Economic and Monetarist Policies

HC Deb 15 January 1981 vol 996 cc1149-235

Mr. Speaker

I have selected the amendment in the name of the Prime Minister.

3.49 pm

Mr. Peter Shore (Stepney and Poplar)

I beg to move, That this House, gravely alarmed by the continuing decline in output, employment and investment in British industry, calls upon Her Majesty's Government to abandon its disastrous economic and monetarist policies, which are impoverishing and dividing the nation. We have taken this opportunity, the first since the recess, to open our attack on the Government's economic policies which, as our motion states, are impoverishing and dividing the nation. I give notice that we shall continue to press our attack with all the force that we can command until we achieve the abandonment of these dangerous and damaging policies.

Not for 50 years has economic policy been so important and so worrying, or the stakes so high. Indeed, ever since 1945 the House and numerous Governments have directed their minds to the question of inadequate economic growth—growth that has been less than that of our main competitors and less than we could and should have attained, and yet which, by any standard of the past century, was faster than we had had before. It was a growth reflected in a remarkable improvement in the living standards of the British people. Since the oil price explosion in late 1973 and early 1974, with all the painful national and international consequences that have flowed from it, growth everywhere has slowed down, and in Britain it has been reduced to a snail's pace.

Now we have entered a new and, I believe, far more dangerous phase. Since the advent to power of the present Government in May 1979 and the implementation of their policies a few months later, the economy has lurched from stagnation to decline. The dimensions of that decline are truly terrifying. Unemployment—I refer only to the recorded figures—has risen by over 945,000, and more than three-quarters of it is in manufacturing industry. Nationally, one in 11 of our people is out of work. In many of the regions the figures are far worse. In the West Midlands one in 10 people is unemployed; in Scotland and the North-West, one in nine; in Wales and the North, one in eight; and more than one in seven in Northern Ireland.

As the House well knows, in the past six months there has been a sharp acceleration of job losses. The increase in unemployment is now running at about 100,000 jobs a month, and, as a consequence, over 2,100,000 people who are able and willing to work are condemned to idleness. It is the highest level certainly since the early 1930s.

I have never liked the expression "shake-out", but it would be a minor consolation if that were the situation—if production had been sustained and manning reduced by a great surge in productivity. However, production has not been maintained. National output has fallen by 6 per cent. since the second quarter of 1979, and manufacturing output has fallen by no less than 15 per cent. since the general election of May 1979. It is a sharper decline than we had even in the great depression of 1929–31. Those are undeniable facts. That is why, if for no other reason—and there are plenty more—1980 will be burnt into the memory of the British people, and why the Government will not be forgiven for what they have done.

The broad picture of the disaster that is overtaking the British people was plain when the House last debated economic affairs on 27 November, about seven weeks ago. It was a remarkable debate, for several reasons. First, there was a confession of failure by the Government in terms of their own blinkered objectives—control of the money supply and the dimensions of the PSBR; the fact that the money supply was running at 22 per cent. against the aim of seven to 11 per cent; and the fact that the PSBR, set at £8.5 billion in the Budget of 1980, will almost certainly reach—well, what is it? Is it £11½ billion or £12 billion or more in the course of this financial year? Secondly, in that debate strong pleas were made to the Government to reverse their policies, not only by Her Majesty's Opposition but by the former Conservative Prime Minister, the right hon. Member for Sidcup (Mr. Heath), who spoke for a substantial body of opinion in his party and in the Cabinet.

The key question today is what the Government's reactions to those events are? What, in the more relaxed period over the Christmas Recess, has been their serious appraisal of their experience so far? What lessons have they learnt? What remedial actions do they now propose to take?

Since our debate in November there has been a large flow of additional and highly relevant information that must, too, be weighed by the Government and by the House in our continuing deliberations. First, we have had the Department of Industry's survey of industry's investment intentions in 1981 and, as we accept, the much more tentative first appraisal of 1982. Across the whole field of manufacturing, distribution and services a fall of between 4 per cent. and 9 per cent. in investment is predicted for 1981. For manufacturing industry, the fall is estimated—I am taking account of leasing arrangements—at between 11 per cent. and 16 per cent. That fall will follow the decrease of about 6 per cent. that we have already had in 1980 over 1979.

Then we have had the Department of the Environment's figures for the construction industry. Construction output as a whole in the third quarter of 1980 was 11 per cent. lower than for the same quarter in 1979. New orders were down by 19 per cent. over the same period. Within that total, private housing new orders were down by no less than 38 per cent. and those for public housing by 35 per cent. over the same period in 1979.

The public sector figures will have been influenced by the Secretary of State's moratorium in the summer. Now that we have knowledge of the further savage reductions in the housing investment programmes announced for 1981–82, that trend is hardly likely to be reversed.

I emphasise those figures for industrial investment and new construction not only because they have become available since we last debated economic affairs but because, more than any other economic indicators, they help to reveal the national performance, just as they will help, above all, to determine the future progress of our nation in the years ahead.

Next, I turn to the spate of forecasts about the overall performance of the British economy this year and next. To save time, I shall refer only to the summary of domestic forecasts that appeared in the business survey of The Sunday Times a week last Sunday, together with the OECD's latest economic outlook. All of us are rightly wary of individual forecasts, but the weight of evidence cannot be ignored, particularly when independent and reputable forecasting bodies corroborate the Government's own forecast, published under the requirement of the Industry Act as recently as 24 November.

It is generally agreed that output will fall yet again in 1981, with manufacturing output at least 4 per cent. down. Whether output will stabilise later this year at its appallingly low level seems to depend more on decisions about stocks and the level of personal savings than upon any other factors. One of the most worrying features in those surveys for 1981 is the expected decline in British exports, with the OECD, in particular, forecasting a substantial deficit on the United Kingdom balance of payments in 1982.

Inflation will of course fall. It is even possible that two years after they came to power this Government will actually reach the level of year-on-year inflation that they inherited on taking office in May 1979, but the forecasts certainly do not suggest any substantial improvement beyond that level, and what a price has been and is being paid for that in terms of employment or, rather, unemployment.

The debate on 27 November took place just after the monthly unemployment figures had been published, with the appalling leap to just over 2,100,000, to which I earlier referred. The December figures came out on, I believe, 23 December and brought the total to over 2,200,000. There have been many forecasts of the level that unemployment is likely to reach in the next 12 to 18 months. I do not intend to add to them at this stage. However, if the present trend of weekly unemployment of about 20,000 to 25,000 were to be more than halved and reduced to 10,000 a week, and if that continued throughout the year, at least another 500,000 people would be unemployed at the end of 1981. The House will bear that prospect in mind.

I emphasise and invite the House to consider the enormity of what has happened already. In the last 12 months about 900,000 people have been flung out of work, with all the misery for individuals and families and the disruption of communities which that involves.

In the light of all the further information covering the main sectors of the economy, which does not contradict but confirms and corroborates the Government's own estimates of the period ahead, it is beyond all reason that current policies should still be pursued. That is why we looked for evidence of change in the weeks of the recess. That is why we shall listen with close attention when the Chancellor of the Exchequer speaks.

Mr. Peter Bottomley (Woolwich, West)

Before the right hon. Gentleman explains what the Labour Party thinks should happen, may I refer him to the last year when there was a large drop in manufacturing output? Average levels of pay increases for people who have kept their jobs have been 15 to 20 per cent. As there has not been a Government incomes policy, pay increases have been left to the free market, one side of which involves the trade unions and the people who negotiate at work. Will the right hon. Gentleman make a plea today at the the Labour Party conference or at the TUC conference for a method of bringing pay settlements down, not by a voluntary incomes policy but through a general understanding that that is one of the ways to stop the rise in unemployment?

Mr. Shore

I understand what the hon. Gentleman is saying, but that does not reflect exactly the type of thinking on the Government Front Bench. The first step towards achieving the necessary agreement on incomes is to stop putting up prices.

The Government's reaction so far to all the events and the accumulating evidence has been extraordinary and, indeed, frightening. I include yesterday's comments by the Financial Secretary in Zurich. Two sentences in his remarkably intelligent speech deserve to be quoted, given the accolades bestowed upon their author by the Prime Minister a few minutes ago. The Financial Secretary told his distinguished Zurich audience: I am not trying to pretend that our record so far has been one of unalloyed success. He went on to say something which is far more worrying, and I invite the House to bear his words in mind in the light of my remarks and what is known about the economy. He said: the signs suggest that, taking the economy as a whole, we have now more or less reached the bottom, and better times are clearly in sight. In the last few weeks we have experienced a sustained public relations exercise; I include the Financial Secretary's speech. We have had "Operation Optimism" led by the Prime Minister, with the Chancellor of the Exchequer and other Ministers playing supporting roles. However, nowhere have I been able to detect any recognition, let alone real concern, of the appalling state of the national economy. I have rehearsed the evidence to the House. There is an additional fact: more companies went into liquidation in 1980 than in any other post-war year.

In her new year interview on "The World This Weekend", the Prime Minister suddenly discovered, to her comfort and to the amazement of her listeners, that a few more new companies were formed last year than in previous years. Since the object of forming a company often has nothing to do with productive activity but has to do with the arrangement of tax affairs, that should have caused her to pause. Even more should the fact that individuals and partnerships fearing bankruptcy should opt for company status for the precise reason that limited liability safeguards personal assets against trade creditors in liquidation. For the Prime Minister, however, all that was evidence of stirring new activity in the small business grass roots of British industry.

Again, the Prime Minister took comfort in the fact that the number of firms or individuals coming on to the VAT register was as great last year as the number coming off. With the current rate of inflation, that surely is only to be expected. It tells us nothing about economic activity.

The Prime Minister informed us that 250,000 people come off the unemployment register each month—as she put it, one every 10 seconds. She omitted to mention that 350,000 go on to the register each month—or one every seven seconds. She also claimed that in 1980 we increased our share in world trade with our exports. I cannot find the evidence for that. According to the Treasury's export report, our export market increased by an estimated 8 per cent. in 1980 while our exports increased by only 1 per cent. If that is so, our share of exports could not have risen. I hope that that will be cleared up.

As if, like Joan of Arc, the Prime Minister had been listening to voices, she instructed herself on the lessons of the last year. She said "First continue your policies for sound money, that is, keep the increase in the supply of money in line with the increase in the supply of goods and services. Continue your policies to ensure that industry becomes competitive and then keep the incentives in the tax system so that the moment that you start to get an expansion there really will be something for people to go for."

What does the right hon. Lady mean by "sound money"? Prices have increased 27p in the pound since May 1979. What about keeping money supply in line with the increase in the supply of goods and services? National output has fallen 6 per cent. since the second quarter of 1979 and the money supply has been running at the rate of about 22 per cent. What about ensuring that industry becomes competitive? The latest figures suggest that since May 1979 the competitiveness of British industry has declinded by about 40 per cent. in relation to its world competitors.

What about incentives in the tax system? There was some incentive for people earning more than £10,000 a year but no incentives for over 90 per cent. of the population, who earn below that level. I do not believe that the country has ever been subjected to so frivolous, false, frighteningly unreal and introverted an address as that made by the Prime Minister on that day.

No less discouraging has been the thinking aloud by Treasury Ministers during recent weeks. I have already referred to the Financial Secretary. What about the others? The conclusions drawn by the Chancellor of the Exchequer in his article in The Sunday Times last month were—surprise, surprise—that his strategy was basically right, and that whatever happened we must not pull the lever labelled "demand management". He said that the people had a dangerous tendency to exaggerate the power of Government in economic affairs. I accept a little of that. There is a danger of people exaggerating the power of Governments to do good. But that they do not exaggerate the power of Governments to do evil there is no question.

The former Chief Secretary, now Secretary of State for Trade, was, as expected, by far the most interesting of the Treasury team. He refused our invitation to make public the speech that he delivered to Conservative Back Benchers in mid-December. I suspect that, arch monetarist that he is, he has grown increasingly sceptical of the wisdom of attempting to run the economy by setting public and quantitative monetary targets. His reflections on the lost first year—I recall his vivid description—became clear during the course of his radio interview on 1 January. He was frank enough to admit the major impact of a rising sterling exchange rate which, as he put it, had had 'a serious effect on the general fortunes of our manufacturing industry and upon the levels of unemployment". The right hon. Gentleman's other conclusion was that the Government had not acted brutally enough when cutting public expenditure. His remedy was clear. If the money supply is not as controllable as it should be, if public expenditure fails to come down according to plan and if the public sector borrowing requirement is higher than its target, the right hon. Gentleman's answer is, inescapably, that the Government must raise taxation. That is embarrassing, is it not, because it has always been the Government's contention that we are over-taxed as a nation? Discussion of that very matter was the source of recent press reports and a remarkable leak, judged against the background of a series of remarkable leaks. The then Chief Secretary said that the Government had made a specific commitment only in the sense of direct personal taxation. It is that specific commitment, especially in relation to income tax, that, if the leaks are correct, has apparently been maintained.

Where does that leave us? Will there be further taxes on industry, already flattened by recession, or upon the consumer in the form of VAT, excise duties, licence fees and so on? The fact that such fresh exactions will raise the retail price index and increase year-on-year inflation is irrelevant to the true monetarists. "Inflation has nothing to do with prices; it is all about wages and salaries."

The crucial point that I wish to make is that the only lesson that the Government seem to have drawn from the appalling experience of the past 18 months is that if they cannot deflate far and fast enough by one policy instrument—monetary supply—they must deflate by using the tax instrument as well. Deflation is, and remains, the Government's objective, with all that that means for the future contraction of output and for the further rise in unemployment. The Government know that. Their protestations of concern about unemployment are nauseatingly false.

The Government have failed to learn the fundamental fallacy of their analysis, that the problem that they have sought to remedy is cost-inflation, not demand-inflation, and that the more energetically they cut demand, the more certain it is that unit costs will rise, that public expenditure—in spite of continuing cuts—will maintain the same proportionate share of a diminishing national output, that investment will continue to fall and that the nation will continue to be impoverished and divided.

My conclusions about the results of the Government's cerebrations during the recess have been reinforced by the new appointments made by the Prime Minister. For one marvellous moment I thought that I heard on the BBC that the Chancellor had been sacked. Alas. it turned out to be the Chancellor of the Duchy, not the Chancellor of the Exchequer—not the old dead sheep, but the sacrificial lamb. I assume that the main purpose of his dismissal was pour encourager les autres—to read the Riot Act to those other Cabinet Ministers who have become totally disillusioned with the economic policy of the Prime Minister. We congratulate the new Chief Secretary on his great promotion. We pray that he does not have too close a relationship with his remarkable brother.

Next, there is the appointment of Professor Alan Walters. What a remarkable display of distrust by the Prime Minister in her Chancellor of the Exchequer is that appointment. Professor Walters, a hard-line monetarist, the most highly paid servant of the government, will be working directly to the Prime Minister—a sort of intellectual policeman ensuring that the will of the First Lord of the Treasury prevails over whatever doubts and hesitations the Treasury team occasionally entertains. What distinguishes the professor from other monetarists, and no doubt justifies his appointment, is that he has not been exposed to any experience of Government.

When I read the views that Professor Walters expressed in such intellectually distinguished publications as a pamphlet issued by Aims of Industry, I shudder for Britain and fear that the learning curve of that very influential academic could be the most dangerous and expensive period for this nation—indeed, for any nation since Rasputin won the ear of the Empress of Russia. We shall hear the tired old refrain that there is no alternative and that the Government are committed to folly and the nation to disaster because folly and disaster are the only options. That is not so.

The Government have nailed themselves to the cross of dogma. Let me assist them to escape. Let them accept the undeniable real world fact that in the British economy—with 2 million unemployed and more than 80 per cent. of our firms working well below capacity—the major problem we face today is lack of effective demand. Let them recognise, without fudging, that their own central policies for the money supply and the public sector borrowing requirement, judged by their own criteria, have now failed. Let them be aware that in the circumstances of national slump the Opposition and the country are thankful for small mercies. I shudder to think what would have been the position for our industry and our people—the bankruptcies and the further unemployment—if either or both of those targets had been achieved, or if the Government were still trying to achieve them in 1980–81.

Now that the Government have suspended their monetary targets, at least until after the Budget, let them take the opportunity to rethink their whole stance and to recognise that the economy cannot be run, other than to destruction, by the excessive pursuit of that wayward mistress, M3, or any other monetary harlot that the Financial Secretary decides to woo. Let them instead enter at once into a serious dialogue with British industry, with employers and with trade unions on the real problems of our economy, including, of course, the need for effective counter-inflation measures. Let them address themselves seriously to the great problem of our loss of international competitiveness. The costs of British industry must be reduced. An agreed counter-inflation policy is crucial to that, but so are a number of other specific measures.

First, we must reduce our energy prices, especially for bulk power users, to bring them into line with those of our competitors, as the recent NEDC report made clear. Secondly, the national insurance surcharge should now be considerably reduced and eventually repealed. In present circumstances that cost on British industry should be reduced with the purpose of phasing it out at the earliest possible moment. Thirdly, minimum lending rate must be reduced to single figures. Fourthly, it must be a principal objective of the Government to achieve and maintain a competitive exchange rate, lower interest rates—

Mr. Tim Eggar (Enfield, North)

The right hon. Gentleman has made a number of criticisms of Government policy. May we have a coherent explanation from him of the exact nature of the Opposition's economic policy?

Mr. Shore

If the hon. Gentleman listens, he will hear the first instalment. He will hear in successive debates very much more about all the matters that concern him.

Lower interest rates will help with the exchange rate, but they may need to be fortified by other measures.

Fifthly, the Government must abandon their ridiculous target for the financing of nationalised industries that will result in a swing of over £2,000 million from deficit into surplus in the course of four years. All these measures will assist, as they are intended to, the competitiveness of British industry at home and abroad.

Finally, let the Government reconsider their attitude to public expenditure and the public sector borrowing requirement. Surely it must have dawned on them now that cuts in public expenditure of the sort that they have embarked upon damage rather than assist industry, both private and public. Every time the mad axeman of Marsham Street attacks the local authorities, the regional water boards and the other public sector agencies that come within his great Department, he inflicts fresh penalties on the construction and building industries, which are overwhelmingly private enterprise. The apparent savings made by him and other Ministers in other large spending Departments are substantially negated by the increase in payments that his colleague the Secretary of State for Social Security has to make in the form of unemployment pay and supplementary benefits and by the loss of tax revenues that his colleague the Chancellor of the Exchequer has to bear. This is precisely what the Chancellor had to acknowledge in his statement of 24 November in explaining why public expenditure had remained higher than he had planned.

Mr. John Bruce-Gardyne (Knutsford)

I take it that the advice that the right hon. Gentleman is giving us on the need to increase rather than to diminish public expenditure is precisely that which he gave his right hon. Friend the Member for Leeds, East (Mr. Healey) in 1976. No doubt he told his right hon. Friend then that cutting public expenditure would lead to increased unemployment. Will he tell us why the reverse happened?

Mr. Shore

There was an entirely different situation in 1976. What I said to my right hon. Friend the Member for Leeds, East (Mr. Healey) is what I said to him. It is not what I am going to say in the House. I have some respect for the privacy of Cabinet.

Mr. Eggar

Oh.

Mr. Shore

That may seem a somewhat old-fashioned view, but I have that respect. I do not come to the House and, to use a famous phrase like a whore unpack my heart with words about the opportunities that I have had to argue, debate and discuss with my colleagues in the privacy of Cabinet.

What we need now is not cuts in public expenditure but, as the hon. Member for Knutsford (Mr. Bruce-Gardyne) rightly assumed that I was going to say, a substantial and well-judged increase in expenditure on housing and roads and on other infrastructure programmes.

Yesterday I met the leaders of the National Federation of Building Trades Employers. The disaster that they revealed to me and other Labour Members is, I believe, true. I believe further that, if it is not corrected, we shall do irreparable damage to those industries. Never in our history have the building and construction industries sustained such injury—not even in the days of Neville Chamberlain—as they are sustaining now. On the contrary, even to the Government of the 1930s, improvement in the physical assets of the country—for example, housing and roads—was a principal counter-recession measure.

Let the Government consider seriously and soberly what they have done this year to London and other major cities. The massive cuts in Goverment grants, both capital and current, to local authorities in inner city areas will this year be devastating. The cuts will have no effect other than to increase the level of unemployment that is already too high and to delay the improvement in the infrastructure and environment of our decaying inner cities.

Let the Government review their regional policies. Let them consider again whether it makes sense to withdraw assisted area status from the intermediate areas, and let them consider the case for reintroducing regional employment premium in the development areas.

I have suggested no more than an interim programme to rescue British industry and to arrest and reverse the present disastrous increase in unemployment. Let there be no doubt that there has to be a major reversal of the Government's present economic policies.

We are on the road to ruin. It is a paradox and a tragedy that, at the very moment when Britain has become self-sufficient in that most valuable and expensive commodity, oil, we are facing the worst experience and outlook for our economy for the past 50 years. It takes an extraordinary capacity for mismanagement to turn an asset that should be enriching us into a burden that is impoverishing us. Policy must be changed. It will be changed. The only question is how much more damage will be inflicted before this stubborn, myopic and divisive Government are forced to alter course or, far better, to hand over to a new Administration.

4.28 pm

The Chancellor of the Exchequer (Sir Geoffrey Howe)

I beg to move, to leave out from "That" to the end of the Question and to add instead thereof: this House, while recognising the severity of present economic difficulties, endorses the priority given by the Government to mastering inflation and improving competitiveness, and calls on the Government to maintain its present policies for economic recovery, which alone offer the prospect of a lasting reduction in unemployment. The amendment is addressed quite properly to the subject that was at the heart of the speech of the right hon. Member for Stepney and Poplar (Mr. Shore), the three topics about which successive Governments and successive Parliaments have been concerned for a number of years—namely, unemployment, inflation and lack of growth. I can understand why the right hon. Gentleman gave prominence to the subject of unemployment. What I fail to understand is by what right or title of common sense the right hon. Gentleman seeks to claim for his party a monopoly of concern about unemployment. It has always struck me as being legitimate to have discussions in the House about whether we have the appropriate methods and policies with which to deal with these problems. However, for either party to suggest that its opponents are unconcerned about employment is the height of folly.

The Government will stand for judgment by the British people like any other Government. We are as concerned as every other party about the success of our economic policies. By the end of this month I and my right hon. Friends will have visited Scotland, Ulster and the North-East. I shall be as intensely aware as any other hon. Member of the demoralisation and waste that are involved in avoidable unemployment.

I am also aware—it is a pity that hon. Members opposite are not more aware of it—that under the previous Government, whom they supported the number of people out of work more than doubled. We do not accuse them. It is wrong to suggest that the high level of unemployment is a consequence of this Government's policies. To suggest that the problem could disappear, although it failed to disappear under the previous Government but grew in size, as a result of any sudden or undiscovered change of policy is cruelly to deceive all those who are unwillingly without a job.

The right hon. Member for Stepney and Poplar knows well that there are two distinct sets of causes for rising unemployment. The chairman of the United States Federal Reserve Bank said the other day that America's problems had been decades in the making. If that is true of the United States, how much more true is it of the United Kingdom?

In our economy, under successive Governments and for too long, too many people have been paid for doing jobs that ought not to have survived. Governments have connived in that. In State-owned industries, in steel, in railways, in central and in local government and sometimes even in the most respected private companies, overmanning has not merely been the scourge of efficiency: in the end it has turned out to be the cause of today's unemployment. All that has been made far worse by pay levels rising much faster than those of our overseas competitors.

Those are the causes. The right hon. Gentleman acknowledges that all those domestic causes have been compounded by more potent factors—for example, the upheavals that have taken place in the world oil market. It is estimated that a 10 per cent. rise in OPEC oil prices would reduce gross domestic products throughout the OECD by over ½ per cent. In the last two years, those oil prices have risen by over 150 per cent. The OECD calculates that the impact of those oil price increases alone on GDP throughout the member countries has been 6½ per cent. this year.

The point is dramatically underlined by today's increase in the price of petrol, which has affected every industrialised country in a sharp check to growth and a sharp rise in unemployment. It is no wonder that those factors have affected our country more seriously than many others.

Mr. Clinton Davis (Hackney, Central)

Was not the whole burden of the lurid advertisements in relation to unemployment that appeared on hoardings during the election that the Conservative Government would somehow miraculously be able to transform the situation? If not, what was the purpose of proclaiming those figures so loudly? Is it not a fact that the situation is now beyond the control of the right hon. and learned Gentleman and that he has exacerbated the situation? What is his prognosis on unemployment?

Sir Geoffrey Howe

If the hon. Gentleman wishes to make a speech, he can make it in due course. The policies on which we were elected were policies presented for a Parliament to correct the health of the nation's economy. They will take time to do that, as we have made clear.

An example of the policies with which we are concerned is that of policies on the international oil situation. In our last debate we were rightly reminded by my right hon. Friend the Member for Sidcup (Mr. Heath) that we should do everything possible to check the explosive growth in oil prices. I give the House the assurance that the Government fully recognise the importance of that task. Like so many things, it is a matter of continuous application rather than of a single gesture or initiative.

Last year, along with all the other Western nations, we were again threatened by the prospect of massive oil price increases following the outbreak of the Iran-Iraq war. The situation remains serious, but thus far it has been contained and further sharp upward surges in prices, which we had feared, have not materialised.—[Interruption.] Far beyond that which appears to concern the hon. Member for Dunfermline (Mr. Douglas).

The matter is still serious, but those sharp rises which could have happened have been avoided because of the firm and well-judged measures which have been agreed by the International Energy Authority and by the European Community. It is right that my right hon. Friend the Secretary of State for Energy has played a leading part in the formulation and presentation of those proposals. The Government will continue to do exactly what is necessary in that respect.

When we consider the domestic economy, it is our belief—all our experience suggests that it is right—that the key to recovery must be success in the fight against inflation. We agree with virtually every other major OECD country on the top priority of the reduction of inflation. Surely the lesson of all recent years is that more inflation means more unemployment and less growth. In that battle against inflation, monetary policy, which the right hon. Gentleman has sought specifically to discard, has a fundamental role to play. A detailed discussion of the monetary targets which we shall set for the next year must wait until my Budget Statement on 10 March.

As my right hon. Friend the Financial Secretary explained in his first-class speech yesterday, monetary control is essential and is part of the permanent framework of a stable economy. There is universal international recognition of that. I will now quote on that matter not a familiar source, but one authoritative source, which said the other day: If the money supply continues to increase, it is possible things will go out of control. If this situation occurs all of the improvements that have been made to the lives of the people will be lost. That wise observation comes not from Professor Friedman or Professor Walters, not even from the right hon. Member for Leeds, East (Mr. Healey), but from the Chinese Workers Daily last week. I cite it in order to underline the extent to which the right hon. Member for Stepney and Poplar is departing from the rest of the human race—even from the Chinese People's Republic.

We heard a most explicit and astonishing set of proposals from the right hon. Gentleman. He has called for a dramatic change in policy. He has called for a total change in the policies of this Government. But he has been going much further than that. We have heard a proposal for a dramatic change in almost every policy of the previous Labour Government. He has proposed the abandonment of almost every principle distilled by the hard experience of British economic policy since the war, to be encapsulated in his repeated parrot cry that in this country we need more effective demand.

