§ 2.52 p.m.
§ LORD BESWICK rose to move that this House, noting the increase in unemployment and prices, the stagnation of the economy, inadequate industrial investment and the unfairness of material rewards as between one section of the community and another, recognises that the free play of market forces will not solve these problems and calls upon Her Majesty's Government now to seek a positive and agreed national policy based on full employment, an expanding economy and maximum social justice. The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. It is a Motion, I hope, we can all accept. It is largely factual. None can deny the tragic fact of the rise in unemployment. I cannot conceive anyone trying to deny that prices have risen—and faster than before. Noble Lords opposite may wish to explain, or explain away, Mr. Heath's notorious claims on this point, but I shall not waste much time on that. Whether the General Election hand-out spoke about cutting prices or the rise of prices, at a stroke, is immaterial. In either case it was wrong. And in either case we have it on the authority of the Cabinet Minister principally concerned with retail 874 food prices that Mr. Heath did not mean what was said. What he did mean was to capture votes, and noble Lords opposite know full well that they would not now be sitting on that side of the House but for this carefully planned and well-researched propaganda. I state that as a fact and I invite noble Lords opposite to deny it.
§ The Motion goes on to note the stagnation of the economy. I suppose it may be said that it was stagnant before, but if that is said then the obvious retort is that the previous Administration did at least use restraint to get our balance of payments right. Having been handed a massive surplus, there really is no justification for a stagnant economy to-day. Then I invite your Lordships to note the inadequacy of industrial investment. Again, it is, unhappily, a fact. Industrial investment ought to be increasing; it has begun to fall, and according to both D.T.I. and C.B.I. estimates it will fall further in the coming year. The unfair distribution of material rewards I will deal with in greater detail when I invite the House to look at positive policies for the future.
§ I shall wait with interest to see whether any Government spokesman seeks to justify continued reliance on market forces. If they do so seek, they will be seen to be part of a small and diminishing minority. Even the Financial Times, the Bank of England and the Confederation of British Industry are now asking for governmental intervention. But I shall not want to rest my case on what those with financial expertise have to say. One lesson we surely have to learn from the last two decades is that financial expertise is not enought. We cannot solve the undoubted problems which I have listed with any smart adjustment of the fiscal system. Social factors, social incentives, social policies, the environment in which human beings work and live are as important, if not more important, if we are to get the maximum efficiency from a modern technological economy.
§ I am not simply going this afternoon to echo the cry for reflation. Reflation alone is not enough. Pumping new credit or new demands into to-day's economic system would be like pouring a higher octane fuel in an old worn-out engine and expecting an increased power output. To 875 step up demand without a positive, overall socio-economic strategy is simply to invite disaster. Fully to understand the plight to which the crude play of market forces has brought us, we must look more closely at the unemployment figures. The figure of registered unemployed is bad enough, but we must also note that there are to-day 392,000 fewer jobs. There are those who were in the labour force before who are well able to work to-day but who cannot now find useful employment—semi-retired persons and married persons for example. At the same time, overtime is decreasing; short-time working is increasing. It has also to be pointed out that the number out of work for more than six months has doubled. And there is another factor which may have the most profound consequences for our economic future.
I recently had occasion to study a report by the Department of Employment and Productivity (as it was then) of what happened to employees one year after the dismissal caused by the cancellation of an aircraft project. One of my former governmental colleagues has said that, while regretting the dismissal, they had all found jobs. I found that there was more to it than that. Although maybe none of them appeared on the registered list of unemployed, some 20 per cent., although not registered as unemployed, had withdrawn from the United Kingdom labour force—some by migration. Some 66 per cent. reported a drop in wages, and 46 per cent. were not then utilising their skills. I recalled that study in redeployment with recent reports about unemployment or underemployment of graduates. I see in a recent article by the Secretary of the Manchester University Careers and Appointments Services that:
the number of major employers who in 1971 have declared either no vacancies or very substantial reductions in their provisional needs, is a formidable one and includes more than its fair share of those with a high scientific and technological content in their work.
The author lists Rolls-Royce, Imperial Chemical Industries, Ford, British Overseas Airways Corporation and Albright & Wilson among these firms. This seems to me one of the most disquieting features of the present situation. It is almost trite to say that this comparatively small country, with few raw
materials, depends upon technology if our standard of life is to be improved. Here, clearly, we are in danger of slipping back. It is not only employment but the type of employment which will determine our national future.
§ There is reason for similar doubts about industrial investment. Not only is the overall rate declining but in an economy governed by market forces it will be deployed wrongly from a long-term national viewpoint. The other day I saw Press reports of stockbrokers' recommendations to buy. First on the list was a bookmaking firm, then a wine company, then spirits, then an investment trust which depends heavily upon a gaming house, and one engineering firm. If one is thinking only of profits I suppose it was not a bad list; but if one is thinking of the economic base of our society it is rather depressing. Yet if market forces decide these things, then that is the way investment will tend to flow. The heavy essential industries, the industries dealing in advanced technology, are not quick money spinners: the risk is greater; investment takes much longer to show a return. The extension of present trends will mean that these industries will get a declining share of total manufacturing investment. Yet there will be no great industrial future for Britain unless we have a proper base of these industries to our economy.
