HC Deb 19 November 1986 vol 105 cc565-666
Mr. Speaker

I inform the House that I have selected the amendment in the names of the Leader of the Opposition and those of his right hon. and hon. Friends. In addition, under the powers given to me by Standing Order No. 35, I have selected for a second Division at the end of the debate the amendment in the names of the right hon. Member for Tweeddale, Ettrick and Lauderdale (Mr. Steel) and his right hon. and hon. Friends.

3.43 pm
Mr. Roy Hattersley (Birmingham, Sparkbrook)

I beg to move, at the end of the Question, to add: But humbly regret that the Gracious Speech provides for the continued pursuit of policies which perpetuate uniquely high real interest rates and seriously worsening balance of payments problems, and which will not sustain the recent additional public expenditure commitments in any coherent and productive way: and call on the Government to introduce policies which will produce some sustained improvement in the strength and competitive performance of the real economy and substantial and persistent reductions in unemployment and poverty, both of which have risen to record levels during the lifetime of this Government. Almost exactly two hours ago, a radio party political broadcast on the subject which we debate today was just ending. It was ending with a statement by the chariman of the Tory party, who said: Since 1979, the Government has done all sorts of things which at the time of its election were thought to be beyond it. It is a fair cop, and I own up at once. In 1979, I certainly did not believe that, during the next seven years, Britain would suffer the highest unemployment in its history, the highest interest rates in its history, the lowest value of sterling in its history, and the worst balance of trade figures in its history. To be equally frank, nor did I believe that the Tory party would damage its own prospects and its reputation by making the right hon. Member for Chingford (Mr. Tebbit), the Chancellor of the Duchy of Lancaster, its chairman.

After all those surprises which the chairman prepared for us today, I shall consider for a moment the effects on the economy of the autumn statement and what is left of the Government's economic policy. The day after the Chancellor made his autumn statement, The Daily Telegraph accused me of questioning the right hon. Gentleman's intentions and integrity by means of implication and innuendo. That was not my intention. I intended to make that challenge openly and directly. I make it today, in a way which I hope is not too subtle for The Daily Telegraph.

I do not trust the Chancellor's motives. I do not believe his forecast about the economic future or his explanations for the sudden apparent change for judgment, conviction and policy—the changes which the autumn statement revealed. I do not believe that the lurch in policy for which he now claims credit is even intended to promote the country's best interests. It is meant to further the interests of the Conservative party and Conservative Members in marginal seats. It will fail in that squalid objective

There is no doubt about the purpose of the Chancellor's swerve. It is a pretence that can be sustained only for a few months and which is intended to last only for a few months. The pretence is that the Government have suddenly developed a compassionate concern for housing, health and education. It is, of course, all a con. In the words of the Spectator, the temple of Conservative rectitude, the Conservative party now offers a collection of economic policies which might have fallen off the back of a lorry. The Chancellor has become the Arthur Daley of British politics, with the cut-price sale of our national capital assets as the most disreputable of all his nice little earners.

I am not alone in that judgment. The City, the Chancellor's favourite and most favoured sector of the economy, has queued up to condemn him during the past 14 days. L. Messel and Company described his policy as containing more than the usual quota of whitewash and humbug and straining the limits of credibility to breaking point. S. G. Warburg and Company judged that the good inflation news is now definitely behind us. It went on to say: The Chancellor's inflation forecast for the final quarter of next year is clearly unattainable. The Chancellor knows that that is true, but he does not care. For the final quarter of next year will be after the date on which the Government intend to cut and run. An early election is now certain, because after next autumn the failure of the Government's policies will be undeniable.

Phillips and Drew, the City analysts, have already described, the tough post-election crisis package which the Chancellor anticipates and is already preparing. The Chancellor knows, again in the words of Phillips and Drew, that he has taken a major gamble which cannot he played indefinitely. The Tory party will hold an early election in the hope of winning the race between polling day and the next major sterling crisis. Now the Chancellor has no medium or long-term policy. The medium-term financial strategy is dead and discredited and nothing has replaced it. That is why, two weeks ago, the Chancellor refused point blank to answer for me the five crucial questions about the real economy. I repeat them today. When will unemployment, even on the Government's manipulated figures, be down to 3 million? When will the number of jobs in the economy be back to the 1979 level? When will real interest rates fall to their 1979 level or even to the level enjoyed by other industrial countries? When will the balance of payments move into permanent and regular surplus? When will manufacturing investment and output return to the level that the Government inherited?

The Chancellor did not answer or attempt to answer those questions in our last debate and he will not attempt to answer them today. His failure to answer any of those questions is a brilliant demonstration of the one area of the economy in which he has been an undoubted success—the economy of truth. That, of course, is a wholly parliamentary expression because the Cabinet Secretary explained to us that it is not quite the same as telling a lie.

Mr. Richard Hickmet (Glanford and Scunthorpe)

While dealing with the economy of truth, will the right hon. Gentleman say if he is in favour of a 1 per cent. levy on the turnover of companies, and will he say what effect that would have on employment?

Mr. Hattersley

I miscalculated. I thought I would be asked first about bailing out the councils and that this would come second. I shall tell the hon. Gentleman exactly the position [Interruption.]—if I am given a chance to do so. There is unanimous agreement in the Opposition that we need a major training initiative. There is unanimous agreement that without more training there will never be the expansion in the economy which is desperately needed. We also agree unanimously that because the Government have no training policy there is virtually no training. The new training policy that we will bring in will certainly be financed by the only possible means—a levy and grant system. Again, we are unanimous about that.

Yesterday, my hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott) could not have been more frank in saying that in his judgment that levy should be 1 per cent. No doubt that is what he will put to the policy committee discussing these matters and we shall see what comes out.

Mr. John Prescott (Kingston upon Hull, East)

That is exactly what I said at Knowsley.

Mr. Hattersley

I do not know whether I should take next the planted bailing-out questions about councils or whether I should continue on this topic. I shall turn instead to the real issues of today, the collapse of manufacturing industry and the recurring balance of payments crisis—which, like the huge growth in unemployment and the massive increase in poverty, are the direct responsibility of the Government. Indeed, they are part of the Government's economic strategy.

The Government's response to poverty and unemployment is to obscure the extent of their failure by the constant manipulation of the figures. They cannot do that with sterling. A month of bad figures on money supply, borrowing and balance of payments and we would be back into another bout of speculation and depreciation. Of course, the Chancellor's response to that would be another interest rate increase, even though our real interest rate is the highest in the industrialised world and even though the present rate of interest is doing desperate, indeed in some ways mortal, damage to the prospects of British manufacturing industry, as well as imperilling the secure future of home owners by pushing up the price of mortgages.

Bad monthly figures, at least for the balance of payments, are now inevitable. Following the autumn statement forecast, Lloyds bank suggested that the balance of payments deficit under present policies would be £2.6 billion by 1987–88. I chose that figure from the middle of the range. The National Institute of Economic and Social Research predicts a deficit of almost £6 billion. The gradual accumulation of that deficit is bound to be reflected in the published figures month by month from now on. Those figures will provide a regular demonstration of the Chancellor's failure to revive and support the real economy—the economy of investment, output and exports.

The figures will provide continual proof of the Chancellor's willingness to sacrifice the real economy in the hope of short-term party advantage. The balance of payments crisis will be the direct result of three related causes. The first of these is the consumer and credit boom which the Government have encouraged in the hope of political gain. Secondly, manufacturing industry has been so damaged during the last seven years that its share of world trade has fallen by 16 per cent. since 1979. Thirdly, and perhaps most desperate of all, is the waste of oil revenues, oil earnings, which should have been used to revive manufacturing industry but which have been squandered on the cost of escalating unemployment and which are now beginning to run out.

Already the deterioration in our manufacturing industries is imperilling our economic prospects. In 1978 there was a surplus of £5 billion in our trade in manufactured goods. In 1985 that turned into a deficit of £3 billion. On the Chancellor's own forecast—for what that is worth the deficit will grow to £7.5 billion by 1987. By then the Chancellor will be working in the City, where I have no doubt at all that he will feel completely at home. His willingness to ignore the needs of the real economy and to allow — indeed, to encourage — an escalating balance of payments deficit proves that his horizons stretched no further and that today they stretch no further than the next general election.

Mr. John Maples (Lewisham, West)

The right hon. Gentleman has said repeatedly that one of his policies for helping to reduce interest rates is the compulsory repatriation of foreign assets. Would that not drive up the exchange rate and thereby penalise the export of manufactured goods?

Mr. Hattersley

It would stabilise the exchange rate, which is desperately needed. Under this Government there have been the biggest fluctuations in the exchange rate of any industrialised country in Europe. If the hon. Gentleman were to talk to those who are particularly concerned with the export of manufactured goods, they would tell him—

Mrs. Elaine Kellett-Bowman (Lancaster)

Will the right hon. Gentleman give way?

Mr. Hattersley

I should like to finish answering one question before I am asked the next.

Mrs. Kellett-Bowman


Mr. Hattersley

Those who are involved in manufacturing industries would tell the hon. Gentleman that the problem that is second only to intolerably high interest rates is the fluctuation in sterling. By having a mechanism under which sterling would be subject to upward pressure, we should be able to provide a degree of stability. However, I am unique in my willingness to plead guilty. I think that I am the first Labour Shadow Chancellor to plead guilty to the accusation that I should be acting in a way that would hold sterling at an unreasonably high level. I shall now give way to the hon. Member for Lancaster (Mrs. Kellett-Bowman).

Mrs. Kellett-Bowman

Am I to take it that, in his anxiety to avoid an unduly fluctuating machinery, the right hon. Gentleman is in favour of joining the European monetary system?

Mr. Hattersley

I made a detailed speech about this matter, and I shall punish the hon. Lady, for she will feel obliged to read it, by sending a copy to her. It makes the position absolutely clear. There are certain circumstances in which the EMS would be beneficial to us, but to use it as a bolt hole, as the last refuge from the Chancellor's failure to stabilise sterling at home, would place us in the hands of the other members of the EMS and would be inconsistent with our economic objectives. It would also be inconsistent with our domestic sovereignty.

I return to the speech that I was making, rather than to that which the hon. Member for Lancaster hoped that I would make. I repeat that this economic policy is not intended to last. Despite all the journalistic comments about the Chancellor's turnabout, the Chancellor has not made a U-turn but the beginning of an S-turn. Having snaked about for a few months, the Chancellor hopes to return to his original course. Indeed, he will be required to do so, for his present policies cannot be sustained. Without a conversion so sudden that it would make St. Paul seem to have dallied and dithered, the Chancellor cannot possibly want those policies to be sustained.

Let me examine the internal evidence regarding what the Chancellor claims to believe in now and what he claimed to believe in with such passion until a week last Tuesday. A good deal of the additional public expenditure next year, for which he seeks to take credit, is no more than a continuation of this year's unplanned overspending. This year's overspending was opposed, resisted and condemned by the Chancellor. Are we now to believe that all the time the Chancellor really welcomed that overspending and regarded it as essential to our economic welfare?

Furthermore, the £440 million of additional spending to revive the economy is actually an increased contribution to the EEC. The Prime Minister's views on an increased contribution to the EEC are clear enough—or at least, they were clear enough. She spoke of long and persistent efforts to correct the budget inequity". —[Official Report, 27 June 1984; Vol. 62, c. 993.] She promised "lower contributions" in "the foreseeable future". When she talked in those brave terms, we did not realise that she really meant that paying more to the EEC would be a sign of our economic strength and recovery and of the success of the Chancellor's policy.

The Chancellor then tried to justify this extra spending of £7.5 billion by telling us that it was possible for two reasons. The first is the fact that the PSBR is to be held steady next year, and if the conversations that he has been having outside the House are anthing to go on, we shall hear a great deal about that in a moment or two. Secondly, tax revenues have proved buoyant. Both arguments are wholly implausible. The PSBR is holding steadyish by the temporary expedient of asset sales, which he has increased to £5 billion for 1987–88. It is foolish to go about the country boasting that one is breaking even on the housekeeping by selling the house bit by bit.

Secondly, perhaps in terms of the Chancellor's judgment and, even more important, the sudden change of direction, the bounty which he claims has been bought by buoyant taxation is even more a temporary and dubious benefit. The increase of revenue from both personal and corporate taxation is largely the result of the temporary boom in credit consumption. It cannot he sustained on existing policies. The profit levels have already turned down over the last quarter and the Chancellor may care to tell us why he thinks that is.

What is more important is that the profits that existed, the spend that went on, and the two factors that produced the buoyancy in the taxation system and increased the Chancellor's revenue, have come about almost entirely because for four years earnings have been rising more quickly than inflation. Until a week last Tuesday, the Chancellor used to condemn that. He described earnings rising more quickly than inflation as the heart of the problem that has prevented steady growth over the past few years. It was not until a week last Tuesday that the heart of our problem became our economic salvation. It is the way that he will finance, for a month or two, what he announced a week last Tuesday.

The truth of the matter is that the economy is no longer the Chancellor's prime concern. We have no long-term or even medium-term economic strategy, just short-term election tactics. The Chancellor offers nothing to solve the problems of the real economy because of that. There is nothing for manufacturing industry, investment or exports. Nor does Government policy offer any remedy for the two great social scandals for which the Government's policy is responsible — the scandals of poverty and unemployment.

The fall in unemployment or, to put it more accurately, the change in the figures, about which we heard so much yesterday, is not the result of economic policy but the product of manipulation. The seasonally adjusted fall is almost exactly the same number as the total of men and women removed from the register during the period by schemes and measures. Job creation schemes are now what give bogus credence to the Prime Minister's claims about reducing unemployment. Her attitude has dramatically changed, even diametrically changed, since the days when she was in opposition. Then, she demanded real jobs not bogus ones. Later she said: Job creation schemes on one hand and job destruction schemes on the other … is the economics of the madhouse. Now she has appointed Lord Young to take special responsibility for this area of Government lunacy.

Mr. Ian Gow (Eastbourne)

May we take it front what the right hon. Gentleman has said that if he and his right hon. and hon. Friends should ever sit on the Treasury Bench they will revert to the old measure of calculating unemployment and that they will include as unemployed those people who the right hon. Gentleman has said are now excluded?

Mr. Hattersley

I shall answer that question in one minute. The hon. Gentleman will note that my allegation against the Government is not the 18 changes in numbers, for which they are certainly guilty, but the fact that they have reduced the register only by job creation measures. The hon. Gentleman's guilt prompted him into defending the Government against the charge I did not make, and I shall now answer that.

The hon. Gentleman is right to say that the Government have held down unemployment figures artificially by 18 changes in the statistics. We propose to reduce the unemployment register by 1 million, whatever the register we inherit. If we are to inherit, as we shall, 3,100,000 unemployed, we shall reduce that by 1 million. If the honest figure is 4 million, we shall reduce it by 1 million. Our figure is absolute. I am delighted that the hon. Gentleman has enabled me to introduce that other element of disreputable Government policy which, for some unaccountable reason, I had previously missed.

The Lord Privy Seal and Leader of the House of Commons (Mr. John Biffen)

If the changes that have taken place recently are distorting the figures, what would the right hon. Gentleman seek to reduce?

Mr. Prescott

Those are just figures.

Mr. Hattersley

I shall seek to relieve unemployment by 1 million. The Leader of the House is normally rather more intelligent on these matters. He does his party no service by, as my hon. Friend the Member for Kingston upon Hull, East implied, by being obsessed by the figures, and the manipulation of figures rather than by the real people and the real jobs.

Ms. Clare Short (Birmingham, Ladywood)

We are all agreed that if the 18 fiddles had not taken place, unemployment figures would now be over 3.5 million. Our commitment to reduce the figure by 1 million, wherever it starts, is identical. On the fiddled figures it is nearly 1.5 million jobs, on the figures that there should be, it is nearly 1.5 million. Our job commitment is exactly the same, whichever way the figures are calculated.

Mr. Hattersley

I agree with my hon. Friend in all but one particular. If the figures had not been massaged, they would be a great deal more than 3.5 million. In her analysis, my hon. Friend is right, but in her judgment she is over-charitable.

The other disgrace concerns something which the Government have not treated in a way that a decent Government would have chosen. The Prime Minister has said a great deal about job creation, unemployment and the success of the economy over which she claims to preside. She has said nothing about poverty, partly because she does not dare and mostly because she does not care. The increase in poverty is massive and undeniable. It is in part, though not entirely, the product of increasing unemployment. On the Government's 1983 figures, since they came to office there has been an increase of 50 per cent. in the number of people living at or below the supplementary benefit level. The total is now 9 million.

Now, as the election approaches, the Government have begun to argue about the figures on which the totals of poverty are based. The argument conducted by the Minister of State, Department of Health and Social Security, in the columns of the Financial Times revolves around a simple question: is a man or a woman living on £29.80 a week, or a couple living on £49 a week, poor? The hon. Member for Newcastle upon Tyne, Central (Mr. Merchant), in a public relations exercise that was simultaneously shameful and shameless, has come to the conclusion that attempting to live at or about that level is real poverty. Living at that level of real and grinding poverty are 50 per cent. more people since the Government came to power—at least 9 million of our people.

These people will remain in that condition until after the general election because they have been written off by the Tory party, which knows that it has already lost their votes. The same is true of the black and Asian British, of the inner cities, and of Scotland and the north of England which, since they will not vote Tory under any circumstances, are not to be offered the election bribes which are dangled before the rest of the country.

Last Thursday on television during the election broadcasts the Paymaster General argued passionately that poverty and unemployment in Knowsley were mostly Knowsley's fault. The chairman of the Tory party condemned the whole of the north of England as responsible in no small measure for its hardship and suffering. Part of the Tory party's election strategy is to set one group of the population against another, to exacerbate the divisions that exist and to drive divisions between different groups of our citizens. White is set against black by unjustified allegations about immigration; rich are set against poor by the pretence that if we cut public services we can cut taxes; and the employed are set against the unemployed with the allegation that the men and women on the dole queues have priced themselves out of jobs. This is a shabby Government and they are revealed as such even by their most passionate friends and supporters.

The Sunday Express, faithful unto death and perhaps in its case even after rigor mortis has set in, rallied to support the Chancellor on the Sunday after his autumn statement. It stated: Cynical? Wicked even? Of course it is. Look at it through Mr. Lawson's eyes, and perhaps you won't judge him too harshly … so his mini budget last week will put pressure on the pound and encourage inflation. Then, after a passage of ritual abuse of me, the Sunday Express explained that it was all being done and that it was right that it was being done to prevent a Tory election defeat. Is it, the newspaper asks, really so wicked of him to do everything in his power to prevent that from happening? Even offering the voters a £10 billion bribe with their own money? That is the level of support that the Chancellor can now expect and I hope that his party feels proud of it.

That support will continue and the Government's policy will succeed only if the British people are the fools that the Conservative party believes them to be—if the British people do not understand and if they forget easily. At the general election, we shall prove how badly the Conservatives have underrated the wisdom of the British people. They will go to the polls, demanding to know what the waste and misery of the past seven years has been for and demanding a better future after the polls close.

4.13 pm
The Chancellor of the Exchequer (Mr. Nigel Lawson)

As we begin our eighth parliamentary Session in office, I am forced to acknowledge the consistency exhibited by the Opposition throughout that time. Not once have they deviated from the failed nostrums of the past.

Not that we heard much about the Opposition's policies today. The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) declined to discuss them even once, let alone to defend them. I suppose that he, as a recent convert to unilateral disarmament, has become so enthusiastic that he has extended it to the sphere of parliamentary debate. He certainly revealed himself with his apprehension about the forthcoming general election, whenever that may be, as an extremely worried man. As always, the right hon. Gentleman expounded on the alleged decline of manufacturing industry, and implied that this could be terminal without a return to the policies that his Government pursued.

I will come on to our record in a moment. Let us first look at how manufacturing fared under the Labour Government. Output fell. Productivity rose only very slowly, and the world recession of 1980–81 cruelly exposed the extent of the overmanning and hidden unemployment. Britain's volume share of world exports of manufactured goods steadily declined — a decline which under this Government has been unequivocally arrested. I do not want any lectures from the right hon. Gentleman on the balance of payments because under the Labour Government there was a cumulative current account deficit of £5 billion, whereas under this Government there has been a cumulative surplus of £21 billion.

Mr. Hattersley

Since the Chancellor has given us that glimpse of the ghastly state of manufacturing industry under the Labour Government, will he answer my question and tell the House when this Government will get it back to that level of activity?

Mr. Lawson

The right hon. Gentleman had his half hour and had plenty of opportunity to make his speech then.

Today the outlook for manufacturing industry is encouraging. The first half of this year was a difficult period because of the pause in world economic growth, but that pause is now over and, at the same time, the competitive position of British manufacturers has been improved by the inevitable adjustment of the exchange rate which followed the oil price fall. Indeed, the pick-up is already well under way.

In the third quarter of this year—I would not expect the Leader of the Opposition to know anything about this — manufacturing output was more than 1 per cent. higher than in the previous quarter and manufacturing exports were some 3 per cent. higher than in the first half of the year. With faster world trade and improved cost competitiveness, I see nothing implausible in forecasting an even stronger rise in manufacturing output next year, perhaps of the order of 4 per cent.

The big difference, however, between this Government and the last on manufacturing is in productivity. Over the past six years, manufacturing productivity has risen by nearly 5 per cent. a year—second only to Japan among the major industrialised countries. After a short pause, it is now improving again. The result is that the growth in unit labour costs is again slowing down. The year on year rise was almost 8 per cent. in the first half of this year, but was down to about 4.5 per cent. in the third quarter. That is still too high—I make no bones about it—but it is getting better.

As I have often stressed, a reduction in the growth of unit labour costs is of the first importance to the prospect for jobs. Here, too, recent figures are encouraging. On a seasonally adjusted basis, last week's figures showed a drop of 25,000 in the number of adults out of work, and the fall over the past three months has been the largest three-monthly fall for 13 years. I was saddened that the right hon. Gentleman felt wholly unable to welcome that fall in unemployment.

The way to achieve further falls in unemployment—which we all wish to see—is to continue the economic policies which have already created a million new jobs since 1983, when the electorate last had the opportunity to choose the Opposition's approach to the problem and emphatically rejected it. Yet the Opposition are still trying to peddle the same combination of high borrowing, high spending, and high taxation as the alleged answer to unemployment, despite the fact that it was the right hon. Member for Sparkbrook himself who said, shortly after the last election, Last month, our economic policy … was a net vote loser. Nobody believed that our theories could be put into practice. That is what the right hon. Gentleman said then and, as Labour policies have not changed, their reception will be the same from the public at large.

Mr. Nick Raynsford (Fulham)

Will the Chancellor of the Exchequer please answer the question which my right hon. Friend the Member for Birmingham, Spark brook (Mr. Hattersley) asked him, which was when unernployment would fall below 3 million? In doing so, will he remember the comments of his right hon. Friend the Chancellor of the Duchy of Lancaster in 1983 who said that if there were still more than 3 million unemployed at the next general election, the Conservative party would riot deserve to be re-elected?

Mr. Lawson

The hon. Gentleman is new to the House. If he were not, he would know that no Government—neither this one nor previous ones, including the Government of which the right hon. Member for Sparkbrook was a member — publish forecasts for unemployment.

Mr. Hattersley

The right hon. Gentleman always says that Governments do not publish forecasts, and he is right. However, he was not asked for a forecast. Other Governments, including his own, have during an election campaign said what they believed the trend would be and when we would hit certain targets. That is a fair question to which the Chancellor will not give a fair answer. Will the criteria of the Tory party chairman be met, and will unemployment be above or below 3 million by the next election?

Mr. Lawson

I am glad to say that the trend is downwards and I hope that the right hon. Gentleman and the whole House will welcome that.

We must accept that the views of the right hon. Gentleman no longer count for much, not even in the eyes of his own leader. The Leader of the Opposition has made it quite clear that in his opinion: "The primary role in British strategic planning must he performed by the Department of Trade and Industry." Therefore, in the highly unlikely event of a Labour Government, the right hon. Member for Sparkbrook would become the only man ever to have been Shadow Chancellor in government as well as in opposition.

However, on most issues the Opposition are at sixes and sevens these days. Let me take just three examples. First, as mentioned by my hon. Friend the Member for Glanford and Scunthorpe (Mr. Hickmet), there is the interesting question of training. Only the other day the hon. Member for Kingston upon Hull, East (Mr. Prescott) called for a 1 per cent. levy on firms to fund new training initiatives— in effect, a new tax on turnover— that he thinks would raise £6 billion from British business. When asked about this, the right hon. Member for Sparkbrook somewhat tetchily replied: The idea that there should be a 1 per cent. levy is not policy. It wasn't described as policy by John, and I can't imagine it's going to be policy. Yet last night, when winding up for the Opposition in this very debate, the hon. Member for Kingston upon Hull, East reaffirmed his commitment to a 1 per cent. levy on business turnover; today, when asked a straight question by my hon. Friend the Member for Glanford and Scunthorpe, the right hon. Member for Spark brook was totally unable to give a straight answer.

We are always pleased to have the contribution of the hon. Member for Kingston upon Hull, East to our parliamentary debates. The House will recall how earlier this year he said of the right hon. Member for Sparkbrook's pledge to create a million jobs: How did we get this policy of 1 million jobs? Who worked on the programme? Promises such as this simply label us with targets we cannot achieve and expose our credibility. That is what the hon. Gentleman said, and quite right too. The right hon. Member for Sparkbrook and his hon. Friend should speak to each other occasionally as that might save them one or two problems.

As for income tax, the right hon. Member for Sparkbrook tried for some weeks to maintain that while Labour's plans would mean a savage increase in the higher rates of income tax, there would be no increase in the basic rate. Needless to say, no one believed him, but the gaffe was well and truly blown by his NEC colleague, Mr. David Blunkett, who said: In my view there will have to be a return to a higher standard rate of income tax and people will respect us for saying so. So much for the right hon. Member for Sparkbrook.

Where do the Opposition stand on the other interesting question of national insurance contributions? Last year the right hon. Member for Sparkbrook was somewhat dismissive about the reductions that I announced in the Budget in the rates of national insurance contributions for the lower paid. During Second Reading of the Finance Bill the right hon. Gentleman said: the Labour party has never believed that such changes to the cost of labour and employment could contribute to the solution of the central problem of the economy, which is the reduction in unemployment." — [Official Report, 29 April 1985; Vol. 78, c. 35.] Yet within a year he was on the air telling Mr. Jimmy Young: If we make jobs less expensive for companies by reducing national insurance contributions that employers pay, then they'll take on more labour. So we'd like to cut the national insurance contributions. In other words, on this, as on every other issue, the right hon. Member for Sparkbrook stands on his head.

About the only area of economic policy where we get a measure of unity and clarity from the Opposition is public spending. They all want as much of that as they can get. As a result, the total cost of their irresponsible pledges is rising all the time.

The Labour party conference was always likely to be an expensive week for the right hon. Member for Sparkbrook. In conjunction with my right hon. Friend the Chief Secretary, I have costed five new pledges that Labour made at Blackpool. A winter heating premium would cost nearly £200 million; a higher Christmas bonus for pensioners, another £100 million; the abolition of standing charges for pensioners, £550 million; new policies on energy, at least £350 million; and the latest pension increase promised by the hon. Member for Oldham, West (Mr. Meacher), a cool £8 billion a year. All in all, that means yet further spending commitments of some £9 billion a year—an expensive week indeed.

Once again, the right hon. Member for Sparkbrook has been knocked over in the rush to spend more, and the hon. Member for Dagenham (Mr. Gould), who is sitting quietly, has been brought in, far too late, to try to put Humpty Dumpty together again.

Mr. Hickmet

What analysis does my right hon. Friend make of the promise of the hon. Member for Kingston upon Hull, East (Mr. Prescott) to use the nationalised industries to employ more men as part of a Socialist policy to reduce unemployment?

Mr. Lawson

My hon. Friend is right. As I said earlier, massive overmanning was one of the problems with which we had to deal when we came to office. That is what Labour is pledged to recreate in the areas in which it believes it will have responsibility.

Mr. Dave Nellist (Coventry, South-East)


Mr. Lawson

The economic strategy set out in the Gracious Speech continues the strategy that we have pursued consistently since 1979. Over the past seven years we have gradually brought down the growth of money GDP, so as to squeeze inflation out of the system and hence make room for real growth. We have brought inflation down from the appallingly high levels generated by the policies of the previous Government—when it averaged more than 15 per cent. a year—to the lowest levels seen for a generation.

Ever since inflation first dropped into single figures in April 1982, the Opposition have made confident predictions that it would rise again. During the last general election campaign the right hon. Member for Sparkbrook told the nation: Inflation is ready to rocket again. By this time next year, it will be back in double figures. At the time I said that that was poppycock, and so it proved. Each time the Opposition have predicted higher inflation, and each time they have been wrong.

To give them their due, it used to be the case in this country that we could not have sustained economic growth without a pick-up in inflation—at least, that is what the record seemed to show. Commentators used to debate endlessly the trade-off between growth and inflation as if they were bound inexorably together. But over the past five years we have shown that we can have steady and sustained growth without a revival in inflation — indeed, while inflation continues to come down. In each of the three years during which I have been Chancellor, the growth rate and the inflation rate have been within 24½ percentage points of each other. In no Labour year was that even remotely true. Indeed, in one of Labour's years the gap was as much as 25 per cent.

For the past five years, economic growth has averaged almost 3 per cent. a year and is set to continue at this steady rate in 1987. Again, there has been no shortage of predictions that growth was about to peter out. Indeed, such predictions have occurred regularly, year in, year out —ever since 364 economists claimed that the economy could never recover from the Budget of 1981.

As recently as a few months ago, I was told that the effects of the halving of the oil price would spell the end of the upswing unless I boosted Government borrowing, or cut interest rates, or both. At the time, I ventured the view that we were witnessing only a pause in growth which would soon come to an end. Subsequent events have indeed proved that to be the case.

Figures published this morning show that total output in the economy rose by 1 per cent. in the third quarter, and is now about 3 per cent. higher than a year ago. Next year, I expect growth of another 3 per cent. Before Opposition Members put that down simply to what they dismissively describe as a consumer boom, let me remind them that growth in consumer spending is actually set to slow down somewhat next year, that exports are picking up well, and that investment is expected to grow broadly in line with the economy as a whole.

Mr. A. E. P. Duffy (Sheffield, Attercliffe)

The Chancellor is talking about growth and making confident predictions, but does he agree that a crucial component of growth is the volume of manufacturing output? When does he expect the volume of manufacturing output to begin to rise significantly above its present level, which is only 3 per cent. higher than it was in 1980?

Mr. Lawson

I make a forecast for one year ahead, and it is that manufacturing output and exports will be well up in 1987.

This year more than most, the critics seem to have found it hard to know what to think. First they predicted a slump and urged me to take action to expand the economy. That was only a few months ago. I declined to take their advice. As I predicted, growth duly picked up. They then changed their tune and told me that the economy was overheating and that I should take action to damp it down. I have not responded to that either. Now the Opposition arc trying to maintain that the economy is declining and overheating at one and the same time. That was the main burden of the right hon. Gentleman's speech.

It is not at all clear to me what the Opposition's reaction really is to the public spending plans that are spelt out in the autumn statement. Does the Labour party want us to spend more next year, or less, or the same? It is far from clear. I notice that there is no reply.

On the opening day of this debate, the Leader of the Opposition seemed to believe that the projected spending increase would ignite what he called a pre-election boom. I believe that that is what he said.

Mr. Neil Kinnock (Islwyn)

No, I did not say that.

Mr. Lawson

In almost the same breath he asserted that there was no hope of the economy growing next year at the 3 per cent. rate forecast in the autumn statement. Given that the economy has grown at an average rate of nearly 3 per cent. for the past five years, it seems somewhat odd to characterise a sixth year of the same as either unattainable or as some special pre-election boom, unless, of course, he believes that every year of this Parliament has been a pre-election boom year.

Meanwhile, we have fostered the conditions in which 1 million jobs have been created during the lifetime of this Parliament. The Opposition, however, have persistently criticised our policies as bringing no hope to the unemployed. What could bring more hope than the knowledge that more jobs are being created week in, week out, day in, day out? I have already drawn attention to the latest figures which suggest that there is now a downward trend in unemployment.

Thus we have achieved a combination of low inflation, sustained growth and rising employment—and we have achieved it by the consistent pursuit of an economic strategy which is based on a firm monetary and fiscal policy.

Mr. Hattersley

I have two questions, if the Chancellor will permit me. First, why does he persist in pretending that the world began in 1983? Why is he afraid of taking responsibility for the first four years of Conservative Government? Secondly, I have a question which I keep asking the right hon. Gentleman but which he does not answer: when will the number of jobs get back to the level which the Government inherited? There are now 1 million fewer jobs than were left by the Labour Government.

Mr. Lawson

I can tell the right hon. Gentleman one thing — it will be under a continuing Conservative Government.

In operating monetary policy, we have all along taken account of all of the indicators of monetary conditions. It was as far back as 1980 that we said in the Green Paper "Monetary Control": No single measure of the money supply can be expected fully to encapsulate monetary conditions". Therefore, anybody who imagines that policy was ever determined simply and solely on the basis of sterling M3, or any other single indicator for that matter, has failed to understand the policy. The fact that the Opposition have failed to understand it is not in the least surprising.

We shall continue to watch broad money closely, while being fully aware of the difficulties in interpreting sterling M3, which the Governor of the Bank of England has recently described at considerable length and which I have described several times. Other countries are experiencing similar difficulties. We shall continue to target M0, which has proved a particularly reliable indicator of monetary conditions during the past few years. We will, of course, continue to take account of the exchange rate, the necessary fall of which in the light of the oil price collapse has now gone far enough.

As I have said before, and shown by my actions, short-term interest rates are the key instrument of monetary policy. They will continue to be kept at whatever level is necessary to secure monetary conditions that bear down on inflation.

Dr. Jeremy Bray (Motherwell, South)

Does the Chancellor claim that the original statement of the medium-term financial strategy in the 1980 financial statement contained any reference to the exchange rate?

