HC Deb 08 December 1981 vol 14 cc725-818
Mr. Speaker

I have selected the amendment in the name of the right hon. Gentleman the Leader of the official Opposition.

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

I beg to move, That this House approves the Statement made by the Chancellor of the Exchequer on 2nd December; welcomes the Industry Act forecast for 1982 of lower inflation and rising output; approves the provision of extra resources for employment and training measures, particularly for the young; supports the Government's decision to maintain the real value of retirement pensions and to continue the Christmas bonus for pensioners; and endorses the decision to allocate extra money for capital investment by nationalised industries and for the defence programme. Five years ago next week, on 15 December 1976, the House was told by the right hon. Member for Leeds, East (Mr. Healey) of the previous Government's decision to abandon their economic policy and to place the management of this country's finances in the hands of the International Monetary Fund. In their case, it was no doubt a prudent decision. We certainly do not intend, nor do we need, to follow their example.

It is worth remembering why the decision was necessary in the case of the previous Administration. It was because they had forgotten or were determined to disregard a fundamental truth—that the size of public sector which can be afforded depends upon the health of the private sector, and not the other way round. Between 1973 and 1975, public spending as a proportion of GDP rose from 39 per cent. to 46½ per cent. In those circumstances, the prescription which the International Monetary Fund had to offer was not more public spending, but less.

That is the background against which to consider the proposals which I announced last week. In that announcement, I was concerned, of course, not only to describe the Government's broad plans for public spending next year but also to explain the pattern of benefits and how we proposed to adjust the arrangements for financing them through the national insurance system. They are announcements that are always made at this time of the year. They are not a mini-Budget.

I cannot emphasise too strongly that this is not the moment to decide the overall balance between spending, on the one hand, and taxation and borrowing, on the other. That must wait until near the time of next year's Budget. Only then will we have a clearer view about the revenue prospects for next year and be better able to judge the appropriate size for the gap between expenditure and revenue. We shall have to bear firmly in mind the danger of making too great a demand upon the nation's savings and thus saddling the private sector with an excessive level of interest rates. At this stage I am neither threatening an increase nor promising a relaxation in the burden of taxation.

All that, at this stage, I do assert is that those who profess now to be able to say that the effect of the measures I announced is, in their terms, deflationary or reflationary, are deluding themselves, and perhaps others. Unless theirs is a truly blinkered vision, having seen only one side of the account, they cannot possibly know.

What we must do—the motion before the House does this—is to consider the proposals for public expenditure plans on their merits. I commend them to the House for two reasons: first, because I believe that the new planned total for public spending—I shall have more to say about that in a moment—is correctly judged; and, secondly, because it represents a sensible balance between the elements that make it up.

It must be evident to all, save those who will not see, that we have responded in a realistic way to changed circumstances. From the outset, we were not looking this year for a cut but for an increase in the total. Our discussions in Cabinet were about how much that increase should be. We concluded that it would be right to raise total planned public expenditure next year by nearly £5 billion in cash. Some of that increase represents a considered response to what must be considered undesirable developments. I think, particularly, of overspending by local authorities, which continues to play such a large and damaging part in limiting our ability to ease the burden of public spending on the private sector. I have in mind, too, the growing Soviet threat to the North Atlantic Alliance. Heavy though the cost may be, we on this side of the House believe that the United Kingdom must continue to play a full and responsible part in the Alliance, and we shall do so.

A substantial part of the increase in planned public spending next year reflects a conscious and deliberate response to changed circumstances. Nowhere is that truer than in our proposals to increase spending on employment measures. It is right that those in work should be asked to contribute to giving the young jobless a better chance.

My right hon. Friend the Secretary of State for Employment will shortly be announcing radical changes in the employment programmes, with the emphasis on training for the young. The total cost of those programmes next year will be almost £3 billion, £800 million more than was originally planned. Frankly, although Oppositon Members have attempted the feat, it is hard indeed to present these as the decisions of an inflexible Government.

The windy rhetoric, the instant and unthinking denunciation, to which the right hon. Member for Stepney and Poplar (Mr. Shore) resorted in his reaction to my statement last Wednesday may, in his view, help to divert attention from the battle of Bermondsey, but it does him little credit, and it helps the unemployed, and the country at large, not at all.

Mr. Derek Foster (Bishop Auckland)

Will the Chancellor take note that any suggestion in the employment measures for the young unemployed of an allowance as low as £15 and any suggestion of compulsion will defeat completely the whole objective of relaunching the youth opportunities programme? It will be rejected by the young people and also by all those concerned in the service.

Sir Geoffrey Howe

I must ask the hon. Gentleman to await the announcement of my right hon. Friend. It is the concern of the Government, as it must be the concern of the whole House, to secure the most effective use of the large resources being made available in imposing the training and employment opportunities of the young unemployed.

Another area in which we have increased provision is that of the nationalised industries, whose external financing limits are being set some £1.3 billion higher than we previously planned. We expect them to redouble their efforts to hold down their current costs. Every 2 per cent. on their pay bill is worth £250 million, which could itself go to enhance investment. We have announced a continuing programme of surveillance by the Monopolies and Mergers Commission. The spending plans that I have announced should enable the nationalised industries to finance capital investment next year at a level that is about 15 per cent. greater in real terms than it was last year. I remind the House that this year and next we can expect investment by those industries to be at a higher level than in any year since 1976. So I invite the House to dismiss criticism from the Benches opposite and to reject out of hand the repeated myth that we have been starving the nationalised industries of investment resources.

Mr. Tam Dalyell (West Lothian)

On the issue of British Leyland, can we take it that the Treasury will give every help to the Comptroller and Auditor General in his investigation into the question of public money following privatisation and especially the sale of British Leyland assets from the tractor line at Bathgate?

Sir Geoffrey Howe

I know that the hon. Gentleman expressed extended concern about that matter in the debate last week. We shall be paying attention to the points that he raised and to all the points raised in the debate.

Mr. Dalyell

Will the Treasury co-operate with the Comptroller and Auditor General?

Sir Geoffrey Howe

I shall not go further in answer to the hon. Gentleman's point now.

There has understandably been some particular concern about proposals on social security benefits, but it is important in such matters not to lose a sense of perspective, because the sheer size of social security spending—nearly £30 billion next year, nearly double the cash expenditure in 1978–79—is something of which we must take account.

As a proportion of GNP, public spending on social security has risen from 8.4 per cent. in 1970 to 10.7 per cent. in 1979. As a percentage of public expenditure, the rise over those same 10 years is even more dramatic. It has risen from 14 per cent. to 25 per cent. of total public expenditure.

The main cause of the increase in total social security expenditure has been the need to pay for pensions. Of the £2.5 billion planned increase in social security spending between 1981–82 and 1982–83, much the larger part goes for retirement pensions.

Sir Frederick Burden (Gillingham)

I am in somewhat of a dilemma, because by Government action in two years' time about 7,000 people will be out of work in Chatham dockyard. I resist anything that would cut down their benefits when they lose their jobs through no fault of their own.

Sir Geoffrey Howe

I understand my hon. Friend's concern about Chatham dockyard and the concern of other hon. Members who have interests in the programme. That is why one of the other increases in expenditure that I announced on Wednesday is an increased provision for the defence programme. I shall deal with that matter in a moment.

Benefits have, broadly speaking, kept pace with inflation during the years since 1948. We intend to increase all benefits by what we expect to be the increase in the RPI by November 1982. The final figure will not be determined until the spring of next year. The present estimate is 10 per cent., but as the House knows we do not propose to make good the shortfall on short-term benefits against inflation in the year ended November 1981. The effect will be to save about £65 million in the first year, which is £180 million in a full year. On all the matters, especially the amounts of the 1982 uprating, final decisions will be taken as usual, as I have explained, next spring. We shall of course listen carefully to the views that hon. Members, including of my hon. Friend, may have on the matters.

As I have explained, the most costly and most important commitment in the whole social security programme is the undertaking to maintain the real value of retirement pensions. That is a commitment that we have been determined to fulfil. It is because of the high priority that we give to it that we have to look for savings elsewhere.

Retirement pensions have been fully price protected. They will be higher in real terms in November 1982 than they were in November 1978. That is in sharp contrast to the way in which pensioners were treated by the Labour Party. The House will remember, as the pensioners certainly do, though hon. Members opposite may wish to forget, how the previous Administration withheld £500 million from the pensioners—over £900 million in today's prices—by changing the basis of the uprating in 1976. Again, unlike the Labour Party—which cancelled them in 1975 and 1976—we have continued to pay the Christmas bonus introduced by the previous Conservative Government, under the leadership of my right hon. Friend the Member for Sidcup (Mr. Heath). So let us hear no more talk of a Scrooge-like Chancellor, especially from the wraith-like figures opposite, the ghosts of Christmas past.

Mr. David Ennals (Norwich, North)

Is it therefore the Chancellor's intention to revert to the previous method of assessing the uprating?

Sir Geoffrey Howe

That is a question which no doubt the right hon. Gentleman asked himself and answered in the negative, thereby taking advantage of the £500 million to which I have referred.

The other element of the announcements about national insurance was, of course, the increase in contributions. We were determined to see that the increased burden of those contributions was sensibly shared.

Between 1977 and 1980, real personal disposable incomes rose by 17 per cent. Over the same period, company real income fell by about a third. That trend is being reversed, as it must be if output is to rise. The measures that we have announced will continue that necessary process of adjustment.

The amount which employers will pay will not rise by virtue of any increase in the contribution rate but only because of the increase in the level of wages that they pay, and because of the modest increase in the upper earnings limit, which takes account of that. The real burden on employers, when compared with the expected movement of prices or earnings, will in fact fall.

Again, that is in marked contrast to the performance of the Labour Party. When they were in Government they introduced and then increased the national insurance surcharge to its present rate of 3½ per cent. and they increased the employers' rate of national insurance contributions by 1½ per cent. Of the present total rate of employer's contribution of 13.7 per cent. a full 5 per cent. was added by the previous Government. Under this Government, I repeat, the real burden on employers is expected to fall during the two years from April 1981.

Mr. Richard Needham (Chippenham)

When my right hon. and learned Friend comes next spring to the uprating of unemployment benefit, can he assure the House that that benefit comes out of the national insurance fund and not out of the Consolidated Fund and therefore does not affect the PSBR? As the fund now stands at £5,000 million, which is a large increase from when we came to power, there does not seem to be any reason why unemployment benefit cannot be uprated by the 2 per cent. short fall.

Sir Geoffrey Howe

That is no doubt an argument that my hon. Friend will develop during the debate, along with others. The changes that I have announced and which the Government have been carrying through in the distribution of the burden of contributions to employers and employees is a clear recognition of the theme with which I started my speech—that a large public sector is in no sense an engine of faster growth. On the contrary, it adds to the burden of rates, taxes and interest charges that falls upon the private sector. That is why the House in this as in every other debate on public spending must be mindful of the fact that, during the past three years, public expenditure has risen, as a proportion of GDP, from 41 per cent. to about 45 per cent.

The plans that I announced on Wednesday would set public expenditure for next year at about the same level in real terms as in the current year. However, with the renewal of growth in the economy, there is a real prospect that, as a percentage of GDP, public expenditure will once again begin to fall. That should be welcomed, even by those who have not always expressed total support for our policies.

I have in mind, for example, Mr. Roy Jenkins, the still-exiled Ayatollah of the Social Democrats, who, in a famous phrase, remarked that excessive public spending—not effectively above the present level—would endanger the "values of a plural society". We should take that warning very much to heart.

I think, too, of my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour) who, in expressing his strong support for the 1980 Budget, remarked: Our top priority is to beat inflation, and that has involved tough decisions to reduce Government spending. Without the cuts in spending, we cannot get down Government borrowing, and that would mean no prospect of a fall in interest rates. I find it a little strange that someone who was then so anxious to get public spending and borrowing down is now apparently dismayed by our reluctance to let them go up by as much as he would wish.

As I said at the outset, now is not the time to set the scale of public borrowing for the next financial year. It must, however, be modest enough to offer the prospect of lower interest rates and it must do that within a framework of monetary policy which takes proper account of the exchange rate and of the need to maintain a steady but not excessive downward pressure on the growth of the monetary variables. I shall bear all those factors in mind when the time comes to shape the next Budget.

I want to deal today with the challenge that is repeatedly thrown at us by the official Opposition—as the House is still obliged to call them—and the Social Democrats. That is that the level of interest rates can somehow be disconnected from the amount we need to borrow. We are urged to borrow more and at the same time to cut interest rates. Precisely how that feat is to be performed is never explained; certainly it is contrary to the experience of every other Government.

Is it to be achieved by direction of savings—ordering the institutions to reserve a certain portion of their cash flow for investment in gilts? That might appeal to the right hon. Member for Bristol, South-East (Mr. Benn) and his friends. But is that the suggestion of the Social Democrats? Do they believe in the direction of savings? I hope that they will tell us this afternoon if they do. But even that would not get them very far.

Mr. Robert Sheldon (Ashton-under-Lyne)

I understand the right hon. and learned Gentleman's problem in ensuring that money is available for the purchase of gilts that he puts on the market. Would it not have helped a little if exchange control had been retained, and the billions of pounds that have gone overseas had been used for the regeneration of British industry?

Sir Geoffrey Howe

One matter that has concerned the right hon. Gentleman so much at various times during the past two years has been the high level of the exchange rate. The one certainty of retaining exchange control would have been to have kept the exchange rate high. The extension of controls is a classic way to drive international money away from Britain. At the very least we are entitled to hear from those who argue for more expenditure and lower interest rates a coherent explanation of how they think that combination can be achieved.

I do not want to exaggerate the differences between different parts of the House. We agree as to the end, for we all want to see continued, sustainable expansion and growth in order to secure a fall in unemployment. While our Industry Act forecast does suggest that the rapid increases in unemployment of the recent past will not be repeated next year, no one in any part of the political spectrum offers any prospect of an early return to what we used to call full employment.

The National Institute for Economic and Social Research, for example, which proposes a representative reflationary package of £5 billion—which seems to place it some way between Devonport and Ebbw Vale—predicts that on the most optimistic assumptions that would lead to a reduction of only 150,000 to 300,000 in the number of registered unemployed, and that over a five-year period. I beg the House to take note of that modest figure, for it is a measure of the limited extent to which the old-fashioned cure—the quick-fix reflation—would match up what is required now, in a world that is very different from the one in which the veterans on the Opposition Benches learned their economics.

The unemployment that we are witnessing today reflects in large measure the policies of earlier years. Before too long now, we should be moving into conditions where the prospect for jobs should begin to improve.

[HON. MEMBERS: "When?"] Indeed, we can see some of the early signs. Short-time working is down to a quarter of what it was at the start of the year. Overtime has correspondingly increased, and vacancies are also up. Instead of trying to achieve quick results with a high risk strategy—the policy that has been tried so often before—we have set about creating a framework for soundly-based recovery.

Sir Ian Gilmour (Chesham and Amersham)

My right hon. and learned Friend must be aware that his own projections show unemployment increasing substantially during the next 12 months. He commented on the NIESR proposal. Will he say something about the plan announced yesterday by three economists to produce a substantial decrease in unemployment?

Sir Geoffrey Howe

The plan announced yesterday goes far beyond the calculations of more responsible and restrained suggestions. We must remember that the principal author of the plan was the chief economic adviser to the Labour Government from 1974 to 1977. In 1976, similar policies had to be restricted as a result of reverting to the International Monetary Fund. The track record of that group of advisers does not command a great deal of confidence.

We have told the Government Actuary to assume that average unemployment, excluding school leavers, for next year will be 2.9 million compared with 2.6 million this year. However, that does not mean that unemployment this time next year will be 300,000 higher than it is at the moment. The figures are the averages for the two years, and we are already two-thirds of the way through the first of them. Those averages are, in fact, consistent with a substantial reduction, or even a complete flattening out, in the rate of increase in unemployment during the next 12 months.

I repeat, we are setting about the creation of a framework for soundly based recovery. Instead of trying to generate higher domestic demand, through higher public spending, we have recognised that the need has been to reverse the decline in the international competitiveness of our industry. That is the only real way to higher volume of output and to more jobs that will last. Markets are opening up in this country and overseas which, through innovation and low unit labour costs, can be ours, and we are already beginning to win them.

Our critics at the time of the Budget were more than a little sceptical of that approach. The right hon. Member for Stepney and Poplar—never prone to understatement—was most explicit in his denunciation. He said that the Budget offered the prospect of stagnation, and, more probably, a renewal of decline. He could not have been more wrong. He surpassed even his own record for lugubrious false prophecy. What has happened since has been very different. It has indeed been very similar to the predictions made by the Government at the time of the Budget.

In fact, the fall in industrial production soon came to an end. It is now on an upward, not a downward trend. So, too, is manufacturing output. So, too, is GDP. It is that prospect of continuing improvement during the next year which the Industry Act forecast portrays. GDP at constant prices is expected to rise by about 1 per cent. in 1982, and manufacturing output much more steeply than that. Inflation is expected to come down to 10 per cent. and still to be falling at this time next year. If we can continue the progress of the past 12 months towards more moderate settlements, at a time when world commodity prices appear to be moving in our favour——

Mr. Norman Atkinson (Tottenham)

The right hon. and learned Gentleman's optimism is denied by all the sample surveys in industry. This week the CBI reaffirmed that it envisaged no growth in industry above 1 per cent. during the coming year. It said that information shows that not only will industry stagnate, it will decline. The engineering industry has predicted that 90,000 workers will be unemployed by next June. How does the right hon. and learned Gentleman reconcile that with the figures that he has presented to the House.

Sir Geoffrey Howe

I invite the hon. Gentleman to consider the figures that he has quoted. If he is anxious to see nothing but gloom and decline, it is easy for him to translate even optimistic figures into pessimism. He quoted the figure given by the CBI of a 1 per cent. growth next year, and turned that into a prospect of stagnation. Of course, we want to see faster growth than that, but we are living in a world where growth throughout the OECD countries is not taking place at a faster rate than that. In some of those countries there is a decline in output. The prospect of an increase in output should be commended rather than condemned.

Beyond the prospect of a growth in output generally, we envisage manufacturing output increasing much more steeply. If we can keep up the progress towards more moderate pay settlements, at a time when world commodity prices look like moving in our favour, there is no reason why the recovery in the profitability of private industry—which is the precondition for investment and secure employment—should not go hand in hand with a significantly lower level of inflation by the end of 1982.

Medium-term forecasts, after all, are essentially based on the projection of past trends, but there is no reason why we should not do better than that, and there are clear signs that we are beginning to do so, for as one looks at the real economy, the signals of recovery are beginning to multiply.

In the public sector, for example, we have the case of British Steel. At Llanwern and Port Talbot BSC management and workers are making their works some of the most competitive in the whole of Europe. At Llanwern they are breaking previous production records week after week. British Steel has the chance of halving its deficit in the present year and of breaking even in the year after that. There is similar progress to report from British Shipbuilders, which has secured more than £700 million worth of new business in the current year.

There are clear signs of improvement in the private sector as well. Pay increases in the last round were about half a high as in the year before. There are encouraging signs of further moderation in the present round. It is crucial that those should be maintained. Productivity is up. Output per head in manufacturing industry in the second quarter of 1981 was 5 per cent. higher than six months before. The CBI, quoted by the hon. Member for Tottenham (Mr. Atkinson), expects a rise of 10 per cent. by the end of the year.

As a result, British industry is becoming more competitive. So far this year we have regained at least 10 per cent. We are beginning to price ourselves back into business around the world.

Mr. Ian Wrigglesworth (Thornaby)

Does the Chancellor agree that the country and the House might be more convinced of the message he is seeking to give us if he could prove that the aggregate level of demand arising from the measures he announced last week would be increased? Can he do that?

Sir Geoffrey Howe

I explained to the House earlier that judgments of that kind, based if the hon. Gentleman so wishes on the measures of last week, can be made when the Budget is announced and not before. We shall be looking at both sides of the equation. In the meantime, I invite the hon. Gentleman to look at the results of the changes to which I have referred, which are now beginning to come through in increased orders, higher output and ultimately, in employment as well. Small businesses, in which the House takes a close interest, are playing an important part. Under our new loan guarantee scheme, still less than six months old, more than 1,500 businesses have already been helped.

Exports appear to have been holding up well this year in difficult world trading conditions, and for the future the export prospects look good for chemicals, electronics, coal and petroleum products. Engineering export orders in the last quarter are 14 per cent. up. Orders and output at home are picking up as well.

Home engineering orders are up. Private sector housing starts are up by over 40 per cent. in the year to the third quarter of 1981. Construction industry orders, as a whole, are up 10 per cent. on the second half of last year. Total construction industry output, which rose 2 per cent. in the third quarter of this year, shows the first rise since the third quarter of 1979. Between the second and third quarters of this year total industrial output rose by ¾ per cent. while manufacturing output increased twice as fast as that.

Therefore, if one looks objectively at these indicators, one finds that the picture is one of progress in the right direction. These improvements are not the hothouse product of any short-sighted switch of policy. They result from real and sustainable changes in our economy, changes that we all know to have been long overdue. The way to continue this process of improvement is not through some necessarily short-lived spending spree. The way ahead is to build on the achievements of which the signs are now beginning to appear. Even in today's hostile world, the prospect of completing the reversal of Britain's humiliating economic decline is now before us. The Government's plans are designed to further that process. That is why I ask the House to endorse them today.

4.4 pm

Mr. Peter Shore (Stepney and Poplar)

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof: rejects the statement made by the Chancellor of the Exchequer on 2nd December; deplores the failure to make good the 2 per cent. shortfall on unemployment benefit and other allowances; expresses its grave concern that the measures outlined by the Chancellor of the Exchequer will further increase unemployment, raise the level of prices and industrial costs and place still heavier burdens on local authorities; and calls upon the Government to abandon its totally discredited Medium Term Financial Strategy and to initiate new policies designed to increase output and reduce unemployment". I have read out that long amendment in full because it comprehensively summarises what the Opposition are saying and what we are objecting to in the Chancellor's statement and policies.

When the Chancellor introduced his Budget in March of this year, I congratulated him on uniting the nation, for the first time in two years, in nearly universal condemnation of both his proposals and his strategy. Reading the reactions to his mini-Budget last Wednesday—reactions sustained and intensified as the impact of his measures has sunk in during the past few days—I must tell him that he has done it again. Certainly he has said nothing this afternoon, in amplification and justification of his measures, which will cause anyone to revise the condemnatory judgment that he had already formed.

If, perhaps, we had not heard at regular intervals since this time last year the careful raiding of statistics in order to bring together just a sufficient collection of optimistic items to confuse the House, if this were the first time that we had heard it, we might give it some credence at present. But I only remind the House that we heard exactly a year ago that the economy had bottomed out. Then we had what I call "operation optimism" from the Prime Minister—her Christmas message and New Year message to the nation. Then we had it, again and again, with every single debate. We have had it, almost predictably, in full measure this afternoon.

I know that there are many unhappy Conservative right hon. and hon. Members, as well as those right hon. and hon. Members on the Opposition Benches who are furious but they are far too sophisticated, surely, to be taken in by the sort of nonsense that has been paraded before them yet again this afternoon.

The Chancellor should not be distracted by what the Press Gallery and the commentators say about himself and his performances, for that might lead him wrongly to believe that if only he were less mulish in his response or more entertaining or agile in his presentation he could yet regain the enthusiastic support, the waving of Order Papers, that greeted his first Budget in May 1979, or even the tolerant but increasingly tight-lipped understanding with which his subsequent Budgets have been received.

No, it is not the manner; it is the content. If the Chancellor could speak with the tongues of angels, nothing could now gloss or conceal the immense damage that he has done and is continuing to do to the people of this country and to their future hopes.

Looking back over the past two and a half years, the conduct of economic policy by the Prime Minister and her right hon. and learned Friend the Chancellor has been in a class of its own—qualitatively different, qualitatively worse than that of any Government in the 36 years since the end of the Second World War; and marginally worse than that of their far less well equipped predecessors facing the catastrophe of the great slump in the pre-war years.

I cannot help marvelling at their achievement. To have succeeded in actually reducing our annual wealth creation, our gross domestic product, by 7½ per cent. in less than three years; to have slashed our industrial output by no less than 16 per cent. ; to have increased unemployment by 1,700,000; to have done all this during a time when Britain, in an energy-starved world, has become self-sufficient in North Sea oil, which has itself provided the Government with additional revenues of some £5 billion a year and a balance of payments contribution of £7 billion a year, and which has contributed, on its own, no less than 2 per cent. to GDP—to have done all this is an achievement of such astonishing magnitude that whatever else may befall the Prime Minister and the Chancellor in their political lives they have marked for themselves a place in our national history which time will never erase and which our long-suffering people will neither forgive nor forget when the next election is called.

But the Chancellor has not yet grown weary of ill-doing. Last Wednesday, trapped in his own spiral of economic decline, he ensured that, within the limits of Government action, little or no economic recovery will now take place. There will be growth of 1 per cent. against a background of the decline of our economy in the past two and a half years. That is the right hon. and learned Gentleman's prospect.

The £5,000 million increase in public expenditure in 1982–83 seemed to be a ray of light that would pierce the intellectual gloom of the Cabinet room, but, as our exchanges last Wednesday made plain—the Chancellor did not resile from his position this afternoon—the £5 billion is a monetary and not a real increase. If the right hon. and learned Gentleman's optimistic inflation assumptions prove correct, public expenditure will be the same in 1982–83 as it was in 1981–82. There is no reflation there.

Defence spending apart, main programmes are to be cut yet again. Apart from any new curbs that are introduced this year, the cut in the percentage grant to local authorities from 59 per cent. to 56 per cent. will inevitably bring a further fall in local Government expenditure.

The programme of local authority housing, which has virtually collapsed, is to continue at the lowest level of which we have record or memory. To assist in the further curtailment of domestic expenditure, rates are bound to rise by 8 per cent. to 10 per cent. as a direct consequence of what the right hon. and learned Gentleman has announced. If the £2.50 a week average council house rent increase takes place, there will be yet another reduction in spending power. That will be the consequence also of the further increase in Health Service charges.

Last Wednesday I said that the further rent increase will mean that within three years council rents will have increased by over 100 per cent.—to be precise, the increase will be 125 per cent. When the Chancellor replied he made the astonishing statement that rents would be only 7 per cent. of average earnings. I think that that was to mislead the House. The only possible way in which the Chancellor could reach such a figure would be to include—I am not aware that this has ever been done before in these calculations—rebated rents along with the rents that ordinary council tenants pay. Unrebated rents will rise from 6.4 per cent. to 8.8 per cent. of average earnings, to a level higher than that reached at any time within the past decade.

Such increases as there are in public expenditure will be shown to be not real increases over this year's public expenditure but as the Chancellor's temporary abandonment of still further cuts, originally programmed in 1982–83, as they affect nationalised industries and local government spending. As the right hon. and learned Gentleman's targets in both these areas were unrealistic in the first place, there is little comfort to be drawn from such increases in public expenditure.

That apart, there are bound to be increases in unemployment pay. That is because the number of those who are unemployed will continue to grow. Having listened to the Chancellor this afternoon, one would think that growth in the social security budget was a reflection of his generosity and virtue, and not of the penalties and the pain that he has inflicted on so many of his fellow countrymen.

The Government Actuary has underestimated every year the effect of the Government's measures on unemployment. However, the new estimate is 2.9 million unemployed on average. It shows that the trend is still upwards and it takes no account of the many school leavers, students and others who will swell the totals during 1982.

Of course, the Chancellor is increasing expenditure on youth opportunities programmes and training schemes but these measures reduce what would be a still higher bill for the many who would otherwise be on the unemployment register.

Then there is the meanness and the immorality of the Chancellor's treatment of the poorest sections of the community. It is adding insult to injury deliberately to deny the unemployed, who are unemployed as a direct consequence of the right hon. and learned Gentleman's policies, compensation for his under-estimation of inflation this year. Unemployment pay, as with the pay of others on short-term benefits, is to be cut by 2 per cent. against the rise in this year's cost of living. This follows, as I said on Wednesday, the earlier reduction of 5 per cent. in unemployment pay and the phasing out in a fortnight's time of earnings-related unemployment benefit.

I must mention the right hon. and learned Gentleman's treatment of about half a million young people at universities and institutions of full-time higher education who are to have their grants limited to an increase of 4 per cent. this year. Members on both sides of the House may have seen the letter from the master of St. Catherine's college, Cambridge that appeared inThe Times on 4 December. I thought that it was a good letter. The master contended that students as a group are unable to bargain with the Government. They have no employer with whom to bargain. They are to receive a grant award that will be less than half the rate of inflation.

No one argues that students should be kept in a state of luxury. But, with 3 million unemployed, their prospects of gaining part-time employment, which many of them have used in the past, are negligible. The real level of the student grant is the lowest that it has been for 20 years. They have, therefore, to rely upon their grants—no more and no less—and what, if anything, their parents can make available. Not all parents are able to assist.

Finally, there is the further deflation of demand and the further increase in costs that flows from the 1 per cent. increase in national insurance contributions. I do not know whether the Chancellor has done his arithmetic on the implications of his tax measures, but, taken together with the continued contraction of national output, he has, in spite of his election pledges, both increased public expenditure as a proportion of GNP and, at the same time, increased taxation to levels far higher than those that existed when he came to office.

Last Thursday—conveniently, a day after the right hon. and learned Gentleman's statement in the House—the Chief Secretary obligingly answered a written question tabled by my hon. Friend the Member for Blackburn (Mr. Straw). I advise the House to read carefully the tables that are attached to the answer.

Even before the right hon. and learned Gentleman's impost, the combined impact of successive Budgets and national insurance increases has been extraordinary. A married couple on average earnings with a typical family has seen its combined tax bill rise from 41.54 per cent. of gross income in 1978–79 to 46.26 per cent. in 1981–82. For those on one and a half times average earnings, the combined tax burden has risen from 43.2 per cent. to over 47 per cent.

But the most appalling and disgusting feature of these figures, which were extracted from the Chief Secretary, is the deep unfairness and immorality of the Government's policy, which has been to force the poor to pay for tax cuts for the rich. What sort of Government are they—what sort of people are they—who demand sacrifices from the nation and who then ensure that the sacrifices fall least on those who can bear most and most on those who can bear least? Yet that is the reality.

I shall give one illustration. The single man, with no family responsibilities, on twice average earnings—the man in the most affluent position in the examples provided in the Chief Secretary's answer—has seen his income tax bill reduced by the Government. That is the single man who is earning nearly £300 a week. But the poorest family in work, that is, on half average earnings with an income of slightly more than £74 a week, has seen its income tax bill almost doubled by the Government. It has been increased from 6.6 per cent. of gross income to 11.8 per cent. In cash terms its tax bill has jumped from £3.46 a week to just 7p short of £10 a week.

Where is the justice and equity in that? What does that sort of brutality to the incomes of the poor do to the social cohesion of the country and where exactly is that sort of action to be found in the Conservatives' 1979 election manifesto?

Mr. Nigel Spearing (Newham, South)

Tell Francis of Assisi that.

