HL Deb 24 July 1973 vol 344 cc1660-77

3.14 p.m.

LORD BESWICK rose to move, That this House notes with increasing concern the fall in the purchasing power of the pound sterling at home and in the exchange value abroad, calls for more positive and effective policies both to halt the depreciation of our currency and to mitigate its consequences upon those least able to bear them. The noble Lord said: My Lords, the terms of our Motion are deliberately moderate. None can deny the fall in the value of our currency or the fact that inflation hits the poorest most. The Conservative Party Manifesto of 1970 was only too convincingly true when it said: Inflation is not only damaging to the economy, it is a major cause of social injustice, always hitting hardest at the weakest. But the rate of 5 per cent. of inflation of that year we would regard now as virtual stability if we could achieve it this year or next. Since that time the value of the pound abroad has slumped by 15 per cent., 16 per cent., and, I read this morning, 17½ per cent.

But while the fall in the purchasing power of the pound is bad in itself and the injustice it creates is worse, what is really alarming to-day is the sense, unless there is more positive effective action, that other values will depreciate too—moral values, using the term in its widest sense. We know already of the action taken by those who are better off to protect their own individual position, regardless of social consequences. If that attitude spreads, then the Government can say goodbye to the chances of a constructive Phase 3. So far this year the Government have been saved by the extraordinary patience of the working man, but, said one trade union leader, "If there is going to be a free-for-all, then we are part of the all". No one can blame those who hedge against inflation, but hedges only benefit when there are suckers. By the autumn, if living costs still rise, organised workers may well decide that they have been suckers for too long. And if selfishness as now practised by some becomes widespread, then a highly integrated modern society will break down.

My Lords, in this House we try to be reasonably fair and at any rate listen to the opposite arguments, and I would agree at once that some of the aggravating factors in to-day's situation are not of the present Government's making. For example, I now think that Peers opposite were right and we were wrong—I personally was wrong—when we accepted the advice of the pound as against the 10s. decimal unit. The Price Commission claim to have saved £40 million this year by rejecting price increases, but it is fair to say that the housewife will have been cheated by more than that each year since decimalisation by the 'use of our present new bizarre coinage. We all know of cases where the retailer would not dare ask for a shilling more, but we pay 5p almost with apologies. But that is now becoming more of a fringe factor.

The present Government cannot be blamed either for some of our other commitments. For example, the £300 million per year poured into Ulster is mostly inflationary. Every million pounds to restore property which has been destroyed is distributing money but creating no more wealth. Every thousand pounds for personal compensation —and I see that one award recently was £80,000—adds so much more to the volume of money unbacked by goods. The unique burden of Ulster, however, we have accepted as a common all-Party responsibility. But it is there, corroding our currency as well as other human values; it is there all the same.

Then, if we are considering inflationary factors for which the Government cannot be blamed, there is the rise in world commodity prices. We know there has been this phenomenon, and, of course, it was not caused by the Government. But the question we should be discussing to-day is, what have they done about it? How have they related policies to meet it? The fact is that they regard this phenomenon not as a challenge but as an alibi. They complain of world prices as once they complained of wage increases. Why is it that other countries also import commodities but have currencies which are rising while ours is falling?

The Prime Minister the other day gave three particular examples of commodity increases. One very important one was copper. He said that copper had gone up 64 per cent.—some would in fact say rather more than that. But in Swiss francs the increase was only of 19 per cent., and in Japanese yen 15 per cent. It just is not true to say that world prices are a cause of our troubles, any more than it was true to say that it was wages. Of course they are part of the cause, but they are not the whole cause. It is equally, if not more, true to say that the Government's failure to recognise and take positive action to deal with other parts of the problem makes us more vulnerable than our competitors to increased commodity prices, and that, in turn, helps to create the wage demands which they deplore. It is their complete inability, as I see it, to understand the interaction, the integration indeed of the whole economic and social complex, that has led to the abysmal failure of their policy.

