HL Deb 18 December 1973 vol 348 cc190-212

2.56 p.m.

THE LORD PRIVY SEAL (LORD WINDLESHAM) rose to move, That this House takes note of the current economic situation with particular regard to the grave shortages of energy and the need to conserve supplies of fuel. The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. At the beginning of this debate perhaps I might inform the House how it is proposed that the debate should proceed. As noble Lords will know, it was agreed yesterday through the usual channels that the occasion, and the interest shown by your Lordships, warranted a two-day debate, but with most of the speakers speaking to-day. As your Lordships will see, we have a long list of speakers for to-day, and my noble friend Lord Drumalbyn will wind up for the Government to-night. He will be able to answer points which have arisen during the debate this afternoon and this evening. To-morrow the noble Lord, Lord Beswick, will open the debate from the Opposition Benches, and my noble and learned friend the Lord Chancellor will wind up the debate for the Government. So far as the two further Motions on the Order Paper, are concerned, dealing with the State of Emergency, I hope your Lordships will agree that these should be taken formally when we reach them later to-night, since there will be an opportunity for raising any questions on them during the course of debate to-day or to-morrow, if your Lordships will be content with that arrangement.

My Lords, the wording of the Motion before the House to-day is deliberately neutral and is deliberately low key. In no way does it seek to diminish the importance and the urgency of the situation, or the importance and the urgency of our debate. The Motion aims to provide an opportunity for all noble Lords to contribute advice and comments on the basis of the wide range of experience and wisdom that exists in your Lordships' House. To employ the current jargon the Motion "leans over backwards" to avoid being divisive. In this House, in a situation such as this, surely our responsibility is to stand back, to analyse the causes of the present grave situation, and to think deeply and—I would suggest—as dispassionately as possible about what we consider should be done.

I believe there is little difference among those who have thought about it in regard to the seriousness and the dimensions of the energy problem. Oil is in short supply as a result of the recent war in the Middle East. Moreover, the price has been substantially increased by the producing countries. The international aspects of this were discussed by the Heads of Government and by the Heads of State of the Member countries of the European Economic Community when they met at Copenhagen a few days ago. The decisions taken at Copenhagen cover the whole field of the current energy crisis, from the immediate questions of supply to long-term energy policy. The Council of Ministers was instructed to work out ways to implement a concerted plan for saving energy, and the Commission was asked to submit to the Council as quickly as possible proposals to deal with the present problems in a collective way.

Another important decision taken at Copenhagen was to join with other oil-consuming countries, and the O.E.C.D. in seeking solutions for all these problems. Noble Lords will recall the proposal made by Dr. Kissinger in London a week ago, and the welcome which the Government then gave to it. There is an obvious need for the industrialised nations to take counsel together, and we are looking for ways which will enable us to follow Dr. Kisinger's approach, recognising the mutual needs of consumers and producers, and also recognising the need to cover the anxieties of the O.E.C.D. countries as a whole, including the members of the European Community. My Lords, behind all the discussions, behind all the proposals, lay a common awareness of the need to get to the roots of the problem; that is, the paramount necessity of achieving a more permanent peace settlement in the Middle East

It is too easy to say that this crisis has caught Britain unprepared. In fact, the Government put in hand in 1971 work on the development of a strategy for mineral resources. I believe we are all agreed on the need to maintain the coal industry; on the need to exploit, and exploit as rapidly as possible, oil on the Continental Shelf; and on the need to press on with the development of nuclear power. But in the modern world even localised wars can have a widespread economic effect. Like throwing a stone into a pool, the consequences ripple outwards, the waves growing in size as they cross the rocks protecting distant economies, until they break, reaching far up our shores. We have recently experienced massive increases in world prices of food and raw materials. Also, the cost of oil represents a most significant shift in the basic economic conditions in which we as a country have to operate. As a nation, we have no alternative but to recognise this change, unwelcome as it may be. We have no alternative but to understand its consequences. Above all, we have no alternative to ordering our society in such a way that we can best face up to the challenges and the difficulties which it brings.

No one should underestimate the gravity of the present short-term situation. The immediate consequences point towards a diminution of earnings, towards higher unemployment and towards substantial losses of production. Each of these is equally unwelcome. Together they combine to signal a postponement of many of our hopes for the future, including our hope for a continued rise in the standard of living. The measures that have been taken, in the Government's view, are the minimum necessary to secure electricity supply from major disruption, to protect essential services from dislocation and to ensure the continuation of industrial activity on the highest level consistant with the supply situation. As I have said in this House previously, there are several factors which have led to this situation. There is the shortage of oil, to which I have already referred; there is the onset of winter, and for this, at least, the Government cannot be held responsible; and there is the industrial action by the coalminers, the train drivers and the power engineers.

