not put forward new proposals today. He simply advocated more inflation. It is incredible that the Opposition have called for a "no-confidence" debate on the issue of unemployment as if the basic cause of unemployment was Government policy. If that were so, hon. Gentlemen presumably blamed their own Government when unemployment doubled during their period in office.

Though Government policies may affect the level of unemployment, I submit that the basic cause of unemployment under successive Governments is that we have failed to produce the right goods of the right quality at the right time and at the right price not only for customers abroad but for people at home. High unemployment is not due principally to a failure of government. It is due to the failure of management and workers in industry.

Failure in the shipbuilding industry, the car industry and the steel industry has not been the fault of government, though Governments have had an adverse influence when they have interfered or nationalised.

Hon. Members should compare the unsuccessful industries with successful industries such as agriculture, tourism, banking, the retail trade and many small businesses. The great difference is that the unsuccessful industries are almost—

Mr. Robert Hughes

Will the hon. Gentleman give way?

Mr. Townend

Many hon. Members are still waiting to speak. Therefore, I shall not give way. The unsuccessful industries are all highly unionised and many of them have closed shops. The successful industries are either non-unionised or their unions are weak. In those successful industries the result has been a flexibility of labour, high investment and high profitability and there is no doubt that they lead the world. The unsuccessful industries have been subject to a high incidence of strikes. They have had excessive manning levels and a bad record in industrial relations.

Mr. Bob Cryer () Keighley

Will the hon. Gentleman give way?

Mr. Townend

No, I shall not give way. We cannot, therefore, help coming to the conclusion that one of the basic causes of unemployment has been excessive union power. That power has produced an appalling industrial record of stoppages and restrictive practices.

The hon. Member for Liverpool, Walton (Mr. Heffer) spoke of the car industry. The car industry has not been beaten by imports. It has been beaten by workers who have too often been on strike so that goods could not be delivered when customers wanted them. Standards of finish and service have also been bad. My right hon. Friend the Prime Minister mentioned the Isle of Grain power station. The cost of the Humber bridge has almost doubled. One has only to look at such examples to appreciate the effect of too much union power.

The Government have started to restore the balance between unions and management with their Employment Bill. I am delighted with the Prime Minister's undertaking that if the Bill turns out to be inadequate the Government will introduce further legislation. The only danger to the Government will arise if they lose their nerve. I am convinced that under the leadership of the Prime Minister that is not a possibility. In certain areas they should pursue their policies with greater vigour. Provided that they stick to their policies, I see no reason to fear the future.

The Government must continue to exercise increasing control over public expenditure and steadily reduce public borrowing. Basically, that means that we must take control over public sector pay. In the last year, public sector pay has risen far higher than the country can afford. Principally, that is due to the inheritance left by the last Government—the Clegg commission and the Pay Research Unit. The system is unfair to people in the private sector who have to accept the economic facts of life and who are settling for reasonable wage increases.

Excessive public sector settlements in the last year have helped to reduce the speed at which public sector borrowing has been controlled. Therefore, the reduction in interest rates, which we all want, has been delayed. I agree with the right hon. Member for Down, South (Mr. Powell) about the importance of that.

I am delighted to learn that this winter the Government intend to take a strong grip on public sector pay. However, they cannot rely on cash limits alone, for three reasons. First, as a leader in local government I found the timing of expenditure important. Officers tend to time expenditure at the end of the year so that little is spent in that year and a large chunk is spent the following year.

Secondly, if the number of staff is reduced and higher wages are paid out of the savings a higher percentage increase in wages will occur than is acceptable to the country as a whole. Any savings made by reductions in staff should be for the benefit of the taxpayer. Additional reductions in staff caused by excessive pay increases will reduce the number of jobs and increase unemployment. The unemployment pay comes from the public sector.

Thirdly, nationalised industries operating monopolies are able to give excessive wage increases and keep within their cash limits because they can pass the cost on to the taxpayer or the consumer. A classic example is the 23 per cent. increase for post office telephone engineers which, I have no doubt, will be paid for by higher telephone charges. That is one reason why I support the breaking of the monopoly.

The House gave me its support for a Bill to abolish the Clegg commission. The Government should abolish the commission, or put it on ice, along with the Pay Research Unit. Comparability is not acceptable to the country at this time, unless that concept operates for people in the private sector who have to accept low or no wage increases. Some people say that the public sector has been cushioned by high wage increases. Others say that the public sector is feather-bedded by inflation-proof pensions.

I turn to the question of youth unemployment. When my right hon. Friend the Secretary of State for Industry said that people were pricing themselves out of jobs, he never said a truer word in relation to young people. For years, young people have been priced out of the market. That is not the fault of young people, nor is it the Government's fault: it is the fault of the system which we have inherited.

There are nationally negotiated agreements for apprentices. A 17-year-old apprentice in the building industry receives £56 a week, whereas a skilled man gets £80. Many firms cannot afford to take on apprentices. In my constituency many small building firms say that they cannot afford an apprentice and that they would rather pay the extra and employ a skilled man.

Surely, when thousands of young people are queueing up for apprenticeships, it would be better to pay them £20 or £30 a week in the first year. A school leaver is often a liability to an employer in the first year, if one takes into account the cost of training and supervision.

The wages councils dictate that employers should pay £33 to a 16-year-old compared with £51 to a skilled man. Schoolteachers often inflate a young person's idea of his own worth. They encourage school leavers not to accept jobs for low wages.

The Select Committee of which I was a member visited the West Country. We interviewed employers and visited training centres. We investigated TOPS and STEP. We were told that those schemes were important because children had to be prepared for work. We were told "We must get the children to go to work on time. We must get them to go every day, to consider their appearance and to improve their literacy and numeracy." When we said that children surely had to go to school on time and every day, we were told "No way". It is a tragedy that so many unskilled children are not prepared by the education system and are not given the necessary disciplines of promptness, courtesy and good appearance.

What action should the Government take to alleviate youth unemployment? The youth opportunities programmes are well-intentioned and I support them, but they are no answer to the problem. They are palliatives. We must change the system which allows young people to price themselves out of the market. In general school leavers do not need much money. Usually, they live at home with their parents and rarely have the expense of a family or a house. If they were employed at lower wages they would still be better off than their contemporaries at school.

The Government should call a conference with the CBI and the TUC to negotiate apprentice starting rates at 30 per cent. instead of 50 per cent., rising to 70 per cent. instead of 90 per cent. in the final year. That might spark off some initial reaction from the trade unions, but if they realised that it would increase apprentice opportunities they would agree to it. I have spoken to craftsmen and I know that there is a strong feeling that the differential between the apprentice and the skilled man is too narrow.

The Government should abolish the wages councils and let the market fix the level of wages. If the Government are not prepared to go as far as that initially they should at least restrict the activities of the wages councils to workers over the age of 21 or, at least, 18. There is no doubt that wages councils are reducing the number of jobs for young people at a frightening rate.

Unemployment is serious, but there are many anomalies. At times there is some exaggeration of the hardship. Unemployment in the West Country is rising. The Select Committee took evidence from employers in the tourist and catering industries. We were told that such employers still had difficulties in recruiting labour. We visited one STEP scheme where we were told that within three months of its start there had been a 100 per cent. turnover of labour because the first people employed were not prepared to work.

I was impressed by the youth opportunities scheme. When I returned to my home city, which has 11½ per cent. unemployment, I told my managing director that we must play a bigger part in providing opportunities for young people. [Laughter.]

I see nothing to laugh at. Opposition members are supposed to feel sorry for the young people who have not got jobs. The previous Labour Government introduced the youth opportunities scheme. I should have thought that Opposition Members would have welcomed opportunities provided by all employers, even hated Tory employers.

I was surprised to be told by my production director that we had had two opportunities registered for over three months but only in that week had the first applicant come forward. That happened in a town with 11½ per cent. unemployment.

The Government are on the right road but are now at a stage when previous Governments, under pressure, lost their nerve. This Government must not do that. All the pain and sacrifice would have been for nothing. The message I am getting from my constituents is "Go back to Westminster and tell Maggie to stick to her guns". The Prime Minister has already succeeded in lifting this country's prestige throughout the world and throughout Europe. She won a settlement of our budgetary problem that no one envisaged she could get—a settlement that the Opposition when in Government, did not obtain. I ask my hon. Friends to give the Prime Minister, her Treasury team and the whole Government 100 per cent. backing and we shall all reap the benefit in due course. Many of us know it. The people sense it.

I cannot help but feel that the moderate wing of the Labour Party knows that the Government are taking the correct action. They started to take the correct action when in power, but they did not have the courage to see is through when a general election approached. The greatest achievement of this Government, and particularly of the Prime Minister, is that in a short period of a little over a year she has managed to inject into the minds of the people of this country a sense of realism that we have not had for years. People are already beginning to realise that one cannot have more unless one produces more.

Miss Joan Lestor () Eton and Slough

How many salaries does the hon. Gentleman get?

Mr. Townend

They realise that the Government do not have a bottomless pit of cash. Furthermore, they realise—

Miss Lestor

Will the hon. Gentleman give way?

Mr. Deputy Speaker

Order. The hon. Gentleman is not giving way.

Mr. Townend

Furthermore, ordinary people realise—

Miss Lestor rose

Mr. Deputy Speaker

Order. We cannot have two people on their feet at once.

Miss Lestor

On a point of order, Mr. Deputy Speaker. Is it in order for the hon. Gentleman to advocate that workers should take a cut in wages without his informing the House how many salaries he draws?

Mr. Deputy Speaker

Order. It is in order for the hon. Gentleman to make his own speech.

Mr. Townend

Thank you, Mr. Deputy Speaker. Opposition Members—

Mr. James Johnson () Kingston upon Hull, West

Are you aware, Mr. Deputy Speaker, that the hon. Gentleman is saying all these things—these alleged facts—about my constituents? He employs my people in Hull and he talks in this fashion.

Mr. Deputy Speaker

Order. The whole House is aware that interruptions of this kind only prolong speeches and prevent other hon. Gentlemen from making their contributions.

Mr. Townend

Thank you, Mr Deputy Speaker. I am drawing to a close. Opposition Members do not appreciate, and, sometimes I do not think that they understand, the ordinary people of this country, living in this glasshouse at Westminster. Throughout the country, there are people beavering and working away, determined to survive and to be ready for the economic upturn. I visited this week, in the constituency of my hon. Friend the Member for Scarborough (Mr. Shaw), the opening of a new plant costing £1¼ million. It is the most advanced plant in this country for dealing with the blasting, painting and cutting of steel. The plant is so advanced that it is expected to be exporting, within a year, 30 per cent. of its production. It is a small company that has been developed by two entrepreneurs encouraged by the reductions in taxation and the help this Government have extended to small businesses.

The Prime Minister has shown her faith in these people. They have faith in themselves. I am convinced that when the time comes the vast majority will show faith in our Prime Minister and Government and will send us back here for another five years.

6.25 pm
Mr. Douglas Jay () Battersea, North

Whether or not the Prime Minister has raised the prestige of this country, it would be uncharitable not to compliment her on the U-turn over Inmos, even though the Secretary of State for Industry told us three weeks ago that it could not be done, and even though it apparently required a censure debate to enable the Secretary of State to make up his mind. If that is true, we might have some more censure debates. I cannot, however, compliment the Prime Minister on her failure to understand, as it emerged from her speech, how serious is the situation in British industry. She does not seem to have begun to understand. She is the first Head of Government since 1945 to repudiate all responsibility for the level of employment in this country. We now have, for the first time since 1945, a Government who, in almost every branch of economic policy, are following the wrong path. As one would expect, our economy, as a result is nearer to grinding to a complete halt than at any time for the last 30 years.

In the economic controversies of the 1930s I always stuck to the principle that any economic policy that caused unemployment must be wrong. The object of economic policy is presumably that we should produce and consume more and not produce and consume less and employ fewer people. I should therefore like to state briefly and precisely the fallacies from which Ministers' minds are suffering. It is a matter of regret that the right hon. Member for Down, South (Mr. Powell) also seems to be the victim of some of these fallacies.

The first major fallacy is the assumption that it has been a demand inflation rather than a cost inflation from which we have been suffering in recent months and years. All the doctrines intoned now almost daily about the quantity of money, the public sector borrowing requirement and the rest, are based on the false assumption that we are suffering from a demand inflation. We are not. But at least a certain glimpse of a conversion seems to have appeared. If not a U-turn, there has been a transition in Ministers' minds in the last few months. They have been forced to admit that a free-for-all on the incomes front, including the public sector incomes front, has an effect on price levels.

Secondly, Ministers apparently believe that it is the quantity of money that is directly related to the level of prices. In fact, it is the flow of spending money and not just the quantity of money that influences prices.

The third fallacy is the idea that the expansion of bank credit can be caused only by public borrowing when, in truth, a bank credit inflation can just as easily be caused by private borrowing which increases bank advances. It has been so caused in most of the bank credit inflations since 1945, notably in the great Barber inflation of 1972-73. This particular error leads to the ridiculous conclusion that if the Government borrow money to build a power station price inflation is caused but that if a private firm borrows the same amount for the same purpose no inflation is caused. That is obviously an absurd conclusion.

The fourth basic error that is muddling Ministers' minds is the notion that by some law of nature or theology interest rates must be solely determined by market forces, which usually means, in practice, by the City. But they need not be solely determined in that way. During the war and during early post-war years the Government borrowed what they needed from the banks—incidentally, at 2 per cent.—and told the banks that their private advances must not exceed a certain figure. Bank credit can be rationed by means other than price. I do not say that that should be done now. But if the future of British industry is to be sacrificed for one banking theory or policy, that theory or policy must go.

One reason why all these illusions persist in Ministers' minds—and one noticed this in the Prime Minister's speech—is that they hardly ever think in terms of economic realities—in terms of output, employment, exports and production—but are instead obsessed with the money economy alone—taxes, bank deposits, borrowing, and all the rest. The Prime Minister hardly mentioned the real economy in her considerable speech.

And so, acting on the basis of all these illusions, in the past 15 months the Government have been deflating demand and inflating costs at the same time. The doubling of VAT a year ago was one of their worst mistakes. Inevitably, that combination of deflation of demand and inflation of costs must generate, as some of us have predicted in every economic debate since the election, an ever-widening spread of closures, bankruptcies and unemployment as all but the strongest producing units find their costs rising and their receipts falling. The Government then call the process a "recession", as though it were an act of God. But it is not. It is the necessary and predictable result, in a modern economy, of the simultaneous inflation of costs and deflation of demand. That description does not apply to this country alone. The present policy is in all essentials just old-fashioned pre-1931 deflation.

In addition, the Government—and this applies even to the wets among them—have not grasped that deflation does not normally stop until something is done to stop it. Every factory that closes means more public spending on unemployment benefit and supplementary benefit. It would be valuable to hear tonight from the Chancellor of the Exchequer the correct figure—if the Minister of Agriculture has it wrong—showing how many thousands of million of pounds of public money are being spent annually on unemployment.

Second, this process means that there is less income tax and corporation tax revenue from companies that are making low profits. In the subsequent round there will be less indirect tax revenue as public spending falls. The public sector borrowing requirement is therefore automatically increased by the Government's own policy. If they then try to stop that happening by savage further cuts, unemployment will as inevitably increase at a headlong rate. Meanwhile, as a result of all this, productivity must of course fall as output over the economy as a whole drops. In addition, the fact and fear of unemployment will intensify restrictive practices throughout a large part of industry. We suffered for 20 years after the 1930s from restrictive practices caused by the deflation of those years, and we shall do so again.

Therefore, this policy, quite apart from all the social evils that it creates, is seriously damaging productivity and is encouraging new restrictive practices throughout the economy. We have now reached the point, in my view, where serious long-term damage is being done to British industry and. incidentally, to the future of defence policy and security in this country because of the mutilation of the steel and shipbuilding industries.

But it must also be understood—and some of my hon. Friends particularly must understand this—that there can be no expansionist policy without some effective incomes policy.

Mr. Robert C. Brown () Newcastle upon Tyne, West

Why is that?

Mr. Jay

To pretend that there can be is almost as much an illusion and as foolish as those that are now misleading the Government. With an agreed incomes policy and reasonable restraint we can get back to the path of full employment, higher productivity and real growth and expansion all round, because cost inflation would then be curbed. But if public spending is expanded without an incomes policy, price inflation of 25 per cent. to 30 per cent. will return within two years.

My hon. Friend the Member for Newcastle upon Tyne, West (Mr. Brown) asked why there is a need for an incomes policy. The reason at the root of this controversy is this: if costs are rising in money terms faster than production over the whole economy, either demand is allowed to rise equally fast, in which case prices must rise, or it is not so allowed, in which case unemployment must increase. There is no escape from that arithmetical dilemma, if costs over the economy as a whole are rising faster than output.

It is not true, however, as is often said, that price inflation creates unemployment. What it does do is to put Governments in a position in which they either have to allow price inflation to continue or create unemployment in order to stop it.

But of course there is a constructive alternative policy. I state it briefly, First, the Government should reduce interest rates and thereby lower the exchange rate of the pound, thus removing at least the present intolerable pressure on our export industries. If it is necessary to correct excessive credit inflation resulting from lower interest rates, bank advances must be rationed, and that is perfectly possible.

Secondly—and on this all else depends there must be a recreation, in spite of all the difficulties, of a long-term agreed incomes policy. And some authority must be established as a last-resort tribunal to operate it. Most of the successful economies in Western Europe are today operating some sort of effective incomes policy.

