COUNTER-INFLATION (PRICE AND PAY CODE) ORDER 1973

HL Deb 16 April 1973 vol 341 cc902-67

2.55 p.m.

THE MINISTER WITHOUT PORTFOLIO (LORD DRUMALBYN)

My Lords, I beg to move that the Counter-Inflation (Price and Pay Code) Order 1973, which was laid before Parliament on April 2 be approved. Your Lordships are neither unfamiliar with the purport of this Order nor unaware of its importance. It is in effect the book of rules which all who fix prices and charges and all who negotiate pay settlements are expected to observe and which the Agencies set up under the Counter-Infiatiorl Act are to see are observed during this and the coming months. It is the means by which the objective of curbing inflation (to which I believe we would all subscribe) is to be implemented; for we all recognise that we must achieve that objective if our real living standards are to continue to rise and if we are to avoid serious hardship for large sectors of the community.

The making of the Order brought into operation from April 1 Part II of the Counter-Inflation Act. That is the Part of the Act which gives powers to the Price Commission and the Pay Board to restrict increases in prices and pay. It fitted in with the ending of the general standstill on pay, though the standstill on prices is continuing until April 29, so as to enable the effect on prices of the abolition of S.E.T. and purchase tax and the introduction of V.A.T. to be more effectively monitored.

There has been the widest possible opportunity for consultation on the proposals for Stage 2 of the counter-inflation policy. On January 17, the Government published their White Paper containing their broad proposals on Stage 2 of the counter-inflation policy. The aim was to put a ceiling on pay increases and at the same time to control price increases through a system of allowable costs and to secure price reductions where appropriate while safeguarding investment on which future growth depends. These proposals were debated in this House on February 5. That debate and the debate in another place formed part of the consultation process. Since then there has been a Green Paper and another White Paper. At every stage there has been the widest opportunity for consultation and pay including the debates in the course of the passage of the Counter-Inflation Act.

My Lords, I have given this background to make clear the almost unprecedented steps that the Government have taken to ensure that everyone affected—employees, employers, consumers and legislators—should have a chance to express their views and that the implementation of the policy should be as equitable and as generally acceptable as possible. Before I take stock of the differences between the original proposals outlined in the January White Paper and the provisions in the Code, I should like to say something of the fourth aim of the policy. The first aim was the resumption of wage negotiations subject to a fixed ceiling; the second the control of prices through allowable costs—which itself should stimulate competition; the third the safeguarding of investment; and the fourth is improving the position of the low paid.

Throughout the tripartite talks last year and again during the consultations on the Price and Pay Code, the Government have consistently stressed the importance of this fourth aim. It is a fundamental aim of our policy. The combination of cash and flat rate elements in the pay limit is specifically designed to help the low paid and should provide a better deal than a single percentage limit. How the sum available within the pay limit formula is to be distributed is a matter to be decided by negotiators. But let me stress once again—the Government expect negotiators to weight increases in favour of the low paid wherever possible.

There are other aspects of the policy which are intended particularly to benefit the low paid. As a move towards equal pay the differentials that existed between men's and women's rates at the end of 1972 can be reduced by up to one-third, outside the pay limit, during Stage 2. Improvements in hours down to 40 per week, net of meal breaks, and in holidays up to three weeks a year may be negotiated outside the pay limit. These are likely to benefit the lower paid in particular.

We are now considering the proposals—first made during the tripartite talks last Autumn—for establishing machinery to study ways in which the efficiency of low paid industries could be improved. We shall also be looking at the question of threshold agreements, which can be particularly important in protecting the living standards of low-paid workers. All this, of course, marches side by side with the help that the Government have been providing for those with low incomes, by way of family income supplement, which has just been increased and is to be increased further in October, by way of rent rebates and allowances, increases in national insurance benefits and the holding down of national insurance contributions of the low paid.

I turn now to the evolution of the Code itself. Let us consider first the prices side of the question, for restraint on pay is acceptable only if it accompanied by parallel controls on prices to ensure equity and effectiveness. The main principle laid down was that prices may be increased only to the extent that allowable costs increase, and that they should be reduced if allowable costs fall. Allowable costs were strictly defined—I am talking of the original proposals—and moreover part of any increase in allowable labour costs was to be absorbed to ensure that consumers benefit from increased productivity. In addition there was an overriding limit: namely, that profit margins should not exceed the average of the best two of the previous five years, and there was a requirement for abatements in allowable costs or for price reductions where the profit margin limit was likely to be exceeded. In operating the price controls, the gross percentage margins of distributors (that is, wholesalers and retailers) were to be held at their recent level, and again this was to be backed up by limitations on profit margins. If we look at the Code, we can see that these provisions remain as the central elements of price control, with minor alterations in the periods with which comparison is to be made in order to remove obvious unfairness; for example, in the case of distributors' profits.

The main developments in the policy as set out in the Code Order, compared with the original policy statement in January, are designed to ensure that the price controls do not hinder investment, and to recognise the high proportion of labour costs in some industries, particularly services. On the latter point it was proposed in the Green Paper that enterprises should absorb 50 per cent. of allowable labour cost increases. After discussion with those concerned, it was agreed that where, as in the service industries, labour costs exceed 35 per cent. of total costs, a reduced productivity offset would apply to ensure that those industries are not treated more harshly than those whose labour costs are a lower proportion of total costs.

I hope that the noble Lord, Lord Rhodes, will feel that we have gone a considerable way to meet the criticisms which he made of the productivity deduction provision in the Green Paper, when he spoke on the Second Reading of the Counter-Inflation Act. He will have seen in the Appendix to the March White Paper a table showing that, while an enterprise whose labour costs amount to 35 per cent. or less of total costs will still have to restrict to 50 per cent. the proportion of permissible pay increases that they may pass on in the form of increased prices, the productivity deduction that enterprises whose labour costs exceed 35 per cent. will have to make will be reduced on a sliding scale, so that those whose labour costs represent 78 per cent. or more of total costs will have to deduct only 22 per cent.

In developing other aspects of price policy, the Government have sought to balance various needs: the need to ensure continued expansion of output, the need to avoid commercial distortions, and the need to make the policy easy to understand (so that enterprises can be self-policing as far as possible), against the overriding need to reduce the rate of increase in prices. So, for example, there are now special provisions both for loss-making enterprises to raise prices to cover their costs and for enterprises in a low profit situation to earn some return on capital so that output and employment are not threatened.

My Lords, the C.B.I. represented to us strongly that the base date for calculation of allowable cost increases, initially proposed as November 6, 1972, should be modified to take account of cost increases absorbed by industry during the C.B.I. price restraint programme. The Government are the first to acknowledge how valuable the price restraint programme was last year. But we considered, and we still consider, that to give a general concession to industry on this point could undermine the effectiveness of Stage 2 as a whole, just as special case treatment on the pay side would also threaten the success of the Stage 2 policy. So while the base date has been advanced in the Code by a few weeks to September 30, 1972, we felt that there could be no further concession on the date. However, the Price Commission's discretion to override the limits on prices and profits, if their application would deny an enterprise funds necessary for investment or reduce them to an unacceptably low level, has been extended to cases where the company absorbed cost increases to an exceptional degree in the twelve months up to September 30, 1972, in implementing voluntary restraint.

Nationalised industries have also, with full Government approval, held down prices, for nearly two years, at a heavy cost to the taxpayer. The Code allows prices to be raised in future by amounts sufficient to prevent deficits increasing, but not by the greater amount needed to eliminate losses, though a comparable private sector enterprise could do so. However, even in these circumstances the responsible Minister can prevent price increases designed to hold the deficit if he considers that these would have an unacceptable effect on the general price level. The burden of holding down prices in this way has inevitably to be carried by taxpayers. It is a burden which cannot be increased too far without serious effects for the economy.

There are a number of other detailed provisions also designed to make the price policy more effective, but I will confine myself to only one more before I turn to pay. A new provision has been included in the Code to help to moderate the rate of increase in prices during Stage 2 by ensuring that enterprises will not be penalised if they delay price increases. The recovery of allowable cost increases incurred after April 30, 1973, by delayed price increases is permitted as long as this is spread over a twelve-month period. Thus there will be less pressure to increase prices the moment that allowable costs rise, or the moment that Stage 2 begins. Further allowable costs that are already known may also be taken into account.

There were six new articles in the March White Paper dealing with banks and finance houses and the like. These now appear as Articles 83 to 88 in the Code. The principle adopted in this case is that in those activities where the allowable cost and limitation on net profit margin régime applicable to other enterprises is appropriate, it should also apply to banks and finance houses; for example, in regard to commissions, fees and similar charges. But a different régime is required for interest charges, which are not within their control, and the Code therefore includes a special definition of net profit margin for banks' interest business. The reason for that, of course, is that interest rates are a key instrument of monetary policy. It will therefore be important to ensure corrective action to reduce the level of bank profits from interest earning business consistent with the Government's monetary policy. The concept of turnover on sales cannot sensibly be applied to business involved in the lending of money. The profit margin control on banks' interest business is, therefore, to be based on average resources employed and not on turnover. Net profit margin is defined as net interest income expressed as a proportion of resources employed, which in this particular sector has been agreed to be a suitable and workable proxy for turnover.

My Lords, there is one thing, of course, that we have to face squarely, and that is the rise in food prices. During the three months November 14 to February 20, food prices rose by 5.4 per cent. Much of this was due to seasonal factors. In the same three months of both 1968–69 and 1969–70 the increase in the price of seasonal foods rose by 11 per cent. In 1972–73 it rose 12.4 per cent. But seasonal foods represent only one-tenth of consumer expenditure as reflected in the Retail Price Index. All foods taken together represent about a quarter. To show how the standstill affected the prices of manufactured foods, which account for over half domestic expenditure on food and drink, food manufacturers' costs for raw materials and fuel rose by 16 per cent. in those three months, but their selling prices rose by only 2 per cent. It is true that some increases in price have been allowed since February 20 though some applications, for example for an increase in the price of bread, have been refused. The increases allowed reflect only part of the higher costs of raw materials, particularly meat and cereals. Your Lordships are well aware that there is a world shortage of beef and a serious shortage of cereals in many countries.

We all recognise the importance of keeping prices down during Stage 2, and of course although first-hand sales of fresh and imported foods are not subject to the price control, the Code makes clear that, enterprises which resell these products, whether home-produced or imported, at any subsequent stage are subject to the control on their gross and net margins. This applies to fresh foods, semi-processed foods and manufactured products alike. Moreover, a special panel of the Price Commission has been set up to deal with prices of food and drink.

I am not going to dilate on the effects of our entry into the European Economic Community. Noble Lords are well aware that we welcomed the agreement reached at the Summit Meeting in October on fighting inflation. I shall simply remind your Lordships of the estimate that over the six years following accession food prices would increase on average by 2 pence in the pound—that is, an increase in the cost of living of ½ pence in the pound. This estimate could not include a forecast of future price movements in the Community. Obviously this estimate will have to be reviewed when the Community's farm prices for 1973–74 have been settled. But it is important to bear in mind that, even if we had not entered the Community, we could not have isolated ourselves from the rise in world prices. Meantime purchase tax and S.E.T. have been abolished and all food is zero-rated for value added tax. The Weights and Measures inspectors are investigating complaints made about consequent adjustments. In the first week over a third of complaints investigated were found to be justifiable and in nearly 90 per cent. of these cases appropriate adjustments were made by the traders concerned by voluntary action.

To those who believe that food prices should be held down by subsidies, I would only say that this would be a very expensive exercise, and as the noble Lord, Lord Wigg, pointed out, nobody could predict where it would lead. It has been estimated that if we had tried to hold food prices at the levels prevailing in June, 1970, the cost to the Exchequer would now be running at a rate of £2,000 million a year. To hold down prices of particular foods while allowing others to rise with market prices would have little effect on public attitudes or consumer expenditure. It would simply involve some artificial stimulation and some distortion of demand. For example, it would cost £130 million a year to reduce the price of milk by 1p a pint, and over £50 million to reduce the price of bread by 1p a loaf. A subsidy of 1p per 1b. on meat would cost about £90 million a year—and it would be extremely difficult to ensure that the consumer benefited by the reduction, as those concerned with these affairs during the war will remember.

I turn now to the pay side. With the formal appointment by the Secretary of State for Employment on March 30, 1973, of the Chairman (Sir Frank Figgures), two Deputy Chairmen and 3 part-time members, the Pay Board became established as an independent agency under the Counter-Inflation Act 1973. The Board have both an advisory and an executive function. In their advisory role they have been asked to consider the question of the treatment of relativities and anomalies during Stage 3 of the counter-inflation programme. In their executive role their function is to ensure, if necessary by using their powers to restrict pay, that the provisions of the Code which concern remuneration are implemented. For this purpose the responsibility for interpreting the Code will be the Board's and not the Government's.

Two Orders were made by the Secretary of State for Employment on April 1 setting out the requirements for notifications to the Pay Board and the keeping of records. The first requires all pay increases affecting 1,000 or more employees to be notified and for the Board's approval to be given before implementation. The second requires all other increases implemented after November 6, 1972, and affecting 100 employees or more to be notified to the Board by April 15 and thereafter within seven days of implementation. This Order prescribes the detailed information to accompany notifications under both Orders and also requires employers to keep pay records and to retain them for 12 months.

