Economic Policy of the Government

HC Deb 28 January 1982 vol 16 cc1010-97 3.53 pm

Mr. Peter Shore (Stepney and Poplar)

I beg to move, That this House believes that the Government's deflationary economic policies are the prime cause of the massive decline in output and the massive rise in unemployment from which the United Kingdom has suffered since May 1979; and that it is only through a major and planned expansion of production and demand that the nation can be put back to work.

Mr. Speaker

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

Mr. Shore

I listened, like others, to the speeches made yesterday by the Secretary of State for Employment and his right hon. Friend the Secretary of State for Industry. I am sorry that they are not present for this debate. Given the depth of the economic crisis in which we are now so firmly fixed we on the Opposition Benches thought, as we considered the likely announcements of this week, that a further and wider debate was required. It was essential, we felt, that the Chancellor of the Exchequer, who shares with the Prime Minister the responsibility for the overall economic strategy of the Government, should be forced to give his explanation of the disaster that has overtaken us and that hon. Members should hear his remedies, if such exist, for the future.

At the heart of the debate is the fact of mass unemployment, the analysis of its causes and duration, and the role of the Government in dealing with it. I shall refer first to the magnitude of the present employment disaster. One in eight of our work people is now without a job. Like a contagious disease, unemployment has spread throughout the whole country, visiting every region, town and community throughout the land.

The worst affected area, Northern Ireland, has nearly one in five out of work. Even the most favoured area, London and the South-East, has a figure of one in 11 jobless. Most worrying of all is the exceptionally high concentration of unemployment among the youngest age groups of the working population. Of the 16 to 24-year-olds, no fewer than one million are out of work. Of those aged between 20 and 24, over 21 per cent. are out of work.

The political, social and psychological consequences of the appalling experience through which so many of our young adults are now living are incalculable. What has happened, as I have stated on previous occasions, cannot be described as a shake-out of labour—that is, the maintenance or improvement of output with a sharply reduced and much more productive labour force.

The Government claim that there has been an improvement in productivity in recent months. That is true compared with a year ago. However, that improvement is outweighed by the facts that I shall relate. Output per worker last summer—the latest figures relate to the second quarter—was 2frac12; per cent. lower than in May 1979. That is for the country as a whole.

Mrs. Elaine Kellett-Bowman (Lancaster)

rose—

Mr. Shore

That is true. The hon. Lady should hear the full story. The last thing that I want to do is to put facts before the House that cannot be agreed. In October—a slightly later figure than the second quarter—productivity per person in manufacturing industry, as distinct from the whole economy, for the first time reached the level that prevailed in May 1979, but manufacturing output in the same period has fallen by 17 per cent. Our gross domestic product is 7 per cent. less than it was in May 1979.

Most disturbing of all is the fact that our competitiveness in relation to overseas countries has declined by 35 per cent. since the right hon. and learned Gentleman took over the reins at the Treasury. When he and his colleagues go round the country, as they have done during the past week, exulting over the fact that in the last three months there has been an improvement in our unit labour costs that surpasses that of our overseas competitors, they completely ignore the massive decline in competitiveness that this country has sustained.

Mrs. Kellett-Bowman

rose—

Mr. Shore

I shall not give way.

After nearly three years of economic policies that, according to the Government, would change the whole course of British economic history for the better, the nation has been substantially impoverished, with record unemployment, a demoralised work force, enforced idleness and alienation among a large number of our young people, smouldering discontent in virtually every section of the nation and the most unpopular Government on record since polls began.

Do we stand, after all these setbacks, at a point where we can look forward with confidence to increased output and falling unemployment? No one believes in any such prospect—not even the Chancellor of the Exchequer, and certainly not the Secretary of State for Employment who, in innumerable interviews, as well as in his speech yesterday, has repeatedly been forced to accept that unemployment will get still worse.

The Government's forecasts of the economy for 1982 are that GDP will rise by 1 per cent. The forecasts show that there will be no increase in consumer expenditure, no increase in Government expenditure and no increase in manufacturing investment. There is hope of some increase in exports and some change in the rate of stock building. The Government still expect double figure inflation at the end of this year—1982. One has only to consider the forecast increase of 1 per cent. in GDP, of which up to one half of 1 per cent. will be due to North Sea oil production, to realise the implications for unemployment in Britain later this year.

Not the least disturbing of the figures in Tuesday's unemployment statistics was that the underlying rate of growth in unemployment is once again about 40, 000 a month. If productivity is rising at 2 per cent. or more, as the Government assert, by this time next year we shall have between 3¼ million and 3¾ million registered unemployed in Britain. I do not think that the House or the country can safely contemplate the continuation of our present misfortunes.

I turn now to the major question of analysis, the cause of this appalling collapse—and it has been an appalling collapse—in our economy. We contend—and we state it in our motion—that the deflationary economic policies pursued by the Government are the prime cause of both the massive decline in output and the massive rise in unemployment.

The Government have almost as many defences against this charge as they have economic Ministers. The first line of defence, is, of course, the one with which we are all too familiar: the selection of incomplete and misleading statistics designed to give the impression, if only for a moment, that, far from the economy declining, it is actually progressing and improving. I shall not deal with those matters today. They are the small change of the debate that has taken place on the Floor of the House. I can only believe that those figures are cobbled together basically to improve Conservative Party morale in the country and to assist the Prime Minister in her difficulties every Tuesday and Thursday.

The more serious defence—or at least one of the more serious defences—was that advanced by the Secretary of State for Employment in his speech yesterday. I apologise for referring to his remarks in his absence, but I had thought that, as this debate was so close to the one that we had yesterday, he would be here. According to the Secretary of State, the principal problem facing the Government is world recession—caused by the doubling of oil prices in the past two years. This faced the oil importing countries of the OECD with major balance of payments problems that they sought, wrongly, to resolve by deflating demand in their own countries. Consequently, taking the OECD area as a whole, unemployment rose from 16.2 million in 1979 to 24.3 million in 1981, and it is expeced to rise to 26 million during this year. In other words, unemployment rose by 50 per cent. between 1979 and 1981, and may well rise in the OECD area to 60 per cent. during the course of this year. The right hon. Gentleman's suggestion is that Britain's experience is no different from the rest of the OECD area and, therefore' we should not complain because unemployment has risen here, too.

Mr. Ian Lloyd (Havant and Waterloo)

The right hon. Gentleman mentioned the OECD. Would he care to comment on the fact that in the very interesting OECD report on the future, which was published before my right hon. Friend came to office, the whole of the present scenario is exactly as forecast? If so, why does the right hon. Gentleman attribute the blame to the Prime Minister?

Mr. Shore

I shall make that plain to the hon. Gentleman in the course of the next two or three minutes. I shall deal with precisely that point. He must have realised that I was preparing the ground to do just that.

As I pointed out, the whole of the OECD area has suffered since the second oil shock in the way that I have described. I was saying that the right hon. Gentleman's suggestion yesterday was that there is nothing to complain about in Britain because others have experienced the same thing. But we do complain, and we have every right to do so, first, because while the second oil shock of 1979–80 has been a major constraint on international trade and on international employment, the first oil shock of December 1973–74 was still more severe and damaging.

Oil prices did not double at the end of 1973 after the Yom Kippur was—they quadrupled. This massive event happened precisely eight weeks before the March 1974 general election returned a Labour Government. Not one word of acknowledgement of the difficulties that this event posed to the then Labour Government has ever crossed the lips of Conservative Members. They ignored it. They insisted that the difficulties were due entirely to the then Labour Government.

Without at the time having one drop of British oil, and in spite of having inherited a very large balance of payments deficit from the last year of the previous Conservative Government, the Labour Government managed to contain the increase in unemployment, although it rose to 1.3 million in 1979. The increase in unemployment after the first oil shock was broadly in line with the increase in unemployment that affected all the OECD countries in the same period from 1973 to 1979. For the record, unemployment in the OECD area in 1973 was 9 million and it was 16 million in 1979—an increase rather greater than that which followed the second oil shock to which I have referred.

There are two reasons why the right hon. Gentleman's and the Government's explanation simply will not do. First, while the increase in unemployment throughout the OECD area since the second oil shock in 1979 has been 50 per cent. as I have described, in the same period unemployment in Britain has increased not by 50 per cent. or 60 per cent. but by 130 per cent.—from 1.3 million to the appalling 3 million that we are discussing today and discussed yesterday.

So, whilst on average unemployment in other countries has increased, in this country, under this Government, unemployment has risen twice as fast as it has elsewhere. We now have the distinction of being, of all the major industrial countries, the one with by far the highest unemployment rate.

There is another reason why this excuse of the second oil shock will not work, and the House knows it. The great difference between Britain in 1974 grappling with the quadrupling of oil prices and Britain in 1979–80 grappling with the doubling of oil prices is that in 1974 there was no British oil at all, whereas in 1979.80 Britain—through the exertions of a Labour Government and industry in those interim years—had become totally oil self-sufficient, and indeed, was a substantial exporter during 1981. Of all the countries in the OECD area, Britain alone is oil self-sufficient.

Just as the first oil shock was a disaster for Britain with vast increases in costs, the second oil shock—coming at a time when Britain was oil self-sufficient—was a reinforcement—or it should have been—not a diminution of our economic strength. Yet this Government, by their unimaginable bungling and doctrinal absurdities, to which I shall shortly turn, have managed to turn this asset into a liability and to inflict upon the people of this country the greatest economic devastation they have known for more than 50 years.

Is there any other oil-producing and exporting country in the world which has not been enriched, first, by the quadrupling and, secondly, by the doubling of oil prices during the last eight years, except Britain under this present incompetent Government? Imagine what would have been done had this great benefit of North Sea oil been discovered in the territories of France, Germany or Holland, or, indeed, of any other country than one subjected to lunatic policies of economic management.

What other explanation is there? What other explanation can the Government offer for the plight of our nation? They say that it is due to massive wage and salary payments which have greatly increased the relative unit costs of British goods and services. Our costs have certainly increased. They increased in 1979 when the Government were formed. But far from arresting the increase, the Government, through their deliberate policies of pushing up prices and abandoning all price restraints, not to mention their doubling of value added tax, greatly increased wage and salary inflation not only in 1979 but in 1980, as well as during the greater part of 1981.

Under any other Government but this one the increase in our relative unit labour costs would have been accompanied by a compensating downward movement of the exchange rate to bring us into line with our competitors. Not only did that not happen but, by deliberate Government policy, interest rates were increased to levels never before reached in peacetime. Inevitably, as money was sucked in from abroad, the pound sterling rose to such a level compared with other currencies that British exports became hopelessly uncompetitive in terms of foreign currency while foreign imports into Britain became cheap in terms of sterling.

Instead of the pound sterling adjusting downwards to compensate for the increase in domestic costs, it was deliberately driven upwards so that we became even more disastrously uncompetitive than we would otherwise have been. That is the explanation. Although no Conservative Member has denied it, we are 35 per cent. less competitive today than we were two and a half years ago.

Mr. Terence Higgins (Worthing)

Does the right hon. Member agree that wage increases have had something to do with that loss of competitiveness?

Mr. Shore

Yes, and I have admitted it. I am sorry that the right hon. Member for Worthing (Mr. Higgins) did not take the point that I was making. For the first time, not only has the exchange rate in a floating exchange rate world failed to take account of the relative increase in Britain's costs, but Government policy has pushed the exchange rate up further to compound and make worse the loss of competitiveness from which we have suffered.

We come to the real folly—the heart of the matter. Why did the Government operate high interest rates, pushing up the minimum lending rate from 12 per cent. in May 1979 to 17 per cent. in 1980? Why did they maintain interest rates at such a level the the pound actually reached nearly $2.40 a year ago? Why are the Government even now reluctant to operate in any way to bring down the exchange rate, although we have lost in terms of competitiveness as I have already stressed? We know the answer.

Sir William Clark (Croydon, South)

Will the right hon. Gentleman give way?

Mr. Shore

I shall not give way at the moment. Let me give my explanation. There is no point in interrupting an argument. It should be heard. Then the hon. Member can reject it if he wants to do so. We know the answer. It has been set out in a hundred speeches by the Prime Minister and her colleagues and it has been embodied in two Red Books—the Financial Statements for 1980–81 and for 1981–82 for all who care to study them.

According to the Government, the root of all evil is inflation and it can be dealt with only by controlling the money supply, and, further, the control of the money supply as defined—is it still defined thus?—in terms of sterling M3 can best be achieved by establishing a target rate and then adjusting the price of money by putting up interest rates to discourage any excess borrowing beyond the laid down limits.

From 1979 onwards, the British economy has been confined within the framework of money supply targets; 7 to 11 per cent., in 1980–81, 6 to 10 per cent. in 1981–82, 5 to 9 per cent. in 1982–83 and 4 to 8 per cent. in 1983–84. Together with this marvellous instrument of control over inflation the Government have pursued their other target of a steady reduction in public expenditure and an accompanying reduction, as they hoped, in the size of the public sector borrowing requirement.

Like the money supply, the PSBR was programmed to fall progressively from 4.75 per cent. of GDP in 1979–80 to 3.75 per cent. in 1981 and down to 1.5 per cent. in 1983–84. The damage that has been done to our country, to its industry and to its people by the pursuit, however unsuccessful, of these two ludicrous monetarist targets is the principal explanation for the appalling collapse of the British economy. The money supply targets, while never achieved, have nevertheless led to sustained high interest rates, which have affected the competitiveness and costs of all British firms which need to borrow from the banks, and at the same time have held up far beyond its proper competitive level the value of the pound.

The pursuit of public expenditure economies in a period of recession has led to the butchering of real community programmes and at the same time to a massive increase in the least productive, though inescapably necessary of all forms of Government expenditure: the maintenance of millions of men and women in enforced idleness.

Unemployment pay, supplementary benefits, the loss of tax revenue, the loss of national insurance contributions and the loss of contributions through taxation of goods purchased are now costing the Government, according to the latest report of the Manpower Services Commission, no less than £12, 500 million per year.

When I spoke to the House in the debate before Christmas, I focused my remarks principally upon the fallacious doctrine of the money supply. In particular, I drew attention to the confession of one of Britain's leading monetarists, Dr. Budd, who, with the wisdom of hindsight—that is, after unemployment had risen by well over 1.25 million and after about 15 per cent. of industry had been wiped out—realised that the Government was making life unnecessarily difficult for itself, the economy and the company sector by pursuing, albeit slightly halfheartedly, a target for the money supply which was misleading. I do not intend to go over that ground further today.

I want to turn to that other pillar of Government economic policy—the public sector borrowing requirement. Although, as with the money supply, the Government have been unable to achieve the target reductions in borrowing and in public expenditure which they had set, nevertheless the persistent assault on public expenditure and the increasing costs of the recession, which public expenditure cuts only help to intensify, have led the Government into a continuing and downward spiral in that important sector of the national economy that they directly finance.

As with the money supply, so with the public sector borrowing requirement, we enter a strange world of monetarist dogma.

Why should the Government be worried and indeed obsessed by the size of their borrowing requirement? The rational reply is that any Government should be concerned about their borrowing requirement if they are competing with other sectors of the economy for scarce human, technical and capital resources. If we were near or at the full employment level, as we were from 1945, with one or two exceptional years, to 1973, it would obviously be foolish for a Government to engage in large-scale borrowing rather than taxation to finance their own expenditure. In fact, Governments did not borrow throughout those 30 years of full employment in any way that even attracted attention.

It has only been in the past eight years—that is, precisely in the years since the first oil shock produced in Britain, as it did in the rest of the industrialised world, substantial unemployment—that Governments have been driven to stimulate their economies, because they felt they had no choice, through deliberate counter-recession policy by increasing or maintaining public expenditure without covering the totality of their requirements from current taxation. No one in his senses can say that resources in Britain are under pressure, that there is a shortage of people, a shortage of plant or a shortage of capital. On the contrary, as we all know, there is not the slightest danger of physical crowding out.

What are the Government worried about? They maintain that there is a danger of financial crowding out. By this they appear to mean that if the Government seek to borrow substantial sums of money to stimulate the economy they will drive up interest rates because they will be borrowing in competition with private industry and commerce.

There is no evidence whatsoever that this has happened or, indeed, needs to happen. Indeed, it is inherently implausible, since the need for Government borrowing to finance expenditure during a recession arises only when private industry is itself, for the very same reason of recession, making only light use of the capital market. It may be driven, exceptionally, to the banks to ward off bankruptcy, but that is a different matter.

Of course, it is not only the domestic competition for money that has to be watched. Large sums of money are moving around the international community, and their attraction is inevitably to those currencies and countries where interest rates are high and, or exchange rates are likely to appreciate.

If one wanted enormously to complicate the task of borrowing, one would do exactly what the Chancellor of the Exchequer did in the summer of 1979—abolish all exchange controls and make it possible for the great mass of British resident capital to flow freely to any country to finance whatever project the controllers of British resident capital believed would bring them the greatest returns. Has that not happened? But that is a wholly self-inflicted wound.

No serious evidence of financial crowding out has been offered since 1973, when substantial Government borrowing became a feature of the economic scene. The right hon. and learned Gentleman, who solemnly assured us in 1980–81 that ruin would follow if we exceeded a borrowing requirement of £8 billion—we all remember it—ended the year, owing to his miscalculation, with a public sector borrowing requirement of £13 billion, and he financed it at levels far below the level of his own MLR.

What makes the whole argument absurd is that we in Britain define our public sector borrowing requirement in a special, uniquely British way. In all international statistics, general Government borrowing is recorded and excludes—except in the United Kingdom—the borrowing of publicly owned industries. In both the OECD and the EEC figures which are collated for either quarterly or six-monthly purposes, the British borrowing requirement is put on the same basis as other European and Western countries.

The House may be interested to know that the United Kingdom is not at all exceptional. Its general Government borrowing as a percentage of GDP during the past four years—1978, we were there; 1979, in which we had half; and 1980–81—fell substantially below that of Japan. It was higher than in Germany in the first three years but lower in 1981. It was about one-half to one-third of the deficit run by Italy. In 1981 and prospectively in 1982 it will fall behind that of France.

Much rubbish is talked about the terrible burdens of borrowing and the appalling size of the national debt. The House will know that the total public sector debt—the national debt—as a percentage of the gross domestic product has fallen steadily since the war.

Further, and highly relevant to the past decade when substantial Government borrowing has taken place for the first time since the war as a counter-recession instrument, the public sector debt as a proportion of the GDP has not increased but has continued to fall. In 1970 it stood at 104 per cent. of our GDP, in 1979 it was down to 71.4 per cent., and in the estimates that I have seen for 1981 it will have fallen to 63.6 per cent. So there is no danger of our national debt coming out of line with the growth of national wealth as measured in terms of GDP.

To insist therefore that the public sector borrowing requirement should, irrespective of the depth of the recession and of the massive resources of machinery, money and people standing idle, be reduced year by year until the perfect bliss of a balanced budget is reached is more than mischievous nonsense. It is a deliberate attempt to bring about unemployment and to deepen the recession.

I spent time on the public sector borrowing requirement for one reason only. It is, with the money supply target, the principal weapon of deflation that the Government have deliberately used on the nation. Such doctrines must be exposed and defeated if we are to turn our minds and energies to the real problems that face our people. Heaven knows, the real problems and constraints are large enough without the self-imposed constraints that arise from the exploded dogmas of monetarism.

The real constraints and restraints are, as they have been for years past, long before the present vocabulary of economic discussion was invented, how to achieve in this island of ours a satisfactory balance of payments, consistent with a high level of employment, how to achieve a satisfactory growth rate in a world of fast changing industry and technology and how to contain it with an endemic tendency in our institutional structure towards inflation. How are we to keep inflation in order and bring it down to single figures, which we may at least find tolerable? Those problems, enormously exacerbated as they have been in the past three years of misrule, will need a major effort by the Government, industry, the trade unions, and, indeed, the whole community. If we are, as our motion puts it, to put the nation back to work, we shall have to make the expansion of our economy and the creation of jobs the overriding priority.

Mr. John Browne (Winchester)

I agree with the right hon. Gentleman's last statement. The question is: how? Will gaining customers cause a healthy expansion of the economy, or should it be by Government deficit financing to buy and supply synthetic and therefore highly inflationary and in the long term costly, jobs?

Mr. Shore

As the hon. Gentleman well understands, if he could just get away from the fever of recent debates, it is both. We must have a strong and sufficient demand to make use of our capacity, machinery, plant, factories and work people. We must have that. We must be competitive too. Costs matter enormously. Anyone who says that all that he is interested in is demand and not costs is deceiving the House and the country. We should be concerned with both. If we are to put our nation back to work, we must give that matter top priority.

The Budget on 9 March gives the Chancellor and the Prime Minister the opportunity, if they have the wish and the will to seize it, to begin to escape from the intellectual straitjacket in which their blind pursuit of dogma has so far held them.

I say this now, and I say it particularly to the so-called wets—both those who remain inside the Cabinet and those who have been expelled from it—as well as their spiritual allies, the Social Democrats and the Liberals.

Mr. Arthur Lewis (Newham, North-West)

rose—

Mr. Shore

My hon. Friend draws attention to a problem—the scarcity of SDP Members. Again. I apologise to the House. I try to be courteous and punctilious in these matters, but I had assumed that the right hon. Member for Crosby (Mrs. Williams), who spoke for the party—whatever it is—would feel it right to take part in this debate on the economy in which she participated yesterday. I am bound to make remarks about her propositions in her absence which I should much prefer to do if she were here.

It is no good imagining that a small, uncontroversial and oh so moderate reflationary package will meet the great crisis that has developed. The decisions already taken by the Government for 1982–83—the public expenditure proposals presented last December, together with the increase in national insurance contributions—are, on any realistic calculation, deflationary. The level of activity in the economy in so far as it is influenced by public expenditure and social service taxation will be lower in 1982–83 than it has been in 1981–82. I hope that the Leader of the House has taken that fact in. It is important.

The Government told the House that they were increasing public expenditure this coming financial year by about £5 billion over what they had originally planned when they presented the Budget last March. But that is no comfort to anyone, since it was their intention at the time of the previous Budget to carry out a further and substantial deflation of public expenditure. The concession of £5 billion is entirely in money terms.

Mr. John Browne

rose—

Mr. Shore

It means that, at best, the level of public expenditure will be the same in 1982–83 as it was in 1981–82. I say at best, because the inflation assumptions on which the calculations were made were clearly false. They rely on a Government target rate of inflation well below the prospective rate of inflation revealed to the House in the Government's short-term economic forecast published at the same time as the public expenditure White Paper. Further, since then the unrealistic 4 per cent. per annum increase in public sector pay, which was a central part of the Government's calculations about public expenditure, has been thrust aside by the local government manual workers and many other public sector workers.

In addition, because of the deepening effects of recession, the subsidies that have to be paid to maintain essential and underused community services, together with the direct and indirect costs of higher than expected unemployment, add to the expenditure total needed simply to achieve no change in public expenditure in real terms in 1982–83 over 1981–82. I calculate—I shall be interested to know whether anyone on the Government Benches challenges this—that about a £6 billion increase in spending power is needed, over and above a neutral Budget, for 1982–83 to be no more and no less deflationary than was 1981.82.

The figures that we heard yesterday lacked all plausibility and conviction—I fear not for the first time. I do not believe that the figures and calculations are fully understood. Not for the first time the Cabinet wets are being taken for a ride by the Treasury. The same applies to the oh so moderate wets outside the Cabinet in all parts of the House.

The right hon. Member for Crosby—[HON. MEMBERS: "The right hon. Lady is hiding."] That glimpse of a well-known face is welcome. I repeat for the benefit of the right hon. Lady and her hon. Friends that an increase in public expenditure of £6 billion, which I understand is her proposal, and an increase in the PSBR of £3 billion, will not go far towards her aim of reducing unemployment.

A substantial injection of purchasing power is needed in 1982–83 over and above what has been available in 1981–82.

Mr. Browne

rose—

Mr. Shore

If we were talking only of a PSBR of the size of the outturn that the Chancellor achieved in 1980–81 —6 per cent. of GDP—and if we sought just to repeat that in 1982–83, due to inflation we should be talking about a figure of about £16½ billion.

Mr. Browne

rose—

Mr. Shore

A PSBR of that size would still be a PSBR as conventionally defined in the United Kingdom, including the investment expenditure of all publicly owned industries.

Mr. Browne

I am grateful to the right hon. Gentleman for his patience. From June 1979 to November 1981 the GDP fell by 8 per cent. Meanwhile, money supply measured on an M3 basis rose by 40 per cent. The reflation has been going on all the time. The inflation rate is measured now at between 11 and 12 per cent. If the right hon. Gentleman were to add his £6 billion, what inflation rate would he expect to see?

Mr. Shore

That is precisely the difficulty of communicating in the House today. Strange doctrines have gripped and obsessed so many minds. I believe that the House rationally undertstands, and would want to talk about, the fact that the real economy has declined by 8 per cent. That matter should concern every hon. Member. We should primarily target our thoughts to how to change that. The hon. Gentleman then says that it is a bit of a problem, as we have had an increase in money supply of 40 per cent. His assumption is that there is a crucial and exact connection between the money supply and the rate of inflation or the fall in GDP. At the best the connections are indirect. They are precarious. They exist vividly in the mind of and are expressed eloquently only by one person in the House, the right hon. Member for Down, South (Mr. Powell), who I am glad is remaining in his seat.

Mr. J. Enoch Powell (Down, South)

That is bad luck. I had been holding back with almost as great patience as the right hon. Gentleman.

The right hon. Gentleman calls for an injection of £6 billion more of demand—he will correct me if I am mistaken. He will not inject it by raising it in taxation. Presumably he will not raise it by borrowing it from elsewhere in the economy. Will he be clear with the House what the mechanism is for injecting the £6 billion of extra demand?

Mr. Shore

I must once again resist the right hon. Gentleman's invitation to commit myself to a specific total of what I believe— [Interruption.] No amount of jeering will make me do so. It is too silly for words.

I was taking that as an illustrative figure. That is the point. Of course I would borrow it. I have said that again and again. In a recession it makes sense to borrow. If hon. Members do not understand that fact, I am afraid that they have not lived through— [Interruption.] I repeat, borrow.

The argument then arises about the impact of particular borrowing rates on interest rates. We have been around that course already. I do not intend to return to the argument on this occasion, although I will on others.

I want to say something specific about what I believe the Labour Party would do on its return to power. The first and obvious thing is a major increase in public expenditure. It so happens that it is among the nationalised industries that some of the most important and exciting technical developments are taking place in the British economy. I refer to telecommunications, broadcasting, oil, gas, coal, public transport, aerospace and the airways. Clearly a large element of our economic development will come from these industries.

The Secretary of State for Industry (Mr. Patrick Jenkin)

Is the right hon. Gentleman aware that the Government, in every year that they have been in office, have consistently invested more in telecommunications than was invested in any year by the Labour Government of which he was a member?

Mr. Shore

The right hon. Gentleman should know that he is talking about one of the most powerful growth industries in the world. To say that it has been growing in the past four years is to say no more than that it has been growing every year for the past 20. It is the pace of growth that matters, not that British Telecom is just managing to grow despite the absurd EFLs and other restraints, and the denial by the right hon. Gentleman's predecessor of the £500 million bond with which it wanted to expand its capacity only last year.

Sir William Clark

rose—

Mr. Shore

I shall not give way, because I have some regard for the House and I must continue.

Because of past investment and their own enterprise, productivity in the publicly owned sector has grown at a faster rate in the past two decades than it has in the private sector. We want it to be able to continue. Given the right encouragement, British Telecommunications could today be changing the face of the community, not only by modernising existing exchange equipment, but through its first and primary task of putting telephones in every house in the land. Today 65 per cent. of the nation have telephones in their homes. In the future, the telephone will become just as much a part of the basic equipment of every household in Britain as is the supply of gas and electricity or, for that matter, the television set.

Mr. Patrick Jenkin

rose—

Mr. Shore

That will transform the lives of millions of people.

Sir William Clark

rose—

Mr. Speaker

Order. It is clear that the right hon. Gentleman will not give way. I remind the House that those who want to speak will be sorry later, because there is a long list of Privy Councillors and other Members who wish to speak.

Mr. Shore

I am not even saying anything controversial. I am simply outlining the important point that here is a major sector of growth in the British economy which could and should go ahead in the interests of expansion and of reducing unemployment.

Sir William Clark

rose—

Mr. Shore

Then there are our energy industries. There is the continued development of our coal industry—a major resource for this country—and the important potential developments in combined heat and power systems and coal gasification. As for the gas industry, if the Government could, if only for one moment, have taken their minds off the prospect of private plunder at the expense of this great, nationally owned resource, they would have actively backed and started upon the gas-gathering pipeline in the North Sea.

