EXCHANGE CONTROL

HC Deb 12 July 1982 vol 27 cc706-28

`Within 12 months of the passing of this Act the Chancellor of the Exchequer shall publish in a White Paper his proposals for the re-imposition of Exchange Control.'.—[Mr. Shore.]

Brought up, and read the First time.

Mr. Shore

I beg to move, That the clause be read a Second time.

New clause 4 has been drafted to give the House the opportunity to debate a matter of major and growing national importance and at the same time to give the Chancellor every opportunity to make a measured response to what is an entirely reasonable, if to him an embarrassing, proposal.

New clause 4 provides the Chancellor with ample time— Within 12 months of the passing of this Act"— to reflect on the whole matter and to commit himself, in the first instance, to do no more than to publish a White Paper with proposals for the reimposition of exchange control. That allows time for consultation and for further debate, if it is thought necessary, before proposals are even firmed up in the form of a White Paper.

No hon. or right hon. Member will seriously dispute the importance of the subject with which we are dealing. Nor will many dispute that the sheer magnitude of the flows of capital—unhappily, flows of capital from the United Kingdom to other countries—is greater than the Chancellor and, indeed, many of his critics, could have predicted when the decision to abolish exchange control was taken just on three years ago. Since exchange controls had been in place since 1939, the consequences of abolition were wholly unpredictable as to the scale, composition and direction of the capital outflows involved.

The Chancellor's initial guesses were cautious, judging by his comments in Hansard in 1979 and 1980, but he clearly did not expect vast movements of money. Indeed, as recently as the February 1982 issue of the Treasury's bulletin, the Economic Progress Report, the whole presentation of the front page article on overseas investment and capital flows was meant to be reassuring. Yes, portfolio investment abroad had substantially increased, but that was assumed to be a once-for-all adjustment in the portfolios of institutions, and, above all, of the life insurance and superannuation funds.

The figures available in that document were up to the third quarter of 1981 and were substantially behind the movement of events. Nevertheless, even on the figures given in that document, the combined portfolio and direct investment of British capital going overseas, which had totalled £3.8 billion in 1978, reached £5.7 billion in 1980 and looked like reaching, on the basis of the first three quarters of 1981, as much as £8 billion last year. That is a very substantial increase indeed and one in no way matched by any equivalent inflows of foreign capital into non-oil direct investment in United Kingdom industries or into United Kingdom share portfolios.

The figures from the Economic Progress Report 1982 appear seriously to have understated the trend and the reality. Table 9 of the June 1982 issue of Economic Trends shows significant differences, particularly for the figures for direct investment overseas. In the February issue it had been quoted at £2.6 billion in 1980 but in the latest issue of Economic Trends that figure is not £2.6 billion but £3.5 billion. In the first three months of 1981 direct investment was running at the rate of £4 billion but turns out to have reached £5.2 billion in 1981. Portfolio investment turned out to be much the same as had been forecast in the earlier document, reaching £4.2 billion in 1981. Of course, direct investment in manufacturing industry overseas and portfolio investment in overseas companies' shares are not the totality of our overseas investment, although they are very important components of it.

The total picture is worth looking at. As the balance of payments improved in 1978, Britain relaxed exchange controls considerably. That was a year in which there were far greater outflows of capital than there had been in previous years. In that year, we were exporting capital for all purposes at the rate of about £4.6 billion. Last year, two and a half years after the major decision first for a massive relaxation of exchange controls and then, shortly after that, their abolition, British capital was investing in various projects and purposes overseas at the rate of more than £11 billion per annum. In three years, our overseas investment increased from £4.6 billion to £11 billion—a difference of £6.5 billion. On the other hand, in the same period, the figures for overseas investment in the United Kingdom show no corresponding increase. Total overseas investment in the United Kingdom was running at £1.9 billion in 1978, and it reached only £2.9 billion in 1981. Thus, our adverse balance on capital account last year reached the enormous figure of £8.2 billion.

I have detailed those figures not only because, clearly, there has been some major and recent revision about which we should be given some explanation, especially the figures for direct investment overseas, but because the scale of our outflows and the adverse balance between capital imports and capital exports has deteriorated massively even since February 1982, when this bulletin was issued.

How do the Government defend their lack of action in the face of this vast exodus of British capital? First, we have the extraordinary statement that the capital outflows are natural and an inevitable consequece of our current account surplus. I have heard that said on both sides of the House. I find nothing natural or inevitable about it. The only reason why we have, I fear, a fast diminishing surplus on current account is the appalling depth and length of the recession that we are suffering. Without the export of North Sea oil, I doubt whether even now we should be in current account surplus. In any event, it is ridiculous to assert that a current account surplus must lead inevitably to a capital account deficit. There is no reason why we should not be accumulating substantial reserves for our future benefit and use.

One of the other main excuses that the Government deploy when they turn their mind to this important subject is that the exodus of capital actually benefits the United Kingdom because, without these capital outflows, the exchange rate of the pound, given the balance of payments position and our North Sea oil assets, would be still higher than it is, thus making British industry even less competitive than otherwise.

It would be foolish to assert that the outflow of capital, especially on the scale that has now been achieved, has not had some effect in resisting the upward appreciation of the pound. But the Government are in no position to claim, nor do they make anything other than the most modest claim, that it has had any appreciable effect on the exchange rate. The truth is that, primarily owing to the high interest rate policy that the Government's obsession with monetary targets has entailed, the exchange rate of the pound has owed far more to domestic interest rates, themselves a consequence of Government policy, than to any other factor.

Nor have I met anyone who seriously contends that, if we reduced our own interest rates, as I for one believe we should, it would result in a more realistic, competitive and lower exchange rate for the pound than we have at present. It is a decision that the Government themselves can take if they are worried about the otherwise too high level of the pound that would flow from a proper regime of regulation of capital exports.

I shall not spend much time on the Government's third assertion, which is that the vast outflow is a once-for-all adjustment following 40 years of controls as financial insitutions have sought to reach the desired spread of their investments round the world That may have given some initial assurance to those who have watched the quadrupling of portfolio investment in the past three years. But we know nothing about what the managers of pension funds and long-term life funds believe to be a proper balance between British and overseas securities for their portfolio investments. This is entirely a matter for their judgment, and their judgment may well commit us and their policyholders to large further increases in overseas investment.

7.45 pm

What is incontrovertible is that the outflow of capital in this totally unregulated way and on this vast and growing scale has major and adverse effects on the British economy. The Government themselves do not contest that in itself it helps to sustain high interest rates. I have said already that it is the Government's monetary policy which is the primary determinant here, and it is. But no one can seriously doubt that with large outflows of British money overseas, the availability of capital to meet the reguirements of domestic borrowers is reduced substantially, and that must have the effect of pushing up interest rates. Even the February 1982 Treasury Economic Progress Report concedes in its conclusions that perhaps some marginal upward impact on interest rates has taken place.

Consequential upon what I have just said, the export of capital on this scale inevitably must have made more difficult, and will make more difficult, the funding of the public sector borrowing requirement and the possibilities of British firms obtaining the capital that they require.

The Opposition do not accept the Government's argument about the public sector borrowing requirement crowding out private sector borrowing. But if the Government believe what they say about crowding out, I do not see how they can fail to acknowledge that if sums of money equal to the whole of our public sector borrowing requirement are exported each year from the United Kingdom, it must crowd out the borrowing of private sector institutions and, indeed, their own borrowing.

Not least in importance is that the great growth in direct investment overseas, principally in manufacturing enterprises of the subsidiary companies of British parent firms, in many instances is a major and direct threat to the prospects of United Kingdom manufacturing industry. It is a direct threat to the extent that such investment satisfies overseas markets which might otherwise have taken British exports. It is a further threat in that such enterprises export in competition with the exports of British-based establishments to third markets overseas.