Mr. Lawson

It is quite clear from the policy that we pursued in 1980 that we were using the exchange rate as a major discipline in getting inflation down. I remember the hon. Member being one of those who criticised us at the time for the strength of the exchange rate, which played an important part in the financial discipline which secured a fall in inflation.

On fiscal policy, too, we can point to a record of consistency. Throughout my time as Chancellor, I have stuck firmly to the path mapped out in the medium-term financial strategy. Indeed, I have each year set the public sector borrowing requirement at or slightly below the figure indicated in the previous year's MTFS. Apart from 1984–85, when I allowed public borrowing to expand to finance the one-off expenditure needed in successfully resisting the coal strike, the outturn has been broadly in line with the PSBR envisaged at the time of the Budget. Yesterday's figures confirm that this year's PSBR is well on track, too.

The Leader of the Opposition claimed in a recent radio broadcast that the Government were the highest borrowing, highest spending, highest taxing Government ever". This is pretty rich—

Mr. Kinnock

You are rich.

Mr. Lawson

—coming from the leader of a party whose last spell in government witnessed the PSBR rise to the equivalent of £35 billion in today's terms, public spending taking the highest share of national output ever in time of peace, and income tax at a basic rate of 35p in the pound. What is more, they would do the same all over again.

Mr. Kinnock

On those three issues, the first, as I am sure the right hon. Gentleman cannot deny, is that, cumulatively, given five years for five years, the borrowing of the Government of which he has continually been a member is higher than the borrowing of the five years of Labour Government. On the second, the right hon. Gentleman cannot quarrel with the fact that the tax burden as a proportion of gross national product has been higher—as much as 18 and 20 per cent. higher—under the Government of which he has been a member than under the last Labour Government. As for the third, the highest spending has been the direct consequence of the policies that the right hon. Gentleman has supported and run — maintaining unemployment at outrageous rates which has cost taxpayers and others immensely. I hope that the right hon. Gentleman will withdraw the idea that he is not part of the highest spending, highest borrowing, highest taxing Government in British history.

Mr. Lawson

I certainly will not withdraw. On taxes, however, I welcome the right hon. Gentleman's conversion to the cause of lower taxation. I hope that we shall now experience a totally new Labour plan. The right hon. Gentleman knows that public expenditure grew so fast under Labour that the economy had to be handed over from the Chancellor of the Exchequer to the International Monetary Fund so that it could sort the mess out. As for borrowing, the right hon. Gentleman is completely wrong. It was substantially greater under Labour than it has been during our period of office.

Much of the press reaction to the autumn statement has been fairly predictable, too. On most subjects the press seems to have only two headlines to choose from.

Mr. Nellist

Will the right hon. Gentleman give way?

Mr. Lawson


Mr. Nellist

I asked about 15 minutes ago.

Mr. Lawson

The hon. Gentleman has been somewhat pre-empted by his leader. He might have a word with his leader to give more time to Back Benchers. It is not a matter for me.

On public spending, the headline is either, "Cut, cut, cut," or "Spend, spend, spend." The truth is more prosaic. We are continuing on the path we have consistently pursued throughout this Parliament. Our declared objective has been to reduce the proportion of national income taken by the public sector. We have achieved this every year since 1982, and we plan to go on doing so over the next three years, as set out in the autumn statement.

Mr. Nellist

Will the hon. Gentleman give way?

Mr. Lawson

I shall give way to the hon. Gentleman, but before I do, I shall say one other thing to the right hon. Member for Sparkbrook. He made an astonishing remark about the public expenditure plans. He said that the great increase in the plans, to a significant extent, was an increase in the British contribution to the Community budget. The House may be interested to know that, as far as planning totals are concerned, contributions to the European Community budget are down by £280 million for 1987–88, and down by £510 million for 1988–89. The right hon. Gentleman got that wrong as well. I now give way.

Mr. Nellist

Is the Chancellor aware that, some 15 minutes ago, he spoke about the necessity to reduce unit wage costs? Is he aware that in the west midlands, according to the West Midlands Engineering Employers Association, 46 per cent. of all wage supplements in the past 12 months were below 4 per cent., and 80 per cent. were below 5 per cent., yet unemployment is still rising? The right hon. Gentleman wants to do something about rising wages. Why does he not have a word with the 40 members of the president's council of the CBI who are calling for zero wage rises? Those 40 individuals gave themselves a 19 per cent. wage rise last year. One gave himself a 207 per cent. wage rise. Why does the right hon. Gentleman not get the beam out of his eye before spotting motes in other people's eyes?

Mr. Lawson

I assure the hon. Gentleman that I do not have a beam in my eye. My salary has not gone up by anything like that amount.

Of course, it is well known that, in real terms, contributions to the European Community have halved since 1978–79.

Mr. Nicholas Budgen (Wolverhampton, South-West)


Mr. Lawson

I must get on. I have given way a great deal — far more than the right hon. Member for Sparkbrook did.

In the decade prior to our election in 1979, public sector spending grew at an average annual rate of about 3 per cent. in real terms. In our first Parliament, because of the world recession and the post-dated cheques that we inherited, we managed only to slow the growth of spending to an average rate of 2¼ per cent. a year. But so far during this Parliament, we have managed to curb the growth in spending to 14 per cent. a year. The increase envisaged over the next three years is at the still slower rate of 1 per cent. a year. All these figures, incidentally, exclude the proceeds of privatisation, so as to show the underlying trend.

The second element of continuity is our determination that spending should not be financed by excessive borrowing. That is why I have made it clear that, in the coming year, 1987–88, I will not allow the public sector borrowing requirement to exceed the 1¾ per cent. of GDP indicated in the medium term financial strategy.

I can well understand that continuity may be an unfamiliar concept in the party of the right hon. Member for Sparkbrook. The last Labour Government's spending policies were like a big dipper. First, there was a massive increase— 12 per cent. in real terms—in the first two years. Then there was a dramatic reversal when the IMF took over from the right hon. Member for Leeds, East (Mr. Healey). Look at what they chose to cut then—roads and hospitals, both down by 30 per cent. in real terms over the whole of Labour's period of office, with overall capital spending down by a fifth.

In the new Session, we shall continue to follow the economic strategy that has brought the achievements I have described. But the Government's objectives go wider than growth and stability— welcome and necessary as they are.

In particular, we are determined to encourage the spread of ownership in society. That means wider home ownership and wider share ownership. The number of shareholders has doubled under this Government, not least because of the opportunities arising out of the privatisation programme. Over 7 million people have registered an interest in the British Gas sale alone.

Even so, many people still find the idea of share ownership complicated and daunting.

Ms. Clare Short

And immoral.

Mr. Lawson

To make it simpler and more attractive, I announced in the Budget the new personal equity plans. These will enable small investors to invest in United Kingdom shares, in a simple way, with no need for record-keeping or dealings with the Inland Revenue. Capital gains and reinvested dividends will be completely free of tax.

A number of commentators could not wait to predict that this initiative would never get off the ground. In fact, it is now clear that it is set to be a great success. I can announce today that the Inland Revenue has already received over 100 applications from firms that want to run personal equity plans, among them each of the big four clearing banks and over 30 firms of stockbrokers.

I am laying the draft regulations for the scheme before the House today, so that, subject to approval, it can begin on 1 January next year.

A second area where we are building on success is privatisation. Our privatisation programme is a historic achievement. It has brought benefits to consumers, investors, employees, management, and the economy as a whole. It is being emulated throughout the world.

Mr. Edward Leigh (Gainsborough and Horncastle)

Before my right hon. Friend leaves the subject of the value of share ownership, he may not have heard that, while he was outlining it, the hon. Member for Birmingham, Ladywood (Ms. Short) said, "So what? It is immoral." Is it not incredible that Labour Members are still prejudiced against the rights of ordinary people—millions of them—to own a stake in British industry?

Mr. Lawson

My hon. Friend is right. The fact that he drew to my attention needs to be widely known. I am sure that he will ensure that it is.

Ms. Clare Short

Will the right hon. Gentleman give way?

Mr. Lawson

In a moment. During this Session of Parliament alone, British Gas, British Airways, Rolls-Royce and the British Airports Authority will be privatised, so that the state commercial sector will be down to little more than half of what we inherited in 1979.

Ms. Short

It is my view, that of most of my right hon. and hon. Friends and, I think, of a large proportion of people, that it is immoral to sell off to a few people, and for a quick buck, assets that belong to all the people and are crucial to the strategic future of the economy.

Mr. Lawson

There are about 7 million individual shareholders. That is not a few people. The personal equity plans, about which the hon. Lady shouted, "Immoral", have nothing whatever to do with privatisation. Privatisation is a policy that the Labour party cannot stand. Labour Members do not like the opportunities—it is all too clear — that it has brought for millions of people to own shares. They do not want to see the extension of share ownership any more than they wanted to see the extension of home ownership. They do not like the idea that management, not politicians, will run the companies. No wonder that, to a man, the heads of these newly privatised companies point to the dangers of renationalisation.

For areas which remain in the public sector, many of the benefits of privatisation can be secured by putting out to competitive tender services which were previously provided in-house. This has already brought savings of £100 million a year—much of it available to improve patient care in the Health Service. This Session, as was announced in the Gracious Speech, we shall legislate to make competitive tendering compulsory for a wide range of local authority services, including street cleaning and refuse collection.

Again, the coming year will be particularly important for the City and the financial world, as it adjusts to the new competitive environment. The growth of the financial services sector has brought great benefits to the economy, not least in terms of jobs£2 million people are now employed in banking, finance and insurance. Indeed, the number of extra jobs generated by that sector since 1979 is more than twice as great as the job losses in the motor vehicle industry over the same period.

Mr. Eric S. Heffer (Liverpool, Walton)


Mr. Lawson

I am coming to the end.

Effective supervision is essential throughout the financial sector, as recent events have shown. As a Government we are determined to do what is necessary to achieve it. The House devoted a good deal of time in the previous Session to what are now the Financial Services Act and the Building Societies Act. To complement these, I introduced on Thursday a new Banking Bill to modernise and strengthen the rules for banking supervision. As I said, effective supervision is essential, and as a Government we are determined to do what is necessary to achieve it.

In the year ahead we shall continue to pursue the economic policies set out in the Queen's Speech. They are the policies which have already brought five years of steady growth and inflation down to the lowest levels for a generation. They are policies which the Opposition are committed to reverse. But I am confident that they will not get the chance to do so for a long time to come, if ever; for ours are policies which have captured the imagination of the British people.

4.50 pm
Dr. David Owen (Plymouth, Devonport)

I beg to move, as an amendment to the Address, at the end of the Question to add— But humbly regret that the Gracious Speech is irrelevant to the country's most pressing problems: unemployment, poverty, falling standards in the health and social services, and the serious decline in British manufacturing industry; believe that present Government policies have generated a short-term pre-election consumer boom, and that record levels of real interest rates and rising unit costs are undermining Britain's competitiveness; call on the Government to enter the exchange rate mechanism of the European Monetary System, to adopt a more vigorous competition policy, and substantially to increase investment in skill training; further regret the inclusion in the Speech of a measure to replace domestic rates in Scotland with a regressive poll tax rather than a more equitable local income tax; and finally regret that, in what is likely to be the last Gracious Speech before the general election, there is no proposal to reform the electoral system for local, Westminster and European elections despite the deficiencies in the current system, which distorts the wishes of the people and produces divisive governments supported by only a minority of the electorate.

Mr. Deputy Speaker (Mr. Harold Walker)

Order. I think that it would be for the convenience of the House if the right hon. Gentleman moved his amendment formally towards the end of the debate.

Dr. Owen

No doubt moving the amendment later can be arranged, but I believed that in the past an amendment had been moved at the beginning of the debate on the Queen's Speech, and that that is the usual format, and the one used last year.

The question before the House is how irrelevant is the Queen's Speech and much of what the Chancellor of the Exchequer said, to the real problems facing the country of poverty, unemployment, falling standards in health and social services, and the appalling state of too much of our manufacturing industry. The problem for the Chancellor of the Exchequer is that he is locked into an electoral strategy rather like an over-burdened stag at bay, and is unable to run or to get out of the problem that he faces if there has not been an election before it is convenient for him and his economic policy. I certainly hope that we have an election before too long.

The supreme irony is that this Government, who are so keen on moralising and on Victorian values —I think particularly of the Chancellor of the Duchy of Lancaster and the Prime Minister—should find that at this very moment, down under, the Cabinet Secretary, the chief of the Civil Service, is having to answer questions about the Government's truthfulness, and to admit to a certain economy with the truth and to misleading people. I must say that I exclude the Chancellor of the Exchequer from the accusation of moralising, as he is not a moralist.

That same economy with the truth has been the characteristic of the Prime Minister in her handling of the Westland affair, and has characterised much of the manipulating of the economic statistics. It has also been the hallmark of how the Government have handled the unemployment figures and of how—[Interruption.]—the Chancellor has manipulated the statistics. I warn the Government and the country that we face the prospect of a serious economic crisis after the election, provided, of course, that the Prime Minister gets her election timing right. That crisis is not inevitable, but it is dangerously close. That is the view of many independent analysts and was, only recently, the view of an editorial in The Economist.

Mr. David Howell (Guildford)

The right hon. Gentleman has made copious references to independent analysts. But many of them completely misreported the rise in interest rates a few weeks ago. They got that completely wrong. Many of them also got wrong the effect of the autumn statement on the gilt-edged market. Many of them have been wildly wrong, and even more wrong than the right hon. Member for Birmingham. Sparkbrook (Mr. Hattersley), in their inflation estimates. Why does the right hon. Gentleman trust their judgment in these matters?

Dr. Owen

It depends on which independent analyst one takes. I have found The Economist to be a fairly accurate observer of the British economy, although I accept that it is not always perfect. I have found the Financial Times to be a reasonable analyst of the British economy. Indeed, in an editorial on 30 October, the Financial Times said: It was always a nightmare that the symptoms of overheating—rising inflation, increasing skill shortages and the sucking in of imports, even at a competitive exchange rate — might develop with over 3 million unemployed and fading investment, and now the nightmare stands a chance of being realised. That is the view of many people, including many stockbroking analysts. It is true that some people thought that it would be necessary to raise interest rates by 2 per cent., and that there was a rise of only 1 per cent., but not that many people can be altogether confident that the Chancellor will not be forced to raise interest rates as a result of international speculation at some future date. I should be surprised if the right hon. Gentleman was absolutely confident either.

As I have said, I do not believe that an economic crisis is inevitable. If the Government time the election correctly, the next Government will be faced with having to address some of the follies of the past few months. There is a serious imbalance in the economy. The overheating and high demand, despite substantial unemployment and sluggish productivity growth, threatens the economy of the country. We would be extremely unwise not to recognise that. In the short term, the economy is out of gear. Imports of manufactured goods have grown at an annual rate of 34 per cent. in recent months, while exports have grown by only 6 per cent. Earnings increases—the Chancellor was very complacent about this—are stuck at over 7 per cent. despite the increasing skill shortages and a 12 per cent. rise since June in recorded job vacancies.

Overheating is resulting in upward pressure on inflation, and that is happening despite the highest real interest rates, at 9 per cent., for 12 years, and the fact that they are not choking off consumer spending as many people thought they would. The earlier that corrective action can be taken, the easier it will be to avoid an economic crisis. The critical test for the Chancellor will be his Budget. If he resists the Prime Minister's blandishments and refuses to cut the standard rate, he will be taking fewer risks with international confidence in 1987. He might also restore a little more domestic confidence inhis own judgment. However, only time will tell whether he will resist those blandishments.

Mr. Lawson

The right hon. Gentleman has mentioned the Budget and has been talking about what he calls corrective action. Contrary to my practice in previous years, I indicated in advance in the autumn statement what I believed the PSBR should be in the Budget. I said that it should be 1.75 per cent. of gross domestic product. Will the right hon. Gentleman say what he thinks the PSBR should be set at in the Budget, so that we can know what he means by corrective fiscal action?

Dr. Owen

As the Chancellor knows, before this financial year the alliance suggested a PSBR of about £8.5 billion. The right hon. Gentleman castigated us for profligacy. Since then, the right hon. Gentleman, who set his PSBR unrealistically low, has had to raid the contingency reserve and has now been able to claim a PSBR for the outturn of this financial year that will be between £8 billion to £9 billion. That is exactly what was estimated. [Interruption.] The Chancellor has a great habit of manipulating asset sales whenever he forecasts the PSBR. But all the analysts refuse to accept such manipulation of the statistics. Indeed, it is an example of the manipulation that I referred to earlier. The Chancellor likes to have it both ways.

Overheating and excess demand have led to a worsening of our competitive position. Moreover, we must take account of the balance of payments. The Chancellor boasts about his autumn statement, but there he forecast a non-oil trade deficit of £14 billion next year. That will be the worst in Britain's history. The reason is that consumer demand will largely leak into imports—as it is doing now — and, I fear, into higher inflation. This deterioration stems also from a failure of supply reflecting capacity weaknesses and inadequate investment. After seven years of this Government, British industry is unable to respond either to the domestic consumer boom or to the export potential. The Chancellor made much of today's output figures — up by 1 per cent. That may show a genuine improvement in productivity, but I fear that it shows just a response to the consumer boom and the fall in the value of sterling.

Manufacturing capacity since 1979 has shrunk by 17 per cent.. so there is a lot of ground to make up. The Bank of England, in its recent briefing, has been far more anxious than the Chancellor about what is happening with unit labour costs. They are running at an annual rate of 5.4 per cent., they are the highest of all the OECD countries and reflect the extremely dangerous underlying lack of cost competitiveness. If the Chancellor continues to sound a complacent note, he will live to rue it. If the Government will not act on consumer credit—and it is hard to see how they can — they must be prepared to contemplate action on unit labour costs.

What about the Chancellor's figures, about which we have heard so much? Certainly the monetary target has gone. He told us that he would continue to target these figures. Sterling M3 is currently growing at 18 per cent. and the narrow money range is now 6 per cent.—both above their forecast ranges in the medium-range financial strategy. Consumer credit controls have been jettisoned, probably never to return, and financial liberalisation and deregulation have led to a massive increase in consumer borrowing in the absence of monetary controls.

In the first quarter of 1986, the total new borrowing by the private sector rose by £26.5 billion on an annual rate compared with £14.3 billion at the same period in 1983. Those are pretty substantial figures, and I do not know whether anyone believes that they should be treated as a minor matter. Earnings increases are growing at twice the rate of inflation and three times the rate of manufacturing productivity in May 1986. That is why we are right consistently to ask for an incomes strategy. The electoral advantage is clear to the Conservative party. The spending boom is raising living standards for those in work at the expense of the real economy, at the expense of our underlying competitiveness and at the expense of the living standards of those who are out of work.

Let us look at public spending and the Chancellor's claims of prudence, which many people would think was betokening the start of extravagance. The autumn statement outlined a £4.75 billion increase in public spending for next year and a £2 billion overshoot this year on planning totals announced in the Budget. The claim that there is no U-turn and that fiscal prudence is still the order of the day is sheer arrant humbug, and the Prime Minister and the Chancellor know that. They have revealed themselves to be cynical in their pre-election readiness to manipulate, and so follow the well-trodden path of Sir Anthony Eden and the Earl of Stockton who, it must be admitted, did so with some electoral success but at some economic cost. Lord Home tried that and narrowly failed. The right hon. Member for Old 13exley and Sidcup (Mr. Heath) failed for other reasons, but at least he had the courage to grapple with the inflation, set up largely in the early 1970s, again with the private sector leading, not the public sector.

Sir Kenneth Lewis (Stamford and Spalding)

The right hon. Gentleman may not know, but the Prime Minister has just announced, that she has no intention of having an early election. She believes that the programme should be completed and that the Government should carry on and do the things that they said they would do. Therefore, there will be no early election.

Dr. Owen

That is an economy of truth, and vie will believe the Prime Minister's prediction when it happens. The fact is, she will run for an election at the earliest opportunity that she thinks that she can win. She will not be alone in that; most Prime Ministers have taken the same course.

Mr. Lawson

Why would my right hon. Friend do that?

Dr. Owen

The right hon. Lady would be wise to go early. We can undoubtedly predict that the economy over the next few months will look good for those who are in work in the south — broadly speaking, the electoral target at which the Prime Minister and the Chancellor are aiming. After all, the Prime Minister boasts in private that no Conservative Government has lost an election because of unemployment. Perhaps she is right.

Let us return to the pre-election manipulation. The more we witness this, the more we believe in a fixed-term Parliament. Whatever may be the arguments about proportional representation—in which I believe—as we watch this cynical pre-electoral cycle, the case for fixed-term Parliaments is very clear. Lord Wilson did this between 1964 and 1966, again with some success It was done again between February and October 1974 and it has been done by Governments of both complexions. As the general economic position of the country becomes weaker, as we—

Mr. Lawson


Dr. Owen

Yes, weaker. The Chancellor had better face up to the fact that 35 years ago we were the 3rd industrial nation in the world, whereas we are now the 19th As the economy weakens, so the electoral manipulation gets more damaging both for the short-term and the medium-term economy.

The Chief Secretary to the Treasury (Mr. John MacGregor)

In view of what the right hon. Gentleman has said, would he tell the House whether the alliance is reversing the spending programmes that it was urging on the House earlier this year? What successes are his hon. Friends the Member for Truro (Mr. Penhaligon) and for Stockton, South (Mr. Wrigglesworth) having in trying to curb the spending ambitions of the alliance? As is very clear from the responses earlier in the year, his hon. Friends were receiving no response at all.

Dr. Owen

Of course, it would be totally irresponsible of us, having reached the stage where the Government are now adopting the public sector borrowing requirement figures which we advocated — [Interruption.] The Chancellor should not fall for that. If the Government have given the spending stimulus for this year which we advocated, we would be crazy not to go back and consider the way that we would grapple with the new position. Our criticism of the Government is that they have used the public spending stimulus in an acoss-the-board way. They have not used it to tackle the real issues, which I will come to later.

There is no reason for the alliance to be ashamed of the exercises undertaken by my hon. Friends the Members for Truro (Mr. Penhaligon) and for Stockton, South (Mr. Wrigglesworth). The Chief Secretary to the Treasury would be the first to criticise us if we had not embarked on that exercise. He would be costing our programme tomorrow.

Even with the limitations of opposition, and not having the back-up of the Treasury, we are undertaking a serious exercise to look forward and absorb the position. Unlike the Labour party, early in January we will do what we have done before. We will publish our Budget forecast and figures, having placed them through an econometric model. The figures will be available for everyone to criticise. If the Chancellor had a little more grace, he would admit that our forecast last year of what was sustainable and manageable has turned out to be exactly right. He knows that, even if he tries to manipulate it.

In another of his manipulations, the Chancellor said that, as public spending is falling as a proportion of national income, no U-turn is taking place. That is misleading —I do not know whether the Chancellor has made that statement under oath. The autumn statement concedes that, in real terms, the public spending share of national income in 1986–87 is 43.75 per cent. That is exactly the same as in 1979–80. If the proceeds of asset sales are excluded, it is higher still, at 45.25 per cent. Public spending and borrowing have been increased and, if coupled with standard rate tax cuts in March, would fuel the consumer boom dangerously and damagingly. That is the point that I made to the Chancellor when I asked him to consider his Budget. I asked him to resist the temptation in the spring to add to already dangerous trends in consumer spending and not to take 2p off the standard rate of tax, which he seems to favour.

What is the Chancellor after? What is the gamble on which the Chancellor—although, of course, it is really the Prime Minister — has embarked? There is an unhealthy ambivalnece about the Government's attitude to the exchange rate. In place of firm sterling we have a feeble sterling strategy which periodically results in a sterling crisis.

We are asked to congratulate the Chancellor on getting away with a 1 per cent. increase in interest rates rather than 2 per cent. Higher interest rates are having a devastating effect on some parts of manufacturing industry. This is one of the most serious long-term problems facing us as manufacturing industry grapples with the disastrous consequences of high interest rates on investment and exports. There is no strategy to reassure foreign exchange markets that a falling pound will not lead to higher inflation exacerbated by high interest rates. The real casualties in all this are industry and exporters —and it is all done for votes. Consumers and importers gain, while manufacturers and exporters lose. The autumn statement projection for the housing element of the retail price index is interesting, as it shows how the Government see the movement in interest rates. It is clear that they see no real change in the present rates even by the end of the year.

As for inflation, the underlying or core rate is close to 5 per cent. Higher inflation linked with potential sterling crises and probable balance of payments deficits next year are all forecast by most commentators. One may argue as to whether unemployment might fall a little, but very few people are prepared to say that it will fall below 3 million, even allowing for the 18 manipulations in the figures.

What does the Chancellor do about all this? His electoral strategy is to spend now and pay later— the same old cycle. Within months of the elections of 1955 and 1959 the electorate was being asked to pay for the folly of returning a Conservative Government. The longer the gamble continues, the greater the risk of economic suicide. Heaven help us if we have to go right on into 1988 in the stench of the electoral hustings. [HON. MEMBERS: "What about inflation?"] There is no point in talking about our inflation rate without comparing it with the underlying rate in competitor countries.

Mr. David Harris (St Ives)


Dr. Owen

No, the hon. Gentleman can make his own speech.

When one compares the inflation rate in this country with that of the Federal Republic of Germany one can appreciate the anxieties as unit labour costs rise.

The game plan is to leave monetary policy lax, pray that sterling does not crumble and hope, above all, that the markets will be convinced that the Conservatives can win in 1987.

Mr. Lawson

I am trying to understand what the right hon. Gentleman is getting at. First, he said that interest rates were too high. Then he said that monetary policy was too lax. How does he reconcile those two propositions?

Dr. Owen

The Chancellor knows perfectly well that he has given up. We were told about the Government's stance on M3 and MO, but the monetary stance of the alliance has been clear from the start. We have been prepared all along to argue that this country should enter the European monetary system. We have never said that it was an easy or a soft option. There are problems, and this country would have to accept the disciplines off the EMS. From time to time that discipline would be felt in interest rates.

No one who advocates full entry of the EMS can deny that part of the framework of discipline might sometimes be higher interest rates than we would wish. One of the advantages, however, is that one is not subject on one's own to the fluctuations and pressures that the British economy currently faces. Many people believe that within the EMS it would be easier to achieve exchange rate stability and to keep real interest rates over a period lower than they have been in this country. Retrospective analyses of the past few years have all shown that the overall effect of membership of the EMS would have been lower real interest rates and a more stable exchange rate, both of which are desperately needed by British manufacturing industry.

It is no secret that the Chancellor, like the Bank of England, has now changed his mind about the need to enter the EMS. The Prime Minister, however, is still off on her own, on television and in interviews with the Financial Times, repeating that she will not enter the EMS with all her usual resolution, which many of us would describe as bloodymindedness in terms of what is good for the British economy. I note that the Chancellor has not hastened to the Dispatch Box to defend Britain's remaining outside the EMS and that neither he nor his right hon. Friend the Chief Secretary has denied that, if we had been in the EMS, interest rates in this country would have been lower.

Let no one imagine that the alliance is ducking any of the difficult choices. We have been prepared to make realistic economic forecasts. When our target for the public sector borrowing requirement for 1986–87 was announced as £8.4 billion it was higher than the Government's target of £7 billion, but the Government changed the contingency reserve, which we had not assumed in our forecasts, and their outturn by 31 March will be between £8 billion and £9 billion.

Mr. MacGregor


Dr. Owen

Perhaps the right hon. Gentleman will wait until I have finished.

The Government have given a fiscal boost to the economy in aggregate very similar to that proposed by the alliance last March, but the Chief Secretary had to make those adjustments due to lack of control in a whole range of Government Departments. We therefore did not see the action that we urged to stimulate investment and exports, to tackle the balance of payments deficit and to try to increase our competitiveness. There was no targeted fiscal boost to increase employment in areas of high unemployment. In sonic parts of the country unemployment in the construction industry is as high as 40 per cent. Selective rather than generalised investment in the infrastructure — broken down not just regionally but sub-regionally and with a strategy of very little import content in the construction—could be achieved without risking inflation.

Mr. Harris

I heartily agree with the right hon. Gentleman's comments about targeting infrastructure spending on a sub-regional basis. Perhaps he will explain to me and to his hon. Friend the Member for Truro (Mr. Penhaligon) why he, with one other west country Member, opposed our attempts to achieve the piece of infrastructure which above all others was needed for the benefit of Cornwall. Why did the right hon. Gentleman lead the campaign against the Okehampton by-pass, which would help Cornwall more than any other item of infrastructure spending?

Dr. Owen

I appreciate that the hon. Gentleman feels under pressure as the prospective alliance candidate breathes down his neck. Had he been in west country politics a little longer, he would know that the reason is perfectly clear. I have consistently upheld the sanctity of the national parks. Like some of his hon. Friends, I am of the "not an inch" school. I do not believe that one should encroach on the margins of a national park. Having been born in the west country and lived on the margins of Dartmoor park all my life, I stand by my record of defending the environment, so the hon. Gentleman cannot get away with that one. As for targeted infrastructure investment, I wish that we had had the hon. Gentleman's support in the Lobbies when, time after time, we argued for such investment in the west country, in the north-east and north-west and in parts of Wales and Scotland.

The sadness of the Government's expenditure strategy is that it is not targeted selective investment to deal with unemployment in the north or to curb inflation. It is purely accidental. The failure of Departments to take a grip of their budgets has meant that the Chancellor of the Exchequer, fearing a cut in the months before an election, has raided the contingency reserve and accepted a higher public expenditure requirement. That is what has happened. The Chancellor who made a great virtue of the need for a large contingency reserve has, as he knows perfectly well, manipulated the figues yet again.

Mr. Tim Yeo (Suffolk, South)


Dr. Owen

Where does the alliance stand on those fundamental questions? Our commitment to entering the EMS is total. We believe that it provides a much better medium-term financial strategy than any of the varied monetary aggregates which the Chancellor has, at different times, seized like a great apostle and thrust at us in the House. For him to try to pretend that there has been a high level of consistency during his time as Chancellor is nonsense and he knows it. The Chancellor has been found out on his monetary strategy and he has abandoned it before the election. The question that will have to be asked were he ever to be returned to office, is whether he would return to his previous belief in the target figures immediately after an election.

The biggest failure of the Government is that they have not dealt with unit labour costs. Again, there is no apology from the alliance for our support for an incomes strategy and our readiness to use, if necessary and if forced to do so, a tax-based income strategy in order to enforce it. There is no doubt that any Government who are serious about reducing the unemployment figure of over 3 million will have to have a strategy for incomes. There is no way in which one can inject the amount of money that is necessary without risking inflation led by wage movements. It is sad that the Government have not been prepared to take on that issue.

Sir Peter Hordern (Horsham)

Many hon. Members have been interested in the alliance's proposals for an income strategy. The right hon. Gentleman has now announced that there are to be tax consequences on any pay increases throughout the company sector. Can he tell the House whether that would apply to the nationalised industries and what would happen to the corresponding deficit that the nationalised industries would incur?

Dr. Owen

If an inflation tax had to be introduced—I did not say that it would, because we would argue for a voluntary income strategy—and if we were faced with a choice of having to relax our attempt to reduce unemployment .we would not hesitate to use a tax-based incomes policy. It would apply to nationalised industries. However, it would not apply to the Government's own sector. There, one has to use the resolution of Ministers to hold the public sector back. Pay increases in all sectors, public and private, can be only those that are justified by a real quantifiable increase in productivity.

If we get an increase in productivity, then a high wage economy is a thoroughly good thing. It is madness in my view to have an incomes policy which goes across the board and does not reflect the reality in individual circumstances. One of the advantages of a tax-based system is that it would reflect that. One of the other advantages is that it can allow a firm that is doing well to give out to its workers, not just in the form of a wage packet, but in terms of shares which, provided they are not marketable in the early years, would not lead to inflation.

That may be an area in which there is some agreement. We have long been advocates of wider share ownership and there are ways in which a share ownership distribution can reinforce an incomes strategy. That is the sort of thing we should all be looking at if we are serious about this question.

Mr. Terence Higgins (Worthing)

The right hon. Gentleman supports an incomes policy in which higher amounts are paid for by higher productivity in an industry where there has been no change in the demand for a product. Why does he want to attract more people into a job when it should require fewer?

Dr. Owen

I do not quite understand what the right hon. Gentleman said. I do not want to attract more people into the industry than can be justified by productivity. I do not want to increase over-manning. However, if a company has increased productivity and the work force has co-operated in an improvement in productivity, then the workers should be able to benefit just as much as the shareholders.

If we are to get improvements in productivity, surely there must be a reward system. One of the mistakes of past incomes policies is that they found it difficult to reward genuine improvements in productivity. Therefore, they have been seen as anti an effective and efficient working economy. The advantage of a tax-based strategy is that it is more flexible. It is obviously preferable, I make no secret of it, to have no income strategy.

However, if one is faced with a choice as to whether to do something about unemployment or go on accepting the depression and the feeling of being unable to contribute to society that is now a hallmark of all too many of our cities in the north, then in all justice, one must be prepared to put forward a strategy that will allow one to keep unemployment coming down without risking inflation. I do not believe that we would be serious if we refused to grapple with the issue of an incomes strategy. Increasingly, the Labour party will find that the lacuna in its policies is that it is failing to grapple with the issue of incomes when trying to grapple with the problem of high levels of unemployment.

Another issue, which for the long term is probably more important, is an industrial strategy which emphasises improving skill training and employment. If there was to be a relaxation of public expenditure at present, could there be a more urgent area of priority than skill training? It is the absence of that extra spend in the area of skill training which I suspect we will—[Interruption.]

There is not enough training. This country has the potential for more people to take up a higher educational training opportunity. Only 14 per cent. are participating. Japan has 40 per cent. participation in higher education and the United States has 50 per cent. We are neglecting our skilled manpower. When the Open university has to turn down 24,000 qualified applicants, purely on financial grounds, 13,000 of them in the science and technology training area, when there is a shortage of mathematics teachers and not enough money going into the basic brains and skills of this country, there is something seriously wrong with expenditure priorities.

That is the real indictment of the Chancellor's relaxation of expenditure. It did not go into the areas that would achieve an improvement in the real economy. It went into the candy-floss economy. It went into the voting economy. It was specifically designed to win votes and the Chancellor knows it. He may succeed, in which case there will be a smile from ear to ear. He knows, and he fears, that if the Prime Minister dare not go as early as he would wish, he may well find that he cannot sustain this economic strategy on into June 1988. That is the problem for the Chancellor. There is a lack of confidence among international markets in the underlying economy.