The failure to carry through that project is an appalling example of the waste of our precious energy resource. It is, moreover, a major political error, as the previous Lord Privy Seal might recognise. If the North Sea gas-gathering pipeline had gone ahead last year, as it would have done but for the animosity of the Secretary of State for Energy and his colleagues, a great alternative supply of gas, combining Norwegian and British reserves in the North Sea, would have been available not only for our own use but as a reserve and as considerable assistance to our neighbours in Western Europe. It would be better for France and Germany to know that there was an alternative supply of gas available from the North Sea rather than from the Soviet Union.

There is also the question of public transport, which is in need of a major advance. In Britain there is an urgent need for the updating and development of our urban transport systems. I am talking not about fares, but about the rolling stock and the layout and equipment of our stations, both the suburban lines and the tubes that serve London and other cities.

It is not only in the nationalised industries that opportunities for nationally advantageous investment exist. There are other parts of our infrastructure that cry out for investment. The arguments are well rehearsed and I need not repeat them. Clearly there is no lack of worthwhile projects for an increase of public investment to give a real and genuine return.

Nor is there a lack of prospects of uses for increased public current expenditure. Public expenditure increases will not be enough and our major concern must be to restore the competitiveness of British industry in relation to its overseas rivals—a competitiveness which, in spite of all the boasting of the Government, has suffered dreadfully and will continue to suffer unless there is a change of policy.

We must have a major attack on the unnecessarily high costs of British industry. In every substantial debate that the House has had I have urged a reduction in the national insurance surcharge. I did it three times last year and I do it again now. I have also urged—and I repeat it—the need for an energy pricing policy that will make certain that we are at least as competitive in fuel prices as other countries, particularly in those industries that are heavy fuel consumers.

The most important single thing that we can do to restore our competitiveness is to allow the exchange rate of the pound to reflect the real competitive strength of British industry. The pound is too high. It has to come down to a level where British manufacturers can fight their Continental and other rivals on equal terms. I fully understand the danger of inflation which will then be created. It is a challenge that we must meet and overcome with the aid of a tax policy, a price policy, and a national understanding, to which reference has been made, with the trade unions. All those are measures which any serious Government would wish to consider urgently and to take action upon this coming year with the prospect of their having an immediate and growing effect.

We need, as we do, to think beyond this year. We have to think about the lifetime of the next Parliament. It is this that brings into focus measures to improve the underlying performance of British industry, genuine measures to improve the supply side of the economy. The Government and monetarists have entirely misappropriated the words "the supply side" of the economy. To them it simply means a competition, a tax relief regime under which the forces of private enterprise are, as the present Secretary of State for Education and Science would have put it, galvanised into new and effective productive efforts by the prospect of profit and the spur of competition. This is a myth of the market, which has been exploded again and again.

We need to enter into a serious dialogue with the major corporations, which play so large a part in our total manufacturing output and export. Only two days ago I read an article in the Financial Times on the corporate policy of the British Oxygen Company. It had just paid out the second tranche of a £250 million sum to acquire the American company Airco, which is one of the United States leading producers of industrial gas. A few days before that BOC had announced that a new plant to manufacture graphite electrodes would be sited not in Consett, county Durham, as the group's unions and many others had previously thought, but in South Carolina.

It would be wrong, without full knowledge and detailed consideration, to judge the wisdom of any investment decision. However, I assert that such decisions affecting the location of British-owned firms, not merely in different parts of Britain, but world-wide, are a matter not just of company interest but of national interest. We must know and we must share in the planning of strategic company decisions.

We must restore the control over capital movements that the Government, in so lighthearted a moment, threw away just two years ago. We cannot accept that the great financial institutions, the insurance companies and the pension funds, which increasingly control the collective savings of people at work throughout Britain, can transfer the savings of British employees outside the country and invest them in the industries or products of our rivals overseas. We shall bring back exchange controls and seek to operate them in broadly the same sensible way in which they were operated from 1939 to 1979.

There is no easy way ahead. On that one point we can agree. However, in the past three years we have suffered such a major setback to our prospects that only the most radical and determined national effort will serve to retrieve our fortunes. We are prepared to undertake that effort. This is not a time for touching the tiller and making swerves in economic management or for moderate adjustments to the PSBR. It is a time for decisive and bold economic decisions and for the nation to give its overriding priority to its greatest problem, which is mass unemployment and the continuing decline and collapse of British industry. Those are the policies and the aims that we are pledged to pursue.

4.52 pm

The Chancellor of the Exchequer (Sir Geoffrey Howe)

I beg to move, to leave out from "House" to end of the Question and to add instead thereof: this House endorses Government policies to reduce inflation and improve output and competitiveness, and so create better prospects for employment, on a lasting and sustainable basis.". There are two reasons for welcoming the debate. The first is that it gives my right hon. Friends and myself the opportunity to listen to the suggestions made on both sides of the House, which will have to be taken into account in shaping my Budget later this year. I intend to say something about the position that we have now reached our aims for the future, and the limits on our freedom of manoeuvre in shaping that Budget. I look forward to hearing what other hon. Members have to say.

The debate also gives me the opportunity, which I take with enthusiasm, to lay to rest one or two of the many astonishing allegations with which the right hon. Member for Stepney and Poplar (Mr. Shore) inflated his indignation somewhat beyond the capacity of his argument to sustain it.

Yesterday we debated the harrowing toll of unemployment. I make no complaint that at the outset of his speech the right hon. Gentleman focused our concentration on those grim statistics because they represent real hardship and despair for many of our fellow citizens. However, I complain about the right hon. Gentleman's repeated habit of dealing with the matter by heaping crude abuse on the Government and repeating that the Government's policies have been designed deliberately or wilfully to bring about the unemployment figures. Such allegations do nothing but harm to his reputation and to the reputation of the House, and fall far short of what the people are entitled to expect.

It is astonishing to contemplate the conflict between the right hon. Gentleman's blithe and reckless disregard of any form of financial discipline and the attitude of those who in the last Government of which he was a member, unlike him, were directly responsible for the management of the economy. As on every other occasion, he came before us today talking about monetary policy and the control of public expenditure, as if those things were strange doctrines with which he need have nothing to do.

However, I must tell the right hon. Gentleman that the right hon. Member for Leeds, East (Mr. Healey), the deputy leader of the Labour Party took pride throughout his time in Government in asserting that since the war no Government had given such priority as he had to the performance of monetary aggregates.

The right hon. Member for Stepney and Poplar suggested that the concept of money supply targets arrived on the scene for the first time in 1979. As he well knows, however, it arrived at the behest of the International Monetary Fund in 1976. It was only when those targets were put in place and the Government were obliged to take control of their economic policies that the economy made a faltering start in the direction of recovery.

The charge that the right hon. Gentleman sought to support by such reckless arguments is that the loss of competitiveness, hence output and jobs, in recent years has sprung only from the rise in the exchange rate and the Government's emphasis on monetary policy. That charge commands little credibility. People who think about those things realise—because it is plain to them from their experience—that unemployment, a tragic symptom is the consequence of long-term and deep-seated economic problems that have beset the country for a long time. There is no foundation to the charge advanced by the right hon. Gentleman.

It is plain that British industry has been suffering from the consequences of a serious loss of competitiveness. It is plain that that is a significant cause of the job losses that we have seen. It is plain that part of those causes lies in the rise of the sterling exchange rate, but there are factors which have caused that, which the right hon. Gentleman must try to understand.

By no means all the appreciation in the value of the £ sterling occurred under this Government. Once the Labour Party adopted the right policies under the direction of the International Monetary Fund, sterling started its long climb from the low point of $1.55½ that it reached under the previous Government's policies.

The right hon. Gentleman did his best to explain away the impact of the 1979 oil price shock. There are several ways in which that affected the economy of this country. The 1973–74 oil price change was an increase from $2.70 per barrel to $10.70 per barrel. The right hon. Gentleman was right to say that that was a four-fold increase. It is an increase of $8. However, the 1979 increase was from $13 to $31 per barrel—a factor of two and a half. It was an increase of $18, and two and a half times as many dollars as the previous shock. Coming when the world economy had scarcely recovered from the first shock, that second massive blow struck economies around the world that were already weakened and had not recovered.

There were two effects. First, there was a massive impact on inflation around the world and on demand for the products of this and every other manufacturing country. Secondly, by that time we had become more self-sufficient in North Sea oil. The impact on this country of the 1979 oil price shock was bound to exert massive upward pressure on sterling, which it was beyond the power of any Government to resist.

The right hon. Gentleman seeks to complain that we abolished exchange controls, yet the abolition of exchange controls was one of the key measures taken to challenge that rise in the sterling exchange rate. The right hon. Gentleman threatens to reintroduce controls over all sorts of direct investment in this country and over the direction of investment by companies based in this counry. If that is the policy to which his party is committed, it is calculated to repel rather than to attract investment.

Mr. Frank Hooley (Sheffield, Heeley)

If the value of North Sea oil had this impact on the value of sterling—which is fair—why did the Chancellor of the Exchequer find it necessary to make a huge increase in interest rates?

Sir Geoffrey Howe

Because it would have been foolish to allow the supply of money to get out of control, and it was a perfectly necessary part of economic control. In fact, the real price of oil has fallen to some extent since the third quarter of last year. Some of the pressure has ebbed away, and sterling is now back, in effective terms, close to the level at which it stood when the Government came to office.

Mr. Shore

The Chancellor of the Exchequer has conceded the point and accepted the charges that we made against him. He is saying that Britain became massively uncompetitive because, as he admitted, the value of the pound rose. His excuse was that he could do nothing about it. When it was properly pointed out that by raising interest rates he made the position worse, he said that he had done so because he wanted to keep his money supply target. The Chancellor of the Exchequer must think more deeply about what he says and does.

Sir Geoffrey Howe

The right hon. Gentleman must understand that it was necessary to have interest rates at that level to raise the money that was being borrowed by the Government at that time. Those were all components of the equation. That step was an additional reason, not for the prescription that he recommends, which is to go on expanding borrowing on a larger scale, but, on the contrary, to reduce that borrowing. Today, the right hon. Gentleman offers by way of answer to that situation a policy, even from today's levels, of deliberate depreciation of the currency. He should know from his experience that, while that might bring some short-term benefits to the competitive position of industry, it carries with it an immediate and substantial inflationary risk and, more than that, serious medium-term and longer-term disadvantages.

All too often in the past, the decline in the value of the currency has served only to mask the underlying problems, rather than to remedy them. If we are to be honest, the real cause of the loss of competitiveness that has taken place was the huge growth in labour costs, culminating in the peak explosion of labour costs, over which the right hon. Gentleman and his right hon. Friends presided, and the massive pay explosion that they left behind them.

The right hon. Gentleman comes to the House today and says that one of the central pieces of his party's policy would be the search for a national understanding which would enable him to deal with those problems. There is nothing wrong with the pursuit of national understanding, but the right hon. Gentleman was notably unsuccessful in achieving it himself. It was he, as Secretary of State for the Environment, who presided in that capacity over many of the troubles that contributed to the winter of discontent. It was he, in that capacity, who authorised the establishment of the Clegg commission, which ticked away like a huge explosive time bomb as the Government came to office. He left a huge blank cheque behind him. The Government honoured that blank cheque that the right hon. Gentleman left behind.

The explosion was only the culmination of a decline in the value of the currency throughout the period of the previous Government. Between 1974 and 1980, the money value of domestic output grew by 160 per cent., but the real volume of output grew by only 7 per cent. That is the reason why, over the same period, the labour cost of every unit of output more than doubled.

At the same time, our international competitors were not so foolish. While our unit labour costs were being doubled, in America they rose by only one third, and in West Germany by only one sixth. In Japan they did not rise at all. Britain experienced, as a consequence, low growth and high unemployment. West Germany has had high growth and low unemployment, although that is now changing. The Japanese outstripped us all.

Despite the temptation to follow the extravagance of the right hon. Member for Stepney and Poplar, I shall not argue that this ruinous loss of British selling power—this self-inflicted destruction of British jobs—was all the fault of the Government of the day. If we as Members of Parliament are to be effective representatives of our people, we must acccept that this was to a large extent the culmination of a process which has been gathering momentum for many years. Sadly, for far too long, that process was concealed while world prosperity, and with it our living standards, continued to rise. However, all the time the long decline was gathering pace.

Our share of world trade in manufactures fell by more than a third. Between 1973 and 1979, growth in our manufacturing produtivity fell to about 1 per cent. a year. Manufacturing costs were rising and competitiveness was falling. Unemployment had been rising through all those years to ever higher levels. Overmanning had for far too long concealed the true scale of unemployment, until it was exposed by the oil shock of 1979.

It has fallen to this Government to undertake the task of trying to reverse that long process. We have not been content to address ourselves only to the symptoms; we have been determined to treat the disease itself. Our principal task has been to halt and reverse the rise of inflation. We recognise, as do all responsible Governments, that it is only when inflation and inflationary expectations have been curbed, that we can hope to create on a sustainable basis the conditions for economic growth and for fuller and secure employment.

Mr. Geoffrey Robinson (Coventry; North-West)

I want to take up the question of the performance of the British economy in this crisis, compared with the crisis that faced the Labour Government. The right hon. and learned Gentleman has not been honest with the House or explained how the Labour Government more or less held their own in the previous crisis in terms of manufacturing output and employment. Under the stewardship of the right hon. and learned Gentleman, we lost eight times more of our manufacturing output than the OECD average—using the OECD's figures—and unemployment increased three times. That must have some bearing on the Government's policies.

Sir Geoffrey Howe

Employment and output were adversely affected under the previous Government during the last oil crisis. One of the dominant reasons why unemployment had not been affected in a similar way—although it doubled under the previous Adminisration—is that huge sums of money were being spent to preserve, in fossilised conditions, heavily overmanned plants which were just able to survive at public expense throughout those years, but which were quite unable to survive when the real storm blew in 1979.

The Government are making substantial progress on inflation. Over the past 30 years, the average inflation rate has been higher under each successive Government. Between 1951 and 1964, the figure was 3 per cent. a year. From 1964 to 1969, it was 5 per cent. a year. Between 1970 and 1974, the figure was over 9 per cent. Under the Labour Government, the figure was 15 per cent. If the Government maintain the progress that has been made over the past 18 months, with price rises now at about half the level reached at the peak of 1980, we shall be the first Government in 30 years to achieve a lower average level of inflation than their predecessors. We shall have been the first Government to reverse that malign trend.

Of course, the Government must take account of the international environment in which we have to operate. That environment is tougher than at any time in the past 30 years. The world environment accepts no excuses for poor performance. The unity of view among the Governments of the major industrial countries on the priorities for economic policy is remarkable, and was recently acknowledged by the OECD. There is a shared recognition of the need to sustain the fight against inflation, of the need for firm fiscal and monetary policies. There is a shared determination and confidence that 1982 will see modest but soundly based growth and further progress on inflation. Our forecast of 1 per cent. growth next year is in line with what the OECD expects for its members as a whole.

High interest rates are a new worldwide phenomenon. Throughout much of the 1970s, interest rates were lower—sometimes much lower—than inflation rates. They have now become positive worldwide, even in countries such as Germany and Switzerland, whose performances on inflation have been relatively good. As my right hon. Friend the Prime Minister reminded the House on Tuesday, and my right hon. Friend the Secretary of State for Employment said yesterday, last year unemployment rose in all our major competitor countries, apart from Canada. This year, further increases are expected in them all, apart from Japan.

Elsewhere, the rate of increase in unemployment is accelerating. In Britain it is slowing down. This year, the OECD expects unemployment in both the United States and Germany to rise by one fifth. In West Germany in 1980 unemployment rose by about 200, 000 and in 1981 by about 500, 000. The House must reflect that a world in which an economy as strong as West Germany's can suffer a rise in unemployment of that scale and speed is one that would surely punish self-indulgence and self-delusion.

The year 1981 was one of tremendous turbulence in international and domestic financial markets. One lesson that every country must learn from that experience is that international investors will remove their money quickly and without hesitation from any country that shows signs of financial laxity. The need to maintain a firm hold on the country's finances has been made crystal clear. If Governments ignore that lesson, markets will quickly enforce it through the exchange rate and interest rates.

I do not hide from the House the fact that there are hazards in the path ahead. The most obvious of them is dollar interest rates. We strongly support the determination of the American authorities to combat inflation. High inflation in any major trading country is a threat to all. That applies with particular force to the most powerful free economy of all. America is responsible for the world's major trading currency. However, fiscal and monetary policies must march in tandem to that goal. I am bound to tell the House that it is not clear that in America they are doing so. We hope that details, shortly to be published, of American budgetary proposals will reassure us on that point.

The bonds of friendship that link us with the United States of America, and our strong support for the President's objectives, enable us to make our views clear to the American Administration on such issues. We have urged upon them—with our European friends we shall continue to urge—the need to take account of the impact on exchange rates of divergent fiscal and monetary policies. We could not simply ignore the inflationary implications of a sharp depreciation in the pound resulting from rising American interest rates. The recovery of the European economies from the recession could be delayed.

Against that background, there are still some who say that since the course of interest rates in Britain is bound to be affected by what happens to interest rates in America, we might just as well let our borrowing level go hang. That is the attitude adopted by the right hon. Member for Stepney and Popular.

Dr. Jeremy Bray (Motherwell and Wishaw)

When the Chancellor of the Exchequer is lecturing President Reagan and Secretary of the Treasury Regan, will he adopt an air of humility and disabuse Secretary Regan of the delusion from which he apparently suffers, that the Chancellor knows how to control the money supply? He gave evidence to Congress yesterday that somehow they could learn that from the Chancellor.

Sir Geoffrey Howe

I am grateful to the hon. Gentleman for drawing attention to that unsolicited tribute to the British Government. Secretary of the Treasury Regan did say that.

The common bond is that in Britain, as in America, West Germany and any other major Western economy, the level of public sector borrowing is a crucial component in the level of interest rates. For that reason, I attach importance to it here, just as I do in the United States of America. That is why the attitude of the right hon. Member for Stepney and Poplar is so astonishing. He demanded not only a modest Social Democratic reflation, but a massive and yet to be specified Socialist reflation—billions undreamt of, uncounted and designed to increase money demand. It is a foolish attitude for him to adopt. Until the right hon. Gentleman learns that he cannot behave with such irresponsibility, he is unlikely to make a sensible contribution to economic debate in the House.

About as logical a proposition is that if we have a weather forecast of snow which is not fully reliable, we might just as well leave our overcoats at home. But the impact of what happens to interest rates internationally goes on top of what we do to interest rates at home. Our interest rates had to rise in the autumn, as rates rose around the world, but if we had not been exercising financial restraint they would have risen from an even higher starting point. One's overcoat cannot stop the snow, but it will certainly stop one freezing when the snow falls.

For much of last year, British industry was successfully protected from the full impact of high American interest rates. For the year as a whole, relative to American rates, our rates fell. The average for the year was 3 per cent. below American rates, whereas in the previous year it was 2½ per cent. above them.

Mr. Douglas Jay (Battersea, North)

If international interest rates forced up our interest rates with such damaging effects, does that not show the folly of getting rid of exchange control a year ago?

Sir Geoffrey Howe

The right hon. Gentleman should know that, in today's conditions, exchange control is no safeguard against the impact of international monetary conditions on domestic interest rates. I remind him that throughout the period of 1979, when I abolished it, Britain had the entire apparatus of exchange control at its disposal, but that did not stop international markets passing judgment on the Labour Government. It did not save the pound from declining to $1.55. Exchange control was no defence in those circumstances. The abolition of exchange control has contributed to a relaxation of the sterling exchange rate.

I have described the basic problems of economic decline with which we are dealing and the progress that we are making in regaining competitiveness while defeating inflation. There are now clear signs that public attitudes are changing and that Britain accepts that inflation, low competitiveness and low productivity are the real enemy, whose defeat is the key to continuing increases in prosperity. More and more, people are realising that no employee, whether in the public or private sector, is automatically entitled to a pay increase of any particular amount. They realise that money must come from somewhere and that it must be earned. They understand that we cannot afford to repeat the disasters of earlier years, when incomes increased 20 times faster than output. Days lost through stoppages last year were lower than for 15 years. Wage settlements in the private sector have so far been at about 4 per cent. to 6 per cent., which is substantially less than the previous round. If we are to keep up the pace of economic recovery and improve the prospects of employment, those settlements must be modest.

That is why both sides of the House should support the drive to curtail pay increases in the public sector, as well as in the private sector, to what can be afforded. Britain must maintain a conscious effort to keep unit labour costs down, because only in that way can industry find the resources for new investment and jobs. It is important to bear that factor in mind when we talk about higher investment in nationalised industries. The right hon. Member for Stepney and Poplar spoke eloquently and briefly about the scope for investment in British Telecom, but in that industry, as in every other nationalised industry, it is important that higher investment should be matched by better performance and productivity.

Mr. John Golding (Newcastle-under-Lyme)

Is the Chancellor aware that during the past three years the Government have required repayments from British Telecom, when instead that company needed to borrow money? That has been harmful to employment and to the development of telecommunications.

Sir Geoffrey Howe

The investment programme of British Telecom was reduced in successive years under the Labour Government. Under the Conservative Government, it has been increased in each successive year. The investment programme now runs at about £2.1 billion. That expansion of its investment programme was authorised last year. The hon. Gentleman intervened in yesterday's debate. I understand his interest in the matter, but, as the House was told yesterday, and as the chairman of British Telecom has told those who work in the industry, one of the main restraints on further success and investment in that industry has been the failure to control a rapid rise in costs. I speak from memory, but I believe that they have been rising about twice as fast as one would expect.

Mr. Golding

I am not speaking from memory. There was a requirement to repay £173 million in 1979, £178 million in 1980 and £73 million in 1981. That requirement to repay is proving harmful to the development of telecommunications in Britain and is endangering jobs throughout the sector.

Sir Geoffrey Howe

The telecommunications industry has rightly presented us with scope for massive profitability and technical expansion. If it is an industry of that quality, it is in no sense surprising that it should be required to follow the same pattern as many other industries and be largely self-financing in its investment programme. Being presented with an industry that offers this tremendous challenge, my right hon. Friends, the successive Secretaries of State for Industry, expanded its investment programme on the scale I described.

The truth is—I hope that the hon. Member for Newcastle-under-Lyme (Mr. Golding) will get the message home—that the real danger to the success of that investment, let alone its expansion, is if the industry fails, through insufficient self-discipline in management and at all levels in the organisation, to get control over its own costs.

Another case in point is the railway industry. The Government have all along been ready to play a full part in helping modernisation on the railways, but on one condition; provided that that goes hand-in-hand with improvements in efficiency. Two of the rail unions recognise the need to work with the British Railways Board in precisely that fashion. However, given the blatant refusal of ASLEF to recognise that there must be a link between pay and productivity, that productivity is vital to the future of the railways, it must be right for the board to take the stand it has and for the Government to give it full backing. We must all be much encouraged that the general secretary of the NUR took a very similar line.

Mr. Allen McKay (Penistone)

On the question that the right hon. Gentleman has just raised, does he not recognise that there are differences of opinion between British Rail and ASLEF and that those differences have caused the problems? ASLEF will go along with the productivity deals but it must be in the form of an agreement reached between British Rail and ASLEF through ACAS. There were two different documents setting out two different opinions. It is the differences of opinion that are causing the problem, and British Rail's stubborn refusal to get on with solving it.

Sir Geoffrey Howe

It has been my experience that the Floor of the House of Commons is not the best place to try to resolve an industrial dispute. [HON. MEMBERS: "You raised it"] I shall carefully respond to what the hon. Member for Penistone (Mr. McKay) has said. If ASLEF is prepared to go ahead with the productivity part of the bargain, so much the better—well and good. The tragedy that has come back to Britain time and again is that the resolution of such disputes should not be resolved by discussion, negotiation and analysis, but should be left, as Mr. Sidney Webb said, to the arbitrament of industrial warfare. That is the tragedy and what the people of Britain so much regret.

Mrs. Shirley Williams (Crosby)

rose—

Sir Geoffrey Howe

I will not give way again. Despite all that, our task is to sustain and build on the foundations that we have laid. This year we expect modest but soundly-based growth, as do most outside forecasters.

Some forecasters have said that our forecast of a 1 per cent. rise in output is unduly pessimistic. There is a good prospect of a further fall in inflation by the end of the year. Profit margins are likely to recover but, as I explained, much depends on continued sense and moderation about pay.

The unemployment statistics will probably be the last to improve, but the deceleration we have seen in recent months is likely to continue.

My forthcoming Budget will be designed to maintain the process of steady recovery. We shall continue to create the conditions for sustained economic growth. We have not sought, despite the advocacy of the right hon. Member for Stepney and Poplar, and we shall not seek to stimulate growth directly by pulling the levers of monetary demand. It has not been the lack of potential markets which has been at the root of our economic problems. After all, there has been no shortage of demand over the last decade. Over the past 10 years money spending in Britain rose 20 times as fast as output. The country is now starting to put that right and I aim to assist that effort on 9 March.

That was the purpose indeed of last year's Budget. I instruct the right hon. Member for Stepney and Poplar to look back at the reactions of a year ago, because at the time of that Budget, it was the unanimous opinion of right hon. Gentlemen opposite that, by increasing taxation to pay, at least in part, for higher public spending, I would plunge the economy into ever deeper recession. They did not mind the spending—they were all for that and wanted more of it—but they did object to the Government's unwillingness to finance it by major increases in borrowing. Our view was different. We believed and still believe that if we contained the scale of public borrowing, the country would benefit from lower interest rates than it would otherwise experience and that that would be of greater benefit to manufacturing industry than the alternative combination of higher borrowing and interest rates.

Mr. Shore

What was the index of industrial production in March 1981 and what is it today? Would the right hon. Gentleman also tell us what the unemployment figure was in 1981 and what it is now?

Sir Geoffrey Howe

I shall react to the right hon. Gentleman's points shortly. At the time of the Budget, the right hon. Gentleman reacted by saying that it offered at best stagnation and, more probably, a renewal of decline".— [Official Report, 11 March 1981; Vol. 1, 000, c. 911.] He was wrong. He was echoed by the right hon. Member for Stockton (Mr. Rodgers) who thought that it set back the timetable for rebuilding Britain out of depression and despair."—[Official Report, 12 March 1981; Vol. 1, 000, c. 1039.] What happened was that the recession stopped very shortly after that and the turn-round came precisely as we said it would.

We predicted a steady recovery and we now have it. The right hon. Member for Stepney and Poplar sought, in his own speech, to brush aside the figures. In the third quarter of last year, less than six months after the Budget, GDP increased by over ½ per cent. Industrial and manufacturing output rose by 1 and 2 per cent. respectively. Engineering and construction orders picked up well—by some 17 and 10 per cent. respectively since the second half of 1980. The rate of de-stocking has fallen sharply. Private sector housing starts last year were some 40 per cent. higher than in the second half of 1980.

Exports are now doing strikingly well and non-oil export volumes in the last four months of 1981 were 3½ per cent. up on the average of 1980. More overtime is being worked and is up almost a fifth in the three months to November. Short-time working is sharply down and registered vacancies are up. Manufacturing competitiveness is now improving—it rose by at least 10 per cent. over the course of 1981. Industrial profits rose by 10 per cent. between the second and third quarters of the year, while output per head in manufacturing was up 10 per cent. in the third as compared to the fourth quarter of 1980. The rate of increase in unit labour costs for the past 12 months is below the average of the major OECD countries.

We are clearly moving in the right direction. The right hon. Member for Stepney ad Poplar may not like those facts but he must accept them and recognise their importance. The country is winning the battle. The recovery is starting to move ahead. We have always made it plain that it will be a long process, as I said earlier. Sadly, to the regret of hon. Members on both sides of the House, the course of unemployment will turn later than any of the others.

Mr. Shore

The right hon. Gentleman has been good enough to give those figures, but will he now tell the House the unemployment figures?

Mr. Speaker

Order. The Chancellor is not giving way.

Sir Geoffrey Howe

I am determined to do all that I responsibly can in my Budget to maintain the progress that is now apparent to everyone except the right hon. Member for Stepney and Poplar.

We have laid secure foundations and we intend to continue sensibly building on them. That would be right for growth, right for inflation, right for employment and right for the country. That is why I ask the House with confidence to reject the motion and support our amendment.

Mr. Speaker

Before I call any Back-Bencher, I make one final appeal to the House to remember that there is a very large list of hon. Members who would like to speak.

5.28 pm

Mr. Tony Benn (Bristol, South-East)

When the Chancellor of the Exchequer's speech is cleared of its jargon, it amounts to telling the country that the levels of unemployment that we now have will remain and will get worse and that nothing can be done to meet the major need of our people, which is to return to full employment as quickly as possible.

Although I place little importance on the public opinion polls, there is no doubt that the desire to return to full employment is our people's major desire, and nothing would do more to meet the needs of the old and young, women and men, the black community and the poor than to return to full employment.

It is not convincing, with respect to the Chancellor, for him to give us the argument that he detailed at great length, because the House and the country know that unemployment is the major instrument by which the Government's policy is being carried through.

