WILBERFORCE REPORT AND THE ECONOMIC SITUATION

HL Deb 03 March 1971 vol 315 cc1348-476

3.17 p.m.

LORD SHEPHERD rose to call attention to the Report of the Wilberforce Court of Inquiry (Cmnd. 4594) and to consider its implications for a prices and incomes policy, unemployment and economic growth; and to move for Papers. The noble Lord said: My Lords, I beg to move the Motion that stands in my name on the Order Paper. When I put the Motion on the Order Paper, the Report of the Court of Inquiry under the noble and learned Lord, Lord Wilberforce, was fresh off the printing press, and many of my colleagues felt that the material contained in that Report was well worthy of debate.

Since our last debate on the economic situation, in November, 1970, there have been a series of disturbing developments in the national economy. Rolls-Royce and the Vehicle and General Insurance Company have collapsed; there are a record number of bankruptcies; unemployment is to-day higher than perhaps it has been for some 30 years—and this, in some respects, is only the tip of the iceberg when one considers the size of under-employment. Then investment is falling off—I.C.I. and Shell have announced cutbacks in investment; the stock market is at its lowest for some four years; there is deep industrial strife; prices are rising at an alarming degree; and I do not think there is any doubt at all that there is deep concern about the combination of inflation and recession—the latter appearing to-day to be imminent. Therefore a debate on the economic situation is opportune.

In my speech I intend to deal with one aspect: the field of wages and prices, and the climate in the country for cooperation. The Wilberforce Report will prove a landmark in the history of this Government's search for some sort of economic policy. It is fair, it is blunt, and it holds lessons for all. I would mention immediately one important lesson of the Report: it demonstrates that distinguished men and women entrusted with Inquiries of this kind can be bullied by no one. As the Daily Mirror rightly put it, they are not anyone's jackals, and they are certainly not the jackal of any Government.

After the Prime Minister's unfortunate (although some regard them as insulting) remarks on the findings of Sir Jack Scamp's Inquiry into the dustmen's pay, and the blatantly expressed hope that the Wilberforce Inquiry would take the Government's point of view, this utter impartiality needs reaffirming. In our society, when two sides of a dispute cannot resolve their differences, we have only arbitration or a Court of Inquiry to fall back on. An essential quality of such a body is that both sides should have complete faith in the integrity and impartiality of its members. I would say here, bearing in mind the whole atmosphere of hostility to the unions as a consequence of their go-slow and the clear call by Ministers as to what the maximum award should be, that the decision of the Court, and particularly the careful way in which the Report was written, should do much to rebuild the faith of both sides in arbitration methods.

I turn briefly to the main detailed findings of the Inquiry. They found that earnings in the electricity industry had fallen behind, particularly for craftsmen. The award was above that offered by the employers and championed by the Government—sornething over 10 per cent. Men accepting an incentive scheme were recommended for a lead-in payment while waiting for it to be introduced—another £1 or £2 per week. There should be extra pay for socially inconvenient shift work and some extra holiday entitlement. I do not intend to enter the argument about the exact percentage increase which this package amounts to, but it is certainly not the low figure clutched at by the Government. I content myself by agreeing with the leading article in The Times of February 11, which stated that, Mrs. Castle's estimate of 15 per cent. seems a more natural way of judging the award. So, my Lords, an impartial Inquiry recommended a present day award of the order of 15 per cent. That is a significant figure, and one that will recur when I turn to foreign experience, and it is on all fours with a whole string of awards negotiated recently—including the 16 per cent. for the police. These awards may be considered fair and a basis for a settlement. But even with improved productivity agreements, if we take the state of the economy as it now is, they must be regarded as inflationary if they are to be regarded as the basis for all settlements. But, of course, the award is not 15 per cent. across the board. It had the important features of special pay for shift work, for acceptance of incentive schemes; and it included extra holidays. I shall return to these features when I come to wages policy generally.

It is significant that the Report did not limit itself to the detailed findings. Exactly as the Scamp Report on the dustmen's pay had done, it rounded on the Government on the whole issue of an incomes policy, and the lessons were hammered home in the excellent Note of Reservation by Mr. J. E. Mortimer, one of the colleagues of the noble and learned Lord, Lord Wilberforce. We are, states the Report—and I agree—in a dangerous state of inflation; one that bears hardest on those on modest incomes. The Government are bluntly told that they cannot look to individual pay settlements and individual Courts of Inquiry to provide awards that will make particular groups of workers bear the burden of starting a real de-escalation in wage demands.

It is worth quoting this part of the Report, which states: We … think it necessary for us to emphasise with some force, that staff in the electricity industry cannot be expected to accept settlements on the lines of previous years unless there is moderation also in other pay settlements, a slower rise in prices, and some prospects of growth in their real earnings. The Report goes on: … it is not for us … to suggest the means by which these objectives are to be obtained—whether by a compulsory freeze, by some overall assessing machinery, or by some consultative procedure by which wages, prices and growth policy could be co-ordinated under a concerted strategy, or by any other means. The serious problems now existing cannot be dealt with by the scrutiny of one particular claim.

My Lords, if there is a clear message to the Government, it is that they must stop running away, stop trying to pick on individual groups of workers, and accept the responsibility of evolving a proper policy for incomes as a whole, for prices and for economic growth. I can only say how warmly I applaud Mr. Mortimer's elaboration of this theme in his Note of Reservation in the Report. The present Government's tactic appears to be crude and unfair as between public and private sector, between those who are in a strong bargaining position and those who are weak. I join with Mr. Mortimer in regretting the headstrong decision—I cannot put it otherwise—to abolish the Prices and Incomes Board, the one body whose steadily built up experience could have helped at this juncture to examine with consistency the huge stream of present-day wage claims, while keeping an eye also on prices and other incomes.

Before coming to my own suggestions for a policy for incomes, prices and growth, perhaps I may turn to examine the reasons for the present-day inflation. The first point to be clear about is that this is not some peculiarly British disease, born of the wickedness of British trade unions. It is, in fact, happening throughout the Western World. The United States, as I shall demonstrate later, is going through an exactly parallel bout of inflation.

Nearer home, we all remember the events of May, 1968, in France, ending with a 15 per cent. wage increase across the board and annual price rises of 5 per cent. In Holland, where unions were refused a large wage increase to keep up with inflation, there was a General Strike throughout the country three months ago, on December 7. Now the Government there have imposed a bitterly contested wage freeze for six months. Finally, in Germany the wage bill was growing. Once again there was the same figure of 15 per cent. in 1970, with productivity rising by about 5 per cent. The O.E.C.D. has shown that British wage rises are about average. But the situation here is aggravated by our own stagnant economy.

The Government seem to ignore the international nature and complicated origin of the phenomenon. They are hoping, it seems to me, to put the blame upon the union leaders. In my view, it is all part of a sinister development in our national politics—the aim of exciting division and prejudice, impatience with the real problems. To seek to lay responsibility for inflation on one part of the community and to ignore all the other factors is not only untruthful and unfair, it is downright dangerous. It creates divisions where co-operation is so vital.

The recent T.U.C. document on inflation analyses the 11½ per cent. increase in prices between the end of 1967 and the end of 1969. It shows that 3 to 4 per cent. of this total was accounted for by wage advances, with all the rest split fairly evenly between extra indirect taxes and taxes on labour (part of the process of pushing goods into exports), extra import costs—which I think were about 3 per cent.—extra capital costs, due to current high interest rates, and, of course, the under-use of capital equipment. This must indicate immediately that there is a lot more to the problem than wages, and it shows that there is a need for a total policy for prices and incomes and for the general management of the economy and the attainment of growth.

Second in the causes of inflation comes what I would call a crisis of expectation. My view is fortified by a number of studies which have appeared recently. Quite simply, it seems to be the case that workers, through their trade unions, are now insisting on a clear annual advance in their real earnings and in their standard of living. The T.U.C. document on inflation states quite plainly: The Unions are now aiming at an overall growth of 4–5 per cent. per annum in real incomes, with much of the benefit concentrated on the lower paid. My Lords, this may have all sorts of origins. Perhaps it is the final emergence of the effects of mass television in making everyone demand the middle-class standards that the medium always portrays as natural and attainable and ever-rising. Perhaps it is a consequence of education, which opens up new horizons and standards for our people. Perhaps it is a reaction to the increasing drabness of work as a consequence of automation. Perhaps it is the realisation that some countries manage steadily to offer 5 per cent., 6 per cent., 8 per cent. advances in real wages, "so why not here at home?" Whatever the exact pattern of origins, this crisis of expectation exists and it is no good our trying to bludgeon it away. It exists in this country; it exists in Western Europe; it exists even in the developing countries.

A purely British explanation of the present inflation is that it is in part a reaction to the slow growth of real incomes in 1967, 1968 and 1969. The Labour Government, after devaluation, took the courageous decision to hold back growth so as to economise on imports and to put what growth there was into exports and the balance of payments. That structural change had to be tackled by some Government in order to ensure our national survival. It has given us the present comfortable surplus in the balance of payments, but by limiting income growth in real terms to about 1 per cent. per annum it left pent-up demands for something better, which we began to experience in early 1970 and late 1969.

The last Election was fought by the present Administration on prices. Although they were ready to close their eyes to the inflationary effect of granting a 30 per cent. increase to the doctors, which they approved because it was a consequence of an arbitration award, yet they were bitterly critical of the Scamp award, presumably because it was an award to lower-paid workers. They fought a campaign that they, by a stroke, would reduce prices; but the present Government's policy is in fact stoking up inflation. Workers and trade unions have not been slow to realise that last autumn's mini-Budget was clearly a benefit to the better-off, and that apparently more is to come. Had the Government been seen to tackle prices with the same energy as they exploited the issue and adopted policies that stood the test of social justice, they might have been in a position to exert greater influence on the wage claims.

But, my Lords, they adopted a different course, a new style, which perhaps was best illustrated by those remarkable comments by Mr. Davies, the Secretary of State for Trade and Industry, speaking in another place in November, when he spoke of "national decadence" and "lame ducks". I will not repeat those words, but if you were to bring that philosophy down to the practical world of industrial relations, can it mean anything other than to the worker that it is to be "every man for himself" or that we should stand on our own feet? If you believe that, The vast majority lives and thrives in a bracing climate and not in a soft, sodden morass of subsidised incompetence".— [OFFICIAL REPORT, Commons, 4/11/70, col. 1212.] which Mr. Davies referred to, then where stand those who have no place in the power game? Where stand the growing number of old age pensioners, the nurses and those in the labour intensive industries? If this is to be the type of society, then no one can blame unions if they accept the challenge.

My Lords, having spoken of the urgency, the rate, the international extent and the causes of inflation, I turn finally to the weapons to be used against it. The deeply disturbing feature of our inflation here in Britain to-day, the really terrifying thing, is that it is now accompanied by massive unemployment—moving towards three-quarters of a million and perhaps destined to top the one million mark—on the disastrous scale of pre-war years. I shudder to think of what the chances of social peace in our society will be if the ugly forces which I have already mentioned are unleashed in our society and these are associated with one million unemployed. My Lords, we have at the same time economic stagnation. Economic growth is being held back. I think it would be wrong to lay all the blame for this on the unions and the workers. The reason why industrial stagnation and productivity remains low is the failure over very many years to recognise that labour productivity is influenced by the tools, the machines, the equipment at its disposal, and the unions have no control over this.

Investment continues to fall away. Industry is gravely disturbed by the Government's decision to abolish investment grants and to move to tax allowances. Survey after survey shows that investment plans of major industrial enterprises are being cut back. The development areas are hardest hit. They are living in fear of the Government's policy of "disengagement", as it is engagingly called—"abandonment" would be a fairer word. Just as one example, the Northern Region is in dire straits. Industrial Development Certificates have fallen by half in the last 12 months; there is fear about the threat to end the regional employment premium in 1974; inquiries for factory space are given as "weak", and actual development of new factories as "very low". An article in The Times quotes a leading shipbuilder as follows on his fears of the present Government's policy: … the present crisis in the North is like being in a jet airliner that has climbed painfully but steadily through mist and storm to clear skies when, within a few thousand feet of cruising altitude, the pilot switches off the engines and the plane begins to dive towards destruction".

My Lords, investment depends upon confidence in an expanding economy. All the signs are that we are heading for a major recession. If the Government, with the balance of payments strong and with under-used capacity and under-used employment, do not go for growth at the Budget, there can only be but one conclusion—and let us not mince words about it. It will be that the Government will be using the hideous weapons of fear and unemployment deliberately, in the hope that they will subdue the workers and choke off wage demands. My Lords, what is so incredible about this policy is that everyone can see how this exact approach has failed over the past three years in the United States. President Nixon, a Republican President, is adopting the Democratic Party formula for economic growth. For Britain to continue on this well-worn path is in my view both stupid and criminal. I would ask the noble Earl, Lord Jellicoe, what is the Government's view on the level of unemployment needed to control inflation? As I have said earlier, the human tragedy in this sort of policy may be more than our social fabric can bear. At the end of the day, inflation will continue so long as "every man for himself" is enshrined in a new social philosophy.

My Lords, I come to my alternative prescription. I make no bones about the present situation. We cannot continue with the present wage advances of 15 per cent. if we are to retain the advantages in exports that devaluation has given us and if we are to protect at home those least able to fight for themselves. I say this, even while agreeing with the T.U.C. that wage advances are only a partial cause of inflation. The Wilberforce Report, the experience of other countries and our diagnosis of the real causes of inflation all point in the same direction: that of trying to secure co-operation in a national policy for all incomes, all wages and all prices in return for an agreed policy of resumed economic growth which will allow standards of living really to rise. As I see that my noble friend Lord George-Brown will be speaking, I wonder whether it is not possible even at this late hour for the three pillars of the Establishment, the Government, the C.B.I. and the T.U.C., to go back to the Declaration of Intent of 1965.

As Mr. Harold Lever has said, it should be a "broad-brush" policy: it would not be statutory, would not be detailed and would seek to contain inflation by a steady process through time. It would be applied to all sectors. It would aim at tapering off the rise in wage demands in return for which the Government would renounce unemployment and go back to resumed economic growth. As Mr. Lever has put it, The heart of the problem is to persuade people to abandon fantasy in seeking to increase their standard of life by wildly escalating money wages and, in its place, to settle for real and achievable increases. They will not abandon the fantasy until they are assured of the reality.

My Lords, I know that I shall be told that all this is impossible because the Labour Government tried and failed to get a voluntary policy. I hope that I have already indicated why that was and why the situation is so different to-day. With disastrous balance-of-payments figures for several years prior to 1964, we had to restrict growth in order to economise on imports, and we had to push all the growth there was into exports and the balance of payments. That has to-day given us this comfortable balance. But real income growth had to be restricted to 1 per cent., which is virtually no growth at all. With hindsight, we can see that no trade union movement could keep creditability in the eyes of its members by co-operation in a situation of this kind. It was an unpleasant job which fell squarely on the shoulders of the previous Administration.

But to-day we have a massive balance-of-payments surplus. We can to-day go for growth. If there was any legacy that we left for the present Administration it was this: an opportunity of growth. In Our view there can no longer be a supreme obstacle to a voluntary agreement with the T.U.C. and the unions on a national incomes and growth policy. The T.U.C. document on inflation and its newly-published Economic Review indicate clearly to those who read it carefully that a voluntary policy could well be agreed upon provided that all incomes and prices are covered and that socially just budgetary and taxation policies are resumed. There is talk in one crucial paragraph of the need for unions to give attention to negotiating arrangements which will "contribute most effectively" to the removal of inflation and unemployment. It speaks of negotiating thresholds for price increases, with wages advancing automatically only if prices get beyond this threshold. Longer holidays and shorter hours are spoken of—perhaps on the lines of the Wilberforce Report—as a means of helping "to take some force out of the immediate wage-spiral".

My Lords, I am convinced that the time is ripe for a meeting between the Government and the T.U.C. to explore these possibilities. But unless there is willingness on the part of the Government—and, for that matter, on the part of all the parties concernd—to compromise, to learn from abroad, to stop policies of prejudice and division, then it seems to me that there is little point in the exercise. Is it not a plain fact, one that we have learned over the past few years, that given the new balance of power in our modern society there can be no victors, no successes, once we elevate the raw conflict of the market place as the philosophy for industrial relations? Power is now so evenly shared in our democracy that we must proceed by co-operation or we shall all be the losers by the sheer all-round destruction that is now the only outcome of naked conflict.

I have tried to be practical and yet to stress the moral aspects of the crisis we are in. Here in this Chamber, rather above the immediate Party battle there may be wise heads that will join with me in regretting deeply that our society to-day should be so deeply divided and that co-operation of approach should be so difficult to achieve. May I say to the Government that any Government worth their salt, when once in power shed many of the heady notions of panaceas that they grasped at in Opposition. They move, I hope, to the centre and try to unite the nation. As Mr. Hugo Young put it in a most remarkable article in the Sunday Times: There are times—most of the time—when the Government still seems to be at the stage of proving that its determination is total, its integrity complete, its manifesto unflawed by the smallest doubt since taking office. It goes on: To divide the nation is, by definition, to fail in the business of governing.

My Lords, on prices and incomes and inflation the sheer unwillingness of the Government and, in particular, of the Prime Minister to listen to this sort of advice I find most dispiriting. I hope that the noble Earl saw the letter of Mr. Vic Feather in to-day's Daily Mirror. I hope the noble Earl will have seen many articles and will have heard many expressions of opinion on radio that the time has now come for the three pillars of the State to meet and to seek a solution. I hope that wiser heads inside the Government will force a return to co-operation instead of division, that good will instead of self-seeking and patient attempts to cope with the complex set of problems now facing mankind in all Western countries and here will be adopted. May I conclude with this thought: I begin to suspect that time is not on our side. I beg to move for Papers.

3.49 p.m.

LORD REAY

My Lords, I think we can all be grateful for the broad terms in which this Motion is drawn and for the opportunity it thereby gives us to go beyond a consideration of the Wilberforce Report in isolation and to discuss again that most troublesome and alarming of our political problems, the finding of a cure for inflation. The Wilberforce Inquiry was one detail in the present Government's total economic strategy. I wish to argue that this strategy as a whole should be replaced with another, and to that extent I shall be reinforcing, although from a different angle, some of the arguments put forward by the noble Lord, Lord Shepherd.

Government policy in the field of incomes is, first, to refuse to accede to increased wage demands in the public sector, both by way of an example to the private sector and by way of contributing on its own account to reducing the expectations of the unions. Secondly, its policy is to apply pressure to industry not to make higher settlements by keeping demands low and money expensive; in other words, to squeeze industry of the cash with which to make inflationary settlements. Thirdly, the Government policy is to apply pressure to the unions to reduce the level of their demands by allowing unemployment to rise ever higher; in other words, to act as if the unions' need for jobs for their members was greater than the Government's need for the use of that labour. Moreover, my Lords, the Government are apparently implying that they will not change their economic policy until there is evidence that the unions have modified their demands.

I believe that there are three major mistakes in this policy of the Government, and they are political, not economic, mistakes. In the first place it fails to appreciate a fundamental change in the structure of power as between economic groups in our society. In the second place, it fails to understand the logic of the demands made by labour and the unions at the present time. In the third place, it fails to appreciate that the maintenance of stability in a living society, with its ever-changing pattern of internal power, depends on the Government's ability to appreciate that the forms in which authority is exercised can be- come obsolete and intolerable; to sense when they have become obsolete, and then to search to replace them with new methods of political control. Finally, and as a consequence, the Government are making the mistake of ignoring the only possibility for a solution to the double problem of inflation and stagnation; and that is, a political co-operation with the trade unions.

The Government continue to exaggerate the relative power of industry. Industry has been, and is, subject to two increasing sources of pressure. Because of the high speed of technological change, and hence the quick turnover of capital equipment, simply to possess capital equipment has become, hour by hour, increasingly expensive. And because of the expansion of markets, both naturally and also through a lowering of tariffs and through the increasing competition to which firms are subjected as a result of the lowering of tariffs, markets have become increasingly difficult and expensive to reach. To develop a share of the market, to secure it, maintain it and expand it—which is always the first target of any firm—has now become one of the most expensive, vital and easily lost of business achievements.

Faced, then, with additional costs for labour, it has been relatively easy for firms to decide that they must first sacrifice their rate of investment (which, after all, will only give them a future problem), and then their profits, which, for the most part, do not accrue to management in any case; and to do this rather than to face the threat of extinction as a trading unit. The Government are therefore simply deluding themselves if they ever think that industry can become their partner in the dangerous game of refusing the demands of labour. The Post Office, the Electricity Board—these can become partners to the Government's policy, because the Government ensure that they will not be extinguished. They are legally protected monopolies. But it will continue to be a rarity for a firm in the private sector to risk even offering a gesture on the lines which the Government are demanding from them.

But if industry is weaker than the Government allow, the work force is also stronger. There is little doubt that the days when the work force, or the unions, could be inhibited in their demands by the threat of unemployment are now over. There is, possibly, more than one reason why this should be true. For one thing my Lords, some of the value of unemployment was contained in the fact that labour was essentially replaceable. Part of the unspoken threat was, "Well, if you don't take the job at this price, I will find someone else who will." But, with education and an increasingly specialised labour force, this threat has no force any more. Labour has become indispensable because its parts, essentially, are no lonlonger interchangeable.

For another thing, the fear of unemployment lay also in the uncertainty that employment could be guaranteed; that Governments had technically acquired the skill to maintain employment. Unemployment was feared in a way that only an uncontrollable phenomenon can be feared. But the last 25 years have proved that full employment can be maintained. Unemployment passed from the category of natural catastrophes to the category of deliberate acts of Government policy. The fear of unemployment became not a fear, but the idea behind an act of blackmail; and the moment when labour took the decision no longer to be scared by the threat of unemployment was the moment, two years ago, when this crisis began. It was a direct counter assertion of power by labour against the power of the Government, and from that moment things were never, and will never be, the same again.

It seems to me likely that that moment marked a turning point in the balance of power within modern societies. From that point it was irrelevant to pursue a policy of deflation in order to restrain wage demands, because labour had discovered that it was powerful enough to ignore the direct consequences. The T.U.C. is therefore quite right when it asks for a policy of expansion. What, in fact, the T.U.C. is saying to the Government is this: "Look, we know that stagnation and unemployment, and the rest of the policy, is designed to make us reduce our wage demands, but that does not work any more. We have proved, we are still proving and we will continue to prove, that that does not work any more. In the meantime we are all suffering. So let us have expansion and then we can talk."

What labour is demanding is, therefore, quite simply an acknowledgment of its power. There is in fact only one answer to the problem posed by this power: it is that the leaders of the labour force must be given what I believe they want; namely, a permanent, acknowledged and responsible part in the economic plans and decisions of the day, and in the implementation of those decisions, regardless of the Party in power. They must agree with the Government on economic targets and economic projections, and they must publicly assume a share of responsibility for attaining them. Metaphorically speaking, my Lords, the T.U.C. and the Treasury must occupy the same building. Until the unions are brought closer to Government, instead of being placed at a distance, irresponsible wage demands and the very considerable sacrifices that these will mean—even, in aggregate, for union members—wih continue to be the expression of a protest at this exclusion from power.

In keeping the unions at a distance, therefore, the Government are failing to appreciate that the manner in which authority can be exercised has changed. If I may introduce a domestic metaphor, I would suggest an analogy with the changes that have occurred in the field of parental authority. To-day's adolescents, richer and freer than ever before, basically loyal to the family and yet more integrated with their equals outside the family than ever before, will not accept the idea that children of a family should simply obey their parents. And if their parents assert that they can, and will, impose limits to the children's behaviour, then those children may set out to prove the impotence of such assertions by their negative and defiant activities. For example, they may decide to impoverish the family by their own extravagance. In such a case a solution can be reached only by the recognition of their independence and power and a co-operation demanded on that basis. My Lords, just as to-day it is the parent who has had to make the adjustment to the demands of the children of the modern world, so it is the Government who will have to make an adjustment to the demands of the unions of the modern world.

I do not wish to enter in any detail into the question of the specific concessions which the Government would need to make to the unions. Plainly, they would need to introduce price control. Possibly, at least to make a transition easier, they might need to relate wage increases to rises in the cost of living. The document on inflation that the T.U.C. produced in January was referred to in some detail by the noble Lord, Lord Shepherd. This was a document the positive points of which I thought were entirely missed by the Government, but which, while perhaps provocative in some respects was nevertheless an intelligent, responsible and explicit document. It would be an obvious point of departure for an agreement between the unions and the Government. On the basis of the demands included in that document I should have thought that a compromise over an incomes policy was quite attainable.

The arguments that the Government use publicly against an incomes policy seem to me to be weak. Past experience has certainly not proved the case against an incomes policy. And to risk at a future date a dam burst seems to me a more positive approach than to drown before then in an uncontained and rising flood. The real objection of the Government looks to me less rational. It is as if they saw something unnatural in a combination between themselves and the trade unions; as if they would be undermined in their freedom to act in support of their own special electoral interest; as if to allow the unions any closer was to threaten the basis of their own authority. But I would encourage them to be less inhibited. Politics has produced plenty of less natural alliances than that between British trade unions and a Conservative Government. I, for one, do not at all consider that the T.U.C. and the Conservative Party could not together operate an incomes policy: maybe to that extent I have more confidence in the Government than they have in themselves. Just as the Government will have to accept demands from the trade unions that they do not like, so the trade unions will have to accept that their partner has interests quite different from their own.

I have no doubt that to some traditionalists the idea of such a co-operation is deeply offensive to their idea of the dignity of government. But the simple fact of the matter is that the trade unions want something and the Government want something. The Government want a solution to the twin problem of inflation and stagnation, and the unions want to continue to increase real wages. Each of them knows that they cannot get what they want without the help of the other. Each of them only has the power to frustrate the other. Yet it is hardly putting it too strongly to say that together they have the power to save or to ruin the country, and at the moment they are promising to ruin it. Unless the Government wish to relinquish power even further toward the trade unions, it is up to the Government to forge that necessary alliance.

