THE ATTACK ON INFLATION

HL Deb 30 July 1975 vol 363 cc1041-166

Debate resumed.

4.3 p.m.

Lord BYERS

My Lords, perhaps we might now return from the choppy seas of the Court Line to the attack on inflation. My main reaction when the Government announced their intention to try to control inflation was, I must admit, one of tremendous relief, that at last, after so many months, there was a genuine recognition that something had to be done, and done quickly. Therefore, despite the inadequacies of the policy and the haste with which it has obviously been thrown together, we, from these Benches, offer full support to the Government and, indeed, full support when, as we believe, they will have to be both tougher and more specific in their policies. I believe it is essential for both Houses of Parliament to be seen to be solidly behind this attempt to get inflation down to tolerable levels. A recent survey by Mr. Daniels of PEP (and I served on that Committee) on inflation shows that the climate of public understanding and opinion is very favourable to the measures announced by the Government, and that a substantial majority of people now feel that they suffer personally from inflation and they want something to be done about it.

What is more, for a large variety of reasons according to Mr. Daniels, people see no scope for the exercise of voluntary restraint in their wage and salary demands, and they look to the Government to ensure that restraint is applied evenly and equitably across the community. Eighty per cent. of the people agree that there should be such a policy and 58 per cent. of them do so strongly. Support is stronger in the manual working households than among people in white collar households, and therefore the climate is right for the Government to be tough and to be seen to be supported by both Houses of Parliament.

This is one reason why I do not understand the reluctance of the Government to publish their statutory reserve powers. This creates a belief that the Government are trying on a monumental bluff, and there is only one thing, that a Briton does with a bluff, and that is to call it. I think this is highly dangerous. It is not the right climate to create: it is far better for everyone to know what happens if they try to cheat on a voluntary policy, and in my view the Government will have tremendous support for dealing toughly with cheats and queue-jumpers in the circumstances in which we find ourselves. Much as we support the Government in their decision to take these measures we must express some doubt about the effectiveness of the policy in its first form. As I have said, it seems to have been hastily put together—probably between two Chequers week-ends, I should think—and there are a number of things which I believe are wrong with it and which ought to be put right.

The monitoring system, if it exists, is quite tenuous and I think it will break down fairly easily. It is doubtful whether a policy such as this will work without an independent, non-politically motivated Prices and Incomes Board. I believe this is something we may have to face. I doubt whether re-entry will be possible without sonic form of relativities board, and I think we ought to be using the short time we have available to set up machinery for the transition from the £6 limit to something less restrictive.

This haste is demonstrated by the way in which pensions as non-wage benefits have been dealt with in the Bill to which this evening we are to give a Second Reading, taking the remaining stages tomorrow. As the House knows of my interest in this matter, I hope your Lordships will bear with me for a moment because I think something drastically wrong has been perpetrated. I have never really known such confusion and loose thinking as has taken place on this matter since the White Paper was published. Explanations and interpretations have had to be dragged out from Departments and from Ministers; often they have been contradicting one another, and seldom have they been clear.

The latest Statement in another place yesterday, by the Secretary of State for Employment has, if anything, made matters worse. I am quite sure this was not intentional. It is simply that the Secretary of State and his Department do not appear to have understood the implications of what he actually said to the House—at least. I hone this is so, because I do not believe that he would intentionally do this. The Secretary of State said yesterday: It is not our wish to impose a moratorium on the negotiations on pension improvements designed to meet the Government's own legislation. By that he meant the Social Security Pensions Bill, to which Royal Assent will be given in only a few days' time. Tremendous work has been put in to get this Bill on to the Statute Book and to get better pensions for people, and I am sure the Secretary of State would be one of the first to want that to happen. He then went on to say: The Government intend that employers and anions may continue to discuss and negotiate pension improvements for implementation from 31st July, 1976, provided they do no more than to meet the minimum statutory requirements for contracting out under the Social Security Pensions Bill "—[Official Report, Commons, 29/7/75; col. 1637.] It is this insistence on the minimum which makes no sense at all and I should like briefly to explain to the House why that is so. Under the new pensions Bill, employers have either to put their employees into the State scheme or provide them with an occupational pension. In order to contract out of the State scheme the employers have to provide certain minimum benefits. In practice, good employers will provide something much better than that and the trade unions will certainly demand something better than the minimum which is prescribed for contracting out.

The Government policy up to now has been to encourage a partnership between the State and the good occupational scheme, and Mrs. Castle and Mr. O'Malley have done a very great job in that direction. But now the Government are insisting, if we can believe that statement to be correct, that nothing can be negotiated by way of an occupational scheme which is better than the minimum required for contracting out. In other words, the floor has become the ceiling as far as new and improved pension schemes are concerned. The occupational scheme can provide no better benefit or any greater flexibility than the earnings-related State scheme, which makes a nonsense. Although the Government profess to want to encourage negotiations there is nothing to negotiate about and there is no incentive to contract out. That cannot be the intention, and I think this will be confirmed when the trade unions, who are now very keen on pensions, read what the Secretary of State for Employment said yesterday and understand the full implications of it.

The people who are going to suffer are not the higher paid. Most of these are already in good occupational schemes, and exemption has been agreed for them. That is fine. It is going to hit the manual workers and the female employees, who up to now have been excluded from pension schemes These are the people we expected to come into good occupational schemes on something far better than the minimum requirements for contracting out.

In addition, under the new policy enunciated last night, only future service can count for pensions. Those retiring in the next few years will get no chance of building up a pension based on total service, only on future service. The same problem arises on widows' pensions, because by limiting the new and improved schemes to the minimum requirements for contracting out, many widows will suffer. May I give an example. There are a number of schemes where the husband has a good pension, but there is no widows' pension at present Normally, the scheme would be improved—and this is what we expect to happen in the next few months—to provide a widow with half her husband's pension. But under the new policy the widow is limited to one half the minimum pension and this could be quite derisory if one examines it. This is indefensible.

The Government's main case is that to allow contributions to be used for new and improved schemes above the minimum required for contracting out would add to labour costs. But many of these contributions can be made from profits, and many can be made without asking for increased prices. In any event, payments towards pensions represent savings; they are deferred pay, savings which can be used for investment rather than for consumption, which is what happens when one pays cash out for wages. I hope the Government will reconsider this at this late stage, because I am minded to put down an Amendment tomorrow which will try to put this right. I believe a great deal of damage will be done if it is not.

The MINISTER of STATE, DEPARTMENT of INDUSTRY (Lord Beswick)

My Lords, I have sympathy with what the noble Lord, Lord Byers, was saying, but can he help us a little more? He himself said that pensions are deferred pay. This is precisely the problem. If you have deferred pay in one sector, how do you say it is fair to those who do not have the same pension benefits in another? How do you prevent a company from having some sort of phoney deferred pay system in order to get round the £6 limit?

Lord BYERS

My Lords, it is not a question of getting round the limit. It is not a question, in my view, of people wanting to have phoney arrangements. The point is that this money goes as a contribution into a fund. It does not go into the pay packet of the worker. This is what we are trying to do, to cut down the inflationary power of additional wages. The deferred wage is not paid out until a man is 65, or a woman is 60, and by that time I hope we shall have solved this problem. Does that satisfy the noble Lord opposite?

Lord BESWICK

My Lords, up to a point it does, but the noble Lord has not answered the question about fairness as between one category and another.

Lord BYERS

My Lords, it is not a question of fairness between one category and another. The example I gave would be to try to get fairness. Let us take the case of a manual worker not in a pension scheme, but the company has a pension scheme, a very good scheme, and has the intention in the next few months to bring manual workers into it. What the Secretary of State has said prevents that, which is unfair between those two categories of people. It will affect a number of people. For instance, it will not be possible during the next year, because we are dealing with the minimum requirements, to introduce death in service benefits, lump sums to widows. People will die during this period. I have already conveyed these thoughts to the Secretary of State for Employment today, and I hope he will look at this again, because it is not an injustice that is being done, but it is a nonsense that is being made of the Social Security Pensions Act which will be on the Statute Book very soon. I want to say a few more things about incomes policy. The present incomes policy is short-term. We have to consider how we can get people to recognise the basic facts of industrial life if we want to make a mixed economy work, and what happens if we ignore or abuse the principles upon which our mixed economy should in fact proceed. First of all, I must say that I think we should recognise that where an institution or an organisation gets into a monopoly position and uses its monopoly power for its own ends, someone is going to suffer.

It does not matter if it is a giant corporation or a large trade union. We on these Benches have fought over many decades the great corporations on monopoly. The monopoly power having moved to the trade union movement, this is why we want to see real industrial democracy and decisions on pay and other matters made far closer to the plant, where profits, losses and productivity can be better understood. I hope that we can rely on noble Lords and noble Baronesses opposite to help us to get this over, because it is essential that there should be a proper understanding of productivity, profits and losses at plant level if we are to defeat inflation.

Secondly, I follow the noble Lord, Lord Carrington, but not in detail. We must get a realistic balance between the demands of the public sector which, as the noble Lord said, are increasing tremendously—the Economist drew attention to this in dramatic terms only a week ago—and the balance between the demands of the public sector and the ability to pay of the private sector. This is absolutely vital. I want to say this to those opposite. They fail to understand why those of us who support private enterprise do not want to see an extension of nationalisation, particularly at the present time. It is not because this is something which is included in the Labour Party Manifesto. It is not a question of saying, "You must give up your Socialism". We are opposed to it because we think the pendulum has swung too far away from private enterprise towards Government ownership, and the burden on the private sector, which has to provide the cash, is already too great, and should not be increased by further Socialist policies. I believe over the coming months there will be greater recognition that where we have 60 per cent. of the Gross National Product being spent in the public sector, that this is too much and we dare not add to it another £100 million.

I should have liked to see in the White Paper a restatement of the principles which must apply to a mixed economy which has to rely so much on a viable private sector. For instance, I should like to hear from the other side the assertion that the private sector must be profitable. Profits are a source of investment which industry needs. Dividends must be encouraged. Psychologically we agreed years ago that if you have a pay freeze, you must have a dividend freeze. We must look at this again. Dividends are a major source of income for such things as pension funds and other units on which pensioners depend in their retirement.

My Lords, productivity is vital, and is a responsibility all the way along the line. Overmanning is a sin, and must be recognised as such by trade unions and management alike. I was shocked to see that the Ryder Report on Leyland showed that 25 per cent. of the workforce was unnecessary—40,000 people being paid every week. Think what the firm could have done with that money. No wonder the undertaking was, and is, in trouble. Yet we have this serious dilemma which is difficult to resolve. I do not know how it is possible to resolve it, because if overmanning is a sin, unemployment is equally or more so, not merely because of the waste of human resources; but because today, unemployment, generally speaking, is inflationary. It is something which we must tackle.

In 1974, a married man with two children who claimed all the allowances due to him would have been better off out of work for the first 12 months, unless his earnings from work exceeded £55 a week. He would have had a tax rebate and redundancy pay; his unemployment pay is not taxed, so the Government loses revenue and the unemployment pay has to come out of public taxation, public funds, and that pushes up Government expenditure. There is no National Insurance contribution, either, during that period. I have no solution to this, but we must look at it carefully. Unemployment solves nothing. It is not like 30 or 40 years ago, when it was used as a threat to the worker. This does not happen, and I am glad it does not, but it makes things worse.

My Lords, this is why I believe that a massive retraining programme is much to be welcomed, and must be undertaken. For those who cannot or will not be retrained, we must consider carefully whether there is not some other way in which they can be usefully employed, because 1 million unemployed today is costing the State over £1,000 million. That money is going out for people many of whom do not want to be idle. We must have another good look at how we use our resources. The real solution for the time being is to shake out surplus manpower and get efficient industries; and then to employ it sensibly elsewhere after retraining, if necessary.

I think it is a real challenge to which this country must respond. As the noble Lord, Lord Carrington, said, the country will respond if things are explained to it in simple terms. I think the policy in this White Paper is only a start; we are going to need teeth in it, and toughness. We have got to use the next few months to try to tackle the problems which must inevitably arise when we face the reentry period.

4.20 p.m.

Baroness WOOTTON of ABINGER

My Lords, I should like, if I may, to begin by addressing a small request to the noble Lord, Lord Carrington. I understand that he has at his elbow a list of extracts from Labour speeches and Labour Manifestos, which I presume were much too long for him to include in his speech. Would he be good enough either to distribute those to Members of the House or to put copies in the Library, interleaved, so that noble Lords on this side of the House may have the opportunity to add comments and quotations from other sources. Having said that, I should like to strike a chord, which I hope will initiate a swelling chorus, of pleasure and rejoicing that at last we have before us a policy that is anti-inflation. This is a policy that has been born in something of a hurry, but I do not think noble Lords on either side of the House will dispute that it was not born prematurely—indeed the pregnancy went the full term. If I may now drop my obstetric metaphors, it is at the moment a policy which is of a temporary nature. Its temporary nature has been particularly emphasised by the TUC in their annex to the White Paper. I would point out that the Government are prepared to go further and intend to maintain policies over a number of years which will control domestic inflation.

My Lords, in the bottom of our hearts, whatever our contacts with industry, whether we are industrialists or trade unionists or academic economists or just ordinary sensible people, we are properly conscious that an epoch is coming to an end. It is an epoch which has lasted for a century and a half, during which time trade unions have fought to substitute collective bargaining for individual exploitation, fought long and bitter struggles often in the face of unreasonable opposition, until at last they have attained the distinguished and responsible position which they now hold in our community.

I hope that during such breathing space as this temporary policy may give us—and here I fully agree with the noble Lord, Lord Byers—we may devote ourselves to thinking out some of the new features of the new epoch that is now beginning. The trade unions have said in their annex to the White Paper that they are concerned that this temporary policy should not continually erode the differentials, either within negotiating groups or between them. I have great sympathy with that, because this would be a casual and ill-thought out erosion. I hope very much, as I think Lord Byers suggested, that we shall spend the time between now and our longer-term policy in working out some more sensible method of determining relativities and differentials. I hope that we shall recognise what is the truth; that there is absolutely no sanctity in our present pay structure. Our pay structure is a compound, a historical deposit; it is a compound of prejudice and quite fortuitous strategic advantage.

In the meantime, my Lords, we are faced with the temporary problem. I am not entirely happy about the temporary policy that is being proposed and I hope my noble friend Lord Beswick will be able to enlighten me a little further, although I may have to make an apology, because I am today at the mercy both of a nationalised and a non-nationalised industry; namely, British Rail and British Caledonian Airways. What I should like to ask my noble friend is this. My noble friend Lord Shepherd said that the £6 limit would not be carried into shift work and overtime. I think those were his exact words. Does that mean that however many hours a man works overtime, or however unsocial the hours, or however long his shifts, he will not be able to earn more than £6 more a week, or does it mean that he will be able to take his overtime earnings on top of this £6 basic?

Then there is a second feature—going back to the new epoch—which I think is important and is at the bottom of all our hearts, and this includes my trade union friends. I think we have said goodbye forever to the theory that the bargains which working people make with their employers are entirely their private concern. There is always outside the bargaining room, or haunting like a ghost just inside the bargaining room, another party, not invited to sit at the table or to speak. The other party may be the taxpayer, it may be the consumer, or it may be something intangible, abstract, as they say on "Twenty Questions", like the balance of payments. But there are always other interests. I think the policy we are now adopting is in itself a recognition that we have said goodbye forever to the idea that there is no third party involved in the collective bargains which are made between workers and employers.

I should like to mention one aspect which I hope will apply only to this policy and which I hope will be corrected when we get to the longer-term policy. This is not an incomes policy. The noble Lord, Lord Shepherd, said that directly or indirectly it will affect everyone in the country. In some cases the effect will be so indirect that it will be totally negligible. This is a pay policy; it is not an incomes policy. I think that is a very great deficiency. An incomes policy would affect every kind of income from wherever it came, but this policy affects only people who happen to work for an employer. If you do not work for an employer you may, with luck, escape it almost altogether.

Let me consider some of the people who are left out. There are the small business people, those we are often told are the salt of private enterprise, and so some of them are. I know a good many of them, because, living in a rural area, I use the services of a great many self-employed persons with small businesses, with perhaps one or two employees. Theoretically they are bound by the Price Code. In practice I do not think the Price Commission has heard of any of them because they come in the lowest category on which the Price Commission is not able to enforce its Code. Some of them are the salt of the earth. Some of them look at me fondly and say, "After all, we have known each other a long time", and then they come up with a very nice proposition. Others put up their prices by 50 per cent. within less than a year and contend that they are giving better service than other people in the same profession. These people are left out of the anti-inflation policy.

Right at the other end of the scale there are the speculators. If you earn £8,500 gross from an employer you may not have anything by way of additional income. But if you have an income of £8,500, or £10,000, derived anywhere other than from an employer, and you are clever and also lucky, you may speculate; you may add to your income anything that your cleverness and your luck may bring you, and there is nobody to say to you, Nay. You will pay your ordinary income tax, but you will not come under any kind of special anti-inflation measures.

A Noble Lord

There are capital gains.

Baroness WOOTTON of ABINGER

My Lords, there are capital gains, but some people speculate to a point at which it becomes their income. Then there are the shareholders. We have dividend limitation. Dividends are not to be increased by more than 10 per cent. This is the kind of provision which is sometimes called cosmetic, and supposed to make things look prettier than they are, which is flattering to cosmetics. Not many firms in my present experience are in a position to increase their dividends by more than 10 per cent. or even as much as 10 per cent., and those that are ought not to give them to their idle and spendthrift shareholders. They ought to spend the surplus on investing in increased productivity by British industry.

Lord BYERS

My Lords, the noble Baroness does not include in that epithet the pension funds, which are dependent on dividends? They have been investing in British industry.

Baroness WOOTTON of ABINGER

My Lords, that may well be, but that means that those personal shareholders who enjoy dividends—and there are a considerable number of them—will be left out of this policy altogether. It will not be equitable in that sense. A rich shareholder who has large holdings in a very profitable company will get a good deal more than £6 a week if his company has a good year. A pensioner with a small holding, a few shares that he or she has perhaps been able to collect in the same company, will get very much less. I think that when we move on from a pay policy—I am giving two cheers to the pay policy, and when it becomes an incomes policy I will give it three cheers—we shall be able to see that every single personal income in this country is restricted in accordance with what the country can afford. I see no possible way of doing that, except fiscally.

I have said elsewhere in print, as some of your Lordships know, that the only way to do this is to have a tax on the increase of every personal income, and that tax should come after payment of income tax so that it takes account of what people really have to spend. If we could do that, we should really have an incomes policy and the sacrifice would be spread over all classes of the community, instead of those who merely happen to be employed. It would not exclude the classes I have named, some of whom are admirable and some perhaps less admirable. I shall not go into the detail of that, because I have worked it out elsewhere, and I hope when we come to our longer term policy that that will form part of it.

Before I cease, I should like to mention one or two other general topics. First, there is the obsession that the noble Lord, Lord Carrington, and many of his companions on the other side have about public expenditure. There is nothing particularly wicked about public expenditure. Public expenditure is expenditure. It is just like any other expenditure. The only difference that may make it wrong is if the Government borrow the money, or print the money, which you and I cannot do. If the Government take the money out of our pockets, as they very largely do, in order to spend it on good public services when we would possibly spend it on our own frivolities, then public expenditure is a great deal better than private expenditure. This has been said many times, notably by Professor Galbraith in his book, The Affluent Society. There is nothing wicked about public expenditure as such. It depends where the money comes from and what the expenditure is on, and we should get away from this obsession.

Secondly, I should like to say something about the way in which we speak and think, particularly about inflation. We are now getting into the habit of speaking about inflation—my noble friend Lord Shepherd spoke about it as thought it were a cancer—as if it were some natural catastrophe. Do not let us forget that inflation is man-made, and if it is manmade it can be man-cured. When I am told that prices must go up because of inflation, this is making inflation the excuse for inflation and we are back in a circle which never ought to be. We have to change our whole attitude about this and our way of speech. We have also to say what is part of this, that prices do not go up. Prices never go up. Once upon a time there were leading economists, not so very long ago in the nineteeth century, who said it did not matter what trade unions did; the rates of wages were inexorably fixed by the laws of supply and demand, and trade unions could try to push but no difference at all would be made. Nobody believes that now. Everybody believes that wages are put up, and put up very often by trade unions, but we still believe it is about prices. Prices never go up; prices are put up.

Leaving that thought in your Lordships' minds, may I apologise if I am not able to hear the explanation which my noble friend Lord Beswick will give me about the complications of this policy when it comes to other than large national agreements. I am particularly concerned about shop floor agreements in which there is a great deal of shop floor bargaining. I wish, indeed, that we had a nice simple system; that we could live under the simple Chinese system where there are eight rates of pay and no others, and then we could add £6 per week to each of the eight as long as the top one was not too high, and all these difficult interim problems would be solved.

4.36 p.m.

Lord BOYLE of HANDSWORTH

My Lords, it is a great privilege to follow the noble Baroness, whose quite exceptional intellect and courage I have admired over many years, even when we have been on opposite sides. I felt at one point in her speech this afternoon that she was perhaps rather underrating the cumulative effect of the capital gains tax which has been in operation since 1965: the tax measures against land speculation which were very properly taken as part of the Conservative Government's package, perhaps a bit belatedly, at the end of 1973; the very severe capital transfer tax of the present Government, and the double increase of taxation on investment income. While I would not wish to debate with the noble Baroness about her interesting book this afternoon, I felt she was rather underrating the combined effect of those four measures.

Baroness WOOTTON of ABINGER

My Lords, there is one form of speculation which is not successfully covered by the measures which he mentions. It is one of the most deplorable; that is, that you can speculate in your own country's currency.

Lord BOYLE of HANDSWORTH

My Lords, I believe that where currency is concerned, long experience shows that this is one of the most unpopular forms of speculation, but where one must recognise that experts can perform a nationally significant service. I do not believe that one can dismiss this subject quite so easily as some wish to do. Returning to the main theme of this debate, like Mr. Heath in another place I would give an unequivocal, Yes, in answer to the question whether it is necessary to embark on the policy set out in the White Paper. I must say that I regret the fact that the Bill, which is the legal sanction behind the policy, has not been brought before Parliament. The White Paper in paragraph 3 talks about the Government "supporting the TUC's proposal for a universal pay limit of £6 per week". But under our constitutional conventions Governments do not just support and endorse the proposals of other bodies.

Governments make choices. They take decisions. They surely have the responsibility for assuring Parliament that they possess the requisite legal powers to back up the policy that they announce. Therefore, I do not think that there can be a valid defence for introducing this policy but not presenting to Parliament the legal powers which are necessary in order to sustain it. None the less, I believe that the policy itself is right; that is to say, the policy of bringing down the rate of inflation to no more than 10 per cent. by the late summer of 1976 and to single figures by the end of next year. I am also convinced that the limit on incomes proposed in the White Paper is an essential component of this policy.

I know there are still those who believe that all incomes policies are futile, even injurious, and that we should seek to defeat inflation by monetary and budgetary measures alone. This view was expressed by a number of speakers in another place last week: that was no surprise to me and it would be no surprise to anyone who was a Member of the Shadow Cabinet between 1966 and 1970. The noble Lord, Lord Carrington, said that the Conservative Party would certainly aim to learn from mistakes made between 1970 and 1974. What bothers me is not so much what the noble Lord and his colleagues might do if they were now in Office, but the feeling that there may be some rather slow learners on the Benches behind the noble Lord's colleagues in another place, and that fear has not been completely removed by some of the speeches that have recently been made.

The view that we can defeat inflation by monetary and budgetary measures alone has, of course, been supported by a number of academics, one of whom reviewed the noble Baroness's book to which she referred. "Monetarism" has become a sort of fighting word, so let me make it clear that, in my view, there are a number of things wrong with monetarism as a rigid doctrine as a counter to inflation, and I will cite three examples. First, it surely overlooks the urgency of the present situation, when British prices have been rising at an annual rate of 25 per cent, compared with our competitors' figure of nearer 10 per cent. Even the most celebrated of monetarist economists, Professor Friedman, has spoken of the control of money supply as a "long run" condition of price stability, and I think I am right in saying that Professor Walters has said in The Times that it would be necessary to pursue a rigid policy for four years. We simply do not have four years, and as Lord Keynes rightly said, in the long run we are all dead.

Lord BOOTHBY

My Lords, might I ask the noble Lord. Lord Boyle of Hands-worth, whether he agreed with Professor Galbraith who wrote to The Times the other day, saying that for the time being and for many years to come statutory control over wages, incomes and prices was absolutely essential and should be built into our economy?

Lord BOYLE of HANDSWORTH

My Lords, my short answer to that is, Yes. In fact, I was about to give a quotation from Professor Galbraith, and I will do that shortly. Secondly, surely monetarists seriously underrate the significance of the shift that has taken place in relative economic power within our society. I thought the noble Lord, Lord Byers, was right—I agreed with much of what he said—when he talked about an incomes policy being necessary in view of the growth of monopoly wage bargaining. This is the principal reason why over the years, indeed for the past 15 years, I have reluctantly become convinced that statutory powers are going to be needed as a permanent sanction; I do not see any way out of this. For my part I have believed this ever since I read the 1961 OEEC Report on Rising Prices which I think was in part the work of the noble Lord, Lord Kahn.

