THE PRICES AND INCOMES POLICY

HL Deb 03 August 1966 vol 276 cc1332-69

4.3 p.m.

Debate resumed.

LORD ERROLL OF HALE

My Lords, I am sure that noble Lords in all parts of the House would wish me to thank the noble Lord, Lord Shepherd, for the extremely lucid explanation of the "White Bill"—which, I think, is the only possible way to describe a White Paper which consists entirely of a Bill. The White Bill is somewhat premature in its appearance, but we are grateful to the noble Lord particularly for his explanation since, although it claims to be a Bill, there is unfortunately no Explanatory Memorandum such as normally accompanies Bills when they reach us from another place. The noble Lord made good that omission.

The noble Lord, Lord Shepherd, described the sequence of events since October, 1964, with a distinct bias towards his own Party, which is understandable. But we on these Benches see it in a somewhat different way. We remember the great claims made for the Declaration of Intent, now sadly discarded. Since then there have been no fewer than three White Papers devoted to the subject of prices and incomes policy. Then there was to be a Bill; indeed, the Prices and Incomes Bill was introduced on February 14, but apparently there was no need for haste on this subject because it was not re-introduced until July 4, and the Second Reading was held only on July 14. It was then in its more simple and voluntary form. Indeed, we had no reason to suppose that Part IV would be introduced, because we had it on the authority of no one less than the Deputy Prime Minister himself on July 4, 1966, that he could not be possibly contemplating a wage freeze. In a quote from The Times in answer to a question put by a journalist, Mr. Brown said: £ one course would be to halt all wage increases, but he did not think that was the way to do it. That relates to July 4 of this year. Even if it could be made to work, with all the unfairness involved to the lower paid, the freeze could not go on for ever and the position would be worse when it came off. The Government would still have to find the answer to making the policy work in the longer term. We can fully sympathise with Mr. Brown's difficulties in the days that followed when he had committed himself so categorically to an anti-freeze policy. Then, after the Second Reading, on July 14, which proceeded in another place we were within six days greeted by the Prime Minister's Statement on the economic situation, which I think was received with a degree of shock by the nation since they had not been led to expect this from the previous utterances of the Government. Although all responsible people in the country knew the situation was indeed a serious one, it seemed to us that it was only the Government who did not realise that fact.

By way of light relief, a day or two later we had what I would regard as being the most wonderful non-event of the month of July, when a Mr. Pryke resigned from his post in the Government. It is interesting to see the sort of talent the Government employs these days in the labyrinths of Whitehall when we learn that Mr. Pryke was a part-time economist working two days a week in Government service on an investigation of the housing problems. At the age of about 30 he is, of course, an expert and he felt impelled to resign from Whitehall because of the Prime Minister's Statement. Well, it gave us a good deal of fun at the time and Mr. Pryke certainly made the headlines in the newspapers. A few days later we were told that there was to be a series of drastic Amendments to the Prices and Incomes Bill; a whole new Part IV was tabled in another place, and there was a clumsy attempt on the part of the Government to introduce a procedural Motion to deny proper discussion of the new Part IV in the Committee of another place where the Bill had already reached.

LORD SHEPHERD

My Lords, I am not quite sure whether the noble Lord is within the Rules of the House in referring to what are the proceedings, or what goes on, in another place in the context in which he is making the reference.

LORD ERROLL OF HALE

My Lords, my understanding—and I am, of course, naturally very happy to be corrected if I am wrong—is that it is perfectly in order to refer to such proceedings, provided that one does not use a direct quotation. But if I am wrong I shall be glad to be corrected by the noble Earl the Leader of the House.

THE LORD PRIVY SEAL (THE EARL OF LONGFORD)

My Lords, I think that the noble Lord, Lord Erroll of Hale, has raised a slightly different point. I do not think that my noble friend Lord Shepherd was referring to a question of quoting or not quoting, but to the question of whether it is in order to criticise the procedural activities in another place. It is not a matter on which I would care to express an opinion without proper consultation.

LORD ERROLL OF HALE

Well, my Lords, to use the phrase for the avoidance of doubt, I was certainly not criticising but merely commenting. I think it is important that noble Lords should understand how unusual the procedure in another place has been and continues to be; which in turn explains why we are discussing the White Bill this afternoon. It is particularly difficult for us to discuss the White Bill because we do not know in what form the Bill will reach this House until it has passed through all stages in another place. While we recognise the gallant efforts of the noble Lord, Lord Shepherd, to ease our task in this House, and I should like to acknowledge that fact, it does nevertheless remain highly unsatisfactory for us to be debating a White Paper and—if this debate is to take the form of a Second Reading debate—a Bill, the precise nature of which we shall not be clear about until, I understand, Wednesday evening of next week, when I believe it is proposed to take the Report and Third Reading of the Bill in another place.

Nevertheless, in the spirit of amiable co-operation, we will do our best this afternoon to comment on the Bill, on the strict understanding, as I hope the noble Lord will agree, that we reserve our position in the event of any substantial changes being made in the Bill in the form in which it eventually reaches us. We shall also do our best to co-operate with the Government in regard to Amendments. We appreciate the proposal of the noble Lord that we can table Amendments to the White Bill. They will of course in turn be liable to change, if the Bill is altered, but it will be rather difficult for us to table Amendments as early as we should wish, because we should naturally have to rely a good deal on studying the discussions on the Bill in another place before deciding exactly what points are of importance for further debate in your Lordships' House. I am glad to see the noble Lord, Lord Shepherd, nodding his head. From that, I take it that he agrees with what I have been saying.

In addition to this being a very odd Bill, and there being no Explanatory Memorandum, the contents of Schedule 2 are a remarkable feature which, I think, are unparalleled in any recent legislation. Schedule 2 is not part of the Bill, in the sense that it does not link up with any of the legislative provisions which the noble Lord described so lucidly. It is a kind of apologia for a policy, a kind of reprint of one of the three White Papers that have been issued—I am not quite sure which. But, surely, the Bill will have to be drastically amended, if not in another place, certainly when it comes to your Lordships' House.

Schedule 2 explains on the top of page 41 that: An important step will be to lay down a 'norm' indicating the average rate of annual increase of money incomes per head which is consistent with stability in the general level of prices. In present circumstances"— that means the circumstances of to-day when we are discussing this White Paper— the appropriate figure for this purpose is 3–3½ per cent." I am sure that cannot be true. The appropriate figure is 0.0 per cent.—if I heard the noble Lord, Lord Shepherd, right—and I expect that there will be many other items in Schedule 2 which will require revision. I think it is unfortunate that this Schedule should be in the White Paper. Surely, it is not necessary to include such an apologia in the Bill, unless it is part of the process of law reform with which the noble and learned Lord the Lord Chancellor is so greatly concerned.

We have been told repeatedly by the Government how serious the situation has been during the month of July, particularly during the last fortnight, and those of us who were beginning to believe the Government had a severe shock when we learned yesterday afternoon that the reserves had fallen by £25 million in the month of July. Is the situation really serious, or only £25 million serious? I have to be very careful at this stage, because a few days ago the noble Lord, Lord Shepherd, chided me with suggesting that the Board of Trade "cooked" some of the figures in relation to Bridling ton. So I will not use any culinary phrase about £25 million, but rather I should suggest that perhaps the new Governor of the Bank of England has been employing a sort of international Barclaycard and incurring short-term debts abroad, which will come home to roost in the next two or three months, and that this figure of £25 million is a true figure, but there are other obligations which have been incurred, and about which we have not been informed.

