Lords Sitting of 7 July 1976

Preamble
The House met at a quarter-past two of the clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Leicester):
The LORD CHANCELLOR The LORD CHANCELLOR on the Woolsack.

LORD VAIZEY
John Ernest Vaizey, Esquire, having been created Baron Vaizey, of Greenwich in Greater London, for life—Was, in his robes, introduced between the Baroness Wootton of Abinger and the Lord Annan.
LORD BOSTON OF FAVERSHAM
Terrence George Boston, Esquire, having been created Baron Boston of Faversham, of Faversham in the County of Kent, for life—Was, in his robes, introduced between the Lord Houghton of Sowerby and the Lord Pannell.

NHS: OFFICE RENT INCREASE
2.36 p.m.
Lord WALLACE of COSLANY: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government under what circumstances the Sun Life Assurance Company was allowed to increase the rent of the South East Thames Regional Health Authority's office accommodation at Croydon from £87,250 per annum to £390,000 per annum at a time when Area Health Authorities within the Region face severe financial cuts leading to proposed hospital closures.
Lord WELLS-PESTELL: My Lords, the 1969 lease of the premises at Croydon provides for the customary review of the rental at specific intervals, in this case seven years. The present phase of the counter-inflation policy includes no Government control over rents for business premises. Payment of the increased rental, which was agreed by the district valuer to be on a par with that for
1224
comparable properties, is, therefore, an obligation which the Regional Health Authority could not avoid.
Lord WALLACE of COSLANY: My Lords, is my noble friend aware that I accept the usual courtesies he extends in answering Questions? Is he also aware that I should not have known about this increase had not a doctor friend of mine sent me a cutting from the Daily Mail? Is my noble friend further aware that this diabolical increase of over 400 per cent. comes at a time when my Area Health Authority alone in the Region faces cuts of £600,000, and that next Monday we shall have to sit down and decide which hospitalsߞnot hospital— have to be closed and which services cut?
Lord WELLS-PESTELL: My Lords, of course one is not happy at such a substantial increase in the rental of premises, but in the circumstances, having been advised, as I said earlier, by the district valuer, there was really nothing else the Regional Health Authority could do in the matter. This, after all, is their administrative headquarters. I sympathise with my noble friend's point of view. I know that he is a member of the Greenwich and Bexley Area Health Authority which is one of the two Area Health Authorities in this Region which have suffered cuts. This is a situation over which, quite frankly, we have no control at the present time.
Lord PARGITER: My Lords, could my noble friend say precisely what is the present cost per square foot of the premises involved?
Lord WELLS-PESTELL: Not without notice, my Lords.
The Earl of KINNOULL: My Lords, could the noble Lord say whether the Sun Life Assurance Company themselves were consulted on this matter and whether they have been asked whether, in view of the cutbacks in local authority spending, some allowance could be made?
Lord WELLS-PESTELL: My Lords, I cannot give the noble Earl an answer to that. I just do not know what the nature of the discussions were. Obviously, the Sun Life Assurance Company would be aware that negotiations were going on.
Lord WALLACE of COSLANY: My Lords, is my noble friend aware that, although in the first part of my supplementary I perhaps expressed my feelings strongly, I would now wish to put forward constructive suggestions? Is my noble friend aware, first of all, that with the opening of the very expensive Queen Elizabeth Hospital for the Ministry of Defence, the Royal Herbert Hospital and Woolwich Military Maternity Hospital will be vacant and therefore it might be a very good idea for the health authorities to consider the Ministry of Defence handing over the Royal Herbert Hospital for office accommodation? Furthermore, is my noble friend aware that, since other hospitals are likely to be closed, my doctor friends are suggesting that the Regional Board be housed in the nearest mental hospital which is to be closed? Perhaps I should say that I do not share that suggestion.
Lord WELLS-PESTELL: My Lords, I will put the best possible construction on my noble friend's last remarks. We are aware that there may be certain changes necessary in the area to which he refers. We know that so far as his own Area Health Authority is concerned certain discussions are going on at that particular level and we shall do, as we always try to do in such matters, the best possible thing from the point of view of both the National Health Service and the people who are going to use it.
Lord LEATHERLAND: My Lords, does my noble friend think it is worth while trying to negotiate with the Sun Life Assurance Company and asking them to be kind ? Is he aware of the fact that these hospitals in the district are keeping people alive for years and years longer than normally would have been the case, and so preventing an undue drain on the Sun Life Assurance Company's funds?

THE FINANCE BILL
2.42 p.m.
Lord HARMAR-NICHOLLS: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
1226
To ask the Leader of the House what provisions are being made to ensure that this House can fulfil its essential duty of debating the powers proposed to be conferred by Schedule 6 to the Finance Bill at present before the House of Commons.
The LORD PRIVY SEAL (Lord Shepherd): My Lords, the House will have the usual opportunity of discussing the Finance Bill when it is received from another place.
Lord HARMAR-NICHOLLS: My Lords, is the noble Lord aware that if the Finance Bill comes to this House with Schedule 6 as it now stands, the Government may inadvertently be infringing Standing Order No. 49? Is he further aware that Erskine May lays down quite clearly that to tack on to a Finance Bill constitutional issues such as trespass and freedom of the individual, as Schedule 6 does, is against the principles that ought to be accepted? Also, is he aware that if the Finance Bill is allowed to come as it is now, in order to preserve the constitutional powers of this House, the only alternative may be not to accept it, which would be a very inconvenient and wrong thing to do ? Whereas if there is a separate Bill, as has been the case in the past, the matter can then be dealt with properly without, inadvertently or otherwise, infringing either the constitutional powers of this House or the Rules of Order.
Lord SHEPHERD: My Lords, I thank the noble Lord for having raised this interesting point at this stage, and not at a later stage when we have the Finance Bill before the House. May I refer the noble Lord, and any other noble Lords who may be interested, to what is said in Erskine May, Nineteenth Edition, page 802, as it refers to the House of Commons, which is very similar to our own Standing Order No. 49. If the noble Lord will look at that page, he will see that it is quite specific. He will also be aware that the question of " tacking ", to which the Standing Order refers, has not been successfully challenged since 1807. Therefore, since then Governments have been very careful, and so have the authorities in both Houses, to see that Bills which come before the House do not contravene the Standing Orders. If the noble Lord

1227
will also look at Section 37 of the 1972 Finance Act, which was brought in under a Conservative Administration, he will see that it includes the VAT Customs and Excise powers which are broadly similar to the powers of search and entry sought in Schedule 6. May I also say to the noble Lord—and I do so merely to avoid difficulties in future—that what we are seeking to do here is to amend two sections, one of the Income Tax Act 1975 and Section 6 of the Finance Act 1966, both of which did not infringe the Standing Order that the noble Lord has in mind.
Lord HARMAR-NICHOLLS: My Lords, is the noble Lord aware that I have read the references to which he has referred, and have come to the opposite view ? Is he further aware that the reference to the 1972 Act on VAT was disposed of by his noble friend Lord Houghton, who is an expert on these matters? As there is clearly a doubt—even that expressed by the noble Lord himselfߞis he prepared to submit this matter to the Committee for Privileges where any doubt at all, such as exists in my mind, can be cleared away, so avoiding any delay in this important Finance Bill being dealt with before the proper date of 5th August?
Lord SHEPHERD: My Lords, I will certainly consider this matter, but there is some difficulty as neither the Committee for Privileges nor the Procedure Committee is quite apt for dealing with this kind of matter. I seek to persuade the noble Lord that his fears are quite unfounded. Clearly, this is a matter for your Lordships' House as a whole, but I must say to the noble Lord, and to the House, that I have gone into it with the greatest possible care. 1 must also say to the noble Lord, who has great experience of another place, that what goes through their procedures is very rarely challenged in your Lordships' House. If we took a contrary view, then I think we should be challenging not only the views of the Table but, perhaps, the decision of Mr. Speaker.
The Earl of LAUDERDALE: My Lords, does the noble Lord agree that this House, whatever else it is, is a kind of longstop for the Constitution and for people's liberties? There is a serious
1228
and grave anxiety about this matter which is not even a Party issue, but is a constitutional issue. So will he consider whether this is something which could be looked at by the Committee, whose appointment was moved yesterday and approved by the House, to study the procedures and practices of Parliament ? That might be appropriate. Is this not a very serious matter? Also, does the noble Lord agree that to blame the Tories for doing something similar on VAT is like saying that two blacks make a white, which they do not?
Lord SHEPHERD: My Lords, I really am rather simple, but I agree that black is not always white. But I was not blaming the Conservatives for VAT. What I was saying was that there is this clear precedent in the 1972 Act, which is broadly similar to what is being proposed in Schedule 6. But if there is doubt among those who have responsibility—not myself alone, but those on the Front Bench—I am very willing to look at it with them. My difficulty is that there is no appropriate Committee to which we could refer this matter, and, certainly, I doubt very much whether the Committee which the noble Earl has in mind will be set up in time to consider it.
Lord CARRINGTON: My Lords, is the noble Lord aware that I believe what he has just said is moderately satisfactory? If we can continue these discussions outside, so much the better. But would it not be the best solution of all to abolish Schedule 6?
Lord SHEPHERD: My Lords, there are always differing views. I suppose that is why we sit on opposite sides of the House. But if the noble Lord is willing, I shall be very happy to discuss this matter. Certainly, I do not want to see a delay in getting this House up at the end of July, and I need to get the Finance Bill through by then. I would not want any unnecessarily protracted proceedings that would prevent both of the very admirable aims which I have in mind.
Lord HARMAR-NICHOLLS: My Lords, is the noble Lord aware that it was in his capacity as Leader of the House, rather than as spokesman for the Government, that I put this matter to him in good time for it to be dealt with ?

1229
It is very important that the Leader of the House should preserve the constitutional powers of this House, and I know he has them very much at heart. I should have thought that the Committee for Privileges ought to look at this matter next week, before the Finance Bill comes here, in order to clear away any possible doubt whatsoever that our powers are being infringed.
Lord SHEPHERD: My Lords, as I said, I do not think that the Committee for Privileges is the right body to consider this matter. In fact, we do not have an appropriate Committee and, normally, such a matter would be decided by the whole House. I suspect that for a matter of this kind the House is not an appropriate body, merely because of its size. But I would much prefer, if the noble Lord agrees, to open conversations immediately through the usual channels to see whether we can reconcile any doubts that may exist.

SEYCHELLES INDEPENDENCE CEREMONIES
2.50 p.m.
Viscount MONCK: My Lords, I beg leave to ask the Question which stands in my name of the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether it is true that, as reported in the Press, no British naval vessel was present at the Declaration of Independence by the Seychelles and, if so, why not.
Lord WINTERBOTTOM: My Lords, it is a fact that none of Her Majesty's ships was present at the Independence ceremonies in Seychelles. None was planned to be in the area at the time for operational reasons, and it was unfortunately not possible to deploy one specifically for the purpose.
Viscount MONCK: My Lords, I thank the noble Lord for his reply. Is he aware that Australia, France, India and Iran all had naval vessels present, dressed overall—as the noble Lord is a military man I hope he understands that expression, but if he does not I will explain it to him
1230
afterwards—and would it not have been courteous to the past, and prudent for the future, if Britain had done the same?
Lord WINTERBOTTOM: My Lords, I am certain that the House is in sympathy with the spirit behind the noble Viscount's supplementary question. However, at the time when a decision had to be reached as to whether or not to send a ship to the Seychelles the cod war was at its height and it was not certain whether an operational ship would be available. The policy of Her Majesty's Government is to concentrate our naval forces around this island. Perhaps it was some compensation that the Royal Marines' band was present and that two aircraft of the Royal Air Force took part in the celebrations.
Lord CARRINGTON: My Lords, is the noble Lord aware that the reason he has given for not sending a ship to the Seychelles—in other words, that we were too busily occupied around Icelandic waters— fills a great many of us with alarm should anything worse occur than a cod war?
Lord WIGG: My Lords, the depths of our weakness are now exposed to the world. The responsibility for this rests fairly and squarely on the Conservative Government which introduced the 1957 White Paper, which since the end of the war has resulted in this country spending —57,000 million on defence. For what purpose these forces continue in existence is a question which has yet to be answered, but events are taking over.

STUDENTS AND UNEMPLOYMENT BENEFIT
2.52 p.m.
Lord CULLEN of ASHBOURNE: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government how many university and college students claimed unemployment benefit in the summer vacation last year, and what was the total amount paid out to them.
Lord WELLS-PESTELL: My Lords, I regret that I cannot be very helpful to the noble Lord because the information requested by him is not available. A separate record is not kept of the claims to unemployment benefit made by university and college students, nor of the amounts of benefit paid to them.
Lord CULLEN of ASHBOURNE: My Lords, I thank the noble Lord for his reply. I wonder whether he could confirm that the number of registered students receiving unemployment benefit reached 127,000 last January before being excluded from the register in the spring? Furthermore, since the Government have made an announcement on the subject since I put down this Question, may I ask whether the payment of tuition fees by the Government will mean that students will receive more maintenance money? Could the noble Lord also say what the effect of that will be on public expenditure ?
Lord WELLS-PESTELL: My Lords, in reply to the first part of the noble Lord's question, roughly 127,000 students were registered for unemployment at Christmas 1975. It does not follow that they all applied for unemployment benefit; many of them would not have been entitled to it. On the other hand, the majority, if not in receipt of unemployment benefit, would no doubt be in receipt of supplementary benefit. I think the nearest I can say is that it is estimated that something over 10 per cent. of students at present qualify for unemployment benefit at some time during their vacation. This could mean that the bulk of the remainder are entitled to supplementary benefit, but that many of them do not apply for it.
With regard to the second part of the noble Lord's question, the only comment I can make, because it is the only one which is within my own knowledge, is that the Government have devised a perhaps more simple way of paying unemployment benefit to those students who are entitled to it. So far as supplementary benefit is concerned, for the year 1976-77 we shall be able to take into account what local authorities give towards maintenance during Easter and Christmas so that it will be counted in for that purpose, which means that the bulk of students living at home will not be entitled to supplementary benefit for those periods.
1232
It will mean that all students who are unable to get work during the long vacation will be entitled to the supplementary allowance.
The Earl of LAUDERDALE: My Lords, could the noble Lord say what proportion of students are on supplementary benefit, since he mentioned that 10 per cent. are claiming unemployment benefit?
Lord WELLS-PESTELL: No, my Lords, I am afraid that I can say only that we estimate that about 10 per cent. of students are in receipt of unemployment benefit. How many of the 90 per cent. receive supplementary benefit or no benefit at all because they are not applying for it I cannot say and, as the noble Earl and the House will know, it would be rather costly to try to keep statistics on every matter.
The Earl of LAUDERDALE: My Lords, would the noble Lord agree that in a time of economic stringency it might be very much to the benefit of students that they should be encouraged to get whatever work they can, no matter how menial, and that this may he a character forming exercise which students are well in need of?
Lord ROCHESTER: My Lords, does not the large number of students who claimed unemployment benefit during last year's summer vacation, and the even larger number who will be claiming it this year, show above all the urgency of the need to reduce inflation and, in that way, unemployment, particularly among young people, which is its inevitable consequence?
Lord WELLS-PESTELL: My Lords, I agree with what the noble Lord has said.

