The Economy

HC Deb 11 November 1981 vol 12 cc545-633

Mr. Speaker

I have selected the amendment in the name of the Leader of the Opposition.

4 pm

Mr. Peter Shore (Stepney and Poplar)

I beg to move, at the end of the Question, to add: But humbly regret that Your Government has decided to continue its disastrous economic policies which have already resulted in record levels of unemployment and loss of output; and that the Gracious Speech does not contain any measures which even begin to deal with the grave economic problems which now face the country. Our country is living through a tragedy, the dimensions and consequences of which we have yet scarcely begun to grasp. We are experiencing, and have experienced, a massive and unparalleled deindustrialisation. With manufacturing industry down 16 per cent., industrial output down 12 per cent., and the gross domestic product down 8 per cent. during the past two and a half years, our total national output is now lower than it was four years ago—including North Sea oil—and our industrial output is no higher than it was in 1968. In short, we have endured a process of collapse that is greater than any in our memory. It is greater than that experienced in any other industrial country.

Not only have labour forces been laid off, management teams dispersed and research and development abandoned, but the very plant and machinery of our factories have been auctioned—the old for scrap and the new to the eager purchasers among our competitors in developed and developing countries alike. That can be put right only by massive new investment.

It is almost exactly a year since Ministers, forced to face the realities of our position, began to comfort themselves and the country by detecting signs of bottoming out and upturn. But whatever prospect there might have been was quashed, first by the Government's massive fiscal deflation in the March Budget and then by the reversal of the cut in the minimum lending rate to 12 per cent. that accompanied the Budget by the raising of the bank base rate to 16 per cent. last month, which stands at 15 per cent. today.

On each occasion during the past 12 months that we have debated these grave matters, the Governmet, from the Prime Minister downwards, have evaded the question with a handful of statistical dust thrown into our eyes momentarily to distract us and the nation from the grim and unchanging realities. I warrant that today will be no exception. The Government will say that the bank base rate has fallen by ½ per cent., that large contracts have been won in Mexico, Brazil and Hong Kong and that manufacturing industry output rose by ½ per cent. last month. No doubt those items will be added to with trivia, prattle and crumbs of hope.

The Government say that productivity has risen 6 per cent. this year and that that is evidence of a recovery. Unhappily the truth is different. Productivity—output per man—is 4 per cent. lower today than it was two and a half years ago when the Prime Minister formed her Government. If productivity has climbed a little way back for some firms, what does the right hon. Lady say about the productivity of the many thousands of firms that have simply ceased to exist? Does she not know that companies in liquidation rose by 50 per cent. in 1980 and that, judging by the first three quarters of this year, the figure will rise again to double the 1979 figure, to an all-time record of 8,000 firms?

In a fortnight's time we shall have the mid-year Treasury forecast for 1982–83. We shall then see, in a more comprehensive form, the outlook for the economy. My prognosis is that, having fallen into the deep pit of recession, we are now more or less resting, bruised and battered, upon a ledge. With present policies we can look forward to little more than a further decline in 1983. Where are the forces of recovery? Are they in exports? The Civil Service dispute has shrouded the trends. Exports may hold up, but the greater probability is that they will, as the 1981 Red Book forecast, decline. Are they in domestic production? Real incomes are now falling. The gap between planned pay settlements this year and the rate of inflation is dramatic, almost unparalleled.

In spite of dis-saving, demand will fall, with offset coming only from a fall in the enormous rate of destocking that has been experienced during the past 18 months. Industrial investment will continue to fall, as the intention surveys confirm. What about public sector expenditure? Local authority housing and public sector capital projects of all sorts will be curtailed still further—how severely we shall shortly be informed when the present Cabinet discussions are completed.

So where is the demand for additional output? Where is the stimulus for expansion to come from?

The House and country must recognise that we are in a downward spiral of decline—a decline so grave and so deep as to be almost beyond our comprehension. It reminds me, in its scale and wantonness, of the 1944 Morgenthau plan, luckily abandoned, to dismantle West Germany's industry, or the actual and massive reparation policies carried out by the conquering Soviet armies when they occupied East Germany and Manchuria in 1945 and physically transported their industrial equipment to the Soviet homeland—[HON. MEMBERS: "Rubbish."] It is on a comparable scale to that. It almost defies analysis and comparison in recent history.

There are two marvels and paradoxes about the whole dreadful process. First, there is the passionately declared intent of the Government to halt and reverse the long-established relative decline of the slowly growing British economy. Secondly, the whole ghastly experience has taken place precisely at the time when the full flood of North Sea oil has at last reached our shores. What a grim irony it is that the relative decline of which the Prime Minister has said so much should, under her rule, have been replaced not by an improvement but by absolute decline. What grimmer irony still it is that the vast enrichment that self-sufficiency in North Sea oil has brought to us, both in the 50 per cent. increase in production since 1978 and the doubling of oil prices in 1979, should have taken place precisely during this period of unparalleled contraction in our national income and industrial output. By what miracle of mismanagement has that which should have enriched us been turned into the very agent of our impoverishment and decline?

What about the consequences of that? First, there is unemployment, with one in eight people registered out of work, another 750,000 in short-term work experience, youth opportunities and temporary employment schemes, and up to a further 1 million not even on the employment registers.

Let the House contemplate, and let the Prime Minister and the Chancellor of the Exchequer consider, what the Government have done so far. Nine hundred days have passed since the Prime Minister crossed the threshold of No. 10—900 days in which registered unemployment has risen by 1,700,000. Every day 1,850, every week some 13,000, every month 52,000 and every year more than 620,000, people lose their jobs. Should that continue, should the Government run their full five-year course, should the decline simply continue and not quicken, more than 3 million jobs will have been lost and unemployment will stand at about 4½ million, by 1984.

Let us think about it. Since the Queen's Speech last Wednesday, 13,000 of our fellow citizens have lost their jobs. Let us think also of the particular categories—the school leavers, the unskilled and the semi-skilled, older workers who have been made redundant, and women part-time and full-time workers who are particularly affected by the public sector cuts. The ethnic communities, the West Indians in particular, are affected.

I never make a simple cause and effect claim about the summer of discontent which flared across our cities this year or the wave of youth crime, which has been growing apace. However, it is a potent factor, and if the policies remain unchanged there is a risk that it could become immeasureably worse. Let us think, too, of the decline in our capacity to influence events in the world outside—our slippage down the league table of nations, our reduced capacity to help our friends, to discomfort our enemies and to assist in the great task of defeating world poverty.

When the right hon. Lady said in her speech last Wednesday that the Opposition rejoiced in bad news, she could not have been more wrong. It is not only that her failures will make our task more difficult when, as will come to pass, we pick up the reins of government. It is because we want to assist, to protect and to defend the living standards of our citizens. We want to see our nation lifted from economic defeat into economic success.

We scan the sentences in the Queen's Speech and study the text of the Prime Minister's speech, searching for those signs of understanding and concern which we must all feel. Alas, they are missing. We saw instead a bald and uncompromising restatement of the policies of the last two and a half years: the pursuit of firm monetary and fiscal policies, to further improving the efficiency of the economy, and to strengthening industry … and … further reductions in the level of wage settlements. These policies will be buttressed by further expenditure cuts. Or, as the Queen's Speech says Plans for public expenditure will reflect the importance of restricting the claims of the public sector on the nation's resources. We heard some astonishing assertions in the right hon. Lady's speech of 4 November that the disastrous policies of the last two and a half years will—not in the distant future but in the next 12 months—be transformed into visible success. The right hon. Lady said: In the coming year, I believe that Britain's confidence in herself will grow. That confidence will come from an increasing realisation that the signs of economic success are no mere passing hopes, but are instead a testament to our new economic strength … Real jobs will not be quickly won, nor will unemployment fall dramatically; but slowly and surely the British people will create the new jobs which these difficult years have made possible. She went on to say: The Government have created the conditions in which out of the recession can come renewed confidence. It is in the coming year that our confidence will be rewarded."—[Official Report, 4 November 1981; Vol. 12, c. 28–29.] No doubt the Chancellor of the Exchequer, when he speaks, will supply some substantial evidence upon which those assertions are made. I see the assertions, not as evidence of real world changes but of an increasing flight from reality—the world of make-believe into which the Prime Minister is increasingly withdrawing.

The Prime Minister is a prisoner of dogma. When and why she came under the spell of those alien philosophers, the Dr. Strangeloves of economic policy such as Professor Friedman and Professor von Hayek, I do not know. Unhappily they cannot be with her all the time. That is why she is so openly grateful for the sustaining influences, in public and private debate, of those two other domestic disciples, the right hon. Member for Down, South (Mr. Powell) and the Secretary of State for Education and Science. What we do know is how strongly reinforced are her economic dogmas by her personal values and priorities and by her extraordinary capacity for misreading the history of her times.

We know the Prime Minister's attitude to unemployment. She genuinely thinks that it matters less than inflation, as her remarkable address to the congregation of St. Lawrence Jewry last year demonstrated. She described inflation as an evil and unemployment as a great problem. The Queen's Speech contains a sentence on that matter: My Government share the nation's concern at the growth of unemployment". In her speeches the Prime Minister defensively asserts that the Labour Party does not have a monopoly of concern. There is not much real feeling in that, and we sense it. Last year she told the unemployed to leave their homes and go to the places where work was still available. This year, she has left it to her newly appointed Secretary of State for Employment to tell people to "get on their bikes" and find the work which is no longer in their own areas.

Her best defence is, of course, that unemployment is inevitable—while inflation continues. From that dubious proposition she allows herself to argue that she is creating employment by reducing inflation, even when unemployment has more than doubled and while inflation, in spite of all her endeavours, remains stubbornly high.

To give credence to that view, the Prime Minister is driven to rewrite the history of the whole post-war period. Indeed, when I hear the right hon. Lady on this subject I am irresistibly reminded of George Orwell's great book "1984." Somewhere in No. 10 Downing Street I suspect that there is an unannounced and undiscovered "Ministry of Truth" whose job is to rewrite and rewrite again the history of our time. And so, the right hon. Lady asserts that the whole post-war period from 1945 to 1970—the period when, apart from certain regions, we enjoyed uninterrupted full employment and when high employment was sustained until 1974—was one of growing disaster in which unemployment inexorably rose decade by decade. As a result the present levels of unemployment, in her picture, appear to be a simple and inevitable extrapolation of previous trends. What nonsense that is.

Unemployment was under 3 per cent. until 1973, with the exception of two years, 1971 and 1972, when her predecessor, the right hon. Member for Sidcup (Mr. Heath) pursued deflationary policies which, as soon as he recognised their consequences, he reversed rapidly.

The whole OECD area pursued similar policies of giving high priority to full employment and economic expansion. The area includes North America, Australasia, Japan and the whole of Western Europe. It maintained throughout the period to 1974 levels of employment which were broadly similar to ours—and levels of output which were considerably higher.

The great discontinuity in our post-war experience occurred in 1974, under the major impact of the quadrupling of oil prices by the OPEC cartel. Far from that being a uniquely British problem, it was shared by virtually every country in the Western world. One has only to glance at the OECD figures to see the truth of that contention.

Unemployment, which in that vast area stood at 8 million in 1973, rose to 15 million only two years later after the first oil shock, and, following the second oil shock in 1979, it rose to over 21 million in 1980 and is projected to be 26 million in 1982. That is the story of the change that has so grievously affected us. We have not yet collectively found the wisdom nationally and internationally to overcome the consequences.

If, therefore, as the Prime Minister loves to allege, a peculiarly British weakness has led to the great growth in unemployment; if it is due to low productivity, to unreasonable trade unions, and to wrong attitudes of mind, how on earth does the Prime Minister explain the trebling of unemployment in every part of the Western world? Have the workers there suddenly become lazy, unproductive and over-demanding in their wage claims since 1979, or could it be that, like Britain, they have suffered from the immense disruption of the world economy that followed the quadrupling of oil prices, the inflationary impulse engendered by higher oil costs, and the massive balance of payments deficits that those imported supplies inevitably entailed?

Mr. Geoffrey Dickens (Huddersfield, West)

Did my ears deceive me or was the House told a moment ago that the unemployment position in Britain was consistent with that in the rest of the Western world? If so, the right hon. Gentleman cannot blame the Government for unemployment.

Mr. Shore

I shall come to that. The hon. Gentleman kindly leads me on to it.

Mr. David Ennals (Norwich, North)

Before my right hon. Friend is led on, and while he is still looking back, will he confirm that during the last 16 months of the Labour Government unemployment went down every month? Will he also confirm that during the same period inflation decreased dramatically?

Mr. Shore

We pursued moderate and carefully-thought-out demand expansionary policies. That: is why unemployment decreased from 1.5 million to 1.3 million. My right hon. Friend will agree that there was prospect of substantially greater progress in the summer of that year.

Sir Frederick Burden (Gillingham)

Will the right hon. Gentleman give way?

Mr. Shore

I shall resume my main topic and give way later.

During the first oil shock of 1974, Britain and its OECD colleagues were faced with almost total dependence on imported oil. In the second oil shock of 1979–80, because of North Sea oil, Britain was in the unique position of being self-sufficient in oil and a beneficiary of the price increase that afflicted our OECD colleagues. How can the Prime Minister explain the fact that while the other OECD countries between 1978 and 1981 have suffered an increase of about 50 per cent. in unemployment, Britain has suffered an increase of 120 per cent.? When Britain did not have oil, unemployment rose at a lesser rate and in line with other countries. Now Britain has oil, unemployment has risen much faster than in any other OECD country.

We all know the explanation of the right hon. Member for Down, South, because he told us in an earlier debate on the economy. He assumes that the enrichment of oil is an economic curse. Because he, in his philosophy, is morally disarmed from acting upon the exchange rate and free market forces, he believes that the possession of large quantities of high-priced oil must inevitably lift high the value of the pound and thus price out of competitiveness and employment the manufacturing sector of British industry.

That is the right hon. Gentleman's explanation, but what about the Prime Minister and the Chancellor of the Exchequer? They believe that we have problems because we have paid ourselves too much. That is why we see in the Queen's Speech that not only is the old and discredited medium-term financial policy to be retained, but it is to be reinforced by measures which, in the Prime Minister's words, will alter the balance of power between labour and management.

That was the advice given to the Prime Minister by her revered Professor von Hayek as long ago as June 1980. In a letter to The Times, he told the Prime Minister that, although her monetary and PSBR policies were absolutely splendid, they would not have time to work within the compass of a single Parliament. He concluded his advice with the words: The Government must at once rescind all the special privileges which have been granted to the Trade Unions by law … only this can make it possible for the beneficial effects of such a money supply policy to manifest itself in time before the term of the present Government runs out. That is the task allotted to the new Secretary of State for Employment. It is the way of confrontation and the way towards the further destabilisation of our society.

Just how little the Prime Minister has learnt from her experience in Government and from the worrying events of the summer of 1981 is illustrated in what she said in her speech about the inner cities—or what she did not say. Instead, she asserted her determination to deal with what she called a small minority of local authorities that have absorbed virtually the whole of the economies achieved by the rest".—[Official Report, 4 November 1981; Vol. 12, c. 24.] She went on to promise that the Government would introduce a Bill to ensure greater accountability of high-spending authorities.

Sir Frederick Burden

rose——

Mr. Shore

I shall not give way now.

It has not even occurred to the Prime Minister that that small minority of authorities includes the same authorities that administer the inner areas of our great cities. It was to one of the worst afflicted of those areas, Liverpool, that she despatched, of all people, the Secretary of State for the Environment in the wake of those fearsome and disturbing riots. At least he came back a little wiser and with the heretical message that the principle of self-help was not applicable to inner city problems. Further, he said that there will be no recovery without more resources, preferably in the form of investments for the private sector and from better use of existing public programmes. But if the case can be made it may also be from extra public expenditure. Those comments were made by the man who had presided over and enforced massive cuts in the inner city programmes embarked upon by the Labour Government.

Does the Prime Minister know that the 14 inner city area local authorities—which, because of their obvious and growing needs, the Labour Government designated in 1978 as preferential partnership areas and which we were able to assist through a favourable rate support grant settlement, housing investment programme allocations and specific inner city grants—have had no less than £325 million subtracted from them in the two years that the Government have been in office? What does she expect the consequences to be?

Finally, to be safe inside her own intellectual and moral prison, the Prime Minister must assert repeatedly, with parrot-like persistence, that there is no alternative. I tell her, first, that there is an alternative, and, secondly, that there is hardly anyone of intellectual substance in Britain who now holds her view.

There must be a substantial and growing reflation of demand, through a combination of increased public expenditure and reduced taxation, if we are to get the economy moving again. With 77 per cent. of CBI members reporting as recently as October 1981 that they are working below a satisfactory full rate of operation due to shortage of demand, how does the Prime Minister imagine that we shall get the expansion that we so desperately need? There is hardly a reputable body of opinion—industrial, political or in the City of London, including some of the most intelligent members of the Conservative Party—that does not now urge a substantial increase in public expenditure.

There will be problems with the PSBR. The PSBR is already enormously inflated by high unemployment. One can take either the Government's figure of over £9 billion a year or the recent Manpower Services Commission figure of no less than £12.5 billion a year, which is more than the whole of the present PSBR.

Expenditure to get unemployment down will not lead to completely matching savings in the cost of unemployment. However, sums spent to increase employment will undoubtedly be substantially offset by the reduction of public expenditure on unemployment pay and in the increased yield to the tax and national insurance authorities that will flow from additional people at work.

Nor am I impressed with the assertion that I have heard many times that to expand the economy we must tax, borrow or print. Increasing overall taxation in the middle of a recession is clearly out, although the pattern of taxation—redistribution of taxation—undoubtedly has a part to play. The main burden must fall on borrowing, long or short term. I simply will not take seriously the argument that increased borrowing would crowd out the private sector, while, in the absence of exchange controls, billions of pounds of British money are flowing abroad to foreign havens and investments.

There is no evidence that there is an automatic relationship between the volume of borrowing and the level of interest rates, certainly within the United Kingdom domestic money market. Much larger sums were borrowed successfully by my right hon. Friend the Member for Leeds, East (Mr. Healey) when he was Chancellor of the Exchequer—and at considerably lower interest rates than prevail now. The level at which new gilts are taken up is largely influenced by the level of the much larger market in existing gilts. That in turn is as much influenced by the expected trend of interest rates as by the immediately prevailing rates. It is for the authorities to set and guide the expectations of the market.

Nor am I influenced by the thought that, as the economy picks up, the money supply will increase. Over a time expansion of production and of money supply inevitably go hand in hand. However, it is totally unproven that the increase in the money supply has a short-term or medium-term connection with inflation and prices. At full or near full employment an increase in money supply that cannot be matched by an increase in production could have inflationary effects, but we are a long way from the full use of resources and full employment. The obsession, madness and theoretical nonsense that the Chicago school has so sedulously propagated has imprisoned those who from the start were only too willing to be imprisoned.

I accept, however, that reflation, although essential, needs strong supporting policies. It is possible that increases in public expenditure and economic expansion could find their way not into increased employment but simply into increased earnings, costs and prices for those at work. It is here that a new and strong understanding with the trade union movement, together with effective price controls, will play a major part.

Some may dismiss the prospect of a new understanding as undesirable or ineffective, but my confidence rests on the overriding priority to reduce unemployment throughout the country. Where that exists, and where the links between the Government, particularly a Labour Government, and the trade union movement are properly forged, we have ties which, though light as air, are as strong as links of iron. We must not forget or ignore, as many other critics of the Government do, the urgent need to operate more effectively on what is properly called the supply side of the economy. I do not mean by that the Government's absurd doctrine of trying to run the economy on the single engine of the private sector, powered by ever-increasing tax incentives. That has not worked and will not work. I mean the development of partnership, support and intervention in new forms between the Government and industry.

I have no illusions about the problems that a Labour Government will inherit or the difficulties of finding effective solutions, but there is an alternative strategy—a Labour strategy—which offers new hope to the people. In contrast, the economic proposals in the Queen's Speech offer the people and the economy nothing but decline and despair. That is why we have tabled, and why we shall vote for, the amendment.

4.34 pm

The Chancellor of the Exchequer (Sir Geoffrey Howe)

As so often, the speech of the right hon. Member for Stepney and Poplar (Mr. Shore) has not only emphasised the differences in our approach to the nation's economic problems but demonstrated the emptiness of his prescriptions. Even so, it may help if I spend a minute or two spelling out the points on which there is widespread agreement in all parts of the House.

Despite what the right hon. Gentleman said about my right hon. Friend the Prime Minister, there is no difference in our objectives. We all wish to secure higher living standards and more jobs in a stable economic environment. In pursuit of those aims, successive Governments have sought to put in place two sets of policies. Governments of both complexions have sought to generate economic activity by more productive use of resources and faster growth. In that respect, as the right hon. Gentleman's speech made plain, there remains a clear difference of view. As we heard yesterday, hon. Members on the Labour Benches look chiefly to the State—to so-called public enterprise—as the main agent of change. On the Government Benches, and possibly elsewhere, we are convinced that the main drive for fruitful change must come from individual, independent enterprise.

In contrast to that division of opinion, whatever the right hon. Gentleman pretends, successive Governments of all parties have been of one mind about the other objective—the need to maintain a framework of economic and financial discipline. We all recognise that to preserve the currency and to protect our people from runaway inflation some such framework is essential.

Successive Governments have faced immense political and economic pressures to modify or throw over their framework. All too often those not in office argue for kicking over the traces and gambling on inflationary solutions, as the right hon. Gentleman did.

Over the years several different kinds of policy have been challenged in that way. For more than a quarter of a century after the Bretton Woods agreement the discipline took the form of a fixed exchange rate. That defence was decisively breached at the end of the Chancellorship of the right hon. Member for Cardiff, South-East (Mr. Callaghan). At other times Governments of both parties have relied to a large extent on some form of incomes policy, and at others the strategy has rested on a tight fiscal policy such as that adopted by Mr. Roy Jenkins when he was Chancellor of the Exchequer, and the right hon. Member for Leeds, East (Mr. Healey) after the intervention of the IMF in 1976.

Each policy in turn required measures by the Government and a response from society that proved unsustainable. They all fell victims to the temptation to alter or displace the framework. If we face the truth, we should all recognise that is the main reason why in the past two decades successive Governments have not achieved their economic objectives.

The last thing that I wish to suggest is that those whose policies did not prevail are not entitled to criticise ours. However, I invite all who have been involved in such struggles to remember the moments when they were criticised for obstinacy in defence of the realities and disciplines that they regarded as essential. The right hon. Member for Stepney and Poplar tried to defend his Government's disciplines.

Although we have all learnt different lessons from our experiences, I see no reason to apologise for the role that I was privileged to play alongside my right hon. Friend the Member for Sidcup (Mr. Heath) in 1974. On the contrary, the fundamental problem, then as now, is how to reverse the long decline in Britain's relative economic performance. The right hon. Gentleman tried to argue today, not for the first time, that the decline is somehow a new phenomenon—something that results from the policies of the last two years. That is a short-sighted and politically blinkered view. Nobody outside the House would believe that for one moment.

Mr. Shore

I am very dissatisfied with Britain's relative post-war economic performance as a whole compared with those of other countries. I submit to the Chancellor of the Exchequer that in no year since 1945—until he took up his present post—had we suffered an absolute decline in output and production. He has to bear that very heavy and special responsibility.

Sir Geoffrey Howe

That is not true; production has fallen in previous years, as the right hon. Gentleman knows. In reality, the impact of the past two years has been the combination of the second tremendous oil shock, to which he referred, and the long-run accumulation of inefficiencies and overmanning in the British economy.

For a long time, the truth of our steady economic decline was masked by the growth imported into Britain from the rest of the industrialised world. For a long time the basic defects in our economy were concealed or ignored when world growth was apparently guaranteed.

In order to improve productivity and to secure or retain orders in the last two years, industry has been obliged, after long delay and at great human cost, to dismiss many people who for many years have been much less than fully employed. To all our dismay, the huge extent of concealed unemployment has been made very evident. For example, in the steel industry in my home town in South Wales, productivity has improved by nine man-hours per tonne to five man-hours per tonne in the last 18 months and the numbers employed have been halved. That persistent over-employment has not been built up in the past two years. It has been a pattern deliberately preserved by the Opposition, by subsidising the industry at great expense and by seeking to keep it from the change that was inevitable and that now comes crowding in on us.

The Government are determined to cushion against that shock those most harshly hit. However, none of us can restore the illusion by which we were once protected.

Mr. Frank Hooley (Sheffield, Heeley)

Is the Minister aware that the increase in productivity can only be achieved by the kind of massive public investment that occurred in the steel industry under the Labour Government? Until we get that massive public investment in new equipment and machinery we will not get any comparable increase in productivity.

Sir Geoffrey Howe

Productivity improvements can only be achieved by a combination of measures. Investment is necessary but investment by itself is useless unless manning arrangements are transformed, investment successfully used and the old capacity put out of use. It is all those measures, so long postponed under the previous Labour Government, that we have had to accept to achieve the dramatic changes to which the right hon. Gentleman referred.

As all hon. Members know, for the past 10 years we saw an increase of over 300 per cent. in money incomes while output rose by a little more than 15 per cent. The right hon. Gentleman spoke, as he often does, of the need for extra demand. However, out of every extra £1 of demand in those 10 years, only 5p worth went into higher output and the other 95 pence went into higher prices or imports. Over-manning and pay increases far ahead of productivity have for too long been pricing us out of markets at home and overseas. Over the last 25 years our share of total exports of manufactures from the world's major economies has fallen from 20 per cent. to less than 10 per cent. Had we retained our share of 20 years ago—about 16 per cent.—as all our major Community partners have done, our exports would be about £25 to £30 billion more than they actually are. That is the basic problem that has to be tackled in circumstances of maximum world-wide difficulty. For that reason we must hold in place a policy framework. The Government must be flexible about particular policies within that framework. However, we cannot allow the foundations to be destroyed.

The right hon. Gentleman conceded in the debate that there were causes at work outside Britain that the whole world now experiences. There are ravages of persistent and unevenly controlled inflation and economic stagnation, while we are still adjusting to the effects of the second oil shock. Those conditions were referred to by the IMF earlier this year in Washington. Attention was drawn to high interest rates, massive balance of payments disequilibria and the fact that exchange markets were more unstable than at any time since the major currency realignment of the early 1970s.

It is important to see the country's problems in an international perspective. I digress to remind the House that the oil-induced conditions, which create a crisis for the West, create a catastrophe for many less developed countries. That is why it is right that, despite our domestic difficulties, our aid programme for this year should exceed £1,000 million—the fifth largest aid programme in the world—why we have been glad to play our part in promoting the new IMF loan to India, and one powerful reason why we should all wish to maintain an open economy and avoid unnecessary restraints on trade with less developed countries. "Ring fences", even if their construction were feasible, might be very well in the short term for those within the ring, but are highly damaging for those without, in the long run they are damaging for us all.

Mr. Shore

We all understand the problems posed to other countries by the second oil shock. We understand that the balance of payments effects have been major. However, we want to know from the right hon. and learned Gentleman why Britain, which was shielded from that second oil shock and actually benefited through the balance of payments should have suffered more severely than any other country. Why has that happened?

Sir Geoffrey Howe

Britain has suffered more than any other country because it is a trading nation and relies on trade to the rest of the world to the extent of about one-third of its output. That output had already gone far towards pricing itself out of world markets. At its maximum, oil makes only a modest contribution to Britain's economic growth. The total revenue from oil is less than half the total borrowing that the Government are already undertaking. The impact of oil, certainly in the short run, has been to raise our exchange rates in a way that could not have been prevented. All those factors created difficulties and, astonishingly, because of the rundown condition of our economy, we had to face those problems in that way.

I quote from the IMF's statement last autumn: It is essential, not to relax efforts to combat inflation, but rather to sustain them with determination. I quote the managing director of the fund: Experience has amply demonstrated that sustained sound growth requires that inflation first be brought under control. In some conditions, it may be possible to increase economic activity temporarily through demand-stimulated policies, but an economy in the grip of inflation cannot be permanently revived by printing more money. That has nothing to do with some "alien philosophy". If our economy is to be restored to health, we need a framework that will contain and progressively reduce inflationary pressures.

The framework that has been adopted, not since 1979 but since the IMF prescribed it in 1976 to the last Labour Government, of which the right hon. Gentleman was a member, is that of monetary targets. It is the sort of framework that almost every other major Western economy now has. That is not a policy of dogma but a policy of common sense.

The right hon. Gentleman accused us, as he has on other occasions, of some preoccupation with holding down the public sector borrowing requirement; preventing the growth of further debt, to give it a more straightforward name. That is without foundation in itself. On the contrary, we have accepted that it is legitimate, in the course of the present recession, to borrow more than we had earlier intended. The Prime Minister told the House that the PSBR in the current year is, at £10½ billion—and the Government are still on track for that figure—about £3 billion above what we had in mind at the time of my 1980 Budget.

It has been suggested by some hon. Members during the debate that we should do better to pursue an exchange rate target. A number of hon. Members have suggested that we should consider joining the exchange rate mechanism of the EMS. That suggestion comes both from those who want sterling to depreciate, in the interests of our exports, as well as from those who want it at least to stay stable in the interests of lower inflation. Whatever the effects of membership, it is clear that both cannot be achieved.

