Sitting of 30 November 1966

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]
PRIVATE BUSINESS
  ROSS AND CROMARTY (STRATHCARRON- SOUTH STROME ROAD) ORDER CON- FIRMATION BILL
  Considered; to be read the Third time Tomorrow.
ORAL ANSWERS TO QUESTIONS
  MINISTRY OF AVIATION

    Concord Aircraft
    Mr. Ellisasked the Minister of Aviation how far ahead of schedule the Concord project is at present.
    The Minister of Aviation (Mr. Frederick Mulley): Although there are naturally some variations between sections, the project as a whole is, as I said in the debate on 21st November—[Vol. 736, c. 969]—on schedule. All the main dates are being met. The first interchange of components for the prototypes between B.A.C. and Sud-Aviation took place in August according to programme, and their assembly is proceeding on schedule at Filton and Toulouse.
    Mr. Ellis: In thanking my right hon. Friend for that reply, may I ask him how many firm options have been received and what are the prospects? What is the position regarding quantity production of the aircraft, and what decisions in this direction remain to be taken?
    Mr. Mulley: In a sense, all the options are firm since a deposit is payable, but at a later stage, of course, the airlines can decline to buy if they so wish. I think that the latest number of options is 65. As to decisions which have to be taken about production, most of the pro-
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    duction contracts will not fall to be placed until after the prototype has flown.
    Mr. A. Royleasked the Minister of Aviation when he intends to set up a production line for the Concord airliner.
    Mr. Ellisasked the Minister of Aviation what Ministerial decisions remain to be taken before the Bristol Aeroplane Company can go ahead with plans for quantity production of the Concord.
    Mr. Mulley: There have been various discussions between British and French officials, with which representatives of the British and French contractors have been associated, on the problems of financing the production of Concord. Detailed negotiations will be necessary before a comprehensive scheme can be agreed. The immediate problem is the authority for expenditure on some long-dated materials, and I hope that arrangements will be settled with contractors in the next few weeks. Both we and the French Government are determined that the contractors' plans for starting production should not be delayed.
    Mr. Royle: When will there be final completion of the discussions on production financing? It is vitally important that an early decision is taken. Is the right hon. Gentleman aware that every month's delay which occurs could mean that production drops behind, reducing the very significant lead in time that we have at the moment over the United States of America?
    Mr. Mulley: I have just made it clear that we are determined to avoid any delay, and no delay has occurred. There is no question of starting production assembly at present. The question only is that they should have the maximum time to buy in the long-dated materials, and we are in process of giving that authority to them.
    Mr. Ellis: While thanking my right hon. Friend for his answer, will he reaffirm that in the next few weeks these decisions will be taken and that nothing else will stand in the way of the production side of Concord?
    Mr. Mulley: There is no question of there being any need to start production now. We are still a long way from the end of the development programme. What

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    we have to do is to see that decisions are taken in time so that there is no delay in the subsequent stages. It would be quite impossible to start producing aircraft before completing the development and before a prototype has flown.

    Bathgate (Contracts)
    Mr. Dalyellasked the Minister of Aviation what directives he has recently issued to provide for the purchase of goods by his Department in areas of high unemployment, such as Bathgate.
    The Parliamentary Secretary to the Ministry of Aviation (Mr. Julian Snow): My right hon. Friend has recently given instructions that the arrangements for giving preference in the award of Government contracts to firms in the former development districts shall be extended to the wider development areas set up under the Industrial Development Act, 1966.
    Mr. Dalyell: Can my hon. Friend state the value of such orders which have been placed in the Bathgate area?
    Mr. Snow: No such value is on record, but if my hon. Friend will write to me on this matter I may be able to help him.

    Olympus 593 Engine
    Mr. Lubbockasked the Minister of Aviation what information he has received from Bristol Siddeley about industrial espionage in relation to the Olympus 593 engine for the Concord.
    Mr. Snow: None, Sir. I understand that Bristol Siddeley is taking all appropriate steps to protect the commercial secrets of this engine.
    Mr. Lubbock: Is it a fact that the Russians have been inviting senior executives, of the Bristol Siddeley company to give lectures in the Soviet Union in order to obtain information from them and that they have made direct applications for details of the test programme on the Olympus 593? Can my hon. Friend say whether there is any truth in the report, which appeared in the Daily Express on 14th November, that Bristol Siddeley has recently had to tighten its security precautions?
    Mr. Speaker: Order. The hon. Member must make himself responsible for his own question.
    Mr. Snow: I am not, of course, responsible for what appears in the newspapers. A distinction must, however, be drawn between company confidential information, which is at the company's discretion, and military security, which does not arise in this case. As for the rest of the hon. Member's supplementary question, I think that the company is well aware of the considerations.

    V.G. Aircraft and Airbus
    Mr. Rankinasked the Minister of Aviation if he will now make a statement on the future development in association with France of the variable-geometry aircraft and the airbus.
    Mr. Mulley: I have nothing to add to what I said in the Aviation debate on 21st November on the V.G. aircraft and on the airbus.
    Mr. Rankin: Does my right hon. Friend recollect that the Bristol Brabazon was a pioneer of the airbus but that we did not have the engines to lift it? Now that we have the engines, will my right hon. Friend assure us that we will retain the position with the airbus that we established 15 years ago? Would he say whether financial difficulties are impeding progress on the V.G. development, and can he also say——
    Mr. Speaker: Order. Questions should be reasonably short.
    Mr. Rankin: There are two parts to it, Mr. Speaker. Could my right hon. Friend say whether politics are playing a part in preventing the development of the V.G.?
    Mr. Mulley: As both I and my right hon. Friend the Secretary of State have pointed out on several occasions, we are determined to do all we can to get the V.G. project going forward. There are no financial considerations standing in the way on our side. As to the airbus, as I said in the debate on 21st November, we shall do our best to progress the airbus if an economic proposition can be agreed with our European allies. I do not think that my hon. Friend is accurate in saying that an engine for it exists. If a European engine is to be adopted for a European airbus, it would need to be developed.
    Mr. R. Carr: Can the Minister assure the House that in the unfortunate event of the Anglo-French V.G. product falling

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    to the ground, the Government have done contingency planning for the alternative?
    Mr. Mulley: I can give the right hon. Gentleman that assurance. We are very well advanced with contingency planning about what we should do. We would hope to make an announcement almost immediately if it failed.

    Aircraft Noise
    Mr. Burdenasked the Minister of Aviation what sum of money has been allocated for research aimed at reducing aircraft noise.
    Mr. Snow: £385,000 in this financial year.
    Mr. Burden: Can the hon. Gentleman give the House any information about whether any useful results are beginning to flow from this money, which will be welcomed in view of the growing concern among all parties, including the airlines, about noise and its effects upon the civil population?
    Mr. Snow: The new research facilities coming into operation now, which include an anechoic chamber at Farnborough and the new laboratory at Ansty, Coventry, for examining noise problems on large-scale compressors and intakes, are achieving some results. There is no real shortage of money, but there is a real shortage of ideas on this problem.
    Mr. A. Royle: Can the hon. Gentleman tell us how that figure compares with previous years? Is it an increase in the money spent on research into these subjects in the year previous to 1965–66?
    Mr. Snow: It is in accordance with the scale of the new facilities which I have mentioned. I repeat that there is no real shortage of money for this very serious problem.
    Mr. Royle: Is it an increase?
    Mr. Hector Hughes: Will the Minister say how this money is being allocated, to what kind of programme it is being directed, and what scientific methods are being used to ensure that noise over our cities and towns is diminished?
    Mr. Snow: I have mentioned the facilities for the theoretical research into the problem, but I make no secret of the
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    fact that the problem is not yet beaten. There are various ideas, such as modifying the thrust nozzles of engines. However, this is a very complex matter to be answered by Question and Answer on the Floor of the House.
    Mr. R. Carr: Will the hon. Gentleman give a specific answer to the supplementary question asked by my hon. Friend the Member for Richmond, Surrey (Mr. A. Royle)? Is the amount of money being spent this year more or less than in previous years?
    Mr. Snow: I would like to have notice of that Question, but I will see that the right hon. Gentleman is informed.
    Mr. Royle: In view of the unsatisfactory nature of the hon. Gentleman's reply, I give notice that I propose to raise the matter on the Adjournment at the earliest possible moment.
    Mr. Kenneth Lewisasked the Minister of Aviation to what extent consideration is being given in the production of the Concord to the need for reducing aircraft noise.
    Mr. Mulley: One of the Concord design objectives has been that noise on takeoff and landing should not exceed that of the present large subsonic jet aircraft. Sonic bang is a different problem, to which we are giving constant attention, but it cannot be alleviated to any significant extent by changes in the design of the aircraft.
    Mr. Lewis: Is the Minister aware that there is a general belief that this is going to be a very noisy aircraft and that the supersonic boom will cause a great deal of trouble? Can he assure the House that really close attention is being given to it, because it could affect sales of the aircraft?
    Mr. Mulley: We are concerned to keep the noise of take-off and landing down to the minimum. The Concord will climb rapidly and cruise at a very high altitude, which will minimise noise in the ordinary sense in which complaints are received, and a noise attenuator is being developed by S.N.E.C.M.A., which, if successful, should make a significant reduction in noise up to 5 decibels.

    Anglo-French Co-operation
    Mr. Ridleyasked the Minister of Aviation what progress he has made toward the agreement of an Anglo-French helicopter project.
    Mr. Mulley: My right hon. Friend the Secretary of State for Defence and I have made a good deal of progress in our talks with M. Messmer. We hope that the outstanding issues will have been settled in time for a further meeting early in the New Year.
    Mr. Ridley: Does the right hon. Gentleman mean that the report that a large order for helicopters is about to be placed is not true? If it is true, can he say what there will be for the United Kingdom aircraft industry as a result of such a contract?
    Mr. Mulley: I can confirm that no part of this proposed arrangement has yet come into force. As it was set out in the communiqué, the arrrangement is that we and the French should jointly develop an airportable support helicopter, a light observation helicopter and a utility helicopter. What we hope to do is to divide the work so that we can provide equally for our joint needs.
    Mr. Ridleyasked the Minister of Aviation what further contracts he hopes will be let as a result of Anglo-French co-operation.
    Mr. Mulley: The placing of further contracts will be determined by the varying stages of the different collaborative projects.
    Mr. Ridley: Would the right hon. Gentleman try and negotiate with the French that, in any further contracts placed, a main contract will be placed either with a British or a French firm with obligations to subcontract to the other country, rather than splitting the contract into two?
    Mr. Mulley: That is the object of the helicopter arrangement—that one company, either in this country or in France, would make the helicopter, and it would be arranged in the kind of way that the hon. Gentleman suggests. However, it is not possible to do that for the existing contracts.
    Mr. Edelman: Would my right hon. Friend say whether he has now agreed on a joint specification with the French for the variable-geometry aircraft?
    Mr. Mulley: The operational requirements are agreed and, as was announced in the communiqué, the companies both in France and in this country are working further to complete the detailed specifications.

    Aircraft Workers (Emigration)
    Mr. Dobsonasked the Minister of Aviation if he will give an estimate of the number of professional men and technicians who have left the aircraft industry to work abroad in foreign-based companies.
    Mr. Snow: I would refer my hon. Friend to my right hon. Friend's reply to a similar Question by the hon. Member for Richmond, Surrey (Mr. A. Royle) on 18th October—[Vol. 734, c. 10.] In addition, 230 technicians are estimated to have emigrated in 1965, the only year for which information is available.
    Mr. Dobson: Would my hon. Friend not agree that some of the figures which are released are highly exaggerated and that much more accurate information is needed in order not to upset people who are still working and need to work in the industry for many years?
    Mr. Snow: Yes. The situation can be exaggerated, but it is a matter with which my right hon. Friend is keeping very closely in touch.
    Mr. Onslow: Will the hon. Gentleman not agree that the Minister has not got sufficient information to show whether these figures are exaggerated or not? Is he not very short of information on the subject, and should more research not be done? Should he not accept that the only way to stop the brain drain is to provide a decent continuous work load in this country?
    Mr. Snow: It is the aim of my right hon. Friend's present negotiations to secure an efficient industry. As he said in the debate last week, we left the industry in 1951 in a much healthier state than we found it when we took it over again in 1964.
    Mr. R. Carr: Is the hon. Gentleman aware of what appear to be very factual

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    figures in relation to certain important plants about the brain drain given by the Action Committee for European Space? These seem to be very specific figures. Does he accept or deny them?
    Mr. Snow: I think that they are not beyond criticism.

    Transport Aircraft Requirements Committee (Secretariat)
    Mr. Fortescueasked the Minister of Aviation whether he has yet acted upon the recommendation of the Plowden Committee that a full-time secretariat should be appointed within his Department for the Transport Aircraft Requirements Committee.
    Mr. Snow: After discussion with the Transport Aircraft Requirements Committee last January, my Department concluded that a full-time secretariat is not justified. But the part time secretariat already provided by one of the administrative branches most closely concerned with civil aircraft has been strengthened so that it has more time to concentrate on T.A.R.C. matters.
    Mr. Fortescue: In view of the extremely harsh criticism of this Committee in the Plowden Committee's Report, can the House be assured that every possible action is being taken by this part-time secretariat to remove the causes for that criticism?
    Mr. Snow: Yes, Sir. I think that the steps which I have mentioned are an answer to the hon. Gentleman's question. We attach a lot of importance to its advice, but it does not take decisions.
    Mr. R. Carr: Is the hon. Gentleman not aware that not only was the efficacy of this Committee criticised in the Plowden Report, but that some years earlier at was criticised by the Estimates Committee as a result of an investigation? Should not these recommendations for further improvement be taken more seriously?
    Mr. Snow: I do not understand the right hon. Gentleman's question. Some improvement has been made, even if we have not accepted the full recommendations of the Plowden Committee. I might add that it is backed by a strong executive committee within the Department.

    Aeronautical Research Council
    Mr. Fortesqueasked the Minister of Aviation whether he has yet acted upon the recommendation of the Plowden Committee that the industrial membership of the Aeronautical Research Council should be strengthened and the Council's terms of reference and structure over-hauled.
    Mr. Mulley: Yes, Sir. Industrial membership on the Aeronautical Research Council has been increased from 3 to 5, and the Council's terms of reference and structure will be reviewed in the light of discussions now under way between my Department and the S.B.A.C.
    Mr. Fortesque: In view of the extremely shadowy nature of this Committee, the names of the members of which cannot be obtained by a Member of this House by any normal channel of communication, can the right hon. Gentleman expand a little on his Answer and say what representations the industrial members have, whether they are trade unionists, whether they are manufacturers, exactly who they are, and what they do?
    Mr. Mulley: I think that it would go beyond the bounds of an answer to a question in terms of time to go through the list, but I shall consider sending the hon. Gentleman a copy of the terms of reference and the membership of the Committee. The industrialists on the committee are all representatives of important companies in this field.

    Research Establishments
    Mr. Grantasked the Minister of Aviation whether he has accepted the recommendation of the Plowden Committee that the Government research establishments should be set a firm target for reducing their aeronautical activity.
    Mr. Mulley: It is difficult to set a firm target owing to the constantly changing nature of defence and civil requirements, but I am examining what reductions are practicable and a start has been made on certain non-aeronautical work.
    Mr. Grant: May I assume from that Reply that the Minister accepts the Plowden Committee's target to reduce aeronautical activity? If so, is he not aware that this will strike a blow at our technological advance, and very much depress

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    the morale of those on whom we greatly depend?
    Mr. Mulley: This is part of the reason why we feel that it is not easy to set a firm target. Quite clearly, one has to review the amount of research in conjunction with the needs of the defence services and the amount of civil research required, and we have concentrated more on immediate economic projects rather than on some of the long-term research.
    Mr. Dalyell: Will my right hon. Friend confirm that he has been active in promoting a drive for contact between the R.A.E. and industry?
    Mr. Mulley: We are doing all that we can to promote further contacts, and one important development during the last year has been the linking up of two of our establishments with universities on an exchange basis.

    Market Research
    Mr. Grantasked the Minister of Aviation whether he will make a statement regarding measures taken to strengthen his Department's section dealing with market research in accordance with the recommendation of the Plowden Committee.
    Mr. Snow: My Department has a small team of officials engaged full-time on market research which maintains close and cordial contact with the industry and airlines on market research matters. The team has been strengthened following the recommendations of the Plowden report.
    Mr. Grant: I am sure that we are all glad to hear that the Government have accepted the recommendations in the Plowden Report in this respect. When the Ministry of Aviation disappears, will this aspect of the matter, market research, be the responsibility of the Board of Trade or of the Ministry of Technology?
    Mr. Snow: It will be the responsibility of the Ministry of Technology. I think that I should also mention that there is a not unimportant difference between long-term and short-term market research. As an example, my right hon. Friend recently authorised an examination of the position in New Zealand,
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    where there is a procurement order forthcoming and where collaboration has been very close, to ensure that all in New Zealand who are concerned realise the superiority, technically and economically, of British aircraft.

    B.A.C. and Hawker Siddeley (Airframes)
    Mr. R. Carrasked the Minister of Aviation when he expects to complete his negotiations with the British Aircraft Corporation and the Hawker Siddeley group for the merger of their airframe interests; and whether he will make a statement about the nature and timing of any legislation which will be required to provide the necessary public funds.
    Mr. Mulley: I cannot predict how long the negotiations with the British Aircraft Corporation and the Hawker Siddeley Group will take, but we shall press on with them as quickly as possible. The nature and timing of legislation required will depend upon the outcome of these negotiations.
    Mr. Carr: May I ask two questions? First, can the right hon. Gentleman give the House any idea of what sort of profit turn the Government will be expecting on the public investment in this industry? Secondly, on the question of timing, can he confirm the promise clearly made in this House by the Prime Minister on 16th June that his, the Minister of Aviation's, office will not disappear until the major recommendations of the Plowden Committee have not only been decided upon but implemented? In other words, will he be there until this is finished?
    Mr. Mulley: I am grateful to the right hon. Gentleman for seeking to save me from redundancy—[HON. MEMBERS: "Shake out."]—but the employment of all Ministers and the organisation of Government are not matters for me, and I think it unlikely if, as I expect, the Ministry ends early in the New Year that these negotiations will have been concluded, although obviously our attitude to the Plowden Committee recommendation has been decided and announced and the planning has been done.
    On the question of profit turn, I do not think that anyone can answer a question of this sort until we know the sums of money involved in more detail, because

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    neither of these companies is a public company in the sense that one can draw a value from its shares from the published figures. Each is a subsidiary of other companies.
    Mr. Heffer: Has my right hon. Friend had drawn to his attention an interesting article in this week's Economist which says that the nationalisation of the aircraft industry is the only solution to our problem in this field? Can he say whether the Government have seriously considered this, and whether they have any future plans in this direction?
    Mr. Mulley: As I announced during the debate last week, this is the basis on which the Government's reorganisation of the industry is proceeding. Naturally, before coming to this conclusion all possible alternatives were carefully considered.

    Research, Development and Production
    Mr. R. Carrasked the Minister of Aviation whether he will prepare, in conjunction with the aviation industry and then publish, a long-term programme of specific projects for research, development and production.
    Mr. Mulley: The 1966 Defence White Paper described the Government's military aircraft procurement plans as far ahead as can be foreseen. In the civil field, the initiative rests with the manufacturers to put forward any proposals for new projects which they think worthwhile, seeking Government support if necessary. Through the Transport Aircraft Requirements Committee the industry, operators and the Government maintain close liaison on the prospects for all significant future transport aircraft.
    Mr. Carr: As the core of the future defence programme—and I use the Government's own words—seems for the moment to be more synthetic than real, does the right hon. Gentleman really think that the Defence White Paper and what he said about civil aircraft constitutes the sort of long-term programme of specific objectives which this industry must have if it is to be efficient or if the brain drain is to be halted?
    Mr. Mulley: I think that the right hon. Gentleman must understand that the programme consists not of vague generalities but of specific projects, and it is these
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    specific projects which we have to examine, and, following the advice which the right hon. Gentleman gave as long ago as February, when he said that for every project we must judge the market, we must be satisfied of the economic viability of the project. We are always prepared to examine any such projects which industry brings to us to promote. It is not the Government's job to initiate civil aircraft requirements.

    VC10 Aircraft
    Mr. Onslowasked the Minister of Aviation what studies he has commissioned of the potential market for a 250-seater version of the VC10 aircraft.
    Mr. Rankinasked the Minister of Aviation what further proposals he has about the specifications of a long-range civil aircraft to meet the future needs of British European Airways.
    Mr. Mulley: As the House is aware, a study was made in 1965 by the Economist Intelligence Unit for my Department of the market for a long haul version of the VC10 of about this size. Experts from my Department took part earlier this year in an international study of the market for short/medium range aircraft around this size, i.e., of the so-called "airbus". Versions of the VC10 suitable for short haul use have been proposed recently to B.E.A. by B.A.C., and are being evaluated.
    Mr. Onslow: Would not the right hon. Gentleman agree that it would be a great tragedy if this very successful aircraft in its present configuration were not to continue in a larger size, and can the right hon. Gentleman foresee that if the European airbus is not likely to be built, as appears only too probable, this might fill a great market need?
    Mr. Mulley: I should be extremely happy if a large market for a lengthened VC10 were to emerge.
    Mr. Rankin: In view of the fact that Question No. 18 deals with a 250-seater version, and that in Question No. 26 I am thinking of the 170-seater version recently put forward by B.A.C., can my right hon. Friend say at this stage to which size of aircraft he is inclining?
    Mr. Mulley: I am sorry if I misunderstood my hon. Friend's Question. I thought that the long-range civil aircraft which he had in mind was the VC10. The BAC211, as I think it is called, is a stretched version of the BAC111. It is a short and medium-range aircraft, and not a long-range one. It is not for me to form a view about this. Both aircraft are currently before B.E.A., and the Minister now responsible for the activities of B.E.A. is my right hon. Friend the President of the Board of Trade.

    Beagle Aircraft Company
    Mr. Onslowasked the Minister of Aviation what is the purpose of his negotiations with Pressed Steel Fisher about the future of the Beagle Aircraft Company; and if he will make a statement.
    Mr. Mulley: We have been considering means by which the future of the Beagle Aircraft Company, which is a subsidiary of Pressed Steel Fisher Limited, can be assured. Discussions are still proceeding with Pressed Steel and I will make a further statement as soon as possible.
    Mr. Onslow: Can the right hon. Gentleman say, first, whether he sees this—as his Answer appears to imply—as a rescue operation? Secondly, has he any intention of amalgamating the Government share in this company with the Government's share in the bigger airframe merger?
    Mr. Mulley: I cannot answer either question, because until a decision is known I shall not know whether it is possible to do either of the things that the hon. Gentleman suggests.

    United States and France (Projects Study)
    Mr. Hastingsasked the Minister of Aviation what action he has taken to implement the recommendation of the Plowden Committee that a further study should be made of the methods employed in the United States of America and France for initiating, assessing and launching new projects.
    Mr. Snow: Before the Plowden Committee's Report, and subsequently, we have had access to a great deal of information about American methods and
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    procedures. We have also been able to study the methods of the French at close hand through our association with them on both military and civil projects.
    Mr. Hastings: Is the Minister aware that this is welcome news, but that what we are looking forward to are some conclusions on improvements as a result of this study? Does not he agree that one of the main differences is the speed with which the American and French seem to be able to take decisions in the aeronautical field compared with us and the confidence which exists between the industry and the Governments of both countries, which is sadly lacking here?
    Mr. Snow: I hope that the hon. Member is not citing in aid the French authorities' indecision on the VG, which we are hoping will come to a successful conclusion. The real trouble here is the lack of precision in the science of development costs estimating. This is a very difficult matter, which is receiving most urgent attention by the Department.

    Components and Techniques (Development)
    Mr. Hastingsasked the Minister of Aviation whether he has accepted the recommendation of the Plowden Committee that the development of promising components and techniques should not be ruled out solely on the grounds that the system into which they would fit has not yet been approved.
    Mr. Snow: As my right hon. Friend stated on 1st February in the debate on the Plowden Committee Report, this is already the Government's policy.
    Mr. Hastings: Will the Minister accept that there is not as yet in the industry very much sign of this? There is a clear difference between the weapons system approach and an approach based upon promising components, which is what the Plowden Committee recommended? Do we understand that this is now Government policy?
    Mr. Snow: Yes. Anticipation of complete operational requirements is already the subject of various projects which are in train—for instance, the RB162 lift engine and, in addition, the advanced lift engine which is being examined jointly with the United States Government.

    Jaguar Aircraft
    Mr. A. Royleasked the Minister of Aviation what manufacture of the Jaguar strike/trainer aircraft will take place in the United Kingdom; when production contracts will be awarded; and what rate of profit to the manufacturer will be provided for in these contracts.
    Mr. Mulley: Production plans are now being drawn up for substantial numbers of this aircraft. It is too early to say when production contracts will be awarded. The profit rates will accord with the normal practices of Her Majesty's Government and of the French Government.
    Mr. Royle: Is the right hon. Gentleman aware that there is grave concern in this country at the possibility that this project might also be cancelled? Will he give an assurance that there is no question at present of the Jaguar project being cancelled by either the French Government or ourselves? Will he also give an assurance that there is no question but that he will tell the House immediately a decision has been reached on numbers and the profit which will be made from this aircraft?
    Mr. Mulley: It is not usual to give the House figures of profits—[Laughter.] —or losses. These are confidential affairs of the companies. I should be happy to read them to the House if I had the permission of the companies concerned. On the question of assurances, I do not know how many assurances hon. Members opposite want. The communiqué issued jointly after the meeting we had with the French Ministers authorised a further development programme, and the officials on both sides were authorised to draw up production plans. The project is going ahead well. I can see no reason why the hon. Gentleman should continue to spread disquiet and anxiety throughout the industry.
    Mr. Hamling: Is my right hon. Friend aware that the taxpayer is certainly interested in the profits and losses of these projects?
    Mr. Mulley: At the end of the day no doubt figures will be available.

    Export Projects
    Mr. Goodhewasked the Minister of Aviation whether he has accepted the recommendation of the Plowden Committee that Her Majesty's Government should be willing to consider proposals for Government assistance towards projects with promising export prospects even if no requirement for them by the British services has been established.
    Mr. Snow: This recommendation to consider proposals from industry is accepted in principle, but cases will be considered on their merits as they arise. I would expect, however, that the instances where such assistance would be justified will be rare, since it is very difficult to get other countries to buy military equipment for which no requirement by our own Services has been established.
    Mr. Goodhew: Is the hon. Gentleman aware that we have just had 30 minutes of waffle and evasive promises from him and his right hon. Friend? Is he further aware that the uncertainty in the aircraft industry which lasted while the Plowden Committee sat still continues, although it has reported? When are the Government going to do something about it?
    Mr. Snow: The serious problems which we inherited necessitate very careful consideration. If I am to answer the Question on the Order Paper, I should say that it is a fact that we give help to firms who have such projects. One such case is already being considered.
    Mr. Lubbock: Is the hon. Gentleman aware that the Japanese are offering a ten-year credit for the purchase of the YS 11, whereas in the case of its British competitor, the Hawker-Siddeley HS 748, the Government are giving only 5 years' credit? Will he take steps to see that British manufacturers are able to offer credit terms which are at least as good as the Japanese or any other manufacturers with whom we are competing?
    Mr. Snow: That is not the Question on the Order Paper, but Japan, like us, subscribes to the Berne Agreement. If the hon. Gentleman has any specific information in regard to the case that he has mentioned, I shall be glad to hear it.

    Research
    Mr. Goodhewasked the Minister of Aviation whether he has yet taken action on the recommendation of the Plowden Committee that more stress should be put on research which contributes to the more modest aircraft and weapons that the industry is likely to embark on in the future and on civil aircraft.
    Mr. Mulley: Yes, Sir. Recent examples of this trend are the reduction in the advanced area of hypersonics and the decision to increase effort on helicopter research.
    Mr. Goodhew: This is not good enough. The right hon. Gentleman is offering this further waffle. There is nothing definite in what he has said except in regard to helicopter research. Is not the right hon. Gentleman aware this Government cancelled all the most sophisticated projects that the aircraft industry was undertaking? Having written off sophistication, when is he going to settle down and give further support for some less sophisticated operations?
    Mr. Mulley: The hon. Gentleman may be dissatisfied with what he calls waffle, but the House is dissatisfied with what he contributes by way of amateur political dramatics. At the end of the debate last week I said that this Government were spending on the aircraft industry approximately £1 million a day. If the Opposition would tell us how much they would spend and how they would equate that with their demand for reduced taxation, I should pay more respect to the kind of supplementary question that we have just heard.
    Mr. R. Carr: Does not the right hon. Gentleman realise that until the sort of specific long-term programme for research, development and production for which we constantly ask is put forward, no national judgment can be formed of what we should be spending now or in the future?
    Mr. Mulley: As I said before, we cannot draw up a general programme for research, development and production. It must consist of specific projects. The specific projects in respect of which Gov-
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    ernment support is to be given have been announced. If the right hon. Gentleman has other ideas about things that we should be doing, perhaps he will let us know.

    Scotland
    Mr. Wolrige-Gordonasked the Minister of Aviation what further developments he has considered for the aircraft industry in Scotland; and if he will make a statement.
    Mr. Snow: When suitable work becomes available I will continue to bear in mind the existing facilities, skills and needs of Scotland.
    Mr. Wolrige-Gordon: I thank the Minister for that reply, but is he aware that there is now considerable and serious unemployment in Scotland and that as—I hope—expansion in this industry will continue in spite of him and his right hon. Friends, may we expect a great increase in the amount of work of this kind which will be done in Scotland?
    Mr. Snow: I do not know whether the hon. Gentleman is referring to unemployment generally or within the aerospace industry. In fact, employment in the aviation industry in Scotland is somewhat above the 1964 level. Furthermore, we are pleased to know that the smaller firms in Scotland are being successful in securing sub-contracting work from overseas.
    Mr. Goodhew: Is the hon. Gentleman aware that whether in Scotland or England the aircraft industry feels that there are absolutely no projects in the pipeline at all? How does he expect the industry to manage so long as he and his hon. and right hon. Friends on the Treasury Bench sit there and do nothing about it?
    Mr. Snow: No doubt that will go down very well in the hon. Member's constituency. The fact is that we are trying to approach the forecast needs on the basis of world requirements as opposed to purely national requirements. This is very important if we are to have some chance of recouping what have hitherto been substantial historic losses.
    Mr. Rankin: Is my hon. Friend—
    Mr. Speaker: Order. I have not called the hon. Gentleman yet. Mr. Rankin.
    Mr. Rankin: Is my hon. Friend aware that the maintenance industry at Renfrew in Scotland disappeared during the period when the party opposite was in power, that the industry in Prestwick disappeared and that this was their contribution to the advancement of the industry in Scotland?
    Mr. Snow: I do not think that this side of the House needs reminding about the deplorable history in this matter of the party opposite.
    Mr. R. Carr: Would the hon. Gentleman at least accept from this side of the House that, even though we may not be very satisfied with what is going on at the moment, we believe that it would be better done if the Ministry of Aviation continued than if it disappeared, that we regret that and thank the Minister for his service to this House?
    Mr. Mulley: I am obliged to the right hon. Gentleman.

  POST OFFICE

    Brentwood (Dunton Caravan Site)
    Mr. Moonmanasked the Postmaster-General if he will make provision for the residents on the Dunton Caravan Site, Brentwood, to have their mail delivered individually instead of by the existing method.
    The Assistant Postmaster-General (Mr. Joseph Slater): Yes, Sir; the new arrangements will start on 5th December.
    Mr. Moonman: I thank my hon. Friend for that statement, which will be regarded in the constituency as a victory for common sense. Would he explain the delivery arrangements which will be undertaken and consider further the possibility of an inquiry into other semi-rural and rural areas to see whether the same problem arises because of the archaic system of delivery?
    Mr. Slater: As in many other similar localities, this is what is happening. So far as the residents might have to change from Brentwood to Basildon addresses the arrangements in this area are under review and such a change might be found to be necessary.

    Ealing (Hanger Hill)
    Mr. Molloyasked the Postmaster-General what steps have been taken to investigate and improve the postal delivery service in the Hanger Hill area on which representations have been made to him by the hon. Member for Ealing, North.
    Mr. Joseph Slater: I regret the mis-delivery of correspondence in the Hanger Hill area about which my hon. Friend wrote to my right hon. Friend. We have issued special instructions to the postmen about this and are keeping a close watch on the situation.
    Mr. Molloy: I am grateful to my hon. Friend for that Reply and glad to hear that the situation is improved. Would he not agree that, as there were many written complaints about this area, some action should have been taken without it being necessary for me, as the Member of Parliament, to raise the matter personally with the Postmaster-General?
    Mr. Slater: I appreciate my hon. Friend's comments, but this is what happens when constituents draw their M. P. 's attention to incorrect delivery. Human errors are the main cause of mis-delivery in the Post Office, which are very difficult to overcome entirely. Apart from the special instructions and checks, we take disciplinary action against postmen responsible for misdelivery, and this is constantly being checked.

    Eltham
    Mr. Hamlingasked the Postmaster-General why letters sent by residents in the Eltham area of the London Borough of Greenwich to other residents in the area are cleared through the Catford office.
    Mr. Joseph Slater: To reduce costs. This concentration of work on Catford is part of a wider scheme to reduce sorting work at a large number of offices in London.
    Mr. Hamling: Is my hon. Friend aware that there is some dissatisfaction with the loss of service caused by this change? How much saving has been effected?
    Mr. Slater: The saving is£10,000 a year. The action which we have taken

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    has not worsened the service. In accordance with the policy announced by my right hon. Friend in August last year, in order to reduce costs and save manpower, a number of deliveries and collections in Eltham were reduced in May of this year.

    Blackpool
    Mr. Blakerasked the Postmaster-General if he is aware of the recent deterioration in the postal services in the Blackpool area; and what action he is taking to remedy it.
    The Postmaster-General (Mr. Edward Short): We are doing all we can to give a good postal service in the Blackpool area and my inquiries have revealed no sign of a recent deterioration.
    Mr. Blaker: Is the right hon. Gentleman not aware that his last few words are at variance with a number of cases which I have sent to him? Can he give us more details of the result of his inquiries? Is he satisfied with the organisation so far as it concerns relations between the Post Office and the railways, for example, and will he give an assurance that the deterioration is temporary?
    Mr. Short: I think that the case which the hon. Member raised was the case of Aurum Ambrosium Limited. We believe this to be a case of theft and it is being investigated.

    Bathgate (Contracts)
    Mr. Dalyellasked the Postmaster-General what directives he has recently issued to provide for the purchase of goods by his Department in areas of high unemployment, such as Bathgate.
    Mr. Edward Short: The contract preference arrangements which applied to firms in development districts have now been extended to the development areas introduced by the Development Areas Order, 1966.
    Mr. Dalyell: What is the value of these purchases in the Bathgate area?
    Mr. Short: In the Bathgate employment exchange area, £230,000 this year.
    Mr. Bryan: Would the right hon. Gentleman confirm that all telephone exchange equipment is still bought from a
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    small ring of manufacturers? Are there any manufacturers in the development areas which could accept these orders if they were accepted into the ring?
    Mr. Short: I am afraid that, without notice, I cannot answer the second part of that Question.
    Mr. William Hamilton: Is my right hon. Friend aware that, thanks to the Government's policies for the development areas, we now have in Fife some massive new industry which will provide further Post Office equipment and that we are very grateful to the Government for it?
    Mr. Short: I should say, perhaps, that the orders placed in Scotland this year so far amount to £5,750,000.
    Mr. Allason: Will the right hon. Gentleman reconsider his decision to accept Japanese equipment in Post Office orders?
    Mr. Short: I think that the only Japanese equipment, so far as I recollect —I have had no notice of this—is a small component in something which we buy from a British firm.

  TELEPHONE SERVICE

    Ongar
    Mr. Biggs-Davisonasked the Postmaster-General whether he will revise his programme for the introduction of subscriber trunk dialling at the Ongar exchange and other exchanges in adjacent parts of Essex.
    Mr. Edward Short: I am very sorry this is not possible. I would refer the hon. Gentleman to the answer given him on 12th July, which explained that subscriber trunk dialling will be introduced at Ongar and other exchanges when Brentwood is converted to automatic working in 1970. [Vol. 731, c. 193.]
    Mr. Biggs-Davison: Is the right hon. Gentleman aware that I share his sorrow? Is not the programme a little too dilatory for so dynamic and purposive a Government? Is he aware of the prevalent dissatisfaction at the present state of the telephonic communications in the Ongar parishes, including the views of the Essex Farmers' Union?
    Mr. Short: Perhaps I should tell the hon. Gentleman the history of this matter. The Conservative Government started to look for a site at Brentwood in 1952. They had not found one in October, 1964. My right hon. Friend, my predecessor, found one within a few weeks of coming into office and purchased it in December, 1964. Building is now starting and the programme is going forward.

    Eltham
    Mr. Hamlingasked the Postmaster-General how many applications for telephones in the Eltham area are still outstanding; and when the applicants will be provided with telephones.
    Mr. Edward Short: 858 at 31st October, 1966. I regret that, owing to a shortage of exchange equipment, it will be mid-1968 before all these applicants can be given service.
    Mr. Hamling: Why are the private firms concerned so slow?
    Mr. Short: The difficulty in the provision of telephones, of course, is the shortage of exchange equipment. We buy all the equipment which the industry can produce, but the present industry's capacity does not equal the demand.
    Mr. Bryan: To what extent has the general waiting list for telephones been reduced by rationing by the purse, in other words, by the new and increased one-year charge which has to be paid in advance?
    Mr. Short: That is not this Question. That is a different matter. There was a slight reduction at first, but it now seems to be running at the same level as previously.

  HOUSE OF COMMONS

    Catering
    Sir C. Osborneasked the Lord President of the Council, in view of the continued losses made by the Catering Department, if he will offer the work to a commercial firm of repute, with power to charge adequate prices for meals and to end the subsidisation of meals to Members of Parliament and the staff.
    The Lord President of the Council and Leader of the House of Commons (Mr. Richard Crossman): The question of asking a commercial firm to take over the work of the Catering Department is one which is being considered in the current review of the Department being made by the Select Committee on House of Commons (Services).
    Sir C. Osborne: I thank the right hon. Gentleman for that Answer. In view of the beating which M.P.s have taken from the Press recently over this£10,000 loss, would he not agree that it should be pointed out that£4,500 of it was on behalf of the Press itself, £2,500—nearly £3,000—was on behalf of the staff catering canteen and a very small amount was for M.P.s themselves?
    Mr. Crossman: I am grateful to the hon. Gentleman for helping me by giving those facts. It is worth noting that £4,500 of the loss was incurred in that part devoted to the Press. This is something to be considered. We are looking at the matter again, to see whether we should revise the organisation.

    Office Space
    Mr. Moonmanasked the Lord President of the Council if he will recommend the reallocation of all offices and office space not fully used in the Palace of Westminster, of which there are nearly a hundred, to provide accommodation for hon. Members.
    Mr. Crossman: If my hon. Friend would write to me giving any instances of accommodation in the House of Commons part of the Palace of Westminster not being fully used, I will ask the Chairman of the Accommodation and House-keeping Sub-Committee to look into them.
    Mr. Moonman: Would not my right hon. Friend agree that it is an extraordinary commentary on the organisation and structure of the House that, nine months after the last General Election, hon. Members have still not been given office space? Would he consider the possibility of reallocating the space rather than our having to wait until we have sufficient rooms built?
    Mr. Crossman: I believe that we are following a wise policy in this matter.

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    We are waiting for the new accommodation to become available, and then there will be a complete reallocation of the accommodation that is available to the House of Commons. As for reallocating accommodation between ourselves and another place, that is a much larger question and it is very early to start to consider that.

    Royal Assent (Procedure)
    Mr. Winnickasked the Lord President of the Council what progress he has made in his consideration of proposals for changing the practice of summoning the Commons to hear the Royal Assent to Bills.
    Mr. Crossman: I would ask my hon. Friend to await the debate on procedure, when I hope to make a statement.
    Mr. Selwyn Lloyd: Would the right hon. Gentleman consider the possibility of meeting at perhaps 2.15 p.m. from time to time so that, after Prayers, this ceremony, to which some of us attach importance, could take place without interfering with the other business of the House?
    Mr. Crossman: I will certainly consider that suggestion.

    Select Committees (Press Admission)
    Mr. William Hamiltonasked the Lord President of the Council if he will move be refer to the Select Committee on Procedure all proposals for making public the proceedings of Select Committees of the House.
    Mr. Crossman: It is open to any Select Committee, if it so wishes, to sit in public, but if my hon. Friend wishes to suggest any changes in procedure, he can ask the Select Committee on Procedure to consider the matter.
    Mr. Hamilton: Would my right hon. Friend say whether any Select Committee has taken the decision to invite the Press in when matters of security are not involved? Would he agree to initiate an experiment when he sets up the new specialist committees—for example, when he establishes the new Specialist Committee on Science and Technology—by inviting the Press and perhaps, in the long term, the television people as well?
    Mr. Crossman: I repeat to my hon. Friend that this is a matter for the Select Committee itself. The situation at present is that any Select Committee is entitled to make its own decisions about how it sits. I think I am right in saying that no precedent exists since the war for such a Committee to sit in public. However, there is no reason why a Committee should not make a decision of that kind, and it is worth observing that if any hon. Member spies strangers, the public must be excluded.
    Mr. Strauss: Is my right hon. Friend aware that one Select Committee, the Joint Select Committee of this House and the other place, sits in public when considering theatre censorship?

    Committee Rooms (Interpretation Facilities)
    Mr. Hooleyasked the Lord President of the Council if he will arrange for at least one Committee Room in the House to be equipped for simultaneous interpretation to facilitate discussions between Members and distinguished foreign delegations.
    Mr. Crossman: Arrangements already exist for simultaneous translation equipment and appropriate interpreters to be provided at reasonable notice in Committee Rooms 9, 10, 11, 12 and 14 and in the Grand Committee Room off Westminster Hall.
    Mr. Hooley: I thank my right hon. Friend for that information. Would he not agree that it might encourage the use of this technique if at least one Committee Room were permanently equipped with the electronic equipment necessary, so that a lot of notice need not be given?
    Mr. Crossman: I should have thought that the present arrangements were adequate in terms of the demand.

    Press Cuttings Service
    Mr. Frank Allaunasked the Lord President of the Council if he will make a statement on the Press cuttings service in the Library and on the way in which it is operated.
    Mr. Sydney Silverman: I have been asked to reply.

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    Since 3rd October last, The Times newspaper has provided a comprehensive series of dated and classified cuttings which arrive at 3 p.m. on the day after publication. The Library staff then files them in groups and by subject. The files of cuttings so far cover only a short period, but they have already been used by a number of hon. Members and by the staff of the Library on behalf of hon. Members.
    I should, perhaps, add that the arrangement with The Times is, in the first instance, to last for a trial period of two years, subject to a review by both sides after one year.
    Mr. Allaun: As many hon. Members do not yet know of this invaluable new facility and of how it can help them in their work, would my hon. Friend consider including an explanatory note in the all-party Whip?
    Mr. Silverman: I do not know how far I have any authority to speak on behalf of the all-party Whip. This service is of great value to hon. Members and I will draw the attention of the Whips of all parties to my hon. Friend's suggestion.

    Bank of England
    Mr. Dickensasked the Lord President of the Council if he will move to set up a Select Committee to consider matters relating to the Bank of England.
    Mr. Crossman: I doubt whether the House would favour the setting up of a Select Committee to deal with such a matter.
    Mr. Dickens: If my right hon. Friend will not set up a Select Committee, will he at least consider two aspects of the accountability of the Bank to this House; namely, first, can we in future have the Bank's annual report and accounts published as a Command Paper in the usual way as for other public corporations, and, secondly, can we have an early debate on the Bank's most recent annual report and accounts in view of the fact that this House has not debated these documents for the past 20 years—that is, since the Bank was nationalised in 1946?
    Mr. Crossman: To answer the first part of my hon. Friend's supplementary question, yes, Sir, I will certainly consider
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    his suggestion. The answer to the second part is that I will certainly also reflect on that, but I do not think that I can promise such a debate for the immediate future.
    Mr. Stratton Mills: Would the right hon. Gentleman agree that on at least two occasions the independence and international integrity of the Bank of England has saved the Government from devaluation?
    Hon. Members: Answer.

    Television
    Mr. Winnickasked the Lord President of the Council what is now proposed to be done in regard to the preparations already made in regard to the televising of proceedings, in view of the vote of the House on 24th November.
    Mr. Crossman: In accordance with the decision of the House, all preparatory work has been brought to a halt.
    Mr. Winnick: Is the Lord President aware that many of us deeply regret the decision reached last week? [HON. MEMBERS: "No."] Could he say whether, if a private hon. Member is successful in the private ballot machinery, he would have any chance of finding time to debate this subject again?
    Mr. Crossman: One may regret a decision, but one had better accept it, the decision having been taken. The second part of my hon. Friend's supplementary question raises a different matter.
    Mr. William Hamilton: Does my right hon. Friend regard this matter as finally closed for all time? Will he give an assurance that, if the other place decides to carry on with its experiment, the Government will not withhold the money?
    Mr. Crossman: I think that it would be very unwise to consider this question as ever finally closed. This is something which the House can consider in due course, if it wishes. As for the other place, we had better await developments.
    Mr. John Hall: Would the right hon. Gentleman say what preliminary preparations were made and on whose authority they were made?
    Mr. Crossman: Very properly, the Officers of the House made certain investigations and officials of the Ministry of Public Building and Works and of the Department of the Serjeant at Arms were naturally concerned to see what might have to be done if a different decision were taken.
    Mr. Woodburn: Would my right hon. Friend consider allowing, perhaps not as a full experiment, the House to be televised during the moving and seconding of the Address, which is a rather spectacular occasion and which arouses great public interest?
    Mr. Crossman: It is my view that the House came to a decision—[HON. MEMBERS: "Hear, hear."]—and that that is a fact. That decision can be reconsidered and there are opportunities for doing so. However, as long as that decision has been taken, one must accept it, whether or not one likes it.

  LAW COMMISSION
  Mr. Hector Hughesasked the Attorney-General if he will state the plans and future programme of work, apart from that indicated in Command Paper No. 3123, of the Law Commission.
  The Solicitor-General (Sir Dingle Foot): I do not think I can do better than refer my hon. and learned Friend to the Law Commission's First Annual Report, which was laid before Parliament last July.
  Mr. Hughes: Does not my hon. and learned Friend realise that, in addition to the programme of work outlined in the document to which he referred and in the White Paper to which I refer in my Question, there is a vast sphere of remediable legislation which needs attention relevant to this scientific age?
  The Solicitor-General: I entirely agree with my hon. and learned Friend, but I remind him that the Law Commission has already embarked, in pursuance of its statutory responsibility, on a very far-reaching examination of many branches of our statute law. It must be some little time before it can go further.

