INFLATION CONTROL: THE SECOND STAGE

HL Deb 05 February 1973 vol 338 cc844-955

3.8 p.m.

LORD DRUMALBYN

My Lords, I beg to move, That this House take note of Command Paper 5205, The Programme for Controlling Inflation: The Second Stage. The White Paper explains the steps the Government believe are necessary in the next few months to make progress towards our objectives from the present breathing space provided by the Counter-Inflation (Temporary Provisions) Act. I need not say much about the present so-called "standstill", because what we are to discuss is the next stage. May I first say, however, that the purpose of extending the operation of Section 2 of that Act by the full 60 days permitted under it—that is, to April 28—is, first of all, to allow Parliament adequate time to consider the proposals for phase 2 contained in the White Paper which we are about to discuss and the Counter-Inflation Bill which gives legislative form to the White Paper—although, for reasons which I shall be explaining later, we hope that Parliament will approve our proposals by the end of March. The second reason is to avoid a gap between the expiry of the existing powers and the coming into effect of the powers proposed in the White Paper and the Bill. The third is to enable the existing powers to stay in operation during the first month of the operation of value added tax. May I add that in December, despite the rise in food prices, the increase in the retail price index rose by one-quarter of 1 per cent. as compared with an average monthly increase of three-quarters of 1 per cent. in the summer, before the standstill began. The December increase was nearly all due to higher food prices. The index, excluding food, drink and tabacco, increased by less than 0.1 per cent.

My Lords, the success of the so-called standstill can perhaps best be judged in the light of the increase between June and December in wholesale prices of basic materials and fuels used in manufacturing. It was an increase of 12 per cent. due partly to the floating of the pound in June and partly to higher world prices. I used the phrase "the so-called standstill" because, of course, a complete freeze would have put some firms out of business entirely. But permission to make increases has been given only when justified on a strict interpretation. Industry was expected to absorb increases to the maximum extent possible, and the number of applications for increases has been relatively small. The Prices Units have been investigating complaints of alleged price increases. In all cases where firms were found to have increased their prices beyond the limit permitted by the standstill—some 800 in all—those firms have since agreed to reduce their prices and to comply with the standstill.

So far as the next stage is concerned, such controversy as there is is directed at means, not ends. The White Paper starts with the objectives. May I remind your Lordships that they are to maintain a high rate of growth and to improve real incomes; to improve the position of the lower paid and pensioners and to moderate the rate of cost and price inflation; and, of course, to secure a further reduction in the rate of unemployment On all these objectives there is broad agreement. During the 1960s the average money earnings increased by about 6 per cent. a year. In 1970 there was a marked acceleration and the increase over the figure for the previous year reached 13½ per cent. In 1971 the rate of increase fell to 11 per cent. But between July and October of last year the annual rate of increase surged up from 11.3 per cent. to 17.7 per cent. and some particular increases—for example, in the construction industry—were very much higher.

I remember vividly the debate we had on the White Paper and the Prices and Incomes Bill on August 3, 1966, a debate which the noble Lord, Lord Shepherd, introduced and I wound up for the Opposition. As the noble Lord said, the reason for that Bill lay in the fact that money incomes had been outstripping the rise in real output. He said that the then Government: had to tell our workers, particularly those in the higher-productivity industries, that at the present stage they were not to demand their pound of flesh; that we needed a period of restraint so that the lower paid workers could catch up. We made it quite clear that, if we are to have an economy with the minimum unemployment, there is no alternative to a policy seeking to influence directly the attitude and behaviour of those concerned with determining prices and incomes."—[OFFICIAL REPORT, 3/8/66; col. 1319.] The noble Lord laid stress on the voluntary nature of the legislation but went on to say that because incomes were outstripping output, actions admittedly very radical for peace time have had to be considered. If I may say so, they are as repugnant to us, in our having to ask the House to accept them, as they are to those upon whom they may bear.—[Col 1324.] With that sentiment we concurred then and we do still. Those powers were in Part IV of the Bill and later of the Act. They were to be brought in "if the need should arise", in order, as Mr. Harold Wilson had said: to ensure that the selfish do not benefit at the expense of those who co-operate. As we all know, the need did arise and Part IV was ultimately brought into operation, despite the co-operation of the C.B.I. and the T.U.C. to which the noble Lord referred in his speech. The noble Earl, Lord Longford, then the Leader of the House, ended the debate with these words: I cannot say too often that we hope we shall not have to use these statutory powers, but if we do use them we shall use them with a clear conscience; and we hope, and I venture to think, that in the end the country, including noble Lords opposite, will be glad that we have done so.—[Col. 1450.] My Lords, we are, I think, all in agreement with the present objectives. The objectives are the same now as they were then. We are all agreed that it would be far better to achieve those objectives, if at all possible, by voluntary means. Nobody can deny that the Prime Minister and his colleagues have done their utmost to obtain agreement on the means and co-operation in implementing the means. Particular maladies, my Lords, need particular remedies. If we had succeeded in getting co-operation we, too, would have sought to rely on voluntary means, rather than enlisting statutory support for voluntary disciplines, as the last Government also had to do. And it may be that that particular method would have worked this time without resort to more drastic remedies, for the two situations are not exactly the same—two situations at different times never are. I ended my speech in 1966 with the all too prophetic words: My Lords, our objection to this policy is that at a time when production is stagnating it is likely to intensify stagnation. If that happens, we shall be driven further and further down the road of restriction, compulsion and national degradation."—[Col 1439.] Alas! my Lords, that is precisely what happened, and despite a very gratifying improvement in our balance of payments this Government inherited that stagnation. Now the situation is quite different. The Government set a target for growth and at present we are practically on target.

Another difference is this. When the Labour Government held their consultation the C.B.I. did not say, "Yes, we will co-operate, provided you agree to our terms". What those terms might have been, had the C.B.I. been so minded, I cannot say. They might well have included dropping the nationalisation of steel. They might well have included fiscal conditions designed to enable them to avoid the loss of liquidity from which they suffered in consequence of the Labour Government's fiscal measures. The C.B.I. just co-operated, and so did the T.U.C. Things are not quite the same this time.

So, my Lords, in default of voluntary agreement, we had the standstill, and now we have the first phase in getting moving again so as to enable increases in pay to be resumed within the specified limits, while prices, profits, dividends and rents are held down within specified limits in so far as they are within our own control. I shall not rehearse in detail what is contained in the White Paper any more than did the noble Lord, Lord Shepherd, in 1966. I see my task as to set out the broad framework of the Government's plans.

In framing those plans the Government have had the benefit not only of the experience gained in the use of price and pay controls in the second half of the 1960s, but also of experience in the United States of America. I understand that between February and November of 1972 the rate of annual increase for all items as shown by the consumer price index in America fell from 4.8 per cent. to 3.1 per cent. and the wholesale price index from 6.9 per cent. to 4.9 per cent. The United States Government have now withdrawn the mandatory controls except for construction, food services and distribution and health services, but have retained the power to reintroduce mandatory rules if the voluntary control produces results inconsistent with the national anti-inflation objectives.

To regulate pay and prices Her Majesty's Government are proposing, as was done in the United States of America, to set up two agencies, a Pay Board and a Prices Commission, each composed of people with appropriate experience. Unlike the National Board for Prices and Incomes, the two agencies will be executive bodies carrying out the day-to-day work of regulation. The requisite expertise in the field of pay is not the same as in the field of prices; their broad tasks will be to implement the statutory controls over prices and pay in accordance with definite rules and standards.

In the United States the rules and standards were determined by two Boards subject to broad policy directives given by the Cost of Living Council. Here it is proposed that the two agencies should act in accordance with a Price and Pay Code which will be prepared by the Treasury and submitted to Parliament for approval, and may be amended or revoked in the same way. The Appendix to the White Paper sets out the provisions which the Government are proposing to include in the Code on Prices and Pay. These proposals are to be subject to further consultation. Indeed, this debate can itself be regarded as part of the consultation process on the proposals, and the Government will be glad to consider suggestions for their improvement. The Code is intended, as the White Paper puts it, as both terms of reference for the agencies and a statement of the policies which the Government expects those concerned with prices and pay to observe. It is in the voluntary observance of the Code, as much as anywhere else, that the Government feel entitled to hope for co-operation.

The agencies have been devised in such a way that they can operate under either a statutory or a voluntary system. If it proves possible, as the Government earnestly hope, to operate a voluntary policy in the course of phase 3, the agencies will thus be able to continue to play a part. Certainly the Pay Board will have an important role to play in advising the Government on problems of relativities and anomalies in phase 3. The aim will be to find ways in which, within an overall pay limit, progress can be made in resolving longer-term problems and in fostering beneficial productivity and restructuring agreements. Meantime, their task will be both an executive and advisory one: to adjudicate on whether the Code approved by Parliament is being implemented; to enforce the law while statutory controls remain in operation, and to advise the Government on any matters relating to prices, charges or pay that may be referred to them. If either agency considers that the Code is being or would otherwise be infringed, it may, after giving due notice, require a price or pay increase to be reduced, or not to be implemented, by issuing a formal notice or making an order. Anyone who infringed the notice or order could be prosecuted—in England and Wales only with the consent of the Attorney General—and would be liable to be fined.

It is not proposed that there should be any appeal against notices or orders except by prerogative order if the agencies were to exceed their powers. The Counter-Inflation Bill, however, provides for the Minister, after consulting the agency concerned, to intervene where it has imposed, or is thinking of imposing, a restriction on a pay or price increase, if he is satisfied that there are exceptional circumstances. This provides a means of Parliamentary accountability, without interfering with the independence of the agencies in their normal day-to-day decisions.

It is important that the transition from phase 1—the present situation—to phase 2 shall be both clear and smooth. But it is proposed that the arrangements for pay and for prices should be different: for pay settlements generally April 1, provided the Bill has received the Royal Assent by then; for prices, April 29. Let me say why. It is intended to maintain the standstill on prices throughout April in order to exercise strict control during the transition to V.A.T., which is due to come into operation on April 1. The level at which V.A.T. is to be charged will be announced by the Chancellor of the Exchequer in his Budget speech on March 6. But it is intended that the Price Commission should come into operation by April 1, subject to Royal Assent. The Orders setting out the Prices and Pay Code and Orders requiring notification of increases in prices and pay will be made as soon as the Bill becomes law. This means that the Price Commission will be able to examine notifications of proposed price increases and to discuss them with firms so as to start giving (or withholding) consents to increases under phase 2 at the end of April.

As to pay settlements, we want negotiations to be resumed as soon as possible and not to be held up by the need to postpone the price control system until the end of April. Where settlements have been reached before November 6 no settlement can be implemented before February 28. Those that were made at least twelve months after the operative date for the previous settlement and have been deferred by 90 days or more by February 28 can then be paid. Others can be paid when the settlement has been deferred for 90 days or on April 1, whichever is the earlier. These arrangements mean, in effect, that the original 90 days standstill applies equally to all settlements deferred under it, except that no settlement will be deferred beyond the date when the new pay system comes into operation.

After April 1 all pay settlements will have to conform to the formula in the White Paper—a maximum total increase of £1 plus 4 per cent. per head for the group concerned in the settlement. In effect, this works out at an average increase for the 12 months of new pay settlements of 7 per cent. The other limitation is that within the pay limit no individual, however elevated or lowly, may receive an increase of more than £250 a year. These maxima must include improvements in fringe benefits such as holidays and normal hours of work. The £1 and 4 per cent. is not an individual entitlement. Within the maximum there is complete freedom as to how the available money should be directed—for example, with special emphasis on helping the lowest paid in the group. The T.U.C. have complained that this will not allow necessary improvements in fringe benefits and keeping pace with the cost of living". I do not know what improvements they consider "necessary". To quote the White Paper, however, the Government propose that Improvements in pensions and redundancy payments schemes may be negotiated outside the pay limit, as may reductions in standard working hours down to a net 40 hours per week and improvements in annual holidays up to 3 weeks. The reason for the proposals about hours and holidays is because the vast majority of workers nowadays do have holidays of three weeks or more and a 40 hour week or less.

The T.U.C. have said that this puts collective bargaining in a straitjacket. My Lords, straitjackets are used to prevent certain types of invalids from doing themselves or others an injury. The Prime Minister has invited both the T.U.C. and the C.B.I. to suggest a means of operating a completely free system without renewed inflation. It really will not do for any one section of the community to claim that if only everyone else except themselves is controlled, all will be well. Nor does it help for any organiisation to say that the proposed Pay Board is "tainted" simply because they are unwilling to play their part in it. I hope that they will play their part in it, but I wonder what the T.U.C. would have said if a Tory Government had decided to exercise the controls direct instead of leaving it to an independent and impartial agency. The T.U.C. say this is cowardice on the part of the Government. I must again come hack to what Lord Shepherd said in 1966: that if money incomes outstrip the rise in real output there is bound to be inflation. The question is how to restrain money incomes from doing just that.

Then there is the question of sanctions. The noble Lord, Lord Shepherd, said then at (col. 1324)—I hope he will not wince at what he said—

LORD SHEPHERD

My Lords, I do not wince at all. What surprises me is the fact that the noble Lord appears to be resting his case on what I said in 1966, when he well knows that his Party divided in the other place against this very policy.

LORD DRUMALBYN

My Lords, we certainly did not divide against the policy in this House. I am quoting what the Government of the day said and drawing a parallel with what the Government today are doing.

LORD SHEPHERD

My Lords, I can assure the noble Lord that I do not wince. I do not withdraw a word of what I said then.

LORD DRUMALBYN

My Lords, I hope the noble Lord will not withdraw the words he said then. I congratulate him. I admit that perhaps I provoked that intervention; but what he did say appeared in column 1324: It is an inescapable fact that if Parliament creates legal obligations, it must provide penalties for those who break the law. Our proposals are practically identical with those in the 1966 Act. except that under the Bill only those who call, organise, procure or finance a strike or industrial action short of a strike, or threaten to do so, are liable to be fined, and not those who merely take part.

My Lords, against the 7 per cent. increase in pay are to be set the restrictions on prices and profits and dividends. On prices, the broad intention, as the White Paper makes clear, is that manufacturers will only be able to increase prices in the domestic market to the extent that allowable costs rise. Even so, the whole of allowable costs will not be permitted; a reduction will be made to take account of increases in productivity. So business will have to find through increased efficiency and greater turn-over the higher profits they will require for the investment that we so badly need. They are, moreover, expected to share the fruits of higher productivity with the consumer in the form of lower prices. Price control measures will include a limitation both on profit margins on sales in the home market and on profits. Thus profits expressed as a percentage of sales will not be allowed to exceed the average of the best two of the previous five years. To enable the Prices Commission to exercise control, large firms will have regularly to send in particulars of their turnover, gross margins and profits; medium-sized firms will have to keep records of them, and smaller firms will be subject to spot checks.

As for dividends, control will remain with the Treasury. It is right that if income from earnings is to be subject to limitation, so should income from shares. Though earnings on average can increase by 7 per cent., dividends will only be allowed to increase by 5 per cent. The movement of the stock market recently seems to reflect doubt about whether there will be any increase in total dividends at all. It is true that if dividend increases are to he limited to 5 per cent. the average of dividend increases will be well below 5 per cent. But a growth rate of 5 per cent. will mean some increase in profits and there is something to be said for limiting dividend increases to the same percentage as the expected rate of growth. The main anxiety that has been expressed on the part of business is that even with this limitation there will not be enough retained profits to provide badly-needed investment. The Government believe this to be unrealistic. They are strengthened in their belief by American experience, which has shown that the manifest will to get inflation under control is the essential pre-condition of restoring confidence.

Wage earners, salary earners and those who have invested past earnings in equities are of course bound to face some increases in the cost of goods. Some of the recent increases in wages and salaries still have to work their way through to prices. World prices for food and raw materials have risen very rapidly and may well go up further. About a quarter of household expenditure on average is on food. Between one third and one-half of that is spent on fresh and imported food, which is not subject to the same control as other goods. The distribution of fresh food from the markets will be subject to the same control as the distribution of processed food and other products. We do, of course, recognise that the rapid rise in food prices presents a very serious problem. But the Government do not believe that it would be practicable or in the longer-term interest of the country to embark on a general system of fresh food subsidies to keep prices stable, whether at the present level or any other particular level. Food subsidies by their nature are indiscriminate, reducing prices for rich and poor alike. We believe that the increases in pay that the White Paper allows should be more than adequate to cover any likely further increase in food prices, including the increases resulting from our joining the E.E.C. We also believe that the duty of Government should be, on the one hand, to help those who need help most—namely, the low paid and the pensioners —and, on the other, to do all they can to encourage production at home. The Government have succeeded in ensuring that we do produce more food in this country—for example, milk and particularly livestock and cereals.

Nobody can question the priority we have given to pensioners. A rise of 35 per cent. in pensions since June, 1970, is quite unparalleled, even allowing for an increase of 22 per cent. in the cost of living over the same period. The Government have also taken action to increase rent rebates for those on low incomes. The present rebate scheme already has the effect of relieving those who qualify for rebate of two-thirds of any rate increase. Draft Orders have just been approved by the Commons to increase the income limits for the full rebate as from April 1 next. Paragraphs 29 and 30 of the White Paper deal specially with the low paid. Apart from the advantage to them built into the permitted level of pay increases—the £1 which the T.U.C. preferred to the flat across-the-board increase of £2 originally proposed—there are the exemptions from the maximum for one-third of the differential between women's rates and men's and of the improvements in hours of work and holidays. There is the increase in the needs allowance for rent rebates. The Government remain firmly determined to take all possible steps to help the low paid. Both sides of industry can also help by negotiating settlements within the limits laid down, which will benefit the low paid.

The Government intend to rely on the provisions of the Housing Finance Act and the Rent Act to regulate increases in local authority, New Town, and private sector rents after the end of the standstill period. At the same time the Government are increasing the needs allowance so that anyone already entitled to rent rebate will not have to pay more in rent during phase 2. A Bill has been introduced in another place to provide rent allowances for tenants of furnished private accommodation.

What the Government aim to do is to steady prices in a way that will both sustain a faster rate of economic growth than has prevailed in the past and be likely to be regarded as fair by the nation as a whole. It is the duty of any Government to hold a balance between the various interests—both those organised into groups and those unorganised. It is a matter of judgment whether a course of action commends itself, and will continue to commend itself, to the people. In the end Government and Parliament are answerable to the people and the people will pronounce judgment. At the moment the indications are that the majority of the nation approves of the treatment which the Government are prescribing for our present ills. One advantage of the treatment is that it can be adjusted from time to time with the approval of Parliament, both in the sense that the Code can be changed from time to time and that at the end of phase 2 broader changes can be made to remove anomalies and give fresh impetus towards the objectives, with, we very much hope, more emphasis on voluntary self-regulation.

Let me just summarise the contents of the package. On prices, no increase at all except where justified by allowable costs; on profit margins, no increase at all and in some cases a reduction; on profits, a strict control—not more than the average of the best two out of the last five years in proportion to turnover (and not all firms will achieve this level); on dividends, not more than 5 per cent. increase; on rates, extra Government help through rate support grant. On rents, help through rent allowances for the lower paid; on pay—noble Lords will understand that net incomes is a matter for the Budget—freedom to resume collective bargaining for collective increases within the limits set down, which are roughly equivalent to an average of 7 per cent. for each bargaining group. This is the medicine which the Government are prescribing as a cure for the excessive inflation that is putting all our plans for growth and national prosperity in grave jeopardy. I commend the prescription to your Lordships.

Moved, That this House take note of Command Paper 5205, The Programme for Controlling Inflation: The Second Stage.—(Lord Drumalbyn.)

3.39 p.m.

LORD DIAMOND rose to move as an Amendment, to add to the Motion: "but views with increasing anxiety the economic situation and, while recognising the need for an equitable and effective policy against inflation, regrets that Her Majesty's Government continue to pursue budgetary, industrial and social policies that are unjust and divisive." The noble Lord said: My Lords, I beg to move the Amendment standing on the Order Paper in the name of my noble friend Lord Shepherd. Perhaps I might explain in just a few seconds that it seemed to us it would be more convenient that the debate on these very important issues should take place in the context of this Amendment to the Motion which the Government have put down rather than in an extension of the Order which your Lordships will have observed passed "on the nod".

I believe that your Lordships will all wish me next to thank the noble Lord, Lord Drumalbyn, who, with his usual precision and courtesy, has explained the purposes of the Government's policy and the Bill giving effect to it, and who has added some interpretation of events which perhaps he will forgive me if I do not completely share. The Amendment which I am moving begins by referring to the anxiety with which we view the economic situation, and it may be appropriate if I start my few remarks by reminding your Lordships of the record of achievement of the present Government—or perhaps I should say the record of record achievements of the present Government, because there are a series of records. The first record is in the field of balance of payments. Last year we had the largest visible trade deficit ever in our trading history. In that connection we are experiencing the largest ever switch from a balance of payments surplus to a balance of payments deficit over a period of two years in our history, no matter what view one takes as to the likely deficit in the current year. The next record relates to unemployment. More people have been unemployed for longer periods than at any time since the war. In case some noble Lords are not aware of the pressures elsewhere in the country and rely upon the slight improvement which has taken place, may I remind them that in the North, and in Scotland, there are between 7 and 10 unemployed people seeking each vacant job.

The next record is in relation to strikes. More days were lost last year than at any time since the General Strike of 1926 —a fitting commentary on the Industrial Relations Act. The next record, or series of records, is in relation to inflation. We have had a record increase in retail prices during this Government's period of office—something over 8 per cent. per annum since they took office. That is about double the average throughout the Labour Government's period of office. Food prices have gone up even more. They have gone up by 25 per cent, since June, 1970, and since the freeze began food prices have, on an annual basis, gone up by something of the order of 20 per cent. House prices are again a record. New houses rose in price by no less than 47 per cent. last year—and in this connection I refer to the country as a whole. If one looks only at the figures for London and the South-East, house prices nearly doubled in the course of one year. Perhaps it is worth commenting that the overall rise in one year is more than the total rise in the six years during which the Labour Government held office. Interest rates are at an all-time high. The lending rates of bankers are something of the order of from 9½ per cent. for first-class industrial borrowers, to something like 12½ per cent. or even 13 per cent., for private individuals.

Those are the records that this Government have achieved and, to complete the picture—

LORD HAWKE

My Lords, the noble Lord left out one record.