At this point I will quote Professor Galbraith, who said in an interview with the Observer last weekend: We have had stop and go fiscal policies. We have had stop and go income policies. They are not going to work until we can make up our minds that this is something we are going to have to live with permanently from now on. The noble Lord, Lord Boothby, and I have discussed questions of this kind in the past. I have always regretted that Conservatives have tended to confuse the issue of nationalisation, and the issue of how egalitarian a society we want to see, with the quite separate issue of whether or not one believes in total laissez-faire. I can see no inconsistency in wanting to conserve our institutions, in having some disagreement with the Left about how egalitarian a society one wishes to achieve, and yet at the same time believing that there are certain forms of intervention which must be a permanent feature.

Thirdly, I believe that monetarists are too cavalier about what constitutes a tolerable level of unemployment. It is a matter not just of the absolute figure, but of the extra social cost of an additional 250,000 unemployed once the total has passed a certain point. If we are concerned with social harmony, then surely we should not ignore the evidence of the PEP survey, to which the noble Lord, Lord Byers, referred, that more than three-fifths of the British population strongly disagree with the suggestion that higher unemployment would be preferable to inflation at present levels. It is interesting, furthermore, to note that 74 per cent. of those in the Northern region hold that view. A number of noble Lords have already spoken about balance, but let us not forget the regional balance which Mr. Heath rightly mentioned in another place in his notable speech last week; the regional balance in Britain should, in my view, always be in our minds. For all these reasons, while monetary policy is certainly a component, and an essential component, of anti-inflationary policy, it cannot be the whole.

The size of the borrowing requirement is worrying, not least because of its effect on the reactions of our creditors. But I suggest that it is a mistake to suppose that at a time of rather sharply rising unemployment, a cut of £1 billion in Government expenditure will automatically result in a cut of £1 billion in the borrowing requirement. It is not so simple as that. I come closest to the monetarists' position over the nationalised industries. I think it was a pity that the then Conservative Government did not, as they so nearly did, follow the advice of the CBI in 1972 about putting these industries on a more commercial basis—an episode well described by the noble Lord, Lord Windlesham, in his extremely interesting recent book. Can one really justify a subsidy to British Rail of £430 million a year at the present time? I agree with an article which appeared at the weekend, in that I do not believe that this can be justified on social or even on environmental grounds. We must remember that the railways are today failing to attract either freight or passengers, and there is a real choice here between the level of subsidy we give to the nationalised industries and the needs of certain essential social services; and I leave your Lordships in no doubt, for example, as to the importance of the hospital building programme in the North of England.

I shall for the remainder of my speech consider the future. First, the £6 a week, when it is negotiated, will be a heavy burden on a number of small businesses. It will in many cases amount to a 25 per cent. rise, and I hope we shall hear the answer to the question which the noble Lord, Lord George-Brown, I know intends to ask again: just what would be the cost of this and what would it mean, for example, to the retail and distributive trades? Of course many price rises, including the consequences of the £6, still have to work their way through, and there is a likelihood that for a considerable number of workers there may be a fall in real wages by something like 10 per cent. in the New Year.

Lord BESWICK

My Lords, perhaps I might interrupt the noble Lord to find out just what is the question I am going to answer. When the noble Lord, Lord Boyle of Handsworth, asks what would be the cost to the retail trade, what exactly does he mean—the total cost in money terms, an estimate of the percentage increase on their wage bill; to what is he referring?

Lord BOYLE of HANDSWORTH

My Lords, I meant two things. First, I was referring to the percentage increase which I agree will be varying, but which in a number of cases will be as high as 25 per cent. Secondly, is it possible to form any estimate, arising from the £6 flat rate increase, of what will be the total extra cost to the economy as a whole in those cases when the negotiated figure might otherwise have been smaller? I felt that the noble Lord was on a fair point. But it is, of course, also true that real wages for a number of workers will be falling by something like 10 per cent. in the New Year. We have to face this. It will therefore call for very skilled political leadership. But at this point we must face the point that the noble Baroness was making; namely, that we have to choose between a cut in personal consumption and even harsher cuts in health and education, and I, like her, would not like to see those.

Secondly, we must continue with the task of trying to help the economy to become more competitive. I sometimes feel that, in our concern with inflation, we forget the balance of payments, which is really just as fundamental a problem. We cannot secure our position in the world without competitive industry and without a sufficient level of investment. Manufacturing investment is clearly vital for the future. Here, I could not help feeling that paragraph 39 of the White Paper was far too defensive. The passing of the Industry Act we are told will give the Government powerful new weapons in support of investment;…but investment, whether public or private, has to be paid for and, in a mixed economy, the investment of the private sector has to be paid for out of profits…. Last year, profits were so low that they were insufficient to finance stocks, work in progress and the replacement of existing fixed capital, let alone to extend it. May I suggest that it is no good being too defensive about profits? I would say on this subject that if Ministers believe in a mixed economy—as most of them do—let them say so. Let them be frank about it. Let them say that unless British industry as a whole is making substantial profits there is no hope for job prospects, living standards or social improvements either. Mr. Heath, for his part, spoke up courageously when he was Prime Minister about what he called the "unacceptable face of capitalism". In return, let those members of the Government who really believe in a mixed economy say so openly, and say that they want to see us make a success of the private sector no less than the public sector.

Lastly, what is to be the next stage? As we have already heard this afternoon, there is, in the language of the cosmonauts, the problem of re-entry. This is recognised in the TUC's document. I am glad that attention has been paid this afternoon to increments. It is going to be very costly if we do not get back to increments and have simply a system of fixed points. Furthermore, pay comprises wages and salaries. I would plead with noble Lords and with the Government that we should not become too egalitarian in our approach to salaries. Let me give two examples. The first, as noble Lords will not be surprised to hear, is that of university salaries. Stage 1 of the post-Houghton award simply puts university teachers back to where they should have been in October 1974. Even this would not have been possible, as it is under paragraph 8 of the White Paper, but for the fact that the university teachers—rightly as I believe—went to arbitration over the top point on the lecturers' scale. Assuming, as I believe we must, that Stage 2 will be caught by the White Paper, there will be a continuing sense of grievance which will eventually have to be resolved.

I should like also to quote one sentence from the Report of the Top Salaries Review Body of last October, in which it was said: It is important to remember that levels of pay…at or near the top may well affect recruitment and retention lower down, and therefore the standard of ability which this country may expect to have at its disposal in ten or twenty years' time. I believe that that point is most important. We should not only think of those who are earning the highest salaries now. It is a question of the incentives which are offered for the future. There is, I know, concern over post-experience retraining on the part of all those concerned with management—industry, business schools, universities and polytechnics—but it is no good retraining people simply for them to take up jobs abroad.

My last comment about the future is that I agree with the noble Lord, Lord Byers, in hoping we shall have a Prices and Incomes Board again. I was sorry when it was done away with; and I say this partly because my vision of a Prices and Incomes Board is not one of a body which takes away all the work from the existing organisations, including existing review bodies, but is of a flexible body which will remind us all the time of the connection between incomes and prices, and which can take a rather more leisurely and in-depth look at a field and explain to us with as much clarity as possible its problems for the future. I believe that there is a very strong case for a Prices and Incomes Board to be set up again and, indeed, I believe that we may well need a Relativities Board as well.

Clearly, we must feel acutely anxious about the economic situation today, with inflation at the present level, our balance of payments still critical and productive investment low, and, compared with the rest of the world, a continuing process of the weakening of our competitive power. Yet I believe that there is also much goodwill within our community and a desire on the part of large numbers of people to put things right. I hope your Lordships will not feel that I am being merely conventional or sentimental in saying that in this situation I believe a special importance attaches to both Houses of Parliament as the grand inquest of the nation. There are many proposals for reform of our political system today. But let us not allow any reformer, be he a Minister, an academic or a judge, to seek to by-pass Parliament. I very strongly agree with a point made recently by the noble and learned Lord, Lord Hailsham. There is a good case for looking again at the relationship between law, Government and Parliament. I agree with the noble and learned Lord there, but I also endorse his view that it must be Parliament which takes the decisions.

My links with Parliament are, of necessity, very part-time nowadays, but such links as I retain, not least as chairman of a Review Body, have left me—and, may I add, my colleagues—with a heightened respect for an institution which men and women of widely differing opinions serve well and recognise as something more important than they are. At a time of exceptional difficulty for Britain, let us not write ourselves down unduly, and let us remember our strengths.

4.57 p.m.

Lord GEORGE-BROWN

My Lords, one of the great cases to be made for this House is that, however late in the day and after however many academics and merchants, place will always be found for a worker. I want to proceed from that. I listened with interest to the noble Lord, Lord Shepherd, opening the debate and I found myself rather bothered by an awkward memory. The noble Lord, Lord Shepherd, said among other things that one of the great cases for the White Paper was that it represented an agreement with organised labour. Let me just speak as a member of organised labour. It represents nothing of the sort. This is Orwellian newspeak or doublespeak. It represents a behind-the-chair agreement with one or two trade union barons. Let us just admit that and not do the Orwellian newspeak or doublespeak. I can speak for my people in the unions just as well as Mr. Jones can, except that I do not have Mr. Jones's capacity to commit the card. The Secretary of State for Employment goes along because he and Mr. Jones are arranging it, which also, in a way, answers the noble Baroness, Lady Wootton. I am glad she has not yet left, though she said she would have to go. In a way, it answers her about her view of a pay policy. It has to be done in a much wider context, but I shall come back to that rather later.

I have little joy in knocking any efforts any Government may make in this field. But we must at some point establish what is the field. I made my opening remark about the difference between a worker and an academic, or a worker and a merchant because the field is much larger than a pay policy or incomes policy. With respect, I have not heard anybody say much about that yet.

I have many personal memories—and this is the only justification for imposing myself upon the House—of the struggle between October 1964 and July 1966, when we struggled hard. It got like almost everything, a little over-personalised. But unless one does that one does not raise it to the point where people take notice of it. It was a struggle to find a way in which productivity, production and the rewards of that could be related to what the nation should do with it: and it was a dreadful struggle. I see behind me the noble Lord, Lord Feather, who was not then quite so distinguished. There was a George Woodcock, who then ran the show his side, but the noble Lord, Lord Feather, was there all the time.

But we were not starting with an incomes policy; we were starting with a productivity policy—trying to decide what we could achieve, and then what we could do with what we achieved. Ten years after that exciting experience—I shall not say traumatic—we are, naturally enough, all 10 years older; although, if I may say so, when I look around your Lordships' House it seems that most of my colleagues show it more than I think I do. We are all 10 years older, but much more important is that we have had a decade of economic and industrial decline, and the country's national affairs are in a much more critical position even than we thought they were then.

The White Paper I must say that such a White Paper would never have been produced if I had been there—says that inflation has accelerated. That is true enough. What it does not say is that the Government have encouraged it to accelerate—

Several Noble Lords

Hear, hear!

Lord GEORGE-BROWN

My Lords, I should wish for a little less help from the Conservative side of the House. I simply do not want to make politics out of this; and I wish that the noble Lord, Lord Carrington, had not gone as close as he did, because the matter is much more serious than that. The Government have encouraged inflation, and have encouraged it to reach a level which, in 1964 when we thought we were dealing with a disaster, we had never dreamed of.

I have to say something which is not going to be agreeable to my colleagues, but what does it matter now. Nobody can do much to me, except call me the "second Labour Back-Bencher", which was written on the note I received from the Government Chief Whip. In due course I will be the third Labour BackBencher and, oddly enough, at the end I will end up somewhere else. It is disagreeable to say what I intend to say, but my colleagues will just have to accept it. In my honest view the Government, in this White Paper, come up with proposals that are not only half-baked—and I do not get briefed nowadays any more than is proper for me to be briefed; but I know just how half-baked they are—but are almost totally unbaked. I do not think that they even got into the oven. They are ill-thought-out, and the odd thing is that 10 years later, with a situaton far worse, they are less relevant to our problems, with respect, than were the answers we tried to produce in 1964 and in 1965 to 1966.

This is described as an attack on inflation—the one thing it is not! Therefore I asked the opening Government speaker how much does this add to the inflation we already have? It does not take anything away from it. I asked: how much does it add? He said that he would leave this to the noble Lord, Lord Beswick, to answer. When I passed along the corridor just now I happened to meet the noble Lord, Lord Beswick, and I gave him the figure. If one multiplies the working population by £6 per week, and if one allows a little for those who will squeeze through the loophole—and the noble Lord, Lord Feather, knows that there are always some who do, or who will—and if one allows for the part-timers, and then adds in the extra subsidies for food and for rent, and then the £10 a week job subsidy (so that we keep the unemployed off the register and make it look as if they are not unemployed) if one adds all that together, as I told the noble Lord. Lord Beswick, privately—and I now tell him publicly—the figure must be nearer £8 billion than £7 billion. I take the figure of £7.8 billion. When I was at school a billion was a million million; now we have taken the American way of life and so it is a thousand million. The figure is £7.8 billion—it cannot possibly be less. We add that to the inflation we already have—with which we cannot live, says the White Paper—and we call it an attack on inflation. But honestly, my Lords, to anybody on this side of the House (and I am still a Socialist and a trade unionist)—Orwell knew what he was talking about with newspeak and double-speak—that is not an attack on inflation.

What the Government are trying to do is to make sure that we do not add more to inflation, but that we do not stop it. The reason I emphasise this is that it is difficult to get understanding outside if Ministers insist on being so obscurantist. Yesterday I saw a headline in The Times. I am sure that the noble Lord, Lord Thomson of Fleet, does not pay out whatever it is he pays out—£1 million a year? —unless he believes it to be right. The headline stated: TUC may provide 3-1 backing for the anti-inflation policies. Where are they? Already we are spending what we have not got. We are printing money to pretend that we can afford things we know we cannot. I went through the agonies of the 1966 Bill. I wonder how many Ministers have done themselves a service by re-reading the reports of the Committee stage and the Second Reading of the 1966 Bill?

Ten years ago, when the situation was far less grave, we said—with the same Prime Minister; and we must give credit to the Secretary of State for Employment for he opposed us but every other Minister supported us—that it has to stop. We did not say, "Add £8 billion to it!" We imposed a freeze. If one is making an attack on inflation, then, for Heaven's sake, attack it! One damned thing you do not do is add to it. As my noble friend Lord Feather will remember, the TUC and the CBI—it was not then the CBI; but there were all its component parts—came together and said, "Okay! We will have a go!" But we were having a go at stopping it; we were not having a go at increasing it. We did not do too badly for a year. We took on all the leading trade union barons. Mark you, we also had Carron's law in those days—but this is a private joke between my noble friend and myself.

My Lords, we are now spending what we have not got. If, as The Times says, we have a three-to-one backing in the TUC for our anti-inflation policies, may I go through them? First, where are the cuts? The noble Lord, Lord Boyle of Handsworth, said, "Please do not touch my universities". Naturally, that is the last thing on earth that I should want to do. My children, who are involved in the Health Service say, "Please do not cut our hospitals". That, too, is the last thing on earth that I want to do. But somewhere the cut has to be made. We have done the silly thing of spending what we have not got for several years. We keep on telling each other that the price for restoring our situation is painful. Okay! Let us face it! It means that the universities will have to face it; it means that my daughter's hospital, in which she is a governor, will have to face it; it means that the housing schemes of the local authority I love best will have to face it. There is no other way until we drive ourselves so far down that the whole damned thing stops. And we are lucky, are we not, that there is not a Tom Mosley—remember, he never called himself Oswald when I was young; just like the ci-devant Wedgwood Benn, Lord Stansgate, who insists on calling himself Tony Benn and has wiped out the Wellington or wherever it was and all the rest. If we will not do it as democrats, some fellow will.

So where are the cuts? They are not here. We do not know. We know that industries and services are vastly overmanned—by which I mean that we have too many people for the limited jobs that modern technology requires. Where are the plans to reduce that acceptably. Where are the plans to retrain them, to bring flexibility and mobility into our labour force, both manual, clerical, white collar, blue collar, the lot; where are the plans? We know, do we not, all of us, that industrial investment has virtually stopped. What do we mean by the words "industrial investment"? We mean that people are not buying machines, are not raising the technological level. We know that it has stopped.

My Lords, with respect to my colleagues and friends—my ex-colleagues and, I hope, my present friends—the only proposal in the White Paper is greater pressure on pricing policies and on retained funds, which ensures that investment cannot restart. I see the noble Lord, Lord Bernstein, in his place. In his service industry, he knows this as well as I. If you put greater pressure on pricing policies and on the retaining of funds, then the investment is not going to restart. It is going to go back in. I know it best in the textile industry; for I spent a long time there.

May I put a question to the noble Lord who is to wind up? It is one I ask myself. Do this Government, this Labour Government, this Government of the Party of which I am proud to be a member, ever consult their Social Democrat colleagues, in, let us say, Sweden, who know how to deal with this and have done it? They are the best social welfare country in the world, the country with the least gap between the poorest and the richest. Do they ever discuss it with them or, for that matter, with Germany or Holland? We reckon that we are social democrats; we reckon that we are nearer to them than to anybody else. We reckon there is a great gap between us and those on the other side of the House. Why do we not discuss this with our colleagues and our friends?

My Lords, we in this country wasted 1974 because we had two Elections. We had to win the second one; the Labour Party had to win the second one. I can understand that. So we got the Government in. May I just remind the Ministers on the Front Bench, and any of my colleagues who have forgotten it, just what an inglorious win it was. So we produced a Government; so all the people we see on the Front Benches have their offices and their limousines—but we got less than one third of the vote. We got less national support than we have had since 1931, which was my first Election. I would ask my colleagues on this side of the House to be, perhaps, a little more humble. We did not win the Election in any terms beyond getting a few more seats than the largest other Party. We went backwards; and the reason I emphasise that is because our people, the people we should like to call "our people", are as bothered with us as any other part of the population. We are not matching what they think we ought to be matching and they would be more willing to face us if we talked to them honestly and straightly than we think they would.

That is how we wasted 1974, and now we have wasted 1975—first, because of the totally unnecessary and ridiculous referendum. We could not have two things going at once, so we stopped all work at home while we got on with the thing we did not need to do.

Several Noble Lords

Hear, hear!

Lord GEORGE-BROWN

Could the noble and learned Lord stop helping me!

Lord HAILSHAM of SAINT MARYLEBONE

My Lords, the noble Lord asks me to stop. He must stop saying things with which I agree!

Lord GEORGE-BROWN

I am happy to say things with which the noble and learned Lord agrees, but could he tell me that privately?

Lord HAILSHAM of SAINT MARYLEBONE

No!

Lord GEORGE-BROWN

My Lords, they are no less true because the noble and learned Lord happens to agree with them—he cannot be wrong all the time. So we wasted the first part of 1975 because of the referendum; now we are wasting time because we must not move before the TUC meets in September in case we upset Baron A, Baron Y or Baron Z; but then we must not do anything until the Labour Party meets in October because the same barons control the same votes. I have said in Government, it is on the record—but I do not want to get into a row about the Crossman Diaries; let us wait until we get volume II of Brown's which will come out later when John Hunt or the noble and learned Lord, Lord Widgery, says that it is all right—and I am not saying anything my colleagues have not heard before: always someone or somebody has to be placated, some Minister or some trade union figure has to be kept in the "family", and so we do not make the decision. The results are policy paralysis; and this is a policy paralysis which produces abortions like the White Paper and the Bill.

Meanwhile, our people—the ones who call me "George" outside this House, who talk to me, who know me—are looking for leadership. They know that harsh payments are required for our past profligacy. An incomes policy cannot stand alone; it must, as the noble Baroness, Lady Wootton of Abinger, said, be fair; and to be fair, as Frank Chappell said the other day, it must be enforced. How the devil can a responsible trade union leader go to his conference and say, "We stay with it" when other unions with other leaders break through? This is why we introduced the 1966 Bill. Above all that, it must be set in a global plan. You cannot deal with a wages policy alone; you need a plan for growth which is what we tried to do in 1965. You need to make an allocation of national resources. You decide what you can afford for this, and for that, and what is left for this and what is left for that. That is the way they do it in Sweden; that is the way we tried to do it in 1965. If I may say so to some of my Johnny-Come-Lately Socialist colleagues—looking at no one in particular—this is the real Socialist philosophy, as against the phoney Socialist philosophy that some of them are currently preaching. As a Socialist, I believe in planning and allocating resources. That will not endear me to the noble and learned Lord opposite, but that does not worry me. I repeat that I have re-read all the papers I was authorised to re-read, re-reading the White Papers, Bills and the plans. We were on the right road until, with the assistance of the present Prime Minister after his return from Washington in 1966, the Treasury killed the idea.

So, having up to now made not a particularly constructive speech, but I hope one which needed to be made—at least I felt it did; and that is the case for this House providing a platform for a worker as against everybody else—may I in the last two minutes of my speech say something constructive. We need to return to learn the lessons of 10 years ago. Do it differently, if you will; but we need to return to a plan for national indicative planning with all taking part; the Government, the trade unions, the CBI, as it now is but was not then, the academics, and the regional councils—the only thing I left behind that the Conservatives did not destroy. Then we need to relate prices and incomes to what that plan forecasts as productivity. It is the only way, speaking dogmatically—although not wishing to do so, but because one is speaking shortly one must be dogmatic—hope and incentive can be given to those with ambitions.

It is ironic that current Ministers—I exempt the Prime Minister from this; he is just about as old a sinner as I am, and he knows the score just like I know it—no doubt regard themselves as more Socialist than I am, more avant garde than I am; but in fact, as a life-time Socialist, I venture the thought that whatever words they cloak it with, what the Secretary for Employment and his friends are doing is imposing wage restraint—the one thing we said we would never do—unrelated to anything that would make it have a meaning.

It has no relation to planning for prosperity, which was our case. The lack of courage, the lack of thought and the lack of policy is covered by the lavish use of ancient shibboleths and slogans. The self-declared and self-appointed Left, not for the first time in my lifetime in this Labour Party, which now spans 40 years, is the veritable Right. That Right does not frighten; it is our Right that covers itself with declarations of the Left which does.

I am bound to tell my colleagues on the Front Bench—it will not surprise them by now—that I believe that this approach will fail. The funds that are here, whether from the oil-producing countries or else where, may well be locked in. I tried not to ask questions of friends of mine that it would embarrass them to answer. But I think I am not too far away from knowing the situation. I think I know which ones could go out without disturbing the pound, and I think I know which ones are locked in because they did not get sterling guarantees. They may be locked in, but new ones will not come in as a result of this White Paper.

May I ask my noble friend who is standing-in for the noble Peer who is to wind up, whether the reserve powers Bill is, in fact, my old Part IV of the 1966 Bill? If he does not want to disclose this, could he at least tell me where he thinks it differs?

Baroness WOOTTON of ABINGER

My Lords, I wonder whether the noble Lord would allow me to remind him that he has now had four minutes since lie said he was going to have only two more.

Lord GEORGE-BROWN

My Lords, if the noble Baroness thinks that that is a great contribution to the debate, I am willing to let her have it. But I repeat the question: Is not the reserve powers Bill in fact my own Part IV? If I am nearly right—not wholly right, but nearly right may I ask the noble Lord to draw the attention of the Secretary of State for Employment to the fact that at least I introduced it while the Bill was going through the House. The Secretary of State for Employment and Mr. Cousins opposed it violently—but I gave them the chance to do it.

The oil bonanza may be later and may be less than the forecast. I welcome the appointment of the noble Lord, Lord Kearton—unlike the less than gracious Conservative Party reception yesterday. In so far as any man can dc it, he will. But I would remind the Government that in 1965, on the forecast of those who knew that nuclear energy would be here by now and would be so damned cheap, we shut 100 or more mines. It is not, neither now nor in the future. I warn the Government that we could find ourselves in the same situation with the oil bonanza. Meanwhile, we fall behind our Continental colleagues. This seems to be where I came in. But the urgency is greater, the margins are thinner, and, if I may say so, the willingness to lead from in front seems markedly less. I am scared and I am very pessimistic; otherwise, I would not have made this speech which gives me no pleasure. Yet Britain has the capacity and the potential.

We have always needed a Dunkirk. The question is: have we yet reached it? If we have, we can do it; if we have not, we will drift on a little while longer while this set of Ministers or another set of Ministers are waiting until Dunkirk has come. I believe it has come, and I happen to believe that our people outside—I will not be arrogant and say "my people"—are waiting for us to say that the "party is over" in the famous words of Mr. Crosland. The gate has gone down and now we do what we did in the 1966 Bill. We have a freeze for six months, and in the course of that period we will see how we get back into ordinary relations. I apologise for taking up so much of your Lordships' time.

5.34 p.m.

Lord HEWLETT

My Lords, it is not my intention to inflict myself upon this House for very long. I took a very full part in the deliberations on the Industry Bill and it is precisely for that reason that I feel compelled to speak this afternoon. Forgive me, my Lords, if I observe how few Peers who are directly connected with industry took part in the deliberations on the Industry Bill. This I found disappointing. But I might say that I reject the rather one-sided concept of the noble Lord, Lord George-Brown, on the idea of workers taking part in this debate, for, like him, I would claim to be a worker. I do not believe that all workers are necessarily those who operate on the shop floor. So many contributions are made in this House on the basis of wide experience, not always in industrial and economic affairs directly connected with industry.

In the North-West of England, in the chemical industry, I have adopted the adage of trying to be there first. By that I literally mean at the plant. The idea that the "gaffer" should be present at the enterprise before anyone else lends some support to the fact that he might be seriously interested in the profitability of the enterprise. I have found in this enterprise, and in others with which I am directly connected, that those on the shop floor are looking for a lead. I think they really appreciate the seriousness of the present situation. I agree with the noble Lord, Lord George-Brown, that they are prepared to put up with more severe sacrifices than the White Paper places upon them. I would say that industry could not be in much more difficulty than it is in now.