I have already quoted the figure for direct investment overseas from Britain for last year. It rose from £2.7 billion in 1979 to £5.2 billion in 1981. In 1981, direct investment in United Kingdom manufacturing industry totalled £6.2 billion—there was only £1 billion more on investment in our own manufacturing base last year than we invested directly in equivalent and competitive industries overseas.

In the period between 1979 and 1981 we have seen a fall in real terms of 26 per cent. in investment in British manufacturing industry and, at the same time, an increase—I have to use the figure in money terms—of nearly 95 per cent. in overseas investment. That is a development and trend that carries with it the greatest threat to our future. To industrialise our competitors and to de-industrialise our own country is a recipe for national disaster.

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

Obviously, we need to invest in our own country. That is common sense. But in an age when international trade is of the essence, is there not much to be said on two counts for investing overseas some of our country's assets? The first is that it is essential to form an international set-up so that we can take advantage of internal markets. The second is that, when the oil runs out, it will be important to have investments overseas. I remind the right hon. Gentleman that we fought much of the Second World War on the basis of international sales of overseas assets. Why should overseas investment always be so wicked and unnecessary?

Mr. Shore

That is not so. I welcome what the hon. Gentleman said about it being common sense to look after one's own industries. That must not be overlooked. However, it is not our case that there should be no overseas investment. That would be an absurdity. There have been, there are and there will be, many occasions when it makes good sense for Britain to invest overseas, particularly in countries that operate tariff protection outside the GATT system and in other countries where distance and local factors make for the advantage of locally based manufacture. However, it is our case that for industrial, employment and balance of payments reasons and reasons of obvious and manifest national interest it is essential that we should not allow a totally uncontrolled exodus of capital from this country.

It is for that reason that we have tabled the new clause calling upon the Government to review the development of their policies in the past three years, to recall the fact that we still have the legislation intact that will enable us to operate exchange controls, to look at the damage that has been done by the dismantling of the exchange control machinery and to make proposals to reimpose in appropriate and proper circumstances exchange controls.

Mr. Jay

Of all the follies in the Government's economic policy, I regard the gratuitous abandonment of exchange controls as the most damaging and ill advised in the past three years. Why was it necessary? After all, exchange control had been in force continually from 1939 to 1979 and, interestingly enough, through the whole of the 25 years when we enjoyed full employment. If there were any reason for taking that step in 1980, it would be that the Treaty of Rome enjoins the abolition of exchange control on all countries, although the Government did not use that excuse at the time.

It is not as if there were no overseas investment under exchange control. During the period of exchange control we did not have total abolition. There was a great deal of overseas direct and real investment in real assets by British companies as opposed to sheer flights of funds or portfolio investment overseas. I am in favour of much overseas investment of the direct kind, but that is different from an unrestricted outward flow regardless of the economic consequences.

There was a flaw in the second argument of the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark). He gave us one reason for favouring overseas investment, which was that it gave the country a reserve of foreign exchange in time of war. However, if we had enjoyed the export surplus that enabled us to invest abroad and if the use of the overseas surplus did not take that form, it would have to take the form of an increase in the gold and exchange reserve of the central bank, which would have been a more valuable asset when war came. I assure the hon. Gentleman that in the Second World War the British Government would have been glad to have had the reserve in the form of gold and dollars rather than having to sell Courtauld's assets in the United States and causing a great deal of bad blood among everybody concerned.

Since that step was taken in 1980, as opposed to the controlled and sensible overseas investment in the previous 30 years, there was a colossal outflow of funds, which was greater than the Chancellor of the Exchequer had warned or had expected. As my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) said, in the past year or 18 months it has been running at about £8 billion or £10 billion a year. I hope that the Minister will tell us what the correct figure is. Those large figures are bandied about and it is difficult to know the exact figure. The investment is mainly not in productive assets overseas by British firms, which will then earn the resulting profits, but in all sorts of portfolio investment. Anyone in the City will tell us that it is the unit and investment trusts and the pension funds that have varied the destination of their investment over the past few years. The most serious consequence has been the effect of raising interest rates and making them higher than they otherwise would be. If other things are equal and £10 billion of sterling funds is invested outside the country rather than in securities in this country, it is obvious to anyone that there must be a major effect on interest rates.

After the step was taken the Government invented an excuse for having taken it, which no one had suggested before, which was that as the exchange rate had become too high one way of bringing it down was to allow the outflow of funds. It is true that outflow of funds brings down the exchange rate, but one can bring it down by lower interest rates. How much more sensible that would have been. If, instead of this policy, the Government had retained exchange control and lowered interest rates, there would have been both a lower exchange rate and lower interest rates, which would have been of considerable advantage to British industry and employment.

What the Government have done is an extraordinary story. First, they let the exchange rate rise too high. Then they removed exchange control in order to keep the rate of exchange down. Now that the outflow in turn has caused the higher rate of interest, we are told that the interest rate must stay high to check the outflow, which was caused by the removal of exchange control. That is a remarkable example of gratuitously having the worst of all worlds. It means that the closures in British industry and the rise in unemployment in the past two years have been made worse than they would have been by the other elements in the Government's deflationary policy.

This is a sorry tale of making almost every error it is possible to make in economic policy. If support for the new clause can do anything to correct or amend that process, it will have a salutary result.

8 pm

Mr. Woolmer

My right hon. Friend the Member for Stepney and Poplar (Mr. Shore) spoke with great care about exchange controls and I support his proposition that the time has now come to carefully examine the merits, or otherwise, of having freedom from exchange control and whether we should have an element of exchange control.

People do not realise that for every family in this country about £500 was invested abroad last year by British industry and financial institutions. With so many people being thrown out of work because capital is too expensive and not available for British jobs, those families must wonder whether the Government have their priorities right. That is the way families will look at the matter. Converting the billions of pounds into a figure such as £500 for the average family will get home to people just what such figures mean. If I told the unemployed workers in Batley that for each family £500 is being used to finance foreign jobs while they remain on the dole, they would wonder whether the Government have their head screwed on at all. Are the Government's policies right or wrong? When the hon. Gentleman replies he must explain matters in a way that makes sense to the ordinary person.

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

Would it not be better to invite the Conservative Party to produce a party political broadcast to explain to the British people what is happening with investment overseas? The British people could then judge for themselves whether the Government are right or wrong. I challenge the Minister to ask his party managers to produce a party political broadcast that tells the truth about investment. The hon. Gentleman may smile, but these are serious matters in our constituencies where thousands of people are out of work.

Mr. Woolmer

I am grateful to my hon. Friend. He anticipated my next remark. Of all the Government's achievements, or lack of them, this is, perhaps, the one of which we have heard least since the initial trumpeting with which it was introduced. I remember how Conservative Members greeted the removal of exchange controls with pleasure. That is never mentioned now in Conservative Party political broadcasts on television, or even in the press, as one of the plus points of Government policy.

Why has there been this large outflow of capital? I can imagine circumstances in which a country might regard it as sensible to have a completely free and unrestricted outflow of capital. A small Arab nation with a small population and huge oil supplies that produce resources that cannot be used internally would need to make massive investment abroad. Such resources could not be used in its own economy. However, if a country has high unemployment and a need for investment in its own industries, what sense is there in investing abroad? When we compare the economy of a small Arab nation with that of the United Kingdom it is obvious that we should be attempting to contain our capital and use it to create employment.

