THE ECONOMIC SITUATION

HL Deb 30 July 1974 vol 353 cc2148-290

2.52 p.m.

LORD CARRINGTON rose to call the attention of Her Majesty's Government to the economic situation; and to move for Papers. The noble Lord said: My Lords, this is not a very exciting Motion or a very dramatic one. It would have been quite easy to make it so by putting down a Motion of Censure on the Government's economic policy and, as I shall show later on, I think that there are aspects of what the Government have done which are more than worthy of censure. However, it seems to me that in this House we should seek to discuss the economic situation in as constructive and dispassionate a way as possible, without the polarisation of the two sides that vote must inevitably cause.

My Lords, at the outset I must disclaim any expertise in economic affairs and I wonder, in a rather heretical way, whether any expertise exists. I dare say that the noble Lords, Lord Balogh and Lord Kaldor—and indeed others of your Lordships with much knowledge of the subject—will admit in their more private moments that things have not always tended to work out according to the rules, their calculations of their expectations, and if they do not admit it, I will do it for them. In fact, your Lordships may remember the occasion not so long ago when a graduate went to his former university and was astonished to see that the papers which were being set carried exactly the same questions as when he took his degree some 20 years earlier, and on asking for an explanation he was told that the questions did not matter because the answers changed every year.

I remember, too, the forecasts which were made by the Treasury during the 3½ years in which I was in some way concerned with these matters, and by other economists. They themselves admitted a percentage of doubt due to margins of error, but one or two per cent. of the enormous figures involved quite often make the remedies or the proposals of any Chancellor more like a lucky dip than fine tuning. Therefore I do not intend, even if I were capable of so doing, to talk about the finer tuning of the economy or the technicalities of our economic management; or, indeed, of the mini-Budget which was introduced last week. I suspect that it was pretty irrelevant, now nearly forgotten, and, on balance, did more harm than good.

My Lords, I should like to speak, if I may, for a short time about those issues upon which we as a country should be concentrating if we wish to survive—to survive, that is, with a growing standard of living, comparable to the standards of our neighbours in Europe. I do not think that any Government of any Party in this country can look back to the postwar years with satisfaction. Of course, there were moments when we were doing as well as some of our neighbours and, perhaps, sometimes better; but, generally speaking, in the post-war years we nave fallen short of what we could reasonably expect. It may be that in a Parliamentary democracy it is necessary for all Parties at each Election to present a prospectus which offers more of the good things of life to the citizens of this country, and in our society perhaps it is not very likely that in ordinary times a Party which promises austerity will be given more votes than an opponent who promises greater benefits and a higher standard of living.

Of course, in our defence and in the defence of politicians, it is equally true that, given greater productivity and a certain amount of restraint at the right moment, we could have done all of those things which we set out to do, but we did not get them. Over these last 29 years we have had a succession of economic crises which have demonstrated very plainly—to the more thoughtful, at any rate—that we have been living above our means and paying ourselves more than we earn, and that we are not producing enough. As I have said to your Lordships before on a number of occasions, there has been a constant repetition of crises and exhortation in between Elections. There have been the headlines, the call to produce more, the threat that otherwise our standard of life would fall; and each time, so far from the standard of living falling, it has risen. However, nobody has produced any more, generally speaking, or worked harder or, indeed, done anything but look with increasing disbelief upon all politicians. No wonder that a great many people in this country no longer believe what they read about our economic situation, and that they have a strange faith that all these things will sort themselves out without any particular relationship between what effort they put into the economy and what they get out of it.

To give one example, I notice that in some quarters there has been great satisfaction that our industrial output during the miners' overtime ban and strike which caused the three-day week (sometimes we seem to forget that) was at the unexpectedly high level of 97 per cent. Some credit seems to be taken for this, but what does it show? It shows that in three days British industry could produce very nearly as much as it produces in five days. Of course, there was an extra effort made during that period of the three-day week, and of course it could not have been prolonged indefinitely. Even so, I do not draw from that a conclusion which would be satisfactory to management, to labour, or, indeed, to any of us.

What conclusions, then, do I draw from these preliminary observations? I draw the conclusion that at the next Election, which it seems will come in a short time, the country should be told the truth, and told the truth in blunt terms—the truth that we cannot pay ourselves more than we earn; that North Sea oil is no substitute for our own efforts; that there are no such people as "they" who will pull our chestnuts out of the fire. How often have all of us heard people saying indignantly, "They ought to put it right. They ought to see that I get more money. They should not allow that sort of thing to happen. They ought to be ashamed of themselves." The truth is that "they" are all of us—each one of us in this country who has a duty and a responsibility to look after himself and to help those in society—the old, the sick and the disabled—who cannot produce more, or possibly cannot produce at all, and who depend upon our efforts to make their lives tolerable.

Somehow or other we have to explain to our fellow countrymen that giving yourself more money without increased productivity does not in the end make you any better off and makes many other people worse off, and we have to tell them that it is better to earn money than to borrow it. I think it is very nice of the Shah to lend us a large amount of money on what I imagine will be satisfactory terms, but how much better to be in the position of the French, selling £2,000 million worth of goods to Iran, creating employment and wealth thereby and at the end of the day they do not have to pay it back.

Perhaps the most important truth that we have to proclaim is that if we as a country wish to survive and increase our wealth—and consequently the wealth of all of us—the only way in which it can be done is by supporting industry and commerce. Successful industry is the creation of wealth. If we hinder industry by undue taxation or by uncertainty; if by our actions we discourage investment; if by taxation we remove too much of the profits which go to create further production then we are impoverishing the community as a whole. I hope that we do not deceive ourselves—or rather I hope that noble Lords opposite do not deceive themselves—that by the redistribution of wealth, or to put it more elegantly, as Mr. Healey did, by "soaking the rich", we shall solve our problems.

I do not suppose that soaking the rich is going to be very unpopular, provided, of course, that one recognises that the definition of "rich" is someone richer than oneself. But what is really important is that we should understand that merit, initiative and enterprise have to be rewarded. I find it very odd that an industrialist running a big company, earning for Britain many millions of pounds and employing large numbers of people, should be attacked and abused for earning a large salary when there is no criticism of the enormous salaries paid to pop singers and entertainers, and the winning of half a million pounds on the pools is greatly to be admired. It seems a curious society in which gambling is respectable but hard work and the creation of employment is not. If we foster the idea that profit is bad then we undermine the whole system on which this country is built, and here I must blame the Party opposite; not all of them, but a great many of them, seem to think that profit is bad, not to say disgraceful, and that high profits are somehow evidence of greed and selfishness. But does it not depend upon what the profits are used for?

If a company is successful and shows a good profit more people will invest in it, and the more people invest in it the greater will be its ability to expand and the more wealth it will create—not just for the shareholders, not just for the workers but for the whole country. If we allow the idea to spread—even more than it already has—that there is something about profits which is not wholly honourable or decent then we are asking for trouble. Besides, would noble Lords opposite rather have profitable companies or unprofitable companies? There really can be no doubt about the answer.

Of course, there must be an understanding on the part of all concerned that profits are used for the good, not only of the shareholders but of those who work in the company and the community as a whole. But for goodness' sake do not let us make "success" a bad word. I suppose that uncertainty more than anything else undermines the confidence of industry. The continual talk by a number of members of the present Administration about more nationalisation has, I think, done more harm to confidence than almost anything else. The "shopping list" which is being continually bandied about; the Green Paper which we are told to expect; the obvious approval with which large sections of the Labour Party and the trade union movement greet any proposal for further nationalisation—all this breeds uncertainty and insecurity in those very people on whom we must rely for our prosperity. I very much hope that any noble Lords opposite who are in favour of more nationalisation—and I hope there are not many of them—will ask themselves why.

Is it because the experience of the last 30 years has led them to the conclusion that the nationalised industries are better managed, better led, that industrial relaions are better, that nationalised industries are more profitable and are more efficient? Surely not. I do not think it would be very difficult to prove the reverse. Some of it, of course, is perfectly understandable. It is not, easy—the Lord knows it is not easy!—to run the coal industry. It is not easy to run the railways, where there is an element of social benefit. But can it really be said that our experiment of nationalisation has, so far at any rate, proved an outstanding success? What makes anyone think that to take a company into national ownership will necessarily make it better?

Does experience lead one to suppose that the workers in nationalised industries feel that they are in closer touch with those who direct their affairs than they were in the days of private ownership? I believe it is rather the reverse. The remoteness of management, the lack of leadership, centralisation, the inability of managers at a lower level to make decisions affecting their own unit, all these have been a great dissappointment to those working in those industries, who believed that nationalisation meant that they would own the industry, manage it and be much more concerned in it.

I do not for a moment suggest that there are not occasions when nationalisation may be necessary. Of course there are. Nor do I suggest that the railways, for example, or the coal industry could return to private ownership. But what I do say is that a very good case has to be made out before further nationalisation is proposed, and it should be based on something more than some ideological dogma that the State should own everything. We cannot expect industry or commerce to operate efficiently, to invest, to be confident of the future, unless there is some certainty that they will be left alone to get on with their own affairs. I think that one of the great disservices that this Government have done is to create this feeling of uncertainty when precisely the opposite is needed.

We then come to the problem which is perhaps more worrying to everybody in this country than any other: the increasing rate of inflation and the evils which go with it. I do not think that there is anybody who could put his hand on his heart and say that he knows the cure for inflation—or peraps to put it more accurately, a cure for inflation which would be acceptable in a social democracy. There are of course certain matters over which we have no control. We have no control over the price of raw materials from overseas, on which we depend for our industry and for much of our food. If I may say so, I think it was a pity that that fact was not acknowledged by the Labour Party before and during the Election campaign. It has been acknowledged since.

However, events have taken a turn for the better. Commodity prices are falling and the external causes of inflation may well disappear in what one hopes may be a comparatively short time. What we are now faced with is our own domestic inflation, which will be largely caused (unless we do something about it) by wage increases. Here we have come to a problem for which nobody has found an answer. To put it bluntly, the problem is the monopoly of trade union power.

Both major political Parties have reversed their policies while in Government. Both of them started with the express intention of maintaining a voluntary incomes policy, and both of them were driven—much against their will and really for the same reasons—to a statutory policy. Both of them knew that the maintenance of a statutory policy was going to be extraordinarily difficult, and yet both felt that in the circumstances it was the only course. The present Administration had decided to do away with a statutory policy and to rely on the social contract. I would be the last person to wish to see that fail, because if it could be made to operate successfully it would show an understanding on the part of the Government and of trade unions and workers of the responsibilities and duties of each other. But it would be dishonest of me not to say that I am a little sceptical about it.

My Lords, of course it will work if the Government allow all wage claims to be granted in order to save trouble. But that is not much of a social contract; indeed, it is not anything at all. I fear that in the autumn the strains of a social contract will be very great indeed, and it will take more resolution than the Administration has so far shown, and more leadership than the T.U.C. has so far seemed prepared to give, if the social contract is to be a satisfactory substitute for an incomes policy. I think that noble Lords opposite and, indeed, anywhere, can fairly say, "All right, then what do you do?" If it is possible to have a voluntary incomes policy, it is infinitely better than a statutory incomes policy. But I do not believe that any Government can just sit back and do nothing in the face of the appalling problems that wage increases and consequently inflation will bring to the people of this country.

Therefore, it seems to me that the only way in which a voluntary policy or, indeed, a statutory policy can ever be made to work is to mobilise public opinion on the side of moderation by making the ordinary man and woman understand the problems which beset this country. I believe, too, that as a very first priority we should increase the involvement of workers in their industries, to relate the success of an enterprise with the benefits which workers can get from that success. I do not believe, for example, that in the motor industry in these last few years that the lessons that can be learned can encourage moderates to feel that greater productivity will bring them bigger incomes. On the contrary, it seems that militancy and strikes bring high wages from management who give in, or are forced to give in to higher wage claims with no greater productivity. We must convince our fellow-countrymen that the only real and safe way to get higher wages is by higher production, and that we are on the slippery slope if we believe otherwise.

The truth of the matter is that there are really only two ways of doing something about inflation. One is by adopting a monetary and economic policy which would create considerable hardship for the people of this country, with much unemployment, and by measures which would, to a great many of us, be totally unacceptable except at a moment of very great crisis. The other way is by good sense, by a combination of monetary measures and restraint and responsibility on the part of all of us—not just the workers, not just the management, but all of us. In order to achieve that, there will have to be a very much greater effort on the part of the political Parties to present these truths and not disguise them, not to pretend things are other than they are. For if we do, we shall find that the grave crisis of which I spoke is not all that far away; and the unacceptable consequences and remedies are there, too.

My Lords, what conclusions, then, do I come to? We must tell the truth and not disguise it. That is up to us. Any political Party which promises in the near future a lot of nice things for the people of the country is being deceitful; and, incidentally, any Party which proposes nationalisation as a remedy for our ills has its head stuck in the sand. We can say there is nothing in our situation that is even remotely hopeless, there is nothing in our situation which cannot be put right. Just consider the state of Germany, or of Japan, after the war, and see what they have achieved from a base a thousand times worse than ours to-day. But we must have self-discipline to do it. We must look carefully at Government expenditure and local government expenditure, and contain it.

A lot of what we would like to see happen must be postponed. It must be our objective to look after those who cannot look after themselves. I may say that I am at a loss to understand the political philosophy which does not accept something like the fair rents scheme. Of course let us help those who cannot afford to pay the rent for their house. But why subsidise those who can? What object is there in an indiscriminate subsidy on food? Of course let us help those who are badly off and who cannot afford the price of bread and milk. But what possible merit is there in subsidising those who can afford to pay? Let us concentrate on creating wealth in this country by encouraging industry, and not by impeding it. Is it sensible to put added taxes on industry which prevent investment and slow down growth? We must concentrate on the creation of wealth. Let us applaud profit, and not sneer at it. Let us seek to associate these who work in industry with the success of their companies, and let them benefit from that success. Let us see whether we can mobilise public opinion to support the voluntary system of wages and income. Above all, let us seek to unite the country in this common purpose. None of those things is impossible, but do not let us leave it until it is too late. My Lords, I beg to move for Papers.

3.17 p.m.

THE MINISTER OF STATE, DEPARTMENT OF INDUSTRY (LORD BESWICK)

My Lords, we are grateful to the Opposition for making this debate possible. We are grateful to the noble Lord, Lord Carrington, for the tone and temper with which he initiated it. I shall try to follow the line which he set. Much is made these days of the coalition concept, but the inescapable fact is that there are different approaches. An overwhelmingly important requirement, it seems to me, is that we should debate these different opinions as frankly, freely and as closely as possible, and that is what I think the noble Lord was saying. If one side loses the debate and the forthcoming Election, then I would accept that in the national interest in this critical period the other side should give every opportunity to the opposing side to prove its point in practice. The noble Lord has stated his own Party's point of view fairly and clearly, and I shall try to state mine.

My Lords, may I deal with this issue of uncertainty and lack of confidence which, the noble Lord was making out, was doing much more damage than anything else. Uncertainty and lack of confidence, like beauty, are qualities which lie in the eye of the beholder. The modern advertising profession is based on the proposition that the eye of the beholder can be influenced by skilled propaganda. If I spend two minutes on the current professionally planned propaganda campaign, devoted specifically to the creation of uncertainty, it is because if we are to identify the truth we must first cast aside the dross.

Take for example to personalise propaganda on to my right honourable friend Tony Benn. They sought to create an unpleasant image of the Millbank man. The truth is that I sit in the Millbank office and my right honourable friend in Victoria Street. But no advertising man could build up fear about the Victorian man and the truth was simply disregarded. Or take the case of the 4,000 firms. When asked for the amounts of public money paid to the 20 top companies my right honourable friend said that it was taking time to find this out because in turn those 20 companies owned 4,000 more. This became, quite deliberately, a plot to take over 4,000 firms. "Benn widens his grab net" was the headline of the Daily Express. And if we are talking about uncertainty, look at that full-page advertisement by the Aims of Industry, headed, blatantly, "How safe are your pensions?" Has there ever been such a crude attempt to create uncertainty since the Post Office Savings scandal of 1931?

Two things can be said about this current lack of confidence: first, that it is being deliberately fanned by some organisations for their own narrow interests; secondly, that the chronic trouble which makes us susceptible to this propaganda pre-dates the advent of the present Labour Government. My Lords, the confidence which we lack is a factor shown by others in the Western World and affects other aspects of our life—let us face it—than economics and trade. But take, for example, as an index of confidence, industrial investment. It was inadequate investment which Mr. Heath had in mind when, as Prime Minister, he said in his 1971 Guildhall speech that the situation, and I quote: … cries out for a major programme of investment in industrial expansion and modernisation. I, for one, would applaud his statement but the fact is that investment did not rise; it fell following that appeal.

In 1971 investment per head in manufacturing industry was less than half that in France, Japan and the United States of America. In 1973, after all the appeals and the honest effort, we spent just under £2 billion gross on manufacturing investment in 1970 prices, or 12½ per cent. less than in that 1970 year of a Labour Government. Let me hasten to add, lest I be thought to be saying that all was well under that 1970 dispensation, that that investment figure was a bare 5 per cent. of the G.D.P. Last year, the recovery year, it was barely 4 per cent. How can we talk as if the Conservative Government free market economy has served our needs?

There is another feature of the figures which shows that all was not so well before March, 1974. Look at the tables which compare the return, in terms of extra production, in this country compared with others for a given volume of investment. Taking Japan as 100, the United Kingdom is 50, the United States of America is 60, France is 75, and Japan, as I said, 100. While investment at home has lagged behind, there is one other quite significant fact over which we should pause when considering the effectiveness of free market forces in re-equipping—effectively re-equipping, as the noble Lord has said—British industry. My Lords, so great was the confidence of investors in the earlier years that in the last ten years the value of direct investment abroad has more than trebled and at a time when so much was needed in industry at home.

That brings me to yet another point. Not only has there been inadequate investment, not only has that investment in manufacturing industry not yielded sufficient return in terms of productivity, but much investment has been in areas irrelevant to, or prejudicial to, an improvement in our real standard of life. Take, for example, this gem of information which I culled from the Investors Chronicle of June 14 this year: Estimated sales of land and buildings in 1973 soared to a staggering £12,000 million, only marginally less than the gross capital expenditure of the whole of British industry in the year. The total value of conveyancing in 1973 was about three times the 1968 level. That is only one of the pieces of evidence which indicates that the free enterprise economy can be too free. It may be said that some of that figure of land and property sales were of houses to live in. That is true, some of them were, but again further study shows that investment in residential property in this country in recent years has been below that of other countries on the Continent, and the need here was certainly not less.

My Lords, I will not weary the House with many more figures, but there is more statistical evidence which indicates that the current argument of free enterprise versus public enterprise is not only time-consuming but irrelevant. What is wanted is more enterprise, more effective enterprise, right across the industrial spectrum. Moreover, it is becoming increasingly difficult to say what is true, traditional Tory-type, free enterprise. The figures quoted by my right honourable friend about the £3,000 million plus of public money made available to private companies only indicates how mixed is the modern mixed economy.

However, we need to understand more than that. We need to understand that it is the direction of investment as much as the volume which is important. It is not only how much production but what kind of production which will determine our standard of life. I have often argued in this House that we confuse ourselves by relating success to the growth of our G.N.P. Theoretically we could show a percentage figure of growth reflecting only the building of prestige office blocks to house people who build prestige office blocks. But if we are to enjoy a good life—using the term in its best sense—if we are to follow a democratically agreed pattern of priorities then we must have for the future a much more purposive pattern of investment.

This is the thinking behind the present Government's proposals, which will be implemented by the next Government, for planning agreements with the major industrial companies. There is already much exchange of information about forward plans as between industrial organisations and Government, and our proposal—which does not justify the kind of campaign which the Aims of Industry are mounting—is to develop and regularise these exchanges. Clearly, Government policy can affect, and be affected, by what the larger companies intend to do or would like to do. It is a sensible means of building up confidence for investment. The precise scope and character of this machinery must be a matter for consultation, and the employee as well as the employer organisations will be consulted.

The recent C.B.I. document was a useful addition to the material for discussion. Some weeks ago the C.B.I. were invited to discuss the outline proposals for the Government's forthcoming White Paper on Industrial Regeneration. The kind of dialogue which we envisage is one which is an essential prerequisite to any effective policy in this country. Beside this voluntary planning agreement, we need another instrument of planning. In the first full flush of Selsdon Man the Industrial Re-organisation Corporation was scrapped. We need a new body to take on where that old body left off.

The National Enterprise Board is what we have in mind. It will be a source of new funds for appropriate areas of industry where sustained investment is essential for our economic development. In some cases, with Parliamentary approval, it will acquire the entire ownership of existing companies. This has been done in the past by Conservative régimes, notably in the case of Rolls Royce. We propose that it should be done not in emergency situations only, but as part of an agreed development of our national economy. I was asked the other day by a noble Lord whether I would say by what criteria these public investments would be decided. I said, "The criterion of national interest", but in a debate one can spell it out a little more. I had in mind such factors as the creation of employment in assisted areas, increasing exports or saving undue imports, increasing efficiency, promoting development in the off-shore supplies industry and, one might add, offsetting the effect of privately dominated monopoly.

The noble Lord had some rather unkind things to say about what he called nationalisation; what I would refer to as public ownership. As he rightly said, or rightly implied, there would be no public transport system, there would be no steel organisation today, there would be none of the services upon which we depend unless public ownership had been prepared to step in. And although one can make the point about profit-making, let us not forget that it was the Administration of which the noble Lord was a member which quite deliberately held back prices in the nationalised industries in the national interest, and when we took over we found they were in fact £1,400 million behind the figure which they would have achieved had price rises been agreed by the previous Administration.

As the noble Lord has said, there was evidence at the time of the three day week that those engaged in industry and commerce can respond to a proper challenge if it is put to them, and certainly I agree with him that none of this restructuring and re-equipping of industry will serve its purpose unless what is called industrial relations are right. It is this factor which is so important alongside the other matters about which I have been speaking. The C.B.I. assert, reasonably enough, that the Government have no great reservoirs of managerial talent. I think that is a subject which at some time this House might well debate at greater length. But all I would say at this moment is that I believe there exists great new managerial talent in this country, two or even three layers down below the present top management. This is true in many of our sluggish industries. I believe that there are these younger men who, given the chance, can develop and will match the responsibilities. One thinks of wartime experience, and indeed there are examples, though not enough, in the current industrial scene.

But in the context of this debate it is wider industrial relations we must consider. The Pay Board, which struggled manfully with a remit riddled with anomalies and crippled with inflexibility, has been scrapped. The wretched Industrial Relations Court, which acted out its short life between near tragedy on the one hand and sheer farce on the other, though with much useful work in between, is no more. We now have or are about to have, the Conciliation and Arbitration Service, and we also have the Royal Commission on the Distribution of Income and Wealth, to whose chairman, my noble friend Lord Diamond, I am sure the whole House will extend good wishes. We also have the guidelines issued by the T.U.C.

The first two new organisations need time to achieve authority and to exert influence. The guidelines are a valuable sign of the readiness of the T.U.C. to fulfil its part in the social contract. But we have to recognise that those guidelines coincide with the lifting of Stage 3 at a time when anomalies need to be removed and when the threshold payments are multiplied by quite abnormal price increases. Only the foolish or the irresponsible would deny that the testing time lies immediately ahead.

But before one criticises the risk we now face let us recall the dangers from which we have emerged. The last Government, of which the noble Lord was a Member, tried a combination of rigid restrictions on pay with the reckless printing of paper money. It was a combination which could not and did not work. It is precisely the aftermath of that combination with which we now must cope. The Industrial Relations Act did not usher in an era of industrial peace. In 1972 we lost nearly 24 million days in disputes, and even after the lull of exhaustion in 1973 we were back with 8¾ million for the first half of this year. It is surely worth while trying a new approach. The whole concept of industrial democracy is based on the idea that constructive co-operation will gradually displace confrontation and a get-what-you-can attitude on both sides of industry. If we encourage what is best in modern industry; if we move towards a real industrial democracy; if we use the conciliation and arbitration services when troubles arise; if we have a Royal Commission to help identify and facilitate the elimination of the sharper inequities of income and wealth; if we have the T.U.C. publicly advocating proper restraints, then, longer-term, the outlook is bright. It is the short-term where the shadows lie.

The deeper part of our problem reflects credit rather than dishonour upon us as a nation. The ending of colonialism was a policy for which many of us fought. It was then condemned as a means of ensuring cheap raw materials. The proof of that is now before us. From 1970 to 1974 the price of our exports went up by 46 per cent., but the price of imports went up by 88 per cent. The price of crude oil, which was £8 per ton f.o.b. in the third quarter of 1973, rose to £32 per ton f.o.b. in the second quarter of 1974. It would be of nostalgic interest to calculate how much of these commodities came from countries where once the British flag flew.

Clearly, if other countries than ours are to have a greater share of what is produced, then—and I would agree with the noble Lord opposite in what he said on this—either total production is increased or our share is lessened. Though the terms of trade may turn a little in our favour, we must henceforward expect to export a larger volume of goods and services for a given quantity of raw materials. We cannot escape this fact by paying ourselves more paper money. Pay claims must have regard to these underlying realities. I saw one calculation last week, that at present rates of inflation a young man of 25, earning £40 a week and seeking an increase in real terms of 2½ per cent. a year, would by the time he was 65 require to earn a salary of £250,000 a year. It is enough to state that to realise how ridiculous would be the situation if we allowed it to go on as it is at the present time.

Having said that, let me go on to say that there are some rays of hope. We have broken the speculative spiral in land and property. The terms of trade show signs of turning somewhat in our favour. The non-oil visible deficit declined to £449 million in the second quarter of 1974 from its high of £719 million in the fourth quarter of 1973. The surplus on invisible account rose from £800 million to £1,089 million in two years. So far this year the M3 money supply has risen by only 2.3 per cent. against the shameful figure of a 25 per cent. rise in the last financial year. All this, and when I see the faces of modern school children going to school I think that things cannot be all that bad.

As I said earlier, the testing time will be immediately ahead. To win through, I agree with the noble Lord that we shall need the utmost restraint not only in wage claims, but in the general attitude that we have towards each other. It will not be good enough to have the sort of cheap campaign which the Aims of Industry is now mounting. We need to conduct our arguments with each other in a more honest and constructive fashion. I hope in that sense that this House and the debate which follows will give a lead to the country.

3.41 p.m.

LORD BOYLE OF HANDSWORTH

My Lords, before I begin my speech this afternoon, I should like to extend my personal best wishes to the noble Lords, Lord Gordon-Walker and Lord Lee of Newton, who are making their maiden speeches to-day. The noble Lord, Lord Gordon-Walker, was for a number of years my political neighbour in the West Midlands. He and I faced one another for a period on education policy in the House of Commons, and he will not need me to tell him of the pleasure it gives me to be present to hear his maiden speech this afternoon.

A case for the Chancellor's mini-Budget can certainly be made. His measures will do something to halt the rise in retail prices, and the addition of £900 million to consumers' purchasing power will certainly have an effect on demand at a time when the aggregate of demand on our resources is likely to be running at 5 per cent. below productive capacity. Yet I cannot help agreeing with the view, cogently argued by Mr. Maudling in another place, that the Chancellor of the Exchequer may well have fallen between two stools. He has done too little for industrial investment—about which the noble Lord, Lord Carrington, so rightly spoke—on which both the level of employment and our balance of payments must ultimately depend. Despite the concession on dividend control, which is very welcome in itself, the fact is that we still have price control at a time when wage controls have been abandoned. This fact, together with the measures in the April Budget, must have a very serious effect on the cash flow of industry.

At the same time, the Chancellor of the Exchequer's measures, by stimulating consumer demand, must have a deleterious effect on the balance of payments. I should like to ask the Government's spokesman who is to reply what I comsidered a very pertinent question which Mr. Maudling put in another place; namely, what is the expected effect of the mini-Budget on the import bill? It seems to me not altogether easy to defend the 2 per cent. reduction in V.A.T. and, as the noble Lord, Lord Carrington, said, this continuing very high level of indiscriminate food subsidies, whilst still collecting advanced corporation tax in this year of maximum squeeze on industry. I must say that if the Chancellor of the Exchequer, whoever he may be, feels later on in the year that he must do something more in view of rising unemployment, I hope that he will look first at the level of taxation on industry rather than give any further handouts to the consumer.

Secondly, looking ahead—and I think that on this point I take a slightly more sombre view than the noble Lord, Lord Carrington, did in his speech—I suspect that post-tax living standards for the British community as a whole cannot be maintained in real terms let alone increased during the years ahead. The sooner we face that fact the better. I agree on this point with the view of Mr. Marquand, who said in another place that the world of the 1950s and 1960s of apparently unlimited growth in personal consumption, sustained year by year, is now past. Indeed, I cannot help feeling that those in the 1950s who most welcomed growth at that time would now have some sympathy with this view.