4.3 p.m.

EARL JELLICOE

My Lords, before I embark on my few words, I should like to apologise to your Lordships' House and to the right reverend Prelate the Bishop of Durham for the fact that I shall have to leave the Chamber shortly after I resume my seat because there is a meeting of one of your Lordships' Committees which I have to attend.

Having said that, I should like to thank the noble Lord, Lord Shepherd, for giving us the opportunity of discussing this afternoon the problem of inflation, although I must say that doing so on the eve of, or coming up to the eve of, a Budget slightly inhibits somebody speaking from this particular Bench. But I am grateful because of the gravity of the problem. It is a fundamental threat to our prosperity, to our prospects as a nation, and indeed to our position in the world. I am also grateful for the quiet and measured tone of the speeches of the two noble Lords who have spoken. I would have wished that the noble Lord, Lord Shepherd, had at times been a little less partial. Listening to his speech, one would have thought that inflation was a dark Tory cloud that had blown up overnight out of a clear blue sky and blanketed that fair land which until June of last year was Socialist Britain.

LORD SHEPHERD

My Lords, I can only say that the noble Earl must have been asleep, because I dealt with it as an international problem. I certainly did not attribute it to the Conservative Government.

EARL JELLICOE

My Lords, I shall be turning later to the international side. I do not wish unduly to labour this point, but it is worth remembering that in June, 1970, the present Government inherited a situation where earnings were increasing by 12 per cent., six times as fast as productivity—these are grave figures—and were accelerating, with the result that prices were increasing faster than at any time for twenty years. By June of last year the Labour Government were in fact bereft of any anti-inflationary strategy of any kind. Their only two policies—the control of incomes and the reform of industrial relations—had both been jettisoned. In the long run-up months to the General Election (they were far too long for all of us) the then Government abandoned any real attempt to curb the rise in pay settlements.

That, my Lords, was our inheritance. As I have said, when the present Government took office money earnings were increasing about six times as fast as productivity. This of course was the launching pad from which prices have taken off. But I think it was also quite clear that the main factor—and we should be clear about this—driving up prices was the rapid acceleration in wage settlements between the third quarter of 1969 and the third quarter of 1970. During this period, labour costs per unit of output in the economy as a whole rose by over 12 per cent. But, of the other components of total cost, import prices rose by under 4 per cent., company profits actually fell by 2½ per cent., and there were no increases in indirect tax rates. These figures are, I think, worth remembering.

We may differ over where the responsibility may lie, although perhaps we may not differ as much as we sometimes pretend. But none of us, I believe, can differ over the dangers which inflation presents to this country, and indeed to all of us at the present time. Externally it puts in jeopardy the balance of payments—and I give full credit for the current surplus to the Chancellor of the Exchequer in the late Government. Thereby the prospects for the growth of the economy and real earnings are put at risk. Internally it bears down heavily and arbitrarily on the more vulnerable members of our community: those on fixed incomes, the pensioners, the poor; above all, those in a weak bargaining position—those who, unlike the big battalions, are unable to browbeat and bludgeon their way towards excessive wage settlements: in fact, those who (to use Lord Shepherd's graphic phrase, as I thought) "have no place in the power game".

I cannot put the dangers any better or more graphically than the noble and learned Lord, Lord Wilberforce, did in the Report which we are discussing this afternoon. If I may say so in the presence of the noble and learned Lord, I thought that the Report of his Committee was a notable one, and all sections of the community are in debt to our colleague in this House. Apart from anything else the Report was beautifully written, which is a rather rare event in cases of Reports of this sort. As he said in the Report: The country is in a dangerous condition of spiralling inflation. By 'dangerous' we mean a state of affairs which undermines almost from the start the real benefit of wage increases sought, creates social injustice and resentments, and which if continued will threaten our balance of payments and destroy the value of money. My Lords, I believe that those words are only too true.

We can, moreover, take no real consolation from the fact that other countries are not immune from this dread disease. I remember very well how the old spellbinder, our former Prime Minister (I must parenthetically confess that my typist has mistakenly transcribed the word as "spellbounder") used to remind us that inflation was a world-wide phenomenon from which the United Kingdom, as befitted a progressive country, could not isolate itself. Other countries have, of course, been experiencing pressure on the wages front, but the point to remember is that in most cases their productivity is growing at a far higher rate than ours, and there are already signs that with them the level of wage settlements is coming down. I hope that ours is flattening out, but there are visible signs that the level of their wage settlements is actually coming down. With us, wage costs per unit of output of manufacturing in this country—and this is the important criterion—were already 9 per cent. higher in the last quarter of 1970 than in the last quarter of 1969.

It is true, as the noble Lord, Lord Shepherd, suggested, that Germany experienced a somewhat similar rise over the same period, although I think the experts, like the noble Lord, Lord Robbins, might be tempted to point out that in the case of Germany there may have been cyclical reasons for this. However, in Italy, Japan, France and Canada—and these are some of our fiercest competitors in international trade—the increase in that same period was probably no more than from 5½ per cent. to a maximum of 7½ per cent. In the United States, moreover, it was considerably less.

My Lords, what does this mean? The answer is only too starkly simple. If our costs and prices continue to balloon upwards while in other countries the rise falls away, there will before very long be a serious deterioration in our balance of payments. Countries abroad would stop taking our goods if prices became uncompetitively high, and our own exporters would stop selling to them if they could not get an adequate profit. There would be a direct loss of jobs in export industries and in industries competing with imports. This would have a cumulative effect upon those employed in other industries and services.

My Lords, whatever the contributory causes may be, it is surely abundantly clear that the main cause of the current inflation is excessive costs rather than excessive demand. It is surely equally clear that the rate of increase in money earnings is the main factor pushing up costs. That is why the Government's policy is directed towards bringing about a progressive and substantial reduction in the level of wage settlements to more realistic levels. We recognise, of course, that, given the wide gap, which we inherited, between earnings and productivity, the level of settlements cannot be pulled down overnight, whatever methods are used, to the theoretical ideal—the level of the rate of increase in national productivity. That is why we are aiming for a progressive slowing down of the rate of wage settlements, coupled with a continuing increase in real earnings.

I must make it abundantly clear that it is, and will remain, a fundamental objective of this Government, within the lifetime of this Parliament, to increase our rate of growth and to accelerate the advance in the real earnings of our people and their standard of living. We do not regard, pace the noble Lord, Lord Balogh (who I am sorry is not in his place today), growth as an end in itself—to that extent we may all be Galbraiths now—but growth is essential if we are to continue to have a say in this rather dangerous world, and if our own society is to remain confident and healthy. But—and this is the point that I should like to ram home—excessive increases of purely money earnings will not achieve this. On the contrary, by jeopardising the balance of payments and by causing rising prices, excessive wage increases can only jeopardise the future growth of real earnings and real standards of living.

My Lords, I hope that it will be recognised that to de-escalate from the present level of wage settlements is in the interests of everybody in this country. It is in no way a policy aimed against wage or salary earners, and that is why the Government have urged employers in both the private and public sectors, and unions, to take account of the national interest in reaching settlements and to reduce progressively and substantially the level of those settlements. That is why we have urged employers to make fair and reasonable offers, but that is also why we have advised them, having made such offers, to stand firm, be it in the face of strikes or threats of strikes. It is our belief that to concede extra pay increases in the face of irresponsible pressure is only to play into the hands of the militants.

I should also like to make it clear that the Government's policy applies alike to the private sector and to the public sector. There is no question of our trying to batten down on the public sector. I thought that the way in which the noble Lord, Lord Shepherd, expressed his remarks—perhaps inadvertently—was possibly a little unfair, because he seemed to contrast the strong and the weak, putting the weak, as it were, automatically into the public sector. When one thinks of the strength of labour in some areas of the public sector I feel that this is hardly realistic. In any event, we have given the same advice to employers in both sectors, and where the Government are the employers we have acted in accordance with the advice which we have given. It is—and I make no apology for emphasising this—no part of our policy to discriminate against public sector employees. There has been a very wide range of settlements in both the public and private sectors in the past eight or nine months. Like the noble Lord, Lord Shepherd, I see no point in playing the numbers game here. One can trot out certain levels of settlements, but this is far too simpliste, and grossly misleading. The point I should like to emphasise—and I do it in full consciousness of the statistics here—is that, looking across the spectrum of settlements in the past eight months or so, there is no evidence whatsoever to suggest that public sector employees have been treated unfairly in the period since the present Government took office. And they will not be, my Lords.

I should also like to make it crystal clear that in our view the recommendations of the Court of Inquiry, so very ably presided over by the noble and learned Lord, were not inconsistent with the Government's general approach to these matters. I wish that he was speaking himself this afternoon, so that he could correct me if I am wrong. Again, like the noble Lord I do not think the particular recommendations are absolutely germane to this debate which, as I suspected, has gone rather wider. Nor do I wish in this context to play the numbers game, although if I were inclined to do so I should feel bound to query, in all sincerity, the figure which the noble Lord gave from The Times. I wonder whether he would have quoted The Times if it had given a different figure. But that is by the way.

LORD SHEPHERD

My Lords, I might then have had the Economist to support me.

EARL JELLICOE

Then I think he would have been even further out.

LORD CHAMPION

Higher, anyway.

EARL JELLICOE

My Lords, what I feel is relevant is that the general approach of the Court, as I have read the Report, was in a very important respect very much in line with that of the Government. They said that in making their recommendations they naturally had regard to the dangers of giving an extra twist to spiralling inflation. They considered in particular the productivity record of the electricity industry, including the contributions that the unions and employers have made and, bearing in mind the public and national economic interest, they concluded that, set against the past and prospective performance of the electricity industry, and the special features relating to the case, the settlement which they recommended ought not to intensify inflationary pressures in the economy.

It is important to remember that the Court itself made quite clear that its recommendations were related specifically to the circumstances and the special factors which surround the electricity industry itself. It particularly had in mind the very real contribution that employers and the unions together (and in this respect we are all very much in the debt of that very great man the late Mr. Carron) have made, and can increasingly make, towards higher productivity. There is therefore no question of the Court's recommendations being applied automatically to other industries whose situations may be entirely different. That is why, if I may say so without being critical, it was a little naughty of the noble Lord, Lord Shepherd (and again I may have misunderstood him), to quote the possible police settlement—or it may be the actual one now—of 16 per cent. compared with the 15 per cent., because in the case of the police the Government have made it crystal clear that they believe that the situation of the police, and their need for reinforcement, make them an absolutely special case.

LORD SHEPHERD

My Lords, I certainly was not suggesting—in fact, I expressed this view—that the 15 or 16 per cent. award was inflationary. The fact is that we have no Prices and Incomes Board who can consistently look at these matters. Remembering the Government's very passionately expressed view about the claims that were being made in this particular dispute, and their view that what the employers were offering was right and fair, may I say this? When, in the end, a Report is made which, as the noble Earl said, vindicates quite a substantial improvement on what the employers originally offered, I should be very grateful if the noble Earl could give us some indication of how a problem of this kind can be dealt with broadly across the country, with fairness between one group of people and another.

EARL JELLICOE

My Lords, may I come to that point in a moment?—because the noble Lord slightly interrupted my train of thought. I will certainly come back to that matter in another context in my words, which I hope will not be too long drawn out.

That is why the Government have reaffirmed their view, as the Court itself accepted, that if inflation is to be brought under control the general level of wage settlements should be reduced as rapidly as possible to a level much closer to the general rise in national productivity. Failing that, and faced with unwarranted demands, be they in the private or in the public sector, we must, in the Government's view, stand up against resulting strike action, however tiresome, however vexatious, however injurious in the short term, that action may be.

May I say that there was another part of the Court's recommendation by which I was very impressed (and I am here speaking without the benefit of the book, as it were, and therefore am subject to correction); and that is what it said about due regard being had for processes of arbitration, and its criticism of the union in this respect, which I think went wider than the particular union concerned. This is a point of principle to which I think we should all adhere, be it Government or be it unions; and there is a strong moral in what the noble and learned Lord, Lord Wilberforce, had to say in this connection.

The Government have naturally considered other possible ways of dealing with this demon of wage/costs inflation. Of course we have. We are not pursuing our present policy as a result of any stubborn addiction to doctrine. We are pursuing it because we believe it, in the circumstances at present, to be the most realistic and effective approach, and the one which takes account of the experience—the not too happy experience—of recent years. What are the other possible approaches? They have already been touched on. In substance they amount to three in number.

First of all, we could have introduced a statutory freeze on all incomes. This indeed might provide us with some badly needed breathing space. There are signs—for example, the poll reported in the Sunday Times earlier this week—that a lot of people would accept such a freeze, at least when it was in prospect. But I believe it would provide no lasting solution. A wage freeze may be a high dam against cost/wage inflation. But it is a very thin and temporary dam, and once it is broken the pent-up waters of inflation are likely to carry much before them downstream. I can only say, in answer to the noble Lord, Lord Reay, that when a dam breaks I personally prefer to be upstream of that dam rather than downstream; but that is no doubt a matter of opinion and gravity.

The second possibility, of course, would be a reversion to a detailed statutory control of pay settlements. There are those who advocate a formalised statutory incomes policy of this kind, with all the paraphernalia of norms and criteria, and all that it entails by way of detailed intervention by the Government in all pay negotiations and pay settlements. I would merely remark that our predecessors operated such a statutory policy without conspicuous success. Significantly, they no longer advocate it, and so far as I know no single European country has successfully operated a long-term statutory prices and incomes policy.

The third possibility—and it is the one to which the noble Lord, Lord Shepherd, was inclining to adhere—would be a voluntary incomes policy to be agreed by the Government and the T.U.C. and the Confederation of British Industry. I should like to make it clear beyond a shadow of doubt that we would certainly not rule out any such possibility. It has worked before—for example, in Austria and in Finland—and I do not see why, in certain circumstances, it should not work here. In any event, the Government have made it clear that they do not rule out such a voluntary policy, although I notice from the letter by Mr. Victor Feather which was drawn to my attention, in I believe to-day's Daily Mirror, that the price of co-operation on the part of the T.U.C., among other things, is the jettisoning of the Industrial Relations Bill.

LORD SHEPHERD

My Lords, if the noble Earl looks at that letter I think he will see that Mr. Feather says that he is prepared to talk to the Prime Minister with no conditions attached.

EARL JELLICOE

My Lords, the letter says: "Our advice is this: that the Government put the Bill to one side and get down to the real issue." I do not know whether this is a condition.

Your Lordships will be aware that the T.U.C. have made their analysis of the position. It was a careful analysis, and some feel that this could be the basis, with modifications, if necessary, of a voluntary policy. We certainly welcome the interest of the T.U.C. in this very serious and pressing problem, which of course engages them just as much as it engages any citizen in this community who is not a trade unionist, or the Government themselves. Ministers have discussed these matters with the T.U.C., and the Prime Minister has made it clear—he made it clear again in another place yesterday—that he is very willing to have a dialogue with the T.U.C. on these matters. But that said, it would be disingenuous for me to suggest that the Government at present really believe that the T.U.C.'s proposals could form the basis of a voluntary incomes policy. The expansion for which they are asking could not possibly bridge the present gap between the 14 per cent. increase in wage earnings and the 2 to 3 per cent. rise in production which we have in this country at the present time. Wage increases at the level which they are suggesting—which I calculate, perhaps mistakenly, bearing taxation, which they wish us to take into account, at something like 16 per cent—would, as the noble Lord, Lord Shepherd, will agree, be a certain recipe for continuing and rampant inflation. Having said that, I would once again underline that certainly we do not wish to close any door which may possibly be ajar. It would certainly be very far from my own nature to suggest that we should.

Then, there are of course those who argue that we should, in conjunction or separately, impose a short, sharp freeze on prices. There again I must point out that the previous Government's efforts to contain prices through the statutory machinery were not conspicuously successful. In fact, prices rose much faster during the period of office of the Labour Government than during the last 5½ years of the last Conservative Government—the comparison is, I believe, nearly 30 per cent. as against 15 per cent—and, apart from this, a price freeze would have highly undesirable consequences in both the private and the public sector. It would be further bearing down on that liquidity which is affecting investment prospects, to which the noble Lord, Lord Shepherd, rightly drew attention.

My Lords, before I conclude I remember that I have not answered the point which the noble Lord put to me. All I would do here is to remind the noble Lord that in one important area in the public sector we are on the point of establishing three pay review bodies which will have an important impact, and, coincident with that, the Office of Manpower Economics; and I suggest to the noble Lord that he should see these animals functioning before he nods his head negatively.

LORD SHEPHERD

My Lords, I was not nodding; I was shaking.

EARL JELLICOE

My Lords, may I say this by way of conclusion? I do not, I hope, underestimate the seriousness of the situation with which we, as a nation, are faced on the economic front. We inherited a situation in which wage pressures were gathering momentum—even greater than we, and certainly far greater than the previous Administration, realised at the time. We were accelerating, and accelerating fast, down a slippery slope towards economic disaster, and the major objective of the Government's economic policy in the short term must therefore be to contain and turn back those pressures. We do not kid ourselves that this is going to be an easy task. There is the sheer mathematical velocity behind the present inflation, and there is, too, the problem that inflation is in part a psychological state. As a nation we are suffering from the pent-up frustration of the previous period of statutory incomes policy, and inflation is an animal which to a large extent feeds on itself. Success, therefore, in de-escalating the level of wage settlements against the background of a firm control of demand is our short-term policy. This will be neither quickly nor easily won. However, when success is achieved here—and I am confident that we shall achieve it—we shall have immensely improved the prospects for employment and have reached the situation where the necessary confidence about future sales and profitability should restore and enhance the prospects for investment.

I say that I am confident advisedly, and I say it because the rapid increase in the size of the settlements which we witnessed last year has been checked and the situation which at one time—and I fully confess this—looked as if it might be getting out of control has been at least stabilised. I am confident more especially because I believe that there is now a growing awareness in this country of what is meant by inflation, and a growing determination to stand up to exorbitant claims from wherever they come. However, I should not like to leave your Lordships with the impression that the Government are going to be deflected by the serious shorter-term problems confronting them and all of us from the pursuit of their longer-term policies for the basic restructuring of the economy. One can always be blown off course, but that depends on whether one is on the right course and how tenaciously one intends to hold to that course.

In any event, we intend firmly to pursue the main lines of those economic policies which we put to the electorate and on which we were returned. We are convinced, for example, that it is in the best interests of this nation to put the proposals contained in our Industrial Relations Bill through Parliament. Doubtless, my Lords, we shall be having some short and desultory discussions in this House about this matter in the not too distant future. By the same token, we are convinced that our review of public expenditure will provide real opportunity for increasing the dynamism of the economy, to the long-run advantage of all sections of society. We likewise believe that heavy and steep personal taxation has in the past been a major factor in our failure to match the growth performance of our major trading rivals. That is why we intend to carry out a progressive programme for the reduction, reform and simplification of taxation. We are also convinced that a more competitive climate in industry will stimulate freedom and lead to greater industrial efficiency.

Finally, the purpose behind these policies is to attain substantial and sustained growth, that substantial and sustained growth which has been denied this country for much too long. I do not deny for one moment that in the short term we have very considerable problems to confront. But we remain convinced that the fundamentals of our longer-term economic policy are sound; and it is by them, my Lords, and by their success, that we shall be content to be judged.

4.35 p.m.

THE LORD BISHOP OF DURHAM

My Lords, professing what is, as will soon be very obvious to you all, no economic expertise, I nevertheless think and hope that this speech will continue two, at least, of the broad themes, which have characterised earlier speeches, and in particular will underline from other directions the absolute necessity of genuine, thorough and the broadest possible co-operation in our industrial and political life, as well as the sheer gravity of the present situation. In all the discussions in this area, whether in debates or in White Papers, there is one phrase which constantly recurs, though to be truthful I have heard it only once so far this afternoon. It is a phrase which can make the weakest argument apparently convincing; it is a trump card the effectiveness of which no one can possibly dispute. The fascination of the phrase is that no one dare attack what it describes. Its danger is that those who use it most analyse it least. The phrase is "public interest".

If I may say so, not the least merit of the Wilberforce Report is that its authors do attempt some unpacking of this phrase. True, at more than one point in the early parts of the paper it is dangerously associated with, and sometimes even seems to be equated with, the interests of the national economy. I say "dangerous" for it might suggest that, like the national economy, the public was some impersonal function of economic factors rather than what the public is—a community of human beings. But in paragraph 10.18 the Report attempts what is, in this area, an all too rare concrete formulation of public interest. For instance, it is against the public interest for the cost of living to rise while wages are constant. It is against the public interest for wages for similar jobs to "get out of line beyond a certain degree". It is against the public interest to calculate pay increases by adding together the forces of various arguments in isolation. But it is in the public interest, for example, to grant wage claims "where labour has co-operated to increase productivity".

It is in the public interest that vital public services should be "healthy", "viable" and "progressive"—I quote the three adjectives. It is in the public interest that workers should be "properly paid" and have "confidence" that their claims are not being overlooked; further, that there should be "union and worker co-operation". But surely it is even more in the public interest that there should be not only union and worker co-operation but management, union and worker co-operation. The irony is that public interest, as here, not only very generally ignores the public altogether but is used in arguments whose force is directed to unions and workers by themselves.

Public interest can so very easily become "my" sectional interest, whoever "I" am. In a phrase from the Prayers in this House, public interest can very soon become "partial affections". And here, of course, is the moment of truth. The public interest surely requires a sense of everybody—not just unions and workers, but all, linked co-operatively—acting together creatively in a single community to which they know they belong. That is a point that I will return to presently.

But, meanwhile, as another route to it, suppose we consider the much-neglected public factor in this idea of public interest. What suggestions might emerge for a prices and incomes policy? First, prices. The public, being those who pay for goods and services—and that means all of us, as price payers—will surely never support, on the one hand, an incomes policy that bites and, on the other, a prices policy which has virtually no teeth at all, even artificial ones. Further, the public interest, which must by definition take the widest possible human view, will demand that we never blind ourselves to the point well made in paragraph 10.6 of the Report; namely, the severe impact which rises in prices have had and continue to have on ordinary people with modest think I prefer to say low) fixed incomes—old folks, widows, single parent families living on assistance. If anybody is the public, they are.

Secondly, the tensions between the private and public sectors already referred to. The public could hardly be expected reasonably to support any incomes policy that bites harder on the public sector than on the private sector. The public could not reasonably accept one law for the Rootes group and another for the Post Office, railways and electricity workers. I suspect that this is behind some of the somewhat guarded language of paragraph 10.16 of the Report. I welcome the reassurance given by the noble Earl, Lord Jellicoe, but I would say: do let us have some examples which we can give immediately to people, and which speak in their own right, to show clearly that there is no difference whatever in the policy towards the public sector and the policy towards the private sector. We are in desperate need of clear examples which make the point in a telling way.

Thirdly, unemployment. One of the classical ways of refashioning industry and bringing wage demands under total employer control—no suggestion here of co-operation—was to permit, or even create, large-scale unemployment. The valleys of the North of England can well bear evidence to this. Those are days which all of us, on all sides, would wish to forget, if it were not that we have great lessons to learn from them. But I hope very much that no one will forget that spectre of unemployment which is already casting its dark shadow, not least in the North East. A community with a million unemployed as a regular feature—a possibility we are sometimes invited by leader writers to contemplate—is something we could never accept as an economic or social necessity. It could not be in the public interest. Unemployment may have been in the past, it might be in the future a sectional interest; and it might even be in the interests of a particular economic theory. But can any serious unemployment ever be in the public interest, in the interest of a "healthy" community, to use the adjective of the Wilberforce Report?

As for services, a reasonable public interest must surely acknowledge and appreciate the contribution made to our social wellbeing by some of the lowest paid workers, whether they are dustmen or school teachers or nurses; and if the means of doing this is to disturb the relativities of pay, the differentials, there is only one conclusion, and that is that we need some fresh overall look, a fresh overall look which may be long overdue.

This brings me to an overall point, public interest in the widest sense. We surely cannot talk of public interest without having an overall public policy, a policy which will win the acceptance of the community, something perhaps implied by the phrase "governmental intervention" in paragraph 10.16 of the Report. And whatever its inadequacies, whatever its intricacies, and also, whatever be its successes, the old Prices and Incomes Board did represent an empirical, practical way of at least approaching an overall policy; and it leads to the question: what now is to take its place? Surely something must, and we shall not reach that something by merely wishing for it or declaring that doors are open.

What we desperately need is a group, board, committee, commission—I do not care what we call it—but some group of people whose professional expertise in economic and financial affairs, whose professional expertise in management and union affairs, is absolutely unquestioned, but whose evident concern is with the wellbeing in relation to prices and incomes of the whole community—the public interest indeed.

My Lords, may I style the argument from another direction? I recognise—we all recognise—that industry is nowadays so constructed that the share of its resources which should go to the various partners co-operating in it, and to the consumer, that often neglected factor, the public, is decided by competition. Now competition becomes a disintegrating, demoralising conflict when, but only when, those competing have no common aims and no common ideals. To put it from the other side, a race meeting for horses or for men is absolutely valueless if only one horse or man runs. Competition is absolutely necessary for that kind of community behaviour that we call a race and value as such. So with the public interest: competition may be positively valuable. I am not arguing against competition. I am saying that competition can be positively valuable, but only if it is contained within some overall plan and purpose, as in the case of running a race.

In other words, competition is quite defensible if, and only if, there is some publicly acknowledged policy which that competition can forward; otherwise competition is utterly destructive. Unfortunately, what we have, if I may speak from the touchline, is a competition and a race where the last thing the contestants know is where they are going and what they are running for, except that each wants to be ahead of the others, whether it is with profits or wages or whatever it is. Not surprisingly, the result is the absolute chaos that we find ourselves in to-day; and it is chaos made even more chaotic and more disastrous if it seems (and it need only seem) to be the case that employers and Governments together are determined to weaken the bargaining power of workers, with public interest then being interpreted apparently as sectional interest—partial affection of one of the partners, not all of them, in society.

