HL Deb 15 July 1977 vol 385 cc1110-26

11.25 a.m.

The LORD PRIVY SEAL (Lord Peart)

My Lords, with the leave of the House, I will now repeat a Statement on Counter-Inflation Policy being made in another place by my right honourable friend the Chancellor of the Exchequer. The Statement is as follows:

"With permission, Mr. Speaker, I wish to make a Statement about the further measures which the Government propose to take in the fight against inflation and unemployment in the light of discussions they have held with representatives of the TUC and of the revised prospects for the economy. The Government continue to regard the mastery of inflation as the pre-condition for success in returning to full employment.

"In the last two years the nation has derived immense advantages from the guidelines on pay which the TUC has formulated in agreement with the Government. These guidelines have been fully observed by the whole of the trade union movement and have given invaluable help in the fight against inflation.

"The Government and TUC have recognised that the period after July 1977 must bring an orderly return to normal collective bargaining and that there must be no free-for-all or pay explosion.

"On 22nd June the TUC General Council made a major contribution towards these objectives by publishing guidance on the strict maintenance of settlements made under the current policy. The General Council said that negotiators should not re-open settlements made under the current policy after 31st July in breach of the 12 months rule; and should not defer settlements due before 31st July in the hope of securing an advantage by doing so. The only exceptions to the 12 months rule relate to occupational pensions and self-financing productivity schemes. The Government attach the greatest importance to this guidance by the TUC. Provided it is observed by all those concerned with pay determination in both the private and public sectors, it will go far to prevent a wage explosion from developing after July 1977. It is the keystone for an orderly return to collective bargaining. It means that the Phase 2 policy will continue to affect the level of the nation's earnings until the last settlement made under it expires at the end of July 1978.

"The effect is to facilitate a phased return to normal collective bargaining. For most people the next settlement will not come until the first half of 1978. By that time there is a good chance that, thanks to the strict adherence to the TUC pay policy in the past year, the rate of inflation will be approaching, or will have reached, that of our major competitors. That will provide a better climate for settlements, which can be reinforced by any assistance which the Government are able to give.

"Earnings: The TUC do not think it practicable for them to give general guidance on the level of pay settlements in the next round when the 12 months has expired for the bargaining group concerned. Since the Government have a responsibility for the economy as a whole for and the management of the public sector, they have a duty to the British people to state their position on this matter.

"The country now faces a choice which will determine whether by getting a sustained fall in the rate of inflation we can profit fully from the new opportunities opened up for us by the success of our other policies and the flow of North Sea oil. Many factors may affect the rate of inflation. Some of these are now turning in our favour. On the best forecasts now available of the factors which may contribute to inflation, the prospect for prices in 1978 and after will depend critically on the rate of increase in the nation's wage bill. To take three examples by way of illustration:

"first, if the rate of increase in earnings is not more than 10 per cent., inflation should fall below 10 per cent. well before this time next year and stay there throughout the year;

"second, if the rate of increase in earnings is as high as 15 per cent., we would not get inflation down to 10 per cent. at all, and it would be rising steadily through the second half of next year and into 1979;

"third, if the rate of increase in earnings were as high as 20 per cent. prices would soar and we would be back in the situation we faced just over two years ago.

"Any given rate of earnings increase implies a significantly lower rate of increase in settlements. The rate of increase in earnings takes account of overtime, job changes and other factors which contribute to what is called wage drift. The House will recall that the £6 policy, representing an average increase in wage settlements of nearly 11 per cent., produced an increase in earnings for the year of 14 per cent.

"Faced with a choice of the kind illustrated by the examples I have described, the Government have a clear duty to urge all concerned to base their approach to pay negotiations on getting inflation into single figures. They must therefore urge that the general level of pay settlements should be moderate enough to secure that the national earnings increase is no more than 10 per cent.

"In a period which must mark an orderly return to normal collective bargaining, the Government agree with the TUC that it is not possible to stipulate a specific figure at which individual negotiators should invariably settle, but they must seek to ensure that the national target is achieved. This means that the general level of settlements must be well within single figures. I shall later describe the measures the Government propose to ensure that living standards will not fall in consequence.