LORD DIAMOND

I have not quite completed the picture. I will be glad to give way in a moment, as I always do. My Lords, to complete the picture, house building is down, especially in terms of council house building. Food consumption is down; it fell by 3.3 per cent. last year as compared with the previous year. Investment, which is the basis of our future growth, is still down on what it was two years ago. The pound is floating, and we are experiencing a virtual devaluation of the order of 10 per cent. I hope I do not interrupt the noble Lord, Lord Orr-Ewing; I apologise for interrupting him in the six or seven interventions that he has made while I have been talking.

LORD ORR-EWING

My Lords—

LORD DIAMOND

That is the eighth interruption. My Lords, no Government in living memory have ever achieved so many records in mismanagement. I think the noble Lord, Lord Hawke, wanted to intervene.

LORD HAWKE

My Lords, there was one record the noble Lord left out: wages, salaries and incomes in this country are higher than they have ever been before.

LORD DIAMOND

My Lords, I will, if the noble Lord wishes me to do so, repeat everything that the noble Lord, Lord Drumalbyn, has said, because he made that perfectly clear in his speech.

LORD ORR-EWING

My Lords, would the noble Lord allow me—

LORD DIAMOND

Certainly; I am glad to listen to the noble Lord who has now risen to speak.

LORD ORR-EWING

My Lords, I apologise if my natural ebullience led to my questioning some of the facts. I would point out that the pound was worth 2.40 dollars when the noble Lord left office and is now worth 2.35 dollars. That is not a 10 per cent. devaluation.

LORD DIAMOND

My Lords, we can go into that at greater length if the noble Lord wishes, but he will not find much support for that view. What I am trying to do is to paint the picture without going into too much detail. There are many other things that we could have said and which no doubt some of my noble friends would wish to say, but I am trying to paint the picture as the background against which this debate is taking place.

It is perfectly obvious to us that the various policies with which the Government started in office lie in ruins around them: there has been the complete reversal in many fields—

THE EARL OF ONSLOW

My Lords—

LORD DIAMOND

My Lords, I have no wish to appeal to the Leader of the House. I am interested to note that what I am saying is creating more reaction than it normally does from some good friends and from the other side of the House, and from those who normally listen with considerable care and courtesy.

I repeat, as the interruption may not have allowed everybody to hear, that it is perfectly obvious that the Government's policies with which they started in office are lying in ruins around them. The fact that they are changing their policies in very many fields and thinking of a long-term prices and incomes policy is about as big a reversal in Conservative thinking as one could imagine. This is especially so if one has had the privilege —as I and many of my noble friends have had—of listening to Conservative spokesmen, on both Front Bench and Back Bench in the other place throughout our period of office when we were attempting to deal with this difficult problem, and being voted against time and time again on every conceivable stage of the Bills which we produced. The noble Lord, Lord Orr-Ewing, was spoken against as well as voted against. Therefore I am entitled to say that this represents a considerable reversal of policy.

LORD ORR-EWING

My Lords, since the noble Lord mentioned me particularly may I say that in our debates I always conceded that it might be necessary to have a voluntary policy? Admittedly, I spoke against a statutory policy because I did not think that it would work in that climate. I still think that it is going to create a great problem in a democratic society.

LORD DIAMOND

My Lords, I am very glad to give way to the noble Lord; but he is going to make a speech later and I should have thought that he has now spoilt one of the most important points that he wanted to explain away.

What is happening, therefore, is that the Government in this field, as in many others, are now starting to rebuild some of the institutions which we created and which they, in their enthusiasm, destroyed in their early months of office. We recognise, as the Amendment makes quite clear, the need for an effective policy against inflation. I admit and assert that wage increases in excess of productivity are certainly one of the elements in cost inflation. But they are one of many. Wage earners are not responsible for increases in import prices, whether of raw materials or food, nor for increases in profit margins—and the profits continued to rise in 1972 in spite of the increased wages to which we have heard so much reference. In fact, the main responsibility must lie with the Government. It flows from their economic and financial policies; their deficit budgeting and money supply, which we discussed before; their increase in rents; interest charges; the discouragement of investment; the premature imposition of value added tax. All these things have added considerably to inflationary pressures, and the Government must not try to evade their own responsibility by putting all the blame, as usual, on to the workers.

In fact, nothing could better illustrate how wrong such an argument is than to have regard to the recent increase since agricultural wages were frozen, in particularly difficult and arduous circumstances, as we all remember. Since they were frozen, home-produced meat prices have soared upwards. So it is not the workers who are responsible for that increase.

THE EARL OF ONSLOW

My Lords, it is not the Government who are responsible for that increase either; it is world demand. I know because I produce the stuff.

LORD DIAMOND

My Lords, what the noble Earl is saying, presumably, because he produces the stuff, is that he gets a greater price for what he produces, without any greater cost, as a result of world demand; because there is no greater wage cost since agricultural wages were frozen. What he is saying—and I recognise its validity—is that, notwithstanding that agricultural wages have been frozen, he, a farmer, has received an increased price for his produce. That is what we were trying to demonstrate.

THE EARL OF ONSLOW

There is one other point, my Lords. The price of barley has gone from £26 a ton last year to £41 a ton, and that is what beef is fed on as well.

LORD DIAMOND

My Lords, the noble Earl will then say to his colleagues who grow the barley how delighted he is that they have been able to get an increase in their price of barley notwithstanding that agricultural wages have been frozen. It is a very simple point: I have said it four times, and I hope that the House will not require me to say it again. Wages are an element but not the total cause of cost inflation.

There are clear advantages in a prices and incomes policy provided it is an acceptable one, and few of us would disagree broadly as to the ends we are seeking. But there are very great differences as to the means by which we think they can be achieved. The United States' experience, which has been quoted, shows without question that it is essential to have broad acceptance if a policy such as this is to work. The United States in the whole of their experience over this policy have not taken any set of proceedings against any worker. They have taken hundreds a month (I think the figure is something like 300 a month) on prices. Such a prices and incomes policy does two things. The more obvious one is slowing down the rate of inflation; but the more important one, in my view, is reducing the level of expectation. Any prices and incomes policy does great service in achieving that as well as in achieving some measure of education of what the economic facts are. So we are not opposed in principle to any kind of prices and incomes policy —far from it.

What we want to seek is a policy which will be acceptable all round. Now, how do we achieve such a policy? I am now going to break it down. There are two parts in the Government's policy this time. There is a prices policy and there is an incomes policy. Dealing first with prices, it is perfectly clear that there is no real or very great difficulty in getting broad acceptance of a statutory price restraint policy so long as there are—and this is provided in the Bill—a reward for increased activity and increases in profits and dividends appropriate to the rest of the policy providing for a modest improvement. Such a policy of control of prices has to be statutory, because it is enormously widespread, for control to be effective. The interesting point about such a policy would be that it would not, in my view, break down because of its own lack of flexibility, of its own rigidity, because there are in fact so many varieties of goods and services to be considered and it is quite impossible to police every single transaction which takes place. Those two facts would produce a sufficient flexibility for such a statutory prices policy not to be borne down under the weight of its own rigidity.

But it is quite impossible to think of the most important and regular purchases of a citizen—namely, food purchases—being omitted from a satisfactory and acceptable scheme. Nor shelter. Neither food nor shelter. So the Government, in my view, must postpone the rent increases for which they have provided, and must provide a cushion against price rises in essential foods. There is nothing new in this at all. It is a matter of degree. It can be done in several ways. The Annual Farm Price Review, with which your Lordships are very familiar, illustrates a number of ways in which this can be done. All the relevant Minister said. when he spoke on the Bill on January 29 in another place, was that there are serious tactical difficulties. It is true that there are serious tactical difficulties, but it is also true that the country is in a very serious position; and so are the Government. So we hope that the Government will not close their mind to considering methods under which a cushion, at all events against price rises in essential foods, can be provided. So much for the prices side.

I want now to deal with the much more difficult side of wages, and what my speech is directed towards is finding a prices and incomes policy that would be acceptable and would go a long way—if not to extinguish, at least to reduce the rate of inflation. The first point I want to make is that there is all the difference in the world between wages and prices. Whether a tin of soup is sold at 9p or 10p is a matter of money only. No status is involved; no prestige is involved. If a manufacturer of an inferior quality of soup puts up his price by a penny a tin the shopkeeper does not feel compelled to put up all the other tins of all the other types by a penny to maintain the differential. But where we have wage increases all kinds of different and deep emotions come into play, based on status, on prestige, on the acknowledgement, as it were, of service given to the community.

A whole host of things depend on the recognition which the man sees in the fixing of his remuneration or pay packet. Price rises are about money, and wage rises are about people—and it is far too sensitive and fundamental a matter to be imposed on people by a third party. Wages are a matter for negotiation between the employee and the employer, and if any outside body imposed wage levels for a long period, as the Government propose—the Government are talking about three years-plus—the employee would undoubtedly feel compelled to resist them. Moreover, the circumstances affecting some 22 million work-people are so infinitely varied that no one set of rules could be sufficiently flexible, although I note carefully what the noble Lord has said about the area for negotiation within the group figure. That is clearly a step in the right direction.

Therefore I come to the conclusion that the only restraint that would be workable so far as wages are concerned would be a self-imposed one; and what one has to do therefore is to try to achieve circumstances in which people would be willing to impose upon themselves and accept that position of some measure of restraint. In order to do this the Government must pursue only to their logical conclusion the chain of policies which they have started. The Government have decided, as shown in the Bill, on a maximum increase of £5 a week for any one person—£250 a year—and that is a taxable figure. It represents remuneration, so that in spendable income it might be £4, or even less. But now that the Government have decided on a maximum of £4 a week as spendable they must reverse their previous decision to start paying in tax handouts some £6 a week spendable to company directors and others earning £15,000 a year—and, of course, if the money is unearned, the tax hand-out is much greater. And the two are timed to come into effect at broadly the same time. Now that the Government have decided to hold down the cost of living they must reconsider their previous decisions to put it up: decisions affecting rents; decisions affecting V.A.T.; decisions affecting food prices.

The noble Lord, Lord Drumalbyn, referred to the United States' experience but, so far as I understood it from a very authoritative commentator only this weekend, what the Prime Minister ascertained when he went to see the President was that they are moving out of stage 2 as they cannot hold it because of farm price increases. That is the American experience, as I understand it, and it seems to be relevant to what I am saying about the impossibility of completely excluding farm prices from our consideration in maintaining a stable cost of living.

I am asking that the Government should reconsider their policies in order to keep the new policies in line with their recent decisions. If the Government want an effective prices and incomes policy then in my view they must consult the T.U.C. in order to achieve an effective method of voluntary wage restraint. Especially they must devise machinery whereby the T.U.C. can monitor the wage demands of its members, advise them and secure the necessary measure of restraint through the normal democratic process of self-government in which we in this country believe, in which the trade unionists believe, and which is open to them only through their own organisations. Trade unionists are as good patriots as the rest of our countrymen, and they and their leaders are sick and tired of inflation. I believe that there is still time. I believe that the right policies could secure the necessary good will. So I urge the Government for once to err on the generous side and to make a real gesture, so as to give the nation the opportunity to enjoy a period of genuine co-operation between worker, employer and Government based on fairness, feasibility and self-imposed wage restraint. I beg to move the Amendment to the Motion, standing in the name of my noble friend Lord Shepherd.

Moved, as an Amendment to the Motion, to add: "but views with increasing anxiety the economic situation and, while recognising the need for an equitable and effective policy against inflation, regrets that Her Majesty's Government continue to pursue budgetary, industrial and social policies that are unjust and divisive."—(Lord Diamond.)

4.5 p.m.

LORD BYERS

My Lords, in following the noble Lord, Lord Diamond, I must confess that I did not find—uncharacteristically—his speech to be particularly constructive, because I had the awful feeling which I get in all these debates (and I think many of us suffer from it) that we have all been here before. I can at least claim that in the Liberal Party we have been consistent, if only for the last five or six years, but everything in the traditional philosophy of Liberalism runs counter to supporting a statutory prices and incomes policy—something which, ten years ago, I should never have thought the Party would accept. Yet ever since the last Labour Government grasped the nettle, if only until they recoiled from the sting of it, the Liberal Party has accepted the statutory route. I find it depressing to hear the noble Lord, Lord Diamond, talk about consulting the T.U.C. again to see whether we cannot get a self-imposed wage restraint; to see whether we cannot get a voluntary wage restraint going. These are the things which Labour had a long time and the power to influence the unions to settle, and that is why I say that I did not find that—uncharacteristically—a very constructive approach.

We have accepted this statutory route, first, because no Government of either Party has produced a voluntary system which has so far worked. Secondly, the present proposals, although far from ideal, incorporate certain new features which are a considerable improvement upon the thinking of the past. Thirdly, the form of the inflation from which we suffer to-day is, in my view, far more dangerous than that which we had in the 'sixties and requires very firm action indeed if we are to get on top of it. Inflation in the 'sixties was primarily the result of wage drift: in other words, we had national wage agreements across the board, followed by a topping-up operation at plant or company level. To-day we have a far more vicious inflation which arises from the enormous pay claims from the powerful unions on an industry wide level, unlike anything which occurred in the 'sixties, and this is in addition to normal wage drift. I say that this is back again to "I'm all right, Jack"; but it is "I'm all right, Jack" with a vengeance. The duty of Government, as the noble Lord, Lord Drumalbyn, has said and as the Labour Government said when they were in office, is to protect the nation against actions which may give a short-term advantage to the powerful unions but which in the medium term will be disastrous to everyone, including the very strong unions themselves. That is the duty of Government and of Parliament.

One only has to look back five years to see how important it is to stand firm against selfish, sectional pressure. The last Labour Government introduced a statutory policy which we supported, but their plans were soon undermined by the big trade unions, and despite a spirited rearguard action by Harold Wilson and Barbara Castle the unions killed the scheme. It was a classic example of power and responsibility. The unions had the power the Government were left with the responsibility which they could not discharge. That surrender to the unions built up their sense of power even higher than it was before and led to the massive wage demands of the past two years. In my view, this is one of the new factors in the whole picture. No Government can afford to surrender again to that sort of attitude: if they do, and if they fail to curb inflation, they will give substance to the widely expressed fears that the country cannot be governed. My Lords, this is intolerable. Moreover, the social and economic consequences of excessive inflation, as we all know, are appalling. In our view, the national interest must prevail over shortsighted, sectarian demands, and at the end of the day the Government and Parliament must be seen clearly to be in command of things and to be the boss.

I have said that the present scheme is an improvement on past ones, though I must say that my confidence was undermined when I heard the noble Lord, Lord Drumalbyn, try to prove that there was not much difference between the Labour and Conservative schemes. If the noble Lord goes on like that, he may be jeopardising the Vote. However, I feel that it is an improvement on what Labour proposed. It gives greater flexibility at company and plant level by relating increases to the previous earnings of the group or division, and it enables a more honest share-out to be made, giving preference, one hopes, to the lower-paid workers. It is interesting to note that from these Benches a number of years ago we put forward the idea that one way of dealing with inflation was to freeze the pay roll at company or plant level and say to the people, "If you want to improve your wages within this gross total you must get rid of people, and if necessary cut down the directors' salaries, but whatever happens you will not have more than this gross total."

The same principle is incorporated here, and I believe that at plant and company level it should be possible to get a really honest share-out, if people want to do so. I like this idea because it enables a more intelligent approach to be made to wage increases, based on the disclosure of facts —that is, facts relating to the plant and not facts relating to the statistics of the industry as a whole. Once again, in our view this underlines the need for a properly constituted works council system backed by a Statute which enshrines the rights and obligations of both management and workers. There is, therefore, a missing link in what has so far been proposed. If we had that machinery we should have a better chance of making a pay and prices system work.

LORD GLADWYN

As they have in Germany.

LORD BYERS

That is so, my Lords. The second improved feature is that the control of prices should stiffen the employers to fight wage drift, rather than take the easy way out and collaborate with workers to increase wages and so keep inflation going. From the national point of view, this is why price control during this period is vital. This will stiffen the spines of management, because they will not be able to pass on wage increases to the consumer while their prices are controlled. This is an improvement and I will not be told that there is no difference between the Conservative and Labour schemes on this aspect. I believe that this scheme could be further improved and that some of these improvements could make it easier for the scheme to be accepted by the trade unions. I should like to see it accepted by the trade unions. We cannot go on with this appalling confrontation the whole time in which we have a most important partner not cooperating in something so vital to the national interest, and I would go a long way to meet the unions on reasonable demands.

On the question of food prices, I cannot help but believe that the Government have taken the right line, because if these get out of hand and there is no remedy available, we will be in real trouble, and this could easily happen. Food subsidies are not the right answer; they are indiscriminate—they are given to the rich and poor alike—and I prefer a system based on a flat-rate increase for the lower-paid workers if food prices moved beyond a certain point by a given date. I would rather base it on that group, monitored at regular intervals, instead of having indisscriminate subsidies, which I am quite sure are totally unmanageable. We have not found a way adequately to protect the low income groups and we must not rule out improvements in family allowances and pensions. The record on pensions has been good, but if food prices go up, the increased prices heighten inflation right at the beginning and this is why it is important to monitor the rise in food prices.

There is an exceptional case for a moratorium on rents. I did not quite understand what the noble Lord, Lord Drumalbyn, was proposing. He will, I understand, be doing something about rents, but rent increases will not be acceptable in this period and I believe that something like a moratorium—if that is not what the Government have in mind—is essential. There is a strong case for slashing the tax concessions or mortgages in respect of high-priced houses. If we want to keep land prices down, it is worth while looking at the Liberal policy, which we have put forward year after year, on site value rating to see whether we can bring more land on to the market and bring prices down. I accept the need for dividend control, but I accept it mainly on psychological grounds because economically it makes little sense. All that happens is that surplus profits accumulate in the company and the shareholders get the benefit when the freeze comes off. The wage earner, on the other hand, has no benefit during the freeze itself or afterwards.

It is time that we looked at some new ways of dealing with this problem. Greater fairness would result if our priorities were organised in a few ways that I wish to propose. First—and I believe equal top—in order to maintain the dividend and provide the money for growth and expansion within the firm, why not consider issuing shares to workers in the company which could he taken up then or deferred, or why not consider additional contributions to industrial pensions funds to provide benefit later on in the form of higher pensions? This is a problem area in which I believe a solution is available. I believe that if measures such as these could be added to the package, there is no reason why the unions should not co-operate, as in my view the moderate ones would like to do.

After all, one cannot claim that the unions have had it too badly, if one looks at the latest statistics. The noble Lord, Lord Drumalbyn, gave some interesting statistics. What I find striking is the fact that the increase in average basic wage rates from October, 1971, to October, 1972, have amounted to 17.3 per cent. If one compares average earnings over the same period one finds that they have gone up by 15 per cent. In the same period the retail price index has risen by 79 per cent. and the index of industrial production has gone up by 6.2 per cent. This reflects a picture of real inflation, but one cannot say that there has not been a reasonable increase in basic rates and average earnings. As for the T.U.C.'s proposals for dealing with these problems I can only call them a hastily assembled hotch-potch of muddled thinking and I do not think that it is along the lines of their declaration with the Labour Party that we shall ever solve this particularly difficult problem. What I have said will undoubtedly be dismissed by Labour critics as "union bashing"—

LORD BLYTON

Hear, hear!

LORD BYERS

I expected that, but I hope it will not be the view that most noble Lords will take because that is the last thing I want. The militant trade union leadership is now a very strong political force in this country. It may even be the strongest political force we have. It is this sectional leadership, not the rank and file membership, which is inspiring public criticism and concern to-day. I believe that the trade union members themselves are beginning to sec the limits of this type of activity if we are to preserve the role of law and Parliamentary democracy. We must try to use our influence—this is where influence can come from the Labour Party—to see that the trade union leadership accepts its responsibility to co-operate to help to get us out of the inflationary mess in which we find ourselves. But the measures in the White Paper will not be sufficient. We still have the problems of monetary policy, the growth rate, investment policies and the like. All this is part of a big package, but I should like to see influence used in Parliament and elsewhere to see whether we cannot get the co-operation of the trade union leadership, even at this late stage in the game.

I have two further thoughts to put to the House. We cannot run our pay and prices system on statutory lines for very long. We must get down to a sensible voluntary system of productivity and properly shared prosperity without statutory controls. We may have to have statutory control in the background. We have to ensure, in my view, that phase 3 is less inhibiting than phase 2. But we have to take the nettle in a firm grasp now if we are to be able to get out of our difficulties and get away from statutory control. Phase 3 should be the phase that paves the way to normality and not the phase that turns the screw until the industrial patient dies.

A possible solution for the future may be along the lines of creating a tripartite body, rather like a much enlarged N.E.D.O. Its function would be to take into consideration all the relevant statistics on growth, earnings and prices, and to recommend the parameters within which wage negotiations could take place without upsetting the economy. I do not believe that it is right to leave this job with the Government or the Treasury. It would in fact do the job which the Government have had to do in producing the £1 plus the 4 per cent. formula, but in my view it should not be a Government body. The Government should be a weapon of last resort. The Government should not be involved in this body which should have on it employers, unions and representatives of the public interest. It should include within its membership those people who will be responsible for the major wage negotiations. In this way, they would be locked in and power would be seen to go hand in hand with responsibility. I believe that this suggestion is worth consideration as being something which will get us out of the difficulties that we are in at this moment.

My noble friends and I will support the Bill when it arrives and we will support the Motion tonight. We do not support it with any enthusiasm, but we support it because we see nothing better to hand. I only hope that this time we shall make a better go of it than we have done in the past.

4.22 p.m.

LORD THORNEYCROFT

My Lords, not for the first time I find myself in a large measure of agreement with many of the arguments which have been addressed to the House by the noble Lord, Lord Byers. But I would make the premise to my own argument that complex though this subject is, it is a great deal easier to write or to talk about than it is actually to do anything about if you have the responsibility of Her Majesty's Government. Indeed, the more one knows about the subject of inflation, the greater the humility with which one approaches any debate upon that topic.

I congratulate the Government on having adopted a statutory policy. It is indeed a step fraught with great difficulty, but it is one which I have urged upon them myself—and I see that the noble Lord, Lord Plowden, who has also brought arguments to bear upon these matters, is in the Chamber. I recognise that it is always possible to make witty speeches when Governments change their policies. I noticed that the Leader of the Opposition made a very witty speech in another place the other day. If it is of any comfort to Her Majesty's Government, I would say that when the time comes for Governments to be judged, they are not judged on whether they have changed their policies, but on whether their policies have worked. It is greatly in their interests, in the nation's interests and in the interests of the Socialist Party also that these policies should work, because if they fail to work it is a little difficult to see where the next step will take us.