The public interest demands a balancing of all factors and all sectional interests. It demands a co-operative effort. It demands that integrated thinking which—yes, as in war (one is tempted almost to say, tragically, "only in war") comes with a commonly acknowledged purpose and policy; and further, for there to be a public policy of this universality and this generality there has to be—and I make no apology for introducing it—a moral dimension to it. It must be as wide as the dominant ideas and ideals of Man. As the Wilberforce Report wisely remarks at paragraph 5.18: Co-operation is in terms of integrity, first a duty which thereafter may, by reason of its nature and measure, become a virtue. Moral categories cannot be excluded from something to which quite plainly economic categories in the first place are plainly relevant and important and necessary.

Against those reflections the terrible truth dawns. We are nearing bankruptcy in the ideas and the moral ideals which stir men's deepest loyalties and which, in the last resort, alone will give cohesion to society. We certainly need better, and better informed discussion at both expert and popular level, about prices and incomes and unemployment and economic growth; but we neglect the moral dimension at our peril. Men do not find fulfilment and satisfaction if our social ideal is the interest of the national economy, full stop. Public interest cannot be circumscribed by anything less than a policy of ideas and moral ideals; and this is something which is desperately needed, and needing to be worked out by some inter-professional body, board, committee or commission of unquestionable professional expertise, of undoubted prestige and national status, prepared to ask fundamental questions about the economy, about society, about man and human existence. If I may say so, more than three pillars of the State are wanted. It might be five pillars, it might even be seven. Or, to use the metaphor that the noble Earl, Lord Jellicoe, mentioned before, if we are going to have many animals on the scene, someone somewhere has to be a keeper of them or the chaos is going to be worse than ever.

Men and women may be, and are, wage earners, price raisers, price payers, capital in-putters, consumers and the rest. But most of all, what we so often forget is that, while being all those, men are, surprisingly, men, whose life-blood depends on their being together in a co-operative partnership in a community. For centuries, through partial success and shameful failure, the Christian Church has been a community struggling with this structure; so I am not likely to think that the task before us is easy. But if the public interest does not constantly press on us the need for the broadest possible policy, having a moral dimension disclosing itself around economic, financial and social considerations, a policy which is nationally approved and publicly acknowledged—if considerations of public interest do not underline the need for a policy as widely founded as that, the phrase "public interest" is a mere noise the emptiness of which reveals the utter bankruptcy of our planning and thinking, indeed of society at large. How much we need what the Wilberforce Report calls in paragraph 1017 a "concerted strategy".

This is no fanciful and impractical idealism of a right reverend Prelate; it is the implicit conviction of the ordinary man and woman, up there in County Durham or elsewhere, who wonders where on earth it is all going to end. They are beginning to suspect, and they say so, that probably everybody else, even the expert, is wondering, too. This is no question of the blind leading the blind; rather is it the impoverished and the pressurised leading the baffled and the dispirited and the suspicious. What we need more than anything else is a spelling out of the public interest in terms of some overall policy, something of which I see the very first glimmerings in the Wilberforce Report despite the modesty of its authors. We want that policy, that concerted strategy which could expect public support, because that body which I have called a Board or Commission incorporated not only professional expertise, but the experience and the approach and the sensitivity of ordinary people as well. Only in this way do I think we shall ever bring back to this nation cohesion instead of chaos, unity instead of disintegration, and co-operation instead of that division which is so plain and tragic for us all to look at to-day.

5.0 p.m.

BARONESS WOOTTON OF ABINGER

My Lords, I do not think that one of your Lordships would dispute that the Wilberforce Report is an extremely brilliant document. Quite apart from anything else, it achieved the remarkable feat of making every side believe that they had won—the employers, the workers and the public at large. It did something else, It set out the facts of the whole situation with unexampled clarity, so that we could all see for ourselves what the electricity workers were paid, what they were asking for and what they were being offered. A most eloquent letter in The Times some days ago from the noble Baroness, Lady Sharp, asked that we might have similar exact and objective information about the Post Office dispute. We have not yet had it.

The Wilberforce Report was an investigation; it was not an arbitration. The noble Lord, Lord Shepherd, spoke in reverent terms of the value of arbitration in industrial relations. I would not take issue with him at all except to say that the field of arbitration is much more limited than some of us like to believe. In a court of law a decision is given on principles which are already established by Statute or by case law. The judge has something to refer to and his task is to apply the existing law, whatever it is, with absolute integrity and impartiality to the two disputants. In an arbitration, the arbitrator acts in a vacuum, and I think we underestimate the limits that that imposes. We do not all hold the same ideas about what different people ought to be paid, and therefore we do not always start from an agreed basis. For this reason, an arbitration is generally only successful in those cases where there are explicitly laid down agreed principles—and in the industrial field there are not very many of these. Nor can the function be performed simply by expertise. I have great sympathy with the right reverend Prelate in his wish to see an expert body that would handle some aspect of this question of incomes policy. But expertise by itself is not enough; there have to be some social, moral and economic judgments that are made first.

I do not altogether share—I wish I could—the conviction of my noble friend Lord Shepherd and of the noble Lord, Lord Reay, that a voluntary incomes policy is likely ever to succeed in this country, or indeed anywhere else. A voluntary incomes policy is one of those occasions when it is necessary to obey the commandment, Thou shalt do what it would be a good thing for everybody else to do. That is a commandment which it is always very difficult to obey, because you have no guarantee that everybody else will do likewise. If I may say so, it is exactly parallel to the case of disarmament. Any State will disarm if it is convinced that every other State will disarm. Thou shalt disarm if everybody else will disarm. Thou shalt restrain thy income demands if everybody else will restrain their income demands. But that guarantee is not forthcoming.

Therefore, sooner or later, we have to choose between the alternatives that have been put before us. I need not deal with them in much detail because they have all been mentioned, though not always from quite the same angle as I would approach them myself. We could, I suppose, go on as we are with continuous, progressive inflation. That is simply terrifying, and nobody would advocate it. We could have violent credit restriction and very heavy unemployment. The horrors of that have been eloquently portrayed by the right reverend Prelate; and the noble Lord, Lord Reay, gave convincing evidence that, quite apart from its immorality, that policy does not now work. With three-quarters of a million unemployed, there is no sign that the unions will abate their wage demands for fear that somebody else will take the job for a lower wage: the fences are now far too well established. We could have the total freeze—again eloquently described by the noble Earl, Lord Jellicoe, and particularly eloquently described in regard to what happens when it comes to an end and the dam bursts. The freeze, of course, freezes every existing injustice; it catches the people whose claims are still in the pipeline, and it allows the people whose claims have just slipped through to get away with it.

I would say that the policy the Government have outlined is really a worse version of the total freeze. The Government's policy of what is now called progressive de-escalation (I wish the noble Lord, Lord Conesford, were here to support me in substituting the words "progressive reductions") of wage claims is simply a way of saying first come, best served," and the later you come, the lower the wage claims are supposed to have got to. There is no discrimination as to the merits of the claims; no discrimination as to the period between the present claim and the previous one. There is simply the fortuitous fact of the time at which a claim comes to be considered.

I find all these courses, for one reason or another, extremely unattractive. Therefore I come round to the view that we ought to consider a wage policy, and a general incomes policy even more, which would be part of the normal framework and structure of our society. I do not know why this is thought to be unattractive. The distribution of income throughout the community is a matter of the utmost economic importance. It is a regulator in industry; it can obstruct the function of industry and it can facilitate the function of industry. It is also of very great social importance. The pattern of income distribution governs our social lives. It governs even our social intercourse—the people with whom we associate. I therefore hope that we shall regard this not as an emergency measure against inflation, but as something that we have to grow into as part of our normal social organisation. I should think that this would appeal particularly to my noble friends on these Benches. After all, our Party is the heir to a socialist tradition, and I have never understood why the Party which is at least the heir to that tradition would not regard a socially justifiable incomes policy as the keystone of our socialist arch. I would go further to-day; I would say that, whatever one's political allegiance, an incomes policy which is the expression of our political and economic philosophy, whatever that may be, is the keystone of a stable economy and a civilised pattern of living.

An incomes policy has to conform to certain requirements. It has to be economically viable; it has to take account of shortages of labour and so forth. It has also to be socially defensible. It has to take account of cases where people are being paid salaries and wages which are totally out of proportion to the kind of responsibilities they carry. I think—this is a purely personal opinion—that the police were an example in that category, and I hope it will soon be recognised that the nursing profession is another such case.

Secondly, it has to take account of all incomes, and not just the incomes of wage earners. I do not know why every noble Lord who has spoken this afternoon has spoken almost as though we were all wage earners, which we are not. An incomes policy will never succeed unless it takes account of the incomes of pensioners; the incomes of wage and salary earners, great and small; the incomes of independent self-employed persons—the chap who keeps the little shop at the corner; the incomes of the directors of giant corporations; and the incomes of the shareholders of those corporations. It is not that all these necessarily contribute equally to inflation—they do not; and we tend to concentrate on wages and salaries because they are so very much more numerous that they loom larger in that particular context. But that is not enough. There are moral factors involved here, and it is quite impossible ever to hope that there will be co-operation in wage restraint without some equal and comparable restraint being imposed upon non-wage incomes.

I see that the Bow Group, who I understand represent the progressive wing of the Conservative Party, are in favour, as I am, of a statutory incomes policy, but they expressly say that it is impossible to put artificial restraint on dividends and interest. So when they talk about an "incomes" policy, they really mean a "wages" policy. They use emotive language. They say that a restraint on dividends and interest is artificial, but that a restraint on wages is normal, necessary and natural. The Bow Group might have said that putting a ceiling on dividends was unjust; and I should have agreed with them, because the shareholders of companies do not all have the same personal incomes: there are rich and poor shareholders. But I have noticed that when a ceiling on dividends is suggested as a voluntary restraint, as happened some time ago, the shareholders of large companies all turn into impoverished widows and orphans. We all know that they are a very mixed lot, economically and socially. Therefore to deal with investment incomes by a simple restriction on dividends is unfair and unjust. Our policy must be economically viable and socially defensible. It must cover all incomes, and nobody must go to prison because of it. I do not want a statutory incomes policy under which people go to prison.

My Lords, consistent with those requirements, what can we do? In this country we have a capital gains tax, and I suggest that we need to supplement that with an incomes gains tax. Taxation is the only instrument by which we shall really affect the whole pattern of incomes. The Government are very anxious to get rid of the selective employment tax, and I suggest they might do very well to substitute in its place my incomes gains tax. It would work like this. The Government would lay down not a single norm, as under a temporary wage freeze, but a series of norms relating to different income brackets. I should hope that the norms of increase would be larger for the smaller incomes and smaller for the larger incomes.

The general effect of such a policy would be to narrow the gap between the top and bottom incomes, rather than to widen it, as has happened in recent years. There would be some exceptions from these norms, in the case of people who had fallen behind or had suffered under some kind of long-term social disability so that for long periods the value of their work had been greatly underestimated. Those exceptions would be highly controversial and there should be full political discussion. I emphasise that this is a political question. Different political Parties might have different views, on the merits of these cases, and eventually the Government of the day would have to decide who was entitled to go outside the norm for their income bracket.

For this purpose, I have no doubt that we want a resuscitated Prices and Incomes Board. We want an expert body which would apply the principles which the Government have already laid down, apply the norms to the income brackets and apply the rules about exceptions. The norms would not be fixed, and it would be absolutely basic that they should not be such as would create inflation, but would move upwards with the expansion of the economy. I am all for growth, but I shall have something to say in a moment about its limitations. That is in outline the kind of policy that I should like to see this country accept. I should now like to deal very shortly with two or three of the criticisms which I know will be raised.

The first criticism is that if you have an incomes restraint which goes all the way through, you destroy incentives. To that I would say that if you have any kind of restraint—and the Government themselves are in favour of a progressive downward restraint—then to that extent you destroy incentives. But at least my policy is better than a flat freeze which destroys incentives right through without regard to the possibility of limited increase in most groups. It allows for increases all the way up within the norms, but I should hope that at the very high levels the norms would be nil; that is to say, that there would be no further increases. It also makes the restriction heavier in the higher ranges of income where, after all, there are very many more other incentives, where work in itself tends to be very much more interesting and stimulating, and where people work for many other reasons—for the power and the interest and the fascination of what they are doing, as well as for the money.

I have not said much about growth, except to express agreement with those who want to see it and who emphasise its importance. A growth of 5 per cent. per annum would be fantastically great compared with anything that we are in sight of, but that is not the scale of wage increases that people are talking about. At present they are rejecting 8 per cent. and 9 per cent. with scorn. Therefore, if we rely on growth alone we must go very slowly and gently, and disappoint a great many current expectations.

I have not said anything about prices. You can cut into the wage/price spiral at either of two points. You can cut into it by controlling wages and other incomes, or by trying to control prices. If you have an incomes policy which controls increases in everyone's income, then it may very well turn out—and I hope it would—that prices will look after themselves because nobody will have any interest in putting them up. If it did not work out like that, we should have to add a prices policy. But I prefer to start with incomes for this reason. There are 22 million income receivers in this country, and we do not all buy one thing; we all buy an enormous number of things. Therefore the complexity of a prices policy is even greater than the complexity of an incomes policy. Furthermore, there are too many ways of cheating with a prices policy; for example, by slightly altering the contents of the article, by slightly altering even the scale of the article in spite of the various protections for the consumer which now operate in law. So I should like to try having a universal incomes policy with norms for each income bracket, with 100 per cent. taxation if you go above your norm. You get all you can within your norm, but you get nothing above it.

Fifteen years ago, when these topics were not nearly so much in the public mind, I published a book in which I wrote that in the field of incomes policy alone we are expected to believe that it is best to leave public issues to be decided by organised private interests. The kind of policy that I have tried to suggest to your Lordships this afternoon is the result of the intervening 15 years' experience, unhappy experience, in which I have reflected upon what happens when you allow the vital public interests about which the right reverend Prelate spoke so eloquently to be decided purely by private interests. I hope that at least I may have succeeded in commending to your Lordships that we abandon that attitude of mind and that we accept some kind of incomes policy (I would prefer my own version, but I would put even before that the importance of accepting some kind of general incomes policy) as part of the normal social and economic structure of the country.

5.21 p.m.

LORD BROOKE OF CUMNOR

My Lords, I am sure it is timely and right that your Lordships should have this opportunity to discuss the Wilberforce Report, and I think we should all be grateful to the noble Lord, Lord Shepherd, for giving us the chance. I confess that I thought the noble Lord was myopic in some of his expressions of view, and yet, when one comes through to conclusions, I found a good deal in his conclusions that I could accept because I was reaching the same points through a different route. Indeed, one of the striking facts about this debate is that, except for some slightly provocative debating points which have been made, there certainly is an underlying consensus in all quarters of the House about many of the matters which we have been debating. I think we owe that in large measure to the excellence of the Report of the noble Lord, Lord Wilberforce, and his colleagues. I must say that I found their Report to be of incomparably higher calibre than most of the Reports of the Prices and Incomes Board that. I read. It seems to me that the noble Lord and his colleagues have set us a standard which it will be extremely hard for anybody else in similar circumstances to attain in the future.

I listened with intense interest to the speech of the noble Baroness, Lady Wootton of Abinger. I am bound to say that I doubt whether her detailed regulatory plans would be applicable to so complex a society as ours. I doubt whether they would be either practicable or acceptable. Nevertheless, I enjoyed hearing her make this Socialist speech, and enjoyed particularly her pointing out that the majority of the Socialist Party did not seem to be prepared to go along with her.

I was grateful to her for mentioning the letter which appeared in The Times the other day signed by the noble Baroness, Lady Sharp—a letter which, it seemed to me, attracted less attention than it deserved. What the noble Baroness said in that letter was that it surprised her that there did not seem to be thought to be scope for a purely fact-Ending inquiry of high and independent quality in the early stages of an industrial dispute. There may be resistance on the part of one side or the other to having an inquiry which is going to end in recommendations, but when I read the first part of the Wilberforce Report and see how much material it has brought out, not only for myself but, I believe, for almost everybody, which had not been presented in such clear, concise and convincing form before, I cannot help wondering whether there might not be scope in a number of industrial disputes for an inquiry of that sort, which should take place at a very early stage but should not end in specific recommendations. I think most of us could read off the lines of our own conclusions from the first part of the Report, aid I doubt whether they would be very far distant from the recommendations of Lord Wilberforce and his colleagues. At any rate, one thing which has come out of this debate is that we all agree that the Court of Inquiry did a first-rate job.

As to Lord Shepherd's Motion, I should have preferred that it had read, "implications for an anti-inflationary policy" rather than, "for a prices and incomes policy". I am more and more doubtful of this phrase "prices and incomes policy". It seems to be used by different people to cover a multitude of different conceptions. Indeed, the noble Baroness just now detailed at least three, all of which might be called a prices and incomes policy; and a demand for a prices and incomes policy can thus cover demands for a great many different animals. If we can achieve an anti-inflationary policy, which will always be wider than any prices and incomes policy, and if we can achieve economic growth, the resources now unused will be called into use, and unemployment (the third reference in the Motion) will fall.

On the subject of unemployment, we are all indebted to the right reverend Prelate for what he said from his experience of the County of Durham on the personal side. There is always a temptation to use in economic argument such phrases as "poverty", "unemployment", and so on, without always thinking out the human reality of what we mean. Words can be used like counters in the economic game. Yet when one has seen large-scale unemployment, as I saw it in the County of Durham before the war, one realises that that is something utterly hateful which must be avoided at almost any cost.

My Lords, the Wilberforce Inquiry rightly said that discussion of total cures for inflation went far beyond the scope of their terms of reference. But within their terms of reference they found two facts to be clear: first, that Britain is in a dangerous condition of spiralling inflation; and, second, that the avoidance of action leading to an increase of inflationary pressure is at the least not inconsistent with a successful overall anti-inflationary policy and, more probably, a necessary pre-condition or accompaniment of it. If I may put that in my own words, the ending of pay claims which go much beyond the growth of productivity, and resistance to claims of that sort if they are actually made, may not be a complete remedy for inflation, but is an essential element in the remedy. That seems to me the main theme of the Report; and I believe its strongest implication for all the subjects mentioned in this Motion is that a readier recognition of responsibility is needed throughout the whole nation.

Politicians and economists—I am the first but certainly not the second—talk a great deal in terms of controversial proposals and counter-proposals, and most of it goes right over the heads of ordinary people. What is really needed throughout the nation is a change of attitude; a change to a belief that prices can be checked, and that the standard of living of everybody will progressively rise provided everybody is prepared to forgo short-term gains for the sake of long-term advantage. I know well that that is making the task seem an easy one, whereas it is exceedingly difficult, as the noble Baroness said in her speech. But, nevertheless, what everybody in the nation is asked to give up is not the long-term gain but the short-term advantage. We can most of us school ourselves to do that in our own lives; in wider circles the question is whether we can trust everybody to do it. There is the rub. I myself believe that a generation hence economists will be unanimous that the general standard of living of the British people, and certainly of those with middle and lower incomes, would have risen faster in the 1950s and 1960s if there had been no strikes, no "go-slows", no disruptions, and thus probably no balance-of-payments crises, and if, instead, there had been ceaseless pressure by the trade unions on management to adopt new ideas and new methods which would give their members more worthwhile jobs and a greater sense of belonging. After so many years of almost continuously rising prices, it is not going to be easy to generate a sufficient change in attitudes—and a positive act of generation will be needed.

It is in time of danger that attitudes can change or be changed. There was an opportunity, I believe, at the time of the last devaluation of sterling, if someone had struck the right note to pull the nation to its feet. No nation likes to see itself slide downhill. A great many people in this country in all walks of life are suspecting that we are sliding downhill at the present time. But that opportunity, the opportunity at the moment of devaluation of sterling, was missed; and disbelief in there being any value in struggling to escape from inflation may become further ingrained with every year of rising prices.

So we have the situation described in one sentence of the Report which, with your Lordships' permission, I will read. It is a very long sentence, but that is the doing of the noble Lord and his colleagues and not mine: Although it may be coming to be better understood that general wage demands in excess of the increase in national output are likely to be self defeating and to create social inequities, and if persisted in at accelerating rates may lead to governmental intervention, there are still many who believe that inflation, at least moderate inflation, offers a means of increasing real earnings, i.e. of improving their standard of living, and it will require a long process of communication, or possibly painful experience, to convince them of the contrary. I hope that it can be done by communication and not by painful experience. The electricity workers have in fact been through a painful experience; the Post Office workers seem to have been putting themselves through a painful experience these last six weeks. But the retired people and all the people in a weak bargaining position are going through a painful experience perpetually, for every price rise in the necessities of life is for them a wound in the flesh. We cannot shrug off the pain of the elderly by anaesthetising ourselves with the thought that, after all, their pensions can always be increased; for the creation of money to give higher pensions not covered by contributions is inflationary, too.

I believe that one of the gravest symptoms of our present national sickness is the falling away in investment and investment prospects, and I am a little surprised that more has not been heard of this in the debate this afternoon. Why should anyone build a new factory or replace out-of-date machinery with new, if he assesses the chance of a return on the investment as slender? We have just had a spectacular example of that in the Ford decision not to build a new factory in Britain. Yet I do not see how we shall extricate ourselves from our present inability to escape from over-high wage demands which lead to higher and higher prices, until employers, trade unionists and their leaders, and indeed all concerned, regain confidence in new investment and economic growth as the one practical road to a higher standard of living for everybody.

It was reassuring to hear the noble Earl, Lord Jellicoe, committing the Government to a policy of growth. The escape from our present danger, whether it comes soon or late—and I pray that it will be soon—in the end is only going to come through total commitment by all concerned to end it. A declaration of intent is only of value if everyone associated with it genuinely intends; and, as the noble Baroness pointed out, the trouble is that those who do really intend harbour some doubt whether the other signatories of such a declaration intend equally; and so the ground underneath begins to quake.

Individual unions will not moderate self-seeking policies until they see that a national drive for industrial expansion and modernisation is on the way, with solid rewards for increased productivity. I thought the Wilberforce Inquiry was so right to stress the necessity for the industry to make faster progress with incentive bonus schemes as a means of fostering the idea of advance and higher efficiency leading to better income; for everybody concerned. Businessmen will not find the money for new investment unless they are convinced that the Government of the day is out to create conditions more favourable to profitable investment than in recent years. Nor will they go ahead if they can see no protection against disruption by Communists and wildcat strikes: nor, I must add, if great unions enter into agreements and then ignore the arbitration provisions in them—behaviour which the Wilberforce Report said it could not condone.

My Lords, what can the Government do? They must never tire of repeating that inflation and rising prices can be checked if there is a general will to do it, and if all in positions of responsibility are prepared to take into account not only their sectional interests but the public interest, too. On that, I thought that Mr. Scanlon set a deplorable example when answering questions last Monday.

But the Government have practical duties as well as general ones. I believe, for instance, that they must make a more determined effort to bring down the medium and long-term price of money. I noted what the noble Lord, Lord Robbins, said earlier, arguing that, in relation to the pace of inflation, interest rates were in fact at the present time low and not high. Nevertheless, that does not seem to me to be a situation in which we lastingly can acquiesce. We cannot encourage industries to borrow money at rates which assume that 8 per cent. per annum inflation is going on for years. I cannot see logic in arguing that the medium and long-term rate of interest must remain high on account of the overwhelming demand for capital in these modern days, or on account of an endless prospect of prices rising and the value of money falling, and simultaneously saying that the rate of private capital investment in this country is much too low. May it not be that the current price of capital is so much too high for the nation's good that risks must be run in seeking to bring it down?

All, in every position, must answer the call to take risks if the nation is to recover. The Wilberforce Report has been the motive for this debate, and there is nothing more memorable in it than its statement that: … the country is at present in a dangerous condition of spiralling inflation … a state of affairs which undermines, almost from the start, the real benefit of the wage increases sought, creates social injustices and resentments, and which if continued will threaten our balance of payments and destroy the value of money". I cannot believe that we as a nation have not the collective will to pull ourselves out of this mire, and to impose the discipline of stern public opinion on any who decline to co-operate in the effort. For it is public opinion, I believe—the attitudes of mind of the great British public—which will determine these matters in the end.

5.40 p.m.

LORD GEORGE-BROWN

My Lords, I had some difficulty in resisting the temptation not to impose myself upon the attention of your Lordships this afternoon, but I successfully overcame it simply because I have had the experience of walking this way once and it impressed itself deeply on my consciousness and upon my memory. If your Lordships will allow me, I should like to voice a few reflections, partly arising out of the experience of 1964 to 1966 and partly out of the issues which the Wilberforce Report raised; and especially—if the noble and learned Lord, Lord Wilberforce, will not mind my saying so—because of the issues that arise out of the addendum, the Note of Reservation, written by Mr. Jim Mortimer.

I have listened to a fair amount of the debate. I was, if I may say so, slightly amused by the reference from the noble Lord, Lord Brooke of Cumnor, to the fact that the debate had been so far, so good; up to the point where provocative debating points were raised. If I may say so, I could not have provided a better summing-up of his speech. What the noble Lord had to say about money I thought was perfectly all right; but some of the other things, I thought, came into the area of provocative speech.

LORD BROOKE OF CUMNOR

My Lords, what I said was not what the noble Lord has represented me as saying—but no matter.

LORD GEORGE-BROWN

My Lords, whatever it was that the noble Lord intended to say, that is exactly how it came out; he must have a little word with his own recording apparatus. Two speeches impressed me. Those speakers I know well, my noble friends Lord Shepherd and Lady Wootton of Abinger, I should expect to be good. But there were two speeches which really impressed me. One was the speech of the noble Earl, Lord Jellicoe. I am sorry he is not now in the Chamber, but I would have said this had he been here, so it does not really matter. I thought the speech was very sad. It was a speech about something which the noble Earl really did not know about, which he did not understand. He read, somewhat inadequately; and when questioned, quite relatively, by my noble friend Lord Shepherd he simply did not know (a) what to answer; and, (b) how to fit it in. My Lords, whoever wrote that speech wrote it with a degree of cynicism which I deeply regret, because the subject is a matter of such tremendous importance.