PROCEDURE OF THE HOUSE
2.58 p.m.
The PRINCIPAL DEPUTY CHAIRMAN OF COMMITTEES (Baroness Tweedsmuir of Belhelvie): My Lords, on behalf of the noble Earl the Chairman of Committees, I beg to move the Motion standing in his name on the Order Paper.
Moved, That the First Report from the Select Committee be agreed to.—(Baroness Tweedsmuir of Belhelvie.)
The Committee's Report was as follows:
1. STARRED QUESTIONS AND STATEMENTS
The Committee have considered ways in which the length of Question Time could be contained. They are not in favour of recommending a system of time limits, since this could lead to a proliferation of rules. Nor do they believe that the House would favour a rigid time limit on Question Time as a whole, or on individual questions. They are of the opinion, however, that the House would wish Question Time to be conducted in an orderly and expeditious manner and they would remind the House that the remedy for over-long Question Time lies in its own hands. They consider that Question Time should normally be concluded in twenty minutes and draw the attention of the House to the following undesirable features of Question Time which tend to lengthen it:—

(a) the tendency for small debates to develop;

(b) lengthy Ministerial replies which encourage lengthy supplementaries;

(c) the practice of advancing a point of view under the guise of a supplementary question; and

(d) the habit of reading out prepared supplementary questions.

The Committee have also considered whether a minimum period of notice should be given of Starred Questions. They recommend that no Starred Questions should be tabled less than twenty-four hours before it is due to be asked.
The Committee have also considered the procedure of the House governing the repetition of Statements. They recognise the inconvenience to Members of the House when business in which they are taking part is interrupted for a lengthy period for the repetition of Statements. While they do not wish to recommend any new restrictions on the rights of Members of the House to comment and ask questions on a statement, they would draw the attention of the House to:—

(a) the Companion to the Standing Orders in which it is stated that any comment on a Statement must be brief; and

(b) Standing Order 32 which says that Statements " should not be made the occasion for immediate debate, unless the House so order ".

2. UNSTARRED QUESTIONS
The Committee have considered whether any restriction should be placed on the asking of Unstarred Questions in view of the fact that many of them are now taken late at night and tend to attract a considerable number of speakers. They recognise that Unstarred Questions provide Members of the House with an opportunity of raising a subject in debate when other opportunities are not available and they do not wish to make it harder for Members of the House to do this.
They believe, however, that if a certain flexibility could be provided for the placing of Unstarred Questions on the Order Paper, this might help to avoid Unstarred Questions being taken unreasonably late at night. They recommend, therefore, that Standing Order 39 should be amended so as to allow an Unstarred Question to be advanced on the Order Paper to an earlier .late than that for which it had been set down without the leave of
1234
the House obtained on a motion of which notice must be given on the Order Paper. Such an advancement would not take place without the agreement of the asker of the Question and consultation with the majority of those who had indicated that they wished to speak on it.
In order to achieve this change, the Committee recommend that Standing Order 39(l) be amended as follows:—
In line 4, after " Questions ", insert " and Unstarred Questions ".
3. COMPANION TO THE STANDING ORDERS
The Committee were informed of the publication of the Thirteenth Edition of the Companion to the Standing Orders.
Lord FERRIER: My Lords, may I take this opportunity to congratulate the Procedure Committee on their recognition of the importance of the Unstarred Question as a method whereby BackBenchers can make known their feelings in the House and also for their proposal to notify speakers who have put down their names of any change of date. While on that subject, I should like to emphasise that as the Companion definitely discourages any questions being asked of the Minister after he has sat down, it is important to realise that an Unstarred Question is now being turned very much into a mini-debate. I hope, therefore, that the House will be tolerant of questions asked of a Minister after he has sat down. Of course, I do not suggest that the questioner should have the opportunity to speak again.
Lord SHINWELL: My Lords, may I ask the Principal Deputy Chairman of Committees whether she is aware that for the purposes of accuracy I have obtained a copy of this report ? I want to be informed, either by the noble Baroness or by the noble Lord the Leader of the House, how these suggestions are to be implemented. I wonder whether my noble friend the Leader of the House had read this report before he answered questions, because one of the recommendations is that answers should be very short. I wonder also whether my noble friend Lord Wells-Pestell had read the report. How is the report to be implemented? I understand that reports are not sent to every Member of your Lordships' House and that copies are obtained only when one asks for them. How are Members to know what are the suggestions?
Lord SHEPHERD: My Lords, I believe that it is the custom to refer to Members

1235
of one's own Party as " my noble friend ", but in view of what Lord Shinwell has just said, I think I shall refer to him as " the noble Lord "! I appreciate that from time to time we are all guilty of making longer supplementary answers than perhaps the recommendations have in mind. I have sought, however, to shorten the original replies of Ministers and I hope the House will have taken note of it.
As to how these suggestions can be implemented, I will not disguise from the House that in the Procedure Committee I took a rather stronger view than did the remainder of the Committee. I was perhaps more attracted to the idea of having a time limit, say of 20 minutes, for Question Time, simply because of my experience of the Short Debates that we now have. In my view they have gained great support because of the quality of speeches and because Members speak very concisely, very much to the point, and recognise that other noble Lords wish to speak within the short time-scale. Therefore, I thought that a period of 20 minutes for Questions and supplementaries would help us to shorten not only ministerial answers but also supplementary questions.
To the noble Lord, Lord Ferrier, I can only say that the Unstarred Question is a very important part of our procedure, but quite clearly each Question needs to come to an end at some point, and I think that if Ministers were to be questioned after they had spoken there would very quickly be a continuation of the debate and I do not believe that that is what the House has in mind on Unstarred Questions. I hope the noble Lord will not seek to cause problems by persuading Members of your Lordships' House to use the formula, " Before the noble Lord sits down, may I put the following point? " I think if we abide by the spirit of the recommendations in this Report a great deal can be achieved.
My own feeling is that, taking the size of the House, the increased membership and attendance and also the feeling that noble Lords have of participating, we need to be very aware of time and its importance to other Members of the House. Unless we do that I have an awful feeling that one day we may need to have a more formal procedure, not of
1236
time, but perhaps having a chairman or a Speaker, and I personally would not wish to see that.
Lord DERWENT: My Lords, I certainly do not want to be disrespectful to the noble Lord the Leader of the House, but was his reply not rather lengthy ?
Lord CARRINGTON: My Lords, it seems to me that the noble Lord, Lord Shinwell, has a point which is valid and to which there is an answer, which, with respect, the noble Lord the Leader of the House has not given. I think the answer is this. It is the duty of every Member of this House to keep order in this House. There is no Speaker, and when we have read, as we have done, the Report of the Procedure Committee, it is up to us, whether we sit on the Front Bench, the Back Bench, the Cross Bench or anywhere else, to see that these orders are obeyed. I do not think noble Lords should be offended when they hear from other noble Lords a cry of " Order! " or, " Question! " or, " Speech! " because it is the only way in which we in this House can keep order, and I have absolutely no doubt in my mind that the noble Lord, Lord Shinwell, would be one of the first to use that privilege.
Lord SHINWELL: My Lords, with great respect I am bound to differ from the noble Lord, Lord Carrington. I asked a simple question and when a report is available and is submitted to the House, as this has been, the question that I ventured to put has some validity. The question is: How do we implement the reports from the Select Committee on Procedure ? I should like to add that I am under the impression that this Report is debatable, but I do not intend to occupy the time of your Lordships' House by debating it. I merely want to make the suggestion that it might be useful when similar reports are available for a short time to be made available to Members of your Lordships' House to listen to a short statement from the noble Lord the Leader of the House stating what the proposals are and asking for consent. It is just as well that we should obtain some measure of agreement on the items contained in the Report.
3.5 p.m.
Lord BYERS: My Lords, if I may follow the noble Lord, Lord Shinwell, I

1237
think he has a valid point here because these reports are not automatically sent to every Member and it is a matter which affects every Member because, as the noble Lord, Lord Carrington, has said, we have to keep order. I wonder whether the noble Lord the Leader of the House would consider having a very short special notice—a blue notice or a green notice—drawing attention to the fact that this particular Report of the Procedure Committee contains guidance to Members on conduct and order, particularly on Questions. I think if that were done noble Lords would come and ask for the Report and more people would understand what the Select Committee on Procedure was trying to get at.
Lord FERRIER: My Lords, I would assure the noble Lord the Leader of the House that I have no intention of working up any sort of steam in this matter, but—
Several noble Lords: Order!
Lord SHEPHERD: My Lords, with the permission of the House, I certainly take note of the suggestion made by the noble Lord, Lord Byers, and I will see whether we can implement it.
Lord SEGAL: My Lords, can my noble friend the Leader of the House say whether the Select Committee fully considered restricting the asking of supplementary questions to one supplementary question only? In the other place it is often the custom to pass on extra supplementary questions to one's colleagues nearby, which adds to the interest of Question Time. Also might not questions of local interest be better tabled as Questions for Written Answer?
Lord SHEPHERD: My Lords, again with the permission of the House, here is a classic problem. I have already spoken twice and now a question has been put to me. All these matters were carefully considered and I hope the House will now approve this Report.
On Question, Motion agreed to.

" THE ATTACK ON INFLATION "
3.8 p.m.
Lord JACQUES Lord JACQUES rose to move, That this House takes note of the White Paper The Attack on Inflation: The Second
1238
Year (Cmnd. 6507) and the Consultative Document on Modifications to the Price Code (Cmnd. 6540). The noble Lord said: My Lords, I beg to move the first Motion standing in my name on the Order Paper. During the past 12 months considerable progress has been made. In the first six months of this year inflation will be at substantially less than one half of the rate that it was in the corresponding period of last year. Our exports are increasing in volume at a rate in excess of the 10 per cent. target. On the employment side, vacancies have been increasing since last December; short-time working has been declining and overtime has been increasing since the beginning of March. During the past two years, the Government have kept open or created 250,000 new jobs or training places and consequently there may be some lag before the unemployment figures begin to fall, but we would expect a decline before the end of this year and we are of the opinion that we are well set on the target of 3 per cent. by 1979.
There is, however, a darker side that must be taken notice of. Our wage cost per unit of output is still rising more rapidly than that of our principal competitors. There has been an upturn in world commodity prices and a sharp depreciation of sterling. This has caused an increase in the cost of our imports. Consequently, unfortunately we shall not reach our target of single figures for inflation by the end of this year; it will take a little longer. But we would expect that by the end of this year the rate would be down to 12 per cent.
World demand is on the upturn, and if we are to take full advantage of it, to resolve our balance of payments and to reduce our unemployment figures, we must cut our inflation down to the level of our competitors, and at the latest by the end of next year. It was with this background that the Trade Union Council agreed to the new pay agreement which operates as from 1st August. As the House will he aware, that pay agreement, very briefly, is to be a limit of 5 per cent., with £2.50p as a minimum and £ as a maximum, estimated to cost on the average 4½ per cent.
I do not know whether the House is wholly aware, but the Trades union Congress has at least one feature in

1239
common with this House; it is a house of persuasion rather than a house of decision. It can only persuade its members to take action of this kind. Furthermore, the leaders of the individual unions in turn have to he able to persuade their members. I doubt whether many Members of this House, even six months ago, would have thought it possible that the trade union movement would agree to a second year of pay restraint which would give an increase of less than half what it was in the first year. It would be with some difficulty that we would find a precedent anywhere in the world for organised workers agreeing voluntarily, by a vote of 18 to 1, to restrain their wage claims to something which is known to be substantially less than the expected rate of the increase in prices. Therefore, I believe that we in this House should pay tribute to the realism and quality of leadership of the trade union movement. Without it, this country would be in a very much worse position than it is at the present moment.
My Lords, having agreed to make this sacrifice, the workers have a right to insist that the Government shall continue to monitor prices so that the sacrifice is seen to be reflected in the prices that the workers have to pay. But, on the other hand, it is in the interests of the country as a whole, including both employers and employees, that we should stimulate investment as rapidly as possible if we are to take advantage of the upturn in world trade. It is in this spirit that the Price Code has been amended. The Government have already accepted the Sandilands Report and consequently, in revising the Price Code we have taken it very fully into account. The Steering Group now preparing the new accounting standards has a very complex task. Its timetable precludes its recommendations being taken into account for revision of the Price Code. Therefore, we must improvise.
As from 1st August, any firm which has revalued its assets in its balance sheet will be able to claim depreciation on the new value in the balance sheet. Alternatively, those who are still depreciating on the basis of historic cost will be able to claim an additional 30 per cent. In charging goods which have been used in manufacture, the manufacturer will be
1240
able to charge the cost, not at the bought-in price, but at the latest contract price. In addition, if there is an increase in the value of stocks held, 70 per cent. of that increase will be allowed as a deduction from profit. We are therefore taking fully into account the spirit of the Sandi-lands Report.
My Lords, I should like now to say a word on investment. When we inherited the Price Code, there was no allowance whatever for investment. In December 1974 we introduced an allowance of 17½per cent. In May 1975 we increased it to 20 per cent. Already we have had claims of £600 million for relief on account of investments, and the investments totalled more than £3 billion. I would add that 80 per cent. of that investment is in manufacture. We now propose that the investment rate should be increased from 20 per cent. to 35 per cent., and we propose to include shops in order to encourage the retailer to efficiency.
I would remind the House that when a firm is replacing its assets, in addition to having had depreciation allowed, plus the 30 per cent., it will then be able to claim, when it spends the money, a further 35 per cent. by way of this investment allowance. I would also remind the House that because of the 100 per cent. allowance for the purposes of corporation tax on fixed assets, and because of the allowance for increased stocks, virtually the whole of profits invested in the business are relieved of taxation.
During the whole of the period that I have been here, I have taken the view that the most important thing that we should do to encourage investment is to have better industrial relations. I am pleased to say that last year less time was lost through strikes and lock-outs than we have experienced since 1968. In fact, the number of days lost last year was only one quarter of those lost in 1972. I am very pleased to add that in 1976 there is a 50 per cent. improvement on last year, so that we are certainly moving in the right direction so far as the encouragement of investment is concerned.
My Lords, we are taking steps in the Price Code to try to encourage efficiency. In the calculation of overheads per unit of output, half of the goods in output