The noble Lord, Lord Shepherd, appealed to us to display a national spirit. I cannot do better than to quote from his speech in the debate on the economic situation a day or two ago, when he said: Clearly we are in a serious position; yet if there were a period of restraint, of consistent application by all to the task, we could well come out of it. It is strange that in war the British people will willingly accept all forms of discipline, yet in peace we seem to resent it."—[OFFICIAL REPORT, Vol. 276 (No. 45). col. 921; 28/7/66.) Of course we should, because we fought to gain freedom, freedom to do as we like in accordance with our multitudinous and varied desires and wishes, aims and ambitions. The noble Lord went on: I believe we need to create a form of national emotion. I do not know whether it is for the Government to do it, or whether the Government is in fact capable of doing it;…"—(Col. 921.) I can reassure the noble Lord. The Government have certainly created a national emotion, but not exactly the emotion the noble Lord wants. It is an emotion of contemptuous anger towards this incompetent Government. If I may suggest it, the first task of the Government, when appealing to managers, trade unions and everybody else to put their shoulders to the wheel, and all the other clichés which the present Administration and the previous Administration have used, should be that if they want people to respond (and it is hard to see why they should, because the British people have been working as hard as usual and exports, shipping strike apart, have been continuing to expand) the least they can do is to show some sense of humility.

If the Government would just "come clean" and admit that they have made a gigantic miscalculation as a result of which we will all be worse off than we would otherwise have been, then I believe that a national emotion might be aroused. But lacking such an expression of humility, I find it hard to believe that the public, at whatever level the noble Lord wants to suggest, will respond to his appeal in the way he wants. I think that the Government could get a response if, for their part, they were prepared to forego some of their cherished policies and not expect the public to have to do all the foregoing. If the Government were to say that they, for their part, will abandon their cherished Socialist policy of the nationalisation of the steel industry as a gesture to that part of the country which does not believe in the present Government's policy, then I think it would be possible to secure the wholehearted co-operation of that part of the public which does not support the Labour Government. After all, on a purely practical level, if the Government can be so wrong about the nation's economy in the last few weeks, surely they might be equally wrong in saying that the nationalisation of the steel industry will increase its efficiency.

We can have little confidence in the Government when they have already made mistakes on the economic front on such a widespread scale. Therefore, if the noble Lord and other Members of the Government are to make an emotional issue of this and appeal for national unity and all the rest of it—I will not burden your Lordships with further quotations from other Ministers, particularly the Prime Minister—I suggest they should show a little humility and more desire to see the country working on proper, efficient and non-doctrinaire lines.

Turning to the White Bill itself, I should like to make one or two comments, particularly regarding the policy which lies behind it. Although the Bill looks very fierce, the principles on which it is based rely for their success on voluntary co-operation with Her Majesty's Government. The noble Lord, Lord Shepherd, stressed that when taking us through Parts II and IV. It is clear from what he said that, unless there is wholehearted voluntary co-operation, the policy of the Government on prices and incomes can hardly be expected to succeed. Nevertheless, it is a strange form of voluntary co-operation, if one is to be kicked in the teeth if one does not cooperate. I should prefer the Government to be honest and call it a Bill for compulsory co-operation, because that is really what it amounts to.

It is still very much in the balance as to whether there will be this degree of voluntary co-operation. The Confederation of British Industry have made some very angry noises over the week-end, and I understand that they are meeting this afternoon to decide their final attitude towards the policy of the Government. We must wait and hear the outcome of their deliberations. Though the T.U.C. have given their reluctant agreement, we know that one of the country's largest trade unions, if not the largest, the Transport and General Workers' Union, has announced its implacable hostility to the Bill and to the principles which lie behind it.

I was interested to notice that, when the noble Lord, Lord Shepherd, was talking about the prices and incomes policy, he suddenly changed and called it the "incomes and prices policy". I appreciate that this was a slip of the tongue, but in fact it would be much better if we were to refer to an incomes and prices policy, because the emphasis hitherto has been far more on keeping down prices than on keeping down incomes—that is to say, the Government have been less unsuccessful in keeping down prices than they have been in keeping down incomes—whereas now the greater need is to keep down incomes rather than to keep down prices. It should be the incomes and prices policy now, rather than the prices and incomes policy, because the need is greater to help incomes than it is to help prices.

The Bill—or, rather, I prefer to say the policy behind the Bill—can, in my view, even granted a substantial measure of voluntary co-operation, be only partially successful at the best. Let me start with wages; I shall then say a word or two about salaries, and then come to prices. On the wages front, it will be possible, I think, to hold what I would call the big all-industry wage rises, of which there are a number in the pipeline, and which have been listed by responsible newspapers in the last few days, such as the cotton-spinning and weaving agreement, the doctors' agreement, engineering, electrical contracting, municipal busmen. It looks as if that will be held back. These, I think, can be held. But they are only the big ones which hit the headlines.

What your Lordships must remember is that there are all the small firms, employing less than a hundred people, who are outside the scope of the Bill—and very independently minded firms many of them are. They will be able to implement wage increases of one sort or another, perhaps surreptitiously. It will be impossible under Part IV of the Bill to bring them to book. Indeed, they will often have to do something to retain some of their workers in difficult times, and not to see them sucked away by other and more powerful employers. Then there is the equally difficult matter of small groups of key workers in the big key plants, where perhaps thirty or forty men are involved, but if they refuse to co-operate can jeopardise the working of the whole plant. It may be necessary to yield to their demands, because they are not prepared to play along, and it will not be possible to invoke Part IV effectively and speedily enough to deal with the situation.

On the salaries front, I should like to hear from the Government what their attitude is towards the practice, widely adopted in large organisations, of annual reviews of their salaried staff, where they have a system very often of grading, and they review the more senior and perhaps middle-ranging salaried staff to decide who deserves an increment and who does not deserve an increment. This is an annual exercise and all those who know they have worked reasonably well will be sure of a rise. It is not quite clear to me from the White Paper whether such an annual review is to be postponed or implemented, so far as review is concerned, with the actual award deferred, or whether these cases can go ahead as usual. If I were in the position of having to decide, I should follow the Government's decision in regard to Civil Service increments, because the Government always take care of their own, and the Civil Service are to get their increments without any hold-up at all. So perhaps the same attitude may be allowed to what I might call the industrial civil servants—namely, the salaried staffs of firms, large and small.

Then there are the individually negotiated rises with senior executives by chairmen of companies. Are these to be deferred, or are they to go forward, particularly if they have been on an annual basis or are currently expected? In any case, it is straining voluntary co-operation pretty far if these rises are to be forgone, more particularly when the granting of them need never be made known to anybody at all.

As regards prices, I think the situation here is also one of gradual slide. I expect that the price freeze will be fairly effective on standard items like bread, beer, petrol and so on; but a price freeze is quite hopeless for a wide variety of products, new products or products of improved design. Fashion goods will inevitably be difficult, because this autumn's fashions will be completely different from last autumn's fashions. Books clearly do not lend themselves to price freezing, except where they form part of a uniform series at a uniform price. A big loophole, if I might call it that, occurs in respect of components from firms of less than a hundred employees. Those firms making new products will, in deciding the price level, inevitably have to frame the prices for these new products in such a way as to offset the lower profit margins now put upon all their standard lines. They are being expected to absorb the selective employment tax, and many other tax increases, on their standard lines, and, therefore, the prices of those which are not standard must tend to rise more than they otherwise would. It is quite clear that by imposing a prices freeze certainly no prices will come down during the next twelve months, because nobody will risk lowering prices when profit margins are going to be squeezed in this way.