While I think it is as well to avoid singling out any one cause of the present crisis, I doubt whether there are any of your Lordships, or anyone in this country, who would deny that the action of these groups at this time, whatever the motives, whatever the accidents in timing, has been a contributory factor which has aggravated the situation in which we find ourselves. If it had been simply a question of oil supplies we could probably have got through the winter without a significant reduction in industrial output and without cuts in electricity supply.

My Lords, the measures taken by the Secretary of State for Trade and Industry on November 19 ensured that oil stocks remained at levels which should have been just adequate to meet reduced demand. There was some justification for believing that the 10 per cent. cut in deliveries imposed on industry and consumers generally would have held the position without cutting down on production, at any rate until further planned measures could be considered and introduced, if necessary, after due public notice. Yet the fact remains that electricity is an Achilles heel of our industrialised society. May be we use too much electricity; may be we use it too extravagantly, particularly in the home. But electricity is essential to our normal existence and not merely to our convenience. In practice, it is coal, and not oil, upon which we depend to a large extent for electricity supplies. Coal accounts for 70 per cent. of electricity generation, oil for about 20 per cent. Deliveries to power stations over the past four weeks have averaged less than two-thirds of the deliveries of coal they were expecting. As a result, the Central Electricity Generating Board stocks of coal, which stood at 16 million tons in October, are now running down at the rate of one million tons per week, three times the normal rate. Moreover, 800,000 tons of coal each week are normally moved to power stations by rail, and the ASLEF action is already beginning to affect these deliveries.

Next, I might remind your Lordships that it is coal, and not oil, upon which we depend for the production of steel. Without steel, the construction industry of this country cannot operate. About 75 per cent. of total crude steel production relies upon the coking method, the rest on electric are furnaces. Deliveries of coking coal over the past four weeks have fallen by 35 per cent. I shall not trouble your Lordships with any more statistics, but I believe that those I have quoted contain the answer to those who say "But the miners are not on strike; it is only an overtime ban." It was meant to have an effect, and has had the effect that was intended.

Confronted with this situation no Government could have sat back without taking action. Without the measures announced by my right honourable friend the Prime Minister last Thursday, which I repeated in your Lordships' House, widespread and indiscriminate disconnections would have been inevitably followed by a real threat to the continuation of the central services. This short-tern situation is not, though, exclusively the product of shortages of oil, although that is an important factor. It is also internal; it is also domestic. We ourselves must solve it, but we must solve it in a way which leaves us as a country in a position where we can resume the expansion of our productive capacity with the minimum interruption, where British industry can seize all the opportunities that will exist in the export markets of the world and where we have the means to return to the path of growth, which is still the right path—in the long run the only path—to follow.

My Lords, this brings us back to the central problem which has faced successive Governments and which has been so elusive: how, in a free society, in a society which cherishes its traditions (free collective bargaining no less than other traditions), is it possible to counter the insidious spread of inflation?—for counter it we must. A year ago in this House, and in Parliament as a whole, it was decided that it was vital to our prospects for economic expansion to find some way to check the exceptionally rapid growth in wages. Nothing that has happened since has changed that imperative. Everyone knows in his heart that we have to find a way of settling wage increases which are within the bounds of what the nation can afford, which are fair to the groups involved, which are fair also to the rest of the community, including housewives, pensioners and those on fixed incomes. The Party opposite wrestled with the problem when they were in office; so have Governments throughout most of the developed world. So, while being realistic, we should not feel that this is an affliction which is in any way novel or to which others have found a satisfactory solution which has eluded us.

Let me come to Stage 3—the phase of the counter-inflation policy at which we had arrived before the present crisis. Of course this is not an end in itself. My right honourable friend the Prime Minister has never ruled out the possibility that if the situation made it necessary the Government would come back to Parliament and ask for a revision of the Code's provisions. But, to be frank, in the new circumstances, if any revision is justified the logical conclusion points towards there being greater, and not fewer, restrictions on the pay increases authorised in the Code. Each of the present industrial disputes, we might recall, are not about the Industrial Relations Act; they are all about pay.


My Lords, if I may interrupt the noble Lord on that one point, the impression is being continually spread by the Government that the Code is completely inflexible and that the Government have retained no power granted to them by Parliament in order to deal with exceptional circumstances or provisions. Is it not the case that Parliament gave the Government power to override any award by the Pay Board, and made it clear that final responsibility rested with the Government and therefore, in turn, with Parliament?