I do not believe, and never have, that the Cabinet is monetarist in an ideological sense. I believe that the Cabinet has resolved that the slump and the recession and the circumstances in which the Government came to power allow them to follow a political strategy which can be concealed under the guise of fighting inflation. Certain parts of the Chancellor's speech brought this out. He said, for example, that a new note of realism had entered into wage bargaining. When decoded, that means that if 3 million people are out of work wages can be cut without causing strikes because workers will be afraid to take industrial action in case they lose their jobs.

The first item of the Government's strategy is not a fight against inflation, in which they have had little success, but the use of the dole queue and the statute book to prevent organised workers even from sustaining their present standard of living. In that, the Government are much assisted by the media, which present the miners as heroes this morning because there has been a pit accident, but as wreckers two weeks ago because they were holding a ballot to seek a wage increase to keep them abreast of inflation. Whether it is the refined distortion of The Times, the vulgar abuse of the popular papers or the pious bias of the BBC, the Chancellor and the Government have the media working with them to undermine the role of organised labour.

The second purpose of the Government, which has also emerged clearly, is not to cut public expenditure—and they have not succeeded in doing so—but to undermine those public services which are financed by public expenditure. That is a very different matter, but it is the Government's real objective. The cuts in the National Health Service are very attractive for the Government—

Mr. Tristan Garel-Jones (Watford)

rose—

Mr. Benn

The hon. Gentleman must allow me to develop my argument, then I shall give way. The capacity of the Health Service to meet need is running down. That is exactly what the Government want in order to build up private medicine, in which they profoundly believe—

Mr. Garel-Jones

rose—

Mr. Benn

I am about to explain how, in the Government's own terms, their policy is succeeding.

Sir Geoffrey Howe

I should like to ask the right hon. Gentleman two questions. First, does he not find it a shade difficult to argue, for example, that we are cutting the fabric of the Health Service when The Guardian reported the other day that real expenditure on the Health Service was growing faster than under any previous Government? Secondly, and more important, why, on the right hon. Gentleman's analysis, should a Government elected to power by the votes of the people set about doing all that the people cannot possibly want? That is a crazy analysis.

Mr. Benn

I am glad that I have stung the Chancellor into response. Many members of the Conservative Party now believe that the policies being pursued will destroy the Government, so it is hardly credible to argue that the Government are popular. It is clear from the Government's speeches and actions that the Welfare State built up by previous Governments and supported by Harold Macmillan and others is being deliberately undermined in order to build up a private health service in Britian. The same is true of education.

The Government's third objective—and this is entrenched in their legislation—is to undermine the public sector by the sale of assets built up by those who work in that sector and by public money.

Mr. Tim Eggar (Enfield, North)

Will the right hon. Gentleman give way?

Mr. Benn

No, I shall not give way. I made a great mistake in giving way to the hon. Gentleman last time.

The fourth objective of Government policy is to widen the gap between rich and poor. That has been achieved by the wage cuts to which I have referred, the benefit cuts announced in Government statements, the tax handouts and the savage increases imposed on council house tenants, which are all part of the same policy.

From the Prime Minister's point of view, however, the policy in which the Government believe has been a triumphant success. It is no use appealing to Cabinet Ministers to think again, because they are succeeding in the policy in which they really believe—to discipline labour, to cut its wages, to undermine the Welfare State, to increase the gap between rich and poor and to privatise public assets.

If I were the Chancellor, I should have only two anxieties on that score. First, when the right hon. and learned Gentleman unveiled the strategy to his supporters in the last election, he overlooked the fact that in addition to undermining the trade union movement, an objective shared by his supporters, the policy would at the same time do serious damage to British industry, and, secondly—this is where the wets in the Conservative Party come in—that it would likely lead to a Conservative defeat. Apart from those anxieties—the fact that British industry is being so badly damaged as to weaken the Conservatives' support in the business community and Conservative Members' fear that they will not be re-elected—from the Government point of view the policy has been a triumphant success. Unfortunately, it has been ruinous for the country and its prospects, as my right hon. Friend the Shadow Chancellor made clear.

How do we achieve a return to full employment? That is what people listening to the debate want to know. They are not interested in merely rhetorical attacks— [Interruption] I am not engaged on any such attack. They are not interested in who can manage this system best. I have listened to nine Prime Ministers over 32 years in the House and I have served in Governments who have tried to handle the problem in the past. The old remedies have not worked.

It is from that starting point that the House must consider what to do. We have seen many modest acts of reflation of the kind that the SDP advocates. The dash for growth instituted by Mr. Maudling resulted in disaster. A short burst of growth is achieved, but the capacity is not there to meet it, bottlenecks occur, imports pour in, the balance of payments goes wrong and the IMF comes in and stops it if it goes too far. That is one attempt which has been made. Various methods of import restraint have been tried, with import deposits and various other schemes, none of which has solved the problem. Devaluation, too, was no solution.

Pay policy, which I believe was strongly advocated by the right hon. Member for Crosby (Mrs. Williams) yesterday, has been regularly tried and has regularly failed. It has been rigid and unfair and has brought down more Governments than almost any other single issue. It brought down my right hon. Friend the Member for Huyton (Sir Harold Wilson) in 1970, the right hon. Member for Sidcup (Mr. Heath) in 1974 and my right hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) in 1979. To believe that a pay policy will save the economy and industry now is absolutely to misread the history of the past 30 years.

If we had a proper pay policy, extending from the Prince of Wales to the pensioners, we would be a salaried nation in which everyone was entirely regulated by legislation. But no one who knows anything about the industrial process believes that one can abstract the business of wage negotiation from the business of production. That is why the Chancellor's statement about ASLEF was so singularly stupid. ASLEF represents highly skilled drivers [Interruption.] Hon. Members laugh, but every inter-city train is worth £500, 000. The safety of millions of people depends upon those drivers and it reflects no good upon a Cabinet Minister to speak of them as though they were wreckers of the economy. That is no basis on which to solve the problem.

Nor has anybody recently had the courage to say that the Common Market will solve the problem.

Mr. Garel-Jones

rose—

Mr. Benn

I sat through all the debates when we discussed Common Market membership, which was supposed to solve our problems by the international free movement of goods and capital. We were going to find investment in the British economy. There was supposed to be a surge of such investment. What has happened is that we have paid more for our food. We are pounded by imports from our strongest competitors. We are taxed from Brussels and we have lost control of our own affairs.

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

My hon. Friend rejects incomes policies. Will he accept that a Labour Government cannot operate unless it has an agreement with the trade unions on the distribution of wages?

Mr. Benn

I am talking about party policy. My hon. Friend should not speak about my policy. The TUC and Labour Party conferences last year clearly rejected the policies that have failed, which are normally described as a pay policy. I believe that it was advocated yesterday that we should have a statutory pay policy. I have sat in so many Cabinets elected against pay policies, which have introduced them and been broken by them, that I advise my hon. Friend not to ask us to follow that course again.

All these policies, which have been tried by people of good will—I am not doubting anyone's integrity—in the many Governments since 1951, when Labour was defeated, have failed to deal with the fundamental problems of British industry and of the creation of wealth in our society. We are entitled to discuss on the Floor of the House—and the country expects us to discuss—how to find 4 million jobs in Britain. That is the true requirement. We have 3 million unemployed, a lot of concealed unemployment and more people are coming on to the labour market. Therefore, 4 million jobs are needed if this country is to create wealth and then distribute it fairly. That is the enormous problem that is not dealt with in normal party arguments.

At the end of the war we brought people back—I agree with my hon. Friend the Member for Bolsover (Mr. Skinner), who compared the Government with the German high command—in great numbers from the Services and put them into industry without the terrible unemployment that followed the 1918 armistice. Any hon. Member who thinks that we can create 4 million jobs within the lifetime of another Parliament without looking fundamentally at what would need to be done to achieve that is misleading his electorate.

I believe, as my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) said, that the first requirement is to accept, as the central objective of Government policy, the restoration of full employment, combined with the will to achieve it. I must stress a point that has been touched on by the Front Bench. Such a step cannot be achieved without the conscious planning of our own resources to meet our needs. The restoration of a serious planning role in the return to full employment alone makes that objective credible. I do not mean by that only national planning or "Whitehall knows best". I am talking about a completely different concept— [Interruption.] I shall be briefer if the House will listen.

From the municipalities such as London, Sheffield and Leeds, which are now beginning it, to the place of work, up through the regions of England, to Scotland and Wales to the national level, there must be massive investment in industry and in services that are now desperately undermanned. What is wrong with the National Health Service is that it is undermanned. The educational service is undermanned.

Mr. Tom Ellis (Wrexham)

rose

Mr. Benn

The hon. Member for Wrexham (Mr. Ellis) should consult his constituents before he purports to represent people who voted for him in another capacity. We require public initiatives. Whether they be in the form of municipal enterprise, co-operatives or a discussion about the way in which the public sector can create jobs and meet needs, that is the only way that we can hope to return to the desired employment figures. Of course, that will mean more training, earlier retirement and a shorter working week. Above all, it means that the Government will have to use oil revenues, to control the use of credit, to channel savings, to cut defence, to reimpose exchange controls, to plan our trade and to extend common ownership. The operation is one of such magnitude that bribing and bullying business men, which has been the stock in trade of interventionist Ministers—I have been one for longer than anyone else—will not be an adequate response to the size of the task facing us.

We must release our people's talents by restoring to trade unions the full and proper rights that they need to perform their tasks. In addition, we must repeal the new and forthcoming anti-union legislation. We must develop strong trade unions that have an active role in job creation, because the expansion of industry and the services is an integral part of the return to full employment.

We must open up the workings of the Government because one body has been in power throughout our years of failure. I refer to the Treasury and to Whitehall. I do not say that their advice is always more acceptable to Ministers now than it was to me, but the steady flow of Whitehall advice on how to run the economy has been shielded from the public view by the Official Secrets Act, so that we are denied knowledge of how that system of advice works. Leaks are supposed to be a substitute for it. A Minister makes a speech that is unintelligible to the ordinary listener, who then reads that the Minister is really warning the Chancellor of the Exchequer that the Budget will have to be better than might be expected.

Everything is done by means of leaks and briefings. We do not know the nature of the advice that plays such a major part in the shaping of successive Government policies. I refer not only to the Treasury and Whitehall, but to the Bank of England, which, although publicly owned, is no more accountable to us than an offshore island moored in the Thames with extra-territorial rights.

We must recognise that if we are to ask people to accept the difficult things that must be asked if the policy is to succeed, we must accompany that request with a lifting of the stranglehold of privilege from much of our society. The other place regularly discusses overmanning, without realising what a comic idea that is in that Chamber. Sir Michael Edwardes would close it in 24 hours if he were responsible for its operation.

In education, health and the distribution of wealth we run an unequal society. That inequality is unjust. Those who have the power that goes with inequality also have the power to stultify investment and development. Anyone who does not believe that should ask those who live in the parts of Scotland where landowners have held back development, because they own the land and can do so. The same is true of the General Electric Company and other big companies.

We must break free from the Treaty of Rome, because none of these things can be attempted while we are controlled by Brussels. We must try to re-inject some decent values into our society and allow them to be publicly discussed, together with the alternatives that I have mentioned. It is no good talking about full employment or having endless debates about unemployment unless we can convey to the British people that there are those in the House, on our side, who believe it to be a major and central task. We must set objectives that can be realised only by a democratic challenge and unashamedly Socialist programme. I believe that the alternatives—the monetarism of the Government or the shabby, secretive, centralised corporatism of the SDP—are no way forward.

Mrs. Shirley Williams (Crosby)

Before the right hon. Gentleman completes his speech, will he address himself to what he would do about inflation? He has talked about it as if it would have no effect. He knows, as well as I do, that when there was no incomes policy in 1974 and 1975 incomes went through the roof and inflation became impossible to control.

Mr. Benn

The right hon. Lady and I, until less than 12 months ago, served on the national executive committee of the greatest socialist party in the world. The only difference between us was that she got there through the trade union section of the vote and I got there from the constituency section. We served in Cabinets together. She succeeded in persuading the Cabinet that pay policy was right for the Labour Government. She was not the only one who argued for it but like the Tory Government, the Labour Government were smashed by it. One of the objectives of policy must be that one sustains public support. The pay policy in which the right hon. Lady believed then brought us down and brought her down and brought into power a Government who did not believe in it.

There could be nothing more inflationary than the mass unemployment that we now have. If we try to replace the monetarist policies by a pay policy, we shall not win the majority to carry through. The right hon. Lady has shared enough experiences with me to know what a disastrous failure the policies that she advocated were.

There is no longer any point in arguing about who can manage welfare capitalism best, because we have all tried and success has slipped through our fingers. The British people want a new deal that is democratic, fair and just. They want full employment, and neither this Government nor any bunch of wets can offer it to them. I believe that our best hope lies in the people whom we seek to represent in this House of Commons.

5.52 pm

Mr. Maurice Macmillan (Farnham)

I listened enthralled and amazed to the speech of the right hon. Member for Bristol, South-East (Mr. Benn). We have been asked to be brief so I shall not deal with the arguments that he put forward, largely because they seem to be almost totally irrelevant to any of the problems that we are now facing.

While listening to the right hon. Gentleman I was taken back in memory and imagination to the days of my youth, and almost to my childhood. He seemed to have brought together in one speech all the Utopian panaceas which later experience has taught us are a concealment for an ever-increasing and encroaching power of the State at the centre. Those ideals sound so good. They sounded quire good even when the Fascist and Nazi Governments put them forward before the war. They sounded good when I was naive enough to listen to what the Communist Party put forward—I was tempted to listen to it in my youth. They sounded splendid, and in many ways they are splendid, but experience has shown that they do not work.

Mr. Benn

The hon. Gentleman should know that those ideas, in a more radical form than I was able to present them today, were contained in his father's book of 1938, "The Middle Way". They were then absorbed by the Conservative Party and, in fairness, led it to a great election victory in 1939. It is a gross abuse of the privilege of the House to suggest that arguments that found support at various times in his own family should be compared to the policies of Hitler, Mussolini or Stalin.

Mr. Macmillan

It may be unfilial to ignore a book by one's parent, but it can hardly be a breach of privilege.

My right hon. and learned Friend the Chancellor of the Exchequer is getting much practical advice—not from Opposition Members—but most of it is contradictory. Most hon. Members are worried about his Budget judgment. Some think that he will go too far and reflate too quickly. Others think that he will not go far enough or fast enough. I share those worries, and I have two more. I fear that he will not give enough consideration to the longer term. If he does not, he will have less excuse than usual, because for once the longer-term requirements are wholly consistent with the short-term needs. We are not now faced with the problem of finding the right balance between them, with the risk of damaging the future in order to save the present. That danger is not so great now.

My other fear is that my right hon. and learned Friend will underrate the importance of starting—and where it has already started, continuing—concerted action with other countries, both in the EEC and OECD, on matters such as bringing down interest rates. I believe that such cooperation with overseas countries is necessary to sustain the domestic policies that he will have to bring forward.

I hope that on this side of the House we all agree, if not on the advice that we would give to the Chancellor, at least on the fact that what is needed is help to private industry. That should be a priority. The sort of help that he should give will be valuable both in the short term and in the longer term.

There is a second point of policy on which I hope all Conservative members can agree—looking at and dealing with public spending in order to restore the balance between capital and current account spending. The CBI recently produced a chart showing the enormous increase in current spending and the sharp and considerable drop in capital investment over the last year or two. I go further than some of my right hon. and hon. Friends. In so far as it is necessary to borrow more for the purposes of making genuine investment, the effect on the public sector borrowing requirement is far less damaging than merely borrowing more to continue to sustain high levels of unemployment through unemployment benefit and current account spending.

The other longer-term effect would be to restore another balance, which is important. About 60 per cent. of the national effort is now directed into providing non-marketable goods and services, and only 40 per cent. is directed into the marketable sector. More Government spending on capital, rather than current, account would help to redress this balance. It would also give immediate relief to industry by providing markets.

I do not agree that there is full scope to do this by reflation yet, because of the danger of increasing imports and because of the likely inflationary effect. However, I hope that as manufacturing industry becomes more competitive and as our exports continue to do well it will be possible to take some action on markets for the future with our colleagues in the European Community and the OECD. We should consider the effect of one foreign competitor on our import markets, not only in the United Kingdom but in the whole of Europe. We should consider making a European approach to Japan, because of Japan's privileged position in having no defence expenditure, to see whether we can achieve more agreement on the Japanese penetration of European markets and on removing the non-tariff and other methods that she uses to prevent the reciprocal sale of European goods in Japan.

I want the Government, first, to help in providing markets initially by public investment and later by negotiating through the EEC with Japan. That will be to try to protect not British markets against the greater efficiency of our competitors, but European markets against Japan, with the lesser burdens that she is carrying as a result of not being responsible for any defence costs.

Secondly, the Government can help by cutting industrial costs. In thinking of the Budget, the matter that comes to mind is the national insurance surcharge, but there are other considerations. One is nationalised industry prices. I think that I am right in saying that the rate of inflation in the prices of private sector goods and services is now an annual 5 per cent. or so, while the comparable public sector figure is about 18 per cent. If the private sector is so successful, despite its costs being put up by nationalised industry prices, I hope that my right hon. and learned Friend will examine the impact on inflation of very high public sector prices, including energy costs.

Here again there is an international aspect. It is important for the future that all the OECD countries should continue to pay the real world prices for energy. If they do not, there is a danger of creating again the sellers' market in oil that has done us so much harm. Over the past two or three years the OECD countries have to a certain extent moved away from Middle East oil. As a result, the world price of oil came down in 1981, but part of the process of keeping it down is the paying of a realistic price for energy in all industrial countries. That means international agreement, particularly within the EEC, not to reduce the end price of energy to industry in one country and not in another.

One of our biggest industrial costs is now interest rates. I hope that the Government can continue the good work that has been started and that they will continue to seek international attempts to hold down the rate of interest. Such a process could be extended to exchange rates. As a first step, I should like us to join the European exchange rate arrangements. I do not say that that would be any good on its own. Of course it would not, but we should not be in a position to extend the system unless we were in it. Therefore, we should do everything possible, including joining the European monetary system, to put exchange rate mechanisms on a wider basis.

It is ridiculous that it should be so difficult since, both in interest rates and exchange rates, the real going level is governed by at most five or six currencies, including that of the United States. It is depressing, to say the least, to hear my right hon. and learned Friend and others rightly remind us, with a sense of fatalism, how dependent we are on what happens to the United States economy. I hope that the Government will not simply say "We are dependent, and cannot do anything about it." The other European countries with powerful currencies, the central bankers and Finance Ministers of Europe, the United States and perhaps Japan, working together, could do something about the problem, which damages all sophisticated economies without helping anyone. That is another element in industrial costs where the Government could help.

I hope that the Government will do everything possible to prepare for the future. Some of my suggestions would help in the future as well as in the present. More needs to be done in training, including preliminary training. I believe that more skills, especially new skills required on the upturn of our economy, will be needed very soon. It is also necessary to provide better, updated methods of training and a modern equivalent of the old apprenticeship schemes.

The employment of youth is still to some extent hampered by the Employment Protection Act, by high juvenile wages and by too low a differential between the very skilled and the semi-skilled man at the end of a training period. l hope that the Government will consider those factors as well.

Perhaps the most important matters are training for the new industries and what should be done about the older ones, including the dying ones. I do not believe that employment in many manufacturing industries will be significantly increased over the next few years. That is partly because of their saleable level of output will be reached with many fewer people at work. We should try to provide an early retirement scheme in declining industries and those which are not progressing, to match the intensified training schemes for school leavers and young people coming into industry. If we are to run down the manpower on one side without causing hardship, we need that sort of early retirement scheme. At the same time we should concentrate on building up skills for the future in the newer, rising industries where they will be needed.

We should also examine the planning attitudes in many parts of the United Kingdom. Unemployment is rising in the South-East and is at a level unusual for that part of England. I do not believe that the increase will be stopped so long as southern and south-eastern counties follow policies of no new development and no new industry, and where the structure plan incorporates a policy of nil development, as in Surrey.

I have tried to be reasonably brief in describing a package that I think could start creating more real jobs without being over-expensive and without starting merely cosmetic schemes. Such a package could decline and sustain the recovery that the Government claim has been started. If it has started, it is still fragile and it could do with bolstering by Government policies.

If my right hon. and learned Friend follows such ideas, it will not leave him much room for a more conventional stimulation of the economy through tax reductions across the board. My proposals would not, however, require him to eat all his own words or to reverse his policies. I hope therefore that the ideas put forward on these lines by some of us today will receive sympathetic consideration.

6.10 pm

Mr. Richard Wainwright (Colne Valley)

Not for the first time, I wish that the right hon. Member for Farnham (Mr. Macmillan) had opened for the Government today.

I believe that a number of hon. Members from both sides of the House consider, like me, that the debate is overdue. For several months the Government's financial policies have been adrift. Their erratic, zigzag course has been the source of great confusion. Some of the confusion has been concealed by a smokescreen of misleading Government statements, but the screen has not been complete.

The Select Committee on the Treasury and Civil Service for example, after examining the Chancellor of the Exchequer twice on his public expenditure statement at the end of last year, and after also hearing his officials, passed this verdict. It said that the evidence received must throw doubt on the underlying Strategy as it was promulgated at the time of the Budget in 1980. We therefore believe that the time has come for a major re-statement of the strategy, so that Parliament and public may be fully informed of the economic ojectives which the Government now have set. The incoherence of Government financial policy is of particular importance with a Government who proclaim that their policies can work only by changing the expectations of the public. How are those expectations to be changed by so many self-contradictory and obscure signals? No wonder the local government manual workers, water workers and other large bodies of workers in the public sector have cocked a snook at the Government's message that pay increases must be kept down to 4 per cent. No coherent financial message has come from No. 10 or No. 11 Downing Street for a long time.

As regards the smokescreen, it would take an age to refute all the economic nonsense which has recently come from the Government. I shall refer to one extraordinary myth because it was repeated again today—that other advanced countries are deflating in the way that the Government have done. In an article in The Guardian earlier this week, Christopher Huhne, its chief economic leader writer, produced a table which clearly shows—and this has been presented by several sources—that in the past three years Britain's fiscal stance has been three times as restrictive as the stance of the other big developed countries—Canada, United States, France, Japan, West Germany and Italy. The idea that there must be recovery because businesses will eventually need to replenish stocks and because trade cannot continue with empty warehouses or shops with empty shelves, is proclaimed as a sustainable recovery.

The awful net result for all who want to make a serious attack on unemployment, whatever our different recipes, is that the deeper the decay in our productive national assets is allowed to go, and the longer that obsolescence is allowed to creep in, the more cautious the rigorous application of a lasting remedy has to be. That is unfortunate and tragic. The obvious reason for caution is that if the productive part of the economy has been allowed to decay, a huge, sudden reflation is bound to produce the most serious bottlenecks, as we have witnessed on several occasions in this country since the war.

Only yesterday the right hon. Member for Crosby (Mrs. Williams) gave detailed evidence that there is already a serious skill shortage in some parts of the electronic engineering industry. This is a frightful challenge. There is a temptation, as the nation's productive capacity worsens, to throw more and more money at the problem. An intractable problem—I wish that the TUC would recognise this—is that the risk of serious bottlenecks and overheating is increased by the continued decay.

I hope that the Chief Secretary will consider an audit of the physical state of the assets in the public sector. No one knows how much of the mothballed capacity will be of the slightest use when orders at last come flooding in and demand is increased. Mothballing, with luck, may keep out the rust, but no mothballing known to man can stop obsolescence. That is the great danger.

The situation calls for reflation conducted with the greatest skill. It is no answer to adopt the broad approach and to talk of throwing billions at the problem. What is needed is a careful, detailed policy designed, so far as possible, to avoid bottlenecks. This means working through small firms to some extent. It means a great deal of regional decentralisation. Whitehall can never know the full dangers of imposing too much on a temporarily crippled industry.

The first year of reflation, Liberals believe, will have to be spent largely on accelerated training, tooling up, and a deliberate policy of temporary employment subsidies to industry in order to start to get people back to work. When people have been unemployed for longer than six months, the Government should provide a subsidy of up to £70 a week to the employer, under strict conditions, to take them on and get them back to work.

There is also a need for a firm announcement of major capital projects—not all of them centrally designed—on which suppliers can rely in the succeeding years. We believe that many regionally inspired projects, encouraged by the Government, could be of incalculable value to our infrastructure. It is intolerable that people living in industrial cities such as York and Gloucester should have sewage floating feet deep in their streets for days on end. This happens every three or four years in York. A good, regionally planned flood prevention scheme could give its citizens a civilised existence and give its industry some continuity. That is an example.

Mr. Richard Needham (Chippenham)

Why does the hon. Gentleman think that in the first year of a reflation a subsidy of £70 to encourage people on the dole back into work will not simply by used by employers as a method of substitution? In the first year of reflation, will they not take people back anyway? Why is there a need for subsidy?

Mr. Wainwright

I tried to explain, evidently with singular lack of success in the case of the hon. Gentleman, that in the first year of the reflation, there will not be available all the skilled people necessary. There will not be all the modern plant necessary to get production going on a fully economic basis. To give some relief from unemployment it will be necessary to have an artificial scheme of a strictly temporary nature. We believe, after investigation, that that is inevitable if the country is not to be kept waiting until its patience is intolerably stretched.

I wish to revert to the matter of capital projects. We do not accept—this may be a big difference between ourselves and the Labour segment of the Opposition—that these need be confined wholly to public funds. Many references have been made in the House and elsewhere to United Kingom pension funds investing abroad. No pension fund wants to invest heavily abroad. Its pensioners have to be paid in the currency of this country. Therefore, other things being equal, pension funds have a strong preference for sterling investment.

This country has been such a desert for investment, apart from Government paper, for so long that pension funds have been obliged to look abroad for outlets for their investments. We believe that, quite voluntarily, and without any suggestion of going back to exchange control, many of these capital projects could be partly privately financed. We hope that the Chief Secretary tonight will have something positive to tell us about British Telecom's excellent proposals for a Buzby bond, which seems to be held up because of the Government's infatuation with trying to privatise large sections of British Telecom.

Mr. Robin F. Cook (Edinburgh, Central)

The hon. Gentleman has given us an insight into his suggestions on capital projects and I am sure we would not wish to let them pass as if they were peripheral remarks. Did I hear him say that he would not contemplate a return to exchange control? If that is what he said, does he not appreciate that it would be impossible for him to aspire to the lower interest rates, which is another feature of the alliance policy, because then he will be at the mercy of the higher rates of whichever country in the world that money is going to?

Mr. Wainwright

That is irrelevant to interest rates. Let me say at once, speaking personally, that any suggestion of exchange control by the EEC ought to be carefully examined. I do not think there is any question of that being necessary at the moment. In any case, I am not in a position to say that the trick could be worked. Certainly the high interest rates that we have suffered over the last few years, as the hon. Member for Edinburgh, Central (Mr. Robin F. Cook) well knows, have been the direct product of the Government's infatuation with the money stock and not—as they have tried to put out—as a result of high borrowing.

On the fiscal side of reflation, we make no claim to originality. The matter has been canvassed in this House already this afternoon and we believe that priority should be given to the eventual abolition of the national insurance surcharge. I should like to see the whole provision struck off the statute book so that no Labour Government, if we ever again have to bear with one, will be tempted to bring it back and revert to the infatuation that they had for it during the life of the last Government.

Not only is the national insurance surcharge an attack on employment, but it would also, if it were remitted, or better still abolished, increase the profits of industry available for modernisation. Abolition would help to reduce prices and, indicentally, local rates, because local authorities pay the surcharge like other employers. It would help our exports. I should have thought that it was wholly in line with the Government's preaching that we must look after the goose that lays the golden egg and pays for all our benefits.

If the state of the books, when they are revealed on Budget Day, suggests that it would really be extremely difficult to go the whole hog all at once and abolish the surcharge, our suggestion is that it should be abolished regionally. For example, all the regions which at this date have double digit unemployment should lose the national insurance surcharge burden altogether; and in the remaining regions—about one third of the people employed in this country—the surcharge should be finally abolished the year after.

The other aspect on which I want to touch briefly is the essential condition for this reflationary policy to work. This is where we on this Bench part company from the official Opposition and with the Opposition party led by the right hon. Member for Bristol, South-East (Mr. Benn), namely, that there must be the shield of an incomes policy that has the democratic authority of Parliament. The right hon. Member for Bristol, South-East was very eloquent in describing the shipwreck of all previous incomes policies, but he did not carry his analysis to the proper lengths by explaining that not one of the failed incomes policies had ever been put to the people of this country in a general election. All of them, furthermore, were U-turns and broken promises on what that Government had put to the people at the election that they had won.

Our view is that we must continue—and indeed my party has done so in all four recent general elections—to make this explicit to the people: that if they elect us we shall execute an incomes policy which will have, for use in the last resort, sanctions authorised by Parliament.