Thirdly, all import restrictions must be removed from food supplies into this country from anywhere in the world. That will help to keep down our labour costs. At the same time, we must impose on all manufactured imports, from wherever they come, at least the same GATT tariff as we now impose on manufactured imports from non-EEC countries; supported by quotas, as my right hon. Friend the Leader of the Opposition said today, on endangered industries such as textiles. It is absurd for the House to argue about import policy in simple terms, such as being for or against import controls in the abstract. What matters now is which sort of restraint we impose on which imports. I believed that in 1972 we could have joined an industrial free trade area as members of EFTA. But too much damage has been done since then, largely by the effects of the common agricultural policy on our costs, for the British economy to stand that for a good few years now.

Having established these essential safeguards we must then embark upon a steady expansionist Budget policy. By these means together, but not otherwise, I am confident that we can return to full employment, growth and rising standards.

6.30 pm
Mr. Matthew Parris () Derbyshire, West

So much of what I wanted to say has already been said by my right hon. and hon. Friends. Therefore, I shall be fairly brief and limit my remarks to subjects of a general nature.

It is a privilege to follow the right hon. Member for Battersea, North (Mr. Jay). He is more learned than I. His erudition is such that I should be very unwise to try to follow his arguments or respond to them off the cuff.

I am not an expert in economics. I do not know a great deal about horticulture. I have never been Chancellor of the Exchequer. However, I once had a pot plant. Somebody gave it to me when I was at university. When I first had it, it flowered very effectively, as it was supposed to do. After a while the blossoms wilted and I wondered what one did. Someone recommended a proprietary product which I think was called Baby Bio. I bought a bottle of this stuff and administered a couple of drops, as the directions required. Immediately the plant burst into blossom. There was a profusion of blossoms for a couple of days, but they seemed to wilt rather earlier than the previous blossoms had done. Ignoring the maker's instructions, I put on four or five drops of Baby Bio. Again, there was an almost frenzied profusion of blossoms, but this time they wilted even more quickly. I had to put more and more of this product on to the plant to keep it blossoming. Eventually I realised that it was hooked on the stuff and that withdrawal from it was the only solution.

I realise that the Government are now obviously tempted by the thought of what I might call the Baby Bio solution to our political and economic difficulties. I accept that to follow a sharply deflationary policy at a time of international recession is painful in the short term. I support the Government's policy 100 per cent., but I accept that in the short term it is painful. It is the response of a country which believes that it is cornered and senses that there is nothing for it but to turn and face the problem.

In any such endeavour there will always be a time when the costs have become apparent to people but before the fruits are tasted. Despite the optimism of some of my right hon. and hon. Friends, I think that it will be some time before we emerge from this stage—that is, the stage that we are in at the moment. However, we know of so many examples in our personal and political lives of people who have turned back at just the point when they should have carried on.

I believe that we shall win through and that, when things do begin to come right, the air will be thick with the cries of enthusiasm—the new-found enthusiasm of erstwhile doubters. We shall not be able to see the bandwagon of my right hon. Friend the Prime Minister and her Cabinet for those who previously lagged behind but who will then be trying to clamber on it. She will not need them. I say to Government supporters and, through you, Mr. Deputy Speaker, to a wider audience, that she needs, and will get, our support now.

6.43 pm
Mr. Ron Lewis () Carlisle

I hope that the hon. Member for Derbyshire, West (Mr. Parris) will forgive me if I do not take up all the points he made. I believe that he represents Derbyshire, West. The bandwagon to which he referred will start to roll in Derbyshire with the county council elections next year—I live in the county—when the people of Derbyshire will, once again, revert to a Labour-controlled county council.

Having said that, I wish to refer briefly to the area which I represent. I turn to Cumbria and my own constituency of Carlisle. The people in that part of England seem to think that they have been completely forgotten by Governments of all political persuasions here at Westminster.

At the last general election the question of unemployment was one of the major platforms for Labour speakers in the county. Some of us envisaged that, in the event of a Conservative Government being returned, unemployment, bad though it was even under the Labour Government—which some Labour Members of Parliament strongly deplored at the time—would get worse. We from the political hustings envisaged that if the Tories were returned there would be a steep rise in unemployment in my part of the world.

We have had unemployment in West Cumbria since the 1930s. My hon. Friend the Member for Workington (Mr. Campbell-Savours) can elaborate on that better than I. Throughout the county of Cumbria in the 1930s, especially in the West, there was ravaging unemployment. Carlisle, I understand, was not subject to the ravages of unemployment in the 1930s as much as the western part of the county. Unfortunately, that position has changed considerably. In the 1930s we had not experienced the rundown that the other parts of the country had. I am sorry to say that the present story in my part of the country is typical of that in other parts. It is a very sad story of people being thrown out of work almost week by week.

At the general election my Conservative opponent attacked me bitterly because the Labour Party suggested that unemployment would rise under the Tories. This is what he said: It is, therefore, especially shameful that Labour politicians during this election should have the temerity to suggest that Conservatives would bring about higher unemployment. All that the Labour Party forecast at the general election has now taken place and is, I regret, a reality.

We could not get postmen in Carlisle 18 months ago. In the city of Carlisle, I am given to understand, there were four vacant jobs last week, with 256 applicants for them. We experienced that in other parts of the area in the 1930s. However, we had a large number of small family firms. Those firms have now been merged into great companies. What has happened? Since the general election there has been in my city an increase of nearly 60 per cent. on the unemployment registers. To me that is very sad indeed.

Thanks to the Labour Government, we encouraged textiles to move to Cumbria. Courtaulds came to Cumbria, in the constituencies of my hon. Friend the Member for Workington and myself, and built brand-new factories. The workers did not demand excessive wages. Nor did they go on strike. But what was the result? Courtaulds closed both factories in Cumbria, with the loss of 800 jobs. That loss was not reflected in the unemployment figures issued last Tuesday. They will be reflected in the next set of figures because the men will be given a certain payment some time towards the middle of next month. In no part of the United Kingdom can the textile workers be accused of demanding excessive wages. Textile factories are being closed. The numbers on the dole queue are increasing.

There are light engineering companies in my constituency that are associated with the motor industry. Those companies are feeling the draught. A company that manufactures seat belts had to put a number of its employees on the dole only the other week.

I have had a conversation with the general manager of the Pirelli tyre company in my constituency. I do not want to misquote him, although he canvassed against me during the general election. As a good Methodist I want to be fair to him. I spoke over the phone to the general manager and asked him about the position of his company. He told me that it was grim. He said—I paraphrase—"We are only just managing to tick over, and we are not making any money."

Part of the food industry is in my constituency. It handles a great deal of food, some of which is sent to London. The management is not taking on school-leavers as it once did.

I hope that the House will forgive me for dwelling on the situation within my constituency. I was sent to this place to represent my constituents, and that is what I am trying to do.

The outlook is grim. Job prospects are extremely limited. The local trade union leadership in Cumbria envisages a sharp rise in unemployment. A few months ago it met the Cumbrian Members of Parliament. Among those present was the deputy leader of the Government, the Secretary of State for the Home Department, the right hon. Member for Penrith and The Border (Mr. Whitelaw) I am sorry that he is not in his place now. Also present were my hon. Friends the Members for Workington and for Whitehaven (Dr. Cunningham). We listened to what the trade union leaders tried to impress upon us. They spoke of Cumbria's future in terms of unemployment and painted a grim picture.

The Home Secretary, who is my parliamentary neighbour, undertook to raise at Cabinet level some of the complaints that had been voiced. I do not know whether he did so. I am not saying that he did not. Having listened to the Prime Minister, it seems that there is only cold comfort for Cumbria.

Cumbria is nearly 70 miles from Newcastle and almost 100 miles from Manchester. It is tucked away in the North-West. It seems to be forgotten by politicians. I hope that the Minister of State, Treasury will convey my observations to the Cabinet. I tell him that something must be done for Cumbria.

In the days of the depression, and since then, young people have had to leave the county. Many of them have never returned. In Carlisle 4,150 are out of work. The statistics are well above the national average. I hope that the Government will reconsider their policy and try to do something to assist the area's unemployment problem.

Those of us who were fortunate enough to be in this place during the previous Parliament listened to the present Prime Minister speak from the Opposition Dispatch Box. I am beginning to wonder whether she has a Jekyll and Hyde character. That which she said when in Opposition bears no resemblance to her statements from the Government Dispatch Box.

If what is happpening now were happening under a Labour Government, I shudder to think of the headlines which would appear in our national press. However, I must be fair to my local Tory paper. It has exercised a little responsibility compared with many of the national newspapers.

6.55 pm
Sir Brandon Rhys Williams () Kensington

During the general election campaign the Conservative Party made it abundantly plain that if a Conservative Government were elected they would follow policies of orthodox economic management, prudent control of credit, the setting free of individuals to pursue their best interests, and cutting out waste in the public and private sectors. It is not suitable for the Opposition to complain if that is what the Government are single-mindedly doing.

But it is not enough merely to know precisely where the North Star is; the Government must be able to take the ship of the British economy round the underlying rocks. Now that a year has passed, it is appropriate to make some criticisms and some recommendations, which I hope will be helpful.

The Treasury and the Bank of England seem to be taking a rather supine view of what is probably only an artificial and temporary situation: I cannot believe that the present very high exchange rate for the pound is a permanent and inevitable economic feature.

The Bank of International Settlements published an interesting annual report in Basle last month. I would like to quote two passages. It stated: Countries in which the price level increases persistently faster than in their main trading partners, cannot, over the longer run, avoid depreciation of their currencies. Later in the same report it observed: Inflation being a common malady will have to be fought by means that do not bear the taint of competitive currency appreciation. I realise that there is a tremendous amount in the argument that the exchange rate is settled by market forces. Obviously that is true. However, the economists advising my right hon. and learned Friend the Chancellor of the Exchequer may have a little more to learn about foreign exchange than they realise.

That rate of exchange established by the market is not merely a mechanical response to forces outside the control of the authorities, as we saw during the years under the Bretton Woods agreement. At that time we had fixed exchange rates for long periods but we were able to vary the rate of interest. Surely it ought to be possible, if we choose to do so, to adjust the exchange rate now without necessarily making corresponding interest rate changes.

Political decisions can have a direct and sometimes dramatic effect on the rate of exchange. I shall give the House one or two elementary examples. If my right hon. Friend the Prime Minister were to make a shock announcement in the next Queen's Speech that provision would be made for the Government to repudiate the national debt, that would have a dramatic effect on the rate of exchange. That is so unlike my right hon. Friend that it can be regarded as a laughable example.

I shall take another example that is not quite so far-fetched. Let us suppose that Scottish devolution had gone ahead and that by now the Scottish monetary authorities had decided to follow the Dublin authorities and to separate their pound from the English pound. I do not know what effect that would have had on the Scottish economy. However, one can well imagine the English pound dropping to £1.80 or £1.70 to the dollar without the benefit of the main part of North Sea oil revenue.

The Government of the day would be saying "This is the response to market forces and nothing can be done about it." We should be revelling in the tremendous strength of our car industry. We should be acknowledging the prudence of British people in not being attracted to imports. We should be enjoying wonderful success in export markets. Our steel industry would not have to face closures. All that would have its disadvantages, probably, in the form of rapidly rising inflation.

I am not recommending that we should try to Balkanise our currency system even more. The one lesson that we must learn—and should have learned following the breakdown of the Smithsonian settlement—is that the experiment with national—one might say ethnic—paper currencies has proved a failure. Perhaps we should have known that it would prove incompatible with democratic interventionism in a dangerous world. We all have an increasing longing for some central element that will be a store and a measure of value, such as the old gold standard. We do not want to return to that; but the spectacle of national Finance Ministers with their central bank governors in tow, each running their own little paper currency, is unconvincing. The disposable tissues that we use for paper currency, without any solid backing, are perishable and are not the substantial element that we need to make capitalism a success.

I should like to go in the other direction, towards consolidation of paper currencies. That is why I regret that we did not join the European monetary system when we had the opportunity. We should have found a means to join. We should have continued with the negotiations until the system was in an acceptable form. We could still open discussions to find a way to attach the pound to the European monetary system. By doing so, we could enlist the support of other central bank governors instead of the complete indifference that they are now showing.

We are in a strong position to open such negotiations because my right hon. and learned Friend the Chancellor of the Exchequer showed splendid courage last year, when he rightly dismantled the controls on sterling capital movements. But he did not follow up that initiative, which he should have done. He should have approached the other member States in the Community, and also other countries, and suggested that they, too, should dismantle their controls on the movement of capital. Then we could have started to create a European market for capital—an integrated European market for credit. I am thinking not only of the market for the currencies but of a truly integrated economic system taking in the commodity markets, the stock exchanges, insurance, private and corporate finance and even Government borrowing.

Suppose there was a tremendous new oil discovery in Texas—something beyond even the wildest dreams of American oil millionaires. That would not raise the Texas dollar against the remainder of the United States because Texas is now completely integrated with the American monetary system. So, too, for the pound. Our object should be to arrange for investment in London to be diffused throughout the European system, so that the pound could enjoy the advantages of belonging to a large economic system, such as that in the United States.

I wish to deal briefly with interest rates. For the success of the capitalist system business men must be able to take long-term decisions that prove right. The Government owe them a background of stability and predictability, as far as ever possible, about such vital matters as the interest rate over a long period. In that way they can provide a favourable climate for investment. My right hon. and learned Friend was right last year to increase the rate of VAT. I know that many people do not agree with that. But once again, he stopped half way. He was trying to discourage consumption, but he did not do enough to promote investment.

I wish to make a specific recommendation on that matter. The Government should encourage the growth of what we might call guaranteed dividend stocks to finance the public sector, and in due course similar things could appear in the private sector as well. I have not used the normal phrase "indexed stocks", because it has double meanings. My right hon. Friend the Prime Minister said that we must not simply adjust to inflation. I agree with that; but I do not accept that a guaranteed dividend stock is a form of adjustment to inflation. It is the opposite. It means that the enterprise is making a commitment to reality—something akin to a gold clause—expressed in terms that the enterprise can undertake confidently from its own resources, whatever the economic conditions.

I shall give the House two examples of that. The Severn barrage should be undertaken quickly, and its development speeded up. To pay for it I believe that the Government might have to issue a large tranche of guaranteed stock, with the dividend expressed in kilowatt-hours rather than in paper currency. The Channel tunnel project has been stalled because of financial troubles and not for any other good reason.

Mr. Ron Lewis rose

Sir B. Rhys Williams

I shall not give way, because I do not wish to speak for too long and I still have some specific recommendations to make. The Channel tunnel project could raise the necessary finance if it issued a dividend guaranteed in terms of transport per ton-mile. Whatever happened to the pound, it could satisfy its commitments to investors.

On the subject of efficiency, it is a failure of the Government that they have not done enough to promote efficiency. In the public sector that is a difficult undertaking. I should prefer to see reductions in numbers, not the underpayment of surplus manpower. There is a large amount of surplus manpower in our Ministries and public institutions. As a simple slogan I offer the idea "The dissolution of the Ministries". We need to think about reorganisation on a very large scale—something that would change the whole nature of Civil Service recruitment, training and promotion, and that would involve massive early retirements, especially in the older and senior levels—something on the lines of the Haldane reforms of the Army.

Shock treatment is not appropriate in the private sector. Indeed, if something like that was needed, it has now gone far enough. There are more ways to boil an egg than by taking it straight from the refrigerator and plunging it into boiling water. If one does that there is the likelihood of breaking the shell and losing the goodness. Private business has undergone shocks in the past few months, and other methods could be tried. For instance, there is the transferability of pension rights. If the executives in private sector schemes were free to make their own ways to the companies that they thought were likely to grow and to provide them with their best opportunities, it would help to promote efficiency by the pressure of people voting with their feet. That cannot wait until next year or the year after. Thousands of people are losing their pension rights this year. The Treasury civil servants in charge of these matters, enjoying their own highly privileged indexed pension schemes, should be willing to do something quickly to help those losing their pension rights in the private sector.

I should like non-executive directors to be appointed to the boards of public companies. That would have a tremendous disciplinary effect. It could be done without any outside interference in the company's management. It would strengthen the supervisory element within the company without introducing Civil Service pressures, or anything else. We should welcome the fifth directive in its modified form. Personal details of candidates for directorships should be circulated in advance of meetings, thereby putting the institutional investor in a much stronger position to exercise discipline over the choice of directors and their reappointment.

I wish to make some brief suggestions about changes in company tax, which I believe are overdue. My right hon. and learned Friend the Chancellor promised to introduce in the last Budget changes in capital taxation, but he did not do so. It would be advisable for him to announce his intentions as soon as possible—not waiting for next year's Budget—and the changes should take effect from the date of the announcement.

On the question of tax treatment of stock, we need to change the balance of taxation. At present it tends to assist retail companies rather than manufacturing concerns. I would like, too, to suggest ways to reclassify the capital structure of companies to encourage even those with low profit margins to raise fresh capital by a type of dynamised debenture, which would rank as prior-charge borrowing for tax purposes, but with dividends related to value added, or to the turnover, rather than to profit. I notice that this is one of the recommendations of the Wilson report.

Lastly, I suggest that we might seek to extend the tax concessions which encourage the build-up of pension funds and give similar encouragement to companies to build up funds for retraining of their employees and for company reorganisation.

I have spoken for longer than I intended. I hope that my specific recommendations will include some points which the Government will recognise as helpful and which they will be willing to implement. Opposition Members must admit that the Prime Minister has won the tremendous support of the nation by her courage, single-mindedness and integrity in pursuing the objectives which she believes to be right, and which the nation in its heart knows to be right. She has won the support of the nation. She deserves the support of the House.