My Lords, the Government have made it clear on repeated occasions that, in our view, the only fair way to restrain growth in incomes to a level that we can afford is to do so within the provisions of a published set of rules which apply to everyone, and that remains the position.

I was saying that each of the present disputes is not about the Industrial Relations Act. We should be clear about this; these are disputes about pay. The Government's position is simple to state, and it is what I have just said in reply to the noble Lord, Lord Diamond; it is that all settlements should be contained within the provisions of the Pay Code. I do not think the debate will lack advice from those noble Lords who feel that this policy is too rigid and that what is needed is what is described as a more flexible approach, which, when interpreted into everyday language, normally means a settlement outside the terms of the Code. As a damaging dispute grinds on, often in my experience with increasing apprehension on both sides, it is so easy to say that the cost of settling on the terms demanded by those engaged in industrial action is less damaging than in continuing to live with the consequences of not doing so. Yet each time this argument is heeded it makes the task of countering inflation that much more difficult.

In fact I accept much of the argument about flexibility. It is already an integral part of the counter-inflation policy. Stage 1, the standstill, was of course rigid. That was its purpose, and that was why it could only last for a short time. Stage 2 was more flexible and Stage 3 is more flexible still. It makes provision for the lower paid. It makes provision for those who work inconvenient hours. It makes provision for those who were caught by anomalies in Stage 1 and Stage 2. It makes provision for those who can improve the efficiency of their work. Finally, it makes provision against the erosion of living standards by rises beyond a certain point in the cost of living. These are all features which are quite legitimately permitted under the Code and which have been taken advantage of by over 3 million workers now covered by settlements reported to the Pay Board under Stage 3. So let us not talk about lack of flexibility. Equally the Government are determined to be approachable, to consult, to listen, and to try to find solutions which are acceptable to all the interests involved. Anyone who knows my right honourable friend the Secretary of State for Employment will accept that that is his way of going about things, as it was and still is the way of my right honourable friends who fashioned each stage of the counter-inflation policy.

Yesterday, in his Statement, the Chancellor of the Exchequer showed his resolve to act in a manner that would seem as fair as possible to all sections of the community. In addition to the cuts in public expenditure amounting to £1,200 million, and the restrictions on hire-purchase and credit, there are new tax rates on substantial capital gains from land or buildings with development value and potential. This provision is accompanied by a 10 per cent. surtax levy which will hit about 400,000 people in the higher income brackets.

Of course it is easy to say that this is not enough. But the measures the Chancellor has taken represent a considered judgment of the action necessary to reduce demand for goods and services at home and to free resources for exports. Moreover, he had to keep in mind the importance of doing so in such a way as to avoid adding to the inflationary spiral by putting up the price of goods in the shops. Thus there is no increase in indirect taxation, even on so-called luxuries like cigarettes and drink. All experience has shown that measures of this nature are reflected immediately in higher retail prices with their effect on the cost of living and consequently upon wage claims. But the Chancellor acknowledged the uncertainties which are inherent in the present situation, and stated that he would have no hesitation in coming forward with further measures if developments should require them.

The impact of the extra cost of oil on the balance of payments is, of course, very significant indeed. As the Chancellor said in his Statement in another place yesterday, the deficit has been financed to a large degree by overseas borrowing by the public sector. He went on to point out that international borrowing will now take on an entirely new dimension for the world as a whole. My right honourable friend continued, and I quote his words: From some of the talks I have had, there is emerging, I believe, a general consensus that the industrial nations as a group must expect to some extent to borrow back the money to pay for this increase in the price of oil, rather than to join in a self-defeating deflationary or protectionist race to counteract the effect of the price rise on the current balance of each individual country. But in our case, given our substantial deficit without the oil problem, some corrective action now needs to be taken to keep the prospective total deficit within acceptable limits. Those words are taken from the Commons Hansard for the December 18, 1973, at col. 954.

Thus the very large cuts in public expenditure, £1,200 million, a very substantial reduction indeed, in what was planned for next year, are intended to protect the balance of payments not only from the severe effects of oil, but also from the dislocation of the immediate energy crisis at home. In the longer term we must continue to give first priority to exports, in order to offset to the greatest extent possible the increased cost of imported oil.


My Lords, I thank the noble Lord for his courtesy in giving way. I wish just to ask for information. He says that £1,200 million have been taken out of the economy, whim what has happened is that an increase in the financial year 1974–75 has been cut back. How can be reconcile these two statements?