I would say, therefore, just a few words about the nature of the disease. Inflation is a very bitter ill for a country to bear. Public opinion in this country is beginning, perhaps for the first time, to realise how bitter it can be. It hits the economy at home; it bears heavily upon external trade; and it is damaging, of course, to the rich, but it is even more damaging to the poor. In October last year the wage rate increase, year over year, was at the rate of 18 per cent. The increase of the money supply was running at 26 per cent. Manufacturing prices, or most of them, were held uneasily by a voluntary agreement with the C.B.I. at around 7 per cent. but all were poised for a savage surge forward in inflation, much of which is to-day, in any event, still unavoidable.

I am not going to make a speech about economics. I will leave that to those better qualified than I. I would say, however, that there are three landmarks on the road to the position which we have now reached: one was under the Labour Party and two under the Conservatives. Under the Labour Party there was the attempt by Mr. Wilson to introduce labour relations legislation and then his retreat from that position. The two under the Conservative Party were the smashing defeats they suffered in the case of the coalminers' claim and, afterwards, in the case of the railways' claim. Those three events—and I am not going to comment on their merits in any way—began to raise not only in this country but also outside, a deep doubt as to who really was in charge of the economy of the United Kingdom. It is that doubt, that lack of confidence, which is the most damaging feature in a spreading inflation.

We are now much clearer about where power lies, and the Government reluctantly—and I do not blame their reluctance because you pay a dreadfully heavy price for any policy that you adopt in these matters—but with determination have accepted a statutory policy. I do not want to develop the details of it; indeed, it would be very difficult to do so until we see the Code which will be published later, when one will be able to see some of these things with greater clarity. For my part I would say that I have never believed in the possibility of a voluntary policy, and though I may be a little isolated in the House in this matter, I hope that the House will bear with me if I develop, very shortly, the reasons why I believe that a voluntary policy is not likely to succeed.

I have never believed in a voluntary wages policy, in the same way that I would never have thought that a voluntary taxation policy was a valid concept. The noble Lord, Lord Diamond, will agree with me, as he also served at the Treasury. It would be very convenient if a voluntary taxation policy was a valid concept, but most of us who served in that Office have found that a degree of statutory authority is necessary in matters of that kind. The following reasons strike me as being important: first, neither the C.B.I. nor the T.U.C. is an executive body in any real sense of that term. They have no power whatever. That is not derogatory of them. They are both admirable volunitary bodies themselves and they have great roles to play in this country. But it is difficult to agree with anyone, or to reach an agreement with anyone, if that person cannot deliver the goods; and neither the C.B.I. nor the T.U.C. has any power to do so. This seems to me at least to be relevant to the argument as to whether you can have a voluntary policy. The second point is that if they did agree, both of them would lose most of their members. Whatever else the T.U.C. is for in the eyes of the trade union movement, it is not put there, or elected, for the purpose of agreeing to a 4 per cent. plus £1 a week increase. That is not the idea at all. Nor is the C.B.I. really supported for the purpose of placing limitations which are very difficult to understand on profit margins. For a time it is possible to influence these events, but their role, in the view of their members, is not to reach agreements on issues of that kind.

Moreover, it seems to me, thirdly, that if you did get a tripartite agreement between a Government, the C.B.I. and the T.U.C., the concessions that they would all have to make to one another would make such a nonsense of the resulting agreement that the thing could not conceivably work. I realise, of course, that the White Paper itself is a compromise; it obviously is. But it is a compromise reached within a British Cabinet, and most of us are familiar with the compromises that are reached within a British Cabinet. But at least there is a Cabinet and a Government responsible to Parliament for the compromise which has been agreed upon.

The fourth reason is illustrated by the Amendment which we are discussing. You could never get an agreement which was limited to the confines of this White Paper. Inevitably, other factors intervene. This Amendment deals with matters like budgetary policy, whether you ease the punitive taxation on the higher income brackets, the Industrial Relations Act, social policies like the Rent Act and the rest. I would probably disagree with the noble Lord, Lord Shepherd, if he is going to reply on these matters, on a number of these issues, but I would defend to the death his right to argue them and to introduce them into a debate of this character. He might have added the European issue, though he did not, for perhaps obvious reasons; but he could have done so. The moment you start an agreement on a narrow range, inevitably you are drawn into these other matters, and how could any Cabinet sit down with bodies and institutions, however important, but limited—they do not represent the whole public—and debate these matters? If it was narrowed, they would not get agreement, and if it was widened we should start seeing a Government which was not the type of Government we are accustomed to in this country, responsible to Parliament, but something very much nearer an agreement between great institutions bordering on—and I hesitate to use the word because it has overtones —the concept of the corporate State, which would certainly not be acceptable, at least in my view, in any England that I have ever known.

I, for my part, am prepared to serve under any Government in this country—I sometimes have hesitations when I look at noble Lords opposite; but I am very happy to be in England under a Socialist or a Conservative Government. But I want a government, and a Government responsible to Parliament. That is the only type of arrangement to which we are accustomed and which I think we should ever tolerate. Therefore, for the reasons I have advanced—and I have deliberately advanced them because I thought the noble Lord, Lord Drumalbyn, was touching on these possibilities again, and I know Mr. Maudling and others have written about them—I say I have grave doubts (I do not put it any higher than that) as to whether voluntary agreements are really valid in this field.

LORD SHEPHERD

My Lords, would the noble Lord not agree that even with a statutory policy, even with all the laws and the penalties that are there, in the end there must be a voluntary acceptance by the community, and therefore the question of fairness does arise?

LORD THORNEYCROFT

Yes, indeed, my Lords. I am most grateful, because I was just going to move on to this very point. There is, therefore, a position where the Government take full responsibility for the decision which is taken. Consultation, yes; shared responsibility, in the sense that you pass outside the Government the responsibility for the decision taken, no. I could not agree more with the noble Lord, Lord Shepherd. Of course you need consultation. What is necessary now is to carry public opinion with the Government, and in public opinion I include most importantly trade union opinion. I mean the moderate opinion everywhere, and there is a great deal of moderate opinion; there is a great deal of moderate opinion among the trade union leaders at this present time; there is a great deal of moderate opinion among the trade union rank and file. I sometimes think that between the two there seems to be an element of extremism which is a little more difficult to handle. But I would agree absolutely with what I took to be the sense of Lord Shepherd's intervention: that at this moment we should seek, by every method open to us, to reach as much accommodation of views as we can.

I would never ask the trade union movement to underwrite some settlement of all wages on a national basis—that is outside the role of the T.U.C.—but I would seek, by every means open to us, to get their co-operation, particularly, for example, in working on the Boards which are set up and in playing a part to try to get policies to work, even if the policies are not completely agreed. They can work outside to change the Government, to influence public opinion, through politics and other means; all those courses are open. But we should seek by every means to get the maximum support of moderate opinion in the things we do or the concessions we make. Free milk is a popular and bitter subject of political debate; concessions are made on that; concessions are made on the Rent Act—not as much as the noble Lord requires, but some are made. Of course concessions can be made. But, perhaps above all else, we need a little lowering of the acerbity of debate, a great deal more concentration by all of us on the things on which we can find agreement, rather than on a maximisation of the differences which exist within this country at the present time.

LORD WIGG

My Lords, if the noble Lord would allow me to say so, I am much interested in the play he is making about less acerbity in the debate. Does he not think it time to address his remarks to the Prime Minister, who, both by words and actions, has done more than any man in living memory to split this community and nation into as many pieces as he can?

LORD THORNEYCROFT

My Lords, being a modest man, I was addressing my remarks to your Lordships' House, which I think is the wise course to adopt. It is possible that what we say here is reported, or even listened to, outside. But I do not exclude anyone, Prime Minister, Leader of the Opposition or anybody. I am saying, in all seriousness, that in the national interest the position is grave enough to warrant our trying to find the maximum degree of co-operation and to minimise the differences, which are very real. I have been quite a controversialist myself, as the noble Lord knows; I can make the other sort of speech. But at this moment I think a little moderation would not come amiss.

As to the cure proposed, we must await the Code itself. There are things in the Code—profit margins which strike horror into the industrialists, and things about wages which would upset most members of the trade unions—but the concept of trying at this moment to limit both wages and profits is something about which I think the whole of your Lordships' House is probably agreed. And to those who think that it is the end of a free society or of the capitalist system, I would say that I do not believe it is either a sunset or a new dawn; I believe it is the common light of an ordinary rather cold winter's day, having seen these problems myself in some degree, as many of your Lordships have, over quite a number of years. The objective should be to make stage 2 work well enough to be able to get stage 3 a little easier, not a little tougher, and to try to get the whole economy to the point where we could use moderate monetary mechanisms with more effect than we can possibly use them at the present time. In economic terms, that is the object we are seeking to achieve.

The problems are more limited than are generally supposed. In truth, most prices are fixed by competition. Most prices of most manufactured products are fixed by the hard fact that you cannot put them up because otherwise you will not be able to sell your goods. Profits, as a percentage of the gross national product have been falling over quite a number of years. The problem generally in the economy is to hold them at a level which will justify the necessary investment which all of us, on both sides of this House, want to have. I hope that most wages are going to be negotiated even under these arrangements, because, after all, the ceiling is somewhere near 7 per cent., which is not an insignificant figure. The basic and difficult things that are left, are food prices and prices of imported materials. Mr. Wilson found those impossible to deal with in 1965, 1966, and 1968, and he would find them as impossible to deal with if he were in office again. I admit that I found them impossible to deal with. I agree with the noble Lord, Lord Byers, that one might do something about threshold agreements, but that is about the only way in which one could tackle problems of that character.

It is on matters of this kind that the help, the co-operation and the wisdom and experience of the trade union movement could be of immense help at the present time, because these matters have to be tackled. There is the question of food and of monopoly prices, or the strongly price-led prices. Those need to be monitored, and they can be, by fairly simple machinery. There are a few wage claims by a few powerful unions out of all proportion to what can be afforded at the present time, and the Government have to hold those at whatever cost. May I repeat those words: they have to hold them at whatever cost. They cannot, and must not, fail again.

I agree with the noble Lord, Lord Diamond, that wages are not the only factor in this issue. Wages and prices are only factors in the problem of inflation. Monetary policy—and I believe I should carry the noble Viscount, Lord Amory, with me here—is of critical importance. Deficit financing, the rates of borrowing, the scale of borrowing, are all of immense importance in the economy. Any policy which tried to tackle inflation from one end only and forgot that this vastly important flank was wide open would be in a very perilous position. Such a policy would fail. Therefore I say to your Lordships that to tackle inflation and I have learned this lesson—you have to do it from all sides, not from one; and I believe we shall attempt to do that. In the future and for the immediate period ahead we cannot avoid hardship. I believe that that hardship will affect all—it will affect the rich and it will affect those on the lower incomes too—but if, in the world ahead, we all get rather less than we desire or think that we deserve, it may be a price worth paying for a rather better and more stable world.

4.45 p.m.

LORD PEDDIE

My Lords, my noble friend Lord Diamond gave eloquent evidence of the opportunity that this programme presented to this side of the House to make political game of the Government. I, on this occasion, would indicate that I rather more rejoice at the conversion of the Government, which involves a rejection of some of the cardinal principles pronounced when they first came to office. I believe that the economic circumstances of the country to-day justify a policy such as is indicated in this programme—although there are many points of this policy which I hope we shall have the opportunity to debate at a later date. In spite of such a comment on my part, I would emphasise that I believe that the Government themselves are largely responsible for the steady worsening of economic conditions since they came to power. When this Government came to power the machinery for dealing with an incomes policy already existed. There was also a public acceptance of the need for such a policy. This is a tremendously important factor, as I shall try to demonstrate in the course of my speech.

I suppose that I personally must find some grim satisfaction in the fact that some two years ago I predicted the events indicated in this Paper. I do not think that it is necessary either from this side of the House, or from the Government Benches, unduly to emphasise the seriousness of this problem of inflation. That is why I personally would have appreciated it if the noble Lord, Lord Drumalbyn, had argued his own case on the basis of facts as they are, rather than on what my noble friend said six years ago. I know that some indicate to-day that inflation is a universal complaint, and that no industrial country has been free from inflation in the days since the war. That is true. Some countries where inflation has taken place have not felt the need for such drastic action as had to be taken by the previous Government and must now be taken by this Government; but this is largely because the impact of inflation is harder upon Britain than almost any industrial nation, and the character of our economy intensifies that burden. Our dependence on exports, and the dependence of our industries on the high proportion of their raw materials that come from abroad, are all factors which make this inflation and its consequential effect on the price structure of tremendous significance. Successive Governments have attempted to tackle this problem since the end of the war, and in varying degrees all have failed. They have failed because the public did not recognise the need for such a policy.

The Labour Government were extremely fortunate in being able to provide, as a basis for the expression of their policy, the Statement of Intent, which at least indicated that the trade unions, management, and Government collectively recognised the problem. It is true that over the course of the years, as I knew only too well, the intensity of their belief tended to diminish; nevertheless, for the first time there was a recognition of the seriousness of the problem, and of the necessity for collective action to deal with it.

In due course, we shall be discussing the machinery that will be laid down in the Bill, but this afternoon we have heard arguments about the merits of both a voluntary and a compulsory basis for an incomes policy. In a free economy, only conditions of emergency justify, or even make possible, an incomes policy that rests exclusively upon the compulsion of law. That does not mean that a successful incomes policy can operate only on a basis of compulsion; as I said a few moments ago, it depends to a high degree upon public acceptance, which in turn depends upon public recognition of the need for such a policy. This Government have one overwhelming advantage: in spite of the public demonstration of trade union policy, the general public recognise the desperate need to deal with this problem of inflation, and in consequence they will give support to the Government in their prices and incomes policy provided that it not only is fair but is seen to be fair. I would urge the Government to recognise that fact because, no matter what laws are passed, no matter what element of compulsion is introduced, a policy cannot be successful unless it has a high degree of public acceptance.

I was a member of the Prices and Incomes Board from the day of launching to the day of sinking; I think I was the only member who was able to survive the whole passage. In the last six months, during my period of chairmanship, we were responsible for 12 reports. I mention that fact only to point out something of tremendous significance. It may sound arrogant on my part, but I believe that during the last six months, at a time when everybody knew that the Board was coming to an untimely end, it demonstrated its worth and indicated that there was public recognition of the services it had rendered. It could have ground to an ignoble halt, but it did not. The staff were effective and accepted their continuing responsibilities until the very last day, and both unions and managements retained a respect for the operation of the Board.

One can imagine what could be the result of proceeding to a company to consider some wage or price problem, when the management of that company knew that one was for "the chopper" in a few months' time. Yet there was universal recognition of the fact that the Board had a worthwhile task. It is interesting to note that the chairman of one very well-known and respected public company started off with a violent denunciation of a particular inquiry for which we were responsible and which affected their business. Up and down the country he castigated the Board; but he ended up by paying public tribute for the first time in his published report and balance sheet. I say this not to indicate what a good job I did as chairman during the last six months but to demonstrate that both managements and trade unions are prepared to work with a body of that kind, provided that it is demonstrably performing its task in a manner which is calculated to be in the long-term—and indeed, the short-term—interests of the community as a whole.

I find it difficult to understand the trade union attitude in some cases, when they say that we should depend upon free bargaining; or the attitude of some noble Lords opposite, who claim that the free play of economic forces, with so-called competition, can effectively determine pay and prices. For that matter, I do not know that any free competition exists, or has ever existed. In the same way, I say to my trade union friends that free bargaining on the industrial front does not ensure equity in the determination of wages. The gains go to the strong. The weak, the ill-organised and the low-paid cannot exert pressure and they come off worse. That is why I regret the Government's proposal for a separate Price Commission and a Pay Board. I think there is an over-anxiety to be a little different from the old Labour Government's P.I.B., which causes them to make the two bodies separate.

I do not know how the Government reconcile that proposal with the statement in paragraph 24 that: Pay is the largest single element entering into prices which are under our own control or influence. Will the Government say to the Price Commission, "Investigate prices, but do not deal with the single element that is most effective in determining prices"? It just does not wash. I shall not argue that point further, except to say that I hope sincerely that if there is a separate Price Commission and a Pay Board they will not have two separate staffs, because if they do it will be difficult to go along to industry and urge greater efficiency and a reduction of staffs. I ask the Government not to duplicate staffs. Believe me, my Lords, speaking as one who knows something about the administration necessary for the performance of these functions, something will have to be done to deal with this situation, even if there has to be another body in control of the other two. I do not mind these bodies being separated in name, but to allow them to be completely separate, with complete autonomy, is without any doubt quite wrong.

I would also suggest that there is a need to concentrate upon prices. I know from practical experience the truth of what the Government have repeatedly said—which does not fall easily upon our ears—that it is more difficult to control prices than to control wages. There are elements in a price that are outside the control of any Government, whether it be Labour or Tory. Nevertheless, if an incomes policy is to pay it must demonstrate to those people whose wages are controlled that everything in the Government's power is being done to effect some restriction, examination or curtailment of price movements. I would concede that prices cannot be completely controlled, but the Government should go a little further than they have done in demonstrating that the operation of this programme will be fair.

There is one aspect of this document to which no one has yet made reference, though to my mind it is the most significant and important part of it. I refer to paragraph 30, which deals with the low- paid and suggests that a board will be established to improve the capacity of industry to raise pay levels for the lower paid. One of the most important reports that the P.I.B. ever produced was about low pay, and we produced it during the last few months of the Board's operations. I advise Members of this House to read that report. It demonstrated that the relationship between the weekly earnings at the median and lowest decile has remained constant for a century. In other words all the activities of the trade unions have effected no change at all in the relationship between the low paid and the higher paid. As I am sure some of my colleagues will agree, most of the strong trade unions are more concerned with the maintenance of differentials than with raising the standard of the low-paid. I would argue that the redistributive effect of tax and social security has done far more to improve the position of workers with low earnings.

It is interesting to know what the situation is with regard to low pay. According to the latest Earnings Survey, covering just over 8 million men over 21 years of age doing full-time manual work, 23 per cent. earn less than £25 a week. Now it is absolutely impossible for anyone, particularly those who have to sustain a family, to live on £25 a week. Yet that is the number of people who live on less than that figure. I know I shall be told about overtime. Of course: but if you look at the overtime figures you find that over the past twenty or thirty years there has been no change in the number of hours worked by the average worker. He gets the added sustenance that he needs from the extra hours he has to work—a stupid situation! That is what is going on; and I would say that the Labour Government did but little to deal fundamentally with that situation. Both noble Lords opposite and the last Labour Government sought to deal with this problem in terms of what handouts they could give to the low-paid. Shall we have a national minimum wage? That is of transient value. You need more than that. You need something which is hinted at in this document; that is, to deal with this problem fundamentally.

For instance, you find that in the country to-day ten industries account for one-third of the people who come within the category of low-paid, and that, with the exception of agriculture, all of them are service industries. There is no single cause of low pay, and there is no single remedy. It may be in consequence of low skills: it may be inadequate capital in that industry; or it may be a need for a revaluation of the service that is offered by that industry. I would beg of the Government to accelerate their intention to set up this body, because there lies the answer. We must consider in detail why we have the low paid; and, having found out the reasons, we may be able to separate some of it from what one might describe as social considerations—inadequate physical and mental ability to deal with the situation, which causes workers to earn less than they ought to earn. That is a social responsibility, and that can be dealt with socially. But at least let us tackle this problem, because in doing so we shall not only be dealing with a social problem but will be making a considerable contribution towards raising the economic standards of this country.

I would say, in conclusion, that the major objectives of the incomes policy as indicated in this document will be, I hope, to provide, and be seen to provide, a sustained rate of increase in the general productivity of the country. If it does not do that, it is not worth a damn and it will not last. But if this objective is not realised then the policy will be judged simply as a mechanism to curtail pay, and the effectiveness of the policy will be restricted. In the early days of the old P.I.B., that was a problem. People thought that the Board was solely for the purpose of curtailing pay; other people thought we were the universal economic doctor, available to solve every problem. Both points of view were foolish, and almost ridiculous. We must make absolutely certain that we concentrate on the need for increasing general productivity. To-day, the trade unions quite justifiably expect inflation to continue, and they build an inflationary hedge into their demands. You cannot blame them. You cannot blame them, because employers have the same view, and expect to pass on their higher costs through higher prices; and they have been doing that for a long period of time. Therefore, it is wrong to believe that pay, and pay alone, is the factor which brings about inflation. All too often there is, or there has been in the past, a willingness on the part of employers to concede an increased wage because they can quite confidently pass it on—and if need be I could mention a number of industries where that has taken place.

I know, of course, that the greatest single obstacle to the implementation of this policy lies in the traditional trade union view that wages and profits are rival claimants for the industrial product, and I would say that, in the opinion of the trade unions, historical experience would confirm this point of view. It is not easy to demonstrate, as has already been stated, that the curtailment of profits cuts back investment, with adverse effect upon industry, workers as well as employers. It is true, my Lords, at least in a mixed economy such as we have now, that in the long-term the interests of capital and labour are identical—indentical in the sense that if general productivity rises there is a greater opportunity for us to do better together. But, talking about long-term interests being identical, so are the long-term objectives of stateroom and steerage passengers. They both have the same objective: but in the short term the overwhelming differences obscure any identity of interest—and to my mind that is one explanation which noble Lords opposite should take to heart. It is one thing to be able to demonstrate, as can quite easily be done, that, in the long-term, employers' interests are identical with those of labour. But at least do something in the short-term to indicate that there is some immediate advantage, as well as something in the distant future. An incomes policy, my Lords, is but one facet of an overall policy of economic development. An incomes policy, as I was able to see in the six years that I was involved in it, cannot achieve anything in isolation. It just cannot. A clearly defined incomes policy is an essential corollary to any effective plan for economic development.

I come now to my final point. The problem—and I know it is a difficult problem that would present itself to a Labour Government as it does to this Government—is to accelerate the rate of economic growth and at the same time devise equitable systems to determine wage differentials which take account of the changing character of British industry. That is the problem. I think the Labour Government made a great contribution towards that end. In my opinion, the establishment of the P.I.B. was a great step forward. I regret very much the action of the present Government, for either personal or political reasons, in destroying it. But I take great comfort in the fact that they have learned the lesson; and, having learned that lesson, if they are able to pursue a course along the lines that I have tried to demonstrate I am sure that this policy will be accepted by the public at large and will make a contribution towards the economic development of Britain.

