COUNTER-INFLATION (PRICE AND PAY CODE) (No. 2) ORDER, 1973

HL Deb 20 November 1973 vol 346 cc981-1046

6.50 p.m.

THE MINISTER WITHOUT PORTFOLIO (LORD DRUMALBYN)

My Lords, I beg to move that the Counter-Inflation (Price and Pay Code) (No. 2) Order 1973, be approved. The hour is getting rather late and the Chamber is getting rather cold; nevertheless, this is an important Order, containing as it does the Price and Pay Code for Stage 3 of the counter inflationary exercise. It came into operation on November 1 as far as it relates to prices and on November 7 as far as it relates to pay. It was made on October 26 and was debated in another place on November 7. The code which it contains follows broadly the terms of the draft published in the Consultative Document earlier last month. The final version of the code includes changes made after consideration of comments received. Your Lordships will not wish me to go into all the detail, but I shall refer to the main changes.

As noble Lords know, the code lays down the rules which the Price Commission and the Pay Board are to apply to Stage 3. The aim of the whole exercise, as was stated in the Consultative Document issued last month, is, first, to maintain a high rate of growth and to improve real incomes; secondly, to improve the position of the low paid and pensioners, and thirdly, to moderate the rate of cost and price inflation. The rules apply to everyone and are being impartially and efficiently interpreted by the Price Commission and the Pay Board in the letter and the spirit. I see that some headlines in the newspapers talk of finding ways round the rules. My Lords, the rules cannot be circumvented if they are to operate fairly. What people are entitled to do is use the flexibility that they allow, and they are more flexible in Stage 3 than they were in Stage 2.

First, it is appropriate to have a look at the extent to which the code has succeeded in Stage 2. This is all the more important in view of the increase last month in the retail price index, which rose by 2 per cent. on all items including a rise of 3.3 per cent. on food items. This brought the increase over the past 12 months to just under 10 per cent. My Lords, we may ask what would it have been had we not had the rules? The Economist estimated that it would have been twice as much. Between November, 1972, and October, 1973, the prices of raw materials and fuel bought by manufacturing industry have risen by 39 per cent. But wholesale prices in the same period have risen by about 91 per cent. The raw material costs of the food industry rose by 33 per cent., but their output prices rose by 15 per cent. and the retail prices of foods mainly manufactured in the United Kingdom rose by just under 7 per cent. This suggests that manufacturers have absorbed cost increases to a significant extent. The Price Commission has estimated that on all goods and services it directly controls it had saved consumers well over £300 million at trade prices—not retail prices—when last it reported. These goods are estimated to cover only about one-third of the total consumer purchases. So these savings are of real value to the country in the fight against inflation.

LORD DIAMOND

My Lords, may I interrupt the noble Lord? This argument has been used many times from the Government Front Bench, and, unless the noble Lord is going to give some more explanation, I am bound to regard it as worthless. What one wants to know is what would have been the natural increase at the retail price, or at the wholesale price, having regard to the other items mentioned by the noble Lord? What would have been the increase having regard to the fact that an increase in materials of a certain percentage does not come out as an increase in the final price at the same percentage, but much reduced, by virtue of the fact that this is the way the constituent elements in the final prices are made up. It does not necessarily mean anything more than that in the ordinary course of events, where you have an increase in price of a certain figure coming into your costs you have a much reduced increase in price at the sale price. It means nothing more than that, without a complete justification and a breakdown of all the figures.

LORD DRUMALBYN

My Lords, I do not think that the noble Lord, Lord Diamond, quite understood what I said. The point is that what the Price Commission has said in its report is that it is related only to the first category companies, and they are reckoned to cover something of the order of one-third of the total. The point, therefore, is that if the savings in the first category manufacturers' products is £300 million, then obviously the total savings at trade prices —and I am not talking of retail prices—would be very much more if you took all the products into account. It is nothing to do with the trade price plus the retail price.

My Lords, between November, 1972, and October, 1973, the prices of raw materials and fuel bought by manufacturing industry have risen by 39 per cent., as I have said. While no Government in any developed country has been able to avoid the prodigious increase in world food prices and world commodity prices, which have risen by 69 per cent. and 94 per cent. respectively since January, 1972, we have been able to cushion their adverse effect on the consumer by keeping our own domestic costs under control. Nor has the policy been less effective in dealing with pay. During Stage 2 the Pay Board approved about 6,500 settlements covering almost 16 million workers. Many of the settlements included some redistributed elements in favour of the lower paid. The hourly wage rate index at the end of October was between 11½per cent. and 12 per cent. higher than in October of last year, showing a rise in real terms of nearly 2 per cent. Compare that with the equivalent price in the 12 months to the end of October last year which was between 17½ per cent. and 18 per cont., art increase which clearly the country could not afford.

Looking back, can anyone genuinely doubt that the Government were right last autumn, when faced with the dangerous spiral of increasing wages and prices, to introduce a statutory price and pay policy? Without it the rate of price increase now would be substantially higher. Without it, as the Consultative Document said, we should have piled inflation from domestic cost on to world price increases. We should not have been able to continue with the policy for higher sustainable growth. That would have been a disaster. It would have brought to a halt the recovery in industrial investment which we are now experiencing and upon which our future prosperity depends. Even more important, it would have delivered a crushing blow to the confidence in sustained expansion over the years ahead which industry has been showing, despite the sporadic shortages of labour and materials which are an inevitable transitional accompaniment of faster growth. As we reach full capacity the rate of growth has moderated as we expected.

The facts are that in the first half of this year manufacturing investment increased by 7 per cent. Industrial production is running at 10 per cent. higher than it was at this time last year. Productivity is 8½ per cent. higher and exports in the third quarter were running at 34 per cent. more than in the second half of last year. If we are to preserve these gains, if we are to reap the reward of progress that we have achieved so far, a continuing and effective counter-inflationary policy is essential. On this side of the House we should have preferred, as we have always preferred, that the policy should be a voluntary one. We did all we could to achieve such a policy. In our discussions during the summer with the T.U.C. and the C.B.I. all three parties were united in seeking the achievement of the common objective of a faster rate of economic growth, the protection and improvement of the position of the lower paid and pensioners and a moderation of price and cost inflation. But to our regret it was clear that there was not the same agreement on the means by which these objectives should be achieved. The Government therefore came to the view that in present circumstances the continuation of a statutory pay and prices policy was necessary.

I accept of course that a counter-inflation policy by itself is not enough. Indeed, the Chancellor of the Exchequer said so during the debate on the Address in another place. He said, it is reported in Hansard of November 5, at column 641: I have made clear that, in present circumstances, I do not belie-re that we could control inflation without a statutory pay and prices policy. But, equally we cannot hope to control inflation unless that statutory policy is matched by a resolute monetary policy. Both are essential, but neither by itself is sufficient. My Lords, since the debate the Government have taken further firm action on the monetary front by calling for an extra 2 per cent. on special deposits and by raising the minimum lending rate to 13 Per cent. As the Chancellor said yesterday in another place, the aim of the measure was two-fold: first, to slow down the growth of money and credit to rates compatible with the sustainable growth of the economy to which we remain committed and, secondly, to assist sterling. The monetary policy has to be operated flexibly, and in current circumstances high interest rates are appropriate both for domestic and also external reasons. But last week's measures must not be interpreted as an indication that we are abandoning our growth policy; far from it. Despite the rise in interest rates, I expect continued strong growth in investment. The company sector is very liquid, and has preferential access to bank credit. My right honourable friend the Chancellor expects firms to see that it is in their self-interest to increase the capital stock so as to secure the foundations for sustained expansion. There is strong confirmation of his view in the way the C.B.I. and industry have reacted generally to the Government's measures. The key to investment is confidence in the sustainable growth of the economy, and this is what our economic and counter-inflation policies are designed to achieve.

My Lords, as a result of the measures we introduced last November—measures which have undoubtedly served to sustain confidence over the past year—we are now in a position to make the transition to a rate of growth which will be sustainable in the long term. In these circumstances, it remains necessary to maintain an effective counter-inflation policy. It is to maintain that confidence that the Stage 3 controls have been designed. We needed to convince employees that the rules would be the same for everyone. That is the basic element of justice and fairness. We needed on the management side to give industry confidence in the continuation of our growth policy so as to secure the investment and exports necessary for our future prosperity. We needed to convince management, employees and the public at large, that our policy for containing inflation was both fair and firm. So we have retained the provisions that prices can only be increased to the extent that allowable costs rise, and that in calculating allowable costs a deduction for productivity from the cost of increases in labour costs has to be made. But, in the interests of investment, we have also added a safeguard to limit the reduction of profit margins as a result of these restrictions.

We agreed with the C.B.I. and T.U.C. on the need to promote both exports and investments. In the Stage 3 Code, we have therefore tried to meet industry's legitimate interests in maintaining a level of profit adequate to provide for investment, though without damaging our overriding objective of containing the rate of inflation. The Code seeks to balance the interests of industry with those of the consumer. Indeed, in the longer term those interests coincide: without increased industrial investment the consumer will ultimately be the poorer.

My Lords, for too long British industry has lagged behind its major competitors in both the quantity and quality of investment. If we were to depress profits excessively by undue tightening of the price and profit controls, industry would be unable to finance the additional investment needed to expand capacity and increase productive potential. So the Stage 3 Code includes several new provisions specifically designed to safeguard investment. The definition of allowable cost increases in paragraph 28 now includes depreciation. Paragraph 34 limits the reduction of profit margins due to the operation of the allowable cost régime and the productivity deduction. Paragraph 67 now allows the Price Commission to modify the profit control where a firm has been substantially reconstructed or has become more capital-intensive. As long as they are making less than 8 per cent. on capital or 1½ per cent. on turnover, firms are exempted altogether from the controls by paragraph 68. The general discretion in paragraph 70 to modify the controls in the interests of investment has been extended. We have also introduced an important new addition to the Code—paragraph 71–to assist capital intensive industries to reap the benefits of major investment made in the recent past.

These changes in the Code should help industry considerably to meet their investment requirements. They should enable industry to go ahead and invest, confident in the opportunities afforded by our growth policies, by membership of the European Economic Community and by the assistance available under the Industry Act. They should enable industry to go ahead and increase exports: the highly competitive position of sterling gives unprecedented opportunities to do so; and of course, the Code does not apply to export prices and sets no limit to increases in profits from exports.

These are valuable relaxations. But the Stage 3 Code also tightens the rules where they need to be tightened—for example, the rules about subdivision so as to make the profit margin control bite more effectively. We have also extended the notification requirement to Category 2 enterprises so as to bring nearly 600 manufacturing and service firms under closer scrutiny by the Price Commission. In Stage 2 only the 39 firms in Category 2, named in Schedule 1 of the first Notification Order had to pre-notify. Now over 600 undertakings in this category, in addition to the Category 1 firms will have to pre-notify the Price Comimssion of intended price increases so that the Commission may see whether they conform with the Code. If they do not conform, they can he rejected, modified or at any time rolled back by the Commission.

My Lords, as the guardian of the Code the Price Commission acted in Stage 2 with vigour, firmness and determination in difficult circumstances. Up to October 26 it had received 1,036 applications for price increases from Category I firms. Of these only 393 were approved in full and 211 were approved with abatement. The Commission has received over 31,000 complaints. The bulk of these related to the smaller firms—Category 3 and below. More than 1,100 spot checks have been made on these firms. The Commission has also made more than 700 detailed inspections of Category 3 firms up and down the country. Overall, it has achieved 633 voluntary price reductions from visits, and 61 from Category 3 inspections. Noble Lords will be glad to know that Commission inspectors found that most Category 3 firms were abiding by the Code. There is a special problem in the London, area, where the Commission staff are under considerable pressure because of complaints and inquiries. The Commission is now increasing its staff in the London area to conduct inspections.

My Lords, the Price Code also exercises a very real control over distributors' prices. The Price Commission have said that of the 179 distributive concerns which had reported in full by August 31, 126 were below their gross and net profit reference levels. Overall gross percentage profit margins were on average about 1 per cent. below and net profit margins 1 to 2 per cent. below reference levels. Many have kept their prices down in order not to exceed those levels. Several large stores, such as Littlewoods, Beatties, Safeways and Sainsburys have recently announced a whole array of price reductions. This shows that the profit controls are having an effect on the retailers. The longer the controls are maintained, the more manifest the effect is likely to be.

I am fully aware, as are the rest of the Government, that the major concern of the housewife and of all of us as consumers is with food prices. There is no easy answer in this area. Even the United States cannot isolate itself from the fluctuations of world demand and supply. The world demand for food and other produce of the land is rising as more and more people are demanding more and more of them, and world supplies are vulnerable to drought, floods, wars and so on.

The Price Commission has now been given the additional responsibility of keeping fresh food prices under continuous review and bringing to the attention of the Minister for Agriculture, Fisheries and Food any prices or areas where in its view action could or might be taken. This is a very considerable responsibility. The Price Commission's special food panel is now considering in consultation with the trade how best to discharge it. We have also taken steps to toughen the Code where costs to wholesalers and retailers rise substantially. A duty has now been laid on the Price Commission to act selectively on margins, where it thinks this is necessary, after consultation with the appropriate representatives of enterprises concerned.