The other speech which impressed me was that of the right reverend Prelate the Bishop of Durham. The right reverend Prelate comes from an area of the country which we all know very well and where we have seen the deepest possible tragedies occur. I refer not only to those which occurred long years ago when I was young, when enormous, grossly enormous, unemployment threatened the area, but also those tragedies of recent times, which are more relevant to what we are talking about. I have been to the Durham Miners' Gala for I do not know how many years. I have seen the number of bands and banners, once bravely carried, gradually diminish. That meant that pits had been closed as a matter of deliberate economic policy. I have therefore cause to reflect on the fact that the issue we are discussing to-day, the implications of the Wilberforce Report on a prices and incomes policy, goes much wider than the noble Lord, Lord Brooke of Cumnor, said; much wider than an anti-inflationary policy. It is part, and it has to be part, of a great, positive policy which sees that in regions like the North-East —where it is quite proper, it may be, to close the pits—there should be other job opportunities, other things brought to the workers. Prices and incomes is a part, but only a part, of a much wider policy. I thoroughly enjoyed the speech of the right reverend Prelate because he brought out all this.

I am trying to say, my Lords, that the issue which is appended to the Wilberforce Report—although, to be truthful and honest, it goes all the way through, as the noble and learned Lord himself said only he did not pronounce on it as a Committee, because he did not accept that it was really the task of the Committee; but he did not toss it aside; he left Jim Mortimer to say it at the end—raises the central issue for an economic policy, and I have seen it in that way. I repeat, it is not just an anti-inflationary vehicle. It is not just a way to seek industrial harmony. Both are tremendously important and both, if we could but find our way to them successfully, would contribute. But neither is the reason why we are trying to find a policy.

Incidentally, this did not all begin in 1964. I have said before in the other place that I have on my bookshelves a very interesting little book called The Clydesiders. I am tempted to recall this on seeing that my noble friend Lord Shinwell is in the Chamber. The book contains an account of the days when a very radical, not to say revolutionary, band—a frightened band of people—arrived at Westminster for the first time. It is an excellent little book, my Lords, and I commend it to your attention. The interesting thing is that one of the things in that book is a treatise by John Wheatley—who was one of the Clydesiders—on the importance of a prices and incomes policy and how to work it. One of the Clydesiders had worked it out as long ago as that. When I first came into the other place, in 1945, the noble Lord, Lord Shinwell, in his then Ministerial position—which had nothing whatever to do with this subject, in a sense, in a direct political way—was himself busily engaged in circulating papers (I still have vivid recollections of them) to his colleagues and to anyone who was interested, trying to persuade them that prices and incomes were the central policy to any much wider-ranging things that we wanted to achieve.

My Lords, we shall not get economic strength, we shall not get economic expansion—I am trying hard not to use that awful word "growth"—we shall never get greater industrial production unless we can produce, as one of our arms, a planned relationship of prices and incomes to the rate at which not only our overall production but also, and above all, our productivity per man hour and per machine hour is rising. This illustrates the critical importance of getting a prices and incomes policy. This is why, when the noble Lord, Lord Collison, and others, and I, produced the Declaration of Intent, we deliberately set it out as a productivity, prices and incomes policy. I think we shall be saved some of the misconceptions about what it is if we always spell it out in full. We were saying that production can rise at such and such a rate—whatever we agree that it should rise—and provided productivity (and, I repeat, per machine hour as well as per man hour) rises at a given rate, all incomes, as the noble Baroness said, not just the incomes of those of us who are on the wage book or the salary book, but all incomes, should be related to that. The increase in incomes is related to that; and price increases, which there must be, are also related to it.

To bring it about my Lords—and this is where I move to what I wanted to say; because I think your Lordships will have said most of the other things—one has to try to relate it as part of what I would call the overall economic and social strategy: to what we are going to do in other directions; how we are going to influence and affect investment; where we want to see industry located; if you like, to what part we play in the Continent of Europe, and how; to where our exports strategy is directed to; what we are going to do about social benefits and how much we want to retain for what is called social spending out of what is produced. To get on to one of my old hobby horses, are we going to slop the Treasury from persuading all Ministers—at any rate, all Treasury Ministers—all the time that if it is socially, communally, spent it is bad, but if it is privately spent out of your pocket it is good: the purely transfer payments where you take out of the pockets of some people who can afford it and use it to raise the social standards of other people who need it but cannot afford it. That is not spending; that is a transfer payment, and a different matter. We have to relate this to our whole economic and social strategy, and all parts of it have to fit and to be seen to be complementary. Otherwise there is no climate in which anybody is going to look at the spending of incomes.

If I may put it negatively, it seems to me that you cannot plan for a reduction in job opportunities, which, whether the Treasury Ministers understand it or not, is precisely what the Treasury and those who run our economic affairs are doing at this moment. We are speaking against the backcloth of 720,000 unemployed. Make what allowance you like for the temporary—as we hope; and it is a big hope—effects of the Rolls-Royce and other issues, it is an enormous step on the way to the magical figure of one million. This is either being planned for positively or being planned for negatively, in the sense that Ministers are content that it should happen.

You cannot withdraw the necessary Government intervention and influence which the right reverend Prelate spoke about—drop the word "control", because it is evocative. You cannot withdraw the necessary Government central control. You cannot, as a matter of policy, withdraw deliberately the support which private industry needs. I have never been as passionate a nationaliser as some of my friends; neither am I a passionate believer that private enterprise can live all by itself. I happen now to spend most of my life with private industry. I know, I daily see, how much private enterprise needs Government support. You cannot withdraw it and at the same time increase the restraints of finding the cash and the credit which is needed for financial activities, and expect an acceptance of prices and incomes control.

I see the noble Lord, Lord O'Neill of the Maine, in his place. I will not embarrass him by saying that I thought he was one of the two best Prime Ministers there could have been who divided Ireland. If only he and Jack Lynch had managed to go along together, I think we should have avoided the present situation. But that is an interpolation. The noble Lord is going to address us in a moment. He knows only too well—I am sure he will say it, without my provoking him—that to get industry to go to Ulster, even when there is no violence and no unhappiness, requires a degree of support from the central Government; it requires a degree of injection of actual cash—pennies falling in the till—as well as allowances against hypothetical profits over three years, if it is to happen at all. New people are not doing it now.

I was seeing yesterday somebody well-known to the noble Lord, who was asking me whether those who were already there would go on being there. I did my best to give him reassurance. But he asked me a question that I could not answer: Would anybody who is not there go there now that the Government have withdrawn all these things? I say that you cannot do what, with respect, Her Majesty's Government are doing, and expect companies who are now divorced from access to cash and from other forms of support not to nut un prices. How else in such a situation do you get the cash? You cannot expect workpeople, whether manual, really skilled or technicians and salary earners, to support prices and incomes restraint when they know that job opportunities are being reduced as a result of these policies.

I must say that if we are to discuss this subject seriously in your Lordships' House, and not as an academic, polite exercise—I am not doing this as a Party exercise; I play little part nowadays in Party politics—the fact of the matter is that it must surely seem that virtually all the Government's economic policies are mistakenly directed. If anybody would rather hear it from somebody other than a Socialist, as I am, I commend to them the Guardian leader this morning which says: Virtually every one of the economic policies is misguided if we want to go along the direction of involving our people, preventing inflation and getting an expansionist policy. Anybody can say that when I was Minister for Economic Affairs I failed. So be it. I tried. It is in the power of every one of us to try; it is not in the power of any one of us to command success. But I think it would be much better if the Government looked for the reasons why I failed and avoided them, instead of making all the mistakes that our Government made and then adding a whole new lot of their own. Some of the mistakes that we made under the pressure of Her Majesty's Treasury are still being made; but the present Government are also making other mistakes that we did not make. That is really where they ought to be looking.

I wonder, in the context of this debate, whether the present Ministers ever regret helping us so little when we were trying. I could, of course, had it been worth one's while, have turned up "oodles" of quotations. I did not. But I was just handed one, which I did not turn up: my brother, the Member of Parliament for Finsbury and Shoreditch, turned it up. It is a quotation from a speech made by Mr. Carr, the present Minister, on May 21, 1968, and in the light of the sententious remarks that have been made here to-day from the Conservative Benches I think it is worth reading just one small passage. One of the hallmarks of freedom is surely the right of people to determine their own earnings without State intervention or direction, whether they do so by collective bargaining or by individual negotiation". To that Mr. Hugh Scanlon says, "Hear, hear!" To that Mr. Jack Jones says, "Hear, hear!" This is one of the problems that my noble friends Lord Collison and Lord Cooper of Stockton Heath have. This is the doctrine which the present Government, when they were not the Government, preached. It is very hard for them to get back from it now.

May I, my Lords, give some examples, very briefly and shortly, of the mistakes that I think the present Government are making? Some were ours, but I will deal with the ones that the present Government are making separately from those that we made. I know that the Prime Minister prides himself on not having "instant government", and as one who has suffered from a period when we did have it I should have applauded him had he stuck to his resolve. The instant decision to abolish the Prices and Incomes Board: does he not regret that now? It is all very well for the noble Lord, Lord Brooke of Cumnor, to say that the Report of the noble Lord, Lord Wilberforce, is better than anything he has ever seen from the Prices and Incomes Board. Well, the Government could have replaced Mr. Aubrey Jones with the noble and learned Lord, Lord Wilberforce, if they had thought that that would have done any good. Do not the Government now regret taking this decision to abolish the Prices and Incomes Board, and to leave themselves with no instrument at all? Then the abolition of the Industrial Reorganisation Corporation. Do not the Government regret this hurried decision to get rid of a very useful instrument, where hardly a Socialist tainted its upper echelon? All it was doing was to help private industry, private enterprise, to be able to do the job which everybody in this House, almost without exception, believes ought to be done.

There are the Government's monetary restrictions; the extent to which they are making it impossible to get finance to do the most essential things. Some textile mills and woollen mills still need reorganising, and some of their machinery needs replacing. People have entered into commitments to do it, but Her Majesty's Ministers make it impossible to get at the finance to deal with it. I.C.I. borrowed £40 million at about 11 per cent. Other enterprises are currently borrowing, where they can, and if they can, at 8 per cent. or 9 per cent. How much do they have to make, and how soon, to service borrowings at that level? It is possible for a certain number of vast corporations to do it. If I were a shareholder of one of them—happily I am not—I should be asking some pretty urgent questions at their meetings about whether they can do it. Maybe they can get away with it. But a great many of middle-sized vital, traditional enterprises in this country simply cannot do so. The monetary restrictions are one of the biggest mistakes the Government can make. We have the surplus. The noble Earl, Lord Jellicoe, was eloquent about the problems he thought that he had inherited, but at least he inherited the surplus.

LORD ROBBINS

My Lords, will the noble Lord forgive me if I interrupt to put a question which might help him to elucidate the point that he is trying to make? Would he not agree that in all countries where great inflations have occurred the rate of interest on money has been very high, whether or not time were Treasury officials operating in the sinister way in which he suggests?

LORD GEORGE-BROWN

No; they were sometimes economists who had moved down to Fleet Street and who had a rather larger influence than they ought to have. I do not reserve my comments wholly for Treasury officials. The answer to the noble Lord's question is, Yes, I do. These things, oddly enough, go together. I understand that the noble Lord will follow me, and perhaps he would like to explain which, in his view, is the chicken and which is the egg.

Then there is the withdrawal of investment grants. I have already referred to that. What a mistake! As the Guardian said this morning, could it possibly have come at a worse time when the Government are restricting other forms of cash flow? Then there is the regional emphasis. This is what the right reverend Prelate was talking about. We may be producing unemployment all over the country: I will give the Treasury their due; they are not necessarily selecting only the North-East, they are doing it pretty widely and in a catholic way (if the noble Prelate will not mind my saying so, as one Anglo-Catholic to another), in a universal way. But when they do it in a universal way it tends to hit certain areas harder. You get 7 per cent. unemployment in Ulster—I am "clued up" about that only because I was briefed yesterday about it. You get more than the normal unemployment in Wales and in the North-East just because that is where it hits first. If I am a manufacturer and I set up a peripheral factory in one of these areas, and "times is hard", as they say, it is the periphery that I deal with, not the main centre of operations.

Then there is the acceptance of vastly rising unemployment; the acceptance of the drift into bankruptcy; all that "lame duck" stuff must have sounded good. I have been through many an Election, and far be it for me to say that you should not the week after you have won say, "Well, maybe that is what the Daily Mail reported that I said, but"—like the noble Lord, Lord Brooke of Cumnor—"I did not actually mean it to come out the way it came out"! There is always the moment for reconsideration. There is all this "lame duck" stuff. So we put Rolls-Royce into bankruptcy. I cannot help feeling that the Government mixed up Rolls-Royce and Rolls Razor. V. and G. were allowed to go yesterday— rightly or wrongly; I do not know the ins and outs of it. Both events have tremendous spin-off effects, if I may use that jargon. The newspapers tell me today that Alfred Herbert may be going the same way. Is this sensible government, creating the climate that we want? I think not. This is not a polemical point; it can be checked, and the noble Lord, Lord Robbins, knows it better than most.

It is all leading, as I personally know from my day-to-day experiences, to reduced investment, because people are beginning to pull in. It is leading, therefore, to the reduction of immediate production and to reduced future production. The reduction in future production will be even worse. This is leading to rising costs. It is not much use saying piously, "We want to get costs down", if you are under-using machines, under-using your capital assets as a matter of policy; if you are working them three days or four days a week instead of 24 hours a day, seven days a week. Costs must rise, and they are doing so.

To come back to the point about the implications of the Wilberforce Report on prices and incomes, it is, above all, creating a climate of fear. When men become frightened—whether they be City financiers, company chairmen, middle-level managers or fellows on the shop floor—they act irrationally. I personally think it is absolutely stupid that when somebody shoves a £3-a-week increase into a man's hand he should go on strike. It is stupid. But then I am not faced with the problems he is looking at. I have not the fear he has. As I say, when men become frightened they do stupid things and act irrationally; and all the judicial, theological or political lectures do little good in such a situation. This is what Her Majesty's Ministers' policies are creating.

People now think, for example, that work sharing is more important than redeployment, rationalisation and productivity deals. A fellow does not want to be redeployed if redeployment means the local labour exchange, especially if he is in his fifties. He does not want to rationalise if rationalisation means that there are jobs for 200 where there used to be jobs for 300. He does not want to do a productivity deal if it leads to the same things. But we are increasingly facing demands for work sharing: four days a week for all of us is better than five or six clays for only half of us, and the rest on the dole.

In this climate, higher and higher wage claims (I commend this point to the noble Lord who preceded me) appear desperately urgent, just as the raising of prices seems desperately urgent to industrial enterprises. Everybody wants to get in before the real crash and crack-down happen. It is not thought that it can go on for long. People do not think any Government can tolerate the situation for long, and so they want to get in first; and this is necessary enough because otherwise they may not get in for another year or two. So up go prices by 10 per cent., 15 per cent. or whatever it is, and chaps will not settle for 3 per cent.; they want 8 per cent. or 10 per cent.

It is not only to take retrospective account of what they think they are suffering from, and to cover what they need now: they want to make sure they have something in hand. We may think it horrid, stupid and wrong, but then we are, by and large, a rather privileged group of people. The chap on the shop floor or an industrial price fixer cannot think that way now. The Wilberforce Report brought out very clearly indeed (I say this without patronism) the questions which this situation poses for those trade union leaders who are—I will not say "moderate", because that is not a nice word to use, but clear-sighted and far-sighted and have been trying to look ahead.

I was most impressed by that part of the Report which quoted the shop steward's evidence from a power station. It was very moving because it was obviously so right, sincere and clear, and not over "tarted up". It showed the problems which a far-sighted and clear-sighted trade union leader faces when he exercises what the noble Lord's Report calls "Cannon courage"—the rather special Cannon courage. One finds oneself up against tremendous problems from men who think one is taking them too far before they have got a real return. It puts a premium on "militancy"—and I put that word in quotes. It is very hard, then, for any trade union leader (ask any of those trade union leaders who are in your Lordships' House) to opt out, once militancy becomes the order of the day. The trade union leader who opts out is opting for such destruction and disorganisation that he may not be there himself very much longer; or, even if he is there, he will not be able to exercise very much influence because other leaderships will take over from below.

Still, my Lards, this is no excuse (may I make it quite plain, because everybody misunderstands me?) for trade union obduracy, obscurantism or downright bloody-mindedness", all of which, to a greater or lesser degree, exist. But so they do in management. And so most clearly do they in Government. Just as Government have the greatest role, so their responsibility, in my small judgment, for what is happening must be just and more sincere. Moving, as I now do, so much more in industrial circles than in those of politics, may I say just this to the Treasury Bench? I can assure Ministers that they will find their most astringent and frustrated critics, not among the strikers and the marchers, but in the management offices and the boardrooms of our most progressive industrial enterprises, so many of whose aims and plans are being postponed, cancelled and generally brought to naught.

Of course we need a return to sanity—but we need it all round. We can succeed as a nation economically only if that happens; and trade unionists—and I say this to my fellow trade unionists—need it as much as any, especially the lower paid and the weaker brethren among them. There is really no "we" and no "they" in this matter. But I believe—and this was the purpose of what I had to say—that there is a prime necessity for a major re-evaluation and reversal of basic Government policies. Otherwise, my fear is that we shall have still further conflicts in addition to the ones we have afflicting us to-day; we shall have further escalatory, inflationary demands and actions, involving costs and prices as well as incomes. We shall have yet more commercial crashes. We shall become a generally less competitive economy, and we shall face an ultimate major confrontation. And, my Lords, anybody who is tempted to face a major confrontation with equanimity or complacency; anybody who says to himself (and I hear this said), "Better to have it out and get it over", is in my view too foolish and too dangerous to be tolerated in his authority.

6.18 p.m.

LORD ROBBINS

My Lords, first of all I owe an apology to your Lordships' House and to those speakers who are to come later in the debate for the fact that, owing to an engagement made some weeks ago, I shall shortly have to quit my place in this Chamber. I am grateful to the Front Bench for having allowed me the opportunity to speak at this stage in the debate. It seems to me that there can be considerable debate among serious minded people about the quantitative implications of the recommendations of the Committee of the noble and learned Lord, Lord Wilberforce. Are we to take the 10.9 per cent., which has been quoted in Government circles, as a proper measure of the increase, or are we to assume, as has been assumed from time to time in the discussion this afternoon, that it was a substantially higher figure? Personally, I am inclined to the latter view. I find it difficult to believe that the so-called lead-in productivity incentives are to be ignored when we are trying to estimate the net effect on aggregate expenditure in relation to output of what was recommended. I therefore tend to think (and I regret to say it) that the award in fact somewhat increases inflationary pressures.

But be that as it may, the salient fact of the situation is that even if the lowest figure be taken as authentic, the probable effect is still inflationary. The annual rate of growth in the economy at this time is not more than 3 per cent. per annum. A rate of increase of incomes, even if restricted to the Government's target of 8 per cent., would still exceed this rate of growth by 5 per cent.; and of course we know that in fact earnings in general are rising by much more than 8 per cent. per annum. It is therefore surely no accident that prices are rising at a rate probably exceeding 8 per cent. per annum. The Economist last week hazarded a guess that they would soon be rising at 10 per cent., and I see nothing in the situation which suggests that that conjecture is unwarranted.

This is a very grave situation. It is graver, I believe, than anything with which we have been confronted in the last 25 years. If we project this rate of inflation for another five or six years, our money will have lost a third of its purchasing power. If it goes on for ten years it will have lost half its purchasing power. I will not expatiate on what this implies to those of us who live on fixed incomes. There must be some, even in your Lordships' House, who are wondering whether their present expectation of life will expire before they are reduced to the lowest level of State-supported indigence. But I will emphasise the effect on culture. There can be no university, no institution for the purveyance of the higher branches of art or music, or drama, whose way of life, whose plan, whose very existence, is not threatened by such a development.

Nor should one neglect the effect of inflation in industry and production. In the demand-inflations of the past, profits tended to flourish, at any rate for a time, even though in the end liquidity complications usually set in because of deceptive accountancy and the catching up of public expectations with what was happening behind the public's back, although for the time being, if you have a demand inflation, there may be positively beneficial effects upon investment. But in cost-inflations profits are squeezed from the outset, and we see already to-day—and in this at least I can feel in harmony with the noble Lord who preceded me—the effects on investment of declining profit margins. If this goes on, let there be no doubt that the rate of growth, far from increasing, will be even slower than it is to-day.

I would add—although in the last analysis I should regard this as a secondary matter—that since I do not believe that the rest of the world will go on to inflate as rapidly as we are inflating at the moment, I do not believe that we shall be able to hold the much vaunted surplus in the balance of payments very long. If the present inflation goes on, the surplus in the balance of payments will be gone like the snows of this afternoon. There is nothing but trouble ahead even if the rate of increase in incomes is kept down to the Government's present target figure.

What are we to do about this? It is inconceivable that any Government in this country should allow such a situation to continue. Despite all our mistakes, made, if I may say so, by all Governments since the war; despite our unwillingness, widespread among the public, to face facts, we have not yet acquired Latin-American habits. Men of good will of all Parties want to break out of the vicious circle. The question is, how? There are some, I know (the noble Lord who preceded me, for instance), some whom I greatly respect, who place their hopes on an increase in production, aided and abetted perhaps by dedicated efforts such as we should all wish to acknowledge in his own past history, and perhaps unimpeded by the baleful influences in Great George Street. But I am afraid this is self-deception. Of course an increase of growth, other things being equal, would help.

Supposing that the gap between the rate of inflation and the present rate of increase of earnings were (shall we say?) 1 or 2 per cent., I would not say that we could not hope for salvation this way. But we must have a quantitative perspective here. The gap is not of that order. The gap is much more likely to be the difference between 3 per cent. and 13 per cent. I ask seriously, does anyone in his senses believe that the gap can be quickly closed in that way? The most that we have achieved in recent years in the way of an annual growth rate has been between 5 and 6 per cent., which is not more than half way in the right direction. And remember that these accelerations, taking place in periods of what might be called ultra-full employment, did not last.

Moreover, I would say—and I say it with regret, knowing that what I am saying will be antipathetic to many whom I admire and respect on the Opposition and the Liberal Benches—that I think there is a real danger that in seeking to stimulate growth by indiscriminate financial measures, the net effect might easily be to increase the gap between aggregate demand and production and so to move to a further increase in the rate of inflation. I am not against growth—heaven forbid!—but in the present circumstances I urge your Lordships to realise that with the inflationary gap of the size that it is at the moment, to rely upon growth as the main cure is to rely on wishful thinking.

My Lords, it is surely equally clear—or should be equally clear—that this is not a problem to be solved by widespread changes in the industrial structure. In my young days, when I thought of myself as a revolutionary socialist—a very mild and inoffensive one, I can assure your Lordships—we used to say that if only one nationalised the means of production, distribution and exchange, all would be well and the problem of industrial relations would be solved. Well, my Lords, we have not gone the whole hog, but we have nationalised a good deal, and I have not noticed that the pressure for wage increases higher than the rate of growth has noticeably diminished in those areas. I would not wish to extenuate employers in the private sector for concessions on a similar scale, but I do submit that the fact that the employer is the public rather than private enterprise is no safeguard against cost inflation, to put it very mildly.

Furthermore, I would add that quantitatively it is equally clear that if all profits were abolished to-morrow, or appropriated for the payment of other incomes, it would not meet claims of the order we are now encountering without a continuous rise of prices. According to the Treasury White Paper-I quote it with some trepidation in the presence of of the noble Lord, Lord George-Brown—the trading profits of companies in the last year for which we have records, after providing for stock appreciation and capital consumption, were only 8.8 per cent. of total domestic production. You cannot meet wage claims, or income claims of any kind, of the sort which are corning forward now, without rising prices. The fundamental problem is that if prices are assumed to be constant, then the current level of claims is asking for more from the machine than the machine will turn out, and consequently prices rise.

So, my Lords, the real dilemma of the situation is this: that given the present rate of growth, or the present conceivable increase of growth in the short period, if the demand for increased earnings adds up to more than this rate, then inescapably one of two things follows: either finance is produced to meet the demand, in which case prices rise, or it is not, in which case, lamentably, unemployment increases. That is the situation, as I see things, in which we find ourselves at present, and it is not easy to find a way out. The value of money is being lowered month by month by demands on the product of industry which it is impossible to meet at constant prices. And this is, surely, not a position which any British Government can afford to acquiesce in for long.

Now may I say at once that I do not believe that the policy of cutting off immediately, either by monetary or by fiscal means, all sources of finance for the upward movement is either practical or prudent. So violent an application of the financial brakes as that would indeed bring widespread bankruptcy and unemployment, involving all sorts of enterprises which at present regard themselves as moderately stable. And remember, my Lords, that the application of the financial brakes to a rate of increase of aggregate expenditure not exceeding the rate of growth of the economy is not deflation. I must here take issue with the noble Lord, Lord Reay. Deflation, surely, in any intelligible sense of the word, is a contraction of expenditure below the current rate of production so that prices fall or unemployment increases. To restrict the rate of expenditure to an annual increase corresponding to the rate of growth is not deflation. It is indeed the norm of monetary stability which should be the long period objective of us all. But, my Lords, I agree that to put on the brakes as violently as that in the short period would be neither practical nor prudent. So, in principle, I agree with the aim of decelerating the upward financial movement rather than bringing it at once to a full stop by monetary or fiscal means.

But, my Lords, this does not mean that I see the same reason for accepting claims of the present order of magnitude in the market for services. Any grounds for accepting anything beyond the average rate of growth in this connection must be justified by quite different considerations, considerations of relativities in closely connected industries, delayed adjustments in the past, or, as in the obvious case of the police force, exceptional difficulties of recruitment. And I am bound to say that in my opinion even 10.9 per cent. for electricity workers or 9 per cent. for postmen leaves me with little hope of seeing the rate of inflation reduced in the near future.