We could only hope to increase or, I believe, even maintain levels of personal consumption provided we were prepared for one of two things: either not to bother about the level of investment—and that, as I have said, would be self-defeating—or, secondly, if we were prepared for still more severe cuts in public expenditure. On that point, I must say that I would not personally wish to see more cuts in public expenditure than we are already making. In yesterday's debate on health, I heard views being expressed on all sides in this House about the need to spend more on the National Health Service, and I think there would be fairly general agreement in this House that local educational authorities are pretty severely pruned in their budgets at the present time. Indeed, Sir William Alexander has said that he has never known a time when the education budget is more under strain than at present.

Therefore, if we are agreed that one cannot indulge in the self-defeating policy of forgetting about investment, and if we do not wish to have a further curtailment of public expenditure, then in my view this must have certain consequences for the future of personal consumption. And I have no doubt that noble Lords on this side of the House would agree that this, in its turn, raises the question of the distribution of wealth and of rewards. Here I agree there must be fairness. I take the same view as the noble Lord, Lord Carrington, that we should not penalise success, or responsibility, too much. We should none the less try to pursue a policy of fairness, although I would suggest this must include fairness over a lifetime. For myself, I was always in favour of a capital gains tax. I am in favour of a gifts tax, but I am sure that it was wrong for the Chancellor of the Exchequer to attempt to increase taxation on retired persons with incomes over £1,500 a year. I think that that was a harsh measure, and I am glad it was defeated.

Looking forward again, I must say that I am one of those who remain convinced that Governments cannot deal with cost inflation solely by budgetary and monetary policy, or by restricting the money supply. I share the view that the complete abandonment of any statutory powers over incomes has been a great mistake. I am aware that this is not a popular view in another place nowadays, and therefore I want to defend what I have just said. I daresay that the noble Lord, Lord Robbins, may wish to express views later on in this debate which may not be exactly the same as those that I am now going to put.

No one disputes that monetary policy is important, and I would identify two respects in which this is especially true. The sudden expansion of the money supply can have an effect not just on the wherewithal of funds but also on business expectations. I would personally very much endorse the view put by an able monetarist, Mr. John Biffen, in another place, that Governments need to be particularly careful about the supply of money just after there has been a very favourable turn around in the balance of payments. Again, the money supply is important when spenders depend heavily on finance from external sources, and this especially applies to property deals. I believe that the previous Government would probably now admit that they were wrong to budget for such a very large borrowing requirement, and that this helped to stoke up the property boom. In those two ways—the effect on land and property deals, and the effect sudden changes in expectations, especially when the balance of payments has turned more favourable—I would not for a moment doubt the great importance of monetary policy and the money supply.

However, I cannot agree that at any tolerable level of unemployment we could conquer cost inflation by operating on the supply of money alone. It is here that I find myself differing from certain economists. I read the views of distinguished men like Professor Alan Walters, who argued that a period of zero growth and unemployment rising to 1.2 million would enable us permanently to defeat inflation without any incomes policy, and then to resume growth without rising prices, it seems to me that they leave out one or two quite obvious factors. Even if we could maintain unemployment politically for a period at the precise figure of 1.2 million, or something like it, does any noble Lord really doubt that there would be a number of bankruptcies, and a great deal of pressure on the Government to bail out particular firms? I am quite clear that in a mixed economy money would in fact be coming into the system by other means, quite apart from the personal suffering that would have resulted. When I come across the view that you can conquer cost inflation simply by a monetary and budgetary squeeze, I can never help being reminded of a remark by a distinguished Cambridge philosopher, Professor Broad, who said of the views of some of his colleagues, that only very clever people could have devised theories so repugnant to good sense.

If we want to defeat cost inflation, then it seems to me that we must use all the means to hand: budgetary policy, and monetary policy, and there must be, surely, reserve statutory powers over in-incomes as well; though I would suggest we should try to learn about the technique of incomes policy all the time and no doubt there is the need for the powers to be used a little more flexibly than those operated by the previous Government. Frankly, I think that the Heath Government in their last weeks allowed themselves to get too boxed in, if I may use that expression. But they were surely right in principle to face this issue of statutory powers and to hang on. I be-believe that sooner or later any Government will have to recognise the important element of truth in Mr. Maudling's view when he said recently of incomes policy: It is the best policy we have got. Lastly, as I know many noble Lords wish to speak, I want only to make one point. We are living, as we know, in a time of acute economic crisis for Great Britain. I think we have also a crisis of national identity, though unlike my former distinguished colleague for Wolverhampton, I would personally always prefer to express this identity in terms of culture rather than of race or territory. But at the moment we have a crisis of national identity when more and more familiar landmarks are disappearing. At times we may feel that these landmarks are getting rooted up somewhat unnecessarily. If noble Lords will forgive what may seem an irrelevant point, I find myself wondering what useful purpose is really served by the superior of a religious community on taking up his office taking the trouble to tell us that he does not expect the Church to last more than another 50 years. I can see no great point in causing more alarm to any section of the community than is necessary. Equally, I am sure that in this kind of situation certain of our institutions do take on a very special importance. This is all the more true in the context of what the noble Lord, Lord Carrington, rightly called the mobilisation of moderate opinion. And of all institutions that matter at present I would venture to suggest none matters more than the institution of Parliament itself.

I was reading recently what I think is one of the most outstanding biographies to have appeared since the war, the three-volume biography of a very distinguished former Member of this House, the first Lord Hankey, by Captain Stephen Roskill. I was struck by Captain Roskill's remark about the disastrous story of the peace ballot in the 1930s. He makes this remark: This was Government by referendum instead of by Parliamentary processes developed and adapted over a long period. How apposite those words seem to-day! We are in a crisis position, though as the noble Lord said, I believe, not a hopeless position.

Only this morning in The Times another Professor, Professor Harrison of Sheffield, has reminded us that industrial action has not only played a big part in overthrowing a Government but has also overthrown a court. Whatever our views on the Industrial Relations Act—and I do not think the whole Act was as bad as it has sometimes been painted—the spectacle of a court being overthrown frankly gives one serious cause for reflection. Other sections of opinion are looking for a national leader, apparently right outside the normal processes of Parliamentary democracy. As someone who can attend this House only seldom I would say, for Heaven's sake, let us in Parliament keep our heads. Let us play our part in facing the situation honestly; in shunning extreme courses, as both opening speakers have notably done in this debate this afternoon; in helping to keep one another informed, and in doing all we can to strengthen those forces in our society which stand both for justice and for stability.

3.55 p.m.

THE EARL OF LIMERICK

My Lords, I am indeed fortunate in speaking so early in the debate after three such eminent speakers as the noble Lord, Lord Boyle of Handsworth, the noble Lord, Lord Beswick, and my noble friend Lord Carrington, to whom we are particularly indebted for having given us a chance to debate this most important topic at this time. I am not going to follow them down their economic by-ways. I will start out on a new line with a small parable. It concerns a man returning home late one night who saw under a lamp-post on his hands and knees another man who was clearly inebriated. After a while he approached him and said, "What are you doing?" To which the man on the ground relied, "I am looking for my wallet." The first man said, "Where did you last see it?" "Oh," he said, "I think I dropped it down that dark lane over there." "What are you doing looking here?" "It is so much easier", he said, "to look where there sis some light."

I am not noted for my pessimism and certainly I do not aspire to any reputation as a prophet of gloom, but I strongly believe that those who pretend today, be they industrialists, economists, traders, financiers, unionists or politicians, that we face anything less than an economic turning point, are doing a considerable disservice to the country.

Let us look cooly at the portents and start with the good news. First, we have the halt in commodity price rises. Consequently, the terms of trade, for the time being at any rate, have ceased to move against us. These changes take some months to work through the system and for the time being they are still substantially offset by the emerging effects of oil price increases, but so far this is encouraging. It is encouraging that exports in the second quarter continue to rise, and rose, as the noble Lord, Lord Beswick, remarked, rather faster than non-oil imports. But this situation, for Britain at least, could be short-lived. Last year we exported 23 per cent. of our gross domestic product. Only Germany and Canada came close. Japan, at 12 per cent. is about half as export dependent as we are, and the United States, at 6 per cent., only a quarter so. Meanwhile, in the United States the gross national product continues to fall and domestic wage spirals in industrialised countries are taking the place of oil and commodity price spirals.

Until recently the major economies of the world were all expanding together. If they now simultaneously contract, we face the certainty of a slow-down in world trade, encouraged as it will be by the massive transfers of spending power from current accounts in O.E.C.D. countries to capital accounts in the O.P.E.C. countries, and we face more than a possibility of a world slump.

Last week the Economist carried the rather disturbing suggestion that, like a breed of super rats, which have become immune to poison, the world's economies may now have become immune to Keynesian demand management on a national scale. Economies have become too inter-dependant for any but the Governments of the larger countries to be able to control their own destiny, while politically countries remain too independent to be willing to co-operate in controlling the re-emcrging international trade cycle. International trade as a percentage of total production has been increasing, and we, with the greatest dependence of any major economy on such trade, are consequently the most vulnerable. My noble friend Lord Carrington pointed to the repetition of crisis and exhortation. Here we have the problem of belief.

My Lords, I should declare an interest. Last month I assumed the presidency of the Association of British Chambers of Commerce. There is a constant two-way dialogue with over 50,000 of our members throughout the country, and thus I am on the receiving end of a stream of comment on how these members see the industrial scene and how the present climate affects their decisions—decisions which collectively are of colossal importance to the country. Now I neither envy the Chancellor his job nor do I propose to advise him on how to discharge it. But the plea which constantly reaches me is the plea for consistency as a basis for the return of confidence. These people, generally responsible for the running of businesses both large and small, believe in Britain's capacity, but they are both confused and deeply concerned as to what to do for the best. Let me quote just two sentences from the latest issue of Commerce International, an admirable monthly which I commend to all who do not know it. We read: Even the Government seems to be in two minds, with Messrs. Healey and Lever offering balm to all and sundry while Mr. Callaghan seeks to renegotiate membership of the E.E.C. on the basis of future penury. Add to all this the utterances of Herman Kahn that Britain is heading for a future existence of a cheap tourist island for the Italians and Spaniards and there is small wonder that confusion reigns ". My Lords, let me expand on this vital question of confidence—and I believe it is not, with due respect to the noble Lord, Lord Beswick, something that is just in the eye of the beholder. It concerns things that people can see around them. It concerns worsening corporate liquidity; it concerns the inability to raise money in the securities market. Consequently it concerns investment plans. A major effect of inflation is to put pressure on company liquidity. It is readily accepted that the increase in world prices of raw materials, including oil, was not the fault of our Government or of anyone else's Government, nor was the increase in world food prices which has provided the basis for much of the case for increased wages. Nevertheless, as now seen by commerce and industry Government has added unnecessarily to their problems. In particular, advance corporation tax has been seen as a particularly unhelpful measure which permanently affects their liquidity.

Then there is the problem of higher stock values costing more to finance at higher rates of interest to carry just the same levels of stock, while there is currently no way in which the capital base of most companies can be increased to support the extra borrowing which this would entail. The Government, with their constant stream of comment and criticism on the conduct of the securities market and on the City generally, and because of their threatening, if occasionally divided noises about massive reorganisation of the private sector of industry, and by being thought to regard profits as socially undesirable, are widely held to have contributed to the current debilitation of the equity market. Then the massive increase in rates has added to the general burden. We might note that although the Environment Secretary has seen a warning so far as the domestic ratepayer is concerned, there has been no apparent understanding in respect of the burden of rates on businesses, especially small businesses where they can hit very hard indeed.

Commerce and industry, forced more than ever to look carefully at liquidity matters, tends to focus attention on immediate cash flow and thus to become preoccupied with short-term expediency to the detriment of the medium and the long-range planning which is the real path to industrial effort by the country. There is a need now to restore a sense of balance and a sense of perspective. The slow down on the construction front is producing a serious build up of problems in the secondary industries which supply the main industry. The overall effect of the events of the last nine months or so has been to strike a series of blows, collectively damaging to the confidence of commerce and industry and seriously to undermine that confidence. There is the confidence of commerce and industry in its own future, one obvious measure of which is its readiness to invest; there is also the confidence of our customers overseas, actual and potential, in the ability of this country to deliver the goods.

In many ways, in the important engineering sector, the trading outlook at home and especially overseas is encouraging and, although in some instances the economies of our customer-countries are faltering a little, the evidence is there that the order books are still firm. Clearly, in these circumstances the role of Government is to do all within their power to assist commerce and industry to take fullest advantage of the situation. Apart from taking action that is sensible in itself, the Government must avoid continuing uncertainty. Industrialists, generally, can trim their sails considerably to deal even with the most difficult of circumstances but what they cannot do is to deal effectively with uncertainty.

What, then, can be done about this situation? I am making no Party point—I am sure the noble Lord, Lord Beswick, will appreciate this—when I point out that it is only the Government who can dispel these clouds of uncertainty. I should like to make this offer to him and to his colleagues. The Association of British Chambers of Commerce and the Chamber of Commerce movement generally is ready and is anxious to enter into and to expand any dialogue with the Ministry of Trade, the Ministry of Industry or with anyone else, bilaterally or multilaterally, to help to dispel these doubts and to unleash the best endeavours of our commerce and our industry. But we cannot expect full success in this unless the Government will define the targets, will make clear that the future of our economy depends on successful and profitable enterprises in the private sector, which we strive for in the public sector, and, not least, quell the damaging uncertainly engendered by vague, threatening, and sometimes contradictory statements made by those responsible for policy.

My Lords, I have attempted no penetrating economic analysis but I should like to consider briefly what motivates ordinary men and women. First and foremost there is the fear of inflation and where it may lead, socially as well as economically. It is not so much greed as the fear of deprivation; it is not so much resistance to change, but fear of violent change. We have become sadly familiar with industrial unrest in factories and in mines, but it endangers a deep sense of unease to learn of the new spirit of militancy among such groups as nurses, teachers and civil servants—and this at a time when the international prize must go to the country with the most disciplined workforce.

The sense of frustration and injustice which we have long recognised among the lowest paid is not now confined there, and there are, I believe, two very serious long-term implications. The first implication stems from a narrowing of monetary differentials and a lack of incentives to undergo training and to acquire skills, whether these be technical skills achieved through professional training or the skills of the artisan acquired through apprenticeship. The sacrifices which are required, of leisure and of earning power, during the learning period are not seen to be rewarded in later life. Those who persevere and qualify are often then required to bear extra responsibilities without corresponding social or financial recognition.

The second point of concern revolves around the motivation of the young and striving managers who hitherto have been prepared to work very hard in expectation of real social improvement for their families. It will be a sad day if they start to opt out. These people are feeling in no small measure bewildered and increasingly resentful. They have seen their gross wages not keeping pace with the cost of living; they have felt the effects of fiscal drag; they have borne increased taxation; and they are deeply concerned about the price and availability of mortgages for their houses. They are hard hit by rising domestic rates. There is the unspecific threat of a wealth tax and there is this new attitude, which has been referred to, of criticism of what is successful and profitable.

These two tendencies, I believe, we must be deeply concerned about. As I have said, the prize must go to the countries with the most productive and disciplined workforces and we cannot afford to fail to optimise our national potential. I think it is worth asking ourselves these questions: how often recently have we met young people who will not contemplate a career in trade or industry because that carries a tinge of something not quite nice, and how often have we heard it asked recently: what is the point of saving with our system of taxation; why not spend it while we can? What a burden for the future we shall be storing up if we allow this attitude to persist!

My Lords, I started with a parable. I shall end with a true story. A friend of mine said to me yesterday, "I am sick and tired of hearing the politicians thundering about making this a country fit for our children to live in. We have the best country in the world: only the politicians can spoil it for our children". I can think of no better final words to leave with the Front Benches.

4.13 p.m.

LORD GORDON-WALKER

My Lords, this is the first time I have had the honour of addressing your Lordships' House. I should like to start by thanking the noble Lord, Lord Boyle of Handsworth, for the kind words he said. If I may say so, I much admired the way he conducted himself in another place, where we often crossed swords, and I very much admired his command of argument in his speech to-day.

My Lords, I want to confine my remarks to the problem of inflation—heaven knows, it is a big enough problem. I concur with those who say that the present rate of inflation, if long maintained, will simultaneously undermine confidence in our money and in our democratic institutions. We must never under-rate this great and desperate challenge. On the other hand, it seems to me that we must preserve a degree of perspective. There are different forms and different causes of inflation. There is a built-in inflationary factor in our modern economy which was absent in the old days of boom and depression. We have mastered the art of full employment, which is exactly the same thing as living on top of a boom, and living on top of a boom is also the same thing as inflation. Therefore, as long as we have full employment, which we must maintain, we must have a certain inescapable degree of inflation. This basic irreducible rate of inflation is the price of full employment.

If we had only this degree of inflation to cope with, it would be tolerable. It is what one might call the extra inflation over and above this basic inflation which is so dangerous. Various factors produce this extra inflation and the best experts are not agreed about them. But one factor which is sometimes overlooked, because it is outside the scope and range of economic analysis, is the prevailing mood of the people at any one time, what they fear and what they think desirable. I think that one reason for the German economic miracle was that the German workers feared inflation more than anything else. I think our workers still fear unemployment and loss of purchasing power most. As we, too, face this mounting rate of inflation, our people may come to have a like fear about inflation, and a factor which now works in favour of inflation will then begin to tend to work against it.

My Lords, it is of course possible—indeed, easy—to be too complacent about the problems facing us, but it is also possible to be too alarmist. If we are too alarmist, this could disable us from taking effective action. If we raise our eyes from our present discontents to the not too distant future, we can glimpse, as my noble friend was saying, somewhat better things. The terms of trade, it seems to me, will certainly at some time or other move in our favour. That will be settled by the play of supply and demand. If commodity prices reach abnormally high levels, producers produce more to meet them and gradually begin to overproduce, and a very small percentage change in these things can make all the difference between shortage and glut. Fanners, above all, know that, as did Shakespeare when he talked of the farmer who hanged himself in expectation of plenty.

There are some signs—and we all agree about this—that commodity prices are beginning to come down and we can look forward to our own oil production which will help our balance of payments and our terms of trade. But we cannot simply wait until things begin to get better of themselves—as they will, five or six years from now—because five or six years more of the present rate of inflation will be absolutely disastrous. Equally, we cannot rely on exhortation. We have, therefore, a need for policies and actions which will tide us over the next few years before matters begin to go our way. What we need, I think, are rough and ready, unorthodox, temporary measures to moderate at almost all costs the present desperate rate of inflation.

It seems to me that the Chancellor of the Exchequer was perfectly right to take a number of such unorthodox and temporary steps. I am thinking of the steps to moderate the rise in rates, which were particularly important. I think also that food subsidies are right and I should like to say to the noble Lord, Lord Carrington, that I do not see how one could administer food subsidies on a means test basis as he was suggesting. It seems to me so incomparably difficult and expensive that it would not be worth doing, and I am glad that the Chancellor of the Exchequer has made more money available for food subsidies.

However, my Lords, there is one other major step of this kind which I think would greatly help us to get over the hazardous few years ahead; that is, indexing, as it is called—the adjustment of sources of income to rises in the cost of living. It is not a wholly new idea. It already applies to wages in terms of threshold agreements; it applies to retirement pensions, and also to foreign holders of sterling. It seems to me that it should be extended to all, or practically all, payments. This would, more than anything else, restore confidence in money and would abate the race by all who can manage it to keep their income in step with rising prices. It would redress the balance between the economically strong and the economically weak and—something to which I attach very great importance—it would restore and foster individual thrift, and give an extra incentive to reduce inflation, because as we get back to moderate inflation from this immense inflation the cost of indexing would proportionately fall away. It seems to me that all these policies and similar ones together would help very much to reduce the impulse behind wage increases.

For the reasons I have given, I do not think we could ever be rid of inflation altogether unless we adopted the unthinkable course of abandoning full employment. But if we take vigorous, resourceful, unorthodox steps in temporarily checking inflation for the few years ahead, we can look forward in the not too distant future to a moderate and tolerable rate of inflation, and there would be some benefits from that. Broadly speaking, it is good for the economy if lenders of money lose at a reasonable rate to the active borrowers of money rather than the other way up. And indeed, my Lords, some moderate degree of inflation is—and we must never forget it—infinitely belter than any degree of deflation.

4.21 p.m.

LORD BARNBY

My Lords, one of the privileges and pleasures which we treasure in this House is that of finding oneself in a position to express felicitations to a new arrival the first time that he happens to address this assembly. I am sure all will agree that to-day we have heard from the noble Lord, Lord Gordon-Walker, an example of what a speech of moderation and charm, combined with good advice, should give to this House. He comes to this House from a long period of rough and tumble in another place where he never forfeited his good humour or his popularity; a long period in that House which embraced a great many offices, and we must not forget that among the varied offices which he held was that of Foreign Secretary. His early life imbued him with the inclination to take a wide and human view of the world's affairs and that is what established the qualities which he brings to us, associated with the dignity of a Companion of Honour. I am sure, after what we have heard from him to-day, that we can look forward to many speeches which will ensure contributions of value to this House.

My Lords, what I was about to say as my first few remarks has been somewhat changed by the candour and logic of the speech that my noble friend Lord Carrington has made this afternoon. So fluent, forceful, convincing, and what a measure of good advice he gave to the Government Benches. I hope that they will profit from much of the logic which was embraced in his remarks. A point can appropriately be raised in connection with the Finance Bill that we have just passed to-day—so to speak on the nod! What I am about to say now should more properly have been said before on the Motion to pass that Bill. Twenty years or more ago, it was habitual to have a good debate in this House on the Finance Bill and I am not sure it is good that that Bill should be passed, as we have done in the last few years, without the earlier habit. In this House we have a remarkable source of talent on financial matters, and it has been customary that the country should know that a Finance Bill will attract expressions on it and debate in this House. But to-day that debate has been admirably substituted by the opportunity for discussion which my noble friend Lord Carrington has given us.

I had intended to raise three points, all of which I have urged before. The first, curiously enough, is one on which I find myself in entire agreement with the noble Lord, Lord Gordon-Walker: it is the question of an index related bond; that is an issue with Government support related either to the commodity price index or to the index of the cost of living. It needs no further recommendation from myself, because it has been amply explained by the noble Lord, Lord Gordon-Walker. We need it and it should be offered, particularly at a time when savings are disquietingly low. The second point is I doubt as to the wisdom of the large scale on which overseas borrowing has been indulged in by the nationalised industries or other corporationsl, with the encouragement of the Government. It masks the true scale of foreign borrowing and, at the high rates of interest at which it is borrowed, it increases the cost of servicing and, therefore, the strain on the balance of payments in the future.

The third point is the advances which come from the threshold pay increases. The definition of the word "threshold" in the dictionary is not as is intended in political terms. But never mind; it has come into our vocabulary. Workers as a whole throughout the country believe that these advances are paid for by the Government, but they are paid for by industry, and they put much on to the cost of everything that industry produces. That is a point which cannot be sufficiently widely explained. I have before expressed my misgivings about the Barber policy of deficit financing, reduction of taxation, increase of Government spending, increase of Government borrowing, depression of sterling increases that which would make imports dearer and add to the cost of living. Unquestionably, the result of that policy was a large adverse balance of payments. Picture a firm that suddenly finds itself heavily extended at a moment when some unforeseen event strikes it.

That is the position which this country was in last November. The Arab blow came. At that moment there was need for Government action of such intensity as would forcefully bring the nation back on to its haunches, and make the whole country realise that real sacrifices were necessary to meet that situation. It was not taken to a sufficient extent even though they did have a considerable effect. In his speech the noble Lord, Lord Beswick, very properly took credit for the fact that the increase in the money supply rate had been substantially reduced. But really what happened during the period for which he is taking credit was the result of actions taken—insufficient though they were—by the Conservative Government of that time. It would seem that the present Government are still making the same mistake as that which was made by the Conservative Government, of not making the country realise and prepare for the sacrifice that is necessary, as has been also urged by the noble Lord, Lord Gordon-Walker.

The increasing Government expenditure, food subsidies, subsidies to industry and encouragement of deficits by nationalised industries all seems to show that action taken has been insufficient and faulty. The astonishing thing is, looking back over the last forty or fifty years, that the depression which surely must develop in the light of world-wide circumstances may not be prolonged. Some depression there will be, but it is extraordinary that such has not now developed more swiftly and not been deeper already. But surely, as my noble friend Lord Carrington has urged, nationalisation is not the cure, for that would only add to the uncertainty and insecurity. Why is there not more investment? How can a firm invest if it cannot raise money on the capital market? If the profit motive, which Lord Carrington so properly and stoutly supported, is not permitted, how can firms get the money with which to increase dividends and achieve investment and offer the employment which is wanted? Why should "profit" be a dirty word? After all, 50 per cent. and more of profits go to the Government anyhow.

Bluntly, the country is trying to live above its means. It must recognise that there is need for sacrifice. Has there ever been a chance over the last fifty years of business prosperity with Government credit on anything approaching the present 15 per cent. basis? What is the correction that is needed? The answer is to reduce Government expenditure until the terms of trade, which Lord Beswick so rightly said have moved against us, are corrected; and whatever concessions are then given to the country should only be in ratio to the appropriate increase of productivity.

4.34 p.m.

LORD LEE OF NEWTON

My Lords, in company with a number of noble Lords that I see present, at one period I spent some five years debating in this Chamber, which, to me at any rate, makes my present state of maidenhood seem a trifle shop worn. In those days we seemed almost every week to be discussing economic affairs in the wake of the Great War, and one of the remarkable differences I find now is in the atmosphere. The atmosphere which prevailed throughout the nation in those days was such that, in the backwash of the war, it was easier to get an interest; but to-day it seems to me—and I agree with something said by the noble Lord, Lord Carrington, on this—that there exists nothing like the interest necessary if we are to surmount our problems. I should have thought that no matter what means Governments may use, no matter what theories economists may suggest, unless we can get the undivided help of the whole nation and all our industries we will never achieve the satisfactory levels which all of us, I know, are aiming to bring about.

Therefore, it seems to me essential that there should be such interest as was generated in the post-war period, when, your Lordships will remember, in industry we had production committees, not only at factory level, but at regional and national level, all helping to generate interest throughout the nation. I think we can learn from that and I should like to see Governments, along with the employers and the trade unions, trying again to recreate the kind of atmosphere we then had.

It also seems to me that the nation itself must make a decision now as to whether it really desires to remain a great industrial Power and is prepared to make the sacrifice that that entails, including the discarding of many sacred cows on all sides of the industry; or whether we will be content to become a nation of moaners demanding the living standards which only a prosperous nation can provide while doing all the things which presuppose a third-rate industrial Power and the living standards, which that entails. I believe that we are in that kind of situation now.

With respect to high inflation and low growth rates, again it appears to me that we are taking an almost fatalistic approach to these problems, though for my part I have yet to hear any economic reasons advanced as to why we should be doing so much worse than our principal competitors. I do not know of any reasons which are endemic to our economy; I have never heard of any. I think it is wrong, therefore, that we should tend to take this fatalistic attitude towards both because, once we do that, it seems to me we then begin to protect ourselves from the inevitable rise in the rate of inflation that we all suppose will happen next year and so on. By the very way in which we seek to protect ourselves from it we cause it. I therefore think it is important that this rather fatalistic attitude, as I have described it. should be dispensed with.

Another of the things which it does, I think, especially so far as low growth rates are concerned, is to cause more and more debate, discussion, maybe industrial strife in our demands for the reallocation of existing wealth. I am all in favour of the latter, for I believe that as yet far too much wealth is in the hands of far too few people; but nevertheless, once we get into the mood of merely arguing about the redistribution of existing wealth, we then forget that at the end of the day the methods by which we will increase our own living standards as a whole are by increasing supply as a whole.

I have listened to the noble Lord, Lord Boyle—who seems to be going Galbraithian on this issue—but I cannot believe that, given the demands and desires for higher living standards in this nation, we have yet reached the point at which we can agree to discard the policies of growth. It may well be all right for some small section of the community. When we think of the background of the desire for higher living standards, the desire for higher spending on education, on health and all those matters which mean so much to us, I cannot find any other way by which we can achieve it, no matter how existing wealth is distributed, unless we can ensure higher standards of growth than we have been getting in the past few years.

On investment, mention has been made of the activities of Aims of Industry and of the C.B.I. Indeed, the noble Lord, Lord Carrington, was telling us of the uncertainties which nationalisation brings into the minds of investors. With respect, I think that they are causing far more uncertainties than anything we say on this subject on this side of the House. It probably explains—because the noble Lord was a member of the Cabinet—the positively derisory levels of investment during 1970–73 when one thinks of the way in which the then Government seized upon the monetary problems of Rolls-Royce to drag it into the public sector; that could well be one of the reasons, according to the arguments of Aims of Industry, as to why investment in those years was so bad.

As a matter of fact, I have read part of the C.B.I.'s latest document. They are far too complacent; I cannot recollect any period since the War when investment has been at a commensurate level with the requirements of this nation. I put it to noble Lords in another way: since the War there has been the scientific break-through in industrial productive methods. It has meant that levels of investment of pre-war days are now thoroughly and completely inadequate. I do not believe that even the British machine tool industry has adapted itself to the production of the more modern types of machine tools which we now require—although in fairness to them they are able to argue that they produce the things which their customers asked for, and this comes back to our own attitude towards investment.