5.8 p.m.

VISCOUNT AMORY

My Lords, my noble friend Lord Drumalbyn opened this debate with a very informative speech, as he always does. He was followed by the noble Lord, Lord Diamond, with what I thought was an interesting speech. I hope he will forgive me if I do not get entangled with him over his list of records, because if I did I should not have time to make the other points that I want to make. If I agree with him that the pressure of wage and salary increases is not the only reason for inflation, I hope he will agree with me that it is without question the biggest single one. As to the noble Lord, Lord Byers, if I may respectfully say so I always enjoy his speeches on subjects of this sort because they always seem to me (again if I may say so most respectfully) to be informed by a great deal of practical common sense derived from his wide experience. He started by making a claim for his Party of consistency. It may well be a well-founded claim, but I would facetiously remind him of a onetime distinguished member of his Party who I think described consistency as "the last refuge of barren and sterile minds."

My Lords, phase 2, the measures that we are debating this afternoon, is the logical sequel to phase 1. Both represent intervention by the Government in a field in which the present Government would have much preferred not to participate. Although I myself should much prefer non-intervention, I have no doubt that in present circumstances it is necessary to intervene and I admire the Government's courage in deciding to do so. Phase 2 seems to have been well received by the country as a whole. If that is so —and I believe it is—it is because the country has now woken up to the malignancy of the disease of inflation. I agree entirely with what my noble friend Lord Thorneycroft said about that, and indeed about most of the other things to which he referred. In passing, I may say that my noble friend always gives a sparkling performance. He is a brilliant extempore speaker, and I am always fascinated by his technique of having lying on the Bench beside him two huge sheets at which he glances from time to time and which on closer inspection, seem to me to look exactly like the menus that one gets in very expensive restaurants.

My Lords, these measures are drastic, and clearly the Government have taken great trouble to make them as fair as possible. I agree with the point made by the noble Lord, Lord Peddie, on that: fairness is an essential element in any scheme of this sort. Just as it was right when we were debating phase 1 to keep an eye on the shape of phase 2, so I think it is right now that we should peer ahead and try to envisage phase 3, which in one sense is still more important because I am convinced that it will last longer than either of the other two phases. An absolute freeze cannot be kept going for long because it is bound to lead to rigidity and stagnation. If these measures, in their present form, were continued for very long, they would suffer to a lesser extent from the same drawback. I think that this will be accepted by the Government.

What phase 2 will comprise is not yet clear. My own humble guess is that in our complex and interdependent society Government probably will never again be able, even if they want to, to extricate themselves completely from some degree of intervention in a field in which they would prefer not to intervene at all. I doubt whether ever again in the foreseeable future we shall see absolutely free and absolutely unfettered major wage and salary bargaining. The reason is the power that monopoly and near-monopoly —and, not even that, great strength in bargaining—gives. If it conflicts with the security of the nation and our society then it cannot be allowed to operate against the general interest. Nor, as an example, at the other end of the scale, can the owner of land, which is a scarce commodity in this small island, be allowed to take unlimited advantage of a temporarily narrow market—indeed, it may get narrower and narrower—if that works to the detriment of house development.

The two questions that I think it is relevant to ask when debating these proposals are these. First, is the national situation serious enough to justify such detailed intervention? Secondly, are the proposals likely to be effective? As regards the first, I am afraid that without doubt our national situation is serious enough to necessitate these steps. What is the kind of balance sheet that I am referring to? First, an extremely rapid rate of inflation, and, what is particularly dangerous, a rate which during the last year or two has been more rapid than that of our main international competitors. Secondly, there are forecasts of quite large deficits in our balance of payments. There is no sign yet, unfortunately, of that upsurge in exports that one had hoped for from the last devaluation. Let us hope that that is a delayed effect which may come.

Thirdly, there is the alarming increase, to which my noble friend Lord Thorneycroft also referred in passing, in money and credit supply. I myself feel, with hindsight, that that increase was so rapid that not only was it enough to finance the inflation but, more than that, it probably aggravated it. I know that the Government allowed it for what seemed to be an excellent reason, that they wanted to stimulate the economy to bring unemployment down from the rather deplorable level it had reached last year. But I think that the money supply situation needs to be watched very carefully. Fourthly, there is the prospect, one would guess—I do not know, for I have not studied the forward figures, and I may be wrong—that Government expenditure above and below the line over the next few years may go beyond the share of the domestic national product to which the Government hoped to limit themselves. I may be wrong. I hope so. The other side of the picture is the upward trend in the standard of living and the welcome decrease in the unemployment figures over the past few months.

My Lords, it is the fashion, and I believe a dangerous one, to suppose that because sterling now floats we need not worry too much about an adverse balance of payments. That, I submit, is a complete delusion. I agree that in present circumstances it is right to allow sterling to float I hope that it will not be brought back to a fixed exchange too soon. But there is an insidious danger in a floating rate that, because its movements are gradual, few people realise what is going on. Politicians—God bless them! if they will allow me that little intervention—are particularly apt to think that with a floating rate it is none of their business what happens and that the market can carry that baby for them. How many people remember, for instance, that the recent floating, six or seven months ago, amounted to a devaluation of something over 8 per cent.? The price we have to pay for a drop in the floating rate is precisely the same as the price we have to pay with an enforced change in a fixed rate. We have learned in the past 25 years that the relief obtained by devaluation can prove very temporary indeed; and a continually falling exchange rate would put paid to any steady improvement in our national living standards.

We may at present be liable to the all-too-familiar criticism that it has been possible so often to level at this country's activities since the war: that we are trying to do too many things at once. I believe that the present situation is so serious that any surplus we can earn as a nation needs to be ploughed back to strengthen the stability of our economy rather than be paid out in higher consumption. Let me give one illustration of the illusive impressions of prosperity that inflation brings. If the balance sheets of companies were drawn up with an absolutely strict regard to real, as opposed to paper, values and profits, many, and possibly most, companies in this country at present would not be working at a profit but would be working at a loss. Like a company, in which the interests of the shareholders should keep dividends low and plough profits back, so we, nationally, should plough back whatever earnings we can make now to strengthen the basis of our economy.

My second question is: are these measures likely to prove effective? I believe that the answer is "Yes", if they are really backed by public opinion, as I believe they will be. They may well succeed in reducing the immediate pressure of inflation to a far less damaging rate. Our situation is one in which inaction is one course which is bound to he fatal. Here we have a series of measures designed by the Government not as the result of Party political dogma but pragmatically, after consultation with the C.B.I. and the T.U.C., to meet the urgent necessities of the position. If we could have got a voluntary agreement I think it would have been better, but I agree with my noble friend Lord Thorneycroft that that was a tremendous lot to expect. I suggest, my Lords, that a very heavy responsibility would lie on those who would deliberately impede such policies when they have been approved by Parliament. I know that I am to be followed by the noble Lord, Lord Douglass of Cleveland. I do not know how much he will agree with me in other things, but I think he will agree with that.

I have said that in phase 2 the Government have taken great trouble to be fair. Inevitably, in a complicated matter like this, it is easy to find individual impacts to criticise. Let me take one. The restriction on dividends alone still leaves profits which could, if the profits were bigger than the dividends, be used for the ultimate benefit of shareholders; while in the case of restriction on wages the amount restricted is lost forever. On the other hand, of course, retained profits may facilitate industrial investment. I hope that the Government will not listen to siren voices urging the introduction of general subsidies, including food subsidies. As I remember too well from the days when I was Minister of Food, that is a slippery slope, if ever there was one. I believe that the main difficulty in phase 2 may prove to be the policing of the restrictions. In our complicated economy it is impossible to control prices or individual profit margins in absolute detail. It is easy for the Government to deal with profits in the aggregate and ensure, by taxation, that they do not take more than a reasonable proportion of the domestic national product. So, once again, effective prevention of abuse by minorities will depend at bottom on the influence of public opinion. Also, my Lords, we shall delude ourselves if we do not realise that these measures will mean a very big increase in paperwork, both for companies and also for civil servants.

When we come to phase 3, I humbly prophesy that we shall enter an era when the Government, on the best technical advice possible, will lay down limits within which wages and salary bargaining—free bargaining—can take place without damage to the national economy. I think that there will be threshold agreements, as they are called, and that the Price Commission and the Pay Board will become permanent institutions. May I say to the noble Lord, Lord Peddie, who was a distinguished member of the Prices and Incomes Board, that I thought it a pity when that Board was abolished completely. I should have preferred it to be kept in existence. I think it a pity that the experience gained by Mr. Aubrey Jones and the noble Lord, Lord Peddie, should not be made use of in some way in the present circumstances. Perhaps it will be. As regards profits in phase 3, in the aggregate they will continue to be controllable by taxation, as indeed currently they can be, and I think that maybe the price of land for development will have to be subject to safeguards.

What am I advocating my Lords? First, though I regret the necessity for intervention, I advocate the strongest possible support for these phase 2 measures as the most radical and constructive effort so far put forward from any quarter to mitigate the rate of inflation. I also advocate that we do not worry too much about whether the national growth for the next year or two reaches 5 per cent. exactly or a little less. The present fashion for measuring the health of our national economy by these nicely calculated percentage growth rates is unsatisfactory. We do it because there is no better measure, but if your Lordships were to analyse the strange mixture of items which go to make up the G.N.P. computation you would be astonished. I think that my noble friend Lord Thorneycroft will recollect something of that, and I am sure that the noble Lord, Lord Diamond, does, too.

As I have pointed out before in your Lordships' House, while we want as rapid a rate of sustainable expansion as we can get, rapid growth alone eases some problems but aggravates others. In my submission, a modest rate of growth with minimal inflation is better than a rapid rate of growth with a high fever of inflation. The criticism has been made that the Government policies are divisive and, if that were true, I think it would be a great drawback to their success. But in essence, my Lords, surely it is not true. I believe in consensus government when it can be got without sacrificing essentials, but conciliation of every powerful section of the community as the dominating article of policy becomes mere appeasement. These measures are, in my opinion, the reverse of divisive, because their sole object is to unite the nation in an exercise in national self-discipline; and I feel that everyone who loves his country will pray that they will be successful.

5.28 p.m.

LORD DOUGLASS OF CLEVELAND

My Lords, I have listened with great interest to the speeches which have been made and the conciliatory tone in which they have been made. I think I might be forgiven if I contrasted those speeches with some of the speeches that were made by Government supporters when we tried to put over a wages policy some years ago. Then I was a fairly newcomer to your Lordships' House and I was surprised at the virulence of the attack made upon us when we were trying to do pretty much the same job as the present Government are trying to do, to overcome the problem of inflation and the inequities of wage and salary distribution. While cogitating on these matters yesterday I was really shocked at a report of what the Prime Minister had said about the people who had absolved themselves from responsibility. He was speaking about the Labour Party and I was shocked at the attacks he made on them. I was astonished, because he went into power on a market forces ticket. He intended that wages, like prices, should find their own level by competition within the particular industry. He reversed that policy and put a halo round his head for doing so. That sort of attitude on the part of the Prime Minister will not help the T.U.C. to persuade its rank and file members to get the T.U.C. immersed in this problem.

My Lords, I am in a very difficult situation. I am against an incomes policy based on legislation. I am against it by instinct. But my greatest difficulty is to see how we are to get one to work unless we have legislation. This means that I am backing the horse both ways. I have come to the conclusion that if you go on backing two horses you will not stay in the circus very long. Eventually, somebody will have to say that if people will not accept what is voluntarily agreed some method will have to be found of dealing with the situation. But if that time comes, I hope that we shall not have the kind of legislation that we had in the Industrial Relations Act, which, with all respect to the noble and learned Lord the Lord Chancellor, seemed to come from the Elysian heights of lawyers completely out of touch with what was happening in the workshop: and is being operated by a Government who have little idea of how to operate it now that they have it in their possession.

I think there are many things in the Industrial Relations Act which can help. In these days of powerful organisations, whether they be trade unions, employers organisations or Governments, I think the cooling-off period is essential. If there comes a time when you have, say, an electricity strike which stops water coming in to a city, which stops all sewage and all heat, you cannot just sit back until the people concerned in a strike of that character come to an agreement. In America they have a cooling-off period which has been condemned by the Democratic Party, to my knowledge, for the past 15 years; but when the Democratic Party gets into power it never tries to change that part of the Act. The fact is that in the cooling-off period 50 per cent. of the problems are solved without a strike. I think we have to consider whether it is right to allow a situation to develop such as we have at the present time, where people working in hospitals are so overwrought at the difficulty of getting their wage claim heard in the same atmosphere as an industry where a strike is possible, that they themselves threaten to go on strike, and say, nevertheless, that they are going to take care of the patients. They may be able to do this at the present time. But this is hound to overspill. And if it overspills so that hospital patients are affected, then the Government will have to step in and deal with the situation.

We come to a situation at the end of the day where I ask myself: in a voluntary system, would I accept what the employer is going to do in phase 2? Will there be limitations on dividends? Will he not invest and put up his costs in that phase so that he has automatic savings which he can use in the future, but in the machinery? It is as easy as pie to do that. Will he not adjust his accounts in different ways in order to save the money for his future use? I could not trust an employer not to do that (I do not mean the best employers of course) because their job is to make profits for the shareholders. There will have to be a restraint on that situation.

When you come to the trade unions, if a trade union executive agrees that it will not allow wage increases to rise beyond 5 per cent., or whatever it is, can the union he sure that some of the branches will not break that agreement? I do not think it can. In a situation like that, I think any political Party will have to face up to the fact that if agreement is to be reached it will have to be an agreement that will be kept. If that sort of agreement is not arrived at, you will run into legislation inside an incomes policy. This is inescapable. But it is not inescapable if it is kept in the background as a weapon that can be used if the agreement which is made is not operated properly.

Coming to the problems of the T.U.C., it is said that it has no power—I think the noble Lord, Lord Thorneycroft, said that. It has some power, because it recently expelled unions for not doing what the T.U.C. had decided they should do. There is no question but that the T.U.C. is growing more powerful. It is a political force in the world. For that reason, I liked the concluding passage in the speech of the noble Lord, Lords Byers, when he asked whether, even at this late hour, it was not possible to get back the good will of the T.U.C.

We have been told that the C.B.I. have not power over their members. But what do they do with their members? When one of their industries agrees to increase wages of a very high order, do they have any regard to those industries which cannot afford to pay those wages? Do they have any regard to the repercussions of paying high wages in one industry as compared with another—or, as we should prefer to put it, paying low wages in one industry as compared with another? Do they ever try to deal with this situation? Or do they just let it ride, and say to the T.U.C. "It is your job"; and then, when the T.U.C. cannot cope with it, say eventually to the Government, "It is your job"? Is that what the Government are doing to-day—doing the job of the C.B.I.? I know Campbell Adamson, the Director General of the C.B.I., very well, and I have a high regard for him. I knew John Davies before he went into a ministerial position with the Government. I was astonished when he came out with the idea that if you are going to have wages settled, they must be settled by market forces; and if you are going to have industrial problems settled, they will be settled by the "lame duck" theory. I never heard him put forward those ideas when he was with the C.B.I. and talking to the T.U.C.

The C.B.I. have a great deal of responsibility at the present time. They have been rather quiet about these things, saying that they agree with the Government, and even saying that they agree with the T.U.C. But if we are going to have a sensible incomes policy, somebody must ask some questions of the C.B.I. We shall have to ask them what they are going to do about some of the problems that are also being put to the T.U.C. at the present time. The trouble is that the T.U.C. are not talking to the Government. This I greatly regret. Unless there is conversation and communication between the T.U.C., the C.B.I. and the Government, none of these economic problems can be settled. If the obstinate antagonism that we have at the present time continues, it will live on when there is a Labour Government, and there will be repercussions from the employers simply because the trade unions have been obstinate.

My Lords, what do we do about a situation of that character? I have looked at it, and I would say that a big union like the Transport and General Workers' Union or the Amalgamated Engineering Union have precisely the same problems as the Government. Their members are low paid; their members are high paid. And do not forget that they are asking the unions what they are going to do about this. The lower-paid men want high wages; and they are not going to accept the fact that because they work in the Civil Service, in the hospitals or in the nationalised industries they are going to have lower wages than those who have similar jobs in the higher-paid industries. If the problem is not settled, as I said a few minutes ago, they will go on strike, with all the repercussions of such action. This problem exists within these particular unions.

I hesitate to discuss unions individually, but I do not see how we can solve this problem unless we get to grips with it and talk about these things. The engineering union have set their face against co-operating in any way with this Government: they will not even defend their members at the industrial disputes tribunal. Anyone who has watched development in that union will have seen that they have lost millions of pounds, and thousands of members, and their skilled members are transferring from the higher grades to the lower grades in their own union. I would have thought that was an indication—and I am not giving secrets away because this has been published in the papers—to the public, to the Government and to the unions that the ordinary man in the street want co-operation with somebody to get us out of this tangle we are in at the present time concerning wage negotiations.

The Transport and General Workers' Union were fined. They resisted very strongly, but they did pay the fine and they decided to work within the Act. Again, this is public knowledge because the General Secretary spoke on the radio the other night; and he said that their membership has gone up by 250,000, and their capital assets are going up too. This is because they are using skilfully the powers they have inside the trade union movement to give satisfaction to the members. They have a problem as between the higher paid and the lower paid. I heard this question being put on the radio: "You have a problem now between the dockers and the people who stock and stuff containers. What have you done about it?" The answer was: "We have set up a committee to deal with this. We are examining the problem; we are not sitting back stubbornly and saying that it is someone else's job. We are going to deal with this one".

We have within the trade union movement not a Left Wing element but a sabotaging movement, consisting of a number of organisations who are determined to destroy the system—and that includes the trade unions. I can give many quotations from what they have said but I need give only one, which was printed in the journal of one of these organisations when the miners had their strike. They were encouraging the ruthless and foolish picketing which went on at that time, which certainly did not have the support of the miners themselves. The statement was that the destruction of the system under which we live and the throwing out of the coal bosses on the Coal Board was much more important than the wage claim itself. You have in this country to-day a number of organisations which are disrupting the trade union movement, with the intention of taking over power—and the Industrial Relations Act has given them power. This is one of the ironic results.

You will remember when we discussed the Industrial Relations Act in this Chamber, that my noble friends in the trade union movement and I pleaded with the Government not to destroy the closed shop. You cannot ask any trade union movement, or any other movement, to control its members if it controls only half of them. It must have control of them all if it is going to do anything. The closed shop was there to relieve us of the problem of going round and trying to get people to come within the trade union movement. We were spending our money and time trying to do things like this. When we should have been organising, negotiating, calculating, designing, planning, and so on, we were dissipating our energies. The Government will never be forgiven for having destroyed the closed shop.

When I heard the noble Lord, Lord Byers, suggest that it was not too late and that we should again get the trade unions to talk, I was happy. Now, how do we do that? Most speakers have said that we ought to do something, but I do not think I have heard anybody suggest how it might be done. In the trade union world the first word you must learn is, "How?". It is no use just saying that we ought to have this, that or the other thing: you have to do something and you have to take responsibility. The National Economic Development Council has not been used anything like as much as it should have been, either in regard to the Industrial Relations Act or in this prices and incomes policy. I was a founder member of the Council, along with my noble friend Lord Cooper, and we have sat round the table and there discussed almost insoluble problems. We have tackled them; and we have solved some of them. Do not start creating new vehicles: use the ones you have got. Go back to Neddy. I have had many years of close association with Sir Frank Figgures in EFTA. There you have an extremely wise Director-General, one who in my presence has solved problems in four or five languages—so he has a good chance of solving this one in just one language. He would get out the necessary background papers in this type of job.

First on the agenda if you want to pull the T.U.C. back into discussions must be the restoration of the closed shop. If you do that you will help the T.U.C., because they have a dilemma at the moment. The T.U.C. decided to suspend a number of unions-30, I believe—and is now considering expelling them. Why have those unions quarrelled? One of them, the seamen's union, has members scattered all over the globe. How do you force those men to be members of the union? How do you negotiate for them if you do not force them? And if you do not negotiate for them, how can you settle wage problems? Do not forget that when we had a previous problem with the seamen's union the then Prime Minister, Harold Wilson, named some of the malcontents who were causing trouble. After he had named them the union got shot of them and then got itself on to a properly organised basis so that it could go back to the T.U.C. and the Government. Their reward has been a situation the result of which has been that the T.U.C. has now suspended them.

I hope that this Government will get down to tackling this matter straight away. I would hope that the first thing they do is to give back to unions of this character, all 30 of them, the right of the closed shop. Then the T.U.C. will begin to think that there is at least an attitude of sincerity when the Government say they want the T.U.C. to do something about this inflationary problem. If such action is not taken, I think you can forget about any co-operation with the T.U.C.

Having got Neddy working on this problem, where do you go from there? I think you have to examine what happens in wage negotiations. You will find then involved several large groups, such as those engaged in metal working, agriculture, textiles—perhaps nine of them altogether. There is a long list in the Ministry of Labour Gazette, but there are a number of groups. When, for example, in the engineering industry they settle a claim, it is unbelievable how this reflects itself in so many other industries. The steel industry invariably follows suit—though not slavishly: there is a little change here and there. And if you can get a reflection from Neddy, although Neddy will not solve the problem, an idea might materialise that will be considered by the T.U.C. and the C.B.I. You will then discover that there are a number of groups in which subsequent wage claims problems can be examined, together with the problem of differentials between those different groups. They can consider how the problem came into being, whether it is justified and whether it ought to be changed. Once you start the habit of discussing differentials in such a problem you will get to grips with the problem. You will not settle it overnight, or perhaps even in a decade. It will be a rolling problem, but you will be coming towards a settlement. You will have the C.B.I., the T.U.C. and the Government—any Government—talking about the problems, because you have laid down a background as to what they are. With such a scheme going forward, I can see the possibility of the acceptance of phase 2 as set out in this Bill.