It is possible that the Chancellor may be saved. The recent oil ministers' meeting in Quito may achieve an increase in the oil price. If there is a rise to $18 or $20 a barrel, that would give the Chancellor some extra revenue which may see him over the pressure points in the next year or two. He may then be able to see some of the improvements which he thinks are there in the underlying economy. I doubt it. It may be that he will be lucky. He once said that a Chancellor needs a bit of luck. I suspect that he has had more than his share, and it may well be running out.

Mr. Yeo


Dr. Owen

I will not give way.

We see the Queen's Speech as a wasted opportunity. It was an opportunity for the Government to decide that they were intending to have a full year of government of this country. The Government, especially the Chancellor of the Duchy of Lancaster, who cannot make up his mind whether he is the chairman of the Conservative party or a Cabinet Minister, and the Prime Minister, set the tone of electoral fever. Nobody listening to the Prime Minister on the Queen's Speech can have been in any doubt about her heading for the hustings as soon as she can. I say to the Chancellor that the economic strategy is not sustainable. It will be deeply damaging to the economy of the country if it continues for the next 18 months. It will be far better to have an election and get back to the serious problems of making the real choices about the economy of this country.

It is the judgment of the alliance parties and of an increasing number of the electorate that we will share in those decisions and participate in the formation of the policy of that Government. Therefore, in the next few months, as we lead up to an election, the alliance parties will not fall into the temptation of offering what we cannot deliver or attempting to go for the soft soap and refusing to cost our programme or face up to the harsh choices. It was to the credit of the alliance at the previous Budget that we did not vote for 1p off the standard rate of tax. We said that there were other priorities.

The Chancellor believes that there is no pool of altruism in this country of ours. He believes that everybody has their price and that they can all be bought off. That is the cynical Conservative view of the electorate. He and the Prime Minister misjudge the quality of the people. They do not need any more lectures on Victorian values from the Prime Minister. They will determine their own values, and those values increasingly will be the values of a society which wants to end the divisions within it, and which is ashamed of the rise in unemployment, of what is happening in some of our decaying inner cities, of the poor quality and standards in many parts of the Health Service and social services, and of the inability to look after people who are less able to look after themselves.

I believe that those people are prepared, if properly asked by a sound and sensible Government, to hold back a little. I do not think that they are looking for an improvement in their own standard of living through a reduction in the standard rate of tax at the moment. They are conscious of the disincentive effect of the present tax system, which hits hard those on low wages. They are conscious of the fact that the tax and benefits system distorts incentive in the lower scale of incomes and in many ways is riddled with anomalies. They look to the Government to do something about the tax and benefits structure. They genuinely thought that a serious review was under way. They are appalled that the Government have ducked out of the problem of integrating the tax and benefits structure.

Of course, it is not easy for an Opposition party to produce proposals for integrating the tax and benefits structure, but we shall continue to examine the issue and bring forward proposals because we believe that it offers the key to dealing with poverty and to adding to this country's prosperity. It is an inefficient, arbitrary and unfair system. This country is far too divided. I believe that many people want a different style, a different type of government. After the next election, they will get it.

5.31 pm
Mr. Edward Heath (Old Bexley and Sidcup)

I am sure that all of us who were present when my hon. Friend the Member for Stamford and Spalding (Sir K. Lewis) made his dramatic intervention were interested to hear the good news that the Prime Minister has announced that there is not to be an early election and that she is determined to complete her full term. All that I can say is that if he had brought the news earlier in the afternoon, the debate would have taken a different course. It would have given the Chancellor the opportunity of enlightening us as to how he sees the world economic situation rather than exchanging reminiscences with the Opposition on what things were like in 1979. It would have given the Opposition the opportunity of examining the autumn statement on its merits instead of referring to some other idiocies in their policy declarations. It would have given the right hon. Member for Plymouth, Devonport (Dr. Owen) the opportunity of addressing the long-term point of view economically rather than fighting an election that he thinks may come before Christmas, or certainly by Easter.

But it was not to be. We have had a debate that has been largely an exchange of pleasantries about what has been said in the past and what has happened at party conferences. There was a time in the House when nobody on either side ever mentioned party conferences, for the simple reason that we all knew that they were completely irrelevant. Now our debates are taken up entirely with quotations of one sort or another as to what was said by somebody or other at some party conference somewhere or other.

I should like to start by looking at the Chancellor's autumn statement in the light of the fact that now we shall probably not have a general election for 18 months. Of course I am delighted that unemployment has fallen. The Chancellor himself has said that it has fallen by the largest amount for 13 years. From 1986 that brings us back to 1973. That is a very interesting statement by the Chancellor. Perhaps that may change the tone of his future remarks about what happened in 1973 as he is so proud of what is happening 13 years later in 1986.

The Chancellor remarked that for the Opposition to talk about a boom and at the same time to say that the economy is running down is not tenable. The tragedy of this country is that part of it is suffering from a boom and the rest is running down. One can talk to innumerable employers in the south who say that they have jobs but cannot get the skilled personnel. They cannot get the right people to fill the jobs. One can talk to innumerable employers in Scotland, the north and Wales who say that they do not have the jobs, and are losing the jobs. Morale is becoming lower. Those two things are compatible, and they are the tragedy of this country today. It has happened in the past, but today it is happening to a deeper extent than ever before.

When one looks at the basic solutions, it is difficult to tell those in the north that they just have to come down to the south, particularly those who followed our policy of buying their own homes. In the present economic conditions, there is nobody to whom they can sell their home or hand over their mortgage. We watched with interest a television programme the other night in which six enterprising young people from Yorkshire drove down on Mondays, stayed in a hotel and went back after lunch on Fridays. They are enterprising, but how many young people in the north, Scotland or Wales can travel down in their own coach to London, stay in a hotel and go back again on Friday after lunch? Those are the hard facts. It is that aspect of long-term unemployment with which we have to deal.

I welcome the expansion in expenditure that the Chancellor announced in the autumn statement. Some of us have urged that for a long time. I hope that, now that he has done it, the derision aimed at others who wanted an expansion of expenditure will cease. Before, if one wanted that expansion, the easy phrase to use was, "You are throwing good money after bad." On that basis, whatever the Government decided was good, good money and good investment. If anybody suggested another billion, however, that was throwing good money after bad. Let us get away from all that and consider what is possible, on the merits of the economic situation.

I believe that the Chancellor is able to do what he proposes. It will not have as much effect as many of us would like but it is welcome that he should have decided to do it. In the Budget, the Chancellor will also have to decide what else he shall do if he has the resources to do it. I notice that he was cautious in answering a question. He said that if he spent £1 on extending resources for one of the services, he could not use it for taxation. That is absolutely right. I accept that. But my right hon. Friend will still have to make a decision whether he should go for reducing taxation or for better expenditure on other things, particularly construction in areas of high unemployment. As I have said before, I hope that he will not go for taxation.

There was an interesting leading article in the Herald Tribune three days ago, which discussed that matter. It said that the American experience showed that reducing taxation does not work, and doing it now does not persuade people to work harder or give them more jobs. What it has done is to increaae consumer demand at the worst possible moment. We are already facing that problem with the increase in imports. The deficit in the balance of trade will follow. So there is no need for us slavishly to try to follow what is happening in the United States.

Another experience is relevant—the form of the new jobs. We have heard that they are largely in banking. The same is true in the United States. Excellent. I am sure that bankers are all worthy people—good fathers who look after their families. But banks look after wealth and the wealth has to be created before it goes into the banks. That is what we are in all too great a danger of overlooking at the moment.

Mr. Gow

My right hon. Friend said that in his next Budget the Chancellor of the Exchequer ought to eschew reductions in the burden of taxation. May I remind my right hon. Friend of what he said in his election address, to the electors of Old Bexley and Sidcup: a reduced burden of taxation, must be fairly distributed between our fellow citizens".

Mr. Heath

I am greatly honoured and extraordinarily fascinated. I never realised that my hon. Friend walked around carrying my election address. Nobody has ever paid me that compliment before. I am deeply indebted to him. I stand by everything that I say. Of course any reduction in taxation must be evenly distributed. That it has not been equally distributed is one of the criticisms which is frequently brought against the Government. But that does not alter the fact that it would go into increased consumer demand, which at the moment is undesirable.

Now let me deal with the changes that my right hon. Friend the Chancellor has made. I welcome the changes that have been made in the area of health. But I must say again, in emphasis, that it is doing enormous harm to my right hon. Friend the Chancellor and the Secretary of State and the Conservative party to have constantly thrown at us, "Look at the amount of money which is being spent," when we know the inadequacies in our constituencies.

Mr. William Cash (Stafford)

Nonsense. That is not true in my constituency.

Mr. Heath

Indeed, that is the case in my constituency. Perhaps I may be allowed to know about my own constituency, if nothing else.

Mr. Cash

Will my right hon. Friend give way?

Mr. Heath

No, not for the moment. I want to describe what is happening.

Queen Mary's is a modern hospital, only 10 years old, which has proven efficiency greater than that of almost any other hospital in the country. Yet it is not being allowed to look after my constituents for the simple reason that it has had to close wards, it does not have enough people to look after the maternity ward and it does not have the staff to allow it to be used fully. It makes no sense on the formula operated—invented by the Labour party but continued by us—to say that we are building new hospitals somewhere else and not to use the new hospitals that we have.

I have two specific cases—

Mr. Cash

Will my right hon. Friend give way?

Mr. Heath

No, I am going to quote the cases, because my hon. Friend wants them to be quoted.

The first is from the chairman of the West Lambeth health authority. Why does he write to me? Because I wrote to St. Thomas's saying, "I understand that you cannot look after my constituents because you are taking in people from the north." What sense does that make? I get a letter back saying, "Yes, you are quite correct." South Lincolnshire district is paying for patients to go to St. Thomas's and keeping out my constituents. The chairman of the health authority says, "Without it, it would not be possible to fund a number of beds currently allocated to the orthopaedic department and closures would then result." It makes no sense for my constituents not to be looked after and for honourable people from south Lincolnshire to be brought down here.

The second case, which I had only a week ago, is that of a lady who badly needs an operation on her foot, which is extremely painful. She went to the hospital and was told that it would take at least 18 months and perhaps longer before she could have the operation. She was told that if she would like to go outside the Health Service and pay for the operation she could have it in a week. That is unsatisfactory. However, as that lady has joint nationality — British and German — she went to Germany, and there, on the Health Service, had the operation within three days. Of course, the money has to be refunded to the German system.

That is why I say that to talk of more and more money without dealing with the problems of the existing hospitals makes no sense at all. I hope that my right hon. Friend the Chancellor, if he has any influence over my right hon. Friend the Secretary of State, as he provides the money, will ensure that at least where we have modern hospitals they can function fully before we start spending on other things.

Mr. Cash

My right hon. Friend of course knows his constituency. I was not suggesting for a moment that he would not be able to give us an example of what happens there. But with regard to my constituency, I take exception to what he said, because it is not applicable in that case. Moreover, I do not believe that it is generally applicable, which is the real point that he was making.

Mr. Heath

I accept that what I say does not apply to my hon. Friend's constituency, but he can go to a large number of constituencies in London and find that exactly the same thing occurs. He can go next door to me in Bromley, a rich constituency, but the same situation exists there.

Mr. Harris

As a rule.

Mr. Heath

Yes. That is why I say that the system must be changed. It is only creating immense trouble for us, looking at it from a purely party point of view, if my right hon. Friends the Chancellor and the Secretary of State go on with that attitude about their expenditure.

Let me deal now with education. Whatever system we have tried in the past, we have never met the need for skilled occupational training in Britain. The present system is not meeting it. To go on adding little bits of training under one system or another will not solve the problem. I agree with the right hon. Member for Devonport that we can have no future unless we get on top of the problem of occupational training.

It is not worth putting 1 per cent. on employers. We were brought up on the system that the large firms trained more people than they needed and those whom they did not want went to the smaller firms. That worked through the 19th century and the first part of this century, but it has not worked since the second world war. We have tried various training schemes. Some were successful and some were not. We must face up to the fact that Britain's educational system—the state system—must look after the skill training for the workers who will be required in Britain. The expenditure must be worked out as part of our educational expenditure. Of that I am convinced. I shall say a word about general expenditure later. For education, skill training is more important.

Now let me deal with housing. Housing is the key to labour mobility. It always has been. At the moment, housing is in more of a rut than ever before. Of course it is right to encourage people to have private houses, but there are some who will always require local authority housing. That is where the Government are not providing the answer to labour mobility, on which they rightly put emphasis.

Let me now come to some rather wider questions. The world economy, on which my right hon. Friend the Chancellor really had nothing to say today, is important from the point of view of the long-term view and what has been said today. One must accept, first, that the American Administration cannot go on with their present position, with an enormous budget deficit and an enormous trade deficit. They will have to face up to that. With a Democrat-controlled Congress, they may well he made to do so. That Congress may force the Administration, against their will, to become protectionist. That is bound to affect our trading position in the world.

The second factor is that in 1985, for the first time, the flow of capital and cash out of the developed countries into the developing ones was reversed. In 1985 and 1986, the flow has been from the developing countries into the developed countries. Last year, it is estimated, it was £22 million. This year it will be much greater. That means that our trade with the developing countries has been affected and will be affected even more year by year unless that is rectified. The answer is for Her Majesty's Government to take the lead internationally to change the flow back again. It can be done through international organisations. It can be done by Governments and it is not inflationary. Therefore, I urge the Government to recognise that that is one of the major reasons why world trade is not recovering in the way in which we want it to do. It is an important factor in the situation.

The Americans, too, are suffering—have suffered in the north, but are now suffering elsewhere— from the undermining of their industrial base. The present Administration are creating new jobs, but they are service occupations. They are not productive of wealth.

Three weeks ago, a report came out in California—I was there at the time—showing that California, always so far looked on as the epitome of modern America because everything was moving there, is now losing its industrial base. Therefore, the United States will find itself more and more in an exposed position from the point of view of producing its own requirements or importing them. That is a bad situation for the United States and it will not help us unless we are competitive in the outside world.

Now I come to consider the situation in Japan. There, we find that inflation is a minus figure — if one can determine inflation as a minus—minus 0.2 per cent. But its unemployment is down to 2.9 per cent. It has a trade surplus of $80 billion a year, but, to counter that, its capital investment overseas is to a small extent one or other side of the $80 billion. Therefore, to blame the Japan trade surplus for all the troubles in the world makes no sense. Japan is investing the proceeds of the surplus elsewhere in the world. There is no solution in blaming the Japanese and by being protectionist against Japan.

The Japanese have ingenuity and the entrepreneurial spirit and they are a great success. We should remember that just over 40 years ago the first atom bombs were dropped on Japan and it was defeated in war. Only 20 years ago it was the largest borrower from the World Bank for Development. Japan is now the largest contributor to the World Bank for Development. It announced a fortnight ago that its per capita income is greater than that of the United States. That is the change which has come about. Japan has seen rapid growth and it is surrounded by countries which have even higher rates of growth. That we must recognise.

Britain may be well towards the bottom of the list in Europe, but there are no European countries within range of the Japanese performance. The best European country in these terms is West Germany, and it is not within range. The same can be said of Switzerland and Sweden. The United States will be affected in exactly the same way. There is only one answer for us overall, and that is to deal with the European Community.

We are faced with the question of joining the European monetary system. When the issue of EMS was raised, the Leader of the Opposition laughed his head off. I did not understand why he reacted in that way. He was aided and abetted by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), who opened the debate on behalf of the Opposition. The Labour party changed its policy after the 1983 election and said that Britain would remain a member of the Community. If we remain a member of the Community, we should be a full member, and that means being a full member of the EMS.

We are told that everyone in a responsible position, including the Chancellor of the Exchequer, the Governor of the Bank of England, the leaders of the Confederation of British Industry and the Institute of Directors and members of the Cabinet, wants to join the EMS. The exception is the Prime Minister, who is preventing the country from doing so. To say the least, that is an interesting constitutional position. It seems that the Prime Minister alone can prevent our national interests being pursued in Europe. We are being given no explanation of why this should be so. Instead, we were told yesterday that our joining the EMS will happen after the next general election. We know now that the election is a long way away. Why do we have to wait before joining the EMS?

The right hon. Member for Sparkbrook said that we must not use the EMS as a bolthole. I am not suggesting that we should. The fact is that sterling is 1.42 to the dollar, and much lower than it was against the mark. We should be able to hold this position provided that we are not subject to speculation. If we are, and we are a member of the EMS, we shall be supported. The speculators would know that and would not try it. That has always been the lesson of support.

Mr. Nellist

Will the right hon. Gentleman give way?

Mr. Heath

No, I will not. I am sorry.

The Prime Minister is reported as saying in an interview, a report of which appears in today's edition of the Financial Times, that everyone knows that the market is 95 per cent. speculation and only 5 per cent. trade. What an astonishing admission for someone who believes that the market is the solution to all our problems. If the market is as my right hon. Friend suggests, there is a situation which cannot continue.

The market is tied up with another factor which is basic to our future, which is whether we take a short-term or long-term view. We are taking a shorter and shorter view — so they are in the United States—of the economy, industry, monetary affairs and all aspects of economic life. It is now no longer than a three-month view. If a firm's three months' results are not good, it is thought that the answer is, "Away with the management. Change the management and change everything else and see what the three months' results are like then." That is the explanation of what is going on in the United States, where there has been an incredible number of management changes, mergers and amalgamations. This is quite apart from the "benefits" of insider dealing.

A short-term view is being taken, and this is one of the disadvantages of the British banking system. I hear about this in my constituency. I hear it from business men who have projects and are unable to get anyone to support them. They are asked what they will produce in the first three months and, of course, they cannot answer that question. In the Japanese economy there is a 10-year lead time on many projects that involve up-to-date technology. The Japanese take a long-term view. Japanese bankers take a long-term view because that is the view that is taken by their Government, and because all parties work together. That is consensus.

Until the Treasury takes a long-term view of the economy and imposes it by example on the rest of the financial community, we shall not be able to solve our industrial problems. That applies also to the Government's interest in nationalised concerns. A longer-term view must be taken. It must be recognised that we cannot turn over a firm or industry overnight. Time is necessary, especially where capital investment has been lacking for so long. How right we were to fight General Motors' proposed takeover of Austin-Rover. We were absolutely right to do so, and that has been proved to the hilt. General Motors put no investment into its plants in the south and it is now closing seven plants across the United States simultaneously. It wanted to take over Austin-Rover and Leyland Trucks so that it could use their products if they were found to be better. If it had not come to that view, it would have closed the whole lot down. That shows that we were right to prevent the takeover of British firms by a great American concern.

Mr. John Carlisle (Luton, North)


Mr. Heath

As America gets into more and more difficulties with its economy, so we shall see more of its great firms following the course of General Motors.

Mr. John Carlisle

I remind my right hon. Friend that General Motors has made substantial investment in and around my constituency. The week after next, the Minister of State, Department of Trade and Industry is opening a new paint plant, which represents an investment of about £80 million over the past 12 months. I think that my right hon. Friend's remarks about General Motors and his attitude to GM and the BL merger is most unfair, and has resulted in the loss of about 1,400 jobs in and around the Luton area.

Mr. Heath

I was talking about investment in trucks. If I am wrong, I shall withdraw, but it was said at the time—this has never been denied—that heavy investment to produce new truck models would not take place. In this context I am talking about Luton and Bedford. We were told that investment was one of the reasons why we should allow the takeover to take place. It is said that General Motors would look after the two systems together.

In dealing with the future of industry and Europe, I wish to deal with support for technology. It was stated that the aim of the Milan summit was to strengthen the scientific and technological base of European industry and encourage it to be more competitive at international level. That is a firm undertaking by our Prime Minister. We are now in the chair in Europe, and what are we doing? We are trying to prevent the Community spending more on the next five-year programme than it spent on the previous one instead of trying to allow the Community to make further progress. We are seeking to limit what it shall do. It seems that we are dealing only with words. We put words into a communiqué, but when it comes to practice and to implementing them, we do not support those words. That is why Europe is falling further and further behind the Pacific.

European countries are not operating together. There is enormous duplication in all technology in European firms. During our presidency we should have taken the lead in ensuring that resources are made available, but we have not done so. The final meeting is still to come, and I hope that my right hon. Friend the Chancellor of the Exchequer will change his position and that of our representative and allow the necessary resources to be made available. If that is not done, we shall never make progress in Europe.

We are more than two thirds of the way through our presidency and what have we achieved. The answer is nothing. Can anyone point to anything in the economic sphere where we have achieved anything? The answer is nothing. Not one single thing has been achieved.

Mr. Cash


Mr. Heath

We have said that we want improvement and that we want a completely free market by 1992. We have said also that we want to compete with the rest of the world, but we are doing nothing about it. How can we expect the rest of the Community to co-operate with us when we give no lead and when we do not join the EMS? It is not human to expect them to co-operate with us. Those are the great issues.

Finally, I wish to mention arms talks and expenditure on arms. As I have said, neither east nor west can afford the present expenditure. Therefore, there must be a drive to reduce armaments. Every time I hear the phrase, "with proper supervision", I know that nothing will happen. It is inevitably the excuse for not reaching agreement. We had all this back in 1960, 1961 and 1962. Mr. Macmillan, as he then was, took risks on supervision and coverage. One will always take a risk on that, but the risk is worth taking, provided that it can be defined, as we could then. The risk of not knowing that atom bomb testing is going on has been removed by modern technology.

It is essential that the summit gets down to the business of arms reductions. However, I have never accepted the zero-zero formula because it exposes us entirely to nuclear weapons on the eastern side and, what is more, will require even greater expenditure on conventional forces in any attempt to try to equal the east. That is where the argument of Labour Members collapses, because the extent of the expenditure required in those circumstances would be enormous. But we cannot accept the position as it is after Reykjavik.

On Iran, we as a nation and a Government must say frankly that this was a very discreditable operation. There is no point in saying all the time that the President was right in doing this and right in doing that. In fact, it was hypocrisy to tell the rest of us to counter terrorism and not to make arrangements with terrorists in any circumstances when, for the past 18 months, the President has been doing that in Iran. It is said that it was done to help the moderates in Iran where are they? There are no moderates in Iran. If one wishes to help them, one helps them in other ways in Paris, preferably not with tanks or weapons. That was a completely bogus story and it is unjustifiable for the Government to connive at it or accept that it has any validity. If we are to maintain credibility among our colleagues in Europe, above all, and elsewhere, it is much better for us to acknowledge the real position.

"Therefore, I hope that we can get down to the basic business of controlling and reducing armaments and reducing the burden of expenditure. The strategic defence initiative is not justified. It means enormous expenditure and, comparatively, we are getting very few contracts out of it. It is completely unrealistic to say that it will go up only to the feasibility stage, as that takes no account of the power of the military in the United States. We have seen their operations before. They get their own way. Once the feasibility stage is reached, who can stop them from saying, "Now we shall put it into operation. Break the anti-ballistic missile agreement and put this into operation."? That is unlikely to happen because, after this Administration, the entire thing will be abandoned. But we must be aware of the problems of SDI and how it affects Europe. It would unbalance the entire question of deterrence. If it was fully implemented, it would leave Europe entirely under the spell of the Soviet Union. Both those effects would be absolutely undesirable.

I hope that, in this economic debate, the Chancellor will take account of those world forces which are not acting altogether to our advantage — the playback in developing countries, the United States going protectionist and the supreme rise in the Pacific basin countries of Japan, South Korea, Hong Kong and Taiwan. That is where the life is today. They are looking to the future, and they know it. They say that Europe has a great civilisation and has contributed much of its time to culture, art and music. But that is the past. They are not interested in our past, they are interested in their future. We must create in our young people the spirit of the future. That means that we must give them hope and opportunity and show them how we will deal with those immense problems, especially the problem of unemployment.

6.4 pm

Mr. James Callaghan (Cardiff, South and Penarth)

It would be embarrassing for the right hon. Member for Old Bexley and Sidcup (Mr. Heath) if I said that Labour Members agreed with much of what he said, were it not for the fact that, on this occasion, the right hon. Gentleman's remarks also found an answering echo among many Conservative Back-Bench Members who, by their attention, silence and failure to heckle him—as they have done in the past — seemed to show some acquiescence with his remarks. There is a growing apprehension among Conservative Members that much of what the right hon. Gentleman said has a serious stratum of truth.

This afternoon, as always, we listened to the Chancellor of the Exchequer with great respect. He is a clever man. We know it, and he knows it. He knows what he is doing. But, listening to his speech this afternoon— admittedly before the hon. Member for Stamford and Spalding (Sir K. Lewis) brought the news from Aix to Ghent or from the tape to the Chamber — I thought that he should have left that sort of speech to the Chancellor of the Duchy of Lancaster, who does it so much better. Even with the beetle-browed cynicism which the right hon. Gentleman assumes, he cannot emulate the Chancellor of the Duchy of Lancaster in the exaggeration and stupidity with which he talks. I beg the right hon. Gentleman to act as a Chancellor of the Exchequer, not as he did this afternoon.

In recent weeks, the right hon. Gentleman has failed to act as a Chancellor. He has been swept aside by electoral considerations. Of course, I am in favour of what he has done to increase public expenditure, but it is at least cynical to say that what he has done now could and should have been done much earlier and is now being done purely for electoral reasons. It reminded me of an old friend who had made some money and whose motto was, "Live rich, die poor." He said that the trouble is that his wife wakes him up in the middle of the night, digs him in the ribs and says, "Are you sure you have got your timing right?" When the right hon. Gentleman heard the news brought by the hon. Member for Stamford and Spalding, he must have been apprehensive and wondered whether he had got his timing right for the next election.

I must not be too harsh, because the right hon. Gentleman has recently been paying me handsome compliments, although he does not avow them. For some time, he has been saying that inflation is at its lowest for 20 years. He is quite right. Under a Labour Government, it was 2.6 per cent., and I remind the House that I was Chancellor of the Exchequer then. I hope that the right hon. Gentleman will continue to repeat that, but he might add another relevant statistic when discussing those matters. I promise that I shall not weary the House with all the statistics that have been bandied about this afternoon. When the Labour Government left office in 1979, the rate of inflation was lower than when Labour took over from the Conservative Government in 1974. I congratulate the Chancellor on reducing inflation even further—some of the things the Government have done are good—but their achievements do not match up to the magnitude of their task or, indeed, of their promises.

Nevertheless, it is true that the right hon. Gentleman has had the good advantage and good luck—he is right to say that Chancellor should have some good luck—of a fall in the cost of raw materials and produce during the past 12 months. That is a once-for-all gain; he will not get it again. As he knows, those prices are beginning to increase. Nevertheless, inflation is down and we must try to keep it down to the present level. I support the Chancellor in that, and I am glad that he has managed to achieve it. But I hope that he will recall that he was not alone in reducing inflation. The Labour Government did their share, too.

As the right hon. Member for Plymouth, Devonport (Dr. Owen) said, for the Chancellor history seems to start in 1982. Nothing that happened before 1982 has any special relevance. It reminds me of the photographs published from time to time in the Soviet press in which the figures of Mr. Trotsky or Mr. Molotov or whoever it may be has been painted out. We shall find that in future photographs of the Conservative Cabinet the miserable figure of the Foreign Secretary when he was Chancellor of the Exchequer will have disappeared, because he will have been blotted out of all the calculations.

We intend to go on reminding the Chancellor that the history of the Governnent started in 1979 and not in 1982. He should be a little more accurate in using some of his selective statistics. For example, the economic progress report is prepared not only with his authority but, I am told, under his hand. It would be a little more accurate and fair if the statistics in that started at 1979 rather than 1982. As he knows, all the figures on the back of that document and all the tables of the day start at 1982. The Government want to blot out the memory of the earlier years. I do not blame them, but the Chancellor should not be astonished when we remind him that the Government's term of office started in 1979.

I agree with the burden of the speech by the right hon. Member for Old Bexley and Sidcup. The Chancellor spoke about manufacturing output declining under a Labour Government. Yes, it did decline, but does he not remember that he was elected to reverse that trend? Instead manufacturing industry has continued to decline, and today we have a smaller manufacturing base than we had when the Labour Government left office. The indictment of the Government is not that they have had only minor successes, or in the case of inflation a substantial success and in productivity a good success. Measured against the magnitude of the task that had to be done—this applies to every hon. Member in the House—the Government have failed, and no one, if he is honest, can pretend otherwise. We have failed as a nation, and Government policies have failed to reverse the long decline in British productivity, standards and capacity, and in our position relative to the rest of the world. Does the Chancellor deny that?

Only recently we were told that Italy has surpassed us in GNP per head. The steady decline that we have seen for years will continue. Perhaps it will be put off now, but I assume that over the next 12 months we shall see a large exchange of statistics and comparisons. They will not remove the fatal situation in which the Government exist. For the sake of the country, and whether or not it affects their electoral chances, the Government must admit that. The country and the Government have not reversed the decline that they were elected to reverse and which they said they could reverse.

This is almost certainly the last debate on the reply in which I shall have the honour to address the House. That decline is a problem that the Chancellor in his electoral address today failed to meet and discuss, yet it is the only problem that matters. I shall cut short what I have to say because I should have liked to say much of what the right hon. Member for Old Bexley and Sidcup said about unemployment and about other matters. Whichever party wins power, what problems will it face? There will be the one which has been spoken about many times, the unacceptable level of unemployment. Whether the Conservative party wins or loses the election on unemployment, it is intolerable that a civilised society should allow 3 million people to be out of work for year after year. We should make the necessary changes to reduce the level of unemployment.

The difference between my party and the Government party is that the Government seem to assume that things can go on at that level. My party seems to be putting forward some remedies. Some of them will work, but I daresay that others of them will fail—that is the habit and fate of all Governments. However, I would sooner vote for a party that will try to make an effort to reduce the level of unemployment by implementing drastic and immediate plans than for a party that allows unemployment to continue on the basis of the complacency expressed by Conservative Members.

Unemployment is the first problem that the next Government will face. The second problem is that there will be a decline in oil output with all that that entails. Thirdly, as the Chancellor knows, there will be a serious deficit on our financial accounts with overseas countries. We shall be making a loss and he knows that that cannot continue and that the next Government, from whichever side it comes, will have to handle that situation. Fourthly, the new Government will start out with the knowledge that our manufacturing industry has a smaller base than when this Government came to power seven years ago. Fifthly, inflation will be increasing. That is not much of an inheritance from a Conservative Government of seven years who when elected said they would reverse all the tendencies of the previous years.

We are losing ground against the rest of the world. I have not been here for the whole of this debate, but I have read the speeches. They were interesting and yesterday's debate was interesting. What struck me was the thread from all parts of the House expressed in different ways and with a threefold basis. First, there was the plea: what do we do about certain long-established industries that are in difficulties or seem likely to be in difficulties? Secondly, several comparisons with Japan were made yesterday by hon. Members and some were made today by the right hon. Member for Old Bexley and Sidcup. Thirdly, there has been a call for more training and for higher standards of management.

Those are certainly the three main topics that I take from the debate over the last five or six days and I should like to speak about each. Undoubtedly, we are living in a period of great industrial change. Some people talk about some of our older established industries almost with contempt, calling them the smokestack industries. The smokestacks may go, but there is great value in maintaining some of those industries, because they are what I call the core industries.

Many companies are divesting themselves of things which cannot make a profit and asking themselves what is the core of their industry and what must be kept. There are certain industries that we must maintain, and because no one measure applies to them all, we must take different measures to ensure their maintenance. I should like to see the Government carry out a study and create a coherent list of basic industries which they believe should be encouraged and protected—with a small "p"—in one way or another to enable them to survive.

One such industry is shipping, but I shall not go over the arguments that I have advanced so many times in the House about the vital importance of shipping and shipbuilding. The others are coal and other energy resources. I could take the House through a debate about the development of Margam in south Wales. That is a coal industry development that is being prevented. Why is that being prevented, because it is admitted by British Coal that there is a good case for developing the coal industry in Margam? It is held up because coal is priced in dollars and because of that and the exchange value, British Coal cannot make a short-term profit from the development of Margam. That is the kind of wrong approach about which the right hon. Member for Old Bexley and Sidcup spoke and which we cannot afford.

There are other industries for which measures are required, such as the railways, aircraft and agriculture. We are entering a new industrial era and it would be sensible for the Government to select a certain number of industries which they intend shall remain. That is what some other countries do and nobody can claim that our record is so perfect that we can afford to ignore that.

Mr. Robert Jackson (Wantage)

The right hon. Gentleman is making a strong and positive speech about energy resources. Will he give us his view about the future of the nuclear industry?

Mr. Callaghan

I think the hon. Gentleman wants to get me into trouble with my party. I do not want to follow the line that he has suggested. All energy sources must be developed, hut I was speaking especially about the coal industry. At the moment our industrial structure is like a pyramid with a small group of managers at the top, a broader band of engineers at the centre and a large number of production workers at the base. That is not the industry of the future. In most of the advanced industries and companies in Japan, the pyramid is becoming more diamond-shaped. There is the same small group of managers at the top but there is a much broader band of engineers in the middle. That then tapers off, with even fewer production workers.

If we attempted to follow that course, it would have profound social consequences. The Japanese will undoubtedly capture even more markets. My hon. Friend the Member for Wolverhampton, North-East (Mrs. Short) said yesterday that Japan is training four times as many engineers per head of population as Britain is today. In some Japanese factories—admittedly, in only a handful —I understand that today there are three times as many engineers as production workers, and it will have profound social consequences.

That is a source of very great pessimism, but it could also be a source of a very great hope. The new Japanese system of flexible, automated mechanism means that, instead of having to choose large-scale mass production, short runs are possible which enable customer demand to be met very much more easily than in Britain. 'This country is not very good at mass production hut we are good at stimulating — and the Government have helped to stimulate it — small manufacturing production. That provides a message of hope for this country, provided that we can adapt quickly enough and copy what is being done in Japan. We should not be too proud to take lessons from Japan. It has found the secret of success. If new industrial developments enable us to provide satisfaction for individual customers, the prospects for this country will be very much better than they have been until now.