1241
will be ignored, half of the export sales will be ignored, so that the rate of overheads to be included in the price will be correspondingly greater. The much hated productivity deduction will go. When we inherited the Price Code, any increase in wages was allowed for price purposes only to the extent of 50 per cent. In December 1974, we increased the 50 per cent. to 80 per cent., and are now increasing this to 100 per cent., so there will be no deduction for productivity from wage increases.
The safeguards in the Code will be improved. One of the safeguards is that a firm can insist that the limit of its profits should be at least 10 per cent. of the cost of its assets, or 2 per cent. of turnover. Now it will have that safeguard after the additional allowance for depreciation, after the additional allowance for stocks, and after the additional allowance for investment. The House will he aware that certain firms with sales in excess of a certain figure must keep records for price control purposes; over a higher figure of sales, the firm is required to pre-notify before increasing a price. We have looked at these figures, and in the case of manufacturing, we have doubled the sales. In others we have increased the sales by 50 per cent., so that a very large number of firms which had to keep records or pre-notify henceforth will be excluded. The cost of the relaxation of the Code for the whole of the year is calculated to be somewhere in the region of 1 per cent. of the Retail Price Index, and it will bring into company profits something like £1,000 million.
I should like now to turn to monetary and fiscal policy. In the field of monetary policy our record is in sharp contrast to our predecessor's. Never at any time since we have been in office has the growth of M3 exceeded the growth in money national income. Consequently it has always exerted a downward pressure on prices in support of Government policy. In the latest year M3 has increased by only 9 per cent. and that contrasts with 27 per cent. in the last year of Conservative government. My right honourable friend the Chancellor of the Exchequer monitors the movement of the monetary aggregates and he will continue to do so, and if there are any indications of excess liquidity he will, by whatever combination of measures seems most appropriate, take
1242
appropriate steps. Furthermore, we will continue to finance a large part of our deficiency outside the banking system. That means two things. It means that it does not inflate the money supply, and it means that the resources available in the banking system are available to industry.
I come now to fiscal policy. It is, of course, a matter of opinion as to whether the level of expenditure is right in any given circumstances. We believe that in the present economic circumstances and with our prospects ahead, and as part of a greater package, our level of expenditure in the current year is right. If anybody thinks it is not right, I would invite them to do two things: first, to name the expenditure which they would reduce, and then we know what they are talking about; secondly, since the Journal of this House shows that almost every Member has his pets so far as expenditure is concerned and always wants to increase certain things, even though he wants reductions in others, I would invite Members not only to name the decreases but to tell us what they would increase, because I am sure there is something they would like to see increased.
We shall for our part seek to plan expenditure some years ahead, as we have recently done. But we will review the plans annually, and at the present time we arc reviewing the plans in the White Paper. Secondly, having decided on a plan, we are determined to contain the expenditure within that plan, both by control by means of cash limits and by use of the consultative machinery that we have with local government. Thirdly, we will continue to finance the public deficit outside the banking system.
I would conclude, my Lords, as my right honourable friend the Chancellor of the Exchequer did yesterday in the other place, by giving a quotation from The Times on Monday. It is brief and to the point. It is as follows:
" If sound finance consists in holding public expenditure and limiting the rate of growth of the money supply, there must be some irony in the fact that in the last decade it has happened only under Labour Governments."
My Lords, I rest upon that and commend both Papers to this House. I beg to move.
Lord HAWKE: My Lords, before the noble Lord sits down, may I ask him whether he could tell us when the new Price Code is likely to come into operation'? This is called a Consultative Document and various people have to be consulted. Trade and industry will want to know when the new one is likely to be produced and operative.
Lord JACQUES: My Lords, so far as I know, it is likely to come into operation on 1st August.
Moved, That this House takes note of the White Paper" The Attack on Inflation: The Second Year " (Cmnd. 6507) and the Consultative Document on Modification of the Price Code (Cmnd. 6540).—[Lord Jacques.]
3.25 p.m.
Lord CARR of HADLEY: My Lords, I think 1 should warn your Lordships, without meaning any disrespect to what the noble Lord, Lord Jacques, has said to us, that I want to go a little more deeply and broadly into the strategy for the attack on inflation than he perhaps has done. The noble Lord gave us a fairly bullish account of how things were going. There are undoubtedly important improving trends in the economy at the moment, and I want to make absolutely clear how much we on this side of the House welcome them. I also want to make clear that I support some of the changes in attitude and policy which the Government have made over the last year compared with their first 18 months or thereabouts in office; for example, the importance they now attach to pay restraint; the growing realisation, re-emphasised by the Prime Minister and the Chancellor in the last week or two, that public spending in the future must be cut back; the introduction of cash limits control; the admission, with even now some little action to support it, that industrial profits must go up. I am glad to welcome all these improvements and to support them without reservation so far as they go.
However, I fear I must also in one or two ways prick the balloon of over-optimism and confidence which in some respects I believe the noble Lord blew up. He tells us, for example, that now the latest target for inflation is running behind
1244
the Government's previous target. He did not do much to analyse why, or show that this was in fact the direct result of the Government's own policies. He now tells us that the target for the end of this year is 12 per cent. May I gently remind him that that was the annual rate of inflation his Government inherited when they took over, so two and a half years later they have got back to where they started. So although the Government may be full of pride about what they are achieving now, I think a little humility as well would not come amiss.
They did, after all, dig the pit from which we are now painfully scrambling out. They gave the game away about this, of course, in the very title of the White Paper we are discussing, which is, The Attack on Inflation: The Second Year. My Lords, this is this Government's third year of office. When in the first paragraph of the White Paper they say what has happened in the first year in the attack on inflation, and now invite us to approve what is going to happen in the second year, I think we are entitled to ask what on earth happened in the first year of this Government's office. By their own admission there was no attack on inflation during that first year.
Yet we have all been saying, I think, that inflation is public enemy number one. Certainly I said it first of all in a public speech some five years ago, when I was Secretary of State for Employment, and I have said it many times since, and so, I know, have other people before me and since me, people of all Parties and of no Party. The reasons why inflation at any substantial rate is public enemy number one are accurately and graphically described in paragraph 2 of this White Paper. Inflation not only destroys the competitiveness of our economy, it not only weakens our capacity to compete in the future, and causes much hardship in the short run to those of us who have to make our incomes meet the needs somehow or other; it also promotes envy in society, it corrodes the fabric of society, it redistributes income in society in a way which is grossly unfair because it goes to the strong and away from the weak. It is also now recognised by the Benches opposite—and how well I remember that it was refuted by them when we were in office—that it is also one of the major causes of unemployment.

1245
There is no doubt that inflation is public enemy number one, and if it is we have to fight it as such. I am proud to have been a member of the last Conservative Government, which certainly did this. There may be argument and criticism, particularly with the wisdom of hindsight, about the weapons we used and the way in which we used them, but no one can deny that, as a Government, we fought with all our power to tackle inflation. We fought it so hard that we were prepared to put our collective political life at risk rather than give up that fight. We did put it at risk and we lost it, and I for one have never been ashamed that we were prepared to put it at risk even though we lost. It is worth noting that although we lost our political collective life at that time we actually received more votes than the Party opposite in that Election.
That controversial policy was, in stages stages 1 and 2, universally accepted by trade unionists throughout this country, and stage 3 was accepted by the leaders and members of trade unions totalling several million of our fellow citizens, until the miners finally refused to pay any notice to it at all and were encouraged in that refusal by the Party opposite when they were in Opposition. One other thing ought to be mentioned: it is a matter of fact which can now be seen that the only period in the 1970s when the inflation rate in this country has compared favourably with the inflation rates in the other major industrial countries was during the period of the last Conservative Government's counter-inflation policy. One of our chief worries today is not only about the absolute level of our inflation rate but the fact that it compares so badly with that of other countries. It is a fact that the only time in the 1970s when it compared favourably was in the period to which I refer.
When the Labour Government came into office at the beginning of March 1974 they gave up all attempts to control inflation. During the last year of their period of office the Conservative Government's fight against inflation was based on three main policies: first, the control of price increases; secondly, the control of pay increases; and thirdly reductions in public spending, the first instalment of which was announced in the summer of 1973 and the second, bigger, instalment
1246
of which was announced by the present Lord Barber in December 1973. But the Labour Government, when they came into office, immediately scrapped the second and third of those policies and put nothing in their place.
Indeed, so far as reductions in public spending are concerned they did worse than scrap our policy. Instead of cutting public spending they increased it enormously, and increased with it public sector borrowing requirement. In short, instead of treating inflation as public enemy number one, they behaved as if it were public ally number one. As a result, the inflation rate doubled in the first 18 months of this Government, and also grew much worse compared with the inflation rates in other countries. That is why there is need for some humility from Ministers, and that is why, when the Government talk about halving the rate of inflation, they should remember whose rate of inflation they are halving—the rate of inflation they caused directly by their own policies. Let me remind your Lordships again that the target rate for the end of this year, if achieved, will only restore the rate to what it was when this Government took office. As my noble friend reminds me in a quiet voice there was a time when the present Chancellor of the Exchequer dared to tell the people of this country that he had reduced the rate to 8.4 per cent.
I want to look ahead and be constructive, and I want to talk about the lessons all of us have learned, Governments of both Parties. Let us be humble enough to realise that we have all had lessons to learn from our different experiences. There are three general lessons which should govern our future policy, and I want to come to some particular ones afterwards. The three general lessons seem to me to be, first, the need to be cautious about reflation. However much we want—and nobody wants it more than I do—to get this country back on a path of sustained economic growth equivalent to that achieved by our main industrial competitors, we had better be a hit too slow about it than a bit too quick in trying to get back to that in future.
The second general lesson we have learned, to which the noble Lord referred —and I agree at least with the positive side of what he said; I could argue about

1247
the negative side, but I will not today—is the need to control money supply. Thirdly, and this follows from the first two general lessons I have mentioned, there is the need to tackle inflation by a firm, long-term programme over several years; a programme which makes use of all available instruments of policy, applied persistently in moderation, all pushing in the same direction, rather than to depend on a sudden or excessive use of one or two instruments of policy.
We hear much argument, both between the Parties and within the Parties, about the relative merits of incomes policy and monetary policy. As I have already said, I believe that a greater attention to monetary policy is one of the lessons we all have to learn from the past. But, for goodness sake!, do not let us now go overboard from one extreme of not paying enough attention to it to the other extreme of thinking that it is some panacea cure, because I do not believe that it is.
May I warn some of my friends in my own Party who I believe are unduly attached to monetary policy to think carefully about who are the people who suffer most when an overdependence on monetary policy is the instrument for controlling inflation. Of course they are the individuals who suffer unemployment, but in employer terms they are nearly always the small companies and not the large ones. If one is concerned about the importance of the small firm in British industry, as I am, both in distribution and manufacturing, then I must warn your Lordships against an overdependence on monetary policy as a means of controlling inflation. Let me stress the general lesson which I believe we should have learned; that is, to use all instruments together in moderation, and working together instead of, as sometimes happened under Governments of both Parties in the past, an overdependence on one or two instruments and allowing other pressures to be working in the wrong direction. We want to get all the pressures working in the same direction in a moderate manner.
May I move from these general lessons to some more particular ones. Economists—and it must already be clear that I am not one of them—talk in erudite
1248
terms about the causes and cures of inflation. They are often incomprehensible to ordinary people, and sometimes even apparently incomprehensible to each other. I want to try, if I can, to make a more down-to-earth and commonsense analysis, which at least I can understand even if no one else can.
Inflation to ordinary people means rising prices, and if we want to control rising prices we must, I suggest, in addition to observing the general lessons about which I have been speaking, act to control the major cost inputs which inevitably go to make up the prices which we all have to pay. I wish to deal with four of these cost inputs. First, the cost of raw materials, because obviously this is one of the major elements in the prices we have to pay for our manufactured goods. To a substantial extent of course this depends on world market forces beyond the control of any British Government and we in Britain suffered cruelly from this in the 1972–73 period culminating in the quadrupling of oil prices in the period starting at the end of 1973.
However, the prices that we pay for our raw materials in domestic terms also depend to an important extent on the rate of exchange of the pound, and that is determined to a large degree by the policies of the British Government, both in absolute terms and, to the extent to which they succeed or fail, in creating confidence outside the shores of this country. In this area the Government's policies have had a disastrous effect. I do not believe that there is any reason in the world, other than the stupidity and irresponsibility of the Government's policies in 1974 and the first half of 1975, why the pound should be at its present abysmally low level. We are paying a terrible price for this in terms of domestic prices and in terms of our rate of inflation, both absolutely and compared with other countries. It is of course the main reason why the Government will not now achieve the inflation target for the end of the year which they orginally set, and the reason for this is of their own making, not a reason imposed on them.
The damage which has been done to the value of the pound can never be wholly restored, I fear. It can only be limited and reduced by a further substantial reduction in planned public expendi-