Mr. Shore

With the new increases in national insurance contributions, the levels for virtually everyone, except, of course, those on the very highest incomes, will be far in excess of the levels when the Government came to power.

So much for the Chancellor's statement last Wednesday and the major part of his speech today, but I am sure that the House wishes me to draw attention to some conspicuous absentees from last Wednesday's statement. There was not a word about the money supply in the four columns of Hansard or the 12 pages of script that I received.

The public sector borrowing requirement received the merest glancing reference and there was not a hint in the Chancellor's statement that the medium-term financial strategy was, like the pole star, the guiding light for the Government's economic navigation. The more that one reflects on it, the more astonishing the omission is. I listened carefully, and there was but one sentence from the Chancellor this afternoon about the framework of monetary policies. It is astonishing because the Government's whole economic doctrine, the new input of economic wisdom that the Prime Minister, the Chancellor and the Secretary of State for Education and Science brought to our affairs and the sovereign remedy that was to change the course of British economic history were precisely their conviction, belief and policy of controlling the money supply by fixing, over a four-year period, a quantitative limit for the growth of sterling M3 and, over the same period, the progressive reduction of public borrowing.

Therefore, it was hoped that the PSBR would shrink year by year from 6 per cent. to 2 per cent. of the GDP. It was through that strategy that inflation was to be defeated, the economy rejuvenated through a "Japanese-type miracle", as one incautious industry Minister recently described it—1 per cent. growth!—and the great prize of economic success attained.

From the first day of my present shadow post I have never wavered in my rejection of and contempt for those imported, half-baked economic theories. But not so the Chancellor—oh, no. That was the central theme of the 1980 Budget, the March Budget this year and 12 months ago when he presented the mini-Budget of November 1980. Half of the Chancellor's statement was taken up with the explanation of why it had not worked out that year and his resolute conviction that it would do so during the following 12 month.

Why did that theme not receive even a mention in last week's statement? Could it be that the weevil of doubt had penetrated the beleaguered intellectual fortress of Downing Street? Last week the distinguished monetarist, Dr. Alan Budd—the director of the Centre of Economic Forecasting at the London Business School and a co-director there with Professor Terry Burns, who was appointed by the Chancellor as the chief economic adviser at the Treasury—delivered his amazing recantation to an economic seminar in London. With great candour he admitted that a central part of his theory had been wrong. I quote from The Times of 2 December: he no longer believes that inflation could be brought down reasonably quickly by allowing the Sterling exchange rate to rise in value against other currencies. He now believes that the Government made a 'serious mistake' last year when it allowed the exchange value of the pound to surge forward. As the implications of Dr. Budd's confession sank in, he made a hasty attempt to contain the damage. In a letter toThe Times on 4 December, the good doctor explained that his faith in monetarism was undimmed. However, his explanation only made matters worse. He said: The mistake arose from a failure to recognise the extent to which sterling M3—the Government's chosen monetary target—was a misleading short term indicator of monetary conditions". The consequence of the mistake was that the impact of the high exchange rate fell on production rather than on prices. Dr. Budd had not finished. In a more extensive interview with theFinancial Times, published on Saturday 5 December, he said: The Government's initial view"— they will not deny it— was that it should have a monetary target and that everything else should just follow in its train so that if the pursuit of the monetary target involved high interest rates and high exchange rates, so be it. With the wisdom of hindsight, Dr. Budd said that it was clear that that approach led to a serious policy mistake in 1980 when industry was caught in a double bind between high interest rates and the rising exchange rate, while the Government were still alarmed that they had over-shot their monetary target.

Dr. Budd said that it is now evident that the policy of high interest rates, far from reducing the growth of sterling M3 as intended, was in the short run increasing it. People were moving funds into deposit accounts under the attraction of high rates, while industry was being forced by the recession to increase bank borrowing which, consequently, had to raise rates to attract deposits.

I quote again from Dr. Budd's statement: So rapidly did interest rates rise the demand for money rose very rapidly indeed and this reinforced the rise in the exchange rate which put further downward pressure on the economy …during this time the Government was holding up interest rates because it was worried about sterling M3. Now I think the irony is that had interest rates been lower, sterling M3 would not have risen so rapidly. He continues, and I love his words: With the wisdom of hindsight, one realises that the Government was making life unnecessarily difficult for itself, the economy and the company sector by pursuing, albeit slightly half-heartedly, a target for the money supply which was misleading. Let us for a moment consider the implications and the enormity of Dr. Budd's candid confession. In the period of his "serious mistake", between May 1979 and February 1981, when, as a result of doctrinaire monetarism, interest rates rose to 17 per cent. and the pound appreciated 13 per cent. against the basket of currencies, both through the rise in unit labour costs and the Government's own deliberate tax and price increases our domestic costs rose a further 23 per cent. In short, during the 18 months in which we suffered an unparalleled loss in competitiveness of 40 per cent., and when, as a consequence not of any change in the will to work of the British people or of a long-term accumulated failure in economic management, but of a "serious mistake" in the Government's think tank, one million jobs were lost in Britain. That happened when British industry as a whole sank to the lowest level of profitability ever recorded; when great and efficient enterprises—such as ICI's synthetic fibre division—were forced into irreversible closure. When the whole country cried out for change and redress, the Chancellor stubbornly stuck to his money supply targets, his high interest rate policies and committed, as Dr. Budd put it, a "serious mistake".

All those points raise serious questions. Does the Chancellor deny that this is a true account of the disaster, of the economic tragedy, of the past 18 months? Can he deny that the serious mistake of Dr. Budd was shared by his old colleague and the right hon. and learned Gentleman's chief economic adviser, Professor Burns? Most crucially, can he deny that the "serious mistake" was the central and guiding force in his own policies during that fateful period?

What does the Chancellor now have to say? Does not his economic help-mate, the First Lord of the Treasury—the Prime Minister—also share the blame? Is it not now clear that the nation has been subjected to unimaginable losses as a result of the sheer intellectual incompetence of the Government's own appointed economic advisers, against which the prejudices, naivity and sheer lack of experience of the Chancellor and the Prime Minister offered not the slightest defence?

Mr. John Peyton (Yeovil)

The right hon. Gentleman has had a good deal of fun mincing up Dr. Budd's words. While he is entitled to indulge in the freedom accorded to the Opposition Front Bench—to forget their own record in the past and to ignore the world recession—I wonder whether before he exhausts his eloquence we can expect him to come to the point and explain the alternative policies of the Opposition and make it clear whether they are policies that have not been tried before and failed.

Mr. Shore

I shall say something, as the right hon. Member for Yeovil (Mr. Peyton) expects, about what should be done, but I shall do that later in my speech. Whatever reflections the right hon. Gentleman or any hon. Members may have on the past shortcomings and failures of successive Governments, I beg him to consider the order of magnitude of the setback that we have endured in the past two and a half years. It is utterly different from any previous experiences in our post-war history.

If the Government and Dr. Budd got it wrong in 1980 and in 1981, however, what about the prospect for next year? Where is the evidence of lessons learnt? Bank lending rates are 14½ per cent.—½ per cent. higher than in November last year when we were first told that the economy had bottomed out.

After a fall in our exchange rates, due to the extremely high United States interest rates earlier this year, the recent and rapid fall in American interest rates has deliberately not been followed in the United Kingdom. Consequently, sterling has risen again. Why have our interest rates not fallen? Is it because the Chancellor believes that, if they were to fall, this year's money supply targets would be exceeded even more generously than they will be exceeded anyway? Or is it his belief that a high exchange rate is positively beneficial to the economy?

Is it the same with the PSBR, about which the Chancellor was so coy on Wednesday and so uninformative today? Is he really, in spite of the depth of the recession, still determined to press ahead with a reduced PSBR in 1982–83, to maintain the target announced in March, which, given the public expenditure figures that have been presented to us, would inevitably mean an increase in taxation and further fiscal deflation, as we had in such rich measure in this year's Budget?

It is right for me to draw attention to those conspicuous absentees from the Chancellor's statement—absent because he found them too embarrassing to mention in the House on Wednesday. But they are still there in the accompanying document "The Economic Prospects for 1982". Unless the medium-term financial strategy has been abandoned, it is not only still the shaping influence on the package before us, but will form the framework for next year's Budget as well.

We are on the road to ruin—well along it. It is the case that, as the right hon. Member for Chesham and Amersham (Sir I. Gilmour) has said, either we say farewell to the medium-term financial strategy or we say goodbye to the British economy. For the past two and a half years we have heard the strident assertion of the Prime Minister, as disaster has followed upon disaster, that "There Is No Alternative"—that we have no alternative but to go through the present vale of tears. How ludicrous that sounds today. TINA is dead.

Hardly a week goes by without the presentation of well-researched and documented alternative packages, presented by men of greater economic experience and repute than either sit on the Government Front Bench or advise Ministers and by industry itself, not to mention the offerings of ex-colleagues in the Chancellor's party.

Of course there are alternatives—all of them preferable to what we have today. The problem is to choose the most beneficial package and to judge, against the continuing deterioration of our affairs, the scale of reflation that will be required and the best mix of policies to achieve it.

Six months ago, during the Budget debate, I presented to the House my proposals for strong action both to reduce costs and to increase demand in our industry. In the former category I urged a cut in interest rates, a realistic and lower exchange rate, a slashing of the national insurance surcharge and direct assistance to reduce the costs of fuel, particularly for industries that are heavy energy consumers.

On the demand side, I urged a package of measures both to increase public sector investment and to increase selectively public sector current expenditure, particularly to assist local authorities that have major inner city problems.

Can anyone seriously doubt that railway electrification, the North Sea gas-gathering pipeline, an enlarged housing programme and prison building are in the public interest and would be much welcomed? After Brixton and Toxteth, does anyone doubt that inner city programmes should be given far higher priority in Government spending? In the Government's arrogance, those and similar proposals were rejected, as was the TUC's sober recommendation for an additional £5 billion in public expenditure.

It is interesting to see that virtually no one today speaks of sums lower than £5 billion. Only yesterday the former chief economic adviser to the Treasury, Sir Brian Hopkin, about whom the Chancellor was uncharacteristically ungenerous, proposed a £6 billion package to increase demand and to create ½ million new jobs. Those are sensible, indeed modest, proposals.

What we shall require is a programme that covers not just a stimulus for one or two years, but a sustained expansion over the lifetime of the next Parliament. We would back our proposals with the reintroduction of exchange controls to ensure that the funds accumulated by the great mass of our people at work are used to create jobs for their children in this country, and not for the industrial expansion of our competitors abroad.

We would, moreover, involve the Government and industry far more directly together in planning a long-term and sustained recovery, for there is no doubt that we need an active supply side policy for British industries. That is the clearest lesson of other more successful economies—Germany, France and Japan—and of the failure of free market economics, which have been so assiduously preached from the Government side and so consistently followed by the Government—one of the principal causes of our present predicament.

Mr. Peter Hordern (Horsham and Crawley)

Will the right hon. Gentleman give way?

Mr. Shore

No. I am coming to my final sentence. We have reached a point in our affairs when it is no good talking any longer about flexibility or changing gear or even changing course. There is only one change that the country and the House need and that is a change of Government. I hope that we shall vote for that tonight.

Several Hon. Members


Mr. Speaker

Order. Before calling anyone to speak, I must tell the House that at least seven Privy Councillors hope to participate in the debate. Five sit on the Government Benches and I remind the House that I never call two Privy Councillors from the same party immediately after each other.

4.37 pm
Mr. Edward Heath (Sidcup)

My right hon. and learned Friend the Chancellor of the Exchequer began his speech by emphasising, rightly, that we are debating only one side of the account. He has put before us plans for Government expenditure, but it is not until the Budget in the spring that we shall know the other side of the account, which is Government income.

That places the House in a dilemma, as it places every Cabinet in a dilemma in the autumn. Cabinets are asked to make decisions on Government expenditure affecting almost every Department—sometimes to readjust the figures for Government expenditure and sometimes to look at a period of more than one year—without any detailed forecast of the likely income of the Treasury during that period. That puts anyone who wants to take a decision on an order of priorities in an almost impossible position and it is one of the difficulties that leads to considerable strains in every Cabinet during the autumn and sometimes in the spring as well.

The best that we can do today is to lay down some markers as to what we feel about the announcement made by my right hon. and learned Friend on Wednesday and anything that he may have in mind for the future in the spring. Before I do that, I should like to comment on an aspect that my right hon. and learned Friend emphasised—the division between the public and the private sector. I have long deplored that artificial division in our economy. I believe that it leads to false judgments and wrong decisions.

The public and the private sectors in this country are inextricably interlocked and one cannot consider something as purely public sector or purely private sector. In particular, the health of the private sector, which is naturally of enormous concern to all of us on both sides of the House, is bound to be affected by what happens to the public sector. If the public sector is not given the means of investment, how can the private sector have the energy supplies or transport services that it requires to be efficient?

If the public sector is treated in a way that means that suddenly it has to cancel orders that are placed in the private sector, the private sector suffers horribly from the decisions of the public sector. Therefore, the constant emphasis on the public sector with the intimation that it is something undesirable while the health of the private sector must rightly be preserved, leads to wrong judgments that can be damaging to the economy as a whole. Let us therefore recognise that they are inextricably bound together.

I now turn to the markers that are in my mind. The first is that none of us can like the idea of cutting the benefits of the unemployed. I say frankly that I dislike that intensely. I would need a great deal of persuasion from the other side of the account that that is inescapable. The argument that because the rest of us have to suffer a reduction in standard of living the unemployed must also bear their share is completely fallacious and unacceptable. It has no philosophical backing. The fact that those who are better off must suffer and therefore those who are living on the margin must also suffer is not a justifiable reasoning process to put before the House or the unemployed.

Mr. John Townend (Bridlington)

What would my right hon. Friend say to my low—paid constituents who, to preserve their jobs, have had to accept wage increases of 5 per cent. or in some cases nothing when they see the unemployed, who are often little worse off than they are, receiving an increase of 10 per cent? Their take home pay is then reduced by increases in national insurance contributions.

Mr. Heath

Those people are still better off than the long-term unemployed. There is no question about that. Therefore, I would have no difficulty in putting my justification before my hon. Friend's constituents, as I must put it before my constituents. I hold that view strongly.

There is no doubt that there are more burdens on industry. This is one of the contradications in Goverment policy that industry and business men find difficult to understand. They have complained bitterly about the surcharge and have asked for it to be reduced. When they find that additional burdens are being placed on them they do not feel that their point of view has been recognised. That is the second marker.

My third marker concerns education. If my right hon. and learned Friend is considering what can only be damaging cuts to education in the Budget, many of us will object as strongly as possible to that for this reason. As Disraeli said, Upon the education of the people of this country the fate of this country depends. When educational facilities are lost to children or students, they can never be regained. That is a loss to a generation and a loss for a lifetime. That is why education today ought to be among the highest priorities in the Government's expenditure. I wanted to put down those markers as I hoped that my right hon. and learned Friend would recognise that there was strong feeling among many Conservative Members as well as other hon. Members about those aspects.

The statement made by my right hon. and learned Friend on Wednesday, compared with the enormous problems that we face, is comparatively limited. Therefore, I turn to the major problems with which we are confronted. As the right hon. Member for Stepney and Poplar (Mr. Shore) has said at length, the medium term financial strategy of the Government has been undermined. Today I welcome the Chancellor of the Exchequer's emphasis that in future he would take into account the exchange rate. Hitherto we were told that the exchange rate was not something that anything could be done about. I am glad that he will now take account of the exchange rate.

My right hon. and learned Friend will also take into account interest rates. I am delighted about that. Hitherto we have been told that interest rates are purely the function of other economic processes, in particular the borrowing requirement. I genuinely welcome the fact that my right hon. and learned Friend has adopted a position in which he will deliberately take those factors into account, which means that he will also have to do something about them if he deems it necessary. That is a welcome development of thinking by the Chancellor of the Exchequer and Treasury Ministers.

There never was any intellectual justification for pure monetarism. There is no intellectual justification for it today. There never was a practical justification for it and there is not practical justification for it today.

What we have seen emerging over the past two and a half years on this side of the Atlantic are the contradictions that are brought about by the pursuit of what is termed a pure monetarist policy. I spoke about those contradictions more than a year ago in a short speech on the Queen's Speech, when I said that high interest rates could be immensely counter-productive. They lead to an increase in the money supply—M3. We saw that for ourselves. The Government woke up one morning and found that it was over 20 per cent. They lead to high unemployment, which requires greater Government borrowing and therefore, on any analysis by a true monetarist, still higher interest rates. Therefore, we are entering a vicious circle—higher interest rates, higher money supply, a higher borrowing requirement, higher unemployment, and round again.

That has been exposed. Therefore, I welcome the fact that the Chancellor of the Exchequer is thinking and talking in broader terms today. If he needs any justification, advisers not only here but on the other side of the Atlantic have beaten their breasts and said that they were wrong. I am not asking for a U-turn. I have never asked for that because I know that it could never be brought about. I am trying to be as helpful as I can. All that I want is a veer by the Government on the right curve. If they can do that, many of us will feel much happier.

I shall now make one or two general points to my right hon. and learned Friend. I was interested that in his statement and his speech today he made no mention of the United States economy. Is no one taking into account what is happening in the United States? The United States economy is now heading rapidly for the deepest depression that it has had since 1931. That is bound to affect our trade with the United States, the Community's trade with the United States, and, therefore, our trade with the Community. It is bound to affect the demand for raw materials and the price of raw materials from the developing world. That is bound to affect the ability of the developing world to import from us and from Europe. Therefore, we are in another vicious circle.

The impact of a rapidly depressing United States economy is bound to be felt here. That is why I must say to my right hon. and learned Friend that I regard with some scepticism the forecast about a growth of 1 per cent. next year. We know from past experience that it is difficult to finely tune it to one degree. When one is faced with a situation such as that in the United States, it is difficult to say that there will be 1 per cent. growth next year with the consequences that go with it. Therefore, I ask my right hon. and learned Friend seriously to take into account the position of the United States Government.

That factor also affects our interest position. Just over a year ago, after some of us suggested flexibility, the Chancellor of the Exchequer reduced interest rates by four points in all, despite the fact that the Government's borrowing requirement was going up. However, after a short period, interest rates went up again, because the Federal Reserve under the new Administration in Washington had pushed its interest rates up very high, so we had to follow. We are today still the slaves of international forces, which is a fact that I intensely dislike.

First, we do not know what the United States will do about its interest rates. If the Federal Reserve takes the view that President Reagan's inability to reduce his enormous budget deficit requires higher interest rates to get the borrowing requirement satisfied, we shall be dragged along behind, which will start the vicious circle once again of more unemployment and all that follows from it. That is why I have suggested that it is essential for the European Community to find a way to deal with interest rates inside the Community and not be dragged along behind whatever policy the Federal Reserve decides to follow.

The problem cannot even be dealt with politically, because under the American system the Federal Reserve almost always wins and not the politicians. Therefore, it is a very serious question of policy that should be taken up by the Government. How can the Community separate itself from the other forces pursuing the policies that they are pursuing?

Mr. Hordern

As my right hon. Friend knows, the evolution of a common policy within the EEC must involve exchange controls, so how would he persuade West Germany to introduce them?

Mr. Heath

I should try the usual forms of persuasion. I believe that, when Chancellor Schmidt finds that his unemployment is also rapidly increasing, as it is, that his young people are becoming intensely disaffected, as they are, and that that is leading to a tendency to repudiate NATO and all that it stands for, as is happening, with a consequent movement from West Germany looking towards the East, he will realise it as quickly as anyone and will then recognise that economically he must take action inside Germany.

However, that does not alter the fact that the Bundesbank has a strong position inside the Federal Republic, as my hon. Friend knows, and the difficulties are there. But with all the difficulties we must still ask whether we are to continue with 3 million unemployed, and rising, in this country and with 10 million unemployed, and rising, in the Community. That is the situation that we are faced with and it should be sufficient prompting for us to deal with the difficulties that my hon. Friend rightly points out.

I also strongly urge that we join the European monetary system, which would help to stabilise sterling. If the Chancellor is serious about dealing with the sterling exchange rate, that is the way that it should be done. No doubt he will at once say that we must go in at the right rate, and, of course, I agree, but that is a matter of judgment. In the 1924 Government, Mr. Churchill, on the advice of Montagu Norman, went back to the gold standard at the wrong rate and brought about depression in this country in the 1920s before it happened in the rest of the world in the 1930s.

The Chancellor's advisers must use their judgment on the rate at which we should go in and then get sterling into that rate. That is perfectly feasible, and the Chancellor can do it by the use of his reserves. Nor should he be afraid of using the reserves for the purpose of reaching a position in sterling which is helpful to our exporters and which does not put too great a pressure on inflation within the country. If he is able to do that, and if we can separate ourselves and the Community from the high interest rates on the other side of the Atlantic, we can begin to make progress.

Mr. Ian Lloyd (Havant and Waterloo)

My right hon. Friend has stipulated an interesting hierarchy of courses, but he has not mentioned the fact that between $80 billion and $100 billion a year is being sucked out of the combined economies of North America and Western Europe, so how does he conceive that the economies of Western Europe can effectively be isolated from that of North America?

Mr. Heath

There is no problem about doing that on interest rates, but I have not yet mentioned the OPEC surpluses, because I am told that everyone is bored to death with my mentioning them. However, I have got the point down on my little piece of paper. I can now enlighten my hon. Friend and once again bore everyone to tears about the problem of the OPEC surpluses.

There are two aspects concerning Europe. The first is interest rates. Once we can deal with them, we can have interest rates which relate to each other inside the Community, and that will allow us to reduce them substantially, which will reduce unemployment and increase production. The calculation is that for every point that we can reduce interest rates we can increase the gross domestic product by ½ per cent. If we really brought down interest rates, that would put us in business. It would reduce unemployment, Government expenditure and the Government's borrowing requirement. That is why it is so essential that we should start on that path.

Next, I suggest that the Government should do their utmost not to increase prices or charges, except where that is absolutely inescapable. There are times when one can do this successfully and times when it is damaging. The art is to choose the moment when it will cause the least damage.

My next general point is that it is essential that the Government, now that they are—I was about to say changing course—veering round the curve, should remove any confusion by making absolutely plain the policies that they are following. That is particularly necessary with the exchange rate. We must know clearly that the Chancellor will follow a policy on the exchange rate and on interest rates, as well as on the money supply and the Government borrowing requirement. If he does that, not only will business men and financiers not have criticisms, but it will help my hon. Friends in the country in talking to our constituents and in putting our case.

Perhaps the Chancellor will also explain how the growth is to be brought about at the point at which he deems it right to do so. It is a lasting mystery to those of us who try to understand monetarists. When one finally reaches the point of X million unemployed, and one has a monetary supply which one says is under control at the right figure, how does one start recovery? That is what no one has had explained to them, so I should be grateful if my right hon. and learned Friend would take an early opportunity to explain how the recovery is to be brought about, bearing in mind the fact that he says that it must not be brought about by reflation.

On Wednesday, in answer to a question, the Chancellor said that the very word "reflation" meant inflation. Here I beg to differ. However, if he takes that view, it is even more important for him to explain how growth can be brought about; otherwise, no one can understand how it is to happen, and we should all like to understand.

The fact is that it can happen only by a process of reflation. If one goes back to the 1930s again—I am sorry to harp on this—the terrible depression then was slowly brought to an end only by massive rearmament, and when we went into the war we still had nearly 2 million unemployed.

Mrs. Elaine Kellett-Bowman (Lancaster)


Mr. Heath

Rearmament was a form of reflation.

Mrs. Kellett-Bowman


Mr. Heath

Yes, but to a limited degree. Housing was massive reflation in 1951.

May I just make two points about growth when it comes? To an even greater extent than ever before, we shall face the problem of a shortage of skilled man and woman power. The country has never had a comprehensive training system, and we desperately need one today. The Government have abolished a considerable number of the training boards. If those training boards were not effective and they deemed it right to abolish them, well and good, but the Secretary of State for Employment is now considering a new training scheme. It must be comprehensive and effective. As the first industrial nation, we lived on the fact that large companies trained a lot of people whom they knew they would never need, so that the smaller companies could have them free of training charge. That is no longer so. Firms will not do it, for understandable reasons. Therefore, like Germany, France, the United States and other countries, we must carry out modernisation ourselves and have a comprehensive training system.

The second thing that we must ensure when expansion comes—and this will affect whichever party is in Government—is that methods of pay bargaining are adjusted to get away from the fact that since 1950 the increase in inflation through pay bargaining has been at a proportion of 1½ to 1 compared with other countries. The figures are there to prove it. At this time, there should surely be intensive discussion at least between employers and unions as to how to establish a system of pay bargaining that will enable us to expand without at the same time running a risk of inflation greater than in other countries.

In conclusion, I turn to the OPEC surpluses, which are, of course, crucial in the present world situation. If OPEC has a surplus this year of $150 billion while the developing world has a deficit of $100 billion and the North—the industrialised world—a deficit of $80 billion, of course there is an imbalance. The answer lies in putting the OPEC surpluses to good use. That demands international action. I therefore ask the Chancellor of the Exchequer why we are not pursuing international action. We should be driving ahead for all we are worth to bring it about. Yet we are not doing so.

As I have said before, the one thing that is required for the OPEC surpluses is too give to OPEC countries a greater say in the international monetary institutions—the IMF and the World Bank. Yet for the past two years the Chancellor has blocked that at the September meetings. Until it is unblocked by the British and the Americans, we shall never achieve the use of the OPEC surpluses for development and investment purposes. I see that the right hon. Member for Down, South (Mr. Powell) is becoming increasingly disturbed, so I shall take that point no further.

Mr. J. Enoch Powell (Down, South)

When the right hon. Gentleman refers to OPEC surpluses, I take it that he means surpluses on current account. It cannot have those surpluses on current account unless at the same time it has an equal deficit on capital account. In other words, the OPEC countries must already be exporting that quantity of capital which balances the current deficit. And the right hon. Gentleman may as well take the grin off his face.

Mr. Heath

The right hon. Gentleman may ask a great deal, but it is too much to ask me to do that.

Of course, they export the oil and in return they get the money. We want that money used for development purposes—instead of being on call, as at present, on short term and at short notice, placed in a bank wherever the highest interest rate can be obtained. That is now characteristic of a large part of Western society. We were accused in the past of being a materialist society. We were then accused of being a consumer goods society. I accepted neither of those accusations. Today we have a society that is concerned only about rates of interest, which puts its money wherever the highest rate—an extra 1/8 per cent. or 1/16 per cent.—can be obtained. I do not blame people for doing that. It is a fact of life. We heard this week of a great British company with a very good report which at present holds £600 million in cash where it attracts the highest interest. That money is not being invested for future development and growth. That situation will change only when we can bring interest rates down and people see that there is a better return in true industrial development. That is how we wish the OPEC surpluses to be used as well.

Finally, what is most worrying for this country at present is that it cannot see any better future at the end of the proceedings. It is therefore our responsibility to show people where it is.The Times said in a leader today that we are an inefficient nation. We are not. A great deal of this nation is extremely efficient. One can visit firms throughout the country, including my constituency, which are extremely efficient. That does not mean, however, that they can cope with a pound that roars up to $2.40 or $2.45 in a few months. Of course they cannot. Nobody can. Saying that we are an inefficient country merely reduces our morale still further.

What is required now is to show how we can take an initiative in world affairs to bring about the change that is needed and how we can deal with internal affairs so that we can start growth and expansion through a degree of reflation. The judgment must always rest with the Chancellor of the Exchequer and the Government as to how much can be carried through. Initially, it must be carried through primarily by means of capital investment, which will then turn itself into consumer power.

I must tell the Chancellor that, from experience, I find it very difficult to understand the figures that are now given to us about the consequences of reflation on the number of jobs provided. They bear absolutely no relationship to those previously given by any of the accepted Treasury pundits or by the groups of economists who work on these matters. Are they taking no account of the multiplier? I find that difficult to believe. Or is it true, as I am told, that they assume that if there is reflation and an increase in the money supply there is automatically an increase in inflation and therefore a reduction in jobs? If they are still working on that basis, the Chancellor must bring them up to date with his own thinking and let us have a new forecast as to how many jobs are produced by the investment of certain sums of money. We shall then have a better judgment as to how much reflation can be carried out.

Above all, I beg the Chancellor—now that he is moving so beautifully round the curve—to show the country why things are going to happen and how they will happen and then to show that he is determined to carry through this new approach.

5.7 pm

Mrs. Shirley Williams (Crosby)

It is a great delight for me to return to the House of Commons as what I suppose might be described as a kind of "re-tread" maiden. It is also a particular delight to be elected the first Social Democrat Member of Parliament—but not, I hurriedly assure the House, the last.

I have the honour to succeed a very dignified and well-known Member of the House, Sir Graham Page, who was for many years the Member of Parliament for the Crosby division of Merseyside. He was well known to the House as a person who conducted debates with great courtesy and consideration for Members on both sides. He also, I believe, added dignity to the House in the way in which he dealt with his constituents and with members of the public who visited the House. I am therefore proud indeed to succeed him, for all that we were from different parties.

As many hon. Members will know, the Crosby division represents in many ways a microcosm of the United Kingdom. It includes very prosperous towns such as Formby, Maghull and Crosby itself, as well as areas such as Seaforth and Waterloo which are being increasingly engulfed by unemployment, by the rising blight of vandalism and hooliganism and by great concern about the deterioration of housing stock and the quality of everyday life.

In the course of what was in many ways a dramatic and exciting election campaign, I found that the constituents of Crosby were becoming more and more deeply concerned about the level of unemployment. In the Crosby division alone, adult unemployment has risen from 2,400 to 4,410 in just over two years. As if that were not bad enough, the position of those under the age of 18 is even more grave. In October, in the Sefton district as a whole, no fewer than 2,342 young people were unemployed. As that figure shows, there is very little chance of those young people obtaining suitable or sustained employment.

It can be said, as my hon. Friend the Member for Liverpool, Kirkdale (Mr. Dunn) will confirm, that the fortunes of the Crosby division represent to a great extent what will happen in future to the great city of Liverpool. The Secretary of State for the Environment and my hon. Friends the Members for Kirkdale and Liverpool, Toxteth (Mr. Crawshaw) all know that the position of that great city is today sowing considerable despair in the hearts of those who live there and those who hope to find their futures in that city.

I congratulate the Government on what I can only describe as the boldness—one might even say the brassiness—of their motion. It congratulates the Government in rather florid terms on all that they have achieved in terms of output, investment and the future of this country. I find it amazing that the Government can congratulate themselves in those terms. The truth is that, in the mini-Budget that the Chancellor put before the House, it is difficult to understand how increased rates, rents and charges will do anything effective about the inflation that the Government claim to be their major and overriding target. It is equally difficult to discern how an increase in the national insurance contribution rate and in the rates that will fall upon industry next year will do anything to encourage employment in this country.