The training of managers, and consequently their competence and knowledge, is not sufficiently high. Reference has been made to the number of graduates who are working in industry, compared with the United States. We are not doing sufficient to attract graduates into industry. Although the Government say that they are handling this problem, their efforts are not commensurate with the size of the problem. The Government are doing a little, but they are not tackling the problem sufficiently fast. Furthermore, our technically literate work force is insufficient for our needs.

I agree about the need for Britain to associate itself more closely with European developments. I have two proposals to make, which hon. Members may think represent one step forward and one step hack. I shall sum them up in a sentence; it is not often that a good policy can be summed up in one sentence. We should repatriate the common agricultural policy and join the European monetary system. The CAP has become a hindrance to European development, and it is high time that it went. I am told that it would be difficult to unravel, in which case we ought to set ourselves a target. We should say that the CAP must be unravelled within the space of, say, four years, that we should reduce by 25 per cent. a year the amount that is spent on the CAP by each country and that the 25 per cent. reduction must be made up, if at all, by individual national Governments, as they think fit, to meet their agricultural requirements.

It was ridiculous that two months ago when lambs were sent to market they should have drawn £20 each from the market when they were sold and £14 in subsidy. Nobody can defend such a system. The only alternative is to repatriate the CAP, despite all the difficulties that are involved, and to provide national Governments with the responsibility, because so much that is connected with agriculture has a social and strategic impact. Initially, this great amorphous mass seemed to he the only common bond that united Europe, but the European Community has grown beyond that point now. It could afford to get rid of this weakness that is dragging it back and to move ahead in other directions.

Some reasons have already been advanced for joining the European monetary system. I was not always in favour of joining it. There was a time when I thought—and it is still possibly true—that the value of sterling was too high. Now it is near to the point at which the Chancellor of the Exchequer could join the EMS without too many qualms. Ten days ago the Chancellor told us on television that in order to maintain the value of sterling he would increase interest rates. He has not done so yet. On that day, the value of sterling against the deutschmark was 2.94. Now it is down to 2.87 or 2.86. Sterling is very near to the point at which I would not use interest rates to prop up sterling. Sterling should be allowed to fall to about 2.80. I do not expect the Chancellor to comment on that suggestion. However, at that rate he could join the EMS without any of the ill effects that have been talked about. Even the Prime Minister might see some advantage in that, if it meant that interest rates did not rise.

The case for the EMS is that it would provide greater stability for industry and for those who are responsible for taking decisions. There cannot be a high level of investment if there is such a rapid rise and fall in the rates against which sterling has to compete. I am a great believer in greater exchange rate stability, and my long-term hope is that in some way the EMS will be expanded so as to embrace a loose relationship with the dollar and the yen. That would benefit both the industrialised and the developing areas of the world.

If I were asked to choose between action and inaction, I should choose action. We cannot allow the present complacency to continue. It is tempting to describe this country as falling over an abyss or steering onto the rocks. It is not doing either. However, a continuation of the present policies would result in a slow, inexorable continuation of the decline that we have witnessed over so many years. The present policies have failed to remedy that decline and I see no prospect of their doing so in future.

6.27 pm
Sir Peter Hordern (Horsham)

It is a real pleasure to follow the right hon. Member for Cardiff, South and Penarth (Mr. Callaghan) and my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath). They are both ex-Prime Ministers. I have been in the House for a number of years but for not nearly so long as the right hon. Member for Cardiff, South and Penarth and my right hon. Friend the Member for Old Bexley and Sidcup. I draw one lesson from their speeches: that political parties should be very chary about making unemployment forecasts or about giving advice on how to spur on manufacturing success. All political parties have been unable since the war to reverse the decline in manufacturing industry, and I share many of the sentiments that have been expressed by the right hon. Member for Cardiff, South and Penarth.

The ability of any Government, on account of the rapid shifts in economic circumstances and the rapidity with which messages can be transferred from one market to another, to influence events is much less than it used to be some years ago. I know that my right hon. Friend the Chancellor of the Exchequer shares my distaste for all economic forecasts. He is quite right to do so. I wish him luck with his forecast for this year—it all looks rather good.

It is unfair of both my right hon. Friend the Member for Old Bexley and Sidcup and the right hon. Member for Cardiff, South and Penarth to refer always to unemployment in the absolute number of figures without recognising the extraordinary social changes that have taken place over the past 10 years, and continue to take place. I refer to the rapidly growing number of people at work, a figure which has been rising since the middle of 1983. Not to take into account the rapid growth in the number of school leavers and the great social change that has come about by the number of women who are anxious to work is not to do justice to a rapidly changing situation.

The right hon. Member for Cardiff, South and Penarth was right to draw attention, as have other speakers, to the particular concern of high unemployment in the regions, because while it is true that the number of people in work has continued to rise, the problem of the regions continues to grow because this is where our declining industries are based and there is not so much capacity for women to take men's jobs.

Whether or not the forecasts made by my right hon. Friend the Chancellor are correct, it is important to assess the balance between expenditure and revenue and check whether present policies are likely to prove effective at home and carry confidence abroad. Given our open market system, it is impossible to ignore overseas opinion without making our position very much worse. One cannot dictate to other countries and other lenders the terms upon which they should lend one money, and it is a mistake that Socialist Governments throughout the world have always made. Not least, the right hon. Member for Cardiff, South and Penarth would admit that this is the case.

Nor can any Government be surprised at the care, one might almost say religious fervour, with which bankers regard such apparently esoteric matters as the PSBR and the money supply. They do so not because they are perverse and doctrinaire but because it is their customers' money that they are lending, which they do not wish to lose. They have a wide choice. Why, then, with all the achievements that my right hon. Friend the Chancellor can rightly claim, are interest rates so obstinately high? Our real rate of interest, allowing for the rate of inflation, is higher than that in any other industrial country.

It is true that our inflation rate is low, but it has to be said that it is even lower in other countries. What matters —it is on this that market forecasters differ somewhat—is whether it will remain low. There is no question but that interest rates would be substantially lower if there were real confidence that inflation was permanently under control, and if it were not for the threat of a Labour Government. This adds considerable strain on both the level of interest rates and the uncertainty that exists in markets. It is impossible to ignore that. This is not the sort of test that has to be applied in West Germany, where all are agreed that the market system must be adopted. In our country, the choice is still between a form of Socialism and a market economy. This possibility of a Labour Government is very expensive in terms of interest rates and future forecasts of what that rate of inflation might mean.

I have to confess that I felt greater confidence in my right hon. Friend the Chancellor's unreconstructed monetary stage, when he used to trumpet the virtues of M3. He did so in his capacity as Financial Secretary, but he has been rightly regarded as the author of that policy. I preferred him in that role to his new revisionist phase, preaching the virtues of M0. M0 may be a good measure of something or other but whatever the faults in M3—I accept there are some—it gives a pretty good indication of the level of demand in the economy.

I can give a statistic. The level of new hire purchase credit—which has been extended as recently as 1981—was £7.8 billion. In 1985, it was £13.5 billion and in the first six months of this year, that figure was 50 per cent. up. The same is true of bank lending. The quantity of bank lending for the first six months of this year almost equals the whole amount of 1985. There cannot be any question that there is a consumer boom in progress, and what else can one expect of the plastic card revolution and the open competition between banks, building societies and every form of financial institution?

My right hon. Friend the Chancellor says that we have only to look at the ratio of debt to GNP to recognise that our rate is not as high as that in the United States, and I have no doubt that that is true. However, what really matters is the pace of advance of the increase in that debt, the strain that it in turn places on our resources at home, and the pressure that it brings to bear. It is bound to lead to capacity constraints at home and a continuing bonanza for our overseas suppliers, as well as, as we have seen and recognised, a considerable demand for higher wages, which has so far been met.

It is impracticable to return to hire purchase control. I remember when the right hon. Member for Cardiff, South and Penarth was Chancellor, and had that weapon at his disposal. There was a thing called the regulator, which he could put up and down with purchase tax. We do not have that now and we rely entirely on the markets and the interest rate.

Perhaps we should never have abandoned the monetary policy— I do not think that we should have done so. West Germany controls its monetary policy by controlling its central hank money stock and so keen is it to do so that it has announced a reduction in public expenditure and an increase in interest rates, although those rates are still low.

Everything in our economy depends on interest rates, and they are high. Although the PSBR is not high, the contingency fund looks to me to be on the low side. I do not think that there is much margin for error. Considering the uncertainty that the prospect of the election must bring, far too much weight is borne by interest rates in our economy. One way in which this could be eased is by our joining the EMS. I was originally sceptical about our joining the EMS because I could not see any distinct advantages, at least not as long as we were pursuing a proper monetary policy. Now, it appears to me that the arguments are in favour of our joining.

Despite what the right hon. Member for Cardiff, South and Penarth said, it seems that the choice between higher interest rates and a lower pound is illusory because, with a lower pound, and sterling sinking more, there is no alternative policy to pursue. The advantage of joining the EMS is that we shall be more closely tied to the deutschmark, and Germany follows a proper monetary policy. It would be likely to have a greater congruence with interest rates. In Germany, three-month money is at a rate of 4.7 per cent., in France at 7.5 per cent., while we have the highest short-term interest rate in Western Europe save Italy. I never thought I would see the day when the yield on Government long-dated bonds was lower in Italy than in our country.

Another reason is the instability caused by the United States deficit, which is fed by Japanese savings. Sterling should not be left awash in the tides of currencies that are flowing between Japan and the United States and which keep us in a rather isolationist position. The currency movements and speculation should not be borne by our country outside the EMS. We should enter the EMS.

There is no shortage of demand in our economy nor within western Europe as a whole, but there is evidence that the supply side is far too rigid. We have a long way to go further to break down the barriers in Britain, for these include barriers caused by what I conceive to be a vertically organised public expenditure array Each Ministry looks at its own programme and there is scarcely any overall review of the total spending by Departments or any assessment as to whether money could be spent better in other directions. Nor, despite the marked improvements in our tax system, has there been any fundamental reform of the tax system as there has been in the United States.

In 1961, 21.5 million people were not liable to pay the standard rate of tax. Now only 10.7 million people are not so liable. Yet the number receiving housing benefit increased to 6.7 million last year compared with 2.9 million receiving rate rebates 10 years ago. The same people who are receiving housing benefit are paying the standard rate of tax at 29 per cent.

We need a lateral look at public expenditure, together with a thorough reform and simplification of our personal tax system. We need a substantial reduction in personal taxation, but only as part of a fundamental reform, carefully worked out and explained to the people much as it was in the United States. We may see a revenue windfall in North sea oil, for example, but without fundamental tax reform the combination of high real interest rates with low taxes is not one which it is easy or right to accept. That goes right outside any discussion whether there should he more public spending or lower taxes. There may be a good case for lower income tax in the Budget, providing the revenue is unexpectedly buoyant, but it is perverse to reduce revenue and increase interest rates at the same time.

More to the point, how would it look in those areas where unemployment is high and a large proportion of jobs are lost, perhaps for ever, to see the engines of the consumer boom still further charged, leaving them completely untouched? It is right to emphasise the increasing number of people at work, hut we must also recognise the new social and industrial revolution which has taken place, the benefits of which are obvious in the south but which hardly exist in the north.

I do not believe that there is not more that we can do to assist industry and business in the north, especially by renewing the inner cities and by removing employers' national insurance contributions in those areas altogether. There may be other better ways, but it is certainly riot against the tenets of the Tory party to act in that way and it never has been.

I remind the House of a speech made many years ago by a former Tory Prime Minister, Sir Robert Peel, when he had the nerve to increase income tax. In 1842 he said: You may bear in mind that this is no casual and occasional dificulty. You will hear in mind that there are indications amongst all the upper classes of society of increased comfort and enjoyment, of increased prosperity and wealth, and that concurrently with these indications there exists a mighty evil which has been growing up for the last seven years, and which you are now called upon to meet. If you have, as I believe you have, the fortitude and constancy of which you have been set the example, you will not consent with folded arms to view the annual growth of this mighty evil. You will not reconcile it to your consciences to hope for relief from diminished taxation. No, Sir and I do not think that we should either, in the face of the difficulties, and yet opportunities which we may seize if we will. I fancy that national unity, which we may gain by helping those who need it most, is the greatest prize of all.

6.43 pm
Mr. Dave Nellist (Coventry, South-East)

Millions of people, men and women, youth and unemployed, are looking forward to a Labour Government to deal with the enormous social consequences and problems, which the Government have exacerbated, of 4.5 million people unemployed, low wages, cuts in social services and pensions, and deteriorating housing and health services. Nothing in the Government's programme in the Queen's Speech will fundamentally alter the record of the past seven years of despair and insecurity that they have created.

Perhaps that despair is most graphically illustrated in a short item in Today in its coverage of the Knowsley by-election. It states: schoolkids aged ten wearily speaking of the pointlessness of taking exams just to increase the intellectual level of dole-queue chat. That 10-year-olds can be driven to such despair is an indictment of the Government's seven years of office. Perhaps that point is made even more sharply by subway graffiti in my constituency which says: Vote Tory—retire at 16. That is the image that many young people have of the Government's effectiveness.

It is interesting that we have heard little today and yesterday from Tory Members, with the possible exception of the more astute representatives of the bourgeoisie, such as the right hon. Members for Chesham and Amersham (Sir I. Gilmour) and for Henley (Mr. Heseltine), who at least recognise the organic crisis within the capitalist economic system. The Chancellor of the Exchequer and the Prime Minister have shown a ludicrous economic optimism. They have stated that we are in the sixth successive year of successful economic growth and have spoken about the underlying strength of the British economy.

In reality, Britain is now a third-rate power, economically, politically and diplomatically. British manufacturing output was overtaken by Italy in the late 1970s and today it is on a par with Brazil. That analysis was made, not by some fanciful Socialist newspaper, but by the Midland bank, which can hardly be accused of Left-wing leanings.

The Government have about as much feeling for manufacturing industry as Lucrezia Borgia had for catering. This Tory economy, presided over by the Chancellor and his right hon. and hon. Friends, is heading for deep trouble. Next year both the balance of payments and the balance of trade will be in huge deficit. I hear talk that that will put severe pressure on sterling. Certainly, if there is any further fall in the value of the pound, prices will increase and pressure will be exerted for higher interest rates. It seems that next year we shall return to "stagflation" — a word invented by the financial newspapers in the 1970s — which means stagnant production, rising unemployment and rising inflation. Yet all we get from the Chancellor are fairyland economics and talk about the underlying strength of the British economy.

In the five years since the last world recession in 1981 British capitalism has not recovered the levels of manufacturing output of 1979. They are now 10 per cent. below the levels of 1973. There is probably less being produced in 1986 than during the three-day week in 1974. Unemployment is three times as high as in 1979 and employment in manufacturing industry has been cut by the loss of 2 million jobs.

What has that meant to Coventry? It has meant the complete disappearance of Alfred Herbert—apparently the largest, most effective manufacturer of machine tools in Europe—the disappearance of Triumph with its 8,000 jobs, drastic slimmingdown in Leyland, Alvis, Talbot, GEC and Rolls-Royce. Only the £41,000 million of oil revenue together with the huge trade and budget deficits of the United States of America have partially masked the condition of our national accounts during the past five years.

Those bubbles are bursting. The first one, the oil bubble, has already started to burst and the American economy, the second bubble, has not many months to go, as the right hon. Member for Old Bexley and Sidcup (Mr. Heath) recognised. At least he retains some elementary economic understanding, even if nowadays he tries to move away from his record of 1970–74 and to cloak his iron fist of those days with the velvet glove of his words today.

The only good news in the economy we are offered is that the rate of profits has risen and is the highest for the past 10 years. Setting aside the human misery caused by the mass unemployment that has largely made that possible, what is the function of profits in a capitalist economy? Profits are to be reinvested and used to modernise and re-equip factories and industry so that more goods can be produced more quickly and more cheaply.

A recent National Economic Development Office report was suppressed by the Chancellor, who has obviously been having words with the Tory party chairman on gagging. That report shows that manufacturing investment in 1985 was 17 per cent. lower than in 1979. It was even lower than in 1970.

According to the National Westminster bank — I cannot be accused of using partisan sources for my statistics—there is now a gap of the order of £200,000 million in the level of investment that British factories would need to catch up with Japan, Germany, France and America, yet this year only £5,000 million will go towards manufacturing investment. Even on a simply quid pro quo basis, that means a 40-year gap between the level of investment that is required and what is actually taking place.

According to the NEDO report, net investment to replace worn-out machinery has been negative since 1980, which roughly means that for every pound's worth of worn-out machinery, only 80p is put back. The only good news from the report is that last year net investment almost rose to zero, but even then was not quite sufficient to replace worn-out machinery.

Those are the real factors that have an influence on the decision of the Tories to go for an early election. That is the real reason why the Chancellor came forward last week with his autumn statement, with its apparent £10,000 million increase in public expenditure. Given the Government's record over the last seven years of cutting expenditure, giving back £10,000 million is akin to a mugger who steals an old lady's pension book and offers to give her the bus fare home. Yet we are expected to feel a sense of charity for that £10,000 million increase.

That pre-election spending, like this pre-election Queen's Speech, is totally inadequate to meet the social needs of working people. Over the past seven to 10 years, the rising Right of the Tory party has said that manufacturing does not matter, that we have a surplus in invisible earnings and that the City will save us. I happen to believe that the pimps and sharks of the City's square mile are not interested in anything but a fast buck—or 15,000 fast bucks in the case of Mr. Collier of Morgan Grenfell. 'I'he casino economy in the City will not be the saviour of British capitalism. It will be one of its pall bearers and one of the contributors to the heightening of the internal contradictions within the capitalist system.

Every day about $150,000 million change hands across the world exchanges. As actual daily world trade is worth only $7,000 million, that means that for every $1 that pays for goods, $20 change hands in currency deals and speculation that bear no relation to reality. These totally fictitious deals are conducted by brokers and jobbers who are the highest paid bookies' runners in the country. Some of them earn as much as £1 million a year—£500 an hour—for not producing anything that is useful. They are literally 20th century parasites living off the blood and sweat of working people who are the real wealth creators within the economy.

Tonight there is news that the Financial Times index fell by 18 points this afternoon, which has wiped £4,000 million off the value of the Stock Exchange. But that is not real wealth — it is the paper value of the companies belonging to the stock exchange, and it is high-class gambling.

Some hon. Members may say that the Stock Exchange raises money for investment, yet only 6 per cent. of its turnover has anything to do with industrial and commercial investment in this country. Earlier the Chancellor had the gall to say that workers overpay themselves, and called for the reductions in unit wage costs. That is rich coming from the right hon. Gentleman. He is on £1,000 a week and does not have to worry about whether he can afford to feed and clothe his family.

In fact, wages have been reduced. The West Midlands Engineering Employers Association reports that in the last 12 months, 46 per cent. of all wage deals in engineering were under 4 per cent. and that 80 per cent. were below 5 per cent. That has not stemmed the rising tide of industrial unemployment in that area. In Coventry alone, 4,500 engineering and manufacturing jobs have been lost during the same 12-month period.

The CBI says that there should be a zero increase in wages, but it does not apply the same rules and regulations to its own members. The 40 members of the president's council of the CBI awarded themselves an average 19 per cent. wage rise last year, and one of them had the gall to give himself a 207 per cent. wage rise. Yet they still ask workers to shoulder the burden of the crisis in the economic system. When I put that point to the Chancellor several hours ago, he did not even have the courtesy to try to answer it.

Why do Conservative Members continue to call for lower wages? Late last night one Conservative Member talked about consumers buying goods, but how can they if they have less and less money in their pockets? Wage cuts and mass unemployment may well help particular firms to undercut competition in a particular industrial sector, but when applied across the economy as a whole such action merely reduces the market. That is one reason why overcapacity has accelerated in recent years.

Another reason is that British capitalism cannot sell the goods that it makes because overseas competitors can produce the same goods more quickly and more cheaply. Factories in this country on average operate at 70 per cent. to 80 per cent. capacity, and in some sectors it is 50 per cent. or lower. Employers and industrialists openly ask why they should bother to invest when they cannot even sell the goods they make at present. Instead they pour their money overseas to the cheap labour economies of South Africa, Korea, Argentina and Brazil. Since the Government lifted exchange controls six or seven years ago, £100,000 million has left this country.

This Government do not care about manufacturing industry. They do not understand that it is the bedrock of wealth creation. Their only aim is profit, and they do not care whether or not it is fictitious, as it certainly is in relation to the casino economics of the stock exchange. This Cabinet represents finance capital. It has won the battle within the Tory party over members such as the right hon. Member for Old Bexley and Sidcup who represents manufacturing industry.

Before the Government came to power and throughout the period of their office—rapidly hastening since 1979 — we have seen the withering of Britain's industrial base. Britain, which was once known as the "workshop of the world" is now laughingly called "the warehouse of the world", given that we are now experiencing rising import penetration in many major industrial and manufacturing sectors. The Government are responsible for turning a £3 billion surplus in manufactured trade in 1980 into a £6 billion deficit in 1985. For the first time since the days of Queen Elizabeth I, more factory-made goods are imported than are exported.

The consequence of that sea change which has led to the devastation of manufacturing industry has been partiularly noted in Coventry over the last 12 months. There have been massive redundancies in the engineering sector. GEC has lost more than 1,000 jobs, and jobs halve also gone in Alvis and Self Changing Gears. We have seen the total collapse of Coventry Climax, and Bretts Stamping, and job losses at Massey Ferguson, Sterling Metals, and Talbot. The knock-on effect of all those redundancies means that in the last 12 months 4,500 jobs have been lost. I have mentioned only the engineering companies, and have said nothing about the service sector companies such as Storers, British Home Stores, Tesco and others, most of which are located in Coventry, South-East.

All we get from the Government is yet another fiddle in the dole statistics. The official Department of Employment dole figure for Coventry, South-East in September this year was 7,154 or 21.7 per cent. of the working population, but an analysis carried out by the Unemployment Unit, which included those who were not counted by the Government, showed the unemployment level to be 8,345 or 25.3 per cent. More than one in four people who wish to work are denied the right to do so.

Even based on the official rigged figures, unemployment in the four wards that I represent ranges from 15 per cent.—itself above the national average—to 39.5 per cent. The highest level of male unemployment in Coventry is in St. Michael's in Coventry, South-East, and stands at 44.7 per cent. If we add the over-60s and people on schemes, more than halt' of the men in that area are without a chance of work.

The official figures say that 7,500 people are unemployed in Coventry, South-East. That costs the Treasury £46 million a year in benefits, lost tax and lost national insurance contributions. That is equivalent to £36 a week for everybody who has a job in the constituency. Is that not insanity? We are paying people to stay at home and not produce goods that working people need.

We have more than 1,000 houses in Coventry which are unfit for human habitation and another 14,000 which need major repairs, modernisation or renovation and yet hundreds, if not thousands, of building workers are paid to stay at home and not repair, renovate or modernise those homes. That is a clear illustration of the archaic and anarchic capitalist economic system, especially under the present Tory Government.

Mr. David Winniek (Walsall, North)

Is my hon. Friend aware that the statistics show that, on average, 25 per cent. of people involved in the building and construction trade are unemployed and have been for some time? Is he further aware that, in my borough, which is not too far from his, no council dwellings have been built since 1979, largely as a result of Government economic policy? Is he aware that, throughout the country, there are hundreds of thousands of people who desperately need accommodation who could not possibly afford a mortgage but who are denied accommodation because of the Government's housing policies?

Mr. Nellist

My hon. Friend is entirely right. Throughout the country, some 6 million people are living in damp houses and 400,000 building workers are unemployed. London Brick is storing enough bricks behind its Bedford factory to build a town the size of Derby. Capitalism under the Tory Government says, "Keep those things separate." Socialism and planning say, "Bring them together so that the needs of working people can be met by people who have the skills and the materials." There is, however, no hope of that happening under the present Government.

What hope do we get in the Queen's Speech? One of the things on offer is privatisation of state assets which, we are told, will "improve economic efficiency". Privatisation is so much of a dogma for the Government and the Prime Minister that if General Galtieri had offered to buy the Falklands the Prime Minister would undoubtedly have sold them.

The Chancellor spoke earlier of extending democracy by share issues. I have a little equation for him to work out when he gets home tonight. In a general election, some 40 million people are on the electoral register and roughly 75 per cent. vote, so 30 million people cast a vote. If you, Mr. Deputy Speaker, or I want to go out and vote in a general election, our votes are worth one in 30 million. If we want to cast our vote regarding how nationalised industries are run, our vote is worth one in 30 million. If you or I—I will not, and I doubt whether you will either, Mr. Deputy Speaker — bought the 100 minimum shares in British Gas, bearing in mind the fact that the Government will sell 4,025,000,000 of those shares, casting our vote in a general meeting of British Gas shareholders would be one vote in more than 40 million. In other words, we would have one third less influence in British Gas after privatisation than in a general election.

Privatisation should be renamed what it really is — piratisation. It is legalised theft. It is stealing assets that are owned by people as a whole. They are being sold below their real value so that, in the main, the Government's rich friends can make a killing. Last week, I took part in a lobby of the House on conductive education, when £500,000 of Government money was being asked for to set up an assessment in Britain of a Hungarian system for teaching brain-damaged children to walk.

In Hungary, the system enables 70 per cent. of kids with Parkinson's disease, spina bifida or other forms of spinal or brain damage to walk and receive a normal state education. We were asking for £500,000 last week, but we have had stone-walling from the Department of Education and Science for the past year of asking. During that same year, the Departments responsible have spent £32 million on television, radio and press advertisements for British Gas alone. If the Financial Secretary to the Treasury sees Sid, he can tell him something from me. I have kids in Coventry who are more deserving of £500,000 of Government largesse than is Sid of the £32 million that has been spent so far on advertising his future.

The Government are so proud of their record on privatisation that they intend to extend it to local government, which was the subject of one day's debate. They also intend to extend it to the Post Office and industrial firms such as Rolls-Royce and Unipart. I warn the Government that, on 26 November, the enormous resentment of Rolls-Royce workers and their families at that action will be felt in a lobby. That company failed in 1971 and the right hon. Member for Old Bexley and Sidcup nationalised it in 24 hours of parliamentary time. There has been hundreds of millions of pounds of public investment, the benefits of which are now to go to the rich parasites on the stock exchange.

When privatisation goes wrong, do we hear the same Tory Members discussing the matter? Certainly not. We did not in the case of Coventry Climax, which was privatised by the Tories in 1981. Not one penny has been paid by the consortium headed by Sir Emmanuel Kaye. When the firm collapsed at the beginning of last month, the Government disclaimed all responsibility. Before privatisation in 1981, there were 3,000 jobs there; 80 per cent. of them have gone in the past five years. There is a haemorrhage of jobs and only 600 or so are left.

Plants have closed. Only the Coventry site is left. Did the Government monitor what was happening so that they could at least say, "Look. Privatisation is working."? No. They disclaimed all responsibility. Even now that the firm has collapsed we have asked the simple question in public at the Dispatch Box and in private in the Secretary of State's conference room: "Why have the Government not monitored privatised firms'? Will they monitor privatisation in future?" "Not interested," was the right hon. Gentleman's reply. If the Government had monitored what was going on, they would have seen the asset-stripping that took place. They might well have wondered, as workers most certainly did, why all of the important drawings of the most successful Coventry Climax models suddenly disappeared two days before the receiver was called in and sent to Coventry Climax's most important competitor — Lansing Bagnall — and returned two or three days later. The workers now face uncertainty and the possibility of the company being split into three or being bought by a competitor to eliminate the competition.

The Government still refuse to consider any realistic solution. Indeed, the only realistic solution for Coventry Climax would have been for the Government to honour the debt that they owe the workers and their families. They said in 1981 that privatisation would work. It has been a conspicuous failure. As with the right hon. Member for Old Bexley and Sidcup and Rolls-Royce in 1971, the Government should renationalise Coventry Climax, compensate the workers who lost their jobs and their families and restore manning levels to the 1981 level. When I raised this issue with the Secretary of State in his conference room on 17 October, all he had to say was that "there appears to be a political gulf between us on this question."

I sat through most of yesterday's debate and I have sat through all of today's. Among the Conservative Members who impressed me most was the right hon. Member for Henley. He was the only one who recognised, at column 481, that the decline of Britain's industrial base is not measured in the lifetime of this Government or of the previous one. Britain's industrial base has been declining relatively for most of this century. If one considers the statistics that matter — the share of the world's manufactured trade which Britain enjoys — they show that relentlessly, regardless of which Government are in power and regardless of policies and economic regimes, there has been a persistent decline in our share of world trade in manufactures." —[Official Report, 18 November 1986; Vol. 105, c. 481.] That is most certainly true.

In 1913, Britain had 30 per cent. of world trade. In 1950, it had 25 per cent. of world trade. In the 14 years of so-called economic boom from 1950 to 1964, it had 14.2 per cent. of world trade. In the next 20 years to 1984, it had 7.6 per cent. of world trade. That was the result of a lack of competitiveness due mainly to lack of investment in manufacturing. There was a failure to modernise and reequip.

What has been done with the money instead? In 1979, £43 billion was invested overseas. Some £122 billion is now invested overseas. So what is the truth? Lord Kearton, in the Lords report on manufacturing industry, said: It is rather like hearing the broadcast on the death of King George V: 'British industry is moving peacefully towards its close'. There are flickers of life now and again, but by and large the slow relentless decline is going on. What are the implications of comments such as that? The right hon. Member for Chesham and Amersham gave them last night when he said: The decline in oil production and the trends in trade in manufactures will ensure, by one route or another, that we enter a nev, era of economic decline possibly combined with renewed inflation … There will he a nasty crisis in the next Parliament and the opposition parties can count themselves lucky that not they but my right hon. Friends will be dealing with it. It will be a difficult and unpleasant task."—[Official Report, 18 November 1986; Vol. 105, c. 500.] I have read one or two of the right hon. Gentleman's books, which have some funny passages in them, but I do not know what he thinks has been pleasant about the past seven years. He may think that the tasks facing whoever takes over will he unpleasant. I happen to have a bit of an idea of what the next five or 10 years will bring. This is why the Queen's Speech and the debate have been so unrealistic and so irrelevant to the real situation facing the British economy. In the next five or 10 years the right hon. Gentleman will see increasing protectionism in the world economy, and increasing trade wars as each state tries to export the surplus that it cannot sell on its domestic market, with everybody trying to protect their own domestic markets from invasion.

In Britain, having abandoned investment, abandoned re-investment in factories of the profits that have been made by working people, the employers and industrialists will be left with only further and further cuts in wages and conditions if they are to enhance their profit levels. To do that, they require, in the words of the chairman of the Tory party, the neutering of the trade union movement— the emasculation of the rights of working people to defend themselves against such attacks. That is why the Government have passed three anti-trade union laws in the past six years. That is why firms such as BTR have sacked 300 workers in Hangers, as has Tom Clarke the boss of Silentnight. It also accounts for the actions taken against the workers at Wapping and in the pits. I do not believe that massive unemployment and poverty can be resolved by the Chancellor's elastoplast policies for manufacturing industry, particularly given the enormous economic chasm that will open in the next 12 or 18 months. That will require a genuine and thorough transformation of society on Socialist lines. Central to that transformation will be putting the control of the economy into the hands of working people, not rich speculators, and for that, we shall need a Socialist Labour Government.

Several Don. Members


Mr. Deputy Speaker (Sir Paul Dean)

Order. I repeat Mr. Speaker's appeal for brevity. Many right hon. and hon. Members wish to speak, and unless speeches are much shorter, some hon. Members will be disappointed.

7.11 pm
Mr. Francis Pym (Cambridgeshire, South-East)

With due respect, Mr. Deputy Speaker, I do not think that Mr. Speaker made such an appeal. I may be wrong about that, but I naturally appreciate the point that you made.

The speculation that we have suffered lately about the likelihood of an early election was certainly fanned by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), who led the debate for the Opposition. It was continued by the right hon. Member for Plymouth, Devonport (Dr. Owen), and my right hon. Friend the Chancellor himself, to some extent, contributed to it. If the hon. Member for Coventry, South-East (Mr. Nellist) thought that he fanned the speculation, I have to tell him that I do not think that he succeeded. It would be quite unnecessary and most unwise to hold an early election. I do not believe that my right hon. Friend the Prime Minister would take any such decision, as my right hon. Friend the Member for Stamford and Spalding (Sir K. Lewis) confirmed. It is better to assume that this Parliament will continue into 1988. Meanwhile, we must get on with the work that needs to be done.

In recent months, the Government have taken some very welcome policy decisions.. Their self-designed straitjacket of monetarism has been abandoned. The excessive rigidities of public expenditure have been eased. The need to spend more on some programmes has been recognised, and the Government's fiscal stance is now less deflationary. The description of these sensible changes is a matter of taste or vocabulary. The point is that they have happened and they represent a welcome change.

For a few years, education has been a source of worry to the nation. Now, a new initiative, for which some of us have been calling for some time, is being taken. Obviously, there is a long way to go and there are many problems, some of which were mentioned by the former Prime Ministers who spoke in this debate. A start has been made. That is what I welcome. It is the same story with health matters and, to some extent, with housing and criminal justice. The electorate has been anxious about them, and new initiatives are now in place.

I am one of those who would have liked to see the changes much earlier. In future, they will have to be taken much further than they have been already, but at least we have them now. Meanwhile, and throughout this Parliament, we have seen the continuing success of privatisation and the spread of ownership and capitalism, with all the benefits that they will bring to individuals. We have seen the curtailing of excessive union power and the reduction of inflation. In all these ways, and in other ways, the Government have vanquished many of the ogres of the 1970s. They have done what they were elected to do, and they certainly deserve the support of the nation. For the future, that support will depend quite heavily on how we address the problems that face our country today.

Those problems are formidable. Whatever view we take of the gloomiest forecasts referred to in the debate, or of the analysis by the former Prime Minister, the right hon. Member for Cardiff, South (Mr. Callaghan), some of those problems, such as how to reduce unemployment and improve industrial competitiveness, are familiar ones for which solutions have not been found. Other problems are newer and have yet to emerge fully. They include coping with technological change—which is, of course, a huge social change — and healing social divisions. I find Opposition Members remarkably devoid of constructive thought on these issues. The right hon. Member for Sparkbrook made no positive contribution towards solving the problems.