Why do we have a surplus? There are two reasons. First, we have had this big switch round in our oil revenues and oil surplus. We have an approximate turnround, within about three years—fortunately, in political terms, for this Conservative Government—of about £3½ billion to £4 billion on the current account of this country. Again converting that into figures that are readily understood, the Government have a family bonus of about £200 to £250 to play with in their economic policies. I wonder, in common with millions of others, what has happened to that bonus from North Sea oil that was to go towards growth, employment and rising living standards. The fact is that as the surplus became available, so production has gone down, unemployment has risen and the Government's economic policy has been reduced to tatters.

The second reason for the surplus is that we have had a balance, until last month, on non-oil trade. Our exports have exceeded imports. That can be a good thing when the economy is booming and exports are growing faster than imports. It represents a bonus for the country that the Government can consider using to the best effect. However, our surplus on non-oil trade is largely due to reduced imports arising from the deep recession into which the Government's monetary policies have thrown us. Imports have decreased to a greater extent than exports have risen. The Government blame world conditions for the domestic recession, but surely the deep slump in our own imports gives the lie to that. The paradox is that although the total volume of imports had been falling until recently, import penetration has been increasing. Faced with the latest trade figures, commentators have said that in the middle of a recession import growth is becoming a worrying feature. Our industry is unable to respond to even the small growth prospects that might occur in the next few years.

To summarise, therefore, the surplus arises from the oil revenues that the Government appear to have frittered away and the very depressed home market that has resulted in fewer imports. The high outflow of capital has not been the result of economic strength and carefully considered policies but rather the failure of the Government to use North Sea oil revenues and manage the economy in the interests of our own people.

The trade surplus of about £8 billion and the massive outflow of British capital represent a lost opportunity for the British Government and the British economy. That capital outflow also represents the stark facts of unemployed factories, offices and workers. The surplus reflects a failure to expand the economy, to expand investment in the economy and to create job opportunities. If that capital had not been allowed to flow abroad, the pressure on British industry and British financial institutions to make better use of those funds in the British economy would have been enormous. Pension funds, insurance companies, banks and major British companies would not have tolerated the deflation in the home market. They would not have tolerated the Government's economic policies if they had been forced to look only in Britain to use their resources. The City of London and major British companies have been willing to tolerate the depression only because they could export capital abroad to get their profits.

Although financial institutions and large companies can overcome the Government's policies by exporting capital, the British worker cannot export his job. He has been left without capital and without a job. That is a further reason why we should support the new clause. It is common sense that we should look seriously at the new clause in the light of two or three years' practical experience.

The simple answer is to say that capital should not have gone to other countries, but should have been used for profitable investment in the United Kingdom. Most people would say that. However, as my right hon. Friend the Member for Battersea, North, (Mr. Jay) said, that is only part of the answer.

An expansionary economic policy is necessary, together with some restoration of exchange controls and a managed currency. The provision of profitable investment opportunities and the search for profitable investment opportunities are both required. These are not alternatives; they are complimentary. But by permitting a massive outflow of capital by industry, banks and financial institutions, the Government have enabled the City to ignore the needs of industry in the regions.

The Government have been ruled, in my view, by the City of London, and that is how it seems in industrial areas in Yorkshire. It looks as though we have a Government who care more about the status of the City of London than they do about the needs of unemployed workers and of the manufacturing industry in Yorkshire and Humberside. I am attempting to put before the House the position as it is seen by people to whom I speak when I travel around Yorkshire and other parts of the country. These are people who consider not high-flown theories but the reality of their own experience.

The Government have been ruled by the City of London, which is delighted with its total freedom, but that freedom has been bought at the price of misery, fear and the desperation of the dole queue. Who benefits from investment overseas? I agree with my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) that in many circumstances investment abroad is justified and necessary. We are arguing not in terms of pure black and white but about how to balance the interests of different strands of policy.

Often it may be necessary to have direct investment abroad or some portfolio investment. It may be that foreign investment brings income, but income to whom? It may bring income, but it does not bring jobs. It is argued that foreign capital investment will eventually bring back flows of income, but on the whole the outflow tends, not surprisingly, to reflect the unequal distribution of wealth and capital, for how many people in my constituency could afford to invest £500 a year anywhere, let alone overseas? The Minister knows that very well.

The income that is going overseas is depriving all our workers of jobs, but the income that stays here benefits that part of the population with the greatest claim to the wealth and capital of Britain. Investment overseas does not provide jobs here, and surely that is one of the biggest needs.

I support the new clause. A balance of interests is required. Some capital outflow may be necessary and wise, but freedom to export capital must be tempered by the need to employ our own capital resources to produce British jobs. Few other countries afford themselves the luxury of having no exchange controls. No doubt other hon. Members have looked as carefully as I have at the parts of the annual report of the International Monetary Fund for 1981 dealing with exchange arrangements and exchange restrictions, and will have noted that Britain is among a remarkably select few countries which believe that they can throw aside the need to balance economic policies. There must be a proper balance between domestic needs and overseas needs.

I represent a constituency with 28 per cent. male unemployment, and with textile and engineering industries which have suffered massive recession in the last few years. I implore the Minister, on their behalf, to recognise that they desperately require British savings and British capital to be invested, as far as is humanly possible, in British factories and British jobs.

8.15 pm

Mr. Campbell-Savours

I hope that the Minister will take up the challenge that I put to him a few moments ago. I think that the British people will be interested to learn about the Government's record in regard to internal investment and of their willingness to allow massive British funds to be channelled to our overseas competitors and into investment abroad.

My contribution will be in general terms, because my hon. Friends have dealt in great detail with the principles behind the dangerous and worrying statistics. I think that it would be in order for us today to extract from the Social Democratic Party a statement on where it stands on the issue of exchange control. I have here some remarks that were made by the hon. Member for Colne Valley (Mr. Wainwright) nearly three years ago when the statement about withdrawing the mechanism for exchange control was announced to the House by the Chancellor of the Exchequer. The hon. Gentleman said: Is the Chancellor aware that his announcement will be very welcome to all who opposed the attempts to insulate Britain from the rest of the world? Will he confirm that if one of the early effects of his measures is to reduce somewhat the sterling exchange rate, that will be good news for the millions of our people engaged in the exporting industries?"—[Official Report, 23 October 1979; Vol. 972, c. 206.] That unconditional support in 1979 by the Liberal Party for the ending of exchange controls requires a response from the Social Democratic segment of the Opposition. I hope that the SDP will make very clear tonight whether it supports an arrangement whereby vast sums of money can be transferred overseas at a direct cost to the Northern region and to people in other parts of Britain where unemployment is very high.

Several SDP Members represent constituencies in the Northern region in which there are particularly high levels of unemployment. Their constituents deserve to know whether their Members support the Liberals in the pursuit of the reckless export of money, which is removing job oppportunities in the Northern region and in the rest of the United Kingdom.

In my constituency there is a small town called Maryport. In pulling off the main road from Maryport to Workington, one comes to the Solway industrial estate. Today it is an industrial morgue. Almost every factory on that estate is closed. Only two remain, and one of them recently announced 95 redundancies, so only a handful of people will remain.

The people on that estate—indeed, people throughout the United Kingdom, as my hon. Friend the Member for Batley and Morley (Mr. Woolmer) said—demand to know why an investment strike is taking place in British industry and why the Government are recklessly permitting vast sums of money to be exported overseas. Government spokesmen may reply with high-falutin' economic arguments about the need to maintain high export levels, to manage the exchange rate and to arrange interest rates to comply with their monetarist strategy, but that means nothing to my constituents. They want to know why they cannot have work, why their factories are closed, why they cannot be accorded the human dignity of a right to a job and why large amounts of money are transferred overseas.

I ask the Economic Secretary to have a go at his party managers and to ask them to put out a party political broadcast to explain why investment in British industry last year was £1 billion less than direct investment in overseas competitors. That is an appalling statistic.