I shall sit down if the Chancellor wishes to challenge the figure in the leading article inThe Times today, which indicated that the overall public investment in the entire public sector, including local government, will decline by £500 million in the coming year. If the right hon. and learned Gentleman will deny that, I shall gladly give way, but I understand that the Treasury was in agreement with that figure. That suggests a further measure of deflation, not least in the area to which the right hon. Member for Sidcup (Mr. Heath) pointed—the area of capital investment in the public sector.

Indeed, it is difficult to see how the Chancellor can replace that level of deflation with any effective improvement in reflation in the next six months. Perhaps the right hon. and learned Gentleman has in mind the possibility of a reduction in income tax in his Budget next April. I point out to him that an increase in national insurance contributions, even if it were to be balanced by a decrease in income tax, would be a form of regressive movement in overall taxation that would move the burden away from the standard income tax payer towards many people who are not even within the standard income tax band.

The Chancellor must also have in mind that any reduction in the standard rate of income tax benefits those with a considerable propensity to import, whereas an increase in national insurance contributions affects those whose spending pattern is least likely to increase the level of imports compared with their overall consumption.

During the last two and a half years—the Government are at the mid-stage of their term of office—as the right hon. Member for Stepney and Poplar (Mr. Shore) said, manufacturing output has fallen by nearly one fifth. Investment in the private sector has fallen by nearly a quarter and the level of inflation, far from decreasing, has increased by 1.3 per cent. Against all that, the Chancellor of the Exchequer tells us that the position is now about to improve.

After £6 billion worth of de-stocking in the last year, the 1 per cent. rate of growth to which the Chancellor points will do nothing to make good the loss of output and does little to recover the de-stocking in industry over the last year. In addition, the Chancellor has seen fit to decide that he cannot maintain the real rate of increase against inflation of short-term allowances. On 3 December 1981 the Under-Secretary of State for Health and Social Security said: I shall go further and list the other benefits that are not pledged by my right hon. and learned Friend the Chancellor …"— that is to say, not pledged to be uprated to the rate of price increases— unemployment benefits"— to which the right hon. Member for Sidcup referred— sickness benefit, injury benefit, maternity allowance, child benefit—including one-parent benefit—family income supplement"— so much for the low paid constituents of the hon. Member for Bridlington (Mr. Townend) who will not be able to improve their incomes from family income supplement on a real indexed rate of improvement— mobility allowance"— which affects invalids and the disabled—and, not least, supplementary allowance."—[[Official Report, 3 December 1981; Vol. 14, c. 485.] The saving of £65 million, the paltry sum that the Chancellor will save in order to lower the standard of living of the poorest people in our community, includes the old, who are among the least well off and who, if married, will be making an interest-free loan to the Government of £125 until the present pension level is uprated next November, and perhaps even more the single parent families—the largest single group of people in poverty in the community as a whole. The Government did not give any indication that that would happen.

On 26 March 1980, the Chancellor said in his Budget Statement: clearly, no action that we take should be at the expense of the really weak and needy. Accordingly, we propose that supplementary benefit rates … will be increased next November in line with the projected level of prices."—[Official Report, 26 March 1980; Vol. 981, c. 1459] The following day, the present Secretary of State for Industry said: The Government are determined to maintain the safety net for the poorest people and accordingly the scale rates of short-term supplementary benefit will be fully price protected".—[Official Report, 27 March 1980; Vol. 981, c. 1659.] So much for the determination of the Government. So much for their pledge. That lasted for one and a half years and is now evidently dead.

In the two and a half years that I have been out of the House, we have seen nothing but a deterioration in the prospects of the British economy. Today, the British people are being sacrificed on the altar of monetarism and the soothsayers of monetarism have declared that they are heretics. Perhaps the epitaph written on the coffin of the British economy will read "Rest in peace. You died for the cause of a lower public sector borrowing requirement".

All that might be acceptable if there were any evidence that the Government were building for the future but, sadly, there is none. As the right hon. Member for Sidcup and the right hon. Member for Stepney and Poplar pointed out, the Government are at present operating just as fierce an economic and financial constraint against investment and capital expenditure as against any other sort of expenditure. The raising of the totem pole of the public sector borrowing requirement against expenditure in areas such as telecommunications, microelectronics, training and biotechnology is absurd, and most other European countries have not followed us down that road.

In addition to the decline in investment by a quarter over the last two years, tragically, this year the number of young men and women who entered engineering apprenticeships—the most crucial industry of all for the future of the British economy—was the lowest since records were first kept. Further, the 16,000 engineering apprentices that were taken on in 1981 are estimated by the industry to be 4,000 fewer than the absolute minimum requirement to sustain the skill levels of the industry and its competitiveness.

The Government constantly argue that there is no alternative. I was a little disappointed in the motion of the official Opposition, as I believe that they are now properly described—that means no doubt that we should be the provisional Opposition, or conceivably the Opposition in waiting—because it devoted only half a sentence to any form of constructive alternative.

On the strength of the three sentences of alternatives expressed by the Social Democratic Party and Liberal Party in the House, we believe that there is a strong case, as has been urged in many quarters, for a reflation figure of approximately £5 billion to £6 billion a year. If that amount were used in a carefully chosen way to support the more labour-intensive sectors such as housing modernisation and basic economic infrastructure in, for example, railway electrification, modernisation of harbours and transport, and if, in addition, money were spent on the conservation of energy and the re-equipping of small and medium-sized businesses using energy-efficiency equipment without which they will not survive, that investment would pay for itself within four or five years.

I shall give two brief examples. The first is drawn from our own country. For the expenditure of between £150 and £600 for each house built on a basic council house local authority pattern, the saving in energy expenditure on that house is approximitely 50 per cent. a year. Within five years, the full additional cost, most of it on jobs and an improved standard of housing, is repaid, and in every subsequent year there is a net gain in terms of a saving to the householder and to the country in energy and energy bills.

My second example is drawn from the Federal Republic of Germany. The Chancellor of the Exchequer referred to the argument that an expenditure of £5 billion to £6 billion a year would be unlikely to produce an increase in employment of more than about 150,000 to 350,000 jobs a year. An investment scheme introduced by the Federal Republic of Germany in 1977, amounting to 4.35 billion deutschemarks—roughly £1,000 million—produced 70,000 additional jobs a year for five years, in employment connected with the replacement of essential equipment for small industries, energy conservation, and advanced new technologies in industry. It is a tragedy that in this country we are not spending more on creating the basic foundation on which to build a future for our children and grandchildren.

At present, the Federal Republic of Germany is also considering an interim Budget, but there is a major difference between that Budget, with a 5.8 per cent. inflation rate and 6 per cent. unemployment, and the one that the Chancellor presented to the House last week. In the Federal Republic of Germany 10 billion deutsche-marks is to be allocated to reflating the economy to provide additional jobs in environmental protection such as cleaning rivers and the air, new housing, and the modernisation of housing. I commend that alternative to the Chancellor of the Exchequer.

I want to make two further comments. The first has been often made by hon. Members and I endorse it. We still need to take more effective steps about small and medium sized businesses. The Chancellor's last proposals, good though they were in many ways, are being hampered by extremely tight administrative controls, and they are not as readily available as many of us would wish.

The official Opposition should bear in mind that, between 1969 and 1974, the most recent period for which figures are available, the increase in employment in the United States, in mature companies, in both the public and private sectors, was 0.6 per cent. a year. The increase in jobs in high technology small business was 47.1 per cent. a year. If members of the official Opposition say that they really care about jobs, they should consider the effective proposals that small businesses could put forward in creating and generating new permanent jobs.

I strongly support what the right hon. Member for Sidcup said about training. On 15 December, the Secretary of State for Employment will put to the House his proposals for the youth opportunities programme and the training of young people. I fear that, again, too much of the Government's money will go to cosmetic schemes seeking to take young people off the unemployment register, without providing any effective foundation of skill training, which will give them a permanent prospect for the future. I urge the Government to consider whether the time is now ripe to mobilise every last empty apprenticeship place in the Forces' training schools, every last place that can be got into the further education colleges, so that young people may have a one-year basic foundation of industrial training when they leave school. School leavers are being turned out into an economy that has nothing whatsoever for them at a time when there are still massive shortages of skill.

At present the most profound confusion exists in industry, the most profound despair exists in our great cities, and the most profound bitterness is felt by our young people, yet the Government are being urged by both sides of the House towards a reasonable, moderate and sensible policy of reflation and reinvestment. In the interests of the people of this country and in the interests of saving our economy from its present desperate condition, I beg the Government to think again.

5.27 pm
Sir William Clark (Croydon, South)

It is a great pleasure to follow in the debate the right hon. Member for Crosby (Mrs. Williams). I am sure that the House would like to congratulate her on her second maiden speech. It is also a pleasure to find out what the Social Democratic Party stands for. The right hon. Lady gave a Post Office stamp exposé of policy, saying that her party wants a £6 billion reflation, but of course no one has yet explained how that money is to be funded.

The second policy that the right hon. Lady expounded, with which I am sure we all agree, concerned small businesses. I am delighted that she, of all people, has suddenly realised that small businesses have a part to play in the economy. When she was formerly in the House, she did not believe that they had much part to play, and under the Labour Government of which she was a member small businesses were hit extremely hard. Therefore, I am delighted at her conversion.

I am sure that the right hon. Lady and her colleagues are delighted that my right hon. and learned Friend the Chancellor of the Exchequer has introduced not only enterprise zones but the business start-up scheme. The latter will naturally take time to get going, but there are signs that it is being taken up. It is the best fiscal incentive for small businesses in the Western world. My right hon. and learned Friend should take credit for that. Conservatives are rather modest about anything we do that is right. We are inclined to be better on the defensive. This is an occasion when the Conservatives should be on the attack.

I realise that this is old hat but I remind the House that when the Conservative Party came to office in 1979 one of our manifesto pledges was to introduce good housekeeping into our national finances. In 1979, we inherited rising inflation, falling output and colossal overmanning. Hon. Members on both sides of the House realise that that is true. The post-dated cheques left for the present Government—whether for Clegg or otherwise—had to be honoured, which meant that, irrespective of which party came into office, the economy would have declined.

The Government ought to be congratulated. It is true that inflation continued to rise after the election. However, although it is not possible to achieve unanimity on every facet of the Government's economic strategy, its overall effect has been to reduce inflation. Nobody can deny that inflation is on the decline. Many of us would like it to decline further, but we should ask ourselves one question, which many of my colleagues and members of the public have asked me. We should ask whether we have cut public expenditure enough. That is one of the questions that we should answer.

It would pay the Chancellor of the Exchequer to have a look at the accounting principles of our national finances. The mixing up of revenue expenditure with capital expenditure—not knowing what this is or that is—is quite wrong. That is no way to run a business. In the businesses with which I am connected, capital expenditure must be kept separate from revenue expenditure. I am sure that my hon. Friends will agree with that. I urge the Chancellor to do something about that. Whether revenue expenditure or capital expenditure is involved, the public sector borrowing requirement must be affected.

The public sector borrowing requirement will presumably be on target this year at £10½ billion. That adds up to an overspend of £21,000 a minute. We do not know whether it will be on target next year, because, as my right hon. Friend the Member for Sidcup (Mr. Heath) said, we have only half the balance sheet in front of us today. We have the expenditure side but we do not know the income side.

Like my right hon. Friend the Member for Sidcup, I wish to put down a marker to my right hon. and learned Friend the Chancellor. We shall fall into a terrible trap if we continue with index-linked bonds. They make Government borrowing easy. There may be a true rate of 2 per cent. after 10 years, but in the intervening period the Government will not have reserved sufficient money for the day of repayment. I say to my right hon. and learned Friend—this is a serious marker—that index-linked bonds should not be continued.

Hon. Members, particularly Opposition Members, draw attention to what happens in Germany, France or other countries. They ask why we cannot do the same. The fallacy is that the borrowing requirement, for example, in France is about $2 billion. The borrowing requirement in Britain is $19 billion. Therefore, that is not a comparison between two similar economic situations. It is easy to say "reflate". The right hon. Member for Crosby and the right hon. Member for Stepney and Poplar (Mr. Shore) both say reflate. Neither of them says where the money will come from. It is easy to say reflate, but who pays in the end? Only the taxpayer pays. We should continually remind ourselves that, whatever money any Government spend, it eventually comes out of the taxpayer's pocket because Governments do not have any money of their own.

Mr. Ralph Howell (Norfolk, North)

My hon. Friend has mentioned the borrowing requirement in France. Is my hon. Friend aware that in the United Kingdom 5 million people are employed in the Civil Service, local government and the National Health Service whereas the French employ only 3 million in the equivalent areas?

Sir William Clark

I am most grateful to my hon. Friend. I was about to mention overmanning, but not necessarily in a comparison between Britain and France.

We are told that this year total public expenditure will amount to £110 billion and that next year it will be £115 billion. That represents an increase of £5 billion. This year, total public expenditure represents 45 per cent. of gross domestic product. That is an important figure. Having read the Chancellor of the Exchequer's statement and the articles written since my right hon. and learned Friend's announcement last week, I believe that the figure next year should be down to 44 per cent. That is a step in the right direction.

My right hon. Friend the Member for Sidcup took the House to task for getting the public and private sectors mixed up. He rightly maintained that they are integrated. Of course, that is true, but, with great respect, my right hon. Friend missed the point. The difference between the private and public sectors is that the private sector is not cosseted, whereas the public sector often is. Over the years the private sector has borne the brunt of the recession. It is interesting to note that the right hon. Member for Stepney and Poplar did not once say that to some extent our economic ills were the result of the world recession. If they are honest, Labour Members know that when Britain is compared with other countries, particularly those in the Western world, it has not done too badly, considering the world recession.

Mr. Robin F. Cook (Edinburgh, Central)

It has done appallingly.

Sir William Clark

I am talking about an international comparison. The hon. Gentleman knows as well as I that unemployment and inflation are increasing all over the world and production is levelling out and, in some cases, falling.

Mr. Cook

Will the hon. Gentleman name just one country in which unemployment has doubled in the past two years?

Sir William Clark

I do not think that I can, but the hon. Gentleman should realise that unemployment was increasing when the Conservative Party came to office. Our unemployment rate has risen so fast because Britain was uncompetitive and there was great overmanning. My hon. Friend the Member for Norfolk, North (Mr. Howell) mentioned the number of civil servants in France, compared with the number in Britain.

The nationalised industries are a drain on the economy. It is a crying shame and a disgrace that the increase in prices in nationalised industries is twice—if not two and a half times—that in the private sector. If the nationalised industries were as efficient as private sector industries, inflation would fall. When the Government of the day say that the return on capital must be increased from 4 per cent. to 5 per cent., nationalised industries automatically reply—as happened with telephone charges—that if they must achieve 5 per cent. this year although they only achieved 4 per cent. last year they must increase their income. There are two ways of making money: to increase income or to reduce expenditure. One has the most control over a reduction in expenditure. One does not have as much control over increasing income unless one has a monopoly. As Labour Members know, the rental charges for telephones were merely increased and amount of time per unit was reduced.

My right hon. Friend the Member for Sidcup pointed out what should or should not happen and warned about the next Budget. However, the revenue from the next Budget must be higher. Over the past six or nine months the profitability of companies has dramatically increased. Obviously, the receipts from corporation tax will be higher as, no doubt, will be the receipts from PAYE.

I give my right hon. and learned Friend one word of caution. It is possible that the point of diminishing returns has been reached in relation to duties and tax on tobacco and spirits. A recent article by a leading firm of stockbrokers, experts in this field, purports to show that there may be a short fall on the Chancellor's estimate for this year, given in his Budget. I caution my right hon. and learned Friend to be careful over tobacco, beer and spirits.

I return to the point on which my hon. Friend the Member for Norfolk, North was kind enough to prompt me. The Government and departmental Ministers have to grasp the nettle of the overmanning that exists in the administrative services of local authorities and health authorities. I do not mean doctors, nurses or even dustbin men. I refer to the administrative services in local authorities, health authorities and education authorities up and down the country. The nettle must be grasped. There should be a moratorium on the recruitment of administrators. The Government can be criticised for not having grasped the nettle more firmly earlier in the life of this Parliament.

The Government have put forward guidelines on this, that and the other. All that the local administrator in health and local authorities has done is to cut services to the public. The same number of administrators are presumably still seated behind desks moving bits of paper backwards and forwards. Everyone agrees with cutting public expenditure until one comes down to the particular. It is only when one reaches the particular that argument arises over whether to cut education, roads or housing. It depends on which hobby horse one happens to be riding.

Mr. Norman Atkinson

Why not cut the dole queues?

Sir William Clark

Everyone agrees in general with cuts in public expenditure. The policy urged upon the Government at the moment is to reflate. I shall not enter the argument that the funding of reflation means higher interest rates leading to higher inflation and higher unemployment. That is known. The call is for the Government to adopt policies, as successive Governments have done in the past, that have failed. One has only to look at the signs to be seen from the policy that the Government have been carrying out.[Interruption.] I hope that hon. Members representing the Social Democratic Party can contain themselves. Production is going up. Inflation is coming down. Unemployment is flattening out.[Interruption.] Hon. Members should get their facts right. The trend of inflation is coming down.

The Government have to be careful. It has always to be remembered that the Chancellor of the Exchequer is merely the trustee of the taxpayer's funds. He must spend his money wisely. It is, however, high time to stop the doom and gloom. This country has good prospects, and the economic signs are that we will win through.

5.43 pm
Mr. Joel Barnett (Heywood and Royton)

I hope that the hon. Member for Croydon, South (Sir W. Clark) will forgive me if I do not pursue his remarks. The hon. Gentleman can usually be relied upon to support the Government and he did not let us down. He is usually helpful. I prefer helpfulness of the kind provided by the right hon. Member for Sidcup (Mr. Heath). The right hon. Gentleman said he was trying to be helpful to the Government. My only disagreement with the right hon. Gentleman is his assumption that the Chancellor is pursuing a new, flexible course on interest rates and exchange rates. I only hope that this is true. Perhaps the right hon. and learned Gentleman the Chief Secretary to the Treasury will be able to confirm this later. I gather from the look on his face that he cannot do so. It would, however, be nice if the right hon. Member for Sidcup was right.

I agree with the Chancellor in one respect at least. There is no room, either through public expenditure or through taxation, for a general increase in living standards. The cash growth of incomes between 1977 and 1980 leaves no room for doubt—irrespective of whether the Treasury statistics of 17 per cent. growth are right or wrong—that incomes have grown much higher than the growth seen in the economy. That is an indisputable fact. There is therefore no room at present for further growth.

If there is to be no increase or, indeed, if there is to be, as the Chancellor plans, an actual cut in real living standards, two requirements are essential to make the situation socially acceptable. The first is that the distribution of the burden should be fair. The second is the need to increase public expenditure and to cut taxes in the spring, and also interest rates and exchange rates, so as to plan to reduce unemployment rather than positively plan to increase it. For the Chancellor to come to the House with plans that set out deliberately to increase an unemployment figure that already stands at 3 million is socially unacceptable.

On what might be called the distribution of misery, the Chancellor has been patently unfair. I doubt if any hon. Member disagrees with what I say. My right hon. Friend the Member for Stepney and Poplar (Mr. Shore) spelt out the facts in some detail. All hon. Members are pretty clear how it has been done. There were substantial tax reductions for the higher paid in 1979. Ever since, there have been tax increases, finishing now with increases in national insurance contributions that only hurt those at the lowest end of the income scale. These measures hit hardest those in areas such as my constituency in the North which not only failed to see 17 per cent. real growth of incomes between 1977 and 1980, but also finds incomprehensible the fact that average industial earnings are £150 per week. In my area, that is found unbelievable.

The second issue that arises if people are to be persuaded to accept the need for no increase in real living standards relates to public expenditure. I regret to have to say to the Chancellor and the Chief Secretary that both, I believe, have been deliberately deceitful in the way that they have expounded their public expenditure plans to the House. The wets thought that they had won in the Cabinet, but the battles that they won were battles that should never have had to be fought in the first place. The Chancellor and the Chief Secretary should never have put forward such proposals.

The wets eventually lost because they were deceived in the Cabinet by the Chancellor, who is now attempting to do the same to hon. Members. The right hon. and learned Gentleman says that he is increasing his original plans—he puts the figure at £110 billion—by £5 billion. That is untrue. I doubt if the Chief Secretary can deny that a £5 billion increase in real terms is untrue. He has never said it is true. He will not deny it now as I can see from the look on his face. Even in cash terms, as I wish to show, the real position, to put it mildly, is somewhat obscure.

In saying that the Chancellor and the Chief Secretary have been deceitful, and deliberately so, I should like to refer to a speech by the Chief Secretary in Manchester last Friday. Referring to the increase, as he calls it, in public expenditure, the right hon. and learned Gentleman said: This decision was a conscious, deliberate, collective response by the Government to the realities of our present position. The Government were deliberate in what they were doing. It was a deliberate increase, we are told, of £5 billion. It may have been deliberate by the Chancellor and the Chief Secretary. I doubt if the Cabinet really understood what they were about. Public expenditure figures are invariably confusing. I plead guilty to having done a bit of confusing in my time. Yet, according to the Chancellor and the Chief Secretary, now that the matter is being expressed in cash terms, it will be much simpler. It will be more readily understood, we are led to understand, by the average housewife. As it is, there is total confusion about whether we have a real increase or not. The reason is that there is more deliberate obfuscation in what the Chancellor and Chief Secretary have done on this occasion than has ever been the case in the past.

The best that can be said in the Chancellor's favour—from the way in which the Chief Secretary is shaking his head, I include him in my comment—is that they were not clear about what was going on. By the time that the exercise was over, I believe that the Chief Secretary and the Chancellor were as confused as the other members of the Cabinet about precisely what they were doing.

It is clear to me how it all began. They decided to go for a figure of less than £115 billion, but then saw that they could not get it and decided to settle for £115 billion. That was to be the figure, whatever the Cabinet decided, so they set about achieving it. On that occasion the Chief Secretary obtained his figure by even more juggling than usual. I know a little about that juggling, which is usually called "assumptions". The main element in arriving at the figure of £115 billion in the Chancellor's statement last week was that the relative price effect would be favourable—that prices in the public sector would be lower than in the private sector, and that pay increases in the public sector would be limited to 4 per cent. despite a clear commitment not to fix cash limits in advance of negotiations. That is the first set of assumptions.

We were then told that the Departments, in addition to what has been done already, must live within a further 2 per cent. cash limit squeeze. They may or may not be able to do that, but it is an assumption in arriving at the figure of £115 billion. Also, local authorities must live within a further 3 per cent. cut in the rate support grant. Of course, the matter works both ways, because if the local authorities do not stay within that limit it will leave the Chancellor room in which to cut taxes. That will go on the rates, for which he can blame local authorities. There are even more dubious assumptions, implicit in the figure of £115 billion, about gross domestic product growth, interest rates and unemployment.

Finally, there is the greatest fiddle of all—the balancing figures required to achieve the figure that the Chancellor first thought of. The balancing figure on this occasion is £3,300 million, which is described in a lovely phrase as "a single global allowance". That is made up of a contingency reserve of £2,850 million. There is a minus figure, from the special sale of assets, of £180 million and an underspend of £700 million. The plain fact is—the Chief Secretary must know it—that those three figures could have been any that he cared to think of. He chose that figure in order to reach £155 billion. The balancing figure is made up of all that, plus an increase in the national insurance contribution. That at least partially counts as a cut in public expenditure instead of a tax increase, which is what it really is.

When the Chancellor has done all that, the net result is that, abracadabra, one has the figure of £115 billion that the Chancellor and Chief Secretary decided they wanted in the first instance. When all the juggling is finished, we are told that there is an increase of £5 billion. The Chancellor boasted about it. The increase will allow what the Chancellor and the Prime Minister have told us is the new-found flexibility, but it misled their right hon. Friend the Member for Sidcup into believing that it really was flexible. The only flexibility in the proposal is that even if one takes the figure of £110 billion from which the Chancellor started—which as we see from tables 1 and 2 of his statement are dubious figures to start with—we are then told that it is based on old assumptions and that appropriate adjustments will be made later.

If we do all that, and make the late adjustments and the later assumptions, we shall reach £115 billion. However, when the juggling and fiddling stops there is no doubt that, taking like with like and allowing for the Chancellor's inflation assumptions, there will be a real cut in public expenditure between 1981–82 and 1982–83. I should be glad if, when the Chief Secretary replies to the debate, he can show us how it is the same figure. We can forget the £5 billion, which we know is a fiddled figure. Perhaps he can show us how, in real terms, the figure is the same. I shall be interested to hear his calculations.

For the future, my advice to Cabinets wets—who must now be in a majority—is that next time they should not believe the Chancellor and the Chief Secretary when they bounce the Cabinet with figures. They must ask for time to think over the proposals, because the Chancellor and Chief Secretary have certainly bounced the Cabinet on this occasion into believing that they have got what they wished. In practice, they got what should never have been asked for and got a cut in public expenditure instead of the increase that was needed.

Not only is the total public expenditure inadequate: the way in which the changes have been made is also inadequate. We are told that expenditure in nationalised industries will be increased by £1.3 billion, but we are entitled to ask—from what? It is from an utterly unrealistic plan in last year's White Paper. The net result will again be low capital investment in the nationalised industries, which is the area where there should be increases.

The Chief Secretary cannot fiddle with me. I have done more fiddling than he. We know very well what he is doing. He is cutting capital investment in the nationalised industries from what they really need, and he knows it.

We have the same position with local authorities. We are told that there will be an increase of £1,350 million. Then we were told last week by the Chancellor: They will still be required to make substantial economies."—[Official Report, 2 December 1981; Vol. 14, c. 240.] At a time when, especially in the inner cities, we know the desperate plight of local authorities we are told now that they must make substantial economies.

Perhaps the greatest tragedy exposed by the Chancellor was in column 258 of the same volume of Hansard, when he spelt out that he was planning, as I said at the outset, positively to increase unemployment. We know that the Government Actuary does not make assumptions about unemployment by himself. They are given to him by the Chancellor. If we consider what has happened in the past about the outturn of unemployment against the assumptions given to the Actuary, we see that they have been either almost right or, as in the case of the last full year, 1980–81, the assumption was 1.6 million and the outturn was 1.8 million.

The level of unemployment is undeniable. The Chancellor is planning, on those assumptions, that there will he a positive and substantial increase in an already unacceptably high level of unemployment. It is essential to reverse that tragic trend in the interests of the millions of people, especially young people, who are demoralised and feel that they have no chance of getting a job. Not only is it wicked and intolerable positively to increase unemployment beyond 3 million, but if cuts in living standards have a chance of being accepted those in work must feel that they no longer fear for their jobs and those out of work must feel that there is at least a hope of a job. That must be much more important than a 1 per cent. or 2 per cent. increase in the rate of inflation, although I should prefer the sort of incomes policy that would prevent that from happening as well.

I do not pretend, and never have, that there is a long-term answer to unemployment in any easy magical way. Such a solution is not available to the Government and it will not be easy for any Government to achieve that position without major changes of attitude within the trade union movement. However, the Chancellor can and should take some short-term measures, which cannot be achieved through personal tax cuts in the Budget alone. That would not work quickly enough and would risk the problems of inflation about which the Chancellor is worried, but if unemployment is to be cut in the short term it must be largely through public expenditure, increased capital programmes in both local authorities and nationalised industries, and help for the inner cities.

I began my speech by stating two essential requirements that would make the likely economic prospects just about tolerable and socially acceptable, without an explosion much worse than anything we saw last summer. First, a fairer distribution of incomes can surely be achieved even by this Chancellor. I put down that marker, and hope and trust that the coming Budget will ensure a fairer distribution than we have yet seen. The second requirement is action through public expenditure to reverse the appalling unemployment trend.

I recognise that that does not mean that there will be room to increase public expenditure in all the areas in which my hon. Friends wish to see it increased, but even if the Chancellor still believes that his strategy is right—there cannot be many, other than the Chief Secretary, who believe that with him—he must recognise that it is no use being right if that results in industrial and social consequences of the sort that we are now seeing.

Socially, the community will not tolerate what is being done to it. Industrially, too many companies simply will not survive and the horrifying growth of bankruptcies will mean that a large section of industrial capacity will be lost for ever—to be replaced by yet more imports on the slightest upturn in the economy. Even with the Chancellor's forecast of only 1 per cent. growth, he is assuming that imports will rise substantially yet again.

The scenario that I have described, if anything, seriously understates the problem. In the national interest as well as in the interest of all our constituents, I urge the Chancellor to reconsider his policy before it is too late.

Several Hon. Members


Mr. Arthur Lewis (Newham, North-West)

On a point of order, Mr. Deputy Speaker. On the pain of being told that I shall be expelled for raising a matter that is not a point of order, I ask the Chair to do something that has been done before—to draw attention to the customs and practices of the House. One custom has gone for all time, and Mr. Speaker has deprecated that fact. Since 3.30 pm, with the exception of one speaker, all speakers have been Privy Councillors who have made their speeches and then left. Not one of those who have participated in the debate is here now—with the exception of my right hon. Friend the Member for Heywood and Royton (Mr. Barnett), who has not had time to leave. It is a disgrace that those right hon. Members should be given preference, take advantage of it and then are seen no more. Perhaps you, Mr. Deputy Speaker, would tell them that it is the custom of the House to remain in their places.

Mr. Deputy Speaker (Mr. Ernest Armstrong)

I am sure that the hon. Gentleman's remarks will be read by the right hon. Members to whom he referred. I understand his frustration.

6.3 pm

Mr. Edward du Cann (Taunton)

I entirely agree with the hon. Member for Newham, North-West (Mr. Lewis) that it is important that those who are privileged to be in the House should observe the usual courtesies. That has not always been the case in recent years, and certainly not to the extent that it was when I was first elected. I deplore that. The hon. Gentleman does no harm in reminding the House of those courtesies.

The Treasury and Civil Service Select Committee will, if my colleagues agree, report to the House shortly on the Government's six-monthly economic forecasts. Therefore, I shall confine myself largely to discussing public expenditure, as did the right hon. Member for Heywood and Royton (Mr. Barnett). He was right to say that the figures are difficult to comprehend, not only because of the variables but because of the comparatives.

Following a comment made by my right hon. Friend the Member for Sidcup (Mr. Heath), the House may wish to know that the Select Committee has called for papers from the Treasury on the European monetary system, which I hope it will have shortly. I hope that that will be a useful foil to debates on this subject. In answer to a point raised by both my right hon. Friend and my hon. Friend the Member for Croydon, South (Sir W. Clark), I hope that before long the Committee will give the House some useful advice on the recommendations of Armstrong relating to the need to consider expenditure and revenue together. That is a good point that we have been slow to appreciate.

The right hon. Member for Stepney and Poplar (Mr. Shore) asked Conservative Members to give their views on the policies of the Chancellor of the Exchequer. I think it appropriate that an early speaker from the Conservative Benches should reply directly to him. I support wholeheartedly the Government's central objective of overcoming inflation. That is, and must remain, the first priority.The Economist put it well this week, when it stated: To give up this fight would put the British economy back on the road that raises unemployment and inflation to ever higher peaks in every cycle and sink the prospects for sound economic activity for all time. That is undoubted, and I am sure that it is the view of all of my right hon. and hon. Friends.