"The Government recommend those concerned with pay determination in both the public and private sectors to be guided by these considerations and to make new settlements on the basis that they will last for 12 months. They will do everything possible to secure that full account is taken of this guidance throughout the public sector: the guidance applies equally to the private sector and the Government expect similar action there.

"In settling pay in important areas of the public sector, the Government have long had valuable assistance from the three pay review bodies. The Government value their help and will ask them to continue their task within the guidance for pay I have described.

"It will not be possible in the next 12 months to deal with the whole range of pay anomalies and other problems that have inevitably arisen during a period of strict pay guidelines. Only the most serious difficulties can be tackled in the coming year, if necessary on a phased basis and taking full account of the need to keep the total settlement within single figures.

"Dividend Control and the Remuneration, Charges and Grants Act 1975: The Government propose to extend dividend controls for a further year with the same limit of 10 per cent. as at present. The Government have already announced their intention to extend for one year the present control over the profit margins of manufacturers, service firms and distributors. In addition, it is necessary to continue the provisions in relation to employers in the Remuneration, Charges and Grants Act 1975 to the extent needed to support and enforce the TUC guidance on the 12 months rule. An order will be required under that Act to achieve all these purposes. Further orders will be needed in due course for the details of the margin control.

"Where a firm has reached a settlement which is quite clearly inconsistent with the policies set out in this Statement, the Government will take this into account in public, purchasing policy and the placing of contracts, and also in the consideration of industrial assistance.

"If I may now deal with Government measures to maintain living standards, the government will of course continue discussions with the TUC over the whole field of the Social Contract. Meanwhile, the Government are responding to the TUC's request for action to create a climate favourable to an orderly return to normal collective bargaining. In particular, they are proposing measures which can give working people confidence that their living standards can be generally maintained by moderate settlements at 12 month intervals. These measures are designed to give special help to the low paid and to families with children.

"The improvement in the economic prospect since the Budget—in particular the improvement in the balance of payments—makes it possible for me to make the following proposals in the field of taxation, prices and employment.

"The House has now agreed that the reduction in petrol duty should take effect from 6 p.m. on 8th August. I do not intend to look for offsetting tax increases elsewhere.

"The Government also accept the principle expressed in certain Amendments made at Committee stage of the Finance Bill that the income tax personal allowances should be increased further. However, as I explained in my Budget Statement, the Government wish to concentrate relief this year particularly on families. By contrast, the Committee stage Amendments would tilt the balance in favour of the single personal allowance. I shall therefore be proposing at Report stage of the Finance Bill to substitute an Amendment which will increase the allowances, but restore the balance of my original proposal in favour of families. It will increase the single personal allowance by £40 and the married person's allowance by £70 as compared with the increase in these allowances which I originally proposed in my Budget speech, at a cost of some £490 million; and there will be corresponding increases in other allowances. At the same time, I will propose a reduction in the basic rate of income tax by 1p from 35p to 34p, at a cost of some £470 million. The total full year costs of the income tax reliefs in this year's Finance Bill will thus come to some £2¼ billion—closely in line with my original intention in the Budget.

"Child Benefit: the Government have also decided to increase family support in 1978–79 by a substantial improvement in the rates of child benefit as part of the further phasing in of the child benefit scheme. From April 1978 child benefit rates will be increased from the present £1 for the first child and £1.50 for subsequent children to £2.30 for all children, together with a doubling of the present premium for the first child of one-parent families to £1, at a net Exchequer cost in 1978–79 which will be over £300 million. The new rates will result in part from a further step in the phasing out of child tax allowances, the basic level of which will be reduced to £100. A fuller statement about the level of child tax allowances in 1978–79 will be made in due course. Regulations for the new child benefit rates will be laid very shortly.

"Price Reductions: The Government have decided to prevent certain increases in the cost of living which would otherwise take effect before the end of this year and which are particularly burdensome for people on low incomes or with family commitments. Milk is an important item in family budgets, especially when there are several children. The Government have therefore decided to increase the milk subsidy so as to prevent an immediate further price rise of 1½p a pint and to keep the price of milk-unchanged until the end of the year. The cost will be about £110 million falling in the financial year 1977–78.