The White Paper published in January contained much more detail on the operation of the pay policy than it did on the prices side. There was an immediate need then for fairly full guidance so that collective bargaining could begin again, as indeed it did. There have already been nine major settlements reached within the Stage 2 pay limit. It may be helpful if I pick out briefly the key points on the pay side. The £1 plus 4 per cent. limit for groups, and the £250 a year maximum limit for individuals remain. Nor is there any change in the method by which it should be applied. But we hope that the way this is now presented will be more helpful to those concerned with negotiations. Paragraphs 117–118 explain how the pay limit should be calculated. Where this method of calculation cannot be followed precisely, examples of alternative methods are set out. If none of these is appropriate in the particular case, the Code makes it clear that negotiators should adopt the best method available. The Pay Board will need to be satisfied that in fact it is the best method available and will be ready to advise negotiators in difficult cases.

Great care has been taken in framing the details of the Code to ensure that the pay control applies equitably. Let me give a few examples. An article has been added to the Code to prevent settlements made after April 1 from being made retrospective to a date during the standstill period. That would clearly be most unfair to those who have had pay increases which would otherwise have come into operation during the standstill deferred until the end of the standstill. Secondly, it would be grossly unfair to those who are only in a position to bargain at one level—be it at national or at plant level—if others could exceed the limits by winning increases at more than one level during Phase 2. The Code sets out in detail the method recommended for ensuring that where settlements for a particular group are concluded at more than one level, the total increase for the group for the 12 month period is kept within the limit.

Thirdly, it is reasonable that where the normal time of the year for a particular group to reach settlement has been affected by the standstill, they should be allowed to return to the normal time by reaching an agreement within the weekly or monthly limit for less than 12 months. Fourthly, no options may be granted under share option schemes or shares issued under share incentive schemes except where shares are purchased at market value or a right to acquire on predetermined terms already existed. Fifthly, productivity agreements which had already been brought into operation before the standstill, at least in part, will not count against the pay limit, but any increases in pay resulting from productivity or restructuring schemes introduced after November 6 will. It is notoriously difficult to identify genuine productivity agreements; this is something which is best left for discussion during Phase 2. I am glad to see that the noble Lord, Lord Champion, agrees with that.

Next, the provisions as to payment by results schemes have been clarified. The principle is that increases in pay under such schemes are not to count against the limit if, and only if, they arise from direct and measurable contributions by the employees concerned to increased output. The same applies to commission as to other remuneration. Nothing can be fairer than that. Lastly, a word about personal increments. It became clear during our consultations that the proposals for increments set out in the Green Paper were too wide and could have led to abuse. The Code now says that incre ments must be within a pre-determined range or scale and must conform to defined principles and practice if they are not to count against the pay limit or the limit of £250 a year for the individual. Any improvements in the ranges or scales will count against the pay limit. These provisions are designed to secure fairness between white collar workers in different types of employment. It has to be remembered that those who benefit from incremental systems do not usually have the same opportunities as manual workers to increase their earnings through overtime or payment by results.

My Lords, if I may sum up the Government's approach in framing the Order I can do no better than refer back to the January White Paper. The attack on the domestic causes of rising prices is being pressed home. The Stage 2 figure for pay rises—providing for increases of 7 to 8 per cent. on average—is the maximum which is consistent, taken together with the tough régime on prices, with a reduction in the inflationary impact of pay on prices.

In conclusion, let me say this. The success of any policy depends on acceptance by the majority. What has been considered so far is that the majority now understand that inflationary expectations are self-defeating, and in so far as they are realised by some do positive harm to the rest of us. Already over 80 agreements covering over 2 million workers and intended to be within the Stage 2 limits have been concluded, subject to the approval of the Pay Board. That is all to the good. But it does not mean that we are in calm waters. The waters are rough and are likely to stay rough. The Stage 2 period will test our national willpower and our coherence as a nation. It will test our ability to take the rough with the smooth and to keep going towards our common objective of a faster rate of maintainable growth.

The Code represents the rules to be observed if we are to achieve success. People will start by obeying the rules, and they will go on obeying them if they see other reputable people obeying them. Under the pre-notification system for Category I enterprises, the Agencies will be able to ensure that prices and wage settlements of the manufacturing and mining industries, and the transport and postal services, covering some 70 per cent. of the national output conform with the Code. The Category II employers will also be controlled through the reporting system applicable to them. With these leaders setting an example of conformity, it is reasonable to expect the vast majority of the remainder to keep in line voluntarily, especially bearing in mind the obligation to keep records and the possibility of spot checks. It is reasonable to expect that in this country we shall comply with the rules. If so, we shall emerge from Phase 2 more competitive and more realistic in our attitudes than we have been for a very long time, and so better able to deal with the problems that will face us in Stage 3 and thereafter. It is for these reasons that I ask your Lordships to approve the Order.

Moved, That the Counter-Inflation (Price and Pay Code) Order 1973, be approved.—(Lord Drumalbyn.)

3.25 p.m.

LORD BESWICK

My Lords, we are grateful to the noble Lord, Lord Drumalbyn, for explaining so clearly the small print of the counter-inflation proposals of this Government. As he said, we are discussing an important part of our economic affairs, and because we are discussing an important part of our economic affairs it is not uninteresting that only one Peer out of the huge flock of Back-Bench support that the Government enjoy thought it worth while, or was brave enough, to return to this subject this afternoon. The noble Lord, Lord Drumalbyn, was at pains to emphasise the scope of the debates which we had on this subject prior to this Order, and it is certainly true that some changes have been made in the Order. But the point that we shall make, the point that we have made—which is so obvious—is that, really, the Government still fail to get to grips with the central core of this problem. The noble Lord, Lord Drumalbyn, was optimistic about the outlook, and it is true that with the coming of spring the fever of industrial disputes has abated considerably. The vote of the miners, the clever exploitation of a Phase 1 loophole in the case of the gas workers, have given us the appearance of industrial peace. It seems that the Government's skill in clobbering the weakest is as successful with the health workers as it was with the postmen.

But it will be unwise, as well as untrue, if the Government interpret this lull as proof that their economic and social policies are well-founded. When the Prime Minister boasts, as he did at the Periodical Publishers' Dinner, that recent agreements were a "victory for common sense", he was being not only complacent but pointlessly provocative. In New York, a fortnight ago, I was asked at one meeting whether Britain was slipping into real industrial trouble, and I said that the British people, almost all of them, preferred social stability and we should certainly find a way forward without serious upset. But the Government will be mistaken if they take advantage of this inherent stability of the British people. A stable society is one thing, but a determination to build a fairer society has been a dominant characteristic of the British people throughout the centuries. In their own interests, Her Majesty's Government should never underestimate this determination to work through to something that is fairer than we have so far known. It is against that background that we have to look at this Code.

As I have said, the Code itself is, if anything, an improvement on the draft. On prices, the Government have taken into account criticisms that have been made. The criticism which some of us made about the merit-pay provisions has, as the noble Lord, Lord Drumalbyn, has just told us, been met. The possibility of improvements in working hours is also there, although it places obvious additional responsibilities on management to ensure that a reduction in standard working hours is not simply used as a device to spread work and to boost uneconomic overtime earnings. But even less predictable is the way the productivity agreements will work out. The noble Lord, Lord Drumalbyn, said that they were notoriously difficult to monitor. He said that they had to be measurably productive. I ask the noble Earl who is to reply: measurable by whom; measurable against what standards: and to what extent will the Pay Board monitor these productivity agreements? So much for the actual wording of the Code.

Then we come to its implementation, and we read to-day about the letter which the noble Earl the Leader of the House has apparently sent to the Civil Service unions. It is curious to some extent, that it is so irregularly reported in the morning's Press. The language of the letter according to the Guardian—unkindly, and I have no doubt, incorrectly—is extremely verbose and inexplicit. No one who knows the noble Earl would even suggest that he was inexplicit in what he said. I ask noble Lords opposite whether this letter is meant to mean anything: is there to be back-dating? if there is to be back-dating, in this particular case, how do the Government reconcile that with what the noble Lord has just said about the impossibility of retrospective treatment? if there is to be back-dating in the case of the civil servants, is it also possible in the case of the National Health Service workers? Also—and this is important—is it to be expected that in future the Government will override, across the board, whatever the Pay Board might decide to do? Will the Government commit the Pay Board in advance to a certain line of action? Would it not be helpful if the noble Lord were to give an undertaking to lay this letter before us so that we may see whether it was verbose and inexplicit or whether it really meant something and whether that meaning was in accordance with what we have been told so far about the workings of the Pay and Price Code?

This is dealing virtually with the nuts and bolts of the matter, although the way in which these nuts and bolts are manipulated is not unimportant. I have hopes that the two agencies will acquire such expertise that a future Government, with genuinely progressive social objectives, will have at its disposal an effective instrument for economic planning. The Government were mistaken in not accepting our advice and persisting with two separate agencies rather than one combined prices and pay body, but the possibilities of growth are there. Much, as I have said, will depend upon the way in which the machinery is worked. But of overriding importance will be the spirit in which it is worked and the economic and social climate in which it is expected to work.

If the Prime Minister insists on talking about victories—as apparently he has done in the case both of the gas worker sand of the hospital workers—then he is lost. If he says again, as he did in a personal attack on my right honourable friend, Mr. Wilson, that those who have doubts about the Government's prices and incomes policy represent "the most negative and backward elements in our national life", then he will never create the necessary constructive spirit. But he will have to do more than refrain from provocative speeches. He will need to make a positive advance towards a fairer society. One criticism that we make of this Code and of the Bill is that there is no underlying positive policy written into it at all. The failure to spell out the full purpose is in itself a mistake. But the action that is taken will set the tone and create the atmosphere.

So far, there have been more steps backwards than forwards. The Government have stubbornly resisted proposals to subsidise key food prices, although we have seen this acquiescence in subsidising butter for the Russians. If we turn to the T.U.C. account of the Chequers talks we find that the T.U.C. were virtually asking for a gesture; they asked that action should be taken to hold down the price of potatoes and milk. What a modest proposal ! Our contribution to this £110 million cost of the butter subsidy to the Russians would have gone a long way to meet the cost of the T.U.C.'s request. Even now, if we are to see Phase 2 leading to a constructive Phase 3, something must be done to include proposals which will help to peg fresh food prices.

I return again, without any excuse, to the question of land. Condemnation of the profits made from land speculation has come from all sides of the House. Even the Government spokesmen have not ventured to iustify this manifestation of unfairness. What they said when we discussed this Counter-Inflation Bill and when we debated the Draft Code is that the problem would be tackled by means other than the Prices Code. The noble Lord, Lord Drumalbyn, once told me, "Wait for it". We waited, and we now see what we have. All we need say about the so-called hoarding tax is that spokesmen for property interests and the big builders have said that they have nothing to worry about, and I have noticed that the share prices are beginning to rise again. Multi-million pound fortunes will continue to be made by land and property dealers, and steadily in manufacturing and distributive costs the effect of these increased land prices will be felt. Steadily, too, increasing purchasing power and economic influence will flow into the hands of people who do not produce or contribute towards the production of any real wealth at all.

I know that there are those who say that this infuriating rise in the price of land and property is only an effect of inflation and not a cause, but effect and cause can be complementary. It is sometimes called a vicious circle, and a vicious circle has to be broken. If nothing more is done about it than the imposition of this so-called hoarding tax and the filching of a few acres from the Green Belt, then even the most sophisticated pay and prices agency will not work. Private ownership of land as at present known is incompatible with a truly civilised society. What a sobering and a frightening commentary on contemporary achievement, that if we had not been bequeathed by our poorer forefathers such things as the Green Park or Lords Cricket Ground, we should not now be able to afford them ! There is much speculation about the outcome of the next General Election. I am prepared to assert that the Party which shows that it can and will deal with land will sweep to power.

Then there is the cost of money. I cannot accept what the noble Lord said about interest charges and that the only way to control the volume of money is by increasing its cost. It is possible in a sophisticated society to control both the volume of credit and the direction in which it flows. We are not justified in asking for wage restraint unless we are prepared to do something about interest restraint as well. Is there not a whiff of decadence when in a great industrial society like our own we have big industrial companies making a profit, not by manufacturing the goods that they are supposed to make but by borrowing from one financial institution and lending to another—as the Financial Times delicately phrased it, taking advantage of the high rates available in the money markets to make a turn on funds borrowed on overdraft"? It seems in fact that the increase in industrial borrowing, on which claims of impending prosperity are based, is due, in part certainly to this so-called "arbitrage" borrowing by certain firms.

Pegging the wages of hospital workers will not help cut the cost of money. What would be much more effective would be a Government decision to stop printing the stuff. Their deficit budgeting to enable them to claim that they have cut taxation for their supporters is both politically wrong and economically stupid, if they really wish to curb inflation. If we wish to consider one example of what high interest rates and inflated land prices can do—without any help whatsoever from increased wages—I turn, not to the Morning Star, but to the Economist. They given an example of a young couple at Orpington. That young couple bought a maisonette in 1969 for £4,500. At 8½ per cent. the mortgage repayments were £6.57 a week gross. Under the £1 plus 4 per cent. provisions of this Code, that couple can expect a £2.50 pay increase. A quarter of that pay increase will be taken by the increased mortgage repayments and after the extra tax they are left with a £1.50 increase in wages under the Code that we are now considering. As the Economist puts it, a sizeable hole will be made in that increase by inflation, let alone the Government's own version of inflation, which we call V.A.T.