1249
ture for the future and then the determination to carry through that planned reduction and, secondly, by a credible programme which of course goes with it, steadily reducing the Government's borrowing requirement year by year over the next few years to more tolerable and manageable levels.
Lord BROWN: My Lords, may I ask the noble Lord not to forget that during the last Conservative Government's term of office the value of the pound dropped by 20 per cent. ?
Lord CARR of HADLEY: Indeed I am not forgetting that, my Lords, and 1 think I said that we all had lessons to learn. However, if we compare the drop in the value of the pound at that time, soon after we first let it float, with what has happened in the last year, the House and the country can draw their own conclusions.
The second major input to costs about which I wish to speak is the cost of labour. It is the cost of materials and labour which are the two major inputs which determine the prices we have to pay. For well over a year, as I have said, the Government threw to the winds any attempt to limit the increase in the vital cost of labour, which contributes so largely to prices. As Harold Wilson said on more than one occasion, one man's pay increase is another man's price increase, and we are all paying a terrible price for the irresponsibility of the Government in allowing wage inflation to run riot for the first 15 to 18 months of the period they were in office. This of course is one of the main reasons for the present high level of unemployment as well as for the prices in the shops.
Thank goodness, a year ago the Government went into reverse! That has my full support. I may disagree with the detail of what they have done in the pay restraint world, and I certainly feel strongly that the Government were wrong hitherto to depend so heavily on pay restraint without adequate measures to back it up in other ways, but I strongly support the principle of what has been done and I agree strongly with the importance which the Government attach to pay restraint. I, too, pay tribute to the leadership which the trade unions of the TUC and individual trade union leaders are now giving to
1250
support this restraint. The reduction in the level of expectations of pay increases from the 25 per cent. and 30 per cent. league to the 5 per cent. league is a precious gain for this country and its chances for the future.
I have to say to your Lordships that in my belief pay restraint will have to remain a very important part of our economic policy for an indefinite period ahead, and that a return next year to the unrestrained practice of old-fashioned British-style collective bargaining would be disastrous. The policy will have to become more flexible, it will have to pay more attention to differentials and, in particular, it will have to provide more rewards to managers of junior, middle and senior levels, but there will have to be a formal policy of restraint for an indefinite period ahead. Our ultimate objective must of course be an orderly return to collective bargaining without this degree of detailed interference but it will have to be a return to a form of collective bargaining of a different kind and of a more orderly nature than we in this country have known in the past.
Why do other countries manage so much better than we have done without formal incomes policies ? I do not believe that it is because British trade union leaders or their rank and file members are less knowledgeable, less patriotic and less responsible than are their opposite numbers in other countries. 1 do not believe that for one moment. Such a suggestion runs totally contrary to my personal experience in industry over a considerable time. I believe that our troubles are of a different nature. I think they stem partly from institutional reasons connected with the actual manner and method of government in this country. I cannot go into this in detail today and I am sure that noble Lords would not wish me to do so, but I would say that I believe that we must recognise and then institutionalise trade union power in this matter. Ought we to consider changing the role and structure of the National Economic Development Council and, what is also very important, its relationship with Parliament, because if some of the genuine fears about corporatism are to be dealt with the discussions in NEDC must be linked more organically with Parliament ?—and although I say more organically linked, in fact they are not

1251
really linked with Parliament at all at the moment. We need to think about this and look at what is done in other countries, for example, with their economic and social councils, and perhaps we need to have some original thinking of our own. I am simply saying that this is one of the reasons why we can manage less well with free collective bargaining than other countries seem able to do.
Another very important reason—I do not blame them for this—is that we have a peculiarly old trade union structure which, because of its age, is peculiarly inappropriate to the modern conditions in which we now operate. That old trade union structure is coupled with old-fashioned attitudes and procedures throughout British collective bargaining, to which employers contribute just as much as trade unions, and we shall never, in my view, be able to remain competitive with other countries in terms of our inflation rate and at the same time enjoy free collective bargaining unless and until we reform our union and industrial relations structures and practices.
This was of course one of the main purposes of the Donovan Royal Commission Report, of the previous Labour Government's document In Place of Strife, and of my Government's Industrial Relations Act. All of those have been thrown on one side, and I will not argue about them now. Although, for good reasons or bad, they have been thrown on one side, no adequate attempt at reform has been initiated to take their place and all I would say to those who rejected all of those policies is that they have some responsibility to come forward with some others directed at the same problems. If the Government are really determined to fight inflation and regenerate British industry, they must waste no time in getting together with industry, management and trade unions in tackling this deep-seated very difficult problem which at best will yield to treatment only over a long period and which cannot be expected to yield to treatment quickly.
Before leaving this question of labour costs, I must ask the Government to think again about levels of personal taxation, because I believe that the third reason why we in this country find it more difficult to get on with free collective
1252
bargaining than do others is the amount of our gross pay which is taken away in direct taxation. We hear about it principally because we see it at its most extreme when we look at the higher levels of salary compared with other countries, but it now cuts into people's pay right through the spectrum of work. In the end, it is people's take-home pay rather than their gross pay which interests them. A reduction in direct taxation could help us to deal with the problem of wage cost inflation and the excesses to which collective bargaining sometimes goes when unrestrained.
Finally on the subject of labour costs as an element of prices, I suggest that we must remember that, in the long run, success depends as much on increasing productivity as on keeping down increases in pay. Of course there are many honourable exceptions but here, overall, the British record is really deplorable. Our objective must surely be a high earning, high efficiency economy. Surely we can unite on that. Here again, while we all say this, the Government's policies discourage rather than encourage it. The practice and the threat of nationalisation, the encouragement rather than the discouragement of over-manning, the absorption of too high a proportion of national resources in non-productive activities, the suppression of incentives to management, the denial of adequate profit margins to industry, are all pressures leading to a low earning, low productivity, low efficiency economy. They must all be reversed if we really intend to fight inflation as public enemy number one.
Next, I should like to say something about the input of the cost of profits to the prices which we pay. Of course this is another input into the make-up of the price. It is difficult to measure it precisely, and of course it varies from time to time. It is a very small input indeed compared with the large inputs of labour and raw material costs. The Government are very damagingly over-obsessed with it. Of all the cost inputs affecting prices it is the one where suppression produces the least short-term advantage while doing the maximum long-term damage. We shall not achieve as low a rate of inflation as other countries or, indeed, as low a level of unemployment, nor shall we generally enable our industry to be competitive in price, quality and design unless and until

1253
British industry is once again far more profitable than it is allowed to be at the moment.
The present position is really appalling. In 1974, on the Government's own admission, the net return to British industry was 2.2 per cent. on capital employed. In 1975, for which exact figures are not known but which is expected to be even worse, the figure may perhaps be only 2 per cent.; and in 1976, in spite of what the noble Lord has said about the revision of the Price Code, it is expected that it might creep up to 3 per cent. This is really an impossible situation. We shall never get an adequate level of productive investment until British industry can make a much higher rate of return on capital. This is an essential change.
Personally—and I know that this is controversial, even within my own Party as well as between Parties—I fully accept that, if trade unions and their leaders are to be expected to forgo some of the increases in pay which their bargaining power could win at a particular moment, it is only fair that those who control profit margins should also be expected to accept some comparable restraint on the size of profit margin which they might have the power to impose on the community. But, except in the very short run, that control must be on profit margins, not on the prices of individual products, with all the distortions, the paraphernalia, the cost and the rigidities that that involves. The overall profit margin permitted must, I suggest, be significantly above whatever happens to be the current long-term interest rate. Three per cent. is ridiculously below that level. If it is not competitive with current on-going long-term interest rates, it is impossible to imagine an adequate level of new productive investment.
Lastly, may I speak about the input in prices contributed by the cost of money. This, too, is another small input compared with raw material and labour costs, but it is nevertheless a significant one. The cost of money is also an important factor in determining the level of investment. The Government will be truly fighting inflation as public enemy number one only when, as well as everything else, they are fighting to make sure that the British interest rates are as low as possible or are at least competitive with those in other
1254
major industrialised countries. What the Government must realise is the lack of confidence in sterling resulting from their policy and the need to finance a large public sector borrowing requirement also following directly from their policies. Both these factors tend to force up British interest rates higher than they need otherwise be. Again, I say that the Government will not be fighting inflation as public enemy number one until they show greater concern about the effect of their policies on British interest rates relative to those of competitor countries.
Briefly to sum up, therefore, I welcome the improvements. I have supported some of the Government's policies which they have taken on during the past year, but I have also—I think, fairly—pointed out that the Government's own irresponsible actions in 1974-75 are a direct cause of our present severe predicament. I have also offered a critique, which I hope is constructive, as to what needs to be done, persistently and on a continuing basis, if inflation is to be contained. We must have a credible programme for steadily reducing our borrowing requirement. We must achieve this by reducing both public spending and taxation. At the same time, we must set our faces against inflationary financing by closely watching the money supply. We must, while working for sustained economic growth as our aim, move only cautiously towards it. We must delibately encourage profitability and therefore investment, and must devote a larger proportion of our total domestic product to productive investment. We must act directly to limit each of the main cost inputs which, whether we like it or not, have to be reflected in the prices that we all have to pay. If the Government do all these things consistently and persistently over a number of years, we shall beat inflation; otherwise we shall not. Unless we set about it now, our people in this country will never catch up with those who live abroad.
3.59 p.m.
Baroness SEEAR: My Lords, over recent weeks we have, on a number of occasions and for one reason or another, discussed the general economic situation in the country. I do not, therefore, unlike the two previous speakers, propose to make a general review of the major

1255
economic ills of the country and of the ways in which we should attempt to meet those ills. Instead, I wish to focus on one particular aspect of the problem which I believe to be both of fundamental importance and of very great urgency. It is an aspect to which the noble Lord, Lord Carr of Hadley, referred, although to my considerable relief he did not pay as much attention to it as he did to many other aspects of our economic problem. I refer to the question of incomes policy and levels of pay in relation to the inflation problem as a whole.
When we cast our minds back a year to when the inflation rate was rising and was at 25 per cent. and more, and when pay claims were of that level, and when we compare that with the situation today, as it is being explained to us in the Government White Paper The Attack on Inflation: The Second Year, we can only rejoice at the progress that has been made. Although I go along with the criticism which the noble Lord, Lord Carr of Hadley, made, and 1 think it fair to call attention to the fact that we are retreating from the pit—if one does retreat from a pit—that was dug for us by those high levels of inflation and those high pay claims a year ago, the fact remains that to have got down from that level of inflation to acceptance of a 4½ per cent. average for the next year is a very great achievement of both the Government and the trade union movement, upon which all of us in this House would, I think, wish to congratulate the Government.
Having said that, my Lords, I want to go on to say that we must on no account believe that because we have achieved an acceptance of 4½ per cent. we have solved our problem. There is an air almost of complacency in the White Paper, a natural air of triumph in what has been achieved, but a failure to recognise—or at any rate to put on paper, even if it is recognised—how far we still have to go and how precarious is the position in which we now find ourselves. We are by no means out of the wood. If I may change the metaphor, it is rather as if we have just landed on a ledge above the stormy sea. We have not reached safety; we are still very far indeed from it, and we could easily slip back into
1256
that stormy sea unless we take certain measures—and take them very quickly.
Indeed, to my mind the emphasis should be on speed. It has been said that a week is a long time in politics. If a week is a long time in politics, a year can be a very short time in economics. The agreement which has been entered into and which I understand comes into effect on 1st August this year will last for a year. This means that we need to start thinking now—and I mean now—about what is to come afterwards. I say this because investors in this country, and perhaps even more important, those who govern what happens to the exchange rate of sterling will very quickly be asking themselves what comes afterwards? Nothing fundamental has really changed in the state of the British economy, and it is the longer-term view that both investors and overseas interested parties will be taking.
So where do we go from here? It is that question that I wish particularly to address to your Lordships this afternoon. Where do we go from here in terms of pay policy ? Over the past year all of us have been going through a learning experience, particularly in relation to inflation and to incomes policy in regard to inflation. As happens in a learning experience, we have experimented successfully with new devices and new ideas, and we have at the same time identified new problems to which we have not yet found the answers. It is during the months ahead that we must try to find answers to these problems which have become clearer over the past year, just as we have also proved that there are certain ways of tackling problems, certain instruments, which are very useful in the battle against inflation in relation to pay.
What have we learnt? We have learnt—and I think that this will be agreed on all sides of the House—that agreement among the parties concerned, agreement in advance, about pay levels is vital if we are to tackle inflation. We need to have agreement about the pay policy. It is too soon to know how successful it will be, but we have also experimented—the Chancellor has experimented in the Budget this year—with the trade-off between levels of pay and taxation policy. This is a variation of a policy which has been advocated by my Party, in terms of an

1257
inflation tax, for some considerable time. The approach which the Chancellor adopted in this Budget—in saying that if we can agree a certain level of pay increases, it will have an effect on the tax level and the tax level will be adjusted according to the success with which that agreement is achieved—is, I think, new as a specific instrument for dealing with incomes policy. It is a new and, I suggest, a very useful instrument that we can refine and use still further.
We have also got, even more clearly than we had it a year ago, an understanding which is very widespread, not only among trade union leaders but among the rank and file of people up and down the country, that inflation is the major enemy and that there is a connection between levels of pay and levels of inflation. This means that there is coming to be—I would not put it stronger than that at present—that which we need in a democracy above all else; that is, a strong ground-swell of support among the voters everywhere, and after all it does matter that they are the voters, that these measures are necessary, that they are not based on the desire of Party advantage or on class interest, but that there is a general interest in controlling inflation and that that general interest also requires that there should be some kind of control over pay increases.
These are ideas which we have articulated and which have grown stronger in our minds during the course of this year, and they should be carried forward into the new policy. But, my Lords, we are also clearer than we were about certain other problems to which we have not found the answers and which will become more important over the next year. I do not want to use too grandiloquent language for it, but there is the constitutional problem. There is the problem to which the noble Lord, Lord Carr of Hadley, referred of the relationship between the elected representatives of the people in Parliament (which means, of course, the House of Commons) and the organisations which determine pay policy. Surely it must be made clear—I am certain that there really is agreement for this—that in matters as important as this, in a matter of this kind which dominates economic policy (or if it does not dominate
1258
it, is a vital element in economic policy) it must at the end of the day be the right, and indeed the final, responsibility of Parliament and nobody else to decide what is to be done.
But it is not only the relationship between Parliament and the Government and trade union negotiations on matters of pay which is becoming a problem over which we need to get control. The trade unions are not the only interested parties. We need to get the employers, and perhaps the retail interests as well, into the picture more than they have been over the past year. But this whole question of how one gets, first, the ultimate control of Parliament and, secondly, the proper representation of all interests, not only trade union interests, in the determination of pay is a matter to which we need to turn our minds.
The second problem which will be very much with us in trying to decide how to tackle the question of incomes policy the next time round is, of course: How are we going to get continuing support from the trade union movement for what needs to be done? I am not in any way belittling what has already been done when I say that it is easier to get this kind of support in conditions of high unemployment and very little competition for jobs, when there are not the pressures at local labour market levels which push up earnings as earnings were pushed up in the days of very full employment in the 'fifties and the 'sixties ; and if we are going to be successful in taking our share, and we hope more than our share, of reviving world trade, then of course those pressures will return.
As the noble Lord, Lord Jacques, reminded the House, the TUC, which is the negotiating body with the Government on this matter—I do not altogether like the term "negotiating body" when one is dealing with the Government, but the body with which the Government deal in determining pay—is not a body which has power over its constituent parts. It can use only persuasion. It has been easier for it to use that persuasion during the last 12 months, but with returning prosperity the position of the TUC will become a great deal more difficult. It is going to be more difficult for it to enter into agreements and to have any prospect of being able to see that those agreements are honoured up and down the country,