My Lords, I now turn to pay. The Stage 3 Code maintains the essential fairness of the Stage 2 rules on pay, while providing greater flexibility for the remedying of anomalies and the improvement of efficiency. Perhaps I could summarise the provisions in this way. In the interests of fairness the Code provides for continuing help for the lower paid in four ways: by allowing the option of the cash limit of £2.25 which will give a better deal to lower-paid groups; by allowing negotiators to redistribute the total increase allowable for the group so as to give particular benefit to the lower-paid; by providing for continued progress towards equal pay outside the pay limit; and by continuing the Stage 2 provisions for improvements in hours and holidays up to a specified minima outside the pay limit. What is new is that it allows compensation of 40p per head per week if prices rise by more than 7 per cent. in Stage 3–the so-called threshold safeguard—and it provides on the basis of the Pay Board report for the remedying of anomalies arising from the standstill.

LORD HALE

My Lords, is it not a fact that under that section the very heavy increases in food prices announced for October operate against the worker because the computation of his 6 per cent. only starts from November? So it starts from an artificially higher figure and takes much longer to go up 6 per cent.

LORD DRUMALBYN

My Lords, this is not artificial. It is the operation of the calendar. Obviously, the October level has to be taken as the base level if you are working from November 7. In the interests of flexibility the Code allows negotiators to choose between a cash pay limit of £2.25 or 7 per cent. and to distribute it within the group as they decide; it extends the pay limit by a further 1 per cent. (the flexibility margin) where the settlement includes specified features designed to remedy anomalies or improve efficiency; it allows additional payments under new efficiency schemes provided they meet specified conditions; it allows premia for working unsocial hours to be brought up to a minimum level (20 per cent. on the appropriate basic rate).

These main features were set out in the Consultative Document. There have been only minor changes in the final version of the Code now before the House. But there are changes to which I should draw attention. First, I shall say something about the new provisions on profit-related systems of payment—not because they are necessarily the most important changes, but because they have attracted some public attention. In our view it would be quite wrong to seek to prevent the operation of profit-sharing schemes as they existed before the standstill. There are no recent figures, but a survey carried out by the Department of Employment some years ago showed that of nearly half a million employees who then benefited from schemes of this type all but a few thousand were in schemes which apply to all employees in the enterprise. We have no reason to believe the situation has altered since. But where more highly paid people are concerned, and at a time when business activity is increasing rapidly, such schemes, as we have seen, can result in some cases in very large increases in a single year. What we have therefore done is to impose a limit of £350 on the increase to any individual under such a scheme compared with what would be due if the profits or turnover were at the average level of the best two years out of the last five. This is a reasonable limitation which will not interfere with the normal operation of profit-sharing schemes as they affect staff at lower levels.

The other changes from the Consultative Document on Pay all exemplify the way in which we have, where possible, gone further in providing for flexibility within the control. For example, where the operative date of group's principal increase was deferred by the standstill, we have now provided that for the purpose of working out the permitted increase the average pay bill for the group over the previous twelve months may be calculated as if that increase had been paid from the normal operative date. As for progress towards equal pay, we have extended the Stage 2 provision to enable any scheme under which a one-third step was allowed outside the pay limit in Stage 2 to qualify for a further step outside the pay limit in Stage 3. Another change—small, but for some significant—is provision for the cost of living safeguard to be applied, if negotiators so wish, to all part-time workers on a pro-rata basis instead of only to those working 21 hours or more.

Let me say a word about the flexibility margin. This is not just an extra 1 per cent, for everybody: there are conditions attached which are set out in paragraph 139 of the Code. The conditions relate to changes in pay or grading structures designed to remedy anomalies or improve efficiency, improvements in holidays and the introduction or improvement of holiday pay or sick pay schemes. So if the main settlement includes a restructuring, then the limit for the settlement as a whole will be not 7 per cent., but 8 per cent. There is only one proviso. Any changes that are made in Stage 3–for example, a new incremental system—must not take a form which will lead to higher additional costs in subsequent years.

We attach particular importance to the new efficiency payments schemes. I should explain why we have made no change in the rules set out in the Consultative Document despite the representations we received from a number of quarters—representations that work in both ways. We think it is essential that payments under these schemes should be made only in respect of improvements in efficiency which have actually been demonstrated in practice. For this reason, every scheme must be notified to the Pay Board, and payments are subject to a three month trial period which is the minimum safeguard against abuse. As regards the 50 per cent. limit on additional increases, the overriding consideration is one of fairness. We recognise that in some circumstances substantial savings can be achieved. But if the workers concerned should get greatly increased benefits, would this not lead to intolerable tensions with other groups in the same undertaking or outside, who did not have the same opportunity? Limiting the additional earnings which can be derived from such schemes helps to contain these tensions and ensures that any extra savings contribute to cost reduction.

Then there is the problem of London allowances. There has been strong pressure, particularly from employers in the Greater London area, for special exception from the pay limit for undertakings which are short of manpower. We recognise that those working in London have to meet extra costs of housing and transport. So we have provided for increases outside the pay limit in London allowances based upon the formula devised by the former National Board for Prices and Incomes, and at the same time have asked the present Pay Board to report as soon as possible on any changes needed in that formula. But manpower shortages are by no means peculiar to London. As the growth of the economy takes up spare capacity we are bound to begin to feel the pressure of demand for labour at a number of points. Increases in pay are no answer to such general manpower shortages. If employers were to compete with each other by bidding up levels of pay the result would be both inflationary and self-defeating. Clearly these problems should be met by the more efficient use of existing resources through investment, through training and through improved methods of work including where appropriate the introduction of new efficiency schemes.

I would emphasise the flexibility and variety of the provisions that the revised Code offers to negotiators in Stage 3. We shall no doubt hear about special cases in the debate to-day. We may even be told that they would not have existed, or would have been remedied, but for the counter-inflation policy. But it is all too clear that many of these problems have been building up for years, despite free collective bargaining. They have certainly not been created by the limitations which the counter-inflation policy imposes. This policy in fact actively seeks to deal with special cases. Within the rules many of the low paid will find themselves able to secure higher settlements than ever before. Within the rules many of those who earlier in the year felt aggrieved that the standstill had broken tight links will find that their grievances can be remedied on the basis independently recommended by the Pay Board. Within the rules some unions have discovered that their members' pay can be substantially increased to reflect the unsocial character of their working hours. For all these people their settlements in Stage 3 will have more real value than before, because they have the assurance that everyone will be subject to the same rules. The increases they receive will not be whittled away as a result of inflationary settlements in other industries. And they can be safeguarded against the risk of a further fast rise in world prices by the cost of living safeguard arrangement.

Pay problems cannot be sorted out all at one go. Pay relativities raise problems whatever system of collective bargaining is in being. We hope that the report due from the Pay Board at the end of the year will help to carry the policy further, so that we may in the end emerge with a much more sensible framework within which to sort out pay problems in a manner which will help real earnings to grow faster without harmful consequences either for inflation or for industrial relations, or both.

I have dealt with Pay and Prices. May I say just a word on dividends. They are covered by a separate Order which came into effect on April 1 of this year and which, subject to minor amendment by a new Order effective from November 1, continues in force. It has been claimed that the counter-inflation controls bear harder on the wage-earner than on other sectors of the community. This is not so. The price code controls company profits; and in Stage 3, as in Stage 2, increases in dividend payments are limited to 5 per cent., which is significantly less than the permitted increase in pay. While Stage 3 allows a higher increase in pay than in Stage 2 there has been no corresponding relaxation of the dividend control—only some minor technical amendments.

My Lords, I have nearly done and I must apologise to your Lordships for keeping you so long. I have tried to confine myself to the need for this Order and to its contents. I have not dealt with the balance of payments and the effect of the steep increases in price and the disruption in the supply of oil, which affect many other countries besides ourselves. These matters were discussed in another place only yesterday. It has been suggested—and it may be in to-day's debate—that because of these developments the objectives of Stage 3 are no longer relevant. Nothing could be further from the truth. The fundamental objectives of economic policy—higher investment, higher growth remain the same. The oil situation may have made the containment of inflation more difficult, but it has also made it more important. There is no doubt that in the last few months we have been more successful in containing domestic inflation than most other developed countries. This is what the Price and Pay Code is designed to do—fairly, firmly, yet more flexibly. The Pay Board and the Price Commission deserve the gratitude of us all for the way in which they have carried out their onerous responsibilities.

I shall end simply by proclaiming my faith that if we persevere with our counter-inflation policy, and if we can have that confidence in ourselves and in each other which comes from being mindful of our duty and of the needs of others, we need have no fear for the future of our balance of payments and of our currency, for we shall win the respect of the world.

Moved, That the Counter Inflation (Price and Pay Code) (No. 2) Order 1973, be approved.—(Lord Drumalbyn.)

7.22 p.m.

LORD DIAMOND

My Lords, we are grateful to the noble Lord for having explained the purposes and some of the details of the Order in front of us; and, if I may say so, I entirely agree with him that this is not the hour of the night when your Lordships would wish to listen to a detailed exposition of all the provisions. Nor is it possible to engage the interest of your Lordships in an equally firm reply, rebutting all the details.

What it is possible to doubt is whether the hour of seven o'clock is the most appropriate hour for dealing with one of the most important Orders affecting the whole population and something which is integral to the whole of the Government policy, at a time when there is a State of Emergency and the highest interest rate ever and when we have just heard of the largest increase ever in the cost of living and the cost of food. As I say, it is possible to doubt whether this, in your Lordships' House, is the most suitable moment at which to discuss such a serious matter carefully, knowing that with an Order of this kind and of this length we have no opportunity for a second debate to deal with details as would be done during the Committee stage of a Bill, but that we have to encompass everything in our first thoughts. If I may say so without appearing to be naughty, I would hold a different view on this if I were sitting on the Government Bench rather than the Opposition Bench. If I were on the Government Bench I would submit gracefully, as the noble Lord has done, to an almost empty House and with the minimum of argument, one of the worst policies by one of the worst Governments in history.

The noble Lord said a certain amount about the general economic situation, with which I do not think there is time to deal, other than by a total controversion of everything that he said. Indeed, when the noble Lord got to the stage of saying that the current state of the pound resulted in what I think he called a most attractive competitive position, I began to wonder whether he would shortly tell us how delightfully free from any sense of guilt the Government were that they no longer had upon their shoulders the burden of a balance-of-payments surplus. If one can describe the present state of the pound and a devaluation of 20 per cent. in these glowing terms, it is no wonder that the Government have got all their policies wrong. But I do not think I have time to deal individually with the noble Lord's curious statements about the Government's economic policy. I wish to come straight to the Order which is in front of us and to deal with that in a very general way.

I should like to preface my remarks by repeating what I tried to say in a very short intervention earlier, to which the noble Lord replied that he thought I had not understood him. Of course the noble Lord may be right, but I should prefer to think that he has not understood me. Therefore I return to the topic by saying this. The noble Lord and all his colleagues have frequently commented that although one finds a large increase, for example, in the cost of imported materials—that is to say coming into a manufacturer's profit and loss account—one finds nevertheless that the sale price of the manufacturer, be it a wholesale or a retail price, is nothing like as high as the increase in the cost of material. He has never claimed the whole of that benefit as being attributable to the deflationary policy of the Government, the prices and incomes policy. Of course, he would not attempt to do so. It would be sheer nonsense and would show complete ignorance as to how prices are made up. I am saying to the noble Lord and to the Government that there is no validity whatsoever in their argument that this huge difference must indicate that some credit is due to the prices and incomes policy. It need not be so at all.

If one examined the figures carefully one might find that, but for the prices and incomes policy, the difference would have been even greater. It is just not possible to draw any conclusion of that kind. I hope I have made it clear to the Government. If they want to claim some credit for the difference in these figures, then they must go carefully into all the costs making up the sale price of the goods and demonstrate that certain individual items would have been more if it had not been for price control. They must try to demonstrate, for example, that the rents of uncontrolled premises, which are reflecting the vast profits made by speculators in property, would have been even higher had it not been for the Government's policy. They would have a little difficulty in that. Rents, as the Government know—factory rents and office rents—have gone up threefold and fourfold. There have been enormous increases, because the Government have refused to control the prices at which property changes hands as between people who know that they cannot get an adequate return on a property because they are shortly going to sell it at an even more enormous figure. There is no attempt to control this at all; so I would say to the Government—

LORD DRUMALBYN

My Lords, may I just interrupt the noble Lord? I do not think he is on the same point as I was. What I was quoting was the figure given in the Price Commission's Report for the period from June 1 to August 31, which he will find in section 3 of paragraph 5 of the Report. A calculation is shown there of what has been saved by their operation on prices of Category 1 manufacturers.

LORD DIAMOND

With respect, my Lords, that is not the case. That is one of the things the noble Lord quoted. I am not referring to that; I am referring to another reference that he made about direct material costs and the sale price, both at the wholesale and at the retail level. His colleagues keep on doing this ad nauseam and when it is being done ad nauseam sooner or later someone has to react and make it clear that this argument is meaningless without the breakdown of the figures and some demonstration that the Government's policy has achieved in individual categories some of the effects they claim.

I now come to the reason why, although we do not vote against this Order, having regard to the constitutional position, we oppose it fundamentally. The shortest way of dealing with this at this hour of the night is to say that we oppose it because it is unjust in conception and in application by the present Government. I would categorise it by saying that it is merely a device to enable the present Government to hold down wages to the point of depressing the standard of living of some wage-earners, while favouring the wealthiest section of the community. That is what it is all about and, with your Lordships' permission, I propose to give fact and figure to justify it.