All my working life I have worked in the engineering industry. I was taught to bow down to the machine tool; the more antiquated and ancient it became, the greater was our humility in the presence of the machine tool. We used to pack the slides of the machine with saw blades and emery paper. We were expected to compete with engineering industries in Germany, the United States and so on. Our attitude to investment is very bad indeed. I commend the attitude of many of the Americans to this. They make the point, when producing machine tools, that you should increase machine speeds and feeds so that there will be precious little left of the machine in 5 or 6 years' time. By this method they set up their productive processes in a way which many of the employers in this country have not even begun to consider.

I talked about the need to bring others into the economic discussion. I should like to congratulate Sir Derek Ezra and the Executive of the National Union of Mineworkers, who have been mentioned this afternoon, for the way in which they are now getting round the conference table and discussing improvements in productivity and overall production in the coal industry. I commend their activities to all the other major industries in Britain. I believe that that is a positive, concrete way in which we can make progress on the industrial front. I understand that in the policy document that the C.B.I. have just published, Industry and Government, in addition to opposing any further nationalisation, they say that they—and I quote: … will go on pressing for greater freedom from Government interference for the existing nationalised section ". I have a question to put to the Government about this matter. I happened to be one of the Ministers who agreed at the time to the nationalised industries joining the C.B.I. on condition that they did not take any part in the political decisions which that organisation made. According to my information and that which I read in the Press, the nationalised industries were present at the monthly Council meeting of the C.B.I. which decided by an overwhelming majority to accept the kind of activity I have just read out. May I ask the Government to make certain that the nationalised industries are not going to be used by the C.B.I. in the kind of activities which they are now engaging in, which are positively political and positively directed at one Party in the State? If I may return to what I was saying about investment, it is no good for the C.B.I. to be complacent or Aims of Industry to tell fairy stories about it. It is an unsatisfactory state of affairs and has been ever since the War.

There is only one other issue I wish to raise with you, my Lords, and that concerns the social contract and the return to free collective bargaining. I hope devoutly that both succeed. Long before I entered the Commons in 1945, I was an advocate of a more progressive incomes policy. I will not weary your Lordships this afternoon with that, but I mention it in passing. I have advocated that policy with some knowledge of collective bargaining which I had to indulge in for many years. The basis of collective bargaining is that in the final analysis those who possess industrial power will use it, or the threat of it, while those with no or little industrial power become low paid workers. We then cry upon each others' shoulders at the plight of the low paid worker while we perpetuate the system which produces them.

You will gather that I am not altogether an advocate of free collective bargaining. The plight of the low-paid workers has become so bad in recent years that Governments have had to introduce Family Incomes Supplements in order to maintain at a passable level of existence the families of people who are in full employment, and that I would have thought is a severe indictment of it. I believe that the T.U.C.'s statements are exemplary, and I hope that all their constituent trade unions will follow the guidelines laid down by the T.U.C. itself. On all sides we agree that the economic state of the nation is such that one can hardly expect improvements in living standards for some time. But if it is to be the case that industrial power is to be used by those who have it in order to defy the economic laws and increase living standards, it follows that low-paid workers who are already in a desperate plight will become even worse off.

Yesterday I listened in your Lordships' House to a discussion about the Health Service; I heard some noble Lords expressing wonder that there had been certain types of action which had never been heard of before. The answer is that they have been driven to it. There was no alternative for them. In a highly civilised nation we permit it to happen. We almost connive at its happening. It is because I deplore that kind of action having to be taken that I am anxious that in the immediate future, whatever improvements can be made the trade unions, the employers and the Government will ensure that those improvements go the way of those who most badly need them. I am of the trade union movement. I know it as well as I know myself. I know of its great generosity of thought, and this is why I believe that this lesson must be brought to them. For if we are now content to see lower living standards for people like the nurses—like those in many of the other public services—then I assure your Lordships that industrial problems will be even greater a few months from now than they are at this moment.

4.50 p.m.

LORD ROBBINS

My Lords, it is always a pleasure and an honour to be able to congratulate a newcomer to this House on his maiden speech, but such was the fluency and the persuasiveness of the speech to which your Lordships have just listened that I feel that in a way congratulations are almost an impertinence. I am sure that I can assure the noble Lord, Lord Lee of Newton, that we have all listened to him with great delight, and we hope many times to hear him in the future. Before making any observations on the subject under discussion, I should also like to congratulate my fellow academic (if he does not mind my using that term), the noble Lord, Lord Gordon-Walker, on his thought-provoking speech. I have no doubt that many of the points he raised in the course of an admirably short maiden speech will be returned to by various participants in the debate as it proceeds.

The Motion of the noble Lord, Lord Carrington, raises essentially controversial issues. It is a matter of congratulation for your Lordships' House that these controversial issues have so far been dealt with in the spirit of mutual toleration and sweet reasonableness which characterises our debates and which in my opinion is a clinching argument for this House's perpetuation. I think it true to say that all those who have spoken so far have in greater or lesser degree agreed upon one point—that the situation with which we are confronted is grave. Perhaps the term "grave" is strong for one or two of the speeches to which we have listened, but I imagine in the hearts of most of us at this moment there is a degree of anxiety concerning the future of this country, at any rate in the next two or three years, probably greater than has existed at any time since the war. Reference has been made in the course of observations to the various crises which have occupied our attention from time to time in the last 25 years. Those crises were "chicken-feed" compared to the the problems which confront us at the present day.

Consider for a moment the quantitative aspect of the situation. We are informed by that sedate and sober body O.E.C.D. that prices are likely to rise at the rate of 20 per cent. per annum in this country. There is a prospect—I will not say more—that costs may rise even more. Our balance of payments if we include the oil payments (and there is no reason for excluding them) is running at a truly alarming rate. Even the betterment to which the noble Lord, Lord Beswick, referred indicates a state of affairs which cannot go on for ever and which cannot for ever be sustained by borrowing from the Shah or from more anonymous lenders who have shown themselves willing to support sterling up to date. At the same time—and in some respects this is the new and puzzling feature of the situation—the inflation is already beginning to show its evil effects. The cash flow of companies, their resources of liquidity, have been eroded. Rates of interest are abnormally high because—Lord Gordon-Walker will forgive me if I say it—you can fool some of the lenders some of the time but you cannot fool all of them all of the time, and once they have "twigged" that inflation is going on at anything like the rate at which it has been proceeding in the last few years, interest rates are bound to rise if only to compensate. That in turn produces its effect on the Stock Exchange, on investment, and so on.

How has all this come about? Why is it that this community, so abounding in good will and decency and improvement on all sides compared to what it was in my young days or even 25 years ago, has got itself into this pickle? I often think as I read speeches by prominent personalities—I will not specify of what political affiliation—that the impression is widely diffused that this is some spontaneous evil, something which has come about as, for instance, the emergence of a new influenza virus might afflict us, a new virus for which for the time being no immunisation had been discovered. But, my Lords, this is not so. Generalisations about mysterious forces which affect the ups and downs of society from time to time may have something in them, but so far as I know they have never been demonstrated. The mysterious, impersonal forces may exist, but we do not know much about them and in my judgment it is not necessary to invoke their existence to explain where we are at the present time. The fault, dear Brutus, is not in our stars, But in ourselves, that we are underlings. We all know that inflation is going on in different parts of the world—this of course is the pretext for the exponents of the theory of what I call the collective virus. But inflation is going on in different parts of the world at different paces. Further, while external inflation is clearly an embarrassment for countries which try to exclude themselves from it, some degree of exclusion is not at all out of the question. Why is it, my Lords, that the Federal Republic of Germany, drastically defeated in the Second World War, is now the strongest economy in Europe? Why is it that the decline in the value of the mark since the new mark was introduced after a disastrous hyperinflation, has been much less than has been the decline here. Certainly they did not start with any advantage. Nobody who is acquainted with the circumstances of Germany before the currency reform can possibly believe that they had a flying start for the economic miracle.

My Lords, I think that it is worth dwelling a moment longer upon this question of varying rates of inflation. What should a country do which finds itself surrounded by inflation or rising prices due to real causes in other parts of the world? What should a country do if the terms of trade turn drastically against it, as they have done in our case? With a drastic turn in the terms of trade against a country, there is clearly a situation of considerable embarrassment. In real terms it means that for the time being the amount that one can take out of the world dividend is less than otherwise it would have been.

Now what should be the remedy for a country which finds itself in that position? I do not say that it should drastically deflate, but it should, at any rate, moderate the rate of growth of any necessary growth in inflation; and, of course, in present circumstances, if the internal aggregate expenditure is kept advancing but slowly or is stable, then, with a floating rate, that can eventually put right the imbalance in the balance of payments. However, we have done just the opposite to that. In these circumstances, in the last few years we have inflated rather more than other people. Therefore, it is not at all surprising that we have landed ourselves in ever-increasing difficulties.

My Lords, I am prompted to leave the tenor of the remarks which I had planned with an observation by my great friend the noble Lord, Lord Boyle, who, by implication, if I may say so, slightly misrepresented the attitude which I should adopt in addressing your Lordships' House. May I assure the noble Lord, Lord Boyle, that I am not a Friedmanite monetarist. I do not believe in tying one arm behind my back when coping either with inflation or with deflation, although, let me hasten to say, I think that it is far more infrequent than a great many people, whose ideas will be upset by it, are prepared to admit.

While I should be sorry to be thought to be saying that there was not an element of demand inflation in what has happened in this country during the last two or three years, of course I freely admit that some of it has been due to cost inflation. On that point—and I submit that it is not an academic or subtle point —it is one thing to say that one cannot fight cost inflation and reduce cost inflation by active monetary measures, and another thing to say (which I should not necessarily say) that cost inflation is much less likely to take place if the supply of money is not over-elastic. On that position, certainly I take my stand, in part, at any rate, as an explanation of the events of the last few years.

Certainly I do not take the view of Enoch Powell who says that the demands of various associations of producers have got absolutely nothing to do with what has happened and that it is solely the Government's business to maintain the integrity of money. Life is more complex than that, and it is quite easy to understand how Governments, faced with the unemployed which might result from containing the money supply in the face of cost inflation, have been willing to give way (in my judgment, too much) to what has been happening.

Addressing myself now to the question of practical policy in this respect, may I say in all candour to the noble Lord, Lord Carrington (I hope that he will not take it in any Party sense because I am absolutely glued to this particular part of the House) that I think that the policy which was pursued by the late Government up to the cuts of just before Christmas was a policy which contained fundamental inconsistencies. I myself think that while incomes policies usually break down in the long run and are attended by the greatest complications, yet it was certainly worth while trying an incomes policy, and certainly it can be defended on the ground that if an incomes policy is successful it tends to reduce unemployment. My apology for the adoption of an incomes policy in such a situation as one had, say, at the beginning of 1973, would be much more that if one were trying to contain inflation by fiscal and monetary measures, if an incomes policy were in operation, there would be less unemployment than otherwise would be the case. However, as we all know, the late Government—actuated, I am sure, by courage and public spirit—at once imposed an incomes policy and proceeded to indulge in deficit financing on a scale not known before in peacetime; and the result, I am sure, was predictable. It has, indeed, been predicted in this House by various individuals.

My Lords, that Government has passed now, and one has to ask oneself what is one to expect of the policy of the present Government. I am not at all in love in all sorts of ways with the general policies of the present Chancellor of the Exchequer. Some of these have been mentioned already by the noble Earl, Lord Limerick, and others have not been mentioned. However, I think that credit should be given to the Government and to the Bank of England for containing the rate of increase of money supply—indeed, for bringing it down at a speed which some monetarists would argue is likely to bring about effects which otherwise might have been avoided later on. These things act with time-lags, and a frequent time-lag is anything up to eighteen months. While I do not believe in the quantification of these things—too much quantification is bogus—the existence of time-lags is something which we all ignore at our peril. So far, so good; but in the meantime we have abolished the Pay Board. We abolished it last week. Although, as the noble Lord, Lord Beswick, reminded us, there will be coming into being an apparatus for arbitration and conciliation, it is no exaggeration to say, that at present the prospect is one of a more or less "free-for-all" in the market services. If that free-for-all explodes, then either the financial policy of the Government of containing the credit base and the rate of increase of expenditure is undermined, or there is real unemployment and a substantial depression.

While wishing with all your Lordships to raise a hope on the horizon, I must confess that I share the private gloom which was expressed in the columns of the Sunday Telegraph last Sunday by my dear friend and colleague, the noble Lord, Lord Kahn. I feel gloomy about what is going to happen on the wages front in the next 12 months. I come from considering this morning a demand from an extremely nice and respectable body of people for an increase of 27 per cent., which is certainly an increase far transcending the norm laid down by the Trades Union Congress or that announced from the Government Front Bench last week by the noble Lord, Lord Shepherd, when he explained to us that it is the wish of the Government that increases in wages in the coming year should not be more than will maintain constant the existing standards of living.

What is the climate of opinion at the present time regarding this rather grave situation? I fancy that if there were some intelligent visitor from another planet, or even if we were visited by one of the gnomes of Zurich—one of the intelligent gnomes—he would be quite astonished at finding the columns of the newspapers, and a good deal of private discussion, preoccupied with the question of whether we should reflate on a massive scale with prices predicted to rise by the O.E.C.D. at the rate of 20 per cent. per annum. I have no doubt at all that the curtailment of the credit base and the cessation of the extravagant deficit borrowing will bring depression—it always does—and, certainly, it is the ideal objective of an incomes policy to reduce that depression to a minimum. But in the present state of affairs I am bound to say that the absence of control—although perhaps control was bound to break down—is likely to make matters worse.

Yet it seems to me that to go very far in the direction of reflation at this moment would certainly, ultimately, run the danger of there occurring something even worse than that. It would be bad enough to start reflating on any large scale if we were a closed economy. It might be mitigated by more index number devices, and so on, but it would be bad enough. But in our position we must remember that we are internationally vulnerable. Even if you leave aside the payments which have to be made for oil and focus atention on the rest, the adverse balance of payments is formidable and will certainly take some time to work off, even with the most austere policy.

In this connection, I might say that the existence of a floating rate is really no ultimate safeguard against the troubles which might be caused if the internal policy were to bring it about that trust in sterling was undermined. If sterling were to float downwards now in a burst of no confidence—and that is always possible even although we have in the kitty all sorts of promises of support and loans, and so on—it would not reassure people for long if they thought we were simply frittering it away on a reflationary policy. But a downward movement of sterling on any large scale at the moment would certainly affect us disadvantageously in more than one way. It would first increase the cost of imports and would therefore have a tendency, at any rate, to "ginger up" the wages spiral; and, secondly, as it proceeded, even despite the foreign backing, it would tend to increase the danger of a real run on sterling just at the time when we most needed to sustain confidence.

My Lords, I cannot forbear from saying that I am astonished at the absence of reference in public discussion at the present time to the general perils of the international situation. For good or for bad, in the last 15 years there has been built up in the international capital market an extremely rickety structure, of which the Eurodollar market is the leading species of a large genus; a structure in which, as distinct from local monetary sytems in the twentieth century, there is no clear lender of last resort. Although I think we may hope that at this stage in the twentieth century there is more wisdom than was prevalent at the time of the breakdown of the Kredit Anstadt in the early thirties of this century, still we really must not banish from our minds the extreme instability of international monetary affairs at the moment, and the possibility—I will not say the probability—of a general flare-up in which sterling would certainly not come off very well.

I will not say that in a year or two's time we may not need to take more risks; we may not need some reflation. The extent will depend, to some extent, on the degree of unemployment which has been caused by excessive income settlements in the meantime, but that date is still distant. The only plausible case for acting before then would be if one could assume that a more or less total incomes freeze imposed from now on, behind which there could perhaps be manipulations of a degree much greater than those dared by the present Chancellor of the Exchequer to revive the failing confidence in industry and to give a stimulus to invention. But does anyone in his senses believe that such a policy is immediately practicable, whatever the vicissitudes of fortune may cause us to do later on? For the time being, for months, and I suspect a year or two ahead, we must endure some degree of recession caused by the errors of the past if something worse is not to happen. The question is, have we the will? In the last resort, there is a moral side to the confusion which affects public affairs at the present time. It is a test of the system of self-government, of which we are so proud. People have not been told, with the degree of candour that they deserve, the degree of danger in which they stand.

My Lords, at present my pessimistic verdict is that if the people were told they had a choice between some degree of recession or a perpetuation of inflation, many of them would say: "Get on with the inflation". But that cannot persist. At its present rate of depreciation, the value of sterling will be halved in less than five years. While the Latin American countries may stand that sort of disturbance, I am quite sure that our more complex and delicately poised society cannot. Sooner or later, the conception of trade-off will change and people will say: "For heaven's sake, stop the inflation no matter what the disagreeable side effect!" I hope it will be sooner rather than later. If not, I tremble to think of the convulsions this splendid society of ours, with its glorious past, may have to undergo.

5.22 p.m.

LORD CLITHEROE

My Lords, I will be very brief, because much of what I wanted to say has already been said so much better by the noble Lord, Lord Robbins. I was very sorry to be obliged to miss the speech of the noble Lord, Lord Carrington, which I am told was a very interesting speech indeed. However, I was very glad to be present to hear the maiden speech of the noble Lord, Lord Gordon-Walker, who was a colleague of mine in another place, and also that of the noble Lord, Lord Lee of Newton, under whom I had the privilege of serving when he was Chancellor of the Duchy of Lancaster.

My Lords, I suppose the first duty of a Government is the defence of the realm, and the maintenance of law and order. After those two duties have been discharged, I cannot imagine any greater duty which falls upon a Government than the preservation of the value of the currency. Any deliberate debasement of the currency is, and always has been, wrong. The currency has now been debased year after year. That is not defensible. It is rather the fashion to say that if one has a depreciation of the currency—what I call a debasement of the currency—by only a fairly small percentage every year, that is all right. That is the same as saying to someone, "You can walk into a store and so long as you pay for about 90 per cent. or 95 per cent. of anything you buy, just put the rest in your basket. That is all right." It is exactly the same thing when one debases the currency, and I do not believe this is altogether understood by everyone.

The value of the currency can be preserved only by living within our means. The noble Lord, Lord Robbins, has given us some very good advice, as have other noble Lords. We have to make sacrifices. There are noble Lords in this House who remember the days of 1931 when everyone took a cut, starting with the highest in the land. Every Cabinet Minister and every Member of Parliament had a cut of 10 per cent. I remember it well, because I got a cut of a great deal more, as at that time I was a partner in a firm and at one time, the firm not only made no profit, but made a loss. It was accepted in 1931 by the members of all the Parties that such a course was necessary. It was accepted not only by Ramsay Macdonald, who was the Prime Minister, but by Philip Snowdon who was once a Lancashire Member of Parliament, and by Jimmy Thomas and many others. I pray for a unity of purpose in all the Parties of the State, to control our expenditure, and therefore to enable the value of our currency to be preserved. Unless we do this, we shall not be able to avert economic depression and all the disasters which might follow from it. I will not pursue that gloomy topic now, but I beg your Lordships to believe and to remember that the depreciation of the currency, its debasement, is something which can and must be stopped.

5.27 p.m.

LORD SHINWELL

My Lords, a shower of praise has descended on my noble friends Lord Gordon-Walker and Lord Lee of Newton, which was well-deserved, but their excellent speeches were anticipated. They are professionals from another place, with long experience in Government and occasionally on the Back-Benches. Naturally, we wish to hear from them frequently. If I may venture to single out one of the speeches, I would describe that of my noble friend Lord Lee of Newton as a breath of fresh air, which is urgently required in your Lordships' House and, indeed, in another place. I will not indulge in any more compliments, but perhaps I might venture to offer a word of praise to the noble Lord, Lord Carrington. I trust this will not embarrass him—

LORD CARRINGTON

It surprises me.

LORD SHINWELL

—because I think the first part of his speech was impeccably delivered, which we expect, and contained much common sense and much that ought to be uttered, not only in your Lordships' House and in another place, but throughout the country. In effect, his demand was that politicians should tell the truth. That is by no means an original observation. In the course of our frequent debates on economic subjects in which I have ventured to take part, I have used the expression myself. I have even gone to the lengths of offering advice, when asked by prominent politicians, Leaders and potential Leaders of the Party to which I belong. There was one occasion when a Chancellor of the Exchequer—I shall not mention his name—who was about to produce his Budget, sent for me and asked my views. Of course there was no revelation of details; no secrets were disclosed. I neither asked nor expected them. But when he asked for my advice I responded by saying, "Tell the country the truth." Unfortunately, my advice made no impact. If the noble Lord, Lord Carrington, did not say this directly, at least he said it by implication.

We have not at the present time, nor have we had for several years, effective political leadership. The noble Lord, Lord Carrington, stated that the problem is not of recent origin, which was confirmed by the noble Lord, Lord Robbins, and he said that it extended far back for a matter of 29 years. He might have mentioned that for most of the period Conservative Governments were in. power. But I have no desire to impinge upon what is regarded as an economic debate by indulging in political polarisation. One could go much further back than the noble Lord, Lord Carrington. In 1931, when the financial recession occurred in the United States, or immediately after it occurred, when we were faced with a financial crisis to which the noble Lord, Lord Clitheroe, has just referred, we entered into a coalition. It was a failure, not because it was a coalition—that might have been admirable in the circumstances—but because the circumstances were not favourable. The recession continued from 1931 until 1939 and was interrupted only by the outbreak of war.

There is another factor that must be recognised, and it is this. If we are in circumstances of extremity, speaking financially, economically, industrially and to a certain extent politically, they are not attributable to what has been happening recently, either under the previous Government or under the present Government. We are in this position because this country—and it is sometimes forgotten—was involved in two great world wars and at the end was bankrupt, and we have not yet recovered. We cannot exhaust our manpower, particularly our young manpower, our technological skill and our vast financial resources, which were available before those wars, and expect that the financial situation will be other than precarious. I do not venture to blame Governments for this. It has happened with all of them. Indeed, circumstances have never been favourable ever since the end of the Boer War. In a recent debate in your Lordships' House, I mentioned that before the first world war we suffered a series of vast industrial disputes, which were interrupted by the outbreak of war in 1914. I can recall the expression used in the newspapers of the period, in the common talk, "The country is going to the dogs." How often has this been said? It has now been repeated in rather more elegant language, but the substance of it remains.

What is to be done about it? I am getting a little jaded with going round and round the mulberry bush, listening and indulging myself, I regret, in the old-fashioned argument and trying to find a way out. It is like the maze at Hampton Court. You can get in with perfect ease but to get out is another matter. Indeed, when perhaps the greatest of our economists in your Lordships' House, the noble Lord, Lord Robbins, cannot find a solution, and is not certain whether there should be reflation or inflation, what can other Members of your Lordships' House do? The fact is that, as the noble Lords, Lord Carrington and Lord Robbins, have said, and as the C.B.I. in a recent document which I have in my possession said, inflation is world-wide. Why is it worldwide? When you have a situation covering a lengthy period, when excessive demand is made on production and on food supplies, when aid is provided by the United States of America and Great Britain to the emerging nations as a result of which consumer demand rises all the time, causing inflation itself, what do we expect? A variety of circumstances are the cause of the existing financial situation in our own land.

How are we to escape? We have this polarisation. Here is the C.B.I. document. In a few words, the noble Lord, Lord Carrington, almost repeated what is contained in this document. They sent out a brochure which I read with great interest. What did they say? They said, "We must hold on to free enterprise. We must not restrain dividends and profits. We must have nothing to do with nationalisation, and all will be lovely in the garden." That is one side of the political coin. What is the other side? Take over a vast number of industries—25; it may be more or it may be fewer—take control, direct their policy. That is the polarisation. I venture to say, "A plague on both your Houses." Why should I say that? I was myself the villain of the piece in connection with two major key industries, the coalmining industry and the electricity supply industry. I piloted the legislation through another place.

Why was it necessary in those instances? In the case of the coal industry, it was inevitable. The coal owners were tiring in any case. To provide modern equipment was beyond their financial resources and, as the noble Lord, Lord Carrington, rightly said—I hope note of it will be taken in the forthcoming Election—there is no question of returning to private enterprise. As for the electricity supply industry, that was a muddle. Much of it was controlled by municipal authorities, much was controlled and owned by private industry, and eventually we had to bring it together. Take, my Lords, the case of steel nationalisation. I must not violate the Official Secrets Act, but I will take a chance. At worst, they can send me to the Tower. When the question of the nationalisation of steel came before the Cabinet of which I was a member, I was in opposition. Why? I said, "We have had enough—coal, electricity, gas, civil aviation, the Bank of England and a variety of other key industries and services, and, in any event, this is too complex a task to undertake. We have to consider not only the production of steel. We have to consider the nuts and bolts associated with nationalisation. Leave it alone." But it was accepted, with the result that when a Conservative Government came back they denationalised steel; then Labour comes back and renationalises steel. Where are we now? We have got to accept this, whatever the cost; we cannot return to private enterprise.

What should have been done in the last ten years? I will not go back as far as that. Take the case of Mr. Heath in 1970. This in no way seeks to impute his motives or besmirch his integrity or honesty of purpose. The fatal mistake that Mr. Heath made in 1970 was his obsession about entering the Common Market. I do not want to raise a debate on this. But he was obsessed about the Common Market and maintained that by going into the Common Market all the benefits will flow. That is what he said: even wages will rise; we will keep wages down here, but wages will rise, even to the extent of £7 a week extra; the wonderful blessings would flow, no more weeds in the garden. An obsession of that kind is a mistake.

And then Mr. Wilson came back, some time ago. What should he have done? Distribute largesse everywhere? Even now Members of another place are to receive increases in their salaries, and vast increases for secretaries. I hope every Member of Parliament has a secretary and uses the secretary to advantage. wonder how many letters some of them get anyhow which would justify a secretary. But why at a time of inflation? I appeal to the noble Lord, Lord Robbins. Why at a time of inflation raise salaries, provide increased secretarial allowances, provide this and that? The speech of the noble Lord, Lord Boyle, was a purely political venture, it really had nothing to do with an economic debate; I am sorry he is not here to hear me say it. Incidentally, a slight digression; he said that we have to curtail public expenditure; there have got to be sacrifices, pleading with your Lordships, but you cannot interfere with education. It is just like the noble Lord, Lord Carrington: he says, reduce public expenditure, make sacrifices, but do not interfere with defence.

LORD CARRINGTON

My Lords, I do not want to defend my noble friend Lord Boyle, but I do think the noble Lord has been misrepresenting him. He said precisely the opposite. He said he did not wish public expenditure to be cut. I was saying precisely what the noble Lord says, but of course that defence should not be cut.

LORD SHINWELL

My Lords, I am obliged to the noble Lord, Lord Carrington, for what would appear to be a correction. But he is not altogether correct. The noble Lord, Lord Boyle, said there have got to be sacrifices. He did not specify who were to make the sacrifices. It just occurs to me that even Vice-Chancellors of universities may make a sacrifice, but there was no suggestion of that kind. There were to be no sacrifices in respect of expenditure on education, even on health. What is the use of talking like that? Those who talk about sacrifices should be prepared to accept them, to suffer them, but nobody wants to do that if he can avoid it.

I shall tell your Lordships' House what ought to have been done at the last Election. I hope those who are concerned get to know what I say. What they should have done was this. We are a minority Government. Look at the situation. See where we are, consider the problems. There should have been no distribution of any kind. Sweat, blood and tears if you like. We cannot afford it. I believe the country would have accepted it as they did during the war. If they do not accept it, I agree with the noble Lord, Lord Robbins, it is a bright outlook for us all! What is to be done now? The noble Lord, Lord Carrington, said, rightly, as I have said myself and other Members of your Lordships' House have repeated, that the country should be told the truth. It occurred to me when the noble Lord, Lord Carrington, was speaking—certainly from the first part of his speech—that it is a pity he did not make that speech when he was a Member of the previous Government. I would have enjoyed listening to it.

LORD CARRINGTON

I did.

LORD SHINWELL

Not in your Lordships' House. He may have made it in a private meeting of the Conservative Party; that is a different matter. He was the Chairman of the Conservative Party. He might have made the speech there, but it did not seem to have any effect. That part of his speech was excellent. In fact I should like to get it off by heart.

LORD CARRINGTON

My Lords, since the Hansard printers are on strike and Hansard will not be published, I will send the noble Lord a copy.

LORD SHINWELL

My Lords, I am delighted. Why not let everybody have a copy. I do not want to monopolise the speech; I do not believe in monopolies. I come to the point. We have got to have an Election soon. After all, what is this all about? The noble Lord, Lord Carrington, had it in mind. So did the noble Lord, Lord Boyle, although he really ought not to be interested; let him remain with education, let him remain an academic.

LORD ROBBINS

My Lords, I am extremely sorry to interrupt the noble Lord, to whom we all listen with such delight, but I think he is extremely unfair to Lord Boyle, who specifically said he thought we could not maintain personal consumption although he thought that public expenditure should be maintained.

LORD SHINWELL

My Lords, this is not good enough, not even from the noble Lord, Lord Robbins, and if I do not accept it from him I would not accept it from anybody else. Really, to defend the noble Lord, Lord Boyle, the noble Lord who has now decided that almost everybody associated with our political life is to have increases! Perhaps that has not been noted. Then they come along and talk in the way they do. I will leave it alone.