Mr. Frank Hooley (Sheffield, Heeley)

I do not think that the hon. Gentleman is quite accurate. My recollection is that in the autumn of 1974 the Labour Party presented to the electorate the concept of the social contract. Whether the hon. Gentleman agrees with that or not, that was a pay policy from 1975 to 1978 which, by 1978, had reduced inflation to single figures, increased investment and increased output. That policy was based on the policy of the social contract which Labour explicitly put to the electorate.

Mr. Wainwright

I cannot agree with the hon. Member, because the social contract, which I remember very well being introduced, because I was in the House, was, in our view—and we said it at the time—an act of appeasement outside of Parliament, and largely behind Parliament's back, in which the Government of the day made a very had bargain. In return for giving trade unions privileges, which, for the most part, we believe they no longer require, the Government achieved a grudging temporary restriction on pay. That is not the way that we want to do it. It is not the way that it should be done in a parliamentary democracy.

In closing, may I explain why from this Bench we intend to vote tonight both against the Labour motion and against the Government amendment? The right hon. Member for Stepney and Poplar (Mr. Shore), the Shadow Chancellor, has always proved himself a master of analysis, but when he came to positive measures and proposals, as usual he showed himself to be twice a prisoner: first, a prisoner of his national executive, and, secondly, a prisoner of the record of his Government. The fact is that the ambiguous but very sketchily produced Labour plan for reflation, because it fails to meet the necessity for an incomes policy will not do the trick. It will simply once again give the British people cause for disillusion and might, indeed, help to bring about the downfall of our democracy. The Labour plan is deficient in that respect, as well as being too sketchy fully to understand. We intend to vote against their motion, and for reasons which I hope I have already made plain we shall vote against the Government amendment.

6.28 pm

Mr. J. F. Pawsey (Rugby)

I hope that the hon. Member for Colne Valley (Mr. Wainwright) will forgive me if I do not follow him too far down the road that he was treading. Certainly he came up with two imaginative ideas: the lay-off scheme; and the national insurance surcharge which he was suggesting should be dropped for those regions which had more than 10 per cent. unemployment.

I should like to make a brief comment on the speech of the right hon. Member for Bristol, South-East (Mr. Benn). I am sorry he is not in his place. His Utopia, his vision, is certainly not mine; and I do not believe that it is the vision of the majority of the British people.

The Opposition's motion refers to the "massive rise in unemployment" and suggests that it is due to the Government's deflationary policy. That is a simplistic view. The reasons for unemployment surely are much deeper and greater than those so far mentioned this afternoon. First, there is a major world recession, which has been fuelled by the massive increase in oil prices. That point was touched on by the right hon. member for Stepney and Poplar (Mr. Shore) in his opening speech. Britain is still a great trading nation, and clearly we cannot be insulated against the effects of what is happening to countries round the world. As oil prices increase, so more of our gross national product is spent on the purchase of oil, which leaves less for the purchase of manufactured goods. Surely, this basic truth is responsible for the major world recession. There is also the unhelpful and at times bloody-minded attitudes of trade unions with their insistence on overmanning—

Mr. Arthur Lewis

On a point of order, Mr. Deputy Speaker. I have raised this matter before and I do so again, and I ask that you perhaps seek the views of Mr. Speaker on it. We give privileges to Privy Councillors. They ate always called when they wish to. Four Privy Councillors have spoken and left the House. Mr. Speaker said that it would be difficult to call everyone who wishes to speak. Back Benchers do not get much chance. Surely, at least one of those Privy Councillors should have had the decency to stay in the House. I ask you, Mr. Deputy Speaker, to draw this matter to the attention of Mr. Speaker. Not one of the Privy Councillors who spoke has remained to listen to other speakers.

Mr. Deputy Speaker (Mr. Bryant Godman Irvine)

I am certain that Mr. Speaker will see the Official Report tomorrow.

Mr. Pawsey

I was condemning the trade union's policy of overmanning and their outdated practices. The print unions are a prime example of the reluctance of trade unions to change customs and practices. Workers at British Leyland accepted robots for welding and paintwork; they even accepted a low pay award; but when it came to altering the length of the tea break they went on strike.

Other problems arise with demarcation disputes. Above all, there is our national habit of paying ourselves mote than we earn. In addition, productivity is only now beginning to catch up with levels of our major competitors. For example, productivity at Talbot in my constituency has increased by about 40 per cent. Despite that massive increase, productivity there is only now beginning to reach the level of our major Continental competitors. That is one of the problems that has bedevilled British industry or so long.

I should like to quote from the Herald Tribune of Thursday 15 October last year, in which interesting comparisons are made between production in Germany and at Halewood. It showed that, despite the fact that there are in Halewood 10, 040 employees and in Germany 7, 700, the German worker produced one third more motor cars, using basically the same equipment.

Another problem is weak and sometimes poor management, which frequently abdicates control of plants and factories. That is a memorial to the soft option. The roll call of casualties ranges from Alfred Herbert to Hoover, and every hon. Member could add more.

One of the principal reasons may be Government interference. I am referring to interference by Governments of all colours and persuasions. For example the insistence on industrial development certificates during the 1960s and 1970s guaranteed the decline of the motor industry and prevented the building of new plants and factories in areas with a tradition for motor building. It also prevented the building of new factories and plants in areas where there were sub contractors.

It was that policy that took Rootes to Linwood Unfortunately, we have lost that factory, but those of us who lived in the Midlands during that period forecast it. The decision to go to Linwood flew in the face of geography. I accept that the Scots are renowned for their engineering techniques, but the production of motor cars calls for something more specialised—a degree of knowledge in mass production. Sadly, that tradition was lacking at Linwood.

Again, taxation policies ensure that the profits made by companies are effectively taxed out, leaving inadequate funds for re-equipping and re-tooling. It is about time that hon. Members understood that it is from today's profits that we get tomorrow's jobs. If we forget that, we shall move even more into industrial decline. That is one reason why I hope that, when the Chancellor examines his Budget options, he will resist any temptation to reduce private taxation and will instead reduce industrial taxation, whether that be by lowering die national insurance surcharge or reducing the level of corporation tax.

Interest rates must also be part of the equation of Government interference. Interest rates are still too high and act as a millstone on further investment. All in all, it is time that Governments recognised that the running of a business or an industry is best left to business men and industrialists who understand how business and industry work. Too often the effect of Government interference is to worsen the situation. All businesses are different. The way in which legislation impinges on one business will be different from the way it affects another.

When we compare Britain's employment figures with those of other nations, there are at least two important points to be taken into account if we are to compare like with like. We should understand the size of the black economy, which undoubtedly distorts the real employment figure. The journal Fiscal Studies for March 1981 estimates that the size of the black economy is between 2.3 per cent. and 3 per cent. of the gross national product. That is between £3.2 billion and £4.2 billion—a substantial amount. Other authorities—for example, Sir William Pile—will argue that the figure is substantially higher. Whichever figure one takes, the size of the black economy is one reason why employment figures look so bad when compared with those of other nations.

If we compare our unemployment figures with those of Germany, there is another distinction: the differing attitude in the two countries to overseas workers. Our policy is one of straightforward immigration and integration. Germany and other Continental countries have guest workers. In Germany the guest workers are sent home if unemployment rises. I put it to the House that those guest workers act as a buffer against the number of unemployed. Therefore, it is important that we compare like with like. That has not always been done—either in yesterday's debate or today.

Yet another reason for the growth of unemployment is the remarkable assault—I use that word deliberately—on the British home market by the Japanese. It is estimated by the Ford Motor Company that by 1985 Britain will lose 71, 000 jobs as a direct result of Japanese competition. The total job losses in car manufacturing countries in Western Europe as a result of Japanese penetration is estimated at 560, 000. The Japanese motor industry is the largest and most efficient in the world. It has become the largest volume producer of passenger cars with an output totalling well over 7 million units. That output is still growing. As the market for cars remains virtually the same, the percentage being taken by the Japanese increases.

The job losses I have quoted relate only to the motor industry. Hon. Members will recall as well as I can what has already occurred in the motor cycle, television tube and optical industries. There are many others too. The assault continues and grows. It certainly does not diminish. I acknowledge what my right hon. Friend the Member for Farnham (Mr. Macmillan) said when he touched on this very point. He was entirely right to do so.

It is noteworthy that other EEC countries are able by various means to protect their industries against the Japanese. The United Kingdom continues to abide by the rules. We continue to play cricket while others are playing a different and more serious game.

The time has come when we cannot afford to take such a benign view of Japanese competition. We should remember the adverse balance of trade, which is now at well over £1 billion. We should recall that the Japanese have little interest in purchasing manufactured goods. Their main interest is in oil, raw materials, and food. Until we wake up to the Japanese threat, jobs will continue to be lost.

The Government should commence action on two specific fronts. We should insist that the Japanese take a larger amount of British exports, or, alternatively, that they increase their investment in the United Kingdom.

The increasing pace of technological change is a further cause of job losses. The week before last I visited Rolls-Royce in Coventry. I met the joint shop stewards committee and management. It was pointed out to me that the introduction of high technology in the factory would increase productivity in certain areas by 60 per cent. Here are two related and important points. Obviously, the introduction of the technology will result in redundancies. That is accepted by the trade unions.

That shows clearly the wind of change that is blowing through so much of our trade union organisation. It is accepted that an increase in productivity is necessary if companies, industries and the country are to remain competitive. The unions will accept new technologies, even though in the short term they may result in redundancies. That is one example of the realistic attitude being increasingly displayed by so man British workers.

I attach one rider. Those who may lose their jobs through the introduction of high technology should receive inducements to facilitate its introduction. I pay tribute to my right hon. Friend the Member for Farnham, because he mentioned this point. The inducement should be financial or, better still, in the form of improved training to assist such people to earn a living in an alternative trade or industry. They accept that a more productive Britain is a more profitable Britain. A more profitable Britain is a working Britain.

It is sometimes implied—we heard it yesterday, and perhaps we heard tinges of it again today—that the Government welcome unemployment. That is as extraordinary as it is untrue. There are no votes in unemployment. The Government are doing their best to tackle the problem. They have set up enterprise zones and improved the job relief scheme. I hope that the scheme will signpost a way to reduce the retirement age for men, although I recognise how costly such a measure would be. The short-term working supplement is another measure designed to help industry and maintain employment.

The new training initiative recently announced by my right hon. Friend the Secretary of State for Employment will do much for young people leaving school. In its first year it is expected to provide places for 300, 000 young people at any one time and to cost about £1 billion. This will surely help our young people to receive the training that is so necessary for later life.

Another imaginative concept is the enterprise allowance scheme which is currently taking place in Coventry and elsewhere. I hope that the experiment works and that it will be extended to many other areas. Also, about 1, 500 new companies have received loans of about £52 million in the past six months. These are a small number of the positive things that the Government have endeavoured to do to tackle the problem.

Despite all the assistance, it is a mistake to believe that only the Government have the answer to unemployment. So much could be done by the ordinary man and woman. For instance, before a purchase is made, one should ask what the country of origin is and, where possible, buy British. Too often we purchase a foreign item when there is a British equivalent. Sometimes it is felt that to be good it must be foreign. For some extraordinary reason, we denigrate ourselves, our efforts and our products. A concerted programme of buying British would save more jobs than all the Government intervention measures put together. We should remember that fact the next time we buy foreign goods. When we buy foreign goods, we export jobs from Britain.

Yesterday, the right hon. Member for Chesterfield (Mr. Varley) specifically mentioned the West Midlands. By coincidence, I received a booklet which relates to the West Midlands produced by the CBI. It sent a questionnaire to ask which companies had developed entirely new products. About 50 per cent. answered "Yes", 76 per cent. had modified existing products, 75 per cent. increased the product range, 71 per cent. were engaged in process innovation, 68 per cent. had diversified markets, 49 per cent. had expanded exports, 71 per cent. had introduced more flexible working and 67 per cent. had restructured management. The Midlands region is adapting and should not be written off, as the right hon. Gentleman endeavoured to do yesterday.

That is all good news, not just for the West Midlands but for Britain, and not just for companies but for those who are employed in them. The title of the booklet is "Winning Through". That is what the Government are doing and that is what the country is doing. We ate winning through.

6.49 pm

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

The hon. Member for Rugby (Mr. Pawsey) will forgive me if I do not entirely follow his speech, but I take him up on one point. I understand that he has a Ford Granada which I suggest is manufactured in Cologne. The hon. Gentleman does not seem to be interested in taking up that point. I seem to have struck home.

Mr. Pawsey

The hon. Gentleman may be right. A Ford Granada is an improvement on the car that I used to run, which was a Volvo. This weekend I am trying a Range Rover. [Interruption.] I hope to practise what I preach, despite what the hon. Member for Coventry, North-West (Mr. Robinson) or others may think.

Mr. Brown

The bulk of Volvo parts are produced in the United Kingdom. A Ford Granada is a step in the wrong direction.

I make no apology for speaking parochially about unemployment in the Northern region—the county of Tyne and Wear, the city of Newcastle upon Tyne and my constituency, in that order. The Northern region paved the way in the Industrial Revolution for the United Kingdom's prosperity. I do not claim that we therefore deserve special consideration, but it is monstrous that we have been treated in the way that we have been over the years, and particularly over the past 33 months, by the Government.

Currently, 222, 200 of our people, or 16.4 per cent., are unemployed. Worst of all, 142 school leavers are chasing each vacancy notified to careers officers. That is a most damnable statistic, even in a country that has 1, 300, 000 more people unemployed now than in May 1979. Unemployment is costing about £13, 000 million a year, which is a tragedy. I hope that the Chief Secretary will reflect on that figure and consider what could be done if the Government returned to a regional policy. Under the previous Secretary of State for Industry, who was responsible for regional policy, it was forgotten.

Last December 88, 062 people were out of work in Tyne and Wear. That was l6.2 per cent. or one in six people. Last year unemployment in the county increased by 15, 049, or 21 per cent. Since the Government came to power in June 1979 the increase in unemployment in the county has been 37, 899 or 76 per cent. Last year 14, 274 people were declared redundant in Tyne and Wear, which brings the total of redundancies in. the county since the Government came to power to 36, 331. The majority of jobs lost have been in manufacturing. During the recession, 17.4 per cent. or one in six of the county's manufacturing jobs have gone The Chief Secretary should reflect on that fact.

Tyne and Wear has the second highest rate of unemployment among metropolitan counties, second only to Merseyside. Currently, the rate is one and a third times higher than the national average. Contrary to what my hon. Friend the Member for Eton and Slough (Miss Lestor) said yesterday, male unemployment predominates. It is 73 per cent. of the total. In the past year 75 per cent. of the increase has been among males.

Among the Tyne and Wear districts, unemployment is highest in Sunderland, at 18 per cent. and South Tyneside follows with 17.9 per cent. There, nearly one in every four men is out of work. In November 1981 it was estimated that 11, 355 young people were in the youth opportunities programme, but despite the increased number of places, unemployment among young people has increased by 40 per cent. in the past year. It was 5, 200 in December.

In December there were only 1, 785 job vacancies in the whole county. For every vacancy there are 49 jobless people. The situation is considerably worse in isolated pockets. For example, last September almost 400 general labourers in shipbuilding and engineering were unemployed, for every one vacancy. Last October 48, 000 or 54 per cent. of the unemployed had been out of work for over six months and 28, 916 or 32 per cent. for one year or more. For young people under 24, 13, 163 or 49 per cent. had been unemployed for six months or more and 5, 006 or 19 per cent. for one year or more. Those figures are scandalous.

I deal next with the city of Newcastle upon Tyne. I shall use the December figures, as I do not have the figures for January. They will be even worse. In December 21, 937 people were unemployed. In December 1980 the figure was 17, 855, which means that in a year there was an increase of nearly 23 per cent. That is in one great city.

The continued high level of unemployment has caused a savage rise in the number of long-term unemployed. In the country as a whole the number of people out of work for six months has risen from 560, 000 to almost 1½ million in the past two years, which is an increase of 163 per cent., which compares with the overall increase in unemployment over the same period—which God knows is bad enough—of 119 per cent. More recently, the proportion of unemployed who have been out of work for more than a year has risen even more savagely. In October 1980 they comprised 19.4 per cent. of the total. By October 1981 the percentage had risen to 26.3.

Similar increases are all too evident in Newcastle. The number of unemployed rose from 4, 600 in October 1980 to 7, 100 in October last year. As a proportion of all the unemployed in the city, that represents a rise from 26.7 to 31.5 per cent., which is much worse than the national average.

The city council recently carried out an extensive survey into the situation in the east of Newcastle upon Tyne. I wish that that had happened in my constituency, because I could have sought an Adjournment debate and done some justice to it. I am surprised that the hon. Member for Newcastle upon Tyne, East (Mr. Thomas), who represents the SDP, is not here and has not been in the past two days. He could enlighten the House on the state of play in his constituency, where the survey carried out by the city council revealed that in the Walker ward there is 34 per cent. unemployment among males. A host of information arises from that survey and, as I am sure the hon. Member's constituents will be, I am disquieted to find that not a murmur has come from the hon. Member about the awful situation in his constituency.

Mr. John Horam (Gateshead, West)

The hon. Gentleman is making an attack on my hon. Friend the Member for Newcastle upon Tyne, East (Mr. Thomas). My hon. Friend's record is extremely good, particularly in relation to saving the contract for Parsons. The hon. Gentleman should know about that, as he was also involved, although my hon. Friend took the lead in a move that saved hundreds of jobs under the Labour Government. It was the Labour Government who penalised Newcastle upon Tyne, East.

Mr. Brown

I am happy to accept that I and my Tyneside colleagues, including the now SDP Member for Newcastle upon Tyne, East, played a considerable part in saving many jobs at Parsons. It was not the exclusive work of the hon. Member to whom I have been referring.

There is only one answer to the problem of unemployment, but it will not be followed as long as this discredited Government cling to office. We must have an alternative economic policy that will include a massive job creation scheme in the public sector and through the public sector to the private sector. For example, in Tyne and Wear we have thousands of jobless construction workers and a terrible housing situation, with no fewer than 12, 000 people desperate for houses.

Last week I tabled a number of questions, the responses to which would have been relevant to the debate. It is remarkable how Ministers on the Treasury Bench on receiving a number of questions the replies to which could have been relevant in such a debate, give a holding reply such as "I shall reply to the question as soon as possible." I have no doubt that tomorrow I shall receive "Pursuant to your letter of" replies from Ministers.

The Under-Secretary of State for Transport was one of those who was good enough to give me an answer. Last week I asked him whether, in view of the level of unemployment among construction workers in Newcastle upon Tyne, he will immediately bring forward the construction of the western bypass for the city of Newcastle upon Tyne? He replied: The scheme is already being prepared as quickly as possible. If all goes well, work could begin in 1985."— [Official Report, 26 January 1982; Vol. 16, c. 322]. It has been my luck to live on the line of the route of the proposed bypass all my life. It is within my knowledge that the whole of the route of the proposed Western bypass has been in public ownership for at least 50 years, since the scheme was first actively discussed. A number of houses will have to be demolished, but they have been purchased, so there is no problem of the acquisition of land or anything else. Why on earth, with all the land there and no question of delays for land acquisition or the purchase of houses, or anything like that, does it take five years to prepare the scheme?

There are two major separated junctions involved, and if we talk in terms of a two-lane motorway, once one has been designed on virgin land, all the others have been designed. I cannot accept that it will take another three or four years to design and start that road. It could be started within weeks rather than years, thereby providing some added work for the construction industry.

People are waiting for, nay demanding, houses in Newcastle. Hundreds of my constituents live in council houses which badly need bringing up to modern standards. Regrettably, the city council can do nothing about them, because of a lack of finances. Those are the things to which the Government should be directing their mind with a view to reducing unemployment.

7.5 pm

Sir Ian Gilmour (Chesham and Amersham)

The hon. Member for Newcastle upon Tyne, West (Mr. Brown) made a parochial speech and rightly said that he made no apology for doing so, but as I do not come from his parish I make no apology for not following him in his extremely interesting and detailed speech.

Although the right hon. Member for Stepney and Poplar (Mr. Shore), the Shadow Chancellor of the Exchequer, tried to denigrate it, there has been a good deal of good news about the economy lately. There have been the past year's trade figures, which show that we have an enormous surplus. There have been signs that the pay round is going satisfactorily, which suggests, as my right hon. and learned Friend the Chancellor of the Exchequer said earlier, that the inflation rate should be lower than is currently forecast. There has been the slight recovery of industrial production, although the decrease in November means that the news here is less unequivocally good than it is elsewhere. There have been the striking recent increases in productivity and the guarded optimism of Professor Burns in the past week and the perhaps rather less guarded optimism of my right hon. and learned Friend the Chancellor this afternoon.

As against all that good news there has been the dreadful unemployment figure, but it seems to me that the improvements elsewhere in the economy give us the opportunity to tackle the problem of unemployment. My right hon. and learned Friend said this afternoon that the rise in unemployment was slowing down. I hope that my right hon. Friend the Chief Secretary will deal with this, because I am not sure that that is so.

I wish to examine adult unemployment, not because youth unemployment is not importan—it is—and not because my right hon. Friend the Secretary of State for Employment has produced an excellent training scheme, as he has, but because that is the true method of getting at an underlying trend. The unemployed adult total rose between June and November of 1981 by 212, 000, that is, by 40, 000 a month. In December, if we include the elderly people who took advantage of the scheme to go off the register, the figures were 17, 000 and 21, 000, that is 38, 000. In January they were 47, 000 and 5, 000, making 52, 000 in all. That was obviously increased by the bad weather.

That means that there has been a fairly consistent rise of 40, 000 a month since the middle of 1981. I am not sure where my right hon. and learned Friend saw a decline coming from. There does not seem to be any evidence of a change in trend since the middle of the past year. That is borne out by the Government's economic forecast of an increase of only about 1 per cent. in output this year. The revalorisation of duties and income tax, which costs the Chancellor about £1 million, is assumed in that forecast. I do not know whether the Chief Secretary will be able to clear up that matter. Perhaps he will also say whether Christopher Huhne was right to say in The Guardian that the Government would have to inject £2 billion in spending power merely to make the Budget neutral.

Taking into account the expected increase in the supply of labour, the prospective rise in output, which is so much lower than has been necessary in the past in order to keep unemployment constant, might not slow down the morease in unemployment and is unlikely to reduce the rate to below 20, 000 a month. With adult unemployment seasonally adjusted at 2, 829, 000, the figure for adult unemployment will be well over 3 million this time next year on current Government policies. Presumably the "headlines" figure will be much more than that.

Some people have urged a reflation of £2 billion to £3 billion. In my view that completely mistakes the magnitude of the problem that we face. I agree with Mr. Sam Brittan on that, although not necessarily with the rest of his conclusions. A reflation of £2.5 billion would be about 1 per cent. of the gross national product. That would lead to an addition of output of barely 1 per cent. a year later. According to the ready reckoners based on the Treasury model, a 1 per cent. increase in output should lead to a decrease in unemployment of only about 100, 000 18 months later.

Therefore, people who talk about a reflation of about £2.5 billion are using the wrong numbers. To pursue policies that will still lead to over 3 million unemployed next year is not dealing with the problem of unemployment, but running away from it.

We must give the unemployed some hope. If one is 16 or 18, it is not encouraging to be told that the problem will begin to be solved towards the end of the Parliament after next. At that age, that period seems like a lifetime. We must give the young and all unemployed people the belief that things will get better; otherwise, we are running serious risks. We all know that the Government are not indifferent to the plight of the unemployed, but unless they act, their concern will not be understood.

Therefore, more is needed. There must be special measures to reduce unemployment. There must be a greater expansion of the economy than £2 billion or £3 billion. I am not engaged in a silly auction of numbers, but I am trying to make a valid evaluation of the sum of money that will be sufficient to make unemployment fall substantially in 1983.

Last October I put forward a package costing about £5 billion. Time has moved on since then, inflation his moved on since then, and unemployment has become worse than it was then. Therefore, I have no doubt that what I said at that time now needs slight additions.

First, my package included the abolition of the national insurance surcharge, which my right hon. Friend the Member for Farnham (Mr. Macmillan) advocated. Secondly, I proposed the adoption of the special employment measures suggested by Professor Layard for reducing unemployment, to which the hon. Member for Colne Valley (Mr. Wainwright) referred and which Mr. Sam Brittan put forward this morning. The size of the problem is so great that unless one has special measures to deal with unemployment there will be small effect on the register. Professor Layard's scheme is estimated to produce about 500, 000 jobs, at a cost of about £1 billion.

Thirdly, I proposed a reduction of interest rates, and, fourthly, joining the EMS. The fifth proposal was for extra capital spending of at least £500 million. However, because of the present state of the construction industry, which has been badly squeezed and which is not import-intensive, that sum should be increased.

That package was, and is, designed to reduce unemployment and to help industry by reducing industrial costs. My right hon. and learned Friend the Chancellor of the Exchequer emphasised the importance of that. We ace faced not just with the tragedy of unemployment, but with a deplorable waste of real resources.

Mr. Raymond Whitney (Wycombe)

I understand that the package will cost about £5 billion. My right boa. Friend rather quickly passed over the idea that we also wanted low interest rates—

Sir Ian Gilmour

I am coming back to that.

Mr. Whitney

I am grateful to my right hon. Friend.

Sir Ian Gilmour

As I have told the House before, the package was put through the Treasury model with satisfactory results. It produced favourable results for all the true objectives of economic policy. Output was increased, employment was increased and prices were lower than they would otherwise have been. In other words, according to the Treasury model, expansion does not produce inflation, but lowers it. A much bigger package that I put through the Treasury model also has beneficial results in all those respects.

Of course, my package is at variance with the medium-term financial strategy. I confess that that does not worry me. We now have 3 million unemployed. If the medium-term financial strategy envisaged 3 million unemployed, it should not have been adopted. If it did not envisage 3 million unemployed it should now be abandoned.

I recognise that a reflationary fiscal package would increase the PSBR and the quantity of money, but I do not accept that there is any necessity for interest rates to be higher because of that. If the national income and private savings were fixed, higher gilt-edged sales would cause interest rates to rise. However, as the national income and, with it, private sector savings would be increased under my proposals, there is no reason to suppose that interest rates would have to be any higher. That line of reasoning is fully confirmed by the Treasury model, which shows that those reflationary measures could be taken with no need to increase interest rates and without any substantial dealing in financial markets, including foreign exchange dealings by the authorities.

Mr. Arthur Lewis

I can point out to the right hon. Gentleman and the Government where at a stroke they could put the matter right. Last week I asked how many hotel and catering workers from foreign countries were allowed to come here and work on permits. I was told that there were about 8, 000. I asked yesterday how many hotel and catering workers were unemployed in Great Britain. I was told that there were 16, 000 in Greater London and 116, 000 in Great Britain. There is no question of considering public money or inflation. We should stop those people from coming here, when we already have 116, 000 unemployed hotel and catering workers.

Sir Ian Gilmour

The case that I put forward has not been answered, although my hon. Friend the Financial Secretary to the Treasury made a speech about it. The Treasury's system of ideas, which presumably it believes in, showed that my proposals would produce all the desired results. So far, no answer has been given.

That brings me back to the good news that I mentioned at the beginning of my speech. Now is the time to cash in on what has been achieved. With productivity rising fast, now is the time to increase production. After all, rising productivity and static production spell more unemployment, so fiscal policy should allow production to expand. Our large surplus is yet another reason for doing so. Therfore, we must use what is going well in the economy to alleviate what has been going appallingly badly. The situation that we now face is extreme. Unless we act, it will become even more extreme.

The proposals that I have put forward are a moderate response—not all too moderate, as the right hon.

Gentleman might say—and a modest first step to make things better. They are the bare minimum. Faced with the enormity of the problem, the country will not be fobbed off with mere tinkering. Much more is needed, so I hope that even at this late hour the Government will recognise the need to act now.

7.21 pm

Mr. Geoffrey Robinson (Coventry, North-West)

I am glad to have been called to speak in this debate, and to have the opportunity to follow the right hon. Member for Chesham and Amersham (Sir I. Gilmour), whose proposals I wholeheartedly welcome. Labour Members can honestly say that we have admired the integrity and the courage with which he made clear his disagreement with policies when he was a member of the Cabinet, and from the position that he now occupies. He is a considerable influence in his own party. He does not flinch from modifying—and in so doing, coming nearer to our policies—the ideas that he previously put forward.

I shall address my remarks to what I consider is the heart of the motion. The deflationary economic policies of this Government have caused the massive decline in output and the massive rise in unemployment. Those two facts were so amply demonstrated in the opening speech of my right hon. Friend the Member for Stepney and Poplar (Mr. Shore), that I shall need to sharpen up only two areas of the statistics that he gave. If the Minister can confirm those statistics when he winds up, it will be greatly to the advantage of a naturally much fuller House to realise fully the size of the disaster that this Government have brought upon themselves and the country.