The first hurdle a Government must overcome in adopting a policy of this kind is to demonstrate that there is some reason for wage restriction at all. They have never done so; they have never given us the figures of the comparative increase in the cost per unit of manufacture in this country as compared with our competitors. If we were going completely out of line with our competitors as a result of wage increases, it would be necessary for the Government to say, "Wages are getting out of line and must be restrained". But they have not attempted that argument because they could not prove it. We are fortunate that figures have now come out, and I give the figures of the European Commission Quarterly Economic Survey of May of this year. They show, as one would expect, in terms of the increased cost per unit of gross value added in industry, that we are broadly in line with our immediate competitors. Two of the European Community nations, Germany and Italy, have had greater percentage increases than we have. I will give the detailed percentages if they are needed. Two nations, Benelux and France, have had lower percentage increases; two have had greater, two have had lower and we are in the middle.

There is no justification in those figures for saying that in this country the increased cost per unit of manufacture, as a result of wage rises, has put us out of line with our competitors. The Government have no justification for adopting a policy of wage restraint on those grounds. The figures I have given are figures without making any adjustment for the variation in parities. If you make allowance for that the argument is immensely strengthened. Nevertheless, the Government have been pursuing this policy of wage restraint, although they realise as well as we all do that less wages for the employee means more profit for the employer. And that is exactly what I propose to examine, as shortly as I can, with the indulgence of your Lordships.

First let us look at profits, and as to that may I give your Lordships some recent examples? I have a long list, but I shall quote only six recent announcements of profits: British Home Stores, up 33 per cent, at £12 million; Ferranti, up 39 per cent., at £5 million; Thorn Electric, up 43 per cent Boots, up 54 per cent., at £61 million; General Electric, up 55 per cent., at £120 million; Pilkington, up 85 per cent., at 34 million. I have given the percentages; I have given the absolute sums to indicate the size of the profits, the many millions of pounds which are represented by these increases. Those are some examples of profits in fact made and distributed; those are the dividends.

As to the profits which are not distributed, of course we heard what the noble Lord had to say about the continuing dividend restraint. He might have helped us by going further and making it clear that, as we all realise, whether or not a profit is distributed, if it is made it inures for the benefit of the shareholder. Everyone in this House knows that what matters regarding the value to the shareholder is what is called the P/E ratio, the price/earnings ratio. It does not matter what is distributed; it matters what is earned, the price related to earnings. Whether or not the earnings are distributed, once they are made they go to the benefit of the shareholders, either in increased values immediately or in dividends later on. Fortunately or unfortunately, every wage-earner knows that very well, too. As anticipated, we have now found that the profit per unit of output has been growing faster than wages per unit of output. I repeat, so far as profits are concerned, very high profits have been made. Where they have been distributed I have given some of the figures; where they have not been distributed they have inured for the benefit of the shareholder. We have reached a situation where the profit per unit of output is growing faster than wages per unit of output. Next let me turn to wages—

LORD DRUMALBYN

My Lords, I am sorry to interrupt the noble Lord, but he made a statement that he did not support with any facts. He has not been dealing with profits per unit of output.

LORD DIAMOND

My Lords, perhaps the best thing for me to do is to say that I will gladly send the noble Lord all the calculations that he wants; I do not think it is appropriate to delay the House at this hour. I repeat, and take the responsibility for what I am saying, that the profit per unit of output —this is a very clear statement—is growing faster than the increase in wages per unit of output. This is one of the elements in our criticism and in our declaration that the Government's policy is unfair and unjust. It is a policy for restraining wages and benefits the wealthier portion of the community. I have many more similarly unwelcome facts to give to the noble Lord.

The noble Lord told us how much benefit there would be to the wage-earner. Let us examine that. The shortest way to illustrate this is to take the case of an average family man with two childen on average earnings of £40 a week. If he is to maintain his real income (that is to say, after taking into account deductions for taxation and national insurance, and after taking into account price increases) and to receive the benefit of the 3½ per cent. real increase which the Government forecast in production—and he plays his part in achieving it and is entitled to it—he would need a pay increase of 13½, per cent. He is not going to get that; the Government's estimate is 11 per cent. If he gets the 11 per cent. as forecast by the Government, assuming, as I say, that he has two young children, he will receive a real increase of 1.7 per cent. I give the noble Lord the precise figure, which is less than half the 3½1, per cent. increase in productivity to which the man is entitled. That is the case of the average man. The Government may say, "Yes, so far as the average man is concerned that may be so; but it is our policy to help the lower paid". The noble Lord referred to this again this afternoon.

Let us take the figures for the lower paid by taking a figure of £25 per week, being approximately one-third off the average wage, and calling that the lower paid one. One can take any figure that the House requires. In this case it is easier. If he has more than one child, a man with a wage of £25 a week will suffer a net fall in his real income. If he has two, three, four or more children he will suffer a net fall. If he has one child he will not suffer a fall and he will not gain a benefit as a result of the application of the code. So much for the Government's claim to benefit the lower paid. If, on the other hand, he has been very highly paid, he may, as the noble Lord knows, escape restraint completely. It is not the practice in your Lordships' House. very properly, to refer precisely to the names and the companies, but your Lordships must be aware of a very large company indeed where a certain official was entitled to receive, but refused to accept, an increase of 37 per cent. in commission amounting to nearly £18,000. The individual in question very wisely refused to draw what he was entitled to. That does not affect the fact that the Government's code made it possible for an increase like that to be available to such a person. So much, then, for wages.

I have dealt with profits and with wages: I now turn to prices. So far as prices are concerned, I do not think I can do better than refresh your Lordships' memory regarding some of the prices referred to by the noble Earl, Lord Ferrers, as recently as October 24. These figures were circulated in a statement and your Lordships may not have had time to look at them in detail. The essence of these figures is that between June 16, 1970, and mid-September, 1973–and one recollects that prices have gone up very substantially since then—one finds this sort of percentage change in some of the ordinary household items: beef 79 per cent., lamb 77 per cent., pork 58 per cent., bacon 83 per cent., ham 44 per cent., eggs 99 per cent. I need not bother noble Lords with any more because any Members of your Lordships' House who go shopping will be well aware of these phenomenal, astronomical increases. Those are the increases in prices, and those noble Lords who wish may refer to column 626 of the OFFICIAL REPORT of October 24, where they will see a long list. But I must be fair to the Government—onions went down by 2 per cent. So much for what has been happening about prices.

There is one other item which I must mention and that is mortgages. Your Lordships may wonder why I am dealing separately with mortgages. The simple answer is that mortgages are excluded from the cost of living index—not every one of your Lordships may be fully aware of this. Mortgage repayments have gone up by 40 per cent. since Phase 1 started, but that is not shown anywhere in the cost of living index which forms part of the threshold agreements or anything of that kind. The Government go on the curious philosophy that these increased payments are not regarded as coming out of income at all; they must, somehow or other, come out of capital. Your Lordships can imagine how much capital the average home buyer has who goes to a building society in order to borrow for the purchase of a house because he has not got any capital—an idiotic situation which the Government ignore. An enormous burden is put on the shoulders of many home owners and it is typical of the way in which Government statistics understate the real problem.

My Lords, I have attempted to say why we regard this policy as wholly unjust. I have given facts and figures in regard to wages, profits, prices and mortgages. And now, if anything further were needed, I finish with a short reference to the overall effect of the Government's policy. I tried to get information indicating what was likely to happen in terms of equity by asking for the figures relating to the Gini coefficient, not because one wants to bore the House with that kind of expertise but because one wants to know in advance whether the Government are taking seriously their social responsibility as between different categories of the community. As your Lordships may know, I tried very hard indeed to get the figures; the Government tried very hard indeed not to give them to me, and, let me be quite frank, the Government won hands down. The only thing I got was a long rigmarole from the noble Lord who normally sits on the Woolsack, the only part of which I fully understood and agreed with was that all this was quite beyond his ken.

Sooner or later, although a Government may refuse to give you significant information about the trends, about the likely results of Government policy, you find out the figures which show the result of the Government's policy; and the best way of finding this out in terms of justice and fairness (which is what I am concentrating on this evening) is the family expenditure survey. The latest figures show concern that the income of the poorest 30 per cent. dropped sharply as a result of Government policy, including Phase 1 and part of Phase 2 in the first two years, while the income of the richest 10 per cent. rose. May I repeat that? The income of the poorest 30 per cent. dropped sharply, while the income of the richest 10 per cent. rose. That is as a result of Government policy, and that, may I remind your Lordships, was breaking a trend which had existed for the whole of the last decade. That is the injustice of which we are complaining, and that is the policy of the Government which is evident in this Order.

7.48 p.m.

BARONESS SPEAR

My Lords, the hour is already late as everybody has said, and I am sure the last thing your Lordships want is a long speech from these Benches. However. I would like to begin by saying that the last thing we would claim to be able to do is to produce a solution for inflation, because we know perfectly well that there is not such a thing as a solution for inflation. We know that its causes are many, and we know that if it is going to be, at least, contained, if not cured, there will have to be a multi-Party approach and it will have to be attacked in a number of different ways. We do not know what the cure is for general inflation or for wage inflation. We do not go along with the noble Lord, Lord Diamond, in saying that wages have nothing to do with inflation. We do, however, want to underline the fact that the Government's monetary policy has a very great deal to do with inflation, and to the extent to which new money has been pushed out into the economy their policy has undoubtedly contributed in a very large share to the inflationary pressures from which we are all suffering.

However, in the short speech which I wish to make to-night I would confine myself to the aspects of wage inflation and to that part of the Regulations which deals with pay, because in the present circumstances we do go along with the need for statutory control over both pay and prices. Unlike the noble Lord, Lord Diamond, we find it impossible to believe that, although there are other elements undoubtedly leading to inflation, the increase in pay has not been and does not remain, if not subject to some sort of restraint, an important element in the pushing up of prices.

I listened with the greatest care to the noble Lord, Lord Diamond, and found it difficult to conclude what he thought was the cause of the undoubted rise in prices from which we have all suffered. He admitted that the price of imports had undoubtedly gone up. But one was left with the impression that, otherwise, price increases were due entirely to an increase in profits and were to be attributed in no way whatsoever to any other element in the economy. That, in short, is something I simply cannot swallow and which we on these Benches cannot swallow.

LORD DIAMOND

My Lords, I very much hope that the noble Baroness will never swallow it. It is something I do not believe myself and have never said.

BARONESS SEEAR

My Lords, I must have been half asleep; but that is the impression I certainly got, and which I think a good many Members in your Lordships' House got: that pay had not contributed in any significant way to the increase in prices. The noble Lord, Lord Diamond, gave us a great many facts and figures. Of course, we can all select facts and figures. I am not going to make the Government's answer to the noble Lord, Lord Diamond, for them. I do not suppose the answer I would give would be the same as the answer that noble Lords on the opposite Bench would give. But I would point out what happened even under the Stage 2 arrangements—and one admits we had to have them, although one does so rather sadly because I, for my part, do not like these statutory controls over either pay or prices. Even under Stage 2, which was for a short enough period, between April and September of this year, judging from the figures quoted in The Times this morning the index figure for wage rates has risen from 112 to 120, and the figure for earnings from 146 to 156, plus or minus a decimal point or two. That is in a mere period of months. That cannot be taking place without some very substantial increases going on on the pay front. It is an increase of a tune which undoubtedly needs some degree of control.

So reluctantly one accepts that there has to be a Stage 3–but I would underline "reluctantly". I am afraid that there is a good deal in the Stage 3 requirements for pay which is, if not unacceptable in the circumstances, accepted by us with the very greatest reluctance. It is to the nature of the whole exercise that we inevitably have great reservations. In the attempt to introduce flexibility—and I know that the Government were urged to introduce flexibility—the new Code includes so many possible loopholes, reservations and exceptions that inevitably two things are happening. I do not go along with the commentator who says that with the new Code we are going to sea in a sieve, but I think we are going to sea in a pretty leaky boat and that the more flexibility there is, the greater opportunity there is for worming your way through, writhing your way through, the loopholes which flexibility inevitably provides. This difficulty is inherent in the whole business of attempting to control pay statutorily, unless we are going to have some kind of total and rigid freeze on pay, which can obviously be done for only a very short period of time. So I think it is liable to a considerable amount of manœuvring and evasion.

On the other hand, this control is also undoubtedly already causing, and will continue to cause, an enormous volume of unproductive work. A considerable number of people already are compiling vast dossiers, filling in enormous forms and collecting a tremendous amount of data, in order to be able to establish a case for a price increase or for an exception on the pay front, or whatever it may be. The more that "flexibility" is built into the situation, the more people are spending their time trying to find legitimate ways of getting through it, and this is a diversion of energy and ability which we can ill afford.

The second reason why one is unhappy about this whole process is perhaps an even more fundamental one. This is that the whole policy of the Pay Board with this detailed regulation—flexibility for efficiency, 1 per cent.; flexibility for unsocial hours, and all the other conditions that have been built into the new Code—is, as I see it (and I know this is a matter of fundamental ideas as to how pay ought to be dealt with), an interference, and a serious interference, with the proper business of pay negotiations. I believe that basically the settlement of pay is a matter for collective bargaining, a matter for the two sides of industry through the negotiating process, and that it is only the two sides of industry who can settle the kind of problems which arise again and again in dealing with internal details in the application of pay.