The truth is that over recent years we have had all too much demand and all too little supply. In the three years towards the end of the previous Government, final demand in money terms was expanding on a dramatic scale. But that solved nothing. It was only a fraction of a solution—demand never translated itself into increased output. The pressure of demand and monetary expansion stirred up huge inflationary pressures.

A simpler lesson than that is contained in our failure to produce the number of motor cars we should like to produce in this country, and in our failure to produce the amount of steel that we should like to produce. That is not a consequence of shortage of demand. The motor car market of the United Kingdom is still more than 1½ million units, but more than half of that demand is filled by imports. The sad truth is that, over the last 15 years, while European car production has increased by 4 million units, our supply has fallen by 600,000 units.

Mr. Shore

The motor car industry has often been quoted in exchanges and in debates. At the moment I shall not challenge the right hon. and learned Gentleman on that industry.

The right hon. and learned Gentleman emphatically reaffirms that there is not an inadequate level of demand. What does he have to say, not just about one industry, but about the report of the CBI, which says that 84 per cent. of British firms are seriously under-utilising their capacity? Does he not think that that is an indication of lack of demand? Does he not think that the sterling exchange rate and other factors upon which the Government have a great deal of influence have played a major part in that?

Sir Geoffrey Howe

The right hon. Gentleman's question enables me to make the point very clear. British firms are not working to capacity, and not because of shortage of demand for their products around the world. Around the world, in other countries, new factories are coming into existence, new products are being generated to meet the demand that now exists—even in a world recession—but British firms are failing to work to full capacity because their goods and products are not competitive in quality, price or delivery. That is the reason.

Why does the right hon. Gentleman think that we have lost our share of the United Kingdom car market? He chooses to leave that on one side, but we have failed to meet our share of the United Kingdom car market because our products are not available at a price and quality that people want. That is the reason—not a shortage of demand, but a shortage of supply.

The right hon. Gentleman is repudiating not merely the policies of the last Chancellor, the right hon. Member for Leeds, East, but also the policies and learning of his predecessor, the right hon. Member for Cardiff, South-East (Mr. Callaghan). Indeed, he appears to be repudiating and forgetting almost all his own learning.

It is worth while the House remembering that the right hon. Member for Stepney and Poplar was for a brief space the Secretary of State in the late lamented Department of Economic Affairs. Speaking in that capacity in the House in 1967 about the policies that he was then about to embark upon, he said: … I want to make it perfectly plain that we are not embarking on a policy of general demand reflation. This is because we know exactly what happened in 1962 … It did not make the slightest impact on unemployment in the winter of 1962–63"— although then we thought that it was far too high— but it certainly had an impact on the general inflationary boom … That took place late in 1963 … and brought about the crisis … of that year."—[Official Report, 1 November 1967; Vol. 753, c. 295–6] That was his insight then. If it was true then that general demand reflation was ineffective, the lesson is just as true today.

Mr. Shore

Really! When one is dealing with an economy with an unemployment level of, I think, 2.3 per cent. and when one knows very well that one can divert home manufacture into a record and booming export market, one has a slightly different approach to demand management from when there are 2¼ million people unemployed and there is under-used capacity.

Sir Geoffrey Howe

Not in terms of analysis—

Mr. Michael Foot (Ebbw Vale) indicated dissent.

Sir Geoffrey Howe

The Leader of the Opposition need not shake his head—because at the time of which the right hon. Gentleman was speaking, in 1962–63, unemployment, if I remember correctly, was about 600,000. That was a figure which the right hon. Member for Ebbw Vale (Mr. Foot) was in those days describing as "a disgrace" and as "intolerable". At that time, the analysis and the lessons were exactly the same.

The right hon. Member for Stepney and Poplar simply cannot escape the fact—he must remember these lessons, because he has learnt them all before—that an attempt to solve our problems by pumping in more demand as an apparently easy way of creating jobs in the short run would absolutely certainly ensure in future even fewer jobs and even higher unemployment.

By contrast, on the vital problem of inflation, this Government's success is becoming increasingly apparent. Year on year, the rate of inflation is down from 22 per cent. last June to just over 15 per cent. now. A further large fall is expected this month. The rise in the retail price index has been less than 1 per cent. in each of the last seven months. When the Labour Party left office, prices were rising, measured over its last six months, at an annual rate of 13.8 per cent.

In the last six months—without price control, without subsidies and without an incomes policy—the rate is down to 8.4 per cent. The underlying rate is a little higher than that, but many forecasters expect single-figure inflation this year. So the progress is being made and it will be sustained.

However, if we are to maintain that progress, we must challenge the extent to which inflation has become part of the way of life for so many people. This attitude of regarding inflation as part of one's way of life was well illustrated by a quotation in the interesting article about the Labour Party in last Sunday's Sunday Telegraph. It was a quotation from a member of the general management committee of the Gorton constituency Labour Party. Incidentally, it seems that no fewer than 75 per cent. of that general management committee are buying their own homes. Congratulations to them on that high proportion of home ownership.

The quotation was this: Inflation did not matter any way so long as wages kept ahead of prices. 'The more inflation goes up,' he explained, 'the cheaper my mortgage becomes, and it's even more so for the lads who've got mortgages three or four times as big as mine.' That is the kind of attitude that inflation breeds and it is the kind of attitude that we must challenge, because it is only one of the habits and attitudes that have become deeply ingrained over the years.

We must stop thinking in terms of automatic indexation of every aspect of Government spending. We have to break the pattern—as we are—of basing wage demands on past price movements. We must stop thinking of expenditure in real terms as though inflation did not matter. As an important step in that direction, I am hoping to be able to get away from the habit of planning public expenditure entirely in volume terms—in so-called "funny money". We must focus more on what our expenditure actually costs the nation in cash.

Mr. Peter Tapsell (Horncastle)

I fully support my right hon. and learned Friend in his reaffirmation that the conquest of inflation is the essential prerequisite for the recovery of our national economy and a reduction of unemployment, but does he not agree that it is much easier to bring inflation under control when production is rising and unit costs are falling than when production is falling and unit costs are rising?

Sir Geoffrey Howe

Of course I agree with precisely that. That is why I was moving on to just that subject in my next sentence.

Apart from the progress that we are making on inflation, there are other encouraging signs as well. There are real prospects, in the absence of any further oil price shock, that the world recession will bottom out in the course of this year. I want to look at some forecasts. The right hon. Gentleman looked at several that he chose to quote. He said that he was wary of individual forecasts and then went on to quote the two most gloomy that he could find. Let me take a rather broader spread.

In this country. the CBI and the Financial Times surveys are showing, for example, the start of an improvement in business confidence. Recent forecasts by people outside the Treasury—by the London Business School. by Phillips and Drew—as well as our own forecasts, show that the fall in output is coming to an end, although the timing, of course, will be hard to predict. One sees signs of this as well.

One sees increasing evidence of new businesses establishing themselves to replace those which have gone. Just one example is a report from the work of the Industrial and Commercial Finance Corporation. It is concerned, as the House knows, with the encouragement and start-up of small and medium businesses throughout the country. The number of start-ups that the corporation financed in 1978–79 was 112. In 1979–80, it had risen to 309. In the first six months of 1980–81, it had already passed 200, and the corporation expects the total in the full year to be 400—a record number, including, incidentally, a record number of businesses in high technology. That is only one example.

There are other reasons, even in relation to our export performance, to he more optimistic as well. The right hon. Member for Stepney and Poplar took some pleasure in looking for signs of lack of success in the export market. What he might have remembered is that the forecast made as recently as the Red Book of last year for the balance of payments in 1980 was of a deficit of £2¾ billion. The outturn, in fact, as a result of sustained performance in the export markets, beyond expectations, was a surplus of £2 billion.

Of course it is difficult, but there are reasons for being much less gloomy than the right hon. Gentleman has been. Even in the difficult conditions which exist, many exporters are performing very well. Figures for the aerospace industry, for example, show that exports in the first nine months of 1980 were higher than the total for 1979 as a whole. The pharmaceutical industry in 1980 showed an increase of 30 per cent. over the previous year. In terms of resisting import penetration, figures show that we are holding and increasing our market share of products which have frequently been dominated by imports. This is true with regard to appliances such as refrigerators, freezers and washing machines. In all those areas our manufacturers are fighting back successfully. In relation to the North Sea, in 1974 United Kingdom-based companies won 40 per cent. of orders placed for goods and services to be used in the North Sea. The latest figure is almost exactly double that.

All that shows the extent to which British industry can rise and is rising to the challenge and is winning a return for itself and for the nation. The reality is that the policy of transforming and restoring the energy of the economy had to be set in hand in a particularly adverse world climate. Unemployment is likely to go on rising for some time yet. But much of the worst is over. There are distinct signs of hope, both on output and on inflation, in this country as well as in the rest of the world. Of course, there is a long and difficult period of adjustment still ahead. The Government are determined to do all that we properly can to help industry through that period.

Mr. Austin Mitchell (Grimsby)

On the central point of improving competitiveness in the current world situation, since the pound rose in nominal value by some 12 per cent. and in real terms by about one-fifth during 1980, this must do considerable harm to our competitiveness, as it is effectively a tax on exports and a subsidy for imports. The effects of that have still to come through. How does the Chancellor see British industry surviving with that ball and chain round its foot in a world competitive situation?

Sir Geoffrey Howe

The House is entitled to take into account the extent to which, notwithstanding the undoubted difficulties created by the speed of the rise in the external value of the pound, British industry has been able to defy the gloomiest forecasts and to do as well as it has.

I understand the case that is implied in the hon. Gentleman's intervention and that can be argued for a lower exchange rate. Indeed, it was put to me by the right hon. Member for Stepney and Poplar, although he was noticeably coy in answering any of my hon. Friends' questions as to how he would set about achieving that. The call for a lower exchange rate reveals a clear misconception about what can be achieved by Governments. The exchange rate is set, beyond all else, by market forces, and notably at the present time by world oil prices, given our oil self-sufficiency.

Experience in this contry in relation to interest rates as well as to everything else shows that Governments who try to set an exchange rate different from that set by the market, whether it be higher or lower, fail in that purpose. The last Labour Government tried to do both and failed in both respects. In 1977, which is the most relevant experience, they followed a policy of massive intervention. They also followed a policy of lowering interest rates from over 14 per cent. to 5 per cent. in an endeavour to hold down the external value of the pound. Notwithstanding all that, the exchange rate rose by 7½ cents against the dollar and the policy was abandoned.

Sir Frederick Burden (Gillingham)

Is my right hon. and learned Friend aware that the former Leader of the Opposition and Prime Minister at one stage in 1976, and again in 1978, when there were clamours for control of the exchange rate downwards, said that it was quite impossible and he would not undertake it in any circumstances?

Sir Geoffrey Howe

I also remember the former Leader of the Opposition saying that it was a great deal easier to talk about keeping exchange rates down than to achieve it. That is the lesson that we learnt from the experience of the last Government. The truth is that the intervention which they then attempted caused damage to the economy and promoted a rapid explosion in the money supply, and the inflationary consequences of that were serious.

Even assuming that there was a way of lowering the rate, it would surely be dangerous to overlook the consequent bad effects upon prices. If devaluation serves only to stoke up inflationary fires, one risks gaining nothing at all in competitiveness. The harsh truth—and of course it is harsh—is that industry must continue doing all that it possibly can, as indeed it is, to adapt to sterling's strength by controlling is own costs, because that is not something which it is in the power of the Government to command.

Mr. Shore

The exchange rate is a matter of first-rate importance. But what is the right hon. and learned Gentleman's attitude? Is he saying that his reason for, as it were, not attempting to influence the exchange rate is that he thinks that it is too difficult an enterprise to undertake? That point of view has been reflected in some Back-Bench contributions. Is it because he believes that we actually benefit by an increase in the exchange rate in the way that he suggested in the last part of his remarks? Or is it because he regards a competitive exchange rate as an objective of lower priority than that of control of the money supply, which it might otherwise upset, just as he obviously thinks that lowering the rate of unemployment is a less important objective than controlling inflation?

Sir Geoffrey Howe

There are a number of answers to each of the right hon. Gentleman's questions. First, it is extremely difficult to know at what level the exchange rate should be set. Secondly, it is extremely difficult, if not impossible, to achieve anything like that, even if one set out to do so. If one sets out to achieve that, one is likely to achieve the opposite effects by damaging the domestic money supply. One would be pursuing an illusion and either not achieving it, or, if one does achieve it for a moment, doing damage in the opposite sense as well.

All the reasons and all the experience suggest that it is not possible at the same time to pursue a responsible policy for the conquest of inflation and to try to pursue the unattainable objective of an exchange rate target.

There are, however, other ways in which the Government can play a part, and we are doing so. Most important is the control of public expenditure. I was astonished to hear the right hon. Gentleman criticise us for our attempts to control local government spending. I do not know where the right hon. Gentleman goes if he does not hear business men up and down the country saying that one of the most formidable costs that they face is the soaring cost of local government and above all of local business rates. We have an example clearly before our eyes in the huge rate increases being imposed upon businesses and householders alike in the London borough of Lambeth. Is it not a legitimate purpose to try to prevent increases of that kind in order to keep down the burden upon British industry?

It is only by responsible control of public spending that we shall be able to see further cuts in interest rates, which the right hon. Gentleman demands. Already they are 3 per cent. below their peak. On the estimates of the CBI, that is already worth £¾ billion to the company sector. When I come to consider the appropriate size of the public sector borrowing requirement at which to aim next year, I shall certainly give full weight to the need to ensure further progress in that direction.

Of course, within the resources that are available, we are doing a great deal to ease the impact of the recession on those worst hit. We are maintaining regional programmes concentrated upon the areas of greatest need, at a cost of £450 million this year. We are maintaining, and indeed extending, special employment measures and industrial training. We are continuing the special measures run by the Department of Employment. The take-up of the short-time working compensation scheme, in particular, has increased very rapidly, so that we are spending very large sums indeed. [Interruption.] Labour Members cannot have it both ways. If we sustain the kind of programme that they commend, they cannot then complain if the programme continues to rise in cost. We are probably spending more than £400 million on that scheme alone in the current year. That makes it all the more important to keep the whole area under review and to be certain that the money is put to the most constructive use.

Mr. Nicholas Winterton (Macclesfield)

What will happen to the many industries now taking up the short-time working compensation scheme when it runs out?

Sir Geoffrey Howe

That is precisely the kind of point that I had in mind when I said that, as the money being spent on those schemes is rising, it is all the more important to ensure that we make the most effective use of the money available. It has to be remembered that, however legitimate the case that can be made for help of that kind, every pound that is spent in help of that kind is a pound raised by taxes from the rest of the economy.

We have also been increasing spending on industrial assistance, and we offer the prospect of a substantial improvement in the stock relief scheme.

As the House will have seen, we have had a useful discussion at the NEDC last week of the principles of economic pricing for energy. It was not disputed at that time that there should be no departure from the policy of economic pricing. It was also agreed at the NEDC that, although comparisons between the United Kingdom and Europe were difficult, the majority of United Kingdom prices were not out of line with those in the rest of Europe. There is some evidence of particular sectors where there may be higher prices than usual for large industrial users of gas and electricity: hence the decision to appoint the NEDC task force to establish the facts. We shall certainly take account of what it reports.

Sir Hugh Fraser (Stafford and Stone)

As a monetarist, will my right hon. and learned Friend explain how it is correct for a nationalised industry, gas, to charge its consumers 10 per cent. more than the rate of inflation?

Sir Geoffrey Howe

It is because the nationalised industries—and gas is one example—have been charging prices held well below the natural economic price, and they are being allowed to rise to market levels. Indeed, they are still short of market levels. If we have removed the restraints on those prices, the gas prices are achieving the level that can be set by the market. If we fail to do that, we shall be adding a burden to the public sector borrowing requirement. We shall be consuming and wasting gas that could be more effectively used. The point raised by my right hon. Friend is answered by the fact that at the NEDC meeting last week it was agreed on all sides—by the CBI and by the TUC—that it was absolutely right to set the prices for energy at the market economic price, and that is what we are doing.

There is one other aspect of the nationalised industries which concerns industry, and that is the extent to which in many cases—this cannot be denied—costs in those industries have been rising well ahead of those in the rest of the economy. Over the last decade, employment costs per head in all the major nationalised industries have risen much faster than the average for the economy. They have risen much faster in energy and telecommunications, and in posts and steel the absolute level of productivity has declined. In the British Steel Corporation, unit labour costs rose 50 per cent. faster than in the rest of the economy. That is why it is so important for us to do everything we can to make those industries more competitive and more efficient, to establish competition alongside them, and to refer them, as we are doing, to the Monopolies and Mergers Commission, to give them competition from the private sector and to offer them the prospect of privatisation.

Those who urge us, as they do, to use North Sea oil to restructure British industry should remember the extent to which we are massively obliged to do so already in relation to the nationalised industries. The Government are accepting costs, which are sometimes huge, of restructuring those industries to improve their efficiency in the future.

This year we have increased the external financing limits of the four industries—steel, shipbuilding, rail and airways—by £590 million to over £2 billion. Those figures make me tremble when I Think of the speech made by the Leader of the Opposition on Monday of this week, calling, of all things, for the Socialist transformation that Britain requires, and asking, of all things, for a more ambitious Socialist programme than has ever been attempted in the past". When we contemplate the wrecks created already by bouts of Socialism, I can think of absolutely nothing more disastrous than that the Leader of the Opposition should have the opportunity to put that policy into practice.

I was delighted to see that one or other of the right hon. Gentleman's colleagues—a Shadow junior Minister who serves the Labour Party's parliamentary consultative committee—was reported in this week's Sunday Telegraph as complaining about the prospect of having to pay lip service to the garbage with which our manifesto would saddle us". How right he is. The truth is that industry is being given by this Government the help that it needs, that industry is recognising the case for helping itself, and that industry is achieving great success in reducing its own unit costs by bringing down the costs of pay settlements.

The latest figures show that most manufacturing settlements in the new pay round are under 10 per cent., and we are determined to keep pay in the public sector over which we have control under similar restraint. That is why we have set the 6 per cent. pay cash limit for local authorities. This is essential if we are to restrict the growth of public spending and borrowing so that totals are consistent with the medium-term strategy.

Thus, in the public and private sectors alike, moderation in pay is as vital as ever. We can derive much encouragement from the progress made so far. It needs to be sustained over a long period. The truth is that the problems which have taken years to develop cannot and will not be solved overnight, but we must stick steadfastly to the only policies that offer the real prospect of rebirth of the productive economy.

The truth—and many Labour Members recognise it—is that there is nothing by way of an alternative to hope for from the Opposition. Indeed, the same Shadow junior Minister quoted by the Sunday Telegraph also had this to say. [interruption.] It would indeed be interesting to know who it is. It might be one of a number of colleagues of the Leader of the Opposition. What he said was this: The assertion that we as a party have the answers rings false even to those who make it … I don't believe that any sensible thinking person would now join the Labour Party. That is why I think the party is dying and the position is irrecoverable. By contrast, under this Government we are now seeing the first signs of success. Inflation is falling. Many signs of enterprise are reasserting themselves. Companies are tackling problems which they have ignored for far too long. Of course sacrifices have been and are being made. It would be totally crazy to throw away those gains now. We should do nothing to betray the confidence of the workers and of industry by changing course now. It is in that spirit that I invite the House to reject the Opposition motion and to accept the amendment.

5.7 pm

Mr. Tony Benn (Bristol, South-East)

I have listened to the Chancellor of the Exchequer on many occasions, and today for the first time I felt that the magnitude of the crisis that is overcoming this country had really swamped his arguments, his statistics, his jargon and his rhetoric. Because the reality is that for many millions of people his arguments are not credible. I refer not only to those who are out of work but to those who live in homes where the breadwinner is out of work, to those people who are on short-time working, to pensioners, and to others on social benefit. For them, and for localities, and for whole industries, such as textiles, paper and board, steel and even coal, and for whole regions such as the North-East and the North-West, the Chancellor's arguments for what he is doing are not credible, because he is not being candid with the House.

I do not for one moment believe that the Front Bench has been converted to a faith in monetarism. It has decided that over a long period of time this country has been weakened by the fact that profit margins have been too low, and that if profit margins are to be restored two things must happen. One is that real wages must be reduced, and the other is that public expenditure must be cut.— [Interruption.] I am glad that some Conservative Members are at least candid in agreeing that that is the objective. In order to achieve that objective, the power of the trade union movement has to be broken, because the trade union movement, by its organisation, is able to maintain by collective bargaining the real value of wages, and therefore, in order to reduce the power of the trade union movement, unemployment has to be deliberately raised.

When members of the Cabinet or the Government Front Bench speak of unemployment as though they regret it, they are being less than candid, because the Chancellor's policy is to push up unemployment. No wonder the Prime Minister speaks of the success of the policy. Unemployment is beginning to reach a level at which it might have an effect on wage settlements.

When unemployment reaches the present level, industrial dictators such as Sir Michael Edwardes and Mr. MacGregor can go to their work forces and say "Unless you accept either a wage freeze or a 6 per cent. pay rise when inflation is 15 per cent., we shall sack the lot of you". That is the basis on which the Chancellor is founding his hopes. That is what it is all about. Anyone who talks to industrial managers or industrial workers throughout the country knows well that what is called the new note of realism is not that Professor Friedman's ideas have penetrated this side of the Atlantic, but that most workers are terrified that they will lose their jobs, because they believe that the Prime Minister would be prepared to see unemployment rise to 3 million or 4 million rather than give up her attack on the trade union movement.

That is the reality. If the Chancellor wants to be credible, he must be honest and drop the jargon and the statistics and tell the British people what his policy is about. He follows it up by a second line of argument which is that there is no alternative. What he means by that is that there is no going back to the policies of the last 25 or 35 years. I agree with him.

When I read the Liberal policy statement published this week, I saw the summary of the policies—

Mr. Eggar

Did the right hon. Gentleman get one?

Mr. Benn

I did not get a copy, but then the right hon. Member for Orkney and Shetland (Mr. Grimond) told me that he did not get a copy either, so I am in very good company. The Liberal Party statement was superficially attractive, if not innocuous. It was based on an amalgam of what had been attempted by successive Prime Ministers, including the right hon. Member for Sidcup (Mr. Heath), my right hon. Friend the Member for Huyton (Sir H. Wilson), my right hon. Friend the Member for Cardiff, South-East (Mr. Callaghan), Mr. Harold Macmillan and a succession of post-war Prime Ministers. The Chancellor is saying that if one attempts that policy again, it will not work. He is right. It was tried and it did not work.

If there are not many recruits for the Liberal appeal, it is because two, three or four Governments have fallen in an attempt to carry that policy through. That policy will fail for two reasons. First, it is authoritarian. A statutory pay policy is an authoritarian policy because it purports to put in the hands of a Prime Minister, a Secretary of State for Employment, or a Chancellor the power to settle wages that should be negotiated at the place of work. Hon. Members must not think that it is only the trade unions who are disciplined by pay policy. Managers are also disciplined by pay policy, because they cannot negotiate with their own workers.

I say to the Liberal Party, not for the first time, that in its new corporatist image—pro-European and pro-statutory pay policy—it is too Stalinist for the liking of the Labour Party or the Tory Party. However, I congratulate the Liberal Party on its influence. I was telephoned today by a woman from the "World at One" who said that she was asking every Labour Member whether he would leave the Labour Party in response to the Liberal appeal. Whether the Liberal Party exerts undue influence with the "World at One", since Sir Robin Day was once a Liberal candidate, or whether there is some fellow feeling between the soggy centre ground of politics and the BBC, I do not know. All she told me was that she had not yet found anyone who was going to respond to that plea.

The second reason why the policy will fail is that the Chancellor is right to say that if we tinker with market forces, without tackling the centres of economic power, they will beat us. They beat us in 1976 when the IMF imposed on the Labour Cabinet policies based on the same philosophy as the Chancellor has today. Everyone knows that that is true. If one tries to lick the problem by one of the proposals in the Liberal plan—what is called massive intervention, which looks so good, or huge policies of paying for this and that—the Common Market will not allow it, because it is contrary to the Treaty of Rome.

If the policy statement issued by the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) were implemented, it would be contrary to the Treaty of Rome and unacceptable to the IMF. It is authoritarian in character and it would bring a Government down, as it brought down the Governments of the right hon. Member for Sidcup and my right hon. Friends the Members for Huyton and Cardiff, South-East.

The Chancellor is right. There is no going back to the policies of the last 35 years. But there is no going forward on policies of mass unemployment either. That is the issue to which the House should turn its mind—the failure of the past and the disaster of the present. We know in our hearts that it will not get worse before it gets better, but it will get worse before it gets much worse, and much worse before it gets disastrous.

All hon. Members who meet managers and trade unionists in their constituencies know well that there is a deep and abiding fear that British industry is being destroyed and it is also taking down our health and education with it, our provision for the old, the sick and the disabled. Public expenditure is the order book for industry. Public expenditure feeds itself into manufacturing industry. When new schools and hospitals are built, that is the work load for the construction industry. When public expenditure goes into the coal industry, it comes out as orders for transport and mechanical handling equipment and feeds back into industry.

I will not provoke the House by saying what colour the next Government will he, though I believe that it will be Labour, but the Government elected in May 1983, or 1984, will find when they come to power that British industry has been destroyed to the point where it cannot sustain living standards for our people. In some areas the crisis will be so deep and so great that there will be no hope. Parts of Liverpool, through which we marched on 29 November, have 50 and 60 per cent. unemployment. There, there are youngsters of 19 and 20 who have never worked since they left school, have no hope of working as far ahead as they can see. In Derwentside, where the Consett steel works has closed and where Ransome Hoffman Pollard has closed, there is 50 per cent. unemployment. It is no good another Government saying "Watch M3" or "We have Professor Walters, do not worry". The truth is that we shall inherit a situation in which measures far more radical than those attempted by other post-war Governments will be forced upon us because people will have lost their jobs. The steel furnaces will have gone cold. Research and development will have stopped. The market will have gone. Skilled men in the oldest industrial country in the world will find no outlet for their skills. Apprenticeships will have stopped. The flood of imports financed by oil will not go on for ever.

The next Government—I believe that it will be a Labour Government—will be driven to a great investment programme on public account. Do not tell us that the country is poor. The oil revenues—my legacy to the Prime Minister—are £30 billion. Hon. Members may laugh, but the money that we received from the oil companies under the previous Labour Government, and which is now financing the flood of imports that are helping to destroy our industry, amounts to £30 billion. There is £10 billion every year in new pension fund accumulations. There is more money now wasted through unemployment and the dole—which is bumping up the public sector borrowing requirement. There is defence expenditure that we should not be undertaking in the Trident missile and the upgrading of our weapons system. It will be from those sources that we shall have to finance the expansion of our industry.

All right, if that means we must plan our trade, so be it. We shall have to do so. If it is said that that will mean a longer wait for a Japanese car, I ask whether hon. Members are aware of how long people have to wait for non-urgent operations in the NHS. They have to wait a very long time unless they can afford to pay. If we go for a planned reconstruction of our industries and public services, it will mean not a policy of the market deciding, but "first things first" and "fair shares", and that will involve a huge intervention in the mechanism of the market.