  WIRELESS AND TELEVISION

    White Paper
    Mr. St. John-Stevasasked the Postmaster-General whether it is now the policy of Her Majesty's Government to alter the fee for the television-radio combined licence.
    Mr. Channonasked the Postmaster-General when he will announce the conclusions of Her Majesty's Government in regard to the future of sound broadcasting and, in particular, their conclusions about the possibility of a third frequency devoted to light music.
    Mr. Bryanasked the Postmaster-General if he will make a statement on his discussions with the musicians' unions regarding the future of sound broadcasting.
    Mr. Edward Short: I would ask the hon. Gentleman to await the White Paper on broadcasting. As the House will be aware, many organisations and interests, including a large number of hon. Gentlemen of this House, have felt it right to make their views known to me, and my colleagues and I are considering them. I hope to publish the White Paper before the Christmas Recess.
    Mr. St. John-Stevas: Will the right hon. Gentleman give an undertaking now that he will resist the blandishments of the B.B.C. to have a£6 licence fee since this would impose a tax of an extra£1 on almost every family in the country?
    Mr. Short: There will be a section in the White Paper dealing with the B.B.C's finances. I must ask the hon. Member to await that.
    Mr. Channon: Can the Postmaster-General give an assurance that there will be no debate on the Second Reading of the Marine and Broadcasting (Offences) Bill until this matter has been considered by the House?
    Mr. Short: I cannot give any assurance on that. There is no connection whatever between the two.
    Mr. Bryan: Does the Postmaster-General recall that before the last election the previous Postmaster-General, in a speech in this House, said that he was

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    in the middle of negotiations with the B.B.C. which suggested that it would be possible to hold the licence fee at the present level for two years? The inference was that those negotiations with the B.B.C. were almost over and that we should be able to have the result of them in literally weeks. Could we please hear the results of those negotiations? Secondly, could we hear also to what extent and at what speed the B.B.C's indebtedness will increase during those two years?
    Mr. Short: Those negotiations are now finished. There is a section in the White Paper dealing with them and the hon. Member must contain himself for another two or three weeks.

  BILL PRESENTED
    POST OFFICE (BORROWING POWERS)
    Bill to increase the limits imposed by section 10(2) of the Post Office Act 1961; to provide that nothing in section 10(1) of that Act shall prevent the operation of a giro system; and for connected purposes, presented by Mr. Edward Short; supported by Mr. John Diamond, and Mr. Joseph Slater; read the First time; to be read a Second time Tomorrow and to be printed. [Bill 144.]

SCOTTISH SELF-GOVERNMENT
3.32 p.m.
Mr. Russell Johnston: I beg to move,
That leave be given to bring in a Bill to provide a scheme for the self-government of Scotland; and for purposes connected therewith.
It is good to see that precedents of the wearing of the kilt can be so readily set in this House.
There are, in the House of Commons, two great grounds of disagreement which separate party from party and even individual from individual. We disagree on principle, we disagree about what it is right to do and about the kind of leadership or inspiration or direction most calculated to draw the best out of people. We also disagree on practicability—whether, even if something seems on the face of it eminently desirable, it will work.
I contend that the creation of a Scottish Parliament for Scottish affairs can be wholly justified on both those grounds and it is for this reason that I, with the support of my Liberal colleagues, seek today to introduce a Bill which would provide for such a Parliament. It is almost instinctive in man to wish to have the greatest possible control over his own life, and to be able to share directly in the regulation of the life of the community in which he lives.
This is St. Andrew's Day, a day which will be celebrated by Scotsmen and Scotswomen not only in Scotland itself, but all over the world. We Liberals believe that nationhood, patriotism, call it what we will, while it may be an intangible, difficult to grasp and define, is a very real and a very potent force which ought to be recognised and harnessed for good. That Scotland is a separate nation whose distinctive outlook is reflected in its own system of law, of education, in the unique prominence it gives to its national church, and in the kind of people it produces, is incontestible.
Equally, it cannot be disputed that, according to all the commonly accepted yardsticks, Scotland fares worse than the remainder of the United Kingdom. Her unemployment for most of this century has been consistently double that of

457
Britain as a whole and the average income of her citizens remains about £50 per head per year below the United Kingdom average. Her housing is notably worse. That the total net emigration from Scotland since the war has been over 600,000, equivalent to more than 12 per cent. of her present population, emphasises the grave extent of frustration and dissatisfaction.
The great question is how far these unfortunate facts can be attributed to the way in which Scotland is governed. There are many—no doubt many Members in the House—who would say that the two things are not linked and that if the situation in Scotland in these respects compares unfavourably with that in the rest of the United Kingdom this is inevitable and unavoidable and part of the penalty of being on the periphery of that great concentration of peoples which is Europe. Some would even say that she would fare worse if she were to regulate her own affairs and stand on her own financial feet. That is not my view, nor that of my Liberal colleagues, nor do I believe it to be the view of the great majority of the people of Scotland.
In the 1950s the Covenant Association obtained over 2 million signatures, half the Scottish electorate, favouring the form of self-government which this form proposes. This year, the report of the Church and Nation Committee of the Church of Scotland stated:
"The General Assembly have urged that Scotsmen should be ready to take responsibility for their country's future They can scarcely do so without some effective form of national self-government."
It is significant that all the changes made in Scotland's government this century have pointed in this direction. The device of the Scottish Grand Committee, the appointment of more Scottish Ministers, the growth of the separate administrative structure based on St. Andrew's House, are all measures designed to tackle what were from the point of view of Westminster the problems of an entrenched legal system and the difficulties of providing sufficient time to give Scottish problems the separate attention they required, ad hoc changes, mostly under pressure, which have not supplied the answer.
English, Welsh and Irish M.P.s still tend to resent such little time as is exclusively given to Scottish affairs on the
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Floor of the House, while Scottish M.P.s resent the fact that there is not more, and that, for example, the occasions when they can question the Secretary of State for Scotland—whom I am happy to see present—are so limited.
The Bill I seek to introduce would tackle this much more fundamentally. It would set up a Scottish Parliament for Scottish affairs within the United Kingdom. This Parliament would have full power to legislate over all the internal affairs of Scotland—to legislate for her agriculture, her education, her industry, her trade, her transport, and so on. It would have control over Scottish taxation, for we regard it as being vital that Scotland should be able, if necessary, to shield herself from deflationary policies which are irrelevant to her needs.
Matters of defence, Commonwealth and foreign affairs would, however, remain the province of the Parliament at Westminster, to which Scotland would continue to send Members, whose exclusive concern would be such matters. A joint Exchequer board would be established to co-ordinate external financial policies, particularly Customs—which would remain the responsibility of Westminster—and to determine a proper Scottish contribution towards the federal costs, like defence and the Commonwealth.
What we are, in effect, proposing is a federal structure comparable in functional respects to that existing in Northern Ireland, but with a greater degree of devolution of power. [Interruption.] We are not seeking separation from the United Kingdom, but sensible and effective devolution within it. [Interruption.]
Mr. Speaker: Order. It is usual to listen to an hon. Member when he is expressing his opinion under the Ten Minute Rule.
Mr. Russell Johnston: As I was saying, Sir, we are not seeking separation from the United Kingdom, but sensible and effective devolution within it.
Nor is there any contradiction or conflict between wishing to see this and wishing to see the United Kingdom join the European Economic Community. Indeed, I would aver that the larger the grouping the greater the need for devolution within it. Geography certainly conditions man's achievements, but it is far

459
from being the vital determinant. Countries and communities can blossom or wither for reasons which are much more emotional than physical.
The Faroes and Iceland are far more remote than, say, Shetland or the Hebrides, and yet are able to maintain a vigorous existence. This cannot be unconnected with the spirit that their independence has fostered. Similarly, Norway, a tiny country of 3 million people, with proportionately far greater problems of sparse population than Scotland, maintains an extremely high standard of living. There are many other examples.
These, I would assert, are matters which the House should hear and should debate. Hugh MacDiarmid wrote of the small white rose of Scotland that smells sharp and sweet and breaks the heart. Let us, on this St. Andrew's Day, sow the seed of a happier future.
Question put and agreed to.
Bill ordered to be brought in by Mr. Russell Johnston, Mr. Grimond, Mr. Lubbock, Mr. Hooson, Mr. James Davidson, Mr. Alasdair Mackenzie, and Mr. David Steel.

SCOTTISH SELF-GOVERNMENT
Bill to provide a scheme for the self-government of Scotland; and for purposes connected therewith, presented accordingly and read the First time; to be read a Second time upon Friday, 28th April, and to be printed. [Bill 145.]
ADJOURNMENT
Motion made, and Question proposed, That this House do now adjourn.—[Mr. McBride.]

ECONOMIC AFFAIRS
3.42 p.m.
The Minister of Labour (Mr. R. J. Gunter): Whatever be the clashes of opinion over the next two days in the House, I am sure that I speak for the whole House when I say that we are justifiably concerned about the cost in human terms of rising unemployment and the difficulties imposed on us by the incomes standstill.
I think it right to open this debate by referring back to the economic objectives which my right hon. Friend the Prime Minister outlined on 20th July and by reminding the House of the extent to which we have moved towards achieving these objectives.
In doing this it is not my purpose to divert attention from what is actually happening to the economy in all its aspects, or to understate either the seriousness of the problems which remain to be faced or the demands which will continue to be made on Government, employers, trade unions, indeed the whole community, in setting our nation firmly on its forward course to stability and strength.
In July, my right hon. Friend the Prime Minister said:
"Action is needed for the purpose of making a direct impact on our payments balance".
There are already signs that we are making useful progress in this direction, and recent trade figures have been encouraging. October was one of our best trading months ever. Indeed, exports in October reached a record level. During the past 10 months of this year the value of exports was about 6 per cent. higher than in the corresponding period of 1965.
Secondly, the House was reminded in July that action was
"needed…to deal with the problem of internal demand…to redeploy resources…and check inflation."—[OFFICIAL REPORT, 20th July, 1966; Vol. 732, c. 628.]
I shall be saying more in a moment about manpower. But let me for the moment briefly underline the evidence which we have of progress towards checking the spiral of inflation.
Part of the July package was a standstill on prices and incomes. It is a measure of the success of the standstill that between June and October the index of retail prices rose by only 0·3 per cent.

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There have been price changes during the period, due to seasonal fluctuations and other factors, but these changes have not all been upward, as some detractors of the standstill try to make out. An indication of the effectiveness of the standstill on the wages side is given by the monthly index of hourly wage rates. which has risen by less than one-tenth of 1 per cent. since the end of July.
Necessarily, the standstill is for a limited period only, but it has given us better control over rising costs than we have had for many years. As we are making progress towards getting into balance with our international payments, so, at home, we are beginning to gain the upper hand, but I emphasise only beginning to gain the upper hand, over inflation.
If we are to continue this progress, one of the first essentials is to develop a prices and incomes policy which can be effective on a more permanent basis. I would like to say something, in particular, about the incomes side of the policy, in view of my special interest.
The House will know and understand the three phases of the policy. The first phase, that of the complete standstill, is nearly over. It is, therefore, only fair to say a word of appreciation to those who have loyally co-operated in ensuring its success.
A standstill, though harsh and arbitrary and often unjust, is, however, a relatively simple concept. The second phase of the policy, the period of severe restraint which is to follow, gives rise to much more complicated problems. Since only a limited number of improvements in incomes can be allowed, it is necessary to distinguish cases which have the greatest merit.
As the White Paper on the severe restraint criteria indicates, the Government have decided that two categories of agreement, in particular, deserve priority—those which will raise productivity and those giving benefits to lowest paid workers. The reasoning is clear. Agreements designed to increase productivity and efficiency have a most important part to play in improving our economic performance. But we are concerned—I emphasise that we are very concerned—to get genuine productivity agreements. Before a productivity agreement can be held to satisfy the criteria, it has to be demonstrated that the workers concerned make a direct con-
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tribution towards increased productivity, that pay is not to be increased in advance of increases in productivity and—this is perhaps the most important—that the public gains some benefit from the bargain.
Everybody is sympathetic to the claims of the lowest-paid workers during a period of wage restraint. But this is not an easy question. For one thing, there cannot be a simple definition of universal application which would at once identify the lowest-paid workers and establish their claims. One of the complications is the relationship of rates to earnings. A further complication, even when genuine claims are well established, is the need to see that their acceptance is not used as the occasion for consequential adjustments of differentials throughout the whole pay structure.
All of these problems arise in relation to wages councils, for which I have a particular responsibility. Those wages councils proposals which were caught by the standstill as "existing commitments" on 20th July will go ahead from the beginning of the new year. The Government decided, after consultation with the C.B.I. and the T.U.C., that proposals settled between 20th July and the issue of the White Paper of 22nd November and submitted to me, should be referred back to the councils for reconsideration in the light of the White Paper. Proposals made following the issue of the White Paper will need to be considered in the light of the criteria which are laid down for all forms of income.
The period of severe restraint which follows the current standstill is to last until 30th June, 1967, and we are all much concerned—both sides of this House and of industry—about what is to follow after that. [HON. MEMBERS: "Hear, hear."] Right hon. and hon. Members opposite say "Hear, hear." I am deeply hopeful that some constructive ideas will come from that side of the House during this debate.
The point is that there is much talk and speculation going on in all sections of industry about what is to be done with the collective bargaining system which has grown up over the years. If the right hon. Gentleman the Leader of the Opposition has any divine wisdom on this, he has more than the T.U.C. or the C.B.I. or I have. This will be a matter of very

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full consultation and consideration before we can arrive at a conclusion.
Some preliminary indications of the Government's thinking are given in paragraph 40 of the White Paper and we intend to use the coming months to establish in discussion with industry policies to achieve the planned growth of productivity and incomes while avoiding recurrent bouts of inflationary wage rises, with all the pains and penalties they bring in their wake. No one—and I hope that this includes the right hon. Gentleman—will suggest or infer that this will be an easy task if we are to get down to interfering—or not interfering but getting mixed up with the traditional methods of bargaining of which he, as a former Minister of Labour himself, knows so much. But it is in the common interest of both sides of industry that these consultations which are to take place ensure that the national interest is taken fully into account.
There has been far too much loose talk about the alleged intentions of the Government in regard to the machinery of collective bargaining in the years ahead. I have said before and I repeat that the less interference by any Government in the relationship between those engaged in industry the better it is, but a return to the situation as it was before 20th July would be disastrous. The overriding public interest must be a part of all negotiations throughout industry, otherwise inflation will never be beaten.
I am glad that the trade unions have recognised this. Their recent consideration of proposals for machinery to influence and even co-ordinate the approaches of individual unions is a most hopeful sign and I know that the C.B.I. has an equal concern to see an effective policy developed. But, of course, having read with care all that has been written about the new suggestions, I realise that many questions are left unanswered. But I am hopeful that in the negotiations during the coming months a joint recognition of the overriding national interest can bring us to a workable understanding on future arrangements.
I think that it will be accepted in its different forms that an effective prices and incomes policy is one essential. A second essential is, of course, to make
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the most efficient use of our manpower. With this in mind, I propose to devote some of my speech to discussion of the current employment situation, the effectiveness of our current efforts to help redeployment, the developing arrangements for industrial training and, finally, some of the special measures we are taking to help modernise labour practices.
First, then, I will say something about present unemployment. On 14th November, the number of unemployed was 542,000, or 2·3 per cent. Of these, 439,000 were wholly unemployed and 103,000 temporarily stopped. The seasonally adjusted rate was 1·8 per cent. and, as the House knows, the seasonally adjusted figures have been rising rapidly in recent months.
Every person registered as unemployed represents a human problem. We all accept this, but, at the same time—and this point was made by Opposition spokesmen in the recent debate on redeployment—aggregate figures of the total number registered as unemployed do not tell the whole story and it is necessary to look in some detail at the breakdown of the total. The total number may be split into three sub-groups—the temporarily stopped, the school leavers and the wholly unemployed.
On 14th November, the temporarily stopped were at their highest level for at least 10 years, with the exception of January and February, 1963, when abnormally severe weather led to extremely high figures. But the temporarily stopped are in employment, in the sense that they are still on the books of an employer and many are only losing part of their working week. Probably about 70 per cent. of the November total were in the motor and motor component industries.
Between August and November this year, the number of school leavers fell from 36,200 to 3,400, a clear indication that the great majority of the 400,000 or so summer term school leavers had gone into employment.
It is the wholly unemployed who may be regarded as unemployed in the normal sense and it is these figures which are used as the basis for the seasonally adjusted figures. As I have said, the seasonally adjusted rate in November was 1·8 per cent. and this figure, rather than the 2·3 per cent. for the total number registered

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as unemployed, is the best indication of the underlying level of unemployment.
The more substantial proportion of the wholly unemployed may reasonably be described as short-term unemployed. This may be seen from the latest analysis of unemployment by duration, which shows that 42 per cent. of the wholly unemployed had been on the register for more than eight weeks.
This point is worth emphasising by reference to the turnover of the unemployed register. At any time, the register consists of a large proportion who stay only a short time and a smaller proportion who stay for a long time. I will give a simple illustration of this turnover. There was, during the four weeks between September and October, a net increase of nearly 60,000 in the number of adult wholly unemployed, but this was made up of about 235,000 new registrations by adults and about 175,000 adults leaving the register.
In other words, there is at all times, whatever the prevailing level of unemployment, a great deal of movement from job to job and our aim is to see that such movements take place as swiftly and with as little hurt as possible and, as far as we are able to influence this, to the national advantage.
At the same time, in this analysis we are not overlooking the importance of helping those whose problems are more severe. Special surveys of the characteristics of the wholly unemployed carried out in 1961 and 1964 concluded that 58 per cent. of those wholly unemployed at the time of the surveys would be difficult to place in employment on personal grounds. It would be dangerous to think of the difficult cases as a constant number or a constant proportion of those registered as wholly unemployed, but it is clear that this group will remain a feature of the labour market. On the one hand, the Ministry does all it can to help them; on the other hand, it is a factor to bear in mind when, as so often, comparisons are made between the numbers registered as unemployed and the number of unfilled vacancies notified—and I emphasise notified—to the Ministry.
During recent months, the figures of unfilled vacancies for adults have been falling steadily. This has included some,
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but only some, easing in the demand for skilled workers, but there are still widespread shortages. The latest available figures, relating to October, show that in the main group of engineering occupations there were in Britain as a whole more than 2½times as many notified vacancies as unemployed.
We all know the special accupations in which labour is scarce—draughtsmen, sheet metal workers, tool makers and precision fitters, and so on—and these shortages were particularly marked in the Midlands, Yorkshire and the South-East. I will have more to say about this aspect of the situation in a moment, when I speak on the subject of training, but perhaps I should first tell the House how we are dealing with current redundancies and redeployment.
In the debate on redeployment, on 24th October, I went into some detail about the practical methods for dealing with redundancy, more particularly in the setting of the B.M.C. redundancies. I do not want to go over that ground in detail again today. However, the House may want to hear how our efforts have worked out so far and how the situation has developed since the redundancies became operative on 4th November.
About 8,000 B.M.C. workers in all were actually made redundant at that date. Most of these registered with the employment exchanges. Up to the beginning of this week, just over 2,800 had either been placed by the exchanges, or were known to have found work for themselves; 3,483 of the 8,000 were actually registered as unemployed and of the remainder, rather less than 2,000, of whom we have no direct information, the majority may be taken to have found work, because, for one reason, they have not registered as claimants for unemployment benefit.
The question which is rightly asked is what sort of jobs these workers are going to. The question is rightly asked whether the so-called "shake out" is really working in the economic interest. As I have already pointed out in the House, employers are not compelled to engage workers through the exchanges. Workers are free to seek employment by any means they will. Nor, I can assure the House, have the Government any thought at all of moving towards the compulsory

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direction of labour, although I ought to say that I have not finally dismissed the possibility of a return to compulsory notification of vacancies, on which the arguments are much more finely balanced.
To return to the present position, we can say that of the approximately 2,500 workers now in work, of whom we have definite information—we know where they have gone, because the employers have notified us, or the men have notified us, or they have been placed through the exchanges—56 per cent. have gone into manufacturing industry, 15 per cent. into construction, 6 per cent. into transport and communications and 21 per cent. into the service industries, including basic services like gas, electricity and water. The remaining 2 per cent. have gone into extractive industries. In the Midlands, where the economic effects of redeployment are perhaps particularly important, as many as 69 per cent. have gone into manufacturing.
There are many right hon. and hon. Members who know the limitations of the machinery of the Ministry of Labour in this respect, but as far as the exchanges can influence these matters I find the figures which we have of the B.M.C. redundancies of some interest, though I emphasise that they can give no more than a general preliminary indication. Of the workers placed by the exchanges in the areas affected as a whole, 60 per cent. are going into manufacturing. Of those who have found work for themselves, so far as we know, only 51 per cent. have gone into manufacturing. The percentages in the Midlands are 71 and 64. There is some indication, then, that the persuasive powers of Ministry of Labour officials are having a beneficial effect.
Overall, we are filling many jobs which need to be filled. But are we filling the key jobs, especially the jobs for skilled workers? The answer is, certainly not all of them, and that is why we are devoting considerable resources to developing the industrial training effort, chiefly through the industrial training boards and Government training centres.
During the debate on redeployment, on 24th October, I told the House that the industrial training boards had been concentrating to begin with on their biggest task, the training of new entrants into their industries, but that some of them
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were already active in the field of adult training. I said then that I was pursuing with the training boards the question of an early and substantial increase in facilities for "off-the-job" adult retraining and that, in particular, discussions were then in progress with the Engineering Industry Training Board.
In our consultations with the training boards, it became clear that the most useful way in which the Government could assist would be by making a contribution towards the capital cost of setting up additional training places in centres, or in training bays run by individual employers in their industries.
Government grants are already being paid through the training boards towards the current costs associated with additional places set up in training centres maintained in the board industries, but one important deterrent to the wider use of this scheme of assistance has been the initial cost of setting up or expanding existing centres.
I have, therefore, decided to make available to the industrial training boards for a period of 12 months starting in the new year the sum of £2 million to assist in the provision of off-the-job schemes of retraining for adult workers. This will be used by the boards to make grants to employers towards their costs in installing new machinery and ancillary equipment in their training bays or centres. The equipment will have to be used for the retraining of adults for occupations at the semi-skilled level. The scheme is not concerned with training at the fully skilled level. Investment grants will not be payable in these cases, but the rate of grant available under the scheme will be 70 per cent. of these costs in development areas and 60 per cent. in other parts of the country.
I envisage that the training boards will be responsible for the administration of the scheme. The Engineering Board, with whom the arrangements have been discussed in some detail, welcomes that aspect of it, as, no doubt, will the other boards which co-operate in the scheme. The training places set up as a result of these arrangements will, of course, also rank for grant under the existing scheme of assistance towards running costs.
Sir Harmar Nicholls: That seems to be an excellent decision and in line with the development of the training scheme. Will the grants allow a general sort of training, such as the introduction of programming, which has been so successful in Peterborough, for example?
Mr. Gunter: The industrial training boards themselves will be taking a direct interest in that and will be handling it.
I am very hopeful that this scheme will provide an attractive inducement to employers, in engineering in particular, to expand their training arrangements. I would like to put some emphasis, also, on the long-term value of this development. It is not just a useful short-term measure, but will, I hope, provide a base for a much more substantial growth in future in off-the-job training at the semi-skilled level which is carried out by industry. We shall, of course, be keeping the progress of the scheme under review and will not lose sight of its development aspect.
I will not go into more detail on the general work of the training boards, but I am glad to say that they are showing a sense of urgency. For instance, the Engineering Industry Training Board, which covers about 13½ per cent. of the working population, has taken a big step forward in improving the quality of craft and technician training. It has now said unequivocally that a broadly-based course of training in the first year, carried out under skilled supervision off the job, is essential, and the Board has made provision accordingly in its grants scheme.
This is already having its effect. Between 1965 and 1966 the number of first-year off the job training places in the engineering industry has increased from 14,000 to 24,000. The Board is also providing off the job training centres for group training schemes, and the first centre of this kind was opened recently in Paisley. This is just one of the examples of the work that the training boards are now doing.
Turning now to the field in which my Department directly assists in the retraining of adults at skilled level, in the Government training centres. Two years ago the G.T.C.s had 4,000 training places in 26 centres. Now there are 6,400 places
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in 32 centres—more than half as many places again. During the last month alone, over 200 new places have been added. Our existing plans already provide for a further 1,600 places, in a total of 38 centres, by about the end of next year.
I warned the House during the debate on 24th October that it was not possible, without damaging the standards of training, to make sudden and rapid increases in this kind of training. But I said that I was examining very urgently whether the capacity of existing centres could be further expanded in the short term, perhaps by making more intensive use of space. I also said that I was considering a further programme of substantial expansion for subsequent years. As a result, I am now able to tell the House of a number of proposals for increasing the number and output of our Government training centres.
First, by making more intensive use of space at existing centres, I hope to be able to provide 600 additional places, additional, that is, to the 1,600 further places already planned.
Second, I propose that in the next financial year building should start on four new centres which, between them, will eventually provide about 900 additional training places. One of the new centres will be in Scotland, one in South Wales and one on Merseyside. The location of the fourth centre has not yet been finally decided, but will be announced shortly.
Third, I hope, also, during the next financial year, to have substantial extensions built on two of our existing centres and on two of the new centres currently under construction. These extensions will give us a further 300 training places. It is not possible to say precisely when these and the 900 places at new centres will become operative, but many of them will be in use by the end of 1968.
Fourth, we are exploring with the Education Departments the possibility of technical colleges progressively taking over from neighbouring Government training centres first-year apprentice training classes. Over the next two or three years this might free space in G.T.C.s for about 650 additional adult training places. We are also discussing with the Ministry of Defence whether the Services

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can provide courses for adults on our behalf in their training establishments, which, as we all know, have such a high reputation.
As a result of these four new sets of proposals the number of places in Government training centres will be approaching 10,000 by the end of 1968.
There is one further point that I would make about G.T.C.s. With all this expansion going on, it has been necessary to expand the capacity of the Ministry's two instructor training colleges. These colleges are also used to an increasing extent by industry for training their own instructors, particularly following formal approval of the courses by some industrial training boards. By early next year the college at Letchworth will be twice the size it was in April of this year. The smaller college at Glasgow will likewise almost have doubled its capacity over the same period. The two colleges together will then be capable of training about 3,000 instructors a year. If demand goes on increasing, I will ensure that the necessary additional capacity is available.
As I said earlier, one of the basic essentials to economic progress is raising productivity. Proper deployment of labour between industries and within industries can contribute to this; so, too, will improvements in the quality and quantity of our training. But as important as both of these is the development of forward-looking attitudes by both management and men throughout the length and breadth of industry.
There is much that could be said about the problems still to be overcome—about managements that play safe or take the line of least resistance, about the harm done by unofficial strikes or restrictive practices, about instances of downright bad relations between management and men. Of course, there is a lot to be done, but I would end on an optimistic note. There are clearer indications that both sides of industry are determined to come to terms with many of these problems than there has been for a long time.
As I said before—and I repeat it—it is perhaps a fortunate part of our national trait that when a crisis comes and we have to do something, our minds seem to become clearer. Agreements are being talked about, and some have been
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signed over recent months, which are an indication that the old traditions are passing and that there is a move being made in the field of restrictive practices.
I believe that many of these problems will be overcome only in the long term. We cannot remove them—and we all know this—by waving a wand, and it is doubtful how far we can deal with them by legislation. But in the not too distant future, we shall have the advice and guidance of the Royal Commission. In the meantime, as the House knows, the Government have taken major initiatives in a number of important industries, such as railways, printing and shipping, where we have given massive help in trying to solve some of those problems.
I conclude by repeating what I said at the beginning. We are all aware of the deep human problems that are involved in our present economic situation. It would be foolish of us to become too gloomy about the future. I am convinced that the deeper thoughtfulness and sense of reality that is now coming, in particular, into industry, will enable us, I hope in the foreseeable future, really to come to terms with the deep and fundamental problems that have beset every Government—and not only this Government—in deciding how to maintain full employment and, at the same time, rid ourselves of the difficulties of the balance of payments problem. We are trying to match ourselves to the difficulties of this time and, I am not unhopeful that in the not too distant future we shall have overcome them.
4.23 p.m.
Mr. Peter Walker: We always listen to the right hon. Gentleman with interest and, indeed, with admiration, because he is one of the most respected and popular Members of the House. But I felt that he was as unhappy today in his particular task as he was when he had to steer through the Selective Employment Tax; because, of all the Ministers in the present Government, he is probably less happy than any at the prospect of rising unemployment and the difficulties in which his Department is involved.
We welcome the proposal of the right hon. Gentleman to spend£2 million in seeing that the industrial training boards provide better facilities for retraining.

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But if I may say so, this suggestion, and the various others that he made towards the end of his speech, were very similar to those which were made by the Opposition in the debate in October. The 'Government decided, in July, to pursue policies, which they have pursued since that time, of positively creating unemployment for the purpose of redeployment. It is at that stage that they should have come forward with all of their plans for additional training. It is very late now to start saying that as from January certain schemes will be started.
The general theme of the right hon. Gentleman's speech was the need for redeployment, but I thought that his appeal not to be too gloomy was more an endeavour to cheer himself up after what was essentially a gloomy speech. He put the problem of what is to happen at the end of the second stage, and we waited eagerly, expecting that, at the beginning of a debate like this, the right hon Gentleman would outline the proposals the Government had in mind for the third and final stage of their policy. All we got from him was a hope that the C.B.I. the T.U.C., the Tory Party and the Royal Commission might come forward with some suggestions which would help the Government out of their difficulties.
This is a very different atmosphere from that of a Government that took power two years ago; a very different atmosphere from that of a Government that intended to get production moving, and that was poised and ready to put all their plans into action. We now have a Government which are in the middle of a period of stagnation of the economy and looking round for ideas and assistance to get them out of that period of stagnation.
It was interesting to note the response of the Minister's hon. Friends when he mentioned, for example, last month's more optimistic export figures, the better trade figures of the last few months, the improvement in the reserves, and the fact that, as a result of the standby, sterling has recently been fairly firm.
That news was not greeted with the sort of cheers there used to be, because all his hon. Friends have heard such statements before. The country has now reached the stage that when there are a few months of trade figures, people remember the Chancellor's passages about turning
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the corner, about feeling more buoyant about the economy than ever before, and the various other over-optimistic phrases through which the Government have passed.
It is quite certain that the Government have made miscalculations. They have made many miscalculations about the economy. The great prediction of what was likely to happen was made on 4th May by my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) when, speaking on the Budget proposals he said:
"But, with all that, and, perhaps punching the jaw of an economy which may well have turned down to a considerable extent, suddenly, in September, there is an enormous amount of deflation. An enormous amount is taken out of the economy to be repaid in part, perhaps, six months later, after a good part of the winter has been spent. Is the Chancellor really satisfied that he has not taken a far greater risk than he ought to do in making these proposals?"—[OFFICIAL REPORT, 4th May, 1966; Vol. 727, c. 1654.] That suggestion was rejected by the Chancellor, and now we see the results.
It is interesting also to endeavour to discover—and I hope that the Chancellor will tell us tomorrow—exactly what has gone wrong in 1966. This is the year that the Prime Minister described in January as being the make-or-break year for Britain. There are now 540,000 unemployed to bear witness to which it has been, and there has also been a considerable fall in production, in company profits and in the whole buoyancy of the economy. There is no doubt that it has been a break year, and from the Chancellor we want to know why.
The Chancellor himself said that 1966 would be the year of attack. What has been his attack? In fact, what he has attacked throughout the year, as he has throughout his whole period of office as Chancellor, has been industry. As a result of his successful attack, production is in retreat and unemployment is going up. In exactly the same way, the Government have constantly attacked, by various measures, the whole hope of increased industrial production. Today, the index of industrial production is 2 points lower than when the Prime Minister, at the beginning of the year, said that higher production was needed.
We therefore see a situation where the Government have created unemployment, where they have created stagnation of

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production and where they have created a fall in industrial investment, and now the only policy they can pursue is to talk of redeployment and industrial retraining—and, in total, on a very minor scale. It is interesting to note that the present Government have redeployed more people by increasing the number of civil servants than they have by means of the industrial training centres.
The Government inherited two years ago an economy in which production was rising fast, exports were increasing, full employment existed, and savings and investment were running at high levels. In that year they faced the problem of a balance-of-payments deficit of £761 million. The Government have now published the realities of that deficit, and the realities indicate that the improvement in the balance-of-payments position since 1964 should have been considerably more than has taken place.
The Chancellor predicted in the early part of 1965 a much better improvement than has taken place. It is unlikely that he would have made an over-optimistic prediction then, because he knew that in 1964 there had been £385 million-worth of industrial stockpiling, and that£220 million have gone on the import bill as a result of increased import prices. But, when he took office as Chancellor import prices started to go down and the terms of trade improved.
The right hon. Gentleman also knew that a substantial part of the deficit,£185 million, was involved in private overseas investment, and since he has been Chancellor he has received not only the dividends from that investment but a repayment of capital as a result of a selling back in the Shell-Montecatini deal. Therefore, while the right hon. Gentleman has been Chancellor he has had the terms of trade go in his favour to such an extent that during the last 12 months they have benefited our balance of payments by £150 million.
The right hon. Gentleman has had the advantage of all the stockpiling, and of the investment that took place before he came to office. In spite of that, we are now in a situation in which our reserves net of short-term balance are minus £85 million compared with the £949 million the right hon. Gentleman inherited when he became Chancellor.
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That is the summary of the economic achievements of two years of the Government. Now some anxiety has been expressed by the Prime Minister on the question of imports—not surprising, as today the import surcharge finishes. Last week, at a Park Lane hotel, the Prime Minister said:
"Some specialised imports are necessary for part of our modernisation programme but no one is going to tell me that a very high proportion of these goods that you are letting into the country could not be produced by British industry internally if we really got down to it."
That statement struck a familiar note, so I looked up what the Prime Minister said before the 1964 General Election, in his famous Swansea speech.
The right hon. Gentleman there said:
"I am appalled at the big increase in machinery and semi-finished manufactureds that have come into this country in the past few years. I cannot believe that British industry, with appropriate stimulus and help, cannot produce a lot more of these things on a competitive basis."
The Prime Minister has since been in charge of our affairs for two years. What appropriate stimulus and help has he given? What has been the result of the Chancellor's actions on what the Prime Minister described as an appalling increase in the import of machinery and semi-finished manufactureds?
If he was appalled then, as Prime Minister he must be terrified now, because since he made his speech the import of finished and semi-manufactured goods has increased by no less than 60 per cent. Last year we imported no less than £800 million worth more of these goods than we were importing at the time of the Prime Minister's Swansea speech. In this, as in all other spheres where the Labour Party has made predictions as to what it would achieve, the exact opposite has occurred.
If we look for reasons they are that for two years industry has suffered from continuing uncertainty, from increased taxation and from ever-increasing restrictions and controls. The Government should consider their record on investment. The Board of Trade now says that industrial investment is likely to go down by 7½ per cent. next year. This year it states that it has gone down by 4 per cent. At the beginning of the year the Prime Minister and the Chancellor

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were both predicting that in 1966 investment would increase.
We shall want to know from the Chancellor tomorrow why it has declined, and why there is a decline predicted for next year which is even greater than the decline for this year. What nonsense this decline makes of that history book, the National Plan, which was based upon a need for a 7½ per cent. increase in industrial investment. Now, 12 months after the publication of the National Plan, we are told that 1967 will not see an increase of 7½ per cent., but a decline of 7½per cent. in industrial investment.
The Government have replaced investment allowances with investment grants and this has created great uncertainty throughout industry. They have taken away a system which gave industry £265 million worth of benefit and replaced it with a system which provides only£200 million worth of benefit.
The President of the Board of Trade (Mr. Douglas Jay)The President of the Board of Trade (Mr. Douglas Jay) indicated dissent.
Mr. Walker: The President of the Board of Trade shakes his head, but these figures came in an Answer from his Department. The right hon. Gentleman knows full well what a bad Press he received at his Press conference this week on that subject. He also knows from his experience that industry is uncertain what it may claim in grants. Investment allowances were done away with last January. No one will receive any money for the new investment grants until next July and most people are not likely to get them until after next January.
This is appalling mismanagement of the investment situation and it has had the most undesirable results. Now there is talk, even at this late stage, and in spite of the President of the Board of Trade having called a Press conference earlier in the week, that we may yet have an announcement of some improvement to encourage and stimulate industrial investment further. I hope that we do, but the Government should make no mistake about this—no industrial incentives or grants, or doubling of the grants system for a period of time, will stimulate the economy unless confidence is restored to British industry at the same time.
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There is a lack of confidence as a result of two years of government which has constantly penalised industry. What is the use of talking about maybe giving the industry a further£10 million,£100 million, or £200 million increase in industrial grants when industry knows that over the past two years increased taxation, or increased Government charges of various descriptions, have taken from industry no less than£1,000 million a year?
This is the Government's record. Every major measure introduced by the Chancellor, with possibly the exception of the export rebate scheme has basically damaged industry. We remember the debates on the Corporation Tax when we were told that it would be a stimulus for investment by industry. We predicted that it would have the opposite effect and the figures of industrial investment now show who was right there, Was the Capital Gains Tax a stimulant to industry? Has increased Income Tax been a stimulant? What about the high Bank Rate and the Selective Employment Tax?
How interesting it was to hear the Minister of Labour being rather pleased with the figures, saying that we had got rid of a number of people from B.M.C., 100 per cent. of whom had been in manufacturing industry, and that now only 65 per cent. remained. This, he said, was a loss to the manufacturers of only 35 per cent. This from a Government who were to switch people from the service industries to manufacturing. Then, within a few months the Minister of Labour stood at the Dispatch Box and proudly said that in the Midlands we had lost only 32 per cent. from manufacturing into service and other industries. There is a constant pressure upon industry and a constant decline in production.
Very little was said about production this afternoon. We no longer hear talk of the league tables, about which the Prime Minister used to be so keen. We have not heard of them for a long time, so I have taken the liberty of preparing such a table. I find that in the production league table, in the recently published O.E.C.D. Report for the 12 months ended July, 1966, Italy tops the list with 9·9 per cent., followed by the United States with 9 per cent., then France with 6 per cent., all O.E.C.D. countries 6·7 per cent., Canada 6·3 per cent., and the

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United Kingdom 0·8 per cent. That is the latest league table. No wonder the Chancellor and the Prime Minister do not refer to such tables.
Mr. Eric Heffer: I am rather interested in this point. Is the burden of the hon. Gentleman's complaint that the Government are wrong because they are pursuing basically the same policy as was pursued by the Government of the hon. Gentleman?
Mr. Walker: I would suggest that the hon. Gentleman has a look at the production figures, the encouragement to industry and the general expansion of the economy which took place under us, compared to what is happening now. He will see that not only has there been a failure to provide incentives for industry, but that there has also been a failure to tackle restrictive practices.
The Minister of Labour suggested that some progress has been made. There are some spheres in which no action has been taken. One is the question of liner trains. A year ago today the Prime Minister said that the Government had tackled the problem of the liner trains. Eight months later, in his July statement he told the House of Commons that they were to tackle the problem of the liner train. Here we are, some months later, and the restrictive practice is still continuing, and no action has been taken. It is apparent that the Prime Minister, having been twice involved, once in boasting that he had solved the problem and then later saying that he was going to solve it, should now do something about it.
This is such a scandal of a restrictive practice that the Prime Minister should call to No. 10 Downing Street the leaders of the railway unions, the Chairman of British Railways, and the leaders of the road haulage industry and make a real endeavour to solve this restrictive practice.
Likewise, the Minister of Labour will remember that the Report of the Prices and Incomes Board on the increase in pay for the road haulage industry condemned four restrictive pracitces, which, it said, should end of the increase was to be granted. The Minister set up a Committee to discuss this with both sides of the industry. Every one of those four
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restrictive practices continues today, yet the increase has been granted.
We find specific examples where the Government are heavily involved and yet little progress has been made on the question of restrictive practices. Not only has there been this restricting and depressive effect on industry, but far worse has been the depressive effect upon the people.
The right hon. Gentleman rightly said that both sides of the House would be concerned with the problems arising from unemployment. We should realise that when there is rising unemployment, there is unlikely to be rising production, because men do not work harder when there is a fear of unemployment. Naturally, they make existing work last longer in the hope of avoiding unemployment. When unemployment is rising, people stop purchasing as much as they would normally do because they are afraid. Unemployment can have a far more depressive effect upon an economy than a Government sometimes calculate will take place.
The last General Election was very largely won on the Labour Government's boast that they had maintained unemployment in spite of their difficulties—[HON. MEMBERS: "Full employment."] I am sorry; it is unemployment that they are maintaining now. I meant full employment. When we recall what a great theme this was during the election campaign, we cannot help but express concern at what is happening now.
All this is having its effect upon the brain drain. In the Prime Minister's speech at Scarborough, in 1963, and throughout that party conference, the great theme was science and technology, with references to the loss of skilled people from this country under the Tories. This was one of the themes on which right hon. and hon. Members opposite appealed to the country and fought the election. We do not hear much about the brain drain now. If the Prime Minister was appalled by it then, what is he doing about it today?
To take the most recent figures for the brain drain, about which the Labour Party protested, in 1963, 47,000 people went to Australia and in the first 10 months of this year more than 70,000 had already gone. Twice as many

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people have gone to Canada in the first 10 months of this year as went to Canada in the entire year 1963. The Government have created a situation in which men of ability and enterprise do not want to stay. The other night the Prime Minister talked of merchant venturers. He has created a new type of merchant venturer, the person who goes abroad and stays there to do his venturing because he finds no scope for commercial venturing in this country under a Labour Government.
We see constantly a complete lack of encouragement to individuals and to industry. The real trouble with the Government is that they do not believe in the capitalist system. They do not believe in what motivates a capitalist system and, therefore, they constantly attack what motivates it, doing it great harm. They know that the people would be unwilling to accept the system which they want to put in its place. Their dilemma is that they really want Socialism but they know the country does not. They hate capitalism and they undermine it all the time. They have undermined it so successfully in the past two years as to put us more deeply in debt than ever before and completely to undermine the confidence of industry. So long as they continue to do that, we shall continue to censure and condemn them.
4.42 p.m.
Mr. Joel Barnett: I hope that the hon. Member for Worcester (Mr. Peter Walker) will forgive my saying that we expect that sort of speech from him, totally lacking in any constructive comment. For sheer hypocrisy, he went a long way when he referred to the unemployment figures. We recall what his right hon. Friend the Leader of the Opposition said in our economic debate on 26th July, namely, that we must recognise that we have over-full employment. The hon. Gentleman did himself, his party and the nation a disservice by the way he discussed our economy today.
It is important to get away from the sort of pre-election atmosphere which the hon. Gentleman tried to create. We must explode the myth that there is an easy solution to the problems facing us. For too long we have all tried to pretend that there is some easy solution to our economic difficulties, but there is not. I
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confess at the outset that I have no magic formula. I do not pretend to know precisely what the answers are. But for too long we have given the country the impression that there is a quick cure, some simple or tough measure, which would solve our economic difficulties. I do not believe that there is.
It is easy to diagnose the problems which we face. At the heart of them is the vicious circle that we know only too well: every time we have gone for growth as a nation we have come up against excessive home demand, greater inflation and the balance of payments problem. All hon. and right hon. Members will, I am sure, accept that this is at the heart of our problem.
Many methods have been tried. The right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) tried his stop-go method, and I gather from speeches which I have heard him make in the House that he still believes that stop-go has to be part of our economic way of life, apart from, perhaps, some slight measure of control in an effort to keep some of the effects of stop-go within bounds. On the other hand, the hon. Member for Oswestry (Mr. Biffen) and his disciple the right hon. Member for Wolverhampton, South-West (Mr. Powell), clothing themselves in the white sheet they always keep for these occasions, believe in the completely free play of the market economy. This would be one way of dealing with the problem, but I do not imagine that even they would suggest that it would give us the answers to it.
Then we have the Maudling method, the method tried by the right hon. Member for Barnet (Mr. Maudling) just before the 1964 election, which, admittedly, would have been a wonderful way of breaking out of the vicious circle if we could, as he tried to do, break out with a great upsurge of growth in the economy. But we know—I do not make a political point here—that it failed. The right hon. Gentleman failed to achieve his object because we came up against the massive balance of payments deficit about which we all know.
One must assume that the Opposition's answer is to be found in what the Leader of the Opposition said in the debate on 26th July. He gave us what he described —this is col. 1467 of HANSARD—as 12 major items of policy. His speech covered

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18½columns. I read it again the other day, but I could not find much more than one column of constructive comment or more than about six items of policy, none of them really getting to the heart of the problem. The right hon. Gentleman referred to Europe. I want to get into Europe, too, but if he thinks that getting into Europe will save us from dealing with our basic problems, he is as wrong as he has been in his other comments on these matters.
Some of my hon. Friends, on the other hand, have asked, "How can we possibly increase productivity during a freeze and a deflationary period?". They are quite right. It is difficult, if not impossible, to do it. But they are asking the wrong question at the wrong time. One cannot ignore the fact that we have a severe balance of payments deficit. It exists, and it is no use pretending that it does not. Something must be done to deal with it.
Equally, it is no answer to say that the simple way to solve our problem is by making defence cuts and cuts east of Suez. I do not for a moment go back on all I have said on this and on what I want to see done by way of defence cuts and cuts east of Suez—I believe that cuts must be made because it puts us under a crippling handicap—but such cuts are no substitute for the cuts in home demand which are vital today. It is no use pretending to ourselves that there is another answer. There is not.
It has been said that the measures of 20th July were too severe. This criticism comes a little hard when the same people were telling us that every single previous measure introduced by my right hon. Friend the Chancellor of the Exchequer was too severe. This criticism of the 20th July measures is a little odd in that context I do not recall that, when the previous measures were introduced, many hon. and right hon. Members said that what we needed was something even more severe.
I accept that the measures of 20th July were made necessary not particularly for economic or balance of payments reasons but for psychological reasons related to the position of sterling and the run on the£. It may well be that, at some time in the future, we shall have to consider the whole question of our reserve currency, but, at the moment, it would be very foolish to think that we could take
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this as a way out of our problems. It will be a long time ahead yet before we can think in terms of getting away from the idea of our having a reserve currency.
I have in the past advocated that one method which we could adopt was the use of direct control of imports or import quotas, but I accept as of this moment that this is not really possible. While we are negotiating entry into Europe, which I hope we will achieve, and when we have, on 1st January next, the complete removal of the tariffs in E.F.T.A., this is clearly not the time to do it. Something like the suggestion made in the last economic debate by the right hon. Member for Barnet of a prior deposit system is something which the Government could perhaps consider. This could be a useful means of restricting by financial methods the volume of imports. [Interruption.] These sedentary and customary nonsensical comments from the hon. Member for Peterborough (Sir Harmar Nicholls) do not help in a serious discussion of the nation's economy. The hon. Member is very good at doing this.
Taken together, I believe that the use of import controls of the type I have suggested together with an announcement of substantial defence cuts could shorten the deflationary period. What tends to happen is that we confuse deflation and the prices and incomes policy. There seems to be some agreement between some of my right hon. and hon. Friends and the Opposition concerning the prices and incomes policy. There seems to be agreement that we should not have had the compulsion for the period up to July next year.
I find that a little illogical. If hon. Members are saying that they do not want compulsion, they are saying, in effect, that they do not want the policy because they know, as we all must know, that the voluntary system was not going to work at least for this year. It was clear that there were people who were prepared to use the power which they had to ensure that there would be a breach in the prices and incomes policy which would affect the standard of living of the very people that we on this side want to protect. Certainly, for the short period until July, it should be generally accepted that there was need for an incomes and prices policy along the lines we have introduced.
Mr. Stanley Orme: How can my hon. Friend advocate compulsion for wages and allow other factors in the economy, such as prices, profits and dividends, to run free?
Mr. Barnett: My hon. Friend is mistaken. Nobody is allowing prices, profits and everything else to go free. If my hon. Friend does not understand how the Corporation Tax or Capital Gains Tax works, he should appreciate that they have had a considerable effect on prices profits and dividends. One has only to look at the faces of hon. Members opposite.
Even if only inadvertently, the prices and incomes policy appears likely to have some success. I should have thought that all right hon. and hon. Members—indeed, the country—would be delighted to pay credit to the fact that we are getting towards an incomes and prices policy which will have some degree of success. I have never thought that we could have total success in a prices and incomes policy, but we are going some way towards it. This is something for which we should all be grateful.
We talk about living within our means, and the newspapers give us headlines calling for tough measures, but, unfortunately, the tragedy of deflation is that it has not spread evenly throughout the nation. A comparatively small number of people have to bear the burden, and they naturally ask, "Why me?"
If we are to be honest, we must reply that dealing with the matter in this way in a free society, there is no real answer that we can give other than to say that we are trying to alleviate the problem as much as possible with redundancy payments, earnings-related benefits, and so on, and that we are working towards getting out of it so that we do not have this sort of system again.
Because of the way things have gone in the past two years, I accept that reflation will have to be slower than in the past. We cannot reflate through consumer demand but must do it through investment and exports. Everybody must surely accept this. What worries me about investment, however, is that we are trying to get by with exhortation, what the Japanese call "jawbone activity". It really is not enough.
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We know that a general reflation could be disastrous. One has only to talk to Ministers, officials or bankers anywhere in the world to know what would happen if we tried to reflate generally too soon. I believe, however, that reflation, through giving assistance directed to investment, would be recognised as something with which they could and would sympathise.
When the new investment grant system was introduced, I was very much in favour of it because the old system of tax investment allowances was clearly not readily understood, whereas the new one is understood and is more meaningful. On the other hand, to wait 18 months takes away much of the advantage that the new system gave.
When my right hon. Friend the Chancellor of the Exchequer replies to the debate, I should like to know from him—there has been confusion since the announcement was made the other day—whether the 18 months is to apply from the date of purchase, that is, the date of invoice, from date of payment or from date of application. I thought that the words that were used were "date of application". This could be misunderstood, as many in industry do not know quite how it would work, how it would be done and where to submit applications. My view is that it should be from the date of invoice at the very least, and I hope that we can bring forward the date considerably. At Question Time yesterday, I suggested that we might consider issuing an investment grant voucher which could be discounted with the banks. They have money available and it would be just the right way to use it, to encourage an increase in manufacturing investment.
I am, however, beginning to wonder, because of the way that any investment incentive works, just how much real value there is in them. During a period of boom, the investment incentive is not needed in any event. During a period like the present, industry will not really invest because it does not see the results of its investment. We might regard it as short-sighted, but this is a fact which we have to live with. It may well be that we could spend the£200 million rather better than in assuming that it is an investment incentive. It is, perhaps, time that we looked again at the whole