"The Government have also decided to raise the income limits for eligibility for free school meals. This will provide over half a million more children with free school meals and increase the number benefiting to about one quarter of those children who take school meals. School meals will now be free for a family with two children having earnings up to over £60 a week, and for a family with four children up to over £75 a week. The cost will be £18 million in 1977–78 and £28 million in a full year and local authorities will be consulted about how this should be reimbursed.

"The electricity discount scheme will be operated again this winter, in order to relieve households receiving family income supplement or supplementary benefit of 25 per cent. of one quarter's bill.

"Additional Jobs and the Industrial Strategy: The Government announced last month a programme of training and work experience courses for young people at a cost building up to £160 million a year; and a special temporary employment programme providing jobs for adults at a cost of £68 million a year.

"The Government have also decided to approve up to a further £100 million for construction in the current financial year, so as to assist employment in the construction industry, which is now going through a particularly difficult time. This is in addition to the £100 million for inner cities which I announced in the Budget. The Government are considering in the course of the normal annual review of public expenditure what further help can be given to the construction industry in the next financial year.

"The Government have also reviewed the requirements for additional expenditure in support of the industrial strategy. As a result, a further cash sum of £70 million will be provided, to be drawn down over the next few years for schemes in the ferrous foundry and machine tools industries and for a new product and process development scheme.

"The total cost of all the measures I have just announced is £1¼ billion in the current financial year, rising to £1½billion next year. The resulting stimulus to demand in the economy will in itself generate substantial additional employment.

"Public Expenditure: The Government will maintain their strict control over public expenditure. The cost of the public expenditure measures in the current year will be found from within the contingency reserve so that no change will be required in this year's planned total for public expenditure.

"The individual expenditure programme for 1978–79 will also be affected by the decisions now announced concerning child benefit, school meals and the industry schemes. However, for total public expenditure the White Paper published last January (Cmnd. 6721) remains the basis for planning. The programmes will be reviewed in detail in the annual survey.

"Cash Limits: For 1977–78 the cash limits have already been fixed and published in Cmnd. 6767. No general changes are planned in the limits. For 1978–79 the assumptions used will reflect the Government's policy on pay. Spending authorities will not be able to rely on supplementary provision beyond the cash limits.

"Public Sector Borrowing Requirement and Monetary Policy: Taken by themselves, the tax reliefs which I have announced this morning imply a net addition of £100 million to the Budget estimate for the PSBR for the current year. On the other hand, developments in the economy since the spring point to a reduction in the original forecast. As I have explained, the additions to public expenditure this year will be found from within the contingency reserve, and imply no additional change in the PSBR. I am satisfied that the measures I have announced will not increase the PSBR above the level of £8.5 billion I forecast in the Budget—that is, a figure within the limit of £8.7 billion which I announced last December at the time of the IMF agreement.

"Equally, I am satisfied that the measures which I have announced this morning are consistent with the limit which I have announced for DCE—domestic credit expansion—and the forecast range for sterling M3. The Government are determined to maintain their DCE limit and related control of M3.

"Conclusion: Mr. Speaker, in deciding on the measures which I have announced this morning, the Government have taken account of the progress achieved on the balance of payments since the Budget, of the guidance given by the TUC for a phased and orderly return to normal collective bargaining, and of the revised prospects for the PSBR in 1977–78.

"They will give substantial additional protection to living standards for working people generally, and especially for families with children and those with earnings well below the average. Indeed for the great majority of workers they will themselves be enough, or more than enough, fully to offset the price increase which the Government expect between now and the end of this year.

"As I have said, this orderly return to normal collective bargaining is essential to our objective of getting inflation down to single figures and keeping it there. We recognise that we are now attempting something which earlier Governments of both Parties failed to achieve. But the policy I have described is one within which living standards will be maintained.

"It is a policy which must be applied by all concerned with good sense and realism. The Government will play their full part with the TUC and the CBI in seeking to achieve this".

My Lords, that concludes the Statement.

11.45 a.m.