The right hon. Member for Crosby (Mrs. Williams) has come to the House on a tide of destructive criticism, and nothing else. Although I congratulate her on her election, I have no doubt that her time in the House will be short. I must tell her, and the right hon. Member for Heywood and Royton, that whatever the criticisms may be outside the House or on Opposition Benches, the Government are entitled to claim considerable credit for many important economic successes. Britain's overseas indebtedness has been substantially reduced from more than £20 billion to £14 billion. There has been much moderation in pay settlements. As my right hon. and learned Friend the Chancellor of the Exchequer said earlier—and he may do so with some pride—manufacturing productivity has increased by 9 per cent. in the first three quarters of this year. We have a satisfactory balance of payments. There is a greater realism among our people both on the shop floor and in management. Considering the appalling legacy that we inherited, that is important progress. So far, so good.

Central to the Government's purpose has been the aim to control public expenditure. That was mentioned first by my right hon. and learned Friend the Chancellor and then by my hon. Friend the Member for Croydon, South. We are entitled to ask how successful the Government have been in their aim. This year, total Government spending will account for more than 50 per cent. of gross domestic product. In 1957, my first year in the House, the figure was about 30 per cent. That is how our affairs have changed, and not for the better. The road to Hades is paved with good intentions. Initially, the Government—whom I most strongly support—planned that the volume of public spending in 1982–83 should be 3 per cent. lower than in 1978–79. It is now some 4½ per cent. higher, despite the economy having shrunk in the meantime.

Thus, my right hon. and learned Friend's statement last week shows a lesser success than those of us who support him had hoped for. The Government undertook to cut public spending so that we could cut taxes—they are still much too high—and so that the balance of expenditure would shift from current to capital, thereby decisively encouraging the revitalisation of the economy. A modest shift would, I believe, show substantial gains. There is much economic evidence to justify that statement, yet, disappointingly, it has not begun—indeed, the contrary trend is worsening.

The implications are obvious. Because of the inability of the Government better to control expenditure, the result has been higher taxes—both direct and indirect—lower benefits and higher borrowing which, in turn, aggravates the position. Borrowing is desperately expensive and results in higher unemployment and much lower level of economic activity than need be. Expectations are for a still higher level of unemployment. We cannot accept this, we must not accept it, and I am sure that we need not accept it. There is, after all, no recession in Japan or Singapore. Why should we be resigned to recession? I most certainly am not resigned to it.

What is so upsetting is that the measures that my right hon. and learned Friend the Chancellor of the Exchequer is bound to propose—I have the deepest sympathy for him in his dilemma—to pay the bill will fall hard on those who are ill placed to meet them. That means that the policy of wage stability which my right hon. and learned Friend has so successfully pursued in the past will be at some risk.

The present position underlines the fact, as clearly as it possibly could, that there could be no justifiable argument for careless reflation in the United Kingdom. It is always easy to spend other people's money—£5 billion or £6 billion. How, as my hon. Friend for Croydon, South asked, is that cash to be raised? We are stretched to the limit as it is. In France, well-meaning policies of reflation are bringing increased inflation of up to 20 per cent. in their train, as surely as night follows day.

The Social Democratic Party should note that one is not entitled to say anything even mildly critical without being constructive. Sooner or later, the Social Democrats must publish their policies. I have three proposals to make to my right hon. and learned Friend. They are not new and they have one purpose—to put the Government back on course, and thereby the economy, and to support the original thrust of my right hon. and learned Friend's policy.

First, the Chancellor must take as a priority the need to make it easier for industry to employ people. The real costs of giving a man a job include not only pay but many other items such as insurance benefits of various sorts. The CBI estimates that in the last 12 years pay has grown in general by 400 per cent., although productivity has grown at a mere 30 per cent., while other labour costs have grown by 900 per cent. and now represent 27 per cent. of the total labour costs.

The Government are directly responsible for a large slice of these costs—national insurance contributions, which are now to be increased, the national insurance surcharge, which costs over £3½ billion, and others. My right hon. and learned Friend, alas—and it is mistake—has now worsened the competitiveness of British manufacturing industry, which is at least a third worse than it was five or six years ago.

I see that the estimate of additional cost for industry is about £600 million per annum. If I may respectfully say so to my right hon. and learned Friend, this direction is wrong. What we want to do, and what we must do, is to reduce taxes on jobs wherever we can. I begin to wonder whether we should continue the national insurance fund in its present form. When I read learned stuff about actuarial principles and the rest of it, I begin to wonder what sort of fool's paradise I am living in. The national insurance schemes operate on a pay-as-you-go basis and to pretend that they are funded and nothing but funded is rubbish.

For my second proposal I hope that the House will forgive me using some more figures. Total Government spending for the year 1981–82 may be about £105 billion. Heaven help us—of that, about £13 billion goes on interest. The Government's chief economic adviser was not able to give the Public Accounts Committee the exact figure yesterday. I do not say, as it has been suggested that some Members do, that all public expenditure is bad and all private expenditure is good, but I point out to the House that the pay bill out of this £105 billion is a whopping £33 billion, almost a third of the total, and about as much as social security payments in their aggregate. The Government are becoming nothing but a gigantic employment agency.

Between 1970 and 1980 the total numbers employed by Government increased from 4½ million to 7.4 million—an increase of over 60 per cent. In the same period, private sector employment fell by 4 per cent. What a contrast! Public sector pay increased by 250 per cent., and in the last two years alone by 40 per cent. Obviously there is great scope for economy here.

All this expenditure on people would be acceptable, even meritorious, if our people were better educated as a result, fitter, more artistic or even plain happier than before, but they are not and we all know that. The suggestion that services to the public improve in direct proportion to the cash spent on the staff providing them is a fiction. Much of the argument which takes place in the House in public—it is reported, appallingly, as having taken place in the Cabinet—over absolute levels of expenditure is quite ridiculous. What matters less is how much is spent, much more what it is spent on.

We draw little distinction between productive and mere administrative expenditure. That is quite wrong. Two reforms are needed. In the first I make common cause with the right hon. Member for Heywood and Royton, who is a great servant of the House in general, and I am proud to do so. The Government are not fully accountable in the House for much of their expenditure. They must become so. That is the purpose of a number of us on the Back Benches and we shall continue our pressure until we succeed. I am in no doubt that greater visibility must mean, in the end, greater value.

We also need a much better technical evaluation, available to the House, of the way in which our money is spent. We all know that there are widespread disparities in manpower efficiency in various parts of the public service—in local government or the Health Service, for example. The best should be the norm, and my right hon. and hon. Friends in the Government should insist upon it and demonstrate their insistence.

My right hon. and learned Friend the Chancellor knows that I have held these views for a long time. I shall give a few random examples. We need a more competent internal audit inside Government and a wider employment of value-for-money techniques. We have in the United Kingdom the most complex and costly system of transfer payments of any civilised country. It is high time we examined it to see how efficient it is and what economies could be made in its administration. The rules are often so complicated that those responsible for promoting the schemes in our constituencies do not understand them.

The Government were elected to get bureaucracy off the backs of our practical people. They have a distance yet to travel. I am quite certain that over the years substantial savings are feasible. I put them in the billions.

Mr. Dalyell

Before the right hon. Gentleman leaves the subject of audit, with all his experience, and without returning to last Monday's debate, does he think that there ought to be access to public money which has been given to corporations such as British Leyland, so that, where suspicions, rightly or wrongly, exist as to the use of the money, at least the Comptroller and Auditor General and the Audit Department should have the powers inside the Treasury and the Department of Industry either to confirm these suspicions or to exorcise them?

Mr. du Cann

I repeat what I have previously said in the House. I believe that the House ought to be able to follow public money wherever it goes.

Thirdly, it is not enough to arrest the continual flow of finance into non-productive purposes. To control this immense spending machine we need, as I said last Wednesday, to give our people hope. What we want is a programme for national economic recovery. I beg the Chancellor to initiate such a programme, and a visible programme. In a sentence, we need an enlargement of capital expenditure, paid for in two ways: by economies in the current sector, or privately funded—or both, such as a Channel link. The proposal by Mr. MacGregor will not only be privately funded, as I have heard the bankers testify in this House, but will provide 100,000 jobs in the steel industry for five years. What is wrong with that? What is inflationary about that? It is badly needed.

I do not believe that this recession is over. I think that it will be with us for a long time. In the context of the United States, it may even get worse.

I want to see a programme for national recovery having substantial positive effects. I want to see our people employed, not unemployed. I want to see my constituents as income tax payers, not, as too many are today, queuing for the dole. The question used to be, some time ago, "Why work?" It did not pay a man, very often, to work. That is not the question today. It is now "How can I get work?"

I want to see an upsurge in private sector output, with all the benefits, real and intangible, that that implies. I beg my right hon. and learned Friend to begin this process in all the ways that are open to him, with his very great influence. He was saying how successful our export industries have been and are likely to be. That is fine. I give him a slogan: "Invest at home so that we can trade even more successfully overseas." Our nation still has great potential for prosperity, whatever the world scene may be, and the social contentment that flows from it. I hope that the message of this debate, whatever the figures may reveal, will be that our country must be encouraged to think more positively than, alas, we seem to be doing at present.

6.22 pm
Mr. Norman Atkinson (Tottenham)

I take up the suggestion that great national projects should be funded from the private sector. In economic terms, there is no difference between Lonrho, the National Westminster Bank or Barclays Bank funding a project and the Government funding it, if those who are undertaking the project are funding it on the basis of Government guarantees. If no guarantees come forth from the Government and the Government are not called upon to underpin the projects suggested by the right hon. Member for Taunton (Mr. du Cann), there is nothing to stop Lonrho, Barclays Bank or the National Westminster Bank funding such national projects at present, without being called upon to do so by the Government. There is a contradiction in the idea that we can privately fund projects of that sort in the absence of guarantees being delivered by the Government.

On this day of revelations and confessions, which seem to be pouring into the Chamber, I should like to take up the cudgels with my right hon. Friend the Member for Heywood and Royton (Mr. Barnett). He did not talk about the boom that has existed in the City for quite some time, which has given us a false impression of incomes and prosperity generally. There is a difference between what is happening in the City and what is happening in Heywood and Royton. When my right hon. Friend was giving us his confessions about his dishonest arithmetic whilst he was in the Treasury, I was not certain whether he was boasting or apologising. Whatever it is, it is an infamous role and it seems to explain some of the shortcomings of the period of Labour Government up until 1979.

My right hon. Friend may quote a figure for the average wage in Britain of £150 a week, but that is not an average manual wage. That is a long way short of £150. Toolmakers, for instance, who are presumably the cream of manual workers, are on an average of £124. It is they who are carrying the main burden of industrial activity in Britain. We must be concerned about people in the industrial world who are on wages of far less than £150 a week, and sometimes nothing like that figure. We should be concerned about lifting the whole level of wages and thereby bringing about stimulus. These wages are abysmally poor when compared with Continental equivalents. We should start to identify some of the weaknesses of our economy by raising wage levels.

My right hon. Friend went on to say that there is no room for growth in living standards. I take it that he speaks for himself. He is certainly not speaking for the Labour movement when he says that. Workers generally have gone through two years of taking very sizeable cuts in their living standards. Part of our case is that those cuts should be restored urgently and that the workers concerned are entitled to a far bigger share of the production and wealth that they create. I reject totally, as I feel sure that the Labour movement rejects, the idea that there is at present no room for growth in living standards.

In view of the arguments that have been delivered in the debate so far, either the monetarists on the Conservative Benches are deliberate saboteurs of the economy, or they have been dishonest and we are being led by economic illiterates. What is going on has now been completely discredited. On both sides of the House there seems to be total rejection of what is happening. It seems that the Cabinet is rapidly becoming isolated in its determination to stick firmly to its monetarist concepts of how the economy should be managed in the future. Dr. Budd, the economist, has discredited yet again an area of activity for which he was a leading advocate. That surely seals the case against what the Cabinet is now doing. Therefore, more than ever, the Cabinet must answer some of these major criticisms.

Only on 30 March this year, 364 of the country's leading economists condemned what is going on. Have we forgotten what was said then? Every economic opinion, every learned opinion, rejected the Government's policies and pleaded with them, for the sake of economic salvation and recovery in Britain, that they should leave unfinished the plans and strategies that were announced 18 months ago. I speak as an engineer. If civil engineers were to behave in this way and to reject all the evidence about them and suddenly depart in a direction of personal opinion not supported by any evidence, in the way in which economists are leading the present Government, we would be seeing falling bridges and collapsing buildings and engineering and the nation's industry would be in ruins. Similarly, if doctors and others in the medical profession were performing in this way and rejecting evidence and general opinion throughout their profession, we would be surrounded by deaths on a massive scale. If the economists who are guiding or leading the Government continue to reject all the evidence around them, as they seem to be doing, who will they blame for the destruction that inevitably must come?

Some serious questions are being asked. The Chancellor has delivered yet again a deflationary statement. How on earth does he justify that when we are faced with nearly 3 million unemployed, which on his own figures will get much worse next year. There are 750,000 on relief work, and that is appalling.

According to all the sample surveys that have been taken, our industries are flattened and there is no hope of growth. In an intervention I asked the Chancellor about the CBI's prediction of 1 per cent. growth. That is a general figure. It seems that the CBI is predicting a reduction of output for British industry during the coming 12 months, although overall it claims a 1 per cent. growth.

In the most viable areas of our economy, the CBI predicts that there will be a reduction of activity. Against that background the Chancellor comes yet again with further deflation. How can the right hon. and learned Gentleman, in any language and in any abuse of industry, argue that workers must take a further cut in their living standards, especially when one thinks of what has happened in recent times to wage earners on the Treasury's own figures? Unit labour costs rose 6 per cent. to July 1981, which was a tremendous gain for manufacturers.

There is, of course, criticism when the Prime Minister enthuses about what is happening in industry. That is not surprising when these are direct cuts. Until August manual workers had 8½ per cent. wage increases, which in real terms was a sizeable reduction in their living standards. An 8½ per cent. rise in manual workers' wages over the 12 months to July-August—the average wage increase throughout the economy was 10 per cent—is a direct cut when seen against a rise in the retail price index of over 11½ per cent.

The Chancellor is predicting again that in the coming 12 months manual workers must take more cuts in their living standards. Why will they be asked to do that? When we have seen the workers taking a reduction in living standards over the past two years, and unemployment accelerating, is it wrong to assume that falling living standards have something to do with rising unemployment and that reduced demand is a contributory factor to unemployment? If the Chancellor is serious about wanting to arrest the mounting unemployment, surely his effort should be directed towards raising living standards and not towards asking workers to make further reductions in them. He should face these challenges.

What is the Chancellor about? In my view, and in the view of many of my right hon. and hon. Friends, he is engaged in class vindictiveness. There is no other way in which his actions can be explained because they are so contradictory. It is not so many days ago that he was agreeing with the BBC's application for a 35 per cent. increase in television licences. That would be described by the Treasury, quite rightly, as a transfer payment and, therefore, not something that affects public borrowing. A 35 per cent. increase in television licences is, indeed, a transfer payment by those requiring a television licence.

But by the same token, by what means does the right hon. and learned Gentleman argue that a 35 per cent. increase in domestic ratepaying is disastrous for the economy? He is supporting the Secretary of State for the Environment in opposing local authorities asking ratepayers for more money and is arguing that that is against the national interest, yet they are both transfer payments. An increase of a domestic rate is a domestic transfer payment and can be described in no other way, yet the Chancellor wishes to distinguish between the morality of the two issues. He says that the increase in domestic rates would be disastrous as against, presumably, the righteousness of the BBC having a 35 per cent. increase in television licences.

Mr. Arthur Lewis

Ratepayers can query the payments made to all the employees of a council to which they are paying rates, but an individual is not allowed even to ask how much the BBC is paying, especially the huge fees that it is paying to a few select Members of Parliament for a few minutes of broadcasting.

Mr. Atkinson

My hon. Friend makes the case himself. I do not need to add to it. If I may, I shall continue with the topic of high interest rates, which is the subject of the debate.

We have seen what is described by the Government as the abolition of the minimum lending rate. The bank lending rate is now subject to market fluctuation and market conditions, and it is now about 14 per cent. A number of serious questions should be asked about the effect of high interest rates, one of which is the effect on employment prospects and on industry.

We have had some experience of the scheme that was introduced by the Government whereby 80 per cent. of the risk is taken out of borrowing under the small firms scheme. Tory Members who were responsible for the introduction of that scheme will know some of the figures that are involved, and they are remarkable in the extreme. If £50,000 is borrowed on guarantees given by the Government, and underwritten to 80 per cent. of the risk, the cost of borrowing that money over seven years is almost £40,000. That is an enormous levy to impose upon any developing sector of industry. For every £50,000 that is borrowed about £40,000 has to be paid within three years, irrespective of the capital repayment, and that is borrowing in the most advantageous circumstances. If the same manufacturers go to the banks to borrow or into the money market generally, it will cost them much more than the capital that is involved. Over seven years it will cost them at least £55,000 to borrow £50,000. What sort of levy is that?

There is talk about the morality of wage earners who ask for wage increases, but the effect of borrowing on the terms that I have described is much more damaging to the cost of the product than any wage increase that has been asked for over the past 10 years. If the finger of blame is to be pointed anywhere, surely it must be directed at the base of the Government's strategy, which is to impose a high cost upon borrowing. The right hon. Member for Sidcup (Mr. Heath) talked about interest charges generally and the effect that borrowing has on the economy, but another factor that has militated against productivity is the destocking that has taken place in industry. Lack of continuity in industry and a lack of ability to adhere to delivery dates, for example, stem from the high cost to industrial stocking. When manufacturers run down to the bare essentials, a lack of continuity creeps into our productive methods. That is one of the direct effects of high interest rates.

If the high cost of money is being used to restrict borrowing in a deflationary sense, that is a double-edged weapon that is being used against industry. Not only has industry been denied orders for manufactured capital goods, because of the high cost of borrowing, but firms are borrowing for internal purposes at high rates and a secondary direct charge is imposed on the costs of production.

The conclusion that must be reached is that the sooner we move towards cheap money, the sooner we shall be able to overcome our immediate difficulties. However, saying that widens the economic argument into the conditions under which cheap money could be introduced.

I am convinced that Labour's manifesto for the next election will include a commitment to two-tier money, and cheap money will certainly be a part of our commitment. That means that the economy must be closed. There could be no tolerance of capital flowing out of this country to seek higher yields elsewhere. If we are to pursue a policy of cheap money our economy must be protected from the outflow of capital. That makes good sense. Consequently, any ideas about remaining in the Common Market or joining any European agreement cannot continue. That must follow from our policy for cheap money.

Those are some of the major points on which we shall be arguing. Having heard the demolition of monetary principles by the right hon. Member for Sidcup, I believe that our workers will rise in unison, reject the Government's strategy and insist that they are entitled to a far bigger share of the results of their productive effort.

6.42 pm
Mr. Peter Hordern (Horsham and Crawley)

The hon. Member for Tottenham (Mr. Atkinson) wants cheap money and he outlined the conditions that a Labour Government would impose on the economy to obtain that money. Not that it concerns me, but I do not believe that those conditions would be attractive to the people of this country and if the Labour Party proposed such a policy at a general election it would be on a hiding to nothing.

The right hon. Member for Stepney and Poplar (Mr. Shore) also wants cheap money and he called for a lower exchange rate. My right hon. Friend the Member for Sidcup (Mr. Heath) complained about the level of interest rates and said that they should be much lower. I had hoped to hear from both right hon. Members whether they thought that it was right to increase public expenditure and reduce the level of interest rates while disregarding the effects of that combination.

The House knows that we have tried that course before, not once or twice, but many times since the war and it has always led to a wage explosion, increased inflation and, ultimately, much higher unemployment.

I also hoped to hear from both right hon. Members what they proposed to do about controlling incomes. They have both had experience of incomes policies, but they were chary of setting them before the House. I heard not a single word about the role that controlling incomes might play in any alternative policy. No one has mentioned that. Even the right hon. Member for Crosby (Mrs. Williams) did not advance that theme.

The argument cannot be put about that the many academic critics of the Government's policy do no more than criticise. They are at least honest and those who criticise the Government for pursuing what they term a monetarist policy all say that incomes need to be controlled. But not the right hon. Member for Stepney and Poplar. I fancy that if he said any such thing he would run into trouble, not only with his colleagues such as the hon. Member for Tottenham——

Mr. Norman Atkinson

Big trouble.

Mr. Hordern

The hon. Member makes the point for me. The Labour Party puts forward a policy of cheap money, lower exchange rates and no control of incomes. That is simply not a credible policy.

My right hon. Friend the Member for Sidcup congratulated the Government on veering towards a different direction—there is no greater expert on veering than my right hon. Friend—but it is incomplete to put forward a criticism of monetarism without saying, at the same time, what one proposes to do about controlling inflation. Would my right hon. Friend go down the same path of controlling incomes that he went down last time?

There are two sorts of critics of the Government's policy—those who say that the Government are right to have a monetary policy, but have chosen the wrong instruments by which to steer it, and those who reject monetary policy as a whole.

It is true that the Government have missed their targets for the money supply and public expenditure and therefore for the PSBR by large margins, but, as controlling the PSBR means controlling a variable which is a small proportion of a large amount of public expenditure, that is not altogether surprising. It is especially not a surprise because public expenditure plans have been far too optimistic in relation to both nationalised industries and the forecast level of unemployment.

Dr. Alan Budd's recantation, of which the right hon. Member for Stepney and Poplar and others have made great play, seems to me a technical one. He does not think much of M3, but he has no doubt that in the long run control of inflation depends on control of the money supply, however it is defined. Dr. Budd said that interest rates had had a perverse effect. They did indeed, because companies were forced to borrow at high rates and the rates in 1980 pushed up the price of sterling to a level beyond what it might have been.

Even so, high interest rates were merely a contributory factor. What was not taken into account was the dramatic effect that North Sea oil would have on our balance of payments. It was obvious that the contribution of oil made it unnecessary for us to export so many manufactured goods in order to achieve the same balance of payments. It was obvious that the sterling rate of exchange would be high anyway. With 30 per cent. of our industry involved in exports and 30 per cent. of our employment involved in manufacturing, it was clear that North Sea oil would have a drastic impact on our economy, just as it had on the Dutch economy some years ago.

Of course, high interest rates produced additional strains. Bank borrowing of industrial and commercial companies rose from £4,900 million in 1979 to £6,600 million in 1980, but the total level of bank borrowings, and I refer not merely to additional interest rate costs, were as nothing compared with the increased wages that business and industry paid to their workers in 1980. Income from employment rose from £115 billion to £137 billion between 1979 and 1980. Without question, that was why industry came under such strain last year.

It was not the exchange rate or the level of interest rates, but the wages that business and industry paid that impoverished them. The wage claims of the unions put their members out of work. It is a great mistake to be wedded to any particular measurement of money. I have absolutely no doubt that money supply matters in determining the rate of inflation, and nor has Alan Budd, whatever the right hon. Member for Stepney and Poplar thought when he spoke earlier.

Mr. Cook

If the hon. Gentleman is convinced that money supply is directly related to inflation, will he forecast what rate of inflation he now predicts for next year?

Mr. Hordern

The Treasury forecast is probably about right—that is about 10 per cent., and probably reducing after that. The most accurate measurement of the money supply at the moment is PSL 2 with which the hon. Gentleman is familiar. That incorporates building society advances as well as bank borrowings. It is a more complete form. At the moment it is running at about 11 per cent. if distortions caused by the civil servants' strike are removed. Therefore, that is probably a fairly accurate measurement.

Some of my hon. Friends do not think that monetary policy matters. They have no time for M1, M3, the PSBR or high interest rates. They think that this is the time to expand public expenditure, not to cut it. I recognise that that attitude stems from the highest motives. On a number of occasions I have heard my right hon. Friend the Member for Chelmsford (Mr. St. John-Stevas) speaking about those matters and the importance of building one nation. I also recognise the care, concern and compassion that they have for the state of the people and our society. Their concern for the people of our country is absolute.

I hope that that can also be said for those of us who are more monetarist in our approach. We also feel concern for the people and share the compassion felt by my right hon. Friend, but I am reminded of the colonial governors in the past who had the same compassion for the people under their charge. Perhaps the tragedy of the loss of our empire lies in the fact that we have no more colonies for my right hon. and hon. Friends to govern. I know that they are against cuts in public expenditure, but it is easier by far to know what they are against rather than what they are for. I hope that they will entertain the possibility that what they propose—the expansion of public expenditure—will cause irrevocable harm and injustice to the people whom they seek most to protect, who are the poorest and weakest members of our society.

Particularly as my right hon. Friend the Member for Sidcup made such an eloquent speech, I cannot let this occasion pass without reminding the House about what happened in 1972 when there was a veering in direction, as my right hon. Friend called it. There was a considerable expansion in the money supply. As a consequence there was enormous borrowing by property speculators. There was a huge increase in property prices fuelled by the secondary banks. There was a collapse of the secondary banks that shortly followed that expansion. There was a huge and massive increase in inflation that followed inexorably two years later. It is not right to put forward those policies again as being appropriate to our country at this moment without recognising the harm and the damage that was caused at that time.

Some of my right hon. and hon. Friends find incomes policy attractive. They are not saying that public expenditure should be simply increased without having regard to the cost. I know that they are honest in suggesting that there should be a way of controlling incomes. They have always been consistent in criticising monetary policy. I ask them to consider what would have happened in 1979 when we took office had we decided not to have a monetary policy. Suppose that we had decided that it was right to control incomes just after the most monumental collapse of the previous Government's incomes policy, with the winter of discontent and the troubles that occurred then. What validity would such a policy have had with the trade unions? What policy do they think that they can negotiate with the trade unions? What sacrifices would have to be made to obtain any form of satisfactory policy?

When my right hon. and hon. Friends put forward criticisms of monetarism and advance, however quietly, their preference for an incomes policy, they must spell out exactly what sort of policy it will be and what bargaining they will have with the trade union movement to obtain it. It is intellectually dishonest to put forward a proposal for the country to prevent inflation unless they are prepared to say openly what sort of incomes policy they espouse.

Mr. Tom Ellis (Wrexham)

I have listened carefully to the hon. Gentleman and I agree with a great deal of what he has said. However, I shall put to him the other side of the coin. If we cannot have an incomes policy, does not that mean that we are doomed to have a sluggish economy?

Mr. Hordern

I do not believe that that is so. Because of the sacrifices that industry has had to make, it is a great deal healthier than it has been for a long time past.

So far as I can see, the wage costs per unit of output have fallen for three months in succession for the first time since figures have been kept. That is a considerable advance. I do not believe that the increase in productivity in the last six months is by any means a flash in the pan or that an incomes policy now would have a better effect than that of the Government's policy over the last year or two.

The truth is that for obvious reasons wages in industry are not a problem now. If the Government are successful in keeping down wage costs in the public sector to 4 per cent. or anything like that, the outlook for next year must be better. The Government's forecast of an improvement in output of only 1 per cent. is too modest compared with the successful and hard-won base that we have now achieved.

My right hon. Friend the Member for Taunton (Mr. du Cann) talked about the desirability of introducing private capital for public sector capital schemes. Excellent advances have been made in denationalisation and privatisation in certain areas, particularly in the proposals for the British National Oil Corporation, which are the brainchild of my right hon. Friend the present Secretary of State for Transport. I hope that we will make further progress in that way and that parts of the nationalised industries can be privatised or that the functions that they perform will be organised in such a way that 50 per cent. control can be placed outside so that their operations can be genuinely funded by the market.

It is extraordinary that British Telecommunications cannot expand as much as it would like because its operations come within the public sector. Institutional investment is now concerned with investing abroad and to a considerable extent it is able to choose to invest freely in American telephone and telegraph systems and Hong Kong Light and Power, but it cannot invest in our own telecommunications industry. The answer is for British Telecommunications to share its operations with the private sector so that it can genuinely face the tests of the market. If it could do so, we should see a substantial increase in investment in this country. Therefore, the test of the market could be applied to a number of public sector industries and would increase the level of activity and employment.

I hope, too, that my right hon. and learned Friend will bear in mind the difficulties that small businesses also have in obtaining planning permission. With 3 million unemployed we cannot afford to have a restrictive view of planning permission for industrial units. Local authorities, as well as the Government, must be sympathetic to applications for industrial activity, particularly for small units for which there is a demand all over the country.

I hope that my right hon. and learned Friend will take account of the suggestions made. It is intolerable to have 3 million unemployed, but I beg hon. Members not to believe that there is an easy solution through printing money or having an incomes policy, which have failed the nation so badly in the past.

7 pm

Mr. Richard Wainwright (Colne Valley)

At least two hon. Members have said that the Chancellor's statement last week was a mini-Budget, but that was a slip of the tongue. As others have acknowledged, we have today to discuss rather less than half of a Budget. We are almost in the situation of shareholders summoned by a crazy company secretary to a general meeting to approve only the right-hand side of the balance sheet. It is frustrating for the House to have to come to a judgment only on the information that we have been given.

Not only was the Chancellor's statement lacking in information about revenue; it was seriously lacking in information about expenditure. For instance, there is no information about expenditure on servicing our national debt, and I remind the House that last year the figure for this was as much as £14 billion gross and over £6 billion net. The omission of such a huge item from the statement that we are trying to wrestle with makes our proceedings difficult and incomplete.

The occasion should not pass without my taking the opportunity to say that it is important for the House to heed the recommendations of the Armstrong committee, which suggested that in this very month each year Parliament should be given a provisional Budget in a single document, comprising tax and expenditure figures for the year, together with public expenditure plans and estimates of tax revenue over the medium term, and that there should be a two- or three-day debate on the basis of the Government's tax plans, with a series of options showing at that early stage those that the Government were inclined to favour. Having had the advantage of thorough debate, with both sides of the Budget under discussion, the recommedation was that the whole matter should then be referred to departmental committees, and then we should have the revised and conclusive Budget proposals in March to be debated by the House. I am led to believe that many hon. Members in all parties would support those proposals, give or take a few details, and I hope that they will be seriously advanced in the next few months by the recommendations of a Select Committee and in other ways.

In the meantime, we have to do our best. May I start with the interesting contribution from the hon. Member for Horsham and Crawley (Mr. Hordern). We are accustomed to hearing wise things from the hon. Gentleman, as he follows these matters with great care and thoroughness. He chided hon. Members who had spoken earlier, including the right hon. Member for Sidcup (Mr. Heath), for not spelling out their views on an incomes policy; but, on reflection, he will realise that they were wise to save their breath. To recommend an incomes policy to a Government who have done so much damage to employment and made so many scarifying statements about trade unions is about as relevant and appropriate as delivering snowballs to hell. We should not waste time proposing an incomes policy to the Chief Secretary, as no Government could be in a worse position to introduce one.

Further, on the Liberal Bench our considered view is that no incomes policy will stand a chance of sustained success unless it has first been put to the people at a general election and endorsed by them in giving the incomes policy party or alliance a majority.