The two sets of statistics that I hope will be confirmed are the official statistics, as I interpret them from the OECD figures, which show that while our manufacturing production has declined during the period of this Government by no less than 12.6 per cent., the average of the rest of the OECD countries has declined by only about 1.6 per cent. In other words, our factor of decline in manufacturing has been eight times that of the average of the OECD. While the average rise in unemployment for the OECD countries has been 31 per cent., in the United Kingdom it has been a disastrous 104 per cent. If those two figures are confirmed as accurate, as I believe they are, the case for the motion is made. There is no doubt that this Government's policies are at fault. There is no other way in which one can explain the disparities in the magnitude of the differing performances of countries which are similar to our own, even though we have greater weaknesses in certain vital areas than they have. There is no way in which a threefold increase in unemployment over the average and an eightfold decrease in the level of manufacturing production can be explained.

We must ask ourselves: what will the Government do about it? The right hon. Member for Chesham and Amersham put forward moderate and tentative proposals for a change in strategy. From what the Chancellor of the Exchequer said this afternoon, it looks as though the medium-term financial strategy is to be kept more or less intact. We have a ridiculously restrictive financial stance. According to the latest figures in December 1981, in the OECD economic outlook, our PSBR deficit will be equal to 1.4 per cent. of GNP. That is lower than the Japanese, and much lower than the average for the OECD as a whole, which is 2.4 per cent.

What else are the Government planning to do? Faced with deflation in their PSBR strategy, it must inevitably follow that they are planning to cut and are cutting Government expenditure. The latest figures that we have for general Government expenditure in the first two quarters of 1981 are the lowest ever on record. In the first two quarters of 1981, with the country already in the grips of a world recession, compounded by a domestic-led reflationary recession, the Government choose to have the lowest level of general Government expenditure in recorded history—that is according to the latest figures published in Economic Trends.

Does it therefore surprise any right hon. or hon. Member that, while those are the figures for the public sector, the capital expenditure for manufacturing industry, on which much of the take-off that has been predicted is bound to be based, are estimated in 1981 to be the lowest since the early 1960s? Thus, we have a policy of restriction, cuts, and deflation, which is to continue, with the inevitable consequence that there will be more unemployment and lower production than we could achieve.

We did hear some good news. I shall come to that in a minute. I thought that it could justify the sort of Budget that the right hon. Member for Chesham and Amersham and I would support. I agree with him that there would be just grounds for doing so. I admired his sleight of hand in proposing that, so good was the good news, that we could now embark on a planned and sustained expansion. The truth, of course, is that the bad news is so bad that there is no alternative, if the bad news is not to get worse.

What about new companies, for example? The Government have said a lot about their plans for new companies. The hon. Member for Rugby (Mr. Pawsey) referred to the various grants, the guarantee loan schemes, the microprocessor scheme, and other tinkering measures. Nevertheless, the past two years show a record number of liquidations. The Government have managed to double liquidations. I have read nothing about the doubling of new companies or about the doubling of the output of small companies.

What have we heard about production in the United Kingdom, as opposed to making comparisons with other OECD countries? Such comparisons can be misleading, and do not bring home the real impact of what has happened here. During the period of office of this Government, up to May of last year, manufacturing output declined by no less that 18.4 per cent. At the risk of boring the House, I shall repeat that figure: output declined by no less than 18.4 per cent. Since that time, it has increased by 2.2 per cent. Will the Chief Secretary, or whoever is to reply to this debate, tell us—there is no point in trying to press the Government on unemployment, because they will give no forecast in that connection—that the Government's policy for output will get us back to the level that it was when they came to office? That would be quite an achievement—to get back to the point from which they started. But to do that, they will have created perhaps 3½ million to 4 million unemployed. The right hon. Member for Chesham and Amersham warned us not to be too certain that this modest rise in production will continue unabated.

What has been the cost? At a national level, it is costing £12½ billion. That is more than the whole of the PSBR, about which everyone is so worried—that is, the PSBR with the capital projects included in it, from which our future wealth and employment must come. It is equal to £4, 500 for every person that we keep on the dole—every one of the 400, 000 construction workers who are on the dole, while 1 million or 2 million bricks stand idle.

However, unemployment, disastrous and inexcusable though it is in terms of the waste of resources that it inevitably implies, is not just a matter of statistics and costs. There is also the human aspect. In the West Midlands we have seen an increase of 178 per cent. in unemployment during the Government's term of office. In my constituency last summer only 15 per cent. of those who left school got permanent jobs. Nationally—it is a statistic that must not be treated as such but as a human tragedy—25 per cent. of those aged between 16 and 25 have been out of work for one year or more. It is a lost generation. It will not forgive the Conservative Government, nor it will forgive entirely the previous Government. Those young people could have expected something better of their Government than either party provided. Certainly, they have nothing to expect from the Liberal Party or from any SDP-Liberal alliance.

I am glad to see my right hon. Friend the Member for Bristol, South-East (Mr. Benn) in the Chamber. I agree with him about the awesomeness of the task that we face to find jobs for 4 million unemployed. We must think not only about tinkering with the economy, reducing interest rates, introducing national insurance surcharges and investment grants. I am sure that the Treasury has plans in hand, as does the Department of Industry, to stimulate the economy.

Some Government at some time must come to a historic compromise with our trading partners and with the trade unions. My experience in industry was that if one could guarantee sustained and increased output and if one could carry on a sustained dialogue with the work force, the wages problem was not so significant because one could talk about a sustained growth in wages. The trade unionists did not wish to outstrip the rate of growth, provided that the output was modest and sustained. The critical and quintessential preconditions to obtaining such a sustained rise in output are a massive public works spending programme and some understanding with our trading partners, within and without the EEC, that we need some protection for long enough to rebuild those industries that have been allowed to fall into disrepair. A Labour Government with a strong mandate and a firm majority could carry out that historic mission.

7.32 pm

Mr. Richard Needham (Chippenham)

I hope that the hon. Member for Coventry, North-West (Mr. Robinson) will forgive me if I do not follow him down that path. I am sure that he will be glad to hear that one of the greatest and most expensive pleasures in my life was to drive a car with which he had some association many years ago. Unfortunately, that is no longer possible, for reasons that I shall outline when I turn to my proposals on the Budget.

I wish to refer to some of the comments made by the right hon. Member for Crosby (Mrs. Williams) yesterday, when her animus towards the Secretary of State for Employment got rather the better of her. She said: He is introducing a youth training scheme that is essentially cosmetic. He has seen apprenticeships decline by 25 per cent. while the Government have been in office, apprenticeships that were not replaced by any effective skill training scheme. The youth training scheme is not that. It is a one-year, cosmetic attempt to take young men and women off the unemployment rolls and to give them nothing resembling a real skill or qualification. One does not receive that in one year of a cobbled together, cheap scheme."—[Official Report, 27 January 1982; Vol. 16, c. 922.] It is unfortunate that the right hon. Lady should have used such terminology, because it will do untold damage to the chances of the scheme being successful if youngsters believe that her comments are correct.

It is worth pointing out that the training element of the youth opportunities programme, with which the previous Administration were associated, cost £500 for each place per year. The training element in the scheme being introduced by my right hon. Friend is £2, 000 for each trainee per year. The scheme bears no relation to what has gone before. It is only fair to point out that when the right hon. Lady was a Minister in the previous Administration, in 1978 she, with the right hon. Member for Chesterfield (Mr. Varley) and others, wrote a document called "A Better Start in Working Life". The opening paragraph stated: At present, over 200, 000 young people leave school each year at 16 and take jobs where no further education or planned training is available. The Labour Government had as much time as could reasonably be needed to introduce the sort of scheme about which the right hon. Lady has complained. What did she do during her time in Government to ensure that youth wage rates were sensible? What did she do to persuade the trade unions to move towards the modular training, to which she referred yesterday? What did she do to ensure that those young people received worthwhile training before they went to work? The answer is that she did virtually nothing. To take it out on the Government for the faults for which she was as responsible as anyone else, and to undermine the Manpower Services Commission's attempts to try to get the scheme off the ground, is disgraceful. I hope that she will come to the House and make it plain that that is not her intention.

I understand the Chancellor's dilemma about what he can propose on 9 March. His fear, as he is no doubt advised by those quiet and careful men in the Treasury, is that, if he increases the PSBR by too much, it will increase the pressure on the exchange rate. At the point in the cycle when economic growth restarts he will no doubt be advised that if the PSBR increases too much the effect of sentiment will be to lead to a fall in the pound. If the pound falls, interest rates must rise and the Government will not be able to produce a package between now and the election that will give them a chance of re-election. That is the sort of advice that he has been given, and he has probably also been reminded constantly that it is possible that American interest rates might rise dramatically. If they do, that will make matters even more difficult for him.

If American interest rates rise substantially, the size of the PSBR will not matter, because we must follow suit. The Chancellor can, to some extent, discard that argument. Furthermore, when, due to the civil servants' dispute last summer, he ran out of money, he raised £6, 000 million in the market. That did not have an obvious effect on interest rates.

Therefore, it is reasonable for the Chancellor to do more than he is advised by those who sit unknown in the offices in Whitehall. Just as I and my colleagues try to understand his problems, perhaps he will try to understand the problems of private industry. It is easy for politicians to talk about a lack of competitiveness. It is usually decried by politicians who have never spent a day on the shop factory floor. However, it is not so easy to do something about it when one is in industry. Many of the problems faced by the private sector result from the overshoot in sterling. In private industry, it is impossible to deal with an exchange rate of $1.80 one day and an exchange rate of $2.40 the next. One cannot de-man that quickly, reequip and produce that fast. It is impossible to make up such a fluctuation. As the CBI stated, taking 1975 as a base, halfway through last year we lost competiveness to the tune of 50 per cent., and even now, with the decline in sterling, we have still lost competitiveness to the tune of 35 per cent.

However good the productivity figures are, I must tell the Government that there are some caveats. A CBI letter on the productivity figures, written to me today, said: you will see that output per person employed for the third quarter of 1981, for the whole economy, is 112.1 compared to 111.7 in the second quarter of 1979. In other words, very little progress has been made in productivity over this period. It is roughly the same for manufacturing industries. Output per man-hour did increase from 111.2 to 115.1 over this period, but this has to be seen against the loss of real capacity which British industry has suffered by shortening the working week in response to unemployment. That is the CBI's view. I think it is perfectly legitimate to talk about restrictive practices and overmanning, but it is not fit to lay all the blame at the feet of British industry for not putting it right over the years.

Perhaps the Chief Secretary will tell us in winding up the debate something about the miscalculation on the monetary base which, again, some private advisers have mentioned. The advisers, and one in particular, blamed the contraction of the monetary base on the severity of the depression and the overshoot of sterling. If that is true, I do not see how private industry can be held to blame for it.

What could private industry have done about the appalling increases in public sector prices? It is not fair to blame private industry for them. My concern is that increasingly—I agree with the right hon. Member of Bristol, South-East (Mr. Benn)—the private sector of industry, in which I have been involved since I left school, starts to believe that the Government do not understand the world in which industry must operate. If that is the case, it may not end in such a happy outcome for the success of the Government's policy as the right hon. Member for Bristol, South-East thinks. However, it would be a disaster for the Conservative Party if we lost faith and touch with the private sector.

Therefore, I urge the Chancellor to ignore the more pessimistic advice that he receives from his gurus and to take as his guideline and star the CBI budget plans which are reasonable, sensible and achievable. At least, they can add to growth and do something for employment and get the economy to move in the right direction with, it seems to me, a minimum of risk.

I say bluntly to the Treasury Bench that the Budget on 9 March may be the Government's last chance to restore their credibility in most sectors of the manufacturing base.

My second point concerns the plight of the long-term unemployed.

Mr. John Stokes (Halesowen and Stourbridge)

My hon. Friend the Member for Chippenham (Mr. Needham) knows that I greatly admire him. He represents a largely agricultural constituency whereas I represent a wholly industrial one. The contrast I find is that whereas it is true that some, perhaps rather peevish, managers and entrepreneurs disapprove of the Government policies, many sensible manufacturers and managers support them. Above all, the man on the shop floor understands the reality of the situation to a remarkable degree and he would disagree with a great deal that my hon. Friend said.

Mr. Needham

I am sorry that I cannot agree with my hon. Friend. In many ways, I wish that my constituency was mainly agricultural. Agriculture and agriculture-related industries in my constituency employ only 7 per cent. of the labour force. It has within it one of the most foremost engineering companies, which supplies British Rail and many other manufacturing companies, and there are also the five companies I started when I left school. I hope that I am being neither peevish nor petty but realistic in how my work force and I see the difficult world we live in.

Returning to the cost of the long-term unemployed, particularly the Government's present proposal, I hope and pray that it is only a present proposal not to uprate unemployment benefits and short term supplementary benefit by 2 per cent.

The loss of earnings-related supplement affected 42 per cent. of those receiving unemployment benefit. There were arguments this afternoon about whether that figure was one in five, but it was 42 per cent. The 5 per cent. abatement of unemployment benefit has distorted the ratio between that and short term supplementary benefit, so that now unemployment benefit for a married man with no children is £33.40 compared with £37.75 on short term supplementary benefit. The result is that more people are being driven out of unemployment into the short term supplementary benefit, thereby increasing the PSBR.

The time has come for the Government to tell us—hopefully tonight—what they propose to do about the abatement of the 5 per cent., now that they have fixed a date for bringing these benefits into tax.

My right hon. Friend the Secretary of State for Industry, the former Secretary of State for Social Services, in Committee on the Social Security (No. 2) Bill, said: as the unemployment benefit comes into tax, so the rationale for the 5 per cent. abatement ends. It is an interim scheme in lieu of taxation. One will give way to the other."— [Official Report, Standing Committee B, 30 April 1980; c. 526.] Will it? When unemployment and short term supplementary benefits come into tax, they will raise £300 million in the year 1982–83 and £475 million in a full year. That is more than sufficient to make good the abatement and the 2 per cent. shortfall in unemployment and short term benefit.

On the 2 per cent., I have always comforted myself that at the end of the day the Government will back the safety net. The Supplementary Benefits Commission, in its annual report for 1977, said: Life is hard for everyone who depends on supplementary benefit but it is hardest of all for the unemployed. The pensioners, the sick and disabled and one-parent families tend to be slightly better off, and they tend to have more persistent people speaking for them. Since my time in the House, I hope that I have always spoken on behalf of the long-term unemployed, who very often have not been represented as they might have been.

My right hon. Friend, the then Secretary of State for Social Services, wrote to me on 16 June 1980 and said: Furthermore, the fact that we are maintaining the supplementary benefit safety net means that we are protecting the poorest—this is surely the answer to accusations that we care little for the social consequences of our actions". In his Budget Statement on 26 March 1980, my right hon. and learned Friend the Chancellor of the Exchequer said: Again, any civilised society should provide a safety net below which a poor person's standard of living should not fall." Later he said: clearly, no action we take should be at the expense of the really weak and needy."—[Official Report, 26 March 1980; Vol. 981, c. 1458.] The long-term unemployed are the "really weak and needy". Their position compared with other people on benefits has become consistently worse. In 1971, when unemployment benefit was on an index of 100, retirement pension was 100, ordinary supplementary benefit 97.4 and long-term benefit 103.6. In 1981, unemployment benefit was 100, retirement pension 130, ordinary supplementary benefit 103.7 and long-term supplementary benefit 130.1. These people have specifically and remorselessly found themselves worse off.

Most or many of the unemployed are those most likely to lose their jobs once more when they find work on the "last in, first out" principle. Therefore, they will not have much in the way of redundancy pay, and now that their earnings-related supplementary has been removed they will suffer.

As I understand it, those in work who received little or nothing in the last pay round feel somewhat aggrieved. The answer to their problem is index allowances and not to reduce the level of benefit to the unemployed. No opinion poll that I have seen has shown that argument to carry much weight among the public at large. If anything, the opposite is the case. They want the unemployed to be treated properly, because many of them are frightened that sooner or later they, too, may be unemployed.

Mr. W. Benyon (Buckingham)

Does my hon. Friend agree that Treasury Ministers' minds might also bend towards the plight of those who are caught in what is called the invalidity trap and find that, because invalidity benefit is higher than the lower rate of supplementary benefit, they never reach the higher rate of supplementary benefit? The position of the disabled unemployed, who must he the worst off in society, must also be rectified.

Mr. Needham

My hon. Friend is absolutely right Furthermore, the long-term unemployed are not entitled to long-term supplementary benefit.

The cost of restoring the 2 per cent. to unemployment benefit would be one tenth of 1 per cent. of employee contributions. I appreciate that my right hon. Friend the Secretary of State for Social Services probably began with a request from the Treasury to cut his budget by £1 billion and, having knocked that down to £65 million, may rightly feel aggrieved when people, such as me, do not give him credit for that achievement but complain about this fairly insignificant amount.

It is not insignificant, however, to those who—perhaps insignificantly—feel that in the Tory Party we stand in the shadow of people such as Lord Shaftesbury. For us, it is a matter of the deepest and most important principle. We cannot and will not allow the poorest of the poor—the long-term unemployed—to become any poorer.

7.51 pm

Mr. Barry Sheerman (Huddersfield, East)

I do not intend to take the time of the House for very long. It is important to speak in such an important two-day debate on the economy. The two days have really been one continuous day, albeit on two motions.

I congratulate the hon. Member for Chippenham (Mr. Needham) on one of the better and more compassionate speeches that I have heard from the Conservative Benches for a long time. However, his speech did not fit in with the general tenor of Government policy. Indeed, I have been disturbed over the past few days by the way in which the present Government seem not only to be out of touch with ordinary men and women but to have a positive dislike of them.

Reading through the report of yesterday's debate, I found a catalogue of excuses from the Government as to why Britain is in trouble and why we have 3 million unemployed. I shall list some of those excuses. The first, which we have heard many times, is that there is a world recession. We have been told that often by the Secretary of State for Employment. A second is that we suffer from a continuing lack of productivity, from restrictive practices, inefficiency and overmanning. Another is that we have suffered a tremendous rise in oil prices. Furthermore, Governments have interferred too much.

A little further on, we find that the Government believe that British industry is guilty of poor product design, poor marketing, slow delivery, high costs, inflexible use of manpower, poor industrial training and poor goods and services. One need only look at this catalogue of the deficiencies of the British people to understand that the Government have no responsibility for the 3 million unemployed, for the dreadful conditions suffered by so many of every hon. Member's constituents and the real poverty which stalks the towns, cities and countryside as never before remembered by the House. If members of the Government would get out of their chaffeur-driven limousines they would see the sheer misery and poverty which now exists.

One does not have to look at the statistics produced over the past two days. One must look at the haggard faces of men and women who do not know where the next meal is coming from or whether to buy the new pair of shoes for their son or daughter to go to school in or to pay the rent to understand the dreadful poverty that is being suffered.

It ill becomes any Government to make excuses. We live in a parliamentary democracy—I am extremely glad of that—and it is an answerable and responsible democracy. People elect Governments to govern—to do something about the condition of ordinary British men and women. The electorate expect results. They do not expect to be told, "Sorry chaps, you have given us such a tremendous problem, you are bad managers and awful time keepers, you do not produce the right products and anyone in his right mind will buy a foreign car, television or whatever." That is precisely what the Secretary of State for Employment was telling us yesterday. The country does not expect a Government to list our deficiencies. We expect them to govern. They are expected to produce a programme for the economic and social rebirth of the nation.

I do not for a moment wish to play the parochial card and say that my constituency is worse off than any other. It is, perhaps, a microcosm of the country. It is neither the worst nor the best. According to yesterday's figures, unemployment rose by 2.1 per cent. to 12.9 per cent. during last month. One might say that that is only a little above the national average, but let us look at the picture more closely. Let us look at my constituency as one of the key industrial towns of the country. It is well situated for transport and has a long tradition of highly skilled people. It does not have the problems of South Wales, where I used to live for a long time, with its tremendous dependence on heavy industry, coal and steel. Nor does it have the same problems as many parts of Scotland and the North-East or, indeed, the tragic problems of Northern Ireland.

If there is no future for industrial development, if goods cannot be produced profitably, or employment provided, in West Yorkshire and Huddersfield, how can one hope for industrial development in any part of the country except perhaps the South and South-West? If any Government tell the House, "We have given up trying to provide employment for all our people and we will only make people move down to the South and West", that is the end of the government of Britain.

The other side of the coin in my constituency is a diversified industry. The woollen textile industry has been hammered—130, 000 jobs have been lost in the lifetime of the present Government. Huddersfield had an unemployment rate of 3.4 per cent. when I was elected. The decline in the town has been disastrous. There was some false ferocity yesterday about the announcement of 3 million unemployed but, as I have often said before, it is forgotten that as unemployment gets worse the kinds of people who become unemployed have rather different skills, and length of service and the effort and additions that they were making to their firms' product and the national product are different.

When such a situation exists in Huddersfield, we are in very dark days. Recently, I visited one of the largest ICI plants in the country—in Dalton, in my constituency. I do not wish to be merely anecdotal, but to make a point. When I asked the management of that large organic dyestuff producer how production was going, I received the reply that it was increasing and that the company had done a little better in the past six months. I asked which areas the company sold to and I was told that the firm had always been very much export-oriented and that it was selling far more than previously to Korea, Taiwan, Hong Kong and to that part of the world.

Hon. Members know only too well that those dyestuffs are produced for the textile industry. I asked about the tremendous market that the company had always had in Britain. That market has not risen at all. It has reached an all-time low and there is no sign of it picking up. Behind that statement lies the reality of the nonsense of the Government's boasts about "good news". If the speeches made in the House in the past two days are the good news, Heaven help us when we hear the bad news. That is one of the worst "good news, bad news" jokes that I have ever heard.

In my constituency, the bad news is that in the past two and a half years we have not seen much more efficient firms, people learning to be more productive or time and job sharing. Huddersfield has never had highly unionised workers or high rates of pay. No one who has studied the economic history of the textile industry can show me any textile worker who has got fat working in a mill. Hon. Members should consider the history of the general level of wages in West Yorkshire. Many good firms producing the best worsted, cashmere and camel hair in the world have gone to the wall. They used to serve overseas markets well, but the Government's economic policies, the succession of Budgets, the way in which interest rates have been forced up, the change in the value of the pound and the Government's changes of mind have bankrupted many good business. Hon. Members should drive past the empty mills and the boarded-up windows of West Yorkshire. Those firms will not return.

In many ways the engineering industry is in the same boat. David Brown tractors is not in my constituency but many of my constituents work there and it has faced dire days. All those great exporting industries in my constituency that have records of efficiency, productivity and industrial relations second to none have gone, never to return. I hope that I have shown what the microcosm of my constituency says about the Government's policies.

I spent many years as a university teacher. As a Member of Parliament I do not specialise in education and I do not often take part in debates on higher education. Budgets make a contribution, but the Government's longterm strategy can be seen and identified in the activities of the Ministries. If those Ministries' work does not mesh together, Heaven help the infrastructure of Britain. The situation in Britain is crazy. With more unemployed young people than ever and a bulge in the number of young people coming up to university age and with the Government's dreadful policy, which seems to beg all reason, university places are being cut by 20, 000 per annum and will be cut by 44, 000 places by 1984. Those places will never return. Those young men and women will never gain the skills to become top managers and to put Britain into a competitive position with Germany, Japan, France, Italy and so on. Those skills will be lost for ever.

When statistics are thrown at me, I usually stop listening. However, it may seem glib to talk about 20, 000 places, but hon. Members should work out what that means in their constituencies. In Huddersfield, 150 people will find that their children cannot go to university next year although they would have been able to go this year. That is unfair and the kids will know it. They have been deprived of opportunity and of the chance to make a longterm contribution to Britain's national wealth. How can a Government defend sacking one in six university teachers? That will cost a lot of money in handshakes and early retirement pay. It is nonsense to sack them when we want such teachers to teach young people.

I have some inside knowledge of this issue. During the final speeches in last night's debate I was sorry to hear a Conservative Member say that we did not need social studies. I hope that some Conservative Members will look at Rolf Dahrendorf's contribution last night, which was printed in The Times this morning. He pointed out that economists, mathematicians and those undertaking business studies come under the heading of social studies. Those people of the highest quality have a contribution to make throughout our national life.

The university nearest my constituency, Bradford university, is closing between nine and 14 departments on the university's technical side. The Prime Minister always says that engineering is being protected, but it is not. It is receiving slightly less abysmal treatment than some other subjects. If the textile department is closed at Bradford university there will be one such department left in Leeds. What hope does that give to the infrastructure of the textile industry, if there is nowhere to teach graduates or undergraduates? I could take more time and show that the textile industry is in trouble and that the Government are depriving young people of every age, skill and ability of the opportunity to gain the training necessary to bring that industry back into national and international prominence. That is economic madness. We shall pay a terrible price in the years to come.

Many of us realise that five years is not a very long time in politics. What the Government are doing, at a stroke, will be reflected for a long time in the scars on our families and on society. It is the bare minimum to talk in terms of a substantial reflation when there are 3, 000, 000 unemployed. Those 3, 000, 000 are being paid far more than we receive in total oil revenues. In the 1960s we often spoke about those oil revenues as the wealth that would enable us to re-equip British industry and make it competitive with other countries.

We know what has happened in the last two and a half years. Those oil revenues have gone to the dole queues, not to new investment in British industry. If they have not flown into the dole queues, they have flown abroad for investment which provides jobs for people who do not live in this country. I do not believe that I am a hard-line ideologue, but I believe in a diverse and flexible response of Government intervention. If that is not accepted as a tool of reflating the economy, of getting the economy working in the right sectors and providing jobs in the right regions, it is an abdication of Government control and parliamentary democracy.

I believe in a package. Yes, I believe in an incomes policy. Many of my right hon. and hon. Friends may not agree with me, but it is inevitable that any Government who want to govern have to have an incomes policy, as well as a reflationary package, if they are not to be inflationary. We must have selective import controls. It is nonsense to watch our car and textile industries—industry after industry—being ruined by competition that we cannot match in the short term. Japan is dumping in this country cars, motor cycles. televisions, and many other sophisticated industrial goods.

It is a sad reflection on this country when we allow it to become more like an under-developed country—a country that exports raw materials such as oil, and imports sophisticated manufactured goods. If that is the road that we are on, surely we need a package of an incomes policy, selective import controls, control of interest rates, enterprise allowance schemes and Government intervention as a flexible response. It should be applied in a pragmatic, not a doctrinaire, way. That is the way in which we should move in order to save this country and its future.

Mr. Deputy Speaker (Mr. Bernard Weatherill)

remind the House that there are less than 50 minutes before the wind-up speeches begin, and that many hon. Members have been sitting in the Chamber all afternoon waiting to speak. I hope that hon. Members will bear that in mind when they time their speeches.

8.13 pm

Mr. Jocelyn Cadbury (Birmingham, Northfield)

I listened with great interest to the hon. Member for Huddersfield, East (Mr. Sheerman), but I cannot agree with his analysis of the recent high level of unemployment in this country. It is facile to blame our level of unemployment on two and a half years of Conservative policies. The 3 million unemployed are the victims of Britain's industrial weakness, which goes back over many decades. It is useless and wrong to blame any single group, whether it be management, the unions or the Government. Surely the blame has to be spread around equally. To some extent we are all to blame for what has happened.

In 1950, the United Kingdom had a 25 per cent. share of world trade. Now our share is only 8 per cent. That is where the jobs have gone. They have been lost to our overseas competitors. Why has that happened? It has happened because over a long period we failed to raise our productivity at the same rate as our competitors, but during that period we continued to award ourselves larger wage increases than they did. That is brought out by the fact that from 1975 to 1980 Britain's labour costs rose by 88 per cent. per unit of output. In the same period labour costs in Germany rose by only 17 per cent., and in Japan they did not rise at all.

Not only productivity has caused the problem. In the past, British goods have not been—with glowing exceptions—of high enough quality, and they have not been well enough designed. We have not been aggressive enough in selling them and we have not delivered them on time. Those are some of the reasons why we have serious problems now.

It is not surprising that this country should have been the first to be hit by the world recession. Our industry, out of all the countries in the industrialised world, was the weakest. We were bound to be the most severely hit. However, it is important to note that other European countries, and the United States, have also been hit by the recession. Not only are there 2 million people out of work in France and 1.7 million unemployed in Germany, but the rate of increase of unemployment in Germany is higher now than in this country.

I believe that under the present Government British industry has begun to tackle the causes of our previous poor performance. In the West Midlands, where I come from, there is evidence that management is at last beginning to manage again and that trade union members are accepting changes in working practices that would have been unthinkable five years ago. At British Leyland, in my constituency, productivity has risen by between 25 and 30 per cent. over the last 12 months. The Longbridge work force has been particularly successful. Whereas in 1980 it took 17, 000 men to produce 132, 000 cars, in 1981 14, 000 men built 234, 000 vehicles. That has been achieved by a series of factors—a dramatic reduction in unofficial strikes, which have in the past plagued the Longbridge factory, and major improvements in the flexibility of working, so that an electrician no longer has to summon a plumber if there is a piece of piping in his way. He can now move the piping himself.