7.11 pm
Mr. Donald Stewart () Western Isles

I hope that the hon. Member for Kensington (Sir B. Rhys Williams) will forgive me if I do not deal in detail with his speech. I was interested in two of his ideas, although I accept that he mentioned them as examples. I refer to the abolition of the national debt and the separation of the Scottish pound from the English pound. If ever the hon. Gentleman manages to introduce Private Members' Bills on both of those issues, he will have my enthusiastic support. I was much more interested in the speech of the hon. Member for Bridlington (Mr. Townend). I was surprised, because judging from his speech he is the type of Tory who I thought had long become extinct. He talked about teachers giving pupils inflated ideas of themselves. I thought that he was about to go on to the medieval prayer which teaches us all to keep our stations. When the hon. Gentleman talked about the country facing the economic facts of life, he reminded me of that section of the population to which Abraham Lincoln once said "The aim of the few is to say to the many 'You work and earn bread and we will eat it'." That seems to be the sort of economic fact of life which the hon. Gentleman has in mind.

The right hon. Member for Down, South (Mr. Powell) dealt in great detail with the restriction of public expenditure, which some hon. Members thought was rather odd in the context of Northern Ireland. The right hon. Gentleman, or any other hon. Member from Northern Ireland, need make no apology for any help that Northern Ireland receives. I should say right away that I am demanding aid for Scotland and my own constituency, but I also support the general principle for the whole country.

Despite all the economic theories which we have heard today, the fact is that the previous Labour Government—and they were not without blame with regard to unemployment—pumped in money to keep unemployment down. In addition, inflation was only a half the figure that it is now. That is a historical fact which transcends all the economic theories which Conservative Members can put forward.—[HON. MEMBERS: "It was delayed effect."] Whatever it was, it is a fact.

When the Prime Minister entered into high office she quoted St. Francis of Assisi. We heard such phrases as "sowing peace and harmony", and all the other laudable aims of the Saint's prayer, but we must now live with the realities of this Government. Surely, that must be the greatest ever contravention of the Trade Descriptions Act, because this is one of the most divisive Governments of modern times. They have no mandate from Scotland and they received a popular vote of less than 40 per cent. from the United Kingdom as a whole. They have proceeded on a trail of reaction and disaster which could well turn out to be irreversible. We may be passing the point of no return for the United Kingdom's industrial base, and may be sowing bitterness that will not be eradicated.

The soaring unemployment figures may not cause this Administration great concern, but one would have thought that the plight of businesses would have given rise to some anxiety. Many firms are folding up. As the hon. Member for Carlisle (Mr. Lewis) said, many of them met all the criteria which the Prime Minister said were essential if they were to succeed, such as low wages and increased productivity. They even stayed open on the TUC day of action. They met the magic formula, if that is what it is, yet they have gone to the wall and have folded up along with the rest.

In Scotland, company liquidations have jumped 43 per cent. in the first six months of 1980 compared with the same period last year. There have been 1,544 winding-up orders in the first six months of this year, compared with 928 in the same period last year. Mr. Robin Duthie, the chairman of the Scottish Development Agency—an appointee of the Government—has said: I have heard it said that when London sneezes, Scotland gets the flu, but I think I can safely say that some parts of West Scotland are getting pneumonia". The chairman of the Scottish Council of Development and Industry has accused the Government of asset stripping because of their failure to invest North Sea oil revenues in industry. The small businesses—I shall not go into detail, because of tomorrow's debate—must be even more disillusioned with the Government's actions.

I turn to unemployment. Appalling though the figures are, the Fraser of Allender Institute estimates that, in December, in addition to increased figures for adults, there will be an additional 40,000 school leavers in Scotland to be added to the register. That is an appalling figure in itself, and in spite of the high figures that existed back in the 1930s, we may find that people today are not prepared tamely to tolerate such figures. That is something which, in the present climate, the Government should bear in mind.

In June, Scotland lost 5,000 manufacturing jobs. The Government have said that Scotland must get into the microprocessing business. However, of the grants already approved, only 2.5 per cent. have come to Scotland against 60 per cent. for the South-East of England, a trend which encourages firms to set up in the South-East. The Government's answer to the unemployed is "Move house to somewhere else". Scotland and other parts of the United Kingdom have long been told to walk tall in Australia, Canada or elsewhere. But the net emigration loss of 2,000 in 1974 became 18,000 in 1979. Where is the work which the Prime Minister suggests could be found? Even if it could be found, it is grossly insulting that people in settled homes—many of whom boast of the length of time their families have been in possession of such homes—should ask working people to become industrial nomads travelling the face of the land. As I have said, even if they did so, the work does not exist.

The Government are found guilty on consumer prices. In the first four months of 1980, prices in Scotland rose by 8.3 per cent., the highest rise in the United Kingdom. The record is also shocking in respect of assistance to the poor and disabled. The Government are carving up the assistance which has been given to the less fortunate members of our society. A Minister in the Department of Health and Social Security wrote to me this week: It would not be right to exempt the deafness group or any other client group from the effects of the campaign to produce a streamlined and more efficient Civil Service. What consolation for the deaf and those who are otherwise disabled! Their sacrifice will produce a more streamlined Civil Service. What a load of codswallop. There is plenty of room for cuts in the defence budget. The Government propose to spend the lunatic sum of £5,000 million on defence. There is plenty of scope there for cuts, and the country could still be amply defended.

The Government are prepared to pay out £7,000 million in unemployment benefit. As for the free enterprise zones announced by the Prime Minister today, that is soup kitchen planning and nothing else. As well as being a failure, the Government represents a dangerous conspiracy against the people of the United Kingdom, and I shall have great pleasure in voting for the motion tonight.

7.18 pm
Mr. Robert Taylor () Croydon, North West

This censure motion specifically refers to unemployment and the problems facing industry. To that extent it is timely, because no one could disagree with the statement that unemployment is unacceptably high and that industry faces many problems. However, the motion is directed against the wrong target. In my view, it should be directed against every Government who have held power since that day, some 22 years ago, when the right hon. Member for Down, South (Mr. Powell) and two of his right hon. Friends resigned from the economic team.

Since that date, successive Governments of both parties have weakly accepted short-term expediencies, and have thereby created a long-term catastrophe. That catastrophe is with us today. The day of reckoning is now here. It would be comparatively easy to listen to yesterday's men—to some right hon. Members on the Labour Benches and to some of my right hon. Friends—who took part in our recent economic debate. They have suggested that we should reverse our policies and take steps such as those that have been taken during the last 22 years. They are responsible for our present position. It is an effrontery for them to suggest that my right hon. Friend the Prime Minister should take similar steps.

There is no hon. Member who does not understand the Government's strategy. By refusing further to devalue our currency the Government will create a more competitive Britain, with a stable currency and full employment. There may be some faint hearts on the Government side of the House, but at least they seek success for those policies. By contrast, there are some Labour Members who have a vested interest in the failure of those policies. I have news for the faint hearts and the knockers. Just as the severity of this recession came quickly, so will the recovery come quickly. I am not claiming that we have reached the lowest point yet, but already there are signs of success.

As the House knows, I am involved with the building materials industry. All the products that I sell are made in the West Midlands, and thus create and generate employment there. Regrettably, one of the main manufacturers—a public company—has had to make a third of its labour force redundant because of a shortage of orders. The managing director of that company, who was at the House last week, asked me what I thought would be an anticipated price increase on the products this year. I said that I did not anticipate that it would be very high but that I should like to know. He said "I have good news. For the first time in 17 years it is unlikely that there will be any increase, because we have found that we can produce the same volume with two-thirds of the labour force. The high pound has kept the cost of raw materials stable". When I sell those products abroad during the Summer Recess I shall find it easier to sell them at the same price at which I sold them a year ago in Saudi Arabia, Kuwait and Bahrein because our competitors are increasing their prices. That is a sign of the success of my right hon. Friend the Prime Minister's policies.

In addition, I am chairman of the building materials export group, which is responsible for a substantial amount of exports, and the same story was told by many Midlands manufacturers at its annual general meeting two weeks ago. We must look to small and medium-sized companies because they have the greatest prospects. The taxation changes that took place a year ago have motivated the management. If Labour Members want evidence of that, I refer them to the evidence that was given recently to the Trade and Industry Sub-Committee of the Expenditure Committee by Lord Limerick, chairman of the British Overseas Trade Board. In answer to a question from the hon. Member for Stockport, South (Mr. McNally) he said: You cannot generalise. In the dullest sectors there are shining examples of success and I may quote a fairly recent one: a manufacturer of woollen worsteds from North Yorkshire to whom I was talking told me, when I asked him 'What has happened to the price of your product in Japanese yen landed in Japan?', 'It has gone up 52 per cent. in 12 months'. I then said 'What has happened to your sales?', and he said 'I have doubled them' … If I may take time for one more brief example, I have just returned from Hong Kong. The fact that phase one of the mass transit system, the underground railway, opened last month ahead of time under budget and that a high proportion of it was contracted from Britain, has absolutely transformed British reputation, not only in Hong Kong but in a good deal of that part of Asia. The message is we are back on the map. That evidence was reflected by the industry in which I play a small part. I ask those who criticise the Government for the high exchange rates to look at our exports. For the past two successive months they have been in the black, in spite of the high exchange rate. The volume of exports has risen. Labour Members should be pleased that British exports are successful, and they should not knock that success. High interest rates will obviously come down for the right reasons, not because of pressure from either side of the House, but because the money will be available and the Government will not be demanding such a high proportion of it.

As a Government, we must be careful to watch wages in the public sector. If they get too high, private industry will have to follow suit, and we shall lose the price competitiveness that we have built up recently. If hon. Members would like an example of what I mean by high wages, I quote from an advertisement in the Evening Standard which appeared on the day that the unemployment figures were announced last week. If hon. Members take it seriously, they will be as worried about its implications as I am. The advertisement reads: Over £3,500 p.a. for a 3 day week! Kids leaving school? Bored at home? You can earn £3,517 pa for 3 full days a week as a Part-time Finance Assistant. That advertisement was placed by the Thames Water Authority. If a pensioner reads that advertisement he will be extremely angry, because it is a ridiculous amount of money to offer to a person leaving school. If Labour Members think that that is justifiable, they are encouraging unemployment. That sort of advertisement must encourage unemployment, because the private sector is not able to compete.

If any Labour Member who votes in favour of the censure motion tonight arrived at the House in a foreign car he should remember the remarks of the hon. Member for Carlisle (Mr. Lewis) who complained about the seat belts factory in Carlisle. He complained about the problem of Pirelli in Carlisle. Any hon. Member who votes for this censure motion tonight, having arrived in a foreign car, will be acting in a most hypocritical manner.

I repeat to the Government the message which has been voiced by many of my hon. Friends: keep a steady nerve; we shall win the battle over inflation and unemployment and Great Britain will be a better country.

7.30 pm
Mr. Norman Atkinson () Tottenham

I am not sure whether we should congratulate the hon. Member for Croydon, Northwest (Mr. Taylor) on arriving at the House of Commons in his Rolls-Royce.

Mr. Robert Taylor

It is British, and I am proud of it.

Mr. Atkinson

It is undoubtedly British. I understand that the hon. Gentleman's remarks were directed towards hon. Members who drive around in other than British cars, for the House of Commons car park seems to be littered with products from overseas.

The one shining aspect about which the Prime Minister spoke—at least in her considered opinion it was shining—was the enterprise zone. That rag and bone and scrap metal idea being developed by the Government as a kind of economic salvation means that we have to get back under the railway arches to find work. We are not to sleep there, as my hon. Friend the Member for Liverpool, Walton (Mr. Heffer) said, but to work there. The solution being put forward by the Government is to work under railway arches, in garden sheds and other temporary buildings in city centres to develop their rag and bone and scrap metal idea. That epitomises the Government's attitude towards economic recovery and growth in this country.

I am glad that the right hon. Member for Down, South (Mr. Powell) has returned, because I should like to comment on his contribution. If the debate marks nothing else, it should mark the end of the sweetheart arrangement which Opposition Members have had in their undue adulation of the pseudo remarks—indeed, the pseudo intellect—of the right hon. Gentleman from time to time. One of the Labour Government's weaknesses was the regard that they paid to the right hon. Gentleman in adulation or otherwise. None the less, it will cost us many seats at the next general election. That is the price that we paid for this conspiracy of silence during previous contributions by the right hon. Gentleman.

The right hon. Member for Down, South has an obsession with figures. As he talks about immigration figures, so he talks about the public sector borrowing requirement in almost the same breath. He has an arithmetic obsession, as though it is meaningful in these debates. He gives no reasons in support of his contention that what he calls an excessive borrowing requirement is a direct contributory factor to the creation of price inflation.

I think that I am justified in saying that the right hon. Gentleman in debates behaves as an unprincipled punter. He attempts to back every horse in the race, or whichever suits him at the time. But he is the chief beneficiary of public expenditure, taking possibly the largest share of the allocation of resources.

Mr. R. C. Mitchell () Southampton, Itchen

Too much.

Mr. Atkinson

It may be too much. But he should not denigrate the method of allocating those resources when so much is crucial in Northern Ireland and in other weakened areas of this country. [Interruption.] The right hon. Gentleman denies denigration, but that is precisely what he does in his contributions to these debates.

Mr. J. Enoch Powell rose

Mr. Atkinson

I shall not give way. I shall treat the right hon. Gentleman in the same way as he treated me.

Mr. J. Enoch Powell

Will the hon. Gentleman give way?

Mr. Atkinson

I certainly shall not give way. One of the reasons why I reject the right hon. Gentleman's arguments as economic imbecility is that the inflation problem is cost-led, not wage-or demand-led. There is a great argument as to how inflation has come about. The greatest contributory factor in recent years has been the price of oil—energy. The Government have pursued a deliberate policy of pushing up the cost of energy to industry as part of their organised slump factor which they describe as inevitable. The Prime Minister says that it is inevitable. It is nothing of the kind. It is the deliberate step by step policy of the Government to organise a slump.

On the one hand, we have a boom in the City, the like of which has not been seen in post-war years, and, on the other hand, an employment slump. [Interruption.] Conservative Members deny it. But in the past 12 months the finance houses in the City have cleared £2,500 million in sheer profit at a time when unemployment is approaching 2 million. What sort of morality is it when we put side by side the boom in the City and the slump in our industrial areas? Is not that a condemnation of the policy now being pursued of one law for the City and another for industry? What is now taking place is a direct result of that attitude during post-war years.

The remedial measures suggested by successive Governments have always been oriented towards the City because the nation has depended on that sector to make up the shortfall in our visible trade. Therefore, manual and industrial workers have always taken the brunt of the problems that this country has suffered. That is the situation. The record of post-war years is there to prove it. The reason why we are so much further down the track of slump than our Continental competitors is that we have been oriented towards the needs of the City when Governments have introduced remedial measures.

Sir Ronald Bell () Beaconsfield

Will the hon. Gentleman give way?

Mr. Atkinson

No. I have only a few minutes. I certainly shall not give way.

Our inflation is caused by cost, not demand. That is why we should be talking about the control of prices first, not wages. We should forget this idea about public expenditure being the root cause of most of our problems.

I will list what we are debating and what we are protesting about—first, high unemployment; secondly, high interest rates; and, thirdly, high exchange rates.

It is because of high interest rates that we now have this boom in the City. The finance houses have never before creamed off so much in ill-gotten gains from the country as now. That is an element of class politics that we ought not to forget.

The Prime Minister now says that high exchange rates are inevitable and that our economy can do nothing about them. They make exports more difficult and encourage cheap imports. That is the result of the economic non-interventionism being practised by the Government.

I want to make only one analysis about industry and it concerns engineering. I refute the idea that is floating about that wages are the root cause of all our problems. In recent months, I and several others have done some detailed research into the engineering industries. They have taken the brunt of the Government's policies. Mechanical engineering has suffered the greatest number of industrial casualties in the past three years. That industry has lost 254,000 workers. One must add to that figure the 6,000 workers that have lost their jobs in instrument engineering and the 23,000 workers who have lost their jobs in electrical engineering. That makes a total of 283,000 workers. To that figure one must add another 43,000, comprising 20,000 from vehicle engineering and 23,000 from shipbuilding.

A close analysis of why those workers have become casualties is illuminating when considered in relation to the Government's arguments. All of those casualties involve low-paid workers. The most buoyant sections of engineering are the highest paid sections. Those two aspects naturally go side by side. Where there is buoyancy there is employment and high wages. People are not pricing themselves out of jobs, and that lie should be nailed as securely as possible.

As I have said, 326,000 engineering workers have become casualties during the past three years. The majority of them were made redundant as a result of some form of rationalisation. Another reason for redundancies is the amalgamation of companies. Wherever there has been weakness there has been low pay. Workers have not gone for the kill, as Conservative Members say. They have not pushed home their bargaining muscle or gone for high wages. That is why they have become casualties. Analysis proves that.

The Leader of the Opposition was right to say that from April 1977 to April 1978 the increase in the retail price index equalled 8½ per cent. In 1978–79 the increase equalled 10 per cent. From April 1979 to April 1980 there has been a 22 per cent. rise. What caused that inflation rate of 22 per cent.? It was not wage led. It could not have been wage-led, because wages were limited to 13½ per cent. during that period That should not be thought of as a contributory factor to the inflation rate of 22 per cent.

If one analyses manufacturing industry, one realises that redundancies cannot be blamed on high wages. Workers are not pricing themselves out of jobs. If our unit costs are compared with those overseas, we see a different picture from that projected by the Government Front Bench. Once again, they have tried to make scapegoats of industrial workers. The Government imply that they are taking a greater share of the cake and that they are not entitled to that share.