In the field of retail trade, it is still far from clear whether the 10 per cent. increase in purchase tax will be passed on. The White Paper says that increases arising from Government taxation will be a ground for increasing prices. Here is a clear case where retailers should certainly be allowed to pass on the increased taxation, because competition is already so severe that I do not see how they could absorb this increase. In the large field of retailing, temporary and variable discounts are popular—very often known as 3d. off Is it a contravention of the Government's policy if 3d. off becomes 2d. off? Has it always got to be 3d. off for the next twelve months, bearing in mind that these discounts in the retail trade change from week to week, both in size and from product to product? Here, indeed, is a field in which it will be impossible to enforce the price freeze, and very difficult for retailers who wish to co-operate with the Government to be able to do so, because their prices fluctuate between product and product as part of their selling campaign.

LORD SHEPHERD

The noble Lord speaks about a prices freeze. I understand it is a prices standstill. This represents the view that there will be these fluctuations, and we hope they will be minor. The word "freeze" is where it cannot be moved; but we recognise that there will be fluctuations, and we hope that one rise will be compensated by one loss.

LORD ERROLL OF HALE

I am grateful to the noble Lord for that ex- planation. It means that prices can stand nearly still, but not quite. But wages, on the other hand, are to be frozen. Then, I believe the prices standstill will have an adverse effect on our export earnings, because pricing policy for exports in present circumstances—indeed, in all circumstances—should be different from domestic pricing policy. What we should do is always to try to maximise our export earnings, and if prices in a European country are rising rapidly, then our export prices to that country should rise, too, so that we are still selling our product and earn more foreign currency from the same product. But it will be difficult to do this if prices are kept fixed at home. How can the salesman in the other country justify putting up the price to the countries abroad?

The machinery for applying for price increases is shown to be rather cumbersome and slow-moving, and the White Paper says that applications will be rigorously vetted. Presumably a long time will elapse before they are either conceded or refused. It is far from clear from the White Paper whether the action of the selective employment tax in raising overheads will be taken into account as a valid factor, except in so far as Government taxation is referred to in the White Paper. Indeed, many small firms, particularly—though possibly larger ones as well—will simply not be able to wait for a price increase decision while the full severity of the selective employment tax drains off their working capital, because it is during the next six months, the time of total standstill, that they will be paying up and not getting anything back. For them the choice will be bankruptcy or the possibility of a fine if the application goes against them. It will simply not be possible for them to co-operate in such circumstances.

There are a number of other problems with which I will only deal briefly in your Lordships' House. There is the problem of some wage increases which have already been approved, and which it will be manifestly unfair to postpone and this will cause a great deal of difficulty. The noble Lord referred to the great task which lies ahead for management and the unions to learn to co-operate. He might like to be reminded of what Mr. George Brown said no less than five years ago, at the time of the Conservative pay pause, because what he said then is equally relevant to what the noble Lord said just now. He said: What will all this achieve in the private sector? It will introduce friction between management and men where friction does not now exist. Even where industrial relations are good enough for management and workers to get on, because the Government have called upon the management to act differently and the management loyally does, friction will be produced in industrial relations where, hitherto, there has been none."—[OFFICIAL REPORT, Commons, Vol. 646, col. 620; 27/7/61.] The noble Lord might like to study that, because it is one of the practical problems facing management, particularly where there are good relations and where the management would wish to co-operate also with the Government in a standstill.

Then there is the plight of the doctors, which will doubtless be debated on another occasion. There are such extraordinary situations as the decision made some time ago by the Birmingham Corporation that the raising of rents was to come into operation on Monday last to yield an extra £1½ million. They have been told not to do it, and the only alternative will be to put the burden, which will amount probably to an extra 7d. or 8d. in the rate poundage, on the ratepayers. At the same time in the White Paper the local authorities are being told not to increase their rates. It does not make sense to tell an authority the size of Birmingham that they must find £1½million in economies. What is to give? Do the Government want them to step in and economise in the social services? Do they want Birmingham Corporation to cut down on schools, to stop giving school meals, to retrench on the services for the old folks and the welfare services? There are very few fields of public expenditure in which retrenchment can be made, even in a city the size of Birmingham, to the extent of £l½million. Or is the increase to be passed on to the ratepayers despite what is said in the White Paper?

Then there are some difficulties over dividends. The increased dividends which have been announced, are they to be allowed to go through where the shares have been traded in at prices resulting from the increased dividend already announced? There is the posi- tion of investment trusts where if they fail to distribute all but 15 per cent. of their gross income they lose their status as investment trusts. If they do not disburse they lose the status; if they do disburse they keep the status. They are in a difficulty either way. Of course, the Government have no doubt about their attitude to close companies, because even in this moment of trial and tribulation for the Government they have to insist that close companies will be exempt from dividend limitation so that they can be taxed up to the hilt, as usual. Nothing has been said about the dividend distribution policy of wholly-owned subsidiaries. Are they free to distribute to their parent companies or are they to be frozen? Far worse than any of the objections I have mentioned so far is that this puts an end to productivity agreements, which were beginning to show some signs of being adopted on a wide scale. We shall certainly return to this subject on the Committee stage of this Bill and we shall hope to get some clear guidance from Her Majesty's Government.

I have tried to be severely practical this afternoon in showing some of the many difficulties facing the country as a result of the introduction of the Government's present policy. It was unfortunate that they did not see the situation which was facing them a month or two earlier, because then they could have foreseen some of the difficulties, worked out their policies more clearly, and saved me the necessity for making such a lone speech this afternoon.

4.33 p.m.

LORD BYERS

My Lords, I shall attempt to follow the noble Lord, Lord Erroll of Hale, but I hope not to detain your Lordships for too long. I should like to congratulate the noble Lord, Lord Shepherd, on a very persuasive speech and also on the very handsome apology for this measure which he has put forward, but I do not think it helps the House to remind us of the Selwyn Lloyd proposals of 1961. It is no use the Government claiming to-day that they are no worse than the Tories were five years ago, because ever since the Selwyn Lloyd proposals we have had nothing but "Stop—Go". The noble Lord, Lord Erroll of Hale, described this as a" White Bill": I consider it to be a very peculiar hotch-potch measure and I think it will go down in history as "Shepherd's Parliamentary Pie". After all, it is full of left-overs and afterthoughts and it has certainly had a few changes since it first came on to the menu. It has also inaugurated an entirely new form of Parliamentary procedure which I have never known before. I am delighted to have the opportunity of amending a White Paper, but I never thought we should get that chance under any Government.

I think we have a right to protest not only at "Shepherd's Pie" but also at the sauce with which it has been served. On these Benches we feel fully justified in opposing this measure and certainly—and this is more important—in exposing the fallacy of the thinking behind it. Despite any of the noble Lord's pleas that we should be patriotic—indeed we are—and that we should support the national effort—indeed we always do—this must not stop us from being severely critical when we feel there is something important in the way of principle in the balance.

In the first place the measure destroys, or at least pushes into the background, many of the things for which many of us, on all sides of the House, including the Government, have been working and trying to lead public opinion for many years. Suddenly all this is reversed by the stroke of a sledge-hammer wielded by a few "high-level nuts" Suddenly, on July 20, we got this complete reversal. The very title of the measure gives away the retreat of the Government from all the fundamentals which we believe we need to get the economy right. In the Declaration of Intent, which was referred to by the noble Lord, Lord Erroll of Hale—a declaration on which Mr. George Brown set great store, and I think he did a remarkably good job to get it through—the reference was to "incomes, prices and productivity". Gradually throughout the period we have lost sight of the word "productivity" and we now get just the incomes and prices. True, there is a neat little essay tacked on to Schedule 2, as the noble Lord, Lord Erroll of Hale, said. Heaven knows how it got there! It says what we have said about the need for productivity and efficiency; but it does not seem to have any proper part in the Bill itself.