The result of those improvements across the whole country, together with the moderation that we have seen in wage settlements, meant that unit costs rose at a slower rate in this country last year than in any other industrialised country, including Japan. That cannot just be brushed aside, as the right hon. Member for Stepney and Poplar (Mr. Shore) attempted to do. That is a major achievement. It is the way forward.

Although great progress has been made, let us not underestimate what industry has had to endure in terms of increased industrial costs for many reasons over the last few years. Unlike Opposition Members, I do not attribute all the bombs that have been dropped on industry to the present Government, although in certain circumstances the Government could have mitigated the effects of some of them.

One of the reasons to which I referred is a world recession, which has hit exports. In my constituency many companies traditionally dependent on the motor industry made great efforts to move away from that dependency into exporting world-wide. They were savagely hit by the world recession.

Another reason is the rise in the value of sterling, which my hon. Friend the Member for Chippenhan (Mr Needham) mentioned. I believe that during 1980–81 the high value of sterling did a great deal of damage to exports and to companies in this country. For example, it virtually wiped out our sports car industry. British Leyland totally lost this market in the USA.

Thirdly, a continuing sharp rise in energy costs had serious consequences for the heavy energy users—industries such as steel, chemicals and paper.

There has also been a continuous steep escalation in the cost of public sector services. The managers of companies in my region feel strongly about this. They have made great efforts to hold back on costs, keep wages down and improve productivity, but they have no choice but to absorb the continuously increasingly inflationary costs of the services that they must buy from the public sector. This underlines the need for the Government to continue their efforts to open up the public sector to competition, to reduce the size of the public sector and to reduce the numbers of Government staff, all of which are a burden on the private sector.

Finally, there is the rate burden. In my region there is great bitterness over the extent to which rates have risen and over their imposition on local industry. In many instances the rates have risen as a result of unnecessary political gimmicks, such as the scheme in the West Midlands to subsidise bus fares.

Some councillors have poured scorn on the complaints of business men and have said that rates are a small factor in industry's costs. In fact, the total rate burden on the company sector is £5½ billion—more than the total profitability of that sector—so it is not a small issue, but a major one.

Industry has done remarkably well, in view of all those adverse factors. Having worked in two large United Kingdom companies, I think that the cold douche effect of the first two years was probably necessary to push managers and work forces along the road to international competitiveness. But the shock treatment cannot be applied indefinitely. The real rate of return in British industry is dangerously low, at only about 2 per cent. The CBI calculates that if nothing is done it will rise to about 3 per cent. this year. That is not enough.

Companies need more profitability if they are to invest heavily enough in new plant and in research and development to be able to keep ahead in the areas in which they already have a lead and to catch up in the areas in which they have fallen behind. The research and development programmes of many British companies are woefully inadequate, yet our industrial future must lie in high-technology sectors, as we face increasing competition in basic industries from the low-cost countries of the Far East.

We should not forget that despite last year's excellent performance United Kingdom labour costs are still about 35 per cent. worse than our competitors were in 1975. Therefore, I ask my right hon. and learned Friend the Chancellor for an industrial Budget this spring which will bring about an investment-led recovery in the economy.

I wholly accept the need to continue the fight against inflation. I am aware of the constraints that this places upon my right hon. and learned Friend, but there are risks attached to any policy. On the one hand it would be folly to consider injecting into the economy the gigantic sums advocated by the Labour party. That would launch us back along the way to hyperinflation and high interest rates, which would undermine the whole objective. On the other hand, if my right hon. and learned Friend opts for a neutral Budget the likelihood is that the gross domestic product will grow by only I per cent. that is within the margin of error, so it could mean no growth at all.

The risk is that industrial production will remain flat and profits will not rise enough to enable companies to invest, to become competitive and to create new jobs. The objective must be to choose a programme that will have the minimum effect on inflation and the maximum effect on output.

I suggest to my right hon. and learned Friend a package similar to that advocated by my right hon. Friend the member for Farnham (Mr. Macmillan), involving three main elements. First, and most important, the employers' national insurance surcharge should be reduced by 2 per cent. In a full year that would cost the Exchequer £1.9 billion, but, because of the time that it would take to implement it, in 1982–83 the cost would be about £1½ billion.

I refer to the ENIS because a reduction in it would be the single most effective and immediate way of reducing industry's costs, raising profitability and helping industry to become more competitive. When we were in Opposition we rightly criticised the right hon. Member for Leeds, East (Mr. Healey) for introducing this appalling tax. It is a tax on jobs and exports. If one had set out deliberately to design a tax calculated to kick industry in the teeth, one could not have come up with a better answer. The tax must be reduced.

Some people have devised extraordinary and eccentric arguments to demonstrate that reducing the ENIS is not the best way to help industry. The most insidious argument is that employers would dissipate in wages increases the money that they were given back. I do not believe that. I have been involved in negotiating wage increases, and I know that such negotiations are decided not by a single element but by a whole range of factors—what the chap up the road is earning, the level of unemployment and so on.

It is a philosophy of despair to suggest that British management is incapable of taking a long-term view of what is best for its businesses and that it is unqualified to make the wisest use of the resources at its disposal. I disagree totally with that argument. I support a reduction in ENIS.

A reduction in ENIS would benefit companies large and small in a roughly equal manner. It would be fair to everyone. It would tend to reduce industrial costs and reduce inflationary pressure. Unlike cuts in the basic rate of income tax advocated in some quarters, most of the money given away would be spent within the United Kingdom economy.

Another part of the industrial package that I advocate is an increase in spending on capital projects of £500 million during the coming year. I am not in favour of launching into major glamour schemes such as the Channel tunnel. Such schemes have so long a lead time that they would have little impact on jobs in the next year or two. I advocate an increase in spending on more modest projects that will yield a reasonable rate of return and prove a permanent benefit to the country's infrastructure. In the Midlands, for example, there is an urgent need to complete the motorway network. There is need of a good road to East Coast ports for our exports.

The programme that I advocate would give a lifeline: to the sorely depressed construction industry and lead to a swift increase in jobs.

Thirdly, I urge the Government to do more to help industries that are intensive users of energy. Ft is impossible for a steel manufacturer who is paying 30 per cent. more in electricity costs in this country to compete with manufacturers in Germany and France with their cost advantage. A scheme was introduced by the Government last year to give some relief to intensive users of electricity. It did not go far enough. In the short term, a more imaginative electricity tariff needs to be introduced to enable industries such as the steel industry to meet foreign competition.

One of the Government's fundamental objectives must be to bring about the long-term regeneration of British industry. Despite the depredations of the recession, industry is now emerging in better shape to compete in world markets. The key to the success of the forthcoming Budget—a Budget that is critical to the ultimate success of the Government's entire economic strategy—is that businessmen are given confidence and respond positively. I believe that a package such as the one that I have outlined and such as that suggested by my right hon. Friend the Member for Farnham would give industry confidence to invest and lead to a permanent strengthening of Britain's industrial base.

8.27 pm

Mr. Derek Foster (Bishop Auckland)

the hon. Member for Birmingham, Northfield (Mr. Cadbury) must forgive me if I do not follow him along the route that he took. He is a member of a party that came to power in 1979 bleating that Britain was over-taxed, over-borrowed, over-paid and over-burdened by the State, and that the fault rested with the pursuit of Socialism over many years and the pursuit of equality. The remedies offered by the Conservative Party included squeezing inflation out of the system. At that time, according to the gospel, it was possible to ignore wages and there could be free collective bargaining. All that was needed was control of the money supply, and after 12 months, 18 months or two years, there would be no problem.

According to the new Conservative Government, it was also necessary to cut public expenditure, but that could be done painlessly because there was so much waste in the fleshpots of the public sector. It was said that if that waste were eliminated there would be no need to reduce services. That, it was claimed, would help us cut our borrowing and reduce interest rates. It was also necessary to cut taxation, they said. The British people had become lazy and feckless because there was no incentive for them to work. If the British people were given back their money, that money would fructify in their pockets, while all the entrepreneurs, according to the last leg of the policy, would be galvanised into activity. That was the Conservative Government's view.

Nothing like that happened. Inflation, far from being squeezed out of the system, rocketed to 22 per cent. following the doubling of VAT, and it has not yet fallen to the level that the Government inherited. Public expenditure has been a story of suffering and pain. Following regular bruising Cabinet battles and swingeing cuts in services, such as education and social services, and cuts in benefit to the poorest—it should be remembered that 5 million people in the United Kingdom live in poverty—public expenditure has actually increased as a percentage of gross domestic product, according to the Red Book presented by the Chancellor of the Exchequer at the time of his Budget. Money has been diverted from essential services. Where has it gone? After all this pain of cutting public expenditure, the money has been diverted into funding unemployment, which is costing us about £13½ billion a year.

Look at the record on taxation. By increasing VAT, by failing to index tax allowances, by increasing national insurance contributions, by forcing up the rates, by increasing charges for services, the burden of taxation has actually increased. My hon. Friend the Member for Blackburn (Mr. Straw) has produced figures, which have not so far been denied, as I understand it, by the Prime Minister or by the Chancellor, which show that the average family now pays £35 a week more in taxes than in 1979.

When we look at the galvanised entrepreneurs, what we see is that there has been a record, unprecedented increase in bankruptcies. They have been caught between high inflation and high interest rates and they have gone out of business at an unprecedented rate.

If we consider output, we see that manufacturing output fell by 20 per cent. in the first two years of this Government. That was the most severe slump for over 50 years. It was a bigger reduction than even between 1929 and 1931. There has been some improvement, but manufacturing output is still 17 per cent. below the figure of 1979. I remind the Chancellor that 800, 000 people lost their jobs in manufacturing industry during that period. Jobs are still 17 per cent. below the level of 1979 in manufacturing industry.

In these past two days there has been much talk of the good news. One would not want to deny the Government some comfort there, but somehow they have not mentioned that industrial output actually fell last month—it also fell in November—by 1½ per cent. If it had not been for North Sea oil, the figure would have been much higher than that.

When one looks at the employment figures, one gets all the bad news at once, does one not? There are now at least 3 million people out of work. That is the registered figure. When we look at the underlying increase last month, we see that it was more than 47, 000. The underlying trend of the last few months has been an increase of 40, 000 a month, or about half a million a year. The Secretary of State for Employment in his statement yesterday admitted that we needed to create about 200, 000 jobs a year to cope with demographic trends.

It is not inflation that has been squeezed out of the system, but output and employment. Nowhere else in Western Europe has there been a comparable loss of jobs and output. Certainly in no other oil-rich nation has there been this kind of experience.

There has been talk of the international recession. I should like to quote the article to which the hon. Member for Colne Valley (Mr. Wainwright) referred in relation to OECD figures. It says: Britain's fiscal stance has on average been three times as restrictive as the stance of the other Big Seven developed countries". That gives the lie to the assertion that we have been following policies similar to those abroad.

Those policies have been flagrantly wasteful. We are paying £13½ billion in unemployment benefit. The Manpower Services Commission has calculated that £10½ billion worth of output has been lost during this period. I understand that £8½ billion of capital investment has gone overseas since exchange controls were abolished.

It is not just Labour Members who criticise Government policies. The Select Committee on the Treasury and Civil Service produced a report on 16 December. In paragraph 46 it said: In view of the emphasis which the Government originally accorded to the Strategy and to certain particular targets, notably those for the money supply and the Public Sector Borrowing Requirement, it is a surprise to the Committee to find a lesser emphasis being currently given to these items. The evidence we have taken in the course of the present enquiry indicates a marked lack of certainty in relation to these targets, which is in strong contrast to the position of eighteen months ago. This makes it difficult for the Committee to measure and assess the position which the economy has now reached, and must throw doubt on the underlying Strategy as it was promulgated at the time of the Budget in 1980. We therefore believe that the time has come for a major re-statement of the Strategy, so that Parliament and public may be fully informed of the economic objectives which the Goverment now have set. I remind the Chancellor that that Select Committee has a Tory Chairman and a Tory majority.

Not only is there no alternative, but there is no strategy. I suppose that if one has driven into a tunnel or has tunnel vision there is no alternative. One can go on or turn back, or stand still like a scared rat. The Chancellor shows all the signs of being a man with tunnel vision in a maze. The Government say that there is no alternative, but the Select Committee says that there is not even a strategy.

What are the alternatives? The Liberals have offered £9 billion over three years, which they say will amount to £3 billion extra borrowing. The wets are recommending reflation of between £3 billion and £5 billion, depending on the degree of moisture. The SDP has offered £5 billion reflation. None of these alternatives addresses import penetration, nor do they address the underlying problems of competitiveness and low productivity. Government strategy, for all its faults, at least attempted to address those important problems although I think that they are wrong-headed and damaging.

What of Labour policies? Any serious alternative must address at least four things: unemployment, to which I give top priority, reflation, import penetrations and, taken together, competitiveness and low productivity. Of course there must be a substantial reflation of the economy. We are talking in terms of £8 billion to £9 billion. This must be pursued through public sector investment, the electrification of the railways, investment in British Telecom, which will provide the basic network for the information technology industries of the future, British Gas and the North Sea gas-gathering pipeline, housing, where there are so many great needs, and the sewerage system. The last two will provide many jobs in the construction industry, where 400, 000 are unemployed.

The reflation must be combined with economic planning. I do not apologise for using the phrase. The planning should include a positive industrial strategy pursued by a national enterprise board and a national investment bank and by proper planning agreements both at local and national level.

Alongside that we need a proper and reinstalled regional development policy. I come from the North. I am avare that the regional development as been dismantled over the past two years. The number of industrial development certificate approvals issued over the past two years shows that clearly.

Economic planning must continue by the management of trade. It is inconceivable that we should allow import penetration to continue at the level of the past few years. We can negotiate with our trading partners, even though there are trading difficulties with GATT. We can negotiate about an increasing level of trade and restrictions on import penetration. We shall be talking about a rising level of imports—although we want the level of imports to remain lower than exports.

It is impossible to have a credible alternative economic strategy without a counter-inflation strategy. This is where I disagree with my right hon. Friend the Member for Bristol, South-East (Mr. Benn). In my opinion we must consider how to reflate the economy without allowing all the reflation to be dissipated either in inflation or through import penetration. I cannot conceive how we can have credible reflation without a prices and incomes policy. We should restore exchange controls, because £8½ billion going overseas to make our competitors much more efficient than ourselves is intolerable.

There are 874, 000 long-term unemployed people, and that is the most tragic problem of all. Many are in the North and in my constituency, where job prospects are diminishing daily. What is happening to them? Their benefits have been reduced. They have been hounded by the DHSS fraud squad. They have no confidence in the Chancellor with the tunnel vision and none in the Kamikaze pilot of Chingford.

8.43 pm

Mr. Terence Higgins (Worthing)

There is an air of unreality about economic debates which take place shortly before the Budget. My right hon. and learned Friend the Chancellor of the Exchequer suggested that we should express our views. I am glad to have an opportunity to make one or two comments.

Arithmetic may turn out to be less important than rhetoric, and the need to reappraise the economic concepts involved in the management of the economy may turn out to be more important than either.

One fundamental point is absolutely essential to the Budget. It is a mistake to believe that we should give priority to unemployment and curing it rather than to inflation and curing it. Unemployment will be reduced permanently only if inflation is tackled first. That is the basis on which this debate and the forthcoming debate on the Budget should proceed.

The right hon. Member for Stepney and Poplar (Mr. Shore), opening for the Opposition, made one of the best speeches that I have heard him make for a long time, but it was fundamentally misconceived. He advocates massive reflation, and he came close to quantifying it this afternoon. He would make up the deficit between taxation and public expenditure by borrowing, but he does not have the slightest intention of covering the borrowing from the non-bank public. He would borrow the money from the clearing banks, so there would be a multiplier effect and an astronomical increase in the money supply, which would inevitably have a traumatic effect on the exchange rate.

I disagree violently with many of the right hon. Gentleman's arguments on the exchange rate, but it is not arguable that the effect on the exchange rate of such a policy could be other than a massive depreciation in sterling with, in turn, a massive increase in import prices and, therefore, inflation. We should be straight back in the old inflationary spiral, with, in the long term, even worse effects on the unemployed. That is a simple but profoundly true argument.

The right hon. Member for Crosby (Mrs. Williams), in a television programme last night in which I was glad to take part, put forward the SDP policy to reduce unemployment by 1 million in two years. It would have a gross cost in terms of extra borrowing of £5.6 billion and a net cost, allowing for unemployment pay and so on, of £2.3 million. That is an incredible statement. I have great respect for the right hon. Lady, and I am astonished that she believes that the British electorate and particularly the unemployed are sufficiently gullible to believe that that can be anything other than a pre-election bid. The arithmetic does not work.

Mr. Horam

The right hon. Gentleman sets up an Aunt Sally. Suitable measures could perhaps take 1 million off the dole queue in two to two and a half years. But that goes much further than the £5 billion to £6 billion inflation that we are talking about. It is a quite separate matter.

Mr. Higgins

I recorded the programme and shall be delighted to show it to the hon. Gentleman. It will be available upstairs. The right hon. Lady said exactly what I have described, not what the hon. Gentleman slates. It is a good thing to have the matter on the record. It gives us an idea of the policies that we can expect from the Liberal-SDP alliance.

The nature of the present increased unemployment is fundamentally different from that which we have previously experienced since the war. Higher exchange rates, interest rates and so on have caused a massive reduction in overmanning. The Leader of the Opposition earlier this afternoon said that the Employment Bill that we are proposing to introduce next week is misnamed. If ever a piece of legislation was misnamed, it was the Labour Government's Employment Protection Act.

For the reasons that I gave, employers will not readily take on again those whom they previously employed, so the opportunities significantly to reduce unemployment in the next two to three years are limited. I fear that this applies to the policies advocated for reflation by some of my hon. Friends.

The reality now, in terms of the impact of reflationary measures of unemployment, may be that a reflation of £1 billion, £2 billion, £3 billion, or perhaps even more, is similar to the old-fashioned fine tuning that we used to see. I do not think that the effects of changes of that kind will be significant in terms of unemployment. They could be so in terms of output, for the reasons I have mentioned. There is a great potential for an increase in productivity at the moment.

My right hon. and learned Friend the Chancellor has a dilemma. It is that, while that arithmetic is in many ways degraded by the situation I have described, rhetoric is dangerous for him. We have tended to become caught on catch-phrases—"There is no alternative", "No U-turns" and so on. It is therefore extremely difficult, when my right hon. and learned Friend comes to his Budget, to make a speech which, even through the arithmetic will make some improvement for output although not much for unemployment, will be interpreted as a U-turn, with serious effects on the exchange rate and inflation. He has an extremely difficult task.

My right hon. and learned Friend is right, as I have already told him, to stress the advantages of long-term policies. He is also right to stress that the adoption of a medium-term financial strategy does not mean that the economy will go down and bump on the bottom for ever and that it is our intention that economic growth will be resumed.

I will not recapitulate the arguments I have put forward on previous occasions about the relationship between the rate of change in the money supply and inflation—the changeover from a decrease in real money supply to an increase. I have deployed those arguments before and my right hon. and learnd Friend is familiar with them. It means that we have some important policy points which need to be spelt out in the forthcoming Budget.

The report of Select Committee on the Treasury and Civil Service on the autumn review drew attention to two facets of policy which need clarification. One is the question of the definition of the money supply and its quantification, and the other is the question of the relationship between the monetary aggregates, however defined, and the exchange rate and the rate of interest.

It is essential that the policy on the second—the relationship between the monetary aggregates and exchange rate and the rate of interest—should be clarified. The Chancellor may find himself in four situations. Six months go we had a major reversal of policy when the interest rates were raised in two large steps as a result, in large measure, of a potential fall in the exchange rate. The Government were right to take that action, because, if the exchange rate had continued to fall, there would have been serious results in terms of unemployment, investment and the economic attitudes with which we are concerned.

Although the Chancellor was right to do that, he still has a basic dilemma because both the monetary aggregates and the exchange rates are important. We could have a situation where the monetary aggregates are moving in a satisfactory way and the exchange rates are satsfactory. If that continues, we may be able to cut interest rates. However, we could have a situation where the monetary aggregates and the exchange rates are going in the wrong direction. In that case, one has pressure to raise the interest rates. We could have a situation where the monetary aggregates were all right, but the exchange rate was not. For the reasons that I have mentioned, and the history of six months ago, in those circumstances one tends to raise the interest rates.

The difficult problem would be when the monetary aggregates are unsatisfactory and the exchange rate is all right. In those circumstances, I seem to glean from what my right hon. and learnd Friend said this afternoon that that probably meant that the pressure on the interest rates should be upwards rather than downwards. If that is so, there is a danger that we might become uncompetitive, and it would probably be more desirable that interest rates should be downwards rather than upwards.

I suspect that the old Biblical saying that one cannot serve two masters is the reality. We may have to choose between concentration on monetary aggregates or on the exchange rates. It will be important to clarify that in the Budget speech.

The second point in the Select Committee's report was on the definition of monetary aggregates. As has been said, we found ourselves in a dilemma because M3 was not mentioned in my right hon. and learned Friend's November statement. It is important to look at the range of monetary aggregates. The Chancellor has a difficult decision to make between now and the Budget whether to stick to M3 with all its imperfections or to go for targetry on a broader basis.

I believe that it is still tremendously important to stress the PSBR, because, if we are to lower interest rates, it is absolutely essential that the Government should borrow less. I thought that the right hon. Member for Stepney and Poplar was extraordinarily naive. He seemed to think that when one had a PSBR, it did not matter how much interest one paid. One must pay the rate of interest that is sufficient to finance that if one is to keep control of the money supply.

Mr. Eggar

Will my right hon. Friend give way?

Mr. Higgins

I am sorry. I cannot give way to my hon. Friend, with whom I have the pleasure to serve on the Select Committee, as I do not have much time to make my speech.

It is essential to continue to stress the PSBR. Looking at the overall picture, we see that there is a choice to be made between tax cuts and getting public sector borrowing and interest rates down. My present preference is in favour of putting considerable emphasis on control of the PSBR and keeping interest rates down rather than making tax cuts. If there are to be tax cuts, they should be devoted to reducing industrial costs more than anything else.

My right hon. and learned Friend referred to the crucial role of American interest rates. Those of us who have spent some time in the United States—I spent some weeks there this summer—cannot help but feel that there is an extraordinary sense of déjà vu. The Americans are going through the same experience that we have had over the past two years in almost every respect. Because there is more of a dichotomy between the Federal Reserve Bank and the Administration, it is difficult for the Americans to cut interest rates. That is having a severe effect on Europe. For that reason, my right hon. and learned Friend was right to say what he did this afternoon. I hope that we can make the strongest representations to the Americans about the effect that their actions, for understandable reasons, are having on the whole world economy, which are flowing back to the American economy. I back my right hon. and learned Friend on that.

I dealt with the PSBR and the effect on the money supply with regard to input. However, there is also the effect on the money supply of excessive lending. That was one of the other reasons why interest rates went up a little while ago. The way in which the Bank of England operates at present is strange. Two years ago, when we were told that the money supply was important, money was pumped in to keep down interest rates. Now we find that private company bills are being bought on a massive scale and that the Bank of England is lending direct to the private sector at the same time as we are complaining that everyone is borrowing too much. That is paradoxical. Perhaps we should have an explanation of what is happening.

Industry has been supported by the clearing banks over the last two years. However, a great many industries have borrowed in order to finance their losses over that period and keep in business. That means that if expansion begins, they will face a difficult problem because they will be gearing between loans, on the one hand, and equity, on the other. It will be a tight situation. They will then find that they do not have the finance to expand because they have already pre-empted their borrowing resources to keep in business.

That raises a serious problem. If adjustments are not made in macroeconomic policy, the implication is bound to be that, when the recovery starts, private industry will not have the money that it needs to finance its expansion.

We have had a series of economic debates over the past two and a half years about monetary policy. The important thing is that the supply side of the economy has improved greatly with regard to the reduction of overmanning and the potential increase in productivity. However, it is now essential to look at the longer term and encourage investment. Otherwise, that temporary improvement in the supply side of the economy will not be sustained in the longer term.

A considerable time ago I said that there was an important distinction between what I described as a true monetarist policy of a reduction in public expenditure public borrowing and interest rates, and what I called a phoney monetarist policy, meaning a failure to control public spending, public borrowing, and high interest rates. In both cases, it is possible to control the money supply, but there is a tremendous distinction between the two different concepts. As a result of the understandable political pressures which have built up over the past two years and the immense difficulties that my right hon. and learned Friend has faced in cutting public expenditure—I fully realise the difficulties—I fear that it will no longer be feasible to make a further substantial cut in the level of public expenditure sufficient to get to the first of those two positions. In that sense—the chance of achieving the Policy that we would have liked—we have reached the end of the road. If that is so, it is absolutely essential that my right hon. and learned Friend, in his Budget speech, should reappraise the foundations of our future policy.

There has been a transformation of British industry over the past two years. In many ways, it can be highly beneficial and can form the policy and make clear the foundation for sustained future progress of the economy on a sound basis. But we need now to look forward, beyond that transitional phase, to the longer-term future. Therefore, I hope that my right hon. and learned Friend, in his Budget, will satisfy the various conditions that I have outlined and carry us forward to further progress.

9.1 pm

Mr. John Horam (Gateshead, West)

On a point of order, Mr. Deputy Speaker. The leading Labour spokesman on economic affairs spoke for no fewer than 59 minutes when he opened the debate. No doubt his colleagues will take his full half hour to wind up the debate for the Opposition. The Government have had their say, and no doubt they will have a winding-up speech also. We have heard supporters of the Government. We have heard reasonably moist wets and extremely damp wets. We have heard supporters of the official Opposition, and critics of the official Labour Party line. We have heard from the various factions of the Labour Party. However, Mr. Deputy Speaker, you have not seen fit to call any spokesman from the Social Democratic Pary. That gives the public some idea of the difficulties that we are up against, especially when we are continually told that we have no policies. I want to register that fact.

Mr. Deputy Speaker (Mr. Ernest Armstrong)

I understand the frustrations of a number of hon. Members who have tried to catch my eye. However, the length of speeches is not a matter for the Chair.

9.3 pm

Mr. Robert Sheldon (Ashby-under-Lyne)

I have pleasure in following the speech of the right hon. Member for Worthing (Mr. Higgins). I believe that I qualify for any old boys' reunion that the Treasury and Civil Service Sub-Committee might see fit to have at any time in the future. Its work has helped the House greatly. I hope that the technicalities in which it sometimes indulges, and has indulged, will inform the House, and not always frighten it.

A Cabinet meeting was held this morning to discuss economic strategy. I must tell those members of the Cabinet who wish to influence the Chancellor of the Exchequer that I believe that their success will be rather limited. They will have received—they always do—a large amount of paper from the Chancellor of the Exchequer, and a variety of views will have been expressed. The political situation will have been mentioned, and aspects of the Budget touched upon. Some Members will have called for a few billion pounds reflation—some will have called for more, and some for less. Some will have said, "Stick to current policy", whatever that might be. Some Members will have called for a national insurance surcharge reduction, and some will have called for income tax threshold increases. The Prime Minister will have told the tale about a particular manufacturer who has increased productivity by 10 per cent., and another who has received an export order for several million pounds. The Chancellor of the Exchequer will have promised to take all these views into account, and the Cabinet will have been fooled again.

The Cabinet will have been fooled not because we have an astute Chancellor of the Exchequer or a dominant Prime Minister but because of the very rules of secrecy that permit only two Ministers to decide upon the Budget—the Chancellor of the Exchequer and the Prime Minister. They do so under conditions that resemble a battle in which the enemy are their Cabinet colleagues. The real question that they should have asked this morning is why such secrecy is necessary.

There was a time, before the days of inflation, when changes in Customs and Excise duties were made much more rarely than they are today and, with a certain amount of foreknowledge, money could be made in the market. Today, price rises to take account of inflation are continual. Customs and Excise duties changes are frequently announced well in advance and are frequently leaked. As the Treasury is one of the few Departments in the Government that still holds its secrets on budgetary matters, any leak is intentional. Nor is the need for secrecy valid for value added tax changes. Even there, for administrative reasons, notice is required several weeks in advance. Income tax changes can also be notified well before the date on which they are to be implemented. So there is no need for such concealment. The secrecy in the discussion of those matters is preserved for one purpose only—to present a fait accompli to the Government and to Government Back Benchers.

The only secret weapon that the Chancellor of the Exchequer enjoys is the secrecy itself. When, in the Budget, he inevitably gives a little here and a little there, not so much in one area and not so much in another, he can claim that he has taken account of all the representations made to him when, in practice, he has done nothing of the sort. He has preserved his prerogative, which is to spring fiscal surprises upon his pliant colleagues. When we consider such matters we must be aware that the Chancellor is in the same position as if there were no Cabinet meeting at all.