What has happened since January 1974? The record is there for all to see. The living standards of wage earners are now less than 4 per cent. higher in real terms than they were. If one section of society has taken a bigger share of the national cake, a finger should be pointed at the City. A handful of finance houses and banks have creamed off £25 billion in 12 months. It is they who are sucking the economy dry and they who are taking more than their share, not wage earners. I hope that we can put a stop to the constant accusation that trade unionists are using their bargaining power to such an extent that they are pushing people out of work. That is not true. Those who utter such remarks should come to the Dispatch Box and illustrate where such practices take place. If they wish to continue making such accusations, we are entitled to some detailed explanation of where those practices occur. If they cannot give us such an explanation, they should shut up.

7.45 pm
Mr. Michael Ancram () Edinburgh. South

I am glad to have the chance to speak briefly in the debate. I hope that the hon. Member for Tottenham (Mr. Atkinson) will forgive me if I do not answer his points. If Conservative Members spent their time responding to the different policies put forward by Opposition Members they would find themselves with little time to support the policies of Her Majesty's Government.

I speak in support of the Government, in particular, because I come from Scotland. Scotland has special problems. The Government have genuinely set out to solve those problems. In expressing my confidence in the Government, I believe that I express the confidence of large numbers of Scots. Obviously, things are hard in Scotland at the moment. However, that is no surprise. No realist would have thought that things would have been otherwise.

During the last election in Scotland, we promised a new and hard road. We needed to do that. When we looked at Scottish businesses and Scottish industry we saw a sorry story of decline from a position in which we had once led the country to a position in which we were almost propped-up also-rans. The Conservative Party in Scotland did not accept that that was inevitable, although many Opposition Members did, and still do.

We saw the exceptions in the oil-related industries, in the new technological industries, and even in the manufacturers of Scotland's national drink. We saw that they could succeed and modernise. We realised that the possibility of setting Scotland's economy right lay with them, if only we could get the attitude of mind right as well. That is where Scotland's weakness has lain for so long. The attitude of mind is not right. For too long people's minds have been pervaded by a negative attitude that has led people to expect an eleventh hour rescue and do put off the evil day. That attitude was fostered hard by the previous Labour Government during their five years of office.

We set out to change that negative attitude to one of creation, innovation and expanding initiative. Such attitudes of mind have been deeply ingrained over the years and it will take time to change them. Change is never pleasant and never easy. It is all too simple for hon. Members—I am sad that the right hon. Member for Western Isles (Mr. Stewart) is not in his place, as he mentioned this point—to say that there is one simple answer, namely, investment. It is argued that Scotland's problems boil down to lack of investment and that more money will create an economic miracle in Scotland. It is not as if Scotland has lacked investment. Vast amounts of public and private money have been pumped into Scotland over the years, but much of it has vanished without trace or result like water in sand holes. Money was put into unsuitable places and structures.

Ultimately, investment will be successful only if the structure is right, and if it sets out to promote the viable and encourage the innovative. Too often, Scotland has failed to achieve that. We have been bewitched by our inheritance of older industries that have no future, and that have stood in the way of new development. At the last election we promised to change that. That is something that cannot be done overnight, however much Labour Members may demand to know when it is coming. However, the people in Scotland realise that this holds out the best hopes in the long run for economic prosperity and security for the Scots. That is what the Government are doing now, and in doing so they are keeping faith with those who elected them.

This is a painful process, especially in Scotland, where the Government face problems that are that bit larger, that bit more deeply rooted and that bit more endemic than they are south of the border. Because of that, it is just that bit more vital that we get the solutions right.

The Opposition base their attack on unemployment trends. They do not have a monopoly of concern on this front. I, too, hate unemployment, especially among the young. I can accept unemployment only as long as it is short-term, and as long as it contains within itself the seeds of its own cure.

I would like to see special measures to alleviate school-leaver unemployment. I was encouraged by the Prime Minister's remarks earlier today that the Government are seeking ways to do this. I hope that she will consider some of the suggestions made by my hon. Friend the Member for Bridlington (Mr. Townend), because I believe that school leavers must be given a real chance and real job experience. They deserve our protection.

I do not question the sincerity of Labour Members, but I sometimes wonder about the total purity of their motives in pressing this issue so hard at this time. I cannot avoid a suspicion—and a certain distaste—about the obvious relief with which the Opposition seize on this issue in order to distract attention from some of their own internal wranglings.

Mr. Austin Mitchell (Grimsby)


Mr. Ancram

I intend to follow the example of other hon. Members. In order to save time, I shall not give way. Watching the Labour Party is almost like watching an unhappy couple picking a fight with their neighbours in order to save their own marriage.

Opposition Members talk about the question of mobility as if it were something terrible, or something new. When the oil boom came to Scotland at the beginning of the 1970s we saw mobility. We saw people moving up to the North-East from the West of Scotland to take part in the jobs that were being provided. At that time we heard no objections from Labour Members, complaining about mobility and people moving to where the work was. I doubt whether hon. Members who travel round the North-East of Scotland will find many of those who work in the oil-related industries complaining about the fact that they had to follow the oil in order to find a good job.

Labour Members, talk about unemployment as if it had never happened under them. We do not need reminding that in Scotland, under their Administration unemployment more than doubled. That was just the half of it. In the runup to the election they bragged constantly about the fact that unemployment would have been so much higher had they not created artificial jobs in order to bring the numbers down. They bragged about this so-called achievement—that they had kept unemployment down by creating these jobs. That was a deceit. There is no greater deceit on the young than to give them artificial jobs with no future. We owe the young—and all the people of this country—jobs with a future and security. I hope that the Government will not fall into the same trap as their predecessors.

Still the Opposition have no alternative. They have provided no long-term answers. The solutions put forward today by the Leader of the Opposition were painkillers to disguise the truth temporarily and allow the illness to worsen, undetected by the sufferer. They ask this country to have confidence in them and this sort of solution. If it were not serious, it would be funny. Part of the present pain that we in Scotland suffer is from withdrawing from those pain-killing subsidies and from the artificial job creation to which we had become accustomed in the past. We must now face reality. We are beginning to see signs of hope in Scotland. The Prime Minister gave some examples today.

Mr. James Hamilton (Bothwell) rose

Mr. Ancram

I will not give way, but I hope that the hon. Member will come to Edinburgh and visit Ferranti, which is taking on an extra 500 people this summer. He cannot claim that that is failure. We see signs of hope among small industries in Scotland, which are determined to see the storm through and survive. If the Government were to falter now it would be a tragedy.

However, confidence is a two-way road. I ask the Government to show confidence in Scotland, too. We have our special problems. We are a long way from the South and from the centres of communication. It is always easier and cheaper to set up new industry and to provide new jobs near the centre. At a time of rationalisation there is a centrifugal force that too often militates against the peripheral plants, however successful they are, and too often Scotland suffers unjustly.

The Government, with the assistance of the Secretary of State for Industry, avoided this with Ferranti last month, and we are grateful. We need understanding of this sort in order to promote the viable and the innovative. We are also grateful today for the announcement about an enterprise zone being created on Clydebank, however much the hon. Member for Tottenham may mock. If he came to Clydebank—I was there last month—he would not find people against the idea of an enterprise zone. People see this as something that holds out hope. His mockery today will sound very hollow in the ears of people in Scotland.

We have other problems as well. Too often we have been left with the wrong ends of the nationalised industries and we have had to pay the price for always having the poorer end. But there are better opportunities opening in Scotland now, and we urge the Government to consider them sympathetically.

Mr. George Foulkes () South Ayrshire

What are they?

Mr. Ancram

If the hon. Member will show a little patience he may discover what I am talking about. I ask the Government to look sympathetically at some of the openings that have been made, in aerospace, for example. I urge the Government to back Jetstream, because it could give back to Scotland a deserved place in the aerospace industry. That is the sort of confidence that we need.

Mr. Foulkes rose

Mr. Ancram

I have already said that I am not giving way. We are not asking for handouts. All we want is that degree of assistance and understanding which can take account of our special difficulties and permit us to compete on an equal footing.

If the Government can give us equal opportunity, allowing Scottish industry to show its paces, I do not believe that they will regret it. Scotland no longer needs painkillers. It seeks a real cure, which can produce real jobs and real hope. On what I have heard tonight I believe that there is no alternative to the Government's painful medicine. Certainly none has been forthcoming from the Opposition Benches.

If we can finally reverse the trend of these past few years, if these policies can set the Scottish economy on a footing that can utilise the vast resources of skilled labour and initiative that we possess, instead of just carrying them, as so often happened in the past, we can see an end to our handout days and a breaking away from the branch economy tradition. We shall become industrial again in our own right. That is our goal in Scotland and we have confidence in the Government to help us achieve it.

7.59 pm
Mr. Ernest Armstrong () Durham, Northwest

The longer that I am in public life the more I recognise that judgment and attitude are governed by one's own experience. This debate has been much too concerned with economic theories instead of with people and families.

I was born in Durham, and grew up in the 1920s and 1930s. The very mention of unemployment arouses in me feelings of bitterness, anxiety and growing fear. In the 10 years between 1928 and 1938 never fewer than 30 per cent. of the men in the county of Durham were unemployed. The constituency of Durham, North-West includes what we called the Bishop Auckland employment exchange area. In 1936, when most of the country was recovering from the economic blizzard, 52 per cent. of the men in that area were unemployed. There were more people out of work than in work, with all the attendant human misery.

I have bitter memories of hard-working men, who had spent almost their whole lives in the coal pits—decent men, anxious to support their families—whose dignity was taken from them. They were humiliated every week at the dole office. The Tory Party became known in my area as the party that created unemployment. For the first time since 1944 that has again become the talk in the Northern region. Even at the last election, far more people in the region voted Labour than for any other party.

We are aware of the inhumanity in the speeches from Conservative Members today. People such as the hon. Member for Croydon, South (Sir W. Clark) and the right hon. Member for Down, South (Mr. Powell) talk about economic reality, cash limits and living within one's income. My people have been doing that all their lives. They know all about economic reality and living within the family budget.

I commend to the Secretary of State for Industry a remarkable document, which is in the Library. It is called "Men Without Work". It was published by the Pilgrim Trust in 1938. It is a study commissioned by the Archbishop of York on the results of long-term unemployment. It dealt not with statistics, figures and economic theories but with families living in homes. I was born in Crook, which is now part of my constituency, and that is one area covered in the document. One man interviewed, with a wife and six children had for the previous seven years lived on 36 shillings a week. He said that the worst thing was that they had grown used to it. At that time, if a schoolboy found a job handing out newspapers for half a crown a week, that sum was deducted from his father's income. Families were destroyed. There was plenty of mobility. Youngsters had to move from their homes to protect the pittance that was paid in unemployment benefit.

Even if the Government's policies work—I doubt whether they will—the price to be paid by the most vulnerable is too high. Conservative Members say that the price will be painful, but for whom will it be painful? The weakest in society will suffer, and they are the least able to resist the pain. I ask the same question as my hon. Friend the Leader of the Opposion—how long is the short term? Unemployment, short-time working and low wages have been the rule in Durham all my life, although the position is worse today.

In 1944 a very remarkable White Paper set the pattern and committed Governments to be responsible for creating full employment. I have too much experience to believe that there are easy answers, but since that time every Government have at least paid lip service, with varying enthusiasm and success, to regional policy. No Minister can stand at the Dispatch Box and say that his Government have solved the problem. As I know only too well, it is a running battle. In the county of Durham we have lost 100,000 jobs in coal mining since the war. The Secretary of State for Industry the other day said that the Government could not solve the problems in the North and that regional policy is almost irrelevant. In Durham week after week, month after month and year after year we have used our regional allocations to run hard in order merely to stand still. Before 1945, had any politician said that Durham would lose 100,000 mining jobs, we should have declared it to be a wasteland. The Tory Government in the 1930s said that Durham would return to agriculture.

Other jobs have been created. The county of Durham is a more attractive place to live now than it was when I was a boy. One reason is regional policy. When the Secretary of State says that he wants to concentrate aid where it is most needed, he gets a hollow response in Durham. We know that he has no faith in regional aid and has cut it. That worries me. He has turned his back on a policy that has been accepted over the years.

When I was privileged to be in the Department of the Environment I went to Teesside to choose a site for the Property Services Agency, which was to provide 3,000 jobs, of which 2,600 were for the people on Teesside and other people were to be moved there. The jobs were for youngsters with O and A-levels. This Government have cancelled that project. The corporation cleared the site that we chose and it remains vacant. The jobs are to remain in the South.

Youngsters in the North-East with O-levels are competing for jobs as petrol pump attendants, which are far below their skills and which, even if they get them, they will find frustrating. Other young folk will be denied jobs. The Government are bringing about a situation that frightens me.

Conservative Members talk about realism and say that trade unions are adopting a new attitude. That is true, but the reason is fear. People dread the return of the days which we believed had disappeared for ever and which we are not prepared to accept again. No society can be built on fear. It is easy for those born into a comfortable society, who have never known anything else, to lecture others about the need for change.

I wish that the Prime Minister and others would stop lecturing the folk of Durham, some of whom have been made redundant from the pits four or five times and have taken jobs in the textile industry and been made redundant there as well. How are they expected to react when they hear Ministers say that they are pricing themselves out of work? The Prime Minister suggested that the unemployed were somehow inadequate and that their unemployment was no one else's fault.

My area does not want charity. The biggest waste, in my view, is the outpouring of public money to skilled workers and others who want to work, but for whom there are no jobs. We need a new attitude to public expenditure. Conservatives seem to regard almost all public expenditure as evil. In fact, paying craftsmen for doing a job and attracting apprentices into good jobs, are good examples of how public money can be well spent as a preparation for the future of our country and an investment in permanent assets.

I grew up in a community that used to be lectured in the way that the Prime Minister is lecturing us now. We were told that the only thing that we understood was 11 men for 10 jobs. A former Tory Cabinet Minister said "Treat them mean and make them keen." That is not the basis for a good society. If we want to provide meaningful jobs, we need the co-operation of everybody and we need social justice in all our fiscal and economic policies.

I warn the Government that I speak for an area where fear is again becoming dominant in decent families, who wonder how their children and grandchildren will be able to contribute to society and so fulfil themselves as human beings. We can talk about inflation and the public sector borrowing requirement, but unemployment is the most inhuman condition that I know. It creates a vulgar and ugly society. The Government have demonstrated again today how complacent they are in the face of that terrible human problem which we must combat.

8.12 pm
Mr. John Ward () Poole

The right hon. Member for Durham, North-West (Mr. Armstrong would not expect me to agree with everything he said, but I was impressed by his remarks and by the feeling with which he expressed them.

In contrast, although I listened carefully to the Leader of the Opposition, not one word of acceptance of the previous Government's mishandling of the economy did I hear. As usual, his speech was long on calls for action and short on realism and new ideas. Having been dragged from the brink of bankruptcy by the IMF in 1976, the Labour Government could not resist trying to buy their way back to power. No blank cheque was left unsigned. It was "Pay tomorrow or pay the day after, providing you vote for us".

While the docks at Liverpool and London priced themselves out of existence, money was found to keep the fairy tale going just that bit longer. While steel workers and car workers were calling for bigger slices of a non-existent cake, the Labour Government managed to keep reality at bay for a little longer. Alas for their calculations, they all went up in smoke in May last year.

The world and the nation realise that we have to earn our way and we accept, at least on the Government side, that the rest of the world does not owe us a living, but the Labour Party lives in its own self-created Socialist version of cloud-cuckoo-land.

As a worker in the construction industry, I suppose I could have looked forward to a rosy future, building warehouses to fill with goods made under Labour policies at a price at which no one would ever buy them. The Labour Government encouraged us to live in a subsidised, live-on-tick world. That should surely have been exposed by now to the whole nation.

Mr. Heffer

There will not be a construction industry by the time this Government have finished.

Mr. Ward

The hon. Member for Liverpool, Walton (Mr. Heffer), who has just intervened in his usual charming way, claims to know a lot about the construction industry. While he has been sitting here for 16 years talking about it, I have been working in it. For the hon. Gentleman's special benefit, I shall digress from my speech to say that the industry has changed a lot since the days when he was directly involved.

My right hon. Friend the Prime Minister has set us on the only path which can restore reality to commerce and industry. Those who negotiate pay rises in the private sector understand that reality better than does the Labour Party.

All my working life has been spent in the construction industry. For the past five years, I have been helping to run an export company.

Mr. Heffer

The hon. Gentleman does not speak for the industry.

Mr. Ward

I shall ignore the monologue of the hon. Member for Walton. We have heard it so often that we all know the score.

Mr. Heffer

Will the hon. Gentleman give way?

Mr. Ward


Mr. Heffer

The hon. Gentleman is not speaking for the construction industry. He is not even speaking for the employers.

Mr. Ward

As an export company, we scoured the world for work and had teams working with local people all over the world. The steady decline in the competitive edge in British industry over the past five years was plain to our overseas customers, even if workers and employers in the United Kingdom could not see it.

How does one explain to the owner of a textile mill in Bolivia or the Sudan that one cannot complete on time because of a dock dispute or a steel strike in Britain? What are one's chances of a repeat order from a West African jute mill when one has had to persuade the client to permit the order for steel work to be switched from the United Kingdom to Singapore because there is an industrial dispute in the steel industry in the United Kingdom?

Mr. Martin Flannery () Sheffield, Hillsborough

There has been only one steel strike in 100 years.

Mr. Ward

I have outlined the realities of our situation. Those are the realities of exporting. If we do not meet customers' needs, our foreign competitors will, and they will do so at competitive prices. If the workers of the BSC have not yet got that message, they need only visit my constituency. One firm there was a large customer of the BSC and was proud that it bought only British steel for its products. It will now buy at least 50 per cent. of steel supplies overseas, because it regards that as its only insurance against another steel strike.