§ The Motion declares that the needed positive policy to set right these failings must include the maximum content of social justice. I want to indicate the kind of injustice, the unfair distribution of material rewards, to which the Motion refers. Under the previous Administration we did something by fiscal means and by the improvement of the so-called social wage to narrow the gap between the rich and the poor. Yet in one way among the working population we widened the gap between the low paid and the well paid or better paid. The concept of the 3 per cent. or 4 per cent. norm in our incomes policy encouraged the uniform percentage increase across the board in a given industry or service. The £16 or £20 a week man got 3 or 4 per cent. and so did the £2,000 or £3,000 a year man. I recall one particular settlement against which I argued in which a percentage of, I believe, either 8 per cent. or 10 per 877 cent. was applied to scales ranging from £16 a week to £6,000 a year. The justification for this claim was not increased productivity but increases in the cost of living. Yet an increase in transport fares and in the price of bread is met by the low paid equally with the highest paid. Yet the one had, gross, something like £70 or £80 a year extra, and the £6,000 a year man had £600 a year extra. To my mind there is absolutely no justification in cost of living terms for increases like this to be paid to those who are already enjoying a high salary.
§ The present Government have boasted of a certain success when a wage settlement has been reached at a percentage point less than another, but surely the base must be taken into account. We are fooling ousrelves economically and perpetuating injustice when we emphasise the importance of a percentage settlement. Under the present Administration this percentage increase technique for giving more to him that bath has been compounded by their tax changes. It works the other way round but it aggravates the same trends. The reduction in income tax gives hundreds of pounds back to those who are living comfortably and very little, or none at all, to those whose families are in real need.
§ The Chancellor's discrimination in favour of the better-oil was justified as an incentive. I recall that my noble friend Lord Diamond analysed this theory of tax incentives to the well paid and showed it to be a false argument. We now have recent experience to study. Can anyone in this Chamber say that they know anyone who has gone to the office or to the works 10 minutes earlier, or worked any harder, as a result of the Chancellor's tax reduction? As a productivity stimulus those tax reliefs have been as big a flop as the corporation tax reductions in stimulating investment. All that the tax changes have done is to aggravate the sense of unfairness. But if we are concerned with incentives let us look at what is happening at the other end of the income scale.
§ The Government have extended a complicated patchwork of means tests. There are now means tests at various levels, for school meals, prescriptions, dental treatment, rate rebates and certain others, and the whole will soon be complicated by the family income supplement, also 878 of course dependent upon a means test. I know that my noble friend Lord Garnsworthy is especially interested in all this and may go into it in more detail, but I think he will agree that, apart from the taint of charity which is now emerging, there is an important disincentive element.
§ Various studies have been made. In the Political Quarterly in January a contributor calculated that a man with four children earning £21 a week, by raising earnings by £1 a week would lose £1.30 in income tax, National Insurance contributions, loss of rate rebate and school meal charges. The actual figures vary with later studies, but the principle clearly remains. I invited consideration of this from the viewpoint of incentives, but it is relevant to wage claims. If a worker with a two-child family on a £16 a week wage won a gigantic 80 per cent. increase —ten times the amount that the Chancellor would say was tolerable—he would in fact have a net gain of only £3.82 a week, because of the adjustments in the various payments that are made. We might well reflect upon some, though by no means all, of the recent wage claim against this background.
§ When we come to consider the pattern of wage claims and settlements we come. I suppose, to the most significant and alarming symptoms of the malaise of the contemporary socio-economic scene. Her Majesty's Government will argue that they are the prime cause of price rises; others will say that they are an effect of such rises. Any trade unionist who believes that what he wins in his pay packet has nothing to do with what his wife pays in the shops is clearly fooling himself. But similarly, any member of Her Majesty's Government who believes that the "standing on your own two feet" philosophy can apply to everyone but the trade unionist again is greatly mistaken. If there is to be a free-for-all ", said Frank Cousins, "then we are part of the all '." The truth is that both sides of the argument fail to take into account just how tightly and inescapably we are each part of that "all". We have developed a highly integrated, highly specialised, highly capitalised industrial society, and we have got to learn the necessary social and political techniques which will make that society work.879
§ In this modern industrialised society, Her Majesty's Government are trying to apply methods of the 1930s to abate wage claims, and they are increasingly baffled because they do not work. Nearly 800.000 on the dole; a shrinking economy; and still the workers can impose a settlement. One reason is that a walk-out of 50 men in one factory can make 1,500 or 5,000 men idle in another. With millions, probably hundreds of millions, of pounds worth of machinery idle, it is cheaper to give way; and in a modern, near-monopolistic economy it is easier to pass on the increases in price rises than it was before. Of course these considerations do not apply to postmen or to probation officers, but the way in which they are treated does not disprove my point. It only adds to the national sense of unfairness.
§ There is another way of looking at this question. When I was a small boy in the 1921 miners' lock-out, listening to A. J. Cook urging the men to stick it out and hold on to their slogan, "Not a penny off the pay, not a minute on the day", it was a straightforward struggle against the coal owners. To-day, it is largely a struggle between ourselves. There is no better illustration of this than the story of the public service bus conductor who told a striking public electricity worker to get off his bus and walk because he, the conductor, had had to go to work without a cooked breakfast. It has never in history been more precisely true that we all depend upon each other, and unless we recognise this fact, and the Government act upon it, then this modern economy just will not work.
§ I hope that the noble Lord who is to reply, or the noble and learned Lord the Lord Chancellor, will not bring into the debate the Industrial Relations Bill. All the evidence is that it will sour and not sweeten human relations. I refrain from criticising those parts which are most open to criticism; I content myself with saying that the basic need to-day is for voluntary agreement, not imposed commitments. So I ask, in the words of the Motion, for a positive and agreed £ policy. Such a policy must involve new machinery similar to the Prices and Incomes Board. If I am told that this was tried and it failed, then I say that if we had to give up everything because we fell 880 down at the first attempt, or even the second, none of us would be walking to-day.