We are going to have an Election and we are going to have this polarisation again, this bickering and quarrelling, and at the end of the day what? Labour or Conservative? You never know what the Liberals may do nowadays. But either side—what happens? Again, promises and all the rest of it. It will not do. We have got to face facts. That is why I enjoyed and was intensely interested in the speech of my noble friend Lord Lee of Newton, who said higher production, yes, get your teeth into it, although there is some reservation; you can produce and produce and get excessive productivity but you have got to sell your goods. But our competitive strength is very good at the present moment and will remain so for some time to come, and so we can take advantage of it.

But what is to be done? Coalition?—no, I do not advocate that. But what I do advocate, whichever Government comes in in the next 3 or 4 or 6 months, is that whoever leads it, whether Mr. Heath or Mr. Wilson, must tell the country the truth. Even the Trades Union Congress General Council must be told the truth. They have offered a compact. Let them implement it. And if they are not prepared to implement it by voluntary means then we must make it statutory. Why did the last Labour Government fail when they produced In Place of Strife? I will tell your Lordships why. It was the penal clauses that made all the difference; that was the trouble. My trade union friends, with whom I was associated in the House when I was Chairman of the Parliamentary Labour Party, were all prepared—and they had great influence with the trade union people outside—to accept the provisions of that legislation, except the penal clauses. It was on the penal clauses that the trouble occurred. A statutory incomes policy, a civil form of legal enforcement, is essential in the circumstances.

The noble Lord, Lord Carrington, spoke about people who entertained, pop singers and the like, who received huge wages and so on. What appals me when I move about the streets and on buses and tubes is that I find vast numbers of people—not visitors from other countries—from our own land who do not seem to do any work at all. I agree that perhaps I ought not to say anything, but I indulge in manual labour. Perhaps I have no right to criticise others, but there must be not merely 500,000 unemployed in this country but thousands more who never register, and there is no control over it, no organisation of any sort or kind. Why, I do not know. I am not arguing for direct control of labour, but something of the kind has to be considered, and soon. I leave it there.

Whoever comes in, Tory or Labour, must tell the country the truth, be realistic. Unless we are, it will not be a matter of surviving at a lower standard of life—perhaps we can accept that, and we may have to accept it—but something far worse, more disastrous, more calamitous, and we should do everything we possibly can to avoid that.

5.52 p.m.

LORD HAWKE

My Lords, I would have greater confidence in the present Government if the noble Lord, Lord Shinwell, was a member of the Cabinet. I would ask his friends whether they would approach those people who have the Prime Minister's ear with a view to bringing that event about, because many of his sentiments were quite unexceptionable to people on this side. I think that he is the epitomé of a National Government in himself. It was a great privilege to hear for the first time speeches by the noble Lords, Lord Gordon-Walker and Lord Lee of Newton. Having frequently read their utterances in Hansard, it was a great pleasure to see them in the life.

I should like to confirm many of the points made by my noble friend Lord Limerick. Industry is definitely being starved of funds through inflation. I do not think that he mentioned it, but if inflation accounting was compulsory throughout industry to-day, there would be an awful lot of important sections of our economy which are running at a loss, and that is something that cannot be suffered for very long. I am sure that we all listened to the noble Lord, Lord Robbins, with the greatest of interest. People are very puzzled about this inflation which seems to have crept up on the world, and the noble Lord rather confirmed that. I am inclined to think that there is a simple story at the back of it, and that is that really incomes and credit in the world have expanded much faster than the raw materials, the food, and the skill that they would seek to buy. The remedy is comparatively simple, if one can bring it off, and that is to cut down the demand for the food, the raw materials, and the skill until they have caught up with the incomes and the credit supply. The trouble is that the rest of the world is involved too, and it is easy to go too far and get oneself into a horrible slump. However, we ought to set an example and try to do what we can ourselves.

The first essential is for political leaders to tell people the truth. We have heard that from many quarters to-night. There is no hope, for a few years at any rate, of rising standards of living in this country. The Arabs have seen to that. Politicians must ditch the comforting theory that any scheme for which there is no money available can always be financed out of printing money in anticipation of a planned growth. Growth is the mother of inflation, and if we want to stop inflation we must cease to calculate on growth. We shall get growth in due course if we increase our share of the overseas markets, and that is the healthy way to get growth.

We must not be panicked by unemployment figures. Those people who are really expert. I have heard, the people who administer, the Departmental officials, consider that approximately 2 per cent. of the population are virtually unemployable. When one considers the number of people with bad backs, bad chests, who are mentally deficient, retired but still on the register, people who like to do odd jobs while on the dole, and people who have no intention of taking up any work anyway, I do not think that those figures are wildly unbelievable. In addition, they say that there arc about 1 per cent. who are moving from one job to another.

That means that anything under the 3 per cent. locally must have an inflationary tendency because there will be wages drift. Anyone who wants to expand his industry has to bribe away employees from some other works, and you have costs going up and inflation. The trouble has always been that if there is anything like 3 per cent. in the South, it means absolute disaster in the North. That is why we have to improve our methods of dealing with these problems locally.

We must be much more flexible. At the moment in my part of the world we are suffering from gross over-employment. I believe that the figures are 7 per thousand unemployed. If you consider the categories of people who I said are virtually unemployable, anybody would admit that there are many more than 7 in every thousand. Above all, we must refrain from (or avoid like the plague) an expansion of credit all over the country to deal with regional unemployment. That is absolutely disastrous, and I regret that is the author of a great deal of our troubles at the present moment.

Inflation is the enemy of savings, and yet the whole existence of modern industrial society depends on a pool of savings which can be borrowed to expand and start up new businesses. But at the moment the traditional savers have been badly clobbered by taxation and the like, and except through life assurance there is virtually no saving going on at all in the country. We cannot continue to run an industrial society unless there is a pool of money that can be borrowed by industrialists. The measures taken in recent weeks, combined with inflation, have destroyed confidence in the security markets; no company can borrow on the Stock Exchange at the moment.

The only conceivable method of getting new money is by going to the bank and paying 15 per cent. for it, but how many schemes are there that can be put into operation and will show a profit on money borrowed at 15 per cent.? A very limited amount. That applies to farmers, too. I hear a farming friend on my right saying, "Hear, hear". We must somehow recreate the ability to create savings. Of course it will be automatically recreated if we can restore confidence in the currency. Meanwhile, I wonder whether we could harness the potential savings of those whose vital expenses are fairly low. I refer to the young, the unmarried. Some of them are getting very high wages indeed, and they spend freely on things which are not so essential. Yet in a few years' time they will be crying out for homes. Can we connect up those two elements so that we may encourage school leavers to start amassing some capital towards the payments of furniture or houses? That would be a help in this business of creating savings.

We are terribly prodigal of raw materials. We still live in a society where it is cheaper to produce many things anew than to reclaim the old. I think of paper in particular. I will not go into details of this lengthy subject, but the whole world would bless us if we used less paper, because we are all using too much of it. We could use much less of it, as we did during the war, if we set our minds to it. We still eat huge quantities of food, more than we need. That is not my opinion, but the opinion of the authority quoted in The Times of July 25. One has only to consider the shape of so many young people in this country to realise that that statement is probably true. If other steps fail, we may well have to ration food and oil in this country.

All these matters require leadership of the highest order. I am afraid that the politicians have become a debased currency owing to their perpetual electioneering. The swapping of "political Billingsgate" across the Floor of the Mother of Parliaments is not edifying and does not amuse the nation. To tackie inflation, which is a disease which could sink us, the people must be told the truth and what is expected of them. We must hope that they will react in our favour.

I share the misgivings of the noble Lord, Lord Robbins, who wants to stop inflation; your Lordships may be sure that the Communists do not. We call them Communists, but they are really extreme Socialists who want to see the wreckage of the capitalist society in order to put something else in its place. Nothing would wreck society quicker than continued inflation. The moneylenders were doing well out of inflation some time ago, but of course retribution has come upon them. If inflation goes on, retribution will come upon all of us. Nobody will be able to opt out. That is why it is so vitally important that there should be moderate opinion among our leaders, so that the people feel they can follow and believe what they are told.

6.4 p.m.

LORD PEDDIE

My Lords, I find great pleasure in joining the congratulations to my two noble friends Lord Gordon-Walker and Lord Lee of Newton. It was obvious from their speeches that this House stands to gain a great deal in the future from the contributions which we shall most certainly expect. What they had to say was a combination of experience and wisdom, in both cases expressed with considerable eloquence. May I also join with others of your Lordships' House who have expressed your congratulations to the noble Lord, Lord Carrington, on his speech? If the practice of the Government of which he was a member had been in accordance with the precepts he uttered, I am sure there would have been substantial improvement in the economy of this nation at the present time.

However, there were certain things which he said of which I believe the House should take heed. He emphasised the importance and significance of developing a nation that would be united in its recognition of the problems that lie in front of us, and determined to adopt collective action in dealing with them. It is a pity, when I remember the declining days of his own Government, that instead of the united Britain he talked about we had a Britain divided into two contesting, warring camps. However, that is the way of politicians, I suppose. So many of my noble friends have made the call for honesty in politics. Probably as a result of the expressions which we have heard this afternoon and this evening, there may be a change of heart in certain directions.

The problem under discussion to-day is by no means new. Listening to some of the speeches one would have thought it was a problem that had emerged only over the past few years. As I believe at least two of my noble friends have indicated, it is a problem that has been with us for a long time, particularly since the end of the last war when we have seen changing economic, social and political circumstances which have affected the economy of this nation. At the same time, we have seen a reluctance and an unwillingness on the part of the nation, both management and labour, to adjust itself to those changing conditions.

What, then, are we to do now? I know that some believe there is an increasing awareness on the part of people that these serious problems challenge their own standard of living. I wish I could believe that the majority of people in this country at this point of time really believe that the solution of our problems lies in their own individual efforts. We find that the public as a whole to-day have a faith and a belief in the contribution that can be made by Governments, by some new taxation law, some ingenious device of some kind, some panacea that will provide an instant solution to our problems, but that is not the way.

I think both Parties have suffered for a long period of time from the contribu- tion made by economic whizz-kids who offered all sorts of magic solutions to deal with these problems. Though I was trained as an economist, I can say with all sincerity that I would welcome any proposal that the whole bag of economic advisers should be transported to some lush and fertile tropical island and left there. I can assure this House that I would make my contribution to the relief ship that would inevitably have to be sent there in the course of the following few months.

LORD HAWKE

My Lords, will the noble Lord also add the statisticians? I believe that there are more statisticians in Government employment than ever before?

LORD PEDDIE

My Lords, I do not know so much about statisticians. A statistician deals with the result. I am dealing with the people who offer the instant solutions. The only way one can deal with these matters is to generate in the minds of the people, management and labour, a recognition of the fact that in the long-term, and indeed in the short-term, the real solution lies in their own capacity to produce.

Quite frequently we hear comments about restrictive labour practices. I remember, as a member of the Prices and Incomes Board in its very early days, coming to the conclusion that British industry was far from being as efficient as it ought to be, largely because of the inherited attitudes and the old-fashioned methods that management was reluctant to discard. That had made as great a contribution to holding back the economic and industrial development of this country as had restrictive practices. I know, of course, that all too often Governments make mistakes. Perhaps the greatest mistake that the last Government made was the immediate destruction of the old Prices and Incomes Board: and within a period of less than two years they were trying to develop some sort of method that looked different but attempted to do the same job.

I would point out that during that period when I was a member, from the first day to the last—and in the last, difficult days I was chairman—we were able (and I give credit to the Labour Government of that time) to generate in the minds of the people some glimmer of recognition of the necessity for restraint, on the one hand, and of their own individual contribution towards increased productivity, on the other. Because if one examines the activities of the Prices and Incomes Board—and I take heed of what the noble Lord, Lord Carrington, said when he commented upon the necessity, in his opinion, which I share, of having a voluntary acceptance of an incomes policy—one finds that, although it had the statutory right to compel evidence where it was needed, on not one single occasion had it to use compulsion in order to secure the evidence that was necessary to come to the right conclusion.

A further point is that during the sterling crisis of 1966 there was a period of standstill followed by a six-month period of severe restraint. During that time the Government had the right, which they exercised, to stop any price or pay increase without referring it to the Prices and Incomes Board. I am sure noble Lords opposite have lost sight of the fact that during that period, when the action of the Government was almost entirely dependent upon a voluntary acceptance, there were only 14 orders issued, 13 dealing with wages and one dealing with prices, by which the Government enforced their policy; and the 13 that dealt with wages were so insignificant that they referred to only 36,000 workers out of a total workforce of 23 million. That was an indication of the manner in which the Labour Government of that time had been able to generate an understanding on the part of the people.

As well as success in terms of general acceptance, there was success in economic terms during that same period. For the year ending June, 1967, the increase in the general levels of wages and of prices was little more than 2 per cent.—an indication of the success of an incomes policy practised by a Government and supported by both labour and management. So there lies the true contribution of Government: not coming along with all sorts of fancy ideas—and we are just as much prone to that as are noble Lords opposite. If only we could get a Government which, first, could generate in the minds of the people a recognition of the problem and some appreciation of their own contribution towards its solution; and, secondly—and this is where I think a Labour Government can most certainly do it better than a Conservative Government —could stimulate a belief in the minds of all people, and particularly the worker, a recognition of the fact that the burdens will be equitably distributed and also (which is of tremendous importance) that the benefits and gains will be equally shared.

I have no intention of making a political speech, but I would draw attention to a comparison of the two periods. I have here some figures that I took out, but I will not burden your Lordships with a lot of them. If we consider the rise in the retail price index (and the average worker is more concerned with food prices than anything else), and take the period from October, 1964, to June, 1970—a period of five years and eight months—we see that food prices rose by 31.1 per cent. From June, 1970, to February, 1974—a period of three years and eight months of Conservative Administration—food prices rose by 54.4 per cent. I mention that to ask: how can one generate in the mind of a worker a recognition that he has to make some contribution, when at the same time he hears Conservative leaders constantly shouting for greater profits? I do not think that "profits" is a dirty word. On the contrary, unless there are reasonable profits you cannot find adequate capital for industry. That, to me, is common sense. At the same time, when one is concerned with profits, let us know the destination of those profits; let us know how they are to be applied, how far they are going to flow into industry for the purpose of developing industry. That is equally important.

My noble friend Lord Lee made reference to the trade unions and to low pay. I would say that both Labour Governments and Conservative Governments have sadly neglected that problem. There is a great deal of lip service paid to this question of low pay. You even have trade unions which will make a demonstration to the effect that they are in favour of improved pay for the low-paid workers; but the improvement in the pay of the low-paid worker is usually used as a footstool to secure a greater advance, by improved relativities, on the part of those trade unions which are stronger and whose members are earning more money.

If I may again make reference to the Prices and Incomes Board, I remember that one of the last reports which was undertaken and which in my opinion was one of the most important, was that on low pay. We found that over the 84 years—84 years, my Lords!—during which we were able to checq from records the pay of manual workers, there had been no change in the relativity between those on the lowest decile and the median of the whole scale of manual pay. In other words, there had been no change at all, with all the improvement in pay. With all the increased pay over those 84 years, there had been no change in the relative position of the low paid.

I believe that what we should do is to try to analyse the real cause of low pay, to find out the defects in the industries that employ such low-paid workers and develop means whereby we can improve the efficiency of those organisations, and increase capacity for paying higher wages. In short, I come back to my original theme. We can depend too much upon what Governments can contribute. In the long run, much depends upon the worker, the management and the people as a whole. So far I do not think they recognise to the full their responsibilities.

But what I am sure about is that a Labour Government can demonstrate far more vividly than could a Conservative Government their capacity to undertake that duty—and for this reason. With all the wide division—for which I do not apologise—of views within the Labour Party, and of course there is a wide division because there is the ability to express one's own views in all their variety, there is at least one central purpose which provides the basis of all our activity; that is, the recognition that the greatest asset that this nation possesses is that of the people themselves. Therefore, in their education and skills, in their training and in their health, there lies the ability to meet the problems which confront the nation. Too much is made to-day of the great bonanza of oil which lies ahead: let us be grateful for the oil, but do not let us kid ourselves that it will transform the economic situation. Nobody pays attention to what it will cost to get the oil. Nobody thanks the oil sheiks who have made it possible by raising the price and justifying in economic terms, at the present moment, the production of our own oil.

Let us remember that our total wealth in terms of coal is infinitely greater than the oil which lies off the coast. I say nothing at all to denigrate the efforts of the people who want to utilise this valuable asset. All credit to them, and I think that there will be a great deal of benefit from it. But I reemphasise what I said before. Do not believe that the oil will be the solution of all our problems. It will not. The Labour Government, in suggesting their social contract, may find that it will work or that it will not. But if it does not work I tremble to think what could happen to the economy of this nation.

The social contract is based upon a recognition by all parties in industry that, by working together and by having a joint faith in the common enterprise, some contribution can be made towards a solution of our problems. No more than that. I believe that the concept of the social contract is based upon the experience of the Labour Government and I am sure that nobody can offer a magic solution now, because there is none. What I think this debate has demonstrated, through the words of many speakers, is that we should look not only to Government but to ourselves at the same time, and should recognise that it is by our own personal efforts and by the efforts of our associations that this country will once again be great.

6.24 p.m.

VISCOUNT HANWORTH

My Lords, I wrote my speech some days ago and since then Mr. Roy Jenkins has said a great deal of what I should have liked to say, and it has been said by the noble Lord, Lord Carrington, the noble Lord, Lord Shinwell, and by many other noble Lords who have spoken this afternoon. My first reaction, therefore, was to delete my name from the list of speakers but I was persuaded outside the Chamber that it is perhaps a good thing if we all say much the same at the present time. This may well be so coming from the Cross-Benches and from one who is not an economist. My other slight difficulty is that my speech was certainly a little more acid than I think is appropriate for today's occasion. It was so because I have been making several of the points for a very long time, but it now appears that those which I regarded as most important are being accepted by a very large number of noble Lords. I shall try to reduce the length of my speech, but I shall cover most of the matters on which I intended to speak.

My Lords, in the first place, I think that we all agree that we have been and still are over-spending. In other words, in simple terms, we are living beyond our means. It is very easy to say that, but I also realise how terribly difficult it is for any Government to take really effective measures except in an extreme crisis. I think that they would see what unpleasant and possibly catalysmic effects might result. It would certainly affect any future Election and their popularity. What would happen if unemployment rose very substantially, wage packages decreased and there was a reduction in the social services and benefits? I think it is quite likely that we may have to accept all those things, but I can understand why Governments in the past have been reluctant to take any effective action. However, what I cannot forgive them for is the fact—and this point has been made many times this afternoon—that the politicians have not told the nation the truth. The truth is very important, because I believe that at this time the one thing that matters almost more than anything else is national unity and a sense of national purpose to overcome our troubles. To-day, one does not get this easily unless people realise that we have to buckle to if we, as a nation, are to have a reasonable future. I believe that the truth is all-important from that point of view. We have lost a sense of national purpose and, what is more, in exactly the same way as happens in a company when a managing director does not make the objectives and the situation clear, everybody is quite understandably turning in on himself and considering his selfish interests first. I regret, that nearly everybody is doing this to-day.

My Lords, I want to be very careful about mentioning labour relations and the unions. I studiously avoided saying anything at all on this subject on the recent Trade Union and Labour Relations Bill. I am one who believes that often there are a number of courses open. With hindsight, one may be able to say that one would have been ideal if it had been pursued. Of the others, perhaps one is bad and the remaining two others might both be successful if pursued with energy. Parties have tried a number of different ways out of our problem and, strangely enough, while denigrating the other Party for adopting a course which they described as absurd, have promptly had to adopt it themselves. So I believe very strongly that what we have to do to-day is to support the present Government in their attitude to labour relations and to the T.U.C. Whether or not it will be successful is another matter, but I do not think that anybody has a better suggestion at this time. I therefore feel that it would be the greatest pity if anybody's action spoilt chances which may exist of making this a success.

Having said that, my Lords, there are one or two points which I must make. I believe that the future of this country is dependent on good labour relations and that we must do everything we possibly can to attain such relations. It is very easy to go back and to see where along the road we have gone wrong. A few years ago, I used to say that if I were to apportion blame for bad labour relations I should apportion 60 per cent. to management and 40 per cent. to unions.

I shall not say what I might think today, but I certainly think it is time to say that management then utterly failed to show the first ability of leadership. If you are no longer driving people with a big stick, as used to happen in the olden days, there is only one alternative and that is by leadership and, to-day more than ever, by partnership. An organsiation, or a company, should be a partnership between the shareholders—entitled to a certain reward for their risk capital—the management and the workers and we must do everything we can to achieve that end.

I should have liked on another occasion to ask the unions and the T.U.C. to consider certain questions, but to-day I will say only two things: unions now have immense power and they must use this power wisely. It is quite clear that to-day the situation is very different from what it was yesterday, and I appeal to them to realise this fact and to make the changes that are necessary to fulfil the role they now play.

I am afraid that I am going to fall in to the temptation of saying one other thing on this point. Most people now realise that there is a problem of an extreme element. It may be a small one and it may be in certain areas only, but that it exists is undeniable. It also exists in many other organisations. I think it was about nine months ago that I said this in the House. I was only quoting from what other people had said and, incidentally, from what Mr. Wilson had said two years before. I got into a certain amount of trouble; many noble Lords would not recognise that it was true. I know that they knew that it was to some extent true but no doubt loyalty prevented them from admitting it. I think the time for this sort of loyalty is long past because one cannot put anything right or improve it without first realising that improvement may be necessary. I quote that example only because I believe that it applies to many other things, and that all of us ought to recognise when something could usefully be improved.

It has also been said, but again one must repeat it from these Benches, that at this time of national crisis there can be absolutely no excuse for espousing extremist or ideological causes. At this time we have to get the nation together, and there is simply no room for extremist ideas in a Party mandate. That point has been made clearly, but I do not think that it can be made too often. An extraordinary thing about Party politics is that a Party gets out a mandate, but very often some 30 per cent. of it is quite unacceptable to the great majority of the general public and yet Parliamentarians have the neck to get up and say that they have a mandate for doing these things. We must try to unite the nation by producing policies which are important to our national recovery and which unite the nation.

By the same token, of course, I must again say, as I have said so many times, that we cannot carry on some of the debates which occur in Parliament in the way that they are conducted to-day. Increasingly, respect for the two major Parties is being lost. It is extrordinary that in spite of the fact that this has been apparent for such a long time, Parliamentarians and politicians seem almost to refuse to recognise this simple fact. While I am on the subject I should like to say that there are some people who believe that the unity we need may not be posible under one or more of the Leaders—of our present major Parties. Should this prove to be the case, then I feel that it should not be too much to ask one of those Leaders to step down in the national interest.

I am afraid that I can see no easy way out of our problems. But I do not think one should be despairing. As has been said earlier on to-day, there are other nations which have been in a far worse state than we have been and which in fact have succeeded in getting out of it. France, of course, was one example, but they needed de Gaulle to do it. However, the last thing we should be is despairing. Nevertheless, I am sure that we should take the situation seriously enough to realise that there are at least two possible outcomes if things go wrong. Towards the end of last year the nation realised how the miners' conflict might have escalated into a General Strike; the use of the military to provide some supplies; inevitable violence; and, in the ultimate, probably an extremely Right Wing form of Government—or, if you like, a dictatorship of what remained of national life and its economy. If we realise the extremes of the way things might go, then it might help us to do two things: first of all, to appreciate the gravity of a situation; and, secondly, to avoid these extremes.

The other possibility I foresee is a continuing—and I use the word "continuing" deliberately because we are not in a sudden crisis—decline in our affairs. It has become increasingly pronounced, because the symptoms are now showing clearly—this decline will go on and a Socialist Parliamentary Party will find itself increasingly a slave to outside influence. The fear that the country may be ungovernable would then be true in the Parliamentary sense. No doubt we would continue to move in a Leftward direction, but the fruits of doing so would then be barren.

My Lords, the message that I have tried to give to-day is that national unity is all-important. Re-thinking is required by our Parties, politicians and unions. I am encouraged by to-day's debate to feel that many of those things are now happening.

6.39 p.m.

VISCOUNT MASSEREENE AND FERRARD

My Lords, I agree with the noble Viscount, Lord Hanworth, who has just sat down that this is no time for Party politics. As the noble Lord, Lord Robbins, said, the economic crises that we have had in the past—and I hope I quote the noble Lord correctly—were as chicken feed to the crisis in which we now find ourselves. I remember that when I first spoke on the economic situation of this country about 18 years ago, I quoted Bernard Shaw who said that if you laid all economists end to end they would never arrive at the same conclusion. Having listened to this debate, I find that some of us—I do not know that we are all economists—have reached a conclusion, which is that the people must be told the truth. I have been trying to tell people the truth for 18 years. I was very pleased to hear my noble friend Lord Carrington telling the people the truth. I know that it is boastful for me to say so. but I have been making the same kind of speech for 18 years and nobody has listened. Now that Lord Carrington has made it perhaps somebody will listen.

As I say, we must get down to facts. We cannot entirely blame professional politicians for not telling the people the truth. After all, in the 18th and 19th centuries some professional politicians actually bought votes out of their personal pockets. That was bad enough, but it is very serious when to-day it happens that some professional politicians buy votes—I do not mean literally, but they influence voters at other people's expense by taxing the provident in order to promise the improvident more and more for doing less and less. That is why these people have not been telling the truth.

As we know, this debate is all about inflation, the burning issue of our day. Here I should like to make a point as an employer. I am a far smaller employer than I used to be. I used to have a factory and one or two businesses, but I am now a very small employer. However, I should like to put before you my point of view as an employer, because I have not really heard the employer's position put in this debate. I refer here specifically to unskilled labour. The trouble to-day is that society has laid it down that everybody, irrespective of what they can do. is entitled to a very nice car, a colour T.V., a very good house, holidays in Corfu and perhaps many other benefits. That is grand; it is excellent that everybody should have these things.

The trouble is that no matter how hard the unskilled worker works he cannot possibly earn those things in real terms. Of course, it is not his fault. Take a man harrowing sand on a building site filling up a cement mixer. He may be earning £60, £70 or £80 a week. No matter how often he barrows sand he cannot possibly earn that amount in real terms. That is one great cause of our domestic inflation. I am not going to embark on the subject of world inflation or external inflation, but the noble Lord, Lord Beswick, said (I think quite rightly) regarding the high cost of imports, apart from oil, that the position has somewhat improved, and I want to stick to domestic inflation. I think it is very unfair on skilled labour when there is a man doing an unskilled job who may be earning more than the skilled man—and I have often known this happen. It is very unsatisfactory to have that situation, because the skilled man naturally becomes disgruntled, and you cannot blame him. How we get over that I do not know. I have no solution to it.

I should also like to comment on the situation of British management. If you compare British management with that in any other industrialised nation you find that it is paid far less, and there is no hope of rectifying that situation at the moment. What solution have the Government got? I cannot accept the mini-Budget as a solution. If anything, the mini-Budget will rather increase inflation. We also have this so-called social contract. It will be wonderful if it works. We always used to have free bargaining between employers and employees up to a very short time ago until the prices and incomes policy was brought in. But that bargaining was breaking down soon after the war. The Labour Government brought in In Place of Strife, which showed that it had broken down. Then we brought in the Industrial Relations Act. Why did free bargaining break down? I will tell you—indeed I think everybody must know this: it was because the employer is in a very difficult position to-day due to the fact that the employee can really cock a snook at him in view of the vast social services that we have, including national assistance for strikers' families. This puts the employer in a very weak bargaining position. That is why I very much doubt whether, apart from a great patriotic surge among all and sundry, the social contract will work. I certainly hope it will work, but if it does not work we must go back to some form of prices and incomes control.

Several noble Lords have mentioned—the noble Lord, Lord Shepherd, among them the other day—investment in British industry. I think the noble Lord, Lord Beswick, was complaining and asking why private individuals do not invest more in British industry. Well, they would, but if a man has saved up all his life and has made some money, obviously he must have security, and when you see the industrial unrest that we have had in this country and the rates of taxation we have suffered it is no wonder that many people take their money abroad and invest it there. Provided they are not domiciled abroad, I do not think it hurts the country. Before the war we used to have a vast income from investments abroad, so I cannot see why the noble Lords opposite object to that. I can understand them objecting to people taking a large amount of money out of this country and becoming domiciled abroad, but if they invest abroad as British citizens resident here, I really cannot sec why objection should be taken to that. I should have thought it was a good thing.

LORD BESWICK

May I make it clear that I do not object to money being invested abroad. We benefit from the return on that. What I object to is the proposition that there is no money for investment in this country while at the same time it is being invested abroad.