In considering these proposals to-day I think we should measure them against what I, for one, certainly thought was common ground until July 20. The common ground was this: first of all, that it was vital to eliminate the adverse balance-of-payments position at the earliest possible moment. Indeed, it is now recognised that it is no use just getting it into balance; we must have a credit balance in the near future, and next year at the latest, if we are to pay back the loans which our indebtedness is mounting up. We were going to do this by reducing overseas expenditure and increasing exports, largely through greater efficiency and greater competitiveness, and we believe a great deal more has to be done than has been proposed so far by the Government themselves in reducing their own expenditure overseas. I hope this is only the beginning of the suggestions that were made by the Prime Minister in his Statement.

It was also common ground, as the noble Lord said, that wages were rising at too high a rate compared with productivity, and we all said that this required better management and the abolition of restrictive practices, the establishment of more productivity agreements (to which my noble friend Lord Reay referred in the debate on Monday). Also we wanted a drastic increase in competition. We have talked about the necessity for a real shake-out in the over manned industries and firms, especially, we have said, in the manufacturing field, where over manning reduces our overseas competitiveness. This was the picture on which I thought we were all agreed and for which I thought we were all striving.

Some of us believed that a measure of deflation was essential in order to get labour to move from the non-essential to the essential industries, and we stressed that it was necessary to have adequate retraining facilities provided. We hold the view, and I think it is commonly shared now, that unemployment must not be created as a means of instilling insecurity into a man's mind so that he dare not assert his rights. If it is created, it must be as a genuine means of getting more productive full employment, mobility of labour, and retraining to a higher standard. This general attitude was in fact founded, I thought, on the belief that the sort of growth in the economy which would be most likely to command confidence both at home and abroad was one based on a high wage/high efficiency/low cost per unit system. Then, in a sudden panic, most, if not all, of this has been thrown overboard.

LORD SHEPHERD

My Lords, the noble Lord is speaking as though this is a permanent measure. It is not. What I should like to put to the noble Lord—I do not want to make a long intervention—is whether the noble Lord thinks that in the present situation the standstill in wages was demanded of the situation?

LORD BYERS

If the noble Lord will let me complete another seven minutes he will get a full answer, because this is the burden of my case. Let us take the wage freeze itself. There is certainly a case for denying an increase in wages where no obvious increase in efficiency or production is to result. There is a case not just for a standstill but for denying an increase in wages in those circumstances. But this is a completely negative attitude, and it is most likely to result in a deafening explosion when you sound the "All clear" at the end of the standstill. It is no use, in my view, just having a standstill. You must use this time and you must use it to good advantage. This is the danger of getting the emphasis wrong. During this period we have got to redouble our efforts to bring in a whole new range of agreements which will give higher efficiency in return for higher pay.

This is where I answer the noble Lord. It is a question of emphasis. He has come to this House challenging us, "Do you believe in a standstill'?", and what he should have done, what the Prime Minister should have done, was to have said, "Look; we have got to get out of this mess and get the maximum number of agreements which give higher productivity and higher efficiency". This is an entirely different attitude, an entirely different emphasis. I believe you must have this emphasis, and you should not regard these productivity agreements, these efficiency agreements, as being an unfortunate exception to the policy which has been laid down or something which ought to be tolerated; it is something which ought to be positively encouraged, and it ought to be put at No. 1 priority. And there will be exceptional cases where scarcity or added social responsibility, like the case of the doctors, will have to be regarded as something to be met as part of a proper incomes policy. You just cannot keep people like that down for six months or twelve months. But again it should be part of a positive policy and not part of a wage freeze.

I believe also that the Government ought to give companies and organisations encouragement to adjust their wage and salary scales as they wish to do, provided the present total cash outlay on the pay-roll as a whole over the next six months is not exceeded. If those companies want to put wages up, then the number of employees will have to be reduced or the higher salaried executives and directors will have to take a cut. This would have quite an important effect; and this ought to be an option, an alternative. I believe that is a positive policy against over-manning. There would have to be certificates from the Board of Trade for exemption in the case of exports or useful expansions. This could be done—the machinery is there—and it might have a much better effect than a straight wage freeze.

I should certainly like to see that sort of pay-roll freeze applied to the Civil Service. I believe a lot of over-manning would be shaken out if numbers had to be reduced before salaries could be increased. I must say I thought the Government's defence of the increase in the number of civil servants to-day was a very poor one indeed. The fact remains that more people have gone into the Civil Service, and you put the bill at several thousands of pounds, at a time when we all believe you must keep costs down. Of course you must have civil servants, but what is the point of a wage freeze if the Government put up the pay-roll cost for a start?

I think the major problem of any wage freeze is what you do about the lower paid workers and people who are quite obviously out of line. I think we must use the next year to have a really good look at those workers whom we know to be out of line, the people who are as far out of line as the seamen were. It was a complete shock to many of us to discover how badly they compared with overseas workers of a similar type. I should like to see the time used to make a proper study to find whether we cannot get these categories up to their rightful level compared with others. Unless there is this sort of positive approach to an incomes policy I believe we are merely wasting the opportunity we shall have over the next few months.

I am afraid (and this is again where I take issue with the Government) they are already undermining the long-term prospects of growth by their short-term policy—and this again answers the noble Lord. Their policy, unfortunately, is sterile; it is unimaginative. A standstill is no substitute for a policy. Unless we get an expansionist and not a restrictionist attitude to this whole question of incomes it is going to do more harm to the long term as a result of applying the short-term measures. This is what worries me. And I say this because the incomes policy is being applied against an entirely new background of unthoughtout measures at which the Government's theoretical armchair economists seem to excel.

The incomes policy has been canvassed for many months. We have all said we are in favour of an incomes policy, but since then we have had the ludicrous selective employment tax which has come right over the industrial scene like a smokescreen in time of war. It is going to cause a great deal of confusion, and in its wake it is bound to bring both unemployment and an incentive to manpower hoarding. It is going to bring this manpower hoarding into the manufacturing industries. Look at the crazy situation in the motor-car industry. As soon as these new measures were announced, the comment which I heard reported on the B.B.C. was that "at all costs we will hang on to our labour force". And they will. They will keep their labour force intact even if it means short-time working, and the Government are going to pay them a premium under S.E.T. to do so. This is ludicrous; it is mad.

On top of that we have the further measures, another £500 million taken out of the economy in the way of demand. Add to that the fact that our best statistics are five months out of date, and you have a series of blunt instruments giving the economy such heavy knocks that you cannot tell whether the unemployment is going to be half-a-million or one million next Spring. I believe there is a very great danger that we are overdoing all this, and it is in fact going to be nearer the one million than the half-a-million. At the same time we have about 12,000 places for retraining individuals every year, against the prospect of unemployment of between half-a-million and one million. This is what worries me—the attitude and the approach to this problem. It is a very serious problem and can be looked at only on an overall basis.

If you want to restore confidence in the pound—and that really means confidence in the Government and in the people—there must be a change of attitude in the Cabinet. The Prime Minister is a great believer in "keeping the options open". I am more interested in the options he abandoned on being elected in 1964. He insisted on "no devaluation" and on "full employment." Both of these are very laudable indeed; but full employment was confused with full productive employment. In our society today you could have ten men fully employed if nine of them were getting £20 a week as supervisors to make sure the tenth man worked. That would be a sort of full employment. It would be a statistical triumph, and it would not have been necessary for Mr. George Brown to resign for a few hours. But there is all the difference in the world between full employment and full productive employment, and this is where I believe the confusion has been made.