Let us be clear about one thing, even though it may not be an immediate guide to policy. If the average rate of claim for increased earnings were no greater than the increased rate of growth, then the solution of this frightful problem would be in sight. There would indeed he a pretty considerable backlog of illiquidity and increased costs to be worked off; but, given the assurance of that degree of realism, I am pretty confident that these difficulties could be surmounted. But how are we to get to such a position? At the moment, the policy seems to be to resist, or to appear to resist, demands which are higher than the still highly inflationary 8 to 12 per cent. level, to resist these in the public sector, to deprecate them in the private sector, and to maintain something of a credit squeeze. I cannot say that I think that this is very drastic; and I have said already once before in your Lordships' House that I do not think it is made psychologically more commendable to the workers by concessions at this stage in income tax, much as I believe tax reform to be long overdue.

I suppose that this policy has some chance of succeeding. One of the senior economists in this country, one who has been right more times than most others about the way in which the economy has been tending from time to time, said to me only the other day that he thought it had a 25 per cent. chance of succeeding. I personally should put it rather higher than that. But of this I feel convinced: if it does not show some signs of succeeding within the next few months—and by success I mean, let me reiterate, incomes rising not greatly more than the current rate of economic growth—if it does not succeed in that sense, then I am inclined to think that some sort of freeze, some sort of incomes policy, will have to be attempted. I say this with very great regret and without very much hope. I am no more convinced than I ever have been that, in the long run, such policies are viable without the loss of many liberties to which the majority of us—and, I venture to say, the majority of trade unionists—attach great importance, or without the growth of evasions and corrupt practices which we should surely deplore.

I have listened with very great interest to what was said by the noble Baroness, Lady Wootton of Abinger, but I remain unconvinced. I have yet to hear of any variant of incomes policy which stands up to criticisms based either on the experience of such policies in the past or on the general common sense of the subject. A most remarkable article by two young men from the London School of Economics was published in the Financial Times, I think about three weeks ago, which I should have thought put paid to any hope of easy success in this direction. Yet I do not think this community can stand a rate of inflation of 8 to 10 per cent. per annum for long. And if it goes on, then I am clear that we shall have to take some very blunt instruments to deal with it, to provide at least a period in which we may pause and think, and reshape our policies.

But how much better it would be if all concerned were to come to their senses and to realise that the sort of demands which are now being made on the product of industry are impossible of fulfilment without the consequences of either increased prices or increased unemployment! It is here that I cannot help feeling that the performance of the present Government, with all its courage and good intentions with which I sympathise, has fallen considerably short of what might have been wished. The present Government, believe me, have not succeeded in driving home to ordinary people the contradictions of the present position.

In this respect, my Lords, I submit that the public at large are in a state of split personality. They condemn rising prices, but they also condemn the means of stopping them. They deplore the erosion of the power to purchase of the money in their pockets, but they still contemplate with apparent equanimity claims or recommendations for pay increases which make such erosion inevitable. I ask: is it beyond the powers of reason and persuasion to resolve this schizoid condition? Is it asking too much of those who rule over us and at whose mercy we are, is it asking too much of men of good will in all Parties, that they should try to get this fact over to the public? I do not know. But I do know that if this is not got over, then we are in for a very bad time indeed.

6.45 p.m.

LORD THORNEYCROFT

My Lords, I was at the outset a little doubtful, as I always am, about the value of a debate centred on a particular industrial dispute, however able the Report upon it. I have, however, been slightly reconciled in listening to the nature of the debate. More particularly I have been impressed by the fact that, having listened to other noble Lords, I do not think any of us can feel that we can rise with confidence and say that we have a complete answer to the very grave problem that confronts this country at the present time. The debate would have been justified, in my view, if for no other reason than that it gave my noble friend Lord Robbins an opportunity to make the speech which he has just delivered, with all the authority that he commands, and which I thought sketched in very real terms the scale of the problems confronting us at present. I think there is one lesson that I would draw from that speech: that this problem is so paramount among all the other problems confronting us now, that it should be put as a real first priority in Government policies.

This brings me to the two short points that I want to make at the outset. First, we must discard dogma in this matter. Everybody gets committed to various solutions of various problems in this life; but, for my part, if anybody can produce any solution which would contribute in some way to helping to get over the present situation of inflation I would not argue where it came from. Equally, I think the Government have now reached that stage of maturity in which dogma has ceased to mean very much to them. We had the very tragic case of Rolls-Royce. I personally was saddened, but I acknowledge the reality when from the Conservative Benches an Under-Secretary announced that a great company was going to be nationalised. I realised at that moment that dogma had ceased to count, and that reality and what one has to do in actually governing a country had begun to take over. I believe that we have to take the same approach in dealing with this problem of inflation. I do not mind what has been said about what we are going to do about taxation or any other subject; that is irrelevant. A Government at this moment will be forgiven if they take a little time to honour some of their pledges. What they will not be forgiven for is if they are in any way laggard in facing the realities of the situation that exists.

The second point I would make is that it is an illusion to think that there are two sides to this squabble (if it be a squabble), or to this issue. We are all, in one way or another, caught up in this net. In any solution finally arrived at, millions of trade unionists, with their wives and their families, will have to acquiesce. I do not mean by that the trade unionists who happen to be speaking at the moment or to be attending an orderly, peaceful demonstration in London: I think of the silent millions of trade unionists who will suffer, as we are all going to suffer if this process continues for much longer. This debate has centred on the power workers' dispute. There are one or two factors about them. As a matter of fact, it is difficult to draw conclusions from one dispute or from one Report; they are all infinitely different.

The power workers' dispute was, I suppose, distinguished by the fact that these particular workers had a remarkably good record in their efforts in productivity. Alas! there was the union's refusal to agree to arbitration; a review which included a consideration of the public interest, and an award which. I must agree with my noble friend Lord Robbins, was on any terms inflationary. It may have been justified in the circumstances; but enormously powerful arguments are required at this moment to justify an award which, by a number of factors, is above the growth rate. I must say that I agree with my noble friend Lord Robbins that, if we are to proceed at this kind of level, it is difficult to see how this policy is going to reach success in time to avoid the dangers which confront us.

The power workers' dispute was distinguished by one other thing: by a turn in public opinion. All my lifetime I reckon that the public have been broadly on the side of strikes; broadly they liked to see people getting a bit more. We have all wanted a bit more. The Press have always come out with the headlines "Government acts", which generally means that the Minister has offered another 4 per cent., or something of that kind. I have been in Government myself and I have seen these things happen. For the first time, to my mind, in that power workers' strike public opinion began to turn rather heavily against those who were asking for these wages. Not personally; they had no ill-will against them. But they felt, with increasing force, that the public interest, as they understood it, was not being served by demands of this character. I think a very real anger would face a Government which started to show weakness in this particular field at this time.

My Lords, what lessons are to be drawn from all this? I do not think there are many in the general context. As I say, I do not believe we can find complete answers by taking one dispute. I would say that one lesson is that the Government ought to keep their options open. I have said this before, the noble Lord, Lord Robbins, has said it now, and I say it again, that I think that their policy may work in time. I personally support their policy and I have every wish to see it succeed. There are enormous prizes if it does succeed, and the biggest prizes are for the trade union movement. After all, it is in the free bargaining for wages, in flexibility, in the free play of the market and in individual trade unions bargaining face to face with individual managements, that the essence of trade unionism lies. This is what the trade union movement is about. If we are to lose that and go over to some mechanical alternative, then in my mind and I believe in the minds of many trade unionists who think about these things, it is a little difficult to ascertain what their future role is going to be.

I do not want to spend a long time on the alternatives. The noble Lord, Lord Shepherd, said that he would like to see a national policy for incomes, wages and prices. The noble Baroness, Lady Wootton, said much the same, as did the noble Lord, Lord George-Brown. I would only say—I do not want to be dogmatic—that I could not carry it through myself. I have talked to men who have done it. I remember that years ago I spent some days in Moscow, and I had the privilege of talking to the originators and organisation of Gosplan, which was then the big economic planing organisation in Russia, and perhaps it still is. It was a great privilege. They were men of great distinction and ability, and they were very patient with me and answered many questions.

They described how they did exactly what the noble Lord, Lord George-Brown, was talking about. Some production was allowed to rise, in accordance with the way productivity was rising; they were considering output per man-hour and per machine; they were fixing the rates of pay over vast areas. The imagination boggled at the vast economic assumptions that they had to make which underlay decisions of that character. They had great triumphs—do not let anybody underestimate the triumphs of the Russian economy. They had vast disasters, too. If you make a mistake on that scale, it is tremendous. I do not say that these things are impossible, but to contemplate them is a revolution in thinking. Theirs was not a voluntary plan. That somehow or other we could achieve this enormously complex pattern by voluntary means I do not believe is practicable, or at any rate practicable for very long. I shall come to what we may have to do short-term later.

Then what about prices? Even the noble Baroness, Lady Wootton, flinched a bit from that subject. One must have some regard to the realities of the world in which we live. Part of the realities in the little bit of the world where I live is the components in a television set. Just picture what it means to price the components in a television set. And that is a minuscule problem compared to what price fixing really means when you start to delve into it in this country. So I would say to the noble Lord, Lord Shepherd, that there are difficulties about these policies—as there are, let me say, about all policies.

Then the noble Lord says "Let there be growth". Indeed, the noble Earl, Lord Jellicoe, says in effect—and it is one of the good things to say—that we all want growth. All my political life I have been saying that we want growth. It goes better if you stand for growth. It is very difficult to stand against growth. We all want growth. I can think of half-a-dozen things which the Government could do in the next Budget—I am not asking for any reply from the Government—which would encourage growth in areas which interest me very much indeed. I rather share the view of the noble Lord, Lord Robbins, but I should not dare recommend a single one of them to Her Majesty's Government at the present moment, faced with the situation which exists in this country. I hope they will be careful; that is all I would say. For heaven's sake! whatever they do, they should forget anything they have ever said about it. Do what is right in the existing state of the economy at this moment. While it is good to encourage growth and it is good to give incentives, it is even better to recognise that there is a wage inflation which is simply taking control out of our hands at the present time. The first thing is to try to get rid of that.

There are a few short points I should like to make about the general handling of the situation as it is at the moment, and about the trade union movement. There are two things which I think will count for a great deal: one is leadership, and the other is the honouring of agreements. The image of the trade union movement leadership—I am not speaking against individual trade union leaders; we have, in all parts of the House, a great many friends who are trade union leaders—has been a bit tarnished lately. It is suffering a little from the situation which exists at the present time. I hope that no one in this House would condone the refusal to arbitrate where arbitration is in an agreement, and I think it would help if we all said so. I think it would help more if the noble Lord, Lord Shepherd, said so than if I said so.

LORD SHEPHERD

My Lords, if the noble Lord will do me the grace of reading my speech, he will see that I made a special point here. But I stressed not only the integrity and the impartiality of that arbitration but that it is seen to be done with integrity and impartiality.

LORD THORNEYCROFT

My Lords, that is a perfectly fair reply, but where there is a provision for arbitration, do not let it ever be said that in this country there is not the capacity for Englishmen to arbitrate fairly. There is no problem in this country about finding arbitrators who are capable of independent judgment. We have them. But where these things are written into an agreement, then let us all say, from all parts of the House, that they should be honoured. This has nothing to do with legislation. I believe that these things should be honoured if they are in an agreement come to between two sides in industry. I hope, equally, that no one would condone a strike for political purposes. I say this because on Monday last we saw a vast disruption of industry in this country, caused by a union which was opposed, as it was perfectly entitled to be, to a Bill which the Government had introduced, which was largely debated in the General Election and which had nothing to do with any dispute between the two sides of industry in any firm that was involved. I should have thought that that again was something which on all sides we ought to say was wrong. It would help if the noble Lord, Lord Shepherd, speaking with all his authority from the other side of the House, would say so, either now or when he winds up the debate.

LORD SHEPHERD

My Lords, I should have thought that the views of Mr. Vic Feather and the Trades Union Congress were quite sufficient to answer the noble Lord's point.

LORD THORNEYCROFT

My Lords, I am glad to hear that the noble Lord condemns it. The other thing we all understand, though we would not condone it, is that when a trade union leader is faced with a situation in which there is mass support for an unofficial strike, he is in very considerable difficulty. Is he to watch the militants take over and lose all semblance of authority over the union? Or has he, as the noble Lord, Lord George-Brown, suggested, to climb in behind the strike? This is one of the most dangerous and difficult problems that faces us to-day, because in many ways strikes can be led not by majorities but by minorities, and they can be followed by trade union leaders who ought instead to be leading the union. I do not dismiss the difficulties of a trade union leader to-day, but I put my finger on that as one of the biggest problems.

Why do people support such strikes? I think it is for two reasons. They support them, first, for the innate loyalty which people still have for the union to which they belong. This is still the principal reason why people give mass support. But that loyalty is being strained to-day. Doubts are beginning to be widely felt among thousands of people who have been loyal members of unions. Secondly, strikes are sometimes supported by the fear that it will not really pay the workers to have a quarrel with the shop stewards. I am afraid that that kind of support is growing, while the other much better kind of support is tending rather to diminish. There are some aspects of these problems which can be dealt with by legislation—we could debate them for hours—but most of them go beyond legislation. They depend very much on the standard of trade union leadership.

What is the situation which confronts the industrialist now? His view is not a very happy one. He sees a wage-led cost inflation going on around him. For a whole variety of reasons, he is less ready to put up his prices than many people suppose. He is frightened of his competitors. He does not want to lose his export market. He feels that it is a bit of a defeat if he does not manage to get costs down, and many industrialists are perhaps slower than they should be to put prices up. Salesmen are day by day faced with difficult decisions on fixed price contracts, and they have to weigh a contract against the dangers of inflation—very often without an inflation clause written in. In minuscule, the RB211 case is being repeated throughout British industry at the present time.

All these problems are confronting industry and, squeezed between the increasing costs at the one end and the competition at the other, firms are running short of funds to make the necessary investments. They are starting from a position where the output per man is already lower than in a great number of competing countries overseas. The stark facts are that industry after industry has a choice between raising its prices, reducing its manpower or cutting its investment, and many firms are doing all three without an option to do anything else. As a result, the term "inflation" has for thousands become not merely a headline in a paper, but a redundancy notice. That is the case all over the country, and it is not pleasant. Under this pressure of wage inflation, the problem is not met simply by not hiring more people, but by giving redundancy notices to men whose families have been concerned with a firm for many years, sometimes for generations. It is therefore a very grave situation which confronts us.

There is no complete, easy and safe answer to these questions. What we have to do is to secure that all of our policies work in the same direction. I agree with the noble Lord, Lord Robbins, about monetary policy. No one could contemplate the use of monetary policy on the scale that would be required to deny all the inflationary funds at the present time. We could not do it. It would be like trying to slam on the brakes of a railway engine travelling at 60 m.p.h. It would be a disaster. But we have to see that the monetary policy, that the fiscal policy, that all the policies we use work in the same direction. We have to emphasise with all the clarity at our command that agreements which have been entered into should be honoured—and that includes agreements to arbitrate.

We have to condemn actions such as those of Mr. Scanlon, which add to an already difficult situation, with the strike about a debate which ought to take place in Parliament. People should not be marching up and down and staying away from work, because this country cannot afford it. We have to hope, in the interests of trade unionists above everybody else, that the Government's policy of de-escalation will work. If it does not work or does not work in time, then we shall have to adopt some form of wage policy—perhaps temporary, perhaps clumsy—which, in effect, will virtually freeze wages for a period until we have the situation on sufficiently stable lines, in order that we may proceed with safety to the future.

7.9 p.m.

LORD HOY

My Lords, I have listened on many occasions to the noble Lord who has just resumed his scat. For quite a while he was responsible for the Treasury during a period of office in another place, but I do not remember his efforts being crowned with success. I am sure he tried very hard indeed to bring about solutions to the problems that were then confronting the country, but obviously his efforts were not good enough. The speech which he has delivered this evening is rather reminiscent of some of the speeches he made in another place. He always gives the appear- ance of wanting to be extremely fair to all sides, but he then devotes at least half his speech to an attack on the trade union movement, as if all the difficulties of the present situation were the responsibility of that movement. Of course nothing could be further from the truth.

Then he said, "We have all got to support the policy of arbitration"; and I would not dissent from that. But how can he make that claim without adding that the cause of arbitration is not reinforced by a speech from the present Prime Minister attacking the arbiter? Indeed, if the Wilberforce Inquiry have done nothing else they have helped to restore our confidence in the impartiality of tribunals. But when we had the Scamp Report the present Prime Minister went out of his way to attack Sir Jack Scamp. Having behaved in that way, he cannot complain if there are certain trade unionists who have begun to question the impartiality of these arbitrations. I say that as one who supports arbitration and, indeed, as one who would insist that anybody who has come to an agreement ought to maintain it. In the working out of these agreements we sometimes find that we have made a mistake, but it does not matter whether a mistake has been made or not: in my view, if we have put our signature to an agreement, we ought to keep it. So I hope we have made our position perfectly clear in this respect, and I can only hope that others will follow the same line.

My Lords, one of the reasons why I wanted to say something to-day was this. Like the right reverend Prelate the Bishop of Durham, we in Scotland have come through some very difficult times—perhaps very like Durham, certainly like Northern Ireland, and certainly like parts of Wales. To-day, we in Scotland have some 118,000 people unemployed. And it is the recollection of what happened in days gone by that frightens a considerable number of people in the country to-day. I agree with my noble friend Lord George-Brown that one of the disappointing things in to-day's debate was the speech of the noble Earl, Lord Jellicoe. He did not take the opportunity, as I thought he might have done, of laying down something positive, something constructive, that the Government intended doing to meet the present unemployment situation. He refused to do so; indeed, he went on to blame the trade unions again for all the things that are responsible for to-day's inflation.

The noble Earl carefully ignored the steps taken by the Government, who have some responsibility for the present-day inflation. Indeed, this was taken up by the noble Lord, Lord Robbins, who said that one of the things that aggravates the present position is for the nation to see cuts in the tax on the personal income of certain members of the community at the expense of other sections of the community. And let us remember that when the Government introduced their mini-Budget, when the Chancellor rushed to give 6d. off the income tax, he announced at the same time that the rest of the community, who were not going to enjoy these benefits, would be faced with increased prices. Those increases were caused not by the trade unions but by the action of the Government, who increased the price of nearly every school meal in this country, brought about increases in dental charges, in health charges and so on. All these things happened as a result of Government action.

We have also been told by the Government that they propose to change the whole system of agricultural support in this country. I raised this matter in your Lordships' House some time ago. The Government say that they will deduct at least £150 million from these subsidies. Noble Lords are bound to understand that if they deduct this amount from subsidies then somebody has got to make it up at some other point, and the cost will have to be met by the consumer. If, on top of that, import levies are to be imposed, then obviously the cost of living is going to go up. We would be foolish to think that these increases can go on without people, especially the lower-paid, applying for increases in wages to meet that situation. Therefore, if blame has to be apportioned, let us remember what the Government were responsible for, and not seek to fasten it 100 per cent. on the trade union movement. Perhaps both are at fault.

The noble Earl disappointed me a little today. I thought he would say that the Government were going to take some steps to meet the present situation, and indeed what their industrial and economic policy was going to be, because even if one reads The Times of to-day one sees that they talk about the lack of industrial investment. Indeed, as I understand it from to-day's issue of The Times the C.B.I. have arranged a conference with the Prime Minister on Monday to discuss this very problem. The Times says: Mr. Adamson said last night: 'We are very seriously concerned at the prospect of a recession. If Government moves are not made to stimulate investment—while continuing to attempt to keep down inflation—there is a very real danger of serious recession'". I think noble Lords will agree that this is in fact the situation which confronts us. If it is, then the Government cannot escape taking action. Indeed, it gets rid of the argument which my noble friend Lord George-Brown drew to We attention of your Lordships earlier: that no longer can there be this nonsense spoken about no Government interference. Considerable chunks of industry in this country simply cannot live or find the money for investment unless it has the assistance of Government. So that old canard goes by the board, and if Lord Robbins's one in his old Socialist days has gone, then this one from the capitalist side has gone with it.

One industry which I have always regarded as a barometer of trade in this country is in fact the machine tool industry. I served for very many years in another place on the Public Accounts Committee, and when we were going into the subject of investment this was one of the industries that we always took into account. If there is no investment in machine tools, or a lack of investment, it means—and I am willing to give way if anyone will dispute it—that obviously we are not preparing for the days that lie ahead. Unless we can keep our industry up to date, properly equipped and planning for the future, it simply will not go on in an economic way. I was struck by this to-day because in the Guardian of February 18 there was a very long article dealing with this particular industry; and, indeed, the previous Government set up a specialist committee under Sir Richard Way to inquire into it.

The reports from the industry as contained in the Guardian are pretty alarming. The Business Guardian of February 18 contained two reports, one from the industry and one from the specialist committee presided over by Sir Richard Way, and both, I am bound to tell your Lordships, made depressing reading. The industry's own report said that the machine tool trade in this country was the worst for four years; that home orders fell 42 per cent. in the last quarter of 1970; and that export orders in the same quarter had fallen by 21 per cent. The report continued: The severe downturn is still continuing and manufacturers are worried that a combination of the ending of investment grants "— which I shall return to in a minute— and Rolls-Royce machine tools being offloaded on a depressed market will make things even worse". One of the changes that the Government made was in regard to investment grants, and whether that was right or wrong was for the Government to decide. I think that it was wrong, and so does industry, apparently, because they need these investment grants if they are to undertake their work. The Sir Richard Way Committee which was set up by the Government issued a Report which brings out the facts of the case. This Committee recommended that, with the means at their disposal, including their powers under the Industrial Expansion Act, the Government should encourage development and research and finance through the Industrial Reorganisation Corporation. But the Government have got rid of both the Act and the Industrial Reorganisation Corporation. These are the two factors to which the Way Committee referred as being a way out of the difficulty.

I would repeat what was said earlier: that the Government should reconsider their policy with regard to investment grants and certainly with regard to the I.R.C. If they are determined to abolish the I.R.C., then let them tell the House to-night what will be put in its place. Not only Members of this House but industry, too, will be grateful for the information; and no one looks forward to getting it more than the industrial developers in Scotland. There are certain other things that I should have liked to say, but in view of the lateness of the hour I shall cut my remarks.

When the Minister says that we all have to pull together, then I say that in truth the Government have to be seen to take part in this pulling together. It does not encourage the workers of this country to see the Government, in these extremely difficult circumstances, finding time to sell off Thos. Cook & Son, to hive off the profitable sections of the coal industry and to get rid of many things that are bringing income to the Government. You cannot do this and then say to the workers, "You must give of your best because although we are acting in a doctrinaire fashion we do not want you to do the same."

I believe that the country is in a very serious position. I should like to do all I can to help. Like the noble Lords who preceded me. I wish that I could find a solution. I should not care from whence it came. The situation is such that I wholeheartedly support the opinion expressed in the leading article of yesterday's Daily Mirror. You cannot have a continuing process in this country with the trade unions facing up to the Government all the time. They have got to find a solution to the problem. Nor can you have a situation in which employee is fighting employer all the time. The noble Earl, Lord Jellicoe, said to-day that he saw a door that might be a little open. I say that it is the responsibility of Government, even if they are rebuffed, to take a risk and call the various parties together. I think that time is running out, and running out quickly. I hope that the Government will take the lead in consulting with all sides of industry to see whether they cannot hammer out the policy which the noble Earl spoke of and which we should like to see in action in this country.

7.25 p.m.

LORD O'NEILL OF THE MAINE

My Lords, it is perhaps appropriate that I should follow the noble Lord, Lord Hoy, from Scotland, because the part of the world from which he comes has many of the same problems as the part from which I come. Perhaps I am not using the correct Parliamentary expression when say that "my noble friend" Lord GeorgeBrown—for he is a friend—was kind enough to drag me into his speech. But he went on (for with the noble Lord there is always a sting in the tail) to imply that Northern Ireland was much happier with the policies of his Government and Party than they are with the policies of the present Government. But I am already covered on that front (perhaps the noble Lord, Lord George-Brown, was not in the House at the time) because when the noble Earl, Lord Jellicoe, made a general statement about these matters three or four months ago I raised with him the very question as to whether or not this policy of abolishing industrial grants and replacing them with investment allowances would in fact suit us. His reply, and I remember it well, was very valid: that if we could get the economy of the country as a whole right then the regions along with the rest of the country would benefit. That is where this debate comes in and becomes so pertinent.

My Lords, the most frightening sentence in the Wilberforce Report is a quotation on page 33 from a Treasury memorandum: The rate of increase in wage and salary earnings has been the fastest since the short-lived boom immediately after the First World War. It will be readily agreed, at least I think on this side of the House, that over a year ago this fastest rate of increase got under way. We have been told by the former Government that after a period of restraint it was inevitable that the lid would blow off the kettle but that nevertheless their former policies were correct. Others may have drawn a different conclusion and would have said that these things cannot be controlled by reference to some committee or board; that wage restraint will result only from a series of tough negotiations and, if necessary, lengthy strikes. My own view is that it is too early yet to say that this is right. We must all pray and hope that, somehow, this "fastest rate of increase" can be reversed. If it is not, we shall sink further and further from the proud position we in this country once held in the world and presumably risk facing yet another devaluation.

I should like to pose this question to the Government. If, despite all their strenuous efforts to control the rate of inflation which they found gathering speed when they took office, they find that they do not prove entirely successful in their quest, will they then give careful consideration to the possibility of putting something in the place of the Prices and Incomes Board? May I say at this point to the Government that I am not speaking in a vacuum? I have heard these remarks made in the boardrooms. I have heard of management adopting attitudes of this kind, and I think that the Government should appreciate this. It is not only from the other side of the House that suggestions of this kind are coming.