I understand that the net value of our assets abroad represents £1,000 for every working man in Britain and £9,000 for every man on the dole. The people demand that some of that money be brought home and used to get them back to work. When the hon. Gentleman replies, he should keep off his economic and statistical arguments and gear himself to the real worries of the people.

Mr. Arthur Scargill, a gentleman with whom I rarely agree, recently made an interesting comment that pleased me. He said that the National Coal Board's investment fund should be invested at home. I believe that there should be new legislation to ensure that a proportion of investing institutions' portfolios is based on domestic manufacturing industry so as to create jobs where they are needed. Mr. Scargill's suggestion had an immediate effect upon my constituents, and applications were made to the National Coal Board for funds to be made available to our region. I hope that other industries that manage large investment portfolios will respond to that call and recognise, in the spirit of patriotism for which the Prime Minister called during the Falklands conflict, that their money is needed for use in this country. The Government have a duty to ensure that that money is brought home as expeditiously as possible.

I do not say that all overseas investment should be brought to an end. During the term of the Labour Government, British industry invested overseas effectively behind a wall of exchange controls. If overseas investment worked then, it will work today. The hon. Gentleman must recognise that and not wrap up his reply with complacent words without understanding the needs of millions of British people.

Mr. Bruce-Gardyne

We have had an interesting and wide-ranging debate on the new clause but I must recommend that the House rejects it.

Mr. Woolmer

Shame.

Mr. Bruce-Gardyne

I can give a good reason straight away. The new clause asks the Government to produce a White Paper setting forth proposals for the reimposition of exchange control. As my right hon. and learned Friend has no intention of reintroducing exchange controls, such as a White Paper would be an expensive act of supererogation and we do not intend to produce it. In a nutshell, that is why I must urge the House to reject the new clause.

If I sat down now, I should be the subject of criticism from Labour Members, so I had better spend a few moments on the substance of the matter, which goes wider than the production of a White Paper. The basic reason why we have no intention of reintroducing exchange controls is that they are wholly ineffective in insulating this or any economy from the consequences of its actions and the impact of the international environment. The Labour Party had comprehensive exchange controls in 1976 that made not the slightest difference to the drama faced by the right hon. Member for Leeds, East (Mr. Healey), when he had to ditch his plane at Heathrow and come running back to London because the pound was disappearing out of sight.

The French Government have comprehensive exchange controls, but they have not enabled the French to insulate themselves from the consequences of market judgments about their monetary, interest rates and public expenditure policies, which they have been obliged to put into reverse because of the impact, notwithstanding the fact that they have exchange controls, on their exchange rate and hence on their domestic inflation prospects.

Mr. Jay

Would the Economic Secretary have argued that there was no purpose in exchange controls during the Second World War?

Mr. Bruce-Gardyne

War-time conditions do not—

Mr. Jay

Why?

Mr. Bruce-Gardyne

Under war-time conditions, one must have controls to ensure that people do not export capital to the enemy. That is just an example, but there are many cases in the special circumstances of war where such measures may be required. Our experience during the past 30 years has shown that, in insulating the British economy from the consequences of international market judgments on our monetary policies and performance, exchange controls have been wholly ineffective. The right hon. Gentleman would be the first to concede that perhaps the two largest elements in money flows are leads and lags and overseas inward and outward investment, which are not controlled by exchange controls. They are entirely outside the scope of the controls that we had for more than 40 years.

The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) said that when the Labour Government had exchange controls it was a time of full emloyment. It did not look like that in the mid-1970s when unemployment doubled in two years. The existence of exchange controls then did not prevent the rapid escalation of unemployment. The Labour Party should recognise that the horrifying burden of unemployment that we face is the consequence of deep-rooted errors and follies perpetrated by successive Governments for many years. It has nothing to do with the abolition of exchange controls by this Government.

Mr. Straw

If it has nothing to do with the abolition of exchange controls and other decisions made by the Government, why has Britain moved from fourth place in the unemployment table in 1979, compared with the seven other major industrialised countries, to top place at more than two and a half percentage points above the United States of America? Why has our relative position changed so badly in the past three years?

Mr. Bruce-Gardyne

For a variety of reasons, the most important of which is the fact that in the preceding five years, while the real costs of employment doubled in Britain, the increases among our competititors were a fraction of the same rate. We increased vastly our lack of competitiveness. Those increases in labour costs came out of the profitability of private manufacturing industry.

The hon. Member for Batley and Morley (Mr. Woolmer) talked about the need to divert investment into profitable manufacturing industry. The hon. Gentleman has a good point. The trouble is that over the past decade or more the level of profitability in the corporate sector has been shrinking. That is the trend that we have to reverse. It is when we have reversed that trend that we shall see the prospects for genuine profitable investment. They are, unfortunately, not sufficient in this country at this time.

8.30 pm

Mr. Woolmer

Does not the hon. Gentleman at least listen to the CBI, which has stated yet again the need for lower interest rates and the injection of investment into British industry? The hon. Gentleman can surely see that at least a part of the £10 billion that is going abroad would help to bring down interest rates and provide money to finance investment. If the hon. Gentleman does not agree with the Opposition, will he at least answer the argument of the CBI and stop whitewashing the subject? What the British public want to know is how he can justify a £10 billion capital outflow at a time of rising mass unemployment. The hon. Gentleman has not given an answer.

Mr. Bruce-Gardyne

It is difficult to give an answer if the hon. Gentleman intervenes at a point when I was about to deal with some of the arguments that have been advanced on the need to halt the outflow of investment, both direct and portfolio, that has occurred since the abolition of exchange controls. I can assure the hon. Gentleman that the Government, like the CBI, are anxious to see interest rates come down. But we have to make sure that interest rates come down in a manner that does not jeopardise the achievements of counter-inflation policies. Governments around the globe have discovered that it is not possible entirely to insulate oneself, by exchange controls or any other device, from what is happening to interest rates.

Mr. Jay

rose—

Mr. Bruce-Gardyne

I have already given way once to the right hon. Gentleman. I think that I should make some progress. I must proceed to the main part of my argument if the right hon. Gentleman will forgive me.

The main burden of the argument is that the abolition of exchange controls has led to the diversion of investment from the United Kingdom to our competitors overseas. I was amazed to hear the right hon. Member for Stepney and Poplar (Mr. Shore) remark that, before my right hon. and learned Friend the Chancellor announced the abolition of exchange controls, no one had suggested that their abolition would help to produce an exchange rate that was lower than it would otherwise have been. I do not know what the right hon. Gentleman was reading at that period. I recall that never a week went by without eminent commentators, including Samuel Brittan and plenty of others, pointing out—

Mr. Straw

And leader writers on The Daily Telegraph.

Mr. Bruce-Gardyne

Possibly even leader writers on The Daily Telegraph. Certainly, many eminent commentators were pointing out that one of the most sensible way of ensuring that we were not artificially adding to the rise in the exchange rate was to abolish exchange controls. That was obvious. How the right hon. Gentleman can seriously ask the House to believe that the retention of exchange controls would not have led to a higher exchange rate passes my understanding.

Mr. Shore

The hon. Gentleman is contradicted by the facts. Following the abolition at a stroke of exchange controls, I think in October 1979, the pound continued its upward rise to the almost unbelievable level of nearly ․2.40 just over 18 months ago. Will he not agree that some other factors somewhere must be influencing the level of the pound? The hon. Gentleman well knows that there are measures both external to this country and also internal that contribute. The most important single internal fact that makes for the present rate of the pound is relative interest rates in the United Kingdom. He knows well that, if those were reduced, the pound would come down substantially.