My Lords, the noble Lord is going to speak later in the debate. What he says is technically correct. He is expert in these matters. It was proposed that there should be an increase (I am speaking from memory) of the order of 2 per cent. in public expenditure, and instead of that increase there will be a reduction of some 2 per cent. compared with the figure for last year. I hope that the noble Lord will develop his thoughts in his speech and we shall listen to it with great interest when he comes to make it.


My Lords, during this interruption, may I give the noble Lord an opportunity to correct something in Hansard. He said that we should find a certain figure in Hansard of December 18; I think that he should have said "December 17", which was yesterday. He was probably thinking of what the Tory manifesto called "A Better Tomorrow".


My Lords, I was looking ahead, as usual.

I have spoken for long enough in opening this debate. I am aware that I have gone very quickly over a great deal of ground in doing so, but I thought that it would be helpful to do so in order to mark out the Government's position on the main features of the present overall situation that noble Lords will be dealing with in their speeches. In what I have said I have tried to avoid two pitfalls. The first is complacency: a real danger now, as it has been so often in our economic past—irrespective of which Party has been in power. This normally takes the form of a belief that if we "knock along" pretty much as we are things will somehow sort themselves out. The second danger lies at the opposite pole; that is, of talking ourselves into a state of deep gloom or of excitable panic. Neither of these is the way to respond in a crisis. What is needed is a calm appraisal of the reality of the situation; a judgment of the measures which are called for to meet it; and the courage and tenacity to see them through. This is the task which faces not just the Government but also Parliament, and indeed the whole nation. I believe that our debate in this House will be a true reflection of this spirit. My Lords, I beg to move.

Moved, That this House takes note of the current economic situation with particular regard to the grave shortages of energy and the need to conserve supplies of fuel.—(Lord Windlesham.)


My Lords, before my noble friend Lord Diamond speaks may I say that I am not clear how much the noble Lord has reported of the meeting of Ministers in Copenhagen. If what he has said was a full report, it seems to have been a rather thin meeting. I realise that he may be in difficulty. In order to get us out of this difficulty, and in so far as this Statement is important to the debate, perhaps the noble Lord would agree that when we see what is in the Statement we can judge whether or not it would be convenient to read it to the House so that in the course of the debate to-day noble Lords may know whether to take it into account. It may be that the noble Lord knows there is nothing in it anyway; but we do not.


My Lords, I am sure that anything which is for the convenience of the House the Government would try to do. The position is rather difficult. The Prime Minister has not yet stood up to make his Statement. However, if in the course of the debate the noble Lord the Leader of the Opposition and I can get together on this point, I am sure we shall be able to find a satisfactory solution.

3.25 p.m.


My Lords, the noble Lord the Leader of the House, when introducing this debate, drew our attention to the deliberately neutral wording of the Motion and its low key. I think that he said that he intended to speak in a low key himself. If I may, with respect, say so, I think that that is not only appropriate but demanded of us on all sides of the House. The situation is far too critical, for example, for me to score the 101 bulls-eyes that would be just too easy. The situation is much too critical for that. The responsibility that rests on all of us can only be carried out in the case of one who has the privilege of speaking from this Box, by devoting the majority of one's comments to the way forward rather than to the reasons as to why we find ourselves in this position. The position, in my view, is at all events potentially highly critical. It is certainly not the case that we are in dire straights at this moment; it is clearly the case that we could be in very difficult circumstances indeed. We could be facing widespread disruption to industry; we could be facing discomfort for the comfortably off and hardship to the poor and elderly; we could, in the longer term, be suffering a lowering of our standard of living that would, at a minimum, take us a decade to recover from completely—that is to say, to get back to the position we would have been in had there been normal growth. Therefore, I will say but little of the situation in which we find ourselves and the reasons for it, but a little I must say.

I do not need to criticise the Government because the Government are their own most authoritative critic by their change of plan. By their use on numerous occasions of what has come to be called their "U-turns" they have satisfied everybody that the policies which they were originally following out, and which they have left on one side, were the wrong policies. It does not need any words of anybody on this side to add to that full and authoritative criticism. The last example of that was the one we heard yesterday—and I welcome it—of, at long last, some measure of additional taxation, some measure of recovering for the nation the unearned increment in property values deriving mainly from the contribution of the community for the benefit of the person or the company which happened to be in possession at that moment. We welcome that, inadequate though it is.