The EMS question is a serious one which deserves careful consideration. Difficult questions are involved. As we have one of the world's major international currencies and because of our self-sufficiency in oil, the effects of world events on sterling tend to be diametrically opposite to their effects on other EMS currencies. It has been widely accepted, at least up to now, that sterling's full membership would have been helpful neither to the system nor to ourselves. However, with some prospects of increased stability in the price of oil, it is right that the issue should be kept under constant review.

Many of those who advocate early membership seem not to recognise that the mere act of joining would do nothing to secure exchange rate stability. Membership would involve obligations to act promptly when sterling reached the limit of the EMS band. As has been demonstrated time and again, most recently in the French experience, that means policy action to raise interest rates, to raise taxes, to cut public spending or to do all three. Those who see EMS membership as an alternative to such action are deceiving themselves. It might provide an alternative framework for discipline, but it would certainly not enable us to do without one.

One other message is clear. Whether sterling is pegged to some other currency or currencies or whether we simply continue to regard the exchange rate as one of the factors to be taken into account in the conduct of monetary policy, if we try to borrow too much we cannot avoid pushing up interest rates. That is the simple central proposition which the right hon. Member for Stepney and Poplar blithely brushes aside and fails to grasp.

That is why when I was in Washington earlier this year I spoke on behalf of the Commonwealth Finance Ministers as well as on behalf of the Community Finance Ministers and urged the United States Administration to reduce their deficit in order to bring down the level of interest rates. It is foolish indeed to think that one can take that message across the Atlantic, as Labour Members wish me to do, while ignoring its implications for ourselves.

That is the fundamental difficulty with the more or less detailed and more or less tempting reflationary packages offered from all sides. Some, like that proposed by the right hon. Member for Stepney and Poplar, are vague, massive, uncosted and totally irresponsible. He brushes aside the practical difficulties by saying that of course there will be problems for the PSBR. He can say that again! There were problems for the PSBR when the right hon. Gentleman was last in Government.

Other packages, such as those offered by the hon. Member for Gateshead, West (Mr. Horam) and my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour), have clearly been composed with more care. The right hon. Member for Stepney and Poplar should not laugh. His package is the most careless and heedless of all.

My right hon. Friend proposed a package, beguilingly attractive in its modesty, totalling £5 billion and including abolition of the national insurance surcharge, adoption of some of the Layard employment measures and additional capital spending of about £½ billion. Last, but by no means least, interest rates were to be reduced and the exchange rate stabilised by our joining the EMS.

Precisely how increased borrowing and lower interest rates, even at that level, are to be made compatible with each other or how lower interest rates are to be compatible with exchange rate stability through the EMS has never been disclosed. But those are key questions. There may be no automatic relationship between the size of one's attempts to borrow and interest rates, but the House should be in no doubt that there is a close and real relationship.

In those circumstances, what would be the cost of maintaining the exchange rate within the EMS? The cost would be a massive drain on the reserves for intervention, higher interest rates or both. My right hon. Friend the Member for Chesham and Amersham did not consider the first possibility and assumed that the second would not exist.

Although the right hon. Member for Stepney and Poplar tried to brush the matter aside, there would inevitably be a rapid rise in domestic money supply. The problem of holding the exchange rate and keeping interest rates at a lower level, both of which are essential to the delivery of the sort of results that all the prescriptions seek, would become progressively more difficult. If it were the right hon. Member for Stepney and Poplar offering the prescription, the country would have to add the price of the catastrophic loss in confidence that would follow his arrival anywhere near the levers of the Treasury.

Mr. Cyril D. Townsend (Bexleyheath)

My right hon. and learned Friend has painted a good picture, but will he also pay attention to the political implications? Is there not a danger that we shall remain permanently behind the course of events and are there not great political advantages in being a member of the EMS?

Sir Geoffrey Howe

There are certainly some political factors to be taken into account and my hon. Friend is entitled to draw attention to them, but I am discussing the economic implications.

A critic such as Mr. Wynne Godley, from whom I think my right hon. Friend the Member for Chesham and Amersham and the right hon. Member for Stepney and Poplar have both borrowed much ammunition, is much closer to the mark with his warning that in the face of a policy for reflation the exchange rate would take the punishment and inflation would soar.

Of course, Mr. Godley goes on, as does the right hon. Member for Stepney and Poplar on some occasions, to take the policy to its extreme and to advocate a fortress economy. I do not believe that that drastic remedy would work either, and nor, I am certain, do any of my right hon. and hon. Friends who commend it. However, there is more internal consistency in Mr. Godley's alternative strategy than in some of the others.

Mr. Peter Tapsell (Horncastle)

There is a middle position, which I hold, between that of Mr. Wynne Godley and that of those who believe that the solution is to join the EMS.

Will my right hon. and learned Friend address his mind to the fact that the proportion of our gross domestic product represented by the PSBR is about half of what it was in the mid-1970s, when interest rates were much lower than they are now? My right hon. and learned Friend has clearly acknowledged today that there is no direct relationship between interest rates and the PSBR, but in his policies he often seems to act as though he thought that the link is much closer than it is in practice.

Sir Geoffrey Howe

My hon. Friend will no doubt have the chance to develop his ideas at greater length. I shall take just one from the clutch that he offered. He pointed out that in the mid-1970s, when the Government deficit was larger than it is today, interest rates were lower than at present. That is the crucial change which has taken place. The totality of public sector deficits of the major Western industrialised countries is twice as high a percentage of GDP as it was in 1973. Throughout the world, those who lend money have given up the idea of lending at negative real interest rates and all insist upon, and secure, positive real interest rates. Rates are much higher and it is for precisely that reason that it is not possible to contemplate sustaining levels of public borrowing that may, for a time, have seemed manageable in the early 1970s. That is why every Western Government is seeking to get out of the borrowing market.

The harsh fact is that in the real world the burdens of Government spending, borrowing and taxation are too high. Any sensible Government must be reluctant to contemplate further increases in any of those areas.

It is much more than a coincidence that the long period of decline that we have experienced has been one in which public spending as a share of total national resources has risen from 33 per cent. in 1960 to 44 per cent. in 1980—a period when the burden of taxation has risen to more than 40 per cent. of GNP and when the average level of public sector borrowing in the 1970s in real terms was more than double that of the 1960s.

But the right hon. Member for Stepney and Poplar and his colleagues would have us do more in that direction. He spoke as though the process could go on forever. How much larger a proportion of GNP does he wish to take in taxation? He did not say.

Mr. Shore

The Government have increased it.

Sir Geoffrey Howe

Is it right or is it wrong? The Opposition would have us increase it a great deal further. In their view our policy should be one not of restraint, but of more borrowing and more spending—precisely the policies that have done so much, under Labour local authorities, to destroy employment in the private sector.

Mr. Shore

When the country is in the middle of a serious recession no sensible Government advocate increasing taxation. They advocate the opposite. When we are back again to something near full employment the question of balancing expenditure against taxation will be a proper and legitimate subject of controversy between the parties.

Sir Geoffrey Howe

It would be interesting to hear what the right hon. Gentleman had to say about supplementary rates.

Mr. Shore

Oh, come on.

Sir Geoffrey Howe

It is exactly the same point. If no sensible Government would contemplate increasing taxes in the middle of a recession, what advice does the right hon. Gentleman give to Labour-controlled local authorities which, in the middle of a recession, are heaping on productive industry huge rate increases and are deliberately destroying jobs in the private sector?

Mr. Shore

My advice to the local authorities is to persuade the Government to increase their capacity to spend by increasing grants paid to them and making it possible for them to borrow.

Sir Geoffrey Howe

If the local authorities increase the amount they borrow, they will raise interest rates to the public sector and once again succeed in destroying jobs. The right hon. Gentleman cannot escape his responsibility.

I know that the House will be anxious to learn the outcome of current discussions on future public spending plans, and they will be revealed in due course.

There is one proposition about public spending that has been put to us more than once in this debate—by my right hon. and learned Friend the Member for Hexham (Mr. Rippon), for example—to which I am anxious to respond. It is said that we prevent productive capital investment in the public sector because of the mathematics of the PSBR, and that we should divert funds from current spending to capital investment. I am as ready as the next man to acknowledge that if two possible investments will yield a comparable and acceptable return, the fact that one of them happens to be in the public sector does not reduce its merit. Unfortunately, however, what it does do is to increase the need for careful scrutiny of the yield that we are promised. For, while investments in the private sector sometimes come to grief, those who make them know that their reputations—often, indeed, their jobs—will be on the line. In the public sector that does not apply and it is Governments and public servants who back their fancies with other people's money.

Where the public sector has come up with profitable investment projects, we have given it as high a priority as we can. Planned investment in the nationalised industries this year is 15 per cent. higher in real terms than a year ago. As the Select Committee on the Treasury and Civil Service acknowledged in its recent report, there is not overwhelming evidence of sure-fire winners, straining at the leash in the public sector.

Even so, we are anxious to find ways, such as those suggested by many hon. Members, of involving private capital directly in the national industries. That could bring the industries, as should be the case, more under the influence of market forces. One particular proposal that we are examining is for a bond to be issued by British Telecom in which the return to investors would be based on its profits. We have always made it clear—and the Select Committee on the Treasury and Civil Service firmly supported this view—that any such proposals must meet two important conditions. There must be an appropriate degree of risk for the investor and the cost to the borrower must not be excessive. The current proposals must be strictly assessed against those standards. Our critics cannot ignore the lacklustre performance of too much of our public sector investment over the years.

Then there is the other proposition to which I also subscribe——

Mr. Matthew Parris (Derbyshire, West)

My right hon. and learned Friend has been speaking about investment through central Government. I accept that, but something that worries many people is the fall-off in public investment in road building and the like, through the public authorities. Would he say something about that?

Sir Geoffrey Howe

Again, the same balance has to be struck. It is an important point. If people are seeking more money for investment in the public sector, whether in local government or central Government, the money has to be drawn from the same resources used for current expenditure. The sad thing is that many of the authorities, such as those in the Labour-controlled Association of Metropolitan Authorities, which urges us—as does my hon. Friend the Member for Derbyshire, West (Mr. Parris)—to increase capital expenditure in the local government sector, are the same authorities that are massively increasing current expenditure and wolfing the resources that should be going to capital expenditure. [HON. MEMBERS: "Untrue".] Labour Members may say that that is not true but they have only to look at the massive expenditure by the GLC on the subsidisation of fares, which has been the subject of controversy over the last 24 hours. Every penny that is spent in that direction—in maintaining the living standards of many who do not even live within the Greater London area—is money which could have been used on capital expenditure.

We have made some progress in that direction. There has been some reduction overall in the staffing of the town halls. One tier of administration has been eliminated from the National Health Service. The Civil Service has been reduced by 52,000 in the last two years.

I find it a little hard when, in this House and elsewhere, the first people to clamour for a switch from current to capital spending also turn out to be the first, when the time comes, to shout the odds when plans for curbing current spending come before the House.

I should like, in conclusion, to answer one central question which has been put to me by the right hon. Member for Cardiff, South-East as well as by several of my hon. Friends, including my right hon. Friend the Member for Worthing (Mr. Higgins), as to where and when recovery is to take place, and what hope the Government can hold out for the timing of that change.

The pace of our recovery is, of course, bound to be affected first by the speed with which the other major industrial countries emerge from the current world recession, and that depends to a very large extent on their success in bringing down their own inflation rates. The same applies to this country.

The development most likely to bring recovery here is a further continued reduction in our inflation and our costs. This year, inflation has been brought down to about 11½ per cent., and unit wage costs were virtually unchanged for the first half of this year. The competitiveness of British industry so far this year has improved by 10 per cent.

The fall in the exchange rate, and the sharp jump in productivity that occurred in the first six months of 1981, set the scene for a return of profitability to British industry, which is the essential precondition for investment and jobs. Export volumes, so far as we can determine them, demonstrate how well British firms have risen to the challenge of recession and what was, for a time, a sharply higher exchange rate.

It is no coincidence that output has now stopped falling and that manufacturing output is already showing signs of recovery—the right hon. Member for Stepney and Poplar could not gainsay the fact but sought to pooh-pooh it—despite the weak world conditions. What we need, in order to sustain that progress, is a further reduction in inflation and wage costs. I do not in any sense seek to diminish the importance of securing the widest possible understanding from the trade union movement about the need for that.

I listened with a little less than total conviction to the right hon. Gentleman talking about his bonds as light as air and yet as strong as steel. I wonder what kind of bonds will bind him, when the time comes, in the pursuit of an agreed approach to income negotiations. Will they be bonds of air or bonds of steel that will bind him to Mr. Alex Kitson? Would he like to be bound in that way to the former chairman of the Labour Party conference, who is contributing very little to the need for understanding among people in this country of the case for moderation in the negotiation of pay settlements? Fortunately, Mr. Kitson's members often appear to have a great deal more sense than he has.

I do not believe that we shall see inflation falling as fast in the next 12 months as it has in the last 18 months. Indeed, the recent fall in the exchange rate—Labour Members often urge us to go further in that direction—must for a time involve some pressure in the opposite direction. But the trend should remain downwards.

A further slowdown of inflation and costs should have several effects. It should enable interest rates to be lower than they would otherwise be. Company profits, and resources available for investment in new plant and machinery—and new jobs—should be increased. For some time to come, earnings in real terms are bound to be lower. But any adverse effect on consumption because of that has to be set alongside the beneficial effects from the additional overtime and decreased short-time working that is now in evidence. Crucially, cost competitiveness should improve, and with it the level of output that can be sold to markets at home and overseas.

That is the way in which recovery should come about. Indeed, it is the only sustainable way in which recovery, can occur, for reflation brings only a short-term recovery and piles up new and larger problems for the future. This is the way in which I believe recovery should and will come about, and it is a belief that is based not or dogma or theology but on the evidence of our past and present economic performance.

Our history shows that, provided the facts are explained fairly—and provided they are not distracted by suggestions that there is some painless alternative policy waiting to be picked up which the Government are willfully ignoring—the British people as a nation can and do respond to this understanding.

What we must avoid is yet another attempt, at the behest of Labour Members or anyone else, to tear up the economic rule book and kick over the traces—attempts of the kind that have destroyed the efforts by previous Administrations to attain recovery. We do not intend to repeat mistakes of that sort. We intend to adhere to the framework of our strategy. That is why I ask the House to reject the amendment.

5.10 pm

Mr. Douglas Jay (Battersea, North)

The Chancellor of the Exchequer has just made an astonishingly negative and depressing speech, one in which he made no suggestions of his own, accepted no suggestions from anyone else, and offered absolutely no help to anyone in this country, whether employed or unemployed.

The right hon. Member for Chesham and Amersham (Sir I. Gilmour) rightly said the other day that the intellectual case for monetarism had now collapsed. It would be worth while this afternoon considering why it has collapsed in order to be clearer about the right action that the Government ought now to take.

The intellectual case for so-called monetarism has collapsed, frankly, because it was riddled with intellectual fallacies from the start. I shall summarise briefly just a few.

Fallacy number one is the false analogy between the spending of the individual and the spending of the nation. Of course, it is true that if an individual reduces his spending he may benefit himself without doing material harm to anyone else. But, if the nation cuts its spending, it also cuts the whole money income of the nation, with all the consequences that flow from that. There is, therefore, no analogy at all.

Fallacy number two, which still lurks in the Chancellor's mind, is the still surviving confusion between demand inflation and cost inflation. The price inflation from which the United Kingdom and other countries have been suffering in the last few years has been caused by rising costs, and not by rising demand, as is proved by the fact that profits have been too low and production has been too low or stagnant. It was the oil cartel, which my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) mentioned, and a free-for-all in pay bargaining—not too much money chasing too few goods—which killed full employment in the 1970s.

Fallacy number three is the confusion between the stock of money and the flow of spending which still, evidently, fills the Treasury's mind. It is the flow of spending, not the stock of money, which influences prices, as even Professor Friedman was compelled to admit recently in a public debate.

Fallacy number four is the belief that only public borrowing leads to the creation of money by the banks, when in fact private and public borrowing may lead equally to an expansion of the stock of money. This error then leads to the absurd conclusion that it is somehow more inflationary to build a pipeline or a power station by public borrowing than it is by private borrowing, which is manifestly absurd.

That is then followed by the even more grotesque belief that the Budget deficit and the public sector borrowing requirement are the same thing. I think that this notion pervades the minds of a number of Conservative Members. The fact is that in the Chancellor's estimates for 1980–81, current public expenditure is exceeded by current public revenue; and, at the same time, capital expenditure in the public sector now exceeds the whole of the PSBR. The PSBR is therefore borrowing to create capital, which is the normal practice which any private commercial organisation would adopt. It is time that we got this fallacy about the PSBR, which has very little economic significance, out of our heads.

The next misconception is the parrot cry that we heard from the Chancellor again this afternoon that interest rates must be left to be determined by market forces. It is certainly true that if one leaves them to market forces, those forces will determine what interest rates are. But if it were true that one could not do anything else, how was it that interest rates were kept at under 5 per cent. in Britain from 1939 to 1951, in war and peace, for no less than 12 years?

The truth is that bank credit was directly rationed by the Government in those years. Otherwise that could not have happened, and everything was not left to market forces. As a result, interest rates were kept down. I do not say that we want to go back to credit rationing of that sort just for its own sake. However, if that is the alternative to 3 million unemployed, I would be all in favour of doing it.

This autumn interest rates have been raised further, unnecessarily, as a result of what I regard as the crassest and most gratuitous of all the Government's blunders—totally abolishing exchange control in present circumstances. As we all know, that led to a major outflow of British-owned funds, which was quite unnecessary.

As a result of all these confusions, we now have a policy of simultaneously cutting demand and letting costs go free which fails even to stop prices rising, as the Chancellor told us at the end of his speech in the gloomiest of all of his statements about future price inflation. It fails to stop prices rising, but it also inevitably produces an old-fashioned deflation, which is what we suffer now, but which is then politely called by the Treasury Bench a "recession", as though it were something mysterious that had come from heaven, and about which the Chancellor could take no steps at all. But a recession simply means a deflation of the flow of money demand below the level of costs in industry which have to be covered.

In that situation, unemployment must grow and production stagnate, and, after a time, even capacity begins to be lost. It is in the nature of falling total demand that some producers have to be forced out of production—because there is not demand for everyone—very often through no fault or inefficiency of their own, but simply because the total demand is too small. That is happening throughout the British economy, as we hear every day—at Hoovers, Shotton, Consett, British Leyland and elsewhere. Some plants which are being closed would be perfectly viable if general demand had been held at the proper level. For deflation is cumulative. The drop in demand shuts down producing enterprises and their closure then cuts demand further throughout the economy. Each cut in Government spending also reproduces the deficit next year as a result of higher expenditure on unemployment and lower revenue.

We in the United Kingdom have now reached the point at which we are probably producing nearly 20 per cent. below capacity. Translated into the money terms, which to Conservative Members mean so much, that amounts to a waste of about £40 billion a year in national income.

The truth is that a nation can afford what its resources are physically able to produce. If we worked on that principle, as we did in the war, we would be following much more sensible policies. But, as a result of ignoring it, the Government now find themselves with unemployment alone costing the Budget between £12 billion and £13 billion a year, according to the Manpower Services Commission—a figure that is much larger than the public sector borrowing requirement.

There is no remedy for this except re-expansion of demand. I agreed fully, however, with my right hon. Friend the Member for Stepney and Poplar when he said that it is no good managing demand unless we also manage costs, for it is a cost-inflation from which we suffer, and the relationship between these two determines the level of production and employment.

The fundamental dilemma facing us, put briefly, is this: if money costs are rising faster than real output over the whole economy, a decision to raise demand equally fast means that prices must rise; but a failure to do so means that unemployment must rise. That means, in practice, expressed in plainer English, that one cannot have recovery or full employment in present circumstances without some form of effective incomes policy. The present wreckage of our economy is largely the effect not of what the Chancellor talked about today, but of trying to have no rational incomes policy over the last two years.

Contrary to what we are often told, and in view of what the right hon. Member for Chesham and Amersham (Sir I. Gilmour) called the Stalinist re-writing of the history of the last few years, my argument is supported by experience as well as by analysis. The years after the war when British Governments, both Labour and Conservative, sought, however imperfectly, to manage demand and cost levels were economically the most successful in this country during the present century.

I should like to give a few figures to put an end to this re-writing of history. It is almost incredible to recall that in the four years from 1947 to 1951, real industrial production rose by 50 per cent., wage rates by 4 per cent. a year and the RPI by 5 per cent. a year; while unemployment scarcely ever exceeded 1.5 per cent. In the 16 years from 1953 to 1969 under Governments of different parties, the RPI rose on average by only 3.4 per cent. a year. The average unemployment total, apart from school leavers, was only 360,000, one-tenth of where it stands now. Real GNP and real personal disposable income rose every year and at an average annual rate of 3 per cent. Bank rate ranged between 3 per cent. and 8 per cent. Those now appear almost to be golden years. They were not golden years. They were years of economic common sense. Other countries are showing the same common sense at present, although I have not the time to mention them.

The years of folly began when, on top of the oil cartel about which my right hon. Friend spoke, we made three mistakes. First, we removed all quotas and then all tariffs from industrial imports into this country. Secondly, we allowed rising pay rates to start the cost inflation at the end of the 1960s and before the OPEC cartel was launched. We then gratuitously made that situation worse by imposing exorbitant levies on imports of food for reasons that are well known.

I have no doubt, nevertheless, that we could, in a few years, return to full employment and rising production—some people are becoming much too pessimistic—if we returned to the economic common sense which achieved both those results over a period of 25 years.

What, therefore, I propose in practice is this. First, we should lower interest rates and at once re-establish exchange control. Then, financial restraints should be loosened on all those public and private investment programmes, particularly housing, that are ready and have reasonable prospects, and that require only lower interest rates to go forward. The gas pipeline is another obvious example. Next, all the resources of Government should be used to achieve the most crucial objective—an agreement with organised labour on cost restraint and a national procedure for sustaining it. It is no good saying that this cannot be done. It has to be done if we are to have recovery.

In the next stage, general demand should be allowed to expand to levels that will bring all resources reasonably soon into production, together with the restoration of at least a moderate tariff for a time on manufactured imports from all sources in order to repair the damage done in the last two years. Otherwise, deflation will grind on to its inevitable conclusion. There is no reason why it should not, unless it is stopped by positive action.

When the Prime Minister, the other day, said that she regarded inflation as a moral evil, I was reminded of a conversation I had with Sir Walter Layton, the then editor of The Economist, in 1934 when he told me of a talk that he had had with Dr. Brüning, then German Chancellor, in the summer of 1932. Layton, who was a friend of Brüning, advised him that if he continued any longer the deflation that had raised German unemployment to four million, we believed that Hitler would soon come to power. Brüning, having listened to the arguments, finished the conversation by saying Whatever the arguments are"— I remember the exact words— I believe that Germany must find salvation through suffering. And he continued the deflation. By January 1933, there were six million unemployed in Germany and we all know what happened then. What an irony it is that the economic failures of the last two years have been brought on us, not by inevitable economic forces, but by the ignorant prejudices of an obstinate woman.

5.27 pm

Mr. Michael Marshall (Arundel)

It is a pleasure to follow the two powerful perorations of the right hon. Member for Battersea, North (Mr. Jay). I am grateful for this opportunity to speak. It is a good time for someone like myself, returning to the Back Benches from the Front Bench, to take stock. It is an experience that sooner or later will befall every hon. Member who has had that privilege. When that happens, I can assure them that they will find the best of good fellowship and a great deal of good sense. I am prepared to extend that to both sides of the House.

This debate at the behest of the official Opposition, to discuss the so-called continued decline of the British economy has, judged by the speech of the right hon. Member for Stepney and Poplar (Mr. Shore), been a partial piece. I salute the right hon. Member for Battersea., North for bringing historical perspective into our proceedings. When he spoke of the golden years, he was perhaps too modest to mention the fact that he had some responsibility at the time. The right hon. Gentleman was, however, referring to a period that reflected substantial post-war demand. I believe that he rather skirted over that aspect. In my view, the failure of British industry to spread its investment pattern sufficiently round the world where British influence was still great has accelerated our problems—the problems that we face due to the competition that we have encouraged through the sale of technology round the world. I should like to deal with the industrial development aspect. The partial view of history of the right hon. Member for Stepney and Bow, ignored, as my right hon. and learned Friend the Chancellor was quick to point out, the decline over the last 10 years—the period when the right hon. Gentleman himself failed to carry through his analysis, during which we have seen a rise in wage increases of over 300 per cent. while productivity has increased by only 16 per cent. That has been the problem of the past decade. I want to discuss the restructuring of British industry, because that is what has been happening during the past two and a half years of this Government. It is perhaps something that is not sufficiently understood in the House or in the country. I want to outline the way that I see it.

Over the past two and a half years, in every part of the private sector, major changes have necessarily followed from over-manning and the difficulties which industries have faced through some of the competition that described earlier. All hon. Members must know, from travelling around the country and from their own constituencies, that many people in businesses, both large and small, say that changes have been made or are in hand. They look for an upturn in the recession to enjoy the benefits of those changes. However, I want to concentrate on what has been done and what will be done under the proposals outlined in the Queen's Speech to restructure the public sector of industry.

No one can deny that the Morrisonian concept of nationalised industry is dead. The original ideas, which had many good motives—commitment, good working relationship, and hopes for full employment—were all lost through a combination of factors. It is not necessary for me to spell them out, except to highlight the politicisation of trade unions, which, in my view, has been a factor, but I also believe that the intervention of successive Governments in prices and incomes policies and in other ways using nationalised industries as a regulator has played a part.

What can be done? The Government have chosen three basic approaches—the devolution of responsibility, privatisation and deregulation. On the devolution of responsibility—to put it more simply, the restoring of responsibility to the workplace—it would be surprising if Ministers, civil servants and hon. Members could seriously claim that they were better at second guessing than the people involved in the place of work, whether the management or the shop floor staff. It is salutary for us all to remember that we are amateurs in these matters. We should therefore have a little humility in trying to pronounce, as some of us tend to do, on matters of great detail.

We must appreciate that successive Governments are bound to take a view on matters in which public finance is concerned. However, in practice, implementation of industrial policy in the public sector looks to the selection of management, and management should make its own accommodation and agreement with the work force through the trade unions.

Let us take the example of the British Steel Corporation. My right hon. and learned Friend the Chancellor of the Exchequer rightly pointed to the remarkable improvement in productivity in BSC in South Wales. I add my voice to those who paid tribute to that achievement. However, we should remember that the strike in 1980 had a heavy cost. Many BSC customers will never again look to that corporation as their sole source of supply. That is part of the price that was paid. There was the notion that in some way Parliament, Governments and parliamentarians could be persuaded to unlock more money. If such a strike was necessary to get rid of that notion, perhaps the price was worthwhile.

Certainly the attitude has changed. I had the privilege of visiting Llanwern recently, and I contrasted it with the situation there five or six years ago, when I was there with hon. Members on both sides on the Select Committee on Nationalised Industries. In 1975, Llanwern had just built a new blast furnace. It stood idle for a year while arguments raged about the demarcation disputes on manning that furnace. The cost ran into many millions of pounds, and it is part of the continuing price that BSC has paid in terms of holding back its development. In 1975, the argument raged on manning in one part of the blast furnace—the clay gun. I am glad that the hon. Member for Dearne Valley (Mr. Wainwright), who was Chairman of the Sub-Committee which visited the plant, is present. He will confirm, as on that occasion, that one frequently gets the facts when one goes down to the shop floor. We were told that five men were needed to man the clay gun that does the filling for the tapping of the blast furnace, although everyone on the shop floor knew that only two were necessary.

When I visited Llanwern a few weeks ago two people were manning the clay gun. When I met the shop stewards and the management, who meet together in an action committee and make it their policy to meet visitors together—which I applaud—they asked me what was my principal impression. I mentioned the over-manning and the change, and specifically the clay gun. The senior shop steward said "Yes, we went to the edge of the precipice, we looked over, and we didn't like what we saw, so we pulled back".

That is what has been happening in various parts of industry. It has happened in BSC, and it has happened recently in British Leyland. It is the reason why it is essential for the Government to maintain the momentum in finding ways to foster the part of the industrial base that is in the public sector.

I see privatisation as a further extension of that principle. "Privatisation" is an ugly word, and we should define it. For me, there is a distinction between denationalisation and privatisation. Privatisation is the bringing in of private capital on a shared basis with important parts of the public sector. In short, it is the BP approach. Hon. Members would do well to consider what is behind the BP approach. No one argues about whether BP is a public or private sector company. In fact, it is in the private sector, but it has a substantial taxpayers' stake. That balance in the financial structure is a key element in the depoliticisation of our industrial arguments.

I am glad that the right hon. Member for Stockton (Mr. Rodgers), who is leading today for the Social Democratic Party, is in his seat. I was concerned to hear one of his colleagues say the other day that the SDP policy—I am glad to know that his party is announcing some of its policies—is to maintain the public and private sectors on about the same basis, but that does not avoid much of the basic difficulty that we face. If we simply keep in the public sector what is there and in the private sector what is there, we shall miss major opportunities for advance. Depoliticisation, the attempt to take that part of manufacturing industry that is in the public sector out of politics, is something that all of us who have gone through that experience would welcome.