This arithmetic alone makes a mockery of the Government's talk of a 7 per cent. increase in the standard of living. But that is only part of the story. That is the interest part: we have yet to turn to the other part. The Economist tells us that the Orpington maisonette, if bought to-day, would be bought at three times its 1969 price. I am open to correction, but my rough calculation suggests that the repayment of a loan to buy that same maisonette to-day, at 9½ per cent., which is the subsidised interest rate of the mortgage, allowing for a down payment, would conic to something over £20 a week, from a similar young man's gross earnings of £35—aild this in a country which is supposed to be richer than it was in 1969! My Lords, no wonder the Young Conservatives say they are dissatisfied with the Government's housing policy! And those repayments, spread over twenty-five years, for extremely modest housing accommodation, are actually greater than the wage that some four million workers are getting to-day.

That brings me to another anomaly—the difference between the lower-paid and the higher-paid workers. My Lords, one of the brave things which the late Les Cannon said before he died was that the inequality and lack of justice in the totality of wage distribution was due, as he put it in an article in the Sunday Times, to the absence of an incomes policy based on the ethics of trade unionism. My Lords, the key word there was "ethics '—ethics rather than the crude economic strength of some of the trade unions. But we cannot restrict ethics to one sector, and that a relatively narrow sector of the economic scene. Furthermore, there is another anomaly which must be removed—an anomaly which engulfs that unfair disparity between lower and higher paid jobs. It is the anomaly of the ownership of our total national wealth. The T.U.C. claimed in their Chequers' talks, as they report them, that it was highly relevant to those discussions that 10 per cent. of the population own 75 per cent. of the nation's wealth. I noticed that last week the Daily Mirror considered it worth while turning from their sick competition with the Sun's permissiveness to headline their own calculation that 7 per cent. of our taxpayers own 84 per cent. of Britain's wealth. Whatever is the precise figure, that is the order of it.

My Lords, nothing in this Phase 2 will, or is intended to, deal with that overriding fact of our national life. On the contrary, the Chancellor's fiscal policy has consolidated, and is designed to consolidate, this concentration of wealth ownership. Unless the Government do something to deal with this social distortion, Phase 3 will fail here as it is failing in the United States of America. The Government have so far relied far too much on the American example. I referred in our last debate to the much more useful Austrian experience in their pay and price policy. I have since had brought to my attention the nature of the dialogue in the Netherlands. There, the Dutch trade unions have insisted that the foundation of an effective voluntary prices and incomes policy must mean a broad social contract, and within that contract they want to have listed such items as housing, pensions, smaller classrooms in infant and junior schools, reforms in the National Health Scheme and improved training facilities for younger workers. These are the stuff of what goes to make the quality of life and the standard of living. These things and the redistribution of wealth, especially unearned wealth, must be part of any kind of social contract that is going to work in this country. Given a contract of that kind, I believe the organised workers of this country would help give a lead to solving a problem which is baffling the Western World. But it also means that we have a Government which genuinely believe in a social contract of this kind.

3.46 p.m.

BARONESS WOOTTON OF ABINGER

My Lords, I proposed to address my remarks almost exclusively to the pay section of the Code, but I should like to say just two things about the price section. First, I am deeply grateful to the noble Lord, Lord Drumalbyn, for having led us through the maze of regulations and sophisticated twistings and turnings which are implied in the first part of this Code. I found them almost impossible to disentangle, and I am inclined to think that the Government would have done better if they had abandoned this enterprise altogether and had attempted to control inflation by suitably defined fiscal methods which would attack profits and pay in the same way. But that is an elaborate argument which I do not propose to pursue further at this stage. The other thing I would say as a result of my experience with trying to disentangle the price Code is this. I had an uneasy feeling after my efforts, and after listening to the noble Lord, Lord Drumalbyn, that possibly the late King Canute had had a hand in drafting this part of the Code.

My Lords, I turn to the pay Code. As the noble Lord has said, the Pay Board has both advisory and executive functions. Its executive functions, I think we ought to recognise, at least as I read the Act, are purely negative. It does not itself draft proposals for rates of wages and salaries; it does not itself impose decisions. It is precluded from doing that by one of the four general principles, which I shall come to in a moment. What it does is to say to the people who normally settle these matters, "Get on with it, chaps. Bring it to us, and if it conforms to the Code we will O.K. it; if it does not, we will veto it and you will have to go away and think again". This seems to me a rather elaborate and restrictive form of activity. If the Board had had more constructive guiding principles, as I shall come to in a moment, then I should have thought it would have been much better that it should itself have wider powers to arrive at decisions. Of course, it can give advice on anything, and as we have been told it has already been asked to give advice about anomalies. At some stage, therefore, it will have to decide what an anomaly is and when an anomaly is not an anomaly. I shall come to that, too, in a moment.

LORD DRUMALBYN

My Lords, before the noble Baroness continues, may I just say that the Board can of course also give advice on the way in which a proposal put up to it can be brought within the terms of the Code.

BARONESS WOOTTON OF ABINGER

Yes, my Lords, but then it may have to go back and a fresh agreement made on those lines, if acceptable.

My Lords, in this respect it is much less well served than its late lamented predecessor the Prices and Incomes Board. The Prices and Incomes Board also had a fixed "norm", as it was then called, to which it had to conform; but it was given power to make a number of exceptions. These exceptions were clearly defined and quite far-reaching. It was allowed to make exceptions for productivity bargains, very strictly construed. It was allowed to make exceptions if it was necessary to raise wages so as to improve distribution of labour and if this was likely to be an effective measure. It was allowed to make an exception if the wages were too low for a reasonable standard of living; and, finally, if they were out of line with pay for similar work—not with relativities generally. The Prices and Incomes Board was instructed at the beginning that it must pay very little attention to many of the traditional factors determining wage decisions. It was told to be quite highhanded about the distribution of labour, about the demand and supply of labour, about the cost of living and about relativities. Reference to the cost of living is very sur- prising in view of the popularity to-day of threshold agreements. In fact the Board was very tough—both about the cost of living and about relativities. It tried not to be influenced by comparisons with other occupations and so to avoid the leapfrogging with which we are all familiar.

The Pay Board is in a different position. It has to see, first, that bargains made or proposed conform to the Code and fall within the limit which is set. Therefore, a great part of the Code is purely technical, saying what comes within the limit and what does not—things like holidays, pensions and promotion. This is all very necessary but it is small print. It is necessary because I think Mr. Clive Jenkins has been reported as saying that he alone knows at least twenty ways in which you can wriggle out of the provisions of the Code. Clearly the Board will be fully occupied in dealing with Mr. Clive Jenkins and his friends. Secondly, it must see, within the limits, that pay is fairly distributed—and I shall come back to the" fairly "—and thirdly, ensure that there is relative improvement for the lower paid. That should be reasonably clear so long as you know where low "ends and where" middle "begins; for it is not defined. Finally, it has not to do the job itself but to look at it as it is done by people who normally decide wage bargains.

What underlies all this is a myth. It is this myth that I want to attack. It is shared not only by the present Government but by a very wide range of those concerned with wage determination. It is the myth that what are frequently referred to as independent and impartial persons can make just decisions about wages in the absence of any specific principles merely by the introduction of that little word "fairly" in to the general principle of the Code. It is this myth which leads us sometimes to ask members of the Judiciary to try to settle wage disputes or to preside over tribunals concerned with the settlement of wage disputes, because learned Judges are by profession absolutely, impeccably impartial. There is another, quite irrelevant, reason for the employment of learned Judges in this capacity. That is, that they are mostly very clever men. Therefore, as witness the outstanding example of the work of the noble and learned Lord, Lord Wilberforce, in settling the electricity supply dispute two years ago, they are sometimes clever enough to produce a solution which persuades everybody that he has won. But that is not relevant to producing a solution in accordance with fairness or with social justice.

The essential difference is—and I intend no disrespect, I need hardly say, to the impartiality of Her Majesty's Judges—that in a court of law they are applying the law. When a Judge finds two disputants and he has to decide between them whether one had done an injury to the other, he hears the evidence and considers whether what has been done is, in fact, an injury within the terms of the law. When hearing a criminal case, he instructs the jury what the law is, what is the, nature of the offence with which the accused has been charged and then he tries to guide them as to how the evidence bears on the question whether this offence was committed or not. He is applying a known law.

Where there is no known law an arbitrator or a pay board is asked to make decisions in a vacuum. You cannot be impartial in a vacuum. I know for I have tried it. I was for some years a member of the Civil Service Arbitration Board and in that capacity I never knew how to make a just decision because I did not know what the principles of justice were. I knew what I thought they were; but I did not know objectively what they were, or what principles I was supposed to uphold. What this means is that at the end where no positive guidance is given—and this is much of the substance of what my noble friend Lord Beswick was saying—it is unavoidable that the decision arrived at is a decision within the framework of what is the present structure, of what can be made acceptable or, to put it bluntly, of what the person making the decision thinks he can get away with—splitting the difference between the two sides, or trying to get something which will not create too much of a row.

This is not enough. Principles are what we lack and what we shall have to have if there is to be any eventual social policy about the distribution of pay. I ought to say here that I differ from some of my noble friends in that I take the view that it is quite right that there should be some kind of control of the bargains that are arrived at between employers and employed, a control which must follow and implement the principles of social justice, which are clearly discussed and which are virtually part of our political faith. I find it a little surprising when a Party which has at least a Socialist heritage does not always find this acceptable. I have no doubt that we shall come to it in the end. But I would welcome the idea that the period of what I like to call "smash and grab" is over, and over for ever. It is necessary, I believe, to have some kind of statutory enforcement of this principle. It is not enough to say simply, "Go ahead and be fair"—in a vacuum.

What makes this more serious is that there is a very widespread belief among the population of this country that our existing structure is unfair. Recently National Opinion Polls have done a survey for an organisation known as the "Working Together Campaign" to find out what are the views of the British public about the fairness or the unfairness of the wage structure. This survey did not relate to the whole range of pay but virtually only to manual work occupations. It might have produced even more startling results if it had gone all the way up to the higher-paid occupations. This survey showed that 46 per cent. of the British public think that our wage structure is unfair and an additional 22 per cent. think it is very unfair. So you have two-thirds of those interviewed taking the view that the whole structure is unfair. As an illustration of this, when they were presented with particular occupations and asked to arrange them in order, they nearly all put the miners at the top—which is not the position that the miners occupy. Against this, only 17 per cent. thought that our structure was fair and only 2 per cent. thought it very fair. The missing margin of 13 per cent. were those who could not express an opinion.

This seems to me to make it absolutely imperative that, first, we have an effective incomes policy, an effective pay policy; secondly, that we have a pay policy based on principles that have been discussed, publicised, and, whether particular individuals agree with them or not, made the basis of our whole policy. At present an arbitrator may think in his heart that the whole grade structure is grossly unfair, because on the whole, people who do the nice and interesting work get the high pay and the people who do the dirty or the dangerous work get the low pay. It is always upside down from what they used to say in the economic textbooks—but never mind that. Or equally, the arbitrator may think in his heart that it is unfair because creative work, whether in industry or the professions, is unrewarding. But those are subjective principles, and he cannot impose those principles. Members of the Pay Board may hold those views tucked away in their hearts, but they cannot impose them because it is not their business to impose their private opinions. But what is it their business to impose?

My Lords, what will happen will be that the Pay Board will be an entirely "small print" Board, and I think that a great deal hangs on it being a "large print" Board and having large principles. I was delighted when the noble Earl, Lord Jellicoe, in a letter that he wrote to me after our debate on Report stage, agreed with me that the broad structure of our distribution is in fact a political question. I think we ought to have our political Party views clearly expressed as to the direction in which we want it to move, so that two-thirds of the people will no longer, as we hope, think that it is unfair. Indeed, I think that there is a great deal more at stake than questions of pay and policy. We all know from experience that ruthless capitalism can be made to work; it delivers the goods. Many of us think that frequently it delivers them to the wrong address, but nevertheless it has worked for quite a long time, in a sense. We do not yet know whether civilised capitalism can be made to work, and I think that in the next half-century we have to show that civilised capitalism can work, or we are going to see an alternative system, under which already about one-third of the world's population lives, win overall. So I would say that the degree of success with which we can show that we can control the excesses of our present system, that we can make it socially just and effective, is the degree that will determine the survival of the kind of economic system that we know. That is why this is something very much more important than pay policy or short-term anti-inflation. And, my Lords, I would say that in this decision time is not on our side.

4.3 p.m.

LORD WIGG

My Lords, on April 5, when the Leader of the House came to us and read his Statement on mortgage payments, I asked that there should be an opportunity to debate the economic policies which the Government were pursuing. The reply given to me was that there could be discussions between what are euphemistically called "the usual channels" for such a debate to take place. My noble friend Lord Beswick intervened to say that the occasion when we debated the Statutory Instrument which is before us to-day would provide an opportunity for such a debate. I was not very satisfied with that, but when I recollected how wide the debate may range, I realised that there was nothing to prevent me from saying what I wanted to say, for which I thank your Lordships. I would enter just a word of protest. It seems to me that the arrangement for debates in this House, which rests exclusively with the usual channels, is the antithesis of democracy. It denies the right of each individual Member of this House—and here we are all equal—to play his equal part; in other words, some are more equal than others. I have been here only a short time and the customs of your Lordships' House go back way down the centuries. But if I were a House of Lords reformer, one of the things that I should look at is the relationship that exists between the two Front Benches. I say that not only in a general sense but also for a particular reason.