What I must refer to, because we are faced with the consequences of it now, is the policy, which largely the Government have left behind, of confrontation with the unions. Lest it be thought that I am in error in mentioning this, I would refer shortly to a debate which was held on February 16, 1972. I hope that the House will forgive me if I quote very shortly from my favourite author—a habit which all of us have from time to time. We were discussing the unemployment situation and economic policy, and I was referring to the cost of the error of the Government. I said at column 281: That is the cost of the Government's fatal error and determination to have a show-down with the miners which has been planned since last August or September. But that is not the end—there is another year next year. … What are the miners going to say next year when they recognise the power that they hold? What are they going to say when they see the weaknesses which the Government have disclosed in the set-up? What are the power workers going to say in a year's time? Of course that was not welcomed when I said it—the noble Lord, Lord Thorneycroft, the noble Viscount, Lord Watkinson, and the noble Earl the then Leader of the House all took me to task for making such an unwelcome comment. The reason I said it is that of course you cannot judge to-day's situation without having some regard to the causes of it and you cannot sow the wind without reaping the whirlwind.

My Lords, we have had a series of Government measures. The noble Lord the Leader of the House, said that we might regard them as inadequate. Indeed, we do. Public expenditure cuts, with which I am not wholly unfamiliar, are very slow acting; they are very difficult to achieve; they are extremely wasteful. The renegotiation of contracts, which is the euphemism the Chancellor used, means that you pay heavy damages for breaches of contract with those with whom you have entered into firm contracts for capital construction of one kind or another. The imposition of percentage cuts, by which the Government are proposing to arrive at these reductions over the whole board, is not government; it is not selective; it is not making choices; it is the denial of government. Those public expenditure cuts will result in a very high proposition of nugatory expenditure and are wholly inadequate for their purpose. The reduced subsidies on coal and electricity are wholly inadequate for the purposes of dealing with the energy crisis. In fact, to be fair, the Chancellor of the Exchequer made it quite clear in reply to a question during the course of yesterday's proceedings in the other place that there would be no difference whatsoever were our industrial trout les disposed of immediately. He said and I quote: If, as we all hope, the industrial troubles are settled soon, certainly there would be no immediate change in the proposals that I have made."—[OFFICIAL REPORT, Commons, 17/12/73; col. 976.] The 10 per cent. surcharge on higher incomes is quite inadequate to deal with the redistribution of income which is needed to meet the hardships which will be suffered. The tax on property profits will be wholly inadequate to deal with the sense of unfairness which is so widespread, and the credit restrictions are quite inadequate to deal with the inflationary pressures which have been caused by the Government's monetary policy, their £4 billion deficit and their marked preference for printing notes rather than paying their way. That, my Lords, is all I would restrict myself to saying, and it is a far greater restriction on this side than on that side to keep the debate in a low key to-day. It is all I should want to say on the situation we have reached, because, as I said, I want to devote the greater part of my speech to what I think is a possible way forward. And for this purpose and to avoid being affected by the emotion of the occasion, I have made what I believe your Lordships call "very full notes".

We are surrounded by many difficulties and faced with huge potential dangers. Nevertheless, I must attempt to single out and define the main problem, and as I see it it is this: why are we as a nation achieving so much less than our capability? Why is it that we seem incapable of summoning up the necessary spirit of co-operative enterprise? Why do we have to suffer from so many self-inflicted wounds? And as we all desire to live as a community, why cannot we take pleasure in making the largest possible contribution rather than subject ourselves to the misery of making certain that whatever our needs we must get out of the common pool more than our neighbours? It is very easy to point to the faults in others—errors in Government, authoritarianism in management, the determination of some union officials to win battles for their own sake.

My starting point is none of those. It is with us here in Parliament. Are we acting as responsibly as is possible? Is our system such as to encourage us to do and to say whatever will assist most in fostering a sense of community and co-operation? The Chancellor makes certain proposals which he believes to be in the national interest. The Shadow Chancellor demonstrates, rightly in my view, that they are not. The Prime Minister appeals to the nation on radio and television to support the Government. The Leader of the Opposition, rightly in my view, puts forward different proposals. The Government of the day propose; the Opposition of the day, as is their duty, oppose. What is the man in the street to believe? How is he to get the leadership which alone will convince him that one paramount task lies ahead of him and that he must pursue it with all his energy in his own interest?

My Lords, consider for a moment the business that would have been taken to-day but is now going to be taken after this debate is over—tomorrow I believe—the business dealing with Northern Ireland. We all recognise the excellent progress that has been achieved there. I am suggesting that that has been achieved in part because Parliament made it possible. It enabled the world to see that the Government were acting with the united strength of Parliament and the people behind it. Nobody knows better than the noble Lord the Leader of the House, and indeed my noble friend the Leader of our Party, that there was never a time when there was a major difference of view between the Parties and an expression of that difference. What a shambles would have existed had there been such a major difference!