As technology spreads, the re-equipment of our industry will mean that we shall be able to produce more with fewer workers and we shall see a growth of demand for employment in the public sector. Anyone who wants to know where there will be a demand for jobs should look at the public services. That is where work is needed. Consider the old people who need round-the-clock care, look at the need for an expansion of education and training of those aged between 16 and 19 in a world in which everyone is going to be affected by the microchip industry. Consider housing, because more homes are broken by poor housing than by almost any other cause. Yet the construction industry is flat on its back. The public sector and public services will create a demand and the money will filter through to industry to supply the hardware that is required. Nothing short of that will do.

I see no point in the trade union movement continuing to involve itself in the Government's policies. The time has come for the Labour movement to disengage from the Government. We should not have trade union general secretaries on nationalised industry boards that are busy selling what is profitable and closing what is not profitable. The Labour movement should disengage from giving support to the Government and, hence, legitimacy to policies that are fundamentally hostile not only to Labour, but to the interests of the country.

The reason for such a disengagement is not merely negative. If changes are to be made in the short run following a change of Government, the preparatory work must begin now. I would rather see general secretaries, regional secretaries and others in the trade union movement working to prepare plans for the day when a Labour Government have returned. It will be much too big a job to be left to an incoming Whitehall Administration alone.

Work must be done in every locality. It is beginning in Sheffield, where the Labour council has called together the local trades council and some community groups and small businesses to plan the recovery of the city. Unless that sort of work is done in every town and village throughout the country, it will not be possible to found the recovery of our economy.

If we are to found the recovery on sound plans, they must be laid now. That means that there will have to be plans for the industries that have been hived off. We will not compensate again for taking back public assets that have been hived off. If there has been a running down of public education and health and a build up of private education and private health, funded by the taxpayer, we shall bring them together and use them to improve the state school system and cut hospital waiting lists.

That will involve an economy that is far more democratically planned—though not, I hope, all at the centre—than we have had at any time since the war. I do not want to go back to the authoritarianism or the bureaucracy of the post-war period, when the chairman of a nationalised industry could run it without regard to the views of the workers. I believe in workers control and self-management. The workers know their industries best.

The Government bring in a MacGregor, but what does he know about steel? He is being paid a large sum of money to cut back on the nationalised sector in steel. He is being paid to do that job. When he threatens to close the whole of the BSC, he is hoping to earn his salary more quickly because a closed BSC would return to profitability quickly enough to earn him the money that he has been offered by the Secretary of State for Industry.

Some will laugh at what I have said, but I do not believe that, within a year or two, what I have said will be regarded as so laughable. What I have said is being advocated and argued throughout the Labour movement and is reflected in our conference policies.

When the nation sees the damage that is being done by this Cabinet, it will realise that nothing less what I have described will be adequate to recover this country's capacity to earn its living, and to provide for our children a future other than permanent unemployment or mass emigration, which is the inevitable logic of what the Chancellor has told us today.

5.25 pm

Mr. Chris Patten (Bath)

I am sure that I speak on behalf of the whole House when I thank the right hon. Member for Bristol, South-East (Mr. Benn) for his spectacular generosity to us all in donating the oil to this nation. We are all grateful to him for that, but I suggest that he should go a stage further next time and follow Mr. Baldwin's example by donating a fraction of his personal fortune.

We are also grateful to the right hon. Gentleman that we get in the House nowadays the full flavour of the speeches that he makes to those little cells of colleagues in draughty halls up and down the country. We cannot grumble that we do not get the genuine article. I sometimes think that, when listening to the right hon. Gentleman, one can catch the distant prospect of men in white coats. His speeches certainly demonstrate that paranoia and the conspiracy theory of history are not the best guides in practising politics.

I want to say something that may be unpopular.

Mr. Austin Mitchell

Why not say something sensible?

Mr. Patten

Just before Christmas I read a speech of staggering length that the hon. Member for Grimsby (Mr. Mitchell) made on the economy. No doubt we shall have to sit through something similar today. I shall listen to him and I am sure that he will listen to me.

I do not believe that there is much that we can do to affect the economy over the next few months until we get to the bottom of the recession. Of course we can limit some of the damage that is an inevitable consequence, given the structural problems of our economy, of the reduction of inflation. That is why I welcome the measures that my right hon. Friend the Secretary of State for Employment announced before Christmas to help the young unemployed and the measures for changes in stock relief. The interesting questions are not what happens between now and the bottom of the recession—the precise timing of which is a matter of dispute between the Treasury and the Select Committee—but what happens after that to help the economy to start moving forward and what we can do to ensure that when that occurs we generate not more inflation but more jobs.

I confess that I have some intellectual difficulty in tackling the first of those questions, because I formed most of my prejudices about political economy before the quantity theory of money came back into fashion. I watched the events of the summer, trying, like many other averagely puzzled well-wishers, to fathom exactly what was happening. It occasionally appeared to some of us that we were seeing the reverse of the theory, namely, the amount of money in circulation increasing to accommodate the previous rate of inflation.

Some argued that the money supply was out of control, though I understand that ever since Locke we have been led to expect that, when that happens, output goes up. Others, such as Walter Eltis, argued that money supply was under perfectly adequate control, thank you very much. The Labour Party tries to have it both ways. It attacks the Government for being wickedly monetarist, but tut-tuts about the money supply figures.

As usual, my right hon. Friend the Secretary of State for Trade put his finger on the matter last year. In welcoming my right hon. Friend's successor as the new Chief Secretary to the Treasury without reservation, I hope that we shall still continue to hear from the Secretary of State for Trade on such matters. His honesty is, and remains, one of the more amiable features of British public life. Commenting on the money supply figures, he said before Christmas in an interview with that widely read magazine Now! that sterling M3 was "a wayward mistress." My ignorance of mistresses is all that it should be, but I should have thought, with a mistress quite that wayward, while keeping in touch—just in case—one would be well advised to look up one or two other telephone numbers.

What happens when we get to the bottom of the recession? What then happens to move the economy forward again? The excellent supply side changes that the Government have put forward will help industry to produce more to satisfy the market. But where does the market come from? Where does the demand come from? The Chancellor began to address himself to that question during his speech.

First, as I undertand it, the demand is created by a fall in the level of savings and an increase in personal expenditure as inflation tumbles, thanks to the Chancellor's strategy. Secondly, we get an end to de-stocking. There will be restocking later this year and next year. Again, the Treasury and the Select Committee are in dispute as to when that will happen. There will also be an upturn in world trade towards the end of the year, particularly in some of our better markets in Continental Europe and in the OPEC countries.

I am sure that that will happen but the proposition rests at least in part on an act of faith. I wonder whether that will prove enough. That is why, in order to get a sustained increase in the level of economic activity and a sustained fall in the numbers of unemployed, I once again urge the Government to cut the national insurance surcharge that is paid by employers.

The right hon. Member for Stepney and Poplar (Mr. Shore) referred to the national insurance surcharge this afternoon. That was a pretty cheeky thing to do. The surcharge was introduced by a Labour Government to show us how much they cared about the problems of British industry. It is a tax on jobs and a tax on exports. All the arguments against it are well known by my right hon. Friends, and they were advanced when they opposed the introduction of the national insurance surcharge when we were in Opposition and when we opposed its increase later during our period of Opposition. Those arguments were put strongly again this week in a letter to the CBI from its director-general, who argued that no other budgetary measures to help industry would be as important as taking imaginative action on the national insurance surcharge.

As I understand it, there is an argument in the Treasury to the effect that easing the national insurance surcharge is not a good way of helping industry because it is not sufficiently selective. That is precisely the sort of argument that can be constructed or understood only by clever people. It is a curious argument: the burden carried by industry is indiscriminate, so it follows that to relieve it of that burden is also indiscriminate.

I should also like to comment on the cost of reducing the national insurance surcharge. Of course, any cut in the surcharge would not have a pound for pound knock-on effect on the public sector borrowing requirement because it would lead to an increase in economic activity. Nevertheless, it would be expensive. For example, to halve it would cost about £1½ billion. I could contemplate with equanimity a small increase in the public sector borrowing requirement in the short term, produced by a cut in the taxes that industry has to pay, in order to secure a smaller public sector borrowing requirement in the longer term through an upturn in economic activity and through the continuing control of public expenditure. We would be advised to move in that direction. I am not one who believes that the main trouble with the British economy is that we have not squeezed it hard enough yet. We may well have to do our bit in due course to increase demand by rebuilding profits and, hence, investment. There is an old adage that the Lord gave us two eyes, one for demand and one for supply. We shall have to keep both eyes open in 1981–82 and in the years after that.

What happens to pay, and therefore to jobs and industrial competitiveness, as the economy turns up? Alan Budd of the London Business School argued convincingly last week that the problems of industry had been caused not just by the increase in the exchange rate of sterling over the last year, but by the increase in pay. Certainly the present squeeze has meant that there is a great deal more realism in pay bargaining.

Mr. Austin Mitchell

Desperation.

Mr. Patten

Squeezes normally have that effect. That is a perfectly legitimate point for the hon. Gentleman to make. But I am worried about what will happen when the squeeze ends. Even if we look back to the 1930s, we see a period of high unemployment coinciding with a period of wage inflation. If those wage pressures build up again, when the rise in unemployment—to which we must look forward—ceases to be so steep, it will spell the end to any real prospects of cutting the jobless figures.

I am pleased that the Government have given a strong lead on pay. I am glad that they have taken such a strong line in the public sector. I hope that all Conservative Members who have pressed the Government in the past to take a firm line will not collapse in a heap as soon as a seductive case for special treatment comes along—as it will. Many people think that the Government's resolve in controlling public expenditure and abating inflation is represented by the medium-term financial strategy. It was once said that for people who like that sort of thing, that is the sort of thing they like. For my part, the Government's resolve would be indicated far more, and it would have far more effect on inflationary expectations, if we were to announce that no one in the public sector could expect the cash limits on pay next year or the year after that to be higher than they have been this year. If we are serious about controlling public spending and about getting a more sensible balance between capital and current spending, that is the least we can do.

I realise that this is not the most propitious moment for talking about pay bargaining in the private sector, or about some of the discussions that we have had in the past about trying to establish a dialogue with both sides of industry about ways of making our pay bargaining structure more responsible. However, I hope that we have not entirely jettisoned those ideas and that in the months ahead we shall breathe a little more life into them. If it is part of our purpose—as it should be—to restore more sense to economic management, it would be dangerous and foolish to leave pay bargaining out of that process.

My right hon. and learned Friend the Chancellor and his right hon. Friends have argued in a good-natured way in the last year or so that there has been no sensible alternative to what they have been doing. That may or may not have been so, but what is true is that, as the Government give more constructive support to industry to help it weather the recession and rebuild for the future, and as they take a continuing firm line on public sector pay, it will really be increasingly true that there is no sensible alternative to what they are proposing.

5.39 pm

Mr. Richard Wainwright (Colne Valley)

The Chancellor's speech fully confirmed that the Government appear to believe that the disarray of the Opposition enables them to treat the public as having no choice but to put up with their stubborn attempt to salvage the policies which they introduced when they came to power, and that the impotence of the Opposition enables them to continue in that stumbling manner, unchecked.

It is a profound mistake for the Government to think that, just because there is almost a two-party monopoly of seats in the House, there is also a two-party monopoly of the ballot box. Happily, that is not the case. Even with our absurdly primitive and almost uniquely surviving electoral system, the ballot box has not become the monopoly of two-party machines. The British public, God bless them, have demonstrated over and over again—not least in 1974—that, if they have become entirely fed up with the two main parties, abstention is not the only course available and that they can vote to the extent of 4 or 5 million for another political force. It is for that reason that at the beginning of this week the Liberal Party thought it timely to produce a compendium of its existing economic policies. It was not something that was newly devised. It incorporates policies that have been democratically arrived at by the party (war the past few years, and we decided to make them available to the country as a whole.

The right hon. Member for Bristol, South-East (Mr. Benn) devoted a large part of his speech to the Liberal document. I must begin with a brief but heartfelt apology. Apparently, the right hon. Gentleman was not on our circulation list. Perhaps he will understand if I explain that the decision to restrict the circulation to about 400 hon. Members was a Presbyterian one, based on a combination of economy in stationery, which is a prime Presbyterian doctrine, and the Presbyterian view that only some souls can be saved. I personally would have sent the document to every hon. Member, because, as a Methodist, I believe that salvation is for all without exception. I am sorry that the right hon. Gentleman did not receive his private copy.

There are two reasons why the right hon. Gentleman's attempt to bring Liberal policy into disrepute as impractical is invalid. I notice that he did not suggest that our programme was intrinsically undesirable, although he may have views on that. His case was that it had been tried several times and had failed. I refute that. No Government have been elected on a programme of this sort. When Governments have had resort to rapidly expanding demand and have also tried to introduce incomes policies, they have done so as second thoughts, and often desperate second thoughts, after already having exhausted at least half their terms of office. Emphatically, the Liberal programme has been put to the country not as a sectarian document but as an attempt to achieve some degree of agreement among a number of people from all parties in order to provide the country with a programme which will have a public mandate behind it and which can be put into force the moment a Government take office.

That is a big difference from Governments who, in the past, have turned to incomes policies and have turned on the tap of demand without proper preparation or a public mandate and, usually, in a ham-handed manner. It will not have escaped the attention of the House that the other factor which in our view now makes conditions quite different for a programme of this sort, as well as much more auspicious, is British possession of North Sea oil.

I must state at once that Liberals are grateful to the right hon. Member for Bristol, South-East for recognising when in office that God gave the oil to the people. The right hon. Gentleman did not go the whole way, but commendably, and with Liberal support at the time—although he may not have been aware of it—he at least arranged that the country's oil revenues should be at the disposal of this House and not at the disposal of monopolists from the capitalist sector. As a God-given natural resource, it is quite clear that the oil revenues should be at the disposal of Parliament and should not be in private hands.

I hope that the right hon. Gentleman will agree that the possession of this temporary boon in the North Sea entirely transforms the possibilities for an economic policy, which, admittedly in the early years runs the risk of possible balance of payments difficulties. We do not have here a total protection for our balance of payments while we try to bring the economy round, but at least we have a far greater protection than the British economy has ever had in the past. That is what enables us to believe that this time we should not be brought to a grinding halt in our demand policy by balance of payments problems and an organised world-wide capitalist run on sterling to prevent our carrying out the programme.

The Government do not fully appreciate the horror of the fact, which is beginning to dawn on the British people, that such incidental benefits as there are from their policies will be short-lived. They contain no structural elements which will remain with us, whereas the damage which they are doing will for the most part, unfortunately, be lasting. We are losing a great deal of our manufacturing capacity, not merely in old-fashioned industries which perhaps could be allowed to go with a sentimental farewell. We are losing a considerable amount of our industrial capacity, the skilled teams of workers that have been built up and all the rest of the apparatus in a way that may be permanent. The Government have chosen to inflict this attempt at a particular version of monetarism at a time when industrial technology is making enormous advances world wide. As a result of the paralysis which the Government have induced in British industry, this country is being left behind. Those damaging results will remain when the transient reduction in inflation has long since passed. As a result, we shall suffer for years without any concurrent lasting benefit.

All the forecasts indicate that, although inflation may dip into single figures—I profoundly hope that it does—during the present calendar year, it is likely to go up again during 1982 and the years there after. That is because the Government's policy has in no way changed the structure of pay bargaining in this country. The Government have done nothing to loosen the grip of monopolies which keep up prices. In fact, they have set a bad example through their attitude to the nationalised monopolies and have made monopolists feel that it is some kind of public virtue to put up prices to the highest level which the captive customer will tolerate.

I do not know how the Chancellor could stand at the Dispatch Box today and pontificate about the gas industry being at the mercy of the market, when so many of our constituents are at the mercy of the gas industry, and would give the earth to have smokeless zones cancelled and have a good old coal fire put into their council house so that they could cock a snook at the gas man. In fact, they are the gas man's prisoners. Yet the Chancellor thinks that it is a virtue that gas should be so heavily over-priced. That is egging on the public monopolist to put up prices. Unfortunately, there is now no statutory control over prices. The disaster of the disarray of the Government's programme is highlighted in a major sphere of the Liberal programme, namely, that of development, modernisation and the re-equipment of industry.

Which Conservative Back Bencher or Front Bench spokesman is prepared to describe the Department of Industry's strategy? In my part of the country, namely, Yorkshire and the North-West, business men are at a loss to know on what criterion the Secretary of State for Industry gives more money to certain industries and companies than has ever been distributed before. He has no consistent criterion.

When the right hon. Member for Chesterfield (Mr. Varley) was in office, I used to complain that the criteria on which decisions were made were not always clear. But at least he did not open the entrails of a chicken every morning to see whether the intestines were on the right or the left before deciding how much to give to British Leyland, Rolls-Royce, Chrysler, British Airways and the other random recipients of this Secretary of State's erratic generosity.

Our view is that such matters are better dealt with at one remove from the political sphere. That is why we have always been keen supporters—although tried a little when the right hon. Member for Bristol, South-East adumbrated his version of the NEB—of an NEB that would stand between the Secretary of State for Industry and our industries. In the Liberal view, the Government's treatment of the NEB is the negation of a statesmanlike approach.

Sir Leslie Murphy now tells us that, of the commendably small and highly expert team that he assembled to carry out the NEB's work, only three or four remain. The NEB is almost a headless creature. It shrinks in size with every week that passes. I cannot emphasise too strongly that we believe that that is the very opposite of how things should be done. We should like not just one NEB but enterprise agencies in the great regions of England and a continuation of the existing agencies in Scotland and Wales. They could seek out those branches of technology that industry is interested in and could discover how far Government help was needed. They could also ascertain how far Government assistance might speed up British developments in technology.

There would be great demand in England for high technology products if only the State would unleash the coffers a little and allow, for example, telecommunications, British Rail, hospitals and so on to modernise. Such modernisation is urgently needed. That is why, with the backing of North Sea oil revenues, we urge that there should be a substantial programme of careful capital investment in the infrastructure of our country. However, that will depend largely on interest rates being reasonable.

The most objectionable feature of the Government's stumbling monetary policy is that it requires that interest rates should be far higher than industry can stand, and higher than the taxpayer should be asked to pay as regards the national debt. If the Government acknowledged the failure of their monetary policy, there might be a substantial drop in the minimum lending rate next week and there would be a prospect of further reductions during the year. I hope that the Government will reverse the trend—I do not ask for a tremendous drop in interest rates at once—and that industry will be allowed to feel that hope is on the way. It could then look forward to a year of reduced interest rates.

Such a change in interest rates would also have an effect on the exchange rate. Nobody can predict the extent of that effect. Indeed, we agree with some of the remarks made by the right hon. Member for Stepney and Poplar (Mr. Shore) on that point. The way in which to lower the exchange rate of sterling is open to discussion. On its own, any single approach to the lowering of the exchange rate is open to doubt. It must be within the Government's power to find various measures and devices, for example, to penalise foreign money coming in to the country. One could consider a different way of funding Government securities that would be much less attractive to foreign money. Such methods could be assembled for a blitz attack on the exchange rate. The Liberal view is the opposite to that expressed by the right hon. Member for Stepney and Poplar in one respect. In our view, if we can lower the exchange rate of sterling to a marked extent, it might prove an apt moment for entering the European monetary system.

Another main theme behind the Liberal proposals is that of partnership in industry. Without running the risk of a U-turn, the Government could take considerable steps. I do not know whether the Tory Party means it, but for many years it has said that it is in favour of partnership in industry and that it would like to see a community of interest in industry that is recognised both in legislation and the tax system. The trouble is that Conservative Ministers do so little about it.

The moment is ripe for the Government to use some of the nationalised industries as pioneers. Those industries would start from a basis of very little profit. However, the Government could say that they wanted future profits to be equitably shared between those who work in the industry or service and those who provide the capital. If the Government were to put forward an imaginative scheme, it could transform the industrial climate. At present, there is a climate of confrontation that is subdued only by fear of unemployment and redundancy.

There is an urgent need not for sectarian planning or for the devices of one political sect or another but for a common businesslike programme that would receive the assent of those of various democratic political faiths. The programme could be put to the people for their endorsement. For the first time since the war a Government could put into practice a policy that commanded the assent of the majority of this nation.

5.58 pm

Mr. Ivan Lawrence (Burton)

The great thing about recesses is not that we go on holiday and relax so much as that we have an excellent opportunity to go back to our grass roots and, by means of intensive tours, really to get to know how our constituents feel about our actions in this House.

During the last recess I visited industries in my constituency. It is vital that all hon. Members, particularly those on the side of Government, should constantly test the Government's policy against the only important template, namely, industries' reactions. The right hon. Member for Stepney and Poplar (Mr. Shore) made a forceful attack on the Government. If anything nearing such criticism were true one would find massive disillusionment in one's constituency and criticisms that the policy was a great disaster, and there would be a widespread feeling of hopelessness. I must report that that is not true of my constituency.

The picture painted by the Labour Party in the country and Labour Members in the House is far too gloomy and inaccurate for us in Burton. I am fortunate in representing a constituency that has a diversity of interests and industries. I am equally fortunate, because of that diversity, in having a constituency where the level of unemployment is 2,500—about 6½ per cent., or one in 15 of the population, compared with a level of one in 10 in the rest of the West Midlands and one in 11 in the rest of the country. Burton's industry centres around beer. For whatever reason—and part of it is that last summer was very bad—the consumption of beer has fallen substantially in the past six months—by about 10 per cent. That means that the industries in Burton that service the brewing industry have felt the storm of the recession—the harsh sting of unemployment. The engineering industry there has not been happy in so far as its activities depend on servicing the brewing industry.

Other industries in Burton that are not connected wholly with the brewing industry have gone out into the world to win business. One of them—D. G. Robert Morton—has been to America and secured a contract worth £2.5 million. Numerous small engineering companies in Burton have broken out into new markets. They have not suffered the effects of the recession to the degree that other companies have.

The rubber industry is also located in my constituency. In so far as Pirelli is dependent on selling tyres to the motor industry, it has felt the chill wind. Other rubber concerns providing industrial equipment, however, have gone out into the world and have managed to expand part of their operation.

Burton also has the food industry, which is one of the last to suffer in a recession. It also has the agricultural and construction machinery industries. Since agricultural machinery is affected by the world depression, our firms have been hit quite hard. The construction industry, too, is in a serious depression.

Burton has its service industries. Companies there service the woollen manufacturing industry. They produce Nescafé and Unigate butter. A glass factory has unfortunately closed, but we are hoping to resuscitate it. Burton also has its farming. I make the point about the diversity of industries in my constituency in order to set the scene, because I appreciate that my constituency may be different from others in which industry is concentrated in a narrow band. Nevertheless, it is right to tell the House the reaction of a constituency such as mine.

The message that Burton would give the House is that for a number of years we had a Labour Government and we experienced Labour policies. Even before the world recession took a grip the outlook for some of our companies in Burton was disastrous. On the basis of Labour's history of achievement people therefore have no faith when the Labour Party asks them to espouse it, on the basis that it has never been a success. For Burton it never has been.

Part of the reason for the cynicism about the Labour Party is that it tried—I do not blame it for trying, but the result did not fill the industries in my constituency with glee—a series of national attempts to lead, guide or be led by the trade union movement through solemn and binding agreements, social contracts, declarations of intent and concordats and yet utterly failed to produce an adequate level of productivity from the work force. There is cynicism and fear that if the Labour Party came to power, those policies would be revived and their failures would be visited upon us again.

The second message from the leaders of big companies, the entrepreneurs in the smaller concerns and the work people is that they have no confidence in the Opposition's alternative policy because they do not tell us how it can be paid for and because it is obviously inflationary. The message has got through to employed and employer alike that inflation is at the root of the damage done in the past and that it must be dealt with.

The people are not stupid. Excellent speeches can be made from the Opposition Dispatch Box, but if they do not explain how they can spend more in the public sector, stimulate demand and drive up the amount that the Government have to borrow to pay for their activities without being inflationary, they are rumbled, and if they thereby increase interest rates, which are an infliction borne by private industry resulting from Government action, business men do not want to understand such a policy.

If Labour's policy will drive up costs and prices, ordinary people can understand that the result is a lack of industrial and commercial competitiveness, the closure of factories, and massive unemployment. Neither employer nor employee, therefore, has any trust or faith when, irrespective of how excellent the speeches may be, they are not told how inflationary the policy will be or how the cost will be met.

The other fear about the Labour Party's disclosed policy—we had this from the right hon. Member for Bristol, South-East (Mr. Benn), who today delivered one of his characteristically stimulating speeches—is that if the Labour Party is to go on encouraging trade union leaders who will strike at the drop of a hat, there will be a repetition of past events. There was a massive strike in the engineering industry in 1979. It resulted in 113,000 fewer jobs. The steel industry suffered a massive strike in 1980. The result was 110,000 fewer jobs. People are frightened that that sort of approach by trade union leaders will be inflicted upon them again if ever a party that pays those leaders more respect or attention than is properly due to them is returned to power.

The third message from my constituency is that, because the conquest of inflation is so central to the Government's drive to get the country back on its feet, and every fibre of their policy is directed to controlling inflation, it supports the policy and the leadership that is given by my right hon. Friend the Prime Minister.

It is simple to understand why the people of my constituency give the Conservative Government their support. As an exporting nation—a greater exporting nation in terms of GNP than many others in the Western world, including the United States and Japan of our main competitors—it is ridiculous to conceive of any policy working other than that which cuts our costs and makes us competitive. Looking around the world in recession, we see that most nations, except West Germany and Japan, "enjoyed" more or less the same level of unemployment as ourselves. None of them "enjoyed"—I use the word sarcastically—the same level of inflation.

When people ask me "Why is Mrs. Thatcher bringing in the policy with so much harshness? Can she not go a little easier and relax the reins?", I reply that the future of this country must depend upon our meeting the upturn out of the world recession, when it comes, with a level of prices no higher and, it is to be hoped, lower than that of competing nations. If we are not ready when the upturn out of the world recession comes in the middle of this year and later, we can kiss goodbye to the extension of our businesses and the taking of people off the unemployment register that is the longer-term aim of our policies. That is why we must move as quickly as humanly possible to a lower level of inflation.

Rev. Ian Paisley (Antrim, North)

I am following the hon. Gentleman's argument carefully. The problem in Northern Ireland is how to take advantage of the upsurge when it comes if all the factories are closed,.

Mr. Lawrence

Of course, if all the factories are closed, one cannot do so. I am trying to confine my remarks to the activities that I know most about, which are the activities in my constituency. The position in my constituency, as I have already stated, is apparently very different from the sort of situation that the hon. Member for Antrim, North (Rev. Ian Paisley) describes.

If Government policy means, unfortunately, some high degree of suffering, it is no more than the suffering that will be visited upon us if this policy is not pursued. If we do not meet the upturn out of the world recession and if our industries do not expand, the situation can only get far worse. If there are 2,500 people on the dole in Burton-on-Trent and the surrounding areas I dread to think what is likely to be the unemployment situation if we do not get our rate of inflation down to single figures as quickly as possible. That suffering, after all, is substantially mitigated in our society.

We do not now see the hardship that used to come with unemployment. We see the emotional hardship of people on the dole. Conservative Members are certainly as capable as and sometimes perhaps more capable than, hon. Members of other parties of feeling that hardship. The truth is that for all sorts of reasons that are well known to the House there has not so far been a massive amount of personal financial suffering, even among those who are unemployed. It is ridiculous to hear repeated, long after it has been discredited as an argument, the assertion that the Government are following mad, Friedmanesque policies, the outpourings of a lunatic professor from Chicago who knows nothing of real life.