Let us take the example of the efficiency clauses. I very much sympathise with the critics who are saying that by the time the two sides of industry, or the two sides of a company, have gone through the business of working out a new productivity deal in the interests of efficiency—and have put all this down on paper and submitted it to the Pay Board, who then have to look at it, who go into the "for" and "against"—time has moved on and the situation has changed in some respects from what was put forward in those preceding months, which may no longer he strictly relevant to the situation they now find themselves in. This is not the kind of matter that is best dealt with by a central body. This is part of the business of industry in settling its own affairs. It may be necessary as a temporary measure, but it is moving the decision away from the place where it ought to be taken. It is part and parcel of the business of running an industry. It is the business of the unions and the business of the employers to settle this kind of matter rather than to transfer it to a central body.

Then a third point, of which not very much has been made, but to which I think I should draw your Lordships' attention, is the enormous amount of power that is being put into the hands of the Pay Board. This is part of the bureaucracy, and an inevitable part for the time being. The Pay Board—a group of able, intelligent, conscientious people, but still a group of officials—are going to make decisions which affect the running of industry and affect the pay packets of ordinary men and women, and affect the profits, the power to invest and the power to make dividends, of a very large number of people. It is an enormous amount of power to give to a group of people administering regulations, which is not just a matter of determining facts but a matter of making judgments. And there is no appeal from their decision. This is a very great deal of power to give to a new Government agency, with very little check on them at the end of the day to see that in fact their decisions are rightly made. For this reason alone, I would have considerable reservations about the Pay Board.

However, unlike the noble Lord, Lord Diamond, we would agree, reluctantly, that for the time being we must accept it. May I say that I think its acceptability to the public could he improved if the Government would do at least two things—there are many more which it would be desirable for them to do, but these two things would meet some of the feeling of injustice and neglect of groups in serious need. That is a feeling which is undoubtedly real at the present time. One of them has already been referred to by the noble Lord, Lord Diamond, in a different way. It is to do something about the enormous amount of money being made in the property market. This causes an exacerbation of people's feelings about controls which is out of all proportion to any benefit that it can conceivably have. There may be difficulties in doing this in the short run, but at least the Government could look again at site value taxation, which would be some contribution to bringing back to the community the benefits which are at present going to the property dealers.

The second way in which some relief could be given—a long overdue change, in my view—would not be, as many people allege, general subsidisation of particular foods, subsidisation which would benefit all groups of people, rich or poor alike, but a change which sooner or later the Government will surely have to accept, namely, the introduction of family allowance for the first child. There is no doubt at all that with the present rises in prices it is the family groups which are worst hit and who suffer most, and surely if we want to give relief where relief is most needed, the bringing in of an allowance for the first child would do more than any other single action that the Government could take to relieve need where it is most acute. I think this is more important than dealing with the problem of the low paid, important though that is, because the low paid include a number of people who have very little in the way of family responsibilities, whereas if you make some additional contribution to the family groups you are going straight to the people who, by all the studies that have ever been made, are clearly those who feel it most when prices rise.

But while reluctantly accepting the need for Stage 3, it seems to me that the most important question to which we should be directing our attention at the present time is not so much how to modify Stage 3 as it stands but to take steps to answer the question, "Where do we go from here?" Are we to have a Stage 4 are we going on like that; and if not, where do we go and how do we prepare to get there? It seems to me that there are only two possible places to which we could go from where we now are. It may be that we wish we were not where we now are, but we cannot do anything about that. However, we can do something about where we go from here. As I see it, there are only two routes that we could follow: one is to move over to something like a national job evaluation scheme, and there are murmurs coming from a number of quarters—some of them rather surprising quarters—that that is where we ought to be going. When I hear people from the Pay Board speaking about adjusting differentials, not only within groups but between groups, that is another way of saying that we should be moving towards a national job evaluation scheme. Either we go in that direction or we must go back to some form of voluntary collective bargaining, but it will have to be voluntary collective bargaining with a difference from what voluntary collective bargaining has been in the past.

I do not believe that the national job evaluation goal is the right one to pursue. Job evaluation can work reasonably well at the level of the plant. It works reasonably well at the level of the plant because the decisions are made close to the people who are affected by them, and because the people who are affected by them can get at the people who make the decisions, discuss them, argue, raise discrepancies and bring out injustices and inequalities and they can be dealt with at that level. It is not a scientific system. There is in fact a great deal of bargaining inherent in job evaluation even at the level of the plant, and at the level of the plant, as anybody who has worked at it knows, the whole thing needs to be revised at least once in three years because the situation changes. If this is true of job evaluation at the level of the plant, what is likely to happen if we attempt national job evaluation? It is remote and the people affected by it will have no control over it whatsoever, and what we shall be doing is simply to have high level national negotiation with the Pay Board or the Government or whoever attempts to handle it, because this is what it is all about, and continuous argument and recrimination as to how the scheme has been worked out and how it is to be applied. Anybody who does not come in the place in the pecking order in which he thinks he ought to come will have a grievance and will start fighting about it. I do not believe that there is any solution or any peace along that line.

If that is true, where do we go, except back towards collective bargaining? It seems to me that all sides in this House could accept that this is what we have to do and that we need to prepare the ground to do it. We need to accept that it will be a somewhat different kind of free collective bargaining from what we have had in the past. As I see it, it is the job of industry to settle the details of pay and the levels of pay between the unions and the employers, but the Government must protect the public interest against excessive rises in pay and against inflation. So the Government must be able to retain ultimate control, but I am convinced that it is not the business of Government to become involved in the details. The Government should not be arguing about the minutiae of pay with the unions or the employers; that is their business. Can we not get an acceptance that in the end the Government must of course govern, and that that includes controlling inflation?

The Government can therefore declare a maximum figure above which, if pay rises are sought, it is going to take action, hut, having said that, to leave it to the two sides to get on with it. In getting on with it, I would suggest that the first thing we need in the new style of voluntary negotiation is terminal agreements for a period of probably two years. Those agreements should be based on two elements: the element of the share of the increased genuine wealth and an element of the cost of living increase. So it is along the lines that the Government have suggested in the Pay Code. But this should be built in for some years to come, at any rate, to reassure people, when they are negotiating on a voluntary basis, that there will be a return to them if prices rise about a certain level. It is up to the partners in industry to monitor any additional plant agreement which is made over and above that, and to see that such agreements keep within the pay levels laid down.

I am not speaking about minima and I am not speaking about norms coming from the Government. I am speaking about realistic maxima which it would be dangerous for the negotiators to exceed and then to let industry get on with it again; but if there are runaway situations then the Government really have to act. They could act in two ways: they could simply prolong the period of the agreement and forbid the making of a new agreement until a period of months had elapsed in those industries which have exceeded the maximum. Because, after all, if you do not get a new agreement this is a way of holding down the inflationary effect. If that will not work then I think the proposal which has been put forward in a number of quarters—and it has been put forward by the Liberal Party—should be looked at. It is the proposal that where there are excesses above the maximum which is the highest figure that can possibly be tolerated there should be a surcharge through the social security payments and through corporation tax, both on the employers who have paid in excess of the figure and on the employees who have received it. This is often referred to as the Hungarian system. It is pretty draconic, but at least it does not involve detailed interference and it makes it possible, within that framework of control for the national interest, for voluntary collective bargaining to go on.

If we are going to get back to voluntary collective bargaining we must prepare the way, and we must get acceptance up and down the country of the need for some reasonable restraint. I am bound to say that speeches such as that made by the noble Lord, Lord Diamond, do not encourage me to think that this is going to be a very easy thing to do. I think he said that I misunderstood him, but the suggestion that there is little need for restraint over pay does not seem to me to be the way to get back to free collective bargaining, which, as I see it, is the only way for us to go. However, people need a great deal more absolute information. There was a throw-away line in the speech made by the Prime Minister in another place in the debate in October in which he said that if you took a fifth of all incomes over £5,000 per annum this would give another £400 million. That is £16 per head per wage earlier in this country, which would he regarded as chicken feed.

There is a deeply built-in belief that there is a great deal of money in some quarters and all that is needed is a policy of redistribution. There are abuses, such as in the property area, but by and large there is not much left in the policy of redistribution for giving people the standards they want. At least one leading economist said that if you took all distributable profits before tax and put them into a pool for pay, you would get a once and for all 15 per cent. increase and that would be the end of it. All additional increases would have to come out of extra real wealth produced. It is that sort of information that people need to have if we are to trust voluntary collective bargaining again, but the Government have singularly failed to put over to people the real facts about the economy. Why is this? I ask them why they find it so difficult to make it clear that the money simply is not there to be distributed at the present time. If one group of wage earners gets more, it is at the expense, not of the profit takers, but of other groups of wage earners. I believe this to be the case, but this is not made clear and is not accepted.

If we are to have the sense of restraint which must go with a collective bargaining system, people must be made aware of this. There should be much more information, and a much greater degree of understanding ought to be available in the country as a whole. I believe that we shall probably have to leave more room through collective bargaining for the market to operate, one may say, in the fixing of pay. This leads to differences between people doing the same job in different sectors, but that is the way the economy is, and I believe that is the way it has to be.

Your Lordships may feel that what I am saying makes no reference to the need for fairness. It is the desire for fairness which presses so many to urge some kind of national job-evaluation scheme. This concept is more complicated than the people who bandy the wording around are prepared to admit. I do not believe, with certain safeguards that one could introduce over the low paid which would help here and there, that one is going to deal with the problem of inequity through control of the pay system. One has to deal with that through the tax system. It is difficult to iron out the differences between one group and another by attempting to hold down the wages of one group, and push up artificially the wages of another group, although something may be done about raising the wages of the lowest group. But the Government have introduced the idea of the tax credit scheme. This is a far more sensitive instrument for dealing with the inequities in society than trying to manipulate the pay structure. By so doing it is possible to do a great deal of economic damage. Cannot the Government speed up the introduction of the tax credit scheme? Can they not put it on a more equitable basis than they have suggested so far, and get over the idea to people that this is the way in which we are going to look after the equity of the problem, the justice between different groups, and not doing such a thing by tampering with the pay system in a way which economically is disadvantageous at the end of the day to most groups in our society.

8.14 p.m.

VISCOUNT AMORY

My Lords, may I start with something of a protest, that a debate on a subject of this importance should have started at such a late hour? On that account, my first intention was to curtail drastically the remarks I was going to make, and to confine my remarks to the contents of this Order alone. But as be seen from the speeches that have been made already, it is really not feasible to consider the contents of this Order in complete isolation. One thing the noble Lord, Lord Diamond, said struck a chord with me. He said that the price of onions had gone down. In the course of my bachelor shopping yesterday, I acquired two onions and can confirm the truth of what the noble Lord has said.

My Lords, if most of what I want to say goes rather wider than the actual terms of the Order, it is to make one point, which is that this policy of Phase 3 is only one of the instruments required to defeat inflation. It cannot be effective by itself or in isolation from other appropriate measures. It is not an alternative, but one of a series of measures which only combination can be effective. We are living in days when the whole world economy is going through a turbulent phase when changes come dramatically and are cataclysmic in scale. One example, which is surprising to a layman like myself, is to find Japan, so often held before us as an example of economic progress, currently in a record deficit on payments. There can surely be few people who can now doubt the necessity of a prices and incomes policy with statutory backing.

I agreed with the noble Baroness, Lady Seear, when she said that it seemed inescapable that the Government of the day should decide how much of the national resources in any one year in the aggregate could he devoted to wages and salaries, and the nearer the Government's role could be kept to that, the better. That is what I understood the noble Baroness to say, and I agree with that. But it is rather like the Irishman who, when a motorist asked him the way to Roscommon said, "If it is to Roscommon I would be going, it would not be from here that I would be starting." We have to start from the position that we are in at the present time. It is difficult to say at this stage what will follow Phase 3. Phase 3 seems the most important and the most difficult of the chapters which have opened so far in this programme, most important because if it fails we shall be back again in square 1 with inflation running strongly; and it is most difficult because it must have three characteristics at least. First of all, it must be flexible. Secondly, it must be seen to be as fair as it can be made, and thirdly, it must be effective as an anti-inflationary policy.

Such criticisms as I want to make I shall make as briefly as I can. I find that they are sprinkled over employers, trade unions, the Government and the Opposition with undiscriminating impartiality. If I may again take an Irish analogy, there was the Irish judge who said he was going to steer a careful course between partiality, on the one hand, and impartiality, on the other. If I may deal with the Opposition first, noble Lords are always accusing the Government of being divisive. Maybe few of your Lordships are more consensus-minded than I am, but I have long noted in Parliamentary life that when the Government of the day propose something unpleasant they are accused of being divisive. Going back to the eve of the last war, I recall that this happened when the Government of the day proposed conscription. Nothing seems more certain than the Government's wish to unite the nation, but to unite it not for inaction or inertia but for whatever action is called for in the national interest. In our debate on the Emergency Regulations the other day, some noble Lords opposite were inclined to blame the Government for action which they considered premature. As I listened, I wondered what indignation would have been vented had the Government acted too late.