A good deal has been said about phase 2 levelling things out. It seems to be the impression that all national agreements are negotiated on a percentage basis and that there are no flat rate agreements. There are many flat rate national agreements in this country that are not on a percentage basis. There are national negotiations and the labourer gets as much as the man at the top. If there is an agreement for an across the board payment of £1 a week plus 4 per cent., all that has been achieved is an extension of differentials in some industries. I do not think the Government have understood what they are doing. I do not understand it all; but I understand some. I am making a plea to the Government to go back on what they have done with the Industrial Relations Act. That will be much less difficult than going back on the incomes policy. The Government have done that; why not go back on the Act? The Government should say to the T.U.C. "We want to talk to you on some matters in the Industrial Relations Act. We will immediately examine some of these problems." Do not make it a condition that they do something: ask them and show good will. Having done that—and they can quote me if they like—they should refer to some of the problems of the big unions. My noble friend Lord Cooper will bear out what I am saying. Inside the union of my noble friend Lord Cooper they have the same problems. Let us talk about these things. With a spirit like that, I think we should get somewhere.

VISCOUNT AMORY

My Lords, I am following the noble Lord with great interest in the very interesting speech he is making. I am under the impression —I do not think I am wrong—that the Government have said that they will be pleased to discuss the contents of the Industrial Relations Act with a view to discovering particular points where the shoe pinches.

LORD DOUGLASS OF CLEVELAND

My Lords, that is after they have had some more experiences of it. I should have thought they had had enough experience of it up to now—we have. The noble Viscount, in rising, takes my mind back to him and to the noble Lord, Lord Thorneycroft. We discussed more difficult problems than this when I was chairman of the Economic Committee. I remember that the first time I met the noble Viscount, Lord Amory, was when he was Chancellor of the Exchequer. We had a long and difficult argument and, as was going out of the room, he ran after me and said, "Mind! this is what I said". He did not trust me; he thought I was going to twist what he said. He never said that to me again because he knew, and I knew, that what we both said across the table we meant, and we were not going outside to twist it. At times we did not quote all that we said when we went outside. On a second thought, consider the Ministry of Labour, or, as it is now called, the Department of Employment and Productivity—

LORD SHEPHERD

The Department of Employment.

LORD DOUGLASS or CLEVELAND

There have been so many changes that I cannot remember its title.

VISCOUNT AMORY

My Lords, I have the happiest recollections of those talks, as I am sure my noble friend Lord Thorneycroft has. They are such happy memories that my noble friend said that if there should be another Labour Government he would continue to live in this country. My Lords, my intention is the same—if I can live long enough. A smile came over the face of the noble Lord, Lord Diamond, at the prospect of assessing my noble friend on Schedules D, E and F incomes when that day comes.

LORD DOUGLASS OF CLEVELAND

My Lords, that is a reciprocation of the good will that I am trying to reincalcate inside industry. The old Ministry of Labour did not have the wide responsibilities that the present Minister has. I remember Jain Macleod—should I say, the Right Honourable lain Macleod? I was too much of a friend to call him anything else but fain. When we inside the industry met him on a labour problem we knew we should get a quick answer. The discussion would not last more than a couple of hours, but his arguments were sound. If you had an argument he would give way to you as soon as you convinced him; and he was open to conviction. Then there was dear old Sir Walter Monckton. With Walter one always knew that one was going to talk until about midnight before one achieved a settlement because he was much too kind to say, "No". They were two different men who had two different ways, but they achieved a settlement and had good will with the T.U.C. I remember that when Selwyn Lloyd became Chancellor of the Exchequer I spoke on the television and said that he was too much like Khrushchev for my liking. I do not think that Selwyn ever forgave me for that, but it made no difference to our friendship. We discussed all the problems of balance of payments.

Here is another idea—and I will resume my seat very soon as time is flying by. When negotiating wages, why not make it a condition that you negotiate prices, too? Why should we discuss wages without any acknowledgment of the effect an agreement is going to have on prices? Why not ask the trade unions in every case when they are negotiating wages to talk about prices as well? My Lords, I cannot continue because I have spoken beyond my time, but what I have tried to do is to say how these things ought to be done. I think that most of us have said what ought to be done; I have tried to tell you how in my humble opinion it ought to be done.

6.57 p.m.

LORD GORE-BOOTH

My Lords, it is a great privilege indeed for me to speak after the noble Lord, Lord Douglass of Cleveland. He has spoken with such humanity and courage as to impress us all very deeply. I have the good fortune to regard him somewhat as my mentor in these matters and I feel the virtue flowing out of him, possibly because I sit, fortunately, so near to him in your Lordships' House.

When I looked at the list of speakers for the debate I nearly decided to forget that I had put my name down. We have had such a weight of authority that it brings to my mind rather the last days of cricket before World War II. Cricket XIs then consisted of ten professionals and one amateur who was there for the look of the thing. But this is a problem which must affect everybody very deeply, so I have allowed my name to remain on the list of speakers for two reasons: one is that I am the only Member of the Cross Benches who is down to speak; therefore I felt I could perhaps say something from the point of view of the ordinary citizen without other obligations. The second reason is—and perhaps it is a more persuasive point—that there was a special comment in the speech of Mr. William Rodgers from another place. He began by saying substantially that to take part in a debate on this subject was a very humbling experience. He went on to say that those who dealt with the matter were so seldom right. It is a measure of the complexity and enormity of this problem that we still find it frustrating us, despite unanimous agreement that we ought to defeat it. I was most interested and impressed that the noble Lord, Lord Thorneycroft, with all his expertise, should feel exactly the same.

I thought I might contribute one idea in this form. This debate has been immensely impressive and authoritative on the subject of inflation and the measures to be taken to deal with it, but all within the scope of that one subject. One noble Lord (it may have been the noble Lord, Lord Thorneycroft) suggested that we should not be too ghoulish about the situation. In that respect we have not been ghoulish, but it is worth while to refer to at least two internal and external effects if we do not get this question right. We are not considering inflation in a cocoon of its own; we are considering the threat of inflation simultaneously with other influences operating in the world, influences which are not always of a healthy or welcome kind.

For instance, if I may start from abroad, which is my location, as it were, I am sure that noble Lords will have noticed the other day that General Amin of Uganda ordered Ugandan journalists to report more fully the difficulties and troubles of the United Kingdom. This was not just one of the General's eccentricities which have done so much harm to the African cause; it was also a symptom of something worldwide: namely, that democracy, as we understand it, is under heavy pressure. There are many people in this world who want to set up or to maintain States run either by dictatorial or by doctrinaire methods, and they realise that in this country we have in some sense the focus of the development and maintenance of democratic institutions. Therefore, not only do many people around the world (and I assure your Lordships that this is quite genuine and serious) welcome the difficulties of this country, but some of them seek to promote them. Therefore the defeat of inflation is not only important for its own sake, but I suggest that it is also important for the cause of democratic institutions in the world as a whole. If we should fail in this matter we shall be failing not only our own people but also the world as a whole.

Then, if one may come home, another part of the environment of this question (and it was referred to by the noble Lord, Lord Douglass of Cleveland) is the environment of what one might call selective law-observance. There are people in this country who are propagating the theory, which was recently put epigrammatically by somebody active in politics, that man makes laws; therefore man can break them. It is very seductive, if one says it like that, but of course it means that man makes laws legally, and then it is concluded from that that he can break them illegally. Here again, the unsettlement caused by inflation, which is fatal enough in itself, is magnified if these other disruptive tendencies, external and internal, are also floating around. Therefore, while I do not in any way suggest that noble Lords have underestimated the danger of this question which oppresses us, it is even more dangerous than that precisely because of other disruptive elements which can combine with it to upset our democratic system.

So it is an instinctive feeling for these things that has caused what many speakers have described as a public welcome for what the Government are seeking to do. There was one moment of truth about this. On the morning after the day on which the Government produced the White Paper I happened to listen to that admirable summary by the B.B.C. of "To-day's Papers". I expect noble Lords will have heard it, but what it revealed was that every single paper except one said that something like this must be done. The one exception, for which only one guess is needed, was the Communist Morning Star. I do not need to elaborate on that. As a fact it simply speaks for itself.

One comes to the vital matter to which the noble Lord, Lord Douglass of Cleveland, drew our attention: the question is not so much the "What?" as the "How?". On this, I am less qualified to make suggestions than are many noble Lords who have already spoken, but there are one or two points which perhaps I might just mention if only to bring them into the discussion. First, the question of fairness, I suppose that the attitude on this matter has to be, in a sense, the attitude towards the moment when a driver puts his foot very hard on the brake of an express train. There is at that moment some very rough injustice as between the man who has finished his cup of coffee and the man who has not started. I think the sudden production of something which is very welcome obviously leads to a few immediate anomalies. If too much concession is made for the purpose of alleviating these anomalies, of course there is the danger of the whole apparatus being broken down by exceptions. But when the debate is wound up I wonder whether the Minister would say just a word on whether the Government have anything in mind for immediate and real anomalies, as opposed to the kind of inevitable injustices which will arise. I perhaps have not studied the White Paper for long enough to know, and I must say that I was somewhat left wondering when I read in the draft Bill the splendid piece of Whitehall English which says: The Pay Board shall exercise the powers conferred by this section in such ways as appear to them appropriate for the purpose and ensuring that the provisions of the code which concern remuneration are implemented"— Sir Ernest Gowers would have enjoyed that. It possibly covers the point, but it might be a useful, if secondary, point to consider.

Another, and a very difficult, point on which I hope the Government might be able to say a little more, is food. There seems to be unanimity among those who are really expert that a crude remedy is not possible. What one would like to feel is that somewhere in the Government machine, just in case some real disaster should arise out of the shortages in the world at the moment, some thought was being given to what would have to be done if there were a real emergency of a kind which led to real suffering and widespread discontent. The difficulty (and I realise this) in my asking about this is that if the Government gave some sort of assurance it might have an effect on food and commodity prices which was undesirable. Therefore, I will not say that I am expecting any assurance at all; I am simply putting out this idea.

Where I think that the crux of the matter will lie, as many of your Lordships have said, is in whether communication can be re-established where it has been broken off. I felt a little disappointed that in his brilliant analysis the noble Lord, Lord Diamond, brought us to that point and then said simply that it must be done. I would hope that some way from the grass roots upwards could be found; but I feel—and I come back again to the beginning—that the point has arrived, from both the external and internal points of view, where something of the nature of what is in this White Paper was absolutely imperative and will be welcome. That leaves only the question of whether it will succeed. On that, my crystal ball is as dim as anyone's, but I simply come back to an old, old quotation which is often used in this context. It is a quotation from the philosopher Ralph Waldo Emerson, who a century and a quarter ago simply said that: "He thinks of this aged England"—aged even then— "this aged England with an instinct that she sees a little better in a cloudy sky". I just hope that that is still true.

LORD WIGG

My Lords, before the noble Lord sits down would he be kind enough to elaborate a point he made? He found it of profound significance that every newspaper with the exception of the Communist Morning Star accepted the Government's proposals. Is that an inverted sneer, that those of us who do not accept the Government's proposals are ipso facto neo-Communists?

LORD GORE-BOOTH

No, my Lords. All I was saying was that it was a spontaneous reaction, except from one source, that something like this—those are my words: something like this—would be necessary. Since then there have been qualifications, of course, and amendments, and we shall go on through this debate. But it was a fact that the spontaneous, immediate reaction was as I say, and the noble Lord may deduce from it whatever he wishes.

LORD WIGG

My Lords, would the noble Lord consider the possibility that all the Press, with the exception of the Communist Morning Star, are the capitalist Press who are trying to buttress a completely bankrupt system?

LORD GORE-BOOTH

My Lords, I am sorry that the noble Lord compels me to prolong my speech and reminds me of a sentence that I left out by mistake. One of the bitternesses in this situation is the attempt to convert this very difficult human problem into a doctrinaire confrontation between the capitalist and the—I suppose used in inverted commas—"Socialist system". This is not in fact a quarrel about that. This is a problem of whether the mixed economy can survive; the economy in which some scope is given to the natural human desire for power and some scope to the natural human desire to make money, and in regard to which neither of them should be allowed to get out of hand. Can a democracy manage these two impulses on the present scale? I am sure this is what we are trying to do, and what the vast majority of people in this country, including the noble Lord, Lord Wigg, would wish to happen.

6.12 p.m.

VISCOUNT MASSEREENE AND FERRARD

My Lords, I do not wish to enter into the argument between the noble Lord, Lord Gore-Booth, and the noble Lord, Lord Wigg, but I should like to say that when, in 1966, the last Labour Government brought their White Paper before this House and we had a debate on the prices and incomes policy, I think I was the only Conservative Member of this House who spoke in favour of it. I said that I feared it was doomed to failure, owing to the almost impossible task that the Government of that day would face in implementing it as a result of the militancy of some unions—certainly not all unions but some. Today we see that the militancy of some unions has increased. I think it was the noble Lord, Lord Douglass of Cleveland, who said that some of the militants are not really interested in bettering the lot of their members; they are interested in destroying the economy. There I completely agree with him. I very much enjoyed his speech, but the noble Lord said one thing which I did not quite understand: he said that the Government must bring back the closed shop. But surely under the Industrial Relations Act the Government have not abolished the closed shop. We have perhaps made it slightly harder for a closed shop to victimise an individual, but we have not abolished it. We have only tried to bring the unions within the law, as in other countries.

LORD DOUGLASS OF CLEVELAND

My Lords, of course the Government have abolished the closed shop, and they said they would abolish the closed shop in the discussion leading up to the agency shop. The agency shop was established on condition that the members registered. Many of the unions had a fundamental disagreement about registering, and because they had an objection to registering it meant that they could not have a closed shop. But the noble Viscount ought to know how simple it is because the Government drafted the legislation; not I.

VISCOUNT MASSEREENE AND FERRARD

My Lords, I still maintain that we have not completely abolished the closed shop. However, just to illustrate the militancy of some unions I might tell a story concerning a business man, a friend of mine, who went to Czechoslovakia three or four months before the last docks strike. He was arranging a business transaction and he was told, "It is no good arranging for this import of goods during that period, because there is going to be a dock strike in England". That was three or four months before the dock strike actually happened and it rather makes one think about where some of the militancy begins.

I will confine my remarks in regard to inflation to food and land. Although I say it myself, I have some practical experience in these matters. However, before coming to that subject I must just point out, as did my noble friend Lord Drumalbyn, that the rise in wages during the last year has in fact outstripped the rise in prices by 9 per cent. The noble Lord quoted the figure of 16½ per cent. increase for wages in the twelve months up to November last, and the figure for the increase in the retail price index of 7½ per cent. Therefore wages have outstripped prices by 9 per cent. I should like to give a small bouquet to manufacturers and retailers because they have held down prices in this period, and even before. They have tried to absorb the increased costs by increased efficiency. Perhaps I may now come to the subject which has caused a hullabaloo, and I think a hullabaloo out of all proportion to its importance. I refer to the subject of beef. I have been breeding beef ever since I was a fairly young man and I should like to make a comparison regarding the rise in the price of beef and one or two other commodities.

Let me take coal. I remember as a boy at my parents' home in the West of Scotland that we used to get coal from Glasgow, about 100 miles away, by sea, and it was delivered on the shore at about 24 shilling to 27 shillings a ton. If one were to get that coal today it would cost, with the transport, about £25 a ton. We have had that price rise in spite of all the hundreds of millions of pounds which have been poured into the coal mines in new equipment. I am not complaining about the price of coal, and I have always been for the miners; I only want to make a comparison with the price of beef. If we take the price of beef, which of course has risen considerably in the last six months, and compare it with the price of beef in the 1930s, so far as I can gather the rise is certainly not more than six times, as compared to a rise in the price of coal of twenty times over the figure at which it stood in the 1930s.

Again, if we take the price of corn and compare it with the price in the 1930s, we find that corn has only about trebled in price. So I think that certain members of the public have been rather harsh in pointing a finger of scorn at agriculturists on account of the rise in the price of beef. All over the world, and certainly on the Continent, beef is a luxury, whereas to hear people speak in this country one gets the impression that it is a necessity, like flour. From the time of conception it takes about three years to produce a 10 to 12 cwt. steer. On the other hand, the cow may slip her calf, in which case the farmer has a capital asset worth at least £200—the value of the cow—idle. Not every cow will produce a calf. Considering that it takes three years to produce beef, I do not consider that the price of beef should have become a great public or political issue. Indeed, our farmers have for years past been producing the cheapest food in Europe and they deserve our congratulations.

My noble friend Lord Drumalbyn pointed to a fact which I wish to emphasise. About one-quarter of the housewife's budget goes on food, one-half of this quarter on fresh food such as vegetables, meat and eggs. The other half goes on manufactured foodstuffs, and it is those manufactured foods which will be controlled under the retail prices arrangement in the White Paper. I emphasise how difficult it is to control the percentage of food which is imported. For example, I believe that China has had a drought, while Russia has suffered from a very bad harvest and the entire world is at present extremely short of grain. I support what the noble Lord, Lord Byers, said about the difficulty of controlling the price of imported foodstuffs and I agree with his comments about the need to take action when the price of foodstuffs rises above a certain level. He suggested that some means should be devised to provide lower paid workers with sufficient money to offset such increases. That would not be a true subsidy. I, too, am against subsidies. If we tried to subsidise a scarce commodity like beef we should simply increase the demand for that commodity, and then we should need to introduce rationing to get fair shares for all. As the noble Lord, Lord Byers, said, food subsidies are indiscriminate because they go to the rich and poor alike. Due to Government policy we in this country have increased our food production greatly in the last two years or so. We had a record grain harvest last year, and it is clear that one of the ways to obtain cheaper food is to increase production.

I was glad to read in paragraph 23 of the White Paper the Government's intention to make more land available for building. I am sure that plenty of land could be made available. British Railways, the Ministry of Defence and various other organisations own a lot of land which I am sure could come into the pool. I also support the Government's intention, mentioned in the White Paper, to reduce the very big profits which some people have been making from the sale of land. Some of the prices that have been paid for building land have been disgraceful. I own land, but I have never benefited from its sale in this way. I am sure that if we could devise some means of controlling the price of building land—remembering that escalating land prices are inflationary—house prices would not continue to rise in the way they have.

Capital gains tax does not help to keep house prices down when the tax is paid on the sale of the land, because the tax goes straight into the Exchequer. Is it possible to devise a means whereby the tax went back into the cost of the houses to be built so making them cheaper, be they rented or sold? Something must be done about this problem and, in this connection, I am in favour of the Government's intention, outlined in the White Paper, to continue the standstill on business rents. Obviously this includes shop and office rents.

I am somewhat confused by the Amendment. It appears in the name of the noble Lord, Lord Shepherd, but it seems that the noble Lord, Lord Diamond, is moving it. May I assume that it is really the noble Lord, Lord Diamond's Amendment? It …regrets that Her Majesty's Government continue to pursue budgetary, industrial and social policies that are unjust and divisive. I think I am right in saying that we spend more of our gross national income on social security and other free benefits than any other country in the world. If the noble Lord, Lord Diamond, thinks that that is unjust, I cannot understand him. Does he also think it unjust that this Government should have increased pensions by 22 per cent.? What about the efforts we have made to reduce the rents of the lower paid?

I thought rather amusing the little argument which arose earlier, at Question Time, between noble Lords opposite and occupants of the Government Front Bench. I seem to recall reading in The Times a comment by Professor Kaldor to the effect that the policies of Her Majesty's Government would put the Stock Exchange movements up by a considerable amount, to the benefit of the capitalists. I think Mr. Victor Feather said the same thing. In fact, £5,000 million has been knocked off the Stock Exchange quotations, equal to about £200 per investor. I am sorry if noble Lords opposite have burned their fingers. Perhaps some of the big unions with vast sums invested through the Stock Exchange have burned their fingers. The Conservative Government have knocked £5,000 million off the Stock Exchange quotations and for that surely the Labour Party should be throwing them bouquets. I cannot understand what all the row is about. Noble Lords ought to be very pleased with the Conservative Government. I will not go into that further, but it is surprising that they appear to object to stopping Stock Exchange inflation.

The other thing I cannot really understand relates to foodstuffs. We import much of our foodstuffs from the primary producers in developing countries. On the one hand, we hear people saying, "We must help the developing countries more, and give them more funds". Then, when we pay more for our imported foods from the developing countries those same people say that the price of foodstuffs is too high. They cannot have it both ways.

My Lords, I shall not keep you any longer, but I should like just to say that I support the White Paper. It certainly goes against my Conservative principles, as it goes against a great number of Conservative principles. But the point is that the Government did everything they possibly could to get voluntary agreement, and time is running out. They had no option. I only hope that phase 2 has every success. It will certainly slow down inflation. However, if one really wants to cure inflation it is necessary to cut down on State spending. The Government are now spending a third of the national income. That is nearly all unproductive, and it amounts to £15,000 million. If only we could cut down on that, we should be able to cure inflation, but that is a very difficult thing to do in a democracy. I should, however, like to repeat that when the suggestions in the White Paper become law they will certainly go a long way towards controlling inflation.

6.32 p.m.

LORD DAVIES OF LEEK

My Lords, I listened with interest to the noble Viscount who has just sat down and I want to recall what we are talking about. We are not in any way denouncing the excellent speech made by somebody who has spent his lifetime negotiating and in the trade union movement. We do not deny that there is a need for some type of control, but what we are concerned about is the fact that the way this is being enunciated, practised, and will ultimately be brought into force, is divisive in society; it is unfair, and demonstrably unfair. It is no good saying that pensions have gone up by 20 per cent. Of course they have gone up by 20 per cent., but so has the price of fresh fruit gone up; and by 32.3 per cent. according to the Grocer. I shall not bore your Lordships with masses of figures because my noble friend on the Front Bench in his opening exposition gave a brilliant analysis of this.

VISCOUNT MASSEREENE AND FERRARD

The noble Lord must go to the wrong grocer.

LORD DAVIES OF LEEK

I am quoting from the Grocer and the Financial Times: from the Financial Times grocery prices index of November 11 to January 22. If any noble Lord wants to check them, he has only to step into the Library. The figures given show that all prices have gone up 3 per cent. The Grocer then gives figures showing that fresh fruit has gone up 32 per cent. and fresh fish by 20.9 per cent. We will not spend any longer on that as the House has had a busy day. As a consequence, I am saying that 20 per cent. is also a fallacy of percentages. That fallacy is befogging the minds of people. If a man's original income is only 20p and it has gone up by one-fifth it goes up only by 4p. But give a man with £2,000, a 20 per cent. increase and that is a different matter. That is the hidden fallacy of percentages which is one of the reasons for our Amendment. My noble friend in the trade union movement pointed out this struggle for the lower-paid workers.