Before going on to make the suggestions which I now think are derived from the facts which I have described, can I make it absolutely clear that I speak entirely for myself, without any authority? I have consulted nobody; I thought it wiser and less embarrassing to all concerned that I should stick out my own neck and let what might happen happen. And can I make clear what I am not suggesting? I am not suggesting a coalition Government. That is appropriate, in my view, only where a Government are faced with a single task such as winning a war. Nor am I going to forget that it is of the essence of democracy that the people should be able to choose an alternative Government, which is the complete justification of the Party system. I am suggesting that there are, from time to time, issues of such gravity that Parliament must speak with a single voice—whatever the differences and whatever the difficulties—for only in this way will Parliament be able to give the necessary leadership which, if it is not forthcoming from Westminster, will be sought elsewhere.

I repeat that I do not refer to the whole held of Government, but to a single special issue of profound importance to the nation. It does not mean that the Government are relieved of their responsibility for ascertaining the facts and working out remedies. It does not mean that the Opposition must cease critical examination, or working out alternative solutions if these seem better. It does mean that, through some informal machinery, representatives of the three Parties should meet, and meet privately; should be provided on a Privy Counsellor basis with all the facts available; should endeavour, by compromise, by some sacrifice of Party philosophy and of Party advantage, to see whether agreement could be reached on what might be recommended to Parliament with the authority of all the Front Benches; and should then, subject to the views of Parliament, recommend it to the nation. It would not be easy, but it would not be impossible.

My Lords, there is such an issue facing the nation: the issue of maintaining production and so preventing massive unemployment and widespread hardship. It is essential in the interests of the nation that a solution be found, and soon. It is essential in the interests of democracy that Parliament should rise to its full stature.

3.41 p.m.


My Lords, I was quite unaware of what the noble Lord, Lord Diamond, was going to say, but in regard to his suggestion that the three Parties should informally get together on this matter I assume that if the Government responded to this suggestion in the way in which the noble Lord, Lord Diamond, has put it forward then we on these Benches would be only too glad to collaborate. My Lords, we are, as your Lordships are all too well aware, faced with a problem in which there are four separate, though related, elements; and it is part of the nature of the problem that what is an appropriate policy to deal with one of those elements may not be right for dealing with one or other of the remainder. So the problem of finding solutions is the problem of finding a balanced solution to the various facets of the problem which confronts us. The four elements, as your Lordships are aware, are inflation, the balance of payments, the industrial relations troubles and the economic consequences which flow from them, and, as I see it, overwhelmingly the problem of energy and of the oil situation.

Now there are many speakers, and I will be brief. Of course it is right in the existing circumstances that the Government should have taken action, as they did yesterday, to attempt to restrict inflation. But I would agree with the suggestions which have already been made, that the cuts in Government expenditure will be too remote in their action to deal adequately with the immediate requirements for a curtailment of expenditure. It will be months before we begin to feel the effects of that change, and it may well be within weeks that we need to cut back on purchasing power. But, having said that we agree with the need to curtail purchasing power and therefore recognise the need for the cutback in public expenditure, may I also say that, dangerous though inflation is, a plunge into deflation and the creation of widespread unemployment would be a far greater peril, and that if we have to take a risk let the risk be on the side of continuing to live with too much inflation rather than on the side of the risk of excessive deflation. Because, if for no other reason, we are going to need all the growth that we can get in the circumstances that confront us, all the real creation of extra goods and services that we can provide; therefore the creation of unemployment, which is the creation of waste resources, the sacrifice of the goods and services that we need, should in every possible way be prevented.

One reason why I think we need not be too frightened of continuing inflation is that the particular balance-of-payments problem with which we shall undoubtedly be confronted is of a rather special and unusual kind. Before the coming of the increase in oil prices we were already faced with an excessively high balance-of-payments deficit, but that addition to our balance-of-payments problem which springs from the oil situation adds an unusual element to the situation. It is no ordinary balance-of-payments crisis which flows from the increased price of oil. This is in part because the oil-producing countries are no ordinary sellers. Apparently they do not want to spend their money. This is a curious situation with which we are so unfamiliar that it is rather difficult to adjust to it, but the fact remains that it seems very unlikely that the oil-producing countries are going to demand their money in order that they can spend it, and that (and I gathered from the speech of the noble Lord, Lord Windlesham, that this is it exactly) from this balance of payments increase there is not going to be the type of drain on our resources that has previously occuarred.