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question of whether it is an incentive at all or whether we can use£200 million a year to rather better advantage.
The question of reflation in the direction of exports is a rather difficult one. We all know the terms of G.A.T.T. and what is the possibility of trying to change it. At present, it is extremely doubtful—as, indeed, at any time—to get international agreement on these matters. I know from my own limited experience, however, that the Board of Trade is doing a first-class job in this direction.
Many hon. Members who have practical experience of the subject will know that the Board of Trade is giving excellent practical assistance to exporters all over the world. This again, however, can be marginal assistance only. There is then the possibility of bringing in something like the T.V.A. This tax system which Europe is now contemplating could be a useful way of aiding exports. Frankly, however, I hope that I am pushing an open door here. I hope that my right hon. Friend the Chancellor will not bring in any new tax system for a couple of years.
One of the best ways in which we could have increased and reflated in part in an export-orientated way would be to get into Europe. Of this there is no doubt. It is, however, nothing that we can seek to do anything about other than hoping that the Prime Minister and the Foreign Secretary will be successful in their negotiations.
I started by confessing that I had no magical answer to our economic problems. This debate and the previous debates and articles in all sections of the Press have shown that neither has anybody else. There is no easy, quick solution, but we can make the task easier by changing the direction of our world military rôle. By doing this, we can help make the period of deflation shorter, for we would have removed one of the major stumbling blocks to sustained growth. We can then get reflation started earlier and moving quicker because our balance of payments would be that much improved.
5.0 p.m.
Mr. Anthony Kershaw: That makes two speakers from the Government benches who have so far admitted
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that they do not know what to do about it. The hon. Member for Heywood and Royton (Mr. Barnett) chided his hon. Friend the Member for Salford, West (Mr. Orme) for not knowing how the Corporation and Capital Gains Taxes work. About that, I make two observations. If the hon. Gentleman does not, he is not alone. Secondly, I thought that it was rather a curious comparison to make between two permanent taxes and a temporary restriction of wages.
The other fascinating phrase on which I shall ponder, because I know the reputation of the hon. Member for Heywood and Royton as an economist, is "reflation in the direction of exports". I am sure that means something, and I wish to find out what it is.
I have just returned from a rather extensive trip to the United States and France. I found it galling that even now, foreigners do not believe that the present measures taken by the Government will restore our economy. As they see it, we have inflicted massive harm on our productive capacity to control the immediate crisis before us, but I am afraid that their reaction is rather that of a man who sees a person starving himself to death in order to pay back his bank manager. Furthermore, they do not believe that this resolution to be tough will persist as the next election grows closer.
The reflation which is already so eagerly asked for and which will, I suppose, beguile a number of voters when the time comes, will have to be paid for out of increased production. As production is static and in some cases even falling, it will certainly lead to an inflation which may be fatal to us the next time round.
In short, I found that foreigners do not believe that the measures which we have taken are the appropriate ones, nor do they think that they will achieve the results for which the Government hope. Why should it be otherwise? After all, as my hon. Friend the Member for Worcester (Mr. Peter Walker) pointed out just now, production is static, capital investment is being discouraged, personal tax is rising to a greater height so that personal initiative is being penalised, and the profits of companies upon which our future prosperity depends are being

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attacked more and more. In general, we have a policy of restrictions of all sorts. How can people abroad or anyone else observing us understand what is the Government's aim?
As we have no clear indication, we are forced to guess, and we can guess with some degree of accuracy because a man must be taken to intend the consequences of his actions. I assume that the Government's aim is to penalise private enterprise and to extend public control and ownership. However, that in itself is not an economic policy. It is a sociological policy with which one can agree or disagree, but it is not an economic policy because it is directed to different ends.
The fact is, as my hon. Friend the Member for Worcester said, it is not certain that the Government intend to make a success of the capitalist economy of which they are in charge. They are not reluctant to see it go broke, because that would give them the excuse to fasten upon it the fetters of Socialism which will be the more difficult to get rid of as time goes on.
It is not disputed seriously anywhere that two ways to revitalise our industry are to introduce some greater measure of competition and end restrictive practices. For doctrinaire reasons, the Government reject the first solution categorically, and it is clear that they will not do anything about the second. Therefore, it is very hard to see why the Government have chosen this moment to announce their intention of joining the Common Market. One economic effect of the Common Market which can certainly be foreseen would be sharply to increase competition. Our industry would suffer and, to that extent, it would make restrictive practices that much more difficult to maintain. Until recently, after his right hon. Friend the Member for Easington (Mr. Shinwell), the Prime Minister has been the standard-bearer of the anti-marketeers. It is hard to see why the right hon. Gentleman has so suddenly changed his spots.
After all, what else has changed? The reservations which the Labour Party has maintained about joining Europe have been a little diminished, but not greatly. The reservation about agriculture has even been strengthened. We have the
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reference to the "special relationship" which we are supposed to enjoy with the United States. It is a relationship which may be obvious to us, but it is increasingly becoming less obvious to anyone else. The Foreign Secretary goes out of his way ostentatiously to insist upon this relationship just before the negotiations begin. None of those things has changed and, above all, General de Gaulle is still there.
Why do the Government maintain that he has changed, as they do? When, in 1963, he brought our negotiations in Brussels to an end, among other powerful arguments, he used the one that our country is an island. That is a proposition which has not been seriously disputed for some time, and it is not very clear what its relevance was to the negotiations. The very paucity of his arguments reveals that he does not want to share the commanding position which he now enjoys in the Common Market with anyone as large as ourselves. Denmark could join, and Greece or Austria could have an association, but it is obvious that we are too big for him in the Common Market. It is true, too, that we would join attended by a train of friends—the Scandinavians and the Irish at least. So one cannot suppose that General de Gaulle has changed his mind.
It might be possible to persuade him by an absolute acceptance of the Treaty of Rome as it stands, and we might find that, in the existing political and military circumstances, the other five would be willing to force de Gaulle's hand so that he agreed to have us in. However, the Government are not pursuing that line. Their cold, calculating approach, with all the reservations held in front of them like a shield, is not the right way to do it.
The foreigners to whom I have been talking recently do not take our initiative very seriously. Many of them believe that it has been done to show activity when activity is desirable because the Prime Minister cannot think of anything else to do, and that it is done to muzzle this side of the House and the very large numbers of people in the country, now a clear majority, who favour our joining the Common Market.
If this démarche is not successful, what is the economic alternative to joining the Market? We have E.F.T.A., of course, and I hope that we shall keep that in

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being and improve it so far as we can. But it is bound to be said that, for us, E.F.T.A. is not very interesting, because we are half the population and more than half the productive capacity of that organisation. Whilst it is interesting for others, perhaps it is not quite so interesting for us. E.F.T.A. will certainly continue and, I hope, do good.
The other plan which has been put forward recently is that we should in some way join the United States and Canada. This industrial free trade area idea has twice been put forward by Senator Javits, of New York, in the American Senate. It would have to be accompanied by a massive loan to this country, and it is true that, while our wage rates lag behind wage rates in the United States, we might expect to make our goods extremely competitive there. But there is one great drawback to this. However it is camouflaged, and however the package is dressed up, we could not but feel that we would be in the position of the 51st State, and I do not believe that the Prime Minister would wish to promote that sort of idea.
I believe that the Prime Minister does not want to get into Europe, and that he does not want to join the United States. I do not believe that he wants to do either of these things. I think that he wants to keep this country a tight little Socialist island which can easily be controlled in the way that he thinks he can run our economy. I believe that this way lies obscurity and disaster for this country.
Mr. Ivor Richard: Is the hon. Gentleman saying that the Prime Minister's initiative in trying to get Britain into the Common Market is wrong? Is he saying that it is ill-timed? Is he saying that the Prime Minister ought to be more specific about it? Is he saying that we should join on any terms? If he is, I do not think that his hon. Friend the Member for Worcester (Mr. Peter Walker) will agree with him. Will the hon. Gentleman clarify his position?
Mr. Kershaw: I think that the hon. Gentleman cannot have been listening too acutely. I do not blame him for that, but the fact is that the burden of my argument was that this type of approach,
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this cold little dribbling approach towards Europe, will not do the trick. The only way to get into Europe, to use a short phrase, is to go to Brussels, ask for a pen, and say, where is that blooming Treaty? If we accept the spirit of the Treaty of Rome, and we accept the economic and political obligations at the same time, it will be seen that we are sincere and want to get in. The calculated way will not bring home the bacon, and I am certain that it is carrying no conviction to those who are on the other side.
Mr. John Pardoe: The hon. Gentleman said that the only way to get into the Common Market was to go to Brussels, ask for a pen, and sign the Treaty of Rome. Does he recall whether that was the method by which his party tried to get in? Does he further recall what his party said about the Liberals, who advocated this course way back in the late 'fifties?
Mr. Kershaw: One has to bend the negotiations to fit the circumstances in which one finds oneself. If I may respectfully say so without offence, this is the very thing which the Liberals have never been able to do, and this is why there is only one Liberal Member here this afternoon.
I am not going to say that the timing is perfect. I think that we ought to have waited a little longer, because, after all, General de Gaulle will die. I know that he will die, because he said so at a Press conference. I therefore think that it would have been worth postponing the matter for the present.
We know that the Continentals regard our economic difficulties as another excuse for spinning out the negotiations if they start. I should have liked to have seen us make greater headway with our economic position before putting a specific proposition to them to negotiate in a clear way. I do not think that the way to get into the Common Market is by adopting this little move and being entirely unclear about the conditions which we put forward. I have been forced to speak a little longer than I intended, because of that intervention, albeit an intelligent one, which was a nice change from the other side.

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This is not only an economic matter. One reason why our economy does not run as we should like, and has not the vitality which it used to have, is that many people in this country are rather bored. The freedom which we have acquired—and thank God that we have—from the poverty, the pestilence, and the dangers of the past has made many of our citizens lose their enthusiasm for the tediousness of repetitive work.
I think that we lack, too, the feeling that we are still important. We miss, although I do not think very consciously certainly in the younger generation, the fact that we are not the centre of affairs. I think that we unconsciously resent the fact that what the British Prime Minister says and does is not so important as it used to be, and that what the British Foreign Secretary says and does is not so important as it used to be—and bearing in mind the present incumbent that is perhaps just as well—and we want to get back into the mainstream of events.
I believe that it is a question not only of the economy of this country, but of its moral health as well. I believe that at the moment the only way to deal with it is to get into Europe. I believe that our negotiations are ill-starred under the present way of making them, and that we may find ourselves willy-nilly drawn into an association with Canada and the United States, which some of us do not want, because we think that we will not be able to maintain our end. I hope, therefore, that in these negotiations which the Prime Minister is initiating he will be able to abandon the posture of a politician, which he finds so easy, and take on that of a statesman, which so far he has found too difficult.
5.16 p.m.
Mr. Trevor Park: I am strongly tempted to follow the hon. Member for Stroud (Mr. Kershaw) in his remarks about membership of the Common Market. I am particularly tempted to deal with some of the more naive and inane ones. However, I shall resist the temptation, because it seems to me that in our present economic situation it is more important to be concerned with taking the right steps to strengthen the economy, whether or not we go into the Common Market, and it
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is rather to this aspect of affairs that I shall devote my remarks.
When I addressed the House on the occasion of the Third Reading of the Prices and Incomes Bill, I expressed a view about the likely consequences of some aspects of the Government's policy which did not wholly commend itself to all my hon. Friends on this side of the House. Now, three months later, we have passed the stage of speculation. We are confronted with the harsh realities. We are not guessing at the consequences. They are staring us in the face, and I believe that in the present situation many people who a few months ago were prepared to give the Government the benefit of the doubt about what was likely to happen no longer feel that they can do so.
What has now happened is that the prices and incomes policy which the Government originally conceived as an alternative to deflation and unemployment has become their inevitable accompaniment, and the measures which in July were intended to provide us with a breathing space before we moved forward again on the path of expansion are now directly plunging us even more deeply into the path of a lasting recession. What is surprising is not that this should be so, but that the Government should ever have concluded that it could be otherwise, because we have been through the whole story before.
The July measures were in essence a reversion to Conservative economic policies which were put into operation on so many occasions by the party opposite when it was the Government between 1951 and 1964, and from which we always emerged weaker at the end of the day. Confronted by a balance of payments crisis the party opposite sought to stave off further debt by means of cutting home demand and instituting a credit squeeze and a pay pause—and the results were always the same.
Mr. Arthur Lewis: Will my hon. Friend add a further action of the Tories, namely, to cut the social services—which, thank heaven, this Government have not yet done?
Mr. Park: I thank my hon. Friend for that remark. The result of Conservative policies were always the same: the immediate foreign trade crisis was

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averted, but the time gained was dearly bought. Its short-term results took the form of the development of unemployment, with consequent serious falls in living standards for the lower-paid members of the community. Its long-term results were even more serious; stagnation of production, a falling rate of investment, a further deterioration in our share of world exports and, perhaps most ominous of all, the development of a feeling of pessimism and a lack of confidence in our ability as a nation ever to discover a permanent way out of our problems other than those short-term expedients.
I believe that it was because the people of this country wanted a different approach that my party was returned to power in 1964 and again in 1966. But what has now happened is that instead of a new approach we are experiencing a reversion to the old one. It is having precisely the same effects. Unemployment is already more than 500,000, and it may well reach 700,000 before the winter is out. Production is already seriously declining, and it will decline even more unless the Government take speedy action to deal with it. Investment, as we know, is dipping very seriously indeed. There is a growing danger that unless the Government are prepared to take immediate action to reflate the economy the present recession will continue with a momentum of its own, and we shall be confronted not only by very serious figures of unemployment this winter but even more serious ones in the winter of 1967. [Interruption.]
Mr. David Webster (Weston-superMare): On a point of order. Is there any way in which you, Mr. Deputy Speaker, can assist the House to obtain the services of a Treasury Minister?
Mr. Deputy Speaker (Sir Eric Fletcher): There is no way in which I can assist the House in that matter.
Mr. Park: I can understand the argument that having embarked on their present course the Government cannot afford immediately to throw all the engines into reverse. We cannot expect this. But there is a very strong case for saying that unless some selective reflationary steps are taken in the near future it will be too
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late to arrest the trend of events, not for this winter alone but for next winter as well.
We ought to be thinking now and not next spring or summer in terms of action which will have the effect both of stimulating investment and increasing consumer purchasing power, especially amongst the lower-paid members of the community and the old-age pensioners. Unless we do this as a matter of the gravest urgency there is little hope of our avoiding the loss of the huge fund of goodwill with which the Government came into office earlier this year.
It is against this background of general economic policies that I now turn specifically to the Government's approach to prices and incomes and to the White Paper on the period of severe restraint. I shall not say a great deal about the White Paper, but neither the C.B.I. nor the T.U.C. has found itself able to endorse the specific proposals contained in that document. The Government will be forced to rely either on the use of compulsory powers or the threat of their use if they are to carry their proposals into effect.
Are they really convinced that where persuasion has failed such coercion is likely to be effective? I suggest that the lessons of history bear an opposite interpretation. When we had a period of total wage regulation by decree in the First World War it was productive of more industrial disturbance and unrest than occurred during any comparable period either before or since. If the policy of coercion on this occasion proves effective, will it not be at the cost of creating such an atmosphere of bitterness and distrust on both sides of industry that the implementation of a voluntary incomes policy later will prove difficult, at the very least, and more likely impossible?
I want to give one example of the kind of difficulty that I envisage arising from the implications of the White Paper. I am a member of the Transport and General Workers Union, and the Chairman of its Parliamentary Group. Amongst the members of that union are many workers in the service industries, many of them in transport. The bulk of them are in receipt of time rates of pay. In the last 10 years the adoption of the Guillebaud and Phelps Brown Reports,

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enshrining the principles of comparability, have gone a long way to improving both the status of transport workers and industrial relationships in the transport industry. But now, according to the terms of the White Paper, comparability is to be thrown out of the window at the same time as higher earnings in manufacturing industry, through payment by results, continue to be specifically accepted. In my submission the discrimination involved in this approach will cause a great deal of industrial discontent in months to come.
There is another way in which discrimination will occur as a result of adoption of the principles contained in the White Paper. We know that the power of the Government to influence and control the public sector of industry is greater Wan is their power to influence and control the private sector, The criteria outlined in the White Paper are more likely to be applied stringently in the public sector. These are weaknesses in the White Paper itself, and they will lead to many difficulties during the first six months of 1967.
But I am much more concerned about the position in which we shall find ourselves next August, when the emergency powers taken under Part IV of the Prices and Incomes Act expire and, with them, the authority which the Government now possess to impose an incomes policy by decree. We have been assured that there is no intention of prolonging this authority, and therefore, in one form or another, we shall have to return to the voluntary principle. I am as much opposed to the idea of a return to a free-for-all in incomes as I am to the continuation of an incomes policy based on legislation and compulsion. What is needed is a voluntary approach on which Government and trade unions can agree, but such an approach is impossible under the economic policy now being pursued.
My right hon. Friend the Prime Minister put this point clearly at Swansea in January, 1964, when he said:
"The Labour Party has always stood for an incomes policy based on rising production. We have the right to ask for this policy, because we are willing to create the conditions in which it can be established—conditions applying to all incomes, not excluding rents—and we can make the national appeal that is needed, because, for us"—
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these are the essential words—
"an incomes policy is the condition of sustained growth and because a pledge of sustained growth is a condition of that policy."
The Prime Minister and the whole Labour Party realised at that time the essential link between an incomes policy and an economic policy of full employment, expanding production and social justice. The two go together. I am sorry to say that, in 1966, the Government seem to have forgotten this. Unless and until they remember it and, more important, enshrine it in their actions, I have little confidence that they will be successful in achieving the necessary policy.
There is an alternative economic policy which the Government could pursue and which is expressed in the Amendment in my name and that of some of my hon. Friends. I commend it to all hon. Members, not least to my hon. Friends on the Front Bench. I have not time to deal with all the points raised in the Amendment, but I will say this: if we are confronted with the immediate necessity to reduce demand on our resources, we should look again at the crushing burden of our overseas defence expenditure, a primary cause of our difficulties. If demand is too great for our resources to meet, it is in defence and not the living standards of the people that the biggest cuts should be made.
That means a reduction not merely of defence expenditure, but also of the massive industrial and technological effort put into defence. It means a real reduction in our overseas commitments, especially east of Suez and the Middle East and we shall not secure that reduction, which I know the Government wish to secure, unless and until we do this. This is basic and essential.
There are other alternatives and I have no doubt that some of my hon. Friends will mention them. The most important point in our approach involves the total renunciation of the theory that unemployment and industrial stagnation have any part to play in providing a solution to our economic problems. Only when we put back productivity, expansion and rising living standards as the essential priorities of our economic approach will we make progress to achieving the task which the British people have charged this Government to carry out.
5.35 p.m.
Mr. Kenneth Lewis: The hon. Member for Heywood and Royton (Mr. Barnett) said that he had no magic solution to the economic problems. We have just heard the hon. Member for Derbyshire, South-East (Mr. Park) make it clear that he and many of his hon. Friends do not think that the Government have a magical answer either. We on this side are worried because the Government seem to think that they have the magical answer. We are concerned about the magic, as we do not believe that it will work.
The White Paper is one of a series, with different authors but in the same pattern. The Economist talked about a "Brown sludge", apparently not having noticed the change in the Department of Economic Affairs. This White Paper, although a continuation of the others, does not take us much further. I am on the record as in favour of some form of prices and incomes policy and of having a Prices and Incomes Board as a watchdog. It has scope to play its part in certain circumstances, but, if it is given the power to interfere right down the line instead of encouraged to deal with key situations as they arise, it will be impossible for the Board. There would be a danger of dictatorship which would affect the whole work of the prices and incomes mechanism in industry.
The Government's policy is three-pronged. First of all, they have determined on an increase in unemployment. Second, they seek to exercise some control over incomes and prices. Their mistake is that they do not understand that the increase in unemployment which they are encouraging makes the second aim less necessary than otherwise. Increasing unemployment means that the Prices and Incomes Board need come in only on certain occasions and not on every occasion, as the White Paper suggests. The Government refuse to recognise this.
The third prong which is mentioned throughout the White Paper is the Government's aim to get, through industry, some form of social equality—in the regions and among individuals. This third prong is not only blunted but is misconceived for it is no business of industry to create a system of egalitarianism. Further, if one thinks in terms of
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maintaining employment in the regions at a higher level than in the past, the White Paper does nothing to achieve this either. The Government have failed to provide a regional employment policy. Unemployment is growing in the north of England, in Northern Ireland and in Scotland, despite the Government's incomes policy.
The lower-paid worker mentioned in the White Paper is worse off today than he was when the Conservatives were in office—just because the Government are seeking to get a policy of equality through industry. As soon as one introduces social policies into industrial production, the effect is felt most by the lower paid.
The most important prong of all, is that of productivity. If it were given a bigger push by the Government, this would not only help to raise incomes in industry but would also assist our balance of payments, increase production and in itself help the lower-paid worker. When people as a whole in industry are given an incentive to earn more, then those who earn the least also get more.
The Government have suggested that in the coming 12 months wage increases will be given to certain sections of the working population, involving about 3 million people. We understand that the increases will add up to from 1 per cent. to 2 per cent. I believe it would be wrong to assume that, merely because some people will be earning slightly more, more money will be going into the economy. This may not be so simply because an increase in basic rates of pay is not the same as a real increase in income. I believe that in the next few years there will be an overall reduction in total earnings, resulting from a reduction of overtime work, a cut in bonuses and the withdrawal of many fringe benefits which people have enjoyed during the boom periods.
The Government are in danger of creating further difficulties on top of the squeeze, because of the unemployment that has been taking place following the Prime Minister's announcement of last July. I do not believe that the situation will get better until the Government emphasise that they accept a policy of increased productivity and rewards for that increase and, where there is increased enterprise, giving rewards to match.
Hon. Gentlemen opposite must get away from the idea that "profit" is a

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dirty word. They should accept that profits are made not only by shareholders. Not one employee of the motor car industry is not concerned with profit. Each employee is concerned with his own profit, particularly when he speaks with his friends who are out of work and wonders whether he will be out of work tomorrow—at the same time looking back at the earnings he enjoyed in the last few years and wondering what may happen to him and the industry in the next year or two. There is nothing wrong with his attitude. It is a healthy regard for profit. It applies to the executive, the manager, the director, every shareholder and every employee. It is encouraged in every European country and in the United States, and we must export to those countries.
In paragraph 29 of the White Paper the Government refer to the distribution of manpower and say that a pay increase would not be justified merely in order to attract or retain manpower. Appearing in the Guardian newspaper today—perhaps this is the right newspaper from which to quote to impress hon. Gentlemen opposite—is an advertisement for a statistician in the General Central Register of Scotland. This is a Government post and I have no doubt that what applies to Scotland applies to similar posts being advertised for the British Civil Service generally.
The advertisement offers a minimum rate of pay but points out that a higher rate will be paid if it is justified by the applicant's qualifications. This, of course, is a complete contradiction of paragraph 29 of the White Paper. Through that advertisement the Government are providing, in the public sector, a carrot of increased pay while they are, at the same time, telling industrialists not to do the same thing in the private sector. In this connection, the White Paper also suggests that any worker receiving a low rate of pay should not receive an increase if it is equalled further up the pay scale. How this matches the Government's statement to the effect that they are trying to assist the lower-paid worker I do not know.
It was reported in a newspaper the other day that Mrs. Aubrey Jones has been named a director of a new company which will assist, among other things, in the design of offices. One task of the
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company will be to achieve efficiency in the office as well as on the shop floor. I do not know whether Mrs. Aubrey Jones will run into trouble with her husband in her new post. Certainly it is clear that one cannot have efficiency in an office or on the shop floor if one is thinking solely in terms of reducing staff. One must, at the same time, think in terms of employing people with new skills and giving high rewards to the existing staff so that they will take on new rôles and responsibilities.
Mr. Norman St. John-Stevas: Is my hon. Friend suggesting, when he refers to Mrs. Aubrey Jones, that inefficiency is essential to a happy marriage?
Mr. Lewis: It is obvious that there has been a good deal of efficiency on one side of that marriage, anyway.
The Government's prices and incomes policy will not work so long as the Government continue to squeeze industry without, at the same time, squeezing out unnecessary employment in the public sector. The Minister of Labour's speech was full of excellent promises, particularly about training and retraining. I agree that this is a vital matter, but how will he persuade people to be retrained in new skills when the Government are taking so much excess labour from industry into the public sector? The increase in employment in the Government sector and the local government sector is running entirely contrary to the prices and incomes policy of the Minister. Various warnings have been given to the Chancellor of the Exchequer about increases in Government expenditure, yet in a week or two we shall be told by the Chancellor in the Estimates that that expenditure has gone up. This is about the only part of the National Plan that will make sense. Yet in the present situation the increase in Government expenditure makes complete nonsense.
Mr. James Dickens: Will the hon. Member state clearly and specifically what items of Government expenditure he would cut in the present situation or what further items he thinks should not be increased? One of the big increases in recent months has been in local authority expenditure because of the increase in school building. Is he saying that he would cut this?
Mr. Lewis: There are a whole host of items which one could suggest—the £150 million which the Government are spending on a backstairs take-over of industry, steel nationalisation and drug charges—which are imposed without any great enthusiasm by the public. A great welter of Government expenditure is taking place at present simply because the Prime Minister and other Ministers want to bring in Socialism without having to go through the legislative processes in this House.
The economic policy of the Government will not succeed in solving the difficulties of this country until they realise that our industrial economy is built basically on free enterprise, that it needs encouragement, much more than even investment grants and direct encouragement in taxation. It needs confidence. This country is suffering at present from a complete lack of confidence, because the businessman feels that every Government Department is competing with every other Government Department to tie up the British businessman in knots. If that goes on it will simply create a situation in which those employed in business not only find themselves out of work through what the Government are doing, but also because the businesses cannot get orders in the markets of the world.
If the Government are wise they will not take too much notice of what was said by the hon. Member for Derbyshire, South-East, but will initiate policies directed to giving encouragement and bringing back confidence.
5.54 p.m.
Mr. R. C. Mitchell: I do not wish to make a grand tour of the economic situation. I prefer to leave that to the economists and pseudo-economists and to refer particularly to one aspect of the White Paper on the Period of Severe Restraint.
I have always been a supporter of the prices and incomes policy. I made that the central core of my platform at the last General Election. I supported 100 per cent. the Government decision to introduce a compulsory Clause in the Prices and Incomes Bill. My one criticism was that they did not introduce it early enough. I believe that the Government have had considerable success with their policy in slowing up the rate of increase in prices. The suggestion of some sort of complicated mechanism to
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peg prices would be a bureaucratic impossibility.
The Government's prices and incomes policy has received general acceptance among the rank and file trade unionists. My experience during the Recess, when talking to trade union branches, was that they accept the policy provided that it applies to everyone and is applied fairly. But there is one almighty gap in the policy as outlined in the White Paper.
Mr. Raphael Tuck: Dividends.
Mr. Mitchell: It is not dividends, but a section dealing with rents and mortgages.
I am sure that we all hope that the building societies will take notice of the recommendations of the Prices and Incomes Board. It should be noted that several of them have already increased their rates, one going as high as 7¾ per cent. So far as I see there is no way by which the Government can compel those building societies to come into line. This is one of the weaknesses of the policy.
I turn to the question of council rents. The House will pardon me for referring mainly to my constituency, because, obviously, I know the figures there more than elsewhere. The section in the White Paper dealing with rent is virtually meaningless nonsense. It says:
"Increased costs not met from rents must generally be recouped from the rates, and authorities are under a legal duty to hold the balance fairly between tenants and ratepapers."
What does that mean? My local authority was faced with a very severe deficit on housing revenue account caused by following the Government's policy and, being a progressive housing authority, because it increased rapidly the rate of building. We intend to double that rate in two years to meet the demand, but now we have to pay for it.
We have doubled the subsidy to our local housing account. On top of that we have increased rents on an average of something like 11s. to a maximum of 31s. 6d. a week. Large numbers of people in my constituency will be faced with rent increases on 2nd January of more than £1 a week. We cannot blame the local authority. There is little it can do. Unless the Government take action to deal with this matter, the whole of their prices and incomes policy will tend to fall apart.

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How can I or anyone argue the case for severe restraint on incomes with a constituent when we know that he is facing a rent increase of £1 a week in a few weeks' time? It is no use talking, as the White Paper does, about rent rebate schemes dealing with this. A man may be earnings£20 or£25 a week, but if he is faced with a £1 increase in his rent the effect is to reduce his standard of living by 4 or 5 per cent. at one go.
Another statement in the White Paper is:
"Only 32 out of 1,600 authorities in Great Britain have found it necessary to increase rents…"
during the period of the freeze. My authority was originally to increase rents on 1st November, but put that off until January at the expense of raiding the housing repairs account and at the expense of modernisation elsewhere. What the White Paper does not say is which authorities the 32 were. Authorities faced with the greatest problems are those which are progressive and are going ahead with the building of houses.
It is easy for a little Tory-controlled rural district council which does not want to build any houses anyway. It can sit back and say, "We are good boys. We have not increased our rents". Of course it has not, because it has not built any houses. I could go back to my constituency tomorrow—I warn the Government that such a thing may happen—and stop at least part of the rent rise by telling the council to cut down its rate of building, but by the end of next year the Government's housing figures would look very silly if many local authorities were to follow such advice.
I plead with the Government to take action and give some form of assistance to local authorities to prevent them from having to make these large increases, many of which will be made in the period from January to April of next year. Many have already been announced. If the Government do not take this action, their whole prices and incomes policy, which I have supported, and which I still support, as the right method of solving the country's economic difficulties, will collapse.
6.1 p.m.
Mr. Norman St. John-Stevas: I am glad to have the opportunity to intervene briefly in the debate, because the economic issue still remains the most
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important single issue facing the country. Unless we solve our economic problems, it is clear that we can have, for example, no effective foreign policy. The visit to Moscow of the right hon. Member for Belper (Mr. George Brown) amounted really to so much eyewash, precisely because we cannot, in our present economic situation, hope to exercise any effective or constructive influence on world affairs. We are gravely handicapped in our application to join the Common Market because of economic weakness at home. Unless we get our economic situation right, that application, too, is doomed to failure.
The depressing feature about the present situation, about the speech of the Minister of Labour today, and, indeed, about all the recent pronouncements on economics by the Government, is that it is quite clear that the Government have no idea of how our medium or long-term economic problems are to be solved. [Interruption.] I did not hear that interruption, which was made from a sedentary position. I imagine that it was not of a complimentary nature; but that, in view of the source, gives me no cause for alarm.
It is not only in the medium and long term that the Government's policy can be indicted. There are also the gravest shortcomings in the short term. The latest instalment in the story of lack of Government thought is before us in the White Paper, Cmnd. 3150. I do not suppose that even the most ardent Government supporter would regard this succession of White Papers on economic affairs as a very distinguished series. They do not make stimulating reading. In a field where competition is fairly high and fairly intense, the latest White Paper is the worst of all. It was described by the Economist last week as "turgid, brown sludge". The only gloss I would put on that comment would be as to the colour of the sludge.
My objections to the White Paper are twofold. First, it is another instalment of that mixture of blackmail, bullying, cajoling and wheedling which have become a substitute for Government action in the economic sphere. It is a form of what I may call "whitemail".
My second criticism of the White Paper is its extremely low intellectual quality,

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even for a Government document. It is an intellectual insult to put the White Paper before Parliament and the nation as a statement of Government policy in the immediate crisis which is facing us. Its language is vague and woolly. When it is not vague, it is often contradictory. The omissions from the White Paper are such as to lead one to suspect that there is a deeper void behind the one which the White Paper reveals.
The conclusion which one can draw from this document is that the Government know no more today about what to do than they did on 20th July when they panicked, largely due to their own folly and lack of foresight, and included the prices and incomes freeze among their other measures to deal with the situation. I do not want to deal with the section on prices, which so bristles with platitudes as to daunt even Members of the House.
I pass to the incomes section of the White Paper, the aim of which is set out on page 6:
"The need is to secure that in future the parties concerned are influenced to a greater extent by a more objective assessment, against the wider background of the national interest, of the merits of a particular case before a final decision is reached."
What does that mean? If the aim is so vague, it is hardly surprising that the means to achieve the aim are even vaguer.
I turn, first, to the passage on dividends. We are enlightened in this manner:
"The Government are pledged to use their fiscal powers or other means to deal with any excessive growth in aggregate profits."
The White Paper nowhere defines what is meant by "excessive". If the normal sense of the English language is to be assumed, it must refer to quantity. What quantity of profits is to be considered excessive and, therefore, evil? What quantity of profits is to be considered not excessive and, therefore, good?
Is a norm to be laid down by the Department of Economic Affairs which will give some indication of where the dividing line is to be drawn? If this is the correct distinction, namely, between too great profit and too little profit, is a firm which manages to increase its profit by increased efficiency and by
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cutting costs to be penalised by the fiscal and other measures which are vaguely threatened in the White Paper? This is a section where there is room for a little rational explanation. If one turns to the incomes norm, we are told, once again, that it must be nil.
But two exceptions are allowed in the White Paper—productivity agreements and the lowest-paid workers. I welcome the exception of productivity agreements. That, at least, is something and it is a relief to know that the Government do not intend to carry out further acts of sabotage of our industry as they attempted to do, for example, with British Oxygen.
It will be extremely difficult, however, to identify productivity agreements. But, difficult as that will be, it is nothing so difficult as finding an acceptable definition of what constitutes the category of lowest-paid workers. If it is to be decided by earnings alone, then by far the largest category will be women and presumably it is not intended at this stage of our economic development to introduce equal pay for equal work, however desirable that might be in the long run.
What is the criterion to be in identifying lowest-paid workers? Is it to be industries where the average level of earnings falls below the national average —which, I suppose, means under£15 a week? One difficulty here is that if the Government adopt that criterion many other workers will be left out because low-paid workers are in every branch of industry and many will, therefore, be excluded from benefiting.
This is not an academic problem, although the White Paper attempts and fails, to put it in academic terms. It is a very real and pressing human problem because, according to the latest estimates, there are probably 300,000 families whose breadwinner is earning less than the National Assistance rates. Faced with this grave social problem, one is entitled to ask what the Government intend to do about it?
My hope is that the Government do not intend to tackle the problem of the lowest-paid workers through the wage structure. I think that that would be stultifying and in the long run would work great injustice. We cannot really adapt the wage structure for such a

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purpose, because our whole system of wages is not built on need but rather on the nature of the work done.
I believe that the right way and the only way to tackle the problem of the lowest-paid workers is through the use of the system of social services. There is a hint of this in the White Paper, when it says:
"As, in practice, the needs of individual workers are largely determined by the extent of their family commitments, the Government will continue to give a high priority to measures specifically designed to meet family needs."
I agree with that. As was stated in The Times recently, child dependency has overtaken old age as the greatest single cause of poverty in Britain.
Do the Government intend to tackle the problem of the lowest-paid workers along these lines? We are entitled to an answer from the First Secretary of State. There is much to be said for the system of family allowances and tackling the problem through extended and more generous allowances. The great drawback of the system of family allowances is, however, that it benefits everyone, both those who need it and those who do not. I suggest, therefore, that the right course is a system of family allowances linked with an incomes test so that help is concentrated on those who need it most.
I want to turn from the short-term consideration of the White Paper, to the medium and long-term issues, which is where the gravest source of anxiety is concentrated among those who are concerned for the future of the economy. First, what is to happen after the period of compulsion if the prices and incomes policy ends in June, 1967? It is only a few months away. Surely we are entitled to have some indication of the way the Government's policy is working and the lines on which the Government's thought is progressing. There is not a sign of this in the White Paper. Surely Parliament, above all places, should be let in on the secret of the Government's thinking, whatever it is.
The second point about the long-term issues and prospects concerns capital investment. Last week, I asked the Chancellor of the Exchequer what percentage of decline in capital investment in the private sector he expected during next year and he replied that it would be between 7 per cent. and 8 per cent.
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The C.B.I. estimate is even gloomier—that the investment in building, plant and machinery in private industry is liable to be down by anything between 15 per cent. and 25 per cent.
The Minister of Labour claimed that he had knocked inflation on the head. That may be true, but Government policy has knocked investment on the head with it. As an Opposition, we are entitled to demand that immediate steps be taken to remedy this potentially disastrous situation and I hope that the Chancellor will tell us what his plans are to get investment going again. I hope that he will tell us, also, his estimates for public investment in the coming year. Though it is clear that Government expenditure is going up, the position of investment is shrouded in a fog of obscurity largely created by the Chancellor himself.
My third point follows directly on this. The Chancellor may well be successful in putting the balance of payments right. I believe that he may fulfil his promise of getting it right in 1967. But if he does it will be at a price—and the price paid by him, the Government and the country will be the elimination of any growth in the economy. So far we have had merely stagnation, but unless action is taken by the Government very soon we shall have a major recession in the economy and a contraction of our gross national product and an actual decline in growth.
I know that a number of other hon. Members are anxious to speak, so I shall not delay the House longer. I hope that my minor contribution to the debate will answer those on the benches opposite who are constantly reproaching this side of the House for not putting forward constructive ideas about the situation in which we find ourselves, and that they will perhaps find something constructive in my short remarks.
6.20 p.m.
Mr. Norman Buchan: I am very grateful to the hon. Member for Chelmsford (Mr. St. John-Stevas). When I first thought of entering the House of Commons, I wondered what Tory M.P.s looked like. It was my impression that they rather looked like and sounded like the hon. Gentleman. His speeches have the inevitable effect of saving my Front Bench, because listening to him for

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20 minutes has made me coo like a sucking dove.
The real discussion which must go on is not between the Government and the hon. Member for Chelmsford, although I liked his little piece of self-flattery in his last few sentences and it is true that we had more sense from him than we had had from hon. Members opposite all day. It will have been noticed that there is to be a production of "Alice in Wonderland" which is not fit for children, but today we have had a production of "Alice Through the Looking Glass" which is not fit for adults. [HON. MEMBERS: "Get on with it."] I will get on with it, and I will get on with what matters.
In a situation in which 500,000 people are unemployed, there have been four speeches from the Opposition in which we have had analyses of various financial problems, but not one item of consideration of the human cost involved in the situation which we are facing. When I talk to my Front Bench, it must be clear that to a large extent the real debate and argument which are taking place inside the country is within the Labour movement and on this side of the House. In the eyes of the people, and certainly in actual debates in the House, the Opposition are basically irrelevant.
That is borne out when we see the approach to a Motion which many of my hon. Friends and I have tabled and in which we have attempted to suggest alternatives. We have been told about alternatives, but we have put forward alternative suggestions for constructive discussion and constructive argument.
Mr. Arthur Lewis: Does not my hon. Friend realise that his alternatives are hopeless, because the bankers would not agree to his formula?
Mr. Buchan: Of course, that raises a problem.
There have been three crises—the crisis of November, 1964, that of July, 1965, and that of July, 1966. On each occasion the solution has been dictated either by the bankers, or by the attempt to estimate how the bankers would expect us to act, which amounts to the same thing. These were financial crises in which we took measures which cut across the basic economic solutions.
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This was again the answer to the crisis of July, this year, and the answer is basically supported by the Tories. The right hon. Member for Enfield, West (Mr. Iain Macleod) tells the Government not to listen to the siren voices calling for reflation, and so the Opposition have no ground from which to criticise our Front Bench. They pull them in the direction in which they would have gone.
The deflation, which we were pleased to hear the Lord President of the Council, two weeks ago, begin to question, has now reached a situation in my country—and if I may say "my country" it follows the speech this afternoon of the hon. Member for Inverness (Mr. Russell Johnston), and today is St. Andrew's Day and also the birthday of John MacLean, the great Scottish Socialist, a very good combination—[Interruption.] If the hon. Member for Peterborough (Sir Harmar Nicholls) wants to interrupt, at least he should not do so beyond the Bar of the House.
In my country there are now 78,000 unemployed and the Scottish Trades Union Congress has predicted that by Christmas the number will be 90,000. The tragedy is that this unemployment has been largely in the areas of growth to which we in Scotland have devoted so much time and effort.
From hon. Members opposite we have heard nothing of the sort of thing which was instanced by the demonstration of working-class solidarity by the people in my constituency who are working short time, three days a week, and by the unemployed men in the same villages who contributed so generously to the people of Aberfan. I would like the Government to display something of that kind of working-class solidarity by taking measures not to suit the foreign bankers, but to meet the requirements of the people.
The deflationary methods cut across the long-term economic solutions, because the long-term economic solutions require increased productivity and increased growth which the deflationary methods have hammered. Secondly, the deflationary methods have too great a social cost. That is shown even by the figures of the previous squeeze, the "Selwyn Lloyd" freeze, when, to cut imports by one or two points, the economy was hammered

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to the extent that 136,000 people became unemployed and the moment the squeeze was removed, import figures shot up.
In 1961 and 1962, there was a fluctuation of only one or two points in manufacturing imports, but immediately the squeeze was taken off, imports—the pre-election boom—shot up to 141 points, so that we had a long period of intense unemployment in certain areas and basically at no saving to the long-term balance of payments position.
Deflation is an inefficient weapon. It works at an efficiency rate of 1:5 instead of 1:1, as would be the case with the use of import controls, or other types of cuts. The real balance of payments crisis is not a trading problem alone. There is a trading problem and there is a real balance of payments problem, but the balance of payments problem is largely not caused by our trading position, but by external expenditure overseas.
I shall be told that this is an old record, but it is an old record which is well worth playing. One of the biggest reasons for our overseas expenditure is the permanence of the illusion that we remain a military power. It is no use the Government saying, as we so often have been told—and that is an old record—that we cannot look for a solution to cuts in defence expenditure because such cuts take too long to work through the economy. I do not accept that. When military expenditure is planned for years ahead, the expenditure is put into the economy now and decisions taken for years ahead would begin to have an immediate effect if military orders were not placed.
Finally, if we are worried about the credibility of the£—and the bankers do not have an international conspiracy to bring down the Labour Government, as one or two of my hon. Friends sometimes imagine, but are concerned with preserving their profits and therefore the credibility of the £—that credibility would be restored by hard decisions to cut military expenditure overseas. That is one of the alternatives which could be used to deal with this "phoney" aspect of the so-called balance of payments crisis.
There is another matter on which I wish only to touch, because I know that one of my hon. Friends will want to deal with it at greater length. On three occa-
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sions with these crises—this is certainly true of the measures of July of this year—we have had expanding unemployment with cuts in productivity and in production and in investment, while all the time we have had thousands of millions of pounds' worth of overseas assets which potentially could belong to this country.
No one suggests that we should nationalise all British assets held abroad. No one suggests that we should whip back £9,000 million worth of assets of this kind. What we are asking the Government to do is to explore the position, to look at the nature of the holdings, and to see who owns them, and to see whether, on a £ for £ basis—I am not even asking for bad terms of compensation—some of these assets could be sold to deal with the payments deficit.
We must not maintain the illusion of the great return which comes from these assets when the cost is lower productivity here. We should deal with the overseas portfolio. I shall be told that that cannot be done and that to try to do so would create problems and that we should be accused of nationalisation. The people of my constituency would not be at all worried about being told that they were taking over holdings of this kind and nationalising them.
I am told that the Scottish insurance companies have a great deal of money invested in these holdings so that we could not take them over and that Scotland would be up in arms if we tried. I invite my right hon. Friends to tell that to the workers of Linwood, to tell them that there is the alternative of unemployment and taking over these assets of the Scottish insurance companies. I can tell my right hon. Friends that in such an eventuality they would get a unanimous vote of confidence.
Those are the main points which I wanted to make. The unemployment figure is now becoming intolerable and is far too high a price to pay. Deflation should begin to end.
We are told that the Government do not want to head into a consumer crisis. We are not asking for the kind of experience which hon. Gentlemen opposite showed us in the 1960s. We are asking for an intelligent and substantial inflation of the economy. There should be an investment of Government money in the

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machine tool industry—a Government holding, and Government contracts. A small expenditure in that direction which would not cause any loss of credibility in the£. Government money saved the whole production of Fairfields. I would like to see such money being invested at this time in key points of industry.
I refer hon. Members to the firm of Kelvin Electronics, in Scotland, a country which has suffered from this long decay of our traditional industries; the failure to begin science-based industries—which I promised my constituents in the 1964 election and also in the 1966 election. This particular firm will be going out of commission in February, 1967. Yet that is the very kind of industry we need in Scotland. The danger is that 500 employees will be shipped elsewhere. Those men, I can assure hon. Members, would be delighted to work in that way. The continual squeeze that is going on must stop. Intelligent inflation must take its place.
Finally, I advise the Government not to listen to the siren voice of the right hon. Member for Enfield, West, calling for further deflation. There is no easy option. All options are fraught with danger. We will not accept unemployment being take further.
6.32 p.m.
Mr. R. Gresham Cooke: I thought that the Government dealt with great frivolity with the hon. Member for Derbyshire, South-East (Mr. Park), when he was making his speech. There was no Minister on the Front Bench. A touch of humour was added to the situation when the only Member on the Front Bench was the hon. Member for Wigan (Mr. Fitch). However, it did not really matter, because the hon. Member for Renfrew, West (Mr. Buchan) made almost the same speech as the hon. Member for Derbyshire, South-East.
Both solutions were the same, namely, that we should cut overseas expenditure, and all would be well. I will come to that point in a moment. I will only make one other comment to the hon. Member, as he has a great deal to learn in this matter. It does not really matter who owns the property at Linwood—
Mr. Buchan: It is a bit much, the hon. Gentleman saying that. He might
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have mentioned that he is a director of Rootes, at Linwood.
Mr. Gresham Cooke: It does not matter so much who owns that property. The question is that the cars that are made in that factory have to be sold overseas. That is the real problem. The question to which we have to address ourselves—and several hon. Members opposite have addressed themselves to it—is whether we are on a slippery slope. Has the situation got so out of control that we are to have 700,000 unemployed in a month or two, or even more?
I believe that the quickest way to measure falling production and trade is by the amount of transport that is required to carry it. Therefore, I was very interested to read of one of the most significant figures that was tucked away on the back page of the newspapers recently. I refer to the fall in the traffic figure of British Road Services during the last four weeks, which have fallen by 14 per cent. B.R.S. estimates that 4 per cent is due to trouble in the motor trade and that 10 per cent. is due to trade recession problems. Of their 10,000 drivers, they have given notice to the union that they are thinking of declaring redundant about 800 men, or nearly 10 per cent.
I believe that those figures are much more up-to-date than the production figures which we get a few weeks late, and that they are really significant of what is the present situation. We know that 15,000 people are redundant in the motor industry in the Midlands and that 60,000 are on short time. If that represents only 4 per cent. of the 14 per cent. of the B.R.S. figures, then the situation is really very serious indeed. It means that radio and television equipment, household equipment, furniture, and perhaps clothing and textiles, are suffering almost as badly, and it can be expected that the next figures will reveal unemployment to be considerably more widespread than we thought.
I am particularly concerned about the long-term effect on exports resulting from this downturn in home activities. My experience in the motor industry—and hon. Members will excuse me for taking one or two instances from that experience—tells me that the rise in the prices of exports, due to cover 20 per cent. of