If we strip away all the arguments about the past, stop debating whether monetarism has relieved or exacerbated our problems, and stand further from the trees to look at the wood, we might see more clearly how things stand. We see a startling contrast. On the one hand, there have been five years of economic growth and, recently, a return to growth in manufacturing industry, although it has still not reached previous levels. The majority of the population have seen their living standards rise year by year, and most people are better off than ever before. On the other hand, well over 3 million are out of work. Unemployment, although marginally down in recent months—which is obviously extremely welcome — is still high and could rise again. The number of long-term unemployed is huge, and their living standards have fallen. Many exist at barely subsistence levels. Large areas of the country have experienced no growth whatever during the recent recovery. Individual responses to this situation differ vastly. We all suffer from inflation, and everyone responds to it in the same way, but unemployment provokes an unequal response. If one is amongst the 3.25 million unemployed, the rosy part of the picture is a mirage. If one is not among that number, and especially if one lives in the south-east, there is nothing to complain about.

Looking objectively at unemployment, there are two comments to make on this overall situation. The first is that it is unacceptable, and the second is that it will not change easily or be made to change easily. Anyone who thinks that a major reduction in unemployment is just around the corner should pause to consider some of the facts. First, they should consider the regions. The regions in which unemployment is highest have not witnessed any recovery — rather the reverse. Manufacturing employment is still falling. The scope for employment in new service industries barely exists.

I have urged my right hon. Friends to take a much more regionally oriented approach to the future, and I do so again today. There will always be an imbalance between the regions. The circumstances and needs of each are different and need different treatment. The mismatch of resources between regions, especially between north and south, is huge, yet there is no policy in place to correct it. Cambridgeshire, my constituency, is at one end of the scale and is the fastest-growing county. There is, as there has been for many years, enormous pressure for development there. As a nation, we must take advantage of the opportunities and consider what the pressures imply.

The possibility of development in Cambridgeshire is part of our prosperity in the 21st century, but to take full advantage of it effectively, we must look at development for the whole of the East Anglian region. At present, each county—Cambridgeshire, Essex, Suffolk—is looking at its development in isolation, but there needs to be regional context that fits into a national context. That is the sort of context which this Government completely resist. However, they are mistaken. If developing the possibilities for the future prosperity of the next generation matters, which it does, we must take full advantage of this.

At the other end of the scale, in areas such as Teesside or Liverpool, there are massive unused resources, and some of them will probably not be capable of use again. But many will be, especially the people. We need a regional approach that will start to bring those huge divergencies more into balance. I am here concerned with the mobility of labour, the price of property and the availability of housing. None of them is receiving adequate—or, as far as I know, any— attention at present. It will be a long process, and I want to see a start being made on it. It would certainly contribute to bringing hope to the declining regions.

The second fact to consider involves the implications of rising productivity. For example, British Steel now produces more steel than in 1979 with half the work force, and British Leyland now produces three times as many cars per employee as in 1979. Both of those examples show how deep-seated the British malaise has been. Such improvements in productivity are imperative for the future prosperity of the country. Without them, our industrial position will deteriorate. Yet those same improvements are bound to lead to job losses. There is no escaping that conclusion. Only growth can create job replacements.

We must face the fact that, at least in the short term, the very steps needed to make our economy stronger will at the same time make unemployment worse. My approach to that dichotomy is based on two convictions. First, if jobs have to be lost in order for the country to prosper, those who lose them have as much right to share in the resulting prosperity as those who continue to work. Their contribution has been just as great, and from some points of view, greater. Secondly, nobody will prosper if, in a desire to be fair, we end up confusing economic and social aims. The Labour party, for all its genuine concern about unemployment — it certainly is genuine — has consistently confused those two aims, and still does so.

The previous Labour Government introduced a national insurance surcharge when our competitiveness was already crippled by inflation. That was utterly unhelpful to our economy. The Labour party has fought almost every redundancy caused by improved efficiency or new technology, and now advocates a levy on turnover — or does it? — and a national minimum wage which would take no account of economic conditions or of companies' circumstances. Its motives are honourable, but the means chosen have been quite inappropriate.

The Labour party has pursued social objectives by methods that are detrimental to economic objectives. Increased employment and rising living standards cannot be achieved by adding to industrial costs, by rejecting new technology, or by prescribing low productivity. Consequently, we must recognise that the social and economic objectives are separate. They should be pursued separately, but equally. The principal economic objective is to assist the constant expansion of industry. The principle social objective, of course, is to ensure a free, united and harmonious nation. However, in this debate I shall not dwell on that.

On the economic side, the main requirements are the reduction of industrial costs, the control of inflation, an increase in long-term investment, especially in new technology, and a stable political environment. I put the reduction of costs first, because competitiveness is crucial. When my right hon. Friend the Chancellor considers his Budget. I hope that he will abolish altogether employers' national insurance contributions. He made a start last year. Those insurance contributions are a social tax on industry, and bear directly on industrial costs. My right hon. Friend has abolished the surcharge, which should never have been put in place, and exactly the same arguments apply to the basic contributions.

The most difficult area from the costs point of view involves incomes. My right hon. Friend the Chancellor of the Exchequer constantly complains about excessive pay increases, which implies that he recognises the need for some form of effective incomes control. Incidentally, that was one of the functions that monetarism was supposed to perform, hut, as we know, it has not done so. We also know that all previous incomes policies have been unsatisfactory. The absence of any policy — which is what we have today—is no better. The Government prefer no policy in that area, but that is not producing results. As a consequence, our competitiveness is deteriorating. Yet the Government are not addressing that problem.

We should be searching hard for solutions to the incomes problem, just as we are searching hard for solutions to the rates problem. They should be widely debated by the nation. We should also be seeking to reduce interest rates and to stabilise the international value of sterling. Its present level is somewhere near right, but the enormous fluctuations of recent years have damaged our overseas trade. There is no doubt about that. Some deals facing businesses have almost been a gamble because of the uncertainties over the exchange rate. Anything that damages our overseas trade must be tackled most vigorously.

The real need is for much better international coordination for the benefit of the world economy and world trade. I acknowledge, of course, that that is' extremely difficult to achieve. However, our efforts should be unremitting and unrelenting. In so far as it would make a contribution—and I believe that it would—the case for joining the European monetary system is now overwhelming.

Once again, I urge my right hon. Friend the Chancellor to pursue the integration of social security benefits and tax. That is the way to end the poverty trap and to restore incentives to work. I do not know of any other way of doing that, other than integration and the basic incomes proposal. However, I shall not detain the House with that tonight. I am convinced that a major change is essential, and I should like to think that it will be a central feature of the next Parliament. In this area, I should say that the Government like to think that they are radical, but they are nothing like radical enough.

I shall conclude by mentioning two words that have acquired an absurd significance for the Government, consequently limiting their scope for action: intervention and consensus. The Government have given both those words definitions that reflect our worst experiences since the war, which nobody would want to see repeated. As a result of their definitions, they have set their faces against any or all intervention, and against the civilised process of trying to secure the widest possible measure of public consent for their actions. I do not want the Government to be intrusive or to interfere in business or with the market, let alone operate businesses. The Government are rightly getting rid of the businesses that they inherited in 1979 as quickly as possible. But I want them to take a positively supportive role, especially in relation to overseas trade.

The governments of other countries are closely involved with their industries, and often subsidise them. The world market is not a free market. Our Government must enable our producers and industries to compete on equal terms. There is an essential role for them which they are reluctant to play in case they are accused of intervention. What nonsense! If they had acted in that way, in a proper partnership with industry, we might, for example, have secured the £1 billion order from the Pentagon, which in the end went to France. So I hope that my right hon. Friends will cast aside their self-imposed prejudices — their own Humpty-Dumpty-like definition of these words, and think again about their role in support of industry.

As many hon. Members want to speak in the debate, I have simply outlined this afternoon a few of the ideas which I think should inform our approach to the challenges that we face in future. There are many others to which I should have liked to refer if there had been more time. In conclusion, I wish the Government every success in this enormous task and the enormous responsibilities that they face.

7.30 pm
Mr. A. E. P. Duffy (Sheffield, Attercliffe)

I wish to echo the call of the right hon. Member for Cambridgeshire, South-East (Mr. Pym) to the Chancellor for a regional approach to his economic management. However, before I do that, I cannot resist the observation that, in the debate so far, there has been little comfort for the Chancellor. Indeed, the impression has come across strongly in most of the speeches, that for all the Chancellor's repeated proclamations of his attachment to the medium-term financial strategy, he will still need a lot of luck in its fulfilment.

The Chancellor's forecast of 3 per cent. growth with inflation staying under 4 per cent. is similar to that of the London Business School. However, the LBS has pointed out that that outcome depends on a rapid response from manufacturing industry to the recent fall in the exchange rate. In his powerful speech, my right hon. Friend the Member for Cardiff, South and Penarth (Mr. Callaghan) stressed how serious is the shrunken industrial base of our economy. Given what has happened to manufacturing over just the past six years—as my right hon. Friend explained—can British producers fairly be expected to cope? Manufacturing investment has risen fast in recent years in countries—again as we heard from my right hon. Friend and from the right hon. Member for Old Bexley and Sidcup (Mr. Heath)—such as West Germany and Japan, but not in this country. That is reflected in the import-export balance of the economy. We note that the volume of exports of manufactures has been running recently at about 13 per cent. above the 1980 levels, whereas the volume of imports is no less than 51 per cent. higher.

The longer view of manufacturing reveals that output as a whole has recently been running at no more than 3 per cent. above the 1980 level. We find the reasons for that in the catastrophic change in all the great and traditionally important manufacturing areas of south Wales, the north of England and Scotland. I hope that the House will bear with me if I confine my attention to one of these traditionally important manufacturing centres—Sheffield and the county of south Yorkshire.

Like my right hon. Friend the Member for Cardiff, South and Penarth, I will make my assessment on the basis of what has happened during the past six years, during the tenure of this Government. That is where I would like to place the burden of my speech. It is necessary to remind the House that the British economy has experienced substantial change over the past two decades. In particular. 2.5 million manufacturing jobs have gone while there has been an increase of 2.25 million service jobs. The increase in the labour force over the same period has therefore meant a tenfold rise in unemployment levels.

Unemployment within Yorkshire and Humberside has risen faster than the national average in almost every sector. Indeed, right across the Yorkshire and Humberside region, growth prospects are bleak. In 1981 there were approximately 26,000 jobs in the Sheffield travel-to-work area. More than half now come from producer or consumer service industries. By contrast, the manufacturing and extraction industries—once the major source of employment in Sheffield — have declined to no more than one third of all jobs. Sheffield's decline in manufacturing employment has so far outstripped the decline in manufacturing employment nationally. Sheffield lost more jobs in the 1970s than the rest of Britain. The unemployment rate in Sheffield overtook the national rate in 1981 and since 1982, unemployment rates in Sheffield have continued to remain well above the national rate.

Over the past two years, many companies in Sheffield have reported improved turnover and profit and, to some extent, have recovered from the recession. Many have recently invested in new plant and equipment but very few have significantly increased employment levels. By contrast, there has been the major closure of the British Steel Corporation Tinsley Park works in my constituency just a year ago with the loss of 1,100 jobs. There has been a massive rationalisation at Sheffield Forgemasters next door to my constituency with the loss of 1,000 jobs over the past two years. These losses have overshadowed the improved performance of some of the smaller companies.

Nationally, very few manufacturing sectors have shown employment growth in recent years. The most notable has been electronics. More generally there have been significant developments in the technology industries. Set against these however, must be such forecasts as that produced by the university of Warwick institute for employment research, which predicts a fall in manufacturing employment of 400,000 over the next five years.

Sheffield's east end remains an important location in manufacturing employment, but the future of many jobs in the lower Don valley is tied into the decisons of industries using domestic products such as motor vehicles and power generation. Government policy and, in particular, public expenditure decisions are crucial. It is apparent that the resources required for any meaningful development of the Don valley are beyond the capacity of Sheffield city council or any of the neighbouring authorities such as Barnsley, Doncaster or Rotherham. That is why these local authorities are coming together in an integrated operations programme which is focused on the county of south Yorkshire, which is still one of Britain's most important industrial areas. More than 1.25 million people live in the county, largely in the urban centres of Barnsley, Doncaster, Rotherham, Sheffield and the Dearne towns around Mexborough. South Yorkshire as a whole, and not merely Sheffield, has been especially hard-hit by the recession due to its dependence on such industrial sectors as coal, steel and heavy engineering. As recently as 1981, mining accounted for 53,400 jobs or 10.6 per cent. of employment in south Yorkshire; metal manufacture and metal goods accounted for 67,600 jobs or 13.4 per cent. of employment and engineering, and vehicles for 37,200 jobs or 7.5 per cent. of employment. Widespread plant closures and other rationalisation measures under this Government have led to dramatic and continuing rises in unemployment. Many of the larger companies are now on a firmer financial footing and are showing signs of recovery but this has had no impact on the overall level of unemployment.

Unemployment problems have been compounded by the increased levels of coalmining closures and redundancies over the past 18 months. As a matter of fact, the decline of the coal, steel and engineering industries has caused major unemployment problems in south Yorkshire. In July this year, 107,310 persons were registered for unemployment benefit at an unemployment rate of 19 per cent. That compared with a regional rate of 13.8 per cent. and a United Kingdom rate of 11.9 per cent. That entirely bears out what the right hon. Member for Cambridgeshire, South-East said in his regional comparisons.

Before the decline of metal manufacturing, metal goods and engineering sectors in the early 1980s, unemployment in Sheffield was below the national average. The subsequent sharp increase in unemployment has pushed the unemployment rate well above the national and regional averages and by July this year 16.9 per cent. of the work force, or 48,423 people, were unemployed.

For many people in south Yorkshire unemployment is no longer a short-term experience. In July this year 45,684 or 42.6 per cent. of those unemployed had been out of work for more than a year. Even more worrying, 29,154 or 27.2 per cent. of those unemployed in the country had been out of work for more than two years. Today, for the third year out of four, the Chancellor forecast a decline in unemployment, but a growth of 3 per cent. or so in GDP after an average of only 1.25 per cent. per year since 1979 is unlikely to do more than arrest the upward trend. The Chancellor's mini-Budget has brought us no nearer a policy for employment in south Yorkshire, as opposed to employment figures, than we were before.

Where recruitment has picked up following the recession, many south Yorkshire firms are reporting skill shortages due to the lack of apprentice training during the recession. Here my comments bear out those of the right hon. Member for Old Bexley and Sidcup. In a recent survey by the Engineering Employers Sheffield Association, 15 per cent. of companies forecast shortages in basic trades such as milling, turning and grinding.

How can the Chancellor assist? He can make a start by providing for Treasury approval of customs clearance to allow the location of an international freight transshipment terminal in south Yorkshire following completion of the Channel tunnel. In the view of Sheffield city council and the Sheffield chamber of commerce, the rail marshalling yard at Tinsley in my constituency would be a choice location.

The Chancellor is also the key to successful implementation of the south Yorkshire integrated operation programme, a remarkable demonstration of self-help and Yorkshire grit intended to pull together a series of private and public actions and investments in south Yorkshire for economic recovery. The programme will seek to expand the number and range of job opportunities, to increase skills in the work force, to develop community enterprise, to mitigate the effects of unemployment, to improve the environment and to lay the foundations for the renewal of growth in the local economy and thus to reduce the disparity between south Yorkshire and more prosperous areas in the south of England. Where appropriate, the programme will draw on financial interventions from the European Community. It will also look to Whitehall for assistance, for example, through the urban programme and urban aid, the derelict land grant, enterprise zones and general and sectoral assistance available from the Department of Trade and Industry. It will also look to the resources of local authorities and public bodies, the private and the voluntary sector.

I think that the House will follow my final plea when I say that only a sympathetic Chancellor who is really interested and who monitors the progress of this exercise in self help up there in Yorkshire can assure a sustained programme, integrated by the combined use of financial instruments and focusing on key problems and opportunities throughout south Yorkshire. My challenge to the Chancellor, therefore, is to join those public and private bodies in south Yorkshire to help regain confidence in an area which has been traumatised through structural economic change. In so doing, the Chancellor will also be helping himself by restoring the manufacturing base of our economy and paving the way for a breakout from seven years' stagnation in the volume of manufacturing output in this country.

7.44 pm
Sir Brandon Rhys Williams (Kensington)

I welcome the Queens Speech and especially the promise to implement the recommendations of the Nugee report, which is so important for Kensington and all the constituencies in which large numbers of people live in flats in private ownership. For us, legislation cannot come too soon.

The Opposition amendment today returns to the same theme as yesterday in reference to employment and the functioning of the economy; but again it suggests no practical remedies. It is easy to describe the problems, but the electorate is now entitled to ask for concrete solutions. The Opposition have again produced no realistic recommendations. I shall make some specific recommendations of my own.

I hope to have time to consider three aspects of the economy—the size of the effective domestic market, the efficiency of operation of our institutions and the incentives to work and to save. I think that we all agree that free enterprise in Britain is not yet doing as well as we should like; and we should ask ourselves why.

With regard to the effective domestic market, we have allowed the sterling area to disintegrate but we have not attached ourselves to the dollar and I do not think that it would be possible to go into the yen area. We have been in the Common Market since 1973, but we are still not fully exploiting the opportunities that it offers. The Government have shown courage and foresight in accepting the European Single Act and supporting the programme for the completion of the internal market. The target year of 1992 set by Jacques Delors for the completion of the internal market is not impossibly soon. We owe a great deal to the enthusiasm of Lord Cockfield in Brussels and Basil de Ferranti in Strasbourg for making it a realisable possibility.

When I was in Strasbourg in 1981, I was appointed rapporteur for the integration of the European market for capital, which was then regarded as a hopelessly remote and virtually unattainable objective. Indeed, people told me that it was quixotic and unrealistic of me to take on the rapporteurship. However, in Brussels this week my right hon. Friend the Chancellor has won the support of the Council of Ministers for measures to make the integration of the European market for capital a reality well before the Commission's target date.

We are thus making some progress in giving British businessmen and manufacturers an effective domestic market large enough for free enterprise to function efficiently; but the currency frontiers still remain. Europe is still repeating the mistakes of the 1930s. It is unrealistic to hope that over time we shall be able to compete with businesses and industries which are able to operate in the enormous single currency zones associated with Tokyo and New York, while the European Community has no monetary centre and the Common Market operates as a multi-currency area.

This leads me into the controversy about the possible inclusion of sterling in the exchange rate mechanism of the European monetary system. I hope that I shall not shock my colleagues if I do not share their enthusiasm for joining the mechanism immediately. No one could be keener than I am to achieve monetary integration in Europe as quickly as possible; but I have never recommended joining the EMS as it stands. As I have said in the House before, we would run the risk of creating a monetary solar system with two suns moving eccentrically. London and Frankfurt are not yet sufficiently closely integrated for us to make a success of joining the EMS as it stands. My right hon. Friend the Prime Minister is therefore right to be cautious.

We should join the exchange rate system only when we have recognised what it will mean and have made a conscious decision to accept the substantial consequences. To announce that exchange rates will be stabilised first and to grapple with the consequences afterwards might well be disastrous and I am not convinced that it would achieve the results that British business and industry yearn for. It might well lead to higher rather than lower interest rates and a return to the overvaluation of the pound, which has been the main inhibiting factor holding our economy back from the achievement of really profitable participation in the Common Market ever since we joined.

Lasting currency stability means much closer cooperation. Indeed, it means the full integration of policy between the central banks in regard to capital market conditions, between Finance and Trade Ministers in the national Governments and between the stock exchanges and financial institutions in all the main business centres. I am sure that we must prepare to accept all those things, but we are still very far from doing so.

A single currency zone in Europe might be achieved by an act of political will as it was in Switzerland, Germany, Italy and indeed in Britain in the past; or it might be done simply by the pressure of events. I hope that the British Government will rely on both. As more and more people take advantage of the options which are opening up in the newly liberated European capital markets, they may prefer not to use their national currencies but to carry on their transactions in an alternative currency in the same way as they were able to do before 1914. I believe that that would be a fruitful development for western Europe.

Before the first world war, the gold standard was generally accepted as the foundation of the national credit and currency systems. The British Government should now be working to restore the benefits of the gold standard to Europe without its disadvantages. We need a single European currency as a measure and store of value universally accepted throughout the community. To achieve that result we have to contemplate the amalgamation of the reserves of the central banks, a single real rate of interest underlying the currencies throughout the system and the close integration of the national systems of taxation. I believe that we know in our hearts what has to be done to make private enterprise a real success. The question is, have we the will?

I should like to deal now with the efficiency of British business and administrative institutions. I have said many times in the House that minor changes in company law could strengthen the supervision and functioning of many of our public companies and improve the quality of management. The Government should also now commit themselves to a policy of extreme simplification of public administration —for its own sake, and to provide a better service, especially in the various stages of the redistribution of income. We have to admit that large areas of British public administration are grossly overmanned and crassly inefficient. That is because Parliament is not giving the necessary leads towards reform.

On the tax side we need armies of collectors because our tax systems are so antiquated and complex. Tens of thousands of people are needed in the Inland Revenue and hundreds of thousands of man-hours are wasted by employers, professional advisers and private citizens to meet their obligations as part-time tax collectors and to lighten their own tax burdens. All their efforts produce nothing of any value.

To operate our various antiquated and inadequate systems of income support, huge efforts are expended in unnecessary personal casework. We have learnt from parliamentary answers that the staff of the Department of Health and Social Security are required to make more than 90 million manual entries every week in the administration of national insurance and supplementary benefit. We have also learnt that there are now 14 million people relying wholly or partly on means-tested benefits.

The free enterprise economy functions because the citizens have confidence that it is worth while to work and save. However, the reliance of successive Governments on the means test to support family incomes—now politely called selectivity — is producing an unhealthy phenomenon. This is the emergence of a sub-culture of millions of people who are coming to rely on means-tested benefits rather than their own energies, skills and initiative. There is ample room for drastic savings of effort to lighten the dead weight we are imposing on our own economy by our obsolete methods.

That brings me to the question of incentives to work and save. It is recognised that many British citizens have little motive, if any, for working or saving. That is the result of relying on the means test as the measure of eligibility for benefit. How do we tackle these well-known problems? I should like to make four specific recommendations.

First, we should look at the effective marginal rates of tax at the different levels of the income ranges. I welcome the Government's commitment to lower taxation. Obviously, that is a long-term policy which has to be right for free enterprise and the running of the economy. For the health of the economy, we should now be looking to relieve the pressures at the top and the bottom of the scale, rather than in the middle. In the middle ranges, the marginal tax on earned income is now 38 per cent. and on investment income it is 29 per cent. For the benefit of incentives as well as the enormous administrative advantages, I recommend, as I have done before, that we should now proceed to end higher rate tax altogether. At least it should be no higher than the generally applicable rate for earned income, that is about 40 per cent. I was a little dismayed that my right hon. Friend the Prime Minister, in her interview given to the Financial Times, was not quite as ambitious and courageous as I would like in regard to the reduction of higher rate tax.

Secondly, for hundreds of thousands of people with families, the most cost-effective way to restore incentives to work is to raise child benefit. To increase the allowance for every child requires a big movement of purchasing power. Therefore, I suggest that we should start with children under five; after five, families begin to get the support of the school system. If revenue is buoyant at Budget time, I suggest that we should raise child benefit for the under-fives to £12 a week. The cost would not be as large as it might at first appear, because so many of the children are already receiving substantial support because their families are obliged to apply for supplementary benefit.

Thirdly, we should put income tax on a strictly personal, unisex basis. It is wrong that women and men should be treated differently under our income tax system. Women who are widows, divorced, co-habitees, single women or mothers in single-parent families should all be treated the same, and treated the same as men. It is not sufficient to tinker with ideas of transferable allowances. We must go forward at once to a single unisex income tax system.

Fourthly, we should now start the first phase of the full integration of the tax and benefit systems. I welcome the support which my long-standing campaign is now receiving from both sides of the House. A tax credit scheme, or a basic income guarantee, need not be prohibitively expensive. It could be introduced on a revenue-neutral basis. I am perfectly willing to recommend that it should. Suppose we ended tax allowances and instead introduced a basic income system at about half the present rate of supplementary benefit: we would give millions of people the choice to apply either for the balance of their entitlement on present terms, or go out into the economy and make the best of their opportunities with the full benefit of their tax credits, even on low wages. I cannot estimate how many people would seek to take advantage of the option to remain free of the means test on those terms, but I think that it might amount to a large number. Every one of them would represent a saving to the Exchequer and a gain to the economy.

If the free enterprise system is to work as fruitfully in Britain in the future as it did in the past, we must throw off the burdens we have imposed on ourselves through prejudice, inefficiency and our obsolete conventions.

7.59 pm
Mr. Stan Thorne (Preston)

Looking round the Chamber. I wonder whether the fact that only two Labour Members are in attendance reflects the fact that our contribution to the debate is almost worthless because, when a vote takes place, we will lost whatever contribution we have made. There are nine Conservative Members present. No doubt that is dictated by a complacency born of the fact that they are undoubtedly going to win the vote. It makes me look at what I have to say and wonder whether it is worth while.

The hon. Member for Kensington (Sir B. Rhys Williams) referred to motive. Any Queen's Speech should contain the motivations that should exist in our society. Inevitably, an economic debate, and a debate on employment and industry such as we had yesterday, provide the basis for considerable overlap. I am concerned to put a point of view that our motivation in society should be simply to meet people's needs. I represent a constituency with a major housing shortage, which is not unusual. Many people there live in houses that are in need of radical repair. Many are short of housing accommodation. Meeting such need seems to me to be an absolute priority.

The needs that most people have are in education, the need for a reasonable standard of living, in health and social services, freedom from want and so on. Manufacturing is vital—it may be said that I am stating the obvious—to meet those needs. Since 1979, as has been said by previous speakers, manufacturing has fallen markedly. We have had a 30 per cent. increase in manufactured imports. Capital is flowing out of Britain. From 1980 to 1986, £97,000 million has flowed out of Britain, at a time when there has been a 59 per cent. fall in the construction of houses, to take the example of housing. How can we talk about morality in our society when we are prepared to allow such an outflow of capital while people are desperately in need of housing, to mention only one example?

We have had a 30 per cent. increase in defence expenditure. In education, there has been a fall in expenditure, in real terms. The figures show that there have been major increases in health and social security expenditure, but massive poverty has been created over the past seven years. The oil revenues have been largely frittered away on unemployment and supplementary benefits. One is forced to ask how and why there is that continuous economic crisis. The basic, fundamental reason is that the motivation, the causation, is production for profit, not production for use. That determines the nature of the decisions that are made and who makes them— the multinationals, the corporations, the conglomerates, those who determine what profit margins are acceptable, or unacceptable, and what needs to be done in that regard. Those decisions are not about people's needs and how to meet them.

The investment criterion—private money, of course—is what is profitable for shareholders, not what needs must be met for our people and those in less fortunate parts of the world. Inevitably, the question emerges: who owns? This is where power resides. On both sides of the House, the debate has mostly been about the management of capitalism. Perhaps that is inevitable, given the present circumstances. Social ownership has a major contribution to make, and the sooner the better. I recall the words of John Ball in 1348, who paid with his life in consequence. He said that things in Britain will not be right until all things are held common.

The Government will never work towards that end, but the next Labour Government must begin that process if the next century is to see the real social change and h man progress that we need.

8.6 pm

Mr. Terence Higgins (Worthing)

There have been some unusual contributions to the debate, I think because it started in a phoney pre-election fever, which seemed to permeate several contributions. It may also be because very recently we had another economic debate. Perhaps this one follows too closely upon that one's heels.

None the less, there have been several comments on the autumn statement. I hope that we can comment on a later occasion. When the Select Committee on the Treasury and Civil Service has had an opportunity to analyse the statement and take evidence from the Chancellor, as we hope to do tomorrow, we shall have a better basis for a more thorough analysis of what is in the statement.

I do not want to discuss the statement, but I should like to pick up certain aspects of the Queen's Speech that I welcome enthusiastically, and comment on them. One passage reads: My Government will make vigorous efforts to combat international terrorism and trafficking in drugs. The problem of drug abuse is the most important and dangerous social problem that we shall face in the coming decade. Therefore, I welcome what is said in the Queen's Speech but I stress to my right hon. Friend the Chancellor the need to increase resources. The machinery for ministerial co-operation on the issue, covering as it must the Home Office, the Treasury, the Department of Health and Social Security, the Department of Education and Science and other Departments such as Customs and Excise, has been well organised, but the fact is that the tremendous profits that are being made out of the human misery that results from drug trafficking are giving those engaged in it resources that are enormous —so enormous that they may well be much greater than those that the Government themselves are putting in to combat it. That being so, we must bear that in mind when considering the operation that we have to mount if we are to win the battle, which will do more to reduce human misery than anything else I can think of.

Therefore, I commend that passage of the speech to my right hon. Friend the Chancellor. We also need to monitor carefully how successful we are being in eliminating the importation of drugs. It is difficult to estimate. Constantly, the Customs and Excise or the police manage to stop the importation of drugs, but we do not know how much that is, in relation to the total amount that is being imported or produced. In that context, it is important to monitor what is happening to the street price of the various narcotics as a sign, as demand for the drugs is not going down, whether we are really succeeding in the battle.

Another passage in the Queen's Speech reads: My Government's firm monetary and fiscal policies will continue to restrain inflation and foster the conditions necessary for further sustained economic growth. That immediately raises the question of precisely what the Government's monetary and fiscal policies are. We must all recognise that there have been substantial changes in those policies since 1979. Reference has already been made to the various monetary indicators which have been emphasised, or not emphasised, in the course of the evolution of Government policy.

Indeed, some years ago now, the Treasury and Civil Service Select Committee pointed out that there had been no true monetarist experiment. That is still the case. We have not had the kind of monetarist experiment envisaged by Professor Milton Friedman. But, clearly, my right hon. Friend the Chancellor is now adopting a far more pragmatic approach than was previously the case. I wonder whether the time has come for us to reappraise the basis of economic policy, because we need an analytical basis for what the Government are doing. At the moment, that is far from clear.

Lord Keynes, an unfashionable author nowadays, in the most famous economic quotation of all in the closing passages of "The General Theory", pointed out the extent to which the views of what he described as "defunct economists" had an influence on policy. He went on to say that he did not think that anyone was able to absorb those ideas after 25 or 30 years of age. That was a rather depressing attitude to take. However, we need to look at the analytical framework.

This autumn my right hon. Friend has, for the first time, published a view of what the PSBR should be in the spring—something which he has not previously done. However, I have increasing doubts about whether the PSBR, which is perhaps the only constant in the various variables which the Chancellor and his predecessor have discussed, is the right indicator for us to take into account. Clearly, although it has the advantage of familiarity, and there is a clear link before it and the monetary indicator, sterling M3, none the less it is seriously distorted by asset sales, although one can make adjustment for that, and it does not distinguish between the extent to which changes in Government borrowing have been due to deliberate action on the Government's part on the one hand or to non-discretionary changes on the other. Nor does it take into account the effect of inflation on the Government's real liabilities.

I come more and more to the view that there is a strong case for looking at the real net financial debt rather than the PSBR as an indicator of fiscal stance, and, indeed, to extend beyond that so that we pay more attention to what is happening to the Government's balance sheet. Strangely enough, while ever since the war we have had figures for national income and expenditure, we have not had a satisfactory series of balance sheets. I believe seriously that my right hon. Friend the Chancellor should consider producing those on an annual basis.

It is strange that we treat economic growth as the equivalent of a company's turnover, whereas what is happening to the company's net worth is a much better indication of the overall position. At the moment we have no regular series of economic indicators showing what is happening to the Government or the country's net worth. Therefore, I hope that we can make some developments there. I suspect that that could provide a better framework for the operation of economic policy than we have at present.

I want to refer to two other passages in the Gracious Speech. The first relates to the exchange rate, and so on. I followed with interest the exchange between the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) and my right hon. Friend the Chancellor. I believe that we will go through a difficult period financially because, as the general election approaches—it may come soon or it may come later—there will be growing downward pressure on the sterling exchange rate because of fear of the consequences of a possible Labour victory, or, indeed, even more so, the consequences of a hung Parliament. I do not believe for one moment that either of those things will come to pass, but, none the less, there may well be those who do. Faced with the prospect of the kind of economic policies which are held up to us by those on the Opposition Benches, that is bound to have a serious effect on confidence and, in turn, on the sterling exchange rate.

My right hon. Friend the Chancellor has said that he would not wish to see the exchange rate any lower. We shall need to consider tomorrow exactly what that interesting statement means. But at all events, the possibility to which I have referred, or the concern about the possibility to which I have referred, against the background of my right hon. Friend's statement, will increasingly put pressure on interest rates in an upward direction.

Therefore, I come, like many of those who have spoken today, to believe that this may well be the appropriate time for us to join the exchange rate mechanism of the European monetary system. That would provide a framework within which the pressures that I have just mentioned could perhaps be more easily resisted.

We have seen a substantial alterations in relative parities. In simple terms, if one believes that one basically buys imports in terms of dollars and sells exports in terms of deutschmarks, the change which we have seen since the Treasury and Civil Service Select Committee last took a rather balanced view as to whether we should or should not join the exchange rate mechanism, has radically changed. We have seen a substantial depreciation in relation to the deutschmark, which now makes us much more competitive.

That raises another point which is worth considering. A number of commentators have considered that problems are coming on the balance of payments side. They may well under-estimate the extent to which the depreciation that we have seen against the deutschmark will, given the well-known J-curve effect, result in some improvement in our export performance—although, for reasons I have mentioned, because we have not changed significantly in relation to the dollar, it may not significantly alter the situation with regard to imports.

Finally, I want to refer to the passage in the Gracious Speech relating to work within the European Community: My Government will … work to promote enterprise and employment; to remove barriers to internal trade; … and for continuing reform of the Common Agricultural Policy. That is an area in which the Government must take a much tougher line than they have taken so far.

