REGULATOR POWERS

HC Deb 02 June 1980 vol 985 cc1074-147 4.45 pm

The First Deputy Chairman

Before I call the first group of amendments, I point out that in the past hon. Members have used the clause in the Finance Bill which deals with the regulator powers as an opportunity for a wide-ranging debate on the economy. The Chair is content for that practice to be followed again on this occasion, and I suggest that the debate should take place on this group of amendments.

Mr. Denzil Davies (Llanelli)

I beg to move amendment No. 1, in page 7, line 1, leave out subsection (3).

The First Deputy Chairman

It will be convenient to discuss at the same time the following amendments:

No. 2, in page 7, line 5, leave out subsection (4).

No. 3, in page 7, line 24, leave out from ' apply ' to ' a ' in line 25 and insert ' shall not be effective until it is approved by '.

Mr. Davies

These three amendments are probing amendments to find out what is behind this clause, which seeks to change the procedure—a procedure that has existed for a long time—whereby the House has been able every year to reassert or otherwise the economic regulator provisions in the Finance Bill. The subsections to which the amendments relate will change that procedure. I hope that the Minister will tell us the purpose of the clause.

You have said, Mr. Godman Irvine, that we can debate the economy in general on these amendments. It has been traditional for the Committee to do so, either in a clause stand part debate or on amendments to the regulator clause. In view of your statement, perhaps I may speak on the economy in general, hoping that the Minister will deal not only with the economy but with the amendments.

If the clause is agreed, this will be the last opportunity for the Committee to debate the regulator provisions. The clause contains a power under which the Government can, through the affirmative resolution procedure, make various changes to indirect taxes. In future, under this clause they will be able to do so merely by a resolution. There will be no need for the kind of clause that has appeared in every Finance Bill since the early 1960s.

One is tempted to say that it is no wonder that the Government want this to be the last debate on the regulator clause. In view of the way in which the economy is going, and has gone over the past year, I am not surprised that they want to limit the time for debates on it.

Since we debated the regulator clause in Committee last year, inflation has doubled. It was running at about 10 per cent. at this time last year. It is now over 21.8 per cent., according to the last retail price index, and is probably climbing to 23 per cent. This afternoon, the Minister of Agriculture Fisheries and Food said that the agreement in Brussels would add only 0.15 per cent. to the RPI, but that will still bring last month's figures up to 22 per cent.

So inflation has doubled under this Government. Production is falling and unemployment is continuing to climb and will rapidly reach perhaps close on 2 million, if not 2 million. Investment is declining, we have record interest rates, and manufacturing industry is slowly but surely being destroyed in many parts of the country.

For a Government who are supposed to treat inflation as a priority, this is an appalling record. Most of the 10 per cent. increase in inflation over the past year has been caused by the Government themselves. While Ministers, especially Treasury Ministers, fiddle around with their monetarist theories and play with the dogmas of Milton Friedman, they have deliberately and actively raised prices. They have increased indirect taxes. Through their policies they have increased local rates, interest charges and public welfare charges in an attempt to reduce public expenditure. The Government have also increased nationalised industry prices.

All these acts have deliberately increased prices, yet the Government pretend that, somehow, their monetary policies will squeeze inflation out of the system. They have shovelled inflation into the system with one hand while somehow hoping to squeeze it out with the other by pursuing their eccentric monetary policies. The favourite slogan of the monetarists is that Governments are the sole cause of inflation. I do not know about that, but at least one can say that over the past year this Government have been the sole cause of inflationary increases.

How have the Government got themselves into the extraordinary position in which we have record inflation and unemployment alongside falling production and investment? A good Calvinist would say that their position must somehow be the result of the original sin, and that all the Government's problems stem from some original and predetermined sin.

That, of course, was the basis of the election campaign that the right hon. Lady the Prime Minister and the Tory Party fought. They fought an extraordinarily populist election campaign. It was a far more populist election campaign than most election campaigns in this country. One would have to look to the United States for a comparison with the populist campaign fought by the right hon. Lady. One could describe the Tory election campaign as a combination of Huey Long and George Wallace if one wished to look at it in transatlantic terms.

The Tory argument goes like this. If the people want tax cuts—and Saatchi and Saatchi went around the country and discovered, surprisingly, that they did—let them have tax cuts. If people want public expenditure cuts—and we all know that everyone dislikes waste in the public sector—let them have those cuts. Regardless of the state of the economy, or whether the country could afford income tax cuts, the Tory Party came to power on populist slogans about income tax cuts and public expenditure cuts, which seemed very attractive at the time.

The only way in which the Government will reach their objectives is by trading inflation for income tax cuts and public expenditure cuts, and by not treating inflation as their priority. The only way in which the Government could carry out their pledges on income tax was by putting up prices. They gave inflation away in their attempts to justify the populist slogans and policies with which they won the general election.

Let us look at income tax. In the Government's first Budget, prices went up by about 4 per cent. That was admitted by the Chancellor. Value added tax accounted for about 3¾ per cent. and other indirect taxes put the RPI up by about 1 per cent. The Bill that we are now debating, and will debate upstairs, puts the RPI up by about 1 per cent. Therefore, the taxation changes initiated by the Government in the first and second Finance Bills have put up the rate of inflation, as measured by the RPI, by 5 per cent. That was a deliberate act on the part of the Government. If we take an increase of about 10 per cent. in the rate of inflation over the past year, 5 per cent. of that increase has been caused deliberately by tax changes.

Most of the benefit from those tax changes has not gone to the majority of the British people. Most has gone to those earning £15,000 or more a year. That is the result of the first Budget and of this Finance Bill. It means that most people must now pay higher prices so that a few people can benefit from the tax changes.

Let us turn to the question of public expenditure cuts, which is the other arm of Government policy—if it can be so described. We have had, I think, three public expenditure White Papers since the Government came to office. Those three White Papers have probably put up the cost of living—as measured by the RPI, in terms of rents, nationalised industry prices, prescription charges and all the other welfare charges that have been increased—by at least 3 per cent.

We can therefore say without exaggeration that about 8 per cent. of the increase in the RPI over the last year comes directly as a result of Government policies on income tax and public expenditure cuts. The extra 2 per cent.—the difference between 8 per cent. and 10 per cent.—is about all that can be attributed to higher world commodity prices and world oil prices. But, of course, we have been too cushioned by the strength of the pound.

Having put up inflation to 21.8 per cent.—and it is still rising—the Government made a further error by reducing their monetary targets. On the one hand they deliberately made inflation worse and on the other, quite contrary to that policy, they reduced their monetary targets to about 9 per cent. That led to an inevitable squeeze on manufacturing industry, which I will deal with in a moment.

That policy also resulted in the high interest rates from which we now suffer. It is extraordinary how the Tory Party deludes itself about interest rates. There now appears to be a belief that interest rates can come down. The chairman of Barclays Bank advocated that yesterday, and the Government are now under considerable pressure. There is also the belief that now that we are to receive £700 million from the Common Market, in either this or the next fiscal year, thus reducing the PSBR, that money will enable the Chancellor to reduce interest rates.

Interest rates are not high because the Government are having difficulty selling their stock. The reason is inflation. There is the fear that if interest rates are reduced below the rate of inflation bank lending will increase and that will make money supply targets even more difficult to achieve. Because of pressure, the Government may be tempted to reduce interest rates. If they were to do so, two consequences would follow. The first would be that companies would borrow more money from the banks.

If companies go into the next wage round with an inflation rate of 22 per cent. or 23 per cent.—and many companies will have to settle at about that level—they will, of course, be able more easily to borrow from the banks, because the cost of borrowing in those circumstances will be slightly less. Not only will that make inflation worse; it will make the money supply targets more difficult of attainment.

Mr. John Bmce-Gardyne (Knutsford)

It seems to me that the right hon. Gentleman has just perpetrated a fundamental fallacy. He says that if the inflation rate is 22 per cent. or 23 per cent. companies will have to settle at that level, but surely our experience over the past 12 months has been that in many instances manufacturing companies have not settled at anything like the going rate of inflation. Where the going rate of inflation has been the basis of settlements, it has been all too often as a result of the lucubrations of people like Professor Clegg.

Mr. Davies

I appreciate that the hon. Member for Knutsford (Mr. Bruce-Gardyne) likes to pursue his vendetta against Professor Clegg and at the same time blame all the Government's economic failings on the professor.

Manufacturing companies will settle at different levels. Many settled at less than 20 per cent., especially at the beginning of this wage round, when inflation was between 14 per cent. and 15 per cent. As the wage round has progressed, we have seen higher and higher settlements. That will happen next year, because the starting point will be around 20 per cent. and not around 14 per cent as it was at the beginning of this wage round. We shall see more pressure on companies to borrow from the banks.

If interest rates come down, there will be an increase in money supply. If interest rates are reduced, the reduction is bound to have an effect, though it is doubtful how great it will be, on the value of the pound. If the differential between our interest rates and those of the United States, in particular, is reduced, presumably it may reduce the value of sterling, though I know that there are other factors such as the so-called petrocurrency basis of sterling. If the pound comes down—and manufacturing industry will welcome that—it will make inflation worse. If the pound had been at a lower level than it is now, inflation would be higher than 21.8 per cent.

The Government are in a cleft stick. They wish to reduce interest rates in order to help manufacturing industry, but if they do so they will make the money supply problem worse. If they reduce the value of the pound, that will also make inflation worse.

5 pm

The final constraint on the Government in reducing interest rates is their shaky monetary targets. They will become more shaky as the year progresses. If one regards the taking away of the corset in terms of domestic credit expansion because of the deficit in the balance of payments and the reduction in exchange control, it is by no means certain that the Government are within their target for sterling M3. That, with the pressure on bank lending, will make it difficult for the Chancellor, with credibility, to reduce interest rates—although everybody hopes that he will.

I turn to the consequences of the policy. Manufacturing industry and the unemployed suffer most. Manufacturing industry has suffered appallingly in the last 12 months and will continue to suffer for the next two years because of Government policies. The regional chairman of the CBI in the West Midlands was quoted in the Financial Times recently as saying: I doubt whether the Government yet appreciates the plight of manufacturing industry and the speed at which it is being destroyed. We have said that consistently in the last 12 months, but the Government have not listened. Perhaps they will listen to the chairman of the West Midlands CBI.

The Government are in some difficulty. Having put themselves into the hole, it is difficult to see how they can respond to the plight of manufacturing industry without making inflation even worse. Manufacturing industry is suffering because high inflation—caused by the Government putting up prices by about 8 per cent.—damages investment in industry directly. High inflation causes high interest rates, and inflation is the main reason why interest rates are so high. High interest rates make it difficult for companies to invest and they cause a high value for the pound. That high value damages exports and makes imports more attractive. As a result, manufacturing industry is being destroyed.

The unemployed are also suffering. Unemployment will increase, but the Government have deliberately cut benefits to the unemployed because they cannot afford them. We have heard speeches about the need to create the will to work and the problems of the poverty trap. The main reason why the Government cannot index unemployment benefit to the cost of living is that they cannot afford it under their plans to cut the public sector borrowing requirement when inflation is running at between 20 and 23 per cent. The Government have broken the link between prices and unemployment benefit. The unemployed suffer, first, from the high rate of inflation and, secondly, because their benefits are to be cut and not indexed.

One must contrast that with the Bill's provisions. In clause 23 the Government are introducing automatic indexation for people earning more than £11,000 a year—the people in the old surtax bracket. For them the law is to be changed to enable their incomes to be indexed automatically to the cost of living unless the Government introduce an order. The people who have benefited most from the two Budgets are to be protected against inflation, but the people who have suffered most from the Government's policies—the unemployed—will have their benefits cut. That is a condemnation of the Government's social priorities.

A number of excuses have been made to explain why the Government's monetarist policies do not seem to be working. The Government have said that people do not understand monetary policy and do not read the treatises of Hayek and Friedman. Last year the Financial Secretary said that people have yet to understand fully the link between a tight money policy and their own behaviour. He seemed to be saying that negotiations should take place on the basis of the level of sterling M3.

The Financial Times tries to reflect what the opinion formers think. In an extraordinary statement in a leader recently, that publication stated that the failure of both sides of industry to take any notice of a determined monetary policy has done much to produce the present situation of high inflation, high interest rates and (negative) profit margins. Yet, when the Conservatives were in Opposition, they said that merely to control the money supply would solve the problems, that inflation and interest rates would come down and that wage settlements would respond. Now, the Conservatives say that the problem is caused by negotiators who do not understand the economic theories of Hayek and Friedman.

The Governor of the Bank of England said the same in an extraordinary statement. He said that monetary policy required a slowdown in the rate of wage increases. I thought that monetary policy was supposed to create a slow-down in wage increases. Clearly, something is going wrong with the Government's theories on monetary policy.

I do not see how the Government can expect negotiators in industry to understand the theories of rather eccentric mid-European professors which do not suit the British economy. They might suit America and possibly they have worked there to some extent. That is because credit is used more liberally in America. Acting on credit can cause a reduction in inflation in America. However, credit is not used to that extent in Britain and here the problem lies in wage bargaining. Monetary policy cannot go to the root of the problems of wage bargaining.

Having trotted out the excuses, the Government are looking for scapegoats. They are the trade union movement and, in particular, the public sector, as the hon. Member for Knutsford indicated in his intervention. Whatever their faults, the trade unions are not responsible for the inflation that we have suffered in the last year. That has not been caused by high wage settlements, because only now are they gradually working their way through into price increases.

The inflation of the last 12 months has been caused mainly by the Government and partly by world factors. The Government cannot say that trade unions and wage negotiators have caused the 21.8 per cent. inflation rate; nor can they say that the public sector is responsible. When the miners settled at 20 per cent., the Prime Minister said that it was a triumph for common sense in the public sector. Then the rate of inflation was about 15 per cent. They therefore settled at 5 per cent. above the inflation rate. If the miners settle next time at 5 per cent. above the inflation rate when it is running at 21 per cent. or 22 per cent., will that be a triumph for common sense?

The Government should not make the trade unions or the public sector the scapegoats for their policy. The Government are responsible for the inflation rate. Whatever happens next winter, they will be held responsible by the trade union movement and the country.

We are asked about the alternatives. I believe that a grand Cabinet meeting is to take place at Chequers to review economic policy. I am sure that the Chief Secretary will be there. Somebody has to keep an eye on the "wets" in the Cabinet. He and the Chancellor will tell the "wets" that there is no other policy and that nothing more can be done. To some extent, that is right. Now that the Government have put us in the hole and created the difficulty, it is difficult to see what can be done. Any other policy that they introduce will make inflation even worse.

However, the Government need not have put us in this position. Inflation need not have been more than 12 per cent. if the Government had treated it as a priority. That was the underlying rate. That could have been the rate of inflation at the moment. The extra 8 per cent. has been caused by the Government. If there was an inflation rate of 12 or 13 per cent., interest rates would have been lower. The value of the pound would also have been lower, which would have helped manufacturing industry and discouraged imports.

There was no need for a high rate of inflation. With inflation at the level I have mentioned, monetary targets could have been kept at between 7 and 12 per cent. I do not object to monetary targets being slightly lower than the rate of inflation. My objection is that under this Government there should exist such a gap between the monetary target and the rate of inflation. That is causing the damage. There could have been a monetary target of between 7 and 12 per cent. with an inflation rate of 12 or 13 per cent., and interest rates at the same level.

The PSBR this year could have been at least £2 billion higher than it is. There is no problem at the moment in selling Government stock. There has not been much of a problem throughout the year. But, despite the fact that the PSBR has been reduced, the Government are paying 14 per cent. or more for long-term money. A PSBR £2 billion higher would have necessitated fewer cuts in public expenditure and a smaller increase in welfare charges and prices.