Probably the two most important other factors in the complex, neither of which the Prime Minister dealt with last week, are the extraordinary and calamitous balance-of-payments deficit and the volume of paper money which the Government are printing and distributing. On the overseas payments deficit, when challenged—and, almost unbelievably, it would seem that the Prime Minister would not have raised this subject unless he had been challenged—he said, on July 18, at column 533 of the Commons OFFICIAL REPORT, concerning the balance of payments: …if the Labour Party is supporting a policy of expanding the economy, it must be prepared to accept the consequences of the import of raw materials and, in many cases, plant … Here again we see this strange, blinkered approach; the inability to distinguish between partial and whole truth. If the noble Lord, Lord Stokes, were here I would ask him whether it is foreign cars that we are importing or whether it is indeed, as the Prime Minister says, "plant". Of course it is to a large extent completed motor cars. The Economic Community was to have been a great market, but it has turned out to be an even greater supplier. Imports from them—and not of raw materials—have gone up far more than exports.

This is my view, but the House may accept more readily the judgment of Professor Neild in the London and Cambridge Economic Bulletin. Professor Neill says: It is a mistake to think that the deficit in the balance of payments has been caused mainly by the deterioration in the terms of trade". And again: Whatever happens to import prices and the terms of trade, the balance of payments will not recover on an enduring basis so long as the public sector's deficit is not reduced to the point where it ceases to be a source of excess demand. Who will disagree with what is stated there?

This question of excess domestic demand brings us to one of the most sacred of Seisdon's sacred cows—the boast that the Conservatives, and they alone, are the Party of reduced taxation. They can no longer boast that they do not devalue the pound; they can no longer say that they will not tolerate "lame ducks"; they cannot say that they are against statutory wage and price control, but they still do boast that they are the Party who have reduced taxation. By £3,000 million, they say. But in honesty, should they not also emphasise the £4,000 million Budget deficit? The bookkeeping of Lonrho, Slater Walker, and Sir Denys Lowson, has been criticised recently, but it is open and pure compared with that of the Government. Cutting taxation as part of a plan to transfer wealth to their supporters is, in our view, unfair, but it is politically understandable. But to pay the bills with paper money on the scale practised by this Government is in another category of behaviour altogether. I beg the Minister not to repeat here that claim about the increase in the standard of living, or the figures of net disposable income. Of course figures can be quoted to show an average of more money in each pocket, but it has been made possible by two factors: first, by deficit financing, and secondly, by turning a balance-of-payments surplus of probably the largest on record (a £1,000 million surplus in 1971), to a deficit running at the rate of £900 million in the second quarter of 1973. Never, ever, in peace time has there been such a turn-round in our economic affairs. Of course in these circumstances one can distribute more purchasing power for a time: the question is, for how long a time? It became fashionable to say that we should be saved by the famous "J" curve. It is remarkable how supposedly clever commentators become hypnotised for a time by fashionable jargon. Once upon a time it was the "pegged pound", then the "crawling peg", and then it was said that with the "floating", or the "dirty float", the "J" curve would work and all would come right. But we have already passed Mach I on the downward stroke of the "J" and it rather looks as though some one has removed the curve at the bottom.

The London and Cambridge Economic Bulletin said that somehow the public sector deficit should be cut by £500 million a year, and since this Motion was tabled the Bank of England has increased the demand for special deposits which, I gather, in one way or another, is expected to help by some £260 million. The idea, we are told, is not to squeeze the economy but to force up interest rates and thus encourage more hot money to come to London. Higher interest rates, I suggest, are no solution for a productive economy. Hot money has not helped us yet. There must be a more straightforward way of reducing excess demand. Much can be done. The question is whether this Government have the will, or are we to wait for a still further worsening of the situation before they take further action?

Let me indicate some of the things which undoubtedly could be done if the will were there. First, on excess demand: if this needs to be abated—by £500 million, says the London and Cambridge Bulletin—could not the Government reverse the £300 million tax handout to the wealthier taxpayers? That £300 million is really inflationary money. It is not spent on essentials: it is extra money for hedging, speculation, or luxuries. Would it not be better to raise taxes than to encourage hot money to come to this country to buy time? If a higher interest rate is essential, why do the Government insist, by tax allowances, in effectively halving the interest rate on larger personal loans? These amounted in the last five weeks to June 20, I gather, to an additional £219 million. This was not money borrowed to import essential raw materials and plant. Loans for share dealings and second houses, I gather, are now frowned upon, but they are an indication of the purpose behind these subsidised increases in purchasing power.