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the reduced home sales, should be something in the nature of a 10 per cent. increase—perhaps even £100 on some family saloons.
At the moment, the standard practice in the motor industry is that most people are selling overseas at a loss. They have been able to put up their prices of new models, but they have not done so on their old cars. That cannot go on for ever. The export drive in this industry is threatened and, indeed, needs every ounce of Government help. I am glad the Minister of State, Board of Trade, is in the House.
I was thunderstruck to hear that in the great demonstration of fighting vehicles, tanks, troop carriers, and all the rest. that was put on by the Fighting Vehicle Research and Development Establishment, at Chobham, at the end of September—it is held only once every four years, when all the military attaches of the Western world are present, where foreign Government buyers come not with millions of pounds but with tens of millions, and the demonstration is beautifully arranged by the officials of the Ministry of Defence—neither the Minister for Defence and, worse still, the Government arms salesmen, turned up, although the demonstration lasted for three or four days. I think that the Government arms salesmen, Mr. Raymond Brown, and his staff, should have been there on the opening day to meet those important buyers from all over the world.
Another cloud on the horizon which is facing the industry at present are the new regulations which the American Government are proposing to introduce next year—regulations severely controlling the building and manufacture of motor cars. About 35 new regulations are proposed, including anti-smog devices, and a test requiring that a car should hit a wall at 30 miles per hour and, in the process, moving the steering column back only two inches. All these things are being required to be built into motor cars. That will be quite easy in the case of the large American type cars, but it will be very difficult for our own small sports car firms to fulfill these requirements. It will be very difficult to squeeze around those regulations. The Minister of Technology has made inquiries about this matter in the discussions that are
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taking place with America on these proposed regulations, but I consider that the Ministry should now do battle with America on behalf of the industry.
I would like to see a team from the Ministry of Technology and Ministry of Transport go to Washington to struggle with the American Government on these regulations which will hit the sale of our sports cars. Perhaps the right hon. Gentleman will pass that suggestion on to the Ministry of Technology.
Finally, the industry needs the expert help of the Board of Trade in persuading the E.F.T.A. countries—Norway, Finland, Portugal and Switzerland—to abandon their revenue duties which have taken the place of tariffs and which keep out the motor products of their E.F.T.A. partners. If they were not there, it is calculated that exports from this country to the E.F.T.A. countries would be increased by about £12 million a year. I am sorry to have to deal with these detailed matters, but they are the sort of matters which require urgent attention at present.
I propose now to turn to much wider fields. We on this side have been criticised for not putting forward constructive ideas, and I want to do that now. We must consider in this debate how to avoid this trouble again. We have had nine post-war balance-of-payments crises, and that is enough. When the Government decide to reflate, as they are bound to, industrial activity increases, unemployment drops, imports of raw materials rush in, purchases of food increase, our balance of payments begins to look less healthy, inflationary tendencies begin once more, confidence abroad begins to ooze, and the whole ghastly round of cut-back and squeeze may begin again. When we have got our growth rate back to 3 or 4 per cent. our troubles are in danger of beginning, and we must give attention to this problem.
Since 1960, Germany's average growth rate has been 5·6 per cent., while ours has averaged only a little over 1 per cent., or 2 per cent. at most. France's growth rate has been a little less. But neither France nor Germany run into these balance-of-payments difficulties. Why is that? I suggest that it is partly because

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by exchange controls they can insulate themselves from any loss of confidence abroad. They do not have to carry their own currency as a reserve currency or as a trading currency for the whole world. They do not hold themselves out as bankers to the world or use their currencies to finance trading transactions in every part of the globe.
We do just that, and to that extent I believe that our currency is more vulnerable and our balance-of-payments anxieties are accentuated when anything goes wrong. We have now been, for a month of two, in calm waters. I believe that there is at present no risk of devaluation. That being so, we should quietly take stock of the situation and see what can be done to help ourselves over the two functions of a reserve currency and a trading currency. We should not be afraid to discuss the problem, because the rest of the world is doing so, anyhow. We should take the mystery out of the situation.
Thirty per cent. of world trade is financed by sterling, and about 30 per cent. of official currency reserves are held in sterling. I believe that we are bankers to 40 countries. Sterling is a trading currency, and finances nearly £20,000 million worth of world trade annually. The sterling area system enables us to pay for the imports of a very large quantity of food and raw materials without our having to find foreign currency. The rest of the world holds over £4,000 million of our currency, which is three or four times our liquid assets—though our British assets all over the world well outstrip that amount. We are like a banker with a proportion of our reserves held in liquid form, as cash, to meet day-to-day business but without having sufficient cash reserves to meet the demands of our depositors if they all wanted their money back at the same time.
From banking, insurance, and so on, it is said that the City earns about £200 million a year—so far, so good. But as far as one can ascertain, we are paying in interest to our foreign depositors some £500 million a year. All this backward and forward inflow and outflow is quite helpful when the balance of payments is strong, but if there is any crisis of confidence abroad, people who are selling to us—
Mr. John Nott: Is it not the case that the£200 million to which my hon. Friend refers is for services which the City of London provides, and has nothing to do with interest that we pay out? The£200 million represents the country's earnings purely on services provided by the City of London, and it is an absolutely net gain. Against the interest being paid out, we have vastly greater earnings. Does not my hon. Friend think that, from that aspect, his analogy is slightly misleading?
Mr. Gresham Cooke: I agree that the£200 million is a net earning, but when looking at the figures it seemed to me that we were paying out about£500 million in interest on deposits. However, if I am wrong it does not alter my general argument that if there is a crisis of confidence, people selling to us may demand payment earlier because of a possible risk of devaluation. It has been said that if we had to pay for our imports only a week earlier it would cost our reserves£150 million. If there is a crisis of confidence, depositors begin to withdraw their money at the same time, so that we are in danger when the situation is not 100 per cent.
In addition, world liquidity for trading purposes may be getting into short supply—that is, currently required generally for world trading. It is estimated that an extra 3 billion dollars is required each year for world trade, and 1 million dollar's worth is supplied by newly-mined gold. The rest of the increase in world liquidity is met mainly by outflow of dollars, but also, to some extent, by out-flow of pounds.
I have long believed that this is a a dangerous situation. It is all done on tiny reserves. The whole of our liquid reserves are smaller than those of the Bank of Texas. At the end of the war, J. M. Keynes suggested that there should be a new international currency, to take the weight off sterling called Bancor. A former Chancellor of the Exchequer, my right hon. Friend the Member for Barnet (Mr. Maudling) tried to get the bankers to work a new system called the "Maudling Plan", which he put forward in Washington. My right hon. Friend then said:
"…I have in mind an arrangement of a multi-lateral character under which countries could continue to acquire the currency

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of another country which was temporarily surplus in the markets and use it to establish claims on a mutual currency account which they could themselves use when their situations were reversed. Such claims on the account would attract the guarantee that attaches to holdings in the fund."
That proposal aroused a lot of interest, and some work has been done on it. If the Chancellor refers to it tomorrow, I shall be interested to hear him. I believe that we should be using this calm period to try to get the I.M.F. to create a new type of international currency—
Mr. Alexander W. Lyon: Did the hon. Gentleman read the announcement which followed the meeting of the Council of Ten at The Hague, soon after the July crisis broke? The Chancellor of the Exchequer made it his first duty, immediately the July crisis broke, to see the Council for the very purpose the hon. Gentleman is talking about, but no progress can be made until France, in particular, agrees to guarantee this international reserve.
Mr. Gresham Cooke: I am aware that the Chancellor of the Exchequer has been working on this problem, so I hope that he will be able to say something about it tomorrow. I am not convinced that we need necessarily be held up by the attitude of France; I should have thought that other countries were strong enough to take up the matter on their own—the greater part of the Council of Ten, in fact. But this is a matter of urgency, and I hope that the Chancellor of the Exchequer will be able to tell us that he is pressing on with this plan, otherwise we get caught short again at the next crisis.
It is said that one of the advantages of joining the Common Market would be that we would have reserves to assist sterling. That is looking a long way ahead, and the next crisis will be upon us much sooner than that. Perhaps tomorrow the Chancellor will give us what news he has of the meeting in Washington, under the chairmanship of the managing director of the I.M.F., which is studying our proposals.
In the dangerous conditions of a depressed economy our exports in some industries may well fall in 1967. Every stop has to be pulled out by the Government to combat that. We should now as a nation be energetically pursuing this question of an alternative currency for
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world trading, so that in times of crisis we can rely upon the I.M.F. to help us over difficulties which are not of our making.
6.50 p.m.
Mr. Alexander W. Lyon: I felt, when I was listening to the hon. Member for Twickenham (Mr. Gresham Cooke), rather as I did in the days of my National Service, when I used to sit at the feet of a lecturer from the Army Educational Corps, who, clearly, did not know anything at all about the subject, but who was intent upon giving me a long lecture. I shall not detain the House by going into some of the arguments that he put forward, because I know there are a large number of hon. Members who wish to take Dart in the debate.
I wish to make one short point. The conventional wisdom of the debate has been that there is no easy solution to our economic difficulties. This is true, but it is easy enough to see the symptoms of our disease which manifested themselves in the 12 months before the July crisis. We paid ourselves out £1,800 million and we earned in greater productivity£600 million.
This was the root cause of our difficulties. We could deal with it by taking money out of the economy in one of three ways. We could cut our incomes, we could take some of the money in taxation, or we could in some way reduce demand by manipulation of the hire-purchase system, or by other kinds of control so that money did not go quite as far as it has done before. We chose, on 20th July, to do all of these three things.
My particular interest in the July measures is in their effect upon the incomes policy, which I have resolutely supported from the beginning. I feared that the wage freeze would kill any chance that we had of getting a voluntary incomes policy. It is clear that I was wrong. I was not alone in that. At The Hague the Chancellor said that if we succeeded in the wage freeze it would be a bonus. He clearly did not anticipate that we would have the success with the freeze which we have had, for this period at any rate. It is true that we will enter into the next period, of severe restraint, when the difficulties will be very much greater. Already, it is clear that the policy has commanded wide support and that this,

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in itself, is an advance on the situation before 20th July.
Mr. John Biffen: I am interested in what the hon. Gentleman is saying, because obviously, we are not in a position to know whether the stability has come from the measures of deflation or from the incomes freeze. When the hon. Gentleman says that the stability exists, is he comforted by the wage rate index quoted by the Minister of Labour? Would he not reflect upon the fact that we have not the faintest idea of what has been happening to salaries during this period? We have no official indication upon this whatever.
Mr. Lyon: It is true that our information is limited, but in so far as we have information comparable with the information about the same area of earnings before 20th July there is cause for satisfaction. It is true that it is easier to achieve this kind of stability in a period of total freeze. This is the point that I want to make.
When we entered the period of the freeze we had 6 million workers expecting increases which had been negotiated and agreed. If we had paid out those increases in the succeeding 12 months we would have paid out about £600 million increase in productivity which has been achieved during the preceding 12 months. I have tried to check from such sources as I have what would have been the cost of paying out these increases to the 6 million workers. I have not been successful but it must be about £600 million, because included in the number of workers were the doctors, who were to receive substantial increases. Clearly, in one fell swoop, we would have eaten up the whole of the increase in productivity of the preceding twelve months.
In the White Paper dealing with the period of severe restraint we have said that all those increases negotiated and agreed will be paid in the following six months. This is at a time when it is clear to everyone that we cannot hope to achieve even £600 million worth of productivity increase. The likely rise in productivity over the next 12 months must be very much less. At a time when productivity is falling we are to pay out, even in the period of severe restraint, an amount which must exceed our increase in productivity. What is to happen after
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June of next year when we come out of any kind of statutory control and return to the voluntary restraints which might be made?
I am bound to accept that attitudes have changed a great deal since the period of voluntary incomes policy, when earnings rose by 8 per cent. It is a feature of the present situation that both the C.B.I. and the T.U.C. are looking to their own machinery to try to evolve a voluntary incomes policy which will be stronger and more effective than that obtaining before 20th July.
No one can be satisfied when the mavericks on either side of industry can wreck the whole voluntary system, that without any statutory system of restraint at all a voluntary system will not lead to increasing inflation because the amount of increases in income far outstrip any increases in productivity. My point is that we cannot expect to go on with either constant deflation or statutory control of increased incomes. It may be that the kind of control we require is not so detailed and extensive as that which we have had over the last six months.
It may be that we have to set a norm, related to the increase in productivity over the whole economy and that we have to say that as a matter of statutory control, no increase will rise above the norm without the express permission of the Government and that the number of exceptions to the norm must be very limited. But, of course, if we are to have no increase in productivity, it is difficult to set a norm which is realistic in terms of increase in living standards. This is why we have always said that an incomes policy can be really relevant only in terms of planned growth. It is planned growth that we need.
What perturbs me in the present situation is that the Government continue to say that we cannot reflate until we have our balance of payments situation right. It must, surely, be part of the equation that, if we could establish a realistic and practical incomes policy which was working, we would not need to deflate. Therefore, the sooner we can get a realistic incomes policy the sooner we can end deflation. It is for this reason that I suggest that the Government should look again at their announced policy that they will not continue with some kind of statutory control of incomes after July.

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I believe that the workers, if faced with the alternative of being put out of work as distinct from having less in the wage packet than they expected, perhaps having to put off for some time increases in their standard of living, would find the latter preferable, and much to be preferred to a cut in standard of living which comes from 100 per cent. personal unemployment.
Mr. Kershaw: Is the hon. Gentleman arguing for a permanent wage control?
Mr. Lyon: I am asking for a permanent compulsory incomes control. I do not say that it should apply only to wages.
Mr. Kershaw: Yes.
Mr. Lyon: I think that it must apply over the whole range of incomes. I am saying that, unless we are to go back to the sort of uncontrolled chaos which we have had ever since the war, going fitfully from one bout of inflation to another bout of deflation, we must have steady control on increases in incomes. It is for this reason that I ask the Government to look at the matter again.
7.2 p.m.
Sir John Langford-Holt: One hon. Member opposite suggested earlier that we on this side were not much interested in the incidence and effect of unemployment. He is not in his place at the moment, but I hope that he will take it from me that the ability to work, the availability of work and the health and happiness of the people are the reason for this debate taking place at all. This is our purpose here.
In November, 1964, the Prime Minister said that the kernel of our problem was the matter of confidence. It is a matter of confidence today just as much as it was then, confidence not only on the part of the foreigner—and "foreigner" is not, after all, quite so dirty a word as it tends to be here—but confidence also on the part of the people of this country as a whole. It is also a matter of confidence on the part of those who direct our industry and our exports.
Our exports are promoted and carried on, basically, by private industry, and it is from this sector particularly that confidence has gone, not confidence in
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the integrity of hon. and right hon. Members opposite but confidence in the future.
I shall illustrate what I mean by the example of what has happened regarding North Sea gas. In 1964, when this party was in office, the Labour Opposition took the view that in bringing forward a Bill to press ahead with exploration and the development of the North Sea gas industry—to call it an industry—we were being precipitate and much too hasty. They put forward a scheme of their own called, I think, a chequer-board scheme. The interesting point, however, is that the North Sea gas industry may well be one of the things which will save this Government's economic future.
The North Sea gas industry is one in which, above all, confidence and the willingness to risk capital and investment—investment is the word the Prime Minister uses—is needed today. But what do we learn? Only in the last 24 hours, we have read that the Labour Party executive is to set up a study group to consider the nationalisation of North Sea gas. Is this supposed to encourage the investment for which the Prime Minister asks? It certainly will not.
Mr. Heffer: But it encourages me.
Sir J. Langford-Holt: It encourages the hon. Gentleman. That only emphasises the point I am making.
North Sea gas is only one example, but it is typical. Industry feels, rightly or wrongly—in my view, probably rightly—that the policy of the party opposite is bent on the destruction of the private limited liability company.
Mr. Barnett: Oh, really.
Sir J. Langford-Holt: That is certainly what the private liability company feels. The Government talk about the grants which they are making, grants for very few. Whether they will be for the first of the few or the last of the few we have yet to find out, but few they will be, and the few do not know when the grants are to come and they have no certainty that they will have them for any length of time into the future, beyond April.
We shall never have the confidence which is vital in that way. I say again that what matters is not confidence in

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the Government's integrity or honesty but confidence in their intentions. We shall not have confidence if we continue to have the blood-thirsty tribal noises from below the Gangway opposite.
The Chancellor has said that he expects that investment will fall by 7·8 per cent. in 1966–67. The Prime Minister's exhortations are not enough. The Chancellor of the Exchequer recognises that, although public investment is going up while private investment is going down, public investment of itself is not a substitute for private investment. The right hon. Gentleman knows very well that the main exporting capacity of this country, as I said earlier, is in the private sector of industry, not the public.
What has been the result of all this? The Government have been driven to a series of expedients. There have been Questions in the House about what the Minister without Portfolio said, whether he said that direction of labour was unthinkable or did not. I accept the right hon. Gentleman's explanation. The direction of labour is unthinkable, but so were increases in taxation. Since the party opposite came into power, every conceivable tax has risen. But these increases were not thinkable, I suppose, in the sense that they were not thought of. The public were led neither to think of nor to expect them.
We are suffering today from an economic malaise of which these are the symptoms. Our industry has little confidence in the future, but it is confidence that we must have. Also, there are what can be called the Government's reflexes. If money leaves this country in large amounts—I am not speaking here of the £50 travel allowance, although that is relevant—the Government do not seek the cause. They impose a ban. When Mr. Ullbricht finds that people are leaving East Berlin, and he erects a barrier, we complain. I am not saying that there is an immediate comparison here, but the attitude is precisely the same. In the one case and in the other, a barrier is created rather than seeking the cause of what has happened. My view is that the cause is lack of confidence in both cases.
The Government seem to feel that their policies, their attitudes and their proposals have to a certain extent been misunderstood. They must remember, however,
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that when they came into power, seeking election not only in 1964, but this year, also, they gave the impression, rightly or wrongly, that they had a cure-all and new and different solutions. We were not to have any more of the stop-go business. We have got the stop, and we know that about 40 hon. Members below the Gangway opposite want to have another go.
There is no doubt about what happened this time. Looking through not only the pamphlets, but all the stuff issued by the party opposite, before those two elections, there is no doubt that the Government came into office on a prospectus so fraudulent that any board of directors which had issued it would have been up in the dock at the Old Bailey months ago.
I implore the Government to believe that what is needed is confidence not only in their ability, but in their intentions for the future, and that it is part of Government policy that private enterprise, which performs a vital part of our exports and our economic system as a whole, shall survive and thrive.
7.12 p.m.
Mr. Eric S. Heffer: Today's debate has manifested the point made by one of my hon. Friends who is no longer present that the arguments emanating from the other side of the House were irrelevant. The real debate that is taking place in the country on the Government's economic policies is taking place within the Labour movement and on the Floor of the House of Commons.
It is clear that the Opposition are in a difficult position, because they have no real alternative to the policy which is being presented by the Government. Our complaint is not that the Government are carrying out their election pledges, but that, unfortunately, they are carrying out the policy which was largely carried out by the Opposition when in government. I understand, therefore, the Opposition's difficulties. It is difficult for them to challege the Government on their policy when the only challege which they could ever make was that we on this side were not doing the job quite as badly or as well as it was done by their party. It is obvious that most of the arguments from the other side of the House are not only completely

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irrelevant to the debate but that many of them are downright hypocritical.
It is all very well for hon. Members opposite to talk about how concerned they are with unemployment. I come from an area which since the war, apart from the few earlier years when we had a Labour Government, has consistently had a high level of unemployment.
One of the arguments that is used is that the Government are not dealing with the question of redeployment and are not training sufficient workers to meet the needs of the unemployed. I appreciate this. When Liverpool has approximately 23,000 unemployed, it is ludicrous to talk in terms of training workers for redeployment at the rate of 500 a year at the Aintree training centre in my constituency.
One has to be clear about the hypocrisy from the other side of the House concerning the training centres. In 1951 there were 23 centres, but by 1963 the number was down to 13. My party came into office in 1964 and the number has gone up until today we have 32 Government training centres with over 6,000 people being trained throughout the country.
I am not satisfied with that rate of progress, but it is no good the Opposition complaining about it when, in truth, they allowed these Government training centres to run down completely.
Mr. Kershaw: Would not the hon. Member agree that training centres and unemployment go together? The Government have got the unemployment. They have now to get the training centres.
Mr. Heffer: That is utterly ridiculous. In 1962, when the party opposite had 15 training centres and only 2,790 people were being trained throughout the country, in Merseyside alone we had 32,000 unemployed and throughout the country the highest level of unemployment ever known since the war. I shall not dwell on this except to show that the Opposition's arguments against the Government today are largely irrelevant and, secondly, downright hypocritical.
Therefore, we on this side, who have consistently argued for a policy of full employment and who over the years have argued against the Conservative policy, have a right to say that our Government
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are not carrying out the sort of policies that we want to see and are not bringing in full employment. [Interruption.] It will be a lot better speech than that of the hon. Member for Chelmsford (Mr. St. John-Stevas).
Mr. Speaker: Order. Hon. Members do not help the debate by bandying words across the Chamber.
Mr. Heffer: I was referring to the hon. Member's speech, Mr. Speaker. The lighting in the Chamber is so bad that it was difficult to recognise him.
Mr. Emrys Hughes: We cannot tell one Front Bench from the other.
Mr. Heffer: In our 1964 election manifesto, we analysed the 13 years of Tory rule. We set out a whole number of reasons how the economy got into the situation it did and how we saw fit to reverse the policies of the Tories and make certain that a Labour Government would not adopt their stop-go policy. In this year's manifesto, we said that, in our pursuit of solvency and the defence of the £, which were our overriding aims, the new Government were determined not to repeat Conservative stop-go. We went on to say that, whatever the pressures, they would not jettison the four central objectives of their policy. The third of those central objectives was:
"To maintain full employment and a high level of investment in productive industry, while damping down the overheated economy."
Those were our election pledges; yet, in July, we introduced measures which led to the very reverse.
I will not deny that we had to take certain measures. It was obvious that some measures were necessary. There was a whole series of factors. I will not, as perhaps my right hon. and hon. Friends on the Front Bench do, overestimate the effects of the seamen's strike, but it was a factor. The Rhodesian crisis, which we are all determined to make certain ends in the way that we want with the six principles carried out, was another factor. We know that we had a further sterling crisis and that measures had to be taken. No one denies that the Government had to take certain measures. What we complain about is not that they took certain measures, but that they took the wrong ones, in our opinion. Our

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argument is that they adopted the wrong remedy.
The American journal Business Week had a report on the British economy only a week ago. In it, there is an interesting article dealing with a very important point I have raised the matter before, but I raise it again, because it fits in with certain comments which were made in the British Press at the time of the July crisis. It says:
"Some big holders of sterling in the Middle East began to dump their pounds. Even some London bankers started selling sterling. In New York, climbing interest rates sucked capital away from London. Enter Johnson. Reverberations of Britain's growing plight reached the White House. As Britain's financial position worsened, President Johnson, according to insiders, pulled out what is referred to in the U.S. government as 'the list' —the things the British had committed themselves to do to restore health to their economy and their balance of payments…This midsummer, Johnson insisted that Britain take the actions it had promised if it wanted U.S. support."
That is a very important statement, and the same point was made in the Observer on 31st July:
"It became clear yesterday that Mr. Wilson has made his wage freeze more comprehensive and introduced it more rapidly than originally intended, primarily to satisfy President Johnson."
So it is the American Government who are determining the policies of this country.
I remember a great debate in the House when a statement was made about the Executive Committee of the National Union of Seamen. We were told that they were not masters in their own house. Are we masters in our own house? Are we content to allow the policy of Britain as regards its economic future to be determined by the Government of the United States? If there are any hon. Members in the House who are prepared to accept that situation, I am not, and therefore it is obvious that we have to get down to alternative policies.
I shall not detain the House for much longer. It is a good thing that we are limiting our speeches by voluntary restraint, and far better than any decision taken in a Select Committee and adopted afterwards in the House.
The point was made by my hon. Friend the Member for Derbyshire, South-East (Mr. Park) that we had to have imme-
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diate and drastic cuts in our military expenditure. However, we have to face the fact that any cuts in military expenditure will take some time before they become operative. Our argument is that there are other immediate alternatives which the Government have chosen to ignore up till now.
I listened carefully when one of my hon. Friends was speaking about import controls no longer being possible if we wanted to get into the Common Market. I want to get into the Common Market. Hon. Members will have heard the speech which I made in the debate that we had on our entry into Europe. I do not believe that, at this stage of our negotiations, we have to say that the two contradict each other. In the interim, we can and must introduce selective import controls. I believe that they are absolutely vital. What is also vital is our overseas investment. That is not just the view of my hon. Friend the Member for Lewisham, West (Mr. Dickens), who is an expert on the subject.
If one reads Shonfield and many other economists, they all make the point that it is possible to take over control of our overseas investments and sell a percentage of them to overcome a balance of payments crisis. Indeed, we have done it before. I accept that it is only an interim measure, however. Productivity is the key, but we cannot get productivity, investment or growth when we have 500,000 unemployed and with that figure growing. That is why we say to the Government, before it is too late and before we enter into a long period of stagnation, that they must change their policy now and get back to the policies on which they were elected.
7.28 p.m.
Mr. John Pardoe: It is no part of my purpose to spend time making the sort of destructive points made so elegantly and so uselessly earlier from the Front Bench on this side of the House. We know what is wrong with the policies of this Government. They are Conservative policies. We have replaced the conservatism of the right by the conservatism of the left. In the part of Cornwall which I represent we know that a profound contempt for and dislike of conservatism, in all its manifestations, is the beginning of political wisdom.

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The worst that we on this bench can say of the Government's policies is that they are Conservative policies. We do not pretend to have any "cure all". It would be very easy for me to say that we were first in the field of advocating entry into Europe and that it could solve so many of our problems, but we know that it would not solve all our problems, although if we had gone in when we advocated it, we might not be in the position in which we find ourselves today.
What is heartening about this debate is that many hon. Members on both sides of the House accept at last that we do not hold the key to our financial problems here within our own shores, that we cannot just plan our future unto ourselves, and that we are dependent on world economic forces and world trade.
It seems to me crucial to this debate to remember a remark made by a great French Finance Minister many years ago. It was a kind of cri de coeur which should echo from all Finance Ministers. He said:
"Give me a policy, and I will give you good finances."
Those words are as true today as they were then. They are as true for this country as for any other. What policy are we pursuing? Anybody can concoct finances to implement a policy, provided, of course, that we have a policy in the first place.
We have a whole rag-bag of things which we can put into the hat and take out. We can, for instance, say that our first priority is economic growth, or full employment, or regional development, or distribution of wealth, or import savings, or a world police rôle, or the present value of the pound. We can put them all into the bag, shake it about, and take them out, but that is not the way in which I wish to proceed, because I believe that we have to say clearly which of these policies we wish to pursue.
We must realise, as Aneurin Bevan said, that politics is the language of priorities. In choosing priorities we have to recognise that if we put some things at the top of the list, other things will be at the bottom, and some of the things will have to be jettisoned. I believe that the No. 1 priority is that of economic growth. I believe that unless we can achieve economic growth, nothing in this country will
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really be worthwhile. We shall have a demoralised nation on our hands. We shall have a high rate of emigration, and the people who stay here will become more and more downhearted.
It seems to me that growth, if it is the first priority, which I want it to be, depends first and foremost on investment. How do we get it? The first thing to remember is that we cannot have investment where there is a lack of cash. It is a lack of cash which affects investment far more than interest rates, although I shall deal with interest rates in a moment.
I ask the Government to bring forward the investment grants which they are scheduled to bring in in July, throughout the country, but particularly in the development areas. It seems to me that there is too long a gap between the end of the investment allowances and the introduction of the investment grants which has not been bridged. In addition to this gap, as we said during the debate on the S.E.T., we have had a vast amount of money taken out of the economy. Liquid resources have been taken out of industry, and it is in no position to invest at all. We might also provide more cash for investment by ensuring that any increases in incomes, are channelled into increased pensions schemes.
I turn for a moment to deal with the tragic situation in the development areas. I represent a constituency in Cornwall. During various debates over the past year a great deal has been promised for the development areas, and, indeed, such promises were made before the election. We were told that the situation was well in hand, that the Government would keep the matter under control, and that a great deal had been done for development areas.
What has been done? We have had today's announcement, and we welcome it, that in the matter of industrial training we are to get grants of 70 per cent. in development areas, as opposed to 60 per cent. elsewhere. I cannot honestly say that this 10 per cent. differential will solve the situation in my constituency, or indeed in any of the development areas.
During the debates on the S.E.T. I mentioned two towns. I said that they were the two of the worst hit towns in the

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country. The lastest unemployment figures for them are as follows: In November, Newquay had 6 per cent. unemployed in 1964, 7 per cent. in 1965, and 8·2 per cent. in 1966. Bude had 4·1 per cent. unemployed in 1964, 4·4 per cent. in 1965 and 6·9 per cent. in 1966. The unemployment rate in Wadebridge went up to 8·8 per cent. in November of this year. This is partly the result of S.E.T. though I know about the problems of seasonal unemployment.
Dr. John Dunwoody: Would not the hon. Gentleman agree that similar figures could be quoted for other towns in Cornwall where manufacturing industry forms the great bulk of the employment available, and that the problems of Cornwall are much more deep-rooted that that of S.E.T. or anything that has happened during the last few months?
Mr. Pardoe: I know that in the hon. Gentleman's constituency there are substantial rates of unemployment, also, and the problems to which I am drawing attention are those of the whole of Cornwall. I am relating my remarks at the moment to the debate on the S.E.T. because of a promise which the Chief Secretary made in reply to a debate initiated by my hon. Friend the Member for Bodmin (Mr. Bessel).
The Chief Secretary said:
"We have preferential access to the Public Works Loans Board for certain local authorities."—[OFFICIAL REPORT, 27th June, 1966; Vol. 730, c. 1486.]
The right hon. Gentleman said that because he thought that it would help the development areas. At that time local authorities were able to borrow, up to a certain limit, at 5⅞ per cent., and of course one would suppose that they could, therefore, lend at about 6⅛ per cent., merely putting on a margin to cover their administration costs.
The point with which I propose to deal now is one to which I hope the Minister will reply because it is true of all development areas. I am quoting a case which I find quite extraordinary. A firm, Messrs. Allen Components, wanted to come to Camelford, in my constituency, which is in a development area. The local council quoted a rate of interest of 6⅛ per cent. Later, the figure was re-
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negotiated because the Ministry of Housing and Local Government would not sanction the loan. The new figure was 7¼ per cent., but again the Ministry of Housing and Local Government threw it out. The firm is now faced with the choice of accepting or refusing a rate of interest of 8½ per cent.
What is the economic purpose of the differential between the rate at which the Camelford Rural District Council can borrow at 5⅞ per cent. and the rate at which the Government will allow the council to lend at 8½ per cent.? If this is not inflationary, I do not know what is. To what other purpose will the money be put? If that is the kind of help to which the Chief Secretary referred when discussing preferential loans, I can only say that that is not the kind of help that we want in Cornwall.
One reason why that rate of interest has been fixed is that it is the rate of interest which is taken into account in fixing the rents for Board of Trade factories. We have two empty Board of Trade factories in Cornwall because the rents are too high. The Board of Trade will have to renegotiate these rents, and I hope that the Government will think again about these rates of interest in the development areas, and will realise that 7¼ per cent. is a much more reasonable figure.
We need some immediate action to help the development areas. We need, for instance, an immediate reduction in the rate of S.E.T. in them. If that is too complicated we could reduce National Insurance stamp contributions. This could be done very quickly—next week. Administratively, it is very simple. We should bring forward the 40 per cent. investment grants in development areas. We should bring them forward to next month if possible. We should bring back free depreciation. This was extremely helpful to development areas.
We should also encourage those existing industries—in my constituency the hotel trade—which has been badly slapped in the face by the Government. Cornwall is still very dependent on agriculture, tin mining and fishing.
I want to turn briefly to the incomes policy. On several occasions it has been asked what element of compulsion are the Govermnent entitled to use in an incomes

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policy? Much nonsense is talked about compulsion. It is every bit as much an affront to an individual's liberty to say that if he sets up in a hire-purchase firm he cannot lend his money at below a certain rate of interest, or allow repayment over less than a certain period, as it is for the Government to become involved in the process of wage and productivity bargaining.
The Rent Act was a gross infringement of individual liberty, which I support wholeheartedly in the interests of social justice. There are occasions when it is right for the Government to get into the ring and to become involved. I therefore accept an element of Government interference in the bargaining process.
I now turn to the question of the lowest-paid workers. Here I have a special point to put forward. I claim that the Liberal Party put it forward first, of all the major political parties. I know that when I made this point at Question Time earlier this week the Parliamentary Secretary to the Ministry of Social Security said that anything we could do the Labour Party could do better. But we thought of this first. We had it as our official policy, and I moved a motion concerning it at the Liberal Party Conference this year.
I take up the point made by the hon. Member for Chelmsford (Mr. St. John-Stevas)—the question whether we should try to deal with the problem of the lower-paid workers through an incomes policy or through the family allowance structure. In my opinion, we should not try to do it through an incomes policy.
I want to qualify that assertion by dividing the problem into two. Where are the lower-paid workers? First, they are in industries which have been suffering from a compulsory incomes policy for a very long time. One is obviously farming. Agriculture has had a compulsory incomes policy for years. That is what the Annual Price Review is about. That is one reason why farmers have continually had to finance any increased earnings they can get out of increased productivity. We know that farm labourers' wages are very low and that farm labourers can be defined as lower-paid workers.
Nevertheless, we could deal with these people through the incomes policy. It is
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the second group of people that we have to deal with through family allowance schemes. It consists of workers in industries which are in decline, or are unprofitable. They are not able to pay the wages that we want to see paid throughout industry. It would be quite wrong to upset the whole structure of the incomes policy in order to pay higher wages to these people. Any higher wages would be cancelled out in no time at all. We all know the game of economic leapfrog which preserves the differentials between the unskilled and the skilled workers and which goes right through industry, with the result that in the end nobody ends up any better off afterwards.
We should scrap the present tax allowances for children and repay them to the people with families through increased family grants. We should pay these grants for the first child, and there should be differential grants in respect of the first child, children below the age of 11, children between 11 and 16, and children who are over 16, but who are remaining in full-time education. I suggest that the grant should be £1 for every child under the age 11; £2 for every child between 11 and 16, and £3 for every child over 16 who remains in full-time education. It may be said that this would be a monstrous redistribution of income. [HON. MEMBERS: "Hear, hear."] It would be. That is one reason why I should like to see it.
The present child allowances are subject to a means test in reverse. They are paid only to people whose income is above a certain level. The State pays me, for my three children—all over 11—more than £200 a year, but someone earning the average wage for Cornwall who has three children of the same age as mine, would receive only about £50 a year. That is a gross injustice. I want to redistribute income to promote social justice.
I agree that there might be certain political repercussions. As a result of putting forward these proposals at Brighton my "fan mail" became somewhat obscene. Some people seem to think that they have been subsidising my love life. I have no doubt that the Government would receive letters of a similar nature, but this should not deter them from putting these proposals into operation.

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My next point concerns productivity bargaining. Only 250,000 workers are covered by productivity bargains. One reason is that the structure of our negotiating machinery is wrong. It is not the kind of structure in which we can negotiate productivity bargains. It is impossible to negotiate a productivity bargain for 3½ million engineers from John o' Groat's to Land's End; the problems in various areas are so different. There cannot be a productivity bargain for each one of them if everyone has to be paid the same increase. What are the Government doing to ensure that the structure of our negotiating machinery is brought into a shape in which we can get around a table and negotiate productivity bargains?
I had hoped that in the field where the Government are the employer we would have the vanguard of productivity negotiations. Unfortunately, this has not been the case. The Civil Service Clerical Association, with a membership of nearly 150,000, in giving evidence recently, said:
"In the last seven years the C.S.C.A. has been advocating to the Treasury a case for change in the general Service structure. The Treasury, for six of those years, fought rearguard actions against any kind of change at all."
We can be thankful for small mercies; at least we have put it right in the seventh year.
The Society of Technical Civil Servants —admittedly, a small union—passed the following resolution at its conference this year:
"Conference approves the aim of increased productivity and notes with regret that the Treasury do not regard this as a relevant factor in the recent pay negotiations."
That is utterly disgraceful, if it is true. It may be difficult to decide what is productivity in the Civil Service, but the unions are not the nigger in the wood pile. Many of these Civil Service unions have gone out on a limb in the last five years to get productivity bargains. It is the Government, in the shape of the Treasury, which is holding things back.
I ask the Government to get back to economic growth. Unless we can do this everything is lost. There will not be any new Britain; there will not be any increased welfare services; we shall not be able to build the houses or the roads, or
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the hospitals, or all the things which the Government promised at the last election, and which I want. We shall not be able to have any of these things.
If this policy of growth means jettisoning certain features of what is normally called financial orthoxody I shall sing a loud hurrah. The £ is not the Union Jack. I am convinced that the country will have devaluation, whether we want it or not. This is not the time to argue whether it is desirable, but I do say that it is inevitable and that, therefore, the Government should plan for it. The only kind of devaluation which is worth having is that which France had, which was planned for, and which, in the following 12 months, reaped an increase in exports of 18 per cent. If we could get that increase in exports in the next 12 months, we should do very well and many of our problems would disappear.
It is no good saying, as I am sure the Government will, that they will have growth tomorrow. Most of their birthright has already been sold. There is no real likelihood now of a higher rate of economic growth in the lifetime of this Government than under the Conservative Government. Support for this contention is seen in the great number of economic experts who entered the Department of Economic Affairs when this Government came in, and have voted with their feet against the Government's policy by leaving that Department in recent months.
I hope that the Government will not continue to bash Britain, hoping the people will think that because the medicine tastes bad it must be good for them. That is part of the Puritan ethos which I reject. It is all very well to talk about "Dunkirks". It may have been a glorious moment, but it was 25 years ago, and sooner or later a country must advance. We can advance if we nail our colours to the mast and decide for economic growth.
7.52 p.m.
Mr. Kenneth Lomas: I was surprised that the hon. Member for Cornwall, North (Mr. Pardoe) should advocate devaluation, as a short time ago I read an article in which the leader of his party argued very strongly that this is precisely what we do not want. Is this another split in the Liberal Party?

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There was some truth in much of what the hon. Member said, but it is unfortunate that he should have begun with a quotation from Nye Bevan. It is a shame to use his words and not follow his policies. If the hon. Member had done the latter, he would be on this side of the House and our majority even greater than it is. One of the troubles with the Liberal Party is that it spreads its wings so wide. On the social services, it is very pale pink, but when it considers financial problems, it becomes the truest blue. This is why the Liberal Party is a meaningless irrelevance, with which judgment hon. Members on both sides of the House will no doubt agree.
I must apologise for my obviously shocking cold, which has nothing to do with the Government's freeze but the freezing conditions in my area, around the Pennines: I too, with the hon. Member for Liverpool, Walton (Mr. Heffer), intend to have a voluntary restraint on the length of time that I address the House.
I wish to raise a number of pertinent points on a small matter in the White Paper that I want to put to the First Secretary. I have argued, in the House, in the country and in my constituency, that this Government deserve a chance; that we are a Government of change and that any change must necessarily bring upheaval and some inevitable hardship as well as changed attitudes on almost everything.
This is why we were sent here, to try to change things and to make it apparent to the nation that we want to change the existing order into something better. That is why, when we face immediate problems— although I agree with many of my hon. Friends' proposals and certainly with the need for a reduction in defence expenditure—we must use the tools closest to hand. This is why we have been compelled to bring in the legislation which we have, the prices and incomes policy and the various White Papers.
However, these are short-term measures and we are a party which looks ahead and we are now trying to get "over the hump". We obviously have our misgivings and reservations on many issues of Government policy—certainly over the Prices and Incomes Bill—but in the long term I believe it is to the advantage of the vast majority of the people. My own trade union, the National Union of Public
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Employees, has expressed anxiety about some paragraphs in the White Paper which imply that employees in public service are being discriminated against in comparison with other workers. I now refer to paragraphs 32, 34 and 36 of the White Paper.
Paragraph 32 says:
"The operative date of commitments to increased pay or reduce hours by specified amounts entered into on or before 20th July, 1966, which were originally due to be implemented before the end of 1966, should be deferred for six months…".
This is conceded by my union and most trade unionists. The second sentence is:
"The operative dates of such commitments which were originally due to be implemented in the first si xmonths of 1967, should be deferred until at least 1st July, 1967…".
That principle also is conceded, but we then come to paragraph 34. Although the first part of that paragraph is also accepted, the second sentence says:
"Where, however, a commitment existed on or before 20th July, 1966, to review pay with effect from a later date, but the amount of any improvement had not been determined by 20th July, the operative date should be deferred until at least 1st July, 1967…".
That implies that certain people will suffer a restraint longer than the original six months. Who are these people who are likely to be affected by that sentence in paragraph 34?
My information suggests that only 300,000 people in England and Wales will be affected and that all of them are employed either by local authorities or by the National Health Service. There are 240,000 Health Service ancillary staffs due for an increase in pay from 1st November under a three-year package deal, but the amount of whose increase has not been determined by 20th July. There are 30,000 local authority firemen for whom agreement existed to review pay from 1st August, 1966, in conclusion of a two-year salary agreement but without a decision having been made before 20th July.
There are 30,000 county council road workers who traditionally follow the agreements for local authority manual workers, both in timing and amount, and who would have received increases automatically from 5th September, 1966, but for the fact that no meeting had been held before 20th July. There are also 70,000 local authority manual workers in Scotland for whom separate negotiating

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machinery exists, but who traditionally follow the agreements for similar grades in England and Wales, and who would have expected an increase from 15th November, 1966.
It should be noted that the case of the ancillary staffs in the Health Service, the county council road workers and the Scottish local authority manual workers have been referred by the Government to the Prices and Incomes Board after consultation with the appropriate trade unions. The ancillary Health Service workers have a three-year agreement for a review of pay from 1st November. It is perfectly logical to suggest, therefore, that if they are to suffer or enjoy a six-months' standstill, as all other workers are expected to do, they should receive their pay award six months from 1st November, that is, on 1st May, 1967. In accordance with the terms of the White Paper, they would not receive their pay award until 1st July, 1967.
This brings me to paragraph 36 of Cmnd. 3150, which states:
"In the case of the public service, no actual payment of an increase…should be made before the end of the period of severe restraint; and payments which have been postponed until after this period and are substantial should, in the Government's view, be made in instalments."
That is so vague and meaningless that we must be told where we stand, both as hon. Members who are seeking to represent our constituents and as trade unionists who are responsible for our members. The whole tenor of that paragraph implies some discrimination against employees in the public service. Why has the public service been specially singled out for this treatment, and what is the meaning of the phrase:
…no actual payment of an increase…should be made…"
If it means that an earlier date can be fixed, but that no payment shall be made until 1st July, why is that not clearly said? Is this a form of retrospection?
Mr. Alexander W. Lyon: My hon. Friend may be assisted if he studies the words in parenthesis in that paragraph:
"…(other than an increase justified against the considerations set out in this Section)…"
That seems to suggest that the same considerations will apply in the public service as will apply to other sections
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of the economy, with the one discrimination in that any large increase should be made in instalments.
Mr. Lomas: My hon. Friend has anticipated the next part of my speech. I was about to ask why paragraph 36 states:
"…payments…should be made…in instalments".
Why is this specifically directed against public service employees and why does it not apply to everybody? Is it because the public service is being treated differently from the rest of society merely because the Treasury has greater control over that sector? If so, this is grossly unfair and totally discriminatory.
On the other hand, perhaps I am being over-optimistic in assuming that the Government have realised, like the trade unions, that public service employees—employees of local authorities, the Health Service and so on—fulfil the criterion of being badly paid. Hon. Members often refer to £15 a week as being the average wage, but I assure them that many workers in the public sector would be only too pleased to take home that amount.
Perhaps I am being over-optimistic in thinking that this is recognised by the Government and that the Prices and Incomes Board will more than likely recommend a substantial pay increase for those in the public sector. Do the Government anticipate such a finding on the part of the Board, and is that the reason why paragraph 36 is worded in that way?
I accept the need for the present policy. It is an immediate need, although that is no reason why those who are badly paid and who are doing a very necessary job in the public sector—in local authorities, in manning our hospitals and caring for the sick and aged—should be penalised merely because they are public service employees.
There is an old saying that justice must not only be done but must be seen to be done. However, there are rumblings in hospitals and local authorities to the effect that the lower-paid workers are being penalised. I hope that the Government will make it clear that they have every intention of protecting these people, who have had a very raw deal indeed in the past. They were the first—certainly those

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in the Health Service; I was one of those affected—who, in 1961, felt the impact of the Selwyn Lloyd freeze and had their agreement vetoed by the then Minister of Health. We do not want that to happen again. The Government are responsible for the lower-paid workers and I therefore hope that they will indicate that they intend to protect them and uplift their pay and conditions.
Because many hon. Members wish to speak I will not deal with many other subjects which I should like, in other circumstances, to have raised, I ask the First Secretary to make every effort to meet the demands of the trade unions and to clarify the White Paper. Above all, he must make it clear that, because one is a public service employee, one will not be discriminated against or victimised in any way. He must show that their service, to the community will not be forgotten.
8.6 p.m.
Mr. Peter Hordern: I regret that the hon. Member for Heywood and Royton (Mr. Barnett) is not in his place because of all the hon. Gentlemen opposite who have spoken, he was the only one who played a constant, part in the debates on the Finance Bill. Since he has been in this House he has begun every speech by saying that the contributions of my hon. Friends have been completely unconstructive. If he were here now, aid if he had listened to the speeches of his hon. Friends, he would agree that nothing but unconstructive criticism has reverberated on the benches opposite.
As one hon. Gentleman opposite said, the real criticism of the Government appears to be coming from their own back benches. The reason is obvious. Our criticism has been consistent. In other words, we had no faith in the credibility of the Government's capacity to run the economy properly and nor did we believe that anything that the Prime Minister or Chancellor of the Exchequer said would happen would, in fact, happen. The difference between the two sides of the House on this issue is that some hon. Gentlemen opposite seriously believe what the present Prime Minister said during the Labour Party's 13 years of fractious and irresponsible opposition.
I recall the days of last July only too well, particularly since I was a member of
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the Committee which considered the Government's prices and incomes legislation. There was at that time a certain gaiety in the atmosphere. There was much confusion, notably because the Prices and Incomes Bill made such nonsense of any form of logic and rationality. It was rather like Alice in Wonderland, if I am allowed to refer to that doubtful book. The activities of the then First Secretary reminded me of the Mad Hatter's tea party, with resignations being handed in and the palace resolutions being threatened. But the Mad Hatter has gone. He has been replaced by the White Rabbit, who has been rushing from meeting to meeting trying to co-ordinate his activities with those of the T.U.C. and C.B.I., with moderate success, and printing an interminable series of White Papers, of which Cmnd. 3150 is the latest example.
At that time hon. Gentlemen opposite were demanding to know what would happen in six months' time. They also wanted to know what would happen six months after that. I can tell them. There will be another White Paper, and another, and yet another—all equally unsatisfactory. Our first criticism on this score is that the Government's so-called policy should not have been introduced in the form of the sort of prices and incomes legislation that was brought forward. The measures taken on 20th July were in themselves sufficient to have the proper effect on the level of demand.
Our criticism was that they should have been taken months before, but of course that would have lost the Prime Minister the election. That of course is why it was not implemented. The country has had to pay very sorely and dearly for this delay in bringing on those requisite measures. The combined effect of the hire-purchase restrictions with the bank restrictions was certain to bring vacancies more into line with the number of unemployed, but now the number of unemployed far exceeds the number of vacancies and the position seems to be deteriorating.
The number of places in retraining centres, even after the announcement made by the Minister of Labour today, is wholly inadequate. The total of 10,000 places to deal with the level of unemployment we have is perfectly ludicrous. That is a major criticism of the Government's policy. Then there is