I do not wish to cause alarm or despondency in this House, but your Lordships can imagine our feelings when just across the road we have one of the largest dyestuff companies in the world. It is shut for the months of July and August, and rumour has it that perhaps it will be shut later in the year, too. This is no fault of free enterprise. This is part of the effect of the world-wide recession. But the impingement upon heavily capitalised industry in terms of cash flow, with an increased wage bill falling upon the less profitable enterprises at a time when exports are all the harder to achieve because of world trading conditions, is an extremely serious matter. The noble Baroness, Lady Wootton of Abinger, was quite right in what she said about dividend control. I think it is self-controlling at the present time, because there is not the margin of profitability or the degree of profitability in the short run, so far as British industry is concerned.

I will tell your Lordships what I think industry requires above all, and that is stability in an improved economic situation. But again the noble Lord, Lord George-Brown, is so right. We have to get the situation right first. Stability at this level or, worse still, deterioration from it, would be utterly disastrous. Therefore we need a return to an essential level of good housekeeping—and I certainly firmly believe in the old adage of the late Lord Randolph Churchill, "Trust the people". I am sure the people of the whole country would respond to dynamic, clear leadership. Alas, in the light of all our deliberations, even the £6 may now be too generous and perhaps a reduction should be placed upon it.

As for a complete pay freeze, I do not know that I can go along with the noble Lord, Lord George-Brown. The disastrous fact about pay freezes is that one day the sluice gate has to be opened, and almost always has the catastrophic effect of a flood of wage claims, many no doubt justifiable in the light of increased costs. In my view, some form of prices, wages and salaries control is essential. I go a long way with what was said by the noble Lord, Lord Byers. I believe that we are now faced with the inevitable consequence of having to bring in longer term control of wages and prices—the two are quite inescapable.

What is the duty of Government? So often, even in this House, we get our, selves completely hidebound with the amount of legislation pouring in. I should have thought that the main duty of Government is now what it always has been—to protect the citizen from attack from both without and within, to defend the law and uphold it, to preserve the value of money, to create conditions in which industry and agriculture can prosper, and finally, and by no means least important, to protect all those in society who are far less fortunate and need substantial help. I think that those conditions presume that those who are to make major decisions and contributions—whether they be on the shop floor, in management or elsewhere in the City—will, unless they live in the land of Utopia, require increased incentive and encouragement. This is not given in this White Paper and while I have to support the White Paper, because it represents something rather than just nothing, what worries me about it are the following points.

It takes no account of necessarily increased responsibility within an enterprise, or of increased risk-bearing. The only way to get better rewards, except for the £6, is to change jobs. So we are bound to have an increase in the mobility of people moving between jobs, provided that the state of the nation does not deteriorate or that trade does not get even worse than it is now. This is highly wasteful and gives no advantage either on the shop floor or in terms of management, except perhaps marginally in remuneration. It breaks up experienced work-crews and plant operatives. Training goes to the winds and often you lose middle management and, in some cases, upper management quite unnecessarily. I believe this is an inevitable effect of the White Paper's provision for a flat rate increase.

What I find very much worse is the fact that it completely collapses, and I really do not understand how workers in the trade union movement can for long go along with a totally flat rate increase principle, for this denies the very thing which I believe we should stand for; that is, that whether they be on the shop floor or in any other section of productive or service industry, people should be trying to improve themselves as well as trying to make a contribution, taking increased responsibility and being rewarded therefor.

I agree very much with the noble Lord, Lord Boyle, in terms of attending to the salary structure. It is all right to talk in terms of £8,500 and nothing above that, and of £6 below that, but we are not going to get an adequate return from employment in industry. In management in superior capacities, where heavy responsibility has to be taken, people will be tempted abroad where the returns are very much higher for commensurate responsibilities, and where the threat of prolonged restriction of remuneration, whether it be on the policy proposed by the noble Lord, Lord George-Brown, or in terms of the White Paper, is one of years and not just for a short time, or of "hold back" on senior management appointments, whether professional, commercial or industrial.

Certainly, the White Paper does not really deserve the title of a policy. It is not a policy. It is neither a pay policy nor an incomes policy. It is purely a stop-gap. It is purely a chance which I hope will be given to the Government to sort out their affairs and put forward a comprehensive policy, which must be fair. This element of fairness is far more important than has been realised. I swear that in the country you will get this degree of support which has been referred to, so long as the policy is seen to be fair. But there has been a suggestion that certain elements in the Civil Service are protected automatically, because they have an inbuilt system of increase and benefit, which will not be adversely affected. I would direct attention to the article written in the Economist in this connection. This sort of escape clause or escape hatch is a disaster, so far as getting the good will of the country is concerned.

I would say that it does not represent a policy at the moment; it does not even represent a stop-gap with justice. It is certainly rough justice. It is damned near rough injustice, I am afraid, as it impinges upon so many people in society today. Here is an opportunity, but, by jove!, judging by the first actions taken by Her Majesty's Government on the recommendations of the noble Lord, Lord Boyle, regarding Parliamentary salaries, we really cannot look for any great success. I am sorry that their policy did not demonstrate that the Government were behaving with fairness, efficiency or courage.

I think, with respect, they made a horrible mess of it. An impression has been given to the electorate at large that at least one House of Parliament is prepared to have one set of rules for itself, and different rules for the people in the country they purport to govern. I am not saying that MPs should have accepted £6 and nothing more, but I am saying that whenever that Report was received it should have been implemented, in whatever form that was to take, with the utmost possible speed, rather than be left sufficiently long for it to fall into the trap created by Her Majesty's Government only a month ago. It has created a bad impression in the country, and it there is a repetition of this type of behaviour it will not be believed that the Government are being serious in the matter. It looks as though this was some sort of a "front job", a bit of "kidology".

Any Government worth their salt must start with a policy and then go forward with a more rigorous and restrictive one until the situation is put to rights. I am afraid that in February 1974—and the noble Lord, Lord George-Brown, underlined this clearly—the country did not vote positively in any direction. No Party can be too proud of the electoral results that were obtained. But I suspect very strongly that the Government have found themselves where they are largely because the electorate felt they could not face all the upset of "confrontation", as they called it, with the miners' strike, no railways, restrictions on imports and many other things that would happen as a result of the industrial discord that was expected to result if the Government adhered to a strict policy.

Alas!, appeasement then paid no better than it pays at any other time. I am not entirely blaming the Government for the present state of affairs, but they have finished up with a very complicated situation which is far more painful and discouraging than we should have had if they had been prepared to face the issue to which my noble friend referred, without using the actual words, in his speech today. I think it is truly a question of: who governs Britain? I am not an anti trade unionist—and I wish your Lordships to believe me—hut I am most certainly an anti-extremist trade unionist, and I am against the kind of people who wish to wreck the very society which benefits them and which has been created over a thousand years of our history. I think we could do something to inihibt these people.

The time has come when the challenge of unofficial strikes, and so on, will have to be met with a united front which says that there cannot be payment for those who take part in unofficial and unapproved strikes, who go on snap walk-outs throughout industry, and so on. Immediately there will be a cry of "Hardship!" I accept that there will be some hardship and therefore money could he made available on loan, to be repaid by the unofficial striker when he goes back to work. Certainly, at the moment, we give encouragement to people to break away from such discipline as their own union is prepared to try to enforce democratically, and at their meetings.

I think we have to grasp this nettle, for I can see looming up in the immediate future just such upsets, when there are sections in industry who simply are not prepared to accept the £6 limit.

What should our attitude be? I think that the White Paper is not fair. We are not sure it will work: we are not even vouchsafed information about what will make it work if enforcement by the Government is necessary. I must say that I take a very poor view indeed of the fact that there has been no declaration of the contents—whether it be Part IV or anything else—of such legislation as may be necessary to enforce what is so far a voluntary pay code.

I will conclude by making two or three points in reply to noble Lords who have already spoken. The threat from the extreme Left is even more severe now than it has been in the past. The challenge which has been seen in constituency Parties so recently may multiply increasingly as it is felt that the present Government have not adhered to what they said was their policy in 1974. Again, I would say only this to the Government: You have the opportunity of completely uniting the country behind severe and just measures, but in exchange for that you will have to take out some of the extreme policies which are largely supported only by the Left Wing and are not given wholehearted support by the electorate as a whole. For, to pile Pelion upon Ossa, as the noble Lord, Lord George-Brown, has said, to add to the £6 a week all the other increased Government expenditure on the Community Land Bill, the Industry Bill and so on, simply shows that we are not serious in our attitude towards attempting to reduce the rate of inflation, or at least getting it down to manageable proportions.

The noble Lord the Lord Privy Seal said that we were twice as badly off, in terms of inflation, as some of our competitors. It is very much worse than that. The OECD figures show the United Kingdom now, in the 12 months to April 1975, at 22 per cent.; Italy at 20 per cent., Portugal at 17 per cent. together with Australia and Spain. Then we get down to the very low figures of Germany at only 6 per cent. and the United States at only 10 per cent. So the warning is far more severe than even most of our speeches today demonstrate.

The Social Contract was a failure, my Lords. I beg this House, do not let us burke the issue and say that it was pretty successful. It was not at all successful. That is why we are where we are. I am not one who rejoices in its lack of success, but I believe we should speak with candour and admit that it was a hopeful try but it did not come off. As for the wholehearted support of the trade union movement for the new policy, to which the noble Lord the Lord Privy Seal referred, it is not much of a wholehearted support when the TUC Economic Committee passed by only 19 to 13 votes the provisions outlined. Three votes the other way and it would have been a dead heat. I do not call that wholehearted support of the trade union movement.

As for the £6 a week not being taken as a minimum, I have to tell your Lordships that for industry it most certainly is. I have already been told that £6 is the very least—it is agreed they will probably not get more—that workers are going to demand. They reckon it is a kind of cost-of-living increase, something that comes up with the rations. It has, they feel, nothing to do with whether or not industry is profitable. It is what is expected it is the run of the mill. And in regard to credibility, I come back to the point about the electorate's trust. I will swear that if Her Majesty's Government said that, notwithstanding all the trouble from some of their extremist supporters, they would abandon the extremely costly Government programme—or not abandon it necessarily, but postpone it—set out in some of the Bills that are being crammed through your Lordships' House at the present time, they would carry a phenomenal degree of support, not only from the electorate but in both Houses of Parliament.

My Lords, the extremists in our society should be isolated by the good will of by far the majority of the people who would be prepared to support tough policies so long as they are fair—yes, my Lords, tougher and more immediate policies. Even if it meant tremendous sacrifice, I swear we should get the support of most people in this country. They would face the music now and go through with it. Whereas if the Government string it out with dribs and drabs, and it does not quite work out and it is necessary to have another shot at it, and then another, not just the people in this country but people abroad will doubt whether we have the ability to see our way through our problems.

So, my Lords, my feelings are that this is not a policy. It is not worthy of the name. It is a short-term stop-gap which, in the circumstances, it is the duty of all of us to support. I do it with very little relish for, like the noble Lord, Lord George-Brown, I do not think it has a chance of working, because ex-hypothesi it is too expensive to start with. But it represents a start and, in this case, something is better than nothing. But to be really successful, the Government must make very heavy sacrifices, and I shall look forward to hearing what they are later on in this debate.

5.53 p.m.

Lord FEATHER

My Lords, this White Paper is entitled The Attack on Inflation. It is not, "The cure of inflation". It is a move towards the achievement of that. But if the White Paper has friends of the nature of the noble Lord, Lord Hewlett, who has just spoken, then God save it from critics and enemies! It is dealing with the current situation. I should like to go along the lines of my noble friend Lord George-Brown, a great friend of mine. I, too, wish it were 1964 or 1966. I think a great number of people would like to return to 1964 and 1966 with the hindsight we now have, because then we should not get into the situation we are in. But we did not have that hindsight, and the starting point is here.

As the noble Lord the Lord Privy Seal said, the main enemy is inflation. It is inflation caused by the phenomenal increases in world prices, which developed quickly and inevitably into demands for improvements in incomes to meet the increases in the cost of living. We have now the result of the classical chicken and egg situation. No section of the community accepts a reduction in living standards except with the greatest reluctance. The result of startling price increases was quickly reflected in wage and salary demands to offset the effects of rising prices. This in turn has added fuel to inflation.

My noble friend Lord Shepherd said that most countries have been able to bring down their rate of inflation during the period in which prices in this country have continued to accelerate. Our prices are up 25 per cent. on a year ago, while those of our competitors are up nearer to 10 per cent., or less But when we say that our prices are 25 per cent. up on those of a year ago, that is the statistician's figure, the figure of the economist. It is not an even 25 per cent. increase. In some cases the goods we buy in the shops or the services we use and pay for are up by 50 per cent. or more, and many of these are services and goods which every household must have.

These essential costs have a greater impact on and cause greater hardship for those with low incomes: those with low wages or those whose pensions or superannuation is static or whose incomes are limited by reason of disability or other causes. If State pensioners had their incomes raised by 25 per cent., it would still leave them well behind in the struggle to maintain even a low living standard. So although it is true to say that inflation has reached a point of crisis affecting every family in the land, some families are more badly affected than others. As I have said, they are pensioners, people on disablement benefits or long-term sickness benefits. They are hit to a greater degree than anyone else.

There has been a heavy fall in the living standard of those on low incomes or fixed incomes. They have no margin, no fat, no cushion to take the shock of rising prices. They are living on the bare bones of subsistence level.

And unemployment is increasing and will continue to increase for many months; we all know that. Unemployment feeds on itself. It stokes its own appetite. Reduction in a family's capacity to buy the things they need results in decreased output, which discourages investment in new plant. This in turn leads to increased unit costs and lessens the opportunity to export—we all know the arguments. This in turn leads to cuts in imports of raw materials, and so the vicious spiral of unemployment, accompanied by lower living standards, continues to develop at an even faster rate. We think that, on the contrary, a reduction in the rate of inflation should lead to more investment and the creation of new jobs. Investment and improved productivity can result only from stable prices and an assurance of continued and sustained growth. The best salesman in the world cannot sell abroad if he cannot quote a price. Foreign firms are unlikely to expand their operations here or start new enterprises in the economic climate of this country with a minimum lending rate of 11 per cent. here, compared with a German bank rate of 4½ per cent. The target that has been set by the Government is to cut the year-on-year rise in prices to 10 per cent. by September 1976, and to single figures by the end of 1976. That is a hard target to set. Notwithstanding what has been said about the measures proposed in the White Paper stoking the fires of inflation, they will if they are analysed—in the sense that they are putting a brake on and introducing a measure of wages restraint compared with the terms of the social contract (that is to say, keeping wages in line with increases in the cost of living)—be seen to be capable of making a strong contribution; and there could be a reasonable expectation of the rate of inflation being cut to 10 per cent. by the autumn of 1976.

Although, as I have said this is a hard target to set, it should not be treated as an aim. It must be treated as the minimum target which must be achieved if we are to get to a situation which will enable this country and its main institutions to survive in their present form, for prices are as crucial in the present situation as wages. A price freeze is a simple thing to declare but both the Government and the TUC recognise that a complete price freeze is not a practical proposition at this stage. A price freeze now can throw a lot of people out of work and a price freeze which caused unemployment would be even worse than the pay restraint which is necessary to safeguard jobs and which is inherent in this White Paper. Unemployment has already topped the million mark and there are few who believe that it will not be higher than that this winter. The real figure for unemployment today—taking the registered total and those married women who do not register because they are covered by their husband's insurance and, therefore, are not entitled to unemployment benefit but are available for work, including those who are not on the register—is nearer to 1.5 million than the official figure of 1 million.

Nobody today under the age of 40—that is rather a shock to people like myself, when one realises it—has personal experience of the effects of mass unemployment. There was the low living standards and the insecurity of the years between the wars; the board of guardians, the unemployment assistance boards, the public assistance committee, the family means test, the poverty that lay like a heavy pall of grim misery over every industrial area, and particularly areas involved with heavy industries—those days can hardly be portrayed in realistic sand believeable terms to a post-War generation. The improvements in social security since then (so long as they can be maintained) will prevent a recurrence of the worst features of those grim days, but no maintenance of existing social security standards or those envisaged for April and November 1976, can match present day earnings despite what the noble Lord, Lord Byers, said. They cannot match present day earnings except in very low level wage cases. Even worse, with unemployment of that kind, nothing—no social security benefit, no amount of money—can offset the shock to the man or woman who finds that the security of a job has vanished; who finds that changing jobs is no longer an alternative to losing a job, and that the alternative to losing a job is a succession of rejected applications. The prospect of long-term unemployment to the individual man or woman brings a state of hopelessness that leads to frustration and bitterness and, what can be even worse, an ultimately apathetic acceptance of a desperately low morale.

I ask your Lordships to consider, in the light of technological development and the reduction of what might have been called the manual labour force at one time, how the new unemployment figure of mass unemployment would be constituted. The new unemployed would include, to an extent never known before, white collar non-manual workers, many of them (especially among the younger ones) with heavy mortgages, hire-purchase commitments and credit obligations which they can face only with difficulty even when the jobs are there. Their frustration and anger in the pursuit of an answer will lead to the rejection of what we know as the normal democratic procedures, and there are special problems about school-leavers. Unemployment on the early '30's scale could lead to threats to our democratic system which would imperil all the freedoms of which we in this country are so justly proud.

There are small groups of people today who chisel away at any hair-line cracks in the structure of democratic society and, consciously or unconsciously, their efforts could then lead to assaults by the "heavies" with their crowbars. The policy set up in the Government's White Paper, The Attack on Inflation, is well-known to all your Lorsdhips. No settlement can be reached which will give a pay rise of more than £6 a week during the year to 1st August 1976, and there will be no exceptions, no special cases, except for increases which are required in order to comply with legislation on equal pay. I comply with legslation to equal pay. The advantages of a maximum limit of £6 a week pay rise will mean that the relative value of such an increase will be the greatest for the low paid.

I am glad that the principle of a fiat-rate cash increase has been accepted. I well recall four or five years ago when the dustmen were asking for what seemed at that time a big increase—an increase of 20 per cent.—it meant an increase of £3 a week on their £15 a week basic rate. Members of the medical profession also had a wages application in at the same time for an even higher percentage increase, but as a kind of "doff of the hat" to the country's economic situation they, too, agreed to accept a 20 per cent. increase like the dustmen. The difference was that theirs was 20 per cent. on £4,000, an increase of £800 a year, or £16 a week. It was an increase which was greater than the total basic wage which the dustmen were seeking to improve, but it was the same; it was 20 per cent. With percentage settlements the lowest paid always lose, and if the £6 pay rise is achieved in full by the lower paid workers it is likely that this should provide some improvement in their real incomes, even after allowing for price increases which have yet to come.

The outline, and indeed much of the detail of these measures in the White Paper, was proposed to the Government by the General Councl of the TUC, a policy which was supported by a clear majority of the General Council—not the Economic Committee. As the noble Lord repeatedly said, it was, according to the Press (and that was my source, too), 19 votes to 13. That was not the Economic Committee; that Committee is an important body, but it is not as big as that. If you analyse the 19 to the 13 and, then consider the people who were away and who might have voted one way or the other, it is still a clear majority, and if the noble Lord, Lord Hewlett, had had a single majority, for example, I think he would have been delighted, too, and would have regarded it as a clear majority. So do not detract from the efforts of the General Council of the TUC in that respect.

I am confident that, at the forthcoming Congress in the first week of September, the General Council's policy will be supported decisively by the delegates of the 10 million trade unionists who will be there, and that will be overwhelming, too. The Mineworkers' Executive are balloting the whole of their membership with the recommendation that the membership should support the policy and, again, I have no doubt that there will be a decisive majority among the mineworkers in support of the Government and the TUC. But, obviously, a successful attack on inflation will hinge on the support which the unions, collectively and individually, give to this policy. However, it is not only a matter for the trade unions and the TUC. Public support is essential to ensure that the policy is complied with over the coming 12 months. I agree that the great majority of people want the policy to work. I think people are now more fully conscious than ever before of the dangers of inflation, not only to living standards but to the general quality of life in this country, including our democratic practices.

To put it mildly, I was disappointed that the Social Contract was not given a fair run by people who are generally in a position to influence public opinion. Many editorial writers did not look at the Social Contract in an objective way. If they had, and had used their considerable influence and their positions to en-courage adherence to the Social Contract, we might not be facing the difficulties that this nation faces now. Outside the trade union movement there was more cheering at the Social Contract than there was cheering for it. I am glad naturally to see that, in that respect and in respect of the White Paper which embodies much of the TUC's broader recommendations, there has been a much more objective examination and a broader acceptance of it or an acquiescence in its proposals, if not the enthusiastic support that one might have expected in this dire situation.

The task of the TUC is not going to be easy; if the General Council had chosen an easy path, it would have had no national merit. It would be too much to expect 100 per cent. support from every union affiliated to the TUC, because for many of the unions it would prove to be too tough a policy. The leadership in the different unions will need to fight hard to maintain the TUC policy embodied in the White Paper. The TUC statement has gone word for word into the annexe of the White Paper. The General Council are aware of the toughness of their policy, and will be campaigning among the membership of the different unions to get its acceptance and application, because they know the alternative of still higher prices and rising unemployment would be even more tough.

My Lords, the strategy of the TUC has been to try to make sure that those who have the most will sacrifice the most for the benefit of those who have the least. They recognise that a new policy is likely to produce some inequity. The White Paper also recognises that there could be inequity. That is why allowance is made in respect of wages council proposals and formal arbitration awards made before the White Paper was published, and due to be implemented after 1st September. There will be claims for special cases, but the danger is that once an argument is accepted for a special case, every other claim becomes a special case. The TUC has said it is determined not to open the door to let in a rush of special pleading of special cases.

The document issued by the TUC declares: The General Council therefore concludes that there should be a universal application of the figure of £6 per week. The TUC will oppose any settlement in excess of this figure. I see from reports that in the other place this statement was jeered by some Members on the Opposition Benches. It would make one think, if it were not unthinkable, that some Members on the Opposition Benches in the other place would prefer out of sheer blind prejudice, to put it no higher, that this policy should fail. But if this policy fails, there will be small comfort for even the most rabid members of other political Parties for I believe, and I am not alone in believing, that if this policy fails, dire consequences, not only for the economy but for our democratic system of society, will prevail. I do not want to travel too far along that line. I believe the policy will succeed. People who are concerned for the future of our society will reject the cynical approach. There is too much cynicism at the present moment. There is too much encouragement of disbelief; there is too much concentration on destructive criticism, and not enough acceptance of good intent. Cynicism and apathy are the enemy of all parties in our democracy. It is not only the future of this country that is at stake, but the whole present-day fabric of our democratic society. The livelihoods of hundreds of thousands of people are at stake. There is a threat to the millions who make up our society, and to a way of life which we all believe and know is preferable to alternative systems, whether social, economic or political, in other parts of the world. I am no Jingoist; I do not believe that patriotism is the last refuge of a scoundrel and is something to be despised. At present, the stakes are so high that we must make our judgments calmly and dispassionately. If that is done in relation to the White Paper, the policy outlined in the White Paper will be supported by well-intentioned men and women in all walks of life.

6.14 p.m.

Lord ROBBINS

My Lords, since we last debated the economic situation we have had a glimpse into the abyss. There was a Monday a few weeks ago when the official slogan still was "no panic". A day or two after that, a statement was issued showing the utmost apprehension. Now we have this document which is the subject of discussion today and of a Bill which we shall be discussing tomorrow. I accept the exhortation of the noble Lord, Lord Feather, in that I would wish to avoid cynicism in this respect. I would concede that what we have to discuss at least shows an awareness of danger and some willingness to cope. Moreover, it cannot be said too frequently that the period of intense danger has ceased, but if anything goes seriously wrong with the present policy, the alarm which gave rise to the statement and what has succeeded it might easily be reawakened. Therefore, even if one has very considerable reservations about this policy and its future—as, indeed, I have—it is desirable this evening to choose one's words very carefully and to say nothing to make things more difficult for the fine men at the Bank of England who are fighting against possible catastrophe for us and our children. Also, I would urge that nothing should be said to impair any possible solidarity among men of good will in grappling with the problems of the future, and discussing them with candour and some detachment.

My Lords, the chief feature of the White Paper is quite clearly the restraints on incomes. Whether you think this is a voluntary or statutory incomes or pay policy is a matter for argument, and so too, let us admit, are some of the proposed instruments for bringing about this policy. But beyond that the general principle involved has provoked some general discussion, alluded to in the distinguished speech of the noble Lord, Lord Boyle of Handsworth. I submit that that degree of generality deserves some attention. I will confess to your Lordships that I do not share the belief expressed in many speeches this evening from both sides of the House that a permanent statutory control of incomes and policy over the wide field of the economy has necessarily come to stay. I would exhort the noble Lord, Lord Boyle of Hands-worth, in the words of Mark Anthony to the Roman crowd, "Be patient till the last", for while I shall begin with a certain detachment, from his point of view he may feel at the beginning that there are still discussable questions between us to attract substantial grounds for a long period of scepticism.