We must not, in my view, abandon the concept of growth and greater efficiency and lull ourselves into the false belief that a six months standstill is going to achieve very much. If we do, we are asking for something which we on these Benches do not want to see—devaluation. This is where the Prime Minister can be defeated by his own policy of not insisting that the emphasis must be on productive efficiency and all that sort of thing, rather than on encouraging the approach of the standstill and freeze. On the question of prices, I believe it is much more important that you should have much more effective competition, that you should have a much tougher anti-trust, anti-monopoly policy. This is the sort of thing that will keep prices down, not playing King Canute through this sort of "White Bill."

I believe you have to root out and outlaw the more obvious restrictive practices of workers. It is fairly clear, from all the Inquiries that have been held—and I congratulate the Government on the number they have started and completed—that there are obvious, recognisable restrictive practices which ought to be outlawed; and these can be outlawed or bought out by means of productivity agreements. I am frightened that we are going to jeopardise the possibility of doing this.

I believe it is far more important to try to establish three-year contracts between unions, workers and management, to make sure that we have stable growth instead of the sudden upward inflationary leaps in wages which you get when a wage freeze comes to an end. My fear is that the special sanctions which have been imported into Part IV of the Bill will undermine the confidence of the worker and the unions in their chance of getting a fair deal. My fear also is that the combination of the various blunt instruments will result in major unemployment, which will put back for years any chance of trying to get rid of restrictive practices. This has been said time and time again from these benches.

My fear also is that this will be just another sterile standstill, with but little real benefit at the end. There are no short cuts in this game. There is no gimmick that will work. A six months' wage freeze will not cure our adverse balance-of-payments position. But over several years if we get agreements on growth and efficiency and high wages, high wages for high productivity, then I think we have a chance of transforming the economy. I implore the Government to recognise that the wage freeze will not produce everything they think they can get out of it. They must not, and dare not, abandon the only concept that matters, which is a growing economy based on high efficiency and a fair day's pay for a fair day's work.

4.53 p.m.

LORD CITRINE

My Lords, almost a year ago to-day we had one of our several debates on the economic situation. In the course of that debate, I expressed some surprise at the criticism which was directed against the Government, which had been nine months in office, for not carrying out a programme set forth in its Election pledges. Most of us who have really tried to think into this problem—I am not patronising myself, I hope, by that expression—realise that this is a long-range policy, which will have to be operated in stages. It is not something that a whole series of expedients, without an ultimate policy, can put right.

In that sense I agree entirely with what was said by the noble Lord, Lord Byers. He put forward quite a number of proposals. But from The Times of August 1, I gathered that in the case of the Leader of the Liberal Party it was necessary to do three things: (1) to drop 'our ludicrous pretentions of being an independent world Power' How that would redeem this economic situation, I do not quite know. (2) to make decisive cuts in non-productive Government expenditure 'instead of increasing the number of civil servants'(3) to direct works councils or their equivalent to meet at once and put forward schemes for increased productivity in return for higher rewards.' I think I can claim, without egotism, as much experience of the operation of works councils, and bodies of that description, as any Member of this House, and I say that it is utter futility, within a few months, to expect any policies which are basically sound, and which could be so widespread, to bear seriously on our present economic position. I do not want it to be thought that I am against that kind of consultation. I am merely indicating how difficult it is to secure concrete and widespread results.

In an address I gave when we were discussing this in August last year, I quoted a statement of the Organisation for Economic Co-operation and Development. At page 26 of their Report they said: The new prices and incomes policy needs to be aimed not only at moderating the rise in costs and prices, but in creating a situation in which they rise markedly less rapidly than in the other main manufacturing countries. For this to be achieved, and to have results on the trends of exports and imports, many years of continued effort may be needed. To my mind, that puts the matter in proportion—many years, not many months. I am quite certain that, whatever Government had to face this problem, they would subscribe to that statement; that a whole series of measures and consecutive acts, not necessarily in Parliament, but in the realm of industry, would have to be employed to contribute effectively to restoring our economic prosperity.

I gather that it is assumed widely that this is a crisis of confidence. I heard last night, as many other noble Lords may have done, a Swiss banker being interrogated by a B.B.C. interviewer. It was as plain as it could be, if this man was representing his colleagues properly, that bankers who are associated with that consortium which meets in Switzerland were looking with vital interest to what was going to be done in the realm of prices and incomes. So we cannot just dismiss this as something of no real importance, having no ultimate bearing on the policies which will have to be worked out subsequently.

How do you create confidence? Do you create it by telling the world that you have no confidence in the Government of the day? I do not know whether I am in order in referring to this, but it is reported in the Press. Mr. Heath moved a Motion of No Confidence in the Government. According to The Times he was succeeded by Mr. Macleod, who said that the Government's policy was "lunacy and incoherent". Then, in a somewhat more moderate tone and with the more restrained language that we are accustomed to hearing from him, the noble Lord the Leader of the Opposition in this House took much the same line. He said that the Government were lacking in judgment and competence. He said that there was a lack of confidence to see their measures through. Think of that! The world has been told by a responsible Leader of the Opposition here that the Government lack the determination to see their measures through. If anything can create lack of confidence in the measures that are being taken, it is a sentence of that kind. I should doubt greatly whether that kind of thing increases confidence in any part of the world. In speeches of this kind, the world is being told, by informed people who are living in a British environment and who are familiar with its various aspects, "Do not trust this Government. We have no confidence in them, and we can hardly expect you to have any."

I cannot dismiss that sort of language as just Party poppycock. I know that politics is a curious game, and that a great deal of personal sincerity which exists between Members is vitiated when they get into the debating Chamber. I know that quite well. While in this country people who are familiar with the behaviour of Party politicians might dismiss it lightly, I am afraid that that is not the interpretation which is likely to be placed upon these statements in world circles.

LORD CONESFORD

My Lords, I wonder whether I might interrupt the noble Lord to say this. I listen, as I always do, with the greatest interest to what the noble Lord says, but, if we honestly believe that the Government are incompetent, does he seriously suggest that we should not say so? Let me give him one simple example. If the Conservative and Liberal Benches are convinced that the selective employment tax is preventing our recovery, are we not entitled to say that the Government are incompetent in putting that forward?

LORD CITRINE

I should say not. I should say that where there is a critical situation such as exists to-day, wise people would keep that kind of sentiment out of public consideration. Just think of the alternative. There is no likelihood, so far as I can foresee, of the present Government being replaced at an early date by any of the other Parties in this country.

LORD CONESFORD

But is there no prospect that they themselves may come to the conclusion that the selective employment tax negatives our recovery? After all, those arguments have been put forward as much by their own supporters as from the Liberal and Conservative Benches.

LORD CITRINE

We are not at the moment discussing the selective employment tax; that can be argued on its merits when it comes to this House. What I am trying to say is that there is no doubt whatever that this Government are in office and are responsible for the policies which they put forward, and they are unlikely to be succeeded by another Government within any short, foresee-able period. Therefore, it is wrong to seek to destroy confidence in the Government, as I say is being done. Criticism is a different matter, but to impute to the Government incompetence and to say that they have not the will-power to see through their policies and that sort of thing is highly dangerous. Many times in my trade union life I have kept silent in public and have not said the things I should have liked to say because of the broad issues that were involved. I thought Members of this House would at least be familiar with that kind of conduct.

A policy has been developing over the last twenty years which has sought to curb inflation, and to date we have failed. Certainly on occasions there have been attempts to capitalise, not on the inflation itself, but on the apparent and superficial results stemming from it. Some of us well remember a General Election in which we saw posters saying, "You never had it so good", at a time when the Government must have known that we were moving all the time into deeper inflation and that our serious economic position was becoming worse.