In passing, may I say two things with reference to employers? First, I do not believe that employers in general are yet giving employees enough information about matters of close concern to them. There are many employers who do. Secondly, personally I am becoming increasingly disenchanted with these huge-scale mergers and take-overs, which sometimes are little more than financial manipulations that bring little real benefit in increased efficiency to the businesses concerned. In passing, I would say that I think a closer examination of them is required in the national interest. The bone I really have to pick with employers is that while in Phase 2 the larger employers seem in general to have adhered pretty well to the rules, I am afraid there is a good deal of evidence that very many small concerns have not. To obtain the manpower they wanted they have disregarded Phase 2 rules; and that, if true, is I suppose an illustration of the difficulty of monitoring and policing these regulations. That again may prove just as difficult in Phase 3.

As regards the trade unions, I hope that I have never been guilty of intemperate criticisms of the trade unions. They have a clear duty to do their best for the long-term interests of their members. My current criticism, therefore, is not about their basic aims but what seems to me the strangely narrow and shortsighted vision with which some of them are seeking those aims. if they recognise, as I feel sure they must do, that beating inflation is as much in the interests of their members as of other sectors of the community, it cannot surely be reasonable on their part to demand that everybody and everything should be subject to control except the settlement of wages, the biggest single component in our national costs. They do not seem to me to recognise that if inflationary pressures are to be moderated, wage settlements under which some are to have more than the average must mean that some others have less than the average. Any increases over the average will have to be at the expense of some other wage-earners, if we are not going to exceed the aggregate that is available for increases in wages and salaries.

There is one other thing about the trade unions that I feel bound to say. I have said it before, and I must say it again. I really do feel that the immoderate criticism of the Industrial Relations Act on the part of most trade union leaders, which I doubt is shared by the majority of those on the shop floor, seems to me to bear no relation whatever either to the actual contents of the Act or to the actual or potential effects of it.

Now I come to the Government. It was right of the present Government, I think, to set out with a twin policy of beating inflation and resuming a sustainable rate of expansion. Whether it is feasible that these two objects should be pursued simultaneously is something on which we cannot yet be sure. I hope it will indeed prove to be possible. Anyway, the attempt I think was one that it was right to make, and it has been made with vigour. Where I think, with hindsight, the Government have been mistaken is in the priorities between those two aims when the measures required for the attainment of each have, temporarily at any rate, conflicted. There are, after all, I suppose, three main instruments of economic control available to us; fiscal measures, monetary measures and the control of prices and incomes. While I am sure the third, prices and incomes controls, are urgently necessary and should make an effective contribution, they can do so only if they are adequately supported by the other two. I fear that the deficit in this year's Budget was surely inflationary. Let us hope that the buoyancy of the yield of taxation may go some way, and perhaps a substantial way, to reduce that deficit at the year's end. If that happens, it will be wholly good.

The Government, in their understandable anxiety to get unemployment down and expansion going, have allowed the money supply over the past two years to increase much too fast. The rate of increase that has taken place has, I believe, aggravated the rate of inflation. I am not one of those who believe that inflation can be realistically controlled by restriction of the money supply alone, but that is one of the instruments that must not be neglected. It seems to me that we have now reached a point where interest rates alone are no longer effective, if people think that inflation is going to continue. That knob has now been turned about as far as it can go, and from now onwards, in my view, the Government will have to rely more, in this matter of controlling the credit base, on such devices as special deposits, the control of hire-purchase and the relation of taxation to public expenditure.

I will say one word about the balance of payments. I will be as brief as I can. With the higher prices for oil, and probably a continuing increase in prices for many other commodities, the short-term outlook is obviously grim. There is one mistake we must not make. While the floating rate is sensible in present circumstances, I am sure it is a blunder to think, as some people seem to do, that by some magic a floating rate can save us from some of the consequences of an adverse imbalance. If our currency floats downwards the economic consequences are precisely the same as if it did the same thing with a fixed rate, though it may do it more conveniently. The lower it floats down, the harsher the terms of internal disinflation must be. So do not let us delude ourselves that we can solve anything by letting the exchange rate take the shock for very long.

To get our perspective right, however, let us remember that in the past 12 months import prices have risen unprecedently— by over 30 per cent. I believe; and for commodities by 60 per cent. I am never sure that my memory is good enough now for statistics, but I think those figures are right. The terms of trade have deteriorated 16 per cent. in the year. We may have been abnormally lucky with the terms of trade over the past 20 years. I think this 16 per cent. is more than they have deteriorated over the past 20 or 24 years. But, as I say, I think we were abnormally lucky before. If that had not happened, then I think it would be true to say that our current payments would be just about in balance to-day, and the current rate of inflation much moderated. Many in the Party of noble Lords opposite have accused the Government of seeking an alibi in the rises in import prices. But it is not an alibi; it is a statement of inescapable economic fact.

Now I come to Phase 3, and the actual provisions of this Order. The first question one asks is: is this Phase 3 being built on the foundation of a successful Phase 2? Surely the evidence is that, though some of the effects of Phase 2 have been neutralised by these import prices, without the restraints imposed by Phase 2 the rate of internal inflation would have been substantially, and perhaps disastrously, worse. The cost of living has risen by about 10 per cent. The rise in earnings has outstripped that 10 per cent., leaving a small increase in the average standard of living in real terms. Unemployment has come down steadily, and unfilled vacancies have increased to a figure that seems to show that our productive manpower is now tightly stretched, and all the evidence of staff shortages certainly confirms that fact. That raises the question, of course, can room now be found for the increased volume of exports that we so seriously need and must have? I would hazard a guess that there will not be room unless some action is taken. It is against that sort of background that the proposals of Phase 3 have to operate.

My Lords, there can be few fair-minded people who will not recognise that the Government have leant over backwards to try to be fair to those least well off. The provisions to meet anomalies and those for unsocial conditions are examples. Genuine attempts have been made, too, to introduce more flexibility. I realise, as the noble Baroness, Lady Seear, has mentioned, that that has dangers in itself. I believe that is essential, if Phase 3, as I would expect, is either to last quite a long time or to be followed in due course by a Phase 4. Lack of flexibility, if a phase like this were to go on for very long, might prove the Achilles heel, because on the wages side rigid rules tend to freeze existing differentials—a fatal weakness in the long run. On the prices side, rigidity again discourages change, innovation, efficiency and enterprise.

The noble Lord, Lord Diamond, seemed to think that current profits were too high in the aggregate. I wonder whether that is so. I want to say only two things on profits. The first is that it is generally accepted that a healthy level of industrial investment cannot be reconciled with inadequate profit levels for efficient businesses, particularly in times of continuing inflation. Indeed, I think that our traditional orthodox arithmetical computation of profits is increasingly misleading; and the sooner our talented accountants, such as the noble Lord, Lord Diamond, get down to devising an acceptable system of inflation accounting, the better. I am sure that we would give the noble Lord leave of absence for a reasonable time in order that he should apply his great mind to that problem. I agree with what my noble friend Lord Orr-Ewing said on that subject in the recent debate.

LORD DIAMOND

My Lords, I am grateful to the noble Viscount for his invitation which, after careful consideration, I do not think I can accept. The awkward part about his argument about profits being needed for investment—which I entirely accept and have freely stated many times—is that the profits I gave were an example of the profits made, and comparing that second quarter with the same quarter in the previous year the rate of investment is almost identical: it has neither gone up nor down. The profits which are needed for investment have been made but have not been used for investment.

VISCOUNT AMORY

My Lords, there is a great deal that one could say on that subject, and I know how difficult it is to generalise about profits. That emphasises the importance of the Price Commission here, who will have a considerable say in at any rate future profits.

One other thing that I should like to say about profits is that I personally am sorry that the Government have been unable to devise some appropriate antidote to the vast and damaging capital profits that have been derived, as a result of inflation, from land and buildings. I am aware of the difficulties, and notably the risk of making land for development still scarcer. Such profits are mainly the result of inflation, but they themselves aggravate inflation, too. Land prices recently have hit levels which make the cost of housing impossible. If the market does not quickly bring land prices down, the Government will be forced to intervene, because this is one of the most damaging consequences of inflation.

The third requirement is that Phase 3 should be effective as a disinflationary measure. Certainly the Government seem to have gone as far as they conceivably could to make the scheme as liberal as possible without jeopardising its main objective; nor, surely, are they wrong to do so. The criterion here, to coin a phrase, is "the art of the possible". It is no use introducing a major scheme like this if it is to be unacceptable to public opinion at large. Indeed, its success will depend on that very factor. Having admitted that, I must concede that the margin of effectiveness as a disinflationary measure looks like being fairly narrow over the next year but, though modest, most worth while if it can be achieved. Indeed, I believe that it is crucial to success in the battle against inflation. It may at any rate keep down our rate of inflation to the level of our main international competitors.

I want to refer in a sentence or two to only two of the detailed provisions. The proposal to allow supplementary increases in incomes if the rise in the cost of living exceeds a datum figure—what is called generally a threshold agreement —is, in theory, a dangerous expedient because it has in it an element of built-in inflation. Nevertheless, if we are realistic, it seems necessary for it to be a component of a successful scheme in present circumstances, and therefore it is to be welcomed. Secondly, the provision for productivity agreements has been cautiously framed, and this, I expect, is because there is some bitter past experience of so-called productivity agreements which did not result in increased productivity and may have been only façades. The result, if I have read the Order right, is that there is to be a limit of £1.12p, or 3½ per cent. The question I should like to ask my noble friend is: may not this low limit frustrate many genuine schemes of this nature? The provision lays down that the benefits can accrue only when a particular scheme has proved that it is effective. But with this proviso, if that does happen, then the larger the payment the greater the disinflationary benefit. I recognise the point that my noble friend Lord Drumalbyn made: that big payments for productivity schemes covering some workers are apt to produce tensions with other workers who may not have the same opportunity, but one wonders whether many useful schemes may not prove to be unobtainable by negotiation with such relatively low limits.

Taken as a whole—I am horrified to realise the time I have spoken—Phase 3 seems to me right in shape and pattern. The monitoring and the policing will bring formidable problems. The choice before us as a nation is whether we are prepared to accept a reasonable measure of restraint as the price of wider liberties and the avoidance of economic social disaster. I liked the note on which the noble Lord, Lord Champion, ended his speech in our debate on the emergency powers the other day. Phase 3 thoroughly deserves the support of public opinion at large, and it is on that support that its success depends.

8.39 p.m.

LORD KAHN

My Lords, I submit that it is a tragedy that the subject of today's debate is a matter of political controversy. The economic position of the country is too grave for serious examination of the Government's policy to be conducted without a bare minimum of regard to Party politics. In saying this, I am referring to the speech of the noble Lord, Lord Diamond, and not to the eloquent speech of the noble Baroness, Lady Seear.

With reference to the noble Lord's speech, it seems to me that the figures quoted by him from the E.E.C. document are a remarkable tribute to the efficacy of the Government's incomes policy. Apparently it has resulted in the country's competitive position being maintained. That is precisely one of the objects of the policy. In the absence of such a policy, our competitive position would have been very different because earnings would have risen much more rapidly.

The Opposition attack the Government for continuing statutory control, not only over the behaviour of prices but also over the behaviour of wages and other incomes. If only prices were controlled, what would happen? The idea seems to be that if profits were squeezed heavily employers would offer strong resistance to wage demands with which they were confronted. The hope of members of the Opposition seems to be that this would result in a restraint of the rate of increase of wages. No doubt it would; but at what a price! The mechanism would be industrial strife. The modus operandi would very largely take the form of provocation of industrial disputes, leading to strikes.

Free-for-all wage negotiations would mean that once again we should have a process of leapfrogging, the leaders of labour in each sector trying to push up the wages in their sector more rapidly than wages were rising in other parts of the economy. If profits were heavily squeezed and there was persistent pressure for higher wages, and if strikes became the order of the day, the confidence of industrialists would be undermined, and the upward movement of productive investment, on which noble Lords have commented, as well as the upward movement of the standard of living, would have to be abandoned. In fact, the Government have imposed some limitation on the growth of profits, and will continue to do so in Stage 3. The argument for a more severe limitation on the growth of profits would be stronger if dividends were uncontrolled, but dividends have been controlled and will continue to be controlled; and over a very wide range and within very wide limits dividends are going to depend on the Government's statutory control of dividends, rather than on the behaviour of profits.

There are a number of features in the Government's policy, as presented in the Order which lies on the Table of your Lordships' House, which strongly appeal to me. I refrain from spending time on some of the features already emphasised by the noble Lord, Lord Drumalbyn, and the noble Viscount who has just resumed his seat. The objectives are highly realistic, and there is a quite good chance of their being attained. A reasonable degree of success will facilitate further progress in decelerating the rate of inflation. I am impressed by the fact that the statutory backing for the Government's policy is continued right into Stage 3. The Order which is the subject of this debate is complicated, but the complications are fully justified. To my mind, too, the complications reflect a real seriousness of purpose. Also, they make it so much easier for Government policy to be interpreted by those bodies and individuals who take a part in determining the behaviour of prices, incomes and profits.

The provision for productivity agreements is limited and strict under the head of efficiency payment schemes. When productivity agreements were first introduced in the middle of the 1960s, those of us who foresaw the difficulties in which they would involve the country were assured that the complications of negotiating a productivity agreement were so great that the number of such agreements that could be introduced in any one year would be very small. In fact, the number of such agreements and the extent of the wage increases in which they have resulted has turned out to be large. This was an important reason for the failure of the previous Government's incomes policy. The country was moving towards a position in which, instead of the rate of increase of earnings being related to the average growth of productivity over the country as a whole, there was a tendency for the rate of increase of earnings to be related to the rate of growth of productivity in the high-growth industries; and that is the complete negation of an incomes policy. On this issue, and on other issues, I agree with the noble Viscount who has just resumed his seat, but I fear that on this issue and on most of the other issues on which she commented I cannot agree with the noble Baroness, Lady Seear, in spite of her eloquence. I should like to say in passing, as I am commenting on the noble Baroness's speech, that I entirely agree with her that greater equality of earnings is far better achieved by fiscal policy than by incomes and prices policy.