The reality is that no pure monetarist would support the expenditure of £3,000 million in bolstering the inefficient failing industries—British Leyland, British Steel, British Rail, British Airways, and goodness knows how many other companies that are in need and are taking money from the Government to keep them in operation. The consequences of their not being in operation are too hideous for this Government to consider. It is absurd to say that these are pure monetarist policies, regardless of the misery that is caused. That criticism is even less true when one considers that there are 750,000 people who would be unemployed or not receiving training for the upturn when the recession bottoms out were it not for Government subsidies. Criticism that the Welfare State is being wound down bears no relationship to the increased expenditure on the Welfare State and particularly to the Government's health and social security measures. The hardship—we understand the hardship—is often exaggerated. That hardship, in any event, I hope, will end when the policies that we are putting forward succeed.

Another reason why the industries and business in my constituency say "Yes, we support Mrs. Thatcher. We support the Conservative Government's programme" is that there are clear signs, that it is working. If there were not such signs they would perhaps be less enthusiastic. It cannot possibly be claimed that there are no signs of success. The reduction of the rate of inflation from over 22 per cent. to just over 15 per cent. in 12 months, to about 9 per cent. in the last six months, and to about 7 per cent. over the last three months, is a certain sign that the very aim of our policy is beginning to show a result. As inflation comes down, so will the price of the goods that we produce, and so will productivity and competitiveness improve.

With inflation coming down, there are signs that Burton companies are going out again into export markets. In visiting factories and talking to business men I have found that, because of the recession, they have been forced to look at markets that they had never dreamt of investigating previously. That is where the future of British industry lies—in the expansion of markets; getting out of office chairs, going out and searching. The markets certainly exist. I spent part of the recess in Florida, the gateway to 350 million people in the southern countries of the American continent. Florida is attracting massive investment from all over the place. There is there a whole world of market availability for British industries. It is because industries in my constituency have been motivated to go out and search for such new markets that there is greater hope for the expansion of those industries and the salvation of other industries in the future.

With the Government's policy has come a reduction in interest rates. It is true that the exchange rate has not come down and that the pound has not grown weaker, contrary to what we were told by industry would happen when interest rates were reduced. Interest rates will continue to come down—a definite encouragement to industry and a further indication that the policy is working.

Unit costs are down. It is true that they are down because of unemployment, but, time and again, small business men have said to me "If you had said a year or two ago that by reducing our work force by half we could increase our productivity, we would never have believed you, but that is what is happening." I hope that the reduction of the work force is temporary. As unit costs come down and companies become competitive and find new markets they will expand and be able to take people back on to the work force.

Business men are optimistic that that is happening. That is why they are still continuing in business, perhaps even expanding the process or starting new businesses. In Burton-on-Trent there is a substantial area of derelict land where the local authority has set up factory units. They were snapped up even before they were advertised, which shows that there is some tendency for small industries to want to spring up even in this recession.

I have heard time and again that industrial relations in factories have improved out of all measure. It is partly because of fear of unemployment, but the opportunity has been taken by work people, whether unionised or not, to consider the position. They realise, as perhaps they had not realised before, that excessive wage claims, overmanning and attitudes to work that diminish the factory's output, have failed and will continue to fail. A new attitude has entered into the industries in my constituency, not only on the part of the work force but on the part of the managers.

Managers tell me that they themselves have been forced to reconsider their procedures and the way in which they go about things. They have been forced to consider maintaining and expanding markets in a more sensible way. The change in attitude of employers and employees has brought an undoubted gain, which will be the basis of future expansion when the recession comes to an end.

Those are all encouraging signs. Industry in my part of the world is beginning to show the developments and improvements hoped for.

Of course there is criticism of the Government. There is criticism of the high energy costs, as against the subsidised energy that our competitors in the remainder of the world receive. There are realistic criticisms of some of the Government proposals that run counter to the promise to make things bureaucratically easier for small businesses. There is fear that sickness benefit being paid for the first six weeks of absence will be bureaucratically strangling. There is also fear that rates will increase substantially and put pressure on costs.

However, the greatest fear is that the Government will not do enough to control the growth of the Civil Service and stop the public sector pay bill ever increasing. The Government must respond to such fears if those companies are to maintain their support, encouragement and enthusiasm for what the Government are doing.

Finally, there is the belief that there will inevitably be a bottoming-out of the recession, and industry will be better placed to reap the rewards when they come. Already some of Burton's industry is installing new capital equipment to improve productivity when the recession ends.

I move rapidly to a conclusion. I believe that industry in my constituency would send three messages to the Government and my right hon. Friend the Prime Minister. The first is: keep it up. It is the only policy, and it is beginning to work. Do not turn back. Those businesses that are still in operation are overwhelmingly in favour of what the Government are doing. [Interruption.] One cannot expect those that are not in operation to be overwhelmingly in favour. The point is that under this policy only a small proportion of businesses are not in active operation. The policy is right. For goodness sake stick to it, even if it hurts. That is industry's message.

I convey a message for free to the Labour Party—I do not have to but I am happy to do so. Since it has no sensible alternative policy that has been properly thought out and costed, at least let it not go around whining and trying to undermine the confidence that is so necessary if we are to expand our productivity as a nation. If there is any whining from my hon. Friends, that message applies to them as well. [Interruption.]

Mr. Speaker

Order. It is unfair to interrupt the hon. Gentleman, who has been speaking for 27 minutes.

Mr. Lawrence

I understand your message, Mr. Speaker. I have conveyed to the House Burton's message to the Government and to the Labour Party. I have only one other message to give to hon. Members: for goodness sake, not only for economic reasons but in the interests of good taste, carry on drinking Burton beer.

Mr. Speaker

Order. I may have misled hon. Members earlier. I had thought that everyone would be called tonight, but 14 hon. Members wish to speak and we have only two and a half hours remaining. If hon. Members are good at mental arithmetic, they will see that, unless speeches are very much shorter, all hon. Members will not, after all, get called—and I almost invited them to speak.

6.25 pm

Mr. Eric S. Heffer (Liverpool, Walton)

While we are dealing with messages, may I remind Tory Members of two messages that they received from two previous Prime Ministers? The right hon. Member for Sidcup (Mr. Heath), speaking on a BBC radio programme on 4 November, said: People realise now what the merits of the last Conservative Government were compared with the catastrophic things which they see happening to themselves today. My right hon. Friend the Member for Bristol, South-East (Mr. Benn) referred to Harold Macmillan. He was interviewed on BBC television on 14 October, when he said: I saw the little triumph of monetary policy—a slight fall in the money supply last month. But how much fall has there been in the employment supply? How much fall in the production of wealth? I give one other interesting little message from Mr. Brian Kingham, chairman of the Association of Independent Business, who wrote to a Minister stating: Our problems are more severe than ever before and the prospects for the future are grim. The extreme hardship forced upon smaller businesses has given rise to feelings of bitterness and betrayal that the minor measures introduced to assist our sector can do little to subdue. Our emergency trade survey revealed that: —bad debts are increasing with business insolvencies —slow payment is now endemic —margins have been reduced too far to ensure the survival of businesses if trading conditions do not improve soon —part-time working, redundancies and closures are running at the highest level in memory and are certain to increase —public sector price rises are now producing the major inflationary component in manufacturing costs. The members of that association are not members of the Labour Party. They are not members of the Left wing of the Labour Party. They are not members of the Right wing of the Labour Party. They are not even Liberals, as far as I know, unless the two ex-Prime Ministers have since been converted to the Liberal Party. However, that is the message that they have given to this Government because of this Government's policy.

I want to make a point that I consider to be important. I do not blame all the problems of this country and its economic difficulties on the right hon. Lady and her Ministers. To do so would be to fly in the face of history and would be to misunderstand what is really happening in the world. We live in a capitalist society; we are part of a wider Western capitalist society and it is impossible for that society to solve the basic problems of unemployment.

At the end of the second world war the Labour Party had some memorable theoreticians. In fact, a book has been written about one of them, Crosland. He was a fine theoretician of the Labour Party, but I did not always agree with him. Colleagues like Crosland were saying to people like me in our party "What has happened is that the nature of capitalism has changed because of the type of Keynesian policies that are now being pursued". They said that we were not to worry any more. There would be problems, and we would have to use the regulator and manipulate taxation. But the truth, they said, was that the booms and slumps of the 1930s were gone for ever. Now they know, we know and the people know that those booms and slumps have not gone for ever. One cannot change the basic character and nature of capitalist society. As long as capitalist society exists we shall have booms and slumps, though they do not have to be quite as bad as the present slump in Britain. The Government are deliberately pursuing policies that are exacerbating the situation and making the slump that already exists much worse.

We have heard some very interesting statements from Conservative Members today. The hon. Member for Burton (Mr. Lawrence) said that the hardship was being exaggerated. I suppose that if one is a lawyer, if there is no danger of being thrown out of work, and if one has never really suffered unemployment, one can easily say that the hardship is being exaggerated. I should like the hon. Gentleman to come to my constituency and see one area in which 40 per cent. of the people are unemployed. I should like him to walk round the streets of Walton and say to the people "Your hardship is being exaggerated". I know what they would do to him. I can assure him a suit of armour would not be sufficient protection.

Other remarkable statements were made today from the Government Benches. The Chancellor of the Exchequer is a most remarkable man, anyway. He was not quite as boring today as he has been in the past. One of the things that he said, with which I totally agree, was that the Government would have to stand in front of the British people and receive their judgment. There is no doubt about that. The judgment of the people will be clear. When the next general election comes, this Government will be swept aside and we shall have a Labour Government. However, let me say to my hon. Friends that when we have a Labour Government, that Government must not be based on the Butskellian concepts of the past. I do not say that all our views were Butskellian, but they did exist.

I read the Liberal Party statement in The Times.

Mr. John Bruce-Gardyne (Knutsford)

Did the hon. Gentleman receive a copy?

Mr. Heffer

I did not. Parts of that statement, all the best parts, are included in Labour's policies anyway. Those are the parts that I support. But most of it was policy that has been tried in the past and that cannot succeed in the future.

The British people are not looking for a middle, centrist answer to the problem. There is not one. It has been tried in the past and it has not worked. Now we are presented with the clear laissez-faire concepts of the Conservative Party, and they are not providing the solution, either. In fact, they are providing the opposite.

So creeping Socialism, as the hon. Gentleman said—though I and anyone else with intelligence will recognise it as Government intervention—has been necessary in the past to bolster and sustain the present economic system. The removal of that Government assistance is undermining even the present economic system. It is making it more difficult for the system to operate. The Government are removing part of that support. But their policy does not work. It leads to mass unemployment.

There must be a radical solution to our problems. The radical solutions are available. The alternative is that put forward by the Labour Party in its policy document "Peace, Jobs, and Freedom" and the Trade Union Congress-Labour Party document that was also approved at the last Labour Party conference. We need to have greater Government intervention in economic affairs, but that intervention must be carried out in a more positive way than in the past. The National Enterprise Board should have powers to extend industry by making it publicly owned.

We said that we would use the National Enterprise Board to create jobs in areas such as Merseyside and the North-East coast. It was not used. The next Labour Government will learn from that experience, and the board will be used. We must also extend public ownership in other directions. Let us consider the construction industry. Believe it or not, the Labour Party receives deputations from the National Federation of Building Trades Employers, providing us with excellent documents outlining what is happening to the construction industry. Its opinion is totally in line with my trade union's views on the matter.

In the past such employers fought tooth and nail against the Labour Party. They supported the Conservative Party and helped to put it into office. Now they believe that if the public expenditure cuts continue, their industry, which is falling to pieces anyway, will collapse totally.

Hon. Members should take note of the number of skilled craftsmen who are unemployed in the construction industry. Crafts unemployment more than doubled in the last year, from 34,000 to 74,300. The latest unpublished figures for December will show that the figure has risen to 88,000—a rise of 163 per cent. in 13 months. This is at a time when constituents come to me, as they do to all hon. Members, saying that they need somewhere to live.

The Government's policy is causing a moratorium on housing. We were easing our way out of that, but now we shall experience overcrowded houses, domestic problems, mental breakdowns and the destruction of families. That happened in the past and it will happen again. The Government are responsible for that. The British people will not tolerate it. They want Government action and an extension of public ownership, with the working people involved in self-management.

We need more training, public works schemes and more investment to deal with the short-term problem. However, that will not solve the basic problem. The technological revolution will be responsible for much unemployment. Therefore, we must adopt a different approach and new attitudes, although we need old attitudes in the sense that the time has come to plan our resources in a Socialist way. We must have production for the use of the people rather than production for profit, which leads to the type of crisis that we are experiencing today.

6.44 pm

Rev. Ian Paisley (Antrim, North)

The inflexibility of the Government's policy has not only severely damaged the Northern Ireland economy; it has damaged some of it beyond remedy. The Northern Ireland economy is speeding towards total disaster. The Province is already an economic wasteland, that is becoming more and more desolate. With over 93,800 people unemployed—the worst figure in Ulster's history—and prospects of at least 20,000 more in the near future, no words of mine are strong enough to denounce the Government's policy, which is pushing Ulster over the edge.

In December 1979, 63,400 people were unemployed in Ulster. In December last year, 93,800 people were unemployed, or 16.3 per cent. in the Province as a whole and in some areas 40 per cent. I am appalled by the Government's attitude to the figures. The responsible Minister of State, Northern Ireland Office, told us in July that the figures were grim but that there was a silver lining. Today the Chancellor of the Exchequer, who has just visited Belfast, said that there were signs of success. We see no silver lining or any signs of success.

Agriculture is Ulster's main industry. It provides 60,000 people with jobs. Farm incomes fell by 60 per cent. between 1978 and 1979. The figures will show the same fall between 1979 and 1980. A fall of 50 per cent. in farm incomes, in real terms, means that the farming community's income this year is only 20 per cent. of the 1978 level. In order to keep in business, farmers borrowed the amazing sum of £37 million in the 12 months up to August 1980. That cannot be continued, so many farmers will go out of business. The Government have made no real attempt to grapple with the problem.

Money for the less favoured areas in Northern Ireland would be available from Brussels, but the Government said in a recent debate that they refused to make the necessary submission to the EEC until the whole less favoured areas programme for Wales, Scotland and England is complete. That means that money that could be available in Northern Ireland will not come.

The Government refused to contribute to the proposed EEC £40 million agriculture structure grant, which was to be backed by the Government, pound for pound. That is also held up in the Council of Ministers. The money is available but the Government have not seized the opportunity.

The same can be said of the EEC integration proposals. Naples and Belfast were chosen to take part in the scheme. Naples has already made its submission, but we were told in Strasbourg this week that Northern Ireland's submission was only in its first draft. That scheme could bring £100 million to Belfast. I am totally opposed to the United Kingdom's membership of the EEC, but we are talking about United Kingdom money. We should get back our own money as quickly as possible.

I welcome the fact that today history was made. For the first time the British Minister of Agriculture, Fisheries and Food met the Ulster Farmers Union with the Secretary of State for Northern Ireland. I trust that the Minister has heard for himself what is happening in Northern Ireland' agriculture. A fraction of the money spent on creating new jobs in Northern Ireland could have saved thousands of jobs in agriculture.

The textile and clothing industries are being hammered in the Province. Many factories are being closed, and most others are on short time. In my constituency, Courtaulds, which once employed 3,000 people, now employs 250. ICI, which once employed 1,800 people, is to close in a few weeks. I fail to understand how any hon. Member can say that when the upsurge comes we shall all be happy and things will go well. There will be no factories. There will be no management. There will be no skilled employees. There will not be the markets. There will be no products to sell in the upturned market.

The hon. Member for Liverpool, Walton (Mr. Heffer) referred to the construction industry in Britain. In Northern Ireland more than 20,000 jobs have been lost during the past few months. That has resulted from drastic cuts in public building. Public building in Northern Ireland is vital, because all the houses being built to serve the public are under the Housing Executive. It is a public body which must supply the contracts for public building.

The Government have stopped stage 2 of the Kilroot power station project. The five-year contract has been cancelled. We do not know when we shall have word of what will happen to that. It amazes me that the new Minister for Northern Ireland said that he would not meet the workers concerned and the electricity service. The workers who were under contract had as much right as the contractors to receive compensation. They have taken on obligations of mortgages and so on. Why should there not be some compensation for them?

As the House is well aware, Northern Ireland has the lowest average wage, the highest cost of living, and energy costs that are vastly above those in Britain. The fact that we are robbed of a share in North Sea Gas and the fact that our electricity prices are rising combine to tell against the businesses of Northern Ireland and against the ordinary people who are being pushed down to, or below, the poverty line.

I could not live with my conscience if my hon. Friend the Member for Belfast, East (Mr. Robinson) and I tonight did not vote for the Opposition motion. If my other colleague, the hon. Member for Belfast, North (Mr. McQuade), had been well enough to attend, he would have voted for the motion also. It is the only way that Northern Ireland can express to the Government the fact that the present policies are disastrous and ruinous to the economy of Ulster.

6.52 pm

Mr. K. J. Woolmer (Batley and Morley)

The Government have been in office for almost two full years. Contrary to the remarks of the hon. Member for Burton (Mr. Lawrence), who is not in his seat, I believe that the position in many parts of the country is one of unmitigated disaster. Unemployment in Yorkshire has increased by 100,000 since May 1979. The position in the textile towns of West Yorkshire is appalling. Batley, in my constituency, has a male unemployment level of 20 per cent. There is scarcely a home that is not touched by unemployment, by short-time working, or by the threat of it. To attempt to draw a veil over that, to try to wish away that position with the hopeful signs that some firms and some people are doing well—thank God that some are doing well—and not to recognise the enormity of the position would be a failure on the part of the House at this crucial time in our history.

The Government, like all new Administrations, tried to pass off the results of their early failures as the consequence of the policies of the previous Administration. Many Conservative Members may have fallen for the party propaganda line in the early months, but even they must have felt just a twinge of doubt when the battle against inflation started off by doubling VAT. That was the first early sign—and it came very early—that things would not go well.

As the months dragged on, as factories went on to short-time working—and then closed—as unemployment mounted, as profits slumped and as investment fell, it became crystal clear to everyone that something had gone seriously wrong. Surely the Government never intended, even in their worst dreams and imaginings, that things should go this badly wrong. Criticisms have come not only from the Government's political opponents. As has been said by many Labour Members, many of the loudest, and often the most violent, criticisms have come from the Conservative's natural allies. When Sir Terence Beckett of the CBI spoke of a bare-knuckle fight with the Conservative Government, that was surely a sign that things were going badly wrong.

Yet today the Prime Minister and her colleagues had the effrontery to put before the House an amendment that calls for the Government to maintain what they call its present policies for economic recovery". They claim that those policies alone offer the prospect of a lasting reduction in unemployment. That is a fantasy world that is unrelated to the real world of people and industry.

For the first time in my political life, which now extends to many years, I feel genuinely and deeply angry about the way in which this country is being led into a holocaust. I am deeply concerned for three basic reasons. First, whatever the kind, nice words spoken from the Government Benches, I wonder whether the Government are aware of the appalling damage being inflicted on our people in their everyday family lives, and also upon much of our industry. The strain and the worry caused by unemployment, threatened unemployment, or no job prospects, touch almost every family in many regions of Britain. We are seeing the re-creation of two nations, both geographically and economically. Industry has reached the stage where even respected, efficient firms are going to the wall—a senseless waste and loss of machinery and human talent and experience. Factories can be closed in a day, but it takes years to reopen and rebuild them and to repair the damage being inflicted on them by the Government.

Experienced, hard-working business men and management cannot understand what the Government are doing. I think that I must speak to very different industrialists from those referred to by some Conservative Members. Of course, industrialists agree that there is a need to fight inflation and to bring some sense into wage bargaining and price setting. But they simply cannot understand how the massacre of efficient businesses can be called a policy for economic recovery. Yet that is the policy in the amendment before the House tonight.

Secondly, I see no credible link between present economic policies and the prospect of a lasting reduction in unemployment. The only hope that the Government have of bringing down inflation appears to be to maintain a high level of unemployment and a greatly over-valued pound on the foreign exchanges. The Government have no credible policy whatsoever, nor do they seriously offer the prospects of reducing unemployment significantly, however far ahead we look. That is a serious and deeply worrying position.

At one time, reactionary political argument blamed unemployment on scroungers. It is not long since Conservative Members and the Tory press preached that line. They said that if only scroungers would stop living off social security, we would not have unemployment. They said that only a couple of years ago, before the last general election. Now, the insidious line is that large-scale unemployment is inherent in modern industrial economies. We must reject such nonsense. Are we seriously saying that there are not a vast number of things that need doing in our society, that cry out for workers? There is still a huge shortage of housing in many of our cities. There are thousands of outdated schools and hospitals. There is inadequate provision for our increasing elderly population. There are inadequate further education training facilities for people at all stages of their lives, not only the 16 to 19-year-olds. All that is quite apart from the tremendous demand for better and improved living standards for our people. In addition, there is the vast poverty of the Third world, which is crying out for assistance and for goods and services which countries such as Britain can and should produce. It is surely unbelievable and unacceptable that two or three million must remain unemployed in the face of the world that I see around me.

It is a political problem that lies at the heart of the matter. It is no good standing back and letting blind market forces work out their logic and blaming "the people" for the consequences. It is for Governments to come to grips with the modern economic and social system and so govern as to overcome the difficulties and consequences of the system.

I have similar doubts about the credibility of the lasting nature of any reduction in inflation that the present policies of high unemployment may bring. The Government appear to justify the horrendous economic and social cost of their policies on the ground that inflation will come down in the end and stay down. If the Government's aim is then to reduce unemployment—presumably, they will say that that is their ultimate aim—what is to stop inflationary wage settlements starting again? If an expansion of the economy is ruled out now because it would be inflationary, why will expansion in two or three years' time not be inflationary? The Government must produce a considered and serious answer.

I shall be extremely surprised if the Government do not eventually have to seek some understanding and agreement on prices and incomes if we are to avoid having suffered unnecessarily and in vain. I realise that talk of prices and incomes and ways of combining expansion, full employment and low inflation will be painful to Conservative Members and to some of my right hon. and hon. Friends as well as to some in the trade union movement. The Government are correct in wishing to reduce inflation, but I disagree totally with their methods and with the anti-social policies that they are pursuing.

The next Labour Government will have to seek, too, to reduce inflation. This Conservative Administration has brought home the lesson that so-called free collective bargaining is often a myth, and that where it exists it benefits the strong and harms the weak while creating unemployment and social problems that are unacceptable.

My third and final reason for being caused concern by the Government's policies is that they show no serious or real understanding of the requirements of an industrial and economic future that will deal with our immediate problems and lay the foundation for a general improvement in the growth performance of the economy.

It is extraordinary and bizarre that North Sea oil revenues are pouring into the Treasury and disappearing down a plug hole without contributing to the creation of new wealth in the economy. We are frittering away the benefits of North Sea oil in higher consumption, and this is largely through imports because of an over-valued pound. North Sea oil is proving a disaster for our productive base instead of a source of revitalisation. The complete and abject failure of the Government to grasp the opportunity for improving investment in our infrastructure, in our community base and in our manufacturing and service industries is symptomatic of the basic failure of the Government's industrial and economic policies.

The Prime Minister and her Government have failed the country in almost every aspect of their economic policy. The right hon. Lady has blamed everybody but herself. She is presiding over a serious collapse of much of our manufacturing industry and is creating personal and social hardship. She must change her policies or go, and I am confident that that will be the message that the electorate will give to her and her Government in the local council elections on 7 May.

7.6 pm

Mr. Raymond Whitney (Wycombe)

The hon. Member for Batley and Morley (Mr. Woolmer) chose to shy away from the realities that he understands very well. I suggest that the most interesting part of his speech was his reference to the fundamental differences between himself and a number of his right hon. and hon. Friends. I shall return to those differences.

We all have reason to be grateful to the Opposition for giving up yet another Supply day to discuss the vital subjects of the economy and the state of employment. None of us needs any convincing of the importance of the two subjects. It gives my right hon. and hon. Friends the opportunity to explain yet again—the explanation can never be stated too often—the fundamental, deep-seated and long-established causes of our present problems. It also gives an opportunity for us all, both in the House and outside, to continue the process that is as painful as extracting an eye tooth—namely, extracting from the Opposition their proposals for alternative policies. The effort that we are all making is beginning to yield results. We have the glimmerings of not one alternative policy but perhaps three or four.

The Leader of the Opposition, the right hon. Member for Ebbw Vale (Mr. Foot), has begun to offer some alternatives. These usually appear in the long interviews with which we are disturbed when taking our Sunday lunch. They are not especially detailed. If the right hon. Gentleman is famous for anything, it is for his distaste for detail. We are told about the Socialist transformation of society and occasionally, if he gets down to detail, he talks about a new partnership with the trade unions. We have experience of the two memorable years that the right hon. Gentleman spent in departmental office at the Department of Employment. We had a partnership with the trade unions that was rather akin to the man who goes for a ride on a tiger. That is the opportunity that the right hon. Gentleman presents in his analysis. That is the solution that he is offering.

Further down the scale, if that is not too discourteous a way of putting it, we have the alternative policy of the right hon. Member for Stepney and Poplar (Mr. Shore). We were told merely that MLR and the exchange rate would be lower. We were offered no mechanisms for achieving such transformations. We were then offered more expenditure on nationalised industries, local government, housing, roads and a regional employment premium. The list continued ad nauseam. There was no attempt to put a price on such expenditure. There was no suggestion of what such a policy would add to the public sector borrowing requirement and what it would do to inflation. There was no acceptance of what inflation does to our employment prospects and to our economic health.

Mr. Austin Mitchell

Perhaps the hon. Gentleman will tell us what deflation, depression, unemployment, under-used resources and high interest rates add to the public sector borrowing requirement. Will he quantify that?

Mr. Whitney

I shall return to that. We have been told what those factors are doing to the economy and we are well aware of all that. However, there is a proposed doubling or trebling of the PSBR consequences. That is the recipe that we are being offered by Opposition spokesmen but not by the Leader of the Opposition, which is rather different.

We have from the leader of the alternative opposition, the right hon. Member for Bristol, South-East (Mr. Benn), with his left-hand man, the hon. Member for Liverpool, Walton (Mr. Heffer), a different solution. Contrary to the view of the hon. Member for Batley and Morley, the hon. Member for Walton believes that the capitalist system—that is what most of us refer to as the mixed economy—cannot be used to cure unemployment. The right hon. Member for Bristol, South-East and the hon. Member for Walton argue that the capitalist system, the mixed economy, is a failure. They tell us about their Socialist Utopia that they will bring to us once they manage to achieve their successes, whether by the election of their Labour Party or by some other mechanism. They stop short of analysing any example of how their version of Marxism in practice achieves the sort of goal at which they are aiming. If either of them really believes that the problem of unemployment has been cured in Marxist States, I suggest that they should stop writing their articles for The Times and other journals and do a little more reading. They would then clearly understand what is at issue.

Another set of alternative policies for which we have been waiting has recently been vouchsafed by the Liberal Party. Obtaining clear policies from the Liberal Party is by no means an easy operation. One understands the fissiparous pressures which exist within that small band of brothers.