I remember in 1957 attending a meeting of the National Advisory Council on Productivity in Industry. We were then told by the Conservative Chancellor of the Exchequer, Mr. Thorne croft, who made a most thoughtful and complete analysis of our economic situation, that we were paying ourselves £900 million too much—in other words, more than we were earning. I say that that has been going on ever since. If I were seeking to make Party capital, I should ask the question, "What Government was then in power, and what policy did they put forward other than the expedience of the "Stop" and "Go" methods? I am not dissenting in any way from attempts which have been made in this respect, and I have all along expressed myself, both in this House and elsewhere, on the desirability of restraint in the matter of increased incomes. All of us hate compulsion, no matter what form it takes. But can we honestly believe that the voluntary method of dealing with the situation of prices and incomes has succeeded? Is there any evidence of that? I do not know it.

In the trade union movement wage applications have gone in year by year, quite contrary to the normal process of collective bargaining which, in pre-war days and throughout my trade union life, meant a period of agreement between the parties that they would not change the conditions one way or the other either by depressing wages or by increasing them. It cannot be argued that a policy which year by year means that income is raised without any kind of regard being paid to external circumstances, whether it applies to the trade unions or anybody else, is correct. Nor can it be argued that such a policy can last. Can it be any contribution towards remedying our present situation? The trade unions had a very strong objection to being singled out, as they thought they were for treatment in respect of restraint in wage application. They said that it should be applied to the whole community. That is precisely what is proposed in the memorandum which we have before us. So, for the first time, we have something approaching equality of sacrifice in order to avoid excessive increases in incomes.

I want to apply myself mainly to Part IV of the measure which is before us, the standstill on prices and incomes. As I have said, the moral aspect of this matter has been met by extending similar treatment to all forms of income, and to prices as well. We are told that there is to be a six months' standstill, and that then for a further period of six months there will be severe restraint. What real hardship is that? If the cost of living rose steeply or something of that kind one could understand it, but there is no evidence that that is likely to take place. So I ask myself, what is wrong with all of us being a little patient and waiting so as to give the Government time for their measures to deal with this very critical situation to work out?

I know very well in the trade union movement the resistance to proposals for restraint. Probably its outstanding protagonist is Mr. Frank Cousins. I worked with Mr. Frank Cousins in a rather remote position and I know of his activities inside the trade union movement. He is a capable man who in many respects has great moral courage; but I am sorry to say that his actions in this sphere do not appear to me to be in the least consistent. He was a member of the General Council of the T.U.C. when the Council gave a warning to trade unions generally that if the present policy were to continue without any restraint, with wages increasing year by year, the point would come when inflation would gain so greatly that the result would be serious unemployment. Immediately after that statement had been presented to he T.U.C. Mr. Cousins moved a resolution denouncing all restraint. I attended Congress and did not hear him dissent from the advice given by the T.U.C. to its individual unions—he may have dissented, but if he did I am not conscious of it. I am very conscious of his subsequent actions.

I cannot understand the policy which is involved in his alternative. He says that what we want is more production. Of course we do, as everybody would agree. But increased production does not come overnight; it takes time. It needs not only more initiative, perhaps more energy, on the part of working people and management, but also great amounts of capital equipment which cannot be obtained just off the hook. It takes time to do these things. And I should have thought, if Mr. Frank Cousins ties his doctrine to increased production, and if he really has faith that that production will come, that he should wait until the results have been achieved and then put in his claims for increased wages. What he is telling his members, of course, is not, "Work harder in the physical sense" but, perhaps, "Work more efficiently".

What of the meantime? I am speaking for myself, and I represent nobody but myself, but had I any part in the discussions of the trade union movement I should be strongly in favour of the standstill and the restraint provided in the measure which the Government have put before us. I quite understand the view of those people—the noble Lord, Lord Byers, for instance—who talk about marginal cases, and say that some cases of real hardship will be involved if agreements already concluded are not implemented within this standstill period. I understand, also, that there may be many cases where people are lowly paid, and that the standstill will bear more hardly upon them. But I would say this. It would not tax the ingenuity of trade union officials to discover that their members were all under-paid, and it would not be in the least difficult to carry on a series of discussions, inconclusive in character, not merely for six months but for a good deal longer than that. So far as I know, there has never been a definition of what is an under-paid worker. We can all have our own conceptions, and rightly so, but until some action is taken to define it, and to see, indeed, where the greatest hardship lies, there will be endless confusion unless the cut and the standstill are clean and general.

I do not like compulsion. "Compulsion" means, in substance, throwing overboard for a time all the voluntary methods that we built up in the trade union movement over a hundred years. The employers—I think, universally—dislike compulsion. They want free bargaining between the trade unions, just as the trade unions want to do it without governmental interference, and that is a hurdle which must be cleared. There is intense opposition to what is regarded as the thin end of the wedge, and the setting of precedents which might be employed on other occasions and without the same necessities by subsequent Governments. I can understand all that, and I was really touched when I read about the discussions in another place, and about how intensively, how sincerely, certain Members—non-Labour Members—of Standing Committee B were really staggered at the prospect of interfering with the freedom of collective bargaining. It may be a rather late conversion, but it is encouraging just the same.

Nobody knows—there is no statistician in the world who can tell us—how deep a period of severe deflation will go. That is what made the Conservative Government reluctant. If it started on deflation, it did not know how much it would have to back up that initial deflation by subsequent measures. But does anyone doubt, in our present circumstances, that deflation in some degree must be the antidote to over-full employment? I should like to hear it argued that that is not so.

I do not believe—and I am sincerely sorry to say this as I do not want to antagonise anybody, particularly my trade union colleagues—that the voluntary method could succeed, particularly in the realm of prices, and incomes other than wages and salaries. It is a very ticklish job, and if the law fails to do it I do not know what other methods are likely to succeed. I know that in the trade union movement it cannot be claimed that anything more than a small amount of restraint has been exercised in regard to wage advances, and the movement is now divided. In a month's time at the Trades Union Congress possibly a third or even a half of the delegates will be opposed to this policy which the Government are putting forward. It could easily lead to a split in the trade union movement, and a serious one, too.

The Government do not face that sort of thing—and they have intimate knowledge of the trade union movement—unless they are convinced that this kind of measure is unavoidable. I say that the Government have shown great courage in doing this—great courage indeed. It is common knowledge that the Labour Party derives by far the greatest proportion of its funds from the trade unions. Its membership, too, comes mainly from the trade unions. Are the Government going to throw away that support and risk that division—financial and otherwise—without being absolutely certain that they have no practical alternative which can take effect in any reasonable time? So I should have thought that the Opposition would at least have had the—I will not say decency, but the friendliness to congratulate the Government on their courage, however much they may have thought they lacked of that competence which the Opposition display so amply when they are in power. By the way, I was very interested in the speech of the noble Lord, Lord Erroll of Hale. If I heard him rightly, it was a good, argumentative speech, although there was some arrièrepensée in it.

I have always opposed compulsion, but I feel that this is a time when we must choose. Twice, once when I was Secretary of the T.U.C. and once prior to that—during the First World War and during the Second World War—the trade union movement refused absolutely to assent to restraint in wages applications. Remember that, my Lords. We were engaged in war. The movement reached those conclusions, and it left the war immensely strengthened in numbers and influence, despite what may have appeared to be not the right policy in regard to wages. They would not assent to a standstill.

We are now engaged in a different kind of struggle, one which does not appeal so dramatically as do wars between nations, but which in its results could be quite as serious for the country as a whole. I hope I am not putting it too strongly when I say I believe that the problems in front of us involve the economic survival of this country as a first-class Power. In my 56th year of membership of a trade union, I now have to say how, at long last, I am convinced that there is no workable alternative, which is likely to prove successful in our present situation, to the compulsion which is envisaged in this Paper. Your Lordships will never be able to understand the measure of regret in my heart at making this statement.

5.19 p.m.