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the question of redeployment. I remember that the purpose of the Selective Employment Tax was supposed to be to get Mr. Teasy-Weasy out of his hairdressing salon into a factory, but what is happening is that these measures are taking men out of the factories and putting them back into Mr. Teasy-Weasy's salon.
In the light of this we have to regard the statement in the White Paper that
"during the period of severe restraint only in the most exceptional cases can a pay increase be justified to attract and to maintain manpower."
I cannot imagine that it is any news to the Government that not many firms in manufacturing industry are at the moment in a position to pay any increases in wages even if they desired to do so. To those who are unemployed there is a certain sort of sick humour about this proposition in the White Paper that they can well do without. They know as the country knows that there is a great deal worse to come.
The industrial production figure for September was 131. It is, in any case, disgraceful that the October figures are not yet available. On the very day that the September figures were announced the United States announced its October figures. We should have been able to do the same. The production figures for October are likely to be worse still. In addition there is the C.B.I. forecast of intentions. Those figures came out in October and show that 67 per cent. of the Confederation's members were less optimistic about prospects than they were four months ago. That itself was the highest figure since the service started in 1958.
I think that the Chancellor of the Exchequer recognises the seriousness of this situation, but what is one to make of the Prime Minister's statement in his speech to the British Electrical and Allied Manufacturers Association on Monday night that far too many firms are squealing before they are hurt? I suppose it is something to recognise that he realises that they are going to be hurt, but I should have thought that with all the speeches about tough, purposive and gritty policies and productivity conferences the Prime Minister would be urging
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manufacturers to go forward with investment. How does he think that sort of remark will help investment? I suppose that by his standards it ranks as an encouragement to investment, but the Prime Minister is not yet aware of the crisis of confidence which exists in industry.
Nor do I think does he appreciate that people in industry are reluctant to believe anything he says. I have yet to meet a single industrialist or anyone in the financial world who believes that the Prime Minister's stated objective to take this country into the Common Market is a serious one. I have yet to meet a single one who thinks he is being serious. They go partly on his previous statements when he was Leader of the Opposition. Hon. Members will remember what he said in those days when he was opposing —not necessarily opposing but trying to deprecate—the activities of our party in office in this respect.
As a result of this lack of faith in the Prime Minister's intentions and the lack of confidence which exists in this Government, investment in manufacturing industry will continue to decline. It will continue to decline because there is no possibility that manufacturers and industry can see of increasing their profits. Although it is not the view of all hon. Members opposite, the official view of the Government is that profits is now a sort of "in" word. It is possible to refer to concepts of profitability and profits. What the Minister of Technology, that new dalek of our society, thinks is that what matters is how profits are distributed. I suggest to hon. Members opposite, particularly those who are against the distribution of profits, that the important thing is that if shareholders are discouraged from participating in the rewards which industry makes by its profits they will not be inclined to lend more money to firms which are not interested in distributing profits. That is a situation which will continue and it is something which this Government have not yet learned. On the other hand, Government expenditure seems absolutely certain to rise.
I listened carefully to what the Chancellor said on a number of occasions about public expenditure. The National Plan, as he will recall, allows for an increase in productivity of the order of

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3·8 per cent., but against this the increase in public expenditure is of the order of 4¼ per cent. at constant prices. I have never liked the concept of constant prices, because it means allowing for the increase in the cost of living which the Government have incurred. The other day the Chancellor said that it was quite possible that Government expenditure might actually increase to take up part of the slack as production was falling in the private sector.
To maintain that 4¼ per cent. at constant prices is one thing, but if it is to be increased to take up the slack in private investment this is something which we need to be told. I hope that the First Secretary of State and Secretary of State for Economic Affairs, or whoever answers the debate, will attend to this matter in principle. Obviously he cannot give details before the Estimates are made but he can say if this is the intention of the Government.
It should be made perfectly clear that public expenditure is no possible substitute for the encouragement of enterprise in the private sector. This Government have done nothing but discourage both private investment and production ever since they have been in office. The Chancellor, whom I am glad to see present, appreciates more than anyone else what a serious economic situation the country is in at present. Yesterday sterling fell to the lowest level it has been since 27th September, below the Government's present support level. The Chancellor said in his remarks recently that we were to repay £310 million by the end of next September to the I.M.F. He said that some of it would come from the disposal of dollar securities owned by the Government.
On many occasions the hon. Member for Lewisham, West (Mr. Dickens) has talked about this disposing of private assets held abroad. If the Government had laid further stress on the total value of our private assets abroad when they came into power in 1964 there might not have been the run on the pound. They failed to do so until many months later and now people such as the hon. Member for Lewisham, West are talking about selling off private holdings in investments.
It is our view, which is confirmed by the figures, that for the last 10 years
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there has been a favourable balance in our invisible balances for every year even including the trade balances. But Government expenditure overseas has increased every year in that time from £243 million to £540 million. The Chancellor said in discussion of the Finance Bill, 1965, when we were debating Corporation Tax, that we cannot afford to invest a deficit. How much less can we afford to give it away in overseas aid a large part of which is quite untied to purchases from this country?
Against this, we have as apparently the only plank in the Government's policy the prices and incomes standstill. It has all the relevance of a Chinese prayer wheel compared with our economic situation. It is more objectionable, not only because it is unnecessary, not only because it is impracticable and will not work, but also because it infringes the liberty of the subject.
In Committee on the Prices and Incomes Bill there were arguments on the subject of productivity agreements. We established quite clearly how indefensible it was for the Government to introduce legislation after a productivity agreement had been freely entered into and carried forward by two parties. There is something even more objectionable in the First Secretary's attitude of asking men and women to inform and snoop upon the activities of small shopkeepers. What a wonderful wave of popularity this must introduce into the Government's handling of affairs. This is only a minor manifestation of it Everybody can see the trend. As I said at the beginning, there will be further White Papers. It is a form of Government by conference. The Prime Minister has endless working lunches and working dinners with industrialists. After a few months of exhortation when the position has deteriorated, unfortunately we will be told that compulsion has to be introduced in one form or another.
We believe that this is a trend which will continue as the Government dither from day to day, uncertain of their policy and incapable of implementing it even if they knew what it was. It is this uncertainty and the lack of confidence in the Government which has been expressed both at home and abroad which we wish to expose, and this is

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why we shall oppose the Government's activities on every possible occasion.
8.22 p.m.
Dr. John Dunwoody: As a number of other hon. Members hope to speak, I shall keep my speech brief and to the point. I want to discuss three points—wages and prices, both now and in the period of severe restraint ahead of us; the problems of unemployment; and the additional measures which I think are necessary now and in the immediate future.
I shall make these points from the regional point of view. My constituency is part of one of the development areas and is a part of the country which has suffered severely during recent months. I shall put forward these points from the regional point of view because I believe in regional development. Of all the policies which the Labour Government have introduced over the last two and a half years, the early stages of regional development are those which show the greatest promise. Regional development is socially desirable, because in a civilised community we should regard it as right to share the country's wealth and prosperity as evenly as possible throughout the whole country. I believe that eventually regional development is economically desirable also, because it is in our economic interests that the whole of Britain should be economically viable. We should not put all of our eggs into one basket, either in certain industries or in certain regions.
In supporting regional development and the concepts which have been accepted by the Government, I accept that there must be some cost to the community as a whole. There cannot be investment grants and there cannot be means and methods of attracting industrialists to the less popular parts of Britain without somebody having to pay for them. They have to be paid for by the community as a whole.
I turn to wages and prices. We have a wages and prices freeze. Wages are not so very difficult to freeze. Prices are much more difficult. I accept the necessity for this policy. Given the crisis facing us a few months ago, I believe that this was the only step that the Government of the day could take. We
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have admitted that the standstill in prices cannot be as complete as is the freeze on wages. We have admitted that there will be exceptions to the prices freeze. Council house rents, the Selective Employment Tax, the rise in mortgage interest rates, the necessity to increase certain prices because of the increase in the cost of certain imports, have been mentioned.
However, as long as we have a wage freeze, and we accept that the prices standstill cannot be complete, the wage freeze falls more heavily on lower-paid workers. It therefore falls more heavily on certain parts of the country, because in certain parts of Britain there are higher proportions of lower paid workers than in other parts. I think of areas like Scotland, Wales, Northern Ireland, the South-West of England, and parts of the North of England. During the standstill we must accept that there is a widening gap—a gap not only between those who are paid more and those who are paid less, but also a gap between the more prosperous and the less prosperous regions.
Looking forward to the period of severe restraint, we must accept that this widening gap may continue to a certain extent. When we begin to unfreeze wages it is essential that initially it should be the lower paid workers exclusively who benefit. I know that there is difficulty in deciding who is a lower-paid worker. After all, we all look at these matters from different points of view. I suggest that the national average wage is at any rate a starting point and that lower paid workers in this context must be those who earn less than the national average wage. If this is accepted, when the unfreezing starts and when we are first able to relax this part of our economic policy, the relaxation will occur to the largest extent in some of the less fortunate parts of Britain.
At the moment, unemployment stands at 2·3 per cent. over the country as a whole. To a man who is out of work, his unemployment is 100 per cent. and it matters little to him whether the national average is one per cent., 2 per cent., 3 per cent. or 4 per cent. My real concern is not that unemployment has risen to the extent that it has, although I do not think that anybody in the House

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would welcome this, but that the distribution of unemployment is as it is. There is a difference in the unemployment rate between one standard region and another. In Scotland, Wales and the North of England the unemployment figures for the regions are higher than the national average.
It is not only the difference between the individual regions that concerns me, but the differences which occur within the regions. The most striking example of this occurs in my own region, in the South-West, where, although the regional figures of 2·7 per cent. are only marginally above the national average, there is a gradation of figures as one travels westward within the region. From county to county the figure rises. In Gloucestershire, it is 1·9 per cent. In Somerset, it is 2·3 per cent. In Devon, it is 3·7 per cent. In Cornwall, it is 6·4 per cent. So we find, in the most westerly county of the region, an unemployment figure as. high as 6·4 per cent. In my constituency it is higher—6·4 per cent. in the Camborne and Redruth area and 7·2 per cent. in the Falmouth area.
I underline a point I put when I intervened in the speech of the hon. Member for Cornwall, North (Mr. Pardoe). This is an industrial area. The great bulk of the workers are in manufacturing industries. Thus, the easy answer of the S.E.T. does not apply to these figures. We are facing very much more deeply-rooted problems. The sort of gradation of unemployment that I have quoted can be quoted for almost every winter of the last 20 years in the South-West, but it is these distinctions which are of considerable concern to me.
My right hon. Friend the Minister of Labour also made a distinction between the short-term and long-term unemployment, and it is a valid point. Obviously, we need not be so concerned about short-term unemployment where the worker is to take up a different form of occupation or finds employment in a different area in the not too distant future. What concerns me is that it is in many of the areas with a high over-all unemployment figure that the largest proportion of long-term unemployed are to be found. We find in these high rate areas the problem of chronic unemployment, of a significant minority of the working population, very often in the prime of life, very often men
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with skills, continually out of work for many months on end. Many of my constituents have been in this position.
Such a problem is not only economic, but also social. It leads to the risk of social demoralisation. It is not many months since one of my constituents committed suicide because he could not find a job. That may be an exceptional case, but it is bad enough. If the sort of situation we have had to face in recent years were to continue and get worse, we should find a disintegration and degeneration of the community. That occurred in Cornwall, between the two wars, and no one wants to see it again.
I have talked about these regional variations and about the great importance of our trying to cure these very difficult local problems. It is, of course, the accepted policy of the Labour Party and and want to underline this by quoting from a party political broadcast by the Leader of the House about 10 weeks ago. He said:
"…we're determined that this temporary unemployment should be fairly and evenly spread over the whole country, and not, as we used to find under the Tories, disproportionately low in London and the Midlands, and cruelly high in Scotland and Wales and what were once the depressed areas of England. We shall not allow the development areas to relapse into depressed areas."
I do not believe that our development areas are relapsing yet into depressed areas, but there is a risk of that happening if we do not rectify the present situation. The need to do something further is urgent. Further action is necessary now.
A great deal has already been done to help the development areas. We have had investment allowances of one sort and another as incentives to new industries to move to these areas and advance factories have been built in considerable numbers. I could go through a whole catalogue of forms of assistance. But they have not helped all of the development areas. Some of them are prospering to a great extent when compared with how they were placed five or 10 years ago, but others are getting left behind.
Further action now is necessary and I specially welcome my right hon. Friend's proposals announced today. I welcome the industrial retraining grant and am glad to see that a differentiation is being made between development areas and other parts of the country. I welcome the

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proposals to develop the Government training centres and to build four new ones. If my right hon. Friend finds difficulty in finding a site for the fourth new one, many towns in the South-West would be only too pleased to help.
One may ask whether all this is enough. I do not believe that it is. More has to be done if we are to solve these serious localised social and economic problems. We must have further incentives which will succeed in attracting more industries to these areas. As we have heard, Government-owned advance factories in Cornwall are standing empty at a time when unemployment there is as high as three and four times the national average. There is something wrong. Surely there is more that we can do to bring new industries to such areas.
There has been a great deal of talk about the S.E.T. I believe that a sound case exists now for some alteration of this form of taxation so as to benefit the development areas. Perhaps an extra premium could be paid to manufacturing employers within development areas. I would also like there to be Government participation to a much greater extent in industry in hard-core areas.
In making these suggestions, I think that we should try to get away from the rather crude methods now used for helping development areas, because time after time we find that either we help the development areas, or we do not, either a development area gets a percentage grant, or it gets nothing. It is too much a black or white picture. The result is that while some development areas have prospered, others have been left behind.
We have to try to sort out some form of flexible assistance, ideally a form of assistance more directly related to the needs of a particular locality and particularly some form of assistance which is self correcting. I wonder whether we can conceive forms of assistance to development areas which are directly related to unemployment rates. We should be thinking along these lines in the years ahead.
We on this side of the House who believe in social justice and the equality in society cannot be too concerned about the comparatively small areas which are lagging so far behind the rest of Britain.
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I think that we are sometimes too concerned about inequalities between social groups in the community and not sufficiently concerned about inequalities between parts of Britain. We should be thinking not only about socially deprived people, but also about socially deprived regions.
8.36 p.m.
Mr. John Biffen: In the spirit of severe restraint which several hon. Members have mentioned, I will try to limit my remarks to the compass of a very few minutes, so that at least one hon. Member opposite will be able to speak before the Front Benches wind up the debate.
Of all the speeches which I have heard today, that of the hon. Member for York (Mr. Alexander W. Lyon) is most vividly etched on my mind, because he clearly and unequivocally stated that he believed that we should proceed from this time forward to a situation in which there was a pervasive control of incomes, of all incomes and not just some. I welcome that clear statement, because it seemed to me at the last election that two conditions were likely to develop from any political analysis of the economy at that time. One was that we would have to have deflation, which was the course which my party and I argued, and the other was a move towards statutory control of incomes. It is to this second course that we have drifted, somewhat fitfully, in the period since. The one feature of the election was that both of these courses were vigorously denied as possibilities by Labour leaders.
I shall concentrate on the White Paper, but at the outset I want to make it clear that I still believe that the Government are right to have deflated. I am sorry that they did not deflate earlier and I suspect that, if they had, they need not have deflated by so much, but in the circumstances I believe that they have taken broadly the right decisions.
It serves them and the nation ill when so much of the discussion on unemployment is couched in such highly emotive terms. I am prepared to say that here and now, with unemployment at its current level. In a recent television programme, speaking of unemployment, Lord Robens said:
"And consistently you will find that one per cent., for specific and human reasons, are

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incapable of work. We throw these into the unemployment figures and they magnify them and give an image to the country as a whole of unemployment which is quite untrue."
No one would suggest that Lord Robens is in any sense a callous or indifferent person, insensitive to the social responsibility which we all carry when we come to this House concerned for the discharge of public duty. We also know that when Lord Robens was sitting in this assembly, as the then right hon. Member for Blyth, he would have been somewhat reluctant to have given such a firm affirmation to that observation.
Mr. Heffer: I would ask the hon. Member whether he has ever been unemployed. For his information, I have. That is why I and my hon. Friends who have been unemployed are so very emotional about this matter.
Mr. Biffen: I have not been unemployed. That does not for one moment suggest that one has to experience unemployment to feel moved to a sense of responsibility about the question of employment or unemployment. I am merely saying that to be emotional about it is not the ace of trumps in the argument. If hon. Members opposite constantly parade, as a matter of pleasure and virtue, that they are more emotional about unemployment than we are, they will be creating for themselves many more difficulties than they may imagine.
I turn to the immediate point which has attracted the attention of many hon. Members" which is the actual White Paper on severe restraint. As far as I can see, this is yet another example of government by White Paper. It is a process which I heartily dislike, and what adds to its danger on this occasion is that we now move into a period when some incomes may rise, and may be seen to rise, whereas others remain static. In those circumstances, it is more than ever necessary that we should have clarity and precision; yet I believe that the White Paper on severe restraint is really political mumbo-jumbo.
I am not alone in believing this. The hon. Member for Southampton, Test (Mr. R. C. Mitchell) fairly and forcibly indicated how he believed that that section of the White Paper concerning council house rates was practically unintelligible. The hon. Member for Huddersfield, West
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(Mr. Lomas), speaking on behalf of public employees, in turn also told us how he found certain parts of the White Paper almost unintelligible.
There are two issues to which I should like to turn my attention: they are productivity and the lowest-paid workers. Both of these are suggested as definitions or categories which will permit wage improvement. I suspect that both are capable of so wide an area of interpretation as, to all intents and purposes, to be practically meaningless. Let us consider productivity. Paragraph 27 says:
"Agreements designed to increase productivity…will be given priority during the severe restraint period."
We might reflect for one moment and ask ourselves what is this precious talisman that shines out from this somewhat turgid paper? Productivity—the word falls from our lips almost with abandon. The hon. Member for York constantly referred to productivity. Indeed, most of us have; yet it is a pretty difficult thing to define, particularly if we are arguing in terms of wage increases to the first place after the decimal point.
I should like to quote from a presidential address to the Royal Statistical Society given on 25th November, 1964, by Sir Paul Chambers. He said:
"No method of measuring productivity of as a whole, or of a Division, has been devised which is meaningful, of practical use, and reasonably simple to compile".
He said further:
"I.C.I. had a productivity index which was scrapped some years ago when its futility became obvious even to its most devoted advocates."
He further said:
"All this leads back to the point that choice based upon profitability must be the determinant and that 'productivity', in the sense widely used is a mirage".
I would endorse the argument made by my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) that if we look after profits, productivity will look after itself. The argument has special force for all those who are employed in the service industries, many of whom will be among the lower paid, in any case, because if it is difficult for industrialists of such distinction as Sir Paul Chambers to measure productivity for an organisation which has physical output, how much more difficult is it for

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any organisation in the service industries which does not have an ordinarily measurable physical output?
I turn now to the question of the lowest-paid workers. Paragraph 28 says:
"…it will be necessary to ensure that any pay increases justified on this ground are genuinely confined to the lowest-paid workers…"
Already a number of hon. Members appear to believe that this policy and the White Paper offer some hope and guarantee to the lowest-paid workers. I confess that I am highly sceptical.
We have already had a number of Wages Council awards confirmed by the Minister of Labour since the publication of the White Paper, and the Minister of Labour himself referred to it today. In fairness to the right hon. Gentleman, I must say that he said that there was some difficulty about relating Wages Council awards to earnings in those industries. There is here an immense difficulty.
I find the evidence very hard to come by, but there is a little in the Prices and Incomes Board's Report on the laundry industry, where Mr. Aubrey Jones and his colleagues say:
"Practically no workers in this industry receive the minimum rate of pay…"
They make that statement, having stated just previously:
"Nevertheless they are, on the average, well above the Wages Council minimum rates, and having increased faster than the minimum rates during the last few years."
Therefore, any hon. Member who may think that confirmation of Wages Council rates by the Ministry of Labour will give a boost to the earnings of these presumed lower-paid workers should hasten to acquaint himself with what the Ministry of Labour itself said on this occasion. The Ministry's Press notice states:
"The new statutory minimum rates prescribed in these Orders will be applicable only to workers paid at the minima and do not carry any obligation on employers to increase remuneration where more than the statutory minimum is already being paid."
I suspect that the interpretation of that statement could well lead to almost no wage earners in those industries getting any increase, if the evidence of Mr. Aubrey Jones in regard to laundry
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workers is a meaningful guide. The hon. Member for Ashfield (Mr. Marquand) is in his place, and I well remember him asking a question about the lower-paid workers when the White Paper was placed before Parliament.
The people who will continue receiving increases in their earnings will be those in the highly-sought-after salaried activities. That is true in the computer industry, and in a great many of the techniques of management, where the skills are keenly sought after. Any weekend reading of the heavyweight Sunday Press will confirm that this was so before 20th July, and that it still is so.
There is absolutely no likelihood of the Government knowing what movement takes place in those rates, because paragraph 38 states:
"Information is required about claims and proposals to increase pay or reduce hours…relating to national, local and company negotiations."
Then comes the punch line:
"For practical reasons, however, such information covering less than 200 employees need not be notified to the Ministry of Labour unless…"
I am certain that the effective interpretation of that will mean that vast areas of salary earners will not have to go through the same disciplines as lower-paid workers. The sooner that we realise that this White Paper, no less than its predecessors, is a compound of nonsense, the better it will be for all of us.
8.50 p.m.
Miss Joan Lestor: I hope that the House will not misunderstand me when I say that I intend to follow the remarks made by the hon. Gentleman the Member for Chelmsford (Mr. St. John-Stevas) and the hon. Gentleman the Member for Cornwall, North (Mr. Pardoe). I do so because there is an aspect of the White Paper to which both hon. Members referred and to which not enough importance is being attached. We can all place interpretations upon words in Government documents. I refer to the statement that the
"Improvement of the standard of living of the worst-off members of the community is a primary social objective."
If we take that in conjunction with one or two of the questions asked of the

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Chancellor yesterday, and relate it to one or two things said during today's debate, particularly by the hon. Member for Chelmsford, we arrive at an interpretation of social poverty which is rather new in terms of how people have tended to look at it in the past.
Those of us who have been interested in and impressed by the work of the Child Poverty Action Group have had brought to our notice the fact that about 600,000 children are being brought up in conditions of near poverty and that the fathers of these children are mostly working. They constitute this submerged 10 per cent., as it has been called, or the lowest-paid worker to whom we have had our attention directed today. We have also recognised that family commitments as much, if not more than wages, determine who is worse off. The White Paper stresses the need to give a high priority to means and does not talk about wages as much as means designed to meet family needs.
What we would like to know, either today or tomorrow, is how these needs are to be met. I assume that it will not be through Income Tax concessions, since this section of the community does not pay Income Tax. If the idea is to allow the unions to negotiate pay increases for the lower-paid workers then the Minister touched upon difficulties of definitions and the complications which can arise when decisions on definition are made.
Another point concerning me is that it is obvious from the White Paper that it is clearly intended that in future the Government will play an active part in wage negotiations and agreements. Surely, before this power is given to a Government, the House ought to be able to discuss what will be the underlying principle of Government participation? For example, will they adopt a conservative incomes policy which takes for granted the basic structure of wage differentials in existence?
Until these questions are answered, we have to deal with what we can, and what we do know is that for the married man with two children, who is unemployed, a payment of £9 a week is made. Since 10 per cent. of all male employees earn £10 or less a week, we must include all of these lower-paid workers. When we have sorted out the qualifiers and
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non-qualifiers the problem will be how to decide upon what will be an agreed rise, since the pre-freeze norm was 3 per cent. to 3½ per cent. A man earning £10 would receive, under this, a rise of about 6s. or 7s. If it was done in that way it would not make much contribution to raising his standard of living, or deal with the problem of poverty existing among this section of the workers. There are all sorts of qualifications which, unfortunately, I have no time to go into, which make that approach a very difficult one in the present situation.
The point made by the hon. Member for Chelmsford is worth pursuing. Incidentally, it was not the prerogative of the Liberal Party to raise this matter. The discussion has been going on in sociological circles for a long time. The point is that, if the tax allowances for children are abolished and family allowances are increased overall, one produces a much better distribution in cash terms of what is available to relieve social difficulty and poverty. Since we are trying to solve the problem of families with a large number of children, I suggest that, in the short term, this would seem a better way to go about it.
I realise that my time is very limited, but I must say a word about unemployment. I am not, perhaps, as complacent in my assumptions as other hon. Members are who think that unemployment may be short term. Whatever the intention may be, we must assume that the unemployment we now have may get worse. Wage-related unemployment payments can ameliorate the worst features of unemployment of the kind we had in the 1930s, but they still leave a substantial loss of earnings to be borne. This means hardship, and unemployment has, traditionally, always meant hardship.
It does not help to talk in terms of unemployment being short term, because, whether we like it or not—I dislike it very much, but I feel that we may very reluctanly have to face it nevertheless—it appears from statements which have been made that the Government are systematically planning a small, permanent army of unemployed. If this is so, and we can expect for a year or a little longer to have a small, permanent army of unemployed, we are morally bound to move away from the traditional methods for dealing with unemployment and to look again at the

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facilities for ameliorating the hardship which comes to those who are unemployed.
In the past, unemployment has been an inseparable feature of an uncontrolled economy. If we are to have a controlled economy which caters for or plans a measure of unemployment, we must reexamine the whole of our unemployment benefit system in order to create a structure which does not, for example, aim to deal with periodic booms and slumps when there may be a large number of people unemployed but only a small amount of money is needed.
We must approach the matter from the standpoint of having a small number of people unemployed, but needing a large amount of money, so that, if the social and economic policies to which I have referred are pursued—I have already said that I do not like the idea—we can at least ameliorate the worst features of unemployment and prevent people sinking into the demoralised state into which many have sunk through unemployment.
Inevitably, I cannot say all that I would like to say on this subject. I end by a reference to what the hon. Member for Worcester (Mr. Peter Walker) said about what the Government had done. The hon. Gentleman startled me when he remarked that we had undermined capitalism. Would that he were right. In fact, the millenium is still a long way off.
I ask the Government to appreciate that it is the way in which we, as a Labour Government, deal with the two sections of the community to whom I have referred, the unemployed and the submerged 10 per cent. living very near the poverty line, which distinguishes those who seek to bring a little Socialist humanity into the situation from those who seek to bolster up a system based on the profit motive.
8.59 p.m.
Mr. John Page: May I speak, for about one and a half minutes, as a small businessman for small businessmen? I do not believe that more than one businessman in a thousand understands what the Government are trying to do under their four or five White Papers which he has to study to appreciate what the present state of the Government's incomes policy is. I greatly doubt that, outside the magic circle of
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economists, accountants and those who regularly listen to finance debates in the House, many people—I include hon. Members in this—would be able to answer a fairly simple questionnaire on the position of employers today. I believe that virtually every employer who asked himself whether he was allowed to give an increase in wages or salaries to one of his employees would think that it was illegal for him to do so.
I would like a statement from the Government to clarify the position, telling the ordinary businessman that the incomes policy is voluntary and that unless an income increase affects more than 200 workpeople—which means that it must affect only a very large company —there is nothing whatever to stop him from giving increases in wages and salaries if he considers that they are deserved and if it is necessary for him to keep an employee who would otherwise wish to offer his services elsewhere.
The same uncertainly applies to increases in price by a manufacturer. It is difficult for any manufacturer or provider of a service to know what his position is. On behalf of the small businessmen, I beg the Government Front Bench, before this debate is out, to try to do something to explain to them where their responsibilities are.
9.1 p.m.
Mrs. Margaret Thatcher: We have had a wide-ranging debate which has consisted of the usual mixture of accusations, epithets and objective analyses. The hon. Member for the Walton Division of Liverpool (Mr. Heffer) had his own description of Government policy but he seemed to think that at the moment we had a Tory Government. Each of us, perhaps, has our own analysis of how we managed to get into the position where this severe deflation came to be necessary.
It is worth while pointing out that many independent commentators are saying to the electorate that my right hon. Friend the Member for Barnet (Mr. Maudling) was the first person who tried to break out of the stop-go cycle which we had been having.
My right hon. Friend decided to try to use the reserves and to use borrowing capacity to finance an expansion. For

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that purpose, he arranged overdraft facilities at the very best time to arrange them —namely, when one does not need them. For that purpose, we had a sharp increase in imports, and stocks rose.
My right hon. Friend managed to ride the problems until the General Election —[Interruption.]—and he would have ridden them after the General Election had we still been there. Had the present Government come to power after a previous period in office, the policies which they pursued at that time might then have been very different from those which they pursued immediately after a prolonged period in opposition.
I mention this because, naturally, if the party opposite came to power after a prolonged period of opposition, they would be anxious to prove how very different they were and that, regardless of the situation, they were concerned most of all to try to carry out their own policies. The result of doing that was to weaken confidence at a most critical time. It means that instead of going on into a period of expansion, we went again into a period of stop. Had the Chancellor of the Exchequer applied different remedies at the time he came to office, or if he had applied some of the remedies which he applied later, we should never have had a sharp inflation, which only the other day, at Question Time, the right hon. Gentleman referred to as over-inflation. If we had not had the over-inflation, we should not have needed the sharp deflation of 20th July and the statutory controls on prices and incomes which we have now. It is important to try and get the analysis straight, because we should appreciate why we have the very sharp deflation and statutory controls which would not otherwise be necessary.
I agree with a number of hon. Members who have commented that the White Paper is not clear. There is nothing unusual about that. Previous White Papers have not been clear, either. Naturally, we disagree with some of the few matters that are very clear. As I have pointed out in previous debates, on this side of the House we disagree very much with the policy of dishonouring agreements that had been reached formerly. I am well aware that the excuse for it is that 6 million people were covered by agreements. I have never thought it a good
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excuse that, if a lot of people have an agreement, that agreement can be broken. Quite the contrary.
Before the Prices and Incomes Act came into full operation, it was a civil offence to break a contract. Since we have had Part IV of the Act, the Government have taken powers to make it a criminal offence to keep a contract. That is quite unprecedented in English law and it has taken away certain fundamental rights. It has meant that the Government have forfeited the right to co-operation which otherwise they could have expected to continue long into the future.
Clearly, the Government are using those powers more extensively than most of us thought that they would. They are not using them merely to prevent wage increases to large groups of people. Two of the Orders which have been laid concern very small groups. The Rock-ware Glass Order concerned only 34 workers. The one dealing with draughtsmen in the office of the Receiver of Metropolitan Police concerned only 60 workers. So Ministers are using the controls very extensively.
May I examine the argument about the 6 million people covered by agreements? The same argument would have applied to the 5½ million people who are covered by automatic increments, but those are being allowed to go on and were allowed to proceed during the standstill period. The fact that there was a large number of those did not stop that contract from being fulfilled. However, the same argument was used to prevent other agreements from being fulfilled. The standstill has not been a complete standstill, because those who had automatic increments have still been getting them under the terms of the standstill White Paper.
One of the serious difficulties of the White Paper on severe restraint is that merit does not rank for any increase. That is quite contrary to what the Chancellor said recently in a party political broadcast on television. He said then:
"Enterprise and initiative must be and will be rewarded wherever they are."
The trouble is that what the Chancellor says often sounds extremely good. However, what he does bears little relation to what he says.
We all admire his tremendous debating talents. I think that he and the Prime Minister are two of the best debaters

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whom we have. [Interruption.] Some of us think that they are quite good. I am sure that we have those on our side of the House who are even better.
What we doubt are not the debating talents of the right hon. Gentlemen, but their capacity to reach the right decisions at the right times; and, the longer that they are in power, the longer that will tell.
Inevitably, there will be difficulty if one attempts in a factory, as distinct from a White Paper, to give increases to lower-paid workers and not to those who are above the lower levels. As a matter of practical politics, it cannot be done. When one gets to the factory level and has to negotiate, those in the factory probably will not allow it to be done.
This provision in the White Paper will not come about, and I think that it will be more of a standstill than a period of severe restraint. I think that it would have been far better ultimately for the growth of industry if the Chancellor and the Minister had agreed that merit should rank for some increase, and ultimately we should have got the growth which is the objective of Government policy.
One paragraph in the White Paper refers to lower-paid workers, and certain aspects of social policy, and a number of hon. Members have referred to this during the debate. I ask the Chancellor to give us a good deal more information about it As it is in the White Paper, naturally people will be expecting details of how the Government will help those with family commitments. We know that a review has been under consideration for a very long time. I think that it is perhaps pertinent to point out that Beveridge completed his Report within 11 months, so we might expect some report from the Government on this aspect of the White Paper policy as they have now been on their review for two years.
We are all concerned about what happens after 30th June. We note that the Government have not yet decided, and are very anxious to pick anyone's brains that they can. Naturally, if they do not have many of their own, they have to look to someone else to provide them.
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The powers continue after 30th June. The powers of statutory control continue right into the middle of August. I would make a guess about what might happen. After 30th June the Government will then invoke Part II of the Prices and Incomes Act which has not been brought into force, and this will enable them to continue a virtual freeze for another four months. Part of that period will be supported by the continuation of compulsory powers. I think that we should be told before this debate ends whether the Government intend to do that, because naturally it will affect negotiations about wage and salary increases which are going on during the period of severe restraint.
Not a lot of attention has been given this evening to paragraph 42 of the White Paper, which deals with pensions. It is a paragraph which I never expected to see in any White Paper, either on standstill, or on severe restraint. It is a paragraph which virtually tells employers that they must not pay increased pensions to retired employees. I think that this paragraph is both callous and outrageous, and I hope that no employer who has an occupational pension scheme will follow it.
I think that it should be clear that pensioners have suffered already from inflation, and they should be the last to suffer from any severe restraint or standstill provisions. If any company wishes to pay, and wants to pay, increased pensions, and would normally do so in the course of its annual review, I hope that it will continue to do so, and then, if the Government do not like it, they can make an Order and it will be quite clear where the liability lies.
There are a number of other factors concerning persons which are affected by the White Paper. Those who have their pension provisions dependent on the last year of salary—the last three years, or sometimes the last one year—will have the freeze with them, not for six months, or 12 months, but possibly for 20 or 30 years, and I think that every attempt should be made to alleviate that position and see whether they can be compensated for it so that their pensions are not smaller for the rest of their lives.
There has been a certain amount of other publicity in the Press about pensions,

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and we ought to ask the Chancellor for a statement about it. It was released to the Financial Times and to The Times that there had been a letter from Labour Party Headquarters to the Union of Shop, Distributive and Allied Workers stating that
"the party was examining means of controlling the investment policies of pension funds and insurance companies so as to channel investment into those sectors of the economy which fulfilled urgent social and economic priorities."
I think that we ought to get it clear from the Chancellor. Is he intending to bring in legislation to control the investment policies of pension funds? I think that this would be quite wrong. Hitherto insurance and pension funds have had investment determined on one principle, namely, what is best for the beneficiaries. That is a correct principle, it has given them the greatest increase in pensions and will continue in the future to give them the best possible benefit. We should like to have it clear from the Chancellor that the present position will continue and will not be jeopardised in any way.
Many hon. Members have referred to the down-turn in investment which is now taking place and which is expected to be worse next year. It is worth noting that the level of investment at present has turned down before it reached as high a peak as it reached in 1961. It has turned down rather sooner than one would have expected. I have the impression that the Government think that all they need to do to boost it is either to juggle a little with investment grants or to announce that they hope to get into the Common Market, and that all will be well afterwards. Something much more radical needs to be done. The position has gone beyond the need merely to do a litle titivating. We need very far-reaching, radical changes, and whole changes in attitudes.
I suggest that investment is down for a number of reasons. First, industrialists are not yet getting a very large return on investment that they have already made. If someone is not getting very much back from a large expenditure he is very unlikely to embark on increased expenditure for the future. At the moment industrialists do not look like getting increased output or increased sales to use up the capacity that they have already got.
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Secondly, there is little money in the kitty. There is little ready cash in industry's coffers. If there is any the Chancellor has had it or will have it in the £1,000 million of Corporation Tax on 1st January. If a person has not got any money, or has only very little money, it is not exactly wise to borrow at 7½ per cent. in order to invest when he cannot sell his existing output. Many companies have spent money on over-expansion or over-modernisation and have not had enough cash to tide them over the immediate difficult times. Naturally, if they have money it is important that they should get through those difficult times before embarking on further expenditure.
The third reason why investment is down is that it is quite clear that the Government dislike the fruits of investment going to those who supply the money to invest. We have had many statements from time to time on both profits and dividends. On 22nd November the First Secretary made a very tortuous statement on profits. He was not prepared to say that they should be encouraged, but he very reluctantly said that certain of them should not be discouraged. He said:
"We must notice, however, that where profits are increased without improper effects on prices—that is to say, by better management—they must then be regarded as a legitimate form of income which should not be discouraged. But where there is an excessive growth of profits it is open to the Government to take fiscal masures to deal with them."—[OFFICIAL REPORT, 2nd November, 1966; Vol. 736, c. 1154.]
The First Secretary knows that everyone on either side of industry is aware of the fact that when business is booming there are good profits, good dividends and good wages. Industry and labour as a whole are either prosperous or in a depression together. The interests of both those who supply the capital and those who supply the labour are one and the same. Unless we agree that those who supply the capital are entitled to a good return on it, sufficient risk capital will not be forthcoming to make the required investment.
Another reason why investment has turned down is the changed system for investment allowances. The Chancellor pointed out with great flourish at Question Time that the President of the Board of Trade had recently announced how to

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get increased cash, but he did not say that all that the President announced was that it was now possible to get a form to fill in—and that one had to be jolly careful to apply for the right form, and there are nine of them. First, it is necessary to discover which form one wants.
That is all that one can do at the moment. One can fill the thing in, but one cannot even return it yet because there is no one to receive it. One cannot return it anyway until, I believe, 16th January, and then can only make an application for investment grant in respect of expenditure made over about six weeks last year. When one has actually got the right form and filled it in and sent it off, the earliest one can get the cash is next July.
Only the Chancellor could make a great flourish about that. It is absolutetly useless. All it means is that there will be many more forms to fill in. One contributory factor for the downturn in investment is this. If the Government want more investment, why did they put the Selective Employment Tax on the construction industry?
There is one more point of detail which I hope that the President of the Board of Trade will answer. I think that he agrees that we should get more investment, but his Department is not exactly encouraging it in every direction. Tonight, at midnight, I believe, the 10 per cent. surcharge comes off. Is that so?
Mr. Jay indicated assent.
Mrs. Thatcher: Yes, it is. In some sectors of imports there has already been an increase of 14 per cent. on the tariff, with regard particularly to machinery which is not constructed in this country. In those cases, it has previously been possible to import machinery and get complete relief from the tariff. That relief has been stopped, and, from 1st October, the right hon. Gentleman has reimposed a tariff of 14 per cent. on that kind of machinery.
There is little point in taking off a 10 per cent. surchange if, a few weeks before, one has imposed one of 14 per cent. It is absurd, also, to impose it on the very machinery which one wants to
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modernise. Some of our continental competitors pay no tariff whatsoever on this machinery and they are continuing their tariff-free entry.
I want to turn to one or two comments about the increased administrative burdens on industry, all of which have been imposed by this Government. I have already referred to investment grants. A good deal of effort has to go into filling in the forms and discovering exactly what forms to apply for and to what grants this entitles one. Second, industry has had to master all the new aspects of Corporation Tax, which the hon. Member for Heywood and Royton (Mr. Barnett) said that he knew all about in which case, he may be unique in this country. Third, there has been a good deal more red tape connected with the Selective Employment Tax with which firms have had to grapple and none of which they had to do before.
They have also had to get the forms, count heads and decide whether their buildings are "married" or "divorced" to comply with the Minister of Labour's requirements about establishments. They now have to absorb three or four White Papers on prices and incomes so as to know whether they can put up a price or a salary. If they want to expand, they must apply to the Land Commission as soon as it is in operation to see whether they are to be charged a levy for material development. If they have any spare time after all this, they can go out and get orders and produce goods.
This is no way to run a country. To add insult to injury, the Chancellor then tries to put a tax on all services. These people have had to take on extra staff to meet the requirements of the Government. By taking on this extra staff, they may be precluded from getting premiums.
I turn now to some of the economic judgments of the Chancellor. We know about the past ones, but we are anxious to know about future ones. The Statement of 20th July included a number of deflationary measures which were not intended to bite until next year, so those people who are agitating for a reversal of the deflationary policy are naturally interested to know whether the Chancellor still intends the deflationary measures which were to start next year, still to operate.