It is an exciting time, because the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) often strikes me now as the owner of a small and singularly underpatronised night club who suddenly perks up and thinks that he might get the custom after all. He does so because next door there is a big, rowdy night club where a hell of a fight is going on. As some of the moderates are creeping out of the door because the club is too extremist and Left-wing, there he is trying to lure them into his night club. He lures them in with the bill of goods that was offered on Tuesday.

Like the hon. Member for Walton, I was not on the mailing list for the Presbyterian approach of the Liberal Party. Perhaps that was not surprising. We now have a list of offers by the right hon. Member for Roxburgh, Selkirk and Peebles that is in three parts.

The Government would accept one element and are trying to put it into practice with all the present problems. We subscribe to much of it. Another part of it is clearly impractical and unacceptable. That is the statutory incomes policy. What would a statutory incomes policy do for this new economy? What would happen to new jobs and adjustments to a new technology? What would happen if everyone's wages were frozen within a statutory incomes policy?

Finally, the list of offers moves into a series of areas which involve compulsion and direction from the centre. The right hon. Member for Bristol, South-East called it Stalinism. He should know about that. [Hon. Members: "Oh."]. That was the word he used. It is not surprising that that is difficult to identify as Liberal policy. It was also not surprising that the hon. Member for Thornaby (Mr. Wrigglesworth) said that it was social democracy. Many Conservative Members have often wondered what social democracy is, and perhaps it is this programme.

That range of policies has been tried out in this country and elsewhere, and they do not work. The real debate tonight and over the next few months will be on this side of the House. Perhaps that is not surprising. We accept the basic tenets, but between us we see different shades, and believe that different buttons should be pressed harder or softer.

I offer to press one little button on my own. We should further consider this matter. There are basically three elements in our policy. We must ensure that the expansion of domestic credit is brought under control and steadily held down. We must ensure that the same happens to public spending and that it is gradually restricted as a percentage of the national wealth. We must do whatever is appropriate in this legislature to set the conditions in industry so that both sides of industry can get on with the job of creating the wealth which we here should like to spend.

I bring to the attention of my right hon. Friends the element of monetary control. I do so with the greatest diffidence because, as may be known, I make no claim to be a professional economist. I am not a professional banker, not even a barrister, and none of my relatives works on the Financial Times. With all those drawbacks I offer my suggestions in an interrogatory manner.

When one considers the mechanism which we have chosen for the money supply side of our aims, and what has happened to sterling M3, we must recognise that it is a difficult story. We all understood the famous problem with the relaxation of the corset and re-intermediation, to use the jargon. However, that was months ago. We are still talking about money supply, by the chosen measurement, expanding at 22 per cent. It is therefore right to wonder whether this is the right way to tackle this problem. I am moved to be so heretical as to ask whether our financial establishment—the Treasury, the Bank of England and the City as a whole—are not too clever by half at producing bits of paper.

When one considers the liquid assets ratio, with the elements of Treasury bills, other commercial bills and the discount houses' function, one sees that this is a closed system whereby the banking system creates its own liquid assets and there is little or perhaps even no control.

I should put a question mark at the end of these statements, because it is not for me to make these bold assertions. Is it not right that we should look hard at another way round the problem? I recognise that my right hon. and learned Friend the Chancellor of the Exchequer accepted that on 24 November when he said in the House that the various measures which he had announced would be consistent with a gradual evolution towards a monetary base system and will help us to judge how tar such a system would contribute towards our medium term monetary objectives."— [Official Report, 24 November 1980; Vol. 994, c. 313.] That statement followed the Green Paper, after which there were more discussions.

In its Quarterly Bulletin in December, the Bank of England was a little less enthusiastic than the Chancellor of the Exchequer. It said: The conclusion of this examination is that it is not possible immediately to move to a form of base money control, nor to judge at this stage its possible later desirability. I submit that a change in our approach towards this area of our policy seems to be called for on the basis of the figures. I recognise that there are serious problems. The volatility of interest rates is one problem which has always been referred to, and understandably so. Another difficult tproblem arises if this Government or any other Government virtually hand over to market forces important areas such as the mortgage rate. What would happen to the overdrafts which we, or at least I, love so dearly and which would be hard to live without? If we use our monetary base, how do we set the target, and how do we set this rate?

I understand that those are difficult areas where we cannot be in the least precipitate. I suggest to my right hon. Friends, with a repeat of the apology for my humble ignorance in these matters, that we should look hard at these matters. Everyone, even the right hon. Member for Leeds, East (Mr. Healey), accepts that the control of domestic credit is a vital element in the sensible conduct of economic policy. If the other method is not working, will this method work or will it not? I hope that the study conducted by my right hon. and learned Friend the Chancellor of the Exchequer and his right hon. Friends can be speedily concluded. That is a vital element of policy, which is crucial to this country's success. This debate has shown that there are simply no alternatives on offer from hon. Members opposite.

7.20 pm

Mr. Stan Thorne (Preston, South)

I do not intend to follow the hon. Member for Wycombe (Mr. Whitney) into a consideration of night clubs, corsets and the Marxist notions of my hon. Friend the Member for Liverpool, Walton (Mr. Heffer) and my right hon. Friend the Member for Bristol, South-East (Mr. Benn)—which I am sure the hon. Member did not understand, anyway.

The Opposition motion deals with the economic situation. I am sure that all hon. Members realise that an economic situation, wherever it may be, is difficult to separate from social and political questions. When we discussed the rate support grant yesterday we were also talking about the economy and the social effects of our decisions. During the last few days, Lancashire county council has announced that 1,000 teachers and education staff must go in the next few weeks. That shows that there is a feedback from economic decisions.

Social statistics of the results of our present economic situation would make interesting but depressing reading. They would be a story, for instance, of busy doctors' surgeries, where complaints are becoming more complex and difficult to deal with, with the emphasis on such illnesses as depression and anxiety neurosis, and where middle-aged men and women are asking for Valium and other drugs. Increased alcoholism is another of these social results, as is frustration among young people, with consequent increases in violence and petty crime. An example of this is the analysis in The Psychiatrist of a multi-storey block that showed a marked increase in attempted suicides.

It could be said that many of these problems have an environmental basis, but they are also closely related to our economic situation. The root of many of them is unemployment, which brings frustration because of people's inability to express themselves in the realistic environment that work offers to most of us. The hon. Member for Burton (Mr. Lawrence) suggested that we were exaggerating the problems. If he can say that he must have little contact with one-parent families, the elderly, the disabled, and those who are homeless. All those groups have been radically affected by this Government's economic policies.

The North-West is no exception. It is not for me to get involved in a discussion of the depressing prospects facing the constituents of Merseyside Members, but I am directly concerned with yet another factory closure in my constituency. Thorn Lighting Ltd., a massive and wealthy company, intends to close this factory on 3 April. The management says that one reason is over-capacity, a downturn in the home market because of high interest rates. Another reason they give is cheap dumping of imports.

Conservative Members must be familiar with this case since the company has made representation to the Secretaries of State for Trade and for Industry about the import of cheap bulbs that do not meet our safety requirements. The Government have not attempted to deal with this problem. As a result, companies that seek to maintain safety standards and compete with cheap imports inevitably talk of rising costs.

On paper, the closure of the Thorn factory will mean a loss of 250 jobs. I attended a packed meeting, comprising 80 or 90 per cent. of the work force, in the factory canteen last week. Many of the workers were women and many of them openly admitted that they were separated, with children, and were trying to keep their heads above water by making bulbs. A number of Asian women can now earn a living in that sort of factory. What will they do now? Their prospects of alternative employment are virtually nil. One young man had been in the factory for 18 months as an apprentice acquiring a particular skill. After 3 April, where will he get alternative employment that will permit him to continue his apprenticeship? His prospects are poor.

In Merthyr Tydfil, where there is high unemployment, the company has another factory with under-capacity, so it is transferring the bulb production there. It might be said that if a consequence of this closure is an increase in employment prospects in Merthyr Tydfil, we in Preston do not want to become involved in an argument about whose jobs they are. However, the extra production will be made not by recruitment of extra labour but by full-time and possibly overtime working in the same firm. Therefore, no relief emerges.

However, I am glad to report that the workers have decided not to take this lying down. They have decided to fight the closure so as to defend their jobs—their right to work. They have told management that cooperation will cease henceforth.

The management of the company has referred to the tremendous efficiency in the plant, the loyalty of the work force and the absence of industrial disputes for many years. In the light of those comments, it is instructive to consider what redundancy payments it proposes. Someone who has worked in the factory for more than 15 years—the longest period for which payments are provided—will get an additional eight weeks' money. Fifteen years' work in a factory is recorded by management saying "Well done", with eight weeks' pay.

Needless to say, there are some in the factory whose years of service permit them to get reasonable redundancy payments. They are just at the margin, wondering whether to accept and leave the matter where it is, or to fight. It says something about the work force in the plant, who are not experienced as are the workers in the building industry on Merseyside to which my hon. Friend the Member for Walton referred earlier, that they have decided to unite and fight together and not to accept this terminal payment way of avoiding a major confrontation.

So much for the action that the work force proposes to take. But what do the Government intend to do about the situation? I hope that the Secretary of State for Industry will meet a deputation from the plant in the next few days, but I am under no illusion about the kind of response that we are likely to get.

We hear a great deal about what the Government might be doing in 1982–83. One can imagine that it will be possible to have major tax reliefs for those who are working and that various other bribes will be introduced to try to cajole the electorate into re-electing this Government to carry on their particular brand of activity. I do not believe that they will get away with it, but if we are to avoid their getting away with it the Opposition Front Bench and the Labour movement in Britain generally must take on board the need to put before the people an alternative strategy that can be seen to be a real alternative and not merely the message of previous Labour Administrations dressed up in new garb.

In my view, the kind of strategy that we need to put forward must contain a major sector of public ownership. It must represent a considerable step towards a real Socialist society, and it must contain within it, as was said in a previous manifesto, a determined intention to shift wealth and power to the work people.

7.33 pm

Mr. Nicholas Lyell (Hemel Hempstead)

Nothing could have shown more clearly that the Government's broad economic strategy is the only sensible one than the speech of the right hon. Member for Stepney and Poplar (Mr. Shore). In the latter part of his speech, the right hon. Gentleman outlined a number of matters which he described as Opposition policy. It turned out to be merely a list of objectives. Only one item actually amounted to policy. I am glad to be able to show that that item integrates within the Government's own policy, but I shall develop that point in a moment.

It is self-evident, and has been often stated, that our principal problem in industry is a lack of competitiveness. This stems, and has stemmed in fluctuating measure for years, from paying ourselves more than we earn. In the conduct of public affairs, it stems from spending more than the country can afford.

The right hon. Member for Stepney and Poplar referred to spending control, but failed to distinguish the need to control current spending and the need to control capital spending. My first point is supported by a most helpful and revealing answer to me from my right hon. Friend the Prime Minister at Question Time before Christmas. It concerns the obvious awareness on the part of the Government—that perhaps sounds patronising, as I am sure they thought of it long before I did—that if we are to have the capital available for objectives such as alleviating unemployment in the way that the Opposition have suggested, it is absolutely essential that we control current spending.

There is a lack of willingness on the part of the Opposition to go along with control of current spending. Yet it can be achieved. When we consider the way in which we spend, whether it be local authority or central Government spending, there is still plenty of opportunity to restrict current spending, sometimes by cutting out services which are marginal, sometimes by doing things in less lavish ways or by ensuring that they are more carefully beamed at the targets at which they ought to be aimed.

Current spending must be strictly controlled, for the following reasons. We inherited—I state this as a fact, not as an excuse—at a time when we were not in deep recession, the highest levels of unemployment that the country has known since the war. When one plunges into recession and tackles the structural problems of heavy industries such as steel, shipbuilding and textiles, which are rapidly being tackled, one is bound to have, for a considerable period, a substantial level of structural unemployment. One will wish to use the power of Government to alleviate that.

It was clear from the Prime Minister's answer on 18 December that she regarded it as important to distinguish capital and revenue spending, and to cut down revenue spending in order to have sufficient for capital spending, which means roads, construction and equipment. I therefore wholeheartedly support the Government's policy of tight control with that objective.

Above all current spending means pay. In relation to public sector pay, the Government's duty is, rightly, not to make available more money than they are currently making available to meet public sector pay claims. There may be flexibility. There may be choice. One may cut back the number of people in a department and pay them more. But the amount of money available for public sector pay must be controlled. I wholly agree with my hon. Friend the Member for Bath (Mr. Patten) that the Government ought to make clear that they intend to go on controlling the amount of money made available for public sector pay, not just for a season but for as long as is necessary.

The Government's monetary policy has been castigated as though it were an easy stick to wield. I suppose that it is an easy stick to wield, simply because it has become a slogan. But I support that broad monetary policy because, to put it in simple terms, it is nonsense to suggest that we can cure our ills in the long term by printing money in order to create short-term, artificial demand. Like my hon. Friend the Member for Wycombe (Mr. Whitney), I do not pretend to be an economist or to have a deep understanding of the niceties of monetary control.

Mr. Austin Mitchell

That is clear.

Mr. Lyell

That is generous. If my right hon. and learned Friend the Chief Secretary were present, I would draw to his attention, although I am sure that he is already well aware of it, the final paragraph of his brother's article in The Financial Times of 8 January, entitled Where next on monetary control". That article contains a wealth of wisdom. Referring to money GDP it says: This is now rising at just over 10 per cent. per annum. Much the most important thing is to make it clear that it will not be allowed to drift into high double figures again and that people will have to make their own choices about whether to take this expansion in the form of output and employment or higher pay and prices with continuing depression. That sets the choice for the country, and it is a choice which will be clearly understood by my constituents.

Hemel Hempstead is in some respects fortunate in that the level of unemployment there is lower than in many other parts of the country. However, it suffers from short term working. People who suffer from short term working realise that it is better to have pay rises that are not as high as they could wish and remain in work. By doing so they can sell their goods competitively either abroad or in the home market, thus getting overtime and achieving a net figure in the pay packet at the end of the week. I am sure that they would prefer to do that rather than to seek over-high pay increases, thereby pricing themselves out of the market. [HON. MEMBERS: "What about textiles?"] That applies to textiles as much as anything else. The textile industry has particular structural problems to which I have referred. No doubt my hon. Friend the Member for Macclesfield (Mr. Winterton) will also refer to them, and I am sure that he will agree with my points on capital spending.

I should like to illustrate the sort of area of capital spending which is available to the Government, and which does not necessarily draw wholly on the public purse. Understandably, cash limits have been placed on businesses such as the Post Office, British Rail and other areas where investment is necessary. It so happens that the centre of Hemel Hempstead is occupied by the Post Office and the gas board. Hemel Hempstead has a long, linear high street which provides a superb site for a new multiple store. That would probably attract private investment, even at the present time. But I am told that the Post Office is unable to consider this kind of thing because of cash limits. I ask my right hon. Friends to look at that kind of restriction—the reasons for which I well understand—to see whether, with flexibility, it could not be eased somewhat, so that private money could be attracted and the Post Office could move to a less central site, which it wishes to do. That would produce a more efficient site, involving investment, which everyone would applaud.

Although it is easy to get postmen today, once we come out of the recession we shall be back in the old position where it will be difficult to get a postman for love or money, apart from those who have given such good service over the years. I regard that suggestion as a constructive approach to the kind of problem that I have outlined.

I want to make a longer-term suggestion. Here I expand on a point made by my hon. Friend the Member for Bristol, West (Mr. Waldegrave) in earlier economic debates. He drew the attention of the House to the fact that over decades it has been the policy of successive Governments to encourage money to go into housing via mortgage relief. I applaud the fact that the Government are holding back on the maximum level of mortgage relief. We should seek to enable private citizens who have a financial surplus to put it into risk capital, which is investment. I hope that we shall continue to hold the maximum level of mortgage relief to approximately its present level. I also ask the Government to look at the enormous incentive that is given to people to put their money into pensions.

It is obviously wise for people to save for a pension. However, many people are able to take a longer view for the future. If they could get the same kind of reliefs for risk spending—the details would have to be worked out—that would make more money available for investment. I happen to be self-employed, and I know that in the past—particularly when income tax rates were at their highest—the self-employed have been tempted to salt away money for the long distant future. They might well salt away less and put more into risk capital, which would stimulate investment, if such an incentive were available.

I wish to move briefly to another point relating to unemployment. I cannot develop it because of shortage of time. However, it relates to the country's defence problems and the level of youth unemployment in particular. I am thinking of those coming through the 18-year-old barrier. We should bear in mind the shortage of people to defend the home base. That should appeal to Labour Members, who I am sure would approve of defending the home base, whatever else they may not approve of in the area of defence. Are not such young people a resource that is under-used? We should remember that 200,000 young men reach the age of 18 each year, as well as nearly 200,000 young women who might well be brought into this scheme. Surely there is a great deal of sense in training them for that role—probably for about six months, rather like the Swiss.

Obviously, one should consider the question of money, and I have. The cost of a single person in work under the youth opportunities programme is, I believe, £38 a week. I think that we must all appreciate that the number of young people unemployed is likely to remain consistent for the foreseeable future. However, if the 200,000 young people to whom I have referred are each paid £38 a week for the training that I have suggested, we get a significant amount of money for a worthwhile task. It is worth while in relation to the security of the country, and it will also benefit the young individuals who undergo the training.

Mr. Ernie Roberts (Hackney, North and Stoke Newington)

And end up unemployed.

Mr. Lyell

They will be unemployed anyway, but perhaps that does not worry the hon. Gentleman. If 200,000 young people are taken off the unemployment register, the chances improve for those who remain on it. I ask the Government to think about this matter seriously. There is nothing bizarre about it, because, with the exception of Luxembourg and Eire, we are the only country in Western Europe which does not train its young men for that purpose.

At the time when we did away with that kind of training, there was great pressure on employment, which was one of the reasons for doing away with it. I am not suggesting that these young people should be trained by the regular professional Army. Those who come out of the Army could do it. I put forward that suggestion. In due course I hope to develop it further on paper for the benefit of my right hon. Friends. The principle of making use of an available resource—in this case, our young people—for an obvious need, the home defence of this country, is certainly worth considering.

7.48 pm

Mr. Michael Meacher (Oldham, West)

It has always seemed to me that there are three basic criteria by which economic policy should be assessed. The first is whether there is evidence that the policy is working, or, to be fair, at least evidence that it will produce the intended results. The second is whether the costs demanded by the policy are reasonably justified compared with the benefits conferred. The third is whether alternatives are available for the pursuit of agreed targets which, without compromising on objectives, would be less damaging or onerous. On all three criteria it seems perfectly clear that current Government policy is wholly misconceived. I should like to spell out the reason why.

First, on whether the Government's economic policies are likely to produce the intended results, it is difficult to see how anyone can seriously have faith in that, so thoroughly discredited are the fundamental premises on which those economic policies are based. The first of those premises is that the sole, or at least the main, determinant of the rate of inflation is the rate of growth in the money supply. As far I know, that is still the fundamental hinge of the whole of the Government's policy.

In fact, if one looks at what has happened in the last 18 months, as opposed to having a theoretical view of the world, one will find that a sharply rising sterling M3—accelerating throughout 1978–79 from an annual rate of 8 per cent. to 20 per cent.—has not led, as we expected as a result of the alleged monetarist time lag of one and a half to two years, to steadily rising inflation throughout 1980–81. In fact, it has led to the reverse—a considerable decline in inflation, perhaps to an annual rate of about 11 per cent. at present. Presumably, the Government would therefore have us believe that the acceleration of M3 over the past six months to an annual rate of more than 20 per cent. will not generate another great burst of inflation.

Doubtless, the Chancellor of the Exchequer will produce all sorts of reasons why the theory does not apply when it is inconvenient, but if the monetarist doctrine has been shown in the past few years to be such a thoroughly bad predictor of real events, why are the Government determined to cling to it so tenaciously?

The second premise underlying the Government's economic policies is that money supply growth can be reduced only by reining back the public sector borrowing requirement, which is why we have all the immense pain that is caused by the cuts. That is also why the Prime Minister continues to assert that the main causes of inflation now are nationalised industry borrowing, the social security budget, and public sector pay claims, and why all the emphasis of Government policy is on those items.

That view is convenient to the Prime Minister's political prejudices but it neglects the crucial point that the main reason why the growth of M3 has spiralled out of control in the past year is not the extravagance of public sector spending but the fantastic growth of lending by the banks to the private sector. The Government's own publications show that in the first 10 months of last year—the latest period for which figures are available—Government borrowing contributed just over £7 billion to the expansion of M3, while bank lending to the private sector contributed £9½ billion. Borrowing in the private sector has accounted for four-fifths of the total domestic credit expansion during the Government's period of office.

Why do the Government continue so perversely to attack the wrong targets? I do not know the answer to that question, and I should be glad to hear it.

The Government's own figures also belie the Prime Minister's repeated accusation of the past few months that the responsibility for money supply excesses lies at the door of nationalised industries. That is the premise on which we may expect a major attack on those industries. The reply of the Chief Secretary to the Treasury to my parliamentary question on 27 November showed that public sector corporations' borrowing contributed a mere 3 per cent. to the public sector borrowing requirement in 1979 and that in the first three quarters of last year its contribution was negative. The corporations made a net repayment to the Exchequer of about £¾ billion.

If the two central assumptions underlying the Government's economic policy are not merely not proven but manifestly misleading in explaining events, it seems that the economic rationale for maintaining the Government's present policies—as opposed to the political rationale, which most of us think is the Government's real motivation—is decidedly threadbare, all the more so when one considers the second criterion of economic policy namely, the cost demanded by that policy, compared with the benefits of reducing inflation, which is a goal that I fully support, though I believe that the method chosen by the Government for achieving that goal is wrong.

It is likely that the fall in national output in 1980–81 will be 6 per cent. Almost everyone who has made a forecast of unemployment expects it to more than double from the figure that the Government inherited and to reach 2¾ million by the end of 1981. That means that for every 1 per cent. reduction that the Government have achieved in the rate of inflation there will have been a 1 per cent. drop in national output and a 200,000 increase in unemployment. Does anyone in the House, including the Prime Minister—though perhaps I should exclude her—seriously believe that such a price can be justified? I am sure that the Secretary of State for Employment does not believe that, though no doubt he will not say so when he replies to the debate.

The pyrrhic nature of the Government's achievement can be seen by comparing current figures with those of previous slumps. We should bear in mind what a 6 per cent. fall in output means. It is three times the fall that occurred during the recession of 1974–75 and it is only slightly less than the 7 per cent. decline in the great depression years of 1929–31.

Even worse, while manufacturing output fell by 11 per cent. between 1929–31, it is expected by various independent economic forecasters, such as Phillips and Drew, the City stockbrokers, that the fall in manufacturing output between 1979 and 1981 will reach a staggering 14 per cent. One-seventh of our manufacturing output will be knocked out. As was stated earlier, the Government have achieved far more in decimating industry than Hitler's bombers ever managed.

Given that the Government's own tax changes added an estimated 6 per cent. to the rise in the retail price index over the past 18 months—that figure is not likely to be challenged—can anyone—and here I include even the Prime Minister—seriously assert that the relatively minor reduction in the rate of inflation justifies such a catastrophic cost in terms of lost output and soaring unemployment?

My third criterion for judging economic policy is whether there are alternatives available that could secure similar or better targets at a lower cost. Ministers constantly reiterate the claim that there is no alternative, but of course there are alternatives. In particular, the case for a phased reflation of the economy in present circumstances, when there are no signs in the economic landscape of any sustainable recovery of demand, is overwhelming. The only major question is whether that can be done without precipitating a further unacceptable burst of inflation. If one can show that that is possible, the case for reflation is overwhelming. I believe that it can be done.

A fundamental cause of inflation over the past two decades has been that when Governments of either party have stimulated the economy, using a variety of tax reduction or increased public expenditure measures, industry has failed to respond by increasing production or investment to a similar degree, because of its not unjustified fears that the boom will be short lived and that most of the benefits will go on imports and not on home production.

The gap between the extra money that the Government have put into people's pockets and the little or no increase in production is filled by inflation. Indeed, that is one good definition of inflation. We need techniques of management on the supply or production side of the economy that can match the traditional Keynesian techniques of management on the demand side. That is precisely the role that it is proposed should be filled by the agreements made with the largest companies in the economy, which have always formed the centrepiece of Labour's alternative strategy.

Far from representing Socialist dogma, such agreements represent a plain common-sense way—perhaps the only way—of ensuring that demand can be steadily expanded by ensuring, or at least going a long way to ensuring, that production and investment are expanded to a corresponding degree. That entails detailed examination of the current position of our economy. Because the Labour Party offers a serious, realistic alternative to this central economic problem, and because the Government's economic policies are patently failing and involve a catastrophic cost, I have no doubt that the vast majority of people support the Opposition's motion. If one thing is certain in British politics today it is that, if the Government do not change course, they will be irresistibly swept away.

8.1 pm

Mr. Nicholas Winterton (Macclesfield)

The hon. Member for Oldham, West (Mr. Meacher) always presents the House with interesting statistics and well-prepared technical cases. I am not sure that some of the cases would work in reality, but today he has presented a case that should be fully considered by the Government. However, I am not for one moment saying that I agree with his conclusions. It is a sad reflection on the House that when we are discussing economic matters, monetarism and the current economic policies of the Government, so few Members are present. We are talking about jobs, people and industry, which create the wealth out of which the Government, in due course, can provide services, some of which have been referred to earlier.

The hon. Member for Oldham, West paid much attention to the money supply. The money supply has risen for one simple reason: some Government policies have contributed to the increase in unemployment, and unemployment increases the money supply. Some people believe that for every 1 million unemployed the cost to the country overall could be as much as £5 billion. That is because of unemployment pay, social security benefits, the loss of production, the loss of national insurance contributions, the loss of PAYE, and so on. There is no doubt that the increase in the money supply, with unemployment increasing at the present rate, must be expected. For the Government to continue to expect manufacturing industry to shoulder the burden that it has been carrying for the last 18 months is untenable. Our manufacturing base is shrinking fast.

Many people—perhaps the media—consider me to be a Right-winger, but at the same time I am a compassionate and pragmatic person, and I care about what is happening to the manufacturing base of this country. As I have said to my right hon. Friends, including my right hon. Friend the Secretary of State for Employment, I see it as my duty in this House, whether or not I am a member of the Government party, to ensure that there is a permanent manufacturing base which is as wide as possible.

My hon. Friend the Member for Burton (Mr. Lawrence) said that recesses provided good opportunities for hon. Members to visit businesses, trade union officials and representatives of the work force in their constituencies, to see for themselves at the grass roots what was happening, and the effect of Government policies on their constituencies. I do that in every recess, as do many other hon. Members. However, on this occasion I moved a little further north, to the heartland of the textile industry in Lancashire. I visited mills in Royton, Bolton, Burnley and Nelson. I am sad to say that the story in all four areas was the same. The companies that I visited had answered the request of successive Governments to rationalise. They had answered the call of successive Governments to install the most modern and sophisticated machinery in the world. In doing so, they had the co-operation of all the trade unions within the textile industry. They are operating in an extremely competitive world-wide arena, and the unions are as anxious as the employers that there should be a viable textile and clothing industry.