The Government could have talked to the trade union movement instead of treating the unions with considerable hostility. Unfortunately, after a year of debacle and a year of disastrous policies, the Government do not know where to turn. Wherever they turn, they will make the economy worse. At the end of four years, or whatever the period may be, there will be a higher rate of inflation than when the Government took office. There will be a higher rate of unemployment and a smaller manufacturing industry base. The remedies that will need to be adopted will be much more drastic than in the past.

Mr. Bruce-Gardyne

Unlike the right hon. Member for Llanelli (Mr. Davies), I welcome the fact that this would appear to be our last regulator debate. The regulator debate has become a bit of a bore. It occurs always about three weeks or a month after the Budget debate, and sometimes it is interlarded with the public expenditure debate. The result is a running series of circuses about the management of the economy. I doubt whether these debates add enormously to the sum total of our knowledge or information. It seems to me that, in principle, there is a lot to be said for eliminating, even if this is due to technical reasons, the circumstances that give rise to this debate. That is probably not the right way to begin a speech in this debate.

The other purpose of the regulator debate is to give an opportunity for a member of the Opposition Shadow Treasury team to present his assessment on how the economy is being managed. That happened when we were in Opposition. It has happened again today. I hope that I shall not do the right hon. Member for Llanelli any harm by saying—in contradistinction to what I have just said—that his speech went a long way towards justifying the regulator debate. It was a better argued, better presented and more logically advanced proposition than that of the Shadow Chancellor, the right hon. Member for Leeds, East (Mr. Healy), through which we had to sit twice over a few days ago. The contribution of the right hon. Member for Llanelli was also shorter.

Unlike the double contribution of his right hon. Friend, the remarks of the right hon. Member for Llanelli were worth listening to. Curiously, at the end—I am sure the right hon. Gentleman would deny any such brutal allegation—it seemed that he was endorsing the Government's strategy. I happen to believe that he was right to do so.

5.15 pm

I wish to cast some small doubt on the alternative nostrums peddled in some sectors of Fleet Street and also by such luminaries as the chairman of the West Midlands branch of the CBI, to whom the right hon. Member for Llanelli referred, not to mention such curious happenings as the Labour Party's supernumerary conference on Saturday. The right hon. Gentleman referred, in terms of wise dubiety, to nostrums that we should aim at an early and substantial reduction in interest rates, that this would lead to an early and substantial reduction in the exchange rate and that if this were to have implications for counter-inflation policy we should perhaps talk about or contemplate the prospect of some form of incomes control. I wish to deal briefly with each of those propositions.

Mr. Denzil Davies

I was saying that the Government are now in such a position that it is difficult for them to reduce interest rates. I did not say that it was desirable to do so. The Government deliberately got themselves into this position, through their own policies. It will now be difficult for the Government to get out of the hole that they have dug themselves.

Mr. Bruce-Gardyne

I am aware that that was what the right hon. Gentleman said. The reason that leads him to what I consider a sensible conclusion does not necessarily invalidate the good sense of the conclusion at which he eventually arrived. It is the conclusion with which I am concerned.

I want to deal first with the proposition that there should be a rapid, early and substantial reduction in interest rates. There is no doubt that the desirability of such a reduction is manifest for a number of reasons. Interest rates at present levels clearly have a debilitating effect that we should wish to eliminate at the earliest opportunity on the entrepreneurial sector of the economy. It is also true—I hope that it will never be overlooked—that they lead enormously to the cost of financing the Government's own budgetary deficit. One has to regard with some depression the repeated issuing of tap stocks with a redemption date going on into the twenty-first century at current levels of interest rate. To put it mildly, they tend to diminish the attractiveness to the Government's money managers of reducing the rate of inflation.

We must recognise that the level of interest rates, when measured against the current rate of inflation, is negative. I agreed very much when the right hon. Gentleman pointed out that an early and substantial reduction in interest rates would be likely to have worrying implications for bank borrowing. There is also, unfortunately, too much evidence at present that bank credit is being used to finance wage settlements that firms cannot genuinely afford from their own resources. It is hard to believe that a substantial reduction in interest rates at this time would not have the effect of stimulating that tendency.

We should also enter a word of caution against, the proposition that a substantial reduction in interest rates would necessarily lead to a corresponding reduction in the rate of sterling. As the right hon. Member from Llanelli rightly recognised, that level reflects a number of factors of which the level of interest rates and the interest rate differential with other financial centres such as the United States are only two. We should not take it for granted that a substantial reduction in interest: rates would necessarily or automatically lead to the fall in the exchange rate that some people expect.

Over the past 10 years, the countries with the fastest growing proportion of world exports and manufacturing have been those with the largest increases in exchange rates. Countries such as ours which have witnessed the sharpest deterioration in their share of world exports and manufactures have tended to witness a substantial drop in their exchange rates over the corresponding period. It is a mistake to believe that even if we could achieve a significant drop in the exchange rates that would necessarily redound to the health and prosperity of British manufacturing industry.

Mr. Bill Homewood (Kettering)

The hon. Gentleman's comments conflict with my general impression about the prosperity of our competitors. The general belief seems to be that most of them have prospered with an undervalued rather than an over-valued currency. Is that what the hon. Member was saying?

Mr. Brnce-Gardyne

No, that is not what I was saying. I was saying that countries such as the Federal Republic of Germany and Japan, leaving aside the last year's experiences, experienced over the preceding decade the most rapid increase in the international value of their currencies and also tended to experience the largest increase in their share of world manufactures. The statistics are available and the hon. Gentleman can examine them if he wishes.

I am not saying that the road to successful export performance takes us via a constant appreciation of the currency. That would be nonsense. But I believe that the conviction that a substantial reduction in the exchange rate would lead to a dramatically healthier climate for our manufacturing industry in world markets is at least open to question on the basis of the experience of other countries over many years.

Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)

My hon. Friend mentions Germany and Japan, which prospered on a rising currency. However, neither of those countries has had oil. Their currencies rose as a result of a strong and efficient industry. Does my hon. Friend agree that if this country did not have oil, which makes sterling a petrocurrency, the value of sterling would be more likely to be $1.70 or $1.80 at the outside? Surely, therefore, manufacturing industry is being asked to pay the price for the prosperity that we hope oil will ultimately bring.

Mr. Bruce-Gardyne

That is a fair point, but it is at least possible, given the experience of our foreign competitors, that an appreciating exchange rate will, by the impact it has on stimulating competition among domestic manufacturers in their home and foreign markets, and by reducing inflationary expectations in domestic terms, have, through time, a positively beneficial effect. However, I do not deny that the present strength of the exchange rate reflects the world market expectations of the value of our oil resources, and to that extent it may be artificial. But whether it is artificial or not, we shall have to live with it, and it is not automatically necessarily within the power of my right hon. and learned Friend the Chancellor of the Exchequer to change substantially the level of the exchange rate which results from sterling being a petrocurrency.

Mr. Michael Spicer (Worcestershire, South)

Does it not support my hon. Friend's argument to recall that when sterling was $1.50 or $1.60 this country did not experience a massive upsurge in exports?

Mr. Bruce-Gardyne

My hon. Friend makes a very fair point which demonstrates the degree of dubiety one should have about arguments on the vital importance of the exchange rate. The one certainty is that if we manage to engineer, in one form or another, a substantial reduction in the exchange rate, just as we embarked upon a substantial reduction in the interest rate, the implications for domestic inflation would be very serious.

That leads to the third panacea that is being peddled. I refer to the idea of a return in one form or another to some system of control over pay. Goodness knows we have been down this road often enough. It continues to be a source of amazement to me that, notwithstanding our experience, there are those who persist in arguing that there is no road back to prosperity that does not involve the application of some form of incomes control. We should be absolutely clear that there can be no form of wage control which does not involve a system of bargaining with the producer interest groups concerned. In addition, the counterparts are certain to be higher levels of public expenditure, an increased deficit on the PSBR and, at this time, a substantial lurch into wholesale protection.

There is only one way to read that formula. It is that the inflationary consequence of the cure that would be applied would be infinitely worse than the inflationary disease that it is supposed to cure. That is no way in which to proceed.

I welcome the conclusion reached by the right hon. Member for Llanelli, even if I do not acquiesce in the reasoning which led him to that conclusion, because I think that we have to continue to give the overriding priority to taming the inflationary hurricane. The way in which the Government are seeking to achieve that by coherent monetary targets, by maintaining interest rates at a level which is consistent with the achievement of those targets, and by insisting that the private sector must, broadly speaking, live with the consequences of the settlements it chooses to make is the only way in which we can wring this appalling drug of inflation out of the system. I have no doubt that so long as we persist in this course it will achieve its objectives.

5.30 pm

It can be argued that over the past 12 months too much of the burden of wringing inflation out of the system has been carried by the private sector of the economy. At a time when we are legitimately expecting the private sector to cope with the combined pressures of the high cost of borrowing money, high exchange rates and very fierce competitive pressures at home and abroad, it is not satisfactory that review bodies should be allowed to make recommendations for settlements for anyone, from doctors to Back-Bench Members of Parliament, which are then accommodated at a high level in cash limits. We must ensure that within the public sector cash limits apply the same stringent disciplines which competitive pressures, orchestrated by the Government's monetarist policies, already apply in the private sector. Provided we do that—it is essential that we should do it within the next 12 months—the Government's policy is entirely coherent and it will achieve its objective.

Mr. Robert Sheldon (Ashton-under-Lyne)

The hon. Member for Knutsford (Mr. Bruce-Gardyne) was right to give some history of the regulator debate. He called it a boring debate, but it is a question of timing. The purpose of the regulator debate, as established by Iain Macleod, is that there comes a time in debating the Finance Bill when the economic situation has moved on. Normally, by the time we discuss clause 10 of the Finance Bill, some of the errors in the Bill have become more apparent, and it is useful to look at the background within which the Budget and the Finance Bill were framed in order to see how relevant the Bill was to the economic situation two or three months earlier. However, this is the first day of the Committee stage of the Bill, so we are a little premature, but the general principle that was established for the regulator debate is right.

One voice that I regret not being able to hear on these matters is that of Reg Maudling, who used to sit below the Gangway and give somewhat unpopular accounts of the economic problems as he saw them. He was listened to with respect, but he was a little unfashionable, so his comments never received the attention that they deserved. He would have been a splendid critic of the way in which new economic theories are put forward to bamboozle people.

People dealing with economic matters, whether in the Treasury, whether they are economic commentators or whether they are hon. Members who are interested in these matters, tend to be subject to a sort of tunnel vision and are able to look only at one matter at a time. That tunnel vision does not necessarily cover the most important area which should be considered.

In the past, we used the gold standard as the one element around which all our policies had to be created. Many years later, in the early 1960s, the inviolate exchange rate took priority. Now, in this well-trodden path comes monetarism. It is said that if we get the money supply right, everything else will follow. If we get the gold standard right, everything else will follow. Keep the inviolate exchange rate right and everything else will follow.

But that does not follow, and we are beginning to question these policies. A number of Conservative Members as well as some Labour Members are beginning to doubt the accuracy of that prescription. They will recall the three-column leader in The Times—which can have been written only by the editor—which stated that the Cabinet had to accept the superior understanding of those members of the Cabinet who understand the economic problems and their complexity. That level of arrogance, whereby the majority of the Cabinet had to keep quiet while they listened to the arguments of those members who believed in a certain level of money supply, makes the politics inferior to the economics of the matter.

What we are now seeing, and what I hope we shall see at the meeting in Chequers, is a better balance between the views of those people who claimed 12 or 13 months ago that their policies would be successful and the views of those who were not heard.

We are now faced with the problem of how to control the money supply. The Government, faced with that problem, increased interest rates. We now have the straightforward deflation that we knew so well in the years before the war. The great hopes of the Government for the management of the economy by controlling money supply and thus inflation that were paraded before us last year are now seen to be nothing but memories of a vision that has long since vanished.

The Chief Secretary to the Treasury, who has been called "the statutory honest man " in the Cabinet, talked about three years of unparalleled austerity. I am sure he is right, because he believes that, whether or not a policy is successful, it should be pursued if it is right. He condemned those who talked glibly—obviously, members of the Conservative Party and the Government—about prosperity being around the corner. But in an astonishing speech in America last week the Secretary of State for Industry said: Britain is in transition. He continued: Before very long the thousands of healthy successful businesses will no longer be overloaded. Britain will be on its way again. That is about as close as we can get to " prosperity being around the corner ".

Other people are less optimistic. I should like to quote from a statement in The Sunday Times Business News by Mr. Reg Parks, chairman of the West Midlands CBI and also of the Brock-house engineering group. He said: I doubt whether the Government yet appreciate the plight of manufacturing industry and the speed at which it is being destroyed. There is a great deal of talk about the Phoenix rising from the ashes; but what if we are left just with the ashes? Over the last few days there seems to have been a chorus of opposition from industry to the Government's policy. Business men rarely give of their best when they are involved with political matters. They speak best on their industrial performance and on how they make their profits. At this moment they are talking about the matters which they know most about—their evaporating hopes for their profits and their fears about the disasters that may come.

Mr. Leonard Regan, the chairman of Carrington Viyella, said that he knows of no

greater recipe for disaster in manufacturing industry than that which exists at present. I believe that that chorus will swell as the impact of what the Government are doing to manufacturing industry comes home to people not in leader columns of newspapers but in their own businesses as they see them from day to day.

I believe that the hon. Member for Knutsford was right when he said that if we were to lower interest rates to reduce the level of the pound, it may not have such a dramatic effect. I believe that the central issue with which we should be concerned is the level of the pound. This is causing great problems to industry in this country facing competition leading to responses by those who want to see restraint by means of tariffs and quotas. That is not the best way to do it. If we find ourselves with no other way of keeping sectors of manufacturing industry alive, we shall be forced into that direction; but I wish to see it by achieving a more realistic rate for the pound. As I said, I believe this is the central issue.

Manufactured imports into this country have been increasing at an alarming rate and our manufactured exports are having great difficulty because the petro-pound produces further problems. I should like to see something done about depletion policy. I believe that oil in the North Sea is better there than feeding imports and making our exports more difficult to sell. However, that is another matter.

How should we get the pound down? The answer is quite straightforward: we go on the market and sell it. Conservative Members who understand market forces will know what will then happen. The pound will go down. They will be appalled at the monetary consequences. But our manufacturing industry is critical to us. Our service industries cannot provide the employment that this country needs to maintain its standard of living. Only our manufacturing industry can do that. The terrible thing is the equanimity with which the Government view the disaster facing manufacturing industry. They believe that at some stage in the future—they do not know how—it will be reborn. Frankly, I do not believe it. If our manufacturing industry suffers the disasters that have been predicted by Ministers, amongst others, we shall find it very difficult to return to a basis of expansion and investment and job creation by manufacturing industry.

Mr. D. N, Campbell-Savours (Workington)

May I take my right hon. Friend back to a comment that he made about oil extraction? Does he believe that if the rate of extraction of oil from the North Sea were reduced, that would have the effect of helping manufacturing industry by reducing the exchange value of sterling?

Mr. Sheldon

There are problems in doing it suddenly, because commitments have been undertaken. But, within that context, I should wish to see a stricter depletion policy for the reasons that I have given. I believe that it is better to have the oil in the North Sea appreciating in value than to have gold appreciating rather less in value in the vaults of the Bank of England. That is the way in which I should wish us to proceed. If there were to be a substantial inflow of funds, I should overcome it by means of negative interest rates or by some of the other ways in which we can deal with that problem. The crucial priority must be manufacturing industry. If we put this as a residual while we get everything else right, we shall fail not only the future of this country but the employment and prosperity upon which we must ultimately depend.