Mr. Bruce-Gardyne

I am not saying that the abolition of exchange controls was calculated to lead to a fall in the value of the pound. I would not dream of making such a proposition, and I never said any such thing. However, I said that the abolition of exchange controls was calculated to ensure that the level of the pound would be below what it might otherwise have been. Probably the most important single reason for the rise in the level of the pound in early 1980 was the international perception, that we were an advanced industrial country with security of oil supplies at a time when the market was overwhelmingly preoccupied, following the second oil shock, with security of oil supplies. The fashionable thing to have at that time was oil. As we had it, that was bound to happen.

The proposition that I am putting to the House is that inevitably our exchange rates would have been higher then and higher today if we had still retained our controls of outward portfolio or direct investment. I concede to the right hon. Gentleman that the reimposition of exchange controls might theoretically have some impact on our domestic interest rates. However, the impact might be highly perverse, because if the reimposition of exchange controls were adversely interpreted, as it might be by the international community, and if it were accompanied by the sort of propositions that the Labour Party put forward by way of so-called economic policies, it would have the impact of leading directly to the collapse of international confidence. Under those circumstances, the likelihood would be that interest rates would go up, not down. It is wrong to assume that the reimposition of exchange controls would lead to lower interest rates. It could mean that interest rates would be significantly higher than they had been.

Mr. Derek Foster (Bishop Auckland)

Is the Minister now denying his policies, such as excessively tight financial controls, and his then belief in the money supply and the PSBR? Is it not true that they were a major factor in pushing up interest rates to the 17 per cent. that we had? Was it entirely external practice? Did not his policies have a major impact?

Mr. Bruce-Gardyne

When the Government took office, against a background of rapidly accelerating inflation inherited from the Labour Government, it was necessary for us to take a grip on monetary policy and ensure that, through time, inflation was brought under better control, as we have succeeded in doing. I concede that the fact that we had a Government determined to bring inflation under control was a factor which encouraged overseas purchasers and others to purchase pounds. However, at that time and still today, the overwhelming priority was, and must be, to bring our inflation rate down to the sort of levels that the Germans have enjoyed over the years and which have been the foundation of their success and prosperity. That is the line that we should follow.

I want to refute the argument by the right hon. Gentleman and others that institutional portfolio investment overseas is diverting money from investment which otherwise would have gone into United Kingdom companies. There is no significant evidence to support that proposition. The proportion of institutional funds invested in United Kingdom company securities in 1981 as a whole was much the same as in previous years. In fact, new capital issues by United Kingdom companies rose by 20 per cent. in 1980, and by a further 60 per cent. in 1981. There is absolutely no evidence for the proposition that there is a shortage of finance for profitable projects.

The problem lies in the profitability of British manufacturing companies, which is far too low.

Mr. Foster

rose—

Mr. Bruce-Gardyne

No, I shall not give way again to the hon. Gentleman. The main shift in portfolio investment has been, not from investment in United Kingdom ordinary shares but, to a much more significant extent, from investment in United Kingdom Government securities. That is where the change has occurred.

The right hon. Gentleman asked about the figures. I do not quarrel with the figures that he gave, because they are the up-to-date figures, but the result of outward investment on this scale must be crowding out, to use a term that has been frequently used. However, he has not followed the process through. When sterling is used for overseas investment, obviously it is sold for foreign currency. Other things being equal, that will tend to reduce the real exchange rate below what it would otherwise have been, thereby helping both output and competitiveness in this country, while increasing United Kingdom holdings of overseas assets and providing a source of foreign currency earnings in the future. The point was made time and again when we were approaching oil self-sufficiency that part of the logical response to that self-sufficiency had to be the building up of an overseas portfolio and direct investment by British industry and British investing institutions. That is the logical response to a period of substantial oil surplus. The hon. Member for Batley and Morley quoted the turnround, and it was a substantial turnround. If we had not allowed that turnround to be reflected in the build-up of direct and portfolio investment which occurred, inevitably it would have been reflected in the exchange rate.

Mr. Shore

The Minister has put his case and there is a certain cohesion in it. I do not say that there is no substance in it, but will he please understand that there are choices in economic policies? The Minister has described one chain of events that leads to investment overseas and the exchange rate appreciating, which would be damaging. If one takes the opposite direction and seeks to expand the economy and reduce interest rates an entirely different result is obtained. We think that that would be more beneficial to the country. We are asking the Chancellor to reconsider the experience. We are asking him to think again.

8.45 pm

Mr. Bruce-Gardyne

I concede that the combination of policies that the right hon. Member for Stepney and Poplar and his colleagues suggest could lead to a substantial drop in the exchange rate. I was interested that the right hon. Gentleman's former colleague, the hon. Member for Southampton, Itchen (Mr. Mitchell) told the Treasury and Civil Service Select Committee the other day that the great thing about the Labour Party's economic policy was that it would create a collapse of confidence internationally and that that was the best thing that could happen. The trouble is that a collapse of confidence internationally is not controllable. As the right hon. Gentleman and his colleagues discovered in 1976, one suddenly gets to the point where not only can one not borrow at modest interest, but one cannot borrow at all. Then one has to reverse engines and recognise that unless one is prepared to give the priority that I concede that we have given to the conquest of inflation, the markets will force a rethink. The French Government have discovered that. I agree that there is an alternative, but it is not an alternative on which the Government intend to embark. I recommend the House to reject the new clause because it serves no purpose.

Mr. Cook

When the Minister was replying there were moments when I thought that we were about to make the historic discovery that the Government have an exchange rate policy. That has been denied at fortnightly intervals. The Economic Secretary sought to defend the abolition of exchange controls on the ground that it would enable the exchange rate to be held down.

The Economic Secretary's difficulty is twofold. If the Government's aim were to reduce the exchange rate and to control some of the alarming lurches in the exchange rate witnessed in the last three years, there would be one simple and effective solution—to cut interest rates. Today we heard again the nonsense which the Government practise. They argue that they cannot cut interest rates because they need high interest rates to reduce inflation. It is manifest nonsense and an offence to reason to argue that the more one increases interest rates the more one reduces inflation. Plainly the more one increases interest rates the more one assists inflation to remain high and the more one curses British industry with the high interest rates that it has dragged round for the past three years.

The Economic Secretary has another problem. If he seriously contends that the abolition of exchange controls contributes to keeping down exchange rates he must face the fact that the Chancellor, when he made his statement in the House in October 1979, explicitly stated that he was not taking that step to affect the exchange rate. In reply to my right hon. Friend the Member for Leeds, East (Mr. Healey), he said that exchange controls have been undertaken stage by stage, not with a view to influencing the exchange rate". Just in case any hon. Member fails to grasp that point, when the hon. Member for Colne Valley (Mr. Wainwright) intervened, he received exactly the same reply: this change is announced not with a view to influencing the exchange rate". If the Chancellor of the Exchequer felt that it was necessary to spell out repeatedly that there was no intention to influence the exchange rate, it will not do to claim three years later, when the adverse consequences of the abolition of exchange controls can be seen, that that is why it was done—in justification of such a reckless step.

Two and a half years ago the Chancellor of the Exchequer said that he was abolishing exchange controls in order to remove a check on investment. He said that it was in order to remove some of the restrictions that unjustifiably remain on investment decisions by"— I like this touch— our people."—[Official Report, 23 October 1979; Vol. 972, c. 204–6.] It is precisely because the abolition of exchange controls removed that check on investment decisions that my hon. Friends have demanded in the course of the debate a White Paper and have spoken compellingly about the consequences of removing that check on investment decisions.

In a brief intervention in the speech of my right hon. Friend the Member for Stepney and Poplar (Mr. Shore), the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) drew attention to the effect and relevance of exchange controls in wartime.