My Lords, I listened to-day to my noble friend Lord Shinwell ask his Question about the exercise of the suffrage by your Lordships, and last week I had an experience which I hope was shared by many in your Lordships' House. I took a very active part in the local government elections, with—if I may say so from the point of view of the part I played—wholly satisfactory results. I did not vote once last Thursday; I voted twice, as I am entitled to do. I have a local government vote in three places, because of my home in Stoke and because on the appropriate dates I happened to have two homes in London. I mention that only to emphasise the fact that I did vote. What I value so much is the experience I had when going round talking to people. From all sides I heard the comment, "There is no difference between them"—meaning no difference between either political Party. Of course, the electors were not in your Lordships' Chamber on April 5—I was. I heard the Statement which the noble Earl, Lord Jellicoe, made from the Government Front Bench and there was no difference between that Statement and statements which have been made from the Opposition Front Bench. With perhaps a change of a word here and there, and a little change of emphasis in places it could equally well have been made from the Opposition Front Bench. Indeed, my Lords, I would say that in the Answer which he gave to my noble friend Lord Shinwell to-day, the noble Earl, Lord Jellicoe, was more "anti" the nonsense that he had to talk, and which had been put in the brief which he had in his hand, than the spokesman from the Opposition Bench.

The basic fact is that this political truth has penetrated into the thinking of the electorate of this country. They have decided that "There ain't all that difference" between the two Parties. There is, in fact, a feeling that if the Labour Party were now the Labour Government, and if they were faced with this situation, they would produce something like these measures. I believe they would. Of course, there is the difference that the Labour. Party's policy which preceded the situation would have been different, and maybe the necessity for such measures would not have arisen, but basically the difference between the two Parties is perhaps the difference between nineteen and eleven pence three-farthings and one pound—it is not much greater than that. As to the great difference that does divide them, on the question of food subsidies, let me say frankly that while, for reasons which I will explain in a moment, I do not accept some of the statements made by the noble Lord, Lord Drumalbyn, it is the fact that, given the rest of the Government's policy, to start to subsidise food on the grand scale would be a load of nonsense. On the other hand, my Lords, if you reject the Government's strategy as I reject it in toto—and here of course is the difference between me and so many of those whose political philosophy I share; they accept the strategy and I do not—

LORD BESWICK

My Lords, as it happened, I had the privilege of speaking for my Party to-day. Is my noble friend Lord Wigg really saying that there was no difference between the strategy that I tried to indicate and that of the noble Lord, Lord Drumalbyn, who spoke before me?

LORD WIGG

My Lords, it must be either that I do not make myself plain or that my noble friend does not understand, because I was very careful to point out that I was not talking about the statements made to-day but the statements which were made on April 5.

LORD BESWICK

My Lords, when the noble Lord spoke he pointed his finger at me.

LORD WIGG

My Lords, I am sorry. In fact I was pointing at an invisible man—the person who was sitting on the Opposition Front Bench on April 5 but who is not there to-clay. I am not going to say to my noble friend, "if the cap fits, wear it" or enter into a dialogue. I was talking about the attitude taken on April 5. Now, my Lords, I will take a jump forward and ask what was the weakness of the Government's case on April 5, a weakness which was not driven home and which it was the bounden duty of the spokesman from the Opposition Front Bench to drive home. The Government's policy is based upon the fact that there will be no special cases so far as any of the trade unions in dispute are concerned; certainly no special case so far as the hospital workers are concerned. But just as soon as it became necessary, for wholly political reasons—that is, because of the thought that it might influence the local government elections—what happened? The Government made a special case of the mortgage-holders. It is driving a hole right through our democratic beliefs and it is against this that I protest. I am not afraid of the situation to-day. What I am afraid of is the situation as it is going to develop. For I think that every time the noble Lord who spoke to-day speaks, he gives an indication that he is on a slippery slope; he is a long way from the bottom and he has not realised the rapidity with which he is approaching it.

My Lords, I should now like to come to the central point of what I want to say and the reason why I am on my feet. First of all, the Government are the prisoners of their own strategy; and they cannot help it. They are shackled to the policy of going into the Common Market. The consequences which flow from that decision are shared by noble Lords on this side of the House as well as noble Lords on the other side; right across the board there is responsibility for that. I agree with the noble Lord that it would be unfair to wrap round the Government's neck the consequences of rising prices, in so far as those prices are beyond their control, although, let me say in passing—and I shall go on saying it—that such a noble thought never penetrated their minds at the time of Korea, nor at any time from Korea down to the present day. A Labour Government could plead in aid that there was a world rise in prices; a Labour Government could quite fairly claim that the terms of trade had turned against them. But say that in the House of Commons, or say it to a Conservative audience, and the laughter will come back at you in waves.

It is said over and over again, and it is true, that there are forces at work in the world to-day over which the Government have no control. They had no control yesterday; they have no control to-day; and they will have no control tomorrow. Yet this Government, at this moment, in the face of that knowledge—and by making the statements the Minister makes he is telling the whole world that he is conscious of the truth of what I am saying—chose to abandon this country's historic policy of a true cheap food policy. One of the critics of it was my noble friend Lord Rhodes. He has pointed out time and time again that the country has yet to meet the consequences of a deliberate reversal of policy at the worst possible moment of time from the point of view of this country.

My position here is quite simple. I was never opposed to the Common Market in principle: that is to say, any wider unity which would cut down the bounds of disagreement and make men live in harmony has my wholehearted support. I supported our going into Korea for just that reason; I supported the League of Nations before the last war for just that reason; and I support the Common Market, in principle, for just that reason. But in addition to being a Socialist, I am a democrat, and to drive this country into the Common Market, corn pletely disregarding the consequences which would inevitably follow, is a negation of democracy itself. This is the most dangerous factor, and the basic factor, which is moving against the Governments policy, and no Prime Minister for the next fifty years (and none has in the last one hundred years) will get anywhere with any policy he tries to push through unless he can feel that he has behind him the wholehearted support of the majority of his fellow countrymen.

This Government were divisive from the day they were elected. They are divisive to-day. My noble friend Lord Beswick quite rightly talked about land prices. He says that at the next Election it is land prices that will matter. I agree with him. But it can be put right just like that: just withdraw the concession of 40 per cent. estate duty on agricultural land. That will make a considerable difference in the terms of the price of land. The next thing is that, whenever planning permission is given in regard to agricultural land, the Government should take the difference. Why in the name of heaven should land priced at £500 an acre suddenly, by a stroke of the pen, become worth £50,000 an acre, and the £45,000 go into the hands of a private individual? If the Government really want to put it right (of course, there would not be any Tory Party left if they tried to do this) they can do it.

My Lords, the one thing that is going to strangle us on this financial issue—and it comes from all Parties—is this lip service to growth. "Growth" is the magic word. By the time we get to the third phase, in the autumn, we are all going to live happily ever after, because we are going to get growth. The T.U.C. want growth, and every speculator in the City of London wants growth. But the truth here is that man has come up against the will of God. The possibility of growth to infinity is absolute nonsense. What is wrong in the United States in the present climate? Although President Nixon received 6⅔ per cent. of the vote, he is up against the physical factor that there is a shortage of water and a shortage of fuel in the United States; there is also a shortage of N.C.O.s and warrant officers in industry: and there is nothing that he can do about it. The United States cannot expand any more. So what is to happen to that vast accumulation of wealth, which is not distributed in the poverty stricken areas of the United States? They cannot consume it, because it will choke them. It will bring Wall Street down flat on its back. So what are they trying to do? They are trying to export it. The great battle about the dollar, and the reason why there can be no settlement on the floating of currency, is because Mr. Nixon, the President of the most powerful economic nation on earth, has determined, at whatever cost, that they are going to export for investment purposes the surplus wealth of the United States.

So, whether we like it or not, we are serfs, unless the British people are brought face to face with the realities of the situation and revert to their historic policies until something better emerges; and at the same time recognise, as the noble Baroness, Lady Wootton, said, that common sense demands that we should have a wages policy. Of course we ought to have a wages policy. But what is a wages policy? It is one that suits the economic policy of the Government, and is imposed upon those who otherwise would not accept it but would have recourse to the use of the strike weapon.

Noble Lords have a very good example of what a wages policy is like in the Armed Forces. By common agreement, no one ever discusses the pay increases and rates of pay in the Armed Forces. There is how it works. It is imposed by an arbitrary decision, taken outside, presumably by Law Lords or by gentlemen whose integrity and intelligence are as great as that of the Law Lords. So, of our Defence bill, 76 per cent. goes on pay. So much is given for pay that we cannot afford to buy weapons with which to arm the troops.

This is a wages policy applied in a free society by men of the highest degree of intelligence. The truth is that the question of a wage policy is not a question for Law Lords or for economists. The noble Baroness, Lady Wootton, is again right: it is a purely political question, in a society which is partly weighted—51 per cent. weighted, if you like—to the pricing system. Mr. Enoch Powell is right. You are either going to have a pricing system or you are not: and if you are going to have a pricing system, then you have to go in for economic planning. In other words—and probably this is what the Left in the Labour Party have to learn—there is no half-way house between a pricing system and a planning system, one has to be the top dog. The longer I live the more convinced I become, examining in my spare time the thinkings and writings of the late Aneurin Bevan—and it is sometimes a difficult task—that that man, now long departed, had the truth in him. In a free society in which democracy and socialism are dominant, first because it is the right of free men and, secondly, because those free men want to live as full a life as possible, that society must command what Aneurin Bevan called the commanding heights of the economy. Unless that is done we shall land ourselves in the nonsense which is enshrined in this Paper. There is no alternative to it.

The Minister need spend no time in replying to me; his task is merely to say, "There is the Paper; that is the best we can do in all the circumstances. We are where we are; we did not mean to get here" If ever a Government were elected on the negation of that idea it is the present Administration. They say, "Events have been too strong. We did not want to interfere with wages, we did not want to control prices; but events have proved so strong that we have had to produce this." This is not the last document of this kind that is going to be produced; this is merely the April instalment. I conclude with the same words as I used on April 5: it would have been appropriate in all the circumstances if this document had been produced on April 1.

4.22 p.m.

LORD HAWKE

My Lords, I could not hear everything that the noble Lord, Lord Wigg, said because when he was lecturing his Front Bench on economics his voice was directed away from the microphones. I apologise if I cannot follow him in great detail. I do not disagree with everything that the noble Lord, Lord Beswiek, said, but I should like to take up one or two points he made. First of all, it is not very profitable for those of us who live in glass houses to throw stones about the respective support of our Back Benches from time to time. I have often noticed that not a single one of the 100 Labour Back-Benchers opposite has supported their Front Bench. Secondly, I know that my right honourable Leader in the Commons, the Prime Minister, makes rather provocative speeches at times. I do not think anybody can call him to task when they consider that the speeches were generally made at the expense of a master of invective. The Leader of the Opposition has been a master of invective for years and years. When somebody retaliates in his own kind I do not think one should object.

I thought that the old canard about the small proportion of people owning the vast proportion of wealth would come out in this debate. That figure I believe to be entirely and utterly false. It takes no account whatsoever of the immense wealth owned by the policy holders in the life funds in this country; the immense wealth owned by the pension funds, the property of the would-be pensioners, and it never makes any allowance for the fact that the National Insurance pensioners, in the expectation of a pension rising over the years and with their normal expectation of life, own many thousands of millions of pounds worth of capital.

I think the figures given were probably worked out from the tables of the Inland Revenue which ignore most of those factors. I agree with a great deal of what the noble Baroness, Lady Wootton of Abinger, has said. I do not think anybody can be happy with Stages 1, 2 and 3, but they are inevitable after the events of the past few years when the power of the unions to enforce wage and salary settlements far beyond what would be financed by internal economies is exercised to the full. This has made free collective bargaining a one-sided affair. The miners' strike in particular, with its mass picketing of power stations by large numbers of miners, supported by Left Wing hooligan students from the universities, was a signal that enough was enough—the kissing had to stop, before we drifted into what seemed inevitable at one time, a dictatorship of the Right and Left. Many people at home and abroad thought that that was inevitably our fate. We have avoided that, but at a price. We have surrendered quite a bit of our liberty. In return, the Government have undertaken to do their utmost to hold down those prices over which they have influence, to moderate those where they have not, and by putting a legal limit on pay rises for the moment to stop wages, salaries and dividends and costs rising too fast in this country.

Meanwhile, the pound has been devalued and its value has fallen compared with the currency of many countries in which we spend money. This is going to provide nasty shocks to people who take their holidays abroad. They may find that package holidays will not have gone up very much; but you may be sure that the tour operators have screwed the hotel people down so hard that people will find that the extras have become prohibitive. One can only hope that when the strikers, particularly in the car industry—and I am sure they will all be on the Costa Brava during the course of the year—who have done so much to depreciate the pound reach their destinations abroad they will begin to absorb some of the facts of life.

The details of Phase 2 are rather unsatisfactory for everyone, whether employers or employed. But in this enormously difficult field it is impossible to do more than try to get some form of rough justice. Personally, I believe that has happened. Any business with which I am connected looks at it with rather a wry face and says, "I suppose we can work this", and that is about the best that you can hope.