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An immediate problem is the role of the trade unions. The fact is that the Government believe in the market economy and they expect the trade unions to believe in it, too. But trade unions came into being by joining together to make weak employees a much stronger force. To ask them to accept the market economy is to ask them to deny their very existence. The problem that the Government are now beginning to see is that the market economy, which they wish to see established, depends upon the trade union movement becoming a much weaker force. If that is what they had in mind, they should have spelt it out more clearly, because I do not think that the country would have accepted it. Indeed, I do not think that many Conservative Members thought of this kind of confrontation with the trade unions as the way in which the Conservative Government would move rather the other way round. They looked forward to the pursuit of monetarism as meaning that the Government would be freed from having to deal with the trade unions. The idea was to follow a strict monetary policy and to leave industry and the trade unions to sort it out between themselves. In that way, they need not concern themselves with industrial relations problems or with the Industrial Relations Act. Management and the trade unions would sort it out and the Government would look on benignly. That is not happening, and the Government realise that it is not happening.

Slowly, step by step, the Government are beginning to ask trade unions to moderate their demands. They are beginning to see that there is a role here for the Government. They have to be involved in manufacturing industry and in wage settlements. It will be difficult for them—more difficult for them than for us—to deal with the TUC, but in some way they will have to reach some understanding with it. It will be much harder than it might have been because the TUC does not have the kind of power to enable it to deal with management one to one, person to person. It is a question of persuasion. It is a difficult task.

Slowly, step by step, Governments need to work with trade unions to advocate wage moderation and to show that this is the sensible way to proceed. Given the limited power of trade unions to deal with these matters, it is a difficult task but one that has to be attempted. The sooner the Government come to terms with the world which we inhabit, the sooner they can start to deal with the real problems facing us.

Mr. Chris Patten (Bath)

I shall seek to follow the argument of the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) later in my remarks. However, as he and other speakers said, this is the last of these debates that we shall have on a Finance Bill, since the economic regulator powers have now been made permanent.

Even if the afternoon has not been heavy with nostalgia, it has been heavy with some of the arguments that have been traded across the Floor of the Chamber since well before the economic regulator was introduced as a tool of demand management—if I may be excused for using the phrase—in the Finance Act 1961. It has changed a good deal since then, with the coming of VAT and with the tobacco duty charge in 1976. Now, in its new and permanent guise, I am interested to see that it is to be scrubbed clean of any Keynesian stains.

Clause 10 removes from section 1(2) of the Excise Duties (Surcharges or Rebates) Act 1979 the preamble, If it appears to the Treasury that it is expedient, with a view to regulating the balance between demand and resources in the United Kingdom, that an order

and so on, and substitutes the words: The Treasury may, by an order applying to one or more of the groups of duties to which this section applies, provide for an adjustment ".

I imagine that that minor adjustment reflects a more substantial change of philosophy, but we shall obviously have our work cut out if we pursue heresy up and down the highways and byways of the public general Acts.

As my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne) suggested, the House is especially grateful to the right hon. Member for Leeds, East, (Mr. Healey) for taking the day off—and especially grateful are those who were present for his last two outings. Although we may disagree with him, we wish him well in the contest that may or may not lie ahead. He has probably done himself much good by staying in the pavilion this afternoon, and allowing his right hon. Friend the Member for Llanelli (Mr. Davies) to open the innings.

We enjoy listening to the right hon. Gentleman, who is becoming the thinking man's Neil Kinnock. We enjoyed his speech today, although he was still a little short on policy. We shall look forward with great interest to his intellectual endorsement of the statement that was discussed last Saturday in Wembley. I am sure that he will wish to speak about those policies on some future occasion. We should not wish to prevent him from doing so.

I wish to follow some of the right hon. Gentleman's remarks, and also some of the remarks of my hon. Friend the Member for Knutsford, in relation to pay. This issue is affected by the regulator. I have made one or two speeches in the past about pay, and felt that in doing so I was popular with some hon. Members as the person who sang " While sheep safely graze " at a butcher's funeral. I am less inhibited about speaking today because in the recent public expenditure debate my right hon. and learned Friend the Chancellor of the Exchequer said that we cannot get away from the issue of pay. That is absolutely true. Try as we may, the issue turns up like a bad penny in the centre of any political debate. It has turned up again today, for the simple and unattractive reason that the first pay round under this Government has been damagingly high. I do not think that anyone would deny that that pay round will make our problems over the next two or three years more difficult than they would otherwise have been. The next pay round will have to be very different.

The question of pay arouses more controversy within the two parties than it does between them. I have not always been so spirited a partisan in the debates as some of my hon. Friends. I am still waiting, rather vainly, for my views to become fashionable. I do not believe that pay is of no consequence, and that we can leave everything to the ebb and flow of domestic credit. Nor do I believe, as did Mr. Aubrey Jones—I think that I am quoting the right person—that the National Board for Prices and Incomes was one of the keys to the survival of democracy. I can understand his reasoning, but even if a fully-fledged prices and incomes policy, with boards, norms, guiding lights, and chinks of light at the end of the tunnel, were on offer—which it is not, to put my hon. Friend the Member for Knutsford at ease—I would not be at the front of the queue to purchase it.

I agree with the sentiments expressed by the CBI in its policy document issued in February of last year, entitled "Pay: the Choice Ahead ". I agree that pay controls are inflexible and impractical—they obstruct change, and are a palliative rather than a permanent solution. But the CBI argued, rightly, that it would not be correct to jump from that argument to the conclusion that we can rely exclusively on monetary policy.

As my right hon. Friend the Member for Worthing (Mr. Higgins) is in the Chamber, I shall refer to some of his remarks on the issue. I do not wish to blight his career, but he has probably written and spoken more sense on the matter than most hon. Members. I recall him writing that a public sector incomes policy is indispensable for any Government who are serious about trying to abate inflation. He also argued that unless public spending wage claims were controlled, they would have to be paid for either by a wholly unacceptable increase in taxation—and I fear that we are likely to see an explosion in rates this year, partly as a consequence of pay claims—or by an increase in the Government deficit. Mr. Walter Eltis, in a recent stockbrokers letter, pointed out that unless we have an effective public sector incomes policy, there will be an enormous burden on the monetarists' own chosen weapons.

There are two other reasons that I wish to adduce for the proposition that monetarism is not enough in relation to pay. First, in the past it has been argued that tight credit and rising unemployment—despite the demise of the Phillips curve—would weaken the hand of the unions and strengthen the hand of the employers at the negotiating table. I am not sure that that is always true today. One of the surprising lessons learned from the steel strike was that in some industries workers appear to prefer redundancy to an unacceptable pay award. It is also true that expensive credit increases the cost of sitting out a strike, and sometimes employers will therefore paradoxically settle for a higher amount than might otherwise have been put on the table.

The other remark that I wish to make about the insufficiency of monetarism was said much better by the CBI, in the document to which I referred earlier. It said: The biggest problem is that if monetary policy is to have a major influence on the outcome of pay negotiations, control of the money supply might be so tight that the cost in terms of unemployment would be enormous.

On the grounds both of compassion and of industrial and political survival, that is something that we should try to avoid.

It is unfortunate that trade union leaders do not study the M3 growth path in the Financial Times before they enter the bargaining room. It may be unfortunate, too, that, unlike labour leaders in, say, Hong Kong, they will not settle for a substantial cut in their real wage when credit is tight, in order to avoid losing jobs. Nevertheless, that is the world in which we live, and we must make some accommodations to that if we are to stand any chance of changing it.

Mr. Bruce-Gardyne

My hon. Friend referred to the indispensability of an incomes policy for the public sector. Is he arguing that it is possible—leaving aside whether it is desirable—to have a govern-mentally structured policy of norms and controls for wages in the public sector, and nothing for wages in the private sector?

Mr. Patten

My remarks on public sector pay policy will follow on from the issue that I am now discussing. I hope that those remarks will be taken as an answer to my hon. Friend.

I wish to turn to public sector pay and " Comparability Clegg ". It is important to recognise that Clegg is not an economic phenomenon but a political phenomenon. When the Clegg Commission was established, and the terms of reference set out, the then Prime Minister talked about avoiding arrangements that could prove inflationary. We all know that that was never the name of the game. The reason for Clegg was to try to get the right hon. Gentleman and his colleagues out of a tight corner. We are now paying part of the price of his wish to delay the election in the autumn of 1978.

It is also true—we might as well be honest about it—that that having happened, Conservative Members were unlikely to enter the last election campaign saying that whatever Clegg said about pay there would be no money on the table if we were elected. Some hon. Members may have said that in their election addresses. If so, I trust that their virtue will be rewarded, if not by the Almighty, at least by the Whips' Office at some stage in the future.

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But that is the fact. So we are saddled with what someone, a few years ago, quite rightly called, a wage-wage spiral. No one wants to be compared down; everyone wants to be compared up. What comparability actually means is being as well off in one's working life as one has ever been. All the paraphernalia of quartiles and analogues is given the status of Holy Writ. The trouble is that comparisons matter. A few years ago a PEP survey suggested that, after increases in the cost of living, comparisons with other people's pay were the most important factor in determining individuals' views about what they themselves should be paid. It is sad, but that is true.

One of the consequences of comparability is that in the private sector it destroys the link between earnings and productivity and in the public sector it destroys the link between earnings and ability to pay. To answer my hon. Friend, I think that the most important thing that we must establish in the public sector is the link between earnings and the ability to pay. At present, in public expenditure too much goes on pay and not enough on capital and services. Cash limits must mean what they say. We must make clear that 25 into 14 does not go two years running. As my right hon. Friend the Member for Worthing pointed out in a debate before Whitsun, what that means, among other things, is that we must say goodbye rather than au revoir to staging, because staging has enabled us to evade cash limits consistently in the past.

As well as re-establishing the principle of ability to pay we must restore more awareness of market forces to pay bargaining in the public sector. That is not easy. Its difficulties were admitted in the tract against incomes policy by Mr. Brittan and Mr. Lilley a few years ago. But, difficult though it is, we must move a little further in that direction. That is one reason why I personally favour a continuation of a standing commission on public sector pay, stripped of the task of buying off trouble but charged with four jobs: first, to try to insert a greater awareness of market force principles into pay bargaining; second, to try to make more sense of such comparisons as people will always want to have made about their pay; third, to reconcile—we talked about this in our manifesto—cash limits with traditional bargaining procedures; and lastly, to service all those permanent and ad hoc groups that deal with pay in the public sector. Too often, it seems, they operate as though they were sponsors of the groups whose pay they are looking at. What I should like to see us doing is establishing common, informed and publicly discussed principles that would underpin the whole of the public sector pay bargaining process.

Mr. Tim Eggar (Enfield, North)

Does my hon. Friend see a continuing role for the Pay Research Unit, and does he believe that public sector pay should be related to private sector pay?

Mr. Patten

No. It can be related sometimes, but there are other occasions when it is plainly absurd for it to be so. It is a bit unfair to knock the PRU out of court at the same time as one is being, understandably, rather rude about Clegg. Quite a lot of the PRU's record is not bad. But one needs to establish common principles for outfits such as the PRU and other organisations that determine pay in the public sector.

The Government might also look at ways in which they could move as many as possible of the public sector pay settlements to the end of the pay round, so that they followed rather than preceded the private sector pay round. That might also help us to start to compress the pay round, which would be a thoroughly desirable objective.

I should like to make one other point of general application to the private sector and to the public sector. I remain an unswerving believer in the sort of concerted action procedures that exist in other countries and about which we talked a good deal when we were in opposition. There have been many useful and helpful proposals about concerted action by the CBI. I realise that it is an immensely difficult area, but we should start doing some positive work on this. I do not have very much time for those who believe that it would represent a terrible flirtation with corporatism.

As Keith Middlemass pointed out in a recent book—an extremely good book—on the British political system, it is that sort of co-operative approach which was at the foundation of British economic management for 50 years, until the last 15 years or so, and they were rather more successful years for the economy than the last 10 or 15 years. [An HON. MEMBER: " Keynesianism."] No, not Keynesianism, but co-operation. They are not necessarily—although they are sometimes—the same thing.

I am encouraged by the fact that the Chief Secretary, in a speech before Whit-sun, said that concerted action was not the same thing as a formal incomes policy. I am also interested that Mr. Brittan recently returned from abroad and said that he was alarmed at the British economic and political system ", which he thought resembles more and more animals glaring at each other uncomprehendingly out of hostile cages. The English is not mine, but I very much agree with the sentiment. Mr. Brittan went on to say that it was time to talk to the TUC about the trade-off between pay and jobs, and I think that that is right. Professor von Hayek, who featured prominently in the speech of the right hon. Member for Llanelli, writes in one of his books about " real wage resistance " and the problems of overcoming it—by which term he means the perfectly natural determination of people to try to ensure that their standard of living stays the same or rises year by year.

The truth, as the Chief Secretary has been absolutely right to point out, is that our standard of living cannot rise for the next year or so if we are to get inflation down, and to the extent that it does, unemployment will be that much higher. One can try to smash real wage resistance, but if one were to do that I fear that one would smash a great deal more besides. The only option in a free society is to try to change it by reason and by persuasion. That is where politics comes into the picture. If the present Government cannot get people to behave responsibly without—my hon. Friend the Member for Knutsford was right to make this point—having to take on irresponsible policies themselves in order to purchase acquiescence, we shall not be able to achieve very much else. I think that this is a constraint within which we operate on both sides of the House, and we would do very well to remember it.

Mr. Homewood

I should like to answer briefly some of the points made by the hon. Member for Bath (Mr. Patten). Many of us would accept much of what he said about pay comparability, but he has left alone much of the argument that has taken place and he offers no rationale of how we should solve the problems which the Clegg Commission and all the pay comparability arrangements have been set up to solve. It is all very well to talk easily about not having a comparability system because of built-in inflation, but one must then go and argue the case of how we deal with the fact that there are people in manufacturing industries who, particularly under the new technologies, rather rapidly and without working much harder, will increase their earnings. Some comparability arrangements are necessary.

Many years ago there was an inflation rate of about 6 per cent. In those days manufacturing industry could increase productivity and earnings on a purely incentive basis. Workers would go home with large wage packets and talk to their neighbours about them. If one of his neighbours happened to be a bus driver, he would immediately put pressure on his trade union because he could not understand why the bloke next door earned more money when he did not seem to be working any harder. The trouble was that as a bus driver he did not have a similar opportunity to earn more money. No matter how the Government choose to deal with this issue, comparability must be the essence of our arrangements. The Clegg report has not been a failure. Clegg may have made mistakes, but he made an attempt to compare public sector wages with wages in the private sector on the basis of productivity.

Many years ago I became a dilettante student of economics. I made a cursory study of economics, but realised that did not understand much of what was written or said. I read the little bits that I could understand, and left out those that I could not. My studying became so disjointed that I lost all interest. However, when I became a Member of Parliament I realised that most of those who spoke on economics knew as little as I did. I had a resurgence of interest, and I began to read about economics once more. During the past six or seven months I have come to the conclusion that if any of the classical economists—whom we hear so much about in the House—were here, they would find it difficult to understand what was going on.

During a recent television programme the Bishop of Liverpool said that politicians would never admit that they were wrong. If some of the classical economists were alive, they might say that they were not sure whether they were wrong, but they were sure that the Government had put their economic theories into practice in the wrong way. After 12 months in office the Government have produced a situation that I would not have believed possible. When they came to power, they spoke about monetarism. Some years ago the right hon. Member for Down, South (Mr. Powell) said that only Governments could create inflation, because only Governments could print money. I felt that that was a logical conclusion. However, unfortunately, one would expect unemployment to rise rapidly. In those days we were discussing Budget deficits and Budget surpluses. The public sector borrowing requirement refers only to a Budget surplus. If one were to get rid of the surplus, unemployment would rise rapidly.