§ When the history of to-day comes to be written and contemporary memoirs are no longer read, I believe that my noble friend Lord George-Brown, with his Declaration of Intent from both sides of industry, will stand out as one who sought and achieved a genuine pioneering milestone in our economic development. Of course, there are lessons to be learned from that experience. One tragedy was that the prices and incomes policy was put forward as an expedient to help solve the balance of payments problem, instead of as a positive socio-economic policy. It was always a negative restraining factor. One incidental tragic result of the last Election was that we never had the opportunity to show how the policy could work when a most comforting surplus had been achieved.
§ But, my Lords, if we are to have a policy on incomes and prices, it would need to complement as well as make possible a social programme which sought much more obviously to set right inherent social injustices. It would need, too, to take into account the ownership of capital; and I give one indication of where an attempt could be made to meet legitimate criticisms that even where there is restraint on dividends (for which I do not necessarily ask) a restraint on wages only adds to the capital ownership of the shareholders. Company investment, that slice of investment which is generated by the company itself, is to-day too small and should be increased—indeed, must be increased. By fiscal or other means the Government should encourage such an increase. But can we say that if millions are ploughed back then they should necessarily be owned by existing shareholdings? Ought not the workers, from the shop floor to the chief executive, who have helped to create the new resources, be entitled to a share? Or could not a percentage be credited to the people as a whole, through the Government?
§ My Lords, I have not sought simply to make Party points. I have tried to argue that a modern, industrial, highly integrated economy will work only if we show a readiness, all of us, to recognise that we each depend upon the other and that this recognition. unless it be simply humbug, needs to be reflected in our 881 social, economic and fiscal policies. Reflation is the catchword of the day, but it will give stable and lasting benefits only if it is within the context of the policy I have outlined. We gave the Conservative Administration room to manoeuvre with a nearly £700 million surplus. It is still running at about half that rate. They have an opportunity. I trust they will accept it, and if not, hand it over to others who will. My Lords, I beg to move.
§ Moved, That this House, noting the increase in unemployment and prices, the stagnation of the economy, inadequate industrial investment and the unfairness of material rewards as between one section of the community and another, recognises that the free play of market forces will not solve these problems and calls upon Her Majesty's Government now to seek a positive and agreed national policy based on full employment, an expanding economy and maximum social justice.—(Lord Beswick.)
§ 3.18 p.m.
§ LORD ABERDARE
My Lords, the noble Lord, Lord Beswick, has accused the Government of many shortcomings. I suggest that he has drawn attention to many motes in our eyes without regard to a possible beam or two in his. I prefer to take a rather broader view and to begin by quoting some words of my right honourable friend the Chancellor of the Exchequer when he introduced his Budget on March 30 last. He said:It will be agreed throughout the House that for many years, under one Government and another, the economic performance of our country has been poor."—[OFFICIAL REPORT, Commons, 30/ 3/ 71, col. 1358.]I am sure that this House will agree with those sentiments. My right honourable friend then went on to outline the broad strategy of economic policy which we intend to follow in order to achieve long-term economic prosperity. We have always recognised that the way ahead is difficult and that we cannot expect to change course without some painful adjustments. But we are now firmly set on our new course, and we do not intend to be blown off it by fretful gusts, not even the lusty gusts of noble Lords opposite.
We believe that our economic policies are in fact precisely those which will lead to full employment, an expanding 882 economy and social justice. It is our concern to ensure that these goals will be achieved not in a temporary and ephemeral fashion but solidly and securely, so that they can be sustained over a period of years. Since we took office just over a year ago we have been contending with cost pressures which have been stronger and more persistent than at any time in the post-war period. During the preceding twelve months the rate of pay settlements had accelerated from around 5 per cent. in the second quarter of 1969 to twice that figure—to over 10 per cent.—a year later. This was a serious and damaging rate of increase which could not be allowed to continue; there was an obvious danger of runaway inflation.
To avert the prospect of further escalation of wages and prices the Government have maintained a firm stand against excessive pay rises; and, despite some prolonged disputes, there is evidence now that the rate of increase in wage settlements has been checked. In the period March to May, the average annual rate of pay settlements being notified was some 2 per cent. below the rate for the period December to February. This is only a start—we have still a long way to go before we secure the substantial fall in the current rate which we require to achieve reasonable price stability—but there are some encouraging signs. Weekly wage rates in March-May were 12½ per cent. higher than a year earlier, somewhat below the corresponding figure of 13½ per cent. for December-February. Average earnings in the first quarter of this year were 12½ per cent. higher than a year earlier, as compared with the corresponding figure of 14 per cent. for the fourth quarter of 1970. It is true, of course, that part of the explanation of the slowing down of earnings lies in the fall of overtime worked: nevertheless, the comparative figures for wage rates and earnings indicate some reduction in wage drift from the high levels prevailing during most of last year.
§ LORD SHACKLETON
My Lords, I wonder whether the noble Lord can help us a little further. Has he got similar trends for other years? Can he give any justification to show that this is a trend and not merely a local movement? There are certain seasons in the year when 883 wages go up. Can he give us the comparable figures in previous years with regard to wage drift?
§ LORD ABERDARE
My Lords, I will try to get those figures for the noble Lord in the course of the debate. All I am trying to point out is that there is an indication that these settlements, which have been running at a very high rate, are stabilising and, if anything, falling slightly. It cannot be denied that these figures reflect, in part, the success of the Government in changing the climate of wage bargaining since last autumn. I would remind your Lordships that our achievements so far are greater than many of our critics thought possible. There were those who cavalierly projected wage increases of 20 per cent. by the middle of this year.