What has surprised Labour Members is the discovery that, in the Chancellor of the Exchequer there is, within the Cabinet, a closet unilateralist. A unilateral abolition of exchange controls is a unilateral dismantling of protection that many other nations have retained to control investment decisions by their people.

Not only does the Chancellor believe in unilateralism, but he has taken care to burn his bridges. We understand from the official in the Bank of England who was responsible for exchange controls—he is now no longer employed in the Bank—that the files have been destroyed so that it will not be possible to have second thoughts. The Bank has dispersed the staff, who now meet only once a year for an annual knees-up. Everything has been done to make it more difficult to reimpose exchange controls should it become apparent—it has become increasingly apparent—that they served a useful function.

Painful though the duty may be, I am now obliged to turn to another part of the Economic Secretary's speech.

Mr. Campbell-Savours

Would it not be in order for the Minister to say whether some people in the former exchange control department have been retained and, if so, what their purpose is in that department?

Mr. Cook

We have not been privileged to receive the brief marked "For the attention of the Minister only". My understanding is that it is not the Treasury that is taking the sensible precaution of maintaining a small research staff to note what is happening, but the banks. That suggests to me that, among people who do not carry around the lumber of doctrine that the Ministers in the Treasury do, there is a pragmatic recognition that they have been needed for 35 years and there is an odds-on chance that, eventually, even this Government will realise their necessity again.

I was about to turn to another passage of the Economic Secretary's speech in which he claimed that one reason for abolishing exchange controls was that they were ineffectual; that they could not influence movements in the exchange rate. If that is so, it is incumbent on the Economic Secretary to explain why their abolition should have been followed by such a massive surge of capital out of Britain. How else can we account for the fact that in 1980 and again in 1981 we witnessed a massive flood of capital out of Britain that was unprecedented in any of the years of exchange control that preceded it?

Mr. Bruce-Gardyne

I did not say that exchange controls did not have an impact on direct and portfolio investment overseas. Of course they did. I did not argue that at all. My point was that they could not control the two major elements in flows across the exchanges—the movement of overseas funds, and commercial leads and lags. The idea that exchange controls enabled a country to insulate its economy from the outside world was a load of bunkum and was shown to be.

Mr. Cook

I am delighted that it should be on record that the Economic Secretary accepts that exchange controls can influence the movement of direct and portfolio investment. That is precisely the point that my hon. Friends made. If the Economic Secretary now accepts the premise on which they argued their case, he should in fairness—given my hon. Friends' impassioned speeches about the problems resulting in their constituencies from the lack of investment—accept the case for a White Paper so that we may know what has happened since 1979.

Mr. John Browne (Winchester)

Is the hon. Gentleman prepared to accept that, in considering the net figure for exchange flows out of Britain, he must first consider the effect of inflows? He has not taken them into account. In addition, the immediate outflow has followed many years of frozen investment in Britain. Therefore, there must be a legitimate reason for investment managers to diversify their portfolios. In the first two or three years following the abolition of exchange controls the outflow may not be any indicator of the general trend of investment.

Mr. Cook

I am grateful to the hon. Gentleman for his intervention because it has brought me to my next point. I welcome the hon. Gentleman to our debates. I always like to think that The Guardian's compositors had the hon. Gentleman in mind when they printed the statement that the Treasury was under pressure from Conservative "Bank" Benchers.

The hon. Gentleman has put forward an argument that was placed on record by the Chancellor of the Exchequer in October 1979. When the right hon. and learned Gentleman abolished exchange controls he said that abolition is likely to lead to some capital outflows"— hon. Members should notice the use of the word "some" and the bathos there— across the exchanges out of this country, but it is just as likely to be matched by capital inflows in the opposite direction".—[Official Report, 23 October 1979; Vol. 972, c. 208.] That is the point made by the hon. Member for Winchester (Mr. Browne). However, if the hon. Gentleman consults the figures—even those published in the Government's own publication British Business—he will find that that is far from being the case. Indeed, in the three years since the abolition of exchange controls outward investment has been double the level of inward investment. The figures for 1981 show that inflows collapsed so far that the ratio between outward and inward direct investment is now running at 6:1 for the export of capital from Great Britain.

That has not occurred after a period in which Britain was loth to export its capital. The Library has prepared figures showing the proportion of investment invested abroad by each of the major OECD countries. The United Kingdom is outstanding for the proportion of investment invested abroad. In 1980, we invested abroad 22 per cent. of all our investment. Japan invested abroad 0.6 per cent. of all investment. In 1980, no other nation exported abroad more than 5 per cent. of its total investment. We cannot hope to survive as a manufacturing nation in competition with other nations if we invest much more heavily in their economies than they invest in ours.

Mr. Foster

Given the figures that my hon. Friend has just cited, might there not be an imaginative new role for the Invest in Britain Bureau? It could actually encourage investment in Britain, instead of just encouraging others overseas to invest here.

Mr. Cook

My hon. Friend brings me conveniently to the next point, and that is the last justification that we have heard for the abolition of exchange control. The hon. Member for Selly Oak said that direct investment abroad can be of advantage in securing jobs in Great Britain. Let us examine that statement by looking at the companies that have invested abroad. In 1980, one-third of the direct investment abroad came from three companies making three major purchases—the decision by Grand Metropolitan Ltd. to buy the United States Ligett Corporation, the decision of Pilkington Brothers Ltd. to buy the German Flachglas company, and the decision by the Imperial Group to buy the Howard Johnson company chain of motels. When historians write about the decline of Great Britain's industry they will make a special footnote of the decision of one of our major manufacturing companies to make the purchase of a chain of ice cream parlours across North America its biggest investment.

9 pm

If we take the annual reports of those three companies and look at what happened, we find that for the most recent three years, employment in Grand Metropolitan has fallen by 5,400 jobs, employment in Pilkington Brothers Ltd. by 2,000–9 per cent. of the work force—and employment in the Imperial Group has fallen by 7,700 jobs. The companies that invest most abroad are cutting back most on jobs in Great Britain.

There are three lessons to be learnt from the Treasury's behaviour. It plainly does not believe in the crowding out theory. There were no empirical data to support that theory. It is evident that the Treasury never believed in the theoretical basis of the crowding out theory. If it did, how could it permit the flood out of Great Britain of capital in excess of the PSBR? Secondly, the Treasury has never believed that funding the PSBR was a problem that needed to constrain public expenditure. The Treasury connived at making it much more difficult to fund the PSBR because money has been going abroad. The Economic Secretary admitted that. The Bank of England Quarterly Bulletin report on the abolition of exchange control concludes that the extent to which the pension funds have increased their purchase of overseas securities is equally matched by a reduction in the extent to which they purchased Government gilts. The Treasury has made it more difficult to fund the PSBR and cannot now plead that it cannot expand public expenditure because of that difficulty.

The most wonderful thing of all is the number of times that we are told by both Front and Back Benches that, because of the lack of profitable opportunities in Great Britain, people are investing abroad. The Government have been in power for over three years. If there is a lack of profitable investment opportunity it is not something on which they can preen themselves—it is further damning evidence of the collapse and failure of their economic policies. It is also evidence that even their friends, the financiers in the City, are not convinced by the fairy stories of the forthcoming growth that will be the result of the policies. Their friends have been voting with their portfolios and taking them abroad. Some of their friends have done very well.

The true significance of the abolition of exchange control is that it has enabled a few wealthy people to divorce their financial interests from the economic fate of the rest of their countrymen. Although employment in United Kingdom manufacturing industry may go down the plughole they will be all right, because they will have the receipts from their foreign investments. We are witnessing yet another dimension of the two nations that right hon. and hon. Gentlemen on the Government Benches have been so busily creating. We find that dimension repugnant and we shall be voting against the removal of exchange control that has made that dimension possible.