The Government recognise that under the operation of their incomes policy the wage structure, the pattern of differentials between different industries and different kinds of labour, has become extremely ragged. When the previous Government introduced the standstill of July, 1966, the pattern of the wage structure was in reasonable shape and the gross result was that the standstill caused very little bitterness. In fact, in many quarters, it was regarded as extremely fair. But the introduction by the present Government of the standstill came at a time when the pattern of the wage structure was extremely ragged, and gross inequities prevailed. The reason was that the operation of the laws of the jungle had resulted in a situation in which in some sectors the wage-earners had just received very large wage increases while those in other sectors had received much smaller increases at a much earlier date, sometimes more than twelve months earlier. The Code makes provision for the correction of anomalies. Moreover, as your Lordships have heard, the Pay Board are to present a report on this problem, it is hoped by the end of this year. There is the extremely awkward problem created by the fact that in many industries wage increases are negotiated at so many different levels: the national level, company level, establishment level and shop floor level. The problem is dealt with in the Code.

I feel that I have made it sufficiently clear to your Lordships' House that I cannot refrain from indicating my support for an Order which is designed to continue the attack on the problem of inflation without involving the danger of a return from a counter-inflation policy supported by statutory instruments to the sporadic vagaries of "Stop-Go".

8.50 p.m.

LORD FISKE

My Lords, I hope at this late hour to keep my remarks brief, because I think that after the many learned contributions we have had it is not necessary to go into the exact causes of inflation or even into whether the Government are or are not responsible. I merely want, if I may, to illustrate to your Lordships the effect of ore piece of inflation which I put fairly and squarely as the Government's responsibility and relate it to the effects it has had on our great capital city of London. We know that throughout all these negotiations on inflation and wage control and price control the Government have refused to do anything about the Housing Finance Act and the many regulations made under it—with the result that on October 1 the tenants of councils had to bear a rent increase of 50p per week. If my arithmetic is correct, 50p a week is 2 per cent., two points, on the income of a man who earns £25 a week or one point on the income of a man earning £50 a week. I think that calculation is correct and it represents that rise on that count alone. I should like to ask first of all whether that 1 per cent. or 2 per cent. increase in what we shall call the cost of living is included in the figure of 3.2 that was announced the other day or whether it gets lost somewhere on the way.

That is not the only thing that is happening; the Housing Finance Act went much further. In my daily life I meet cases of rent increases which are running in some parts of London up to as much as 250 per cent. Even if these increases are to be borne by people who can afford them—although many of them, I know, cannot and are having to move—they represent an enormous inflationary burden at a time when we are trying to control inflation. Was it really necessary for the Government to inflict this little bit of inflationary pressure at this particular time? I should like to hear Lord Drumalbyn's comments on those remarks.

While that is happening we have heard in the Press and have personal experience of the great distress that is now affecting London's many services. The service requirements of a city like London include transport, the police, teachers, ambulance drivers and dustmen, and there is a very long list of service people who tend to be at the lower end of the earnings scale. We know that the Government have said that they are trying to help the lower-paid workers, and Lord Drumalbyn in his remarks earlier this evening said that there is a Committee looking at what is called "London weighting". That is the expression we always used in County Hall. London weighting is something that already exists in certain fields. I think it exists for the police and certainly for the teachers. Ten years ago it was about £36 a year; now it is about £120 and I believe that the teachers are asking for £300. This is the sort of figure that is necessary if teachers are to compete on equal terms with the rest of the people in London for housing accommodation. This is where they cannot compete, so that while they would wish to come into the London services and live in the capital they are forced to go to other parts of the country where there is also a great demand for teachers. We shall not get the services of London right until the London weighting allowances are settled.

I should like to impress on the noble Lord the need to bring some pressure on the Committee that is considering these matters to conclude its considerations of the problem at the earliest possible moment, because it really is urgent. We know of the numbers of children who are not able to go to school: we know of the great shortage of bus drivers and conductors. They have all to be provided for somewhere near their place of work. A bus driver who is expected to be on duty at 6 o'clock on a wintry morning probably has more right than anyone to live near his place of work.

I must say I sometimes wish that those bodies of workers who are usually vigorous and well-informed bodies of the community would use their own resources through the voluntary housing movement. I should like to ask the noble Lord, Lord Drumalbyn, whether he would consider encouraging this. I think that many of the services—and I am thinking of transport—could throw up parcels of land on which a voluntary movement consisting of the management and the workers in the industry could easily erect some housing for their own occupation. This would be some contribution in addition to that made by the public authority. The public authority's directive is to provide for the general needs of the population and not for sectional interests. It must use great discretion if it wants to depart from that directive. Until these things are put right, we are threatened with a crisis situation in the services of London. It is true of other cities as well but it is more noticeable in London because of its size and population. We might ask —I think the planning point here is worth looking at—why it happens that London is not a more balanced community, because we find that London is tending to become a city of the wealthy and a city of the very poor.

This, I think, is happening as a result of a deliberate planning policy, which has been running ever since the end of the war, that there should be decentralisation from the centre of large cities of population of work, and therefore of industry. If an industry moves out of the centre of London, as many industries have done, to a new and expanded town within a 50 to 60 mile radius of London, it will want to take all its skilled workers; and the new or expanded town will re-house those workers in the new area. However, this still leaves the unskilled workers who can be recruited locally, thus relieving the pressure on the new housing being provided in the new town.

The result is that we are tending to get, one would have thought, almost a surfeit of service workers in the centre of London and no skilled workers; and this was what was happening until we reached the state of full employment which has now arrived. Now we find that all the unskilled workers, and such skilled workers as remain in the services, particularly in transport and teaching, are also being absorbed in better paid jobs further from the centre. So London itself is indeed in need of rescuing from all these operations, and I think that Phase 3 will not give all the help necessary unless this London weighting is looked at very carefully and brought into some quick way of implementation.

9.1 p.m.

LORD ALPORT

My Lords, I should like to begin by joining my noble friend Lord Amory and the noble Lord, Lord Diamond, in saying how much I deplore the fact that this debate is taking place at this time of night. That is not because it gives me a feeling of guilt at inflicting my views on your Lordships at this time, but because it seems to me that the arrangement of our Order Paper so as to give safety in sports grounds priority over the debate on this Order shows that the attitude of this House to the problems of the country is bordering on the frivolous. In the latter days of the Roman Empire, my Lords, the authorities equated bread and circuses. Now, apparently, circuses take priority here. I think that the noble Lord the Leader of the House should consider whether it is in the interest of the House or the Government that this arrangement should be made.

My Lords, it may not of course matter whether we debate this Order or not. If I heard my right honourable friend the Prime Minister aright when he appeared on television the other night, he stated that Stage 3 had already had Parliamentary approval. It may well be, and indeed in our heart of hearts we know, that to a large degree we are going through a formality; at any rate, we have no power to affect the decisions of the Executive. But in your Lordships' House we still enjoy, at any rate for the time being, the right freely to voice our views —if anyone can be bothered to listen to them.

I said on a previous occasion that if any Government aspires to get its economics right it must first get its politics right. By that, I mean that if it wants to govern along certain lines it must know how to cause people to obey because they have confidence in its policy. It must be able to mobilise in support of those policies what I could call the x-factor in human nature, which enables ordinary men and women for a period of time to subordinate self and sectional interests to the national interest, and willingly undergo hardship and deprivation in order to obtain an agreed objective for the country as a whole. In any community there will always be "spivs" and shirkers, and weak and evil people, but this country, above all in Europe, and perhaps in the world, has a greater reserve of what I call the x-factor than any other. We have shown that on many occasions in the past.

I suggest to your Lordships—and you may think that I am exaggerating—that our position to-day is different, but no less dangerous, than it was during those emergency periods in the earlier part of this century. I realise that anyone who ventures such views is immediately dismissed by Ministers as a coward or a defeatist. If he is a distinguished public servant, like Lord Rothschild, he is told peremptorily to hold his tongue, or if he is an ordinary person, he is put under sedation by another speech from Mr. Walker. But, my Lords, there are too many wise, experienced and objective-minded men who share my apprehension for me to feel guilty of being merely an alarmist.

Of course it is true that this country can win through to better and more secure times. Of course there are a number of favourable facts which my noble friend Lord Drumalbyn included in his speech; but it does not mean that we shall win through unless we can manage our affairs with exemplary skill and restraint during these next few years. It is no coincidence, my Lords, that we have had four States of Emergency since 1970. In my view, the country is in a very real sense in a continuing state of emergency. The reasons are very simple and are known to all in your Lordships' House. They are that the foundations of the industrial society of the 19th and 20th centuries upon which the prosperity and livelihood of the people of this country was based—that is to say, abundant and easily accessible raw materials, an unchallenged superiority of technical skill and industrial know-how, cheap food, protected imperial markets and worldwide prestige—have all largely disappeared. Yet the political postures of the great Parties and the organisation and the attitude of management and workers to each other and to the community have, in general terms, hardly changed at all.

My Lords, it is just as depressing to me to have read so very recently about the Conservative Party's flirtation with the Selsdon man—as antediluvian as the Piltdown Man and just as bogus—as it is to see the Labour Party at Blackpool falling increasingly under the influence of the Left, led by an ex-Member of your Lordships' House, or at any rate an ex-Peer, Lord Stansgate, who seems for the Socialists to double the roles of the Ancient Mariner and the Albatross. It is equally depressing to see the attitudes of management and workers in industry to each other and the organisation of industry continuing to reproduce features which, in my view, are irrelevant to Britain to-day. It is just as worrying that the Government seem to believe, as we have seen from the policies which are being propounded both in this Order and in the speeches we have listened to during the last few days, that the manipulation of interest rates, on the one hand, and the straitjacketing of wages and prices, on the other, are sufficient to solve, or control, the basic economic problems of contemporary Britain. What I fear is this: that the temporary success of this Order, of Phase 3, a slight recovery on the Stock Exchange, a decline next month in the deficit of our balance of trade, some lessening of tension in the Middle East, and Christmas, will cause us all to consider that our problems are moving towards solution.

My Lords, I was reading this last week-end the life of Lord Keynes—I did not realise that we should have a contribution from the noble Lord, Lord Kahn, this evening. I wonder what advice he would have given us in the present circumstances. I cannot believe that the advice would be easy for us to accept or carry out, but I am absolutely sure it would be very direct. It is no good trying to speculate on that now, I suppose. I can only say what I think should be done, and I do so with all the diffidence that is right for somebody who is not an economist or industrialist or professor—or an ex-Chancellor of the Exchequer—in the presence of those who are better qualified than I am to pronounce it. But I believe the first thing that is essential, the first move towards stopping "Stop-Go", which seems to be one of the inevitable features of a delicately balanced economy in the present world, is an immediate and significant cut in Government expenditure and an increase in taxation on a selective basis.

I think we should consider a differential lending rate between certain categories of industrial borrowing as against consumer credit. We may have to consider a differential interest rate between foreign lenders and domestic lenders. I think we shall have to consider a degree of control over imports. I am sure there should be a new relationship between the banks on one side, and industry on the other, more on the lines of the German pattern. I think there should be a new system of rationalisation of industry and economic activity less dependent, as my noble friend Lord Amory said, on fortuitous Stock Exchange situations and take-over bids. I hope that these things, whether we like them or not, will be considered; I believe that they will be inevitable. I am, and I admit it frankly, advocating an attempt to manage our economy and our industrial development more closely than is acceptable to the present Government and along principles which are different from those advocated by the Labour Opposition.

I suggest, my Lords, that we must establish clear priorities for investment in those industries most likely to enable 50 million people in this country to earn a living in the next 30 years. This involves concentrating resources on the provision of energy, raw materials and the skills required. It may not face us with a choice between "guns or butter"; we may not have to drink ersatz coffee; but it may involve, I suggest, a choice between investing in and concentrating on manufacturing very high quality engineering goods needing limited raw materials and high skill rather than, as is the position at the present day, producing far too many heavy engineering goods requiring massive raw materials and low skills. We have lost, my Lords, behind the Japanese and the Germans and others, what we thought, at the end of the war, was going to be the real secret of our industrial success, which was our technological advantage, and we are losing it year by year as things stand at the present moment.

All of this may include the provision of considerable wage differentials between workers producing, say, energy—that is to say, miners and electricity workers—and those, let us say, working in toffee factories and betting shops. The whole philosophy of this, and indeed the whole philosophy of the speeches that I have listened to from many quarters this evening, has been equating wages, equalising wages. I suggest that that is a wrong approach to the real solution of the problems with which we as a nation are faced. It may involve supporting the further development of some highly complicated, expensive no doubt, but important technological advance like Concorde as against the abandonment of a project like Maplin or the Channel Tunnel.