Mr. Hordern

I was not proposing that the Government adopt an incomes policy, and I realise that the hon. Gentleman is not suggesting that either. I was proposing that the right hon. Member for Stepney and Poplar (Mr. Shore), who was making what he termed constructive suggestions, should say what kind of incomes policy his party would have if it were to form a Government. Perhaps he would like to tell us now.

Mr. Wainwright

If the hon. Gentleman's confidence in his party's majority is waning so fast that he believes that its term in Government is rapidly reaching its conclusion, he would have the right to challenge us to spell out an incomes policy in detail.

However, although I do not have the formal authority to do so, I am confident that in the Liberal Party's programme for the next election—and I hope very much that of the alliance—there will, indeed, be proposals—possibly options—for an incomes policy. I repeat that they will have the great virtue of being put frankly and openly to the people. We shall seek public endorsement for an incomes policy. Such policies have previously broken down because the public have been thoroughly bewildered by the products of a blatant U-turn. The hon. Gentleman and I were both in the House when the right hon. Member for Huyton (Sir H. Wilson) suddenly introduced an incomes policy in 1966–67. The right hon. Member for Ebbw Vale (Mr. Foot) made common cause with the late Mr. Iain Macleod and walked through the "No" Lobby against the Labour Government to defeat an incomes policy. That is a hopeless background against which to introduce tough measures on incomes.

I return to the Chancellor's statement. Our first objection to the statement and to the Government motion, which we shall oppose if it comes to a Division, is that they give no sense of direction and do not even attempt to give the people what they are entitled to—a signpost to a destination that the Government at least wish to reach. Even if one reads the Government's motion carefully one can find no indication of where they believe that the Chancellor's proposals will take the economy or the country. This afternoon the Chancellor gave no clue about where he hopes that we shall end up with the policies that he was commending.

Indeed, the Chancellor is frank; he believes that economic recovery is divorced from Government action, depends entirely on the public and either happens or does not happen. To him economic recovery is similar to the mushroom fields of one's childhood. One could never understand why some mornings before breakfast one found glorious mushrooms growing in a corner of the field, but a few days later, on an equally lovely dewy morning, there was no crop. No one could do anything about it.

In the Treasury and Civil Service Committee the other day, in reply to a question the Chancellor stated: suddenly one finds economies lurking around the world that have been relatively unexciting since the days of the Armada and suddenly something happens; people begin to perform better. I have not caricatured the Chancellor's view. He holds it sincerely. However, on the Liberal Bench we entirely reject it. Economic recovery on a serious scale cannot be spontaneous or automatic. It must be engineered by Government—with the backing, one hopes, of a fairly united Parliament. It is the lack of any measures whatever to generate recovery or indeed any acceptance that such measures are necessary that irks us so much about the way in which the Treasury Bench goes about its work.

Furthermore, all this dangerous philosophy has now been applied for two such barren years that a new danger has appeared that I am sure other hon. Members have also spotted and are as concerned about as I am. So much danger has been done to our economy, and particularly to our manufacturing industries, that even the most fervent apostles of a quick reflation now say that we must moderate our plans for reflation because British industry simply does not have the product lines or the modern plant to respond sufficiently quickly. It is an appalling position to have reached, when the patient's general health has so degenerated that the doctors must go slow on remedial treatment. Yet that is the position in which we find ourselves.

I was interested to notice that the former economic adviser to the Treasury, now Professor Sir Bryan Hopkin, with Professor Marcus Miller, who was a distinguished adviser to the Treasury and Civil Service Committee and Professor Brian Reddaway, in their plans published in The Guardian on Monday, specifically made the point that they felt obliged to reduce the scale of their planned reflation—supported, of course, by an incomes policy—simply because it would overwhelm British industry, so lacking in skilled trainees, as the very welcome new right hon. Member for Crosby (Mrs. Williams) made clear earlier, and it would overwhelm the dilapidated plant and the lapsed products of British manufacturing industry. That is an appalling situation from which to try to recover.

The right hon. Member for Taunton (Mr. du Cann) made some play with what I think he rightly described as the unfortunate side effects of Mr. Mitterrand's economic reflation, but he omitted to remind us that Mr. Mitterrand had neglected the precaution of an incomes policy. If the French economy is going out of control, as seems to be the case, it is largely because that essential precaution is missing.

I wish to say a word about the money supply—that factor so signally unmentioned in the whole of the Chancellor's statement and about which Treasury witnesses are now so coy. The Chancellor speaks—it is his regular dirge—about steady but not excessive downward pressure on the monetary aggregates. He seems to believe, contrary to all the evidence, that the monetary aggregates are just lying around on the bathroom floor, like a huge sponge simply waiting for someone to squeeze it. I have news for him. Unfortunately for him—and my information was borne out by his officials in the Select Committee proceedings—if one must look for an analogy, the monetary aggregates are not so much like a sponge obligingly waiting to be squeezed as a bicycle inner tube of the kind on which one used to try to mend punctures. However hard the Chancellor tries to squeeze M3, lo and behold the graphs show that MI suddenly spurts violently upwards to deny the effectiveness of his action. The behaviour of the monetary aggregates under the Chancellor's treatment has been a complete mixture of contradictory trends, depending on which aggregate was being tracked at the time.

It is therefore not good enough for the Chancellor to put us off, as he tries to do with his oft-repeated phrase about steady but not excessive pressure on the monetary aggregates, because all that is humbug and is not borne out by reality. There is no general or effective downward pressure. One aggregate is simply depressed at one time, and that is claimed as a great achievement, while at another time a different aggregate is depressed and the Chancellor prays that, too, in aid for the success of his policy—although not now accompanied in chorus by the renegade Professor Budd.

Some of the most miserable aspects of the Chancellor's statement, especially the niggardly treatment of short-term benefits, were well exposed to the House by the right hon. Member for Crosby. I shall not try to repeat what she put so well. I shall just mention some of the most distressing effects of the Chancellor's statement on business and business confidence.

On national insurance and allied matters, although the Chancellor's statement contained a great deal of gobbledegook, it actually amounted—as the CBI has assured us—to an additional imposition of at least £600 million per year on British industry. To do that more or less by stealth is to deal a particularly savage blow to the very frail business confidence of this country. No hope was held out of reducing, let alone abolishing, the infamous tax on jobs—the national insurance surcharge, and there was an increase of no less than 13 per cent. in the national insurance deduction from employees' wage packets. No hope was held out of significantly lower interest rates. I cannot understand the Chancellor's dogma in saying that interest rates are high because public spending is high. Interest rates are high, first, because the Government want them to be so in order to foster their ill-planned sterling policy, and, secondly, because there is a prevailing lack of confidence among lenders—and no wonder.

No hope was held out for lower exchange rates, for which chambers of commerce and the CBI so continually and rightly pray. Those of us with formerly very successful export industries in our constituencies stand aghast at the Government's folly in actually instructing the Bank of England to maintain the present international value of sterling rather than allow it to fall to an acceptable level for our export trade.

No hope was held out of more competitive energy costs, about which the Government are extremely complacent because they have managed to appease four or five of the biggest users, such as the steel industry and ICI, by special energy tariffs, while doing nothing at all to provide competitive energy costs for our medium and smaller businesses which must compete with Europeans and others who, although they have no North Sea oil, obtain energy far more cheaply than British manufacturers.

Finally, as the right hon. Member for Crosby made clear, no hope was held out of improved training for skills. I simply add that I believe that the motto of the Manpower Services Commission and its sponsoring Minister that nothing must be spent on "training on spec" is about as tunnel-visioned as any view ever expressed in the House on training. The idea that we must train only people for whom vacancies can visibly be ascertained is a hopeless counsel at a time of recession and when so many young people are eating their hearts out on the streets or filling in time on the less valuable of the YOP schemes.

Today's debate is necessarily incomplete because it deals with only one side of the national budget. We shall wait four months for the other side of the account, when the Chancellor comes with his tax proposals. If, despite the uncovenanted benefit of North Sea oil, the Chancellor is to begin to repair the damage that he has done to the economy in the past two years, his Budget next April will have to be nothing short of a miracle.

7.20 pm
Mr. Norman St. John-Stevas (Chelmsford)

First, I wish to congratulate the right hon. Member for Crosby (Mrs. Williams) on her return to the House. She may recall that we had an encounter on the airwaves at the time of the last election, when she lost her seat. I expressed the wish that she would return speedily to the House. That return has not been as speedy as I anticipated then, nor did I anticipate the political form that it would take. I am delighted to welcome her here. She must not take that as an endorsement of the policies of her party, of which I am as ignorant as she doubtless is herself. I do not endorse her view, either, that this is an old man's club. It would be absurd to take the view as I look at you, Mr. Deputy Speaker, in the full vigour and energy of your youth. I merely wish to assure the right hon. Lady that, as one contemplates the relentless advance of middle age, it is some consolation to have the right hon. Lady to regard, looking not a day older than when she left this place. That assuages, in some way, the ravages of time.

I also felt a measure of agreement with the right hon. Lady's remarks on employment—a concern that I fully share. I agree with the points that she made about the need for a major retraining scheme for youth. I also have sympathy with her point on supplementary benefits, a matter to which I shall return later.

No reasonable person could have anything but sympathy with the Chancellor as he struggles with the fiendishly difficult problems of our economy. The polemic that was indulged in by the right hon. Member for Stepney and Poplar (Mr. Shore) had a certain diverting quality. No doubt it was useful in distracting his colleagues from their delight in their civil war, a conflict in which they seem to regard the Government as an annoying and unnecessary distraction. That polemical approach was totally inappropriate to the gravity of the problems that are facing Britain, and totally unacceptable from a leading member of a party that in office so dismally failed to tackle successfully any of our major economic problems.

As my right hon. Friend the Member for Sidcup (Mr. Heath) said, the House is in a dilemma when it comes to pass judgment on the Chancellor's package. The figures for public expenditure are more than usually opaque. The figure given for pay rises in the public sector of 4 per cent. may well be an under-estimate. The rate of inflation for the coming year, 1982–83, is still uncertain, despite the forecasts. But, above all, we have only one half of the story. The second part of the novel is always the more important part and that second part can be known only when the Chancellor presents his Budget in the spring. Yet at this point we can draw certain conclusions. The first and most important is that the days of Draconian public expenditure cuts are over and we shall see no further major reductions in this Parliament. I welcome that because at a time of continuing recession and rising unemployment there is no case for depressing the economy still further.

I do not believe that this package is deflationary, as Opposition Members have maintained. If I believed it were, I could not support it. I accept the Chancellor's conclusions that next year public expenditure will be roughly the same in cost terms as it has been this year. It may even—in contradiction to The Times—add to it very slightly.

Mrs. Shirley Williams


Mr. St. John-Stevas

I shall give way to right hon. Lady in a moment.

Secondly, I welcome the shift in emphasis from questions on money supply to wage bargaining. That began some time ago and it has continued in the Chancellor's approach. Whatever the technical distinctions may be, we have an informal incomes policy operating in the public sector, and I welcome that, too.

Mrs. Williams

I merely wanted to pick up the right hon. Gentleman's point that he felt able to support the Chancellor's approach because it is not deflationary. He may have noted that I asked the Chancellor directly whether he would quarrel with the figure given in The Times—an approximate reduction of £500 million in public sector investment. What does the right hon. Gentleman think about that?

Mr. St. John-Stevas

I do not wish to pass judgment on The Times. My own judgment, for what it is worth, is just the opposite of the figure that was given in The Times leader. I believe that the most likely result of the Chancellor's package, if his forecasts are maintained, is a rise of £500 million rather than a reduction—an increase of 0.25 per cent. Perhaps the Chief Secretary will be able to throw further light on that important point in his reply.

There is one proposal, not decisive financially, that raises vital questions of principle that I cannot support—the suggestion that unemployment benefit should be cut and that the same fate should overtake supplementary benefit. I believe that that proposal should be rejected by every Tory, because it strikes at the root of what for a century and a half has been the perennial philosophy of the party—the maintenance of one nation.

Mr. James Dempsey (Coatbridge and Airdrie)

I am glad that the right hon. Gentleman mentioned supplementary benefit, because I have in my pocket a statement given to me at the weekend by a pensioner who said that because his supplementary benefit is combined with his retirement pension he is not receiving the full increase. Before the increase, his rate was £57.05 a week. It rose to £61.20—an increase of £4.15, which is only a 7.3 per cent. increase not the 9 per cent. that pensioners hoped to receive.

Mr. Deputy Speaker (Mr. Bernard Weatherill)

Order. I am sorry to interrupt the hon. Gentleman but I did not call upon him to make a speech, merely an intervention.

Mr. Dempsey

I should like to make one last point. There are 3 million pensioners and, of those, hundreds of thousands are in the same boat as my constituent.

Mr. St. John Stevas

I am grateful to the hon. Gentleman for that graphic illustration which he has provided from his experience on the general point that I was making.

The greatest Prime Minister that the Conservative Party has so far produced was Sir Winston Churchill, who gave the philosophy of one nation its modern embodiment when he made it clear that, while the sky was the limit for the adventurous and the strong, there should always be a safety net for the less fortunate and the weak below which they should not be allowed to fall. To be denied the right to work through no fault of one's own is a moral misfortune which diminishes a human being. To add to that humiliation a further measure of want and deprivation is disgraceful and unacceptable. I must make it plain that, if such a measure came before the House, it would not for me be a matter of abstention. I should vote against it, and so would a considerable number of my hon. Friends.

I ask my right hon. and learned Friend the Chancellor of the Exchequer to think again on this crucial issue. A passage in his speech today encouraged me to believe that his mind is not fully made up in this connection. I ask him to examine the matter again. If he did so, it would be a sign, not of weakness but of strength. I ask the Chief Secretary, when he replies to the debate, to confirm that the Chancellor is contemplating a modification of this policy.

With that exception, I interpret the Chancellor's proposals as being a holding operation for the spring Budget. That Budget, not this package, is vital. The Chancellor should be in no doubt about the mood of many of those who sit on the Conservative Back Benches. We accept that the Government were elected to bring under control a runaway increase in public expenditure. However, strength through misery, as far as I know, has never been a doctrine of the Tory party. The control of public expenditure was one half of the mandate that we received from the British electorate in 1979. The other half, the rather more important half, was to stimulate and invigorate private industry and reduce the burden of personal taxation. I and many of my hon. Friends are asking the Chancellor to continue the advance to that goal and accelerate it, because time is running out. In effect, only two Budgets remain to him, and we look to the first of those Budgets to start the process of expanding British industry. Of course there have been gains, as well as losses, in this recession. British industry is more competitive, but now British industry must be encouraged to take advantage of that competitiveness.

The Chancellor made it plain this afternoon—perfectly reasonably—that he must make his Budget judgment nearer the time. May I tell him now what many of his friends expect of him. First, we want a reduction in the burdens on British industry. The best thing would be to reduce—or, better still, abolish—the national insurance surcharge. Secondly, at the very least, we look to the Budget for a return to the indexing of income tax allowances. We look also for a reduction in the standard rate. Thirdly, we look for measures to encourage private and public capital investment, and measures to encourage the private sector to launch new projects. I fully support what my right hon. Friend the Member for Taunton (Mr. du Cann) said again today, and has consistently maintained, that there is scope here for constructive action for the benefit of the economy which would not in any way be inflationary.

If all these proposals add up to an increase in the public sector borrowing requirement, so be it. It is in danger of becoming a kind of ignis fatuus, blinding the Treasury to the needs of the real economy when it is still in recession. In any case, in the years that lie ahead, the benefits to the Exchequer and the balance of payments from North Sea oil will be very great. Let us use them to strengthen British industry, rather than paying for an ever-increasing number of unemployed.

The Chancellor heard today the views of his own Back-Bench supporters. He will hear them again, both in this House and in the party committees. May I ask him to listen to another group of friends—his Cabinet colleagues. Economic strategy is not only the Chancellor's personal concern; on that economic strategy depends the whole fate of the Government.

When I was a member of the Cabinet, economic discussions were few and far between. I make a plea for an increase in those discussions. May I also enter a plea for a discussion, in time, of the general principles that underlie the Budget. Indeed, there would be nothing unconstitutional in the Cabinet's discussing the Budget in detail. That is how Cabinets acted in the last century and well into this century. Disraeli's Budgets were discussed by the entire Cabinet months before they were presented to the House. Harcourt attempted to deliver the whole of his Budget speech to the Cabinet, until the Cabinet insisted on his desisting from so doing. So there are precedents for this.

Furthermore, that discussion, either of the Budget or of the general principles underlying it, should take place in good time. The habit of giving the Cabinet shorter and shorter notice of the Budget proposals so that now they are not given until the very morning that the Budget is announced to the House is a post-war development and is contrary to the spirit of Cabinet Government. Even in 1936, for example, the Cabinet was given 21 days' notice of the Budget, and the average period has been a week. It is time that the Cabinet reasserted its undoubted prerogatives and rights in this respect.

Mr. Heath

May I bring my right hon. Friend historically up to date? These matters were discussed in the Cabinet until 1974. Did he object in the Cabinet to the fact that these matters were never discussed with him? If so, what reply did he receive?

Mr. St. John-Stevas

I did not include the experience of my right hon. Friend the Member for Sidcup, because I knew that if I left it out he would undoubtedly intervene to draw my attention to it. I knew, too, that it would come with much greater authority from him than from me. I cannot remember whether I protested about the matter in Cabinet, because I protested about so many things. That is probably why I am no longer a member of the Cabinet.

Mr. Ennals

May I briefly add to what the right hon. Member for Sidcup (Mr. Heath) said? Will the right hon. Gentleman accept the assurance that the precedent for discussion in the Cabinet went up to 1979, not just until 1974?

Mr. St. John-Stevas

It is splendid to have all these Cabinet leaks. It is only sad that the one way of ensuring that a leak is not widely publicised is to make it on the Floor of the House.

We must get the measures right. We must strike the right balance between social and economic needs. Above all, we must find words to communicate our purpose to the people. The right hon. Member for Stepney and Poplar said that it would do us no good if we were endowed with the tongues of angels—if I quote his earlier intervention correctly. I disagree with the right hon. Gentleman. It would not be a disaster if the gift of tongues suddenly descended on the whole Treasury team.

We must put our case over to to the country. We are not a nation of economists or statisticians—much less one of partisans, passionately pursuing Messianic visions of monetarism or Socialism, regardless of the consequences. Ultimately, it is the ordinary citizen who pays the price for such follies in lower living standards and lost liberties.

The people and, I believe, the Tory Party want a prosperous and advancing Britain that will give opportunities to the enterprising, but extend a helping hand to those less fortunate, who are in need. In that task, we have at our disposal the most flexible, the richest and the most powerful weapon in the world—the English language. For heaven's sake, let us use it to give the people a sense of hope in the future.

7.40 pm
Dr. Jeremy Bray (Motherwell and Wishaw)

The right hon. Member for Chelmsford (Mr. St. John-Stevas) has the gift of tongues, but, unlike those of whom St. Paul speaks, he does not need an interpreter. However, if he were to speak in Cabinet and if the Cabinet were to discuss economic policy as the right hon. Gentleman would like it to do, the result would not be entirely illuminating or helpful to the Chancellor of the Exchequer. The Cabinet is not given the basic background briefing and documentation needed to shape and form economic policy.

Although we are all divulging secrets, it is no secret to say that it is not only this Chancellor of the Exchequer who does not give the economic forecasts to the Cabinet. No previous Chancellor of the Exchequer has done that. Therefore, the basic arguments of economic policy cannot even be explored. There has been a gradual shift. There have been calls for the disclosure of a provisional Budget, as recommended by the Armstrong report. In his formidable demolition of the Government's case, my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) could have been even more formidable if he had made a point of committing the Labour Party to the necessary forms of Budget-making, public debate and public expenditure planning that ensure that the Cabinet, the House and the country can take part in such a vital debate.

In his speech, the Chancellor of the Exchequer scarcely mentioned the medium-term financial strategy or the money supply targetry. However, they have not entirely disappeared from view. The Chancellor of the Exchequer discussed it with the Treasury and Civil Service Committee when he appeared before us on 16 and 23 November. Quoting from his Mansion House speech, the right hon. and learned Gentleman said: What matters most is that the Government must maintain a steady though not excessive downward pressure on these monetary variables making due allowance for events in the world beyond our shores. When the right hon. and learned Gentleman discussed the attention that he is paying to the exchange rate—which he repeated today—he said: there are various factors which sometimes point in different directions. At present the exchange rate argument might lead to the suggestion of a reduction in interest rates while money supply targetry might lead to the suggestion of an increase in interest rates. What is the market to make of what influences the Chancellor of the Exchequer?

As a result of the confusion created by the Chancellor of the Exchequer, the markets do not know what is happening. In today's edition of the Financial Times there is a graphic description of one day in the foreign exchange dealing room of Chase Manhattan in London. The dealer said: My horizon extends 24 hours. The dealer referred to two possible factors the next day, but said that's still a century away". Therefore, the City is operating in total darkness. That is having an adverse effect in terms of the predictability of the environment in which industry must work.

In what way should the Chancellor of the Exchequer pay attention to the exchange rate? The right hon. Member for Sidcup (Mr. Heath) said that he should seek an exchange rate that is low enough to give industry a chance to secure a measure of growth and a reduction in unemployment, but high enough to avoid an unacceptable level of inflation. Does that not immediately lead us to look not at the exchange rate and still less at the money supply, but at the final objectives of economic policy? Those are economic growth, and the reduction of unemployment and inflation. How can an appropriate exchange rate target be defined without considering those final objectives? Yesterday, Treasury officials gave evidence to the Select Committee and told us that the apparatus for looking at those final objectives has been installed in the Treasury. The Chancellor of the Exchequer can now weigh a 1 per cent. reduction in unemployment against a 1 per cent. reduction in inflation on the Treasury model and agree to buy a 2 per cent. reduction in unemployment in return for a 1 per cent. increase in inflation, or whatever his trade-off may be. Out of that the balance of consideration could emerge that the right hon. Member for Sidcup sought, but was unable to define.

Although that apparatus is available, it is not being used. The Chancellor of the Exchequer does not realise its relevance to his position. Several options have been put forward that stop far short of the Government's declaration of priorities and the adjustment of their fiscal and monetary policies. Recently, two distinguished groups have put forward options. Professors Sir Bryan Hopkin, Marcus Miller and Brian Reddaway have put forward one proposal, and another interesting proposal has been put forward by Professor James Meade in today's edition of the Financial Times.

The first proposal is the work of two distinguished veterans and one no less distinguished young Turk. The proposal comes nearer the veteran end of the spectrum than the young Turk end. It is a package—not a strategy—that has been put together as packages were put together 10 or 20 years ago in the Treasury. Perhaps it is none the worse for that. Inevitably, there are several judgments within the package that reflect the priorities of its authors. For example, out of the £6.8 billion cost of fiscal concessions, the authors choose to spend—it is a reasonable choice—£3.4 billion on abolishing the national insurance surcharge. Only £600 million is to be spent on additional public expenditure on goods and services. Such judgments should not of course be left to economists, because they should be the work of Government. At this time of year Ministers should propose such judgments, which will be implemented in the Budget in March. In that way they can defend their choices to the country. In generating debate, one gets down to the implications for particular aspects of the economy and particular groups of people. An analysis has been made by the construction industry of the effects of an increase of £500 million in public expenditure on construction, compared with alternative reflationary packages of the same amount. The analysis chases the impact on employment, output per head, investment, primary manufacturing, the balance of payments prices, the GDP per pound of PSBR, and so on. This work could be done only by a professional team of which many are available.

The conclusion emerges that the biggest impact on employment comes overwhelmingly from employment subsidies in the short term and house building and rehabilitation in the longer term. The employment subsidy argument has to be considered carefully. The priorities would inevitably be decided by the results that the subsidies were expected to achieve, and the competing claims in education and in the social services, and the types of people, young and old, who would be affected. Even this Government, in my view, would allocate a bigger increase in expenditure for the construction industry than the three professors. The problem then arises that things go wrong and further adjustments have to be made. The aspects of economic policy to which one will stick in the face of uncertainty have to be resolved.

This leads to the second proposal put forward by Professor James Meade and his colleagues. The suggestion made by Professor Meade, a distinguished Nobel Prizewinning economist, is that it is not sufficient simply to target on the money supply. I believe that there is hardly an hon. Member present who would contest that argument. Professor Meade wants fiscal policy to target on money incomes, monetary policy to target on the exchange rate, and incomes policy to influence employment. I give attention to this matter because Professor Meade is one of the advisers to the Social Democratic Party with whom he is no doubt vigorously arguing the case. I should like to examine what the strategy implies.

If there were a wage explosion, the commitment to control of jobs by incomes policy would be thrown away. Would any Government then raise taxation and cut expenditure to enable money incomes to be stabilised, that is, to see that the total amount of the wage bill was stabilised, whatever happened to wage rates? Would any Government allow unemployment to reach 30 per cent., allow whole social services to be abandoned and allow VAT to be raised to 50 per cent.? That is the implication of Professor Meade's argument. Will any Chancellor in Cabinet depreciate the pound totally to accommodate all wage inflation? That is the implication of the argument that the pound can be looked after by monetary policy alone.

Although there is great elegance and a certain logic in Professor Meade's argument, the inevitable conclusion is that it does not offer a resting place short of looking at the balanced use of all available instruments in the light of their impact on all the objectives. This brings us back to the priorities, objectives and adjustments to policy that must be the basis of any policy making. My right hon. Friend the Member for Stepney and Poplar spoke powerfully in his destruction of the Government's policy. My right hon. Friend, who described how there is clearly no strategy left, could gain enormously if he spelt out in practical detail the way in which a Labour Government today would be tackling the problems we face. I am not suggesting necessarily the actual deeds that will be done by a Labour Government in two years' time.

The examples of the three professors and of Professor Meade show that even a modest investment in positive proposals commands an enormous spread in the press, so hungry are the public for some positive proposals that carry a degree of conviction and realism. I am sure that my right hon. Friend, with his ability and the resources at his disposal, could produce far more practical proposals than those put forward by the three professors or by Professor Meade.

When the right hon. Member for Crosby (Mrs. Williams) commended an enormous package and the varieties of alternatives now being put forward, my mind went back to the time when she was Secretary of State for Education and was responsible for precisely those technical colleges that she urges should now be filled with young people needing training. In very similar circumstances to those faced today, with the same need for skilled manpower that now exists and following an equally careful research exercise on the Treasury model, I pleaded with the right hon. Lady at least to put forward for discussion in Cabinet some proposal that would help to make use of the resources available that were running to waste. The right hon. Lady was not prepared to lift a little finger in that direction. It is because of memories of such actions, not only by the right hon. Lady but also by some of her right hon. Friends, that Labour Members cannot take entirely seriously the brave new world of which they speak so glibly.

7.57 pm
Mr. Stephen Dorrell (Loughborough)

I hope that the hon. Member for Motherwell and Wishaw (Dr. Bray) will forgive me if I do not follow his interesting and thoughtful speech. I wondered, while he spoke of the effects of various packages on the model, what he had in common with his hon. Friend the Member for Tottenham (Mr. Atkinson), whose earlier analysis threw interesting light on the darkest recesses of a Marxist mind. The meeting place between these two hon. Gentlemen would be extremely thin, if it existed at all.

There are two views that any hon. Member commenting on an economic package can use as a starting point. An hon. Member can start by examining from a political point of view the effect of particular aspects of the package on particular groups of his constituents. The alternative is to start by examining it from a macro-economic point of view, considering the overall effect of the package on the nation's economy. Hon. Members have heard several times that we must be cautious in taking the macroeconomic view because my right hon. and learned Friend's package is in reality only half his Budget judgment. I do not altogether accept that argument, but I wish to move quickly to the other way of considering the package.

Even if we accept that argument entirely and we say that it is impossible to reach a macro-economic view of the package until the Budget is presented next spring, there is nevertheless ample ground for hon. Members who are concerned about the effect of the package in a political context to say to the Government that the package presented last week is not one that a Conservative Member of Parliament, elected on the manifesto of May 1979, should support. The worst aspect of the package is its political insensitivity.

My right hon. Friend the Member for Chelmsford (Mr. St. John-Stevas) committed himself to vote against the proposal to reduce the real value of short-term benefits. I am happy to associate myself with his remarks about that, but I say to him and my hon. Friends who take the same view that, if that were the only politically unacceptable part of the package, his course would be right and entirely defensible.

The argument that I wish to put forward this evening is that other aspects of the package, viewed in themselves and regardless of the overall macro-economic effect, are just as objectionable as the point taken by my right hon. Friend. The overall effect of those aspects is to vitiate the entire package. I wish to consider some of the aspects that I believe should lead us to that conclusion.

It used to be a priority of the Government—it was a priority proclaimed during the election campaign—that we should set about reducing direct rates of personal taxation because of the effect that direct personal tax rates have on incentives. It used also to be the Government's concern to consider the particular application of the tax system on the poverty trap, and what my hon. Friend the Member for Norfolk, North (Mr. Howell) referred to as the "Why work?" syndrome.

Because I believed that that Government proclamation during the election campaign was right and important, I supported the June 1979 Budget. I was unfashionable enough then, and still am, to believe that my right hon. and learned Friend the Chancellor of the Exchequer was right to increase VAT sufficiently to allow him to reduce the standard rate of income tax. That makes it especially difficult for me now to support a package that raises the national insurance contribution by 1 per cent. on top of the 1 per cent. increase imposed last year.

My right hon. Friend may argue that that money goes into the national insurance fund and is separate from the standard rate of income tax. That is a distinction without a difference for the vast majority of my constituents. They look at the deductions made at source from their earnings, and they believe that national insurance contributions and the standard rate of income tax payments go to the same source—the Government. Therefore, as a party, we are in the position of defending a record of having almost doubled VAT in order to cut the standard rate of tax by 3p, merely to raise it again by 2p.

The effect is even worse than that. If we take the 2p increase in national insurance contributions and add to that the effect of the de-indexation of tax allowances, the effect of the overall package—which is now the equivalent of a standard rate of income tax of 35p in the pound—has been significantly to shift the burden of taxation away from the well off and towards low income groups.

Mr. John Townend

I agree entirely with what my hon. Friend says about the poverty trap and the effect on the lower paid. Can he understand the point that I was trying to make in my intervention during the speech of my right hon. Friend the Member for Sidcup (Mr. Heath)—that the low paid, who are in many cases are only marginally better off than people on short—term benefit, feel that they will be unjustly treated if their national insurance contributions are increased, thereby reducing their take-home pay, so as to pay increases of 10 per cent. to people on short-term benefit whereas they, if they work in industries that are suffering from the depression, have had to accept low wage increases of 5 per cent. or, in some cases, nothing?

Mr. Dorrell

I shall deal with that point later. Unlike most hon. Members who give that answer to an intervention, I have every intention of doing so.

The effect of my right hon. Friend's package last week, when viewed against the background of our commitment to reduce taxation and improve incentives, is socially divisive because it has reduced our commitment to improve incentives and at the same time shifted the tax burden away from the well off towards the badly off.