It is unfortunate that the ceiling on earnings should come at a time when world factors are making our food and many of our raw materials so much more expensive. The partial failure of the Russian harvest and severe droughts in other parts of the world have altered the food situation in the world drastically and suddenly. There is no doubt that the new outlook in Japan is having a great effect on raw material prices. Food for the moment has ceased to be plentiful and British people, spoilt by generations of living on other people's dumped surpluses, are having a nasty shock. For the first time for a century we are paying the cost price of producing the food under European conditions instead of living off food at a price capable of being produced only by the best farmers and land. Surely in the long run this is a good thing. People—particularly Left Wing people—talk a lot about the hungry world, under-developed countries, the Third World and so on. But why should Britain and Europe, the rich countries, hog all the cheap food? That is what we have been doing. The present policy is producing more food in Europe than has ever been produced before—by "Europe" I include this country. Anybody who studies the German situation during the last war realises that in spite of the loss of East Germany to the Iron Curtain countries there is more food being produced in the confines of Europe and Britain than ever before. Surely, that is for the good of the world in general if indeed there is a hungry world.

Japan is producing high-class goods at lower prices than European and is paying near-European wages. Our markets here and abroad are being eroded. This has happened before. My wife always tells me that when I first met her, on July 13, 1934–13 is my lucky number, incidentally—my sole topic of conversation was the menace of Japan, and now in 1973 I revert to precisely the same topic. The Japanese have suddenly changed their whole attitude. They have acquired immense overseas balances through successful trading and have suddenly decided to spend this money on buying up the raw materials of the world and improving the standard of living of their people. That means that not only are we losing our markets to their products but we are being outbid for our raw materials. Thank goodness we are in the European Community so that we have got people who can stand together with us to face up to this new menace!

We must remember that, though to-day Japan may be the trading menace, the whole of East Asia is coming up. It may be other countries to-morrow. The whole of that part of the world is increasing in industrialisation and in skill and capital is being accumulated at a fast pace and sooner or later there will be the demand for a higher standard of living and that will cut into our raw material supplies. Phase 3 will be difficult. A cynic said to me the other day, "Phases 1 and 2 generally work after a fashion, but with Phase 3 the exercise collapses". Let us hope that this will not happen, but if the unions try to wreck it with wholesale pay rises it will put up export prices and we shall be back at square one.

So it is very important to secure the co-operation of the unions, based on their full comprehension of the urgency and the necessities of the present situation. When people invoke the co-operation of the unions the word "fair" always comes in. The word "fair" is only in the eyes of the speaker, or the beholder. Everybody thinks what he does is fair, but we do not always think that whatever anybody else does is fair. It is quite impossible if a near Communist union leader is expecting something which he can call "fair" from a capitalist Government. The thing just will not work; there must be "give". In return I would be prepared to make certain concessions. One or two have been mentioned in this debate already. Personally I would put a price control on certain foodstuffs where I had a fairly good idea that I could control the price. I believe that could be done on bacon, potatoes, milk and possibly on imported lamb, and cheese. I should tell the British people, "You wanted your prices controlled and I have done it. If the stuff disappears out of the shops because nobody sends it here, that is too bad".

I also agree that the problem of land has become a running sore and a scandal. I do not know how many millionaires have been created within three or four miles of me within the last six months. I believe the best way for a Conservative Government to tackle this is, first, to limit the amount of interest which may be charged against tax, and then what I think they technically call the "roll over" is thoroughly unjustified where a farmer sells perhaps 30 acres for £1 million and if he buys a thousand or so acres of much better farming country somewhere else he need not pay any capital gains tax if he does it within a year. That is recognised in the trade as being an anomaly which should go. The other one is the death-bed purchase of agricultural land. That of course is one of the most ridiculous things and it should not be supported by any serious Conservative. I could tell a very good story about that but I will not do so. I agree that a gesture is required and I think the gesture is worth making. At any rate, the things which I have listed here in my opinion would not affront any broadminded Conservative.

4.37 p.m.

BARONESS GAITSKELL

My Lords, despite the clear exposition given by the noble Lord, Lord Drumalbyn, of the Price and Pay Code, for which I was grateful to him, it is difficult for a non-economist like myself to work out the details of the percentage figures of price increases in pence and pounds. While the noble Lord was speaking I was trying to work out the percentage increase in the price of the modest honey that I have for breakfast, which in the last three weeks has risen from 25p per lb. to 17p per ½ lb. Perhaps someone would tell me the percentage increase.

LORD HAWKE

My Lords, it would help us more if we knew where it came from. Is it Mexican, Nicaraguan, New Zealand, Australian or English?

BARONESS GAITSKELL

My Lords, I had better not advertise it; I do not think that would be allowed in this House. It was an English firm; I think that covers it.

During the last decade the word "inflation" has been repeated throughout Britain and the affluent countries like a drum beat. Following some of the high-powered speeches that have already been made to-day, and noting some of the names on the list, and especially the expert and high-powered speech of my noble friend Lady Wootton of Abinger, I am afraid my comments will not add up to more than a resounding tinkle. The experience of the past 25 years has convinced most people that some form of national incomes policy to regulate our economy in a fair and just way is inescapable. Paternalistic management, as in the 19th century, becomes less and less effective as organisations become larger and larger and more complex. Under the last Labour Government Mr. George Brown (as he then was) showed brilliant foresight in setting up the Prices and Incomes Board under the leadership of Mr. Aubrey Jones, thus making it a non-partisan body. It was not powerful enough, but it was a beginning and a foundation from which any Government could learn about the problems and difficulties of the elusive growing inflation. The Prime Minister, Mr. Heath, on taking office chose to scuttle it. Now this Government have been forced to resort to a Price Commission and Pay Board, preferring the American name—I do not quite know why—as though the Labour Government's Prices and Incomes Board was an untouchable name.

There is, of course, little gratitude in politics, and neither the efforts of the noble Lord, Lord George-Brown, nor those of Mr. Aubrey Jones have been properly acknowledged. It was Mr. Reginald Maudling in a piece in The Times newspaper who pointed out Mr. Aubrey Jones' unique experience of the practical work of a prices and incomes policy. His book The New Inflation was published only last Friday and I feel that the Government could have profited very much from it if it had been published, say, a year ago. I have not had time to read it entirely or to digest it, but the clear prose reflects clear thinking and the wisdom that comes from practical experience.

I wonder why the Government think that a rule must have no exceptions when they make one, as in the case of the ancillary hospital workers. I doubt whether the whole edifice of the Government's counter-inflation proposals would have been endangered if the Government had made an exception of this case. I believe that public sympathy would have endorsed this move, and if other trade unions had taken the exception of such low-paid workers as a chance to press their own claims they would have been condemned by the public. I am afraid that the hard line taken on the very low-paid workers will sow the seeds of much bitterness in the future and will not help labour relations. Nor do I think that to subsidise a few essential foods—not foodstuffs—would be impossible for a Government who are adept, as we all know, at switching their policies when circumstances warrant. This Government, after all, are nothing if not versatile and they could have done something about the E.E.C. butter mountain. Or do the Government think that advertising has brainwashed the British public and that now they cannot tell Stork from butter? If I have any lingering anxieties and wavering confidence in the Government's Price and Pay Code it is because the Conservative Government's philosophy has large remnants of authoritarianism, inflexibility and paternalism, as shown by their monster of an Industrial Relations Act, and they are still allergic to the quest for fairness and equality that is, after all, uppermost and prevalent throughout the world to-day.

4.43 p.m.

LORD DOUGLASS OF CLEVELAND

My Lords, I too should like to thank the noble Lord, Lord Drumalbyn, for his clear exposition and the charming way in which he put over the arguments in support of the Code and the Act. Having said that, I wonder how much care the Government really have for the lower paid man? Those of your Lordships who will remember the debate on the Bill will remember that I suggested that the lower paid men—say up to £20 a week—should not have their wages frozen but should have a threshold agreement applied to them so that they would not suffer from increasing prices to the extent that they have suffered. The Government paid no attention to that, and if they are going to have the regard for the lower paid men which they say they have, then that is one of the things they could have done, and done comfortably, without it costing a lot; and it would have been something that would have given a sense of justice to the Bill itself.

There is another way, which some countries have adopted, of dealing with lower paid men; that is, to have a minimum wage operating in all industries. Will somebody tell me why there should not be a minimum wage on which a man is expected to live, something on which you base all your calculations? If you are going to put that at such a low level that a man cannot live—as some countries have done—you give away the principle that you are working for. I hope that if the Government are going to insist that they are concerned for the lower paid man to the extent that they aver, they will do something practical about it instead of asking the trade unions to do so.

I was interested in the contribution made by the noble Lord, Lord Wigg. He said that on some issues there was no difference between the two sides of the House. I never had the advantage, or disadvantage, of sitting in the other place, and always when I listen to debates in Parliament about industrial relations I am aghast at the fact that the Opposition must oppose. The first man I heard declare that as a fact was Winston Churchill. I wonder whether we will get industrial peace if the Opposition oppose? If they do not oppose how can Parliamentary procedure carry on? That is one of the problems I am trying to solve in my mind, and for this reason: I refused to go into the political field as a young man and kept in the industrial field. That does not mean that I was not concerned with politics. I sat on the Executive Committee of my own Party but I would not go into Parliament; I put in most of my time in the industrial field. If the trade unions and the employers had pursued a policy of opposition during my lifetime then our industry would be in a very parlous state to-day. It is no good making demands for high wages if the well from which you want to draw the water runs dry. You have to see that there is water in the well before you start to share it out. I spent, many hours thinking about how to solve this particular problem.

The noble Lord, Lord Hawke, mentioned Japan. Japan has had an increase in productivity of something like 30 per cent. a year for six years.

LORD RHODES

No!

LORD DOUGLASS OF CLEVELAND

Oh yes! My noble friend doubts that figure. In the Financial Times—I think of to-day—the figures are published, that in six years they have had 200 per cent. growth in productivity. That paper is not usually very wrong on these things.

LORD RHODES

My Lords, the noble Lord is getting mixed up. He is quoting yearly figures whereas the Financial Times is quoting exponential figures. It is a fact, is it not, that if you get interest at 10 per cent. you can double your capital in seven years? That is a different proposition from saying that it is 30 per cent. a year.

LORD DOUGLASS OF CLEVELAND

In six years it is 210 per cent. Shall we leave the mathematics to one side?

LORD RHODES

All right.

LORD DOUGLASS OF CLEVELAND

The noble Lord says that it is compound. So it is; but you can work the figures out and argue quite sensibly that it is 30 per cent.—as a matter of fact it is 35 per cent. if you work it out on the basis on which I wanted to work it out. In any case, it is extremely high. It also said that in Japan—and I know something about this because we organised the unions in Japan when I was with the International Metalworkers Federation—they have rights of seniority, inherent right up to the directors' board and even to the chairman; and, what some of us would perhaps think quite a good thing, men do not get sacked from the directors' board because they get old, they are kept on in those positions. It is so arranged that the young men do the work. The old men still get their money and the young men do some of the work for the money. But they all get quite a good sum of money.

I am not raising this point to be jocular; I am raising it to show what can be done if there is absolute collaboration between the worker in the workshop and the directors, management and all concerned. One can achieve an astronomical growth, in spite of what the noble Lord, Lord Wigg, said about the problems of growth in America. It is quite true that one could argue that they are not applying the growth properly, that they do not have regard to environmental and other problems. But the growth can be got in industry given a particular atmosphere, though I am not saying that it is the right one. I am looking at what is going to happen when we come to the third phase. In March the price of basic materials went up by 3 per cent., and in six months the price of basic industrial wholesale materials went up by 20 per cent. There is no sign that these imported raw materials are going to decrease in price over the next six or twelve months. If these basic raw material prices are going to rise—and we have to import them—I am wondering how the Government are going to get through Phase 3, when it comes to that, and achieve what they say they want to achieve, control of inflation and the necessary growth. Nothing has been said about how that particular problem is going to be dealt with.

If it is going to be dealt with, I am quite sure there will have to be a good deal more co-operation between the unions and the employers and the Government. In a previous debate, and indeed when this particular subject was being discussed, I asked that this subject should be referred to the National Econ omic Development Council, because that was the only body this Government had left which could discuss matters of this character. Instead of that they set up the Pay Board and the Price Commission and transferred some of the personnel. I cannot see how these particular problems are going to be debated and solved between the three parties who matter, the Government, industry and the trade unions, in time to do anything about Phase 3. Where you go from there is very difficult to know. To take investment alone, the extra cost of a 1 per cent. increase in the bank rate means, on £100 million of investment, £1 million extra to be paid in interest charges. That £1 million extra represents 33,000 jobs at £30 a week. When you are talking to workers about wage control they are going to say, "How do we fit in here, when interest rates have gone up in the way they have?" They have gone up 5 per cent. in these last few years, which is the equivalent of 150.000 jobs cost-wise. These are questions that are going to be asked by the trade unions, and no opportunity has really been given for them to be asked.

There is a difference between this country and, say, America or Germany or countries of that character, where they have industrial trade unionism. Where there is one union attached to one industry, then there is a sense of responsibility inculcated in that union, because, whether it likes it or not, the whole of its sustenance comes from that particular industry. Where there is multi-unionism in one industry, as we have in this country, that sense of responsibility is not nearly so acute. A small number of men can go on strike in one industry and stop the whole industry, without any particular cost to the union and without any great responsibility for the industry concerned.