I would suggest to your Lordships that it will involve other things, as well, including the recasting of this Order which we are now being asked to approve, because, as I said a few minutes ago, the philosophy of this Order is to control the remuneration—that is, the rewards of individuals—right across the board, and to a large extent provide a bracket of increase which will produce at the end greater equalisation. It makes no distinction between the values placed on the contribution of one group of workers in the national interest as against another. And because, as I realise, it is difficult to do this fairly in accordance with, at any rate, the criteria accepted at the present moment, this Order avoids doing it at all. I can understand the politics of it, but I do not agree with the policies.

Secondly, my Lords, I believe it will involve a reassessment of Government expenditure as between the industrial and social fields. There are many things which are eminently socially desirable, but which cannot be provided by the Government at the expense of investment in projects having economic priority. If communities—London, for instance—want such things (and this seems to me to have, at any rate, a slight, but I hope a real connection with what the noble Lord, Lord Fiske, said) they must find means to finance them wholly or in part from private or community resources.

Thirdly, my Lords, it will involve—and I say something which I know is not readily acceptable to many of your Lordships—a degree of central control and planning comparable with the control and planning needed to win a great war. This does not mean changes in ownership. It represents the antithesis of some of the views put forward by members of my own Party. It need not mean that the powers involved must in all cases be exercised by the Government. But it does mean a change in our methods of providing and channelling the flow of investments into industry and into the related economic activities. It will involve restrictions on personal freedom. It will mean, above all, I suggest to your Lordships, a much closer relationship between the Government and the City, the sensitive financial centre of the country, and industry. It will also mean the abandonment of some of the established attitudes of civil servants, bankers and company managements to their respective roles in the British economic system. I know that your Lordships will accuse me of wanting changes which might be regarded as being impracticable. I am not saying whether they are practical or not I am saying that, in my view, these are the prerequisites of this country getting through the period ahead of us, where we are in the very greatest danger.

I make no attempt to find parallels for our position with the Japanese, the French or anyone else. It is possible—and this we can perhaps take to encourage us—that the crisis which we face in this country, with our limited resources, is similar to the crises which other highly industrialised nations, East and West, will face during the next half century. Perhaps in the end looking back on this (those of us who are still alive) we shall feel that instead of trailing behind these other countries, as we appear to do to some extent now, we shall be blazing a new trail for them which they will be glad in their turn to follow when they face problems similar to ours.

Perhaps this is a revolutionary era—and it is one that we must endure. Be that as it may, I come back to the point that I made earlier on. The prerequisite, in my view, of any success in carrying through remedial policies is the adoption of a new approach to the practice of politics and the style of government on the part of both the Conservative and the Labour Parties. I think that Mr. Jenkins was edging his way towards this in his Wolverhampton speech. I know that there are many thoughtful Conservatives who would like to do likewise. I am certain that the voting patterns of recent elections mean that the majority of the nation are no longer content with the old-style auction for votes and the sterilities of the personal and Party confrontation in Parliament.

What we in this country have to do is so difficult that we cannot afford the luxury of faction. I sometimes wonder how things would have turned out if Mr. Hugh Gaitskell and Mr. Iain Macleod had lived. But it is no good speculating on the tragedies of mortality. If this ancient land, which so recently dominated a quarter of the world, cannot produce from its existing resources the qualities of leadership, the willpower and the dynamism necessary to-day to solve its domestic problems, and to give to its peoples a New Deal, then our future is dark indeed.

I use the well-worn term "New Deal" purposely. It takes us back to the springtime of my generation when we were in an even greater crisis receiving inspiration and support from the policies of Roosevelt's United States. I fear that this is unlikely to be forthcoming now. The American Imperial system seems to have reached the reign of Caligula without having enjoyed the age of Augustus. We British, in spite of Europe, are on our own. That is a situation which has hitherto brought out the best in our nation. If obstinacy or arrogance on the part of the leadership of any Party appears likely to stand between us and our world, that leadership must be changed. It may well be, my Lords, that the time for that change in both the great Parties of the State is nearer than many people realise.

9.22 p.m.

LORD HALE

My Lords, your Lordships have listened to such a high proportion of very great speeches tonight that it would be impertinent of me to try to comment on them. I would not try to comment on the speech which has just been made, which was obviously one of high courage and sincerity. I agreed with some of it and did not agree with other parts. But most of it I should like the opportunity of reading tomorrow, and being able to consider carefully. It seems to me that it is perhaps not impertinent to pick out one contribution, because there was something of importance—and I think I might say also something missing—in the speech of the noble Viscount Lord Amory. I mention the noble Viscount because, although I much dislike the term "public relations" and always regard it with a certain dubiety, thinking of it in an organised sense, there is something appallingly wrong with this Government's public relations. Why do they want to quarrel with the miners, for example?

THE EARL OF GOWRIE

We do not, my Lords!

LORD HALE

Why do they seem to want to quarrel with organised labour? Why do they insist on keeping this wretched Industrial Relations Court? No one here could really quote any decisions of importance coming from it. I make no attack on Mr. Justice Donaldson. No doubt he is a man of great ability; he was asked to do a job and he has performed it. But nobody could have £75,000 worth of contempt for a Court like that. It is a falsification of terms.

In the same way (I particularly want to say this, and nobody has ever accused me of being priggish; indeed, I have usually posed as being a bigger sinner than I am), we must get back to a sense of public honesty. I rather suspect that the last speaker had something of that in mind. We should stop a little of the charade. If we are going to give up anything, we should cease the use of verbiage for the purpose of deceit and try to state a few facts. The noble Lord, Lord Diamond, did this. He put some extremely critical facts. I was a little shocked to hear him say that we should be discussing a situation like this as late as the hour to which he referred. I came here today rather thinking we might be talking all night, and I think we ought to be talking all night. If you are a Member of this place you should have some respect for it, and if you are to have respect for it you should not say, "Of course we can dispose of these matters; it is very rare for us to talk at length on a State of Emergency, even the fifth in two years".

It is just twelve months since I raised the first debate that I was permitted to raise in this House. I talked about the problem of old-age pensioners, and there are many others who can speak with more authority on that subject. I talked about the problems of the petit rentier. I recall not so many years ago, 15 years, at a guess, a Tory Minister, a Member of this House, who enjoyed almost universal respect saying, to our delight, "In 25 years we shall double the standard of living of the whole of the population." Where has it gone?

What has gone wrong? I am not one of those who rub shoulders with Prime Ministers, although many have been courteous to me. But so far as the present Prime Minister is concerned he is invariably courteous, he is invariably informative and he has invariably been friendly. Personally I like him. But I remember someone saying in a most friendly way—and I hope I may speak colloquially: "The odd thing about Ted is that when he says something he thinks he has done something. When he signs a preliminary agreement to a preparatory agreement to a final agreement to a definitive agreement for the Channel Tunnel, he thinks the chaps have started digging." I have detected in recent times some of the qualities of the coelacanth. I expect the noble Earl, who appears puzzled, knows it in the more classic title of Melania Anjoauni. As a poet he ought to know that there is a poem about it, too. I will not trouble your Lordships with it to-night but I can refer him to it if he wants it.

Now the Government are running into a conflict with the miners who are deserting the mines in thousands for better opportunities. Six hundred miners are leaving the pits every week, at a time when economists are saying, "All Governments have made an awful bloomer. We have cut down our greatest assets." I can remember, if the noble and learned Lord who is not sitting in the Chamber at the moment will forgive me for saying so, when we suggested we should pack that invisible object, the Woolsack with coal rather than wool which became rather out of fashion as a British industry. Why do we do it? I was going to say to the noble Viscount, Lord Amory, that he has his own public relations. No man has enjoyed higher respect on the Tory Benches in the House of Commons. He was one of a very limited number who spoke not merely with authority but with a patent sincerity and a desire to be accurate. We ought to get back to that.

The debate which I raised 12 months ago was a question of the situation of the petit rentier who does not seem to be mentioned here at all. Every time I mention him Ministers say, "We have this in mind. This is under constant consideration; we do not leave any avenue unexplored and no stone is left unturned to do what we can for the petit rentier, whoever he may be ". What is being done? He is being twisted in every conceivable way possible. I will give your Lordships the facts. When I built my house the contract was for £625, and I received a £150 subsidy from the local rural council. I borrowed £525 from a building society. I spent £80 on a well, £12 on a fence and £80 on the land, and whatever that may add up to it meant that I had not to take out of my pocket any of the limited funds which I wanted to spend on furniture. I had nearly £130 to spend on furniture—a lot of money in those days. Interest on the mortgage was 5 or 5½ per cent.—I think 5 per cent. The instalments were just over £1 a week and it was paid off in 13½ years—both capital and interest. Those were the figures then, and it was not a specially favourable period, either.

What are the figures now? The unfortunate man who buys his own house—and the Government said they were in favour of a property-owning democracy—, not only has to pay 4, 5, 6 or 7 times as much, but he has to pay interest from 10½ to 11 per cent. I am told on the tape to-day that bank rate figures are 14½ per cent., and the interest rates keep going up; so it takes him now not merely 7, 8 or 9 times as much in instalments but he has to pay it year after year until some tragedy comes along, some long illness perhaps, when he has a fair chance of seeing his house disappear.

I raised the question of 3½ per cent. War Loan. The debate was replied to by the noble Lord, Lord Aberdare, who spoke with all his usual courtesy and without giving much information—obviously it was not a matter on which he could give any assurances, and I never expected he could. Remember that 3½ per cent. War Loan does not go back to the First War but only to 1932. The figure I was given then was that the value of the total issue of nearly £2,000 million War Loan was, in March, 1972, £802 million, and on September 18 when I put the Question down £706 million. If you transmuted those figures into figures adjusted to the cost of living, the chap who put £1 in 3½ per cent. War Loan in 1932 had then got 7.14 current pence in value for it. I do not suggest that the noble Lord could give any assurances, but he did look benevolently on the matter and say that one hoped things would improve. But they have not improved. A series of swindles have been perpetrated —which I am happy to say someone else said first (I was going to say it)—which should really mean that the Bank of England and Her Majesty's Ministers should be indicted at the Old Bailey on a charge of conspiracy to defraud.

We have passed long Acts and had long debates even till late at night, on the question whether Heinz should shove a bit of pork in their beans to keep within the law against misrepresentation, but we keep on advertising shares when we know it is a "twister", we know it is a swindle, and we know it will go on being a swindle. But the present Government came along and said, "We will pay 9½ per cent. on our loan." Now it stands at £83 per £100. They issued only a day or two before the crisis—I think it was a tap stock—stock at 10½, per cent. It went down four points last Tuesday. The man who has his mortgage, if out of work for a time without full insurance, is forced to sell these things at that price in order to keep the roof over his head. And if he dies, as he will, his stock, if he has any left, will be worth a few pounds. But under the existing law, which the "property-owning democracy" people have not altered, his house will be valued on the basis of its value with vacant possession, and his estate will be liable to estate duty, not only on its present inflated value but on a specially inflated value for estate duty purposes, which assumes that his son and daughter are not in the house and will not live in the house and do not desire to live in the house and ought to be chucked out. This is quite appalling.

If you want to win the confidence of the miners you must stretch just a little further on this and have control of profits. I give a single example of what happens. The other day I put down a Question about tax evasion. The Answer, with something like an amiable giggle, was: "We have not any particulars of the British people who go abroad with £200 million or £100 million." Heaven knows!, I do not want to penalise the people who go to Malta to a small bungalow for a bit of sunshine. But the Government say, "We have not got the figures." About two days later the Chancellor of the Exchequer told us that if we divided all the incomes in the country as suggested, based on figures from the Labour Party Conference, it would not amount to more than a penn'orth of cheese to anybody. But how can you divide the figures if you do not have them? It is like a letter I received last week from a lady who said I was complaining that I had not received a magazine, so would I send her the container in which it was enclosed so that she could have the reference number. I had not had the magazine; I had not had the container.

I want to be very serious to-day. I had hoped to say one single word about my bankers' sudden passion for art. It is 48 years since I first opened an account with Lloyds and our relations have been very friendly. Since then, I can say, they have never looked back, and I have never made any money. But it was a little surprising yesterday to see them with a passion for art. T could not understand whether they had chosen a "drop-out" from West Point who was an undischarged bankrupt, who borrowed his money from all and sundry and his wit from Degas, who quarrelled with everybody, and finally filed his petition on the ground of moral merit—which would seem rather ridiculous—or whether they had selected the man because they appreciated his painting, in which case they would not have reproduced a painting of that merit and value on the very thin paper of The Times with print on the other side. It was not very well chosen. I used to think, not of Jimmy Whistler's "Nocturne in Blue and Gold" but of his arrangement in grey and black, which is better known as, "The Portrait of His Mother", which represented something of value and something one could respect, something of peace, of quiet acceptance of the scheme of things, of a determination to do no harm to anyone. Such people are still there—you can find them in Oldham.

To-day Mr. Levin emerged again, this time speaking with all the freedom of The Times and lashing out at the policy that The Times has pursued, with all the effectiveness of a very brilliant pen. He said that the Common Market is the oddest thing in the world because the members never seem to agree about anything. I spent a great deal of time trying to find out the position about the Common Market when I came back to this House. In the end I came to the conclusion that it did not exist; and this of course is the truth. I do not regard that as necessarily a defect. There are wonderful agreements, there is a lot of stuff on paper, the plans are all made, but of course General de Gaulle chucked them in the waste paper basket. No one has ever taken any notice of a decision of the European Court, unless on the whole for general reasons it paid them to. Nobody observes the regulations.