In all the economic debates that we have—there have been quite a few during the past year—we share one important point of agreement on both sides of the House. That is the importance that we attach to the rate of growth, although we may accord different priorities to it. For example, the Prime Minister believes that growth can come only after inflation is cured. The right hon. Member for Worthing (Mr. Higgins) also said that. My difficulty is that I am never sure at what level of inflation the growth can be resumed. Is the rate to be 7 per cent., 5 per cent., 2 per cent. or 10 per cent., which was the rate when the Government came to office? Perhaps one day we may be informed of the economic policy that is being followed by the Government.

If we consider the Memoranda on Monetary Policy and Public Expenditure published by the Treasury and Civil Service Committee on 19 February 1980, we see that, in a letter that he wrote to the Chairman of the Committee, the Chancellor of the Exchequer said: The main objectives of the Government's economic strategy are to reduce inflation and to create conditions in which sustainable growth can be achieved. No one is estimating the reduction of inflation to much below 10 per cent. next year. Does that mean that economic growth will not be resumed because, under the definition that the Government may employ, inflation will not have been conquered?

If the Government say that they have conquered inflation at the level of 10 per cent.—the rate they inherited—why was economic growth not continued when they came into office? Why have we gone through the agony of the past three years?

Of course everybody is in favour of reducing inflation. Many countries have high inflation together with a high rate of growth, and many a low rate of inflation and rate of growth. The Government's simplicities in connecting low inflation with high growth are not apparent in the many countries that we might consider when examining that closely.

If the Chancellor is to retain some respectability for his argument, he must answer this question: if the connection between inflation and growth is valid, why, when inflation in the United Kingdom was much the same as in other countries, did we have much lower growth rates in the post-war years than obtained in other countries, particularly in Western Europe? The truth is that the Government have a policy of sorts—by deflation—to reduce inflation but no policy for growth.

The Government had a simple solution in 1979; monetarism would reduce inflation and once that was under control, the long-term growth could follow. That was spelt out in speeches by the Prime Minister and the Chancellor.

Therefore, the entire running of the economy was structured around the symbol of sterling M3. In those happy days of innocence, the Government introduced the medium-term financial strategy. So certainly did they believe in the iron laws of monetarism that they held that they produced a year-by-year timetable to record with great precision the achievements of their economic strategy.

Sterling M3 was going to decline to 9 per cent. in the first year, 8 per cent. in the second year, 7 per cent. the third year and 6 per cent. the fourth year. It was similar to a railway timetable for a ghost train that never ran. Many people who believed it in the past now fail to believe in it. However, a few brave souls still believe in that theory. Four of them are in the City of London university and there are others who believe, as a result of sterling M3 rising, that instead of inflation falling it will go through the roof because of the increases in money supply in the past few years.

Instead of the 9 per cent. level coming in the first year, it was 16 per cent. Instead of the 8 per cent. level in the second year it was 17 per cent. and instead of the 7 per cent. rate this year, although we do not know, it could well be 15 or 16 per cent. We await the figure with interest.

Considering those who still believe in the great and splendid sterling M3 theory, including the good Professor Hayek—the Prime Minister's mentor—who writes from an address in Zurich, it becomes similar to a parody from "Private Eye". He urged the Government on to ever greater inanities, more and more deflation, faster and faster, and to get rid of the pseudo-Socialists in the Conservative Government. We know that his arguments are beginning to fall on deafer and deafer ears because the Government are ceasing to believe in them. Hardly had the Financial Secretary to the Treasury, now the Secretary of State for Energy, time to escape from the Treasury than the PSBR elbowed out sterling M3 on the prayer mat of Conservative ideology.

When the right hon. Member for Chesham and Amersham (Sir I. Gilmour) talked about the medium-term financial strategy, he was right when he said in his noble and distinguished speech that if that strategy had envisaged 3 million unemployed it should not have been accepted, and if it did not, it should now be dropped.

Sterling M3 has indeed been dropped and phase 2 of the Government's economic policy, which effectively concentrates upon the public sector borrowing requirement, has begun. That policy says that if the Government borrow more, industry must borrow less—the crowding out theory which, oddly enough, was repudiated by the present Financial Secretary in a useful debate on interest rates.

The hon. Member for Birmingham, Northfield (Mr. Cadbury) and a number of others, including my hon. Friend the Member for Bishop Auckland (Mr. Foster), the hon. Member for Rugby (Mr. Pawsey) and my hon. Friend the Member for Huddersfield, East (Mr. Sheerman), called for an industrial budget. We look forward to seeing what notice the Government will take of such representations from all parts of the House.

The Government's current policy is becoming unintelligible. The House owes a great debt to the Select Committee on the Treasury and Civil Service, to which, as its report shows, the Government's policy is also unintelligible. The report states: In view of the emphasis which the Government originally accorded to the Strategy.… it is a surprise to the Committee to find a lesser emphasis being currently given to these items. … This makes it difficult for the Committee to measure and assess the position. … and must throw doubt on the underlying Strategy". The report therefore called for a major re-statement of the Strategy, so that Parliament and public may be fully informed of the economic objectives which the Government now have set. Everybody is now asking for that, because nobody really knows what the Government's objectives are. Sterling M3 is being treated like a member of the Politburo who disappears, whose entry is excised from subsequent editions of the Soviet encylopaedia and who thus becomes a non-person. Such is the case of dear old Sterling M3. The Chancellor did not once refer to it today, nor did he refer to it in his statement in December. One has only to read the evidence of the able and loyal civil servants who appeared before the Select Committee, as well as that of the Chancellor of the Exchequer, who also appeared, to see the extent of the economic muddle that the Government are now in. The underlying strategy is now subject to doubt, as expressed by the Select Committee. The reality is that there is no strategy in the sense in which it existed three years, two years or even one year ago. The Government's policy is now pure, unalloyed deflation.

When one considers the effects of deflation, one sees its attractions for the Government. The whole point about deflation is that it reduces purchasing power. Normally, it reduces the level of imports and increases exports because the markets involved are normally available to manufactureres only as a result of the decline in home trade demand. Following that, pay demands are reduced, overtime falls and unemployment increases. Those are the so-called benefits of deflation.

Deflation has occurred in the past, and we understood, although we did not accept, the reasons for its introduction. There were balance of payments crises and difficulties in meeting the bills of overseas creditors. That is not the position today. Because the pound is strong as a result of our oil, and we are saving £10 billion per year by not having to import oil, the balance of payments problem, which was the constraint in the past, has now gone and people thought that deflation and its consequences would also have gone.

The Government have concerned themselves greatly with the attack on waste in the public service, but in the areas upon which they have concentrated—saving a few civil servants here and another few people there—they have ignored the far greater waste which results from their own activities. For example, they have wasted the £6 billion annual revenue from North Sea oil because they have not used it to provide any assistance to British industry and the jobs that it could create. They have wasted much of the £8 billion a year that is largely going to portfolio investment overseas and which has trebled over the past few years. That will help forward investment, factories, and those countries that are competing against us. Instead of going into British investment it has gone into overseas investment by private institutions of one type or another.

The Government have wasted £13 billion to £14 billion a year—or part of that sum—because of the high level of interest rates with which they have to fund their new accretions to the national debt. That debt interest is expected to grow. In response to a question, the Treasury and Civil Service witnesses said that it was expected to grow year by year. That is something which the people of Britain have to suffer not only today, but for years to come, as stock that will reach redemption in the next century comes to fruition. The people at that time will be paying for the Government's errors and waste. They are wasting much of the money on interest payments on the very gilt-edged stocks that are being bought by overseas buyers.

Sir William Clark

rose—

Mr. Tim Eggar

rose—

Mr. Sheldon

I have not dealt with all the waste that Conservative Members ought to be concerned about. The Government came to office determined to cut waste in central Government. They have been guilty of the greatest increase of waste that this country has seen. They have wasted the talents and resources of many of our manufacturing companies due to the increasing number of bankruptcies and liquidations. Most important of all, this Government, dedicated as they are to an attack on extravagance, are guilty of the greatest waste of all, the £12½ billion price of unemployment, and the lives of 3 million of our citizens, whose existence is impaired by what is being done to them. We shall reverse that crime. We shall carry out the adequate and sensible reflation set out by my right hon. Friend the Member for Stepney and Poplar (Mr. Shore).

Sir William Clark

In his opening speech, the right hon. Member for Stepney and Poplar (Mr. Shore) advocated an increase in the public sector borrowing requirement of something over £6½ billion. The Government are borrowing £10½ billion at a high rate of interest. If that borrowing requirement increased by another £6 billion or £6½ billion, would the interest rate go up or down?

Mr. Sheldon

The hon. Gentleman fails to understand that people lending money naturally want to know what it is for. If it is for consumption, that is one thing; if it is for sensible investment which will provide a return, that is another. If clients are not advised on that basis the adviser is doing them a disservice. It all depends on the type of investments that are pursued. The hon. Gentleman is obsessed with the actual amounts. It was only just over a year ago that the Chancellor of the Exchequer informed the House that he had made a mistake about the PSBR, and had to borrow £5 billion more than previously announced. I do not recall any great clamour or any great difficulty in funding that. He had no good reasons. He wanted the money to increase unemployment pay. There is a world of difference between borrowing of that kind and borrowing for the expansion of industry in order to get a sensible return on the money.

Sir William Clark

rose—

Mr. Sheldon

The hon. Gentleman had his chance and he fluffed it. The right hon. Gentleman's opening speech was a wholly inadequate Front Bench speech, which showed that the only quality that he brings to this Despatch Box is his belligerency. We must deal with the point that he made on oil. He said that the fact that we were producing our own oil is the cause of our economic decline. That is impossible to accept. The increase in oil prices led to a reduction in the amount of money flowing in western countries. As a result, the world trade increase faltered for a few years. However, our oil is a clear benefit to us. We are unique among the industrial nations of the world. During the lifetime of this Administration we have had the full measure of that benefit. Before 1979 the revenue amounted to only several hundred million pounds a year, but the Government suddenly had a windfall of £6, 000 million. We are the producers of such wealth.

I do not know any farmer who complains about the high price of potatoes. As oil producers, we should not deplore the high oil price, but benefit from it. It is not a disadvantage to us. However, it was a disadvantage in the lifetime of the Labour Government and until a few years ago. North Sea oil has been kind to the Government and has given them substantial sums, but they have failed to make use of it in expanding industry and providing the employment opportunities that were open to them. The Labour Government faced acute problems as a result of the fivefold increase in oil prices, but the Tories have received a windfall in the doubling of oil prices.

Mr. Eggar

rose—

Mr. Sheldon

At the beginning of this Parliament the Secretary of State for Trade said that the country would face three years of unparalleled austerity under the Tory Government. He is a man of attractive candour, but even he underestimated what we are having to endure. In three years unemployment has increased from 1.3 million to over 3 million and the situation is worsening all the time. I know that the Chancellor of the Exchequer has an odd view of the recession. He says that it has come to an end, although he expects unemployment to increase and industrial production is still 15 per cent. lower than in 1979. It might be more sensible if the right hon. and learned Gentleman was to bring his language into line with that of his colleagues.

Clearly there is a recession. Those of us who live in the regions know, weekend by weekend, what is going on. In my area, one firm in four has closed in the past two years. It is not necessarily the least efficient firms that close. It is those that have invested that are in the greatest difficulty. They borrowed from the banks to expand and had sensible and long-term prospects, but they find that the Conservative Government have inflicted great damage on them. In the sad, growing and miserable list of business failures, we see further evidence of that. The number of insolvencies has increased from 4, 537 only two years ago, to 8, 600. The number has doubled in two years. The number of bankruptcies has also doubled.

The Financial Times of Monday 11 January shows that there has been a 130 per cent. jump in business failures among engineering and metal firms. In the textile and clothing industry, there has been a 129 per cent. jump in business failures, and in retail and wholesale distribution there has been a 124 per cent. increase in business failures. In addition, there was a 110 per cent. increase in failures in the furniture and upholstery trade.

Those small firms were supposed to receive great attention and consideration from the Government. What has happened to them? they have gone out of business. Many of them have no cause to thank the right hon. and learned Gentleman or the Government.

People are now beginning to question this Conservative Government as they come up to their fourth year in office. The question being asked is, "What do the Tories stand for now?" People are now in a position to judge, and they are now preparing to judge not on expectations, hopes or dreams, but on what the Government have achieved. They have achieved a level of inflation that has risen from the level that they inherited, tax increases that have risen for everyone except the very rich, disturbances in our cities and cuts in our universities, on which one day our economy will depend. They are seeing a reduction in the number of houses built, the decay and deterioration of services and a record number of bankruptcies nd liquidations. That is what this Conservative Administration have stood for, and what people will come to understand and never forget.

9.31 pm

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

This debate takes place in the aftermath of the announcement of this week's unemployment figures. The detailed reality in a particular region that lies behind those sad figures was reflected in the information given by the hon. Member for Newcastle upon Tyne, West (Mr. Brown). As a Member of Parliament representing a constituency in the same part of the world, I could give comparable information from a slightly different part of the region.

I assure the House that the hon. Gentleman and I are at one in regarding that information in the same sense and spirit. Plainly, there is a wide divergence between us as to the cause of what the hon. Gentleman so graphically described and what the cure for it should be. The Opposition's analysis of that, reflected in the motion, is that the Government's policies are the prime cause of the fall in output and unemployment, and that only through a major expansion in demand can the nation be put to work. We share the objective, but in our view the analysis is false, and therefore the prescription misguided.

I do not believe that the historical facts that are needed to support such a proposition have been adduced correctly. The history of Britain's economy for the best part of a generation has been one of a steady increase in inflation and unemployment. There has not been a shortage of demand and a shortage of money in the economy. The inflation rate has continued rising with each new trade cycle, and unemployment has risen with it. The real cause of today's unemployment was rightly identified in yesterday's debate as the steady loss in competitiveness in the British economy. My hon. Friend the Member for Rugby (Mr. Pawsey) put that clearly in his speech. Of course, if unit labour costs rise in this country over a very long period, compared with those of our overseas competitors, we are bound to price ourselves out of the world markets and attract imports to meet the needs of our people.

That is not a surprising analysis. It is factually based on what has happened in the economy. The right lion. Member, for Stepney and Poplar (Mr. Shore) said that when one looks at the second cause of the present high levels of unemployment—the world recession—one finds that Britain's level of unemployment is higher than that of some of our competitors, but one has to go back to the first cause of that unemployment. If we add together the world recession and our unique legacy of a steady loss of competitiveness, the figure will be so high.

As my right hon. Friend the Member for Worthing (Mr. Higgins) said, it is nothing but a fallacy to believe that an expansionary policy can enable a Government, by providing money, to create jobs and produce a sustainable recovery. The risk of money of that kind simply going into prices and imports, and not into outputs is the history of the past few years.

Mr. Shore

rose—

Mr. Brittan

If the right hon. Gentleman will allow me to come to the substance of his argument he may well find cause to intervene.

The right hon. Gentleman says that in present circumstances we can safely reflate to the tune of about £6 billion. That is an extraordinary proposition. He says that it does not matter what happens to the public sector borrowing requirement. When pressed, he candidly confessed that the answer to the question of how the expansion would be financed was that he would borrow the money.

The right hon. Gentleman also says that that would have no effect on interest rates, that we can safely borrow huge sums without worrying about interest rates. The reason that he gives is that whereas in the past the PSBR may have provided legitimate and proper cause for anxiety, and therefore a constraint, in today's circumstances it does not matter, because the resources of the economy are not under pressure, and therefore an increase in borrowing will not lead to an increase in interest rates.

I do not think that that is a correct analysis. The situation that we face is shown by, for example, the large increase in bank lending that has taken place in the past few months. That increase shows that there is a demand for money in the economy and that it is not true that the Government can safely increase the level of their borrowing without having any impact on interest rates.

A number of hon. Members referred to the history of last year. The PSBR was indeed higher then than we would have wished. My right hon. and learned Friend the Chancellor of the Exchequer took action in his Budget last year to reduce it. As a result of that action, which was bound to be unpopular at the time, he was able to reduce interest rates, and it was possible for British interest rates to stay below international levels for many months. It is impossible not to conclude that the reason was precisely the reduction in the amount that the Government were borrowing in the PSBR. Therefore, there is a relationship between the PSBR and interest rates.

Mr. Shore

There may be a relationship, but what is in dispute is whether the Government, by increasing their borrowing requirement, exercise a major and decisive effect upon the level of interest rates. Hon. Members—those who turn their minds to the matter—will know from the experience of recent years that there is no such direct correlation. In 1980-81 the Chancellor, without wishing, borrowed 50 per cent. more than he had budgeted for and reduced interest rates from 17 to 12 per cent. at the same time. So why does the Chief Secretary talk such nonsense?

Mr. Brittan

I cannot help thinking that on being pressed on this matter the right hon. Gentleman was being a tiny bit equivocal—and that is putting it charitably. First, the right hon. Gentleman would lead us to believe that there is virtually no relationship between the PSBR and interest rates. Then he says that there is no direct relationship, or that there is a certain relationship but he cannot quantify its extent. The proposition does not appear to have been refined sufficiently to make it usable. It conflicts with the facts.

The right hon. Gentleman referred in his intervention to the reduction in interest rates to 12 per cent. by my right hon. and learned Friend. That reduction was made—the last part of it—in the course of, and as part of, a Budget specifically designed to reduce the PSBR compared with what it would otherwise have been. But it was the Budgetary measures that made it possible for interest rates to come down into line with the market, rather than against the way the market was going.

The right hon. Gentleman goes further. Not only does he say that the PSBR can safely be expanded without any threat to interest rates, but that the exchange rate can safely be reduced. Indeed, part of his policy is to reduce the exchange rate. Apart from the effect of direct borrowing, which history shows is contrary to what the right hon. Gentleman said, there is absolutely no question but that a reduction on the exchange rate, which I assume the right hon. Gentleman commends and specifies as part of Labour Party policy, would lead to an increase in inflation. The right hon. Gentleman does not qualify it or say what the inflation will be. Nor does he say by how much the exchange rate should fall. But if that were to happen, and if inflation were to rise as a result of the fall in the value of the pound, it is clear that that, in turn, would lead to higher interest rates.

The right hon. Gentleman is putting forward en extraordinary proposition. He is commending a package which would have a comparatively small impact in unemployment in the short term, but which would almost certainly have a substantial effect on interest rates and probably a substantial effect on inflation too.

The right hon. Gentleman does not leave it there. His package goes a great deal further, he has much more to offer. He offers the restoration of exchange control. He should reflect on what would have happened to the value of the pound if exchange control had not been abolished.

Apart from the attractions of the restoration of exchange control, the right hon. Gentleman went on—in a passage in his speech that I regarded as extremely sinister—to say that his package of measures involving controlling the overseas investment by British firms. In other words, if, for commercial reasons, British firms wanted to invest overseas, they would not be allowed to do so.

Does the right hon. Gentleman believe that an economy that is run on that basis will attract foreigners to invest in Britain? Does he believe that that is a recipe for the continuation of inward investment? It is clear from everything that the right hon. Gentleman said that his recipe for increased expansion and spending, leading to higher interest rates and, thereby, to inflation, is the classic recipe of Left-wing parties, which can only be associated with all the apparatus and trappings of a seige economy and all that flows from the restriction of economic freedom. It involves, if one is talking about interest rates, a continuous increase in the debt that we, as a nation, would be incurring. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) also referred to that, but he did not draw the conclusions that I would draw.

Throughout the 1970s the debt interest that the Government had to pay rose steadily. In cash terms it has risen from £2 billion to perhaps £15 billion this year. It has risen at a faster rate than inflation. It has risen at a faster rate than the rise in the national income. It has risen at a faster rate than public expenditure as a whole. That has been a matter of concern to Chancellors of the Exchequer of both parties. Now it casts a long shadow forward well into the next century. We must try to slow up this inheritance that we are passing to the next generation.

Gross debt interest this year is likely to cost as much as the whole of the National Health Service. It is a fantastic figure—£250 a year for every man, woman and child in the country. To suggest policies that would lead to higher interest rates and add still more to that cumulative burden seems not only irresponsible today, but profligate tomorrow.

The right hon. Member for Stepney and Poplar has to be careful in what he says about the economy, because he is so plainly outflanked by the right hon. Member for Bristol, South-East (Mr. Benn). The right hon. Member for Bristol, South-East has been candid in stating his wish—there is no reason why he should not put forward his view—to reconstruct our whole society on a completely different basis. I do not wish to follow him down that path either intellectually or, still less, literally. The right hon. Member for Stepney and Poplar, in the fervour with which he commends his present policies, should look backwards as well as forwards. It was not ever thus in the Labour Party. The position is strange.

When my right hon. and learned Friend the Chancellor of the Exchequer presented his last Budget, it was denounced at the time as being contractional, likely to add to the recession and likely to delay recovery. I remember vividly—I was comparatively new to the Treasury—being told that if the proposals were implemented they would lead to a further fall in output and a further move downwards of the economy.

The right hon. Member for Stepney and Poplar has been proved wrong. The stream of indicators that have been proclaimed and announced from the Dispatch Box and elsewhere, and also by independent commentators over recent weeks, make clear and beyond doubt that, in terms of output and in terms of the movement of the economy, we are moving forward.

The right hon. Gentleman and his hon. Friends complain of the pace at which we are moving. When unemployment is the last indicator to move in the right direction in the upward cycle of the economy, it is understandable that there should be those who wish to accelerate the pace. When one sees the figures showing increases in gross domestic product, in manufacturing production, in industrial production, in construction output and in engineering orders, one may quarrel about the pace and make legitimate points about the low level from which the upturn comes, but that we are moving in the right direction is incontrovertible. That has been the consequence of the Budget that my right hon. Friend introduced last year.

Mr. Shore

The right hon. and learned Gentleman must realise that the complacency with which he has repeated these alleged achievements has resulted only in trivialising this debate. We are talking about 3 million people unemployed in Britain. What he has said to the House tonight is at the margin of the problem. We are talking about whether the economy has grown by ½per cent. When will he face the problem?

Mr. Brittan

The right hon. Gentleman is utterly and totally misguided in what he has had to say, because if he is engaged is a serious discussion about which of the alternative policies is likely to lead to an improvement in the economy, and if he and his hon. Friends deliver themselves of statements to the effect that the Budget introduced by my right hon. and learned Friend will depress the economy, he must listen, however disagreeable it may be to him, to the plain facts and figures that show, not an extravagant boom—[Interruption]. The right hon. Gentleman purports to be a serious student of these matters. It is up to him whether he wishes to address his mind to the issues, but it plainly shows a movement upwards.

I can quote to the right hon. Gentleman another example that might, and should, be more congenial to him, but, as I shall show in a second, it probably is not. When he held high office, he was a member of a Government who in 1975–76 and 1977–78 cut expenditure by 8.5 per cent. in real terms. That is what they did. The bulk of that cut was in capital expenditure. That is what the right hon. Gentleman's Government did. What is more, the strange thing was that at the time a large number of commentators sympathetic to the Left-wing cause said that that was a terrible thing to do, that it would depress the economy and that it was no way out of the problems that the right hon. Gentleman and right hon. and his learned Friends were facing.

The strange thing is that unemployment fell. When the right hon. Gentleman was forced by the International Monetary Fund to take the action that he did, it worked. It worked because it was—

Mr. R. C. Brown

rose—

Mr. Brittan

I am sorry, I shall not give way. [Interruption.] I am sorry, but I cannot give way.

Mr. Brown

rose—

Mr. Speaker

Order. It is clear that the Minister is not giving way.

Mr. Brittan

I saw what happened when the Labour Party was forced to accept the IMF's prescription. I notice the right hon. Gentleman the Leader of the Opposition shaking his head. I must be fair—he was moving his head. I was not quite sure whether he was shaking it or just moving it.

I noticed with great interest an article in the last issue of the New Statesman. It is extremely revealing about what we have heard from the right hon. Member for Stepney and Poplar, because what he said was this: Checking through back issues of the New Statesman recently I found that I had let a whole year slip by without reminding myself and my readers of the most disgraceful thing said in recent years by a Leader of the Labour Party. It was James Callaghan's sentence of death passed on Keynesian economics. We now come to the quotation which to Labour Members is too painful to bear repetition. They do not like it, but it is very good and it is true. After quoting the right hon. Member for Cardiff, South-East (Mr. Callaghan) saying that the option of spending one's way out of recession could no longer exist, the author of the article went on to say: It is worth recalling that statement, not just as a salutary reminder that it was a Labour Government that first injected monetarist policies into economic policy making, but because I have recently come across another of the more effective rejoinders to Mr. Callaghan's ideas. There follows a quotation from the Leader of the Opposition, in which he said: The methods are, for a start, the same as we have seen succeed in all major industrial countries throughout the post-war period. Keynesian reflation has proved its effectiveness too often to be dismissed by the Government's ignorant and silly jibes. The author points out that there has been a complete transformation and that there is a contrast between what the Leader of the Opposition is saying today and what his party did in office at the one time when it was compelled to take action which actually worked. That is the reality.

If the Leader of the Opposition and his colleagues want to ask today what it is that we can do to ensure that the gentle, limited, moderate but nonetheless real revival of the economy, which is gradually starting, proceeds on a realistic and sound basis, I do not find it difficult to answer that question. The answer is that by continuing the downward pressure on inflation and reducing costs we will succeed in bringing about the improvement in the economy that we are seeking.

The encouraging realism in pay, to which reference has already been made, can continue. If it continues, the recovery may well be faster than had previously been predicted. At last people are learning an important lesson which has, sadly, been an extremely painful one for the British economy. It is that it is not only possible to price oneself out of a job, but, that it is possible to price oneself into a job.

The steady stream of settlements by people who have learnt that lesson is likely to do more for the economy than all the heady rhetoric of the right hon. Gentleman and his colleagues. Again and again the British people are showing themselves to have more sense than those who purport to lead them. [HON. MEMBERS: "Oh!"]

Mr. Speaker

Order. There are just two minutes left for the Minister.

Mr. Brittan

The right hon. Gentleman may jibe, but the British people have more sense than to listen to those who purport to lead them—the Leader of the Opposition and his colleagues. People have the sense to follow what is commended by those who lead them at present. The way forward by means of continued gains in productivity will not be assisted by the kind of inflationary package put forward by the Opposition. It will be assisted by measures such as those introduced by my right hon. Friend the Secretary of State for Employment, which will continue to improve the competitiveness of the economy by reducing the rigidities and damage caused by an antiquated industrial relations system, stifled by the depredations of the closed shop and damaged by a series of restrictive practices which are gradually going out of our system only because of the resolute action downward on inflation.

The easy way out offered by the right hon. Member for Stepney and Poplar is no way out at all. The continued measures that the Government are taking in the direction of sanity are the ones that will lead the British people forward to a well-based, soundly founded economic recovery.

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

The House divided: Ayes 205, Noes 298.