Statutory control of incomes and prices in peacetime has never so far lasted for very long, and has seldom been successful it is apt to breed a sense of injustice and resentment. This process, at any rate in the past, has tended to be cumulative, and eventually there has come some sort of breakdown. Whether or not Mr. Jones's £6 maximum per week is enough, whether it is going to succeed or not, we can be quite sure that before the year is out it will have bred a whole crop of problems, and that the policy of re-entry, as the noble Lord who introduced the debate described it, will not be unattended by trouble. Thus, in general, I differ from my friends who argue that a permanent overall pay and prices policy is desirable. I would certainly urge—and here I hope I should gain support from some who disagree with what I have just said—that if a prices and incomes policy is used as an excuse for refraining from other measures it will simply be an ignis fatuus.

Having said that, I would urge that there are circumstances in which an overall incomes policy or pay policy is of use. If you are in a situation when attempts are in some way or other being made to curb inflation by reducing excess expenditure, and if at that moment there arise demands for increases of pay which are not justified by increased productivity, then the result certainly will be business failure, redundancies and unemployment. But if at such a time there is, for the time being at any rate, a measure of restraint in the increase of incomes, the resulting unemployment will not be so great. More people will be employed at the same level of expenditure. In my submission, this is just our position at the present day.

We are undergoing a process of inflation unprecedented in our peace-time history, and if it goes on at the present rate undoubtedly it will eventually tear our society apart, in the sense which has been indicated in the speech that preceded mine by the noble Lord, Lord Feather. And what is a much more immediate danger, it will destroy our international position and all that depends on that in the next five years or so. According to the Chancellor of the Exchequer, who, I confess, is not my favourite statistician, 5 per cent. of the national income is sustained by foreign creditors. So we really must do something about the inflation. We cannot allow it to continue on the present scale. We must curb the rate of increase of expenditure.

My Lords, let us face it, it is highly improbable that this can be done without some increase of unemployment. I do not believe that an inflation of this order of magnitude has ever been curbed in history without a considerable increase of unemployment. Unemployment is already a matter of concern. It is not yet 5 per cent., but 5 per cent. is a matter of concern. If at such a time there are demands for more pay of the order of magnitude of the demands we have seen granted during recent history, I see no escape whatever from a further increase in unemployment of formidable proportions. In some way or other, therefore, I conclude that restraint of pay claims is the only way of mitigating this very grave social evil. I do not see any avoiding this conclusion.

Those whose preoccupation is with the volume of unemployment rather than with the rate of inflation, which is perhaps a legitimate preoccupation although not one that I share, may say that we should not curb the rate of expenditure, we should spend more in order to mop up the unemployment that already exists. But if we spend more in the aggregate, if at this moment we reflate—which is the fashionable word—then the inflation will go on, and, apart from the deplorable internal consequences, we cannot prevent some withdrawal of foreign funds, we cannot prevent the cessation of the foreign lending on which a comparatively easy passage through our present difficulties depends. So I would say that the broad justification of the present policy of pay restraint is just this, that it prevents the rise in unemployment being as great as it otherwise would be, if adequate steps are taken to arrest inflation.

What steps are adequate? Here we enter a field where I think sensible discussion has been much befogged by quite unnecessary intrusion of technicality, and some blame, no doubt, attaches to academics for the diffusion of these misunderstandings. The noble Lord, Lord Boyle, delivered a forceful and interesting criticism of the ambiguous attitude which he described as "monetarism". I will come to his remarks on that matter in a moment. But to start with, let me state what surely will be agreed to be an unimpeachable platitude; namely, that inflation takes place when the volume of spending exceeds the volume of goods available or potentially available at constant prices. That is so simple there could be no dispute about it.

But I think it is equally true, although doubtless this is a controversial subject, that the excess of aggregate expenditure cannot long continue if the ultimate supply of purchasing power—notes and bank credit and so on—does not increase, or does not increase much, beyond the rate at which the volume of goods and services available at constant prices is increasing. All historical experience sustains that simple view. You can have periods, shortish periods, in which people will not spend at the usual rate, when they think that prices are going to fall. You can have periods when they spend at more than the usual rate because they think inflation is going to go on. But if the money supply does not increase more than commensurately with the volume of goods and services available at constant prices you will not get continuing inflation.

I think the confusion to which the noble Lord, Lord Boyle, was alluding has been aggravated by the discussion of causes and culprits. Some people have said that demands for extra pay cannot cause inflation if the money supply is looked after in a proper way. That is certainly said during the debates in the other place. And perhaps in a sense that is true. But in a world in which Governments have an eye on the volume of employment as well as on the price level, it is very easy indeed to see that if there are calls for excessive pay increases in some parts of the system then there will be a temptation to a compensatory increase in money supply to prevent the causation of unemployment.

I therefore think that it is highly paradoxical for my dear friend Milton Friedman to say that all inflation is caused by monetary influences, just like that. If that is what is meant by a repudiation of monetarism, I certainly would not call myself a monetarist, and certainly would not go nearly all the way with Professor Friedman in repudiating supplementing monetary policy with fiscal policy, or even—what would be much less popular in certain quarters—antimonopoly policy. But if monetarism means simply that inflation, however initiated, whoever the culprit, cannot go on if the rate of increase of money supply is held properly in check, then certainly I modestly admit to that degree of monetarism.

Descending from these abstract considerations, which I apologise for inflicting on your Lordships' House, to our present situation, it is true that the rate of increase of money, either M1 or M3, has been considerably reduced during the lifetime of the present Government compared with the excesses of an earlier period. But since this sort of thing operates only with a pretty long time lag, and the change in the rate of increase itself takes time to seep through, I opine that there is still a considerable amount of incipient inflation in the system. This is a case where the evil that men do lives after them. Whether or not it is possible to bring the rate down to 10 per cent. by this time next year is, to me, an open question. I do not believe that economic science provides any sure ground for confident prediction either way. There is a further cause for disquiet. One of the influences on money creation is the borrowing requirements of Government. Let me make myself clear on this, because in one distinguished speech the other day in your Lordships' House I thought there was a certain confusion—

Lord PEDDIE

My Lords, I intervene because the noble Lord is entitled to make himself clear. I am anxious to disentangle my thoughts from the web of confusion that his dissertation on monetarist and Keynesian theories has raised. I should like to ask him one simple question, which I thought he was going to answer. He began by placing some emphasis on unemployment, and I formed the impression that he meant that unemployement was a legitimate factor in dealing with the question of inflation. Does he support the concept that unemployment is a necessary feature in any general policy dealing with inflation?

Lord ROBBINS

My Lords, the noble Lord has completely misunderstood the drift of my remarks. I said that I thought that any attempt to curb aggregate expenditure would be accompanied by unemployment. But I regarded that as an unfortunate circumstance and I went on to recommend pay restraint in order that it might not take place, which is very different from brandishing unemployment as the main instrument for dealing with the problem of inflation.

May I return to my apprehensions? One of the influences on the rate of increase of money supply—because we are not talking about diminution; no one in his senses has talked about diminution in the absolute money stock; it is the second differential that one is talking about all the time—may be the borrowing requirement of Government. Government borrowing need not lead to inflation if the disposition to save is sufficiently strong. But frequently it is not strong enough, and the borrowing which is thought to be necessary is financed by the creation of money, and that creation is necessarily inflationary—at any rate, in circumstances like the present.

At the present time, our borrowing requirement, partly because of the effects of inflation itself, has increased out of all knowledge. Figures given by the Chancellor of the Exchequer in his Budget Statement were such as to make one's hair stand on end, and since that event I should guess that the borrowing requirement has risen even further. Therefore, the fear must arise in the minds of all reasonable people that unless we continue to get considerable help from abroad borrowing requirements of the present orders of magnitude must lead to the new creation of money, must lead to a renewal of the inflationary influences on that side. It is here that the White Paper, by itself, gives less reassurance than might have been hoped for. We are not told the targets as regards the rate of increase of M1 or M3. We are not told in the White Paper what the borrowing programme is likely to be. It is just here that those on whose good will we depend in the next few months, or even years, will be paying the most attention to the details of policy.

Let me hasten to say at once that I do not think that reduction of borrowing to meet expenditure is an easy policy at the present time. It is easy enough to talk of slashing cuts all round, and certainly some cuts will need to be slashing. I personally see no need, as I said the other day in another debate, for the prolongation of certain subsidies. But much expenditure has complex implications, and I can well understand the unwillingness at this juncture to give definite figures, quite apart from the politics of the matter.

There is one sphere, however, where attention is needed; namely, the sphere of nationalised industry. I can understand the need to support investment in some places in this area. Steel, for instance, is probably a case in point. But as regards overmanning, as regards excessive wage claims, action needs to be very definite and clear cut. Of course, the easy phrase "cash ceiling" conceals a multitude of administrative and, indeed, definitional duties. But on one point I am clear. Whatever our views about statutory control of pay through the economy as a whole, I can see no argument whatever for the absence of continuing control in the public sector. In the private sector it can be argued that it is up to the employer. If he concedes too much, he may go bankrupt, and that possibility may induce moderation at the bargaining table, but there is no such remedy in the public sector. The State is the employer and the State cannot go bankrupt in that sense, and the impression therefore is widespread that there is an endless stream of money available to meet any demands whatever.

I have no doubt that in this sphere, whatever Government are in power, there will be a need for a permanent incomes policy, and it is in just this sphere in the last few years under recent Governments, including the present one, that a clear policy has been lacking. I therefore very much hope that whatever our differences in the extremely difficult matters of control which we have to discuss tomorrow, we shall have no differences on this point. The Government must have a continuing pay policy over that sector of the economy which is under their direct control; otherwise whatever we do elsewhere we continue to be in a position of extreme danger

6.41 p.m.

Lord GORDON-WALKER

My Lords, one of the root causes of the economic problem facing us is that we have simultaneously both high unemployment and high inflation. According to the economics I was taught at university, this combination was impossible; one could not have simultaneously high unemployment and high inflation because unemployment cut purchasing power so much that it, in effect, brought about a depression and reduced inflation. The more doctrinaire monetarists—from whom of course I exclude the noble Lord, Lord Robbins, by his own definition and mine—still hanker after the simplicities of the past; they effectively and very often indirectly suggest that unemployment would still be the best cure for inflation. This seems to me wholly unacceptable.

Although, as my noble friend Lord Feather said, unemployment for each person involved is a great shock and evil, nevertheless if one looks at the problem as a whole today, redundancy payments, more generous benefits and the rest do prevent unemployment from decimating purchasing power as it used to. The degree of unemployment that would therefore be necessary to bring about a cure of or check on inflation would be intolerable in human and moral terms, but in modern conditions it seems that the policy would also be self-defeating, for instead of unemployment curing inflation as in the past, today inflation—and this is a truism—causes unemployment by pricing workers out of jobs.

That is why we have no choice but to attack inflation by other means and the only policy anyone can think of, myself included, for curing inflation accompanied by unemployment is some sort of prices and incomes policy. In the past, such policies, under all Governments of all Parties, have come to grief because, among other things, they provoked confrontation with the trade unions. I agree with the noble Lord, Lord Robbins; I do not think there has ever been a case of a prices and incomes policy in the full sense being successful for any length of time. It now seems that the Government in the White Paper have found a more hopeful policy that can avoid confrontation with the trade unions; namely, the measures, now well-known, to prevent employers, public, private and local authorities, from paying a wage increase above £6 a week.

My noble friend Lord George-Brown made a great deal of the fact that the £6 increase increases inflation. Of course it does; any increase in wages increases inflation, but the net effect must be compared with what inflation would otherwise have been if the £6 limit had not been effected. He was frank enough to draw the logical conclusion of his own remarks by saying that he favoured a wage freeze. The trouble with a wage freeze is that the "re-entry problem", as we now call it, becomes very difficult indeed; there is a great damming up of wage demands which will blow across the dam sooner or later. I noticed that my noble friend did not mention the aim of the White Paper, which is to reduce inflation to 10 per cent. within the year. If this can be achieved, then surely he, too, would agree that it would be a very great and worth while achievement.

For once the Government have had some luck in the timing of their policy, mainly owing to a fall in many commodity prices, to cash-flow problems in industry and, perhaps, to the Government check on money supply—although I agree that that takes some time to work its way through—and the rise in both incomes and prices shows some signs of being curbed. As the Price Commission has pointed out, considerable price increases and other charges are still working their way through the pipeline, but by the time they have worked their way through, the new policy will be in operation and, if it is effectively applied, it should go some way to counter these prospective price increases. Thereafter we must hope that the rate of inflation begins to be brought down to tolerable levels.

Everything will of course turn on the execution of the policy. I do not think it has been sufficiently emphasised so far in this debate that the White Paper shows that the Government have very considerable powers indeed for enforcing their policy. It may not be 100 per cent. right and all the rest, but they certainly have with their statutory and normal powers very great weapons with which to enforce any policy. The noble Lord, Lord Carrington, said that the policy should be tougher still. He may be right, for it is difficult to judge how tough a tough policy should be. Nevertheless, I think he will agree that the Government will in any case have to be very tough even with the policy here, because there are bound to be challenges, difficulties and anomalies as the policy begins to bite.

Like my noble friend Lord Feather, I would always prefer a flat increase. I like that because it helps the lower paid. However, we must admit that the narrowing of differentials is one of the most difficult, delicate and awkward of tasks to carry out, and this will be, as time goes by, one of the great difficulties facing the Government. Jealousies and all the difficulties that arise out of the narrowing of differentials will mount. The Government may have to face strikes. There is no way one can carry this policy through by simply giving oneself powers. People may still strike. One prays they will not, but one does not know, and I feel that an even greater test—this was mentioned by the noble Lord, Lord Robbins—will be the mounting pressure that will inevitably occur to reinflate to reduce unemployment. There will come a time, I hope not too long ahead, when that will be the right policy, but at the moment inflation must first be mastered. This is the first thing that must be done in order to create room in the economy for an expansion that does not simply increase the rate of inflation all over again. I agree with the noble Lord, Lord Robbins, that pressure for premature reflation must be withstood, and this will be another test of the readiness of the Government to show sufficient toughness.

But whatever Governments do, inflation is, in the last resort, a matter of people, of the attitudes of people, and the only real cure for inflation depends on a general recognition that the evils of inflation are the greatest economic evils facing us. One can cure inflation only if the people are more frightened of inflation than they are of anything else in the economic field. Broadly, this has been the case in Germany and it has been one of the major causes of that country's economic success. It seems to me that there are clearer signs that in Britain, too, the catastrophic and daunting rate of inflation has begun to dominate and alarm public sentiment, and this is what is really necessary.

One sign of this is the courageous stand of Mr. Jack Jones and other trade union leaders—and it takes great courage for leaders of this kind to adopt such a stand—and the considerable majority vote in the General Council of the TUC in favour of the Government's policy. There are many signs that the people at large have welcomed the Government's strong line. Therefore, I believe that the Government can brace themselves—as they will need to—to stand firm in executing their policy in the assurance that at last the people of Britain are with them in concentrating on the prior task of mastering inflation.

6.51 p.m.

Lord WIGG

My Lords, I was very much interested in the statement by the noble Lord, Lord Gordon-Walker, that when he studied economics he was taught that inflation and unemployment were incompatible. The theory was that if one had high unemployment that, in itself, would be a cure for inflation. Could the noble Lord follow that thinking through and ask whether it was true when he was a young man learning economics and why, if it was true then, it is not true today? I suggest that there is a very good reason.

When the noble Lord was a young man in the Thirties, the income of the worker and his wife was to be measured in the wage packet he received at the end of the week. Today, that is no longer true. Our capitalist society has found a technique of printing money which is paralleled by what happens on television and in the media. I shall come to that in a moment. I carry in my pocket a little book which is full of tickets, none of which I asked for. They include a Barclay Card and a Harrods Card and all sorts of other cards. Every one is a passport to almost unlimited credit. As a result, the worker and his wife live in a society in which their wants are constantly stimulated. They are stimulated as against their next-door neighbour and as against the other sex. They can satisfy those wants without money. The only question—and I am astonished that economists have not turned their minds to this—is at what point in our society this very thin ice will begin to break. Clearly it must break at some time.

Let us examine this young man and young woman. They start off. He has a job and she has a job. They buy a home on the never-never. They furnish it on the never-never. He must have a car to get to work and, because of the breakdown of the transport system, she must have a car. They must have a colour television. They must have a radio in every room. Their clothes are bought on tick. They go on holiday on tick. If they have a garden, they must have a power mower and of course when they have a family all those wants which exist with them and with their neighbours are perpetuated in their children. This is one of the weaknesses of the monetarist theory.

Lord ROBBINS

My Lords, although I feel that the noble Lord's reproaches may apply to economists still practising in this country, a good deal of attention has been given to this problem in the United States.

Lord WIGG

My Lords, I was coming to the United States. I am not an original thinker. I got on to this only by seeing what has happened in other countries. Of course inflation is inherent in capitalism. In the United States, they have followed this policy through with extreme aggressiveness. When one turns on any American television or radio programme, one finds they are creating a need for something, stimulating a desire for something or seeking to satisfy that need and desire. If one examines the advertising side of our television, what does it advertise? Does it stimulate or educate public opinion into the need for mechanisation of the mines? Does it encourage people to withhold expenditure in order to provide the capital for the development of oilfield resources, or encourage the restriction of spending in order to build new power stations or new roads? Not at all; it follows a well-defined pattern. Something to eat, something to drink, something to make one smell nice, something for the cat, something for the dog, somewhere to go for the holidays—these are the things it promotes. In other words, one has built into the pattern of an advanced capitalist system aggressive selling which is wholly linked with consumption, and never with conservation.

That is the measure of our problem. In some way or other, we must curb this. I agree with the noble Baroness, Lady Wootton, that what we need is an incomes policy. Let people earn what they can where they can, but take the mickey out of them financially when they come to express their needs. In other words, there needs to be a greatly increased financial brake on the spending of money rather than on the earning of money. It is perfectly true that the Government's White Paper is, as was said by the noble Lord, Lord Hewlett, a stopgap. I find that an unkind remark because it is something more than that; but the situation is rather like a fire or, indeed, several fires. When one sends for the fire brigade one does not say that one has sent for it as a stop-gap. Our economy caught fire and brought the Chancellor to the House of Commons on 1st July. The question I should like to ask any noble Lord who cares to interrupt me is why that Statement was not made on 1st June? What happened between 1st June and 1st July? Of course there were two things. Being a kindly person, I will mention first the run on the pound. But why did that run on the pound occur? Noble Lords need go no further than the Library. They should turn up The Times for Thursday, 22nd May. M. Giscard d'Estaing had a press conference to celebrate the first anniversary of his accession to power. He forecast what would happen. He said that France would follow through a policy of monetary and economic union. He said that Britain and Italy were weak but that they would not worry about them. He said they would go back into the "snake" and that the franc had increased in value so that they would have to curb that increase.

One did not need to be an economist to know what would happen if M. Giscard d'Estaing, for reasons of French policy, intended to go back into the snake. The pound would sink in value and the franc would rise. The pound sank to its true economic value, given the rate of inflation in this country and in America, of 2.15 dollars. That caused Mr. Wilson to have an affliction of conscience. Mr. Wilson and the Press became very worried because of this Government's pro-Zionist policy. They jumped to the conclusion that because there was a run on the pound the Arabs would take fright and remove their balances out of London. So far as I can discover, not a single pound was moved by the Arabs. There was no movement at that time. If there had been a movement, our position would have been parlous, but I do not believe that there was any possibility of a move at that time. However, the Government became worried and from their point of view, in view of the policies they had adopted, there was every reason for them to be worried. Therefore, on the 1st July we had the Chancellor coming down and making his announcement, and we have had the White Paper. It has my 100 per cent. support because of its timing; there is no alternative at this moment to the White Paper. Something must be done to restore confidence in the minds of the creditors. Evidence must be given that one proposes to tackle the problem.

Here I pay my tribute to Mr. Jack Jones. I thought that the noble Lord, Lord George-Brown, was a little unfair when he compared himself to Jack Jones in terms which were slightly derogatory. Perhaps I might be forgiven for making the point that the fundamental difference between the two is that Mr. Jack Jones has the confidence and respect of the trade union movement, and deservedly so. He served his country well; he served the Labour Party well; he served democracy well by the courageous action he took.

I should now like to turn to what the noble Lord, Lord Feather, said. I entirely agree with him. One of the dangers of the situation is the cracks and strains that may appear in our democracy. When those come they will come for this reason. Consider what will happen if ever the British public form the view that Parliament—and I mean both the House of Commons and this House, the institution of Parliament, the instrument of discussion—is incapable, through lack of will, or understanding, or courage, or whatever cause, of taking hold of the problems which threaten the daily lives of ordinary people. If that happens, then the institution of which we are members, and of which we are glad to be members—the highest honour ever done me was when I was elected to another place—will be pulled up by the roots and looked at with very great care. Therein lies the threat. The threat lies in our lack of capacity, on the part of the Government and Opposition in both Houses, to understand and tackle the problems that face us.

I want to be as constructive as I can. I listened with great interest to the speech of the noble Lord, Lord Boyle of Handsworth. He again was very revealing in something that he said. He said that he thought the time had come, on the issue of the mixed economy, when Members of the Government, members of the Labour Party, should stand up and speak up and explain their position in respect of the private sector. I agree. If we are to have a mixed economy it is a matter of debate as to where the line should be drawn, and the private sector cannot flourish, cannot find the investment—indeed, in the long run it cannot function—unless it has the goal of a sufficiently large, worth while objective of profit. There is no argument against profit, because it is a test of efficiency, and I accept that without question. I am astonished that the noble Lord, Lord Boyle of Handsworth, did not quite appear to understand what he was saying; but if it is the duty of those who call themselves Socialists to examine their position vis-à-vis private enterprise, equally it is the duty of those who sit on the opposite side of the House to ask themselves what is their position in relation to the nationalised industries, because one of the things which has bedevilled this country since the end of the last war is the constant sniping—often malicious, almost always ill-informed—that has come to the nationalised industries from the other side of the House—

The Earl of GOWRIE

My Lords, if the noble Lord would be so kind as to allow me to intervene for a moment, I should like to ask him in this context about the money which the last Conservative Government put into the mining industry?

Lord WIGG

Really, my Lords. I have a higher opinion of the noble Earl who has just spoken than is warranted by his question. Like a child he asked: "What about the tuppence which was given?" Well, my Lords, what about it? I am going right back to 1945. I remember what was then handed out to my noble friend Lord Shinwell when he tackled the problems of the mines, of electricity, of gas and of steel—industries which have been milked to the last drop—not to mention the railways and its bag of physical assets. These were industries which were taken into control because private enterprise could provide neither the skills nor the capital. Yet now they turn around and ask: "What about the money that the Conservatives gave last time?" What the heck has that to do with it?

The fact is that the Conservative Government did not accept—and the backwoodsmen on those Benches still do not accept—the principle of public ownership. The truth of it is—if anyone wants to interrupt please do not mutter but get up on your hind legs.

Baroness WARD of NORTH TYNESIDE

I said, how ridiculous!

Lord WIGG

That is all right; it is perfectly in common with the noble Baroness's usual utterances. The fact is that the Conservative Party has not accepted public ownership, and there are those on this side of the House who have not accepted private ownership. But the fact remains—and here I shall be dogmatic—that the overwhelming majority of our fellow citizens have accepted the need for a mixed economy. The point to be decided is: where should the line be drawn and what should be done? There are plenty of examples of mixed economies in all kinds of society, but in my submission it is essential that the public sector should be dominant, because that is what makes me a Socialist, and I believe that the public interest should prevail over private profit.

Having put that forward I shall now put forward one more point and then sit down. In America, there is the same situation as there is here. There is a great move for aggressive salesmanship and they, too, have a built-in inflation. But they have found a correction. For the same reason that the Conservative Party is antagonistic to the idea of public ownership, equally it rejects the idea of collective bargaining. To my mind, there are three stages. First, there are the negotiations which go on as between groups of workers on the factory floor; then, at some stage or other, there must be an instrument for conciliation; and, finally, there is arbitration.

Is it not very odd that in capitalist America they have succeeded in having a built-in very high rate of inflation while at the same time being able to curb it because they have a specialised approach to the principle of collective bargaining? Therefore, right across the board, negotiation, conciliation and, ultimately, compulsory arbitration are built into their system and that is what makes it work. But here, primarily because of the attitude of the Conservative Party and their acolytes, there is this built-in objection, first to public ownership and, secondly, to collective bargaining. If we want to get a partnership between employers and employees, between employers' organisations and the trade unions, and ultimately involving the Government in so far as public money is concerned, we must find an instrument with which to do that. Here, again, I pay my tribute to Jack Jones.

I believe that Part II of the Protection of Employment Bill, which will come to this House next week is, in the setting up of ACAS, a step in the right direction. But we are a long way from reaping the fruits; that is because we have been slow in planting the seed. But what we must not do is to keep pulling up the small plant by the roots to see whether it is growing. We are paying for the mistakes of past follies. What I cannot stand is to listen to the noble Lords, Lord George-Brown and Lord Hewlett, prattling on about what happened over the past 10 or 11 years, without remembering all the facts.

I ask the noble Lord, Lord Hewlett—he can interrupt me in a moment if he wishes—what did the Labour Government inherit in 1964, with a majority of five? They inherited a deficit of £800 million. But even more staggering than that was the deficit for 1964, which was running at the rate of £1,000 million. What was the legacy that that lot left behind in 1974? They left a deficit of £4,400 million. The noble Lord, Lord Hewlett, talks as if when Mr. Wilson arrived at Downing Street in 1964 and 1974 he had a clean doorstep. Of course he had not. He was left a legacy that would daunt any man. To his credit, and to the credit of the Labour Party and the trade union movement, they did not run away. They tried to tackle it.