We have had a constructive appeal by men in the trade union movement and the Government on how to approach this matter. That is what I was interested in, and that is why I want to admit masses of statistics which are well known to everybody on both sides of the House. We were given an excellent method of approach, and I hope that the Government will read the speech made by my noble friend Lord Douglass of Cleveland on how to approach this matter. I do not believe that we should stand adamant and say that we are not going to talk. Without blaming any particular Government (and here I should like to make one statement because someone interrupted my noble friend on the Front Bench), during the period—and I use the phrase that we have used—of the Labour Government's effort to control prices and incomes we were very successful: the increase in the whole of that period was between 1.2 per cent. and 2.2 per cent. only, compared with the massive increases shown by the statistics to-day. Yet noble Lords opposite and Members in another place voted 102 times (my noble friend said "109", but I will take the lower figure); they voted in the Lobbies and marched through like troglodytes 102 times, against a constructive policy for the control of prices and the battle against inflation. That is accurate.

I now want to move to another point. I was delighted to hear the noble Viscount who has just sat down—and I am quite sure that, despite his vast land ownership he really means what he said—say he thinks that the prices of land are amoral.

VISCOUNT MASSEREENE AND FERRARD

Immoral!

LORD DAVIES OF LEEK

I said "amoral": immoral, if you like, but it. is more accurate to say, "amoral". The connotations of "immoral" and "amoral" are two different things. As I suggested long ago, a moratorium could be approached now. If we had meant what we said we could have had it. I would suggest that if the present Government want to act courageously the time has come once again, with population pressure on limited land space, for a Domesday Book on the ownership of land. Let no one tell me that it is a difficult matter: of course it is a difficult matter, and it may take a long time. But it would take no longer to trace, through the Land Register, the ownership of land to-day than to construct some good modern dictionaries. In this transition period, if the powers-that-be wanted to convince the wage earners by hand or brain that they were sincere in their efforts to control inflation, there could be during the transition period a moratorium on land prices.

I will not push the Henry George theory which moved the Labour Party 30 or 40 years ago at some of its annual conferences, that there should be a taxation on land values; but I believe that something like that will have to come. In the reign of Queen Elizabeth I, when there were only 5 million people in England, it is easy to see how there would be vast areas of land capacity and that land prices would be relatively cheap. But as the world is increasing in population, and the amount of land we have to live on is limited, the basic foundation of 90 per cent. of world inflation is this pressure on land, particularly in the technologically developed parts of the world. The first elementary lesson of economics is that there is no wealth but life; and the second is that all wealth proceeds from life being applied to land. That may sound old-fashioned, but so do many of the other things in this world that are truths. Man to-day lives not by truth alone but mainly by myth. He lives by myth more than reality, and that I believe to be the truth.

LORD SOMERS

My Lords, may I interrupt the noble Lord for a moment? While I sympathise entirely with him on this question of land prices, may I suggest that it is not quite as simple as he implies, because if a man pays £25,000, say, for a house, he is not going to be very pleased if he realises that he has to sell it for only £7,000.

LORD DAVIES OF LEEK

I do not know how that deduction was made; nor how the noble Lord arrived at that conclusion, because I was not making that suggestion at all. If that really should happen, within the five years after he bought £25,000 worth of land, he would still get only £25,000 for his land five years later. I do not want to rob the poor old lucky man.

I was delighted to hear the ex-Chancellor of the Exchequer. We were shot down in flames in the other place when any of us said, "Look! This fetish of the balance of payments is ruining us." We were struggling to get the balance of payments right—the apotheosis of the pound sterling. Suddenly we are tiptoeing into Europe and these things no longer matter. We are told on the authority of an ex-Chancellor of the Exchequer that for years we have been worshipping a myth. It is time we realised the realities of production are much more important than this.

I was delighted to hear my noble friend Lord Cooper of Stockton Heath, when another noble Lord was speaking, say that nobody has mentioned the vital importance of intelligent investment. In this White Paper there is no constructive approach to investment policy. I am trying to live in the world of realities where men are entitled to dividends if they invest; also where they are afraid that if there is no stability in the future, investment will not be worth while. This does not only hurt the workers; it also hurts the entrepreneur and ultimately comes back on to the workers. Consequently I am for an intelligent investment policy. I should like another form of Government enterprise to come in. Your Lordships may not like the old-fashioned word "nationalisation". But let us take an industry that produces everything from raw materials in Britain—namely, pottery—and earns vast amounts overseas. When the Government see an industry like that in trouble for lack of investment, provided the capacities of its production and its work-people are able to get ahead with the job, it would be a dastardly act to let an industry like that, which produces from home raw materials, disappear simply because of lack of finance. Intelligent advice to the banking system from the Government on being a little more generous with loans in small packets to that type of industry would help to keep the employment factor better in many of the homely industries (I use the old-fashioned term) that are still of value to this country.

I have, as usual, decided to cut out about 90 per cent. of my speaking notes, because time seems to go magically in this place. The purpose of this policy, I believe, is once again to regain our position. I still think that neither side of the House, and none of us in Britain, has realised the new position of Britain. I think we have to revise many of our former ideas about Government overseas spending. We are no longer able to police the world, and a factor over which we still have some control is how much we spend in future on our commitments overseas. We ought to analyse this carefully, because Government overseas spending was one of the troubles that we had as a Labour Government, and that also faced the Conservative Governments before and after us. Consequently, when we are looking at this period of transition and inflation, we ought not to be coming down to this House asking for increased commitments and expenditure in military effort, but asking for the best possible from the amount of money we are already spending in the military field.

Finally, my Lords—and I am trying to keep my promise; I have been eleven minutes—I wish that Governments of both Parties had taken notice of the Radcliffe Report. It is a sad fact—I have mentioned this before in the House; and I still have in my study at home the famous May Report of 1931: there are many here with vast experience who must see this—that the same kind of phrases were used in the 1930s, in 1926, and are still used to-day when we come to these crises. Each time a marvellous group of people have been got together and nothing seems to have been done. The Radcliffe Report made all kinds of suggestions about dealing with our monetary system in relation to the present world. I am not one of the fanatics. I remember Professor Soddy at Oxford, 30 years ago, being a first-class exponent of the value of getting a sound monetary system to run society. I think there is much more in it than that. Nevertheless, eve never rescue ourselves simply by getting a Commission to produce a study.

I think the whole theory of economics and the whole theory of our approach to government must be re-written, and in our universities and other places there should be more practical thinking about the realities of the world in which we live. Inflation is not caused by any one particular Government. Of course it is correct that South-East Asia and the Far East are wanting higher standards. I have seen, and so have most noble Lords in this House, their demands for higher standards of life, and as they demand them so things are going to be more costly. But it is not beyond the wit of man to find equity and fairness and a reasonable life in that kind of society. That is what we must all do, and I hope that notice will be taken of our reasoned Amendment in this House to-night.

6.45 p.m.

LORD O'NEILL OF THE MAINE

My Lords, those of us who have been a little critical of the Government's economic policies since 1970 must, I feel, be glad that at long last a complete change has been made, though, of course, we cannot quite forget all that has passed. I remember when there was an announcement early in the life of this Government which seemed to threaten the continued provision of aid for the regions. I was told in reply to my intervention on that occasion that the Government's policy would so improve the economy that the regions would benefit along with the rest of the nation. I remember putting down a Question asking what benefits had accrued from the abolition of the Prices and Incomes Board and the Conservative-created Consumer Council. To-day, we have a Minister for Consumer Affairs, who was very highly praised by a former Lord Chancellor, and two separate agencies instead of the old Prices and Incomes Board. Moreover, some people feel—rightly or wrongly, I do not know—that these two new agencies appear to be bodies of such power that they might by-pass Parliament altogether. So while we must rejoice at the change of policy which has been made, we must also hope that these measures will not be too late to save us from further serious trouble.

I believe that politically it has been amply proved that no Party can win the support of a majority of the electorate unless it can occupy the middle ground. Certainly in to-day's conditions the policy of confrontation, while at the same time pouring scorn on the Butskellism of 13 years of Tory rule, has led only to disaster. While I am talking about those 13 years, we had, of course, speaking to-day two ex-Chancellors from those 13 years of Tory rule. How moderate, sensible and reasonable their speeches were to-day, as they have always been in the short period in which I have had the honour to be in this noble House. If we are fortunate, it may be that even at this late hour we can emerge triumphant.

But if things continue to deteriorate and the new policy of Government aid and intervention does not work, then as I have said before, some people will have to put country before Party and consider the formation of a National Government. It would, therefore, seem to me that when a Government have the courage to change direction we should support them, hoping that this total alteration in direction has come about in time to save the nation. That is why I rather regret that we are going to have a vote to-night, because, as somebody said earlier—I think that it was probably the noble Lord, Lord Thorneycroft—we did not necessarily want consistency from a Government, we wanted sensible policies.

I would also hope that the trade unions, forgetting their understandable alienation from former policies, will now cooperate with the Government. Many of us in this noble House listened with tremendous interest to the speech of the noble Lord, Lord Douglass of Cleveland. As a sensible trade union official (who, I hasten to add, is not a Member of this House), said to me the other day, "This is my country too, and I want it to survive". If only this could be the national sentiment, then indeed we should not only survive but we might raise our standard of living to a Swedish or a German level.

The Government must show that they care, and the trade unions should consider the future of their country. Then it could well be that phase 3, instead of being tougher than phase 1—and I am not going into the question of who leaked that to the Press—might be proved to be a step back to normality. For, make no mistake about it, if we become the "sick man of Europe" there will be no special relationship, no Marshall Aid, no old Commonwealth rush to our rescue; we shall merely be a cheap tourist attraction for the rich nations of Europe, where the trappings of an imperial past will have to take the place of a Mediterranean climate. Let us now hope, therefore that the great British spirit of compromise will assert itself, and that we shall be spared the horrors of rampant inflation in a divided community.

6.53 p.m.

LORD BROWN

My Lords, I do not think that anything illustrates the problems we face to-day better than the U-turns that Governments have to take in the course of pursuing their planning. I thought it was a little unfortunate when the noble Lord, Lord Drumalbyn, went back to the past and quoted the noble Lord, Lord Shepherd, as he did. During one of my exits from the House I looked up what somebody on the Opposition side said during the last Labour Government's term of office when the Labour Government were introducing their Prices and Incomes Bill in 1966. This is what was said: This is the divide between us now. The Government's way, the First Secretary's way, leads, through Part IV to compulsion, to the complete control of the economy … and to increasing restrictions on personal liberty, to a freeze of everything, including, above all, a freeze on progress … It solves none of our long-term problems and damages most of our prospects."—OFFICIAL REPORT, Commons, col. 502, 3/8/1966.] The speaker was no less a person than Mr. Edward Heath. I do not want to indulge in the swapping of quotations from the past, because I do not think that it ever does much good. However, I just counterpoise what the noble Lord, Lord Drumalbyn, quoted by what Mr. Heath said in 1966 to show that there is a profound state of confusion in high quarters in this country to-day about this whole great problem, and that it leads to the sort of swapping of quotations that has been going on.

LORD DRUMALBYN

My Lords, from what the noble Lord said, it sounded as if I had been critical of the noble Lord, Lord Shepherd, in the quotations that I gave, but that was not so.

LORD BROWN

My Lords, I have to spell it out a little more. The noble Lord, Lord Drumalbyn, was supporting his Bill on the basis of what the noble Lord, Lord Shepherd, had said some time ago, but may I point out that, although he supported the Bill on that basis, what the noble Lord, Lord Shepherd, said some time ago was the object of the criticism from Mr. Heath that I have just now read out. I think that the logic of what I am saying is clear. Perhaps the noble Lord would read it afterwards, if he does not understand me as I go along.

Frankly I do not think that anybody can deny that some drastic measure is currently necessary, but I am going to support the Amendment for these reasons: first, I think that the Government have failed to sugar this pill sufficiently; secondly, I do not think that they realise the situation in which most of our trade union leaders are placed in the task which lies ahead of them if they want to co-operate with the Government in selling these policies about a prices and incomes freeze to their membership. What we have to face to-day is that power has devolved from the trade union leadership downwards to groups of fairly militant shop stewards. Union secretaries are the servants of their union members, and not their bosses. They have to go back to their members with something, to put it in the vernacular "to sugar the pill", and this has not been given them. I believe that if, in the November discussions between the Prime Minister and the T.U.C., some measure of concession had then been given in the way perhaps of suspending the Rents Act or the implementation of VAT, a voluntary policy might have been accepted at that time. That is the reason why I like the wording of the Amendment, and I shall support it, notwithstanding the fact that I believe that drastic measures to deal with general inflation, and wage inflation in particular, are straight away necessary.

We in this House with a particular point of view on this subject have spoken on several occasions in the past, and I apologise to those who are tired of hearing me, but I am going again to venture my views in perhaps a slightly different fashion. The current Order which we are considering is admittedly a temporary measure. Phase 3 is referred to in terms of temporary measures. We must somehow in this country begin to get something that looks like a permanent means of dealing with this enormous and growing problem. I do not believe that any long-term solution is available to us within the current frame of reference or thinking. We have to move right out of it and look at the problem quite differently. The first fact that we have to face is that of the existence of power in the hands of millions of people organised in trade unions. In a way, it is a slightly new phenomenon, in that this has been growing rapidly and is now so powerful that it is quite clearly shaping the course of Governments. So long as people possess power in society and no constitutional authority, the only way they can use that power is by disruption. Indeed, we are facing the fact now of millions of people who had not joined trade unions in the past, and trade unions that have not militantly fought for the interests of their members, to-day being forced to do so in order to avoid a situation where their reasonableness keeps their wages low, while they have to pay the highest prices brought about by the successful claims of their more militant colleagues in other unions and by various other forms of inflation.

If one looks at our historical past, one finds that we have seen situations like this emerge before. Prior to the Reform Act 1832 new power groups were emerging in society—mercantile groups and groups of work-people; and politicians like Wellington, Pitt and Melbourne, were desperately scared of the measures they thought they would have to take to enfranchise these power groups. But eventually they faced their responsibilities and introduced the necessary Reform Acts, of which the 1832 Act was the first, followed by a succession of other measures. Each one of them, they feared, would bring about terrible results in the country. But none of them did so, and that was the great secret of our constitutional growth in the 19th century when we became the admiration of Europe.

To-day we face the emergence of new sorts of power groups in society; that is, the occupational groups. Whereas we could move easily, by extending Parliamentary franchise, towards enfranchising the power groups which were emerging, enfranchising occupational groups is an entirely different and much more difficult matter. That is why I say that we are faced to-day with a constitutional problem, and the trouble is that we are looking at it as a sociological or economic problem, whereas it is in fact constitutional. The only way of dealing with constitutional problems is by constitutional means. We must give constitutional authority to those who possess power so that they may give up the use of their power in a disruptive fashion.

Where is this constitutional authority to be directed? I believe that wage differentials are the key to our current problem. I believe that the psychological energy which has to be generated to support this disruptive action is largely generated by fear of losing one's place in the pecking order—fear because the differential pay which different blocs are receiving is felt to be unfair in regard to the pay, salaries and profits earned by others in society around them. People are increasingly anxious about a situation where the greatest wealth goes to the strongest and the least to the weakest. I am not talking only about wage earners now. The dreadful spectacle of the sums now being made by land and housing speculators is a psychological incitement to people to strike for ever higher wages, however high they may be now, because they feel that so long as some people can earn millions in a year, they are entitled to use their power to go for the maximum gain which they can achieve.

As I said, new institutions are required, and the one I am seeking to convince as many people as possible should be established is one which would bring together the representatives of all the occupational groups in this country, through their trade unions, and which would give those people who have great power in society the collective power to settle the pattern of differentials in all types of employment groups in our society. I suggest that they would have to be given limits within which a settlement would have to be arrived at, and those limits would have to be set each year by agreeing in Parliament on a percentage addition to the wage bill which that new body could distribute to the employment groups. I do not want to detail too much of the proposal, about which I have both written and spoken freely in this House, but I want to call attention to one salient feature; that is, that Government speaker after Government speaker—and indeed speakers from both sides of the House—have this afternoon drawn attention to the need one day to get back to free collective bargaining. Some have spoken against it, notably the noble Lord, Lord Peddie, but it has been the general tenor of thinking in this Government and in the previous Government, that, in the last analysis, free collective bargaining is the way by which differential wages should be arrived at.

I do not believe there has ever been any such thing as free collective bargaining over wages. A collective wage deal has to be made between an employer and a trade union. The participants in the deal must agree; they cannot disagree. Bargaining is a process whereby two parties come together, they exchange offers and if they cannot agree they separate. In the early part of the Industrial Revolution, the power of employers in this country was so great that the most utterly disgraceful conditions were imposed on employees. I need not detail these. We all know the tales of children of six being employed in the mines and so on. Then, as the power of trade unions grew, the balance began to swing and for a long period it looked as though bargaining was taking place, because the distribution of power as between employers and representatives of employees was not too great.

But now this swing has gone right over, and we see to-day unions which can impose their will on employers, who face either granting a major proportion of the increases asked for or the possibility of bankruptcy. We have always been in the presence of power-dominated negotiations, and we must face the fact that we have never really had what the economists would call true bargaining. For that reason, it is no good thinking that we can solve our future problems by a return to free bargaining, because whichever side to that bargain is stronger will impose his will on the other; and I think that trade unions will be the stronger side for as long as we can see into the future.

It is for this reason that the institution which I see as being necessary will exclude employers. I do not think employers have ever really taken into account, in their individual bargains with the trade unions about the wages to be paid in their companies or industries, the question of national differential pay. It has not been their role to do so. They have their differentials within their companies, but not on the national scene. I see no reason why an institution composed of representatives of all the occupations in the country should not be given the job of settling the distribution of a percentage addition to the national wage bill, agreed by Parliament in their Budget debates.

It is only that situation which would allow the law which emerged from those deliberations to be supported by sanctions, for no Government to-day can really impose sanctions on those who strike against some law freezing wages or distributing differentials, because they cannot use sanctions if they are at the same time supporting the idea of free bargaining. A Government cannot come down on one side of the bargain, according to the way they think justice goes. But if you give the job to those who have power to settle these differentials and to support them, then you get into an entirely new situation, for a strike against a law based on a recommendation from the trade unions of the country to distribute what the nation, through its Parliamentary processes, felt it could afford in terms of an increase in the national wage bill, would be a strike to take some of the wage increase away from some other fellow trade unionist. In those circumstances, it would be possible to impose sanctions on strikers against that form of law. Any other situation precludes the use of sanctions, and law without sanctions is not really law at all. So I believe that we have to move right out of our present framework of thinking and into a new one.

Let us look at the prizes which would accrue to us as a nation, if we could get a situation where we began moving towards a fair pattern of differential earnings. First, the mere fact that we should stop moving in the other direction—more and more to the stronger; less and less to the weaker—would itself be a great psychological boost. Secondly, once we face the fact that the rate of rise in wages and incomes and the level of employment are independent variables and have to be controlled by different mechanisms, then we are in a position for the first time to be able, by Government macro-economic measures, to create full employment without its inevitable consequence in current circumstances of a rapid rise in wages and incomes. So it holds out the prospect, if we can once get a long-term grip on wage inflation, of maintaining full employment into the future.

What does full employment really mean? My Lords, I do not think we are sufficiently alive to the full effects of even marginal unemployment in this country—unemployment at the 400,000 or 500,000 level. It not only deprives a large number of people of the opportunity to work: it deprives millions more in work of the opportunity to achieve the sort of role in industry, commerce or government which fully employs their talents. It freezes up the promotion ladders for everybody; it makes everybody anxious; and if one has millions of people working at tasks which are below the level at which they ought to be employed in order to give them that feeling of creative doing which everybody wants, then it breeds cynicism. If, further, one adds to that a growing sense of unfairness about differentials, then one gets within industry that mood of hostility and despair, bellicosity and cynicism which I think is slowly robbing this country of its greatness. So I am not talking about small aims; I am talking about big aims. I am talking about big changes to bring about very great improvements in the whole climate of feeling and outlook in the employment zone of this society of ours. I believe that unless we are prepared to face very large measures of this kind, then we shall go on sinking gradually but surely into a state of ever greater cynicism about employment itself; and that would indeed be a tragedy.

My Lords, I am sorry that in making this speech I have involved myself so much in the future, but I feel that the Paper which is in front of us to-day must be regarded as a flash in the pan, as a necessary instrument to give us time to think; and I thought it was worth while to spend my time this evening commenting on the sort of measures which I hope will be entering into a consideration of what is going to happen in phase 3.

7.13 p.m.

LORD PARGITER

My Lords, I think the essence of this debate is not stage 1, stage 2, or stage 3 but the fact that was touched on by the noble Viscount, Lord Amory, when he said that some sort of permanent machinery will undoubtedly emerge. That is the essence that we must have at the back of our minds when we consider what we should do about the present situation. The Government have done a complete somersault from a free enterprise stand to that of a planned economy; and, much as they may dislike those words, that is in effect what they are now proceeding towards. They do not want to spell it out, but we can spell it out for them. Much as they may dislike the words, this is what they have done; and the fact is that while you can do a somersault forward and go from one to the other, it is a very difficult job to do a backward somersault in order to get back to the point where you previously were. I do not think that this Government or any Government can do that. I think that having reached this particular point, what we must be looking at now is the type of machinery which we may be considering after phase 2 or phase 3, whatever the case may be, and which may form a permanent part of our Constitution, if I may put it in that way.

This obviously needs both compromise and co-operation. It seems to me that the Government must look at this, as my noble friend Lord Douglass said, from the point of view of what their other activities have been and the extent to which those either hamper or help towards that co-operation. Let me put it in a personal way. If a noble Lord from the opposite Benches were to bash me over the head with a big stick and immediately afterwards say, "Will you please co-operate with me?", I should tell him to go to Hell. That is virtually what the trade unions have told the Government. But if, immediately afterwards, that noble Lord said, "I did not really intend to use the stick in that way, so I will throw it away and perhaps we can now get down to talk", I think that would provide the beginning of a basis upon which we could talk. In similar circumstances I think the trade union movement would be willing to talk. That is the first consideration, in my view, because there is no question about the depth of feeling in the trade union movement about the Industrial Relations Act.