We have heard much in recent months about the importance of controlling rates increases because of the effect that high rates increases have on the incomes of people who have had small wage increases, on pensioners and especially on businesses. We have been told that the political problem of exorbitant rate increases on businesses is so urgent that we must introduce a referendum to control councils which wish to raise rates by amounts that we regard as unacceptable.

I must say to the Treasury Bench that the only conclusion that I can draw from last week's package is that we now, by their logic, need a referendum to control public expenditure packages. My right hon. Friend's decision on the rate support grant has the deliberate effect of raising the rates burden on domestic and industrial ratepayers by about 8 per cent. more than would have been the case without last week's package.

I do not support referendums. Nor do I support rates increases, because I regard rates as a form of taxation that is uniquely capricious and regressive in our financial system and because it, too, is socially divisive. That is the second aspect of the package to which we should object on political grounds.

The third aspect is council house rents. I find it literally—I choose the word carefully—unbelievable that we should try to moderate pay increases, create a consensus whereby trade unionists will accept low wage increases in the next few months and at the same time voluntarily raise their council house rents by 18 per cent., which is once again more than would have been the case without the package.

I know that the Government have sophisticated arguments about the share of income of working families that goes to pay rents, and I know also that the Government argue that some well-off people live in council houses, but we must face the political reality that the majority of trade unionists live in council houses. If we wish to have their consent to low wage increases this year and next, it is a little surprising that we should set about it by raising council house rents by 18 per cent.

Finally, I come to the subject dealt with by my right hon. Friend the Member for Chelmsford—short-term supplementary and unemployment benefits. I shall also deal with the point made by my hon. Friend the Member for Bridlington (Mr. Townend). I am not one who would, under all circumstances, oppose all reductions in the real value of short-term benefit. My voting record proves that. I voted for the 5 per cent. reduction in unemployment benefit 18 months ago. If the Government's argument is that it is necessary to share the burden of the package in order to stimulate the economy, that would be a defensible argument to put to my constituents, but the reality of the package is different. There is no stimulus and the burden is not substantially shared by the low income groups. It is being shouldered by the low income groups and the effect of the package is to direct the cost of what the Government are trying to do on to the low income groups.

Therefore, I do not accept my hon. Friend's argument. In other circumstances he may have a case to argue, but against the background of a package that does nothing to hold out the prospect of jobs, employment and prosperity, the argument is impossible to support. In relation to the unemployed, the distinction that I drew earlier between the political and the economic becomes largely academic. A criticism that can be sustained against the package is that it misses a major opportunity to stimulate a recovery in the economy.

My right hon. and learned Friend the Chief Secretary claims that the package amounts to a £5 billion increase in public expenditure, and that that is a sign of flexibility that we should welcome. I do not accept that argument. The £5 billion increase is an increase on figures that no one, other than my right hon. and learned Friend expected the Government to meet. Public expenditure next year, compared with this year, will rise in cash terms by 9– per cent., against a background of 10 per cent. inflation. I am prepared to accept that, broadly speaking, the package is neutral—except for the effect of the national insurance contribution, which is a £1 billion deflation on top of a broadly neutral package. Therefore, the overall effect of the package is a small but significant step in the wrong direction.

Obeying the suggestion of my right hon. Friend the Member for Taunton (Mr. du Cann) that those who have been critical have an obligation to be constructive, I shall suggest what the Government should now do—steps that should have been taken last year. Over a substantial number of months before the next election, the Government must clearly establish a trend of rising output and falling unemployment. A 1 per cent. rise in output, even if it began now and increased towards the end of next year, would not be sufficient because, if productivity continues to increase at its historic trend level—never mind the levels that we have seen during the past 12 months—1 per cent. growth means rising unemployment. That is not acceptable.

Against the background of the past few months, the Government should adopt a growth target of at least 3 per cent. To achieve that—this is where the package is fundamentally wrong—action is needed now. If we wait until the Budget in February or March, another three months will have been wasted of the short time scale during which we have to generate recovery in our economy.

We need public sector investment to renew our public sector capital stock. We need investment incentives for the private sector so that business has both the means and the incentive to invest. Above all, we need relief for the corporate sector from the crippling burden of high taxes, high interest rates, a high foreign exchange level for the pound and high energy costs—under which it has been reeling for many months.

We need to offer, both to the unemployed and to business men, a vision of the future in which it is realistic for them to expect the economy to expand to begin to meet the aspirations that they have harboured for so long and which the Conservative Party did something to generate during the last election.

Disraeli regarded the founder of the Tory Party as William Pitt the Younger. It would be a curious irony if the two hundreth anniversary of Pitt's great election victory of the winter of 1783–84 was celebrated in the winter of 1983–84 by the Conservative Party being in deep electoral trouble because it ignored the fundamental lesson that Pitt taught—that the Tory Party instinct and genius should be to match Conservatism, the instinct to preserve, with the desire to reform. I shall transpose that historical analogy. If we continue to say to the electorate that prosperity is just around the corner, and if we continue to act like a reincarnation of President Hoover, we must not be surprised if, when given the chance, the electorate replace us with a new deal.

8.15 pm
Mr. Michael Meacher (Oldham, West)

The hon. Member for Loughborough (Mr. Dorrell) made, as he has done so often in the House, a brave and eloquent speech. No one on either side of the Chamber would doubt that he delivered a devastating indictment of the Chancellor of the Exchequer's proposed package. I am sure that my right hon. and hon. Friends agree with his criticisms, especially about the redistribution of tax towards the lower paid, the iniquity of reducing unemployment benefit at a time when unemployment is rising, the increase in council rents and the lack of any significant stimulation to increase jobs.

The hon. Gentleman said that he accepted the package with the exception of certain parts to which he objected. That reminds me of the surgeon who, when presented with a patient who had suffered a terrible accident, took one glance at him and said "He needs a total amputation". That is the diagnosis that the hon. Gentleman rightly made about the Chancellor's package.

Mr. Tristan Garel-Jones (Watford)


Mr. Meacher

I have just begun my introductory remarks. I have not started upon the main parts of my speech. Perhaps the hon. Gentleman will have an opportunity to intervene later.

The real meaning of the Chancellor's speech is that the monetarists have now lost the argument, having borne a major responsibility for producing an unprecedented collapse in the economy. Yet no alternative strategy is forthcoming. The economy is simply being left to bump along the bottom, with the weakest upswing recorded in the whole of the past quarter century. Despite many protestations to the contrary, the Chancellor's statement last week about the so-called rise in public expenditure of £5 billion really means that the Treasury clearly failed to obtain cuts on a scale anywhere near those required to sustain the Government's monetarist strategy.

I assume that this year the Chancellor will, under pressure, index income tax allowances either at or near the Rooker-Wise counter inflation requirement. He failed to do so last year. If he does so, he will lose most of the revenue bonus intended to be extracted so painfully from the package. I have no doubt that he will be under great pressure from his colleagues to cut taxes because of the forthcoming election. He will then lose touch altogether with his precious public sector borrowing requirement targets.

Dr. Alan Budd's recent well-publicised recantations have admitted the knocking away of the theoretical specification for so much of the agony of escalating unemployment and collapsing production that the Government have imposed on the country during the past two years. The theory behind the Government's policy was that last year's major rise in the exchange rate should have reduced Britain's import costs. In turn, that should have reduced inflation in other parts of the economy, because, it was argued, world prices would then be the main determinant of prices in Britain when currencies floated against each other. Of course, that did not happen. The exchange rate of the pound against a basket of currencies rose 13 per cent. from the end of 1979 to the end of last year, while during the same period inflation in the industrialised countries averaged about 12 per cent. But in the United Kingdom, inflation rose to about 18 per cent.

Therefore, the international monetarist theory underlying Government policy simply did not work—partly because importers took some of the windfall from cheaper imports and higher profits rather than passing it on in lower prices to consumers, but mainly because the monetary squeeze did not convince wage bargainers that lower inflation meant a higher real value for their wage increases, and therefore they could not moderate their wage demands. As a result, wage settlements did not sharply deteriorate and companies reacted to high interest rates by seeking to cut debt. They did so by closures, by sacking employees and by running down production in order to meet demand from stockpiling, which is extremely expensive.

The result of all this was that most of the slow down in the growth of money demand that the Government had so painfully sought to bring about led far more to a fall in output rather than in prices.

Mr. Garel-Jones

I apologise for interrupting the hon. Gentleman's speech. I simply want to place on the record the fact that hon. Members from the Liberal Party and the Social Democratic Party, having made their contributions, have left the Chamber.

Mr. Meacher

That was an observation that many of us make so often that I am surprised that the hon. Gentleman felt it necessary to put it on record.

Where does all this now leave the Government's monetarist strategy? It is no exaggeration to say that it leaves it in tatters. An increasing number of hon. Members on both sides of the House now privately, if not publicly, accept that. Both of the pillars of the monetarist arch have been seen from experience to be flawed. First, it was argued that the money stock was a reliable indicator of what was happening to total money spending. I do not think that anyone still believes that, and I do not even believe that the Chancellor holds to that any more.

The second essential argument of the monetarist case was that squeezing money stock would push down the price level rather than output. It is precisely that that recent experience has so ruthlessly and painfully exploded. But after such a convincing refutation at the hands of events, what exactly is the Government's strategy now supposed to be? That is a question that the Chancellor studiously failed to answer this afternoon. The Chancellor is massaging a policy of drift, for that is what we now have, by the use of such vague phrases as "gradual recovery" and such doctored forecasts as that of 10 per cent. inflation next year, which I think every objective person now knows to be a fraud.

As to recovery, all that the Treasury is now forecasting is a ½ per cent. increase in output for each of the four half years from the first half of 1981 to the end of 1982. That is far and away the weakest upswing for 25 years since never in that time has the equivalent increase in output—averaged out for the first four half years in the same way as for those upswings—ever been less than 1.6 per cent., which is three times as great, and on one occasion, only 10 years ago, it measured 3.1 per cent., which is six times as great, and that was from a very low base.

Moreover, the index of long-term indicators is now showing a downturn as early as next year, which suggests that all that we are now seeing is an extremely feeble cyclical upswing, superimposed either on a flat trend or even a further downward trend in output. Not only that, but the Government are already budgeting—I say that with emphasis—for a further increase in unemployment. The Government Actuary has been told to assume that unemployment, excluding school leavers, will rise by a further 300,000 between 1981–82 and 1982–83, even despite the upswing of which the Chancellor has made so much. Treasury witnesses to the Select Committee on the Treasury and Civil Service confirmed yesterday that this is the forecast to which the Treasury is now working.

Even worse, there are good reasons for believing that this understates what can already be expected in terms of unemployment. The Chancellor has told the House that the rise in unemployment should level off or possibly even go into reverse by the end of the 1982 financial year. One reason for taking that with a pinch of salt is the clear early falter in the so-called recovery that almost all forecasters are now expecting. But another more direct reason is that the Chancellor is proposing to cut the PSBR from 4 per cent. to only slightly over 3 per cent. in 1982–83 while accommodating a rise of 300,000 in unemployment, at a cost of about £1.35 billion within a significantly smaller total. That is the real gauge that the Government's economic policy is still significantly—here I differ from what the hon. Member for Loughborough said; he said marginally more—more deflationary than has yet been officially admitted.

It is one thing to endure a 1930s-type slump and a doubling of unemployment if there is a clear and tenable rationale for a genuine and sustainable recovery. It is quite another thing when the central supports of the Government's case have been demonstrably invalidated by experience and when the Government patently have no clear alternative to put in their place.

Monetarism has never been endorsed by the electorate. It has now manifestly failed. The sooner the Government give way to others who have a clear economic alternative and who believe in it, the better for the country.

8.26 pm
Mr. Maurice Macmillan (Farnham)

I wish to talk about only one point—investment. I shall confine my remarks entirely to one form of investment which I believe to be important to the economy and to the confidence of industry, and almost essential to our future capacity to invest in Europe and to compete in Europe.

I find myself, somewhat surprisingly, in agreement with my right hon. and learned Friend the Chancellor at least in thinking that it is quite wrong to increase consumer demand willy-nilly until he has dealt more effectively with the supply side. I agree with him that the main problem at present is on the supply side of our economy. Nevertheless, the package that he has produced will damp down demand—which I am not sure is necessary at this stage—and will increase costs. In this way, and perhaps even more by its omissions, I think that it has done considerable damage to industrial confidence.

The Chancellor has done nothing and said nothing about interest rates. I do not want to discuss those at this late hour of the evening. I made a speech about interest rates in a recent economic debate, and my right hon. Friend the Member for Sidcup (Mr. Heath) enlarged upon the subject on the same lines today. However, there is no doubt that the Government are not doing enough for that type of public sector investment which does so much to produce work for the private sector. Perhaps most important, in view of our situation in Europe, is investment for infrastructure and notably on our transport systems.

Some time ago a report was sponsored by the Director General of regional policy of the Commission of the European Community, and simultaneously by the Department of Industry. It was a study of what was known as the influence of peripheral and central location on the relative developments of regions. I wonder whether the Chief Secretary is familiar with this report, which his colleagues in the Department of Industry helped to commission.

One of the points which the report makes most plainly is that the distance from the centre of activity—a quality which it distinguishes by the horrible phrases "relative peripherality" or "relative inaccessability"—at a Community-wide level, constitutes an important underlying determinant of the relatively poor economic performance of the centres of production and activity of manufacture which are, in European terms, on the periphery.

In making this analysis the report distinguished the relative capacity of different parts of Europe to meet developments and to be able to invest and compete successfully due to their relatively good accessibility to the rest of our markets. It distinguished that by calling it "regional economic potential", and this it charted for the whole of Europe.

The depressing feature about the analysis was the regional economic potential of the West Midlands, which used to be one of the main centres of British industrial know-how and development, and the main supplier of our overseas markets. The regional economic potential of the West Midlands is about one third that of the German heartland. That part of central Germany which is centred on the Ruhr is, in terms of access to European markets, three times as well situated as Birmingham and the West Midlands. Belgium and the Netherlands are twice as well situated on this analysis. Even London is not quite up to the standard of West Berlin in its relative accessibility to prosperous markets and it is well below that of Paris.

It is clear that for the United Kingdom this means that, in its main centres of production, the people who work in industry are not well enough served by their transport systems to get at the markets in Europe, which are our most quickly developing overall markets.

The access of London, for example, to the Channel ports is grossly vitiated by the extreme difficulty of moving goods out of the London area to the south and eastern ports, especially on a day like this, when it becomes almost impossible. The West Midlands also needs far better access to the Channel ports to the north of London via the A1–M1 link and the good access from the Cambridge district to the ports.

Programmes to put these problems right are in the machine somewhere. The road programmes exist and they have been approved in principle. I suggest to my right hon. Friends that now is the time to bring these programmes forward and to meet the difficulty before it becomes critical.

The same consideration should apply to inner city investment, especially as it can be of great help to smaller firms operating within city boundaries as component manufacturers to larger businesses. I ask my right hon. Friends to recognise the need for some policies of this sort to offset our long-term underlying handicap, which is marked and is widening as time passes. It is getting worse, not better, as it is left to itself.

I suggest to the House that such a programme is needed if the Chancellor's optimism is correct and justified. It will be needed to remove an obstacle before it becomes a bottleneck to the expansion that my right hon. and learned Friend foresees. On the other hand, if the pessimists are correct in their theory, such public investment could do nothing but give necessary help to the private sector, provide work for the construction industry and its suppliers and help in engineering and electronics. In either case, it is a form of fixed capital formation in which real assets are created and in which current spending is saved—rather like someone who lags his roof to cut down on heating bills. The capital expenditure is there, but is worth it for the current spending that is saved.

I admit that such a programme might lead to additional borrowing or to a deficit, but is that important, considering the purpose? If one persists, as the Treasury regrettably does, in seeing no difference between funding investment and funding day-to-day consumption, that is an obstacle, but I think that there is a difference and that borrowing to fund this type of investment in real assets is not damaging to the economy, as is funding to fuel further consumption. There would not be any inflationary effect provided always that there is an increase in the real assets in the economy to match any increase in financial assets.

I beg the Chancellor and his colleagues not only to think of the cost of doing as I propose, but to reflect a little on the potential cost of doing it.

8.38 pm
Mr. Tam Dalyell (West Lothian)

It is a civilised custom of the House that hon. Members do not speak other than in complimentary terms about maiden speeches. However, I wonder whether I am the only hon. Member who is angry at the speech made by the right hon. Member for Crosby (Mrs. Williams) who told us in her usual felicitous language that she was "Glad to be back".

Perhaps I may be forgiven for saying that it would have been nice if the right hon. Lady had seen fit to clarify the circumstances of her remark about "booze" in the House, which was widely publicised over the weekend. Her remark seemed to some hon. Members to smack of populist politics and it stuck in the gullet of many hon. Members on both sides of the House who work extremely hard. They might have different political opinions, but the right hon. Lady should have known better. If she has been misreported she should say so. It was certainly the experience of some hon. Members over the weekend, admidst the industrial difficulties that we face, to be told that "Shirley Williams confirms our worst suspicions that all you people do is go to the House of Commons and booze it up". She should clarify that remark at the earliest opportunity.

It is also rightly the custom of the House that Opposition spokesmen do not speak from the Back Benches. I had better explain that I have something of a dispensation to speak on one subject—the issues that arise out of Leyland, Bathgate. That dispensation arises because my constituency faces the prospect of a 26 per cent. unemployment rate if Leyland's plans go ahead—added to the closure of Plessey and the closure of the Initial Garment manufacturing unit.

The Chief Secretary to the Treasury knows from a previous incarnation, when he was the Opposition spokesman on devolution, the state of feeling when one adds a Scottish dimension to such issues. I return to the statement of the right hon. Member for Taunton (Mr. du Cann) earlier—why should we be resigned to unemployment? My right hon. Friend the Member for Heywood and Royton (Mr. Barnett), who is unique among Privy Councillors for having attended the debate after having spoken, said that it is socially unacceptable.

I refer to my interruption of the Chancellor and ask again whether the Treasury will, like the Department of Industry and Leyland, promise to be wholly helpful to the Comptroller and Auditor General and the Audit Department when they consider the circumstances surrounding the proposed sale of the Leyland tractor assembly line in my constituency to a firm in Gainsborough.

The issues involved go far wider than the problem In my constituency. The subjects that I wish to raise relate to privatisation and the destiny of public money. This is not the time to ask direct questions of the Department of Industry. I shall seek to do that during the Adjournment debate of my hon. Friend the Member for Wolverhampton, South—East (Mr. Edwards) tonight when he raises the closure of Guy Motors, but I ask the Chief Secretary whether he has been able to reflect on his and the Chancellor's attitude to the inquiry of the Comptroller and Auditor General.

The issue can be extended from Leyland to Sealink and the investment of considerable sums of taxpayers' money in assets that would not have grown without it. What do senior Treasury Ministers think about what is happening? When an element of public money is involved, are the Government not entitled at least to be consulted before disposal decisions are made?

In the Bathgate case, surely someone should judge——

Mr. Deputy Speaker (Mr. Bryant Godman Irvine)

Order. The hon. Gentleman appears to be concentrating on a specific case. The debate is on a wide front and it is time that the hon. Gentleman widened his arguments.

Mr. Dalyell

I illustrate my point by saying that in the Bathgate case and in general there should be a judgment by the Government on whether we in Britain should have an indigenously owned tractor industry. For all I know, the answer may be "No", but when huge sums of public money have been involved such a decision should not be taken without a Government decision. There should be long-term decision making, rather than a response to ephemeral pressures affecting individual firms. Should what has been given and specifically earmarked by successive Governments as part of regional policy be sold when the pressures, often arising from extraneous matters, force such action?

I go wider than my constituency. Every auditor and all those concerned with public expenditure must have been appalled by the spectacle of assets at Linwood with a book value of more than £200 million being sold for less than £10 million. Do sales on such a scale mean that it will be difficult for us to get back to being an industrial country even if the Government's policy made that possible? The issue at stake is the deindustrialisation of Britain. My hon. Friend the Member for Flint, East (Mr. Jones), who is sitting on the Opposition Front Bench, knows from the Shotton case that he has argued, as I am arguing the Bathgate case, that the accountability of public money is a central issue.

The Secretary of State for Industry made an attack on me—I do not complain about that—but he selected certain phrases from an admittedly extended, 35—minute speech in last week's debate on the Public Accounts Committee's report and telescoped them to the point of distortion. I say to the Treasury that it must face up to the fact that if it wants to exorcise suspicion, distrust and fury it must be willing to put everything it knows about Bathgate at the disposal of independent auditors.

When unemployment is over a certain critical mass percentage, the social fabric of our country is at risk. What will the Government do when there is a sit-in at a factory that is closing down such as Plessey, Bathgate by determined women who will——

Mr. Deputy Speaker

Order. Will the hon. Gentleman be good enough to relate his remarks either to the motion in the name of the Prime Minister or to the amendment in the name of the Leader of the Opposition? At the moment he is drifting a long way from either.

Mr. Dalyell

I am not drifting, but asking for tracing or the scent of public money. If that is not done, there will be social dislocation in our country and a sit-in in factories, of which we have already had a taste with Lee Jeans at Greenock.

Mr. Deputy Speaker

Order. The hon. Gentleman should read the title of the debate on which we are embarked—"Public Expenditure Proposals 1982–83".

Mr. Jack Straw (Blackburn)

On a point of order, Mr. Deputy Speaker. Those public expenditure proposals include the special sales of assets, details of which are set out on page 4 of one of the Treasury's press releases. With respect to you, Mr. Deputy Speaker, I believe that my hon. Friend is speaking exactly on those proposals for special sales of assets and the extent to which sales at Bathgate and elsewhere add to or detract from the Government public expenditure totals.

Mr. Dalyell

I shall not try to prevent other hon. Members from speaking. However, I suspect that the complaint against me is that I have spoken ad nauseam in the last week or so on that subject. I believe that it is relevant to the debate. Unless one carries out an ad nauseam campaign, how can one affect a desperate situation in the outside world? I shall not go further into that desperate situation, but when in January we come back to the House and people ask why there is great trouble on the tractor line at Bathgate and what the police will do if the people who work at Bathgate carry out their stated intentions, the House cannot blame me for not giving a warning.

8.47 pm
Mr. Charles Morrison (Devizes)

I agree with the hon. Member for West Lothian (Mr. Dalyell) on one general point that has been pursued by my right hon. Friend the Member for Taunton (Mr. du Cann) and the right hon. Member for Heywood and Royton (Mr. Barnett), that it is wholly unacceptable that the Comptroller and Auditor General cannot look at as much as 50 per cent. of public expenditure. It is high time that the House decided to have a greater say in and a greater oversight of public expenditure.

I shall recapitulate on some of the points that were made earlier. The Government Actuary has said that, on the instructions of the Government, he is assuming that average unemployment will be worse than now at least until the end of the first quarter of 1983. In other words, there will be a continual upward trend in unemployment during the whole of that period.

Against that background the public expenditure statement was not only uninspiring but complacent. At worst it should have been mildly and perhaps only tentatively expansionist, but instead it is mildly deflationary. On that point I disagree with my right hon. Friend the Member for Chelmsford (Mr. St. John-Stevas).

According to the figures that I obtained from the Sunday Telegraph which are no doubt accurate—[Interruption.] I say that on the basis that my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne), the Minister of State, having just left the Sunday Telegraph, would have left it in nothing less than a state of complete accuracy. In 1981–82, expenditure in cash terms will increase by 13.8 per cent. over the previous year, and in 1982ߝ83, by 7.4 per cent. Taking account of inflation, in real terms that must amount to a reduction in public expenditure, which means that the proposals are deflationary, albeit only mildly.

On the other hand, although I hope that the Chancellor will feel able in his next Budget to raise tax thresholds, I am not in favour in the present circumstances of cutting direct taxation. It will not help the worst off. I agree with my right hon. Friend the Member for Farnham (Mr. Macmillan) that it is much more important to concentrate on investment.

Secondly, the Government's intention not to uprate short-term benefits fully will, as we well know, hit the poorest members of the community. How will it be possible after such a move for the Conservative Party to retain the justifiable and richly-earned reputation as a caring and compassionate party that it has had since the days of Disraeli, as has been pointed out, and of Lord Woolton, lain Macleod and others?

Mr. Needham

Does my hon. Friend agree that the approximately £35 million required to uprate unemployment benefit could he obtained purely by reducing the national insurance fund, which has already grown under the Government from £4,000 million to more than £5,000 million? There is no conceivable need for the Government to increase the PSBR or the employers' or employees' national insurance contribution to get the money to pay to the unemployed. Does the same not also apply to short-term supplementary benefit, where the Treasury would merely need to reduce the subvention to the national insurance fund and slightly to reduce the amount of money currently in the fund, which is much more than needs to be there?

Mr. Morrison

That is an entirely sensible suggestion. I hope that the Chief Secretary will look at it in detail with a view to acceding to my hon. Friend's request.

It is not good enough to say that, because people in work may have to accept a cut in their standard of living, so must those out of work and others at the lowest end of the income range. One does not need to be a genius to understand that, whereas people with an adequate or even smallish income, albeit with difficulty and grumbling, can reduce their expenditure, people on the breadline cannot. Supplementary benefit recognises that fact, yet the Government now intend to cut the benefit in real terms. That is shaming, and all the more so if the cost saving is low. In the past, the Conservative Party has taken pride in maintaining the interests of the family. We should remember that about 1 million children are affected by supplementary benefit.

My third criticism is that the statement contains nothing positive. It contains no new proposal for investment in the national infrastructure, which some of us have advocated frequently and increasingly. Such investment is necessary and good in itself in addition to providing jobs. Nor does the statement give any encouragement to industry.

I am not in the least surprised that the Association of British Chambers of Commerce said:

The measures announced on 2 December mean a continuation of the vicious downward spiral caused by Government taking more and more from less and less. Overall the proposals will significantly add to industrial costs". The CBI, as has already been mentioned, simply said that the statement provided no help for business and expanded on that theme.

Nor can I understand why the Treasury still apparently thinks that it is perfectly reasonable to fork out some £13 billion on unemployment benefit to pay people for doing no work, but that it is not reasonable to fork out some part of that sum to provide people with the opportunity to do productive work. I cannot see why that should be inflationary. It would simply be a transfer of resources. That is what I want the Government to do—to transfer resources into productive work.

I can hazard a guess at why the Treasury reached that conclusion, and did so a long time ago. I am afraid that it was because the Treasury was allowing itself to become a test bed for the theories of economists who, it should not be forgotten, have no responsibility for people. If the now well-known Dr. Budd is anything to go by, such economists are as likely as not sooner or later to turn round and admit that some or all of their theory does not work. It is no loss to them, as apparently there is an unlimited supply of Treasury Ministers who will be equally gullible when the next economic panacea is proposed.

As I said in the debate on the Queen's Speech last year, it is time that we had a little less theory and a little more common sense. When a statement does nothing for national infrastructure investment, which could bring many orders for the private sector, and when, not surprisingly, it is damned by the representatives of industrial and commercial firms, there does not seem to be much to be said for it.

My fourth criticism of the statement is largely political. I regret to say that in my view it was unequalled for sheer dull dreariness. There was nothing in it to give hope or to renew confidence. Weekend after weekend, people in my constituency say "Please give us some kind of hope." The statement gave the impression that it was another stage in a book-keeping exercise remote from the people on whose behalf it was allegedly undertaken.

Wars are not won by pitching the tents in straight lines or by constantly correcting the ration returns, important though that may be. Wars are won by flair, imagination, dash and inspiration. There is not much sign of those commodities in the Treasury at present, but without them there is no hope of renewing confidence to the extent that is needed for us to win the economic war on which we are embarked or indeed for the Conservative Party to win the next general election.

In my view, therefore, the public expenditure statement is deflationary. It will reduce the standard of living of the poorest. It does nothing positive for industry, and it is downcastingly dull. In the present circumstances, that is not what I expect from a Tory Government, and as a traditional Tory I am not prepared to go along with it.

Mr. Arthur Lewis

On a point of order, Mr. Deputy Speaker. Is there any way in which I can draw to the attention of Mr. Speaker the fact that countless numbers of Privy Councillors have spoken in the debate but that, with two exceptions, none is now present in the Chamber? Most Privy Councillors walked out after their speeches and have not put in an appearance for the rest of the debate. The Chancellor of the Exchequer returned to the Chamber for two or three minutes only. Is there any way in which I can draw attention to the matter?

Mr. Deputy Speaker

The hon. Gentleman knows that the conduct of Privy Councillors is not managed by Mr. Speaker.

9 pm

Mr. Robert Sheldon (Ashton-under-Lyne)

The motion is interesting. It is not, as we know, a "take note" motion of the sort that we frequently have, but it congratulates the Government, not on what has happened, not even on what is happening now, but on what they expect to happen. They make use of the Industry Act forecast to be able to make an assessment of future pleasures. This is a Treasury forecast and the main point upon which the Government choose to congratulate themselves is the fact that output is forecast to increase by 1 per cent. The House will know, because it was stated in the Red Book earlier this year, that that is well within the margin of error that the Treasury lays down. How can those who recall the disdain and derision of the Chancellor of the Exchequer and other Treasury Ministers for those forecasts accept these particular models that happen to suit the Government's propaganda?

When we bear in mind the shameful cut in the subsidy to the National Institute for Economic and Social Research, which followed its prediction of economic failure by the Government, we see that the conversion to accepting forecasts is something new. The Government did not then accept that industry's output would decline by 17½ per cent., or that there would be 3 million unemployed. It is only now that they are beginning to show some interest in forecasts.

The major question in the debate was asked by the right hon. Member for Sidcup (Mr. Heath). He wondered whether there was to be a turn—not a U-turn, he accepted, but a swerve—or whether the Government's policies were simply going straight ahead. Who actually won the battle in Cabinet? We know that there were leaks in previous Cabinets, but this is the leakiest Cabinet in modern history. We used to have inquiries about who leaked certain matters. There is no need to have those inquiries now. They all do it. Every member resorts to the confessional of the press lobby. That is led by the Government who themselves do the major part of the leaking to soften the blow or to get their presentation into the public arena before it comes to the House.

My right hon. Friend the Member for Heywood and Royton (Mr. Barnett) suggested that it was the Treasury that fooled the Cabinet. I am inclined to agree with him. Because of those leaks, which we know are authoritative—we know the cuts that were proposed and those that were subsequently disgorged by the Cabinet—we know that the options included failure to index, even inadequately, the short-term benefits, hotel charges for the National Health Service, even higher prescription charges, increases in council house rents up to £4.50 and the rate support grant being cut to 50 per cent. We know that the education cuts were to be even worse than those that we had. We were faced with the most peculiar, if not unique, position where the Secretary of State for Education and Science was overruled by the Cabinet—he wanting more cuts than the Cabinet were prepared to give. The outcome was that the wets got more than they thought they would get—but that was the plan of the Treasury. As Ian Aitken put it, the wets in the Cabinet are celebrating. They have been robbed of only half the contents of their wallet. That is the situation as we see it today.