In our view, a statutory freeze on incomes would provide no lasting solution to the problem of cost inflation. Any gains would be short-lived, leading to a renewed upsurge when controls were removed. Indeed, many of our present troubles stem from the period of abandonment of the previous policy: the previous Administration gave way, all too easily, to the pressure of wage demands which built up during the period of statutory restraint. A statutory policy would he difficult to implement and, as time went on, would present more and more opportunities for evasion. Under the previous policy, a number of inflexibilities were imposed on pay structures making it more difficult to take account of changing job requirements and the forces of supply and demand. Workers were more likely to be dissatisfied with their position and this was particularly so with the lower-paid groups. These are real difficulties. I believe that the most realistic policy is the one we are currently pursuing. While we do not believe that a statutory incomes policy would be workable, we have not ruled out the possibility of an agreed voluntary incomes policy: a policy which is acceptable to all sides—to the employers, to the unions and to the Government. We are glad to consider and discuss worthwhile proposals for such a policy. We have had discussions with the C.B.I. and the T.U.C. at N.E.D.C. and elsewhere, and will continue to exchange views with them. Basically we are de- 884 termined to explore every avenue to achieve final success. Success in slowing down wages will be of critical importance for a significant slowing down in the rate of price advance.
The noble Lord, Lord Beswick, said that he would not mention the phrase used by my right honourable friend the Prime Minister, and then he went on to do so. Later on in his speech he said that he hoped we would not deal with the Industrial Relations Bill, and then he went on to do so. Therefore, I cannot really refrain from saying that I was rather sorry that he repeated the hoary old chestnut about the words "at a stroke". It has become a kind of shibboleth, without any regard to the context in which the words were used. I am sure your Lordships would not wish to distort the facts, and it really is important to consider the full text of the statement. If I may quote from it, he said:That alternative is to break into the price/ wage spiral by acting directly to reduce prices. This can be done by reducing those taxes which bear directly on prices and costs. such as the selective employment tax, and by taking a firm grip on public sector prices and charges such as coal, steel, gas, electricity, transport charges and postal charges. This would, at a stroke, reduce unemployment.My Lords, this is precisely what we have done. We have reduced S.E.T. We have cut it by half with effect from next month. We have acted directly to control the price of coal, steel, electricity and postal charges, and we have reduced the rise in prices. It would be interesting to speculate on what the rise would have been had we not done this. It would be an interesting intellectual exercise for someone to try to work out what the rise in prices would have been had we not cut taxation by £1,000 million this year.
At present retail prices are running some 9½ to 10 per cent higher than a year earlier, and wholesale prices have risen only some 1 to 2 per cent. less over the same period. The consequences of such price rises at home are grave. But equally their impact on trade and the balance of payments is potentially very damaging.
§ LORD BESWICK
My Lords, I did not in fact go into this point because I did not want to divert the course of what I hoped would be a constructive debate. Since the noble Lord has gone into it in some detail and I did not give any figures, 885 would he give the rate at which prices were then rising and the rate at which they are now rising?
§ LORD ABERDARE
My Lords, I have already given the rate at which they are rising now, 9½ per cent. to 10 per cent.; what I am arguing is that they would have risen even higher if we had not reduced taxation. The noble Lord said that he did not want to go into it, but if the noble Lord readsHansardtomorrow he will see that he did. I had no intention of going into it. It was at the back of my folder until I heard the noble Lord make his remarks.
Export prices have risen considerably faster than those of our main competitors during the last year. Even at the end of this period, however, there had been little, if any, loss of export price competitiveness over the longer period from the second half of 1968, when the effects of devaluation are thought to have been fully worked through. But if our prices continue to rise at a rate faster than those in other countries, our competitive position will inevitably be eroded. This only serves to underline the need for restraint in incomes. Mr. Harold Wilson put the matter very succinctly on June 8, 1970, when he said:One man's pay increase is another man's price increase.Our balance of payments so far this year has remained in strong surplus. The visible trade deficit in the first quarter was exaggerated by the effects of the postal strike on documentation, and the trend is best seen from the first five months taken together. The average monthly deficit on visible trade was £6 million, compared with one of£3 million in the second half of 1970. When this is set alongside the surplus on invisibles, which is estimated to be running at some £50 million per month, the current account surplus clearly remains substantial. Examination of the composition of this surplus is not, however, wholly reassuring. It is clear that the worsening position in volume terms has been masked only by a substantial improvement in the terms of trade. Whereas in the first five months of the year, as compared with last year, most of the rise of 4 per cent. in the value of exports was due to higher prices, most of the rise of 5 per cent. in import values was due to higher import volumes. Thus within a strong balance-of-payments posi- 886 tion overall there are some disquieting features.
There has been a good deal of comment—much of it exaggerated— about a drastic deterioration in domestic economic prospects since the Budget. I would remind your Lordships that the forecasts published with the Budget proposals envisaged a fall in output in the first half of this year from the level of the second half of last year. This was associated with a decline in stockbuilding from the high rate of the second half of last year. It is true, however, that the figures for the first quarter of this year, published yesterday, show output to have fallen by over 2 per cent. from the second half of last year. The fall is more than expected at the time of the Budget but it is partly accounted for by special factors such as the Ford and postal strikes. In the current quarter some recovery in activity may be expected. Consumer spending should recover from the effects of strikes and benefit from the cut in income tax which took effect in April. Already in April the volume of retail sales had come back to the fourth quarter level. Industrial production, which was unchanged between the fourth quarter of last year and the first quarter of this year, rose in April to almost 1 per cent. above the first quarter level. Again in May there were some signs that the volume of exports may be picking up.