I am glad to see that we have heard little about that discredited piece of poor law, the family income supplement—the infuriating poverty trap—as one way of ameliorating this burden of inflation on the poorer. If the Government wish to help the low-paid worker, why not a statutory minimum wage? Can we have an answer to that from the noble Lords who are to reply? I welcome talks on threshold agreements, but that does not meet the case of the very low paid. And why not increase the family allowance, and extend it to the first child? If this will be the effect of the proposed tax credit schemes, why not introduce this earlier than the five years from now?

Then there is the controversy about food subsidies. The Government have made great play of the cost of an across-the-board scheme, but if the will is there and they want to do something why not make a start, at any rate, by reintroducing free school milk and welfare milk? And if they need money, why not scrap the Intervention Board which is budgeting to spend next year £55 million gross, not to bring prices down but to put them up? If there is a world food shortage why are we going to spend £22 million on de-naturing food to make it unfit for human consumption? Even if the Government say they cannot afford subsidies, cannot they at least say that they will not clamp on a levy of £163 a ton on imported butter? Is it not really crazy to say that we cannot subsidise food here yet we subsidise it for the Russians?

My Lords, I must mention land. The cost of land, whether for residential, industrial or agricultural purposes, all finds its way eventually into the cost of living. I will not give more horrific examples of land prices. I think we are all agreed that something should be done. Last time we discussed this subject we were told that something should be done, and what came out was the land hoarding charge. I now ask the noble Lord who is to reply, can he say whether the Government believe that that land hoarding charge really works?

I return to the problem of world market forces, the current alibi of the present Government. We are part of the world, and still not an uninfluential part of that world. Could we not give a lead towards a more sane control of world market forces? In our country a Conservative Government, for national purposes, no longer believe in the doctrine of the free market. In prices, pay and company behaviour they accept now that controls. are needed. In the United States of America—the most Conservative administration in the world's stronghold of capitalism—they have been compelled to use State controls to prevent an economic breakdown. Yet in the market place of the world where the big things are decided now, in currency and commodities we allow the free play of the most reactionary, unproductive, capitalistic practices.

My Lords, I ask this seriously, and I beg the noble Lords who are to reply to give some answer to this. Can they really assure us that we are putting enough intellectual effort into finding alternatives to the present method of dealing in international currency and commodities? Immediately after the war we seemed to be far more ready to think imaginatively in this area. We then developed the Commonwealth Sugar Agreement; we had in the time of John Strachey, the cereals agreement with Canada; in that and other commodities we tried to establish a fair price as between producer and consumer, without excessive fluctuations and without wasteful speculation. My Lords, when we read that one company in the last two or three weeks lost £20 million in speculation with one commodity, is it not time that we did more to control these world market forces before they completely control us; or before the underdeveloped countries, from which so much of our raw materials come, begin really to use the power which freedom from colonial rule has given them?

In the eager, idealistic days of the late 1940s, when I first went into the House of Commons, I used to preach the idea of an international oil co-operative for the Middle-East. Eventually the International Petroleum Co-operative put the idea to the United Nations, but the big oil companies and the major Western countries were against it. In those days the normal split with the oil producing countries was 70–30; we took the 70. Gradually it changed: 60–40, 50–50, 40–60, 30–70, and in some cases countries in whose land the oil was took the oil over altogether. What a wonderful thing it could have been if they had said that I was not just starry-eyed but was just being a little more realistic than they and we could have come to some radical, imaginative, fair to producer and consumer deal, in those days! We ought to think about this. Those countries, as I say, that are now free will begin to learn the Western way of doing things and we shall find that we are more completely in their control than we have realised. In the United States, with 6 per cent. of the world's population, they consume one-third of the whole of the world's energy supply. Neither the United States nor we have a lot of time in which to settle some of these matters, for the events are moving with increasing speed.