The other feature of privatisation—the bringing in of employee shareholding through flotation—is also of vital significance. The British Aerospace flotation was a key development in this connection. Yesterday the right hon. Member for Bristol, South-East (Mr. Benn) offered us his own brand of daylight robbery. He wants to expropriate without compensation. The same muttering and threatening noises were made before the British Aerospace flotation by his hon. Friend the Member for Nuneaton (Mr. Huckfield). What was the reaction of the British Aerospace employees? Over 90 per cent. took the free issue of shares that was offered, and, even more significantly, 40 per cent. spent their own money to become additional shareholders in the company for which they worked. The principle has now been extended to Cable and Wireless, and I am sure that it will be extended to BNOC, despite all that the right hon. Member for Bristol, South-East may say.

The other aspect to which I referred earlier, deregulation, relates to much of the work that may come to fruition during the next year or two through the British Telecommunications Act. I am sorry that the Queen's Speech did not refer to the fact that 1982 will be the year of information technology. I am glad that my hon. Friend the Minister for Industry and Information Technology has already inaugurated that 12-month period. It may be a matter of constitutional propriety that these things are not mentioned in the Queen's Speech but it is of crucial importance. As a fairly recent convert to the importance of this technology, I urge the House to consider very carefully the impact of this not just on the day-to-day lives of our fellow citizens but in terms of the real opportunities which are opening up at a remarkable pace.

I understand, of course, that it is the job of the Opposition to oppose. Nevertheless, it would be helpful if we could occasionally relate the attack which naturally falls upon all Governments to the genuine progress being made in this country. Our people need the uplifting of their hopes by people of all political persuasions when we debate these great issues.

I cite two or three examples of developments which are not only important in industrial terms but which will alter the daily lives of everybody in this country. There is project "Mercury", combining BP, British Rail and Cable and Wireless to establish a fibre optic system for transmission between the main city networks and providing an opportunity for the largest fibre optic contract in the world. That project offers an opportunity to develop a new technology with enormous potential for sales overseas. I recognise that my right hon. Friend the Secretary of State for Industry is rightly seeking fair play in giving British Telecom the opportunity to be consulted, but I urge him to drive the project ahead with all possible speed in so far as it now lies in the hands of the Government to open the way for it under the British Telecommunications Act.

Similarly, I urge the Home Secretary to move quickly in clearing the way for domestic television satellite broadcasting, which is now a near prospect in this country. Some of the schemes already announced will be well known to the House and I shall not mention them all. I think, however, of the Britsat proposal now before the Home Secretary for domestic broadcasting in this country and proposals to carry British broadcasting to other parts of Europe. If these are to be accelerated, early decisions are required from the Home Office. The prizes are very great. If we relate these projects to the build-up of cable television in the United States, for example, where 200,000 jobs have been created in a very short time, the significance of such developments for all of us becomes clear.

Let us go a little further and consider, as we rarely do in the House, the way in which British pre-eminence in communications satellites is being built up so that we are now the main European manufacturer in this field and able to compete in the world at large, as well as the British defence satellite and the current proposals for a domestic television satellite. All these developments are bringing major industrial acceleration about which we hear far too little.

I mention these facts because they need to be weighed in the balance when we discuss the economy. People need to feel that the trend at least is right. I am not one to argue that there are easy or quick solutions to the grievous problem of unemployment, but I believe that it is important to consider the development of these new so-called sunrise industries and their impact upon our lives.

A role which the Government must play and indeed are playing is in public purchasing. Perhaps the single most important decision made by the Government has been the scheme to put a microcomputer into every secondary school by the end of next year. When one considers the implications for a new, numerate generation of school leavers and its relationship to unemployment, the importance of that development is clear.

There are also important developments for the office of the future. Manufacturers in this country can now bring the most effective technology into office administration. I am glad that this is being tried out in the Department of Industry, in other parts of Whitehall and in British Rail. I am anxious, too, to encourage that kind of development.

All these matters can give us encouragement. They are developments in which Britain, with its pre-eminent skills in software and, as I have tried to show, in many areas of hardware, is well placed to develop trade around the world. It takes courage, of course, in the worst world recession since the war, to concentrate on these developments. It also needs—and I accept the responsibility that I have had for this in the past—a willingness to cushion some of the change. Part of that, I believe, has been the price paid in relation to British Steel and BL for cushioning change.

As one who has had the opportunity to serve in these areas, however, I plead with the Government to continue on the course that they have set themselves in these great areas of industry. They must also spell out the role of the Government as user and customer, which enables them to provide cash in their own enlightened interest as a better Administration as well as pump-priming for the economy. I plead that that should be a continuing process.

There is genuinely room for debate, of course, between Members of the House—and indeed between Conservative Members—as to where our spending priorities should lie. But I do not think that even the most ardent reflationist would argue that we can affect the volume of unemployment to more than a marginal extent in the next year or two. That would be to mislead not only ourselves but the country. But if we can move towards a vision of some of the growth industries which will provide a future for all of our people, we shall be doing much of what we were sent to the House to do. We must be willing to accept that the short-term difficulties will not vanish in the next 18 months or two years. To bring about these changes therefore requires courage, vision and determination from the leader of our country. I believe that our Prime Minister has those qualities. I wish her and her Administration well.

5.46 pm

Mr. Ray Powell (Ogmore)

My right hon. Friend the Member for Stepney and Poplar (Mr. Shore) in opening for the Opposition, covered practically all the arguments against the Government's policies. It would be extremely hard to emulate his speech. On the finer points of the economic argument he gave an explicit, direct and comprehensive summary of past and present economic policies, while the Chancellor of the Exchequer failed to explain or to answer the challenges laid down. Indeed, the Chancellor's reply was a repetition of previous statements in a boring, unqualified speech which provided no solution to the problems and merely re-established his and the Government's stand on fighting inflation at the expense of all the jobs which must still be lost as a result.

The measures outlined in the Queen's Speech are all interrelated with economic strategy. Despite protests from numerous quarters, both within and outside the Conservative Party, from Prime Ministers of the recent past and indeed from the next Prime Minister, my right hon. Friend the Member for Ebbw Vale (Mr. Foot), all that we received from the Prime Minister was what we had already listened to for more than two years. We were told: My Government attach the utmost importance to … reducing inflation by the pursuit of firm monetary and fiscal policies and that tight curbs would remain on public spending. She claimed that the country and the Government were growing in confidence, that economic recovery was assured and that by the end of 1981–82 we should have a nation flowing with milk and honey, displaying economic strength created by the growth of productivity with new and lasting jobs.

I appreciate that Lord Denning has no faith in political party manifestos and that he expressed the view yesterday that the electors do not give much credence to them either. Fortunately, I am one of a younger generation who attach considerable importance to election manifestos. Likewise, the present Prime Minister and her colleagues referred frequently to the Labour Party manifesto of 1974 during the last Labour Government, so they, too, attach importance to election manifestos.

Therefore, it is important to inquire whether the promises made in 1979 are being carried out. It is essential to examine the Government's record and to investigate the progress that has been made over the last two and a half years and three Gracious Speeches. I shall list the five election pledges made by the Conservative Party, contained in its manifesto of May 1970. They are:

1. "(1) To restore the health of our economic and social life.
2. (2) To restore incentives so that hard work pays, success is rewarded and genuine new jobs are created in an expanding economy.
3. (3) To uphold Parliament and the rule of law.
4. (4) To support family life, by helping people to become home-owners, raising the standards of their children's education, and concentrating welfare services on the effective support of the old, the sick, the disabled and those who are in real need."

Today 2,000 disabled people lobbied us. I hope that some are listening. The fifth pledge is: To strengthen Britain's defences and work with our allies to protect our interests in an increasingly threatening world. The Gracious Speech of 1980 promised to create growth of output and employment. It promised to encourage new businesses and to improve industrial training. The Government were firmly committed to the maintenance of law and order. What happened? Output fell, unemployment shot up and long-established, large and small businesses collapsed at such a rate that the City was in panic. Industrial training apprenticeships went down to half what they were two years ago. The Government's economic and social policies have undermined law and order. The proof is found in the riots in some of our main cities. Therefore, it is essential that we view the measures in the Queen's Speech in the light of the Government's record over the last two years.

Last Wednesday afternoon, after spelling out her medicine for the sick and ailing nation, the Prime Minister warned that Real jobs will not be quickly won, nor will unemployment fall dramatically … The generation which was brought up to believe that Governments can guarantee prosperity, full employment and happiness for all now knows that life is really not like that."—[Official Report, 4 November 1981; Vol. 12, c. 28–9.] The right hon. Lady can say that again. The whole nation knows that the Government do not guarantee prosperity, full employment and happiness for anyone. Ask the once prosperous, but now bankrupt, business man—after two and a half years there are thousands of them. Ask the three to four million people without jobs. Ask the trade unionists, the taxpayers, the pensioners, the sick or the civil servants. Ask the Customs and Excise officials or local government workers. Ask any worker, skilled or unskilled—the firemen, the dockers, the railwaymen, the shopworkers, the nurses, the doctors, the bricklayers, the carpenters, the plasterers or the painters. There is hardly a skilled or unskilled worker of any trade or profession who is not affected by the Government's policies. From TINA to Tarzan, from the Mad Monk and the Port Talbot financial whizz-kid to the new bike-riding trade union basher from Chingford—they collectively prove that what they have to offer is more depair, degradation and despondency.

This is the Prime Minister's programme for the economic miracle that she claims to be performing. The main measures include privatisation of sectors of nationalised industry, curbs on trade union power, an attack on local government spending and autonomy, and a limitation on spending by some nationalised industries, including transport.

How can those measures take us out of the demoralised, depressed, dismayed and disillusioned state that the whole nation is in? They will not. The right hon. Lady knows too well that they cannot because the Government have nothing to offer that will improve our economic performance. They have nothing to offer that will take us out of the economic disaster pit. That was the wrong speech at the wrong time with the wrong remedies for the wrong sickness. It deals more with Tory prejudices than with the nation's fundamental problems.

We know that it is not the closed shop, strikes and the laws protecting trade unions are wrecking our economy. That is being done by unemployment, deliberately planned and stimulated in industry and commerce by this uncaring, uncompassionate and unscrupulous mad bunch of monetarists. It is not large pay increases which keep us in recession and create inflation, but the fact that 3 million to 4 million of our people are receiving no wages. That is at a cost of £4,380 per person, totalling over £12 billion. It is not the prices of private industry which keep inflation rates high, but the prices of state industries deliberately forced up by the Government.

The suggestion of rate rises referendums is just another gimmick for Tory Ministers deperate for votes. We all know that the fault of rate increases stems directly from Government policies, not local authorities. The Government are spending and borrowing more to keep people out of useful jobs. The selling off of profit-making State enterprises will make matters infinitely worse.

What credibility can we give to all those promises and policies of the Government? I asked for people's opinion in a number of areas in my constituency last weekend. They had just celebrated 5 November. One constituent aptly summed up the mood by saying: "If this is all Parliament can offer, then come back Guy Fawkes; all is forgiven."

The unemployed in Wales are in a hopeless position. Only last week at Welsh Question Time we received the October unemployment figures—763 more people were put out of work in one month, not including married women not officially registered, young people or those on YOP schemes. Unemployment in Wales now totals 170,050, which is 15.7 per cent. of all employees, with 11,884 school leavers unemployed and with no hope of a job.

In my constituency, unemployment is infinitely worse. It will be appreciably escalated by the announcement last weekend of the intention of the National Coal Board to close Coegnant colliery which employs about 450 people in the area of Maesteg which already has 23 per cent. unemployed. That will force up unemployment to well over 25 per cent. with no hope of jobs, no hope of having enough money to move elsewhere to look for work and no hope of even a bike to seek work. The only hope my people have is for an early general election and the return of a Labour Government pledged to policies that will bring the nation back to sanity.

The formation of the new media-created political party will not deter that return to power. The electorate is not yet aware of what that party stands for because it has not decided on its policies. The members of that party will have to make up their minds and prepare a manifesto because the electors do not all think like Lord Denning. The newly-formed Social Democratic Party is just a little too Right to be Left and just a little too Left to be Right, but hardly Right or Left enough to be Centre, which makes that party neither Left, Right nor Centre. However, what is left to be right about centres on whether the Liberal Party will be left out of the centre of things if the Liberal leader and Mrs. Williams consummate their political marriage. That so-called Liberal alliance is summed up admirably by a well-known trade union leader who said that it is like having oral sex with a whale.

I conclude by spelling out what the Labour Party is pledged to do when it becomes the next Government. Our first priority will be to have joint agreement with the TUC and the Government. The aim will be to restore full employment; to stop the decay of our inner cities; to stop the further ruin of our manufacturing industry; to stop the collapse of our economy; to stop money flowing out of the country; to stop all the reductions in trade union rights; and to restore overnight what the present Government have taken away in the last two and a half years.

We will not pursue policies that will create 4 million jobless, 1 million unemployed young people, 750,000 unemployed women and 500,000 people without work for more than 12 months. Our policies will be genuinely designed to create jobs, as so admirably spelt out by the Leader of the Opposition last Wednesday afternoon and my right hon. Friend the Member for Stepney and Poplar earlier today.

Instead of spending £12 billion on unemployment, we shall spend it on reintroducing services. We shall spend it on employing local authority workers such as home helps, school cleaners, dinner ladies, crossing patrolmen and women, meals on wheels workers and many other social services workers who have been made unemployed by Government policies.

We shall spend it on employing the 300,000 unemployed construction workers to build houses, hospitals, sheltered accommodation and roads and railways. We shall spend it on education, and re-employ the thousands of qualified teachers out of work. We shall spend it on the health services and employ the 1,000 or more qualified doctors out of work. It will be used to cut waiting lists for hospital treatment.

There will be a Labour Government in two and a half years' time, if not before. The 4 million people out of work need a Labour Government, as do the 23 million people in work. The sick, elderly, housebound, disabled, blind and underprivileged are all waiting and praying for our return. The poor, weak and old, as well as the disadvantaged, are looking to our return because they know that they will be treated with compassion and care. All the waste of human resources used to stockpile weapons of human annihilation will be diverted in order to build the caring, sharing Socialist society in which we believe and which the British electors are crying out for.

6.2 pm

Mr. Maurice Macmillan (Farnham)

I hope that the hon. Member for Ogmore (Mr. Powell) will forgive me if I do not follow his arguments. I want to be as brief and constructive as possible.

I should like to refer to one suggestion of the right hon. Member for Battersea, North (Mr. Jay). He greatly overrates any possible good effect of returning to exchange controls. First, they have no effect at all on the movement of money by non-residents. Secondly, the right hon. Gentleman misunderstands two of the reasons why British business men invest abroad. First, by investing overseas they get a higher level of productivity and profitability as well as more efficient organisation for their investment. Secondly, over the years British overseas investments has played a large part in the extension of British exports and interests throughout the world.

My hon. Friend the Member for Arundel (Mr. Marshall) was much nearer the mark when he suggested that in the past, for which the right hon. Member for Battersea, North hankers, we made the mistake of spreading too little British investment around the world. I agree that it is needed if only to ensure a net inflow of interest, profits and dividends at a time when so much inward investment is coming into Britain.

Nevertheless, the time has come for some changes in the emphasis of Government policy. I do not for a moment suggest that they should abandon them all and adopt the sort of reflationary and inflationary ideas that have been put forward by Labour Members. Still less do I suggest that they should follow the right hon. Member for Battersea, North in his plunge back into the past. However, there is a strong case for making relatively small changes of a kind that have already been suggested by some of my hon. Friends. That would help bring to fruition the Government's present policies, which will not be achieved without some degree of expansion.

I acknowledge that there are considerable risks in adopting such a course, but there are considerable risks if we do nothing and continue without any change or shift in emphasis. There is the somewhat obvious risk of possibly curing the disease and in the process killing the patient.

The trend indicated by my right hon. Friend the Member for Daventry (Mr. Prentice) in a recent debate reveals some of the risks of not doing a little more now. My right hon. Friend pointed out that under four successive Governments—two Labour, two Conservative—unemployment rose then fell. In the late 1960s, under a Labour Government, it reached two thirds of a million. In the early 1970s, under a Conservative Government, it reached more than 1 million. In the late 1970s under a Labour Government, it reached 1⅔ million. Now, in the early 1980s, unemployment has risen to 3 million. Each time, the unemployment figure at the end of the Government's period of office was about twice as high as it was at the beginning.

That makes nonsense of attributing blame specifically to one Government's policies rather than another's. It also shows that for some time there has been a need for a careful timing of policies to try to reverse the trend in order to achieve a steady move forward.

We have reached this stage partly because unemployment is so high. Several hon. Members have said that it now costs about £12 billion a year. In part, that has caused the Government's significant failure to control public spending on current account. In order to maintain employment and mask some of the effects of what has occurred, we have also been faced with the heavy burden of nationalised industry prices, including an imposition on the electricity industry and industry generally of energy costs that are much more expensive for them than buying energy from abroad. As a result, the whole burden has been placed on the private sector and has not been shared by the public sector.

It is, therefore, no wonder that private sector investment is so low. Unfortunately, it is not even matched by public investment. I take as an example the volume of Government spending on gross domestic fixed capital formation. If we take 1979 as 100, it was 87 in 1980 and 67 in 1981. It is likely to be about 61 in 1982.

In those circumstances, I should like to suggest a few positive proposals to add to those that have already been made. I am not suggesting that these should be regarded as more important than the others or even that they should necessarily be adopted. I am merely trying to get out the sort of line that the Government should now be considering.

First, the imbalance in investment must be redressed. We need more public investment, especially in the type of project that will create work and contracts in the private sector. That will enable the private sector to employ more people and start new investment, so as to carry out the new works that the Government should be starting.

It is necessary—I come back to the point that I have argued time and time again—for the Treasury, in analysing its figures and presenting them to the House and to the public, to make some distinction between the nature of the expenditure, whether it is current or capital or whether it is the type of capital expenditure that itself will increase current expenditure in the future, or whether it is capital expenditure on industrial or similar investment. It is as crazy not to do that, just as it is crazy in another way not to regard BP's investments as 50 per cent. public expenditure simply because it is 50 per cent. publicly owned. That confusion in accounting is damaging the attitude of Ministers and others to the levels of public spending in investment. We could also be more flexible in our methods of financing investment, both public and private.

Secondly, the Government should continue their control—as far as is possible—on current account spending and their procurement policies on current account spending should be used more positively to help the country. It is an entirely false economy to buy abroad when it is not necessary to do so. I have never understood the Marconi torpedo argument. The balance in favour of buying abroad was so narrow that it could not possibly justify putting people in this country out of work.

Many years ago, when we had exchange control, and balance of payments problems, the Treasury had a convention by which a pound's worth of dollars was regarded differently from a pound's worth of sterling. If dollars were spent, the saving had to be very large to justify the use of this scarce commodity rather than the use of sterling. In the same way, there should have to be a big cash saving if Government Department purchases are to be made abroad.

Thirdly, Government help to industry should be more geared to innovation and there should be a more consistent approach to research and development—but not entirely pure research. I beg the Government to make some effort to overcome the appalling intellectual snobbery that prevents the academic world from getting close enough to the industrial world for basic research to be transferred quickly to applied research and development.

Helping what are now called the Sunrise industries and encouraging investment for modernisation will demand greater help to sectors of industry, rather than areas of the country. Help must also be geared to improving productivity. That is surely all the more necessary because the United Kingdom oil surplus enables us to finance the purchase of foreign imports that are more worthwhile to the customer because they are cheaper and better than their opposite numbers in the United Kingdom, because of better production methods overseas.

We all know that much of what is happening is outside any Government's control. One of the reasons why I distrust too much faith in the monetary target is that it is dependent on exchange rate policies and movements. However, that is no reason for inaction. The Government have confined their policies too much to the defensive or negative side of coping with inflation and the position as they see it. They have not given enough hope to all of us in Britain, nor have they given leadership abroad in the way that should have been possible.

I should have liked them to take an initiative on exchange rates. This is my fourth point. In the recent censure debate the Prime Minister, referring to the fixed exchange rate system that collapsed in the 1970s, said: We cannot go back to that system other than on a world-wide basis."—[Official Report, 28 October 1981; Vol. 10, c. 885.] Of course that is obvious, but there is no reason why the Government should not start now to try to put something else in its place.

Whether it is politic to join the EMS is arguable. I am in favour of it. So, fifthly, we must try to get the Finance Ministers and central bankers representing, if not all currencies, the six or seven key currencies to try to get a more coherent system of stability into the exchange rate and also to try to reach an agreement on modifying interest rate competition. It may be difficult for the Government to bring down interest rates singlehanded, and this may be too expensive In other ways but, again, there is no reason for not making a start now. The present level of interest rates is damaging not only to the British economy, but to all sophisticated industrial economies. There is a need to bring international co-operation to a higher level and to improve international institutions so that they can begin to cope with the increasing interdependence of national economies. If the attempt does not work initially, at least it will have given us a feeling of hope, rather than a feeling that we are at the mercy of forces that we cannot do anything about.

My sixth point applies to OPEC money. I should like to see a concerted effort, with Britain in the lead, through the EEC, and independently, to make better use of the surplus money of the oil producing countries. At present, it is mainly on short-term loan, rather than being invested for the future. There is a greater need for investment, even in OPEC countries, to provide for the time when the oil begins to run out or is too valuable as a feedstock to burn as fuel. The Third world needs investment help. OPEC money should be used for productive investment worldwide.

It is generally agreed that if the Government took the steps required to encourage investment and contemplated a package on the lines suggested by Conservative Members, there would have to be a more constructive attitude on wages. There is another important side to that. In certain parts of the country there is already beginning to be a shortage of specialist skilled labour. One of the difficulties of getting these skills for the future is the determination of some trade unions to prevent the differentials from widening enough to make it reasonable for people to acquire the necessary skills and serve longer apprenticeships. It is therefore important for the Government to talk to management and unions, not only about training but about ensuring that the necessary incentives exist, both to take up training and to carry on a skilled job afterwards. We should also be talking about the problems of what is known as "the poverty trap". This is my seventh suggestion.

I have tried to be constructive. I do not pretend that my proposals will have quick results in terms of more jobs. Indeed, I am more than a little sceptical about some of the ideas put forward by Conservative Members to try to bring down unemployment more quickly. If it is going to take time, surely that is all the more reason for starting to do something quickly. I do not believe that it will be more inflationary than no change. We are not asking for the massive reflation that is implied in the speeches of Labour Members. High interest rates and narrow monetary targets tend to be inflationary as well as leading towards stagnation. An acceptable level of borrowing can be judged only on the purposes of the borrowing. The present policies are not on their own achieving our original purposes.

Some of the saddest words in our language are "too late". How often have critics of successive Governments had to refer to changes, alterations, new policies and new initiatives as being too late? I say with great sincerity to my right hon. Friend the Prime Minister and her Front Bench colleagues: "Start the action now. I believe that it is later than you think.

6.20 pm

Mr. William Rodgers (Stockton)

The right hon. Member for Farnham (Mr. Macmillan) made a wise speech that contained a long catalogue of proposals that the Prime Minister and the Chancellor of the Exchequer would do well to note. The content of the speeches from the Back Benches has been a great deal more interesting that that of the speeches from the Front Benches. Much of what the right hon. Member for Battersea, North (Mr. Jay) said commended itself to the entire House. If I may say so, I think that the hon. Member for Arundel (Mr. Marshall) made a thoughtful, moving and impressive speech. The Government are poorer for his absence. I wish that there was more time to discuss as seriously as the hon. Gentleman did the fundamental issues that arise from the interplay between Government, Parliament and industry, especially the nationalised sector.

The hon. Member for Ogmore (Mr. Powell) introduced a mammalian and sexual metaphor towards the end of his speech. I am told by hon. Friends who know more about these matters than I do, "For whale, substitute shark".

In the course of a typically dull speech, the Chancellor told us three things. First, he said that there will be a slowdown in the rate of decline of inflation. We know that and it is depressing. Secondly, he told us that he is still examining the case for the nationalised industries going to the market to borrow. We know that and it is welcome. Thirdly, there was a slightly plaintive statement. The right hon. and learned Gentleman said, in effect "How difficult is the life of a Chancellor of the Exchequer". We know that, but in this instance the remedy is in his own hands.

We are moving towards the end of a long and, in some respects, rather tiring ritual. It puts Governments and, alas, the House in their place to consider how irrelevant the Queen's Speech is to the events that will determine what takes place in the coming year. We all know that the Government of the day can make decisions without any reference to what is set out in the Queen's Speech. They must do so if they hope to manage the economy of the nation better than the present: Government.

We know, too, that what happens in Britain is much affected by what happens elsewhere. President Reagan commented yesterday, during his press conference, on matters concerning defence, disarmament and peace. In these respects I share the anxiety that exists about Washington although we must remain firm in our commitment to the transatlantic Alliance. But the President's remarks yesterday about the state of the United States economy and the prospects for inflation are chastening. What happens to the American economy has an important spin-off effect for us.

When we go through the ritual that took place a week ago and troop out in an orderly way from these Benches to the House of Lords, we find that most of what we hear from the lips of Her Majesty we have read in the newspapers on the previous Sunday. In a sense, we have been going through a procedure that gives us a good opportunity to make speeches but which hardly advances the state of the nation.

The hon. Member for Islington, Central (Mr. Grant) said on Monday that the Queen's Speech plumbed new depths in its irrelevance and insensitivity. I do not quarrel with that summing up. I think that the Economist referred to it as a "tepid" speech. That description sums it up equally well.

The speech of the right hon. Member for Stepney and Poplar (Mr. Shore), which was delivered from the Opposition Front Bench, revealed that for the most part the official Opposition's policies are also irrelevant and insensitive. That was revealed no more clearly than in the sharp contrast yesterday between the opening speech of the right hon. Member for Leeds, South (Mr. Rees) on the important subject of energy policy and the extraordinary speech of the right hon. Member for Bristol, South-East (Mr. Benn) in reply. I have always regarded it as outrageous and undemocratic to speak of nationalisation, including renationalisation, without compensation. The only comfort is that we need not take the words of the right hon. Member for Bristol, South-East too seriously because the Labour Party will never be in a position to carry out the policy that he outlined.

I listened today on "The World at One" to the right hon. Member for Stepney and Poplar. I am sorry that he is not in his place. He will know that I mean it when I say that I find him robust and engaging and that I have a genuine affection for him. However, in today's performance on "The World at One" the right hon. Gentleman revealed the extent to which the official Opposition are living in cloud-cuckoo-land. He was uncomfortable and evasive, and well he might have been, in discussing where he stood on the issue of "without compensation".

I shall not attempt to take the House through the difficult by-ways of the Labour Party's policy-making processes which, even in my former days, I never fully understood. However, the right hon. Member for Cardiff, South-East (Mr. Callaghan), for whom in other respects I have a high regard, proposed to a Labour Party conference at Wembley a statement that plainly set out the fact that the Labour Party, given half a chance, would restore to public ownership without compensation the assets of our public sector —namely, the industries— sold off by the Tories. I understand from the right hon. Member for Stepney and Poplar that that is no longer the official Opposition's position.

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

The right hon. Gentleman will soon learn of the policies of the Opposition if he chooses to fight a by-election. He should cut out the abuse.

Mr. Rodgers

Is the right hon. Gentleman able to say——

Mr. Campbell-Savours

When will the right hon. Gentleman fight one?

Mr. Rodgers

Oh, do shut up.

Mr. Campbell-Savours

The right hon. Gentleman is indulging in personal abuse.

Mr. Rodgers

This matter was debated——

Mr. Campbell-Savours

The right hon. Gentleman has been speaking for about five minutes and all that we have had from him is personal abuse. It is about time that the representatives of the Social Democratic Party in this House devoted some time to making reasonable political comments based on common sense and stopped talking nonsense.

Mr. Rodgers

If the hon. Gentleman thinks that I am dealing in personal abuse, his freedom is guaranteed, thank goodness, to leave the Chamber and to listen to nothing further that I have to say. He does not like what I am saying because he knows that it is true. Labour Members know in their hearts that the Labour Party speaks with two voices and that this is profoundly damaging to the country.

The right hon. Member for Deptford (Mr. Silkin) is in the Chamber and, therefore, I can speak of his position plainly in his presence without, I hope, causing offence. I remember when the issue of compensation was discussed by the Shadow Cabinet. Contributions were made by the right hon. Gentleman and by the right hon. Member for Lanarkshire, North (Mr. Smith). Faced with the dilemma of what view should prevail, that of the National Executive Committee and the Labour Party conference——

Mr. Campbell-Savours

Tell us what your party will do.

Mr. Rodgers

—or that of the Parliamentary Labour Party, he was on both sides at the same time. If the right hon. Gentleman thinks that I am wrong, he may say so now.

Mr. John Silkin (Deptford)

The right hon. Gentleman, as always, is talking nonsense, and is doing so at great and exceedingly boring length.

Mr. Tristan Garel-Jones (Watford)

Answer the right hon. Member for Stockton (Mr. Rodgers).

Mr. Silkin

The hon. Member for Watford (Mr. Garel-Jones) has taken upon himself the role of protector of the right hon. Member for Stockton (Mr. Rodgers). He obviously needs it.

My right hon. Friend the Member for Leeds, South (Mr. Rees) said yesterday: we wish to make public and plain to any outside interests contemplating the purchase of these shares our firm resolve to restore the assets to public ownership on terms that will ensure that no private speculative gains are made at the nation's expense.