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For example, in 1967–68, he will be taking £100 million out of demand by reducing overseas Government expenditure. The Prime Minister talked of firm programmes. We cross-examined the Chancellor on this. We asked the Chancellor if he knew what those firm programmes were. He said he did not know. What is more, he said he did not know when he would know—but that when he did know he would let us know. We still do not know what has happened to that £100 million.
Also in the statement of 20th July were announced many cuts in public investment. The Chancellor implied at Question Time the other day that public investment would rise and that that would more than compensate for the fall in private investment. Does he intend to continue with the £150 million cuts in the nationalised industries; cuts in expenditure on the docks, the electricity industry, the gas industry, on atomic energy and many other parts of the nationalised sector? If not, does he intend in some way to reverse them?
We know that the Surtax surcharge which is due to operate next September is bound to continue. The Chancellor will have to have his swipe at merit there and there is no point in asking the Government about that. However, we know that, whatever happens and whatever the right hon. Gentleman forecasts, he will be confident. This has been a great characteristic of him. He has been confident throughout. Whether we have had inflation or deflation, he has been confident. He was "turning corners" and the present Foreign Secretary was seeing lights at the end of tunnels all through 1965.
We had a great revelation the other day in the Chancellor's party political broadcast which was televised, although I did not see it. The right hon. Gentleman said:
"The Government's measures are having the effect they were intended to have, and here's the first difference from what's gone before. This time, the Labour Government is getting down to the root of our problems, and not just tinkering."
Now we know what the right hon. Gentleman was doing all through 1965, right up to 20th July. He was just tinkering. That is, perhaps, why so many deflationary measures were needed on 20th July.
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One newspaper put it particularly aptly, perhaps a little cruelly—although the right hon. Gentleman has a tough hide—when the Birmingham Post stated:
"Mr. Wilson and Mr. Callaghan have boundless confidence in themselves, but so have many of the most dangerous drivers on the road."
I return, finally, to the White Paper and the powers under Part IV relating to prices and incomes. I share the view that one of the most alarming speeches was that made by the hon. Member for York (Mr. Alexander W. Lyon), who had become conditioned to permanent statutory control over incomes. That is extremely dangerous. There is nothing in the present situation to warrant permanent statutory control over incomes. I hope that the promise which the Government gave to the effect that such controls would last for only 12 months will be one assurance which they will honour.
9.28 p.m.
The President of The Board of Trade (Mr. Douglas Jay): The hon. Lady the Member for Finchley (Mrs. Thatcher) began by saying that everything would have been all right if only we had followed the policies which the right hon. Member for Barnet (Mr. Maudling) would have followed. The right hon. Member for Barnet, however, told us that we were following exactly the policies he would have followed, notably the import surcharge and export rebate. The hon. Lady's speech had at any rate something in common with the speech of the hon. Member for Worcester (Mr. Peter Walker) in that there was not a constructive proposal in either of them.
I will describe tonight some of the actual measures which the Government are taking and mean to take. Hon. Members will agree that the overriding aim in all our economic policies must be to keep our exports growing. If we could lever up the annual increase in exports sufficiently, we could achieve both full employment and growth and a balance of payments surplus at the same time. There is really no other practical way of doing both. Therefore, my Department has concentrated the greater part of its effort during the last two years on export promotion by every possible method.
I have recited so often in the House the catalogue of measures already taken

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that I will not repeat all of them now. We have been acting, and shall continue to act, with the help of the export rebate, the steadily improved and still improving export credits and we shall soon introduce a Bill for extending the E.C.G.D. limits further, through the B.N.E.C. and its area committees and through a very large programme of outward and inward export missions, British weeks, fairs, and exhibitions abroad.
We have had invaluable help from the 200 leading industrialists who are now working, and indeed, travelling, for the British National Export Council and its area groups. Two years have shown that the export rebate has been of real help and that the most potent export promotion weapons have been better export credit insurance, the programme of British weeks and exhibitions and the growing number of export missions. Industry is now making greater use of the Government's aids to exports than ever before. As many as 118 inward and outward missions will have been carried out in 1966 and there will be a still higher number in 1967.
Altogether, British industry will have shown its goods in 1966 in 388 British weeks, exhibitions and store promotions assisted by the Board of Trade. We are planning still more for 1967, including major British weeks in Toronto and Brussels. In the case of the Export Credits Guarantee Department the cost of cover has been cut by about a quarter, the percentage of loss covered has been raised from 85 per cent. to 90 per cent. interest rates have been reduced and the bank guarantee scheme greatly widened.
With all this stimulus the actual increases in exports achieved and the response of industry, although emphatically not yet sufficient, are, nevertheless, when we remember that we already export far more per head of population than either the United States or Japan, genuinely encouraging. In 1964, exports increased by 5 per cent. in value and 3 per cent. in volume. In 1965, the rise was 7 per cent. in value and 5 per cent. in volume. In January to May this year, until the seamen's strike, it was 8½ per cent. in value and 6 per cent. in volume compared with the same months a year earlier.
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The seamen's strike not merely temporarily cut the figures down sharply, but in my view has almost certainly reduced our total exports for 1966 below what otherwise would have been achieved. There has been an irrevocable once-for-all loss. Despite that loss, however, the rise in exports for the first 10 months of 1966 as a whole including the strike affected months, has been 6½ per cent. in value and 3½ per cent. in volume. Exports are now running at a rate nearly 20 per cent. higher in value than they were in the autumn months of 1964.
We have, however, to face the fact—here I agree with some of the things the hon. Lady said—that our whole balance of payments this year will have been worsened by the seamen's strike, which caused the drop in exports in June and so, in addition to the immediate loss of exports, affected sterling. Neither the prices and incomes policy nor the degree of restriction on spending need, in my view, but for the effect of the strike, have been nearly so severe.
Nevertheless, despite this, the visible trade deficit which averaged £45 million a month in 1964, fell to £23 million in 1965 and £22 million in the first 10 months of this year, including the months affected by the strike. It is certainly cheering, when all special factors are allowed for, that the last three months' export figures have been the best this year and the last month another all-time record.
Exports to the United States this year during the first 10 months, including the strike months, have risen by 28 per cent. —a remarkable achievement by British industry—to Canada by 11 per cent. despite a Canadian dock strike as well as our shipping strike, and to the Soviet Union and Eastern Europe by 27 per cent. Aircraft, with a 78 per cent. rise in exports this year, and ships, with a 42 per cent. rise, have contributed substantially to the year's rise. But we now have to face an inevitable increase in imports after the import surcharge ends in about a couple of hours' time. It is, therefore, perfectly clear that the drive to improve the trade balance cannot be slackened and, indeed, must be intensified.
First, on the export credit front. Following the improvements in export credits made in the last two years, the

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value of E.C.G.D. business rose 15 per cent. in 1965 and had risen a further 11 per cent. this year. Indeed, 30 per cent. of all our exports are now covered by E.C.G.D. This is an annual rate of about £1,600 million a year.
We are now, therefore, to ask Parliament for an increase in the export credit limit from £2,800 million to £3,900 million. These are very large figures. This is now the scale of the export credit business. I have also decided that the percentage cover on guarantees for medium-term credits to Argentina can now be raised from 75 per cent. to 90 per cent., which should be of special help for exports of aircraft, which have good prospects of sales there.
In the case of India, also, I shall now be prepared to ease the special restrictions hitherto in force and facilitate export credit for aircraft on normal terms, if orders are secured. At the same time, the plan for a general export corporation to assist smaller firms is being worked out —and it takes a good deal of work—with help from the City, and I hope that here, too, we may be able to report developments soon. There is no doubt, either, that the much greater stability in the cost of living achieved since June last —there has been only a fractional change, as my right hon. Friend the Minister of Labour said earlier today, in the last four months in the cost of living index—has in itself powerfully assisted the export effort.
I agree with my hon. Friend the Member for Southampton, Test (Mr. R. C. Mitchell) that this stability has been to a great extent due to the Government's prices and incomes policy. Few have questioned in this debate so far that for this and other reasons some restraint on internal spending was needed last July. I am certain that we should not have achieved the record exports of the last few months without it.
I have noticed that in the debate neither speaker from the Opposition Front Bench so far has told us whether the Opposition thought the Government's measures of July were too severe or not severe enough. Possibly one of the two Opposition Front Bench speakers tomorrow will tell us which they think it was.
But it has, very naturally, been argued by some hon. Members that the rise in
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unemployment has gone too far and ought to be checked. I do not think that we should judge finally on the basis of the current figures, because they are exceptional in three distinct ways. First, a very large part of the latest figure—over 100,000—are temporarily stopped. Secondly, the rise is much the steepest in the usually very fully employed West Midlands. Thirdly, it is very largely within the motor industry.
Despite all of the publicity directed at the motor industry, not everybody has noticed—I think that the hon. Member for Twickenham (Mr. Gresham Cooke) will agree with me—that some sections of it are fully employed and, indeed, expanding and taking on labour. Fords have announced that they will not work short time this year; and the autumn is usually the most difficult time for the motor industry.
It is also constantly said of the motor car and other industries that, when recession comes, firms cut down in development areas and make few or no cuts in the prosperous areas. I have heard that said many hundreds of times in recent years. Experience does not, in fact, bear this out. In the motor trade this autumn release have been far larger in the Midlands, for instance, than they have been at plants such as Fords in Swansea, Rovers in Cardiff, Ford, Vauxhall and Standards on Merseyside, or Leylands in the North-West and Glasgow. That should bring some real reassurance to the development areas. Indeed, some of the very largest of motor vehicle factories in the country—such as Vauxhall, at Ellesmere Port, and Leylands in the North-West—are short of labour at this time and are recruiting vigorously.
If the motor industry can now increase its exports still further, as it is trying hard to do, it will bring the greatest possible benefit both to employment and the balance of payments. I assure the hon. Member for Twickenham that I am already pursuing both the points he raised in relation to motor exports to the E.F.T.A. countries and to the United States.
Sir Cyril Osborne: The right hon. Gentleman says that the unemployment figure is unusually high because of the situation in the motor industry. Is he saying that, during the next three or

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four months, he expects the figure to fall and not go still higher?
Mr. Jay: I very rarely make statements about the future, as the hon. Gentleman, if he studies my past statements, will realise. But we should take these points into account in judging the significance of the existing figures.
Meanwhile, one of the chief aims of the policies we have pursued over the last two years has been to strengthen the industrial and employment capacities of the development areas and the full effect of these policies must, of course, take some time to bear full fruit. But I believe that the figures already available show an improvement in the trend. Throughout the past two years we have tightened up the grant of industrial development certificates in the South-East and other congested areas and the proportion of new factory building going to Scotland, Wales, the North-East and the North-West has markedly risen. My hon. Friend the Member for Falmouth and Camborne (Dr. Dunwoody) said that he would like to see more flexible policies pursued in grants to different development areas. This is, indeed, already possible. It is existing policy to use industrial development certificates in this flexible fashion.
During the first 10 months of this year, in terms of employment, the four regions Scotland, Wales, the North-East and North-West got 63 per cent. of the new I.D.C. approvals in the whole country, although they have only one-third of the country's population. The total new employment which firms expect from new schemes approved in these four regions, together with the South-West, so far this year has been at the annual rate of 100,000 as compared with 75,000 for schemes approved in 1964.
In addition to private development schemes and ordinary Government factory building in development areas, the Government have launched four successive programmes of publicly-financed advance factories, many of them in coal mining areas, totalling altogether 94 factories. We have faced delays here over legal and local authority procedure for acquiring land, and we shall, therefore, in the new programme announced on 3rd Novem-
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ber concentrate on sites already owned by the Board of Trade. Despite these site difficulties, 30 of the factories in these programmes will have been completed by the end of January and 21 are already allocated.
The demand for these factories has not, as might perhaps have been feared, fallen off seriously in the last few months. For instance, an announcement has been made only today by Ferranti that it is taking the advance factory at Barrow. The total programme of all Board of Trade factories now building in development areas amounts to 3 million square feet in 100 separate projects. During the seven months to the end of October, the financial assistance offered to schemes in development areas under the Local Employment Acts has totalled £35½ million, or an annual rate of £60 million. This is well up on the rate offered last year, when the total offered for the whole year was £42½3 million.
Further, the whole of the development areas have, of course, been excluded from the building controls system introduced this year and all factory building as well as house and school building is also exempt in any case.
Public investment as a whole in development areas will increase materially next year. The new and higher investment grants for industrial plant and equipment in development areas are now in force and the new Board of Trade investment grant offices—themselves largely located in these areas—will be ready as from 16th January to go ahead with applications both for these grants and for the standard grant in the rest of the country.
My hon. Friend the Member for Heywood and Royton (Mr. Barnett) asked whether investment grants would be paid 18 months after application, or after purchase, or invoice. The answer is that they will be paid 18 months after the expenditure is incurred. For instance, next July we shall begin paying to firms who apply in this coming January and thereafter. They do not have to wait 18 months after application.
However, what the hon. Member for Worcester and the hon. Lady the Member for Finchley do not seem to have understood is that the reason why we

581
are not paying the grants until mid-1967 is that this year investment allowances are still affecting tax payments. Clearly, the Exchequer cannot be expected to pay twice in one year. There has been no gap. Indeed, so far from there being a gap, there will probably be an overlap. We shall pay the investment grants as quickly as practicable from next July onwards and I hope that private industry generally will take the present chance, when resources are more easily available than they were previously, to step up and not cut down investment.
The hon. Member for Worcester also forgot the public investment, which is a very large part of total investment these days, will be increasing substantially next year. Of course, if hon. Members opposite had had their way, there would have been few, if any public industries to invest. Fortunately, that was not so.
Mr. Peter Walker: I was led astray by the fact that in his speech on the National Plan last year the present Foreign Secretary said that in future the investment of nationalised industries would be reduced.
Mr. Jay: I think that my right hon. Friend said that it would be reduced below a previous programme. I do not think that he said that it would be reduced absolutely. In any case, the facts are as I have just stated them.
On this subject of investment, I have also again thoroughly reviewed the procedure for examining claims for B.O.T.A.C. loans and grants and am now introducing a new system designed to speed it up. The story of Cadco, to which B.O.T.A.C. refused a loan and about which a report has been published today, shows that caution is also sometimes desirable. Firms could also greatly help both B.O.T.A.C. and themselves by promptly and accurately giving the information for which they are asked.
On top of this, and to strengthen the position of the development areas in the coming months still further, I have now taken the following decisions.
Mr. Edward Heath: Can the right hon. Gentleman tell us how he will speed up B.O.T.A.C.?
Mr. Jay: Very largely by ensuring that delays which, in the past, have been successive, shall be simultaneous in
582
future. In the right hon. Gentleman's day, I found, administrative delays succeeded one another and were superimposed on top of one another. A little examination now shows that all these processes can go on at the same time. I am sure that that will be welcome to the right hon. Gentleman. If he had tried a little harder, he might have found that out for himself.
First, wherever found to be practicable, the launching of public investment schemes in development areas will now be accelerated during the coming year. Secondly, the Industrial Development Act extended the scope for financial assistance for basic services and the clearance of derelict sites in development areas, and more local authorities can now benefit because the areas are wider. My right hon. Friends, and I myself, will now examine with local authorities throughout the areas to see what early advantage can be taken of these powers. We hope local authorities themselves will put forward schemes for consideration by the relevant Departments.
Thirdly, the Board of Trade itself is now launching a new programme to improve and develop its own industrial sites and estates in the development areas, and will be spending some £850,000 on site preparation under this programme in the coming months.
I believe that the present figures already show that even before these further decisions had been taken, the policies pursued in the past two years have softened the impact in these areas of the rise in unemployment this winter. If we take, for instance, the period from November, 1965, to November, 1966, the rise in the national unemployment figure is 69 per cent. For the North-East it was 42 per cent., for Wales 42 per cent., for the North-West 32 per cent., and for Scotland only 27 per cent. That is a marked difference from previous periods.
Similarly, if we take, alternatively, the five months since June, the rise in all these three regions has been less than in the national figure. Although clearly we cannot assume that this improvement will necessarily continue—as I said to the hon. Member for Louth (Sir C. Osborne), one should be cautious about the future—unless the pressure of policy

583
is kept up very vigorously indeed, as I intend that it should be, nevertheless the figures to date suggest that the regional imbalance may be beginning to be redressed.
Mr. Heffer: I should like my right hon. Friend to clarify one point. Of the 105,000 temporarily unemployed, could he tell us where they are concentrated and how does this affect the position in the areas?
Mr. Jay: I have already said that a very high proportion of them are in the West Midlands. This is obviously connected with the situation in the motor trade this autumn. This is something which we have to keep in mind when examining the figures.
Mr. Heath: Is not the point which is really being raised that if the right hon. Gentleman excluded that very large segment from the national average he would find, in fact, that the peripheral areas were still suffering very considerably?
Mr. Jay: The right hon. Gentleman would find that there has been a rise in unemployment. Of course there has. That is not denied; but, nevertheless, the figures do show that there has been a relative improvement. In any case, apart from the issue of local unemployment, if we are to meet the long-term challenge to our economy, and in particular the export challenge, it is vital to press on also with reorganisation of our basic industries.
In shipbuilding, solid progress has been made since the Geddes Report was published in March. A series of amalgamations are going forward and many ancient restrictive practices have been relaxed, and productivity agreements reached. The hon. Member for Worcester forgot shipbuilding when he spoke about restrictive practices. The Government have honoured their promise to give relief on indirect taxes. The remaining members of the Shipbuilding Industry Board—Mr. Hepper, of the Tilling Group, and Mr. Gormley, of the N.U.M.—have been appointed; and, with Mr. Swallow, their Chairman, are now at work. My right hon. Friend the Minister of Technology will shortly introduce legislation to give the Board the powers and finance needed for the next stage of the operation.
584
In the case of textiles, the Cotton Board is now carrying out a major survey of productivity in both the cotton and man-made fibre industries, and will examine in depth methods of improving productivity in the widest sense. I see this as one part of the programme for modernising the textile industries, together with the special import restriction scheme which is to run, as the House knows, until 1970.
Agreement has also been reached, as part of the same programme, on the plan for replacing the Cotton Board by a Textile Council covering a wider range of activities and including the man-made fibre industries. I hope that this new Council will start work in the New Year. My right hon. Friend the Minister of Technology is pushing forward similar modernising policies in engineering, including the National Computer Centre at Manchester, the National Calibration Service, and other schemes of that kind.
Some, but not, I think, all hon. Members, have argued this evening in favour of further immediate steps to reflate demand generally in our economy. Of course, a case can be made out for early reflation. If we leave the demand too slack for too long growth will be postponed, investment will be lost, and long-term damage done to the nation. On the other hand, if we accelerate too quickly the great gains achieved in the balance of trade during the last five months may be jeopardised, and the chance lost to get our overseas balance firmly under control.
It is, of course, a matter of judgment just how much one reflates, and how soon. So far, all the measures taken by the Government have been designed to stimulate investment rather than consumption—the Bank of England's statement on credit earlier this month, the new advance factory programme in development areas announced on 3rd November, and the further help to public investment in development areas which I have described this evening. We intend to continue the policy of stimulating investment first, and as soon as decisions are reached we shall announce them to the House.
I believe that the great majority of hon. Members on both sides will agree that after the experience of the last five years—indeed, of the last 15 years—with

585
the balance of payments, and the dangerous slide into insolvency in 1964 in particular, we must now give priority to investment and exports. Otherwise, the country simply will not succeed in paying its way in the world, or in repaying its debts, as it must do.
That, at any rate, is the policy which the present Government intend to pursue. But, in addition, at the earliest possible moment which is consistent with those objectives, it is also equally essential that restrictive policies should be relaxed if we are to achieve the long-term growth and modernisation which are every bit as vital to our future.
Mr. Kershaw: Before the right hon. Gentleman sits down, will he tell the House how it is possible that he could address the House for half an hour without saying a single word about the Common Market? Can we have his views on that subject?
Mr. Jay: It is extraordinary that the hon. Member, who has been a Member for several years, should not have known that we had a debate on the Common Market only about a week ago.
9.58 p.m.
Sir Douglas Glover: We have had a very interesting debate, and I should like to congratulate the President of the Board of Trade on a speech that
586
was a good deal more constructive than that of his right hon. Friend the Minister of Labour earlier. The Minister of Labour was full of gloom and foreboding, and obviously hated the Government's policies. It took him all his time to pluck up courage to open the debate.
Although I shall criticise the Government at some length, if I have the opportunity, I am sure that the whole House will be encouraged by the picture painted by the right hon. Gentleman. Whatever disagreements there may be between the two sides, we all agree that, fundamentally, we have to increase export performance. I am far more British than Conservative, and any sign that our exports are increasing must arouse a good deal of enthusiasm in anybody who speaks for Britain.
I congratulate the Government on some of their achievements, but I would add that most of these achievements are the results of the free enterprise element in our community. Given an opportunity, I would like to say a good deal about the Government's attitude to free enterprise. It is all right for the Government to congratulate themselves on our increase in exports and upon what they have done——
It being Ten o'clock, the Motion for the Adjournment of the House lapsed without Question put.

ORDERS OF THE DAY

  CIVIC AMENITIES [MONEY]
  [Queen's Recommendation signified]
  Considered in Committee under Standing Order No. 88 (Money Committees).
  [Sir ERIC FLETCHER in the Chair]
  Resolved,
  That, for the purposes of any Act of the present Session to make further provision for the protection and improvement of buildings of architectural or historic interest and of the character of areas of such interest; for the preservation and planting of trees: and for the orderly disposal of disused vehicles and equipment and other rubbish, it is expedient to authorise the payment out of moneys provided by Parliament of any such increase in the sums payable out of moneys so provided under any enactment as may be attributable to or may arise from provisions of the said Act of the present Session—

  (a) for securing the designation of areas of special architectural or historic interest and regulating the exercise in relation to such areas of functions under Part I of the Historic Buildings and Ancient Monuments Act 1953, the Local Authorities (Historic Build-
  588
  ings) Act 1962, and Parts III and IV of the Town and Country Planning Act 1962 and the corresponding enactments relating to Scotland;

  (b) for extending in relation to buildings listed as buildings of special architectural or historic interest the powers of compulsory purchase conferred by section 69 of the Town and Country Planning Act 1962 and the corresponding enactment relating to Scotland and regulating the management, use and disposal of such buildings;

  (c) for securing by the imposition of conditions and otherwise the preservation or planting of trees in connection with the grant of permission for the development of land in Great Britain;

  (d) for conferring or imposing on local authorities in Great Britain further powers or duties with respect to the removal, storage and disposal of abandoned vehicles and other articles or material.—[Mr. MacColl.]

  Resolution to be reported.
  Report to be received Tomorrow.

  ADJOURNMENT
  Resolved, That this House do now adjourn—[Mr. Whitlock.]
  Adjourned accordingly at two minutes past Ten o'clock.

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Preamble
The House met at half past two of the clock, The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Bristol

SCIENTISTS AND ENGINEERS IN INDUSTRY
2.35 p.m.
LORD SNOW: My Lords, I beg leave to ask the first Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty' s Government what steps are being taken in order to increase the proportion of qualified scientists and engineers entering productive industry.]
THE MINISTER OF DEFENCE FOR THE ROYAL AIR FORCE (LORD SHACKLETON): My Lords, the need of industry for more qualified people has again been emphasised in two reports last month to my right honourable friends the Minister of Technology and the Secretary of State for Education and Science from the Committee on Manpower Resources for Science and Technology. The job of attracting more of our abler young people into industry is still to a large extent related to the question of raising the status of engineers, and to this end the Ministry of Technology has initiated various activities, among the most important of which has been the Engineers' Day Exhibition recently opened at the Science Museum. The Science Research Council' s new Science and Industry Award scheme should encourage more young graduates to enter industry, and, with the Council's other new award, the Industrial Studentship, should help increase the flow of young people between the academic and industrial environments, in both directions. Post-graduate and other courses specially designed to equip graduates for the special requirements of industry are being supported by the Ministry of Technology.
LORD SNOW: My Lords, I am grateful to my noble friend for his reply, but
716
would Her Majesty' s Government not agree that all these processes are extremely tentative, indirect and long-term? Will they therefore consider some much more direct method, such as fiscal incentives for firms to employ these people? Because we cannot wait twenty years. Will Her Majesty' s Government consider more direct methods?
LORD SHACKLETON: My Lords, any suggestion from the noble Lord, who has been so closely involved in this, will of course be considered seriously. I agree with the views he has expressed on the urgency of the problem, and certainly I shall pass these on to my right honourable friend the Minister of Technology. I am sure the noble Lord will agree that there is of course no single answer, but I too believe that any short-term steps that can be taken should be taken.
THE EARL OF BESSBOROUGH: My Lords, on this whole question of the redeployment of scientists and engineers into industry, have the Government considered helping by transferring pension rights if these people go over into industry from Government establishments?
LORD SHACKLETON: My Lords, one of the difficulties is that many industries still do not have pension schemes which are transferable, and with this rather untidy national situation it is not quite so simple as it might appear. This may be easier between university and Government, but where industry is concerned there are complications. This is one of the built-in factors. I would not wish to over-emphasise its importance, but I would certainly agree that this is an important consideration.
LORD WYNNE-JONES: My Lords, does my noble friend not agree that the really serious matter is not simply the failure of industry to recruit enough engineers but that virtually no pure scientists are being recruited by industry? It is surely an extremely grave matter that in the Swan Report, which has been published recently, it is revealed, I think, that only one physicist out of every hundred produced by the universities went into British industry; at the same time, I believe that something like thirty went into American industry.
LORD SHACKLETON: Again, my Lords, one must, of course, look at the particular industry. It would perhaps

717
be desirable to have more engineers and fewer physicists. This is another side of the equation. The noble Lord shakes his head in contradiction, but this is a complicated subject. I fully take the point as to the need. I think it would be accepted by many people that certain sections of industry have been very much behindhand in recognising the need for research. But, of course, the Question relates to "productive industry", and I was rather assuming it did not relate to the research and development side.
LORD SALTOUN: My Lords, is not one of the difficulties a psychological one: that a lot of very clever lads who get trained up in science are extremely nervous of facing the world and tend to concentrate on an academic career? In my day, of course, we were roughly kicked out to face the world. Do the Government not think that some modification of the educational process might encourage people to strike out for themselves and face the world?
LORD SHACKLETON: My Lords, I am not really aware of the rough kicks to which the noble Lord was himself subjected, but I accept his statement that it is occasionally desirable to push people in at the deep end. But this subject is more complicated than that. This is a matter of status and opportunity, interest and the particular medium in which people work. There is a major educational problem involved here. My noble friend' s Question was related primarily to the steps that can be taken now. The general atmosphere, and the psychology and motivation of our society, obviously also have a considerable bearing.
LORD WAKEFIELD OF KENDAL: My Lords, is not one of the difficulties facing industry the fact that so many of these excellent scientists and engineers, instead of seeking employment in this country, are seeking it abroad simply because they find taxation so high in this country? Would it not be much more helpful if somehow or other these young men, when they earn big money, were allowed to retain it in their pockets instead of having so much of it taken away from them? That is a real reason why we are losing so many of our best young people to America, to other countries in the Commonwealth or elsewhere abroad.
LORD SHACKLETON: I will not follow the noble Lord in this interesting subject; but if he has any constructive suggestions of a kind which he failed to put to the previous Administration, then we shall be glad to hear them.
BARONESS SUMMERSKILL: My Lords, does my noble friend not agree that the fundamental cause is a shortage of science teachers who prod able boys and girls in the right direction?
LORD SHACKLETON: My Lords, the shortage of science teachers is certainly another problem. We are, I think, beginning to get in to what is reasonably called a vicious spiral. This starts in the schools; but I should be going very wide if I started to go into the question of balance between teaching at the universities and at the schools, beyond saying that my noble friend' s remark is very relevant?
LORD SNOW: My Lords, may I, for the sake of clarity, make it clear that my question referred to the productive industries but also to the research and development staff within the productive industry.

STRATFORD-UPON-AVON RAIL SERVICE
LORD SNOW: My Lords, I beg leave to ask the second Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty' s Government whether the effects on the tourist industry of the railway service to Stratford-upon-Avon have been studied; and whether there is an intention to improve it.]
THE MINISTER WITHOUT PORTFOLIO (LORD CHAMPION): My Lords, the Government have no evidence that such a study is needed. The provision of railway services to Stratford-upon-Avon is a matter of management for the British Railways Board, and it is up to the Board to assess the commercial considerations involved in the extension of any particular service. If the noble Lord has any suggestions to make for improving the service, I am sure the Board would be

719
very willing to consider them, but Her Majesty' s Government have no evidence of public dissatisfaction with the present arrangements.
LORD SNOW: My Lords, I am grateful to my noble friend for that answer. May I ask whether he has talked to any American tourists in the last two years about the railway service to Stratford-upon-Avon? And is he aware that there is no service either to or from Stratford-upon-Avon on Sundays?—a condition which, I believe, is unique in all the major artistic tourist centres in the world.
LORD CHAMPION: My Lords, I do not move in the circles where I would normally meet American tourists, so I have not discussed this question with them. Did I hear someone cry "shame"? The point is that, so far as the Board and the general tourist industry are concerned, neither the Board of Trade nor the Ministry of Transport has received any significant number of complaints from the public, and there has been, strangely enough if the conditions are as bad as my noble friend suggests, no previous Parliamentary interest.
LORD SNOW: May I press this matter more seriously? The danger is that tourism and the local profit or loss upon the Leamington—Stratford-upon-Avon line so far as I know have no point in Government where they can possibly be unified. May I suggest to my noble friend that he acquaints British Rail with the fact that this is not just a simple commercial operation but one which provides the amenities to a major tourist centre.
LORD CHAMPION: I am sure the point my noble friend has made will not be lost on the Board. It is an important one from the point of view not merely of the provision of transport but, indeed, of tourism in the whole of this country.
LORD INGLEWOOD: My Lords, is the noble Lord aware that the point is more serious than his answers would lead us to believe? If he takes the Lake District, an important tourist area, as being a somewhat similar case, he will find that there is great keenness on the part of the railway in pulling up the lines and not in improving the services.
LORD CHAMPION: My Lords, the fact is that the Board never consider pulling up lines until the public has deserted the lines and caused great losses to occur on them.

HOUSE-BUILDING FIGURES
2.48 p.m.
LORD MITCHISON: 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 the rate of house-building in this country compares at the moment with that in other industrialised countries for which figures are readily obtainable.]
LORD SORENSEN: My Lords, since the Answer contains a number of figures, these will, with permission, be circulated in the OFFICIAL REPORT. The figures indicate that for 1965 our rate of house-building per 1,000 population was still below that for most industrialised Western countries. On the other hand, while in most of these countries the rate has been declining, ours has been rising. In any case, I am sure that the noble Lord appreciates the difficulty of making comparisons. For one thing, our standards, generally speaking, are much higher than those in any part of the Continent. The rooms are more spacious. Again, there is a much larger proporton of flats being built on the Continent than here, although we in this country are also increasing the number of flats built.
Further, I am sure that the whole House, as well as the noble Lord, will be glad to know that there has been a steady increase in our house-building rates in the last few years. Whereas in 1963 in this country 315·4 thousand houses were built—or 5·9 per thousand of the population—the number has now become 398·5 thousand, or 7·3 per thousand of the population. We are not complacent about this, but I hope that the noble Lord appreciates the difficulty of comparing our prouductivity with that of the Continent. Although we are well down the list, we are steadily improving, and at the same time are preserving our standards.
[The figures referred to were as follows]:

Rates of house construction per 1,000 population*

1964

1965

Belgium

4·7†

4·2†

France

7·6

8·4

German Federal Republic

10·7

10·0

German Democratic Republic

4·5

4·0

Italy

8·8

7·5

Netherlands

8·4

9·4

Sweden

11·4

12·5

U.S.A

8·3‡

7·9‡

U.S.S.R.

9·6

9·5

United Kingdom

7·2

7·3

* Including conversions by which additional dwellings were provided.

† E.C.E. estimate.

‡ U.S.A. only publishes dwellings started.

LORD MITCHISON: My Lords, while thanking my noble friend for his Answer, and hoping for the figures he is going to produce, and while agreeing entirely with him that housing statistics, especially international ones, have to be used with great caution, may I ask whether he has given us the back figures, too? Is he aware that, by comparison with Western Germany, for instance, when the Tories were in power the Germans were building about twice as many houses as we were? We have reached the stage now where they are building only half as many again: that is, 1½ times as many as we are building.
LORD SORENSEN: My Lords, I am aware of much of what the noble Lord has said, although I would, with deference, correct him. It was not exactly twice as many. In 1964, in the United Kingdom, the rate of house construction was 7·2per thousand of the population, compared with the German Federal Republic figure of 10·7 per thousand. The German Federal Republic dropped in 1965 to 10·0 per thousand and we increased our rate to 7·3 per thousand, so those figures are not quite so accurate as those we usually give. Nevertheless, there is a striking difference.
LORD MITCHISON: My Lords, is my noble friend aware that in 1961, when I believe that the noble Lord. Lord Brooke of Cumnor, was Minister of Housing and Local Government, West German construction of houses—
LORD CARRINGTON: My Lords, may I ask, on a point of Order, whether the noble Lord, Lord Mitchison, is asking for information or giving it?
LORD MITCHISON: My Lords, he is trying to get it checked—was almost exactly twice ours, and now it is almost exactly half as much again: one-and-a-half times?
LORD NEWTON: My Lords, may I ask whether the Government are aware that we on this side of the House are just as disappointed by the answers by the noble Lord, Lord Sorensen, as was (it was quite apparent from his face) the noble Lord, Lord Mitchison? May I also ask, first, whether the Government can say when they now expect that 400,000 houses a year will be built in this country, and, secondly, in what year they now expect that 500,000 houses a year will be built in this country?
LORD SORENSEN: My Lords, my first reply is to the noble Lord, Lord Mitchison. I will see that his figures are checked, and I am very grateful that he has checked mine this afternoon. Regarding the question of the noble Lord, Lord Newton, yes, of course we are all disappointed that there are still large numbers of people not as well housed as they should be. Everyone agrees with that. But equally I am sure that the noble Lord rejoices in the fact that we are building far more houses now than in 1993, or when his Party was in office—
NOBLE LORDS: It is 1963!
LORD SORENSEN: I beg your Lordships' pardon. We are certainly in need of a lot of checking and counter-checking this afternoon. I meant, of course, 1963. I repeat that I am sure that the noble Lord, Lord Newton, agrees that progress is being made. When we shall reach the target I cannot say. It depends on a number of factors both Divine and secular.
LORD NEWTON: My Lords, I must ask the noble Lord, Lord Sorensen, to be good enough to answer my last two questions. In what year do the Government now expect that 400,000 houses will be built and in what year do they expect that 500,000 houses will be built?
LORD SORENSEN: My Lords, I quite appreciate the aspiration of the noble Lord, Lord Newton, and his desire for

723
information. If the noble Lord will put down a Question I will do my best to satisfy him. I cannot guarantee to do so, but I will do my best.
LORD HASTINGS: My Lords, is the noble Lord aware that fewer houses are being built now than were being built at the end of the period of Tory Administration?
LORD SORENSEN: My Lords, I think that those figures need checking.
LORD ST. HELENS: My Lords, may I ask whether the accumulation of unused bricks on the Continent is as great as ours or whether we are "top of the league".
LORD SORENSEN: My Lords, I believe that that is an entirely different question and might as well be directed to Continental Governments as to ours.
LORD SOMERS: My Lords, may I ask the noble Lord, Lord Sorensen, whether he would not agree that statistics regarding building in this country in comparison with other countries are, like most statistics, rather misleading, since, for instance, West Germany does not suffer from an inflow of immigrants increasing her population year by year in the same way as we do?
LORD SORENSEN: My Lords, may I say to the noble Lord that if I were to go into that question at any length I should be corrected for engaging the House in a debate, but I will say again that I thank him for confirming what I myself said, that in this respect it is very difficult to compare one country with another.

DEFENCE OF WESTERN EUROPE
2.55 p.m.
LORD HARLECH LORD HARLECH rose to draw attention to the commitments of the United Kingdom to the defence of Western Europe; and to move for Papers. The noble Lord said: My Lords, my purpose in introducing this debate is threefold. First, I want to recall the very precise undertakings that this country has given to its Allies about the level of forces in Europe and our undertakings to our European Allies in particular; secondly, I want to try to elicit from
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the Government some indication of their present attitude to these undertakings, and, thirdly, I want to warn them of the grave dangers of treating this whole question as purely, or even principally, a financial one.
To recapitulate the history of this matter, I hope quite briefly, your Lordships will remember that after the failure of France to ratify the European Defence Community Treaty in August 1954, Britain, through her Foreign Secretary—Sir Anthony Eden as he then was—took the initiative in working out a new approach which would enable Western Germany to make her contribution to the defence of the North Atlantic Alliance. The Brussels Treaty was revised and Western European Union established, consisting of Britain plus the six countries who now comprise the membership of the European Economic Community. The exact wording of our commitment to our Allies is as follows, and I think it is important that I should quote it in full: Britain
"will continue to maintain on the mainland of Europe, including Germany, the effective strength of the United Kingdom forces which are now assigned to the Supreme Allied Commander, Europe, that is to say four divisions and the Second Tactical Air Force, or such other forces as the Supreme Allied Commander, Europe, regards as having equivalent fighting capacity She undertakes"—
that is, Her Majesty undertakes—
"not to withdraw these forces against the wishes of the majority of the High Contracting Parties who should take their decision in the knowledge of the views of the Supreme Allied Commander, Europe. This undertaking shall not, however, bind her in the event of an acute overseas emergency. If the maintenance of the United Kingdom forces on the mainland of Europe throws at any time too great a strain on the external finances of the United Kingdom, she will, through her Government…the invite the North Atlantic Councill to review the financial conditions on which the United Kingdom formations are maintained."
It will be seen that, except in the case of an acute overseas emergency, which does not at present exist, we have no right whatever to make a unilateral decision about the level of our forces on the Continent. If we wish to reduce our commitment, the procedure is for us to make a formal application to the W.E.U. Council. This application will then be referred to SACEUR for his views, and finally the Council, not we alone, will make their decision in the light of these

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views. This procedure was, of course, used in the 1957–58 period to reduce our commitment of land forces to the present figure of 55,000. That is our commitment, although as I understand it the actual figure of forces in Europe at the present time is 51,000. Then in 1961 we also availed ourselves of the second proviso with regard to the strain on the external finances of the United Kingdom. The whole matter was referred to NATO and, as a result, a succession of off-set agreements were negotiated with the Federal Republic of Germany, the current off-set agreement being due to expire, I think, on March 31, 1967. I hope I have set out the position fairly accurately and reasonably briefly.
In the light of these facts, it is little short of incredible that the Chancellor of the Exchequer should say, on August 9 this year:
"It is the policy of Her Majesty' s Government, in so far as it is not possible to offset the total cost of these troops, that they should be brought home."
Put quite bluntly, neither the Chancellor of the Exchequer nor Her Majesty's Government have the final say in this matter unless they intend deliberately to wreck the W.E.U. and break the most solemn undertakings to friendly Powers, as they did when they imposed the surcharge in November, 1964. Naturally, the effect in Europe of the Chancellor's declaration was deplorable. It was bound to seem to our friends and Allies that Britain was taking a quite irresponsible attitude to our defence commitments, for they could only assume that the Government were paying little or no attention to the military and political effects such an action would have on their Allies and on the stability of Europe. There was no mention of the defence considerations nor of the necessity of seeking the views of the Supreme Allied Commander before a decision was taken, no mention of a reference to NATO, and clearly no regard was paid to the inevitable reaction which we could expect in those countries which are members of E.E.C., to whom we are now looking to ease our way into Europe.
It is true that since that day in August the Foreign Office and the Ministry of Defence have been trying to pick up the pieces. The time limit to the ultimatum to the Federal Republic was progressively extended, and I am not sure whether a
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time limit any longer exists. Perhaps the Government will be able to tell us to-day. Then, under the ægis of NATO, tripartite discussions between ourselves, the United States and Germany have been taking place. I am sure that we shall be interested to hear how they have been going. But, so far as I know, there has not yet been any withdrawal of the threat that if all our foreign exchange costs are not covered, we intend to start bringing troops home. I hope that this afternoon we shall hear an unequivocal withdrawal of that threat. Naturally, we are all anxious to see the maximum amount of these costs offset, but with the best will in the world it may not be possible for the Federal Republic to meet our demands in their entirety.
I hope that Her Majesty' s Government will consider most carefully just how wise such threats are at a time when France has withdrawn from NATO, and when we are witnessing a resurgence of nationalism in Germany. They might also consider what the attitude of the British public would be if our roles were exactly reversed and the Germans demanded 100 per cent. compensation. For the plain fact is that British troops are stationed on the Continent not just for the defence of West Germany, but because successive British Governments have been convinced that they contribute effectively to our own defence and that of the whole Alliance.
My Lords, I want to turn for a few moments to discuss some of the military considerations. As your Lordships will know, I have no passion for keeping troops on the Continent when they are not wanted there. Indeed, in the debate in your Lordships' House on the future of NATO, which took place during the course of this summer, I ventured to suggest that NATO should now pursue policies which could reduce substantially the need for the deployment of British and American forces in Germany. Indeed, I deplored the lack of any vigorous initiative in this direction. Naturally the figure of 55,000 men is not magical or immutable. Conditions change, and it might be sensible to vary it downwards or possibly, at some date in the future, even upwards. We hope not. But there is clearly a right way and a wrong way of achieving the desired result of reducing the burden now represented by our forces in Germany.

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The wrong way is to start by saying that we cannot afford to maintain them, and that therefore we intend to bring them home; then to scratch around for political and military arguments to support our case. To put it mildly, in such circumstances these arguments will tend to lack conviction. Our motives will be mistrusted. And that is exactly what has happened.
But the situation has an even more curious side to it, because for years past the Labour Party have resolutely taken the line that Britain has been making an inadequate contribution to the conventional defences of Europe. Thus, in the Labour Party Manifesto for 1964, we read:
"Our stress will be on the strengthening of our conventional regular forces so that we can contribute our share to NATO defence."
This theme was developed in numerous speeches, which suggested that unless we actually increased our forces in Germany we might have to escalate rapidly and resort to the use of tactical nuclear weapons in the face of a conventional threat. Year after year this was the consistent theme of Labour Party spokesmen. Perhaps a few quotations will make my point clear.
I first quote Mr. Gordon Walker, speaking in a debate in another place on March 5, 1962, on the Conservative Government's Defence White Paper. He said (col. 64–65 of the Commons OFFICIAL REPORT):
"We are against this part of the White Paper, because we totally disagree with the Government's policy towards NATO. We demand that there shall not be further withdrawal…we demand that we should at least keep our seven brigade groups there."
And again (col. 61):
"We can press this balance of payments argument with some hope of success only if we carry conviction that we intend to carry out our pledge to keep men there…"
In the same debate, the present Prime Minister, Mr. Wilson, said this—and I quote from col. 227 of the OFFICIAL REPORT for March 6, 1962:
"Our conception on this side of the House is that a situation should be created, by the strengthening of our conventional forces, so that there need never be any question of NATO using tactical weapons first."
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Of course, here he was referring to tactical nuclear weapons. In the same debate, Mr. George Brown said (col. 323):
"I listened to the Minister of Aviation say that the Government were straining every nerve …to take us into Europe in order to avoid political and military divisions. I wondered why he was bringing us out of Europe militarily at the time at which he was trying to take us into Europe politically and where that could possibly lead us.
"The consequence of this policy is military weakness in Europe and the absoluate impossibility of maintaining the forward strategy that is so often referred to as holding the line that we are supposed to be going to hold."
A year later, on January 31, 1963, Mr. Wilson said:
"The main problem is …our failure to meet our commitments to NATO… We use not making anything like our full contribution to NATO." (Col. 1242.)
How can one possibly reconcile these statements with the Government's present attitude to the selfsame matter? It is not as though there has been any significant change in the strength of the Soviet and Warsaw Pact forces deployed in Eastern Europe—rather the reverse. There has been no progress towards an East-West agreement about European security; nor any new agreement over access to West Berlin; our commitment to the defence of which the Foreign Secretary reiterated in ringing terms only this month.
Only two weeks ago, during the NATO Parliamentarians' Conference in Paris, first the Supreme Allied Commander, General Lemnitzer, and then the Secretary General, Signor Brosio, warned us of the dangers to the stability and security of Europe which might well result from the premature withdrawal of British and American conventional forces from Europe. I do not think that any noble Lords who know him could possibly suggest that Signor Brosio was a hawk in these matters. At the moment we feel that the military position in Europe is reasonably stable; but can we be sure that it will remain so if the West unilaterally weakens its defences and creates a situation in which German forces are overwhelmingly preponderant on this side of the Atlantic?
This leads me on to some consideration of the political consequences of Her Majesty's Government's present attitude.

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It is surely inevitable that the six members of the European Economic Community must entertain serious doubts about a change of heart in favour of Europe, when they see Britain behaving so irresponsibly on such a vital matter as the defence of Western Europe. Is not the Government' s attitude precisely calculated to prejudice our chances of gaining membership of the Common Market, the objective on which the Prime Minister has at last set his sights? Is this the moment, at a critical period in the history of the Federal German Republic, to say to them: "Either you pay the additional foreign exchange costs or our troops will be withdrawn"? If others followed our bad example, we might even see growing demands for increased German forces to close the gap that we had created. I am sure that this is not what Her Majesty' s Government want.
Can we really say that all these other important political and military considerations are to be sacrificed to finance? Can we possibly maintain such a proposition, when the Chancellor of the Exchequer is declaring week after week that we shall be in substantial surplus on our balance of payments next year? I do not think so. I hope that the Government will take this opportunity of reassuring this country, and reassuring our Allies, about our whole attitude to Britain's military commitment in Europe. I hope that they will withdraw their threats, which could be carried out only by our once again breaking our promises. The Six are watching to see how genuine is the Labour Government's conversion to a European policy. Here is one way in which they can demonstrate it. I beg to move for Papers.
3.12 p.m.
LORD GLADWYN: My Lords, I am sure we are all grateful to the noble Lord, Lord Harlech, for raising this question at this particular moment in time, and in the few remarks I propose to make from these Benches I should like to support strongly the three main points which the noble Lord has made. As I think the noble Lord, Lord Harlech, hinted, the whole Western Alliance is at the moment in disarray owing to the withdrawal of the French Government from NATO. It is also in disarray, to
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some extent, clue to the internal situation in Germany, which largely, I am afraid I must say, owing to the policy pursued by the French Government, is increasingly uneasy; and it is in disarray, perhaps mainly, owing to the fact that the relationship of this country to the European Economic Community has not yet been finally determined.
In these dangerous circumstances—because, my Lords, they are dangerous—it seems to us here that there is one guiding principle which we must hang on to, come what may, and that is our willingness and our ability to contribute to the general defence of Western Europe in accordance with our undoubted legal obligations under the revised Treaty of Brussels of 1954. The noble Lord, Lord Harlech, quoted the relevant clauses from that Treaty, which, after all, are binding on us: and I must say that it would need a much more astute lawyer than I can claim to be to maintain that, in these circumstances, we could, for purely financial reasons, further reduce our forces in Germany without the consent of at any rate a majority of our Brussels Treaty partners. I see that the noble Lord, Lord Harlech, entirely agrees with that.
Besides, as a result of long negotiations, which are still continuing, it has become increasingly clear that what is actually separating us from the Germans in the matter of off-set costs (here I speak subject to correction by the Government) is something in the nature of £30 to £40 million a year. Although that is a considerable sum, given our balance-of payment difficulties, surely we could, if we had to, make an economy of something like this magnitude either East of Suez or, more rationally perhaps, in relation to the tremendous bill which we shall now have to incur, in dollars for the most part, for the purchase of aeroplanes, the role of which, to say the least, seems to me to be rather dubious, always supposing that we decide, as I think we undoubtedly shall decide in the fairly near future, to replace some of our existing commitments in the Indian Ocean area. We might also, I suppose, even at the cost of some inconvenience, or grave inconvenience, to those concerned, further reduce the local expenditure across the exchanges on our forces

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in Germany. I trust that the Government may make some allusion to that possibility in their reply to-day.
But the main point, perhaps, is that, whatever the reasons, the present state of Germany is potentially explosive. Anything, therefore, that we can do to show that we are not running out on our obligations, even to a limited extent, would be of the greatest value and importance at the present time. It is true that the Americans may have in mind some reduction of their forces in Germany over the coming years. But at least, as we all know, they have the technical possibility of reinforcing those forces by air in a very short period: and I do not think we can maintain—perhaps I am wrong about this—that we have any similar facilities. Moreover—and here I think I echo something which was said by the noble Lord, Lord Harlech—if indeed it is our object, as the general phrase has it, to "go into Europe", it would be unfortunate, to say the least, if we led people to imagine that we were still not, as it were, primarily European in our general outlook.
But, as I see it, the whole situation is now dominated by the success or failure of the new and praiseworthy effort which the Government are making to enter the European Economic Community. Your Lordships will, I am afraid, be tired of hearing me assert, year after year, that from the political point of view our entry into the Community is the one sure means both of preserving the Western Alliance and of producing a genuine détente in the relations between East and West. Nevertheless, this truth is becoming increasingly clear, and I believe it is hardly disputed in any competent circles except by some Frenchmen, who believe that in the absence of Britain it might be possible to organise some kind of French hegemony in Western Europe based on French nuclear power, and by those in this country who are basically suspicious of foreigners and who have not as yet thought the problem through.
Why are the Germans, in particular, now persuaded that we must come in? Let me try in a few words, as best I can, to describe their present dilemma. This is basically that if they remain divided, the ensuing frustration may well, in the long run, wreck a European Economic
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Community consisting solely or simply of the present Six under the presumed sole political leadership of France. If, on the other hand, Germany is united its economic power will undoubtedly enable it to dominate the present European Economic Community; again that is only limited to the Six and does not contain the "balancing wheel" of the United Kingdom. So the conclusion obviously is that if you want to get German energies peacefully harnessed to the West, the only way to do so is to arrange for Britain, somehow or other, to join the E.E.C.
Then, take the German role in the Western Alliance. If Germany is not to be the most important ally of America and, indeed, one provided with nuclear weapons—which would be quite intolerable, at any rate from the point of view of this country and, presumably, of France, and would, of course, have an unknown but certainly disastrous effect on East-West relations—then it can only exercise the influence which is certainly its due as a part of a whole, in other words, as a member equal with France and Britain of some European political community which in itself would be a partner of the United States. Hence the whole future of our Alliance—and I assure your Lordships this is true—also revolves around the possible entry into the E.E.C. of this country. Finally, take the chances of German reunification, or more properly, perhaps, the chances of some reunification of the Germans. All, including most Germans, admit that reunification cannot take place for so long as the Soviet Union and the Soviet satellite States fear the political results of the emergence in Central Europe of an armed nation State of over 80 million people in close association with the United States. This fear might well be removed, of course, if the American troops in Germany went home to America; but obviously if it were removed by such means as that, and in the absence of the creation of some kind of European political community, Germany would in practice become a sort of neutralist victim of the Soviet Union, or rather more probably two neutralist Germanies might come together under some form of Russian domination. This, I assure your Lordships, is quite a real possibility.
Here again, the only possible conclusion is that only the entry of Great

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Britain into some European political community and the gradual building up of Western European strength, both politically and economically, would enable a situation eventually to be reached in which the Americans could go home to America and, indeed, the Russians to Russia, and increasingly friendly relations be established between some enlarged European Economic Community, the D.D.R., and the Communist States of Eastern Europe.
The general conclusion which I suggest we may legitimately draw, and which has emerged increasingly over the last few years, is that in any renewed British application to join the E.E.C. the political aspect is really paramount. Of course, we can say, if we will—and up to now I believe the Government have said this—that there is nothing about political union in the Treaty of Rome, which is true. Also, we can try to make out for tactical purposes, if we will, that it is only a question of calculating the advantages or the disadvantages of our own economy if we decide to sign the Treaty on certain conditions. I will not go into this matter here, because I hope we shall be able to discuss this fairly soon in relation to our position of joining the E.E.C.
The only real question now is to determine whether such a common will exists or whether it does not. There is no great reason to worry at this stage whether a political union, if it ever comes about, will be a federation or a confederation. In my view, both these terms are entirely out of date, and there are new ways of arriving at a common foreign policy, and, indeed, a common defence policy, which were not available in the days of George Washington or even Napoleon I, to say nothing of the days of Hitler. But provided we have the intention of signing the Treaty subject only to certain rock-bottom considerations which we can debate later, and provided we have the intention to work within the framework of the Western Alliance—and this is entirely relevant to the present discussion—towards the formation of a political Europe in which a democratic Germany can be an equal partner with ourselves and France, I firmly believe that there is quite unlikely to be a second veto on the part of the French Government. For the effects of such a veto in such circumstances as these would be so disastrous,
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not only to ourselves, but also to the E.E.C. and indeed to France herself, that one can hardly imagine such an eventuality.
I may well have strayed a little from the specific subject of this debate, though I have been brief. I hope in any case that I have not transgressed unduly on your Lordships' time. But I feel myself that everything I have said is relevant to what I fear may be an early and, I must say, an extraordinarily rash decision, on the part of Britain to withdraw a substantial part of her forces in Germany. I suggest that the small amount—or relatively small amount—of foreign exchange which might thereby be saved will be absolutely nothing compared to the loss which we should sustain if such a withdrawal were to result either in some calamitous change in present German foreign policy—which, I can assure your Lordships, is not out of the question—or perhaps in giving an excuse for some further French veto on any second application we may make to join the E.E.C. In other words, here, as in many other cases, it is probable that if what is no doubt the Foreign Office as opposed to the Treasury view prevails, it may result in immeasurable future economies for the nation.
3.28 p.m.
LORD SHACKLETON: My Lords, the noble Lord, Lord Harlech, opened the debate with a short, pungent and, I thought, not entirely fair speech. In replying to him, I hope the House will permit me to set out, I fear in some detail, what the policy of Her Majesty' s Government is with regard to Europe, and in particular in regard to the defence of Western Europe. Tempted though I would be to follow the noble Lord, Lord Gladwyn, into these other realms in regard to which, as he knows, I have considerable sympathy, I think I shall have enough to say on the subject of the defence of Western Europe. In order to put the picture as clearly as I can, I think it might be of interest to your Lordships if I give something of a progress report with regard to the situation in NATO.
It was less than five months ago that we debated the issues arising from the situation in the North Atlantic Treaty Organisation. I remember that the noble Lord, Lord Harlech, made a notable