My Lords, the House will be grateful to the noble Lord, Lord Peart, for having repeated this important Statement, but I must say that a Statement which lasts for 21 minutes is a fairly substantial Statement, and I think that by most considerations it would be thought to be too long, despite its contents. But this Statement will require time to study, and I shall not fall into the trap of going into points in detail because there is to be an economic debate next Wednesday, and that is when this should be properly done. But I feel bound to refer to one or two matters.

The first matter which causes surprise is that we were all led to believe by the newspapers that there would be a White Paper on the Government's determination, and I wonder why a White Paper has not been issued. There are reports that there was a split in the Cabinet, and that this was the reason why there has been no White Paper, though I would not expect the noble Lord, Lord Peart, to say that that was the reason. But one wonders why the Government have decided not to have a White Paper but to have a lengthy Statement instead.

In so far as the Government feel that the fight against inflation is important, we entirely and absolutely agree. It is the biggest killer of success, incentive and initiative, and of course one of the greatest contributors in this regard is high taxation. This runs right across the board from the highest paid to the lowest paid and is one of the greatest causes of inflation. I doubt whether a drop in the basic rate from 35p to 34p will be hailed by many as a great incentive. However, I was glad to see that the Government are to urge the TUC to bring inflation down to single figures, at the same time as returning to orderly collective bargaining. But why do they give no guideline as to what those figures should be, and how do they think that this can be achieved when there are some wage claims of up to 90 per cent. being mooted already?

I believe that the Government are wrong to place reliance, as they have done again in this Statement, on the prosperity of the future deriving from North Sea oil. The economy of the country should be right, and should be proper, with or without North Sea oil, and I fear that this Statement has done nothing to alter the basic malaise, stagnation, and lack of incentive and encouragement which exists in the economy at the moment.

I should like to ask three questions of the noble Lord, which I consider the most important. Does not the significance of this Statement, whatever it contains, lie in the fact that the Trades Union Congress has decided no longer to go along with the Government in their economic policy? This must be one of the biggest blows, among many, which the Government have received. As the Government are in fact kept in power by the Lib-Lab pact, can the noble Lord say whether the contents of this Statement, or the Statement itself, has had the approval of the Liberal Party? Thirdly, the Government say that they will continue to discuss with the TUC the whole field of the Social Contract which, after all, is the fulcrum of the Government's policy. Is the Social Contract now dead, and if it is not dead, what part of it is still alive?

11.50 a.m.

Baroness SEEAR

My Lords, we from these Benches also would like to thank the noble Lord for the Statement that he has repeated. As the noble Earl, Lord Ferrers, has said, the House would not expect a detailed comment on a Statement which is even more important than it is long—and that is, I admit, saying a good deal. The general tenor of the Statement is one which we must, of course, welcome in that it continues the fight against inflation; and we would agree with the noble Earl that nothing in the economy is more important than that this fight should be won. We should like to reserve our detailed comment for the economic debate next week, when it will have been possible to examine in much greater detail the content of this extremely important document.

There are, however, just two points I should like to make, one a comment and one a question. We on these Benches are particularly glad to see that the Government have resisted the temptation of generalised food subsidies. As the House will be aware, there was of course pressure that these should have been given, but this, we believe, would have been an extremely retrogressive step. On the other hand, it seems to us entirely right that assistance should be given to families, to people with children to support, both in the form of the improved child benefit and in the raising of the level of pay of people able to take advantage of free school meals. The question I should like to put to the Minister, simply to clarify an extremely important point in a long and complicated Statement, is this. I understand that the 12 months rule holds as an item of declared policy agreed by the TUC with the Government: that, while there is not a norm—and, for my part, as I said earlier this week or last week in your Lordships' House, I believe there are advantages as well as disadvantages in not having a specific norm, which inevitably becomes a minimum—it is quite clearly understood on all sides that the 12 months rule holds. This being so, am I right in assuming from this document that, through the Price Commission, sanctions will be taken against the price margins of an employer who seeks price increases where that employer (or perhaps I should say "if an employer" because I will not anticipate that employers will in fact break this 12 months rule) gives a wage increase contrary to the 12 months rule?