1259
lacking as it is, and in my view as it must be, any kind of real coercive power to see that those agreements are carried out; and the TUC is going to be in an increasingly difficult position unless its opportunity to negotiate advantages for its members is recognised in the machinery and in the policies that we adopt.
We could easily get into the position, third time round, in which the TUC, convinced of the need for control, enters into agreements and then finds that its authority is flouted up and down the country. I say this not in the least wanting to see it happen, but if we are to have foresight in making our plans for next year we must take into account that this is a real possibility. That being so, it is vital that we should build into our schemes for the future greater flexibility at company and plant level and greater opportunity for trade union representatives up and down the country to get benefits for their members and to deal with problems which are acute problems to their members—problems of differentials not least—in a way that gives satisfaction to their members, if they are to hold the loyalty of the trade union membership. This has not been a serious problem over the last year: it will be a serious problem to the extent that economic recovery returns to this country.
My Lords, we also have to find a way in which we can give expression to the need for a longer-term economic policy in the country; and that has to be reflected in the way in which we handle incomes policy. What, then, should we attempt to do ? I want to fly a kite this afternoon—and it is not an entirely original kite except, perhaps, in one particular—with which I am sure many of your Lordships will not agree. I want to fly this kite because I believe that now is not too soon to start talking about what comes after August 1977, what the pay policy after this pay policy will have to be, and how we get there.
Again picking up a point which was made by the noble Lord, Lord Carr, and hoping that perhaps it will be developed, I believe, along, I think, with a good many people who have any experience at all in these affairs, that one of the first things we have to look at is the institutional machinery through which we arrive at agreements. I agree with the noble
1260
Lord, Lord Carr, that our institutional machinery, partly because it is old—and there are many interesting historical and political reasons why it is so—is singularly ill-adapted to the needs of the present time. It is not surprising that it is so, but I believe it to be a fact; and unless you get your institutional machinery right you really cannot get right solutions at the end of the day, because there is a process which has to be gone through and you need the right machinery to go through that process.
I should like to develop the idea, which I know is not at all a new idea, of extending the range of the NEDC and institutionalising it in relation to Parliament in such a way that it could carry the weight of what needs to be done. Would it really not be possible to have something which might perhaps be called an annual NEDC conference? At that annual NEDC conference could there not be, as of course there always are with NEDC conferences and meetings, representatives of the unions and representatives of the employers ? And is it quite impossible that there could be representatives of the Opposition as well as of Government, and that they should thresh out an appropriate norm ? That is not, I know, a very new idea, but I think it is one which ought to be explored vigorously and quickly, because we need better machinery for the job we have to do. I suggest—and I know I shall not get agreement on this, although I might have got it from the noble Lord, Lord Brown, if he was not having tea, or whatever it is that he is now doing—that what might be considered here is that there should be a right of veto among the parties who take part in this conference. This would mean that any policy that came out would come out not as a result of confrontation but as a result, at the end of the day, of consensus.
My Lords, if we really mean that we all agree that we must defeat inflation, if we really mean that we all agree that some kind of incomes policy is vital to defeat inflation, it ought to be possible to arrive at this as a process, not of adversary politics, not of confrontation, but of consensus. Some organisations have tried, not altogether unsuccessfully, to arrive at consensus by working through the problems on the basis of the facts—and the NEDC is singularly (uniquely, indeed) well placed to present the facts before all

1261
the interested parties—so that to a large extent the conclusion emerges out of the facts; and I believe it is not outside the realms of possibility that you could get that kind of consensus. My Lords, I do not believe that that kind of central body ought to deal with exceptions, or ought to build in the detail of flexibility. Every pay policy up till now, in its later stages, has been shipwrecked on details of exceptions which have never been properly applied because they cannot be properly designed at the centre and applied at the periphery.
Combined with this central machinery for getting consensus on the general level, I should like to see a revival of an idea that was put forward in the Donovan Report and was swept on one side although, after all, there was very widespread and cross-Party support for much that was in that Report. I should like to see a revival of the idea of plant agreements, drawn up in considerable detail, which would broadly conform with the policy which had been determined at the centre but which would allow flexiblity to meet the needs of different organisations up and down the country. These agreements would give the trade union representatives the opportunity to get, in the circumstances of their own particular organisation, the kind of variations and benefits which they could then be seen to be getting for their members, and which would fit the special needs of particular organisations.
The kind of programme I am seeing is general control at the centre of what, broadly, is the level that is right and reasonable but allowing a high degree of flexibility which could be negotiated in very considerable detail at the level of the company. If you did that, you would get, on the one hand, the benefits of overall control plus flexibility plus the ability of the trade unions to win benefits for their members, in circumstances which were appropriate for different companies, which would meet many of the difficulties we have encountered and which I have outlined.
In the background, there could always be some form of tax trade-off, some form of inflation tax, or whatever you may call it; so if, after the consensus had been agreed through this central body, a particular industry became a rogue elephant and broke out against what had been the
1262
decision arrived at, then the tax instrument could be used; or if, in the process of plant bargaining, you found that the whole level was getting out of control in relation to what was centrally agreed, the tax instrument—and we suggested this should not be a tax instrument but should be done through social security system; but that is a detail of no great importance—should he invoked in order to bring the overall development, the overall pay level, back into line with what had been agreed.
My Lords, I do not suppose that many people will agree with all or, perhaps, any of the things I have suggested; but I want to underline that we have very little time before we need to start thinking about what comes next. If we do not get an appropriate answer to the question, What comes next? the achievements recorded in this White Paper and the hopes that have been expressed this afternoon are all doomed to frustration.
4.22 p.m.
Lord NORTHFIELD: My Lords, the noble Baroness, Lady Seear, and the noble Lord, Lord Carr, both, interestingly, I thought, were thinking aloud about how we begin to adapt our institutions to the growth of trade union power in this country and their power over the economic system. I was interested in what they said ; and I hope to say a word about that later. The noble Lord, Lord Carr when he spoke for the Opposition today was also being moderate, as is his custom, in his diagnosis about the past. I must say to him perfectly bluntly—and I know he will allow me to say this—that he was highly selective in what he recorded about the work of his Government in the early years of the 70s. He did not mention that he—and he accepts this—was one of the architects of the Industrial Relations Act which, whether intended or not, was understood by the trade union movement to mean confrontation with the trade union movement. He did not mention that in the earlier part of his speech diagnosing events under his Government.
He also did not mention the ill-fated and ill-considered policy of his noble friend Lord Barber in the consumer boom and the expansion of the monetary supply. If you add those two things together, I say to the noble Lord, you get very close to a diagnosis of the reasons for the

1263
difficulties of the Labour Government in 1975 and 1976.
It was because we inherited, or partly because the Labour Government inherited—for, like him, I want to try to be moderate—that fantastic expansion in the monetary supply and partly because we were living down that era of confrontation and the grasping for freedom that the trade unions wanted after it, that we had to have a year or 18 months before we got round to the present successful policies for tackling inflation. I am afraid that the noble Lord must and I am sure he does, accept a good deal more of the blame than he was admitting in the first part of his speech.
In the last debate on this subject about a month ago we were talking about the level of public expenditure. I spoke then and I am not going to repeat myself. At that time I was saying that any of the sort of cuts being demanded at that time—£2,000 million was the general figure—if analysed in detail would have meant the end of wage restraint and the sheer impossibility of getting the Trades Union Congress at their recent Congress to agree on a further period of wage restraint; because it would have meant cutting into social services and other things and reducing the standard of living over the next 12 months. I do not propose to repeat that, but it has been raised again today, the usual story that we must cut public expenditure.
I want to examine two points about public expenditure. I am glad, in parentheses, to note that yesterday in the other place my right honourable friend the Chancellor of the Exchequer made it quite clear that there will be no cuts in public expenditure this year. This, I thought, needed saying again; and I am sure it was the correct decision. It is also worth noting that he repeated again that there would be the holding of expenditure and possibly even further cuts in 1977/80—by the standards of recent years virtually a miracle! If that is maintained it will mean that—to meet one of the noble Lord's points—the borrowing requirement will be going down noticeably in the latter part of the decade from £12,000 million to £9,000 million and perhaps a good deal lower, to £8,000 million. It will mean, secondly, that as a
1264
proportion of national income, public expenditure in this country will be falling dramatically for the first time for many years. This will be an incredible achievement if my right honourable friends and honourable friends manage to carry it through. But I want to add two points. I apologise to the House that, as an economist, I must use a few figures. There are two sets of figures worth looking at in assessing whether we need drastically to cut public expenditure.
The first is to look at whether we will have room in our economy for the expantion of exports and investment over the coming years, whether we will have enough room for them without cutting public expenditure. This is a perfectly fair challenge to make to noble Lords on this side of the House. Can we plan for the expansion of exports and for expanding investment at home without cutting public expenditure? Will there be room in the economy ? Let us look. In round figures, the gross domestic product is £50,000 million per annum. We are achieving now—and thank Goodness, what a success story—the dramatic possibilities of expansion in this figure in the next two or three years; 3½ per cent. to 4 per cent. is commonly talked about. On top of that £50,000 million gross domestic product, at real prices, allowing for the fall in the value of money, we shall then soon have an extra £6,000 million to £8,000 million to play with in our economy. That will be the effect of the dramatic increase in production and output which is now taking place.
That figure is enough to contain the expected expansion in exports and the expected expansion in manufacturing investment. Exports are now running at £15,000 million a year. If they go up by 10 per cent. per annum—which is £1,500 million a year plus—it is well containable within the expansion of the economy, within the steady movement towards the £8,000 million addition to our gross domestic product. Furthermore, expansion of manufacturing investment, at several hundreds of millions of pounds now, can also be happily accommodated inside that increase in the gross domestic product. On those figures alone there is no desperate, crying need to cut public expenditure. We can contain our expansion in the vital sectors while holding,

1265
as the Government intend to do, consumption at home—personal consumption and Government spending. There will be plenty of room, in my view, to take the expansion which is socially necessary.
The second set of figures worth looking at are those about the borrowing requirement which mesmerised the noble Lord, Lord Carr of Hadley, as they have done other people. This is not mumbo-jumbo; it is perfectly easily understood. My right honourable friend the Chancellor of the Exchequer said yesterday that it is going to be less than £12,000 million this year, and every week we get hints that it is in fact going to be significantly below that figure. But let us suppose that it is going to be £12,000 million. The Government expect to be able to place half of that by the sale of gilt-edged stock and Treasury Bills; borrowing at home—quite healthy. The Government expect in various ways to borrowing from abroad—to help nationalised industries and in other ways —to a tune of a bit more, and we may be left with something under £4,000 million that will come effectively from expansion in the monetary supply. This is no great tragedy. This £4,000 million gap is less than 10 per cent. expansion in the monetary supply. I say to the noble Lord, Lord Carr of Hadley, that if we look at the borrowing requirement as translated this way into what it means in expansion of the monetary supply over the next 12 months, it is perfectly healthy. It is less than our rate of inflation. Therefore, it will not be stoking up inflation and therefore it cannot be the great tragedy and the great harm that he and others are making out.
I add those two points—both are economists' points; I apologise to your Lordships' House; economists talk about figures—in an attempt to say that a lot of these things are not mumbo-jumbo and are not difficult. They are reasonably easy to understand. I add one footnote on inflation and restraint of wages. I feel doubly justified in saying to your Lordships' House a month ago that it would have been a great mistake to go in at that time for large cuts in public expenditure because it would have wrecked the possibilities of wage restraint in the next 12 months. Now, a month later, we see that the trade unions have accepted this despite the fact that we all know here that, because of the fall in the value of the
1266
pound and the higher cost of imports, food and other prices are going to go up by 5 per cent. in the next 12 months. The trade unions have accepted almost a standstill despite the fact that on top of what was expected at the time when they originally made the deal we are now expecting this further rise in home prices. This is statemanship indeed. We all ought to salute the wisdom of the trade union movement in continuing with the bargain despite this effect.
Secondly, I have not yet heard any complaint from the trade union movement about the package of proposals which we are also debating this afternoon for increase in allowance of profits to industry. These are going to add 1 per cent. this year to the cost of living. They will certainly add 2 per cent., 3 per cent. or perhaps more, next year. I have not heard the trade unions complaining about that, either. So it is quite a miracle that we are holding wages as we are; and I say to noble Lords opposite, why add to their burdens, why reduce chances of holding the average worker in his demands, by unnecessarily cutting public expenditure when there is no reason to do so at this particular moment ?
I have lived through many occasions such as this July—as has the noble Lord, Lord Carr of Hadley—when the summer sun of July brings out all the dangers in the economy and cuts are in the air. Every two or three years we seem to go in for a ritualistic blood letting in July, in response to public feeling abroad among our creditors. Then, two or three years later the cuts are reinstated and we forget that we ever made them. I hope that there will not be any of this panic this year, and I was glad to see the remarks of my right honourable friend the Chancellor of the Exchequer yesterday.
I agree with the noble Lord, Lord Carr of Hadley, that there is however room for some cuts in public expenditure beyond 1977 in addition to the holding operation which the Government have guaranteed and which is quite remarkable. If we could do it in a way which does not harm the social services, which does not stoke up demands for improved wages and allows more take-home pay for people to spend for themselves, that I agree with. That is the real opportunity for further cuts in public spending, from 1977 onwards. I do