Out of the £115 million of public expenditure, more than £30 million goes in salaries, as was said by the right hon. Member for Taunton (Mr. du Cann). That is a high element of staff costs. The Government are relying on a good pay settlement as a result of the negotiations with the Civil Service unions. They are relying on a 4 per cent. settlement. If they do not get that 4 per cent., there will be cuts in other services because of the cash limits system that operates. Those who hope that public servants will be regarded better than they have been over the past few years know that the loyalty of those who work for the good of the public service because they believe in it will be under even greater strain as the result of what is happening here.

The Government are not against all public expenditure. It is acceptable as long as it is in the untouchable area of defence. The question that we must ask ourselves is: how can we have a sensible control over public expenditure while at its heart lies the maturing catastrophe of Trident? Again we must ask: shall we spend £5 billion on the C4 version or £10 billion on the D5 version? How much will be spent in this regard? Which version will be selected? Or shall we actually proceed on the matter? Public expenditure control is made impossible by the failure to discuss these alternatives and to know exactly what is proposed.

In the 1982–83 expenditure year we know that there is to be a 7½per cent. cash increase. That figure was given by the Chancellor of the Exhequer. We know that inflation will be around 10 per cent. Some say that it will be more, some say that it will be much more, but no one says that it will be much less than 10 per cent. As a result, these Elements of deflation will come into public expenditure. The Chief Secretary shakes his head, because he has dreams and plans of superb settlements with the Civil Service unions. When the Budget is presented to the House I doubt whether he will achieve the entire success that he is aiming for.

Is there a swerve? Is there a turn? Is there an alteration in direction? Certainly the Treasury has succeeded in pulling the wool over the eyes of the Cabinet. One only has to consider capital and current expenditure—a matter that is very much the concern of the right hon. Member for Taunton and others—and the capital cuts in water services, bridges, roads, motorways and trunk roads. It is hoped of course that there will be a fall in the actual prices that are charged for those essential services. Perhaps the increase will not be very great, but those who look for falls are taking the extreme course of optimism that will be hard to justify in the months ahead. Far from increasing public expenditure, they are in fact cutting capital programmes.

When the Chancellor of the Exchequer takes pride in the extra expenditure on nationalised industries, he is perpetrating a nonsense on the House—I was about to say "a deceit", and it is not far short of that. He is basing his views on the optimistic plans, the dream scenario, that his party had when it came to power. It expressed the great hope in the 1980 White Paper that, from a figure of £1,900 million in 1979 survey prices, it would reduce the amount of lending to nationalised industries, and in the year 1982–83 it would make vast profits from these nationalised industries.

So far from nationalised industries being a burden and so far from there being substantial net lending to them the Conservative Party said that the nationalised industries would lend to the Government. Those plans were conceived in the whimsy of Opposition but the Government's fantasies survived into the White Paper on public expenditure in 1980. All we are seeing now is a glimmer of comprehension that this is not a picture of the real world as we see it and live it. Far from an increase in expenditure, we are seeing only a greater correspondence between what the Government expects to happen and the reality.

The Government have an obsession with the level of public expenditure and believe that the Government's demands for money compete with private investment for available funds. They believe that if Government spend more money, private industry will receive less and that more money for Government means less for industry. I must tell the Chancellor of the Exchequer—because he repeats that point again and again—that it is not as simple as that.

When the Government removed exchange controls they allowed a large amount of portfolio investment to go overseas. Therefore, they were assisting industries in other countries. So there is not a two-way split, but a three-way split between money for Government, money for industry and money for investment in our overseas competitors. The point about money going overseas for such investment is that once it is out it stays out. It does not help our industrial development at home. Public expenditure on roads, on the electrification of railways and on building goes into industry and into investment at home.

The question is not whether public or private expenditure is used as the main area of expansion or whether the level of public expenditure is too high, but what public expenditure is used for. If it is being used for good purposes such as investment, it is good, whether it is public or private.

Mr. Geoffrey Dickens (Huddersfield, West)

Will the right hon. Gentleman explain why the Labour Government's taxation policies drove overseas our entrepreneurs and risk takers?

Mr. Sheldon

I am grateful to the hon. Gentleman for allowing me to reach the next part of my speech, which concerns the Government's taxation policies. The real aims of an incoming Government are not judged just by what they say in the heat of the election battle, because words are said that are better unsaid and promises are made that are difficult to justify, let alone to implement. A much better guide is what a Government put in their first Gracious Speech.

The first of the serious statements in the Queen's Speech of 15 May 1979, after all the normal flourishes that preceded it, was:

By reducing the burden of direct taxation and restricting the claims of the public sector on the nation's resources they will start to restore incentives, encourage efficiency and create a climate in which commerce and industry can flourish. In this way they will lay a secure basis for investment, productivity and increased employment in all parts of the United Kingdom."—[Official Report, 15 May 1979; Vol. 967, c. 48.] In the light of day, the Government's decision to nail their colours to such an advance in taxation, industrial enterprise and progress must be compared with what has been achieved. The Prime Minister tells us frequently that the Government are very much committed to improvements on the supply side. There are those of us, not necessarily sceptics, who believe that supply side is only a euphemism for the reduction in taxation for the well-to-do. It was assumed that all that was needed was a reduction in the tax burden on the well-to-do and, as the Financial Times put it, the business man would be made to bloom or to wither at the touch of the tax button.

We know that that does not happen. It did not happen in 1962, when the Conservative Government raised surtax levels with the same intention, in 1972 when a Conservative Government brought a unified tax system into being and so helped those at the top of the income scale, or in 1979, when they increased VAT, but thought that reduced taxation at the top would encourage all those wonderful entrepreneurs to dash busily to work and produce the wealth that the country needs. That is a very mechanistic view of the world and the Government are, perhaps, coming to appreciate that.

As a result of the Chancellor of the Exchequer's statement, the national insurance contribution will be increased and the ordinary person will be hit even harder than before. We need not look at what was expected, because we can see what has been achieved even before the new national insurance contributions take effect. The figures all point in the same direction, but I shall pick only one or two to make my case.

A married man with two children used to pay about 19 per cent. of his gross income in income tax, quite apart from the other taxes. The first Budget reduced that to 18½ per cent. The figure then increased to 19½ per cent. and is now more than 20 per cent., even before the national insurance contribution takes effect. If VAT and indirect taxes are also included, the married man with two children is now paying 46 per cent., instead of the 41½ per cent. that he paid in 1978–79.

Therefore, all the figures point in the same direction. For nearly everyone in the country, income tax has increased. The tax burden on almost everyone has also increased. That achievement must be set against the Government's central objective.

Once again we have heard the tired words of the Chancellor of the Exchequer. He spoke about building on the achievement. I do not mind building on something, but the right hon. and learned Gentleman calls 3 million unemployed and such a reduction in output an achievement. He said that his task is not to achieve something, but to build on that. Let us consider the claims made by Treasury Ministers. The first claim was made in January 1981, when the Financial Secretary said that we had turned the corner. In March, the Chancellor of the Exchequer said that we had passed the bottom of the recession. In July, he said that we had reached the end of the recession. In September, the Chief Secretary said that there were clear signs of success.

At the Tory Party conference in October, the Prime Minister spoke about the success that she expected to achieve. In November, in the Gracious Speech, the Prime Minister again pointed to the success being achieved. Now the Chancellor of the Exchequer once again tells us about the hopes and joys to come. When we hear the same story of success for 12 months, we know that such words are not intended for serious observers, but are directed against the problems that the right hon. and learned Gentleman has with his Back Benchers.

The statement of the Secretary of State for Trade was much more accurate. He said that there would be three years of unparalleled austerity. That was an underestimate. Those three years will soon have passed. When the Chief Secretary tells us that the recovery will come as sure as day follows night, he is presumably relying on the principle that what goes up must come down, or, as the Chief Secretary might put it, what goes down must come up. However it is possible that what goes down stays down for quite a while. That would give us no pleasure.

The right hon. Member for Sidcup asked where the engine of recovery was. Where is the horse? Where is the motive power that will bring about this change in our economic circumstances? The Chancellor has said only that he hopes that stock reductions will come to an end. Heaven knows why that should be so. There must be some level at which a decline ceases but this does not mean that there will suddenly be a rise.

A sensible debate should be taking place in the House over whether it is wise to withstand the tribulations offered by the Chancellor in favour of greater prosperity at some stage in the future. That debate has never occurred. All that hon. Members have heard are the blind and certain assertions of the Chief Secretary and the Chancellor.

I turn to the views of industry. The CBI has called for a reduction in the exchange rate. My chamber of commerce in the Manchester area calls for the same kind of approach. A letter from the chamber of commerce in Manchester to the Chancellor asks for a significant cut in the national insurance surcharge, a cut in rates of interest and greater Government capital expenditure. The Association of British Chambers of Commerce has pointed out that "leaner and fitter" industry is in danger of becoming a euphemism for smaller and weaker. The association wants greater Government involvement.

All these bodies point in the same direction. They want a lower exchange rate, more capital projects, a reduction in the national insurance surcharge and a reduction in interest rates. Even the Institute of Directors, those directors who play at being politicians, are beginning to support the wider representations of industry.

A much more relaxed attitude is needed towards the public sector borrowing requirement if the borrowing is to be used to help industry generally at a time of 3 million unemployed and with unused resources on a scale not seen for generations. This is a sensible way to use some of the moneys that can be raised, if necessary, by our North Sea oil assets.

The rate support grant will cost £400 million on business rates. The national insurance contribution will cost industry £200 million. These are burdens on industry as opposed to the advantages that were to come from a Conservative Government. The 1974 Conservative manifesto contained a commitment to the abolition of rates. In 1979 the Conservatives were going to examine 'ways to abolish the rates. In 1981 the rate support grant has been reduced from 59 per cent. to 56 per cent. Rather than increase taxes, the Government reduced the assistance given to local authorities and so virtually increased the rates themselves. It does not lie in the mouths of Conservative Members to talk about ending the rating system when they throw greater burdens upon the rating system and upon the local authorities.

The Government have cut unemployment pay by 5 per cent. through the introduction of taxation of unemployment benefit. They have ended earnings-related benefit from unemployment benefit. There was also an underpayment of 1.7 per cent. caused by the Government themselves making a mistake in under-estimating Inflation. The burdens of this Government's policies fall on the shoulders of those least able to bear them and those who are the direct sufferers of the policies.

The Government frequently deride the country's economic past. I am not prepared to see 30 years of a successful period in the history of our country subjected to obloquy and censure of this kind. For 30 years we have seen expanding production and increasing prosperity in Britain. We have seen a state that is united, confident and assured. That was not achieved by the processes of the present Government. They have brought about not only disastrous economic performances but a disunited country—one that is facing its soul with questioning and doubt, which is a matter of great regret to most hon. Members.

The Government have failed to take note of what some of the economic commentators have been saying. When my right hon. Friend the Member for Stepney and Poplar (Mr. Shore), during the previous Labour Administration, said that he would reflate the economy, hon. Members on the Opposition Benches at that time sprang up and asked him by how much he would reflate and why he was doing it. Economic commentators have given support to even greater public expenditure than was announced by any member of the then Opposition.

As a result of the Government's action, ideas of monetarism have been totally dismantled. In their first year of office the Government believed that inflation was caused by sterling M3 and that monetarism would replace it. They believed that economic performance would be radically improved by sticking to monetary targets. There was even a proposal to leave the matter to the Bank of England, which would run the economy in a monetarist fashion.

Dr. Alan Budd has said that the high exchange rate strategy was a mistake. He said that by sticking to sterling M3 we did not keep interest rates down and could not achieve exchange rates that did not harm industry. Dr. Budd is an honest man and it is not for him to take decisions on these matters. However, the Government must take the advice that they receive and ensure that it makes practical sense and implement the policies they said they would bring forward. They said that they had found the philosopher's stone, but what they have produced has not been successful.

Dr. Budd, a distinguished academic and a man of great standing who has given evidence to the Treasury and Civil Service Committee, was entitled to admit that there had been a mistake, but the Chancellor of the Exchequer is responsible for such matters. He should come to the House and say that he has made a mistake. The Prime Minister must come to the House and say that she has made a mistake. The Chancellor of the Exchequer must apologise for the greatest slump in British history and for the 17 per cent. loss of industry. He must apologise for the 3 million unemployed and for doing to our country what no external force has ever been able to achieve.

When they have completed their apologies, the Government should have the grace to do the only honourable thing left to them, which is to resign.

9.28 pm
The Chief Secretary to the Treasury (Mr. Leon Brittan)

Some hon. Members who have spoken in the debate have used the opportunity to put down markers, which is an entirely legitimate activity in view of the fact that, as has rightly been pointed out, the cause of the debate is the Chancellor of the Exchequer's announcement last week of the outcome of the Government's decisions on public spending in the year 1982–83. That year is still some way ahead. The other side of the account becomes apparent at the time of the Budget.

It is absolutely right that those who wish to take a view of the whole of the Government's policy on the economy should put down markers. The fact that markers put down by such diverse voices as my hon. Friend the Member for Croydon, South (Sir W. Clark) and the right hon. Member for Heywood and Royton (Mr. Barnett) point in different directions is to be expected.

Even if we are looking at the state of the Government's plans for the economy on a half term basis, there is still a common objective that unites almost everyone in the House, even though there is immense diversity of opinion about how to achieve it. The task upon which we are all embarked, and on which everyone outside the House wishes us to reach a view, is to answer the question how best we can help industry to continue the process of emergence from the recession as quickly as possible, and on as sound a basis as possible. That is a reasonable objective.

The hon. Member for Colne Valley (Mr. Wainwright) said that he wants objectives. He wants to know where the Government are going. It is not difficult to answer that question in the terms of the policies that we have been following. As my right hon. and learned Friend the Chancellor made clear, during the past few months we have seen the beginning of a gradual but real emergence from the low point on a more realistic basis than we have seen for many years. I am referring to increased productivity.

I must tell the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) that of course we can differ on the right course to take, and of course I understand how passionately he and those behind him differ from the Conservative Party on the policies that should be followed, but no useful purpose will be served to Parliament, the country or those who wait on our words if we present a picture more gloomy than the facts warrant.

I do not believe that Conservative Members have in any way exaggerated the right hon. Gentleman's quotations. His own quotations confirmed that during the course of the year we predicted not a runaway boom, not a solution to all our problems, but a gradual emergence from the low point of the economy on a sound basis. That is exactly what has happened. It is a basis for looking to the future, not only to 1982–83 and 1983–84, but to the following years.

Mr. Shore

Now that the right hon. and learned Gentleman is beginning to describe the success of his policies, will he tell us how we fell into the pit of depression and slump from which he believes we are beginning to crawl?

Mr. Brittan

I shall tell the right hon. Gentleman exactly how we fell into that pit. It was for two reasons. First, for many years we had allowed inflationary pressures to build up to unacceptable levels. Secondly, we happened to find ourselves in a world recession that accentuated that process. I do not deny that the process of adjustment, recovery and dealing with the underlying problems of the British economy was bound to be difficult. The right hon. Gentleman should not bemuse himself with his lugubriousness. He should recognise the incipient signs of recovery.

One reason why we can look forward in a realistic manner—this answers the question fairly asked by the hon. Member for Colne Valley—to a continued gradual emergence from the low point is that the productivity improvement in the British economy is well founded. It is a deep—seated change in British industry, its attitudes and in attitudes to pay, work and the whole conduct of industry. It is in that context that one has to look at the Government's public expenditure plans and see how they fit in. As I have said, the other side of the account is yet to come.

The question has been asked whether, when one is looking at expenditure on its own, what one is seeing is something in our plans which is deflationary or reflationary. My right hon. Friend the Member for Sidcup (Mr. Heath) saw us veering in a direction that he favoured. The right hon. Member for Heywood and Royton feared, I expect, too rapid a rapprochement for his political convenience and sought to warn the House that there was no such thing as a reflationary package in what was announced by the Chancellor last week.

The truth is exactly what my right hon. and learned Friend the Chancellor has said. The public expenditure side of the account involved providing approximately 10 per cent. more cash than the plans that we had for this year. That is broadly equal to the change in prices. Therefore, it is neither inflationary nor reflationary. But it amounts to a real difference in policy, although the right hon. Member for Heywood and Royton would have us believe that it was nothing more than financial juggling. He gave a splendid example of his own legendary competence in financial juggling.

We have agreed to an increase of spending of £5 billion over what had been planned, and that is a substantial increase. I say so with mixed feelings and all Conservative Members must view the increase with mixed feelings because it has been, and remains, our belief that the share that the State takes of spending generally has been excessive and ought to be diminished over a period of time. Conservative Members will remember that the Conservative Party said in the election manifesto: The State takes too much of the nation's income; its share must be steadily reduced. That was the election manifesto on which all Conservative Members fought.

My right hon. and hon. Friends will also recall that in the spring of this year, when the public expenditure White Paper was published, we said that the totals of expenditure were higher than we would wish in the light of our financial and economic objectives. It is clear what we had in mind and it is therefore equally clear that the announcement made by my right hon. and learned Friend the Chancellor last week amounts to a real change in the plans, reflecting changed circumstances.

It is right and necessary to recognise that a change has taken place, and it is equally right and necessary to make clear to all hon. Members that the circumstances of today and the purpose of those expenditures are such that the upward adjustment is wholly right and proper.

I shall look at the components of the spending that has increased over our plans. I refer first to defence, which has recently been pooh-poohed from the Opposition Benches. Whatever view one may take about deterrence or the threat from the Soviet Union—we are not here to debate defence policy—the Ministry of Defence is today spending more than £5,000 million on British industry. Next year it will be spending an extra £1,000 million. The implications of that in terms of industrial recovery speak for themselves.

As regards local authorities, my right hon. and learned Friend the Chancellor has not sought to pretend that the increase in spending that is included in the extra £5 billion and that is accounted for by local authorities is something that we welcome. I regard it as a matter of regret that local authorities have increased their spending above the Government's plans to such an extent that it is impossible for them to reduce it as fast as we would wish, and therefore we have had to make the recognition of that reflect itself in an extra figure of £1,300 million.

Much has been said about the nationalised industries and their spending and the role of their spending in relation to the revival and recovery of the economy. I welcome the opportunity to make it clear that we are increasing the provision for the nationalised industries over that in the last White Paper—from £1,407 million to £2,770 million. That figure seems to me to represent a recognition of the need, at a time of recession, to enable the nationalised industries' investment plans to expand and to continue in the way in which they have done.

The nationalised industries' planned capital programmes in 1981–82 are a little under £7 billion in cash. That represents a real increase of 15 per cent. over the 1980–81 figure, but, what is more significant than that—hearing the calls from the Opposition Benches—is that these plans represent the highest real level of investment in the industries since 1975–76. Let us see no more crocodile tears about expenditure on infrastructure, because the largest possible drop in that occurred when the Labour Party was in power.

But that does not mean—I very much hope that it will not be thought to mean—that it is right that we should give the nationalised industries a blank cheque. That has never been the policy of the Conservative Party, and it will not be its policy, because the amount that the nationalised industries asked for in addition to what we had previously planned is, I freely confess, very substantially more—rather approaching double what we have granted. We have accommodated the nationalised industries to the extent of making it possible for their investment programmes to proceed at the highest level since 1975–76, but have not provided more finance than that because of the great scope for increased efficiency in those industries, and, indeed, because every 1 per cent. of their costs is equal to £300 million. It is up to the nationalised industries, by their handling of productivity and pay, to make room for expansion and not simply wait for it to be handed to them on a plate by the Government.

Mr. Robert Sheldon

Will the right hon. and learned Gentleman compare not the planned expenditure for next year with the real expenditure now expected, but what expenditure this year is with what is now expected for next year?

Mr. Brittan

Yes, I shall cheerfully do that. The reduction in the finance available is about £150 million—[Interruption.]— but because of the pressure on costs, which we have successfully been able to apply to the nationalised industries, the level of capital investment that will proceed will stay the same and it will be higher than it has been since 1975–76. If the right hon. Gentleman thinks that any useful purpose is served by giving the nationalised industries money to keep up costs and not to increase investment, he and I will have to differ on that point.

Mrs. Shirley Williams


Mr. Brittan

I think that the right hon. Lady is about to mention the point that I was making. I wish to say specifically to the right hon. Lady that the figure mentioned in The Times is not accurate. The figures that I have given for nationalised industry expenditure are accurate.

Mrs. Williams

I merely wish to ask the Chief Secretary, who said that there would be a decline of £150 million in real terms between this year's expenditure and next year's, on what expectation he is basing that decline. In other words, what estimate of the decline in costs has he made to justify his statement that there will be greater expenditure?

Mr. Brittan

The reduction in cash in the total external financing limits of the nationalised industries has been derived from a detailed examination of each nationalised industry and the setting of an external financing limit after careful consultation between sponsor industries, the Treasury and the nationalised industry. The result of that consultation is that we shall allow finance for the level of capital expenditure that I have described, which compares with the levels in the years since 1975–76.

My right hon. Friend the Member for Taunton (Mr. du Cann) and many others would like money to be made available for profitable and desirable capital investment for the economy generally as well as nationalised industries. I share that aspiration with my right hon. Friend. I hope that I have indicated in what I have said about the nationalised industries that the efforts that we have made have not been without fruit. If my right hon. Friend wishes to go further—he has always been candid in this respect—and make a switch from capital to current expenditure and not increase the total level of expenditure, it is for us to seek to find reductions in current expenditure that will make room for the increase in capital expenditure.

I should like to share with my right hon. Friend the task which I have been engaged in for the past few months in seeking to do exactly that. We have been able to progress further with the squeeze on administrative costs, which I know has always been his target. The 2 per cent. cut in cash-limited programmes reflects in part a reduction in administrative costs. I am grateful to the CBI for its report on public expenditure, which has identified the scope in the nationalised industries, in Government and in the National Health Service for reductions of that sort. We have, with the assistance of the CBI report, made that sort of reduction. We shall continue to do so.

If it is wished to go further than that and to move on to reduce current expenditure still more to make way for the capital expenditure that we all want, we shall run into another major, perfectly well understood, entirely genuine, totally sincere and justified objective of almost everyone in the House, and that is the desire to maintain social security spending at reasonable levels.

Scour as some may through Government Departments and examine as they may items of expenditure, social security spending stands out dominant as being the only other area of major possible attack if we seek savings in current expenditure to make room for capital expenditure. It is because we have not felt it appropriate to take that line that we have not been able to make room for as much capital expenditure as ideally we would like to have. There is no way of squaring the circle. There is no way of doing the one without the other if the objectives and priorities are faced.

Mr. Hugh Dykes (Harrow, East)

Will my right hon. and learned Friend help the House on the question of long-term capital projects by giving some examples of those that he would like to see in the future, with the amount of money he would like to spend on them? Can he give us some specific examples?

Mr. Brittan

It would not be right for me to do that and I do not believe that as Treasury Ministers, rather than as sponsoring Ministers of Departments, my predecessors would have thought it appropriate to pluck their favoured projects from the air. If I were tempted to do that, it would be easy to succumb and identify a line of public sector projects all of which happened to take place in Cleveland and Whitby. I shall not fall into that temptation.

Mr. St. John-Stevas

I am grateful to my right hon. and learned Friend for giving way. Will he comment on the point raised from both sides of the House about the uprating of employment and supplementary benefit? In his opening remarks, the Chancellor seemed to say that there was some room for manoeuvre on the declared policy. Would the Chief Secretary care to clarify that point?

Mr. Brittan

As the Chancellor explained, the decision on the level of benefits in November 1982 is announced at the time of the Budget. It has many component parts which have been identified—the major one being the increase in inflation rates which occurs in the relevant year.

In the Industry Act forecast published last week an estimate of 10 per cent. was given. However, at the time of next year's Budget that figure will be revised. Therefore, it is impossible to reach a final figure of the exact levels concerned and we shall, of course, consider everything said during the debate. I am sure that the right hon. and hon. Gentlemen concerned about the matter will continue to give their views until an announcement is made at the time of the Budget.

Mr. Shore

I understand the reluctance of the Chief Secretary to give any guarantee about restoring the 2 per cent, but, as it is a larger and still more important matter, can he tell, the House whether he intends to restore last year's 5 per cent. cut when unemployment benefit is brought into the tax net under the Finance Act 1981 as it will be in the spring or summer of 1982?

Mr. Brittan

That will not happen until July 1982. I am sorry but I am not able to give an assurance to the right hon. Member for Stepney and Poplar (Mr. Shore). He knows perfectly well that I am not able to do that.

In the closing moments of the debate I shall turn to the Opposition's central thrust and their arguments in favour of reflation, because the real difference between them and Conservative Members who are not believers in the reflationary approach that the right hon. Member for Stepney and Poplar argues for so vigorously is the experience of history. The belief that a reflationary package of the sort advocated by the Opposition would succeed is belied by the facts. It is not as if the policy of reflation has never been tried before. It was tried between 1974 and 1976 and it came to an abrupt halt when the then Labour Government had to go cap in hand to the International Monetary Fund.

What is more, if the Opposition try to suggest that conditions are different—that inflation would not occur if that course were followed today and that reflation would be appropriate today even if it was not appropriate then—let me tell them that between 1974 and 1976 the level of unemployment doubled. However, in those two years as a result of the change in economic and financial circumstances, the right hon. Member for Leeds, East (Mr. Healey) went to the International Monetary Fund. What did he do as a result of his visit? It is significant that in the letter of intent that he wrote the assurances that he gave were clear. He repeated the Government's intention in the years ahead to reduce the share of resources taken by public expenditure so as to establish monetary conditions which will help the growth of output and the control of inflation. In 1976 the right hon. Gentleman was not afraid of the word "monetary"—or was it forced out of him by the IMF?

What is more, expenditure was cut by 8½ per cent. in real terms between 1975 and 1977. I also remind the House that there were siren voices in the academic world. We have heard many quotations from the academic world today. Those people said that the right hon. Member for Leeds, East went to the IMF and returned with his package of 8½ per cent. cuts in public spending in real terms. They said that if he made public expenditure cuts unemployment would soar and the Government would find that the economy would collapse. They said to him, as they are saying to us today, that when unemployment was soaring and had doubled, if he cut public spending, he would risk the collapse of the economy.

In the few brief years when the lessons of the International Monetary Fund were accepted and when "monetarism" hovered on the lips of the right hon. Member for Leeds, East, not only were our finances put in order, but unemployment came down. It is all very well for the right hon. Member for Stepney and Poplar to chuckle and chortle. He cannot have it both ways. The Opposition will not be allowed to get away with having it both ways. They can accept the accolades for their policy of yesteryear, but they can expect no plaudits if they turn that policy on its head today.

If we look at what is happening in other countries in the Western world and compare that with what we are doing today, we see that the idea that the Government are uniquely following an absurd experiment is ridiculous. In the Netherlands the Government are finalising their budget proposals. What does that consisit of in a country that is not exactly a byword for extremism? The proposals are likely to include cuts in planned spending, social security, health care and public sector salaries.

In the Federal Republic of Germany, which has the nearest to a social democratic Government that we can find, the September package that is going through Parliament includes cuts in planned spending of 2.93 million deutschemark. What do those spending cuts affect? These are cuts in social security benefits, cuts in coal subsidies, cuts in public sector pay, defence and child allowances. That is what is happening in the social democratic paradise of Western Germany.

What is happening in France, in the other limb of the opposition? France has carried out a bold Socialist experiment in which spending is supposed to rip and unemployment is supposed to be the major target. Within a few short months the answer is that France has frozen £1.5 billion on investment funds for public sector projects.

I absolutely reject and refute the suggestion that we are embarked on an experiment. We are doing what the Labour Government did and what the Labour Party is running away from today. We are doing something that is beginning to show the first fruits of success and advance. Let us carry on with the job, and we shall give the people the hope that they want, need and will get.

Question put, That the amendment be made:

The House divided: Ayes 267, Noes 307.