6.15 pm

When the Government came into office, I thought that they would exercise strict monetary control and diminish the Budget surplus to a level that would control inflation. I would have expected the level of unemployment to rise. However, to achieve both a rapid increase in inflation and a rapid upsurge in unemployment does not fit the theory. We no longer hear, as we heard before the election, that the policy will succeed automatically. The Chief Secretary and the hon. Member for Knutsford (Mr. Bruce-Gardyne) now tell us that success will take time. Keynes used the cliché that in the long term we shall all be dead. My mother-in-law is 87 years old. My father is aged 85. The Chief Secretary does not look too young, and I am 60 years old. We do not have time to wait. There has been no response to the theories put forward. Keynes would probably turn in his grave if he knew that the interest rate was 17 per cent. He would have expected unemployment to escalate, but he would not have expected an inflation rate of 20 per cent. Keynes would have stood up and asked why that was so.

I do not understand what is happening. I am sure that the Government do not understand what is going on. It is said that things will happen in the long term. The Government should examine what has gone wrong. Neither they nor our economic commentators understand economics. During the past six months I have begun to read the business news. I have read that we may not understand the effects of monetarism because we do not know how much money is being deposited in our banks by British citizens overseas, nor do we know how much currency is being exported.

I have no theoretical basis on which to found my belief that the Government's theories will work in the perfect competitive market that they seek. However, we are a long way from achieving that market. Both producers and trade unions have a great amount of monopoly influence. As a result, the Government's policies are irrelevant to any solution for inflation. A high level of unemployment may be acceptable to the Government, but they may have to go to unacceptable levels if they continue with this policy.

Monopoly influences are not in accord with the Government's monetarist policy. The Government seem to believe that in a low-demand situation—induced by monetarist policies—employers will reduce prices, increase competitiveness and resist wage demands. That has not been proved to be true, yet it should have been, because the Government have been in office for 12 months.

If the Government continue with their present policy, I believe that they will destroy the United Kingdom's manufacturing base. Even when demand is low manufacturers are able to pass on increased costs to the public. The trade unions are achieving wage settlements of 20 per cent. while inflation is running at 22 per cent. Obviously they are able to sustain their position. Unemployment is rising, and the belief that manufacturers and industrialists will be able to resist trade union pressure against that background is proving to be a myth, as it has proved to be a myth in almost every minor recession that we have had since the war.

The Government must remember that 70 per cent. of the British economy will be able to pass on increased costs because of monopoly power. Much of our manufacturing base is being destroyed by a theory that is completely wrong. The Chief Secretary's speeches recently have indicated that he is living with his fingers crossed in a world of hope. It is clear that he is hoping that everything will be all right in the end. I hope that it will all come right, but if it does not within the timescale in which the right hon. Gentleman is living we shall be on an island floating in a sea of oil, and we shall have nothing else.

I admit that I have not concerned myself too much with the regulatory powers. I realise that this is the last opportunity that we shall have to discuss them, although this is my first opportunity to do so. However, we shall all make opportunities to make similar speeches. I ask the right hon. Gentleman to address himself to the problems. If the theory is not working, why will the Government not reexamine it? If they do not do so shortly, they will do the nation a grave disservice.

Mr. Michael Spicer

I agreed with a good deal of what the hon. Member for Kettering (Mr. Homewood) had to say, especially on trade union monopolies. Should we not work towards achieving a balance in which trade unions have less monopoly power—a system in which we have more industrially-based and plant-based unions? The present balance results in the distortions and difficulties that concern us all.

The main issue seems to centre on the question whether debates on regulator powers are boring. I have sat through four Finance Bill Committees and I shall be sorry to see the end of regulator powers debates. These are the few debates in Committee on the Finance Bill that I have understood.

It is unfortunate that the right hon. Member for Llanelli (Mr. Davies) is no longer in the Chamber. He delivered a well-argued speech. His theme appeared to be that now that we are where we are there is nothing much that can be done. I think that that sums up in a sentence his argument. The hon. Member for Norwich, South (Mr. Garrett) seems to disagree.

The main reason why we are where we are is that the previous Labour Government allowed Government spending, especially on wages in the public sector, to get totally out of control. That is one of the main reasons why Britain is suffering the present rate of inflation. I accept, as some Labour Members argue, that VAT is a factor. It is a factor that is superimposed on others. The fact remains that public spending, especially on wages, has become out of control.

I agree with the right hon. Member for Llanelli and with my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne) that there are no panaceas. The right hon. Gentleman and my hon. Friend referred to what are considered to be two possible panaceas, namely, the reduction of the interest rate overnight or a reduction of the exchange rate, and a reduction in the value of the pound. It has already been argued that by lowering the rate of interest and, therefore, the rate of exchange, inflation will be beaten to some extent. Are world interest rates falling? At the end of last week in New York the prime rate was reduced but market interest rates showed some signs of rising. It cannot be argued that the effect of reducing interest rates and increasing the demand for credit is a panacea. That also applies to a reduction of the exchange rate.

My hon. Friend the Member for Knutsford made a good questioning statement on the effect of exchange rates. I intervened to ask him—I agreed with his argument—whether he recalled that it was being argued two or three years ago that there should be rapid depreciation of the value of sterling. It was contended that that would have a magical effect on British exports. The results disabused the proponents of that illusory argument. When sterling found itself at $1.50 or $1.60 there was no tremendous surge of exports. It is legitimate to question whether a reduction in exchange rate or the value of the pound against other currencies is the panacea for Britain's present problems. It is open to question whether a reduction of the interest rate is a panacea.

My hon. Friends the Members for Knutsford and for Bath (Mr. Patten) concentrated on pay. It seems that the one really worrying aspect of the British economy centres on the possibility of an uncontrollable wage explosion, especially in the public sector, as we approach the next round of wage bargaining.

The right hon. Member for Llanelli seemed to argue—I may have it wrong again—that wage increases have not been a major factor in the recent inflationary process. It is not necessarily cause and effect, but rises in earnings were 13.2 per cent. in 1978 and 15.6 per cent. in 1979, and they will probably be about 21 per cent. in 1980, whereas the figures for increases in consumer prices for the same three years are 8 per cent., 13 per cent. and 19 per cent. Wages have been rising faster than consumer prices. Therefore, there is some substance in the argument that wages have played a part in the inflationary process. If that is so, or if it is not, the effect that increased wages are to have in the next 12 months must be a great worry. To that extent, I agree with what the right hon. Gentleman was hinting at and arguing about. We have to concentrate on the problem of the wage explosion that could beset us.

6.30 pm

In this context, the hon. Member for Kettering was right in saying that perhaps my party had tended to overestimate the flexibility of the labour market and to argue from a position that supposed that there was a near-perfect market in the wage bargaining process. My hon. Friend the Member for Bath pointed to at least one reason why this was not the case and why, in many respects, we had a very imperfect market. He described how people bargaining for wages quite often seemed prepared to trade their jobs against an increase in wages, and I think that he was referring especially to the steel strike.

Mr. Homewood

The line that the hon. Gentleman is pursuing is a mistaken one, as was the line pursued by the hon. Member for Bath (Mr. Patten). The steel workers did not bargain their jobs against increased wages. There were a great many arguments about closures at the same time as the strike for increased wages occurred, but no steel worker was able to say that he would accept closures for increased wages. It did not happen that way.

Mr. Spicer

I was about to make the same point, because it strengthens my argument. It is not the trade union members themselves who take this trade-off; it is their leaders. With the way that the trade unions are structured, the Brownie points are gained by trade union leaders who win wage increases, even if they are won at the expense of jobs. Trade union leaders are judged not on whether they preserve jobs—perhaps it is too difficult to do so; it is too nebulous—but on their effectiveness in winning wage increases. Perhaps that answers the hon. Member's point.

That brings me to another matter that was touched on by the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), who indicated that if the Conservative Party argued for a more flexible labour market it would really be talking about a weakened trade union movement. I do not believe that to be true. We are not talking about weakening the trade union movement. However, we may be talking about making the trade union movement more effective in upholding the direct interests of its members, in the way that it is in the United States. One of the great paradoxes in this country is the ineffectiveness of the trade union movement on behalf of its members when at the same time it has done great damage to the national interest.

I dispute the idea that by having trade unions that are bargaining, say, on an industry basis and therefore less in a monopolistic position, they are less able to be genuinely effective in upholding the interests of their members.

We are still left with the problem that the right hon. Member for Llanelli rightly identified. What about the potential wages explosion? That is a great worry. For what it is worth, I have gradually and reluctantly come to the conclusion that we may have to follow some advice which no less a person than Sam Brittan, the great anti-incomes policy proponent, has given consistently. He has said on a number of occasions that there may come a time when aspirations for wage increases have got so irrational and are so out of control that there is a case for a wages freeze.

The problem is that a wages freeze has two inevitable results. First, it ends in an explosion. Secondly, because of that, a wages freeze tends to lead a Government into the panoply of associated policies and Socialism. Once a regular wages policy is established it is necessary to introduce a prices policy, a profits policy, and Socialism. The worry on the Government Benches about a wages freeze has been, first, that of the inevitable explosion and, secondly, that it is the thin end of the wedge from which, traditionally and historically, we have always moved to a total wages policy.

Mr. Campbell-Savours

Perhaps the hon. Gentleman can enlighten Opposition Members, who are fascinated by his argument. Has he much support on his own Benches for the idea of a wages freeze?

Mr. Spicer

I stress that I put forward the idea very reluctantly. However, both the Prime Minister and the Chancellor of the Exchequer have said that in certain extremely unhappy circumstances a wages freeze might very reluctantly be forced on the Government. I do not know whether that is an answer to the hon. Member for Workington (Mr. Campbell-Savours).

Mr. Martin J. O'Neill (Clackmannan and East Stirlingshire)

Is the hon. Gentleman getting any support from the trade union movement for the kind of policy towards which he is groping? In the last 15 years the greatest obstacle to the acceptance of an incomes policy has been the inability of successive Governments to carry the trade union movement with them. This is primarily because this has been a last-ditch policy. If any Government propose making a U-turn, they have to start preparing the ground very early on. The subject of an incomes policy might be best reserved for the debate at the next general election, when there might be a different climate of opinion in which both major political parties were prepared to outbid each other in terms of the arrangements that could be arrived at as part of an incomes policy.

Mr. Spicer

Let me try to make myself more clear. I am trying to distinguish between a policy of running incomes—trying to iron out anomalies, trying to have comparabilities, and setting up different boards over a long period of time—and a policy that says simply " We shall freeze, with all the existing anomalies." The latter course has one immediate disadvantage, in that over the period of the freeze any unfairnesses are frozen and have to be resolved later on at the end of the freeze. However, the main objective of such a policy is to provide a period of months in which to allow people to consider the implications of an irrational explosion.

Of course, it may be that I am wrong and that we are not approaching an irrational explosion in wages. It may be that the market forces that we have been discussing will have their effect. If we move to the very high levels of unemployment about which we hear so much, it may be that the need for a wages freeze will be totally unnecessary, in which case I shall be delighted, because there is no doubt that in certain respects it will be extremely difficult to sell.

A short pay freeze must be distinguished from a long-term incomes policy. The problem is, what happens at the end of a short-term wage freeze? I do not believe that at the end of a short wage freeze the country will be any worse off than at the beginning, when there has been a wages explosion.

Mr. Bruce-Gardyne

Perhaps.

Mr. Spicer

I should be interested to hear my hon. Friend's argument.

Government policy should be geared to creating a flexible labour market, assisted by trade union and housing practices. If the Government policy has not achieved that, and if wage increases have got totally out of hand, it may be necessary to introduce a wage freeze. I do not believe that after a freeze lasting three or four months the country would be in a worse position.

The problem arises only if a Government believe that they must continue on such a course once started. A wage freeze must be distinguished from a long-term wages policy.

Mr. Barry Henderson (Fife, East)

Does my hon. Friend agree that his argument primarily depends on the thesis that wage increases are necessarily inflationary? If wage increases are matched by production or productivity increases in a firm, they are not inflationary and are to be welcomed.

Mr. Spicer

That is right. However, if one includes such matters as productivity, it becomes a traditional incomes policy, which I would not welcome. Difficulties arise with wages boards and in many other respects once one starts to identify groups of workers for increases, on whatever admirable grounds.

Mr. O'Neill

Has the hon. Gentleman considered what would happen during this freeze if the present interest rates prevailed? Firms that had anticipated price rises to meet the cost of servicing loans would be in difficulties. Bankruptcies would increase faster than at present. Would the credit system remain outside the freeze? Would the freeze relate only to price and wages? Would there be a relaxation for sectors of the community that would be in greater difficulties as a result of the freeze?

6.45 pm

Mr. Spicer

As I have indicated, the policy on interest rates should be separate.

I am concentrating on a potential wages explosion. It may not happen. It it does not we can continue a normal bargaining process on an even keel. I am concerned that the current rate of inflation will become the starting point for the next round of wage negotiations. We may have demands for 40 per cent. or 50 per cent. wage increases. Groups of workers may be in a monopoly position, or provide an essential service, and will therefore be able to hold the country to ransom. We are then potentially out of control.

A wage freeze is a last resort. However, I believe that it should be included in the Government's range of options. It is infinitely preferable for the Government to have a wage freeze in their contingency planning than to be panicked or pushed off course from their basic monetary, taxation and fiscal policies. The danger is that the Government may be encouraged to make a U-turn. I do not believe that it is a U-turn to continue their present policies but to bear in mind the possibility of a wages freeze if wages get out of control.

Mr. David Ennals (Norwich, North)

I was fascinated to hear the hon. Member for Worcestershire, South (Mr. Spicer) involving himself in the argument in the Conservative Party about whether a wage freeze was right. I do not know how much support he has, but I believe that he is following the wrong line. The hon. Gentleman is saying that he disagrees with the Government's policy. I hope that the Government are listening not only to this debate but to the debate throughout the country. They have so far shown an extraordinary arrogance. They say that monetarism is the solution to our problems and that given time they will get it right, but all the signs are that they are getting everything wrong. I do not know whether wage claims are out of control, but inflation is.

I saw a marvellous announcement yesterday that war pensioners will be lucky enough to receive a 16½ per cent. increase in November. I declare an interest. I am a war pensioner, and I do not believe one war pensioner will consider that marvellous. No one, surely, can believe that inflation will be only 16½ per cent. in November. Perhaps the Minister will tell us whether he believes that it will be. Inflation is rising, unemployment is mounting, production is declining and trade is worsening.

The hon. Member for Bath (Mr. Patten) believes that monetarism is not enough. He gave some support to a pay policy. I do not believe that a Government can plan the economy without considering an incomes policy—and I do not mean only a pay policy, but an incomes policy. I was glad that my right hon. Friend the Leader of the Opposition, at Wembley on Saturday, reiterated that a Government should have, to some degree, an incomes policy. It would not have been possible for the Labour Government to reduce inflation from 28 per cent. to 7.7 per cent. without an incomes policy and an agreement worked out with the trade union movement and accepted by the country, and with the support of the Liberal Party. It was too optimistic, however, to attempt a 5 per cent. incomes policy in the fourth year of a Labour Government. It did us much damage.

The hon. Member for Bath was wrong to attack the Clegg Commission. I do not agree with all its conclusions, but part of an incomes policy must include a study of comparabilities. When somebody quoted Mr. Aubrey Jones I said " Hear, hear ", because one cannot manage without some body to look at comparabilities. It will not be in this debate—it may not be for six months or a year—but, as night follows day, at some stage the Government will be forced into a U-turn to prevent the economy from going to rack and ruin.

I am sorry that the right hon. Member for Worthing (Mr. Higgins) and the hon. Member for Watford (Mr. Garel-Jones) are no longer present. I hope that the Chancellor will use his powers under this clause to increase the revenue from cigarette sales. The object is clear. Smoking is the greatest single cause of unnecessary early death. Its effects on lung cancer, bronchitis, emphysema and heart disease have been mentioned many times. It is a lethal addictive habit. Men and women must be free to decide whether to take their lives in their hands by smoking, but there is no reason why the Chancellor should take so little notice of these health considerations when setting the level of excise duty.