BARONESS EMMET OF AMBERLEY

My Lords, I hope that there is a representative of the B.B.C. present who realises that I am speaking from a Conservative Bench in front of the microphones. I say that because, when I went home last weekend, I found to my consternation that the village and neighbourhood thought I had joined the Liberal Benches.

I have read through the Prices and Incomes Bill and the White Paper, and have also had the advantage of hearing the very clear explanation of the noble Lord, Lord Shepherd, even if it sounded a trifle apologetic and, I thought, sorrowful. But I think it would be a waste of time to bog oneself down with detail in the ten or twelve minutes during which I hope to keep your Lordships' attention.

I am sorry that I cannot follow the noble Lord, Lord Citrine, who has just sat down, and refrain from using the word "incompetent". To bring in a Bill or a White Paper of this sort during the last week before the Summer Recess, and to try and pass it through as a sort of panic measure, I think is itself a sign of in competency in the running of the business of this country. It might be more helpful if I spent the few minutes I shall detain your Lordships in trying to examine this Bill from the point of view of general principle, and in that way, perhaps, help the ordinary man and woman in the street to understand—and they want to understand—what is going on.

I am especially concerned for our women, who are, of course, the day-to-day spenders of the family income. The family income will now be frozen by this Bill, but the cost of living will inevitably continue to rise. You cannot put a further tax on petrol, impose tighter restrictions on hire-purchase, and introduce a selective employment tax, without sending up costs, and the women housekeepers will want to know why they have been placed in this difficulty. They might be told by the noble Lord, Lord Shepherd, that they are suffering from a new infectious disease called fluctuating instability—and I hope they will appreciate how dangerous a disease that is.

Why have we got new taxes and restrictions? Why has the country had to borrow such massive amounts of money from many different countries? Why are the Government to borrow from charities, through the selective employment tax, without paying any interest? Why have the wonderful time and the scientific age, which we were promised by the Socialist Government at the last Election, not arrived after two years, or are not even in sight? Why have we to go into a depressing refrigerator in the middle of summer for at least twelve months, and with very little hope of a thaw at the end of it? Why is there not even a glimmer of light at the end of the tunnel, and nothing for the young to look forward to—or, for that matter, the older generation, either? These, my Lords, are the simple, straightforward questions that ordinary folk will ask during the next few months and, without going through the intricacies of the Bill which the Government are trying to rush through, I should like to give the ordinary folk a straightforward and simple answer, although I am afraid it may not meet with the approval of the noble Lord, Lord Citrine.

The simple, straightforward answer is that the Government are incompetent to govern this country and to get us out of our present difficulties, and that we have a Prime Minister who appears neither to mean what he says nor to say what he means. Nobody knows whether the First Secretary, the Chancellor of the Exchequer or the Foreign Secretary are still in charge of their Departments, or whether it is the Prime Minister and, when he is away, a clutch of miscellaneous financial advisers. Is it not a farce—indeed, a humiliation—to read in the Press this morning (and I read five newspapers) that not one of them believes the truth of our gold reserve figures?

LORD COHEN OF BRIGHTON

They were Tory papers.

BARONESS EMMET OF AMBERLEY

I read five papers. I generally read three, but I bought two more this morning. I am sorry to be, perhaps, discourteous in this very courteous House, but the ordinary folk of this country will be hit very hard, and I think it is time that the Opposition spoke up for them in this House as well, which may be the last defence of the liberty of the individual. Now the leaders of the present Government have talked in a sneering way of thirteen wasted Conservative years.

SEVERAL NOBLE LORDS

Hear, hear!

BARONESS EMMET OF AMBERLEY

But wait a minute! I think that, by the end of 1966, the people of this country will look back on those years after the war, when the country pulled itself up by its own endeavours, as a time when they did "have it good", when the houses were going up, and when the pensions kept ahead of the cost of living. And I think this also needs to be said: either we believe in private enterprise, profit, progress and individual liberty to the maximum possible in our Island, or we believe in Socialism, central control and Government interference everywhere, all the time, leading to a form of communist regime. We cannot have it both ways. If we try to have it both ways, we end in total paralysis, which is what is happening in our country at the present moment.

At the moment, we have a Socialist Government imposing more and more restrictions and controls, an example of which is this Bill, which, moreover, is leading to a Ministerial dictatorship. We have a Socialist Government who have lost the confidence even of Socialist Governments abroad, and whose credit here at home is evaporating very fast. And, my Lords, credit, which is what we need, will not be restored by the Prices and Incomes Bill; it will be restored only when the Government get out. As everyone knows, credit goes to those who give proof of honesty of character and intention, because this inspires trust and hopefulness. A country like ours, as the noble Lord, Lord Shepherd, should know, lives on business and trade, and we are one of the world's bankers. If our credit goes, we will founder, and we shall no longer be either a trading or a banking nation. A Government who are out to restrict personal liberty, who abhor profit, and who like to run nationalised institutions at a loss, are no good to us: and, surely, it is clear as daylight that you can only run a business either at a profit or at a loss—even the Russians have discovered that. At the present moment, we are sliding down a slippery slope, without having learnt that lesson from them.

What is more, my Lords, there is no reason for it. I believe in the great genius of the British people, and from the Christian Science Monitor of July 19, I have evidence that other people do, too. This article says that the spark has not gone out of this country. It says: The first-ever display of Britain's new invention, the hovercraft, attracted 30,000 people—5,000 from overseas.… A revolution has taken place in the sheet-glass industry following a British firm's discovery in 1959 of the 'float' process. British designers have a world lead in vertical take-off aircraft. British blind-landing systems are used across the world.… Britain's atomic-power stations have so far generated more electricity than those of the rest of the world.… and so on, and so on. We have so much to be proud of; we have so much genius in this country. We have the brains that the Americans come and take away. What the country needs now is not restriction or freezing: what it needs is encouragement. It wants something to work and to fight for—and to win.

5.30 p.m.

LORD KAHN

My Lords, speaking in your Lordships' House in the debate on the Economic Situation last Thursday, the noble Lord the Leader of the Opposition said: There is still a considerable doubt about the Government's intention on the wage freeze, After referring to a report of what may have been said a few days earlier at a meeting in The Hague, the noble Lord went on to indicate that any suggestion that the financial measures, taken by themselves, without the wage freeze, were enough to rectify the position [was] going to puzzle, and indeed dismay, quite a number of people in this country as well as outside. One can hardly wonder at the doubts of some of our creditors."—[OFFICIAL REPORT, Vol. 276, No. 45, col. 927; 28/7/66.] The view taken by the noble Lord the Leader of the Opposition is one which I should presume strongly to support. Although I did not touch on this subject in my own speech on Thursday, to some extent I shared the noble Lord's doubts about the firmness of purpose with which the Government would attack the problem of the standstill. I found myself in full agreement with the noble Lord about the importance attached by opinion abroad to the attack, and to its success in pressing home to the objective.

Since Thursday, my doubts about the seriousness of the Government's attack have been dispelled in spite of a passage in the speech made this afternoon by the noble Lord, Lord Shepherd, to which I will refer in one moment. Ambiguity of objective has been removed, and while the standstill must rely largely on voluntary response, the availability of statutory means of enforcement for use on suitable occasions to my mind will make all the difference to the success of the standstill policy.

But now I come to the noble Lord, Lord Shepherd, and to one point he made in the course of his extremely interesting and impressive speech. In referring to the proposed Bill, the noble Lord said that Part IV would come into force—if it is included in the Act when it gets on to the StatuteBook—if the need should arise. I should have thought that the need had already arisen. The Order bringing Part IV into operation calls for an affirmative confirmation by both Houses of Parliament within 28 days; and your Lordships are given to understand that Parliament is shortly about to go into a deep recess. I take it that it is not 28 days of Parliamentary time.