VISCOUNT MASSEREENE AND FERRARD

My Lords, of course the object of investing money is to earn an income, and if the investor reckons that by investing abroad he can earn a better income with greater security than he could obtain by investing here, you cannot really blame him. It is up to the Government to ensure that the investor in this country has security. If he gets that he will invest here. I was absolutely amazed and could hardly believe my eyes when I read in the newspaper the other day—two or three days ago I think—that Mr. Benn is proposing to give £5 million of public money to the sit-in workers at the Triumph works at Menden. The National Investment Advisory Board advised him against this, but apparently he has taken the bit between his teeth and done it. Norton Villiers, the company that ran this firm, lost £4 million.

Talk about helping lame ducks! I think this is about the lamest duck that can be helped. So far as I can gather, the owners of the plant have had their machinery taken over. Presumably there will be some compensation, but it appears to be a dangerous precedent if the workers can take over a factory making a big loss, and then get a great deal of taxpayers' money. The owners cannot get their assets out. How do you expect people to invest in industry if you have that going on? I do not want to sound flippant, but if we have any more of that "Bennery" we will be as free as birds in a cage with a fast-dwindling supply of bird seed.

LORD SLATER

My Lords, will the noble Viscount allow me to interrupt? He referred to Mr. Benn and what he did regarding this motorcycle company, and to the investment of £5 million. Would it not have been to the noble Viscount's advantage if he had looked up some of the records of the previous Administration which he supported, to see what his own Government did during their term of office, before coming along and seeking to chastise a Minister of Her Majesty's Government of the present day beçause of the action he took? If the noble Viscount had done that, he would never have made the statement that he has made to-night.

VISCOUNT MASSEREENE AND FERRARD

My Lords, I do not agree. I know exactly what the last Government did about that; they brought in the Act which enabled Mr. Benn to do that. If the last Government had been in power, I do not think they would have given £5 million to that works for that purpose. I understand that there are only 500 workers now there, but I presume that that number will be greatly increased under this new arrangement. We are to a great extent hoist with our own petard. We have this appallingly high loan rate for borrowing money. The reason for that is to get hot money into this country from the sheikhs and other countries so that it appears that we have a big reserve. A lot of business is done on borrowed money. When you borrow money at that rate of interest, it makes it very difficult to expand industry. Another disastrous aspect is that owing to this high rate of interest you have people who have free capital—I do not know how they have got it, or from where they have got it— but, instead of investing it in British industry they are putting it on deposit and it is not doing industry any good. They can earn more by putting it on deposit and getting a big interest, but it is lost to industry.

I do not want to keep your Lordships much longer but, as many noble Lords have said, we must cut our coat according to our cloth. Some public expenditure must be cut down. It must not be cut down, for instance, in helping old people or people in dire distress, but big projects—such as a motorway—must be cut down. I am sure that if the shackles of excessive taxation—and the Chancellor has done something miniscule towards that—were removed, this country would surge ahead again. We have tens of thousands of excellent young men highly trained in management. I know some who are contemplating going abroad if they cannot use their talents here. I was amused by the noble Lord, Lord Shinwell, when he said—and I agreed with him—that there appear to be tens of thousands of people in this country who have no job at all, and who seem to be wandering about all the time. About three years ago I quoted in this House a report from the appropriate authority which went to Southend Labour Exchange. They found 74 men who had been drawing all the benefits of the "dole" for the previous year, but who had no entitlement to it. If that is the situation throughout the country in every labour exchange, you will find a lot of people who are doing nothing and existing on the efforts of others.

I was employing a young man who gave in his notice only the other week. He is only 22 years of age and has a wife and two children. He lives in a very nice house. There were plenty of "perks" in his job, although I admit he was getting only £30 a week. But he was doing a simple job. I asked him, "Why did you give in your notice?" and he replied, "I have had enough of work. I am not going to work for the next few months, or perhaps for a year or two. I have found out that I can claim all these benefits so I am not going to work." That is a perfectly true story. That is one of the things which is causing inflation and dragging this country down.

LORD MOWBRAY AND STOURTON

My Lords, may I intervene? The noble Lord, Lord Slater, interrupted my noble friend and since then has kept up a constant conversation. I am finding it hard to hear my noble friend's remarks above the noble Lord's conversation.

VISCOUNT MASSEREENE AND FERRARD

My Lords, I thank my noble friend for his intervention. I can assure the noble Lord, Lord Slater, that I shall be sitting down in one minute. I should like to repeat that it is necessary to get people to understand how serious this crisis is. What on earth would have happened if we had not found any oil? Where would we have borrowed money from in the world? I do not know. People with large wage packets and nice cars would have gone to garages but there would have been no petrol. They would have gone to their favourite shops, but they would not have been able to buy the goods they wanted because the country was not able to import them. I do not know what would have happened. We do not want to be too optimistic about this oil. We do not know how it will work out. For all we know, when the oil starts coming from the North Sea the Arabs may drop the price of their oil right down. We must try to save ourselves by our own efforts. If only everybody in this country would understand that, we might then see the social contract working, but I have my doubts. I can only hope that there will be a great surge of patriotism and that people will understand how appallingly serious this crisis is.

7.0 p.m.

LORD ALPORT

My Lords, I hope I may be allowed, as an old colleague, to say to the noble Lord, Lord Gordon-Walker, and the noble Lord, Lord Lee of Newton, how very much I personally enjoyed the contributions which they have made to your Lordships' debate. They have passed the bourne from which there is no return to the House of Commons, but I hope they will find this side as agreeable as many of us do who have suffered the same fate.

One would need to be more insensitive to the significance of the occasion than I am not be conscious of the privilege of addressing your Lordships' House on this, the last major debate of this Parliament. I cannot—and I hope your Lordships will forgive me—resist the opportunity in passing of noting one thing. It is the fact that four votes amending the Trade Union and Labour Relations Bill appear to have convinced the right honourable gentleman the Secretary of State for Employment that there is an important issue in the cause of House of Lords reform. Your Lordships will remember that the genuine and sincere attempts of our Party Leaders in this House to eliminate the so-called built-in majority for my Party and to render the Second Chamber more valuable in our Parliamentary system were frustrated by a somewhat unusual combination of forces in the House of Commons. It is perhaps too much to hope that when, during the forthcoming Election campaign, the issue of House of Lords reform is featured in the eloquent speeches of the candidate for Ebbw Vale his audience will realise that he has achieved his due Nemesis. But perhaps an engaging and articulate public figure will remember too that here in this House Party affiliation takes second place to what we conceive to be the national interest. Nothing was borne out more clearly than that in the speech of the noble Lord, Lord Shinwell, who was almost moving on to the Cross-Benches, at any rate in the first part of his address to your Lordships this afternoon.

We have the supreme privilege here of enjoying political independence while acknowledging the relevance of Party loyalty to the conduct of our affairs. This applies equally to matters relating to economic as well as to constitutional policy. In economic affairs where the actions of the Government of the day affect directly the material welfare of millions of ordinary people in the cities, towns and villages of this great and ancient country, no Party or faction or powerful sectional interest—be they bankers or brewers, miners or engine drivers, property owners or industrial workers or university students, have what you will—has an inherent right to pursue its own interests regardless of the legitimate and established interests of others or of the nation as a whole.

Our democratic system gives to the Party who wins a majority at an Election the responsibilities and privileges of Government. This does not, however, in my view mean that if 13 million voters cast a vote on way and 12 million voters cast it another, the 13 million, whether they be Conservatives or Labour, have a right to impose policies on a minority which deprives them of all influence in the conduct of affairs. Government in contemporary Britain must never be a matter of confrontation; it must always be based upon consensus. For this reason I became a critic of the late Government and the policy of confrontation with the trade unions. For this reason I am a critic of certain aspects of the policy of the present Government or what appears to be their policy with regard to nationalisation. For this reason I am a critic of some of the arrogant pretensions, while understanding the great power and the great importance, of the trade union movement. For this reason, long before it became fashionable in any quarter, and certainly in the Liberal Party, I put down on your Lordships' Order Paper a Motion advocating coalition.

My Lords, these are the thoughts and attitudes of a single independent Member of your Lordships' House whose allegiance has been with the Conservative Party over forty years. Around us to-day are the prophets of economic doom. Only their taste in similes differs—ahead of us is the economic avalanche, the financial hurricane, a collapse greater than 1931, a fate worse than post-war Germany's with wages being paid in wheelbarrow loads of pound notes; industry is investing too little; organised labour is demanding too much; confidence has evaporated in the City and by killing the equity market has white-anted the savings of ordinary people, whether they be shareholders or participants in pension schemes or dependent on insurance. And at this moment of difficulty and danger the professional economists appear to be divided and produce mutually contradictory advice. Some say reflate; some say deflate. Only one thing seems to be agreed on all sides, and that is that we are in a mess.

It is perhaps unkind to remind your Lordships that only nine short months ago the leaders of the Government in power were telling us that our problems were the problems of success. But as the noble Lord, Lord Carrington, has reminded us, there are certain things we should remember. For instance, that when the working week was cut by 40 per cent. industrial production fell by less than 10 per cent. It is worth remembering that it has been in those industries which have been nationalised that the principal crises in industrial relations have occurred. It is worth remembering that when in the past this country has been faced with a critical situation men and women of all classes have been prepared to make sacrifices, to accept disciplines and to surrender personal and sectional interests to win security and survival for our nation. It has not been the theories of economists or the manipulation of money supply or the Election slogans of the Parties which enabled us to survive these crises in the past. It has been our ability to mobilise the political will of the nation to make the effort, in peace or in war, which has given us success and survival.

Our problem to-day, my Lords, is very simple indeed. How can we now mobilise that political will? How can we galvanise the energies of this great nation? How can we create a willingness to make a united effort to prevent the avalanche or the hurricane which we are told lies ahead from destroying the very great achievements which past sacrifice and enterprise have bequeathed to us, and the freedoms and prosperity which we seek to pass on to our children? I know that I am saying simple, unsophisticated things. Yet I know I would be right in claiming that the factor which will pull us through is not the expectation of North Sea oil or the Labour Party's social contract or the Conservative Party's People's Charter. These latter may or may not win powerful protagonists, but they will not generate the political dynamism which in times of crisis has enabled the British to save themselves by their exertions. One does not release the latent energies of this nation by propounding easy options or offering political formulaæ.

I know that it is unfashionable now to remind an English audience that at a moment of supreme crisis a coalition Government mobilised the nation with a policy of, "blood, sweat and tears". But if in a very different but perhaps equally dangerous crisis we are to secure the future for the people of our country, it will not be on the basis of sociological formulae or slogans of professional politicians but by an appeal to the undiminished capacity of our people for sacrifice and service. And the first sacrifice which will be required will be some of the political prejudices and personal aspirations of many of those who will be elected to the next Parliament after the forthcoming Election.

It is no good pretending that the material standards of living in this country will be maintained at their present level during the next five years. It is no good pretending that the sacrifices will be equal. Many will go bankrupt, many will become unemployed and many will not become unemployed. Many will make a significant contribution to our survival, and some little or none at all. Some will be disruptive, anti-social, selfish; but the vast majority of people will have a sense of unity and a call to serve something beyond the humdrum, dreary routine of existence which will give us the political will which is essential to restore confidence in Britain's financial and industrial future.

The remarkable thing is that at this present moment when the City of London is sunk in depression and when our economists are prophesying economic disaster, when our detractors in America, in Europe and in the Communist world have chosen to write Britain off, some people are prepared to invest money here. The Shah of Persia is to lend us £500 million. Maybe it would have been better if we had earned that amount by our exports, but it was, at any rate, a show of confidence that he should do that. A sheikh from the Arab States—an old friend of this country—has invested in London property; and although the pound sterling has gone down marginally in the foreign exchanges it has remained remarkably stable, in spite of all the depression in this country. I think that this means that folk abroad have more confidence in Britain then we have in ourselves. They are gambling their money, and some of them their political future, on the ability of Britain—this strange, this curiously unpredictable, this old, stable, powerful, undefeated and uncorrupted country—to show the vitality and leadership which, over so many centuries, we have given to the world.

My Lords, this not an economic crisis or a financial crisis. This is not a matter of trying to ensure in the future that our people "have never had it so good". The issue to-day is whether ordinary men and women, trade unionists, shareholders, property magnates, bankers, farmers, pensioners—all the immense diversity of life and interest in this country—by an act of political will-power can give to our country a strength which restores our fortunes and which gives an example to struggling, depressed man kind elsewhere of what can be achieved in a free society. I believe that a challenge such as this will, and does, appeal to ordinary people and will mobilise that political will which enables all classes to sacrifice their interests and to concert their energies to promote the general welfare. Of course I may be wrong, but I believe that this can only be done in the context of a National Government.

Coalition, like devaluation, is a dirty word until it actually happens; then suddenly it becomes identified with the national interest; suddenly the country throws off the trappings of partisanship and the dreary, old political formulas; suddenly so much that was impossible becomes vitalised by an act of political will undertaken by the nation. This is what the country is waiting for—not for some contrived, economic panacea, but for the resurgence of a national willpower to rise from self-discipline and sacrifice and be responsive to the example set in Parliament, in the leadership of the great trade unions, in the leadership of our great industries and of our financial institutions in the City of London and, indeed, in the leadership of all those who have in their hands the levers of power. It is not a role for one single individual, and a National Government must draw purely on resources of ability and leadership from outside Parliament.

My Lords, I have no doubt that such a Government will emerge within the next twelve months. The tone of most of the speeches in this debate is clear evidence that minds are moving powerfully in that direction. If we in this House on this occasion—the last debate of this Parliament—has hastened the coming of that National Government in any degree, I think that we shall indeed have rendered a service to the nation.

7.15 p.m.

LORD RAGLAN

My Lords, I intended to speak on the Trade Union and Labour Relations Bill, but because Mr. Heath announced that the Conservatives will not try to introduce another Industrial Relations Bill, I thought that I would reserve what I had to say as having more relevance to this debate. One of the deficien- cies of the Party opposite is that they have no active politicians who have come up through the hurly-burly of industrial life, like my noble friend Lord Lee, who could advise them about what to do over labour relations. The result has been not only confrontation but provocation, and it will be a very long time before the dust which was raised by the last Administration has anything like settled.

A deep understanding of the trade union movement is essential in any Government. I reject the notion that the unions are motivated mainly by what has come to be known as "the politics of envy". To call it that is a superficial comment and a way of avoiding awkward questions. In my own judgment, my friends among trade unionists and in the Labour Party possess among them no more than the ordinary human share of envy or jealousy. In fact, according to my observation there is more jealousy over money among "haves" than among "have nots".

Your Lordships will remember that a standard plot for the average, upper middle-class Agatha Christie "who done it" features a murderer whose motive is to get hold of the money in somebody's will, or who has killed in revenge for not having received that money. I was looking at such a thriller on television the other night. The detective was remarking that each of the many suspects had a motive for murder—murder for money! We were given to understand that it was quite natural. Your Lordships, especially noble Lords opposite, know of rich families throughout the ages, and nowadays, who have been riven and even beggared by quarrels over money. How can one, then, believe that jealousy about money is a characteristic which is confined to the working class?

My Lords, like the noble Lord, Lord Carrington, I find no jealousy among the working class of the immensely wealthy film stars and pop stars, or even of Georgie Best with his chauffeur driven Lamborghini and his private aeroplane. Such money is beyond the achievement, and probably beyond the comprehension, of most people. However, I find that there is indignation at the arrogance and smug self-satisfaction which so frequently goes with wealth; and it is not jealousy which nearly led a friend of mine to put down a Question on the Order Paper asking why it is that the yellow lines in Bond Street do not seem to apply to Rolls-Royces, chauffeur-driven or otherwise. That is the kind of needling thing which annoys people who do not have the money to buy a Rolls-Royce.

The motives which lead people to demand more pay are not always simple. An industrialist once told me that he thought that about 80 per cent. of the pay disputes in his factories were not directly connected with the desire for more money, but were, a means of articulating grievances about other matters. He may have been putting the percentage too high, but at least he knows more and has tried harder to learn than those television interviewers who have evidently never seen the inside of a factory, who do not appear to know anybody who works in a factory and who really have no idea about what is going on.

I, for one, very much regret that, time and time again, what most news editors are evidently seeking is not news but drama. There are some people in public life who enjoy stirring things up and living in an atmosphere of crisis. They are the kind who make wars and who are not of much use to us in peacetime. However, thoughtful discussion and prosaic negotiation do not make attractive headlines or suit the trumpeting introduction to the television news. In real life there is very little drama, as the editors of local newspapers recognise on the whole, much better than their national counterparts. I believe that is simply because local editors are more in touch with real life. Sometimes a national newspaper will take up a cause, as the Sunday Times did in regard to the thalidomide children or The Times did with Adam Fergusson's excellent articles about the destruction of Bath. Campaigns like these can be very effective, but an analysis of labour disputes would entail detailed and un-sensational investigation by journalists of experience and patient understanding, and they would have no abrasive headlines along with their properly documented statistics. Then we would not get a situation, as we did during the last miners' strike, when mostly we heard stories about how the moderates and the Left were bashing each other, but there was no hard information that I or any other person whom I knew could find, about what a miner really earned or what he really thought of his job.

Just now there is a dispute among the printing unions which I believe threatens the jobs of nearly 3,000 people in the International Publishing Corporation and, of course, we cannot get Hansard printed. Surely 3,000 jobs at risk are a matter of public concern. Is the fact that we have read very little about this dispute due to circumspection on the part of editors while negotiations are going on, or is it due to a belief among journalists that, being a subject they can really know a lot about, it may be too complex to inform the public and they think their readers will not buy it if they print it?

Pay and labour relations are of overwhelming importance in our existence as a trading and manufacturing country, and they are very complex subjects. Yet the public are about as badly informed upon them as it is possible to be, and things will not get better until people are encouraged to take an informed interest in them and not have them represented as gladiatorial fights to suit newspaper typography or to provide action on the screens.

I am by nature optimistic, but I must confess that at times in the last month or two I have been depressed. With respect to certain friends (not in this Party) who have been promulgating the idea of a coalition, like the noble Lord, Lord Alport, I think they are missing the point. The coalition idea is floated from time to time by conservatively-minded people as a way of expressing no confidence in a Labour Government. I have greater confidence in Party Government. When the two Front Benches get together it is not always healthy for democracy. Yet hardly a day goes by that I sit on these Benches when I do not remark to myself on the fact that, broadly speaking, the Party opposite represents the employers and this Party represents the employees. It is a confrontation which has been going on for over 50 years now and we should have grown used to it, and we should know that it is a confrontation which neither side can win. It is not exactly a class confrontation—and this is where I disagree with Mr. Mayhew. I would say that there is more class consciousness in the U.S.A. than in this counand very much more in France, and, of course, the classes in Russia are as stratified as anywhere in the world. What has happened in these countries is that they have purged their class consciences by republican revolutions and now they can relax and pretend that they have no class divisions—which is totally untrue.

However, whatever the causes of our Party divisions we ought all to know that any Government formed by one Party has to live with the possibility that at any time there may come along a Government formed by another Party. That means that great differences though there are in beliefs and policies and emphasis, no Government when it comes to power can afford totally to alienate the other Party, to the extent of bending their mind to overturning everything they can of what the previous Government have done. Yet when the Conservatives returned to power in 1970 they proceeded to do just that. They were a Government of unprecedented Conservative militancy, and the result was such a passionate alienation from that Administration among people whose good will and influence matters, whichever Government is in power, that it grievously affected—and still affects—labour relations and it soured attitudes by the uncommitted or the unconvinced towards our membership of the Common Market.

While I voted against the Industrial Relations Bill in every Division I could get to, I voted for membership of the Common Market, despite the fact that that Bill was supposedly so word perfect and divinely inspired that it was hectored through both Houses without amendment. The indignation against that on this side of the House—or it was then on that side of the House—was immense. No Party's credit stands so high that it can afford that kind of attitude, even if it were an acceptable way of governing, which it is not.

I hope that we stay in the Community. I take with a pinch of salt any partisan calculation as to what the benefits or losses may be of being in or out; any experienced businessman will tell one that the cost of a project which one wants to do comes out cheaper than the cost of something which one does not want to do, and where the balance of benefit is fairly fine, as it seems to be in this case, the costings come out according to whether one is in sentiment a nationalist or a supra-nationalist. I am a supra-nationalist, both through sentiment, and because the facts of life—the sheer speed and facility of communication and very close trading interdependence—are making nonsense of nationalism as an economic proposition. Nations developed out of the feudal system as parcels of land marked off and including the people within, organised as economic units with defended frontiers. If you have common trade, inter-investment and a common defence policy there is no point in nationhood. I do not see much future for nationhood. I am sure that the idea will cling on, but I do not see much future for it, except possibly to produce football teams or as an excuse to organise beauty contests.

Nations tend to be aggressive because that is their origin and their purpose. But "Great Britain Limited" ceased to be a fact when we merged with the Common Market. The people who have joked that Britain was "Heathco" have really got hold of the wrong end of the stick. It is the opponents of our membership of the Community who see themselves as managers of their own little autonomous business. But I do not think that Ministers are necessarily the best people to run businesses. I have heard the noble and learned Lord, Lord Hailsham of Saint Marylebone, say that this country is ungovernable: I think that in some respects it is too easily governable and this tempts Governments and Ministers to fiddle around with matters that they do not know much about, and at least part of Britain's poor economic performance has been due to constant changes in political theories and in taxation policies by Government's of all colours; from "lame duck" policies to wholesale nationalisation, and perhaps back again, until nobody knows where they are. That may be one reason why money is going abroad. One thing that membership of the Community may help to do is to lessen the temptation: slow-moving change we can all adjust to, but rapid vacillation is bound to be bad for business and the morale of the work force.

With respect to the noble Lord, Lord Kahn, like the noble Lord, Lord Carrington, I do not go much on the output of economists, although I read it with interest. I allow that they are very necessary, but are like something said of Bishops: whenever you get a dozen of them together, there are thirteen different opinions. They cannot even agree upon what has happened, let alone on what will happen or what ought to happen, so it is no wonder they say that Treasury officials grow old early. They have difficulty in practising common sense which, in my father's excellent definition, is only something you have tried before and which has not turned out too badly.

My Lords, the situation changes all the time. The noble Lord, Lord Alport put it very well, if I may say so; if you believe some people things are always changing for the worse. Last year, some were saying the opposite—that it was only going to get better. We have heard from noble Lords to-day that there is a crisis, that we must tell people the truth—if we knew what it was—that we must work especially hard, we must make sacrifices and so on. But people have heard it all before and on the whole the standard of living and the quality of life has gone on improving for most of them just the same. If this is a crisis, it will need a cataclysm to make anyone take much notice. If a cataclysm did come, for the doomwatchers and the headline writers to rub their hands, it would be too late for any of us to do anything about it. So the best we can do is to avoid dogma, to avoid provocation; and, every Government being only of a Party which reflects only a minority of the electorate, must work its hardest to take everyone along with it.

7.32 p.m.

LORD KAHN

My Lords, I am sure that the House will agree that the economic position is too grave for professional economists to try to conceal their differences, and possibly it will be agreed that on this occasion I am justified in making a more academic speech than is my wont, in an attempt to unravel the character of one of our main economic troubles. I should say at once that I am much in agreement with the speech of my noble friend Lord Boyle of Handsworth and with much of the speech of the noble Lord, Lord Carrington. My noble friend Lord Robbins began his moving speech with an appeal for controversial issues to be dealt with in a spirit of mutual toleration and reasonableness. The speech of my noble friend was certainly delivered in that spirit. I fear he will find me less tolerant than I found him. If my fear is justified, I offer my apologies.

My Lords, as I shall not have time to deal with them, I mention now three particular issues on which I am in full agreement with my noble friend. First of all, there is the extreme gravity of the economic position. Secondly, I not only agree that the fact that sterling is floating is no safeguard, but I regard it as a positive menace. Thirdly, I agree that at the present time it would be wrong to carry demand reflation further than the extremely modest amount by which the Chancellor of the Exchequer carried it through the adoption last week of his measures. When I say that, I naturally have in mind the prospect of another Budget in November, after a reappraisal of the economic position.

It is my strongly held belief that the behaviour of the price level in an advanced industrial country is mainly to be attributed to the behaviour of money wages, and to the behaviour of the prices of imported products. It is perhaps right that I should say something about two alternative views which are closely related!

My Lords, as an interpolation, I entirely agree with those who speak of the momentum generated by one or two years' experience of rapidly rising wages and prices, and its effect on expectation. Perhaps the simplest explanation of any rate of cost inflation is that it is the rate which happens to have prevailed sufficiently long in the recent past for it to be expected to continue into the immediate future. That is not inconsistent with my attribution of the behaviour of the price level to the behaviour of money wages, but it means that a brake on the momentum is needed. The question is whether, as I think, the momentum should be gradually eased off, or whether it should be suddenly checked at the expense of a severe shock to the economy.

My Lords, one of the alternative views to attributing cost inflation to the behaviour of money wages is that if only unemployment is maintained at an adequately high level, the behaviour of money wages and of the price level will be tolerable. The statistical history of recent years, not only of this country but of all other advanced industrial countries, has led to the abandonment of any attempt to establish a precise quantitative relationship between the level of unemployment and the rates at which wage and price levels rise. But in qualitative terms, it is still widely maintained that the trouble has been that unemployment has been too low and unfilled vacancies too high. Of those who held this view, few would be prepared to advocate levels of unemployment which would clearly be politically unacceptable, probably resulting in revolution, and of which there has been no experience since the war.

Of course, I agree that shortages of labour in themselves result in rising wages. Such shortages need not be nationwide but may be, as they invariably are, confined to particular areas, industries and skills. It is only if unemployment over the country as a whole is as low as 500,000, and unfilled vacancies are correspondingly high, as in the period from early 1964 to early 1967 (but not since, except at the very end of 1973), that I would expect a general decline in the pressure of demand to result in a significantly lower rate of increase of money earnings, averaged over the country as a whole.

Since the middle of 1967, unemployment has been over 520,000, a percentage of 2.2, except at the very end of 1973. I should mention that all my figures of unemployment are seasonally adjusted. I have heard it maintained that the influence of unemployment on the behaviour of wages is revealed by the statistics of the last seven years. I have before me a table showing the percentage increase of average hourly money wage earnings for each 12-month period beginning in November and ending in the subsequent October, from 1967 to 1973, compared with the average percentage of unemployment for the same period.

It would take too long to deploy my statistics in detail, but the upshot is not merely that wage earnings have not risen less fast when unemployed was high than when it was low, but precisely the opposite. The increase of wage earnings grew steadily from 7 per cent. in the 12 months ending October, 1968, when the average percentage of unemployment was 2.3, to 14.6 per cent. in the 12 months ending October, 1972, when the average percentage of unemployment had risen to 3.7. In the 12 months ending October, 1973, wage earnings rose by somewhat less—13.6 per cent.—although the average percentage of unemployment was lower at 2.7 per cent. Thus the figures, if they prove anything, prove precisely the contrary to the theory which I am attacking.

The most sensational change in the rise in earnings occurred between the end of 1968 and the end of 1970. Between November, 1968, and October, 1969, the rise was 8 per cent. In the subsequent 12 months it was 16 per cent., exactly double. Unemployment was almost exactly the same in the two periods. The clear explanation is the effective abandonment of an incomes policy by the Labour Government towards the end of 1969 bartering away, in an attempt which proved unsuccessful, to secure freedom from strife and to pass their long Industrial Relations Bill, which is similar in many respects to the subsequent Government's Industrial Relations Act which is now in course of being repealed.

The Conservative Goverment came into power in June, 1970. It was not until the autumn of 1972 that they were forced to accept the need for a statutory counter-inflationary policy. The enormous rise in the world prices of primary products started in the middle of 1972. The fact that in spite of its repercussions on the behaviour of the cost of living, money wage earnings in the period November, 1972, to October, 1973, rose by not more than 13.6 per cent., somewhat less than in the previous 12 months' period, is clearly to be attributed to the statutory control. With falling prices of primary products, a wonderful opportunity is now being missed, as a result of the abandonment of statutory incomes policy, of fairly rapidly decelerating the rate of increase of wages and prices.

Unemployment began rising at the beginning of 1971. It reached a peak of 875,000, a percentage of 3.9, in March, 1972. It is my belief that this high level of unemployment actually contributed to the cost inflation, by creating resentment on the part of trade union leaders and their members, and by encouraging militant and unofficial industrial action. Furthermore, trade union leaders were taking the line that as the Government did not appear to be taking adequate measures to reduce unemployment, it was their duty to do so by accelerating the upward movement of money wages, believing, rightly or wrongly, that this would result in a rise in real demand and a reduction in unemployment.

I turn now, my Lords, to the other view alternative to the belief that the behaviour of the price level is mainly to be attributed to the behaviour of money wages. I turn to the widespread belief that it is all a matter of the behaviour of the money supply. Among the partial adherents to this theory is the Chancellor of the Exchequer. In his Budget Statement of March 26, he referred to the rise in the money supply of 27 per cent. in the financial year which was just about to end. Over the four recent banking months from mid-February to mid-June, the quantity of money increased by only 1 or 2 per cent. The Chancellor said, in announcing his measures on July 21, that he was satisfied that their adoption would not jeopardise his objective of keeping the rate of growth of the money supply under control.