What the trade unions object to is that the Government got that Act on a false prospectus. The whole of their propaganda before the Election, we must recollect, was towards curbing wildcat strikes; it was to say that when agreements had been arrived at they should be observed by the trade unions, and there would be legislation to provide for that. That was the basis upon which a large proportion of the people in the country voted for the Tories—because they wanted that done. They did not want the Industrial Relations Act; and the sooner the Government recognise that and the fact that they have got to do something about that Act in order to get the necessary co-operation of the trade union movement, the better it will be. And if, for full measure, the Government would like to have another look at the Housing Finance Act and possibly have a look in the next Budget at the give-away bounty which they provided for the well-to-do and which comes into operation next April, they would go a long way further towards allaying some of the suspicions that exist in the minds of the vast majority of the working people of this country. These are some of the things that it seems to me it is necessary to do as a beginning.

Moreover, I think that someone has to spell it out at some time that some sort of statutory machinery will undoubtedly have to exist; and the Government have to say, and have to convince people, that they will put right some of the things that they are doing, or that they will do other things that need to be done. Let us take, for example, food prices. Today, there is nothing which riles people more than for the Government to throw up their hands and say that they can do nothing, or virtually nothing, about food prices. The Government added 10 per cent. to the cost of imported food by devaluing the pound. They might as well admit it, because that is in fact what has happened. A good deal of the increased cost of imported food is due to the fact that the pound has been effectively devalued by approximately 10 per cent. What are the Government going to do about it? I am not necessarily advocating subsidies as a permanent means of dealing with this particular problem, but if this devaluation is a temporary sort of process which will iron itself out in due course, the Government could do something towards reducing the cost of imports of food in some way. That would go a long way, so far as the ordinary public are concerned, to allay their suspicions about what the Government's intentions really are.

There are other aspects of this matter, and here I am not a little bit interested in the question of the limitation of dividends. This is an old one which does not really cut any ice with me, because limited dividends are going to be paid out, either in scrip form or in some other form, at a future date. People are getting too wary to "wear" that one any more. But the Paper does say something about the limitation of profits and profit margins. This is all right, but it seems to me that one of the first things the Government must consider is the massive number of methods of accountancy which can be used, according to the sort of balance sheet you want to produce. You do not cheat; in other words, you do not deliberately misuse figures. But you use them in particular ways which will give you the appropriate results that you want, to produce either a balance sheet which is showing pretty favourable results from the point of view of profit ratio—not necessarily actual profit, but profit ratio—or one that shows a poor result, according to the circumstances.

LORD SELSDON

My Lords, may I interrupt the noble Lord for one moment? I hope he is not in any way querying the integrity of the British accountancy profession, which is second to none in the world.

LORD PARGITER

Not a bit. I will not apply this in its entirety, but there is an old saw that figures cannot lie but liars can figure. I am not suggesting that accountants are liars, and they do not lie; but they are able to use figures in a way that suits the particular company for which they are working. Let us be quite clear about that: that is the reason why they are employed. They are there, in particular, when it comes to personal tax, to see how much can be put in upon which tax need not be paid. I am not blaming them for this. It seems to me that some sort of fairly simple standard system must be used to arrive at equity as between margins of profits between one company or one industry and another.

Another thing that the Government should do, and this is highly important, is to oversee the multi-national companies. They have a tremendous power of moving resources all over the world and of moving them in a way which suits the company, not necessarily internally but internationally. There is plenty of room here for avoidance of the restrictions which might be applied as a result of this White Paper. This it seems to me, apart from other reasons, is why the multi-national companies require some oversight. It would be a good reason to do it in connection with what is required of the White Paper.

If we are getting to the stage of having a planned economy, I think that it should be spelled out fairly soon. If we are going to take the necessary steps to get co-operation, particularly from the T.U.C., the Government ought to talk in order to see exactly what the T.U.C. are prepared to accept. The T.U.C. will not at this stage accept any restriction on what is called free bargaining or free negotiation of wages. I have never believed in the free negotiation of wages. I am inclined to agree with my noble friend Lord Brown that there has never been such a thing. The matter has always concerned two powerful people, and somewhere in the middle a compromise settlement. That is not necessarily free bargaining, nor is it necessarily just—in many cases, it is anything but just. But that is the situation which obtains.

It seems to me that if we are now going on from free enterprise, which the Tory Party have now abandoned in favour of a planned economy, the Government might as well spell out where we are going with respect to the trade unions and the employers' associations. We might as well have it understood that when we have a planned economy we do not have free negotiation of wages, or the pretence of them; or the free negotiation of profits. Another thing that we must have is Government intervention in the question of investment. This is very important. Investment should be governed by the needs of a planned economy, whether it be in relation to nationalised industry or to private industry. It is important that investment should go where it is needed. This is the path that the Government are on. I would say frankly that so far as the trade unions are concerned, as we embark on this course and as a planned economy seems to be fair between the sections of the community, so it will be accepted by the trade unions as an alternative to what is now called free wage negotiation and in favour of a more stable system which will assist towards the future.

My Lords, this Government have done more than any previous Government in history to make a means-tested nation of us. If your wages are too low, apply for a family income supplement; if your rent is too high, apply for a rent rebate; if the rates are too high, then apply for a rates rebate—apply for all these things which are means-tested! One thing that the average working man does not like is a means test. What the average worker wants is sufficient income from his endeavours in order to pay his way and to bring up his family to live decently and in dignity. Nothing that the Government are doing at this stage is of any help towards that end; but it is something that it is desirable to achieve.

EARL JELLICOE

My Lords, I have listened with interest to what the noble Lord has had to say. Would he not agree that when they are given effect to, the proposals of my right honourable friend the Chancellor of the Exchequer for a tax credit scheme will, at a stroke. do a very great deal to eliminate means-testing in our society?

LORD PARGITER

My Lords, I would have hoped that the noble Earl would not have used the phrase "at a stroke". It has been used before. It is used now here in connection with proposals for the future that we know very little about, proposals which are certainly not yet in the stage of being legislation.

EARL JELLICOE

My Lords, may I intervene once more? The noble Lord says that we know little about these proposals; but they have been fully ventilated in a Green Paper and were discussed in this House only a week or so ago at some considerable length.

LORD PARGITER

My Lords, what we are interested in is what this means in pounds, shillings and pence. That has not yet been spelled out. That is what we are looking for; not for theory but for fact. I shall listen with interest to what the noble Earl the Leader of the House has to say when the stage is reached on producing fact rather than theory. We have at the moment a means-tested society greater than any that has prevailed in history. This must be got rid of as soon as possible.

For reasons of this kind I support the Amendment—not because I am opposed to an incomes policy or a prices policy; for I think the two necessarily go together. I believe that control of capital must be brought into the matter in order that it may be a wholly effective planned economy. I support it because of the things that the Amendment says the Government have done, things which are totally against getting the necessary co-operation to ensure that success may meet their efforts.

7.27 p.m.

LORD ORR-EWING

My Lords, I must apologise for intervening at this late hour, but I have listened with interest throughout the debate. I am the first to concede that we have as a Government turned a somersault; but it could be that we caught this habit from noble Lords opposite. If I were to list eight points of credit to this Government, as the noble Lord, Lord Diamond, began his speech by listing eight points of criticism, then I am afraid I might outstrip both patience and time. But I would put two points: first, that they carried us into the Common Market; secondly, that they carried through the Industrial Relations Act on the lines of (and many clauses were taken from) the previous Government's plan, In Place of Strife. I could go on with six more.

I think that what has emerged from this debate is that we all recognise that the country is in a state of crisis and that no Government could stand the present rate of inflation. I believe that the progress which we were making a year ago in trying to control inflationary wage awards and price increases and reduce them to a more sensible proportion, was undermined by the Wilberforce award of 24 per cent. That started wage claims in the motor industry—and in other places where the power of the unions was very great indeed—which were totally unrealistic and unmatched to an increase in productivity.

I welcome particularly the attention paid in the White Paper to the lower-paid workers. I think that the proposals in paragraph 30 were mentioned and supported by the noble Lord, Lord Peddie, on the other side; and I should like to endorse support from this side of the House. It seems to me to be a sensible arrangement that something special should be done for the lower-paid worker. This cannot be done without the maximum co-operation of the T.U.C. It is not right to say that in fact the lower-paid have suffered. A Written Question, apparently not noticed by any speaker here, or anywhere else, appeared in the Hansard of another place for December 22 last which showed that for the £1,000a-year man, in real terms, in the years between 1964 and 1970 his rewards, if he had two children, increased by 2.7 per cent. a year. In the last two years, 1970/72, they increased by double that rate, by 5.4 per cent. Whereas the man earning between £34 and £60 a week got only 0.7 per cent. increase during the six years of the Labour Government, he is now averaging 3.1 per cent; and at the top rate, the £12,500-a-year man—the sort of chief executive of a nationalised industry or of other firms—who got a 0.5 per cent. annual increase during the six years of the Labour Government, has got 2.4 per cent. If we look at the last two years, we find that the massive tax reductions and other social benefits have meant that the lower-paid workers got a 5.4 per cent. average increase in real terms whereas the higher-rewarded person got 2.4 per cent. There is a massive difference.

LORD PARGITER

My Lords, can the noble Lord, Lord Orr-Ewing, say what is the difference in the balance of payments for those two periods?

LORD ORR-EWING

My Lords, I do not think that is related to my subject of the lower-paid workers. I should be delighted to have a debate at some other time about the balance of payments; but I would say now that if you are running your economy up at a figure of 5 per cent. inevitably it happens, as it did in Mr. Reginald Maudling's time, that you start sucking in raw materials, which you buy and pay for overseas, long before your growth comes out in increased industrial output, and that is bound to put a strain on our balance of payments. That is why I endorse the view put by a former Chancellor of the Exchequer, my noble friend Lord Amory, who said he hoped we should leave the pound to float for a bit and not try to peg it too soon.

In his opening remarks the noble Lord, Lord Diamond, seemed to advocate food subsidies. I think it was the noble Lord, Lord Douglass of Cleveland who quoted Lord Monckton. For five years I was Lord Monckton's P.P.S., as Lady Ruthven of Freeland will know very well—an it was a very enjoyable and constructive five years. I remember that when there was a threat to withdraw food subsidies in the early 1950's Walter Monckton said that if this happened he might well have to resign from the Cabinet because he felt that if bread subsidies were touched he would lose the confidence of the T.U.C. In the event, bread subsidies were reduced and abolished, and I think it strange that he should have said that when his judgment was so good in almost all respects. Because there was hardly a ripple on the pool in respect of the well-being and understanding that he created with the T.U.C. when the subsidies were abolished; and there was very little reaction in the country.

I should totally oppose the wholesale re-introduction of food subsidies now. In another place, the figure of £200 million a year towards food subsidies was mentioned by the Labour Party. My Lords, if you begin to analyse that it means 1p saved on a pint and 1p on a loaf of bread—that is, £200 million a year. Is it realistic to think that that would affect the wage claims which are now being made? Once you start food subsidies, as was said earlier in the debate, it is wholesale distribution and you will find yourself on a slippery slope. I should much prefer to see the deserving, the poorly rewarded and those living on fixed incomes compensated in other ways: by threshold agreement which would compensate them for rises in food prices; by increases in family allowances, if they have family responsibilities; by the family income supplement and, as my noble friend Lord Jellicoe said, by the tax-credit system, in due course. That seems to me to be more fair; and, after all, we are all trying to discover a fair policy.

During the debate the noble Lord, Lord Diamond, if I understood him correctly, said that we ought not to set up Pay or Prices Boards and that pay certainly should be left to the T.U.C.—I think the noble Lord used the words—"to supervise and monitor the pay increases of the various unions". That view has been contradicted, I think, by speakers from his own Back Benches, but surely the T.U.C. has not the power, even if it had the will, to do this; and I believe that it has not the will or the inclination. This point was made by the noble Lord, Lord Peddie. I am sure that in this respect there must be a separate body, like the old Prices and Incomes Board, which will judge. Of course I recognise that the ultimate sanction must rest with the Government of the day, but I hope that the creation of a Price Board and a Pay Board will mean that we may avoid some of the unrealistic terms which have been quoted in our national newspapers and on television and which may raise sympathy for certain sections of the community and certain trade unionists; and that we shall get away from references to so-called basic pay. In this day and age, basic pay is so seldom real pay. It is the figure for earnings or take-home pay that is the most realistic and should be considered.

I believe that we are coming to a phase (in this I endorse what other speakers have said, particularly the noble Lord, Lord Brown), during which, except within a given percentage, we shall not see completely free collective bargaining reinstituted. If we did try to introduce that, and have no "buffer" in the form of those Boards, power would rest with those in the best position to practise blackmail. Often these people would be in the minority. Obviously, the electricity workers would have a tremendous advantage. They have only to pull the breakers and the whole of industry, and much of our life, comes to a standstill. I believe that we have to work in the context of some sort of Pay and Price Boards or some combined body.

Now I come to the point that has been raised by various people. At the moment the noble Lord, Lord Davies of Leek, is probably in the Hansard office reading the report of his speech, and I am sorry that he is not in the Chamber. I want to support the statement that too little has been made of the effect that limitation on profits may have on the investment in industry. It is our investment in this country that is lagging behind. I support these measures because, although they may be a reversal of policy, they maintain growth and they are not deflationary, which would be an alternative policy. But if growth is to be maintained at 5 per cent., we need to invest far more massively in industry in this country than we do at present. Wherever we look we see that there has been a steady fall in the fixed investment in machinery and in manufacturing industry—I have here the figures from 1969 to 1972. The same is true of investment in the building industry. If your Lordships compare these figures with the figures for our competitors you will find that there are quite outstanding figures from Japan. Whereas Japan was investing at the rate of 100 in the base year of 1963, she is now investing at the rate of 259. We were 163 in 1963, and now we are only 140. You may look at the figures for our competitors in the E.E.C. and you will find that they are all saving money to invest it in modern plant. Therefore the growth we are achieving now is not soundly based unless we can match it with investment.

I ask the Government, when they are drawing up the codes and considering means of regulating profits, to pay special attention to trying to devise some sort of encouragement for investment in modern industry. I would match this with the other side of the coin, which is private savings. The up-turn in interest charges is something about which we need to revise our thinking and we should encourage private savings further, because "bread" not eaten to-day and in the hands of private people, represents possible investment in the future. So, both in company investment and also in private investment, I hope that the Government will give most serious consideration to these matters when they come to draw up the codes for the Pay Boards and for the profit formula.

My Lords, to summarise what I have been trying to say, this must have been a very agonising choice for the Cabinet of the day. But I do not think that there was any alternative, and that fact has been brought out during this debate. I regard it as infinitely preferable to do this than to have massive deflation, which probably could have corrected our financial problems but only at the expense of industrial strife which might have been so serious that democracy would have been at risk. I prefer to see growth maintained, but this can be done, I believe, only if we have much greater dedication to the industrial investment which is essential.

It seemed, last November, at the Chequers meeting, that we were moving to a position where the Government might get agreement between the C.B.I. and the T.U.C. I do not quote Mr. Wilson very liberally in this House, but I think that one of the wisest things he said was that one person's wage increase is another person's price increase. This has been brought home forcibly to people all over the country, and that is why, by and large, they are behind the policy that your Lordships are debating. If the Industrial Relations Act is still the difficulty in getting the T.U.C. to the table, perhaps they could come forward and propose amendments. Let us have a constructive approach to this problem. Every other nation in the world has its own form of industrial relations legislation, and I think we were right to introduce it at the time. Even in Walter Monckton's day and lain Macleod's day we were asking the T.U.C. whether we could get some sort of industrial relations legislation. I remember George Woodcock saying, "Please leave it to voluntary agreement within the T.U.C." It played on, year on, year on. We contemplated setting up a Royal Commission on the subject. We never took any action in our 13 years of office, always hopeful that this could be done in the House by the T.U.C. Then, when the Government changed, the new Government set up a Royal Commission. They brought forward constructive proposals, In Place of Strife, but were forced to back down. So I hope that we can consider this Bill; and if it is a stumbling block to co-operation, let us have some proposals for amending it. For let us be quite certain, my Lords; unless we can get the Government of the day, the C.B.I. and the T.U.C. together, we shall all suffer and the standard of our living will go inexorably down.

7.41 p.m.

LORD SHEPHERD

My Lords, I like to think that one of my roles in your Lordships' House over quite a few years has been one of seeking consensus and agreement; confrontation and abuse, as they occur in another place, I have never found particularly attractive. I think there were some who had doubts whether we should have a debate to-day on the subject of prices and incomes, particularly as in a few weeks' time we shall need to consider Government legislation. I think I express probably the unanimous view of those who have sat through this debate if I say that we have had notable and constructive contributions from all sides of the House. I hope that the Government will take particular heed of two speeches. The first was that made by my noble friend Lord Peddie, with his long experience at the Prices and Incomes Board. Perhaps I may say here that, now that my noble friend has broken his silence to-day, I hope he will play an active role in your Lordships' House when the legislation comes before us. The other speech to which I hope the Government will pay particular attention is that made by my noble friend Lord Douglass of Cleveland with regard to the approach to some difficult, but I believe essential, conversations and negotiations between the Government, the C.B.I. and the T.U.C.

In a few weeks' time we shall have the Bill. We on this side of the House will not obstruct the Bill. We believe, particularly in the interests of those who are affected by phase 1, that this Bill should become an Act of Parliament. I hope the noble Earl, Lord Jellicoe, will recognise our difficulties and will respond to our request. A minority Party has only one power at its disposal, and that is time in debate—to press and press again. If, however, one agrees to a Bill going through rapidly, one gives up that one weapon. I hope that the Government will be infinitely more conciliatory and forthcoming than on a previous occasion, that of the E.E.C. Bill, when we made similar gestures to the Government. The Bill will come here, and we shall seek to amend it—I shall deal later in my speech with one or two aspects where I think we shall get a good deal of suport from all quarters of the House. Therefore I hope the noble Earl, when he replies, will give us an assurance that the Government will consider the Amendments on their merits, and will not use pressure of time as a reason for refusal.

My Lords, we thought it right to put an Amendment before your Lordships' House this afternoon. I suspect that on the first part of that Amendment there can be no disagreement. I cannot believe that there is in any quarter of your Lordships' House anything but the deepest anxiety at the economic position of this country, and, in particular, its prospects on entry into the European Community. I do not believe that since the last war the economic situation of this country has been worse that it is to-day. I agree with the noble Lord, Lord Thorneycroft, that if the proposals that the Government have put before us fail, then it is difficult within a democratic society to see what alternatives lay before a Government. To-day we have 830,000 unemployed. This we all regard as utterly unacceptable. We have investment in manufacturina industry, as the noble Lord, Lord Orr-Ewing, said, 10 per cent. below what it was last year. Looking at the rate of investment among our competitors within the European Economic Community, this is of dire consequence to this nation.

Then we have problems on balance of payments. When we left Office we left a surplus of some £600 million. A year later, in 1971, with the momentum of what was done during the period of the Labour Government, we had a surplus of £1,000 million, the greatest surplus that this nation has ever had. Here was a real springboard from which the difficulties within the economic life of our country, which we all recognise, could and should have been dealt with. It is with sadness therefore that we must recognise that a problem that has been sapping at our nation for many years now has to be dealt with not with a surplus, but with a trading deficit greater than any other in our history. It seems that during 1973 we are to be confronted with a balance-of-payments deficit of the order of £500 million or £1,000 million. So far as the economy of our nation is concerned—and we recognise that growth is an essential factor—it is problematical whether a Government or a nation can sustain growth of the order of 3, 4 or 5 per cent. with such a balance-of-payments deficit. I agree with the noble Lord, Lord Thorneycroft, that the Government to-day have very little room in which to manoeuvre, whereas when they took office they had a springboard. The matter for regret is that they did not take the opportunities that were bequeathed to them. Inflation is cancerous; unless it is dealt with eventually the nation will die.

All of us have sought over the years to deal with inflation. The Labour Government were confronted with it, coupled with a balance-of-payments problem. The Labour Government were required to shift resources into the export market. They could not permit any real increase in living standards or wages, but they brought forward a policy of prices and incomes. The noble Lord, Lord Drumalbyn, based much of his case on the speech which I made when we introduced a prices and incomes policy. Circumstances then were different from those of to-day. The noble Lord also based his case on American experience, but the noble Lord did not say that the case as between Britain and America was the same. We are open to all the effects of world trade and the prices of food, about which the noble Lord and others have spoken in great detail this evening. The United States is broadly self-contained. Therefore what was successful in the United States will not necessarily succeed here, and I think the fact that the noble Lord based his case, as he did, on the American example can only mean that he and the Government for whom he speaks are not convinced of the merits of the course which they have now undertaken in the field of prices and incomes.

We have put in our Amendment that this House should recognise the need for an effective and equitable policy on prices and incomes. The noble Lord will know that right through the period of his present office we on this side of the House have consistently, during every economic debate, made the case for a prices and incomes policy. We have not even turned our backs upon a statutory policy. On every occasion we have met with derision. We have been told that it is "pie in the sky", that there is no possibility of it and that in any case it is counter to the philosophy of Her Majesty's Government. I am not going to indulge, as the noble Lord, Lord Drumalbyn, did, in quotations. The speeches of the right honourable gentleman the Prime Minister are well known.

One may speak of militants. During the period of a Labour Government, on 109 occasions the Party opposite in another place went into the Division Lobby with Mr. Michael Foot and his colleagues, opposing Orders that were being made by the Labour Government to make effective a prices and incomes policy. So I can understand that the noble Lord comes to this House to-day with some doubt and some lack of conviction that the policy he is placing before the House will succeed. I myself have never been opposed to statutory legislation on prices and incomes, if it was necessary; and I must say that when I look at the economic situation of this country to-day I should find it very hard in my mind to say that such a policy is not justified. Whether a statutory policy as contained in the White Paper can survive the test of time is another matter. However, one thing I should have thought was quite clear: that in the kind of democratic society in which we live, unless the workpeople as a whole, together with those who negotiate for them, are convinced not only of the merits of the legislation and the machinery that has been set up but of the fairness of these, whatever the penalties may be, that legislation will founder. Therefore we thought it right in our Amendment to draw attention to the inequitable policies that continue to be pursued by Her Majesty's Government —because you cannot take the package contained in this Paper in isolation.