Mr. Rodgers

rose——

Mr. Silkin

I thought that the right hon. Gentleman wished me to make my point. I was encouraged to do so. Therefore, I might as well do it. An undertaking in those terms was unanimously agreed and published by the Shadow Cabinet on 21 October 1981. It was also unanimously agreed by the National Executive Committee of the party on 28 October 1981.

That happens to be the view that I have always held. I have held it for rather longer than the right hon. Gentleman. I was a member of the Labour Party before he joined it and after he left it.

Mr. Rodgers

I have never heard such gobbledegook. I do not understand it. I am prepared to give way to the right hon. Gentleman again if he wishes to explain. I do not think that the House knows what he means.

Mr. Silkin

I was repeating the words of my right hon. Friend the Member for Leeds, South. At one time he was also the right hon. Gentleman's right hon. Friend. He said: we wish to make public and plain to any outside interests contemplating the purchase of these shares our firm resolve to restore the assets to public ownership on terms that will ensure that no private speculative gains are made at the nation's expense."—[Official Report, 10 November 1981; Vol. 12, c. 438.] Surely that is perfectly clear.

Mr. Rodgers

I hesitate to say it, but I still do not understand what it means.

Mr. Dickens

rose——

Mr. Rodgers

No, I shall not give way. I am glad that the matter has been clarified. I now wish to know what will happen to the right hon. Member for Bristol, South-East. If I strain hard to understand what the right hon. Gentleman said, he appears to be disowning the statement made in "Peace Jobs Freedom". If that aspect of the document is now replaced, modified, stood on its head or otherwise rejected, what about the other parts? In the document, the stated view of the Labour Party was: We will also extend public enterprise to ensure a significant public stake… in … pharmaceuticals, medical equipment, micro-electronics, construction and building materials. Does the right hon. Member for Deptford believe that there will be more jobs, greater industrial peace and more freedom if we nationalise pharmaceuticals, medical equipment, the contruction industry and building materials? If so, he is adopting a position that is crazy for an official Opposition.

I believe that the majority of hon. Members care about the unemployment level of 3 million. The right hon. Gentleman and his right hon. Friend the Member for Stepney and Poplar know that to leave the Common Market would add not less than 1 million, and possibly 2 million, to the dole queue. It is hypocrisy for a political party to stand on the need to reduce unemployment—and there is that need—and at the same time claim that leaving the European Community would not be harmful.

If I had the time I would pursue some of the important matters raised by the hon. Member for Arundel. I should welcome a tighter regime for the nationalised industries, to make them profitable whenever possible. Sir Michael Edwardes had no alternative but to seek the pay settlement that he did at British Leyland, painful though it was on the face of it. There is no case for BL to be left as a permanent lame duck.

I say with regret that the size of the losses at British Steel cannot be sustained in the long run although I am concerned that the present cuts may reduce the capacity of British Steel to respond when the recession ends. We cannot justify putting large sums of money into industries that are in decline, without acknowledging that the sunrise industries of high technology have a substantial claim on the public purse. I hope that many hon. Members on both sides of the House will deplore the cuts in our universities, especially in the business and technology areas. I hope that we all agree that, however little the Government may be doing, there must be further measures to relieve unemployment, including further training facilities.

There will always be less money to spend than there are claims upon spending. We should get our priorities right and not assume that, inevitably and necessarily, the nationalised industries that could become profitable should not do so. I now depart from the feeling expressed by the hon. Member for Arundel, in that I do not believe that any Government are justified in selling off substantial parts of nationalised industries. I regret that that has happened with the National Freight Company, although I agree that the eventual form of ownership appears to be desirable. I regret that event taking place with the British Gas Corporation and BNOC. I would regret it if it happened to British Leyland. When a great deal of taxpayers' money is put into a lame duck to turn it into a viable enterprise, it is damaging for morale, management and workers if it is then expelled from the public sector into the hand's of private investors.

Mr. Mark Wolfson (Sevenoaks)

Does the right hon. Gentleman agree that the method of denationalisation of the National Freight Company has turned out to be highly acceptable to both staff and management, and in no way damaging to morale?

Mr. Rodgers

That is what I was saying. It is wrong for Governments to sell the profitable pieces of nationalised industries. As Secretary of State for Transport, together with my hon. Friend the Member for Gateshead, West (Mr. Horam) I tried hard to bring the National Freight Company into the black. That having been achieved, it was wrong of the Government to sell public assets. We have yet to know who will be responsible for decisions in the National Freight Company. However, the outcome has been better than expected.

I wish to say a brief word about the proposals of the Secretary of State for Employment. We must judge them on their merits and decide whether there is any case for them or whether it would be better to have a standstill on industrial relations legislation. It would be right for the House to welcome any extension of the conscience principle related to the closed shop, and an increase in compensation. It would be right for the House to welcome an extension of balloting for trade union internal affairs, especially in relation to senior officials. Although. I have not always believed that balloting for strikes was the best and most effective way to proceed, that proposal now needs careful reconsideration. I would also welcome, although I do not see any prospect of the Government introducing it, a measure to substitute contracting in for contracting out, which would enable an individual trade unionist to choose which party, if any, should receive his contributions.

According to the evidence, 3 million people who pay a political levy to the Labour Party did not vote Labour at the last election. That is wrong. But I agree with the hon. Member for Blackburn (Mr. Straw) that symmetry would be desirable. More stringent rules should be enforced to ensure that a shareholder does not contribute to a political party against his will. It is also in the interests of our parliamentary system and of all political parties, old and new, that the proposals by the Hansard Society for Parliamentary Government for the further State funding of political parties should be implemented.

There is much to be admired in the British trade union movement. It has often been a model for free trade union movements overseas. There are many hardworking, able and fair-minded men and women among their officials. However, the trade union movement is desperately unclear about its role. Is it a type of friendly society concerned only with wages and welfare? Is it a great estate of the realm, expecting constant summonses to Downing Street? Is it the industrial wing of a single Labour movement, as the right hon. Member for Stepney and Poplar said today? They are not compatible roles. The trade union movement must decide which role it wants.

I hope that as the years go by it will be less necessary to enact industrial relations legislation. There is no intrinsic virtue in such legislation. Much will depend upon the public perception of trade union behaviour—whether it is the behaviour of pickets or the language and style of a trade union leader such as Mr. Alex Kitson. Three years ago when I had direct ministerial responsibility he was wholly indifferent about whether a strike of tanker drivers might bring down the Government whom he claimed to support. It was the beginning of the winter of discontent. This time he has declared his colours plainly. I want to know from the official Opposition whether they will disown—in as many words and plainly—any attempt to use industrial action by the tanker drivers to bring down the Government. There are many things wrong with the Government but it would be a negation of the role of a responsible trade union leader or a responsible political party—if that is what the Labour Party still is—to support such industrial action for political ends.

The debate has revealed a remarkable unanimity of view across the Chamber about the Queen's Speech. The remarks of the right hon. Member for Chesham and Amersham (Sir I. Gilmour) on Monday were widely endorsed. They were built upon the speech by my hon. Friend the Member for Gateshead, West last Wednesday. Anybody who doubts that should read their words carefully. They would recognise the use of the £70 a week subsidy and the £5 billion reflation figure.

There is much agitation on both sides of the House, particularly in the hysterical ranks of the official Opposition, because the Government have lost the confidence of the country. But it is incredible and without precedent that in the latest Gallup poll the official Opposition command only 24 per cent. of votes.

The votes tonight are predictable, if the Whips on each side have done their job. But irrespective of the vote, the Government do not command the confidence of the House for their policies. They do not command the hearts and minds of hon. Members, even if they might command the majority of their votes.

In the nation and here in the House of Commons there is a cross-bench majority for something different from and better than that which the Government are offering and for something different from and better than that which the official Opposition offer as an alternative.

6.44 pm

Mr. Geoffrey Dickens (Huddersfield, West)

I welcome this opportunity to take part in the debate. Since the right hon. Member for Stockton (Mr. Rodgers) would not give way to me, it is most fortuitous that I should catch your eye, Mr. Speaker, to make the next speech after his.

I should like to clear up one matter. I refer to whether, if the Labour Party were returned at the next general election, it would pay compensation for the North Sea assets that we are hoping to give the people. We hope to allow people a stake in the North Sea so that they can invest in the area's wealth.

Yesterday the right hon. Member for Bristol, South-East (Mr. Benn) said: We should re-establish the Energy Commission, provide the necessary statutory powers, reacquire without compensation all the assets to be alienated by the Government—— Then there were protests and points of order. The right hon. Gentleman went on: That is the policy of the Labour Party on the question of the reacquisition of the assets."—[Official Report, 10 November 1981; Vol. 12, c. 499.] Who would be robbed? Pensioners who invest their money in the wealth of the North Sea would be robbed along with pension funds through which people hope to gain pensions on retirement. If that is the Labour Party's policy, such people would be robbed.

I hear that there has been some form of denial. I have not heard a denial from the right hon. Member for Bristol, South-East. That is the sinister method of Socialism. The trick is that myths are put around. When such statements are made members of the Labour Party sometimes say that it is a mistake. If it is a mistake, it is a deliberate mistake. I do not believe that the right hon. Gentleman's statement was a mistake. We were intended to hear and read those words so that people will stop investing in the North Sea and so that our scheme will fail. We need the assets to reduce the public sector borrowing requirement. We do not want to pass on massive debts to our children and grandchildren. We want to do a better job than that done by successive Governments over many years.

I warn everybody. The people on the Left and the Right of the Labour Party are in the same boat. The right hon. Member for Leeds, East (Mr. Healey) said in 1973 that if the Labour Party were returned to power it would nationalise the top 100 companies. He said that if pharmaceutical companies, for instance, did not fall under the umbrella of the 100 companies, they would be nationalised. He said that his party would also examine the banks and insurance companies.

What was the effect of that statement? Companies suddenly changed their plans and the value of shares fell. Companies did not want to invest. They did not want to move into or even to stay in that top 100 group. Plans for expansion and increased production were changed. That is irresponsible opposition. That is what has happened in the debate on the Gracious Speech. We heard that irresponsibility yesterday and before. It put fear into people. It is the Opposition's style.

Anybody who is thinking of buying shares in North Sea oil should go ahead and buy because they will never see a Labour Government again in their lifetime. They may see the Social Democrats in Government. They will certainly see the Conservative Party, but they will not see the Labour Party.

Returning to the debate, I wondered whether I should bore hon. Members on interest rates, exchange rates, reflation and so on, but there have been many excellent speakers before me today who know more about the subject than I, so I shall concentrate on ratepayers. At the moment everyone is concerned about the Local Government Finance Bill. I feel qualified to speak because I have been chairman of a parish council, chairman and leader of a district council and a county councillor. At times I have served on all three simultaneously.

The ratepayers of Britain do not have a bottomless pit of money. Councillors—I was one of them—are past masters at spending other people's money and doing the best for their patch in the face of other demands. Therefore, they go on spending. The Government have given local authorities every opportunity to cut expenditure. Private industry has had to cut expenditure, and Ministers have had to cut expenditure in their Departments. However, local authorities seem incapable of cutting expenditure. They believe that if their sums are wrong the ratepayer can pay. If they get their sums wrong the first time, out comes the supplementary rate demand.

The ratepayers of Britain are sick and tired of that system. They have had enough, yet some Conservative Members are weakening, because councillors have got at them and argued that, if the Bill were enforced, it would take away democracy from local government. That is nonsense. Hon. Members who have served on parish councils will remember well that when they precepted the district council they had money which they could spend as they wished. They had their own priorities.

Now the Government wish to bring in the Bill because they feel that, if local government will not curb expenditure—as part of our strategy it is essential that it does—they have to step in with hobnail boots and discipline them. The ratepayers have had enough.

Who are those ratepayers? They include many elderly people living alone and widows struggling with ever-increasing rate demands. They include companies that are paying tax to the Exchequer and have been ground into the dust because of the world recession. On top of that, local councils and their officers—whom I blame tremendously—continue to demand more money through rates.

Therefore, the scheme that will be introduced is badly needed. No one wishes to introduce it, but there is no alternative. It must be done and we must get our sums right. The Government cannot tell the nation that they are on target and then not come up with the goods. The Government have not acted quickly enough over local government finance. They should have acted in their first year or so in office. They have left it late, but they are moving quickly. I wish to see the abolition of the unjust and unfair rates system.

I shall say no more, as many hon. Members are eager to speak, but I warn the House that one day I shall earn the privilege to sit on the Government Front Bench, and when I do every one had better watch out.

6.54 pm

Dr. Jeremy Bray (Motherwell and Wishaw)

The previous two speakers make an admirable pair. The hon. Member for Huddersfield, West (Mr. Dickens) would be a great improvement on the present occupants of the Government Front Bench. The right hon. Member for Stockton (Mr. Rodgers) is painful to listen to. We hear him condemning the system from which he gained so much benefit in the past and which he failed to condemn at the time that some of us were doing so.

I wish to talk about the real world. I apologise for not being present during the earlier part of the debate; I was in a Select Committee. I have two questions. First, what can be done, reasonably, objectively and without too much consideration of political convenience? Secondly, because of the political position in which Conservative Members find themselves, what may they reasonably be expected to do, given the diversity of views expressed by their party?

I remind Conservative Members of the point from which they started, when there was no significant bleep of complaint. In 1980 the Chancellor of the Exchequer, in stating the terms of the medium-term financial strategy, accurately foresaw the sort of hazards to which it would be subjected. He said that the projections of expenditure, receipts and the borrowing requirement fall within a wide range of possible outcomes. Events at home or abroad could develop so as to produce a very different situation. That is what they have done.

The right hon. and learned Gentleman continued: World trade could grow faster or more slowly than assumed; the supply response of the United Kingdom economy could be very different … oil and other commodity prices could show different movements; and the behaviour of earnings is always difficult to predict. All that is true and it has been amply borne out by what has happened since. He went on to say: To maintain a progressive reduction in monetary growth in these circumstances it may be necessary to change policy in ways not reflected in the above projections. The Government would face a number of options for policy changes to achieve this aim, including changes in interest rates, taxes and public expenditure. We have certainly had enough of those. The Chancellor concluded: But there would be no question of departing from the money supply policy, which is essential to the success of any anti-inflationary strategy. What has happened? In the first year of the medium-term financial strategy the target range was 7 to 11 per cent. The outturn was 19 per cent. growth of sterling M3. For the second year, based on that inflated base, the target was set at 6 to 10 per cent. In the first eight months the actual growth has been 11.8 per cent., which is an annual rate of 18 per cent. It will require a fall in the money supply in the remaining months of 1981 to come anywhere near the target.

Conservative Members may plead statistical confusion arising from the removal of the corset last year and the Civil Service strike earlier this year. I ask them to took at what the financial markets are saying. The yield on five-year British Government stock now stands at about 15 per cent., which is consistent with the consensus forecasts for the rate of inflation expected in the next two or three years of 11 to 12 per cent.

The attempt to follow the strategy has led to a catastrophic loss of competitiveness. Had the Government followed the strategy, the results would have been much worse. From 1979 to the beginning of 1981 there was a deterioration of 40 per cent. in the competitiveness of British manufacturing industry. That deterioration has now fallen to about 25 per cent. because of the rise in the dollar generated by the rise in United States interest rates, the German revaluation and the fact that the United Kingdom now leads the world in the monetary policy cycle. The Government have plunged us into the deepest recession since the Second World War and there is no sign that we are coming off the bottom.

Those appalling consequences are finding a response from loyalist Conservative backwoodsmen, who say that industry is now beginning to do what it should have done years ago. I ask them to do as I do and consider firms in their constituencies to see what the changes are. The old chairman has been retired. Overheads such as research and training have been cut. The research director has been sacked. The accountants have moved in and the engineers have moved out. Factories have been closed. Markets have been abandoned. Development projects have been put on the shelf. Efforts to recover profitability are concentrated on achieving a lower volume and a smaller range of activities. There is no comfort. There is no industrial renaissance there.

From the start, strategy was fundamentally defective. The Government hitched their credibility not to a star but to a mirage—a chimera that the Government themselves have been the first to blow away.

To see the nature of the problem and the position in which Government Members find themselves it is necessary to go back to the medium-term financial strategy. I urge them to read the most important speech made by a responsible official in this country in the past two months. The governor of the Bank of England stated in San Francisco on 21 September that, following the breakdown of Bretton Woods, In the absence of any ready-made alternative, exchange rates floated". One can go for the money supply, as the Government chose to do, and let exchange rates float freely or one can seek to manage the exchange rate and let the money supply go free. One cannot do both. The Government chose the first, which seizes upon a noisy and haphazard indicator and makes that the guiding star. It is a concept that the Goverment themselves have not even been able to measure consistently. The second option takes a basic parameter with direct effects on activity in this country and on the links between industrial nations and with the Government using their available financial resources to stabilise that. In common sense, is there a choice as to which is the wiser objective?

The governor went on: For whatever reason, our experience of the floating rate regime has led to increasing dissatisfaction. Exchange rates have shown no signs of settling down into calmer patterns. Destabilising capital flows have continued apace. Such movements may have often been in response to clearly demonstrable differences in inflation rates or monetary policy, but by no means always. The highly volatile exchange rate movements we have experienced may themselves have initiated changes in economic trends, not all of which have been constructive. That is the understatement of the year. He continues: I detect a growing desire on the part of governments for greater exchange rate stability, shared, it seems to me, by many in the industrial and commercial community. Hence the 4 per cent. rise in interest rates triggered by the Government in September and on 1 October.

If the Government are to concern themselves with the exchange rate, what rate are we talking of? Is it $1.88, the trade weighted index of 89, DM4.18 or what? Will the Government go for fixed but adjustable pegs within the EMS, or should they seek agreement on crawling pegs to allow for different expected rates of inflation and over a wider range of currencies? The Government and the House need to think the matter out from fundamentals.

National Governments—and this Government are no exception—will pursue their own priorities and their own balance of judgments between the importnce of inflation and unemployment, between public and private expenditure. They will concede to international agreement only those things that they cannot deal with within the nation. Nationally fiscal and monetary policies will remain the purview of national Governments, but national Governments have only limited powers of intervention in foreign exchange markets. Although our reserves and those of other nations are very much higher now than a few years ago, the volume of footloose funds and their mobility is far greater than it was when we last tried to manage the exchange rate before 1971.

The answer does not lie simply in exchange controls, which transfer the instability from the foreign exchange markets to those domestic monetary markets for exchangeable funds. A sensible system must allow a Government to commit suicide if they wish. It must allow them to nail their flag to a particular exchange rate against a particular currency. They might seek a wider band; they might seek the readiness to revise that parity. Any such arrangement could accommodate some unexpected and unanticipated variation in the expected inflation rates between nations.?

However, a system that has any chance of international agreement over the range of countries needed cannot possibly expect all the Governments to commit themselves to that kind of regime. Therefore, the only practicable basis for an international agreement must be in crawling pegs that can compensate for different rates of inflation in different countries.

The form of argument by which such a system can be defined is straightforward enough. Each Government should pursue their own priorities, using fiscal and monetary policy, given a negotiated exchange rate path that takes account of different rates of inflation. The exchange rate target paths, however, have to be negotiated internationally, and the basis of international negotiation must be to maximise the sum of the national objectives. If one nation chooses to put all its money solely into bringing down the rate of inflation, nobody can stop it cutting the throat of its manufacturing industry. But if other nations are more concerned about growth and employment, they should be free to go their way.

Reflecting the governor's view—which is widely shared by many hon. Member —I believe that it will take the United States a year or two to learn the limitations of its current economic policy. Meanwhile, my right hon. Friend the Leader of the Opposition and my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) should seek talks with President Mitterrand on the developments that we should look for in the exchange rate regime. If, as I believe they readily could, they reach a common approach, they should then seek talks with the Germans, whether Chancellor Schmidt or the Bundesbank—which may be more fruitful. There would then begin to build up the consensus needed to lay the foundations for effective international negotiation.

However, that is only practicable in terms of realistic policies that could be implemented two years from now, and that is not the world in which the Government are living. However, it is the world to which we on the Opposition Benches should turn our minds. We should seek the practicality of a technically and politically realistic crawling peg system.

What are the options for the Government? I am surprised that it is not obvious to more Government Members that it would cause maximum embarrassment to the Opposition if the Government went for the best approximation that they could get to a managed crawling peg. It is also within their political preconceptions that the most practicable way for them to achieve that is to join the EMS. I am astounded that a substantial lobby from the Conservative Benches does not manifest itself in the Lobbies to seek membership of the EMS. I am obviously not advocating that from any party interest because it would embarrass us acutely if by the time of the next election we were to be dependent on European support for our currency.

If the Government were to seek entry to the EMS, they should do so, first, with the widest bands they could get. Secondly, they should make it quite clear, even if it is a unilateral declaration, that they would look for periodic adjustments of parities and they should seek an initial realignment of exchange rates with agreement to study the rules for adapting the EMS to a crawling peg system. It is abundantly clear that any such solution could be only temporary. It would certainly impose on the Labour Party the urgent task of working out the next stage of the development which we on this side of the House agree cannot lie solely within Europe. And, within Europe, it cannot be contained within the present institutions of the European Community and the provisions of the Treaty of Rome.

7.13 pm

Mr. Michael Latham (Melton)

I do not consider myself qualified to follow the hon. Member for Motherwell (Dr. Bray). He is an expert economist and mathematician and knows all about exchange rates. I do not know such details and have to take his word that what he is saying is correct. Hon. Members obviously listened to him with great interest and quietly and properly as he made his serious points.

I shall initially direct my attention in the economic debate to the section of the Gracious Speech which deals with unemployment. I do that against a background of September and October unemployment in my constituency of 8.1 per cent. in the western parts, based on Loughborough, and 11.2 per cent. in the eastern parts, in and around Melton Mowbray. The total figure for Melton Mowbray was 1,521 out of work on 8 October. That figure included 56 school leavers. There were 78 job vacancies and only 50 people had been placed in employment during the previous month.

Many hon. Members have worse figures of unemployment in their constituencies, but that is no comfort. I say without hesitation that they are appalling figures. It is the first duty of any Government to create conditions to bring about a substantial and continuing fall in the number of people out of work. I believe that people understand that Britain is not alone in its difficulties and that unemployment is high throughout the industrialised world. Many people believe that the Government are right to stress that industry should be competitive and free from unnecessary restrictive practices and labour disputes. However, the people also look to their elected Government to put the reduction of the giant social evil of unemployment at the top of their political priorities

A figure of 3 million people out of work is completely intolerable. If Ministers accept that simple proposition, as I hope they do, it must follow that they will seek every avenue to improve opportunities for apprenticeships, to help young people into real jobs using real skills, to look again at schemes for job release and early retirement and generally to rationalise and increase all the current methods available to fight unemployment.

The Government must ensure that their response adequately measures up to the crisis of Britain's jobless. They must view with extreme disquiet the fact that tens of thousands of young people are coming off work experience schemes and going straight back on to the unemployment register. They must be concerned with the reports they are receiving from the careers services officers. I quote from the Melton careers officer, Jim Goddard, who refers to the "apathy of youngsters who feel that the YOP allowance is inadequate and that training and experience on the schemes leaves much to be desired. The 18 plus group in particular hesitate about accepting a YOP placement when they know that supplementary benefit will rise to £21.15 in November. New ideas are certainly cropping up, as I know from local experience. Leicestershire county council is to sponsor 76 engineering apprentices through the Leicester engineering training group. The Melton college of further education has told me that the provision on its courses is adequate for those with the necessary interests and aptitude. But the principal says: The danger is likely to be that in the December to January period, when they have finished their courses and, flushed with enthusiasm and new knowledge, they still will not be able to find permanent employment in the area. Why can such keen youngsters not be provided with a further course which might provide a higher level of skills? Why are there so many empty apprenticeship places in skilled engineering work? What will the Government, and Parliament do? We must build up a reservoir of skilled young people, training for real crafts in real jobs.

I turn to the subject of counter-cyclical action. I am very doubtful whether the recession is coming to an end. I fear that we are bound to see another wave of redundancies and de-stocking following the latest rise in interest rates. We do not need another round of deflationary action. Rather, we need more growth to generate more jobs and reduce the unemployment element of the PSBR. However, I accept that Treasury Ministers do not see it that way. They feel that they can make room for tax cuts only if they reduce Government spending still further.

I propose an alternative, and more modest, objective to a tax cuts policy. The Government should try to get the construction industry off the floor. It is one of our largest industries and has nearly 400,000 unemployed people—20 per cent. or more of the total currently out of work—let alone those in the supporting industries and professions which depend on it. The latest forecast from construction employers are gloomy and the private house building market has become totally stuck and dull. As the House knows, I speak from personal experience gained from being the director of a house building company and as one who has worked in that industry for many years.

I do not agree with hon. Members on both sides of the House who call for massive prestige projects such as the Channel Tunnel, Maplin, Stansted and so on. Such projects are highly dubious, in my view. They could make no contribution to the construction work load for many years. We should pursue a more limited and realistic objective. We should go for a major push on housing improvement.

Do Treasury Ministers realise that the 1976 housing conditions survey showed that 1.08 million dwellings in England and Wales lacked an inside toilet, and 800,000 had no bath or shower installed? How can such dreadful figures be tolerated? We can land men on the moon, build the most ingenious computers and microprocessors, but we cannot, in 1981, see that all our citizens' homes have inside toilets.

I ask the Treasury Ministers and those in the Department of the Environment to look again at departmental budgets to find the funds to deal with this housing scandal. Housing improvement is a particularly craft-intensive industry and it would soak up a great deal of unemployment.

Ministers should look again at the Housing Act that was passed by my right hon. Friend the Member for Brighton, Pavilion (Mr. Amery) in 1971. That Act raised the level and amount of grant dramatically, with a two-year time limit on the work. The effect of that Act was startling and immediate. In 1971, 197,000 improvement grants were approved in England and Wales. By 1973, that figure was 361,000. Under the previous Labour Government, that figure dropped to a total of 136,000 in 1979. Since 1979, the basis on which the figures were compiled has been changed so that a direct comparison cannot be made. However, under any possible calculation it is still well under 200,000.

In the interests of providing decent living standards for the population and reducing construction industry unemployment speedily, we should launch a strong Government-led campaign called "Project 1986". That project should aim at an annual level of improvement grants of 350,000 a year—the 1973 level. It should be introduced with the intention of providing an internal toilet and bathroom for every householder who requires one over the next five years. It should be financed by a mandatory 90 per cent. grant, plus the mandatory right to borrow the remaining 10 per cent. for those householders who want it, with a cut-off point at the end of 1986.

For the record, the 1971 Act cost £86 million over three years. Even if my proposal cost 10 times as much over five years—which is highly unlikely—it would be self-financing in its reduction of the PSBR. It would provide work for thousands of people in the building industry and have a major ripple effect on the related industries of bricks, cement, timber, builders' merchants and suppliers and the practices of surveyors and architects. It worked in 1971 and it could work again now.

To those who argue that there was serious overheating in construction in 1972 and 1973, I reply that that was because the then Government vastly expanded the credit base at a time when the industry was just beginning to revive anyway. Neither feature exists today. The Chancellor of the Exchequer regularly says that he wishes to keep the money supply under control. And there is no danger of overheating in the construction industry for the foreseeable future. Indeed, there is scarcely a flame, let alone any heat.

If Ministers launched such a campaign, with all the backing and determination that my right hon. Friend the Secretary of State for the Environment can provide, it would bring hope to literally millions of people who are living in squalid conditions and would help one of our major industries to get out of the recession. And the PSBR might actually be lower as a result.

Doubtless I shall be told that Project 1986 cannot be afforded, or that the grants have already been significantly increased. But let us look again at the current miserable figures—fewer than 200,000 improvements grants, compared with 361,000 in 1973. I say that we cannot ignore those bad housing conditions.

I do not favour a large new council house building programme, which would be a slow and ineffective use of scarce resources. But improvement work is quick and highly responsive to consumer demand.

To the doubters, I say that there is considerable danger that our thinking, as a Government, will get stuck in the trench warfare of recession. Victory in such battles of attrition is never certain, and the casualties are unnecessarily high. We should be looking for new ways to outflank the enemy.

The Gracious Speech refers to: the nation's concern at the growth of unemployment we must meet that concern To those who feel that all well be well if we go on as we are, or if we try to get down the PSBR by further deflation and cuts, I say that we are running out of time.

I know that the Government, as true Conservatives, will genuinely wish to respond to the nation's concern, which they have so properly described for us in the Gracious Speech. But the time to act is now.

7.22 pm

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

I have great pleasure in following the hon. Member for Melton (Mr. Latham). Many people, both inside and outside the House, will agree with what he said.

People outside feel that we have become bemused by facts and figures and by concentration on the PSBR, monetary targets and so on. Those who are unemployed and are suffering the misery and helplessness of the lack of jobs or diminished wage packets are not concerned with such subtleties. They see the common sense in remarks such as those of the hon. Member for Melton.

When our people see unmade streets, long housing waiting lists with not a single house being built, homes with outside toilets, and baths that have not been replaced since the properties were built and roofs that are leaking because elderly people cannot maintain their own homes, they wonder whether politicians are mad when they say that we cannot afford expansion. When people see politicians crowding out the economy's ability to cope they think that we have lost touch with reality.