The sharp increase in unemployment this year results partly from the sluggishness of output. But unemployment has risen faster than would have been expected, on the basis of past relationships, from the movement of output. This may be in part delayed reaction to the earlier slow growth in output in 1969 and the first half of 1970 which led to a smaller rise in unemployment than would have been expected. An important further factor has been the tight liquidity position of the company sector, and a major cause of this has undoubtedly been the rapid increase in labour costs. In this way and through its effect on output, cost inflation has adversely affected the employment situation. Here, too, the most recent figures are slightly more hopeful. The rise in the number of wholly unemployed (excluding school-leavers) was smaller in May than in the two preceding months, and this, together with a check to the fall 887 in the number of adult vacancies, may indicate that the decline in demand for labour is now slowing down. We are particularly concerned about the regions of high unemployment. There is perhaps not a great deal of comfort in observing that the rise in these areas since last autumn has not been proportionately greater than in the country as a whole. But we have reformed the system of incentives to industry along with a substantial extension of Special Development Area Status and we expect significant benefits to accrue from these measures.
The interim aim of the Government's Budget measures was to slow down and later halt the rise in unemployment. It will take time for the full effects of the measures to work through. The reduction in S.E.T—nearly£300 million in 1971–72—is effective from July 5, and the increased child allowances—£160 million in 1971 72—also take effect next month. I would therefore ask your Lordships to bear in mind that a substantial stimulus to demand and employment has still to come into play. The Government have no intention of shirking their commitment to full employment. The present level of unemployment is too high. What is in question is how we can best achieve an enduring reduction in this level. We have argued—and will continue to argue—that a large boost to demand now, with the object of bringing a significant and immediate reduction in unemployment, would be irresponsible. It is naturally tempting, but it is the easy way out. It is yet another of the remedies which buy a temporary gain at a heavy long-run cost. That is not the way this Government are dealing with prices and it is not the way we are dealing with unemployment.
It is only natural that in present circumstances voices should be heard calling for a stimulus to demand. But, as I have tried to point out, the situation is very complex. On the one hand, we are faced with a sluggish economy and a falloff in investment; on the other, there are signs of a revival of consumer demand which is likely to grow as the measures proposed in the Budget take effect. The increase in child allowances, the cut in S.E.T. and, later, the increase in old age pensions will all add to demand. Mean- 888 while, house building continues strongly and building societies are receiving increased applications for credit. Reliable information about the economic position for the first half of this year is still incomplete. Only last week, for example, revised figures were published for the first quarter's index of industrial production, which showed that output was much better than previous figures suggested. In these circumstances my right honourable friend the Chancellor of the Exchequer believes that it would be quite wrong to take precipitate action and, because there is a great deal of uncertainty, he will be studying with the closest attention the comprehensive review of the economy which customarily takes place at this time of the year. Until this review is complete and he is able to make a full assessment of the prospects for the economy he has no intention of committing himself finally. But if he should judge that further action is called for, he will not hesitate to take it.
Freedom, with responsibility, lies at the heart of the Government's economic philosophy. This thread runs through our policy for inflation, industrial relations, industrial efficiency. It informs our approach to personal and social welfare, where it is our policy to give greater incentives for individual effort and enterprise while accepting the responsibility of providing help for those in greatest need. We believe that the free play of market forces has an important role to perform in our society. Competition is still the best mechanism for promoting the efficient use of resources, for stimulating and rewarding effort and for increasing the standard of living for the benefit of the community as a whole. And it follows that because competition is valuable there should be the greatest possible freedom to compete. We intervene in the competitive process only where there is an overriding reason of national or social policy for doing so. And we strive to make competition effective over as wide an area of the economy as possible.
We recognise the need to temper the effects of competition on those in the community who cannot protect themselves. That is why, in increasing charges for school meals, welfare milk, optical and dental treatment and prescriptions, we have considerably extended the range 889 of exemptions from charges to alleviate hardships and make substantial improvements in areas of greatest need. To assist pensioners, the Government up-rated national insurance retirement pensions by 20 per cent. in the Budget, and the supplementary benefit was increased at the same time. Pensioners with modest incomes also benefit from the changes in exemption and age relief. People on low incomes with children have been given large benefits through the family income supplement and the child tax allowance. Even allowing for increased food prices and rail fares, the net benefit is still very substantial. People without children gain from the cut in the standard rate of income tax, even at very low incomes. These are very considerable achievements over a period of only one year.
In conclusion, my Lords, the Government have taken as their immediate priority the curbing of excessive cost inflation. There lies the root of almost all our problems. Victory in the battle against inflation is the way to fight the increase in unemployment, to bring to an end the long period of stagnation in the economy, to promote investment, to remove injustice and to allow the beneficial effects of the forces of competition to manifest themselves in a more rapid rise in this country's standard of living.
§ 3.41 p.m.
§ BARONESS SEEAR
My Lords, I must most regretfully begin by apologising to your Lordships that, owing to a mistake, I was not in my place at the beginning of the very important speech of the noble Lord, Lord Beswick.
I suppose that no one would disagree with the purposes behind the Motion before us to-day. Successive Governments have sought to achieve, simultaneously, full employment, high growth rates, stable money and a satisfactory balance of payments. Successive Governments have sought this aim, and successive Governments have failed. And on the evidence to-day one must, alas! assume that this record is not likely to be broken in the present Administration.