Above all, if we can work in collaboration with other Western countries—and running through all the present problems is the urgent need for the greatest possible collaboration with all the Western Powers, both in Europe and in America—then the run on the pound, the fall in the value of the pound and the threat of devaluation (which has always been the biggest problem to arise from an adverse balance of payments in this country) will be very much less in relation to the size of that balance-of-payments problem than in previous situations. It would be very undesirable to be so scared by the size of the balance-of-payments deficit that we rush headlong into a deflationary situation.

It is in my view unfortunate that in the discussion on the present situation the Government have been putting such great stress on the mining crisis. Of course the industrial relations situation is serious, but it is surely true that the real problem we are up against is not the industrial relations situation, bad though this is at the moment and important though it is to deal with it, but the problem arising from the increased price of oil. We have, none the less, to recover somehow from our industrial relations difficulties of the present moment. If the Government want to get out of this problem—and indeed they do—surely it would have been possible in the pronouncements made yesterday to show more understanding of the problems for ordinary people created by the crisis in which we find ourselves. I do not want to indulge in abstract talk about the need for greater equality—I do not think it is particularly relevant, as a matter of fact, at the present time. Two at least, if not three, of the major industrial disputes at the moment are not because people want greater equality but because they are angered by the extent to which those below them are catching up, which does not suggest that it is an increase in equality for which people are really crying out. But the ordinary men and women are going to be in a grievous plight, not in months but in weeks, if we go on to three-day working. And even if we do not, the oil situation will result in a considerable loss of jobs, a cut-back in purchasing power and a fall in the standard of living for a great many people.

Surely, my Lords, there are certain things which could have been done yesterday which would have shown that the Government understood fully what this means for the ordinary man in the street, and perhaps especially for his wife. More could have been done about the vast sums of money made by property dealers. I know that in terms of the actual amount of money that you would get, and the extent to which this could be redistributed, it would not make such a great amount of difference. But the knowledge that these vast sums are being made as the result of contributions made by society as a whole exacerbates the situation out of all proportion to the actual amount concerned. We cannot think that it is good enough that the tax on these excess profits should come only when sales take place or when a lease is undertaken. A site value tax could have been added.

Why have we heard nothing about a freeze on rent increases? It is going to be incredibly difficult for a great many people on short time to pay their existing rent and rates, let alone the increases that are coming in the next year. It is not suggested that such a freeze should go on indefinitely, but at least until we see our way to end extreme short-time working, and until we know what will be the size of the unemployment problem it would have been tremendously reassuring and a sign of their understanding of the problem if the Government had said that they would have a moratorium on rent increases. Thirdly, the quickest way to meet the most urgent need would be to do something about family allowances, which are far more important than food subsidies. We on these Benches have never supported food subsidies, but for months and years we have been urging the Government to increase the family allowance so that those who have to meet the basic needs of bringing up a family would know for certain that there was more money coming in to offset, at any rate to some extent, the rising prices with which they are confronted.

If, in order to do this, we had to impose a bigger surcharge than at present and to levy particularly, it may be, those people who do not have dependants, I think that all those of us who are in the higher income bracket and do not have dependants would have welcomed such an additional charge. Incidentally, although at the moment it does not affect me, I find it difficult to understand why we should have exempted people over 65. Is it because of some curious confusion with the needs of old-age pensioners? Because surely this applies to those already in the surtax bracket. I am not asking that the Government should go back on their promise to those over 65, but I find it difficult to follow why this should have been done. A transfer of money from this group to family allowances would have been extremely welcome and a well-seen gesture. It would have meant a great deal to families up and down the country. The opportunity was lost to give the kind of help—I will not call it a concession—which is urgently needed at the present time.

We on these Benches have always supported the need for a statutory prices and incomes policy. We do not say that the miners' dispute should be settled by breaching Stage 3, but we understand that there are still clauses in the Stage 3 agreement which have not yet been fully exploited in relation to the mining dispute and which, through payments for additional production, would allow money to be used for even greater increases than have been granted already by the National Coal Board. We defend the stand of the Government over Stage 3, but only because we defend the need for a statutory policy and not because we think that Stage 3, in itself, is a good or an appropriate instrument at the present time. When Stage 3 came in we were critical of it. To-day it is even more inappropriate There are far too many loopholes. It is far too flexible to be a good instrument. It was devised before the oil crisis and it is high time that we started working on a fourth stage more appropriate to the situation in which we now find ourselves.