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contribution. To-day we are considering the commitments of the United Kingdom to the defence of Western Europe. These matters are obviously interrelated. It is in our interest that there should be an effective North Atlantic Treaty Alliance, and this requires not only that we should offer a proper contribution to the joint forces of the Alliance, but also that we should make a responsible contribution in the counsels of Europe.
The position of Her Majesty's Government has been made clear on a number of occasions. Summarised it is this. It is a major long-term aim of British policy to enable the United Nations to assume effective responsibility for keeping the peace.
There must also be a halt to the arms race. My noble friend Lord Chalfont has been actively and energetically and painstakingly engaged in what is clearly a tedious but tremendously important task, and this aim can be achieved only when there is effective international agreement to control both the production and the supply of armaments. In particular—and this is a most urgent and immediate problem—the further spread of nuclear weapons must be stopped.
But we cannot safely base our defence policy for the 1970s on the assumption that all these objectives will be met in full. We must accept that we shall continue to live in a world in which the United Nations is not able, alone, to keep the peace and in which the arms race has not been halted. The first purpose of our Armed Forces will be to maintain the security of these islands, primarily by preventing war in Europe. For this reason, continuation of the North Atlantic Alliance is vital to our survival. An effective defence of Western Europe is a most important part of our policy, and I must make this clear so that there can be no misunderstanding. This is not to say that we consider the Alliance as it is to-day to be a perfect instrument; no Alliance could ever be such. The problem as we see it is one of overcoming the present inadequacies of its organisation by modification and improvement of what exists: it is not a problem which calls for radical change.
Let me put the problem in perspective and devote a few moments to recalling
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the achievements of the Alliance since it started. The basic aim of NATO was to deter aggression and maintain peace in Europe. This aim has been achieved and, in the process, not one square foot of territory has been occupied or subverted since the Treaty was signed. As a result, the whole of the Atlantic community is both safer and more prosperous than it was seventeen years ago, and North America and Western Europe have become more firmly bound together in combination for their own and each other' s benefit. Indeed it might be claimed that many of NATO's present difficulties are, in large part, the byproducts of its success.
It is difficult enough to maintain a defensive alliance of independent nations together under pressure of war. To succeed in doing so, as NATO has done, in peace time, when inevitably there are conflicting national pressures and when there is less unity of purpose, is a considerable achievement which says much for the political and military maturity of its member States. We in Europe and in the United States of America have come a long way in recent years in this matter.
There are those who would claim that the French withdrawal this year from NATO's integrated military organisation shows a disintegration of the Alliance. But I would point out the united and effective way in which the other fourteen Allies reacted to the French action. This action could have been a serious blow not so much to the military strength of NATO as to its political solidarity. It posed substantial problems, among which are the question of future co-operation with French forces in an emergency, the move of major headquarters and installations from France, and the financial difficulties which flowed from these and other consequences of the French withdrawal. But not only has the storm been weathered—the opportunity has also been taken to make necessary and overdue reforms.
Your Lordships will remember that we discussed the crucial meeting in Brussels last June, when the NATO Ministers took a number of important decisions about reorganisation, and I touched on this when I spoke about our aim of co-location in our debate in July on a motion by the noble Earl, Lord Avon, in which the noble Lord, Lord Harlech, took part. The

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programme of action then approved was ambitious, and those who doubted NATO'S ability to reach rapid agreement on important issues were sceptical of its being implemented in time. I think it is a matter for congratulation that these doubts have been confounded and progress—I almost used the words "enormous progress"—has been made.
First, the North Atlantic Council decided, on September 14, to accept the Belgian Government's offer of a site for SHAPE at Casteau, near Mons; construction of the new headquarters is proceeding urgently and we hope that SHAPE will be in its new location by April 1, 1967. Second, the Dutch Government's offer of a site for AFCENT near Maastricht was accepted on October 12, and its headquarters too will be in operation in its new site by April 1, 1967. Third, the NATO Defence College is moving to Rome. Fourth, the Standing Group has been abolished and an interim International Staff set up to serve the Military Committee until the integrated International Military Staff is established. Finally, it was decided, on October 26, to move the North Atlantic Council from Paris to Brussels, and to bring the Military Committee from Washington to Brussels so that the aim of co-location can be achieved. This is a really striking series of difficult decisions and I think all of us were doubtful whether it would be possible to get this measure of decisive agreement as quickly as has been achieved.
Furthermore, moving the military headquarters (SHAPE and AFCENT) from France provides the opportunity for some organisational streamlining. Already it has been agreed to abolish one tier in the command complex of AFCENT—noble Lords, of whom possibly the noble Lord, Lord Ogmore, was one, suggested that there were economies to be made. The result is a single integrated headquarters and the saving of 1,200 posts. It is the hope that there will also be major reductions—in the interest not only of economy but also of efficiency—in SHAPE itself when this command is re-established in Belgium.
Substantial progress is being made in other important fields in spite of the French withdrawal. The hitherto apparently intractable problem of nuclear-
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sharing within the Alliance seems now to be close to at least partial resolution. My noble friend Lord Chalfont will deal with this at greater length in the debate, and noble Lords know this has been one of the most difficult and critical areas of controversy. Suffice it to say that the progress made by the Special Committee of Defence Ministers has been one of the most encouraging developments in NATO during the past year. We hope that the North Atlantic Council will adopt the recommendations of the Special Committee at its Ministerial meeting in Paris two weeks hence.
There is another important field—and this is even more directly relevant to some of the points with which the noble Lord, Lord Harlech, was dealing—and that is the field of force planning and the need to inject reality into the process. Whatever any of us may have hoped in the past, we all know that the Alliance has never had enough conventional strength to hold an all-out Soviet attack for very long. But, although the member Governments have consistently failed to provide forces which match the force goals stated by NATO'S major military commanders as necessary to fulfil the missions NATO has given them, disaster has not followed. In fact the combined deterrent effect of NATO'S available conventional forces, of its battlefield nuclear weapons, and of the ultimate deterrent, the strategic nuclear forces on which it could call, has been effective, and I think we can say that the risk of war has declined. Indeed, I think the noble Lord, Lord Harlech, said as much himself in the debate in July. He would, I am sure, agree—this was the burden of his remarks—that this encouraging situation can continue only so long as the Alliance demonstrates its collective will to resist aggression. In such circumstances the danger of war in Europe will, we believe, continue to be remote.
It is now generally accepted with the Alliance that we should plan to make the best use of the forces that are likely to he available, rather than continue to pay lip service to force goals which are out of reach, which never have been reached and which never look like being reached. It is also recognised that the missions given to NATO's Commanders and the strategy from which these missions are

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derived require revision in the light of present day circumstances. The official NATO strategy dates from 1957 and envisages that if deterrence fails NATO will have to fight a protracted war in Europe to a successful conclusion. That is the 1957 NATO strategy. With the Russians' achievement of a nuclear strength comparable to that of the Americans this concept becomes out of date. Each side is now able to devastate the other. The emphasis, whether we like it or not, must be placed more firmly on deterrence. NATO cannot expect to match a major Russian attack by conventional means alone.
In the event of a major aggression, once the major aggression has been identified—and this is important, and this is why it is so vital that there should be adequate land forces in the initial stages—then I fear it is unlikely that the Alliance will be able to avoid recourse to tactical nuclear weapons. There is this ladder of deterrence, and we are here dangerously embarking into this field where so many analysts enjoy theorising. Unless the aggressor then withdrew, the conflict would be bound to escalate quickly to a major exchange, and after this military operations of the conventional kind would become unimportant if not impossible. The aim, therefore, must be to ensure credibility of the deterrent and not to tie up manpower and money in providing for the unlikely contingency of a prolonged conventional war.
Matters of strategy and of force levels cannot be isolated from the question of the amounts of money and of resources which the Allies can afford to make available for their mutual defence. In coming to the question of money, I am sure the noble Lord, Lord Harlech, prefers and approves the way in which I have approached this subject, from the standpoint of strategy and force goals rather than putting money first; but clearly these are interrelated matters. We have our own particular problem, essentially that of reducing foreign exchange expenditure. I shall not, tempted though I may be, follow the noble Lord, Lord Gladwyn, into a discussion as to whether savings can he made East of Suez. That is a relevant subject, but we have debated it several times before.
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By the terms of the Revised Brussels Treaty the United Kingdom is committed to maintaining ground forces of 55,000 men and a tactical air force on the mainland of Europe. Here I am substantially repeating and confirming what the noble Lord said; there is no dispute about the commitment. The cost of British forces in Germany is running at £192 million a year, of which £94 million is expenditure in Deutsch marks. Under the current Anglo-German Offset Agreement some£55 million of this foreign exchange expenditure is expected to be offset by the Federal Government in the year ending April 1, 1967, when the Agreement comes to an end.
On July 20 the Prime Minister reaffirmed that it was our intention to negotiate a settlement aimed at eliminating the foreign exchange cost of our troops in Germany. He said that discussions would begin at once in the Anglo-German Mixed Commission, and in the light of these Her Majesty's Government would have to consider what, if any, further action was called for, including the question whether this would mean proposing substantial cuts in our forces in Germany sufficient to bring the foreign exchange costs down to the level covered by offset and other payments. It was at this point I thought the noble Lord, Lord Harlech, was less than fair, because this original statement made absolutely clear that this would be done through the prescribed NATO and W.E.U. procedures. I agree with him in attaching importance to this.
On August 19 our representatives informed the NATO and W.E.U. Councils that Her Majesty's Government proposed to take immediate steps to ease the strain on our balance of payments by putting into effect administrative measures to reduce personal spending in Deutsch-marks by members of the forces and United Kingdom based civilians employed on defence duties in Germany. At the same time, and pending the outcome of the Anglo-German Mixed Commission, we asked our Allies to give us their views on how further measures to bridge the foreign exchange gap might be carried out to the least detriment of the NATO defence effort, if such measures proved necessary.
On October 13 the Anglo-German Mixed Commission met at Ministerial

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level. German Ministers stated that the Federal Government could not at this stage undertake to provide more than £31·5 million in the coming financial year towards offsetting the foreign exchange costs of our forces, and this is even less than the offset in the current year. They added, however, that they hoped a substantial increase in this sum would be possible as a result of the forthcoming Anglo-U.S.-German tripartite talks which it had been agreed would be held between the three Governments to discuss problems arising from the stationing in Germany of British and United States forces. I should like to know what other course the noble Lord, Lord Harlech, would have proposed. He has criticised the Government for pursuing policies which I believe any Government in present circumstances would have been bound to follow. If he says that this is a failure of presentation, then I can only say that he has added to the failure of the presentation in the way he himself set out the statement of Her Majesty' s Government.
LORD HARLECH: My Lords, would the noble Lord allow me to intervene for one moment? Originally the Government stated that this new agreement had to be reached within seven days. Then they put off the ultimatum until September. All the kind of procedures the noble Lord has been indicating to the House take much more than one week, much more than one month, and he is now indicating that the Government are on the right course. That does not detract from the fact that after the Chancellor's statement there was considerable concern in Europe about the determination of the Government to take unilateral action in this matter.
LORD SHACKLETON: My Lords, I think it was a time for some blunt speaking, and I do not think that anyone could complain if this country, which has more than frequently been criticised for the difficulties we get into on our balance of payments, spoke out with a firm voice. But we have always made it clear that we would in fact operate through the prescribed procedures, and I must say that I think the noble Lord, perhaps inadvertently, has not been as fair as he might have been.
I think that we could pursue this at greater length, but these tripartite dis-
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cussions opened in Bonn on October 20, and they are continuing. Their immediate object is to find an equitable and lasting solution to the foreign exchange problem. No one reckons that this is an easy problem, or one which we shall find easy of solution; but it is fundamental to this to know the level of forces for which financial arrangements are to be agreed. I think the noble Lord, Lord Harlech, and I are at one on this. But force levels cannot be determined by financial criteria alone; they must be related to the existing strategic situation. For that reason the tripartite talks must also cover the wider issues of NATO strategy and force postures.
These are issues of vital concern to the Alliance as a whole. The tripartite talks do not imply any attempt to pre-empt decisions on NATO strategy and force levels, which we fully recognise are for the Alliance as a whole to take. Even less is there any idea of setting up a tripartite directorate in NATO. Our aim is to see the talks linked as closely as possible with the work on force planning which is already in hand in NATO. For this reason, the Secretary-General of NATO or his representative are attending the tripartite talks and in this way maintaining a link with the North Atlantic Council. We intend that a full report on the progress of the talks will he prepared for consideration by the Council at its Ministerial meeting in December.
I hope it will be clear from the account which I have given that there is no question of our acting precipitately or in disregard of our NATO and W.E.U. commitments in this matter. We have proceeded at all stages in complete accordance with our obligations under the North Atlantic Treaty and the Revised Brussels Treaty, and will continue to do so. I am sure that no one needs reminding that the strength of an Alliance rests not only on the capabilities of its military forces but also on the political solidarity of its member nations.
So far I have dealt mainly with military matters, but just before I close I should like to make reference to the action being taken by NATO in the field of East-West relations. In June, NATO Ministers meeting in Brussels directed their Permanent Representatives to examine closely the prospects of healthy

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developments in East-West relations, and to prepare a full report for their consideration. The Council have been carrying out extensive studies of this question, and their report will be presented and considered at the coming NATO Ministerial meeting. What I find so impressive in all this is the speed with which these NATO bodies move. One particularly important aspect is the question of balanced force reductions—again, a matter to which the noble Lord, Lord Harlech, interestingly referred; I will not quote his speech, but he emphasised this point—which will be dealt with by my noble friend Lord Chalfont.
I should just like to touch briefly on one matter, the approach to Europe. I am sorry that the noble Lord, Lord Gladwyn, is not at the moment here, while I touch on the one thing he really likes to talk about, the approach to Europe on which we are now embarked. I have only a short reference to make to it, so it is not worth asking him to come back to the Chamber to hear it. This approach to Europe does not of itself imply a change in our attitude to NATO. As noble Lords know, the Treaty of Rome does not involve any defence commitment, but this does not mean that defence matters will not be of importance in the individual talks we shall be having with each of the six countries. As the Prime Minister said on November 17, our view is that Europe must play its full part within the collective Alliance of the West without hiving itself off into a separate defence community.
My Lords, I fear that on some of the problems of NATO I have spoken at length. I believe I have illustrated that the Alliance has itself shown how well it is capable of meeting the demands of the future. The United Kingdom, which has its own problems which bear on the contribution it can make unaided to the Alliance' s forces, has to face those problems, but we do not intend to proceed in a manner which will either reduce our standing in the Alliance or make the Alliance itself less effective. Let me say, in conclusion, that whereas 1966 started off rather badly for the Alliance with the French action to withdraw from NATO' S integrated military organisation, the other members of the Alliance, including Britain, have shown great flexibility and
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solidarity in dealing with the situation. I believe this is encouraging, as also is the progress being made in regard to nuclear-sharing and force planning, and in adapting NATO to current needs. The omens are hopeful. There are real signs of a possible East-West détente and of progress in reaching some form of nonproliferation agreement, and this could lead to a mutual reduction of the forces of both NATO and the Warsaw Pact countries.
I should like to make it clear that no dialogue between East and West has a chance of success unless the Western Allies remain united and keep up their military guard. At the moment it is difficult to foresee any pattern of agreement with the Soviet bloc on force reductions in Europe which does not increase the premium on the military unity of the North Atlantic Powers as their only final guarantee. NATO will continue to be essential to the security of Western Europe and therefore, by definition, of the United Kingdom. Over the next decades the political and military unity of the Alliance is likely to remain the prime condition for achieving a better framework for the security of Europe and the best assurance that the new framework will be lasting.
3.57 p.m.
LORD HARDING OF PETHERTON: My Lords, having had the honour of commanding the British Army of the Rhine in 1951–52, I have a special interest in the problems that surround our commitments in Western Europe in relation to defence, and in the discussion which is taking place in your Lordships' House this afternoon. What is more, I have vivid recollections and unpleasant memories of the semi-naked condition, in the military sense, in which we found ourselves in 1914 and 1939, when it was only by the narrowest of margins—by a miracle, some people believe—and at heavy cost that total defeat was averted and military occupation of this country in those critical and anxious times was prevented. I believe it to be most important that the younger generation of to-day. and future generations, should understand what a near run thing it was on both those occasions, and that they should be persuaded that, so long as any risk remains, the only effective insurance lies in the presence in Western Europe

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of strong and fully integrated NATO military forces in a high state of readiness.
No matter what precise interpretation should be placed on recent internal political developments in Western Germany, I submit that they provide yet another reason why we should continue to maintain fully effective military forces in Western Europe and honour our defence commitments to NATO. The improvement which has taken place in East-West relations and in the political stability of Germany must, I believe, progress considerably further before we can afford to leave the primary responsibility for the defence of Western Europe in the hands of Germany and reduce our own contribution to token size or withdraw altogether. I submit that the same applies to the Americans.
General de Gaulle is a law unto himself, but if we are to have an effective voice in the making of strategic policies and military plans for the defence of Western Europe, and hence, as the noble Lord, Lord Harlech, has clearly pointed out, for the defence of this country, it is imperative that our contribution to the NATO forces in Europe should be of sufficient size to form a significant part of the whole and that it should be of the highest quality. Counting heads is a bad yardstick for assessing military strength, and quality counts for far more than quantity. I am not sufficiently up to date in weapon development and tactics to suggest what improvements are required to be made in the organisation, equipment and logistic support for our forces in Western Europe, but I have complete confidence in the competence of our Chiefs of Staff to advise Her Majesty' s Government on that score. If I have understood the noble Lord, Lord Shackleton, correctly and Her Majesty' s Government accept the vital importance of maintaining effective military forces in Western Europe, then there are certain points which I should like to emphasise in connection with those forces.
The first is that our forces in Western Europe must comprise an integrated and powerful land-air contingent of a size, as I have already said, sufficient to form a significant part of the whole of the NATO forces in Western Europe. Secondly, they should be a properly balanced force
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as a whole, and each component, land and air, should be properly balanced within itself. And thirdly, they should be up to date in their equipment and other sinews of war, they should be logistically self-contained, and manned on a full scale. In other words, they should be, in fact as well as in appearance, equal to anything else of their kind in the world. If the Government of the day meet their responsibilities in these respects, I am fully confident that the troops themselves and their commanders will see to it that they are not only the equal of but better than anything of their kind in the world. Those are the main points which I think require the attention of Her Majesty' s Government in regard to the composition, the strength, the equipment, the manning and the logistics support of our forces in Western Europe.
There is another point of lesser importance but of some importance which I wish to make. It is to point out to your Lordships that our forces in Western Europe are, so to speak, the shop window of British military equipment, and it is there that such equipment as British industry is still allowed to make is seen and viewed and judged not only by our Allies but by people all over the world. I maintain that this has a very important bearing on our ability to sell our military equipment overseas. Finally, I implore Her Majesty's Government to hasten their decision on what is to happen over the strength of the forces in Germany, because the present state of uncertainty is not only most unsettling to our Allies but also very unsettling to all ranks in our own forces.
4.6 p.m.
VISCOUNT BRIDGEMAN: My Lords, my noble friend Lord Harlech, in opening the debate, was at some pains to point out the dangers, especially at this particular time, of falling short of the commitments which we had accepted in Western Europe. As I understood him, he was indicating a shortfall in precisely those requirements which my noble and gallant friend Lord Harding of Petherton has just pinpointed in his speech. I felt sorry, when listening to the speeches of my noble friend Lord Harlech and the noble Lord, Lord Shackleton, that I was so little able to relate the one speech to the other, because I think everyone

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would go all the way with Lord Shackleton in his description of the achievements of NATO during a number of very difficult years. Nobody would question that.
Equally, I think nobody would question what is now really a matter of history: that during that period we in this country have taken a certain number of risks in falling short of our commitments to NATO but, so far, have got by with them. Whether that has been due to extreme foresight or good luck, I should not like to say. But whichever it is, I do not think it bears on the point my noble friend has made in his speech; namely, that we have reached a moment in this history of Western European defence where, however much we may have taken risks in the past, we cannot now feel safe in taking risks of that sort, knowing that we must suffer the consequences.
My noble friend, and also the noble Lord, Lord Gladwyn, touched for a moment on the change in conditions in Germany. Although the noble Earl, Lord Longford, is not in the Chamber at the moment, I should like to go back to a conversation I had with him some twenty years ago in the Prince' s Chamber, when your Lordships' House was sitting in the Robing Room. The noble Earl asked me whether I thought the time had come when the Germans should be rearmed. I did not answer him immediately, because I thought that before doing so I ought to talk to my noble friend Lord Salisbury. But when I thought it over it occurred to me that the problem was in two parts.
First of all, it was a military necessity to take credit for the manpower and territory which Germany could provide for the defence of Western Europe: no worthwhile plan of defence could be made without the Germans, whatever contribution the other NATO nations needed to make. But the other half of the problem was a political act of faith; namely, that we were calculating that there was little or no risk of the German nation' s reverting to Nazi habits. At that time it was a risk which I think we all felt we could take. Nothing seemed to be further from the German mind of those days than a reversion to Nazi practice. In fact, it was proving very
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difficult, so it appeared, to get recruits for the German Regular Army which was in process of formation. Now, however, it looks as if the situation is beginning to alter. I mention this point, because I believe that this is the very last moment when we, or any other member of NATO, should fall short of our commitments and take any risk which would give more power to the German contribution than it was intended they should have.
Equally one's mind goes back to the 'thirties, and one remembers how quickly in a place like Germany the whole political scene can change in the night. That is why I was horrified—and I use that word deliberately—to see in one of the Sunday papers, the Sunday before last, an article in which we were told and asked to believe that prominent Germans were anxious that we should minimise and not make too much of this Nazi resurgence. I could not myself, with great respect, take a more opposite view. I know that it is not our business in this House to tell the Germans, or anyone else, how to govern themselves; but I feel that we are entitled to say what our reactions would be if certain courses of action were taken. I suggest that we ought to give the greatest possible support to the present German Government to nip in the bud any tendency of this sort and, equally, to deprecate most strongly any tendency to let movements of this sort run underground.
I should like to stress what my noble friend Lord Harding of Petherton said just now, because there is no doubt in my mind—certainly my doubts were not allayed by anything that the noble Lord, Lord Shackleton, said; and I hope that the noble Lord, Lord Chalfont, will be able to allay them a bit more when he comes to reply—that in the last year finance has been the deciding factor: not the operational need, not the need really to match our commitments in the field, on the ground, as distinct from on paper. Nothing that has been said so far has allayed my fears on that matter, though the debate is not finished and I hope that there may yet be a chance. This has been going on for a very long time, and we all know that the condition of the Rhine Army did not originate when the present Government came into power. But two wrongs do not make a right; and they make it even more wrong,

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as I have said, in the political condition of Western Europe at the present time.
I want now to say one word about a related problem (I hope that I shall not be too far out of order), and that is the problem of home defence in this country. After all, home defence is closely related to this problem of the defence of Western Europe, since it is one of the really important bases for any defensive effort. We have been waiting far too long to be told by the present Government what is required of us in the matter of home defence. We asked this question over a year ago, when the proposals were made for the reformation of the Territorial Army. We were not told. We are now being invited in our counties to take part in publicity for recruiting campaigns. I know that the role of A.V.R. II is perfectly clear; it is that of a reinforcement for the Regular Army. But the role of A.V.R. III is not clear, and cannot become clear; nor can the present-day role of civil defence, until we are told how the conception of home defence is to be explained and planned; and, indeed, how that fits into Western European defence as a whole.
I make this plea for a serious study of this problem, and I am going to suggest, with great daring, that I partly know the reason why such a study has not been made already. It is the old trouble which bedevils discussions on certain matters when a problem concerns more than one Government Department. I know perfectly well that one of the things that has delayed the announcement of a civil defence policy is a series of jungle fights between the Ministry of Defence, the Home Office and the local authorities, about who should pay for what. That sort of thing comes up at intervals, and whenever it comes up it has the worst possible effects on our affairs
It is this failure at the top to insist on co-ordination between Government Departments which in the early days be-devilled the whole of our Rhodesian problems, is still be-devilling the whole of our immigration problems, and is still be-devilling the problems connected with guided missiles and aircraft. So I put it to noble Lords opposite that this is a perfectly simple problem if it is properly gripped; and if, instead of arguing whether the rates or the taxes, the Home Office or the Ministry of Defence, shall
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pay for the training of A.V.R. III on civil defence, the orders go out, your Lordships will be surprised how quickly the matter can be settled. I have strayed a little way from what my noble friend Lord Harlech was saying. May I come back to his Motion and conclude by saying that I am convinced that this is a very timely debate; that this is no time to fail to tackle the problems which he has mentioned, and that I hope the noble Lord, Lord Chalfont, will give us some cause for joy before the day is done.
4.17 p.m.
LORD CACCIA: My Lords, after the speeches which we have already listened to, with the problem as posed by the noble Lord, Lord Harlech, and the noble Lord, Lord Gladwyn, and in particular the response by the noble Lord, Lord Shackleton, it might be thought that there was little left to be said about the subject of our commitments to the defence of Western Europe. Nevertheless, I would add my support to the attitude towards those commitments which the noble Lord, Lord Shackleton, set out with such clarity and definiteness. If I am led to stray on from that, I would plead in defence what was written in the Defence White Paper and which will, from now on, be a temptation impossible for diplomats to resist. The Paper said:
"Defence must be the servant of foreign policy, not its master."
I should like to begin by making one or two quite simple statements as background. The first is to pay tribute to the success of our defence policy, judged by results since the end of the war. Of course, it may be claimed that it is not a perfect score. But who has had a perfect score? Have the Russians? Have the Americans? It is our habit, and a very proper one, to complain, and Her Majesty's Government, of whatever complexion, are the obvious and first target. But in this I think we could well ask Foch's question:
"De quoi s' agit-il?"
—what is the object of the exercise? I suppose that for us the answer must be, "peace for its own sake, and law and order in order to enable us to trade".
I think we have had a large measure of success under all heads in a revolutionary period in foreign relationships. It may be said that this is not all our own doing. That is true. Nor was it all

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our own doing that all Europe had been overrun by Hitler by 1940, and others should be brought into any such accounting. But the contrast between twenty years after the First World War and twenty years after the Second is striking; and on any reckoning, I think, Her Majesty's Government have played a most sensible and effective part. Secondly, and as part of our success, not only have we and our Allies in NATO avoided war but, as has been rightly said, we have reduced the threat in the vital area near our shores in Western Europe. This has needed judgment by Her Majesty' s Governments, as well as sacrifices by the taxpayers. This brings me to the nub of this debate. How do we and our Allies make sense of our commitments at this point of time, remembering that peace may be indivisible when major wars arise?
If our Alliance was properly organised, I assume that there would be a global division of labour; but, as the noble Viscount, Lord Eccles, pointed out on another occasion, all Governments are selfish; the French Government is only more selfish than most; and, far from coming nearer to the point where there could be such a sensible division of labour on a world-wide basis, we are, in fact, if anything, slipping rather further away from it. This is particularly hard on us, because of our commitments East as well as West of Suez.
Having registered, in whatever language may be thought fitting, that our patience is not inexhaustible in shouldering burdens from which others in Europe as well as ourselves derive benefit, what do we do about it here and now in order to promote our own interests? May I say how glad I was that nobody (and certainly not the noble Lord, Lord Gladwyn) argued that we should clear out East of Suez? As an immediate policy, regardless of commitments, that does not seem to me to be a possible starter, or in accordance with our interests. Rather, I should like to pay tribute again to our successes East of Suez since the war: the success in Malaya; the present success, as far as it has gone, over the Confrontation; our part in Korea, which enabled us to have considerable influence on the outcome; the first and second Geneva Conferences, which could hardly
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have met, and certainly would not have succeeded, if it had not been for the part that we played. Aden is the one place so far as to which we have announced our intention of withdrawing East of Suez, and I should have thought it would be a bold man who would say any more than that the case is non-proven as yet whether this will redound to peace and good order in the Middle East or otherwise.
My Lords, the poignancy of our dilemma is the very successes of our policy East as well as West of Suez. It would be much easier for us if, East of Suez, the Australians, the New Zealanders, the Malays, the inhabitants of Hong Kong and others were saying that the British should go home, or if, in Europe, the Germans and others were telling us to get off their grass. But it should be no surprise that in neither part of the world is anything of the kind happening.
What, then, should be the conclusion? May I say that I take it from the noble Lord, Lord Shackleton, that the Government are determined, and I think rightly, to stay East as well as West of Suez in a significant way for the next period of years. Government is choice, and if these things are given priority they can and, in my judgment, should be done. Of course, East of Suez there may be economies in method, and the Government will certainly need no spur from me in trying to achieve such economy of method or of organisation if we can persuade others to join with us in this area.
Economies and easements in NATO are equally to be desired. Conceivably, I suppose, a time might arise for a total rethinking of our position in Europe if our attempt now to renegotiate our way into Europe is once again spurned. Here I think I must pay a tribute to our extraordinary restraint after the last time, when the door was slammed in our face, that the question hardly arose whether we should rethink the liabilities that we had undertaken for the Continent of Europe. Then, we also witnessed the spectacle that many of our friends who disliked the way we had been treated by the French did not find it possible to do anything radically to improve our position. So I think we showed enormous restraint at that time, and I was very glad to hear from the noble Lord,

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Lord Shackleton, that this restraint is in fact still being exercised.
There is one point as to which I would ask whether there may be some enlightenment. The President of the United States, on October 7, talked about modernising NATO and used these words:
"If changing circumstances should lead to a gradual and balanced revision of force levels on both sides, the revision could… help gradually to establish an entirely new political environment."
It occurs to me that several possibilities may arise here. Let me take two. Such a revision could, by proportionate reductions in the Alliance, give us the easement we want without any unilateral act on our part being necessary. I am bound to say that I think this would be the preferable course if it could be brought about. But I suppose it might be argued that for this some sort of prior agreement with the Soviet Union, even a tacit understanding, would be required.
Is there an alternative? Might it be possible for the United States alone to decide to run down their forces by, say, two divisions? This would certainly of itself relieve pressure on the German Government to buy American, which has added enormously to our own difficulties. This, in turn, might then enable the German Government to be a little more helpful to us. Such a United States decision would not be contrary to any treaty commitment and would enable us all to see whether this initiative would evoke any Russian response. It may be that it could only be such an act on the part of the United States which would now carry conviction with those Russians who claim that they are not ready any more to pay any attention to what anybody says in the United States, only to what is done. Would it be an intolerable risk without a prior Russian undertaking for a balanced withdrawal on both sides? As a civilian, this is not for me to say. But on the face of it I should have doubted that it would be an intolerable risk if account is taken of the present United States capability of flying in reinforcements at very short notice and, behind that, of course, the threat of nuclear weapons.
I do not know whether either of these possible courses are starters. It is only obvious that they would enable us to
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get the kind of easements, which I am sure we are right in seeking, by means of agreement rather than by being forced to take any unilateral action.
There is one other point, if I may raise it as a question—and here I apologise to the noble Lord, Lord Chalfont, if I am not able to stay until the end of the debate owing to another engagement this evening which I cannot decline. I am not quite clear now what sort of money we are talking about. We have had the total figures, but in terms of foreign exchange. What, in 1967, is the sort of figure in foreign exchange which we should have to face if we received no further easements from the Germans and if we acted in the sensible and restrained way that the noble Lord, Lord Shackleton, suggested, and withdrew only a little of our forces? What sort of figure should we then be saving? Would it be a matter, perhaps, of£30 million or £40 million which the noble Lord, Lord Gladwyn, mentioned? Or might it be something of the order of £10 million? I do not know the answer from the figures so far quoted; and it would be helpful if the noble Lord, Lord Chalfont, would elaborate on that.
Meantime, I would only add my plea to those of others for a sense of proportion and timing; and in so doing I expect I am pushing at an open door where Her Majesty' Government are concerned. For me, it is now no more the moment to act unilaterally in NATO than to pretend that this is the only area in which we need deploy some forces for good military and political reasons as far ahead as anyone can safely prophesy. We should not be ashamed of our performance since the end of the war. On the contrary, we should have the courage to go on backing our winners, West, as well as East, of Suez.
4.31 p.m.
LORD MORRIS OF KENWOOD: My Lords, two weeks ago I attended the NATO Parliamentarians' Conference in Paris. This Conference, I firmly believe, while it does not have official recognition, nevertheless performs a useful function, particularly in giving Parliamentarians of all member-nations the opportunity to meet each other and discuss their mutual problems. Inevitably it was dominated by the French decision to withdraw from

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the integrated NATO military command. Contrary to the belief in some quarters, and no doubt to the disappointment of the Soviet bloc, this decision did not herald the disintegration of NATO. Instead, it was greeted by the unanimous resolve of the remaining fourteen nations to overcome the inevitable difficulties resulting from this decision and, at the same time, to take this opportunity to overhaul and reorganise the general structure of the Alliance. It would be quite true to say that with the enforced geographical separation of NATO into a northern and a southern flank, and with the doubts existing over the use of French air space and infrastructure arrangements. there is bound to be some weakening of the Alliance and some anxiety on the part of the most exposed portions of those flanks—Greece, Turkey and Norway. I should like to return to this subject a little later.
As would be imagined, the tone of the speeches at the Conference was one of great regret over the French position, but generally did not go so far as to criticise directly that position. While, obviously, it is hoped that at some future date the French Government may be persuaded to reconsider their attitude—and the door is left open for such an eventuality—it seems to me that a little more could be said about that decision. Under the Articles of the Treaty, the French were naturally quite within their rights to decide to sever their connection with the military alliance, while at the same time remaining a participant in the political, economic and cultural fields of the Organisation. However, I confess that I find the logic of this difficult to follow, since, in my opinion, it is not possible to divorce the military measures from those taken in the political and economic fields. It appears to me to be a case of "Heads I win; tails you lose", since the French still wish to retain the benefits of the early-warning system and, I believe, will continue to use American tanker aircraft for their force de frappe.
Another aspect of the matter which adds interest is the apparent unhappiness over the decision expressed by many French officers at SHAPE and of the French team at the Conference. Similarly,
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in conversation with French friends I was told that the President' s decision did not meet with the approval of quite a large sector of the French public. Be that as it may, the point in question is: what is being done and what is to be done to repair the damage? Arrangements are in hand to move the military and administrative sides of the Organisation to Belgium; and it is hoped that these arrangements will proceed smoothly and according to plan. I am sure there is no disagreement in this House that the North Atlantic Treaty Organisation is an essential and vital requirement for the continued security of Western Europe, even without the presence of the excellent French forces to help it.
The controversy which pertains at this time concerns the British threat to withdraw part of our forces from Germany, albeit for economic reasons, unless the cost of these is offset by German military purchases in this country. At the same time the Germans are being pressed by the Americans similarly to make offset arrangements with them. Clearly, this presents the Germans with a very serious problem since the total cost of the upkeep of the forces of our two countries is considerably greater than the German defence budget. In this context it is well to remember that the United States and Britain are the only two countries in the Alliance which have military commitments outside Europe and whose economies, therefore, are under much greater strain. Indeed, as is well known, Britain spends a larger proportion of its gross national product on defence than any other Western country except the United States.
Obviously, then, the decision will have to be made, sooner or later, to withdraw some of our forces from Germany. However, this eventuality ought to be viewed in the light of the position as it is now, rather than merely on the basis of the number of troops facing the Eastern bloc forces. I believe that the concept of what may take place in Europe has changed considerably. The determination of the Allies to resist the Russians at the time of the Berlin blockade in 1948, and the decision to create a Western European defence organisation, which in turn led to the formation of NATO in 1949, convinced the Russians of the West's firm intention to resist aggression

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and incursions of any sort. As my noble friend has stated, this firmness has shown itself in the fact that not a single yard of European territory has been lost since that time. Backing the West's determination was, of course, the unilateral nuclear capability possessed by the United States and Britain. However the position has now altered, and the Russians can now match the West in this field.
What then is the position? What the Alliance members believe will happen in the event of a conventional attack by the East is not important. I am not one of those who believe that the United States would not come to the immediate aid of any member nation which was attacked. What is important is how the Russians believe we should react in such a case. I cannot conceive that the Soviet Government dare assume that an attack with numerically superior conventional forces would not quickly be resisted by the use of small tactical nuclear weapons and, if necessary, with strategic nuclear weapons. It follows, therefore, that the need for large conventional forces in the forward areas is no longer so great and the withdrawal of some British forces from Germany would not cause any significant weakening of the strength of the West.
What is of much greater importance is that far more stress should be laid on the high mobility of our forces and the equipping of them with modern and effective weapon systems. The Americans have demonstrated recently that reinforcement by a large number of troops over a long distance in a short time is a tactical proposition, depending, of course, on the stockpiling of their heavy equipment in suitable strategic areas. It is in this context that special emphasis should be given to the Ace Mobile Force, particularly to meet the current situation and specifically as it affects those member nations to which I referred previously, Norway, Greece and Turkey.
My Lords, I believe that this is one of the most appropriate ways in which Britain can participate fully in the defence of Western Europe, and at the same time fulfil the requirement that our overseas expenditure be reduced. Unlike the United States, we have the advantage of being geographically close to the Continent of Europe. We should develop our home-based forces in conjunction with Transport Command re-equipped with efficient
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and reliable aircraft in the rapid-deployment techniques which would be required. To this end I would again stress the urgent need for agreement with France over the use of their air space.
I will now turn briefly to the question of nuclear strategy. Much discussion has taken place recently over the priorities to be given to a NATO nuclear force and to a non-proliferation treaty. Essential though the latter may be, I am of the opinion that if such a treaty is to be based solely on the retention of nuclear weapons by the United States, with the decision as to their use resting entirely with that country, and with a small contribution by the United Kingdom, then this is bound sooner or later to result in other European countries, particularly Germany, wishing to develop their own weapons. After all, this exclusion was exactly the reason used by the French when they decided to go ahead on their own. Ideally, the best arrangement would be for the hardware to remain in American hands and for control of it to be vested in some form of committee made up of the member nations. Should such a scheme fail, and the problems attendant upon it would be many, it would be necessary to create a NATO nuclear force. If such a force is created, and in spite of the efforts to establish a multilateral force or an Atlantic Nuclear Force neither of these concepts came to fruition, the fact that all member nations would have a say in the control of nuclear weapons placed under the direct control of the Alliance would remove the desire or necessity for them to embark on their own ruinously expensive programmes.
To conclude, my Lords, we should remember that while we are to-day discussing the defence of Western Europe that subject forms only a part, albeit a vital part, of the overall problem of preventing the extension of Communism throughout the world. Such strategy can and does take many forms, and it is essential that we should ever be at the ready to deal with this threat whatever form it may take.
4.42 p.m.
BARONESS EMMET OF AMBERLEY: My Lords, I am not very good at these arguments about guns versus butter, and

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I have no technical knowledge whatsoever of submarines, aeroplanes or nuclear weapons, but we are speaking of defence and not attack and I think that allows me to deal with the psychological side and what is in the minds of the men who take the decisions on defence. To my mind it is very important to understand their motives, as important as to discuss hardware and arms. I think we must be spurred to a review of the situation and the various motives influencing European Governments because of the threat to NATO, the shield, as was said by the noble Lord, Lord Shackleton, which has stood us in very good stead and which, as we know, was constructed under the threat of the cold war and with the heavy involvement of the U.S.A. while the European countries, exhausted, were still licking their war wounds.
I think we should thank the noble Lord, Lord Caccia, for telling us to count our blessings. We so often forget to do so and for twenty years we have had quite a lot. In that time the European situation has undergone very far-reaching changes, and NATO was in any case due for revision in 1968. The cold war in Europe has become tepid. E.E.C. and EFTA have come into being, and a certain inertia and torpor has come over the Continent. Movement and anxiety has turned to the Far East, where both the U.S.A. and the U.S.S.R. are now involved and, curiously, seem to be being forced by China to some extent on to the same side.
With a certain feeling of safety, old strains and stresses have once more come to the fore in Europe as well as a certain political instability in some of the major countries. It is sad that Britain' s first attempt to come right into Europe was thwarted, although this would have been one of the best and most lasting guarantees of defence, as the noble Lord, Lord Gladwyn, said earlier. It is also, I think, grievous that France has blunted young Germany' s dreams of unity with her and turned to her own historic ally Russia, presumably as a form of reinsurance. Quite a few years ago now I had a bet with the noble Baroness, Lady Horsbrugh, whom we all hope to see back with us again before long. The bet was that that was exactly what would happen. It was only for sixpence, but
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I still think I shall claim it. There is much to be said for Russian friendship for all of us. We have just had a large Russian delegation here and we must hope that that will strengthen our friendly ties. After all, Russia is a European as well as an Asiatic nation.
There is a new Party in Germany about which I should like to say a few words. This has struck fear into many hearts in Europe, including the Russians, lest we are back at the beginning again. I do not think that these things should be bottled up, but that they should be said. I do not think that we are back at the beginning, but we have to take care that we form a very realistic, not an emotional, judgment and understand the politicians who are involved at the moment. Our country has much to contribute, and a great though difficult part to play. I do not think there has ever been a greater need for understanding and quiet and delicate diplomacy on our part. I hope this delicate diplomacy is there. I sometimes wonder these days whether the Foreign Office knows what has hit it, apart from foreign affairs. It may be that it will not do the Foreign Office any harm.
Our Press also carried a great responsibility in this connection, and I think their comments can do a great deal of harm or good. After reading all the papers this weekend I thought that the leader in the Sunday Telegraph was the most understanding and most informative. One regrets very much the restrictions on foreign travel and investment at this time. Both make their invisible contributions to defence, especially just at the moment when the Russian satellites are beginning to come out of their shells. I think that travel and trade are the best means of breaking down barriers.
We should congratulate the German nation on having found what I believe is the best possible solution for their present political crisis. There are elements and men in the C.D.U. Party and the S.P.D. Party that could be extremely useful to each other at this time, when a renewed effort is needed to bring Europe together. Both Herr Kiesinger and Herr Brandt know our country well and are very good friends of ours. I think we should show our friendship to them in

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return. We must hope that this collaboration will not be just a standstill arrangement until the next general election, though the two Parties may well separate when that election comes along, as they have recently done in Austria.
We ought to hope there will be a joint study of both Parties of the obstinate question of the division of Germany. Up to the present—and I think this is an important point which may not be generally realised—the two main Parties have not faced the realities of the division and other problems of Europe because of the fear of publicly giving an advantage at the election to their rivals. By working together, they could cause something fruitful to emerge, such as recognition of the reality of the Oder-Neisse line, perhaps in return for some relaxation in the situation in Berlin. If the new German Government can allay the fears of Russia we should be taking a step forward to disarmament.
One also hopes for a renewed rapprochement between Germany and France. I am sure it pains many of us, and also threatens the defence of Europe, that the General should have shattered the dreams of the young Germans and that he stands so much alone. It is this shattering of their dreams which has largely resulted in the resurgence of this new Party. I believe that, whatever the merits of the Nassau Agreement are or were, the trouble arises very largely from the date of this agreement. It was badly handled and it is a position which we and the General have still to retrieve. No European country can stand quite alone, and we must take into account the drain on all our resources, above all of the United States of America in the Far East.
I am sure that greater economy in Government spending would be a far better contribution to the defence of Europe than the whittling down of our commitments there. If the figures which have been mentioned to-day are accurate, it seems that this should be possible. If we whittle down our commitments, this will add to the German sense of insecurity and so to the general unease. Whatever we can do to get closer to Europe will help and must be done, and the European countries would be glad to have us by their side. This is why we must seek to understand what is hap-
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pening in Germany and not condemn. This is why we must hold to our commitments just now—just now, when I believe that a new chapter is starting in Europe.
4.51 p.m.
LORD BOURNE: My Lords, the House ought to be grateful to the noble Lord, Lord Harlech, for introducing the debate this afternoon on British commitments to the defence of Western Europe. The noble Lord, Lord Gladwyn, assured us that NATO is in complete disarray. He may be technically right, but the fact remains that from the defence point of view things in Europe could not be quieter at the present time, and so at least we can discuss the factors in Western European defence dispassionately and in good time. I was greatly reassured by the remark of my noble friend Lord Shackleton, right at the end of his speech, when he said that British reductions cannot be decided on financial grounds alone but must also be related to strategy. I am one of those who entirely agree with this, and I think many noble Lords have taken that view this afternoon.
The first matter I want to discuss is the threat. It is a great mistake, to my mind, to look at Europe alone. After all, it is only one sector of a long front. We used to call it the cold war front. It is not that any longer, but it is still a front, with Europe at one end. There are also Asia, the Far East and the Middle East. If we look at the shooting that has been going on in the last fifteen years, we see that it has all been outside Europe. In fact, not a shot has been fired in anger where the super-Powers, the Soviet Union and the United States, face each other in Europe. I have said this many times, but perhaps it bears repeating. The reason for this is that the two super-Powers confront each other in Europe, and in other parts of the world, where the stakes are not nearly so high, greater risks are taken by second-rate and third-rate Powers. Although we in Europe have had this wonderfully quiet period so far as defence is concerned for twenty-odd years, we must remember that it is due not to the matching of conventional forces, division by division—because they have 26 divisions, so must we have 26—but to the fact that awful nuclear weapons face

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each other, and since 1953, when Russia blew the hydrogen bomb successfully and showed that it could reach America, the risks have been absolutely clear.
This brings me to the nuclear aspect of defence, which was touched on by the noble Lord, Lord Morris of Kenwood. Since 1953, we have been living under a balance of terror. That is a popular expression which, unfortunately, means what it says. As I have said, not in your Lordships' House, but elsewhere, I have been quite happy to live under this balance of terror because it has been so stable, but I doubt whether we can count on stability for very much longer, for various reasons. First of all, although nuclear weapons are a deterrent, they have not deterred conventional war in Asia; they have only successfully deterred the nuclear holocaust. We have had wars in Korea, Indo-China, Vietnam, even war between India and Pakistan and war in Arabia—plenty of wars. In fact, the British Army has never stopped shooting for the last twenty years. So, although the balance of terror has been effective so far as nuclear war is concerned, it has not been so far as conventional war is concerned. Perhaps some noble Lords will not agree, but, as I see it, the defensive quiet in Europe has been produced by the direct confrontation of two super-Powers which have this awful hydrogen fission bomb.
What is going to happen in Asia when China not only fires the bomb but also has weapons to deliver it? We may wait ten or fifteen years, but what is going to happen? Are we going to sit back and say that Asia will be quiet for that reason? I will not pursue this argument further, but at present Asia is not quiet; in fact it can hardly get much worse.
Nuclear weapons are deterrents and not defensive weapons. This is the error into which the French have fallen. They are building up painfully and at great cost terrific nuclear weapons, on the ground that they can defend themselves thereby. Of course, this is not true.
Lastly, there is hanging over us the proliferation of nuclear weapons. My noble friend Lord Chalfont has made great efforts all over the world and in Geneva particularly to achieve a proliferation treaty. I will not go into the details, because no doubt there will be
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other opportunities for debate, except to say this: that there are about ten or a dozen other countries using civil nuclear power which are quite capable of making nuclear weapons, and in about ten or fifteen years' time they can have the vehicles to carry them. The risks of an outbreak of nuclear war rise arithmetically with the number of such countries, so it is extremely important to stop this proliferation. Another risk is the risk of escalation contained in the fact that two second-rate atomic Powers could start a relatively small atomic war on their own and find it difficult to stop it from spreading. We British may live to regret the opportunity we missed in 1956 and 1957 to give up our atomic weapons. The argument was all the other way at that time, and France used exactly the same argument when they started to build their atomic weapons.
My next point is about the French withdrawal. We all know the aspirations which led the General to withdraw his forces from NATO. I have referred to the underlying basic falsity of the military arguments. It is impossible, in my view, to set up Western Europe as a third force between the Soviet and America. It is impossible for geographical, technological and other reasons. It is geographically hopeless for France to think that they can build atomic weapons which will match those of the Soviet and America. They may modernise them at great expense and put them underground and in submarines. It will take them another ten years to do it. It will be a great expense, and they still will not be able to do more than perhaps deter. They certainly will not be able to defend their country.
There is another aspect on a lower grade about the French withdrawal which I think is apt to be forgotten. In the French Government aide-memoire of March, 1966, there was this statement:
"In particular, France is equipping herself with atomic weapons, the very nature of which precludes her integration."
The results of the French withdrawal on the land are perhaps not quite so serious. They can be borne. The French Army is very badly equipped and not particularly mobile. The French Navy was withdrawn many years ago from the Mediterranean and the Atlantic. But it is only with this latest declaration that the