Question put, That the clause be read a Second time:—

The House divided: Ayes 190, Noes 292.

Division No. 263]	[9.4 pm
AYES
Abse, Leo	Benn, Rt Hon Tony
Allaun, Frank	Bennett, Andrew(St'kp't N)
Archer, Rt Hon Peter	Bidwell, Sydney
Ashley, Rt Hon Jack	Booth, Rt Hon Albert
Ashton, Joe	Bray, Dr Jeremy
Atkinson, N.(H'gey,)	Brown, Hugh D. (Provan)
Bagier, Gordon A.T.	Brown, R. C. (N'castle W)
Barnett, Guy (Greenwich)	Brown, Ron (E'burgh, Leith)
Barnett, Rt Hon Joel (H'wd)	Buchan, Norman

Callaghan, Jim (Midd't'n & P)	Kilroy-Silk, Robert
Campbell, Ian	Lamond, James
Campbell-Savours, Dale	Leadbitter, Ted
Canavan, Dennis	Leighton, Ronald
Carmichael, Neil	Lestor, Miss Joan
Carter-Jones, Lewis	Lewis, Ron (Carlisle)
Clark, Dr David (S Shields)	Litherland, Robert
Clarke, Thomas C'b'dge,A'rie	Lofthouse, Geoffrey
Cocks, Rt Hon M. (B'stol S)	McCartney, Hugh
Cohen, Stanley	McElhone, Frank
Coleman, Donald	McGuire, Michael (Ince)
Concannon, Rt Hon J. D.	McKay, Allen (Penistone)
Cook, Robin F.	MacKenzie, Rt Hon Gregor
Cowans, Harry	McTaggart, Robert
Cox, T. (W'dsw'th, Toot'g)	McWilliam, John
Craigen, J. M. (G'gow, M'hill)	Marks, Kenneth
Crowther, Stan	Marshall, Dr Edmund (Goole)
Cryer, Bob	Marshall, Jim (Leicester S)
Cunliffe, Lawrence	Martin, M(G'gow S'burn)
Cunningham, Dr J. (W'h'n)	Mason, Rt Hon Roy
Dalyell, Tam	Maxton, John
Davidson, Arthur	Maynard, Miss Joan
Davies, Rt Hon Denzil (L'lli)	Mikardo, Ian
Davis, Clinton (Hackney C)	Millan, Rt Hon Bruce
Davis, Terry (B'ham, Stechf'd)	Miller, Dr M. S. (E Kilbride)
Deakins, Eric	Mitchell, Austin (Grimsby)
Dean, Joseph (Leeds West)	Morris, Rt Hon A. (W'shawe)
Dewar, Donald	Morris, Rt Hon C. (O'shaw)
Dixon, Donald	Morton, George
Dobson, Frank	Moyle, Rt Hon Roland
Dormand, Jack	Newens, Stanley
Dubs, Alfred	Oakes, Rt Hon Gordon
Duffy, A. E. P.	O'Neill, Martin
Dunnett, Jack	Orme, Rt Hon Stanley
Dunwoody, Hon Mrs G.	Palmer, Arthur
Eadie, Alex	Park, George
Eastham, Ken	Parker, John
Edwards, R. (W'hampt'n S E)	Parry, Robert
Ellis, R. (NE D'bysh're)	Pavitt, Laurie
English, Michael	Race, Reg
Ennals, Rt Hon David	Radice, Giles
Evans, John (Newton)	Rees, Rt Hon M (Leeds S)
Ewing, Harry	Richardson, Jo
Fletcher, Ted (Darlington)	Roberts, Albert (Normanton)
Ford, Ben	Roberts, Allan (Bootle)
Forrester, John	Roberts, Ernest (Hackney N)
Foulkes, George	Roberts, Gwilym (Cannock)
Fraser, J. (Lamb'th, N'w'd)	Robinson, G. (Coventry NW)
Freeson, Rt Hon Reginald	Rooker, J. W.
Garrett, John (Norwich S)	Ross, Ernest (Dundee West)
Garrett, W. E. (Wallsend)	Ryman, John
Golding, John	Sever, John
Graham, Ted	Sheerman, Barry
Hamilton, James (Bothwell)	Sheldon, Rt Hon R.
Hamilton, W. W. (C'tral Fife)	Shore, Rt Hon Peter
Hardy, Peter	Short, Mrs Renée
Harrison, Rt Hon Walter	Silkin, Rt Hon J. (Deptford)
Hart, Rt Hon Dame Judith	Silkin, Rt Hon S. C. (Dulwich)
Hattersley, Rt Hon Roy	Silverman, Julius
Healey, Rt Hon Denis	Skinner, Dennis
Heffer, Eric S.	Soley, Clive
Hogg, N. (E Dunb't'nshire)	Spearing, Nigel
Holland, S. (L'b'th, Vauxh'll)	Stallard, A. W.
Home Robertson, John	Stewart, Rt Hon D. (W Isles)
Homewood, William	Stoddart, David
Hooley, Frank	Stott, Roger
Howell, Rt Hon D.	Strang, Gavin
Hoyle, Douglas	Straw, Jack
Hughes, Mark (Durham)	Summerskill, Hon Dr Shirley
Hughes, Robert (Aberdeen N)	Thomas, Dafydd (Merioneth)
Hughes, Roy (Newport)	Thorne, Stan (Preston South)
Janner, Hon Greville	Tilley, John
Jay, Rt Hon Douglas	Tinn, James
John, Brynmor	Torney, Tom
Johnson, James (Hull West)	Urwin, Rt Hon Tom
Johnson, Walter (Derby S)	Varley, Rt Hon Eric G.
Jones, Rt Hon Alec (Rh'dda)	Wainwright, E.(Dearne V)
Jones, Barry (East Flint)	Weetch, Ken
Kaufman, Rt Hon Gerald	Welsh, Michael
Kerr, Russell	White, Frank R.