My Lords, may I say one word about that Stage 4, because it is urgently necessary that we should move towards it. The noble Lord, Lord Windlesham, said that if we do have a change it has to be a change towards greater severity rather than greater relaxation; but I suggest that it is no good having a kind of document, as in Stage 3, which tries to control the details of pay settlements from the centre. It is widely rumoured that Stage 3 was devised in order to make it easier to reach a satisfactory settlement with the miners. If this is really so, then surely the case against Stage 3 stands proved for all time. The kind of deal which is embodied in Stage 3 is not the kind which a central body should be handling. We need to get back to a settlement between employers and trade unions within a framework. May I suggest, my Lords, that what we need is for the Government to declare the global sum of money which they foresee as possible to be given in wage increases. I accept that for the next six months it may be a nil norm, but as soon as it ceases to be a nil norm the global sum which may be given out in wage increases should be declared. Then it should be the job of employers and trade unions, through something akin to the "Neddy" machinery though not necessarily identi- cal with it, to decide how that additional money is to be distributed.

The absolute limit to the amount to be distributed must be declared by the Government. The paying out process could be monitored without too much difficulty, and if it is exceeded the Government should take stringent action to surcharge and to claw back the additional money which had been paid our, either through the mechanism of the social insurance contributions or, if they cannot do that, through direct taxation. The more that directives to claw back could affect people who have exceeded the amount paid out and who are responsible for the excess amounts paid out, the better it would be. That would bring back to the people who are responsible for earning the money and paying it out the job of saying how it should be done. It would get the Government out of the day-to-day involvement—in which the Government have no business to be—of saying how much ought to be received by different recipients. Some move in that direction will have to be taken very quickly, for Stage 3 simply cannot stand up in the light of the oil situation with which we are now confronted.

My Lords, once we have solved the immediate strike problems, and can see our way through to a new and more appropriate form of income control, the real problem will be the oil situation. On the oil situation, undoubtedly we shall have to accept a lower standard of living and a shift of economic strength between ourselves and the oil-producing countries. What does this mean in terms of policy? It means that we must go all out, in every way we can, on all forms of substitution. We need, as we have said previously from these Benches, an Energy Commission, powered with the task of getting on with the substitution and all the changes in direction that are necessary if this is to take place.

There are many things that can be done. For instance, I am assured that in one year we could double the output from open-cast coal mines, and that that could be done with safeguards against environmental deterioration. I am told that it takes a very long time to get planning permission to erect the platforms that are necessary for the exploitation of oil and gas in the North Sea, and that every month that is lost on planning permission is oil and gas lost to the economy. I am also told that at the present time it takes no less than four years to open up a new pit. But if we direct our resources so that these things become a matter of an emergency campaign, with people so organised that attention is focused as a top priority on it then surely everything could be speeded up. We need a Commission—not too large—charged with power to get on with the job quickly, and with full co-operation from the construction and mining industries and the people who are charged with the task of producing the equipment for doing it, in order that it can be done as fast as is possible. Top priority surely must be given to this.

Therefore we must have a rapid shift in priorities of the economy as a whole, and a re-deployment of both capital and labour resources in order that we can move away from the new declining industries into the new expanding industries. We have a new Manpower Services Commission. Here is the opportunity for them to show what they are able to do. Is it too much to say that they ought to present us with a plan, and that they ought to do it within three months, in regard to where people are to become redundant because of the changes arising through oil, and where there is going to be an unsatisfied demand for labour in the new expanding industries. Standing here it is not difficult to think of some of them: coal, coal-cutting machinery, transport, houses in the areas to which we need to get the labour to move. These are all matters for which we need new people to be trained and ready, on a scale that we have not begun to do in the past. This is exactly why we have a Manpower Services Commission. Let us recognise that people will be coming out of some industries. The training places and the resources should be available to train them. There should be no timelag. There must be only a minimum number of people allowed to stay in a position of unemployment while we are preparing for the expansion of the areas into which we shall need to push people in order to meet the new demands.

My Lords, I have already spoken for too long. I will merely say that while we are confronted with an extremely dangerous situation we are, I think, also confronted with a situation in which there are real possibilities for hope: because it can be a forcing ground, clearing away a great deal of misapprehension and false thinking, with which we have lived for far too long. Far too many people believe that it is inevitable, that it is part of nature that we should have an increase in the standard of living every year. Far too many people think that because they are in a job they are entitled to stay in that job for the rest of their working lives. Far too many people believe that we can solve our problems on our own, and not in conjunction with our European and, indeed, our American colleagues. If out of the chaos and anxiety of the present time we can have a new awareness of the realities of economic and political life to-day, then the trouble with which we are confronted at the present time will not have been wasted.