We must examine this pretty closely, because one of the leaders of one of our biggest trade unions in this country said on Saturday that 95 per cent. of the people in this country do not strike. If that is true, it means that 5 per cent. are responsible for all the days lost by strikes in this country. If 5 per cent. of our people are having this effect on the 95 per cent.. it is really a problem for the T.U.C. rather than a problem for the Government, but it is something that I think should be examined. I often wonder why a Communist can get elected a trade union delegate fairly frequently and can never get elected to a local authority or the national Parliament. It is one of the things we have to examine. The reason is fairly simple. In a branch room you get a handful of members attending, you get a technique of debate which wearies those who want to discuss things sensibly, and very often at the end of the day you get a Marxist, a man who wants to destroy the system, elected. That happens all too often. It can be argued, of course, that we have a lot of good shop stewards in the country. We have 95 per cent. apparently. But 5 per cent. can cause this particular trouble.

When the miners had their trouble quite recently, they were sensible enough to refer it to a ballot—and, incidentally, they are an industrial union, just as the unions in America are, and they have a sense of responsibility to the industry they represent. The miners took a ballot and decided not to strike. I am not concerned with the merits, for or against; the miners themselves decided that. The point I am trying to make is that 80 per cent. of the miners made the decision as to what they wanted to do for that particular industry. I am convinced that we must have some other method of election of trade union officials in this country, and of negotiations. I think employers can help a great deal. It may be a long-term programme, but I think it can be made short-term.

You cannot get members to branch meetings to-day because most of them live miles away from the place in which they work and they get on the bus or the train and go home—and nobody can blame them for that. You cannot get them together for branch meetings. I suggest that employers have a contribution to make here. They could provide facilities for the trade unions to have their branch meetings on the job; they could even give time off to the men to have these branch meetings. I have not thought it out completely, but if they had the meeting half an hour before one shift went off, and other shift coming on started work half an hour later, this would be practicable, and the opportunity could be given for men to get together to understand what the argument was about. If you give them an opportunity to understand what the argument is about, you give them an opportunity to make a decision as to what the result should be. The result will probably be, as my noble friend Lord Beswick has said, that in regard to this incomes policy there is so much inconsistency that the Government will have to change it. Maybe that will come about at the end of the day, because when you come to Phase 3 I can see that you will be running into great difficulties.

Another factor which exists at the present time is related to housing prolems. This is the "lump" system in the building industry. The "lump" system means that the man is self-employed; he is not responsible to anybody but himself. He employs no apprentices. He moves around the job. The consequence of not employing apprentices is that there is a shortage of that particular class of craftsman in that particular industry, and as the shortage of craftsmen grows so does the inhibition on building grow with it. Unless craftsmen are trained to follow the craftsmen dying out, there will be no industry left so far as building is concerned. Moreover, these men are moving about from one site to another, completely at will, without any responsibility.

I am not the person who is making these complaints; it is the builders' trade union, U.B.A.T., which is making the complaints about this. So bad has it become that a Private Member's Bill is being put to the other place and is going to be discussed to make this lumping illegal and to say that contractors must be registered and when they are registered they must conduct the business in a civilised manner. Here there are, from our side, trade unions asking for a civilised approach to their particular problems. As I have said in debates in this House before, unless there is complete organisation inside a trade union there cannot be discipline inside that trade union. It must be self-imposed discipline. You must have the membership in the union, and the union, answerable for the people in that industry, if they are to talk to anybody. There is such a state of anarchy now in that industry that a Private Member's Bill, coming from this side of the House, is asking the Government to deal with this matter. This is a unique opportunity for the Government to get behind that Private Member's Bill and see to it that it does not suffer the fate of so many other Private Member's Bills.

I have not read the Bill. It may need amendment, but the intention is to have discipline inside the industry, because the union has lost control, and when the union has lost control the employers have lost control. There is a grand opportunity here for the Government and the Opposition to get behind the Bill and say, "We are supporting this Bill and we are going to have discipline in that industry". From that small seed I think we can have a growth of sensible trade unionism in this country where the Government accept the need for trade unions to be well organised, if they are to be answerable for the arguments they have put up, and the unions themselves accept the responsibility which is imperative if this country is to get the growth that we need to overcome the problems that will arise in Phase 3. My Lords, I should like to say a lot more, but there is a long Order Paper to-day. I therefore want to end on a point that needs thinking about. We now have trade unions asking, through a Private Member's Bill, for discipline to be established inside their industry. We are asking for the support of everybody concerned, and I think we are making a bigger step towards getting a successful approach to Phase 3 than we could in any other way.

5.2 p.m.

LORD WYNNE-JONES

My Lords, the fact that I am speaking on this side of the House to follow my noble friend Lord Douglass of Cleveland shows the complete spectrum which is represented inside our Party. I found it fascinating to listen to him—I am sure everyone did—because my noble friend is one whose understanding of the trade union movement is very deep and profound. I cannot say that I would always agree with him, but he would not expect me to. Nevertheless, in this matter of how we deal with prices and incomes and with the whole range of relationships involved, we must pay attention to the way in which people react, because it is people that matter in all this. We are concerned with trying to get an economic system to work effectively. I personally do not believe that the present economic system can or will work. Nevertheless, I want to try to see whether it is possible to make the present economic system work. I am quite sure that it cannot work at all unless there is some attempt at justice, at fairness. Unless we have that, there is no possibility of the economic system working. It will not be because there are certain ill-disposed people who are trying to upset it; it will be because people as a whole react against it and are not prepared to tolerate injustice.

I believe that any Government must face the fact that in any policy they put forward they are seeking national ends, people's ends and not the ends of a small section. We have to remember, my Lords, when we talk about incomes, about pay, that more than 90 per cent. of the people of this country are employees—only about 5 per cent. are in the position of being employers. In other words, by far the greater majority of us are paid people, paid in order to do jobs, and therefore the question of our pay and of our conditions of work determines the way in which we, the people, are able to conduct our lives. It is no good any Government imagining that they can impose on 90 per cent. of the people a way of life that the people do not want. So we have to pay attention to the way in which people want to live; the way they expect their relationships to be conducted.

This Order, the Counter-Inflation (Price and Pay Code) Order, is one by which the Government are attempting to deal with an inflationary situation. The Government have realised that their early idea that a prices and incomes policy was not necessary is not true; they now begin to realise that something has to be done. The idea that such a policy was not needed goes back a long time. I looked up the debate on the Queen's Speech in your Lordships' House in November, 1965, and the noble Earl, Lord Longford, who was then the Leader on the Government side, quoted from the Economist of the day. The Economist wrote: Certainly Labour now looks a better bet as the Party which might some day bring an incomes policy to fruition than the Conservatives, because the Conservatives are at present in the unfortunate process of running away from any determination to implement an incomes policy at all. That was in 1965. They have continued to run away from the idea of operating a policy. They scrapped the Prices and Incomes Board; they ran away from a policy until they found that economics caught up with them. They found that inflation became so serious that they had to do something about it. And so we have this Order which is before us. I do not think anyone on this side of the House will oppose this Order—we may oppose it in detail but not the general idea that there should be such an Order.

But, my Lords, when we look at this Order we still find, as my noble friend Lord Bcswick said, that there is no positive policy in the Code at all. In fact right at the start, on page 2, we see: 1. The Code has a dual function. First, the Price Commission and Pay Board are required to exercise their powers so as to ensure that it is implemented. Secondly, all those concerned with the determination of prices and pay should have regard to it. That is exactly the sort of instruction that is issued to a referee before he goes to referee a football game, and it is the same sort of instruction that is given to the players. In other words, the Price Commission and Pay Board are to be decent, fair referees and the players are told, "Behave decently and play the game". As has already been pointed out by my noble friend Lady Wootton of Abinger, fairness is not really so easily decided and fairness in vacuo is impossible.

Speaking of referees, there is a story of a Welsh referee in charge of a game in South Wales between two teams who knew one another only too well. There was a good deal of rough play going on and the referee saw a particularly vicious blow swung at a forward who was laid flat on his back. He went up to the forward and he said, "Dai Evans, if I see you knocked down again I will send you off the field". My Lords, that is the fairness of the man who understands the game and who knew exactly what had happened beforehand, but it is fairness that can be exercised only if you are actually involved. You cannot exercise that fairness if you are miles away or you have never played the game before and you do not understand the way in which people play it. So that this Code is, at best, something which is interim. It is of course stated to be interim, although we find that whereas the initiation date is put down the close of play is not indicated.

But although it is interim it sets a pattern, and either this Government intend to go on with the idea of a prices and incomes policy or they do not. If they intend to go on with it. then I suggest that they ought to start in the correct way. They may have to modify it, but they ought to start with the idea that they will do something which will improve relationships within industry in this country; in other words, they ought to be setting the foundations of something that is to be carried on. I have a nasty suspicion that if only they can stop inflation they will forget all about a prices and incomes policy. If they do it will be disastrous, because inflation is not something which arises now and again when we happen to have a particularly unfortunate economic situation. It is part of the whole warp and weft of our life; it is part of the way in which we are living. Unless we can come to some sensible agreement, we shall not have a happy society; and it is the happiness of our society which, basically, matters to us all. Without that, all our tricks, every devious expedient that we take, will be of no value to us at all.

I have been looking at this little book, The Earnings Conflict, which my noble friend Lord Brown recently brought out. It is a very interesting and fascinating book. How far one agrees altogether with it is another matter, because he puts forward all sorts of suggestions, many of them quite controversial. But he makes one or two points which we should bear in mind. He gives a quotation from Professor Roberts of the London School of Economics: The only condition under which unrestrained collective bargaining can flourish without causing damaging conflict and inflation is massive unemployment. That, I believe, is now true. That does not mean that collective bargaining is dead. What he says is "unrestrained collective bargaining". But we must have collective bargaining which works within certain guiding principles, and it must be understood that it is for the benefit both of the people inside an industry and of the country as a whole. Another point which he makes is: We live in circumstances to-day where the material standards of living are rising, while the psychological and sociological standards are falling. That is surely the recipe for collapse in a country, and we must be prepared to take it in hand, stop it and work properly.

The Government can rest assured—and I speak as someone who is rather far on the Left—that if they want to do this job in a clear, honest and decent way which, first of all, realiy guarantees that what my noble friend Lord Douglass referred to as the poverty part of our community is wiped out, and that we have a lower limit below which people cannot fall; and which, secondly, guarantees that the rest are able to find hope for themselves and steady progress, they will get a great deal of welcome and support. I should like to believe that they may rise to the occasion. I have not yet seen evidence of it.

5.15 p.m.

LORD RHODES

My Lords, by accident, I happen to be the last speaker on this side of the House, because my noble friend Lord Peddie cannot come. I make no claim to wind up or anything like that, but I should like to make some comments on what has been said on both sides of the House, despite the fact that so little has been said on the other side. Perhaps I take a different view from some, because I believe that this question of prices, the acquisition of raw materials and the development of the so-called growth throughout the world has sparked-off something which will never stop. It will keep going on and on until there is a change in the social system. Whether it is revolution against pollution, against the difference between rich and poor, or whatever it is, something has been started off and it is up to everybody to guide it along the right lines. It seems to me that the actions of the Government over the last few years have been anticipating a return to a kind of status quo, in which a lot of people have enjoyed great privileges. I do not think it is possible to go back to a status quo of that description. It may be that we cannot create an egalitarian society, but in their social legislation Governments of to-day should appear to be working towards it. In saying that, I compare what the Government have done in this pay Code and the circumstances leading up to it.

My noble friend Lord Beswick made an absolutely first-class speech. He got over exceptionally well his interpretation of the new radical thinking, and the new radical urge and desire there is throughout this country and the world. I was interested, too, in what my noble friend Lady Wootton said, and I would say to my noble friend Lord Douglass that it was only just before Christmas that I was selling her book on this very subject, on which she has been an expert for, at least—dare I say it?—36 years. Her book on this subject is still a classic, and I was delighted to introduce it to the Japanese.

BARONESS WOOTTON OF ABINGER

My Lords, the correct interpretation is 18 years ago.

LORD RHODES

When was it? Was it 1956?

BARONESS WOOTTON OF ABINGER

1955.

LORD RHODES

My Lords, I stand corrected. Nevertheless, that does not take any of the interest away from the fact that, at the present moment in Japan, they are studying what my noble friend Lady Wootton wrote in her book.

With regard to what Lord Douglass said about Japanese peace in industry, of course the whole structure is different and I do not want to start a long talk about what I found there on my four visits. However, if we are to take Japanese peace in industry as an example, we must add to what Lord Douglass said. We may have to imitate their financial structure at some time in the future. It should be realised that the Japanese financial structure is quite different from ours. They have four parts loan to one part equity, whereas we have one part loan to four parts equity. They pay very small dividends on their equity but they make enormous profits on it, putting it out to loan, and the workers are shown painstakingly how the money that they have earned is invested for their benefit in new enterprises and plants. That is a type of education this country will have to take up sooner or later.

There are certain points I should like to bring to the notice of the Government, because I do not think that this Code is going to work very well. We are now in Phase 2 and we have this Code. There are various opinions about it; the trades unions have said that there is not enough flexibility for the lower-paid worker, as Lord Douglass expressed it this afternoon. In its representations on the Code the Confederation of British Industry has definite views about how the productivity clauses affect industry generally. But the introduction of this Code is historic. For the first time we are waiting to see what will happen when pay and prices are controlled, whereas at the same time the money supply is inflated. I do not think that it has been done anywhere in the world before. I have my doubts whether it will work. There is hardly any control over the money supply at a time when interest rates are the highest on record and the annual increases in cash and credit are a record, too.