What has happened? For example, Unit 1, the Carrington Viyella mill at Atherton, in the north of Manchester—another factory and mill that I have visited—had £6½ million of investment, and employs 80 people, but the unit is now working approximately a two-day week. Previously, the unit was working one week in two. That is a thorough waste of taxpayers' money and investment. It has happened for a number of reasons, including high interest rates and the over-valued pound that was not created by industry but is a result of ours being a petrocurrency. Our industry has been placed in such a position that it cannot trade fairly with other parts of the world.

I am deeply concerned about the fate of British industry, which produces our wealth. It is vital to our prosperity and future. I am also desperately worried about the levels of unemployment. I share the view of the hon. Member for Oldham, West that unemployment will probably reach about 3 million. I hope that it peaks out below that figure. We must evaluate the cost to the nation in money terms and in social terms.

I agree with the Government's overall objectives of reducing inflation and cutting public expenditure as a percentage of our gross income, but one objective is missing from the Government's strategy. We must ensure that this country can be competitive in its trade with overseas countries. Unfortunately, the Government's policies have made industry less competitive.

Interest rates have dropped by three percentage points, but that is not far enough. Therefore, we are trading with many countries at a time when our country is having to shoulder interest rate burdens that are twice those of countries such as Germany, and many other countries with which we are in fierce competition.

I turn now to energy. There is one of the great con tricks that has been played on this country. To say that gas prices have had to be increased to the levels that they have been increased is nonsense. I do not believe that the chairman of British Gas could substantiate that, or would even desire to do so. The price of gas has been forced up in order to make it less competitive with electricity and other forms of fuel. I say to my right hon. Friends on the Front Bench—it is a pity that the Treasury does not comprise more people with business experience—

Mr. Ioan Evans (Aberdare)

rose—

Mr. Winterton

I shall give way in a moment. It is because of energy costs that the newsprint mill in Merseyside was closed and 1,200 people were put out of work. Indeed, I gather that the Government offered £7 million to try to persuade the management to maintain that mill. But that was only a temporary expedient. The company knew that its energy costs were enormous, that the sum of £7 million would tide it over only for a few months, and that the problem would soon raise its head again. Why do we not use our indigenous sources of energy more to the advantage of British industry? It is nonsense to follow a policy of forcing up energy prices to the extent to which they have been forced up in the last 12 to 18 months.

Not only the textile and clothing and paper and board industries are suffering. Representations have been made to me by Oldham Batteries. One of its directors lives in my constituency, but the company is located in the constituency of the hon. Member for Manchester, Gorton (Mr. Marks), who, unfortunately, is not present in the Chamber. The director concerned has also seen him about the company's problems. It has factories in America and in France. The cost of energy in this country is well above the cost of energy that it has to meet in the other countries in which it operates. Why should the company expand here and develop a new battery—as it is seeking to do—when costs in other countries are lower? I am not speaking of the Third world or the developing world, which many of us want to help in one way or another. I am speaking of the developed world, in which there are standards of living even higher than in this country. Why is this advantage given to our competitors? Why do the Government not act in the best interests of British industry? It should be the objective of the Government to provide competitiveness in this country for British industry. We are loading industry with burdens that it cannot accept. As a result of that, many people are being put out of work.

I refer again briefly to the textile and clothing industries. They have invested huge sums of money and are prepared to invest more, but until the Government are prepared to act in the national interest—just as the Government of France act in the interest of French industry and French commerce, just as the Government of the Netherlands act in the interest of Dutch business, and just as virtually every EEC Government act—we shall suffer a shrinking and a reduction in our manufacturing base, which will create levels of unemployment which, socially and in every other way, are unacceptable to the people. The objectives are right but the methods by which the Government are seeking to achieve them are utterly wrong.

The right hon. Member for Bristol, South-East (Mr. Benn) referred to Sir Michael Edwardes as an industrial dictator, and said that the Government—he referred particularly to my right hon. Friend the Secretary of State for Employment—were trying to beat down the working people of this country by attacking the trade union movement. I wanted a stronger Employment Bill, but I was opposed by my right hon. Friend, who fell that we should take the matter stage by stage—the gradual approach. Perhaps he is right; I do not know. Perhaps we should have acted on picketing more strongly, and on blacking, secondary action and the closed shop. But we have not done that. We have sought instead to work with the trade union movement. So, far from being a party that is seeking to tread down the working people in this country, we are seeking to work responsibly with them and their representatives.

I believe that Sir Michael Edwardes is the only man who can save British Leyland. I wish that he were a Member of Parliament, sitting in this House. I wish that he were a member of the Treasury team. If he were, I suspect that different methods would be used to assist and organise British industry from those being followed by the Government at the present time. I pay full tribute to Sir Michael Edwardes for what he is endeavouring to do.

I have reserved views about Mr. MacGregor, of the British Steel Corporation, but the man is of considerable ability and he has been given a brief to do a difficult job. I wish him well in doing it. It is very early days to say that he is an industrial dictator who has been appointed in order to close down the steel industry in this country.

Before sitting down, I want to pay tribute to a Minister who is no longer on the Front Bench. I refer to my hon. Friend the Member for Beeston (Mr. Lester), who was Under-Secretary of State for Employment until the reshuffle—or whatever it is was—which took place a week or so ago. Having represented the interests of the textile industry, I can say that my hon. Friend's visits to the North-West, over the 18 months during which he was in office, were tremendously appreciated. He established a first-rate reputation as a competent and understanding Minister, and I regret his leaving, because he understood the industry, which is going through a very difficult time. At three of the mills that I visited recently on my tour of Lancashire the directors as well as the members of the work force asked why that Minister was no longer holding the portfolio that he accepted when the Conservative Party came to power 18 months ago.

I say to the Government, as I said to them in an unemployment debate in the House on 29 October, "Your objectives are right but for heaven's sake do not overlook the fact that we must be a pragmatic party." Just because inflation is coming clown does not mean that the inflexible policies are working. Inflation will come down automatically because of the deep recession that we are suffering in this country.

My hon. Friend the Member for Burton talked about the brewing industry having a slightly hard time in the last 12 months. That is not because we had a bad summer. I have to declare an interest here. I am non-executive chairman of Camra (Real Ale) Investments Ltd., so I am involved in the industry. I know why turnover is down; I know why takings are down: It is because people have less money in their pockets. That is affecting the rate of inflation.

I say to my right hon. and hon. Friends on the Front Bench, in the Department of Employment and the Treasury, that we can see the level of inflation dropping below 10 per cent. because of the recession alone, quite apart from any of the other policies that are being implemented by the Government. For heaven's sake let us protect the manufacturing base of this country, because it is paying the salaries of the bureaucracy and all those civil servants.

Let me put a question—perhaps an embarrassing one—to Ministers. How many of the officials in their Departments have ever been in business, or run a business, or had to pay a wage bill at the end of the week? I am sure that very few of them have had that experience. [Interruption.] I agree that some of them may have. There are, of course, those very fortunate senior civil servants who take lucrative employment on their retirement. I am not saying that they should not be able to do that. I should like to see in the Treasury, the Department of Industry and the Department of Trade more people with practical experience of what goes on on the shop floor. I should like to see people with that experience advising Ministers. The people in the Departments may have legal training, but they have very little industrial training or knowledge of what makes industry tick and what makes people tick.

I am sick and tired of the theory that is trotted out by journalists. I note that my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne) has just come into the Chamber. I want people to get on the shop floor and see the effect of policies on people on the shop floor.

I know that my right hon. Friend the Secretary of State for Employment is not unsympathetic to some of my views, because he is as caring a man as I am and has shown it in all the things that he has done. For heaven's sake, let us make sure that the Government's policies are in the best interest of this country. Do not let us play cricket while everyone else is playing his own game. The French have a system of import licensing. If they want to hold up imports of something, they jolly well will. I know that our customs and excise authorities, through the Minister, are more accountable to this House than are the civil service and the customs and excise in France and other European countries, but if the French can find ways round things why the devil cannot we do the same?

The Prime Minister has promised a tougher MFA for the clothing and textile industries in this country but, unless she acts very quickly with the new American Administration there will be very little of the textile industry left to take advantage of a stronger MFA when it finally becomes effective.

Mr. Ernie Roberts

Will the hon. Member agree that the case he has been making shows that so-called free private enterprise is unsuccessful and cannot do the job? Is not that why he is calling on his colleagues in the Government to give private enterprise a handout and as a Government to do the things that free private enterprise cannot do?

Mr. Winterton

No. I am not saying that at all. What I am trying to say that too often it is because of Government interference that private industry is not able to survive. It is the Government who take the decision about interest rates; it is not the private sector.

There was reference earlier to the amount of borrowing by the private manufacturing sector. The reason for the high level of borrowing by the private sector is that it is borrowing in order to survive to pay off the borrowing which has already taken place for the purpose of investment in factories or works. All the profits that companies are making are now going to the institutions, the banks. Regrettably, too often the banks are not recycling that money as they should, and that is a crying shame. The present system is working towards a situation in which a Socialist Government, in taking over the clearing banks, would almost be able at the same time to take over the manufacturing base of this country because so much of it was indebted to the banks. That is a crying shame. It is a miscalculation, and it is wrong.

We must get our policies right. We must help manufacturing industry. Until we do so, the prosperity of this country will be in doubt, and unemployment will increase. No matter what party may be in power, a Government who follow such policies cannot be acting in the national interest. Something must be done. As I said in October, we must act before it is too late.

8.20 pm

Mr. Derek Foster (Bishop Auckland)

I am happy to speak after the hon. Member for Macclesfield (Mr. Winterton), because he made a tough and uncompromising speech. He has learnt what can happen from painful experience, both of his own constituency and of the situation throughout the North-West. I come from the North-East, and that area has been struggling against unemployment for the past 50 or 60 years. Many attempts have been made to wrestle with the problem.

From 1963 to 1974 a great deal of success was achieved by Governments of both political complexions through positive regional development policies. A large amount of restructuring was undertaken and the economic base was considerably widened during those years. It is sad that I should have to relate that some of the achievements of 15 or 20 years have been lost during the past 18 months.

The hon. Member for Burton (Mr. Lawrence) seemed to reiterate the wishful thinking of those industrialists who support the Tory Party. He said that things were not too bad in his constituency even if they were not exactly rosy. As a member of the Select Committee on Industry and Trade, I did not recognise the evidence that he put before the House. Week after week industrial associations, companies, the CBI and other organisations representing industry, both large and small, told the Committee that interest rates and energy costs were too high and that the pound was over-valued. Indeed, they mentioned many other things.

I admit that those who gave evidence said that they supported the overall strategy and that, in particular, they wanted a more severe cut in public expenditure. Nevertheless, they severely criticised high interest and energy costs and the over-valued pound. Is it not true that the country has lost about 40 per cent. of its competitiveness during the past 18 months? Is it not also a fact that almost half of that 40 per cent. loss has been due to an over-valued pound? The Government complacently say that they will not and cannot do anything about it.

The Government's case that they cannot do anything has not been made. Many industries are not yet convinced that everything has been done, or that the will exists to bring down the over-valued pound. Unless something is done about such problems, many of our industrial areas will face even greater destruction.

The hon. Member for Burton also said that the amount of suffering was often exaggerated. That is false. I wanted to become a Member of Parliament partly because I wanted to get rid of unemployment. I was unemployed for 12 months and I had to go through the indignity of going to the supplementary benefit office to collect my £5. I had to tramp round the streets of Sunderland because I could not afford to take a bus to look for work. I know that the problems of deprivation in our inner city areas and in regions such as the North-East, the North-West, Scotland and Wales are not exaggerated.

I should love to take some hon. Members to visit areas in the North-East where unemployment is as high as 30 or 40 per cent. I should like to take hon. Members to areas in Sunderland where no one over the age of 16 stays at school or goes on to full-time further education. What opportunities do those young people have, particularly when no jobs are available and when apprenticeship schemes are being axed? Their only hope is the youth opportunities programme.

Let no Conservative Member think for one moment that the problems and sufferings of the deprived and the disadvantaged are exaggerated. The opposite is true. Tory Members should work, as many of us have, in areas of severe deprivation. They would then understand the almost insuperable problems that face those living in such areas. Indeed in the House, we sometimes hear about cases of suicide. It is offensive to suggest that such problems are exaggerated.

I wish to be constructive about the youth opportunities programme. I welcome the Government's determination to give guarantees to young people. However, I warn them that there is a grave danger that those guarantees will not be fulfilled. Stories are coming from the careers service to the effect that the service does not have the staff to provide the work experience placements needed if the Secretary of State's guarantee is to be fulfilled. As a result, the young will not be able to take up the opportunities given.

I welcome the statement by the Secretary of State for Employment. He said that he wanted the programme to develop into a programme of vocational preparation for all young people. I should like a programme that would envelope the whole of the 16 to 19-year-old age group in an education and training programme. Let us not be fooled into thinking that fine words from the Government Front Bench or from the Opposition Front Bench will achieve that. We are a long way from achieving the type of programme that the Secretary of State would like to see.

Co-ordination in the youth opportunities programme is inadequate. The problem of how to co-ordinate the programme has not been thought through. We have not begun to wrestle with the problem of the educational and training content and the quality of the programme, nor with how one can know whether objectives have been achieved.

To my cost, and to that of many of my colleagues in the North-East and in Wales, I know much about the problems of the long-term unemployed. The chairman of the Manpower Services Commission is reported to have said to the Select Committee that there were likely to be 700,000 long-term unemployed by 1983. All the Government have done so far is to produce a measly community enterprise programme. I support that programme, but it will provide only 35,000 places at most. In addition, they have reduced benefits for the long-term unemployed. Then Conservative Members will continue to complain about the long-term unemployed as though they are feckless and work shy and do not want to do a good day's work. I can tell the House that the long-term unemployed in the North-East, Scotland and Wales would love to have work to go to every day, to have the money in their pockets as we do, to buy the necessities, let alone the luxuries, of life that many of us in this House take for granted.

We urgently need a programme to enable the long-term unemployed to come back into working life. We urgently need a training programme. We heard a great deal from the Conservatives before and during the last election campaign about how much would be done for training and retraining. We want evidence of that. There is none so far. The only evidence we have seen is of cutbacks in the kind of training programme that my right hon. and hon. Friends fought so hard for when they were in power.

So we want to have done with these fine words. The Government's crocodile tears about the unemployed are not good enough. We want from them action and a programme that will at least put some flesh on the compassionate words spoken by the hon. Member for Macclesfield.

8.30 pm

Mr. John Major (Huntingdonshire)

As a number of other hon. Gentlemen still wish to speak, I shall shorten my remarks as much as I can.

There is one aspect of the debate and the asides within it that worry me considerably. So far as I can gather from what has been said, appear to be the only Member in the Chamber who has received a letter from the leader of the Liberal Party in the past week. If the right hon. Gentleman would care to write to me again and explain why I am so signally honoured and what I have done to deserve that honour, I shall seek never to do it again.

The charge that the Opposition have sought to sustain this afternoon is serious. It does not call for any degree of flippancy. I have listened to the debate throughout and I do not believe that they have substantiated that charge in the fashion that they would wish.

The right hon. Member for Stepney and Poplar (Mr. Shore) spoke with his usual charm but with startling simplicity about many of the underlying causes of what has happened. He spoke with greater simplicity and, in some cases, omission when it came to alternative policies that the Opposition would promote. Many of those omissions have been referred to by my hon. Friends and I shall therefore elaborate on only one.

A remarkable speech was made at the Lord Mayor's banquet in 1976 by the right hon. Member for Leeds, East (Mr. Healey), who was then Chancellor. It is correct to paraphrase the right hon. Gentleman as saying that there is a substantial time lag between economic cause and effect. He put that time lag at 18 months and possibly longer. If we are to have a mature debate on the problems we face we must accept that, if the right hon. Gentleman was right then—to the best of my knowledge he has never indicated that he was wrong then or any other occasion—many of the root causes of unemployment and inflation in the past two years were built into the system long before the present Government took office. I hope that Labour Members will bear that in mind when they speak.

The right hon. Member for Stepney and Poplar spoke about lack of demand in the economy. There will be much sympathy for that outside. My hon. Friend the Member for Macclesfield (Mr. Winterton) has just touched on it. How would the Opposition expand demand in the economy, however? They certainly would not do it, judging from their present rhetoric and past history, by cutting taxes. They have never promised to do that. It would be credible for them to promise to expand Government investment, to let loose the printing presses yet again, and to borrow money with an expanding public sector borrowing requirement. It would not be credible, however, for them to advance a policy of expanding public investment by enlarging the borrowing requirement while promising to reduce the level of MLR at the same time.

Shortly before the leadership election translated the right hon. Member for Leeds, East to other responsibilities—after his defeat by a lesser man—he was speaking of expanding the borrowing requirement by £7 billion and reducing the MLR by 4 per cent. It defeats me to determine how he proposes to achieve that trick. We have had no indication of that from the Opposition. If it is to be funded by taxation—and I hope that the right hon. Member for Chesterfield (Mr. Varley), will deal with that—and if my calculations are correct that will lead to an addition in direct taxation of about 11 p in the pound.

From what we have heard from the Opposition today, it is clear that they oppose what is happening, that they deny logic, and that they seem to deny reality as well. The Opposition also seem to ask us to believe that, if they were in charge, it would be all right on the night. "I will fill in the details later", said the right hon. Member for Stepney and Poplar, implying that it would be all right on the night. I recall the expression "It will be all right on the night" being referred to as the bridegroom's plea. I am bound to say—I hope that it will be taken in the spirit in which it is intended—that when the chief bridesmaid falls over so often and breaks his leg on the way to the chamber, I doubt whether I would accept that sort of plea as a guarantee of future policies.

I do not deride the genuine anxiety that many Opposition Members feel about unemployment. I resent, however, the way in which they seem to regard Conservative Members as having no care and simply paying lip service to the need to resolve this problem. I concede immediately that my constituency does not have the unemployment problem faced in many hon. Members' constituencies week in and week out. Nevertheless, the unemployment rate in the northern part of my constituency is about 9 per cent. and in the southern part 6 per cent. In both, it is rising dramatically. Another 150 jobs have been lost in the last week at Samuel Jones, an excellently run and managed firm.

Hon. Members on the Conservative Benches have a practical and realistic understanding of what is happening. I hope that the Opposition will not charge us again with being neither knowledgeable nor concerned about current events. We can differ and argue about the relative importance of the causes of the unemployment and inflation and the industrial decline seen in recent years. In the round, the causes are clearly identifiable—international recession and a domestic recession, inflation—with the measures necessary to cure it themselves deflating demand—excessive over-manning, excessive pay settlements and technological advances that so often destroy jobs. Above all, perhaps, there has been an enormous transfer of resources from the industrial West to the Middle East oil producers, occasioned by the increase in oil prices since 1973–74. Not all these problems are within the cure of even the most dynamic and forceful Government, not even one led by the right hon. Member for Ebbw Vale (Mr. Foot).

I should like to illustrate with some figures the enormous deflation in the whole of the industrial West created by the change in oil prices. The current account surplus of the OPEC countries in 1973–74, expressed in United States dollars, was $6 million. In 1979, it was $80 billion. In 1980, it is estimated to be about $120 billion. That is a deflation in the West that makes any public expenditure cuts by this Government seem like petty cash from the piggy bank. We must recognise that the effect is not just a temporary change but a permanent and continuing change in our trade patterns unless we can deal with the problem of recycling the surpluses built up by the OPEC countries. At the moment, they are being recycled in an unsatisfactory way, frequently as hot money, and frequently they do great damage to the system

I should like to mention one point to which I hope the Minister will direct himself. I do not believe that any Government will be able unilaterally to take sufficient initiatives to encourage a greater recycling of the oil surpluses. I should like to know, however, what initiatives the Government have in mind, in company with our partners in Europe or other trading nations, collectively to seek a greater recycling of these funds. Unless we are successful, I doubt whether we shall attain the increased demand that most hon. Members recognise that we need and without which the regeneration of manufacturing industry is unlikely to take place on the scale that we believe necessary in the foreseeable future,

I believe that the Government will be right if they decide selectively—I emphasise "selectively"—to intervene in industry to help areas where the problems are clearly temporary and clearly the result of the present unsettled trading conditions in the world. Selective intervention will have my total support from these Back Benches.

Where I would not wish to see the Government spending taxpayers' money is in those industries and areas that we believe—and there is much evidence in many cases to support this—are practically in terminal decline. I do not believe that that would be a good use of Government funds and neither would it be fair to the next generation of children who would inherit those jobs in the years to come.

Many tens of thousands of workers today know that they are working in jobs that do not really exist and that may vanish at any time. It will be no help to the next generation to leave those jobs for them to inherit. It may perhaps be a short-term kindness but certainly no real benefit for those who will be inheriting those jobs in the next few years.

Mr. Nicholas Winterton

What industries?

Mr. Major

My hon. Friend asks from a sedentary position "What industries"? Specifically, if I may give one example, it would be a great mistake if we were not to permit the steel industry to find its relevant level in this country, where it is producing a sufficient quantity of goods to meet the demand that exists. We cannot continue over-producing in steel and other industries as well, a subject with which we may deal on another occasion.

What I hope that my right hon. Friend can direct his speech to when he replies is, first, the question of what initiatives the Government will be taking over recycling the oil surpluses. Secondly and equally important, what proposals do the Government have for seeking over a period of years the provision and growth of new industries and employment in those areas where industries can be identified as being in terminal decline? That will be an ongoing problem and policy for Government after Government in the years to come. The sooner that we can direct our minds to it with a positive plan for what is proposed, the sooner we can encourage those who are working in declining industries to recognise that there will be a future for their area, even if the industries in which they are working are at present in decline. I will end on that point, as I am aware that other hon. Members wish to speak.

Mr. Arthur Lewis (Newham, North-West)

I hope that the hon. Gentleman will not leave the matter there. I am not arguing with him, but is he not aware that the situation occurred under both Governments? We had Beeching, who ruined our railways, and now we are paying the price. We had Robens, who ruined the coal mines, and now we are paying the price. How can we get the experts to advise us? We cannot use the Treasury experts, because they are always wrong. Mostly the civil servants are wrong, too. I do not believe that Ministers of either party can be complimented on their knowledge. Who is to decide?

Mr. Major

The hon. Gentleman tempts me to follow him. Contrary to tradition, this Government have brought in at least two people from outside who are experts in their field to advise them on precisely such matters. I hope, therefore, that the hon. Gentleman will be prepared to support that.

Let me deal with one final matter that the hon. Gentleman may agree with, so he may care to listen for just one moment. My hon. Friend the Member for Macclesfield said that he had visited many factories and areas during the parliamentary recess. I did, too. There is one matter to which I hope that we can direct concern and expenditure in the foreseeable future, which I do not believe will involve large sums. Archaic and appalling conditions exist in many unemployment offices.

I attended one such unemployment office recently on a Monday morning, and found a large number of middle-aged or quite elderly men and women who were attending for the first day of unemployment in order to register for their unemployment benefit. They found themselves queueing in the unemployment benefit office, or outside in some cases, for four or five hours. They were then interviewed by girls who were no doubt splendid but were often young enough to be their grand-daughters. I hope that as a small human gesture we can send some directions from the Department of Employment to try to improve those archaic and humiliating conditions. I hope that my right hon. Friend will take that message on board.

8.43 pm

Mr. Austin Mitchell (Grimsby)

I do not propose to waste time discussing the Government's economic policy. It is now irrelevant. It has obviously failed disastrously in relation to the real economy and failed even on its own terms. It has failed to control the money supply. It has increased the public sector borrowing requirement. When it comes to the Budget, we shall find that it has put up taxes as well.

The prognostications we now hear about the depression bottoming out, or to the effect that there is light at the end of the tunnel, are nothing more than the normal response of Governments who find themselves in the mire and have to pretend, because there is no alternative, that being there is a beneficial, even an enjoyable, experience, that it is part of their planned policy, and that something good will come out of it. It will not.

The only safe prophecy made by the Government was that of the right hon. Member for Oswestry (Mr. Biffen), who prophesied an invisible miracle. It is rather like the Berkshire vicar who prophesied that the world was going to end in 1697. I think he was the vicar of Lilley. When, at the end of the year, his parishioners asked "Why has the world not ended? What was wrong with your prophecy?" he explained that the world had in fact ended and that no one had noticed. It will be the same with the invisible miracle when it comes.

In the year ahead the real problems will get worse, output will decline further, unemployment will rise to 3 million, and we shall have a declining share of world trade in 1981, as we had in 1980. The economy will continue to be savaged by a dead sheep, and the Prime Minister will continue to take the failures of her economic policy out on those members of the Cabinet who disagreed with it in Cabinet. She will continue to prate on—we have government by the Central School of Speech and Drama—in meaningless economic gobbledegook.

We are in a situation from which there is no escape. Failure is built into the Government's policies. Every time incomes are squeezed below the cost of living, demand is cut. Every time deflation squeezes profits, investment is cut. We are eating the seed corn and preparing the way for future disaster. Even to try to fight inflation by deflation means, essentially, that no recovery is possible. The Government have to go on deflating and holding down the lid, because, as soon as there is any relaxation or expansion, inflation automatically resumes its upward course.

Indeed, it is possible that the success of the Government's policies will make the situation worse, because the value of the pound has been going up. Last year, it rose faster than earnings in manufacturing industry. I shall not go into the causes of that at this late hour, hut, in so far as confidence is a cause of the pound's going up, everything that makes the Government's policy look successful in Government terms—holding down wages would make it look successful in their terms—contributes to confidence and helps the pound to go up even further. So success in Thatcherdom is failure in the real world. As the pound goes up, so our competitiveness is further undermined.

The pound is now our basic problem. Last year, the nominal rate went up by about 12 per cent. The real rate must have gone up by about one-fifth last year. That amounts to a tax on British exports and a subsidy on imports. The effect will take months and years to feed through. The main effects will probably come in three-quarters of a year, but the absolute effects go on for four years. We shall not feel the effect of the increase only in 1980, but we shall feel the effect of the earlier increase in 1979 and of the increase in 1978. Those effects still have to feed through to the economy, cutting and squeezing our exports and stimulating imports.

What other country would have allowed its currency to go up to this extent? I can think of no comparable rise in a currency's valuation in any advanced industrial country since the war. Other countries have the sense to manage their currencies so as to encourage their manufactured exports, the international trading sector of industry, to be competitive.

We manage our currency in the interests of finance and the City, which are directly harmful to the interests of manufacturing industry. That action guarantees that the situation will get worse. We cannot expand the economy, because such an expansion automatically sucks in imports at an accelerating rate. Unemployment will increase and our trade will suffer. That is one reason why unemployment will continue to increase. We are cutting output, cutting production and increasing our unit costs, and in so doing we are making ourselves less competitive. Meanwhile, other countries are managing to survive the depression caused by the increase in oil prices. In some cases their economies are actually growing. In all cases they are investing and struggling to survive difficulties to which we—an oil Power which should be able to survive them effectively—are succumbing. We shall finish harmed and weaker, with production and output down and industry in no state to compete when other countries have become more competitive, more efficient and more dynamic. That is the seed of future disaster, particularly when we are shackled with overvalued currency.