It is obviously the case that the behaviour of the quantity of money is related to the size of the public sector deficit, though the quantitative relationship between the two can vary a great deal. There is a tendency to attribute the effects on the economy of a reduction of the public sector financial deficit to the slowing down of the growth of the money supply, in which a reduction in the public-sector deficit usually results. The causation is mainly a commonsense one—the effects on the levels of output and employment, the reduction in demand which results from a reduction of public expenditure and an increase in taxation.

My Lords, I am not saying that the supply of money is of no importance at all, although for my own part I prefer to think in terms of rates of interest, the state of credit and the ability of the banks to lend, which to a considerable extent are subject to Bank of England control irrespective of the behaviour of the money supply. Taking the line that I do, I have to meet a highly reasonable challenge. If the growth of the money supply fails to keep pace with the rise in the price level and the growth of output, what will happen? Or, indeed, what will happen if the money supply is kept constant? My answer is that rates of interest will progressively rise, the availability of bank credit will progressively fail to meet the needs of industrialists, and generally credit will become tighter and tighter.

Unemployment will progressively increase. I have already argued that this will not appreciably influence the behaviour of money wages, at any rate until unemployment has reached a politically unacceptable level. But my brief answer to the challenge is that there will be a disastrous slump with all the consequences of such a slump. I need not stress the difficulties of emerging from a slump and the serious economic damage which a real slump would impose on the economy. But I agree that if a slump is successfully engineered it will prove a salutary lesson to trade union leaders and trade union members who will realise the importance of restraint in future wage bargaining. This is subject to one important proviso; that is, that the political Party which constituted the Government held responsible for engineering the slump, survived the subsequent General Election—a most improbable supposition.

My Lords, I share the gloom of my noble friend Lord Robbins and many other speakers to-day. I earnestly hope that my doubts about the efficacy of the social contract and the guide lines of the T.U.C. will prove exaggerated. I earnestly hope that the wages front will not be too severely shattered—though I fear it will—by the time whatever Government is in power in October next finds itself forced to resume a statutory incomes policy.

7.50 p.m.

LORD RHODES

My Lords, I find myself as usual five hours after the debate has begun and feeling that I might retire and spare all noble Lords the infliction I am about to perpetrate, but on this occasion I am afraid that your Lordship's will have to bear it because I am going to make my speech in any case.

The noble Lord, Lord Gordon-Walker, has come in for several encomiums this afternoon about his transition to this House from the other place. It is no secret between us that we both fought an election on the same day, he in Smeth-wick and me in Ashton-under-Lyne, in the first two by-elections after the 1945 General Election. I do not know what his experiences were on the last Saturday night, but I will relate my own. They told me I was certain to get in if I stood on a soap box in the market square, which I did. It was a very cold night and I kept going; I was not very good. A tramcar making a grinding noise came round the corner, and I took refuge in shouting out to the crowd: "I can hardly hear myself speak", and somebody at the back of the crowd quickly said, "th'art missing nowt, lad"—(you are missing nothing lad). That may be the case this afternoon.

Before I get going on my own speech I should just like to say to the noble Lord, Lord Kahn, who has been dealing with the matter of unemployment and its impact on wages and the atmosphere generated by wages negotiations, that the basis on which he is working could very well be faulty—not Lord Kahn's interpretation, but the figures on which he is working, could very well be faulty. While I was Lord Lieutenant of Lancashire I went round many towns asking for information about the level of unemployment in those towns, and the consensus of opinion was that 38 per cent. of the people on the books could never work again either by hand or by brain. At that time unemployment was running at around 700,000. If Lord Kahn will get this publication Unemployment, March 1974 he will see the figures nearly corroborate my contention. Figures of unemployment are used for electoral purposes, but perhaps one of these days an incoming Government will have a bit of sense and put the unemployable people on a social register and so leave them out of the electoral or other argument. Then we can get down to a true figure. That is all I have to say on this. I mention it because I have brought it up several times in this House, and it really is time the true position was stated.

I am not talking this afternoon either to the Stock Exchange belt or to the owners of cars outside the hotels and pubs that I pass on my way from Manchester to where I live. These are people who nightly cat out and have plenty of money to do it, and can look after themselves. I am talking about ordinary folks, some of whom used to work for me, and are now retired; thrifty persons who stood by this country in thick and thin through two World Wars and what they have to endure today and why.

The inflation that we are suffering is the most insidious of all our ills. It is undermining values. It is imposing burdens on the weak, and therefore injustice follows in its tracks. It makes good ordinary law abiding citizens desperate and disruptive. It is this last fact with its terrible consequences which should steel us to fight this evil and never give up. It frightens capital that should be put to profitable work, and encourages the "spiv" and the speculator, all at the expense of real production. I do not think there is anybody who has not totted up what it means in terms of their own personal circumstances. We all know that 10 per cent. inflation doubles prices in seven years. But looking at the record we have now, we are considerably in excess of that figure. Its cumulative effect is even more serious. If we take the figure, as Lord Beswick did (although I think he missed a little bit out), of 10 per cent. inflation, for a chap earning a modest £40 at the age of 25, if his real income is to rise by a modest 2½ per cent. a year, at 65 he will have to be on £250,000 a year and taking his weekly wages home in a wheelbarrow. At 10 per cent. again, a man of 65 retiring on a two-thirds of salary pension of £40 will find by the time he is 80 his pension is worth £10 a week.

The current taxation policy encourages inflation too. For instance, when a man gets a rise he automatically goes into a higher tax bracket. So the average wage earner must have a rise of 13 per cent. or more gross to take account of the 10 per cent. rise in prices. What I want to say relates to the period from now on until the decision is arrived at to hold an Election. What I say now I hope has some slight effect on people's thinking and decisions as to what should be done. I contend that this and the next Government will have enough on to occupy them cleaning up the mess of ill-thought-out schemes by previous Governments, without embarking on massive controversial legislation for the next three years. The work of fighting inflation and the need to restore to these Houses of Parliament the authority they have lost during the last twelve months is enough work to last Parliament for a full five years. If they do that and they restore that authority such a Government will have the thanks of a grateful nation.

My contention about ill-digested schemes is really addressed to items in a Manifesto which may appear to attract votes but in reality tie a successful Party in Government to things that are not altogether for the benefit of the country. We have seen Maplin: it is no more. It has left a massive mess in its wake. The Channel Tunnel scheme is under a rigorous scrutiny, so is Concorde, and so is the Bank of England competition and credit extravaganza. Arrangements for North Sea oil are being drastically revised, and British participation in the Common Market is up for what we call "fundamental renegotiation". "Maplin embarked on without adequate argument or evidence", say the experts now. And the experts say that unless machinery for testing multiple sources of advice is developed, the long-term public interest will continue to be ignored, and the nation's money wasted.

Who doubts now that a similar criticism could be levelled at Concorde? It was embarked on with a total disregard of all the lessons of previous experience gained in advanced projects. It may have been a political gambit at the time to try to convince the French that we were European-minded; but we want to be wary of political gambits, as I shall seek to show in a few minutes. Who denies today that a complete mess was made of the North Sea oil arrangements? Surely we all agree with the Daily Telegraph survey that a substantial part of our oil heritage was given away for a song. Expert warnings were given about the money for the free-for-all Bank of England competition and credit scheme. With regard to Europe, every day that passes brings fresh evidence of the lack of competence in researching in depth before we went in. I am afraid that the researching will not be done before efforts are made to get us out.

Industries in this country, like the wool industry that I have been devoted to ever since I was 12 years of age, have been doing their homework. This morning they have come to this conclusion: The potential net gain to our industry is estimated at £53 million a year by 1977 if there is no decision to withdraw. Withdrawal, we strongly believe, would not be in the best interests of the nation as well as the wool-textile industry. In terms of employment, this could represent over 5,000 jobs in our industry. One thing I should like to impress on your Lordships. Whatever is done at this juncture, from now until the Election, let it be modestly done and well thought out.

In connection with this question of the E.E.C., this House and the other House have set up a Select Committee so that it can alert these Houses as to what is going on in the Common Market. If the Members of both Houses need a Select Committee to be set up to alert them to what is going on in the Common Market, what good is a referendum in the country? If we do not know, what do the people know about it? I will not enter into a discussion on that question, but what I want to do now is to make a plea for the ordinary folk who see changes in our society accelerating at a terrific rate. Everything seems to be called into question. People are living more from day to day, there is more vandalism, breaking up, the education system is turned upside down, genetic experiments all over the place, sprawling confusion of lifestyle, and generated consumers' "over-choice" by advertising. We hear about children turning to drugs because life looks bad, and the adults bury themselves nightly in T.V. We think about the boundaries which have caused so much distraction and trouble. That was lack of thought—that was lack of real research, if you like—and the trouble has been caused and is still going on.

The Government were very astute and wise in doing what they did about rents, because the revolution that would have taken place on the rent front would have been gigantic. There was a determination in the country on that point, and that is attributable to the lack of thinking out the problems of boundaries. People have been shoved around too much. They do not want an Election fought on controversial issues at all. What they want is a steady, sober approach to the job in hand, and the opportunity to vote for the Party they believe in without a lot of extravagant promises which do not stand any chance of being fulfilled, and might be harmful to the country anyway.

Take another one, decimal currency. What maniacs ever introduced this? Why? The Government who introduced this ought to be out of Office for 20 years. It has made our people less thrifty. They do not count the change any more. They are expecting inflation all the time and getting ready the next round of demands. While people plead about the amount of investment that they ought to be doing, the country has a mentality of "Give me more, more, more." That is" taking out "; investment is putting in. So we have to change attitudes.

I shall soon have finished, but I want to say something about the chorus of "Tell the people the truth." I have not heard such a unanimous chorus for years. Everybody seems to think that everybody else is likely to tell lies. I should like to add to one one or two of the choise mottos which we have put over. Everyone who thinks that. if you have a free choice consumer society, you can get along without unemployment, is a fool. You are asked by a thousand agencies to buy "this, that or t'other", and according to how the influence works so unemployment goes up and down, and it is not any good anybody thinkiing that you can maintain full employment.

I should like to see the three Parties agreeing on three or four major joints. For instance, there is no reason why the three Parties should not then say on half a page in every daily newspaper from now until the Election what they agree on. We all know what the country can afford. We all know what the dangers are. It would go a long way towards unity if the major parties could be seen to be agreeing on a few basic principles for getting out of our trouble. Tell them what the nation can afford and what it cannot. Tell them that honest cooperative endeavour is as necessary to-day as it once was. Tell them that we have to pay back what we borrow. Tell them these simple things. Tell them that the ones who are taking more out of society than they are putting in are stealing from the weak. I have finished.

A week or two ago I went to Blackburn. My task was to run up the Union Jack. There were five neighbouring authorities and they all ran up their own flag. Mine was the last. Proud I was to do it. I turned round to some schoolchildren and to one girl said "Did you like that?" She said "Oh, I did" She said, "I hope it does not come down.". So do we all, where we are groping towards this unity which we all know is highly desirable, yet somehow we walk along and pretend not to notice it. We generate heat about differences which really do Parliament no good. I hope that in the coming Election the Parties will be prudent and modest in the claims that they make and, perhaps agree on four basic principles at least.

8.13 p.m.

LORD AUCKLAND

My Lords, it is always a singular pleasure to follow the noble Lord, Lord Rhodes, because if there is one person in either House of Parliament to-day who can talk sound, simple common sense it is the noble Lord, whether or not his views are in accordance with all sides of your Lordships' House. But I think certainly the penultimate words of his speech will command very wide support.

I wish to join also in the congratulations to the noble Lord, Lord Gordon-Walker, and the noble Lord, Lord Lee of Newton, on two notable maiden speeches. From another Lancastrian like the noble Lord, Lord Rhodes, the noble Lord, Lord Lee of Newton, again gave us some good earthy common sense. Much of what he said needs repeating in every boardrooom and at every works council throughout the country.

As was said earlier, it used to be the case that we debated the Finance Bill as such at the end of the long hot summer of Parliament. But times have changed and to-day, perhaps more than almost any other time, the debate has been wide-ranging. But I think it is none the worse for that. It might be that if all 26 noble Lords who were speaking were locked in a boardroom and told to thrash out a policy for the next Election and not leave until a reasonable policy had been thrashed out, some sensible projects might be brought to bear, or certainly some sensible ideas, because I think we have had during the course of this debate a number of notable ideas put forward.

One thing which needs to be said is that Members of the other place and Members of this House are to a large extent themselves engaged in business, commerce or industry at varying levels. Therefore in a sense perhaps we wear two hats. We see the problems in our own businesses and we have to come here to try to relate them to the state of the nation as a whole. I myself am concerned particularly with two small businesses, one in the management consultancy field and one in the property field. In both cases we are at the moment going through a very serious situation, particularly in this country. One hears a great deal of extremely depressing talk these days in all walks of life, from management right down to the shop floor. We have in this debate had such depressing talk about honesty in politics. Such reference is highly desirable. In this country honesty in politics is infinitely more in evidence than in a great many countries throughout the world, despite the fact that every now and again there are certain lapses either at the Election hustings or elsewhere.

This is human nature because we live in a vast, moving society and in a changing economy which is largely governed by world and international conditions. Of course there is a need for all politicians who have Party labels in both Houses to "come clean", as is said in colloquial circles.

But not every setback is necessarily attributable to politicians as such. In a democracy a Government are elected who put forward legislation. The legislation is contested and the end product eventually comes out. We have had a typical example of this in the industrial relations legislation which has been going through Parliament for several years now in an attempt by both political Parties to produce an industrial charter. To some extent both Parties have failed. I say, "to some extent", because although the legislation of the Conservative Party has been scrapped and the legislation of the Labour Party foundered while it was being discussed, I think some valuable lessons have been learned. One thing is quite certain; that sooner or later—I think sooner than later—an industrial charter of some kind will be necessary.

We suffer, I think, very largely from a failure in communications. The failure is to some extent with politicians. Perhaps it is that the media is relied on too much, rather than the much healthier discussion at the hustings or the much more realistic discussion in Parliament; and too often Parliament is subordinated to what happens on a television programme when a senior Minister or "Shadow" Minister is asked at very short notice extremely complicated questions which he or she cannot always answer objectively. This, I think, is one of the great dangers today: that politicians, or some of them, perhaps spend too much time in front of the television cameras—it is not their fault, because if they are invited to do so they can hardly escape it—and perhaps too little time answering in Parliament, and even less time, in some cases in their constituencies. I believe that is why there is disillusionment with politics in some circles to-day, and why the economic situation which we face is a very serious one. And it is not only this country, my Lords. There is scarcely a country in the world—and this point has been made many times—whether it is Eastern Europe, whether it is in Australia or New Zealand, whether it is anywhere on the African Continent or in any other place one cares to mention, where inflation is not rampant in some form or another. As was said earlier, I think by the noble Lord, Lord Robbins, in his usual notable speech, the pace of inflation and the period it lasts varies from country to country; but it is a worldwide problem, and I think one which is undoubtedly very serious.

My Lords, references has been made to the wages structure of this country. I do not want to continue yesterday's debate (in which I had hope to speak, but a previous long-standing engagement prevented me from doing so) but there is not doubt that those who work in our social services have been grievously underpaid for many years, and it may well be that some of the industrial unrest which we have seen, and which I think most of us deplore, has been a corollary of this. There is no doubt whatever that any future Government will have to take a very long, clear look particularly into the social services vis-à-vis our economic situation, because we have relied a great deal on people from other countries to come and help us in our hospitals and elsewhere. But, my Lords, as these countries themselves achieve a higher standard of living, the people themselves are going to recognise the fact that they want remuneration commensurate with these standards, and I think this is one of the important points which this debate should bring out.

My Lords, I want to say just a word about the construction industry, because this is one of the industries which is-undergoing one of the most serious recessions at the present time. Seven hundred workers were recently laid off at the London Brick Company at Peterborough, and indeed it is reckoned in the Estates Gazette that it may well be at least 1976 before the construction industry really gets anything like off the danger list, as one might say in medical terms. This is,, I think, partly because construction workers are inadequately paid, which I believe is in turn partly the cause of the "lump", as it is called, which is not popular among the members of any political Party, although I think that in some cases it is inevitable if the job is to be done. But quite clearly this needs looking into very seriously; and I think the rather hasty legislation with regard to the property companies, which was not the fault of only the present Government but of the penultimate days of the last Government, has done a great deal of damage here. It ought to be said that there have been charlatans in the property companies, and it is always easy to look behind them. These people should have been dealt with a long time ago, but not by the kind of piecemeal legislation that we have had, which has had very serious repercussions on property companies generally, consequent upon which has been the effect on a number of pension schemes.

My Lords, it is impossible at this time, I think, for anyone to predict the future with confidence. There is speculation that there may be another Election this autumn, possibly in early October, as the evening papers seem to think. But one thing is quite certain: at the Election hustings, whenever the time comes, we shall not get the same kind of temperate speeches which we have had in your Lordships' House to-day—and this, in any democratic country, is reasonable. But time is short, and it may well be that whoever form the next Government will have the future welfare of this country in their hands for many years to come.

8.28 p.m.

LORD DAVIES OF LEEK

My Lords, I apologise for missing a little of this debate. I listened to about 14 speeches, and then I was called out. Shedding light on this difficult position is indeed a terrific task. I have listened to speeches made by scholars and professors; I have listened to speeches made to-day by men who have spent their lives in industry on the entrepreneur side; and I have listened to constructive speeches made by my two noble friends who made their maiden speeches to-day. I have also listened to a professor of economics, the noble Lord, Lord Kahn, who can stand up in a House like this and say, "If we have a slump ultimately it will be a salutary lesson for the trade union movement". I have never heard such a devastating statement in my life from a professor of economics. It will be a devastating lesson. I lived through one such period. I was in Germany in 1930, as I have said before, when the Anstallt Bank collapsed. I saw men sitting on park benches who, a few months before, had owned factories; I saw men and women scratching for bread; and I saw marks you could paper a wall with. Unemployment salutary for the trade union movement? Men were throwing themselves off skyscrapers in New York at the time. This was the devastation of human fibre.

We have treated this debate with a certain lightness, but without claiming divine omniscience in the solution of the problem I want to try to throw a little light on it. Speaking of light, there is a new vogue called lateral thinking. Nobody quite knows what it means, but everybody is uttering the phrase on the media and in the papers. Talking about throwing light, I can give a concrete example of lateral thinking concerning my own grandfather. He was an old scoundrel of a farmer in Wales who employed a boy from about sunrise to sunset. He caught this lad in the open one night going up the mountain with a storm lantern, burning his paraffin. He hollered up the mountain in Welsh, "Boyo, where are you going?" "Oh, Mr. Davies, I am going up the mountain." My grandfather said, "What are you doing?" "Oh, I've finished my work; I've been working all day and I'm going courting." "What," said my grandfather, "going courting with oil and wasting my paraffin? I never went courting when I was your age!" "No, Mr. Davies, and judging by the look of your old woman you'd have done better if you had!"

I think that we should have done better if we had had a bit of concrete light on this debate. We have had masses of statistics. It is like looking for uranium in Denver. I think kids were taking Geiger counters out there looking for uranium and they found it. We have had masses of lovely gems of statistics. Those gems have been piling up like, as I said the other day, piling Pelion on Ossa. We have a load of facts disseminated through the Chamber in what is a clever speech, but when it is analysed where are the constructive approaches? The truth is, very few. We do not know all the answers to this; but there are some which jump out, and I believe they have not been touched on to-day.

Am I right in assuming that one of the fundamental questions is that production in the world to-day is beginning no longer to rest on the worldwide division of labour, with exchanges of goods produced by extensive specialisation in different places? Production is now spreading over the globe at a uniform level. My noble friend who spoke about the production of cotton in Lancashire must understand that one can now produce cotton anywhere because one can create the necessary climate artificially. The diversity of climate and location of material has now, by the shortening of distances, been overlapped. Now such a spread is making new demands on energy. We have this problem of nuclear energy, and we are not quite sure how to use it yet. Euphoric statements were made. I listened to several lectures by Oliphant and others; I took a deep interest in the problem of nuclear energy, but the euphoric statements given to us by scholars and physicists were so wide of the mark that it was pathetic. How do they expect the laymen to give the answer? I remember the marvellous Manchester Guardian pamphlet on Zeta—the new machine that would control the explosion of the hydrogen bomb and turn seawater into gold. Good God! They were talking like mediæval alchemists. All they wanted was a couple of lizards hanging in the dusty studies where those articles were written and we should have been back with the touchstone for schoolmen of the 13th century.

My Lords, today I heard one of our professors speak about Germany's wonderful leap forward. I quoted in this House a year ago, and I shall quote again, the words of Sir Frederick Catherwood, Director General of the National Economic Development Office. I am fed up with everybody knocking Britain about Germany and its massive miracle of production. Let us get at the facts. Catherwood was in that office in 1966 to 1971, and he said, The importance of currency payments on defence account can be seen by contrasting the position of West Germany with the United Kingdom. In the 1960s West Germany received from the stationing of British and American troops foreign currency which, after agreed 'offset' purchases, amounted to at least £1,500 million. The United Kingdom, by contrast, paid out £2,500 million, less negligible offset benefits, for its troops around the world: the difference between the two countries over ten years … is a staggering £4,000 million. My Lords, that was the difference. If that £4,000 million had been put into the electronic and electrical industries in that period, as my noble friend said in his excellent maiden speech, we should have been level with Japan and Germany in those industries which have now spread all over the world. So let us kill this myth that the British worker was a lazy animal. He was not; he was anchored, tethered by lack of investment at home. I shall prove it as we go along. The Keynesian chickens are coming home to roost, though Keynes did a brilliant job. Do not scoff at Marx. Half of those who scoff at Marx have never read a word of his. He gave mankind a tool to measure with. As Newton and others in mathematics gave differential calculus and fluxions which measured things in movement, Marx did the same thing for the measurement of production in movement. One need not be a Communist if one tries, not to say that he was omniscient, but to understand through his eyes the working of 18th and 19th century society.

The capitalist did a first class job for England in the 18th and 19th centuries. He taught man how to produce. He taught the idea of the small firm. But we have not learnt the secret of how to distribute and still keep alive the profit motive. I do not know the answer to this and I should be a fool if I pretended to, but it is now being questioned and there is an erudite article only this week which I have been reading called "Can the Profit Motive Last as the Motive Force of Production?" What Keynes said contradicts much of what has been said here today, and it is still true. In a general theory for full employment, as he defined it, he said that it could only be maintained provided that the Government were prepared to intervene.

Let us take that axiom of Keynesian theory. I ask my noble friends who have been pontificating about public ownership, are they not prepared for the Government to intervene in industries which can no longer give profits—the railways, the cutting of coal? The railways should be a social service to-day. We are having absolute public squalor in public ownership because of the unwillingness to help. The Health Service is breaking down. If we had only given some of that £4,000 million—one-quarter or even one-eighth—to the Health Service over the past five years we should have had a splendid testament to the social responsibility to the British people of all political Parties.

So, my Lords, I think that both sides of the House should try to agree that the State must intervene in certain areas of production and, if we do agree, let us stop calling each other names about public ownership or—and I use the ugly, cacophonous word—nationalisation. Cannot we get common sense about this instead of snarling at each other, because it is true that more and more areas—even shipbuilding has to get its vast capital from the Government—need this support? Where are the Keynesian chickens coming home to roost? A friend of mine wanted to borrow a very small sum of money recently. He is in a small business. I asked him how much he wanted. The minimum he could borrow from a merchant bank was £10,000, and that would have been at 18 per cent., so that in just over five years his entire capital would have been swallowed up in interest.

One cannot stand that sort of strain. The profitability of entrepreneurs is being thrown to the usurer. At least King Henry VIII, despite his love of wenches, conducted his economics better than his love-making, because he limited the rate of interest in his day to 10 per cent., though even that is a whacking enough dividend. Legislation must do something about what I now call usury. If they are not prepared to do something, let the Government go into merchant banking and lend, like the Coal Board are sometimes prepared to lend for building houses, at about 6¾ per cent.

I have been speaking for 12 minutes and I assure your Lordships that in about three minutes I shall try to finish, because your Lordships are tired. Therefore, I reiterate that the interest on money is reaching a point where profits from legitimate business are less than the annual burden of interest repayments. Speculation of the most arid kind is thereby encouraged and we do not get the true merchant adventurer, entrepreneur spirit of the small capitalist who made a contribution to Britain's production up to and just after the First World War. I will sit down very shortly, despite the many things I originally thought I would have said if I had got on the tapes at about 7.30 p.m. instead of at a quarter to nine.

I was delighted to hear the noble Lord, Lord Peddie, in what, if I do not sound condescending, was a good constructive contribution about coal. There are 270 pits in Britain, and 800 coal faces working while we are sitting here. Men are hacking at coal. We need another 100 million tons of coal a year for energy. The amount of coal for energy that we will need by 1980 is 300 million tons. I confirm that the statement made by the noble Lord, Lord Peddie, was correct. The new Selby coal which we have now found by sinkings in the Yorkshire coalfield, is of more importance to us and will be longer lasting than the oil. We should be investing more money than ever. That is where the Keynesian theory comes in. We should try to get agreement across both sides of the House and in the other place. More investment should go into the mining industry. There are 800 coal faces, but we have hundreds more that could be worked from next week or on which work could be beginning if we had the capital and the investment.

Despite my own enthusiasm, like everybody else has for his own speech, I shall have to stop myself lest the speech get the better of me, or like a pal of mine in Hamburg who could not stop at the end. Let me give a figure which to me is amazing. The multi-national firms are wrecking Governments. Let me give some figures about the shift in the balance of power—the Chryslers, the Fords. The total assets of foreign companies in this country at the end of 1972 was £3,800 million, whereas the total value of overseas investment by British companies was £8,070 million. That is more than twice as much British investment overseas as there is multi-national investment in England.

Why did not some hundreds of millions of that £8,070 million invested overseas go into British industry and British machine tools? We are running down old machines yet our own investors, mostly in multi-national firms, up to 1972 put £8,070 million overseas. What are we to do about this? The multinationals in Britain are second only to those of the United States. I believe that the time has come When we should look at our defence and be prepared to realise that we are no longer an imperial power in the world. Get a sensible agreement with the United States; do not betray the United States and do not betray the Atlantic system, but get around the table and say, "Look, we have to approach this in a new way."

Secondly, I believe that we should have physical control of imports. Some of the rubbish that comes into our shops and for which money is paid is undermining our industry and is costing millions of pounds to the British taxpayer. We should have the courage in this transitional period to control imports. Lastly, we should look at our banking system, the apotheosis of the pound sterling, under which we try to maintain the value of the pound. Investment in Britain is too difficult a problem to be very dogmatic about, but I sincerely believe that we should spend some time and scholarship looking at this matter in depth.

May I finish with these words. Do not let us keep knocking our own country. I am quite sure that if we can show the spirit that we showed after Dunkirk—and all of us lost some of our families—when without the help of Russia and the United States we were able to stand alone, and if we can show that spirit without animosity but with the eager cooperation that we had in wartime, and use it to solve in peacetime these economic problems, we have nothing to be afraid of. This is something about which we can grit our teeth and get the greatest possible agreement for the maximum number of cures to help cure the inflation problem.

8.46 p.m.

THE EARL OF LAUDERDALE

My Lords, I should like to start by apologising to my noble friend Lord Carrington. because I did not hear the whole of his opening speech, and equally to the noble Lord, Lord Beswick, because I did not hear his speech at all, and to the maiden speakers as I did not hear them either because I was detained in a Select Committee. But, as has happened more than once when I have followed the noble Lord, Lord Davies of Leek, we have found, despite contrary attitudes on many matters, a surprising measure of fundamental agreement.

I address myself in particular to his plea that we should give ourselves tonight to some concrete aspect of the desire for national unity, which is common to both sides of the House. I pick as my theme the words of my noble friend Lord Carrington early this afternoon that "North Sea oil is no substitute for our own efforts". It is a phrase that has been repeated one way or another in speech after speech. The noble Lord, Lord Peddie, said "it will not solve all our problems". Indeed, the ultimate delusion of a deluded and bewildered people is that North Sea oil might somehow save an economy as frail and feverish as ours. If there has been one chorus, one refrain, that has run through this debate, it has been a litany of prayer for unity of purpose, and oil indeed provides a case in point.

On that we need a policy that is energetic, we need one that is intelligent, but above all we need an oil policy that is bipartisan. Let us at least see whether we cannot achieve a common mind. Real sacrifices will be well worth while if we can get a policy that will stick. The one thing that Britain cannot afford is to allow oil to be treated as a Party political shuttlecock after the pattern of steel.

There has been much criticism of the Government's recent White Paper about a British National Oil Corporation with a 51 per cent. Government stake to administer what is known as a "carriedinterest" programme; that is, a programme whereby the Government, who issue licences for exploration, reserves to themselves the option to buy a stated percentage—arranged each time differently—in the result of the operation if it is successful. This policy has, in my view, been grossly misrepresented, or at least grossly misunderstood, by being denounced simply as nationalisation.