The Bishop of Stepney, in an article in The Times the other day, quoted the following words: We have not merely extended the scope-and scale of changes, we have radically altered its pace. We have in our time released a totally new social force, a stream of change so accelerated that it influences … the very way we feel the world around us. My Lords, I am asking that we recognise this, and that both at home and abroad we should do more positively to control these changes, but always acknowledging that an inflexible objective of control is fairness between man and man. My Lords, this House could accept my Motion, not in the sense of criticism but as a spur and a challenge to those who, for the time being at any rate, govern this freely democratic country of ours. My Lords, I beg to move.

Moved, That this House notes with increasing concern the fall in the purchasing power of the pound sterling at home and in the exchange value abroad, and calls for more positive and effective policies both to halt the depreciation of our currency and to mitigate its consequences upon those least able to bear them.—(Lord Beswick.)

3.38 p.m.

LORD WINDLESHAM

My Lords, the noble Lord said in opening that his Motion was moderately worded, but I do not think that the speech we have just heard is one for which the same claim could be made. He has asked a number of detailed questions and my noble friend Lord Gowrie, when he comes to reply for the Government at the end of the debate, will do what he can to help the noble Lord with the answers. I do not intend to speak defensively or apologetically in any way whatever. What I intend to do is to explain what the Government's economic policy is and to ask for your Lordships' support in pursuing this policy vigorously and thoroughly and in seeing it through, because we do believe that the counter-inflation policies on which we embarked last year are the ones which are most likely to lead to the result that we all want to see.

My Lords, the Government's economic strategy has two aims: the aim of expansion and the aim of countering inflation, and I hope that these aims are commonly accepted and can thus be regarded as national policies and not just as Government policies. Of course there will be differences about how they should be pursued and in what way they should be implemented: but that, after all, is only natural. But on the fundamental objectives, I believe that, despite what the noble Lord has said, there is in the country to-day a considerable measure of underlying agreement. Indeed, it is not really very difficult to say what should be done.

There is, first, the need to sustain a higher rate of economic expansion than we have been able to sustain in the past, as the prime means of improving our national prosperity. Secondly, in a situation in which inflation is an increasing problem in developed countries in many parts of the world, there is the pressing need to initiate and follow through resolute action to contain the rate of increase of domestic costs and prices in a way which is consistent with policies for expanding the economy.

These policies for expansion have already achieved substantial gains in terms of improved living standards, and we must not lose sight of that fact. Since this Government took office in June, 1970, the standard of living of the British people has increased, on average, more than twice as fast as it did in the period from 1964 to 1970. Moreover, the statistics show that the low-paid have done even better than the population taken as a whole, and that is as it should be. All the indications are that we have achieved the target of a rate of expansion of 5 per cent. per annum over the 18 months' period from the second half of 1971 to the first half of 1973 which we set ourselves in 1972. In this year's Budget, the Chancellor aimed to continue that 5 per cent. annual growth rate over the 18 months' period from the second half of 1972 until the first half of 1974; and here again the current indications encourage the hope that this target may also be achieved.

What is, however, crucial is to lay sound foundations on which to maintain an improved economic performance in the future. It is particularly important to avoid the depressing slide back into stagnation which has so often been the lot of this country in the past. In this respect the most recent indicators are encouraging. Industrial investment is moving ahead well; the increase in productivity in the manufacturing industry—output per head—is showing one of the biggest increases on record; the volume of exports so far this year has increased almost twice as fast as the volume of imports; and unemployment is decreasing. For all these reasons, there are grounds for thinking that we are now in a stronger position to achieve a period of sustained expansion than we have been in the past. But in order to achieve that expansion, and to maintain it, there must be confidence—confidence in the future and confidence for investment. The intervention of my noble friend Lord Orr-Ewing on this point was so very trenchant and appropriate at Question Time; that we very often show a lack of confidence in large-scale projects for the future, such as Concorde, Maplin and the Channel Tunnel, which some of our partners and competitors in Europe do not show in the same way.

LORD BESWICK

My Lords, is the noble Lord really saying that the swing from a surplus of £1,000 million to a deficit of £900 million is a sign of confidence?