While we sit here talking, other industries and commercial firms are working themselves into the same situation. I have to refer only to the Mafia that exists in Fleet Street to show how people can put themselves out of work.

Industry is often attracted to my constituency by the co-operation that exists between worker and employer, and it understands the need to modernise and compete in the world market. I give only three illustrations, though there are many more.

In the past few weeks, Christopher Hill, which has been established in Poole for 134 years, has opened the most modern animal feed mill in Europe. It puts the company in a position to compete with the world. Ryvita, which is famous for its crispbreads, has seen inroads made in its market by the Continental toasts that are apparently sweeping the board in the United Kingdom and abroad. The company has not sat back and moaned but has installed its own machinery and done its own design and we shall shortly see on the market a product that will compete at home and abroad wiht all the Continental products. It is no wonder that Ryvita has just received the Queen's Award to industry for exports.

Another recipient of the Queen's Award in my constituency is Loewy Robertson, which won its award for exports of heavy plant. Its director and general manager, Mr. Peter Newman, said when he received the award from the Lord Lieutenant: The motivation is one of survival. We have lost our home market and thus must play internationally amongst the big boys. There are not many heavy plant builders in the world and we know them all, from Japan though Europe to the U.S.A. They are all dedicated to our downfall. We play in a league where relegation means oblivion. We have men who design the fastest rolling mills in the world and then a lot more who stay with the situation to make certain they roll that fast; we have people who can empathise and chat up Slavs, Latins, Mid-Westerners and Geordies, sometimes all at once, and above all, we have a large group of people who pick up the bits. I do not subscribe to the idea that our German or Japanese competitors work harder than we do. We have all seen them and they don't. It is, however, a mathematical truism that if in a given group of 10 people 2 are pulling in the opposite direction the group effectiveness is reduced by 40 per cent., which co-incidentally is not far from the competitive advantage enjoyed by the Germans. In conclusion he said: We can observe a cyclic re-emergence from the dominance of European engineering, particularly in the United States of America and we in Britain are well-placed to take advantage of it. That quotation sums up what we are all about.

I hope that I have shown that in my part of the world there is the realism, skill and grit to see us through the present difficult period. The message sent by most of my constituents to the Prime Minister is: "Do not waver and do not change course." My constituents know that there is no other way to set our country on the road to freedom and prosperity again.

I am encouraged by the determination of my right hon. Friend to reduce expenditure in the public sector. Nothing demoralises the wealth creators of our nation more than to see a large proportion of their hard-earned profits going to support bureaucracy. It is right that the taxpayer should decide how much the services of those we employ are worth.

Those people whom we cannot, or do not wish to, afford must accept that there are limits on their wages just as profit levels limit wage increases in the private sector. While my right hon. Friend is looking for savings, may I commend a neck wringing session for those quangos which still spend much and earn nothing?

I turn briefly to the proposals of the Opposition, or at least of those members of the Opposition who were in agreement long enough to have produced the recently published draft manifesto of the Labour Party. Irrelevant, obscene, call it what we will, at a time when we need to instil confidence in industry, the Labour Party shows a determination to repeat its failures of recent years. Those great cure-alls, nationalisation, State control and regimentation, are mentioned in the document. Everything is there except the mention of an iron curtain to stop us all escaping.

The message of this book is: "Fail, and we finance you. Succeed, and we take you over". It postulates a "Head's I win, tails you lose society". Facetiously, perhaps, I may say that if big brother from Liverpool does not get us, little brother from Bristol will.

This booklet ignores the character of the British people the majority of whom will tell my right hon. Friend to carry on with the task that she has begun. We can show our contempt for the Opposition's censure motion in the lobby tonight, and in showing that contempt we shall be reflecting the opinion of the country.

8.22 pm
Mr. David Stoddart () Swindon

The most frightening thing about the Prime Minister's speech today was its stubborn, brazen inflexibility. It seems that no matter what happens the Prime Minister will not change her policies. That sort of inflexibility will eventually bring her down.

The Conservatives, and the Prime Minister, are obsessed with tax cuts and cuts in public expenditure. They say that those things will put the economy right. In June 1979 the Budget gave huge tax cuts to the already well-off. Tens of thousands of pounds were given to individuals and the total cuts amounted to hundreds of millions of pounds. We were told that that was the way to get more investment into industry. But what has happened to investment since then? Investment has tumbled. Therefore, the tax cuts policy does not work.

The Government say that workers are pricing themselves out of jobs. But who believed in free collective bargaining? Who incited the trade unions and the workers to free collective bargaining in the winter of 1979? And who are they now to talk about workers pricing themselves out of jobs. It is not true that high wages price workers out of jobs.

Two hundred of the lowest paid workers in my constituency, working for Compton Sons and Webb in slum factory conditions, were made redundant. They were among the lowest paid workers in Swindon and they did not price themselves out of their jobs. They were thrown out of their jobs by their employers. So, let us hear no more of workers pricing themselves out of jobs.

The Prime Minister spoke of modernisation and how the co-operation of the people was needed in modernisation programmes. How on earth does she think that she will get the co-operation of people who see the dole queue as the end product of their co-operation? There are now 1.9 million people unemployed and those who co-operate in so-called modernisation may well find that they will join the 1.9 million unemployed.

Government policies are full of absurdities. They talk of squeezing inflation out of the economy, but that proposition does not hold water. This Government squeezed inflation into the economy in the first place and they are now blaming everyone else because their policies are not succeeding. The Government squeezed inflation into the economy in the form of increases in VAT, rents, rates, and gas and electricity prices. If the Government wish to do something about inflation, why do they not cancel the surcharge on gas prices? That is something positive that they could do. Why do they not say to the Post Office board that they will increase cash limits so that prices will not have to increase by 20 per cent. in the autumn?

The Government are extending their free market dogma into the employment market. They are deliberately allowing mass unemployment in order to undermine the trade union movement and to browbeat working people into a docile acceptance of lower living standards. This is at a time when revenue from North Sea oil is gushing into the coffers of the Treasury.

The Government's neglectful regional policy has brought disaster to many parts of Britain including Merseyside, the North-East, Scotland and Wales. Those areas are tasting again the grinding depression of the 1930s. But, the blight is spreading. It is not confined to Merseyside, the North-East, Scotland and Wales. The blight is spreading to the South. The highest recorded increase in unemployment last month was in the South-East.

My constituency of Swindon is in the throes of a slump as severe as that of the 1930s. The number of unemployed is the highest for 40 years and the figure jumped, in a single month, by 18 percentage points. But for the sound, Socialist and forward looking planning of the local authority there since the 1960s the position would be infinitely worse.

As well as unemployment, short-time working is increasing sharply. Many British Leyland workers in my constituency return from holiday this week to find themselves put straight on to short-time working. At the same time, Wiltshire county council has decided to go completely barmy by announcing its intention to site an open refuse tip 100 yards from the site on which Scherers, an American pharmaceutical firm, was about to build a new drug-encapsulating factory which would employ between 200 and 300 people. As a result the jobs will be lost, not only to Swindon but to the rest of the country, because the firm will establish itself in Europe.

In the context of Swindon's problems, the Prime Minister's suggestion that people should move to areas where jobs are available is cruel and insensitive. My right hon. Friend the Leader of the Opposition mentioned workers from Glamorgan moving to Gwent. I assure him that if they go across the Severn bridge by car, or take a high-speed train to Swindon, they will find only 622 jobs with 6,500 people looking for them. They will find not 10 jobs for 11 men but one job for each 11 men.

It is no use the Prime Minister talking about mobility of labour, because there are no jobs in places such as Swindon. In Reading the housing list contains 4,000 names. Where on earth will the people live, even if they find jobs? The Housing Bill will take away from local authorities their flexibility, because it forces them to sell their council houses. Workers have no chance of being mobile, even if they find jobs because houses are not available. In the South-East the hospitals, roads and schools are not available to accommodate an influx of population.

Unemployment will cause social, industrial and political unrest. The Government ignore the social problem at their peril. There are actions that the Government can and should take. They cannot pass the responsibility to the workers nor the Opposition. It is the Government's duty to cure unemployment. It is about time that they did it.

8.31 pm
Rev. Ian Paisley () Antrim, North

The Prime Minister called upon hon. Members to be realistic and optimistic. I fail to understand how anybody from Northern Ireland can be optimistic when the unemployment statistics are so frightening and terrifying. It has been said that the speech by the right hon. Member for Down, South (Mr. Powell) was cold logic. It was certainly cold comfort to the unemployed people in his constituency.

Let us examine what is happening in Northern Ireland. Last week it was announced that 84,684 people were unemployed. That is the worst unemployment figure for 40 years. It takes the Province back to the terrible days of the hungry 1930s.

A total of 11,656 workers joined the dole queue in the last month. Of those, 5,396 were school leavers. In Strabane the unemployment level is 27.5 per cent. In Newry, which is part of the constituency represented by the right hon. Member for Down, South, the unemployment level is 25.6 per cent. A total of 4,224 workers in the town have signed on, with a further 566 school leavers. There are parts of the Province that once were bright in employment but are no longer. Ballymena, for example, once had the best employment rate in the country. Now it has a 15.1 per cent. unemployment rate.

The figures are grim, but they become more grim when one looks to the coming months. The agriculture industry, including the Ulster Farmers Union, forecasts that unless something is done in the pig and poultry industries and in intensive farming, another 5,000 jobs will be lost. It has been announced by Cambridge university economists that Ulster can look forward to 107,000 unemployed by 1983. What do the Government tell us about the matter? The Minister of State, Northern Ireland Office, speaking in the Province said "These figures are bad. They are grim, but there is a silver lining."

We see no silver lining in the Province at present. The House would do well to understand that the right hon. Member for Down, South does not speak for the vast majority in Northern Ireland. Neither does he speak for employers in Northern Ireland—who have lobbied all Northern Ireland Members—nor for employees, who see a dark shadow over their jobs. The lengthening list of people on the dole shows, clearly and plainly, that we are in a tragic and terrible situation. The firms closing in Northern Ireland are not closing because they have no order book. They are closing because of difficulty with cash flow. Would it not be better, instead of putting those people on the dole, to pay the redundancy and dole benefit to those firms to keep people in employment? Why cannot the Government take that sort of step to ease the unemployment in the Province?

We have heard a call today for equal opportunity. Hon. Members should examine the situation in Northern Ireland. First, we have the terrorist problem—the bombings and the killings, and the blowing-up of factories. People with money to invest in Northern Ireland will look twice before they invest, due to the terrorist situation. The second problem is that Northern Ireland—

Mr. J. D. Concannon () Mansfield

The hon. Gentleman suggested that one way to help relieve unemployment was to use the money that would be paid in social benefit to keep factories open. Is that not what the last Government were doing?

Rev. Ian Paisley

I supported in the House what the Labour Government did in regard to this matter. I voted consistently against cuts for Northern Ireland. A small firm in my constituency with a cash flow problem but an order book that was full would still be employing 60 people if it had received assistance. Now those people are unemployed. That situation is repeated over and over again across the country.

We do not have any raw materials. These have to be imported across the Channel, and finished goods exported. How can there be equal opportunities when other firms have access to raw materials? There is also the difficulty of transport costs and the fact that the people of Northern Ireland pay two-and-a-half times more for gas and electricity than the rest of the United Kingdom. We are simply asking for equal opportunities. I do not understand how Northern Ireland firms have been able to compete when they face all these difficulties. Those still in business should be congratulated.

I must say to the Government that I would be failing in my duty as a representative of Northern Ireland if I, along with my hon. Friends, did not vote against the Government on this issue.

8.40 pm
Miss Betty Boothroyd () West Bromwich, West

I shall not venture into matters concerning Northern Ireland, for which the hon. Member for Antrim, North (Rev. Ian Paisley) will perhaps forgive me. Instead, I wish to bring the debate much closer to my home ground in the West Midlands and refer to the comments of the hon. Member for Croydon, Northwest (Mr. Taylor), who spoke in optimistic terms about the future of the West Midlands. I wish that I could share his optimism. He seems to know a good deal about manufacturing industry there, but he obviously does not speak to the same manufacturers as I do. Earlier this year, when industrial decline and unemployment were biting deep into the region, I made representations to the Secretary of State for Industry and asked him to state his plans for revitalising the area and improving job prospects. In response I was told that the Government were reducing public expenditure and taxation and intervention in industry so that an economic climate would develop in which enterprise and skills were rewarded and in which industry was encouraged to expand and new firms to start up.

This debate is taking place because the economic climate which the Government have created has encouraged contraction, not expansion. Their policies have brought plant closures instead of innovation. Instead of reward for skills, those skills rust as people are laid off. The figure has averaged 2,000 a month in the past 12 months in the West Midlands alone. Last month the figure was 5,000. No wonder the hon. Member for Croydon, North-West and I do not speak to the same manufacturers.

Much has been said about the effects of an over-valued pound, of roaring inflation and of high interest rates. Any of these factors occurring singly are harmful enough, but their combined effects have dug a grave into which large chunks of viable manufacturing industry are now falling. The consequences for employment and investment, which lie at the heart of our trading prospects throughout the 1980s and beyond, are abysmal.

For the sake of brevity, I shall cover only two points of concern. The evidence from my area is that the high value of the pound has reduced order books and priced manufacturers out of export markets. But it has had another effect as well. It has made way for imported goods to take a progressively larger share of the home market. All hon. Members know that hardly a week passes without one industrial federation or another sending us, across the party lines, information illustrating the effects of this penetration on their industries.

I was surprised to hear the Prime Minister tell us at Question Time today that one of our largest exports was motor components. Coming as I do from an area which manufactures motor components, I doubt that. I wish that it were true. Eastern Europe now accounts for 40 per cent. of automobile lamps coming into this country. Italy has moved up market. Eastern Europe's refrigeration products have increased by well over 150 per cent. in the past 12 months.

Eastern Europe now controls 55 per cent. of the British market. Instrument engineering takes 58 per cent. The list is endless.

Of course we live by trade, but trading relations are based on the assumption that like competes with like. As the Prime Minister acknowledged today, trade operates both ways. The Government know that we cannot survive without exporting. They must understand also that neither can we survive in a world where other Administrations are subsidising their manufactures whilst this Government continue to believe that they have no obligation to industry or to those who work in it.

Could it be that a large volume of unemployment will produce the regulatory mechanism for import restraints? That is, perhaps, what it amounts to. However, that is not the answer. What is needed is rapid and effective action to deal with the unfair trading practices which have become obvious to many hon. Members over the past 12 months or so. Moreover, selective import restrictions have become necessary in sectors where there is now no genuine international competition. The stage has long passed

when we could rely on the voluntary exercise of prudence by our trading partners. It has not worked. Trading partners are there to talk to, negotiate and reach agreement with, and the Government must deal with that. No one else can. Industry now requires a breathing space, not in which to sit back, relax and take things easy but to use beneficially, to ensure that it moves a step ahead in new technology, in processes and products, and to ensure that the skills of our people are developed to match that forward move.

In spite of the fact that this is a motion of no confidence—and I should be perfectly entitled to do no more than expose the Government's inability to govern—I want to be constructive. Here I come to my second main point. I illustrate it by referring to the Wilson report and the note of dissent which sets out a framework for a new investment facility which is needed to secure our future as an industrial nation.

A few weeks ago, when this House debated a matter of a similar nature to that being debated this evening, many of my Opposition colleagues called for greater financial investment. There was a chorus from Government supporters saying "Where is the wealth coming from?" In part, I believe that the answer lies in indicating the massive growth which has taken place in life assurance companies and pension funds which now, between them, command an annual inflow of about £9 billion. The increasing concentration of savings in these institutions has profound implications. In a few years they will own two-thirds of all equities listed on the Stock Exchange. What do they do then? Will they do what they did 10 or 15 years ago with land and property speculation, or do they buy gold bars and diamonds to put in a safe until their value has increased? That is not the road to wealth creation.

The party now in Government is fond of reminding us of the need for wealth creation. The Tories must know that a proportion of this facility, with a properly guaranteed rate of return, would provide a very attractive form of investment for the institutions and at the same time actively promote the restructuring that this country needs.

For their part, too, the institutions must acknowledge that their ability to meet the expectations of those whose interests they safeguard crucially depends on the real rate of national economic growth. They cannot be left out of a programme for the industrialisation of this country. Their own self-interest is clearly involved and they cannot stand apart from that growth.

As to the public sector, if the revenue that has so far been collected from North Sea oil is sizeable, the future revenue will be vast. In directing it towards the public sector borrowing requirement, or using it to grant a taxation bonanza, I tell the Government that they are not making the most beneficial use of Britain's wealth. Those revenues must be harnessed, together with private sector funding to provide the research and development to strengthen Britain's competitiveness for the years when North Sea oil revenues will diminish. It is the job of the Government to provide the mechanism for this type of investment, because no one else can do so. Industry cannot do it. Industry has never done it in my lifetime. Never has there been greater need for change for Government leadership and for involvement. The Government's policies over the past months have so weakened our position that even if industry had the capacity for reinvigoration that capacity has been greatly diminished.

The voices raised for positive action come not only from Labour Members. There are Conservative Members who take the same position. Today they waved their Order Papers in support of the Prime Minister when she announced that there would be no U-turn. However, many of those hon. Members in the corridors, in the tea rooms and in the Library express great anxiety about their Government's disastrous policies.

There are voices outside the House that we should heed. Only last month the director-general of the National Economic Development Office told the Industrial Participation Association that more successful economies than ours spend substantial sums to help industrial adjustment. He said: In France and Germany, to take only two examples, government plays a direct role in sustaining research and development, in enforcing a high level of training and in backing judgments about what technologies are likely to be an essential part of future economic success. Yet we have a Government who continue to ignore their essential role of helping industry to improve its performance at a time when competitors, whatever their doctrine, be it Right or Left, are accepting increased responsibility for assisting their industries.