White, J. (G'gow Pollok)	Woolmer, Kenneth
Whitlock, William	Wright, Sheila
Wigley, Dafydd	Young, David (Bolton E)
Willey, Rt Hon Frederick
Williams, Rt Hon A.(S'sea W)	Tellers for the Ayes:
Wilson, Gordon (Dundee E)	Mr. Frank Haynes and
Wilson, Rt Hon Sir H.(H'ton)	Mr. Derek Foster.
Winnick, David
Woodall, Alec
NOES
Adley, Robert	Durant, Tony
Aitken, Jonathan	Eden, Rt Hon Sir John
Alexander, Richard	Edwards, Rt Hon N. (P'broke)
Alison, Rt Hon Michael	Eggar, Tim
Alton, David	Elliott, Sir William
Amery, Rt Hon Julian	Ellis, Tom (Wrexham)
Arnold, Tom	Fairbairn, Nicholas
Aspinwall, Jack	Fairgrieve, Sir Russell
Atkins, Rt Hon H.(S'thorne)	Faith, Mrs Sheila
Atkins, Robert (Preston N)	Farr, John
Atkinson, David (B'm'th,E)	Fenner, Mrs Peggy
Baker, Nicholas (N Dorset)	Finsberg, Geoffrey
Banks, Robert	Fisher, Sir Nigel
Beaumont-Dark, Anthony	Fletcher, A. (Ed'nb'gh N)
Beith, A. J.	Fletcher-Cooke, Sir Charles
Bendall, Vivian	Fookes, Miss Janet
Bennett, Sir Frederic (T'bay)	Forman, Nigel
Benyon, W. (Buckingham)	Fowler, Rt Hon Norman
Best, Keith	Fox, Marcus
Bevan, David Gilroy	Fraser, Peter (South Angus)
Biffen, Rt Hon John	Fry, Peter
Blackburn, John	Gardner, Edward (S Fylde)
Blaker, Peter	Garel-Jones, Tristan
Body, Richard	Ginsburg, David
Bonsor, Sir Nicholas	Glyn, Dr Alan
Boscawen, Hon Robert	Goodhart, Sir Philip
Bottomley, Peter (W'wich W)	Goodhew, Sir Victor
Bowden, Andrew	Goodlad, Alastair
Boyson, Dr Rhodes	Gorst, John
Braine, Sir Bernard	Grant, Anthony (Harrow C)
Bright, Graham	Gray, Hamish
Brinton, Tim	Greenway, Harry
Brittan, Rt. Hon. Leon	Griffiths, E.(B'y St. Edm'ds)
Brooke, Hon Peter	Griffiths, Peter Portsm'th N)
Brotherton, Michael	Grist, Ian
Brown, Ronald W. (H'ckn'y S)	Grylls, Michael
Browne, John (Winchester)	Gummer, John Selwyn
Bruce-Gardyne, John	Hamilton, Hon A.
Bryan, Sir Paul	Hamilton, Michael (Salisbury)
Buchanan-Smith, Rt. Hon. A.	Hampson, Dr Keith
Budgen, Nick	Hannam, John
Bulmer, Esmond	Haselhurst, Alan
Burden, Sir Frederick	Hastings, Stephen
Butcher, John	Havers, Rt Hon Sir Michael
Cadbury, Jocelyn	Hawksley, Warren
Carlisle, John (Luton West)	Hayhoe, Barney
Carlisle, Kenneth (Lincoln)	Heddle, John
Carlisle, Rt Hon M. (R'c'n)	Heseltine, Rt Hon Michael
Cartwright, John	Hicks, Robert
Chalker, Mrs. Lynda	Higgins, Rt Hon Terence L.
Channon, Rt. Hon. Paul	Hill, James
Chapman, Sydney	Hogg, Hon Douglas (Gr'th'm)
Churchill, W. S.	Holland, Philip (Carlton)
Clark, Hon A. (Plym'th, S'n)	Horam, John
Clark, Sir W. (Croydon S)	Hordern, Peter
Clarke, Kenneth (Rushcliffe)	Howell, Rt Hon D. (G'ldf'd)
Cockeram, Eric	Howell, Ralph (N Norfolk)
Colvin, Michael	Hunt, David (Wirral)
Cope, John	Hunt, John (Ravensbourne)
Costain, Sir Albert	Irvine, Bryant Godman
Cranborne, Viscount	Irving, Charles (Cheltenham)
Crouch, David	Jessel, Toby
Cunningham, G. (Islington S)	Johnson Smith, Sir Geoffrey
Dickens, Geoffrey	Jopling, Rt Hon Michael
Dorrell, Stephen	Joseph, Rt Hon Sir Keith
Douglas-Hamilton, Lord J.	Kaberry, Sir Donald
Dover, Denshore	Kershaw.Sir Anthony
du Cann, Rt Hon Edward	Kimball, Sir Marcus
Dunn, Robert (Dartford)	Knight, Mrs Jill

Knox, David	Rhys Williams, Sir Brandon
Lamont, Norman	Ridley, Hon Nicholas
Lang, Ian	Ridsdale, Sir Julian
Latham, Michael	Rifkind, Malcolm
Lawrence, Ivan	Roberts, M. (Cardiff NW)
Lawson, Rt Hon Nigel	Roberts, Wyn (Conway)
Lee, John	Roper, John
Lennox-Boyd, Hon Mark	Ross, Stephen (Isle of Wight)
Lester, Jim (Beeston)	Rossi, Hugh
Lewis, Kenneth (Rutland)	Rost, Peter
Lloyd, Ian (Havant & W'loo)	Royle, Sir Anthony
Lloyd, Peter (Fareham)	Rumbold, Mrs A. C. R.
Loveridge, John	Sainsbury, Hon Timothy
Luce, Richard	St. John-Stevas, Rt Hon N.
Lyell, Nicholas	Scott, Nicholas
Lyons, Edward (Bradf'd W)	Shaw, Giles (Pudsey)
Mabon, Rt Hon Dr J. Dickson	Shelton, William (Streatham)
Macfarlane Neil	Shepherd, Colin (Hereford)
MacGregor, John	Shepherd, Richard
MacKay, John (Argyll)	Shersby, Michael
Macmillan, Rt Hon M.	Silvester, Fred
McNair-Wilson, M. (N'bury)	Sims, Roger
McNair-Wilson, P. (New F'st)	Skeet, T. H. H.
McNally, Thomas	Smith, Dudley
Magee, Bryan	Smith, Tim (Beaconsfield)
Major, John	Speed, Keith
Marland, Paul	Speller, Tony
Marten, Rt Hon Neil	Spence, John
Maude, Rt Hon Sir Angus	Spicer, Jim (West Dorset)
Mawby, Ray	Spicer, Michael (S Worcs)
Mawhinney, Dr Brian	Squire, Robin
Maxwell-Hyslop, Robin	Stainton, Keith
Mayhew, Patrick	Stanbrook, Ivor
Mellor, David	Stanley, John
Miller, Hal (B'grove)	Steel, Rt Hon David
Mills, Iain (Meriden)	Steen, Anthony
Mills, Sir Peter (West Devon)	Stevens, Martin
Miscampbell, Norman	Stewart, A.(E Renfrewshire)
Mitchell, David (Basingstoke)	Stewart, Ian (Hitchin)
Moate, Roger	Stokes, John
Montgomery, Fergus	Stradling Thomas, J.
Moore, John	Tapsell, Peter
Morris, M. (N'hampton S)	Taylor, Teddy (S'end E)
Morrison, Hon C, (Devizes)	Tebbit, Rt Hon Norman
Morrison, Hon P. (Chester)	Temple-Morris, Peter
Mudd, David	Thomas, Rt Hon Peter
Murphy, Christopher	Thompson, Donald
Myles, David	Thorne, Neil (Ilford South)
Neale, Gerrard	Thornton, Malcolm
Needham, Richard	Townend, John (Bridlington)
Nelson, Anthony	Townsend, Cyril D, (B'heath)
Neubert, Michael	Trippier, David
Newton, Tony	Trotter, Neville
Normanton, Tom	van Straubenzee, Sir W.
Nott, Rt Hon John	Vaughan, Dr Gerard
Ogden, Eric	Viggers, Peter
O'Halloran, Michael	Waddington, David
Onslow, Cranley	Wakeham, John
Osborn, John	Waldegrave, Hon William
Page, John (Harrow, West)	Walker, Rt Hon P.(W'cester)
Page, Richard (SW Herts)	Waller, Gary
Parkinson, Rt Hon Cecil	Walters, Dennis
Parris, Matthew	Ward, John
Pattie, Geoffrey	Warren, Kenneth
Pawsey, James	Watson, John
Penhaligon, David	Wellbeloved, James
Percival, Sir Ian	Wells, Bowen
Peyton, Rt Hon John	Wells, John (Maidstone)
Pink, R. Bonner	Wheeler, John
Pollock, Alexander	Whitney, Raymond
Prentice, Rt Hon Reg	Wickenden, Keith
Price, Sir David (Eastleigh)	Winterton, Nicholas
Proctor, K. Harvey	Wolfson, Mark
Raison, Rt Hon Timothy	Young, Sir George (Acton)
Rathbone, Tim	Younger, Rt Hon George
Rees, Peter (Dover and Deal)
Rees-Davies, W. R.	Tellers for the Noes:
Renton, Tim	Mr. Anthony Berry and
Rhodes James, Robert	Mr. Carol Mather.

Question accordingly negatived.