Although we are a Western country and like to pretend that no one needs to have his face saved we do, in fact, have strong similarities with the East in this respect. A board of some kind can be a buffer, a place for problems. To take an extreme example, it would be easy to argue that the United Nations should be abolished because it has failed in its quest to abolish war. But I believe that the world would be in a worse situation to-day if the United Nations did not exist.

There is perhaps a tendency on the part of new Governments to over-react against the powers pursued by their predecessors at the time of their assumption of office. If I may digress for a very short time, my Lords, in this respect I personally regret the abolition of the Conservative-created Consumers' Council. At the least it was very inexpensive. I had lunch with the noble Lord, Lord Donaldson of Kingsbridge, about six months ago in his office. I remember balancing a small carton of cold coffee in one hand and a bit of cold pizza in the other. If I had spilt any of the coffee it would have fallen on to bare boards. The Council was not an expensive organisation, and it cannot really have done all that amount of harm.

My Lords, I praise the Government for courting unpopularity by trying to bring some kind of order into our economic affairs. But I hope they will not rule out the necessity for creating some new organisation, some form of control, if they find that by the summer we are still faced with (I say it again for the fourth time) the fastest rate of wage increase since the First World War.

7.32 p.m.

LORD GRANVILLE OF EYE

My Lords, like the noble Lord, Lord O'Neill of the Maine, I have listened to most of the speeches made during this very interesting debate. I think the tone was set by the constructive and well-reasoned speech of my noble friend Lord Shepherd; and that was followed by the very moderate and reasonable speech of the Leader of the House. The Government have had many warnings from noble Lords who have spoken, including my noble friend Lord George-Brown, who gave a description of what is happening at present to many middle-sized businesses throughout the country. These businessmen are finding it extremely difficult to borrow money at 8 per cent., 9 per cent., or even 10 per cent., and their plight is getting desperate.

At this late hour, I wish to refer to only one aspect. However we interpret the excellent Wilberforce Report, this debate has without any question been about inflation. As nearly all speakers have indicated, most countries have inflation. It has been controlled by the various Governments by all kinds of policies, but no one has yet found a cure for it. The point I wish to raise is one which was mentioned by the noble Lord, Lord Robbins, at the end of his speech. I wonder how much we know about inflation, its causes and its cure. I think that the housewife understands about it when she goes into the shops to buy goods. I think the pensioners, and those people on fixed incomes, certainly understand about it. But I wonder whether those who march behind the banners and take part in demands for increases in wages understand it. I wonder whether the man in the street really understands what the Government are talking about when they refer to inflation.

We are told about it by the Press; we hear about it on "The News at One"; and in the programmes "Twenty-Four Hours" and "World in Action" on television. We get it from debates in both Houses of Parliament, and we are told of it by political commentators. But I seriously wonder whether there is not a breakdown in communication regarding the vital problem of trying to make people understand what inflation is all about. I wonder whether members of the Government, in their speeches at weekends, and interviews on television (the Secretary of State for Trade and Industry appeared last night) can get over to the man in the street that an increase in his pay may be an increase in paper money, but not necessarily an increase in purchasing power; that almost automatically rises are followed by price increases. Does the worker on the shop floor think that when economists like the noble Lord, Lord Robbins, and others, refer to this matter from time to time they are crying "Wolf!"?

LORD WYNNE-JONES

My Lords, will my noble friend allow me to interrupt him to put a question to him on this point? Like other noble Lords, he and I remember clearly the period after the First World War when, far from there being inflation, there was a long period of continuous deflation. Never had there been such misery. I think I am right in saying that since the last war there has been continuous inflation. At what stage, at what point, does inflation become wrong; and at what point is it right?

LORD GRANVILLE OF EYE

My Lords, my noble friend has certainly posed a problem. All of us who can remember the 1931 world crisis, the crash on Wall Street and the miserable depression when nobody had any purchasing power or money, remember it a; one of the most difficult of periods. I believe that the Government have to be very careful not to destroy what has over and over again been referred to in this debate as confidence in trade and industry. Once you lose what is meant by that magic word "confidence" you can never cure anything. The point I am trying to make is that I wonder whether the ordinary trade unionist, who may or may not attend meetings of his union branch, really understands what inflation is all about. Does he believe that industry can absorb increases without tears; and go on with increases in pay without putting up prices, but maintaining business and continuing to make profits?

This debate has shown that many observers believe that economically this country is in a very critical position. There are those who believe that the alarm bell is beginning to lose its urgent sound. There are those who feel that already we are in a state of emergency, whatever the Government may think about it. I saw a statement in the Swiss Press yesterday that we are running into a serious economic crisis and that there would be a National Government under Mr. Enoch Powell. I do not think that is a "starter".

What I am saying to the Government is that I do not think they are getting the message across to the country. We have no Minister of Information. It is true that the Press and television make their reports and try to get the message over to the public. But it is not just a question of getting over to the man in the street what it is all about. Decimalisation went through smoothly because my noble friend Lord Fiske used the media to explain it, and it was understood. What I am suggesting now is that this is a vital problem, the most important one the Government will have to face in their period of office; and they should be explaining to the man in the street, to the people, in simple terms that they can understand—that is to say, in terms of their income, their pay packet and their purchasing power—what inflation is about.

I suggest to the Government that they should give this idea serious consideration. It is not enough for them to suppose they are going to solve it with a "Think tank", important as that may be. It will need an echelon of information and communication which we have not got at the present time. Without this there is a danger that we shall be living in a doctrinaire communication vacuum. If this goes on, we shall be in for a very tough time.

7.41 p.m.

LORD HANKEY

My Lords, I think this has been a remarkable debate for the way in which it has brought out the great consensus of opinion in this House about the serious situation that we are now facing. We started from the Wilberforce Report, and in that connection I agree with its recommendations. I think that they are definitely likely to be inflationary, but in my view there is no present alternative but to accept them. I do not think that in any circumstances we should go further.

I also agree with most of the Treasury Memorandum (Cmnd. 4579), which I thought was of great interest, especially in the emphasis that it lays on the fatal effects of inflation. I believe that the Government are right in saying that the best policy now is to try to get a progressive reduction in the rates of settlement as we go along and reduce them slowly towards the amount by which national production is increasing year by year. We must have some degree of inflation during the period while we are getting back to a state of stability, and the only comfort is that other countries are facing a degree of inflation, too. Their inflation is for the most part not as bad as ours, and unfortunately this goes for our main competitors. The problem of rising prices has been with us for years. I was chairman of O.E.E.C. when the remarkable Report on Rising Prices was produced, the lead in that Report being taken by the noble Lord, Lord Robert-Hall. A great deal of the thinking therein is reflected in the Treasury Memorandum.

It is obviously necessary to have a flexible approach to the link between productivity and wages. I agree with all the things said in the Wilberforce Report on that subject. You obviously have to base any settlement that you make on a national average. But I should like to follow up this rather generalised remark by saying that the conclusion to be drawn from this is that only the Government can calculate the safe norm, because only the Government know what the picture is over the whole country. I do not believe that any individual industry or institute can safely be left to do this: it must be done by the Government. This is the reason why I personally do not like to see the Government standing aside, even to say that they will let "lame ducks" sink.

I think that the norm will have to be agreed with both the T.U.C. and the C.B.I., because the support of both those bodies is essential for the policy to be carried out. It is obvious that we are not going back to a statutory incomes policy (I do not like even using the words "incomes policy" very much) and if it is going to be voluntary, then the C.B.I. and the T.U.C. have to be in on it. Only by a general understanding and cooperation between those two bodies and the Government have we any chance of mastering the situation in the end.

There is, as it happens, an excellent institution in existence—introduced, incidentally, by the previous Conservative Government—in the form of the National Economic Development Council. I believe that the time has come when the Government ought to consider quite seriously making a much bigger development of that institution. The trade unions are accustomed to be there, the C.B.I. feels that it is a natural forum, and I believe that the Government would find it an excellent way of encouraging the sort of co-operation that we are going to need.

I would say here that I have been greatly disturbed to see in one of the T.U.C. papers a reference to the possibility of a system of indexing wages. We all understand that as prices rise we shall all want wages and incomes of all sorts to go up. But if you actually index them it has a strong inflationary effect. This system has been tried out by several countries, and it is interesting that both Finland and Denmark have recently abolished their indexing systems because they found it impossible in those circumstances to control inflationary trends. I do not think that we should fail to learn from those examples.

I want to draw attention to Mr. Jim Mortimer's reservation to the Wilberforce Report, because to me this was of great interest and, so far as it goes, I largely agree with it. The Treasury Memorandum, if one reads it carefully, excellent and orthodox as it is, really offers us a long vista of financial rectitude and, I think, a steady continued industrial decline. Unless we get our industry moving again, I see no reason why our economy is ever going to look up.

I personally welcome very much what the noble Earl, Lord Jellicoe, said at the end of his speech in forecasting a new approach to a growth policy. I hope that I have not misquoted him. I think that we need to have something like that quite soon. We have to face the psychological situation in which we find ourselves. Economics is largely psychology. The rules of economics are different in an oriental bazaar from what they are in Bond Street or in Wall Street, because the psychology of the people is slightly different.

It follows that we have to take the psychology of our country as we find it. You cannot always alter it. We have to face the fact that our workpeople expect a rise in their real standard of living every single year: everybody does. Their needs were pent up by the policies adopted, with I think great justification, by the Labour Government, and for good or ill we have to face the fact that those policies created a situation in which the lid blew off. We have been going through the consequences of the wage explosion for about two years. There is nothing very new in this. Other people have blown the lid off, too. For instance, I may mention that the Netherlands Government had an incomes policy previous to 1963. In September, 1963—I do not know why the computers which controlled the Dutch economy were not winking little red lights—all of a sudden and to the surprise of everybody, the employers and trade unions got together and said: "To hell with the incomes policy, we are going to blow the lid off." And they raised wages 17 per cent. in about a fortnight. Some of this had to be taken out in inflation; some of it was taken out in hurried increased investment and in other ways, but it was a very embarrassing situation. If you screw the lid on with income policies, the lid is apt later to blow off. This is something we have to face. I said at the time that the incomes policy adopted by the Government was probably good economics, but I thought it was politically dangerous. Possibly that aspect came home to roost in our General Election.

But it is only possible to provide for this rise every year in the standard of living if you also provide for economic growth. I agree with what my noble friend Lord Robbins said: I agree with everything that has been said about the dangers of economic growth. The Conservative Government tried it in 1964 and it damaged the balance of payments. The Labour Government have tried in vain to favour economic growth. Mr. Kristensen, the Secretary-General of the O.E.C.D., once said in a speech in my hearing that the difficulty was that nobody knew exactly what a growth policy was. I agree with that. You have to see what is going to be done about it in each case, and, in particular, you have to remove the impediments to growth. I sympathise with the T.U.C points on growth for the reason I have given. It is also interesting that President Nixon has adopted a growth policy and regards it as the only solution for the American dilemma, which is not altogether dissimilar to ours, for it is one of inflation with considerable unemployment.

Coming to economic growth, I should like to "rush in where angels fear to tread" and say a few words on this delicate subject. It has usually been left to officials and economists. If you say to the economists, "How are you going to encourage growth?" they often come around to the idea that you allow an increase in demand in various ways. An increase in demand usually has the effect of increasing imports, particularly in this country. One extraordinary contrast between the German economy and our own is that although the Germans have periodical economic changes, as we do, whenever their economy starts to expand it is always exports that lead and not imports. Why is this? It would be worth a major study. We tried to make a study of it in 1964. We had various papers on the subject, but none of them succeeded in showing us what we should do in order to secure the same psychological conditions in the United Kingdom economy as in the German economy. I have a hunch that another study into Germany, and possibly Japan, would be very well worth making.

If, on the other hand, you leave growth to officials, they will usually propose various investment grants and allowances and otherwise they will mostly rely on putting up various barriers to someone doing something else. The flock of sheep has to be driven in the direction of the pile of mangleworzels, but in the end there are so many stakes and hits of fence between the sheep and the mangleworzels that they cannot find the way to get there. I do not believe that that is much good. As for the controversy about investment allowances and investment grants, it is fair to say that neither has had any great effect. I will come back to investment in a moment.

A policy for growth has, I believe, to be treated on an altogether wider front. Let us go back and see what the problem consists of. Industrial growth depends, first of all, on innovation. We have to be in the forefront of sophistication in this country. It is probably not going to be much good to rely forever on producing the ordinary motor car. We shall probably have to face the fact that other countries, like Japan, are going to flood the markets with the ordinary type of motor car. We ought to be thinking of producing very sophisticated cars in masses for the world population. This depends on scientific and technological innovation. The scientists and technologists ought to be encouraged to have more to do with industry. We have, in my opinion, too much concentration on fundamental science and not enough links between science and industry. We ought to bring in the universities and the great scientific resources of this country. This is something that requires a national effort. A good deal of this has been said before, and I say it again without hesitation.

Then we come to the willingness to apply innovations on the shop floor. This is a very difficult point in our country. It is an extraordinary anomaly, but the more you look to the left politically the more irretrievably conservationist (I do not say conservative) and opposed to change everybody seems to be, when any change has to be made in their working arrangements. The T.U.C. and the trade unions have somehow to be brought into full co-operation over this matter. I do not think they can cooperate until they have been greatly strengthened by the Industrial Relations Bill. I am confident that that will be the effect of it. I look forward to a time when they will be willing to use their greater influence in the interests of opposing stick-in-the-muds on the shop floor, because it is the stick-in-the-muds that we suffer from.

LORD WYNNE-JONES

My Lords, in many ways the noble Lord is referring to a capitalist society and not a socialist society, when he talks about the workers being conservationists.

LORD HANKEY

My Lords, I am referring to the society that we have now. I do not really know which it is. In many ways I think there is more socialism in Great Britain than there is in Russia, for instance. I have been pretty condemnatory about the work-people but in some ways the board rooms are not very much better. With industrial relations as they are, it is almost impossible for management to manage. Until we have set them up with proper control over their own affairs I do not see very much hope. The result of what we have now is shown in the incredibly poor figures of investment.

The United Kingdom, of all the 21 nations in O.E.C.D., comes eighteenth in the percentage of gross national product which is devoted to fixed asset formation. If you take the amount of money per head which is invested, the United Kingdom is still thirteenth. This is a derisory position for us to occupy among the industrial nations of the world. We absolutely must improve this figure. I believe you cannot improve investment until you have improved industrial relation. And you cannot improve investment, either, until you have changed taxation policy.

I should like to say a word on taxation policy. All the emphasis in our taxation is on taxing profits and enterprise. The system is hopelessly complicated and really very out of date. When I was coming into the House to-night my watchful eye was attracted by an extremely smart lady in a trouser suit walking along the pavement in front of me. Then, when I looked again, I was astonished to see that every corner of her trousers was covered with patches of different sizes and colours. That is what our taxation system is like: it is all covered over with patches and nobody can make sense of it.

I believe that we should be reshaping our taxation system to encourage risk-taking investment; and, although the Treasury Memorandum expresses fears about the effect on our balance of payments, I personally think that imports for the purpose of increased industrial investment are good and that we have to face that necessity. And if our balance of payments is good, that should encourage us to do so. Perhaps the same does not apply to imports for the sake of consumption: it may be that a distinction ought to be drawn there.

So perhaps we ought over a period to switch the emphasis in our taxation system to taxes on consumption. In this connection I think somewhat pensively of the value-added tax, used on the Continent, with a refund for exports. As used in Germany it is rather complicated, and I should hope that we could find a simpler system. But we shall in any event have to do this when we join the Common Market. So we might examine the possibility of making a virtue of necessity, and see whether we cannot do a little more to change the emphasis of our taxation system.

I realise the difficulties of this. When taxes are put on goods, and the goods are made more expensive, the cost inflation is fed; because by putting up the cost of goods an argument is provided for all people who want to raise their wages. So this can be done only slowly and over the years. But I believe that this is something which ought to be considered. We must in any case henceforth bear in mind that if we try to reduce demand by raising prices the effect will be to feed the cost inflation, as it has done in the past.

There is another field which, at the cost of making this debate even more discursive, I ought to mention. I believe that the time has come to tighten tip our administration quite considerably. There is an enormous amount of laxness—such as, for instance, doctors over-prescribing drugs. We ought to distribute help only where it is needed.

Take, for example, redundancy payments. I always thought that redundancy payments were to be used to encourage people who were thrown out of work to be retrained for another job. The Americans say that 40 per cent. of the jobs which will be in existence by 1980 are not in existence now. The whole population is going to have to be retrained. The Foreign Service, for instance, recognises the need to retrain people between the ages of 35 and 40. But if we make redundancy payments there is a tendency (I hope that I am not being indiscreet or offensive; I am not meaning to be either) for many people to take a prolonged holiday with the money. It ought to be used for retraining, and I suggest that there ought to be some link between the redundancy payment and the retraining. The whole system of that, and of unemployment insurance, which is an invaluable protection against changes in the economy and a buffer against sudden depressions, ought to be looked at again with this point in mind.

To give another example (this is not a Governmental one at all) take motor car insurance, which is very much up our street to-day. It is common knowledge that if a man goes to a garage and says he wants his car repaired, and lets out the fact that it is on insurance, the price is immediately doubled. Because of this abuse, of course, you and I have to pay a great deal for our motor-car insurance. More ought to be done about it. I do not know that the Government can do anything, but the insurance companies ought to be more severe than they are, although they already press the garages quite hard.

Your Lordships should not think that I am talking only about training the people on the shop floor; I am extremely keen on management training. Until a week or two ago I was Vice-President of the European Institute of Business Administration of Fontainebleau, where we run a course, in English, French and German, for businessmen to learn the very latest techniques which will be applied throughout the Atlantic area. We have a number of brilliant young English people there every year who often take some of the top prizes. This is an excellent idea. We ought to have much more management training in our own business schools.

I like to think that there will be a great deal more training for middle and top management. At the present moment we have in this country a great deal of business training for people coming out of universities or for those who have had a little business experience. There should be much more for management between the ages of 35 and 40. If the Government want to have growth—and they ought to want to have growth—they should try to press forward with this training and see what more can be done, because I am not quite clear that these facilities are adequately used at the present time.

There should be much more trade union training. It is very difficult for small trade unions to train shop stewards and branch secretaries, but it is absolutely vital. It is done in a very big way in Sweden. If only we could have fewer but bigger trade unions, they would all be able to do it in the way in which some of our great trade unions do it now. This is one absolutely vital point, because there are extremely competent and ardent trade unionists on the shop floor who do not know very much about economics; and when the T.U.C. or somebody else tells them that they must be careful not to precipitate inflation, they do not really know what it is about. It is important that they should know. Industrial relations should be more extensively studied by management, too. We are greatly in arrears on this. One thing the Government might do is to bring universities into greater co-operation, both for trade union training and for management training. I am sure we are not using our present training and education facilities in the way most desirable if we are to have a growth policy.

Obviously, we ought to try to foresee manpower needs. It is no good going into a policy of growth which suddenly requires many more engineers if the production of more engineers depends on inflationary rises of pay taking place first. Somebody must try to foresee this situation. All these matters, I believe, are the kind of matters which "Neddy" could usefully be asked to think about. In all this I do not think that the Government can stand aside. The Government ought to be adopting a growth policy, and as your Lordships will see this is not just economics; it covers education and science; it covers all the matters I mentioned at the beginning of my speech. And it has to be done with considerable ardour and energy.

My Lords, to conclude, the cost/inflation situation can probably be cured only in the way the Government propose, but I foresee that it will probably be necessary eventually to adopt a national norm of some kind for wage increases, with the co-operation of the C.B.I. and the T.U.C., and so far as possible it should be based on actually achieved productivity increases. We should not, as we have been doing, count our chickens before they are hatched. If we were to do this it would encourage everybody on the shop floor and in the boards of management to press productivity forward. It is necessary to revitalise the National Economic Development Council and to try to foresee the needs across a really wide front covering economic and financial needs, industry, trade, manpower, education and science. The Government have to face the need for coming into this. I just do not think that they can stand aside. We must be seen to be moving forward. We have to reshape our taxation system to fit the new circumstances. I believe that joining Europe will certainly help, but if we do not work and pay our way we shall in any case become a slum in twenty years—and when I say a slum, I mean a slum. We are at present going downhill by comparison with everybody else. If that happens, my Lords, not only Britain but our Parliamentary and democratic system may come to be at risk. If we cannot do better than we have done, our future may be greatly prejudiced.

8.10 p.m.

LORD SELSDON

My Lords, if one listens to all the arguments put forward by economists, industrialists, trade unionists, institutions, foreign powers, the media and Government—to mention just a few—one can easily become confused and lose sight of the real objective. This real objective—and I hope your Lordships will forgive a naïve oversimplification of an enormous, far-reaching problem—is simply to find the most appropriate way to make this country more Prosperous in the shortest possible time. I look to the Government for management. I do not believe in a policy of "try it and see"; I believe in doing it and making it work.

Having said that by way of introduction, I should like to thank the noble Lord, Lord Shepherd, for putting forward this Motion to-day and to say how much I welcome the way in which attention has been focused on the Wilberforce Report, because I feel that it has been left in the background for some time. I have a very high regard for this Report. It raises many points which are applicable to all sectors of private and public institutions and it goes back to the roots of many of the problems which we are facing to-day. To me, like my noble friend Lord Jellicoe and my noble friend Lord Brooke, the most significant paragraph is paragraph 10.5 on page 32—the paragraph which speaks about a "dangerous condition of spiralling inflation". I will not quote it again, but the words it uses are damning words which to me conjure up a vision of apathy and discontent, poverty and hopelessness, things that I have only read about because I was too young to experience them myself. These melancholia are not synonymous with this great country of ours. I do not think one should ask, "Where did we go wrong?" but rather, "How can we put things right?" I do not believe that we have sunk into the abyss of despair, but I do believe that we are facing an extremely crucial and explosive situation which only positive and extreme action can resolve. In a very short space of time we must achieve renewed confidence, revitalisation and proper exploitation of the very considerable talent that we have in this country.

My Lords, there are many solutions or combinations of solutions which can be put forward but I believe, without wishing to be extreme, that there are only two which could have any hope of success and each of them is at the opposite end of the spectrum. I believe that we have floundered around in the quagmire of economic argument for so long that only fairly dramatic action—I do not say that that is necessarily the solution, my Lords, but it is a first step—can restore the confidence of the people and of industry, and it is upon this need for confidence that I place great emphasis.

On the one hand we can seek success through restriction and control—in short, a prices and incomes policy. While this has its merits—and I cannot present those merits with the same skill and expertise as noble Lords opposite—I do not feel that it is a long-term solution. For a prices and incomes policy to bite effectively at this time would, I believe, require rigid restriction and control in the extreme. It would, I suggest, create enormous discontent and receive little support from industry. It could be totally counter-productive and although applying a brake to inflation I think it would increase stagnation and perhaps destroy incentive and confidence.

Thus, my Lords, I personally dismiss it and move to the other alternative which, as opposed to restriction and control, calls for freedom and leadership. By "freedom", I mean the minimum of Government interference (in view of a remark by the noble Lord, Lord Hoy, I use this word lightly) and, equally important, the minimum of trade union interference in industry—and again I use the word "interference" lightly. By "leadership" I mean the creation of the right environment and the provision of the right incentives which will encourage increased productivity, increased capital investment and the creation of new jobs and opportunities.

My Lords, I do not think there can be any sitting on the fence, and once a course is firmly set, as I believe and hope it is going to be, there can be no going back. For the impact of any positive policy to have any chance of success there will be problems which will need attention and careful handling, and some of these I will come to in a moment. However, I believe it is essential to place the responsibility for success firmly at the feet of industry and to give it the freedom and encouragement it needs to generate renewed confidence throughout the country.

The different industries in this country, in both the public and the private sectors, are becoming more and more interrelated and dependent upon each other as bigger and bigger units are formed. Poor performance by one sector, whether it be due to bad management, industrial disputes or lack of productivity—it does not matter what the reasons are—we know can often have near disastrous effects on other sectors. Short-term support for weakling industries (although I do not propose to go into the argument about this subject now), whether State owned or private, can only postpone and not avert crises unless the basic causes for poor performance are rooted out and resolved.

Here I should like to return to the electricity supply industry, which was the subject of the Wilberforce Report, and to say that I have a very high opinion of this industry. I think, as the Wilberforce Report bears out, it has performed well, it has been a good employer and until recently it has had an excellent industrial relations record. But, my Lords, the industry would have performed even better if it had not suffered from Government interference and had not been tied by Government to another public sector whose performance has been so poor. Here I refer to a point made by the unions, mentioned under Section 7 of the Report, "The profitability of the industry"—the cost of using uneconomic fuels.

The performance of the electricity supply industry is dependent mainly on the cost of the fuel it uses. Some years ago the Generating Boards wished to change from coal to oil. This they felt would be more efficient and more economic—all the more so since good, long-term contracts could have been negotiated with the oil people. But the last Administration said "No", because I understand they feared unemployment in the coal industry. I respect that view. They therefore agreed to pay the extra cost of running stations on coal. This I believe was a mistake, and it turned out to be a disastrous mistake. The coal industy could not deliver, I understand mainly because of absenteeism problems and poor productivity, and the price of coal went up. The electricity industry was at last allowed to switch in part to oil, but too late to get the advantageous long-term contracts.

Despite the fact that the basic ingredient—fuel—has risen in price, and coal, in particular, having gone up by 30 per cent. in the last two years, the productivity of the electricity supply industry has been excellent. Since 1965 the number of units sold has increased by 29 per cent. and the number of consumers by 8 per cent. During the same period the number of staff has been reduced by some 15 per cent., from approximately 220,000 to 190,000.