In an Adjournment debate on 16 May the hon. Member for Watford showed how the cost of cigarettes had not kept pace with inflation. He pointed out that in 1945 a packet of 20 cigarettes cost 1.7 per cent. of gross average weekly earnings. In 1979 the percentage had fallen to 0.7. To maintain the same proportion an average packet of 20 would now have to cost £1 .60. I hasten to say that I am not suggesting that the Chancellor should use his powers to add another £1 to the cost of a packet of cigarettes—that would be going too far—but I wish that he had put up the price by 10p or 15p, instead of just 5p. He would then have had the resources significantly to increase child benefit and he need not have behaved so miserably over prescription charges, and he would have acted on health grounds.

The level of prices is a significant deterrent against smoking. The price should be raised to a reasonable figure and then index-linked, so that the Chancellor does not have to take a new decision every year. In this spirit, urging the Chancellor to use these powers—which the Minister of State said on 15 May would have only a modest effect on the RPI—I point out that even a small increase in the cost of cigarettes could have a significant effect on the nation's health.

Mr. Frank Hooley (Sheffield, Heeley)

It says something for our proceedings that what is supposed to be a Committee of the whole House consists of only a handful of hon. Members, the majority of whom are members of the Finance Bill Standing Committee anyway.

I have always believed that one of our most important reforms was to send the Finance Bill to a Standing Committee. I am sorry that we have not gone the whole hog again this year, although in purely party political terms it is a pleasant exercise to spend three or four days of Government time on the Floor of the House, thereby pre-empting other business. However, the statements made today show that there is plenty of useful business that the House could be debating instead of this fairly confined discussion among those who are already concerned with the Finance Bill.

I am concerned about the arcane, esoteric and unintelligible way in which we draft our financial legislation. I had the vague impression that it was intended to abolish the regulator. I now understand—although I am still not sure that I have it right—that we are making it permanent, with no need for adjusting legislation in future.

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

Mr. Hooley

I see the Chief Secretary, who knows more about the matter than I do, nodding.

We have come to a pretty pass when it is impossible for a layman, on a normal reading, to understand an important clause in the Finance Bill. I did at first get it wrong. I understand now that we are building into our system, on a more or less permanent basis, an instrument of financial control which has existed on an ad hoc basis for some years. To that extent, I suppose that we should welcome clause 10. However, as has been said, this occasion is a device for a further debate on the general conduct of the Government's control, or lack of control, of the economy. I want to address myself to that theme rather than to pursue the content of clause 10.

One of my hon. Friends said earlier that there has been a tendency in recent years to pick on some issue as the panacea for our economic problems. Devaluation and other methods have been regarded as of cardinal importance in their day. At the moment, the fad is money supply. The top priority—certainly not a panacea or a solution, but something requiring the highest priority—is investment in manufacturing industry. In considering the technique of control, or lack of control, as the Government now have it, industrial investment should take a high priority.

Even a cursory examination shows that the startling and striking difference between the economies of the United Kingdom, West Germany, France, Japan and, to some extent, the United States, is the percentage of industrial wealth that each devotes to such investment. I do not have the figures at my fingertips. I quoted some in the Budget debate, so I need not rehearse them now. but I am sure that the Chief Secretary will acknowledge that one of the most serious differences between our economy and those of our most successful industrial competitiors is the amount that we are prepared to devote to investment in modernising and maintaining the efficiency of our industries.

It is therefore deplorable that the Secretary of State for Industry should still be dithering over a footling and modest amount of investment in the high technology area of microprocessors—largely for the ideological reason that the investment proposed is public rather than private. It is extraordinary that he should regard private investment by foreign interests as highly desirable and to be greatly encouraged, while investment by the British taxpayer in British industry—a public stake in advanced technology—is something over which he has to agonise and deliberate, and on which he finds it impossible to make up his mind. While he is dithering over a miserable £25 million the Japanese are investing £500 million, and the French, the Germans and the Americans are investing comparable sums.

Until we really get to grips with the issue of a sustained and high level of industrial investment, all the gimmickry of monetarism and the problems of interest rates and the rest will do nothing to solve our basic problems as an industrial nation. I do not wish to go into the question of which industries we could properly invest in—I have outlined some of them before—but unless successive British Governments grapple seriously with this problem we shall not make any progress towards achieving a fundamentally powerful and stable economy.

Apart from investment, the highest economic priority is full employment. The two go hand in hand. It is a mistake to argue that investment in advanced technology is the enemy of full employment. If we look round the world we see that the countries with the greatest investment in advanced technology have, comparatively, the lowest levels of unemployment. It is precisely in those countries where investment in such technology is nonexistent, or low, that unemployment levels are highest.

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There is no fundamental incompatability between high investment and full employment. On the contrary, unless our industries are maintained and modernised they will not be able to compete in world markets, and employment will diminish accordingly. We must look also at the instruments for the achievement of the twin objectives of high investment and full employment. They range over matters that have already been touched upon in the debate and concern incomes policy, interest rates, taxation, the exchange rate, imports and public expenditure.

I do not intend to examine all those issues, but I wish to say a word or two about some of the issues that relate directly to the problem of industrial investment. Clearly, high interest rates are inimical to investment. If companies have to borrow at 15, 18 or 20 per cent. and do not see a rate of return on their capital greater than 3 or 4 per cent. they will borrow the minimum and invest in new plant and machinery at the lowest level.

In this context there is a fundamental difference of interest between the City and the financial institutions, and manufacturing industry. The former are concerned with the use of money and the manipulation of funds, and one of their major objectives is the highest possible rate of return on funds deployed. Manufacturing industry is not concerned with the manipulation of money. It is concerned with the creation of real goods and wealth that can be sold and used in the real world.

Manufacturing industry does not want interest rates as high as 18 or 20 per cent. It wants interest rates at 3, 4 or 5 per cent. so that our factories can be equipped with the new machinery which can generate the real wealth which the country needs. High interest rates are one of the biggest enemies of manufacturing industry.

One of the curiosities of the Government's conduct is that they continually boast that they have cut taxation. I believe that that is untrue. The Government have certainly changed the balance of taxation in their efforts to move away from higher direct taxation to higher indirect taxation. They have deliberately imposed heavier loads on poorer people so that the rich might benefit, but they have not cut taxation overall. I should be interested to see accurate figures for the Government's claim. I see no reason for cutting taxation, provided that the revenue that accrues from taxation is deployed in a sensible fashion. Part of that deployment should be—consonant with my earlier argument—in the strengthening and the modernisation of our industry.

Ideologically the Government will not pursue that policy because they wish to restrict the expansion and the power of the public corporations. They do not believe in the exercise of power through the National Enterprise Board. Nevertheless, we shall not solve our economic problems and expand our economy unless the instruments of taxation and the public corporations are used to modernise British industry.

The public corporations are important in this respect. The expansion of the work of the Post Office, the railways, the National Coal Board, the electricity and gas industries, transport and the vast range of public corporation activity, would be a dynamo. It would be a generator of new orders and new activity in the private sector. We do not have to sit back and wait for the private sector to invest. If we use the public corporations correctly and expand their activities by offering them the opportunity to instal more up-to-date equipment, that will generate orders for the private sector, which will contribute to a higher rate of investment and to the further modernisation of our equipment.

That issue, however, impinges on the argument about public expenditure. The Government have an ideological fixation about public expenditure. They say that public expenditure is bad and must be cut. We have witnessed the extraordinary spectacle of the Secretary of State for Industry saying that it is desirable that foreign financial interests should invest in high technology in this country. No doubt those foreign investors will take their profits and shut down factories when it suits them, but that is regarded as fine and splendid because it is the investment of private money.

On that basis foreign money can be invested in this country and investors can exploit any subsidies that happen to be going. The Tories believe that that is all right. But when it is suggested that our own money should be invested in those same areas of technology to build up assets for our own people in our own country and under our control, that is regarded as bad because it involves public expenditure. That is a totally absurd and illogical argument. Until we get over that kind of mentality—which we shall not do as long as the present Secretary of State for Industry occupies that post—we shall make no progress in solving our financial problems.

Several hon. Members have touched on the issue of an incomes policy. The hon. Member for Worcestershire, South (Mr. Spicer) devoted much time to the question, as did several Conservative Members. Those hon. Members constantly say that incomes policies always fail and result in wage explosions. They say that incomes policies do not achieve this or that. I think that they should ask themselves why it is that the issue of an incomes policy continually returns to the arena of political argument.

The answer is, of course, that even a Government such as this one cannot run away from the fact that we shall not remotely be able to pretend to guide—much less to plan or control—the economy by paying no attention to incomes policy. The first tentative steps in that direction were taken by Mr. Selwyn Lloyd in the early 1960s.

Mr. Bruce-Gardyne

What about the emperor Diocletian?

Mr. Hooley

The hon. Member obviously has a greater knowledge of history than I do. I have no doubt that Diocletian was well informed on these matters. We can debate at another time whether Diocletian was right. He had powers which the Government would like, but are unlikely to get.

There is no way in which a modern economy can be run without some explicit or implicit incomes policy. Even collective bargaining is a type of incomes policy. It is an incomes policy by neglect or by default. If the country's economy is to be run on a sensible footing the Government must determine for themselves what type of incomes policy they desire and how they will achieve it. Those who deride incomes policies might reflect that after three years of a policy agreed between the Labour Government and the TUC inflation fell below 8 per cent. We are not even contemplating inflation falling below 15 per cent. within the next year or two.

The Government said that the conquest of inflation was their greatest objective. They promised the country that inflation would be defeated. They might reflect that after three years of an agreed incomes policy inflation was reduced. It is now running at between 21 per cent. and 22 per cent., and the prospect is that it will rise even higher.

My attachment to incomes policy is based on a Socialist desire for greater social justice and fairness. That cannot be achieved between the different groups with different economic power—nurses and miners, or agriculture workers and engineers—by a free play of the market which we dignify with the title of " free collective bargaining ".

The political and economic difficulties of agreeing an incomes policy between the Government, the trade union movement and the industrialists are enormous, but that does not mean that they cannot be tackled successfully. They were tackled successfully for three years by a Government who did not even have a majority. As a result inflation came down to a level that is not even contemplated by the present Government. We shall not approach a solution to our economic problems without a clear incomes policy based on an agreement between the Government, the trade union movement and the CBI.

I turn to the question of import control, or import planning. We already have substantial import control in the form of the common agriculture policy. No country in the world indulges in absolute free trade in agriculture. The idea of international import planning is not new. The multi-fibre arrangement, whatever its shortcomings—and they are many—represented an attempt by many countries to plan international trade in textiles between the major exporting and importing countries. The principle of international import planning is not new. It is not impractical. It exists, and it will continue.

7.15 pm

General import controls are a little dubious economically, but politically they are unavoidable. I do not see the trade unions and industries sitting back while industry after industry is destroyed by imports, not from the Third world, but from major industrial competitors such as Japan, Italy, France, Germany and America. Politically it is not on for industries to disappear, as the motor cycle industry disappeared. Nor is it possible for damage to be done to the television and other industries without the Government, whatever their ideology, taking steps to protect them or to provide alternative sources of employment and income for the workers who are displaced.

The top economic priority must be the encouragement of a high and sustained level of industrial investment. Without that we have no future as a manufacturing nation.

Mr. Campbell-Savours

The debate has been interesting. Some remarkably interesting contributions have been made by Conservative Members. When the hon. Member for Bath (Mr. Patten) rose—[HON. MEMBERS: " A wet."]—it was interesting to note that his colleagues were quick to dry him off, because clearly he was departing from the orthodox view of his Front Bench colleagues. The hon. Member for Worcestershire, South (Mr. Spicer) made an interesting speech. Many of us were more than fascinated when we considered the pledges made by the Conservative Party during the general election campaign. It was made clear then that a Conservative Government would never interfere on wages. If the hon. Member's Government were to recommend a form of incomes policy even hon. Members who support such a policy would oppose it because the Government were not elected on that basis. Some of us believe that incomes policy is crucial but that it should not be introduced by a Government elected on a manifesto that was totally opposed to it.

The debate has widened into a general economic discussion. It would be wrong not to take the opportunity to put the debate into a regional context. I rise regularly with a particular grouse from West Cumberland and the Northern region. This is one of the few debates in which one can stress the important and damaging effects that Government policies are having on that region.

I do not want to labour the question of the 1½ million unemployed, the deterioration in the balance of payments, and collapsing investment. Increasing short-time working is rarely commented on in the Chamber. However, it is a measure of the growing crisis in British industry. I went to the Library to dig out the figures for short-time working. In the last few weeks the Department of Employment has tried to change the criteria on which the short-time working compensation scheme statistics are submitted in official releases. That draws attention away from the special problems in certain parts of the country.

There has been a 17 per cent. increase in unemployment in the Northern region since the general election last year. There are now 132,293 people out of work, and 22,000 redundancies have occurred. That is a shocking increase. It is an indictment of the Government's economic strategy. Double-figure unemployment now exists in seven travel-to-work areas in the Northern region, including Hartlepool. Wearside, North-West Durham, South Tyneside, South-East Durham and Teesside. These are crucial indications of the failure of the Government's economic policy and their failure to stand up to their responsibilities to the British people.

The region has a ratio of unemployment to vacancies of 17:1—two-and-a-half times the national average—which indicates that Government policies, although devised to effect balance in the population do not achieve that aim. The emphasis and bias in Government policies prevails on the regions of traditional unemployment. We feel the cool breeze of the lack of success of Government policy. One statistic of great importance relates to youth unemployment. In April 1979, before the general election, the figure for youth unemployment was 5,606. By April 1980, it had risen to 9,883—an almost 100 per cent. increase, directly attributable to the failure of Government policy over the last 12 months.

I studied the length of time that people spend unemployed before they are able to find suitable alternative employment. Out of the 39,000 people on the unemployment register, over 24,000 are out of work for 13 weeks or over before they are able to find alternative employment. The response of the Government has been appalling. They cut public expenditure in the region, thereby aggravating unemployment. They cut expenditure on regional support, and future forecasts show that by 1984 the level of regional aid will go down from the current £3,203 million to £1,760 million. That will affect the incentives available for companies to come to the Northern region. The output objective has been reduced. A forecast 4 per cent. reduction in output will affect the Northern region. Like all the indices stemming from the Government's economic policy, they are indices of failure.

The refusal to take action on the value of sterling is seriously affecting the ability of companies in the Northern region to export to world markets. The refusal to intervene on interest rates affects smaller companies. The managing director of Miller's of Cockermouth—a company of major importance in West Cumbria employing 750 people in footwear production—referring to interest rates and the large bank profits stemming from those interest rates, wrote to me: I feel most strongly that as a trading nation trying to sell and improve our performance abroad, we should have facilities comparable to our competitors. I could suggest that a portion of the high bank profits currently being made by all British banks, due, as we all know to high interest rates, should be reduced by a lower loan rate for export finance. The same managing director, writing to the CBI, trying to enlist its support for intervention on bank profits to ensure lower interest rates for companies in the region, said: We are a medium-sized footwear manufacturing company and have recently secured contracts to Scandinavia and Russia totalling over £2 million in spite of pretty stiff competition from many sources already. There is no doubt from everything that I have been told that a key to our competitors' success in their export efforts is that they are able to borrow money at very low interest rates, either from their Governments or from their banks, with repayment terms that I am given to understand sometimes can stretch into years. What is our position in Britain? In other words, he was asking what is the Government's strategy to help his company. He added: We have to borrow money from our banks at very high interest rates or to encash our deposits to meet the financing. It also seems iniquitous that if one were borrowing to finance capital goods, a lower rate applies payable over a two-year period. I could also take the view that capital goods and machine tools might have more of a military value than the rather mundane goods we call footwear but the manufacturer of this footwear, being a high labour intensified business, does provide employment for many hundreds of people. That means many hundreds of people in my constituency. We regard low interest rates as crucial if we are to maintain even the current levels of employment in the Workington constituency and in other parts of the Northern region. In the absence of Government action on interest rates, all we can foresee is more closures of factories and more people thrown on to the dole. As this is more a Treasury debate than an industry debate, following the contributions made by my hon. Friends and myself, and also that of my hon. Friend the Member for Clackmannan and East Stirlingshire (Mr. O'Neill), who hopes to raise constituency points of a similar nature, Treasury Ministers—who do not often hear these important arguments—will perhaps accept that these problems exist and that action is needed.