My Lords, the air is full at the present time of pundits telling us that what we need is an incomes policy. It is plain, of course, as the noble Lord, Lord Aberdare, has said, that if we attempt 890 to reflate the economy we run the risk of making inflation worse unless this can be accompanied by some restraint on incomes. But the pundits who tell us, in many different languages, that what this country requires is an incomes policy do not tell us how to make the thing work, and an incomes policy is only as good as the machinery through which it operates. Now an incomes policy can come in only one of two models: either it must be statutory or it must be voluntary. There may be—to my mind there are —serious political and theoretical objections to a statutory incomes policy. But, apart from these theoretical objections, there is the overwhelming practical objection that you cannot make it stick. It was at the height of the effort of the last Administration that I was very interested to hear a very responsible official of a most respectable trade union remark that he thought the Government's income policy had been extremely good for industrial relations because it had led the employers and the trade unions to get together in order to defeat the Government. My Lords, when the employers and the trade unions get together, neither the Government nor anyone else, it seems, can get much of a look-in.
So a statutory policy is simply not on. Nor do I believe, unlike the noble Lord, Lord Beswick, that the kind of policy that was attempted to be applied through the Prices and Incomes Board—a semi-controlled policy—will in fact operate and for the same reason. The only policy that will work is a policy that results from the getting together, in the first place, of the Government, the C.B.I. and the T.U.C. to decide on what is a rational basis for increases in wages and other incomes. Because these are the people who, in the last resort, have to do the negotiating, and unless the C.B.I. and the T.U.C. are in some sort of agreement as to the kind of base on which they should operate then no policy is going to be successsful.
I should like to suggest that it is high time that this discussion took place. The T.U.C. put forward some months ago proposals which provide at least the basis for the beginnings of such a discussion. Your Lordships will remember that the T.U.C. pointed out that it could be useful to separate the two elements in wage claims: the element that has to do with 891 the unionists' very proper desire to share in the profitability of the industry, and the second and, at the moment, overwhelmingly important element, which represents their fears of being overtaken by price increases. At the moment, the very large wage claims that are being put forward are being put forward in the attempt, on the one hand, to recoup the rise in prices since the last pay increase, but also—and this is more dangerous—in anticipation of future price increases.
Now if we could accept the T.U.C.'s suggestion that we divide claims into these two sections, two advantages would be gained. It would be possible once again to talk realistically about labour's share in the profitability of the concern and at the same time to calm the fears about rising prices by agreeing that if the cost of living has risen to a prescribed point by a given date then automatically people will get an increase in wages. There are, of course, real dangers in escalator clauses of this kind, and in normal circumstances I, for one, would not recommend them. But these are not normal circumstances. We are in a dangerous situation, and dangerous situations call at times for risky remedies. I believe this to be a risky remedy, but I believe also that it provides a workable base on which discussions can take place—and at our peril do we delay these discussions very much longer!
For we are, let us make no mistake about it, in a gloomy situation. The noble Lord, Lord Beswick, has spelt out how gloomy that situation is. All, however, is not gloom. There are some gleams to be seen. There are some opportunities which, if we have the wit to discern them, may indeed help us both now and in the future. The noble Lord. Lord Aberdare, referred, as if regretfully, to the fall in the amount of over time being worked. For my part, I believe that this is one of the most cheering signs at the present time. It is of course lamentable that capacity in plants is not being used, but ever since the Second World War, my Lords, we have suffered from the disease of overtime. If, through this devious and unhappy route, we are moving into the situation in which we get more effective work done in shorter hours for rates of pay which do not require overtime in order to give 892 men a decent wage, if that indeed is the situation in which we are shortly to find ourselves, then some good has come out of this evil situation.
But. my Lords, there is one other possibility of advance. Throughout the periods of full employment, we have been chronically short in this country of every known category of skill. We shall reflate again one day—sooner, we hope; not later—and once the economy begins to grow this chronic shortage of many categories of skill will be upon us once again. As we all know, we have a large number of unemployed at the present time. Now is the time to take steps to see that when the economy is again working fast we have to hand the people trained and skilled for the jobs for which will then be needed. To my certain knowledge the Department of Employment—under its various changing names—has been studying manpower forecasting for at least the last eight years. The people there are surely now in a position to tell us—and to tell us regionally, because this is how we need to know it—what categories of skill will be in short supply when the economy again begins to grow.
We know that it is the Government's intention to give us before long a review of their plans with regard to industrial training. Surely the thing to do now is to identify these shortages and to begin to bring people into training for the jobs for which they will be needed—in months or, at very worst, in a few years ahead. It may be difficult to get people to accept the reality of this proposition; but once the economy is in full swing it is very difficult to get people to undertake training, because then it is easy to get a job without it. This is our opportunity, if the Government will discover—and it should not be very difficult—where the demand is going to be and will gear the training machine to provide training courses giving opportunities and facilities for men at present out of work; and, I may add, for men of all ages. Enough work has been done to show that there is no great difficulty in teaching old dogs new tricks. We could, if we wished, give skills to many people of capacity who have not had this opportunity in the past. Now is the time to set about doing this, and so turn our present ills to very real advantage.
§ 3.53 p.m.