I shall look at problems from the basis of my own experiences and from the point of view of ordinary people, rather than the view of academics and analysts. I share the view of my right hon. Friend the Member for Battersea, North (Mr. Jay) that unemployment is not inevitable. It has been brought about because we have not found a way to bring together our undoubted resources and skills to produce the unlimited goods and services that people want.

It is madness to make cuts in our universities when the need for training and education has never been greater. Can anyone imagine the Japanese cutting higher education, research and development and investment at a time when the need for such investment has never been greater? The problem is man-made and such problems can be overcome by man, but not by giving up or by defeatism.

It is important to get a sense of urgency into our debates and policies. Suggesting that it will take many years to overcome the problems is no help to men in their fifties or to youngsters of 16 or 17. A programme spread over the next five or 10 years will be too late for 50-year-olds who have been hit by unemployment and for those in their late teens or early twenties who have no hope of a job.

It is essential that urgency is introduced into our consideration of the problems. It is no good hoping that long-term trends will pull us back. Even Conservative Members who support the Government will agree that, even on the most optimistic interpretation of the Government's policies, there is no prospect of getting unemployment below 2½ million in the foreseeable future. That fills me with horror. It is totally unacceptable and, whatever the costs of alternatives, they surely cannot be worse than the consequences of the present policies.

I do not wish to dwell on the problems of the textile and clothing industries, but I should like to draw some lessons from their experience. Those important industries still employ 600,000 people and they have a great deal to teach us.

When I visit those industries I do not see firms that have been brought down by militant trade unions, high wages or excessive wage claims. If anything, low wages have encouraged poor managements to be satisfied with low productivity and have enabled them to get away with poor marketing and design and poor management generally.

Instead of blaming workers or trade unions, we should look much more seriously at the causes of low productivity and low investment. I regard further Bills that are allegedly aimed at reforming trade unions as irrelevant to the problems of the textile and clothing industries. Such Bills will not bring a single extra job to those industries. Unions have co-operated for decades. They have accepted low wages and have not been militant, except in the early years of their history. We need a greater willingness by the Government to face up to the real problems of industry.

I agree with other hon. Members that when expansion comes through a change of policy, by this Government or the next, it should be directed to agreed areas of priority and not given away in tax cuts that will have no direct effect.

I do not share the view of some of my hon. Friends that we should cut the employers' national insurance contribution. Employers want increased sales for their products. If they can achieve that and use their capacity, they will get profits. At present, profits are low because sales are low. It is deplorable to suggest that cutting employers' contributions will make the necessary difference to industry.

If we can combine expansion with the type of approach mentioned by the hon. Member for Melton, which can produce the benefits that people want and will welcome, and which will at the same time enable our producers to sell more products and earn more profits, we shall be able to pay higher wages. That is a more sensible approach.

I will now look at the wider issues and relate them to specific problems. I welcome the speech of my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) who I felt, almost for the first time in this Parliament, had the Prime Minister and the Chancellor of the Exchequer on the defensive about their policies. It was the first time that I have seen the Prime Minister genuinely upset and reacting because she felt that her fundamental belief in herself was being successfully challenged. I agree with my right hon. Friend that, in order to have more perspective, we cannot ignore the fact that the Western world is still in the throes of solving the problems of the oil crisis of the 1970s. I do not think that we have recognised either that or the international aspect of the problem.

In the Queen's Speech and in many of the speeches that we have heard in the House in the economic debates of the last year or two, there has been a deplorable lack of perspective on the international action that is required.

In many ways this country has not come to terms with the developing competition between nations that has emerged over the last 15 to 20 years. Almost any product can be produced almost anywhere in the world. That is something with which GATT and various other international forums have to come to terms. The world today is a very different place from the world as it was at the end of the last war, when the last major agreements on trade and money were made. I hope that there will be action and development in that respect in the years ahead.

The international actions of the last few years seem to be very largely inadequate. It is extremely worrying that we are not coming to terms with the problem of how to deal with the substantial flows of oil funds between the surplus and deficit nations. American, British and other interest rates chase each other around in an unstable situation, with no semblance of reality, or relationship to the real resources and needs of the world.

If the unemployed in my constituency are baffled, what on earth do the starving millions of the world think? Despite the world's resources, millions of people are unemployed because we do not know how to deal with the very speculative and short-term money flows arising from a temporary dislocation in the relationships between the major countries of the world. It is a commentary upon ourselves and the nations' leaders.

In our own domestic policies two matters do not have sufficient recognition. One is the severity of the deflation that has occurred. The other—and more important—is the structural problem that has been brought about by the production of North Sea oil. This is a deep structural problem and we should not ignore the reality of the change in our economic system in such a short time. We have to deal with a change of several percentage points in the balance of the economy. It is something that many take for granted, particularly the Conservative Government, with their belief that market forces can deal with anything.

However, I was brought up as a young student of economics to accept the rule of arithmetic that any shift in the national resources of between 0.5 per cent. and 1 per cent. a year over a sustained number of years is a substantial shift to achieve, and that any attempt to achieve more than that would cause problems of an economic and political nature. We have, willy-nilly, destroyed much of our manufacturing industry, and that industry will not come back. We have been left historically with, among other things, an overvalued exchange rate, and we have still to come to terms with that problem.

It is a matter of grave concern that many hon. Members on both sides of the House, and some financial commentators, have begun to slip into the view that the pound is now not overvalued, and is in some way just about right; if anything, it could even go up a little to our advantage. That may be convenient for the Government of the day. It paid the Labour Government, in their last two years of office, to have a high interest rate, because kept inflation down in the run-up to the election.

The Government may well be tempted to keep up the exchange rate because it is politically important to them in their anti-inflation battle. But the consequence will be the continuing destruction of yet more of our manufacturing industry. The bulk of our companies—I exclude the most profitable ones—cannot compete in international markets with our present exchange rate.

The same comment applies to exchange controls. Can anyone maintain that it is sensible for billions of pounds of capital to be flowing abroad when our own people have not the capital or the demand for their products that they require? Conservative Members may shake their heads. I well understand that, from the point of view of people in the City of London who deal in high finance, it makes sense to be able to juggle money around the world, but the people in my constituency want the money that has been saved and put into pension funds and banks to be used to help to provide jobs in our country for our people.

It makes no sense, in a period of massive unemployment, deliberately to encourage and allow money to flow abroad. Of course, the money earns a higher rate of return abroad—that is the double tragedy of it—but the Government should listen to what the average person says and not to the people who have a financial interest in these matters.

I want now to refer briefly to the financial institutions. I regret the remarks of my right hon. Friend the Member for Bristol, South-East (Mr. Benn) in his speech last night, when he threw away the support inherent in the substantial public feeling that the North Sea oil and gas assets are the nation's assets. There is a strong feeling that the Government are acting wrongly, but he threw away that support, confusing the issue in people's minds by talking about confiscation. Confiscation is legalised theft. He threw away that strong card for the sake of a populist card within the Labour Party./

It was a serious mistake. I say that because I believe that there is an understanding among the public that our financial institutions are not doing a service to much of our industry. But if we start mixing that question with quarrels about nationalisation, it will be a great disservice, because there is much more common ground politically than most people are willing to admit.

The same may be said of our approach to the relationship between Government, industry and the trade unions. There is much good will and people want to be able to work together. They are ready to accept some State intervention and to accept priorities agreed with industry, as long as it is not seen as a monolithic dogmatism that removes choice and competition. Such intervention should strengthen competition, strengthen industry and increase the availability of jobs for our people.

In the run-up to the next election, I hope that my party is able to put away the harder dogmatism and to build on what the common sense of people will accept—that there is a case for intervention in our financial institutions, and for planning and State aid that is directed to priorities in industry. But that is not to be confused with facile arguments about confiscation and the direction of people in certain ways even if they do not want to go in those ways. The former is the approach that would find common cause across the Chamber, instead of us letting down the nation and ignoring the 3 million unemployed who want a change of policy so desperately.

Several Hon. Members

rose——

Mr. Deputy Speaker (Mr. Bryant Godman Irvine)

Thirteen hon. Members wish to be accommodated between now and 9 o'clock. I am sure that they would all appreciate brevity.

7.40 pm

Sir David Price (Eastleigh)

I shall take your injunction to be brief very closely to heart, Mr. Deputy Speaker.

I congratulate the hon. Member for Batley and Morley (Mr. Woolmer) on an extremely thoughtful speech to which the House listened with great attention. I should like to take up his last point and to follow it up along the lines on which I had determined to proceed.

First, I make one proposition with which I hope all hon. Members will agree. It is simply that there is no "school solution" to the continuing complex and apparently intractable problems of the British economy. There is no standard answer to be found at the back of the book. If there were such an answer, every Government would have turned to the back of the book, and our economy would consistently have been in a much happier state than it has been for many years.

I think that the economic experts can be left to enjoy their academic disputations like mediaeval schoolmen, unsullied by the real world of perverse and uneconomic men and women. Their contribution to the resolution of the British disease is akin to the physician's in Hilaire Belloc's cautionary tale for children. The House will recall it: Physicians of the Utmost Fame Were called at once; but when they came They answered, as they took their Fees. 'There is no cure for this Disease'. So, following the invitation of the hon. Member for Batley and Morley, let us be daring and see where we in this House might get if we settled down together to try to resolve our national economic sickness unaided by the experts and uninterrogated by the commentators. Robin Day might be allowed to have a sabbatical.

I believe that we would then rely upon our own common sense, our experience of human nature, and the rules of simple arithmetic. I am confident that we would find substantial agreement across a very wide spectrum of political opinion in the House on the essentials of a national strategy. After last night I think that I would be pushing my luck too far to expect general agreement from the right hon. Member for Bristol, South-East (Mr. Benn) and his friends, both outside the House as well as inside it. But, with that notable exception, I suspect that there is more commonality of approach than we care to admit.

If what I have said is regarded as a return to consensus politics, so be it. I have always thought that democracy requires a substantial level of consensus in order to survive, let alone to prosper. Let me, therefore, try out a few propositions in support of my thesis.

My first proposition is that the present rate of inflation, at 11 per cent., is far too high. If sustained over a number of years, the cost of living would double within seven years. That cannot be acceptable to any right hon. or hon. Member. Therefore, the Government should have the full support of the House in their declaration in the Queen's Speech that they attach the utmost importance to maintaining progress in reducing inflation". My second proposition is that the present level of unemployment, at nearly 3 million, is socially and economically unacceptable. I put it in that order because, although there is the great economic harm of unused resources, it is the social consequences—which my hon.Friend the Member for Melton (Mr. Latham) identified so vividly—that are the more damaging.

Thirdly, I believe that there is a direct connection between these two propositions—that a high rate of inflation is the enemy of full employment. I should like to quote from a Government publication in support of my thesis: Inflation, if not brought under control, means industrial collapse and national bankruptcy. At home, it means firms closing down because soaring costs would make it impossible for them to survive. It means jobs lost on a terrifying scale. Lost not only for a few months, but for ever. Abroad, it means our creditors turning off the taps … It means the destruction of our ability to buy from abroad the materials and goods we need to keep industry going. So more factories and offices would close down. Many more jobs would be lost. Lost for ever. Unemployment is already very serious, and growing. The attack on inflation is the essential way to check the rise in unemployment and to avert the threat of millions indefinitely out of work, and young people unable to start their working lives. It offers the best hope of restoring job security and fighting our way back to full employment. The House will recognise that I was quoting from the Labour Government's popular publication in July 1975 entitled "Attack on inflation—a policy for survival".

How do we get out of this apparent dilemma? first, I believe that we must encourage wealth creation within our society and the wealth creators at all levels. I use the term "wealth creation" advisedly. I make no distinction between the public sector and the private sector. The distinction that I make is between the wealth producers and the wealth consumers. Part of the problem is that for too long in this country there have been too many on the consuming side and not enough on the production side. I do not mean only industrial production; I mean the production of every form of economic wealth. I think that the House will agree about that.

The second proposition that flows from that is that because we live in an open economy—the hon. Member for Batley and Morley drew our attention to that very vividly and spelt it out in detail—our ability to sustain our standard of living, let alone to improve it, depends on our continuing ability to remain competitive. I should like at some time to join the hon. Member in going into this matter in more detail, but I make that point just as a proposition at the moment.

Incidentally, we are not doing quite as badly as the critics, even those among us here, would have us believe. I believe that the comparative export figures give us hope that we are doing rather better than we give ourselves credit for doing. As most hon. Members know, the Americans export about 10 per cent. of everything that they produce. The Japanese export about 12 per cent. of what they produce, and the French and Germans export about 24 per cent. We, poor old Britain, export 30 per cent. of what we produce. That surely is a proven success upon which to build, and build on it we must.

That leads one to ask the next question: how can the Government best assist British industry and the creators of wealth generally in our society to be more productive, more efficient and more competitive internationally?

We all accept that Ministers, Government Departments, senior civil servants and the like cannot directly run industry. But in the modern world Government and industry must work together in partnership. We can always argue about the balance of that partnership, but that it must be a partnership we would all agree upon. In the present situation, what should be the Government's contribution to that partnership? I should like, very briefly, to suggest five priorities.

The first priority is that we must work rapidly towards a general reduction in interest rates. The need for that is well recognised by the Government. Following your injunction, Mr. Deputy Speaker, to be brief I shall not enlarge on how that might be done, because other hon. Members wish to speak. I merely note the point, and it must be at the top of the list.

The second priority is that we need more stability in exchange rates. Again, I mark that point. I should like to develop it, but there is not sufficient time.

The third priority is that we must restrain the continuing increase in public utility prices, well ahead of the general increase in prices. I have the latest figures, for September, provided by the Library. The annual rate on the ongoing monthly basis is as follows: private sector prices were up 10.9 per cent.; public sector prices were up 18.2 per cent. The latter go straight into industrial costs.

The fourth priority is a reduction and, ultimately, the abolition of the national insurance surcharge. This matter was very cogently argued by my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour), so I shall leave it there, just noting the point.

We must also continue to give selective help to industry and employment. Let us get away from any theological argument about intervention or non-intervention. As a result of questions I put last week to various Ministers, I discovered that in the present financial year the Government are spending about £7,295 million in support of industry and employment. This is not a non-interventionist Government. Let us not therefore argue the ideology of intervention. Let us accept that Governments, to a greater or lesser extent, intervene. What needs to be asked is whether they are intervening in the right areas and in the right manner. Is support going where it should? In order to give more support, we must have a system of withdrawing support. My hon. Friend the Member for Arundel (Mr. Marshall) made some cogent proposals in this area which, if there was more time, I should have liked to take up. My concern is that we spend too much money supporting the old, sunset industries and not enough on the sunrise industries. I wish that there was more time to debate the needs of the new industries. This is where our future lies

Equally, we need to be clear that what industry does not want is the siege economy which is proposed by the right hon. Member for Bristol, South-East and his friends. Even in the present difficult position the CBI still wants to retain the open economy and our membership of the EEC. The old idea of a siege economy surrounded by tariff barriers should be excluded. I believe that there is a great deal of commonality on these points.

One must be clear that productivity is the only key to plenty. Improved productivity has many aspects. It is not sufficient merely to talk about capital. It is not sufficient to talk merely about working practices or marketing. There is still a cultural gap in this country between manufacturing industry and the generality of the professions. As one who comes from dirty industry, I have not found over the years any increase in the number of hon. Members who previously worked as managers in industry. We remain a small, although I hope redoubtable, body of hon. Members. I wish, however, that there were more of us. What happens in industry is at the heart not only of our economic but of our social problems.

To be found at the back of the book are the words "Don't push one's luck too far". I do not intend to, so I will sit down.

7.52 pm

Miss Joan Lestor (Eton and Slough)

It is a pity that Members of the Social Democratic Party have left the Chamber so soon after its representative spoke. At some stage, the nation has a right to know the party's views and policies on the economy. Apart from a bashing of the trade union movement, hon. Members heard nothing. It is strange that the right hon. Member for Stockton (Mr. Rodgers), who spoke on behalf of the Social Democratic Party, and who holds his seat because he stood as a Labour candidate, should take it upon himself to criticise the running of the trade union movement when he enjoyed its sponsorship and support for so long as a Labour Member. That is rather ironic.

I have a great deal of sympathy with some of the points made by the hon. Member for Eastleigh (Sir D. Price). The hon. Gentleman is right when he says that there is nothing in the back of the book to which we can turn and say "This is the answer". The tragedy, however, is that the last election was fought on the basis that the Conservative Party had the answer. When posters were produced showing queues of unemployed and stating that Labour was "not working", the inference drawn by those people who voted Conservative, having previously voted Labour, was that they would get a job because Labour was not working and the Conservatives would provide them with a job. That did not happen. Many more have joined the queue. The course pursued by the Government has increased the problems that exist in our society.

The Prime Minister said some time ago that people should move around and look for jobs. It has recently been stated that they should use their bicycles to do so. My constituency—I refer to Slough rather more than Eton in this respect—is a place where hitherto people have come looking for jobs. It was a magnet for the Welsh and the Scots in the 1930s. It has also drawn many people from the new Commonwealth. That was the position until a year or 18 months ago.

Although the unemployment rate in Slough is nothing like the national average, it is rising rapidly. Even if it were possible to move around to look for a job, the Government should bear in mind what happens if a person moves to Slough and finds a job. A man who, I hope, will become a constituent, who comes from Kent, visited me last week. He told me that he had gone from Gravesend to Slough and had actually found a job only to be told that as he had made himself homeless he could not get a house. He was intentionally homeless because he had left the place where he had lived with his wife and child—his wife was expecting a baby—and was now told that he had to go back and get himself a place on the housing mobile scheme to which the authority, he understood, allocated 1 per cent. of its housing.

Since housing provision is falling all the time, the possibility that he will be able to take the job he has found is very remote. Someone living in the area will get the job before he can take the opportunity. This single example shows that Ministers, when they make these statements, have no idea what it means to a person who follows the advice and moves to an area that hitherto has been able to provide work.

Mr. Jay

I should like to reinforce what my hon. Friend says. Another individual got on his bike and travelled from Somerset to my constituency in London. He was told by the Conservative-controlled council in Wandsworth that as he was intentionally homeless he must go back to Somerset.

Miss Lestor

I thank my right hon. Friend for his comments. This situation can be linked to remarks made from the Conservative Benches about housing improvements and social need. One cannot sustain a situation where the Government say that they will cut public expenditure while, at the same time as those cuts are occurring in housing, education and social welfare and also in industry, increased public expenditure is incurred through paying people not to work. Social need in this country is colossal. Housing need, whether in terms of repairing or providing houses, is colossal. It is neither sustainable nor defensible—economically, morally or socially—to the people of this country, who want improved social and welfare conditions, when those who can build the houses, perform the nursing and provide the education are being paid not to do the job. That is nonsense.

The argument about cutting public expenditure is nonsense. It has been cut in certain areas, but it soars in relation to unemployment money. That money is used to keep people out of work instead of being used to provide jobs and to stimulate the economy. This is the tragedy. It is because large numbers of people are beginning to understand the situation that they are so frustrated. They see the contradiction.

The Government won the election on the slogan that they would cut public expenditure and give people more of their own money to spend. It was this slogan, together with the campaign over dole queues, that persuaded large numbers of people to vote as they did. What has happened? Mortgage rates are up. Many people find it increasingly difficult to meet gas and electricity bills. The number of supply cut-offs and the number of problems are increasing. This is producing a great deal of social unrest and misery and a great deal of social apprehension.

The idea that one has reduced public expenditure when a local authority says, as mine and others have, "We are cutting back on teaching: we shall reduce the number of teachers that we employ, and we shall not replace some teachers when they retire" is nonsense. The country invests about £10,000 to train a teacher. It used to be£8,500, but the cost has risen. That money is invested in someone so that he can teach children and be involved in the training that is desperately needed, but he is then paid not to use the skill that he has acquired, even though the nation is crying out for the products of that skill. That makes no sense.

People talk about social unrest. Faced with those contradictions and the fact that young people are desperate to be trained and acquire skills so that they can make their contribution to society, it is no wonder that we have the situation that exists today.

Unemployment is now higher than it was during what my parents used to call "the bad old days of the 1930s". That is terrible, because many of that generation believed that those days had gone for ever. Conservative Members may say that poverty is not as bad as it was in the 'thirties, but those who were unemployed then were told that their poverty was not as great as that experienced by their fathers and grandfathers.

Poverty is relative. The other day I took my children to the local fair. I was appalled and sickened by the number of working-class parents who had to say to their children "We cannot afford to let you go on that swing, have a shot at that coconut shy or enjoy some other form of amusement, because it costs 30p or 40p a time. We just cannot afford it." That is poverty, and it is increasing. People are faced with those contradictions, but there is no need for them to exist.

There has been much talk in this debate, and in the whole economic debate, about the fact that we have priced ourselves out of the market and that the workers have asked for too much money. In my area, where there is a considerable amount of light engineering, that gospel has been trotted out for many months—in fact, for years. In September 1981, the Engineering Employers Federation and the Confederation of Shipbuilding and Engineering Unions held a conference which dealt, in particular, with rates of pay in the engineering industry. Mr. Frodsham, the director-general of the Engineering Employers Federation—he is not a member of the Labour Party, or a member of the national executive committee of the Labour Party—said, and I think that it should be repeated: Wage rates are indeed lower in the United Kingdom than amongst our main European competitors. Unfortunately, however, the output per employee is also lower… Labour costs per unit of output, however, are almost identical in Germany and the United Kingdom, so you can see that the wage difference is almost exactly matched by the productivity difference. He went on to say that what was needed, if we were to have higher wage rates, was greater investment and modernisation. Low wage economies do not produce greater wealth than do the high wage economies, as can be seen from that statement, although the latter have their contribution to make. It is high time that we nailed the lie that wages alone cause the difficulties in which we find ourselves.

No one that I know of in this country seriously contends that unemployment will decrease. Everyone says that it will increase. Some say that it will increase less rapidly than it has done of late. That is the best that we can hope for. If unemployment is rising, if the benefits that people receive in terms of unemployment, and so on, are reduced in value, as we are told they will be if public expenditure for local authorities and many other purposes is to be cut again, and if wage increases for those in work are to be curtailed, clearly, living standards will fall.

If real wages and living standards fall, where will the demand come from for the goods that are to be produced to stimulate the economy? Where will that demand come from? If people do not have the money, they cannot buy the goods that other people are producing. That is what the Government overlook. The more that people's ability to buy goods is reduced, the more other people are put out of their jobs. If that happens we come back to the whole cycle of being non-competitive and non-productive, so we cannot sell our goods abroad because we are not producing them. That is the tragedy.

The forecast is gloomy. Both the Prime Minister and the Chancellor of the Exchequer have said—they have not convinced me, and I do not think that they have convinced themselves either—that next year there may be salvation. They say that the phoenix will rise out of the ashes of industry. I do not believe that. I do not believe that even a sparrow will rise out of the ashes of industry as it is today. Unless those Conservative Members who have had the courage tonight and in the past few weeks to criticise the Government and tell them that they should change course are prepared to match those words with action, social unrest will grow and industry will continue to decline. We shall be faced with an impoverished country, a frustrated and disappointed public, and a situation that will be difficult to control. We cannot sacrifice the future of this country and the future of our children on the obstinacy of the Prime Minister.

8.7 pm

Mr. Chris Patten (Bath)

I shall take up later something that the hon. Member for Eton and Slough (Miss Lestor) said about pay.

I begin by offering a perhaps unexpected and wholly unsolicited word of support for the Government Whips. There is little in the Gracious Speech with which I profoundly disagree, and little which greatly raises my temperature. Until this evening, I thought that I was the only Conservative Member—indeed, I felt like a character out of a Bateman cartoon—who supported the Government's proposals on local government financing. However, I discover that I am in the company of my hon. Friend the Member for Huddersfield, West (Mr. Dickens). I am sure that it will be an interesting and productive alliance.

It is not what is in the Gracious Speech but what is not in it which concerns any of us. That is the whole discussion of the Government's economic strategy. I have trooped my prejudices on that subject through the House in the past, and I hope that I shall be excused if I briefly troop some of them again today. [Interruption.] I think I heard someone say that I should take my conviction into the Lobby. However, I am sure that the Government will be flexible and prudent, so that that course will not be necessary.

Clearly, governing a country in decline is not easy. The Government had an appalling legacy and they have been coping with international conditions that are hardly benign. There have also been changes on the supply side, for which the Government can reasonably take credit. British industry is potentially more competitive than it has been for some time, and there has been a fall in the level of pay settlements. I am sure that many people should be congratulated on the British Leyland settlement last week, not least those who voted for it.

However, looking back over the past couple of years, no one could say that everything has gone according to plan. The story has not been one of unqualified success. There is a consensus among most forecasters, with the exception of the great and good Professor Minford, which suggests that over the next year or so inflation is likely to continue at about its present level, that unemployment will be over 3 million and will be—to use a Keynesian phrase in another context—sticky downwards, and that there will be only a small increase in output. That may not be exactly ruin, but nor will it have the sideboard groaning under the silver challenge cups, and it will be very difficult to explain to the electorate.

Things may go rather better than that, as I think the Prime Minister suggested in her speech last week. Greater confidence and a greater sense of realism may lead the economy to pick up more rapidly and substantially than those forecasters suggested. But if one sets our prospects against the international picture it is difficult to sustain even that amount of enthusiasm or confidence. Many pundits now suggest that the American recession will be far worse than expected and that it is what the economists call an investment-clearing recession rather than a stock-clearing recession. The European economy also seems to be in considerable trouble, so we shall not be working in easy international conditions.

If that is true, it is even more important than Conservatives have normally regarded it—here I take up a point made by the hon. Member for Batley and Morley (Mr. Woolmer), with much of whose speech I agreed, a fact which I hope will not blight his prospects for reselection—to recognise that we cannot succeed economically or politically unless we can restore a sense of national community and, to use the cliché, unite this country once again.

It stands to reason that if we are to unite the country we must unite the Conservative Party around a programme which is flexible and prudent, to use those words again, and which helps us to achieve our objectives in countering inflation without decimating British industry. Yet we find ourselves—I address myself to those Conservative hon. Members who are present—in the curious position in which we trade quotations from Hayek, Friedman, Keynes and Kaldor as though we had read them in the original. I should have thought that one reason why many of us are in the Conservative Party is that we do not normally read books of that kind.

We also find that to justify everything that the Government do we have to criticise everything that every previous Conservative Government have done over the past 30 years. It may be stretching it to say, as my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour) said on Monday, that that is to rewrite history on a Stalinist scale. It may not even be to rewrite history on an Orwellian scale, as the Shadow Chancellor, the right hon. Member for Stepney and Poplar (Mr. Shore), suggested today, but it is certainly to rewrite history on a Macaulayan scale.

Looking back to the 1950s, it is ridiculous to believe that Conservative Governments at that time achieved high employment by crudely overstimulating demand, thus sowing the seeds of subsequent inflation and unemployment. That is not what happened at all. The high employment was sustained by high investment. There was high investment partly for reasons beyond Government control—for example, post-war rebuilding. Above all, however, there was high investment because the Government provided a safety net for industry—a guarantee that they would not allow an economic downturn to develop into a recession. The problem was that during the 1960s and 1970s each time that the Government tried to provide a safety net, the system that we like to refer to as free collective bargaining but which is in fact uncontrolled monopoly bargaining sucked out too many of the resources from investment and corporate profitability into pay and consumption. That has been the real pattern of the past few years. For at least a decade, every Chancellor has, in effect, been forced to choose between inflation and unemployment.

Those of us who have criticised the Government over the past few months—in my case rather longer than that—do not wish at this stage to rub anybody's nose in mistakes that have been made. We want to find a strategy around which we can unite and which will accomplish the objectives that we were elected to achieve. We do not want an unselective reflation achieved through seepage, which I suspect is what will happen. We want a selective and balanced package of measures to help industry to take advantage of its potentially far greater competitiveness.

The central and first matter to which I draw attention yet again is the way in which we define the public sector borrowing requirement and our commitment to it. Some people looking at the consequences of that definition and that commitment remind me of the character in the P. G. Wodehouse novel who was said to be like a man chasing rainbows who suddenly found that one had turned round and bitten him in the leg.

When one considers what has happened as a result of our commitment to the present form of measurement, one sympathises with the views reported in The Guardian of 6 November. To the question Are you suggesting a substantial rise in the size of the PSBR?", the interviewee replied: No, but I do argue that the target for it should be calculated on a constant employment basis. It is most unwise to have a target on the present basis because it is distorted by things like the level of unemployment which the Government cannot control. I am not sure that I entirely agree with that view of demand, but quotations are bound occasionally to include comments with which one does not agree. The interviewee continues: I would also be prepared to see the PSBR rise provided the extra funds were put into genuine profitable investment: into public sector assets that earned or were likely to earn a real return. We don't want more Concordes, and we must, above all, discipline current account spending. Those are the views not of some free-spending inflationeer but of the dean of the college of monetarist cardinals, Mr. Gordon Pepper, a joint senior partner in the stockbroker firm of W. Greenwell and Co. That is Mr. Pepper's view of the way in which we calculate the PSBR and one to which I say Amen.

The second thing that we need to do I shall not discuss in detail because time does not allow and a number of speeches, particularly those of my right hon. Friend the Member for Farnham (Mr. Macmillan) and my hon. Friend the Member for Melton (Mr. Latham), have dealt extensively with the subject today, but we must increase capital expenditure, which has fallen by two thirds in the public sector over the past decade. I believe that in the short term we must balance that increase in capital expenditure in the public sector by being tough and indeed more coherent than we have been so far on public sector pay.