The Government think that the huge flow of extra money which cannot go into pay, prices or profits will go to stimulate growth of the right sort. I do not believe that it will; I do not think that by pumping all this money in the economy is going to make the heavy industries any busier or is going to spark off true growth and restraint. We know in the past that exceptional increases in money supply in Great Britain have been linked with high inflation and a high balance-of-payments deficit and we want to look out for that in 1974. What is certain is that in the next two months if wages and prices are controlled, with little or no control in the money supply, there will be further increases in the price of land, housing and precious metals and prices will go through the roof. Above all, big differences will be exaggerated between the rich and the poor. When I think about the rich and the poor, I think of the story George Tomlinson used to tell about the two boys in a family, when they had meat for their Sunday dinner. The little boy went home and said to his mother, "How is it that you give our John more meat than me?" and his mother said, "He's a bigger lad than thee." "Aye", said the little lad, "and he always will be if he has more meat"; that applies to the rich and the poor.

I should like to say something about what happened last Saturday afternoon. I went and stood at an estate agent's window. There was a whole row of houses for sale but not a single house to rent; the lowest price of any house advertised was £10.000. A young couple standing outside the window were looking at this list and they were nearly weeping. They said, "How on earth are we going to start, Lord Rhodes?" I said, "I do not know; you had better ask the Tory Government." The Government could do something about it. They have told us often—and have had it disproved so often, too—that the old-fashioned conception of a market has some validity. Let they try it with housing Take the figures. In the next three years the situation will be worse. During the present year in the private sector there will be a start on 220,000 houses and approximately 110,000 will be started within the public sector. I believe it is essential that there should be 500,000 houses built in this country every year. We know that acres of old houses have been bulldozed down in our provincial towns and in London. They are busy shifting the population from one place to another and fitting them into new communities, but there is a lack of drive on the part of the Government to put up enough new houses to come. It has been left to the market. They have said, "The land is dear"; then they will use it and put up the houses". Put up houses to rent.

There are all sorts of suggestions being made about what to do to remedy the situation. "Tax land values", somebody says, "and get more land into use"; others say, "Take off the controls that restrict the land available for housing". Some say, "You will have to end inflation before you can do this, that or the other". Some say, "Get the rate of interest down"; and the Labour Party says, "Nationalise all building land at once". You will have to do something about this—and quick—or you will have a lot of trouble on your hands. So build. You now see companies using company funds to invest in land and in property. It is a national scandal. But nobody does anything about it. This is the sort of thing that people are revolting about. They are revolting about property companies like Trafalgar House, which goes out of its way to buy a bankrupt company like Cunard at a small figure and then relieves itself of paying taxation on £5 million, and gets its taxation bill reduced to practically nothing at all. Are we to endure this for ever? Come on! If you want to weld a community, if you want a united country, you have got to love them, you have got to care for them. So get 500,000 houses built every year.

Now Phase 3. They have got it in America. What is happening? You read your papers. I will tell you what was happening last week in America—and I shall not be long. The leader of the A.F.L.C.I.O. told the House Banking Committee that substantive changes were needed in the Act—because the Americans are now bringing forward an Act to perpetuate the controls for another 12 months. What they suggested was that they should include direct price controls of raw farm products, a roll-back of interest rates, the imposition of rent control and the enactment of an excess profits tax. Now this is what the House Banking Committee have done. They voted a week last Tuesday that all food prices should go back to the levels prevailing at May 1, 1972. If we are following the American pattern, we must understand what we are letting ourselves in for. The Committee also voted a rollback of rents to the level of January 11, 1973; and so on. I do not want to labour that. But watch the American scene at the moment for what you can expect here when Phase 3 comes.

My next point is this. You are trying to do two things at once in paragraphs 19 to 25. How on earth do you expect industries which have had a lean time over the last three years to be able to recoup and put anything back into their industries, and so get the growth you want? Take the chemical industry as an instance—and I declare an interest. The profits in the chemical industry have been very low. They have not been more than about 7 or 8 per cent. over the last three years. The exact figures actually are that in 1973 the profit is expected to be 9 per cent. It was 8 per cent. in 1972 and 5.9 per cent. in 1971. Actually they need 15 per cent. When a chemical company is also caught up with a cyclical industry like the textile industry, the code must be flexible so that they can recoup, or else the competitive advantage goes to our foreign competitors. There are people in this House who, if they had the chance, would be able to tell you the kind of advantage that accrues now to British manufacturers in exporting over- seas rather than selling into the home market at lower prices. I ask the Government really to consider the implications of this.

There has been talk about Japan and investments. In this country we have always understood that the Stock Exchange had a role to play in the refurbishing of companies with new money. But in recent years the Government have done more refurbishing and more by way of putting new money into companies than the Stock Exchange. It might be a good thing to have a study as to whether the Stock Exchange is living up to what it was originally intended to do, by providing new money for industry. I must say at this juncture that I think the Minister, Lord Drumalbyn, has been one of the most courteous and helpful Ministers it has been my experience to deal with for a large number of years. He has gone to considerable pains over this Code to try to accommodate people who have ideas upon it, and I thank him for what he has already done for those industries which have a high labour content. He has done splendidly; but I would ask him to have another look at this question of the capital-intensive industries which are subject to cyclical trade. If he does that, there will be at any rate one person in this House who will be grateful.

I think it is time we had a real drive on this question of understanding where we are going. Even this afternoon, in this debate, on one side we have had people talking about the myth of growth, and about what growth means. Lord Douglass, in a magnificent speech which should be reported on every factory floor in the country, talked about growth in Japan. He expressed the opinion that the growth in Japan was an example to us here. Many people in this country are sheltering behind the excuse that growth is a bad thing. I think that too much growth in one particular part of the world is a bad thing, but spread over the world, including the underdeveloped countries, it is a fine thing. I hope to goodness we can have a fresh approach after the present (shall I say?) crisis has somewhat subsided—but the basic problem, I am afraid, will remain and a radical change of policy will be needed to deal with it.

5.40 p.m.

VISCOUNT AMORY

My Lords, I shall detain your Lordships for only two or three minutes. I always find it a great temptation to follow the noble Lord when I can because, although he is a hardheaded Yorkshireman and I an easygoing Devonian, we often find ourselves coming roughly to the same conclusion. I think the explanation is that we were both textile manufacturers. I should like to say that I agree with what he said about land prices and with what he said about the money supply and, wholeheartedly, with what he said about my noble friend Lord Drumalbyn. I have been lured to my feet because of the taunts of the noble Lords, Lord Beswick and Lord Rhodes, that some of us on this side have not been as garrulous as usual this afternoon. So far as I am concerned it is because, rightly or wrongly, I had thought that this debate was linked particularly with the mechanism required for Phase 2 and that, as far as Phase 2 is concerned, I think we have debated a great deal and we are now involved in action—and we need to get on with the action.

The mechanism for Phases 1 and 2 inevitably is not, nor does it attempt to be, a panacea for our social and economic difficulties. It is a rough and ready action which has become necessary to tackle one particular problem, that of price and cost inflation which had become something of an emergency. I think myself that Phase 2 is launched, and well launched; and I hope that the Government (I am sure they will) must now begin to draw attention to the consideration of Phase 3 which is a more important phase and one which I believe will last much longer. But these are short-term remedies. I should like to say in passing that I agree with the three points made by my noble friend Lord Hawke, of the things that he would like to see dealt with as quickly as possible. The noble Lord, Lord Wynne-Jones, raised the question of whether the prices and incomes policy was regarded by the present Government as likely to be permanent or short-term. I have no right to speak for the present Government, but I will only say, as one Back-Bencher on this side, that I should be surprised and disappointed if this does not become a permanent part of our policy. I believe that we are in an era when we require something of this kind.

My Lords, that brings me to my last point. In passing may I say that I was unfortunate enough to miss the speech by the noble Lord, Lord Douglass. I shall read it with great interest, as I always do when I have the misfortune to miss a speech that he has made. I should like to pay tribute to the extremely able and wise speech, I thought, of the noble Baroness, Lady Wootton, on the longer term. I told her afterwards that I was trying to find an opportunity to leap up and intervene, illegitimately, to phrase a question to which I did not want an answer but really to say how much I enjoyed the speech. We both agreed that this would have been a terrible thing to have done. I think the two points that she made are very true in the long term. We require—I do not know how to describe it—a new judicial arbitration system as a permanent part of our national institutions. It will be very difficult to create. I thought the noble Baroness was right in emphasising that the prerequisite to that is that certain principles have to be laid down as guidelines for the judges who will have to administer that system. But this is very long-term planning. I believe that, as she said, time is not on our side and that the sooner we get down to consider what this system will be, the better. I do not think it has any relation to Phases 1 and 2 or even to Phase 3, but it is something which I believe once built up—and there is no reason why we in this country, with our long experience in building up such institutions, should not build it—will be a model for the world.

My Lords, Phase 2 has got off to a great start. I hope that we may learn a little something from Phases 1 and 2 and that what we learn will help the Government to devise something appropriate for Phase 3. Far more important is that once we have gained time by overcoming the worst of this inflation trouble, we must settle down to some very hard, long-term thinking and be prepared to face some quite dramatic changes in the methods by which we try to find a solution to these important questions.

5.48 p.m.

THE EARL OF GOWRIE

My Lords, I begin by confessing myself puzzled that debates on economic affairs in your Lordships' House are consistently among the worst attended, certainly in the early part of the afternoon, yet they seem to be consistently among the best both in concision and usefulness. The contributions to this afternoon's debate have shown clearly and positively that the fight against inflation is a continuing process. Even where noble Lords were critical of tactics, they have applauded the strategy; and the Government are grateful. The Motion this afternoon is for an Affirmative Resolution. I cannot say that this afternoon's debate can be considered as part of the consultative process; but because the Government door is open to discussion of any problems arising within the overall pay and price limits during Phase 2, and because the welcome mat is firmly extended where any later stage is concerned, noble Lords will not, I hope, find their words wasted. If I may modify the words of that great Conservative thinker, Mr. P. G. Wodehouse, I have learned this afternoon that while many of your Lordships are far from being "gruntled" you are not actually disgruntled with the general conduct of this war. Even the noble Lord, Lord Beswick, I think, found the Code an improvement on the draft.

I hope that I may echo my noble friend who opened the debate and draw your Lordships' attention to the great improvements in the real living standards of our people to which this Government were originally committed and which this Government have attained and achieved. This afternoon's measure, I believe, will be applied, if it receives your Lordships' Affirmative Resolution, in a more favourable general economic climate than we have enjoyed for many years. I hope that the noble Lord, Lord Beswick, will tell that to his friends in New York. Is it not a positive policy to fight against inflation against a background of increased economic growth? I am not suggesting that everything in the garden is rosy, but simply that a few shoots are making themselves felt this spring.

To return to earth, the principal themes of to-day's debate have been food, land, people's expectations, the human and humane side of economic discussion and their connection with the Government's measures against inflation. The debate also dealt with the practical effects of such themes on the Code Order which we are discussing. First, I want to deal with something specific. The noble Lord, Lord Beswick, asked a specific question about Civil Service pay, and particularly he referred to a letter to the National Staff Side from my noble friend the Leader of the House. The letter did no more than refer to the terms of reference of the Pay Board and to point out that these did not prevent the Board from taking anything at all into account. My noble friend's letter, as the noble Lord, Lord Beswick, was kind enough to opine, was quite clear and explicit. It does not add to the policy already set out by the Government on the Pay Board's terms of reference on the Anomaly Study. There is no question of the Government overriding the Pay Board at this stage. If noble Lords feel that sight of the letter sent by the Lord Privy Seal will be helpful, then, subject to the agreement of the recipients, the National Staff Side, it will be possible to make this available to noble Lords.

LORD BESWICK

My Lords, if the noble Earl is finished on that point, may I ask—after what he has said, which was also quite explicit and in line with what was said by the noble Earl, the Leader of the House, although I think the civil servants, like myself, are still unable to understand what is meant—whether, as some people have concluded from the wording that has become known, a pay award to civil servants can be backdated to a date in Phase 2?

THE EARL OF GOWRIE

My Lords, I can say that there is no question of any additional payment over and above the pay limit in Phase 2, but I should not have thought that there was any need to think about such things as retrospective terms as yet, because the issue has not arisen, as the Pay Board has not recommended it.

LORD BESWICK

My Lords, I asked a specific question. The noble Lord, Lord Drumalbyn, said there can be no question of back-dating, of retrospective payment. The wording of this letter indicates—certainly some of the Press have taken it to indicate—that an award to the civil servants can be back-dated. Are we correct in so thinking?

THE EARL OF GOWRIE

My Lords, of course anomalies can be taken into account, but I repeat to the noble Lord, there is no question of this as the Pay Board has not recommended it. Certainly there is no question of any additional payment being made.

LORD BESWICK

My Lords, I must press the noble Earl because really he is being rather evasive. Certainly I agree that the matter has not arisen, as yet. I am asking as a matter of principle, can an award be back-dated or not?

THE EARL OF GOWRIE

My Lords, no particular back-dated case can be made. I can give the noble Lord that assurance, and I will see that he sees the letter of my noble friend the Leader of the House which I hope will be helpful to him in this context.