1271
but a good many of the worst difficulties have been removed. I think it is a clear sign that, at least for the present, the mixed economy has been accepted and it will be a very interesting subject to talk about. Although I know that industry is not altogether satisfied, my own feeling is that they have had a good deal more than half a loaf and that it is a very great improvement on the starvation diet they were on before that.
The most important and striking part of the attack on inflation is undoubtedly the new pay policy. I had intended to say quite a lot on this subject, which is one that has interested me for many years, but as the noble Lord, Lord Carr, in a great deal of his speech, and the noble Baroness, Lady Seear, in almost the whole of hers, said the sorts of things I had intended to say I hope I can be more brief than I had at first intended.
I should first like to say that it would be a grave mistake to think that the achievements of this year are anything but a temporary alleviation of the situation. I do think the Government and the trade union movement ought to be congratulated on the most recent achievement. As a Cross-Bencher, I think I can distribute the previous blame rather evenly between the later stages of the Conservative Administration and the (shall I say ?) non-honeymoon period of the Social Contract. However, that may be, I think we can all agree that we have made very satisfactory progress, and it is rather a record for a compulsory policy that its second year should be so much better than its first. It goes against the conventional wisdom on the subject,
On the pay policy, I was delighted to hear what the noble Lord, Lord Carr of Hadley, said about his own views, with which I very much agree. I hope he will not be surprised when I say that there has been some uncertainty and anxiety in the country about just what was the policy of the Conservative Party on this aspect of the matter. There seemed to be a good deal of division between the monetarists and the incomes policy people, and I agreed so much with the noble Lord, Lord Carr, when he said that any future policy must be a combination of both. Mr. Heath, in his last Administration, was an abundant demonstration of that, which I hope will be convincing to the
1272
Conservatives. Nobody could accuse Mr. Heath of being a man who lacks principles, or who is easily swayed from what he believes in. He came to power appealing strongly that an incomes policy was not workable. He tried the other route, but events forced him to make what has been called a U-turn: first, reversing the trend towards increasing unemployment, and then moving towards an incomes policy. That is a very important lesson.
What more can I say on the subject ? One of my first speeches in your Lordships' House was on this subject, and I said that three things were necessary for an incomes policy. The first was a norm, the second was machinery for dealing with hard cases and difficulties, and the third was some form of sanctions; and those are still the essentials. I do not think the norm presents any great intellectual difficulties. The ideal one is certainly related to the long-term trend of productivity, which would give stable prices, and I think that would be somewhere around 3 per cent. It would have to be decided as a matter of practical politics what one could get away with, but, clearly, there must be some kind of guidance of this kind and the lower it can be the better.
The second essential, the need for a more flexible policy, has been touched on by both Front Bench speakers. There are great advantages as a crash operation in having something that is flat, brutal and applies to everybody. But there is no doubt that if it goes on too long severe tensions are set up in the system, because it is not possible to begin with something which everybody regards as equitable and which is entirely in keeping with the changing economic situation. Therefore in the next stage, which it is essential we should have, there will have to be consideration of getting some degree of flexibility. A tough policy without too many concessions is most likely to be successful; but there has to be some kind of safety valve, as I am sure the noble Lord, Lord Selwyn-Lloyd, who was really the first person in this country to introduce anything like a real incomes policy, discovered to his cost, because he was not able to deal with the case of the nurses which was an anomaly and caused a lot of public difficulty.
The third question is the nub of the difficulties; that is, how can you get some

1273
kind of sanction? The Government White Paper states that they attach the greatest importance to having a voluntary policy. I am sure that we are deluding ourselves to talk about Parliament having to decide. I believe that in another place yesterday Sir Geoffrey Howe said that his policy would be to operate through Parliament, and, although the noble Baroness, Lady Seear, did not go quite as far as that, she said that Parliament would have to have the final say. But I think that we are deluding ourselves if we suppose that Parliament can enforce its will in this field.
It has been proved that, unless you can carry the trade union movement with you to some extent, the country is not prepared to support the kind of confrontation which would be required. Therefore, I feel absolutely certain that this problem of how to make the policy stick can be solved only by building on what has been done already, which is bringing the trade union movement right into the middle of consultations. The noble Baroness, Lady Seear, made some suggestions in this regard, while the noble Lord, Lord Northfield, made some very sound points. The nub of the problem is that the trade union movement is only just beginning to realise its power, and the responsibilities which go with that power. It is only just beginning to see that the power of the hijacker to blow up everyone includes himself, and that there is nothing to be gained by bringing the country to a stop.
Of course, all kinds of changes will be entailed, but I am not qualified to speak in detail about them. The whole structure of the trade union movement is antiquated and makes for difficulties in this field. As has already been pointed out, the TUC can get on only by persuasion. I do not know how it can be done, but I am absolutely certain that if we do not have something ready to deal with this situation in 12 months' time, and if we come to the end of the second year without a continuation of the policy and without some better agreement with the trade union movement, we shall be back where we were a year ago, which is on the brink of disaster, and this time we shall fall over it.
I was sorry that the noble Lord, Lord Jacques, spoke about the sacrifices of the trade union movement. What did they sacrifice? Is not the cure of inflation in
1274
all our interests ? It is doing a good deal of harm now to say, " The trade unionists have been such good boys. We had a £6 norm last year and we now have a £4 norm, and we shall bring inflation down to single figures ", if from that they are allowed to deduce that, because they have been good boys for two years, they can go on a " bust " again, because if they go on a " bust " again we all will.
4.59 p.m.
Baroness WOOTTON of ABINGER: My Lords, I am rather overwhelmed by the peals of praise which I have heard from these Benches for the merits of capitalist and private enterprise, and by the extreme optimism of my noble friend Lord Jacques. I do not want to be a damp squib or to introduce a pessimistic note, but I want to call attention to a few rather sinister features that we are overlooking in this debate. I should like, first, to say something about language. Language is important, not only because it expresses attitudes, opinions and knowledge, but also because it shapes them.
I want to call attention to some of the language—I would call it the very bad language, although not in the ordinary sense that we are now using about our economic problems. First of all, inflation is acquiring the definite article. We now speak about " the inflation as though it were a natural catastrophe and totally outside our control. Inflation, we have to remember, is always man made. It may have originated in shortages—perhaps overseas—or in minor disasters, but inflation could never have reached the peak that it reached at the height of the rise in commodity prices if it had been due to natural phenomena, unless all the mines in the world had been flooded, all the cattle had suffered from plague and all the forests had been burned—although it looks as if they might well now be burned. No, my Lords, inflation is man made. When we talk about the inflation and blame the inflation, very often we are being absolutely tautological. I am always being told that people are putting up their prices because of the inflation, which is either tautological or the silliest or most deplorable answer which could be made to the question.
Having said that, I am going to attack one or two of our other current phrases. You and I are always being told that

1279
extra at a different level, and 5 per cent. in between". I know we all pay income tax, but that is at graded rates over the whole community. It is only those who are employed who are liable to the pay policy.
I know, too, that dividends are restricted, but dividends arc quite different from wages because the dividends that you receive have nothing to do with whether you are rich or poor: you may get a lot of dividends and be very rich and have a lot of money already, or you may be somebody who has a small pension or has inherited a small legacy and gets a little dividend. It pays no attention to your status in the income hierarchy. So I do not think that is fair, and it is very surprising that we do not have a fixed limitation which takes away anything in excess of what you ought to have the whole way up, wherever your income conies from. In this context, I do not care whether it comes from property speculation, from earnings in employment or from your own independent enterprise. I think that is the only weakness in the pay policy.
Against this school, which sees wages as a cost and holds that we must be a bit restrictive, we have another school which goes the opposite way and introduces a word known as " reflation ". I noticed that the noble Lord, Lord Carr of Hadley, used the word " reflation " rather tentatively, and I think not wholly associating himself with it. I wonder what they mean ? Nobody whom I have heard use that word since the 1930s has ever attempted to define it, so I took the opportunity of looking up the Oxford English Dictionary to see how it was defined when it first came into use in 1932. I cannot find that anybody else has ever done that. I should like all your Lordships to do that, but I will do it for you now. "Reflation" means,
" inflation after deflation to restore the system to its previous condition ".
What relevance can that possibly have to our present situation ? It is simply used because we cannot say, " We would like a little more inflation " because that would be aiding one of our enemies instead of killing him. But what I think this school which uses the word " reflation " actually mean—and, after all, a word can change
1280
its meaning—is that we must not screw the monetary policy tight down but must ensure that what comes through goes to good productive uses and that the extra cash resources available are in fact invested.
At one point the White Paper says that the new developments of this kind are likely to make a basic change in the structure of our economy. Now I am going to part company with my noble friends on these Benches who devoted their speeches to applauding private enterprise. I am going to say that I think we laid the foundations of that basic change in the structure of our economy in the Industry Act which received the Royal Assent in 1975, which established the National Enterprise Board, slightly watered down as the Bill went through Parliament, and which also proposed more constructive planning agreements between private enterprise and Government enterprise. In fact, it suggested, not that we should have a tight monetary squeeze, but that we should restrain costs and should use the money that we have productively and in the development of new enterprises. This was followed by the meeting at Chequers of the Government, the TUC and I think Uncle Tom Cobbleigh and all—a very distinguished Uncle Tom Cobbleigh—and they produced a long and excessively verbose document which added one or two words to the English language such as " disaggregation ", and, so far as I can see, only proposed what might be very useful—an entirely new industrial strategy.
Now what has happened ? The White Paper says that the first reports of the entirely new industrial strategy have now got through to the National Economic Development Council, and then it puts in a little final, sneaking addendum to the paragraph, to the effect that, and also the National Enterprise Board and the planning agreements will do something or other. Where are they? The whole thing is still on paper. I think this is a crucial feature. These are the constructive proposals which I should like to see in being, but they remain on paper. I do not think it can be said that the Government are dragging their feet. If you have a capitalist system, if you have a mixed economy, everybody has a definite role to play. The workers must work and they must not strike; the capitalists

1281
must show initiative. Well, the workers have shown remarkable restraint in not striking. As has already been said, the strike figures for this year are very much better than they have been for quite a long time.
Of course, the capitalists never strike; they only lose confidence, and they have not to be denounced as the workers are denounced when they strike. The capitalists have to be cosseted and their confidence built up. I am not sure how far this confidence is being successfully built up. If this strategy is not working out, then I think we are going to see this basic structural change in our economy go a great deal further and be a great deal more rapid—indeed, I hope more rapid in fact and not just on paper—than it has been hitherto and as many of us expect; and I do not think it will be a development which will justify the plaudits of private enterprise that we have heard.
We shall survive if constructive use of our resources develops, and comes off paper into practice. If we can see the Chequers agreement in the factories, and not on the minutes of the National Development Council, we shall have made a mixed economy which is not the same mixture as before, and which will lead in a direction to which I think a number of my friends on these Benches look forward, as I do, but which I shall not elaborate further.
5.20 p.m.
Lord WILSON of HIGH WRAY: My Lords, I propose to discuss this problem today from the point of view of one who has been practically all his working life in manufacture and in export. Like the good shoemaker, I will try not to go beyond my last. I will not be mentioning the trade unions, or producing long lists of figures, or complicated financial theories.
For some years as a young man I worked overseas, mainly with heavy engineering products manufactured by British manufacturers. I learned the good and bad points of these manufacturers. I learned the mistakes they made, and how they cured them. For a lad straight out of college at the age of 22, it was very good experience indeed. I also spent six years
1282
in a nationalised industry, the Royal Navy, which I found on the whole worked better than I had expected, although it was not very cost conscious, and unfortunately never realised that I would have been much better employed in the Naval Dockyard than as an engine driver in one of Her Majesty's ships.
I am now the non-executive chairman —which means I do not do any work—of a small manufacturing company producing engineering products. This company has been exporting for a long time, and is now exporting roughly 40 per cent. to 50 per cent. of its output. The firm has been located in the same works for 120 years. Although the original buildings have now been swallowed up in new buildings—in other words, we have not stagnated for 120 years—the company has been under the management of members of the same family for 100 years. I and my co-directors hope that this situation will continue. We are a company of the type referred to by the noble Lord, Lord Carr of Hadley; that is, a small private company which contrives to keep its head above water. This background hardly qualifies me to speak in an important debate such as this, but I can only try to make a contribution from possibly a rather different outlook.
My Lords, looking back over the postwar years, I call to mind very vividly the statements of two eminent men. The first was that of Sir Stafford Cripps who I think we should regard—or I certainly should—as one of the greater statesmen of this country, who said, " We must export or die ". The second came in 1957 from the lips of Sir Harold Macmillan, possibly one of our greatest politicians, when discussing the short but very agreeable economic boom which took place at that period. Sir Harold said: " Indeed, let us be frank about it. Most of our people have never had it so good ". In my opinion, Sir Stafford Cripps was talking about the cake, and Sir Harold Macmillan was talking about the icing, the cherries and the candles. Today we are talking about the cake, not about the trimmings which make it look so attractive.
I am concerned with one part of one sentence in the White Paper before us. I believe that the real attack on inflation depends upon,