Division No. 53]	[10pm
AYES
Abse, Leo	Faulds, Andrew
Adams, Allen	Field, Frank
Allaun, Frank	Fitch, Alan
Anderson, Donald	Fitt, Gerard
Archer, Rt Hon Peter	Flannery, Martin
Ashton, Joe	Foot, Rt Hon Michael
Atkinson, N.(H'gey)	Ford, Ben
Bagier, GordonA.T.	Forrester, John
Barnett, Guy(Greenwich)	Foster, Derek
Barnett, Rt Hon Joel (H'wd)	Foulkes, George
Benn, Rt Hon Tony	Fraser, J. (Lamb'th, N'w'd)
Bennett, Andrew(St'kp'tN)	Garrett, John (Norwich S)
Bidwell, Sydney	George, Bruce
Booth, Rt Hon Albert	Golding, John
Boothroyd, MissBetty	Graham, Ted
Bray, Dr Jeremy	Grant, George(Morpeth)
Brown, Hugh D. (Provan)	Hamilton, James(Bothwell)
Brown, R. C. (N'castle W)	Hamilton, W. W. (C'tral Fife)
Callaghan, Jim (Midd't'n&P)	Harrison, Rt Hon Walter
Campbell, lan	Hart, Rt Hon Dame Judith
Campbell-Savours, Dale	Hattersley, Rt Hon Roy
Canavan, Dennis	Haynes, Frank
Cant, R. B.	Heffer, Eric S.
Carmichael, Neil	Hogg, N. (EDunb't'nshire)
Carter-Jones, Lewis	Holland, S.(L'b'th, Vauxh'll)
Clark, Dr David (S Shields)	HomeRobertson, John
Cocks, Rt Hon M. (B'stol S)	Homewood, William
Cohen, Stanley	Hooley, Frank
Coleman, Donald	Howell, Rt Hon D.
Conlan, Bernard	Hoyle, Douglas
Cook, Robin F.	Huckfield, Les
Cowans, Harry	Hughes, Mark(Durham)
Craigen, J. M. (G'gow, M'hill)	Hughes, Robert (Aberdeen N)
Crowther, Stan	Hughes, Roy (Newport)
Cryer, Bob	Janner, HonGreville
Cunliffe, Lawrence	Jay, Rt Hon Douglas
Cunningham, G. (IslingtonS)	John, Brynmor
Cunningham, DrJ. (W'h'n)	Johnson, James (Hull West)
Dalyell, Tam	Johnson, Walter (Derby S)
Davidson, Arthur	Jones, Rt Hon Alec (Rh'dda)
Davies, Ifor (Gower)	Jones, Barry (East Flint)
Davis, Clinton (Hackney C)	Kaufman, Rt Hon Gerald
Davis, Terry (B'ham, Stechf'd)	Kerr, Russell
Dean, Joseph (Leeds West)	Kilroy-Silk, Robert
Dewar, Donald	Kinnock, Neil
Dixon, Donald	Lambie, David
Dobson, Frank	Lamborn, Harry
Dormand, Jack	Lamond, James
Douglas, Dick	Leadbitter, Ted
Dubs, Alfred	Leighton, Ronald
Dunnett, Jack	Lewis, Arthur (N'ham NW)
Dunwoody, Hon Mrs G.	Lewis, Ron (Carlisle)
Eadie, Alex	Litherland, Robert
Ellis, R. (NE D'bysh 're)	McCartney, Hugh
English, Michael	McCusker, H.
Ennals, Rt Hon David	McDonald, DrOonagh
Evans, loan (Aberdare)	McKay, Allen (Penistone)
Evans, John (Newton)	McKelvey, William
Ewing, Harry	MacKenzie, Rt Hon Gregor

McNamara, Kevin	Short, Mrs Renée
McTaggart, Robert	Silkin, Rt Hon J. (Deptford)
McWilliam, John	Silkin, Rt Hon S. C. (Dulwich)
Marks, Kenneth	Silverman, Julius
Marshall, D(G'gowS'ton)	Skinner, Dennis
Marshall, DrEdmund (Goole)	Smith, Rt Hon J. (N Lanark)
Marshall, Jim (Leicester S)	Snape, Peter
Martin, M(G'gowS'burn)	Soley, Clive
Mason, Rt Hon Roy	Spearing, Nigel
Maynard, Miss Joan	Spriggs, Leslie
Meacher, Michael	Stallard, A.W.
Mellish, Rt Hon Robert	Stewart, Rt Hon D. (W Isles)
Mikardo, Ian	Stoddart, David
Millan, Rt Hon Bruce	Stott, Roger
Mitchell, Austin(Grimsby)	Strang, Gavin
Morris, Rt Hon A. (W'shawe)	Summerskill, HonDrShirley
Moyle, Rt Hon Roland	Taylor, Mrs Ann (Bolton W)
Newens, Stanley	Thomas, Dafydd(Merioneth)
Oakes, Rt Hon Gordon	Thomas, DrR.(Carmarthen)
Orme, Rt Hon Stanley	Thorne, Stan (PrestonSouth)
Palmer, Arthur	Tilley, John
Park, George	Torney, Tom
Parker, John	Varley, Rt Hon Eric G.
Parry, Robert	Wainwright, E. (DearneV)
Pendry, Tom	Walker, Rt Hon H.(D'caster)
Powell, Raymond (Ogmore)	Watkins, David
Prescott, John	Weetch, Ken
Price, C. (Lewisham W)	Welsh, Michael
Race, Reg	White, Frank R.
Radice, Giles	White, J.(G'gowPollok)
Rees, Rt Hon M (Leeds S)	Whitehead, Phillip
Richardson, Jo	Whitlock, William
Roberts, Albert(Normanton)	Wigley, Dafydd
Roberts, Allan(Bootle)	Willey, RtHonFrederick
Roberts, Ernest (Hackney N)	Williams, Rt Hon A.(S'seaW)
Roberts, Gwilym(Cannock)	Wilson, Gordon (DundeeE)
Robertson, George	Wilson, RtHonSirH.(H'ton)
Robinson, G. (Coventry NW)	Winnick, David
Rooker, J. W.	Woolmer, Kenneth
Ross, Ernest (Dundee West)	Wright, Sheila
Rowlands, Ted	Young, David (BoltonE)
Ryman, John
Sever, John	Tellers for the Ayes:
Sheerman, Barry	Mr. James Tinn and
Sheldon, Rt Hon R.	Mr. George Morton.
Shore, Rt Hon Peter

NOES
Adley, Robert	Brittan, Rt. Hon. Leon
Aitken, Jonathan	Brooke, Hon Peter
Alexander, Richard	Brotherton, Michael
Alison, RtHon Michael	Brown, Michael(Brigg&Sc'n)
Alton, David	Browne, John(Winchester)
Amery, RtHon Julian	Bruce-Gardyne, John
Ancram, Michael	Bryan, Sir Paul
Arnold, Tom	Buchanan-Smith, Rt. Hon. A.
Aspinwall, Jack	Buck, Antony
Atkins, RtHonH.(S'thorne)	Budgen, Nick
Atkins, Robert(PrestonN)	Bulmer, Esmond
Baker, Kenneth(St.M'bone)	Burden, SirFrederick
Baker, Nicholas (N Dorset)	Butcher, John
Beaumont-Dark, Anthony	Cadbury, Jocelyn
Bell, SirRonald	Carlisle, John (Luton West)
Bendall, Vivian	Carlisle, Kenneth(Lincoln)
Benyon, Thomas(A'don)	Carlisle, Rt Hon M. (R'c'n)
Benyon, W.(Buckingham)	Chalker, Mrs. Lynda
Best, Keith	Channon, Rt. Hon. Paul
Bevan, David Gilroy	Chapman, Sydney
Biffen, RtHon John	Clark, Hon A. (Plym'th, S'n)
Biggs-Davison, SirJohn	Clark, SirW. (CroydonS)
Blackburn, John	Clarke, Kenneth(Rushcliffe)
Blaker, Peter	Clegg, Sir Walter
Body, Richard	Cockeram, Eric
Bonsor, SirNicholas	Cope, John
Bottomley, Peter(W'wich W)	Cormack, Patrick
Bowden, Andrew	Corrie, John
Boyson, Dr Rhodes	Costain, Sir Albert
Braine, SirBernard	Cranborne, Viscount
Bright, Graham	Critchley, Julian
Brinton, Tim	Crouch, David

Dean, Paul (North Somerset)	Lawrence, Ivan
Dickens, Geoffrey	Lawson, Rt Hon Nigel
Dorrell, Stephen	Lee, John
Douglas-Hamilton, LordJ.	LeMarchant, Spencer
Dover, Denshore	Lennox-Boyd, HonMark
du Cann, Rt Hon Edward	Lester, Jim (Beeston)
Dunn, Robert(Dartford)	Lewis, Kenneth(Rutland)
Eden, Rt Hon Sir John	Lloyd, Ian (Havant & W'loo)
Edwards, Rt Hon N. (P'broke)	Loveridge, John
Eggar, Tim	Luce, Richard
Elliott, SirWilliam	Lyell, Nicholas
Emery, Sir Peter	McCrindle, Robert
Eyre, Reginald	Macfarlane, Neil
Fairgrieve, Sir Russell	MacGregor, John
Faith, Mrs Sheila	MacKay, John (Argyll)
Farr, John	Macmillan, RtHonM.
Fell, SirAnthony	McNair-Wilson, M.(N'bury)
Fenner, Mrs Peggy	McNair-Wilson, P. (NewF'st)
Finsberg, Geoffrey	McQuarrie, Albert
Fisher, Sir Nigel	Madel, David
Fletcher, A. (Ed'nb'gh N)	Major, John
Fletcher-Cooke, SirCharles	Marland, Paul
Fookes, Miss Janet	Marlow, Antony
Forman, Nigel	Marshall, Micheal(Arundel)
Fowler, Rt Hon Norman	Marten, Rt Hon Neil
Fox, Marcus	Mates, Michael
Fraser, Peter (South Angus)	Maude, Rt Hon Sir Angus
Freud, Clement	Mawby, Ray
Gardiner, George(Reigate)	Mawhinney, DrBrian
Gardner, Edward (S Fylde)	Maxwell-Hyslop, Robin
Garel-Jones, Tristan	Mayhew, Patrick
Gilmour, Rt Hon Sir Ian	Mellor, David
Glyn, DrAlan	Meyer, Sir Anthony
Goodlad, Alastair	Miller, Hal(B'grove)
Gorst, John	Mills, lain(Meriden)
Gow, Ian	Mills, Peter (West Devon)
Gray, Hamish	Miscampbell, Norman
Greenway, Harry	Mitchell, David(Basingstoke)
Griffiths, E.(B'ySt.Edm'ds)	Monro, SirHector
Griffiths, PeterPortsm'thN)	Montgomery, Fergus
Grimond, Rt Hon J.	Moore, John
Grist, Ian	Morgan, Geraint
Grylls, Michael	Morris, M. (N'hampton S)
Gummer, JohnSelwyn	Morrison, Hon C. (Devizes)
Hamilton, Hon A.	Morrison, Hon P. (Chester)
Hamilton, Micheal(Salisbury)	Mudd, David
Hampson, Dr Keith	Murphy, Christopher
Hannam, John	Myles, David
Haselhurst, Alan	Neale, Gerrard
Hastings, Stephen	Needham, Richard
Havers, Rt Hon Sir Michael	Nelson, Anthony
Hawksley, Warren	Neubert, Michael
Hayhoe, Barney	Newton, Tony
Henderson, Barry	Nott, Rt Hon John
Hicks, Robert	Onslow, Cranley
Higgins, Rt Hon Terence L.	Oppenheim, Rt Hon Mrs S.
Hogg, HonDouglas(Gr'th'm)	Page, Richard (SW Herts)
Holland, Philip(Carlton)	Parkinson, Rt Hon Cecil
Hooson, Tom	Parris, Matthew
Hordern, Peter	Patten, Christopher(Bath)
Howe, Rt Hon Sir Geoffrey	Patten, John(Oxford)
Howell, RtHon D.(G'ldf'd)	Pawsey, James
Howells, Geraint	Percival, Sir lan
Hunt, David (Wirral)	Pink, R.Bonner
Hunt, John(Ravensbourne)	Pitt, William Henry
Hurd, Hon Douglas	Pollock, Alexander
Irving, Charles(Cheltenham)	Porter, Barry
Jenkin, Rt Hon Patrick	Prentice, Rt Hon Reg
JohnsonSmith, Geoffrey	Price, Sir David (Eastleigh)
Jopling, Rt Hon Michael	Prior, Rt Hon James
Joseph, Rt Hon Sir Keith	Proctor, K. Harvey
Kaberry, Sir Donald	Pym, Rt Hon Francis
Kellett-Bowman, MrsElaine	Raison, Timothy
Kershaw, SirAnthony	Rathbone, Tim
King, Rt Hon Tom	Rees, Peter (Dover and Deal)
Knox, David	Rees-Davies, W. R.
Lamont, Norman	Renton, Tim
Lang, lan	Rhodes James, Robert
Langford-Holt, SirJohn	RhysWilliams, SirBrandon
Latham, Michael	Ridley, HonNicholas

Ridsdale, SirJulian	Temple-Morris, Peter
Rifkind, Malcolm	Thatcher, Rt Hon Mrs M.
Roberts, M.(Cardiff NW)	Thomas, Rt Hon Peter
Roberts, Wyn (Conway)	Thompson, Donald
Ross, Stephen (Isle of Wight)	Thorne, Neil (IIfordSouth)
Rossi, Hugh	Thornton, Malcolm
Rost, Peter	Townend, John(Bridlington)
Royle, SirAnthony	Townsend, Cyril D, (B'heath)
Sainsbury, HonTimothy	Trippier, David
St. John-Stevas, Rt Hon N.	Trotter, Neville
Scott, Nicholas	van Straubenzee, Sir W.
Shaw, Giles (Pudsey)	Vaughan, DrGerard
Shaw, Michael (Scarborough)	Viggers, Peter
Shelton, William(Streatham)	Waddington, David
Shepherd, Colin (Hereford)	Wainwright, R.(ColneV)
Shepherd, Richard	Wakeham, John
Shersby, Michael	Waldegrave, HonWilliam
Silvester, Fred	Walker, RtHon P.(W'cester)
Sims, Roger	Walker-Smith, Rt Hon Sir D.
Skeet, T. H. H.	Waller, Gary
Speed, Keith	Walters, Dennis
Speller, Tony	Ward, John
Spence, John	Watson, John
Spicer, Jim (West Dorset)	Wells, Bowen
Spicer, Michael (S Worcs)	Wells, John(Maidstone)
Sproat, lain	Wheeler, John
Squire, Robin	Whitelaw, RtHonWilliam
Stanbrook, Ivor	Whitney, Raymond
Stanley, John	Wickenden, Keith
Steel, Rt Hon David	Wiggin, Jerry
Steen, Anthony	Williams, D.(Montgomery)
Stevens, Martin	Winterton, Nicholas
Stewart, A. (ERenfrewshire)	Wolfson, Mark
Stewart, Ian (Hitchin)	Young, Sir George(Acton)
Stokes, John	Younger, RtHonGeorge
StradlingThomas, J.
Tapsell, Peter	Tellers for the Noes:
Taylor, Teddy (S'endE)	Mr. Anthony Berry and
Tebbit, Rt Hon Norman	Mr. Robert Boscawen.

Question accordingly negatived.

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

The Houe divided: Ayes 289, Noes 236.

Division No.54]	[10.12
AYES
Adley, Robert	Brooke, Hon Peter
Aitken, Jonathan	Brotherton, Michael
Alexander, Richard	Brown, Michael(Brigg&Sc'n)
Alison, RtHonMichael	Browne, John (Winchester)
Amery, RtHonJulian	Bruce-Gardyne, John
Ancram, Michael	Bryan, Sir Paul
Arnold, Tom	Buchanan-Smith, Rt. Hon. A.
Aspinwall, Jack	Buck, Antony
Atkins, RtHonH.(S'thorne)	Budgen, Nick
Atkins, Rooert(PrestonN)	Bulmer, Esmond
Baker, Kenneth(St.M'bone)	Burden, SirFrederick
Baker, Nicholas (NDorset)	Butcher, John
Beaumont-Dark, Anthony	Cadbury, Jocelyn
Bel, SirRonald	Carlisle, John (Luton West)
Bendall, Vivian	Carlisle, Kenneth(Lincoln)
Benyon, Thomas(A'don)	Carlisle, RtHon M. (R'c'n)
Benyon, W. (Buckingham)	Chalker, Mrs. Lynda
Best, Keith	Channon, Rt. Hon. Paul
Bevan, DavidGilroy	Chapman, Sydney
Biffen, RtHon John	Clark, Hon A. (Plym'th, S'n)
Biggs-Davison, SirJohn	Clark, SirW. (CroydonS)
Blackburn, John	Clarke, Kenneth (Rushcliffe)
Blaker, Peter	Clegg, Sir Walter
Body, Richard	Cockeram, Eric
Bonsor, SirNicholas	Cope, John
Bottomley, Peter (W'wich W)	Cormack, Patrick
Bowden, Andrew	Corrie, John
Boyson, DrRhodes	Costain, SirAlbert
Braine, SirBernard	Cranborne, Viscount
Bright, Graham	Critchley, Julian
Brinton, Tim	Crouch, David

Dean, Paul (North Somerset)	LeMarchant, Spencer
Dickens, Geoffrey	Lennox-Boyd, Hon Mark
Dorrell, Stephen	Lester, Jim (Beeston)
Douglas-Hamilton, LordJ.	Lewis, Kenneth (Rutland)
Dover, Denshore	Lloyd, Ian (Havant& W loo)
du Cann, Rt Hon Edward	Loveridge, John
Dunn, Robert(Dartford)	Luce, Richard
Eden, RtHon Sir John	Lyell, Nicholas
Edwards, Rt Hon N. (P'broke)	McCrindle, Robert
Eggar, Tim	Macfarlane, Neil
Elliott, SirWilliam	MacGregor, John
Emery, Sir Peter	MacKay, John (A rgyll)
Eyre, Reginald	Macmillan, RtHonM.
Fairgrieve, SirRussell	McNair-Wilson, M.(N'bury)
Faith, MrsSheila	McNair-Wilson, P. (NewF'st)
Farr, John	McQuarrie, Albert
Fell, SirAnthony	Madel, David
Fenner, Mrs Peggy	Major, John
Finsberg, Geoffrey	Marland, Paul
Fisher, SirNigel	Marlow, Antony
Fletcher, A. (Ed'nb'gh N)	Marshall, Michael (Arundel)
Fletcher-Cooke, SirCharles	Marten, RtHon Neil
Fookes, MissJanet	Mates, Michael
Forman, Nigel	Maude, Rt Hon Sir Angus
Fowler, Rt Hon Norman	Mawby, Ray
Fox, Marcus	Mawhinney, DrBrian
Fraser, Peter (South Angus)	Maxwell-Hyslop, Robin
Gardiner, George (Reigate)	Mayhew, Patrick
Gardner, Edward (S Fylde)	Mellor, David
Garel-Jones, Tristan	Meyer, Sir Anthony
Gilmour, Rt Hon Sir lan	Miller, Hal(B'grove)
Glyn, DrAlan	Mills, lain(Meriden)
Goodlad, Alastair	Mills, Peter (West Devon)
Gorst, John	Miscampbell, Norman
Gow, Ian	Mitchell, David(Basingstoke)
Gray, Hamish	Monro, SirHector
Greenway, Harry	Montgomery, Fergus
Griffiths, E.(B'ySt. Edm'ds)	Moore, John
Griffiths, Peter Portsm'thN)	Morgan, Geraint
Grist, Ian	Morris, M. (N'hamptonS)
Grylls, Michael	Morrison, Hon C. (Devizes)
Gummer, JohnSelwyn	Morrison, Hon P. (Chester)
Hamilton, HonA.	Mudd, David
Hamilton, Michael(Salisbury)	Murphy, Christopher
Hampson, DrKeith	Myles, David
Hannam, John	Neale, Gerrard
Haselhurst, Alan	Needham, Richard
Hastings, Stephen	Nelson, Anthony
Havers, Rt Hon Sir Michael	Neubert, Michael
Hawksley, Warren	Newton, Tony
Hayhoe, Barney	Nott, RtHon John
Henderson, Barry	Onslow, Cranley
Hicks, Robert	Oppenheim, Rt Hon Mrs S.
Higgins, RtHon Terence L.	Page, Richard (SW Herts)
Hogg, HonDouglas(Gr'th'm)	Parkinson, RtHonCecil
Holland, Philip(Carlton)	Parris, Matthew
Hooson, Tom	Patten, Christopher(Bath)
Hordern, Peter	Patten, John(Oxford)
Howe, Rt Hon Sir Geoffrey	Pawsey, James
Howell, RtHon D. (G'ldf'd)	Percival, Sirlan
Hunt, David (Wirral)	Pink, R.Bonner
Hunt, John(Ravensbourne)	Pollock, Alexander
Hurd, HonDouglas	Porter, Barry
Irving, Charles(Cheltenham)	Prentice, Rt Hon Reg
Jenkin, RtHon Patrick	Price, SirDavid (Eastleigh)
JohnsonSmith, Geoffrey	Prior, RtHon James
Jopling, RtHon Michael	Proctor, K. Harvey
Joseph, RtHon Sir Keith	Pym, Rt Hon Francis
Kaberry, SirDonald	Raison, Timothy
Kellett-Bowman, MrsElaine	Rathbone, Tim
Kershaw, SirAnthony	Rees, Peter (Dover and Deal)
King, RtHon Tom	Rees-Davies, W. R.
Knox, David	Renton, Tim
Lamont, Norman	Rhodes James, Robert
Lang, Ian	RhysWilliams, SirBrandon
Langford-Holt, SirJohn	Ridley, HonNicholas
Latham, Michael	Ridsdale, SirJulian
Lawrence, Ivan	Rifkind, Malcolm
Lawson, Rt Hon Nigel	Roberts, M. (Cardiff NW)
Lee, John	Roberts, Wyn (Conway)

Rossi, Hugh	Thompson, Donald
Rost, Peter	Thorne, Neil(llfordSouth)
Royle, SirAnthony	Thornton, Malcolm
Sainsbury, HonTimothy	Townend, John (Bridlington)
St. John-Stevas, Rt Hon N.	Townsend, Cyril D, (B'heath)
Scott, Nicholas	Trippier, David
Shaw, Giles (Pudsey)	Trotter, Neville
Shaw, Michael(Scarborough)	van Straubenzee, Sir W.
Shelton, William(Streatham)	Vaughan, DrGerard
Shepherd, Colin(Hereford)	Viggers, Peter
Shepherd, Richard	Waddington, David
Shersby, Michael	Wakeham, John
Silvester, Fred	Waldegrave, HonWilliam
Sims, Roger	Walker, RtHon P.(W'cester)
Skeet, T. H. H.	Walker-Smith, Rt Hon Sir D.
Speed, Keith	Waller, Gary
Speller, Tony	Walters, Dennis
Spence, John	Ward, John
Spicer, Jim (West Dorset)	Watson, John
Spicer, Michael (S Warcs)	Wells, Bowen
Sproat, Iain	Wells, John(Maidstone)
Squire, Robin	Wheeler, John
Stanbrook, Ivor	Whitelaw, RtHonWilliam
Stanley, John	Whitney, Raymond
Steen, Anthony	Wickenden, Keith
Stevens, Martin	Wiggin, Jerry
Stewart, A. (ERenfrewshire)	Williams, D.(Montgomery)
Stewart, Ian (Hitchin)	Winterton, Nicholas
Stokes, John	Wolfson, Mark
StradlingThomas, J.	Young, SirGeorge (Acton)
Tapsell, Peter	Younger, RtHonGeorge
Taylor, Teddy (S'end E)
Tebbit, Rt Hon Norman	Tellers for the Ayes:
Temple-Morris, Peter	Mr. Anthony Berry and
Thatcher, Rt Hon Mrs M.	Mr. Robert Boscawen.
Thomas, Rt Hon Peter

NOES
Abse, Leo	Dalyell, Tam
Adams, Allen	Davidson, Arthur
Allaun, Frank	Davies, Ifor (Gower)
Alton, David	Davis, Clinton (Hackney C)
Anderson, Donald	Davis, Terry (B'ham, Stechf'd)
Archer, RtHon Peter	Dean, Joseph (Leeds West)
Ashton, Joe	Dewar, Donald
Atkinson, N.(H'gey)	Dixon, Donald
Bagier, Gordon A.T.	Dobson, Frank
Barnett, Guy(Greenwich)	Dormand, Jack
Barnett, RtHon Joel (H'wd)	Douglas, Dick
Benn, RtHon Tony	Douglas-Mann, Bruce
Bennett, Andrew(St'kp'tN);	Dubs, Alfred
Bidwell, Sydney	Dunn, James A.
Booth, RtHon Albert	Dunnett, Jack
Boothroyd, MissBetty	Dunwoody, Hon MrsG.
Bradley, Tom	Eadie, Alex
Bray, Dr Jeremy	Ellis, R.(NED'bysh're)
Brocklebank-Fowler, C.	Ellis, Tom (Wrexham)
Brown, Hugh D. (Provan)	English, Michael
Brown, R. C.(N'castle W)	Ennals, RtHon David
Callaghan, Jim(Midd't'n&P)	Evans, loan (Aberdare)
Campbell, Ian	Evans, John (Newton)
Campbell-Savours, Dale	Ewing, Harry
Canavan, Dennis	Faulds, Andrew
Cant, R. B.	Field, Frank
Carmichael, Neil	Fitch, Alan
Carter-Jones, Lewis	Fitt, Gerard
Cartwright, John	Flannery, Martin
Clark, Dr David (S Shields)	Foot, RtHon Michael
Cocks, Rt Hon M. (B'stol S)	Ford, Ben
Cohen, Stanley	Forrester, John
Coleman, Donald	Foster, Derek
Conlan, Bernard	Foulkes, George
Cook, Robin F.	Fraser, J. (Lamb'th, N'w'd)
Cowans, Harry	Freud, Clement
Craigen, J. M. (G'gow, M'hill)	Garrett, John (Norwich S)
Crawshaw, Richard	George, Bruce
Crowther, Stan	Ginsburg, David
Cryer, Bob	Golding, John
Cunningham, G.(lslingtonS)	Graham, Ted
Cunningham, DrJ.(W'h'n)	Grant, George(Morpeth)

Grant, John (IslingtonC)	Pitt, William Henry
Grimond, RtHon J.	Powell, Raymond(Ogmore)
Hamilton, James(Bothwell)	Prescott, John
Hamilton, W. W. (C'tralFife)	Price, C. (Lewisham W)
Harrison, RtHonWalter	Race, Reg
Hart, Rt Hon Dame Judith	Radice, Giles
Hattersley, Rt Hon Roy	Rees, Rt Hon M (Leeds S)
Heffer, Eric S.	Richardson, Jo
Hogg, N. (EDunb't'nshire)	Roberts, Albert(Normanton)
Holland, S.(L'b'th, Vauxh'll)	Roberts, Allan(Bootle)
HomeRobertson, John	Roberts, Ernest (Hackney N)
Homewood, William	Roberts, Gwilym(Cannock)
Hooley, Frank	Robertson, George
Horam, John	Robinson, G. (Coventry NW)
Howell, RtHon D.	Rodgers, RtHon William
Howells, Geraint	Rooker, J.W.
Hoyle, Douglas	Roper, John
Huckfield, Les	Ross, Ernest (Dundee West)
Hughes, Mark(Durham)	Ross, Stephen (Isle of Wight)
Hughes, Robert (Aberdeen N)	Rowlands, Ted
Hughes, Roy (Newport)	Ryman, John
Janner, HonGreville	Sandelson, Neville
Jay, RtHon Douglas	Sever, John
John, Brynmor	Sheerman, Barry
Johnson, James (Hull West)	Sheldon, Rt Hon R.
Johnson, Walter (Derby S)	Shore, RtHon Peter
Jones, Rt Hon Alec (Rh'dda)	Short, Mrs Ren´e
Jones, Barry (East Flint)	Silkin, RtHonJ.(Deptford)
Kaufman, Rt Hon Gerald	Silkin, Rt Hon S. C. (Dulwich)
Kerr, Russell	Silverman, Julius
Kilroy-Silk, Robert	Skinner, Dennis
Kinnock, Neil	Smith, Rt Hon J. (N Lanark)
Lambie, David	Snape, Peter
Lamborn, Harry	Soley, Clive
Lamond, James	Spearing, Nigel
Leadbitter, Ted	Spriggs, Leslie
Leighton, Ronald	Stallard, A. W.
Lewis, Arthur (N'ham N W)	Steel, Rt Hon David
Lewis, Ron (Carlisle)	Stewart, Rt Hon D. (W Isles)
Litherland, Robert	Stoddart, David
Lyons, Edward (Bradf'dW)	Stott, Roger
McCartney, Hugh	Strang, Gavin
McCusker, H.	Summerskill, HonDrShirley
McDonald, DrOonagh	Taylor, Mrs Ann (Bolton W)
McKay, Allen (Penistone)	Thomas, Dafydd (Merioneth)
McKelvey, William	Tbomas, Jettrey(Abertillery)
MacKenzie, RtHonGregor	Thomas, DrR. (Carmarthen)
McNally, Thomas	Thorne, Stan (PrestonSouth)
McNamara, Kevin	Tilley, John
McTaggart, Robert	Tinn, James
McWilliam, John	Torney, Tom
Marks, Kenneth	Varley, Rt Hon Eric G.
Marshall, D(G'gowS'ton)	Wainwright, E.(DearneV)
Marshall, DrEdmund (Goole)	Wainwright, R.(ColneV)
Marshall, Jim (LeicesterS)	Walker, Rt Hon H.(D'caster)
Martin, M(G'gowS'burn)	Watkins, David
Mason, Rt Hon Roy	Weetch, Ken
Maynard, MissJoan	Wellbeloved, James
Meacher, Michael	Welsh, Michael
Mellish, RtHon Robert	White, Frank R.
Mikardo, lan	White, J.(G'gowPollok)
Millan, RtHon Bruce	Whitehead, Phillip
Mitchell, Austin(Grimsby)	Whitlock, William
Mitchell, R.C. (Soton Itchen)	Wigley, Dafydd
Morris, Rt Hon A. (W'shawe)	Willey, Rt Hon Frederick
Morton, George	Williams, Rt Hon A.(S'sea W)
Moyle, RtHon Roland	Williams, Rt Hon Mrs (Crosby)
Newens, Stanley	Wilson, Gordon (Dundee E)
Oakes, Rt Hon Gordon	Wilson, RtHon SirH.(H'ton)
Ogden, Eric	Winnick, David
O'Halloran, Michael	Woolmer, Kenneth
Orme, Rt Hon Stanley	Wrigglesworth, lan
Owen, Rt Hon Dr David	Wright, Sheila
Palmer, Arthur	Young, David (Bolton E)
Park, George
Parker, John	Tellers for the Noes:
Parry, Robert	Mr. Frank Haynes and
Pendry, Tom	Mr. Lawrence Cunliffe.

Question accordingly agreed to.

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

Resolved, That this House endorses Government policies to reduce inflation and improve output and competitiveness, and so create better prospects for employment, on a lasting and sustainable basis.