LORD WINDLESHAM

My Lords, the noble Lord made a critical speech. He picked out all the reasons he could find for saying why he thought that his Government could have done better than ours; why he thought his policy might be better than ours. He talked about statutory minimum wages and about food subsidies. Look at the record, my Lords! Look at what happened between 1964 and 1970! Look at what has happened since! I leave it to your Lordships to decide whose policy you prefer.

Public debate about counter-inflation policy tends to focus, perhaps inevitably, on the latest statistics or on the latest announcement of a particular price increase. But the battle against inflation will not be won in a single encounter. Indeed, it is a battle which has been fought many times in many parts of the world with a variety of weapons. It is a truism to say that there is no single solution. I agree with the noble Lord, Lord Beswick, if I may have his attention for a moment or two. I listened to his speech closely and I hope he will do me the courtesy of listening to mine, even though it may not be any more palatable to him than his was to me. The origins of the current counter-inflation policy go back to July of last year. In that month, against a background of rapidly rising wage settlements and in the final stages of the C.B.I.'s voluntary price restraint scheme, the Government began discussions with the T.U.C. and the C.B.I. on economic management. In those talks, agreement was reached on what the economic objectives were, and perhaps I may remind your Lordships of them: faster growth in national output and real incomes; an improvement in the relative position of the low-paid; and moderation in the rate of cost and price inflation.

These objectives remain relevant to-day, and they remain the agreed objectives in the Government's present series of talks. In September, 1972, the Government put forward firm proposals designed to achieve these three objectives. The proposals included a commitment to a 5 per cent. rate of growth to cover the next two years—and I have already referred to the indications that that figure of 5 per cent. is being attained; a limit on the rate of increase of prices attributable to domestic costs, a universal cash limit on pay increases safeguarded by a threshold agreement; and help for the lower paid and for the pensioner. Unfortunately, it did not prove possible to reach agreement to implement these proposals voluntarily, and therefore on November 6, as your Lordships will remember, a temporary standstill was introduced. This was followed by Stage 2 which began at the end of March for pay, and at the end of April for prices.

The standstill which constituted Stage 1 of the policy, and Stage 2 which came after it, have had to operate against the background of an exceptionally steep increase in world prices over the past year. The noble Lord, Lord Beswick, referred to this fact, very properly, in his speech. He mentioned that in sterling terms the price of copper has increased by 64 per cent. I could add that wheat has increased in sterling terms by 80 per cent. and wool by 155 per cent. While it is of course true—and this is on the point which the noble Lord, Lord Beswick, made—that the upward movement of the yen and of the Swiss franc means that Japan and Switzerland can purchase raw materials at a cheaper rate than the United Kingdom, it does not follow that an upward movement in exchange rates provides a safeguard against inflation. Indeed, the rate of inflation in Japan and in Germany, both of whom have revalued their currencies recently, has been greater than that in the United Kingdom in the recent past.

LORD BALOGH

My Lords, does the noble Lord realise that I have anticipated his speech and have tried to get some figures? I shall be very grateful to the noble Lord if he will tell me how he gets those figures, which are double what the statistical digest shows. We have depreciated by 33 per cent. against the mark, and by 21 per cent. against the yen. The import values in Germany are unchanged as compared with last year.

SEVERAL NOBLE LORDS

Speech!

LORD BALOGH

I am sorry, my Lords, but if the noble Lord makes statements which are not compatible with facts, one must correct him.

LORD WINDLESHAM

My Lords, those are points for the noble Lord's own speech. He is to speak immediately after me and he will have an opportunity to develop his thoughts then. I was referring to the impact of the increase in world commodity prices on domestic prices in the shops here, and, of course, these increases have been reflected in the costs of United Kingdom manufacturers. The increase in the price of foodstuffs, as we all know, has been particularly steep. These prices are strongly subject to seasonal influences and to world demand. The United Kingdom is a substantial importer of basic foodstuffs—in fact we import over half our total food requirements—and demand for many of these on world markets has exceeded supply. Examples are meat, fish, dried fruits and cocoa. Housewives, not only in the United Kingdom but in America and Europe, have been faced with similar increases in the price of food in the shops.