Little is done in this package in the field of housing and rents. My noble friends Lord Diamond and Lord Garnsworthy and myself, during the long debates on the Housing Finance Act, said that the policy proposed was inflationary, that rents were being raised for basically working-class people, and that these were bound to be taken into account when workpeople sought wage increases. We were voted down by noble Lords opposite, and yet in this White Paper the Government acknowledge that the case had been made. At least, they say that so far as the more lowly-paid workers are concerned special sums should be made available to meet potential hardships. But the Act remains in force. On rates, we argued again. I do not know what the final increase on rate demand is likely to be—I have seen a figure put forward of 30 per cent. Certainly representatives of the big cities are coming to see the Prime Minister to make their case. But there is nothing in this White Paper that will give any sense of satisfaction or security. It seems that the options open at the moment to local government are either to raise the rates or to cut the services. Those who are in local government well know that the services to-day barely meet the needs of the community.

My noble friend Lord Diamond dealt with house and land prices: these prices have all gone up. I wonder whether the noble Earl could help me about a report I saw in the Sunday Times yesterday, which illustrates the problem. Certainly problems will be caused for young people seeking homes of their own. A company is mentioned—a company which built in 1971 950 houses and made a profit of about £540,000. Last year it built about 150 more houses than it did in 1971 and the profit of that company for 1971 was £1,800,000. There is nothing in this White Paper which in any way will prevent that, or will ensure that the profit remains with the company and is not used for eventual distribution to the shareholders once the phase is over.

These are matters on which the trade unions and the general public will judge a prices and incomes policy. We shall need to go into this with great thoroughness when the Bill is before us. We argued on school meals and school milk; the Government have gone some way to meet the case that we made. But what some noble Lords do not understand (though I think the nobe Lord, Lord Thorneycroft, and the noble Viscount, Lord Amory, understand this) is that the measures that were taken by the Government at the early part of their period of office, when prices and wages were to find their own level, are now indelibly written into the minds of the trade union negotiators and members. This may not be eradicated, but it has undoubtedly to be smoothed before one moves into phase 3 which I hope, with the noble Lord, Lord Thorneycroft, is a phase of greater flexibility than the rigidity one finds in the present White Paper.

Listening to the debate as a whole, there was a unanimity that the policy of Her Majesty's Government on prices and incomes, and on all policies surrounding it, must not only be fair, but must be seen to be fair. I appreciate that the noble Earl may not be able to go much further this evening as the Budget is not far away. But I hope that he will take this issue on board if he can. To say to a workman that he can only have —1.80, when you know that those who are in the higher income brackets, as a consequence of the last Budget, either on earned or unearned income, are going to receive some £6 or more, is not likely to create a feeling of justice among our people.

Regarding the White Paper, I listened very carefully to my noble friend Lord Peddie. I agree with him that the Government should learn from our experience. I think that the noble Earl will find that in their White Paper on the machinery for an incomes policy the previous Labour Government had in mind two separate bodies: one for prices, and one for pay. But experience showed, as a consequence of consultation, that since pay plays such a vital factor in prices—and this is what the White Paper said—you could not treat these two aspects separately. The Labour Government decided that there should be one board. I hope that the noble Earl will give very careful consideration to this matter, and will consider some of the experiences of the Prices and Incomes Board, because when the Bill comes before your Lordships' House we will deploy arguments for a unified board dealing both with prices and incomes.

On the code of practice, I agree with the noble Lord, Lord Thorneycroft, and my noble friend Lord Douglass of Cleveland: a great deal will depend upon the code of practice that is presented by the Government. May I ask the noble Earl whether that code of practice will be available, even if only in draft form, by the time your Lordships' House is required to consider this Bill? This is of vital importance in the consideration of a piece of legislation that is not of a temporary nature. It is quite clear that the Government have in mind putting a permanent piece of legislation on the Statute Book.

Another aspect that we shall need to consider is the role of the agencies. I do not know why the Government, having changed so much of their policy, should jib at the use of phrases that are so well known in prices and incomes negotiations. Are the Government firmly committed to the view that these two bodies, whether they are separate or unified, are to be a form of supreme council, supreme court, answerable to no one in the sense that there is no appeal? This is highly dangerous because if any union, or any employer for that matter, has gone to either of these boards and has been presented with a decision that is unpalatable or unacceptable, it will make it very difficult indeed for such a board to be accepted by other applicants. I hope the Government will give very careful consideration to the experiences of the Prices and Incomes Board. That Board was a purely advisory board, leaving the Government of the day with the final decision as to whether a pay or price increase should be proceeded with.

My Lords, time goes so quickly. I suffer as much as noble Lords opposite from that factor. We have before us a problem which both the Labour Government and now the Conservative Government have had confronting them. We on this side of the House are ready to support legislation that is fair, equitable, and can be shown to be effective. This will depend a great deal on the way in which the Government present this Bill to your Lordships. By the time we have the Bill we shall have had the Budget, and we shall then be able to know whether the Government, having changed their policy on this occasion, will be willing to change policies which many of us feel to be utterly inequitable and therefore unworkable.

8.10 p.m.

THE LORD PRIVY SEAL (LORD JELLICOE)

My Lords, the Opposition, in their Amendment, refer to their "increasing anxiety" about the state of the economy; and I think that in his opening remarks the noble Lord, Lord Shepherd, said that of course there could be no dissent from that general statement. I do, at least in part, dissent. Of course, you can be "bearish" or "bullish" about the economy, given the wide range of options offered by the cognoscenti on these matters, be they the London and Cambridge Economic Survey or be they Sunday Telegraph business forecasts yesterday. Possibly, very naturally, we tend to be a little more "bearish" in Opposition and tend to be a little more "bullish" when we are in Government. I do not wish to be thought complacent about the state of the economy, but I should like to say just this at the outset of my reply. When I last debated this general issue. I think it was in November or so, I drew your Lordships' attention to a fundamental aspect of Government policy, and that was our commitment to economic growth. Also I drew attention to the forecast given by my right honourable friend the Chancellor of the Exchequer in introducing his Budget last year of a 5 per cent. growth path.

Some noble Lords opposite expressed a great deal of scepticism about whether we were going to hit this target. All I would say, my Lords, but I say it with conviction, is that the indicators which I have seen all strongly suggest that we are on that course. I will not run over them; they are summed up to a certain extent in this increased economic activity, in something which we have all ardently desired: a substantial fall in unemployment. That fall, of course, equals nearly 175,000 from that intolerable peak last March. That fall was characterised by the noble Lord, Lord Diamond, in his book of records as a "slight improvement". A fall of that magnitude to be characterised as a "slight improvement" is, I would suggest, something of a slight on the use of the English language.

LORD DIAMOND

My Lords, as the noble Earl has said that, may I say to him that I think it is a very temperate use of the English language. It was an intolerable figure, and it is intolerable that the Government should not have been able to get the figure down by a much larger amount than that in the period that has been available to them.

EARL JELLICOE

My Lords, I entirely agree with the noble Lord that the peak was intolerable. All I was suggesting was that a reduction of 175,000 is no mean improvement.

My Lords, it would be foolish for me to portray everything in our economic garden as rosy. We have been deeply concerned, and rightly concerned, about laggard investment, the point to which my noble friend Lord Orr-Ewing rightly drew our attention. But here again the most recent indicators point the same way; and they are very definitely more favourables. The story is the same whether it is told by the D.T.I. survey, the C.B.I. survey or by to-day's Financial Times survey. Then, of course, there is our proper concern about the balance of payments. Here again the forecasts vary enormously. I would agree with my noble friend Lord Amory that the increase in exports to which we are looking is slow in coming forward. This may be the famous J-curve—we shall have to see. But, in any event, a great deal here depends on whether we are able to take full advantage of the upsurge in world trade. But the point I wish to make in these introductory remarks is that success on both the investment and the balance-of-payments fronts turns crucially on our ability to master inflation.

The noble Lord, Lord Shepherd, termed this debate a notable one and a constructive one. I agree with him. Despite the Amendment, I do not wish to be unnecessarily contentious in winding up because we have heard—and I say this in no patronising way—a succession of thoughtful and constructive speeches, some of them very notable. If our debate has been restrained, I do not think it has been any the less effective for that. But it has also revealed a very general measure of agreement on a number of the major issues before us. In the first place, no noble Lord, so far as I can recall, has questioned that it was right for the Government to intervene, and to intervene decisively, last autumn; and a very clear majority, albeit most of us would prefer the voluntary approach, have backed a statutory policy, at least at present.

Secondly, there has been a wide consensus that this is a problem which we cannot solve selectively, à la carte, as it were. Noble Lords have argued that however important an element of inflation is wages escalation, it is not the only important element; and I would not dissent. They have drawn attention, and rightly, to prices; to the importance of monetary policy, and indeed to the significance of public expenditure, and to certain budgetary considerations. The noble Lord, Lord Shepherd, was quite right in thinking that, with the Chancellor in purdah, I would not trespass far on to the ground of the Budget. Thirdly, they have emphasised that while the Government's proposals at the outset received, and I think rightly received, a large degree of public support, their effectiveness in the longer term will turn largely on whether they continue to be backed on the whole by public opinion. Again I would not dissent for one moment. I have been particularly interested to hear what was said in that respect by a number of noble Lords opposite—and I am thinking particularly of the remarks of the noble Lord, Lord Peddie, and perhaps above all of the remarks of the noble Lord, Lord Douglass of Cleveland.

Fourthly, a theme running through this debate—and it follows from the previous point of agreement—is that it behoves all of us to seek as wide an area of co-operation as we possibly can, above all from the trade unions and above all from the moderate elements in the trade union movement. I was greatly impressed by what my noble friend Lord Amory and my noble friend Lord Thorneycroft, in one of his masterful performances, had to say about this. This was very much the theme underlying much of the remarks of the noble Lord, Lord Byers, and it permeated the very important speech of the noble Lord, Lord Douglass of Cleveland—a speech, I think I am right in saying, to which the whole House listened with very particular attention. Fifthly, and finally, there has been a wide measure of agreement running through the debate that not only would the policies be effective only if they were hacked by public opinion, but they would be backed by public opinion, and should receive the co-operation we seek, only if our policies were fair and were seen to be fair.

My Lords, the Amendment criticises our policies as "unjust and divisive". I frankly cannot see how this line of argument can be sustained so far as the proposals in the White Paper regarding wages are concerned. The whole theme of these proposals, the thread that runs right through the White Paper, is on improving the relative position of those who are lower paid in our society. I will itemise briefly. There is the 4 per cent. plus £1 formula; its application can clearly favour the lower paid. There is the £250 maximum ceiling within the pay limit—again, preference for the lower paid. There is a special provision for hours and holidays and for equal pay for women. Next (I think the point which the noble Lord, Lord Peddie, dwelt upon) there is the point that the negotiators—and we propose that there shall be real negotiation in this respect in phase 2—will be negotiating with the bargaining group in each unit, as it were, and are free to determine the disposition of the money available within that bargaining group. The Government have also explicitly said that they hope negotiators will pay particular regard to the lower paid. I see nothing unjust about that. I see it rather as a test for the negotiators on both sides to prove that what many of them have professed about priority for the lower paid is really meaningful.

Again, there are the other elements in this very comprehensive and carefully considered package. There is the possibility of threshold agreements in phase 3. Again, this is an area in which we should like to work out something constructive in consultation with the unions. Not least, there is the question of the establishment of a board to consider the problems of the lower paid; that is a paragraph 30 proposal which again was dwelt on by the noble Lord, Lord Peddie, and rightly so. Here again I hope there is a field for co-operation and renewed discussions between the Government and the C.B.I. and the trade unions. There are also concessions about school meals, and so on—but I will not go through the whole list.

I can only assume that the Opposition not only are attacking the White Paper policies as being divisive and unjust; presumably—and this was confirmed by the noble Lord, Lord Shepherd—their attack goes back further and is on a wider front. I am quite ready to meet it, if need be, on that wider front. Again, I would merely remind your Lordships of all that we have done these last few years to help those who most need help in our society. The list is long; I could itemise it but I will spare your Lordships from that because, in the traditional phrase, "Time is getting on". All I would say is that this is not a Government that does not care; this is not a Government that seeks to divide and it is not a Government that does not care if there are divisive elements in our society.

On this question of divisiveness, I should like, if I may, because I attach particular importance to the words of the noble Lord, Lord Douglass of Cleveland, to come back for a second to what he said about industrial relations. I greatly regret—the Government greatly regret—the break in the dialogue between the T.U.C. and the Government. We have made it clear that we are ready to renew that dialogue at any time. The noble Lord, Lord Douglass of Cleveland, raised the question "How?"—and it is an important question. He referred to the Industrial Relations Act. Noble Lords will be glad to hear that it is not my intention to re-debate the Industrial Relations Act this evening. We are all entitled to our opinions about it. What I do wish to do is to remind noble Lords what my right honourable friend the Prime Minister has made clear on more than one occasion, and that is that the Government are very ready in due course to review with those concerned the workings of the Act with both sides of industry and in the light of experience—and I think that was the phrase taken up by the noble Lord, Lord Douglass.

LORD DOUGLASS OF CLEVELAND

My Lords, may I just ask the noble Earl what the phrase "in due course" means?

EARL JELLICOE

My Lords, perhaps it would be wrong for me to expand on that off the cuff "at this late hour" (as the saying is) but I can assure the noble Lord that I will bring his remarks to the attention of my colleagues because I think they were important ones.

I should like now to touch on another and vital aspect of fairness, and that is what we should do to ensure fair play between one group of employees and another—the problem of differentials. I have always recognised that at least in its initial phases the application of any national policy on incomes inevitably implies rough justice for some groups. One group of employees may escape, the other may be caught by the chopper when it comes down, and this problem is particularly intractable in the period when one 'moves from the standstill into the next phase of the policy. I wish to make it clear that the Government recognise that there is a very real problem here and that large numbers of our fellow citizens are affected by it. Here I find myself in considerable sympathy with what the noble Lord, Lord Diamond, was saying. I did not agree with his remarks about records, but I did agree with him when he said that pay is more than a question of mathematics, of a "nicely calculated less or more". It is a question of status, of pride in one's job and one's place in society. We recognise that, my Lords, and in this context I should like—and I hope noble Lords will excuse this slight detour—to refer briefly to the position of the Civil Service.

In previous debates on these matters I have more than once emphasised my personal attachment to what experts call "Whitleyism": that is, the practice of the spirit of reason and reasonable consultation between the management of the Civil Service and the staff associations which represent the Civil Service. Having mentioned this when problems lay elsewhere, I make no real apology for doing so again when they are much too close to my doorstep for comfort. I have been a civil servant myself, and I was proud to be one. I am also proud to have had a very close connection, as the noble Lord, Lord Shackleton, before me had, with this great Service for the last two and a half years. Too often too many of us take it too much for granted—take too much for granted the service which our civil servants provide up and down the country. Of course I feel this about the Civil Service. I wish to pick my words carefully this evening since the last thing I should wish to do would be in any way to exacerbate a tricky situation. But there are certain things which this debate gives me the opportunity (which I will take briefly) of saying.

In the first place, there has been a suggestion that this Government has in some way, in its capacity as employer, broken faith with its employees. I must refute this. In the first major pay negotiation after the Government came to office—and it was not an easy one—the staff side asked us for a clear assurance that we would adhere to the principles and procedures of pay and research established by the Priestley Royal Commission in the 1950s and developed since then, and we gave the staff side a clear answer. We said that we endorsed the Priestley principles and intended to implement them, subject—and this was spelled out quite explicitly—to any requirements of an overriding national policy and general application. Our proposals for the standstill and for stage 2 clearly represent such a national policy of general application. But, it may be asked, why did the Government make this proviso? We believe that as an employer, like any good employer, we must treat our staff fairly. That we intend to do. But by the same token we must also, as an employer, be subject to the constraints that are placed on other employers and on the community as a whole. Those who work for the Government rightly expect to be fairly treated, but they cannot expect that their employer should treat them in a preferential way which is not open to other employers.

I accept that with the Civil Service there is a real problem of catching up. We recognise this, and we recognise that the timing of the standstill has come at a particularly difficult moment in this process for a very large number of civil servants. What I would ask the Service to remember is that they are not the only people who can argue that the timing of the standstill has left them with catching-up problems. In the circumstances, it seemed right to us that the Civil Service should be treated in phase 2 of the policy as everyone else in a comparable position is being treated. They will be treated no better, but they will be treated no worse than those others.

There is, however, a point here that I wish to emphasise. This is not to say that possible anomalies will not be considered, a matter which was in the mind of the noble Lord, Lord Gore-Booth. We have vet to process the evidence of Pay Research. If, when we have done so, it is clear that anomalies and problems of relativities still remain after the phase 2 guidelines have been applied—and I fully recognise that this could well be so—then any anomalies in relation to the Civil Service will be considered alongside any other anomalies. The Government will need the Pay Board's advice on this whole difficult area, and what I wish to emphasise to all those members of the Civil Service—and nearly 400,000 of them are in Pay Research this year—is that this provision for the consideration of anomalies in relation to phase 3 already exists. I have no doubt that it will be operated.

I also wish to stress that we recognise that the standstill had created a special problem for the pensions of those civil servants who were about to retire when "the chopper" came down. I am glad that as a Government we have been able to do as much as we have to improve the pensions of our public servants; and it has not been inconsiderable. But there is a real problem here. We recognise it, and it is not a new one. It raises great difficulties, difficulties which were not solved by former Governments, but I can give those concerned an assurance that if we can find a way round them we shall do so.

LORD SHACKLETON

My Lords, before the Lord Privy Seal leaves the subject of the Civil Service in what is obviously a very important and carefully considered statement, may I ask him to say whether, in the examination of anomalies, as he chooses to put it, the Government will stand by the principle of comparability, of Priestley?—because if so his choice of the word "anomaly" is a slightly unfortunate one. While appreciating the difficulties, and while not wishing to add to them in such an important area, I should he grateful if the noble Lord would say whether the comparability principle does mean ultimately a catching up. My impression is that we did not abandon this, although even the previous Government did on one occasion break faith to some point, though to nothing like the extent that is now threatened by the noble Earl.

EARL JELLICOE

My Lords, I should like to pick my words very carefully on this point. Quite clearly, the Pay Board will he considering this position—the anomalies which may have been thrown up—in the light of the whole situation, including the procedures which have existed up to now and to which I should very much hope that in an appropriate phase in our incomes policy we shall revert to, but I do not think I should go beyond that at this stage. As for prices, the area to which not unnaturally many of your Lordships have directed attention, my noble friend Lord Drumalbyn covered the ground I think adequately in his opening remarks and I can acid little to what lie said. I wish to make only three broad general observations. The first is that we are crazy if we try to "kid" ourselves that we can insulate ourselves, as the world's third greatest trading nation, from the impact of the outside world, and from the impact of an outside world which is clearly inflationary now. This is a hard fact of international life which we have to accept and which I think was accepted by every speaker in this debate.

My second observation is that we equally "kid" ourselves if we suppose, as some seem to suppose, that there is an easy way out of this dilemma by way of wholesale subsidy. I entirely agreed with, among others, the noble Lord, Lord Byers, on this point. Indeed, I agreed with most of his remarks on this subject. My third observation is that I do not for a moment minimise the importance of cushioning those who are most in need against the impact of rising prices. That is why the whole emphasis of the White Paper proposals is directed towards helping the poorer in our society; and this is also where threshold agreements could come in, the threshold agreements which we wish to see examined—their possibility in phase 2—in conjunction with the unions.

Economically our performance as a nation since the war has been very fitful and disappointing. I think we all accept that. We have not done nearly so well as our nearest neighbours. We have not done nearly so well as I am sure we, as a country, are capable of doing. It is my belief that we now have a real opportunity of breaking out from the thicket in which our economy seems to have been held these last decades.

On the other hand, if we fail to invest and modernise we shall drift further and further astern in the convoy of industrialised nations and become not only the poor man but also the socially sick man of Europe. This is something which we all wish to avoid, but we shall not invest and modernise and not get our house in order unless somehow we can contain this dangerous and wild beast of inflation. We all know the consequences towards, growth, towards modernisation, investment, labour relations and in terms of social injustice. I am convinced that continued inflation of the sort we have experienced, let alone the accelerating inflation with which we were threatened last Autumn, could undermine democracy as we know it, as we love it and as we so often abuse it in these islands.

We want of course to walk the voluntary path—to wrestle, in agreement with management and labour, with this problem—and this is surely the better way. I would submit that no Government and no Prime Minister have worked harder for this, and we will continue to work for it. But this is not the choice we face at present. It is only too clear that the voluntary agreement of the sort we have striven for is not at present available. The choice at present is not between a voluntary incomes policy, which we and most of us would prefer, and a statutory policy, which we believe to be essential. At present it is an unfortunate fact that the choice is a starker one. It is, as I see it, a choice between the broad policies enunciated in the White Paper, which I commend to your Lordships to-night, and the disaster of continuing unarrested inflation. There have been constructive speeches made in this debate. Perhaps—

LORD SHEPHERD

My Lords, I regret to interrupt the noble Earl, but may I ask him whether he is in a position to answer the question I put to him earlier, about the Code of Practice and the timing?

EARL JELLICOE

My Lords, I am in a position to answer two questions which the noble Lord put to me. First, I can give him an assurance that we shall naturally wish to have this Bill debated on its merits. I am sure that through the usual channels we can come to satisfactory arrangements over timing within the restrictions of which we are only too well aware. Secondly, it is certainly my hope that the draft Code of Practice will be available before we take the Bill on Second Reading, but this will depend on the process of outside consultations. And while expressing this as a hope, I hope that noble Lords will not take it as a commitment.

May I just say this in termination? There have been constructive speeches—and I gladly acknowledge it—from noble Lords in all quarters of your Lordships' House in this debate, not least from noble Lords opposite. But the Opposition have not as yet offered any constructive alternative to the policies which Her Majesty's Government are submitting to the nation and which I believe command the widespread assent of the nation at the present time. In their Amendment the Opposition termed our policies "unjust and divisive". In my view, as I have sought to explain, that accusation is in itself unjust. I hope, given the tenor of the debate, that noble Lords will not press their Amendment to a Division, but if they do so I ask my noble friends to reject it and to reject it decisively.

THE LORD CHANCELLOR

The original Question was: That this House take note of Command Paper 5205, The Programme for Controlling Inflation: The Second Stage. since when an Amendment has been moved, at the end to insert the following words: but views with increasing anxiety the economic situation and, while recognising the need for an equitable and effective policy against inflation, regrets that Her Majesty's Government continue to pursue budgetary, industrial and social policies that are unjust and divisive.

8.42 p.m.

On Question, Whether the said Amendment shall be agreed to?