If it does not sound like coming from the sublime to the ridiculous, I should like to mention the subject of Italian tomatoes. They at least give the clearest indication of the position that I have seen so far. Your Lordships will remember that Italian canned tomatoes are of very great value, and for those of us who cook our own breakfasts they make an admirable supplement to the breakfast when you have some bacon, and a possible substitute in these days when you have not. Also they are not very hard on the washing up and they are a reasonable price. In 1972 about 113,000 tons of them slipped down our collective throat and 80,000 tons of these came from Italy-30 per cent. more than the year before. But it is said now that the fresh terms value them rather more than apricots, peaches or even rubies. They have been about 6p for a 14 oz. can; the price has been rising to 10p or 11p, and this alarming increase is not due to meterological conditions, says the writer, with some sardonic recollections of the Prime Minister's general excuses. The Italians say: "We can sell these things anywhere now. We are not going to abide by our contracts. Why should we? You do not abide by yours; you devalued the pound and put all the figures against us. You can take them or leave them, and if you do not take them, it does not matter".

That is how the Common Market works. What can we do about it? The retailers in this country have approached the Government for advice and they have been told to take it to the European Court. But of course the European Court never decides anything if it can avoid it. It first gives consultative advice and then reviews, and so on, and so we get a situation in which there is no commercial morality; there is no comon interest. Even the very regulations that the noble Lord has referred to to-night may infringe the rules of the Community and may be called in question.

The other day I remember the noble Lord, Lord Boothby, raised the question of gold, and when I heard the news about gold and the new arrangements I thought that it sounded as though something really important had been done. All the countries met and decided to deal with the hidden gold in the world and did not even ask for a certificate from the White House to say that it was still there. Now we are told that it was simply an arrangement for France to be able to pay her debts to Germany at half price. She can pay them in gold at 90 instead of paying them in gold at 45. This sort of cynicism in our life is the first thing that must end. The Prime Minister could win the support and the hearts of the miners if he tried to-day. No community has ever sacrificed more for the common interest; no community, except the textile workers in Oldham, has been so strike-free in the last 30 years.

My Lords, I have exceeded my time. I have not finished my speech but I will sit down, having said one or two of the things that I intended to say, and with the firm intention of saying the others if and when a subject arises on which I can keep them in order.

9.45 p.m.

THE EARL OF GOWRIE

My Lords, in effect this has been the third debate on the economy since Parliament resumed and the fourth in four weeks. This is an heroic, even Wagnerian achievement, especially at this hour, but I doubt whether noble Lords will expect to hear Gotterdammerung from me. On the contrary, sensible as we are of criticisms from all parts of the House, we do believe that the Government's policy is the only coherent policy for containing inflation while sustaining expansion which is on offer to Parliament and the nation. I am glad that my noble friend. Lord Amory backed me in this. This evening we have debated No. 2 Order of the Counter Inflation (Price and Pay Code) 1973, but I hope noble Lords will allow me to refer to it in the terms by which we have come to know it, if not to love it—Stage 3.

I believe that the four debates provided valuable and coherent criticism of the Government's policies, markedly coherent in contrast to criticisms made in another place. We have in a very genuine sense listened to them. May I say quickly, even if I have to say it with masochistic glee, how much I welcomed back the noble Lord, Lord Diamond, if not as a Whip, for he has suffered no demotion, at least as a scourge? I do not believe that anything said in this area should shake the Government in their determination to fight inflation with controls that are fair and flexible and without bringing our hard-won expansion to a halt. In this last case especially, all the signs are that we can sustain growth at a sensible level of between 3 and 4 per cent., that we can achieve and maintain a high level of employment, and that we can believe the expansion has brought about the last three years' improvement in the overall welfare of our people—inflationary troubles (and I know they are legion) notwithstanding. With that said, my figures allow me to be firm. I must turn to the criticisms of the Government and the points made in the debate.

As I said earlier, while I welcome back the noble Lord, Lord Diamond, I have to confess a little disappointment with his speech. I expected it to be critical, but also I expected it in the wider sense of the word to be helpful. Certainly I could hear no suggestions in it except to hold down prices. He did not go quite so far as to suggest subsidies and the redistribution of income from the rich to the poor. I do think it is misleading, both to the House and to the country, to think in terms of there being a fund of money available to the rich which can ease the lot of the rest of us if only it were redistributed. I refer the noble Lord to the fountain of wisdom, whatever other remarks we make of him, of the Leader of his Party when he talked about one man's wage claim being another man's price increase.

In spite of the overall slight disappoint-merit that I felt with the speech of the noble Lord, Lord Diamond, he did make substantive points which I shall now try to take up. The noble Lord made the point about justice and fairness. We agree that a prices policy cannot work unless it is fair and seen to be fair. He was critical of our treatment of the lower-paid. We find merit that married couples with earnings about half the average industrial wage have enjoyed an increase in real net income of an annual rate of about 4½ per cent. since June, 1970, compared with 2½ per cent. under the previous Administration.

The Government's tax policies have, therefore, helped almost to double the improvement in the living standards of the lower paid. It is conventional at this point, and, conventional as it is, I mean it, to say that we are not complacent about this matter. We want to continue with the work, and that of course, is the theme of expansion plus the containment of inflation. We find, too, that the increase in real take-home pay of a man on average earnings with two young children has been over 3 per cent. a year since June, 1970, compared with 0.7 per cent. a year under the previous Administration. That is an extra £2.30 a week to that family. I think that that is a significant achievement.

Lord Diamond, I think rather eccentrically, demanded that we should give justification for wage control. I think I am happily let out of such a herculean task by the lateness of the hour. But certainly again, if I may give some figures, I think that the question of unit manpower costs bear out the justification. Between 1968 and 1972 the average annual growth rate in unit manpower costs was just over 7 per cent. for the United Kingdom, compared with 3½ per cent. for the United States, 6½ per cent. for Germany and 4 per cent. for Japan. Of course, it is true that since the introduction of the standstill and Stage 2 the United Kingdom has significantly improved its unit wage costs relative to our competitors. The noble Lord does, however, know that were wage controls lifted no one would benefit from the free-for-all, least of all the low paid and those who have weak bargaining positions. It may be a cliché, but clichés have much truth in them, that inflation hits the lower paid.

The noble Lord, Lord Diamond, raised a rather technical, but valid, point about the price pass-through of raw materials. I believe that the pay and prices policy has in fact provided an effective constraint here. Obviously no one would expect that a 1 per cent. increase in material prices would lead to a 1 per cent. increase in final prices. It depends in the first place on the proportion of final costs represented by material costs, and of course also on time lags. I certainly accept this. But the figures given by the Price Commission, £300 million, must surely be a fair indication of what would have happened to the prices of those firms in that period, since it is reasonable to assume that the firms applying for the price increases would have implemented them if they had been approved.

The noble Lord made a point about profits. While it is true that many companies have announced large percentage increases in profits—we acknowledge that—these relate to periods before the full impact of the profits controls under Stage 2. Despite these increases, to be expected, surely, in the upturn of the economy which the Government devoted their first years to achieving, profits as a percentage of total domestic income remain lower than they were at the peak of the previous cycle in 1968, when, I think I am right in saying, the noble Lord was Chief Secretary to the Treasury. In the tripartite discussions both the T.U.C. and the C.B.I. recognised, as I believe the noble Lord also recognises, the need for adequate profits to generate the vital investment we need to modernise and expand our industrial base. He mentioned mortgage interest and the retail price index. The validity of including mortgage interest in the Retail Price Index is now being considered by the Advisory Committee, on which the T.U.C. are certainly represented, and I think we must await the outcome of that.

The final point I would make to the noble Lord is directed towards his intervention in the speech of my noble friend Lord Amory, the point about profits not being used for investment. It is surely unreasonable to expect enterprises to invest before they have reached full capacity or are approaching full capacity. The companies quoted by the noble Lord have just recorded high profits following the rapid upturn in the economy since the second half of last year. The latest D.T.I. investment intention survey forecasts that next year in manufacturing industry investment will be 15 per cent. up on the level of investment this year, and that notwithstanding an undeniable credit squeeze. There is every reason to expect the companies who have recorded high profits to invest over the next year, and so we have devised the provisions in the price code to encourage such investment.

If I may say so to the noble Baroness, Lady Seear, I thought that she put the Government case against the noble Lord, Lord Diamond, extremely effectively, as also did the noble Lord, Lord Kahn. Vis-à-vis prices and incomes generally, of course I can say that we too dislike many of the anomalies and situations they create, but we are agreed that they are the only approach compatible with fighting inflation and expanding the economy. The noble Baroness asked about family allowances. She suggests that introducing family allowances for the first child would be the best way of giving help where it is most needed. I am sure that she will forgive me, especially at this hour, if I do not comment in detail on her suggestion beyond taking note of it. But such a change, which would be expensive, would not help only those who are in need but all families across the board, rich or poor. The present system, on the other hand, concentrates the benefits on the larger families, normally those that most need them; and low income families are further helped by the Family Income Supplement, which the present Government introduced, and we can all look forward to the tax credit scheme as an additional help here.

Several noble Lords, following the views expressed by the noble Baroness, introduced the question of taxation on property speculators. I acknowledge that, besides being fair, controls must also be seen to be fair. There is a great deal of feeling about this. I cannot anticipate, or even discuss, matters properly belonging to my right honourable friend the Chancellor of the Exchequer. I would merely say that since the war the various attempts to tax betterment—the 1947 Act, and the betterment levy—have had to be abandoned because of the difficulties they produced, as I think the noble Baroness acknowledged. We, of course, support compulsory purchase for housing where this is necessary to make sure that houses are used to provide people with homes, but we will consider carefully the points about speculation.

I am glad that my noble friend Lord Amory has been able to report authoritatively to the House that the price of onions has gone down. If his diet—as I hope it will not be—is restricted to onions, I must say that I am grateful that he sits behind rather than in front of me. I am very grateful indeed to him for the many helpful remarks he made. I agree with him that if our currency floats down there are harsh consequences. I am glad to say that Tuesday's measures have been responded to abroad, and this is reflected by sterling's present position. May I say to the noble Lord, Lord Diamond, that it is a 17 per cent. depreciation and not 20 per cent., though of course there is no cause for rejoicing that there should be any depreciation at all.

My noble friend made a point on productivity schemes. Because of experience under previous policies the Government thought it essential to frame the rules on productivity schemes so as to cut out bogus ones. Looser rules might well let in same good schemes but they would also open the door to invalid and bogus schemes, and that would surely be the quick road to discrediting the counter-inflation policy as a whole. The noble Lord, Lord Kahn, gave us a very salutary reminder about the effects on industrial unrest, not least to foreign investment and enterprise in this country, on which we also depend. It was certainly, from the Government point of view, an eloquent and helpful speech. In this House, at any rate, we seem to do better, I am sorry to say, as an old Balliol man, with economists from Cambridge than from Oxford.

I come to the speech of the noble Lord, Lord Fiske. I see that he is not in his place, but since he dealt with the problem of which we are particularly aware, as people who perhaps live, and certainly work, in London, I think that I should deal with it. I must say that the essential services in London and elsewhere are facing very real and present problems. This is a matter for great concern, and I do not want to minimise the problems. I think it would be a mistake to underestimate the difficulties, as I have said, but perhaps there is a tendency to put the blame for them entirely on the counter-inflation policy, and I do not think that that is the main difficulty. The main difficulty surely lies in the limited supply of labour to London. Indeed, if there were no pay policy at all, and if employers were free to pay what they wished, in the ensuing bidding up of rates I do not think the public services would have a hope of winning. The noble Lord, Lord Fiske, asked whether the recent increase in council rents was included in the recent retail price index figures. The answer is that it was. Lord Fiske criticised the increase, but he did not mention the arrangements for allowances which relieve those on lower incomes from the effects of such increases.

The noble Lord, Lord Alport, has gone. I am grateful to him, mainly for giving me a useful joke to use about Lord Stansgate at Party political meetings, and I think that may be enough said. I enjoyed the speech of the noble Lord, Lord Hale, even if I did not follow it all the way. I would say to him that it was only the other day that I myself intervened, I am ashamed to say, in a speech of Lord Shinwell concerning the remark of my noble friend Lord Butler about doubling the living standards of the people of this country in twenty-five years. My burden then—as it is now—is that this has been achieved by successive Governments, and indeed that it is not enough; but I do not think we can say, with the noble Lord, Lord Hale, "Where have all the flowers gone?" Some of them are still around. I would say to him on the housing question that house owners can still borrow at 9½ per cent., admittedly not nearly so favourable a rate as when the noble Lord was fortunate enough to buy his house. But we must, I think, look at the capital stake of people in the economy now as against the capital stake of people in the economy when he bought his house. Householders are favoured fiscally, and we are of course known to encourage wider house ownership.

My Lords, I must come to an end. The Government have been teased for saying that our problems are the problems of success, but this success is not simply one of government—a high note, so to speak, in the process of blowing one's own trumpet. The success is surely the success of the British people and the British economy in their response, at a difficult time, to the chances which the Government have given. Inflation, which is at least useful in sharpening our sensitivity to inequity and injustice, could have wrecked this challenge and this response; but, thanks to the counter-inflation policies, with all our irritation with some of their effects, we in this country have not been wrecked. Far from it: we are in a position to go from strength to strength so long as we have the will and the confidence to do so. I believe that this Order can only reinforce and make credible that confidence and that will.

On Question, Motion agreed to.