The answer lies in a concerted attempt to bring down the value of our currency. I was sorry to hear my right hon. Friend the Member for Bristol, South-East (Mr. Benn) argue that the expansionist strategies applied in the past would not work now. In a sense, that plays directly into the Government's hands. It does not mean that Keynes is dead. In a more managed situation in which we can improve our competitiveness, either by controlling imports and coming out of the Common Market or by a directly operated devaluation strategy, we can expand the economy. The Keynesian solutions can apply if we solve the problems of competitiveness.

The Government solution to hold wages will not work. It did not work in the 1920s and it will not work now. The agony is enormous and the effect small. Import controls would work, but I believe that a devaluationist strategy would be better. That involves bringing down the value of the pound—talking the pound down. That is possible. For the Government to hold up their hands in horror and say that they cannot affect the value of the pound is an abdication of their direct responsibility to keep the international trading sector of our economy competing and thereby keep up employment.

The Government can talk the pound down. They can bring down interest rates. If the financial markets then refuse to buy gilts, they can use the printing press to fund the Government borrowing requirement. The country now needs an increase in the money supply. Resources are so drastically under-used that a massive increase in the money supply is all that will bring the resources back into production and bring down unit costs.

If the money supply increases, that money will be saved and interest rates will be reduced. Alternatively, it will go abroad and bring down the value of the pound, or it will be spent and stimulate British industry. That is our central problem. The problem can be tackled only by bringing down the value of the pound, by expanding the money supply and by arranging for the valuation of our currency to be geared to the competitiveness of our internationally trading sector so that it can survive in a world which is increasingly hard, cruel and difficult.

Galbraith has prophesied that Britain is a laboratory or test case for the theories of monetarism. That is nonsense. Friedman will wriggle out of his predictions and dissociate himself in the most devious fashion from the Government's actions. At the same time, the Government are already retreating from monetarism in as good array as Napoleon came back from Moscow—walking backwards towards Moscow in their view, but really retreating from monetarism.

The real experiment in the next few months will be the effect of the exchange rate on our economy and competitiveness. I fear that the effect will be disastrous and will lead to further decline in the year to come with no recovery in 1982.

8.53 pm

Mr. Bill Walker (Perth and East Perthshire)

I have sat through the whole of the debate and found it interesting. At times I wondered whether hon. Members were debating the motion on the Order Paper. However, I am not an economist but a business man and part-time pilot. I treat economists and their economic forecasts like I treat "Met" forecasts—with considerable reservation and little respect. Conditions can often be worse than the forecast. Often they are better. In my experience they are rarely exactly as forecast.

Many Opposition Members mentioned Scotland. I am the only Scot to take part in the debate so far. In my constituency unemployment is about 14 per cent. The people living in the small town in which I live know that that is not caused by the present Government's policies. Factories in the town closed down before we came to office. The responsibility must lie elsewhere. We should examine why it lies elsewhere.

As a business man, I travel around the country talking to people who speak my language—the business language of profit and loss. They tell me "Whatever you do, Bill, you tell Mrs. Thatcher to stick to her policies, because uncertainty is the worst possible environment in which to operate, plan and control a business". I have some experience of the export market. I have travelled Europe and elsewhere on my flat feet selling our products. It is vital that inflation is brought down to the level of our major overseas competitors. When brought down, it must be kept down so that we can quote prices 12 and 18 months ahead and make deliveries on time. That is vital.

The business world wants no more repeats of the demand management policies practised by previous Governments. They did not create the demand for British products; nor were they managed effectively. In every instance they resulted in large inflows of foreign goods and rising inflation, which led to inflationary wage demands, which in turn were followed by pay and incomes policies which resulted in savage damage being inflicted on our manufacturing industry. We are living with the effect of that compounded over many years.

Regrettably, the Government have been labelled a monetarist and hard-nosed Government. Such a description is false. Opposition Members are more interested in sticking labels on the Government than in examining their policies in detail. Let us examine the facts. When they came into office, the Government accepted, and implemented, the post-dated public sector pay awards. They accepted the need to sustain British Steel, British Leyland, British Shipbuilders and many other major industrial concerns by massive injections of public funds. They accepted the need to increase Government spending through special employment measures. That has happened. The youth opportunities programme has been enlarged and there have been temporary employment subsidies and increased training grants. All those were implemented by the Government. Much to my regret, they also accepted real increases in spending by local authorities. That resulted in a substantial increase in public sector borrowing.

I sat through the whole of the debate wondering whether Opposition Members realised what was happening. My complaint is that we are being labelled a hard-nosed and monetarist Government, but we are not practising policies which merit that title. During a period of world economic depression the Government are being sensible, prudent and pragmatic. They are attempting to reduce the effects of world depression by policies that should he described as realistic and caring.

The policies are realistic because they attempt to reduce inflation in a manner that can be absorbed and accepted by the viable sections of British industry. They are realistic because they acknowledge that the only area of pay bargaining that the Government can directly influence is that of local authority and Government employees, where the Government foot the bill. The sort of collective bargaining practised in Britain can be practised only in the private sector where the real pressures of supply and demand are effective.

The Government are realistic because they recognise that some sectors of British industry need assistance during these difficult times. Indeed, they are receiving that assistance. We must acknowledge that. The Government do not have any money—it is either public money or borrowed money. Substantial funds—thousands of millions of pounds—are being used to sustain areas in difficulty. That is quite proper. I do not object to that. My quibble is that some of it should have gone to other areas. I am sure that many other Members have the same quibble. The Government are realistic in recognising that we can enjoy only those services that can be sustained by acceptable levels of taxation and borrowing—acceptable to the public at large, to the industry that generates wealth, and to the House.

The Government are caring because they are ensuring that redundancy payments in the old traditional industries, such as steel and shipbuilding, are paid at a level that minimises the hardships both for the individuals and for the communities affected by redundancies. They are caring in ensuring that vital areas of the health and social services are kept at a level that eases the effect of the depression on the old, the sick, the disabled and the less well-off in our constituencies.

The speech of the right hon. Member for Bristol, South-East (Mr. Benn) did more to convince me that the Government are, in the main, on the right track than anything else. I am confident that it will have the same effect on the British people. In my experience, the British people—especially workers, and by that I mean those who want to work, including management—wish to co-operate with whatever democratically elected Government is in power. It is wrong to suggest that any sector of Britain should not co-operate. That is the road to anarchy and disruption. I sometimes wonder whether some Labour Members have a vested interest in that happening.

The British people were only too well aware that it was about time that the nation faced the real problems of low productivity, overmanning, endemic high rates of inflation, intransigent unions and inept management. My friends in management and business assure me that for the first time for many years they have been given an opportunity to manage. In the past they have not been allowed to do so because of interfering Governments. I have made profits and I have made losses and I know what running a company is like. The country is facing the problems. Managements and unions—I am a former active trade unionist—are tackling their respective problems. They are doing so sanely, rationally and honestly, and that is more than can be said of some Labour Members.

Mr. Heffer

Get lost.

Mr. Walker

It is up to the Government to continue with their realistic and caring policies and to adjust in some areas as required. In my view, and in the view of the majority of the British people, they should see the job through.

9.3 pm

Mr. Ioan Evans (Aberdare)

The Opposition have been fully justified in using their Supply day to initiate this debate. It has succeeded in revealing as a myth the contention of the Prime Minister and other Conservative Members that there is no alternative to the policies that the Government have been pursuing. Opposition Members have rejected the Government's policies throughout the debate. We heard an interesting speech from the hon. Member for Macclesfield (Mr. Winterton), who, in the manner of the right hon. Member for Sidcup (Mr. Heath), talked about the catastrophic effects that the Government's policies are having on industry. There is a realisation among some on the Government Benches that there is an alternative to the disastrous policies that the Government have been pursuing.

Britain's industrial and economic policies are guided by a blind adherence to a crude ideology that has been borrowed from Professor Milton Friedman. The Prime Minister has been like the captain of the "Titanic". She can see the iceberg in front of her, yet she is saying "Full speed ahead". She has appointed as her adviser Professor Alan Walters, who apparently is more of a Friedmanite than Professor Friedman himself.

At the same time, the Government are calling upon workers to restrain their demands for wage increases. However, the Prime Minister is appointing a personal adviser to help with the problems that she is getting continually from the Treasury. The appointment is based on a two-year contract, which could take us to the next general election. It appears that £100,000 will be paid to Professor Walters. It is not moral for the Government to ask for restraint from working people when they are prepared to pay such a salary.

What successes have the Government had with their policy? They have argued that they have succeeded in reducing taxation. That was the great gimmick that they put before the British people. Conservatives said that, if a Tory Government were elected, they would reduce taxation. Yesterday, the Financial Secretary to the Treasury spoke to Swiss bankers in Zurich, the gnomes of Zurich. The title of the right hon. Gentleman's speech was "Thatcherism: a progress report". What progress have the Tories made in the economy?

The Secretary of State for Employment should tell us where in the world Milton Friedman's ideas are succeeding. Where are they being put into practice? Yet the Government have embarked on this experiment, and week by week terrible human suffering has been caused by their policies.

It is wrong for the Government to talk as if inflation were the only problem which faces us. The Government are like the huckster in the market selling a medicine which he claims will cure dandruff, baldness, rheumatism and stomach complaints—in fact, all complaints—we have only to buy a bottle and all our problems and complaints will be cured. That is how monetarism is being presented to the people. The Government say that they have the solution and that it will solve everyone's problems. The tragedy with this Government is that they are giving the people extra doses of this elixir to solve all their problems. However, we have ended up with all the medical complaints that are listed on the bottle. Instead of solving problems, the Government have aggravated them.

The problems we face are partly a consequence of our membership of the EEC, which has aggravated our difficulties. We should realise that. Membership of the EEC has not helped but has harmed agriculture and industry.

Another reason is the continual failure of British industry to invest in new plant and machinery. During the previous Tory Government, there was a massive boom in property speculation. It is interesting to hear Tory Members in this debate, with over 2 million unemployed, talking of investing in property as a method of solving our problems.

We under-use our indigenous productive capacity; and the powerful multinationals influence the fixing of prices. I believe that one of our problems is the diversion of resources for investment abroad and also as an escape from taxation.

Another of our problems has been the failure to exploit North Sea oil, gas and other energy wealth in order to stimulate industrial production. It is amazing that we have the benefit of North Sea oil and gas, and yet are worse off, as the economic indicators show, than our overseas competitors.

As well as being concerned with the control of the money supply, it is equally important that we should seek to achieve full employment. It is the task of the Opposition to throw back into the teeth of the Government the Saatchi and Saatchi poster displayed at the last election, which said that Labour was not working. Will the Government say that to the million or more people who have joined the unemployment queues as a result of their policies? In my constituency, over 17 per cent of the male population are unemployed. About 38 per cent. of the children leaving school are moving on to the dole queue. Job centres can report only nine vacancies for over 3,000 unemployed. That is how monetarism is working and how it is failing the people. As well as achieving full employment, we must see that there is sustained economic growth, that our external payments are balanced and that adequate finance is generated for health, education and the social services.

The Government are pursuing a policy that members of the Cabinet themselves realise must be changed. We do not have the power in the House to defeat the Government, but it is important for Conservative Members to realise that, if they are to go blindly along with the Government's policies, the result will not be just the defeat of the Tory Party—although it certainly will be defeated in the next election. They talk about arguments in the Labour Party, but we will be there winning the next election. The danger for them is the emergence of a centre party to replace the Tory Party as the only alternative to a Labour Government.

9.10 pm

Mr. Eric Varley (Chesterfield)

Every hon. Member who has spoken tonight, including the Chancellor of the Exchequer, has agreed that the nation is now afflicted with a grave economic crisis. Many of my hon. Friends have described the impact on their constituencies. My hon. Friend the Member for Batley and Morley (Mr. Woolmer), in an outstanding speech, told us that practically every household in his constituency was affected by unemployment. My hon. Friend the Member for Liverpool, Walton (Mr. Heffer) told us of the impact of the Government's policies on the construction industry, with which I shall deal later. My hon. Friend the Member for Bishop Auckland (Mr. Foster), with all his experience in youth work and training, told us of his doubts about the possible success of the youth opportunities programme.

The hon. Member for Macclesfield (Mr. Winterton) made a devastating attack on the Government, implying that they had given no thought to the survival level of British industry. But the most bizarre speech was the 27-minute contribution of the hon. Member for Burton (Mr. Lawrence), who told us that he had been travelling around his constituency during the recess and who related all the wonders of the world in Burton but failed to admit one vital statistic—that unemployment in Burton had risen by 100 per cent. over the last 12 months.

Mr. Lawrence indicated dissent.

Mr. Varley

Oh yes, it has. That has been checked. As soon as the hon. Member rose to his feet, we asked for that piece of vital information.

The differences tonight have arisen over the questions of who is responsible for the crisis, whether it will get worse or better, and what should be done to put it right. There can be no doubt about the depth of the recession. The latest figures show that during the past year company liquidations in England and Wales totalled 6,876—the highest figure since 1916. Profits are plunging, industrial production is catastrophically down, and output in the latest three months for which figures are available was 4½ per cent. down on the previous three months and 9 per cent. down on the same period in 1979—the latest quarter in which output in manufacturing was less than the current three months' average in 1967.

That is a record that almost makes the nation look back with nostalgia to the period of the three-day working week, seven years ago, when production was way above today's levels. But then, of course, it was a three-day week for nearly everybody. Now, it is a four-day week for some, a three-day week for others, a one-week fortnight for others still—and a no-day week at all for the highest number of unemployed for half a century.

Of course we all acknowledge that world conditions can play some part in this. It is refreshing to hear Ministers and Conservative Members talk about world conditions, since for them world conditions began on 4 May 1979. Up to then, no one in that party would acknowledge their existence. World conditions had gone into hibernation for five years, after making a dramatic appearance in 1973 with the famous pilchard famine in South Africa, on which the right hon. Member for Sidcup (Mr. Heath) used to blame all our troubles. Now, world conditions have made a triumphant reappearance. The Opposition will certainly continue to acknowledge them.

Other countries, however, are managing to survive world conditions much more successfully than we are. Any examination of the facts now shows that the policies pursued in Britain are making the United Kingdom recession worse than the world recession. Far from producing a rejuvenated economy, the measures adopted by the Government will leave us trailing behind other countries, and we shall be in a worse competitive position if and when the world economy picks up.

Growth in output has been slowing down in most other countries, but in Britain output has actually fallen. In 1980, our GDP fell by 2½ per cent., compared with a modest growth of about 1.2 per cent. in EEC and OECD areas. Industrial production here has slumped. Other countries have maintained or slightly increased production. West Germany's Bundesbank recently reported that German companies were financially more secure than they were after the 1973 oil price rise.

Since the second half of 1979 our unemployment rate has been higher than the OECD average. According to the Government, high unemployment is the price that we have to pay for reducing inflation, but the United Kingdom inflation rate is still higher than that of many major industrial countries.

The figures for investment are equally dismal. In the United Kingdom over the past two years investment has fallen by more than 2½ per cent. and is forecast to fall this year by 6½ per cent. In OECD countries, over a comparable period, investment increased by 4½ per cent., and even next year a modest increase is expected.

The Treasury predicts that our exports will decline this year by 3 per cent. as compared with last year. The facts show that Britain's recent record has been uniquely bad. I quote the evidence of one of the most recent leaks from this most leaky Government. The Prime Minister may have difficulty in tracing it, because this leak was not committed in one of the usual places, such as Quaglino's or the Garrick Club; nor did it take place in what has now been revealed as the most fashionable new location for Government leaks—the Prime Minister's study at No. 10 Downing Street. Was it in the study? Was it in the Cabinet room, or the State room? Was it there that the Prime Minister entertained the correspondents of The Times, The Guardian, the Financial Times and The Daily Telegraph last Monday afternoon?

In the light of the Chancellor's speech this afternoon, I suppose that on the next occasion the right hon. Lady will add to the guest list the Lobby correspondent of the Chinese People's Daily. Last Monday's disclosure by the Prime Minister to these privileged journalists, that the income tax rate would not be going up in the Budget on 10 March, proves that when she wrote to her right hon. Friend the Member for Chelmsford (Mr. St. John-Stevas) exonerating him from being the secret leaker she was very honest.

The significant leak to which 1 refer, however, took place in a somewhat unusual location—the Chamber of the House on Monday. It was committed by a Minister in whom the Prime Minister must retain at least some confidence, as she appointed him only 10 days ago—the new Minister of State for Industry, the hon. Member for St. Marylebone (Mr. Baker), who is not present tonight. This is what he said: I am very concerned … at the drop in manufacturing output last year. The most powerful contractionary force operating in the manufacturing sector in 1980 was the reduction in inventories and stocks. The level and rate of the reduction was unprecedented in the recent economic history of any country."—[Official Report, 12 January 1981; Vol. 996, c. 1119.] By far the largest part of the country's troubles stems directly from the actions of the Government. Companies are going bankrupt because of the artificially high exchange rate. Companies are going bankrupt because of the enormously high minimum lending rate, which stood at a record 17 per cent. and 16 per cent. for a year until November. It is always helpful on these occasions to recall what the Prime Minister said in Opposition when the MLR went up to 14 per cent. for a short time during the period of the Labour Government. She said: an increase in interest rates to 14 per cent. is a potential disaster for home buyers … and the small business who are having to pay the price"—[Official Report, 8 February 1979; Vol 962, c. 550.] More companies will be in severe financial difficulties because of the ruinous effect of the rate support grant settlement on businesses, particularly in our large cities. Workers are being thrust on to the dole queues as a result of all these factors and also because of the huge public expenditure cuts that are being imposed by local authorities.

I take one example—the construction industry—which was referred to by my hon. Friend the Member for Walton. Unemployment has gone up from 160,000 to 274,300 since the Government took office. That is a 71 per cent. increase. For craftsmen in that industry, the increase has been a massive 114 per cent. More jobs have been lost as a result of the Government's attack on regional policy, and practically every decision that the Government have taken in the industrial sphere has brought about unemployment.

When the Government need something to boast about and when they need a success story to tell, they turn to the companies that were either rescued or created by the Labour Government. [Interruption.] Perhaps the Prime Minister will turn her attention from the gnome of Zurich, the Financial Secretary, and take this point on board. When she wants to boast about British industry, she turns to companies that were saved by the Labour Government.

The Prime Minister sits at the wheel of the Mini Metro and proclaims that it is a super car. So it is. But there would be no Mini Metro today had the Conservative Party succeeded in its opposition to British Leyland. During a recent censure debate the Prime Minister, with her face blushed as it usually is when she stands at the Dispatch Box, pulled a rabbit out of the hat by announcing that the Inmos silicon chip factory was to be located in South Wales. Yet Inmos would not have existed today had the Conservative Party succeeded in its opposition to its launching. These are isolated islands of promise in an ocean of gloom. We are faced with a serious crisis that has been made worse by the Government's deliberately inflationary and deflationary policies.

What are the objectives of those policies? It is all part of a perfect plan, which goes as follows: control the money supply and inflation will be conquered; cut direct taxation and industrialists will be galvanised; cut public expenditure and roll back the frontiers of the State and room will be made for these galvanised industrialists to create the British economic miracle that will bring us all unparalleled prosperity. That was their perfect plan, but it turned into the perfect crime, because in the past 20 months all the right, hon. Lady's magic stimuli have not worked.

To begin with, money supply is out of control. That was the linchpin of Government policy. That is disastrously out of control. The House will recall that in his Budget Statement last spring the Chancellor forecast a PSBR of £8,500 million for the current financial year. In November, he revised it upwards to £11,500 million. But this week's figures show that the total Government requirement in the first nine months of this year is £13,059 million, and even the Treasury is now admitting that it could go way above that forecast.

Another central objective of the Government was the cutting of direct taxation. They made a start in their first Budget. It is true that the majority of it went to top salary earners, who got 30 per cent. of the taxation cuts. But by the second Budget the Government were increasing direct taxation. Since then they have increased it in at least three ways. They increased national insurance contributions in the November mini-Budget. The increase in council house rents announced by the Secretary of State for the Environment last month added another £875 million. All over the country ratepayers will soon be faced with large increases in that form of direct taxation as a result of the rate support grant that we debated yesterday. Even the post-election burst of taxation cuts, which has now petered out, failed to galvanise our industrialists—quite the reverse.

In a newspaper article yesterday, the Secretary of State for Industry was still prattling on about unlocking the talents, skills and energies of the British nation and breaking away from attitudes that stifle risk taking. But the facts are different. The Times reported three weeks ago, just before the House went into recess: The number of people leaving Britain to settle abroad is increasing rapidly as the economic recession deepens. As factories close and unemployment spreads, highly trained workers are emigrating to countries where their skills are wanted.… Interest came from a wide cross section of people, including executives, engineers and sometimes science and engineering graduates". The Secretary of State for Industry talked about promoting enterprise and risk taking. The risk that these valued members of our working population—executives, engineers and science graduates—are refusing to take is to remain in this country, at the tender mercies of the Government. We used to hear much talk from Conservative Members about the brain drain. Now people whose skills are desperately needed are running away from this country.

The Government talk about rolling back the frontiers of the State to make room for newly created industries. They are tampering with our publicly owned assets in a squalid manner. They are meddling with our nationalised industries. The effect on those industries of the economic crisis, for which the Government are largely responsible, has meant that the Government are having to pour unprecedented sums into nationalised industries. A great part of the disaster into which the British Steel Corporation was plunged as a result of last year's unnecessary strike was provoked by the Government's interference in the corporation's wage bargaining. That forced the Secretary of State for Industry to sign what amounted to a blank cheque for the British Steel Corporation. Huge sums have to be injected into British Shipbuilders. Vast quantities of moneys are required for British Leyland because of the collapse of the market in 1980 and the collapse of its export prospects. I hope that the Government will soon reply to Sir Michael Edwardes's request for further resources for that company.

The new Secretary of State for Trade—who we all thought would stick it out if necessary, as the last remaining monetarist in Britain—this week increased the borrowing powers of British Airways by £85 million. The House has always been very fond of the right hon. Gentleman, but I should warn him that that fondness will be sorely tried if he follows this week's precedent and emulates the disagreeable practice of the Secretary of State for the Environment in using written answers to make unpalatable statements. It would have been better if he had confessed, as the good monetarist he is, that he had got it wrong and that he had to bail out British Airways. The Government promised that large parts of the public sector would be restricted and tamed but, because their economic policies are failing, they are having to put unprecedented amounts of money into the nationalised industries.

Meanwhile, the blight is spreading all over the country. The Financial Times recently brought news of a new growth industry in Britain which is a booming export industry. The Financial Times article stated: Thousands of tonnes of second-hand factory machinery are being sold weekly at auctions and through private sales as a result of the tide of factory closures in Britain. It goes on to refer to how many tonnes are going away. It is a tragedy and disgrace that, after 20 months of the present Government, the Prime Minister is increasingly making sure that some of our skilled men and women are leaving the country and that the machines on which they were working are also going. Until a short while ago those machines were fully employed in our factories, but now there is no use for them.

It is not only men and women workers who are being affected. Boys and girls ought to be acquiring skills for the future, but the Manpower Services Commission, when presenting its recent report to the Secretary of State, made a grim announcement: The Commission has informed the Secretary of State for Employment that in looking ahead to 1985 it has had to plan reductions in its employment and training services to levels which it believes are inadequate and not in the interests of the labour market from either the economic or social point of view. The amendment asks the House to endorse the priority given by the Government to master inflation". When the Government took office in May 1979 the inflation rate was 10.3 per cent. The latest figure, for November 1980, was 15.3 per cent.—half as much again as the rate that the Government inherited. There are rumours that the statistics to be published tomorrow will show that the rate has risen again. The Prime Minister and the Chancellor of the Exchequer will know the figures.

Inflation will be increasingly affected by higher rates, private and council rents, fuel prices and postal charges, which we already know about, not to mention the higher indirect taxes that will inevitably have to be included in the Budget in eight weeks' time if the Prime Minister is to keep her promise of no increase in the basic rate of income tax that she made to the four posh journalists whom she entertained on Monday. It is by no means certain that inflation will fall consistently as the Government hope.

Let us give the Prime Minister the benefit of the doubt and suppose that by the time this Parliament is dissolved inflation is back to the 10 per cent. rate that the Government inherited. In that respect, we will be back to where we were, but to attain that objective the country will have had to pay a catastrophic price of thousands of firms going out of business, rotting public services, deteriorating housing conditions, poorer and more expensive public transport, a deteriorating education system, a reduction in real terms in pensions and other benefits and, worst of all, a sorry catalogue of unemployment having increased by millions.

It is intolerable that the resources of our industry and our precious North Sea oil revenues are being diverted into financing unemployment when we could be exploiting them usefully and constructively. It is intolerable that there should be 300,000 building workers on the dole when there are 1,200,000 people on housing waiting lists. We need to use our wasted resources to revitalise Britain. We need to put our construction industry to work to house our people. We need to re-equip our railway system, especially the seedy parts, where commuters are paying higher fares for less frequent trains and intolerable conditions.

We need to use the public purse to finance the potential growth industries and to train our eager youngsters to operate them. That is the policy to adopt. The Government's refusal to do that is a sorry commentary on them. At the Tory Party conference last October, the Prime Minister said: The Lady's not for turning. Very soon the British people will make sure that, come the next election, she will be turned out of office. That is the reason why we are moving our motion tonight.

9.35 pm

The Secretary of State for Employment (Mr. James Prior)

At a time of high unemployment, and with the anxiety that it causes, it is not surprising that we are having frequent debates on this subject. Today's debate has been rather less than the relentless attack and exposure that the right hon. Member for Ebbw Vale (Mr. Foot) promised us in his Sunday morning address to the nation, except that it has been a bit of an exposure. It has shown clearly that, first, there is very little in the Opposition's case to put forward. I shall deal with that later. Also, behind the Opposition there is the right hon. Member for Bristol, South-East (Mr. Benn), who is taking a totally different view from his Front Bench. Presumably, there is also the view—which has not been expressed today, but which we know must be around—of the right hon. Member for Plymouth, Devonport (Dr. Owen) and hon. Members from a number of other constituencies, who take yet another different view from that of the Leader of the Opposition. To that extent, there has been more exposure today than we might have expected.

When Labour Members accuse us of not caring about unemployment, I remind them of the words of my hon. Friend the Member for Perth and East Perthshire (Mr. Walker), who said that, if we did not care, we should not be spending on British Leyland, British Shipbuilders, British Steel and a host of other industries the vast sums that we are spending; nor should we be spending vast sums on youth unemployment and many other aspects of unemployment.

Again and again during the course of this debate Labour Members have shown that they are not able to make up their minds about whether they believe that our monetary policy is too tight or not tight enough, or whether they believe that the public sector borrowing requirement should be higher or lower. I suspect, from all that we have heard from the Opposition Front Bench, that they believe that we can cure our serious problems by a dose of old-fashioned reflation. That was the general view of the right hon. Members for Stepney and Poplar (Mr. Shore) and Chesterfield (Mr. Varley). I should like to take them through what happened when they were faced, in similar circumstances

Mr. Heffer

rose—

Mr. Prior

No, I want to get on. I have lost five minutes already. I shall not take long on this matter, and I shall take even less time if I can get on with it. It is important. When the Labour Government were in office, and when we had high unemployment, they found themselves in the clutches of the IMF—

Mr. Heffer

Will the right hon. Gentleman give way?

Mr. Prior

No, I shall give way to the hon. Gentleman in good time, but first I should like to make my points.