My Lords, these dramatic increases in world prices—and they are dramatic—due to a whole number of very deep-seated factors, are an inescapable charge on the living standards of all of us which, as a community, we cannot avoid. Nevertheless, our policies have had a marked impact on the rate of increases in prices affected by costs within our own control. I shall try not to cite too many statistics (I shall try to follow the noble Lord, Lord Beswick, in that, if I may; he was quite sparing in the use he made of statistics) but I want to quote a few by way of illustration of my argument.

LORD HUGHES

My Lords, I wonder whether I could make an intervention of a different nature. Would the noble Lord perhaps remember that if he speaks to the microphone we shall all hear him, but that if he turns to one side we shall lose him? While we may not agree with what he is saying, we at least want to know what he is saying.

LORD WINDLESHAM

My Lords, it is very seldom that I have been regarded as inaudible, but if the Front Bench opposite could not hear me I shall make sure that I keep my voice up, and I shall direct my remarks entirely towards the noble Lord during the rest of what I have to say.

LORD SHEPHERD

The noble Lord should speak to the microphone.

LORD WINDLESHAM

My Lords, if I may just digress on that point, when Members of your Lordships' House are speaking in a debate, we are speaking to all Peers in your Lordships' House. Although it is courtesy to face the Peers opposite, we are also speaking to Members of the House on our own Benches. I think the noble Lord will find that it is the normal practice to turn to different parts of the House as well as to address one's remarks right across the Chamber. But if I was inaudible I apologise, and I shall try to do better for the rest of my speech.

LORD SHEPHERD

My Lords, perhaps the noble Lord the Leader of the House will remember that he has a microphone directly in front of him. It is that which is really the instrument by which he makes himself audible. If he turns round, he is then inaudible.

LORD WINDLESHAM

My Lords, I am most grateful for these tips on speaking performance from the Opposition Front Bench. I am sure that at no point have they ever turned their heads to their own supporters in the course of a debate of this sort. Perhaps we should have a microphone behind us as well as in front.

My Lords, continuing now with the question of food prices—because this is, of course, the most topical and the most controversial issue in the economic policy at the moment—excluding all food (which, as I have said, is the item most subject to price fluctuations through world demand and seasonal factors), between November and June the retail price index rose by 3.8 per cent., which is equivalent to an annual rate of 6.4 per cent. This compares with the annual rate—7.5 per cent.—at which this index rose in the seven-month period before the standstill. In June—the retail price index figure for all items, including food was published at the end of last week—the rise for the month was 0.5 per cent. This represents the smallest increase since the standstill began, and I think we can take some encouragement from that fact. The increase in the food index—that is, the index for food only—was also down to 0.5 per cent., although here seasonal factors played a part. In addition, the increase in cost of manufactured goods in the period November to June was only 1.1 per cent., compared with 3.7 per cent. for all other prices. It cannot be denied, therefore, that, but for the standstill in Stage 1 and Stage 2 which followed it, the present rate of price increase would be very much higher.

My Lords, of course any policy of this sort tends to focus attention on individual increases, but there is other evidence, besides the statistical evidence which I have just put before your Lordships, of the effectiveness of the counter-inflation policy. For example, in the period from the beginning of Stage 2 up until July 13, only about a third of all applications to the Price Commission were approved in full. The rest were rejected, withdrawn or reduced. Over the next weeks, as the Commission examines reports of companies' profit margins, the pressure which it exerts on prices will be intensified. The Commission's regional offices also monitor complaints, and this has led to price reductions in over 300 cases. As the noble Lord, Lord Beswick, reminded us, the Commission itself believes that in the first two months it has saved the consumer £44 million a year. In addition to this, there is the effect of the Code on those firms which are not obliged to pre-notify price increases.

As the Price Commission gets over the first rush of applications and the pressures of getting new machinery to work effectively, it will be able to step up its activities. The Commission is now undertaking a three-point plan for additional action. It is starting to deal with medium-sized companies which are bound to report their price increases and profit margins. Where this information reveals that price increases have been made which are not in accordance with the Code, the Commission will seek price reductions. The Commission will also give priority to its work among medium-sized and smaller companies in ensuring that the profit margin limitation rules are complied with. This, too, will involve reductions where a company's profit margin has increased above the reference level. Finally, through its regional organisation the Commission is undertaking a programme of checks of retail and service establishments.