The right hon. Member for Cardiff, South and Penarth (Mr. Callaghan), the former Labour Prime Minister, referred to the need to repatriate the common agricultural policy. I think that he really meant repatriate agricultural policy. But at all events, I am not as optimistic as The Economist was this week, in an article headed "Dairy, prairie", saying that the system is now so absurd that it is bound to break down and lead to improvements soon. I am afraid that that is grossly optimistic. The article lists the distortions which take place in that area in Japan, in the United States—where they have taken a much tougher line on the farm problem—and, most of all—

Mr. Nicholas Budgen (Wolverhampton, South-West)

That article was very good and it set out the extent to which subsidies are now being increased in America. If my right hon. Friend looks at that article, he will see that the increase in dollars is enormous. Perhaps he would favour the House by reading that paragraph out.

Mr. Higgins

My hon. Friend refers to that, but it covers a lengthy period and I was referring to the more recent position, which he and I have both examined at close quarters in Washington.

But given the importance of the matter, there is a strong case for a major international conference concentrating not on trade in general, or this or that horse trade, but specifically on the agricultural problem. The CAP is not capable of reform and the "continuing reform" of the CAP referred to in the Gracious Speech is not possible. It is fundamentally flawed in the way in which it operates.

My right hon. Friend the Chancellor of the Exchequer was rather selective in the figures which he quoted in respect of the EEC because he picked out only one of the two lines on it that appeared in the autumn statement, and that was the one which suited his argument. The CAP is becoming a very heavy burden upon us. I hope that, as it will be a repeat, if we are not careful, of a previous saga —my hon. Friend the Economic Secretary to the Treasury knows well what I am referring to—we shall not increase the resources that are available to the Community until such time as we have had the substitution of a better system for the present system of support for agriculture.

I believe that the Queen's Speech in general is greatly to be welcomed. It contains a number of proposals, not least for law and order, which I welcome, and it is right that we should support it when the Division takes place this evening.

8.21 pm
Mr. David Penhaligon (Truro)

I begin by seeking some guidance, Mr. Deputy Speaker. When my right hon. Friend the Member for Plymouth, Devonport (Dr. Owen) sought to move the amendment that stands in his name and the names of others of my right hon. and hon. Friends, he was told that he must do so later this evening. As the alliance has about only one Division a year that it can succeed in calling, I am rather anxious to ensure that whatever the procedure is for moving the amendment is followed and fulfilled. I ask you, Mr. Deputy Speaker, whether I have formally to move the amendment now, or whether my right hon. Friend the Member for Devonport has already done so.

Mr. Deputy Speaker

The hon. Gentleman does not have now to move formally the amendment to which he has referred. When we reach the end of the debate, the House will come to a decision first on the official Opposition's amendment. Secondly, it will come to a decision on the amendment that is in the names of the hon. Gentleman and his right hon. and hon. Friends.

Mr. Penhaligon

Thank you, Mr. Deputy Speaker. I would not like to be blamed as the one who did not do whatever was necessary.

The section of the speech of the right hon. Member for Worthing (Mr. Higgins) which interested me most was that dealing with drugs. I concur with everything that he said on the subject, but I believe that we are underestimating the significance of the problem in our society.

I take issue with those who say that the fashionable methods will succeed in driving drugs out of the country. If I were to be involved in the obscene trade of drugs, the last thing that I would consider would be to bring drugs through the prescribed entry points. I would become involved in the enormous yachting business that I see active off the southern coast of my county during the summer season. Some yachts are large and have an enormous capacity, and I would use one of those to bring whatever it was I wished to bring into a Cornish creek at a quarter to four in the morning.

I do not believe that we shall ever be able to afford to employ enough customs officials to guard every creek in my county, let alone the rest of the country. I understand that the coastline of Cornwall extends for about 250 miles. I see that the hon. Member for Teignbridge (Mr. Nicholls) is in his place; the same can be said for Devon.

We should at least consider the possibility of bribing for information. We should consider giving substantial sums to those who are willing to give information that leads to the arrest and imprisonment of those who bring drugs into the country. I accept that we would be using one part of the drugs fraternity against another, but I believe that the Government will have to consider this approach at some stage. It is an historic fact that smuggling in Cornwall was not stopped by legislation enacted in London or by inspectors being planted on the cliffs. It was stopped by offering bribes for information from Cornishmen so that it would be known when the running would take place. Cornishmen, being as greedy as anyone else, saw an opportunity to make money legally, and they used it. The result was the end of the trade.

The drugs business is a serious matter and some of the methods that have been put forward for combating it will cost a great deal of money. I am one of those who are willing to argue for expenditure in this area, but it must be seen to produce results. I am not sure whether the conventional methods are likely to have that effect.

It has been said by some that there was a fair amount of electionmongering in the earlier contributions to the debate. It seems that the impression created by those who spoke earlier in the debate was such that nearly every other hon. Member decided to leave this place for his constituency to fight the next general election. We have not really been pushed for Bench space ever since the early stages of the debate.

There are some important issues to be raised, and many of them have already been covered for the alliance by my right hon. Friend the Member for Devonport. The Government's policy which concerns me most is that on interest rates. I do not wish to say on behalf of the alliance that if I were in control of the economy I would never have recourse to high interest rates, because one learns in politics that never is a very long time. To say that one would never use the weapon that Chancellors of the Exchequer have used over the years would be clearly irresponsible.

The interest rate that we are running is high and has been high in relation to the rates of our competitors for a long time. It is not the economic bedrock on which we can hope to see a recovery of the economy. Over three months, the figures are as follows: the United Kingdom 11 per cent.; Canada, 8.5 per cent.; France, just over 7.5 per cent.; Germany, 4–75 per cent.; Japan 4.3 per cent.; Switzerland under 4 per cent.; the United States 5.5 per cent.; and Italy 11.5 per cent. These days we have regularly to compare ourselves with Italy if we wish to find another country that is in our league of economic "success".

I challenge the Minister who is to reply to name any country in modern economic history—to be generous, let us allow him to go back to the beginning of the century—which has managed to rebuild its economic base on the real interest rates that exist now. If the Civil Service can help the Minister to find an example, I shall have to confess that it has discovered something that I could not find. I do not know of a country which has run the interest rate regime that now prevails here for any sustained period and succeeded in rebuilding its economy during that period.

I attend Treasury questions, as do many of the right hon. and hon. Members who are now in the Chamber. We ask questions of the Chancellor of the Exchequer and we are rather shocked when occasionally we receive answers. In brief moments of great honesty the Chancellor of the Exchequer has made it clear that our high interest rates have nothing to do with the public sector borrowing requirement. If there were that relationship, we would have to argue that the Chancellor of the Exchequer increased interest rates a couple of weeks ago because he knew that he would increase spending in a couple of weeks time, and would need more money as a result.

We all know that that is not the position and that interest rates have nothing to do with the PSBR. I should not like that observation to be stretched to infinity, but within the area that we are discussing there is no relationship between the two. The Chancellor of the Exchequer has made it clear that he is maintaining the current interest rate regime to defend the exchange rate of our currency. The policy has not been noticeably successful as the weeks and months have passed and considerable depreciations have taken place. It is often forgotten in economic debates that if the Chancellor of the Exchequer's policy is successful, Britain's exports will be more expensive than they would otherwise have been. It means that imports into Britain are cheaper than they would otherise have been. Therefore, the sector of British industry that relies for its survival on successful exporting finds it more difficult than it would otherwise have done. It also means that the sector of British industry which competes for its survival against imports into the country is in a more difficult position than it would otherwise have been.

If one wished to concoct a policy to reduce our manufacturing capacity over a sustained period, one would pursue the policy that has been followed for the past few years. Many of our international businesses have already gone. I do not mean that they are half the size that they were; I mean that they have gone. That has led to the horrifying figures which have been given several times during the debate regarding our manufacturing balance of payments and our loss of value added in that sector.

I do not offer the House simple solutions. I say bluntly to whoever is willing to listen that pay rises in Britain are too high. That has been true for several years. The fact that the well-off are even greedier at present than some others is a second, obscene, aspect of my general point. I am saying, for the benefit of Britain, that pay rises are too high. The alliance believes that, unless we can reduce the pay increases which have dominated the economy for the past few years, our industrial capacity will have no future.

The only substantial argument against joining the European monetary system is a fatalistic belief that under no circumstances can we control our pay demands. But those who understand the disciplines of the monetary system must recognise that if in the future Britain's pay rises arc twice as high as those in other countries in the EMS, we might look back on these high interest rates and say that these were the good days. I do not accept that argument. Several Conservative Members have said that British pay policies have never worked and never will. We have never introduced a pay policy as a point of strategy or as the result of a mandate given to one party by the British people. We have never made such a policy part of our economic life. I remember three or four policies, every one of which was introduced as a last minute panic button pushed by whoever was occupying the Chancellor's chair at that moment because he was so desperate that he had to do something.

Even in such emergencies, some of the pay policies worked, at least for a while. But the British people may determine that pay increases cannot continue as they are if we wish to do anything about our industrial base. The British people may respond in such a way that a pay policy would be possible. I am confident that, if we cannot reduce pay settlements from their present level, Britain's economic health will decline.

On the autumn statement, the Government are in the most fragile position. They are heavily dependent upon the consumer boom in the high streets. I wonder how much a smartly dressed person with a half-decent job could succeed in borrowing within 24 hours—not in one week or a lifetime—if he walked from one end of Oxford street to the other, taking advantage of each shop's plastic cards and going into banks. We can all see that consumer boom happening, but Conservative Members are afraid to say anything about it because it is crucial to the Government's handling of the economy. The consumer boom is happening on borrowed money. It cannot be maintained for long. It has become the entire fabric of future Government strategy, because they rely on their tax break when that borrowed money is spent to balance their books. When the Chancellor says that he received £2 billion more in revenues than he expected, he is saying that the tax break from the borrowing boom has given him that £2 billion.

Not only the Chancellor's unexpected income, but the moderate release from ever-escalating unemployment, have occurred on the hack of the borrowing boom. It is the engine of the small growth in jobs and the Government's increased income. If the Chancellor maintains that strategy, the election had better come sooner rather than later. It might just be possible to blame someone else after one term of office, but after a couple of terms of office, it is clear that the chickens are coming home to roost. It is certain that there will be no rebuilding of our industrial base on the back of the borrowing boom. There will be no training of high technology skills. We shall not obtain the degrees and PhDs that we need if we are to succeed in rebuilding that base part of our economy on which we have relied for years to provide our basic living standards, and on which many of us believe we shall have to rely again.

All those long-term visions of reconstruction and of rebuilding Britain's economy are being put at risk on the back of a borrowing boom. It is one of the most disgraceful policies to have come from a Chancellor in a long time. It is short-sighted and narrow-minded. It is not good news for Britain, and the sooner there is an election and we can return to doing something to rebuild the economy—preferably with a great movement of places in the House—the better it will be for Britain.

8.36 pm
Mr. Tim Yeo (Suffolk, South)

The expressions of regret from the hon. Member for Truro (Mr. Penhaligon) about the decline of the British economy would have commanded more respect if they had been accompanied by some remorse, since he was one of the hon. Members who propped up the Labour Government for two years and delayed the recovery of the economy for that period.

No doubt the hon. Gentleman and the right hon. Member for Plymouth, Devonport (Dr. Owen) have been anxious to urge on the Chancellor the need for an early election, because they are beginning to fear that if the unemployment trend, which for the past two years most people have agreed is the most important indicator, starts to come down, who knows where it may have reached by March 1988, with another year of 3 per cent. growth?

I am sorry that the right hon. Member for Devonport is leaving the Chamber. He would not allow me to intervene during his speech, but I wish to say one thing to him. He made it clear that he favours an incomes policy, which must, sooner or later, mean a statutory incomes policy, and that he favours a tighter monetary policy, but he did not say much about the tax policy of the SDP. Earlier this year, we read much about the controversy in the SDP over the paper which advocated a substantial increase in the taxation of middle-income groups. That would be much more redistributive than anything that the Labour party has dared to mention. Does his reluctance to mention that herald an announcement soon that the SDP will dump that policy paper? Will the right hon. Gentleman clarify the SDP position on that?

I strongly support the measures in the Queen's Speech and I commend them especially if they will mean that the House will have a shorter Sessions. It would be popular on both sides of the House to rise at the beginning of July rather than at the end.

As the amendments today relate to the economy, I shall speak primarily on economic and financial issues. The debate has been far-reaching. I strongly supported the references made by my right hon. Friend the Member for Worthing (Mr. Higgins) and by the former Labour Prime Minister, the right hon. Member for Cardiff, South and Penarth (Mr. Callaghan) to ending the lunacies of the common agricultural policy. I also admired the way in which my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) managed to bring into the debate the American shipment of arms to Iran. I, too, deplore that involvement.

I strongly welcome the autumn statement and the spending increases that it disclosed. In many ways, those were in line with calls made by many of my hon. Friends, and I hope that we will not be punished for having been a little in advance of the Chancellor in suggesting that additional expenditure would not only do a lot of good, but would also be in tune with popular requests.

We now have a properly balanced approach to the use of the resources being generated by our economic growth. We see real increases in spending, but we are still achieving a reduction in the percentage of gross domestic product taken by the public sector. That is the right path and is in line with true Conservative philosophy—neither wet nor dry. I appreciate that the spending is not high enough to satisfy the Opposition, and it was not quite clear how much more spending the Alliance would like to see. It seems to be in need of a rethink on that, as on so many other things in its policy.

The economic future looks good. Prospects for growth seem satisfactory, trending just below 3 per cent., but that is acceptable by the standards of the last 15 years. Even on unemployment, we at last see some positive signs. Obviously, it may still be early days and I do not wish to count chickens before they are hatched, but if through the period of the next Parliament we can continue to achieve economic growth of around 3 per cent. a year, and given that the huge increase in the labour force with which we have had to cope for most of this decade will no longer be a factor, those two things—a static labour force arid 3 per cent. growth—could significantly reduce unemployment by the end of the next Parliament.

There are a number of worries in the background. I was glad to hear my right hon. Friend the Member for Old Bexley and Sidcup speak about the United States. Insufficient attention is being paid to America's failure to tackle its massive budget deficit and its relative failure to overcome its massive balance of payments deficit. Those two things are storing up immense trouble for the world. and more attention needs to be paid to them in Britain and elsewhere. I would have been comforted if I had known that, during the important discussions about arms control that my right hon. Friend the Prime Minister had with the President last weekend, at least 50 per cent. of their attention could have been directed towards economic and financial problems.

For the last 60 years, the United States has been the most important and powerful economy in the world and it is a fearsome prospect that it is now becoming a debtor at a massive pace. It will amass over 1 trillion dollars of debt within five years unless urgent action is taken. In the United States, not enough political priority is being attached to tackling the budget deficit and the measures so far taken to deal with the trade deficit have to date been unsuccessful.

If action is not taken on those fronts, the only solutions remaining for the United States are, first, a really massive recession—the classic response to a balance of payments problem. Alternatively, the United States can invoke protectionism on a scale that will eliminate America as a market for other countries. Thirdly, and related mainly to the problem of the budget deficit, there will be runaway inflation. That would have the effect of devaluing the dollar and, to a great extent, it would overcome America's debt problem.

Any one of those three developments has appalling implications for the rest of the world, certainly the rest of the Western world and Latin America. They would probably not have an effect on economic policy in Britain between now and the next general election, but they hold considerable anxieties for Britain. There is the danger of losing an important export market and the consequences of the kind of financial instability that would result from the possibilities I have outlined. We might see much higher interest rates and fluctuations and possibly a weaker pound.

On inflation, there are anxieties looming in the background. I readily acknowledge that my right hon. Friend the Chancellor has a good record for forecasting inflation. It is much better than the record of some of the independent commentators spoken about with such respect, and indeed awe, by the right hon. Member for Devonport. The 3.75 per cent. forecast for inflation in 1987 seems to be a trifle optimistic. I hope that the Chancellor is right, but I should not be surprised if for once his record rather fell down. This year, we have enjoyed a considerable, but I am afraid a one-off, reduction in industry's costs. That will certainly not be repeated in 1987. Indeed, to some extent the trend will be reversed. Many hon. Members have spoken about the alarming increase in unit labour costs. That is bad from all points of view, not least because it goes a long way towards undermining the considerable productivity gains that we have made over the past three or four years.

A third risk area is the balance of payments. Here again the forecast, if perhaps not optimistic, shows some danger of overshoot in 1987 and if the market starts to fear that there will be significant overshoot, we will face the prospect of a weaker pound and possibly a hike in interest rates to defend sterling.

My hon. Friend the Member for Horsham (Sir P. Hordern) rightly spoke about the money supply. Targets appear to have been juggled a bit and those of us who were already confused are more confused than we were. Common sense suggests that the rate of increase in bank lending and lending by other financial institutions is likely not just to fuel the consumer boom but to lead to a number of people and households becoming over-extended. There is no doubt that in their rush to compete for lending business, some financial institutions are lending in a rather imprudent manner, I suspect that in due course that will have a damaging effect on the economy.

Against the background of all those potential anxieties, I regret, as do other hon. Members, the affirmation by my right hon. Friend the Prime Minister in a Financial Times interview that there is no prospect of our entering the exchange mechanism of the European monetary system. The arguments quoted in that interview are flimsy in the extreme. The EMS is not a panacea, but whatever the absence of any short-term benefit, it is almost beyond dispute that if we were in the EMS, in the medium term we would be able to run our economy with lower real interest rates.

If we were inside the system, we would probably have a greater and more consistent discipline applied to our monetary policy and both those things would be considerable gains. I fear that if we remain outside the EMS there is a risk that if during the pre-election period our lead in the opinion polls was to dip for any reason —which I am sure is most unlikely—it could lead to a run on sterling of exactly the kind which the Prime Minister says she fears if we were inside the EMS. The consequences will be at least as bad if we are outside and it would be just as necessary to have a painful and perhaps extremely ill-timed rise in interest rates if we faced a run on the pound a month or two before an election.

I was pleased to see the Prime Minister issue what looked like a stern warning that the higher spending that we have now agreed has reduced the scope for tax cuts. Of course it has, and most of us who have advocated increases in spending always recognised that it would. The one thing that does not need stimulating at the moment is consumer demand. We do not need cuts in income tax to boost that. It cannot be said that the reduction in income tax has stopped extremely inflationary wage claims. One of the hopes expressed at the time of the reduction was that it would. There does not seem to be any urgent economic reason why we should now go for cuts in income tax.

It might be as well to say openly to the country that if we award teachers a substantial increase in pay—for which there is much popular support—that will have to be done instead of tax cuts. It is a form of tax cut and a proper use of resources. The interest of alliance Members who have spoken is demonstrated by the fact that not one of them is present in the Chamber. It would be politically honest if we presented the alternatives to the electorate in that way. Nevertheless, the buoyancy of revenues from income tax, corporation tax, national insurance contributions and VAT may be sufficient for tax cuts to be considered in the next Budget.

If we reach that point, I hope that we shall consider alternatives to a cut in the basic rate of income tax. In the Financial Times interview, the Prime Minister made it clear that her overriding wish is to help the lower paid. Statistically, everybody earning up to £15,000 a year—the vast majority of workers—would gain more from a cut in employee national insurance contributions than from a cut in the basic rate of income tax.

National insurance contributions are effectively part of the basic rate of tax. Income tax stands at 29 per cent. and employees' national insurance contributions stand at 9 per cent., amounting to a 38 per cent. deduction from all earnings up to £15,000 a year. In 1979, the basic rate of income tax was 33 per cent., while employee national insurance contributions amounted to 6.5 per cent. The basic rate, therefore, was effectively 39.5 per cent. Although the basic rate of income tax has been reduced from 33 per cent. to 29 per cent., we have negated it by more than half through raising employee national insurance contributions from 6.5 per cent. to 9 per cent. Priority ought to be given, therefore, to reducing employee national insurance contributions to 6.5 per cent. That would be the best way to use resources to help the low paid.

Those receiving investment income would not benefit from lower national insurance contributions, but a fair amount has already been done for them. It is not the most needy group. The other group that might be affected if all the resources were used for cuts in national insurance would be the pensioners. However, they could be helped by means of the age allowance. I hope that my colleagues on the Treasury Bench will consider that in their pre-Budget discussions how our resources may be used to reduce the burden of taxation.

My right hon. Friend the Member for Cambridgeshire, South-East (Mr. Pym) said that there should also be a cut in employers' national insurance contributions. I agree with him. It would have a direct effect on business costs. Long before 1985, we abolished the surcharge. In 1985 we made further cuts in employers' national insurance contributions, which were directed especially at the lower paid. I hope that we shall be able to go further down that road.

This year I wholeheartedly support the Queen's Speech and the autumn statement. I am delighted that the official Opposition and the alliance were able to put down irrelevant amendments. It is gratifying to feel, for once, that we on these Benches seem to be more than usually united.

8.53 pm
Mr. Patrick Nicholls (Teignbridge)

I trust that my hon. Friend the Member for Suffolk, South (Mr. Yeo) will not mind if I do not take up the points that he has made.

The debate was opened by the right hon. Gentleman the Leader of the Opposition, who referred at length to poverty. What he said about poverty has to be taken in the context of the general debate about public expenditure. I had assumed that the attack upon Government policy would be that there had been insufficient public expenditure. Therefore, I was confused by his intervention today. He criticised the Government for having indulged in too much public expenditure. That seemed to me to be somewhat strange.

Despite the curtailments and discipline that this Government have imposed upon themselves, they can reasonably claim, nevertheless, that they are a Government of high public expenditure. To that extent they are just the same as the Labour party. What separates the two parties is that on this side of the House there is a fairly clear recognition that the only way to provide the money that needs to be spent on a whole range of social issues is to encourage further growth in the economy and, if necessary, to use the proceeds of the sale of enterprises that have been privatised. Those are enterprises in which for the most part the Government should never have been involved anyway.

That has to be contrasted with one particular theme of Labour party policy: that wealth is a fixed commodity which unjustifiably is in the hands of the rich and that all that one needs to do in order to benefit the poor is to take money away from the rich and spend it on the poor. It is the old cry that we have heard before, that one can help the poor by the fiscal pillaging of the rich.

For example, the right hon. Member for Leeds, East (Mr. Healey) referred to squeezing the rich until the pips squeaked. We have heard it more recently from the right hon. Member for Sparkbrook. He plans to finance a truly massive amount of social spending by the penal taxation of those earning more than £30,000 a year. His figures have been thoroughly discredited. The right hon. Gentleman knows that, if he were to confiscate all income in excess of £30,000 a year, it would raise only a fraction of the money that would be necessary to fund his spending programme. To that extent, therefore, that particular fox has been shot. People realise that it would be impossible to fund such a spending programme.

Even if the right hon. Gentleman's figures were false, it is obvious that his argument has some attractions. However, it is slightly strange to see Labour Front Bench spokesmen, with reputed incomes well into six figures, calling for increased taxes on the rich. However, they know that even if they had to pay a little more tax, they would still have far more left than the rest of us.

This Government have abolished the investment income surcharge, which has reduced the higher rates of tax. The Government are also committed to the abolition of capital transfer tax. The Conservative party is prepared to say that "wealth" is not a dirty word. Even members of the Conservative party who do not possess wealth are happy to say that. If the argument went no further than that, the idea that one could soak the rich to help the poor would have some attraction, but if we want to turn the rhetoric of compassion into the reality of care we have to ask ourselves whether that system can produce the money that will turn that rhetoric into reality. On precisely that point, what we have heard from the Labour party, despite its undoubted sincerity, does not being to hold water.

Until May 1986, such a statement could have been made without anything substantial to back it up, but the debate has changed radically since May, when the lion. Member for Birkenhead (Mr. Field) asked the Government to say what proportion of the total tax take was contributed by the highest earners in the country. He put down that question thinking that, because this Government had apparently reduced the burden of taxation on the rich, the answer would be that the rich were paying less tax. He found precisely the opposite. Between the last year that Labour was in office and the year 1985–1986, the top 5 per cent. of earners have paid an increased amount of total tax take.

If that information seemed startling, it was no more than we had already seen in the United States. There, when the tax rate on the highest earners was reduced from 70 per cent. to 50 per cent., the top earners paid not $34 billion into the tax kitty but $42 billion.

There is other evidence. Perhaps the most dramatic example was given to me in a reply by my right hon. Friend the Financial Secretary to the Treasury on 6 November.

He said: In 1978–79 … 3.5 per cent. of taxpayers … paid tax at higher rates. They contributed 20 per cent. of the total income tax yield … In 1986–87, about 5 per cent. of taxpayers pay at higher rates and they contribute 27 per cent. of the yield."—[Official Report, 6 November 1986; Vol. 103, c. 519.] Those figures speak for themselves. We all suspected that they would be the case. Now it is not theory but irrefutable evidence, which comes from the Inland Revenue, and would presumably be accepted on both sides of the House as accurate.

In the light of that evidence, to call for an increase in taxation as a direct way to help the poor is a calculated deceit. It does not work that way, not because of some quirk of arithmetic but because no policy that has as its avowed intent the pillaging of one section of society by another can be right. One does not have to quote well-known excerpts from John Donne to understand that. However, it furthers the language of the class war. What possible relevance have the ravings of class warriors to the good of society?

I can welcome the measures set out in the Gracious Speech because in all respects, and certainly with regard to the economy, those policies benefit not just one section of society at the expense of another but society as a whole. That is the business that the Conservative party is in. The pity of it is that the rhetoric from the Labour party in the country promotes the idea that one strengthens the weak by weakening the rich. These policies are designed not to benefit society as a whole but to resurrect and inflame class war. That cannot be right, in the interests of society as a whole.

9.1 pm

Mr. Nicholas Budgen (Wolverhampton, South-West)

A consensus has emerged on the Conservative Benches about tax cuts. We came to that consensus from different positions. It is not particularly useful to be like the Irishman and say, "I would not have started from there." I regret that public expenditure has once again risen in a way that was not anticipated and I regard that increase in public expenditure of about £10 billion over two years as no small matter. I have always preferred to see the funds of the nation fructify in the pockets of the citizen rather than be spent by the bureaucrats. However, anything I have to say about that will not be of any importance, so I might as well face the fact that that money will be spent. However, certain consequences flow from it.

The Government are giving a dangerous impression to many people, in the belief that extra expenditure upon both education and health will solve the fundamental problems of those two services. It is obvious that substantial expenditure over a couple of years will not solve the fundamental problem of health, which is that we have a constantly expanding and sophisticated system of health care, meeting an unlimited demand in no way disciplined by price. Unless the Government say at some stage between now and the next general election that there will have to be some different system of financing the Health Service, if we attempt a different system, the Government will come up against a great deal of public opposition on the basis that the public have never anticipated a change in the way in which the Health Service has been financed and that they should have been told before the election, and that they have been conned.

It will not be enough to give 25 per cent. over 18 months to the teachers and think that that will solve all the problems of education. I hope that the Government, having taken this decision to be generous with the taxpayers' money—they are not giving away their own money, as they sometimes put it—that we shall see from now on that the fundamental problems of those two services are satisfactorily and truthfully discussed.

I supported the Government between 1979 and 1983 and thought that I understood the arguments about monetary aggregates. I did not think that they were flawed. In just the same way I recollect supporting the arguments advanced between 1968 and 1971 when again monetary aggregates were thought to be important indicators of future inflation. Now we are taught that all that is wrong and we have returned to the Tory party's attitude towards monetary aggregates between 1971 and 1974. I regret that, but I must face the fact that once again that policy has been abandoned for a period.

We must note some of the consequences of that abandonment. First, the Government will, obviously, find that they borrow money at higher interest rates than if the lenders were satisfied that the Government were constrained by an iron discipline. Secondly, the Government are in considerable difficulty, because, obviously, the Chancellor of the Exchequer wants some form of discipline. He wants the discipline of the European monetary system. I do not want the Government to take the United Kingdom into the EMS because it would be a major denial of our national sovereignty. It is not in any sense a minor or technical matter. I was disappointed when the Prime Minister in her recent interview with the Financial Times said that when we go into the EMS is merely a matter of technicality and timing. It is no such thing. If we join the EMS, we will surrender much of our control over economic policy to the so-called collective wisdom of the European Economic Community.

The consensus that emerged during the debate among Conservative Members was, "All right, so once again we have given way on public expenditure." However, there are consequences and the principal one is that it will be no longer possible to hold out financial hopes of reductions in the standard rate of income tax. I hope that the Chancellor makes that clear. If he does not, he will unsettle the financial markets and he will find it more difficult and expensive to borrow money.

If the Chancellor puts more strain on the interest rate mechanism as he approaches the general election, he will have a disagreeable dilemma ahead of him. Either he uses the interest rate weapon, which is politically disadvantageous, has an immediate effect on the retail price index and makes those who buy their houses fed up with him, or he does nothing about the interest rate weapon and stores up higher future rates of inflation for the country. I hope that he will say, "You, the nation, wanted your extra expenditure, particularly on education and health. We have given it to you, but there are consequences that flow from it. One of the consequences is, sadly, that we shall not be able to reduce the standard rate of income tax, as we had hoped." I was much encouraged by the observations of my right hon. Friend the Prime Minister to the Financial Times recently when she said that most of all she wished to see a reduction in taxation on the low paid.

I expect that you, Mr. Speaker, and many other hon. Members received a document in the post today from the Federation of Master Builders. It points to the ever-present problem of the black economy. One way in which we can reduce its size is to reduce the burden of taxation on the low paid. I hope that we will tell people—particularly the caring classes of the SDP and the alliance, who are so anxious to see increases in public expenditure in the belief that often it is other people's money being spent on their health and their children—that they have partly won but that they cannot have their tax cuts as well. We must now try to reduce the tax burden on the lower paid.

9.10 pm
Mr. Peter Shore (Bethnal Green and Stepney)

We are now approaching the end of our six-day debate on the Gracious Speech. Our debates this year have been given a special edge and flavour because of the almost universal sense that this is the last Queen's Speech of this Parliament, and that its contents could easily be discarded when the Prime Minister decides to cut and run before the end of the Session.

The hon. Member for Stamford and Spalding (Sir K. Lewis) cast some doubt on this when he relayed to the House a report on the statement made by the Prime Minister in an interview earlier today. I, too, have seen the Press Association report of the Prime Minister's interview with ITN's "News at One", and in the midst of an extravagant polemic against the Labour party, she said: I do not believe in dashing into an early election. We have a majority and people expect us to carry out the main part of our programme". That is entirely compatible with going to the country in March, May or June and not later than October. I think that has been very much in the Prime Minister's mind and in the minds of most hon. Members who have taken part in the debates this week.

Indeed, even before the Queen's Speech was read there were unmistakable signs of battle preparations. The Chancellor of the Duchy launched his highly prejudiced and threatening assault on the independence of the BBC; the CBI at its Bournemouth conference silenced all its usual criticisms of Government industrial and economic policies and swung behind the Government with all the discipline of a Guards regiment; and the Chancellor in his autumn statement stunned the City and outraged Mr. Ferdinand Mount of The Spectator, by his sudden conversion to the doctrine of increasing public expenditure —at least for 1987–88 and 1988–89. As we heard a few moments ago, he did not exactly please his hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen).

In the Queen's Speech itself the whiff of the hustings has seldom been absent from Ministers' speeches. The Prime Minister set the tone in her highly combative speech last Wednesday, and the Secretary of State for Education and Science followed with a deliberately provocative speech where he described the complex negotiations over the renumeration, duties and pay structure of the nation's teachers as a "fiasco". On Monday the Secretary of State for the Environment was so keen to attack Labour councils in particular and local government in general that he barely left himself space even to outline the legislative proposals in the Queen's Speech affecting local government.

This afternoon the Chancellor of the Exchequer gave a third-rate party political which embarrassed and bored even the hon. Members who sit behind him. As my right hon. Friend the Member for Cardiff, South and Penarth (Mr. Callaghan) advised him, he should leave that sort of stuff to the Chancellor of the Duchy of Lancaster, who does it much better and to whom it comes much more naturally, and he should remember that he is still the Chancellor of the Exchequer.

Nevertheless, it is not only traditional but specially fitting that the Chancellor of the Exchequer should speak on the final day of this six-day debate, because the right hon. Gentleman was there at the beginning as Financial Secretary to the Treasury in 1979— the architect of the economic policies that we are now debating. It was the 1980 Red Book, which carried the right hon. Gentleman's name, that enunciated the Government's central economic doctrines—progressive reduction of the money supply as measured by sterling M3, a reduction of taxation as a proportion of gross national product, and as a key element in this strategy, a reduction in public expenditure. The chapter on the medium-term financial strategy ended thus: there would be no question of departing from the money supply policy, which is essential for the success of any anti-inflation strategy. What has happened? Money supply was supposed to fall as long ago as 1983–84 to a range between 4 and 8 per cent. In the event, in the last complete year£1985–86—il was recorded that the outturn of sterling M3 was no less than 16.4 per cent., and all the signs are that it will be higher still in the current year.

The Chancellor now tells us that it was all a great mistake and that M3 money supply does not control or reflect the rate of inflation. Nevertheless, tight money policy, as represented by high interest rates, remains, and the minimum lending rate stands at 12 per cent.

What of tax reductions? Some people have certainly benefited but, in 1978–79, tax receipts took 33.7 per cent. of gross domestic product whereas this year they will take 38 per cent. What makes this failure to reduce taxation all the more astonishing is the fact that the Chancellor, thanks to North sea oil, has received an additional £57 billion in revenue and a further £10 billion from the sale of public assets.

What of public expenditure, the last of the pillars which would sustain the new economy? In 1978–79, public expenditure took 42.3 per cent. of gross domestic product. This year, the estimated outcome is 42.8 per cent. of GDP. Unhappily for Britain, the past seven years were not just a story of an intellectually arrogant Chancellor who got both the theory and the practice of macro-economics wrong and who has had to eat his own words and swallow his own Red Books; it is also the story of seven years of havoc, destruction and misery for thousands of firms and millions of people.