§ LORD BALOGH
My Lords, in rising to support the Resolution of my noble friend Lord Beswick which he introduced in such a brilliant way, it is my duty, my very pleasant duty, to congratulate the noble Baroness, Lady Seear, on a most remarkable maiden speech full of sound common sense and, at the same time, a profound knowledge of certain parts of the industrial scene. I hope very much that we shall hear her from time to time on these topics—more important than which we do not have. I see also that my noble friend, if I may so call him, Lord Boyle of Handsworth, is going to speak in the debate. May I wish him well, indeed the best, for his maiden speech? We shall listen with bated breath, having known him in so many varied and distinguished roles in this country. Before I set out upon what I have to say, may I crave your Lordships' indulgence because a heavy cold makes my accent and my voice even worse than they usually are. I hope that I shall make myself understood even to the Ministers opposite.
My Lords, we are met here together to-day to take stock of the Heath Government's stewardship of our affairs in the past year. The occasion, quite apart from observing anniversaries, good or bad, is of special importance. We are about to receive the full conditions laid down by the Community for our entry; and I shall try to demonstrate to your Lordships a sober evaluation of the consequences of our entry, as against the pipe dreams of the propagandists, enthusiasts, the missionaries and the martyrs—and some of my friends could learn a little from Talleyrand who said "et surtout pas trop de zéle"—will be dependent, indeed determined, by the relative competitive position of this country at the time of entry. That competitive position of the country at entry is determined by present economic policies.
The cost of the Common Agricultural Policy as much as that of the quaint French method of allocating the burdens of the common budget (which has little to do with the national income and even less with the national capacity to pay) are relatively minor matters however heavy they are and will amount at most to 3 per cent. to 4 per cent. of the national 894 income. This is a matter which can be borne if the political and other considerations so counsel it. They are only once and for all burdens once you have paid them, you have paid them, and there is no further drain on the national income. It is the dynamic effects, the impact effects, on our growth which are all-important and it is, I fear, a factor which has not really been much in the forefront of the discussion. This depends mainly on the effectiveness of our policies.
It is seldom if ever that the leaders of political Parties—especially when in Opposition and even more when in the heat of General Election campaigns—can refrain from promising too much. If, as happened last year, the then Leader of the Opposition is clearly menaced by defeat (and therefore personal and political annihilation) the temptation to go to the limits of credibility and well beyond can be understood if, perhaps, not forgiven. The device of the scare is well understood. It has been employed in every Election since the war. Perhaps this fact is not unconnected with the enfranchisement of women but was not unfamiliar even in the old days of "Liberal bashing". Last year the friends of noble Lords opposite outdid themselves in both directions; and I fear that the vulnerability of the Labour Party stemmed from two grave problems. First was the problem of prices and, second, the problem of full employment. We had failed to stem the rise in prices although it had nothing of the ferocity which it has assumed since. Secondly, we had some unemployment although the figure was not as large as it is now. It is on this flank that the attack came and the scare was started. The noble Earl, Lord Cromer, like Mr. Powell more recently, mixed up hot money flows and the current balance of payments. He made the startling accusation that the country was worse off with a current surplus in the balance of payments of £600 million than it had been with a balance-of-payments deficit of £400 million in 1964. He also claimed by implication that hot money deposits were no debt; but that stable credits from the I.M.F. were.
Be that as it may, the Cromer scare—which I called last year "the financial Zinoviev letter"—was taken up by Mr. Heath and, as it were, at a stroke sounded much more probable. A new devaluation 895 and a wage freeze were predicted if Labour were not defeated. On the other hand, he promised to deal with inflation and unemployment. I do not wish to get involved in the semantic evolutions of the scholastic debate about that famous "stroke". There can be no doubt that Mr. Heath obviously believed that monetary manipulation could deal with inflation; that tax remissions would induce investment and that that would induce an increase in productivity and finally also in consumption, to deal with unemployment. He based himself on an ardent belief in the market mechanism and made extravagant promises on that basis. What is very interesting is that the noble Lord, Lord Aberdare, should now—after a year of complete ill success—more or less repeat the whole of this very sad story. The Government, like the Bourbons, have forgotten nothing and learned nothing. Mr. Heath now says that many of his Ministers, like so many Red Guards or Bolshie Mandarins, appear at Cabinet meetings with a little blue book and tick off pledges one by one. This shows how justified was my subconscious when it made me mix up the Tory Manifesto with the Communist Manifesto the other day—much to the amusement of noble Lords.
I must say, my Lords, it is a sweet picture. I picture the noble Earl, Lord Jellicoe, and the noble and learned Lord who sits on the Woolsack, brandishing a blue book and ticking off pledge by pledge, and 57—no, my Lords, I am sorry, 79—pledges, according to Mr. Heath, have already been fulfilled. That is more than the varieties that Heinz produces. It is quite easy to fulfil a pledge to introduce legislation threatening to bash unions, or to exclude non-patrials. Nor is it difficult to sell off profitable businesses or to grant oil and gas licences under ludicrously favourable conditions, mainly to Americans; certainly not to British companies. What is much more difficult is to make the economic system work effectively and for the benefit of all, and to achieve stability and full employment. If Bromsgrove is to be believed, or Hayes and Harlington, the important pledges have not yet been redeemed; stabilisation of prices, resumption of the expansion of the economy—all these are outstanding affairs. Yet noble Lords opposite and their friends had a vast external surplus to play with, 896 thanks to the austerity of Messrs. Wilson and Jenkins.