It is naturally right and proper for Government, like good management, to lay down requirements for their industries in the public sector and to set objectives, bearing in mind numerous factors relating to other industries in both the private and the public sectors. But I believe that, these objectives having been set, the minimum interference is desirable if they are to have any chance of success and eliminate any possibility of "buck-passing". In this connection I urge the present Government not to make this mistake. The electricity supply industry is required by Government to earn a net return of 7 per cent. for the current quinquennium. But with the price of coal having gone up, with oil also going up, and with further increases on the way, the industry must either be allowed to put up its prices or to have its earnings requirements and objectives reduced.

My Lords, I move to the other subject, and again I use the word lightly—the interference by the unions. The subject of industrial relations will, I know, be given a full airing in your Lordships' House in due course, and I will touch on only some aspects of it to-day. In many instances I respect most sincerely the desires and motives of the trade unions, and many of the principles for which they stand. They seek better conditions and increased prosperity for their members, as every employer should for his employees and his shareholders. But, my Lords, they have so mismanaged their affairs that, whether by accident or by design, a situation has been created where, instead of us all working together, an attempt has been made to suck the life-blood out of this country and to destroy the confidence which I personally have in it. I do not believe that this is the intention of anyone, and I put it down to short-sightedness and narrow-mindedness. Union interference—and again I stress that I use the word lightly—throughout industry has done more to destroy confidence and kill pride and enthusiasm than almost any Government action could have done. I find it sad that in advocating any policy I must add the rider that it will succeed only if we can get full co-operation and if people can be diverted from their almost self-destruction.

The current industrial relations problems have, I think—and here I speak with some experience—destroyed the confidence not only of our own but of foreign industries, whom I have been trying to encourage in the last few years to invest in this country. There has been a "wait and see" attitude. They do not have confidence. One finds this when one talks about the North-East, when one talks about the brilliant British labour force, and it is difficult to know why when one is trying to sell a concept in which one personally believes. We have to face it, and I think it has happened, though some of us do not recognise it. And here is another word that can cause it-will and misunderstanding. We have a confrontation between unions and the elected Government, and I think the elected Government must and will win; but here again the word "win" is upsetting, for it conjures up the idea that someone has lost, when we want all to work together. We are all on the same side, and I, for one, as a young member of your Lordships' House, find it hard to understand why people will not say this more often.

I move to what I consider is a very distressing area, the question of unemployment. I do not think there can be any turn-round in the present mood. I personally see unemployment of well over a million. We have to accept that strikes have killed and are killing productivity and creating redundancy. Secondly, industry is, rightly or wrongly, fed up to the teeth with industrial relations, and, losing confidence in the larger labour forces, is often seeking fewer employees of higher calibre and higher remuneration who can generate greater productivity than a larger, lower-paid labour force. I do not necessarily say that it is true that they can, but I think this is the mood, and it is the feeling in the electricity supply industry. Thirdly, the policy I am advocating, particularly that of allowing industry to stand on its own feet, will in the short term cause many companies to go to the wall and create greater redundancy and bankruptcy. But, my Lords, if at the same time the right climate can be created and the right incentive provided, we shall get confidence back very rapidly. Good industries will begin to make the capital investment necessary to bring about expansion and provide more jobs, and they will also attract risk capital and foreign investment. The upward climb will begin, slowly, but then more rapidly.

What must concern us, and it concerns me very much, is the short-term effect of any extreme policy and how to cushion it, with unemployment at well over one million. I attach great importance—and I know this from when I was myself a salesman in the North-East—to the need to prevent apathy from taking hold, to ensure some form of occupation for the unemployed which will allay the depression and boredom surrounding unemployment. I have heard people talk about things which happened in the 'thirties. We must not destroy the pride of our people; we must enable them somehow to have some occupation or something that will dispel their apathy.

Whether this responsibility should be placed at the door of national Government or local authority I do not know, but I believe that within the regions there could be utilisation of some of the manpower available for perhaps a valuable social, rather than an economic, benefit. For example, one might encourage the formation of anti-pollution groups to clean up the countryside, landscape slag heaps and so on. But here I am referring to the medium and long term unemployed. After a few weeks of full unemployment benefit people might be given the option of going on to a lower rate whilst remaining economically inactive, or given the option, while drawing the full rate or maybe even a little more, of contributing to improvement in the environment. It is my belief that those members of the community who are unemployed through no fault of their own would gain from such work in terms of personal satisfaction and self-respect and a feeling that they were making some worthwhile contribution to society. Take shipbuilding, for example, I believe, and shipbuilders I have spoken to believe, we make the finest ships in the world. But they must be allowed to keep up their pride for the future. I do not want to see a continually higher level of unemployment, but I believe it is inevitable in the short term. It is in an area of this sort that there is a dangerous situation which could cause more harm and disaster over a long period of time.

But, vital though industrial relations are to the future of the economy, they must go hand in hand with some change in fiscal policy which will do much to encourage and support industry. Economic arguments could go on continually for and against every method of direct and indirect taxation, and while I do not wish to throw all of them out of the window, I believe that those policies which will have the greatest success are the ones which will provide the greatest incentive and generate the greatest confidence. Whether economically they are right or not, I believe strongly in this feeling of increased confidence throughout.

Finally, I try to find a key, and one thinks about it. But there just is not one, and I put it down to the need for confidence, confidence in Government, which will lead to confidence in industry, confidence between employer and employee alike, and international confidence which will give us greater bargaining power at the conference tables and encourage foreign investment in this country. This successful regeneration of confidence will, I think, depend upon two main issues: industrial relations and fiscal policy. I believe that the argument of power to provide long-term incentives and confidence must take priority over any economic argument relating to the dangers of lifting direct or indirect taxation one way or the other.

I end on a very simple note, the need for optimism and the dangers of pessimism. Optimism can create confidence. It may be a "con trick", we all know, but optimism can create confidence and pessimism can destroy it. I felt rather depressed to-day, although I respect the power of oratory in your Lordships' House. I hope that I have many years to live in this country, and I felt slightly pessimistic with the views that were held. I hope that in a few years' time I shall not be on the scrap heap; maybe I shall have to go and look for retraining. But I am an optimist, and I believe firmly in the ability of the people of this country. I believe that this ability can be properly harnessed to generate prosperity. I believe that the policy of the Government is beginning to work, and I hope that they will stick to it and will show the strength of purpose needed to succeed.

3.26 p.m.

LORD DAVIES OF LEEK

My Lords, may I thank the noble Lord who has just spoken, because I was interested in every word he said. I also knew that, inwardly, he was hurrying an excellent speech to be courteous to your Lordships' House. In fact I was prepared to listen if he had gone on much more slowly, because I thought the speech was absolutely excellent. If he does not think I am being condescending, may I say to him, "Thank you very much"? And, having heard the noble Lord, I tell him, secretly, as somebody who used to draw caricatures, that he has ruined my conception of "Selsdon Man". Having worked in another place and having heard of that marvellous conference, and having made oratorical arpeggios, upon the hillsides and in the cattle markets, of "Selsdon Man", what am I to do now, having listened to an excellent speech like that? May I take the noble Lord's cue and try to make my remarks in about eight to ten minutes, because there is very little fresh that one can say to your Lordships' House.

I would say to the noble Lord, Lord Hankey, that all of us agree about growth, and when somebody asks the very difficult question, "At what point is inflation dangerous?" I would reply that it is dangerous when it begins to eradicate the difference between the classes. A barrister friend of mine earning a very high income said that his father, who was about 90, had said to him, "My boy, you have got to face the fact that the day is going to come when a dustman's income will be only a hundred pounds or so below yours, despite the university education and everything else." In fact that is the trend of modern society. It was Bernard Shaw's equalisation of income point—absolutely. The old boy was very wise, but nobody noticed it. This is the trend all over the world. I do not say that everybody can have equal income, but notice the different connotation and the logic towards equalisation of income.

When we hear people say that the trade union movement should do this and do that, in the name of the Lord above I wish some of the noble Lords on both sides of the House would understand the trade union movement. Let us take the miners—and I come from Welsh colliers and farmers. In the British mining industry—Scots, Welsh, English; even the Irish have helped here—80,000-odd of the men gave up their jobs and were redundant; they moved out. I see the right reverend Prelate the Bishop of Durham—and I apologise to him for having missed his speech. I have listened to nearly every other one, but obviously I missed the best. In that area, and in South Wales, he knew what happened on the closure of the pits. In the Rhondda Valley, which I know quite well—and the Valley is so narrow they used to say that the river runs sideways—when I was a child there were 60 pits. Today there are only two pits in the Valley. What has happened to all those men? They have moved because of the institution by the Labour Government of redundancy payments; and they have done so with less bitterness than ever before.

In the textile industry, 90 per cent. of which is under private enterprise, tens of thousands have moved because of the constructive approach of the textile unions towards this problem. In other words, the trade union movement is not there only for increases in pay, but is one of the levers in society which controls the balance; and the Government had better be very careful what they do with this instrument which has grown pragmatically over 100 years of history and now does a first-class job of work. But if I am not careful I shall find myself answering points, and will not get on to my own speech.

I want to make this point. At page 15 of the Treasury Memorandum (Cmnd. 4579) there is a marvellous graph. I want to ask a question to which I hope the Minister will give an answer. I know that he will because, as usual, he is most courteous. Is the argument, based on that graph n page 15, that average earnings should always be below retail prices? According to the second graph, real wages are five points up. This is put forward as if it is some disaster. I hear sotto voce remarks from my noble friend below me. I had better inform him that the question has gone in the right direction and it has saved a lot of your Lordships' time.

The other question I would put is: how on earth do the Treasury, out of this Memorandum, cook up the magic figure of 10.9 per cent.? There is no mention of percentages in it whatsoever. How on earth do we get such different conclusions? That super-erodite publication called the Economist, using invective that no Welshman would ever use, is reduced to lashing at poor Wilberforce. It talks of the Report as being "vague", "imprecise", "emollient" (there is a euphemistic word for you!) "inaccurate". It reckons that the workers' real rise would be no less than 18 or 19 per cent.; that what the Wilberforce Inquiry has done in this seriously over-manned industry is to award about a 20 per cent. rise above average earnings. I do not know who writes these articles.

But let us turn to Wilberforce, to page 16, where the output per worker represents a dynamic figure. It says The number of manual workers per million kWh. generated fell from 2.4 in 1948 to 0.6 in 1969. That is the operative figure; never mind all the others. Then, at the end of the paragraph it says that in the same period 1967–70 there were 26,000 fewer workers, while the kilowatts of electricity had risen from 11¼ million in 1948 to 18¼ million in 1969, and the consumption per head of population had increased from 830 to 3,450 kilowatts. What I find a damning indictment of this trivial society in which we live is when I watch a programme on television and this man Frost calls on a few people who are not so capable with their tongues and less able to put forward their point of view, and they are made the subject of a trial by television. And along comes a farmer, or some other individual, on television, before millions of people, punching these other individuals. Are we in a punching system of society to-day? This is the dangerous trend that we see to-day.

Two other points and then, despite the marvellous things that I was going to tell your Lordships, I shall conclude. The noble Lord, Lord Hankey, is most capable. I have read his stuff and that of his father before him. He has been in the most responsible positions. Was it not he (or perhaps it was the noble Lord, Lord Thorneycroft) who described the ship as sailing down; and, never mind what promises the captain had made, he must keep the ship on course and he could not take first-class meals down in the dining room. But at present the captain is standing on the bridge like that bravest of men, Captain Brown, who "played his ukulele as the ship went down". He did not have anybody to consult with until Wilberforce came along. And Captain Brown played it by ear. In my classic readings, Gibbon is one of my delights and one of my bedside books—I apologise to the right reverend Prelate for that. Nero was an excellent musician and he played his violin when Rome was burning. It was beautiful music. The Government who are governing this country at present cannot even read the music. I think they have taken a troglodyte attitude to the fundamental and delicate problems that are facing our society to-day.

The time has come for me to sum up. I hope that the House will forgive me if, because of the time factor, I do not get across some of the things I wanted to say. First and foremost, what worries me in the Treasury Memorandum is something which appears at page 3. I will not delay the House by a long reading from that page, but there is the implication in the last sentence that the Government no longer feel themselves responsible for full employment. I want to know if this is true or not. Most of us are old enough to remember the war and the famous Beveridge Report, one of the great and classic pieces of social work of the last fifty years. After we fought that last war, those of us who saw the misery from Scotland right down through Wales and in other places, and in the textile industry, swore that in a Christian nation we would never see again the degradation, the misery and abject poverty, that we saw in the 'thirties, when a man starved to death in the Savoy Grill. He was hungry and one night was found dead. We said "Never again!"

Let us beware, because the young men and women of to-day will not suffer that. In arbitration under the 1919 Act the Hobart Paper on Wage Fixing by the Institute of Economics makes a very fine point. Condensing it into a sentence, it says that when we have arbitration no Government should direct the court to make a decision that they would like. It seems to me that what is happening with Wilberforce is that the Report does not give the answer the Government would like. Never mind that! Forget its promises. Let us begin again, and try to start with a fresh slate to answer these vital problems pragmatically, because no man can answer them completely. He would be a fool if he pretended that he could.

8.40 p.m.

LORD VIVIAN

My Lords, it is always difficult to follow such an able and forceful speaker as the noble Lord, Lord Davies of Leek. However, I shall attempt to do so although not in content, which does not mean that to-day I do not agree with much that he has said. In common with other noble Lords, I should like to congratulate the noble Lord, Lord Shepherd, on the debate that he has introduced. In the middle passage of his introductory speech he referred to what he termed the present fear of inflation, and with regard to prices and incomes he posed the question—-I hope I quote him correctly: "Where stand the interests of the old-age pensioners, nurses and others in these difficult days?"

With regard to nurses, I do not feel that the noble Lord need worry himself unduly. Like the noble Lord, I was somewhat disturbed yesterday when I read in certain newspapers that whereas last week nurses were awarded a 12 per cent. increase in pay, they were now to face an 8 per cent. reduction of their lodging subsidy. Nurses, for whom I have spoken on three occasions in your Lordships' House, are not themselves concerned about this. The nursing fraternity recognise that they have the advantage of considerable subsidies and longer holidays than almost any other member of the community. As things stand, an 8 per cent. reduction of the lodging subsidy is considerably less than the 12 per cent. increase in the nurses' salary. The nurses have accepted the offer made by the Management Side of the Nurses and Midwives Whitley Council, and I can inform noble Lords that it is the considered opinion of Mrs. Yvonne Cross, who is the managing editor of the Nursing Mirror, that the nurses were well advised to accept the 12 per cent. offered by the Whitley Council. Mrs. Cross has told me that she has not heard a whisper of complaint. Indeed, she has told me that one student nurse said to her, "The public do not realise that we are not really as badly off as they think".

We have listened this afternoon to many notable speeches. Among them I would mention those by the noble Lords, Lord Thorneycroft, Lord Robbins, Lord George-Brown, and the instigator of this debate, the noble Lord, Lord Shepherd. Much has been said about the discontent of the workers. I agree with a great deal that has been said and with many of the points that have been made. We must make a definite move with regard to the control of any further inflation and the uncertainty that exists apropos prices and incomes. Speaking for myself, I have complete faith that my Government will move in the right way, and speedily. In resuming my seat, I should mention one other matter concerning nurses, and it is that I hope that my noble friend the Minister, Lord Aberdare, will constantly have before his mind the fact that nurses would, in the future, infinitely prefer to relinquish board and lodging subsidies in favour of a professional salary.

8.43 p.m.

LORD ARDWICK

My Lords, intervening at this time of night, it is a little difficult to avoid being tedious or repetitious. I hope that when I am repetitious I shall not be tedious, because my repetitiousness, if there is such a word, will consist of emphasising some of the points in this debate which I think ought to be emphasised.

I am slightly embarrassed. The debate has been so far-ranging that I wonder whether I really ought to return to the subject of the Wilberforce Report. I must say that I was pleased when the noble Earl the Leader of the House began by praising the excellence of this Report, which had been rather lost in the discussions of whether it was related to 10.9 per cent. or 16 per cent. The court emerges as fair, independent and rigorous. Many people would with today that it had been asked to bring these qualities to bear on the problems of the Post Office. Yet any fair-minded group of men examining any wage claim to-day are up against an insoluble dilemma; they have to judge in one particular case. They are not like a prices and incomes board hoping to have a general influence over wages and a general influence over prices, too, and working to an accepted norm or to a set of principles.

The first problem that a group like this has to face is the rise in the cost of living since the last pay increase was awarded. Even the Treasury admitted by implication, in their evidence to the Wilberforce Court, that this has to be taken into consideration. And that already pre-determines a sizeable increase. The retail price index, as the Treasury said, stood last November nearly 8 per cent. higher than it did 12 months before. So a union whose members have seen their standard of living erode in the past 12 months can hope to-day to see it restored. But how long is it going to be before it is going to be down again? The answer is about one month. So unions naturally, and realistically, are trying to get a bit more, or a lot more, to compensate for a further inevitable erosion of their pay.

That is where national policy has to say, "No". To build in a safeguard against an inflationary future is to ensure that that future will certainly be inflationary. It is, as Wilberforce points out, a self-fulfilling prophecy. The argument can be convincing to the unions, however, only if the principle is universally applied—and "universal" includes, of course, the private sector. But in the absence of a prices and incomes board and a comprehensive prices and incomes policy, there can be no such guarantee.

This is what the employees in the public sector mean when they claim that they are the victims of discrimination. The negotiators at Ford's, like the negotiators at Chrysler's, will settle on a principle different from that of the national interest. They will be concerned with the best long-term interests of their company, a perfectly justifiable principle in the absence of a truly national policy, and with a policy towards the private sector which consists only in exhortation and good advice.

The Wilberforce Report puts it sharply. There are still many who believe that inflation offers a means of increasing their standard of living. This is a fallacy. But wage negotiators are not likely to be convinced to the contrary if wages in other sectors, and prices, continue to rise at a rate beyond the increase they themselves have obtained. So the Court emphasizes, "with some force", as they put it, that staff in the electricity industry cannot be expected to accept settlements on the lines of previous years, unless there is moderation also in other pay settlements and some prospect of growth in their real earnings. The inference is obvious. The Court could not, of course, without going beyond its brief, say out loud what it obviously meant: that you have to have a prices and incomes board of some kind. All it could do was to point to the obvious remedies: "a compulsory freeze", "some overall assessing machinery". "some consultative procedure". But then, having shown the dog the rabbit, they had to turn away because they were trespassing. And then, even when a wage increase to compensate for the past increase in the cost of living has been given to a public sector union, it will always perform less than it promises, because, apart from the common inflation, it will be sharply reduced by income tax.

As I pointed out in our previous debate on the Income Tax Bill, wages which are shockingly low to-day incur tax which is abominably high. And the reduction of the standard rate of tax will hardly touch the tax problem of the low paid worker. But again, the Wilberforce Court, when this point was put to it, quite rightly left it out of their reckoning. Taxation is a matter for Government, not for wage fixers. But it cannot be left out of the incomes/prices problem. Tax has been, I believe, an important element in the wages explosion. The causes of that explosion are complex. We know, as has been said in the debate to-day, that it has been a phenomenon of the whole industrialised world, and not of Britain alone. Those countries which have enjoyed rapid growth, which we have not; countries which have not suffered a devaluation, as we have done; countries which have not endured a wages freeze, as we have done, have found, as we have done, their unions militant and insisting on pay increases far out of line with those of the past. Yet when we discard the international scene and look at our own local conditions we find reason enough for our explosion.

There is a most revealing article in the current number of New Society, by the Professor of Industrial Relations at Cambridge, H. A. Turner, and Frank Wilkinson of the Department of Applied Economics. They take the case of a median worker, married with two children. In 1959, he was earning nearly £690 a year, but by 1970 he had made a most spectacular leap forward to £1,420. He had more than doubled his pay. Yet the gain was largely illusory. It was not something over 100 per cent. as it appeared to be. In real terms it was under 20 per cent. His take-home pay in 1959 was £650, but his take-home pay in 1970 was worth only £770 at 1959 prices. His tax had gone up to 16 times what it had been, in monetary terms, and his social security deductions had more than trebled.

Those authors also examined the case of the local government manual workers—the people who set off the first bomb in October, 1969. Their income between 1965 and 1969, which I must admit were the years of the Labour Government, went up on average nearly 6 per cent. a year, which sounds very reasonable. But the gain in their net real income after tax was exactly zero.

Those authors look, too, at the troublesome electricity workers. They have done even worse. Their net real income over that period was slightly reduced. One has to admit that the higher paid manual workers have done rather better, but over the whole decade even they have gained only 14 per cent. in net real terms—far less than the gains in industrial productivity over the whole period.

What has happened has not merely been an erosion in the value of money. As workers' wages rose their marginal rate of taxation increased sharply, and that is something which did not happen so much to those of us who were earning over £2,000 a year. The authors conclude that the 1970 wages explosion may well represent frustrated, but not perhaps unjustified, expectations. No wonder, when one looks at figures like this, that my Party was defeated in 1970. People could not work out sums, but they knew the truth in their bones out of bitter experience. No wonder the trade unions voted against an incomes policy at the Trades Union Congress in 1969, and no wonder the Conservative Government inherited—as we have to admit—a very difficult problem. No wonder, too, that the postmen, who are among the lower paid but highly taxed workers, have shown such obstinate solidarity.

What are the present Government doing about these very difficult problems?—nothing very constructive, I fear. They decided to wind up the Prices and Incomes Board at a stroke; they turned down the T.U.C.'s Economic Report at a stroke, and there is still no dialogue between the Government and the unions—only a few hints that there could be a dialogue. The noble Earl the Leader of the House referred to a Statement made by the Prime Minister in another place yesterday that he his willing to meet the T.U.C.; and there was a reference to a statement by Mr. Feather in the Daily Mirror this morning that the T.U.C. would like to talk to the Prime Minister. I should like to ask the noble Earl whether the Prime Minister intends to follow up that Statement with a formal invitation. The unions of this country are not very easy to deal with. But they are not impossible people; they are reasonable men.

I was delighted to hear the noble Earl say that, in principle, the Government rather favour a voluntary incomes policy. I did not know at all that this was their attitude. I thought that the gospel, as revealed at Selsdon Park, was against any kind of incomes policy. But if there is a change in thinking we all welcome it. Somehow the Government must get together with the unions and they must not allow two union leaders, powerful though they are, to create the image of the whole General Council of the T.U.C. The Government are not making things any better. In the trade union movement they are turning moderates into militants, and they are doing it far more by their general policies than by their Industrial Relations Bill. In fact, a great deal of the animus against the Bill is really a frustrated feeling against Government policy as a whole.

Where is it all getting us? There was a leader in the Financial Times yesterday, which gave a picture of the state of England in 1971. It said: Despite the Government's firm stand in the public sector, it cannot be claimed that its strategy for bringing wage increases under control has yet achieved more than moderate success. Meanwhile prices are continuing to rise, the economy is not growing as fast as expected, unemployment is moving steadily upwards and industrial unrest is spreading. Consumers are saving more, businessmen are investing less in new plant and equipment. The reason in both cases is uncertainty and lack of confidence in the future. This is the Government of the Party which believed that it had only to come to power to restore confidence magically throughout the entire economy. And yet after nine months in power the Financial Times is speaking of a total lack of confidence in the future.

I think it is wrong of anybody, such as the noble Lord, Lord Robbins, to despair of a prices and incomes policy. That policy failed because, through nobody's fault, it was a fraud. The idea behind it, which made it acceptable to the unions, was that it was a way of creating planned incomes growth. But because of the balance of payments problem it turned out to be a way of planning a wages stop or a most severe wage restraint. The policy could only work against an expansion of the economy: only if there was a real growth of production making possible a real growth of income.

In their document, the T.U.C. said that the Government should look again at the possibility of a rate of growth of 5 per cent. a year. That may be too high; even 4 per cent. makes the Treasury shudder. But that, as Mr. Mortimer points out at the end of this Report, is a very defeatist attitude. Not only the T.U.C. but the whole nation, looking at the rising unemployment, the bankruptcies and the under-used resources, is to-day crying out for expansion. Have the Government not yet learned by experience that their simple idea—we heard so often when they were in Opposition that it is simple—of getting demand right cannot cope with cost-push inflation to-day?

It is years since that eminent Conservative, Mr. Aubrey Jones, so convincingly explained how this conventional wisdom has become conventional nonsense in modern economic conditions. To-day we have stagnation and inflation, and to say that we must wait for inflation to end before we can think of policies for growth—the noble Earl was really thinking over the whole lifetime of this Government when he was speaking his reasonable words about growth: he was thinking in much later terms than the present—is to say that we shall never go for growth, or we shall not go for it until this country is reeling under mass unemployment. The economists will tell us, as the noble Lord, Lord Robbins, said, that to inflate demand is to take a risk. Although demand-inflation is different from cost-inflation, the professionals will tell us that they do not belong to entirely separate categories, that they operate on one another, and we all know that that is true.

There may be a risk, but the risk of going on as we are going on now is a much bigger one; and it is a constructive risk for which we are asking, in place of the present destructive risk which the Government are taking. It is a constructive confrontation that we want between the Government and the unions, not the current destructive one. The Government should confront the unions with a programme of growth and see what kind of a deal they are prepared to give on prices and wages. And let the unions admit that the road that the Government and the unions together are taking us along now is the road to ruin, and that a change of direction cannot be made too soon.

9.0 p.m.

LORD CHAMPION

My Lords, it is usual for a winding-up speaker in this House to say that this has been a truly remarkable debate with speeches of a quality that can be heard only in this House. This is part of the normal courtesies of the House—a courtesy which at times seems to me to have an over-sweet, saccharin quality. But it seems to me that on this occasion such a remark would be wholly justified by the speeches that we have heard to-day. The subject is one that is of vital importance to the country, and the speeches have risen to a height in keeping with the occasion.

I very much regret that attendance at a Committee of the House prevented my hearing what was described to me as a quite remarkable and outstanding speech by the right reverend Prelate. I am told that much of his speech was devoted to the terrible tragedy of unemployment—the unemployment that he feared might rise to a total of one million if we are not careful, and if we do not do something about it. My Lords, living in a development area I am bound to say that I find the present unemployment figures frightening. I understand that since November last the rate of decline of employment in the development areas as a whole has been 35 per cent. greater than in Britain as a whole.