My Lords, first may I answer the question about a White Paper? The point there is that we needed to get this out very quickly, before Parliament rose. A White Paper takes a long time to produce and to print, and this was a very convenient way to do this. There was no split, and I am amused at the suggestion. The Opposition do not seem too pleased about the Statement. That pleases me, really. I suspect they realise that it will be broadly welcomed by the nation as representing a good package and also as outlining the strategy for conquering inflation and pulling this country through. So I do not think the Opposition should be too critical. I await with interest the debate on Wednesday, when no doubt we shall be able to be more dialectical, when we shall have more debate, and when we shall he able to analyse in greater detail and depth. But that is the reason.

I was asked by the noble Earl, Lord Ferrers, about the fight against inflation and high taxation. I should have thought that the proposals we have put forward would, again, be welcomed. The whole of the strategy is designed to challenge inflation, to overcome it and to reduce the rate so that we can compete with our competitors in the markets of the world—and we shall do this. The noble Earl warned me about oil. He knows that oil is going to come; that is why the Tories are so anxious to get back. They will do anything. Their Leader is so anxious to get power. She is afraid that, if we go on with successful policies, the British people, in their good common sense, will return the Government which brought them through.

I was also asked about the "Lib-Lab Pact" and the attitude of the Liberal Party. That is for the Liberals to say, and the noble Baroness, Lady Seear, has mentioned their views on this. I think there has been a general welcome, at least to the tenor of the Statement, but emphasising the fight against inflation. Then I was asked about food subsidies.


I am sorry, my Lords, but would the noble Lord answer the point I made?


My Lords, I will come hack to it. I do not want to monopolise the debate. I agree with the point made on food subsidies. I know that the noble Baroness raised this point in a previous economic debate, and I think I answered it then. We think a specific subsidy—for example, on milk—will be broadly welcomed, as will also the proposals with regard to school meals. May I say to the noble Earl, Lord Ferrers, that I think the farming communities will welcome this, too, because, after all, milk is produced by British farmers, and this will be good for both the producer and the consumer. The noble and learned Lord, Lord Hailsham, need not smile about this. When I was Minister of Agriculture I was always asked to consider this because the consumption of milk is important for our own domestic agriculture.


What about the bread subsidy?


The noble Earl, Lord Ferrers, wanted to ask something. What did I miss out?


My Lords, the noble Lord, Lord Peart, said, quite rightly of course, that whether or not the Liberal Party agreed with the Statement was a matter for the Liberal Party. That was not the question I asked. What I asked was: Had the contents of the Statement had the approval of the Liberal Party?


My Lords, I cannot say that. I cannot, honestly. However, there is no reason why the Tory Party should worry about our relations with the Liberal Party. Is it because it is a success? I believe it is.


My Lords, may I ask a purely neutral question? The noble Lord the Leader of the House has twice expressed the hope that inflation may be speedily brought down to that of our major competitors. Could he quantify a little and give some indication of the length of time it will take to reach that goal?


No, my Lords. I could not answer that and I would be a fool if I tried to be specific. I am being neutral, too.

Viscount AMORY

My Lords, may I ask the noble Lord one question? In the comprehensive Statement we have just listened to, I do not think there was a reference, though I may have missed something, to the continuing control of the money supply. The question I should like to ask the noble Lord is whether we may take it that the policy of the Government is to continue to keep a firm hand on the excessive expansion of the money supply, which might aggravate unemployment. I have a second, subsidiary question, if I may. The noble Lord was casting about for reasons why the White Paper was not published. Had he thought, bearing in mind the Question we had earlier, that one reason might be the undesirability of adding further to the supply of waste paper?


My Lords, I do not think I will follow that one up. I do not think this document will be thrown in the wastepaper basket. It will be read, I hope, by everyone concerned. Yes, I did make a reference to money supply, and we regard that as important. Again, I once stressed this in a previous debate. I will certainly deploy this argument in detail later, when we have our debate next week.


My Lords, I wonder whether I might ask the noble Lord whether he is going to reply to the question put by my noble friend Lady Seear on price margins, which we consider to be very important? May I also ask him about a specific point in the Statement? It is one which I have raised on a number of occasions. Can he amplify the reference to the occupational pensions and the 12 months rule? There is a tremendous interest among potential pensioners, companies and trade unions to get a clear statement as to whether they can now, in the light of this Statement, go ahead and improve existing schemes and bring in new ones to benefit, particularly, low-paid workers and people who are going to retire within the next two or three years. This is important. If the noble Lord cannot answer it now, may we have a clear statement from the Minister concerned on Monday? Because the new scheme comes into operation in April of next year, and everything has to be ready in December of this year.