As hon. Member after hon. Member today and yesterday have observed, there is, alas, nothing in the Queen's Speech which deals with the three crucial problems of the British economy — the level of unemployment, the decline in manufacturing industry and the growing crisis in our balance of payments. In spite of the much trumpeted fall in last month's figures—oh yes, we welcome that—in October 1986, for the seventh year running, the seasonally adjusted level of unemployment is higher than it was one year ago. It was 47,000 higher in October 1986 than it was in October last year.

Even with the Government's heavily doctored figures, unemployment now stands at 3.168,000 — or 11.5 per cent. of the working population. That is a far higher figure than in any comparable industrial nation. Nor is there any sign of real improvement other than the reduction in figures that may result from the redefinitions—they occur month after month—of the number of people who are unemployed.

The autumn statement postulates, for national insurance purposes, 3,100,000 unemployed for 1986–87 and 3,050.000 unemployed for 1987–88. In the regional development submissions to the EEC this year, as my right hon. and hon. Friends have said, the Government's estimate of unemployment is still above 3 million in 1990.

We must consider the sorry plight of Britain's manufacturing industry. We heard the Prime Minister's defence last Wednesday. She claimed that manufacturing output had risen since the 1983 election and that manufacturing investment had increased last year. Listening to the Prime Minister, as I have listened to other Ministers during the past few days, I was reminded of a slim volume that appeared some years ago, entitled "How to Lie with Statistics". One of the crucial things is carefully to select the base year. The Prime Minister knows perfectly well that she came to power not in 1983 but in 1979. The plain fact is that manufacturing output is still eight points lower this year than it was when her party came to power. Further, investment in manufacturing industry is over 17 per cent. down on what it was in 1979.

As for investment in manufacturing industry being up last year, the Prime Minister omitted to tell us that the figures for this year show that it has fallen again below the 1985 level. As for manufacturing export volumes being at record levels, the right hon. Lady knows full well that manufacturing imports are at still higher levels. Indeed, the contrast is shown very clearly in a written answer of 6 May 1986. Taking 1980 as a base at 100, our volume of exports went up in the first quarter of 1986 to 102.6, whereas the figure in the import column had risen to 142.4. There have been some minor changes since then, but the broad orders of magnitude remain.

As for the past four years, as the House knows, for the first time since we recorded trade flows in this country, Britain has become a net importer of manufactured goods. Indeed, in exactly six years, we have moved from a surplus of £5 billion in manufacturing trade to a deficit of £5 billion this year. The Secretary of State for Trade and Industry boasted yesterday, as did the Chancellor today, about the productivity gains that manufacturing industry has made. But the plain fact is that our competitors have also had productivity gains, and, in their case, backed up with far larger capital investment than British firms have been able to undertake. What matters is our relative strength—our international competitiveness. Here, the story is dismal indeed.

In the first quarter of 1986—according to the last available IMF figures —as compared with the first quarter of 1979, we were 30 per cent. less competitive. Of course, there has been some improvement since the first quarter of 1986 simply because we have devalued by some 10 per cent. against the international basket of currencies. But, allowing for this, we are still some 20 per cent. less competitive today than we were in the spring of 1979. It is no wonder that our trade deficit in manufactured goods has grown and will continue to grow.

The enthusiasts in favour of joining the EMS had better think very carefully about the full implications for a country which has not yet succeeded in establishing competitiveness and sustained growth, of being locked into an exchange rate mechanism which would inflict German disciplines and German competitiveness upon the British economy.

The third point I wish to make relates to the balance of payments. This year, 1986–87, despite our total self-sufficiency in oil and our net exports of some £6 billion of oil, we shall, according to the Government's autumn statement, be in balance of payments current account deficit to the tune of £1.5 billion. The Government carefully do not look beyond 1987, but the House will recall the IMF's world economic outlook report, which was published at the end of September this year. It looked to 1991, and said: The position of the UK is projected to shift from a small surplus in 1986 to a sizeable deficit. The House will recall the report of last year's Select Committee in the other place on Britain's overseas trade. It, too, looked to 1990. On the assumption that we shall still be in balance on our oil trade by that date, it predicted that on present trends there would be a current account deficit that would amount to no less than £13 billion.

For sheer, breathtaking optimism I do not think that I have ever read a statement that quite compares with what the Secretary for Trade and Industry told us yesterday: My right hon. Friend the Chancellor set out the effect of that extremely clearly in his autumn statement. I have every confidence that we shall soon move back into surplus when the exchange rate and everything else has adapted to deal with the new circumstances. I have no qualms about the future course of the balance of payments."—[Official Report, 18 November 1986; Vol. 105, c. 469.] It is amazing that any responsible, senior economic Minister should dare to say that in the House in this autumn of 1986. It was an extraordinary statement.

It is not just national economic failure for which we indict the Government. The Queen's Speech is bereft of proposals for dealing with the great divisions that have opened up in British society. The Government have been remarkably coy about publishing the figures relating to the increase in poverty in the United Kingdom. Nevertheless, thanks to the industry and persistence of my hon. Friend the Member for Birkenhead (Mr. Field), the DHSS slipped the figures for 1983 into the summer recess. They show that the number of people living on, or below, the supplementary benefit level has increased from 5.9 million in 1979 to 8.8 million in 1983. On very conservative estimates, the 1983 total will have reached the 10 million mark this year. That is an appalling figure, and means nearly one in five of our total population.

What a contrast can be made with those at the other end of the scale. According to the Inland Revenue's statistics, there were roughly 1,000 individuals in the United Kingdom in 1978 with personal assets of more than £1 million. In 1983, there were 7,000 people with such assets, and there were no fewer than 11,000 people with assets of over fl million in 1984. That was all before the big bang opened up the prospect of very major gains in personal wealth.

Mr. Nicholls


Mr. Shore

I listened to the hon. Gentleman. I understood his point, but I do not accept that analysis. When he looks more carefully into the matter, I think that he will find that the figures do not bear that out.

The ever-growing gulf between north and south is the second major problem that I wish to touch on. I am glad that the right hon. Member for Cambridgeshire, South-East (Mr. Pym) and my hon. Friend the Member for Sheffield. Attercliffe (Mr. Duffy) stressed the importance of regional imbalance. Of course, 11.5 per cent. is the national average for unemployment. But in the west midlands, Yorkshire, Humberside, the north-west, Scotland and Wales, unemployment stands at between 13 and 14 per cent. In the northern region, it stands at 16 per cent. For the south-east and East Anglia the figures are 8.4 per cent. and 8.7 per cent. respectively.

Regional policy has in the past seven years virtually collapsed. The industrial development certificates have been abolished, assisted areas greatly reduced in size and the value of grants and tax allowances greatly reduced. In so far as we have a regional policy, it is no longer to bring work to unemployed workers but that workers have to migrate to wherever the jobs are. That is the "get on your bike" philosophy so vividly prescribed by the Chancellor of the Duchy of Lancaster.

However, that retrograde policy is up against three major obstacles. First, the structure plans of the county councils in the south-east and south-west simply do not permit the necessary land for housebuilding to be made available. Secondly, even where the land is available, massive reduction in house building ensures a chronic housing shortage, particularly of housing to let in the greater part of southern England. Thirdly, as a consequence of the shortage of land and houses, the price of houses in the London area and the commuter districts has soared. A semi-detached house of similar quality costs two to three times more in London and the commuter areas around our capital city than in the midlands, the north, the north-west, Wales or Scotland.

As people must have homes in order to work, we now have the absurd position of actual labour shortages in parts of the south-east. People are able and willing to do the work, but as they are unable to find accommodation they are forced to stay put in the north. The third of our social divisions which has been vastly accentuated is the concentration of poverty and unemployment in the inner cities of our major conurbations. The Government have never challenged the special partnership status that the previous Labour Government accorded to the seven most deprived inner-city areas of Britain. Yet they have taken away from precisely those areas through cuts in the housing investment programme and rate support grant cuts to the tune of £900 million a year. The final irony is that following this year's rate support grant order, no fewer than nine of the 14 district councils that are acknowledged to have the greatest need, have been rate-capped for alleged overspending.

The prospect for our society after seven years of unrestrained Thatcherism is grim indeed. It is against that background of social crisis and economic failure that we have to judge this year's Queen's Speech. What have the Government to say about all these economic and social problems? They say just two things. First: My Government's firm monetary and fiscal policies will continue to restrain inflation and foster the conditions necessary for further sustained economic growth. Secondly, they say: My Government will maintain firm control of public expenditure, so that it may continue to fall as a proportion of the Nation's income and permit further reductions in the burden of taxation. That is hardly a clarion call.

A week last Monday at the Lord Mayor's banquet, the Prime Minister noted the city's memorial to William Pitt the Younger, and quoted the following lines: He repaired the exhausted revenue; he revived and "invigorated the commerce and prosperity of the country; he re-established the public credit on deep and sure foundations. The Prime Minister went on to say: I would like to think that the same will be said of this Government. It will not be said of this Government. Rather, it will be said that the Prime Minister and her Cabinet squandered the greatest opportunity—the vast output of North sea oil—that any British Government have had this century; that they have piled taxes and burdens upon the people and squandered the great public assets that successive Governments have built up since the war; that they have brought poverty and unemployment to millions of our fellow countrymen; and that they have divided the country afresh, rich and poor, north and south. They are, in sum, a Government unworthy of the people whom they claim to represent.

9.34 pm
The Lord Privy Seal and Leader of the House of Commons (Mr. John Biffen)

This debate began one week ago with distinguished speeches from my right hon. and learned Friend the Member for Hexham (Mr. Rippon) and my hon. Friend the Member for Oxford, East (Mr. Norris). Both contributions had a lightness of touch which launched the debate in a happy manner. The House will be the poorer without my right hon. and learned Friend the Member for Hexham after the next election.

Mr. Kinnock

He is leaving the sinking ship.

Mr. Biffen

The Leader of the Opposition should not start prattling about sinking ships.

Mr. Kinnock

I was simply pointing out, in the same felicitous tone as the Leader of the House, that the departure of the right hon. and learned Member for Hexham (Mr. Rippon) and of the Conservative Government will be one of the few instances in history in which the ship sank because it got lighter.

Mr. Biffen

The House will have the rest of the Session to work out that convoluted humour. It will also console itself with the continuing membership of my hon. Friend the Member for Oxford, East as he converts that area into a bastion of Toryism.

The debate on the Address has frequently been the occasion for the House to welcome maiden speeches. On this occasion there have been no maiden speeches, but we were in the unusual position of seeing a new Member introduced during the course of the debate. I am sure that the House will wish to join me in welcoming the new Member for Knowsley, North (Mr. Howarth). It is not for me to intrude into the local difficulties of the Labour party on Merseyside, but I believe that the hon. Gentleman is the standard bearer of authentic Socialism—I can think of no more wounding comment than that.

The Queen's Speech and the debate on the Humble Address are essentially traditional occasions. Although the subjects chosen for each day's debate vary from year to year, it is customary for the Leader of the House to wind up the whole debate. On this occasion, although speaking traditionally, I propose to introduce an innovation by giving the House some modest but early guidance about the expected dates of the Easter recess. [Interruption.] There seems to be greater alertness about this than about the size of the public sector borrowing requirement. The innovation arises because of the late timing of Easter and I appreciate that for political and other reasons Members would like to know the Government's intentions. I can tell the House that it is our intention that the Easter recess should largely precede rather than, as is customary, follow Easter day. The exact dates will, of course, be subject to the progress of business.

In the present climate of speculation about the date of the general election, the announcement of any date, however anodyne, causes acute fever among election spotters. Nor is it merely the announcement of dates which serves to fuel the speculation — on this occasion the contents of the Queen's Speech itself have been seen by some as raising the temperature of election fever. As a business manager, I strongly contest the view of those who see the programme outlined in the Queen's Speech as "disposable" and "throwaway". I believe that serious consideration of the measures contained in it show it to be a programme which will properly engage the parliamentary resources of the Session. In that context, I was delighted at the wholly unrehearsed intervention of my hon. Friend the Member for Stamford and Spalding (Sir K. Lewis) earlier today when he arrived, like one bringing the good news from Ghent or wherever in more poetic circumstances, to assure the House that there would not be an early election.

I have noticed a particular nervousness on the Opposition Benches. All the talk, frenzied chatter, neurosis and advice, especially from the right hon. Member for Plymouth, Devonport (Dr. Owen) who said we should cut and get the beastly business over, as if the prisoner found himself in the condemned cell without even a packet of razor blades, is to be contrasted with the quiet confidence of the Conservative Members, who know that we are here to carry out a task for the Session.

The Queen's Speech refers to 19 measures but the full programme, of course, is more extensive than those measures mentioned specifically. Last Session we introduced 34 Bills, and I do not expect this Session's programme to fall far short of that total.

As I suggested earlier, there has been comment that this Session's programme is lacking in substance and contentiousness. To rebut that, I need do no more than draw the House's attention to a few of the Bills which will be before us in the forthcoming months. They underline the priorities of the Government.

Among the most important must be the Criminal Justice Bill. Its provisions support our determination to uphold the protective role of law, without which no social order can survive. In particular, the Bill contains wide powers for the confiscation of the proceeds of profitable crime, measures for tackling fraud and provisions to improve the position of the victims of crime.

Secondly, I refer to the Consumer Protection Bill which we introduced yesterday in another place. That represents a major gain for consumers, especially in terms of safety. In particular it will ensure that consumers can more readily secure compensation for personal injuries caused by defective products, and will require suppliers to ensure the safety of all consumer goods, not just those covered by specific safety regulations. It will also give consumers greater protection from misleading price indications such as bogus "bargain offers". Furthermore, it should ease trade within the European Community through similar national product liability laws. I believe that it will be widely welcomed.

Finally, I draw the House's attention to the Bill which is designed to replace rates with a community charge as the basis for local authority finance in Scotland. My right hon. and learned Friend the Secretary of State for Scotland has said that that Bill will soon be presented to the House, and furthermore its general contents have been widely anticipated. I accept at once that that is a contentious matter, but at long last the acute problems of local authority finance are being converted from academic and armchair analysis to the testing house of political debate and decision.

I shall now refer to some of the more general issues that have featured in the debate, not only this afternoon but through the several days that have preceded it. There are two topics on which I think the House would wish to reflect, if Opposition Members are so benign as to reflect at this stage of the debate. The first is defence and the second is the economy.

As ever, my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) had some harsh things to say about party conferences, with which I wholly concur. From time to time it is difficult to avoid them and it is even possible that they do have some significance. Therefore, I feel that I have to pay some regard to the party conference of the Labour party at Blackpool this year when decisions were taken to decommission Polaris, for the immediate cancellation of Trident and for the removal of United States nuclear bases from Britain. [HoN. MEMBERS: "Hear, hear. It is so nice to know that the party conference decisions are now being echoed to the rafters in this Chamber.

The first and most charitable thing that one can say about those decisions is that they set out the long-standing hostility of some Labour Members to nuclear weapons in any case. [HON. MEMBERS: "Hear, hear."] I am grateful for the confirmation. Secondly, they demonstrate the significance and influence of neutralists within the Labour party. What we are now seeing, not in any crisp or concise evolution, is the drift towards a sort of undefended fortress Britain.

The right hon. Member for Bethnal Green and Stepney (Mr. Shore) was kind enough to refer to the younger Pitt in his speech. He had not acquainted me with his intention of doing so. I do not object, but I am rather pleased because I also have a quotation from the younger Pitt, which is apposite. At this stage of the 20th century, this country exercises, in the world at large, only a modest amount of direct authority. It exercises influence through the network of alliances to which it assigns itself. What is now proposed has to be tested against Pitt's observation: England has saved herself by her exertions, and will, as I trust, save Europe by her example. What do we suppose will be the influence of that conference defence decision on the other countries with whom we are neighbours and close allies? What will be the impact? What will be the influence on the Federal Republic of Germany? Is it not just the type of decision that will sustain the strong anti-nuclear sentiments of the SPD—the Social Democratic party—in Germany, which is committed to the withdrawal of all nuclear weapons from German soil? Is not that just the sort of boost that it would wish from a major partner in NATO?

What will he the impact in France, which for decades has had merely an arm's-length relationship with many of its NATO commitments? Is not that the sort of decision that will reinforce that French ambiguity about its membership of NATO? Finally, what will be the influence exerted in the United States? Is it not precisely the decision that will confirm the views of isolationists and others in the United States, who would rather deal direct with the Soviet Union than have any regard for the European aspect of the NATO partnership? Make no mistake, what was decided at Blackpool was a dangerous leap into the dark. It is much more about neutralism than about recasting the NATO Alliance. The electorate will have their opportunity to make their judgment. [HON. MEMBERS. "Hear, hear."I Once again, we are delighted to know from the applause of Opposition Members that they want this matter to be at the forefront as and when the popular decision comes.

I now come to economic affairs. [Laughter.] I can understand the nervousness of those on Opposition Benches, but it is clear that that is a major matter for the House as it surveys the Session ahead. I suspect that there will be an amplitude of economic debate, even outside the situations specifically provided for in the Queen's Speech. Today's debate will take forward the broad strategy of the Treasury Bench and the Conservative party to promote a social market economy, the key feature of which is monetary stability, a spread of ownership and institutional reform. As those factors will detain us during the coming Session, I shall say a quick word about each.

The central feature of the Government's economic policy must be the tremendous success in bringing down the rate of inflation to where it now stands at 3 per cent. That remains the continuing objective, and this afternoon my right hon. Friend the Chancellor has made it more than abundantly clear that in no sense does the autumn statement and the public spending proposals therein contained infringe or undermine that objective. My right hon. Friend the Chancellor said: The Government's fiscal stance has been clearly set out in the medium-term financial strategy published at the time of this year's Budget. There will he no relaxation of that stance."—[Official Report, 6 November 1986; Vol. 103, c. 1084.] Those who care to read this afternoon's debate will know that it is accepted that inflation has a consequence for tax policy. The Government are determined to place the integrity of an inflation policy ahead of any other short-term considerations that might have attracted others—such as in the 1974 Budget, I recollect, when the right hon. Member for Leeds, East (Mr. Healey) had the most contrived reduction of value added tax — the most cynical piece of statistical dressing that this country has ever suffered.

The other point which is also clear is that the policy of stable prices, and the evident success that is represented by today's inflation figure of around 3 per cent., is now being partnered by a growing record of sustained economic growth. For those who disparage the figure because it is but 3 per cent., the truth is that that is very much a good performance given the historical standards of Britain—a point which was made well by my hon. Friend the Member for Suffolk, South (Mr. Yeo).

The other desperately miserable and demoralising news for the Opposition Benches is that now there appears to be the likelihood of a new trend in the employment figures. For the past three months the average fall has been 19,000. The unfilled vacancies, a figure that cannot conceivably have been affected by the changes in the count, now stand at 213,000—the highest figure for seven years. We shall look forward to continuing debates about this and related subjects in the months that lie ahead.

Let me deal with the second aspect of the social market economy as it is now being developed by the Conservative party and the Government. I refer to the spread in ownership which was referred to as — we shall never know the context, but those in the Chamber, as I was, will have heard the description — immoral when describing the policies of privatisation and the wider spread of possession that goes with it. That is not just a question of shares that have hitherto been in state-owned activities; there are 2 million more home owners now than there were in 1979, 1 million of whom are accounted for by the switch from local authority ownership to home ownership.

We have had an ambitious privatisation programme which has been highly successful. There has been awakened a public interest in the concept of share owning which is immensely disagreeable for the Opposition Benches because they know that at the end of the day popular ownership in Britain's assets lies uneasily with their concepts of Socialism and centralism.

Twelve per cent. of the adult population are now share owners and after the next Parliament — I speak in anticipation of a future Queen's Speech—there will be every intention to take that ahead with further privatisation and an increase in the imaginative tax plans that my right hon. Friend the Chancellor has developed to encourage a popular basis of ownership in Britain.

My third point relates to the reform of institutions. Reference was made to that this afternoon. In this Parliament there has been major trade union reforin—a measure which has received wide acclamation on the Conservative Benches. There have been few hesitations about the primacy of that programme.

Leaving aside the libertarian arguments, which are substantial and meritorious, we see strikes at their lowest level for about 50 years. The message that the House must convey to the wider public has to do with whether that institutional reform is to stand or whether it will be challenged in any effective sense by the Opposition Benches.

Mr. Nicholls

My right hon. Friend will accept that we already know the threat posed to that legislation by the Labour party. Is he able to understand at all the different strands on it in the alliance, and from his readings of alliance policies, can he say how much the alliance threatens that legislation?

Mr. Biffen

That shows the great merit of having a Queen's Speech and a parliamentary Session in which such matters can be further canvassed because they cannot be canvassed during the interstices of my peroration this evening. But I agree with my hon. Friend.

There remains also the question of other areas of major institutional reform, and here I echo the remarks of my right hon. Friend the Member for Cambridgeshire, South-East (Mr. Pym) when he said that education is an area in which there could now be a major development. I am certain that my right hon. Friend the Secretary of State for Education and Science will be anxious to build upon the Education Act 1986, which has given a sign already of the importance that we attach to strengthening the school as a major point of decision in the education process. I think that there will be great encouragement from the development of the city technology colleges, which is an attempt to bring innovation and a return of the sense of excellence to our education system. When it comes to further reforms, my right hon. Friend will be looking round and about to gain inspiration. Perhaps I could do no better than to quote the spokesman of the Council of Local Education Authorities in the February 1985 edition of "Education". He said: We now have irrefutable evidence of the Burnham Committee's inadequacy in resolving the current problems of pay and conditions of service. These are all areas that will be available for the House to debate in the Session that will unroll and reflect the Queen's Speech. The Queen's Speech outlines policies that will sustain and extend the social market economy that was initiated in 1979. That approach to our national afairs will be subject to sustained debate in this place and in another place over the coming months, and that debate will not be only for the self-appointed elitists of Westminster and Whitehall and the quality end of Fleet street. The debate is intended for popular judgment and endorsement, and that is what causes anxieties on the Opposition Benches.

The two sides of the House are divided by much more than a carpeted strip. Labour Members, no less than Liberals and Social Democrats, have a series of common beliefs in the conduct of economic policies. They believe in substantially higher public spending, that would be partly matched by higher taxes and partly by greater borrowing. They believe in greater Whitehall regulation and control of the economy. The scope is considerable, ranging from the political direction of pension funds to a tentative revival of price and incomes policies. The right hon. Member for Devonport, the leader of the Social Democratic party, helpfully reminded the House of how significant all that could be if his party were to have some decisive say.

This is a rehabilitation of the policies of Labour Governments of the mid-1960s and late 1970s. Those were the policies that were cheerfully and jointly undertaken by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) and by Mrs. Shirley Williams, the dream ticket of yesteryear. I have no doubt that there is, even now, a Lib-Lab common sympathy that could sustain these policies should the parliamentary situation require it. It is the determination of the Government side of the House, however, that the Leader of the Opposition should not be elected to this Treasury Bench, whether or not he receives the support of the Liberals and Social Democrats.

The present economic policies of the Opposition look back to the 1970s, back to the inflation of those years and the imposed advice of the International Monetary Fund. That is the most unproductive form of nostalgia. The Opposition's defence policies are a gamble and no more than the uncertain wisdoms of a Labour party conference. A nation's security deserves more than that.

The Queen's Speech—[Interruption.] I am sorry that it is so wounding for Opposition Members as the field is drawn out across which we shall debate the content of the Queen's Speech during the coming Session, but I want them to be under no misapprehension. We intend to carry this programme through to its conclusion. It is a constructive Queen's Speech and it happens to serve the admirable task of enabling the House in its debates, arguments and postures to show to the world outside, and in advance, just what is at stake at the next general election. Whether that is in terms of defence or an effective economic policy, we shall look forward to the test, will relish the challenge, and will respect the verdict.

Question put, That the amendment be made:—

The House divided: Ayes 206, Noes 354.

Division No. 2] [10.00 pm
Abse, Leo Dunwoody, Hon Mrs G.
Adams, Allen (Paisley N) Eadie, Alex
Alton, David Eastham, Ken
Anderson, Donald Edwards, Bob (W'h'mpt'n SE)
Archer, Rt Hon Peter Evans, John (St. Helens N)
Ashley, Rt Hon Jack Fatchett, Derek
Ashton, Joe Faulds, Andrew
Atkinson, N. (Tottenham) Field, Frank (Birkenhead)
Bagier, Gordon A. T. Fields, T. (L'pool Broad Gn)
Banks, Tony (Newham NW) Fisher, Mark
Barnett, Guy Flannery, Martin
Barron, Kevin Foot, Rt Hon Michael
Beckett, Mrs Margaret Foster, Derek
Beith, A. J. Fraser, J. (Norwood)
Bell, Stuart Freeson, Rt Hon Reginald
Benn, Rt Hon Tony Freud, Clement
Bennett, A. (Dent'n & Red'sh) Garrett, W. E.
Bermingham, Gerald George, Bruce
Bidwell, Sydney Gilbert, Rt Hon Dr John
Blair, Anthony Godman, Dr Norman
Boothroyd, Miss Betty Golding, Mrs Llin
Bray, Dr Jeremy Gould, Bryan
Brown, Gordon (D'f'mline E) Gourlay, Harry
Brown, N. (N'c'tle-u-Tyne E) Hamilton, James (M'well N)
Brown, R. (N'c'tle-u-Tyne N) Hamilton, W. W. (File Central)
Brown, Ron (E'burgh, Leith) Hancock, Michael
Bruce, Malcolm Hardy, Peter
Buchan, Norman Harrison, Rt Hon Walter
Callaghan, Rt Hon J. Hart, Rt Hon Dame Judith
Callaghan, Jim (Heyw'd & M) Hattersley, Rt Hon Roy
Campbell, Ian Healey, Rt Hon Denis
Campbell-Savours, Dale Heffer, Eric S.
Canavan, Dennis Hogg, N. (C'nauld & Kilsyth)
Carlile, Alexander (Montg'y) Home Robertson, John
Carter-Jones, Lewis Howells, Geraint
Cartwright, John Hughes, Dr Mark (Durham)
Clark, Dr David (S Shields) Hughes, Roy (Newport East)
Clarke, Thomas Hughes, Simon (Southwark)
Clay, Robert Hume, John
Clelland, David Gordon Janner, Hon Greville
Cohen, Harry Jenkins, Rt Hon Roy (Hillh'd)
Coleman, Donald Johnston, Sir Russell
Conlan, Bernard Jones, Barry (Alyn & Deeside)
Cook, Frank (Stockton North) Kaufman, Rt Hon Gerald
Cook, Robin F. (Livingston) Kilfedder, James A.
Corbett, Robin Kinnock, Rt Hon Neil
Corbyn, Jeremy Kirkwood, Archy
Craigen, J. M. Lambie, David
Cunliffe, Lawrence Lamond, James
Cunningham, Dr John Leadbitter, Ted
Dalyell, Tarn Leighton, Ronald
Davies, Rt Hon Denzil (L'lli) Lewis, Ron (Carlisle)
Davis, Terry (B'ham, H'ge H'I) Lewis, Terence (Worsley)
Deakins, Eric Livsey, Richard
Dewar, Donald Lloyd, Tony (Stretford)
Dixon, Donald Lofthouse, Geoffrey
Dobson, Frank Loyden, Edward
Dormand, Jack McCartney, Hugh
Douglas, Dick McDonald, Dr Oonagh
Dubs, Alfred McGuire, Michael
Duffy, A. E. P. McKay, Allen (Penistone)
McKelvey, William Rogers, Allan
MacKenzie, Rt Hon Gregor Rooker, J. W.
Maclennan, Robert Ross, Ernest (Dundee W)
McNamara, Kevin Ross, Stephen (Isle of Wight)
McTaggart, Robert Rowlands, Ted
McWilliam, John Sheerman, Barry
Madden, Max Sheldon, Rt Hon R.
Mallon. Seamus Shields, Mrs Elizabeth
Marek, Dr John Shore, Rt Hon Peter
Marshall, David (Shettleston) Short, Ms Clare (Ladywood)
Martin, Michael Short, Mrs R.(W'hampt'n NE)
Mason, Rt Hon Roy Silkin, Rt Hon J.
Maxton, John Skinner, Dennis
Maynard, Miss Joan Smith, C.(Isl'ton S & F'bury)
Meacher, Michael Smith, Cyril (Rochdale)
Meadowcroft, Michael Smith, Rt Hon J. (M'ds E)
Michie, William Soley, Clive
Mikardo, Ian Steel, Rt Hon David
Millan, Rt Hon Bruce Stewart, Rt Hon D. (W Isles)
Morris, Rt Hon A. (W'shawe) Stott, Roger
Morris, Rt Hon J. (Aberavon) Strang, Gavin
Nellist, David Straw, Jack
Oakes, Rt Hon Gordon Thomas, Dafydd (Merioneth)
O'Brien, William Thomas, Dr R. (Carmarthen)
O'Neill, Martin Thorne, Stan (Preston)
Orme. Rt Hon Stanley Tinn, James
Owen, Rt Hon Dr David Torney, Tom
Park, George Wainwright, R.
Parry, Robert Wallace, James
Patchett, Terry Warden, Gareth (Gower)
Pavitt, Laurie Wareing, Robert
Pendry, Tom Weetch, Ken
Penhaligon, David Welsh, Michael
Pike, Peter White. James
Powell, Raymond (Ogmore) Wigley, Dafydd
Radice, Giles Williams, Rt Hon A.
Randall, Stuart Wilson, Gordon
Raynsford, Nick Winnick, David
Redmond, Martin Woodall, Alec
Rees, Rt Hon M. (Leeds S) Wrigglesworth, Ian
Richardson, Ms Jo
Roberts, Ernest (Hackney N) Tellers for the Ayes:
Robertson, George Mr. Ron Davies and
Robinson, G. (Coventry NW) Mr. Sean Hughes.
Adley, Robert Brandon-Bravo, Martin
Aitken, Jonathan Bright, Graham
Alexander, Richard Brinton, Tim
Alison, Rt Hon Michael Brittan, Rt Hon Leon
Amess, David Brooke, Hon Peter
Ancram, Michael Brown, M. (Brigg & Cl'thpes)
Arnold, Tom Browne, John
Ashby, David Bruinvels, Peter
Aspinwall, Jack Bryan, Sir Paul
Atkins, Rt Hon Sir H. Buchanan-Smith, Rt Hon A.
Atkins, Robert (South Ribble) Buck, Sir Antony
Atkinson, David (B'm'th E) Budgen, Nick
Baker, Rt Hon K. (Mole Vall'y) Burt, Alistair
Baker, Nicholas (Dorset N) Butcher, John
Baldry, Tony Butler, Rt Hon Sir Adam
Banks, Robert (Harrogate) Butterfill, John
Batiste, Spencer Carlisle, John (Luton N)
Beaumont-Dark, Anthony Carlisle, Kenneth (Lincoln)
Bellingham, Henry Carlisle, Rt Hon M. (W'ton S)
Bendall, Vivian Carttiss, Michael
Benyon, William Cash, William
Bevan, David Gilroy Chalker, Mrs Lynda
Biffen, Rt Hon John Channon, Rt Hon Paul
Biggs-Davison, Sir John Chapman, Sydney
Blackburn, John Chope, Christopher
Blaker, Rt Hon Sir Peter Clark, Hon A. (Plym'th S'n)
Body, Sir Richard Clark, Dr Michael (Rochford)
Bonsor, Sir Nicholas Clark, Sir W. (Croydon S)
Bottomley, Peter Clarke, Rt Hon K. (Rushcliffe)
Bottomley, Mrs Virginia Clegg, Sir Walter
Bowden, A. (Brighton K'to'n) Cockeram, Eric
Bowden, Gerald (Dulwich) Colvin, Michael
Boyson, Dr Rhodes Conway, Derek
Braine, Rt Hon Sir Bernard Coombs, Simon
Cope, John Howard, Michael
Cormack, Patrick Howarth, Alan (Stratf'd-on-A)
Corrie, John Howarth, Gerald (Cannock)
Cranborne, Viscount Howell, Rt Hon D. (G'ldford)
Critchley, Julian Howell, Ralph (Norfolk, N)
Crouch, David Hubbard-Miles, Peter
Currie, Mrs Edwina Hunt, David (Wirral W)
Dickens, Geoffrey Hunt, John (Ravensbourne)
Dorrell, Stephen Hunter, Andrew
Douglas-Hamilton, Lord J. Hurd, Rt Hon Douglas
Dover, Den Irving, Charles
du Cann, Rt Hon Sir Edward Jackson, Robert
Dunn, Robert Jenkin, Rt Hon Patrick
Durant, Tony Jessel, Toby
Edwards, Rt Hon N. (P'broke) Johnson Smith, Sir Geoffrey
Emery, Sir Peter Jones, Gwilym (Cardiff N)
Evennett, David Jones, Robert (Herts W)
Fairbairn, Nicholas Jopling, Rt Hon Michael
Fallon, Michael Joseph, Rt Hon Sir Keith
Farr, Sir John Kellett-Bowman, Mrs Elaine
Favell, Anthony Kershaw, Sir Anthony
Fenner, Dame Peggy Key, Robert
Finsberg, Sir Geoffrey King, Roger (B'ham N'field)
Fletcher, Alexander King, Rt Hon Tom
Fookes, Miss Janet Knight, Greg (Derby N)
Forman, Nigel Knight, Dame Jill (Edgbaston)
Forsyth, Michael (Stirling) Knowles, Michael
Forth, Eric Knox, David
Fowler, Rt Hon Norman Lamont, Rt Hon Norman
Fox, Sir Marcus Lang, Ian
Franks, Cecil Latham, Michael
Fraser, Peter (Angus East) Lawler, Geoffrey
Freeman, Roger Lawrence, Ivan
Fry, Peter Lawson, Rt Hon Nigel
Gale, Roger Lee, John (Pendle)
Galley, Roy Leigh, Edward (Gainsbor'gh)
Gardiner, George (Reigate) Lennox-Boyd, Hon Mark
Gardner, Sir Edward (Fylde) Lester, Jim
Gilmour, Rt Hon Sir Ian Lewis, Sir Kenneth (Stamf'd)
Glyn, Dr Alan Lightbown, David
Goodhart, Sir Philip Lilley, Peter
Goodlad, Alastair Lloyd, Sir Ian (Havant)
Gorst, John Lloyd, Peter (Fareham)
Gow, Ian Lord, Michael
Gower, Sir Raymond Luce, Rt Hon Richard
Grant, Sir Anthony Lyell, Nicholas
Greenway, Harry McCrindle, Robert
Gregory, Conal McCurley, Mrs Anna
Griffiths, Sir Eldon Macfarlane, Neil
Griffiths, Peter (Portsm'th N) MacGregor, Rt Hon John
Grist, Ian MacKay, Andrew (Berkshire)
Ground, Patrick MacKay, John (Argyll & Bute)
Grylls, Michael Maclean, David John
Gummer, Rt Hon John S McLoughlin, Patrick
Hamilton, Neil (Tatton) McNair-Wilson, M. (N'bury)
Hanley, Jeremy McNair-Wilson, P. (New F'st)
Hannam, John McQuarrie, Albert
Hargreaves, Kenneth Major, John
Harris, David Malins, Humfrey
Harvey, Robert Malone, Gerald
Havers, Rt Hon Sir Michael Maples, John
Hawkins, Sir Paul (N'folk SW) Marland, Paul
Hawksley, Warren Marshall, Michael (Arundel)
Hayes, J. Mates, Michael
Hayhoe, Rt Hon Barney Mather, Carol
Hayward, Robert Maude, Hon Francis
Heath, Rt Hon Edward Mawhinney, Dr Brian
Heathcoat-Amory, David Mayhew, Sir Patrick
Heddle, John Mellor, David
Henderson, Barry Merchant, Piers
Heseltine, Rt Hon Michael Meyer, Sir Anthony
Hickmet, Richard Miller, Hal (B'grove)
Higgins, Rt Hon Terence L. Mills, Iain (Meriden)
Hill, James Mills, Sir Peter (West Devon)
Hind, Kenneth Miscampbell, Norman
Hirst, Michael Mitchell, David (Hants NW)
Hogg, Hon Douglas (Gr'th'm) Moate, Roger
Holland, Sir Philip (Gedling) Monro, Sir Hector
Holt, Richard Montgomery, Sir Fergus
Hordern, Sir Peter Moore, Rt Hon John
Morrison, Hon C. (Devizes) Smith, Sir Dudley (Warwick)
Morrison, Hon P. (Chester) Smith, Tim (Beaconsfield)
Moynihan, Hon C. Soames, Hon Nicholas
Mudd, David Speed, Keith
Murphy, Christopher Speller, Tony
Neale, Gerrard Spencer, Derek
Needham, Richard Spicer, Jim (Dorset W)
Nelson, Anthony Spicer, Michael (S Worcs)
Neubert, Michael Stanbrook, Ivor
Nicholls, Patrick Steen, Anthony
Normanton, Tom Stern, Michael
Norris, Steven Stewart, Allan (Eastwood)
Onslow, Cranley Stewart, Andrew (Sherwood)
Oppenheim, Phillip Stewart, Ian (Hertf'dshire N)
Oppenheim, Rt Hon Mrs S. Sumberg, David
Ottaway, Richard Tapsell, Sir Peter
Page, Richard (Herts SW) Taylor, John (Solihull)
Parkinson, Rt Hon Cecil Taylor, Teddy (S'end E)
Patten, J. (Oxf W & Abgdn) Tebbit, Rt Hon Norman
Pattie, Geoffrey Temple-Morris, Peter
Pawsey, James Thatcher, Rt Hon Mrs M.
Peacock, Mrs Elizabeth Thompson, Donald (Calder V)
Percival, Rt Hon Sir Ian Thompson, Patrick (N'ich N)
Pollock, Alexander Thorne, Neil (Ilford S)
Portillo, Michael Thornton, Malcolm
Powell, William (Corby) Thurnham, Peter
Powley, John Townend, John (Bridlington)
Prentice, Rt Hon Reg Townsend, Cyril D. (B'heath)
Price, Sir David Tracey, Richard
Prior, Rt Hon James Trippier, David
Proctor, K. Harvey Trotter, Neville
Pym, Rt Hon Francis Twinn, Dr Ian
Raffan, Keith van Straubenzee, Sir W.
Raison, Rt Hon Timothy Vaughan, Sir Gerard
Rathbone, Tim Viggers, Peter
Rees, Rt Hon Peter (Dover) Waddington, David
Renton, Tim Wakeham, Rt Hon John
Rhodes James, Robert Waldegrave, Hon William
Rhys Williams, Sir Brandon Walden, George
Ridley, Rt Hon Nicholas Walker, Rt Hon P. (W'cester)
Ridsdale, Sir Julian Wall, Sir Patrick
Rifkind, Rt Hon Malcolm Waller, Gary
Rippon, Rt Hon Geoffrey Walters, Dennis
Roberts, Wyn (Conwy) Ward, John
Robinson, Mark (N'port W) Wardle, C. (Bexhill)
Roe, Mrs Marion Watson, John
Rossi, Sir Hugh Watts, John
Rost, Peter Wells, Sir John (Maidstone)
Rowe, Andrew Wheeler, John
Rumbold, Mrs Angela Whitfield, John
Ryder, Richard Whitney, Raymond
Sackville, Hon Thomas Wiggin, Jerry
Sainsbury, Hon Timothy Wilkinson, John
St. John-Stevas, Rt Hon N. Winterton, Mrs Ann
Sayeed, Jonathan Winterton, Nicholas
Scott, Nicholas Wolfson, Mark
Shaw, Giles (Pudsey) Wood, Timothy
Shaw, Sir Michael (Scarb') Yeo, Tim
Shelton, William (Streatham) Young, Sir George (Acton)
Shepherd, Colin (Hereford) Younger, Rt Hon George
Shepherd, Richard (Aldridge)
Shersby, Michael Tellers for the Noes:
Silvester, Fred Mr. Robert Boscawen and
Sims, Roger Mr. Tristan Garel-Jones.
Skeet, Sir Trevor