Thirdly, it is essential to help the private sector of industry by cutting the iniquitous national insurance surcharge. We should cut it now as a reward for the present moderate pay round, and we should promise that it will be abolished completely in 1983 if the 1982–83 pay round is as moderate as the current round is turning out to be. It is a tax which raises prices and increases unemployment and it makes us less competitive because our exporters are at a disadvantage compared with others. It should be abolished in the 1983 Budget at the latest.

I should have liked to say something about fixed exchange rates, which I find myself wholly favouring, following on from the comments of the hon. Member for Batley and Morley. I should also have liked to say something about the absurd way in which we try to police domestic credit by using interest rates. I greatly favour a return to qualitative and quantitative controls, which would at least enable us to make the vital distinction between consumption and investment.

I wish to deal in a little more detail with my final point. If I am right in saying that we shall not stand a chance of political or economic success unless we unite the country, I hope that Ministers will reject any suggestion, if they have ever thought of the idea, that we should cut supplementary benefit, or cut unemployment benefit yet again. That would be intolerable. Over the past few weeks, there has been some argument as to what exactly "one nation" policies mean in the Tory tradition. Mr. Paul Johnson, after his years of Socialism, has given us lectures on the meaning of true Conservatism which most of us can take with more than a pinch of salt. Whatever one nation policies means, they clearly do not mean putting an excessive burden on the shoulders of the poor and the worst off, redistributing burdens agaisnt them rather than help towards them. I must tell the Government if they were to attempt to make cuts of that kind in unemploymet benefit or supplementary benefit, they certainly could not count on my support. Indeed, they may count on my being in the opposite Lobby.

8.19 pm

Mr. Ted Leadbitter (Hartlepool)

In the past two hours the debate has increased in interest. Hon. Members on both sides of the House have addressed themselves to the most important matters concerning the country.

The inevitability of criticising the Government is clear. They went to the country in 1979 and made considerable promises. I would be the first to congratulate them on their success after that campaign. Nevertheless, during the past two years those promises have not been fulfilled.

Therefore, an opportunity in the middle of the Government's life to produce something positive in a Gracious Speech has been completely missed. Nothing in it offers any hope for economic growth. No comment from the CBI, the TUC, local authorities and even the press gives any confidence in the Government's programme. As a matter of fact, the depression still clouds current judgments. On 3 November the Daily Mailreported: It was the wrong speech with the wrong remedies for the wrong sickness. The Government appear to be obsessed with their own voice and deaf to the counsels of others.

The Government are waging a campaign against local authorities. We heard the voice of the Secretary of State for the Environment at the last Conservative conference challenging the local authorities, so it is a campaign against them. It is calculated to shift the responsibility for the state of the economy from the Government's shoulders. The closed shop, pay increases and the power of the trade union movement are not a threat to the economy. Local government, which is responsive to its electors and which provides essential services, cannot be charged with having caused our economic decline. Unemployment, bankruptcies and industrial closures spawned by the Government's policies pollute the economic scene.

Those are the top achievements of the Government. Look nowhere else for increases in public spending and borrowing but to the Government. Look nowhere else for the cause of our economic decline. Look nowhere else for the main cause of price increases but to Government directives, which forced up prices in all our State industries. The cost of energy to our domestic users and industry is a serious burden on the one hand and has placed us at a serious disadvantage with our foreign industrial competitors on the other hand. The Government's record is disastrous.

With nearly 3 million people unemployed and about 1½ million people in the poverty trap, the treatment of some of our major industries and the selling off of our profit-making industries—the State industries—will only make matters worse. If the promises made by the Conservative Party in the election manifesto have not fructified, it is important to address ourselves to some of the words in the manifesto so that we can see the extent to which they have strayed from it.

The manifesto states: We shall cut income tax at all levels to reward hard work…tackle the poverty trap; encourage saving and the wider ownership of property; simplify taxes—like VAT…The creation of new jobs depends to a great extent on the success of smaller businesses. They have been especially hard hit under Labour. How many small businesses will reflect on that commentary? What about the taxes? They have risen. Who nearly doubled VAT? That was one of the first actions of the Conservative Government. Have they simplified the tax system? Of course not. What about the graveyard of small businesses? Small businesses are being bled to death by high interest rates and the drying up of their credit. What about restoring the health of our economic life, which was the Government's first task according to the Tory manifesto of 1979?

That brings me to the agony of a neglected generation of young people. Buried in the statistics of nearly 3 million people out of work there are about 216,000 school leavers without employment. That is a reported fall of about 53,000 on the September figures because there was some movement away from the unemployment register.

The school leavers are not in real jobs. About 53,000 fewer are on the register, but 55,000 more are in temporary YOP schemes. That means that there has been no shift of any consequence to real jobs for young people. The total of young people on YOP schemes is 697,300 with 216,000 on the unemployment register. That means that almost 1 million young people are out of work. They have no real work and generally they have no training to match the opportunities desperately needed in the changing technologies.

In my constituency there are 1,037 young people out of work. That is in a small town with a population of fewer than 100,000. About 694 have not even been offered their first job, either temporary or permanent. At the last count, 999 young people were on YOP schemes. There is no cause for congratulation from the Government's point of view. Some of those schemes provide no hope for our young people. In my constituency the 999 added to the 1,037 produces about 2,000 young people who have no hope. At that count, there were only two notified vacancies in my constituency.

I put to the House another consideration in the context of that traumatic and hopeless feeling of the young people in my constituency. The Department of Employment has a new Secretary of State. His mutterings have not produced a flicker of hope in the minds of my constituents. In fact, even when the right hon. Gentleman smiles he looks grim. When I think about the plight of the young people I represent, the blight in their lives, the misery and heartache in their homes and the criminal neglect of talents that are needed to guarantee the future of Hartlepool, I feel anger and revulsion.

Today, 19.8 per cent. of the working population of Hartlepool are without a job. A total of 8,676 people are unable to earn a living. The Secretary of State and the House should understand what it means for more than 2,000 youngsters when they see the enormity of the unemployment problem around them. A total of 23.6 per cent. of adult males in Hartlepool are out of work. That means that practically one in four are deprived of the right to earn a living.

It is no use the Government blaming everyone else. No other country in the Western world has suffered more than the United Kingdom from the world recession. Others have done much better. The Government have slashed house building programmes and have failed to invest in the road and rail systems that are essential for any economic revival. They have projected their monetarist policies and thinking into every corner of the economy. A heavy price is being paid, and the British people are feeling the draught of a chilly dogma, the source of which lies at the door of the most abrasive Government in my lifetime.

People in my area cannot pay their electricity and gas bills. Some of my constituents are sitting in the dark. I know of old people who cannot switch on their heating systems because they are scared to death of the increasing bills. People living on the periphery of Hartlepool, with small families, are unable to pay the bus fares to go into the shopping centre.

I do not say that Hartlepool is in a state of despair. But it is time that the House and the country woke up to what is happening there because it is a microcosm of the great tragedy and drama of unemployment that is gripping the nation. No Government have the right to place their rigid thinking and dogma before the feelings of the people whom they are here to represent. I therefore urge the Government to change course.

The Government's fixing of targets for State industries may in some way have produced desirable reorganisation and restructuring. But, in some cases, it has provided an excuse to close industries to meet so-called rationalisation objetives. One such case concerns a company in my constituency called Clark Hawthorn, which belongs to British Shipbuilders. It is to be closed. Spares and repairs for the CEGB, ICI and the steel industry, and the contracts with those companies, are to be directed elsewhere. A large contract won by this Hartlepool firm, based on the ability to manufacture on time and to meet specifications, is earmarked for another part of the country. Maxicon and Rich West boilers, a traditional product of Clark Hawthorn, will be transferred to a new facility in spite of the fact that the factory has a facility capable of producing 50 boilers a year.

A 1979 agreement on rationalisation earmarked Lieber Cranes for Hartlepool but that has also been changed. The value of all this work amounts to more than £2 million, but within weeks from now the plant will close and 250 men with excellent service records will join the vast number of unemployed to which I have referred.

That cannot make economic sense. I have no hesitation in saying that British Shipbuilders decided long ago that that is what it wanted. No argument demonstrating the efficiency of the Hartlepool plant—its orders gained on merit and the excellence of its reputation—was accepted in any sincere sense of consultation or negotiation. The plant has been allowed to wither away through the deliberate diversion of work to other factories, and the men have been forced to accept severance pay and join the ranks of the unemployed. Other redundancies will occur in the foreseeable future. In weeks rather than months, another 700 of my constituents will join the ranks of the unemployed.

My final point again relates to our young people. This is a matter of priority. No man or woman in this House—hon. Members as they are—or member of the Government can justify even one boy or girl being out of work. The high cost of keeping them idle is bad enough, but there is also the high social security cost of supporting young people who get into trouble because of their conditions—the cost of after-care and probationary services, magistrates' courts and the police who have to monitor and control them.

There is a reason why we should tackle the problem immediately. We have supervisory infrastructures in local government public utilities, nationalised bodies and certainly in major industries. Every young boy and girl in every town and city could be absorbed in those organisations under the social security systems that are now a costly charge to the nation, and with the cost of unemployment transferred to wages. As a result, their interests and aptitudes could be aligned to the experience of work more satisfactorily than under YOP schemes. We might then do some good for those young people.

The House is apt to talk about exchange rates—fixed and floating. Much expertise is deployed on questions of high interest rates or aligning ourselves with other monetary systems, such as the EMS. We talk about the International Monetary Fund and all the organisations that are supposed to be able to pull together the major currencies of the world in order to stop the jungle infighting on interest rates. But those arguments have come too late to meet our immediate dilemma. We must have a shorter working week. We must promote earlier retirement. We must do everything we can for one major group of people for the sake of the nation. There must be a proper feed-in of our younger generation into work experience. If we start from that position, the nation will thank us. I do not mind which party in Government does it, because in a democracy it should work.

8.37 pm

Mr. Ralph Howell (Norfolk, North)

The Government have been criticised from all quarters in the debate on the Gracious Speech. Before I conclude, I, too, shall level some criticism at them.

I welcome the determination of the Government to pursue their firm monetary and fiscal policies. They are to be admired for sticking to their guns. Many people—more perhaps than the media would like to say—support the firm policies that the Prime Minister has pursued.

I should like to list a few of the Government's successes. The attitudes of almost everyone in this country have been changed. Most people are more realistic. The Government should be applauded for maintaining lower wage settlements, for achieving the lowest strike record in post-war years, and for making our industry more competitive generally. There are many healthier industries now than before the Government came to power. New industries are springing up in my constituency and elsewhere, and in due course we shall reap the rewards of the Government's policies.

I disagree with those who call for premature reflation. We have seen that before and, to an extent, we are still suffering from premature reflation by previous Governments. My criticism of the Government is that they claim still to be monetarist when they are not sufficiently so. They are spending more in real terms than any previous Government. There has been an increase in real spending at a time when production has not been increasing. When all the leaves have been trimmed from the problems that beset us, I believe that the Government will have failed to cut sufficiently in the public sector. Their monetarist policies have worked and have hurt the private sector, but the public sector has pretty well escaped.

Some effort has been made to cut the Civil Service. I understand that its staff has been reduced by over 50,000. However, local government, which is far larger than the Civil Service, has not been reduced sufficiently. A reduction of about 60,000 from 2½ million is insignificant. The Government should have done more in that area.

The Health Service was overmanned and over-administered when the Government took office. None the less, its staff has increased by 40,000. That has virtually wiped out the reduction in the Civil Service. There is a case for considerable reductions in many areas. Local government is taking on more tasks than is necessary. That is the fault riot of local government but of the House, which has enacted unnecessary legislation and has compelled local government to take on unnecessary commitments. I have in mind consumer protection legislation over recent years. The burden that it has placed on local government is damaging the consumer.

The Government have not been drastic enough in reducing over-government, which is damaging all sections of the community. That has meant that the Government have been unable to reduce income tax, especially that paid by low-wage earners. It is rediculous to take tax from a man and wife who are earning little over £40 a week when the national average wage is £120 a week.

It is because the Government are still overspending in certain areas that they are locked into a situation in which they cannot reduce income tax. I ask the Treasury team to think seriously about that. A great deal of support came to the Conservative Party because of its promise to reduce the income tax that is paid by low wage earners. It is important that we correct that anomaly at the earliest moment.

8.43 pm

Mr. Richard Wainwright (Colne Valley)

There may be many hon. Members on both sides of the House who share my impression, as six days of debate draw to a close, that the many cogent, perceptive and highly intelligent speeches from Back Benchers on both sides of the House have been the notable feature of the debate on the Queen's Speech. They have convinced me, if I needed any convincing, that the House would get on very much better without either of the present Front Benches. There has been a great meeting of Back Benchers' minds. There has not been complete agreement, but the meeting of minds suggests that before long we may get a true Parliament.

The Government have been frank, ever since they were elected, in saying that the success of their monetarist policies depends on persuading the public to alter their expectations and get the message that money will be tight and they must adjust their pay claims and general attitudes accordingly. That has failed, with the exception of certain industries that have been so decimated that the survivors are in a state of desperate fear.

Expectations about inflation have not greatly changed. It is still in double digits. Not even the Government claim that it will fall below double digits this year. I doubt whether it will do that next year either. What astonishes me in these debates is that the Chancellor and his acolytes make no visible effort to use the great platform provided by Parliament to get the message across to the nation. People complain to me that they do not understand what is happening. That does not occur often in my constituency, where Conservative supporters have always been in short supply, but I have listened to such complaints on the doorsteps of such places as Warrington, Croydon and Crosby. I have met many constituents who were previously loyal Conservatives, and perhaps would be again, if only they were given some idea of where the sacrifice was leading and what they could hope for at the end of a dark and weary journey.

The Chancellor's speech today, and his bearing when he comes before the Treasury Select Committee, have shown no realisation that the country feels that it is being led on a gloomy mystery trip without any idea of the destination or when that will be reached. Unless the Government can pull themselves together and give some leadership to the country, not only are they doomed but they deserve to be doomed. Unfortunately, the economy will probably be doomed also.

There is a great deal of misunderstanding in the points that the Government sometimes try to get across—for example, the Government's claims about productivity. Week by week, no doubt with an element of truth, they churn out examples of improvement in labour productivity in certain industries. So be it. That is admirable, if it is on a lasting basis—which I am inclined to doubt. However, to survive in business it is riot only productivity of labour that matters, but productivity of the whole enterprise.

I shall cite an example from my part of the country. A great many of our Yorkshire industries are viable only if they operate three shifts a day. The machinery is so expensive and the overheads so high that unless they operate three shifts the firms will be in the red. Working only one shift in 24 hours—as many of them are now forced to do—and however much labour productivity improves on that shift, will not bring the businesses out of the red. All the emphasis on labour productivity, as though some tremendous sign had appeared in the economic sky to give us hope, betrays an unfamiliarity with manufacturing industry that is the notable hallmark of the whole Cabinet.

On the question of pay settlements, the Gracious Speech contained the tepid sentence that the Government hope to see … further reductions in the level of wage settlements. It is a well-known old saw, but perfectly true, that exhortations addressed in general to everybody are, in effect, addressed to nobody. That point was well put to the Treasury Select Committee by that distinguished economist James Tobin of Yale who, after he had appeared before the Committee, received the Nobel Prize—a distinction that is not bestowed on all its witnesses. He described the uselessness of generalised exhortation to observe restraint in pay. He summed it up saying that it was like thinking of people who are watching some kind of spectacle in an arena or a stadium or theatre and they are all standing up to see better. When everybody stands up they do not actually see better, but the question is who is going to sit down first. With a general threat, not everybody sits down. It does not work very well in school classrooms and it may not work very well in a modern economy. The Liberal Party has said this for many years. It is absolutely true. It is incumbent on Parliament to get people to sit down so that in the end everybody can adjust his posture so that there is proper pay restraint. Year after year the Government go from disaster to disaster. They are turning the West Midlands into a desert. All that they can do is to hope that further reductions can be made in the level of wage settlements. Leadership is not the sum of some tepid and pious hopes.

If the newspapers are to be believed we face a threat that the Government have in store yet a further blow to industrial and business confidence which is already at an appallingly low ebb. Industries are not confident that there will be a visible upturn in demand for their products in the foreseeable future. That is why there is despair in our industries, however well managed and however good their workforces.

Will the Chancellor tell the House whether there is any truth in the statements in the press that shortly he will increase national insurance contributions without an equivalent reduction in the national insurance surcharge? That would be the final death blow to industrial confidence in this country. When the Minister winds up tonight, I hope there will be some statement to allay the dread in industry that the poll tax will be increased again by a Government who set out in the belief that they could lead the country to industrial efficiency. Unless we hear something of that nature, Liberal Members will vote against the Government tonight.

8.52 pm

Mr. Nigel Forman (Carshalton)

I have listened to three days of the debate on the Queen's Speech and I have heard no serious opposition to Government policies from the Leader of the Opposition. I have heard no serious economic alternative policy from the right hon. Member for Stepney and Poplar (Mr. Shore). We heard yesterday the real voice of the new model Labour Party, as expounded by the right hon. Member for Bristol, South-East (Mr. Benn).

I shall concentrate on the arguments of my right hon. and hon. Friends of the Government Front Bench. Listening to my right hon. and learned Friend the Chancellor of the Exchequer speaking about being flexible without destroying the foundations, I thought that I detected the small voice of a politician at the bottom of a deep Treasury pothole, yearning to escape to the light. I assume that, in the words of the Prime Minister, the Chancellor wants to be both flexible and prudent. I suggest to the Chancellor of the Exchequer that early and deliberate steps towards economic revival would be both effective and safe whereas delayed and panic revival which could be forced upon us could be ineffective and dangerous.

We have heard the proposition that a policy of reflation will not solve the problems of the unemployed. That is exactly what the Prime Minister said last week. That may be so, if put in such stark and absolute terms. It is equally clear that a policy of further deflation would make unemployment much worse. We should avoid that at all costs as my hon. Friend the Member for Melton (Mr. Latham) said earlier in the debate. That would be a body blow to British industry at a time when some economic revival may be in sight. It would add to the costs of the recession which have been calculated by the Manpower Services Commission to be £12,000 million. Most important, to my right hon. and hon. Friends, it would sound the death knell for this Government at the next election.

As the Prime Minister said, there are ways to help the unemployed and to get more people into work. There are direct measures to help the unemployed, especially the young unemployed. I welcome all that the Government are doing. They are spending about £1,000 million this year to help about 700,000 people through various schemes. I look forward to the comprehensive training scheme to be introduced in the new year. It is not before time, because it has been under consideration for the best part of two years.

I hope that there will be special measures to help the long-term unemployed. They are members of a forgotten army. There might be one million of them by the end of 1983. They must be helped, not hit. A Government with a truly national responsibility will want to help them.

On the other side of the coin are measures to create employment, as the Prime Minister rightly said. The Government must stimulate small businesses, new firms and new technology. I am glad that such a prominent part of Government policy is devoted to that aspect. If we believe, as the Secretary of State for Industry has said, in trade as well as aid, we must do more about public procurement, especially in relation to information technology and data processing. Ministers in Whitehall can set the example. They can turn their Departments into showcases for office technology. Much sensible demand in the private sector could be stimulated by intelligent public purchasing in many different areas, whether in the construction industry or defence.

At a time when so much of British industry is working far below capacity the country needs a steady revival in demand. Public sector orders mean private sector jobs and increased revenue for the Treasury.

My final observation relates to a sad passage in the Prime Minister's speech. In her peroration she said: The generation which was brought up to believe that Governments can guarantee prosperity, full employment, and happiness for all now knows that life is really not like that—[Interruption.]—and that it never was and never could be in a free society."—[Official Report, 4 November 1981; Vol 12, c. 28–29.] Like the hon. Member for Ogmore (Mr. Powell) I was deeply distressed to hear the Prime Minister, of all people, say that. Surely we are delivering too bleak a message and delivering it too late. Surely all Governments can and must play a variety of beneficial and protective roles in the economy and in society in modern conditions. Because the Government cannot guarantee prosperity, full employment and still less happiness, that does not mean that we should not seek to do what is appropriate and take credit for our actions. All Governments have a duty to try to foster real hope as well as necessary realism. Without hope people are less likely to co-operate, less likely to strive and less likely to put the common interest above their own.

Surely we can agree in the House and in the country on the essentials of a national recovery. Let us act in the light of that basic agreement. If we do we shall leave more than a temporary mark in the pages of history.

8.58 pm

Mr. Ron Lewis (Carlisle)

Just before the Summer Recess and before the schools in my constituency broke up for the holidays the local newspaper—one of the finest in the country, although Tory dominated—reported that there were only five vacancies at the Carlisle careers office for the 1,200 children due to leave the city's schools. With a 230 to 1 chance of employment, it is small wonder that the county's principal careers officer declared: It is the worst summer that I have known. In May 1979 2,500 people in my constituency were out of work. Today almost 5,500 people are out of work in the city of Carlisle, and the number is rising.

Short-time working is increasing. A number of larger factories both inside and just outside my constituency—such as Pirelli, Kangol, Magnets and Nestlé—have started or announced short-time working, which means less prosperity for my constituents and for Cumbria.

In Cumbria almost 23,000 are unemployed, with thousands more on short time. I looked in the Gracious Speech and I listened to the Prime Minister to find a ray of comfort or hope for my constituents. I found nothing. Many small firms are running into difficulty or closing. That is contrary to the promises made by the Conservative Party at the general election.

As to help for small businesses, the Northern region received only £800,000 in loan guarantees from June to September 1981 compared with £12.4 million for the South-East. It is no wonder that my constituents are beginning to believe that the Government have forgotten them. The region once had development area status. That was removed. West Cumbria had special development area status, but that was removed. Firms now have less chance to come to Cumbria.

Inflation is running higher than it was when the Government came to office. Many pledges have been broken. There have been increases in prescription charges, mortgage interest rates and so on. The lack of Government help to Carlisle and district means that we are suffering more now than we did in the days of the depression in 1931. A number of firms have already closed. Recently a large printing firm in my constituency, Carlisle Webb Offset, went into liquidation. It may stay open, but many jobs will be lost in the process. Courtaulds closed a factory in my constituency, as it did in West Cumbria.

I cannot see any sign of help from the Government. There was no hope for my constituents in the Queen's Speech. The position is desperate and I plead with the Government now—even though we have been hard hit as a city—to embark upon a programme of expansion. If they do, I hope that it will eventually find its way to Cumbria. If not, I shudder to think what the future for Carlisle and Cumbria will be.

9.2 pm

Mr. John Silkin (Deptford)

If we seek an answer to Britain's problems, as my hon. Friend the Member for Carlisle (Mr. Lewis) said, it is not to the Gracious Speech that we should turn. It is irrelevant to those problems, many of which were created by the Government; all of them have been made worse by the Government. In the Gracious Speech we find a key of a sort in the rhetoric rather than in the legislative references.

I shall follow the criterion of the great Aneurin Bevan and probe further back from the Gracious Speech. Why look in the crystal when we can read the book? In May 1979, when the Government took office, year-on-year inflation ran at 10 per cent. and the bank lending rate was 12 per cent. Today, after two and half years of Conservative Government, the year-on-year inflation rate is 11.4 per cent., and likely to rise, and the bank lending rate is 15 per cent. However, the Gracious Speech states that the Government attach the utmost importance to maintaining progress and reducing inflation". As my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) pointed out, manufacturing output has decreased 16 per cent. in the past two years and nearly 4 million people are without jobs—the 3 million plus nearly another 1 million who did not register. The Gracious Speech goes on to refer to further improving the efficiency of the economy". Let us look again. Investment is uniformly down. There is a slight hiccup at present, but we shall have to see whether it is more than a slight hiccup. We have record bankruptcies and liquidations, yet the Gracious Speech says that the Government are strengthening industry.

This is the first Government in over 50 years who have cut the real value of most benefits, including child benefit, unemployment benefit, maternity allowances and sick pay. I grant that they did not opt for the higher basis that we always opted for. They went for the lower basis. They have just about succeeded in keeping the pension rate level with inflation, but they talk about a 10 per cent. inflation rate, although it is running at 11.4 per cent. and is likely to rise. The hon. Member for Bath (Mr. Patten) may yet find himself joining us in the Lobby if he is intent to ensure that benefits are not cut.

We have seen for the first time in years the abandonment in higher education of the Robbins principle. There have been cuts throughout education. As my hon. Friend the Member for Ogmore (Mr. Powell) pointed out, apprenticeships have been cut by 50 per cent. Higher education, normal education and apprenticeships have all been cut. Many hon. Members have pointd out that we must be ready for the technological revolution, yet look at what the Government are doing to education and to our training for skills. They are destroying the seed corn.

The Gracious Speech states that the Government share the nation's concern"— that is a good phrase— at the growth of unemployment and will continue to direct help to those groups and individuals most hard-pressed by the recession. If their actions are continuing to help the most hard pressed, thank God they are not even more Scrooge-like.

The problems arise from incompetent public expenditure. My hon. Friend the Member for Hartlepool (Mr. Leadbitter) pointed out that taxation is now higher than it was in the last year of the Labour Government. Then it was 34.5 per cent. of GDP; it is now 37 per cent. The Government came to power partly on a pledge to cut taxation, but they cannot boast about that.

However, the Government have cut living standards through incompetent public expenditure. The incompetence leads them inevitably to other mistakes which snowball. By gross illogic, the Government will be forced into the legislative proposals in the Gracious Speech. First, whatever happens, they must ensure that the trade unions are kept under. We go back to the pre-Disraelian basis of legal immunities. The reason is simple. There is a simple phrase in the Gracious Speech about the hope that wage settlements will not rise too much. The basis of that is to keep wages low. As my hon. Friend the Member for Batley and Morley (Mr. Woolmer) stated in his very telling speech, low wages means low productivity. That is a point which the Chancellor of the Exchequer and the Prime Minister, who I am glad to see is here, have failed to understand. It is in the high wage industries and factories that high productivity is gained. Perhaps Ministers should take the matter up with ICI, which would be able to tell them a little more about it.

First, the Government say "Bash the trade unions and see that wages are kept low". However, that leads to low productivity. The second approach is to go for local government and ensure that it does not take away resources which the Government are wasting in their public expenditure programme.

The Chancellor of the Exchequer talked about increases in rate settlements. I notice that he did not mention how much he has increased the price of petrol during his term of office. On 3 May 1979 a gallon of petrol cost 78p. Look at the price today. The effect of that on most people, industry and the nation's economy has been much greater than any rise in rates. Perhaps we should have a referendum on petrol—that would not be a bad idea.

On the subject of referendums—they are not my subject but more that of my right hon. Friend the Member for Bristol, South-East (Mr. Benn)—perhaps we should have a referendum not just on whether local authorities should keep down rates but on whether the Government should destroy their services. The result of such a referendum would be interesting. It would be interesting to say to local people that, as a result of the Government's policies and because of their pushing down of rates, "You will not have your dustbins emptied. Are you in favour of that?" I have an idea what the result of such a referendum would be, even if I did not know what the result of the previous one would be. Those are the first two parts of the legislative programme.

Another part of the legislative programme—caused by total incompetence of management of public expenditure—is the selling off of our national assets. That is not real Conservatism at all. It is old-fashioned nineteenth century Liberalism. I cannot think of a worse insult to throw at anybody.

The real Conservatives are those whose voices I heard during most of the debate, not from the Treasury Bench but all round it. The real Conservatives are those who try—they may not succeed—to obtain a national consensus because they believe that a country working together is much more effective, happier and more efficient than one which is for ever subject to confrontation and destruction.

If we are to achieve that, it implies, as many Tory Back-Bench Members have said in extremely able speeches—I suspect that not all would have been approved by the Front Bench—that there is no question but that the suggested remedies all imply an enormous amount of Government direction and intervention on a scale that makes present Government direction and intervention seem very small.

However, trying to put the matter in a general form, I would say that Conservative Back Benchers want the Government to provide three main things. They should provide the proper infrastructure for industry, proper communications so that goods and services can move from one area to another and proper training and retraining. I borrow those phrases from the remote past—at least six years ago—of the Secretary of State for Education and Science. That was before he saw his second blinding light of conversion and decided that all those objectives were terrible and ought to be avoided.

Another view clearly expressed by Conservative Members is that if an industry that is in trouble could have a future it ought to be rescued. The Secretary of State for Education and Science also took that view some time ago, but apparently he does not thnk so much of it now. All of that is old-fashioned Conservatism—the endeavour to get one nation and a national consensus—but the trouble is that that Conservatism, now called the wet tendency, ceases the moment there is any conflict inside the Conservative Party.

Not long ago the friends of the former Secretary of State for Employment were busy saying that if he was exiled to Northern Ireland all hell would break loose and that he would resign rather than endure such a humiliation. Alas, he did not do so and not a single rebel stood with the right hon. Gentleman and said that since he had been translated to Northern Ireland he would resign or go into the Lobby with the Opposition.

There is nothing so wet as a wet rabbit. I look forward with great interest to the day when some Conservative Members go into the Lobby in support of what they believe. It is useless for the Prime Minister to say that there is no alternative to her policy. The alternative is on her Back Benches and Conservative Members have been strong in telling us.

What about the Labour alternative? I propose to put it.

Mr. Spencer Le Marchant (High Peak)

Which one?