The overall picture, therefore, as we prepare for the next steps in the policy of countering inflation, is one in which our policies are biting on the prices of those items where costs are under domestic control. Exceptionally rapid rises in world prices have meant that the overall rate of inflation is still unacceptably high. But there is no doubt that without the Stage 2 controls the rate of increase would have been even larger. Nevertheless, earnings have, on average, kept ahead of price rises. In the year up to May, 1973—the latest month for which earnings figures are available—earnings rose by 14.2 per cent., while over the same period prices increased by 9.5 per cent.

My Lords, we recognise that there is a risk that pensioners and the low-paid may not be properly protected when world prices are rising so rapidly. The T.U.C. has, quite legitimately, put this to us with great force. So far as pensioners are concerned, the October revi- sion—that is, the revision coming in October of this year—will mean that pensions have increased since November, 1969, by 55 per cent.—substantially more than prices. We have also introduced, to avoid fears about the future, a system of annual upratings at least sufficient to compensate in full for price rises. For wage and salary earners the £1 plus 4 per cent. limit allowed for substantial pay increases, averaging 7 per cent. to 8 per cent. but representing more for low-paid groups. In a number of settlements the negotiators distributed the total amount available in favour of the lower-paid members of the group. By the end of June, some 7 million workers had received settlements within the terms of the Stage 2 code.

My Lords, for the next stage, Stage 3, we have said that we intend to propose to our partners in the talks that a new form of income safeguard should be included as part of the machinery. The precise form and level of the safeguard will be for consideration in the autumn, in the light of the circumstances then and of the Government's discussions with the T.U.C. and the C.B.I. A safeguard of this kind, allowing pay to be increased automatically if prices rose above an agreed threshold, would be of great help in reducing anxiety about price prospects. Decisions on the arrangements for Stage 3 will not be taken until the autumn, however, when we shall be able to take account of the state of the economy at the time. We also want to look at the present code and to consider comments on it. We shall be able to consider the Pay Board's Report on anomalies which is expected in mid-September. Discussions have begun both with the T.U.C. and with the C.B.I. on the prospects for Stage 3, and my right honourable friend the Prime Minister has already announced one proposal—that is, threshold agreements, to which I have just referred —that he will be making to the other interests represented in the talks.

As to the future, it remains our stated purpose to work towards the return to voluntary machinery for countering inflation, provided of course that the policy is effective. There can be no return to a free-for-all which can only hurt the weaker sections of the community. Thus the aim of our economic policy is to combat inflation by every means that can be worked out in consultation with the representatives of industry and the trade unions. At the same time, we are determined to press on with the measures which have made increases in real income possible by sustaining a stable economic growth. This then, my Lords, is our economic strategy. It is a carefully considered one—

LORD DIAMOND

My Lords, before—

LORD WINDLESHAM

My Lords, I am just coming to the end of my speech. Perhaps I could just complete what I wish to say; then, if the noble Lord has something he wants inserted just as I sit down, by all means he may do so. I was saying this is our economic strategy, and it is a carefully considered one. This is the way in which it has been developed over the last period of months when we have been engaged in countering inflation. It is, I can assure the noble Lord, Lord Beswick, a most carefully and thoughtfully considered strategy. It is positive, it is effective, and I have no hesitation at all in asking your Lordships to support it in preference to the Motion on the Order Paper.

LORD DIAMOND

My Lords, before the noble Lord sits down, may I ask him this question? I did not interrupt him earlier because I was quite sure that he was going to give us the most relevant piece of information which your Lordships need—but which so far has not been given—in a debate on the value of the pound: I refer to the estimated balance-of-payments deficit for the current year. The noble Lord did not give us that information in the earlier stages of his speech and perhaps I should have interrupted him earlier. I hope that he will let us have it at the start of the debate.

LORD WINDLESHAM

My Lords, I am not in a position to let the noble Lord, Lord Diamond, have that information at the start of the debate. I will try to obtain it, however, and if I am successful the Government will give that figure in the course of the debate.