Whereas some companies find it difficult to cope, other companies do cope. But some cannot cope. In the last two weeks there has been announced in my constituency and also in the constituency of my hon. Friend the Member for Carlisle (Mr. Lewis), the closure of Courtaulds, with the loss of 670 jobs. I wonder how many people in the Treasury recognise the problems of Courtaulds and understand that there is an obligation on them to ensure that Government economic policy prevents these closures taking place. We simply cannot attract the industry to replace the jobs and job opportunities that are being displaced.

I contacted Courtaulds soon after the closure was announced. The officers of the company said that the closure of the plant in Workington, with the loss of 350 jobs, had nothing to do with the work force. The company was happy with the efficiency of the work force, the labour relations, the production and the quality of the goods. But it also listed items about which it was unhappy. The company was not satisfied with the level of inflation. It was hard to price and to market products in conditions where imports, at every twist and turn, were allowed to intervene and take domestic markets. The company was not happy with the high levels of interest, especially where falling profitability meant that high interest rates were a major factor in viability, especially in the regions.

I should like to quote the statement made by Courtaulds, for there are perhaps those in the Treasury who have never seen a closure notice—the kind of notice that is distributed to workers in constituencies in the regions. The notice, headed " Samuel Courtauld & Co. Ltd " received by my consituents a week ago, said: Both Carlisle and Lillyhall (Workington) factories reduced output to 60 per cent. capacity in August 1979 and a further cut-back to 40 per cent. capacity has been necessary since January 1980. This has resulted in substantial financial losses amounting to £1.2 million for the two factories over the last financial year. It should be remembered that this has nothing to do with the workers. It has to do with the national economic situation. The notice went on: Trading conditions in textiles have become very much more difficult during the last twelve months with increased imports and interest rates rising. At the same time, the strength of the £ sterling has made exporting much less rewarding. The spun apparel area in which these mills have largely operated has been particularly badly affected. Having reviewed the position most carefully the Company is reluctantly forced to the conclusion that temporary measures to cut back production are no longer appropriate and that there is no alternative but to propose the closure of both the Carlisle and Lillyhall factories. 7.30 pm

The special Labour Party conference held in London last Saturday was concerned with such problems. I apologise for not having been there owing to a considerable number of constituency engagements, including one with Courtauld workers. People from the regions were going to the rostrum to spell out the problems of unemployment and redundancy that exist throughout the United Kingdom. At such meetings pieces of paper such as that which I have just quoted are handed out every day. Every day in the Northern region companies close. The responsibility lies with the Treasury to take action to resolve these problems and to introduce policies that do not lead to such closures.

It is unfair for Conservative Members to talk about the Government's long-term objective being to create conditions of greater liquidity in which the people have more money in their pockets but which, for some reason that I cannot understand, they will not spend on imports and in which more jobs will be created at home. That just will not work. My constituents cannot wait that long. They have problems now of extended unemployment.

That is the position of Courtaulds, and that company is blaming the Government. It is interesting to note what happened when I put the point to its chairman at its offices in London last week. I suggested that he should come with us politicians of West Cumbria to the Department of Trade to plead the case collectively—politicians and the people who own industry combined—for Government controls to protect industries in this position. The response was " No ". The company did not want that link with politicians.

That sort of gutless response has created contempt among the work forces in my constituency and in the constituency of my hon. Friend the Member for Carlisle. We now find that the workers in those industries are saying that if Courtaulds will not enter those kind of talks with the Government, perhaps there should be some form of financial investigation of the company to try to establish what is going on within it.

Why will not these companies stand up to the Prime Minister or challenge the Government and demand that action be taken? It was put beautifully today in an article in The Guardian, by Frances Morell, who is modestly described as: on the executive of the Labour Co-ordinating Committee. Under the heading: The barons Labour must take on she wrote The reconstruction and expansion of the economy that is needed to satisfy the wishes of working people can only be carried out with the protection of exchange controls, import planning and the stimulus of public investment. The exercise of these legitimate Government powers is contrary to the interests of multinational banking and trading. Perhaps that was the case for Courtaulds. Perhaps that is why it is not willing to confront the Government. Perhaps it has a greater financial, business, industrial and multinational interest, which is impeding it from defending its industry at home and the jobs of its workers.

It was heart-warming this morning to see the headline on the front page of The Guardian Pressure builds for Thatcher U-turn ". That is what we all want, because we know that without that U-turn there will be between 2.5 million and 3 million people out of work. If we get the U-turn some sanity will be returned to the Government's economic strategy and policy. It is only in those conditions that Labour Members will be able to return to their constituencies in the comfortable knowledge that Parliament is acting as it should and representing the better interests of the people.

Mr. O'Neill

I should like to develop the theme initiated by my hon. Friend the Member for Workington (Mr. Campbell-Savours). For a Scotsman to speak about the Scottish economy in an economic debate is a long-established tradition, but I do not want to do that today.

I wish to concentrate on my constituency, which in some respects has hitherto been atypical of Scotland. It has enjoyed relatively high levels of employment and highly productive industry, using some of the most advanced technologies. These are industries that have enjoyed long and happy periods of industrial relations free of major strikes. However, in the last five months the central Scotland area, part of which I am fortunate to represent, has been subject to a succession of body blows. In most instances the body blows flow directly from the economic policies we have been discussing today. If I instance several of them, it will indicate the disquiet that exists on the Labour Benches about the general thrust of the Government's economic policy as it affects the entire country.

At the end of December a firm called Glynwed, which has plants at Falkirk and Lambert in my constituency, announced the closure of its Falkirk plant at which many of my constituents are employed. It was to cause some 400 redundancies. Glynwed produces the Aga cooker, which is enjoyed by those who can afford them and by those institutions which require them for large-scale cooking. Glynwed is a multinational firm which takes advantage of the local skills in central Scotland of the foundry industry and which has over the years produced cookers that last.

In the negotiations in which the trade union officials and I and my hon. Friends from the adjoining constituencies participated, we were told that the main reason for the closure of the factory was a fall in demand for the company's products. Demand had fallen because of cutbacks in public expenditure. Local authorities could not afford to buy or replace cookers. There had been an overall fall in demand for cookers for institutions. To that could probably be added a fall in demand resulting from a lower demand for school dinners after the increase in the price of those meals through the constraints placed on the education service by public expenditure cuts. In parallel to that the company was embarking upon a £2 million investment programme in South Africa. I do not wish to make an anti-apartheid speech this evening. With the absence of exchange controls and with other impediments removed, it is easy for firms to invest abroad rather than at home.

There have been only one or two sittings of the Standing Committee examining the Bill, but in them I have referred to the interface between the drink industry and my constituency. One of the major employers in my constituency is United Glass, which is a subsidiary of the DCL group, and which produces bottles for the whisky industry. There is a world recession, and, although I do not blame the Government for it, they are doing more than their share to sustain it.

As a result of that recession, the whisky industry is suffering from considerable difficulties. The whisky bottles are not being filled and emptied as fast as they were. That is primarily because people do not have as much money as they did but also because the suppliers of the bottles and the people who fill them do not want large stocks lying around when inflation is running at 20 per cent. and when the money that has to be borrowed to fund those stocks is subject to an interest rate of 17 or 18 per cent. As a result of the higher rate of inflation, both the supplier and the producer have had to run down their stocks, and as a consequence, 200 jobs have been lost because one of the furnaces has had to be closed down. That furnace is the most modern of its kind in Europe. It was opened some years ago by a Minister in the previous Government, and it was paraded as one of the great success stories of Scottish industry. It has now been put into mothballs, and there is no likelihood of the furnace being put into operation again.

I could go through the whole of my constituency and talk about such matters. My hon. Friend the Member for Workington spoke about the Labour Party conference at Wembley. I spent some time at the conference talking about redundancies to the convener of shop stewards at one of the heavy engineering works in my constituency. That engineering firm is part of the Weir Group, which produces pumps for desalination units. It is dependent upon exports, and it has a world-wide reputation. Because of the high level of the pound and the high rate of inflation, the firm is finding it difficult to sell goods abroad. It has a highly developed department which can sell the franchise—so to speak—for the production of units abroad, and that is what it will do. It was only three weeks ago that the firm opened up a new foundry in the Alloa complex which was regarded as a guarantee. But within four or five weeks the job security of many of the workers has been put in jeopardy. It would be irresponsible to talk in terms of numbers of people who will be thrown on to the streets, but an area of tremendous optimism five weeks ago has now been cast into considerable gloom.

Not every industry in my constituency is in a state of gloom. There are one or two industries in which things are brighter. One example is a woollen mill in which jobs have been secured—but they have been secured at the expense of jobs in Darlington, Greenock and in one of the villages close by. The local newspaper emblazoned the headline " 400 extra jobs", but, then it was discovered that those jobs were at the expense of about 700 jobs in other parts of the country, and the possible loss of another 150 jobs close to the mill in which the extra jobs had been secured. In this instance, my area is benefiting, but at the expense of other areas.

Unless there is a change in Government policy the woollen industry will go even further into the pit, regardless of the rationalisation processes. Unless a more effective multi-fibre agreement is reached, and unless there is more stringent policing of the import of French wool into this country, there will be even more imports of cheap woollen goods, and further disincentives to the home knitting industry, which I should have thought Conservative Members, with their Samuel Smiles approach to industry, would wish to promote. Some jobs in breweries in my constituency have been saved, but only as a result of the closure of a brewery in Edinburgh.

7.45 pm

I have mentioned some of the traditional industries in my constituency which were considered by the Department of Industry to be in such a healthy state as to warrant the removal of development area status. I do not propose this evening to argue the case for the restoration of that status, but I wish to make clear that, if the Government thought a year ago that everything was going smoothly in this part of Scotland, they should now see—a year later—that their objective of reducing inflation at the expense of unemployment has been singularly unsuccessful. Inflation and unemployment have continued to rise. The high level of interest rates has frustrated business men, and the high level of the pound has prevented some of the high-earning export industries from expanding in the way that they had planned a few weeks ago.

One office in my constituency probably sums up the Government's failure. Instead of opening five days a week, the unemployment benefit office in Alloa will now only open two days a week. I attended a meeting last Friday at which it was stated that the present volume of business does not warrant the office being open more than two days a week.

In my estimation—the view is shared by my local government colleagues—the trouble, expense, and other problems experienced by people travelling from Alloa to Stirling far outweighs any savings. The local authority argues that it has to pay people to travel from Alloa to Stirling because there is a social security office in the town. But that office has nothing to do with the payment of benefits. The fact that the local authority had to help to fund that office meant that the effect of the Government expenditure cuts was transferred from the Department of Social Security to the local authority. That is perhaps the apotheosis of the failure of the Government. In one short-sighted week, they closed one of the few agencies that provided assistance to people who had suffered as a result of their policies, and the expense has to be borne by another arm of local government which is also being assaulted by the same economic policies.

We have heard speeches today on the desirability of wage restraint. The hon. Member for Worcestershire, South (Mr. Spicer) suggested that there should be a pay freeze. I am not aware of a high industrial concentration in his part of the country. Not very much money is made there from the production of goods. Hon. Members who represent areas where traditionally—and, we hope, in the future—the wealth of the country will be produced see nothing but gloom and despondency as a result of the Government's policies.

We see nothing in the way of encouragement in this Finance Bill, and we have heard nothing so far this evening from any Conservative Member which will create the sort of climate of co-operation and optimism that is necessary if we are to have the trust of people, and if we are to take them along the right road, which, admittedly, may require some degree of income restraint. The Government's cavalier attitude towards the trade unions and towards many of the social benefits which we consider necessary and desirable has soured the climate. If the " wets " are seeking to change the mind of their Government, it is not enough simply to argue for some kind of incomes policy for nurses and teachers, or a wage freeze for everyone for six months. We need a change of will, and a change of heart from the Government, and so far tonight I have seen precious little chance of that.

Mr. Tam Dalyell (West Lothian)

I endorse many of the comments made by my hon. Friend and parliamentary colleague the Member for Clackmannan and East Stirlingshire (Mr. O'Neill) about the whisky industry and others in our area.

Tonight I should like to engage the Chief Secretary's attention once again on the issue that I raised in the Budget debate, and tangentially upstairs, and we shall doubtless return to it—the so-called black economy. I do not know what appears in the Oswestry local papers, but in the West Lothian local papers more and more one sees advertisements for painting, plumbing and repairs of all kinds with just a telephone number—no address, and no indication where the base of the work is. By the smile on the Chief Secretary's face, I know that it has already occurred to him that this is for the one basic purpose of tax avoidance.

If I may be forgiven a short and cautionary tale, I have a friend who is an inspector of taxes in Scotland. His wife wanted a painting job done. She saw in the local paper a telephone number that seemed handy. Unwittingly, she rang that number and along came the painter and his mate. They were very good. They set about the task with considerable skill. When she gave them a cup of tea, the painter, by way of casual conversation, asked "What does your husband do?" She said " Oh, he is one of Her Majesty's inspectors of taxes ". History does not relate whether the tea was finished. However, what is certain is that my friend's wife went back into the house and when she came out again she discovered that both painter and mate had taken to their heels. The paint, paintbrushes and all the tools had vanished, and although the job was nearly three-quarters done, strange to relate no bill has been forthcoming to the present day.

I put it in those terms, but I then turn to the evidence of Sir William Pile before the Expenditure Committee. I can put it in frivolous terms, but in case anyone thinks that this is a one-off story, let me assure him that it is far from being that.

My hon. Friend the Member for Nottingham, West (Mr. English), the Chairman of the Committee, on 26 March 1979 put this question to Sir William Pile as chairman of the Revenue: There is said to be a ' black economy ' if you like. Do you think it is sufficiently large to be of administrative importance? Sir William replied: I think it is a matter of very considerable importance. That is the chairman of the Revenue. The Chief Secretary nods.

Sir William continued: It is very difficult to measure it. I have seen a figure given. In terms of the income undeclared for tax purposes it was said to amount to the equivalent of 15 per cent. of the GDP. We are talking about an enormous sum. It is impossible, I think, by definition, to confirm or to measure it, but what I did do was to ask what would have to happen for that to be a plausible outcome? What would people have to do, how would people have to behave, if 15 per cent. of the GDP was to be masked from the eyes of the Inland Revenue and, therefore, not taxed? The main area where this would happen would be in the area of moonlighting—second incomes that are simply not declared. It would have to mean that something like one employed person in four would have to be earning £1,000 a year which never came before the Revenue. One asked oneself, if that is what would have to happen for that particular situation to be validated, is it plausible? The conclusion that my colleagues and I came to was that at that level it sounded a bit implausible, but we thought that it was not so implausible at 7½ per cent. of the GDP; in other words, if you said that one in eight might be having an undeclared income of £1,000, or one in four £500. Nobody can measure it, it is an act of judgment, but it did seem to us that at that level, there or thereabouts—at least I got a majority of my fairly experienced senior colleagues to say—we could not say that was implausible from our knowledge. These are his senior colleagues in the Inland Revenue. Sir William continued: If that is so, then the black economy is a very worrying element in the totality of economic activity, quite apart from the loss of revenue. That was 1979. On talking to tax people, the impression I gain is that they are aware that this trend is becoming more, not less, serious. If firms know very well that their competitors and other firms in the business are getting away with it, there is considerable pressure for them to do the same. Indeed, there are more and more complaints from people who complete their tax returns properly that they are suffering unfair competition from individuals or groups who are evading the tax net. Therefore, the whole question of equity is serious.