Lord HEWLETT

My Lords, if I may intervene in respect of the 1964 and the legacy of £800 million, more than 50 per cent. of it was investment abroad on which earnings for this country were, and have been since, yielded. In respect of quite a considerable proportion of the balance, it was buying ahead for fear of a Labour victory because it was known that there would be restrictions on imports.

Several noble Lords

Oh!

Lord HEWLETT

Your Lordships may laugh, but this is the fact. In regard to the Conservative Party—since there has been this bitter, virulent attack and from this side there has been no Party political attack in this debate—I must say, as a former chairman of the Executive of the Conservative Party who served for six years, that at no time at any Party conference was there a Motion moved or requested that there should be denationalisation of the main service industries. The only two that were ever discussed were road transport and steel. With the utmost respect to the noble Lord, Lord Wigg, I would ask him to be correct in his facts. There is a great deal of hitting out in all directions. A little accuracy as well as a lot of verbiage would be appreciated.

Lord WIGG

My Lords, I have been generous in letting the noble Lord interrupt me, and I am glad that he has done so for he has given his case away. He and his fellow industrialists in 1964, when the economy was coming under great strain, much preferred to invest abroad rather than in industry in this country. This is what Mr. Heath meant when he talked about the unacceptable face of capitalism, because it is people like Lord Hewlett who prefer private profit to the country's interest. That is the case against the Conservative Party.

Lord HEWLETT

My Lords—

Lord WIGG

Once is enough, my Lords. I have given way once. I am not hitting out in all directions, I am saying that I think the White Paper at this time is right. I think there are a number of things that need to be done. I think that all Parties must accept in toto the need and the consequences of a mixed economy. All Parties—and this applies particularly to the Conservative Party—must do more than pay lip service. They must accept, and see to it from their own personal interest that they accept, the principle of collective bargaining, because unless collective bargaining is accepted you cannot expect to get anything from the trade unions other than the response which becomes inevitable. May I offer to the noble Lord, Lord Beswick, my apologies that for a special reason I shall not be able to stay for the winding-up of this debate.

7.13 p.m.

Lord AUCKLAND

My Lords, one of the thing which a magistrate—and I am married to one—says to an habitual offender are words like: "This is your last chance. The next time, something very drastic will happen to you." I believe that in many ways the White Paper we are debating today is really the last chance for this country as a whole to get its economy in order. I am tempted to reply to some of the points made by the noble Lord, Lord Wigg, but I would say only that it is the easiest thing in the world to sling arrows at both public enterprise and private enterprise. I think that in his intervention my noble friend answered the points very well. I would say only that these chemical firms and other firms run by so-called capitalists—against which some of the Party opposite seem to have a peculiar kind of bias—are the lifeblood of the country. Firms such as the one which my noble friend runs, probably have better industrial relations than many. From all sides of the firm, from the board room to the shop floor, they contribute towards eradicating what the noble Lord, Lord Shepherd, in his opening speech rightly called the cancer of inflation.

My Lords, for all too long we have been soothing the aching tooth with oil of cloves and other emollients. But there comes a time—and those of your Lordships who suffer from toothache as I do from time to time will know this—when something more drastic has to be done. The pliers have to be applied and the tooth extracted. We are at this danger point now, or very near it. It is therefore essential that this White Paper works.

I have no wish, and I do not think any noble Lords have any wish, to be prophets of doom. Although one hears a great deal from all sides of the Press, not only from the so-called Tory Press, whatever that is these days, but from the Press which does not support this Party, words to this effect. These are not my words; they are not the words of any of your Lordships; they are the words of those who know something about industry, commerce and what inflation is all about. It is important to look at the future. We do not know for certain for how long these powers will have to be used; whether the £6 will always be the figure or whether it may have to be increased or decreased, but I believe that in many ways that is beside the point. What is necessary is for such people—whether or not we agree with all they say—as the noble Lord, Lord Feather, and others similar to him on the Trades Union Congress and leaders of industry or the CBI, to get together to discuss the next move.

We had a Question yesterday from my noble friend Lord Cottesloe about Hammersmith Hospital in which I happen to have a particular interest. I believe the reply from the Government was the right one, even though it brought cold comfort to one of our very best hospitals, particularly in regard to such vital operations as kidney grafting. If these proposals mean that this kind of operation has to be adversely affected for any length of time, it may well mean that able-bodied people who are able to work, will not be able to help their country out for a far longer time than is good for them or the country. I instance that as one relatively small but not unimportant point. Therefore we have to get our priorities right.

I believe that in the social services, and particularly our hospitals and the Health Service, it is essential that we keep the standards of building and improvements as high as we reasonably can. Similarly, mention has been made of the unemployment which faces school-leavers. This, I maintain, is one of the most distressing social problems at the present time, because one reads about hooliganism, truancy and other matters, and I think much of this is caused by the frustration which school-leavers have, and this is particularly true in the North of the country, through not being able to obtain jobs. This is something which the Government and all relevant parties ought to be discussing and will I hope discuss during this critical period.

I noted yesterday in one of the evening papers a recommendation to the Trades Union Congress about import controls. I have some sympathy with this particularly on commodities which one might almost call carrying coals to Newcastle—things like matches which we can manufacture perfectly well for ourselves, and of a good quality. Is it feasible during a time like this that we should have to import them from Poland and other countries? I am not against trading with Poland, because there is a lot we can learn from countries of this kind, whether or not we agree with their political outlook and other matters. But we have to have priorities here. I know there is the problem of retaliation, and that we cannot always get our exports into these countries; but this is something which I believe the chambers of commerce and the Departments of Trade and Industry should look at very carefully.

One of the problems is that we are importing a great many raw materials which, in these times, even if it means encroaching on the environment, we could extract for ourselves from places like Cornwall and North Wales, and thus save our import bill. These will not be popular measures, but the measures inherent in this White Paper, or any White Paper which any Government may produce at this time, will not be popular. These are important facts of life. This is contained in paragraph 37 of the White Paper which says: A big increase in import prices would impose on us a further reduction of our standard of living and it would then take longer for this policy to achieve our inflation target. There is sense in this, and this is surely something which, particularly following the Statement made in both Houses of Parliament yesterday regarding the textile and footwear industry, should be considered seriously.

I should like to refer briefly, on a rather more controversial note, to some of the legislation which is going through Parliament at this time. We have three or four major Bills to discuss which are highly controversial and, I believe, completely irrelevant to the problems which we face at the present time. I do not think it would be reasonable to expect the Government to drop these Bills completely; but there could be a lot more "give and take" than is going on at the present time regarding some of the Amendments which come from not only this side but other sides of the House. This would give a much better image to the general public of this country, and I leave the Government and those whose duty it is to consider these things, to bite on these facts.

The people who are to be hit particularly hard by these proposals are the white-collar workers, the junior clerks and others in the City of London, and elsewhere, who have to keep up appearances. I do not want to enter at this time in the Session, or even at this time of the evening, into the wage awards which have been made to certain parts of industry which have gone well beyond the Social Contract. At this time, as it has been mentioned before, that would be divisive and unhelpful. But the general public as a whole will draw their conclusions, perhaps not very favourably, unless something is done in a fair ratio when we come to the end of the problems which are brought out in this White Paper; and everybody hopes that these problems will be solved soon.

What is absolutely certain is that a rather childish row between the merits or otherwise of public or private ownership will not in itself help; but while we on these Benches have made our mistakes, there is no doubt whatever that the figures revealed from the newspapers, television and elsewhere have shown certain defects in private ownership. In conclusion, if the Government really want this White Paper to work—and I hope it will work—they must look carefully into the extreme measures which are contained in some of the Bills which are to come before this Parliament.

7.29 p.m.

Lord PEDDIE

My Lords, I regret that I did not have the opportunity of hearing several of the speeches made at the beginning of the debate. I apologise to my noble friend, and others who took part, for my absence. This was in a way due to circumstances that have sprung from the problems of inflation, because, having put down my name to speak during this debate, I have found myself since then, and today, spending many more hours than I originally anticipated on the question of increased Post Office charges.

When I arrived here and saw the list of speakers, 25, 26 or 27, I was again tempted to withdraw, particularly when I noticed one very strange thing. I am prompted to make this comment because of the point made by the noble Lord, Lord Auckland, who called for some expression of national unity, some demonstration from this side of the House, and the Government in particular, to indicate how we are all working together to deal with this problem of inflation. Out of a total of 25, 26 or 27 speakers there happen to be only four members of the Opposition taking part in this debate. I should have thought that the Opposition would be extremely concerned with the problems that confront the country today, that they would have spent some time expressing either criticism or, in the light of the comments made by the noble Lord, Lord Auckland, some support for the honest attempt on the part of the Government to deal with this problem. I am not the sort of man to indulge in recriminations or cast any doubts, but is my idea not correct that it is due to the fact that the Party opposite feels that it, too, must of necessity be somewhat restrained in expressing criticism of the action of this Government because of their contribution to the circumstances that have led up to the difficulties of today?

I spoke of not entering into the debate, but I was prompted so to do because of my very long experience—five or six years with a direct personal involvement—in operating the mechanism of the prices and incomes policy. Those were five or six extremely difficult years, a period when a considerable number of mistakes were made. As the noble Lord, Lord Feather, said, with hindsight we could, of course, have avoided those mistakes. But I say—and this is something which must be firmly borne in mind—that if we had retained the mechanism of the Prices and Incomes Board I am quite sure that both the Conservative Government that followed and the present Government would have had a steadily perfected instrument that would have enabled them to deal with this situation far more effectively than either Government have been able to do. But that was destroyed, not because of any careful assessment of the economic implications but largely because of personal decisions. I know the background to it, and it is indeed tragic. Political circumstances, even personal vendettas, intervened, and resulted in the series of circumstances for which this country has paid dearly.

Also in the light of my own personal experience and as one who on many occasions has criticised the actions of my own Party in government, I want to express firm support for the Government's proposals indicated in this White Paper. The proposals themselves are simple, and I believe that their stark simplicity is their greatest virtue. Over the years I have seen all kinds of complicated formulae presented by economists, more likely to bamboozle the public than to give any support, so I like the stark simplicity which enables people to understand clearly what it is all about.

I have already indicated that no Government can earn full marks for their attack on inflation and the steady erosion of our industrial efficiency that has gone on since the end of the last war. But say without any shadow of doubt that this Government have highlighted the problem. Even the sternest critic of this Government must agree that. The Government have in clear terms indicated to the general public the seriousness of the situation. It is not easy for a Government to do that. I believe, too, that they have demonstrated their faith in something which I think is absolutely essential for the successful operation of an incomes policy; that is, a high measure of voluntary participation. Without it an incomes policy cannot succeed. Over the short term and under conditions of extreme emergency it may be necessary, and indeed unavoidable, to introduce statutory compulsory policies. But if we are to have an incomes policy as part of the general strategy to deal with the economic situation, it must be based upon voluntary acceptance. I congratulate the TUC on their foresight, honesty and courage in giving support to proposals that run absolutely counter to the philosophy of the trade union movement and that is expressed in their acceptance of a flat rate of pay increase.

A number of contributory factors to inflation have been discussed during the course of the debate. First, there is the relationship between the production capacity of the nation and the demands that are made upon it in the form of consumption, private and public. That we all know. This country for a long period of time has been consuming more than it earned. That is the simple basis of inflation. Even more important than that is the psychological aspect which I want to mention. Inflation is self generating. Inflation can and indeed will if it continues, destroy the country, and yet there are many people who appear to be better off and really believe that they are better off. Indeed, certain classes of the community have built around themselves a protective wall where incomes are indexed (as pensions are), and members of powerful trade union organisations, quite regardless of the circumstances, feel that they can claim a certain measure of protection. How long that would last with roaring inflation, I do not know.

There are a great many people in the community who do not feel the strong personal urge to deal in a fundamental manner with this problem of inflation. Therefore, if the appearance of prosperity is maintained—and indeed it was maintained and encouraged when the Party opposite was in power—there is increased difficulty in introducing the necessary restraints. Let us face it, there is the suggestion that the flat rate carries a measure of inequity, and so it does. Several noble Lords have indicated the difficulties that arise with different classes of workers, particularly administrative workers, who receive the £6. It is inequitable because in terms of total income it is not so much. But while that is inequitable, what about the inequity of inflation? Without any shadow of doubt inequity is built into inflation and certain classes of the community suffer very badly indeed. I need not describe them because they have already been described.

There is no shortage of suggestions for dealing with the situation, and all I would say now is that there is no single solution and no magic wand. An incomes policy of the kind we are describing now must be but one facet of an overall policy to deal with the fundamental question of economic efficiency. Today, the demarcation between statutory and voluntary action is increasingly blurred. It is difficult to see where one ends and the other begins, and I believe that the present proposals steer a course between the statutory and the voluntary, with considerable emphasis being laid upon the voluntary. In that I believe our solution lies.

The noble Lord, Lord Hewlett, referred to differentials. This is an important point and one worthy of emphasis. One of the most difficult problems confronting us today, not only in this immediate crisis but in the future, is how to accelerate production. To do that is essential, but at the same time we must devise an equitable system of wage differentials. The present fragmented character of trade unions makes that much more difficult. What pleases me is the close and intimate participation of the trade union movement in these proposals which are being put forward by the Government, because that helps along the very necessary development of trade union organisation that will be able to achieve the sort of basis we need and without which we shall never get the kind of viable economy that we all seek to create.

I should like to conclude by emphasising the point I have already made, which is that the present proposals—which I applaud—must be recognised as being but one facet of a comprehensive policy for securing the development of the economy. Inflation is but a symptom of economic disorder or deficiency, and the more we recognise that the clearer we shall have in our minds the necessity for dealing with this fundamental problem of increasing the overall efficiency and productivity of this nation. It is only along that road that we shall find the ultimate solution to the problems, we are discussing today.

7.43 p.m.

Lord ALLEN of FALLOWFIELD

My Lords, it is not easy at this stage of the debate to avoid covering some ground which has already been covered by preceding speakers. I find it rather more difficult because I am suffering from a relaxed throat, but I hope that what I have to say may make some contribution to the value of this debate, not only in your Lordships' House but in the minds of the public generally. I should like to start by drawing your Lordships' attention to the concluding paragraphs of the White Paper, Nos. 47 and 48. If I may, I should like to quote paragraph No. 48, because I think it is so important. This is a plan to save our country. If we do not over the next 12 months achieve a drastic reduction in the present disastrous rate of inflation by the measures outlined in this document, the British people will be engulfed in a general economic catastrophe of incalculable proportions. If we do succeed, as we are resolved to do, we can turn with fresh energy and hope to tackle the fundamental problems which will still face us in constructing an economy in which high pay is earned by high output. All paragraphs in this White Paper are very important, so far as I am concerned, at this stage in our history; but I believe that paragraph is the real "guts" of the intention, the spirit and the word of the White Paper so far as the British public are concerned. I am sure they will understand this; and, may I say, as one who travels widely, that I have never encountered such a climate of opinion as exists today, which is collectively saying to those who are responsible, "For God's sake do something! This situation is uncontrollable."

No one in your Lordships' House or any responsible citizen of this nation can fail to grasp the importance of these words, or indeed to measure their significance against the backcloth of the enormity of the problems confronting the Government, the employers and, last but by no means least, the British trade union movement, now and in the immediate future. This Paper is concerned with 12 months, and rightly so. My concern and also, I am sure, that of many other people, is over the ongoing policies to be adopted after those 12 months and the cherished hopes that the objectives set out in this White Paper will become reality. But, if those responsible in industry, commerce and services generally fail to respond or to act quickly and in conformity, in my view there will be an explosion in the British economy. In that explosion, industrial peace will go. Jobs and job prospects will be a thing of the past, as we have understood them in the context of full or near-full employment in this country. The whole of the British economy and, indeed, the freedom of the labour market will be damaged, and perhaps damaged beyond repair. I think that is a solemn responsibility on the constituents who are responsible for this Paper, and it is certainly a responsibility on the British public.

To some of your Lordships it will be difficult to believe that the Government's plan will work, yet few honest people can offer a meaningful alternative which they believe to be absolutely reliable and acceptable. Here may I refer to what was said by my noble friend Lord Brown, although I know that he has now left the Chamber. He referred to the agonies which he went through in 1966—though I think he had some pleasures as well. I had the doubtful pleasure at times, as one of six other representatives of the TUC, to share those agonies; and sometimes I shared those pleasures. Listening to my noble friend, as I did today with more than a tinge of sadness, I was reminded of the saying that: It is easy to be right about yesterday and today, but never tomorrow. It makes no contribution towards the solving of the problems facing this country to malign representatives, whether of Government, of employers or of trade union movement. That makes litle contribution towards helping to solve our problems—Yes, even with hindsight. I was very sorry to hear malignment of that kind coming from that source. It was very noticeable that after the malignment and after the very, very, damaging analysis—if that is what it was—of the White Paper, little alternative, if any, was put forward as to what we should do if we do not follow the plan or the Government's White Paper.

It would be foolish to pretend that the problems facing Britain are not among the most serious confronted for many years. As so many other noble Lords have said before me, the twin evils of inflation and unemployment menace us, and most certainly our future, in a way that we cannot ignore. Because they exist in the manner in which they do maximum unity is called for in this House, in the House of Commons, in the Confederation of British Industry, in the Trades Union Congress, and among the public generally to help solve what is a crucial issue which concerns us not only for today but for tomorrow. How we deal with it today will determine how we are to live tomorrow.

I see this plan as both a challenge and an opportunity: a challenge to the whole nation to an acceptance of the need to bring down the unacceptably high rate of inflation, and an opportunity, possibly the last in a free society, to lay the foundation within the next 12 months for renewed economic growth and a move forward in living standards for the future. The question we should be asking ourselves today is, not will the Government's plan work, but how can we make it work? That is the challenge facing us at the present time. That applies to all of us. It would be wrong and a disservice to the society we aim to protect by our acceptance of the formula, whether it be a wage or a price target, if we merely pay lip-service to these policies in this House and outside, individually and collectively, and then leave them to the other fellow to carry out.

Let us have no illusion—I am sure there is none in this House—as to what is at stake. It is whether this nation can make the transition from a laggard, low growth, low productivity, high-unit cost and low-wage society to a purposeful and dynamic society principally geared to the needs of economic expansion and social justice. That is something we have not had in this country for a long time. I am absolutely convinced, given our present economic and social difficulties, that the framework of action enshrined in this White Paper and in particular the Annex to the White Paper is the only way in which we can pursue at this time—and I emphasise, at this time—an agreed counter-inflation programme with the consent of workpeople. This leads me to say to my colleagues in the wider trade union movement that we cannot be in favour of planning the use of the nation's resources and against planning in the sector which concerns us most. It would be misleading to expect that the problems of the economy can be solved without at the same time facing the total and lasting obligation upon the community as a whole to help play its part in creating a socially just and defensible society.

Here let me declare an interest. My experience as a trade union leader leads me to accept that our movement—too often the whipping boy of the commentator and the pundits, and on some occasions not without justification—is at its best when we are asked to react to something. That is why the wage target of £6 flat increase together with the price target are all themselves fundamentally part of that challenge. In other words, consent and persuasion is the essence of the plan we are considering at the present time.

We have had some experience of the other doctrines and we know what happened to those. I know from long and at times difficult experience, as one who has been round this course with about four different Governments, that there cannot be superimposed upon workpeople or employers uniform and rigid policies. Any attempt, even when driven to do so, inevitably creates injustices and the collapse of those policies. This, I hope, the Government will keep in mind when they are giving consideration, as one understands they are, to their reserve powers. Indeed, the paths of political and economic history are littered with the casualties of policies of this kind. I deduce from that that imposition, if this is what we are thinking about, is out. No Government in Britain can proceed in this society by imposition without running the risk of grave mass disobedience. No institutions by their acceptance or otherwise of this plan can operate in isolation of each other without their actions having repercussive effect on all.

I hope that we shall not be lulled into the false security of believing that the answer to the problems confronting this country is statutory imposition of wages. It cannot be left, if the thinking is in those terms, in the wages setting alone. First, the trade union movement will not allow it. Secondly, judged by previous experience, it would be a catastrophe. So the inability of Government alone to control the situation is, in my view, implicit in the nature of our society, in the nature of our industrial system, and in the nature of our wages system. The trade union side input in this plan is a practical programme of our seeking; and it was encouraging to some of us to hear noble Lords earlier say that this is a courageous attempt, as I believe it is, to deal with our current situation, an attempt that I confidently believe will have overwhelming majority support in this country.

Given this, two things must run together. The first is that the plan must be seen to be, and accepted—and I am sure it will be—by our movement as being, a natural and sensible thing to do between the Government and the movement; not something artificially drawn out solely by loyalty to a political Party. Moreover, it must be viable and sensible in its own right. I believe that the plan projected in the White Paper is that, and, however difficult it might be to explain to working people, it must be explained and accepted. I believe that the stakes are too high to allow opting out on a score of that kind. If there is any weakness in the fulfilment of this plan it is in how we shall present it to the people of this country.

I do not believe that any of the Administrations we have seen in recent years have been very adept in the presentation to the public of the problems confronting the public and—and here I return to the theme which I think has to be plugged both here and elsewhere in the country—unless there is unity between those people who pay lip-service to wanting to do the best thing for the country we cannot hope for this plan to succeed so far as the public generally are concerned.

Lord BROWN

My Lords, before the noble Lord sits down, I think he inadvertently attributed a range of remarks to me, Lord Brown, when he should have said, Lord George-Brown.

Lord ALLEN of FALLOWFIELD

My Lords, I intended no such thing. I should have said Lord George-Brown.

Lord BROWN

My Lords, I merely pointed that out for the record.

8.1 p.m.

Lord MILFORD

My Lords, we are in a very deep crisis indeed and it must definitely be solved. I emphasise the word "must" because I read today in the Press of the slanderous accusations of the Shadow Home Secretary, Ian Gilmour, that we on the Left in the Labour movement, the Communist Party among others, wish this crisis to intensify in order to create a state of chaos. We British people want to, and must, solve this crisis, among other things, to help the old age pensioners, the lower-paid workers, the wage earners and their families, and the British people generally who suffer most. When we do not agree that the present proposals will solve these things, and we put forward an alternative way out, the Shadow Home Secretary and others arrogantly denounce us as subversive.

Surely the right way to find a solution to a problem is to find out why it has arisen. The major reason acclaimed by the Press, the mass media, the Government and the Opposition is wages. Wages price us out of markets. We are deeper in this crisis than any other European capitalist country, yet in those countries wages are higher than they are in Britain. From this I cannot see how wages are the fundamental cause. We Socialists and Communists believe this is a crisis of capitalism, of world capitalism. It hits Britain hardest because ours is the weakest of the major capitalist economies.

Why are we so weak? That is one of the fundamental things that I think we must examine. Since we surrendered our Empire we have drained our capital into overseas investment, into countries we formerly ruled, to the neglect of British home industry. To protect our investments and interests abroad, we have spent thousands of millions of pounds on overseas military expenditure, and the noble Lord, Lord Carrington, was a chief among the people making this military expenditure. In the era of multinational companies there has been an acceleration of the drain of British capital from home. This drain on British capital, which should have been used in equipping and expanding British home industry, is a far more fundamental reason for our crisis than oil, wages, the working class, the trade unions, who are always blamed by every Government and Opposition, the Press and mass media, while employers, bankers, trusts, speculators, get off comparatively free. There is no mention of their nearly thirty years' strike of investment in this country: a strike more prolonged, hitting us harder than any strike of a section of the workers.

The Government White Paper (Cmnd. 5710) of 1971 admits that investment for each worker in Britain was less than one-half of France, Japan and America and well below Germany and Italy, and these figures have got worse for each year since 1971. So the question should be asked: Do the monopolies, the multinationals, put Britain first, or do they prefer to chase higher profits abroad? If we accept the present Government's solution of cutting purchasing power and public investment, are we not bound to have more industrial stagnation and higher unemployment? Apparently that is accepted. Why? Is it not on the question of capital investment that we have to do something quickly and drastically? The present situation is not new. Ten times in the last 25 years we have attempted an incomes policy, but every time it has failed. Surely after such failures we must try to find a new policy. This crisis is second in seriousness only to the two World Wars. Drastic steps leading to serious inroads to our present system have got to be taken.

I am not alone, the Communist Party is not alone, in putting forward the following points which have been raised, discussed and agreed to by many people in the Labour Party and the trade unions. First, I think prices have got to be frozen and food subsidies increased, not abolished. Secondly, the large monopolies, the banks and the financial institutions, must be nationalised to bring them under democratic State control. Free collective bargaining must be restored, the lower paid helped and pensions increased to stop stagnation and to extend the home market and expand industry. We should expand the economy to 6 per cent. of growth, block capital exports and direct them to home industries; tackle the balance of payments by cutting investments abroad, and we should sell £7,000 million British shareholdings abroad as we did in the two big crises of the first and second World Wars. Lastly, and I think very important, we should restore the cuts in education, the Health Service and housing. These national investments produce real wealth for the country and we are falling far behind the rest of Europe in our education, housing and health. How can we afford all this? First, we must expand our economy, bring back the capital from abroad and cut the arms bill.

Lord HAILSHAM of SAINT MARYLEBONE

Like Russia!