For a short time the Labour Government heeded what the former Prime Minister and Leader of the Opposition said to his party conference: We used to think that you could spend your way out of recession. I tell you in all candour that that option no longer exists. They accepted that for two years, and then between 1977 and 1979 they allowed the public sector borrowing requirement to go up again. There was a sharp increase in real earnings and real standards of living. What happened to unemployment? It fell by a mere 150,000. That was despite pouring money into the economy and a large increase in real earnings and real standards of living. What the Opposition have not understood is that by reflation, as happened last time, unless we get the economy competitive in the meantime, we simply suck in the imports all over again.

Mr. Heffer

Is the right hon. Gentleman totally ignoring the two quotations that I gave from two former Tory Prime Ministers, the right hon. Member for Sidcup (Mr. Heath) and Mr. Harold Macmillan, who made it absolutely clear that they thought the present Government's policies were leading to catastrophe and disaster?

Mr. Prior

I am sorry that I gave way quite so early, because I shall be dealing with that point in the course of my remarks. I was pointing out that, by reflating the economy in the bad competitive position of British industry, all we do is to encourage imports.

It is interesting to look at a study of United Kingdom import penetration In the last three years. In 1970, we imported about 50 per cent. of our office machinery. Now we import nearly all our office machinery. We used to import 50 per cent. of our electronic computers. Now the figure is 85 per cent. We know what has happened to cars and to watches and clocks.

I have to point out to the Opposition Front Bench that, although, of course, the high exchange rate has been an important factor in making us less competitive, it is by no means the only factor that has made us less competitive. On the basis of relative labour costs, the level of competitiveness in 1980 is estimated to be 40 or 50 per cent. less favourable than in 1978. Of this change in competitiveness about three-fifths has been due to United Kingdom unit labour costs increasing faster than those of our competitors. The other part is due to the exchange rate.

So although we have a serious difficulty with the exchange rate, we also have to accept—as the previous Labour Government had to accept—that it is our own labour costs that have prevented us from selling our goods in the volume in which we need to sell them abroad and that have also had the effect of sucking in imports.

We have been importing other people's unemployment for a number of years, so we cannot go back once more to those old methods of trying to reflate ourselves out of a depression. Yet the Opposition want us to repeat that process. It would lead us straight back to inflation, and it is these inflationary bouts—ever intensified over the last 20 years—which have brought upon us the uncompetitive state of much of our industry today. If we were to return to that policy, in two or three years' time we should not be decrying very high levels of unemployment such as we have today but wondering why they were very much higher still.

We owe it to our people to ensure that the real suffering and indignities through which many of our people are now passing are not in vain and will not be repeated in an even more acute form in an even shorter time scale. This means continuing, above all, with the campaign to get inflation under control. We are succeeding in that, and, as my right hon. and learned Friend the Chancellor of the Exchequer said this afternoon, the last six months' figures show that prices have risen by 4–1 per cent. That is a slightly optimistic figure but it is a vast improvement on the figures that we have had since about 1977.

With regard to food prices—a very important matter for pensioners and others—the year-on-year figure is down to 9.7 per cent.

Mr. David Ennals (Norwich, North)

When does the right hon. Gentleman think that inflation will reach the level that the Government inherited from the Labour Administration?

Mr. Prior

Unlike Labour Ministers, who always told us what would happen to the levels of unemployment and to the levels of inflation, but who never got it right, I am not in the game of forecasting to that extent.

Provided that we continue to hold wage increases to sensible levels and provided that we continue to lower the rate of inflation so that output can once more start to expand, we shall soon see a very large increase in productivity and a very much better position for competitive British industry. Despite all the bad things that are only too evident, we can take comfort from the fact that in a most difficult time there has been great co-operation between management and the work force on the shop floor. That is evinced by the very low figures for industrial disputes.

In November, there were 53 new stoppages and that is the lowest number since the war. If one considers the number of working days lost— [Interruption.] I had thought that on the whole Opposition Members would like to hear good news. I thought that that was what they were interested in. [HON. MEMBERS: "Where are they?"] I am the last person to object to the fact that Labour Members are not coming into the Chamber. I should have thought that Opposition Members would be particularly interested in the figures for industrial disputes and for the number of working days lost. During the past five months those figures were lower than for any corresponding period since 1966.

No one doubts that management is having to take some hard and painful decisions. Those decisions have been made all the more difficult because they have been postponed for so long. With hindsight we can all see that, if we had placed more emphasis on making industry competitive and profitable in the easier years, we should not have been faced with such harsh and difficult problems.

I turn to the right hon. Member for Bristol, South-East. During the British Leyland dispute the right hon. Gentleman spoke on Independent Radio News. The broadcast was made on the Sunday morning on which the Metro workers were taking a decision on whether to accept the union's terms. He said: I think that the bullying nature of the management offered by Sir Michael Edwardes is a disgrace and I believe that people in this country should support the British Leyland workers in trying to maintain decent standards of civilised conduct". I suggest to the right hon. Gentleman that those remarks were mischievous in the extreme. They were regarded as mischievous by responsible trade union leaders. Before any decisions are taken on vital disputes and problems within British industry which involve not only large sums of taxpayers' money but the future employment of many workers, it does no good to the Opposition's cause or to the country's to try to incite those workers to take such a line.

Mr. Benn

Is the right hon. Gentleman aware that many workers in industry who are now being threatened daily by management, that, unless they accept what the Government lay down their work will be taken away from them believe that the right hon. Gentleman is guilty of odious hypocrisy in supporting free trade unionism in Poland and denouncing it in this country?

Mr. Prior

In his speech this afternoon the right hon. Gentleman called for the setting up of communes and advised trade unionists and trade union leaders to withdraw all the co-operation and support that they are giving the various bodies that are connected with the Government. He went on to say that he disagreed strongly with the policy of the Opposition Front Bench, or parts of it. He said that the only future was one in which industry was completely dominated by the State. If the right hon. Gentleman wants to tell me about Poland, I suggest that he goes there. He got as near this afternoon as he ever has in giving his description of the sort of society that he wishes to see in Britain. He is not like the hon. Gentleman sitting next to him, his hon. Friend the Member for Liverpool, Walton (Mr. Heffer), whom I regard as an old-fashioned Socialist. The right hon. Gentleman has stepped over the boundary.

The right hon. Gentleman purports to understand the British working man, but he does not have a clue about the British working man. The British working man would eat him for breakfast any day of the week. Let me return to more serious matters than dealing with the right hon. Gentleman.

There are two factors to be dealt with concerning the high level of unemployment. First, we must do all we can for those areas and those groups that are hardest hit by it. A second point was brought out forcefully by the speech of my hon. Friend the Member for Bath (Mr. Patten). If we are not to drift back into the old ways, we have to accept that new challenges and opportunities will arise as we move out of the recession and that we have to deal with these matters perhaps in a different way.

The story of Britain's decline over the past 30 years has been one of repeated failure to make the most of the opportunities presented by the rapid growth in world trade. We can all see the consequences of that throughout the land today. We can no longer afford to shy away from this challenge.

Today we have published a Green Paper on trade union immunities. I hope that the document will be read by everyone in the House and by many people and organisations too, but I want to mention just one paragraph in the introductory chapter, because it ties in closely with what my hon. Friend said. It says: The absence of reasoned debate leading to a wider understanding of common problems seriously hampers progress. If it were possible to establish clear and acceptable relationships between these dissimilar bodies. —the TUC, the employers' organisations and the Government— as a working understanding, the incessant flexing of industrial muscle to impress Government might be replaced by more constructive activity. What we need to do in this country, wherever we can and in any way we can, is to find the common ground. If industry is to prosper, if we are to get investment up again and if we are to make better use of investment, it is a mistake for the hon. Member for Aberdare (Mr. Evans) to think that investment is the end of the story. The British record over the last 15 years in manufacturing investment has not been bad. The truth, however, is that we have not got, as the right hon. Member for Heywood and Royton (Mr. Barnett), who shared a platform with me, knows, the results from that investment that other countries have achieved. The Germans have invested less than us in manufacturing industry as a percentage of their output but have got about twice the amount of work out of it.

Mr. Nicholas Winterton

rose—

Mr. Prior

I am sorry. No.

Hon. Members

Give way!

Mr. Winterton

Does not my right hon. Friend agree that the point he makes about unsatisfactory industrial relations in some industries does not relate to textiles and clothing where employers, the work force arid the trade unions have worked closely together but are being totally destroyed by unfair competition?

Mr. Prior

Everyone knows that the textile industry faces extraordinarily difficult problems. It has faced difficult problems over the past 20 years since I have been a Member of the House. The problems have been made more difficult by the unfair practices that the United States has been using in holding down the price of oil. My hon. Friend has been in touch with my right hon. Friend the Prime Minister. We are aware of the matter. My hon. Friend said in his speech today that he hoped that my right hon. Friend the Prime Minister would raise the question with President-elect Reagan when she goes to see him. I am certain that she will do so.

I want to end by saying a word about the youth opportunities programme and what we are doing to try to help these special groups of people. I take up the point made by the hon. Member for Bishop Auckland (Mr. Foster). If he has evidence that we are not going to get the places that we require for the youth opportunities programme in his area and if he will let us know, we shall do all that we can to help get them. I am pleased to say that the CBI unit, under Lord Can's chairmanship, has been in contact with 50 companies. It has about 7,000 firm offers of places and about 10,000 more in the pipeline. That is the result of six weeks' work by a small unit of people.

Overall, we shall have trebled the amount of money for the youth opportunities programme from £68 million in 1978–79 to £208 million in 1981–82. Last year, 180,000 to 190,000 young people went through the scheme. We have put up that figure this year to 300,000. We are expanding the scheme next year to 440,000. That does not look to me like a Government who do not care about unemployment and young people.

We have put the new community enterprise programme into action with 25,000 places available from April onwards. My right hon. Friend said this afternoon that the temporary short-time working compensation scheme was now running at a rate of over £400 million a year. We are aiding, in one way or another, over 750,000 people to try to hold jobs that otherwise, in this recession, they would not be able to hold.

All that suggests to me that, difficult though our present situation may be, the policies of the Government will succeed in bringing about higher employment and higher prosperity. In the meanwhile, we shall do all that we can to protect our people from the worst effects of this recession.

Question put,That the original words stand part of the Question:

The House divided: Ayes 244, Noes 304.

Division No. 42]	[10 pm
AYES
Adams, Allen	Cunningham, Dr J. (Wh'n)
Allaun, Frank	Dalyell, Tam
Alton, David	Davidson, Arthur
Archer, Rt Hon Peter	Davies, Rt Hon Denzil (L'lli)
Armstrong, Rt Hon Ernest	Davies, Ifor (Gower)
Ashley, Rt Hon Jack	Davis, Clinton (Hackney C)
Ashton, Joe	Davis, T. (B'ham, Stechrcd)
Bagier, Gordon A.T.	Dean, Joseph (Leeds West)
Barnett, Guy (Greenwich)	Dewar, Donald
Barnett, Rt Hon Joel (H'wd)	Dixon, Donald
Beith, A. J.	Dobson, Frank
Benn, Rt Hon A. Wedgwood	Dormand, Jack
Bidwell, Sydney	Douglas, Dick
Booth, Rt Hon Albert	Douglas-Mann, Bruce
Boothroyd, Miss Betty	Dubs, Alfred
Bottomley, Rt Hon A.(M'b'ro)	Dunn, James A.
Bradley, Tom	Dunnett, Jack
Bray, Dr Jeremy	Dunwoody, Hon Mrs G.
Brown, Hugh D. (Proven)	Eadie, Alex
Brown, R. C. (N'castle W)	Eastham, Ken
Brown, Ron (E'burch, Leith)	Edwards, R. (W'hampt'n S E)
Brown, Ronald W. (H'ckn'y S)	Ellis, R. (NE D'bysh're)
Buchan, Norman	English, Michael
Callaghan, Jim (Midd't'n & P)	Ennals Rt Hon David
Campbell, Ian	Evans, loan (Aberdare)
Campbell-Savours, Dale	Evans, John (Newton)
Canavan, Dennis	Ewing, Harry
Cant, R. B.	Faulds, Andrew
Carmichael, Neil	Field, Frank
Carter-Jones, Lewis	Fitch, Alan
Cartwright, John	Flannery, Martin
Clark, Dr David (S Shields)	Fletcher, Ted (Darlington)
Cocks, Rt Hon M. (B'stol S)	Foot, Rt Hon Michael
Cohen, Stanley	Ford, Ben
Coleman, Donald	Forrester, John
Concannon, Rt Hon J. D.	Foster, Derek
Conlan, Bernard	Foulkes, George
Cook, Robin F.	Fraser, J. (Lamb'th, N'w'd)
Cowans, Harry	Freeson, Rt Hon Reginald
Craigen, J. M.	Freud, Clement
Crowther, J. S.	Garrett, John (Norwich s)
Cunliffe, Lawrence	Garrett, W. E. (Wallsend)
Cunningham, G. (Islfngton S)	George, Bruce

Gilbert, Rt Hon Dr John	Newens, Stanley
Ginsburg, David	Oakes, Rt Hon Gordon
Golding, John	Ogden, Eric
Gourlay, Harry	O'Halloran, Michael
Graham, Ted	O'Neill, Martin
Grant, George (Morpeth)	Orme, Rt Hon Stanley
Grant, John (Islington C)	Owen, Rt Hon Dr David
Hamilton, James (Bothwell)	Paisley, Rev Ian
Hamilton, W. W. (C'tral Fife)	Palmer, Arthur
Hardy, Peter	Park, George
Harrison, Rt Hon Walter	Parker, John
Hart, Rt Hon Dame Judith	Parry, Robert
Hattersley, Rt Hon Roy	Pavitt, Laurie
Haynes, Frank	Pendry, Tom
Healey, Rt Hon Denis	Penhaligon, David
Heffer, Eric S.	Powell, Raymond (Ogmore)
Hogg, N. (E Dunb't'nshire)	Prescott, John
Holland, S. (L'b'th, Vauxh'll)	Price,C. (Lewisham W)
Home Robertson, John	Race, Reg
Homewood, William	Radice, Giles
Hooley, Frank	Rees, Rt Hon M (Leeds S)
Horam, John	Richardson, Jo
Howell, Rt Hon D.	Roberts, Allan (Bootle)
Howells, Geraint	Roberts, Ernest (Hackney N)
Huckfield, Les	Roberts, Gwilym (Cannock)
Hughes, Mark (Durham)	Robertson, George
Hughes, Robert (Aberdeen N)	Robinson, G. (Coventry NW)
Hughes, Roy (Newport)	Robinson, P. (Belfast E)
Jay, Rt Hon Douglas	Rooker, J. W.
John, Brynmor	Ross, Ernest (Dundee West)
Johnson, James (Hull West)	Ross, Stephen (Isle of Wight)
Johnson, Walter (Derby S)	Rowlands, Ted
Jones, Rt Hon Alec (Rh'dda)	Ryman, John
Jones, Barry (East Flint)	Sandelson, Neville
Jones, Dan (Burnley)	Sever, John
Kaufman, Rt Hon Gerald	Sheldon, Rt Hon R.
Kerr, Russell	Shore, Rt Hon Peter
Kilfedder, James A.	Silkin, Rt Hon J. (Deptford)
Kilroy-Silk, Robert	Silkin, Rt Hon S. C. (Dulwich)
Kinnock, Neil	Silverman, Julius
Lambie, David	Skinner, Dennis
Lamborn, Harry	Smith, Cyril (Rochdale)
Lamond, James	Smith, Rt Hon J. (N Lanark)
Leadbitter, Ted	Snape, Peter
Leighton, Ronald	Soley, Clive
Lestor, Miss Joan	Spearing, Nigel
Lewis, Arthur (N'ham NW)	Spriggs, Leslie
Lewis, Ron (Carlisle)	Stallard, A. W.
Litherland, Robert	Stewart, Rt Hon D. (W Isles)
Lofthouse, Geoffrey	Stoddart, David
Lyons, Edward (Bradf'd W)	Stott, Roger
Mabon, Rt Hon Dr J. Dickson	Straw, Jack
McDonald, Dr Oonagh	Summerskill, Hon Dr Shirley
McElhone, Frank	Taylor, Mrs Ann (Bolton W)
McGuire, Michael Ince)	Thomas, Jeffrey (Abertillery)
McKay, Allen (Penistone)	Thomas, Mike (Newcastle E)
McKelvey, William	Thomas, Dr R.(Carmarthen)
MacKenzie, Rt Hon Gregor	Thorne, Stan (Preston South)
McNally, Thomas	Tilley, John
McNamara, Kevin	Tinn, James
McTaggart, Robert	Torney, Tom
McWilliam, John	Varley, Rt Hon Eric G.
Magee, Bryan	Wainwright, E. (Dearne V)
Marshall, Dr Edmund (Goole)	Wainwright, R.(Colne V)
Marshall, Jim (Leicester S)	Walker, Rt Hon H.(D'caster)
Martin, M(G'gow S'burn)	Watkins, David
Maxton, John	Weetch, Ken
Maynard, Miss Joan	Welsh, Michael
Meacher, Michael	White, J. (G'gow Pollok)
Mellish, Rt Hon Robert	Whitlock, William
Mikardo, Ian	Wigley, Dafydd
Millan, Rt Hon Bruce	Willey, Rt Hon Frederick
Mitchell, Austin (Grimsby)	Williams, Rt Hon A.(S'sea W)
Mitchell, R. C. (Soton Itchen)	Williams, Sir T.(W'ton)
Morris, Rt Hon C. (O'shaw)	Wilson, Gordon (Dundee E)
Morris, Rt Hon J. (Aberavon)	Wilson, Rt Hon Sir H.(H'ton)
Moyle, Rt Hon Roland	Winnick, David
Mulley, Rt Hon Frederick	Woolmer, Kenneth

Wrigglesworth, Ian	Mr. Frank R. White and
Young, David (Bolton E)	Mr. Hugh McCartney.
Tellers for the Ayes:

NOES
Adley, Robert	Eggar, Tim
Aitken, Jonathan	Elliott, Sir William
Alexander, Richard	Emery, Peter
Amery, Rt Hon Julian	Eyre, Reginald
Ancram, Michael	Fairbairn, Nicholas
Arnold, Tom	Fairgrieve, Russell
Aspinwall, Jack	Faith, Mrs Sheila
Atkins, Rt Hon H.(S'thorfe)	Fell, Anthony
Atkins, Robert(Preston N)	Fenner, Mrs Peggy
Atkinson, David (B'm'th,E)	Finsberg, Geoffrey
Baker, Kenneth(St.M'bone)	Fisher, Sir Nigel
Baker, Nicholas (N Dorset)	Fletcher, A. (Ed'nb'gh N)
Banks, Robert	Fletcher-Cooke, Charles
Beaumont-Dark, Anthony	Fookes, Miss Janet
Bell, Sir Ronald	Forman, Nigel
Bendall, Vivian	Fowler, Rt Hon Norman
Benyon, Thomas (A don)	Fox, Marcus
Benyon, W. (Buckingham)	Fraser, Rt Hon Sir Hugh
Bevan, David Gilroy	Fraser, Peter (South Angus)
Biffen, Rt Hon John	Fry, Peter
Biggs-Davison, John	Galbraith, Hon T. G. D.
Blackburn, John	Gardner, Edward (S Fylde)
Blaker, Peter	Garel-Jones, Tristan
Body, Richard	Gilmour, Rt Hon Sir Ian
Bonsor, Sir Nicholas	Glyn, Dr Alan
Boscawen, Hon Robert	Goodhart, Philip
Bowden, Andrew	Goodhew, Victor
Boyson, Dr Rhodes	Goodlad, Alastair
Braine, Sir Bernard	Gorst, John
Bright, Graham	Gow, lan
Brinton, Tim	Gower, Sir Raymond
Brittan, Leon	Grant, Anthony (Harrow C)
Brocklebank-Fowler, C.	Gray, Hamish
Brooke, Hon Peter	Greenway, Harry
Brotherton, Michael	Grieve, Percy
Brown, M.(Brigg and Scun)	Griffiths, E.(B'y St. Edm'ds)
Browne, John (Winchester)	Griffiths, Peter Portsm'th N)
Bruce-Gardyne, John	Grist, Ian
Bryan, Sir Paul	Grylls, Michael
Buchanan-Smith, Hon Alick	Gummer, John Selwyn
Buck, Antony	Hamilton, Hon A.
Budgen, Nick	Hamilton, Michael (Salisbury)
Bulmer, Esmond	Hampson, Dr Keith
Burden, Sir Frederick	Haselhurst, Alan
Butcher, John	Havers, Rt Hon Sir Michael
Butler, Hon Adam	Hawksley, Warren
Carlisle, John (Luton West)	Hayhoe, Barney
Carlisle, Kenneth (Lincoln)	Heddle, John
Carlisle, Rt Hon M. (R'c'n)	Henderson, Barry
Chalker, Mrs. Lynda	Hicks, Robert
Channon, Rt. Hon. Paul	Higgins, Rt Hon Terence L.
Chapman, Sydney	Hill, James
Churchill, W. S.	Hogg, Hon Douglas (Gr'th'm)
Clark, Hon A. (Plym'th, S'n)	Holland, Philip (Carlton)
Clark, Sir W. (Croydon S)	Hooson, Tom
Clarke, Kenneth (Rushcliffe)	Hordern, Peter
Clegg, Sir Walter	Howe, Rt Hon Sir Geoffrey
Cockeram, Eric	Howell, Rt Hon D. (G'ldf'd)
Colvin, Michael	Howell, Ralph (N Norfolk)
Cope, John	Hunt, David (Wirral)
Cormack, Patrick	Hurd, Hon Douglas
Corrie, John	Irving, Charles (Cheltenham)
Costain, Sir Albert	Jenkin, Rt Hon Patrick
Cranborne, Viscount	Jesse!, Toby
Critchley, Julian	Jopling, Rt Hon Michael
Crouch, David	Joseph, Rt Hon Sir Keith
Dickens, Geoffrey	Kaberry, Sir Donald
Douglas-Hamilton, Lord J.	Kellett-Bowman, Mrs Elaine
Dover, Denshore	Kershaw, Anthony
du Cann, Rt Hon Edward	Kimball, Marcus
Dunn, Robert (Dartford)	King, Rt Hon Tom
Durant, Tony	Kitson, Sir Timothy
Dykes, Hugh	Knox, David
Eden, Rt Hon Sir John	Lamont, Norman
Edwards, Rt Hon N. (P'broke)	Lang, Ian

Latham, Michael	Neale, Gerrard
Lawrence, Ivan	Needham, Richard
Lee, John	Nelson, Anthony
Le Marchant, Spencer	Neubert, Michael
Lennox-Boyd, Hon Mark	Newton, Tony
Lester Jim (Beeston)	Normanton, Tom
Lewis, Kenneth (Rutland)	Nott, Rt Hon John
Lloyd, Ian (Havant & W'loo)	Onslow, Cranley
Lloyd, Peter (Fareham)	Oppenheim, Rt Hon Mrs S.
Loveridge, John	Page, John (Harrow, West)
Luce, Richard	Page, Rt Hon Sir G. (Crosby)
Lyell, Nicholas	Page, Richard (SW Herts)
McCrindle, Robert	Parkinson, Cecil
Macfarlane, Neil	Parris, Matthew
MacGregor, John	Patten, Christopher (Bath)
MacKay, John (Argyll)	Pattie, Geoffrey
Macmillan, Rt Hon M.	Pawsey, James
McNair-Wilson, M. (N'bury)	Percival, Sir Ian
McNair-Wilson, P. (New F'st)	Peyton, Rt Hon John
McQuarrie, Albert	Pink, R. Bonner
Made!, David	Pollock, Alexander
Marland, Paul	Porter, Barry
Marlow, Tony	Powell, Rt Hon J.E. (S Down)
Marshall Michael (Arundel)	Prentice, Rt Hon Reg
Mates, Michael	Price, Sir David (Eastleigh)
Maude, Rt Hon Sir Angus	Prior, Rt Hon James
Mawby, Ray	Proctor, K. Harvey
Mawhinney, Dr Brian	Pym, Rt Hon Francis
Maxwell-Hyslop, Robin	Raison, Timothy
Mayhew, Patrick	Rathbone, Tim
Mellor, David	Rees, Peter (Dover and Deal)
Meyer, Sir Anthony	Rees-Davies, W. R.
Miller, Hal (B'grove)	Renton, Tim
Mills, lain (Meriden)	Rhodes James, Robert
Mills, Peter (West Devon)	Rhys Williams, Sir Brandon
Miscampbell, Norman	Rifkind, Malcolm
Mitchell, David (Basingstoke)	Roberts, Wyn (Conway)
Moate, Roger	Rossi, Hugh
Molyneaux, James	Rost, Peter
Monro, Hector	Sainsbury, Hon Timothy
Montgomery, Fergus	Scott, Nicholas
Moore, John	Shaw, Giles (Pudsey)
Morris, M. (N'hampton S)	Shaw, Michael (Scarborough)
Morrison, Hon P. (Chester)	Shelton, William (Streatham)
Mudd, David	Shepherd, Colin (Hereford)
Murphy, Christopher	Shepherd, Richard
Myles, David	Shersby, Michael

Silvester, Fred	Townsend, Cyril D, (B'heath)
Sims, Roger	Trippier, David
Skeet, T. H. H.	Trotter, Neville
Smith, Dudley	van Straubenzee, W. Ft.
Speed, Keith	Vaughan, Dr Gerard
Speller, Tony	Viggers, Peter
Spence, John	Waddington, David
Spicer, Jim (West Dorset)	Wakeham, John
Spicer, Michael (S Worcs)	Waldegrave, Hon William
Sproat, Ian	Walker, Rt Hon P. (W'cester)
Squire, Robin	Walker, B. (Perth )
Stainton, Keith	Waller, Gary
Stanbrook, Ivor	Walters, Dennis
Stanley, John	Warren, Kenneth
Steen, Anthony	Wells, John (Maidstone)
Stevens, Martin	Wheeler, John
Stewart, Ian (Hitchin)	Whitelaw, Rt Hon William
Stewart, J. (E Renfrewshire)	Whitney, Raymond
Stokes, John	Wickenden, Keith
Stradling Thomas, J.	Wiggin, Jerry
Tapsell, Peter	Wilkinson, John
Taylor, Teddy (S'end E)	Williams, D.(Montgomery)
Tebbit, Norman	Winterton, Nicholas
Temple-Morris, Peter	Wolfson, Mark
Thatcher, Rt Hon Mrs M.	Young, Sir George (Acton)
Thomas, Rt Hon Peter	Younger, Rt Hon George
Thompson, Donald	Tellers for the Noes:
Thorne, Neil (Ilford South)	Mr. Carol Mather and
Thornton, Malcolm	Mr. Anthony Berry.
Townend, John (Bridlington)

Question accordingly negatived.

Question, That the proposed words be there added, put forthwith pursuant to Standing Order No. 32 (Questions on amendments), and agreed to.

MR. SPEAKER forthwith declared the main Question, as amended, to be agreed to.

Resolved, That this House, while recognising the severity of present economic difficulties, endorses the priority given by the Government to mastering inflation and improving competitiveness, and calls on the Government to maintain its present policies for economic recovery, which alone offer the prospect of a lasting reduction in unemployment.