1283
" … our educated and skilled workforce, and experienced and outward-looking financial and trading community …".
We cannot beat inflation unless the financial and trading abilities of our manufacturers are of the highest calibre. Although this has already been recognised by the Government and expressed in the White Paper, we must concentrate upon it.
I have been concerned with exports since I was 21. During the period of the so-called boom years, from the mid-'fifties to the mid-'sixties, I was truly shocked by the attitude of many of the manufacturers in this country. They stated quite frankly and bluntly that while the home market was good, why should they be bothered with the risks and difficulties and frustrations of the export markets, which very often brought them lower returns. The large electrical firms refused to take over turnkey projects for hydro-electric and other power-developing schemes because they were afraid that the financial returns would not be sufficient and the risks too great.
When the economic climate became cooler, some of those firms ventured into these projects, but they had not engaged the type of engineering staff with the knowledge and, to put it crudely, the guts, to undertake this difficult job. For that reason, most of this business went to the Germans, the French, the Swiss and the Japanese. On the other hand, I am glad to say that a number of our consulting engineering firms went overseas and took these risks. They achieved a very high reputation in many parts of the world, and these engineering and architectural consulting firms are now doing well. These firms are full of business, while their friends who remained at home and got stuck in the home market are suffering.
My Lords, during the great period of takeovers, many of the small firms referred to by the noble Lord, Lord Carr of Hadley, were doing reasonably well, but were bought up. A number of them manufactured specialist components such as fractional horsepower motors, gauges, special instruments, and so on. They were quite soon closed down, or had their works used for other purposes, because, and simply because, they were not showing quite the correct financial return.
1284
In my own firm, we found that companies who had supplied us with some of these components for many years suddenly stopped doing so, and jobs which could easily have been got out on time, to the satisfaction of our own overseas customers, were held up because of these particular shortages. We were compelled to go over to the Continent. We had to buy fractional horsepower motors from Denmark at very high prices, which contributed to our costs, annoyed our customers and was a direct contribution to the inflationary problem.
My Lords, I make no apology for returning to that famous phrase of Sir Stafford Cripps, " We must export or die ". This cannot be repeated too often. No amount of money will help if the brains, initiative and the energy are lacking. In this country, we must strive to use the minimum of imported materials and manufactured goods to produce the maximum of highly priced, specialist products which our overseas customers really want. If we can do this, we shall succeed. The German and Japanese manufacturers are no more invincible than were their fighting forces during the war. We must keep up our morale, and drop that British sport, which is not indulged in by our friends the Scots and the Welsh, of denigrating our own abilities.
My company has dealt with French, German and Scandinavian machine tool manufacturers, only, I assure your Lordships, in cases where suitable machine tools have not been available in this country. We have found that they have made late deliveries, given unsatisfactory service. In one case, a Swedish machine tool with a German accessory was sold to us as being a production model; it then turned out that it was a prototype and the teething troubles had to be solved at our expense. A German fitting on this particular machine was one year late. If from my own company some of the foreign language instruction sheets went out as bad as those we have received I would create a great fuss.
The newspapers in those foreign countries would never dream of announcing that such-and-such a firm had been late in delivery, or that some other firm had provided a machine which had not come up to specification. For some curious reason, our media, the BBC, and, I regret

1285
to say, some of our politicians, appear to take a delight in announcing that many faults have occurred in British products and that deliveries have been late, without even taking the trouble to investigate whether or not the allegations are true. They have simply gone around listening to what disgruntled foreign users have said. If it is "bashing the British" it is good news, or else it is throwing stones at the Labour Government.
My Lords, the raising of the value, the profitability and the quality of our products is a psychological as well as a financial and a logistic problem. I suggest we spend less time talking about who gets what share of the cake, or what colour or what thickness the icing shall be, and really get down to the job of exporting as well and efficiently as possible. If we do this, it will not be too long before the old-age pensioners, the sick, the underprivileged, the dustmen, and perhaps eventually the middle classes, will benefit.
5.34 p.m.
The Earl of DUNDEE: My Lords, those of your Lordships who are as old as I am may perhaps remember that it was exactly 32 years ago when Parliament approved the great White Paper on postwar economic policy in a three-day debate in another place which was opened by Ernest Bevin, who was then Minister of Labour, and wound up by Oliver Lyttleton, who was then Minister of Production. It was agreed by all Parties, who all undertook to follow it in their post-war policy, and its objects were to maintain full employment and stable prices. As for full employment, until a year or two ago I think all Governments since the war have more or less succeeded in carrying out the purpose of this agreed all-Party economic policy. As for stability of prices, there has, I think, been only one period of three years in which prices were stable in Britain since the war, the years 1957 to 1960. But in the other years when we had a little inflation, it was usually quickly dealt with, by either a wage and dividend freeze or some other contrivance of that kind, and until two of three years ago inflation, although it was too high and we should have been much better without it, was not on anything like the catastrophic scale which we have seen since 1973.
1286
My Lords, I do not want at this late hour to speak for more than a minute or two. I know that your Lordships never like an economic debate in your Lordships' House to have the character of a slanging match, and just to show that I do not intend to do anything of the kind I would briefly mention two points in the policy of the late Conservative Government of which I did not altogether approve. One was what I considered, in the early part of 1972, to be an unnecessary surrender, under cover of an ad hoc judicial committee, to what I considered was an unjustifiable and inflationary wage demand by the coal miners at that time. The other was towards the end of 1973. I was not quite sure that it was a good thing for the Treasury to increase the money supply just at a time when the Arabs were making world oil prices so very much higher than they had ever been before. However, I think that the electoral defeat of the Conservatives in two successive General Elections in 1974 was a great misfortune for this country. The consequences will have to be borne in the meantime, and I hope rectified as soon as may be, but it may be too late to rectify all the damage that has been done.
However, I think this White Paper contains a great many proposals which are interesting and useful, and I hope they will have the desired effect in time. But I cannot help feeling that they are sometimes too small and perhaps not likely to work with sufficient speed to achieve the purpose which is attributed to them in the White Paper. I would briefly mention to your Lordships the two most obvious causes of apprehension: one, the enormous rise in prices which has already taken place, and the other the enormously rapid increase in the public borrowing requirement. Prices have not gone up uniformly. Electricity has gone up 90 per cent. since two years ago; coal by 49 per cent., second-class postage stamps, which are of some importance to a great many people, more than 100 per cent., from 3p to 6½. Rail fares have more than doubled, and although some of your Lordships may very likely think that in this weather we could easily do without whisky, the price of whisky, without any tax, has gone up by 50 per cent., and on top of that the tax has increased by 60 per cent. There are people, farmers in the Scottish Highlands,

1287
who for many months in the year have to spend a lot of time walking over the hills out of doors, to whom a drink of this kind is almost a necessity, or at least a real benefit.
We must remember that according to the latest figures given by the Chancellor, the estimated time before things improve always seems to be getting a little longer. We had inflation at 38 per cent. a year twelve months ago; now it has come down to 15 per cent., and the Chancellor hopes that it will be down to 12 per cent. by the end of the year, and to 7 per cent. by the end of 1977. But that 15 per cent. is added on to the 38 per cent. of last year; the 12 per cent. is added on to the 15 per cent. now; and the 7 per cent. at the end of next year will mean another 7 per cent. on that total, and not 7 per cent. on the original 100 with which we started. I am very apprehensive that the degree of inflation already reached by that time, although it will have come down on the original percentage, will still be too large for the measures which we are now taking to deal with effectively.
I do not want to disparage anything that we are doing. if one is attacking an enemy position in a battle, and if the officer who has been given charge of the operation thinks that the chances of success are very small, it is not a good thing for him to tell the troops that they have very little chance of winning. It is much better that he should encourage them to believe that they are going to win, which may make all the difference to their success. One does not want to spread alarm and despondency among the troops. But I feel it difficult to be genuinely and sincerely filled with joy by the prospect which this White Paper holds out of winning the battle against inflation on which we are now engaged.
May I add that I was very glad to hear both the noble Lord, Lord Northfield, and particularly my noble friend Lord Carr of Hadley, talk about the small tradesmen, the small men who are so sadly—and it is a bitter sadness to many of us who know them—disappearing all over the country. They are hit by inflation proportionately more highly than anybody else. May I add, although it may not be strictly relevant to this debate, that I think that the small tradesmen suffer far more than
1288
most other citizens from the enormously high rates of interest which began long before this present inflation. They began to be higher and higher seven or eight years ago, and under all Governments they continue to go up, which is a very bad thing. The only people who can really endure these high rates of interest, if they depend to any extent on borrowing money, are enormously rich corporations who have all the money in the world, or " spivs " who are making money not by real production but by a series of clever exchanges one after the other.
Lord DAVIES of LEEK: Property speculators.
The Earl of DUNDEE: Yes, my Lords; anyhow, not genuine producers. I would say to the Party opposite that they should get back to the policy of Sir Stafford Cripps who, when Chancellor of the Exchequer, kept cheap money going very successfully. The Conservatives ought to do the same, because I do not think we shall have a well-balanced economy in future, however well we recover from this inflation, unless we can get the rates of interest at which an honest tradesman can borrow from his bank down to something far below the huge, Shylock figure of 13 per cent., or something like that, at which they have to borrow now. I do not want to say any more except that I hope that the provisions in the White Paper may be successful, but I find it very difficult to have any great and strong certainty on that subject.
5.46 p.m.
Lord SAINSBURY: My Lords, when you are low down in the batting list it in very hard to avoid covering points that have been covered by earlier speakers is the debate. So I apologise in advance to your Lordships House, and will endeavour to make my " innings " as brief as possible. I welcome the opportunity provided by this Motion to discuss two very important Command Papers. May I refer first to the Attack on Inflation: The Second Year. This Paper, in my opinion, states very clearly the achievements of the last year and the aims and target for the second year. The very first sentence provides the key to the Government's policy:
" Britain needs a strong economy and a fair society."

1289
There is no need to dwell in your Lordships' House on the ills that inflation brings, especially to the weaker elements in society: they are known to us all. There can he no disagreement about the number one target of a further halving of the inflation rate by the end of 1977. In trying to reach this objective one of the most important factors is this successful agreement to have a second year of very great wage restraint. At this point in my speech, it is surely fitting to pay tribute, as many noble Lords have already done, to the acceptance by the vast majority of ordinary people, ordinary folk, of the drop in their living standards entailed by this policy, and equally to pay tribute to the statesmanlike and responsible attitude adopted by the TUC leadership in their discussions and negotiations with the Government.
However, as has already been said, the achievements of the Government's target will be made more difficult by the decline in the value of sterling, and the ominous recent rise in raw material and basic food costs in world markets. To quote just three basic commodities as illustration: wheat is over 40 per cent. higher than it was at this time last year; rubber 51 per cent.; tin 48 per cent.
In emphasising, quite rightly in my opinion, the importance of dealing with inflation as the number one priority, there is a danger of overlooking the other important aspects of economic recovery; we must build up our manufacturing industry and increase and strengthen our industrial base in order to increase productivity and efficiency, And I think we would all agree that many sectors of British industry have suffered from overmanning. I think we would equally accept the fact that it is very much harder to reduce over-manning in a period of high unemployment and to effect the necessary transfer of resources from declining to expanding industries. In certain sectors, there are already ominous signs of shortages, particularly of qualified engineers. We must encourage a greater flow of people into productive industry and, what is more, into the production and design departments of firms rather than into research and development.
Nor must we let go unchallenged the prevailing view that industry does not provide a worthwhile career for the bright young graduate. Though this may
1290
take some time, we must overcome the lack of understanding of the workings of industry and of the essential role of profit that seems to prevail in our educational institutions. The Secretary of State for Industry recently pointed out—this was mentioned in an article in The Times this morning—the difficulty in filling industrial posts requiring graduate qualifications. One firm which needed to recruit 30 such graduate engineers found only seven with the required qualifications, the firm having interviewed as many as 117. That is an important but nevertheless rather longer-term aspect of the fight to put industry on its feet.
Our immediate aim must be to try to reverse the downward trend in the profitability of industry and, in this connection, I welcome the changes proposed to the Price Code to encourage investment and employment. Particularly useful is the increase from 20 per cent. to 35 per cent. in the rate of investment relief. However, as the White Paper stresses, it is essential for our economic and industrial recovery that the resources released by the changes in the Price Code are channelled into productive investment. The recovery in world trade, the signs of which are already apparent, presents us with a great challenge and opportunity. Are we going to fall down once more through the lack of required skilled manpower? Are we going to see the occurrence, as in the past, of bottlenecks and the non-fulfilment of delivery dates of our export orders? I am afraid that here I cannot agree with the noble Lord, Lord Wilson of High Wray. I was talking only this week to the chairman of one of our greatest industrial companies, and while these may not be his exact words they are near enough not to make any difference: " What loses us business time and again is our failure to meet delivery dates," he said. I feel profoundly that we now have a great opportunity over the next few years to reverse our comparative decline as an industrial nation. The world admires our skills and the quality of our workmanship even more than the competitiveness of our prices. If we fail, then indeed our future prospects are bleak.
5.56 p.m.
Lord DAVIES of LEEK: My Lords, to the great joy of the Chamber I am the last speaker before my noble friend

1291
Lord Jacques replies to the debate. I did not put my name down to speak until late last night and I will try to cover some points that have not yet been made. I shall, however, in passing, refer to the two White Papers which are before the House. While I supported much of what my noble friend Lord Northfield said in his constructive speech, I heartily endorse what he said about the statement in paragraph 7 about our inflation rate having been halved since last July. That is, as he said, a magnificent achievement, particularly if one takes into consideration the transitional difficulties that we have had.
I agree entirely with what my noble friend Lord Sainsbury said about the need for graduates. In many respects graduates must get rid of a lot of the snobbery that has surrounded this field; a good pair of dungarees and a blue collar are badly needed in industry, and I hope that they will bear that in mind. The point made by Lord Sainsbury about the need for skilled manpower brings me to my worry about cuts in education. After all, when one thinks of British craftsmanship one need only look round this Chamber to see what that means. British engineering skills have been the finest in the world and with the sophistication of modern machinery, computerisation and cybernetics, it is clear that in industry today we need people with high IQs. Industry is not a mug's game; it needs people with skill. I therefore deplore any cutback in education, be it at lower or university level. Ruskin told us that there was no wealth but life. One of our greatest investments is in the young and, whatever difficulties we have or may pass through, I hope that there will be no cutback in education.
The remarks of the noble Earl, Lord Dundee, took me back to my mountain days in West Wales in the early 'thirties when we had to accept a cut of 10 per cent. in our pay. We all knew what the impact of inflation was, just as we know now; and that brings me to the paragraph in the White Paper which states that the Post Office and the railways do not intend to increase their prices in 1976. I hope to goodness that they do not because business, big and small—but expecially small—depends on the postal services, and with a first-class letter costing 8½p,
1292
this is one of the greatest hindrances to small businessmen. I can speak of this from experience in that a member of my family who is in publishing does 90 per cent. of his business by post. I do not mean mail order but legitimate use of the post in a publishing business. Consequently, the Post Office have made a bonanza because somebody miscalculated—very wisely for them—and I hope that we can see a transitional period when we shall have peace in prices in the Post Office and the railways.
I shall now be a bit controversial and, I hope, realistic. I wish that the happy campanologist and philosopher, the noble and learned Lord, Lord Hailsham of Saint Marylebone, were here because he would take me up on this philosophical point. Robert Heilbroner has recently produced a lovely little book which is in hardback and paperback, and in it he asks a question on which even Joseph Schumpeter, the arid American capitalist economist, came to the same conclusion as Marx. Heilbroner asked this question only last week: can the business system that we call capitalism survive? I am not making a Party point. It is a philosophical point that is being discussed by men and women of different political points of view, and even within the Communist system of society today we see a dramatic effect because of the different shades. There is no monolithic Communism today and the different shades of Communism are having very similar problems to the different shades of capitalism. Scoff not at some of the high standards of life that are now creeping into Communist systems such as that of Eastern Germany!
So we have the two great competitors for the mind of modern man searching and facing similar problems. Socialism and capitalism now have their problems because of growth. The worshipping of growth and growth alone is a problem. I mentioned in Committee this morning a very interesting point that Heilbroner had brought out. It sounds stupid, but he gave figures for 10 minerals that modern technological man needs: he considered that they were being dragged out of the earth at the rate of 2.7 billion tons a year. That is exponential at 3 per cent. and, exponentially, in 1,000 years we shall have drawn more minerals out of the

1293
earth than its entire weight, if mankind can go forward to that.
So I put a big question mark. Inflation is a natural element of the progress of civilisation. Take Farrell Rogers' famous work on Work and Wages, when one could buy a sheep for sixpence and the transition from medieval times to today when " See Saw Margery Daw " could earn but a penny a day, but that penny a day was a wage that would keep a peasant going fairly well at that period in history. In other words, we must understand that inflation is part of technological progress.
Now, I shall pose another question on which I do not expect much agreement. Am I right when I say that there is nothing new in crises in capitalism ? Ever since I was a child and reading backwards if I had to do it, and before I was aware, should I be exaggerating if I said that capitalism, which has taught mankind how to produce wonderfully but has not known the answer to distribution, can, consequently, only give full employment when it is at war, preparing for war or just coming out of a war? Is that correct or is it exaggerated? If it be true in the new nucleonic age in which we live, new philosophical approaches must be made and are being made. We have neither Socialism nor capitalism in America or here. We have invented a system of society that socialises the losses and "privatises" the profits. The system is called "State Capitalism". That is what we are moving into. I shall give figures in a moment.