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French Air Force and the missiles are being withdrawn.
Again, it is a false argument. The German General, General Steinhoff—who was, I think, the Air Chief of Staff at Fontainebleau—recently wrote an article in which he commented on this. He said:
"Nuclear operations in the tactical sphere are only possible within a single integrated operational framework."
That is the direct answer, and the answer of all the other fourteen Allies to the French withdrawal. It is a serious diminution of power. Of course, they could do this only at a time when NATO is not being threatened, and the French may wonder sometimes why they are being defended free of charge by fourteen other Allies. The day has passed—"integration" is the word now; and "dovetailing" is another good word—when a nation could be a member of an Alliance and say: "I will fight with you on the day. I will send X divisions or X aeroplanes." That day has passed; the French have gone backwards instead of forwards.
In these circumstances, what is the best course for us British? I have argued in your Lordships' House that our aptitude, the threats, our tasks, are greater East of Suez than they are in Europe, and that we could well afford to reduce B.A.O.R. by a considerable amount. In this I was agreeing with the noble and gallant Field Marshal Lord Montgomery of Alamein. But that was at a time when we could have withdrawn safely from NATO without rocking the boat. It is doubtful whether we could do that now. We could have saved not only men, but a lot of foreign exchange. I pointed out in July that we could have saved £50 million of foreign exchange straight off by reducing a division in Germany. But now it is too late. General de Gaulle has made that impossible at the present time.
The four outstanding features of the situation at the moment seem to be these. First, NATO is definitely weaker. Therefore, the threat may return. This is sometimes forgotten. German politics, as we have heard from other noble Lords, are extremely unsteady. The noble Lord, Lord Gladwyn, used the words "potential explosion"—rather nasty! The anti-proliferation treaty, in spite of great
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efforts, is not yet in sight. We wish it were. Lastly, British economies are pressing. They are extremely embarrassing, though we hope this situation is only temporary.
I therefore come to two conclusions, which are these. Do not weaken NATO at the present moment. Only reduce it in return for an exchange from the other side. Other noble Lords have mentioned the easing of tension and perhaps a reciprocal reduction in forces by each side. Well, the Russians withdrew two divisions not long ago to the other side of the Urals, because there is a lot of wide open space on the China frontier, and there are now only 20 Russian divisions in Germany, instead of 22. That is the sort of occasion when it would be possible to conceive of an exchange. "You take away two divisions"—we have often done it—"and we will take away two divisions." We have never used that argument, but I am not sure that we should not start doing so now.
So far as nuclear reductions are concerned, it seems to me hopeless to think that there can be a reduction in nuclear strength until the anti-proliferation treaty becomes a fact. At that point, both the super-Powers, to my mind, could afford to reduce some of their overkill capabilities. Lastly, so far as the British reductions are concerned I come roughly to the same conclusion as did the noble Lord. Lord Shackleton, speaking for the Government. Please ensure that any reductions in B.A.O.R. are made for military or political reasons agreed by the Allies, and not for economic and financial reasons.
5.0 p.m.
BARONESS ELLIOT OF HARWOOD: My Lords, I am sure that the whole House has listened with great interest to the remarkable speech of the noble Lord, Lord Bourne. If I do not follow him in his highly technical and very experienced views on the military side of the debate, I hope he will not think that I have not listened with great interest to what he had to say. But, like the noble Lord, Lord Morris of Kenwood, I am one of those who a fortnight ago was in Paris as a delegate to the Twelfth Conference of the NATO Parliamentarians, and this is my reason for intervening in the debate. This Conference, which was attended by delegates from the Government side and

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from the Opposition side, came, I think, at an apposite moment.
The impression that I had there was, first of all, of the great disappointment and regret of the NATO countries represented there (and they were all represented) at the action of the French nation. The Secretary-General of NATO, Signor Brosio, made a remarkable opening speech. He pointed out that, while they knew that the French were contemplating some major change in their attitude towards their contribution to NATO, they had hoped that they might be given an opportunity to discuss such a change. But this did not happen. They were handed a quite definite series of decisions made by the French with no reference to anyone else, and they were told, as we all were, to withdraw from French soil.
At the Conference it was interesting—I think the noble Lord, Lord Morris of Kenwood, will back me up in this—because there were one or two gallant French Parliamentarians who clearly did not agree with the decision that the General had made, and they said so. They spoke up against the decision; but, unfortunately, among the delegation they were lone voices, and what the General had done had the approval of the rest. The result was that the French played hardly any part in the NATO Parliamentarians' Conference this year.
I would support what the noble Lord, Lord Shackleton, said about the effect that this has had on the other fourteen nations. There is no doubt in my mind that among the Parliamentary representatives present there was a great feeling of solidarity, a great desire to keep together, and, in fact, not to indulge in over-criticism of the French, simply because they felt, "This has been done it has happened. We must make the best of it and see what we can do to make good the results of this unfortunate action".
The noble Lord, Lord Bourne, has said that the French action has greatly weakened the strength of the NATO shield. To make it up much is going to be done, some of which we have heard from the noble Lord, Lord Shackleton. Also at the Conference we had some interesting military assessments given to us, and some reassuring words on the subject of
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the improvement in certain types of weapons, in the mobility and rapidity of action of the remaining forces and also in the great desire, according to our military advisers, of the military personnel in the remaining fourteen nations to work together as closely and harmoniously as possible.
It struck me very forcibly—and in this I disagree with the noble Lord, Lord Morris of Kenwood—that any withdrawal of our forces would be a severe blow to the remaining fourteen nations, all hoping to work very closely together and all desiring to make their full contribution. If at this point we were to reduce our forces or withdraw in any way, not only would this have a very bad military effect, but psychologically and practically it would be a severe blow to the remaining fourteen nations. We discussed the question of how reductions could take place in our armaments, but I think we all agreed—and I would say here that the noble Lord, Lord Bourne, put it much better than I can—that any reduction in Central Europe on the side of the NATO forces must be matched by some reduction or withdrawal on the East German frontier and in the Eastern forces.
We cannot take any risks now, just as we could not take them in the past, and I am sure that it would be a great error on our part if there were to be any weakening in the forces to which we are committed and, indeed, in the forces which are at the disposal of the Alliance at the present time. The important fact about the NATO force is that it is a real Atlantic commitment. There are British, Belgian, Dutch, Canadian, American and German forces, and they are all working together. Never in history has there been so great a mixture of nations in a defensive alliance.
Although the action the French have taken is very much to be regretted, I am sure we should not despair, because we have this great mixed Atlantic-cum-European structure which is vital to the preservation of Western freedom. But, of course, the basis of defence falls hardest on the countries producing the most forces, and in this our debt to the Americans is very great indeed. They have for the first time in history kept a great combat force in Europe for twenty years

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and more, and this is really the most important fact in post-war history. It is as important in 1966 as it was in 1945 although, of course, the situation is different. Far from pressing the American forces off French soil—and the forces of all the other nations, too—we should be deeply grateful to them for their help to the NATO cause. The American forces are the real stability of the NATO forces.
Many of your Lordships will know the American soldiers better than I do. I have had the honour of meeting them as a delegate to Parliamentarian Conferences in Paris, and I am quite sure that the psychology of the American position is quite straight-forward. They will not withdraw their support because of their opponents or because of any increase in Communism or Communist forces. They will defend freedom, and the right to freedom, to the end. But there is a force which may influence them, and that is the way in which their friends behave. If we discourage them, if we put spokes in their wheels, if we appear, as I am afraid the French appear, not to be fully cognisant of the great contribution that the American forces have made, then who can blame them if some of them, away on the other side of the Atlantic, are wondering whether they can and will forever keep great forces in Europe? I believe it is the way in which their friends respond, more than the threat which may come from their enemies, which will be the danger in the Americans deciding not to remain in the European picture.
The Secretary-General, in his remarkable speech, reminded us that the Alliance was more than just a defensive military alliance. It is a political alliance intended to safeguard the freedom of our people. It is at the same time an economic alliance, intended to operate in the economic field, to develop conditions of stability and welfare, on which free institutions of Western countries are founded. The fact that there is no immediate threat to the West does not mean that we are free from such a threat for ever more. That would be the kind of fool's paradise which only fools could suppose. One of the ways of undermining the unity of the Alliance, and of the political and economic unity, too, is to cast doubts about its present usefulness simply because it is not being challenged as it was in the past. One
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has only to spend a few days in Europe and talk to people to realise how close they are to the past. Newspaper headlines direct us towards any disturbances in other parts of the world and in the Eastern continents. But if you live in Europe it is the unity of NATO which really counts. Of course, we must look ahead, and we did so at our Conference. We discussed many aspects of the reform of NATO and of the importance of the influence of the Parliamentarians' Conference. But this is not a debate in which we can discuss these matters, or indeed the Common Market. These are matters which I think we should discuss at some other time.
What struck me in all our committees was the vital necessity for the United Kingdom to continue to play the full part in Europe in defence, in economic affairs and in political affairs, which we have played until now. Nationalism is not the basis of NATO. As I have said, their forces are the greatest mixture of forces the world has ever known, and one of the sad effects of the nationalist policy of the French is that it is catching; it is infectious, and easily spread. While I am sure it is a fact that the great majority of Germans do not want a spread of nationalism in their country, the very small amount of it which was shown in the past election was very badly received by the Allies, which only seems to demonstrate—if demonstration is necessary—the vital importance of Parliament, of the freely elected members of Parliament and of Parliamentarians, preventing a people from taking action which is detrimental, in the way the French Parliament has taken its decision which I believe to be fundamentally detrimental to the NATO Alliance. It stresses once more the belief I have always held, that the need to persuade Parliamentarians of the importance of the NATO Alliance and of the responsibilities which they hold in it is a need we must all of us in our various Parliaments see that our people truly understand.
Whatever the present British Government may consider doing in the future, I am perfectly certain that if they wish to continue to have the greatest influence which we have had in the past, including the great part that we have played in the building up of these great NATO

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defence forces. now is the last moment to say that this is a subject for economy and that we should reduce our forces at the present time. I beg the Government not to take any decision at this moment which they may bitterly regret in some months' time.
5.19 p.m.
VISCOUNT MONTGOMERY OF ALAMEIN: My Lords, I should like to begin by apologising very sincerely for not being here during much of this debate. I explained to my own Front Bench and to the Government Front Bench why I had to be away, and I hope I may be forgiven if I say anything which has already been said by previous speakers.
This Motion involves the whole question of NATO. That is what the United Kingdom commitment to the Western Defence of Europe really means. I would suggest that one cannot consider the British contribution to defence in Europe in isolation, since we are a NATO nation, and I should like to go back a bit in history and consider the situation when a threat from the East began to develop in Europe, and examine how the Western nations decided to deal with it, and then move forward to the present times.
In 1948, before the NATO Treaty was signed, it became clear to Western political leaders that a Russian threat was beginning to develop and that there was no political or military organisation to deal with it, so the Western Union was formed, consisting of five nations: Britain, France, Holland, Belgium and Luxembourg. I was then in the War Office as Chief of the Imperial General Staff and I was sent to head the military side of the Western Union. Our task was to build up a command and staff system and military forces to handle that threat if it should ever mature. The Russian blockade of West Berlin had begun in June, 1948. That was before the Western Union really came into operation, and it was finally defeated by the tremendous feat of the airlift.
We established our command headquarters at Fontainebleau in October. 1948, and plans were drawn up. Gradually, but very slowly, some military strength began to emerge, although not really sufficient should be threat have become really dangerous. Then the threat
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did become dangerous, and the NATO Treaty was signed in April, 1949. Your Lordships will know that it was born of collective insecurity, the task being to prevent Russian expansion in Europe, and in 1951 the Western Union was absorbed into NATO. General Eisenhower came to Europe and I served on as Deputy under four Supreme Commanders: Eisenhower, Ridgeway, Gruenther and Norstad. I served ten years in all in the Western Defence Organisation, from 1948 to 1958.
There is no doubt whatever in my mind that NATO did a fine job, and after many years we built up strong forces with a nuclear strike potential and we succeeded. We succeeded because the nations of Western Europe at that time were afraid. Fear was abroad, therefore they co-operated; not completely—definitely not completely because they all wanted self-sufficiency, and I used to point out to the Governments of the member countries of NATO that if every nation was self-sufficient what value would there be in the Alliance?
In those difficult days we British built up quite a sizeable army in Germany, and by the time I left it was of the order of 50,000 or so. To-day, fear has disappeared. Why has it disappeared? Because the threat has disappeared in so far as Russia is concerned. But we still keep over 50,000 soldiers in Germany, and it does not make sense to me. The threat has disappeared into the Middle East and Asia and into Africa. For that reason we cannot discuss NATO in a vacuum. It must be fitted into its right place in the global context.
When I left NATO in 1958 I was asked to address the NATO Council—that is, the political body of the organisation—and I declined. Then the Secretary-General, M. Spaak, who is a great friend of mine, urged me to go, and I said I did not want to go because they would not like what I should say. He knew what I was going to say and he agreed: he said it needed saying and nobody else would dare to say it. So I went. That was in September, 1958. I told the Council that NATO had done a terrific job and it now needed a complete overhaul, a complete reorganisation to meet the changed conditions. You will recall, my Lords, that the Suez operation had taken place two years previously, in 1956.

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I said that NATO must stop looking inwards at itself and must begin to look outwards. The threat having disappeared, NATO should now become less military and get political unity and a common economic policy. I then asked the Council how it was possible to have a common defence policy until the nations had first defined their political association, which had not been done; and I gave the answer. I said it was impossible. I said there was no leadership. Britain could have taken over the leadership after the war, but we declined it, and Europe had been suffering ever since. I said that if NATO was to survive, change and reorganisation was essential, and I finished by saying that if these things were not done NATO would become merely a high-class political racket.
The NATO Council listened in complete silence—and what happened? Nothing. And the result? The result is, I fear, that NATO is well on the way to becoming a political racket. Money is being chucked about like water. Every nation is trying to grab as much as it can. There are enormous military headquarters, from Norway right across Europe down to Naples. After planning for fifteen years one would have thought the plans would not be too bad. The output of paper is terrific. Nobody could possibly read more than half the paper, and the other half is not worth reading.
There is a great need to-day for nations to define clearly the object—the particular strategic and political aim—and to get that clear before arguing about how it is to be done: that is to say, the tactics. A very good example would be the Far East, where we have the United States of America embarking on a war on the mainland of Asia without first defining their political strategy in the Far East.
The basic need in NATO is to reorganise to meet the changed conditions. I do not want to be merely destructive, and I should like to conclude with a summary of the general overall situation as it appears to me to-day, in November, 1966, and to be constructive as to how the reorganisation of the NATO defence setup might be done. In view of the present state of negotiations, both in the tripartite talks and in the Military Committee of NATO, and bearing in mind the meeting
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of the NATO Ministers in mid-December, I would suggest to your Lordships that it is most important at this moment to avoid major complications.
I have many times said—in private conversation, not in your Lordships' House—that the real danger in Europe is Germany. Certainly the Russians believe this, and we know that they are most apprehensive lest Germany should emerge as the dominant Power in Europe. If this should happen—and I underline the word "if": not "when"—it would most certainly upset any rapprochement between East and West, and it would bring a rapid return to icy cold war. For this reason alone it follows that we certainly cannot contemplate any rapid removal of all British and all American forces from the Continent. A reduction of such forces, yes; a complete removal quickly, no. It must be a slow process. And I would also suggest that it must, within the context of East/West relations, be linked to two things; first, reciprocal withdrawals between NATO and the Warsaw Pact; and, second, a reduction in German forces in both West and East Germany.
We have to consider the cohesion of NATO. The strength of NATO is based (I know this because I spent ten years there) on confidence between all partners, and possibly above all on confidence that the Americans will use their nuclear power for the protection of Western Europe should the need ever arise. Any hasty withdrawal of all or major parts of the American forces would undermine that confidence. Similarly, a unilateral or large withdrawal of British forces would do the same.
I suggest that we should aim initially at small withdrawals, which might come under the heading of redeployment, coupled with guarantees of their return to the Continent in the event of a deterioration in the situation. A very important point is that any such redeployment must not be an excuse for the Germans to take command of the Northern Army Group. That would most certainly alarm the Russians. Next, I think, the question of British entry into the Common Market is part of this very intricate problem. German sources take-the view—and this I know, because I have heard it from them direct—that part

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of our entrance fee must be in the form of a subscription to Western defence, and part of this must include the stationing of British forces in Western Europe. It certainly must. But it need not be 51,000. I suggest that something like one division, plus one armoured brigade, would be adequate: one infantry division plus an armoured brigade—say 20,000 men, or something like that.
To sum up, although it is safe to say, as I did say, that the threat has disappeared, it is also true to say that it could be re-created if we were to allow Germany to become the predominant military Power in Europe. And it follows that, while we could to-day make some withdrawals from Germany of both British and American forces, we must be careful how we do it. And we must have due regard to the effect that any such withdrawals might have on Russia and on our NATO Allies. We must be careful. The Americans may not be liked in Europe by General de Gaulle, but remember what the Foreign Secretary said recently in a speech in the House of Commons. He said:
"Just as the defence of Europe requires the commitment of the United States, so the establishment of peace in the wider world involves close ties between Europe and the United States."
I would very much agree with that statement. I apologise for exceeding my usual ten to twelve minutes, but I felt, having spent ten years in the Western Defence Organisation, that I should like to make some contribution to your Lordships' thinking.
5.35 p.m.
THE EARL OF ARRAN: My Lords, I rise to support my noble cousin, Lord Harlech. I believe we must at all costs abide by our commitment under the Treaty of Brussels to maintain troops in Germany. I feel very deeply that in view of the latest alarming developments in that country we should keep our troops there and at full strength. Frankly, I see them now as a bulwark not only against the Soviet threat but against possible trouble in Germany itself. For once I find myself in agreement with my noble and gallant friend, Lord Montgomery of Alamein. I still regard, as I have always regarded, Germany, and not Russia, as our potential enemy. I do
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not need to underline to your Lordships the result of the recent German elections; they are there for all of us to see. It is possible to read too much into them; it is possible to read too little. Personally, I find no cause for immediate panic. I am not one of those who see in the neo-Nazi success an event as grave as, say, the reoccupation of the Rhine. Clearly, there is a very long way to go before any situation of similar seriousness could arise. But this is an early warning, and we should do well to take heed of it.
I have great respect for the present Foreign Secretary. I admire his forthrightness—a welcome change from the"pussy-footing" of some previous Foreign Secretaries. But I cannot go along with him when he says that the Germany of to-day is very different from the Germany of the two World Wars. Nor am I surprised, frankly, that his Czech and Polish audience remained entirely unimpressed by his words. It is possible that they know Germany just a little better than does Mr. Brown. I, too, know my Germans. I spent over two years in Germany and Austria. I studied at Vienna University. I assure your Lordships that those particular leopards do not change their spots. Sometimes I think they never will.
My knowledge of the Germans of today derives, admittedly, mostly from meeting them outside their own country, in Britain and in foreign countries. From my conversations with them—and I speak fluent German—I find that though I may be speaking to men with new ideas, the character remains the same. The arrogance is still there, the innate aggressiveness, the contempt for other races, and, I fear, the cruelty. I have never blamed the Germans for their wish to conquer, to dominate. We, too, have a history of conquest and of imperialism. It is the savagery that they take with them on their warfarings that I abominate. This savagery is particularly indigenous in the southern parts of Germany, and also, I regret to say, among the Austrians. I am not at all surprised that the spectre has raised its head in Bavaria. Not for nothing was Munich the capital of the Nazi movement; not for nothing was Hitler an Austrian.

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The cruelties perpetrated upon the Jews in Vienna were ten times as bad as anything that happened in Berlin; and since then Austrian efforts at de-Nazification have been farcical. No, contrary to popular beliefs, it was with the Berliners, with the North Germans, that Goebbels had his greatest difficulties. Militarists the Prussians and Brandenburgers may be, but they have a certain decency. If the new Movement should spread, I confidently expect it to be not along the banks of the Elbe or the Spree, but along the Inn and the Danube. Indeed, I do not rule out the possibility of a second Anschluss, for I think they have much in common. But this is for the future, of course—a future which, please God! we may never see.
The immediate problem is what we should do in the light of these new bad things; first of all, politically. I believe profoundly that we should not be over hasty in seeking to reunite Germany. I believe that a reunited Germany would be a great threat to world peace. I am profoundly glad that the Russians are along the frontier. I believe that we owe them a debt for that. Some years ago I had a talk with the former Russian Ambassador, M. Soldatov. We disagreed about almost everything until we came to Germany. I spoke with anxiety about a strong united Germany. "Believe me", said His Excellency with passion,"that is something we will never allow." I deeply hope that he meant it, and that we shall never see a repetition of the infamous Russo-German Treaty of 1939, though all things are possible. Who would have believed that such a thing could happen when the Strang Mission was in Moscow? Yet it happened.
Next—and this brings me back to the whole purpose of this Motion—if we believe that the dangers of a neo-Nazi Germany are there, and these dangers are suddenly highlighted and intensified, as they have been, is this the moment, as the noble Baroness, Lady Elliot of Harwood, has said, to consider withdrawal of our troops from Germany? I know they cost a lot of money. But can one pay too high a price for national security? And is not a war ten times more expensive?
I am sorry to keep on about Austria, but I feel worried about that country. We can, of course, do nothing, they
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being officially a neutral country. But Germany is different. There, we have a right, indeed a duty, to perform. We are to-day faced with this paradoxical situation. British troops are in Germany. What for?—to spearhead resistance to a possible Communist aggression. But now, suddenly, to my way of thinking, they have a new raison d'être, a new reason for being where they are. They have, I think, a watching brief over the Germansthemselves—not more than that, but I believe it is a brief of high importance. I, for one, at any rate, am glad that they are there, and, if only for this reason, I hope that they will long remain.
6.45 p.m.
THE EARL OF DUNDEE: My Lords, I think your Lordships have been greatly privileged in this debate to hear views on the reorganisation and the future of NATO of several of the greatest military authorities in the world who have had a good deal to do with the origin and development of NATO itself. I should like to assure the noble and gallant Field Marshal, Lord Montgomery of Alamein, that high military headquarters and field marshals are not the only people in the world who waste paper. Those of us who have had experience in Government offices know that a considerable number of other people do the same thing. I always used to find not only that the half of the papers which I did not read were not worth reading, but that practically the whole of the half that I did read were not worth reading either.
But I was particularly glad to hear the noble and gallant Field Marshal, who has sometimes caused doubts by his past expression of views about the withdrawal of British troops from Germany, say that in present circumstances he does not think this is an appropriate time to do so.
VISCOUNT MONTGOMERY OF ALAMEIN: My Lords, I did not say it was an appropriate time to withdraw the whole lot.
THE EARL OF DUNDEE: No, of course not.
The purpose of my noble friend Lord Harlech in moving this Motion was not necessarily to argue that it would never be a good thing in itself to reduce either our forces in Germany or the forces of NATO as a whole. His purpose was to

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obtain from the Government an assurance that we would not do that unilaterally, without observing the terms of the Treaty of Brussels and consulting with, and obtaining the agreement of, the other members of the Western European Alliance. I think that my noble friend' s object has been achieved, and that the noble Lord, Lord Shackleton, in his full and admirable speech, fully gave the assurance which was asked for, that we would not unilaterally make any reduction in forces, and also that we would not do anything precipitately or without consulting the Western European Union.
The noble Lord suggested that my noble friend had been guilty of some unfairness in the way he put his case, I will not go into that. What my noble friend, and what we all wanted to know was whether the speech of the Chancellor of the Exchequer of August 9 meant what it said. Because, with great respect, it was not obvious from that speech that unilateral action was not going to be taken; and it created great uneasiness, not only in our own minds, but in the minds of our friends in Europe. We are all the more glad to have the noble Lord's assurance this afternoon that it is not the intention of the Government to do what we feared this speech of the Chancellor might mean.
I also thought that the noble Lord gave a most satisfactory statement on both the history of NATO and its present purpose. So far as its present purpose is concerned, he made it clear—and he was supported in this by the noble Lord, Lord Morris of Kenwood, behind him—that in the event of a conflict the ground forces in NATO would not be able to sustain action for long, and that we should soon have to rely on the nuclear deterrent. It was interesting to hear the noble Lord and his noble friend behind him use this argument, and put it so well and so convincingly: because when we were in his place we had so often done this between 1957 and 1964, and we were always told by the Party opposite, when they were in Opposition, that we were wrong to rely to this extent on the nuclear deterrent, and that we must have much larger ground forces. The noble Lord is very lucky to have an Opposition which entirely agrees with him, instead of one which takes the opposite view.
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As for the history of NATO, again I think the noble Lord did well to point out what NATO has achieved. In 1950, even after the preliminary steps had been taken to form the Alliance, it seemed that Europe was at the mercy of Communist imperialism. NATO, as the noble Lord said, has succeeded in stopping that threat and has succeeded in building up a credible deterrent which, since it came into being, has prevented any further aggression in Europe, and, we hope, will continue to do so.
But I wish the noble Lord had gone on to connect the two things: what NATO had done so far with what he said about the ultimate objectives; that is to say, the eventual emergence of an effective international authority, which we hope the United Nations may one day develop into, and an international police force which would make it no longer necessary to maintain this great armed confrontation. I would say that the answer to that is that we shall begin to have some practical hope of an international authority and of disarmament just as soon as Russia is convinced that it is in her interest to agree to it. Russia will not agree to it, or will not believe that it is in her interest to agree to it, so long as there is any possibility of the disintegration or disarray of NATO. That is precisely why we are so concerned about the set-backs which NATO has had recently. In the long run, they will delay, and possibly prevent, nuclear disarmament and agreement to accept an international authority.
We are shortly to hear a speech from the noble Lord, Lord Chalfont, and I always sympathise with him in the admirable, patient and assiduous work which he is doing as Minister for Disarmament—work which is none the less admirable because, so far as one can see, it is likely to be fruitless for a very long time. But that is not the noble Lord's fault. It will continue to be fruitless until Russia believes that it is in her interest to make it fruitful. I put it to your Lordships that Russia will not arrive at that state of mind until the NATO Alliance in Europe and in the world is in such a position of security and strength and permanence that there will no longer he the least shadow of doubt in the mind of Russia that there is no chance of the defence

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of the West breaking up and falling into disarray.
I do not intend to widen this debate, but propose to bring it to a rapid conclusion. I will only say that the noble Lord. Lord Gladwyn—
A NOBLE LORD: The noble Lord has gone.
THE EARL OF DUNDEE:—who since he spoke appears to have become disembodied, was right in saying that our entry into the European Economic Community is the only way of preserving the Western Alliance and bringing about an East-West understanding, an understanding between the Communist and the Western European countries. It is true that political strength, economic strength and military strength all go together, and the Free World will not have the military strength and the economic strength to achieve our object until Britain is in the Common Market.
We greatly regretted, as several of your Lordships have said to-day, the two negative actions which the present French Government have taken, first in vetoing the British application to join the Common Market, and secondly in withdrawing her forces from the NATO organisation. The apparent reason for this is that the French Government are against too much dependence upon the United States, and none of us wants or advocates that we should be satellites or provinces of the United States. But it does not make sense in the twentieth century, when one is considering either defence or economic progress, to think that America can be excluded from the affairs of Western Europe. Suppose America had taken this line ten or twelve years ago. France would almost certainly by now have been a Communist satellite, like Czechoslavakia or Hungary or Poland, if it had not been for the shield of American protection which it was given even before the formation of NATO. Now that NATO is in being, its preservation, which we believe to be essential, cannot be secured without American participation. The word "integration" is used in a great many different senses and how much actual integration is necessary I would not say, but we must at least have interdependence with the United States politically, in military affairs, in all defence matters, and I hope commercially, too.
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I do not know what is the real explanation of the French objection to closer association with America and in the Common Market with ourselves. If it were the case that it was due to a selfish French obsession with their own interests against other people' s interests, it might perhaps be right to try to pursue an anti-French policy; but that is not the assessment I make of the position. It seems to me that the French have misjudged their own interests in these matters, that they are acting contrary to their own interests; because it seems to me that interdependence with America and the widening of the European Economic Community to include ourselves and EFTA are essential not only to our own interests, but also to the long-term interests of France, as of all free countries. And in many ways they are even more essential to the interests of France than to many other members of the Free World.
When you have a friend who is palpably and obstinately acting against his own interest, it does not usually do any good to attack him and abuse him with acrimony. The only effect of doing that is to increase his perversity. The best and wisest method of getting him to see reason is to help him and to be friendly with him in every way, and at the same time to reason with him intelligently—or remonstrate, if you like—patiently and without animosity. That is the attitude we should adopt towards France: because if we are right in this, if it is true that it is in the interests of France, as I firmly believe it is, to change her policy, to admit us into the Common Market, to admit some interdependence with America, then, in time, the French are bound to see it. We shall only delay that day by attacking them and abusing them. I think that our aim should be to cooperate with the French in every way: in military affairs, in commercial affairs and in industrial affairs, and that we should treat them with all friendship but, at the same time, continue patiently to tell the truth.
6.0 p.m.
THE MINISTER OF STATE FOR FOREIGN AFFAIRS (LORD CHALFONT): My Lords, if I may be permitted to preface my remarks with a brief personal note, and if I can do so without

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giving offence in some of those great international conferences which I have been attending in recent months, may I say how pleasant it is to be back in the urbane calm of your Lordships' House. We have had, as usual, a most valuable and interesting debate on an extremely important subject, and I for one—and I am sure I reflect the views of your Lordships when I say this—am most grateful to the noble Lord, Lord Harlech, for giving us the opportunity to discuss these affairs.
My noble friend Lord Shackleton has given an account of what has been taking place in NATO since this general subject was last debated in your Lordships' House in July on the Motion of the noble Earl, Lord Avon. There have been two main themes: first, the measures taken by the Alliance as a reaction to the action of the French Government in withdrawing from the integrated military organisation of NATO, and, of course, the changes which this action has brought about in the structure of the Alliance; and, secondly, the complex of issues, both strategic and financial, connected with the stationing of British and United States forces in Germany which we are now examining urgently with our Allies.
When I spoke in the debate initiated by the noble Earl, Lord Avon, in July I considered the wider purposes of the Atlantic Alliance with its role not only in the deterrence of aggression but in the perhaps even more important field of improving relations between East and West. Of course, this aspect is no less relevant to our debate to-day. In the defence field some of the developments which have taken place since we last debated the Atlantic Alliance and Britain's place in it can have an important effect, not merely on the cohesion and efficiency of the Alliance, but also on the prospects for easing the tensions in Europe and the Atlantic area.
The emphasis of much of this debate to-day has naturally been upon the possibility that Her Majesty' s Government might withdraw some troops from Western Europe. I suggest to your Lordships that this is not a matter which can be isolated from the wider considerations of Alliance strategy, or the whole concept of deterrence; and, as I have said, there are possibilities of relaxing the tensions
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which exist between East and West in Europe. Perhaps I might underline what my noble friend Lord Shackleton has said about this matter of British withdrawals, so that there can be no doubt left in your Lordships' minds. There can be no doubt of our willingness to bear our fair share of the defence of the Free World, but we cannot afford to let this burden become so heavy that it damages our economic health, on which in the end our very contribution to this common defence must rest.
In particular, we must eliminate the drain of foreign exchange caused by the stationing of British forces in Germany. The noble Lord, Lord Caccia, asked for some figures in this respect. I think my noble friend Lord Shackleton gave most of the significant figures, but I suggest that the really important ones contained in his speech are these. The foreign exchange cost of keeping our forces in Germany runs at the moment at £94 million a year. The latest offer of offset contributions from the Federal Republic of Germany is £31·5 million a year. This leaves a very large gap—a much larger gap than that mentioned by the noble Lord, Lord Gladwyn—although it is fair to say that the Federal Republic have said that they hope to make a better offer as a result of the tripartite talks which are now going on.
We hope very much that these talks with the United States and the Federal German Governments will end in a satisfactory solution of this problem. But if other means cannot be found for stopping our foreign exchange losses next year, we shall have no alternative but to propose reductions of our forces in Western Germany, as my noble friend Lord Shackleton has said, through the prescribed NATO and Western European Union procedures. Of course, if we are obliged to withdraw some of our forces from Germany, then those forces or their equivalent will continue to be earmarked for assignment to the North Atlantic Treaty Organisation.
Here it might be appropriate to refer to the impressive contributions of the noble and gallant Viscount, Lord Montgomery of Alamein, and the noble Lord, Lord Harding of Petherton. First of all, may I assure them both that Her Majesty's Government will bear their

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points very seriously in mind. Secondly, I can assure them that, whatever the level of British forces in Europe, we shall see that they are properly equipped and that they lack nothing which we at home can give them. I was much impressed with the view of the noble and gallant Viscount—perceptive and modest as always—that our problems are global and not regional. As he has so wisely suggested, security is indivisible; and, indeed, I would suggest that for the same reason we cannot separate this matter of conventional defence from the subject of nuclear defence and of deterrence as a whole.
One area in which deterrence and the easing of tensions are closely connected is this most important matter of nuclear defence and its impact—particularly its impact on disarmament negotiations. In this field Her Majesty's Government have two complementary aims. We want to see arrangements adopted in NATO by which the non-nuclear members of the Alliance can be more closely associated with strategic policy and planning. It is clearly right that these countries should have an effective voice in arrangements for the Western nuclear deterrent, on which in the end their security depends. At the same time, we believe that one of our most urgent problems in the whole field of foreign policy is to reach international agreement on a world-wide system of non-proliferation; that is to say, an agreement to prevent the further spread of nuclear weapons.
Since July events have moved in a way which enables me to tell your Lordships that the chances of agreement with the Soviet Union on this matter are as good now as any chance of agreement has been since 1963, when the partial Nuclear Test Ban Treaty was signed in Moscow. Your Lordships will know that during the course of this year NATO's nuclear arrangements have been studied in depth in the Special Committee of NATO Defence Ministers, sometimes called the McNamara Committee. When the Committee was established a year ago it set up three working groups; first of all, to examine the exchange of intelligence and other information; secondly, to look at communications; and, thirdly—and perhaps more important—to look at nuclear planning. The working group on intelligence has already submitted a report out-
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lining the procedures and machinery required to improve the existing arrangements. The communications working group has made detailed studies of the communications facilities which are needed to put these arrangements into effect.
But, to come to the heart of the matter, the nuclear planning working group, which has had four meetings of Defence Ministers, has studied the problems connected with the role of strategic and tactical nuclear weapons. Even more important—in the short-term, at any rate—it has agreed recommendations, which will be put to the North Atlantic Council when it meets next month, for permanent machinery for nuclear planning and consultations inside the Alliance. The next essential step is for a decision to adopt these recommendations to be taken by the North Atlantic Council at its forthcoming Ministerial meeting.
I might mention here the speech of the noble Lord. Lord Morris of Kenwood. He made, I thought, a most perceptive contribution to the strategic debate, and at the same time gave us a most interesting account of the proceedings of the Conference of NATO Parliamentarians which he attended in Paris earlier this month. His speech was evidence, if such evidence were needed, of the devotion of this body of Parliamentarians to the cause of the Atlantic Community and of the vitality which they show in pursuing it. Perhaps I may also be allowed to say that the speech of the noble Lady, Baroness Elliot of Harwood, was typical of that vitality. The recommendations adopted by that Conference, including the important proposal for the creation of a North Atlantic Assembly, will be considered very seriously indeed by Her Majesty's Government.
All this progress made in the committees of the North Atlantic Council is a heartening example of NATO's ability to make practical progress, despite all the other difficulties with which it has been faced, in a field which is of vital importance to the Alliance. This special committee, the McNamara Committee. has had the full support of Her Majesty's Government right from the outset, and I believe we can claim with some justification that the British contribution has been an important factor in the success

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of its work. But the adoption of effective arrangements for nuclear consultation in NATO not only will be important for the security and the solidarity of the Alliance: it will also have a significant effect upon the prospects, which I mentioned earlier, for agreement on a Treaty to ban the spread of nuclear weapons.
My Lords, I have never made any secret of my view that agreement between East and West on this matter of nonproliferation would be unlikely while the nuclear debate in NATO remained unresolved. Throughout the negotiations in the Eighteen-Nation Disarmament Committee a fixed and unalterable point of the Soviet position has been that there could be no agreement on non-proliferation if NATO adopted arrangements which would be such as to make possible what the Russians call "access" to nuclear weapons by the Federal Republic of Germany.
It might perhaps be appropriate here, now that I have come to the subject of the Federal Republic of Germany, to make some comment upon the remarks of the noble Viscount, Lord Bridgeman. I shall not follow him all the way along the road of home defence, except perhaps to say that the inter-Departmental jungle warfare to which he referred has not intensified notably in the last two years. I should, however, like to comment upon his remarks about the National Democratic Party in Germany. Although, as he and other noble Lords have said, in the light of past history it would be dangerous to dismiss the recent successes of this Party as being of no account, I think it is equally important that we see them in their proper perspective.
The main feature of the elections in Hesse and in Bavaria has in fact been the consistency with which the overwhelming majority of the electors has continued to support the main Democratic Parties. In Bavaria alone, this support, statistically, was of the order of 89·1 per cent., and both the S.P.D. and the C.S.U., the main Democratic Parties, actually increased their vote. If one takes into account the votes previously cast for other right-wing Parties, the real increase in this extremist vote is of the order of only about 1 per cent.; and it is, I suggest, quite misleading, on the basis of these results, to talk of a neo-Nazi revival or to draw any
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comparison between the situation in Germany now and the situation in the 1930s.
The Nazi Party, as we all know, came to power on the basis of profound disillusionment among the lower middle and working classes with constitutional government, produced by a long period of economic collapse and widespread unemployment. To-day the economic situation in Germany is the reverse of what it was in 1933, and the merits of German Parliamentary democracy are not questioned by any significant section of German opinion. I can understand that there may be concern about recent developments, but exaggerated interpretations and comparisons with the past can really do no good; and I must really express regret, my Lords, that it has been suggested in your Lordships' House that Germany, one of our partners in the Western Alliance, is a potential enemy. Such extreme language can scarcely contribute to the cohesion of our Alliance or the sureness of our defence.
THE EARL OF ARRAN: My Lords, may I interrupt the noble Lord at this point and say that almost exactly the same remarks were made in 1937, in the House of Commons?
LORD CHALFONT: I shall not follow the noble Earl any further along this path. Let me, instead, return to the point which I was making when I broke off to mention the question of the National Democratic Party in Germany—that is to say, the attitude of the Soviet Union towards the Federal Republic of Germany, and this question of what the Russians call "access". to nuclear weapons. It would not be too profitable to speculate on the motives of the Soviet Government in holding to this position, despite the constant assurances they have received from the Western side that there was no intention in NATO of giving any non-nuclear member of the Alliance control of nuclear weapons or the right or ability to initiate the use of these weapons. I think it is probably fair to say that among Russian motives was a belief in the minds of Russian negotiators that by holding firmly to this extreme position they might be able to affect the course of NATO'S deliberations.
Now, however, as I have indicated, there are signs of a much greater degree

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of flexibility in the Soviet position. My right honourable friend the Foreign Secretary discussed all this with Mr. Gromyko in New York last month, and again in the last few days during his visit to Moscow. As a result of these discussions, I believe, as I have said, that there may now be a real chance of agreement on a non-proliferation treaty, but the prospects are delicately balanced, and we must take care to ensure that this chance is not lost by any lack of flexibility in our own position.
May I now turn to the specific question of the possibility of reductions in conventional or ground forces? I think we must be careful not to take too narrow or too one-sided a view of this matter. One of the ways in which I think we must try to go forward—and this has been mentioned already—is to make progress towards what is sometimes called regional arms control; that is to say, the regulation of the size and the nature of the forces that face each other across the Iron Curtain. As I said in our debate in July, arms control measures can never be considered in isolation from the political background, and any real progress in arms control will be achieved in the end only if the political problems between East and West are tackled as well.
This does not mean that no progress is possible until the political problems have been solved. The two strands, the political and the military, are closely interwoven. But one possibility which is very relevant to to-day' s debate, and which is, I think, worth very careful examination, is the possibility of balanced reductions of the massive forces maintained by NATO and the Warsaw Pact countries in Europe; and the noble and gallant Viscount, Lord Montgomery of Alamein, made a very lucid and impressive reference to this.
Obviously, it would not be realistic at this point to start talking about the dismantling of alliances. An effective system of deterrence against aggresion is still needed, but I believe that we should examine the possibility of maintaining that balance of deterrence at a much lower level. In this concept I believe we shall find a road that will avoid the trap, referred to to-day, which lies in treating our commitment in Europe as an exclusively financial or economic matter. The economic burden of deterrence is enor-
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mous. The House is well aware of the effects on the economy of this country of the foreign exchange burden of our contribution to the common defence of NATO; and my noble friend Lord Shackleton has described the efforts we are making, together with our Allies, to solve this problem.
I think it is obvious that a mutual reduction of the armies which face each other across the artificial dividing line in Europe would make it possible for resources now devoted to defence to be released for more productive purposes. Everybody would stand to gain from this. Most important, such a move would help to create what President Johnson (in a speech referred to by the noble Lord, Lord Caccia) recently called "a new political environment". It would pave the way to a further relaxation of the tension which, as I have said, still unhappily exists in Europe.
My Lords, how could such a process be set in train? Ideally, perhaps, by formal agreement between NATO and the Warsaw Pact. But this would raise formidable difficulties—and my experience of disarmament negotiations over the past years has taught me, at least, that the problems of inspection and verification would be likely to raise insuperable barriers to any agreement. And, of course, tied up with that is the status of East Germany. There is, I believe, another possibility. We in NATO are not only interdependent with our Allies; in a very real sense NATO and the Warsaw Pact are interdependent with each other. Any reduction of forces by one side might provide an incentive for a corresponding reduction by the other; and in time this could lead to a progressive process of force reduction by both sides by means of the process that Mr. Khrushchev used to call "mutual example".
Obviously, there would be difficulties; obviously, there would be risks, and we must be in no doubt that an essential condition of any process such as I have described would be that the overall military balance between NATO and the Warsaw Pact should be preserved at every stage in the process. For this reason, if for no other, any such moves would, of course, have to be a matter for the fullest consultation among the Allies. But something like this, I believe, may

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well hold out the best prospects for movement towards a more stable and more sane situation in Europe. We must not be afraid if we are creating a new climate to take steps that might appear, in the familiar context of the cold war philosophy, to be, on the surface, short-term risks.
My Lords, I have discussed some of the ways in which the security of the Atlantic area might come to be enhanced through a reduction of the tensions which have called into being this massive system of common defence and deterrence to aggression. In the long run, only a settlement of the political issues which divide East and West can give us a lasting guarantee of peace and security. Meanwhile, the need for an integrated military system for the collective defence of the NATO area remains essential. Her Majesty's Government are determined that we shall continue to contribute to that common defence to the limits of our ability.
I spoke at some length in the July debate on NATO on the question of East-West relations. The whole complex of relations between countries which the term"East-West" 'implies is not, of course, a static thing. It is developing steadily every day with increased bilateral contacts—not only with the high-level political exchanges such as the recent visit of the Foreign Secretary to Moscow but, just as important, with the steady increase in trade and in exchanges in the educational, scientific and cultural fields. It is often on such unspectacular things as trade that the spirit of co-operation and trust can slowly be built. The Warsaw Pact countries in their recent Bucharest Declaration called for increased contacts between the East and the West—they obviously want this, too. I think this is a significant illustration of the fresh thinking which is now going on all over Europe and which is beginning to turn the jaded concept of the cold war into something like a cold peace.
There is much, of course, that we cannot accept in that Bucharest Declaration. This is only to say that there are many fundamental differences between us and the countries of Eastern Europe. But there are also opportunities open to us that did not exist a year ago or two years
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ago. On the one hand, we must explore these opportunities imaginatively—and I have particularly in mind the possibilities of limited measures of arms control; for the countries of Eastern Europe have shown an increasing readiness recently to discuss these on practical constructive terms. On the other hand, we in the West—and that means, ultimately, NATO—must maintain our strength and cohesion without which we shall never be equipped to negotiate the vast problems that remain for settlement.
Our security is indissolubly linked with that of Western Europe. The announcement of the Government's intention to approach the members of the E.E.C. with a view to joining the Common Market shows that we wish our future to be even more closely bound up with Western Europe; but we should be on our guard against relating the Common Market question too closely with the problems of defence. For example, to say that there are advantages in becoming a member of the E.E.C. does not imply that we wish to change our relationship with the United States in the field of defence. Nor does it imply that we wish to abandon the role that we play in the world outside Europe. We believe that, just as the commitment of the United States is essential to the defence of Europe, so the establishment of peace and stability both in Europe and the world at large involves the closest ties between Europe and the United States.
Let us be clear that whatever may be our commitment to the defence of Europe—and it is a deep and lasting one—our eventual aim is the establishment of a sane and civilised world order in which military alliances no longer have any part to play. I am delighted to hear that the noble Earl, Lord Dundee, is in sympathy with this view. This country is uniquely placed to contribute to these objectives, and we shall play our full part in attaining them, however long and however frustrating the road may be.
6.29 p.m.
LORD HARLECH: My Lords, I think we have had a most useful debate. Certainly we have had two most informative speeches; one from the noble Lord, Lord Shackleton, and one, just now, from the noble Lord, Lord Chalfont, whom we welcome back to our counsels after his

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stay at the United Nations. In his speech he touched on certain matters which are certainly close to my heart in the field of disarmament and arms control. I think we can take some encouragement from some of the things he said. He has come back from the United Nations, where he played his part in achieving a most massive vote in favour of a notable Resolution on the non-proliferation of nuclear weapons. We have also had contributions from three very distinguished soldiers.
Earlier in the debate the noble Lord, Lord Shackleton, accused me of being somewhat unfair in my opening speech. I would certainly accept a charge of being somewhat provocative; that was not altogether unintended. I think that in reply the noble Lord was prepared to admit that the Government, in some of their statements in July and August of this year, were perhaps somewhat blunt. At least we elicited from the noble Lord, Lord Shackleton, an important statement about the present attitude of the Government to the withdrawal of British forces
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from Europe. He made absolutely clear that there would be no action on withdrawal which had not been previously agreed with our Allies and particularly with the other members of the Western European Union. The noble Lord also made clear that, in considering the future level of British forces in Europe, due regard would be paid to the defence and the political factors and that the matters would certainly not be judged solely on financial factors. As I say, my Lords, I think that this has been a valuable debate. I am most grateful to all noble Lords who have taken part in it, and I now beg leave to withdraw the Motion.
Motion and Papers, by leave, withdrawn.

HOUSE OF LORDS OFFICES
Second Report from the Committee made, and to be printed.
House adjourned at twenty-eight minutes before seven o'clock.