Mr. Silkin

The hon. Gentleman speaks too soon. He should wait a little while. His years in the Whips Office should have taught him that a little silence is worth its weight in gold.

I shall explain the Labour alternative and why Conservative Members cannot possibly back such a policy. The Conservative Party is the last to reproach us. The Labour Party is divided. It is divided on personalities; some think that one personality is good and others think that another is good. Some even think that the personality who won the bronze medal in the deputy leadership election deserved a better fate!

But there are ideas on which all sections of the Labour Party unite—which is more than can be said of the Conservative Party. The various sections of the Conservative Party unite only under threat and in fear.

If we are to preserve British industry—and a great question mark hangs over it—we need import controls. Even some Conservative Members are beginning to understand that. It flies in the face of the old Liberal doctrine of free trade, which modern Conservatives never used to support, but it is the only way that we shall protect our manufacturing industry from destruction and ensure that if there is an increase in demand it is not soaked up by foreign goods, as happened in the 1960s and 1970s. So we need that and we need massive public investment. There are Conservative Members who would agree with me on that.

The hon. Member for Melton (Mr. Latham), made a remarkably fine speech. I have said that of his speeches when I disagreed with every word he said but I agree with every word on this occasion. He knows the construction industry far better than I do.[Interruption.] It is not the kiss of death; it is one expert congratulating another.

Import controls and massive public investment are one key. Another is exchange controls. Here again the Labour Party has a unanimous belief that exchange controls ought to be dealt with, and used in our favour. They should not be abandoned as they were by the Chancellor of the Exchequer when he first came into office.

There would also be total agreement on the Labour Benches on getting rid of the dear food policy. My right hon. Friend the Member for Battersea, North (Mr. Jay) pointed out something that he knows better than anybody. We are in the stupid position of taxing food entering the country and al the same time complaining of the effect on our own people.

Mr. Peter Mills (Devon, West)

I should think so, after all the right hon. Gentleman did as Minister of Agriculture, Fisheries and Food.

Mr. Silkin

All four factors are dependent upon the question of membership of the EEC. There are prominent Labour Members who believe that it is possible to do those four things—to institute import controls, to have massive public investment, to introduce exchange controls and to end the dear food policy—while Britain is a member of the EEC. I have never shared that view; I do not believe that it is possible.

However, every one of us would believe that it is right to do those things, even if the end result would not be compatible with membership of the EEC. That is something that we are all agreed on. That is something with which Conservative Members cannot agree. Liberal and SDP Members would go even further than Conservative Members. Even if membership of the Common Market meant the continuation of the destruction of our economy, they would still agree with it.

To achieve our aims we must not, particularly in the first years, add to public expenditure. We need to apply it properly and correctly. We need to switch public resources, as my hon. Friend the Member for Eton and Slough (Miss Lestor) said. A figure which recently appeared in the Financial Times has been quoted often today. It is the figure given by the Manpower Services Commission that unemployment is costing £12.6 billion a year. Obviously, nobody in his senses will say that that can be altered within a year. Of course it cannot; we know that. What one could do—here I agree with the hon. Member for Melton—is to get rid of 400,000 unemployed.

One day historians will look at our period and observe that we had 400,000 construction workers out of work; that we had 1¼ million families on the housing waiting list, and an industry able to build roads, houses and sewers. Practically none of the materials used by those industries needs to be imported. The effect of putting to work those 400,000 unemployed people would be to cut public expenditure by £1¾ billion. It would be possible to use that money for other purposes.

With the abolition of exchange control, £2 billion a year went abroad. According to the Bank of England Quarterly Bulletin for the September quarter: This has been largely at the expense of investment in British Government securities. If that £2 billion were at the expense of British Government securities, surely the purchase of those securities would have helped to finance Government borrowing. So by allowing money to go overseas—I am talking in particular of institutional funds—the net result for the Government was a decline in the purchase of British Government securities, and hence a need for more borrowing.

There are also the BNOC revenues of £900 million and British Gas revenues of over £200 million. Trident is liable to cost another £1,000 million, merely because of the change in the exchange rates.

On all these issues we would have a united Labour Party. Every one of us would agree. There is another matter on which we would have a united Labour Patty. I said earlier that the first thing that the Chancellor of the Exchequer did was to abolish exchange control. I was wrong. The first thing that he did was to give a handout of £625 million to the very rich. We would like that back for the country, please.

It would be possible, therefore, to provide about £6.5 billion of resources, which could be used to reduce unemployment and to get industry moving again.

Mr. Tapsell

The right hon. Gentleman said that he would like the £625 million back for the country. Is he saying that a future Labour Government would put up the rate of tax to a top level of 83 per cent. again?

Mr. Silkin

Not the standard rate. I am talking about the highest rate, which was brought down from 83 per cent. to 60 per cent.

Mr. Tapsell

Would a Labour Government restore that?

Mr. Silkin

I said that I would like it. It is absurd to make commitments, because—[HON. MEMBERS: "Answer".] I said that I would like to do it.

There is a choice facing the country today, and it is a clear choice. There is no possibility that, when the time comes, the people of this country will take the third choice seriously. The people will have to decide whether they want a Conservative Government or a Labour Government [Interruption.] Yes, we have seen the bubbles come up before. We have seen the air disappear: I remember art election in Orpington. I remember an election in Torrington. I remember a Mr. Tope in Sutton and Cheam.

It is between the Conservative Party and the Labour Party that the choice will be made. I fear that the wets—the old Conservatives, as I call them—will not have the guts to make a challenge. The choice, therefore, will be between the Prime Minister's ideal society, in which there is certainly discipline—the discipline of insecurity, plus resentful submission, which is what we have at the moment—and a country united in its confidence.[Interruption.] Conservative Members should not laugh at the idea of one nation. We shall not get it under a Conservative Government. We shall certainly not get it under the present Prime Minister or under the present Chancellor of the Exchequer. If their party were to be reelected, the country would have confrontation and division all over again.

We can have a united country. We can have a country that understands what it wants and is prepared to go for it. The Labour Party is in a position, and will increasingly be in a position in the next two years, to make that a possibility.[Interruption.] I remember hon. Gentlemen giving the same sort of laugh in 1973, when the right hon. Member for Sidcup (Mr. Heath) was Prime Minister—and two months later we were the Government. We shall be the Government again.

I grant that we must learn one lesson. I believe that we shall learn it. It is that we need to be united, because if we are not united—or are like a party as divided as the Conservative Party—the British people will not forgive us, just as they will never forgive the Conservative Government for what they are doing to them now.

I call upon my right hon. and hon. Friends to join me in the Lobby tonight.

9.30 pm

The Lord President of the Council and Leader of the House of Commons (Mr. Francis Pym)

I venture to comment upon the peroration of the right hon. Member for Deptford (Mr. Silkin) that I do not think that one could beat it for incredibility.

I shall endeavour to reply to the whole of this debate. I shall, of course, comment on a number of the issues raised by the right hon. Member for Deptford and others, and in due course I shall deal with the amendment.

It is now over a week since the motion was moved and seconded so exceptionally well by my hon. Friends the Members for Scarborough (Mr. Shaw) and for Dartford (Mr. Dunn). I have listened to a great many speeches and I have read those that I could not be present to hear. I am struck by one clear characteristic of the debate. From all sides of the House there have been very sincere expressions of distress and dismay over the recession and its consequences and effects on the British people, particularly unemployment. That is common ground between us all. No one feels more acutely about that than my right hon. Friend the Prime Minister, myself and the whole Government. The right hon. Member for Cardiff, South-East (Mr. Callaghan) spoke particularly eloquently on this matter.

Different views have been expressed as to the causes of the recession and why it has hit Britain so hard, but when it comes to the vital question of what actions and decisions we should take to help our country through these difficult times it has been striking that, with a few significant exceptions, the really constructive, positive and thoughtful proposals have come mainly from the Conservative Benches. The only coherence on the Opposition Benches has been over the difficulties and problems, which certainly are substantial and very worrying. But when it comes to solutions, Opposition Members either propose some version of remedies which have been found defective before, or they are confused, as was so sharply demonstrated in the House last night.

The cause of that confusion lies in the problems that the Labour Party is facing, which the right hon. Member for Stepney and Poplar (Mr. Shore) said a couple of weeks ago were the worst for 50 years, and the deep division within it, for which the right hon. Member for Deptford took credit—it seems to be difficult to connect that with the idea of a united nation about which he spoke—and its battles over the leadership. Those battles are a matter for Labour Members, but they are also a public matter and we must all hope that they will soon be resolved.

The Liberal Party shares with the Conservative Party the advantage of undisputed leadership. That is one reason why the contributions in this debate from those two parties have been so much more constructive. I should like to congratulate the hon. Member for Croydon, North-West (Mr. Pitt) on his maiden speech.

The right hon. Member for Plymouth, Devonport (Dr. Owen) is unofficial leader of the SDP in this House. It is a remarkable party, the third largest in the House, but without a single hon. Member for whom anybody has ever voted in its present colours. I should not have thought, Mr. Speaker, that this was a good enough basis to justify its barging into your procession to another place last Wednesday.

Outside the House, there is a four-horse race for the leadership. No one knows whether the race will ever end or whether the SDP will land up with one leader, four leaders or no leader. It is a party at the moment, at any rate, with no programme and no leader. The electorate, if eventually it should unwrap the red, white and blue wrapping to experience the disappointment of finding the same old Roy and the same old Shirley inside, will instantly reveal the product for what it really is—a waste paper basket for the disaffected.

The Gracious Speech outlines a programme that contains significantly fewer Bills than those for either of the first two Sessions of the present Parliament. I know that this is right and that everyone wants it. All Administrations in recent years have overloaded Parliament with too much legislation. I hope that the House will at least give the Government credit for making a determined attempt to reverse that trend.

The programme this Session is not by any stretch of the imagination a light one, but it is one that can, I am sure, be fitted reasonably into a Session of normal length. I hope that the Government will have the support of all parties in meeting at least this objective. I am sure that the usual channels and perhaps some unusual channels will smooth the way.

Mr. John Silkin

I have a short technical question. In view of the lightness of the legislative programme, I take it that the Local Government Finance Bill will be taken on the Floor of the House.

Mr. Pym

I have said to the right hon. Gentleman that this is not a light Session but that I am sure that it can be accommodated within reasonable length.

Some of the Bills are controversial, but most of the major measures have been the subject of wide consultation. In several cases, they have been extensively modified as a result of those consultations. For example, there was criticism in respect of the Social Security and Housing Benefits Bill about the way we had proposed to transfer the responsibility for providing sick pay. As a result of representations, we have devised a new scheme that I believe is acceptable.

The amendment to the trade union law is another example. Here again, we have had the fullest possible consultation on the basis of my right hon. Friend's Green Paper—[HON. MEMBERS: "Who with?"]—and the draft legislation will reflect many of the views put to us. Many people have submitted many views. Where there is a clear and fundamental difference of approach between the two sides of the House, hon. Members will find that we have adhered to the objectives on which we were elected—increased competition, removal of restrictive practices and the reduction of the size of the public sector.

There is one exceptionally important issue on which I want to make clear my position as Leader of the House with responsibility towards all hon. Members. I refer to the supremacy of Parliament itself. It is vital that we ensure that Parliament and no other body stands at the centre of the nation's life and decisions. This is not a matter that can simply be taken for granted or assumed. Quite often, one hears voices raised that threaten Parliament in one way or another. It happened even this week. In the 1979 election, we undertook to uphold the central importance of Parliament and further to enable Parliament to be effectve in its job of scrutinising and controlling the Executive. I am confident that the House will acknowledge what we have achieved in carrying out those pledges.

The comprehensive structure of Select Committees has made a good start. I know that not everyone agrees with them, but I believe that they enjoy widespread support and respect, even though, sadly, it sometimes means that the number of hon. Members in this Chamber is smaller than one would like. The Government undertook to co-operate with those Committees in every way, and we have done that. Thanks to the great amount of work that many right hon. and hon. Members have put into them, I am sure that these Committees have improved Parliament's ability to get at the facts and figures behind Government policies. They have made Departments answerable to this House in a new, effective and practical way.

We are also working hard to strengthen the procedures of the House for controlling Government expenditure. Last Session we took the initiative to set up the Select Committee on Procedure (Supply), under the chairmanship of my right hon. Friend the Member for Worthing (Mr. Higgins). That Committee has made an extremely valuable report. I have already said in evidence to the Committee that the Government are in broad agreement with a number of its recommendations. I hope that there will be an early opportunity to debate this matter and that we shall reach conclusions which are acceptable to the House generally. There are other related matters requiring further inquiry, and I intend to table a motion shortly to re-establish the Committee. So I think that the House will agree that the Government are giving full and proper attention to Parliament and its procedures.

Finally on parliamentary matters, I want to reaffirm our conviction that a strong second Chamber is an essential part of the constitution, and an essential safeguard for individual liberty. We are committed to its continuance and its maintenance as an indispendable part of our Parliament.

I turn now to the theme of today's debate and the amendment on the state of the economy. We must be careful not to lose a sense of perspective. As the House is aware, the recession and rising unemployment are being experienced everywhere in the Western industrial world where it is causing a great deal of anxiety in all countries. The right hon. Member for Stepney and Poplar acknowledged this in his speech this afternoon. It is sadly true that the effects of recession here have been as bad as or worse than elsewhere. This should be no surprise, certainly not to the Opposition, who knew in 1976 that continuation of their then policies would lead to unemployment approaching 3 million. In fact, so sick had the economy become under their management that the IMF had to be called in to administer large doses of economic reality. Unfortunately and tragically, the Labour Government threw away the medicine and set the economy on a new rising curve of inflation.

Mr. Shore

The right hon. Gentleman spoke of throwing away the medicine. How can he explain the fact that unemployment was falling during the last year of the Labour Government to 1.3 million, whereas today it is nearly one and a half times larger? Unemployment is over 3 million at a time when the nation should be enjoying the enormous benefits of North Sea oil.

Mr. Pym

Unemployment was falling as a result of the Labour Government's pre-election spending spree, the consequence of which was re-inflation which we inherited when we came to power.

As everyone knows, our economic weaknesses are deep-seated and of long-standing. The House has often debated the reasons for this. I shall not rehearse them now. My right hon. and learned Friend the Chancellor of the Exchequer referred to them this afternoon. They have made us doubly vulnerable to world recession, which has now faced us with the stark reality of the painful transition from old industries to the new ones of the future. It is a second Industrial Revolution. It was therefore inevitable that unemployment which had been rising under previous Governments would reach serious levels.

It would be wrong to pretend that there is a simple or quick answer to unemployment. The only answer is the improvement of productivity, which my hon. Friend the Member for Eastleigh (Sir D. Price) mentioned today, the restoration of our competitiveness, and the growth of the new industries of the future. Industry must win back the markets that it has lost. Those are our goals and we are laying the foundations now. In the first six months of this year, there was virtual stability in the unit cost of labour for the first time in a decade. Industrial stoppages in 1980–81 have been fewer than at any time since the war. Productivity has been rising. Our counter-inflation policy has broken the rising trend of inflation. Wage settlements are now more realistic—reflecting a greater realism on the shop floor than on the Opposition Benches.

All these improvements naturally owe much to the severity of the slump. It is hard, but it has done for our economy what we ought to have done for ourselves years ago. The Government detest the slump and the recession, but we are entitled to take credit for our resolute efforts to secure a new sense of realism and to deal with the problems which other Governments have shirked.

I have said that our industries need to win back the markets that they have lost. One of the biggest opportunities open to them now must be the export market. There are many success stories in sales overseas today, and there are more to come. The pound is no longer at a level which is a disadvantage to our exporters, so we have reason to be confident.

Nevertheless, for a great many people, the situation is very difficult. The worst scourge is unemployment. The Government are responding with measures to alleviate the short-term effects and hardships. I shall mention some of them before turning to the longer term.

We now have a comprehensive programme to relieve youth unemployment. We are launching a new and comprehensive training scheme. This is of vital importance. Our young people must be prepared for the jobs of tomorrow. The hon. Member for Preston, South (Mr. Thorne) spoke eloquently on this subject on Monday. We must give young people hope for their future while providing for industry's future needs. The training programme is more than a measure to alleviate the problems of economic transition. It is a response to a national challenge and its importance should be in the nature of a national crusade. I agree with my right hon. Friend the Member for Stafford and Stone (Sir H. Fraser) about that. The task goes far wider than one Department; it covers a number of Government Departments. Nearly 700,000 people are benefiting from the special employment measures, and 50,000 more young people will be able to stay on at college. Those are just some of the ways in which we are helping.

To free the markets for business and trade, we have scrapped pay, price and dividend controls. We are tackling the high level of rates and the problem that they pose for industrial overheads. High rates are harmful to business and to employment. The right hon. Member for Deptford seemed not to understand that. We shall take immediate steps this Session to protect the hardest-hit ratepayers and prepare for a fundamental reform of the whole system in the longer term. This is of vital importance to our future. It has been mentioned by my hon. Friend the Member for Winchester (Mr. Browne), by the hon. Member for Newcastle upon Tyne, West (Mr. Brown) and by a number of other hon. Members.

As we made clear in the last Parliament and at the last general election, the job which must be done is a long-term one—to reconstruct the economic framework to provide the opportunities for growth and new industries and new jobs. That could not be carried out in the life of one Parliament, as we said then. Certainly it was ambitious, but why should we settle for less? I know that we were right to set our objectives high. We must enable our industries to compete in price and quality with their overseas competitors. We must create the conditions for the growth of new industries. There is no other way to sustain the creation of the new wealth that we need. The Government are actively supporting the new technology industries about which my hon. Friend the Member for Arundel (Mr. Marshall) spoke so forcefully and well today.

We have given unprecedented assistance to the creation of new small businesses. They will provide at least some of the new jobs that we need for the future. As my right hon. Friend the Prime Minister has said, the tax incentives announced in our last two Budgets are widely recognised as providing the best conditions the world over for encouraging the birth and growth of new businesses. The new enterprise zones will also make their contribution.

The right hon. Member for Stepney and Poplar suggested that the Government were doing nothing about the inner cities. That is nonsense. The Government have responded to the needs of the inner cities. They have set up two urban development corporations in Merseyside and the London docklands charged with the task of urban regeneration, which is high on the agenda.

We shall continue to reform and improve labour relations. After the failure of the Labour Government to take the action in the 1960s which they knew and admitted to be necessary and the reversal of our earlier attempts, everyone realises that this reform will have to be a gradual process. However, it is a reform that is vital to our recovery. I assert that in that we have the support of the workers. To describe this next step in that process as an attack on trade unions is a travesty of the truth. The trade unions are great national institutions. They have a major part to play in our national affairs. But they must play their part responsibly and in the appropriate way.

Another Herculean task that we are tackling for the long term is to reduce the size of the public sector, which is far too big. Its monopoly position has encouraged inefficiency. It has become a crippling burden on the taxpayer and it is crucifying the private sector. We shall always have a mixed economy, but the State sector must be as small and efficient as we can humanly make it. Last week my hon. Friend the Member for Welwyn and Hatfield (Mr. Murphy) spoke well about that.

Half the Labour Party ignores those realities and half wants to nationalise everything in sight, whether with or without compensation is not entirely clear. The Liberals and the SDP appear to have no answers at the moment. They appear to be in favour of retaining the status quo. However, it is too expensive and too much of a burden on our people.

Therefore, in this Session we shall transfer the oil-producing business of BNOC and BGC to private enterprise hands, which made such a success of exploiting North Sea oil. That is all part of the continuing process of reducing the size of the public sector. Half British Aerospace has been sold to the public and, despite official trade union opposition, 90 per cent. of the staff took up free shares and 40 per cent. bought extra shares.

The sale of British Petroleum yielded £276 million. The flotation of Cable and Wireless was worth £180 million. We have disposed of the National Freight Company to a consortium of managers and employees. We have introduced private capital into British Rail's subsidiary operations. That programme will benefit the industries. It will benefit the consumer, the taxpayer and the economy as a whole because it makes possible the growth of more efficient and competitive industries in the future.

The Government's long-term strategy contrasts sharply with that of the Labour Party, which is still advocating massive reflation, financed by the borrowing and printing of money. It was still at a loss today to respond to the challenge posed by the right hon. Member for Down, South (Mr. Powell) in the censure debate. The Labour Party cannot explain and has not explained why reflation, which in the past caused only more inflation and unemployment, could now magically succeed if applied on a more reckless scale. The Labour Party is supposed to be the same Labour Party whose Prime Minister told the party conference in 1976 that the option of spending one's way out of a recession by cutting taxes and boosting spending no longer existed.

The Labour Party is still engaged in the pretence that there is an easy remedy for our economic problems. If the solution is so simple, it is odd that the Labour Party has not given it to us. It has not produced a viable or thought-out set of proposals of its own. It is becoming increasingly irrelevant in the discussion of our nation's affairs. Indeed, it cannot even debate its own internal affairs sensibly.

The Labour Party's confusion on economic affairs is matched only by that on defence and the European Community. Both issues are crucial to the future of Britain, and they have featured prominently in this long debate. It is extraordinary that after membership has been negotiated and renegotiated, and overwhelmingly endorsed by referendum, the Labour Party wants to go into reverse. Its motives must be suspect, just as I believe its argument to be specious.

The Community is conscious of the need for change and is discussing it all the time. Why is the Labour Party unwilling to take part in this discussion? Is it because it knows that honest discussion would lay bare the dishonesty of its position? The British economy is geared to working in the Community. It is impossible to contemplate the disruption that would be caused by arbitrary withdrawal.

The Community provides British industry with tariff-free access to a huge market. Nearly 60 per cent. of our exports go to the Community or to European countries linked with it. Overseas companies have invested here because we are members of the Community, and that means new jobs.

The Labour Party has never explained how all the jobs referred to by the right hon. Member for Stockton (Mr. Rodgers) could be preserved after withdrawal, if that could ever be negotiated. It is ridiculous to suppose that we could enjoy tariff-free access to Community markets if we were no longer a member. So what other markets is our industry supposed to enter and dominate overnight? The Labour Party has no answer to these questions.

On defence, the House has witnessed the extraordinary spectacle of the right hon. Member for Leeds, East (Mr. Healey) making a constructive and highly responsible speech on defence and disarmament that did not seem to be within sight of the Labour Party's conference decision to make an unambiguous commitment to unilateral disarmament.

The truth is that the Labour Party has finally given up any attempt to find a realistic and responsible policy for defence and disarmament. A perpetual protest march is no substitute; nor is hysterical anti-Americanism. Encouraging local authorities to declare nuclear-free zones is a diversion from the real business.

As my hon. Friend the Member for Hove (Mr. Sainsbury) said, nuclear weapons have kept the peace for 35 years, and as my hon. Friend the Member for Huntingdonshire (Mr. Major) said, CND is placing a false prospectus before us. The only way to persuade the Soviet Union to disarm and to maintain our freedom and security in the meantime is to maintain an adequate defence as a member of the NATO Alliance. The American contribution to that defence, including bases here, is vital.

There have been some excellent speeches in the debate. Among the most interesting have been those by the right hon. Member for Leeds, East and by the leader of the Liberal Party. They spoke with force and eloquence, but also with the courage born of desperation. One knows that his party has lost its head, and the other is a head fearful of losing his party. He is fearful of losing it to a collection of refugees from mandatory reselection, and former Ministers whose only hopes of a political future now lie in taking over someone else's political machine. Stale claret in new bottles is a confidence trick on the electorate and a poisoned chalice to the Liberal Party. It is heady stuff, but I warn the Liberals not to mistake it for the elixir of life.

As for the Liberal-SDP approach to policy, it has the virtue of apparent moderation—that is, when compared with the reckless and half-baked ideas of the Labour Party. The only new idea to come from the Liberals and the SDP is Roy Jenkins' adoption of the idea of an inflation tax, but that was promptly shot down in flames. That is not a very good start. It is no cause for surprise, because a few years ago, when she was a member of the last Labour Government Mrs. Williams told us that she and they did not really know the answer to unemployment.

We have heard no convincing proposals from the other parties in the House, only confusion and failure dressed up as new policies. By contrast, the Government have set clear goals for our national recovery. These measures are relevant and vital to the grievous problems of unemployment and to the growth of new prosperity. They show that the Government are facing up to reality. I urge my right hon. and hon. Friends to throw out this amendment and support the motion.

Question put, That the amendment be made:

The House divided: Ayes 250, Noes 302.

Division No. 2]	[10.00 pm
AYES
Abse, Leo	Dubs, Alfred
Adams, Allen	Duffy, A. E. P.
Allaun, Frank	Dunnett, Jack
Alton, David	Dunwoody, Hon Mrs G.
Anderson, Donald	Eadie, Alex
Archer, Rt Hon Peter	Eastham, Ken
Ashley, Rt Hon Jack	Edwards, R.(W'hampt'n S E)
Ashton, Joe	Ellis, R.(NE D'bysh're)
Atkinson, N.(H'gey,)	Ellis, Tom (Wrexham)
Bagier, Gordon A.T.	English, Michael
Barnett, Guy (Greenwich)	Ennals, Rt Hon David
Barnett, Rt Hon Joel (H'wd)	Evans, Ioan (Aberdare)
Beith, A.J.	Evans, John (Newton)
Benn, Rt Hon Tony	Ewing, Harry
Bennett, Andrew (St'kp'tN)	Faulds, Andrew
Bidwell, Sydney	Field, Frank
Booth, Rt Hon Albert	Fitch, Alan
Boothroyd, Miss Betty	Flannery, Martin
Bottomley, Rt Hon A.(M'b'ro)	Fletcher, L. R.(Ilkeston)
Bradley, Tom	Fletcher, Ted (Darlington)
Bray, Dr Jeremy	Foot, Rt Hon Michael
Brocklebank-Fowler, C.	Forrester, John
Brown, Hugh D.(Provan)	Foulkes, George
Brown, R. C.(N'castle W)	Fraser, J.(Lamb'th, N'w'd)
Brown, Ronald W.(H'ckn'y S)	Freeson, Rt Hon Reginald
Buchan, Norman	Freud, Clement
Callaghan, Rt Hon J.	Garrett, John (Norwich S)
Callaghan, Jim (Midd't'n & P)	George, Bruce
Campbell, Ian	Gilbert, Rt Hon Dr John
Campbell-Savours, Dale	Ginsburg, David
Canavan, Dennis	Golding, John
Cant, R. B.	Grant, George (Morpeth)
Carmichael, Neil	Grant, John (Islington C)
Carter-Jones, Lewis	Grimond, Rt Hon J.
Clark, Dr David (S Shields)	Hamilton, W.W.(C'tral Fife)
Cocks, Rt Hon M.(B'stol S)	Harrison, Rt Hon Walter
Cohen, Stanley	Hart, Rt Hon Dame Judith
Coleman, Donald	Hattersley, Rt Hon Roy
Concannon, Rt Hon J. D.	Haynes, Frank
Conlan, Bernard	Healey, Rt Hon Denis
Cook, Robin F.	Heffer, Eric S.
Cowans, Harry	Hogg, N.(EDunb't'nshire)
Craigen, J. M.(G'gow, M'hill)	HomeRobertson, John
Crawshaw, Richard	Homewood, William
Crowther, Stan	Hooley, Frank
Cryer, Bob	Horam, John
Cunliffe, Lawrence	Howells, Geraint
Cunningham, G.(Islington S)	Hoyle, Douglas
Cunningham, Dr J.(W'h'n)	Huckfield, Les
Dalyell, Tam	Hudson Davies, Gwilym E.
Davidson, Arthur	Hughes, Mark (Durham)
Davies, Rt Hon Denzil (L'lli)	Hughes, Robert (Aberdeen N)
Davies, Ifor (Gower)	Hughes, Roy (Newport)
Davis, Clinton (Hackney C)	Janner, Hon Greville
Davis, T.(B'ham, Stechf'd)	Jay, Rt Hon Douglas
Deakins, Eric	John, Brynmor
Dean, Joseph (Leeds West)	Johnson, James (Hull West)
Dempsey, James	Johnson, Walter (Derby S)
Dewar, Donald	Jones, Rt Hon Alec (Rh'dda)
Dixon, Donald	Jones, Barry (East Flint)
Dobson, Frank	Kaufman, Rt Hon Gerald
Dormand, Jack	Kilfedder, James A.
Douglas, Dick	Kilroy-Silk, Robert
Douglas-Mann, Bruce	Kinnock, Neil

Lambie, David	Roberts, Albert (Normanton)
Lamborn, Harry	Roberts, Ernest (Hackney N)
Lamond, James	Roberts, Gwilym (Cannock)
Leadbitter, Ted	Robertson, George
Leighton, Ronald	Robinson, G.(Coventry NW)
Lestor, Miss Joan	Rodgers, Rt Hon William
Lewis, Arthur (N'ham NW)	Rooker, J. W.
Lewis, Ron (Carlisle)	Roper, John
Lofthouse, Geoffrey	Ross, Ernest (Dundee West)
Lyon, Alexander (York)	Ross, Stephen (Isle of Wight)
McCartney, Hugh	Rowlands, Ted
McDonald, Dr Oonagh	Ryman, John
McElhone, Frank	Sandelson, Neville
McGuire, Michael (Ince)	Sever, John
McKay, Allen (Penistone)	Sheerman, Barry
MacKenzie, Rt Hon Gregor	Sheldon, Rt Hon R.
Maclennan, Robert	Shore, Rt Hon Peter
McMahon, Andrew	Short, Mrs Renée
McNally, Thomas	Silkin, Rt Hon J.(Deptford)
McNamara, Kevin	Silverman, Julius
McTaggart, Robert	Skinner, Dennis
McWilliam, John	Smith, Rt Hon J.(N Lanark)
Magee, Bryan	Snape, Peter
Marks, Kenneth	Soley, Clive
Marshall, D (G'gowS'ton)	Spearing, Nigel
Marshall, Dr Edmund (Goole)	Spriggs, Leslie
Marshall, Jim (Leicester S)	Steel, Rt Hon David
Martin, M (G'gowS'burn)	Stewart, Rt Hon D.(W Isles)
Mason, Rt Hon Roy	Stoddart, David
Maxton, John	Strang, Gavin
Maynard, Miss Joan	Straw, Jack
Meacher, Michael	Summerskill, Hon Dr Shirley
Mellish, Rt Hon Robert	Taylor, Mrs Ann (Bolton W)
Mikardo, Ian	Thomas, Dafydd (Merioneth)
Millan, Rt Hon Bruce	Thomas, Jeffrey (Abertillery)
Mitchell, R. C.(Soton Itchen)	Thomas, Mike (Newcastle E)
Molyneaux, James	Thomas, Dr R.(Carmarthen)
Morris, Rt Hon A.(W'shawe)	Thorne, Stan (Preston South)
Morris, Rt Hon C.(O'shaw)	Tilley, John
Morris, Rt Hon J.(Aberavon)	Torney, Tom
Moyle, Rt Hon Roland	Urwin, Rt Hon Tom
Mulley, Rt Hon Frederick	Wainwright, E.(Dearne V)
Newens, Stanley	Wainwright, R.(Colne V)
Oakes, Rt Hon Gordon	Watkins, David
Ogden, Eric	Welsh, Michael
O'Halloran, Michael	White, J.(G'gow Pollok)
O'Neill, Martin	Whitlock, William
Orme, Rt Hon Stanley	Wigley, Dafydd
Owen, Rt Hon Dr David	Willey, Rt Hon Frederick
Palmer, Arthur	Williams, Rt Hon A.(S'sea W)
Park, George	Wilson, Gordon (Dundee E)
Parker, John	Wilson, Rt Hon Sir H.(H'ton)
Parry, Robert	Wilson, William (C'try SE)
Pendry, Tom	Winnick, David
Penhaligon, David	Woodall, Alec
Pitt, William Henry	Woolmer, Kenneth
Powell, Rt Hon J.E.(S Down)	Wrigglesworth, Ian
Powell, Raymond (Ogmore)	Wright, Sheila
Prescott, John	Young, David (Bolton E)
Race, Reg
Radice, Giles	Tellers for the Ayes:
Rees, Rt Hon M (Leeds S)	Mr. James Tinn and
Richardson, Jo	Mr. George Morton.