Question accordingly negatived.

Amendment proposed, pursuant to Standing Order No. 32 (Calling of amendments at end of debate), at the end of the Question to add: But humbly regret that the Gracious Speech is irrelevant to the country's most pressing problems: unemployment, poverty, falling standards in the health and social services, and the serious decline in British manufacturing industry; believe that present Government policies have generated a short-term pre-election consumer boom, and that record levels of real interest rates and rising unit costs are undermining Britain's competitiveness; call on the Government to enter the exchange rate mechanism of the European Monetary System, to adopt a more vigorous competition policy, and substantially to increase investment in skill training; further regret the inclusion in the Speech of a measure to replace domestic rates in Scotland with a regressive poll tax rather than a more equitable local income tax; and finally regret that, in what is likely to be the last Gracious Speech before the general election, there is no proposal to reform the electoral system for local, Westminster and European elections despite the deficiencies in the current system, which distorts the wishes of the people and produces divisive governments supported by only a minority of the electorate.—[Dr. Owen]

Question put, That the amendment be made:

The House divided: Ayes 26, Noes 352.

Division No. 3] [10.14 pm
Beith, A. J. Owen, Rt Hon Dr David
Bruce, Malcolm Penhaligon, David
Carlile, Alexander (Montg'y) Ross, Stephen (Isle of Wight)
Freud, Clement Shields, Mrs Elizabeth
Hancock, Michael Smith, Cyril (Rochdale)
Howells, Geraint Steel, Rt Hon David
Hughes, Simon (Southwark) Thomas, Dafydd (Merioneth)
Hume, John Wainwright, R.
Jenkins, Rt Hon Roy (Hillh'd) Wallace, James
Johnston, Sir Russell Wigley, Dafydd
Kirkwood, Archy Wrigglesworth, Ian
Livsey, Richard
Maclennan, Robert Tellers for the Ayes:
Mallon, Seamus Mr. John Cartwright and
Meadowcroft, Michael Mr. David Alton.
Adley, Robert Budgen, Nick
Aitken, Jonathan Burt, Alistair
Alexander, Richard Butcher, John
Alison, Rt Hon Michael Butler, Rt Hon Sir Adam
Amess, David Butterfill, John
Ancram, Michael Carlisle, John (Luton N)
Arnold, Tom Carlisle, Kenneth (Lincoln)
Ashby, David Carlisle, Rt Hon M. (W'ton S)
Aspinwall, Jack Carttiss, Michael
Atkins, Rt Hon Sir H. Cash, William
Atkins, Robert (South Ribble) Chalker, Mrs Lynda
Atkinson, David (B'm'th E) Channon, Rt Hon Paul
Baker, Rt Hon K. (Mole Vall'y) Chapman, Sydney
Baker, Nicholas (Dorset N) Chope, Christopher
Baldry, Tony Clark, Hon A. (Plym'th S'n)
Banks, Robert (Harrogate) Clark, Dr Michael (Rochford)
Batiste, Spencer Clark, Sir W. (Croydon S)
Beaumont-Dark, Anthony Clarke, Rt Hon K. (Rushcliffe)
Bellingham, Henry Clegg, Sir Walter
Bendall, Vivian Cockeram, Eric
Benyon, William Colvin, Michael
Bevan, David Gilroy Conway, Derek
Biffen, Rt Hon John Coombs, Simon
Biggs-Davison, Sir John Cope, John
Blackburn, John Cormack, Patrick
Blaker, Rt Hon Sir Peter Corrie, John
Body, Sir Richard Cranborne, Viscount
Bonsor, Sir Nicholas Critchley, Julian
Bottomley, Peter Crouch, David
Bottomley, Mrs Virginia Currie, Mrs Edwina
Bowden, A. (Brighton K'to'n) Dickens, Geoffrey
Bowden, Gerald (Dulwich) Dorrell, Stephen
Boyson, Dr Rhodes Douglas-Hamilton, Lord J.
Braine, Rt Hon Sir Bernard Dover, Den
Brandon-Bravo, Martin du Cann, Rt Hon Sir Edward
Bright, Graham Dunn, Robert
Brinton, Tim Durant, Tony
Brittan, Rt Hon Leon Edwards, Rt Hon N. (P'broke)
Brooke, Hon Peter Emery, Sir Peter
Brown, M. (Brigg & Cl'thpes) Evennett, David
Browne, John Fairbairn, Nicholas
Bruinvels, Peter Fallon, Michael
Bryan, Sir Paul Farr, Sir John
Buchanan-Smith, Rt Hon A. Favell, Anthony
Buck, Sir Antony Fenner, Dame Peggy
Finsberg, Sir Geoffrey King, Roger (B'ham N'field)
Fletcher, Alexander King, Rt Hon Tom
Fookes, Miss Janet Knight, Greg (Derby N)
Forman, Nigel Knight, Dame Jill (Edgbaston)
Forsyth, Michael (Stirling) Knowles, Michael
Forth, Eric Knox, David
Fowler, Rt Hon Norman Lamont, Rt Hon Norman
Fox, Sir Marcus Lang, Ian
Franks, Cecil Latham, Michael
Fraser, Peter (Angus East) Lawler, Geoffrey
Freeman, Roger Lawrence, Ivan
Fry, Peter Lawson, Rt Hon Nigel
Gale, Roger Lee, John (Pendle)
Galley, Roy Leigh, Edward (Gainsbor'gh)
Gardiner, George (Reigate) Lennox-Boyd, Hon Mark
Gardner, Sir Edward (Fylde) Lester, Jim
Gilmour, Rt Hon Sir Ian Lewis, Sir Kenneth (Stamf'd)
Glyn, Dr Alan Lightbown, David
Goodhart, Sir Philip Lilley, Peter
Goodlad, Alastair Lloyd, Sir Ian (Havant)
Gorst, John Lloyd, Peter (Fareham)
Gow, Ian Lord, Michael
Gower, Sir Raymond Luce, Rt Hon Richard
Grant, Sir Anthony Lyell, Nicholas
Greenway, Harry McCrindle, Robert
Gregory, Conal McCurley, Mrs Anna
Griffiths, Sir Eldon Macfarlane, Neil
Griffiths, Peter (Portsm'th N) MacGregor, Rt Hon John
Grist, Ian MacKay, Andrew (Berkshire)
Ground, Patrick MacKay, John (Argyll & Bute)
Grylls, Michael Maclean, David John
Gummer, Rt Hon John S McLoughlin, Patrick
Hamilton, Neil (Tatton) McNair-Wilson, M. (N'bury)
Hanley, Jeremy McNair-Wilson, P. (New F'st)
Hannam, John McQuarrie, Albert
Hargreaves, Kenneth Major, John
Harris, David Malins, Humfrey
Harvey, Robert Malone, Gerald
Havers, Rt Hon Sir Michael Maples, John
Hawkins, Sir Paul (N'folk SW) Marland, Paul
Hawksley, Warren Marshall, Michael (Arundel)
Hayes, J. Mates, Michael
Hayhoe, Rt Hon Barney Mather, Carol
Hayward, Robert Maude, Hon Francis
Heath, Rt Hon Edward Mawhinney, Dr Brian
Heathcoat-Amory, David Mayhew, Sir Patrick
Heddle, John Mellor, David
Henderson, Barry Merchant, Piers
Heseltine, Rt Hon Michael Meyer, Sir Anthony
Hickmet, Richard Miller, Hal (B'grove)
Higgins, Rt Hon Terence L. Mills, Iain (Meriden)
Hill, James Mills, Sir Peter (West Devon)
Hind, Kenneth Miscampbell, Norman
Hirst, Michael Mitchell, David (Hants NW)
Hogg, Hon Douglas (Gr'th'm) Moate, Roger
Holland, Sir Philip (Gedling) Monro, Sir Hector
Holt, Richard Montgomery, Sir Fergus
Hordern, Sir Peter Moore, Rt Hon John
Howard, Michael Morrison, Hon C. (Devizes)
Howarth, Alan (Stratf'd-on-A) Morrison, Hon P. (Chester)
Howarth, Gerald (Cannock) Moynihan, Hon C.
Howell, Rt Hon D. (G'ldford) Mudd, David
Howell, Ralph (Norfolk, N) Murphy, Christopher
Hubbard-Miles, Peter Neale, Gerrard
Hunt, David (Wirral W) Needham, Richard
Hunt, John (Ravensbourne) Nelson, Anthony
Hunter, Andrew Neubert, Michael
Hurd, Rt Hon Douglas Nicholls, Patrick
Irving, Charles Normanton, Tom
Jackson, Robert Norris, Steven
Jenkin, Rt Hon Patrick Onslow, Cranley
Jessel, Toby Oppenheim, Phillip
Johnson Smith, Sir Geoffrey Oppenheim, Rt Hon Mrs S.
Jones, Gwilym (Cardiff N) Ottaway, Richard
Jones, Robert (Herts W) Page, Richard (Herts SW)
Jopling, Rt Hon Michael Parkinson, Rt Hon Cecil
Joseph, Rt Hon Sir Keith Patten, J. (Oxf W & Abgdn)
Kellett-Bowman, Mrs Elaine Pattie, Geoffrey
Kershaw, Sir Anthony Pawsey, James
Key, Robert Peacock, Mrs Elizabeth
Percival, Rt Hon Sir Ian Stewart, Allan (Eastwood)
Pollock, Alexander Stewart, Andrew (Sherwood)
Portillo, Michael Stewart, Ian (Hertf'dshire N)
Powell, William (Corby) Sumberg, David
Powley, John Tapsell, Sir Peter
Prentice, Rt Hon Reg Taylor, John (Solihull)
Price, Sir David Taylor, Teddy (S'end E)
Proctor, K. Harvey Tebbit, Rt Hon Norman
Pym, Rt Hon Francis Temple-Morris, Peter
Raffan, Keith Thatcher, Rt Hon Mrs M.
Raison, Rt Hon Timothy Thompson, Donald (Calder V)
Rathbone, Tim Thompson, Patrick (N'ich N)
Rees, Rt Hon Peter (Dover) Thorne, Neil (Ilford S)
Renton, Tim Thornton, Malcolm
Rhodes James, Robert Thurnham, Peter
Rhys Williams, Sir Brandon Townend, John (Bridlington)
Ridley, Rt Hon Nicholas Townsend, Cyril D. (B'heath)
Ridsdale, Sir Julian Tracey, Richard
Rifkind, Rt Hon Malcolm Trippier, David
Rippon, Rt Hon Geoffrey Trotter, Neville
Roberts, Wyn (Conwy) Twinn, Dr Ian
Robinson, Mark (N'port W) van Straubenzee, Sir W.
Roe, Mrs Marion Vaughan, Sir Gerard
Rossi, Sir Hugh Viggers, Peter
Rost, Peter Waddington, David
Rowe, Andrew Wakeham, Rt Hon John
Rumbold, Mrs Angela Waldegrave, Hon William
Ryder, Richard Walden, George
Sackville, Hon Thomas Walker, Rt Hon P. (W'cester)
Sainsbury, Hon Timothy Wall, Sir Patrick
St. John-Stevas, Rt Hon N. Waller, Gary
Sayeed, Jonathan Walters, Dennis
Scott, Nicholas Ward, John
Shaw, Giles (Pudsey) Wardle, C. (Bexhill)
Shaw, Sir Michael (Scarb') Watson, John
Shelton, William (Streatham) Watts, John
Shepherd, Colin (Hereford) Wells, Sir John (Maidstone)
Shepherd, Richard (Aldridge) Wheeler, John
Shersby, Michael Whitfield, John
Silvester, Fred Whitney, Raymond
Sims, Roger Wiggin, Jerry
Skeet, Sir Trevor Wilkinson, John
Smith, Sir Dudley (Warwick) Winterton, Mrs Ann
Smith, Tim (Beaconsfield) Winterton, Nicholas
Soames, Hon Nicholas Wolfson, Mark
Speed, Keith Wood, Timothy
Speller, Tony Yeo, Tim
Spencer, Derek Young, Sir George (Acton)
Spicer, Jim (Dorset W) Younger, Rt Hon George
Spicer, Michael (S Worcs)
Stanbrook, Ivor Tellers for the Noes:
Steen, Anthony Mr. Robert Boscawen and
Stern, Michael Mr.Tristan Garel-Jones

Question accordingly negatived.

Main Question put:

The House divided: Ayes 350, Noes 205.

Division No. 4] [10.28 pm
Adley, Robert Bendall, Vivian
Aitken, Jonathan Benyon, William
Alexander, Richard Bevan, David Gilroy
Alison, Rt Hon Michael Biffen, Rt Hon John
Amess, David Biggs-Davison, Sir John
Ancram, Michael Blackburn, John
Arnold, Tom Blaker, Rt Hon Sir Peter
Ashby, David Body, Sir Richard
Aspinwall, Jack Bonsor, Sir Nicholas
Atkins, Rt Hon Sir H. Bottomley, Peter
Atkins, Robert (South Ribble) Bottomley, Mrs Virginia
Atkinson, David (B'm'th E) Bowden, A. (Brighton K'to'n)
Baker, Rt Hon K. (Mole Vall'y) Bowden, Gerald (Dulwich)
Baker, Nicholas (Dorset N) Boyson, Dr Rhodes
Baldry, Tony Braine, Rt Hon Sir Bernard
Banks, Robert (Harrogate) Brandon-Bravo, Martin
Batiste, Spencer Bright, Graham
Beaumont-Dark, Anthony Brinton, Tim
Bellingham, Henry Brittan, Rt Hon Leon
Brooke, Hon Peter Grist, Ian
Brown, M. (Brigg & Cl'thpes) Ground, Patrick
Browne, John Grylls, Michael
Bruinvels, Peter Gummer, Rt Hon John S
Bryan, Sir Paul Hamilton, Neil (Tatton)
Buchanan-Smith, Rt Hon A. Hanley, Jeremy
Buck, Sir Antony Hannam, John
Budgen, Nick Hargreaves, Kenneth
Burt, Alistair Harris, David
Butcher, John Harvey, Robert
Butler, Rt Hon Sir Adam Havers, Rt Hon Sir Michael
Butterfill, John Hawkins, Sir Paul (N'folk SW)
Carlisle, John (Luton N) Hawksley, Warren
Carlisle, Kenneth (Lincoln) Hayes, J.
Carlisle, Rt Hon M. (W'ton S) Hayhoe, Rt Hon Barney
Carttiss, Michael Hayward, Robert
Cash, William Heath, Rt Hon Edward
Chalker, Mrs Lynda Heathcoat-Amory, David
Channon, Rt Hon Paul Heddle, John
Chapman, Sydney Henderson, Barry
Chope, Christopher Heseltine, Rt Hon Michael
Clark, Hon A. (Plym'th S'n) Hickmet, Richard
Clark, Dr Michael (Rochford) Higgins, Rt Hon Terence L.
Clark, Sir W. (Croydon S) Hill, James
Clarke, Rt Hon K. (Rushclifie) Hind, Kenneth
Clegg, Sir Walter Hirst, Michael
Cockeram, Eric Hogg, Hon Douglas (Gr'th'm)
Colvin, Michael Holland, Sir Philip (Gedling)
Conway, Derek Holt, Richard
Coombs, Simon Hordern, Sir Peter
Cope, John Howard, Michael
Cormack, Patrick Howarth, Alan (Stratf'd-on-A)
Corrie, John Howarth, Gerald (Cannock)
Cranborne, Viscount Howell, Rt Hon D. (G'ldford)
Critchley, Julian Howell, Ralph (Norfolk, N)
Crouch, David Hubbard-Miles, Peter
Currie, Mrs Edwina Hunt, David (Wirral W)
Dickens, Geoffrey Hunt, John (Ravensbourne)
Dorrell, Stephen Hunter, Andrew
Douglas-Hamilton, Lord J. Hurd, Rt Hon Douglas
Dover, Den Irving, Charles
du Cann, Rt Hon Sir Edward Jackson, Robert
Dunn, Robert Jenkin, Rt Hon Patrick
Durant, Tony Jessel, Toby
Edwards, Rt Hon N. (P'broke) Johnson Smith, Sir Geoffrey
Emery, Sir Peter Jones, Gwilym (Cardiff N)
Evennett, David Jones, Robert (Herts W)
Fairbairn, Nicholas Jopling, Rt Hon Michael
Fallon, Michael Joseph, Rt Hon Sir Keith
Farr, Sir John Kellett-Bowman, Mrs Elaine
Favell, Anthony Kershaw, Sir Anthony
Fenner, Dame Peggy Key, Robert
Finsberg, Sir Geoffrey King, Roger (B'ham N'field)
Fletcher, Alexander King, Rt Hon Tom
Fookes, Miss Janet Knight, Greg (Derby N)
Forman, Nigel Knight, Dame Jill (Edgbaston)
Forsyth, Michael (Stirling) Knowles, Michael
Forth, Eric Knox, David
Fowler, Rt Hon Norman Lamont, Rt Hon Norman
Fox, Sir Marcus Lang, Ian
Franks, Cecil Latham, Michael
Fraser, Peter (Angus East) Lawler, Geoffrey
Freeman, Roger Lawrence, Ivan
Fry, Peter Lawson, Rt Hon Nigel
Gale, Roger Lee, John (Pendle)
Galley, Roy Leigh, Edward (Gainsbor'gh)
Gardiner, George (Reigate) Lennox-Boyd, Hon Mark
Gardner, Sir Edward (Fylde) Lester, Jim
Gilmour, Rt Hon Sir Ian Lewis, Sir Kenneth (Stamf'd)
Glyn, Dr Alan Lightbown, David
Goodhart, Sir Philip Lilley, Peter
Goodlad, Alastair Lloyd, Sir Ian (Havant)
Gorst, John Lloyd, Peter (Fareham)
Gow, Ian Lord, Michael
Gower, Sir Raymond Luce, Rt Hon Richard
Grant, Sir Anthony Lyell, Nicholas
Greenway, Harry McCrindle, Robert
Gregory, Conal McCurley, Mrs Anna
Griffiths, Sir Eldon Macfarlane, Neil
Griffiths, Peter (Portsm'th N) MacGregor, Rt Hon John
MacKay, Andrew (Berkshire) Ryder, Richard
MacKay, John (Argyll & Bute) Sackville, Hon Thomas
Maclean, David John Sainsbury, Hon Timothy
McLoughlin, Patrick St. John-Stevas, Rt Hon N.
McNair-Wilson, M. (N'bury) Sayeed, Jonathan
McNair-Wilson, P. (New F'st) Scott, Nicholas
McQuarrie, Albert Shaw, Giles (Pudsey)
Major, John Shaw, Sir Michael (Scarb')
Malins, Humfrey Shelton, William (Streatham)
Malone, Gerald Shepherd, Colin (Hereford)
Maples, John Shepherd, Richard (Aldridge)
Marshall, Michael (Arundel) Shersby, Michael
Mates, Michael Silvester, Fred
Mather, Carol Sims, Roger
Maude, Hon Francis Skeet, Sir Trevor
Mawhinney, Dr Brian Smith, Sir Dudley (Warwick)
Mayhew, Sir Patrick Smith, Tim (Beaconsfield)
Mellor, David Soames, Hon Nicholas
Merchant, Piers Speed, Keith
Meyer, Sir Anthony Speller, Tony
Miller, Hal (B'grove) Spencer, Derek
Mills, Iain (Meriden) Spicer, Jim (Dorset W)
Mills, Sir Peter (West Devon) Spicer, Michael (S Worcs)
Miscampbell, Norman Stanbrook, Ivor
Mitchell, David (Hants NW) Steen, Anthony
Moate, Roger Stern, Michael
Monro, Sir Hector Stewart, Allan (Eastwood)
Montgomery, Sir Fergus Stewart, Andrew (Sherwood)
Moore, Rt Hon John Stewart, Ian (Hertf'dshire N)
Morrison, Hon C. (Devizes) Sumberg, David
Morrison, Hon P. (Chester) Tapsell, Sir Peter
Moynihan, Hon C. Taylor, John (Solihull)
Mudd, David Taylor, Teddy (S'end E)
Murphy, Christopher Tebbit, Rt Hon Norman
Neale, Gerrard Temple-Morris, Peter
Needham, Richard Thatcher, Rt Hon Mrs M.
Nelson, Anthony Thompson, Donald (Calder V)
Neubert, Michael Thompson, Patrick (N'ich N)
Nicholls, Patrick Thorne, Neil (llford S)
Normanton, Tom Thornton, Malcolm
Norris, Steven Thurnham, Peter
Onslow, Cranley Townend, John (Bridlington)
Oppenheim, Phillip Townsend, Cyril D. (B'heath)
Oppenheim, Rt Hon Mrs S. Tracey, Richard
Ottaway, Richard Trippier, David
Page, Richard (Herts SW) Trotter, Neville
Parkinson, Rt Hon Cecil Twinn, Dr Ian
Patten, J. (Oxf W & Abgdn) van Straubenzee, Sir W.
Pattie, Geoffrey Vaughan, Sir Gerard
Pawsey, James Viggers, Peter
Peacock, Mrs Elizabeth Waddington, David
Percival, Rt Hon Sir Ian Wakeham, Rt Hon John
Pollock, Alexander Waldegrave, Hon William
Portillo, Michael Walden, George
Powell, William (Corby) Wall, Sir Patrick
Powley, John Waller, Gary
Prentice, Rt Hon Reg Walters, Dennis
Price, Sir David Ward, John
Proctor, K. Harvey Wardle, C. (Bexhill)
Pym, Rt Hon Francis Watson, John
Raffan, Keith Watts, John
Raison, Rt Hon Timothy Wells, Sir John (Maidstone)
Rathbone, Tim Wheeler, John
Rees, Rt Hon Peter (Dover) Whitfield, John
Renton, Tim Whitney, Raymond
Rhodes James, Robert Wiggin, Jerry
Rhys Williams, Sir Brandon Wilkinson, John
Ridley, Rt Hon Nicholas Winterton, Mrs Ann
Ridsdale, Sir Julian Winterton, Nicholas
Rifkind, Rt Hon Malcolm Wolfson, Mark
Rippon, Rt Hon Geoffrey Wood, Timothy
Roberts, Wyn (Conwy) Yeo, Tim
Robinson, Mark (N'port W) Young, Sir George (Acton)
Roe, Mrs Marion Younger, Rt Hon George
Rossi, Sir Hugh
Rost, Peter Tellers for the Ayes:
Rowe, Andrew Mr. Tristan Garel-Jones and
Rumbold, Mrs Angela Mr. Robert Boscawen.
Adams, Allen (Paisley N) Eadie, Alex
Anderson, Donald Eastham, Ken
Archer, Rt Hon Peter Evans, John (St. Helens N)
Ashley. Rt Hon Jack Fatchett, Derek
Ashton, Joe Faulds, Andrew
Atkinson, N. (Tottenham) Field, Frank (Birkenhead)
Bagier, Gordon A. T. Fields, T. (L 'pool Broad Gn)
Banks, Tony (Newham NW) Fisher, Mark
Barnett, Guy Flannery, Martin
Barron, Kevin Foot, Rt Hon Michael
Beckett, Mrs Margaret Forsythe, Clifford (Antrim S)
Beggs, Roy Foster, Derek
Beith, A. J. Fraser, J. (Norwood)
Bell, Stuart Freeson, Rt Hon Reginald
Benn, Rt Hon Tony Freud, Clement
Bennett, A. (Dent'n & Red'sh) Garrett, W. E.
Bermingham, Gerald George, Bruce
Blair, Anthony Gilbert, Rt Hon Dr John
Boothroyd, Miss Betty Godman, Dr Norman
Bray, Dr Jeremy Golding, Mrs Llin
Brown, Gordon (D'f'mline E) Gould, Bryan
Brown, N. (N'c'tle-u-Tyne E) Gourlay, Harry
Brown, R. (N'c'tle-u-Tyne N) Hamilton, James (M'well N)
Brown, Ron (E'burgh, Leith) Hamilton, W. W. (Fife Central)
Bruce, Malcolm Hancock, Michael
Buchan, Norman Hardy, Peter
Callaghan, Rt Hon J. Harrison, Rt Hon Walter
Callaghan, Jim (Heyw'd & M) Hart, Rt Hon Dame Judith
Campbell, Ian Hattersley, Rt Hon Roy
Campbell-Savours, Dale Healey, Rt Hon Denis
Canavan, Dennis Heffer, Eric S.
Carlile, Alexander (Montg'y) Hogg, N. (C'nauld & Kilsyth)
Carter-Jones, Lewis Home Robertson, John
Cartwright, John Howells, Geraint
Clark, Dr David (S Shields) Hughes, Dr Mark (Durham)
Clarke, Thomas Hughes, Roy (Newport East)
Clay, Robert Hughes, Simon (Southwark)
Clelland, David Gordon Janner, Hon Greville
Cohen, Harry Jones, Barry (Alyn & Deeside)
Coleman, Donald Kaufman, Rt Hon Gerald
Conlan, Bernard Kilfedder, James A.
Cook, Frank (Stockton North) Kinnock, Rt Hon Neil
Cook, Robin F. (Livingston) Kirkwood, Archy
Corbett, Robin Lambie, David
Corbyn, Jeremy Lamond, James
Craigen, J. M. Leadbitter, Ted
Cunliffe, Lawrence Leighton, Ronald
Cunningham, Dr John Lewis, Ron (Carlisle)
Dalyell, Tam Lewis, Terence (Worsley)
Davies, Rt Hon Denzil (L'lli) Livsey, Richard
Davis, Terry (B'ham, H'ge H'l) Lloyd, Tony (Stretford)
Deakins, Eric Lofthouse, Geoffrey
Dewar, Donald Loyden, Edward
Dixon, Donald McCrea, Rev William
Dobson, Frank McCusker, Harold
Dormand, Jack McDonald, Dr Oonagh
Douglas, Dick McGuire, Michael
Dubs, Alfred McKay, Allen (Penistone)
Duffy, A, E. P. McKelvey, William
Dunwoody, Hon Mrs G. MacKenzie, Rt Hon Gregor
McNamara, Kevin Ross, Ernest (Dundee W)
McTaggart, Robert Ross, Wm. (Londonderry E)
McWilliam, John Rowlands, Ted
Madden, Max Sheerman, Barry
Maginnis, Ken Sheldon, Rt Hon R.
Marek, Dr John Shields, Mrs Elizabeth
Marshall, David (Shettleston) Shore, Rt Hon Peter
Martin, Michael Short, Ms Clare (Ladywood)
Mason, Rt Hon Roy Short, Mrs R.(W'hampt'n NE)
Maxton, John Silkin, Rt Hon J.
Maynard, Miss Joan Skinner, Dennis
Meacher, Michael Smith, C.(lsl'ton S & F'bury)
Meadowcroft, Michael Smith, Cyril (Rochdale)
Michie, William Smith, Rt Hon J. (M'ds E)
Mikardo, Ian Smyth, Rev W. M. (Belfast S)
Millan, Rt Hon Bruce Soley, Clive
Molyneaux, Rt Hon James Steel, Rt Hon David
Morris, Rt Hon A. (W'shawe) Stewart, Rt Hon D (W Isles)
Morris, Rt Hon J. (Aberavon) Stott, Roger
Nellist, David Strang, Gavin
Oakes, Rt Hon Gordon Straw, Jack
O'Brien, William Taylor, Rt Hon John David
O'Neill, Martin Thomas, Dafydd (Merioneth)
Orme, Rt Hon Stanley Thomas, Dr R. (Carmarthen)
Owen, Rt Hon Dr David Thorne, Stan (Preston)
Park, George Tinn, James
Parry, Robert Torney, Tom
Patchett, Terry Wainwright, R.
Pavitt, Laurie Walker, Cecil (Belfast N)
Pendry, Tom Wallace, James
Penhaligon, David Warden, Gareth (Gower)
Pike, Peter Wareing, Robert
Powell, Rt Hon J. E. Weetch, Ken
Powell, Raymond (Ogmore) Welsh, Michael
Radice, Giles Wigley, Dafydd
Randall, Stuart Williams, Rt Hon A.
Raynsford, Nick Wilson, Gordon
Redmond, Martin Winnick, David
Rees, Rt Hon M. (Leeds S) Woodall, Alec
Richardson, Ms Jo Wrigglesworth, Ian
Roberts, Ernest (Hackney N)
Robertson, George Tellers for the Noes:
Robinson, G. (Coventry NW) Mr. Ron Davies and
Rogers, Allan Mr. Sean Hughes.
Rooker, J.W.

Question accordingly agreed to.

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

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