I find it perplexing that the Government have hitherto seemed unprepared to debate in the open the implications of the two official estimates that we have had. Sir William Pile's estimate was the greater. His estimate was that it probably amounted to 7½ per cent. of GDP, which currently would put it at about £14,000 million. On the other hand, the Central Statistical Office put it at about half that figure, but one has to recall that it heavily qualified its estimate by saying that it was by no manner of means confident that people had been any more thorough in filling up their returns than they were with their income tax returns.

Whichever figure one chooses, it is extremely large. Even if one discounts a good deal of it in terms of tax liability—that is, that a proportion will be earned by people who will not be liable to tax—the loss of revenue to the Exchequer must be significant. The Inland Revenue Staff Federation puts the loss to the Exchequer as between £1,000 million and £3,000 million—" somewhere ", as Mr. Tony Christopher says " in that span ".

Mr. Campbell-Savours

Is my hon. Friend aware that it has been suggested by a number of economic commentators in the Italian press that the take in Italy is as much as 40 per cent. down on what it should be? If in a number of European Community countries there is a deficiency in the VAT take, it will have an unfair effect on the level of contributions paid by domestic Governments to the European budget. Therefore, there are much wider international implications in this matter.

Mr. Dalyell

I do not doubt that my hon. Friend is right. I do not want to be led astray, but in a previous incarnation, in the indirectly elected European Assembly, I was a member of the budget sub-committee, which was concerned with fraud. I vividly remember going to Rome to try to talk to the Italian auditors concerned with matters such as Como butter. I am not pretending that we got very far, but I do not doubt that the Italian situation has got completely out of control. Therefore, I give my hon. Friend the Member for Workington (Mr. Campbell-Savours) his point.

The Government's answer seems to be that all this will go away if taxes are officially reduced. Not only is there much less scope over the next few years to reduce taxes by much, but the United Kingdom's rates are certainly not disproportionate to those elsewhere. In fact, they are much lower. It is possible that our ratio of tax revenue to GDP is lower than the average in Europe—and that was before the Chancellor's first Budget.

Against that, the Government intend to deploy 1,050 extra staff in the Department of Health and Social Security to try to tackle fraud in that area—something to which I objected strongly in the debate on the Budget. Even though detected fraud to date is about £4 million, it represents no more than 0.02 per cent. of benefits paid out. Only about 0.25 per cent. of the 25 million social security claims are thought to be fraudulent. Those are the Government's figures. Why concentrate on the minnows of social security fraud?

8 pm

It is something near to a fact that only about 0.3 per cent. of incorporated businesses are examined in depth by the Inland Revenue. There are 543,000 businesses in Britain, expanding at the rate of about 20,000 a year—not allowing for closures and bankruptcies. For unincorporated businesses, the in-depth examination rate is about 2.7 per cent. Across the board, investigation and checking of compliance is so seriously neglected that it often borders on he scandalous.

In the opinion of some, the British public either do not understand, or do not wish to know, the extent to which a relative minority are cheating, and therefore being subsidised by others. Anyone who says " We must live with the black economy because many people use it " should realise that those who use it are cheating their fellow citizens. One cannot mince words on that matter. Does the Chief Secretary accept the figures that I have quoted—be they the figures given by Sir William Pile, or the figures given by the CSO? The situation is grave. Even if we take the most favourable figures, no one can deny the gravity of the situation resulting from the black economy.

Some hon. Members are becoming more and more concerned about where the black economy operates. I refer to the taxation of those who operate in the North Sea, but not to the special problem of the divers. I have great sympathy with any Government's dealings with the divers, because the whole of the oil production depends on them. They are angry people, with a special problem. They are mad if they dive after they are 39 or 40 years of age. As one who has discussed those problems at the Loch Linnhe diving school at Fort William, I shall not be part of any criticism of this Government, or the Labour Government, for their attitude towards the divers.

There is another side to the story. I receive the impression that there are many working in the British sector of the North Sea who are not known to the Inland Revenue. In a previous incarnation, when I travelled frequently from the European Assembly to Scotland via Amsterdam, it was clear at Schipol and elsewhere that many who were going to work in the British sector of the North Sea were from Amsterdam or from German origins. Whether they were known to the British tax authorities was, to put it mildly, doubtful.

Having stated the North Sea porblem, I have a specific question to ask the Chief Secretary, on which he may wish to take advice. It is a complex matter, of which I have not given him notice. I refer to the Finance Act 1973, schedule 15 paragraph 5, which states: Paragraph 4 above does not apply to any assessment of tax under Schedule E. Paragraph 4 states: (1) Subject to the following provisions of this Schedule, where any tax is assessed by virtue of section 38 of this Act on a person not resident in the United Kingdom in respect of—

1. (a)profits or gains from activities auth orised or carried on in connection with activities authorised, by a licence granted under the Petroleum (Production) Act 1934, or
2. (b)profits or gains from, or chargeable gains accruing on the disposal of, exploration or exploitation rights connected with activities so authorised or carried on,

then, if the tax remains unpaid later than thirty days after it has become due and payable, the Board may serve a notice on the holder of the licence stating particulars of the assessment, the amount remaining unpaid and the date when it became payable, and requiring the holder of the licence to pay that amount together with any interest due thereon under section 86 of the Taxes Management Act 1970, within thirty days of the service of the notice. (2) Any amount which a person is required to pay by a notice under this paragraph may be recovered from him as if it were tax due and duly demanded from him; and he may recover any such amount paid by him from the person on whom the assessment was made. The guts of the matter is whether, if the Government agree that there is a problem of not collecting tax from nationals of a whole range of countries working in the British sector of the North Sea, there is an argument for taking out paragraph 5 of schedule 15. I do not presume to tell the Treasury lawyers how to do that, but, in the last resort, they could make the licence holders responsible for the payment of tax. Anyone who knows the oil men will know very well that as soon as they think the Revenue is on their tails they leave the North Sea and go to the Gulf of Mexico, Indonesia, Alaska or heaven knows where. There is precious little chance of collecting PAYE or any other tax once that has happened. If responsibility were placed firmly at the door of the licence holders—not in the first instance, but as a last resort—considerable extra tax could be collected.

I have to behave properly towards the Chief Secretary, because he has always been courteous to the Committee. I do not ask him to answer that question tonight, but to return to the matter at some later stage, when, doubtless, he will oblige the Committee with an answer.

Mr. Biffen

I have the rather melancholy task of recommending to the Committee the rejection of the amendment moved by the right hon. Member for Llanelli (Mr. Davies). It is melancholy, because the amendment was moved in a charming fashion and also because this clause has a history of almost 20 years, in which it has provided the House with an amiable occasion for a wide-ranging economic debate. Nothing could have ranged much wider than the issues covered this afternoon, ending with the contribution of the hon. Member for West Lothian (Mr. Dalyell).

I wish to say at once to the hon. Gentleman that I shall certainly consider his speech most carefully. I shall be in touch with him, with a properly judged reply on all the points that he raised—not only his last point which was direct, immediate and technical, although significant in its implication, but some of his earlier points, which deserve the greater consideration of the Committee.

I do not know whether the black economy can be properly measured by the answers given by Sir William Pile or by the article written for the CSO. By whatever measure, it is a matter not merely of some significance but one that many believe to be developing in its character. If it is true, it is not only in respect of what it does for tax yields, and what it implies for a change in tax structure to accommodate that position, but what it means for the whole statistical world within which we are imprisoned—for, indeed, we are imprisoned within what is very often a statistical world in which we try to tell ourselves how we are performing and how we compare with the greater world outside. Then we discover, years later, that the figures were all phoney anyway, and that this particular piece of self-flagellation was to some degree unnecessary. The hon. Member for West Lothian, not for the first time, has done the Committeee a service by bringing the issue before us.

Mr. Dalyell

The trouble, of course is that this is an extending situation, and it is extending because the more people realise what is happening the more they feel, rightly or wrongly, that they themselves are forced to participate in the act.

Mr. Biffen

I note what the hon. Gentleman has to say. If there is validity in this—I am not disputing it—I hope that it will be a compelling reason, for example, why the Select Committee on the Treasury and Civil Service should turn its energies in this direction. I can think of no more appropriate subject on which to engage the bipartisan activities of the House of Commons.

I turn to the clause as it stands and as it is formally engaged by the amendment. It is a slight eccentricity that we have to get this matter out of the way before we come to the more general knockabout, but, none the less, it is important to realise just what is involved.

The hon. Member for Sheffield, Heeley (Mr. Hooley) asked, quite properly " What are we losing? What are we giving up by accepting the clause? " I have to say that if the clause is passed this evening, as I shall recommend, the powers to make regulator orders will no longer require statutory annual renewal. We shall be deprived of this annual parliamentary outing. None the less, parliamentary powers will remain as and when regulator powers are actually used—that is to say, orders effectively to increase taxation will require affirmative resolution within 28 sitting days, and orders reducing taxation will be subject to negative rather than affirmative procedure.

The regulator powers affect alcohol, hydrocarbon oil and minor Excise duties, such as those on betting, bingo and matches, and the full potential of their regulator yield is £500 million. The Committee will be more conversant with the concept of the regulator being applied to value added tax and tobacco, which can yield, at their maximum, an annual figure of about £2,500 million.

What this clause does is to bring these lesser issues and more modest yields into line with existing practice for VAT and for tobacco products. As the legislative framework for VAT and for duty on tobacco products has been provided in one instance by a previous Conservative Government and in another instance by a previous Labour Government, I would hope that it is not thought to be too wildly innovating to bring about this broad common practice.

Mr. Robert Sheldon

As the Chief Secretary is giving his reasons for ending the regulator debate by providing that these matters do not need to be brought up in the Finance Bill each year, may I ask why he did not go further and do the same thing in regard to clause 26, which applies to the limit for relief on mortgage interest repayments, which, under the Bill, still needs to be brought up every year?

8.15 pm

Mr. Biffen

That is a proposition that I shall be happy to consider when we reach the subject.

I turn to the matter that has detained the Committee for the bulk of this afternoon—a general economic debate. We are already at a modest hour of the evening and I do not want to impinge too sharply on the income tax debate, but I hope that the Committee will bear with me for a while if I rehearse the broad thrust of Government economic policy since the election. It is based upon a belief that we require a broadly stabilised level of public spending over the lifetime of this Parliament, shaving off at the rate of 1 per cent. a year, and that that has to be paralleled by responsible levels of taxation, but levels that embrace a significant measure of tax reform.

It is hoped that the consequential borrowing requirement will fall and so provide the monetary preconditions for a fall in the rate of inflation. That will take its due course and will provide an interim period that is bound to have, as a consequence, a disagreeable impact on levels of output and levels of employment. That has never been gainsaid by any Conservative Member.

The hon. Member for Kettering (Mr. Homewood) made an engaging contribution to our debate. I say to him and to the Committee that we do not proceed upon this policy in any sense of arrogance and determination that we can see in every consequence what will be its impact. We travel with a sense of conviction. Above all, because we travel with a sense of conviction, we are determined to pursue this policy through a period. The hon. Member for Kettering said that he thought that after 12 months it was time that we realised that we were on the wrong course. I have to say that the story of economic policy in this country since the Second World War has been a policy of fits and starts by successive Governments who have abandoned policies when they encountered difficulties and who have aborted the things in which they believed because they were not prepared to see these matters through to a final conclusion.

Of course, so much about politics is " when " rather than " what ", and so much of the challenge for the present Government is " when " rather than " what ". In answer to the points raised by the hon. Member for Kettering, I say to the Committee that we are embarked upon a policy from which we do not intend to be deflected by the interim difficulties and problems that we know are bound to arise during the transitional period.

Mr. Homewood

What bothers me is the expression " We shall not be deterred ". In whose lifetime will the Government realise that they might be on the wrong track? Twelve months is a long time in present circumstances. If matters were tending in a certain direction, it would be a short time and I should be prepared to wait, but when matters are going in the wrong direction, I wonder how long I shall have to wait for them to come into the right direction.

Mr. Biffen

As the hon. Gentleman believes that we are going in the wrong direction, arguments about time do not seem particularly material. Anyone who was schooled in the belief that a week—or even a year—is a long time is not necessarily best equipped to take guidance on economic policy, where one has to take full advantage of the span of a full Parliament—and that is what we intend to do.

Of course, I do not deny for a moment that there are transitional difficulties. It would be foolish to pretend otherwise. [Interruption.] Why there should be giggles and laughter at the mention of one's preparedness to weather transitional difficulties, I do not know. Is one supposed to say that one will back off the first time one meets transitional difficulties?

Mr. Hooley

The Chief Secretary is a very sensible chap. Does it occur to him that if one is manifestly heading for a precipice there is more sense in changing direction than going over it? [Interruption.]

Mr. Biffen

I am not angelic, or equipped with a pair of wings, and I do not believe that we are heading for a precipice. However, no one will deny that there are transitional difficulties through which the Government will pass.

Mr. Campbell-Savours rose——

Mr. Biffen

I shall give way to the hon. Gentleman, but I wish to make progress. I am sure that that is the wish of the Committee. I hope that it will bear with me if I do not proceed immediately with my speech.

Mr. Campbell-Savours

The right hon. Gentleman refers to the need for the full period of the Government to pass before policies are realised. Is he saying to the people of Workington in my constituency "You may have to wait for five years before you are re-employed "? If that is what he is really saying, I hope that he will say it from the Dispatch Box. It would look beautiful in a headline in the Weekend Times and Star. I am sure that my constituents would be excited to read of such a prospect from the Government.

Mr. Biffen

I will not say that and I will not oblige the hon. Gentleman in yet one more of his constituency speeches. The Chamber is appropriate for constituency speeches. It is also appropriate for speeches that are aimed at a wider audience.

I turn to three issues that were raised during the debate. I think that these are the issues that excited most comment. I refer to the level of interest rates, the level of exchange rates, and the issue of pay. I reinforce what my right hon. and learned Friend the Chancellor of the Exchequer said on current interest rates when he addressed the House on 7 May. He said: To reduce MLR prematurely would risk undermining our policy to bring down the rate of inflation."—[Official Report, 7 May 1980; Vol. 983, c. 303.] I was encouraged when my right hon. and learned Friend's prudent attitude was reinforced this afternoon in the contributions of my hon. Friends the Members for Worcestershire, South (Mr. Spicer) and Knutsford (Mr. Bruce-Gardyne).

At present there is encouraging evidence that sterling M3 is coming under control. However, there is to be considered the impact of the acceptance of that statistic. No Government would lightheartedly disregard that.

The rate of inflation was mentioned several times by the right hon. Member for Llanelli. I accept that that is a factor in the equation. We must remember that the market assessment of interest rates takes a forward view of inflation. It is not merely a matter of measuring the current rate of inflation with the current minimum lending rate.

The Government's position remains precisely as outlined on Second Reading. We believe that there is the possibility of a fall in interest rates later this year—[Interruption.] I do not know why that should be thought so flippant by Labour Members. The right hon. Member for Llanelli outlined what he thought were the difficulties that would circumscribe any early fall in the minimum lending rate. In this instance, as in others, we shall act with realism and prudence. That will be the hallmark of our policy. We shall not be manoeuvered or nudged into positions in which we have no inherent belief because of temporary embarrassments.

The exchange rate has featured in many speeches. It was linked inevitably with the wider issue of import controls. There are limitations upon the Government's power to influence the level of the exchange rate. I am not yet clear about the view of the Labour Party post-Wembley. The hon. Member for Clackmannan and East Stirlingshire (Mr. O'Neill) confessed that he had actually attended the conference—he is in the position of a veteran deserving a bronze star if ever there was one. He came away with a reinforced view that there should be physical import controls. That policy was echoed by the hon. Member for Workington (Mr. Campbell-Savours). The same theme was taken up by the hon. Member for Sheffield, Heeley. Those hon. Members made all the running. I am sure that the right hon. Member for Llanelli will put a final synthesis on the wide-ranging advocacy of import controls.