Division No. 17] [10 pm
Abse, Leo Canavan, Dennis
Adams, Allen Carmichael, Neil
Allaun, Frank Carter-Jones, Lewis
Alton, David Cartwright, John
Anderson, Donald Cocks, Rt Hon M. (B'stolS)
Archer, Rt Hon Peter Cohen, Stanley
Ashley, Rt Hon Jack Coleman, Donald
Ashton, Joe Concannon, Rt Hon J. D.
Atkinson, N.(H'gey,) Cook, Robin F.
Bagier, Gordon A.T. Cowans, Harry
Barnett, Guy (Greenwich) Cox, T. (W'dsw'th, Toot'g)
Barnett, Rt Hon Joel (H'wd) Craigen, J. M. ('gow, M'hill)
Beith, A.J. Crawshaw, Richard
Benn, RtHonTony Crowther, Stan
Bennett, Andrew (St'kp't N) Cryer, Bob
Bidwell, Sydney Cunliffe, Lawrence
Booth, Rt Hon Albert Cunningham, G.(Islington S)
Boothroyd, Miss Betty Cunningham, Dr J. (W'h'n)
Bottomley, Rt Hon A.(M'b'ro) Dalyell, Tam
Bradley, Tom Davidson, Arthur
Bray, Dr Jeremy Davies, Rt Hon Denzil (L'lli)
Brocklebank-Fowler, C. Davies, Ifor (Gower)
Brown, Hugh D. (Provan) Davis, Clinton (Hackney C)
Brown, Ronald W. (H'ckn'y S) Davis, T. (B'ham, Stechf'd)
Brown, Ron (E'burgh, Leith) Deakins, Eric
Buchan, Norman Dempsey, James
Callaghan, Rt Hon J. Dewar, Donald
Callaghan, Jim (Midd't'n & P) Dobson, Frank
Campbell Ian Dormand, Jack
Campbell-Savours, Dale Douglas, Dick
Douglas-Mann, Bruce Lofthouse, Geoffrey
Dubs, Alfred Lyon, Alexander (York)
Duffy, A. E. P. Lyons, Edward (Bradf'd W)
Dunlop, John Mabon, Rt Hon Dr J. Dickson
Dunn, James A. McCartney, Hugh
Dunnett, Jack McDonald, Dr Oonagh
Dunwoody, Hon Mrs G. McElhone, Frank
Eadie, Alex McGuire, Michael (Ince)
Eastham, Ken McKay, Allen (Penistone)
Edwards, R. (W'hampt'n S E) McKelvey, William
Ellis, R. (NE D'bysh're) MacKenzie, Rt Hon Gregor
Ellis, Tom (Wrexham) Maclennan, Robert
English, Michael McMahon, Andrew
Ennals, Rt Hon David McNally, Thomas
Evans, loan (Aberdare) McNamara, Kevin
Evans, John (Newton) McTaggart, Robert
Ewing, Harry McWilliam, John
Faulds, Andrew Magee, Bryan
Fitt, Gerard Marks, Kenneth
Flannery, Martin Marshall, Dr Edmund (Goole)
Fletcher, Ted (Darlington) Martin, M (G'gow S'burn)
Foot, Rt Hon Michael Mason, Rt Hon Roy
Ford, Ben Maxton, John
Forrester, John Maynard, Miss Joan
Foster, Derek Meacher, Michael
Foulkes, George Mellish, Rt Hon Robert
Fraser, J. (Lamb'th, N'w'd) Mikardo, Ian
Freeson, Rt Hon Reginald Millan, Rt Hon Bruce
Freud, Clement Miller, Dr M. S. (E Kilbride)
Garrett, John (Norwich S) Mitchell, Austin (Grimsby)
Garrett, W. E. (Wallsend) Mitchell, R. C(Soton Itchen)
George, Bruce Molyneaux, James
Gilbert, Rt Hon Dr John Morris, Rt Hon A. (W'shawe)
Ginsburg, David Morris, Rt Hon C. (O'shaw)
Golding, John Morris, Rt Hon J. (Aberavon)
Graham, Ted Morton, George
Grant, George (Morpeth) Moyle, Rt Hon Roland
Grant, John (Islington C) Mulley, Rt Hon Frederick
Grimond, Rt Hon J. Newens, Stanley
Hamilton, James (Bothwell) Oakes, Rt Hon Gordon
Hamilton, W. W. (C'tral Fife) Ogden, Eric
Hardy, Peter O'Halloran, Michael
Harrison, Rt Hon Walter O'Neill, Martin
Hart, Rt Hon Dame Judith Orme, Rt Hon Stanley
Hattersley, Rt Hon Roy Palmer, Arthur
Healey, Rt Hon Denis Park, George
Heffer, Eric S. Parker, John
Hogg, N. (E Dunb't'nshire) Parry, Robert
Holland, S. (L'b'th, Vauxh'll) Pavitt, Laurie
Home Robertson, John Penhaligon, David
Homewood, William Pitt, William Henry
Hooley, Frank Powell, Rt Hon J.E. (S Down)
Horam, John Powell, Raymond (Ogmore)
Howell, Rt Hon D. Prescott, John
Howells, Geraint Price, C. (Lewisham W)
Hoyle, Douglas Race, Reg
Huckfield, Les Radice, Giles
Hughes, Robert (Aberdeen N) Rees, Rt Hon M (Leeds S)
Hughes, Roy (Newport) Roberts, Albert (Normanton)
Janner, Hon Greville Roberts, Allan (Bootle)
Jay, Rt Hon Douglas Roberts, Ernest (Hackney N)
John, Brynmor Roberts, Gwilym (Cannock)
Johnson, James (Hull West) Robertson, George
Johnson, Walter (Derby S) Rodgers, Rt Hon William
Jones, Rt Hon Alec (Rh'dda) Rooker, J. W.
Jones, Barry (East Flint) Roper, John
Jones, Dan (Burnley) Ross, Ernest (Dundee West)
Kaufman, Rt Hon Gerald Ross, Wm. (Londonderry)
Kerr, Russell Rost, Peter
Kilfedder, James A. Rowlands, Ted
Kilroy-Silk, Robert Ryman, John
Kinnock, Neil Sandelson, Neville
Lambie, David Sever, John
Lamborn, Harry Sheerman, Barry
Leadbitter, Ted Sheldon, Rt Hon R.
Leighton, Ronald Shore, Rt Hon Peter
Lestor, Miss Joan Short, Mrs Renée
Lewis, Arthur (N'ham NW) Silkin, Rt Hon J. (Deptford)
Lewis, Ron (Carlisle) Silkin, Rt Hon S. C. (Dulwich)
Litherland, Robert Silverman, Julius
Skinner, Dennis Wainwright, R. (Colne V)
Smith, Cyril (Rochdale) Walker, Rt Hon H.(D'caster)
Smith, Rt Hon J. (N Lanark) Watkins, David
Snape, Peter Weetch, Ken
Soley, Clive Wellbeloved, James
Spearing, Nigel Welsh, Michael
Spriggs, Leslie White, Frank R.
Stallard, A.W. White, J. (G'gow Pollok)
Steel, Rt Hon David Whitehead, Phillip
Stewart, Rt Hon D. (W Isles) Whitlock, William
Stoddart, David Willey, Rt Hon Frederick
Stott, Roger Williams, Rt Hon A.(S'sea W)
Strang, Gavin Williams, Rt Hon Mrs (Crosby)
Straw, Jack Wilson, Gordon (Dundee E)
Summerskill, Hon Dr Shirley Wilson, Rt Hon Sir H.(H'ton)
Taylor, Mrs Ann (Bolton W) Wilson, William (C'try SE)
Thomas, Dafydd (Merioneth) Winnick, David
Thomas, Jeffrey (Abertillery) Woodall, Alec
Thomas, Mike (Newcastle E) Woolmer, Kenneth
Thomas, Dr R. (Carmarthen) Wrigglesworth, Ian
Tilley, John Young, David (Bolton E)
Tinn, James
Torney, Tom Tellers for the Ayes:
Urwin, Rt Hon Tom Mr. Joseph Dean and Mr. Frank Haynes.
Varley, Rt Hon Eric G.
Wainwright, E. (Dearne V)
Adley, Robert Channon, Rt. Hon. Paul
Aitken, Jonathan Chapman, Sydney
Alexander, Richard Churchill, W.S.
Alison, Rt Hon Michael Clark, Hon A. (Plym'th, S'n)
Ancram, Michael Clark, Sir W. (Croydon S)
Arnold, Tom Clarke, Kenneth (Rushcliffe)
Aspinwall, Jack Clegg, Sir Walter
Atkins, Rt Hon H. (S'thorne) Cockeram, Eric
Atkins, Robert (Preston N) Colvin, Michael
Atkinson, David (B'm'th, E) Cope, John
Baker, Kenneth (St. M'bone) Corrie, John
Baker, Nicholas (N Dorset) Costain, Sir Albert
Banks, Robert Cranborne, Viscount
Beaumont-Dark, Anthony Crouch, David
Bell, Sir Ronald Dean, Paul (North Somerset)
Bendall, Vivian Dickens, Geoffrey
Bennett, Sir Frederic (Tbay) Douglas-Hamilton, Lord J.
Benyon, Thomas (A'don) Dover, Denshore
BenyonW. (Buckingham) du Cann, Rt Hon Edward
Best, Keith Dunn, Robert (Dartford)
Bevan, David Gilroy Durant, Tony
Biffen, Rt Hon John Eden, Rt Hon Sir John
Biggs-Davison, Sir John Edwards, Rt Hon N.(P'broke)
Blackburn, John Elliott, Sir William
Blaker, Peter Emery, Peter
Body, Richard Eyre, Reginald
Bonsor, Sir Nicholas Fairbairn, Nicholas
Boscawen, Hon Robert Fairgrieve, Sir Russell
Bottomley, Peter (W'wich W) Faith, Mrs Sheila
Bowden, Andrew Farr, John
Braine, Sir Bernard Fell, Anthony
Bright, Graham Fenner, Mrs Peggy
Brinton, Tim Finsberg, Geoffrey
Brittan, Rt. Hon. Leon Fisher, Sir Nigel
Brooke, Hon Peter Fletcher, A. (Ed'nb'gh N)
Brotherton, Michael Fletcher-Cooke, Sir Charles
Brown, Michael (Brigg & Sc'n) Fookes, Miss Janet
Browne, John (Winchester) Forman, Nigel
Bruce-Gardyne, John Fowler, Rt Hon Norman
Bryan, Sir Paul Fox, Marcus
Buchanan-Smith, Rt. Hon. A. Fraser, Rt Hon Sir Hugh
Buck, Antony Fraser, Peter (South Angus)
Budgen, Nick Fry, Peter
Bulmer, Esmond Gardiner, George (Reigate)
Burden, Sir Frederick Gardner, Edward (S Fylde)
Butcher, John Garel-Jones, Tristan
Butler, Hon Adam Glyn, Dr Alan
Cadbury, Jocelyn Goodhart, Sir Philip
Carlisle, John (Luton West) Goodhew, Victor
Carlisle, Kenneth (Lincoln) Goodlad, Alastair
Carlisle, Rt Hon M. (R'c'n) Gorst, John
Chalker, Mrs. Lynda Gow, Ian
Gower, Sir Raymond Mellor, David
Grant, Anthony (Harrow C) Meyer, Sir Anthony
Gray, Hamish Miller, Hal (B'grove)
Greenway, Harry Mills, Iain (Meriden)
Grieve, Percy Mills, Peter (West Devon)
Griffiths, E. (B'y St. Edm'ds) Mitchell, David (Basingstoke)
Griffiths, Peter Portsm'th N) Moate, Roger
Grist, Ian Monro, Sir Hector
Grylls, Michael Montgomery, Fergus
Gummer, John Selwyn Moore, John
Hamilton, Hon A. Morgan, Geraint
Hamilton, Michael (Salisbury) Morris, M. (N'hampton S)
Hampson, Dr Keith Morrison, Hon P. (Chester)
Hannam, John Murphy, Christopher
Hastings, Stephen Myles, David
Hawkins, Paul Neale, Gerrard
Hawksley, Warren Needham, Richard
Hayhoe, Barney Nelson, Anthony
Heath, Rt Hon Edward Neubert, Michael
Heddle, John Newton, Tony
Henderson, Barry Normanton, Tom
Heseltine, Rt Hon Michael Onslow, Cranley
Higgins, Rt Hon Terence L. Oppenheim, Rt Hon Mrs S.
Hogg, Hon Douglas (Gr'th'm) Osborn, John
Holland, Philip (Carlton) Page, John (Harrow, West)
Hooson, Tom Page, Richard (SW Herts)
Hordern, Peter Parkinson, Rt Hon Cecil
Howe, Rt Hon Sir Geoffrey Parris, Matthew
Howell, Rt Hon D. (G'ldf'd) Patten, Christopher (Bath)
Howell, Ralph (N Norfolk) Patten, John (Oxford)
Hunt, David (Wirral) Pattie, Geoffrey
Hunt, John (Ravensbourne) Pawsey, James
Hurd, Hon Douglas Percival, Sir Ian
Irving, Charles (Cheltenham) Peyton, Rt Hon John
Jenkin, Rt Hon Patrick Pink, R. Bonner
Jessel, Toby Pollock, Alexander
Johnson Smith, Geoffrey Porter, Barry
Jopling, Rt Hon Michael Prentice, Rt Hon Reg
Joseph, Rt Hon Sir Keith Price, Sir David (Eastleigh)
Kaberry, Sir Donald Proctor, K. Harvey
Kellett-Bowman, Mrs Elaine Pym, Rt Hon Francis
Kershaw, Sir Anthony Raison, Timothy
Kimball, Sir Marcus Rathbone, Tim
King, Rt Hon Tom Rees, Peter (Dover and Deal)
Kitson, Sir Timothy Rees-Davies, W. R.
Knight, Mrs Jill Renton, Tim
Lamont, Norman Rhodes James, Robert
Lang, Ian Rhys Williams, Sir Brandon
Langford-Holt, Sir John Ridley, Hon Nicholas
Latham, Michael Ridsdale, Sir Julian
Lawrence, Ivan Rifkind, Malcolm
Lawson, Rt Hon Nigel Rippon, Rt Hon Geoffrey
Lee, John Roberts, M. (Cardiff NW)
Lennox-Boyd, Hon Mark Roberts, Wyn (Conway)
Lester, Jim (Beeston) Rossi, Hugh
Lewis, Kenneth (Rutland) Rost, Peter
Lloyd, Ian (Havant & W'loo) Royle, Sir Anthony
Lloyd, Peter (Fareham) Sainsbury, Hon Timothy
Loveridge, John St. John-Stevas, Rt Hon N.
Luce, Richard Scott, Nicholas
McCrindle, Robert Shaw, Giles (Pudsey)
Macfarlane, Neil Shaw, Michael (Scarborough)
MacGregor, John Shelton, William (Streatham)
MacKay, John (Argyll) Shepherd, Colin (Hereford)
Macmillan, Rt Hon M. Shersby, Michael
McNair-Wilson, M. (N'bury) Silvester, Fred
McNair-Wilson, P. (New F'st) Sims, Roger
McQuarrie, Albert Skeet, T. H. H.
Madel, David Smith, Dudley
Major, John Speed, Keith
Marland, Paul Speller, Tony
Marlow, Antony Spence, John
Marshall, Michael (Arundel) Spicer, Jim (West Dorset)
Marten, Rt Hon Neil Spicer, Michael (S Worcs)
Mates, Michael Sproat, Iain
Maude, Rt Hon Sir Angus Stainton, Keith
Mawby, Ray Stanbrook, Ivor
Mawhinney, Dr Brian Stanley, John
Maxwell-Hyslop, Robin Steen, Anthony
Mayhew, Patrick Stevens, Martin
Stewart, A. (E Renfrewshire) Walker, B. (Perth)
Stewart, Ian (Hitchin) Walker-Smith, Rt Hon Sir D.
Stokes, John Wall, Sir Patrick
Stradling Thomas, J. Waller, Gary
Tapsell, Peter Ward, John
Taylor, Teddy (S'end E) Warren, Kenneth
Tebbit, Rt Hon Norman Wells, Bowen
Temple-Morris, Peter Wells, John (Maidstone)
Thatcher, Rt Hon Mrs M. Wheeler, John
Thomas, Rt Hon Peter Whitelaw, Rt Hon William
Thompson, Donald Whitney, Raymond
Thorne, Neil (Ilford South) Wickenden, Keith
Thornton, Malcolm Wiggin, Jerry
Townend, John (Bridlington) Wilkinson, John
Townsend, Cyril D, (B'heath) Williams, D. (Montgomery)
Trippier, David Winterton, Nicholas
Trotter, Neville Wolfson, Mark
van Straubenzee, Sir W. Young, Sir George (Acton)
Vaughan, Dr Gerard Younger, Rt Hon George
Viggers, Peter
Waddington, David Tellers for the Noes:
Wakeham, John Mr. Anthony Berry
Waldegrave, Hon William and Mr. Carol Mather.
Walker, Rt Hon P. (W'cester)

Question accordingly negatived.

Main Question put:

The House divided: Ayes 307, Noes 265.

Division No. 18] [10.15 pm
Adley, Robert Carlisle, Kenneth (Lincoln)
Aitken, Jonathan Carlisle, Rt Hon M. (R'c'n)
Alexander, Richard Chalker, Mrs. Lynda
Alison, Rt Hon Michael Channon, Rt. Hon. Paul
Ancram, Michael Chapman, Sydney
Arnold, Tom Churchill, W.S.
Aspinwall, Jack Clark, Hon A. (Plym'th, S'n)
Atkins, Rt Hon H.(S'thorne) Clark, Sir W. (Croydon S)
Atkins, Robert (Preston N) Clarke, Kenneth (Rushcliffe)
Atkinson, David (B'm'th, E) Clegg, Sir Walter
Baker, Kenneth (St.M'bone) Cockeram, Eric
Baker, Nicholas (N Dorset) Colvin, Michael
Banks, Robert Cope, John
Beaumont-Dark, Anthony Corrie, John
Bell, Sir Ronald Costain, Sir Albert
Bendall, Vivian Cranborne, Viscount
Bennett, Sir Frederic (T'bay) Crouch, David
Benyon, Thomas (A'don) Dean, Paul (North Somerset)
Benyon, W. (Buckingham) Dickens, Geoffrey
Best, Keith Douglas-Hamilton, Lord J.
Bevan, David Gilroy Dover, Denshore
Biffen, Rt Hon John du Cann, Rt Hon Edward
Biggs-Davison, Sir John Dunn, Robert (Dartford)
Blackburn, John Durant, Tony
Blaker, Peter Eden, Rt Hon Sir John
Body, Richard Edwards, Rt Hon N. (P'broke)
Bonsor, Sir Nicholas Elliott, Sir William
Boscawen, Hon Robert Emery, Peter
Bottomley, Peter (W'wich W) Eyre, Reginald
Bowden, Andrew Fairbairn, Nicholas
Braine, Sir Bernard Fairgrieve, Sir Russell
Bright, Graham Faith, Mrs Sheila
Brinton, Tim Farr, John
Brittan, Rt. Hon. Leon Fell, Anthony
Brooke, Hon Peter Fenner, Mrs Peggy
Brotherton, Michael Finsberg, Geoffrey
Brown, Michael (Brigg &Sc'n) Fisher, Sir Nigel
Browne, John (Winchester) Fletcher, A. (Ed'nb'gh N)
Bruce-Gardyne, John Fletcher-Cooke, Sir Charles
Bryan, Sir Paul Fookes, Miss Janet
Buchanan-Smith, Rt. Hon. A. Forman, Nigel
Buck, Antony Fowler, Rt Hon Norman
Budgen, Nick Fox, Marcus
Bulmer, Esmond Fraser, Rt Hon Sir Hugh
Burden, Sir Frederick Fraser, Peter (South Angus)
Butcher, John Fry, Peter
Butler, Hon Adam Gardiner, George (Reigate)
Cadbury, Jocelyn Gardner, Edward (S Fylde)
Carlisle, John (Luton West) Garel-Jones, Tristan
Glyn, Dr Alan Mates, Michael
Goodhart, Sir Philip Maude, Rt Hon Sir Angus
Goodhew, Victor Mawby, Ray
Goodlad, Alastair Mawhinney, Dr Brian
Gorst, John Maxwell-Hyslop, Robin
Gow, Ian Mayhew, Patrick
Gower, Sir Raymond Mellor, David
Grant, Anthony (Harrow C) Meyer, Sir Anthony
Gray, Hamish Miller, Hal (B'grove)
Greenway, Harry Mills, Iain (Meriden)
Grieve, Percy Mills, Peter (West Devon)
Griffiths, E. (B'y St. Edm'ds) Mitchell, David (Basingstoke)
Griffiths, Peter Portsm'th N) Moate, Roger
Grist, Ian Monro, Sir Hector
Grylls, Michael Montgomery, Fergus
Gummer, John Selwyn Moore, John
Hamilton, Hon A. Morgan, Geraint
Hamilton, Michael (Salisbury) Morris, M. (N'hampton S)
Hampson, Dr Keith Morrison, Hon P. (Chester)
Hannam, John Murphy, Christopher
Hastings, Stephen Myles, David
Hawkins, Paul Neale, Gerrard
Hawksley, Warren Needham, Richard
Hayhoe, Barney Nelson, Anthony
Heath, Rt Hon Edward Neubert, Michael
Heddle, John Newton, Tony
Henderson, Barry Normanton, Tom
Heseltine, Rt Hon Michael Onslow, Cranley
Higgins, Rt Hon Terence L. Oppenheim, Rt Hon Mrs S.
Hogg, Hon Douglas (Gr'th'm) Osborn, John
Holland, Philip (Carlton) Page, John (Harrow, West)
Hooson, Tom Page, Richard (SW Herts)
Hordern, Peter Parkinson, Rt Hon Cecil
Howe, Rt Hon Sir Geoffrey Parris, Matthew
Howell, Rt Hon D. (G'ldf'd) Patten, Christopher (Bath)
Howell, Ralph (N Norfolk) Patten, John (Oxford)
Hunt, David (Wirral) Pattie, Geoffrey
Hunt, John (Ravensbourne) Pawsey, James
Hurd, Hon Douglas Percival, Sir Ian
Irving, Charles (Cheltenham) Peyton, Rt Hon John
Jenkin, Rt Hon Patrick Pink, R. Bonner
Jessel, Toby Pollock, Alexander
Johnson Smith, Geoffrey Porter, Barry
Jopling, Rt Hon Michael Prentice, Rt Hon Reg
Joseph, Rt Hon Sir Keith Price, Sir David (Eastleigh)
Kaberry, Sir Donald Proctor, K. Harvey
Kellett-Bowman, Mrs Elaine Pym, Rt Hon Francis
Kershaw, Sir Anthony Raison, Timothy
Kimball, Sir Marcus Rathbone, Tim
King, Rt Hon Tom Rees, Peter (Dover and Deal)
Kitson, Sir Timothy Rees-Davies, W. R.
Knight, Mrs Jill Renton, Tim
Lamont, Norman Rhodes James, Robert
Lang, Ian Rhys Williams, Sir Brandon
Langford-Holt, Sir John Ridley, Hon Nicholas
Latham, Michael Ridsdale, Sir Julian
Lawrence, Ivan Rifkind, Malcolm
Lawson, Rt Hon Nigel Rippon, Rt Hon Geoffrey
Lee, John Roberts, M. (Cardiff NW)
Lennox-Boyd, Hon Mark Roberts, Wyn (Conway)
Lester, Jim (Beeston) Rossi, Hugh
Lewis, Kenneth (Rutland) Rost, Peter
Lloyd, Ian (Havant & W'loo) Royle, Sir Anthony
Lloyd, Peter (Fareham) Sainsbury, Hon Timothy
Loveridge, John St. John-Stevas, Rt Hon N.
Luce, Richard Scott, Nicholas
McCrindle, Robert Shaw, Giles (Pudsey)
Macfarlane, Neil Shaw, Michael (Scarborough)
MacGregor, John Shelton, William (Streatham)
MacKay, John (Argyll) Shepherd, Colin (Hereford)
Macmillan, Rt Hon M. Shersby, Michael
McNair-Wilson, M. (N'bury) Silvester, Fred
McNair-Wilson, P. (New F'st) Sims, Roger
McQuarrie, Albert Skeet, T. H. H.
Madel, David Smith, Dudley
Major, John Speed, Keith
Marland, Paul Speller, Tony
Marlow, Antony Spence, John
Marshall, Michael (Arundel) Spicer, Jim (WestDorset)
Marten, Rt HonNeil Spicer, Michael (S Worcs)
Sproat, Iain Wakeham, John
Stainton, Keith Waldegrave, Hon William
Stanbrook, Ivor Walker, Rt Hon P. (W'cesfer)
Stanley, John Walker, B. (Perth)
Steen, Anthony Walker-Smith, Rt Hon Sir D.
Stevens, Martin Wall, Sir Patrick
Stewart, A. (E Renfrewshire) Waller, Gary
Stewart, Ian (Hitchin) Ward, John
Stokes, John Warren, Kenneth
Stradling Thomas, J. Wells, Bowen
Tapsell, Peter Wells, John (Maidstone)
Taylor, Teddy (S'end E) Wheeler John
Tebbit, Rt Hon Norman Whitelaw, Rt Hon William
Temple-Morris, Peter Whitney, Raymond
Thatcher, Rt Hon Mrs M. Wickenden, Keith
Thomas, Rt Hon Peter Wiggin,Jerry
Thompson,Donald Wilkinson,John
Thorne,Neil (IlfordSouth) Williams,D. (Montgomery)
Thornton, Malcolm Winterton,Nicholas
Townend, John(Bridlington) Wolfson,Mark
Townsend, Cyril D, (B'heath) Young, SirGeorge(Acton)
Trippier,David Younger, Rt Hon George
van Straubenzee, Sir W. Tellers for the Ayes:
Vaughan, DrGerard Mr. Anthony Berry and Mr. Carol Mather.
Waddington, David
Abse, Leo Davidson, Arthur
Adams, Allen Davies, Rt Hon Denzil (L'lli)
Allaun,Frank Davies, Ifor (Gower)
Alton,David Davis, Clinton (Hackney C)
Anderson,Donald Davis, T. (B'ham, Stechf'd)
Archer, Rt Hon Peter Deakins, Eric
Ashley, Rt Hon Jack Dean, Joseph (Leeds West)
Ashton,Joe Dempsey, James
Atkinson, N. (H'gey,) Dewar,Donald
Bagier, GordonA.T. Dobson,Frank
Barnett, Guy(Greenwich) Dormand,Jack
Barnett, Rt Hon Joel (H'wd) Douglas,Dick
Beith, A. J. Douglas-Mann, Bruce
Benn, Rt Hon Tony Dubs,Alfred
Bennett, Andrew(Sf'kp'tN) Duffy, A. E. P.
Bidwell, Sydney Dunlop,John
Booth, Rt Hon Albert Dunn, James A.
Boothroyd, MissBetty Dunnett, Jack
Bottomley, RtHonA.(M'b'ro) Dunwoody, Hon Mrs G.
Bradley, Tom Eadie, Alex
Bray, Dr Jeremy Eastham, Ken
Brocklebank-Fowler, C. Edwards, R. (W'hampt'n S E)
Brown, Hugh D. (Provan) Ellis, R. (NE D'bysh're)
Brown, Ronald W. (H'ckn'y S) Ellis, Tom (Wrexham)
Brown, Ron (E'burgh, Leith) English, Michael
Buchan, Norman Ennals, Rt Hon David
Callaghan, Rt Hon J. Evans, Ioan (Aberdare)
Callaghan, Jim(Midd't'n&P) Evans, John (Newton)
Campbell,Ian Ewing, Harry
Campbell-Savours,Dale Faulds, Andrew
Canavan,Dennis Fitt, Gerard
Carmichael,Neil Flannery,Martin
Carter-Jones,Lewis Fletcher, Ted (Darlingfon)
Cartwright, John Foot, Rt Hon Michael
Cocks, Rt Hon M. (B'stolS) Ford, Ben
Cohen, Stanley Forrester, John
Coleman, Donald Foster, Derek
Concannon, Rt Hon J. D. Foulkes, George
Cook, RobinF. Fraser, J. (Lamb'th, N'w'd)
Cowans, Harry Freeson, Rt Hon Reginald
Cox, T. (W'dsw'th, Toot'g) Freud, Clement
Craigen, J. M. (G'gow, M'hill) Garrett, John (Norwich S)
Crawshaw, Richard Garrett, W. E. (Wallsend)
Crowther, Stan Gilbert, Rt Hon Dr John
Cryer, Bob Ginsburg, David
Cunliffe, Lawrence Golding, John
Cunningham, G. (IslingtonS) Graham, Ted
Cunningham, Dr J. (W'h'n) Grant, George (Morpeth)
Dalyell, Tam Grant, John (Islington C)
Grimond, RtHonJ. McGuire, Michael (Ince)
Hamilton,James(Bothwell) McKay, Allen (Penistone)
Hamilton, W. W. (C'tral Fife) McKelvey, William
Hardy, Peter MacKenzie, RtHonGregor
Harrison, Rt Hon Walter Maclennan, Robert
Hart, RtHonDameJudith McMahon, Andrew
Hattersley, Rt Hon Roy McNally, Thomas
Haynes, Frank McNamara, Kevin
Healey, Rt Hon Denis McTaggart, Robert
Heffer, Eric S. McWilliam,John
Hogg, N. (EDunb't'nshire) Magee, Bryan
Holland, S.(L'b'th, Vauxh'll) Marks, Kenneth
HomeRobertson,John Marshall, DrEdmund (Goole)
Homewood, William Martirl, M(G'gowS'burn)
Hooley, Frank Mason, Rt Hon Roy
Horam, John Maxton,John
Howell, RtHon D. Maynard, MissJoan
Howells, Geraint Meacher, Michael
Hoyle, Douglas Mellish, RtHonRobert
Huckfield, Les Mikardo, Ian
Hughes, Robert (AberdeenN) Millan, RtHonBruce
Hughes, Roy (Newport) Miller, Dr M. S. (E Kilbride)
Janner, HonGreville Mitchell, Austin(Grimsby)
Jay, Rt Hon Douglas Mitchell, R. C. (Soton Itchen)
John, Brynmor Molyneaux,James
Johnson, James (Hull West) Morris, Rt Hon A. (W'shawe)
Johnson, Walter (DerbyS) Morris, Rt Hon C. (O'shaw)
Jones, Rt Hon Alec (Rh'dda) Morris, RtHon J. (Aberavon)
Jones, Barry (East Flint) Moyle, Rt Hon Roland
Jones, Dan (Burnley) Mulley, RtHon Frederick
Kaufman, Rt Hon Gerald Newens, Stanley
Kerr, Russell Oakes, Rt Hon Gordon
KilfedderJamesA. Ogden, Eric
Kilroy-Silk, Robert O'Halloran, Michael
Kinnock, Neil O'Neill, Martin
Lambie, David Orme, Rt Hon Stanley
Lamborn, Harry Palmer, Arthur
Leadbitter, Ted Park, George
Leighton, Ronald Parkerjohn
Lestor, MissJoan Parry, Robert
Lewis, Arthur (N'ham NW) Pavitt, Laurie
Lewis, Ron (Carlisle) Penhaligon, David
Litherland, Robert Pitt, WilliamHenry
Lofthouse, Geoffrey Powell, Rt Hon J.E. (S Down)
Lyon,Alexander(York) Powell, Raymond (Ogmore)
Lyons, Edward (Bradf'dW) Prescott,John
Mabon, Rt Hon Dr J. Dickson Price, C. (Lewisham W)
McCartney, Hugh Race, Reg
McDonald, DrOonagh Radice, Giles
McElhone, Frank Rees, Rt Hon M (Leeds S)
Roberts, Albert (Normanton) Summerskill, HonDrShirley
Roberts, Allan(Bootle) Taylor, MrsAnn (Bolton W)
Roberts, Ernest (HackneyN) Thomas, Datydd(Merioneth)
Roberls, Gwilym(Cannock) Thomas,Jeffrey(Abertillery)
Robertson, George Thomas,DrR.(Carmarthen)
Rodgers, RtHonWilliam Tilley,John
Rooker, J. W. Torney, Tom
Roper,John Urwin, RtHon Tom
Ross, Ernest (Dundee West) Varley, RtHon Eric G.
Ross, Stephen (Isle of Wight) Wainwright, E. (DearneV)
Ross, Wm. (Londonderry) Wainwright, R.(ColneV)
Rowlands, Ted Walker, RtHon H.(D'caster)
Ryman,John Watkins, David
Sandelson, Neville Weetch, Ken
Sever,John Wellbeloved,James
Sheerman, Barry Welsh, Michael
Sheldon, RtHon R. White, Frank R.
Shore, Rt Hon Peter White, J.(G'gowPollok)
Short, Mrs Renée Whitehead, Phillip
Silkin, RtHon J. (Deptford) Whitlock, William
Silkin, Rt Hon S. C. (Dulwich) Willey, RtHonFrederick
Silverman,Julius Williams, Rt Hon A.(S'sea W)
Skinner, Dennis Williams, Rt Hon Mrs(Crosby)
Smith, Cyril(Rochdale) Wilson, Gordon (DundeeE)
Smith, Rt Hon J. (N Lanark) Wilson, RtHonSirH.(H'ton)
Snape, Peter Wilson, William (C'trySE)
Soley, Clive Winnick, David
Spearing, Nigel Woodall, Alec
Spriggs, Leslie Woolmer, Kenneth
Stallard, A.W. Wrigglesworth, Ian
Steel, Rt Hon David Young, David (Bolton E)
Stewart, Rt Hon D. (W Isles)
Stoddart, David Tellers for the Noes:
Stott, Roger Mr. George Morton and Mr. James Tinn.
Strang, Gavin

Question accordingly agreed to.

Resolved, That this House approves the Statement made by the Chancellor of the Exchequer on 2nd December; welcomes the Industry Act forecast for 1982 of lower inflation and rising output; approves the provision of extra resources for employment and training measures, particularly for the young; supports the Government's decision to maintain the real value of retirement pensions and to continue the Christmas bonus for pensioners; and endorses the decision to allocate extra money for capital investment by nationalised industries and for the defence programme.