My Lords, I am sorry I missed the question that the noble Baroness asked, which was on firms breaking the price control and the question of sanctions. I cannot at this stage say anything specific. I mentioned how we could, through contracts, affect certain firms in other directions, but there is nothing specific in my Statement on that. I will follow that up on Wednesday. On the other matter, which is a detailed one, yes, I will have a look at this. It is a very important one; but there is nothing in the Statement on this.


My Lords, is it not interesting that, in their great concern about taxation, noble Lords opposite have not had the grace to mention the fact that the lower paid will be dealt with by taxation, and that their only concern was for the higher paid?


My Lords, would the noble Lord the Leader of the House be good enough to bear in mind that it is extremely difficult, for me, anyway, to assimilate a Statement of that length? I take it that we shall have to wait for Hansard before we can see it. If not on this occasion—when it might be difficult—would he in future bear in mind that when Statements of similar length are read duplicate copies should be made available in the Printed Paper Office at the conclusion of the Statement?

The second question that I should like to ask is this. While fully appreciating the difficulties—and every noble Lord must be aware of those difficulties—which face not only the Government but the country, may I ask whether the noble Lord the Leader of the House would give an assurance that, in the framing of policy and its implementation, the Government will bear in mind, particularly at a time when basic human rights are the subject of world discussion, that there is a fundamental human right; that of a man to provide, through the sweat of his own brow, food and covering for his family?—namely, the right to work. Another name for that, when it is not available, is unemployment. I. for one, fear that this Statement, tested against time, may, a year from now, result in unemployment in this country much worse than it is now. That, basically, is the embittering factor that makes it so difficult for the responsible men who lead the trade unions to get the acquiescence of their rank and file to the proposals of the Government.


My Lords, I agree with my noble friend that the question of unemployment is a very serious one and something that causes great distress. We must conquer it; I accept that, but it is not going to be easy. One has only to see the figures of unemployment for countries in the European Community. France produced some figures only yesterday. The proposals are partly designed to deal with this. I mentioned the specific measures announced by my right honourable friend the Minister for Employment. They are very positive measures to stimulate training and also to get a good climate in industry so that we can go forward to expansion. That is our strategy and we shall continue it. I am sorry that the Statement was so long; but I asked the Treasury last night whether they would supply duplicate copies in the Printed Paper Office. I hope that they are there. If not, I shall find out why. Nevertheless the text will be in Hansard.


My Lords, could the noble Lord help me on a point which he may think is not enormously important and which may be clear to him. I understood him to say that the total cost of the measures proposed would be £1¼ billion in the current financial year; that current expenditure would still be subject to rigid control and that Command Paper 6721 would remain the basis of the allocation of funds. Referring to Command Paper 6721, I find that the amount set for contingency, which is the fund on which he proposes to draw, is not £1¼ billion but only £650 million. There is a similar discrepancy between the figure for the next financial year and the £900 million set out there. Although this may seem a question of detail, there may be £850 million to be found elsewhere and I think that the House ought to be told from where; because taxation, not unwelcomely, is to be reduced and it must come from somewhere.


My Lords, we are to have a debate. I mentioned the total cost of the measures which I have announced as £1¼ billion in the current financial year rising to £1½ billion next year. We can examine the figures in depth in the debate.


My Lords, while welcoming very much the social measures which have been announced and hoping that they will create the atmosphere necessary for a continuation de facto of the Social Contract, may I ask whether my noble Leader would not agree that normal collective bargaining, in the past, at any rate, has meant cumulative cost inflation?


My Lords, I recognise some of the dangers here. With good will and a sense of responsibility on both sides, I think that it is right that we should have an orderly approach to this system. I believe that this is the right way to do it. There are dangers, I agree. As I said before, no country and no Government have ever tackled this successfully. We must do it this time.