One of the first announcements of the present Government on coming into office was that they were going to switch from investment grants to tax allowances, and, in fairness, I must add that there was to be preferential treatment for the development areas. But, my Lords, the substitution of depreciation allowances for investment grants must reduce the cash flow which is so essential for a newly founded industry and will depend for its advantage on easy and early profitability. I think the noble Lord, Lord George-Brown, was quite right to stress the folly of this decision. I am told that already in Wales, where I live, inquiries for industrial sites are decreasing and opportunities for jobs are down. Only unemployment is rising. Government policies are effecting an upsurge in commercial bankruptcies; and rapidly increasing unemployment, not only in the development areas but in some areas hitherto immune from anything other than job-change unemployment, is pointing to a recession on a frightening scale, reminiscent of the inter-war years.

When the Chancellor of the Exchequer made his first major policy statement in October last I remember commenting that it was the first true Tory statement of policy since the end of the last war, which means the first since the disastrous inter-war years. Since that statement we have had the "lame duck" speech of the Secretary of State for Trade and Industry, and we have had to-day the speech of the noble Earl, Lord Jellicoe, in which he told us that the Government intend to hold fast to the policies which were enunciated by those two Ministers. My Lords, this means that much that has been achieved in the years since the war, by both Labour and Tory Governments, in the management of the economy is to go down the drain, and we seem to be heading for the disasters of cyclic recurring recessions. Fortunately, the pressures of events are now causing the Government to change some of their ideas. Rolls-Royce, Upper Clyde Shipbuilders, the extension of the special development areas and the raising of the operational grant from 20 to 30 per cent. all point to the fact that the chill wind of reality is blowing through No. 10 and No. 11 Downing Street. The Government are learning, and will have to go on learning fast if really big economic disasters are to be avoided.

My Lords, the peg upon which we have hung this debate to-day has been the Wilberforce Report—an excellent Report, an outstanding Report. In paragraph 10.5. the Wilberforce Report points out with truth and force that … the one clear and paramount fact which emerges … is that the country is at present in a dangerous condition of spiralling inflation. … By 'dangerous' we mean a state of affairs which undermines, almost from the start, the real benefit of the wage increases sought, creates social injustices and resentments, and which if continued will threaten our balance of payments and destroy the value of money". Most of those of us who have ever looked at these problems with only half the eye of a Robbins are bound to recognise the truth of that summary of our frightening immediate economic problem. But I am bound to ask: who is going to take any notice of it?

Chancellors of the Exchequer—certainly from Sir Stafford Cripps onwards—economists, politicians, newspapers, television and radio commentators have all uttered the same cry at intervals since the end of the last war. But who took any notice? Oft repeated, it became like the shepherd boy's cry of "Wolf!"; for, just as often as the trade unionist and others heard it, they went out into the street to see ever more and more cars parked in so-called working-class streets; the shops full of people buying things to which they were previously unaccustomed; "holidays abroad" agencies prospering mightily; and everywhere prosperity on a scale which makes our conditions in the interwar years look like dire poverty.

It may be that the Wilberforce cry of "Wolf!" really presages disaster. But the problem is: who is going to believe it? Certainly it will not be believed until intelligent trade union leaders and workers on the shop floor see that we have at least tried to stimulate growth in our economy. This means a deliberate and calculated approach to the problem. The Government must not make any mistake about it: the operation of market mechanisms, free and unrestrained, simply will not work to-day, any more than they worked in the interwar years or the years before 1914 to bring about a society free front boom and slump or to maintain full employment and a prosperous people. To-day, Governments have the tools at hand which will permit them to manage the economy in such a way that demand can be restricted or the pace of growth restrained, or the Government can stimulate demand and investment in the economy in such a way that growth can be enormously stimulated. Both require purposeful management on the part of the Government. What will not work in present-day conditions is what the Tory Government seem to be trying: that is, to let free market mechanisms bring about a reasonably balanced economy with just sufficient unemployment to cure what the Government would regard as the indiscipline of the workers and to lessen the demands of the trade unions. The age-old whip of unemployment in modern conditions will not have that effect. Neither will it cure inflation, as the recent experience of the United States of America has shown.

The Labour Government's decision that their initial task was to cure our chronic balance-of-payments problem was, I think, the right one in the circumstances of the huge deficit left by previous Administrations. This they did by restraining home demand by income and price controls, by holding down our home consumption and making our exports competitive in world markets. This policy had the further effect of keeping our growth rate down to a comparatively low figure—this with serious consequences when eventually price and wage and income restraints were beginning to cease to have any considerable effect. And this was happening at the same time as the policy to put right the balance-of-payments deficit was succeeding.

Obviously the time had come to enter into a new phase: namely, that of stimulating growth in the economy, growth at such a rate as would permit a reasonable expansion of wage and salary incomes—and this is the task now facing a Tory Government. This is the task to which I thought the noble Earl, Lord Jellicoe, was addressing himself when he said that the Government would have to try to stimulate growth in the economy to ensure that the inflation which we now see staring us in the face will at least to some extent be offset by greater productivity, a growth which would to some degree offset the inflation which is affecting us.

But let us make no mistake about it: economic growth of itself will not meet every demand. If you grow at 7 per cent. and incomes from all sources are demanded at 15 per cent., inflation will inevitably reverse the effect of the Labour Government's policies and we shall be back in a balance-of-payments crisis—to say nothing of the serious effect on persons of low and fixed income. Full growth necessitates full employment and, as Germany has shown, even the importation of workers to sustain it at a very high figure. I have said that the age-old whip of unemployment will not work in modern conditions. I agree completely with the remarks of the noble Lord, Lord Reay, on this point. Workers to-day will not put up with the evils of the inter-war years; for they are better educated, more informed, conscious of their power, more determined and led by men who know how effectively to use power.

To-day people do not believe, as in the last century or in the years before the First World War or in the 1920s and 1930s, that poverty and unemployment are the result of natural disasters. A serious recession to-day would be clearly recognised as the result of deliberate Government policy; and because people no longer believe that poverty and unemployment are the result of natural disaster, their reaction may well be more violent than anything this country has seen in many a long day. I do not believe that growth is the complete answer to the immediate problem of inflation: but I do believe that it must be the lead-up to the acceptance by all concerned of a prices and incomes policy. There has been a lot of talk of fear of having a prices and incomes policy again. But, my Lords, we cannot live in the sort of economy that we have unless we have a prices and incomes policy; it will have to come somehow.

As a trade unionist, I have always supported the Trades Union Congress policy of being prepared to co-operate with any Government who seek its co-operation over things advantageous to trade union members. Only by such co-operation within a growth situation can we hope to bring an end to the present disastrous inflation. But the will to co-operate is bound to be nugatory if one side feels that the other is out to destroy it. Rightly or wrongly, this happens to be the feeling of the trade union movement at the moment. My Lords, as I understand it, there has been an offer recently by the T.U.C. to co-operate in dealing with inflation. That offer was repeated in this morning's Daily Mirror. In one of the passages it states: I would put down no conditions on any talks with the Government. I would not expect them to lay down conditions either. The Prime Minister has already said that he would welcome a chance to discuss economic policy with the T.U.C., but he did not issue a formal invitation. I regard it as the duty of the Prime Minister to issue such a formal invitation. I know it is difficult for the Government to do so, but they ought to accept that offer and meet the T.U.C. half-way by dropping the Industrial Relations Bill, at least for the time being; by which I mean that if it is found that co-operation cannot be secured by that means, the Government can always return to the Bill. But at least they ought to try it.

The situation as it has been described in the Wilberforce Report, as it has been described by the noble Lord, Lord Robbins, by the noble Lord, Lord Thorneycroft, and by other speakers today is a dangerous situation for the country. If the situation is so dangerous, at least we ought to take exceptional measures to try to meet it. I believe that those exceptional measures include meeting the Trades Union Congress half way in an endeavour to secure that we get the co-operation of about the only body that can hold out any hope at all of curing the difficulties which are facing us. My Lords, recent events have shown how strong is the feeling in the trade union movement against the Bill. It makes real co-operation impossible until the Government make a major concession.

It might appear from what I have been saying that I accept the point of view that spiralling inflation is wholly due to wage and salary increases. That is the point of view that newspapers and others would have us accept. Indeed, reading the Wilberforce Report one might be forced to the conclusion that the Wilberforce Committee were of that opinion, were it not for a single sentence in paragraph 10.12: Nor is it to say that increases in pay are the only cause of inflation. The word "only" is italicised. Mr. Mortimer deals with this aspect more fully in his Note of Reservation. I do not accept that inflation is due solely to pay increases, but I thought that this was what the noble Earl, Lord Jellicoe, was telling the House in his speech. Neither does the Trades Union Congress, which has examined the 11 per cent. retail price index between the end of 1967 and the end of 1969 and has estimated that 2 per cent. of that was due to increased indirect taxes—the point there being made by my noble friend Lord Ardwick; 3 per cent. to import costs; 0.6 per cent. to capital costs; and 3.4 per cent. to charges and salaries. If the T.U.C. estimate is correct—and I have no reason to doubt it—something less than one-third of that 11 per cent. price rise was due to pay increases.

In apportioning blame for inflation, I am bound to say that the prevailing high rates of interest not only shock me, but must also, with prevailing land prices, bear a heavy responsibility for the existing general climate of opinion about the value of money. The cost to companies of new borrowing and renewing existing loans is creating inflationary pressures down through the whole of industry; and undoubtedly the cost of borrowing is having an inflationary effect on rents, which in turn leads to wage and salary demands.

In 1968, the average rate of interest on debenture and loan stock was 8.24 per cent.; in 1969 it was 10.30 per cent., and in the first 10 months of 1970 it was 10.45 per cent. How much and by what percentage such outrageous rates of interest will increase the final cost of a product will depend on the product, but it will certainly appear somewhere in this computation, as will the local authority borrowing on loans, which, although they contain scarcely any labour element, have also gone up faster recently than nearly every other item that appears in the retail price index. High rates of interest have another effect, which may be making sterling look good internationally, but it attracts much too much "hot" money for my liking. For not only is it an unstable element in our economy, but we have to pay the interest on it. And this fact, added to the inhibiting effect on investment of high rates of interest, calls for early action by the Government.

What has emerged from this debate is that there is a general acceptance of the fact that upward spiralling inflation is threatening the whole future of this country. There is disagreement, perhaps, about the causes and events which have led up to our present economic situation, but there is a wide measure of agreement that something must be done by Government and others about it. The Government by themselves cannot solve this problem. For it is the sort of situation in which only Government in co-operation with the people can hope to do that. Meaningful talks with the representatives of a large and important section of the people, namely, the T.U.C., might mean for both the T.U.C. and the Government a delibate retreat from the fixed positions already taken up. But, my Lords, it is worth trying. I urge the Government to try it in the interests of the future of the people of this country.

9.24 p.m.

LORD ABERDARE

My Lords, I am sure that the noble Lord, Lord Shepherd, will feel that he has succeeded in introducing an extremely interesting debate. It is one in which he set, if I may say so without presumption, a moderate tone, with a carefully thought-out speech, which has been followed by many noble Lords from all sides of the House. I should like to associate myself with the tribute your Lordships have paid to the noble and learned Lord, Lord Wilberforce, and his colleagues for their Report, which has come in for a great deal of praise from all sides.

The debate has not stuck particularly closely to that Report, but has ranged over such subjects as management, training and the Consumer Council among others. The noble Lord, Lord Shepherd, called this an economic debate, and so indeed has it turned out to be. We have covered a very wide spectrum of every aspect of our economic affairs, broadened early on in the debate by the speech of the right reverend Prelate, the Lord Bishop of Durham, who gave it moral and social dimensions. At this hour of the night I hope that he will forgive me if I do not follow him in quite so wide ranging a speech, but I know that your Lordships appreciated his contribution, and it was valuable to have these other aspects of the matter brought in at an early stage.

Since then, many of your Lordships have made extremely valuable contributions from all sides of the House, and I would agree most warmly with the remarks of my noble friend Lord Thorneycroft when he said words to the effect that facing a situation as grave as we do at present we cannot but welcome any words of helpful, constructive criticism from wherever they may come. And surely your Lordships' House will agree with the noble Lord, Lord Champion, that this is an ideal forum for a debate of this sort. Although I regret that I shall not be able to comment in any detail on most of the speeches that have been made, I can assure your Lordships that we will look at them and study them with great care.

My noble friend Lord Brooke of Cumnor, who made a most valuable contribution to the debate, said that our policy must cover the whole economic scene, and not simply a so-called prices and incomes policy. This was what I hope your Lordships will agree my noble friend Lord Jellicoe did at the beginning of the debate in giving your Lordships a wide-ranging account of Government policy throughout the field. I hope your Lordships will agree that as he gave such a thorough exposition of Government policy it might be better if I were to cut my remarks fairly short and achieve perhaps a slight de-escalation in Front Bench speeches.

I apologise to those noble Lords I cannot mention, but there are one or two speeches I should take up, and one or two points that were specifically asked of me. I cannot resist starting by commenting on Lord George-Brown's speech which, naturally, like all his previous speeches, was very enjoyable. I thought he was very unjust to my noble friend the Leader of the House in his reference to my noble friend's speech, which I think the rest of your Lordships found to be of great interest, and a very thorough exposition of the Government's thinking on this subject. However, he did not think so. He then went on to give us a lecture on the prices and incomes policy as he saw it, as if he had himself been the author of such a successful policy. I tried to make out what his recommendations to us were, and it seemed to me that he was saying, "Bring back the Prices and Incomes Board, the Industrial Reorganisation Corporation, investment grants and the whole kaboodle". And maybe even the noble Lord himself might return, now that he has become an industrialist rather than a trade unionist—

LORD GEORGE-BROWN

Is not that silly?

LORD ABERDARE

But I really did not think—

LORD GEORGE-BROWN

Is not that rather silly?

LORD ABERDARE

—that his speech contributed very much to the positive policies that we are trying to pursue.

LORD GEORGE-BROWN

I am sorry, my Lords. Would the noble Lord please forgive me? Would he not like to rethink that last remark? I was trying to help. I gave some advice which I thought Ministers in the present situation might like to think about. Was that not a rather cheap remark, even for the noble Lord, Lord Aberdare, to make?

LORD ABERDARE

My Lords, I do not think we will pursue this any further. The noble Lord was not all that kind and considerate about my noble friend the Leader of the House, and I do not think he deserves more than he gets back.

LORD GEORGE-BROWN

Just cheap. That is why you are failing.

LORD ABERDARE

Other noble Lords mentioned various aspects of regional development policy, particularly those of your Lordships with interests in the regions—the right reverend Prelate the Bishop of Durham, the noble Lord, Lord Hoy, the noble Lord, Lord Davies of Leek, my noble friend Lord Selsdon, and the noble Lord, Lord Champion. I would say straight away that it is certainly no part of our policy to create unemployment. The sad figures of unemployment are rising because of inflation, and we shall do all we can to put that right.

We have, and we are committed to, a vigorous and flexible regional development policy as an important component of our overall economic strategy. We have identified within it three major fields for action which I think are familiar to your Lordships. One, of course, is the replacement of investment grants by investment allowances, on which many of your Lordships have commented. I can only draw your attention, as the noble Lord, Lord Champion, did, to the fact that the Chancellor of the Exchequer announced on February 18 that the operational grants in the special development areas, under the Local Employment Act, have been increased to 30 per cent.

Secondly, we have carried out a detailed investigation of the extent to which the coverage of the assisted areas continues to reflect the real pattern of need. As your Lordships will know, the Government have decided to give special development area status to West Central Scotland and to the Tyneside-Wearside area, and to extend special development area coverage in the South Wales valleys. I hope this action is positive proof that we are concerned about our regional employment policies. We are also paying special attention to the provision of infrastructure and improvement of the environment in the development areas.

The noble Baroness, Lady Wootton of Abinger, was critical of our present approach of reductions (I think she preferred the word "reductions" to "de-escalations") and said it was likely to be more unfair than a freeze. I do not believe this to be so. The present approach is, or should be, more flexible than a freeze. It is to reduce the general levels of settlement progressively, and does not exclude exceptions to this progression where there are special factors—for example, in the case of the police. My right honourable friend the Secretary of State for Employment has indicated that there is a case for above-average percentage increases for the lowest paid workers, provided that these are net followed by identical percentage increases for higher paid workers to restore differentials. I listened with great interest to the noble Baroness's own proposals, which had clearly been most carefully thought out. I regret to say that I personally found them rather too mechanistic and complex, and they would certainly involve a degree of statutory intervention which went far beyond the last Government's proposals.

The noble Lord, Lord Davies of Leek, asked me a number of questions. I have the answer to one of them, but perhaps I may let him know later about the others. He asked about money earnings. In the immediate situation we must rapidly reduce the rate of growth of money earnings if we are to bring down the rate of growth of prices. Failure to do so will threaten both future growth and existing standards of living. But, as my noble friend the Lord Privy Seal said, it is a major objective of the Government's policy to increase the rate of growth of real earnings in the lifetime of this Parliament.

I am grateful to my noble friend Lord Vivian for his remarks on nurses, and I listened with interest to what the noble Lord, Lord Ardwick, and the noble Lord, Lord Champion, had to say about the T.U.C. and the Prime Minister. I think my noble friend Lord Jellicoe went as far as it is possible to go to-day on this matter in repeating what the Prime Minister said yesterday, that he was willing to discuss economic policies with the T.U.C. at any time if they wish to do so. But, of course, as I think the noble Lord, Lord Champion, certainly realised (I do not think the noble Lord, Lord Ardwick, made quite that point) Mr. Victor Feather, in his Daily Mail article—

SEVERAL NOBLE LORDS

Daily Mirror.

LORD ABERDARE

I beg your pardon, my Lords—the Daily Mirror. Many apologies. In his article in the Daily Mirror he said: Let the Government put the Bill to one side and get down to real issues".

LORD ARDWICK

My Lords, we must never be dismayed if an olive branch has one or two thorns on it.

LORD ABERDARE

My Lords, the debate as a whole has accepted that there is indeed a real danger of serious inflation which threatens our standard of living, and no one who has spoken has underestimated the gravity of the present situation. I found that the speech of the noble Lord, Lord Robbins, summed up the situation far better than I could possibly do, and I found myself in total agreement with the analysis that he gave. This included the fact that the cause of the present inflation is the very rapid rise in wage costs, far and away beyond what could be justified by increased productivity. Moreover, it is an unfortunate fact that a wage cost inflation feeds on itself. Higher wage costs lead to higher prices; higher prices lead to demands for higher wages, and so on.

This was the situation which faced us when we came into office. The previous Government's prices and incomes policy had collapsed, prices were rising rapidly month by month and pay settlements were running at a rate of more than 10 per cent. It was in those circumstances that we had to decide which of the alternative policies open were best suited for controlling the situation. Statutory control of prices and incomes had been demonstrated to be a failure, despite the efforts of the Labour Government.

May I quote the O.E.C.D. survey of the United Kingdom, published in November last, which stated the position with great clarity? It said: The overall impression is that policies have been able to restrain prices and incomes over relatively short periods. The greater the degree of pressure the authorities were in a position to apply, the more immediate and dramatic was the effect. But in periods of restraint stresses have built up which have finally broken through and led to a rebound of wages and prices. Over the longer run therefore it is doubtful whether the net effect has been more than mildly beneficial. The alternative was to use every means consistent with our general outlook on economic affairs, short of statutory interference, to bring about a progressive and substantial reduction in the level of pay settlements. That has been our object; and although there is still a hard, long road to run the upward spiral has been checked.

We have been told to-day, and we have been told in Parliament and outside, that we have not got a prices and incomes policy, or that we have a negative policy; or (as I think the noble Lord, Lord Shepherd, said) that we are running away from such a policy. And we have been urged to produce a positive policy. I would suggest that the words "positive" and "negative" in this context are being misused: "positive" to mean a formal prices and incomes policy with all the paraphernalia of norms and criteria, and "negative" to mean non-statutory action. Of course we have a positive policy, but it does not extend to statutory control of prices and incomes. We have urged upon employers and employees, in both the private and the public sector, the importance of restraint in wage settlements; and in the public sector, where we have a special responsibility, we are using all our influence to prevent excessive settlements.

My Lords, as I said at the beginning and as my noble friend Lord Brooke of Cumnor stressed, in the fight against inflation it is very important to consider the whole of the Government's economic policy, not just that related to prices and incomes. Fiscal policy is clearly important, but with the nearness of the Budget I regret that there is nothing much I can say about it this evening. So is monetary policy, where three alternative courses were open to the Government. First, a neutral monetary policy, seeking to control inflation by not allowing the money supply to grow more than enough to finance the annual increase in output arising from increased productivity. Such a policy would no doubt check the current inflation at a cost, but the cost would be far too severe—business failures, increased unemployment and a general check to production and investment, which I am sure would be quite unacceptable to all your Lordships.

Secondly, we could pursue a passive monetary policy, simply to allow money supply to grow to whatever extent was needed to finance the growing demand for cash and credit. But this would simply aggravate the problem and would do nothing to help its solution. So, in our view, the monetary policy appropriate to the present situation is that which this evening was approved at least by the noble Lord, Lord Robbins: one that does not passively provide the amount of money needed to underwrite the going rate of inflation, but something less; equally, not one that seeks to be sufficiently stringent to curb inflation by itself. The main remedy must lie in the reduction of wage settlements, and the main role of monetary policy in the circumstances must be to ensure that cost inflation is not aggravated by the emergence of excess demand. This is the Government's policy. It is a positive policy, but it is one that stops short of statutory control.

My Lords, there is one more plank in our policy that has a bearing on the solution of these economic problems, and that is the Industrial Relations Bill. In view of the fact that we shall no doubt be spending a good deal of time on this Bill in the near future, I do not think it would be right to go into it in detail now; but I feel sure that it will strengthen the hand of the responsible trade union leadership. And anything that improves our wage-bargaining procedures, anything that increases responsible trade union influence and restrains the activities of wildcat strikes, is bound to be of the utmost benefit.

I have referred to the O.E.C.D. survey. I was interested in one particular part of that, where it confirmed what others of your Lordships have said this evening: that we are not alone and that most other countries have also been suffering from rapidly increasing costs and prices. But the survey went on to say that a number of these other countries are taking active steps towards a restoration of more stable cost/price trends. I have tried to find what those other countries were doing, because it might be a lesson to us, and further on in that same survey there is a significant sentence discussing the Industrial Relations Bill. It says This should introduce into the United Kingdom framework some of the aspects which have been useful abroad". This we indeed believe to be the case.

My Lords, I will come to a conclusion. I hope that all of your Lordships feel that we have had a useful debate. I hope that my noble friend and I have at least been able to answer some of the questions that have been put to us. We are only too ready always to discuss new ideas new policies designed to solve this most pressing problem. But in our view our present policy in dealing with the immediate problem with which we are faced is the best. We believe that it will work. I personally have been encouraged by various speeches that have been made to-day. Again, if I may refer to him, the noble Lord, Lord Robbins, thought that there was quite a good chance that these policies would work.

LORD WYNNE-JONES

My Lords, would the noble Lord forgive me for one moment? Does he recollect that about five years ago the noble Lord, Lord Robbins, informed us that the policies of the then Government were going to work because of their method of tackling the problem of the balance of payments?

LORD ABERDARE

My Lords, I am sure that the noble Lord, Lord Robbins, is a wiser man to-day than he was five years ago. I was also much encouraged, and I recognise it as most important, by what was said by another Member of your Lordships' House, that the important thing is that if we can get this system to work it will be to the advantage of everybody: it will be to the advantage of the trade unions and to the advantage of the Government not to have any kind of statutory interference. We feel that we have the right policy, and we hope that we shall be able to steer this ancient ship of State out of the present dangerous rapids of inflation into the calmer waters of economic progress.

9.47 p.m.

LORD SHEPHERD

My Lords, at this late hour I think I must limit my remarks. I should like to do three things. First, I should like to thank all noble Lords who have taken part in what, on the whole, has in my view been a notable debate. I agree with the noble Lord, Lord Thorneycroft, in that at one moment I wondered whether I was right in putting this Motion in this particular form. In the end, think I was right.

Then I must congratulate the right reverend Prelate and say how much we on this side of the House—not enjoyed, because I think that in view of the sombre note of the right reverend Prelate, to say one enjoyed his speech would be wrong: but how much we appreciated all that he said. I am certain that those in the North-East must feel very happy that they have a great battler on their behalf in this House of Parliament.

I can only say to the noble Earl, Lord Jellicoe, that I thought his speech one of great complacency. I will add only this. I deliberately kept personalities out of my speech. Since the opening of this Session we on this side of the House have been particularly careful in this respect. I should tell the noble Earl that if he once again brings into this House, no matter how amusing he may think it to be, what we on this side regard as a cheap sneer, then the gloves will be off and your Lordships' House will suffer as a consequence.

So far as the noble Lord, Lord Aberdare, is concerned, I think it rests with him to decide how adequately he answered the debate. I only ask him to read what my noble friend Lord George-Brown said. It may be that the noble Lord was unable to take in my noble friend's points. I think that if he had taken them in he would not have replied to my noble friend in the way that he did.

LORD ABERDARE

My Lords, I do not wish to cause any of your Lordships any offence. The noble Lord, Lord George-Brown, had some rather tart things to say about my noble friend, and I thought I was legitimately entitled to answer him back.

LORD SHEPHERD

My Lords, I have no objection at all to tart remarks being made in reply to tart remarks; but I thought that the noble Lord's attitude to the speech of my noble friend showed that either he did not take it in or that he could not have appreciated the points made. But I would not wish to spoil what I think has been a good debate by unseemly scenes. My Lords, I beg leave to withdraw my Motion for Papers.

Motion for Papers, by leave, withdrawn.