I confess to no education in financial management or in economics, and there have been times when I thought that a very inhibiting factor. Now I must tell the House that I feel no inhibitons for my shortcomings as I witness the destruction caused to this country and the despair brought upon its people by those who profess financial and economic expertise.

When the Prime Minister assumed office she spoke of despair. Despair was mentioned much earlier in the debate. In despair, the right hon. Lady used the words of St. Francis. She said: where there is despair, may we bring hope. Today those words need transposing.

Where there was hope, it is she who has brought despair—the despair that is shown by the elderly and the infirm when adverse social policies reduce their meagre quality of life; that the despair is exhibited by families seeking a home and plagued with inflation that ravages their pockets; the despair that is shown by the young who see their future in the dole queues, and despair that is paramount among the unemployed in the losing battle for jobs.

Hope is born of political decisions that a Government must make in the interests of the entire nation. The Government lack wholesomeness in their decision-making, and the sooner we get rid of them the better for everybody.

Mr. Speaker

I remind the hon Member for Gosport (Mr. Viggers) that it is hoped that Front Bench speeches will begin at nine o'clock.

8.54 pm
Mr. Peter Viggers () Gosport

I am grateful, Mr. Speaker. I am sure that there will be no dearth of hon. Members to remind me of your words should the time approach nine o'clock.

I shall not follow the effective speech of the hon. Member for West Bromwich, West (Miss Boothroyd) for two reasons. First, this is a broad debate because it will lead to a vote of no confidence in Her Majesty's Government. Secondly, we should range beyond the narrow subject of employment.

We are discussing a hybrid motion. It is an attack based on unemployment but dressed up as a censure motion. I suspect that this hesitant approach, which is based on the one thing that will find agreement with the Government, marks the fact that the Opposition lack confidence in themselves.

Because it is a confidence motion it is entirely proper to consider the whole range of Government activity to decide whether the Government are fit to govern. For me, the Government have two qualities that sing out and give me pride in playing a small and humble part in supporting their activities. The first quality is honesty and the second is responsibility. One might think that those are not new virtues to bring to government—but they are, and they are like a fresh breeze. For too long Governments in Britain and throughout the world have lived in an "expectation society". That phrase was first used in my hearing by the United States ambassador, Mr. Kingman Brewster, who talked about an expectation society in a memorable speech a couple of years ago.

This morning I put myself to the test of reading again the Labour Party manifesto for the October 1974 election. It made sad reading. All that hope and expectation has come to so little. In all fairness, the Labour Party set out to pass laws that would implement the policies that it sought to achieve. But it is one thing to pass laws, and another to eradicate the problem that the party originally set out to eradicate. I shall give three brief examples of that. First, in the area of the Rent Acts, the previous Labour Government set out to eradicate the damage caused by the private landlord, but achieved the paradoxical result of making life more difficult for the private tenant.

Secondly, the employment protection legislation made it more difficult for smaller employers to employ people, and had the paradoxical effect of damaging employment. Thirdly, in the area of fuel pricing, the Labour Government tried to introduce a scheme to help people with their electricity bills through the electricity discount scheme. Only 67 per cent. took up the scheme, and 10 per cent. of its cost was spent on administration. Because it was limited only to electricity customers the scheme missed much of its target.

In each case—and I could name hundreds more—the Labour Government set out to raise the level of public expectation of what they could do, and then failed to fulfil it. That has happened for years throughout the world. Governments offered higher pensions because people clamoured for them. They asked "Do you want increased benefits?" If that was the case they replied "Yes, you can have them". They offered new benefits to people who had not previously received any benefits. In every case expectation was encouraged by the Government. People now wonder why, when the Government have been so generous, everyone is not better off. Generous Governments are popular and mean Governments are not popular.

The Government have nothing that does not belong to the people. If the Government give away money, they must raise money to do so by increased taxation, the sale of assets or, more likely, by printing money—which is inflationary. The Government are paying up to 13 per cent. for their borrowing, which inevitably leads to more inflation and the risk of hyperinflation, as was pointed out by the right hon. Member for Down, South (Mr. Powell). I understand that he caused much annoyance among the Benches on which he sits because of the eloquent way in which he expressed his opinion.

The Labour Party treads the path of generosity while the Conservative Government tread the path of honesty and principle. That leads to policies which are not popular in the short term but which are in the best interests of Britain in the long term. For example, the Government have taken the unpopular measure—it is unpopular because it is expensive—of ordering Trident and Chevaline, of operating the Polaris missile, and of allowing cruise missiles into Britain. That is not a popular subject even in my constituency, which specialises in defence. Those subjects cannot be regarded as vote winners, yet the Government have taken the courageous view. A second area that is unpopular in the short term is that of energy pricing. No policy has been less popular in the short term than the proper realistic pricing of gas and oil. Yet it is right that they should be realistically priced on a long-term basis.

I refer finally to import controls. It would be easy for the Government to yield to the short-term demands for some selective controls, as advocated by Labour Members, yet they have adopted the honest and responsible task of taking the long-term view.

I am proud to support the Government over this motion of confidence. After all, it is a wide-ranging motion, the debate on which has mainly been restricted to the narrow area of employment. I am confident that even on that narrow basis we have won the argument, and I am certain that we shall win the vote.

Mr. Speaker

Mr. Michael Foot.

Mr. Heffer

On a point of order, Mr. Speaker. Before my right hon. Friend the Member for Ebbw Vale (Mr. Foot) speaks, may I ask whether the Chancellor, in his speech, will reply to the debate that has taken place or whether he will make a straightforward economic speech?

Mr. Speaker

Order. The hon. Gentleman is an old hand in this place.

9.1 pm

Mr. Michael Foot () Ebbw Vale

The hon. Member for Gosport (Mr. Viggers) referred to the evident political fact, which no one can deny, that politicians of all parties sometimes raise expectations which cannot be fulfilled. Some of the difficulties and cynicism that arise in politics happen when that occurs. However, the hon. Gentleman might also have referred to what was said by my right hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) about the expectations which were raised at the end of the war, when a Government policy was produced promising an attempt to secure full employment almost for the first time this century.

Although that was an expectation that was raised, the fact that it was enunciated, that it was backed in those circumstances and that it aroused such support, not only from the Labour Party but from other parties as well, meant that it played an important part in helping to shape the politics of our country during the next 25 or 30 years. I shall refer in a moment to the way in which I believe that expectation has been misinterpreted. While I agree that we must be careful how such expectations are raised, it would be foolish on that account to argue that we should never raise expectations of that nature at all. Were we to embark upon that course, it would be disastrous for the whole country.

I want to direct my remarks first to the claim which was often made in the debate, and frequently elsewhere, that there are at present no alternatives to the policies that are being pursued by the Prime Minister and her Government. That is a cruel and arrogant claim for anyone to make. I wonder whether those who make it realise exactly how cruel and arrogant it may sound to those up and down the country who are being thrown out of their jobs, be they older men and women who are thrown on to the scrap heap or younger people who are thrown into the world and seemingly think that there is nothing but a scrap heap to be thrown on to. All of us should be careful about suggesting that such events are inevitable and that there is no alternative for such people who have been treated in that way.

That claim, when it is made by the Government, it patently false; and I give just a few examples. First, there are measures generally undertaken by the Manpower Services Commission to deal with the unemployed and the unemployment situation. At least two or three different policies can be followed in that respect. We built up the MSC as strongly as we could. We supported it on every occasion that we could, whenever it came to us with fresh proposals for assisting in training and other schemes. We did our best to respond to its demands, because we believed that the MSC and the people who ran it—from employers and trade unions, representing industry as a whole—made valuable proposals for the country as a whole. We met our responsibility, and we met its claims whenever possible. The programme for the expansion of training in this country throughout that period was extremely valuable. Compared with other recessions that we have lived through, there was an attempt, until recently, to ensure that training services were expanded on the scale that the situation demanded.

One of the first acts of the Chancellor was to cut the amount of money that was provided for the Manpower Services Commission—a cut of about £170 million. I know that there was some expansion of some of the programmes, but mainly the Government cut them. They say that there is no alternative to their policies, but the first thing they could do, if they are really concerned about unemployment on this scale, is to restore all the cuts that they made in the programmes of the Manpower Services Commission. We are told that the Secretary of State for Employment is preparing, or thinking of preparing, or wondering whether he will be allowed to prepare, a number of measures to present to the House later in the year. He should be presenting those measures to the House before the Summer Recess. I dare say that the right hon. Gentleman fought in the Cabinet to prevent those cuts. Certainly during the past few weeks he has tried to indicate to the country that he is deeply concerned about the scale of unemployment, and he has spoken about how remedial measures might be taken at an early date.

I ask the Government to make an announcement on this subject—they have plenty of announcements to make about hacking industries this way and that, and giving industry back to private enterprise—before the Summer Recess. They should restore all the cuts and prepare an expanded programme for the Manpower Services Commission, which could help to alleviate this situation. Let no one say that there is no alternative, when there is one alternative that the Government could act upon immediately.

Let us consider what the Government could do for particular industries. We have had one announcement, which was certainly welcome, of the Government providing public funds to assist in the manitenance, encouragement and development of Inmos, as a result of public action and support. I am glad that that money has at last been extorted from the Government, but we expect them to act in many other fields.

The steel industry affects employment and the whole future of our country to a degree that we believe may be more important than the Government seem to be aware. Why do they not come forward with proposals for assisting that industry—also before the end of the Summer Recess? If the Prime Minister had listened to our advice before Christmas she could have prevented the strike in the steel industry. She rejected the advice, offers and pleas from us and from inside the British Steel Corporation, and she was therefore responsible for helping to pour down the drain about £400 million of public money which was lost as a result of the steel strike. She could have stopped it if she had listened to our pleas. Now all the greater is the responsibility on her Government to come forward with proposals for saving that industry from destruction by giving it more money. That is necessary in order to save the industry.

The Secretary of State for Industry indicated recently that he was thinking of giving the industry more money. We say that money should be brought forward. We are not content that bulk steel making in this country should be destroyed. We understand that that may mean further investment, further funds, further support for the steel industry. Any Government who are genuinely concerned about unemployment should come forward with proposals of this nature. But some Conservative Members say that there is no alternative to the Government's policies.

What is to happen to British Shipbuilders? We understand that statements are to be made on the shipbuilding industry. I hope that they will be made before the recess. I hope, too, that the reports that the Prime Minister has been exerting her influence there to injure the most profitable part of that industry are not true.

Action could be taken immediately by the Government on individual industries. We say that action should be taken if the Government want to prove to the country that they are genuinely concerned about the scale of unemployment.

I come to the differences about how to deal with inflation. We do not need any lectures from the Prime Minister or her Government on this subject. We managed to bring down the rate of inflation. She has put it up. When she has succeeded in bringing down inflation to the level at which it stood when she assumed office—I do not put it so strongly as that; when she can bring inflation down to the 15 per cent. that we had to take over in March 1974—she will be able to talk on that subject. So far she has not been very successful. All she has done, with the assistance of the Chancellor of the Exchequer, has been to double it. As we know, the Chancellor of the Exchequer is always right. He says "We are on course." The only trouble, or one of the troubles, with the Chancellor of the Exchequer is that, whenever he thinks of a number, he doubles it, and one of the figures that he has doubled is the inflation rate.

I come to the important arguments which took up a considerable part of the debate about Northern Ireland as it applies to the rest of the problems of the country. I am sure that all who were present during the arguments which took place would say that they were of major importance for the whole of the economy.

What is happening in Northern Ireland surely is not disputed. I do not know why Conservative Members should consider this a laughing matter. Some of them should grow up. I need hardly point out that a significant number of redundancies and closures are pending, and indeed, the companies affected read almost like a "Who's Who" of Northern Ireland industry, with redundancies already announced for Courtaulds, Grundig, Ford, Tilley Lamp, Bridgeport Brass, Olympia, Demag, and Duffs, and short-time working at Viking Bicycles and in dozens of factories in the textile industry. If it were not for Government action, those redundancies would also be affecting Harland and Wolff. That was one of the items which figured in the discussion with the right hon. Member for Down, South (Mr. Powell). The right hon. Gentleman, who threw his protective cloak over the Government—they certainly required it—is in favour of the most rigorous application of his monetarist theories but not in Northern Ireland. The rest can take the medicine but he wants the syrup.

When we asked about Harland and Wolff the right hon. Gentleman said that that was not the same thing. He said that that was not inflation. He said that that was controlled expenditure. We would all like a little controlled expenditure of that nature. If there could be controlled expenditure on the scale of Harland and Wolff in all the other distressed areas, there would be a public sector borrowing requirement of almost Peter Walker proportions.

I often wonder where the chief devotion of the right hon. Member for Down, South would lie when the choice came. I sincerely believe that he is devoted to the interests of Northern Ireland, but he is also devoted to his own theories. The choice was revealed to the House today. The right hon. Gentleman supports his theories and that means that if he had his way, Northern Ireland would be crucified on the cross of monetarism. Those who have followed events in Northern Ireland know what would happen if the right hon. Gentleman's theories were rigorously applied there, just as he wishes them to be applied in the rest of the United Kingdom.

The Prime Minister thinks that the right hon. Gentleman's theories should be applied. She was cheering the right hon. Gentleman throughout his speech. She has never had such a strong supporter on this subject. I understand her desire to get supporters, particularly given her pre-ent company. I can see that she is eagerly looking for support. [AN HON. MEMBER "Cheap."] Nobody is going to say that they are dear.

The right hon. Lady approves of such theories. She claims to be curing inflation, although we have not seen any sign of that. Inflation used to be described as too much money chasing too few goods. If the Government rigorously apply their policies the right hon. Lady will probably succeed in bringing down the rate of inflation. There will be less and less money chasing fewer and fewer goods, particularly British goods. That is her cure for inflation.

The right hon. Lady and her friends have managed our economy so skilfully that we have a combination of high interest rates, high parity rates and ferocious cuts in public expenditure. That combination will have an extraordinary result. It will transform North Sea oil from a national blessing into a national curse. That is what will happen if the right hon. Lady's policies are pursued to the better end.

Today, the right hon. Lady has made it all the more difficult to retreat from those policies to policies of sanity. I have often acknowledged that the right hon. Lady has many qualities. She has a clear, tenacious and courageous mind. The trouble is that she often allows her mind to have only one idea at a time. When that happens, it rattles. The fiercer the rattle, the more menacing the moment. I see that I have support for that proposition from members of the Cabinet. With the utmost vigour, the right hon. Lady seized on the policy that the right hon. Member for Down, South has preached for so long.

But what does she really think? How does she suppose that all the economic wisdom of the ages can be compressed into the formulae of a twentieth century shrewish Samuel Smiles? How does she imagine that she and her Government have every right to hurl out of the window all the evidence, experience, knowledge and wisdom that Western industrial society has been able to accumulate over the ages—perticularly over the past two or three decades? All that experience is thrown aside by the right hon. Lady.

I believe that she has been reading again the articles of the right hon. Member for Down, South. In the article that he wrote in the Sunday Express this week, he set out the basis of that philosophy. This is what he said: For 30 years and more, ever since the aftermath of the war, no government has for long enough succeeded in resisting the temptation to create inflation by spending more than it got in by taking or borrowing. Perhaps some right hon. and hon. Members believe that. I am sure the Prime Minister does because she has reiterated it on numerous occasions. But the trouble with that theory has always been that it proves too much. It is the thirteenth stroke of the clock which casts suspicion on all the others. If it is true that what is wrong with our society is what we have been pursuing for 30 years, then the right hon. Member for Down, South is wiping off altogether the only period in our history when we have had something approaching full employment. [Interruption.] I know that there are still a few hon. Members who continue to shake their heads on this matter but they are becoming fewer. I do not believe that there are so many hon. Members on the Government Benches who believe in the Government's policy. Hands up those who really believe. [Interruption.] Is there any advance on seven? I thought there were eight—we do not want any miscounts here. That showed the passion that the right hon. Lady has stirred up. If that happens after one of her speeches, what happens before?

I am not one of those who believes that the Prime Minister should be underrated in any sense at all. I do not think that she will change her policies dramatically. I do not see why she should be so discomfited about the possibility of a U-turn. Her only success—one can count it on the thumb of one hand—was the result of a U-turn. That was Zimbabwe. On that matter, the right hon. Lady carried out our policy, and good luck to her.

The Secretary of State for the Home Department (Mr. William Whitelaw)

No, no, that is not true.

Mr. Foot

I do not know why the Home Secretary is splitting a blood vessel. I am sure that the Government do not have any complaints about the generosity and the discrimination that we displayed in supporting them on that subject. However, I repeat that I do not underrate the right hon. Lady. I do not believe that she will lose her nerve. I have never believed that. However, I believe that she will lose her compassion. That is what happened when she came to Swansea the other day.

I do not want to misquote. I am quoting the Western Mail and one has to be careful with that newspaper. I shall read the real headline first: Thatcher law: Move where jobs are. I remind the House that that is from the Western Mail. It should have the headline tomorrow "Lapdog bites lady". That also happened. If the right hon. Lady reads that newspaper she will discover what is thought about her.

I hope that she will understand why in Wales we believe that her remarks showed a vast and monstrous misapprehension of the situation. It is not only that there are no places for people to move to in order to get jobs in Wales or elsewhere, important though that is. It is also because of the memories that she revived.