That is no denunciation on my part or anybody else's. We cannot help it. We are all in the boat together. Schumpeter said that civilisation built on what we call business may not be capable of long life. That was said a long time ago, but it was exactly the same thinking as that of Marx. When people scoff about Marx they must not always think of Red Russia and of cutting people's throats. There was a deep philosophical content. No professor of philosophy would admit any discussion of Marxism. When I hear people scoff and say that Marx did not know what he was talking about, I would say with all due respect that of course he made mistakes but that one should not scrub him aside like that. Of course he was wrong and I do not go in for the worship of Marx, but I believe he brought to
1294
mankind what, as I once said in this House, Newton and others brought to mathematics—discovery of the differential calculus which was enabling man to measure things in movement, in mathematics, so that one can build bridges and aeroplanes like Concorde because the stresses and strains can be worked out.
So, studying the movement of man and his production, I believe that these various economists and others have contributed. The system in which we now live is posing insoluble problems to follow. In an endeavour to save the system, both Labour and Conservative agree that we have to pay out money. The system weakens the spirit of bourgeois society and thereby hastens its demise from within as well as from without. The snarling, arid, grasping, technological society, with its thousands of miles of rolling steel which we call cars on its roadways, is a sad demonstration of the failure of technological man to maintain his soul and keep his spirit.
I am not a good Christian. I am an eclectic. All the philosophies of the world have asked, " What shall it profit a man if he gain the whole world and lose his soul ?" I do not want to preach—I leave that to the Bishops—but I believe that technological man is in danger of losing his soul in gaining the world. In a debate like this it is worth somebody standing up and saying that occasionally. What we are drifting into? Years ago, we would have prepared. The biggest tycoon in industry today will, I believe, accept my next statement. He is no longer allowed—except Enoch Powell—to let the economy depend on the profit motive and the free play of a laissez-faire market. I believe that we all accept planning, whether or not we are Conservatives. The tragedy of Mr. Heath was that, when he planned to let more money go into big business, they cheated him and did not invest in the British economy at that transitional period as he had expected. It was not a failure on the part of Mr. Heath in the sense of the man himself; he was let down by the very people whom he was hoping to help. Many of them were big and small business people. How the time flies!
A noble Lord: Keep to the White Paper.
Lord DAVIES of LEEK: My Lords, I am told to keep to the White Paper.

1295
If your Lordships want to keep to an arid piece of paper you can do so with pleasure, but I am going into a part of it which I think more important than the simple figures given in the White Paper. However, since the noble Lord wants me to, I will tell your Lordships. The White Paper, dealing with expenditure, gave £2,249 million to industry for this year; to nationalised industry £3,050 million; and to social security, £10,000 million. I do not want to give your Lordships masses of figures. All these sums of money were put into industry and private industry, housing and the environment, because we had to do it. Whether or not they lost, whatever their policies, both Governments did it and the Treasury agreed. This point about borrowing abroad was made by the noble Baroness. The Treasury had to guarantee it and, because we borrowed in dollars, the British Treasury lost over 1,000 million last year in guaranteeing the loan because of the depreciation of the pound. Grave implications arise for sterling. No matter what we do about inflation, unless we can keep the value of sterling, much of our efforts will be lost.
I shall finish with this. An authority came here to speak to us, and I was delighted to listen to him. It was Sir Eric Faulkner. He spoke to us upstairs on 11 th May. He gave us the figures for 1974, when there was the massive total of £7,500 million in sterling balances in Britain. But that figure then represented only one-twentieth of the world's reserves, whereas in 1949 our sterling balances, which were barely half that, represented one-fifth of the world's reserves. In other words, the revolution of the awakening expectations in the inner two parts of the British Empire and elsewhere has given Europe and Britain this problem of high prices for our commodities.
I do not want to knock the Common Market, but will some noble Lord tell me what we are going to do about our balance of payments? Let us look at our trading with the Common Market. In 1975 we were £2,354 million in the red with the Common Market and only £846 million with the rest of the world. We were promised a bonanza—£7 a week each more in pay—
Several Noble Lords: Oh!
Lord DAVIES of LEEK: That was stated in an advertisement in the New Statesman. I do not make things up. If noble Lords do not like these facts then it shows that they have not done their homework. The fact is that in relation to the Common Market we were down £2,354 million on balance of payments—
Lord SAINSBURY: My Lords, will the noble Lord allow me to intervene for a moment? The noble Lord is leaving an essential fact out of his argument which therefore invalidates it; that is, that there was a diversion after we went into the Common Market for buying food within the Common Market that previously had been bought elsewhere, outside the Common Market.
Lord DAVIES of LEEK: My Lords, the diversion went on for about six years. It cost the British taxpayer £183 million in 1971, £583 million in 1972, £1,167 million in 1973, £2,026 million in 1974 and £2,354 million in 1975. That is what it cost the British taxpayer in balance of payments. So the diversion has lasted a long time. Let us consider what is stated on page 53 of the Modificctions to the Price Code, relating to agriculture. It is stated that:
" The Code does not apply to agricultural enterprises engaged in the production and sale of unprocessed agricultural produce."
Why not ? It is because of the CAP of the Common Market. So we are paying higher prices and artificial prices.
In other words—and I have to accept the referendum of the British people—unless we can get a change in the attitude of trading in Brussels we shall not solve our balance of payments problem or the inflation problem. That will not be done if we do not try to get in the Common Market a much more sensible system than its intervention prices and its stocks of unused food. I have spoken for 17 minutes and I think that is enough. At least it has stirred the Lords a little.
6.14 p.m.
Lord JACQUES: My Lords, we have had an interesting debate. I do not have a prepared speech, and I am going to try to reply to some of the points which have been raised. I thought that the speech of the noble Lord, Lord Carr of Hadley, repre-

1297
sented the reflections of the elder statesman, and I valued it as such. On inflation I thought he was extremely unfair in his argument. I would date inflation back to decimalisation of the coinage. I think that is where it started, and that was even before the last Conservative Government. The housewife certainly dates it from then. Inflation was certainly given a very great stimulus by the monetary policy of 1972-73. While the noble Lord, Lord Carr of Hadley, was elsewhere, we had here economists from the Cross-Benches who were, regularly every three months, warning the Government, telling, them just what they were doing. After the 1972-73 monetary policy, we had—or at least that Government had—the misfortune of the enormous increases in the prices of oil and other raw materials. That was a major factor outside the control of any Government.
It is certainly true that in 1974 inflation was added to largely by the increases in wages, hut that was in a large part due to the antagonism of the workers following the industrial relations legislation up to that period. Therefore, I should say that what we have proved between us is that both Parties have had a little to do with inflation, and the outsiders, the people who raise the prices of oil and other raw materials, also played a substantial part.
I am more concerned, my Lords, with what we are going to do about it. At one point the noble Lord, Lord Carr of Hadley, said that we should continuously be using all measures, in whatever combination was appropriate, to solve inflation. I would entirely agree with that, and I believe that he and I—because he is on the Left of his Party and I am on the Right of mine—could probably agree on the combination. But I am also quite sure that the two main Parties—the Government Party and the main Opposition Party—would never agree on the combination that was required in particular circumstances. So far as the third year of the pay policy is concerned, everybody recognises that this will be much more difficult than the first and second years, and that it should not be left to the last moment. Indeed, the trade unions have already said, as have Ministers, that we must get on with this as soon as possible, and there is intention on all sides to proceed with the discussions immediately so far as the third year is concerned.
1298
The noble Lord, and even more so the noble Baroness, Lady Seear, spoke of the long-term problem, and I should like to make some very simple observations on this. First, I should say that the reform of the trade unions, as distinct from their relationship with Government, is a matter for the trade unions themselves. They are voluntary bodies; they can be advised and so on, but they cannot be instructed, not even by Parliament. They would not stand for it. The more important question the relationship of the trade unions to Parliament and the constitutional problem generally—is of course a very big subject which requires study. Any answer to this should be a considered answer, not an off-the-cuff answer, and so I should not be prepared to comment beyond that at this stage.
On the question of low productivity of our labour, I believe that that is almost entirely due to lack of investment. I am not claiming that that is the only cause, but I believe that it is the main cause. The noble Lord mentioned the 2.2 per cent. return on investment in 1974. It should be emphasised that when a calculation of that kind is made two figures are involved, the profits and the capital. After dividing the profits by the replacement value of the assets, this 2-2 per cent. is largely due to inflation. It is due to inflation and what one may care to term a fall in the real value of the profits, rather than to a fall in the profits themselves. A reduction in interest rates depends upon to what extent we control inflation. If we control inflation there will be a fall in interest rates, but not otherwise.
I was obliged to my noble friend Lord Northfield for his most helpful contribution, and particularly for his defence of public expenditure. I was glad to hear him say that he thinks that not only can we stand the present level of public expenditure but, because of the prospects being so good, we can reduce our public expenditure substantially as a proportion of the gross domestic product. That is a view which I would share. I was interested in the Cross-Bench view of the Price Code. The noble Lord, Lord Roberthall, thought that industry had got much more than half a loaf.
The noble Baroness, Lady Wootton, gave us a lecture on language which was both interesting and entertaining. I would say to her that I still regard inflation

1299
as more important than unemployment, because I believe that inflation at the rate at which we have been experiencing it will cause unemployment and will maintain unemployment in the long run until we conquer that inflation. I therefore think that inflation is more important when it is inflation of the kind we have had in the last two or three years. The noble Lord, Lord Wilson of High Wray, said many things with which I would not disagree, and I am thinking particularly of his observations on our failure in delivery and our failure in components. I believe that he was absolutely right.
I should like to have heard the noble Earl, Lord Dundee, tell us what his Party would have done had they been elected in 1974. They went to the country on the theme of taking a tough line with the unions. I wonder just what would have happened if they had been returned. He did not tell us, and therefore I cannot comment on it. My noble friend Lord Sainsbury thought we were overrating inflation. I still believe that inflation is our main enemy. It is certainly the cause of the 2.2 per cent. return on capital investment.
Lord SAINSBURY: My Lords, may I intervene? I think my noble friend misheard me. I did not underrate inflation; I said that in giving inflation a top priority we must not overlook our other industrial problems if we are to have a more successful economy.
Lord JACQUES: My Lords, I apologise to my noble friend. I think I would agree with that, provided that we say inflation is the most important; but by all means do not let us overlook the other problems. My noble friend hinted at the possibility of our having a shortage of skilled manpower. Here I feel rather strongly. I would say that, if in the next few years we do get this undue shortage of skilled manpower, then we must take more extreme measures than we have ever done before. Particularly have we to pool or socialise the cost of training and apprenticeship; and the number who are trained must depend upon the manpower position and not upon individual employers. That, I believe, will be the cure for that. My noble friend Lord Davies of Leek certainly exaggerates his case, I think, when he comes to the Common Market.
Lord DAVIES of LEEK: My Lords, the figures that I gave are Government figures.
Lord JACQUES: My Lords, I was glad that my noble friend Lord Sainsbury took up my noble friend Lord Davies of Leek on the question of diversification of trade. Goods which we had hitherto bought elsewhere, particularly from the older Commonwealth, are now, as a result of our joining the EEC, coming to us from the EEC, and are transferring from elsewhere to the EEC what would have been an adverse balance of payments in any case. But apart from that, I would remind my noble friend that the Common Market gave both parties—that is, the Common Market itself and us—opportunities. If we have an adverse balance of payments it is because they have taken their opportunities and we have failed to take ours. My Lords, I think we have had a very useful debate, and I again commend to your Lordships the first Motion which stands in my name on the Order Paper.
On Question, Motion agreed to.

LIMITS ON REMUNERATION ORDER 1976
6.24 p.m.
Lord JACQUES: My Lords, this order and the next simply give the Government the power to maintain pay restraint and the power to maintain the Price Code. We have fully debated both the Price Code and pay restraint, and in the circumstances I move this first order formally.
Moved, That the draft Limits on Remuneration Order 1967, laid before the House on 30th June, be approved.—(Lord Jacques.)
On Question, Motion agreed to.

COUNTER-INFLATION CONTINUATION OF ENACTMENTS) ORDER 1976
Lord JACQUES: My Lords, I formally move the second order.
Moved, That the draft Counter-Inflation (Continuation of Enactments) Order 1976, laid before the House on 30th June, be approved.—(Lord Jacques.)
On Question, Motion agreed to.
House adjourned at twenty-five minutes past six o'clock.