But nationalisation or no, who are we Tories after Rolls-Royce and Upper Clyde Shipbuilders to continue to be shocked by slogans whether about nationalisation or indeed about public participation? Nor, my Lords, am I mesmerised by the magic of a so-called 51 per cent. controlling interest. If there is one lesson from the take-over struggles of the City in recent years it is that as little as 40 per cent. can give effective control of a public company. We arc already accustomed to 48 per cent. in B.P. So why boggle at an extra 1 or 2 per cent. that does not really make a great deal of difference to the essence of control if, thanks to the impetus of rhetoric, that is what is needed for a truly Socialist cosmetic?

We should give credit where credit is due; we should honour the Ministerial academic turned guru whose handiwork I think this policy largely is, and be thankful that the Government have at any rate wriggled themselves off one hook of their Election Manifesto. They proposed a state of monopoly to buy offshore oil as well as natural gas; that has now been quietly forgotten.

For the sake of a bipartisan policy on North Sea oil, surely we should take on board both the 51 per cent. Government stake in the proposed British National Oil Corporation and its exercise of the carried interest option in licences to be issued in the future. But I stress those words, "in licences to be issued in the future." How a carried interest policy is managed, what percentage stakes to try and get in future licences and discoveries is another matter altogether. One point is certain now. Any suggestion that by the muscle power of Government negotiation present licensees should have a carried interest retrospectively forced upon them—anything of that kind would be unethical; anything of that kind could drive the rigs away to more favourable climates elsewhere; anything of that kind would break faith with this new race of merchant venturers to whose skill, to whose daring and to whose investment we are so greatly in debt.

The Government answer—and one appreciates the argument—that what is proposed is that the State would buy out past exploration costs after a process of negotiation and thus ease the cash flow problems of the exploration companies. But what about the cash flow problems of the taxpayer who, in the shape of the ratepayer, has been the object of such solicitous attention from Mr. Healey not many days back? Unless the taxpayer is to be fleeced of hundreds and maybe thousands of millions of pounds before crude oil landings have generated new revenue, a single possibility remains: it is the boiling cauldron of surplus Arab revenues whose movement across the exchanges recalls the grim scale of postwar reparations themselves. The Government must either tax at home or borrow abroad for this buying into present licences that is proposed.

However on what security? Little gilt remains on the gilt-edged guarantee of a Government which is prepared retrospectively to force renegotiation upon existing licences. The very renegotiation is about as damaging to the Government's credit as could be imagined. It is about as intelligent as a man sitting on a branch of a tree which he is trying to saw off.

If, therefore, the Government's covenant is not sufficient for raising further funds—and great funds—overseas, what else? Surely nothing less than a lien on the oil revenues of the future guaranteed by the European Economic Community. But again, on what terms? On what terms could we expect—could anyone expect—the Economic Community, under whatever guise, to guarantee or underwrite some loan to this country from an Arab or another source? The only security that France and Germany want, and the only security that they would pay for, is sovereignty over the mineral rights of the British Continental shelf, once described so vividly, prudently, wisely and rightly by my noble friend as, "British, and that's that." Sovereignty over those rights is what they want, with consent to the Community's claims that these do indeed belong to the Community.

The Fifth Report of your Lordships' own Select Committee on the European Communities last week warned the House urgently about the European Commission's energy proposals. The Report said bluntly: "Britain has the energy resources, Europe wants them". The Commission want and have recommended to the Council that an autonomous community agency be set up to command all energy supplies, reaching out the tentacles of its power over our own indigenous, if as yet unmined, wealth. This is what France and Germany covet. Here is the critical component in any loan involving European guarantees or any loan involving other monies secured on a European guarantee once we have blown our credit by attacking, as it were in retrospect licences that have been honourably negotiated and fully given.

The endeavour to "renegotiate" (in the current phrase), the endeavour to persuade present licence holders drastically to revise the terms on which those licences were given, even at the cost of buying out a great part of their costs, blows the whole Government policy sky high for the very reason that it could only be carried out at the price of alienating the sovereignty of the very mineral resources on which we and the Government count for our future rescue.

So much for that. I take this opportunity of putting to the Government some questions about their oil policy of which I have given private notice and in the light of which I hope we may have some instructive answers before we part tonight. How much do the Government in fact plan to invest in buying into the present discoveries? What, in their own words, would be a "suitable" return on the oil companies' capital already invested? I Would the Government help to carry the cost of exploration unsuccessful up to now? Would the tax legislation that they have forecast be flexible enough to differentiate between oilfields that give differing rates of return? What do the National Coal Board and what do the gas industry say to the Government proposal that their off-shore interests should be absorbed by the British National Oil Corporation with consequent loss of revenue to those nationalised industries? Finally, how would the British National Oil Corporation attract experienced staff except by outbidding the oil companies themselves?

These questions are put in a constructive spirit, because I believe that the carried interest programme is worth while; I believe that we could make it stick if both Parties adopted it, and I hope that my Party will come round to a more favourable view of it. The Government's policy may seem to give exaggerated importance to the appearance of things. The 51 per cent. magic is a case in point. Their present approach neglects reality. Indeed, to bludgeon their way into present licences could ruin the very policy that they are propounding. But, having said that, this is no good reason why we on our side of the House should be so blinded by rhetoric, whether it be their's or our own, as to pass up the opportunity now before us to contrive to bipartisan approach to future licences on the carried interest basis.

There has been, as I said at the start of my speech, one theme throughout this debate. It has been common to speeches from every quarter of the House. That theme has been unity of purpose coupled with the slogan: Tell the people the truth! The truth of the matter where oil is concerned is that we must make common cause for the benefit of all. That has to be said over and over again. The one thing we cannot afford for the sake of our children, grandchildren, and civilisation around us, is to make the muddle of oil that between the Parties we have managed to make of steel.

The noble Lord, Lord Hawke, said so truly that politicians have become a debased currency. He referred to the language of Billingsgate which I adapt in this context: the language of Billingsgate is hardly the language of truth. So let partial affections be gone, let petty spite and Party pride and vain slogans be gone. There is in this matter a serious basis for lasting unity, and I would only echo the words of the noble Lord, Lord Rhodes, in his speech—let us keep that flag up there!

LORD WYNNE-JONES

My Lords, before the noble Earl concludes his speech, may I ask whether he would agree that the present policy put forward is a suitable bipartisan policy because it affords the opportunity of combining the national interest and national control with the activities of the private companies concerned?

THE EARL OF LAUDERDALE

My Lords, I am much obliged to the noble Lord, whom I count as a personal friend, for that question. I believe that the outlined policy proposed could perfectly well form the basis of a bipartisan policy for future licences, but to apply it retrospectively to present licences would destroy that policy entirely and for ever.

9.4 p.m.

LORD GRANVILLE OF EYE

My Lords, like other noble Lords, I have listened to most of the speeches during this interesting debate in which moderation has been the keynote. I have also listened to the interesting maiden speeches from the noble Lords, Lord Gordon-Walker and Lord Lee of Newton. While we may hear the expression of moderate opinions, the public outside are themselves expressing an amazing variety of views which extend from the banner headlines of one of the mass circulation newspapers, "Is This Country Going Bust?", to those who say, as has been suggested in the debate to-day, that this is really a media-manipulated crisis.

There are those who say—and it has been said in this debate from many sides to-day—that as a nation we are undoubtedly living beyond our means, that we are living on credit and perhaps also on borrowed time. There are others who say we can go on living with the official bromides in the belief the I.M.F. will see us through if we soldier on until 1976 and all that. Also, the economists—I do not mean those in this House, and I always listen to noble Lords with the greatest interest—who appear from time to time on television are becoming tremendously contradictory to the public at large. Some of them re-echo what has been said, that we have not been told all the facts, or are not being told all the facts. Others are beginning to wonder, as has been expressed in many quarters in this debate to-day, whether Party Government in what lies ahead will suffice to deal with these problems.

Mr. Roy Jenkins, in his weekend speech, said that a Coalition is irrelevant. But there are some critics who express the view that the hustings, if we go to them, are irrelevant; and there are some who believe that there will not be an Election in the autumn. They believe that it will not take place because the economic typhoon is nearer, that the inexorable march of events will take charge, and that while we are doing Party broadcasts if we have an Election, the newsreaders will be reporting the daily news of the economic storm.

I heard recently on television a far more brutal view than that. One commentator said: "This is a short caretaker Parliament; a short caretaker Opposition and a short caretaker Government. Events in the not too distant future will call for all-round changes and sacrifices". He added that this country in its industrial activities is beginning to look run down, and that a Government of national concentration, which has been advocated from many quarters in this House during the debate, may be too late to save our standard of life. This was a critic speaking, and I wonder whether those words are false or true or just complete cynicism. But these are the cross currents which we have to expect in a free democracy.

I could understand if the Prime Minister announced a national plan or a national programme and invited the support of everyone of good will; because, as has been referred to to-day by the noble Viscount, Lord Hanworth, and others, the key to our survival, certainly the key to our renaissance, is the single word "confidence"; and without it our international trade will become difficult. But maybe we have had the revolution in this country without noticing that it was happening and that the egalitarian society is really here. If that is true—and it may be—unless we produce more, have higher productivity for higher rewards, with an élite in technology and science, we shall be far worse off as a nation.

Quite frankly, the February Budget certainly did not help the confidence of what the Lord Privy Seal referred to today as middle management, on whom we vitally depend in the great run of industry in this country. It certainly did not help incentive schemes of the workers and of the staff who entered into these arrangements in good heart and in full belief of what it would bring them. Without their co-operation, without the full incentive and co-operation of middle management in this country, we just cannot get off the ground.

In Germany, France, the United States of America and other countries, by law or otherwise, they have workers' management and full board co-operation. Unless in the industry of this country, upon which we absolutely depend for our standard of living, we can deal with this communication void which exists, then waiting in the wings is that odd figure which is called "a holiday from growth". Some people might say, "No more plant; no more machinery; no more modernisation of plant. Let us sit down and enjoy what we have and be satisfied". This view, which may have begun in Brussels in the Economic Community among the Commissioners and their staff, has been spreading. With our international trading requirements, if we adopted a policy of: "Sit back. Let's take it easy and have a holiday from growth", it would mean a standstill in the social services of the United Kingdom. We must quite simply produce more in order to export more and reduce our national overhead expenses, or inflation will be the most serious problem this country has ever had to face.

My Lords, I am not a pessimist about the future, but as so many speakers have indicated in this debate we have to be realistic about this situation. I remember that in 1930 the Government appointed three Ministers as an economic triumvirate. I am not so sure they were very successful, but maybe if we have to deal with multiplication inflation something of the kind will be necessary in this country. As I have said, I should like to see the Prime Minister appear on television and tell the people of this country now—not at an Election but now—the full, frank, brutal facts of our situation and the inflationary position in this country. Because if we understand it, if we are told and if it is made understandable to every home so that everybody knows exactly what inflation means, which I do not believe is so now, then I still think that we can win through. But, my Lords, without that we may have to face the worst of all worlds: depression and inflation, in which, as Mr. Winston Churchill once said, the inevitable march of events would take charge.

9.13 p.m.

THE EARL OF ONSLOW

My Lords, it is always difficult for someone who believes that the economy is verging on the catastrophic to avoid being accused of scaremongering. It is, indeed, equally difficult for that person not to spell out the situation as he sees it, because if by any chance he is proved to be right he can then be accused of complacency. I happen to believe that our economy is verging on the catastrophic. Luckily, I hold no position of great responsibility, so I can say what I think. In the 1940s, 1950s and early 1960s, whenever Europe went into a mini-recession the United States and Japan went into a mini-boom, and so the world economic situation tended to balance itself out. In the first half of this year, the output of the seven largest countries in the world fell by a yearly rate of 1½ per cent. In the first quarter of this year the gross national product of the United States of America fell at an annual rate of 7 per cent.

Experts thought that it would stop falling by March. It did not. Japan's inflation and balance of payments problem is worse than ours. In Italy they have run out of coins, so one is reduced to the lowest common unit of currency—a 6s. 8d. note. In England annual inflation is running at the level of 22 per cent. This evening the Stock Market is valued at less than two and a half times the sterling value of what it was in 1931. Unemployment is rising. It is more profitable to lend to a local authority at 15 per cent. than it is to invest in new machinery.

There are a great many more signs that the world's—as well as Britain's—economies are in a very unhealthy condition. In The Times to-day there was a report that America's grain harvest forecasts of earlier this year were too high. This is bound to push up the cost of food, or lower our standard of living, or both. As the noble Lord, Lord Carrington, said in his opening remarks, we have paid ourselves too much since the war. This may be because, at the end of the war, having saved civilisation, we said, "Thank God that is over", whereas other countries—Germany, Japan, France, Italy and Central Europe—thought, "We have not done terribly well. We must pull our socks up and redeem ourselves, because it has been a great psychological disaster for us".

When, and if, the next Election comes, I hope that neither Party will go to the country offering more "goodies". As the noble Lord, Lord Boyle, has said, I hope that all Parties will spell out to the British public that our standard of living will have to fall. The Health Service is reputedly in need of £500 million a year. The universities have had to cut down on their student intake, because the money in the five-year cycle is running short after two years. This, my Lords, is a reduction in our standard of living.

What we are seeing now are schisms in our society, exacerbated by the political outpourings of Mr. Healey with his, "Soak the rich". In spite of the noble defence by the noble Lord, Lord Bes-wick and the outpourings of the erstwhile second Viscount, Lord Stansgate, this division is furthered by the hatred put out by the Left—although Mr. Jenkins, when he makes remarks, makes sensible and brave ones. The division is made worse by the totally unjustifiable moneys which are made by some people in the property market. It is made worse by the irresponsible City fortunes which are made by making money go round in a very fast circle, most of which sticks to the fingers of the top spinners in return for no perceptible benefit to the community.

This division is made worse by the statement which was made the other day by Mr. Len Murray—which I hope was out of character—when he was speaking of your Lordships' House. It is made worse by the activities of that lady whom Bernard Levin described as "The lady with the sawedged bedpan". The division is made worst of all by the perfectly natural "looking after oneself only" attitude (the noble Lord, Lord Hanworth, put it so well) when faced by the obvious problem of rising prices whose causes are understood by so few people; and those few people tend to advocate different solutions.

In this situation we must explain with-out rancour and demand sacrifices of everybody—and when I say "everybody" I say that the better-off must obviously make much bigger sacrifices than the worse-off. Above all, we must refrain from class warfare. The argument against nationalisation, as the noble Lord, Lord Carrington, has said, has benefited nobody, and it is terribly weakened by the history of the motor-cycle industry. Fifteen years ago, Britain dominated the motor-cycle industry. Now the right honourable Anthony Wedgwood Benn gives a large sum of money to a workers' co-operative. This is all that is left of a once-dominant industry. Management must do a lot better than that to create the wealth which we rightly demand.

There is a terrible danger not only of hyper-inflation; there is a terrible danger of mass unemployment—men and women, valuable citizens, hard-working citizens, people who are the victims of things which are outside their control. World commodity prices are static, possibly falling. Now the main reason for our inflation is wage/cost push. If we can have a wages policy then, with luck, our prices will hold. If the large battalions can push through anything they want because Governments and people have a hatred of confrontation and battle, then as the noble Lord, Lord Lee of Newton, has said, in a speech which I think we all admired, the low paid will suffer and become unemployed. Massive unearned wage increases will cause hyper-inflation.

Can the recent award to ASLEF really be justified? Is it now more difficult to drive a train than it was in the days of steam, so justifying higher differentials? Our society cannot stand hyper-inflation and mass unemployment. The world about us is in a great mess. We are less in control of our own economy than before: perhaps so much out of control that we might, as the Economist suggested last week, have to surrender control (or possibly lack of it) over a small economy in return for a real share of control over a bigger European economy. Because our control is so much less than it was, therefore our economic management must be very much more clever than it has been in the past.

Thus, I urge Her Majesty's present advisers to worry about the less well off and not about the rich. I urge them, as the noble Lord, Lord Raglan, did, to avoid dogma. Will he also urge that on the right honourable Anthony Wedgwood Benn? I urge them to be conciliatory to all sections of the community. I urge them to give encouragement to the creation of wealth by encouraging companies and giving them confidence. I urge them to discourage the notion that we can go on increasing our standards of living as matter of a right and without effort. I urge them to go as much as they can for growth. If they can be seen to be doing those things then they might win the next Election. I myself would prefer them to get the economy right, which they will not do by listening to the rantings of their Left Wing, and to win the next Election, than get the economy totally wrong and in so doing destroy our society.

9.23 p.m.

LORD HOY

My Lords, I have listened to nine-tenths of the speeches to-day and I feel I must have some reward. I had hoped to confine my remarks to about ten or twelve minutes, but if I take one or two more I think that will be a reward for my patience. First, because it is such a long time ago since my two noble friends—the noble Lords, Lord Lee of Newton, and Lord Gordon-Walker—made their maiden speeches, may I remind them that they did make their maiden speeches earlier to-day and, even although all these hours have gone by, we still want to add our congratulations to them for speeches which were a credit to this House.

I did not like the last speech, that made by the noble Earl, Lord Onslow. I thought it was just about the poorest I have listened to in the House to-day, and it rather ill becomes him to use language of vituperation and then say that we must forget all that and work together in harmony. If one wants people to work in harmony then one's efforts should be quite clear in the speeches one delivers. One cannot adopt language of that kind and then ask for co-operation; it just cannot be done. The noble Earl is a very good friend of mine. All I would say to him is that I only wish he had spent a few years in the other place, and all the rough edges would have departed by this time.

I rather liked the opening speech today, by the noble Lord, Lord Carrington, although I am bound to say that he is another—and I am not complaining too much about him—who says that we have to forget all these Party influences; that we must find a common ground on which we can work to solve our economic difficulties. But then what did he say? He then accused the Party to which I belong of attacking interest—people earning profits. That was the word he used—"profits". So far as I can remember, we have never objected to people earning profits. But we have a great objection to people getting profits without earning them. That is the great difficulty. Indeed, the noble Earl, Lord Gowrie, has quoted one case in the City of London, where by manipulating the figures somebody allowed £5 million to stick to his fingers. It is no good that type of person coming along and saying to the workers of the country, "You must put your backs into it." Of course there are faults on both sides. All I say to the noble Lord, Lord Carrington, is that if he wants co-operation he had better remember when making criticisms that there are faults on both sides. When one talks about a £5 million fault, this is rather a special fault on the side the noble Lord represents.

My Lords, I want to say just a word about nationalisation because in the future it will play perhaps an even larger part in the economy. What does not do it any good is using the argument that certain nationalised industries are not making great profits. Indeed, I challenge anyone in this House to say that if we had not taken coal, the railways, gas and electricity into public ownership, these industries would have been in existence to-day. There were no private applicants for them.

LORD FERRIER

Oh!

LORD HOY

It is no use the noble Lord saying, "Oh!" He know as well as I do that in the country from which he and I come, Scotland, we were absolutely depen dent on railways. He also knows that the considerable railway stock at that time never paid a penny in dividend so long as it was in the hands of private enterprise. That stock was only giving a dividend when it was taken over. When my noble friend Lord Shinwell nationalised the mines, the one complaint that many of us had—and I do not include myself—was that he was too generous with compensation. So all I say is that these industries, because they were absolutely essential for the economic well-being of the country, and private enterprise—

LORD FERRIER

My Lords, when I said "Oh," I was thinking of the electricity industry, in which I have a good deal of experience in another country. The noble Lord, Lord Hoy, said that if electricity had not been nationalised, there would have been no industry. That is going a little too far. We would have had, electricity.

LORD HOY

My Lords, I am even prepared to say that I went a little far. Obviously one had to have electricity, but my case is a much stronger one than has been put to the House.

I want to say a word or two about this uncertainty. Everyone in your Lordships' House to-day has said that one of the great troubles with our country at present is that there is uncertainty. Who is creating it? Party political manoeuvring does it. Two parties can play this game. But if Party politicians arc simply going to run each other down, they have no right to come here complaining if the public takes them at their own face value. When I think of the contribution that many people have made in this country without gain at all, I think we ought to be paying tribute to them. I can go back not too far, but I can go back to the days, even post-war, when I was paid £12 per week gross to represent a Parliamentary constituency and live in London and Edinburgh. While I can tell your Lordships that I do not think it was a great financial reward, let me tell the House that I loved it and would do it over again.

Even if we get into this argument about responsibility I do not think we earn great victories thereby. When we are always comparing ourselves with European countries to our own detriment, please let us remember that there are a great many countries which would not have been in existence to-day had it not been for the efforts of the British nation. Let us also remember that we exhausted ourselves financially to save them, and following the war rendered tremendous financial assistance. Even to-day in defence burdens we carry a share much greater than we ought to carry. But if we are going to insist on this, do not let us pretend; or else let us make up our minds that we cannot go on doing it very much longer. But please do not say that these other people are doing so well and we are doing so badly. We are paying debts for a lot of people.

It is no use the noble Lord, Lord Carrington, saying to-day that this side of the House is now saying that we have to import 50 per cent. of our foodstuffs. He said, "I wish they had said that some time ago". My Lords, I was saying it years ago. There were two arguments I always made: that if the normal commercial industry of this country had had an output even half as good as the agricultural industry we could very nearly have solved our economic difficulties. But I said that in addition to that we always had to pay for at least 50 per cent. of our consumption because we had to import it. I never received much encouragement from honourable gentlemen in the other place who sat on the opposite side.

I have never sought to pretend that this was a burden that did not have to be carried. Of course it had to be carried, and I always sought to do it. But understanding all that, the noble Lord should not complain about us because, if he understood that, he should never have allowed his Parliamentary Leader to go to an Election saying that he could cut prices at a stroke. That is one of the things that could not be done. Indeed if the Conservative Party to-day is saying that this is one of the things they ought not to repeat, it will have my support.

I was a little astonished if I may say so—I have never had the pleasure or privilege of meeting the noble Lord—at a most peculiar statement made by Lord Kahn in the course of his speech. He said that if we had an "organised slump"—I hope I quote him correctly—it would be a "salutory lesson to the trade unions". I am putting this to the noble Lord so that there will be clarity about what he did say.

LORD KAHN

My Lords, if I may intervene, I talked about slumps "engineered" by the Government, not "organised".

LORD HOY

My Lords, with all due respects to the noble Lord, I must say that I find it difficult to differentiate between "engineered" and "organised". Even the noble Lord, Lord Robbins, is convinced that my interpretation of the speech of the noble Lord, Lord Khan, is correct, and not his own. Surely we can never get into such a state that it is said that we ought to organise or engineer a slump in this country, with all the untold economic difficulties it would mean for every man, woman and child, simply to teach the trade unions a lesson. I will give way to the noble Lord, Lord Robbins, but, at the moment I am replying to what the noble Lord, Lord Khan, has now admitted he said. I am saying to the noble Lord, with a little kindness, that for his own sake I hope he will never repeat that statement again, either in your Lordships' House or anywhere else.

LORD ROBBINS

My Lords, I want only to say, with the greatest respect, and speaking as one who has had many intellectual differences with the noble Lord, Lord Khan, in the course of 30 years' acquaintance, that I really do not believe that he meant the interpretation which the noble Lord is now putting on what he said.

LORD HOY

I do not know, my Lords. I cannot be fairer than to ask the noble Lord, Lord Khan, what he said, and he has already told me what he said. The only difference between the noble Lord, Lord Robbins, and myself is that I understood what he said.

I want to make two further points. In a long number of years in the political arena, I have listened to many speeches by economists, and I have nothing against them; I am sure they play a useful function in life. But it is rather extraordinary, after having had all these decades of advice, that the country finds itself in the position it is in to-night. I have no doubt that in a few years' time we will have yet another economic theory to take us out of the difficulties which will lie five years ahead. There is not a simple answer.

If people are to be taken out of their difficulties, there is one thing we all have to do and that is work. It may not be a very nice word, but I can tell your Lordships that that is the solution. It is no use seeking to claim a bigger share of a cake unless you can increase the size of the cake, and that will be done by work and by employment. One of the things one has to contend with is the fact that if you are going to ask the workers of this country to put their backs into it, then you ought to give them an assurance that there will be work available for them.

In Scotland during all these years of Conservative Governments—and I merely point this out for statistical reasons—we have never had less than 100,000 unemployed people. There is not very much use in saying to them, "You have to put your backs into it and get on the success road that work will provide", if you cannot provide the jobs for them. So it must always be the job of society and of Government, in particular, so to organise the economic affairs of this country that employment is available for those who want to work, to allow them to make their contribution. I am certain it can be done, given the right lead.

I agree with the noble Lord, Lord Carrington. I would not regard it as a policy. I am not looking for Rights, Lefts, or what is now regarded as centre Party or some moderate Party, or something else in the middle. What I am looking for is common sense. That is the simple answer. I am sure the noble Lord has no objection. If we can get it instilled into people, that this is the contribution we all have to make if our country is to be successful, then the difficulties will diminish considerably.

LORD FERRIER

My Lords, before the noble Lord sits down, I believe he misquoted Mr. Heath. Respecting as I do the noble Lord's power of repartee, I hesitate to say that Mr. Heanth never said he would cut the rise in prices at a stroke. He said he would cut the rate of the rise in prices at a stroke.

LORD HOY

My Lords, I must say to the noble Lord that that explanation is just about as good as the one I had earlier on economic affairs.

9.30 p.m.

LORD STRANGE

My Lords, I am a "jumper" and I apologise for it. The reason I am a "jumper" is that there are a few words I would say that have not been said before, which is extraordinary in such a long debate. They come from personal knowledge. As I think many people know, I have no tail. I live in the Isle of Man and I am very happy there. I run a pub, I am a publican and that is all. I live in the hole in the hollow in the hills, and I have an enormous number of tourists coming to visit me. They start off in the T.T. week or before. We have been packed out the whole season. In the evening I run a sort of night club; I am the compere and I tell a few stories, and we have a Romany musician.

Very often people ask me to their table for a drink and we sit and talk. I am talking to people all day long; they come and talk to me. They come from every part of the country that you can think of, apart from quite a lot of foreigners. My knowledge of good language is not very great, but I struggle with it. I hear their views. These are T.T. riders, followers of the T.T. races, the most wonderful people in the country. They really are marvellous, as are their wonderful girl friends who help them. They come from all over the country. I keep hearing, "What is that?" and, "Oh, that is the Somerset accent". Different people from all over, and naturally they have been talking about the Election, and politicians.

I get a very good idea of what they think. I do not mention politicians' names. I do not think that a Cross-Bencher should. They come from somewhere else, they come from down the passage or somewhere, and I do not know much about them, but I hear what people say and what their opinion is. It started with the gentleman who the French rather aptly called "Tricky Nickie". They suddenly stopped to believe that any politician is honest. They do not believe that politicians are honest. Name after name is put forward in arguments when they are all free and can talk, and they do not believe in politicians any more. They do not think that they can do the country any good. We are going to have, when we have it, a very funny Election indeed. I do not know what will happen. I am not going to guess. But I know that the general public do not believe or trust politicians any more. I do not know why not, because I think that they are charming people. But that is the truth, and that is all I have to say.

9.41 p.m.

VISCOUNT COLVILLE OF CULROSS

My Lords, I think that we are all agreed that it is a good time to discuss the subject matter of this debate. Certainly, no one has disputed today that we are faced by an economic situation which presents problems which are simply not in the traditional textbooks at all. We are faced with a prospect of inflation such as threatens seriously to undermine our existing standards of living, and which incidentally we cannot control inside this country at all.

There is an extra element which has only been mentioned by one or two noble Lords, which it is disagreeable of me to introduce but which, nevertheless, is a very real fact of life which I do not pretend to try to ignore. In addition to those problems, we are confronted by the very real attempt to achieve by unconstitutional methods a violent lurch in this country towards Marxism, which is a move strongly supported by a group in Parliament who claim that this is the pure doctrine to which the Labour Party are committed. If noble Lords have not mentioned this today, I am sorry, but I think it is time that we started to talk about it. I cannot disentangle these economic and political strands, although I may be rather more constructive at the end of my speech.

A NOBLE LORD

I hope so.

VISCOUNT COLVILLE OF CULROSS

Yes, my Lords, I will be, but we might as well face up to the realities. I do not, as I understand economic theory, believe that the textbooks, the Keynesian economic theory, or Treasury orthodoxy, or whatever it is, allow one to have at one and the same time roaring inflation and a very real threat of recession, but the latter is the only unpalatable fact that the right honourable gentleman, the Chancellor of the Exchequer, was prepared to concede in his mini-Budget effort of last week whereby he attempted to stave off, at least for a little while, the threat of unemployment. Otherwise, his Budget has been dismissed as a fleabite, something, as my noble friend Lord Carrington said, which will probably be forgotten as soon as Parliament rises. But let us at least welcome that it was an attempt, even if it was a small one, to do something about inflation.

I regret that the noble Lord, Lord Gordon-Walker, in his maiden speech, which we much admired and enjoyed, should happen to have picked upon the question of relief for ratepayers, because apparently the Treasury did not discuss this matter with the town hall treasurers, who say that the sums cannot be done, and that if they had been consulted they would have had to say that nothing can happen, in some cases at least, until the new year. At any rate, we recognise the gesture in the right direction. There can be no doubt about inflation. Let anybody go into a shop and they will see. It is again significant that the Chancellor has claimed for his latest Budget that it cancels out, as I understand it, all but 0.15 per cent. of the inflationary effect of the Budget that he introduced in March. Again let us applaud that. Of course, this is not a matter altogether of domestic management, particularly when we deal with oil supplies, which has been mentioned to-day by the noble Lord, Lord Robbins. I accept that this is not, as I said, entirely within the control of any Government in this country.