The noble Lord, Lord Beswick, in giving grudging support to the Code Order, concentrated his fire on the land issue; and other noble Lords—in particular the noble Lord, Lord Rhodes, in a notable speech—have done so as well. The Government are sure that the land hoarding charge will lead to a great deal more land with planning permission becoming available for development in the full sense of the word, and we are basing much of our policy on this. My noble friend Lord Hawke made some interesting suggestions of which we will take full note. But I would say to him that the answer to higher house prices, surely, is to build more houses, and this I am pleased to say is happening. In 1972, 227,000 private houses were started, instead of 165,000 as in 1970; and even so, during 1972 in the South-East alone—that is, outside Greater London—29,000 new building society mortgages went to borrowers under 25 as opposed to 24,000 in 1970. I hope that the noble Lord, Lord Rhodes, will take some encouragement from that and be able to pass the information on to his two young friends. The measures outlined in the White Paper—

LORD WIGG

My Lords, before the noble Earl leaves the question of houses, may I say that I am sure that he does not wish to mislead anyone, least of all himself. But just to give crude figures of the number of houses built, and then completely to ignore the policy followed by rich supporters of the Conservative Party of acquiring property and leaving it vacant, is surely to ignore the basis of the problem. If, when the House has risen, the noble Earl would care to come with me, I could show him where, within a mile of this House, he could find hundreds of fiats which are vacant and which have remained vacant for months.

THE EARL OF GOWRIE

My Lords, earlier the noble Lord, Lord Wigg, complained that proceedings in this House —I think he said between the "usual channels"—were not democratic. I think we are a democratic House, but we are not quite that elastic. I recognise the importance of land policies in the war against inflation. I must remind the noble Lord that in fact we are debating a Pay and Prices Code Order. I was simply giving words, which I thought were of some comfort and cheer, on the subject of the housing problem and on the way that the Government were proposing to tackle it in the context of the fight against inflation.

LORD RHODES

My Lords, is it not a fact that in 1974 there are going to be 10,000 fewer starts in the public sector than there were in 1973? Why is it that the public sector has been so reduced? Even in Aneurin Bevan's time they started with 300,000 and you are not going to get much more than 300,000 in 1974.

LORD HAWKE

My Lords, may I suggest that the noble Lord, Lord Rhodes, puts down a Motion on that subject and we shall all gladly take part in the debate? But it is a little wide of this particular matter.

THE EARL or GOWRIE

My Lords, I thank my noble friend Lord Hawke for "bailing me out" on this issue. I repeat my earlier assurances. I was anxious to try to deal with the housing question, as it had been raised, but I think it would be unfair to get into a technical debate about that problem at a time when it looks very likely that we may shortly be debating it.

LORD BESWICK

My Lords, is the noble Earl really saying, are the Government really saying, are the Government Back Bench supporters really saying, that one can consider a Pay and Prices Code without considering the impact of housing costs?

THE EARL OF GOWRIE

No, my Lords I am not saying that, and that is exactly why I raised the question myself. I did not decide to deal with the question of housing only because noble Lords had brought it up; I had decided to tackle it What I am saying is that questions such as that posed to me by the noble Lord, Lord Rhodes, are somewhat outside the framework of this debate, as I think the noble Lord will acknowledge. On the same subject, I think that the noble Lord recognised the problems connected with housing policy on questions to do with money supply. That was raised earlier. We recognise that the money supply grew very rapidly over the three months to mid-February, but we feel that the increase was exaggerated by the structure of money market rates which encouraged bank customers to draw on their overdrafts to invest in high-yielding bank liabilities. It is intended to finance the public sector borrowing requirements, so far as possible, in ways which will not increase the money supply. Bank lending to the private sector has been expanding rapidly. In part, this reflects the on-lending process to which I have already referred. The encouraging feature is that there seems to have been an underlying increase in lending to the manufacturing sector; and I must say to the noble Lord, Lord Beswick, and to others who have been nervous about growth, that of course we must encourage lending to the manufacturing sector so far as possible.

Before I leave housing, and as there is obviously a feeling in the House about it, may I say that the question of a stabilisation fund for mortgage rates was not, I think, directly raised in the debate, but it has certainly been in the air in another place and it looks like becoming a plank in the Labour Party's electoral programme. Certainly e Government would be happy to take on the Opposition on housing, land, prices and anything else. As to the stabilisation fund directly, the Government are not opposed to the idea—indeed, we believe that many vital interests coincide over it—but a stabilisation fund programme would, I think, take some time to work out. All I can say at the moment is that the Government are already talking to the societies about it.

My Lords, may I move on to the speech of the noble Baroness, Lady Wootton of Abinger. I am sorry that she cast me in the role of King Canute in this debate—I hope that he is not an honorary Member of your Lordships' House. I can say that those who drafted the Code had the benefit of seeing Mr. Jenkins's 24 loopholes and the Government are grateful for his help. We consider that the final version effectively blocks them. My other answer to the noble Baroness was made in effect by the noble Lord, Lord Wynne-Jones. I agree with him that one sees the members of the Pay Board rather in terms of referees, and not, as the noble Baroness seemed to imply, as arbitrators. If one may extend the analogy a little, one could say that the Code provides the rules of the game, the members of the Board are the referees and Government and Parliament—and perhaps the court of public opinion generally—compose the "Football Association".

LORD WYNNE-JONES

My Lords, does the noble Earl imply by that that the Government regard the whole of this matter as a game?

THE EARL OF GOWRIE

No, my Lords, I was, I hope courteously, taking up the noble Lord's own analogy.

LORD WYNNE-JONES

My Lords, I argued that the Government were taking it as a game, and now the noble Earl accepts my view.

THE EARL OF GOWRIE

My Lords, I think that the noble Lord is a little sophistic, but I recognise that this may be inevitable as he is a professor. I welcome what the noble Baroness said in terms of wide discussion. If I have any criticism of her speech, which I enjoyed, it would be that she ignored the fact that Stage 2 is something of a holding operation and it seemed to me that her debating points were really about Stage 3.

BARONESS WOOTTON 0F ABINGER

My Lords, certainly some of what I said related to Stage 3, but the noble Earl will realise that the Pay Board is expected to live in Stage 3, and perhaps Stages 4 and 5, and is already being asked to consider applications from people like the gas workers and the hospital workers for consideration of their most anamolous case which can be raised only in Stage 3. Therefore I think it is highly relevant.

THE EARL OF GOWRIE

My Lords, so, indeed, do I. The fact that the Pay Board is an executive body and runs around the field with the players, so to speak, does not preclude the fact that it can also act as an advisory body: and we imagine that it will build up a very big bank of experience which will be most useful for later stages. I do not mean to imply that it is in some way unfair for the noble Baroness to look forward to Stage 3. That is surely the value of this debate.

BARONESS WOOTTON OF ABINGER

My Lords, if the noble Earl will allow me to interrupt once more, my whole point was that it will need some guiding principles when we get to Stage 3—indeed, it needs some even in Stage 2—because it has to see that the present 4 per cent. and £1 limit is fairly applied, and it does not know what is fair.

THE EARL OF GOWRIE

My Lords. I can only say that the experience which the Board will achieve through Stage 2 will provide valuable guidelines for Stage 3. But again I fear that this discussion is perhaps a little metaphysical, as we are debating the Code Order and not Stage 3, as such. I was just anxious to point out that what is said in this debate on the Code Order is of course valuable for Stage 3.

I should like to say to the noble Lord, Lord Wigg, that even though a Whip is summing up, I was engaged in no "usual channels" plotting with the noble Lords opposite. I think that if any noble Lord is able to put a bomb under consensus politics—or perhaps I should say to "noble" consensus politics—it would be the noble Lord, Lord Wigg, though I was very entertained by the spectrum of Colonel Wigg and Brigadier Powell in cahoots over pricing mechanism. He asked about the difference between the two Parties, echoing what he felt was a lot of public feeling on this point. I have said that the difference between the two Parties is that between 1964 and 1970 the United King dom growth rate achieved only 2¼ per cent. compared with 5 per cent. of our main competitors overseas and the same 5 per cent. that the Government have achieved to-day. There has been talk about lip service to growth. We are not talking about infinite growth, as the noble Lord, Lord Wigg, suggested; we are talking about the relatively modest 5 per cent. which we can achieve, and are achieving.

My Lords, my noble friend Lord Hawke suggested that a pay and prices policy was inevitable. I was very entertained also in watching the face of the noble Lord, Lord Wigg, during the one Conservative contribution until my noble friend Lord Amory came in. Very radical suggestions were burning the back of my ears during my noble friend's speech. I agree with him that free collective bargaining depends to a considerable degree on social consensus, agreement to ends if not means, and that this degree of consensus did prove unattainable, though the Government have never concealed their regret that it did. To come to a specific point raised by my noble friend Lord Hawke as to controlling the prices of certain foods—potatoes, bacon, milk and cheese, I think he mentioned—the retail prices of liquid milk are already controlled. The price of cheese is related to the E.E.C. intervention price of butter. If cheese prices were kept down, milk would be converted into butter which would be sold to the Intervention Board. Potato prices depend primarily on the size of the crop, but this year pressure on prices has been eased by banning exports and prices are less than ½p per lb. higher than last year although the crop is smaller.

While we are on the subject of food, I must come to the speech of the noble Baroness, Lady Gaitskell. She tempted me into verse. I must answer: Is there honey still for tea? Not, alas!, until Stage 3. The problem here is that honey is predominantly an imported foodstuff—the amount of honey produced in this country is not particularly great. I am glad that her reluctance to advertise honey did not extend to performing the same service for Mr. Aubrey Jones's book, which I have read and have enjoyed. She talked on a more serious topic about the question of an exception for hospital workers. I would remind the noble Baroness that Stage 2 is not a freeze; that the hospital workers were not sent away empty handed and that the stage, which is limited as to time, is concerned with pay limits and not with a pay standstill. She mentioned—and other noble Lords have made reference to it—the butter mountain, and I was dreading this morning finding myself on the slopes of that particular edifice. But I can say that my right honourable friend the Minister of Agriculture, Fisheries and Food has urged upon his colleagues in the Council of Ministers the importance of curbing inflation, and has strenuously opposed certain proposals to increase product prices. My Lords, my right honourable friend is in there, fighting.

I come now to the notable speech of the noble Lord, Lord Douglass of Cleveland, and I very much agree with the noble Lord, Lord Rhodes, in his tribute to it and his hope that it will be read on every factory floor. In the White Paper, programme for controlling inflation, the Government stated that the resolution of problems of relativities and anomalies, which the noble Lord raised, both within and between groups of employees, must occupy an important place in any policy to deal with inflation in the longer term if it is to be effective and if it is to be seen to be fair. As an integral part of the consultations on the policy of controlling inflation the Government would seek the help of the Pay Board and its advisory council on these problems. I would point out to the noble Lord, Lord Douglass of Cleveland, that the ex-Director General of the N.E.D.C. is now the Chairman of the Pay Board, and I hope he will draw some comfort from that.

My Lords, the Government intend to make progress during Stage 3 towards resolving anomalies arising during the standstill within the total amount available for pay increases during this stage. The Pay Board, of course, will provide the basis for consultation on this issue on both sides of industry, and, as I have said, we are most anxious for such consultations. The Government would welcome a further report by the end of the year on any problems on pay relativities which may arise both within and between groups of employees. The Government would intend to pursue further consultations on the basis of such a report, and indeed upon the basis of the noble Lord's many useful remarks in this debate, including proposals first made during the tripartite talks last year for a national minimum wage.

I come to the speech of the noble Lord, Lord Wynne-Jones, with whom I have already had exchanges. He said that material standards are rising while psychological standards are falling. I agree with him that this would be a recipe for disaster. But does the noble Lord really think that the "sick man of Europe" where growth is concerned should become psychologically fitter and happier? I should like to debate that point with him, privately, perhaps, and at more leisure. I agree with my noble friend Lord Amory, reacting to Lord Wynne-Jones's observation, that growth is not a panacea for all ills. Nor is an incomes policy a panacea for all ills. But it is a reaction to a dangerous situation which was threatening the very real achievements of the country and, I would of course say, of the Government as well.

My Lords, I must come to an end. The Code which we have been discussing will, as my noble friend the Minister Without Portfolio said, play a central role in the Government's counter-inflation strategy. We are now broadly on the growth target which we set ourselves, and there has been a remarkable degree of consensus on this point. We have taken steps to encourage a higher level of investment. We are continuing the fight against inflation. The measures we have taken are complementary. The policies contained in the Code, which are necessary steps if we are to bring inflation under control, are in no way incompatible with the achievement of higher growth and investment. The Code in its final form includes significant provisions to ensure that investment is not impeded by the restraints on prices. And of course the knowledge that inflation is being brought under control will itself provide the confidence in the longer term which is necessary for investment.

Confidence and consent are of course sought by any Government. We very much welcome and acknowledge the broad acceptance of Stage 2 by the trade unions. Where the working of this Stage, and where of course the future is concerned, the Government's door is, as I said at the beginning, wide open to any discussion with the movement and, indeed, with all sides of industry. We have always proceeded through consultation and discussion and have never sought to dwell in what Mr. Scanlon has eloquently and usefully called the "coward's castle" of a complete ban on talks. The noble Lord, Lord Beswick, speaking for the Opposition, stressed the importance of the spirit in fighting inflation. That surely is our spirit. The Government's policies are not, as some critics have suggested, the symbol of a change of course; rather, the objective and course have remained the same, but the mode of transport has changed. The Code is the most suitable vehicle for Stage 2 of the battle against inflation. For that reason I therefore commend it warmly to your Lordships.

On Question, Motion agreed to.