The problem of inflation is at the root of our discontent. It is a fundamental problem. It afflicts all countries. It cannot be escaped cheaply or at no inconvenience. It finds its explanation in the basic change of character in the industrial system. It is not a question of a sudden emergency; it is a structural consequence of the deep-seated structural change which has to be dealt with. This change in the industrial system is reflected in a tremendous concentration of economic power in the fewer and fewer independent firms, which are able to manage their prices, manipulate their tastes and influence demand for their products. They can, within relevant limits, set their prices. Consequently, price movements are kept closely related to cost movements. Two most important consequences follow. On the one hand, the real effectiveness of trade unions is thwarted. They are able only to increase money wages; and the increase in prices nullifies their striving for a larger slice of the national cake in the form of increased real income. On the other hand, firms will find that they have little to gain and much to lose from opposing wage claims because of the tremendous loss which they may suffer from a strike. The more restrictionist the policy of the Government the less, and not more, can industries afford to have strikes.
Nor is this all. This higher level of employment which has been achieved since the war in all countries has wrought a similar change in the balance between employers and trade unions. This achievement has been by far the most outstanding social achievement. It gave a completely different non-class war aspect to our social life. It changed the relationship between the bosses and the workers. In this new ambience no head of a democratic Government can feel politically safe if he fails to sustain full employment, whatever the reason or excuse for the failure.
If this evaluation is correct, momentous consequences follow. On the one hand it is clear that stability and full employment cannot be combined on the basis of market forces; only through conscious social and economic policies. Global economic measures, acting 897 indirectly through the variation of money demand, become impotent to secure the necessary reconciliation of aims under a free-for-all. This is as true of fiscal policy, Budget surpluses and deficits as it is of monetary policy. The noble Baroness, Lady Seear, spoke about the difficulty of implementing this policy. Of course it is difficult, my Lords, other-wise we should not have failed to do so in every country in the world for thirty years. But that does not mean that it is impossible; nor does it mean that there is any other way out.
And it is owing to the total failure to appreciate the nature of our fundamental problem that Mr. Heath's experiment, like Mr. Nixon's before him, was such a total failure that it turned out absolutely differently from what he hoped that it would. Not only has the rise in wages continued in both countries but the balance between the public and private sectors has been destroyed. It is no use the noble Lord, Lord Aberdare, declaiming that the system of market forces has produced a greater harmony in wages. Look at the difference between the public sector and the private sector wages, and dare to say that again! The trend of unemployment again is upwards. The noble Lord, Lord Aberdare, claims that it has risen less. Of course it has; it is May. Does not the noble Lord know that unemployment is subject to seasonal fluctuations?
§ LORD BALOGH
My Lords, despite the fact that this conjecture should stimulate exports, exports have not been stimulated; they are flat so far as volume is concerned. Indeed, our exports to the Common Market have fallen and not risen in a situation in which world trade has been expanding rather vigorously. Should recovery start, imports would shoot ahead, because there would be restocking, and exports would come under pressure. The restlessness of the trade unions may now be dampened by the rise in unemployment, but their bitterness is not. The two Budgets, which increased the burden on the average and even more on the highly skilled man and yet seemed to favour the top salary and dividend receivers, contributed further to the militancy; and at the same time investment is falling. The victory of the 898 quasi laissez-faire approach which hopes for a solution through attacks on trade union strength through direct regulation and indirectly through unemployment, is ephemeral. It involves stagnation and it would not be viable politically for any length of time. No sooner would a recovery start—and recover we must, if we are to start modernising the country—than wage demands would multiply and increase. Yet a permanent deflation is obviously impossible; the Government would lose the election, and they will lose every single by-election.
My Lords, it is in this context that we must discuss the problem of our entry into Europe. We must not forget that it is not merely the European market which will be open to us; our markets will be open to them and, our industries being more highly protected now than those in Europe, our concessions will be greater and the increase in our imports will probably be much higher. These considerations have not daunted the Government in their drive to restore the "market mechanism". Indeed, Mr. Davies seems to consider a general unilateral cut in tariffs. Yet there is a further danger: that is, that if our distribution of income is not approaching that of the Continent, which is much worse for labour, then obviously there will be a constant threat of the export of capital to Europe. These are the important determinants of our fate within the Common Market. It is these problems, and not sugar or New Zealand dairy products, which should focus interest. The agricultural policy and its impact is important mainly in so far as it might make a reasonable arrangement with the trade unions impossible.
One is therefore bound to conclude that a plunge into the Market before we have dealt with our economic malaise through a consensus on incomes and costs and therefore relative competitiveness, a plunge in order to cure our economic weakness through "free market forces", is an undertaking fraught with the utmost economic, social and political risks. It would certainly and seriously aggravate the relative position of the working class in this country. If we were condemned to be a relatively stagnant and impoverished region of a prosperous and aggressively vigorous Continent, the sweetness of life which has characterised 899 Britain until the coming of the barren Heath will quickly depart without that forcible reinvigoration for which noble Lords opposite and their friends secretly hope.
Those friends of mine who can perceive no difference between the terms that looked likely before the General's second veto and those which we are now about to be given suffer, I fear, from a double misapprehension. In the first place, the financial bias against import-oriented economies, and especially against food importers, has considerably increased. This, as I have said, however, is not a decisive argument. Much more serious is that our capacity to bear any burden has been severely undermined by the reckless irresponsibility of the Government's divisive policy. Mr. Heath, by his class warfare, his attack on the unions and his Budget, has destroyed the possibility of a consensus and produced a situation in which a favourable and civilised solution of our economic problems and of our wages problems is impossible. Whatever might be the advantages of a large market to the strong, the weak and the divided cannot expect to inherit this new earth. Those noble Lords who, with great sincerity, hope to derive strength and prestige for this country from membership will soon be cruelly undeceived. This Government has forfeited all claims to leadership. The sooner it exhausts its ill-gotten majority in Parliament, the better. It was conceived in a lie, born into deceit and bids fair to end in a catastrophe.