Lord MILFORD

My Lords, vast wealth is in British hands, abroad and here, but it is not being used in the interests of this country. I cannot agree with the White Paper because it puts forward wages as the main reason for inflation, and does not tackle what I regard as the main reasons. The one-sidedness of the White Paper is bound to lead to further frustration, to confrontation with the people who are most important in our economy.

8.10 p.m.

The Earl of LONGFORD

My Lords, it is a pleasure to follow my old friend the noble Lord, Lord Milford, although I cannot agree with a number of the propositions he put forward. Many years ago when I was Labour candidate for Oxford City, I remember I was helpful in securing the position of Labour candidate for South Oxfordshire for the noble Lord. When the General Election came along I faced the electorate as arranged, and met defeat at the hands of the noble and learned Lord. Lord Hailsham of Saint Marylebone. By that time, the noble Lord, Lord Milford, had joined the Communist Party—and I am not sure which of us had the more painful experience. But that takes us back a number of years. I shall speak briefly in favour of the White Paper. At this time of night, a Back-Bencher should try to confine himself to a general theme, but there is a topic which I shall touch on because I have mentioned it in the last two speeches I have made on the economy, and it is one to which I attach importance.

In my last two speeches on economic matters, I spoke about the need for personal sacrifice, beginning with those who are wealthiest and most comfortable. There I am sure the noble Lord, Lord Milford, will agree with me. I expressed the hope that those in the strongest position to make sacrifices would offer them. I said that one could hardly expect the trades unions as a whole to exhibit a shining unselfishness unless the rich people in this country—and there are still plenty of those, even in these difficult times—are prepared to give a lead in self-abnegation. I repeat that now. Mr. Len Murray, the General Secretary of the TUC, has struck the right note here. I understand him to have said that in certain circumsances he would accept a cut in salary; that is a good start. There was a rumour that the Cabinet would cut their salaries. There was quite a strong rumour that the right honourable gentlemen the Prime Minister and the Chancellor of the Exchequer were keen on the idea, but when it came to the point, they jibbed and did no more than hold their salaries where they were. In academic terms we could call it a "beta query plus result", but it was something. I cannot say as much for the other place. If I said what I thought about their performance with regard to their salaries, I should imperil the relationship between the two Houses; therefore I shall keep that to myself for the moment.

My Lords, when we heard the noble Lord, Lord Boyle of Handsworth, in his notable speech waxing lyrical about Parliaments, the thought of what they did to themselves at 2 o'clock in the morning passed through my mind, but that is not my main topic this evening. I want to deal with the attitude of the Government and try to extract still more firm indications from the Government about their attitude to the reserve powers. We have not heard much about them, considering that we have been at it for five or six hours, but I understand the noble and learned Lord, Lord Hailsham of Saint Marylebone, apparently will deal with them exhaustively.

Lord HAILSHAM of SAINT MARYLEBONE

Exhaustingly.

The Earl of LONGFORD

My Lords, I should not like to suggest that, but the noble and learned Lord will deal with the reserve powers as night falls. However, I must say this much in advance; in my view these reserve powers are absolutely necessary. The White Paper contained this crucial message and I apologise for reading it out. In paragraph 25 the White Paper says: The Government believe that the measures described above will be adequate to secure compliance with the policy by all employers. If however they find that the policy needs to be enforced by applying a legal power of compulsion they will not hesitate to do this. Paragraph 26 says: Legislation has therefore been prepared which, if applied in particular cases, would make it illegal for the employer to exceed the pay limit. The Government will ask Parliament to approve this legislation forthwith if the pay limit is endangered with resultant unfairness to the great majority of those who are prepared to observe it. This is blunt speaking, and I can only hope that my esteemed Leader will tell us that those words were firmly intended when they were written, and are intended just as firmly now. Without that message, without the possibility of those steps being taken, the White Paper would amount to very little in practice. It could be brushed aside; it could disappear into limbo like other attempts of this sort have been.

My Lords, we must all speak for ourselves. The noble Lord, Lord Allen of Fallowfield, spoke not only for himself, but for quite a section of the trades unions. He gave his view and therefore I must give mine. I repeat that I hope the noble Lord the Minister will be able to tell us there is no retreat from the passage in question. I do not think this is a completely redundant question. The Guardian carries this statement on its front page, under the heading "Back-up Bill on £6 limit goes into limbo": A combination of the bitter objections of Mr. Michael Foot and the convoluted legal arguments of the Government legislative body appear to have produced a mood of despair. A mood of despair has been produced by the prospects of devising a workable draft for the Bill. I hope that we shall be told by the Minister that this is quite untrue. If it is any kind of inspired leak then indeed the news is bad, but I hope that for once the Guardian has got it wrong.

My Lords, on Monday, in The Times, Mr. David Wood, their political editor, referred to what he called the second Bill and said: By the end of the week nobody had much faith that the Bill would ever see the light of day. He could mean that it would not see the light of day because it would not be necessary, but in the context I do not think that was his actual meaning. What he appeared to mean was that under various kinds of pressure the Government were losing their nerve in regard to this Bill. I daresay the view expressed by the noble Lord, Lord Allen, today has been among the pressures. Once again I appeal to the noble Lord, Lord Beswick, to tell us whether Mr. Wood, like the Guardian, is totally mistaken. That is essential. If we go away with this issue fudged we are not really backing a policy of any kind of significance.

I was relieved when we had this statement; it was a new statement of policy. Statements have been made before and then usually have been sabotaged by the other side. When the Labour Party were coming forward with a statement in the days of the last Wilson Government, it was the noble Lords who sabotaged it, and the same could have been said of the Conservatives in their turn. Here, at last, we have a firm statement about what is generally understood to be called the statutory policy, backed by the Leaders of all the Parties. Therefore, I was much relieved when this statement was issued, just as the noble Baroness said that she was full of joy. She is a more joyful person than I am, and relief is the strongest emotion I can feel in these difficult days. But I was delighted this should happen.

I was in favour of a statutory policy. Unfortunately, the noble Lord, Lord Allen of Fallowfield, has had to leave the Chamber. If he can state his view, I can state mine, and so I say that for many years I have been in favour of a statutory policy for wages and salaries, and appropriate Socialist measures to go with it. I remember in a debate in March I said that statutory controls, which I have favoured before now, and in certain circumstances would favour again, were not a practical possibility at the moment. I and a few other Members are nervous of saying something particularly in this area of discussion, which is counter-productive. We know that what is said by young or older Peers, or Peers on any side of the House, may or may not have the effect that they want it to have in the union movement. However, a point is reached when one can come out in the open and say what one believes, and one need not be too careful as to whether one is possibly irritating some so-called baron.

As a matter of fact, at the time I left the Labour Cabinet the issue had not really become very acute. It became very acute later when the Prime Minister and the right honourable lady Mrs. Castle produced their policy, which was one kind of statutory proposal. But, certainly, when I was still a member of the Cabinet, going back almost as long as the noble Lord, Lord George-Brown, went back this afternoon, I recall that at one point the majority of the Cabinet would appear to have been in favour of the policy. We must wait for the next instalment of Mr. Crossman's memoirs, if they are allowed to be published, to find out what everybody is supposed to have said at that time, and perhaps not quite accurately. There certainly was at one time a general opinion in favour of this policy. So do not let us suppose that this idea of a statutory wages policy is in some way opposed to Socialism, that there is some fundamental objection to it from the doctrinal point of view.

I was very much interested—and here I must be careful that I do not offend any rules of convention—by a speech made by Mr. Ian Mikardo, who has taken the lead, or took the lead last week, not for the first time, in criticising the Government's policy from the point of view of the extreme Left. I realise I shall be hauled up by the noble and learned Lord, Lord Hailsham, or some other purist, if I quote his actual words, but what he said, if I can put it into indirect speech, was that he did not believe in unregulated free wage bargaining; he never had done. He said it was nonsense to say that we could have a planned economy with an unplanned wages sector. He went on to argue that we cannot have a planned wages sector in an otherwise unplanned economy. But his conclusion was this, that his objection to what he called the "proposition" was not a moral one, but a tactical one. So it is certainly helpful to have removed any sort of moral aura from this question of free collective bargaining. It has been reduced, shall we say, to a tactical issue on which Socialists are as free as anybody else to make up their own minds.

But that is not to say, of course, that the total question of the right policy can be stripped of all moral aspects. There is always a moral duty on the Government, and in their own way on the leaders of the Opposition Parties, to suggest a policy in the best interests of the nation. From now whatever the future may hold, taking a broad view of the debates in this place and in another place. I think we can say that the leaders of the British people are agreed as to what ought to be done. Certainly, we in this House appear to be in that situation. We know what we ought to do. The White Paper with all its imperfections, which are inevitable in any human document, leaves no doubt about the course which ought to be taken. The question arises; have we the will, the courage and the moral stamina to do our manifest duty?

I said that I would confine myself to one issue, and I have largely done that. As I sit down today, I wish to urge that the prospects of a genuine attack on our British inflation could be better at this moment, now that reality has been faced, than for many years; but if we falter now I would say that the situation would be worse than at any tme since the war. If we fail this time, if having come up to the fence we just shy away, then I do not think anyone would have very much hope for us for a very long time to come. It is for the Government to point the way; that is their responsibility. It is for the rest of us to back them up manfully. I hope and believe that the Government will do their part, and I hope and believe that we in our various capacities, important or insignificant as they may be, will not be found wanting in ours.

8.24 p.m.

Lord GORE-BOOTH

My Lords, this has been a debate covered by a considerable degree of brilliance, brillance which at the beginning of today was almost too brilliant to be able to decipher. There was the brilliance academically of the noble Baroness, Lady Wootton of Abinger, there was the brilliance of the noble Lord, Lord Boyle, and so on. It has been a great experience to be exposed to this if one is a somewhat more humdrum character oneself. I somewhat deplore, I must say, the brilliance of the noble Lord, Lord Carrington. I felt that this debate was not perhaps one in which one quoted what one's opponents had said wrongly, because we have all said so much that was wrong. We are really trying to concentrate on what we do from now on, and this is really the point of the debate. We have also had an orthodox statement of the Communist gospel by my noble friend—I suppose I must call him my noble friend in view of where he sits—but he has not heard of the mixed economy; he thinks still that all multinational companies are in favour of everybody else and we get nothing out of them at all.

I have been somewhat less ambitious, and what I did in preparation for this debate was to read through reports of the debates in the other place, and also to read very carefully the White Paper. I must say that having done that I came to the view, absolutely clearly, that if there were any question of voting in this House I should vote wholeheartedly for the White Paper, without any question and without reserve. There are limitations; it is not a perfect Paper; I shall come in a moment to a few blemishes.

But I think it is a very remarkable achievement, if one looks at it not so much as a photograph, as a thing in itself, but as a document in the context of what has been going on in the country, what has been going on in the trade union movement, what has been going on in the Labour Party. That it should have been possible for this Government to put this Paper together in consultation with the trade unions and the CBI is a very remarkable step forward indeed. Obviously, it was greatly helped in the other place by the out of normal dimension contributions made on the one hand by Mr. Healey and on the other by Mr. Heath. I have felt that that was really the context in which we should be dealing with this Paper, not in a too absolute one, but in direct connection with the political situation as it now exists.

If your Lordships will bear with me, I will try to reinforce that conclusion by two very short extracts which I think bring this out very strikingly. One is paragraph 29, where the White Paper says: The Government…would like to be able to freeze prices but an immediate price freeze is simply not possible after nearly three years of strict price control without depressing investment and causing additional unemployment. Then in paragraph 39 there is a sentence: …increased investment whether public or private has to be paid for, and in a mixed economy the investment of the private sector has mainly to be paid for out of profits. Then it goes on to say that the present levels of profits are lower than before.

Those unexceptionable sentences might have been drafted by, for instance, my noble friend Lord Robbins, and none the worse for that. I think it is most remarkable and most laudable that sentiments of that kind should be contained in this White Paper in this context, and I think those are the things that should have been broadcast to the nation by the leader, instead of the great concentration—which, of course, is very important for the individual—on the £6. I believe that to be the perspective in which we are talking, and which, incidentally, has provoked some of the brilliant speeches to which I have referred.

If I may go on with the White Paper, I should also like, as I have done before in the case of another White Paper, to commend the language, which seems to me very good, in particular the insistence on talking about pay and not about wages. This is, I regret to say, an obsession which I have inflicted on your Lordships earlier. The whole purpose of this exercise is to produce some unity, and one of the things which is necessary is to get away from the cliché words which immediately conjure up the image of a class society, of which we are trying to get rid. There are other small blemishes. I think paragraph 2, which refers to the "under-utilisation" of productive capacity, contains the danger that it could mean the use of capacity we have, because it is there, and produces things which people no longer want. I put that in only as a warning, because this is sometimes a fallacy behind an employment policy. I should like to echo what the noble Lord, Lord Boyle of Hands-worth, said about the "Government supporting the trade unions in a particular initiative". Governments do not support: they endorse. The draftsmanship on that point should not have been so sloppy.

Looking back at the proceedings in another place, may I deal briefly with a few of the points on which there was the most dissension? The first was this problem of the statutory powers, about which the noble Earl, Lord Longford, spoke. In this in one respect I have considerable sympathy with the Government. The partial statement of possible statutory powers, which was one-sided in the White Paper, is a pity. In a situation like this the Government must clearly have thought this matter through, and realised that they could not make a statement about statutory powers unless they said something about control or discipline on pay. At this moment, in relation to the White Paper, this would have been a very unwise thing to do for the sake of the White Paper itself. This is what the late President Roosevelt used to call an "ify" situation. In the "ify" situation, the Government were wise not to take that one on, though the reassurance that there would be some kind of powers if the White Paper broke down was perhaps a salutory thing to have said.

On the matter of public expenditure there was again a great deal of uproar in another place. I think I can understand what the Government were doing, though no doubt the noble Lord, Lord Beswick, can illuminate this question a little further. At this stage we are seeing an increasingly tight control, and indeed a reduction, on public expenditure, in little episodes which have happened in your Lordships' House. Two days ago we lost an Embassy in Tananarive on the grounds of economy. Yesterday, improvements to the hospital at Hammersmith were announced as being dropped, again on the grounds of economy. I fear that this unhappy catalogue will have to go on, and that will show that there is a cutting of public expenditure. The crunch will come when the Government, if the position continues, have to cut down on things which come even nearer to the day-to-day lives of ordinary people. We see in these episodes evidence at least that the idea of reduction of expenditure is alive in the Government and is proceeding. Of course, we do not know how far the Government will go.

The weakest part of the White Paper lies in the direction of what is called so politely the "borrowing requirement". There has been a heresy circulated about this, particularly in the time of the previous Minister of Industry, to the effect that this really does not matter because it is merely a transfer of resources from one body to another. This arose in another place, and again, observing the point which the noble Earl carefully pointed out, I shall not quote the Prime Minister verbatim.

The Earl of LONGFORD

My Lords, one can quote a Minister verbatim.

Lord GORE-BOOTH

I thank the noble Lord very much. I am being very careful about the noble and learned Lord. Anyway, the point came out rather as a sideline, and the Prime Minister explained that in terms of resources the question of whether a company or the Government borrow money for oil development was immaterial. But he then added: I grant that the effect is not the same in respect of the public sector borrowing requirement. Surely this is a desperately important matter which the Government cannot go on shirking. If I ask one of your Lordships to lend me £1 (if one of your Lordships has £1) and you then need it back again and ask me to give it back, I do not say, "I have regrettably been unable to arrange a borrowing requirement in order to fulfil my obligations." I either say, "I can't afford it", or "I haven't got it". The disguise of the appalling debt situation under this narcotic expression "borrowing requirement" does the most immense harm, and is greatly susceptible of misunderstanding by the public of the danger which it causes.

We have had the figures quoted that we now have this borrowing requirement of something like £9 billion to £12½ billion, all of which will have to be serviced, in so far as it is borrowed by the Government from the public or abroad. I have been through this labour myself in the Civil Service of trying to collect the resources to pay interest on this sort of thing, and indeed to repay the capital. Quite apart from one's views about nationalisation or non-nationalisation, there must be a conscious check on this rake's progress, which we will have to pay for in a most agonising way in the years to come. I personally have a somewhat split view on nationalisation, but the Government will have to take seriously the pressure on them to hold up some of the intentions of nationalisation which have been put forward, simply on the grounds of the burden which unnecessary nationalisation will add to the tremendous burdens which this problem puts on us already.

Those are some of the things directly out of the White Paper. Might I just enumerate a few other points that will have to be discussed immediately following this debate? There is the matter of the presentation to the public, making it all intelligible, which Mr. Heath stressed in another place. We have not been successful in this so far, and on that I agree with the noble Earl who also drew our attention to this problem. There is the foreign impact of what we are doing, which has not been mentioned. One is glad to say—and I can say this on authentic information—that the White Paper had a most importantly good effect in the United States, which is perhaps the most important country in this con, text. I was also much impressed by various noble Lords speaking about, "Well, after this, what?" I do not think that any moment would be too early to start a "think tank" going on the subject of what this society will be like in a decade or further on, in the light of everything that has happened.

Finally, I would associate myself with the noble Earl, perhaps putting the point somewhat differently. It is all very well to say that inflation is the root of our troubles; and maybe up to a point, by technical operations, we can diminish it. But we shall not get it right unless we get the character of our people right. There has been a period in which we have had it too good, in which "couldn't care less" has been the fashion, whether in personal conduct or in putting together an automobile. We shall have to take a pull on ourselves, which this emergency may give us the right incentive to do. If we do that, I am sure that we have all the other competences to escape from the deeps with which this situation threatens us, and to assume our proper place in the world.

Baroness GAITSKELL

My Lords, before the noble Lord sits down, may I ask him a very short question? Am I right in thinking that he was comparing Government and State borrowing with a kind of domestic housekeeping borrowing? This over-simplification, which comes up time after time, seems to me absolutely misleading. It is not the same thing.

Lord GORE-BOOTH

My Lords, there is a similarity and a difference. I certainly think that the floating of a domestic loan creates an obligation on the Government, but it does not involve the transfer of large sums across foreign exchanges, so to that extent it is different. In any case, I feel that the absolute volume of Government borrowing remains important and the figure which it has now reached can only fill one with apprehension.

8.40 p.m.

Lord DAVIES of LEEK

My Lords, we have had a hard day's night, and lately it seems that it falls to me in debates to appease the House by saying that I will not speak for many minutes. Because your Lordships have heard so much philosophy and so many brilliant speeches, I will try to make a few constructive suggestions in perhaps ten minutes or so. I begin by apologising to the noble Lord, Lord Carrington, and the noble Lord, Lord Byers, for not being in my place when they were speaking. They will know that it is not my custom to leave debates in which I am taking part. I hope they will not think that it was a piece of Welsh grobian arrogance on my part; it was simply that, being the chairman of a committee, I had to attend an important meeting and consequently missed what I am sure were two very constructive speeches.

I have great pleasure in speaking following the noble Lord, Lord Gore-Booth, because I agree entirely with him that the use of language these days is of the utmost importance and, as he will be aware from reading the Good Book, first was the word—so semantics are important. The trouble with inflation is that it hides things, as my noble friend Lady Gaitskell pointed out. For example, a nation living at a time of inflation is a nation with a smoked salmon appetite trying to live on a soused herring income. This seems an inevitable occurrence and, as people try to meet their appetite, what is the result? This has been happening all along, perhaps since the discovery of hire-purchase. My old mother, way back in the hills of Wales, where some noble Lords may think we were savage, would never get anything till she could pay for it, and in those days it often took us a very long time to pay for something, even for some new apple trees. That philosophy of my old mother has disappeared and "Take it now and pay for it later" is the slogan. Consequently, throughout Western democracies—and this is happening now even in the Communist countries—there is a hidden factor: our economies are held together on pillows of cloud, like hire-purchase, and when they collapse the effect is felt on employment and on the economies of every country in the world. I could illustrate this in great detail, but as I have such a wise audience illustrations are on this occasion not needed.

Let us be frank in considering what is happening today. Let us admit that man is going adrift and technology is taking over. The motor car has certainly dominated man, who is a complete slave to his automobile, and he is getting like his ugly, crude, rude, ill-mannered piece of mechanism attached to a lump of steel that is driven by fumes and petrol. If you watch him in the streets you see him acting worse than the gorillas and baboons in the jungle, and I know what I am talking about because I have seen both in the jungle. To be honest, the baboons and gorillas act much more gently and kindly in the jungle than a group of British motorists in a traffic jam in London. Man is being battered into mediocrity by a society that is overwhelming him, a society which none of us seems completely to understand.

For example, we say, "We must cut down our imports." But what is the corollary? If a nation depends on exports, how can it cut down its imports? What is the matter with those who utter these slogans? How can one pay for what one imports if one does not export? The question is not one of handing over pound notes because they want something real; and that must be the first consideration of any economist. That is why the White Paper is important, and of course I support it. I agree with the noble Lord, Lord Peddie, when he said that the White Paper is full of simple things; but so are many of the world's answers. I am not a very good Christian, but most of the basic religions have simple rules and ethics of life. Everything would be made much easier if we applied those simple rules and ethics to our way of living. I am simply saying that sometimes it is not the grandiose plans and schemes but the simple things in life that provide the answers.

Let us not have too many promises. I do not want to turn this into a Party debate but, bless her heart! I recall the marvellous speech made by the Leader of the Opposition on television the other evening. I listened and watched and suddenly I heard her say, in effect, "No longer shall we have to pay rates, and mortgages will be pegged at 9½ per cent." It all sounded superb, and I sat back and asked myself, Who is going to pay for the teachers, the police, the parks, the firemen, the drains, the sewers and the roads?" Somewhere along the line somebody must pay for all these things, and I thought that the right honourable lady was doing what Shakespeare did—telling us how to throw perfume on the violet, how to smooth the ice or add another hue to the rainbow. That sort of thing in politics is finished. Somehow, we must get together and find constructive answers to the problems that now face us. I will try to illustrate briefly what I mean before I sit down, which will be much to the pleasure of the noble and learned Lord, Lord Hailsham of Saint Marylebone, who I see sitting in his place not exactly entranced by what I am saying and no doubt anxiously waiting for me to finish.

Lord HAILSHAM of SAINT MARYLEBONE

I am doing my best, my Lords.

Lord DAVIES of LEEK

My Lords, in the other place a suggestion was made about land. While I appreciate that landowners are worried, it is clear that on the question of land we have to do something. As an old follower and supporter of land values, if I may call myself such, as populations increase so the amount of land available to individuals grows less. Mankind must find an answer to this problem of urban land values. Incidentally in considering the question of land values, banks are involved; and ill respect of one of them one of the leaders on the Opposition Benches got his fingers burnt. He did not exactly burn them. I am not subgesting that he did anything wrong, but this goes to show how things can happen. I have a friend in this business, and he has had so many loans given out willy-nilly to speculators in land values that that too has helped in the inflationary situation which we have to meet. I will not develop this theme because 99 per cent. of your Lordships know what I am talking about probably better than I do.

Consider the issue of investment overseas. I wish I had time to develop this part of my speech. I can only hope that noble Lords will take what I say for granted without my giving chapter and verse, which I would give if time permitted. I have with me details of Leylands' investments overseas, in Australia, Spain and everywhere. Most of this information is not to be found in the Ryder Report, but it was fundamental to the Government when they had to take over and suffer great losses as a consequence. About a million jobs are at stake, and on 2nd April 1975 the Prime Minister told the Commons that something would have to be done about it. We have reached a pitch in the history of capitalism—I use the word "capitalism" not in a pejorative sense—when we must consider exactly where we are. I am anxious not to be dogmatic, but the Americans are in a bigger jam than we arc. They are not even able to pay their way in New York. I was in Chicago some years ago and found that the school teachers there had not been paid for six months. So let us not denigrate Britain too much. We keep knocking our country, but let us not overdo it.

The United States authorities had to rescue Penn Central Railways a few years ago. The railways there were collapsing like they are here. What can one expect if one allows juggernauts—there is one at Brent Cross now stopping the traffic, 50 tons of juggernaut holding everything up—to run through the beautiful villages of Britain? If we say the nation cannot do anything about it we must have gone crazy. There is no wealth but life, and we should balance all this against the horror that is now running wild on the roads of Britain. To revamp their railways the United States had to put large sums of money into them. The same happened in France. The French Government, faced with a railway company on the verge of collapse, had to put money into it. Renault, which was already nationalised, had to have money injected into it in 1971. We had to do it—and a Conservative Government concurred, and rightly so—when we put money into Rolls-Royce. It was a question of the nation honouring an important aero-engine contract and a liability in relation to Lockheed.

As big firms have grown, a new stage has been reached. It is no good talking about the old-fashioned enterprise—the old fish and chip shop and the cobbler's shop. We are out of that simple acquisitive society and into something which is dynamically mightier than anything that has existed before in history. It is mightier than Governments. What has happened? As big firms have grown bigger, a new stage has been reached in their relationship with the State. No Western Government can or will allow firms that are the main elements of their economy to be finished off by bankruptcy.

No matter whether the Conservatives, Labour or the Liberals are in power, we dare not do it. This stage of the relationship has been building up since the two world wars and its general consequence is an economic and political position which will be here for years, despite the talk of Socialism. We have entered into a system of State capitalism and we no longer have the pure acquisitive society that Tawney wrote about in his magnificent books. We have a system of society in which State capitalism is accepted and in which we try to prevent it being a rogue elephant.