My hon. Friends will recall the incident described by my predecessor in Ebbw Vale in his book "In Place of Fear". He described a conversation that he had with a miner friend of his from Blaina in the early 1920s. They were discussing emigration. Jim Minton told Nye that he was going to clear off and emigrate to another country. [Interruption.] I know that Conservative Members do not understand these matters. That is why they are unfit to govern the country. Jim Minton said that he was going because he believed that there was no future in this country. Nye that night told his father of the conversation but said that he believed that it was necessary to stay and fight it out. That is what we shall do. We shall fight the Government with every power that we have. What the right hon. Lady and her Government have proved during these fraught, terrible 15 months is that what is at stake is the salvation of the country. That is what we are voting about tonight.

9.28 pm
The Chancellor of the Exchequer (Sir Geoffrey Howe)

No one who has listened to the right hon. Member for Ebbw Vale (Mr. Foot) doubts, and no one ever would doubt, the depth of his convictions about the horrors of unemployment. However, we are entitled to say, because it is true, that we on this side of the House share that conviction totally. It is one of the more remarkable, tragic and despicable facts about the Opposition that they are so unwilling to acknowledge that they do not have a monopoly in compassion. It has to be said that the right hon. Gentleman, speaking in this House on the subect of unemployment, no longer carries the conviction that he once did when discussing that subject. Ten years ago, before the right hon. Gentleman had been tainted by office, he wrote by way of judgment on the record of the first Government of the right hon. Member for Huyton (Sir H. Wilson): the toleration or acceptance of unemployment as at the level of 600,000 was the worst domestic crime committed by Labour in office. He had quite a catalogue of crimes to choose from, but he chose that. Four years later, the right hon. Gentleman was appointed Secretary of State for Employment and took over from the outgoing Conservative Government a rather lower figure of unemployment, at 575,000. He remained in office as Secretary of State for Employment until 8 April 1976. What happened during his tenure of office? The numbers out of work while he presided over employment increased by more than the total that he had previously regarded as his party's worst crime, and went up to a total of 1¼ million. During the right hon. Gentleman's 25 months at the Department of Employment, the number of those out of work increased by 1,000 every working day.

I do not want to be unfair to the right hon. Gentleman, but, against that record, the House does not find it easy to take seriously his contribution to the debate. When the unemployment figure topped 1¼ million, the right hon. Gentleman surrendered his position at the Department of Employment. But for what purpose? Only in order to challenge the present Leader of the Opposition in the election for the leadership of the Labour Party. The right hon. Gentleman was entitled to take part in that election. He collected 137 votes and has served since as the deputy leader of the Labour Party.

While the right hon. Gentleman was deputy leader, unemployment under the Labour Government rose to a total of 1.6 million. That is why we listen to his speeches on unemployment with less respect than we used to do. The right hon. Gentleman's continued eminence in the Labour Party, which we welcome, is proof positive of the non-fulfilment of one of the wishes of John Maynard Keynes who said 50 years ago that he hoped that the Labour Party would be something more than an almshouse for retired agitators. If ever there were a retired agitator, it is the right hon. Member for Ebbw Vale.

We do not say that the Labour Government wanted to double unemployment. We do not say that they alone were responsible for it. But we do say that, in view of the Labour Government's record, Labour Members should not be surprised if the nation is no longer impressed by the irresponsible opportunism of their attitude.

It is important for us to consider why unemployment has grown. It must surely be acknowledged that there are powerful international, world-wide factors at work —a global recession, an explosion of oil prices, technological change that is destroying old jobs more quickly than new jobs can be created, the arrival of newly industrialised countries. The result is that, although unemployment in this country is too high at 6½ per cent., the figure in France, the United States and Italy is 7.7 per cent. In Belgium it is as high as 11½ per cent. There are only two major countries with unemployment levels below our own. They are Germany and Japan, the two countries with the lowest inflation rate and the highest productivity rate.

I invite the right hon. Gentleman to agree that, in the face of those figures, it is absurd for anyone to suggest that the major cause of unemployment rests with the present Government. The trouble arises—

Mr. Foot

I respond to the invitation of the right hon. and learned Gentleman because he has asked me to intervene. Can he tell us when he mentioned those figures about the world recession at the time of the general election?

Sir G. Howe

I would rather tell the right hon. Gentleman that the words that I have just quoted, to the effect that it is absurd for anyone to suggest that the major cause of unemployment rests with the present Government, are words used by himself in 1975. He went on to say, and it is as true now as it was five years ago: … the trouble arises from the recession which has hit many countries beside our own. Our capacity to overcome the menace will depend on a combination of policies, not least and immediately upon our success in curbing inflation."—[Official Report, 1 July 1975; Vol. 894, c. 1170.] So, the right hon. Gentleman thought that the conquest of inflation came before the conquest of unemployment.

If we are to judge by the speech of the Leader of the Opposition today, there may now be some re-ordering of priorities in the Labour Party. It is now difficult to tell which comes first—the conquest of inflation or the conquest of unemployment. If we are to talk of U-turns, we should seek such U-turns in the Labour Party.

Let me examine for a moment some of the measures that have been suggested for dealing with unemployment—some of the less painful options. I admired the speech of my right hon. Friend the Member for Yeovil (Mr. Peyton), who said, with such accuracy, that one of the problems of our society has been the extent to which we have persistently sought painless remedies when none are available. The same message was uttered by my hon. Friend the Member for Edinburgh, South (Mr. Ancram), who complained of the persistence of the rescue mentality. If we look at these apparently easy options they are not what they are made out to be.

For the first time today the Leader of the Opposition was committing his party to a substantial and significant programme of import controls. I am glad to say that my hon. Friend the Member for Croydon, South (Sir W. Clark) spoke out clearly against that. My hon. Friend advanced robust arguments, and I shall now examine them.

As my right hon. Friend the Prime Minister said, one-third of the nation's output is exported. We, least of all, can afford to embark upon a pattern of import controls. All our trade depends upon countries being willing to import from us. If we embark upon a trade war, we operate, as the right hon. Member for Leeds, East (Mr. Healey) has said on many occasions, to our own disadvantage.

I take as an example the plant of the Ford Motor Company in Bridgend, for which the Leader of the Opposition, rightly, claimed some responsibility. What would be the implications for that plant if we embarked upon a pattern of import control and upon a competitive trade war? It is intended that two-thirds of the output of our investment at Bridgend is to be exported to other countries. How can we expect to do that if, at the same time, we are putting up import controls against our competitors? That is a soft option which makes no sense.

Mr. John Morris

Is not the right hon. and learned Gentleman aware that Sir Terence Beckett and his colleagues are currently advocating that sterner measures should be imposed to stop Japanese goods from coming into this country and into Europe, otherwise there will be no motor industry left in this country or in Europe?

Sir G. Howe

I know that Sir Terence Beckett and his colleagues support some degree of reciprocity. However, the huge gap in productivity and performance between the factories in Europe and those in Japan concerns Sir Terence and his colleagues more. We might yearn as much as we like for import controls but we cannot stop that. That is one option that we must discard.

What of the second suggestion, proffered by the Leader of the Opposition and others, that we should intervene to affect the exchange rate? The Leader of the Liberal Party also made that suggestion. The right hon. Member for Down, South (Mr. Powell) referred to the artificially high exchange rate. Who knows? We cannot tell because the exchange rate is determined by the market. [HON. MEMBERS: "Whose market?"] Apart from that there is a good case for lowering interest rates if that can be achieved.

Let us examine the attempts that have been made to affect the exchange rate. Much valuable evidence on that subject was given to the Public Accounts Committee, presided over by my right hon. Friend the Member for Taunton (Mr. du Cann). The evidence from the Swiss National Bank shows that the exchange rate cannot be controlled without losing control of the appropriate monetary target. The evidence given by the Governor of the Bank of England was to the same effect. He said that although it might be of some short-term value, in the end it would be seen to be a hopeless endeavour.

If we search for evidence of even more substance we find that the right hon. Member for Leeds, East attempted throughout the greater part of 1977 to intervene in order to hold the exchange rate down. At the end of October that year, because he was overwhelmed by the sheer weight of money in the market places, he decided that a continuance of inflows on a large scale could endanger continued adherence to the domestic monetary targets. The attempt to control the exchange rate was abandoned then, as it would have to be abandoned if it were attempted now.

Mr. Robert Sheldon

The right hon. and learned Gentleman does not need to go so far abroad to obtain evidence on this matter. He has the London clearing banks' memorandum which lays down a number of methods by which the exchange rate could be reduced. Why does he not pay attention to them?

Sir G. Howe

The London clearing banks' memorandum is to the same effect. It says that any attempt to control the exchange rate would be short-lived and ineffective. It describes the possibility of using inflow controls and refers to the experience of countries that have tried them, such as Switzerland and Germany. Would it not be nice if attractive and easy cures were available? However, they are not.

The controls that one would have to erect would become increasingly ineffective. They would not be effective for more than a short term. They would pose particularly damaging difficulties for financial centres such as the City of London.

The Leader of the Liberal Party suggested that we should consider the indexation of Government debt. Representations from inside and outside the House have been made to the effect that we should examine the possibility of finding new instruments for covering Government debt. Nobody's mind should be closed to such a possibility. It is important to consider the effect on the foreign exchange market of establishing for the first time attractive indexed instruments in this country. It is important to consider the effect on the industrial markets of a Government instrument which was indexed in that way. We must also consider the effect on personal savings and on building societies. It is clear that that which looks attractive at first sight raises counter-difficulties and cannot be lightly undertaken.

Another attractive possibility that has been suggested is that we should be making more constructive use of North Sea oil revenues. What is overlooked is that the North Sea oil revenues are already flowing into the Exchequer and are being used to finance, for example, the enterprise package of tax reductions that I introduced in this year's Budget. They are being used, and should be used, to keep down interest rates. They are being used to bring down borrowing.

The Leader of the Opposition offered a different approach to the whole problem. The right hon. Gentleman offered what he described as an alternative that the Government should seriously consider. I want to examine what he proposed. The right hon. Gentleman suggested that we should consider lowering interest rates and expanding public expenditure and that these things could be done consistently with maintaining a sensible economic policy. He sought to pray in aid in support of the policy the evidence of Professor Milton Friedman. I understood the Leader of the Opposition to say that it was possible, according to Milton Friedman, to expand the public sector borrowing requirement regardless of the impact because there was no relationship between it and the money supply. That is not the effect of what Professor Friedman was saying. This is an important point to understand.

There is a relationship between the money supply target and the public sector borrowing requirement and interest rates. If one is seeking to put all three alongside each other, as one must, it is not possible, in pursuing a given money supply target, to increase public sector borrowing without, at the same time, raising interest rates. It is the right hon. Gentleman's attempt to try to achieve all these things at the same time which causes us so much concern.

The Leader of the Opposition seeks to relax control of borrowing by expanding the money supply targets and, at the same time, lowering interest rates. I have to tell him that this is simply not possible. If the right hon. Gentleman is serious about wanting to adhere to monetary targets, it is not possible for him to increase public sector borrowing without having a corresponding upward impact on interest rates. This point was made clearly by the right hon. Member for Down, South. It seems that the Opposition are seeking, as my right hon. Friend the Prime Minister pointed out, to go for lower interest rates and higher spending, financed by higher borrowing and accompanied by a higher monetary target. What they are seeking to achieve is more of everything but less financial responsibility. What they will deliver if they pursue these policies—it is important for the House to be clear about this new intention—is higher inflation, higher inflation still and, in due course, higher unemployment.

The right hon. Gentleman has set for his party the explicit objective of bringing down unemployment even if it means pushing up inflation. The question that the House has to ask itself is whether that prescription, even if desirable, will work and whether it will work for more than a short time. It is a prescription that was considered by the Labour Party when in office. In 1975 the right hon. Member for Ebbw Vale said: One fundamental requirement before we can secure a substantial improvement in employment is to bring down the domestic rate of inflation."—[Official Report, 24 July 1975; Vol. 896, c. 783.] At that time, when he had responsibility for these matters, the right hon. Gentleman recognised the necessity to get inflation down before there was any real prospect of unemployment coming down. The right hon. Member for Leeds, East was even more explicit in rejecting the prescription now offered by his right hon. Friend in a broadcast made on behalf of the Labour Party on 5 December 1975. [Interruption.] I am astonished that the Labour Party should be surprised at our expecting it to be consistent from one year to the next. The right hon. Gentleman said: It is no good trying to deal with unemployment in ways which would simply set inflation racing up again. That would just make unemployment even worse. It is exactly that course that we reject today.

The analysis given by the Leader of the Opposition was totally at variance with what has been offered by the right hon. Member for Ebbw Vale tonight. I quote from his speech to the Blackpool conference in 1976 when he said We must ask ourselves unflinchingly what is the cause of high unemployment. We used to think that you could … 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 20 years. If that were true when the right hon. Gentleman uttered it in 1976, why is it not true today? We have been treated to a history lesson from the right hon. Member for Ebbw Vale telling us that the past 40 years have been a history of the dedication of successive Governments in this country to full employment. So, indeed, for some in aspiration it has been. However, the record of what has happened was in the speech of the Leader of the Opposition. The history of the past 20 years has been Higher inflation followed by higher unemployment."—[Official Report, 28 February 1980; Vol. 979, c. 1695.] If that were true then, why is it not true today? Why is it right today for the right hon. Gentleman and his party to begin committing themselves to a totally different pattern of priorities, to say that we need no longer concern ourselves with the conquest of inflation but must put the conquest of unemployment first? Does the right hon. Gentleman accept that that is the analysis that he made? His analysis was clear. He was arguing for an increase in the monetary targets, for a reduction in interest rates and for the acceptance of higher inflation.

The Labour Party, and particularly its Leader, once claimed to be the only true inheritors of monetary policy. The right hon. Member for Leeds, East described us as "punk monetarists". What is the position of the Labour Party? The right hon. Gentleman was willing to accept monetarism if he were obliged by responsibility to do so, but he is only too ready to abandon monetarism today when that is convenient. The Labour Party consists not of punk monetarists but of funk monetarists, running away from the obligations which a true monetarist policy imposes. [Interruption.]

Mr. Speaker


Mr. Skinner

On a point of order, Mr. Speaker. Since the Chancellor of the Exchequer has lost his notes and appears for the moment to be unable to proceed with his speech, I wonder whether we can have the Paymaster General back.

Sir G. Howe

The Leader of the Opposition has apparently now summoned up sufficient courage to repudiate the policies in which he himself once believed. We are anxious to know now where he stands.

The other day we were treated to the publication by the Labour Party of its draft manifesto, 1980. The House would like to know whether the Leader of the Opposition accepts any responsibility whatsoever for that grotesque document. We know that it is a document for which the right hon. Member for Bristol, South-East (Mr. Benn) accepts some responsibility. Indeed, it is a most remarkable document to place before the nation. We know that the Leader of the Opposition is anxious to make a modest increase in public spending and is anxious to accept a gentle increase in inflation. But is he prepared to accept the absurd document produced by the national executive committee of the Labour Party?

We have been working out what would be the cost to the nation of the so-called draft manifesto, produced by the Labour Party. We find that that document contains proposals for nationalisation on a scale so substantial that it will cost £35 billion. Does the Leader of the Opposition accept that? [Interruption.] We find that the draft manifesto would—[Interruption.]—commit the Exchequer to an added annual cost of £30 billion. Does the Leader of the Opposition accept that?

Mr. Speaker

Order. It is unreasonable to keep interrupting when someone else is speaking. Hon. Members must have a sense of fair play.

Mr. James Wellbeloved () Erith and Crayford

On a point of order, Mr. Speaker. Would you help the House? On a number of occasions in recent times it has been apparent that there is something wrong with the acoustics of this place. I wonder whether you would ask the chief engineer of Parliament to examine the loudspeakers to ensure that those on your left and right are working fairly?

Mr. Speaker

Order. The hon. Gentleman may well feel better now that he has said it—but it was not very clever.

Mr. Wellbeloved rose

Mr. Speaker

Order. I shall not take another point of order from the hon. Gentleman at this stage.

Sir G. Howe

I return to the question that I was asking. The draft manifesto of the Labour Party would commit the Exchequer to an additional expenditure of £30,000 million, more than eight times as much as the total revenue from North Sea oil. If that is the proposition, is the Labour Party committed to it? I ask the Leader of the Opposition to reflect on the reality of what he said when he last had responsibility for these matters. He had this to say: I warn the House that if we were to increase the borrowing requirement we would have an increase in inflation once more and we should all be on the same old merry go round, except that it would be a tragedy. What he said then was right. It is just as right today. He said then—and I adopt his words— 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. I quote throughout from the Leader of the Opposition. When in power he said: The Government do not prefer these alternatives. They are not our choice. However, we reject the alternative of allowing inflation to increase unchecked. If we do that, we shall all be far worse off in the long run."—[Official Report, 16 January 1979; Vol. 960, c. 1154–5.] Those were the words of the Leader of the Opposition, who then had responsibility for these matters. They were true then and he knows that they are just as true today. For that reason, I invite the House to reject the motion.

Question put:

The House divided: Ayes 274, Noes 333.