NOES
Adley, Robert	Bennett, Sir Frederic (T'bay)
Aitken, Jonathan	Benyon, Thomas (A'don)
Alexander, Richard	Benyon, W.(Buckingham)
Alison, Rt Hon Michael	Best, Keith
Amery, Rt Hon Julian	Bevan, David Gilroy
Ancram, Michael	Biggs-Davison, Sir John
Arnold, Tom	Blackburn, John
Aspinwall, Jack	Blaker, Peter
Baker, Kenneth (St.M'bone)	Body, Richard
Baker, Nicholas (N Dorset)	Bonsor, Sir Nicholas
Banks, Robert	Boscawen, Hon Robert
Beaumont-Dark, Anthony	Bottomley, Peter (W'wich W)
Bell, Sir Ronald	Bowden, Andrew
Bendall, Vivian	Boyson, Dr Rhodes

Braine, Sir Bernard	Gray, Hamish
Bright, Graham	Griffiths, E.(B'ySt. Edm'ds)
Brinton, Tim	Griffiths, Peter Portsm'th N)
Brittan, Rt. Hon. Leon	Grist, Ian
Brooke, Hon Peter	Grylls, Michael
Brotherton, Michael	Gummer, John Selwyn
Brown, Michael (Brigg & Sc'n)	Hamilton, Hon A.
Browne, John (Winchester)	Hamilton, Michael (Salisbury)
Bruce-Gardyne, John	Hampson, Dr Keith
Bryan, Sir Paul	Hannam, John
Buchanan-Smith, Rt. Hon. A.	Haselhurst, Alan
Buck, Antony	Hastings, Stephen
Budgen, Nick	Hawksley, Warren
Bulmer, Esmond	Hayhoe, Barney
Burden, Sir Frederick	Heath, Rt Hon Edward
Butcher, John	Heddle, John
Butler, Hon Adam	Henderson, Barry
Cadbury, Jocelyn	Heseltine, Rt Hon Michael
Carlisle, Kenneth (Lincoln)	Hicks, Robert
Carlisle, Rt Hon M.(R'c'n)	Higgins, Rt Hon Terence L.
Chalker, Mrs. Lynda	Hogg, Hon Douglas (Gr'th'm)
Channon, Rt. Hon. Paul	Holland, Philip (Carlton)
Chapman, Sydney	Hooson, Tom
Churchill, W.S.	Hordern, Peter
Clark, Hon A.(Plym'th, S'n)	Howe, Rt Hon Sir Geoffrey
Clark, Sir W.(Croydon S)	Howell, Rt Hon D.(G'ldf'd)
Clarke, Kenneth (Rushcliffe)	Howell, Ralph (N Norfolk)
Clegg, Sir Walter	Hunt, David (Wirral)
Cockeram, Eric	Hunt, John (Ravensbourne)
Colvin, Michael	Irving, Charles (Cheltenham)
Cope, John	Jenkin, Rt Hon Patrick
Cormack, Patrick	Jessel, Toby
Corrie, John	Johnson Smith, Geoffrey
Costain, Sir Albert	Jopling, Rt Hon Michael
Cranborne, Viscount	Kaberry, Sir Donald
Critchley, Julian	Kellett-Bowman, Mrs Elaine
Crouch, David	Kimball, Sir Marcus
Dean, Paul (North Somerset)	King, Rt Hon Tom
Dickens, Geoffrey	Kitson, Sir Timothy
Dorrell, Stephen	Knox, David
Dover, Denshore	Lamont, Norman
du Cann, Rt Hon Edward	Lang, Ian
Dunn, Robert (Dartford)	Latham, Michael
Durant, Tony	Lawrence Ivan
Dykes, Hugh	Lawson, Rt Hon Nigel
Eden, Rt Hon Sir John	Lee, John
Edwards, Rt Hon N.(P'broke)	LeMarchant, Spencer
Eggar, Tim	Lennox-Boyd, Hon Mark
Elliott, Sir William	Lewis, Kenneth (Rutland)
Emery, Peter	Lloyd, Ian (Havant & W'loo)
Eyre, Reginald	Lloyd, Peter (Fareham)
Fairbairn, Nicholas	Loveridge, John
Fairgrieve, Sir Russell	Luce, Richard
Faith, Mrs Sheila	Lyell, Nicholas
Farr, John	McCrindle, Robert
Fell, Anthony	Macfarlane, Neil
Fenner, Mrs Peggy	MacGregor, John
Finsberg, Geoffrey	MacKay, John (Argyll)
Fisher, Sir Nigel	Macmillan, Rt Hon M.
Fletcher, A.(Ed'nb'gh N)	McNair-Wilson, M.(N'bury)
Fletcher-Cooke, Sir Charles	McNair-Wilson, P.(New F'st)
Fookes, Miss Janet	Madel, David
Forman, Nigel	Major, John
Fowler, Rt Hon Norman	Marland, Paul
Fox, Marcus	Marshall, Michael (Arundel)
Fraser, Rt Hon Sir Hugh	Mates, Michael
Fraser, Peter (South Angus)	Maude, Rt Hon Sir Angus
Fry, Peter	Mawby, Ray
Gardiner, George (Reigate)	Mawhinney, Dr Brian
Gardner, Edward (S Fylde)	Maxwell-Hyslop, Robin
Garel-Jones, Tristan	Mayhew, Patrick
Gilmour, Rt Hon Sir Ian	Mellor, David
Glyn, Dr Alan	Meyer, Sir Anthony
Goodhart, Sir Philip	Miller, Hal (B'grove)
Goodhew, Victor	Mills, Iain (Meriden)
Goodlad, Alastair	Mills, Peter (West Devon)
Gorst, John	Miscampbell, Norman
Gow, Ian	Mitchell, David (Basingstoke)
Gower, Sir Raymond	Moate, Roger
Grant, Anthony (Harrow C)	Monro, Sir Hector

Montgomery, Fergus	Speed, Keith
Moore, John	Speller, Tony
Morgan, Geraint	Spence, John
Morris, M.(N'hampton S)	Spicer, Jim (West Dorset)
Morrison, Hon C.(Devizes)	Spicer, Michael (S Worcs)
Morrison, Hon P.(Chester)	Sproat, Iain
Mudd, David	Squire, Robin
Murphy, Christopher	Stainton, Keith
Myles, David	Stanbrook, Ivor
Neale, Gerrard	Stanley, John
Nelson, Anthony	Steen, Anthony
Neubert, Michael	Stevens, Martin
Newton, Tony	Stewart, Ian (Hitchin)
Normanton, Tom	Stewart, A.(E Renfrewshire)
Nott, Rt Hon John	Stokes John
Onslow, Cranley	Stradling Thomas, J.
Oppenheim, Rt Hon Mrs S.	Tapsell, Peter
Osborn John	Taylor, Teddy (S'end E)
Page, John (Harrow, West)	Tebbit, Rt Hon Norman
Page, Richard (SW Herts)	Temple-Morris, Peter
Parkinson, Rt Hon Cecil	Thatcher, Rt Hon Mrs M.
Parris, Matthew	Thomas, Rt Hon Peter
Patten, Christopher (Bath)	Thompson, Donald
Pattie, Geoffrey	Thorne, Neil (IlfordSouth)
Pawsey, James	Townend, John (Bridlington)
Percival, Sir Ian	Townsend, Cyril D,(B'heath)
Pink, R. Bonner	Trippier, David
Pollock, Alexander	Trotter, Neville
Porter, Barry	van Straubenzee, Sir W.
Prentice, Rt Hon Reg	Vaughan, Dr Gerard
Price, Sir David (Eastleigh)	Viggers, Peter
Prior, Rt Hon James	Waddington, David
Proctor, K. Harvey	Wakeham, John
Pym, Rt Hon Francis	Waldegrave, HonWilliam
Raison, Timothy	Walker, Rt Hon P.(W'cester)
Rathbone, Tim	Walker, B.(Perth)
Rees, Peter (Dover and Deal)	Walker-Smith, Rt Hon Sir D.
Rees-Davies, W. R.	Wall, Sir Patrick
Renton, Tim	Walters, Dennis
Rhodes James, Robert	Ward John
Rhys Williams, Sir Brandon	Warren, Kenneth
Ridley, Hon Nicholas	Watson John
Rifkind, Malcolm	Wells, John (Maidstone)
Roberts, M.(Cardiff NW)	Wells, Bowen
Roberts, Wyn (Conway)	Wheeler, John
Rost, Peter	Whitelaw, Rt Hon William
Royle, Sir Anthony	Whitney, Raymond
Sainsbury, Hon Timothy	Wickenden, Keith
St. John-Stevas, Rt Hon N.	Wiggin, Jerry
Scott, Nicholas	Wilkinson, John
Shaw, Giles (Pudsey)	Williams, D.(Montgomery)
Shaw, Michael (Scarborough)	Winterton, Nicholas
Shelton, William (Streatham)	Wolfson, Mark
Shepherd, Colin (Hereford)	Young, Sir George (Acton)
Shepherd, Richard	Younger, Rt Hon George
Shersby, Michael
Silvester, Fred	Tellers for the Noes:
Sims, Roger	Mr. Anthony Berry and
Skeet, T. H. H.	Mr. Carol Mather.

Question accordingly negatived.

Main Question put: —

The House divided: Ayes 301, Noes 251. (Take in Div. No.3)

Division No. 3]	[10.14 pm
AYES
Adley, Robert	Bell, Sir Ronald
Aitken, Jonathan	Bendall, Vivian
Alexander, Richard	Bennett, Sir Frederic (T'bay)
Alison, Rt Hon Michael	Benyon, Thomas (A'don)
Amery, Rt Hon Julian	Benyon, W.(Buckingham)
Ancram, Michael	Best, Keith
Arnold, Tom	Biggs-Davison, Sir John
Aspinwall, Jack	Blackburn, John
Baker, Kenneth (St.M'bone)	Blaker, Peter
Baker, Nicholas (N Dorset)	Body, Richard
Banks, Robert	Bonsor, Sir Nicholas
Beaumont-Dark, Anthony	Boscawen, Hon Robert

Bottomley, Peter (W'wich W)	Gow, Ian
Bowden, Andrew	Gower, Sir Raymond
Boyson, Dr Rhodes	Grant, Anthony (Harrow C)
Braine, Sir Bernard	Gray, Hamish
Bright, Graham	Griffiths, E.(B'ySt. Edm'ds)
Brinton, Tim	Griffiths, Peter Portsm'thN)
Brittan, Rt. Hon. Leon	Grist, Ian
Brooke, Hon Peter	Grylls, Michael
Brotherton, Michael	Gummer, John Selwyn
Brown, Michael (Brigg & Sc'n)	Hamilton, Hon A.
Browne, John (Winchester)	Hamilton, Michael (Salisbury)
Bruce-Gardyne, John	Hampson, Dr Keith
Bryan, Sir Paul	Hannam, John
Buchanan-Smith, Rt. Hon. A.	Haselhurst, Alan
Buck, Antony	Hastings, Stephen
Budgen, Nick	Hawksley, Warren
Bulmer, Esmond	Hayhoe, Barney
Burden, Sir Frederick	Heath, Rt Hon Edward
Butcher, John	Heddle, John
Butler, Hon Adam	Henderson, Barry
Cadbury, Jocelyn	Heseltine, Rt Hon Michael
Carlisle, Kenneth (Lincoln)	Hicks, Robert
Carlisle, Rt Hon M.(R'c'n)	Higgins, Rt Hon Terence L
Chalker, Mrs. Lynda	Hogg, Hon Douglas (Gr'th'm)
Channon, Rt. Hon. Paul	Holland, Philip (Carlton)
Chapman, Sydney	Hooson, Tom
Churchill, W.S.	Hordern, Peter
Clark, Hon A.(Plym'th, S'n)	Howe, Rt Hon Sir Geoffrey
Clark, Sir W.(Croydon S)	Howell, Rt Hon D.(G'ldf'd)
Clarke, Kenneth (Rushcliffe)	Howell, Ralph (N Norfolk)
Clegg, Sir Walter	Hunt, David (Wirral)
Cockeram, Eric	Hunt, John (Ravensbourne)
Colvin, Michael	Irving, Charles (Cheltenham)
Cope, John	Jenkin, Rt Hon Patrick
Cormack, Patrick	Jessel, Toby
Corrie, John	Johnson Smith, Geoffrey
Costain, Sir Albert	Jopling, Rt Hon Michael
Cranborne, Viscount	Kaberry, Sir Donald
Critchley, Julian	Kellett-Bowman, MrsElaine
Crouch, David	Kimball, Sir Marcus
Dean, Paul (North Somerset)	King, Rt Hon Tom
Dickens, Geoffrey	Kitson, Sir Timothy
Dorrell, Stephen	Knox, David
Dover, Denshore	Lamont, Norman
du Cann, Rt Hon Edward	Lang, Ian
Dunn, Robert (Dartford)	Latham, Michael
Durant, Tony	Lawrence, Ivan
Dykes, Hugh	Lawson, Rt Hon Nigel
Eden, Rt Hon Sir John	Lee, John
Edwards, Rt Hon N.(P'broke)	LeMarchant, Spencer
Eggar Tim	Lennox-Boyd, Hon Mark
Elliott, Sir William	Lewis, Kenneth (Rutland)
Emery, Peter	Lloyd, Ian (Havant & W'loo)
Eyre, Reginald	Lloyd, Peter (Fareham)
Fairbairn, Nicholas	Loveridge, John
Fairgrieve, Sir Russell	Luce, Richard
Faith, Mrs Sheila	Lyell, Nicholas
Farr, John	McCrindle, Robert
Fell, Anthony	Macfarlane, Neil
Fenner, Mrs Peggy	MacGregor, John
Finsberg, Geoffrey	MacKay, John (Argyll)
Fisher, Sir Nigel	Macmillan, Rt Hon M.
Fletcher, A.(Ed'nb'gh N)	McNair-Wilson, M.(N'bury)
Fletcher-Cooke, Sir Charles	McNair-Wilson, P.(New F'st)
Fookes, Miss Janet	Madel, David
Forman, Nigel	Major, John
Fowler, Rt Hon Norman	Marland, Paul
Fox, Marcus	Marshall, Michael (Arundel)
Fraser, Rt Hon Sir Hugh	Mates, Michael
Fraser, Peter (South Angus)	Maude, Rt Hon Sir Angus
Fry, Peter	Mawby, Ray
Gardiner, George (Reigate)	Mawhinney, Dr Brian
Gardner, Edward (S Fylde)	Maxwell-Hyslop, Robin
Garel-Jones, Tristan	Mayhew, Patrick
Gilmour, Rt Hon Sir Ian	Mellor, David
Glyn, Dr Alan	Meyer, Sir Anthony
Goodhart, Sir Philip	Miller, Hal (B'grove)
Goodhew, Victor	Mills, Iain (Meriden)
Goodlad, Alastair	Mills, Peter (West Devon)
Gorst, John	Miscampbell, Norman

Mitchell, David (Basingstoke)	Skeet, T. H. H.
Moate, Roger	Speed, Keith
Monro, Sir Hector	Speller, Tony
Montgomery, Fergus	Spence, John
Moore, John	Spicer, Jim (West Dorset)
Morgan, Geraint	Spicer, Michael (S Worcs)
Morris, M.(N'hampton S)	Sproat, Iain
Morrison, Hon C.(Devizes)	Squire, Robin
Morrison, Hon P.(Chester)	Stainton, Keith
Mudd, David	Stanbrook, Ivor
Murphy, Christopher	Stanley, John
Myles, David	Steen, Anthony
Needham, Richard	Stevens, Martin
Nelson, Anthony	Stewart, Ian (Hitchin)
Neubert, Michael	Stewart, A.(E Renfrewshire)
Newton, Tony	Stokes, John
Normanton, Tom	Stradling, Thomas, J.
Nott, Rt Hon John	Tapsell, Peter
Onslow, Cranley	Taylor, Teddy (S'end E)
Oppenheim, Rt Hon Mrs S.	Tebbit, Rt Hon Norman
Osborn, John	Temple-Morris, Peter
Page, John (Harrow, West)	Thatcher, Rt Hon Mrs M.
Page, Richard (SW Herts)	Thomas, Rt Hon Peter
Parker, John	Thompson, Donald
Parris, Matthew	Thorne, Neil (Ilford South)
Patten, Christopher (Bath)	Townend, John (Bridlington)
Pattie, Geoffrey	Townsend, Cyril D,(B'heath)
Pawsey, James	Trippier, David
Percival, Sir Ian	Trotter, Neville
Pink, R. Bonner	van Straubenzee, Sir W.
Pollock, Alexander	Vaughan, Dr Gerard
Porter, Barry	Viggers, Peter
Prentice, Rt Hon Reg	Waddington, David
Price, Sir David (Eastleigh)	Wakeham, John
Prior, Rt Hon James	Waldegrave, Hon William
Proctor, K. Harvey	Walker, Rt Hon P.(W'cester)
Pym, Rt Hon Francis	Walker, B.(Perth)
Raison, Timothy	Walker-Smith, Rt Hon Sir D.
Rathbone, Tim	Wall, Sir Patrick
Rees, Peter (Dover and Deal)	Walters, Dennis
Rees-Davies, W. R.	Ward, John
Renton, Tim	Warren, Kenneth
Rhodes James, Robert	Watson, John
Rhys Williams, Sir Brandon	Wells, John (Maidstone)
Ridley, Hon Nicholas	Wells, Bowen
Rifkind, Malcolm	Wheeler, John
Roberts, M.(Cardiff NW)	Whitelaw, Rt Hon William
Roberts, Wyn (Conway)	Whitney, Raymond
Rost, Peter	Wickenden, Keith
Royle, Sir Anthony	Wiggin, Jerry
Sainsbury, Hon Timothy	Wilkinson, John
St. John-Stevas, Rt Hon N.	Williams, D.(Montgomery)
Scott, Nicholas	Winterton, Nicholas
Shaw, Giles (Pudsey)	Wolfson, Mark
Shaw, Michael (Scarborough)	Young, Sir George (Acton)
Shelton, William (Streatham)	Younger, Rt Hon George
Shepherd, Colin (Hereford)
Shepherd, Richard	Tellers for the Ayes:
Shersby, Michael	Mr. Anthony Berry and
Silvester, Fred	Mr. Carol Mather.
Sims, Roger

NOES
Abse, Leo	Boothroyd, Miss Betty
Adams, Allen	Bottomley, Rt Hon A.(M'b'ro)
Allaun, Frank	Bradley, Tom
Alton, David	Bray, Dr Jeremy
Anderson, Donald	Brocklebank-Fowler, C.
Archer, Rt Hon Peter	Brown, Hugh D.(Provan)
Ashley, Rt Hon Jack	Brown, R. C.(N'castle W)
Ashton, Joe	Brown, Ronald W.(H'ckn'y S)
Atkinson, N.(H'grey,)	Buchan, Norman
Bagier, Gordon A.T.	Callaghan, Rt Hon J.
Barnett, Guy (Greenwich)	Callaghan, Jim (Midd't'n & P)
Barnett, Rt Hon Joel (H'wd)	Campbell, Ian
Beith, A.J.	Campbell-Savours, Dale
Benn, Rt Hon Tony	Canavan, Dennis
Bennett, Andrew (St'kp't N)	Cant, R. B.
Bidwell, Sydney	Carmichael, Neil
Booth, Rt Hon Albert	Carter-Jones, Lewis

Clark, Dr David (S Shields)	Hughes, Mark (Durham)
Cocks, Rt Hon M.(B'stol S)	Hughes, Robert (Aberdeen N)
Cohen, Stanley	Hughes, Roy (Newport)
Coleman, Donald	Janner, Hon Greville
Concannon, Rt Hon J. D.	Jay, Rt Hon Douglas
Conlan, Bernard	John, Brynmor
Cook, Robin F.	Johnson, James (Hull West)
Cowans, Harry	Johnson, Walter (Derby S)
Craigen, J. M.(G'gow, M'hill)	Jones, Rt Hon Alec (Rh'dda)
Crawshaw, Richard	Jones, Barry (East Flint)
Crowther, Stan	Kaufman, Rt Hon Gerald
Cryer, Bob	Kilfedder, James A.
Cunliffe, Lawrence	Kilroy-Silk, Robert
Cunningham, G.(Islington S)	Kinnock, Neil
Cunningham, Dr J.(W'h'n)	Lambie, David
Dalyell, Tam	Lamborn, Harry
Davidson, Arthur	Lamond, James
Davies, Rt Hon Denzil (L'lli)	Leadbitter, Ted
Davies, Ifor (Gower)	Leighton, Ronald
Davis, Clinton (Hackney C)	Lestor, Miss Joan
Davis, T.(B'ham, Stechf'd)	Lewis, Arthur (N'ham NW)
Deakins, Eric	Lewis, Hon (Carlisle)
Dean, Joseph (Leeds West)	Lofthouse, Geoffrey
Dempsey, James	Lyon, Alexander (York)
Dewar, Donald	McCartney, Hugh
Dixon, Donald	McDonald, Dr Oonagh
Dobson, Frank	McElhone, Frank
Dormand, Jack	McGuire, Michael (Ince)
Douglas, Dick	McKay, Allen (Penistone)
Douglas-Mann, Bruce	MacKenzie, Rt Hon Gregor
Dubs, Alfred	Maclennan, Robert
Duffy, A. E. P.	McMahon, Andrew
Dunnett, Jack	McNally, Thomas
Dunwoody, Hon Mrs G.	McNamara, Kevin
Eadie, Alex	McTaggart, Robert
Eastham, Ken	McWilliam, John
Edwards, R.(W'hampt'n S E)	Magee, Bryan
Ellis, R.(NE D'bysh're)	Marks, Kenneth
Ellis, Tom (Wrexham)	Marshall, D (G'gow S'ton)
English, Michael	Marshall, Dr Edmund (Goole)
Ennals, Rt Hon David	Marshall, Jim (Leicester S)
Evans, Ioan (Aberdare)	Martin, M (G'gowS'burn)
Evans, John (Newton)	Mason, Rt Hon Roy
Ewing, Harry	Maxton, John
Faulds, Andrew	Maynard, Miss Joan
Field, Frank	Meacher, Michael
Fitch, Alan	Mellish, Rt Hon Robert
Flannery, Martin	Mikardo, Ian
Fletcher, L. R.(Ilkeston)	Millan, Rt Hon Bruce
Fletcher, Ted (Darlington)	Mitchell, R. C.(Soton Itchen)
Foot, Rt Hon Michael	Molyneaux, James
Forrester, John	Morris, Rt Hon A.(W'shawe)
Foulkes, George	Morris, Rt Hon C. (O'shaw)
Fraser, J.(Lamb'th, N'w'd)	Morris, Rt Hon J.(Aberavon)
Freeson, Rt Hon Reginald	Moyle, Rt Hon Roland
Freud, Clement	Mulley, Rt Hon Frederick
Garrett, John (Norwich S)	Newens, Stanley
George, Bruce	Oakes, Rt Hon Gordon
Gilbert, Rt Hon Dr John	Ogden, Eric
Ginsburg, David	O'Halloran, Michael
Golding, John	O'Neill, Martin
Grant, George (Morpeth)	Orme, Rt Hon Stanley
Grant, John (Islington C)	Owen, Rt Hon Dr David
Grimond, Rt Hon J.	Palmer, Arthur
Hamilton, W. W.(C'tral Fife)	Park, George
Harrison, Rt Hon Walter	Parker, John
Hart, Rt Hon Dame Judith	Parry, Robert
Hattersley, Rt Hon Roy	Pendry, Tom
Haynes, Frank	Penhaligon, David
Healey, Rt Hon Denis	Pitt, William Henry
Heffer, Eric S.	Powell, Rt Hon J.E.(S Down)
Hogg, N.(E Dunb't'nshire)	Powell, Raymond (Ogmore)
HomeRobertson, John	Prescott, John
Homewood, William	Race, Reg
Hooley, Frank	Radice, Giles
Horam, John	Rees, Rt Hon M (Leeds S)
Howells, Geraint	Richardson, Jo
Hoyle, Douglas	Roberts, Albert (Normanton)
Huckfield, Les	Roberts, Ernest (Hackney N)
Hudson Davies, Gwilym E.	Roberts, Gwilym (Cannock)

Robertson, George	Thomas, Dafydd (Merioneth)
Robinson, G.(Coventry NW)	Thomas, Jeffrey (Abertillery)
Rodgers, Rt Hon William	Thomas, Mike (Newcastle E)
Rooker, J. W.	Thomas, Dr R.(Carmarthen)
Roper, John	Thorne, Stan (Preston South)
Ross, Ernest (Dundee West)	Tilley, John
Ross, Stephen (Isle of Wight)	Torney, Tom
Rowlands, Ted	Urwin, Rt Hon Tom
Ryman, John	Wainwright, E.(Dearne V)
Sandelson, Neville	Wainwright, R.(Colne V)
Sever, John	Watkins, David
Sheerman, Barry	Welsh, Michael
Sheldon, Rt Hon R.	White, J.(G'gow Pollok)
Shore, Rt Hon Peter	Whitlock, William
Short, Mrs Renée	Wigley, Dafydd
Silkin, Rt Hon J.(Deptford)	Willey, Rt Hon Frederick
Silverman, Julius	Williams, Rt Hon A.(S'sea W)
Skinner, Dennis	Wilson, Gordon (Dundee E)
Smith, Rt Hon J.(N Lanark)	Wilson, Rt Hon Sir H.(H'ton)
Snape, Peter	Wilson, William (C'try SE)
Soley, Clive	Winnick, David
Spearing, Nigel	Woodall, Alec
Spriggs, Leslie	Woolmer, Kenneth
Steel, Rt Hon David	Wrigglesworth, Ian
Stewart, Rt Hon D.(W Isles)	Wright, Sheila
Stoddart, David	Young, David (Bolton E)
Strang, Gavin
Straw, Jack	Tellers for the Noes:
Summerskill, Hon Dr Shirley	Mr. George Morton and
Taylor, Mrs Ann (Bolton W)	Mr. James Tinn.

Question accordingly agreed to.

Resolved, That an humble Address be presented to Her Majesty, as follows:— Most Gracious Sovereign, We, Your Majesty's most dutiful and loyal subjects, the Commons of the United Kingdom of Great Britain and Northern Ireland in Parliament assembled, beg leave to offer our humble thanks to Your Majesty for the Gracious Speech which Your Majesty has addressed to both Houses of Parliament.

To be presented by Privy Councillors or Members of Her Majesty's Household.