LORD SHEPHERD

My Lords, perhaps I could explain. There have been occasions, regrettably, when Parliament has been recalled. If it should become necessary, we will certainly recall Parliament to proceed with the Orders.

LORD KAHN

My Lords, I had that in mind; but I can think of nothing more calculated to disturb international confidence than the recall of Parliament for such a purpose—particularly if it indicated that once again a few weeks earlier the Government had failed to foresee a necessity which now led to the recall of Parliament. There is one other point. I think I must in passing draw attention to the question of the legal commitments of employers who have agreed, legally, to wage increases which, under the standstill, they are asked to postpone.

Much more important than this statutory question is the extent of the support which the Government are now to receive from Parliament, from the Trade Union Movement, from the Labour Party, from the employers' organisations and, most important of all, from the people of this country. In this connection, I would, with great respect and humility, pay my tribute to the notable contribution made a short time ago by the noble Lord, Lord Citrine. Coming back to the noble Lord the Leader of the Opposition, to be perfectly fair to him, in the quotations which I made from his speech he was, of course, referring to the wage freeze, and not to the prices freeze. But your Lordships do not need me to tell you that without a price standstill you cannot have a wages standstill.

If I may return for a moment to the question of overeas opinion, there is, of course, concern over the question of when this country will cease to be running a balance-of-payments deficit. Will it be by the middle of 1967, or perhaps later in 1967? But there is much more concern over the question to which the noble Lord, Lord Byers, referred: What happens after that? How rapidly will the country develop a substantial and reliable surplus on the balance of payments which will provide the basis for a progressive economic policy? That is why it is so important now to be thinking of what our competitive position is likely to be in one year or two years hence and thereafter. And it should be borne in mind in this connection, as has been indicated quite recently in this House, that in many competing countries wage costs are rising at the present time.

I should like now to say a word on the subject of productivity agreements. Speaking in Monday's debate on the Economic Situation, some noble Lords expressed concern about the implications of a standstill for productivity agreements, and to-day the noble Lord, Lord Byers, spoke to the same effect. On Monday, the noble Earl, Lord Swinton, was particularly worried about this possible aspect of the standstill. This is not a subject on which it is wise to be dogmatic. But I cannot myself subscribe to the unqualified support of productivity agreements suggested by the noble Earl, Lord Swinton. My own view tends, perhaps, more towards that which may have been indicated in the same debate on Monday by the noble Lord, Lord Campbell of Eskan. I should make it clear that we are not discussing incentives to individual workers, or even incentives to teams of workers, to increase their output. What is here at issue is an agreement to raise wages for a whole group of workers, very often employed throughout an industry. This involves a certain danger of granting a wage increase, substantially in excess of the national norm, in consideration of an improvement which either would have come about anyway or, at least, should have come about anyway. We hear a great deal, quite rightly, about the evils of restrictive practices on the part of labour; but I feel myself some hesitation about the extent to which it is desirable to overcome them by this particular means. At the same time, I want to emphasise again that it is all a matter of degree, and I do not wish to appear to be dogmatic.

I should like to make one further point on this issue. If, in a particular occupation, such exceptional wage increases continue to be secured over any term of years, the wages paid in that occupation will rise completely out of line with wages paid in other comparable occupations. At some point there will arise an irresistible demand for a substantial rise of wages in those other comparable occupations, quite irrespective of the growth of productivity to which they may have contributed. This is the kind of thing which spells destruction to an incomes policy. Here I would refer to what the noble Lord, Lord Cooper of Stockton Heath, said about the wage situation in his most constructive speech in last Thursday's debate.

I am trying to confine myself to-day to questions arising from the proposed standstill, rather than discuss incomes policy at large. There is, however, the question whether the standstill in itself will naturally lead on to a more successful incomes policy thereafter. I would put this plea to the Government: that they should not assume that the standstill necessarily will—unless fruitful use is made of the breathing space to work out how incomes policy is to work in future. The standstill certainly will provide a useful base from which to make a new start. What we call the leapfrog effect, the competitive struggles of workers in each industry to keep up with workers in other industries, is perhaps the most important cause of the unduly rapid rise of wages in this country. It is bound up with the difficulty, indicated by the noble Lord, Lord Citrine, of defining what is meant by an underpaid worker. The break resulting from the standstill of the momentum of the leapfrog effect will certainly provide a wonderful opportunity for a fresh start.

Nevertheless, my professional colleague at the University of Bristol, Professor Tress, in the course of a personal statement issued on July 28 in his capacity as Chairman of the South Western Economic Planning Council, took the line that the wage freeze will make harder the establishment of the regular habits of an incomes policy". I could not myself readily subscribe to that doctrine. But there is a great deal of sorting out of deferred wage claims which will have to be done in the second half of 1967, and I feel that a new look at incomes policy is called for.

My Lords, one factor to be taken more fully into account is the wage drift. The noble Lord, Lord Cooper of Stockton Heath, in his speech last Thursday stated that "the great mischief has been done by wage drift." [col. 1000]. I have informed your Lordships' House that I do not intend to pursue the general question of incomes policy to-day as opposed to the standstill; but the wage drift is bound to pull a little against the standstill as, in effect, the noble Lord, Lord Erroll of Hale, has pointed out.

The various factors which underlie the wage drift will respond to an easing of the labour market and to the change in the general climate of opinion which the standstill will engender. However, I have a feeling that the Government are inclined to overlook the extent to which wage increases take place otherwise than as a result of collective bargaining. Incomes policy has been bedevilled by the liberal use of cotton-wool in the drafting of policy statements. In the recent White Paper, Prices and Incomes Standstill, Cmnd. 3073, I detect only one clear use of cotton-wool. This occurs in paragraph 28. This paragraph is headed "Other forms of employment income", and it starts with the following words: Many individual salaries and other forms of remuneration, including that of company directors and executives, are fixed outside the normal process of collective bargaining; but it is intended that the same principles of standstill and restraint should apply to these as to other forms of income. Then there is a suggestion that the new Companies Bill will provide for disclosure of the emoluments of directors and executives. I would suggest that the implication of that paragraph for wages would have been clearer if the word "wages" had been mentioned; and if indeed the implication for wages had been set out in a separate paragraph. In this respect I think that the Government's intentions would have been clarified and the chances of success somewhat improved.

This leads me on to warn the Government against stating their policy in a form which must inevitably result in some disappointment when the outcome is revealed in statistical form. There will be some drift during the standstill period: not perhaps very much. There are the wage increases of a considerable proportion of the labour force already negotiated which are to come into force in the first half of 1967. And there will be some further increases based on criteria about which discussions are still to take place during the standstill period. In the light of all this, I cannot help wondering in what sense it is stated in paragraph 25 of the White Paper, which I have just quoted, that for the time being the incomes norm must be regarded as zero". I see what the Government have in mind, but I think this clarity of purpose for which I am praising them would be more conspicuous if they were to relate that particular meaning of incomes norm to the meaning laid down in paragraph 11 of the White Paper on Prices and Incomes Policy issued in April, 1965—Cmnd. 2639.

My Lords, I have allowed myself to get bogged down on points of detail. It is, however, right to observe that whether it is incomes policy operating under normal conditions or whether it is a standstill, without attention to points of detail success is impossible. However, I wish in conclusion to reassert my belief that when a Government, faced with an emergency, have suddenly to decide on step which seem to be right, even though they are unpopular, and unpopular especially with their own supporters, such a Government, as the noble Lord, Lord Citrine, has so forcefully emphasised, deserve all the support that it may be possible to mobilise.

House adjourned during pleasure.

House resumed.