I hope that the Committee will reflect carefully before endorsing the argument that our present exchange rate system requires any wide-ranging systematic organisation of import controls. I know that it is true that the exchange rate at its current level causes acute embarrassment and hardship for a number of companies. That is inevitable in any economy that is committed to change and renewal. There is no way in which we can contract out of that and out of the impact of oil upon our economy, including our exchange rate.

To what extent are these market messages unacceptable and deeply destructive of our inherent national economic strength? I suggest that the Committee would be well advised to reflect on what sort of management is acutely affected by an appreciating exchange rate. It will tend to be a low value-added type of activity. We must ask ourselves whether we think that that activity holds the key to the industrial and commercial development of the economy through the 1980s. I put that forward not as an assertion but as a question, a subject, a topic and as a consideration that the Committee will have to bear in mind as the issue of the exchange rate continues to be a major feature in our political debate.

I am certain that any substantial retreat by Britain behind the barriers of trade restraint, whether by quota or tariff, will be a retrograde step.

I turn to the issue of pay. I note the problem of wage bargaining, which is central to the remarks of the right hon. Member for Llanelli. Pay is probably the most delicate and difficult of all the issues that will face the Government over the next few months. I pay my respects to what I thought was a most thoughtful speech by my hon. Friend the Member for Bath (Mr. Patten). It was vitiated only by the reference to the Confederation of British Industry. I hope that my hon. Friend will not become a mascot of the bosses. I do not think that that will be so.

My hon. Friends are worried about the extent to which adequate control over public spending can be secured without having a more effective public sector pay policy. That is understandable, because pay accounts for 17 per cent. of central Government expenditure. More significantly, it accounts for 46 per cent. of local government expenditure. Such issues must be resolved and elaborated during the weeks and months ahead.

8.30 pm

My hon. Friends were wise not to confuse the Government's role as an employer with the tantalising issue of Government regulation of incomes throughout the economy. My hon. Friend the Member for Knutsford made a trenchant speech, warning against that danger. I respect the fact that my hon. Friend the Member for Worcestershire, South advocated a wage freeze of limited duration, to play a supportive role in the Government's general economic policy. However, we should remember that that jungle path is littered with whitened bones. The Government are pioneering for the future, but they are also mindful of the past.

During the debate it has been argued frequently that monetarism—as the slogan goes—is not enough. The first person to coin that phrase was my right hon. Friend the Secretary of State for Industry. Everybody realises that the Government's basic economic policies need supporting social policies. Above all, they need to be prosecuted on a scale that will enable our social fabric to adjust to all the disagreeable consequences implicit in a significant drop in the rate of inflation. We are determined to remain on the road to monetary stability. In that spirit, I call on the Committee to reject the amendment and to vindicate the Government's economic policies.

Mr. Denzil Davies

I do not wish to make another speech on the economy, and I shall therefore be brief. The Chief Secretary has explained the purpose of the clause. We have had an interesting debate. However, it has illustrated the Government's confusion about their economic policy. The Chief Secretary said that he hoped that the borrowing requirement would fall and provide the monetary conditions for a fall in inflation. That is the essence of the Government's argument. I do not understand it, but no doubt we shall be given an opportunity to analyse it later.

If the borrowing requirement were to fall, the Government would have to sell less stock and presumably that would lead to lower interest rates. The Government have never explained how those two steps will reduce inflation. That is at the heart of the confusion in the Government's policy. The Government have not given us a satisfactory explanation today, and I doubt whether we shall receive a satisfactory explanation before the Bill is enacted.

The hon. Member for Knutsford (Mr. Bruce-Gardyne) made an interesting speech. He took a certain amount of pleasure because I had said that the Government had dug a hole that they could not get out of. The difference between us is that the hon. Member for Knutsford seems to be happy in that hole; he does not want to get out. However, I am appalled that the Government have dug that hole and that they have caused such damage to industry.

The hon. Member for Bath (Mr. Patten) made an interesting speech, advocating—as he always does—a form of incomes policy. He argued cogently. The hon. Member for Worcestershire, South (Mr. Spicer) wanted a pay freeze.

We were given a variety of alternative strategies by Conservative Members. That demonstrates the Government's confusion. When a meeting is held at Chequers at the end of the month—I heard no denial from the Chief Secretary—many suggestions will be made. There will be a suggestion to soldier on. The Chief Secretary said that it is a question of " when ", not " what ". However, he did not say when or what. He mentioned the next election, perhaps in four years' time. He did not say what. Will the Government have reduced inflation to 15 per cent.? What are we aiming for?

We have heard about the need to reduce the rate of inflation. To what? Perhaps the Chief Secretary will tell us the Government's aim in Committee upstairs or on Report. We hear about reducing inflation. To what level will it be reduced? What level is acceptable? Is the average level of our main competitors acceptable? What is the " what "? Clearly we shall not be told when. So we shall find that Treasury view—soldiering on through the " when " to the " what ".

Then there will be the argument for a statutory incomes policy, followed by the argument for a pay freeze. Then perhaps we shall have the adoption of Professor von Hayek's suggestion that so long as there is a monopoly of labour—which I do not accept—it is essential to have a statutory incomes policy even if monetarist policies are being pursued. It may be that we shall hear from certain Government supporters—the hon. Member for Knutsford for one—that the monetarist heaven can be achieved only if the immunities of the trade unions are taken away. I have no doubt that some hon. Members will argue that the only way that a monetarist policy can work is by taking away the basis of the immunities of the trade union movement. I have no doubt that that will be a very interesting meeting, and we shall see whether anything comes out of it.

Meanwhile, I shall not recommend my right hon. and hon. Friends to divide the Committee on this amendment, because it was designed to be a probing amendment. However, we shall wish to vote against the clause standing part of the Bill. I apprehend, Mr. Godman Irvine, that you will not allow a stand part debate, but we shall wish to vote against the clause not only because the Government are denying the House of Commons the right to debate these issues—the Chief Secretary said that he felt rather melancholy about taking away this right, which an Opposition should have every year, to debate the Government's economic policies—but also to register our condemnation of the Government's policies over the past year. When we get to next year, I have no doubt that we shall still have high unemployment, high inflation and very low production and investment.

For those reasons, I shall recommend my right hon. and hon. Friends to vote against the clause standing part of the Bill.

Amendment negatived.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 170. Noes 120.

Division No. 3281	AYES	[8.37 p.m.
Alexander, Richard	Critchley, Julian	Hogg, Hon Douglas (Grantham)
Ancram, Michael	Dorrell, Stephen	Holland, Philip (Carlton)
Aspinwall, Jack	Douglas-Hamilton, Lord James	Howell, Ralph (North Norfolk)
Beaumont-Dark, Anthony	Dover, Denshore	Howells, Geraint
Belth, A. J.	Dunn, Robert (Dartford)	Hunt, John (Ravensbourne)
Bell, Sir Ronald	Edwards, Rt Hon N. (Pembroke)	Hurd, Hon Douglas
Bendall, Vivian	Eyre, Reginald	Johnston, Russell (Inverness)
Benyon, Thomas (Abingdon)	Fairbairn, Nicholas	Jopling, Rt Hon Michael
Benyon, W. (Buckingham)	Fairgrieve, Russell	Kaberry, Sir Donald
Berry, Hon Anthony	Faith, Mrs Sheiia	Kellett-Bowman, Mrs Elaine
Best, Keith	Fenner, Mrs Peggy	King, Rt Hon Tom
Bevan, David Gilroy	Finsberg, Geoffrey	Lawson, Nigel
Biffen, Rt Hon John	Fisher, Sir Nigel	Lee, John
Biggs-Davlson, John	Fletcher, Alexander (Edinburgh N)	Le Marchant, Spencer
Blackburn, John	Fletcher-Cooke, Charles	Lennox-Boyd, Hon Mark
Body, Richard	Fowler, Rt Hon Norman	Lester, Jim (Beeston)
Boyson, Dr Rhodes	Fraser, Peter (South Angus)	Lloyd, Peter (Fareham)
Brinton, Tim	Gardiner, George (Reigate)	Loveridge, John
Brotherton, Michael	Garel-Jones, Tristan	Lyell, Nicholas
Brown, Michael (Brigg & Sc'thorpe)	Goodlad, Alastair	Macfarlane, Neil
Browne, John (Winchester)	Gorst, John	Macmillan, Rt Hon M. (Farnham)
Bruce-Gardyne, John	Gow, Ian	McNair-Wilson, Michael (Newbury)
Bryan, Sir Paul	Griffiths, Peter (Portsmouth N)	Major, John
Budgen, Nick	Grimond, Rt Hon J.	Marlow, Tony
Bulmer, Esmond	Grist, Ian	Marten, Neil (Banbury)
Cadbury, Jocelyn	Gummer, John Selwyn	Mates, Michael
Carlisle, John (Luton West)	Hamilton, Michael (Salisbury)	Mather, Carol
Carlisle, Kenneth (Lincoln)	Haselhurst, Alan	Maude, Rt Hon Angus
Chapman, Sydney	Havers, Rt Hon Sir Michael	Maxwell-Hyslop, Robin
Clark, Hon Alan (Plymouth, Sutton)	Hawksley, Warren	Mayhew, Patrick
Clarke, Kenneth (Rushcliffe)	Heath, Rt Hon Edward	Mellor, David
Cockeram, Eric	Heddle, John	Meyer, Sir Anthony
Cope, John	Henderson, Barry	Miller, Hal (Bromsgrove & Redditch)
Costain, A. P.	Hicks, Robert	Miscampbell, Norman
Cranborne, Viscount	Hill, James	Mitchell, David (Basingstoke)
Morgan, Geraint	Renton, Tim	Trippier, David
Morris, Michael (Northampton, Sth)	Rhodes James, Robert	van Straubenzee, W. R.
Morrison, Hon Peter (City of Chester)	Roberts, Michael (Cardiff NW)	Viggers, Peter
Murphy, Christopher	Sainsbury, Hon Timothy	Waddington, David
Myles, David	Shaw, Michael (Scarborough)	Wakeham, John
Needham, Richard	Shepherd, Colin (Hereford)	Walker, Bill (Perth & E Perthshire)
Nelson, Anthony	Silvester, Fred	Walker-Smith, Rt Hon Sir Derek
Newton, Tony	Sims, Roger	Wall, Patrick
Oppenheim, Rt Hon Mrs Sally	Skeet, T. H. H.	Waller, Gary
Page, Rt Hon Sir R. Graham	Speller, Tony	Ward, John
Page, Richard (SW Hertfordshire)	Spicer, Michael (S Worcestershire)	Warren, Kenneth
Parris, Matthew	Sproat, lain	Watson, John
Patten, Christopher (Bath)	Stanbrook, Ivor	Wells, John (Maidstone)
Patten, John (Oxford)	Steen, Anthony	Wells, Bowen (Hert'rd & Stev'nage)
Pattie, Geoffrey	Stevens, Martin	Wheeler, John
Penhallgon, David	Stewart, Ian (Hitchin)	Wickenden, Keith
Pollock, Alexander	Stewart, John (East Renfrewshire)	Winterton, Nicholas
Porter, George	Stradling Thomas, J.	Wolfson, Mark
Prentice, Rt Hon Reg	Thatcher, Rt Hon Mrs Margaret
Price, David (Eastleigh)	Thomas, Rt Hon Peter (Hendon S)	TELLERS FOR THE AYES:
Proctor, K. Harvey	Thompson, Donald	Mr. Robert Boscawcn and
Rathbone, Tim	Thome, Nell (llford South)	Mr. Peter Brooke.
Rees, Peter (Dover and Deal)	Townend, John (Bridlington)
NOES
Allaun, Frank	Foster, Derek	Parry, Robert
Anderson, Donald	Garrett, John (Norwich S)	Powell, Rt Hon J. Enoch (S Down)
Archer, Rt Hon Peter	Grant, George (Morpeth)	Prescott, John
Barnett, Guy (Greenwich)	Hamilton, W. W. (Central Fife)	Rees, Rt Hon Merlyn (Leeds South)
Benn, Rt Hon Anthony Wedgwood	Haynes, Frank	Richardson, Jo
Bennett, Andrew (Stockport N)	Heffer, Eric S.	Roberts, Gwilym (Cannock)
Booth, Rt Hon Albert	Hogg, Norman (E Dunbartonshire)	Rodgers, Rt Hon William
Boothroyd, Miss Betty	Holland, Stuart (L'beth, Vauxhall)	Rooker, J. W.
Bottomley, Rt Hon Arthur (M'brough)	Homewood, William	Ross, Ernest (Dundee West)
Bray, Dr Jeremy	Hooley, Frank	Rowlands, Ted
Callaghan, Jim (Middleton & P)	Horam, John	Sever, John
Campbell-Savours, Dale	Hughes, Robert (Aberdeen North)	Sheldon, Rt Hon Robert (A'ton-u-L)
Carter-Jones, Lewis	Hughes, Roy (Newport)	Silverman, Julius
Clark, Dr David (South Shields)	John, Brynmor	Skinner, Dennis
Cocks, Rt Hon Michael (Bristol S)	Johnson, James (Hull West)	Snape, Peter
Coleman, Donald	Jones, Rt Hon Alec (Rhondda)	Soley, Clive
Cowans, Harry	Kilroy-Silk, Robert	Spearing, Nigel
Crowther, J. S.	Lamborn, Harry	Spriggs, Leslie
Cryer, Bob	Leadbitter, Ted	Stewart, Rt Hon Donald (W Isles)
Cunliffe, Lawrence	Leighton, Ronald	Stoddart, David
Cunningham, George (Islington S)	Lewis, Ron (Carlisle)	Strang, Gavin
Cunningham, Dr John (Whitehaven)	Litherland, Robert	Summerskill, Hon Dr Shirley
Dalyell, Tarn	Lyons, Edward (Bradford West)	Thomas, Dafydd (Merioneth)
Davies, Rt Hon Denzil (Llanelli)	McCartney, Hugh	Tilley, John
Davis, Terry (B'rm'ham, Stechford)	McKay, Allen (Penistone)	Tinn, James
Deakins. Eric	MacKenzie, Rt Hon Gregor	Torney, Tom
Dewar, Donald	McNamara, Kevin	Wainwright, Edwin (Dearne Valley)
Dixon, Donald	Magee, Bryan	Wellbeloved, James
Dormand, Jack	Marshall, Dr Edmund (Goole)	Welsh, Michael
Douglas, Dick	Marshall, Jim (Leicester South)	White, Frank R. (Bury & Radcliffe)
Dubs, Alfred	Mikardo, Ian	White, James (Glasgow, Pollok)
Duffy, A. E. P.	Millan, Rt Hon Bruce	Wigley, Dafydd
Dunwoody, Mrs Gwyneth	Mitchell, R. C. (Soton, tichen)	Willey, Rt Hon Frederick
Eastham, Ken	Molyneaux, James	Wilson, Gordon (Dundee East)
Ellis, Fiaymond (NE Derbyshire)	Morris, Rt Hon Alfred (Wythenshawe)	Wilson, William (Coventry SE)
Evans, loan (Aberdare)	Morris, Rt Hon Charles (Opershaw)	Winnick, David
Evans, John (Newton)	Morris, Rt Hon John (Aberavon)	Woolmer, Kenneth
Ewing, Harry	Morton, George
Field, Frank	Moyle, Rt Hon Roland	TELLERS FOP. THE NOES:
Flannery, Martin	O'Neill, Martin	Mr. James Hamilton and
Fletcher, Ted (Darlington)	Park, George	Mr. Joseph Dean.
Foot, Rt Hon Michael

Question accordingly agreed to.

Clause 10 ordered to stand part of the Bill.