Cowans, Harry Howells, Geraint Prescott, John
Cox, Tom (Wandsworth, Tooting) Huckfield, Les Price, Christopher (Lewisham West)
Craigen, J. M. (Glasgow, Maryhill) Hudson Davies, Ednyfed (Caerphilly) Race, Reg
Crowther, J. S. Hughes, Mark (Durham) Radice, Giles
Cryer, Bob Hughes, Robert (Aberdeen North) Rees, Rt Hon Merlyn (Leeds South)
Cunliffe, Lawrence Hughes, Roy (Newport) Richardson, Jo
Cunningham, George (Islington S) Janner, Hon Greville Roberts, Albert (Normanton)
Cunningham, Dr. John (Whitehaven) Jay, Rt Hon Douglas Roberts, Allan (Bootle)
Dalyell, Tarn John, Brynmor Roberts, Ernest (Hackney North)
Davidson, Arthur Johnson, James (Hull West) Roberts, Gwilym (Cannock)
Davies, Rt Hon Denzil (Llanelli) Johnson, Walter (Derby South) Robinson, Geoffrey (Coventry NW)
Davies, Ifor (Gower) Johnston, Russell (Inverness) Rodgers, Rt Hon William
Davis, Clinton (Hackney Central) Jones, Barry (East Flint) Rooker, J. W.
Davis, Terry (B'rm'ham, Stechford) Jones, Dan (Burnley) Roper, John
Deakins, Eric Kaufman, Rt Hon Gerald Ross, Ernest (Dundee West)
Dean, Joseph (Leeds West) Kerr, Russell Ross, Stephen (Isle of Wight)
Dempsey, James Kilroy-Silk, Robert Rowlands, Ted
Dewar, Donald Kinnock, Nell Ryman, John
Dixon, Donald Lamble, David Sandelson, Neville
Dobson, Frank Lamborn, Harry Sever, John
Dormand, Jack Leadbitter, Ted Sheerman, Barry
Douglas, Dick Leighton, Ronald Sheldon, Rt Hon Robert (A'ton-u-L)
Douglas-Mann, Bruce Lestor, Miss Joan (Eton & Slough) Short, Rt Hon Peter (Step and Pop)
Dubs, Alfred Lewis, Arthur (Newham North West) Short, Mrs René e
Duffy, A. E. P. Lewis, Ron (Carlisle) Silkin, Rt Hon John (Deptford)
Dunlop, John Lofthouse, Geoffrey Silkin, Rt Hon S. C. (Dulwich)
Dunn, James A. (Liverpool, Kirkdale) Lyon, Alexander (York) Silverman, Julius
Dunnett, Jack Lyons, Edward (Bradford West) Skinner, Dennis
Dunwoody, Mrs. Gwyneth Mabon, Rt Hon Dr J. Dickson Smith, Cyril (Rochdale)
Eadie, Alex McCartney, Hugh Smith, Rt Hon J. (North Lanarkshire)
Eastham, Ken McDonald, Dr Oonagh Snape, Peter
Edwards, Robert (Wolv SE) McElhone, Frank Soley, Clive
Ellis, Raymond (NE Derbyshire) McKay, Allen (Penistone) Spearing, Nigel
Ellis, Tom (Wrexham) McKelvey, William Stallard, A. W.
English, Michael MacKenzle, fit Hon Gregor Steel, Rt Hon David
Ennals, Rt Hon David Maclennan, Robert Stewart, Rt Hon Donald (W Isles)
Evans, loan (Aberdare) McMahon, Andrew Stoddard, David
Evans, John (Newton) McNally, Thomas Stott, Roger
Faulds, Andrew McNamara, Kevin Strang, Gavin
Field, Frank McQuade, Jonn Straw, Jack
Fitch, Alan McWiIIiam, John Summerskill, Hon Dr Shirley
Fitt, Gerard Magee, Bryan Taylor, Mrs Ann (Bolton West)
Flannery, Martin Marks, Kenneth Thomas, Dafydd (Merioneth)
Fletcher, L. R. (Ilkeston) Marshall, David (Gl'sgow, Shettles'n) Thomas, Jeffrey (Abertillery)
Fletcher, Ted (Darlington) Marshall, Dr Edmund (Goole) Thomas, Mike (Newcastle East)
Foot, Rt Hon Michael Marshall, Jim (Leicester South) Thomas, Dr Roger (Carmarthen)
Ford, Ben Martin, Michael (Gl'gow, Springb'rn) Thorne, Stan (Preston South)
Forrester, John Mason, Rt Hon Roy Tilley, John
Foster, Derek Maxton, John Tinn, James
Foulkes, George Maynard, Miss Joan Torney, Tom
Fraser, John (Lambeth, Norwood) Meacher, Michael Urwin, Rt Hon Tom
Freeson, Rt Hon Reginald Mellish, Rt Hon Robert Varley, Rt Hon Eric G.
Freud, Clement Mikardo, Ian Wainwright, Edwin (Dearne Valley)
Garrett, John (Norwich S) Millan, Rt Hon Bruce Wainwright, Richard (Colne Valley)
Garrett, W. E. (Wallsend) Miller, Dr M. S. (East Kilbride) Walker, Rt Hon Harold (Doncaster)
George, Bruce Mitchell, Austin (Grimsby) Weetch, Ken
Gilbert, Rt Hon Dr John Mitchll, R. C. (Soton, Itchen) Wellbeloved, James
Ginsburg, David Morris, Rt Hon Alfred (Wythenshawe) Welsh, Michael
Golding, John Morris, Rt Hon Charles (Openshaw) White, Frank R. (Bury & Radcliffe)
Gourlay, Harry Morris, Rt Hon John (Aberavon) White, James (Glasgow, Pollok)
Graham, Ted Morton, George Whitehead, Phillip
Grant, George (Morpeth) Moyle, Rt Hon Roland Whitlock, William
Grant, John (Islington C) Mully, Rt Hon Frederick Wigley, Dafydd
Grimond, Rt Hon J. Newens, Stanley Willey, Rt Hon Frederick
Hamilton. W. W. (Central Fife) Oakes, Rt Hon. Gordon Williams, Rt Hon Alan (Swansea W)
Hardy, Peter Ogden, Eric Williams, Sir Thomas (Warrington)
Harrison, Rt Hon Walter O'Halloran, Michael Wilson, Gordon (Dundee East)
Hart, Rt Hon Dame Judith O'Neill, Martin Wilson, William (Coventry SE)
Hattersley, Rt Hon Roy Orme, Rt Hon Stanley Winnick, David
Haynes, Frank Owen, Rt Hon Dr David Woodall, Alec
Healey, Rt Hon Denis Paisley, Rev Ian Woolmer, Kenneth
Heffer, Eric S. Palmer, Arthur Wrigglesworth, Ian
Hogg, Norman (E Dunbartonshire) Park, George Wright, Sheila
Holland, Stuart (L'beth, Vauxhall) Parker, John Young, David (Bolton East)
Home Robertson, John Parry, Robert
Homewood, William Pavitt, Laurie TELLERS FOR THE AYES:
Hooley, Frank Pendry, Tom Mr. James Hamilton and
Horam, John Penhaligon, David Mr. Donald Coleman.
Howell, Rt Hon Denis (B'ham, Sm H) Powell, Raymond (Ogmore)
Division No. 433] AYES [10 pm]
Abse, Leo Benn, Rt Hon Anthony Wedgwood Callaghan, Jim (Middleton & P)
Adams, Allen Bennett, Andrew (Stockport N) Campbell, Ian
Allaun, Frank Bidwell, Sydney Campbell-Savours, Dale
Alton, David Booth, Rt Hon Albert Canavan, Dennis
Anderson, Donald Boothroyd, Miss Betty Cant, R. B.
Archer, Rt Hon Peter Bottomley, Rt Hon Arthur (M'brough) Carmichael, Neil
Armstrong, Rt Hon Ernest Bradley, Tom Carter-Jones, Lewis
Ashley, Rt Hon Jack Bray, Dr Jeremy Cartwright, John
Ashton, Joe Brown, Hugh D. (Provan) Clark, Dr. David (South Shields)
Atkinson, Norman (H'gey, Tott'ham) Brown, Robert C. (Newcastle W) Cocks, Rt Hon Michael (Bristol S)
Bagier, Gordon A. T. Brown, Ronald W. (Hackney S) Cohen, Stanley
Barnett, Guy (Greenwich) Brown, Ron (Edinburgh, Leith) Concannon, Rt Hon J. D.
Barnett, Rt Hon Joel (Heywood) Buchan, Norman Conlan, Bernard
Beith, A. J. Callaghan, Rt Hon J. (Cardiff SE) Cook, Robin F.
Adley, Robert Alison, Michael Arnold, Tom
Aitken, Jonathan Amery, Rt Hon Jullan Aspinwall, Jack
Alexander, Richard Ancram, Michael Atkins, Rt Hon H. (Spelthorne)
Atkins, Robert (Preston North) Fletcher-Cooke, Charles MacGregor, John
Atkinson, David (B'mouth, East) Fookes, Miss Janet MacKay, Jonn (Argyll)
Baker, Kenneth (St. Marylebone) Forman, Nigel Macmillan, Rt Hon M. (Farnham)
Baker, Nicholas (North Dorset) Fowler, Rt Hon Norman McNair-Wilson, Michael (Newbury)
Banks, Robert Fox, Marcus McNair-Wilson, Patrick (New Forest)
Beaumont-Dark, Anthony Fraser, Rt Hon H. (Stafford & St) McQuarrie, Albert
Bell, Sir Ronald Fraser, Peter (South Angus) Madel, David
Bendall, Vivian Fry, Peter Major, John
Bennett, Sir Frederic (Torbay) Galbraith, Hon T. G. D. Marland, Paul
Benyon, Thomas (Abingdon) Gardiner, George (Reigate) Marlow, Tony
Benyon, W. (Buckingham) Gardner, Edward (South Fylde) Marshall, Michael (Arundel)
Best Keith Garel-Jones, Tristan Marten, Nell (Banbury)
Bevan, David Gilroy Gilmour, Rt Hon Sir Ian Mates, Michael
Biffen, Rt Hon John Glyn, Dr Alan Mather, Carol
Biggs-Davison, John Goodhart, Philip Maude, Rt Hon Angus
Blackburn, John Goodhew, Victor Mawby, Ray
Body, Richard Goodlad, Alastair Mawhinney, Dr Brian
Bonsor, Sir Nicholas Gorst, John Maxwell-Hyslop, Robin
Boscawen, Hon Robert Gow, Ian Mayhew, Patrick
Bottomley, Peter (Woolwich West) Grant, Anthony (Harrow C) Mellor, David
Bowden, Andrew Gray, Hamish Meyer, Sir Anthony
Boyson, Dr Rhodes Greenway, Harry Miller, Hal (Bromsgrove & Redditch)
Bradford, Rev. R. Grieve, Percy Mills, lain (Meriden)
Braine, Sir Bernard Griffiths, Eldon (Bury St Edmunds) Mills, Peter (West Devon)
Bright, Graham Griffiths, Peter (Portsmouth N) Miscampbell, Norman
Brinton, Tim Grist, Ian Mitchell, David (Basingstoke)
Brittan, Leon Gryils, Michael Moate, Roger
Brocklebank-Fowler, Christopher Gummer, John Selwyn Molyneaux, James
Brooke, Hon Peter Hamilton, Hon Archie (Eps'm&Ew'll) Monro, Hector
Brotherton, Michael Hamilton, Michael (Salisbury) Montgomery, Fergus
Brown, Michael (Brigg & Sc'thorpe) Hampson, Dr Keith Moore, John
Browne, John (Winchester) Kannam, John Morgan, Geraint
Bruce-Gardyne, John Haselhurst, Alan Morris, Michael (Northampton, Sth)
Bryan, Sir Paul Hastings, Stephen Morrison, Hon Charles (Devizes)
Buchanan-Smith, Hon Alick Havers, Rt Hon Sir Michael Morrison, Hon Peter (City of Chester)
Buck, Antony Hawkins, Paul Mudd, David
Budgen, Nick Hawksley, Warren Murphy, Christopher
Bulmer, Esmond Hayhoe, Barney Myles, David
Butcher, John Heath, Rt Hon Edward Neale, Gerrard
Butler, Hon Adam Heddle, John Needham, Richard
Cadbury, Jocelyn Henderson, Barry Nelson, Anthony
Carlisle, John (Luton West) Heseltine, Rt Hon Michael Neubert, Michael
Carlisle, Kenneth (Lincoln) Higgins, Rt Hon Terence L. Newton, Tony
Carlisle, Rt Hon Mark (Runcorn) Hill, James Normanton, Tom
Chalker, Mrs. Lynda Hogg, Hon Douglas (Grantham) Nott, Rt Hon John
Channon, Paul Holland, Philip (Carlton) Onslow, Cranley
Chapman, Sydney Hooson, Tom Oppenheim, Rt Hon Mrs Sally
Churchill, W. S. Hordern, Peter Osborn, John
Clark, Hon Alan (Plymouth, Sutton) Howe, Rt Hon Sir Geoffrey Page, John (Harrow, West)
Clark, Sir William (Croydon South) Howell, Rt Hon David (Guildford) Page, Rt Hon Sir Graham (Crosby)
Clarke, Kenneth (Rushcliffe) Howell, Ralph (North Norfolk) Page, Richard (SW Hertfordshire)
Clegg, Sir Walter Hunt, David (Wirral) Parkinson, Cecil
Cockeram, Eric Hunt, John (Ravensbourne) Parris, Matthew
Colvin, Michael Hurd, Hon Douglas Patten, Christopher (Bath)
Cope, John Irving, Charles (Cheltenham) Patten, John (Oxford)
Cormack, Patrick Jenkin, Rt Hon Patrick Pattie, Geoffrey
Corrie, John Jessel, Toby Pawsey, James
Costain, A. P. Johnson Smith, Geoffrey Percival, Sir Ian
Cranborne, Viscount Jopling, Rt Hon Michael Peyton, Rt Hon John
Critchley, Julian Joseph, Rt Hon Sir Keith Pink, R. Bonner
Crouch, David Kaberry, Sir Donald Pollock, Alexander
Dean, Paul (North Somerset) Kellett-Bowman, Mrs Elaine Porter, Barry
Dickens, Geoffrey Kershaw, Anthony Powell, Rt Hon J. Enoch (S Down)
Dorrell, Stephen Kimball, Marcus Prentice, Rt Hon Reg
Douglas-Hamilton, Lord James King, Rt Hon Tom Price, Sir David
Dover, Denshore Kitson, Sir Timothy Prior, Rt Hon James
du Cann, Rt Hon Edward Knight, Mrs Jill Proctor, K. Harvey
Dunn, Robert (Dartford) Knox, David Pym, Rt Hon Francis
Durant, Tony Lamont, Norman Ralson, Timothy
Dykes, Hugh Lang, Ian Rathbone, Tim
Eden, Rt Hon Sir John Langford-Holt, Sir John Rees, Peter (Dover and Deal)
Edwards, Rt Hon N. (Pembroke) Latham, Michael Rees-Davies, W. R.
Eggar, Timothy Lawrence, Ivan Renton, Tim
Elliott, Sir William Lawson, Nigel Rhodes James, Robert
Emery, Peter Lee, John Rhys Williams, Sir Brandon
Eyre, Reginald Lennox-Boyd, Hon Mark Ridley, Hon Nicholas
Fairbairn, Nicholas Lester, Jim (Beeston) Ridsdale, Julian
Fairgrieve, Russell Lewis, Kenneth (Rutland) Rifkind, Malcolm
Faith, Mrs Sheila Lloyd, Ian (Havant & Waterloo) Rippon, Rt Hon Geoffrey
Farr, John Lloyd, Peter (Fareham) Roberts, Michael (Cardiff NW)
Fell, Anthony Loveridge, John Roberts, Wyn (Conway)
Fenner, Mrs Peggy Luce, Richard Ross, Wm. (Londonderry)
Finsberg, Geoffrey Lyell, Nicholas Rossi, Hugh
Fisher, Sir Nigel McCrindle, Robert Rost, Peter
Fletcher, Alexander (Edinburgh N) Macfarlane, Neil Royle, Sir Anthony
Sainsbury, Hon Timothy Stewart, Ian (Hitchin) Walker-Smith, Rt Hon Sir Derek
St. John-Stevas, Rt Hon Norman Stewart, Allan (East Renfrewshire) Wall, Patrick
Scott, Nicholas Stokes, John Waller, Gary
Shaw, Giles (Pudsey) Stradling Thomas, J. Walters, Dennis
Shaw, Michael (Scarborough) Tapsell, Peter Ward, John
Shelton, William (Streatham) Taylor, Robert (Croydon NW) Warren, Kenneth
Shepherd, Colin (Hereford) Taylor, Teddy (Southend East) Watson, John
Shepherd, Richard (Aldridge-Br'hills) Tebbit, Norman Wells, John (Maidstone)
Shersby, Michael Temple-Morris, Peter Wells, Bowen (Hert'rd & Stev'nage)
Silvester, Fred Thatcher, Rt Hon Mrs Margaret Wheeler, John
Sims, Roger Thomas, Rt Hon Peter (Hendon S) Whitelaw, Rt Hon William
Skeet, T. H. H. Thompson, Donald Whitney, Raymond
Smith, Dudley (War. and Leam'ton) Thorne, Nell (Ilford South) Wickenden, Keith
Speed, Keith Thornton, Malcolm Wiggin, Jerrry
Speller, Tony Townend, John (Bridlington) Wilkinson, John
Spence, John Trippier, David Williams, Delwyn (Montgomery)
Spicer, Jim (West Dorset) van Straubenzee, W. R. Winterton, Nicholas
Spicer, Michael (S Worcestershire) Vaughan, Dr Gerard Wolfson, Mark
Sproat, lain Viggers, Peter Young, Sir George (Acton)
Squire, Robin Waddington, David Younger, Rt Hon George
Stainton, Keith Wakeham, John
Stanbrook, Ivor Waldegrave, Hon William TELLERS FOR THE NOES:
Stanley, John Walker, Rt Hon. Peter (Worcester) Mr. Spencer Le Marchant and
Steen, Anthony Walker, Bill (Perth & E Perthshire) Mr. Anthony Berry.
Stevens, Martin

Question accordingly negatived.