However, if we are to pay for more expensive imports, even if commodity prices are now stabilising, then we need to use all our endeavours to export, despite a slackening world trade; we need to use all our endeavours to attract money and investment from abroad and at home. In those circumstances, just for a moment in terms of overseas policies, what have the Government done? They have attempted to renegotiate a relationship with Europe which leaves the Europeans shrugging their shoulders over the efforts we have made, whether it is of the present Government or indeed of others, to solve a chronic problem in this country. But much worse, it leaves the Europeans waiting to see whether or not we will be a working partner in Europe, a subject which inevitably splits the Cabinet right down the middle.

Again we are being faced at the moment by threats of wide-ranging nationalisation of industry in this country, or Left-Wing control which is guaranteed,—if the Party opposite does not like this then I am sorry—

SEVERAL NOBLE LORDS: That is not true.

VISCOUNT COLVILLE OF CULROSS

It may not be true, but I will appeal to noble Lords in a moment to say whether it is or is not true. If these threats are true and they are widespread they are guaranteed to scare off any thoughts of investment by people from overseas who reap the benefits of the high commodity prices which we are paying. That kind of foreign investment is good for the industry concerned and for our balance of payments on which there is no room for complacency. It is good for the stability of our currency on which all our goods and our livelihood depend.

Against that background we have this third wild Left-Wing fringe element, of a wild and immensely dangerous nature. Because there are no noble Lords in this House who happen to agree with this cr who happen to have made speeches on this subject to-day does not prevent anybody recognising the fact that there are right honourable and honourable Members in another place who believe passionately in this approach.

LORD BESWICK

Before the noble Viscount leaves that point, will he do something to answer the case that I tried to make, that investment had been inadequate before we had this so-called Marxist plot in the present Government?

VISCOUNT COLVILLE OF CULROSS

My Lords, if I am allowed to develop my speech I will attempt to do so. What I am saying is something which I think is in common with other noble Lords. The noble Lord, Lord Beswick, himself said so, as did the noble Lord, Lord Gordon-Walker, that if we are to proceed at all we need commercial and industrial stability and confidence. It is the prerequisite for exports and for growth in this country.

LORD BESWICK

That is right, but would the noble Lord please address himself to the question which I put; namely, that we did not have this required stability before the advent of the present Government?

SEVERAL NOBLE LORDS: The three-day week.

VISCOUNT COLVILLE OF CULROSS

If people are going to talk about th three-day week—

LORD SHEPHERD

No, over a period of time.

VISCOUNT COLVILLE OF CULROSS

Very well, over a period of time. If we failed in this no doubt we are subject to criticism. I will accept criticism. But let us not now run away from the fact that there is another block upon investment which we ought now to attempt to deal with. If noble Lords want truth and honesty, I cannot do better than that, and I now address myself to the rest of my speech.

LORD BESWICK

My Lords, the noble Viscount must recognise, because it really is a point that we have to settle, that the old method of directing investment did not produce results. Because someone tries to find a new technique, why should they be dismissed as Marxist plotters?

VISCOUNT COLVILLE OF CULROSS

My Lords, I am very interested. The noble Lord, Lord Beswick, has at last recognised that we have a new technique placed before the country which has so far, I think, not been mentioned very much this afternoon. Let us by all means discuss it; but if the noble Lord criticises the old, I am going to criticise the new—and I now proceed to do so. My Lords, if there is no successful incentive to investment there will be no economic activity. Nobody will make things, nobody will buy things, nobody will sell things, build things or invent things, and industry will not have the secure prospect that it needs.

LORD SHEPHERD

My Lords, would the noble Viscount not agree that his Leader in another place, in a speech in the City, said that every possible avenue for investment in industry had been explored, but that industry had failed? Could the noble Viscount direct his mind to that, and give us an explanation as to what were the consequences of it?

VISCOUNT COLVILLE OF CULROSS

My Lords, I do not think that I can go into the details of this, but what I understand is that the solution put forward by noble Lords opposite is that we should not seek to have investment from private resources, whether at home or overseas, but that we should take the thing over. I say that this is not the way to cure the situation.

SEVERAL NOBLE LORDS: Oh!

VISCOUNT COLVILLE OF CULROSS

My Lords, listen to what people in the Party opposite have said. I have listened to them.

LORD HOY

The noble Viscount said "noble Lords opposite".

VISCOUNT COLVILLE OF CULROSS

Noble Lords opposite and their friends and their right honourable friends.

LORD HOY

My Lords, if the noble Viscount will forgive me, he said—

LORD CARRINGTON

Let my noble friend get on with his speech.

LORD HOY

I am willing to let him get on with it, but it was the noble Viscount himself who said, "noble Lords opposite said". All I am asking him is to produce the proof of it in the course of his speech.

LORD CARRINGTON

For goodness sake, let him make his speech!

VISCOUNT COLVILLE OF CULROSS

What I believe is that there is a claim that there is a Labour Party, and I believe that noble Lords opposite are likely to agree to some extent with Members of another place in the things that they say. We have heard rather too little of some of the things that Members in another place—

LORD BESWICK

My Lords, would the noble Viscount—

SEVERAL NOBLE LORDS: Order, order!

LORD BESWICK

I am in order, my Lords. Would the noble Viscount be good enough to give one example of one person, either in this House or in another place, who has said that they did not wish for private investment?

VISCOUNT COLVILLE OF CULROSS

No, my Lords; and that is exactly the point that I am trying to make.

LORD CARRINGTON

Let him make it.

VISCOUNT COLVILLE OF CULROSS

What I am saying is that there is a dichotomy in the Party to which noble Lords opposite belong. There are indeed people in the Party opposite who say that; there are others who may say it but whose actions belie what they say. Let us just look for a moment at the things that have been said. I listened to the honourable lady the Member for Coventry South-West. The other day she said: In industrial relations the strength lies with the employer. Directly after that she said: I cannot believe that the Party of the employers "— that is, my friends—I am not going to give way yet.

LORD BESWICK

My Lords—

SEVERAL NOBLE LORDS: Order, order!

VISCOUNT COLVILLE OF CULROSS

My Lords, I am not going to give way in the middle of a sentence. I will give way at the end of it. The other sentence I wanted to quote was this. She said—

LORD SHEPHERD

Who?

VISCOUNT COLVILLE OF CULROSS

There has been such a lot of interruption that the noble Lord has forgotten. It is the honourable lady the Member for Coventry. South-West.

LORD SHEPHERD

What is her name?

LORD BESWICK

My Lords—

SEVERAL NOBLE LORDS: Order, order!

LORD SHEPHERD

My Lords, could I intervene, as Leader? I think that the noble Viscount is making a provocative speech, but if he is not prepared to give way then clearly my noble friend ought to resume his seat.

VISCOUNT COLVILLE OF CULROSS

My Lords, I am fully aware of the Rules of both Houses of Parliament. This is not a quotation from what was said in another place. It was said on the wireless and I propose to quote it, and when I have done so I shall give way to the noble Lord, Lord Beswick. She said this—

LORD HOY

At what time?

VISCOUNT COLVILLE OF CULROSS

My Lords, it was on the B.B.C. at 1.25 on July 13, 1974, and her majority is 513 for the constituency of Coventry, Southwest. She said, "I just cannot believe that the Party of the employers"—that is, my noble friends on these Benches—"can have at heart the interests of the individual worker." That is a charge and a point about which I feel very strongly and one to which I wish to return later. Now, the noble Lord may interrupt me.

LORD BESWICK

My Lords, the noble Viscount could have saved time. I was simply going to ask if the noble Viscount was quoting from another place. If so, of course he would have been out of order.

VISCOUNT COLVILLE OF CULROSS

My Lords, I am, I hope, cognisant of the Rules of this House. On the wireless to-day—and I think that it was at about 8.45, or possibly a little before—Mr. Mikardo, the Chairman of the Parliamentary Labour Party, said that Mr. Jenkins is an extremist.

LORD DAVIES OF LEEK

Doing well for the General Election!

VISCOUNT COLVILLE OF CULROSS My Lords, I have every intention of continuing to do so. The right honourable gentleman, the Secretary of State for Employment, said, again not in Parliament although in this case I could quote him, that he is in favour of a mixed economy but with a very different mix from now. My Lords, those who remember the Attlee Government and who took part in industry at that time, for all their disagreement with the Socialist proposals of those days which I think they considered doctrinaire, frustrating and lacking in comprehension, saw one mitigating factor: that was that Ministers in those days were straightforward and honest. I am afraid that they look back today with some nostalgia to that time because not only, as we have heard this afternoon, has the Chancellor's new mini-Budget done nothing, for all his protestations about the need for investment, to help the capital market, but he has added an extra dimension—and this is the tragedy. For the first time, there has been exhibited—and I am afraid to say, with some degree of exultation—a spite and malice and envy which is repellant to behold. It saps confidence. It saps all desire to co-operate. When you talk about making pips squeak, you must remember that when they are crushed they will no longer provide the basis for a sound crop and for a bountiful fruit upon which alone everybody agrees this country will depend in the future.

My Lords, I have no time to go into full details of the disaster of these threats of nationalisation. I should like to make a speech about the nationalisation of development value and I think it would be a very good idea yet again to talk about North Sea oil, which was mentioned by my noble friend Lord Lauderdale. But, if the noble Lord, Lord Beswick, really thinks that the present Government have dealt with the spiral of increase in land prices, I must take him aside on some other occasion and tell him what is happening.

Who can quote any nationalised industry today in existence which has these three qualities: which first of all gives a personal—and I emphasise "personal"—service which is even approximately acceptable to the consumer, is also cheap and efficient—and why is it that the Post Office and electricity organisations have today come up with another deficit of £391 million?—and does not come back time and time again for more subsidies or write-offs at the expense of the taxpayer? The noble Lord, Lord Hoy, said that all those were industries which would never have continued if they had not been taken over. Let us know which are the other dead-end industries which are to be taken over and which will end up in the same situation, because this is the pattern that we do not wish to see extended into the private sector.

LORD HOY

My Lords, if the noble Viscount wants me to answer, then let him say so. If he is half as clever as he is pretending to be, then he will know them himself.

VISCOUNT COLVILLE OF CULROSS

My Lords, many noble Lords have been waiting for a long time for the list and we are still disappointed. But there is one other point. I have a nasty suspicion that some of those who work in the industries that might be taken over have a feeling that it would not be so bad if their industries were nationalised. They say to themselves, perhaps, "At least our jobs will be secure." Very well, my Lords, secure they may be, but there are other disadvantages. Will they like the red tape? Will they like the remoteness? Will they like the frustration? Have noble Lords tried dealing with the Gas Board and the Electricity Councils as ordinary members of the public? Would they like to live on the other side of the table? Will those employees also remember how long it will be before their salaries are put up as inflation gallops ahead? It is always upon the nationalised industries under public control that the dead hand of the Treasury falls, and they are always at the end of the queue. People who think that they will secure their jobs as a result of nationalisation should, if they take my advice, beware.

I have spoken somewhat harshly, I agree, because I believe it needs to be said, of an apparent carelessness of the Government about our position here, and in the eyes of the world. I have mentioned some of the activities of what I believe to be a dangerous group both inside and outside Parliament. People will say, perhaps, that surely with this pressure from the Left, from the unions, it is the Labour Party which is the most likely to keep control, and perhaps in a slightly different context the noble Lord, Lord Peddie, was advancing the cause of the Labour Party as being the most likely to deal with our current troubles. I ask people to think about this point and I merely echo, if I do not endorse, what the noble Lord, Lord Beswick, said by way of a somewhat sterile recrimination about the past. If we are to give up a statutory incomes policy, which is now rejected, though I notice that the noble Lord, Lord Kahn, did not condemn this, and if people are going to say that confrontation was tried and failed and brought the Government down, then we have only the social contract left. I believe that that is what the present Government are depending upon, and it is the only thing that they are depending upon.

Of this last assertion, that that is all that is left, this autumn will be the acid test. Goodness knows, the Government have passed such measures as they could get through Parliament and have promised others that they could not get through Parliament, to appease almost any trade union. If, in return, we get wildly inflationary wage claims in the autumn as the only response, then we must look critically, not at the idea of the social contract—because I now want to get this speech on to a constructive basis—but at the ability of this Government, or indeed of any Government, Labour Government, to work it. If that happens they will have failed, and rather worse than that, because according to some of the adherents of the Labour Party the full terms of the social contract, if they are to be implemented by Labour, also, involve a fundamental change in our politics and in our economy, which I believe very few people in this country are prepared to accept. So we think that if there is to be a social contract it is exceedingly doubtful whether the Labour Party is the hand that ought to hold the pen that signs it.

But I see no reason, if other methods have been discredited or are at the present moment out of fashion, why we should not try a social contract if we can get certain things straight before we set about it. It has to have the agreement of all of us, as my noble friend Lord Carrington said, because after all it affects all of us. It is not an agreement between militant unions and either an important or a Left-Wing Government. It is an agreement between all of us and it must be written within the control of Parliament, as the noble Lord, Lord Boyle of Handsworth, and my noble friend Lord Alport have said.

I believe that I may attract their acceptance of this idea. It must command such wide acceptance, I would say, as to preempt both Left-Wing militancy and also now, as we discover, the possibility of some Right-Wing groups coming in to impose a counter-solution in an equally unconstitutional fashion. It has got to pre-empt both those extremes. This means, I believe, that certain political groupings will have to shift and some compromise may have to be reached.

I have time to offer, I think, only one point on this matter. What is wrong with a greater degree of worker participation at board level in industry? Nothing. I do not mean worker control, I do not mean that we should confine this to the shop floor. I believe that middle management has just as much right to be heard as the people on the shop floor. But I also believe that there is a good deal that we can do in that direction as an example of something that I would be prepared to think about very seriously as part of a new social contract.

If the Government, at the present moment, seem to indicate that the only thing they care for is the interests of the trade union movement, then my Party must equally face any accusation or condemnation that it, too, defends and adheres to its traditional sectional and doctrinaire interests, and it has to shift as well. Compromise and moderation are matters about which many people have spoken to-day. Incidentally, I am astonished that there has not been one single contribution from the Liberal Benches in the whole of this debate. Surely they must think they have a part to play in this.

SEVERAL NOBLE LORDS: What about coalition?

LORD ROCHESTER

My Lords, may I intervene for a moment. It had been the intention of my noble friend Lord Byers to speak in this debate, but at a late hour he was prevented from so doing. We wondered whether to intervene but considered the subject to be of such importance as to mean that one should really give a little more thought to it than was possible this afternoon. I hope, however, that our presence at this late hour is an indication of the interest which the Liberal Party attach to this debate.

VISCOUNT COLVILLE OF CULROSS

My Lords, I am extremely sorry that the noble Lord, Lord Byers, is the only Liberal Peer who is capable of dealing with this subject, and that there is nobody else. At any rate, whether that is so or not, let us face up to the fact that some of the points I have been making mean that on that side of the House and on this as well we may have to face up to some kind of ideological reappraisal, and if anybody thinks that will be painless or pleasant they are mistaken. I do not hold out any such promise.

What should we do? Can I take a moment to make some points which may be all too obvious. The noble Lord, Lord Raglan, may think they have been said a thousand times before, but because they are simple I do not believe it necessarily follows that they should not be said again. Of course, I have no definitive answer. If I had, I should not be speaking from the Opposition Front Bench of the House of Lords. But, like the noble Lord, Lord Lee of Newton—and again, I should like to congratulate him and commend him for a very interesting maiden speech, even if it was not entirely uncontroversial—I should like to say a few words.

First, the country desperately wants a lead. If we are faced, as I believe we are, by the threat of some unconstitutional efforts to gain control, let us counter these by some well-tried constitutional means. I prefer this kind of approach to the kind of thing that has happened in the hospital world, an attempt by the unions concerned to take over in advance of Government decisions. Let us therefore use the various methods that we have at our disposal. At the Election, which I feel fairly sure we are about to have, let the people vote for moderation. I will not even prescribe where moderation is to be found, I will let the people read the manifestos and see for themselves.

But they may have some difficulties in certain constituencies, where the candidates for one Party or another—and I need not say which—are of a sufficiently extremist nature to make it doubtful whether they are likely to carry out any reasonable policy. There is this trouble about the Labour Party. It is riven down the middle at the moment. The only thing holding it together is the tracery sticking plaster that that marvellous cosmetic surgeon, the Prime Minister, has managed to stick over internecine wounds. Let the electors choose the candidates they want in the Labour Party and decide whether they are moderate or extreme. Let us also talk and participate. Whether it is a matter of electing people to a trade union committee, a constituency association or any politically orientated body, let them at least turn up, vote and decide who is to run their committee and be their candidate. It is no use wringing one's hands and refusing to take part in the process.

The noble Lord, Lord Lee of Newton, and many others, suggested that we should work hard at our jobs. What is wrong with that? We should work conscientiously and hard, refusing to connive at those who fiddle, slack and skive. That would not be a bad thing to do; anybody can do that. Let us face up to the prospect of tightening our belts—not bad, incidentally, as my noble friend Lord Hawke said, for that tiresome phenomenon of the waistline. When have we so far had any prospectus from the present Government? We must prepare for this. People have not been fooled by what has been said or not said. To take a simple example, people have been planting vegetables in their gardens and allotments, I have seen people out picking fruit in the fields to preserve for the winter. They know what is going on; they are not deceived. This is something practical which the people can do. If the noble Baroness, Lady Llewelyn-Davies of Hastoe, laughs, she will find that it might be advantageous for her to do that.

BARONESS LLEWELYN-DAVIES OF HASTOE

My Lords, may I point out to the noble Viscount that I have dug potatoes and gathered fruit from the hedgerows for the past 25 years.

VISCOUNT COLVILLE OF CULROSS

My Lords, the noble Baroness is lucky and is a wise person, and others are now following her example. These are good, simple British things which make sense; they are things in which everyone can play a part. What I am after is this. We should have a modification under some moderate system of all that vast majority who, whether by tradition they voted Tory, Liberal or Socialist, or anything else, believe in moderation. Nobody can ask for anything fairer than that. Their determination, if it can be mobilised, will help us to work and find our way out of the economic mess we have been talking about to-day. Their united contempt will put to rights the extremists, whether of the Left or Right, who are trying to manipulate our present difficulties in order to implement an odious, extremist idea of whatever variety it may be. That is what we should think about over the summer holidays, and what ought to come out of this debate.

10.14 p.m.

LORD JACQUES

My Lords, I should first like to congratulate my noble friends Lord Gordon-Walker and Lord Lee of Newton on their maiden speeches. They come to us with considerable Parliamentary experience and I am sure they will bring great benefits to this House. One theme that has run through this debate has been that the time has come when the Parties should tell the people the truth. I think the last speaker showed that there are many sides of truth. I wondered which side we had to tell. I would remind the House that this Administration has been in office for less than five months, and we are expected to have carried out miracles in that short time. Our financial policy during that five months has necessarily been focused upon the need for controlling a bout of inflation which is the most serious that this country has experienced in peace time; a bout of inflation which was initiated by the financial policies of the last Administration. Their deficiency budgeting was the highest we have ever had in peace time, and they matched their Budget deficiencies by printing paper money. There was never at any time a possibility that the growth that they were trying to stimulate would snowball to meet the demand which had been generated by their financial policy. That was the way in which the inflation was initiated.

However, by the end of last year it was not the main cause. The main cause of our inflation was the considerable increase in the prices of primary commodities. In the year to the end of the first quarter of 1974, primary commodity prices in terms of sterling values increased by 90 per cent.; and to a country which imports those primary commodities and exports manufactured goods that was a very serious matter. In the six months to February material costs, according to the Price Commission, were five times more important than labour costs in pushing up prices. That is the principal cause of our inflation. That is the problem that we must tackle. In June of this year we had for the first time a respite from increases in material costs. They actually fell. But even at the present time there are substantial increases in the costs of primary material prices which are still in the pipe-line, and it will take another several months before they get through the pipe-line. However, if these encouraging developments in commodity prices continue, we can expect an easing of inflationary pressures from this source.

What happens to wages is the key to controlling inflation in the coming period. It is our view that only a voluntary approach to wages, determined with the consent of the mass of working people, offers a way forward. We are engaged in a crucial experiment for the benefit of the nation as a whole. We have a right to some understanding and indeed to some moral support. We have that from some quarters of this House. By food subsidies, by the reduction in the value added tax, by rent control, by rates subsidies and the voluntary agreement negotiated with the retail trade, we expect that in the long run we have had an effect of up to 5 per cent on the Retail Price Index. In the short run this will minimise the threshold payments, which were introduced by the last Administration. In the long run we shall create the only possible climate which will discourage wage inflation.

The Trades Union Congress has made it clear that it stands for the maintenance of real incomes rather than improvement in incomes at the present juncture. It stands for the threshold payments that have already been made to be taken into account by negotiators. It stands for the normal 12-months interval between applications for wage increases. That is as far as one could expect the Trades Union Congress to go. If we are to get industrial peace in this country, whether we like it or not we shall have, sooner or later, to build up an adequate conciliation-arbitra- tion machinery. That is the only way in which we shall get sufficient confidence on the part of workers and on the part of management to encourage them to invest in industry. That confidence will come only if we show that the conciliation-arbitration machinery is independent.

May I go at least one step with the noble Lord, Lord Carrington, when he says that we should use public opinion. I believe that public opinion ought to be used. I believe that if we had an acceptable conciliation and arbitration machinery, then, when a claim had gone through that machinery, the worker would still have the right to strike. Nobody can take that right away. However, the public would have a right to know what the arbitrators had said so that it could judge for itself who was right and who was wrong. It is in that sense that I believe there is a strong case for using public opinion as a means of pressure.

While the control of inflation has been, and remains, our central object of policy, we regard chronic unemployment as the worst of all economic diseases. It creates a loss in human values that cannot be measured in money and, for our part, we are not prepared to follow policies which will result in chronic unemployment. The control of inflation and full employment are interrelated in a very complex way. But they are not contradictions; nor is there any contradiction in pursuing a balanced policy which has both goals as its objective. However, where you are doing that, you have to keep your finger on the pulse and you cannot react only once a year at Budget time. You have to react much more quickly.

The recent July package is estimated to create between 100,000 and 150,000 jobs. Of course it will not reduce the unemployment figures by that amount, but it is estimated that the July package alone will reduce unemployment by 40,000 altogether. However, we are conscious of the fact that, while the rate of unemployment is 2.6 per cent. over the United Kingdom as a whole, it is 4.5 per cent. in the North, 40 per cent. in Scotland, 3.6 per cent. in Wales and 1.6 per cent. in the overheated South-East. It is for that reason that we have found that it is necessary to restore the regional employment premium to its original, real value. We are of the opinion that if it is employment which one wishes to encourage in the development areas, it is not sufficient to give capital grants. They will attract the capital-orientated industries; the capital-intensified industries will be encouraged. We want also to encourage the development areas industries which are labour-intensive.

It should also be borne in mind that in practice the people in the development areas—or certainly many of them—who are required to find new employment are people of 50 years or over. They are not people who can learn a new trade in the classroom. They are people who will learn it best in the workroom, and because they will learn it best in the workroom or the workshop the regional employment premium is perhaps one of the best ways of encouraging the retraining of the unemployed in the development area.

The noble Lord, Lord Auckland, asked a question on the construction industry. He complained that it was declining. I would point out to him that in March the Chancellor of the Exchequer set aside £350 million for housing, and since then £500 million in grants has been allocated for use by the building societies, and in the three months to the end of May there was an about-turn in the housing starts. There was actually an increase of 3 per cent., so that there are now signs of some recovery.

I would point out also that in the case of investment everything is not on the black side. On the question of liquidity, industry is taking up about two-thirds of the agreed ceilings for lending by the banks. There is one-third which has not been taken up. In the difficult first quarter of this year investment in manufacturing industry rose by 6½ per cent., which was quite unexpected, and, in fact, it was 11 per cent. over the 1973 average.

We also hope that the relaxation in dividend control will result in capital being moved from where it is not needed to where it is needed. I come now to some aspects of the balance of payments. The noble Earl, Lord Lauderdale, has asked a number of questions concerned with oil. In many of the cases it is not possible at the present time to give a firm answer, but an answer has been given to each of these questions, and where we could not give a firm answer we have stated why. I think it would be for the convenience of the House, since this covers two pages of typescript, if I might pass it to the noble Earl, Lord Lauderdale, at the end of the debate.

LORD HOY

Put it in the OFFICIAL REPORT, my Lords.

LORD JACQUES

My Lords, the noble Lord, Lord Boyle of Handsworth, asked what was the effect of the July package upon imports. No figure is available, but it is admitted that in the short run there will inevitably be some effect on imports: imports will be increased. But in the judgment of the Chancellor of the Exchequer the deflationary effects of the July package and the effect upon industrial costs will make our exports more competitive, and the exports ultimately gained will outweigh the immediate increase in imports.

The noble Lord, Lord Barnby, was critical of the way in which the deficit on our balance of payments is being financed. The deficit is being financed mainly by the nationalised industries and local government borrowing from abroad the same kind of amounts which they would have had to borrow on the home market, and by and large they are receiving a gain of about 1 per cent.

LORD BARNBY

My Lords, if the noble Lord will permit me to interrupt for a moment, is it to be understood that he regards it as definitely beneficial that these borrowings by the nationalised and other industries should be direct from overseas rather than by the conventional practice of borrowing through the Consolidated Fund?

LORD JACQUES

My Lords, all the loans are vetted by the Bank of England, particularly in relation to their redemption dates, so as to get a spread-over. I think both the last Administration and the present Administration are satisfied with the arrangements. I would point out that the sum which has been borrowed in this way in order to finance the deficit in our balance of payments is 4.2 billion dollars since last March, and more than two-thirds of that was borrowed during the period of the last Administration.

LORD BARNBY

My Lords, the noble Lord misses the point. The point I was trying to make was that it is much better if we borrowed through the Consolidated Fund, because if this money is borrowed from abroad it masks the extent of the borrowings, and necessarily builds up an adverse balance of payments through the subsequent servicing.

LORD JACQUES

My Lords, I can only repeat what I said, that both the previous Government and the present Government, who have access to inside information, came to their decision, and at least they are in agreement on this, I had thought that the noble Lord, Lord Barnby, in the way in which he spoke earlier in the evening, was critical of our borrowing at all to finance the deficit. If so, I was going to ask him, what was the alternative? The alternative was presumably to let sterling decline. If one allowed sterling to decline, inevitably there would be a very great increase in the import prices we should have to pay. We should ultimately get rabid inflation, and that, no doubt, would be followed by controlled deflation and acute unemployment. That is the way to encourage militancy.

My Lords, what of the future? While I do not think we can be optimistic, neither do I think there is any need for us to be as pessimistic as some speakers have been this evening. I believe we are not at all badly geared for an export-led growth in the not too distant future. Our prices are competitive on the export market, and after the experience of the three-day week, I think we have more capacity than we thought we had. Our exports are at present rising; consequently, there is still some hope. But we have to succeed in two things. First of all—and here I disagree with my noble friend Lord Davies of Leek—we must discourage our trading partners from pursuing "beggar my neighbour" policies. We have to do that by way of example, because if the countries with whom we trade follow "beggar my neighbour" policies, we will become all the worse off because of our dependence on international trade.

The second thing we have to do is to use our capacity and keep our people at work. That means that we cannot under any circumstances have inflexible wage policies. We must have flexible wage policies, and must take all necessary steps not merely to keep people at work, and to avoid disputes, but also to avoid chronic unemployment, including unemployment in the development areas. These are the policies to which we are geared, and we believe that both in the short run and in the long run they will succeed.

LORD ROBBINS

My Lords, I wonder if I may ask the noble Lord for one development of his most recent argument. I gathered from what he said earlier that he was more optimistic than some regarding the future rate of inflation. The question I want to ask him is: does this mean that Her Majesty's Government do not subscribe to the verdict of the O.E.C.D. Committee that prices may rise by 20 per cent. per annum?

LORD JACQUES

My Lords, I would not say that I am optimistic in regard to inflation. I am optimistic in this sense, that there are now signs of a halt in the rise in prices of raw materials, which has been the prime cause. But there are still some price rises of raw materials to go through the pipeline. I am also optimistic that we have taken the best possible action that was practical in the circumstances to try to avoid wage inflation. I do not think we could have taken any other action which would have been practical and more effective. Whether or not the O.E.C.D. are right, I believe we are doing the right thing. I would not say that I am optimistic, but I am not pessimistic. I believe, providing we can keep people at work and use our capacity, that we will expand our exports far more than most of the speakers in this debate have contemplated.

LORD CARRINGTON

My Lords, I have a right of reply, and, my goodness, how I could reply! But I think we have had enough. I beg leave to withdraw my Motion.

Motion for Papers, by leave, withdrawn.