I am sorry; I have gone a minute over my time, so I will take only one more point. I cannot understand the madness of our financial and industrial system neglecting British agriculture. We put millions of pounds into industry. Two million pounds is a fleabite. We are putting £2 million a day into British industry. I am not grumbling about that, but I am grumbling about the astounding fact that since the war we have expanded agriculture by 70 per cent., despite the loss of 50,000 acres for motorways and so on, despite the loss of thousands of men who have left the land. There has been a reduction of 60 per cent. in the labour force. We have achieved that expansion through the wisdom of the British farmer and of the British agricultural worker.

Lord SANDYS

My Lords, would the noble Lord accept that it is over 70,000 acres per annum and not 50,000 acres since the war that has been lost? It is an enormous figure.

Lord DAVIES of LEEK

My Lords, I am very grateful to the noble Lord for making that correction and for putting it upon the record. I am really grateful to him. It is an essential difference and it is one that shows even more the great efficiency of British agriculture. If we do this, this will be a way of saving money on the balance of payments.

Lord STRABOLGI

My noble friend should read the White Paper.

Lord DAVIES of LEEK

My Lords, my noble friend on the Front Bench thinks I am criticising the Labour Government. Why not? My noble friend keeps mentioning the White Paper, but all I am asking is why, in this crisis, we did not give the same priority to the production of more food at home. If we had, we could have saved £300 million or £400 million a year on the balance of payments. I hope that, when we are getting into this, we shall do something about British agriculture. I shall leave it at that point with one caveat. Noble Lords on both sides of the House are now pretending to themselves that they can do what they like about our economy. We are moving into equality of taxation, harmonisation of taxation, free movement of labour through Europe and currency agreements in the Common Market. In other words, never again can we tackle our crises ourselves. These points will have to be discussed in Brussels.

8.55 p.m.

The Earl of LYTTON

My Lords, the trouble with following the noble Lord, Lord Davies of Leek, is that he is like a bottle of champagne beside which I am like, as best, a half bottle of Guinness. I always enjoy his speeches. I have been impressed by the brilliance of this debate which was referred to by the noble Lord, Lord Gore-Booth. I was fascinated by the tour de force of the noble Lord, Lord George-Brown, though, realising how he dislikes anybody who agrees with him, I am happy to say that I only partly agreed. I was also among those who read—or skimmed through—the million and a quarter words uttered on this subject in another place the other day.

However, I want to quote from a speech which was not delivered in the other place but elsewhere, and which I thought was superior to any we have heard. It ran, in part, as follows: It is not a question today, in the crisis that Britain faces, of choosing between inflation and unemployment. Inflation is causing unemployment. We cannot have a little of one and less of the other. The more inflation we have, the more unemployment we have and, if we were to tolerate the rate of inflation reached in recent months, then no industry would be secure, no job safe. I comment that that is relatively new. Until recently we were being told that we could have a little more inflation and less unemployment. That statement is new. The speech went on to attribute the inflation principally to wage increases. To continue wage awards on the scale of recent months would be to cat the seed corn. Such an act would be crazy, even suicidal, with all that means for the future employment in industry. That speech was delivered by the Prime Minister at the annual meeting of the National Union of Mineworkers. It seems to me that, in delivering the speech on that occasion, the Prime Minister entered the lion's den, addressed a pride of miners assembled on an occasion when Oliver always turns up to ask for more, and exhorted them by every device he had to hold their hand and restrain themselves. The miners are surely the spearhead of what has been an inflationary cycle somewhat resembling the gamble of Wall Street which ended in 1929. Should that cycle continue, it will certainly produce our ruin.

It is that that the White Paper is principally about. Never mind whether it is called income or wages. It is a mass demand for increase of wages that is being picked on as the decisive inflationary factor in the past 12 months or so. That is what the White Paper is surely about. In order to achieve restraint in this matter, supported, if necessary, by statutory measures—that is, by the majesty of the law—the Prime Minister has done his utmost to secure a consensus. It seems to me that he has had a substantial measure of success in the very areas where his rivals the Conservatives failed, because Mr. Heath was defeated by the miners. It is lacking in humility to denounce the Socialist programme without admitting that fact, which is most important. Both Parties have been defeated by the miners—and when I say "defeated" it is not entirely a battle; it is, however, the failure to persuade certain sections of the community that by making themselves secure with exaggerated incomes they are damaging the rest of the people, particularly those not so well organised.

Quite early in his speech the Prime Minister refers to the Social Contract and virtually implies—indeed, he says so—that the Government have delivered what they undertook to do, and he implies that the trade unions have not. There is sometimes a tendency to imagine that the TUC has perpetrated and act of fraud. I am sure that this is not the case. It has done what so often happens in political life: it has overestimated its capacity to control others. That is what is wrong, and the Prime Minister implies what is obviously true, that the Social Contract so far has failed, not because the Government have failed in their pledge, but because the trade unions have been unable to deliver; and he is hoping for more.

Surely this emphasis on wages is one of the most difficult things that a Socialist Prime Minister can possibly do; it is all the more difficult when he is addressing miners rather than any other body. This has been done with a measure of success, we certainly hope, and the effort at consensus is necessary to overcome what we have experienced; namely, the flouting of Parliamentary decisions by powerful outside groups. It is useless to legislate if legislation is flouted. The attempt is to get a consensus with the TUC which represents, very imperfectly, labour, and the CBI which represents, even more imperfectly, management. I think that that trend is in the right direction, and there may be other bodies which should ultimately be brought in.

This development of consensus lacks one very important factor. There is no consensus in Parliament—and I agree with those who say that Parliament is the institution which must govern. These other bodies are adjuncts, necessary adjuncts, but ultimately it is Parliament which must rule, and the difficulty is that the Party which represents, as the noble Lord, Lord George-Brown, said, only 30 per cent. cannot, except by a convention, be said to represent the majority of the electorate.

During the course of the speech by the noble Lord, Lord Carrington, a very interesting question was asked by the noble Baroness, Lady Wootton of Abinger. When the noble Lord, Lord Carrington, was urging the Labour Party to stand on existing public sector industries without seeking to expand them, the noble Baroness asked him to say, in view of the sacrifice he was asking of the Labour Party, what sacrifice he would make in exchange. I was disappointed at the noble Lord's response. I thought he might have said that if the Labour Party made the sacrifice of standing on the public sector as it is—in other words the mixed economy without extending the mixture in either direction—the Conservatives would do their utmost to make the existing public sector thoroughly successful—which it is not at present—and that they would support the Labour Party in its policies. Is there no possibility that the noble and learned Lord, Lord Hailsham of Saint Marylebone, might say something more forthcoming in answer to the question from the noble Baroness, Lady Wootton of Abinger, which seems to me to be the missing link in this story?

We can get co-operation from the TUC and the CBI, but there is always this minority in Parliament pretending to be a majority. There is the weakness, and there it will break down. I should have thought that the time was ripe for a concensus in Parliament on a programme which everybody could support to get us out of the dreadful mess we are in.

9.5 p.m.

Lord DOUGLAS of BARLOCH

My Lords, there is no doubt that year after year of inflation has brought us to the brink of disaster, and what I welcome most of all in the White Paper, and in the Government's attitude, is the realisation of the urgency of the situation with which we are confronted. There is a great deal in the White Paper with which one must agree, but there are certain omissions which make one wonder what is the basis of the Government's policy. There is a great deal of emphasis—and indeed this is the kernel of it—upon wages and restraint of incomes for the purpose of reducing inflation.

But there is no mention of monetary policy, and I should remind your Lordships what are the facts of this matter. Between 1954 and 1970 there was an increase in the note and coin circulation of 100 per cent.; that is, an average of 5 per cent. per year. Between 1970 and March 1974 there was an increase of 40 per cent. in monetary circulation; an average of 10 per cent. a year. In the year from March 1974 to March 1975 there was an increase of 20 per cent.—the rate of 20 per cent. a year. This indicates an accelerating rate of inflation up to that time. Since then there has been, I think, some modification; but unless the monetary circulation can be brought to something near a stable level, inflation, as measured by increase in the price level, is bound to continue.

My Lords, I have mentioned the note circulation. I shall not trouble you with the figures for credit as measured by the indices M1 or M3. All I will say is that they showed a parallel increase, as anyone who is familiar with this matter would expect. It is essential that the currency be controlled and should not continue to increase at this terrific rate, because, if it does, at the end of the period of more or less standstill under the White Paper policy you will find that there is a pent-up amount of demand by money in circulation which will inevitably raise prices. Theoretically—and lots of people believe this—you can control prices only within very limited amounts and only for a very limited period; unless of course you are to abandon a free economy completely and are to regulate the whole of our economic affairs by the State. That is a proposition which is absolutely impossible and which would certainly precipitate disaster.

It is essential that the monetary circulation be controlled. Not only does it have an effect on the level of prices but it has a whole series of other ill-effects economically. It percolates through the economic structure at differing rates. It makes it impossible for businessmen to foresee the future and to control their undertakings accordingly. It makes it impossible for them to know what the rate of exchange will be and, consequently, it makes matters extremely difficult for exporters. It requires a larger and larger cash-flow in order to provide the raw materials and the wages which industry has to finance, and it raises the level at which money can be borrowed; because who is to lend money at 5 per cent. if the value of it at the end of a year has diminished by 10 per cent.? It is absolutely uneconomic. Therefore the effective rate of interest has to rise in order to compensate for the inflation. Unless these matters are dealt with, it is not possible for our economy to be brought to a stable and a productive level. Inflation does not necessarily increase production. It very often results in wasteful investments and wasteful expenditure which in the long run diminish production.

My Lords, it is assumed that wages can go up to the extent of £6 per week during the year which is ensuing. Do not let us forget that this country is not as rich as it was. So long as it has to pay £3,000 million, or something of that order, to get the oil which is necessary for its existence we are, to that extent, so much the poorer; and it is impossible for incomes generally to be increased in purchasing power as long as that continues. The hard fact of the matter is that somehow or other the real rate of wages measured in purchasing power will have to fall; and not only wages but many other incomes as well. Indeed, they are falling. This is the fact of the matter which is absolutely inescapable. I share to a certain extent the apprehension which was expressed by my noble friend Lord George-Brown as to whether the policy will bring about a reduction in the rate of inflation to the extent which is anticipated. If it is the fact, as is only too likely, that £6 is not a maximum reached only by a few people, but something which is reached generally throughout the economy, then the increase in money earnings will be of the order of 10 per cent. or 15 per cent. in a year. As I have already said, the effects of inflation are gradually working themselves out through the economy; costs of the other factors of production are increasing and will continue to increase. Therefore it will be very difficult indeed—I hope it can be done—to limit inflation to 10 per cent. by the end of the year. In any case, unless this policy is accompanied by a parallel control of the monetary circulation, we will still be faced with a formidable problem at the end of this year. We cannot afford to go on like this much longer because we are living upon borrowed money, and the people lending it will not go on doing so forever if they think that our economy is unsound.

9.16 p.m.

Lord KAHN

My Lords, in so far as my comments on the White Paper may be regarded as critical, they should not be regarded as detracting from my very warm welcome, which I share with many other noble Lords, of the Government's realisation of the perils which are facing this country. Here I should simply like to refer to paragraph 48, the concluding paragraph, of the White Paper: If we do not over the next 12 months achieve a drastic reduction in the present disastrous rate of inflation by the measures outlined in this document, the British people will be engulfed in a general economic catastrophe of incalculable proportions. These words indicate a miraculous cure of the blind.

I cannot refrain from commenting on the tragic loss of time before the conversion of the Government to a sensible state of mind. But the great thing is it has happened; and the Prime Minister and the Chancellor of the Exchequer are to be congratulated for repudiating the views put forward by the Labour Party at the two General Elections of 1974, just as Mr. Heath, and his Chancellor of the Exchequer and other members of his Cabinet, including several members of your Lordships' Opposition Front Bench, are to be congratulated for their similar honesty in admitting grevious error several years ago. Having mentioned Mr. Heath, I should indicate agreement with the views expressed by other noble Lords about his admirable contribution to the debate on the White Paper in another place on 22nd July. Having listened with admiration to so many speeches by the noble Lord, Lord Carrington, his speech this afternoon constituted not only a brilliant performance but also a stirring and moving one. I imagine all other noble Lords who heard him also found most inspiring the speech of my noble friend Lord Robbins.

Apart from all else, the White Paper is remarkable for the clarity and conciseness of its drafting. It stands out among White Papers as a good piece of English prose. The case is stated clearly, forcefully, in a downright manner and in terms of common sense. There is none of the usual jargon, and the usual ambiguities are avoided. There is no place for sectional cases. I should like to draw special attention to paragraphs 2, 4, 38 and 39. I have not time to quote from them but I should like to read, at the top of page 4, from paragraph 4— To try to cure inflation by deliberately creating mass unemployment would cause widespread misery, industrial strife and a total degeneration of our productive capacity. The only sensible course is to exercise pay restraint and reduce our domestic inflation without sacrificing our long-term economic goals. If I understood rightly, my noble friend Lord Robbins is in broad agreement with the view expressed in the passage which I have just quoted.

A ritual reference is made to monetary policy in paragraph 46. I could not reasonably ask for less than that. On monetary policy, my noble friend Lord Robbins and I do not see completely eye to eye, but with the passage of years we seem to come closer together; perhaps each of us moves towards the other. I felt that his observations on monetary policy this evening were conciliatory and broad-minded in tone—I mean to be not condescending but admiring—and those differences which remain between us are perhaps somewhat theological in character and better discussed in private than in your Lordships' House. As to jargon, my only criticism is on the reference to the public sector borrowing requirement in paragraph 43, and I will come back to that. Your Lordships are, of course, aware that the public sector borrowing requirement is the domestic borrowing requirement and not the overseas borrowing requirement of the country. I agree with my noble friend Lord Robbins that the public sector borrowing requirement has monetary implications. I would draw his attention to the fact that paragraph 43 appears earlier than paragraph 46 on monetary policy, and that the night is too far advanced for me to develop that aspect of the public sector borrowing requirement.

There are two passages in the White Paper which I find outstandingly welcome. Paragraph 3, on page 3, reads: The problem is not just one for the next year; the Government intend to maintain policies which, over a number of years, will control domestic inflation and prevent any resurgence of the present rates of price increase. And then paragraphs 25 and 26 on page 7: If however they"— the Government— find that the policy needs to be enforced by applying a legal power of compulsion they will not hesitate to do this. Legislation has therefore been prepared "— the state of preparedness of the legislation is not perhaps entirely clear— which … would make it illegal for the employer to exceed the pay limit. I have no doubt whatever that the socalled draft Bill will have to be introduced very soon, and I agree with the noble Lord, Lord Byers, and my noble friend Lord Boyle in regretting that it has not been published as a draft Bill.

Lord BROWN

My Lords, may I interrupt. I have not spoken yet, so I think the noble Lord must be referring to the noble Lord, Lord George-Brown.

A Noble Lord

The reference was to the noble Lord, Lord Boyle.

Lord KAHN

My Lords, I thought I had referred to my noble friend Lord Boyle, but if I made the wrong reference I must apologise.

Lord BROWN

It seems, my Lords, that my apologies are due to the noble Lord, Lord Kahn.

Lord KAHN

My Lords, I agree with my noble friend Lord Boyle that a permanent statutory incomes policy is probably necessary. In this context, I should like to draw the attention of my noble friend Lord Robbins, who expressed doubt about whether a permanent incomes policy had been successful in any country, to the outstanding success of the statutory policy in the Netherlands from the end of the Second World War until about 1967, if I remember correctly. It then collapsed as a result of the entry of the Liberal Party into the Coalition Government—a curious contrast with the Party line-up on this issue in our country.

Lord BYERS

My Lords—

Lord KAHN

But, my Lords, I entirely agree with my noble friend Lord Robbins that a statutory incomes policy must not be regarded as an excuse for avoiding other necessary measures of restraint. I should like to refer briefly to the danger to which many of your Lordships have referred, of relying on the statutory control of prices rather than of earnings. Here I agree with the noble Lord, Lord George-Brown. Perhaps the shortest and simplest method of dealing with the matter is to refer to paragraph 29 of the White Paper, which draws attention to the danger of depressing investment and causing additional unemployment. I would add, as a further factor, the undue compression of profit margins, thus causing unemployment not because of lack of demand but due to plants becoming so unprofitable that they are closed down. Very often, once closed down, a plant is never re-opened and the country has permanently lost part of its productive capacity. References have been made to the re-entry problem. The Chancellor of the Exchequer said in another place on 21st July that the discussions about this very serious problem would begin in good time. I would only mention the rather obvious point that it is going to prove a very difficult problem.

I turn now to one blemish which I feel the White Paper possesses. It seems to me to be unduly optimistic about the prospective degree of success in terms of a reduction in the rate of inflation. It is very dangerous to set up a target, unless there is a reasonable chance of its being either achieved or very nearly being achieved. Should the outcome fall far short of achievement, the whole policy rapidly becomes discredited, as we discovered so often in the years of the Labour Government from, I think, 1964 to 1966. The White Paper lays it down as a target that by September 1976 the cost of living will be only 10 per cent. above what it is expected to be in September 1975. It seems to me that by September 1975 we shall have done rather well if the current rate of increase—I am not talking about September 1975 compared with September 1974; I am talking about current rate expresed in annual terms, seasonaly adjusted; the rise in the cost of living over the three months July, August and September multiplied by four —in the cost of living has fallen to 16 per cent. per annum.

On the assumption of a linear fall in the rate of increase of the cost of living, the target requires that by September 1976 the current rate of increase in the cost of living will be down to 4 per cent. per annum. This of course is a ridiculous expectation, and clearly there is something wrong with my calculations. No doubt my error lies in assuming linearity. I cannot expect the noble Lord, Lord Beswick, to deal with this question in his reply, but I hope that the Government will take the earliest opportunity of indicating, in terms of a curve or the equivalent, how they expect the rate of inflation in terms of the current rate to behave during the period from September 1975 to December 1976, in order to justify their target.

With present rates of inflation, and with rates of inflation fluctuating as rapidly as they have been, the comparison of the cost of living in particular months with what it was 12 months previously is—I will not say meaningless—entirely useless. It may be a matter of historical interest but it is not of significance. I myself should have felt more happy if the White Paper had expressed as a target that by September 1976 the current running rate of increase in the cost of living was the equivalent of 10 per cent. per annum, not the cost of living in September 1976 compared with September 1975.

I come now to the attitude of the Chancellor of the Exchequer towards the problem of unemployment and public expenditure. On public expenditure, I can probably save time if I quote passages from his speech in another place on 21st July, at col. 67: I also warned in my Budget Statement that, looking beyond 1976–77, there would at best be only very restricted room for overall growth in public expenditure. Then: …as the Expenditure Committee pointed out in its Ninth Report last year, there are strong arguments against using public expenditure as a tool of demand management in the short term."—[Col. 68.] Then: We must ensure that in these critical years when keeping inflation under control will still be a high priority, we make sufficient resources available for exports and investment without denying the British people the prospect of some rise in their own real earnings."—[Col. 70.] The brutal fact is that our public expenditure, apart from productive investment of nationalised industries, has been engrossing too much of our productive resources. There has been too little left for improvement in the balance of trade and for improvement in productive investment. Our low rate of productive investment is largely responsible for our low rate of economic growth and the consequent low rate of increase in our standard of living. It is this which has led to discontent and to pressure for rapidly rising money wages, based on the mistaken belief that if money wages rise more rapidly the real wage will be higher than it would have been with a more moderate behaviour of money wages.

Members of your Lordships' House may take the view that, say, rebuilding the Hammersmith Hospital—about which a Question was asked in your Lordships' House yesterday afternoon—and such like, is more important than the equivalent in terms of real take-home pay. They may talk about a social wage of £1,000 a year a man (I think the figure is) as something to be added to the personal wage, but neither the leaders nor the members of the trade unions look at it like that. That is the blunt truth which has to be faced. The fallacy of the borrowing requirement is this: if, instead of talking about the importance of preventing public expenditure from increasing in real terms, we talk about the importance of reducing the borrowing requirement, that would be consistent with a rise in public expenditure accompanied by a bigger rise in tax revenue.

In another place recently the Chancellor of the Exchequer has referred to our very high marginal rates of tax. I believe this emphasis on the importance of reducing the borrowing requirement, as opposed to the importance of keeping public expenditure in check, is, and has been, responsible for our present high level of public expenditure and high rates of taxation. I am sorry to say this, but I really think that the error occurred when Sir Stafford Cripps, who succeded Dr. Hugh Dalton as Chancellor of the Exchequer in March or April 1948, no longer talked about the current account. In those days we did not talk about the public sector; but he no longer talked about the current account Exchequer surplus, and Dr. Dalton, in his autumn Budget of 1947, rightly drew attention to the very high level of the current account Budget surplus. But Sir Stafford Cripps introduced this fatal concept of the overall deficit, and I think that has been responsible for a great deal of error.

I will conclude by saying a word about Western Germany. In February a pay settlement covering 1 million engineering workers in the state of North Rhine Westphalia resulted in an agreement to a wage increase of only 6 to 8 per cent., the claim being for 11 per cent. Three days later, in the public service sector, there was a settlement covering 1½ million employees. A year earlier, in February 1974, in that sector a rise of 12½ per cent. had been settled after a three days' strike, whereas on this occasion, in February 1974, the agreed increase was 61 per cent. The leaders of the trade union concerned described this result as a triumph for reason. It is in that spirit that I think we need to deal with the problems of this country.

I entirely agree with the noble Lord, Lord Carrington, about the way in which the citizens of this country will rise to an action at the time of danger. But it is not sufficient merely for the members of trade unions to have the right attitude. I am sorry to have to conclude my speech by saying that it is also necessary for the trade union leaders to have the right attitude. Instead of thinking in terms of how much the standard of living will rise in the next 12 months, or about what will happen, they should think more about the rate of increase of the standard of living over the next 10 to 20 years. Failure to do this has resulted in our very low rate of growth, and in the fact that our standard of living has already been overtaken rapidly by a number of leading industrial companies in Western Europe and Scandinavia. Before long, we shall be in danger of being overtaken by the whole lot.

9.41 p.m.

Lord BROWN

My Lords. I unequivocally support the contents of the White Paper. I do not intend to talk a great deal about it. I shall not talk about the past or even the present, but I shall say something about the future. I believe the White Paper has given us a year, perhaps even two years, of breathing space, but what follows on the termination of the £6 wage freeze I believe is a matter of the most vital importance to this country. Currently, of the alternatives that might face us, the first is monetarism. With all due respect to the noble Lord, Lord Robbins, I do not believe for one moment that that is a solution. I always feel that, fundamentally, the attempt to control wages and other forms of inflation by reducing credit and the money supply must be wrong, because to try to cure inflation by reducing the flow of goods and services seems to me wrong in principle.

Lord ROBBINS

My Lords, with great respect to the noble Lord, it is not a question of reducing the money supply, but of reducing the rate of increase of the money supply.

Lord BROWN

My Lords, I would go along with the noble Lord, Lord Robbins, in saying that every Government must exercise some monetary discipline. Economists like Milton Friedman have advocated a cut in all sorts of expenditure, and have implied that an enormous rise in unemployment is a means of curing wage inflation—if the noble Lord is not of that school, I am glad to hear it. A second alternative would be a form of statutory imposition of wage levels. I do not believe this is acceptable to the workforce in this country, nor do I believe it is right, because such forms of statutory freeze tend to freeze differentials, to create feelings of gross unfairness, and are felt to be a form of imposition if imposed by the Government. What do we face if these two possible "runners" go out?

My Lords, briefly I want to suggest the form of what we will have to work out during the breathing space given by the White Paper. There are three ideas I would almost elevate to the level of principle—but I will not—which I believe must form the basis of any long-term solution to the problem of wage inflation. The first is that the differential pattern of wages is the key to the problem of wage inflation. It is a competition to achieve what is considered by one union to be a fair place in the pecking order of earnings. It is the motivation which makes them seek the large increases we have seen over the last three or four years. I believe it to be a fact that if any sustained change in the pattern of differentials is to be brought about, they must receive the support of wage and salary earners. If they do not, then as soon as one set of people achieves an increase, the rest jump on the bandwagon and re-create the status quo in terms of differentials.

That is one point. The second point which I think must be taken into account is the fact that employers, in terms of national wage negotiations, really have no part to play at all. They are in a powerless position today, and their general course of action in the face of the threat of a strike in support of a large wage increase is to give it and to pass on the results of that in terms of increased prices to the whole community. They have my sympathy; I have been an employer. It is very difficult to run the risk of bankruptcy merely in order to maintain that stand.

Underlying this position is the current fantasy in the minds of many people in this country that wage increases are won at the expense of shareholders or at the expense of profits. This may have been true in a small number of cases. It was probably very largely true in the distant past. It is no longer true. Increased wages are won at the expense of every other member of every trade union in the country and every citizen. As Harold Wilson is quoted so often as saying: One man's wage increase is another man's price increase". This is a competition between trade unions, and so long as employers are in the situation it can be made to appear as a competition between a single trade union and a single employer. So I think the employers must be got out of national wage bargaining.

The third point, perhaps the most important of all, is that if we have in our society, as we have today, a series of power groups, constituted by these very powerful trade unions, which have no place within the constitution of the country, then we have a very serious situation indeed. It was the genius of the nineteenth century politicians that they recognised this fact. After the Napoleonic Wars there were in this country new power groups of citizens who banded together and wielded power and yet had no place in the Constitution. At that time cities such as Manchester and Birmingham were entirely unrepresented in the House of Commons. The disruption in this country was wild and furious. It is on record that a third of the city of Bristol was razed to the ground in civil riots and commotion. The wisdom of politicians of that time, particularly the Liberal politicians, as they have been criticised, was to insist eventually on the passing of the Great Reform Act of 1832, which enfranchised those power groups.

The 19th century is studded with Reform Acts which extended the basis of government, by including an ever-increasing number of those emerging power groups within the Constitution. Indeed, this went on into the 20th century, when the women exhibited their power in ways that some of us recollect—my mother was a suffragette—and they, too, had the franchise extended to them. The point I am making is this. Whenever you have a power group in society which has not got some place in the Constitution whereby they can make their powerful presence felt through a vote in Parliament, then they will inevitably disrupt society.

Today our trade unions are power groups, and it is not a simple matter of extending the franchise to them, because as citizens they already have the vote. But in their occupational role they have not. I do not think anybody can, in principle, blame the trade unions for disrupting society, for they are powerful, and that is the only way in which they can support their effort and press their claims. This, I believe, will go on. We are in a situation today where the underlying imperative for everybody who earns a wage or salary in our society is to join some powerful group which can defend their place in the pecking order of differentials. We face an increasing number of these power groups at ever higher levels, if one can put it that way, fighting for their standards of living against all the other power groups, constituted by the other trade unions.

To give effect to these three points—these three quasi-principles, if you like—requires a radical leap, and I do not believe that there is a permanent solution in view unless we are prepared to take the big jump forward. This is very difficult for our society. We are prone to try to solve our problems by a series of very small adjustments. I do not believe that the problem we face is capable of being solved by that small series of adjustments.

I believe that a scheme such as I shall briefly describe will give effect to the three ideas that I have enumerated. It is essential that the Government, at the annual Budget time each year, should state the amount by which they can allow the total wage bill of this country to increase. It is increasingly absurd that Governments should present Budgets which are inevitably based on some prediction of the rate of increase of wages and salaries without stating them, and then have to face the fact that at the end of the year their calculations have all gone awry, because their prediction about the rate of increase of wages has been woefully inadequate.

Having established what I would refer to as the total wage cake of the country, then we need a new institution composed of representatives of any trade unions in the country, which would have the task of dividing up the wage cake between all the employment groups of the country; not between individual unions but between the employees, the Civil Service, the Health Service, the engineering industry, the chemical industry, and so on. It would not be a selfish tussle between trade unions; it would be the trade unions collectively deciding by sharing out this wage cake what was to be the new pattern of differentials. These unions would have to agree on their recommendation to Parliament as to what should be the split up of the cake. If Parliament accepted it, then it would become legal for employers to pay to all of their employees in the various employment groups that percentage of money increase which had been recommended by this new body, which I would call the National Council for the Regulation of Differential Wages.

That, in short, is a brief description of a new institution which I believe we shall eventually come to. If we do not come to some new institution, which places the trade unions in a situation where their responsibility equates with their current enormous power, then no solution of this problem lies in the future. We shall go on with the internecine feud between one trade union and another, and we shall have them using the power that they have to disrupt the country as being the only way by which they can affect society.

I listened to the noble Earl, Lord Longford, and his comment that he was able to speak frankly in the new situation, whereas in some situations in the past it was not possible to speak frankly because one might disturb the trade unions. I listened to the noble Lord, Lord Allen, talking about Government Acts being impositions on the trade unions. It is a new situation when any legal Act of Parliament and of Government can be described as an imposition, but I believe that is what the trade unions feel them to be, because of their power position. We have to recognise that the trade unions are—I am not quite sure which it is—the second, third or fourth estate of society.

Lord HAILSHAM of SAINT MARYLEBONE

The fifth.

Lord BROWN

The fifth. Unless we can put them in a situation where they form some sort of subsidiary Parliament, we will co on having these feuds. I am not the first to propose something of this order. Winston Churchill, no less, proposed an industrial House of Parliament in his Romayne Lectures in the 'thirties and L. S. Emery wrote about these matters at that time. They were farseeing and I believe that a constitutional change is an absolutely essential basis. We have perhaps one or two years in which to work out a solution. If we have not worked it out by the time the current £6 wage freeze is withdrawn, then we will be back where we started, only a little bit worse.

9.55 p.m.

Lord HAILSHAM of SAINT MARYLEBONE

My Lords, in this interesting and protracted debate we have heard, if my calculations have not gone awry, four Conservatives—that is, the noble Lords, Lords Carrington, Hewlett, Auckland and myself—five Cross-Benchers, one Liberal, one Communist and 12 professed supporters of the Labour Party.

Lord GORDON-WALKER

My Lords, what does "professed" mean?

Lord HAILSHAM of SAINT MARYLEBONE

My Lords, if these statistics be not wrong, the relative abstention by Members of my Party must be attributed to a desire not to obstruct or sabotage a policy in which I am bound to say we have relatively little feeling of confidence. For reasons I will give, we did not wish to be disagreeable. Unfortunately, as I am to wind up for the Opposition, I am bound to be a little disagreeable, so I hope the Leader of the House and the noble Lord, Lord Beswick, will hold on to their seats while I say the necessarily disagreeable things, just to show that things do not always appear from this side of the House quite the same as they do from the other side.

I have for some years had to point out that in the view of some of us, the crucial and humiliating factor about this country has been the relatively poor showing we have made to our comparable competitors—France, Germany, the Netherlands, Japan—all of which began in 1945 in a situation comparably less promising than our own, all of which have outstripped us in wealth during the succeeding 25 to 30 years. We have pointed out, not always with universal approval, that there are a number of reasons for this; our trade union structure is archaic and riddled with restrictive practices; our investment is inadequate; our industrial relations law is a jungle of obsolete nonsense; our approach to industrial training is restrictive, especially as regards adults; some of our major industries, particularly our nationalised ones, are riddled with bad labour relations to say the least; and there have been these persistent and excessive demands for increases in remuneration. And now we are facing inflation.

Not a very long time ago, when we were discussing the Social Contract, I got into a great deal of trouble from my noble friend Lord Alport, and from many people of undoubted good will and similar political outlook, for saying that it was a disreputable political device that it was essentially inflationary in its conception; that it was unfair and seen to be unfair because it was conceived between two partners to the exclusion of the great majority of the community and at their expense, and above all because it could not be policed and would not work. We were accused of a want of patriotism for not supporting the Social Contract, but we could not do so because we did not believe in it. We said it would not work and it has not worked, and it was not the first of these flops. There was the declaration of intent, there was the national plan, there was In Place of Strife and I do not deny that there were numerous attempts by Governments of which I was a member to cope with similar situations. It is my unpleasant duty to say that though, judging by the debate today, many persons of undoubted good will, ranging round all quarters of this Chamber, have given the White Paper their unqualified support, in my opinion it will not work any better than the others.

Having said that, I must go back to one or two factors which I would happily forget. In February 1974, we—by which I mean my noble friends, my honourable and right honourable friends and I—were saying, "The issue before the country is whether not this Government but any Government can survive if those who have industrial power obtain by the use of industrial muscle that which they cannot obtain by negotiation." I was travelling to Oxford in my car the other day. I turned on the wireless and there was the Prime Minister addressing the miners. He was saying: The question before the country is not whether this Government but any Government can survive if there are those with industrial power who use their muscle to obtain a settlement which they cannot get by negotiation. In October, I was saying: Inflation is causing unemployment. One man's price increase is another man's ticket to the dole queue. I turn on my wireless and I hear the Prime Minister saying: Unemployment is caused by inflation. One man's wage increase is another man's ticket to the dole queue. But what was the Prime Minister saying in February 1974 and what was the Party opposite doing? They were orchestrating the opposition to what we were saying. What were they saying only last October and what were they doing? They were saying that the Conservative Party was the Party of unemployment. They were saying that inflation was running at 8.4 per cent. How can we believe or trust the Party opposite, now in power, when, with the uttermost want of principle, without a blush, without an expression of regret, and with every appearance of pride in their achievement, they bag our arguments but do not pursue our remedies?

The noble Lord, Lord Shepherd, at the conclusion of his interesting speech, asked us what we had done. I am not sure that it is the business of an Opposition to say what they would do at this precise time. But the question was answered by the noble Lord, Lord George-Brown. If the noble Lord, Lord Shepherd, does not accept our remedies within the parameters of social democracy, he has only to look to Germany or to Sweden. He need only look to those two countries in the last 12 months, while the Government were messing up our affairs, to see how much better those two countries have done than we have under so-called social democratic governments. The Government do not need to ask us. Let them face the policies which other countries have faced.

However, one or two things have to be realised. The trouble with the White Paper is that it is altogether too cosy. It pretends to face realities but it does not face any of them. It does not say that never again must a small, organised minority hold the country to ransom when they are serving a public monopoly in order to get by industrial action what they cannot get by negotiation or arbitration. It does not say to the unions, "You must put your house in order by the abolition of overmanning and restrictive practices." Despite the Ryder Report and despite the reports on the printing services and the Press, the White Paper does not say that profits instead of being diverted to increased remuneration must be spent on profitable investment, nor that, until those things are done, everybody must absorb within their existing incomes the inevitable price rises which are coming in the pipeline whatever we do and whoever is in power.

Lastly, it does not say that the penalty for breaking these requirements is national bankruptcy and unemployment for the members of the very trade unions who are making the demands and for their fellow workers; and that no Government, whether Labour or Conservative, can save them from it. It is because this package does not ram these lessons home that it will not work. It is still a package devoted to the economics of Cloud Cuckoo-land; and there are other reasons still.

The first is that the Government are seeking to obtain the advantages of a statutory policy without statutory sanctions. A policy which designs to obtain the advantages of a statutory policy without statutory sanctions is neither fair nor seen to be fair. It is unfair and seen to be unfair because until the unknown reserve powers are brought into effect it puts a premium on breaking the policy. It is the breachers of the policy who will escape, and it is no good talking about rogue employers when the statutory sanctions are brought into effect, because the rogue employers will have already got away. But are they such rogues after all, if the unions are told that there will be no sanction brought to bear on them, and there is no answer in this so-called voluntary policy as to what is to happen to the employer when faced with bankruptcy or a strike as alternatives?

I agree with the noble Lord, Lord Byers, when he says that we have no idea what the ultimate sanctions will be. The noble Lord, Lord George-Brown, said that they may be his old Part IV; he knows more than I do. We do not know what they are or why they are being kept dark. Are they being kept secret because they are so objectionable or because they are so fatuous, or because they are a little of both? Or is it because the Government themselves do not know, even though the White Paper says that legislation has been prepared—whatever that means? What is the employer to do? What is to be done to the employer when he is faced with a strike which breaks the policy and is given no redress? He must choose between bankruptcy and a crime. The union which cannot control and is unwilling to expel, its militants escapes scot free, even after the sanctions are introduced.

This is the policy which we are asked to believe is fair and seen to be fair. A policy which is to beat inflation has at least to reduce our borrowing requirement. But this package will increase it. It will increase subsidies on food and housing and even on jobs, in the face of over-manning. It will increase the wages bill. It will involve about £400 million—perhaps more—annually, paying for legislation which a rational Government would drop; the Community Land Bill is only one of many examples. A few more hundred million pounds would be thrown away in acquiring North Sea oil when the resulting revenue could be obtained by fiscal measures without nationalisation. I do not know what is the cost in pounds of nationalising the efficient docks and making them as inefficient as the nationalised docks, but it will certainly be a cost in national efficiency as well as in pounds.

A policy which will work must—and this is conceded—be a policy which will last for more than a year. But this is a policy which cannot be made to work for more than a year. The £6 flat rate cannot work for more than a year, and the rush for restored differentials—of which the noble Lord, Lord Brown (that is, Brown the son of Telamon, not Brown the son of Oileus) spoke of a moment ago—will follow and will lead to restored inflation.

I understand the Government's desire to help the underpaid, but the underpaid will not be helped until a policy is designed which will work and which will be seen to work. Moreover, it is not a £6 limit at all. In paragraph 6 of the White Paper the Government say that it is a maximum, but they have appended to the White Paper the TUC document which says that it is to be of universal application; and I know which is the more likely to be true. The result will be, of course, that there will be many bankruptcies and there will be a total inability to stick to the 10 per cent. increase which, in my view at any rate, is likely to be excessive.

My Lords, I hope to spell out some of the objections tomorrow on the Question, Whether Clause I shall stand part of the Bill?-—not the Bill which we have not been allowed to see, but the Bill which we have seen and which we are now supposed to pass at Second Reading without discussion. I ventured to describe it as another nail in the coffin of the rule of law. So it is! I wish briefly to explain my reasons to which I will revert tomorrow.

This Bill which we are now to pass without discussion, proposed by a Labour Government, is a Bill the avowed purpose of which is to deprive workers of their contractual rights under a contract their legal contractual rights. That is what Clause 1 does. When and how are they to be deprived of their legal contractual rights?—when limits of the White Paper are not exceeded. But what force has the White Paper? That which is going to deprive people of their legal rights is something which is not law. It is something which will have—because we have not ventured, and I think the Government are right, to do more than take note of the policy tonight—only the Resolution of another place behind it. It is not an Act of Parliament, but it is to deprive workers of their legal rights, and to deprive them of those legal rights at the option of the employer; because the employer is not bound to do it and will not do it if he is threatened with a strike.

Even then we are asked to substitute something even more strange. What is the good of reading the White Paper when we are told in subsection (2) that the Secretary of State may substitute any other White Paper of his choosing, subject only to the Negative Resolution of Parliament. They are to be deprived of their legal rights at the option of the employer in accordance with the terms of a document, in the first place which has no legal sanction, and in the second place which we have not seen it because it does not exist. When they are to be deprived of their legal rights under the terms of a document which we have not seen, a document which has no legal sanction, one would at least think that the courts would be allowed to decide what those documents, when they come into existence, mean. But not so! Clause 5 says that if you want to know what the words mean, the Secretary of State will tell you, not the courts. This is Government by Humpty Dumpty. It is not Government by the rule of law.

The reason for all this is that they want to keep Mr. Foot in the Government. They want to be able to say that this is not a compulsory policy; that this is a Statute which is not a Statute; this is voluntary but is not voluntary, at least not for those whose legal rights are being taken away. It is a policy which is unfair and seen to be unfair; which is law and yet not law; which is voluntary and yet not voluntary; statutory and yet depriving people of their legal rights without the authority of a Statute. That is what the Government are doing and The Times, God bless it! says we should give it an unequivocal, Yes. And I am not going to do so.

10.14 p.m.

Lord BESWICK

My Lords, the noble Lord, Lord Boyle of Handsworth, said that Parliament had a role to play in the educative processes that are needed at the present time. I think we can say that this debate has fulfilled that role; even though I gathered that the lesson we are to learn from the last 15 minutes is that the cloak of infallibility has now fallen on the noble and learned Lord, Lord Hailsham of St. Marylebone.

After the straightforward and non-polemical way in which my noble friend the Leader of the House opened this debate, I must say that I preferred the opening comments of the noble Lord, Lord Byers, to those of the noble Lord, Lord Carrington, although my feeling of irritation passed from the noble Lord, Lord Carrington, during the course of the speech of his noble and learned friend. The comment which I had in mind regarding the speech of the noble Lord. Lord Carrington, was about when he referred to shortness of memory. I can assure him that we too have our memories, and we remember the question posed in February 1974.

The noble Lord could not have highlighted the problem more clearly, he could not have shown the difference more clearly between the approach which his Government showed to this problem and that of the present Government. We have to learn from experience, but it is the fact that the previous Administration imposed a punitive industrial relations policy upon organised workers in this country, and they did it at a time when the speculators were making such obscene profits that all of us have subsequently decried it. It was at that point of time when they challenged the miners, and it is not surprising that their Government toppled in the winter months of 1974.

But the situation is now more hopeful; it is different. We have a policy which although it does not find favour with the noble and learned Lord, Lord Hailsham of Saint Marylebone, is nevertheless, in general, agreed by the TUC, the CBI, by the overwhelming majority of those who have spoken in this debate, and by the broad mass of the country. That is a different and more hopeful situation. It is a situation on which we have to build. I hope we shall all accept the role of explaining to people what the problems are, what the difficulties will be and also what our duties must be. I agree with the noble Lord, Lord Byers, and with my noble friend Lady Wootton that this exercise in incomes policy-making on which we have now embarked cannot just be dropped after a year or 18 months.

Many have asked that there should be something much more permanent. The imagination has been caught rather by the phrase the "re-entry problem". But I hope there will be no re-entry into a world in which everyone is for himself in the wage bargaining field. I hope we will be able to get something different, and even though the noble and learned Lord dismisses the previous attempts which have been made, it will not be the first time in human affairs when we have failed at the first or second attempt, that we have picked ourselves up, tried again and succeeded. I hope we may win through to success on this occasion. When my noble friend Lord George-Brown said the planned incomes policy we want will be in the context of a more successful national economic plan, I hope that will be realised, and there is a possibility that we may get through to that as well.

We all welcome the contribution of the noble Lord, Lord Boyle of Hands-worth, and I welcome the firm support which he and others have given to the policy of this White Paper. I noted what he, the noble Lord, Lord Byers, my noble friend Lord Longford, the noble and learned Lord, Lord Hailsham of Saint Marylebone, and others said about publishing the reserve powers. I am not sure that they are right. I recognise that it can be argued either way; although the argument against referring without publishing would be even stronger against publishing without getting the consent of Parliament. I am not certain whether at this time it would be wise to publish a document about which there could be distracting and probably destructive arguments about a phrase, clause or subsection, when we have to get agreement on the general principles. I am not sure they are right, and I am not sure that those who criticise the present Government for their handling of economic affairs have a better record than we in these matters.

The noble Lord, Lord Boyle, attracted some vocal support from the other side over his rhetorical question: "Why cannot Ministers say where they stand in regard to private enterprise?" He went on to ask: "If they want a profitable private sector, why cannot they say so?" I thought that on this point he was less than customarily fair. He might have referred to the White Paper, although I could refer him to several quotations. But there was this recently published White Paper, The Regeneration of British Industry, in which it is said quite clearly: We need both efficient publicly owned industries, and a vigorous, alert, responsible and profitable private sector, working together with the Government. I do not believe that the criticisms made by the noble Lord are justified on that point. My noble friend Lord Longford is certainly a friend of some long standing, and I am sorry he had some difficulty in pronouncing my name—

The Earl of LONGFORD

My Lords, I had no difficulty at all. I was trying to put right something which had been said by my noble friend Lord George-Brown who, for some odd reason, pronounced my noble friend's name all wrong.

Lord BESWICK

The noble Lord, Lord George-Brown, goes back for even more years in friendship than my noble friend Lord Longford; this is a private joke between us. My noble friend Lord Longford asked whether the words of the White Paper about reserve powers were more authoritative than a newspaper report which he had seen. He asked which we should accept. I recommend to him the words of the White Paper. The Government have not changed their stance since that was published, and if the situation were reached where legislation were called for it would be introduced. I hope that satisfies my noble friend, but I reiterate that the Government are convinced that a voluntary policy is the best way to deal with this problem and I do not believe that the best way of getting success for a voluntary policy is to start by saying vie doubt whether it will succeed.

Lord GEORGE-BROWN

My Lords, will my noble friend forgive me for one second? We decided this differently in 1966. We thought it better to do it the other way round—but other times, other manners. Would the noble Lord confirm my guess that it is Part IV of the 1966 Bill which they have up their sleeves?

Lord BESWICK

My Lords, it has been decided not to publish this Bill and I am afraid I cannot give a preview to my noble friend even about Part IV. I was asked another question by my noble friend Lord George-Brown concerning the cost of the £6 per week pay rise. If each individual had that increase, then multiplying £6 by the number of employed workers in the country would give us the sort of figure quoted by my noble friend—that is, £7,000–£8,000 million—as an increase on the national wage bill. I could not give a breakdown to the noble Lord, Lord Boyle, of what the cost would be in the retail trade or in those industries where such a rate of increase, if granted, would be more than the 10 per cent. average increase; but the total effect of this increase is estimated to be another 10 per cent. in the RPI by the autumn.

The noble Lord, Lord George-Brown, appeared to be arguing that an increase of £6 per week now on top of current inflation would speed up the whole situation. Of course we have had the 25 per cent. increase. That is a fact, as my noble friend Lord Gordon-Walker said. What we are trying to do now is to reduce the rate of increase. If we do not have this 10 per cent. or £6 a week, is the noble Lord's alternative still the 20, 25, 30, or 34 per cent. that we have been having?

Lord GEORGE-BROWN

My Lords, I am sorry—

Lord BESWICK

May I continue and complete my sentence? If he is not going that way and leaving it to that sort of rate, then I assume that he is wanting something much more severe than the 10 per cent. increase.

Lord GEORGE-BROWN

My Lords, will my noble friend forgive me for intervening, but he had to leave at that moment and he left someone to take a note for him. I said exactly what I thought we should do. I said we should do what we did in 1966—have a freeze and put the gate down. If his notetaker did not pass on the note the noble Lord cannot blame me for it. I did, in fact, say it.

Lord BESWICK

My Lords, I know exactly what the noble Lord said. I was listening to him.

Lord GEORGE-BROWN

No, the noble Lord had gone.

Lord BESWICK

As a matter of fact, my Lords, I was taking advice from my advisers in one ear and listening to what my noble friend Lord George-Brown was saying with the other. As to what my noble friend did in those days, I have previously complimented him, spontaneously—not in answer to any kind of intervention. When he was not here, I paid tribute to the action he helped to take in one of those unsuccessful attempts, as it happened—through no fault of my noble friend—to get some sort of control in those earlier days. But the difference between those days and today is that we now have a 26 per cent. inflation rate. If we tried to get it down as suddenly as my noble friend is suggesting, back in one fell swoop within a month or two, is would just not be feasible. We should have precisely the same kind of conflict as noble Lords opposite had in February 1974.

Lord GEORGE-BROWN

Why not, my Lords?

Lord BESWICK

My Lords, I think ours is the better way. It may take a little more time, but it is better to build soundly than to risk the kind of defeat which noble Lords opposite suffered in that difficult period.

The testing time will be in the next few months. Higher increases of pay, much higher than the £6 a week, have already been made. They have still to work through to prices in the shops. There may well be a peak in prices above that we have now reached. But at the turn of the year we should be seeing the rewards of restraint. During 1976, if demand picks up and world economy improves, the terms of trade need not be in our favour and we should have further difficulties. But if we can hold on, if we can make it work, as my noble friend Lord Allen of Fallowfield said, towards the end of that year other favourable factors will begin to make themselves felt. I have in mind as well our own oil from the North Sea.

May I say something about the impact of inflation on recent industrial activity and relate it to what was said by the noble Lord, Lord Carrington, about cuts in public expenditure? Incidentally, it was interesting to note that those demands for cuts were put much less stridently than they have been in another place and previously here. It would seem that the challenge to noble Lords opposite as to where they propose to cut is undermining their aggressiveness on this point. But may I put this to the noble Lord? Last year the gross domestic product in this country showed virtually no change over 1973. By the first quarter of this year the GDP was nearly 1¾ per cent. down on the recovery peak of last autumn, and industrial production was showing a rapidly deteriorating trend. This has continued in recent months, and in the three months to May industrial production was 2 per cent. down on the preceding three months, and 6 per cent. below that quarter of last year. The only consolation is that it is not quite so much down as in certain other industrial countries.

I will not go through all the reasons for that reduction. There are a number of detailed reasons, but there is no doubt that inflation is the major cause. Manufacturing investment, for example, fell 6½ per cent. in the first quarter; the investment in the distributive and service industries 9¾ per cent. All this came out of the cash-flow problems directly linked to inflation, and the fear of future inflation has also been a prime ingredient.

But it is in this situation—when inflation has locked us into a recessionary trend—that we are asked to cut public expenditure, and if we had yielded to this demand to cut public expenditure in this way I tremble to think what our unemployment situation would have been. I absolutely agree that we cannot afford to stimulate employment. The normal reaction to this kind of situation in the old days would have been to reflate, and that is what we are asking Germany and the United States of America to do. We cannot afford to reflate, much as we would like to but, by the same token, it is reasonable to say that it would now be wrong to have any radical cuts in public expenditure.

The employment situation and the industrial decline is a somewhat gloomy picture, but we expect a strong and controlled pick-up in world trade through next year. If the West Germans take further action later on this summer, our confidence will grow further. Our competitiveness is still strong, perhaps 91 per cent. up on the mid-1972 level, and in that situation we should be able to claim our proper share of the recovery if it comes, as we believe it will.

But all this hinges upon the success of the White Paper policy and that, in turn, as so many have said, depends upon public opinion. I think that this public opinion is much more important than the threat of prison. Ultimately, it is public opinion which will decide whether this policy will succeed. It has been said that Parliament has a part to play in building up that opinion. We are hoping to use proper explanatory publicity. I should like to see in this country the kind of campaign that we had during the referendum debate. I should like to see in this country, as there has been developed in Sweden, discussion groups, financed possibly by the Government, discussing the implications of this policy. Let us have the criticisms and let us also have informed support.

My noble friend Lord Wigg suggested that we should cut out inter-Party snipings. I liked even more the appeal of my noble friend Lord Feather that we should cut out the cult of cynicism and unbelief. He said that faith in the future of our country is needed and, despite what the noble and learned Lord, Lord Hailsham, said, I should like to think that the majority of us in this House do have that faith in the future of our country.

On Question, Motion agreed to.